U.S. Innovation Competitiveness Summit - U.S. IP Policy and International Competitiveness

welcome to csis online the way we bring you events is changing but we'll still present live analysis and award-winning digital media from our drakopolis ideas lab all on your time live or on demand this is csis online hello everybody my name is john hamery we've got an audience that's building as people are getting admitted into into the room and so we'll just let me just say a few words of welcome before we turn to this remarkable panel that we're going to have the opportunity to listen to today um i want to welcome you all to this day two of the u.s innovation competitiveness summit and this is our this is going to be exciting today because we're talking about a topic that i've never covered here at csis but it's so vital to our national security it's vital to our economy and that is intellectual property um you know everything in the world that you see that was created by human hands everything started off initially as just an idea in one person's mind it's a remarkable thing when you think about it one person whether it's the idea of a microphone whether it's the shape of a glass whether it's the the construction of a table whatever everything is the product of one person's mind thinking of it and then sharing it in ways with other people to turn it into reality that's a remarkable thing and it is a precious thing as to the foundation of our economy the intellectual property system is designed to strike a balance between what's good for society and what's good for the inventor and it's a rich robust and well-developed system but not well understood and we're going to dig into that today it's going to be a very exciting time with all of you so i i want to say thank you to andre yanku and this remarkable panel let me just say a word of introduction to andre he's going to run this session you know andre is an example of why america benefits so much from immigration you know he he came to this country as a young kid planning to become an engineer did become an engineer was an engineer at hughes aircraft company but then he became interested in the world of patents and intellectual property became a recognized leader while working at ireland manila i think is the firm is it's a premier intellectual property firm uh and in that role he was very involved uh in the the community of lawyers uh and intellectuals that think about and deal with intellectual property he was nominated by president trump to be under secretary of commerce for intellectual property and director of the u.s patent and trademark office confirmed unanimously by the senate i should say and he's done a remarkable job he and walt koppen came to me in january and said they wanted to sustain momentum behind the ideas they had been working and that's the origin of renewing american innovation this project we have at csis today we have this rare opportunity i'm going to be learning today this is a marvelous opportunity for me and for all of us so i welcome you and andre let me turn to you and to say thank you for for being the leader on this and thank you for leading this session and i i'm excited to hear everybody's presentations today thank you andre well thank you uh dr henry for that very generous uh introduction and uh really thank you for providing a home at csis for the renewing american project ameri american innovation project and the support uh for uh this super important issue um uh in uh current uh in the current in the current state of the american economy by the way um to your point john that i balance uh between the interests of society and um interests of the inventors or the creators um of course uh james madison in federalist 43 said that uh the intellectual property clause which arises from the constitution uh is uh equally beneficial uh to both and that's why he said and concluded uh that uh the utility of this power the constitutional power uh granted to congress to uh create intellectual property rights patents and copyright in james madison's views that uh power will scarcely be questioned uh now i don't know if that's proven to be true i think it is being questioned all the time and um but uh certainly the utility uh it cannot be uh in doubt to uh to to the importance of innovation um before we get to the panel let me say a few words to set the stage as to um as to why we are talking about these issues nowadays the news to be frank in recent weeks has been stark general motors shuts down virtually all north american plants uh for about two weeks think about that when was the last time the general motors shuts down all of its plans and why did it do that because there is a shortage in the united states and frankly worldwide of computer chips silicone chips and this is not only for cars certainly it's being it's applied to cars so cars right now whether they're gm cars or whatever other brand um they are on back order because there is a shortage of silicon chip supplies but in addition to that refrigerators dishwashers everything is in short supply right now and we are not in um you know um this is not a world war situation there's a shortage of computer chips in the united states what happened the united states was the forefront of the silicon revolution so um so so that is a question that it just is one of the latest issues in the news right now that is prompting us to rethink all of issues surrounding american innovation and the american economy it is my view that the united states right now is being outdone in strategy technology and manufacturing on a whole host of technologies and most such as silicon chips um especially the manufacturing side and but more importantly in technologies of the future whether we are talking 5g or 6g communications whether we are talking about uh crypto um crypto type technologies intelligence and the like by any measure uh that we can count we know that now it is up to us on some of these technologies to come from behind let me give you some examples in the technologies that matter china right now issues many more patents than the united states when i mean that technology is matters technologies that are the forefront of the next technological revolution so that's patents that's one measure easiest for me to talk about is the former director of the patent and trademark office but it's not just patents if we look at technical publications in scientific and um and engineering peer-reviewed journals uh china outperforms the united states the number of phd graduates in science and engineering with science and engineering degrees we are falling behind when it comes to leadership of standard setting committees around the world the united states is losing its edge so well beyond semiconductors when we talk about 5g artificial intelligence quantum computing the united states needs to up its game for us to maintain our technical lead which we have been used to for the past couple hundred of years we must double down and affect change frankly something has to change the trajectory we have been on in recent years has to change i liken it to the need in the united states for another sputnik moment by that i mean looking back a few decades during the uh you know the beginning of the cold war when it when the soviet union launched the first satellite in space named sputnik the united states realized that we must compete and we had leadership at that time president kennedy went in front of the of the nation and declared that by the end of the decades that was the 1960s we as a nation shall put a man on the moon and then the national concentration focused towards that goal are our leaders today willing to make the that type of commitment and lead us in a direction where we will once again have the technical lead in this really critically important technologies there are lots of issues that go into this and throughout the week csis and the renewing american innovation project has been focusing on a variety of such issues such as technology transfer and and the like but here is the bottom line we need to identify as a nation all the various issues whether it's education whether it's diversity and more folks from uh traditionally underrepresented groups participating whether it is uh immigration uh when it comes to folks with stem degrees whether it is funding private and public sector funding for research and development all these issues need to be addressed as a nation the united states needs an innovation policy to address to identify and address a whole host of issues and of course we need better intellectual property policies why because it is my firm belief that intellectual property drives innovation for innovation in the united states to be successful we need the private sector to be involved and not just involved but to lead in new technologies of the future in order for the private sector to participate at its maximum capacity the private sector has to be assured of the protections provided by intellectual property laws in order to incentivize and protect the investments made innovation does not just happen as some argue innovation is driven first and foremost by investment and investment needs of time and capital and in that investment needs the protections of intellectual property laws so on this in this part of the csis um uh innovation week for this program we're going to focus on those intellectual property policies what has happened over the past decade or so uh what's been good what needs to be improved and what specifically do we need to focus on for uh for the future so with that let me introduce our incredibly distinguished panel um and we have four remarkable leaders in this field two from the judiciary and two from uh from the administration side and uh let me uh let me just introduce them alphabetically uh so with that uh uh first let me introduce drew hirschfeld drew i had the privilege of working with drew when when i was director of the pto and of course he has served with multiple directors over very long and distinguished career at the pto drew right now his title is uh performing the functions and duties of under secretary of commerce for intellectual property and director of the united states patent and trademark office i used to think that i have the longest title in government but i'm quite certain that drew now absolutely takes uh takes uh the honors for that in addition to this drew is the commissioner for patents that means he leads the uh the patents organization he's been doing that for uh five plus years he was appointed to that position by my predecessor director michel lee and um uh and the secretary of commerce at that time and uh he was reappointed when i was the director uh just last year for a second term and this is incredibly unusual and the testament uh to drew's um uh performance and uh leadership uh of at the united states pto for a long time he started in 1994 as an examiner and worked his way up through many many different administrations then let me introduce david capos dave is a predecessor of mine he was uh director of the patent and trademark office from 2009 to 2013. uh he currently is a partner at uh at cravath a law firm in new york city and before all of that he had a long and distinguished career at ibm including chief ip council he was at ibm for 25 years uh the list of accomplishments uh that dave has and uh and honors um before and after the uh his service at the pto is is too long to mention uh let me just say that uh he is an inspiration because uh he's been out of the pto office for almost 10 years but stays active and super involved in all of these discussions and continues to be one of the most important leaders in this space on an ongoing basis um by the way drew also worked with dave i think drew was at least at some point dave's chief of staff if i'm not mistaken right yeah um and then let me introduce uh judge um michelle josh michelle are you online yet yes i am all right fantastic uh judge michelle was for 22 years uh at the court of appeals for the federal circuit the last six of which um he served as the chief judge of uh of the circuit he authored during that time more than 800 opinions i need to calculate how many a day that that makes but in any event that's quite a record um since uh he has retired from the court he does a lot of writing a lot of public speaking he is a great supporter of intellectual property rights like david uh in private life judge michelle has not shied away from uh providing leadership in the ip sector and uh he likewise is an inspiration before he was on the court he was an assistant district attorney in philadelphia i had many other jobs also in the u.s government and he also served as council for senator specter um at that time last and not least i'm sorry judge it's just the alphabet judge kathleen o'malley she is a sitting judge currently at the court of appeals for the federal circuit she was appointed by president obama in 2010 before that judge o'malley was a district court judge in the northern district of ohio where she was appointed by president clinton in 1994 and to this day i believe she remains the only uh judge at the federal circuit who has had disreport uh experience and i can't tell you how uh important that added perspective uh is that judge o'malley brought to the court of appeals she also worked for the attorney general's office in the state of ohio before she was appointed to the bench and she started her career as a lawyer in private practice in ohio so with that let me uh start the questions of the panel i'll be the moderator and i want to touch upon uh some of the hottest and most important issues right now in intellectual property law that we need to uh to address as a nation um and let me start with uh drew who um is the acting league the current leader of the uh of the office um drew this week we are about to celebrate the 10th anniversary of the america events act the aia which uh passed uh was signed by president obama i think on september 16 2011 that law was one of the biggest changes or the biggest change in uh patent law it's 1952 and it had quite a few components to it um maybe you can reflect for a minute about what this what the aia has meant how has it performed in the last decade and what are the hot issues surrounding the aia at this point 10 years in sure well thank you happy to address those points andre let me start off by thanking csis for having me and it is quite an honor for me to be on this panel as andre said uh two members of the panel were my bosses who i've learned a great deal from so uh particular thanks to andre and dave for for all you've done uh helping me in my career so uh as andre mentioned the aia anniversary the 10-year anniversary is coming up in in two days so i've been reading a lot about it and there's been a lot of discussion about the aia and let me just if i may just go through some of the key changes that were implemented 10 you know starting with 10 years ago and by the way dave capos uh was was director at the time and was really instrumental in in moving all of these issues forward so special uh kudos ghost goes today for his efforts but one of the biggest changes and perhaps at the time ten years ago we thought was the most controversial was the change of the the whole us ip system to a first to file system from a first to invent system and up to that point the us was one of the only places that was first to invent so this was a significant change i will say looking back 10 years later and having the ability of hindsight certainly did not pan out to be as controversial as people thought it was and as troublesome as people thought it was sure people had to change some of their practices and get ready and there were new new laws and rules put in place but this does seem the intent here was to add certainty and to better align us with some of our foreign partners and it certainly seems to have accomplished that addition an additional change of the aia was that it gave the uspto fee setting authority and i will tell you as a long-time uh employee of the pto that should not be uh underestimated as as having a a great benefit for for all of us the ability for pto to be able to set our fees to to be able to gauge what work we have coming in what we're going to need to do as an agency and to be able to set the fees and keep the money really has helped us be most most effective and efficient as as an agency that was a certainly a huge change additionally with the aia we had the uh the ability to create regional offices and we've created four uh regional offices uh throughout the country and i have an interesting perspective here because i will tell you that i was on the original planning of detroit our first office in terms of the structure of that office and i and i share this with people all the time when we were planning it we were planning really for examiners to be there in the operations of having patent examiners what would they do and i will tell you what we really missed and what we've learned in the in the last decade is the amount of outreach that those regional offices provide it really was quite eye-opening and fascinating and and as andre said you know he wants us to to look back and look forward um looking back the the creation of the regional offices was absolutely fantastic helping us with our nationwide workforce but but more so even the outreach has just been an absolute boon to all