Joint DoJ, FTC, USPTO workshop on promoting innovation

On May 26th the three US agencies (DoJ, FTC and USPTO) held a day-long workshop to examine the intersection of patent policy and competition policy and their implications for promoting innovation. According to the USPTO press release

In recent years, federal agencies and the courts have recognized that patents and competition share the overall purpose of promoting innovation and enhancing consumer welfare.  Timely, high-quality patents promote investment in innovation.  The competitive drive of a dynamic marketplace fosters the introduction of new and improved products and processes. By contrast, delay, uncertainty, and poor patent quality can create barriers to innovation.  Additionally, where standards for violating antitrust law are unclear, or where the threshold for antitrust violations is set too low or too high, innovation can be stifled. The workshop will address ways in which careful calibration and balancing of patent policy and competition policy can best promote incentives to innovate.

Since innovation is the only sustainable source of America’s competitive advantage, the relationship between intellectual property, which captures the value of innovation, and competition policy, which maintains a dynamic marketplace for innovation, is of paramount importance,” noted Under Secretary of Commerce David Kappos.  “This conference is designed to explore the relationship between competition policy and intellectual property policy and how it fosters innovation”.

I watched most of the day-long proceedings; when USPTO posts a link to the webcast we will update this post and publish the url . There were three panels, discussing:

  • The Patent Application Backlog:  The Competitive Challenges for Innovators;
  • Permanent Injunctions in the District Courts and ITC:  Effects on Competition and Innovation;
  • Standard Setting, Patent Rights, and Competition Policy.

In his opening remarks, US CTO Aneesh Chopra referenced Obama’s commitment to foster inter-agency collaboration to stimulate innovation. A wide range of stakeholder interests were represented, and panelists included legislators, administrators, entrepreneurs, venture capitalists and lawyers.  Key issues in each category were discussed, but I will confine this report to points that are likely to be of interest to our audience, and which impact the area in which I have heard the most complaints – the application backlog and the closely linked issue of quality (the first of the three panel discussions).

• Slow processing is bad for business: an innovative new micro laptop failed in part because the company was unable to leverage 70+ patents, which were pending approval, to raise money.

• Patent application backlog:  VCs and entrepreneurs talked about how delays and backlog directly impact financing and the development of new products.  The backlog causes inefficiency and results in lost jobs and opportunities.  Several cases cited involved medical tech with 3-4 year delays in patent processing leading to high risks for investors and businesses. (note: in March 2008, according to the Institute for Policy Innovation, the backlog of unexamined applications was approximately 760,000).

• One “remedy” discussed was the de-monopolization of patent processing.  Monopolies are inefficient and develop entrenched bureaucracies. Israel was cited as an innovator: a small highly developed country with lots of innovators which allows inventors to apply to any one of 13 patent offices for examination. In the EU some of the national offices can issue an examination report in months, which can then be used to expedite an EU patent grant.  Forces inside government will resist such a move.  There are some applicants who have no intention to commercialize; and for many non-practicing enterprises (NPE, or “patent troll”) delays can in fact be advantageous.

• UPSTO has not invested in developing internal innovation to address backlogs. Systematic experiments testing various models have not been launched, although the green patent fast track is a step in the right direction.  The public interest is not being fairly represented by the USPTO.  At the very least, USPTO surplus revenues should be applied to developing innovation (note: According to the August 2005 Report by a Panel of the National Academy of Public Administration, USPTO fee diversion totaled $741 million in fiscal years 1992-2004).

• Quality v. speed: if you speed up the process you risk further degradation in the quality of patents granted.  What is required is more creative management of the examination process.

• Fast track:  applicants could be offered an option to pay a higher fee for expedited processing.  A dangerous downside of this approach is that it might result in disenfranchisement of the independent inventor.

• How can a large centralized bureaucracy implement and manage experimentation designed to reduce its control and eliminate its monopoly?

• Can we establish a clear and causal linkage between pendency and real outcomes?

During the 8 months following patent allowance, the licensing hazard more than doubles – another real challenge for investors and entrepreneurs.

• How to address the challenge that patents, once granted, still undergo significant ex-post scrutiny involving significant uncertainty (often resulting in high legal costs).  This process results in lower productivity and high opportunity cost.

• Too many patent applications:  each application and each patent contributes to declining efficiency.  Increasing the cost of application and renewal might reduce the volume.  Move some of the examiner burden to the applicant.  Introduce more categorical exclusions, e.g., business processes and other “abstract” inventions.  Limit remedies to reduce litigation in the case of inadvertent infringers.

(One note on the 2nd panel:  the highlight of the ITC and litigation discussion was that there has been an explosion in cases brought before the International Trade Commission.  The pace of innovation has been increasing and the effective life cycle of many patents has decreased.  Technical complexity has increased with a resulting need for more and better examiners.  There has been a huge increase in foreign owners of US patents.  The number of parties involved in these cases is increasing and there is an overall surge in patent litigation.  ITC rulings, which provide immediate relief to patent holders claiming infringement, have diluted the impact of the domestic system and has given more “power” to NPEs.)

In the final, Wrap-Up session Stuart Graham, USPTO Chief Economist, observed that the creation of his position (he has been there for less than three months) reflected a  commitment to develop a better understanding of the impact of IP – and of the patent backlog – on the economy and on job creation. On applicant differentiation (e.g., tiered pricing for fast track processing): “We are currently engaged in substantial study”. No one from the USPTO offered any concrete proposals or solutions to address the current situation, which they have been well aware of for years.  But they promised that we would “hear more about solutions…in the coming weeks”.

The bullets, above, identify some of the key issues that were addressed in the first panel discussion.  By way of a conclusion on my part, IP exports – which accounted for $59 billion in 2009 – are becoming increasingly important as manufacturing jobs move to cheap labor states.  What is required is the kind of definitive action and aggressive innovation that the US private sector is good at but which government has consistently failed to deliver.  How about starting off with the licensing of independent examiners with sector expertise?  And applying some of the revenue surplus to engaging private sector design expertise to develop intelligent software to parse prior art?

Why is this all so important?

Edith Ramirez, FTC Commissioner: “Other countries will be watching us”.

A final link:  if you’d like to get the numbers and see the real extent of the backlog problem, visit

Post written by Peter Bloch, consultant to CAS-IP

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