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When IT giants clash with the pharma industry

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June 11, 2008 13:06 IST

Old jungle saying: when giants fight the small ones take to their heels. New maxim: when the Titans of industry clash, the lawmakers run for cover.

That's the lesson from the US where the first serious attempt in 50 years to overhaul the country's patent system has ended in a whimper after the Senate took this important piece of legislative off its calendar last month.

The divisive Patent Reform Act of 2007 which would have brought some sanity into the increasingly chaotic American system of rewarding innovation has been effectively put in cold storage – barely a year after it was introduced in Congress.

The bill got past the House of Representatives in September last year but turned too hot for the Senate to handle as the corporate lobbying became intense. It pitted industries against each other – high-tech IT and financial services against the pharmaceutical, biotech companies and venture capitalists –and also saw the battle lines running across segments of industry. It also dragged in venture capitalist and labour unions into the melee.

Should we be concerned about what is happening to the patent regime in the US? Indeed, we must since the American system of rewarding innovation has been held up for long as an example to the world, not least to India, which has of late been at the receiving end of its laws.

The most important focus of Patent Reform Act of 2007, according to its champions, was the focus on improving the quality of patents since far too many patents are being granted without due care, resulting in an ordinate pile-up of lawsuits for damages for patent infringement.

Thus, the bill aimed at making patents more difficult to get, while ensuring that it would become easier to challenge them. Coupled with this, patent holders would find it tougher to file lawsuits for infringement of patents.

You could argue that this would usher in a more liberal patent regime but such a view would depend entirely on the perspective of different industries involved.

If you were from the high-tech industry that is being plagued by an annoyingly high number of lawsuits then obviously you're going to say this is exactly what the system needs.

On the other hand, if you are a big pharma company, then the reform bill was not good news at all. Unless the industry is assured of patent protection there would be no incentive to pump in billions of dollars into developing their products, they claim.

In fact, the controversial issue of damages for infringement is what appears to have torpedoed the reform bill.  But look at the other side.

Patent reform has been backed mainly by high-tech companies which have been increasingly dragged to court over patent infringement in recent times.

The trend has been rather disquieting according to the Coalition for Patent Fairness which says that patent litigation has shot up by 30 percent in 2007 compared with the previous year.

A major problem is the increasing number of business method patents that is being granted by the US Patent and Trademark Office — up from 120 in 1997 to 1,330 in 2007.

The coalition is a group of over 150 high-tech and financial services companies and includes the major banks. It had lobbied heavily for the bill but proved ultimately to be no match for the other group which was a nothing short of a rainbow coalition.

It includes all the big guns of the pharma and biotech industry backed by some powerful venture capital interests, electrical and electronics engineers, manufacturing associations and the most powerful trade unions in the country.

I must confess that I find the support of the last group rather difficult to understand but for whatever reasons, their weight must have helped to swing the result in their favour. Patent reform in the US is on hold indefinitely.

Carlos Gutierrez, the US secretary of commerce, who lamented the withdrawal of the law, says it was "the most consequential but least heralded pieces of legislation affecting our economy".

Intellectual property, it appears, is valued at $5.5 trillion or a cool 40 percent of the US economy and employs 18 million Americans in "good high-paying jobs, not just in Silicon Valley but around the country". That's a lot riding on IP in the US.

Latha Jishnu