of the u.s and i will tell you as we look forward the more outreach education we can all do the better i'm sure we'll probably get into that a couple other changes by the aia where the creation of a pro bono program which is still being scaled up and and has really enabled people who don't have the means to be able to represent themselves to get assistance i think that has been a great change i'd love to see additional work being done there and then the final change i'll talk about is the creation of the patent trial and appeal board prior to the aia we had judges at the uspto the judges would hear ex-party appeals from examiner's actions so if an examiner rejected a patent application the judges would hear that but with the creation of the aia it gave the ability for people to challenge an issued patent and so so judges now have that dual role uh where the pta rather has that dual role to be able to handle both of those the intent here was that the aia trials are cheaper faster alternatives to district court litigation so i'm really proud of of the way we've implemented all of those provisions as andre said he wants us to look forward so one area that i think we definitely need to look forward at and is probably one of the most heated issues of debate today is some of the rules and regulations regarding the patent trial and appeal board and these aia trials that i mentioned the issue on most particularly relating to or talking about is the issue of what's called discretionary denials this is actually was written into the statute that the director of the uspto has the ability to accept or deny petitions to challenge a patent um and uh there's a lot of discussion to uh that has been taken place about what those denials should should what form they should take and i know there's been a lot of movement to put denials into place to prevent harassment of a patent owner for example if there's multiple petitions being filed if there's either multiple at the same time or multiple in succession if there's concurrent litigation going on so anyway i flag this as being a very hotly discussed item and something that needs focus and attention moving forward last thing i'll say about that and i'll get back to andre is i know that relatively recently we came out with a request for comments to get people's views on this and we received over 800 comments in response from the public which is you know way beyond what we normally receive and there's very differing views on how we should move forward so this is certainly an area that we should be focusing on moving forward thanks uh drew really good background in history and also the hottest issues uh that you identify just to pick up on the last point you made i believe the office put out a summary an executive summary of sorts just a few pages of the 800 or so comments right it's available on the website someplace yes so so there is a summary available and if people are interested in reading any of the 800 or all of the 800 plus comments you can do that as well it's all available on our website uh can you give folks uh and the answer might be no you can't but can you give uh folks a sense of the um the motivations not the motivations but the crux of the arguments on the two sides on uh uh of of the issue um of multiple uh petitions at the office um uh what is what are the main arguments uh on the various sides and and and motivations behind them sure so so on the one hand um you have um many members of the public that feel that they should be able to bring you know whatever challenges that they would like to and that that fits within the guidelines of the aia so whether that's multiple petitions again at the same time or we're in serial or even with concurrent litigation with district court and on the other side you have you have the feeling that we should be limiting these so as to make the ptab truly an alternative a cheaper faster alternative not let it be used in a in a harassing way and i'm being careful trying not to pass judgment although i do definitely believe that the office should take uh steps to prevent any type of harassment um i think we want the issues to be decided on on the merits and and not be a deep pockets type of issue so um again i think these are are the the the issues andre and of course given that there's 800 comments there's the whole spectrum is covered there's like lots of things in between uh right and absolutely um so so um look not not to put you on the spot so i'll offer uh a thought here as a general principle why this is important to the united states right um it is somewhat of an ops for for the general public for all of us who are in the midst of it dealing with this every single day it's become second hand the issue has but it's somewhat obscure and technical for the rest of the public but the bottom line is with respect to patents which are basically commercial instruments certainty predictability is important to them for everyone in industry it's important to the patent owner to know what their rights are generally speaking so that they can make appropriate investments in their technology that's protected by this ip and for the uh for the competitors it's important to know what the patents are and exactly what they mean so that they can work around them or take licenses to them um uh whatever the need is at that time so anytime when there is a level of uncertainty or multiple serial potential challenges that might give inconsistent results and the like it makes the system uh the commercial system somewhat unpredictable uh and perhaps as a result will attract less investment uh both of capital and human talent in those particular areas of technology so it's really important to dial this just right um and it is a dial um so you have to you know because you have to consider the entire spectrum and it's important to dial this just right in order to make sure that the united states uh investment and innovation communities uh are are hitting on all cylinders in all areas of technology to make sure that we don't disincentivize anyone and in fact we provide the appropriate level of incentives so out of all the aia of all the issues that you've mentioned drew i suspect you would agree that this somehow has become like the hardest one still being debated right uh absolutely with without question the hottest one um you know i've been in this role as as you know performing the functions director since january and and as as i know you well know because you held the position prior to me it's what you hear about 90 percent of the time of the issues i just wanted to add if i may one one point um to what you said about certainty and i i certainly absolutely agree uh with the point that you made i'd just like to make a further point that it's not only about the uncertainty of the validity of your patent and whether you're going to be able to retain your patent rights we have heard from many that the uncertainty is about whether they're going to be able to defend themselves with the cost of either being in in aia trials at the ptab and potentially also in the district court or again if there's multiple suits being being filed so the issue is also just uh do we have the ability to do people have the ability to defend themselves even when their patent they feel very confident will be held to be valid um so anyway that's one of the issues that also needs to be looked at costs of course of litigation on both sides correct cost of defense your patent uh and also costs of the folks accused of uh patent infringement of defending those against those accusations so the overall cost of litigation which is a cost on the entire innovation system uh needs to be appropriately uh considered as well all right well thank you very much before we go on can i offer a comment having been directly involved in putting the legislation together with members of congress and their staff what we were thinking and um trying to solve for at the time the aia was put together with respect to this particular point in the p tab um was we knew that there would be any amount of um strategic behavior by parties on all sides of ptab procedures patent holders as well as those seeking ptab reviews and we knew that there would be [Music] attempts or there would be conflicts with ongoing litigation and so we specifically wanted to provide the office with flexibility to use judgment that you can't legislate to recognize those situations where district courts um are already involved where the federal circuit is already involved where multiple procedures are already underway and where the better part of valor even as much as the uspto wants to be an adjudicator and wants to correct its errors if there are errors or affirm