ABA Report on FTC Report on Competition and US Patent Policy

(Forwarded from James Love's CP Tech Random Bits list)

-------- Original Message --------
Subject: [Random-bits] ABA Report on FTC Report on Competition and Patent
Policy
Date: Wed, 29 Oct 2003 16:13:20 -0500
From: James Love <[email protected]>
To: IP-Health
<[email protected]>,[email protected]


AT-IP REPORT

Electronic Newsletter of the Intellectual Property Committee
ABA Section of Antitrust Law

October 29, 2003


We are pleased to bring you this summary by Robin Moore, an Attorney 
Advisor with the FTC who is a member of the ABA Antitrust Section, 
Intellectual Property Committee Newsletter Editorial Board, of the  recently
issued FTC Report:  To Promote Innovation:  The Proper Balance  of
Competition and Patent Law and Policy (the “FTC Report”).  A press  release,
executive summary and the extensive FTC Report can be accessed  on the FTC’s
website at http://www.ftc.gov/opa/2003/10/cpreport.htm

The FTC Report addresses the patent law and policy aspects addressed in  the
joint FTC/DOJ hearings on Competition and Intellectual Property Law  and
Policy.  A further report on the antitrust/competition law aspects  is
expected in the not too distant future.  The FTC has made ten  specific
recommendations in the Report, as explained in Robin’s summary  and the FTC
documents.  This write up, of course, is subject to the  disclaimer that it
is not issued by the FTC, any views expressed should  not be attributed to
the Commission or any Commissioner, and that the  full FTC Report must be
consulted for the views of the Commission and  its Staff.

The ten recommendations in the FTC Report are:

1.  As the PTO Recommends, Enact Legislation to Create A New  Administrative
Procedure to Allow Post-Grant Review of and Opposition to  Patents.

2.  Enact Legislation to Specify that Challenges to the Validity of a 
Patent Are To Be Determined Based on a “Preponderance of the Evidence.”

3.  Tighten Certain Legal Standards Used to Evaluate Whether A Patent Is 
“Obvious”

4.  Provide Adequate Funding for the PTO

5.  Modify Certain PTO Rules and Implement Portions of the PTO’s 21st 
Century Strategic Plan

	a.  Amend PTO regulations to require that, upon the request of the 
examiner, applicants submit statements of relevance regarding their  prior
art references

	b.  Encourage the use of examiner inquiries under Rule 105 to obtain  more
complete information, and reformulate Rule 105 to permit reasonable 
follow-up

	c.  Implement the PTO’s recommendation in its 21st Century Strategic  Plan
that it expand its “second-pair-of-eyes” review to selected areas

	d. Continue to implement the recognition that the PTO “forges a balance 
between the public’s interest in intellectual property and each  customer’s
interest in his/her patent and trademark”

6.  Consider Possible Harm to Competition – Along with Other Possible 
Benefits and Costs – Before Extending the Scope of Patentable Subject Matter

7.  Enact Legislation to Require Publication of All Patent Applications  18
Months After Filing

8.  Enact Legislation to Create Intervening or Prior Use Rights to  Protect
Parties from Infringement Allegations That Rely on Certain  Patent Claims
First Introduced in a Continuing or Other Similar Application

9.  Enact Legislation to Require, As a Predicate for Liability for  Willful
Infringement, Either Actual, Written Notice of Infringement from  the
Patentee, or Deliberate Copying of the Patentee’s Invention, Knowing  It to
Be Patented

10.  Expand Consideration of Economic Learning and Competition Policy 
Concerns in Patent Law Decisionmaking

Ed Biester
Vice Chair, Intellectual Property Committee
215.979.1162
[email protected]

******************************************************************

Summary of the October 2003 FTC Report:  To Promote Innovation:  The  Proper
Balance of Competition and Patent Law and Policy

