FEDERAL TRADE COMMISSION
`
`To Promote Innovation:
`The Proper Balance of
`Competition and Patent Law and Policy
`
`A Report by the Federal Trade Commission
`October 2003
`
`CFAD VI 1049 - 0001
`CFAD VI v. CELGENE
`IPR2015-01102
`
`

`
`FEDERAL TRADE COMMISSION
`
`TIMOTHY J. MURIS
`MOZELLE W. THOMPSON
`ORSON SWINDLE
`THOMAS B. LEARY
`PAMELA JONES HARBOUR
`
`Chairman
`Commissioner
`Commissioner
`Commissioner
`Commissioner
`
`Susan A. Creighton
`J. Howard Beales III
`Luke Froeb
`William E. Kovacic
`Anna H. Davis
`Rosemarie A. Straight
`
`
`Report Contributors
`
`Director, Bureau of Competition
`Director, Bureau of Consumer Protection
`Director, Bureau of Economics
`General Counsel
`Director, Office of Congressional Relations
`Executive Director
`
`Susan S. DeSanti, Deputy General Counsel for Policy Studies, Office of the General Counsel
`William E. Cohen, Assistant General Counsel for Policy Studies, Office of the General
` Counsel
`Gail F. Levine, Deputy Assistant General Counsel for Policy Studies, Office of the General
` Counsel
`Hillary J. Greene, Project Director for Intellectual Property, Office of the General Counsel
`Matthew Bye, Attorney, Policy Studies, Office of General Counsel
`Michael S. Wroblewski, Assistant General Counsel for Policy Studies, Office of the General
` Counsel
`Robin Moore, formerly Attorney, Policy Studies, Office of General Counsel
`Michael Barnett, formerly Attorney, Policy Studies, Office of General Counsel
`Nicole Gorham, Legal Assistant, Policy Studies, Office of General Counsel
`Cecile Kohrs, Legal Assistant, Policy Studies, Office of General Counsel
`David Scheffman, formerly Director, Bureau of Economics
`Mark Frankena, Associate Director for Competition Analysis, Bureau of Economics
`Roy Levy, Economist, Economic Policy Analysis, Bureau of Economics
`Alden F. Abbott, Assistant Director for Policy and Evaluation, Bureau of Competition
`Suzanne Michel, Special Counsel for Intellectual Property, Bureau of Competition
`Paige Pidano, formerly Legal Assistant, Bureau of Competition
`Karina Lubell, formerly Legal Assistant, Bureau of Competition
`
`Inquiries concerning this report should be directed to:
`
`Susan S. DeSanti, Deputy General Counsel for Policy Studies, Office of the General Counsel
`(202) 326-3190 or sdesanti@ftc.gov
`
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`Acknowledgments:
`
` The Commission wishes to note the expertise and time contributed by Hearings participants.
`For all of their contributions, the Commission conveys its thanks.
`
` The Commission thanks the Antitrust Division of the Department of Justice and the Patent
`and Trademark Office for participating in many of the panels at, and for recommending many of
`the participants in, the Hearings.
`
` The Commission thanks the Competition Policy Center and the Berkeley Center for Law and
`Technology at the University of California at Berkeley for providing facilities to allow some of
`the Hearings to be held on the West Coast.
`
`Cover:
`
` Clip art on cover obtained under license from Microsoft Corporation.
`
` Patents: Front Cover
` Patent No. 549,160 - Selden Road Engine
` Patent No. 4,779, 268 - Frame Decoding for Digital Signal Transmission
`
` Patents: Back Cover
` Patent No. 4,302,281 - Method for Producing Pulp
` Patent No. 4,805,654 - Sun Shield for Automobiles
`
`
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`
`TO PROMOTE INNOVATION:
`THE PROPER BALANCE OF COMPETITION
`AND PATENT LAW AND POLICY
`
`EXECUTIVE SUMMARY
`
`Innovation benefits consumers
`through the development of new and
`improved goods, services, and processes.
