First published in Antitrust News & Notes, March 2011
By Elizabeth C. Brandon
On March 7, 2011, the Federal Trade Commission (FTC) released a 300-page report on the alignment
of the U.S. patent law regime with competition policy (the “2011 Report”).1 The report, which revisits issues addressed by the FTC in a prior 2003 Report,2 is the result of eight days of hearings; a workshop cosponsored by FTC, the U.S. Patent and Trademark Office (PTO), and the Department of Justice (DOJ); evaluating submissions from patent holders and industry experts; compiling public comments; and conducting additional research on the U.S. patent system and its effect on innovation. The 2011 Report assesses the benefits of the current patent system and the challenges it faces as a result of changes in the marketplace.
Much as the FTC argued in the 2003 Report, the FTC states in the 2011 Report that, while patent rights still play a critical role in stimulating innovation, innovation and investment are currently stymied by unnecessary infringement litigation and by unclear and overly broad patent claims. In addition, the 2011 Report singles out patent assertion entities (“PAEs,” or as they are sometimes derisively described, patent “trolls”) for raising costs and risks in the patent system without contributing to innovation. Rather than develop new technologies themselves, PAEs purchase pre-existing patents and assert infringement claims against businesses allegedly already using the patented technology or similar technologies. The 2011 Report notes an increase in this practice, which, according to the FTC, “can deter innovation by raising costs and risks without making a technological contribution.”
To address these issues, the FTC recommends improvements to patent law policies that affect how well a patent gives notice to the public of what technology is protected, and how remedies for patent infringement should be determined. Arguing that the patent system should encourage and reward technology transfers rather than after-the-fact licensing spurred by the prospect of litigation, the FTC recommends improved notice to the public about what technologies are included within a patent claim, as well as more clearly defined remedies that take into account the type of infringement that is alleged and the contributions made by the alleged infringer to innovation and competition. Below are some of the key recommendations from the 2011 Report.
Notice and Patent Claim Procedural Rules
The FTC recommends making patent claims more definite, improving patent descriptions so their boundaries will be clearer, and enhancing the patent examination record so it can aid interpretation of the scope of a patent claim. Proposed methods include:
Adopting the lower threshold of ambiguity set forth by the PTO Board of Patent Appeals and Interferences by finding ambiguity wherever a claim is “amenable to two or more plausible claim constructions.”
Urging courts to direct heightened attention and provide additional guidance in assessing “person of ordinary skill in the art” levels.
Requiring applicants to designate a dictionary (or accept a PTO-designated default dictionary) for all undefined terms in the patent specification and include a glossary for any other terms.
Enacting legislation to require the publication of nearly all patent applications 18 months after filing to avoid the competitive harms that flow from “submarine” patents.
Enacting a legislative safe harbor for patent infringers who: (1) infringe only because of claim amendments following a continuation, and (2) made substantial preparation for using the patented product or process before the amended or newly added claims were published.
Requiring the PTO to classify patents using an industry-based certification system to foster greater uniformity in nomenclature.
Requiring public recordation of patent assignments and published patent applications that would identify the formal assignee and the real party in interest, to give competitors a better opportunity to identify and clear patents held by their competitors or other likely litigants.
If efforts to improve patent notice fail to remedy the trend toward increasing patent litigation against inadvertent infringers, the FTC says it “may be appropriate” after more study to consider more fundamental changes to the strict liability scheme of patent infringement, such as introducing a defense for prior user rights or an “independent inventor” defense.
Patent Infringement Remedies
The FTC argues that, in awarding damages and injunctive relief, courts should avoid overcompensating patent holders for infringement in a way that itself deters innovation by encouraging “speculation” in patent rights.
The FTC recommendations to courts include:
Capping reasonable royalty damages at the amount a willing licensee would pay, which is necessarily no more than the value of the invention over alternative technologies.
Rejecting the “entire market value” rule for calculating lost profits based on all infringing sales.
Rejecting dual awards of lost profits and reasonable royalty damages when, even absent the infringement, the patentee would not have been able to make all of the infringer’s sales because of competing alternative technologies.
Vigorously scrutinizing expert testimony to insure that it is relevant to the case facts and applies a reliable methodology, especially with respect to valuations based on purportedly comparable licenses.
Adopting criteria to identify the minority of instances in which the harm to the patentee from ongoing infringement is insufficient to justify an injunction against that infringement, which include considering: (1) whether the patented technology is a minor component of a complex product, (2) whether the infringement affects the patentee’s ability to compete in a market, and (3) whether the infringer copied the patented technology.
Recognizing, when considering whether to enjoin infringement, that an injunction may give a patentee leverage to obtain royalties that exceed the economic value of an invention.
Exploring ways to achieve greater alignment between the patent system and competition policy, the authors of the 2011 Report reiterate several points made in the 2003 Report. This new report, however, is issued at a time when several patent reform measures are being debated in Congress, the courts, and the PTO. For example, the day after the FTC released the 2011 Report, the U.S. Senate passed the Patent Reform Act of 2011, a measure which would make the first significant changes to the nation’s patent system in nearly 60 years. The bill, which is currently before the U.S. House of Representatives, would shift the patent process from a first-to-invent system to a first-to-file system, allow the PTO to set its own funding, and allow entrepreneurs to pay extra fees to fast-track the patent application process. The prospects for passage are unknown. The Senate Judiciary Committee has reported a patent reform bill to the full Senate each year since 2006 without final passage.
Whether the 2011 Report and recommendations are given any weight will likely depend on the success or failure of the pending patent reform measures before Congress. Thus, it remains to be seen what, if any, impact the FTC’s report may have on future patent prosecution and litigation.
For more information on antitrust issues arising in the intellectual property context, please contact V&E attorney Elizabeth C. Brandon. Visit our website to learn more about V&E's Antitrust practice or e-mail one of the practice contacts. (Read more articles from the V&E’s Antitrust News & Notes, March 2011.)
1 U.S. FED. TRADE COMM’N, The Evolving IP Marketplace: Aligning Patent Notice and Remedies With Competition: A Report of the Federal Trade Commission (Mar. 7, 2011)
2 U.S. FED. TRADE COMM’N, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy.