January 31, 2008
From a study prepared for the Biotechnology Industry Organization (BIO):
There is a lack of evidence that justifies overhauling the patent system in a way that could potentially disrupt the incentives of industries that rely on patents to innovate... The empirical data which is being used to justify the need for overhaul either has serious methodological limitations or is non-existent... It cannot be said, with any degree of certainty, that there is or is not a problem with patent quality, patent thickets, litigation abuses, or any other potential impediments to innovation and successful commercialization... There is no basis to believe that the proliferation of patents is hindering research.
Implementing overhaul measures aimed at weakening patent rights and enforcement mechanisms is dangerous because innovation often depends on strong patent rights and enforcement mechanisms. The danger to innovation increases when overhaul is implemented without methodologically sound empirical data.
The BIO report, "Proposed Patent Reform Legislation: Limitations of Empirical Data Used to Inform the Public Policy Debate," was prepared by researchers at the University of Virginia, who found that the three key reports often cited as justification for a sweeping overhaul of the U.S. patent system utterly lack empirical data. The three reports were produced by the Federal Trade Commission (FTC), the National Academy of Sciences (NAS), and NAS little sister, the National Research Council (NRC).
Patents represent an exchange with society. In return for finite exclusionary rights, the invention is disclosed for future inventors to use.
But issues associated with patent reform have ignited the imagination of the public, academics, and Congress. The public is regularly told that the patent system is dead or broken; it is in the hands of “trolls;” it supports the proliferation of patents, which reduces innovation;4 it results in high costs, which are passed on to the eventual consumer, etc. There is a huge body of academic literature on the subject of patent reform, and members of Congress are proposing changes that would have a dramatic effect on the patent environment. But what legitimizes calls for patent reform? What data exists to show that reform is necessary?
On the three reports:
The three reports have different goals, but common to the three reports are concerns associated with an anti-commons or patent thicket and the associated issues and potential problems associated with poor patent quality. An anti-commons (an expression coined by Heller and Eisenberg) raises the concern as to whether or not the multitude of patents that have been granted actually inhibits rather than facilitates the transfer of technology.
It has been theorized that litigation and the risk of litigation adversely affect the ability to innovate and commercialize.
Questionable patents or patents of poor quality are those patents which have been granted that might be deemed invalid if challenged either by litigation or reexamination because they fail to meet the statutory requirements of novelty, non-obviousness, or utility, or because they contain claims that are unclear, not enabled across their full scope, or suffer from an insufficient technical description. The issue of questionable patents imposes costs on firms that can be seen as unnecessary or illegitimate.
Despite evidence to the contrary, each report concluded that there are serious and systemic problems with the patent system.
The FTC Report: "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy"
In 2002, the FTC and DOJ interviewed over 300 people from a variety of industries and universities. There was no consensus.
Participants from the pharmaceutical industry generally thought the patent system "generally not problematic because pharmaceutical products are based on a low number of patents."
Biotech was concerned about research tools, legitimate in light of later CAFC carelessness, but something that could be remedied without statutory change, just as the problem was created by the court.
A concern of the computer hardware sector, including semiconductors, were worries of "non-practicing entities."
Although all panelists agreed that the existence of overlapping patent rights among industry participants could and did present problems associated with a patent thicket, panelists also agreed that cross-licensing, patent pools, and the licensing requirements of standard setting organizations have helped to mitigate the potential harm to innovation caused by patent thickets.
"The most divergent views on the role of patents in promoting innovation were offered" from the software sector. The patent thicket was a concern. Open source as an antidote to the anti-commons problem seemed uncertain. Defensive patenting was rampant.
Defensive patenting is occurring in the industry for the same reasons it is occurring in other industries, namely, to maintain détente with rivals, to obtain portfolio cross licenses, and to raise a patent infringement counter claim should a firm sue for infringement.
Viewpoints varied widely.
To summarize, panelists across industries disagreed about the nature and degree to which the patent system might be hindering innovation and successful commercialization specifically with regard to the issues of an anti-commons or patent thicket and questionable or poor quality patents. Moreover, as the evidence indicates, in the biotechnology industry and the computer hardware industries, to the degree to which industry participants are experiencing patent thickets and facing issues associated with poor quality patents, they are finding solutions or ways around these problems. Similarly, other industries are finding solutions or at least potential solutions to these problems.
Despite no evidence, the FTC report concludes that poor quality patents are being issued and urges a number of reforms to address the potential problems.
The NAS Report: "A Patent System for the 21st Century"
In 2004, the NAS critiqued the patent system.
In regard to the USPTO... for issuing poor quality patents, the NAS notes “…the claim that quality has deteriorated in a broad and systematic way has not been empirically tested.” Despite the lack of evidence showing a systematic decrease in the quality of patents issued – and some evidence showing that the quality of patents has not declined but is actually improving, the NAS believes that the USPTO is issuing more poor quality patents.
The NAS analysis obsessed over obviousness, pre-KSR; that worry is now toast.
The NAS report does not offer empirical evidence supporting assertions that a patent thicket is inhibiting innovation and successful commercialization or that patent quality is decreasing. Indeed, as the NAS points out, at the time of the report, the litigation rate was just over 1 percent; only 2-3 percent of a year's patents are reviewed by the USPTO; and re-examined patents represent about 0.3 percent of the total number of patents. Further, the first  report which the NAS commissioned does not support these assertions. Moreover, the NAS report offers conflicting evidence concerning patent approval rates, and a disbelief that the USPTO could be correct about its allowance rate. This does not constitute solid empirical evidence.
The NRC Report: "Reaping the Benefits of Genomic and Proteomic Research"
Narrow in scope, the NRC surveyed existing literature and heard from academics.
Even though this report produced no evidence of a patent thicket or that researchers were being unreasonably challenged by questionable patents, the NRC echoes the concerns voiced by both the FTC report and the NAS report.
BIO head Jim Greenwood on the bottom line:
[D]raconian measures that would fundamentally weaken patents for the benefit of a handful of industries to the detriment of many others are simply not justified by an objective review of the facts... When it comes to patent reform, tread carefully, and first, do no harm.
Posted by Patent Hawk at January 31, 2008 8:17 PM | The Patent System
Why does the BIO Report not surprise me? (And let's hear a round of applause for BIO exposing this rhetorical nonsense!) Whenever pressed for evidence of this alleged significant "abuse" of the patent system, the proponents for this legislation (I won't call it "reform" because it isn't) either can't provide any evidence, or can't provide any evidence that will stand up under scrutiny. (The PTO hierarchy in the GSK/Tafas suit has a similar problem with providing any substantial evidence to show rampant "abuse" of the patent examination process.) What's scary is that Congress (like the PTO hierarchy) won't even bother to see how flawed the case is for this legislation.
Posted by: EG at February 1, 2008 12:56 PM