`An economy’s capacity for invention and
`innovation helps drive its economic growth
`and the degree to which standards of living
`increase.1 Technological breakthroughs
`such as automobiles, airplanes, the personal
`computer, the Internet, television,
`telephones, and modern pharmaceuticals
`illustrate the power of innovation to increase
`prosperity and improve the quality of our
`lives.
`
`Competition and patents stand out
`among the federal policies that influence
`innovation. Both competition and patent
`policy can foster innovation, but each
`requires a proper balance with the other to
`do so. Errors or systematic biases in how
`one policy’s rules are interpreted and applied
`can harm the other policy’s effectiveness.
`This report by the Federal Trade
`Commission (FTC) discusses and makes
`recommendations for the patent system to
`maintain a proper balance with competition
`law and policy.2 A second joint report, by
`
`1 Federal Reserve Board Vice Chairman Roger
`W. Ferguson, Jr., Patent Policy in a Broader Context,
`Remarks at 2003 Financial Markets Conference of the
`Federal Reserve Bank of Atlanta (April 5, 2003), at
`http://www.federalreserve.gov/boarddocs/speeches/2003/20
`030407/default.htm.
`
`the FTC and the Antitrust Division of the
`Department of Justice (DOJ) (forthcoming),
`will discuss and make recommendations for
`antitrust to maintain a proper balance with
`the patent system.
`
`
`Competition and Patent Law and
`Policy Promote Innovation and
`Benefit the Public.
`
`Competition through free enterprise
`and open markets is the organizing principle
`for most of the U.S. economy. Competition
`among firms generally works best to achieve
`optimum prices, quantity, and quality of
`goods and services for consumers. Antitrust
`law, codified in the Sherman Act, the FTC
`Act, and other statutes, seeks “to maximize
`consumer welfare by encouraging firms to
`behave competitively.”3
`
`Competition can stimulate
`innovation. Competition among firms can
`spur the invention of new or better products
`or more efficient processes. Firms may race
`to be the first to market an innovative
`technology. Companies may invent lower-
`cost manufacturing processes, thereby
`increasing their profits and enhancing their
`ability to compete. Competition can prompt
`firms to identify consumers’ unmet needs
`and develop new products or services to
`
`2 The Federal Trade Commission issues reports
`pursuant to Section 6(f) of the Federal Trade Commission
`Act, 15 U.S.C. § 46(f).
`
`3 I PHILLIP E. AREEDA & HERBERT HOVENKAMP,
`ANTITRUST LAW : AN ANALYSIS OF ANTITRUST PRINCIPLES
`AND THEIR APPLICATION ¶100a at 4 (2000).
`
`1
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`
`satisfy them.
`
`Patent policy also can stimulate
`innovation. The U.S. Constitution
`authorizes Congress “[t]o promote the
`Progress of Science and useful Arts, by
`securing for limited Times to . . . Inventors
`the exclusive Right to their respective . . .
`Discoveries.”4 To obtain a patent, an
`invention (that is, a product, process,
`machine, or composition of matter) must be
`novel, nonobvious, and useful. Moreover, a
`patentee must clearly disclose the invention.
`A patent confers a right to exclude others
`from making, using, or selling in the United
`States the invention claimed by the patent
`for twenty years from the date of filing the
`patent application.
`
`This property right can enable firms
`to increase their expected profits from
`investments in research and development,
`thus fostering innovation that would not
`occur but for the prospect of a patent.
`Because the patent system requires public
`disclosure, it can promote a dissemination of
`scientific and technical information that
`would not occur but for the prospect of a
`patent.
`
`Like competition policy, patent
`policy serves to benefit the public. “The
`basic quid pro quo contemplated by the
`Constitution and the Congress for granting a
`patent monopoly is the benefit derived by
`the public from an invention with substantial
`utility.”5 The public disclosure of scientific
`
`4 U.S. CONST. art. I, § 8. Other sections of this
`constitutional provision authorize copyright law.
