U.S. Federal Trade Commission Makes Patent Law and Procedure Recommendations

The U.S. Federal Trade Commission (FTC) yesterday released a report entitled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy." This report offers recommendations for updating the current patent system in order to promote competition. The recommendations are based on the hearings the FTC held last year on competition and intellectual property.

The report makes the following 10 recommendations, which if adopted, could significantly alter patent law and procedure:

1. The U.S. Patent and Trademark Office (PTO) should adopt an administrative court procedure that allows third parties to challenge patent validity. Issues the FTC believes would be appropriate for review include novelty, nonobviousness, written description, enablement and utility. The purpose of this recommendation is to reduce the burdens of patent litigation.

2. Courts should alter the burden to prove patent invalidity from clear and convincing evidence to a preponderance of the evidence. The FTC has concluded that the more strict standard is unjustified because many questionable patents have been issued as a result of under-funding of and understaffing at the PTO.

3. The standards for evaluating whether a patent is obvious should be tightened.

4. The PTO should receive greater funding from the U.S. Congress.

5. The PTO’s rules should be amended to require applicants, upon the request of the examiner, to submit statements of relevance regarding their prior art references. The report also recommends that the PTO amend PTO Rule 105 so if an applicant responds to an examiner’s inquiry by either responding that he or she does not know the answer or that the information is not readily available, such an answer is treated as an incomplete response. The FTC also recommends that the PTO expand its "second-pair-of-eyes" review to new areas, such as semiconductors, software and biotechnology.

6. In applying the constitutional requirement that patents "promote the Progress of Science and Useful Arts," the PTO should consider possible harms to competition before extending the scope of patentable subject matter.

7. Congress should enact legislation requiring all patent applications, including those only filed in the United States, to be published 18 months after filing.

8. Congress should enact legislation that curbs an inventor’s ability to keep continuing applications pending for extended periods when the sole purpose of amending the claims is to ensnare competitive products that have been introduced on the market.

9. Legislation should protect companies that survey the patent landscape and read competitors’ patents from exposure to treble damages as a willful infringer. Certain witnesses at the FTC hearings noted that they do not read their competitors’ patents out of concern that by doing so, they are exposing themselves to treble damages as a willful infringer. The FTC believes that the current willfulness case law may be delaying innovation and promoting duplication and, therefore, recommends that companies should not be punished through treble damages for simply keeping abreast of competitors’ patents.

10. The U.S. Court of Appeals for the Federal Circuit and the PTO should give greater consideration to economic insights in their decision-making.

The report states that the FTC intends to increase its role in patent matters. The FTC will be increasing its advocacy of competition concerns in patent cases by renewing its commitment to filing amicus briefs in certain patent cases. The FTC also plans, in appropriate circumstances, to ask the PTO director to reexamine questionable patents that raise competitive issues. The FTC also recommends that a panel be created that will facilitate communications between the PTO and the antitrust agencies.

While the 10 recommendations may take significant time (if ever) to implement, the FTC’s activism on patent matters will be immediate. The FTC has already hired several patent lawyers for its staff. The practical implication is that companies that are being hurt by "questionable" patents that harm competition, now have the option of raising these concerns with the FTC. The FTC will clearly be looking for opportunities to raise concerns with the PTO director and to file amicus briefs. The report also mentions that, in the future, the FTC in conjunction with the U.S. Department of Justice will be releasing another report addressing recommendations for the antitrust agencies to maintain a proper balance between the antitrust and patent laws. Visit www.ftc.gov/opa/2003/10/cpreport.htm for a complete version of the report.