Washington, 20 Apr 2004

To enhance the vitality and overall operation of the nation's patent system, federal officials should take decisive steps to increase the system's flexibility, openness, and reliability, says a new report from the National Academies' National Research Council. Authorities also should provide the U.S. Patent and Trademark Office (USPTO) with more funding for work force and technology improvements.

Continued innovation in the development of new technologies and products in this country suggests that the current patent system does not require a major overhaul, said the committee that wrote the report. However, economic and legal transitions have strained the system in recent decades, making clear the need for change. For example, the costs of acquiring patents, securing licenses to access patented technology, and contesting alleged infringements in court are rising rapidly. Congress should consider legislation that would create an "open review procedure" for third parties to challenge recently issued patents before the USPTO's administrative patent judges, who would resolve questions about a given patent's validity. If administrative judges handled these validity questions, then federal district courts could focus on patent-infringement issues. The patent office would need additional funding to implement the recommended review system. While this measure would help reduce court costs, its chief benefits would be more rigorous application of high standards in the issuing of patents and quicker resolution of disputes, the report notes.

The committee also emphasized the need for more research on how the patent system influences innovation in a wide variety of sectors. The roles and benefits of patents vary greatly from one technology or industry to another, but there has been little systematic investigation of the differences.

"Patents have the potential to affect innovation in more economic sectors than any other form of intellectual property protection, so it's important to periodically examine the system to see whether adjustments should be made," said committee co-chair Richard Levin, president, Yale University, New Haven, Conn.

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Room for Improvement

Patents on novel, useful inventions -- and copyrights on works of art, literature, and other forms of expression -- are issued on the assumption that although firms and individuals have many incentives to create, some innovations are more likely to be forthcoming and attract investment if inventors are granted exclusive ownership rights. By temporarily impeding imitators, these rights give inventors opportunities to recoup initial investments. In exchange for periods of exclusivity, inventors must disclose the knowledge underlying their creations ¨C knowledge that may in turn lead to further innovation or discovery. The committee ¨C made up of experts in areas such as biotechnology, intellectual-property law, engineering, business management, pharmaceuticals, and telecommunications ¨C recommended several measures to maintain the patent system's strength in some areas, and to enhance it in others.

Foremost, it should continue to accommodate new technologies. It also should maintain mechanisms that allow the patent office to tailor evaluations of cutting-edge technologies to meet unusual circumstances surrounding their creation or proposed uses. Among the mechanisms that should be fully exploited is the USPTO's development of more "examination guidelines" for new technologies. These guidelines, which gauge the originality and usefulness of new creations, currently exist for some inventions, including those that involve genes, superconductivity, and computer programs. In creating more guidelines, the USPTO should seek advice from a wide range of sources, and keep public records of advice that is submitted, as a way to inform the process. The record of how guidelines were developed should be part of the official documentation in any appellate court cases regarding patent decisions.

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The report also urges the USPTO to strenuously observe the statutory requirement known as the "nonobviousness standard," which says that in order to qualify for a patent, an invention cannot be obvious to a person of ordinary skill in a given area.

Compared with previous decades, patents are now more zealously sought, vigorously asserted, and aggressively enforced, the report notes. The sheer volume of applications to the USPTO ¨C more than 300,000 each year ¨C threatens to overwhelm the patent-examination corps, potentially degrading the quality of its work or creating huge backlogs of pending cases. The patent office needs additional resources to hire and train more examiners, and to implement information technology that would boost its processing capabilities. The office also should create strategies to assess its management practices and proposed improvements; to provide early warnings of trends in patent applications for new technologies; and to conduct consistent and reputable reviews of its performance and that of its examiners.

The committee made several recommendations regarding legal issues. For example, certain research uses of patented inventions should receive a limited degree of protection from liability for patent infringement, the report says. In 2002, the federal circuit court ruled that scientific research is part of the "business" of universities and is not protected from liability. Prior to that decision, many in the research community presumed the existence of a research exemption and acted accordingly. Congress should consider legislation to shield some research uses of patented inventions. In the meantime, the federal Office of Management and Budget, along with federal agencies that sponsor research, should consider extending a level of legal protection known as "authorization and consent" to institutions or organizations conducting federally supported research. This action would not curtail the legal rights of patent holders, but it would shift infringement liability to the government.

Among the factors that increase the cost and decrease the predictability of patent-infringement litigation are rules calling for formal assessments of a party's state of mind at the time of a patent application filing or an alleged infringement. These rules ¨C which entail expensive, formal inquiries and demand an evaluation that is ultimately subjective ¨C should be abolished or significantly modified, the committee said.

Greater compatibility among the U.S. patent system and those of the European Union and Japan could more easily facilitate trade and investment, and therefore innovation. This objective should be pursued by all relevant governments, the report says. As a key part of this effort, the United States should shift to a "first-inventor-to-file" policy. The United States is the only country whose patent system does not give priority to the first inventor to publicly disclose an invention and seek patent protection, but rather gives priority to the first person to conceive an invention or translate it into practical applications.

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More Research Needed

It is difficult to comprehensively evaluate the patent system's impact on innovation, especially across a range of industries, because of an inadequate research base, the committee said. Closing research gaps should be a priority.

However, the report does offer seven criteria for evaluating whether the system is effective. These criteria are widely thought to be important conditions for innovation and are in some degree measurable, the committee said.

• The patent system should accommodate new technologies.
• The system should reward only inventions that meet statutory tests of novelty and utility, and that are not obvious to contemporaries skilled in the relevant technology.
• Descriptions of patented inventions should be as complete, clear, and accessible as possible; and in all cases, applications should be published during patent examinations.
• Administrative and judicial decisions should be timely, and costs associated with them should be reasonable.
• Access to patented technologies should be available for research purposes and in the development of cumulative technologies, where one advance builds upon previous advances.
• Progress should be made in harmonizing the U.S., European, and Japanese patent-examination systems to reduce public and private transaction costs, and to facilitate trade, investment, and innovation.
• Similarly situated holders of intellectual property rights should enjoy the same benefits and be accountable for the same legal obligations.

"Ultimately, the test of a patent system is whether it enhances social welfare ¨C not only by encouraging invention and the dissemination of useful technical information, but also by providing incentives for investment in the commercialization of new technologies that promote economic growth, create jobs, and advance other social goals, such as good public health," said committee co-chair Mark B. Myers, visiting executive professor of management, Wharton School, University of Pennsylvania, Philadelphia.

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The study was sponsored by NASA, U.S. Department of Commerce, Andrew W. Mellon Foundation, Center for the Public Domain, Pharmacia Corp., Merck & Co. Inc., Procter & Gamble Co., and IBM. The National Research Council is the principal operating arm of the National Academy of Sciences and the National Academy of Engineering. It is a private, nonprofit institution that provides science and technology advice under a congressional charter. A committee roster follows.

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