SPECIAL PRESENTATION THE INNOVATION ECONOMY: UNLEASHING INTELLECTUAL PROPERTY TO FUEL GROWTH AND CREATE JOBS

Transcription

1 SPECIAL PRESENTATION THE INNOVATION ECONOMY: UNLEASHING INTELLECTUAL PROPERTY TO FUEL GROWTH AND CREATE JOBS INTRODUCTORY REMARKS: SARAH ROSEN WARTELL, EXECUTIVE VICE PRESIDENT, CENTER FOR AMERICAN PROGRESS FEATURED SPEAKER: DAVID KAPPOS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE UNITED STATES PATENT AND TRADEMARK OFFICE 12:00 PM 1:00 PM WEDNESDAY, JUNE 2, 2010 TRANSCRIPT PROVIDED BY DC TRANSCRIPTION

2 MS. SARAH ROSEN WARTELL: Good afternoon everyone. Welcome to the Center for American Progress. I m Sarah Rosen Wartell. I m executive vice president and one of the founders of the center. And we here today are pleased and honored to have with us David Kappos, the under secretary of commerce for intellectual property and director of the U.S. Patent and Trademark Office. We are very excited that he s here today to share his insights on the power of IP to drive innovation and economy growth and more about his own agenda at the Patent and Trademark Office. We re grateful David could join us in part to talk about the larger question of how intellectual property and patents play a role in the economy and talk about some of the challenges that he found when he got to work. Everyone in this room certainly knows that we face a very serious employment challenge in the United States today. And while we ve begun to see some measured recovery in terms of GDP growth, job growth remains probably one of the single greatest challenges the administration faces in the long term. Unlike the oil spill that occupies the front pages of our newspapers every day, where we continue collectively to be searching for the single solution, creating jobs and returning to a kind of robust economy which offers a good opportunity and economic mobility for American families is not going to be solved with any one single solution. Instead, there are going to be a broad set of solutions. But it s clear that innovation and intellectual property is absolutely part of that solution set. Certainly, one resource that America has in spades is innovation. Few would disagree that education, ingenuity, entrepreneurialism are unique in the United States, in the global economy and have contributed enormously to our growth and our strength since the beginning of the last century. The government has had and continues to have a pivotal role in fostering an environment where innovation is nurtured and flourished. And a key part of the role, which David is here to discuss today, is protecting intellectual property. As President Obama laid out last year in the administration s Strategy for American Innovation, there are a number of ways to foster American innovation: improving our education, investing in renewable energy, and although it may be less glamorous than some of the other topics, a well functioning modernized Patent and Trademark Office and process is critical to keeping our innovation economy running in full tilt. And when this administration started, there was some work to do.

3 In late 2008, here at the center, we convened a stakeholders roundtable on these set of challenges that the Patent and Trademark Office faced and, to be frank, on some issues, this wide array of stakeholders had a lot of differences. But there was enormous consensus that there was great opportunity to take the reins at the PTO and transform it into an institution that really helped create served its stakeholders and created and engine of economic growth. The PTO office that this administration inherited was encumbered by a serious application backlogs, substantial waiting periods for patent review, out-of-date IT systems. Fortunately, the administration selected as a director someone who has fully taken the reins of the PTO and taken on this challenge of transforming it into a 21 st century performance-based government organization that can achieve the economic goals that I talked about earlier in my remarks. David Kappos has spent 20 years working and thinking about these questions. Before assuming his current responsibilities with the Commerce Department directing the U.S. Patent and Trademark Office and advising the president on IP issues, he served as vice president and assistant general counsel at IBM where he managed the company s patent and trademark portfolios. He s also served on the board of the American Intellectual Property Law Association and the Intellectual Property Owners Association. And so we, here at the center, are very excited and pleased to have David here with us today to share some thoughts about the agenda ahead. Please join me in welcoming him. (Applause.) SEC. DAVID KAPPOS: Okay, Sarah. Thank you very much for that nice introduction. It s quite a pleasure to join the team at CAP today, Center for American Progress, and to be able to talk about, as Sarah mentioned, our innovation agenda and some of the challenges that we have in our agency. I d like to start by thanking the Center for American Progress for having me in today and start by saying that our country stands at a very critical juncture right now in our economic evolution. Intellectual property certainly will play a critical role and will help to drive economic growth and economic renewal before us. As technological advances bring great change to the speed and complexity of American innovation, strong intellectual property protection, specifically, and its effective enforcement will unquestionably fuel innovation and help to jumpstart our economy. I think those are table stakes. We all get that in this room. Today, what I m going to speak about is the critical role of intellectual property in spurring innovation and in increasing our country s competitiveness in the global economy. The fact is that dynamic and efficient patent machinery, our United States Patent and Trademark Office, is essential to our economic wellbeing.