patents if they should be affirmed the better part of valor is to have the flexibility to make good decisions if you will in the moment and that was what that provision was meant for um i find myself feeling like the debates we're having over it now are testament to how important it is that that kind of discretion uh remain with the office and uh and there be flexibility because at the end of the day no one's being denied their rights they're being told take this fight to the article three courts take it to judge o'malley take it to the district courts they've got 200 plus years experience adjudicating these kinds of disputes they can do and they do do a perfectly fine job of it great thank you uh thank you dave um and uh thanks for that those comments um and um i encourage everyone on the panel to please jump in at any time on the other uh topics uh that folks are speaking on i also want to encourage the audience to send us questions um this uh session was scheduled for an hour and a half uh we have another uh 55 minutes or so and um please feel free to put your comments in the q a uh or in the chat and uh we'll try to uh to get to them during the program okay let me uh now turn to a different topic uh that's of really uh significant importance and i'm going to ask judge o'malley to take the lead uh on this topic and that is uh with respect to the issue of injunctions because the entire ip system um certainly patents and copyrights stems from the constitutional grant of the power uh to congress which says that congress has the right to give to inventors and authors their exclusive right to their respective writings and inventions so judge o'malley let me just start with a provocative question but then you can say anything you would like which is how can an exclusive right be enforced without an exclusive type but it's an exclusionary type of a remedy like an injunction yeah well i i don't think it can completely i i think that's part of the problem i think that that they both the framers of the constitution and those who pass the patent act did have in mind that that exclusionary right was one of the things that that went along with the grant of a patent and up until 2006 it was at least presumed that if there was um an infringement of a valid patent that there would be irreparable harm and that the while the court still retained discretion not to grant an injunction um it was a it was heavy lifting for the the one who was found to be an infringer of a valid patent to to overcome that presumption um in 2006 the supreme court took a case called ebay um and the supreme court in a in a shockingly short opinion um looked at the case below and said all right the district court said i'm not going to issue an injunction because you choose to license your patents to some people and then the court of appeals said no that's too extreme but the court of appeals at the time the cafc said um the the general rule is that you get your injunction now that wasn't the way the federal circuit really had acted but i think it was reacting to the extreme nature of the district court decision the supreme court took the case and said no patents are just like every other property right um and despite the fact that both the constitution and the patent act talk about the right to exclude or the exclusive right to manufacture uh sell offer for sale use we're going to say that you still need to apply a four factor test equity test uh which considers the likelihood of success on the merits the whether the harm is irreparable the uh the balancing of interest between the parties and the public interest and said therefore going forward there's no absolute right to exclude uh it's up to the district court to apply the general rules of equity the problem a couple problems with that opinion one is that um it included the balancing of interest factor which had never been included uh at the end of a trial with respect to a permanent injunction that was only a a preliminary injunction um and and so they even didn't get their own four-factor test quite right uh but but the other problem with the opinion is that it has been interpreted as having swung the pendulum in the opposite direction to the point that it's very difficult to get an injunction before ebay the infringers or alleged infringers knew that they had a risk that they would be completely out of business if if they um decided to infringe and went forward and were found to infringe that they had the risk of losing their business without that risk you end up basically having essentially efficient infringement in other words individuals and parties can infringe and know that at the end of the day all they're probably going to do is pay the same license fee or royalty fee that they would have paid had they agreed to do it up front rather than be found to be an infringer of a valid patent now i'm not saying you can never get an injunction um there are injunctions that issue uh they usually only issue where there are direct competitors and where they the competition in the market is such that that a sale to the infringer would be a non-sale to the um to the patent holder uh but short of that we very often don't see injunctions being entered um i once was at an international conference where uh sir robert jacobs from the uk said that that that decision the supreme court's decision in ebay was the thing that started the slide uh to in terms of the preeminence of the united states and its intellectual property position you can get automatic injunctions in germany injunctions are not automatic in the uk but they're pretty close you you can get injunctions pretty easily in china you can get injunctions all over the world except apparently in the united states um there are a number of other problems i think are posed by this it's not just the efficient infringement issue but it's also we have now have a an obsessive uh attention on damages awards and the effort to get huge damages uh to replace uh the the right to an injunction uh has has caused a lot of controversy as well because the damage numbers in the us are are so large and it's because that is the primary remedy at this point in time so i can talk about a lot of other aspects of this but it's it to me it's it's a mistake it was i think it was the supreme court's reaction uh to the notion that that that someone would think their four-factor equity test didn't apply in a particular circumstance um and they even in that opinion um said that that this is what they they that it's always applied that way to copyright cases now most copyright experts will tell you they didn't know that until the ebay decision uh but since then clearly in the copyright field the courts have said ebay changed the landscape and and injunctions are far more difficult to get even in the copyright era let me ask you thank you for the comments um uh let me ask you you raise so many good points and i'm gonna follow up on a few of them but first of all at the higher level why for if we if we look at the broader innovation ecosystem in the united states why does this particular remedy have an impact on potentially the investment and innovation uh investment in innovation uh and r d and the like um i mean i don't personally i don't think it's a coincidence that the founders in the constitution itself put exclusive right they they could have said you can create an ip system they didn't have to say the exclusive right they clearly thought back then that this is the crux i mean it's it's you know it's it's a sentence long the uh the ip clause in the constitution is a sentence long and this is what they focused on um so obviously they were on to something but what is it exactly that is making the difference here to the underlying innovation ecosystem you think well i think you know if you go all the way back to the constitution madison had a vision of of the intellectual property system that was was very much a democratic one he wanted to make sure that that that everybody in the united states and at that point there were mostly poor people in the united states who had any kind of creative idea could uh be incentivized to um to follow those ideas and to implement them and not everybody had the money or the wherewithal to to effectuate their ideas but they they had the ability to license them and to actually earn a living from their own creativity and that was the idea behind the patent system in the very beginning and and it worked i mean our economy our then-nascent economy really took off because we had you know farmers and even slaves being creative uh because there was the ability at to um to protect their inventions and i won't get into the issue about at what point were slaves allowed to have