Myriad Genetics, Inc., the owner of the patents, brought the case to Federal Court of Appeals, which overturned the lower court’s decision on July 29 in a 2-1 ruling that has, at least for the time being, reaffirmed the patentability of human genes. Notably, the Obama Administrations Justice Department broke with the Patent and Trademark Office, a co-defendant in the case, in filing an amicus brief in support of the plaintiffs claim that the genes should not be patentable.

The Appeals Court also upheld Myriad’s patents on procedures for therapeutic research on BRCA 1 and 2, but agreed with the lower court that Myriad’s processes for “analyzing” and “comparing” the genes are not patentable. Despite this small concession, it does not seem likely that this will make it easier for scientists who are unaffiliated with Myriad to conduct significant research on BRCA 1 and 2.

“[Myriad’s] short sequence claims [on BRCA 1 and 2] will continue to pose problems,” said Arti Rai, the Elvin R. Latty Professor of Law at Duke Law School and an expert in patent law and innovation policy, in an interview with Science Progress. “I’m not sure that the plaintiffs at the end of the day are in a better position,” she said, noting that they will probably run into many of the same patent infringement issues that they have in the past.

Though the full effects of this ruling on the biotechnology industry and the cancer research community remain to be seen, it is by no means the last word on the issue of gene patents. The plaintiffs, a coalition of doctors, patients, breast cancer researchers, research institutions, and medical associations, are expected to ask for an en banc rehearing—in which all of the justices in the court of appeals would sit for the case, instead of a panel of only three—or appeal the case to the Supreme Court. The Supreme Court can let the appeals court decision stand, or take up the case and issue its own ruling.

Why were genes patentable in the first place?

Patents for biological materials have long been a contentious issue, and decades of Supreme Court cases have interpreted U.S. patent law, which was written over 200 years ago, to fit the complexities of property in modern biotechnology. Currently, the United States Patent and Trademark Office, or USPTO, can issue patents for genes, animals, bacteria, and plants—as long as they are, according to the Patent Act of 1790, “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”

Patents for biological materials must also fit the “product of nature doctrine,” a standard that excludes entities that occur in nature from patent eligibility. The doctrine was first used in ex Parte Latimer (1889) when the U.S. Patent Commissioner rejected a patent application for isolated pine needle fibers. It was further developed in Funk Bros. Seed Company vs. Kalo Inoculant Co. (1948) when the Supreme Court ruled that natural phenomena and processes are “free to all men and reserved exclusively to none,” and rejected a patent application for a novel mixture of bacteria and soil.

Genes, bacteria, and animals seem like they should fall in the “product of nature” category, but later Supreme Court decisions have shown that sufficient modification of a naturally occurring entity can make it enough of a “new manufacture or composition of matter” to be eligible for a patent. In Diamond v. Chakrabarty (1980), the Supreme Court permitted a patent for a genetically engineered bacterium. In 1984, the USPTO granted a patent to the creators of the “oncomouse,” a mouse that was engineered to express cancer genes in every cell in its body.

Thanks to the precedents set by these and other cases, the USPTO has issued over 40,000 gene patents to date. Myriad Genetics justified their own gene patents via the argument that isolated forms of BRCA 1 and 2 do not occur in nature, and that such isolation results in the formation of different chemical bond structures within the molecules.

In 2010, the New York district court invalidated the BRCA 1 and 2 patents on the basis that the genes, even when isolated, have not acquired any changes to the fundamental nature of its DNA sequence or the genetic information they contain. The majority opinions of the recent federal appeals court ruling, on the contrary, agreed with Myriad Genetics’ original justification for the patent. They also noted that isolated BRCA 1 and 2 can be modified in the lab to form cDNAs, which can then be used to develop genetic probes and markers—a process for which BRCA 1 and 2 are only useful if they are isolated. The dissenting opinion by Justice William Bryson, however, held that the BRCA 1 and 2 genes on their own should not be patentable because Myriad did not discover the genes or use any novel techniques to isolate them. However, he held that the cDNAs, since they are modified by researchers, are patentable.

Gene patents and scientific progress

While the technicalities of what constitutes a “product of nature” or a “manufacture” seem to spark disagreement in the case of isolated genes, the stakes are high for a decision on gene patentability.  According to the U.S. Constitution, patents are supposed to “promote the Progress of Science and useful Arts” by giving inventors the exclusive right to exploit their inventions for a limited period of time.

This is true much of the time, as patents encourage innovation and scientific progress by ensuring that inventors can reap the benefits of their work. Plus, a ruling that would invalidate all existing gene patents could potentially have far-reaching negative effects on patent holders and the biotechnology industry in general.

But the plaintiffs in the Myriad case disagree, and argue that gene patents significantly impede, rather than promote, scientific progress. Researchers from Oncormed and the University of Pennsylvania Genetic Diagnostic Laboratory, or GDL, who are plaintiffs in the case, were already conducting research on and offering their own diagnostic genetic testing services for BRCA 1 and 2 when Myriad acquired its patents on the genes and associated research and testing processes. However, these researchers were forced to stop conducting diagnostic testing and therapeutic research in the late 1990s after Myriad sent them cease and desist orders for patent infringement.

Myriad’s vigorous enforcement of their BRCA patents has rendered them the sole provider of genetic testing for BRCA 1 and 2 in the United States. As a result, women who wish to learn of their genetic risk for breast and ovarian cancer cannot turn to other diagnostics providers for confirmatory tests. Nor can patients seek cheaper alternatives to Myriad’s services, whose BRCA tests cost between $250 and $4,000.

In addition to limiting the competition among diagnostic test providers, Myriad’s monopoly on BRCA also allows them to control the progress of BRCA research. Other scientists cannot research potential improvements for BRCA therapeutics or expand scientific understanding of high-risk BRCA gene mutations without infringing Myriad’s patents.

An issue of authority

The federal appeals court opinions acknowledge the question of whether gene patents promote or impede scientific progress, but instead of answering it outright, they defer it to Congress and do not deal with the case beyond the scope of patent law. “If the law is to be changed, and DNA inventions excluded from the broad scope of [patent law] contrary to the settled expectation of the inventing community, the decision must come not from the courts, but from Congress,” wrote Judge Lourie in the court opinion.

While Congress might be in a better position than the judicial system to consider social, economic, and scientific implications of gene patents, they have never been particularly successful in passing legislation concerning patentable subject matter. “These are policy issues to be decided by Congress, but the fact is that Congress is unlikely to act in this area,” said Rai.

If Congress doesn’t speak out on the issue, the Supreme Court has the authority to make its own decision on the patentability of genes. “For better or for worse,” said Rai, “a court decision in this area may end up being the final word.”

As such, the federal appeals court ruling is just another step in what has been, and what will continue to be, a long process of sorting out property in the genome. The final outcome for the genetic research community and gene patent holders remains to be seen.

Michelle Spektor recently completed her internship at Science Progress and will complete her bachelor’s degree at Cornell University this year.

John Schwartz at the New York Times summarized the case:

“A respected Harvard researcher who also is an Internet folk hero has been arrested in Boston on charges related to computer hacking, which are based on allegations that he downloaded articles that he was entitled to get free.”

While the details according to the indictment sound more dubious–Swartz allegedly covered his face with a bike helmet while breaking into a closet to connect to a hard access point to the MIT network–Schwartz certainly has the gist correct. Guests at MIT are granted access to the network’s JSTOR license so Swartz was using a legitimate pathway to access the information.

Though he is charged with violating the MIT and JSTOR Terms of Service Agreements by using a pseudonym, otherwise evading attempts to limit his access to the network, and using an automated script to download files en mass, he has since settled the matter with both wronged parties. Neither decided to press charges, and JSTOR even went as far as to issue a statement saying they have “no interest in this becoming an ongoing legal matter.” But that didn’t stop the United States Attorney’s Office for the District of Massachusetts from bringing computer intrusion, fraud, and data theft charges hinging on the Terms of Service violations against Swartz on July 19.

This case raises some interesting questions about the nature of intellectual property in the digital world. While the United States Attorney’s Office accuses Swartz of “stealing,” there is no mention of copyright infringement in the indictments, and theft is a difficult term to define in a situation where the wronged parties in fact did not lose any property. JSTOR and MIT did not suddenly lose all those articles from their server when they were downloaded; all that occurred was the copying of information by an individual who had legitimate access to JSTOR’s hosted files.

This isn’t Swartz’s first run-in with the law; in 2009 he was investigated by the FBI for using an automated script to download public records from a library participating in a trial program allowing free access to the Pacer government court record search system. They claimed his automated downloads of 20 percent of the archive was the equivalent of stealing documents worth $1.5 million dollars, but the investigation was later closed without any charges. (Swartz obtained his FBI file from this period via a Freedom of Information Act request and has since posted it on his blog.)

The continued targeting of Swartz by law enforcement certainly serves to highlight the government’s increasingly dated response to the ongoing conflict between the commercialization of public information and the movement to use technology to democratize information access.

If his goal was to make a statement through civil disobedience, then it would seem that Swartz could have done a better job of being noticed. That he allegedly tried to cover up his information liberation campaign rather than doing it publicly and embracing the consequences weakens the credibility of his activism. But charging Swartz with criminal hacking for his conflict with MIT and JSTOR while far more nefarious cybercrimes are being perpetrated seems an odd choice of priorities, especially when his information liberation campaigns have focused primarily on academic or non-copyright protected public documents.

It is unclear if Swartz intended to release the JSTOR documents into the wild or use them for academic research, but it appears that at worst the end result may have been the distribution of the research he downloaded from JSTOR via peer-to-peer networking. Currently, scholarly research is trapped in an academic-commercial publishing complex run by for-profit publishers. Much of the research held there is supported by public funds, but in the academic publishing world neither the authors nor peer-reviewers are generally compensated, with the profits going to the commercial publishers or databases such as JSTOR who act as gate keepers to the wealth of public domain academic knowledge that many would argue should be available to all.

These circumstances have combined to cause hyperinflation of journal subscription costs, threatening institutional access to the resources the academic community has produced and amounting to an acknowledged academic publishing crisis. Many universities, including Harvard, have turned to open access policies that ensure authors and institutions have the ability to share their research freely in response. If Swartz’ goal were to “liberate” the research he downloaded from JSTOR by allowing its free circulation on the Internet, it is hard to argue the authors, the scientific process, and society as a whole would do anything but gain as the result.

The vast majority of responses from the science and technology community have been sympathetic to Swartz. At least one activist responded to the indictment with action: A man identifying himself as “Greg Maxwell” uploaded a 32 GB cache of 18,592 “stolen” articles to well-known file-sharing site, ThePirateBay.org, citing Swartz’ indictment as the direct reason. The articles were all in the public domain, but currently unavailable to the public except through JSTOR with per article prices ranging between $8 and $19.

Maxwell included a statement summing up his stance:

“The liberal dissemination of knowledge is essential to scientific inquiry. More than in any other area, the application of restrictive copyright is inappropriate for academic works… [a]nd unlike ‘mere’ works of entertainment, liberal access to scientific work impacts the well-being of all mankind. Our continued survival may even depend on it.”

This is not an endorsement of Swartz’s alleged actions–he may well be convicted for his law breaking. But at the end of the day, we should take this as an opportunity to evaluate how a perhaps profoundly broken system limits scientific innovation and hinders the public’s access to research it often has already paid for.

Any judge evaluating this case would be well advised to look at last year’s high profile lawsuit against Google, in which the Internet titan was sued for making-public millions of pages of copyright-protected books without permission. But in that case no criminal charges were filed; the suit ended with a settlement in civil court. Let’s hope the judges hearing Swartz’s case take this as a precedent. If Swartz is punished for challenging a legal system in need of reform, and faces it with dignity as a good activist should, he will have given us an opportunity to reflect on what we need to do to bring 20th century intellectual property laws in line with the realities of 21st century information technology.

Andrea Peterson is the Assistant Editor for Online Outreach and Analytics at the Center for American Progress.

The Supreme Court settled a six-year-long patent dispute between Stanford University and Roche Molecular Systems Inc., a global diagnostics and pharmaceutical company based in Switzerland, over the rights to an HIV test developed by a researcher who worked at both institutions. A major point of contention was an interpretation of the University and Small Business Patent Procedures Act of 1980, commonly referred to as the Bayh-Dole Act, which allows research institutions and universities to obtain patents for federally funded inventions they produce. The question in this case was whether or not the Bayh-Dole Act automatically grants the rights to such inventions to the institutions responsible for their creation, or if the individual inventor can unilaterally assign the rights to third parties.

The Stanford researcher who developed the test, Mark Holodniy, signed a contract that assigned Stanford University the rights to his invention in 1988. Since research on the HIV test was funded in part by the National Institutes of Health, the university acquired several patents for the procedure under the Bayh-Dole Act. When Holodniy used facilities at Cetus, a biotechnology company later purchased by Roche, in 1989 to conduct some of his work he signed a visitor confidentiality agreement that assigned the rights to his inventions to Cetus (and therefore Roche).

When Roche commercialized and distributed the completed HIV test, Stanford sued for patent infringement. Roche claimed the suit was invalid because the contract Holodniy signed with Cetus made Roche a co-owner of the patents. Stanford argued that the Bayh-Dole Act granted the university superior rights to the invention, and that Holodniy never had the right to assign ownership of the test to Roche (via Cetus).

In a 7-2 majority decision, the Supreme Court ruled in favor of Roche and interpreted the Bayh-Dole Act to not automatically vest ownership in federally funded inventions to public institutions, leaving room for the individual inventor to contract the rights to his or her invention to other parties. Roche and Stanford University were deemed co-owners of the patents.

A close look at the Bayh-Dole Act

The Bayh-Dole Act, named for Sens. Birch Bayh (D-IN) and Bob Dole (R-KS) was created in 1980 to respond to the need to transform research findings into commercialized products that could be distributed to the public, a process known as “tech transfer.”

Before the Bayh-Dole Act, patents on federally funded inventions could only be acquired by the United States government, an inefficient arrangement that left it with tens of thousands of patents, few of which were ever licensed to private industries and brought to the marketplace. Since the act allows research institutions to patent the products of their federally funded projects, these institutions can license their inventions to private companies so that they can be produced and distributed—an arrangement that has significantly improved tech transfer over the last few decades. It also allows publicly funded institutions to receive a share of the profit on the sale of the commercialized inventions, ensuring that public funding for research products returns to the public institutions that created them for investment in future research.

In light of the history and goals of the Bayh-Dole Act, the Court’s majority decision to vest the primary ownership of an invention to the inventor instead of the associated public research institution seems to contradict the act’s central purpose. This opinion is in line with an amicus curiae brief filed by the United States on behalf of Stanford, which stated that “allowing an inventor to transfer ownership of a federally funded invention outside The Bayh-Dole Act’s framework frustrates Congress’s purposes” in the creation of the act: protecting taxpayer investments, encouraging research and innovation, and benefiting United States industry and labor.

Arti Rai, the Elvin R. Latty Professor of Law at Duke Law School and an expert in patent law and innovation policy, said that the Court’s decision to prioritize the inventor even in the context of publicly funded research is not unexpected. “The default rule in patent law has long been that patents belong in the first instance to the inventor, and then can be assigned away via contract to other parties,” said Rai in an interview with Science Progress. The majority opinion in this case cited an over 200-year-old tradition of U.S. patent law, which indicates the inventor as the primary proprietor of his or her ideas and inventions, as a significant reason for their ruling.

Justice Stephen Breyer’s dissenting opinion, which was joined by Justice Ruth Bader Ginsburg, suggested that the history and framework of the Bayh-Dole Act changes the traditional hierarchy of ownership retention in the special circumstance of federally funded research, giving the highest priority to the federally funded institution, followed by the government, and then the inventor.  Whether or not the language of the Bayh-Dole Act actually provides for this is difficult to determine.

“There are situations where the default has been changed by particular statutes, but they tend to be more definitive than the Bayh-Dole Act is in terms of changing that rule,” said Rai. “It’s difficult when the specific language is hardly a model of clarity. There is nothing in legal history or the Bayh Dole Act that suggests [Congress and the creators of the act] thought about the possibility of conflicting assignment agreements.”

Implications of the decision

While the decision in this case lends difficulty to balancing the specific language of the Bayh-Dole Act with its overall purpose, the alternative ruling would present several issues as well. The majority opinion noted that allowing institutions to automatically retain ownership of federally funded inventions opens the door for institutions to do so even if only one dollar of federal funding is used. It also cited the possibility that institutions could automatically acquire ownership of ideas that were conceived by an inventor before he or she affiliated with the institution in question.

Stanford v. Roche also reflects difficulties in accounting for the collaborative nature of scientific research and innovation. In this case, the research and conception of the HIV test did not exclusively occur at Stanford, and Roche’s role in the process was not limited to the commercialization of the finished product. Roche (via Cetus) had already started working on developing an HIV test before they entered into collaboration with the university. Although the inventor was employed by Stanford and not Cetus, he still utilized Cetus’s facilities with the purpose of learning how to perform a fast DNA replication technique called polymerase chain reaction (PCR), a relatively new procedure at the time. This technique was developed and patented by Cetus (and then sold to Roche), and also happened to be crucial to Holodniy’s development of the HIV test.

“I think the majority opinion did raise the idea that Roche, in this case, was a really involved third party,” said Rai. “If the university automatically got rights to everything their funding had played even a small part in, a third party like Roche would be negatively affected.” The automatic retention of ownership by public institutions when third-party collaborators make instrumental contributions to the research process does seem problematic. A ruling of that kind might have alienated the private sector, which could hinder innovation and commercialization by making private industries more reluctant to collaborate with public and academic institutions.

However, the majority ruling’s establishment of Roche as a co-owner of the patents to the HIV test means that Roche has no contractual obligation to share royalties with Stanford University, rendering the Supreme Court’s interpretation of the Bayh-Dole Act as one that seems to support transnational corporations at the expense of research institutions funded by the American public. “The dissent was a bit more concerned with the overall purpose of Bayh-Dole, which is commercialization,” said Rai. “The majority was perhaps more concerned with what would happen to the private sector that thought it had rights because it funded some of the work.”

Stanford University warned that the Court’s decision could have significant negative impacts on federally funded inventions, but it is possible that these impacts may be more symbolic than effectual. “It is a preservation of status quo more than anything else,” said Rai.

