Remarks delivered at the Standard-Essential Patents Strategy Conference
Under Secretary of Commerce for Intellectual Property and Director of the USPTO Andrei Iancu
September 10, 2019
Solvay Business School – Université Libre de Bruxelles (ULB)
As prepared for delivery
Good morning, everyone, and thank you for that kind introduction. It’s truly an honor to be here, in the great, historic city of Brussels. And greetings from Washington, D.C.
On the morning of February 7, 1904, not far from D.C., a dry goods store in downtown Baltimore, Maryland, burst into flames. The fire alarm sounded, and firefighters from several units throughout the city rushed to answer the call. As they smashed through the burning building, explosions shot embers through the broken windows and onto neighboring structures. Before long, the fire—believed to have been ignited by a discarded cigarette in the building’s basement, near a pile of wood shavings—fueled a blaze that would go on to destroy much of central Baltimore.
Firefighters from other cities, including Washington, D.C., and Philadelphia, were sent to help battle the inferno, but they quickly encountered a serious problem. Because there were no national standards for fire-fighting equipment in those days, firefighters from one city could not effectively use the equipment from another city. Indeed, poorly matched and hastily bound hoses emitted weak streams of water, while some fire fighters ran out of hose as buildings collapsed before them. This, in turn, wasted precious time and prolonged the fire. And so, Baltimore burned.
Over the course of 31 hours, the fire went on to consume 70 city blocks, including 1,500 buildings and 2,500 businesses. All told, the property loss from the disaster was an estimated $200 million, and 35,000 people were thrown out of work, sending the city into economic turmoil. It was the most destructive conflagration in the United States since the Great Chicago Fire of 1871. A real tragedy, aggravated by the lack of standards.
But as it often happens with crises, powerful lessons were learned. For one thing, when the fire first started that fateful February morning, the U.S. patent system had no shortage of fire-fighting innovations. Indeed, as of 1904, nearly 1,000 patents related to fire fighting, including those for fire hydrants, hoses, and connectors, were in force. But there were no patents on technology associated with fire-related standards. Because there were no standards. That was about to change.
Though it destroyed much of Baltimore, the Great Fire of 1904 lead to new methods of fire safety and much-needed reform that was essential in keeping the public safe. Within two months, in fact, legislative bills and conferences were held to standardize fire hoses, and many cities began replacing their fire hose couplings. The National Fire Protection Association (NFPA) and National Board of Fire Underwriters (NBFU) established certain standards, like thread size, in an effort to prevent further incidents like the one faced by the out-of-state fire units during the Baltimore Fire.
And though it took time for these standards to truly catch on, today we have the National Standard Thread, along with standardized hydrants, as well as hose adapters that firefighters carry to avoid another disaster like the Great Baltimore Fire. We have come a long way.
Today, with the world in the early stages of the next technological revolution, standards are more important than ever. Indeed, standards are an increasingly powerful force behind the development and commercialization of new technologies, facilitating innovation as well as national and international commerce.
Voluntary consensus standards help shape what some call the Fourth Industrial Revolution, as society looks for interoperability for technologies such as self-driving cars, artificial intelligence (AI), the Internet of Things, and so much more—developments that not so long ago were the stuff of science fiction. These burgeoning industries will necessarily rely on voluntary consensus standards.
Consider autonomous vehicles. The U.S. Department of Transportation is calling for the development of voluntary technical standards as an effective, non-regulatory means to advance the integration of automation technologies into the U.S. transportation system. Such standards will help ensure that our self-driving vehicles can communicate with each other on the roads, and therefore ensure increased safety to life and property. Much of this vehicle-to-vehicle communication will be enabled by the next generation of cellular technology, and industry is responding.
For example, the 3rd Generation Partnership Project (3GPP) continues to unite seven of the largest global telecommunications standard development organizations, as 3GPP continues to roll out the standards collectively known as “5G.” And currently the U.S. government is exploring how use of voluntary consensus standards may bolster the development of robust AI systems.
Just last month, the U.S. government, through the National Institute of Standards and Technology (NIST), published a Plan for Federal Engagement in Developing AI Technical Standards and Related Tools. The plan calls on the U.S. government to: bolster AI standards-related knowledge, leadership, and coordination among federal agencies; promote focused research on the trustworthiness of AI; support and expand public-private partnerships; and engage with international parties.
In today's increasingly competitive world economy, ignoring the importance of standards can be a costly strategy for industry and government. For without appropriate standards, companies and entire industries may become less efficient; transactions may become more costly in both dollars and resources necessary for buyer-seller negotiations; and markets can fragment as divergent requirements for products and services are developed and imposed. Indeed, standards are crucial to most every form of scientific and industrial process and serve as a pillar of the global innovation ecosystem.
In turn, patents and other forms of intellectual property are critically important to the development of standards in the first place. For without predictable and reliable IP rights, fewer may be willing to invest the resources needed to develop robust standard-based technology; or, if they do develop such technology, to disclose it so that it can become a standard that others can use.
As a result, our intellectual property systems must be carefully balanced so that we spur innovation and ensure continued development of standards-based technology. On the one hand, our IP systems should be robust enough to fairly incentivize and protect the developers of such technology. At the same time, our IP systems ought not to unduly burden fair users of such technology with over-valued royalties.