their own patents but they were able to uh effectuate their inventions through through their their owners at the time but we had a broad swath of people who who we were able to tap into i think what happens now is if you're not a big company who can afford to to withstand litigation until till the end of the day and hopefully get some money at the end you don't feel that you have those protections if you have a university if you have an individual inventor i mean they if they don't have the money and the wherewithal to fight that efficient infringer then then their incentive to continue to be creative dissipates and that's what i think the problem is i think we have lost the vision um that originally prompted the constitutional provision and the original patent acts and even frankly is supposed to underlie the current patent act but i think we have lost it by not understanding the importance of protecting everybody who would be an inventor of course the argument on the other side is that uh you're being competent the inventor at the end of the day if they prevail they're compensated anyway why in the world would you take somebody else out of the market if they're forced by the court order uh to pay damages royalties and the like why isn't it better for the public at that point to allow multiple competitors to go on as long as the inventor gets the money again this is completely at odds with a con constitutional concept of an exclusive right but if the small inventor or whoever the university or whoever the inventor is gets compensated anyway why not let everybody do it at that point well that that sort of ignores the reality of litigation number one there's always threats in litigation in terms of what might happen what a jury might decide what a judge might decide what the court of appeals or the supreme court might decide and there's also the you know the um the the impact of having to live through very expensive you know it's like the baton death march sometimes when you're talking about complex litigation and not every small inventor has the wherewithal to withstand that without themselves going out of business before they ever can get to that award at the end of the day um so i think that that by saying that oh what's what's the problem if you can get the money at the end of the day the problem is is that you have um you have too many would-be inventors uh who can't withstand the system and and aren't able and it also frankly prevents settlements of cases i mean when i was a district court judge before ebay it was a lot easier to settle complex litigations including patent cases because that threat of an injunction hung over the heads of the alleged infringers without that there's no incentive to settle you can say because all you do at the end of the day is pay what would have been a reasonable royalty and and so i think that it really does impact uh certainly the smaller inventors yeah paradoxically it actually has made the system more expensive and more complicated not less and but before i turn to dave kapos on a similar issue let me just add a perspective here with an answer to my own question as to what's wrong with it which is one of the main points of the patent system as judge o'malley said is to enable everyone to participate in particular it enables the disruptive technologies on the edges and those are ultimately the ones on the grand scale that move us forward it it enables the little guy the upstart to compete against the established firms it enables capital to flow to the new small companies to compete against the established firms even if you compensate with dollars and you allow everyone to compete at that point then these step you haven't you haven't enabled the upstart to compete against the established firm because the established firm will then just go ahead and do it and therefore because it has greater advantages in uh capital size marketing history and so on and that in the in the end removed the original incentive of the start of the upstart to begin with um so you know i personally think remembering the constitutional premise here is critically important on the trademark side we passed part of the trademark modernization act in december of 2020 we passed the statute that restores the presumption to an injunction uh in the in trademark cases uh congress here with uh might be interested in attending to the same or similar issue on the patent side you did mention i just want to say one more thing you did mention public interest and um there there is an ability to to say or there always had been an ability to say that the public interest is such that an injunction should not issue even in in situations where they're direct competitors where for instance the alleged infringers product is is greatly beneficial to the public like an amazing new drug and and actually works better than the patent holders drug in those instances the court does have the discretion to deny the injunction despite the direct competition and and to then say but we will make sure that the patent holder is benefited as we allow the competition to go forward so it's not that the public interest doesn't come into play and it's not that the public interest wouldn't have already been a factor for the court to consider pre-ebay but it's that for some reason we assume the public interest is that everybody should be able to to compete completely freely with each other regardless of the extent to which they are essentially taking each other's rights right um excellent points thank you judge let me turn to uh director capos they've a special category of patents or a category of patents to whom the injunction discussion applies uh especially so nowadays is what's called standard essential patents so rather than me setting the stage why don't i turn to you dave and maybe you can explain a little bit what those types what they are standard essential patents why they're important to the economy and what is the current i.p related issue that the country should address yeah well thanks first of all thanks andre for inviting me to this program and thanks to the um csis folks for uh setting this up it's really super important um and a great discussion so um uh standards of course are ubiquitous um we plug our plugs into the wall and and uh uh uh enable our railroad cars to run on tracks all over the world uh because of standard standards have been around for hundreds of years but in recent years standards have become the subject of innovation and have extended themselves into areas uh that are bringing together innovators and putting innovators on common platforms and we call those innovation driven standards and of course where you've got innovation you've got intellectual property in particular patents and so about a generation or so ago um standards and patents started coming into contact with with one another more and more and the court started getting involved and that's what andre is referring to when he mentions seps and the ip issues that come up with seps and of course what gets complicated is that the standard setting process brings competitors together which introduces natural antitrust concerns and to ameliorate those more than a generation ago um uh standard setting organizations and what's now known as sdo standard development organizations began requiring the participants to make what they call fran commitments those are commitments that they would license their patents on fair reasonable and non-discriminatory terms and there's been a tremendous amount of litigation over the years um around many issues surrounding the fran debate so that's sort of a background on what gets us to this point what i would say turning to the uh the topic of the day of you know what what what have the hot issues been and what are the hot issues now and how do we look to the future involving scps and innovation driven standards what i would say is that first of all we need to understand that standards-driven innovation has created the most dynamic a business model that the earth that our planet has ever known it has created ecosystems that produce public benefit welfare for real humans at all levels of all economies and some would say even disproportionately in the least developed economies created opportunities of truly monumental perform proportions so i start by by stating i don't think i have to assert because i think it's now obvious that um standards based innovation ecosystems and i take the 5g in innovation ecosystem which sits on the shoulders of the 4g and lte innovation ecosystems that power our smartphones and i happen to have mine right here um as being you know absolutely perfect examples of the enormous spillover public benefit that results