Although the ruling may not seriously affect the tech transfer process, it might strain already-tense public-private and academic-industrial relationships. But the same would be true for an opposite ruling. “It just shows that no matter how you set the default rule, if universities and the private sector are both concerned about making money, as they are, you’re going to have conflicts.”

In the meantime, universities and other research institutions can continue to acquire patents for federally funded inventions under the Bayh-Dole Act; they will just have to pay closer attention to the contracts they engage in with their employees and work harder to ensure that their researchers do not sign conflicting contracts with third parties.

Michelle Spektor is a Science Progress intern at the Center for American Progress and is an undergraduate at Cornell University in Ithaca, New York.What do you think? Comment on this article and join the conversation at facebook.com/scienceprogress or by tweeting at us @scienceprogress.

Indeed, for the greater part of the last decade, legislative proposals for patent reform have languished as competing industry and trade group interests fought to a standstill. Meanwhile, the Supreme Court and the executive branch have taken up the mantle of reform, producing significant improvement in such areas as standards for evaluating patentability, remedies for patent infringement, and numerous administrative reforms to improve both the timeliness and quality of review.

Yet there is important patent reform that only the legislature can implement. Thus, last week’s 95-5 Senate vote in favor of the America Invents Act represents something of a watershed. Indeed, given the background history of fierce clashes between interest groups, and the everyday difficulties of achieving bipartisan agreement, the Senate action deserves commendation irrespective of what ultimately happens in the House.

There is no question that our patent system needs further improvement. It currently takes at least 34 months on average for the Patent and Trademark Office, or PTO, to finalize a patent application. The average wait is even greater (more than 40 months) if one counts the large number of applications that are resubmitted one or more times. As a consequence, a backlog of more than 700,000 patent applications currently awaits review. These long waits create uncertainty for inventors, investors, and entrepreneurs, dampening innovation. What’s more, although the PTO is entirely supported by applicant fees, it does not even possess fee-setting authority. No self-supporting institution that lacks the ability to charge for the costs it incurs can possibly perform efficiently.

The America Invents Act, if taken up by the House of Representatives and signed by the president, would address these problems in several ways. First and most significantly, it would confer fee-setting authority upon the Patent and Trademark Office. As I have discussed at length elsewhere, with fee-setting authority of the sort given in the Senate bill (and a related guarantee that fees won’t be diverted by Congress to other uses, as has happened repeatedly in the past), the PTO could much more readily work to create processing times that were suitable both for applicants and for potential competitors. The PTO could also, if it so desired, use this authority to create incentives for applicants to file well-drafted applications that could be processed in one cycle without having to be resubmitted, thereby further reducing administrative delays.

Another significant (though contested) feature of the legislation is its enactment of a first-to file system. Currently, unlike every other major global economy, the United States operates under a “first-to-invent” system. At least in theory, the U.S. approach therefore accords patent rights to whomever can prove they first invented a product or technology. The operative word is theory, however, as the actual impact of the first-to-invent system is far from clear. So-called interference disputes—that is, the length and expensive administrative proceedings in which first and second patent filers settle who was first to invent—account for only about .01 percent of cases. Meanwhile, the asymmetry between the U.S. system and that of other major economies creates problems both for applicants who file globally and for PTO efforts to reuse the work product of other patent offices.

In response to data regarding the negligible role of interferences, proponents of the status quo (typically small inventors) raise two reasonable points. First, ordinary patent prosecutions, not interferences, are the arena where a first-to-invent system matters. In the prosecution context, the U.S. system allows an applicant to argue that third-party disclosures of invention that arise after the date of invention, but before the date of filing, should not be used to reject the patent application. As a recent study by Dennis Crouch documents, however, attempts by applicants to assert a pre-filing invention date arise in only 0.1 percent of cases. Moreover, small inventors appear to assert pre-filing invention dates “less often and less successfully than large, publicly traded companies.” Thus, at least in the prosecution context, the first-to-invent system appears to disadvantage precisely those small inventors who are lobbying to keep it.

Second, some critics assert that empirical studies of current interference proceedings cannot necessarily predict what would happen in the counterfactual situation of a shift to a first-to-file system. Perhaps in that context, critics of reform argue, large firms that no longer feared an interference challenge would race to the patent office and file applications, including applications based on information appropriated from small inventors. That scenario seems unlikely, however. The current interference system would hardly seem to present much of a barrier to racing activity on the part of large firms. Additionally, the Senate bill bars those who appropriate information from others from using that information to file patents or even to create prior art.

In addition to fee-setting authority and first-to-file language, the Senate bill also contains improved administrative alternatives to costly and inefficient litigation over the validity of issued patents. Although these improvements may not go as far as one might like, they are certainly a step forward.

The incremental improvements driven by the judicial and executive branches in the last few years must be accompanied by legislation that addresses what only the legislature can do. The Senate bill is thus a worthy and necessary endeavor.

Arti K. Rai is the Elvin R. Latty Professor of Law at Duke Law School. From 2009–2010, she served as the administrator for external affairs at the USPTO. This article represents her views only.

The full implications of the surprise decision are not yet clear, but gene patents are a contentious intellectual property issue both because they underpin significant investments in the biotechnology industry and because they might pose barriers to increasingly complex genomic research. The ruling is also noteworthy because it invalidates both the patents on the genes themselves and patents for the methods of analyzing and comparing genes to identify mutations in the genetic material.

Some of the patents in question are for the sequences of DNA that make up the BRCA1 and BRCA2 genes. Mutations on these genes are linked to 3 to 5 percent of breast cancer in the United States and 10 to 15 percent of ovarian cancer, according to the Centers for Disease Control and Prevention. But for women with a family history of cancer, genetic testing can be an important medical decision, as BRCA1 and BRCA2 mutations carry a 60 percent lifetime risk of breast cancer and up to a 40 percent risk of ovarian cancer.

Myriad holds patents on the genes along with the University of Utah Research Foundation. As a result, Myriad is the only company that can market a test for the mutations, and it charges as much as $3,000.

Filmmaker Johanna Rudnick spoke with Science Progress in 2008 about her documentary, In the Family, which chronicles her own discovery at age 27 that she carries a mutation on the BRCA1 gene. “There is no other, cheaper test that you could go get in another laboratory, because they have the exclusive patent,” she explained, adding that Myriad also controls the efficacy of the test—there is no other company to turn to for a second opinion.

There are about 40,000 patents that currently protect some 20 percent of the human genome. Last year, a federal advisory panel recommended exceptions from patent infringement liability for genetic research. The proposal came from the Secretary’s Advisory Committee on Genetics, Health, and Society, known as SACGHS, at the U.S. Department of Health and Human Services. But Timothy Caulfield at the University of Alberta argued here at Science Progress that there is little data to back up the claim the gene patents inhibit reserach. “A 2005 study done for the National Academy of Sciences found only 1 percent of the scientists surveyed reported suffering a project delay of more than 1 month due to patents,” he wrote.

Patents are designed to foster innovation, not stand in the way. That’s why patents are public documents that detail the inner workings of a new invention, exposing the idea for anyone to see and understand. Inventors are protected for the life the patent, currently 20 years, from anyone else copying their idea, but in exchange, they share their technology with the rest of the world, advancing knowledge.

Yet the District Court ruling does not hinge on claims about the impact of the patents on research. It deals instead with whether or not the genes and the processes for analyzing them are patentable in the first place.

An analysis of the ruling posted at Genomics Law Report makes it clear that the decision presents DNA as pure information—whether it is part of a complete genome or isolated in the form protected by Myriad’s patents. From the judgment itself:

DNA represents the physical embodiment of biological information, distinct in its essential characteristics from any other chemical found in nature. It is concluded that DNA’s existence in an ‘isolated’ form alters neither this fundamental quality as it exists in the body not the information it encodes (pp. 3-4).

That is, patents on the chemicals that make up specific sequences of DNA are no different from the information they encode in the human genome. And this naturally occurring information is not eligible for patent protection.

The decision in this trial court for the Southern District of New York is not binding precedent for other trial courts, though it could influence thinking elsewhere. But Myriad has the right to appeal the case the Court of Appeals for the Federal Circuit, and has indicated it will do just that. This process could take more than a year, and ultimately, if the case proceeded to the Supreme Court, the justices there would have the final say on the matter.

The implications for the biotech industry and medical research are uncertain at the moment. “We do not foresee this decision producing any radical changes in commercial, clinical or other activity surrounding Myriad’s BRCA patents, or gene patents more broadly,” write the lawyers at Genomics Law Report. The New York Times quotes Bryan Roberts, a Silicon Valley venture capitalist, who suggests that the work of discovering genes and developing the accompanying diagnostic tests will move to university laboratories: “The government is going to become the funder for content discovery because it’s going to be very hard to justify it outside of academia.”

But the ruling did not merely invalidate the patents on the gene sequences themselves. It went even further and invalidated the method patents on the processes for analyzing the genes. The Supreme Court is currently considering a case involving method patents, and that ruling could have implications for the appeal on yesterday’s decision. The case, referred to as Bilski, focuses on a business method patent on a process for hedging commodities risks.

The current rule for testing method patents laid out by the Federal Circuit in Bilski requires that the process be connected to a particular machine or device or that the process transform an article or piece of matter into something else. In yesterday’s ruling, Judge Sweet found that the Myriad patents fail this test, writing, “because the claimed comparisons of DNA sequences are abstract mental processes, they also constitute unpatentable subject matter” (p. 4).

The Supreme Court’s decision could uphold the test or propose a new set of rules that would become the legal precedent. This, in turn, could shape not just Myriad’s appeal, but future decisions on intellectual property involving innovative biotech processes.

Andrew Plemmons Pratt is the managing editor for Science Progress.

The suit claims that “genes cannot be patented because they exist as naturally occurring products of nature,” an argument David Koepsell made here at Science Progress, writing that “patenting unmodified genes rewards discovery, not invention.”

But Timothy Caulfield argued at SP just last week that despite the claims that gene patents impede upstream basic research, there just isn’t data to back up the charge.

On October 9th, the most recent call for change came from the Secretary’s Advisory Committee on Genetics, Health, and Society, known as SACGHS, at the U.S. Department of Health and Human Services. Among other things, the Committee recommended the “creation of an exemption from patent infringement liability for those who use patent-protected genes in the pursuit of research.”

So, why all the fuss? While the concerns associated with gene patents are varied, one has had the most policy traction: the idea that patents on sequences of genetic information hurt research, especially upstream, basic research. The worry is that patents will hurt science by making it difficult to acquire the rights to all necessary research inputs. Research will slow, become more inefficient and expensive—or researchers will simply avoid doing research on patented, yet scientifically valuable, genes.

If it were true that patents impede biomedical research, patents would be cutting against the very reason for their existence, the stimulation of innovation. As such, it makes sense that this concern over the impact of patents on research—called a “patent thicket” or an “anti-commons”—is often the focus of the policy activity. For example, Congressman Xavier Beccera (D-CA) justified his support of the Genomic Research and Accessibility Act on the grounds that “[t]he practice of gene patenting is preventing critical research from advancing because scientists are wary of trespassing patent laws.”

At first blush, all this policy activity seems to make sense: a logical response to a profound social problem. But there is a hitch. There is little evidence that the problem exists. There is lots of social angst, but no good data showing a widespread patent thicket/anti-commons phenomenon. Moreover, the gene patent question may actually distract us from more important problems related to the distorting effects of commercialization on basic biomedical research.

Through all this public dialogue and political debate, the practice of gene patenting has marched forward more or less unabated. There has been some tweaking of patent policy—such as a 2001 tightening of the patent criteria requiring inventors to disclose a clear use to the gene—but, in general, every jurisdiction embraces the practice. You can get a gene patent in Japan, Canada, the United Kingdom, all through continental Europe and, of course, in the United States. Calculations estimate that there are well over 40,000 patents issues covering over 20 percent of the entire human genome.

A large 2007 study by the American Association for the Advancement of Science found “very little evidence of an ‘anticommons problem.’” A 2005 study done for the National Academy of Sciences found only 1 percent of the scientists surveyed reported suffering a project delay of more than 1 month due to patents. My own research on the Canadian genetic research community, published in early 2009, revealed lots of researcher concern about gene patents, but little evidence that they are actually having a detrimental impact on the research environment.

Many others have noted the absence of evidence that gene patents impede research, including law professor Chris Holman, who wrote in a 2007 paper: “The paucity of documented examples in which the fears surrounding gene patents have manifested themselves is striking, particularly when one considers the high level of public concern and the extraordinary nature of the proposed legislative fix.”

Given all this data and commentary, one can only speculate as to why the anti-commons/patent thicket argument continues as the justification for reform. It does have great intuitive appeal, and it seems a logical consequence of the existence of numerous overlapping patents. There have also been a number of high-profile controversies that seem to confirm the concern, most notably when the company Myriad Genetics enforced patents on a gene strongly correlated with dramatic risks of breast cancer. But as all good scientists and clinicians know, anecdotes are not good evidence—especially when there are more systematic data pointing in the opposite direction.

In addition, we should not conflate the issues. The Myriad controversy, which has been the dominant gene patent cautionary tale, is not really an anti-commons/patent thicket story. The Myriad case is more about patient access to tests and the development of downstream technologies. These are tremendously important issues, for sure, but not evidence of a breakdown of the upstream research environment.

I am not some rabid, pro-industry patent supporter. On the contrary, much of my career has been focused on an exploration of the concerns associated with the commercialization of the research environment. In fact, this is one of the reasons I get frustrated with the patent debate. While the apparent disconnect between policy concern and evidence is a significant dilemma on its own, I think there is a bigger problem. By focusing on gene patents, we seem to be downplaying other concerns associated with the commercialization ethos that increasingly permeates the research environment.

There is solid evidence that commercialization pressure and the involvement of industry can:

• adversely affect the collaborative nature of research
• increase data withholding behavior (that is, stop researchers from sharing information)
• lead to the premature implementation of technologies
• distort research results and corrode public trust.

For example, a 2009 study by Hong and Walsh concluded that “commercial linkages and increased pressures from scientific competition” was a predictor of increased data withholding. This study also found that, in the realm of biology, data withholding was not correlated with patenting. Commercialization pressure, not patenting, is the problem.

In many respects, patents are just a tool in the commercialization process. How many of the documented issues associated with commercialization and industry involvement will go away if patents are banned? Might some get worse? If patents are removed and commercialization pressure remains, might scientists become even more secretive and firms more aggressive?

To be fair, not all the policy reports focus on the “patents hurt research” theme. The recent recommendations by the SACGHS seem more concerned with the downstream impact of patents on access and the development of genetic technologies. And the lack of an observable problem may only be temporary. As technologies move closer to the clinic, patents may become more valuable and, perhaps, litigation and aggressive enforcement more common. But, at the current time, we need to recognize that despite all the noise, there is still no solid evidence that gene patents hurt basic research.

This whole debate also engages the interesting question of how much “evidence” should be required to justify policy change. If patents are viewed as a “right” owed by liberal democratic societies to inventors, the evidentiary hurdle might be quite high. You need to muster lots of evidence if you are going to monkey with a “right.” But if patents are a “privilege”—and I think they are—granted by society for the good of society, the evidentiary hurdle might be lower. Indeed, one could argue that a society should have some flexibility to try different strategies in the hope of maximizing the benefits of the innovation process. But even in this context, arguments for reform must be based on an honest assessment of available evidence—not on assertions that conflict with the facts.

There are, undoubtedly, problems with the current intellectual property system. And there are interesting philosophical arguments about the appropriateness of allowing patents on naturally occurring entities like genes—arguments that the courts in both Canada and the United States have largely rejected. As such, the patent debate seems likely to continue for years to come. And because it is surfacing in other domains such as stem cell research, we need to get our policy arguments in order. We need more methodologically robust research on the true benefits and harms of patents. This will allow for a more informed debate on the fundamental patent tradeoff: that is, the granting of a limited-term monopoly for the benefit of society.

Timothy Caulfield, LLM, FRSC, is the Canada Research Chair in Health Law and Policy, and a Professor in the Faculty of Law and School of Public Health at the University of Alberta.

Science Progress advisory board member Art Caplan offers a sobering perspective about the gravity of this suit for patent lawyers in his Breaking Bioethics column, even though he thinks a Myriad victory is all but certain. Twenty percent of all human genes are patented, he notes, and most of the worldwide drug industry rests on the legal foundation established by the Myriad patents.

Caplan also explains that patents are a privilege and not a right. Nevertheless, the University of Utah and Myriad invested large sums of money into the research and development of the processes by which the BRCA genes are isolated and purified. The monopoly that the patent provides is intended as a reward for that investment and innovation.

Unfortunately, physicians and researchers cannot reduce the costs of the tests or improve on them by investigating other mutations on the genes. According to the lawsuit, Myriad’s exclusive rights also have “resulted in a disparity in the amount of information known about genetic mutations in BRCA1 and BRCA2 in ethnic groups other than Caucasians.”

The lawsuit also notes that information available from the tests is “critical” in helping patients “decide on a plan of treatment or prevention, including increased surveillance or preventive mastectomies or ovary removal.” Moreover, it notes that, “Patients cannot get second opinions on their test results; and patients whose tests come back with inconclusive results do not have the option to seek additional testing elsewhere.” Filmmaker Joanna Rudnick described the difficulty of these health decisions and the impact they have on entire families in an interview with SP last year.

The New York Times notes that the next generation of genetic tests will assess the presence of variations on multiple genes. A scientist working on a multi-gene test would presumably need to pay licensing fees to all of the potential patent holders. In this sense, it is conceivable that gene patents stifle research, innovation, and competition. However, the NYT also links to a 2006 National Research Council report that found “access to patented inventions or information inputs into biomedical research rarely imposes a significant burden for biomedical researchers.”

The Chronicle of Higher Education points out that one of the plaintiffs joining the ACLU, the Public Patent Foundation of the Benjamin N. Cardozo Law School, also brought a patent challenge in 2006 against the Wisconsin Alumni Research Foundation. WARF holds the patents on the human embry­onic stem cell derivation process that James Thomson of the University of Wisconsin-Madison developed, as well as the cells obtained by that process.

