Federal Circuit Bar Association Remarks
Under Secretary of Commerce for IP & Director of the USPTO David Kappos
November 30, 2012
Federal Circuit Bar Association, London
Good morning, everybody. Let me say what an honor it is to be your guest today in the great city of London, the capital of one of the world’s leading economies and one of the America’s most important trading partners, the United Kingdom. Being here, and meeting with professionals engaged in this country’s intellectual property and innovation community, seems highly appropriate. I’m looking forward to our time together today.
Last week in the United States we celebrated the American holiday of Thanksgiving, when we join family and friends to give thanks for our many blessings. This year, as director of the U.S. Patent and Trademark Office, I have been particularly thankful, because I have had the good fortune to lead our agency during a period of truly historic change in our nation’s IP laws. Our ongoing implementation of the America Invents Act—the most significant reform to the U.S. patent system since 1836—empowers us to engage even more directly with our overseas partners, such as the U.K.
Cross-border IP policy engagement is critical, as we know. In our 21st century global economy, IP drives manufacturing, exports and job creation, both in the U.S. and here in the U.K. Wherever, in fact, innovation is rewarded and protected.
Earlier this year, the U.S. Commerce Department released a report titled “IP Industries in Focus” that found in 2010, IP-intensive industries supported at least forty million U.S. jobs, accounting for about 5 trillion dollars—about 35 percent — of my nation’s gross domestic product, and more than 60 percent of total merchandise exports. USPTO’s economics team worked with others in Commerce to quantify what we already knew, that IP is central to today’s knowledge economy.
The U.S. Congress knew this full well when, by overwhelming bipartisan margins in the House and Senate, it passed last year the America Invents Act, or AIA. We’ve been implementing the AIA, and it’s clear the new law will allow us to continue to boost patent quality while simultaneously increasing patent processing speed and efficiency. When I travel outside of the U.S., much of the focus I hear on AIA is related to our shift to a first-inventor-to-file system. We will implement the final rule on that change next year in March, but we’ve already implemented many of the AIA’s critical provisions.
For the first time in the history of our patent system, third parties can submit prior art to our examiners, referencing a specific application and including an explanation of how the prior art relates to the application. Given the enormous amount of prior art information now available from a multitude of sources, it can be challenging for a patent examiner to find all of the relevant prior art for every patent application. We’re already receiving third-party submissions just two months after implementing this provision of the AIA. As of last Friday, we had received nearly 170 third-party submissions covering all types of technologies, including software-implemented innovations, networking and communication technologies, semiconductors and circuits, and optical systems.
One new private-sector initiative for crowdsourcing prior art is an online social network known as Ask Patents, by Stack Exchange. Subject-matter experts suggest prior art for given applications, and other experts offer their input on the proposed value of those suggestions.
The AIA also provides us three new review proceedings for issued patents—inter partes review (IPR), post-grant review (PGR), and covered business method review—which are heard by our new Patent Trial and Appeal Board, or PTAB, which replaced the Board of Patent Appeals and Interferences on September 16th. These appeal processes are far less expensive than litigation, and faster as well, because the statute mandates that the Board completes its work in one year. And our implementation of these new proceedings is timely, because the U.S. courts have been active in further defining and fine-tuning the standards for patent eligibility (101), obviousness (103), and clarity and adequate written description and enablement (112). We have new case law to apply—in some cases to patents issued prior to that case law being announced.
The new IPR replaces previous inter partes reexamination proceedings and allows for issues—for example 102 or 103—arising from patents and printed publications to be resolved with a heightened standard of reasonable likelihood of prevailing with respect to at least one claim. In contrast to the old IP reexaminations, any issued patent may be the basis for an IPR request. PGR represents an unprecedented opportunity to challenge a newly issued patent subject to the new first-inventor-to-file provisions under any ground, including 101, 102, 103 or 112. The only limitation here is that the challenge must be made within nine months of the issue date of the patent. The Transitional Program for Covered Business Method Patents is another option for applying tightened standards to existing patents. Here, the standards and procedures of PGR with a few exceptions are applied to business method patents.
In addition, the AIA also provides for Supplemental Examination, which allows patent owners to request resolution of any issues under 101, 102, 103 and 112, including, importantly, issues that may implicate a charge of inequitable conduct.
Now I mentioned earlier that the U.S. will shift this spring to a First-Inventor-to-File system. I know that this is a much-anticipated change. Clearly, that shift will bring us another step closer to substantive harmonization with our overseas counterparts, especially here in Europe. However, this is only one step in the right direction. The other necessary step in international harmonization—one Europe needs to take —is the adoption of a modern “grace period,” which has already been adopted in many patent systems around the world and is recognized as a global best practice.
A modern grace-period is anchored in the desire to more effectively match the rate and pace of the patenting process to the rate and pace of invention and commercialization. The U.S. grace period is a user-friendly exception to the general prohibition against any pre-filing disclosures in a first-to-file system. It particularly benefits small enterprises and universities and provides security for inventors who disclose an invention prior to filing a patent application.
This policy empowers industries to commercially advance innovations without fearing the loss of patent rights; simplifies the process of seeking international patent protection; and speeds the deployment of innovative goods and services to the marketplace. These reforms provide ample economic benefits while encouraging innovation in the countries implementing the grace period.
Just as our adoption of the First-Inventor-to-File system helps bring the U.S. in line with international filing systems, an adoption of a robust grace period by the European Union will enable greater collaboration between our countries, as well as job creation and market growth through innovation. The U.S. is serious about working with you here in the U.K., and indeed all across Europe, on this age-old issue of substantive patent law harmonization. In an effort to re-energize discussions on substantive patent harmonization, the USPTO hosted the “Asia-Pacific Patent Cooperation (APPC) Forum for the 21st Century,” in the spring of 2011. The forum, led by Heads of Offices, included informal discussions among like-minded Asia-Pacific economies, including several interested developing countries as well as interested observers. At the close of the APPC Forum, the participants agreed upon a statement that concluded: “The time for substantive harmonization is now. We are operating in a global economy, business innovation is happening across borders. The IP system needs to be supportive of this new reality.”
Then, the so-called “Tegernsee Group” was formed in July 2011, following the APPC meeting, and is comprised of the heads of the U.S. and U.K. patent offices, as well as European, Danish, French, German, and Japanese offices. Over the course of the next year, patent law experts from these offices will prepare a comparative analysis of substantive law applied in each jurisdiction. Earlier this year, the group reconvened near Munich to consider the results of the experts’ work and, at the conclusion of the meeting, agreed to a statement outlining further specific work for the experts to undertake, with a view to identifying and studying issues for further convergence. We were very pleased that the grace period was highlighted as one of four issues for near-term focused effort, and we’re optimistic we’ll see more progress on this very important harmonization issue.
But even beyond substantive patent law harmonization, there is much the world’s patent offices can do to improve the system for the benefit of innovators. And we’ve been working on some big plays in this area of patent office coordination. For example, we have worked closely with the European Patent Office over the last two years to develop a joint classification system under which patent applicants to both offices will have their technical documents reviewed using the same patent classifications.
The Cooperative Patent Classification (CPC) system will go into effect on January 1, 2013. In preparation, we published the CPC online in September, to allow patent applicants to familiarize themselves with it. The CPC includes approximately 250,000 classification symbols based on the International Patent Classification (IPC) system, enabling users to conduct more efficient prior art searches and incorporate the best classification practices of both the U.S. and European systems. It will also enhance efficiency through work-sharing initiatives designed to reduce unnecessary duplication of work.
Along these lines, it’s worth noting that we’ve been working closely with the UKIPO and many others on work sharing, in particular, furthering our patent prosecution highway to speed review of concurrent pending applications. Under PPH, an applicant receiving a ruling from one participating office with at least one claim in the application that is patentable may request that the other participating office fast track the examination of corresponding claims in their application filed with the other office. The PPH allows applicants to obtain corresponding patents faster and more efficiently.
When an inventor’s patent application is being processed in multiple regions of the world, these work-sharing systems enable offices to utilize one another’s search and examination results—thereby avoiding duplication of work and expediting the process of review; while at the same time boosting the quality of a patent—as multiple perspectives are brought to bear on the review of a single application. Not only do these programs have proven success rates, but they save many millions of dollars of applicant expenses, tens of thousands of examiner hours, and millions of dollars between patent offices, annually. The USPTO has PPH agreements with 24 offices. We have received more than 13,000 PPH requests since the start of the program, including more than 300 from here in the U.K.
In another aspect of the need to think globally about IP, USPTO engages directly with foreign governments and their innovation communities through experts “on the ground” with our IP attaché program. We have stationed IP experts—attachés —in key U.S. embassies and consulates around the world to engage directly with foreign governments. They work to encourage improved IP enforcement, as well as better IP laws needed to protect U.S. and EU innovations.
