Intellectual Property Priorities of the US Government

Deputy Under Secretary of Commerce for IP Terry Rea

April 27, 2011

The PhRMA Law Section

"Intellectual Property Priorities of the US Government "

Draft remarks as prepared for delivery


Good afternoon everybody and thank you for inviting me to participate in this year's annual law section meeting. I want to thank David Korn, Diane Bieri, and the PhRMA staff for helping to put this important event together-and giving all of us a chance to weigh in on what is undoubtedly an evolving IP landscape; impacting not only our businesses, but affecting the very way health solutions are made possible for families across the country.

And I'm particularly excited to address this audience because before being appointed Deputy Under Secretary of Commerce for IP and Deputy Director of the US Patent and Trademark Office, I too was a patent attorney in the life science space. And while the intellectual property 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 very businesses we all represent have to adapt quickly, identify new market niches, and tap into emerging innovation potential by staying on top of new research. We have to monitor trends in health care demographics and now we need to weigh how the passage of health care reform impacts our distribution pipelines. So while I am intimately aware of the challenges faced and the battles waged in the pharmaceutical and biotech industries, forums like these are vital to discuss solutions for efforts moving forward. Now this is especially important when you consider what this very conference, and all of you, represent for our country.

At a time where government struggles to balance its checkbook, your companies 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. Determined to accelerate the pace of economic growth and job creation, government and business alike strive to do more while working with limited resources. And it's a reality that doesn't just resonate in debates on Capitol Hill or in the cacophony of cable news chatter. It's a real pinch that's felt by everyone's wallets: families and schools, patients and health clinics, even clients and their lawyers. But American exceptionalism has never been a birthright. The economic security and vitality of the United States has always been deeply rooted, sculpted 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 while the 21st century continues to invent new challenges, their very solutions lie in the innovative drive represented in this room.

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 iBio Inc., located right here, in Newark, Delaware, that's leveraging research partnerships to develop plant-based treatments for serious infectious diseases. And it's the story of Microbial-ID that's building a cost-effective system to track microbes through landmark cellular fatty acid analysis.

But the enterprising drive on display here is not only about making sure an ailing parent gets to see their grandchild graduate, or lending a patient a new lease on life. 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. Since IP rights unleash American ingenuity and equip her with the tools to out-build our economic rivals, we in the IP community are not just in the IP business-we're in the economic development business, the growth business and the jobs business.

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 force. And in a 21st century globalized economy, not only can innovations be hastily co-opted by our competitors, but the very production and manufacturing jobs they give way to will only be spurred by a race to the bottom-blessing those economies with the low wages and even lower labor standards. This means that an environment ripe for development doesn't just balance market competition and fairness-it also 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 medical device business development, and accelerate success. Recognizing that need, the Administration is taking concrete actions to improve the environment for high-growth innovation through the Startup America initiative. By building partnerships with the private sector, the Department of Commerce and the Small Business Administration match up to $2 billion for private funds that invest in early-stage R&D, invest in businesses in underserved communities, and invest in small entities that face difficult challenges in accessing capital. These nationwide partnerships not only help break down barriers that independent entrepreneurs may face in seeking funding, they also encourage and incentivize direct partnerships between venture capital firms and small companies.

But 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 Delaware 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 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 afforded 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 an open dialogue about the application to boost the efficiency and quality of the review.

Moreover, the USPTO recognizes that much of research and development often involves a simple race against the clock. So, next 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 they can accelerate the speed of review with a fee, and if ideas require a bit more incubation time they 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 negotiations 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 is 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 medical sensitivities in an age where technological updates can be unveiled faster than a blink of an eye. So, the onus is really being placed on creating a smarter, agile and more nuanced Patent and Trademark architecture, which can adapt to evolving business needs and leverage modern tools address them.

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. Initially one might ask how many nerds out there are like us, and would really spend time providing prior art submissions? But, shortly after launching the pilot the site received thousands of hits, nearly a thousand pieces of art were submitted and, before we knew it, patent offices in other countries followed suit, and began their own peer-to-patent pilot programs. Tremendous interest has been displayed since we've launched the second pilot, and 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 new technologies seem to emerge up faster than we can keep up, innovation is truly enhanced when we take the time to robustly debate and examine ideas. Changes to the count system, the three track acceleration 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 lying in wait on the sidelines. 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. Despite the strides we've made, there is much more needed to optimize our infrastructure in order to bring new products and services to the marketplace as fast as possible. 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, 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. This is particularly crucial because in a world when innovation truly does turn on the quality and efficiency by which a patent is reviewed, adequate resources end up making the difference between: being able to acquire new tools or squander technological strides. Not only does passing this legislation give us a chance to improve the quality of examinations without adding a dime to the deficit, but it allows the USPTO to actually use your fee payments to do the job you're paying us to do in the first place! By processing patents in a shorter amount of time, health-based companies will be able to use those intellectual property rights as vehicles to leverage even more funding.

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: passing this bill 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. And while I stand firmly with the President and the Secretary of Commerce in making patent reform a top priority, we can openly acknowledge that this legislation is a compromise, and the result of many rounds of negotiations.

Yet, 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 industry 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 very technologies these multidisciplinary approaches rise to, so too are the IT capabilities of the USPTO that process examine and mark their patents. Ensuring generation-changing ideas reach markets quickly, requires adept information technology systems. Good government and modern statecraft cannot just aspire for efficient data processing-our innovation economy and subsequent growth is squarely dependent on it. The IT system at the USPTO has certainly left a lot to be desired. So acknowledging that urgency, we've set out to fix that.

For example, last year we received around 35,000 petitions. Many thousands waited for months until our staff could process them. Well that is all about to change. In one of the first components of our new IT system, in the coming weeks we'll be introducing a web-based, fully automated system that will enable you to retrieve 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.

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. That means optimizing the speed and accuracy of our current search tools and building out a community wiki to give office staff, practitioners and applicants alike a chance to share, update and pull down information to better inform their efforts. 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 are incorporated and shared to minimize redundancies in addenda and highlight pivotal legal changes. You'll see the fully re-engineered MPEP/TMEP rolling out very soon.

Ultimately, we are working tirelessly to strive for a 21st century system that works smarter, better, faster and stronger for all stakeholders to benefit from-and for current stresses on the IP system to be relieved. Automated searches; pre-exam screening portals; an automated workflow for all PTO business transactions; more dynamic image searches and friendlier usability. These are all components of an office that is serious about modern innovation-and both myself and Director David Kappos are committed to building the sort of office that utilizes a nuanced IT ecosystem, as a springboard for stronger patents and the growth 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, whether in Minneapolis, Minnesota or Wilmington, Delaware-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 leading in creating 21st century business opportunities in our country. But if there's anything you take away from our conversation, 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.