4 I ll address the ways in which the USPTO can better ensure that a well functioning patent system participates in our economic renewal, a patent system that enables small and medium-size businesses to secure the investment capital that they need in order to bring goods and services to the market, a patent system that helps create value and ensures cutting-edge research gets funded at our universities. And finally, I ll discuss the imperative for our government leaders, that s the executive branch, the Congress and the courts, to nurture an IP ecosystem that will promote innovation and that will secure America s economic wellbeing. So the economic success of the U.S. is deeply rooted in the history of American innovation. This country was founded by pioneers, people who developed new ways to cope with an unfamiliar environment, who cured diseases, who connected our country, who led the world into the age of flight. American innovators discovered the power of information technology and digital communications that brought unprecedented commerce, economic growth, and prosperity to our country and to the world. So our history indeed has been driven by innovation. And our economic security continues to depend on our ability to innovate and to compete in an innovation economy on a global scale. The key to economic success lies increasingly in innovative product and service development, and in intellectual property protection that creates value for innovation. IP is, in effect, the global currency of innovation. So in Southwest Michigan, one of the hardest areas hit by the recession, there s a company called Axle Tech, as an example. Axle tech International, a global manufacturer of machine, hardware with a significant patent portfolio upon which it depends heavily. Since it began as a spin-off in 2002, Axle Tech has more than doubled its workforce and it now employs more than 1,000 people. Take that as an example of a company that depends heavily on the patent system. Another example, a company called Zencore (sp), located outside Los Angeles, creates cutting edge biotherapeutics to treat cancer, inflammation and autoimmune diseases. Zencore uses patents to protect its proprietary design automation technology. Zencore CEO, Dr. Basil DeHyatt (ph) put it quite simply. He said, without patents, you cannot get funding; without funding, you cannot grow and create jobs. So these companies get the connection between a strong intellectual property system and things that Americans care about and need like healthcare, like jobs, like growth, like opportunity. And it s patent reliant industries like these that make up the most dynamic parts of our economy from nanotechnology to pharmaceuticals, from computers to biotech and from fiber optics to green technology. Timely and high-quality patents are critical to small businesses which create two out of every three American jobs. They re needed to foster research and development which requires capital and requires investment and

5 they re absolutely essential to attracting the capital needed to bring innovation to the marketplace. Today, as a share of gross economic value, the United States invests more in intangible assets than any of our major trading partners, and our intangible investments now exceed those of tangible assets by more than 20 percent. Now while IP protection fuels investment and growth, astute innovators and entrepreneurs see intellectual property as even more fundamental to value creation. They recognize that patents also serve as vehicles for the transfer and the diffusion of innovation. We re beginning to talk about markets and technology and markets and knowledge, and patents serve a critical function in those markets as well. They act as markers for those markets. They guide technologists on both sides of the IP transfer equation to the know-how and to the trade secrets required to ensure a successful transaction and subsequent introduction of products and services into the marketplace. Patents will continue to foster the movement of ideas to manufacture in the coming years, coming decades. And we at the USPTO are keenly aware of our responsibility in this regard. Last month, the United States Patent and Trademark Office was described in the Harvard Business Review as the biggest job creator you never heard of. As our country seeks to regain the eight million jobs lost during the recent recession, the USPTO is a great place to start, countless inventions that can spark new businesses are right here, right at the USPTO sitting in our backlog and reducing that backlog is one of Secretary Locke s and one of my highest priorities. Why is that? Well, because the backlog of more than 700,000 patent applications stands as a barrier to innovation and economic growth. Recent reports conclude that the backlog could ultimately cost the U.S. economy billions of dollars annually in foregone innovation alone, not to mention other costs of that backlog. The next laser, the next energy breakthrough or the next cure for some disease, all buried in the files of the USPTO, and that is simply not acceptable. So what are we doing about that? Well, first, we re working to improve how we measure and track quality of patent application review at our agency. Quality patent issuances, right, create certainty in the market and market certainty in turn facilitates growth so quality has a critical connection to where we want to take this agency. Second, we re reforming the USPTO to reflect the criticality of our economy and intellectual property to our economy and we re transforming the agency to match the fast pace of technology and innovation and ensure the highest possible quality review for all patent applications that we review. Okay. We re off to a credible start. We ve reengineered the way we motivate and monitor our corps of examiners, we redefine performance plans to measure the

