While most of the focus right now is on Congress, the Federal Trade Commission (FTC) has recently weighed in on the patent system through its publication of "The Evolving IP Marketplace." Though readers of the entire 302-page report may be limited in number, if the past is any indication of the future, they are likely to be well-placed. The report's 2003 prequel, "To Promote Innovation" has been cited by the Supreme Court (in Ebay), the Solicitor General (in the US brief in KSR), and in Congress, and by lower courts, amicus briefs, and observers of the patent system. That report was a landmark, underscoring the need to strike a balance between competition and innovation, and drawing attention to the problem of "questionable patents." A number of its recommendations, in some form, have been adopted (elevation of the wilfulness standard, changing the obviousness standard) or are under consideration (post-grant opposition, modifying the presumption of validity). As with the 2003 report, this report bases its findings on hours of public testimony, provided over nine days of hearings and a workshop, by many members of the patent community.
The impetus for the current report has been changes in the patent marketplace, through which inventions may be transferred prior to the invention's commercialization, ex ante, or licensed after the technology has been put into practice, ex post. The report notes that of these, ex ante transfers are increasingly important as more and more innovation comes from small and younger firms. In 1981, 70% of US R&D came from large companies (25K+ employees), and only 4.4% from companies with less than 1,000 employees; in 2005, the proportions were 37.6% and 24.1%, respectively. (p.36-7). The report is less sanguine about ex post transactions, which it criticizes for distorting competition in high-tech industries and deterring certain kinds of innovation. In noting that such transactions are increasing, the report gives certain kinds of NPEs - those focused on buying and asserting patents, rather than developing and transferring them - a new name: patent assertion entity (or "PAE"). (Side note: I have used this term in my own work, and agree with others that the relationship between PAEs and practicing entities is complex: as I describe, like PAEs, practicing entities also buy and sell into the marketplace, sue in areas in which they don't operate, and in some cases, may stealthily partner with PAEs in their activities).
To improve the efficiency of the patent system vis a vis both ex ante and ex post transactions, the report says, patent notice and patent remedies both need to be addressed. What's notable is not only what the report recommends, but, as described below, who the report says should implement its recommendations.
Multi-Dimensional Patent Notice Problem. The report describes the problem of a lack of patent notice, particularly in high-tech industries, with reference to many aspects of the patent system. Companies can't clear their rights at the product planning stage because they can't sift through a multitude of patents. Even when particular patents are identified, their boundaries are unclear, and can also change a lot between publication and issue. You can't necessarily tell who owns a patent because patentees don't have to record their transfers. To cure these problems, the report recommends, for example, bolstering enforcement of 112 para. 1 and requiring recording of transactions as well as identification of the real parties in interest to a transaction.
Replicating the Market Reward. The FTC adds its voice to the chorus of those who believe that remedies law, in particular damages law, needs repair, but also articulates the principles and theory it believes should guide change. Patent remedies should reflect the economic value of inventions, and replicate the reward provided by the marketplace. The report provides a point by point analysis of the factors that district courts and the ITC consider in awarding remedies, setting forth "an economically-grounded approach" to remedies.
Post-Ebay Injunctions: In a side analysis, the report addresses the sense that, post-Ebay, it's much more difficult for non-practicing entities to get permanent injunctions. The report indicates that that's not necessarily true: through March 2010, district courts granted about half of the requests for injunction they received from non-practicing entities (seven of thirteen, or a rate of 54%, as compared to a general grant rate at 72-77%) (p.217). The successful requests tended to come from universities and research and development organizations (p.262-4), however, who arguably don't fit the definition of "PAE."
Recommendations - Differentiated Roles for the PTO, courts, Congress, and the Public: What the FTC recommends, and who it says should implement its recommendations are both worth noting. Congress' list of to-do's, for example (shoring up PTO funding and requiring recordation of assignments - neither of which are in the current bills), is notably short. The bulk of the work has instead been assigned to courts, which, as Dennis detailed before Congress have taken the laboring oar in reforming patent law. The FTC tasks district courts and the Federal Circuit with fixing damages law, carefully considering injunctions, and enforcing 35 USC 112 para. 1. Many suggestions are also aimed at the PTO, who the report says should work alone or together with the public to, for example, foster uniformity in software inventions, put examiner interviews on the record, and press applicants for improved disclosure. As the Federal Circuit's Uniloc decision, and the PTO's recently introduced supplementary 112 guidelines show, their work is well underway.
Colleen Chien, Assistant Professor at Santa Clara University Law School