Former Under Secretary of Commerce and Intellectual Property and Director of the U.S. Patent and Trademark Office and Vice President and Chief Intellectual Property Counsel
General Electric Company
July 26, 2005
Hon. Q. Todd Dickinson
Vice President and Chief Intellectual Property Counsel
General Electric Company and
Former Under Secretary for Intellectual Property and
Director of the United States Patent and Trademark Office
Subcommittee on Intellectual Property
Committee on the Judiciary
United States Senate
Tuesday, July 26, 2005
Mr. Chairman, Senator Leahy and members of the Intellectual Property Subcommittee,
My name is Todd Dickinson and I am honored to appear before the Subcommittee on an issue that may not always ignite the broad passion of some other issues, but one which is critical to our Nation's economic growth and prosperity: patent reform. I presently serve as the Corporate Vice President for Intellectual Property of the General Electric Company, and was formerly Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office, and I hope that these two distinct though complementary experiences may offer a valuable perspective on some of the issues facing us in this area.
As Director, I enjoyed working with you in the past, Mr. Chairman, and with Senator Leahy and your staffs, on the cause of adapting our patent system to the needs of the 21st Century. I was particularly proud that the Congress passed and President Clinton signed the American Inventor's Protection Act of 1999, during the time I lead the USPTO, and that we had the opportunity to work together on the implementation of that Act, leading to many vital and important changes in how the USPTO operated and was organized.
At General Electric, I am fortunate to help manage the intellectual property assets of one of the world's largest corporations, whose IP holdings and concerns are extraordinarily broad, ranging from content-based copyright issues in our film and television organization, NBC Universal, to genomics and proteomics patenting in GE Healthcare, with everything else in between from aircraft engines to engineered polymers. It is said that we may be the only company that has won both a Nobel Prize and an Academy Award®. We are also often cited as one of the world's most famous and valuable brands.
In many ways because of that breadth of IP issues and concerns, we are uniquely positioned to participate in this debate about patent reform, being a member of PhRMA, BIO, the Financial Services Roundtable, MPAA, and NAM. I also serve on the Board of Directors of the Intellectual Property Owners (IPO), and the Council of the American Bar Association Section on Intellectual Property Law and as its delegate to the World Intellectual Property Organization's Standing Committee on Patents, and am a member of the American Intellectual Property Law Association.
With such an extraordinary investment in technology, the need to protect that investment and the shareholder value it represents, makes the U.S patent system and its global analogues, more important than ever to us at GE. While our system is one of the greatest and most productive in the world, as with all systems, evolving needs require a regular review and reform in order to ensure the promise of the system is one which is fulfilled. So it is with our patent system in the U.S.
In my previous role as USPTO Director and now at GE, I have also followed with keen interest the various studies of the U.S. patent system recently undertaken by the Federal Trade Commission and the National Research Council of the National Academy of Sciences and the resulting reports. I was a witness several times before both bodies and was a reviewer of the NAS report. In general, both reports were thorough, well-thought out, and made recommendations the majority of which were highly appropriate to advancing the cause of patent reform in positive ways. I am heartened that the reports have served as a motivation for the cause of patent reform, and applaud this Committee for its hearings on this topic.
Before delving into the patent reform issues, however, I want to briefly address another issue that affects the successful functioning of our patent system. As both the NAS and FTC reports highlighted, the USPTO must have sufficient resources to perform its critical role in administering the patent system. For years, the USPTO was denied these resources as patent and trademark fees, paid to the USPTO in return for specific services, were diverted to unrelated government agencies and activities. While Congress and the current Administration are to be commended for fully funding the USPTO during the current fiscal year, fee diversion from prior years has left the USPTO with a tremendous work backlog, obsolete systems, and an inability to restructure. As contemplated in H.R. 2791, recently introduced in the House, the USPTO should be given authority to raise its fees, and also be given statutory assurance that those fees will not be diverted to unrelated programs. In the event that additional resources are provided, one area where attention should be focused is using those funds to provide additional examination time for examiners.
Turning to patent reform matters, as someone who has also spent a significant amount of time and effort on the cause of international harmonization of patent systems and laws, I also greatly appreciate the Committee's review of these issues, particularly as they intersect with the work and recommendations of the FTC and the NAS. The U.S. has always taken a leadership role in intellectual property policy and administration in the world, and this debate is in large part about how we can continue to manage and expand that global leadership role.
One of the most critical issues facing the patent system today, globally, is the tremendous need for harmonization of patent laws and systems. With their territorially-based administration, maintenance, and enforcement regimes, the current systems foster extraordinary redundancies in cost, time, and resources. These systems significantly inhibit the ability of inventors, large and small, to obtain and maintain the protection they deserve, and encourage the innovation so vital to global economic development. GE's innovation has resulted in an active global portfolio that comprises over 38,000 patents and this number includes over 5,300 global patent applications in 2004. The cost to obtain and maintain this portfolio is not trivial. In 2004, GE spent in excess of $26,000,000 on the patent prosecution and maintenance of the foreign portfolio, a significant portion of which is a function of the multiplicity of world systems.