Even though the U.S. Patent Office upheld the patents in question in the 2006 suit, WARF modified its licensing procedures so that academic researchers could license the processes without paying a fee, but when a company begins selling a technology based on the patented processes, they then owe royalties to the foundation. As I argued in our stem policy report, “A Life Sciences Crucible,” the WARF arrangement strikes a good balance between spurring academic research and protecting private-sector investments.

Or so the theory goes.

In practice, getting a direct financial return from research activities requires universities to patent their work and thereby obtain ownership of the intellectual property that they can sell or license. Since the passage of the Bayh-Dole Act in 1980—which allows public entities to patent ideas derived from federally funded research—universities around the country have set up technology transfer offices and aggressively worked to patent research-related ideas. The number of university patent offices has increased one hundred-fold, and the number of university patents sixteen-fold, since 1980, according to research by Stanford University intellectual property professor Mark A. Lemley.

In the best cases, patenting and licensing work well. New York University, for example, stands to reap nearly $1 billion in royalties for work it did on Remicade, a successful arthritis drug, notes journalist Richard Monastersky in a recent article in the Chronicle of Higher Education. But substantial financial returns are not always in the cards. A survey conducted by the Association of University Technology Managers found that in 2003, only 15 of 191 surveyed institutions received more than $20 million in licensing revenue.

What’s more, a university’s technology transfer office and its mission to earn money for the university can get in the way of deploying new ideas. Universities and researchers are reluctant to discuss ongoing research with private companies prior to starting the invention disclosure or patent process for fear of losing their IP rights. And they can also be cautious about disclosing too much about an idea for fear that companies will be able to make use of the research without paying a licensing fee, notes journalist Ed Silverman in a recent article in The Scientist.

Universities can also maximize the value of their patents if they offer purchasers exclusive licenses. Problem is, such licensing may inhibit widespread use of technologies, making it difficult to do further research to build on that patent. The result, according to Columbia University economics professor Richard R. Nelson, is that the economic and social gains of the innovation are less than they would otherwise be. These barriers to the free flow of information between researchers and companies are rising just as private corporations are increasingly turning to a model of open innovation to enhance their IP. More and more companies are making their research results—and even patented ideas—freely available to a wide group of users, most famously IBM Inc., which put 500 of its software patents in the public domain in 2005 as part of its push to become a software services company.

IBM had a good business reason to embrace open innovation—companies using IBM’s ideas are more likely to turn to it for information technology services work—but it isn’t just immediate profits the company is after. IBM and other companies now recognize that the open model offers strong complementarities among different kinds of knowledge, and that encouraging others to follow your lead, and refine and extend your knowledge, makes it more likely ideas will be developed more quickly.

But open innovation can run counter to university revenue maximization. The science journalist Silverman cited on unnamed researcher at Utah, for example, who had developed software for designing medical devices who was then discouraged from making it available as open-source software—to encourage other researchers to extend and refine his ideas—because the university’s technology transfer office wanted to reap its commercial potential.

So what should the government and universities do about these conflicting trends? Most importantly, they’ll have to recognize that openness and the free flow of information in research are critical to promoting innovation. They’ll need to balance their interest in getting financial paybacks with creating an environment where researchers—and companies—can engage in the kind of ongoing dialogue and information sharing that leads to progress.

The government and universities also need to be wary that putting too much emphasis on patents and exclusive licensing, which could work against their broader objectives of harnessing idea creation as a new economic driver. One way to do this is to consider measures to separate a university’s networking function—promoting conversations among academics, industry, and the public—from the intellectual property function, as the University of California-San Diego has done by creating its Connect program apart from the technology transfer office.

One of the hallmarks of San Diego’s rise as a biotech powerhouse has been a strong network of formal and informal cooperation, best typified by UCSD Connect, an outreach program started in the 1980s. UCSD Connect helped organize and foster strong shared social capital, engaging the business community and the research community, and drawing participants from around the world. The program was so successful that entire University of California system now uses it.

The federal government should also put more emphasis on non-exclusive licensing to maximize the social gains from research. If a share of royalties from exclusive licenses had to be returned to the federal government, for example, then universities would have stronger incentives to license most ideas non-exclusively.

Looking at these steps and other ways to ensure that the creation of intellectual property at universities using federal dollars results in the best science and the most effective innovation can help test the efficacy of technology transfer programs in boosting broad-based economic growth. If done right, these efforts may lead to new technology transfer models that could help the United States further refine they way we finance science, technology and innovation in the 21^st century

Joseph Cortright is Vice President of Impresa, a Portland-based consulting firm that specializes in community- and regional-based innovation.

References

Blumenstyk, G. “Colleges Seek a Record Number of Patents,” Chronicle of Higher Education (2004) 51: A27. Available at: http://chronicle.com/weekly/v51/i15/15a02701.htm

IBM:  500 Patents: http://www.ibm.com/ibm/licensing/patents/pledgedpatents.pdf

Lemley, M.A., “Are Universities Patent Trolls?” Palo Alto, CA, Stanford University (2006): 20. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=980776

Monastersky, R. “New York U. to Receive $650-Million in Sale of Future Rights to Lucrative Drug,” Chronice of Higher Education (2007). Available at: http://chronicle.com/weekly/v53/i37/37a02401.htm

Nelson, R.R., Innovation, Institutions and Economic Growth, Cambridge, Harvard University Press (2005).

Silverman, E., “The Trouble with Tech Transfer,” The Scientist (2007), 21: 40.

Natural laws, once discovered, have been successfully and profitably applied in patented applications to new and useful products and processes. No one would have considered patenting the law of gravity, nor would any patent on gravity serve the purposes of the Patent Act: to encourage innovation in the useful arts. It would, in fact, impede innovation. No one employing the law of gravity in any new device could produce and market their invention without paying whatever fee the patent-holder demands. Similarly, no one would consider patenting hydrogen, or plutonium, nor any element on the periodic table. Yet, parts of nature have now been patented in record numbers. Unmodified genes have been granted patents, and this impedes science. Since the mid 1990s, unmodified gene sequences have been granted patents. Thus, the company that owns the patent for the test for BRCA1 and BRCA2 (related to breast cancer) owns not only the process for detection of the gene (which is inventive and should be patentable), but also the sequence of amino acids in the gene itself. Miami Children’s Hospital owns the patent on the monogenic disease called Canavan’s. These are but two of the more than 8,000 existing gene patents.

Even though the Patent and Trademark Office now requires more “stringent” declared uses for gene patents, the uses need not be truly inventive. All genes have some “use,” but the use was invented by nature, not by man. Genes in their unmodified forms code for proteins, but this is not a “use” in the sense demanded by a patent since nature is non-teleological. That is, claiming a philosophical purpose for a gene only make sense within the framework of Intelligent Design.

Intellectual property laws are bargains between inventors, authors, and the public. We grant to authors and inventors valuable monopolies, limited in time and scope, in the hopes that this will encourage new inventions and art, and benefit us all. When the monopoly expires, the full knowledge that was once monopolized moves back to the public domain. The trick to any bargain, however, is balancing the interests of the bargaining parties, and at some point, a bargain may become “unconscionable” when one party’s benefit far exceeds the perceived benefit to the other party. In contract law, such bargains can be invalidated. In the case of gene patents, the bargain not only contradicts the purposes of patent law, but it is unconscionable.

Patenting unmodified genes rewards discovery, not invention. Would we allow a patent on plutonium? It must be isolated through complex processes (which might, being inventive, be patentable) but patenting plutonium would be as ridiculous as patenting hydrogen or any other element of nature Not only does it contradict a long history of not patenting laws of nature, but it impedes both science and invention. Basic science requires openness. It is the original open-source enterprise. Hypotheses can only be tested if results are published, and scientific progress depends upon rapid and thorough exchange of experimental results and public testing of hypotheses. Patents impede this process, because between filing and granting of a patent, information in the patent remains secret. Furthermore, if granted, patents on unmodified genes complicate the process of discovery for other investigators, requiring patent searches, payments of license fees, or turning away from research on parts of the genome that are patented.

We would not tolerate a patent on any other element or part of nature that is unmodified, non-inventive, and fundamental to basic science. Although Einstein worked in a patent office, he never applied for a patent on the theory of relativity. It wasn’t his invention, after all. Nor are the unmodified genes for which countless patents have already been granted the inventions of the patent holders, although we should be grateful for their discoveries, and some might make useful, patentable inventions based upon these discoveries. It is time to prohibit the process of patenting unmodified genes, and to invalidate, either by legislation or judicial action, all claims to unmodified genes. HR 977, the Genomic Research and Accessibility Act first introduced in 1997 by Rep Xavier Becerra (D-CA) to ban the practice of gene patenting, languishes still in committee, but it’s time to renew this debate. Science demands it.

David Koepsell is the author of Who Owns You: The Corporate Gold Rush to Patent Your Genes (Wiley-Blackwell 2009). He has a law degree and a PhD in philosophy from the University of Buffalo, and teaches Ethics and Technology at the Delft University of Technology in the Netherlands.

Prolonged patent pendency is one of many problems in the US patent system that the Obama administration and Congress should aggressively address in 2009. Patent examination rules, including the time allotted per application, have not changed since the 1970s, even though inventions today are far more complex. The information technology system that examiners use is antiquated. And the patent office has barely taken advantage of the option of sharing its workload with other patent offices around the world, which today redundantly examine identical applications filed in their respective countries.

For Weiss’s full analysis of how to initiate pragmatic patent reform: “Tackling the Challenge of Patent Reform.” For an overview: “Patent Reform 101.” Nancy Scola also reported on one system that could help examiners issue better patents faster: “Better Patents Through Crowdsourcing.”

Patents are issued in the United States by the U.S. Patent and Trademark Office, a part of the Commerce Department, and by similar offices in other countries around the world. They assure inventors a period of time, generally 20 years, to exclude others from using their invention unless those others pay a royalty or work out another arrangement.

Investors are more likely to put capital into new work and novel ideas—and so stimulate the inventive process and the economy—if there is some assurance that others will not be able to freely profit from that work and ingenuity. At the same time, patents foster innovation by those who have been excluded from the initial invention. That’s because inventors, in return for their assurance of exclusivity, must provide a full explication of their creation. That provides a publicly accessible knowledge platform upon which others can make improvements.

To quote the Supreme Court, a patent may be granted for “anything under the sun that is made by the hand of man,” provided that the invention fulfills the three basic requirements of being novel, useful, and non-obvious. Among the immense variety of inventions that have been patented are new materials or devices; methods for making those materials or devices; novel life forms created through the manipulation DNA; mathematical algorithms used to analyze data, organize information, or predict human behavior.

Problems With the Current System

America’s scientific and engineering enterprises are proven engines of innovation and long-term economic growth. The current economic downturn and the prospect of a long and deep U.S. recession demand a reinvigoration of that sector. But private-sector investment in science and technology—and the jobs that can come from those investments—will be limited if the patent system is not working well.

It has been 50 years since Congress made substantive updates to patent law, and more than 30 years since the Patent Office, referred to as the PTO, thoroughly updated its rules governing the examination of patent applications. Meanwhile, inventions are being created at an ever increasing pace and have grown increasingly complex. As a result, the patent system has become bogged down. Among the major problems today:

Backlog: The PTO has a backlog of about 1 million patent applications, and it takes, on average, almost 33 months for a patent application to get approved or rejected. For fast-moving technologies in sectors like communications, that time is 44 months. The resulting uncertainty about which inventions will ultimately be protected and which will not inhibits innovation and investment in new products, since those new products risk eventually being found to infringe on a patent the PTO eventually issues for an older invention.

Patent Quality: Patent examiners are working under old rules and with outdated information technology systems that greatly limit the time and resources they have to review applications. This workload, along with salaries that are not competitive with private-sector jobs requiring similar skills, drives examiners away after an average of three years, the amount of time it takes to become a proficient examiner. These and other administrative and budgetary problems within the PTO have led to a widely perceived decline in the quality of the patents allowed by the office. Adding to the patent-quality problem are overreaching patent applicants who seek to take advantage of the strained system by claiming a larger array of uses for their invention than they have actually proven. That in turn triggers more challenges, including expensive and time-consuming court cases, which inject even more uncertainty into the patent landscape while they get resolved.

Patent “Trolls”: The patent system was created by the nation’s founding fathers not so much to protect individual ownership rights but to foster investment and technological advancement. Some individuals and companies, however, have opted to use the system for a different purpose: They acquire the rights to certain inventions that are crucial for the proper operation of other, larger inventions,, then essentially hold that intellectual property for ransom to be paid by those who need it. These so-called trolls typically do not make any product and, rather than inspiring innovation, tend to have a chilling effect. For a full discussion of the troll issue and how to resolve it, see Daniel P. McCurdy’s article, “Patent Trolls Erode the Foundation of the U.S. Patent System.”

How to Fix the System

The first step is for President-elect Obama to select a PTO director with great organizational skills who is committed to instituting reforms, including changes that would direct greater resources to examiners; increase transparency and communication with applicants; and make fuller use of modern capabilities to share workloads internationally.

Some needed changes can only be accomplished with legislation. Congress could not reach consensus on patent reform in 2008 and will try again in 2009. Among the elements that the Center for American Progress believes are important to address are the formulas by which damages are awarded in patent infringement suits; the rules that govern applicants’ responsibility to tell the patent office everything they know about previous inventions similar to their own; and the need to harmonize certain aspects of the U.S. system with others around the world. For a full discussion of CAP’s recommendations, see Rick Weiss’s article, “Tackling the Challenge of Patent Reform.” Some specifics include:

Budget Control: PTO supports itself entirely through fees collected for patent applications, but Congress has diverted hundreds of millions of dollars away from the office for other government expenses. The office must have more control over its budget and expenses in order to upgrade information technology and make other internal improvements.

Hire and Retain the Best Staff: Better control over its own budget would allow PTO to pay examiners more and reduce their burdensome workload. Some 70 percent of examiners recently told the Government Accountability Office that they had worked unpaid overtime in the past year to meet the extraordinary goals set for reviewing applications. At the same time, the metrics of examiner success must be updated to ensure quality.

Improve Communication with Stakeholders: PTO should seek from stakeholders early and extensive input on rules packages, and provide public access to economic data and guidance on important court decisions, among other reforms.

Improve Information Available to Examiners: The first priority is an upgrade for the office’s information systems. PTO should also avail itself of third-party experts, like those who have participated in experimental systems that allow outsiders to comment on applications and provide information to examiners.

Reduce the Time It Takes to Secure a Patent: The above reforms can all help speed the process and reduce the current backlog, but other measures can further reduce the time between filing and the awarding (or rejection) of a patent. Worksharing among international patent authorities could reduce the enormous redundancies that now occur as multiple offices around the world review the same patent applications in their respective countries. Also, allowing applicants with multiple patents under review to rank their applications in order of importance would also let examiners prioritize work. For more recommendations on how to improve the efficiency of the PTO, see the article by Gerald J. Mossinghoff and Stephen G. Kunin, “Improving the Effectiveness of the U.S. Patent and Trademark Office.” For an in-depth discussion of the international patent system, see Bruce A. Lehman’s article, “Global Patent Protection.”

First to File: The United States is the only country in the world that operates under a “first-to-invent” system. This rewards a person who, after another has filed a patent claim, provides evidence for having created that invention earlier. Although the current U.S. system has some advantages, harmonization with the rest of the world—along with other reforms that would lessen the impact of such a change—would improve the predictability of the system and reduce controversy around patents filed elsewhere around the world.

Reforms for Innovators: Patent applicants have responsibilities for making the system work better as well. Sobered by the economic challenges now facing the nation, cognizant of the tolls imposed by deficient-quality patents, and perhaps encouraged by the clarification of PTO guidelines we hope soon to see, patent applicants can and should do their share by recommitting themselves to the highest and fairest standards as they craft their claims and defend their intellectual property.

Courts: Finally, the courts will continue to weigh in on important issues of patent law. It is to be hoped that they will tread fairly but assertively into the legal frontier that remains unaddressed by the PTO and the Congress.

To learn more, read the reports from the Center for American Progress/Science Progress task force on patent reform:

Tackling the Challenge of Patent Reform (.pdf)
Recommendations for the Obama administration and Congress
By Rick Weiss

Improving the Effectiveness of the U.S. Patent and Trademark Office (.pdf)
By Gerald J. Mossinghoff and Stephen G. Kunin

Patent Trolls Erode the Foundations of the U.S. Patent System (.pdf)
By Daniel P. McCurdy

Global Patent Protection (.pdf)
The International Patent System and the New Administration
By Bruce A. Lehman

Even before the inaugural edition of Science Progress appeared in print this past spring, we at the journal and our companion website already had our eyes set on the inauguration this month of the next president of the United States. At the time, we had no idea who would win the Democratic and Republican presidential nominations, but what we did know was this—whoever became the 44th president would need thoughtful guidance on the complex public policy questions we present to you today in this biannual edition of the journal Science Progress.

That’s why Science Progress and our parent organization, the Center for American Progress, in early 2008 began preparing to convene two roundtable task forces, bringing together experts from both sides of the political aisle and from an array of different private- and public-sector perspectives, to discuss parent reform and innovation. One taskforce set out to identify the ingredients needed to incubate regional centers of innovation so that university-based scientific research can result in broad-based economic prosperity. The second sought to delineate the parameters of the possible in patent reform—one of the key issues the incoming Obama administration and the 111th Congress will have to tackle this year after the effort fell short in 2008. This issue of Science Progress presents their recommendations:

From Many Inventors, One Nation (.pdf)
By Jonathan Moreno

Tackling Complex Issues for New Policymakers (.pdf)
By Ed Paisley

Innovation

Place Matters (.pdf)
Innovation Springs from Many Seeds, But Soil Is Equally Important
By Maryann Feldman

The Federal Role in Catalyzing Innovation (.pdf)
Beyond the Beltway and Through the Networked Economy
By Richard Seline and Steven Miller

Pittsburgh’s Targeted Incubator (.pdf)
Taking Innovation to the Next Level
By James F. Jordan and Paul L. Kornblith

Creating a National Innovation Foundation (.pdf)
Economic Prosperity Rests on Diverse Technology
By Robert Atkinson and Howard Wial

Benchmarking Foreign Innovation (.pdf)
The United States Needs to Learn from Other Industrialized Democracies
By Stephen Ezell

British Innovation Policy (.pdf) (online exclusive)
Lessons for the United States
By Will Straw

Regional Centers of Innovation Task Force Participants

Government Contracting

Science’s Troubled Legacy (.pdf)
Time for a 21st-Century Re-envisioning of 20th-Century Government Contracting Rules Designed to Boost Scientific Innovation
By Dan Guttman

Patent Reform

Tackling the Challenge of Patent Reform (.pdf)
Recommendations for the Obama administration and Congress
By Rick Weiss

Improving the Effectiveness of the U.S. Patent and Trademark Office (.pdf)
By Gerald J. Mossinghoff and Stephen G. Kunin

Patent Trolls Erode the Foundations of the U.S. Patent System (.pdf)
By Daniel P. McCurdy

Global Patent Protection (.pdf)
The International Patent System and the New Administration
By Bruce A. Lehman

Online Supporting Material

Regional Centers of Innovation 101

Patent Reform 101

Innovation Policies for the 21st Century
Patent Reform and Support for Regional Centers of Innovation Are Critical
By Will Straw

The nation’s provisions for assigning and protecting intellectual property rights, and the U.S. patent system in particular, are at the very core of the American model of scientific, technical, and economic advancement. Patents assure an inventor a period of time, generally 20 years, to exclude others from using the invention, in return for a full explication of that invention by the patent holder. The assurance that competitors can be blocked from freely copying inventions during this period of exclusivity is a powerful stimulus to capital investment, which is a key enabler of the inventive process.

