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Analysis: Little relief seen as U.S. finalizes patent reform

By Diane Bartz

WASHINGTON (Reuters) - Congress is tantalizingly close to passing patent reform that President Barack Obama has hailed as an economic booster, but the legislation is expected to do little to divert money away from patent litigation and toward innovation.

The Senate will vote on September 6 on whether to take up a patent reform bill passed by the House of Representatives in June.

Senate passage seems possible that same week given that the Senate approved a similar bill by an overwhelming margin in March.

The legislation would come just weeks after Google Inc agreed to pay $12.5 billion to buy Motorola Mobility Holdings Inc -- scooping up a trove of 17,000 phone-related patents to defend against infringement lawsuits in its Android operating system.

But high-tech companies, which have been the driving force for patent reform, would get little relief from the legislation that has been watered down to gain support.

"The tech sector wanted patent reform to offer alternatives to litigation. Instead, they have extensions of the patent process itself. That's fine for other industries, but not for tech," says Brian Kahin of the tech trade group Computer and Communications Industry Association.

The bill would allow the U.S. Patent and Trademark Office to set its own fees, in the hopes that it would be able to clear a years-long backlog of patent applications.

The measure would also create a post-grant review process to allow challenges to bad patents, and would grant patents to the first inventors to file, rather than requiring inventors to show they were the first to develop an innovation.

But companies still feel that they need ammunition to stem the flood of legal challenges, which is why tech companies like Google, Apple Inc and Microsoft Corp have spent billions of dollars to protect their products.

"How many jobs could have been created with all this money? This is a large waste. I'm sure Google would rather be spending the money doing things, instead of buying patents," said Daniel Ravicher, who heads the Public Patent Foundation and is a critic of patent reform.

PATENT LITIGATION NUMBERS GROWING

There were 2,296 patent lawsuits in 2000 in district courts. That number rose 23 percent to 2,833 in 2010 and is on track to hit 3,000 this year unless the economy declines again, said Joshua Walker, head of LexMachina, which tracks patent litigation.

In addition, the number of defendants per lawsuit has risen -- from an average of two in 2000 to three in 2010.

The stakes are high in patent litigation. In 2006, Research in Motion Ltd was facing a potential court-ordered shutdown of its BlackBerry system before finally settling a long-running patent dispute.

There is some hope that the pending legislation could make a small dent in the growth of patent litigation.

Some tech industry experts believe that a better-financed, better-run patent office which issues fewer bad patents would eliminate a percentage of lawsuits. Half of the patents challenged in court now are invalidated, says Ravicher, which means they never should have been issued.

But reforming the patent office will not likely be enough to reverse the legal trends.

"We're going to see more litigation not less. For example, 2011 is looking like it's going to be the biggest patent litigation year on record," said Walker. "I don't think the patent reform bill will slow that."

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