Jun 27, 2014

Speaking Truth to Patents: The Case for a Better Patent System

                            Speaking Truth to Patents: The Case for a Better Patent System

Deputy Under Secretary of Commerce for IP and USPTO Deputy Director Michelle K. Lee

Speaking Truth to Patents: The Case for a Better Patent System

Stanford Law School

June 26, 2014

Remarks as Prepared for Delivery


Thank you, Professor Malone, for that kind introduction. And I want to also thank Stanford Law School, the Program in Law, Science, and Technology, and the Juelsgaard IP and Innovation Clinic for the invitation to speak here today, as well as the Silicon Valley IP Law Association for co-sponsoring this event. Last but not least, thank you all for coming today. 

It’s an honor and a privilege to be back here, and to be speaking in the same lecture hall where I first learned about intellectual property law from Professor Goldstein more than a few years ago. Stanford is where I took the path less traveled for an engineer and became a patent lawyer, so it’s a fitting place to reflect upon my first six months as head of the United States Patent and Trademark Office.

This is an exciting time to be involved in intellectual property law and policy, for a number of reasons: the growing importance of intellectual property to our economy, the continuing implementation of the America Invents Act, and the increasing awareness of abusive patent litigation, and the public and private efforts to combat it. 

But before I address the specifics, I want to take a step back and take stock of where we are now. 

When I graduated from this law school, the Federal Circuit was still relatively new, and patent law was the province of a handful of specialists who practiced in patent boutiques, not general practice law firms. Engineers like me were much more likely to think of medical school, business school, or a PhD program, rather than law school. 

And even within the legal universe, patent law was treated like a faraway planet with an eccentric orbit—the two rarely came into contact. And the citizens of “Planet Patent” might as well have been aliens to everyone else in the legal universe. 

During this time, patent law received little scrutiny from higher courts and generalist lawyers, much less the general public. It was a cozy world, where people knew each other personally and often shared similar policy positions. Patent issues were discussed only in specialist trade journals and certainly not in the mainstream press. Presidents tended not to talk about patents in their State of the Union addresses, and the Supreme Court rarely heard patent cases.

Since then, much has changed. 

As innovation generally, and patent-protected innovations more specifically, have become well-known drivers of the nation's economy, what used to be a quiet corner of the law has become quite a busy place. The Supreme Court regularly hears patent cases, and big, general practice law firms now vie to build their patent prosecution and patent litigation practices. And the increased prominence of patents in our society means that there are not only more people at this previously quiet corner, but there are a broader range of stakeholders than ever before.

As the patent world has grown, the quality of conversation within it has changed. In general, more conversation is a good thing, but an increasingly divisive tone is not. Today, you routinely hear of stakeholders labeling each other as "pro-patent" or "anti-patent", though it is far from clear what those terms mean. They add nothing to the conversation other than an easy way to label someone with whom we disagree. 

Moreover, some harbor a mistrust of recent arrivals to the patent universe, a kind of intolerance that suggests there is no place for them in the conversation. Yes, there are some industries that are new to the patent world, but that’s because they are new to the world, period—and people who favor innovation should also favor their inclusion. Let’s not forget that even an iconic inventor like Thomas Edison was once a newcomer to the patent world.

And there are some individuals who have not joined us voluntarily, but are only members of the patent world because they purchased and used off-the-shelf products made by others and, on that basis, have received demand letters accusing them of patent infringement. Now they, too, have an indisputable stake in the patent system. 

If we are to have a reasoned, serious debate about the shape of our patent system, it is important that we cut through the fog of harsh and unproductive language. There is too much work to be done to let mistrust and skepticism get in our way. 

And, with that in mind, let me lay my cards on the table. 

As many of you know, I’m a longtime user of the patent system. I’ve been a scientist in a laboratory. I’ve represented inventors and innovative businesses, patent plaintiffs, and patent licensors. I am now the head of the agency charged with examining and issuing patents. 

That said, I’ve also been on the other side of countless demand letters and lawsuits from patent holders, and have spent a good part of my career representing patent defendants and licensees—including against so-called “patent trolls.” In fact, I’ve even argued on behalf of clients that some patents should be invalidated.

Now, I wouldn’t call myself “anti-patent,” nor would I call myself “pro-patent,” whatever those labels mean. But let me be clear: I am, without reservation, “pro-patent system.” 

What do I mean by "pro-patent system"? It means that I believe that a strong patent system is essential to fostering the innovation that drives our economy. I recognize that our patent system is not something that exists in the state of nature, but is the result of policy decisions made by Congress and the Courts that weigh the costs of patent exclusivity against its benefits. We are constantly reexamining those policy decisions, to make sure the benefits continue to outweigh the costs. 

