How Arbitration Can Cool Patent Disputes

Tweet

A patent sometimes isn't worth the paper it's printed on. Instead of protecting against competitors, it may result in costly court fights as a company sues infringers and, in turn, defends itself against legal challenges. Entrepreneurs and small inventors are among those who can least afford the lawyers' bills.

Some relief may be in sight. The U.S. Patent Office authorization bill for fiscal 1983 (HR 6260) contains an amendment allowing patent disputes to be settled by arbitration, when both parties are willing. Although this option has saved millions of dollars in legal expenses for contestants in other types of litigation, federal courts until now have disallowed arbitration in patent cases. The main reason has been that such settlements could set inappropriate precedents in future cases involving the same patent.

"The judges have [traditionally] said, in effect, that patent validity is so important that it should be reserved for the courts," says Harry F. Manbeck Jr., general patent counsel for General Electric Co., who recently testified in favor of the amendment before the House Judiciary Subcommittee on Courts, Civil Liberties, and the Administration of Justice. Rep. Tom Railsback (R-Ill.), the provision's sponsor, solved the precedent question by specifying in the bill that such settlements would carry "no force or effect on any other person."

In arbitration, contending parties hire a referee, present their arguments, and agree to abide by the findings. The referee's decision carries the force of law and can't be appealed. "Corporations will probably want to slug out big patent disputes in court," Manbeck says. "But in matters involving smaller dollar amounts, I expect to see arbitration used quite a bit."

Backers of the amendment include the American Bar Association's patent, trademark, and copyright section, the patent council of the U.S. Chamber of Commerce; and the Patent Office itself. With no organized opposition, the measure is expected to pass and be signed into law.