Remarks by Director Michelle K. Lee at The Center for Strategic and International Studies (CSIS) Patent Reform Forum


Thank you, and good afternoon. It’s an honor to speak here today, on a subject of great importance to me, and—I believe—to our nation as a whole, and that is innovation. I would like for us to think about the critical role that our patent system plays in making the American economy competitive in today’s increasingly global innovation economy.

To give you a little historical perspective, it wasn’t so long ago that patent law was a niche topic, and the most valuable assets of companies were often tangible—their plants, warehouses, and inventory. But today, the most valuable assets of our leading companies are intangible, such as their inventions, algorithms, processes, designs, and brands—what we call intellectual property or IP (as opposed to tangible property). And because these intangible assets can be more easily copied, the system we use to protect and enforce IP rights is critical to protecting investment and American competitiveness. Patents, which provide market exclusivity for inventions, are an important form of protection in a global economy increasingly driven by innovation. It’s a fact our economic competitors recognize, appreciate, and mention often in my meetings with them.

In May, I travelled to Beijing for meetings with the ministers and vice-ministers of China’s trade, patent, copyright, and trademark offices. But, I began the trip with a meeting with one of the most senior members of the Chinese government, Vice Premier Wang Yang.  During that meeting he emphasized China’s desire to strengthen IP protection and enforcement—not just because their trading partners are requesting it, but because China views it as necessary to their desired transformation: from a manufacturing-based economy of inventions developed elsewhere, to an innovation-based economy with technologies developed in China that provide products and services higher up on the value chain.   Put another way, China wants an economy more like ours, in which intangible assets play a greater role than physical assets or low cost labor. And to get there, they recognize the need for a patent system more like ours.

From that meeting in China, and many other encounters I’ve had with leaders around the world, I repeatedly hear that the United States is a global leader when it comes to protecting intellectual property. Despite all of our discussions and debates here at home, our IP system is frequently what many countries looks to when designing their own laws and enforcement mechanisms. And while we can and should take pride in that, we should also take heed that: as China and other countries seek to move from a manufacturing-based economy to an innovation-based economy, we will have more and more competition. We cannot afford to stand still as other nations seek to catch up. We cannot be idle as other manufacturing economies seek to move up the value chain. We cannot remain immobile as American innovators seek to compete in the 21st century global economy.

So, we are faced with this question: Do leave our patent system as it is, or do we strive to make it even better at providing incentives to innovate and invest? It’s worth noting that our patent system is itself pretty innovative. At its core is the bargain, between inventors and the rest of society embodied in the Progress Clause of the Constitution: The inventor gets an exclusive right to a patented invention in exchange for teaching society how it works. That exclusivity makes it easier to secure investment, and to commercialize the invention. And the public disclosure of how the invention works allows others to begin working on improvements, while also letting businesses know which technologies require licenses or workarounds.

But the Constitution only provided a broad framework for our patent system. It left the specifics to Congress to design and update through legislation.  And over the years that legal framework has further developed through the courts’ interpretation of the laws in light of changing circumstances, and administratively, through the work of the United States Patent and Trademark Office. That work continues to this day, in an “information economy” where patents are increasingly viewed as an asset like any other. I saw this firsthand during my time in the private sector. In the past, operating companies would build their patent portfolios and sometimes cross-license each other, but they wouldn’t often transfer or sell their patents. Today, in contrast, there’s a much greater market for patent assets. With that comes a greater chance of those assets ending up in other people's hands.  In an economy as sophisticated as ours, with a patent system that imposes meaningful penalties for infringement, we’ve see the rise in the behavior of purely monetizing the value of a patent, bought from another, to the maximum extent possible, without contributing anything inventive and without providing any product or service. This can and has led to increased patent threats, and to the extent that patent infringement claims are made merely to coerce cost-of-defense settlements, without regard to the merits of the claim, this is inefficient and a costly tax on everyone involved, particularly small businesses and startups, who often have limited financial resources.

