PATENTS FOR POETS AND POLICY WONKS

April 19, 2005, Washington Plaza Hotel, 10 Thomas Circle NW, Washington, DC

REPORT

1) Executive summary
2) Introduction
3) Opening comments by U.S. Government and European Commission
4) What is a patent?
5) What should be patented?
6) Patents on standards: What is the reform agenda?
7) Five miscellaneous policy wonk questions
8) Open discussion and next steps
9) Paticipants

Executive Summary

"Patents for poets and policy wonks" was an energetic forum of discussion that looked at the most important concerns regarding current patent policy existing on both sides of the Atlantic, and explored plausible solutions. The meeting congregated a group of highly qualified speakers with very diverse backgrounds coming from the public sector like representatives of the European Commission, the U.S. Patent and Trademark Office, and the World Intellectual Property Organisation (WIPO), as well as from consumer organizations, academia and the private sector.

The majority of the speakers highlighted the importance of moving towards a more internationalized patent system. They also encouraged consumers to take a more active role in patent matters because they affect everyone in our daily lives.

During the day, participants got into deep of current patent issues, such as the proposed EU Software Directive, the increasingly low standard in the granting of patents, several issues regarding patents of pharmaceuticals, and how the system no longer provides the incentive to the industry to invent.

Introduction

Felix Cohen (Consumentenbond, TACD Steering committee), opened the one-day conference, which forms part of TACD's 7th Annual Meeting.

He explained that, when created, patents were meant to protect and promote inventors but, today, are not only a reward for inventors but also an important brick stone for society. He emphasized that patents are very important for consumers given their great influence in our every day life from the food we eat to the medicine we take. Therefore consumers should get more involved.

Even though inventions are very important for consumers, we have to be understanding. Patents have not always proved to be the best system to ensure the most advanced and favorable technology for consumers and should thus be balanced with regard to consumer rights. The main objective of this conference is to build capacity and get consumers well informed in order to participate in the discussion and try to make it a better society. Intellectual Property rights are one of the most important consumer issues of the next 10 years and that it is time to start talking and learning about it.

Ed Mierzwinski (US PIRG, TACD Steering Committee), pointed out that this was the first meeting on patents that is designed to give consumers the knowledge and capacity needed to get involved in discussions on patents policy. The title of the conference - Patents for Poets and Policy Wonks - was chosen to convey the idea that patents are for everybody.

Opening comments by U.S. Government and European Commission

Jens Gaster (DG Internal Market, European Commission), explained that a patent is an incentive for people to share their inventions by rewarding them exclusiveness on their invention for a period of time, because inventors have two choices: keep the invention secret or seek a patent. He gave an overview of the evolution of patent law and the current regulatory environment within the EU. The EU has attempted to achieve uniformity by proposing harmonized directives and a single title. Mr Gaster pointed out that there is already a complex Directive in place in the field of biotechnological inventions on which the EC is currently preparing two reports.

Progress has also been made on the draft directive on legal protection of computer inventions. The current text sets out a number of restrictive elements for granting patents, such as the requirement for technical contributions. Additionally he pointed out that industry and the financial sector thinks the EU is too restrictive with regards to business patents.

At the international level, Mr Gaster talked of the special relationship between the U.S. and EU, but he pointed out the differences between the patent systems on both sides of the Atlantic: the European "first to file" system versus the American "first to invent" system; the higher costs in the U.S.; and the different practices in the different patent offices in Europe. On the other hand, these systems have similarities as well and the EU and U.S. are in the process of discussing the harmonization of substantive law and of practices.

Paul Salmon (U.S. Patent and Trademark Office), emphasized the fundamental importance of the patent system and the need for substantive harmonization in the patent area. The patent system has helped to spear progress from the industrial age to the communication age and was believed to be so important that the founders even included it in the U.S. Constitution. He also highlighted four benefits of the patent system: the incentive to invent; the stimulation for capital investors; the promotion for early public disclosure (which reduces the duplication of efforts); and the exchange of inventions across national borders.