It probably won’t surprise you that we’ve placed multiple IP attaches in China—in Beijing, Guangzhou, and Shanghai. As China’s international trade of products and services rapidly rises, IP enforcement remains an important consideration for competitiveness—and issues such as trademark counterfeiting, copyright piracy, patent infringement, and the misappropriation of trade secrets continue to grow. We are working closely with China to ensure its IP laws are enforced under a clear rule of law. China has made some progress in the last few years, but far more needs to be done. And far more coordination with the U.K. and EU generally will be needed to get more done in China. From a judicial angle, decisions must increasingly take into account the need for our innovators to receive real access to justice and real access to the rule of law.
This in turn raises the next issue, involving extra-territorial enforcement and multinational infringement. U.S. courts are wrestling positively with both issues, I believe. We’ve seen cases in recent years such as Merial Ltd. v. Cipla Ltd., where U.S. courts have brought foreign infringers to justice despite the fact that a large part of the illegal activities took place overseas. In Merial, the Federal Circuit focused on the use of extraterritorial means to actively induce acts of direct patent infringement that occur within the United States. The court held Cipla in contempt of a prior injunction where it induced patent infringement from India. And we’ve seen cases such as NTP, Inc. v. Research In Motion, Ltd. where U.S. courts have found that patent infringement may occur based on the combined activities of several parties, in more than one country.
And now in the U.S., we are seeing state attorneys general bring suits against foreign actors who substantially infringe IP rights overseas and obtain an unfair competitive advantage in their businesses by way of such behavior. All of these efforts represent constructive, practical approaches by judges and AGs to advance the justice system and the IP system so that it remains effective—relevant—in a competitive environment, where some countries and their companies do not have a well-developed rule of law or respect for law as we hold to be self-evident.
In addition to patent office harmonization and cooperation, other important international patent issues continue to face our courts, legislators and stakeholders. One is a licensing issue—the issue of patents involved in standard-setting activities, where participants agree to license their patents to other participants on “fair, reasonable and non-discriminatory” terms, or FRAND. The concern stemming from standard-essential patents, or SEPs, is that the owner of that patented technology may gain market power and may take advantage of it by engaging in what is known as patent “hold-up,” excluding a competitor from a market or obtaining an unjustifiably higher price for the use of the patented technology.
Another concern is late opt-out, where a participant holding a SEP walks away from the standard after many participants have invested years of effort in creating the standard. Yet a third concern arises where a SEP holder sells a SEP to another party without binding the buyer to the FRAND terms earlier agreed to by the seller. FRAND terms are meant to avoid these issues. They allow a standard to have the chance to become successful and provide assurances to implementers of the standard that the patented technologies will be available to those willing and able to license them.
Where money damages are available for infringement of an FRAND-encumbered patent, an injunction or exclusion order preventing companies who practice the standard from using the patented invention may not be appropriate in some circumstances. By the same token, a FRAND commitment cannot reasonably stand for licensing under any terms and conditions. An alleged infringer could opportunistically refuse to negotiate licenses on FRAND terms. Given the global nature of many FRAND licensing disputes, a coordinated global solution to FRAND disputes is a goal to which we should aspire. But FRAND disputes are an international issue with international effects, and an international dialogue on how best to handle them is appropriate.
In addition, we should be cautious in one jurisdiction before interfering with a remedy for domestic patent infringement granted in another jurisdiction. There may be reasons in individual cases to delay or refuse enforcement of a remedy, for example where the basis for doing so is a voluntary commitment made by the patent owner. But to ensure the reliability of IP rights and continued incentives to innovate, these exceptions should be relatively rare.
National courts may have an important role to play by determining FRAND rates where individual companies have disputes. One such trial was recently held in Seattle, and the decision is forthcoming. There, a United States District Court is hearing a breach of contract case brought by a standards-implementer against a holder of standard-essential patents. The implementer alleges that the patent holder failed to license the patents on FRAND terms. While the case was pending, the district court in that case granted what is known as an “anti-suit injunction.” The injunction prevents the patent owner from enforcing an injunction it obtained in Germany for infringement of German standard-essential patents, and lasts until the district court concludes its decision in the contract case. The U.S. Court of Appeals for the Ninth Circuit recently affirmed the district court in this regard.
The balance between strong IP rights and effective competition is a delicate one. It is critical to continuously adjust and maintain this balance to keep both the U.K. and the U.S. innovative and competitive in today’s global economy. Our policymakers and our innovators are united in desiring that balance. And the global economy depends on it—depends on us—to ensure that innovators in both of our countries have the IP protections they need to attract capital investments; develop, manufacture, license, and export those inventions; and raise all of our boats in this turbulent sea that is the global economy.
Thank you for your time.