Intellectual Property & the Landscape of 21st Century Life Sciences

Under Secretary of Commerce & Director of the USPTO David Kappos

May 5, 2011

Licensing Executive Society (LES) Spring Meeting Keynote

"Intellectual Property & the Landscape of 21st Century Life Sciences"


Good morning everybody and thank you for inviting me to the Licensing Executive Society (LES) Annual Spring Meeting. I want to thank meeting chairs Russel Levine, Mark Bloom and Stasia Ogden for organizing this forum; and I'm also excited that Will Tom, General Counsel for the Federal Trade Commission, and former Assistant Secretary of Energy Douglas Faulkner will join us to share their unique insights on what's shaping today's patent landscape.

Universities, start-ups and small, high-growth enterprises-your licensing clients-play a crucial role in the development of new products in the biotech and medical device industries. Because of your adaptability, ability to identify market niches and huge innovative potential, your firms form a vital component of the healthcare industry worldwide. While the IP field is an all inclusive community, we can candidly say, that navigating the patent terrain for those involved in life-saving therapies, medicines or biological technologies, involves additional layers of complexities.

Product development is not only a constant race against time to place treatments in the hands of families in an attempt to renew hope in an all-too-fragile life-but the business interests you all represent require staying on top of new research, monitoring trends in health care demographics and now weighing the impact of Health Care Reform on transfer and distribution pipelines. So while I am intimately aware of the challenges faced and the battles waged in the pharmaceutical and biotech industries, forums like this one are vital to discuss solutions for efforts moving forward. This is especially important when you consider what this very gathering, and all of you, represent for our country.

At a time where government struggles to balance its checkbook, your dedicated research is unearthing new, cost-effective ways to tackle cancer and cardiovascular disease. At a time where countries are grappling with generational challenges, your determination is harnessing data and the internet to more efficiently share information about pandemic disease across borders. And at a time where families around the country are faced with daunting financial decisions, like choosing between a mortgage payment and antibiotics, your partnerships are distributing medicines in ways that make it a little easier for Americans to find and access affordable, life-saving drugs.

Without a doubt, we meet at a crossroads in our country's economic evolution. Working to hasten the pace of economic growth and job creation, government and business alike strive to do more while working with limited resources. But American exceptionalism has never been a birthright. The economic security and vitality of the United States has always been deeply rooted and renewed by the power of innovation. This country was founded by pioneers who developed new ways to cope with an unfamiliar environment; who cured disease and connected a country; who led the world into the age of flight; and who now transcend global borders through the power of information technology.

So not only do your unrelenting licensing efforts inspire medical advances, transform the welfare of a community and afford us second chances in an all too fragile life-but it also attracts critical resources and capital needed to spur additional research & development, creating a host of new markets and new job opportunities.

Time and time again the story of American growth is written by the daring drive of entrepreneurs, who are willing to roll the dice on a great idea. It's the story of Avila Therapeutics, located in Waltham, Mass., that's developing "protein-silencing" medicines that specifically target cancer and hepatitis-inducing proteins in the body with compromising beneficial ones. And it's the story of the Polymer Research Institute, at SUNY Syracuse, that's researching synthetic polymers to better understand enzyme and DNA applications.

But the enterprising drive on display here is not only about making sure an ailing parent gets to see their grandchild graduate, or building new energy solutions for generations to come. In unleashing human creativity and genius to address our most human of problems, innovation is also being leveraged to drive our economy forward. That is the path by which the next chapter of American growth will be written. So while the dynamics of our economic landscape may be shifting, the importance of intellectual property is not.

And let me be clear: an idea-no matter how novel, disruptive or groundbreaking-without clear and consistent IP protection effectively translates into a royalty free donation to the global labor market. And in a 21st century globalized economy, not only can innovations be hastily co-opted by our economic competitors, but the very production and manufacturing jobs they create will only spur a race to the bottom-rewarding those economies with the lowest wages and lowest labor standards. This means that an environment ripe for development doesn't just balance market competition and fairness-it hinges on technological access and business growth.