6 importance of high-quality patent examination and backlog reduction, foster more communication between applicants and examiners to improve our quality and efficiency and we re working to build a new IT information technology infrastructure that will speed patent application processing and improve search quality. But most critically, to decrease pendency while improving the quality of our work product, we ve begun to recognize what companies and many other businesses such as the shipping business figured out a long time, that not all packages need to arrive at their destination at the same rate. Some require next-day service and some can take a week. It s clearly time for the USPTO, our nation s innovation agency, to adopt private sector business practices and offer market-driven services. We all know that patent applications like the inventions they protect very significantly and that patents, some patents, need to be issued more quickly than others. Different firms and even different applications from an individual firm have varying needs for different products and services when it comes to processing speeds. So the USPTO s been experiment with different various ways of enabling applicants to receive accelerated review of technologies in areas that are priorities to the Obama administration like green technology that is essential to battling climate change. And we ll begin considering accelerating review in other categories of innovation as well, categories that are also vital to our national interest. We ve been working to implement a program that allows applicants to decide what work need to be prioritized at the USPTO and that s called our Project Exchange. We recently announced an expansion to that project giving all applicants with multiple filings greater control over the priority in which their applications are examined enabling, therefore, priority applications to be processed on a priority or expedited basis. Now, by providing incentives to applications to withdraw unexamined applications that are no longer important to them, Project Exchange also helps the USPTO to reduce our application backlog. Tomorrow, we ll be announcing a request for public comment on our next initiative, a comprehensive flexible patent application processing model offering different processing options, more responsive to the real world needs of our applicants. Please look for that announcement coming tomorrow. Clearly we do plan to continue empowering our applicants to prioritize their applications and our workload to meet the demands of the marketplace. So through programs like these, and through the tireless work of our examining corps, we will focus our efforts more effectively, we ll reduce pendency, we ll bring down the backlog and we ll foster innovation critical to the economic and social wellbeing of our country.

7 But America s innovation success will require more than an effective USPTO, much more than that. It will be a function of many complex and overlapping innovation variables including the promotion of best practices and disciplines where American innovation occurs. Perhaps the most critical of these disciplines is university research. Research conducted at American universities is absolutely vital to fostering innovation, ensuring economic opportunity and creating American jobs. For instance, the original patents to recombinant DNA, the fountain head for the biotech industry, came from university research, to name one example. Finding ways to ensure that important new technologies like this are taken from university lab to marketplace is a critical factor in our economic success. And universities are becoming more nuanced and more strategic in the role as pillars of technology diffusion. Now, as a threshold matter, universities have begun and must continue working cooperatively with their funding partners to adopt best practices for capturing intellectual property in the first place because if universities and their funding partners don t capture IP, the innovation that it protects and the jobs that it creates become royalty free donations to our nation s biggest economic competitors. So while protecting IP is key, the purpose for the protection has shifted. It s not to control the activities of funding partners. It s to prevent appropriation into the lowcost labor market. Now, once IP is protected, the second issue of paramount priority is the transfer of technology from university laboratory to marketplace. The methodologies universities use to facilitate IP transfer are currently in flux as traditional models evolve and new best practices emerge. Universities on the cutting edge of this field realize that the long accepted choice between maximum diffusion of innovation and maximum revenue capture turns out to be a false choice. Put simply, universities need not sacrifice their societal obligation to disseminate knowledge in exchange for research funding. In fact, when well executed, a diffusion focused technology transfer process generates more net aggregate funding, not less. Now, university royalty generation will continue to play a role in the commercialization life cycle, no question about that but it will synergize with diffusion focused tech transfer and we ll see less conflict between the models because astute university innovators realize that when royalty generation comes into conflict with diffusion, it inhibits the fundamental mission of educating researchers and conducting research to produce breakthroughs that create American jobs and economic opportunity. And astute university innovators are already working to a better end. The net result of a focus on diffusion-based tech transfer is not only better technology diffusion but increased revenue and funding through sponsored research that