Many of you are likely familiar with the United States’ 2013 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments—a joint product of my agency (the USPTO) and the Antitrust Division at the U.S. Department of Justice. Some have interpreted this policy statement as putting the thumb on the scale against injunctive relief for FRAND-encumbered standard essential patents in most cases. And as some of you are no doubt aware, in December 2018, the U.S. Department of Justice withdrew its assent from the 2013 joint statement.
As a result, the USPTO is now carefully studying the issue and discussing it internally, with our stakeholders, and with other relevant government agencies. Ultimately, if we are to state a new policy, it should be balanced and structured to incentivize technological development and growth of the standards-based industries. So when it comes to FRAND-encumbered standard essential patents (SEPs), any policy statement should incentivize good faith negotiations and dis-incentivize threats of either patent hold-up or patent hold-out.
Prior to serving as Under Secretary of Commerce for Intellectual Property and Director of the USPTO, I witnessed first-hand the dynamics, and at times the difficulties, of being either a licensor or a licensee. I am sensitive to the business realities of licensing—both in and out—patent portfolios on a global scale, especially the added nuance when F/RAND obligations enter into discussions.
Both industry participants and voluntary consensus standards bodies are equipped with the appropriate knowledge and experience to best facilitate the SEP licensing process. This is achieved, among other ways, by facilitating good-faith negotiations and the transparent exchange of information, as well as setting forth, and adhering to, clear intellectual property rights policies.
Government policy must ensure balance between patent owners and potential licensees, so that patented innovations can continue to contribute to voluntary consensus standards organizations thereby continuing to maximize benefits to consumers. To that end, per se rules, or tipped scales, regarding remedies can lead to perverse incentives. Government policy should make clear that good faith negotiations are expected on both sides, and that the presence or absence of good faith during negotiations can be a factor in the setting of remedies for infringement of FRAND-encumbered SEPs. And so, the USPTO is working with relevant government agencies, including the Department of Justice, to assess and address these complicated issues.
Of course, when it comes to standards in general, an essential voice in government is our sister agency within the Department of Commerce: the National Institute of Standards and Technology, or NIST. The USPTO and NIST have a very close working relationship. Although this has long been the case, it is especially true in this Administration.
But the USPTO is not involved only with setting policy when it comes to standards and IP. We are also users and developers of standards in our own field: the processing and issuing of IP rights. Consider our work with the World Intellectual Property Organization (WIPO), standardizing the activities of the International Patent Classification Union, or “IPC”—which provides a hierarchical system for the classification of patents according to different areas of technology.
And as part of an effort to build on and improve the IPC, since 2010, the USPTO has partnered with the European Patent Office (EPO) to create a harmonized classification system known as the Cooperative Classification System, or “CPC.” The USPTO/EPO jointly developed CPC allows for quicker revisions and provides for computer-based indexing codes, thereby creating efficiencies for patent examiners. The USPTO is currently working to leverage these computer-based indexing codes to implement artificially intelligent technologies that initially process an application’s classification upon filing at the USPTO.
And in the trademark realm, our experts contribute to the annual revisions of WIPO’s Nice Classification system (NCL).
But the USPTO’s work in standards is not limited to WIPO. Among other things, we have contributed to the development of standards such as the International Standards Organization’s (ISO) innovation management standard, the ISO 56000 series. A future edition of this series will include ISO 56005, “Innovation management—Tools and methods for intellectual property management—guidance,” which will directly relate to the USPTO’s mission to foster innovation, competitiveness, and economic growth.
But what is the appropriate scope of our mission? The traditional job of IP offices around the world, of course, is to examine and issue IP rights. In today’s world, however, many of our offices do much more, such as assess appropriate IP policies and the like. Some are asking whether we should do even more. Some, for example, are asking whether IP offices should perform an essentiality check. Specifically, some argue that because IP offices have deep knowledge and vast expertise when it comes to the IP rights they issued, they are perhaps best-equipped to determine whether a patent identified as being subject to a F/RAND obligation is in fact essential to the practice of the standard at issue.
But the United States has generally left essentiality checks to others, including the courts and the private sector. In fact, the USPTO has no statutory or other authority to devote resources to such essentiality checks. So the USPTO instead focuses on our core mission: to foster innovation, competitiveness, and job growth by conducting high quality and timely examination, so that we can issue reliable and predictable IP rights; and, of course, related missions such as IP policy assessment and advice.
Although the stakes were high in 1904, after the Great Baltimore Fire, the stakes may be even higher now when it comes to standards-based technology. With the advent of the next industrial revolution, the world is interconnecting at ever increasing rates—and no longer just across cities or disciplines, but indeed, across national boundaries. For the world is on the cusp of truly transformative technology, and much of it is dependent on standards.
We must ensure our IP systems are appropriately calibrated to incentivize and protect, and not hamper, the growth of such standards-based technology. Standards are part and parcel of the great March of Progress in which we are all engaged, building a better future for everyone through the power of innovation and intellectual property.
Thank you again for the invitation to participate today.