from encouraging innovators to contribute their innovations to standards the foundation of standards are the innovators and the innovations that they i would tell you bravely um put into the standards for their competitors to use and get equal benefit to them on the basis of maybe in the future if the standard is successful and their patents can be upheld maybe getting part of their uh of their investment back so that they can invest it in the next standard so it's a rather brave step and i think one that we should applaud that the innovators to the standards make um there has been a lot of progress in resolving the disputes that have crept up over the last generation at this intersection between standards and patents there was a belief that patent holders sap standard essential patent holders engaged in rampant acts of what's called hold up using their patents to hold up a captive industry that had agreed to implement the standard but we have since found out because a generation of data became available that the bigger problem is hold out which is these well-heeled implementers um companies with extremely deep pockets that judge o'malley and andre have referred to as those who engage in efficient infringement and effectively if you will thumb their noses to the patent holders the sep um holders and say look you can't get an injunction against me i'm just going to infringe your patent and the best you're going to do in court after three four or five years and after you spend 10 20 or 30 million dollars is maybe you'll win and you'll get an award of damages that what was what i was going to have to pay you now anyway but i get to use the money in the meantime take some shots at your patent i'm never going to have to pay you interest from today equal to the value of of my time use of the money so of course i'd be committing malpractice if i didn't recommend my ceo and my board that i infringe your patent that i delay delay delay and hold out um and maybe not pay at all or at worst pay later so what we've learned is that the real problem is not hold up but hold out and it's nice to have the facts and to have the truth on that there was a big issue about licensing level should we license at the so-called the component level or the level of the smaller saleable patent practicing unit and thank you to the ninth circuit um we have learned the answer to that question which is no the patent holder is entitled the license at whatever efficient level it wants to license which in the case of 5g tends to be the handset level there was the issue of royalty stacking we were told um by smart academics that the royalty stack would become unsustainable and would overwhelm the scp industry well data shows that that didn't happen either the royalty stack has stayed about the same for now more than a generation there was an issue of um of injunctive relief which judge o'malley and andre have already talked about quite a bit and um a view that injunctive relief should absolutely not be available in the case involving standard essential patents well thank you to um andre and macon del rahim and and while kopan during the last administration we got clear guidance in um a new uh uh policy from the three agencies involved uh nist in commerce uspto of course and the department of justice antitrust division that no um injunctions should be available for scps using the very same factors that are used for any other kind of um of patent so we've really settled a lot of issues in a very constructive and appropriate way all right welcome back everybody uh with apologies uh there was apparently a uh technical issue with the uh webcast um uh we are back and uh we were in the middle of uh uh dave kappas's uh discussion of standard essential patents uh go ahead dave okay thanks andre it was a good place for a break actually because i was just transitioning and saying briefly i wanted to come back to your charge to us and mention a few of the current hot issues because while a lot has been resolved um nicely by the courts as well as the administration the last administration about scps there are some current hud issues i would say global royalty rate setting is a major issue right now probably the major issue with courts all over the world competing to be the royalty rate setters for seps and this has spawned an issue of global form shopping because if you could be in the court you like you can get the rate set the way you like them and that in turn has spawned a spate of anti-suit and anti-anti-suit injunctions particularly involving chinese courts in the province of of wuhan versus courts in india courts in germany in courts in the uk and courts in the u.s so there's a lot to be done still in that area we can talk about it to the extent folks want in the q a but then lastly looking forward i would say if there's anything we've learned in the last generation it's that facts count getting the facts enables us to make good policy not getting uh not making policy based on anecdote or n of one you know one thing happens one time and we suddenly go and make policy based on that and then perhaps most importantly celebrating innovation and andre to your point the fact that innovation doesn't just happen it happens because of incentives and our patent system is the incentive and it works the same way for sep based innovation as it does for any other kind of innovation so we need to celebrate innovation and recognize that the innovators are good guys and we need to most importantly avoid backsliding because there are calls now with all the attacks on the ip system to move backwards and to go back to those debates of the last decade and even 20 years ago and we can't let ourselves do that we've learned from those debates the courts have made good decisions policymakers have good decisions we need to move forward so i'll stop there thanks andre well thanks today for very insightful comments and uh look uh it uh when it comes to standards based innovation as you have indicated dave it's hard to underestimate and hard to uh over overest hard to overemphasize apologies how important it is for the technologies of the future because when we're talking about telecom 5g 6g and beyond artificial intelligence more and more these are based on standards and if the american system does not provide the appropriate level of protection and investment and incentives especially relative to our competitive competitors outside other systems then american-based innovation will will not be able to fire on all cylinders as we have said and not be able to maximize itself there's a question in the q a or was before the interruption there was a question as to why is that important to the united states why does the united states have to be first well look i mean the fact of the matter is and i'll be blunt if i have a choice between for this particular example standards-based technologies that are driven by the chinese communist party versus being driven by american free market enterprise you know color me picky but i pick the united states and i pick american innovators and i would rather live in a world where technology and the standards where the american innovation system has a meaningful participation uh so um uh leaving at that so that is a critically important area but now let me turn to the last major point that's very very hot and let's go to judge judge michelle and let me ask you judge about an area called patentable subject matter which means effectively what creations by human beings are subject to the patent system and which creations are not subject by to the patent system for example fine arts paintings songs those get copyright protection whatever but they don't get patent protection uh certainly industrial equipment and the like it's supposed to get patent protection but some areas are very gray and this is critically important the statute that defines those boundaries was written in 1793 by jefferson and madison has not changed since so it's left the courts to interpret it and what's the problem with that judge and uh what would be the proposed solution well the problem is that the supreme court in the last decade has greatly expanded judge made exceptions to eligibility for inventions falling in the four categories specified by congress in the relevant section section 101 and not only have they expanded the exception so that some technologies like medical diagnostic methods are almost per se not eligible and therefore lose the incentive of of the power of patents to justify the investments but in other areas the the recent decisions have created so much uncertainty that many decision makers corporate executives venture capitalists inventors and others no longer consider patents reliable