I believe that, for the most part, the benefits do outweigh the costs, but we need to be clear about what those benefits and costs are, and about the realities underlying innovation today. Patents are not the only drivers of innovation. The first entity to bring a product to market has a first-mover advantage that provides an incentive to innovate on its own, even if no patents are ever sought or granted. Some firms opt for an open source model, where they benefit from the network effects of the widespread adoption of a technology they developed. We also know that reputation and branding—with or without trademark protections—play a large role in facilitating innovation. And, of course, there are a large number of innovations protected by trade secrets or by copyrights, not by patents. 

And yet, patents still play a critical role in promoting innovation. Patent exclusivity—that is, the right of a patent owner to exclude others from using the patented invention—provides a unique route for inventions to find their way to the marketplace. Even with a patent, an inventor requires access to capital, developing a prototype, finding channels of distribution, and more before he—or increasingly, she—can get it to the market. Exclusivity protects the competitive position of a new entrant to the marketplace, which in turn attracts investment. And that plays an essential role in giving inventors and investors the confidence to take the necessary risks to launch products and start businesses. 

Now, critics of our patent system point to the patent's grant of exclusivity as a monopoly. And they are right to a point. That grant of exclusivity inhibits competitors and allows the patent owner to charge supra-competitive prices, but only for a limited time. But we accept the monopoly because of our strong conviction that the long-term benefits to society outweigh the costs. Innovation today means that we will have even more innovation tomorrow. And the higher prices we pay for patented goods and services today are an investment for the future. 

The history of federal technology transfer provides a useful example. Before 1980—with a few exceptions—the federal government did not grant exclusive licenses to its patents. That led to fewer than five percent of those patents being licensed. So the vast majority of federally-funded research was not finding its way to the market, where it would support our economic growth. After President Carter signed the Bayh-Dole Act into law in 1980, patents that were the result of federally-funded research could be exclusively licensed. As a result, we saw an explosion in the commercialization of federally-funded research, enabling—for example—so many of the breakthroughs in pharmaceuticals and information technology that we take for granted today. By one study’s count, approximately 154 new FDA drugs were approved since 1980 that resulted from federally-funded research. And, on the IT side, federally-funded research resulted in the PageRank method of ranking search results that Google exclusively licensed from Stanford University. 

So we have seen the difference that exclusivity makes. We have seen that the commercialization enabled by that exclusivity sustains jobs, drives our economy, and raises our standard of living.  We may have borne the costs, in the form of higher prices, but we also received something in return, because those exclusive rights enabled the private sector to take risks and bring products to the market. And there, I think, most of us would say that the benefits of a patent system outweigh its costs.

These benefits are supported by a robust system of licensing and technology transfer that gets patent rights into the hands of those who are able to commercialize inventions. We all recognize that universities and the federal government play an enormous role in supporting research and development, and that their ability to license their intellectual property often enables them to fund the development of future breakthroughs. Litigation is an inefficient way of conducting licensing negotiations. But the ability to defend and maintain the exclusivity granted by a patent is, at the end of the day, an essential element of the system. Litigation is not only the final refuge for legitimate patent holders; it also provides an essential background against which licensing negotiations take place.

I am, as I said, "pro-patent system." That, to me, means putting the well-being of the patent system first. And if there is a bug in our system, I think it ought to be fixed. So when patent rights are used not to help bring new products to the market, but rather to extract "cost of litigation" settlements from companies and end users inexperienced in the ways of our patent system, the careful balance of costs and benefits underlying our patent system is threatened. In these circumstances, patents are not being used to “promote the progress of Science and useful Arts,” as intended by our Constitution and founding fathers, and it imposes the costs of a monopoly on society, without any greater benefits. 

And these costs are real—not just for the parties they accuse of infringement, but for the economy as a whole. Economists have studied this issue and found that this is a multi-billion dollar problem for our economy as a whole. That’s a significant cost for American businesses to bear, without the public benefits that arise when an invention is commercialized. 

Unfortunately, this shapes how people think about the patent system today. They don’t see a driver of innovation or a force for economic growth—they see a sideshow to innovation instead. 

And, for those of us who care about the patent system, this is a concern. Litigation costs are normal frictions that occur in any marketplace, but abusive litigation is a flaw in an otherwise great system. It takes a system that we built, together, and makes it an instrument of abuse and injustice. If we care about the system, we have to bring our expertise and experiences to bear on how we can address this problem before it threatens to undo so much of what we’ve all worked so hard to build together. 

Working towards that solution will require thinking about the patent system as a whole, with input from all stakeholders—including patent applicants and owners, patent defendants and plaintiffs, judges, businesses (small and large) from all industries, universities, and the general public. Not everyone may own patents, but we all are the intended beneficiaries of the system. 

