FTC Testifies on Patent Reform Recommendations

The Federal Trade Commission told a subcommittee of the House Judiciary Committee today that patent policy stimulates innovation by providing an incentive to develop and commercialize inventions, but that invalid or questionable patents can increase costs and hinder competition. Implementing patent reform recommendations the agency made in its 2003 report, “To Promote Innovation: The Proper Balance of Patent and Competition Law and Policy,” would increase the likelihood that issued patents are valid, and that challenges to invalid patents will proceed more efficiently, the agency testified.

In testimony before the Subcommittee on Courts, the Internet and Intellectual Property, Suzanne Michel, Deputy Assistant Director for Policy and Coordination in the FTC’s Bureau of Competition, said that the agency’s recommendations were part of the report, which focused on high-technology industries, including the pharmaceutical, biotechnology, and computer industries, with input from large and small businesses, inventors, patent and antitrust organizations, and academics in economics and antitrust and patent law.

“Errors or systematic biases in how one policy’s rules are interpreted and applied disrupts the other policy’s effectiveness,” the testimony stated, noting that both patent and competition policies can spur the development of new products and services.

According to the testimony, patents of questionable quality can distort competition, innovation, and the marketplace in at least four ways: 1) They may slow innovation by discouraging companies from conducting research and development in areas that the patent improperly covers; 2) patents that should not have been granted raise costs when they are challenged in litigation; 3) questionable patents may raise costs by inducing unnecessary licensing; and 4) firms facing overlapping patent rights may spend resources obtaining “defensive patents,” not to protect their own innovation from use by others, but to have “bargaining chips” to obtain access to others’ patents through a cross-license, or to counter allegations of infringement.

As described in the testimony, the FTC’s report made 10 recommendations, including the following highlights:

To increase a challenger’s ability to eliminate questionable patents, legislation should be enacted to create a new administrative procedure to allow post-grant review of and opposition to a patent after it is issued.

To promote the disclosure function of patents, legislation should be enacted to require, as a predicate for liability for willful infringement, either written notice of infringement from the patentee or deliberate copying of the patentee’s invention, knowing it to be patented.

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 5-0. A copy of the testimony can be found on the FTC’s Web site and as a link to this press release.

Copies of the Commission’s testimony are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

MEDIA CONTACT:

Frank Dorman,
Office of Public Affairs
202-326-2674

(FTC File No. P022101)