8 will help to create new products and services and secure an innovation-driven future for our economy. In the proud history of the United States, innovation led development. That is IPled development has created economic vitality and good jobs. In fact, technological innovation is linked to fully three-quarters of our nation s post-world War II growth rate. In between 1990 and 2007, compensation for jobs in innovation intensive sectors increased by 2.5 times the national average. The U.S. government has always played a critical role in ensuring innovation driven growth. During the deep recession of the 1970 s innovation slowed dramatically and the manufacturing sector declined. In response, the US government launched a Domestic Policy Review aimed at reviving American industrial innovation. This study, and others like it, led to the creation of the Court of Appeals for the Federal Circuit, which brought clarity to the law and improved certainty around IP rights increasing their value. At the same time, Congress realized the critical role of patents in innovation through university research and development. So the Bayh-Dole Act, which encourages university patenting, was passed. The increase in patent value and R&D that resulted from the patent system improvements of the late 1970s and early 1980s paved the way for a new era of economic growth and opportunity that lasted for the better part of two decades. Now, as in the 1970s and 1980s, the United States stands at a crossroads of innovation. Today we re presented with another innovation opportunity and we again need sound IP policy enforcement to increase the value of innovation. We surely have not realized the full potential of IP. In fact, the IP system has been characterized as the sleeping beauty of highly developed economies. And it really is a sleeping beauty because our IP system has laid relatively dormant while the complexity and the volume of technological innovation has grown exponentially in recent decades. If we don t wake up, fast-developing competitors will continue to appropriate American ideas, products, and services. American technology and with it American jobs will devolve to countries with cheap labor and inadequate IP protection. To put it plainly, both appropriation and misappropriation of American IP mean the loss of American jobs in our most innovative fields high-paying, high-skilled, high-value jobs. And the fight to keep these kinds of jobs and the flight of technology and production to our overseas competitors poses a grave threat to our economic security. We simply must do better to protect America s competitive advantage in innovation before it is too late. And that means faster and higher quality patents and it also means sound IP policy and effective enforcement of intellectual property rights.

9 President Obama released his Strategy for American Innovation last fall, and identified innovation as the foundation of sustainable growth and quality jobs. In it he identified three roles for the public sector. First, the government must invest in the building blocks of innovation such as human capital, infrastructure and fundamental research. Second, it must nurture the right environment for private-sector investment and competitive markets by protecting intellectual property rights. And third, the government must serve as a catalyst for breakthroughs related to our national priorities like clean energy and healthcare. Ladies and gentlemen, it is incumbent upon us to develop a comprehensive and robust national intellectual property policy. America s economic security depends on it. The Commerce Department and the USPTO stand ready to provide leadership in formulating and executing that policy. American business and enterprise must also play a role and an active role in formulating this policy, based on sound business practices. As I ve outlined today, we must provide an environment that allows mall businesses to protect their IP and attract capital to their ideas. For these businesses to flourish we must provide timely and high-quality access to IP rights and we must ensure that universities press forward the frontiers of science while working with the private sector to ensure that the value they create is both protected and diffused quickly for the benefit of the communities they serve. All parts of the U.S. innovation value chain must remain vibrant. And if amplified by good government policy, the current realigning trends can support one another to preserve American leadership for decades to come. A sound national IP policy will lead to the creation and success of more innovative companies like Zencore and Axle Tech and it will ensure that we can leverage IP to safeguard our economic wellbeing. If we act to meet these challenges, we can fuel decades of American economic growth, the simple prerequisite, a national focus on intellectual property as the currency of innovation. Thank you very much. (Applause.) MS. WARTELL: Terrific. All right. Great. So now we re going to ask the under secretary has agreed to take questions from the audience. We re going to ask people, if they would, to raise their hands. We re going to start in the back and move forward. And I would ask you please when you re called upon, please wait until the mike gets to you and then of you would identify yourself and any organization that you represent before you start. So if could see some hands for questions please. All right. Why don t we start in the back back there and then we ll go over there. Thank you. Q: Hi. My name is William Shell (sp). I m with Main Street Insider. You say you want to work towards funding or nor funding but protecting intellectual property in universities. Currently, the market most of the patents are rewarded for things that have high standalone value because those are the things that, well, get money in the marketplace but since they have high standalone value, you know, the incentives are

