Building Bridges and Making Connections Across the IP System
Under Secretary Kappos
May 11, 2010
Thank you for inviting me to join you today. Thank you to the team from George Washington University for hosting us, and thanks in particular to Mark Whitaker from Howrey LLP for his leadership in putting this event together.
I'd like to speak today about some emerging trends regarding our intellectual property system-trends that, if managed right, can bind and connect and can open up expansive new opportunities. If we don't manage these trends, they can lead to further divisiveness and lost opportunities for the intellectual property (IP) system.
As you well know, in the last decade, we've seen the world get smaller and smaller.
One result of the trend is that the interplay between intellectual property and global market forces has become decidedly more complex, more pervasive, and more critical.
As global connections emerge, it is imperative that the global IP community identify and build bridges among different areas of the law, as well as related commercial disciplines, so that each informs the other, and so that the importance and pervasiveness-of the opportunity inherent in IP-may be appreciated across disciplines and across borders.
Concurrently, we must recognize emerging connections within domestic IP law-connections that will guide the future of our law and policy, and optimize value for innovators and the public.
We've seen evidence of IP's economic impact in the explosion of patent litigation in the past decade plus. In fact, patent issues have become increasingly intertwined with business strategies generally. Issues that did not seem connected in the past have now clearly interconnected, across many disciplines.
The criticality of this interconnection is that innovation is the only sustainable source of competitive advantage for world economies.
Plus, the distance between innovation and marketplace is shrinking. Said another way, innovation is moving more quickly from creation to manufacture.
The result is that IP is becoming the necessary instrument-in many cases, the only instrument-for innovators and businesses to capture value as their goods and services move to the marketplace.
In this way, IP is fast becoming the world's currency of innovation.
And that brings us to our first area of connection: economics and IP. After years of under-appreciation and under-resourcing, IP's connection to things real people care about-like jobs, opportunity, health and healthcare, new and useful products and services-has come to the fore, and we're finally working to better understand the economic implications of IP.
To help drive the research process forward, the USPTO has created a new Office of the Chief Economist, and we've hired Dr. Stuart Graham to head this office.
Under Dr. Graham's leadership, the USPTO in coordination with the Department of Commerce recently issued a jointly authored study entitled, "Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs."
The paper sets forth empirical data in support of innovation's role as a key driver of a pro-growth, job-creating agenda. This is an underdeveloped area of economic inquiry and one in which more work needs to be done. This paper is an important beginning, and I'd like to highlight some of the paper's findings on the economic effects of innovation.
- Technological innovation is linked to three-quarters of our nation's post-WW II growth rate. Two innovation-linked factors - capital investment and increased efficiency - represent 2.5 percentage points of the 3.4 percent average annual growth rate achieved since the 1940s.
- Innovation produces high-paying jobs. Average compensation per employee in innovation-intensive sectors increased 50 percent between 1990 and 2007 - nearly two and one-half times the national average.
- Highly innovative firms rely heavily on timely patents to attract venture capital - 76 percent of startup managers report that VC investors consider patents when making funding decisions.
Adding its weight to the discussion, last week, the Harvard Business Review published an article entitled, The Biggest Job Creator You Never Heard Of. The article posits that your United States Patent and Trademark Office "may be the single greatest facilitator of private sector job creation and economic growth in America."
The significant connection between IP and economic growth is starting to become more vivid. But we're at the start of a journey in this regard, not the end. To get there, we patent attorneys will need to check the plastic pocket-liner, number 3 mechanical lead pencil gene we all carry inside us-because the "science of economics" is not always simple or clear. The connections are not quite as clean and deterministic as in the engineering world we are accustomed to.
This is part of the opportunity for us patent people to grow, to understand that in the nature of connections, what was once a domain we "owned" and "controlled" is becoming more of a shared world. We'll have greater dialogue with others, and we will need to understand others' views of IP-views which may originate from other domains like the domain of economics.
Just as the IP community shares its role in identifying emerging connections and building bridges between IP and economics, it is our responsibility to seek to understand the connections among our patent laws and the impact they have on one another.
One thing we can be sure of is that the value of a patent increases when its metes and bounds are clearly defined and consistently interpreted under the law. Clarity leads to certainty, which leads to efficient and confident determination of value, which leads to high value for high quality patents.