I can tell you from my experience in the private sector, litigating patent cases is very expensive. Defending against an infringement suit can cost, on average, depending upon a variety of factors, from $3 to $5 million. For a venture-backed startup with an initial funding round of $10 million, that’s a devastating cost on innovation. Taking a patent case to trial can burn through one, or even two, rounds of funding, at a time when a young company should be spending its precious, limited money on hiring employees, doing research and development, and growing the business. And let’s be clear, this is not just bad for small businesses and startups. It’s bad for all of us, for inventors, consumers, jobs, and our economy as a whole. Worst of all, it reduces the public’s faith in the patent system.

But there is some good news here, and it’s this. We can change things, and we can do it in a way that preserves a balance between maintaining strong patent protections that provide necessary incentives to innovate, and ensuring a more efficient and streamlined way of handling patent disputes. Achieving that important balance is a responsibility shared by all three branches of our government. Each has particular competencies that make it better than others at addressing certain aspects of the issue. We strengthen our patent system most effectively when we take advantage of what each branch can do best. Let me start with the USPTO, which is an administrative agency in the Executive branch, charged with examining and issuing patents. Our patent examiners have the important duty of examining patent applications, and issuing patents when the applications meet the legal requirements and rejecting applications when they don’t. Every one of our examiners understands that issuing patents of clear scope is more important than ever before, so inventors can better understand the scope of their rights, and so others including competitors can have the information they need to make informed business decisions such as where to invest limited research and development dollars and when to take a patent license.

That is why we launched an Enhanced Patent Quality Initiative earlier this year, soliciting an unprecedented amount of public feedback from inventors and businesses on how we can enhance patent quality. Our Patent Trial and Appeal Board also plays an essential role as a quality check on patents, in this case on patents that have already issued. The Board provides a faster and lower cost alternative to district court litigation when the validity of a patent claim is in question. The Board’s proceedings also have an impact on the front end of the patent system by making patent applicants think more carefully about pursuing broad claims that would ultimately not be upheld. This is good, as it ultimately drives down expensive and time-consuming district court litigation, while encouraging applicants to seek patent rights of the proper scope.

But the Courts still play an important role in bringing needed improvements to the patent system. Recent decisions have (1) tightened the standards of clarity of patent claims and (2) made it easier for judges to award attorney’s fees in patent cases. These are welcome changes. But we must remember they are also incremental. Judges can only decide the cases that are before them, and they do so one case at a time. And because their rulings can be appealed all the way up to the Supreme Court, judicial rulings take time to propagate throughout our patent system. If we want changes that are uniform, systemic, and more timely—that save our small businesses and startups the money they need to innovate now—targeted and balanced legislation is needed.

And, of course, there are certain changes that only Congress can make via legislation. Which is why I’m pleased that patent litigation reform legislation is currently moving forward. As I’ve said before, it’s important that these changes reduce the incentives for harmful litigation practices without undermining the strengths of our world-class patent system. Targeted and balanced reforms can strengthen our patent system and level the playing field for innovators by providing increased notice to parties in patent suits about the patent they allegedly infringe; financial incentives for parties—both plaintiffs and defendants—to take reasonable positions in litigation; an opportunity for manufacturers, who are best suited and incentivized, to step in and defend patent infringement suits on behalf of their customers; and increased transparency of patent ownership information to reduce the barriers to patent licensing and sales.

These reforms (from all three branches of government) will ensure that our patent system remains an engine of innovation, with strong, clear patent rights that are properly scoped and enforceable. These reforms will contribute to our competitiveness in the 21st century global economy by reallocating resources from wasteful litigation practices to productive research, development and commercialization. These reforms will ensure that American innovators continue to define the top of the global value chain even as the rest of the world rushes to catch up. Reform is not a crisis of faith about our patent system, but a way of keeping faith with its goals of promoting innovation and technological progress. If I learned anything from my experience in the private sector, it’s that no good company ever rests on its laurels.  It’s always looking for new ways to improve, to streamline, and to adapt to new realities in the ever-changing marketplace. From my vantage point now, as head of our nation’s Patent and Trademark Office, I believe we should treat our patent system the same way. While we need to maintain what is the best in our system, we must also strive to improve what can be improved, guided by our constitutional mandate to incentivize innovation and the conviction that the best days of American innovation are still ahead of us.

On that note, I’m looking forward to discussing these important topics further with my fellow panelists. Thank you.