At the same time, the policy of requiring that inventors provide a full and public description of their invention as part of the patent process ensures there will be a well-described platform upon which others can quickly build. This provision supports the progressive principle that open access to information is a common good. As a practical matter, it also fuels a faster pace of innovation than would occur through other means of market exclusivity, such as trade secrets, which in turn boosts broad-based economic growth and prosperity.

The patent system has been the subject of legislative, administrative, and judicial modernization, and many experts in law, industry, and economics agree that the system is past due for another tune-up. Congress spent much of 2007 and 2008 debating legislation that would have amounted to the most significant changes of U.S. patent law in decades. The Senate was unable to reach consensus and the Patent Reform Act of 2008 was not enacted, but a fresh push is expected in 2009. Still, it remains uncertain whether legislators will be able to bridge the few remaining deep divisions among stakeholders.

In an attempt to explore patent reform options that could bolster innovation and economic recovery and have a reasonable chance of garnering the support of a range of patent players, the Center for American Progress and its sister organization Science Progress in October 2008 convened a roundtable of expert stakeholders from a wide array of business, legal, and academic disciplines, including many with competing intellectual property interests. This report provides a summary of our perspective and recommendations, taking into account ideas and opinions discussed at the roundtable and prefaced by a brief history of the U.S. patent system to help put the newly proposed changes in context.

Roots of the current patent system

The general principle of intellectual property predates by centuries the founding of the United States and was codified in Article 1, section 8 of the U.S. Constitution: “Congress shall have the power…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.” Importantly, and pertinent to America’s current economic predicament, the U.S. patent system was inspired not so much by a desire to protect individual rights but to spur economic growth and inspire technological advancement. The best way to catalyze investment in ingenuity, the founders believed, was to enhance the prospect of a return on that investment while simultaneously fostering the public release of information to seed future innovations.

The patent system has periodically been the subject of legislative, administrative, and judicial modernization, and many experts in law, industry, and economics agree that the system is past due for another tune-up.

Thomas Jefferson penned the first patent act, which gave the patent holder an exclusive right to make, use, and sell his or her invention in the United States or import the invention from abroad. The act, signed by President George Washington on April 10, 1790, declared as eligible for a patent “any useful art, manufacture, engine, machine, or device, or any improvement thereon not before known or used.” This definition has been reinterpreted over more than 200 years to include, among the many inventions that Jefferson could not have anticipated, genes and genetically altered plants and animals; the invisible etchings of integrated circuits; and algorithms for predicting the kinds of financial risk a credit card holder might take.

Not surprisingly, the process for reviewing and granting patents has changed over the years. In the 18th century, applicants were asked to provide a description and drawing of their invention and, when practical, a model, along with their $4 filing fee. A federal Patent Board, which included Jefferson, Henry Knox (then secretary of war), and Edmund Randolph (then attorney general), reviewed applications and issued rulings, yea or nay, on the basis of whether the invention was “sufficiently useful and important.”

At most, patents were allowed for 14 years. There was no right of appeal. And there were no lines to wait on. The first patent was issued to Samuel Hopkins of Philadelphia for his improved method for making “Pot ash and Pearl ash,” useful for the production of soap. By the end of the year, a grand total of three patents had been issued, the latter two for novel improvements in candle-making and flour-milling.

The situation today

Today the United States Patent and Trademark Office has 6,000 employees to handle the more than 460,000 patent applications that are filed each year. There is a backlog of about a million unexamined patent applications and it takes, on average, two years to get a first action from the PTO and three years to get a patent issued (or rejected). In some fast-changing fields, including computer architecture, IT security, and software- and communications-related technologies, average wait times are even longer.

While the widespread characterization of the PTO as “broken” is an overstatement, there is no disagreement that improvements are needed. Most obvious among the current failings, examiners are overwhelmed by the sheer volume of applications and the lack of time and resources to perform their jobs at the level of excellence demanded of them. As a result, too many patents are issued that, but for the scarcity of time and resources, would almost surely have either been honed to greater quality through the examination process or not issued at all. There is broad consensus today that the U.S. system for protecting intellectual property is burdened with too many patents of questionable quality and validity.

Underlying these and other problems, the Patent and Trademark Office is underfunded and undermanaged. Although Congress converted the office to a “fee-based organization” in 1991, which means it is self-supported through fees paid by applicants, Congress has also repeatedly raided that fund, diverting more than $750 million into the general treasury over the past decade. Although this practice has been quelled over the last three years, prior diversions so eroded the PTO’s infrastructure and resources that rebuilding is now urgently required.

Meanwhile the patent challenge, appeals, and enforcement processes are cumbersome and have bogged down the PTO and the courts—a problem exacerbated by the emergence of so-called non-practicing entities, or NPEs, sometimes called patent “trolls.” Unlike operating companies that produce products and services, and universities that generate most of their revenue from tuition and grants and generate intellectual property through their academic investigations, patent-holding entities typically do not produce any products or offer any service beyond patent licensing and enforcement. Their primary revenue sources are royalties obtained from asserting patents against successful product and service companies.

These challenges and others faced by PTO have been analyzed repeatedly in an array of independent reports in recent years, all of which have ended with calls for substantive degrees of patent reform. Among the organizations compiling such reports have been the Federal Trade Commission in a 2003 report, the Commerce Department’s Office of Inspector General in 2004, the National Academy of Sciences (2004), the Government Accountability Office (2007), the PTO itself (most recently in its 2007–2012 Strategic Plan), and the U.S. Patent Policy Advisory Committee (2008). Although a number of reform initiatives have been implemented over the years, they have progressed too slowly—in some instances because of resistance by groups of applicants that have learned to use the system’s shortcomings to their own advantage.

Informed by previous reports, recent incomplete efforts at reform, and the patent stakeholders’ roundtable discussion sponsored by the Center for American Progress and Science Progress in October, we conclude that the patent system can be immediately improved through a range of practical administrative changes within the Patent and Trademark Office. Those changes, outlined below, can and should be implemented early in the new administration, though some may require supportive legislative action.

Even if supportive legislative action is not required to implement near-term reforms within the PTO, other legislative reform is critical, as outlined in this report. The Constitution directs Congress to make the patent system work effectively in the public interest. But it has been more than 50 years since Congress took a hard look at patent law and made needed changes. In that time the pace of invention and the complexity of science have both increased enormously. The PTO and the courts have tried to fill the resulting legislative gaps through jurisprudence, sometimes with strained results. This imperfect approach has created a system with too much emphasis on the mere granting and enforcing of patents, many of them of poor quality, and inadequate attention to the promotion of useful inventions and investment.

Beyond the PTO and Congress, patent applicants also bear duties and responsibilities to keep the system working well. In recent years, however, applicants have aggressively sought, and in too many cases obtained, patents containing overly broad claims—that is, claims to subject matter broader than is justified by the actual invention. In a third group of recommendations, this essay suggests how applicants could, with proper incentives, cooperatively adjust their behaviors to facilitate the kinds of improvements we seek through administrative and legislative changes.

Finally, we take note of some areas of controversy in which it is possible—even likely—that the Court of Appeals for the Federal Circuit or the Supreme Court may institute clarifying reforms through court decisions, as they have already done in the recent eBay decision (made by the Supreme Court in 2006 regarding the near automatic grant of injunctions),^[1] the MedImmune decision (made by the Supreme Court in 2007 regarding the ability of a licensee to challenge patent validity while still making royalty payments),^[2] Sandisk (made by the Court of Appeals for the Federal Circuit in 2007) regarding standards required to file a declaratory judgment),^[3] KSR (made by the Supreme Court in 2007 regarding the obviousness standard),^[4] Quanta Computer (made by the Supreme Court in 2008 regarding patent exhaustion),^[5] Bilski (made by the Federal Circuit in 2008, regarding business method patents)^[6] and other important decisions.

Historically, the courts have struggled with patent law. Judges and juries are asked to decide difficult cases involving complex applications of science, technology, and law. Recognizing these realities, Congress established a specialized court to hear all patent appeals, the Court of Appeals for the Federal Circuit, which in its 20 years has contributed substantially to creating consistency in patent law. While the judicial approach to resolving patent issues is inherently reactive, episodic, and slow, there is reason to hope that to the extent the PTO and Congress fall short of the goal of comprehensive patent reform, the courts will fill some of the key gaps (see judicial section below).

Recommendations

Whether by administrative changes, legislated reforms, applicants’ stricter adherence to high standards, or judicial review, the overarching goals must be to increase patent quality and reduce uncertainty about the limits of intellectual property protection. The following recommendations are presented with these goals in mind and with confidence that with a just and robust patent system in place the United States will strengthen its position as a global center of innovation and, in so doing, benefit economically.

U.S. Patent and Trademark Office

The PTO needs to embark on a series of changes that will make it more fiscally secure, more organizationally efficient, and more operationally poised to accomplish its goals and those of the inventors it serves. To accomplish these changes it will be necessary, through one mechanism or another, for the PTO to operate much more like a smart and progressive business.

The PTO’s primary responsibility is to determine whether patent and trademark applications meet the legal requirements for issuance, and to issue patents and trademarks as a means to help stimulate innovation and economic growth. In an effort to facilitate those important functions, Congress converted the PTO to a fee-based operation in 1991 (under the Omnibus Budget Reconciliation Act of 1990), though because of congressional diversions, those fees were not fully available to fund PTO operations. Eight years later Congress made the PTO into a so-called performance-based organization, which granted the PTO certain limited managerial flexibilities in return for adopting specific measurable goals and customer service standards.

Today, however, the PTO is still hobbled by bureaucratic barriers and inadequate control over its resources, undermining its ability to perform effectively. There are four overarching changes that the PTO must immediately embrace, none of which are likely to be implemented unless the office—through either administrative or legislative changes discussed below—is granted an added measure of economic and administrative autonomy and flexibility.

Solidify the budget, and control revenue and expenses

No organization can be effective if it lacks the ability to balance its income and expenses. The PTO has the responsibility of supporting itself entirely by fees, but without having effective control over those fees or its expenses. The office must gain this authority (subject, of course, to government oversight) and use it to further its mission, keeping in mind that any changes it makes to its fee structure should not have an undue negative impact on individuals and small- or medium-sized businesses, which provide the majority of new patentable inventions in the United States.

Among the ideas to consider are the creation of a fee-based fast-track system; demanding that a greater share of patent-processing fees be paid earlier in the examination process, since that is the time that some of the most labor-intensive aspects of the PTO’s work is done; and increasing those fees that the PTO is authorized to set. The office must have full control over its budget and retention of funds carried over from prior years. And there must be a total and permanent halt to diversion of PTO funds to other government purposes.

Hire and retain the best patent staff

The hiring of additional staff will not by itself resolve the problems of increasing patent pendency (the amount of time it takes for a decision to be rendered on a patent application) and decreasing patent quality (one result of a rushed examination process), but progress cannot be expected in these areas without first bolstering the examining staff. Examiners today are simply asked to do too much with too few resources and too little time. Two-thirds of departing examiners cite unrealistically high production goals as a primary reason for leaving. Those goals (the number of applications to handle per week) have not changed since 1976, despite the ever-increasing complexity of inventions and patent applications. Some 70 percent of examiners told the GAO they had worked unpaid overtime in the past year to meet goals.

The pay of PTO professional staff, relative to compensation available in the private sector, is not competitive. When the undersecretary of commerce and director of the PTO is paid the equivalent of a mid-level manager in the private sector, and all other positions within the PTO are scaled accordingly, it should not be surprising that the best talent will first seek employment in the private sector or migrate there when possible. Indeed, the average examiner is employed by the PTO for approximately three years, which is just the amount of time required to become a proficient examiner. It is essential that the abysmal examiner attrition rate be lowered.

Adding to job dissatisfaction is the fact that too little time is allowed for examination, particularly given the deficient information infrastructure available. Moreover, rules make access to outside experts and even applicants difficult, leaving examiners largely isolated as they work. Substantially improving the work environment, pay, and information resources, and establishing a clear and attractive career path for examiners could have a dramatic impact on attracting the very best talent.

At the same time, the metrics of examiner success need to be updated. For instance, the quality of the examination process is conventionally assessed by reviewing a sampling of issued patents to see how many should not have been issued. But rejected applications should also be reviewed, to see how many should in fact have issued. Additional objective measures should be developed that are verifiable by independent, third parties.

Improve communication with applicants and stakeholders

No corporation is effective without dynamic and frequent communication with its clients and customers. In similar fashion, it is essential that the PTO maintain clear channels of communication with all the stakeholders it serves so it can respond quickly and effectively to the ever-changing global marketplace.

PTO outreach and consultations have been in very short supply during the Bush administration, bringing PTO-stakeholder relations to what are widely considered to be an historic low. So strained are relations that last year, for the first time, the PTO was sued by a stakeholder over a rules package the office released without initial consultation. In the Obama administration, the office should seek early and extensive public input on rules packages; offer better access to PTO economic and other data, including first action and appeals statistics; and provide guidance based on relevant judicial decisions. The PTO’s Public Policy Advisory Committee should open its meetings to the public and webcast them to the maximum extent practicable. Meeting minutes and transcripts should be posted, and advisory committee membership should be broadened.

Some of these goals may require judicial or legislative changes to the so-called inequitable conduct defense (see below), to facilitate greater communication and exchange between the applicant, the patent examiner, and third-party experts. But there is no reason why the director of the office, through the power of the bully pulpit, cannot initiate significant changes from day one.

Improve information available to the PTO staff

Electronic information systems at the PTO are woefully inadequate. While those systems can perform the core task of searching for patent prior art, they fall far short in their ability to search global products that may practice inventions, as well as non-patent prior art (through, for example, industry trade publications, R&D publications, and academic research journals). The technology exists to remedy this situation, but it is lacking at the PTO, as are staffers with the technical expertise to implement it.

At the same time, the office should better avail itself of third-party experts. Experiments that have enabled interested third parties to comment and provide input to examiners, such as pilot projects using “peer-to-patent” reviews, have been promising, but have not been scaled up. As with other proposed changes, it will be important to ensure that any new duties, costs, or other burdens relating to a shared examination process do not disadvantage independent inventors and small enterprises.

The GOC question

Some argue that the four changes outlined above can be accomplished only by congressional conversion of the PTO into a so-called government-owned corporation, or GOC, and perhaps this is the case. The conversion of the PTO from its current status as a federal performance-based organization to a GOC would give the office greater flexibility than agencies have in terms of hiring, firing, salary ranges, and full-time employee staffing-level caps, effectively allowing the PTO to manage itself more competitively and attract and retain highly skilled employees. As a government-owned corporation, the PTO could compete more effectively with the private sector to attract and retain the talent required to improve quality and efficiency. And it would have firewall protection against fee diversions to the U.S. treasury.

Nonetheless, we believe that the PTO can accomplish its objectives within the framework of responsive government and that keeping the PTO wholly within the government could have real advantages. It would reflect the reality that, no matter how much administrative independence the office may earn, it is the federal government that promulgates the nation’s patent policies. Moreover, to maintain the PTO’s current status within the executive branch would appropriately place the office near the center of the Obama administration’s efforts to use progressive and enlightened federal policies to take on the economic and financial crises facing our country.

Finally, it should also be noted that there is no inherent reason that a government office cannot be granted many of the administrative and material resources the PTO needs in order to be successful—nor are those resources necessarily assured through the simple conversion to a GOC. Thus it should be a high priority of the new administration to give the PTO the tools it needs to achieve its goals without separating it from the government family. If organizational and administrative constraints prove to be too high a hurdle to overcome with reasonable rapidity, however, then a GOC should be considered.

Whether or not the PTO becomes a GOC, none of the important changes outlined here are likely to be achieved unless the Obama administration appoints a highly skilled director with professional managerial experience in a large, mission-driven organization, empowered with a clear mandate to apply best business practices to every aspect of the PTO. In selecting a new director, skills in executive management and business operations should be paramount, with less attention directed to whether the individual is an attorney. In fact, many corporations now select non-attorneys to lead their intellectual property organizations, recognizing that what is lacking are business skills to manage those organizations, rather than legal skills, which are already abundant.

Additional improvements within PTO

As part of a renewed commitment to the quality and consistency of patent application review, the office should, in addition to achieving the above goals, craft and release new examination guidelines clarifying the PTO’s insistence on high standards of disclosure and the need for strict compliance with written description and enablement provisions. While hardly a panacea for the recent, widely perceived decline in examining standards and concomitant drop in patent quality, a strong restatement of high expectations through the issuance of PTO guidelines would be an important start.

In addition, given the significant threat posed by patent trolls to the integrity and stability of the patent system (discussed in more detail in the accompanying article by Dan McCurdy), and notwithstanding the possibility of legislative actions and court decisions to deal with this threat, the PTO should initiate a study assessing various approaches to understanding and resolving the patent troll issue. Among the policies that have been proffered and are deserving of study are the awarding of legal fees to successful defendants (a “losers pay” rule); more strict adherence to Rule 11 requirements (which set the bar height for the filing of patent infringement suits) by the courts; and a requirement that all patent assignments and licenses be registered with the PTO, including ongoing declaration of assignments and licenses to and by the patent-holder’s upward and downward affiliates.

