Fordham International IP Conference


Under Secretary for Commerce for IP & Director of the USPTO David Kappos

Thursday, April 8, 2010

Fordham University School of Law


Good morning. It's great to be back home in New York, and back for another Fordham International IP Conference. Let me start by thanking Fordham University School of Law and Director Hugh Hansen for once again setting up this great event.

I'd like to begin today with a little stage setting regarding the increasing criticality of IP in our global economy. Then I'll speak about some topics I know are critical to all of us in this room: patent law harmonization, worksharing, Internet copyright policy, and I'll conclude by saying a few words about the law of intent as it is evolving in U.S. patent law.

As we move into the second decade of the 21st century, it has become increasingly clear that innovation is the only sustainable source of competitive advantage for world economies. And the distance between innovation and marketplace is shrinking. Said another way, innovation is moving more quickly from creation to manufacture. This trend is irreversible.

The result is that IP is the necessary instrument-the only instrument-for innovators and businesses to capture value as ideas move to the marketplace. In this way, IP is fast becoming the world's currency of innovation.

At the same time, labor arbitrage will become less the driver of where manufacture occurs. Instead, firms will hire in places where they can find the most talented workers and the best IP protection. This shift will reflect a new dynamic; marketplace success will be less about lowest-cost manufacturing, and more about who will be innovating the products and services firms produce.

In this new environment, all of us in this room own the challenge and the responsibility to create a high exchange rate for, meaning to ensure value and stability for, the currency of innovation-and to foster greater understanding and respect for IP so that all countries can prosper. It starts with providing quality and timely access to IP protection. Right now, as you know, it takes far too long for innovators to get patents.

Average total pendency at the USPTO, as it has been traditionally measured-from application to final action-is nearly three years, and in some technology centers it can be much longer. These unacceptably long pendency periods are a by-product of a backlog of more than 700,000 applications. In the last couple of years the backlog has not increased much because the recession has caused a leveling off in patent application filings. But we are missing a big opportunity to start getting the backlog under control, at a time when we do not also have to deal with escalating filing rates.

Of course, while we work on pendency, we also must improve quality at the USPTO. Quality patents, as you all know, are critical to the proper functioning of the patent system. Quality issuances provide certainty in the market and allow businesses and innovators to make informed and timely decisions on product and service development. And they build confidence in the currency of innovation. So, as we're working hard at tackling the application backlog, we need to make sure we're issuing high quality patents-and denying insufficient applications where appropriate.

In the effort to fulfill our mission and foster economic growth, we have reset the agency's top priorities and the strategy we'll use to achieve them. In the coming weeks, we'll be seeking public comment on our new strategic plan, which enumerates all of the agency's goals and initiatives. Today, I'd like to focus in on some critical issues that will be detailed in the plan-issues that are vital to improving the USPTO, as well as IP systems globally-harmonization and work-sharing.

Harmonization & Standardization

Worldwide, there is broad agreement that the public gains when the world's experts in areas of science and technology disclose their advances in a manner that seeds new ideas, forces new approaches, and teaches the public-with clarity-exactly what has come before.

Further, we agree that basic standards of novelty, inventive step, clarity, and usefulness are all requirements that are fundamental to ensuring public benefit from any patent system. We agree that inventors deserve the right to profit from their inventions. We agree that IP rights must be granted in a timely and quality manner. We all agree on the basics.

The issues that separate our systems turn on the details, if you will. And those disagreements are costing us a lot economically because they're preventing progress on those issues that really matter in advancing the currency of innovation.

In the United States, we stand at the precipice of passing an historic patent reform bill. The bill would move the United States to a first inventor to file system, remove the issues of Best Mode for all practical purposes, and substantially improve many other facets of the U.S. patent system for all users.

Now, what about 18-month publication? There has been a lot of concern about the fact that not every single application filed in the USPTO is published.

Let's be clear, this criticism has grown threadbare-to say the least. Based on recently updated statistics, in 2009, only 6.5 percent of applications received at the USPTO requested non-publication. And that includes business method applications. Excluding 705 applications, it was 6.1 percent. And this number has declined steadily since 18-month publication was started in the U.S.