Efforts at increased harmonization have been debated for years, with only modest success. As a negotiator of intellectual property issues on behalf of the U.S. government, and as a delegate to the World Intellectual Property Organization, I have witnessed the frustrations in this area first hand. While we have succeeded in negotiating new treaties in many other areas of intellectual property over the last decade to deal with rapidly evolving changes in the technology and content worlds, patent harmonization has proven particularly difficult and challenging for a variety of reasons. Thus, I welcome the current deliberation on patent reform in the U.S. as an opportunity for informing and influencing this global debate.
One of the major obstacles to global harmonization has traditionally been resolution of the basic question of who is entitled to priority of invention. Alone among the world's countries, the U.S. has maintained a system awarding priority of inventorship to the so-called "first inventor". This seemingly innocent characterization has become fraught with difficulties of definition, proof and cost. All of the rest of the world awards priority to the first inventor to file their patent application. While this debate has been ongoing for decades, the time appears to be at hand for the U.S. to join the rest of the world in implementing this simpler, fairer and less burdensome means for awarding priority.
As the groundbreaking study by my colleague and friend, former PTO Commissioner Gerry Mossinghoff, has shown, the very individuals who in recent tradition have been most concerned about this change, the individual or small inventors, have actually been disadvantaged by our current system. The primary means for determining inventorship when there is a contest is a process in the USPTO known as interference. Costly , rule-bound, and time-consuming, the interference process is a failed promise for small inventors.
Moreover, since this was last seriously debated at the international level, during the first Bush Administration, many other structural and systemic changes have helped level the playing field relative to concerns previously expressed. The adoption of provisional applications, the availability of technical and legal resources on the internet, and electronic searching and filing capabilities on-line have made the application process more accessible and timely to all Americans.
This past year, both the NAS report and the American Bar Association's House of Delegates urged the U.S. to change to a "first-inventor-to-file" (FITF) system as a best practice. While it has sometimes been suggested that the U.S. should not unilaterally move to this FITF system, and should only consider it as part of an overall package of international harmonization treaty obligations, the advantages of this system in terms of simplicity, cost, and a serious reduction in uncertainty about priority, argue strongly in favor of making such a change now. It may also be that such a good faith move on the part of the U.S. will reinvigorate stalled negotiations at the WIPO, an important and valuable goal. I join with my colleagues in support of proposed changes that would amend Title 35 to award priority to the first inventor to file a patent application, and urge this subcommittee to include language to that effect in any patent reform statute under consideration.
Another extremely valuable and important aspect of U.S. patent law, which has often been linked to the "first-inventor-to-file" issue in international discussions, is the so-called grace period, under which U.S. law provides for a period following disclosure of the invention during which the patent application may be filed. This contrasts with other countries, in particular in Europe, which have a so-called "absolute novelty" system, under which public disclosures of the invention irretrievably bar filing the patent application. The grace period has provided significant and advantageous flexibility, especially for small inventors, and it is critical that it be maintained as part of any patent reform package.
Legislation proposed in the House, H.R. 2795, acknowledges that importance, while making several changes which would seem acceptable and advance the cause of global harmonization. Limiting the applicability of the grace period to the inventor's own disclosures, while indeed limiting, seems a modest change, especially in view of the philosophical underpinnings of the grace period itself. Much of the concern about possible grace period changes has spoken to the loss of rights due to inadvertent or academic disclosures, most of which are made by the inventors themselves.
Another intriguing provision of that bill seeks to strongly encourage the European Patent Convention and the Japanese Patent Convention to adopt a similar grace period in order to allow their respective nationals to take advantage of the grace period in the U.S. While there may be concern about possible backlash from the affected countries, the provision would seem to provide powerful encouragement to them to adopt the compromise they have long-promised in international discussions: "We will adopt the grace period, if you move to first-to-file". Such encouragement may be necessary in order to advance harmonization.
Other harmonization issues
Finally, as to harmonization, there are several additional ideas deserving of serious consideration. These include: elimination of the best mode requirement, permitting the filing of the application by or in the name of the assignee, and publication of all pending patent applications (i.e. eliminating the "opt out" provision in current law). These have been thoroughly considered in either or both of the FTC and NAS studies and have been widely discussed in the IP community. They are worthy and for the most part non-controversial and should be included in any final patent reform legislation.
Of all of the recommendations of the FTC and NAS reports, that which has been the subject of the most discussion and is, in many ways, the cornerstone of patent reform efforts is implementation of a robust post-grant review or opposition system. This is a direct response to both a strong concern about patent quality and the need for new means to address that concern. Additionally, opposition proceedings are fairly common in foreign patent regimes, the EPO being a significant example, and the adoption of a similar system in the U.S. would also be consistent with the goal of increased global harmonization.
