Innovation Policy

United States Patent and Trademark Office

The United States Patent and Trademark Office (USPTO) is the organization within the United States government that reviews and grants patents and trademarks. The USPTO is tasked with defining patent types and what each type covers and protects. Established under the Department of Commerce on July 19, 1952[1] by 35 U.S.C. §1[2], the USPTO is intended to fulfill the mandate in Article I, Section 8, Clause 8 of the United States Constitution "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."[3]. Since 1790, the US has issued more than 6.5 million patents[4]. The agency's main offices reside in Alexandria, Virginia, with several satellite offices around the country. In April 2016, the USPTO had an unexamined patent backlog of 549,896 and 352,573 application filings for review. The unexamined patent backlog is a record of how many UPR Patents are waiting for review by a patent examiner, and application filings are how many patents are being sent in for review. [5] The USPTO reports that in 2016 the average total pendency time, the time between filing a patent application and issuing or dismissing a patent, has been 26 months. The USPTO stated in its Performance and Accountability Report for 2015 that it struggles to find and to maintain sustainable funding. The report shows that the funding is necessary to improve on both patent and trademark quality and timeliness.

Current Issues Facing the Patent System

Patent Pools

Patent pools are agreements between patent owners to share, or cross-license, their own patents with one another.(WIPO) Generally, patent pools cover mature and complex technologies that require complementary patents to develop compatible products and services. (WIPO). Complementary patents are patents that are must be used together for the development of a specific new product, and therefore, necessitate shared licensing (WIPO).

More recently, the Department of Justice (DOJ) has taken steps to standardize patent pools in order to prevent violations of antitrust laws. The DOJ requires the following characteristics for a patent pool:

1. Essential patents included only.
2. Complementary patents included only.
3. Sensitive information may not be shared amongst parties.
4. Substitute products may still be developed by parties included in the licensing agreement.
5. Patent pool has an established expiration date.
6. Pricing in downstream production cannot be affected by or discussed by members of the patent pool. [6].

Support

Efficiency: The creation of patent pools mainly benefits the owners of complementary and essential patents. Essential patents are patents required for a product or process to meet a given sector's technical standards. Cross-licensing between companies in a patent pool facilitates building upon previous technologies and increases the efficiency of innovation by organizing complementary intellectual property assets under one contract (WIPO). Mutually blocking patents often slow technological developments as neither party can make use of its technology without infringing on the other party's patent. By forming a patent pool, both parties can develop substitute technologies without risk of infringement.

Cost Reduction: Companies can also reduce the amount spent on litigation by settling disputes with the creation of patent pools. This would benefit small- and medium-sized businesses that usually cannot afford the costs of expensive litigation. (WIPO) Transaction costs as well as royalties can also be lowered in a patent pool.

Criticisms

Elimination of Competition: Opponents criticize patent pools for the potential of anti-competitive behavior and collusion, primarily with regards to substitute patents. Substitute or non-essential patents cover competing technologies that can be developed in parallel without risk of infringement [7]. Patent pools formed between companies holding substitute patents eliminate competition in that particular technological sector. The Intellectual Property Organization refers to patent pools exhibiting this behavior as cartels. Certain patent pools have been found to share competetitively sensitive information such as marketing and pricing strategies and R&D findings.[8] For example, R&D information and developments could be shared in grant-back provisions, where companies share new or downstream technologies and innovations with members of the pool without additional fees.

Licensing Practices: If a patent pool restricts its members from licensing its patents independently, it lowers the incentive to produce alternatives and inflates the costs of goods or technology for consumers. The Department of Justice and Federal Trade Commission stated that patent pools may create barriers to entry for new firms since the required patents will be inaccessible (DOJ) Additionally, downstream products or firms may unknowingly use technology protected by a patent pool. An article published by the NBER claims that these companies may then be burdened by cumulative taxes and a time holdup in production.

Pricing: Given agreements between patent holders to reduce royalties, there may be collusion to fix higher prices for consumers. Technology may become inaccessible to a large number of consumers, hurting the overall public good.

Patent Trolls

Patent Trolls are an innovation bogeymen. Numerous research articles and legislation have been focused on ways to curb troll activity, making patent trolls one of the most publicly denounced issues in the patent system. Experts dispute terms for such corporations, labeling them as either Patent Assertion Entities (PAEs) or Non-Practicing Entities (NPEs). PAEs are defined by the Federal Trade Commission as companies that earn revenue by purchasing patents and accusing companies using those patented technologies of infringement.[9] NPEs are firms that rely on Patent Licensing activities for revenue. [10] Patent litigation involving NPEs accounted for approximately 67% of cases reviewed by District Courts in 2015. Approximately 90% of high-tech patent litigation in 2015 was related to NPEs. Patent Trolls generate revenue through suing or threatening to sue businesses that infringe on patents. Typically, the damages asked for by Patent Trolls are far beyond the market value of the patent in order to scare small businesses in the initial demand letter, when pressing them to pay the fee to license the patent.

The Judiciary Committee in the House of Representatives has raised concerns regarding the effect of Patent Trolls on small business, startups, and non-tech companies given their lack of resources to defend themselves. As reported by the American Intellectual Property Law Association (AIPILA), the average cost of patent litigation is $650,000 regardless of company size. Approximately 55% of patent lawsuits filed by patent trolls are against businesses earning less than $10 million. The Judiciary Committee also reports that 40% of [[Small Business Research| small businesses] targeted by Patent Trolls suffer from significant business setbacks requiring changes in strategy, shut-downs, a decrease in valuation or slows in growth.

Patent Reform

Proposed Reform

Innovation Act: The full title of the act is "To amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections, and for other purposes." GovTrack predicts that the Innovation Act has a 36% chance of being enacted. Representative Bob Goodlatte intends for the bill to cut down on abusive patent litigation and strengthen a patent holder's rights. The Innovation Act also proposes certain reforms to the enacted Leahy Smith America Invents Act.

The bill will target the following areas :

• Abusive patent litigation.
• Increasing transparency and reducing weak patent infringement claims.
• Clarifying patent litigation procedures and practices.
• Bolstering IP centered small businesses.
• Reducing referrals to random courts for the review of patent cases.
• Weakening power of Patent Trolls.

Protecting American Talent and Entrepreneurship (PATENT) Act: The full title of the bill is "A bill to amend title 35, United States Code, and the Leahy-Smith America Invents Act to make improvements and technical corrections, and for other purposes." GovTrack predicts the PATENT Act has a 36% chance of being enacted. The bill is currently bipartisan with 3 Republican and 3 Democrat sponsors.

The House Innovation Act and Senate Patent Act are very similar. Both acts address abusive litigation. Members of the Senate Judiciary Committee want to reduce frivolous lawsuits, eliminate vague demand letters, and prevent extortion by passing the Patent Act. The act focuses on the following areas :

• Increasing transparency on patent information and claims.
• Reducing litigation costs.
• Discouraging abusive litigation practices.

References

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