`
`5 Brenner v. Manson, 383 U.S. 519, 534-35
`(1966). The consideration an inventor gives in return for a
`patent “is the benefit which he confers upon the public by
`
`and technical information is part of the
`consideration that the inventor gives the
`public.6
`
`Competition and Patents Must Work
`Together in the Proper Balance.
`
`Competition and patents are not
`inherently in conflict. Patent and antitrust
`law “are actually complementary, as both
`are aimed at encouraging innovation,
`industry, and competition.”7 Patent law
`plays an important role in the property rights
`regime essential to a well-functioning
`competitive economy. For example, firms
`may compete to obtain the property rights
`that patents convey. Patents do not
`necessarily confer monopoly power on their
`holders,8 and most business conduct with
`respect to patents does not unreasonably
`restrain or serve to monopolize markets.
`Even when a patent does confer monopoly
`power, that alone does not create an antitrust
`violation. Antitrust law recognizes that a
`patent’s creation of monopoly power can be
`
`placing in their hands a means through the use of which
`their wants may be supplied.” 1 WILLIAM ROBINSON, THE
`LAW OF PATENTS FOR USEFUL INVENTIONS § 22 at 305
`(1890), cited in ROBERT P. MERGES & JOHN F. DUFFY,
`PATENT LAW AND POLICY: CASES AND MATERIALS 361 (3d
`ed. 2002).
`
`6 See James E. Rogan, Prepared Remarks of
`James E. Rogan, Under Secretary of Commerce for
`Intellectual Property and Director of the United States
`Patent and Trademark Office (2/6/02) 2, at
`http://www.ftc.gov/opp/intellect/rogan.htm.
`
`7 Atari Games Corp. v. Nintendo of Am., 897
`F.2d 1572, 1576 (Fed. Cir.1990).
`
`8 ROBERT L. HARMON, PATENTS AND THE
`FEDERAL CIRCUIT § 1.4(b) at 21 (5th ed. 2001) (“Patent
`rights are not legal monopolies in the antitrust sense of the
`word. Not every patent is a monopoly, and not every
`patent confers market power.”).
`
`2
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`
`necessary to achieve a greater gain for
`consumers.
`
`competition that might have developed
`based on the obvious technology. See Box
`1. Conversely, competition policy can
`
`Box 1. An Invalid Patent on an Obvious Invention Can Harm
`Competition.
`
`In 1895, George Selden obtained a U.S. patent with a claim so broad
`that “it literally encompasse[d] most automobiles ever made.” Yet
`the basic invention covered by that claim – putting a gasoline engine
`on a chassis to make a car – was so obvious that many people
`worldwide thought of it independently as soon as the most primitive
`gasoline engines were developed. The association that licensed the
`Selden patent collected hundreds of thousands of dollars in royalties
`– raising costs and reducing the output of automobiles – before
`Henry Ford and others challenged the patent, and the patent claim
`was judicially narrowed in 1911. See MERGES & DUFFY, PATENT
`LAW AND POLICY: CASES AND MATERIALS at 644-46.
`
`Analogously, the Supreme
`Court has recognized the
`importance of competition to the
`patent system.9 “[F]ree
`competition” is “the baseline” on
`which “the patent system’s
`incentive to creative effort
`depends.”10 By limiting the
`duration of a patent, “[t]he Patent
`Clause itself reflects a balance
`between the need to encourage
`innovation and the avoidance of
`monopolies which stifle
`competition without any
`concomitant advance in the
`‘Progress of Science and useful
`Arts.’”11 The patentability requirements for
`novelty and nonobviousness “are grounded
`in the notion that concepts within the public
`grasp, or those so obvious that they readily
`could be, are the tools of creation available
`to all.”12
`
`undermine the innovation that the patent
`system promotes if overzealous antitrust
`enforcement restricts the procompetitive use
`of a valid patent. See Box 2.
`
`The FTC/DOJ Hearings Examined
`the Balance of Competition and
`Patent Law and Policy.