enough to justify making these risky investments which are slow to mature and which usually have to be large and repeated so it has huge economic consequences which i'll uh summarize in a minute but first let me emphasize that before the last decade for over a hundred years there was a relatively benign stable law of eligibility coming out of the supreme court and then suddenly in 2012 in a case referred to as mayo for short the supreme court upended that stable predictable eligibility regime and substituted a regime that's vague highly subjective impossible for adjudicators at all levels to apply consistently and this has caused i think grave harm to our innovation ecosystem and it also has put us at big disadvantage compared to global competitors because while the united states supreme court was shrinking eligibility and muddying the waters all of the countries in europe and major countries in asia including china we're widening and clarifying eligibility so we've put ourselves at a disadvantage compared to our past but also a present disadvantage compared to our rivals so we have a regime now that's highly unpredictable the outcomes are uh not only unpredictable but many are inconsistent with one another so patents are no longer trusted by those who have to commit the money whether it's corporate money or outside investor money like from venture capitalists and this has to shrink the incentive to invest which is the fuel that drives the innovation ecosystem to begin with and there's already considerable evidence that many smaller companies in the biotech sector and computer implemented innovations uh have gone out of business or barely limping along particularly smaller companies startups universities hospitals research institutes engineering firms and the like and as a result of this new regime totally judge made with no real insight or prediction into the practical economic consequences the country is now in my view confronted with seven different harms at the macro level harm number one is investment capital is beginning to flee away from real technology to use is not dependent on patents like entertainment building casinos and the like and capital is beginning to fl flee abroad to rival countries that have wider and clearer eligibility laws and stronger enforcement systems like europe particularly germany but many others as well and increasingly even china so we we are suffering compared to rivals and compared to our own needs medical diagnostic tests are so important including to combat the ongoing pandemic but we badly handicapped that industry almost destroyed it over the last decade they made a quick recovery under the pressure of the pandemic which is a credit to those firms but they shouldn't have had to start from a dead stand still so [Music] the second problem is that the eligibility law is now frozen in place because the supreme court has refused to revisit its 2012 mayo case or 2014 case known as alice even though every year it's had large numbers of requests to revisit and revise their eligibility law more than 60 such petitions uh yet another uh harm mentioned earlier is that in the 10 advanced technologies of the 21st century artificial intelligence and the rest enumerated earlier we're now at severe risk of losing out to china that's investing massively while we're investing less as seen for example with regard to computer chips also known as semiconductors the the proportion of venture capital presently invested in chips out of all the total vc investment is now about 1 7 of what it was a decade ago so we're suffering in the chip area because of eligibility law as well as other problems and of course meanwhile china not only massively investing but making great strides technologically and working hard to realize its promise in its made in china 2025 plan to surpass the u.s and all 10 of the advanced technologies of the 21st century and even national security is now threatened as was recognized by the april 2021 report of the national security commission on artificial intelligence so we have problems across the board it was interesting to me that at a recent senate hearing 45 true experts on innovation policy and patent law testified and out of the 45 40 40 out of 45 agreed that eligibility law given to us by the supreme court was a mess was chaotic was counterproductive and needed to be fixed but unfortunately the congress has yet to act and finally the combined effect of the restriction on injunctions the repeat attacks on patents and the patent trial and appeal board have compounded the problem of eligibility law of being such a mess and of course the actors whether it's congress or the supreme court or others were not able to predict all the effects and we've had huge unintended and very harmful consequences so in my view adjustments need to be made need to be made urgently and it really is a matter of national economic technological and security imperative so andre that's the summary of the sad state of u.s law of eligibility and its many harmful practical impacts that threaten the future of our country and i hope they get fixed promptly thank you uh thank you judge michelle and look i said in my opening comments that u.s leadership needs to realize uh that we are perhaps in a new sputnik moment here somebody needs to rise to the occasion and take the uh and take a leading role to uh to lead the united states in the right direction and the effects are concrete what judge michelle just said about the effects surrounding eligibility law on silicon development manufacturing in the united states look what is happening right now there is no reason for the united states the inventor of silicon technology in the 20th century we have a a whole valley called silicon valley um for example for us to have a shortage to the effect that uh major manufacturers have to close down plans should be a wake-up call and it's not just this as judge michelle mentioned uh medical technologies of the highest importance to human health quantum computing and the like this is the time that the ship needs to be righted um question though is where is that leadership gonna come from uh let me uh ask dave capos if you have some thoughts uh on that question where do we get the leadership to change this and i ask you in particular because you're at the crux at the last very significant uh change in patent law as we mentioned at the beginning of the program the aia is there the wherewithal are there leaders here now they can affect similar or even bigger changes yeah great question andre so first of all i think the administration now that needs to get involved the same way that you were involved and made changes during your administration and you know the rest of us um we need a leader of the uspto and with all respect of course to drew who i absolutely love we need a political confirmed leader um who can uh you know carry the the weight of the administration um and it's going to be very difficult until we get that uh but i think that that that once we get that leadership we you know we can make progress um i also think that it's important that we have leadership from doj particularly in that antitrust slot um and uh so we'll see how that goes the other place where we need leadership from is congress and fortunately we've had senators like senator tillis and senator coons who've been tremendous advocates for change and improvement um but of course as judge michelle points out you know no one's been able to get it done yet um i think you know the last component where leadership is needed um is from the private sector from the companies that are affected in the industries that are affected to step forward more assertively more positively and and tell their story and that to me is is remains a somewhat of a missing ingredient and uh not to forget leadership from the white house itself again in the 1960s 60s president kennedy standing up in front of the nation challenging the nation uh to a singular goal when it comes to space-based innovation that type of a call uh coming from the white house um uh i believe is urgently needed um and for that now technologies are more complex now there's many more issues as we're hearing in this on this program alone and throughout the week um and some of it is more amorphous right it's harder to see artificial intelligence and quantum computing than satellites you know which you can visualize but nevertheless um in order to enable that um you know an innovation policy uh with a call to action from the highest leadership in the land um whether it's in congress or in the white house um i think would make a big difference given the time i want to turn to uh one last topic here and give drew the um opportunity