Kappos: US Economic Security Depends on National IP Strategy

Kappos delivers speech at Center for American Progress, 6/2/2010

Earlier today the Center for American Progress hosted a speech given by David Kappos, Undersecretary of Commerce for Intellectual Property and the Director of the United States Patent and Trademark Office.  The speech was open to the public, RSVP was required and space was limited.  A light lunch was served.  I was lucky enough to be present as a member of the Press, and unlike the United States Supreme Court which requires members of the press to sit in partial view seats behind the tall pillars with an extremely large diameter, the Center for American Progress reserved front row seating for the press.  Not that such front row treatment is required, but it sure does make taking pictures far more easy, but I digress.

A packed room of at least 200 individuals, including the newly retired Chief Judge Paul Michel, former USPTO Director Q. Todd Dickinson, former USPTO Director Bruce Lehman and others listened to Kappos give an impassioned speech about how innovation can create jobs, how the Patent Office is unfortunately continuing to hold jobs hostage due to a staggering backlog of pending patent applications and how American economic security depends upon development of a comprehensive national IP strategy.  This is something near and dear to my own heart, as readers of IPWatchdog.com know I have been beating that drum since before Kappos was appointed (for example see this, this, this and that; and more recently here and here, among many others).  But can Director Kappos persuade Members of Congress and others in the Executive Branch of the truth we all know?

I have heard Kappos talk about the job creating power of innovation and the role the USPTO can and should play, but there was something different about his speech today.  Perhaps it was that his speech was given in front of an audience sponsored by a progressive think-tank.  I think it was more than that though.  The way Kappos spoke today was different.  The tone was different, the language more forceful and the urgency real.  At times it seemed Kappos was delivering the speech in the way you preach to the choir, you know, in a matter-of-fact kind of way.  But the speech and action items were clearly intended to be consumable by a broader audience, and with truth political flair Kappos mentioned a couple companies that have been beneficiaries of the US patent system, have grown and have created large numbers of jobs as they grow.  It seems pretty clear to me that Kappos knows he and his agency have the solution to this Great Recession (my term), and the handcuffs could be taken off great things would be forthcoming.

During his speech Kappos summarized the problem this way: “The next laser, the next energy breakthrough, or the next cure for a disease, is buried in the files of the USPTO—and that is simply unacceptable.”  He went on to say, and say rather forcefully, that “it is clearly time for the USPTO—our nation’s Innovation Agency—to adopt private sector business practices and offer market-driven services.”  This was followed by Kappos telling those assembled that there will be a major announcement from the USPTO on Thursday, June 3, 2010.  The Patent Office is going to set forth for public comment comprehensive reforms that will allow for a flexible patent application processing model that will offer “different processing options more responsive to the real-world needs of our applicants.”

Despite the fact that to date Congress has not provided patent reform, and despite the fact that much of what could and should probably be done to really meaningfully streamline the patent process can only be done with legislation and isn’t even in the patent reform legislation, Kappos is continually pushing the envelope around the edges and doing whatever he can to move the USPTO forward through policy shifts and rulemaking.  The announcement tomorrow will just be another in a long and growing line of things Kappos and his team are trying to do, but let’s face it, to really get where we need to go Kappos needs help from Congress.  Patent reform is one thing, an end to fee diversion would be great, but substantive legislation and real monetary investment from Congress seems to me to be imperative.

After his speech, Kappos mingles and chats with those in attendance, spending
a moment speaking with former USPTO Director Todd Dickinson (left)

In any event, to give you a flavor of the Kappos speech allow me to point out some of what I considered the highlights of the speech.

About the historical importance innovation has played in American economic success:

The economic success of the United States is deeply rooted in the history of American innovation.  This country was founded by pioneers who developed new ways to cope with an unfamiliar environment, who cured disease and connected a country, and who led the world into the age of flight.  American innovators discovered the power of information technology and digital communication that brought unprecedented commerce, economic growth, and prosperity.

So, our history has been driven by innovation. And our economic security continues to depend upon our ability to innovate – and to compete in an innovation economy.   The key to economic success lies increasingly in innovative product and service development, and in intellectual property protection, which creates value for innovation.

About the overwhelming US reliance upon intangible assets:

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 in tangible assets by more than 20%.

The Kappos speech lead up to what was a powerful and compelling conclusion.  The Director started discussing the recession of the 1970’s and how that lead to the federal government examining patent and innovation policy, which lead to some extraordinary achievements, and ultimately concluded saying that American security depends upon a robust national IP strategy.

During the deep recession of the 1970’s—innovation slowed dramatically and the manufacturing sector declined significantly. 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 1970’s and early 1980’s 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 1970’s and 1980’s, the United States stands at a crossroads of innovation. Today we are presented with another innovation opportunity – and we again need sound IP policy and 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 layed relatively dormant while the complexity and volume of technological innovation have grown exponentially.

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 flight of 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 the effective enforcement of IP rights.

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 IP rights. Third, the government must serve as a catalyst for breakthroughs related to our national priorities like clean energy and health care.

Ladies and gentlemen, it is incumbent upon us to develop a comprehensive and robust national IP 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 an active role in formulating this policy, based on sound business practices.

After his speech Kappos took a few questions. Here are several of his responses to those questions from the audience.

Addressing a question about what the Patent Office is doing to facilitate green technologies:

We are 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 quite successful at uptake so far with more than a 1000 applications from applicants all over the country who have requested entry into that system, which is quite fast uptake. We are providing them with very accelerated patent processing so 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 Market place. We’re actually seeing that happen. We actually have now real 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 roll, given the roll 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.

Addressing a question asking generally about where patent reform currently stands and its prospects moving forward:

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 are providing technical assistance on, and 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 issues and we’re extremely appreciative of the work the house is doing, the leadership in the house of representatives in introducing that legislation, 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 hopeful that between 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 that 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.

Addressing a question asking why when he testified before the House of Representatives in early May 2010 he said he didn’t want “fee only” legislation putting an end to fee diversion and giving the USPTO fee setting authority:

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 am 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 — what would you do with fee saving 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 saving 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 and putting that legislation out.

Addressing a multi-part question dealing with patent quality and how Patent Offices around the world are handling patents, particularly China:

Let me start by agreeing that low quality patents don’t do any good to any one, they’re not a favorite of the system. They are not good for those folks who get those patents and they are certainly not good for other entrants in the competitive market place who have to be burdened by the overhang. We are working hard on quality at the USPTO. I recognize that the whole team that 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 on 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 roll our examiners play, the roll that management plays, the roll that the patent applicant community plays, the roll that automated tools can play, and on and on and on.

We’ve taken an extensive public input, had some great input through federal register notification, we’ve convened two round tables in the last month, one of which I chaired and the other one Commissioner Stole 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 to 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 adds, 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 will probably will add a few more, I think we may end up with 9 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. 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 question regarding over seas patent agencies, what I would say is that of course, just like in the USPTO, quality varies. Recent studies show that all of the major patent granting authorities has 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 are also sometimes referred to as utility models and even some cases of parties there taking information out of granted US 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 insure that those new laws and the implementing regulations were affective 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 patents.