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A Patent War Is Breaking Out On The Hill

In 2001, when Peter Detkin was assistant general counsel for Intel (INTC), he coined the term "patent troll" to describe companies that game the system by snapping up critical bits of technology, then shopping for settlements from companies that might be infringing on the patents. Now Congress is working to get trolls off the streets, but Detkin fears that innocent bystanders -- including his new company -- might be swept up in the dragnet. As managing director at Intellectual Ventures, a Bellevue (Wash.) firm that invests in inventions, Detkin is tangling with his former employer in a lobbying war that has split the business community. On his side are venture capitalists, biotech, and Big Pharma. On the other are longtime foes of patent trolls, including such giants as Intel, Microsoft (MSFT), Visa, Kodak (EK), and Oracle (ORCL). "There's no question that there are entities gaming the system," Detkin says, "but the problem is not as big as high tech would like you to think."

"Abusive Litigation"

High tech thinks it's enormous -- and it's mounting a massive power play on Capitol Hill to reform patent laws. Tech and financial-services companies are rallying behind the Patent Act of 2005, introduced on June 8 by Representative Lamar Smith (R-Tex.), chairman of the House judiciary subcommittee on intellectual property. The bill would make it easier for big companies to challenge the validity of patents -- and tougher for patent holders to win permanent court injunctions that keep allegedly infringing products off the market. The goal, says Microsoft General Counsel Brad Smith, is to curb "abusive litigation" that can shut down a product line.

Credit-card companies and banks are particularly eager to add a measure that would push more infringement claims into a federal appeals court with patent expertise. That would make it tougher for patent owners to squeeze heavy tech users -- such as ATM networks -- that they claim infringe on their ideas. Now, "all [patent holders] need to do is threaten to litigate, and a financial-services company is forced to pay whatever fee they want" or face shutting down an entire ATM or credit-card network, says Andrew Barbour, a vice-president at the Financial Services Roundtable. "It's essentially ransom."

Critics of the bill maintain that it could handcuff legitimate inventors. Under proposed "reforms," they say, big companies could simply buy their way out of infringement complaints. That means innovators might be forced to share ideas or advances with anyone who writes a check. Inventors say that would deny them the chance to sell exclusive rights. "It's tantamount to compulsory licensing," says Segway inventor Dean Kamen.

That's particularly frightening to drug and biotech companies. Unlike computer and software makers, Big Pharma and biotech depend on a few blockbuster innovations. "If someone trespasses on our property, we want to be able to evict them," says Charles Lucas, general counsel of the Biotechnology Industry Organization. "We don't want the court to say: 'Sorry, but they can pay a little rent and stay in your house."'

As this war heats up, all combatants are hiring lobbyists and appealing to a divided academic community for backup. With billions of dollars in property rights at stake, it's a fight neither side can afford to lose.

Big media is counting on the new chairman of the Federal Communications Commission, Kevin Martin, to patch up the consolidation mess left behind by his predecessor. But a split in the industry is complicating Martin's efforts to calm the firestorm created by former FCC boss Michael Powell's push to unfetter media owners.

The Supreme Court drove a stake through Powell's plans on June 13 when it let stand a lower court ruling that the FCC had not adequately justified its rules loosening media ownership restrictions. Many lobbyists expect Martin first to tackle cross-ownership of newspapers and local broadcast stations, then move on to rules allowing broadcasters to own more than one TV station in a market.

That approach is fine with companies involved in both print and TV, such as Tribune (TRB) and Belo (BLL). But local TV owners such as Lin TV (TVL) and Sinclair Broadcast Group (SBGI) would rather see the multistation rule move first. They fear opposition to cross-ownership could deplete the FCC's political capital before the agency gets to their issue.

Terrorism is driving up Big Business' insurance premiums -- but it isn't getting much in return. A new Rand Corp. study shows that policies often don't cover domestic incidents and never insure against damage from weapons of mass destruction. In all, less than half of potential losses are insured, Rand says. The study, backed in part by the insurance industry, is likely to fuel calls for Uncle Sam to continue providing terrorism reinsurance, a role set to expire at yearend.

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