Yet another way the PTO could simplify operations and help prosecutors would be to revamp its current interpretation of restriction requirements and unity-of-invention standards. Under current standards, inventions that require the integrated use of many independent pieces of, say, genetic material or gene products—such as those used on analytic “gene chips”—have been ruled by PTO to be multiple inventions, slowing issuance and adding significantly to cost. Those standards are taking a toll particularly on the emerging bioinformatics field and should be reassessed.

Reducing the time to get a patent decision

A number of initiatives could help reduce the problem of prolonged pendency times, including, as briefly alluded to above, an increase in regional and international work sharing and better synchronization among various patent offices worldwide. Huge amounts of duplicative work are carried out in patent offices around the world. Various forms of work sharing among patent offices are allowed under the terms of the Patent Cooperation Treaty and the Patent Prosecution Highway, but for the most part they remain untapped.

Similarly, programs that enable interested third parties to comment and provide input to examiners, such as pilot projects using peer-to-patent, have been promising, but have not been scaled up. As these and other changes in the examination process are implemented, it will be important to ensure that any new duties, costs, or other burdens do not disadvantage independent inventors and small enterprises.

A second possible means of reducing pendency would be to remove some of the current incentives for continuations. The ability of a patent holder to continue to tailor claims of a related patent provided the claimed invention in that continuation application is deemed within the scope of the original patent—and to claim the original filing date of the parent patent even though the continuation patent may be altered many years following the initial patent filing—has created mischief and reduced the predictability surrounding patented inventions. The PTO should initiate a study of whether continuations as practiced today are in keeping with the public policy principles underpinning the patent system and make recommendations, if necessary, to amend the law.

A third approach to reducing pendency is to identify and implement incentives to defer examination. Japan has a robust system of voluntary patent deferrals, which has helped to reduce pendency there (as counted from the date of examination request)—and has resulted in shifting some of the burden of primary examination to the United States. Deferral is not currently an option in the United States but should be, both to allow the PTO to focus on applicants’ most important applications and to bypass applications that all parties agree are by this time stale. New legislation may be required to implement such a change

Finally, the PTO should conduct or share responsibility for a study that would examine the feasibility of launching a multinational patent examination office to conduct patent examinations on behalf of member states (discussed in more detail in the accompanying article by Bruce Lehman). The findings of such a world-class patent examination entity would be shared across all member states, but with each member state maintaining its own patent office for issuance, appeal, and other non-examination activities. Given the realities of multinational negotiations, this new office is an ambitious plan, but one that deserves energy and emphasis from the Obama administration.

Separately from the issue of patent pendency, the PTO must devise a plan for streamlining existing post-grant and ex parte proceedings, which result when third parties ask the office to re-examine the validity of an issued patent. In particular, inter partes re-examination, which allows third parties to play an expanded role in the re-examination process, is seldom used and therefore ineffective, and thus has not contributed to providing more IP certainty, as originally intended.

Congress

The Patent and Trademark Office has been reincarnated repeatedly in various forms over the centuries (it first became a distinct bureau in 1802, under the State Department; was transferred to Interior in 1849; and in 1925 moved to Commerce, its current home). If the administrative changes outlined above—along with some of the legislative changes noted below—cannot be mustered to achieve the major goals outlined in this report, it may be that a new reincarnation will be needed, in this case to a government-owned corporation. For both the philosophical and practical reasons outlined above—and given the reality that more political capital would likely be spent arguing over the implication of the PTO as a GOC than would be required to implement many of the changes called for in this report—we recommend the GOC as a mechanism of last resort, rather than the preferred path forward.

Notwithstanding how the GOC question is handled, Congress should pass legislation that would at last change the U.S. patent system to a “first-inventor-to-file” system—that is, a system that rewards the first person to file a claim for an invention rather than a person who, after a claim has been filed by another, provides evidence for having created that invention earlier. The United States is the last major economy in the world that grants patents on the basis of “first to invent,” rather than “first to file.” Without question, the American tradition has proven resilient and there remains a lack of consensus among U.S. stakeholders about aligning the United States with international practice. Some individual inventors and small companies have voiced concerns that a “first-inventor-to-file” system could place them at a disadvantage relative to larger companies, which they perceive may be better able to file patent applications rapidly. Some also fear that, since patents can take years to issue, a policy of making applications public 18 months after filing might help unscrupulous competitors who are willing to flirt with infringement. But there are strong arguments to be made for such a change. Among them, moving to a first-inventor-to file system would improve predictability and reduce controversy surrounding patents issued around the world. Also, many of the recommendations in this report are predicted to reduce pendency, making 18-month publication less of an issue.

To facilitate greater communication between examiners and applicants, Congress should also pass legislation updating the law governing inequitable conduct—the legal term describing a patent applicant’s failure to disclose faithfully to the PTO all information required during the patent application process. The doctrine serves an important public policy purpose, namely to help ensure that applicants tell the PTO the truth about their inventions and claims. But it is often abused. Parties accused of infringing a patent almost always assert—albeit rarely with success—the inequitable conduct defense, which claims that the patent holder was less than appropriately forthcoming about knowledge he or she had about relevant prior art.

The issue of inequitable conduct is ripe for reform because it may be an obstacle to other changes that could improve patent quality. Specifically, one way to lessen the overwhelming burdens already borne by the PTO is to shift more responsibility to applicants to supply information to the patent examiner, such as through more diligent searches of prior art. Such a shift could both speed the examination process and improve patent quality. But it is important that any policy encouraging that diligence not make an applicant more susceptible to charges of inequitable conduct that, if successful, would render the patent unenforceable.

To this end, if PTO rules are enhanced to require applicants to more diligently search for invalidating prior art, then it should be made clear that mere failure to cite a specific relevant prior art reference would not, by itself, constitute inequitable conduct. Rather, intentional failure to disclose art that was known by the applicant to be material and that resulted in an asserted claim being found invalid would constitute inequitable conduct.

Moreover, to curtail abuse and reduce the enormous burden on the courts and discovery costs associated with defending against a claim of inequitable conduct, the inequitable conduct defense should be limited to cases in which at least one claim of the patent has been found invalid. And to gain the benefits of broadened prior-art searches and submissions central to the peer-to-patent initiative, Congress should enact reform legislation that explicitly allows the public to submit prior art to the PTO with commentary.

As described in the PTO section above, Congress should also consider crafting legislation that would create a new post-grant opposition system and reform inter partes re-examination, as well as legislation revamping the laws on apportionment of damages (though this is also likely to be a subject of review by the courts, as noted below). Instituting a post-grant review proceeding was recommended by both the FTC and National Academies reports.

Further, Congress should consider legislation to curtail “venue shopping,” the practice of plaintiffs launching lawsuits in jurisdictions with histories of rulings favorable to them even if the jurisdiction has little or no connection to the parties or the events involved in the litigation. Venue shopping has already been the focus of an important Fifth Circuit case and, like the issue of proportional damages, is likely to attract further court review in the near term, as discussed below. Congress should also consider legislation that would provide alternatives to a broad right to interlocutory appeal of trial court decisions.

Applicants

Many business leaders decry the recent perceived decline in patent quality. But a significant part of the problem plainly rests on the shoulders of overreaching applicants themselves and their outside prosecution counsel, who are measured primarily by metrics of patent quantity rather quality.

First, applicants need to be more proactive, collaborative, and thorough with regard to disclosure. Although pre-exam meetings are not always efficient or worthwhile (or always welcomed by examiners), the prosecution process would generally benefit from more open communication in the early stages. As mentioned earlier, changes to the inequitable conduct doctrine would likely be required to facilitate such changes in approach.

A second way applicants can step up to the plate is to ensure that their claims are closely aligned to specifications in their applications. Many experts have noted a disturbing trend in recent years toward exaggerated claims that rest on little or no basis in fact, or evidence of the claimed invention or its practical usefulness. These claims slow the approval process and add to pendency problems. They can also encourage cases of adventurous enforcement, in which a claimed infringement is of a product or service that has virtually no resemblance to the product or service that was envisioned in the issued patent. Product-producing companies can hardly hazard a guess—let alone know—what blocking patent may lay in their path given sufficient creativity in claim interpretation. Time-consuming and expensive legal challenges are the only sure products of overly broad and low-quality patents.

Third, applicants should consider working with the PTO and with Congress to design and implement a process of deferred examinations, taking into account the need for a mechanism to mitigate the additional uncertainty that would necessarily result from additional unexamined patent applications. In conjunction with implementation of a first-to-file system, discussed above, applicants could preserve the priority of their patent application while deferring examination of inventions that are unlikely to have near-term commercial importance.

The impact of the current application backlog could be significantly reduced if applicants were able and willing to rank the importance of their pending applications and agree to defer some in order to get the most valuable and more urgently required pending patents issued. Incentives may be needed, including some already in widespread use in Japan where deferrals are commonplace.

The courts

Among the most vexing issues in patent law is that of selection of venue, or where lawsuits can be filed. Currently, plaintiffs have wide discretion in selecting the court in which they file a patent case. Patent owners seeking to enforce their patents generally prefer venues that have a promising record with respect to finding in favor of patent holders; producing significant damages; and hearing and deciding cases with relative haste. For these reasons a few jurisdictions—including the Eastern District of Virginia, the Western District of Wisconsin, and the most-favored venue, the Eastern District of Texas—have become popular in recent years. Critics have countered that venue should have a tangible relationship to the parties in the suit. This was a sticking point in the recent attempt at legislative reform.

Recently, in an en banc decision of the Fifth Circuit (in re Volkswagen AG, No. 07-40058, October 10, 2008), the court held that Eastern District of Texas Judge John Ward had erred in his decision to reject a motion to transfer a product liability case from the Eastern District of Texas to Dallas, where an automobile accident at the core of the case had occurred. Specifically, the court rejected the judge’s argument that the residents of the Eastern District had an interest in the product liability case because the product (a Volkswagen Golf) was available there as well. “Indeed they [the residents of the Eastern District] do not,” the Court ruled, “as they are not in any relevant way connected to the events that gave rise to the suit …In contrast, the residents of the Dallas Division have extensive connections with the events that gave rise to the suit.” Though the venue-shopping elements of the recent congressional patent reform effort failed, in re Volkswagen likely indicates a new willingness on the part of the courts to further tackle this contentious issue.

Another hotly debated issue in patent law that may move toward resolution in the courts involves royalty damages awards. At issue is how to fairly value the essential elements of the invention and assess reasonable damages for infringement. Central to the debate is whether damages awards are too often based on the total value of the product that wrongly incorporated a patented invention, rather than being based on the value attributable to the infringing element that contributes to the product’s total value.

Consider, for example, a case in which a semiconductor component that controls a laptop’s ability to connect to a wireless network is found to infringe a patent. Should damages (for example, an assigned royalty rate) be based on the value of the semiconductor component alone? Or (as has been the case in some high-tech cases) should damages be based on the total value of the laptop?

That question was a major point of contention among different stakeholders in the 2008 congressional patent reform efforts. Today the issue remains stalemated, and unless or until industry finds a compromise position it is unlikely to gain sufficient congressional support for passage. That said, there are signs of a potential willingness by the Federal Circuit or the Supreme Court to take up this issue if presented the opportunity, and it appears likely that proponents of reform may attempt to provide such an opportunity. The Supreme Court has signaled that it is dissatisfied with the way patents are now valued for purposes of assessing damages. In its recent Quanta opinion, a contributory infringement case, the Court said valuation should be based on the “essential elements” of the invention and not the claimed product that incorporates the invention. This admonition of the Supreme Court provides good guidance for resolving the legislative and court impasse.

A third arena that is inviting legal attention encompasses issues of inequitable conduct, willful infringement, and enforcement. High among the questions here is whether a patent holder found to have intentionally withheld material information resulting in the issuance of patents should be punished by having all claims of the patents ruled unenforceable, or only the claim granted by virtue of the conduct ruled unenforceable, or some other approach that leaves valid claims of the patent intact or enforceable. Although much of this legal terrain is still virgin, the courts have begun to address the issue, for example in the recent (Aug. 2008) case, Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.

Finally, the courts also have recently shown a willingness to deal with longstanding issues relating to standards of obviousness, novelty, and ordinary skill in the art. Specifically, there is widespread agreement that in recent years the PTO has been granting too many patents for products or processes of questionable novelty or that were obvious. This can be addressed in part administratively, as mentioned above. But the courts can also help set the standards through rulings on challenges, as recently demonstrated by the KSR decision, referenced above.

Conclusions

The time is ripe for positive change in the U.S. patent system. The Obama administration clearly understands the important role that investment in science and technology must play in America’s economic recovery. A wide array of patent-system stakeholders agrees not only on the need for change but also on many of the most immediate fixes that need to be made. And after a year of struggle over the remaining differences among stakeholders and constituents, Congress is deeply informed and motivated to improve the system.

The first opportunity to make a difference will come very soon, with the all-important selection of a new PTO director—one committed to instituting much-needed administrative reforms, including greater transparency and communication with applicants and others, and examination-process reforms to increase patent quality and reduce pendency.

Sobered by the economic challenges now facing the nation and the world, and cognizant of the tolls that deficient quality patents impose on enforcement costs, investment, and innovation, patent applicants can and should do their share by recommitting themselves to the highest and fairest standards as they craft their claims and defend their intellectual property. It is to be hoped as well that the courts will tread fairly but assertively into the legal frontier that remains unaddressed by the PTO and Congress.

All the pieces of the puzzle are aligned for a renewed flowering of American investment in ingenuity. A modernized patent system promises to improve patent quality, reduce uncertainty about the boundaries of intellectual property, and spur the kind of confidence in the future that in the years to come will be at the heart of American scientific, technological, and economic advancement.

Rick Weiss is a Senior Fellow at the Center for American Progress and Science Progress.

Notes

[1] Prior to eBay, the standard applied by the Federal Circuit resulted in permanent injunctions virtually always being granted after a patent holder won at trial, and the status of the patent holder (e.g., whether it was a product-producing company or NPE) did not matter. In its eBay decision, the Supreme Court rejected the automatic entry of injunction and instead ruled that the traditional four-factor test must be applied to determine if an injunction is warranted: (i) Is there irreparable injury (ii) are there inadequate remedies at law; (iii) is there a balance of hardships; and (iv) is the injunction in the public interest. In the case of certain NPEs (such as patent holding companies), it is difficult to imagine how these tests will be met in favor of the NPE and thus, post eBay, district courts have refused to grant injunctions to such NPEs.

[2] Prior to MedImmune, the CAFC routinely held that a licensee in good standing could not sue for declaratory judgment of patent invalidity because there was no immediate threat of being sued for patent infringement. Thus, in order to bring a declaratory judgment action a licensee had to first stop making royalty payments, thereby rendering itself vulnerable to a lawsuit for willful infringement. The Supreme Court rejected this approach, and held that a licensee in good standing is not required to “bet the farm” or risk treble damages for willful infringement and possible loss of business before seeking a declaration of its legal rights. Thus, licensees can now continue to make royalty payments while simultaneously challenging the validity of the patent in court.

[3] Prior to the Sandisk case, a potential licensee must have had a reasonable apprehension of litigation to file for a declaratory judgment (an important right, since it enabled the potential defendant to select the forum in which the case would be heard). In Sandisk, the Court threw out the reasonable apprehension test and ruled that the new standard only requires a prospective licensee to contend that it does not need a license after a patent holder contends that it does in order to create a controversy that is sufficient to support declaratory judgment jurisdiction.

[4] In KSR, the Court rejected the Federal Circuit’s rigid application of the “teaching-suggestion-motivation,” or TSM, test, holding that the determination of obviousness must allow the use of “common sense” by one skilled in the art. A key ingredient of KSR was the elimination of the requirement of foreshadowing in the prior art, which precluded a finding of obviousness with respect to “innovations” that were so obvious that no one even bothered to write about them.

[5] Because the doctrine of patent exhaustion applies to method patents, and because the License Agreement authorizes the sale of components that substantially embody the patents in suit, the exhaustion doctrine prevents LGE from further asserting its patent rights with respect to the patents substantially embodied by those products.

[6] The Bilski decision significantly narrowed the 1998 State Street ruling by the CAFC that spurred a decade-long flurry of business method patents. In Bilski, the CAFC held that the sole analysis to determine if a process qualifies for a patent should be the “machine-or-transformation” test, which requires a showing that the claimed invention was tied to a particular apparatus or operated to change materials to a “different state or thing.”

Climbing out of the deep economic recession the United States is facing will require multiple remedies, but there is no doubt that ongoing innovation will be critical to restoring the long-term economic health and prosperity of our country. Innovation is so key to our nation’s prosperity that our founders enshrined the general principle of intellectual property as an essential element of economic development in Article 1, Section 8 of our Constitution. The basis for this constitutional provision establishing a patent system was not the protection of individual rights to inventions per se, but rather the promotion of economic development in a young and ambitious country.

As originally conceived, the patent system would catalyze economic development by providing individuals (and those investing in the inventive process) the prospect of a return on that investment should the invention achieve market success, while ensuring the public had the ability to learn from the invention to enable follow-on research and development. The fundamental policy intent of the patent system still holds true nearly 220 years later.

Patents are created for a single purpose—as an incentive to encourage innovation and, through such innovation, to increase the general economic well-being and prosperity of the nation. In recent years, however, much in the practice of intellectual property management has changed in ways that are inconsistent with the public policy objectives that were the foundation for the patent system. Left unchecked, some of these new approaches threaten to undermine this patent system and our prospects for renewed economic growth.

By far, the most significant and destabilizing change in the patent environment since 2003 has been the dramatic increase in the growth, financing, and patent acquisitions of so called non-practicing entities. NPEs in legal parlance—more commonly referred to as “patent trolls”—derive or plan to derive all or most of their revenue from the enforcement of patents. Patent trolls are clearly distinguishable from major research institutions, universities, and businesses that derive their revenue, respectively, from funded research, tuition and grants, and the sale of products and services. Some of the largest of these NPEs raise large funds with which to purchase the patents they seek to enforce—without any plans to turn those patents into marketable products or services. Instead, they then use these funds to enable—through direct or veiled threats of infringement—their pursuit of royalties from successful businesses.