To those of us who have worked in the patent world for a long time, any change can appear threatening.  Changes to the system upset our expectations and force us to revisit how we do things. But we should never buy into the illusion that our patent system is set in stone, and that it has all been downhill since 1952 when President Truman signed the Patent Act into law. 

Our system has always been subject to revision, not only by the courts, but by all three branches of government. In 1999, we had the American Inventors Protection Act.  In 2011, it was the America Invents Act, which took us to a first-inventor-to-file system, introduced new post-grant proceedings, and provided the USPTO with a model of sustainable funding. So I reject the suggestion that any efforts to fix the problem of abusive patent litigation will break the entire system. Our patent system has proved itself more resilient than that. It can tolerate change when needed.

So what can we do to make a better patent system? 

There are things that we can do before patents are even issued, but there is a lot to be done after the patent is granted as well. We need to fix the problem of abusive patent litigation, but we need to do so without diminishing the rights of legitimate patent holders. This can, and should, be achieved through multiple ways—legislatively through Congressional action, judicially through rulings from the court, administratively by actions taken by the PTO and other agencies, and of course with input and action from all of you. 

President Obama recognized the need for patent reform early, and has brought a great deal of public awareness to the issue. Over the last year, the Administration has announced a number of Executive Actions to level the playing field of, and bring better clarity to, the patent system. There are over a half dozen Executive Actions in total, and I will touch on a few of the newer ones shortly, but I encourage you to go to our website for a full explanation of each Executive Action, along with our progress to date and how you can help with the effort. At the back of the room is a card with the URL to the website. Please do check it out. 

And, of course, the Administration supported—and still supports—legislative efforts at patent reform. Last June, the President announced seven legislative recommendations designed, among other things, to increase transparency of patent ownership information, curtail abusive patent litigation, and ensure the highest quality patents possible in our system. In December, the House of Representatives passed the Innovation Act, with strong bi-partisan support, to accomplish these goals. This year, the Senate Judiciary Committee also worked hard to craft comprehensive reform legislation and build upon the House-passed bill. 

As most of you have probably heard, progress on the Senate bill has been put on hold.  This is, of course, disappointing to those of us who worked hard for over a year try to achieve meaningful and balanced reform. At the same time, let’s not forget that the America Invents Act  took ten years to pass, with many fits and starts. Just because change does not come quickly does not mean that change will not come.

While we are working hard in the hopes of reaching a legislative solution, in the meantime, this Administration is not standing still; we are not waiting; we are moving forward – to improve the patent system now and for the future.

And on the judicial front, Courts are making progress on important clarifications and developments in patent and patent litigation related case law. As many of you know, the Supreme Court recently issued a number of opinions that have already impacted, and will continue to impact, a number of the legislative priorities. So, for example, we’ve seen the Supreme Court—in the Octane and Highmark cases—make it easier for district courts to award fees in patent cases. We’ve already seen trial courts use this more flexible standard to award fees in cases where it is warranted. 

In the recent Nautilus case, for example, the Supreme Court adopted the position the Administration took in its brief, which establishes a higher standard for claim clarity. This is a win for us all, because having fewer ambiguous patents leads to less abusive litigation and clears the path for more innovation. 

And, just a week ago today, the Supreme Court in Alice v. CLS Bank held that all claims in the patent at issue were ineligible under Section 101. While the ruling does not create a new bright line prohibition against certain categories of patents (such as business method patents or software), it likely lays the groundwork for more aggressive challenges to these types of patents as litigants test the boundaries of the CLS Bank ruling. 

The fact that the courts are addressing some of the same issues that Congress is considering is a good thing, because the conversation about how to build a better patent system should not be confined to just one way of improving the system -- whether legislative, judicial, executive or otherwise. 

All of us have a role to play in making our patent system the best it can be, and that’s why it’s so important that we all listen to each other—and embrace improvements from wherever they may come.  While Congress and the Courts are doing their part, it’s essential that the rest of us do ours. 

In addition to the measures the Administration is taking now, the PTO has a longer-term role to play in ensuring the health of the patent system, and that has to do with improving patent quality. Issuing high-quality patents can play a significant role in curtailing abusive patent litigation over the long run. 

To that end, I have made improving patent quality a top priority for the PTO. 

That may sound familiar to you, and that’s because improving patent quality has always been at the core of the PTO’s mission. But, for too long, due to uncertain budgetary conditions and limited resources, the PTO has had to make do with less. Despite our best intentions, we’ve had to accept trade-offs between quality and application backlog and pendency, forcing us to cut programs and shift resources to maximize output without sacrificing quality.