On the other hand, uncertainty means risk. Risk that a patent is invalid. Risk that a patent does not protect the patentee's products and services. Risk that infringement cannot be proven. And in an uncertain, risky environment, where high quality cannot be readily recognized, even the best patents covering the best inventions do not get the respect they deserve. All of this serves to devalue the currency of innovation.
And as we work to foster a system that provides maximum clarity, we must be mindful that no part of the patent law functions in isolation.
Put simply, if we don't actively manage and develop the relationships among our IP laws, we risk confusing what we set out to clarify.
Let's take a look at some examples-some connections, and some of the bridges we can build to ensure that American IP laws provide certainty and clarity to rights holders and the public alike.
Let's begin with an important domestic policy issue-the increasing role of intent in patent law.
It's amazing how much we're talking about the role of intent in patent law these days. This is true despite the fact that patent infringement is by definition a strict liability tort.
Intent issues have always played a role in inequitable conduct. But recently, we see intent coming up in false marking and indirect infringement cases as well. So I see intent as an area of the law that needs to be developed with sensitivity to connections.
Inequitable conduct allegations have been called 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.
Specifically, the conflicting standards of intent in Star Scientific and Ferring continue to muddy the inequitable conduct waters.
In 2008, the decision in Star Scientific clarified the requirement to prove intent. The standard set was the "single most reasonable inference" test.
But while some recent cases apply the test, some do not; choosing instead to apply a "should have known" standard for intent, citing Ferring. "Should have known" resembles simple negligence-not deliberate, deceptive behavior.
To cure the plague of inequitable conduct, we need a rule that is clear and provides an appropriate standard for intent.
Last month, in my remarks at Fordham's International Law Symposium, I mentioned that I thought the issue was ripe for en banc review.
Well, it took a few weeks, but I'm glad to see that the Federal Circuit has taken up the issue in Therasense.
Kidding aside, the Federal Circuit has asked for the USPTO's opinion in Therasense, and we look forward to delivering our amicus brief in that matter.
And as the Federal Circuit looks at the intent question relative to inequitable conduct in patent cases, the court's decisions may well be informed by its earlier decision in Bose-a trademark case in which the Federal Circuit overturned the Trademark Board's "should have known" standard - another opportunity to connect across areas of law.
The Bose decision ended what I think was a too aggressive and too broad interpretation of fraud on the Trademark Office.
So, that's one connection in the law of intent-between inequitable conduct and trademark fraud.
I'd like to turn now to intent in the context of induced infringement-another connection opportunity.
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, the active inducement 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 study, 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" standard of intent.
Turning to the last segment connecting the law of intent, 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 a patent owner to have 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 intent. Recent case law dealing with damages has made a cause célèbre of this area of the law, escalating in importance the question of requisite intent.
We look forward to further guidance from the court on this issue. And it will be interesting to see whether the Court analogizes the intent issues 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.
Now the connections in patent law are not limited to issues of intent. We're seeing decisions around §101 impact each other as well.
I don't think there is anything I can say at this point about the Bilski decision that hasn't already been said, and probably by many of us in this room.
But in keeping with the theme of our PTO administration, of finding connections and building bridges, it's important to note the likely impact of the Bilski decision across industry sectors-that is, to consider technology-based connections.
With regard to biotech, the Myriad case may soon be before the Federal Circuit.
In Myriad, the District Court held that the product claims were invalid under Section 101 of the Patent Act, because, according to the court, they covered a "product of nature."
This has a potentially enormous impact on the bio industry. The USPTO has issued more than 20,000 patents claiming isolated DNA molecules, almost 4,000 of which directly claim isolated human DNAs encoding a protein.
The USPTO has also issued tens of thousands of patents on other types of isolated and purified chemicals, all of which could be put at risk by the District Court's decision.
The USPTO has for decades issued patents covering isolated and purified DNA on the scientific basis that an isolated snippet of DNA does not "exist" in nature in the way it is claimed in patents, because naturally occurring DNA must be isolated - that is, separated from the surrounding biological material - and purified. Your body does not contain isolated DNA. Isolated DNA simply is not found in nature.
