FTC Chairman Explains That Innovation Requires a Proper Balance of Competition and Patent Law and Policy

Federal Trade Commission Chairman Timothy J. Muris today addressed the annual meeting of the American Intellectual Property Law Association (AIPLA) about the proper balance between marketplace competition and patent policy required to promote innovation. Muris discussed a recently issued FTC report, “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,” that offers recommendations for the patent system and describes the FTC’s plans and proposals to facilitate increased communication between antitrust agencies and patent institutions.

Muris first reported that hearings about the proper balance of competition and patent law and policy, convened by the FTC and the Department of Justice (DOJ) in February 2002, confirmed that both marketplace competition and patent policy can foster innovation that benefits consumers and the U.S. economy in general. Among other topics, the hearings addressed how to foster the patent system’s recognition of the value of marketplace competition. The hearings took place over 24 days, with more than 300 panelists from large and small firms, the independent inventor community, patent and antitrust organizations, and scholars in economics and patent and antitrust law, as well as 100 written submissions. The FTC’s report offers recommendations based on the information gleaned at the hearings.

Muris then discussed three of the 10 recommendations presented in the report, two of which concern the importance of patent quality. “Competition and consumers are not served if patents are inappropriately granted or if their scope is undeservedly broad,” Muris said. He stated that questionable patents may slow innovation and raise costs to businesses and consumers by discouraging firms from conducting research and development and inducing unnecessary licensing. “The Patent and Trademark Office (PTO) must protect the public against the issuance of invalid patents that add unnecessary costs and may confer market power, just as it should issue valid patents to encourage invention, disclosure, and commercial development,” Muris said.

The FTC recommends creation of a new administrative procedure that will make it easier for firms to challenge a patent’s validity without going through a costly, lengthy federal litigation process. Additionally, the FTC’s report recommends a change of current evidentiary requirements for firms seeking to invalidate a patent. Presently, courts require a firm to prove a patent’s invalidity by “clear and convincing” evidence. “This standard appears unjustified,” Muris said. The FTC believes this requirement undermines the courts’ ability to weed out questionable patents, and instead recommends that courts determine validity based on a “preponderance of the evidence.”

Finally, Muris discussed an FTC recommendation regarding treble damage liability for willful infringement. He explained that some participants in the FTC/DOJ hearings did not read their competitors’ patents because of concern that learning about other firms’ patents could expose them to treble damages. A failure to read rivals’ patents can jeopardize plans for a noninfringing business or research strategy, discourage the development of competition, and delay follow-on innovation that could derive from patent disclosures. The FTC recommends legislation requiring either actual, written notice of infringement from the patentee or deliberate copying of the patentee’s invention to pursue treble damage infringement liability. “The recommendation would permit firms to read patents for their disclosure value and to survey the patent landscape to assess potential infringement issues, yet retain a viable willfulness doctrine that protects both wronged patentees and competition,” Muris said.

Muris concluded by discussing steps the FTC will take to increase communication between antitrust agencies and patent institutions. Specifically, he stated that the FTC will renew the Commission’s commitment to serving the public interest by the filing of amicus briefs in important patent cases that can affect competition, as well as cases in which antitrust and patent law intersect. Additionally, in appropriate circumstances, the FTC will ask the PTO director to reexamine questionable patents that raise competitive concerns when a substantial new question of patentability exists. The FTC further proposes the establishment of a Liaison Panel between the antitrust agencies and the PTO, to facilitate communication between agencies when important issues arise, and an Office of Competition Advocacy within the PTO to advise PTO policymakers about the likely competitive impact and potential economic consequences of policy decisions. Finally, Muris stated that interagency communication could be improved if Congress amended the Patent Public Advisory Committee’s membership categories to include competition experts and economists.

“We look forward to working closely with the AIPLA, the PTO, and other patent organizations to increase communication and include all parties in discussion and implementation of the FTC’s recommendations,” Muris said. “Collectively we can work to maintain the proper balance between patents and competition, so that both doctrines continue to foster innovation and contribute to the growth of the U.S. economy.”