`
`To examine the current balance of
`competition and patent law and policy, the
`FTC and the DOJ held Hearings from
`February through November 2002. The
`Hearings took place over 24 days, and
`involved more than 300 panelists, including
`business representatives from large and
`small firms, and the independent inventor
`community; leading patent and antitrust
`organizations; leading antitrust and patent
`practitioners; and leading scholars in
`
`A failure to strike the appropriate
`balance between competition and patent law
`and policy can harm innovation. For
`example, if patent law were to allow patents
`on “obvious” inventions, it could thwart
`
`9 See Bonito Boats, Inc. v. Thunder Craft Boats,
`Inc., 489 U.S. 141, 146 (1989) (federal patent laws embody
`“a careful balance between the need to promote innovation
`and the recognition that imitation and refinement through
`imitation are both necessary to invention itself and the very
`lifeblood of a competitive economy.”).
`
`10 Id. at 156.
`
`11 Id. at 146.
`
`12 Id. at 156.
`
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`
`Box 2. Overzealous Antitrust Enforcement Can
`Undermine the Innovation that Patents Promote.
`
`In the 1970's, antitrust enforcers viewed
`grantbacks (e.g., when a licensee has improved
`patented technology, it “grants back” to the
`original patentee access to the improvement) as
`automatically illegal. More recently, antitrust
`enforcers recognize that “[g]rantbacks can have
`procompetitive effects,” for example, by
`encouraging a patentee to license its patent in the
`first place, thereby enabling the licensee’s
`improvement. Antitrust enforcers now evaluate
`likely procompetitive and anticompetitive effects
`of grantbacks. Past antitrust rules may have
`deterred some procompetitive grantbacks,
`however, thus deterring some innovations using
`patented technology. See U.S. Department of
`Justice and Federal Trade Commission, Antitrust
`Guidelines for the Licensing of Intellectual
`Property § 5.6 (Apr. 6, 1995), reprinted in 4 Trade
`Reg. Rep. (CCH) ¶ 13,132, available at
`http://www.usdoj.gov/atr/public/guidelines/ipguide
`.htm.
`
`economics and antitrust and patent law.13 In
`addition, the FTC received about 100 written
`submissions. Business representatives were
`mostly from high-tech industries:
`pharmaceuticals, biotechnology, computer
`hardware and software, and the Internet.14
`This report discusses Hearings testimony
`and independent research, and explains the
`
`13 The Commission thanks the DOJ and the
`Patent and Trademark Office for participating in many of
`the panels at the Hearings and for recommending many of
`the participants in the Hearings. For providing facilities to
`allow some of the Hearings to be held on the West Coast,
`the Commission thanks the Competition Policy Center and
`the Berkeley Center for Law and Technology at the
`University of California at Berkeley.
`
`The Commission wishes to note the expertise and
`time contributed by Hearings participants. For all of their
`contributions, the Commission conveys its thanks.
`
`14 See Appendices A and B.
`
`Commission’s conclusions about and
`recommendations for the patent system.
`
`I.
`
`CONCLUSIONS AND
`RECOMMENDATIONS
`
`Although Most of the Patent
`System Works Well, Some
`Modifications Are Needed to
`Maintain A Proper Balance
`of Competition and Patent
`Law and Policy.
`
`The patent system does, for the most
`part, achieve a proper balance with
`competition policy. The statutory standards
`of patentability appear largely compatible
`with competition; properly interpreted, they
`tend to award patents only when necessary
`to provide incentives for inventions, their
`commercial development, or their
`disclosure. Congress has enacted new
`statutes that protect competition by, among
`other things, facilitating disclosures of
`patent applications. The Court of Appeals
`for the Federal Circuit, the sole court for
`most patent law appeals, has brought
`stability and increased predictability to
`various elements of patent law. This has
`reduced legal uncertainty and facilitated
`business planning. The Patent and
`Trademark Office (PTO) has implemented
`initiatives to deal with new types of patents
`and has released a Strategic Plan for the 21st
`Century to improve patent quality (i.e.,
`reduce errors) and streamline procedures.15
`Hearings participants found much to praise
`in the current patent system.