10 there for the market to go there. Basic research, on the other hand, isn t always has that high standalone value. Not very many people are willing to pay for say, gravity, you know, that idea but it s completely fundamental. That s what I see most universities researching. So what are the USPTO s plans to help protect that basic research through intellectual property? SEC. KAPPOS: Okay. Well, thank you for that question. It s a great question and it really goes to the distinction between basic research and applied research or development, both of which I would say are extraordinarily important. I would agree with you that universities create a tremendous amount of fundamental research and therefore fundamental discoveries. The outset, you have to recognize that fundamental discoveries like gravity, as your example, would not be patentable, right, laws of nature, those sorts of things are not patentable. But once you get from there into discoveries that are patentable, universities play a critical role. Now, what does the USPTO doing to protect that? So what we offer universities, some tremendous opportunities and advantages already. First of all, many of them get to file under small entity status which means that they get a 50 percent discount on the fees they pay to file patent applications with the agency. Secondly, universities really appreciate getting to use our ability to file what s called provisional patent applications which are applications that are much less expensive, they re less formal, they don t require the filing of claims of them and they could be used kind of as markers, and universities file literally tens of thousands of them a year. In fact, I think in aggregate there s something like 150,000 of these provisional patent applications filed each year and the numbers are going up. And that is a huge benefit when you re creating fundamental research because it gives you time to see where the research is going before you decide whether and how you re going to pursue full patent protection which gets more expensive. So last thing I ll mention on that is that in response to university requests that we consider actually extending that 12-month provisional period, we found a way without changing laws to implement what I would call a close facsimile to an extension to provide an additional 12 months through a rule change that we could affect internally to the agency, to the USPTO to give a full 24-months to filers of provisional patent applications, universities and all others to decide if they want to pursue full patent protection on their provisional filings. That proposal is out for public comment right now and we plan to evaluate the public comments and if the comments are favorable, to look at moving forward again specially to help the innovation community and particularly the fundamental innovators who are creating basic discoveries and need time in order to decide where those discoveries are going and that s directed largely to the research, to the university community. Thanks for the question.

11 MS. WARTELL: Okay. And we have right in front you, Christine. Q: Hi. I m Bruce Lehman, International Intellectual Property Institute. You talked about the importance of national IP policy and I would just make an observation. I think one of the problems of the Bush administration is they didn t have one; the previous administration, even Republican administrations did. And I know that you re playing a big role in that right now but obviously the USPTO is only one agency of the administration so maybe you could talk and tell us a little bit about what you re doing and what the administration is doing to coordinate IP policy beyond just simply the USPTO and what the USPTO s relationship to that broader effort is. SEC. KAPPOS: Right. Well, thanks for the question, Bruce. So this is why I mentioned we re at the beginning of this discussion. We definitely think and I agree with your point that a national IP policy is needed for our country. We ve had something that you might call similar in the past. We need to now reinvigorate that kind of thinking. The Department of Commerce with a number of agencies, including the USPTO, will clearly need to play a role. The role that we play will clearly need to team also with other parts of the government, other agencies that have a critical interest in intellectual property. And it s gotten to the point where it s hard to name a bureau of our government or an agency within a bureau that doesn t have a critical interest in intellectual property. So I anticipate that the teaming that will be needed will actually be quite broad, all the way from the White House down through all of the departments and many agencies within them. So we re at the beginning of that process but you can be sure that it will be iterative in nature, will involve opportunities, probably multiple opportunities for public comment and will involve a tremendous amount of teaming across the administration. MS. WARTELL: Christine, right behind you. Q: Hi. Judit Rius Sanjuan from Knowledge Ecology International. Part of the success for us of the American history and innovation is basically a very balanced and very flexible approach to intellectual property. And I think you will agree with me that the success of the Silicon Valley and a lot of the successes of American history are based on strategies like patent pooling, the existence of (inaudible) the existence of important exceptions in national patent law. I was wondering you were referring to your trading partners and I was wondering if you could elaborate a little bit more on the USPTO opposition on international negotiations currently at the World Intellectual Property Organization where there is for the first time in history discussions on a possible treaty, a binding instrument on copyright exceptions on limitations. And also the discussions of the World Health