We must not let important harmonization discussions be held up by an insubstantial issue. Instead, we need to focus on promoting those laws that make sense-collectively-for all of our countries. To do so, we must ask what laws best promote full disclosure, early disclosure, and maximum dissemination of information. We must promote laws that allow inventors to secure funding for further R & D and business expansion. To that end, it's time for the entire global IP community to implement laws that ensure the quid pro quo of the IP system-for many, that means adopting appropriate grace periods.

It's not about imposing the will of one country on another or challenging sovereignty; it's about each country adopting the laws that make the best sense for the currency of innovation-in a way that furthers the basic principles we all agree on. Most importantly, we can no longer afford to focus the large majority of our efforts on quibbling over imperfectly harmonized laws.

We need to own our role as an international IP community. Our strength includes the capabilities of our national IP agencies as administrative bodies. As such, we need to increase our focus on standardizing practices-the practices our IP agencies control and implement every time we examine a patent application. Even if the laws are slightly different, we can fulfill our fundamental mission if we can standardize best practices of examination itself. Focusing on standard forms and processes, on search, and ultimately, on claim interpretation, allows us to make work-sharing work.

And what I'm talking about now isn't harmonization, to use that word again-it's standardization. Harmonization will benefit the world's IP system greatly but it's a heavy lift. We can make progress on standardization in any event-a much lighter lift. And without an intense focus on standardization, we'll fall further behind where we are now. That's why, in 2008, the IP5 Offices commissioned projects to create common work tools, search databases, search strategies, recordation procedures, and application formats.

These are critical projects for the International IP community, and the USPTO is going to commit resources to accelerate them. I'll be meeting with the IP5 Heads of Offices next week, and at that meeting, I'll be offering and recommending dramatic acceleration of several standardization projects. Standardization is the first step in bringing work-sharing to scale. Re-use is the second step. So, while we work toward standardization, we need to continue moving ahead with work-sharing programs that show promise.

In this regard, we're continuing our work at USPTO to improve our handling of PCT applications across the board-from implementing improvements based on our recent public comment period and roundtable, to working with our PCT contractor on management, incentive, and quality issues. We are on the road to ensure PCT applications in the USPTO receive world-class handling and resume their place as a critical work-sharing vehicle.

And this brings us to "the other" very promising work-sharing instrument: PPH. The Patent Prosecution Highway has demonstrated its viability as a work-sharing tool that can reduce both applicant and patent office rework. Some recent statistics on PPH demonstrate its effectiveness:

First action allowance rate for PPH applications is about 25 percent or about double the normal first action allowance rate for all applications.

Overall allowance rate for PPH applications is about 93 percent, also about double the normal allowance rate for all applications.

The number of actions per disposal for PPH applications is about 1.7 vs. about 2.7 for non-PPH applications.

It is clear that PPH works, but the program is applicant driven, so we need help to initiate the process. We'll do our part at USPTO -- I've asked the team to drop the PPH petition fee altogether, and simplify the required petitions. I've also given the agency specific numerical targets: we're aiming for 4,000 PPH cases by the end of this year; 8,000 by the end of next year; and 16,000 by the end of 2012.

To help get there, UKIPO and the USPTO recently announced a new bi-lateral agreement to achieve maximal re-use of jointly filed applications. We'll do that by moving to an office-driven approach that gets search and examination information moving between our offices promptly in all applicable cases, and that ensures examiners are able to benefit to the maximum extent possible. We hope this program will serve as a model for other similar efforts.

And as we work to grow participation in work-sharing programs that are working already-we're going to devote more resources to standardization of office practices that will allow us to bring work-sharing to scale in a way that will benefit all partner offices and innovation communities.

Internet & Copyright

So, let's move to another IP area of particular concern to us at the USPTO: copyright protection. As a civics reminder, the role of the Under Secretary of Commerce for IP-my role-is to advise the president and the administration on all areas of IP. In this capacity, our team is devoting major energy to copyright issues in the digital age.

As an example, the USPTO is working within the Commerce Department and the administration to help shape copyright policy in the broadband era.

As the U.S. expands its broadband infrastructure, we will ensure that broadband is used solely for legal purposes-and does not become a giant engine of copyright infringement.

The FCC recently released its comprehensive national broadband plan to Congress. It is also working on proceedings to determine the scope of network neutrality, and the administration is expecting to file comments in that proceeding. The USPTO, of course, will be playing an important role in helping to craft the administration's position on this matter.

In addition, the USPTO, in cooperation with the National Telecommunications and Information Administration [NTIA], has a series of consultations underway on the topic. The output of the consultations will be used to formulate policy recommendations on copyright for the digital age. Specifically, we have announced a conference with NTIA on May 17.

