UPDATE: Obama Administration Backs Proposed Changes To Patent System

President Barack Obama's administration supports major changes proposed in landmark patent legislation, likely accompanied by a roughly 15% fee hike, U.S. Patent and Trademark Office Director David Kappos said Tuesday.

"While a compromise, it clearly moves the ball forward," Kappos said of the bill, which if approved would bring the first major changes to the patent process in 50 years. On Monday, Commerce Secretary Gary Locke wrote a letter to the Senate Judiciary Committee expressing support for the Senate legislation.

The bill, introduced by Sen. Patrick Leahy, D-Vt., pushes to harmonize the U.S. patent process with international standards and grants the patent office more authority to make rules and increase fees.

Congress will also have to grapple with the patent office's $200 million revenue shortfall, which Kappos said may be dealt with by raising fees an estimated 15% as an interim measure.

"As someone who until recently was on the other end of paying those fees, I fully understand what this means," said Kappos, who formerly was the head of intellectual property at International Business Machines Corp. (IBM). "It's a significant ask on the part of the intellectual property community."

To help reduce the growing number of patent lawsuits, the bill includes a "gatekeeper" provision that permits challengers to try to claim damages in court only if they have substantial evidence.

Forged as a compromise by the Senate Judiciary Committee, the provision lays out a fair process for contesting patent rights, said Gary Griswold, chairman of the Coalition for 21st Century Patent Reform, which represents manufacturers and researchers including 3M Co. (MMM), Caterpillar Inc. (CAT), General Electric Co. (GE) and Eli Lilly & Co. (LLY).

"It doesn't allow either party to come in with some damage theory without substantial evidence," Griswold said.

The administration opposes one major piece of the bill that would require patent examinations to be performed in the U.S., Kappos said.

"It really ties our hands," he said, noting that an estimated half of the office's workload comes from overseas applicants. The patent office needs to be able to work with foreign patent offices if it wants to make headway in reducing its backlog, he said. At the end of the 2008 fiscal year, the patent office had yet to review more than 770,000 applications.

And as part of meshing the U.S. patent system with international standards, the bill proposes switching from a "first to invent" system to a "first to file" system that grants the patent to the first person to successfully complete the necessary paperwork.

"It's a much simpler approach," said David Tennant, an intellectual property partner at White & Case LLP. Identifying the first inventor often involves long and expensive debates, he said.

The change could save money both at the patent office and in court. "If there's ever a dispute, you look at the filing date and it quickly resolves it," Tennant said.

- By Kristina Peterson, Dow Jones Newswires; 202-862-6619; [e-mail]