That's why, in order to optimize the ability of entrepreneurs to thrive, the United States Patent and Trademark Office is working in concert with the Department of Commerce and the Obama Administration, to reduce barriers to life science business development, and accelerate success through the Startup America initiative. By building partnerships with the private sector, the Department of Commerce and the Small Business Administration are matching up to $2 billion for private funds that invest in early-stage R&D; hosting conferences for medical-oriented companies to meet directly with venture capitalists through the VC-2-DC program; and even building an R&D dashboard where research institutions and businesses can monitor ideas blossoming around the country and track their stage of development.

But the health care sector is particularly research intensive and requires regular investments at different stages in company development in order for enterprises to grow. And a majority of the small and medium sized companies right here in New York that drive innovation in life-saving therapies need accelerated means to acquire funds and get their businesses off the ground. Not only is their bottom-line at stake, but so too are lives and the welfare of communities.

Since we in the IP domain realize that pharmaceuticals and diagnostic tools are highly dependent on effective patent protection, a paramount priority of the United States Patent and Trademark Office has been a more simplified and streamlined process to acquire IP rights. Ultimately, this will enable inventors to bring their ideas to fruition faster and compete in global markets sooner. We began this effort by overhauling the antiquated "count system" which measured the work of our patent examiners. By convening a joint labor & management task force, we created a new system of incentives that affords examiners more time to review applications before issuing a first-action. The re-engineered system also established new channels of communication with patent applicants, encouraging open dialogue about applications to boost the efficiency and quality of the review.

Next, we recognized that much of research and development that fuels licensing in your space is time-sensitive. So, we turned to establishing a three track examination program that allows applicants to determine the pace at which their ideas are reviewed. If an enterprise is in urgent need of IP protection it can accelerate the speed of review with a fee, and if ideas require a bit more incubation time the enterprise can opt for a slowed-down track. This program puts tools in the hands of the innovation community to tier priorities and help manage the patent backlog. And even though recent budget realities have hampered our ability to roll out the Track One program as soon as we'd like, we're putting all the structural and procedural resources that we can into place, to make this avenue available to all of your companies, as soon as it's viable.

Regardless of its start date, however, the nature of the program reflects a forward-leaning understanding on the part of the PTO, aware of business and sensitivities in an age where technological updates can be unveiled faster than a blink of an eye. So, the onus on creating a smarter, agile and more nuanced patent and yrademark architecture, which can adapt to evolving business needs and leverage modern tools to address those needs.

That's why when tackling issues surrounding patent examination quality, we're harnessing the Internet to bring the power of the global technology community to bear on the patent examination process, with the second Peer-to-Patent (P2P) pilot program. With members of the public afforded the opportunity to submit relevant prior art, the scope of examination is widened, and the quality of our review heightened. Shortly after launching the pilot the site received thousands of hits, and before we knew it, patent offices in other countries followed suit, and began their own Peer-to-Patent pilot programs. Currently, the USPTO is looking at how to encourage further program participation and how to expand the initiative to service an even larger scale, and eventually across all applications

And while we'll be sure to continue to share lessons learned, I want to point out something these efforts highlight:

Even in a world where technology is constantly evolving, innovation is truly enhanced when we take the time to robustly debate and examine ideas. Changes to the count system, the three track initiative and the P2P pilot, ultimately fuse the power of high quality reviews and high quality minds to translate great ideas into great patents.

While these are promising, we must still grapple with an unfortunate reality. Hundreds of thousands of ideas sit idle in our system's pipelines, representing untold numbers of jobs and licensing opportunities lying in wait. Adding to that conundrum, in the past 50 years we have seen more technological advancements than in any previous period in history, but with no significant patent reform to keep up with the times. In this new century, we can't expect tomorrow's economy to take root in yesterday's infrastructure. That's why President Obama, Secretary of Commerce Gary Locke and I have been working hard to build widespread, bipartisan support for comprehensive patent reform as is now under consideration in Congress.

