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FTC Issues 300-Page Report on IP Marketplace; Provides over 50 Recommendations for Improving Patent System

By Peter Zura

In 2008-2009, the Federal Trade Commission (FTC) held 8 days of hearings across the country on the U.S. patent system and its effect on innovation.  After compiling public comments and conducting additional research, the FTC released a new report today titled The Evolving IP Marketplace: Aligning Patent Notice and Remedies With Competition: A Report of the Federal Trade Commission.

The report supplements the earlier (2003) report titled To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, and continues to maintain many of the criticisms of the patent system, namely, (1) too many patents are ambiguous, (2) too many patents have an indeterminate scope, (3) too many patentees are exploiting the courts solely for monetary purposes, and (4) too many infringers are paying "excessive" awards.

A fair amount of the 2011 report is a bit "old hat" in that it rehashes the same issues discussed in the 2003 report.  However, the new report places a greater focus on patent "notice" and asks for a much harder line on patentees in the area of section 112 and on defining claim scope.

Some of the recommendations are benign

"[i]n assessing indefiniteness, the PTO should adhere to the principle articulated in Miyazaki,"

but then slide into the slightly odd

"patent applicants [should] be required either (i) to designate a dictionary for use in assigning meaning to terms not defined in the application or (ii) to acknowledge acceptance of a PTO designated default dictionary for that purpose,"

and ultimately the really odd:

"[d]eterminations regarding whether a disclosure requires undue experimentation should give recognition to the competitive significance of the time required for experimentation; when product life-cycles are short, greater disclosures may be needed in order to be competitively meaningful."

As before, the FTC is urging that the USPTO to employ more "Rule 105" Requirements for Information (see MPEP 704.10), which allows the PTO to require the submission of information ?reasonably necessary to properly examine or treat the matter? and also require information ?reasonably calculated to lead to such relevant information."

On the damages side, the FTC again calls for a "prior art subtraction" in damages, and also recommends the application of a "prior use" (or "intervening rights") defense in the cases of continuations.  Also, instead of prohibiting continuations outright, the FTC recommends

[T]he enactment of legislation to protect from infringement actions third parties who (i) infringe patents only because of claim amendments (or new claims) following a continuation and (ii) developed, used, or made substantial preparation for using, the relevant product or process before the amended (or newly added) claims were published.

Of course, there are many proposals in this report that are sure to spark considerable debate.  One interesting side note is that the FTC has altered its nomenclature to distinguish between NPE's and "patent assertion entities":

This report uses the term ?patent assertion entity? rather than the more common ?non-practicing entity? (NPE) to refer to firms whose business model focuses on purchasing and asserting patents. Taken literally, the term NPE encompasses patent owners that primarily seek to develop and transfer technology, such as universities and semiconductor design houses. Patent assertion entities do not include this latter group.

Needless to say, the FTC is not a big fan of PAEs:

The business model of PAEs focuses on purchasing and asserting patents against manufacturers already using the technology, rather than developing and transferring technology.  Some argue that PAEs encourage innovation by compensating inventors, but this argument ignores the fact that invention is only the first step in a long process of innovation. Even if PAEs arguably encourage invention, they can deter innovation by raising costs and risks without making a technological contribution.

Read/download a full copy of the report here (link)

Full post as published by Two-Seventy-One Patent Blog on March 07, 2011 (boomark / email).