Many factors have come together to foster this phenomenon. These include the cheap cost of capital until the financial crisis of mid-2008, an openness to new investment vehicles among institutional investors, and a large number of patents available for sale. Many of these patents are of questionable validity at the individual level, but in the aggregate become more valuable because of the cost to a potential licensee of separating the rare grains of wheat from the chaff.

The jump in patent troll-related lawsuits is truly alarming. From October 1, 1994 through September 30, 2002, 527 patent lawsuits were filed by or against the 219 NPEs currently identified and tracked by PatentFreedom. This represented 2.7 percent of patent lawsuits filed in the United States during that 8-year period. From October 1, 2003 through September 30, 2007, there were 1,210 lawsuits filed by or against these entities, representing approximately 8.4 percent of all patent lawsuits filed in that period, and exceeding 10 percent in 2006 and 2007 (see Figure 1).

Over the past year—from October 1, 2007 through September 30, 2008—389 litigations were filed involving the PatentFreedom-tracked NPEs, compared with 297 in the prior year. Today, 219 patent trolls boast more than 800 subsidiaries or perhaps as many as 1,500 if all of the subsidiaries of the largest NPE, Intellectual Ventures, were known. Combined, all of these subsidiaries have more than 12,500 active and pending U.S. patents in their holdings. And in all likelihood, these numbers dramatically understate the magnitude of the problem.

For instance, these figures include only 3,167 U.S. patents and applications held by Intellectual Ventures, a mere fraction of the more than 23,000 worldwide patent assets they claim to own, most procured with a portion of the $5 billion in private capital they have raised to date. Intellectual Ventures is unique by virtue of its capital structure, its collection of signatory operating companies, its public relations capabilities, its leadership, and its patent portfolio. But it shares a probable requirement with other NPEs—it will likely have to follow the path of litigation.

The reason: Whether a large private equity fund like Intellectual Ventures or a more focused patent aggregator with less available capital, investors in patent trolls expect a return on their investment. Persuading a company to pay for a license to patents that the potential licensor may feel are invalid or not infringed is a difficult task. For this reason, as the amount of patent royalties requested increases, the chance that litigation will be required to untangle the debate over validity and infringement also increases. When NPE funds are very large, the returns they require to satisfy investors are commensurately large. Thus, it is likely that notwithstanding its stated desire to avoid litigation, Intellectual Ventures will ultimately have to follow the litigation path used by other NPE funds.

But even with litigation, profits, will be dependent on legal findings of validity of the patents asserted, then infringement of the patents, and then substantial damages. There exists the potential, however, that damages could be seriously limited by new laws or jurisprudence affecting damages calculations, such as those reflected in the on-going “proportional damages” debate. Finally all of these findings would have to stand up to the scrutiny of appeal.

The losers in this process will be businesses, consumers, and an overburdened court system, all made possible by the collection of funds from investors that enable patent trolls to amass new inventions that would spur national economic growth under the assumed but incorrect premise that patents are individual rights with discrete monetary value rather than a government tool of economic development enabled by the conveyance of certain rights to inventors and those that invested in them.

The Patent Troll Realm

Beyond Intellectual Ventures, the remaining 218 PatentFreedom-tracked NPEs have varied backgrounds. Some, like Acacia Technologies, Alliacense Ltd., and Rembrandt Technologies, are primarily patent enforcement entities that are highly selective in their purchases. They have relatively small and focused patent portfolios. They rely substantially on litigation to demonstrate their commitment to enforce. Acacia, for example, since its inception in January, 1993 through August, 2008 has itself or through companies it has acquired been a plaintiff in 280 patent lawsuits (and a plaintiff or defendant in 308 lawsuits) seeking to enforce at least 121 of the 274 issued patents identified to date by PatentFreedom.

Moreover, those NPEs that are heavily litigation-focused have substantially increased the scope and pace of litigation. This increase takes two forms. The first is the absolute number of litigations filed (see Figure 2) and the second—frequently overlooked—is the number of defendants named in each lawsuit, which if properly reflected, substantially increases the scope and scale of NPE litigation. As an indication of this increase, see Figure 3.

Other NPEs are not so litigious. Firms such as 1st Technology, ArrivalStar, Cygnus Telecommunications Technology LLC, Freedom Wireless, Inc, Millennium LP, and Rates Technology derive or plan to derive the majority of their revenues from patent enforcement, but rather than buying patents created by others they primarily or exclusively license patents created by their employees or owners. A third category involves individual inventors who have chosen to enforce their patents as the primary means to derive revenue from them.

The patent litigation practices of these last two groups of patent trolls at first glance may not seem to be as egregious. After all, they are at least seeking to profit from their own ideas, rather than the ideas of others. Yet they are clearly akin to Intellectual Ventures and other patent aggregators in that they are using a patent system designed to promote the economic development of a nation through the creation of new products and services to, alternatively extract profits from new products and services developed by other companies, potentially harming both consumers and competition.

All patent trolls share a common attribute: the primary source of their revenue is extracting royalties from companies they believe are using inventions claimed in patents they own. And because these NPEs do not derive any significant portion of their revenue from designing, developing, manufacturing, or selling products, they are essentially immune to counter-assertion claims by the companies from which they seek royalties. This profound disparity in NPE vs. product company assertions, as opposed to product company vs. product company assertions, has destabilized the patent system.

The destabilizing impact of patent trolls

Because these entities and individuals do not produce products, there is some question as to how their enforcement activities contribute to the “first principle” underlying the creation of the patent system—to encourage economic growth made possible by encouraging innovative new technologies that would foster the introduction of valuable new products and services to the market. The creation of an idea is frequently the least costly and least time-consuming aspect of product success.

Development budgets vastly exceed research budgets in research and development-intensive companies. Much more time, and substantially more investment, is required to commercialize a product or service embodying an invention than to create the invention in the first place. When I was director of business development for IBM Research in the early- to mid-1990s, for example, the global development budget exceeded the global research budget by about 20 times. R&D spending and development spending has fallen since then, but the proportional differences remain similar today.

Even if this were not the case, the tremendous financial and tactical advantages NPEs have over their business targets are huge. When one business asserts patents against another, both have the opportunity to reduce or eliminate the assertion by counter-asserting patents of their own against key products of the aggressor. In addition, both have the opportunity—if successful in proving infringement of a valid patent—to obtain an injunction that could severely damage the other’s business operations. Neither of these defenses is available to a business when confronted with a patent assertion from a patent troll.

In fact, by choosing to not pursue products or services using their invention (or attempting product sales and failing) an NPE is actually rewarded with these tactical advantages. This can actually serve to diminish competition, and increase prices to consumers, by rewarding entities to not put products and services in the market but rather taxing those that do.

To compound the disadvantage faced by businesses, many NPEs operate in a stealth mode, hiding behind tens or even hundreds of subsidiaries, masking their patent holdings, their finances, and their activities so that they can sue for patent infringement only after the market has locked into using the covered technology. The many NPEs that purchase the patents they enforce can develop highly tailored portfolios focused on the most successful products of their intended licensees, with acquisitions sufficiently deep and broad to achieve an overwhelming assault.

This is in stark contrast to their targets, most of which are public companies that must reveal, by regulatory mandate, virtually everything about themselves, their products, their strategies, and their finances. Left unchecked, these tactics will enable NPEs to further enhance the vast amount of capital they have already obtained from pension funds, hedge funds, endowments, and other sources of alternative investments, including even other businesses.

Acacia for example, has a wide array of institutional investors, including fund managers Fidelity Management & Research, Vanguard Group, Oppenheimer Group, and Barclays Global Investors, hedge fund Kingdon Capital, private equity firms Apex Capital and Pequot Capital, and the giant U.S. teachers pension fund TIAA-CREF. Or consider Germany’s IPCom GmbH which reportedly is funded by one of the world’s largest hedge funds, Fortress Investments.

Armed with private capital, patent trolls are able to purchase large patent portfolios with absolutely no intention of producing meaningful revenues from products or services. Their extraction of royalties from product companies either diverts funds from the research and development needed to fuel continuing innovation that will drive economic development, or raises prices paid by consumers. And to what end?

Patent trolls’ hollow market arguments don’t ring true

Some NPEs argue that their presence provides needed liquidity to inventors that may otherwise never obtain any return on their investment, spurring those inventors to further innovation. But that argument is hardly credible when most patent trolls offer such trivial rewards to the inventor. Indeed, the principal exception—General Patent Corporation, which has a long history of supplying enforcement services to small- and medium-sized inventors, with a substantial portion of the royalties provided to the inventor—proves the point. More frequently, NPEs with hundreds of millions or billions of dollars in capital seek out patents held by others and pay the actual inventors a small fraction of the money they seek to obtain in subsequent enforcement activities. It is hard to imagine that the prospect of netting so small an amount will, on its own, stimulate further innovation.

In fact, patent trolls could alter their behavior if they truly believed their objective was to be an advocate and defender of the small inventor. They could:

• Attempt to enforce only those patents they could demonstrate were clearly valid and infringed by fully applying Rule 11 of the Federal Rules of Civil Procedure, which prescribes sanctions for the filing of a frivolous lawsuit
• Avoid predatory massing of patents through acquisition that is intended to overwhelm a potential licensee
• Practice full disclosure and transparency in their funding, patent holdings, and practices
• Commit to the return of the majority of royalties to the original investor or inventor who created the technology.

Even with these changes, patent trolls would still remain a dangerous threat with significant advantages over businesses, but the changes would help to level the playing field. These commitments, however, will be difficult for most NPEs to make. Most patent trolls have already made promises to their investors that they will buy low, sell high, and keep the vast majority of the proceeds. The intended winner is not the inventor, but the NPE.

That’s why the United States (indeed, the world community) needs a fully functional and transparent Patent Exchange, where every seller could advertise the availability of their patent to every potential buyer in a public forum so that companies potentially threatened by a patent at least would have the opportunity to purchase the asset. A Patent Exchange would help to establish greater competition for the asset at whatever stage the patents were offered for sale, thereby enhancing the reward to the innovator. And it would enable patent-acquisition entities, such as Allied Security Trust, RPX, and Open Invention Network—all of which were created in whole or part to combat NPEs and those wishing to stifle innovation—to participate in patent acquisitions as an alternative to inventors settling for offers from patent trolls that have not been thoroughly exercised in a competitive marketplace.

But not all businesses boast the financial firepower to join patent-acquisition entities or to individually ward off NPE-induced patent litigation by striking royalty deals. Smaller or less successful competitors cannot afford to pay the huge royalties asked by a never-ending stream of litigious patent trolls. Therefore, these smaller players, who can provide meaningful innovation and apply critical competitive pressures on industry leaders, face patent uncertainties (as do their potential customers) that are avoided by the larger, licensed market leaders, thereby potentially solidifying the market leaders’ positions.

In short, patent trolls may be a compelling (yet still unproven) business model, but they do nothing to contribute to innovation or the nation’s economic prosperity. In fact, they severely complicate the ability of businesses large and small to produce products and services that produce jobs and rebuild our nation’s (and workers’) economic health. Indeed, the unpredictability that any product can be made, used, or sold without the very real risk of a devastating onslaught of patent attacks results in a marketplace in which innovation and competition are stymied. This is no way for our patent system to work as the United States tries to innovate its way out of today’s deep economic recession.

Addressing the trouble with patent trolls

Fortunately, some meaningful actions have already been taken by the Supreme Court and the Court of Appeals for the Federal Circuit to deal with issues that have exacerbated the NPE problem. First, the eBay decision by U.S. Supreme Court in 2006 removed the so-called “automatic injunction” remedy for plaintiffs in a patent dispute, replacing it with the established “four factor” test to determine whether an injunction should be granted. This test will be difficult for an NPE to pass. Second, the MedImmune decision by the Supreme Court in 2007 permits a licensee to challenge the validity of a patent while still paying royalties. This removed the prior requirement that a licensee must first cease royalty payments, thereby triggering a breach and termination of the license and exposing itself to willful infringement and treble damages.

Third, the Federal Circuit in the Sandisk decision in 2007 dramatically lowered the threshold required for a company approached by a patent holder to seek a declaratory judgment from a court selected by the threatened party. Under Sandisk, the offer of a license, coupled with the rejection of the offer by the intended licensee, constitutes sufficient controversy to sustain a declaratory judgment action. That said, many operating companies are reluctant to initiate a lawsuit that, on average, will cost $5 million prior to its conclusion.

Fourth, the KSR decision by the U.S. Supreme Court in 2007 initiated a vital reassessment of the obviousness standard. A patentable invention must pass three key tests: it must be novel (new, not previously known); it must be useful; and it must not be obvious. Over the past decade in particular, there has been mounting criticism with respect to the quality and validity of patents issued by the U.S. Patent and Trademark Office. In particular, many observers charge that issued patents fail to pass the novelty or obviousness tests and are therefore invalid. The KSR decision held that when dealing with a patent that covers improvements over the prior art (as most do), a court must now ask whether the improvements are more than the predictable use of prior art elements according to their established functions.

The final two notable cases of importance to better managing the threat of NPEs are the Quanta Computer decision this year by the U.S. Supreme Court and the Bilski decision by the Federal Court of Appeals, also earlier this year. Quanta clarifies and strengthens the principle of “patent exhaustion,” holding that a license to make a product “exhausts” the ability of the licensor to then claim infringement by the products that were actually produced. This ruling will materially limit some of the adventurous practices of NPEs with respect to chasing the entire value chain of a product, from manufacturer through to the consumer. And the Bilski decision significantly curtailed the patentability of business methods (a favorite category of patents being amassed by NPEs) that do not rely on an apparatus or do not transform a material to a different state or thing (the so-called “machine-or-transformation” test).

More can be done

The courts, however, have yet to deal with at least three other important issues fueling the attraction of the patent troll business model to institutional investors and financial speculators. Two of the issues—awarding of damages that are reflective only of the economic contribution of an invention to a product and the selection by patent trolls of the court to adjudicate their lawsuits—were highly debated and considered by Congress in the Patent Reform Act, which failed passage in 2008. Let’s consider each in turn.

The importance of “proportional damages” revolves around the effort by patent trolls and also operating companies seeking to enforce their own patents—particularly in the high-tech industry—to claim damages against the total price of a finished product, or the totality of revenue for a service, regardless of the economic contribution of the infringing element of that product to the product’s total value. So, if a $5 integrated mouse is contained in a $2,000 laptop computer, the licensor would claim that the mouse was essential to the total value of the computer, and seek a multiple percentage royalty against each $2,000 laptop that contained the allegedly infringing mouse, as opposed to a multiple percentage royalty of the $5 mouse.

Congress failed to resolve this damages debate because of differing views between major industries. Broadly, the battle lines pitted primarily some high-tech companies against pharmaceutical companies, which expressed concerns that limiting damages only to the economic contribution of the invention per se would weaken their ability to deter competitors seeking to undermine their patent-protected products. Those opposing the language related to proportional damages, in addition to the pharmaceutical industry, included certain high-tech companies and non-practicing entities.

With respect to the “venue” debate, the importance of the selection by plaintiffs of the court in which they choose to file a patent action involves the ability of plaintiffs to “shop” for the most favorable forum to file infringement actions. Basically, patent trolls and businesses trying to enforce their own patents seek out jurisdictions that have demonstrated by their results that they are friendly and generous toward patent holders, and relatively fast. More money as fast as possible is the motivation.

There are few restrictions that preclude a plaintiff from selecting a forum of their choice, even if neither the plaintiff nor defendant has reasonable nexus to the chosen venue. Entities that are generally the defendant in patent litigations (which tend to be businesses, and particularly businesses confronted by NPEs as well as other businesses) were generally supportive of reforms that would limit venue shopping, whereas plaintiffs were generally opposed to such reforms. Figure 4 depicts the jurisdictions of choice.

It would seem reasonable that Congress or the courts will ultimately limit this forum-shopping ability as this wasn’t as germane to the failure of patent reform in Congress as was the conflict over the apportionment of damages. All that’s required is that the jurisdiction in which the case is heard must be reasonably tied to the dispute at hand. The recent 5th Circuit decision in In re Volkswagen AG in October 2008, which ordered Judge Ward in the Eastern District of Texas to transfer a case to Dallas where the events surrounding the case occurred, appears to signal the federal court’s willingness to tackle these difficult issues.

A final step that should to be taken is for Congress to adopt a law that requires unsuccessful patent plaintiffs to bear the cost of their adventurous litigation in court. Today, particularly plaintiffs that use contingent law firms (as do many NPEs) incur minimal risks when filing an infringement suit. Only two things can happen—the target settles and pays money to the plaintiff, or the target refuses to settle, goes to trial, and the plaintiff wins or loses. But even if the plaintiff loses, the only cost it has incurred is its legal fees, and therefore the NPE only absorbs out-of-pocket expenses.

Adopting a system where plaintiffs or a successful defendant in a patent-related declaratory judgment action would have to pay the target’s costs if the case fails would provide a substantial brake on adventurous litigation. Such a law would force all patent holders—patent trolls and businesses alike—to thoroughly investigate infringement actions prior to approaching a potential licensee with the threat of a lawsuit. It would dramatically curtail the amount of contingent litigation pursuing weak claims of infringement, a mainstay of most patent trolls, and yet it would permit the vigorous enforcement of strong patent rights.

If there were only one action that could be taken, then I believe a law to oblige unsuccessful patent enforcers to bear the costs of their lawsuits would be by far the most important and useful, yet likely the most difficult to achieve, since those that make a living from this practice will lobby extremely hard to avoid enactment of the required legislation.

Conclusion

Patent trolls amass fortunes by using purchased patents to reap profits from those who commercialize innovation, raising costs to consumers, and retarding innovation. These effects hardly promote the public policy on which the patent system was created. But for the government’s grant of a patent, the sole means of exploiting an invention is to put it in a product and offer it for sale. Fostering the commercialization that spurs economic growth must certainly be at least as important as fostering invention. Patent trolls damage invention and commercialization by exploiting their unfair advantage in the market. They increase barriers to entry for new companies that might otherwise lower prices through competition, while at the same time raising the cost to consumers for the use of the patents that NPEs purchase from others for the primary, if not sole, purpose of pursuing profit.

