FTC Issues Report on How to Promote Innovation Through Balancing Competition with Patent Law and Policy

The Federal Trade Commission today issued its report on how to promote innovation by finding the proper balance of competition and patent law and policy. Although both competition in markets and patents for inventors can work together to foster innovation, the report states that each policy requires a proper balance with the other to do so. “Consumers and innovators win when patents and competition policy are aligned in the proper balance. Although questionable patents can harm competition and innovation, valid patents work well with competition to promote innovation. This Report analyzes and makes recommendations for the patent system to maintain the proper balance with competition,” said Timothy J. Muris, FTC Chairman.

Today’s report – which makes recommendations for the patent system – is the first of two reports about how to maintain that balance. A forthcoming second report by the FTC and the Antitrust Division of the Department of Justice (DOJ) will make similar recommendations for antitrust law.

Among the ten recommendations of today’s report, the FTC proposes legislative and regulatory changes to improve patent quality. Patents of questionable validity can slow further innovation and raise costs to consumers. Specifically, the report recommends:

• Creating a new administrative procedure that will make it easier for firms to challenge a patent’s validity at the U.S. Patent and Trademark Office (PTO), without having to raise an expensive and time-consuming federal court challenge; and
   
• Allowing courts to find patents invalid based on the preponderance of the evidence, without having to find that clear and convincing evidence compels that result. The current standard of “clear and convincing evidence” undermines courts’ ability to weed
  out questionable patents. This is especially troubling, since certain PTO procedures and rules tend to favor the issuance of patents.

The report also recommends that Congress limit the award of treble damages for willful patent infringement. Some hearings participants explained that they do not read their competitors’ patents because of concern that learning about others’ innovations will expose them to treble damages infringement liability. Failure to read competitors’ patents, however, can harm innovation and competition. The FTC’s recommended legislative change would allow firms to
read patents to learn about new innovations and to survey the patent landscape to assess potential infringement issues, yet would retain a viable willfulness doctrine that protects both wronged patentees and competition.

The FTC also outlines in the report several steps it will take to increase communication between the antitrust enforcement agencies such as the FTC and the PTO. In particular, the FTC will:

• Continue to file amicus briefs in important patent cases that affect competition;
   
• Ask the PTO Director in appropriate circumstances to reexamine questionable patents that raise competitive concerns; and
   
• Urge the creation of a Liaison Panel between the FTC, the DOJ, and the PTO to permit the exchange of policy views on important issues as they arise.

Today’s report stems from hearings that the FTC and the DOJ convened in February 2002. The hearings took place over 24 days and involved more than 300 panelists. The antitrust agencies heard perspectives from business representatives from large and small firms, the independent inventor community, leading patent and antitrust organizations and practitioners, and scholars in economics and patent and antitrust law. Business representatives were mostly from high-tech industries: pharmaceuticals, biotechnology, computer hardware and software, and the Internet. In addition, the FTC received about 100 written submissions.