By Robin Moore

Background and Business Testimony

The FTC’s report focuses on the relationship between Competition and 
Intellectual Property (specifically, patents) and how each system  impacts
innovation.  Based on the Hearings record, the report makes a  number of
observations about how competition and the patent system  drives innovation
and makes a number of recommendations for the patent  system aimed at
furthering innovation.  The first two chapters of the  report discuss the
tensions between patent and competition policy, and  how each system impacts
innovation.  The report begins with the  observation that both the patent
system and competition promote  innovation (and long-term consumer welfare)
but recognizes that each  system may reach these goals through different
analyses.  For example,  where patent law is concerned with whether the
claimed invention is  novel, nonobvious, and useful and whether the patent
application meets  the disclosure requirements, competition policy asks
whether the patent  is necessary to encourage innovation.  The report also
observes that  neither of these systems can fully promote either stand-alone
or  follow-on innovation and that the two systems must be properly balanced 
to achieve an appropriate level of innovation.

Chapter three of the report applies these principles to specific 
high-technology industries  – pharmaceutical, biotechnology, computer 
hardware (including semi-conductors), and computer software and the 
Internet.  Relying on testimony from business representatives, the  report
makes clear that patents play varying roles of importance across  these
industries.  For example, according to the report, strong patent  protection
plays a very important role in innovation for the  pharmaceutical and
biotechnology fields; whereas, computer hardware and  software rely more
heavily on competition as a driver of innovation.  Computer hardware
manufacturers, on the other hand, reported that they  rely heavily upon
trade secrets.  Many of these industries also  identified various problems
arising from the issuance of questionable  patents or patents that are
overly broad, especially in light of the  cost of patent litigation.

Patentability Standards

Chapter four examines various patentability standards and the potential 
competitive effects that arise from the implementation of those  standards
by both the PTO and the Federal Circuit.  It makes a number of 
recommendations aimed at achieving better quality patents and a better 
blend of patent and competition law.  The report first examines the 
non-obviousness requirement and notes that a standard that is either too 
lax or overly restrictive can create problems both from patent and 
competition perspectives.  The report suggests that in assessing whether  an
invention meets the nonobvious standard, asking whether the invention  would
have arisen “but for” the exclusionary rights provided by the  patent
provides a useful guiding principle. 	The report then recommends  tightening
the application of two specific tests for nonobviousness –  the Federal
Circuit’s application of the “suggestion test” and the  “commercial success
test.”   According to the report, many panelists  expressed concern that the
Federal Circuit has applied the suggestion  test (which asks whether the
prior art would have suggested to one of  ordinary skill in the art) too
narrowly by requiring specific prior art  references with clear instructions
on how to combine the references.  The report argues that such a narrow
application raises the bar for  finding obviousness and understates – or
completely reads out – the  standard requiring that the innovation be beyond
that of a person having  ordinary skill in the art.  Such an analysis could
result in patents  being issued on obvious inventions to the detriment of
competition.  As  a result, the report recommends that the obviousness
analysis should  ascribe to the person having ordinary skill in the art the
ability to  combine or modify prior art references that is consistent with
the  inventive process.

Panelists also expressed concern that the Federal Circuit’s application  of
the commercial success test might be used by courts to rebut a prima  facie
case of obviousness based on the prior art.  Currently, the court  requires
that the patentee show that claimed features of the patent are  coextensive
with those of the successful invention but does not require  that the
patentee show that the invention itself, rather than other  factors (such as
marketing savvy of the patentee) caused the success.  Once the patentee has
established the nexus between the patent claims  and the successful
invention, the burden shifts to the challenger to  present evidence
rebutting the inference that the invention caused the  commercial success. 
The report notes that because any number of things  can lead to the
commercial success of a product, it may not be a  reliable indicator of
nonobviousness.  In addition, it points out that  the patents passing the
commercial success test are the very patents  that are most likely to impact
competition since they may, among other  things, confer market power.  The
report accordingly recommends that the  patentee bear the ultimate burden of
demonstrating that the claimed  invention caused the commercial success and
that courts consider in each  case whether the commercial success reflects
the technical  nonobviousness of the claimed invention.

In addition, the report examines patent continuations and the potential  for
opportunistic behavior surrounding their use.  (Continuations can  redefine
the scope of patent claims).  While noting that continuations  can serve
legitimate purposes, the report emphasizes that when they are  used to
capture competitors’ products once those competitors have sunk  investment
costs, continuations impose great costs on the competitor and  may have a
detrimental impact on competition.  As a result, the report  recommends
legislation that would protect third parties who have  developed or are
using a product or process prior to the filing of the  continuation.