Fortunately, the courts have already begun to intervene to address this dangerous phenomenon. The Federal Trade Commission’s 2003 report on intellectual property, coupled with other studies, such as the National Academies’ A Patent System for the 21st Century, subsequent studies by academia, industry, and other stakeholders, and numerous congressional hearings, have individually and collectively played a significant role in stimulating the courts to act.

The FTC, the courts, Congress, the U.S. Patent and Trademark Office, and patent applicants and owners can each take further measures to address this aggressive threat. Our nation’s prosperity and security will be the beneficiary of prompt and vigorous action.

Daniel P. McCurdy is chief executive officer of Allied Security Trust and chairman of PatentFreedom.

Correction: An earlier version of this article indicated that Rembrandt Technology got its start originally with funding from technology services and trading company Susquehanna International Group, which is not the case.

For much of the postwar period, economic discourse focused on the internecine warfare between Keynesians and monetarists, yet cutting-edge economic thought increasingly is exemplified in “innovation economics,” whose simple principle is that new ideas, products, and processes are the key to unlocking broad-based economic growth. As Stanford University Professor Paul Romer puts it, “human history teaches us that economic growth springs from better recipes, not just from more cooking.”

The right incentives must exist to ensure that inventors have a reason to innovate, and the right policy environment must be in place to encourage regional centers of innovation to flourish across the country.

Most countries in the world import their innovation by adopting technological developments from abroad. But the United States has always been on the technological frontier. Whether it is the automobile, airplanes, lasers, or the Internet, innovators in America have pushed the boundaries of ingenuity. Over the last few decades, however, other countries have begun to catch up—and in some measures are moving ahead. The United States, for example, now ranks only seventh among the industrialized democracies in the amount of gross domestic product devoted to research and development, falling most recently behind Japan and South Korea.

The main reason: Since the late 1960s federal government spending on research and development has declined as a share of both total R&D spending and GDP. This has contributed to an alarming decline in the number of researchers as a proportion of the labor force. Boosting government funding of basic R&D in a number of economically innovative ways must be part of the new administration’s economic stimulus program, as the Center for American Progress detailed in its November 2007 report “A National Innovation Agenda.” The latest volume of Science Progress, to be released on January 12 at our event “Enabling Economic Recovery Through Innovation,” contains two new reform initiatives grounded on two central principles: the right incentives must exist to ensure that inventors have a reason to innovate, and the right policy environment must be in place to encourage regional centers of innovation to flourish across the country. Let us consider each of these principles in turn.

Innovation is subject to a fundamental market failure. Put simply, its lifeblood—research and development—is costly while the end product may be relatively easy to replicate. This means that unless inventors can claim monopoly rights of production for a period of time, they will not be able to recover their up-front investment costs. The United States’ patent system was initiated by the founding fathers in Article 1, Section 8 of the U.S. Constitution, which states “Congress shall have the power…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.”

Congress has achieved this in different ways over the past two centuries, but the U.S. patent system is now stuck in the 20th century. Chief among the problems are the backlog of about 1 million patent applications; the poor quality of granted patents, which in turn lead to expensive and time-consuming court cases; and the emergence of so-called “patent trolls,” or investors who acquire the rights to certain inventions and then essentially hold that intellectual property for ransom when companies use them in their products and services.

Efforts fell short in the last Congress to reform the patent system. The incoming 111th Congress must conclude the process, but there are other changes that can be made which do not require legislation. President-elect Barack Obama must select a Patent and Trademark Office director with great organizational skills who will enhance the resources of examiners, increase transparency, and make better use of work sharing with other patent offices around the world. Patent applicants also have a responsibility to make the system work better by recommitting themselves to the highest and fairest standards as they craft their claims and defend their intellectual property. Finally, the courts should tread fairly but assertively into the legal frontier that remains unaddressed by the PTO and Congress.

Patentable products and services, however, require more than legal protection to boost economic growth. Innovative ideas also need good soil in which to germinate and grow. In the United States, certain regions are home to many of the world’s best inventions. The cluster of high-tech companies around Stanford University in Silicon Valley and biotechnology companies around the Massachusetts Institute of Technology are just two of the more eye-catching examples—clusters that evolved over time due to the confluence of academic, industrial, and financial specialization. Other clusters, such as Research Park Triangle in North Carolina, married innovative specialization with thoughtful government policymaking to create new ideas and new jobs.

To get the most from these centers, and to encourage new ones to emerge, universities and companies more than ever today require the right mix of government policies. The forthcoming edition of Science Progress and this website will include suggestions of how to get this right, including a tax system and regulatory structure that encourages risk taking and rewards R&D activity; a National Innovation Fund that allocates resources where they are needed; metrics by which to ensure the right local infrastructure is in place; and lessons from other governments that value service sector innovation as well as more traditional scientific R&D.

The Obama administration and the new Congress have a unique opportunity to craft a new set of innovative economic policies that encourage immediate and long-term sustainable economic growth. With the right stabilization, stimulus, and recovery policies, the United States can pull itself out of the current recession and restore science, technology, and innovation as the centerpieces of the U.S. economy. Reforms that reward and encourage invention are critical to that mission.

Will Straw is Associate Director of Economic Growth at the Center for American Progress.

The release event, here at the Center for American Progress, will feature two separate panels: one on regional centers, the other on patents. To RSVP, visit the americanprogress.org event page. Here’s the full description and list of participants:

Enabling Economic Recovery Through Innovation
The incoming Obama administration and the new 111th Congress will have a historic opportunity to boost U.S. economic competitiveness and broad-based economic growth through targeted reforms of our country’s patent system and scientific research-and-development and workforce development programs. Our patent system and today’s federal programs were designed to address 20th-century problems, not the new challenges posed by globalization and worldwide economic distress.

The latest edition of the CAP’s Science Progress journal presents the results of two roundtables convened to consider ways to reform our patent system and encourage the growth of regional centers of innovation around the country. Those recommendations will be unveiled in Science Progress along with two panel discussions on the topics. Please join our distinguished panelists, including participants of our two roundtables and authors of some of our new policy recommendations.

9:30 a.m.
Regional Centers of Innovation Panel:

Robert Atkinson, President of the Information Technology and Innovation Foundation
Maryann P. Feldman, Heninger Distinguished Professor at the University of North Carolina
Thomas Kalil, Senior Fellow at the Center for American Progress
Richard Seline, CEO and Principal of New Economy Strategies

Discussion moderated by:

James K. Turner, former Chief Democratic Counsel to the U.S. House Committee on Science and Technology

11:00 a.m.
Featured Speakers on Patent Reform:

Bruce A. Lehman, Chairman of International Intellectual Property Institute
Paul R. Michel, Chief Circuit Judge
Arti K. Rai, Elvin R. Latty Professor of Law at Duke University
Rick Weiss, Senior Fellow at the Center for American Progress

Discussion Moderated by:

Daniel P. McCurdy, CEO of Allied Security Trust and Chairman of PatentFreedom

RSVP
Click here to RSVP for this event
For more information, call 202-682-1611

SOURCE: University of Wisconsin-Madison

A colony of undifferentiated human embryonic stem cells.

At the end of last week, Reuters reported that the European Patent Office issued its final ruling rejecting a patent application for the stem cell technology based on the work of James Thomson of the University of Wisconsin. Filed in 1995 by the Wisconsin Alumni Research Foundation, the patent, according to the EPO release “describes a method for obtaining embryonic stem cell cultures from primates, including humans.”

The release also indicates that the decision was based on moral prescriptions within the European Patent Convention, as well as explicit proscriptions against patents on commercial use of human embryos:

The EPC does not allow patenting inventions whose commercial exploitation would be contrary to public order (“ordre public”) or morality. Furthermore, the Convention prohibits patenting on uses of human embryos for industrial or commercial purposes.

The Scientist reports that the ruling comes as a relief to European researchers and presents a potential stumbling block for biotech companies set to capitalize on commercial stem cell technologies.

As of March 2008, the U.S. Patent and Trademark Office had issued final decisions upholding two out of three patents on the technology in the United States, though WARF eased licensing protocols for the patents after the challenges.

Research in Motion finally saved its BlackBerry by cutting a settlement check for $612 million dollars, but the same sort of patent problems that threatened that device abound in the U.S. today. Software patents’ fuzzy boundaries are widely reviled for stifling scientific innovation. But change is afoot.

With nearly a million patents backed up at PTO’s door, those examiners are being swamped by the deluge.

Over the past year, the U.S. Patent Office worked with academics and the IT industry to test out a plan that will be instantly familiar to anyone who has ever been to Slashdot, the online nerd community. Inspired by the decentralized Internet, PTO’s Peer-to-Patent project is raising hopes that one solution for tangled bureaucracy may well be putting the public at the levers of government.

Can it possibly work? Peer-to-Patent’s trial run was admittedly small-scale. From June 2007 to April 2008, just 40 applications were community vetted. But it worked well enough to earn it a second year of life and an expansion to include the related field of business methods, such as Amazon 1-Click, an online shortcut that makes buying books and other goods on the commerce site as simple as a single touch of the mouse. And as it grows, Peer-to-Patent raises the possibility that as the information economy gets ever more complex, the U.S. government won’t insist upon making sense of it alone.

The Examiner: Patent’s Single Point of Failure

Overlapping patents issued by PTO create what’s known as a patent thicket, a deep and dark underbrush of conflicting claims that is enormously expensive to cut through. Research in Motion’s out-of-court settlement check was cut even as the patents at issue were failing in the courts. Why has it been so difficult to avoid bad patents? The system has long been closed to outside help, and, internally at PTO, it’s in crisis. Seventy percent of patent examiners have considered leaving because of the unreasonable pace at which complex patents have to be considered—just 20 hours or so on each application, according to a landmark report in 2003 by Federal Trade Commission on the economic cost of our patent woes. It’s a pace set in the 1970s, when software was simpler and Windows was still a glimmer in Bill Gates’s eye.

No matter how dedicated each of those examiners might be, they are the single point of failure at PTO, according to IBM Corp’s associate general counsel Manny Schecter, one of the Peer-to-Patent project’s industry leads, “We the people,” says Schecter, “entrust the government in the form of the patent examiner to, in theory, know all the prior art that exists,” referring to the record of past innovations that go to show whether an invention is novel. But with nearly a million patents backed up at PTO’s door, those examiners are being swamped by the deluge. And they’ve been suffering alone.

Calling in the Cavalry: Government Inspired by Social Networking

Until now. Peer-to-Patent grew out of a blog post written by New York Law School professor Beth Noveck that was picked up by Wired.com, which in turn inspired a series of workshops. PTO, ever eager to find a way out of the software patent mess, jumped aboard. The problem to be solved was simple: information deficiency. Noveck frames it this way: “If you want to patent a battery-powered golf club slash weed wacker,” (a genuine product marketed as the Big Daddy Driver: U.S. patent # 6,988,954) “then you can find the state-of-the-art in golf technology just by looking at the patent database.” But software—only really patented since the late 1980s, lacks the terms of art of other scientific fields, and is often undocumented and unpatented to begin with.

The upshot: software hasn’t produced same robust patent record to draw on. The answer then, is to use what the last ten years of the interactive Internet has taught us: Let’s crowdsource it. Applicants with software to patent opt-in via a simple form, after which their proposed patent is posted to peertopatent.org. The program is structured attract to “citizen-experts,” such as scientists, Ph.D.s, and programmers, all of whom can vet the application’s claims by submitting prior art that is either supportive or debunking.

Reviewers use Digg-like tools—which allow online communities to boost news stories through individual ratings—to vote on the best prior art, which goes to a PTO examiner for final determination. Along the way, these Peer-to-Patent reviewers tag the application’s claims with keywords. The hope is to use the social web’s ideas about folksonomy, or the collaborative creation of taxonomies, to evolve an accepted lexicon for the field. It’s really, says Noveck, “about opening the conversation about science.”

If all goes well, a patent examiner uses his or her limited time judging the merit of the application rather than hunting for prior art. And the successful patentee gets the confidence that comes with having withstood peer review.

That anyone can participate, either by name or anonymously, naturally raises fears that it’s an excellent chance to sink a rival innovator. But inventors, so far, are unworried. Nanomaterials researcher Blaise Mouttet, a Peer-to-Patent applicant, finds assurance in the idea a patent yea or nay is “a fact-based determination.” He wants, he says, “the best possible prior art so that I get the best possible patent.” Indeed, bad patents have a way of revealing their flaws eventually, and it’s better for a weak patent to die an early death.

But some, of course, aren’t sold on what Peer-to-Patent can accomplish. While generally a fan of the project, Michael Meurer, author of Patent Failure, worries that there is only so much that better prior art solves. Software patents, he argues, are “intrinsically vaguer and more problematic” than those in other fields. But Mark Webbink, former intellectual property officer at the open-source company Red Hat Inc., who will be heading to New York Law School to oversee Peer-to-Patent’s expansion, shakes off the criticism. “Minimal reform legislation is tough,” he explains. “Major reform legislation is damn near impossible. You can hold your breath until software patents go away, but you’re going to expire before they do.”

U.S. Commissioner for Patents John Doll argues that when his patent examiners get good prior art in front of them, they make the right decisions, and so he offers a bit of a challenge. When it comes to the state of software patents, he says, “if the public has criticisms, this is the opportunity for them to step up.”

From Better Patents to Modern Government

Peer-to-Patent is, to be sure, an exercise aimed at fixing the patent process. But it’s just as much an experiment in using the tools of the social web to create models for participatory government. “We could substitute almost any area of policy that depends on good information to make a decision,” says Noveck, whether it’s a patent examiner facing an enormous stack of software patent applications or a Capitol Hill staffer staring at a 300-page energy reform bill. Could Peer-to-Patent be pointing the way towards how we can engage the public in government?

When we talk about citizen participation in government, we’re so often talking about tapping into people’s feelings and judgments, says Noveck. Peer-to-Patent works by focusing on fact-based expertise. “The idea of a free-for-all, of putting something up on a wiki,” Noveck says, “is terrible.” But when you architect a system with structured roles and group checks on individuals, it seems like wider civic engagement online is possible.

At its core, Peer-to-Patent starts with an admission that one particular bureaucracy needs a helping hand. But why stop there? “It has to be okay for a patent examiner to say, ‘I don’t know,’” says Noveck. “And that needs to be true across government.” The first step towards a government that can cope with the complexities of the modern world might well be acceptance of the fact that it can’t do it alone.

Nancy Scola is a freelance writer in Brooklyn, NY.

John Cahill of the International Alliance of Theatrical Stage Employees, reminded Congress that piracy is not a victimless crime. Healthcare and pensions for stagehands, TV producers, animators, and even hair and make-up stylists depend in part on the residuals received from the sale of DVDs. His testimony was a jarring reminder that even when the artists themselves assert that file sharing doesn’t hurt, others in the industry are affected.

Stanford Professor Emeritus John Barton noted that the issue of intellectual property rights is a complex international issue, especially when it comes to climate change technology and medical advancements. He stated that international IP policy “is about global allocation of the cost of research. It is certainly reasonable that other wealthy nations should not be entitled to a free ride on the benefits of U.S. research, but it is also reasonable that the poor should not have to pay as large a share of those research costs as the wealthy.” The reminder that responding to crises, be they food, medical, or climate, is the responsibility of an industrialized nation in an increasingly borderless world tempered the tone of a hearing that was otherwise focused on the injustice of piracy.

Overall this brief hearing highlighted problems we’ve been talking about for years without offering much new discussion. Cahill, Kindler, and Lack all expressed a need for more resources and more enforcement, but none provided clarity as to what agency is responsible for this enforcement or what form it should take. What we really need is a more substantive discussion about IP protection that also addresses the urgent needs of developing nations for access to drugs and efficient technology. At the request of Committee Chairman Max Baucus (D-MT), Barton and Kindler promised to collaborate in search of the appropriate balance of property rights and technology sharing and report back in a month. We look forward to hearing their proposed solutions.

There may be markets—and therefore, potential profits—for materials in which hitherto no one had an interest.

What’s so new about digital publishing? One short answer is long tail economics. In 2004 Chris Anderson published “The Long Tail” in Wired, followed by a book of the same title. He argued that traditional production and marketing follow the Pareto Principle, or the “80/20 rule:” 20 percent of the population holds 80 percent of the wealth; 80 percent of profit comes from 20 percent of goods produced. For example, 20 percent of movies will be “hits” and produce 80 percent of a studio’s profit. Anderson argued that the 80/20 rule operates under conditions of scarcity, but that under conditions of abundance of goods and of access to those goods, there is potential for profit in that hitherto untapped 80 percent of goods, which can be cheaply produced and marketed. This is the “long tail,” in which there are niche markets for nearly every product. It’s easy to see how this applies to the entertainment world. But who would have an interest in obscure or difficult scholarly publications in the humanities or social sciences? I don’t think we know. What we do know is that if millions, and perhaps eventually billions, of people have access to on-line search engines and digital media, as Michael Jensen pointed out in his article, “The Deep Niche,” there could be many “niche” markets that simply wouldn’t have existed before. There may be markets—and therefore, potential profits—for materials in which hitherto no one had an interest.

Academic—especially commercial academic—publishers have already begun to exploit such new potential markets. Here is just a sampling:

• A typical journal article can be purchased as a PDF at Science Direct for $30; at Kluwer for $32; at Ingenta for $42. Ingenta began in the academic and research sector, and has expanded to include other forms of publication. Its motto for publishers is “maximizing the value of your content digital assets.”
• Articles in JStor, a subscription journal database, appear in Google searches with a link to a page where an article can be purchased.
• The Review of Metaphysics, a scholarly philosophical journal, sells individual articles and book reviews linked to the books they review at Amazon.com for between $5.95 and $9.95, depending on year of publication, as well as a subscription to the journal for $40.
• Individual book chapters as well as entire books can be purchased as PDF files at the National Academies Press. Just recently, a print copy of a new book was $45.86, a PDF file of the book was $15, and of an individual chapter was $2.50.
• Highbeam.com is an on-line research service that maintains a library of scholarly articles; like JStor, its articles are indexed by Google. In order to view the articles in its database, one must pay a membership fee: $29.95 per month, $199.95 per year, with a 7-day free trial period. Highbeam pays a publisher a licensing fee, just as JStor does; and each may “sell” an article or access to it.

