The Commission’s report comes after a series of hearings held between December 2008 and May 2009, titled “The Evolving IP Marketplace”.
The FTC has recommended that significant changes be made in two key areas of the patent system: notice and remedies.
“[The report] observes that some strategies by patent holders risk distorting competition and deterring innovation,” said the Commission in a release.
It continued: “This is especially true for activity driven by poor patent notice, and by remedies that do not align the compensation received by patent holders for infringement with the economic value of their patented inventions.”
Poorly delineated claims, an inability to predict which claims will issue from pending patents or to identify unpublished patents and the difficulty of searching and reviewing all relevant published patents were the key challenges identified.
These problems mainly affect the IT sector, where claim language and vocabulary can be imprecise, and because a single IT product often is covered by many different patents, said the report.
As one solution, the Commission recommended that the USPTO should adopt the standard articulated in Ex Parte Miyazaki by the Board of Patent Appeals and Interferences (BPAI) on the subject of claim definiteness, which said that “the PTO was justified in employing a ‘lower threshold of ambiguity when reviewing a pending claim for indefiniteness than those used by post-issuance reviewing courts’”.
The standard used now comes from a 2001 Federal Circuit decision in which the court said that a claim is valid and definite as long as it is not “insolubly ambiguous” – meaning that there is no possible way it could be narrowed for claim construction.
“‘Insolubly ambiguous’ is a disaster,” said one panellist during the Evolving IP Marketplace series, according to the report.
The Commission also proposed that applicants should be required to cite a specific dictionary used in defining claim terms or to accept a USPTO-designated dictionary that would vary by art unit.
The report uses the term patent assertion entity (PAE) rather than the more common non-practising entity to try and exclude patent owners “that primarily seek to develop and transfer technology, such as universities and semiconductor design houses”.
Although PAEs testified as part of the Evolving IP Marketplace series, the report seemed sceptical of their value to the marketplace.
“Some of the asserted benefits of PAE activity appear, on closer inspection, ambiguous at best,” said the Commission.
The report added: “Even if it is correct that PAEs incentivize and fund the work of inventors, the effect of this activity on innovation can be detrimental if efforts focus only on ex post licensing and not ex ante technology transfer. Paying inventors only to invent and patent may generate more invention and patents, but it may not generate more innovation.”
On the topic of remedies, the Commission recommended that courts should reject the so-called entire market value rule as a basis for awarding lost profits damages and should instead “require proof of the degree of consumer preference for the patented invention over alternatives”.
This problem has already been partially addressed by the Federal Circuit in Uniloc USA v Microsoft.
The report makes 27 recommendations on improving patent notice and remedies.
The Commission’s 2003 report on the proper balance of IP and competition helped to inspire patent reform, which was passed by the full Senate last night after six years of debate.
Stephen Maebius of Foley & Lardner said that the value of the 2003 report was that “people became more aware of the issues”.
“It gives a framework for Congress to consider whether the law is adequately addressing the balance of IP and competition, but it also raises awareness more broadly about possible issues that could use improvement,” said Maebius.
As a result, the patent bar and courts have addressed many of the issues identified in the 2003 report. “People are looking for the case they can use as a test case,” Maebius said.
He added that the latest report should have the same benefits, but that it could slow down the patent reform process in the House of Representatives, which might decide to hold hearings on the problems identified by the Commission.
“These reports, combined with the hard work by many leaders in Congress to improve a troubled system, will help ensure that patents continue to serve America’s innovators and consumers,” said FTC chairman Jon Leibowitz.
The USPTO expressed its support for the Commission’s view that the Office should be better funded, which Maebius agreed was probably the most important recommendation in the report.
“As the Federal Trade Commission recommends, for our patent system to best serve America’s innovators, it is essential that the USPTO have adequate funding to address the backlog of patent applications – one of the key reforms [patent reform legislation] would make possible,” said USPTO director David Kappos.