The America Invents Act enhances our patent system by offering greater certainty about patent rights while also reducing the need for cost-prohibitive litigation, which all too often ties up ideas in the courts-stifling innovation and choking job creation. Ultimately, the bill would provide the most sweeping reforms to the US patent system in 60 years-arguably 150 years. Having just passed the US Senate with an overwhelming mandate of support, 95 to 5, and the House Judiciary Committee 32-3, the proposed reform balances IP rights and makes the USPTO a springboard for growth. By establishing a First Inventor To File system, patent rights are granted with greater speed and greater clarity. A more streamlined structure for post-grant challenges offers fast and cost-effective alternatives to protracted litigation, reducing barriers to growth for small to medium sized businesses, spurring innovation and jobs.

Through this legislation, the PTO is empowered to retain the fees necessary to ensure high quality patent reviews. And I really want to stress the importance of this-being able to retain and set fees is particularly critical because in a world where economic outcomes truly do turn on the quality and efficiency of patent review, adequate resources end up making the difference between: being able to run a USPTO that effectively turns ideas into jobs-or not. Passing this legislation gives us a chance to improve the quality of examinations without adding a dime to the deficit, while also allowing the USPTO to actually use your fee payments to do the job you're paying us to do in the first place! Moreover, with the appropriate resources to process patents in a shorter amount of time, you will be able to use those intellectual property rights as vehicles to leverage new sources of funding, for new ideas, faster.

And in a globalized world, comprehensive patent reform will increase productivity by enabling greater cross-border work-sharing between the USPTO and other patent offices. This updated patent infrastructure also levels the playing field for small enterprises seeking to participate in the global marketplace-enhancing American competitiveness. To this end, we've embarked on a lively conversation with key trading partners and patent offices overseas about ways to harmonize substantive patent norms, to ensure the global patent system accelerates global commercial activity, rather than impeding it, as can be the case now.

As this bill is currently under consideration in the US House of Representative, let me be clear about one thing: completing patent reform is not about politics; it's about ensuring that we are doing everything we can to create a more efficient IP system, lift your businesses, spur growth in America and out-innovate our economic competitors. In the decade we've been debating patent reform, the system has largely moved sideways-with the exception of the good work the courts have done. So here we are, years later, and each patent application sitting idle in our backlog represents a job that could-have-been. Each file that hasn't been reviewed because of insufficient resources represents a market that could-have-been. To ensure that we are able to out-build, out-educate and out-hustle our economic rivals-we can no longer remain bystanders, witness to chokeholds on innovation. We must get patent reform completed now.

Now creating and sustaining a more robust IP system is especially important because the dynamics of your industries are rapidly evolving. Historically, when innovative products and services were introduced to society, it was fairly easy to conceive of them as stand-alone tools specific to a market, niche or industry. Vaccines were largely biological, medical devices were largely mechanical and telecommunications were largely fiber optic. But as we continue to seed new ideas, and as industries continue to leverage the cutting-edge potential of digital technologies-it is clear that the next generation of innovation is increasingly more cross-disciplinary. Great new products have one foot in neuroscience, another in software, and yet another in nanotech. These kinetic realities demand intelligent engagement and a smarter infrastructure to keep up. So just as vital as the technologies underlying these multidisciplinary products and services, so too are the IT capabilities of the USPTO that process, examine and grant their patents.

Ensuring generation-changing ideas reach markets quickly, requires adept information technology systems. Good government and modern statecraft cannot just aspire to efficient data processing-our innovation economy and subsequent growth is squarely dependent on it. And the IT systems at the USPTO have certainly left a lot to be desired. Acknowledging that urgency, we've set out to fix it.

For example, last year we received around 35,000 petitions. Many thousands waited for months until our staff could process them. Well that has all changed. In one of the first components of our new IT system we've introduced a web-based, fully automated system enabling instant-grant and certification in many petition categories-one-third of all petitions to be exact. The new system will offer fast service, move requests along in minutes, that now take months-and make better use of PTO staff's time by allowing them to focus on other work. And in the first month since we've introduced this program, we've already seen a 20% adoption rate of petitions go through our online portal.