Of course, any Internet 3.0 strategy requires that attention be paid to several areas. It requires developing technology that prevents illegal content from flowing on the Internet. It requires the aggressive prosecution of egregious, professional infringers. It also requires a balanced IP policy that makes appropriate exceptions and exemptions where called for.

In our view, improving copyright exceptions and exemptions while establishing and enforcing strong intellectual property rights must be, and are, complementary rather than contradictory goals. So, the USPTO will engage both domestically and with our trading partners to ensure the proper policy balance is struck around copyright and all other forms of IP rights.

Ensuring that IP works around the globe means exploring humanitarian connections for IP too. In this regard, our External Affairs unit at the USPTO is engaging with the business sector, other U.S. government agencies, and outside experts in search of solutions to IP challenges in developing and least-developed countries. This includes ensuring access to lifesaving medicines as well as modern crop and farming innovations, while still respecting the IP rights of applicable innovators.

We'll look forward to dialogue with the IP community as we roll out ideas and strawmen in this area.


I'd like to conclude today with a note on an important U.S. domestic policy issue, the increasing role of intent in aspects of patent law. For patents-an area of the law based on strict liability, it's amazing how much we're talking about intent these days. Intent issues have always played a role in inequitable conduct. But recently, we see them coming up also in false marking and indirect infringement.

Inequitable conduct allegations of course are a plague on the patent system. They're expensive, discovery-heavy, and most importantly, they usually don't get to the heart of patentability. In fact, they become a high priced side show to the real issues. In some cases, they come down to the last refuge of the blatant infringer.

Last year's Exergen decision was helpful in tightening the standards for pleading inequitable conduct. Relying on rules from securities fraud, the decision requires accusers to do more homework before making inequitable conduct allegations. The decision is a step in the right direction.

However, the conflicting standards of intent in Star Scientific and Ferring continue to muddy the inequitable conduct waters.

Star Scientific ratcheted up the requirement to prove intent. The standard set was the "single most reasonable inference" test. The test says that the single most reasonable inference must be that the patentee was attempting to deceive the patent office.

But while some recent cases apply the test, some do not; choosing instead to apply a "should have known of the materiality" test proffered in Ferring.

We need a rule that is clear and provides a high threshold to prove intent-like the test articulated in Star Scientific-and I believe the area is ripe for en banc review.

Now let's look at the evolving role of intent in the context of induced infringement. In DSU, the Federal Circuit held that a party accused of inducing infringement must have intended to cause the acts that constitute the direct infringement and must have known, or should have known, that its actions would cause the direct infringement.

More recently, in SEB, the Federal Circuit stated that, although active inducement requires knowledge of the patent, this standard can be satisfied if the accused party had a "deliberate indifference" of the existence of the patent.

In that case, the accused infringer was found liable because it had copied a patented product, hired an attorney to conduct a freedom to operate opinion, but did not tell the attorney that it had copied the patented product.

We'll see in future cases what other scenarios may be captured under the "deliberate indifference" test.

Turning to the last segment of our intent trifecta, we have the issue of intent in false marking, where we've seen a wave of recent lawsuits accusing patent owners of improperly marking their products with a patent number after patent expiration.

The false marking statute requires the patent owner to have had the "intent to deceive" the public with a false mark. The question remains open as to how much a party needs to show in order to prove that the patent owner acted with sufficient knowledge.

We look forward to further guidance from the court on this issue. It will be interesting to see whether the court analogizes the intent issue in the false marking context with the intent issues surrounding inequitable conduct, or induced infringement. In any event, trial lawyers must love the increased role the fact-heavy issue of intent is playing in the patent jurisprudence these days.

Closing Remarks

So, we have lots going on at the USPTO: dealing with our backlog, fixing our IT system, completing our strategic plan, motivating, coaching, and helping our employees excel in their jobs at all levels, leading in work-sharing, harmonization, and IP standards-setting, leading in IP policy setting across all IP disciplines, dealing with the glut of cases at the Board, and the list goes on, and on, and on.

We're going to need a lot of help from the IP community, those of you in this room, to address all of these challenges. We'll need a strong partnership to improve the operations of the USPTO, as well as the entire global IP system.

Toward that end, I'll now open up the conversation to our distinguished panelists.