`
`15 See United States Patent and Trademark
`Office, The 21st Century Strategic Plan, at
`www.uspto.gov/web/offices/com/strat21/index.htm.
`
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`
`
`Nonetheless, many participants in
`and observers of the patent system expressed
`significant concerns that, in some ways, the
`patent system is out of balance with
`competition policy. Poor patent quality and
`legal standards and procedures that
`inadvertently may have anticompetitive
`effects can cause unwarranted market power
`and can unjustifiably increase costs. Such
`effects can hamper competition that
`otherwise would stimulate innovation.
`This report makes several
`recommendations for the legal standards,
`procedures, and institutions of the patent
`system to address such concerns.
`
`II. Questionable Patents Are a
`Significant Competitive
`Concern and Can Harm
`Innovation.
`
`A poor quality or questionable
`patent is one that is likely invalid or
`contains claims that are likely overly
`broad. Hearings participants raised
`concerns about the number of
`questionable patents issued.16 Such
`patents can block competition, see Box 3,
`and harm innovation in several ways.
`
`A.
`
`Questionable Patents Can Deter or
`Raise the Costs of Innovation.
`
`One firm’s questionable patent may
`lead its competitor to forgo R&D in the
`areas that the patent improperly covers. For
`example, firms in the biotech industry
`reported that they avoid infringing
`questionable patents and therefore will
`refrain from entering or continuing with a
`particular field of research that such patents
`
`Box 3. Blocking Patents
`
`
`The patents of others can block a patentee’s ability
`to exploit its own invention. For example:
`
`“[S]uppose that Admiral Motors obtains a patent on an
`internal combustion engine for use in automobiles. Later,
`Betty Beta purchases an automobile marketed by Admiral
`Motors that embodies the patented invention. Beta
`experiments with her new car and develops a dramatically
`improved fuel injector useable only in the patented
`Admiral Motors engine. Even if Beta patents her
`improved
`fuel
`injector, she cannot practice
`that
`technology without infringing Alpha’s basic patent. . . .
`Unless one of the parties licenses the other, Beta must
`wait until Admiral Motors’ patent expires before
`practicing her own patented improvement invention.”
`R O G E R E. SC H E C H T E R & J O H N R. T H O M A S,
`INTELLECTUAL PROPERTY: T HE LAW OF COPYRIGHTS,
`PATENTS AND TRADEMARKS § 20.1.1 at 462 (2003). If
`the blocking patent is invalid or overbroad, then no
`public benefits exist to justify its effects on follow-on
`innovation.
`
`appear to cover.17 Such effects deter market
`entry and follow-on innovation by
`
`16 For example, software firms raised concerns
`about patents that they believed should not have been
`granted, because the inventions were obvious based on
`preceding work in the area. While praising patents as the
`basis for their industry, biotech firms also raised concerns
`that some overbroad patents may discourage further
`innovation in some biotech areas. See generally Chs. 2 and
`3.
`
`17 See, e.g., FTC/DOJ Hearings on Competition
`and Intellectual Property Law and Policy in the
`Knowledge-Based Economy, David J. Earp Testimony Feb.
`26, 2002, at pages 290-91, 238 (hereinafter, citations to
`transcripts of these Hearings state the speaker’s last name,
`the date of testimony, and relevant page(s)); Blackburn
`2/26 at 296; Caulfield 3/19 at 161.
`
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`competitors and increase the potential for
`the holder of a questionable patent to
`suppress competition.
`
`If a competitor chooses to pursue
`R&D in the area improperly covered by the
`questionable patent without a license to that
`patent, it risks expensive and time-
`consuming litigation with the patent holder.
`If the competitor chooses to negotiate a
`license to and pay royalties on the
`questionable patent, the costs of follow-on
`innovation and commercial development
`increase due to unjustified royalties.
