By Donald Zuhn —

For almost two hours this morning, the Senate Judiciary Committee heard testimony regarding its efforts to reform U.S. patent law.  Not surprisingly, much of the discussion at the hearing focused on Section 4 of the Senate patent reform bill (S. 515), which concerns damages.  The damages provision of S. 515 (like that of S. 1145, which stalled in the Senate last spring) requires a court to choose from among three methods to be used in calculating a reasonable royalty:  (1) the entire market value of an infringing product (when the claimed invention's specific contribution over the prior art is the predominant basis for the infringing product's market demand), (2) an established royalty based on marketplace licensing, or (3) the portion of the economic value of the infringing product or process properly attributable to the claimed invention's specific contribution over the prior art (when neither of the first two methods applies).

The hearing's focus on the damages section was expected given the debate over the damages section in the 110th Congress.  In addition, on the same day that the new Senate bill was introduced, Senator Orrin Hatch (R-UT) noted that Congressional leaders "agree that more work needs to be done on the damages and inequitable-conduct provisions," and in a letter to Committee Chairman Patrick Leahy (D-VT), Senator Arlen Spector (R-PA) requested that the Senate wait until late May to act on S. 515 in order to give the Federal Circuit an opportunity to hear argument on an important damages-related case.

At today's hearing, the Committee heard testimony from six witnesses:

• Steven Appleton, Chairman and CEO of Micron Technology, Inc. (Mr. Appleton's testimony);
• Philip Johnson, Chief Intellectual Property Counsel for Johnson & Johnson (Mr. Johnson's testimony);
• David Kappos, Vice President and Assistant General Counsel of Intellectual Property Law and Strategy for International Business Machines Corp. (Mr. Kappos' testimony);
• Taraneh Maghamé, Vice President of Tessera, Inc. (Ms. Maghamé's testimony);
• Herbert Wamsley, Executive Director for the Intellectual Property Owners Association (Mr. Wamsley's testimony); and
• Mark Lemley, the William H. Neukom Professor of Law at Stanford Law School (Prof. Lemley's testimony).

Following statements from each witness, Committee members spent the latter half of the hearing questioning the witnesses.  Senator Spector (at right) highlighted the divide on the damages issue when he asked the witnesses to succinctly summarize their positions regarding an acceptable damages provision, and the witnesses responded by providing a range of different methods.  Mr. Appleton found an apportionment of damages method to be the best approach.  Mr. Johnson favored a method in which damage calculations were based on the increase in product value attributable to the invention, noting that more than one of the Georgia-Pacific factors normally needs to be considered when determining damages.  Mr. Kappos argued for the "essential features" standard of Quanta Computer, Inc. v. LG Electronics, Inc.  Ms. Maghamé believed that a gatekeeper approach, in which the court determined the Georgia-Pacific factors to be considered by the jury, was the proper method.  Prof. Lemley asserted that damage calculations should be based on the value actually contributed by the invention, and argued that something more than a gatekeeper approach was needed.  Mr. Wamsley, noting that four of the other five witnesses worked for IPO members, dodged Senator Spector's question by saying that there were "no magic words."

Senator Dianne Feinstein (D-CA) (at left) expressed concern as to how the bill's current damages provision would impact a number of industries in her state, including the biotech industry.  She said that no one industry "should rule the roost" with respect to the damages issue, and contended that the damages language in the Senate bill "needs to be reworked."  The Senator proposed codifying the Georgia-Pacific factors, which she found to be "excellent," and supported the gatekeeper approach for damage calculations.  Absent reconciliation on the damages issue, Senator Feinstein stated that she would not be voting for the bill.

Senator John Kyl (R-AZ) also questioned the witnesses regarding the damages provision, and asked Mr. Kappos to provide citations to any cases that applied an essential features standard when calculating damages.  (Senator Kyl noted that his own staff was unable to identify any such cases.)

Senator Leahy closed the hearing by thanking the witnesses and informing (warning) attendees that "there will be new patent legislation" this year.

For additional information regarding this topic, please see:
• "Senator Specter Seeks Resolution of Issues before Vote on Patent Reform Bill," March 5, 2009
• "Senate Judiciary Committee Releases Witness List for Patent Reform Hearing," March 4, 2009
• "Senate and House Introduce New Patent Reform Legislation," March 3, 2009