12 Organization currently, new incentive mechanisms for neglected diseases that are not based purely on monopolistic and protectionist measures to promote innovation but more on access to knowledge, open source and more collaborative approaches. Thank you. SEC. KAPPOS: Okay. Thank you. That s a great question, a multipart question. So relative to negotiations going on in Geneva and under the hospices of WIPO, we re working as part of the administration teaming with other agencies. If I heard your reference right to the discussions going on on a treaty that would for the first time provide exceptions and limitations for the visually impaired, that s an important development. It s something that the USPTO has worked closely in the administration to lead and support. We consider that to be a breakthrough in balanced intellectual property policy development and we are continuing to work on that as part of the government. So that process will go forward in some form of norm setting won t necessarily be a treaty but it will take appropriate steps moving in the direction toward recognizing the important interest of the visually impaired community and the needs of that community to have access to works of authorship. So as to the second part of the discussion, we ve got a lot of work to do within the administration generally to recognize the flexibility and to continue to develop IP laws in a system that champions U.S. leadership in flexibility of intellectual property. We have trading partners who have similar interests. We have other trading partners at various levels of development. And certainly the USPTO has played a role and will continue to play a role in ensuring that we help them develop an awareness of intellectual property, help them build up their capabilities, whether they re a newly developing country or a country at a higher state of development of their intellectual property system. We feel it s important for us to play the role of enabling them, championing strong and balanced intellectual property rights and helping them to develop their system starting with enabling the intellectual property communities in those countries, and every one of those countries has an intellectual property community, whether it s a content industry like a film industry or motion picture industry or television industry or a book and publication industry or an innovation industry, they all have those capabilities. Our role is to help bring those capabilities out and make it clear within their countries the value of intellectual property and the value of innovation to advancing their own wellbeing and we are playing that role and will continue to. MS. WARTELL: (Off mike.) Q: Jennifer Kurz with the U.S. Climate Action Network. And I m wondering what the PTO and the administration more broadly is doing or will be doing under the third goal you outlined on catalyzing the clean energy economy?

13 SEC. KAPPOS: Well, the UPTO is very directly playing a role in that. We have a patent acceleration project that we re running enabling clean/green innovation to be accelerated within our agency. And we started that in December. It was announced jointly by Secretary Locke and Secretary Chu. It was devised in cooperation with the Department of Energy. It s been, I think fair to say, quite successful at uptake so far with about 1,000 I think now more than a 1,000 applications from applicants all over the country who have requested entry into that system, which is quite fast uptake. We re providing them with very accelerated patent processing so that they can translate patent pending to patent granted, go out, hire Americans, create jobs and put clean, green energy saving, environmentally friendly products and services out on the marketplace. We re actually seeing that happen. We actually have now had media reports involving entrants who were able to get patents processed who came into the system as early as December already have their patents issued and are out hiring people and creating jobs as a result. So we feel we re playing a pretty central role, given the role that innovation plays, in solving climate related challenges. The USPTO is right in the middle of that equation and stepping up to moving innovation out of our agency more quickly in that area. MS. WARTELL: We ll move up front now. (Off mike.) Q: Thank you. Mike Ryan (ph), University of Michigan. I would be remiss if I didn t bring up the legislation which Congress is now considering or hoping it will consider this year. The Senate Judiciary Committee obviously has a sort of a compromise, a manager s amendment which a number of groups have endorsed. I believe your agency hasn t expressed support for that. The House Judiciary Committee seems less inclined to support that, has come out with a bill which basically provides additional fees for your use will hopefully keeping that from being diverted to other agencies. Can you give us an update on where that stands, what you think will happen between now and the end of the year? And would this fee diversion bill be somewhat of a substitute for a larger bill or do we still need to have a larger bill passed to resolve a lot of the issues that are in front of us on patents? SEC. KAPPOS: Okay. Great. Well, thanks for that question. So that s the general topic of patent reform and patent reform legislation. We are supportive of the efforts of both houses of Congress and are working hard to provide technical assistance to both the House and the Senate. There s a bill pending on the Senate side, comprehensive patent reform legislation, which we re providing technical assistance on, have been and are continuing to support moving that patent reform legislation through to completion. There s a new bill that was introduced on the House side that primarily focuses on fee related or funding