`
`Another option is to find a legal
`means to invalidate the patent. PTO
`procedures allow only very limited
`participation by third parties, however. A
`lawsuit in federal court may not be an
`alternative, because a competitor may not
`sue to challenge patent validity unless the
`patent holder has threatened the competitor
`with litigation. If the competitor is not on
`the verge of marketing an infringing
`product, the patent holder may have no
`reason to threaten litigation. In these
`circumstances, as one biotech representative
`complained, “there are these bad patents that
`sit out there and you can’t touch them.”18 If
`litigation does take place, it typically costs
`millions of dollars and takes years to
`resolve. This wastes resources.
`
`B.
`
`In Industries with Incremental
`Innovation, Questionable Patents
`Can Increase “Defensive
`Patenting” and Licensing
`Complications.
`
`18 Blackburn 2/26 at 295-96.
`
`6
`
`In some industries, such as computer
`hardware and software, firms can require
`access to dozens, hundreds, or even
`thousands of patents to produce just one
`commercial product. One industry
`representative from a computer hardware
`firm reported that more than “90,000 patents
`generally related to microprocessors are held
`by more than 10,000 parties.”19 Many of
`these patents overlap, with each patent
`blocking several others. This tends to create
`a “patent thicket” – that is, a “dense web of
`overlapping intellectual property rights that
`a company must hack its way through in
`order to actually commercialize new
`technology.”20
`
`Much of this thicket of overlapping
`patent rights results from the nature of the
`technology; computer hardware and
`software contain an incredibly large number
`of incremental innovations. Moreover, as
`more and more patents issue on incremental
`inventions, firms seek more and more
`patents to have enough bargaining chips to
`obtain access to others’ overlapping
`patents.21 One panelist asserted that the time
`and money his software company spends on
`creating and filing these so-called defensive
`patents, which “have no . . . innovative value
`in and of themselves,” could have been
`better spent on developing new
`
`19 Detkin 2/28 at 667-68.
`
`20 Carl Shapiro, Navigating the Patent Thicket:
`Cross Licenses, Patent Pools, and Standard-Setting, in 1
`INNOVATION POLICY AND THE ECONOMY 119, 120 (Adam
`Jaffe et al. eds., 2001).
`
`21 The forthcoming FTC/DOJ joint report will
`discuss the proper antitrust evaluation of licensing
`techniques used in such situations.
`
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`technologies.22
`
`Questionable patents contribute to
`the patent thicket. In the context of a patent
`thicket, questionable patents can introduce
`new kinds of licensing difficulties, such as
`royalties stacked one on top of another, and
`can increase uncertainty about the patent
`landscape, thus complicating business
`planning. Questionable patents in patent
`thickets can frustrate competition by current
`manufacturers as well as potential entrants.
`Because a manufacturer needs a license to
`all of the patents that cover its product, firms
`can use questionable patents to extract high
`royalties or to threaten litigation.23 For
`example, a questionable patent that claims a
`single routine in a software program may be
`asserted to hold up production of the entire
`software program. This process can deter
`follow-on innovation and unjustifiably raise
`costs to businesses and, ultimately, to
`consumers.
`
`C.
`
`Recommendations to Improve
`Patent Quality and Minimize
`Anticompetitive Costs of the
`Patent System.
`
`
`
`One recent article argues
`persuasively that because most patent
`applications involve claims of little
`
`22 Greenhall 2/27 at 377, 420.
`
`23 “Large and small companies are increasingly
`being subjected to litigation (or its threat) on the basis of
`questionable patents.” United States Patent and
`Trademark Office Fee Modernization Act of 2003:
`Hearing Before the Subcomm. on Courts, the Internet, and
`Intellectual Property of the House Comm. on the Judiciary,
`108th Cong. 2 (2003) (Statement of Michael K. Kirk,
`Executive Director, American Intellectual Property Law
`Association), available at
`http://www.aipla.org/html/Legislative/108/testimony/FeeLe
`g.htm.