By way of analogy, to say that an isolated, purified DNA sequence is a "product of nature" is like saying that a silicon wafer of 99.9999 percent purity used in the microelectronics industry is a "product of nature," because silicon is found in the Earth's crust. Of course, wafer-grade silicon is not found in nature, but requires an intricate and laborious "purification" process of its own.
So we can see a technology-based connection affecting industries as far away as semi-conductors stemming from the "isolation" and "purification" test.
It has been the view of the USPTO that the purified version of a naturally occurring compound-where the purified version does not exist in nature-is eligible for patent protection.
With regard to the method claims at issue in Myriad, the viability of those claims may well be impacted by the pending Bilski case at the Supreme Court. It may seem unusual that a business methods case could affect a case relating to genetic technology. However, the Supreme Court's decision in Bilski, as it relates to the meaning of "process" in section 101, will read across all technology sectors. The Bilski case provides a great example of emerging connections throughout the law and how those connections may impact different industry sectors.
One of the more interesting connections between different statutory patentability requirements is that between the requirements for written description and enablement.
The en banc court in Ariad concluded that these are separate requirements.
Some on the court posited that the sufficiency of written description is measured by enablement, thus connecting the two. Much was made of the view that enablement can do most-if not all-of the work of written description.
That is not true.
The Office recently conducted a survey of 6,865 final rejections issued over a 4.5 year period between 2005 and 2010. A written description rejection-without an accompanying enablement rejection-was made in about 9.7 percent of all applications during this time period.
In my view, 9.7 percent is quite substantial. Would you think a 9.7 percent change in your investment portfolio is substantial?
So, the data shows that the written description doctrine is essential to the Office's ability to perform its basic examination function.
But, even if one considers 9.7 percent to be little used, let's be clear, little used does not mean useless.
The Ariad decision is critically important for the Office because written description is our backstop, behind enablement, to ensure that applicants do not claim more than they are entitled to claim.
The requirement is extremely useful to protect the integrity of the patent system and the public, against the issuance of overbroad patents, and especially against the most pernicious overbroad patents - those claiming results versus how those results are achieved, and those claiming problems rather than solutions.
And here we see another connection - to §101 in a first direction, and to §102/§103 in a second direction.
All of these doctrines connect and support one another in a delicate equipoise.
§101 sets forth what subject matter may be patentable. At the same time it helps to guard against over-breadth in claiming at the extremes-supplementing the function served by §112 around the mean. For example, a method claim that recites all ways of achieving a result, without specifying the means for doing so, is essentially a claim covering an 'abstract idea' or 'phenomenon'-a violation of §101 that also poses problems of enablement and 'possession' under §112.
In other words, some claims are so over-broad that they fail under both §101 and §112. Here we see §101 play a role as "coarse filter" and §112 as "fine filter" to ensure the applicant gets protection that is limited to what is described and what is enabled, i.e. what she has invented.
§112 further ensures that the applicant actually describes the invention that she possessed. At this point, the §112 "filter" begins to work with §102/§103 "filter" in that we must know the boundaries of an invention to know whether it is novel and non-obvious over the art.
While it may be easy to view these many doctrines in isolation, it is only when the three filters work together-and when we as a community identify and connect the filters in a holistic way-that we have clarity and certainty in decisions of patentability.
I began this morning speaking about the emerging interconnectivity between intellectual property and global economics. To be sure, as our economy's dependence on IP-heavy products and services grows, so does the need for clear and balanced IP protection. This will lead to a high, stable value for the currency of innovation.
For those of us in the room today, many of America's foremost IP thinkers, it is critical that we work to increase clarity and confidence in our IP laws. We'll do that by seeking balance, and by recognizing and developing connections across the IP laws so that the various individual doctrines support and reinforce one another, forming a seamless facilitative web. This means anticipating the effect of each decision or rule change on the system as a whole.
It is imperative that we engage in robust debate on these issues; that we use each other as resources in our mission to form the connections and build the bridges that will clarify those parts of the IP systems that from time to time become unclear.
Thank you again to our hosts, George Washington University, for having us here today, to Mark Whitaker for putting this event together, and to all participants and attendees for your contributions to teaming in support of a connected IP system, and a connected IP community.