14 issues and we re extremely appreciative of the work the House is doing, leadership in the House of Representatives in introducing that legislation and bringing focus and starting the discussion up in the House. We re going to continue to support both the House and the Senate in moving legislation forward. And we re very helpful that between the two we ll be able to the two Houses with support from the administration will be able to craft legislation that will dramatically improve the ability of our agency to run first and foremost priority for me and for the USPTO. But there will also step forward with comprehensive improvement of our patent system that will be a heritage move and a generational move and return the United States of America to the gold standard of patent protection regimes. MS. WARTELL: Why don t we go to the woman up against the wall right there? Q: Hi, Mr. Kappos. My name is Lisa Caruthers (sp). I m one of the many inventors that does not like this bill that s in front of Congress. So if the House winds in matter of funding, when you were questioned by the House Judiciary and they were willing to give you funding as kind of a sidebar and kind of work on the reform bill, why is it that you turned the funding down? SEC. KAPPOS: Well, thanks, Lisa. Nice to see you again. And so I ll need to correct an inaccuracy in your question. What I testified to in the House Judiciary Committee is that I was in support of comprehensive patent reform and that the issue of providing the USPTO with fee setting authority was a preliminary issue to discuss at the time. And I m frankly very happy to have answered the question that way because the legislation that came out of the House then several weeks later had a number of components to it that turned the hypothetical, which was incomplete, you know, what would you do with fee setting authority, which is just part of a broader equation, into a much more complete discussion. And the House did a great job of crafting legislation that puts fee setting authority into a context with addressing other aspects of the funding of the agency and creating a complete picture of the funding which we appreciate the House doing in putting that legislation out. MS. WARTELL: If you would I m sorry, Christine. The gentleman in the blue shirt also against the wall (off mike). Q: (Off mike) Computer and Communications Industry Association. You talked about the role of strong IP protection in promoting innovation and that pretty much only applies when you have high quality patents. Would you address the quality issue? I d like you to go a little bit more into what you re doing to improve patent quality as lower quality patents can actually become a hindrance to innovation and clog pathways to innovation.

15 And the kind of follow-on question. That is, what s your thoughts on you talked about the U.S. system being important for increasing U.S. competitiveness. What do you feel about other nations such as China who may not have as strict standards or quality standards when it comes to patents and the explosion of those systems recently and their effect on U.S. competitiveness? SEC. KAPPOS: Okay. Well, those are great questions. So first of all, I would start by agreeing that low-quality patents don t do any good to anyone. They re not a favorite of the system. They re not good for the folks who get those patents and they re certainly not good for other entrants in the competitive marketplace who have to be burdened by the overhang. We are working hard on quality at the USPTO. I recognize, the whole team at the agency recognizes that we ve got to do some work in order to improve the quality of our output at our agency. So one of the first things that we started as our administration got up on its feet at the USPTO was to commence a task force that s led by one of the members of our Patent Public Advisory Committee to take a comprehensive look at patent quality, how we measure it, how we incent it, the role that the office plays, the role our examiners play, the role that management plays, the role that the patent applicant community plays, the role that automated tools can play and on and on and on. We ve taken extensive public input, had some great input through a federal register notification. We ve convened two round tables in the last month, one of which I chaired, the other one Commission Stoll chaired out in Los Angeles. We are now collating all of the input and it has been tremendous and extraordinarily helpful. What I anticipate we re going to do next after we put everything together is come out with what you might call a first draft of a new set of quality metrics, a new set of quality guidelines that the agency will recommend to the applicant community. We ve already put a straw man together. I believe it ads, if I recall right, four new quality metrics to the approaches that we use for measuring quality before, all of which are very good. We probably will add a few more. I think we may wind up with nine to 12 quality metrics, very objective in nature so we ll be able to start watching the quality in our agency, watching it with the whole world very transparently. And as you know, as I know coming from the business world, what you measure is what you get. And when we re able to measure it and identify it and track it, we ll be in a much better position to push quality. Now, the second part of the question regarding overseas patent agencies, what I would say is that of course, just like in the USPTO quality varies. A recent study showed