Chapter four also discusses four areas where patentability standards  appear
to be  working well with competition and innovation – the  enablement
requirement, the written description requirement, the  doctrine of
equivalents, and the PTO’s Utility Guidelines.

Recently, the Federal Circuit has expanded the written description 
requirement to invalidate certain patent claims, particularly in the 
biotech context.   The report analyzes the debate surrounding the  recently
expanded disclosure requirements, highlighting that the breadth  of the
patent necessarily impacts the incentives for initial and  follow-on
innovation.  After a survey of the economic literature and the  panel
discussions, the report concludes that where the initial  innovation is
costly and the follow-on innovation is predictable, broad  initial patent
rights are likely appropriate.  Where the converse holds,  however, the
report argues that initial inventors should obtain narrower  rights, leaving
follow-on innovators greater room for reward.  The  report concludes that
the current disclosure doctrines accord reasonably  well with those goals
since the disclosure requirements currently vary  with the predictability of
the art and the nature and skill level of the  person with ordinary skill in
the art.  The report also addresses the  doctrine of equivalents and takes
the position that the Supreme Court’s  interpretation of the doctrine seems
to strike an appropriate balance  between public notice and the patentee’s
ability to secure the benefits  of its patent.  Likewise, the report
commends the PTO’s Utility  Guidelines (which have been well received in the
patent community).

PTO Procedures

Chapter five considers patent examination procedures at the PTO and  delves
into two topics highlighted by the hearing testimony: (1) the ex  parte
nature of the initial patent determination, and (2) patent  re-examination
procedures.  The report first tackles the question of  whether the PTO has
adequate access to the prior art, particularly where  the prior art may not
come in the form of previously issued patents.  The report also points out
that an ex parte examination requires the  examiner to challenge an
applicant’s assertions on his own, a job made  more difficult by the fact
that the courts have placed the burden on the  PTO to demonstrate why it has
rejected a patent.  The report recommends  that the PTO amend its
regulations to require that applicants submit  statements of relevance upon
the request of the examiner, noting that  requiring submissions only upon an
examiner’s request should  appropriately confine costs.  In addition, the
report recommends that  the PTO use examiner inquiries more often and more
extensively.  Along  these lines, the report urges the PTO to reform a
current regulation  that allows patent applicants to reply to inquiries by
simply stating  that the information is unknown or not readily available.

Hearing participants advocated that the reexamination procedures need 
improvement either by enhancing the current inter partes reexamination 
proceedings, instituting post-grant opposition or reviews, or  implementing
pre-grant opposition.  The report recommends that Congress  enact
legislation providing for post grant review.  The review, as  recommended by
the report, would differ from current reexamination in  several respects. 
It would expand the scope of reviewable subject  matter by adding review for
written description, enablement and utility  invalidity claims to those
already covered (novelty and nonobviousness).    In addition, the report
recommends that the proceeding allow  cross-examination of witnesses and
“appropriate, carefully circumscribed  discovery.”  To protect patentees
against undue harassment and delay,  the report recommends that review be
initiated or maintained only upon a  suitable threshold and that limits be
established to protect against  undue delay in requesting review and against
harassment through  repetitive petitions.  The report also recommends that
the review be  presided over by an administrative patent judge and that
review be  conducted within well-defined limits.

Moreover, the report suggests that settlement agreements resolving 
post-grant review proceedings be filed with the PTO and be made  available
to other government agencies under terms comparable to those  currently
applicable to interferences.

In addition, the report recommends publication of patents 18 months  after
patent publication regardless of whether the patent applicant has  sought
protection abroad.

The report also tackles two issues that arise in patent litigation – the 
clear and convincing evidence standard and willful infringement and its 
accompanying treble damages.  Under current patent law, a patent  challenger
must overcome the presumption that the patent is valid  through clear and
convincing evidence.  The report acknowledges that the  presumption of
patent validity rightly places the burden of overturning  the PTO’s
determination on the patent challenger.  However, it  recommends that
legislation be enacted to specify that challenges to  patent validity should
be determined based on a preponderance of the  evidence.  The report argues
that preponderance of the evidence is the  appropriate standard, because it
mirrors the standard adhered to by the  PTO for issuing the patent in the
first instance.  Furthermore, the  report notes that given the constraints
on patent examiners (limited  time, limited access to prior art, etc.) there
is no support for  heightening the burden for challenging the patent in
court.