While the profits in the humanities and social science may be small compared to those in the entertainment industry and the hard sciences, the underlying economics are the same. Whether academic or commercial, the publisher’s main interest, just like that of the Hollywood studio’s, or any media entity’s, is in profit; for the publisher, maintaining control over and asserting copyright is a means to profit.

When we turn to the knowledge/culture creators (e.g., scientists, writers, scholars and academic authors, artists, actors), there is more divergence of interests. Most artists and (non-academic) writers think that they, the creators, should have a share in the potential profit of their work. For example, the recent WGA strike was over writers’ share in the profit from “reuse” (sale, on-line streaming, video and DVD downloading, and ad revenue from on-line streaming) of their work. On the other hand, as users, many artists find the permissions and fees for reuse stifling of creative work, and in that respect, are interested less in profit than in looser interpretations of fair use. Academic and scholarly authors (especially in humanities and social sciences; less so in the sciences where there may be commercial gain to be had from the application of scientific work) have shown little concern for issues of monetary gain, and typically have been most interested in dissemination of and access to scholarly works for the sake of ongoing research, scholarship and educational purposes. This is a reflection in part of the academic value of open availability of ideas and knowledge and in part of what has been the economics of print publication. The academic value in openness of ideas is also tied to the fact that the producers of academic and scholarly work have been—and so far still are—the primary users of the work produced, and as such tend to be more interested in open access than in monetary gain for the knowledge/culture creator.

Traditionally, academics have focused on the research and/or “prestige” values of their work, and traditional criteria for tenure and promotion have reinforced the latter. Prior to digital media, in principle, anyone could have purchased a scholarly article. But, in practice it was pretty unlikely because the means of developing an interest in a topic and gaining easy access to the sources did not exist—unless one were associated with a university or research institution—and the sources themselves were scarce and expensive (e.g., small print runs, materials going quickly out of print, high subscription costs). Moreover, in the humanities and social sciences, unlike in the sciences, there is usually no commercial application from which profit could be made. But with digital production (and hence cheap storage and reproduction), the costs of maintaining and delivering digital inventory is miniscule compared to the costs of maintaining print inventory, as Anderson pointed out in his “long tail” analysis, and with on-line search engines there are potential markets even for infrequently purchased items. As the examples above indicate, publishers are already exploiting these markets.

In addition to potentially new dispersed “niche” markets, there are corporate and university markets. The Copyright Clearance Center negotiates, on behalf of publishers, hefty fee structures for corporate access to and reuse of scholarly and research databases. Same with the copyright fees charged to university libraries for “reuse” of scholarly material in the form of Electronic Reserves, course packs and the like. These are all forms of profit, which are magnified by digital media.

If the “markets” for scholarly works are changing, and developments in digital technology—the cyberinfrastructure—suggest that they are, then academic authors and institutions need to take a very different stance towards the conditions under which authors’ works are published and distributed, and to become much more actively involved in reshaping the digital publishing world.

As long as academic authors continue to sign exclusive and restrictive publishing agreements, publishers will control the market.

Whether the interest is profit or dissemination, academic authors need to stop signing restrictive publishing agreements. First, if there is profit to be had, academic authors should have a fair share of it. An academic publishing contract which stipulates that an author collects no share of the sales in each form (e.g., print or digital) until at least 300 copies of that form are sold annually does not give the author a fair share of the profit. There is no extra cost to the publisher annually; once produced, the sale of a digital product is almost entirely profit; similarly for print copies if print on demand is well-established. Second, for purposes of dissemination, authors may be poorly served by a standard restrictive publishing agreement which grants publication and distribution rights exclusively to the publisher. If a publisher decides to not distribute or “print” the work, the author may have little or no avenue for having her or his work distributed.

Universities, too, have an interest in how this new world is structured. As things stand now, universities already pay the salaries of academic authors, and hefty subscriptions to journals and research databases. Thus, when a university has to pay copyright fees it could, ironically, and unlike corporate clients, end up paying twice or even thrice for the use of material. For example, if the school puts a digital copy of one of its print journals on E-reserve, or if a faculty member posts a digital copy of an article from one of the university’s print or electronic journals on a course management website, the university may have to pay a copyright fee—yet the university already owns that material, paid for it, and may even have paid to produce it, as one of its own employees, or an employee of another university, which is in the same boat, may have created it in the first place.

There have been attempts by academic organizations and universities— such as MIT, and most recently Harvard—to have open access digital repositories of at least their own faculty members’ works, but thus far, these efforts have not been particularly successful. Until such efforts are widely coordinated among all universities—and not just a few elite ones —and equipped with indexed and searchable information, this does not constitute the kind of system-wide restructuring of the publishing domain that would be in the broad interest of researchers, scholars, and the public. There is a lot of discussion about this—for example, at the Center for Studies in Higher Education at Berkeley and at the information technology non-profit Ithaka, but thus far no coordinated action.

There are alternative copyright licensing structures, such as Creative Commons or the GNU Free Documentation License, that might serve as models of what could be developed for publishing digital works. But whatever the models developed, the main point is that as long as academic authors continue to sign exclusive and restrictive publishing agreements, publishers will control the market. Once an author has signed the copyright and licensing rights to her or his work over to a publisher, the law is on the side of the publisher who enforces copyright as a means to making profit. Such enforcement can include curtailing the author’s ability to disseminate her or his own work, as well as collecting clearance and reuse fees through the Copyright Clearance Center and issuing “take-down” notices of electronically posted material.

Under The Copyright Term Extension Act, copyright for a work created after January 1, 1978 subsists from its creation and (with some specific exceptions) endures for a term consisting of the life of the author and 70 years after the author’s death. If an author has signed a standard exclusive and restrictive academic publishing agreement, and if a work unexpectedly “sells,” the profit will go exclusively to the publisher and the licensing fees will be collected exclusively by the publisher.

The Digital Millennium Copyright Act gives copyright holders, usually commercial publishing and media companies, legal tools to enforce alleged violations of technological anti-piracy measures on digital media. DMCA is particularly worrisome since it appears to give greater control to the copyright holder of digitized works that are encoded and encrypted in digital media than to copyright holders of print media; the former appear to have exclusive control over access and use for an indefinite period of time. Copyright infringement does not have to have been established for a “take down” notice to be issued under DMCA, even when a strong or reasonable fair use defense could be made. It remains to be seen whether and to what extent this will adversely affect things like Interlibary Loan of digital materials and any subscription or password protected materials.

All the more reason then for academic authors with the luxury of salary and tenure to take the lead and to be actively engaged in widespread coordinated action to restructure the publishing world—untenured academics are in a more vulnerable position until the profession reconceives its criteria for tenure and promotion. For example, authors could stipulate in their publishing agreements that no reuse fees be collected from universities and public libraries. Or, they could play a role in pricing so that even those not affiliated with a university could afford to purchase scholarly work. The Scholarly Publishing and Academic Resources Coalition has developed tools for authors to help them renegotiate agreements with publishers and this might be a place for individual academic authors to start.

Universities, too, need to engage in coordinated, systematic action to facilitate more reasonable conditions for the dissemination of ideas that is the lifeblood of research.

At the same time, individual attempts to negotiate with publishers may not be a sufficiently coordinated action to make a dent in current publishing practices and to overcome each individual’s interest in publication for other reasons—for example, getting their ideas published, prestige, tenure, and promotion. All the more reason, then, for scholarly organizations and universities to get into the act if humanities and social science scholars are really going to reorient themselves to the technology and new economics of digital publishing. Even in the sciences, which are ahead of the humanities and social sciences in terms of grappling with the implications of digital publishing, a huge amount of scientific scholarship still lives behind a subscription wall, earning publishers huge amounts of money. However, the sheer volume of research available in open-access repositories like PubMed Central (for life sciences) and arXiv.org (for physics and computational sciences) is evidence of very different approaches in the sciences: not negotiations with publishers, but either Federally-mandated access (for NIH-funded research) or total circumvention of the traditional publishing route (despite the fact that many of the papers uploaded to arXiv.org are eventually accepted for publication in professional refereed journals). In the humanities there have been some developments in this regard, including Ars Disputandi and Philosophers’ Imprint, but thus far, they have tended to be somewhat isolated and marginal.

Universities, too, need to engage in coordinated, systematic action to facilitate more reasonable conditions for the dissemination of ideas that is the lifeblood of research. Right now publishers compete with one another developing software tools that may be of little use to users, and there is tremendous duplication of effort and resources both among universities—between presses, libraries and IT departments—and publishers building the cyberinfrastructure for producing and managing scholarly work. Universities are the primary customers and users of scholarly work, and therefore, have tremendous leverage if they exercise it in a coordinated fashion.

While there may be some discipline-specific issues such that a single model won’t work for all areas, institutions—i.e., universities and scholarly organizations—and academic authors from all areas need to take an active role in setting the terms for digital publishing and in exploring the development of systematic and coordinated reputable peer reviewed open access venues. ”Open” need not necessarily mean “free,” but it does mean that publishers’ interest in profit should not be the controlling force of the digital publishing world, at least as far as scholarship and research are concerned. Researchers, scholars and academic institutions need to take the lead. Doing so would encourage treating knowledge and culture products as public goods, rather than only as property, and as part of the information commons that nourishes open and informed democratic societies.

©2008 K.A. Wallace

K.A. Wallace is a Professor of Philosophy at Hofstra University.

Back in August 2007, the USPTO released new rules limiting the number of claims and continuations, which are used to amend patent claims, allowed on a single patent application. The USPTO argued the rules would help streamline the application process and reduce the growing backlog. The Wall Street Journal Law Blog reports that the new rules were set to go into effect in November 2007, but a lawsuit filed against the new rules by drug maker GlaxoSmithKline and Triantafyllos Tafas, a medical technology entrepreneur, changed all that. The district judge ordered an injunction on the rules, preventing them from going into effect until they were examined.

In his decision (see pdf at Patently-O), Judge James Cacheris ruled that the USPTO does not have the authority to make such changes:

The court finds that the Final Rules are substantive in nature and exceed the scope of the USPTO’s rulemaking authority.

Critics of the new rules cheered the judge’s ruling, arguing they would “water-down” more complex patents. Biotech companies and drug makers felt the rules would pressure them into exposing their drug development strategies too early in the application process. Other companies and their patent attorneys were spared the hassle of rearranging their patent portfolios to follow the new rules.

The USPTO voiced its disappointment with the ruling, releasing a statement in defense of their new rules, believing them to be only procedural in nature. They hinted at a possible appeal.

Challenges are still ahead. The Patent Reform Act of 2007, currently in the Senate, could significantly alter patent system. But for now, some can celebrate.

In its report, the GAO concludes that the PTO’s efforts to “hire” its way out of the backlog will be futile:

Even with its increased hiring estimates of 1,200 patent examiners each year for the next 5 years, PTO’s patent application backlog is expected to increase to over 1.3 million at the end of fiscal year 2011. The agency has also estimated that if it were able to hire 2,000 patent examiners per year in fiscal year 2007 and each of the next 5 years, the backlog would continue to increase by about 260,000 applications, to 953,643 at the end of fiscal year 2011.

Why isn’t hiring enough? The answer: attrition. According to the report, between 2002 and 2006, one patent examiner left the PTO for every two hired, and of those leaving, 70 percent had been with the agency for less than five years and 33 percent had been there less than a year. This sort of turnover means fewer examiners are available to initiate the application review process; the Patent Office loses time and money spent on training examiners; and experienced examiners must devote more time to supervising.

In addition, the GAO discovered that the high turnover results in a smaller pool of candidates for supervisor positions, producing a catch-22 by hindering the agency’s ability to hire new examiners due to the lack of supervisory capacity.

Why are examiners leaving the USPTO in droves? The report finds that management and examiners differ on the reasons. Agency officials attribute the turnover to personal reasons. Examiners may simply work at the USPTO to build their resume. Or they may leave on account of the work environment, a lack of graduate school opportunities, or the high cost of living in the Washington D.C. metro area. Union officials, who represent the examiners, believe it is more a function of the unrealistic and outdated production goals of the USPTO which have created a “sweat shop culture.” The GAO report found that:

Patent examiners who participated in our survey generally agreed with union officials. Specifically, approximately 67 percent of patent examiners, regardless of their tenure with the agency, said that the agency’s production goals were among the primary reasons they would consider leaving USPTO.

The current production goals, which were introduced in 1976, have not been adjusted to reflect the changes in science and technology. Examiners surveyed by the GAO complained that many of the technologies for which they evaluate patents did not even exist at the time the production goals were established. These new technologies require more time for evaluation, which means examiners are forced to work unpaid overtime and use paid annual leave to meet production quotas.

Even under such conditions, from 2002 to 2006, the USPTO has failed to meet its production goals four out of five years. Of surveyed examiners, 59 percent said the production goals should be reevaluated to allow for more time to review patents.

To combat these attrition issues, the USPTO began introducing new retention incentives in 2002. The report highlights special pay rates, bonuses for meeting production goals, and the ability to work from home as the most effective incentives. While surveyed examiners say these incentives were important reasons in considering staying at the agency, the agency has still faced great difficulty in retaining examiners the past five years, and will likely need to reexamine its production goals if it hopes to tackle the patent application backlog.

To help cope with that growing backlog, the government has turned to the Internet in hopes of tapping into the collaborative potential of cyberspace. In June of 2007, the Patent Office, in conjunction with the New York University’s Institute of Information Law and Policy, launched a pilot program to allow the online community to participate in the patent review process. Called Peer-to-Patent, the wiki-style web portal allows users to upload and tag “prior art,” information about existing products and inventions that is useful in making informed decisions about a patent application. Other users then evaluate and rank the prior art, creating a virtual “top-ten” list of references which then go to the examiner for final evaluation.

The project hopes to alleviate the pressures on the patent examiners by providing some of the essential research for them. It also aims to help participating applicants improve the quality of their patent applications through community review and research, saving examiners’ time on the backend by reducing the need to research overly broad applications. Currently, applicants seeking patents in computer architecture, software, and information security can voluntarily submit their application to the program, which is planned to run for one year, but could be extended under PTO discretion if successful. According to the Peer-to-Patent blog, since the project’s launch, 1,932 people have signed up to be reviewers and 170 references to prior art have been cited on 35 applications.

Most of the patents are expected to benefit energy conservation, pollution prevention, and recycling programs. For example, one IBM patent provides a design for a shock absorbing tray that could replace styrofoam peanuts for packaging. The Commons also hopes to encourage collaboration between companies and benefit enterprises that can cut costs with these patents.

The World Business Council for Sustainable Development is an association of about 200 companies and is based in Geneva, Switzerland.

This project arrives just as the U.S. Congress reconvenes. This year, the Senate will take up consideration of the Patent Reform Act of 2007. The bill has created a rift between information technology and biomedical firms who claim that the bill’s provisions could favor one industry at the expense of the other. The bill aims to overhaul the patent system and bring it in line with the patent laws of many other countries.

New York City officials recently deployed a small battery of detectors that will monitor the air in high-traffic areas for indicators of a biological attack. But is direct detection of airborne pathogens the best strategy, when resources could go towards testing programs at traditional facilities like hospitals, which allow public health officials to monitor health and agricultural disease patterns that may indicate bioterrorism?

China has introduced new legislation that will allow scientists to own the rights to intellectual property that emerges from their publicly-funded work. The move is an attempt to jumpstart scientific innovation. Scientists can also report failed or incomplete results without risking their ability to receive future funding. Supporting more high-risk innovation is a good a policy move for the U.S. as well, as a recent Center for American Progress report on the opportunities for economic growth through science and technology argues.

The Bush Administration continues to censor scientists. The AP has the latest on revisions made to the testimony of CDC Director Dr. Julie Gerberding, who testified before the Senate Environment and Public Works Committee on Tuesday on the health impacts of climate change. The original testimony was 14 pages; the White House hacked it down to four; six made it to the Senate. The Knight Science Tracker, ThinkProgress, and Wired Science have more.

“More than half of Americans believe that Internet content such as video should be controlled in some way by the government.” Selections from the results of a 463 Communications/Zogby International poll on U.S. attitudes on the Internet.

The Bayh-Dole Act grants intellectual property rights to universities for projects developed with federal funds. The Senate Judiciary Committee held a hearing today to consider changes to the legislation. At issue: limitations on the earnings from licensing royalties that labs can keep; and the need to consider that the exclusive patent model may work for drug development, but not for telecommunications or forthcoming energy technologies.

The Project on Emerging Nanotechnologies has been holding an online conference the past two days on the impact of nanotechnology on consumer products. Yesterday conferees discussed the possible applications of nanotechnologies; today they have been looking at regulation and oversight strategies.

Major research libraries are falling into two camps: those that allow Google and Microsoft to digitize their book collections, and those that place their knowledge stores in the hands of the Open Content Alliance.

This new bacteria could lead to the creation of lifeforms that might play roles in novel medical treatments, such as biofuels generation or the digestion of atmospheric CO2. Or they could lead to lifeforms that could also be used to create deadly biological weapons.

But the AFP quotes Venter’s spokesperson Heather Kowalski as saying, “The Guardian is ahead of themselves on this.” She has also promised that Venter’s Institute will not announce the creation of artificial life until they publish a scientific paper on it. “We have not achieved what some have speculated we have in synthetic life,” she explained. “When we do so there will be a scientific publication and we are likely months away from that.”

Still, in October 2006 Venter did file for a patent on the essential Mycoplasmum laboratorium genome and synthetic “free-living organism.” Whatever the case, science bloggers and academics are already busy examining how Venter’s apparent quest could play out.

Ron Bailey at Reason’s Hit & Run blog has a summation of how artificial life will change the discipline of biology. Nature blogger Philip Ball has a blog post from June about the intellectual property implications of patenting the basic building blocks of synthetic biology, even if they are isolated by researchers. And Arti Rai has an article on possible solutions to this problem in PLoS Biology.

For an international perspective, India’s merinews has a skeptical article from a citizen, which claims that Venter’s proposed creation would not be an artificial life form since it is made from a naturally existing organism with 80 percent of its genes knocked out.

For more on Venter himself, The Guardian has an excerpt from his 400-page autobiography, set to be released on October 18.