In my experience, the USPTO does a very effective job. I have strong confidence in the strength and validity of the vast majority of issued patents. That said, given the critical importance of patents to our economic health and the need for greater confidence in our system and the ability of the USPTO to maintain and improve patent quality, additional means for improving patent quality are appropriate and necessary. Despite our best intentions, previously implemented mechanisms to address these concerns, such as ex parte and inter partes reexamination, Rule 99 pre-grant submissions of prior art, and Section 301/Rule 501 post-grant submissions of art, have not, for a variety of reasons, sufficiently met this challenge. There is a critical need for a system which allows the USPTO to continue to improve the quality of issued patents in a timely and efficient manner. For matters of validity determination, the USPTO is uniquely positioned to perform this function, both by virtue of technical expertise and administrative efficiency, if they have adequate access to the appropriate art necessary for the validity determination. A vigorous post-grant review process would allow the USPTO to meet this challenge.
Such a system would likely involve many "moving parts", all of which would need to work together and meet the goals of efficiency and effectiveness. Here again, I would commend H.R. 2795 to you as striking the right balance on most of these issues -- no small feat. For example, the opportunity for adequate discovery in order to address concerns about the estoppel effect of any determination is a key issue. However, this needs to be balanced against concerns about discovery abuse and cost which continue to plague patent litigation. Another concern is the threshold requirement for bringing the action in the first instance. Adoption of a standard similar to that for ex parte reexamination, "a substantial question of patentability exists for at least one claim", leaves it to the Director's judgment as to whether that standard has been met, and would require an appropriate showing without unduly burdening the system.
It is heartening to note that there has been widespread agreement and consensus on the need for such a post-grant review system and the appropriateness of the current proposals. There is one specific issue on which there is unfortunately not consensus and no small amount of controversy: the so-called "second window."
The debate on this issue has centered basically on whether, in addition to the opportunity to request an opposition within 9 months of the issuance of the patent in question, there should be another opportunity to request an opposition; for instance, after receiving notice from the patent holder alleging infringement. Some believe such a "second window" will unnecessarily increase uncertainty in the validity of issued patents, while others believe a second window allows expanded opportunities for improving quality, especially in industries or technologies where searching or interpretation of claims may be more difficult. While I have concerns about increasing uncertainties, I do believe that the USPTO is a particularly appropriate venue for making validity determinations in a cost-effective and technically sophisticated environment.
That said, one specific concern I would have at the outset is whether the initial administrative burdens imposed by the "second window" may overburden the USPTO during the establishment of what is a new and complex procedure. It may be appropriate to delay the imposition of any "second window" until such time as the opposition system for newly issued patents has been up and running for some period of time, and the USPTO and the public has had adequate time to work with it. This would also provide an opportunity for continued discussion and perhaps the development of greater consensus around the specifics of the "second window" process.
An alternative to consider might be to have the presumption of validity, which a patent current currently enjoys in litigation from the date of issuance, not come into force until the period of opposition has passed. This would encourage review of patents as they issue. It also has a parallel in the trademark system, in which trademark registrations become "incontestable" after a certain period upon the filing of petition and the payment of a fee.
Another alternative to a second window would be to create far more robust reexamination processes. The current limited usage is a function of various concerns, some of which have been addressed in proposed legislation, and others which might create even greater incentives, such as a more routine use of litigation stays in favor of reexamination. One advantage to reexamination in this context is that it can be sought at any point during the term of a patent. If reexamination became a more robust mechanism for challenging validity, it may serve largely the same purpose as allowing a second window for oppositions.
Finally, regarding the opposition system generally, such a system must be sufficiently funded, from the outset, in order to work well and provide its promised benefits - no small challenge, given recent appropriations concerns. It is highly unlikely that charging opposition fees alone would be adequate, especially without overly discouraging the use of the system. Such funding would almost assuredly have to come from an increase in the USPTO budget, and most likely from a supplemental appropriation in the short-term. I would urge the Congress not to try and fly this plane on one wing - funding is an issue that must be addressed from the beginning.
Pre-issuance Submissions of Art
As noted above, Rule 99 (37 CFR 1.99) permits the submission of art to the USPTO, which is ordinarily subsequent to the publication of an application. While this rule provides the opportunity to have additional art before the Examiner during examination, 35 U.S.C. § 122 prohibits submitters from rendering such submissions into de facto protests or pre-grant oppositions. Thus, in practice, Rule 99 has not often been used and its benefits have gone largely unrealized -- facts which greatly dishearten me as a strong proponent of the original rule. Criticisms of the USPTO around quality were and are a major concern of mine; getting the best art before the examiner in a timely manner, without unduly slowing the examination process, is one of the most valuable means to address those quality concerns. Moreover, the concerns on which §122 were originally premised seem not to have come to fruition. For these reasons, I support amending §122 to significantly expand the opportunity for such submissions, while protecting the system from inappropriate gaming.
Both the FTC and NAS reports recommend reduction in subjectivity in the procurement and enforcement of patents. H.R. 2975 includes several provisions addressing those recommendations. One involves modifications to the law of willful infringement, which may result in the imposition of increased damages. Another modifies the law on inequitable conduct, which currently provides that a patent may be found unforceable due to such inequitable conduct - in particular, when the duty of candor and good faith to the USPTO during prosecution has been breached. There is value in addressing these issues. Despite their good intentions and effect, both have sometimes resulted in negative, unintended consequences, such as a failure to search the patent literature before introducing products into the marketplace, and an generally observed tendency to assert the inequitable conduct defense in almost all patent litigation, thereby driving up its costs and complexity.
However, H.R. 2975's current treatment of inequitable conduct needs further adjustment. The legislation appropriately retains the duty of candor and enhances the statutory authority of the Director of the USPTO to issue regulations governing the applicants' duty of candor. However, the bill also provides that courts refer all matters of inequitable conduct to the USPTO, and that the agency is then charged with investigating these issues as a matter of attorney or agent conduct, with the ability to conduct hearings and levy not insubstantial fines. As a former USPTO Director, this seems to me to be a difficult and cumbersome mechanism for dealing with this issue. While concerns have been expressed in the past that the current regime, which may render the patent as a whole completely unenforceable, is too drastic, this proposal strikes me as even more drastic, and therefore by extension even less likely to lead to compliance with the duty of candor. In short, it seems to expect the Office to serve as a "disciplinary policeman". The Office's experiences in the past in this regard have not been positive, and it seems reasonable to expect that they would be subject to the same fate under this proposal. I would urge additional review of this particular area.
One issue that has been the subject of possibly the most debate and controversy to this point, but which interestingly was not recommended in either of the major reports from the FTC and the NAS, is changing the standards for injunctive relief. These standards have been the particular concern of some in the software and financial services industries. The apparent goal is to limit the availability of permanent injunctions in certain circumstances, and thereby purportedly reduce the ability of certain types of patent holders to leverage those patents in litigation or licensing negotiations. These patent holders have come to be identified by the sobriquet "patent trolls."
The possibility of legislation in this area raises several very serious concerns. There is appropriate apprehension about the impact of patent holders whose sole purpose appears to be acquiring and using patents of dubious quality or breadth as speculative investments, without meaningfully adding to technological or economic development. On the other hand, many patent holders are individuals or universities whose only means of competing with much larger entities is using their innovation and the resulting patent protection to negotiate for the development of that innovation.
The challenge arises not so much in identifying the problem, however, (although in my experience I would suggest it is far more limited than its opponents have suggested and may even be aggravated by certain practices on their parts), but rather with the proposed solution. As a property right, and an exclusory one at that, the patent right requires in its very being that it be actively enforceable by the courts against trespass by others. This is particularly true in the case of permanent injunctions that result from final adjudications and appeal. To do otherwise, is to erode the value of the patent portfolio, and for companies like GE, erode shareholder value. We have an enormous investment in research and development, and must have the ability to protect that investment. To limit our ability to obtain permanent injunctions, is to limit that protection in ways we currently find unacceptable.
Moreover, in the context of international harmonization, such an amendment would send a highly negative signal about the U.S. commitment to enforcing intellectual property rights to those countries or entities in the world who question or oppose such rights. Some nations seeking to impose compulsory license regimes would undoubtedly cite such a law as justification for their actions. As we continue to struggle for both harmonization and the protection of U.S. intellectual property abroad, it would more than counter-productive to send such a signal.
It is for these reasons and others that the various proposals to alter injunctive standards have proven so controversial, and are opposed by most major IP institutions, such as the IPO and AIPLA, as well as independent inventors and universities.
In conclusion, I commend this Committee for diving into the often arcane and esoteric debate on patent reform. This Committee has a real and rare opportunity to craft patent legislation that both has broad support and meaningfully improves our patent system. While virtually any patent legislation, no matter how modest, will generate some level of opposition, the outlines of a passable, yet meaningful bill have begun to emerge.
The opportunity for advancing international harmonization efforts through domestic legislation is a major benefit of proposed legislation. With the prospects for success so clear, it would be doubly disappointing if insistence on inclusion of an injunctive standards provision were to scuttle chances for meaningful patent reform. Surely some other means for attacking the patent troll speculator problem can be found. Other provisions addressing litigation reform have met with general acceptance, and could find their way into law.
I would like to thank the Subcommittee for giving me the opportunity to testify today, and look forward to working with you and your staff as you craft this vital and important legislation.