Patent System's Revamp Hits Wall - WSJ.com

Patent System's Revamp Hits Wall - WSJ.com:

Globalization Fears Stall
Momentum in Congress;
AFL-CIO Sends a Letter

By GREG HITT
August 27, 2007; Page A3

WASHINGTON -- A bipartisan effort in Congress to overhaul the patent system -- a priority for some of the nation's biggest technology companies -- is hitting resistance because of concerns the U.S. might be exposed to greater foreign competition.

Patent overhaul appeared to be on a fast track earlier this summer. But plans for a quick vote got derailed last month after the AFL-CIO entered the debate, warning that innovation -- and union-backed manufacturing jobs -- might be at risk if the changes were adopted. The union has considerable clout in the Democratic Congress and expressed concerns with provisions that would expose patents to expanded challenges and might limit damages for infringement.

"At a time when the Chinese government is constantly being challenged to live up to its intellectual-property obligations, we do not want to take actions that may weaken ours," the AFL-CIO's legislative director, William Samuel, said in the pointed missive that was circulated on Capitol Hill.

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The sweeping patent initiative -- backed by a business coalition dominated by technology companies such as Cisco Systems Inc. and Microsoft Corp. -- would indeed shift the balance of power of the U.S. patent system. It would make it a bit harder for holders to protect patents. Advocates of the legislation contend the current system encourages patent litigation and costly judgments against infringers -- and stifles innovation. They say the proposals are designed to bring patent rules in line with the rapidly changing U.S. economy, where inventions often reflect hundreds of potentially patentable ideas.

Mark Chandler, Cisco's general counsel, dismissed concerns that non-U.S. companies might gain some advantage by the bill. He said the proposed changes would strengthen companies at "the heart of innovation in the American economy," better positioning them to compete at home and abroad.

Opponents of the legislation argue that it would make it easier for foreign competitors to legally copy patented methods and products.

The maneuvering dramatizes how fears about global integration are spreading across many issues.

Such concerns have placed in doubt prospects for President Bush's trade agenda, including market-opening deals with Colombia and South Korea. Renewal of the president's authority to negotiate deals appears even more remote. Democrats in Congress are pushing to shore up programs that help workers who lose their jobs as a result of foreign competition.

The angst about globalization also helped fuel opposition to an immigration-overhaul bill that would have opened a path to citizenship for millions of undocumented workers. It has led Congress to enact rules governing foreign investments in the U.S.

The spillover of those worries into the patent debate "shows the breadth of the concerns about this model of globalization," says Lori Wallach, who heads Public Citizen's Global Trade Watch, an advocacy group critical of the Bush agenda. "It's not just trade agreements any more."

Calls for changes in the patent system have been building for some time and gained traction after Democrats took control of Congress this year. In both the House and the Senate, bipartisan coalitions emerged to take up the issue. And the initiative, with the help of some savvy lobbying by business supporters, appeared on track for passage, despite the partisan-charged political environment on Capitol Hill.

The patent initiative, which has been pushed by the financial-services industry, as well, took an important step forward in July. Both the House and the Senate judiciary committees approved broadly consistent bills.

The White House made clear it was also on board. While raising concerns about some details of the legislation, the Bush administration has offered general support for "the goals" of the initiative.

But the labor-driven pushback gave Democratic leaders pause about rushing action on the legislation before lawmakers left town for the August break. Floor votes in the House and Senate are expected this fall.

From the beginning, the legislation has faced opposition. Pharmaceutical and biotech companies have voiced concern. So have large research universities and many manufacturers, such as Caterpillar Inc. and Dow Chemical Co. They contend that the legislation is too far-reaching and would stifle innovation by weakening the value of patents.

Then came the AFL-CIO. Leaders of the United Steelworkers union and the International Federation of Professional and Technical Engineers, which represents high-tech workers, offered similar concerns. The legislation "could seriously threaten our nation's competitive edge in industries that rely on innovation," Gregory Junemann, president of the engineering group, warned lawmakers in another letter.

At about the same time, criticism with a strong antiglobalization bent began to emerge among rank-and-file lawmakers in both parties. In late July, Reps. Michael Michaud, a Maine Democrat, and Donald Manzullo, an Illinois Republican, circulated a "Dear Colleague" letter noting "foreign competitors" welcomed the legislation. The letter was accompanied by an overseas newspaper story noting that pharmaceutical companies in India saw the legislation as an opening to break patent rights on brand-name drugs and gain an edge in the U.S. market.

"We just couldn't believe it" Rep. Manzullo said. "This is a very serious problem."

Eventually, more than 60 House members joined in an appeal to House leaders in both parties not to rush action. The request echoed of the same language used by the AFL-CIO: "It is especially important that these proposals not undermine our efforts to achieve better intellectual property protection for U.S. companies overseas, particularly in China and India."

Amid the concerns, House leaders backed off of tentative plans to run the measure through the floor before lawmakers left town for the summer.

Rep. Howard Berman, the lead sponsor of the legislation, said it is "hard for me to understand" why the legislation is being seen as hurting the nation's competitiveness. "To the contrary," he says, "it is the weakness and abuses of the current system that are impeding American innovation." The California Democrat predicted the measure will be brought up in September and win approval in the House.

Write to Greg Hitt at greg.hitt@wsj.com

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