to speak drew you can comment on any of this stuff that's been said since including 101 if if you'd like but um there was a question in the chat about uh diversity of innovation um whether it's in the indigenous population or as it's in one of the questions right now or just in general i happen to believe this is critically important i think this has been important for the pto for many many years certainly going back to dave's time but even before but now in particular as we're facing these challenges when we need more americans involved talk a little bit about not just the importance of that but what are the some of the practical um uh actions that can be taken by the administration or frankly anyone else in government sure thanks andre um actually before i i mentioned an answer to your question on diversity i wanted to to circle back to something dave just said on subject matter eligibility and i i absolutely agree that um this is an area that needs to be addressed and and people need to show leadership but i just want to make one sort of nuanced point um i think people need to to show leadership but that leadership is leadership of compromise um just like i was talking about some of the patent trial and appeal board disagreements there are subject matter eligibility has people with very strong disagreements on what the laws should be and what we really need to do is to have people who are who are uh not afraid to compromise and find a solution that's good for the country because i i fear that when people hear people like dave and myself and others talk about leadership they think leadership to push the position i believe in at the cost event of moving forward and i think we're so passionate about the positions we believe in i understand that but sometimes a failure to compromise makes us stagnant and we don't move forward and that's exactly what's happened in 101 so i think the more compromise the better anyway to the point about diversity i know their question came in earlier in the q a about you know why is leadership important why isn't innovation important and and and innovation is is the more innovation we have it's it's the the livelihood of the country it's the financial well-being and the general well-being of the country so so i can't understand why it again overstayed rather why it's so important to have uh innovation throughout the country and what we're seeing is we're we're not seeing a wide swath of innovation we've done some studies show women are underrepresented we know there's many underrepresented groups so it is critical for this country to be able to expand the the the number of people who are uh innovating from sectors that and underrepresented groups that really haven't been in front of pto and haven't been uh innovators in the past what we're doing at pto for this on you and you asked for some concrete steps uh we are working on a national strategy for uh increasing uh innovation to underrepresented groups throughout the country it's it's something where we're i'm personally very excited about i know andre this started uh with you at the bto and i know we had department of commerce leadership then and we have department of commerce leadership now for this issue and we are very excited about uh moving forward and convening the strategy by the way the strategy is being worked on and created by a combination of public and private sector people uh working together and i know we're running out of time i'll just mention one more uh quick uh way we're addressing this is we've been very cognizant of pto about where we do our outreach i mentioned our regional offices but we've actually started to capture by zip code where we're doing outreach to be able to recognize where we are not focused where we should be focused more so that we're letting people who don't have the background in ip learn more about the value of ip because it is for the good of the country just one point because i think these it's interesting how these two last topics tied together um there was a a study out of um stanford uh mark lemley and his research assistant analyzed all the alice cases over about a 10-year period and their conclusion was that that those um groups that were most impacted by uh alice disqualifications or 101 disqualifications were individual inventors and individuals started com inventor started companies in other words it's not the you know the the evil patent trolls or it's not the large corporations who are losing out the most because of the 101 problem it's those very individual inventors that that the pto wants to target um and the the other point is as it relates to david's point that that there needs to be leadership from private industry part of the problem is that is that jonathan barnett has recently written a book that analyzes the incentives uh to innovate and he said part of the problem is the largest corporations that that have that are very highly vertically integrated and structured have the ability to substitute for patent protection with other uh economies of scale and other other large things which means that the only innovation we're going to have is is just sort of making the same products we have somewhat better rather than finding new sparks of genius that that that we need to be looking for thank you judge o'malley we are uh basically out of time um uh but i want to close with uh a round uh of uh the last thoughts from each one of you can be very short uh could be rapid fire um so uh last comment or last thought from each one of you basically answering the top level question of uh if you had to pick one thing that needs the united states needs to do in order to utilize the intellectual property system to its maximum potential to effect innovation growth and innovation leadership in the united states what would it be and i know that we talked about a lot of issues uh and you can say anything you want in your last thoughts it's just one suggestion uh this question for me that you don't have to answer this exactly but if we can leave the legislators that out there that might be watching this or industry leaders or administrative leaders that might be watching this with an action item um what would that be so um uh let's see let me start with uh uh in in reverse order with uh with the way we went uh at the beginning so let me start with judge michelle andre i think that the important thing for the country going forward is for congress to retake its appropriate role as the framer of national innovation and economic policy and not leave it to the courts who are ill-equipped have not done it well can't do it well and it's undemocratic for unelected judges to be making broad economic and innovation policy anyway so congress has to take back control jointly with the other so-called political branch of government the administration and let the courts adjudicate and not legislate thank you judge michelle dave kappas yeah thanks andre and i would add to that to say and on the administration side we need a national innovation strategy thank you um judge o'malley well i'm gonna i'm gonna be a little bit more granular because i'd like to think that if i pick one thing we might get it and i think that we need to do like we did in the trademark context and we need to change the law as it relates to the right to exclude or better yet return the law to where it was as it relates to the right to exclude and i think that's something that congress could easily do right thank you very much and finally uh drew i would say educate educate educate we need to really increase how we educate people and i'm not just talking about patent lawyers i'm talking about we need to move ip education and the value of ip way earlier in the process as early as we can go even to elementary school we need to build it into the fabric of our of our entire educational process uh thank you so much such great thoughts from all of you thank you so much for taking the time to uh to be with us and share your your thoughts um for the two of you currently serving thank you for your continued service to the united states um for the two of you who uh served and are now in uh private practice thank you for the continued engagement in the ip system and um and continuing to lead uh in the innovation economy uh thank you to all the audience and for being with us and once again to csis for putting this on thanks andre thank you thank you [Music] you

Channel: Center for Strategic & International Studies

Views: 311

Rating: 5 out of 5

Keywords: Center for Strategic and International Studies, CSIS, bipartisan, policy, foreign relations, national security, think tank, politics

Id: MPKg1uEj0l4

Length: 88min 36sec (5316 seconds)

Published: Tue Sep 14 2021