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.

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).

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 [6]. Certain patent pools have been found to share competitively sensitive information such as marketing and pricing strategies and R&D findings.[7] 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)

In order to address the concerns raised against patent pools, 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. [8].

These restrictions allow for patentees and standard setting organizations to maximize the benefits of creating patent pools. 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. 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.

Patent Trolls

No agreed-upon definition of patent troll exists. The term patent troll is used interchangeably with the terms non-practicing entities (NPEs) and patent assertion entities (PAEs). Despite similar sounding names, several key differences exist between the three terms.

Non-practicing entities (NPEs) own patents, but do not necessarily create products out of these patents. This behavior is common; 95% of patents are never used commercially [9]. Universities are examples of non-practicing entities. Faculty members may file for patents based on their work in a laboratory and receive a patent. Then, those faculty move on to a different project and do not use the patent they hold.

Patent assertion entities (PAEs) are a type of non-practicing entity that generate a majority of their revenue through licensing patents they own. For example, a large firm may buy up a thousand patents. Instead of creating products derived from those patents, they license these patents to other firms that wish to create those products. If another firm infringes on a patent, the patent-assertion entity may send a demand letter to the company with a warning. The demand letter warns the infringer that they are subject to a lawsuit if they do not acquire proper licensing of a patent.

These demand letters serve as the tipping point between patent assertion entities and patent trolls. Whereas PAEs assert the fair value of their patent against the infringer, patent trolls inflate the amount of damages felt as a result of infringement. Patent trolls may threaten a firm with exorbitant lawsuit costs, and then provide a quick way out of a lawsuit through a license. The supposed infringer, fearful of a high lawsuit costs, may just pay the licensing fee. However, the supposed infringer may not even have infringed on any patent.

Patent trolls may also target a slew of companies that tangentially intersect the sphere of the patent. One famous example of a patent troll is MPHJ Technology Investment, who claimed to have patents that cover any networked "scan-to-email" function. MPHJ sent demand letters to more than 16,000 small businesses, each letter demanding license fees of at least $1000 per worker.

Currently, there is no systematic data that proves the existence of patent trolls and that quantifies their financial effects on companies.

America Invents Act

The H.R.1249: Leahy Smith America Invents Act [10] was signed into law by President Obama on September 16, 2011. The American Invents Act (AIA) was written and proposed by Senator Patrick Leahy and Representative Lamar Smith. The bulk of the act changes and provides new guidelines for USPTO practices. The American Intellectual Property Law Association refers to the AIA as the most comprehensive and important innovation reform in over 50 years. Supporters claim that the reforms in the AIA eliminate major differences between the American patent system and international patent systems. Key provisions in the act focus on reforming:

• how patents are filed and examined.
• how third parties may request patent reviews.
• how prior user rights may be applied.
• how the USPTO manages its fees and revenue.

Proposed Patent 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.

Bills Relevant to Innovation

Below is a table containing brief overviews of the bills pertaining to innovation that have been passed or introduced by the 114th Congress.

Bill	Prognosis	Sponsor	Full Title	Date Introduced
S. 1890: Defend Trade Secrets Act of 2016 [11]	Enacted	Orrin Hatch (R-Utah)	A bill to amend chapter 90 of title 18, United States Code, to provide Federal jurisdiction for the theft of trade secrets, and for other purposes.	JUL 29, 2015
H.R. 9: Innovation Act [12]	36%
S. 1137: PATENT Act [13]	36%
H.R. 2045: Targeting Rogue and Opaque Letters Act of 2015 [14]	24%
H.R. 1832: Innovation Protection Act [15]	5%
S. 632: STRONG Patents Act of 2015 [16]	4%
S. 926: Grace Period Restoration Act of 2015 [17]	4%
H.R. 2370: End Anonymous Patents Act [18]	0%
H.R. 1896: Demand Letter Transparency Act of 2015 [19]	0%

Market of Ideas

Market of Ideas Research Notes

References

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