`
`economic significance, “it is much cheaper
`for society to make detailed [patent] validity
`determinations in those few cases [in which
`patents are challenged] than to invest
`additional resources examining patents that
`will never be heard from again.”24
`Accordingly, the FTC’s recommendations
`focus first on procedures and presumptions
`used in challenging questionable patents,
`because such challenges are more likely to
`involve patents of competitive significance.
`
`Recommendation 1:
`
`As the PTO Recommends, Enact
`Legislation to Create A New
`Administrative Procedure to Allow
`Post-Grant Review of and
`Opposition to Patents.
`
`The PTO discusses patent
`applications only with the patent applicant.
`Until recently, third parties could only bring
`certain relevant documents to the attention
`of, and, in limited circumstances, file a
`written protest with, an examiner or to
`request the PTO Director to reexamine a
`patent. To address this situation, Congress
`passed legislation to establish limited
`procedures that allow third parties to
`participate in patent reexaminations. Recent
`amendments have improved those
`procedures, but they still contain important
`restrictions and disincentives for their use.
`Once a questionable patent has issued, the
`most effective way to challenge it is through
`litigation. Litigation generally is extremely
`
`24 Mark A. Lemley, Rational Ignorance at the
`Patent Office, 95 NW. L. REV. 1495, 1497 (2001).
`
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`
`costly and lengthy,25 and is not an option
`unless the patent owner has threatened the
`potential challenger with patent
`infringement litigation.
`
`The existing procedures attempt to
`balance two perspectives. On the one hand,
`third parties in the same field as a patent
`applicant may have the best information and
`expertise with which to assist in the
`evaluation of a patent application, and
`therefore might be useful participants in the
`process of deciding whether to grant a
`patent. On the other hand, the limited
`involvement of third parties in the issuance
`and reexamination of patents reflects
`genuine concern to protect patent applicants
`from harassment by competitors. This
`remains an important goal. To continue to
`protect against the possibility of competitors
`harrassing patent applicants, any new
`procedure should be available only after a
`patent issues.
`
`Because existing means for
`challenging questionable patents are
`inadequate, we recommend an
`administrative procedure for post-grant
`review and opposition that allows for
`meaningful challenges to patent validity
`short of federal court litigation. To be
`meaningful, the post-grant review should be
`allowed to address important patentability
`issues.26 The review petitioner should be
`required to make a suitable threshold
`showing. An administrative patent judge
`
`25 A biotechnology case, for example, can cost
`between five and seven million dollars and take two or
`three years to litigate. See Ch. 3.
`
`26 At a minimum, patent challengers should be
`able to raise issues of novelty, nonobviousness, written
`description, enablement, and utility.
`
`should preside over the proceeding, which
`should allow cross-examination and
`carefully circumscribed discovery, and
`which should be subject to a time limit and
`the use of appropriate sanctions authority.
`Limitations should be established to protect
`against undue delay in requesting post-grant
`review and against harassment through
`multiple petitions for review. The
`authorizing legislation should include a
`delegation of authority permitting the PTO’s
`conclusions of law to receive deference from
`the appellate court. Finally, as is the case
`with settlements of patent interferences,
`settlement agreements resolving post-grant
`proceedings should be filed with the PTO
`and, upon request, made available to other
`government agencies.
`
`Recommendation 2:
`
`Enact Legislation to Specify that
`Challenges to the Validity of a
`Patent Are To Be Determined
`Based on a “Preponderance of the
`Evidence.”
`
`An issued patent is presumed valid.
`Courts require a firm that challenges a patent
`to prove its invalidity by “clear and
`convincing evidence.” This standard
`appears unjustified. A plethora of
`presumptions and procedures tip the scales
`in favor of the ultimate issuance of a patent,
`once an application is filed. In addition, as
`many have noted, the PTO is underfunded,
`and PTO patent examiners all too often do
`not have sufficient time to evaluate patent
`applications fully. These circumstances
`suggest that an overly strong presumption of
`a patent’s validity is inappropriate. Rather,
`courts should require only a “preponderance
`of the evidence” to rebut the presumption of
`validity.