16 that all of the major patent granting authorities have their challenges relating to quality, not just us but the other major patent granting authorities do also. There have been some challenges in particular, in China with the so-called petty patents or what also are sometimes referred to as utility models and even some cases of parties there taking information out of granted U.S. regular patents or what we call Utility Patents in the US and putting them in unexamined utility model patents in China which are able to just slip through the system because they don t get examined. That s a problem. The US government and industry put in a lot of comments as China moved to its third generation of its patent laws last year. And a lot of those comments were aimed at trying to help the Chinese government to stop this abusive practice with junk utility model patents in China. We are assessing right now the effectiveness of that work. We are engaging with China through various means including through direct bilateral discussions and some other discussions through the Department of Commerce and working with them to ensure that those new laws and the implementing regulations were effective. And to the extent that more needs to be done, we are going to help our colleagues in China to get more done in order to stop that onset of junk utility model patents. So thanks for the question. Do we have time for one more? MS. WARTELL: Yes. I think we can do one more. I neglected this side of the room so sorry. The one in the back first so we ll go back there. Go ahead. Christine, walk a little further. Q: Kyle Kempf from National Small Business Association. Regarding the patent (audio break) we have some real concerns about its (audio break) innovative companies and independent inventors going in and out. And I was wondering (audio break) vision that would postpone the conversion to a first two invent pending study that would (audio break) would affect small business owners, small innovative companies, independent inventors. As far as we understand, there s been no such study. There s not data on how it would affect that sector of the innovative economy and so we think that should happen before we have this huge, huge conversion. SEC. KAPPOS: Okay. Well, thank you for the question. So if I heard it right, it involved patent protection for small entity enterprise, what I call independent inventors and small businesses, and the issue of the conversion from our current first to invent a patent priority system to what would be the first inventor to file a system and whether a study should be done. So there s language in Senate 515 that s been discussed from time to time. And we certainly would be very supportive of language under which the USPTO conducts a study but we do not need to hold up implementation of first inventor file to file in order to conduct a study.

17 I believe that a move to the first inventor to file system there s tremendous evidence, overwhelming evidence that it will be clearly beneficial, especially to independent inventors and small entities. I speak with independent inventor community and small MBs literally all over the country. And the dominant question that I get from independent inventors and small businesses that are really out there creating jobs, the dominant question I get is: how are you going to process our patent applications more quickly so that you re not holding them up in the agency? I absolutely never get in fact, I ask this question, how many of the small inventors in a room, any room in which I m giving a speech have ever been affected by an interference procedure which is the procedure that arcane procedure at the USPTO where this issue comes up. And the answer invariably is zero. We declared a total of, if remember right, some very, very small number like somewhere around 50 or so interferences last year at the USPTO out of about 460,000 patent applications filed. And again, the way that this issue makes a difference is if you get into an interference. So I pulled the statistics because I was very interested to know how this issue really affects small innovators. And what I found was of those 50 or so interferences, it turns out that a decision on priority, right, which is a little bit more refined and I ll try not to lose people, but a decision on priority is a case within the small world of 50 or so interferences where the decision was made that actually implicated the issue of who invented first which is the core of the question. And that decision on priority was made a very small number of times, like a handful of times. And oh, by the way, if you peel the onion back further and you ask the question, and how many of those actually involve, how many of those patents in which a priority decision was made actually involve the small entity, it was an even smaller number now going into the sub handful level. And then, if you ask one last question which was how many of those cases were won by the small entity, the answer was zero. In fact, I had to go back, all the way back to 2007 before I could find even one case out of 400, about 460,000 patent applications filed every year, even one case where a small entity actually won this arcane interference process based on priority which is the only situation in which the question matters. I had to go back to 2007 you re talking literally you have a much better chance of getting struck by lightening than you ever have of this kind of issue coming up. And that s why I became convinced that it was my job to explain to the whole IP community that we re debating a false issue involving this distinction between first inventor to file and first to invent. And the real issues that we need to focus on or getting clarity on the fact that the old system first to invent didn t help small inventors, that the new system which will

18 provide tremendous clarity will be much more helpful and that in any event, the real issue is processing patent applications much more quickly and effectively and that s where we need to turn our attention. today. So thanks very much for the question. And Sarah, thanks again for having me in MS. WARTELL: Well, thank you. We re enormously pleased to have you in and I didn t realize when we agreed invited you to come speak that in fact it was going to be a speech in the part of the program we call we have an important initiative here called doing what works which is really about how do we win the public support that the federal government is working on behalf of the goals of the American people. In many ways, I would argue that many of themes we hit here were themes about how the government can work better to win the support of business and American citizens that it s actually trying to not become an impediment but a facilitator. And I m very excited and pleased to have had you here today and to have been able to talk about how we can do what works in the patent area. So thank you very much for joining us. Please join me in thanking the under secretary. (Applause.) (END)