Developing a better information technology system for the PTO also requires equipping stakeholders with the right tools and information to make everyone's lives easier. Since the Manual of Patent Examining Procedure and the Trademark Manual of Examination Procedures are the blueprints for interaction with the PTO, we've also established a means to streamline how updates to those important documents are incorporated and shared to minimize redundancies and highlight pivotal changes. The new infrastructure is already deployed internally and you'll soon see the effect in the form of improved documentation from PTO.

Ultimately, we are working tirelessly for a 21st century system that works smarter, better, and faster for all stakeholders to benefit from-automated searches; pre-exam screening portals; an automated workflow for all PTO business transactions; more dynamic image searches and better usability-these are all components of an office that is serious about modern innovation-and both Deputy Director Rea and I are committed to building a USPTO that utilizes a nuanced IT ecosystem, as a springboard for balanced patents and the IP transaction potential they command.

In truth, what all these efforts strive to do, is keep up with a new reality. In a single generation, revolutions in technology have transformed the way we live, work and do business. Today, just about any company can set up shop, recruit talent, and move their products wherever there's an Internet connection. They're also moving these products on an intellectual property backbone.

Meanwhile, nations like China and India realized that with some changes of their own, they could compete in this new reality. And so they started educating their children earlier and longer, with greater emphasis on math and science. So, yes, the world at times can appear staggeringly different, and the competition for jobs is real, and it is global. But part of remaining competitive in this economy is recognizing that innovation is not measured simply by the number of patent applications filed or patents granted. Rather growth is measured by smarter, more nuanced investments and trade associated with the IP.

According to the World Bank, in 2009 (the last reported year with available data), the revenues and royalties generated from the licensing fees for patent protected products in the US amounted to $89 billion dollars, far outpacing the next four most powerful economies combined. A smart growth economy, therefore, isn't rooted in an infrastructure that just blindly pushes along IP for the sake of numbers, but rather one that adeptly incubates good ideas, offers high quality reviews, and swiftly brings the best products to the marketplace. This smart innovation, and the infrastructure that makes it happen, writes the next chapter of American growth.

I have had the distinct pleasure of witnessing that smarter, next-generation-innovation on full display throughout this country-entrepreneurs across the country are harnessing the power of cutting edge business tools, and social enterprise, to tackle generational challenges. These innovations address everything from medical supply relief efforts in Japan, to micro-lending applications on Facebook that offer loans to health practitioners in rural parts of the world, by the click of a mouse. The ability to develop tools in the name of cause-based enterprising is an endeavor that may still require investment capital, but leaves the rest of the world inspired through human capital-and that's an example of the sort of nuanced innovation that continues to mark excellence in American leadership.

That's why the USPTO is also proud to play a role in accelerating socially conscious technologies. Under our Green Technology Pilot Program, patent applications involving reduced greenhouse gas emissions, energy conservation and environmental quality are accelerated in their review. And at no cost to the inventor. By advancing a commitment to building a more sustainable energy future, the US Patent and Trademark Office is able to spur additional innovation and promote green collar jobs that provide our world with alternatives to harmful energy practices.

We're also working towards launching a Humanitarian Pilot Program that will reward companies for using their patented technologies as philanthropic vehicles to heal the sick, feed the poor and inspire hope in communities all too often forgotten by the rest of the world. By leveraging intellectual property for the benefit of others, the USPTO is leading the charge in demonstrating that the US is not just the world's chief global competitor, but also its chief global citizen.

Ladies and gentleman, a changing world requires new partnerships and new solutions. As the government invests in the building blocks of innovation through new infrastructure and new research, we can establish an environment ripe for private sector investment and competitive markets, if we smartly invest in the innovation that will win America's future. Boosts in R&D investment, public-private partnerships, and cause based technologies are all essential to 21st century business. And the Commerce Department and USPTO are committed to creating 21st century business opportunities in our country.

But if there's anything you take away from our conversation this morning, please recognize that the end of these efforts is not just to manage innovation for innovation's sake. Instead, by cultivating technologies, by respecting them and protecting them, we can give ideas the vehicles they need to spread across continents and societies. All parts of the US innovation value chain must remain vibrant. And if amplified by good government policy, the current re-aligning trends can support one another to preserve American excellence in out-building, out-innovating and out-hustling our economic competitors.

Thank you.