In addition, the report recommends raising the threshold for finding 
wilfulness.  This recommendation responds to hearing participants’ 
exhortations that the specter of treble damages (from an adverse willful 
infringement ruling) deters inventors from searching out and reading 
patents that may be relevant to their invention.  Specifically, the  report
recommends that legislation be enacted requiring either actual,  written
notice of infringement from the patentee or deliberate copying  of the
patentee’s invention with knowledge of the patent.  To deal with  the
possible proliferation of spurious demand letters from patentees,  the
report also recommends that the written notice take a form  sufficient to
give the recipient standing to challenge the patent’s  validity.

Competition and Patent Policy Intersection

The last chapter of the report stresses that competition and patent  policy
generally work well together and that each system should take the  other
into account to promote consumer welfare.  The report acknowledges  that for
various reasons patents promote innovation.  It also asserts  that many of
the patentability standards are grounded in consumer goals  notes that based
on hearing testimony, it appears that neither the PTO  nor the Federal
Circuit has kept those goals in mind in their  policymaking decisions.  The
Report recommends that the PTO and Federal  Circuit take economic learning
and competition policy concerns into  account.

Without drawing conclusions, the report also tees up the debate over 
whether the Federal Circuit has attempted to expand its jurisdiction  over
the years and the impact of Holmes v. Vornado on its jurisdiction.   
Similarly, the report flags the debate surrounding the Federal  Circuit’s
decision in NobelPharma v. Implant Innovations which asserts  exclusive
Federal Circuit jurisdiction over questions of whether conduct  in patent
prosecution and enforcement is sufficient to overcome  Noerr-Pennington
immunity.

Chapter Six also makes a number of institutional recommendations for the 
PTO and the Antitrust Agencies.  First, the report recommends that the  PTO
receive increased funding so that it can improve the quality of  issued
patents.  The report also supports the PTO’s recommendation that  it expand
its “second pair of eyes” review and suggests that the program  cover
semiconductors, software, and biotechnology.  In addition, the  report
recommends that the PTO continue its recent trend of  acknowledging that it
balance both the public interest and individual’s  interest in issuing a
patent.

As a final matter, Chapter six states that the FTC will take steps to 
increase communication between the Antitrust Agencies and the PTO.  Among
other things, the FTC commits to continue to file amicus briefs in  cases
arising at the intersection of antitrust and patent law and to ask  the PTO
to reexamine questionable patents when such action is warranted.    In
addition, the report proposes to facilitate communication by  establishing a
liaison panel between the Antitrust Agencies and the PTO,  founding an
Office of Competition Advocacy within the PTO, and by  requesting that
Congress expand the Patent Public Advisory Committee  membership to include
competition experts and economists.


************************************************************************************************************************************************************************************************************************************************************
Robin Moore is an Attorney Advisor at the Federal Trade Commission, and  any
views expressed are those of the author, not those of the Commission  or any
Commissioner.  The full FTC Report should be consulted for FTC  and staff
views.  [email protected]
************************************************************************************************************************************************************************************************************************************************************************
AT-IP Report is the electronic Newsletter of the Intellectual Property 
Committee of the American Bar Association, Section of Antitrust Law.  The
views expressed in the AT-IP Report are the authors’ only and not 
necessarily those of the ABA, the Section of Antitrust Law or the 
Intellectual Property Committee.  If you wish to comment on the content  of
this Electronic Newsletter, please write to the ABA, Section of  Antitrust
Law, Attention: Intellectual Property Committee, 750 North  Lake Shore
Drive, Chicago, Illinois 60611.  Copyright 2003 American Bar  Association.
**********************************************************************************************************************************************************************************************************************************************************************

-- 
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:[email protected]
tel. +1.202.387.8030, mobile +1.202.361.3040

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