`
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`
`The PTO works under a number of
`disadvantages that can impede its ability to
`reduce the issuance of questionable patents.
`Perhaps most important, the courts have
`interpreted the patent statute to require the
`PTO to grant a patent application unless the
`PTO can establish that the claimed invention
`does not meet one or more of the
`patentability criteria. Once an application is
`filed, the claimed invention is effectively
`presumed to warrant a patent unless the PTO
`can prove otherwise.
`
`The PTO’s procedures to evaluate
`patent applications seem inadequate to
`handle this burden. The patent prosecution
`process involves only the applicant and the
`PTO. A patent examiner conducts searches
`of the relevant prior art,27 a focal point of the
`examination process, with only the
`applicant’s submissions for assistance. The
`patent applicant has a duty of candor to the
`PTO, but that duty does not require an
`applicant to search for prior art beyond that
`about which the applicant already knows.28
`If the patent applicant makes assertions or
`files documentary evidence regarding certain
`
`27 “Prior art” consists of materials – often
`patents and publications, although affidavits and testimony
`also may present prior art – that reflect one or more of the
`features or elements of the claimed invention. An
`invention is “obvious” if it does not represent a sufficient
`step beyond the prior art.
`
`28 The PTO’s Manual of Patent Examining
`Procedure (MPEP) states that the agency “does not
`investigate” duty of disclosure issues and “does not . . .
`reject” applications on that basis. See United States Patent
`and Trademark Office, Manual of Patent Examining
`Procedure § 2010 (8th edition 2001) (explaining that such
`PTO determinations “would significantly add to the
`expense and time involved in obtaining a patent with little
`or no benefit to the patent owner or any other parties with
`an interest”), available at
`http://www.uspto.gov/web/offices/pac/mpep/mpep.htm
`(hereinafter MPEP).
`
`facts, the PTO does not have facilities with
`which to test the accuracy or reliability of
`such information.
`
`Moreover, presumptions in PTO
`rules tend to favor the issuance of a patent.
`For example, “[i]f the examiner does not
`produce a prima facie case [of obviousness],
`the applicant is under no obligation to
`submit evidence of nonobviousness.”29
`Similarly, “[o]ffice personnel . . . must treat
`as true a statement of fact made by an
`applicant in relation to [the asserted
`usefulness of the invention], unless
`countervailing evidence can be provided that
`shows that one of ordinary skill in the art
`would have a legitimate basis to doubt the
`credibility of such a statement.”30 Likewise,
`“[t]here is a strong presumption that an
`adequate written description of the claimed
`invention is present when the application is
`filed.”31
`
`The PTO’s resources also appear
`inadequate to allow efficient and accurate
`screening of questionable patent
`applications. Patent applications have
`doubled in the last twelve years and are
`increasing at about 10% per year.32 With
`yearly applications approximating 300,000,
`
`29 MPEP § 2142.
`
`30 United States Patent and Trademark Office,
`Utility Examination Guidelines, 66 Fed. Reg. 1092, 1098-
`99 (2001).
`
`31 United States Patent and Trademark Office,
`Guidelines for Examination of Patent Applications under
`the 35 U.S.C. 112 ¶ 1, “Written Description” Requirement,
`66 Fed. Reg. 1099, 1105 (2001).
`
`32 Lerner 2/20 at 157; James Langenfeld,
`Innovation, Competition, and Intellectual Property:
`Providing an Economic Framework (2/20/02) (slides) at 6,
`at http://www.ftc.gov/opp/intellect/langenfeld.pdf.
`
`9
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`CFAD VI 1049 - 0012
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`

`
`they arrive at the rate of about 1,000 each
`working day.33 A corps of some 3,000
`examiners must deal with the flood of
`filings.34 Hearings participants estimated
`that patent examiners have from 8 to 25
`hours to read and understand each
`application, search for prior art, evaluate
`patentability, communicate with the
`applicant, work out necessary revisions, and
`reach and write up conclusions. Many found
`these time c