But today, thanks to the efforts of my predecessors to achieve a sustainable source of funding and a reduction in our application backlog and pendency, for the first time in a long time the PTO doesn’t just have to make do, but can achieve our goal of building a world-class patent quality system. The America Invents Act gave the PTO fee-setting authority, which in turn allowed us to work closely with our stakeholders to develop an operating reserve. This means we’re now able to launch new initiatives in response to our customers’ needs, with the confidence that we can sustain these efforts even during fluctuations in funding.

So, it’s time for us to be thinking big. 

There is no easy “silver bullet” here. Creating a world-class quality patent system means that we need to keep all options on the table—big and small, before examination, during examination, and post-examination—everything from a major upgrade to the IT tools for our examiners, such as our Patents End-to-End system, to giving examiners more time to perform certain tasks during examination. 

Thinking big means finding better ways to utilize internal expertise at the PTO. In the past, we’ve leveraged the skill and efficiency of our most experienced examiners to examine more patents with the goal of reducing our backlog. But today, we have the option to use them as long-term “force multipliers” in our examination corps. By having more of our most experienced examiners spend more time coaching and training our junior examiners—and not just when they come on board, but over the course of their examining careers—these coaches will have the potential to increase the quality of our examination across the board. 

Thinking big means looking at how we can bring the lessons of big data to the PTO. We collect a lot of data during the patent examination process, but until now we haven’t had the resources to use it to its full potential. But we do now. Now, we have the resources to not only analyze the data effectively, but to take the lessons we learn from it and feed them back into the earliest stages of examination in order to improve quality from the first touch of an application. 

The data will allow us to better tailor our existing programs, build new programs, and use this new feedback to improve every stage of the examination process. And, as with any big data projects, there is an element of serendipity! We may find things in the data that we haven’t even thought about, and that may point us in directions that are new and different.

Further, in order to measure results, we need—of course—to talk about what quality means to our customers. It’s not enough for us to have this discussion within the PTO—this is a conversation we want to have with you, the public, and we have plans to do so formally this fall through a series of discussions to be held across the country. 

But we aren’t just talking. We’re “doing,” and there are several other initiatives already in progress. First, we’re redoubling our efforts to train our patent examiners, to ensure they stay abreast of the latest developments in technology and the law. We’ve expanded our Patent Examiner Technical Training Program that brings outside experts to the PTO to train our examiners, and we’ve made it easier for your experts to sign up. This is an opportunity for your companies to make a difference right now. So we welcome your participation. 

Keeping our examiners up to date on the state of the law is a core part of our mission, and we’re taking our Executive Action to increase patent claim clarity very seriously. We’ve developed and implemented four training modules focused on functional claiming under section 112(f), which is frequently used in software patents. 

Second, based on public input we received through our Software Partnership, we have launched a voluntary glossary pilot program that is designed to enhance claim clarity in patent applications and issued patents. Starting this month, applicants can receive expedited processing if their applications contain the definitions of the terms used in the proposed claims. 

Third, we’re looking for even more ways to engage the public before patents are issued. In February, the White House announced a new Executive Action the Administration will undertake to expand the ways in which the public can help examiners find relevant prior art through crowdsourcing. Many of us use the Internet to harness the wisdom of crowds every day, and I’m excited for the PTO to be moving in this direction. After all, some of our best technologists sit outside of PTO headquarters. So, what better way is there to learn about prior art than to ask “the artists” themselves?

I’ve said a lot about the role that the public has to play in helping to create a better patent system, not only because it’s a critical role, but because it’s important for us to be reminded that the patent system ultimately belongs to the public. 

So though legislative efforts to fix the problem of abusive patent litigation may have to wait, as you can see, the Administration is not waiting and has taken other measures to further improve our patent system. 

In closing, I’d like to revisit something I said earlier. As what used to be a small world of patent law has become larger, more visible, and more consequential—to our economy and the world—we must acknowledge that the patent system doesn’t belong to a narrow set of patent stakeholders, but to all of us. As specialists, experts, and repeat players in this field, we must acknowledge not only the strengths of our patent system (and there are many) but also those places where it falls short of its goal to promote the Progress of Science and the useful Arts. 

Fixing those areas needing improvement is not a “pro-patent” thing to do, or an “anti-patent” thing to do. It doesn’t mean rewriting the terms of the bargain underlying the patent system as set forth in the Constitution. It isn’t going to break the patent system. 

It’s about taking the necessary steps to ensure that patents remain an important driver of innovation. It’s about maintaining the public’s faith that the benefits of patents outweigh their costs to society. It’s about never ceasing to “speak truth to patents,” to think innovatively about how we innovate, which means always striving to make a better system than the one we inherited.

I look forward to continuing that discussion with you now, and in the months ahead. Thank you.