In terms of the need for harmonization, he stressed that the three largest patent offices, in the U.S., Europe and Japan, should rely more on the work done by the other offices. This would avoid duplication of filings and thus help ease the currently overwhelming high workload. In addition, he pointed out the willingness of the US to learn from other regulations. In this context the US is considering implementing the European "first to file and opposition systems". Discussions are currently being held both on the domestic level as well on the international level in a WIPO meeting in Munich.

Discussion

With regard to whether the European Commission and Council views on the Software Directive are in conflict with those of the European Parliament, Mr. Gaster explained that what has come out of council is already a compromise and comes closer to what Parliament thinks. If Parliament and Council don't find common ground they will have to go to conciliation. In his view, a compromise solution is better than having no regulation at all, which would mean having to deal with 25 different laws, and would be the worst scenario for consumers.

Felix Cohen pointed out that investors were demonstrating against the proposed directive. Cornelia Kutterer (BEUC) noted that it is appropriate to think about whether we need to spend more time and fix the existing system or, instead, think about alternative ways to give incentives.

Paul Salmon emphasized that there are a couple of weak points in the current system that need to be addressed, such as, for example, the broad scope of patent law.

What is a patent?

Josh Sarnoff (American University Law School), explained the nature and definition of a patent as a government grant of a limited privilege. He also noted that referring to intellectual property is not proper, as it gives a mistaken sense of entitlement to investors, who are only granted a privilege. He enumerated the different kinds of patents such as the utility patent, the design patent, the plant patents, the patents of addition and the petty patents. In addition, he explained the concept of subject matter and the requirements for patentability in the US.

What should be patented?

Medicine: Sara Lock (American Association of Retired Persons), a non-profit organization dedicated to protect the rights of people 50 years and older, argued that, in order to answer the question about what should be patented, one should refer to the U.S. Constitution. In her view, the patent office should never grant a patent unless doing so promotes the useful progress of science and art as stipulated in the Constitution. She commented that the patent office is not adhering to that rule today. Patents are granted with a minuscule degree of public benefit and utility. In fact, most of the new drugs the administration has approved are not new chemical entities, but slight modifications of existing drugs, which gives enormous benefit to the pharmaceutical industry but is not at all beneficial to consumers. By referring to the Nexium and Tyver vs. Pfizer cases, she illustrated that the pharmaceutical industry is more focused on achieving profits than committing themselves to the invention of real solutions to consumer health issues.

Life Forms: Michel Hansen (Consumers Union), gave an overview of U.S. legislative history regarding the patenting of life forms. In the 19th century the U.S. distributed free packets of seeds to farmers. In 1970 the plant variety act was enacted which restricted the possession of some protected seeds but kept a "farmers and researchers exception". In 1980, in the Diamond vs Chakrabarty Case, General Electric gained an industrial or utility patent on microorganisms which started the avalanche of the industrial patents.

In the 80's patent offices expanded the subject matter to include higher life forms. In 1995 the US Government granted a patent on the cell line of an indigenous man from Papua New Guinea. At that time, Pacific Islands governments, Canada and Sweden protested at the Biodiversity Convention. Since then there has been a vivid debate in the International Community regarding the patenting of life forms. Many non-governmental organizations are of the opinion that there should be no patent on life forms as all. Mr. Hansen concluded that this is a very sensitive matter which should be solved at the international level.

Methods of business and finance: Phil Evans (Which? UK consumer organization), made a presentation on patentability of business and finance. He reviewed the historical evolution of British Patent Law in the field of business and finance, and advocated for a balance between the right of the monopoly-holder and the public benefit.

Mr. Evans stated that the patentability of business has particular importance today with regard to new markets. He fears that many patent offices are granting patents on things that are obvious in the normal world purely for the fact that they are displayed on an electronic format. He posed the following question: what would have happened if, many years ago, someone would have patented the shopping mall, the discount mall, or the frequent flyer concept?

The combination of faster moving economies and segmented markets, and the possibility of patenting obvious things, gives a company the ability to foreclose markets and consumers. Patents on methods of doing business do not promote competition in the market but instead create competition to the market. This will lead to restricting and segmenting markets as well as price discrimination. He concluded that for the reasons stated above, business method patents are not good for consumers.

Software patents in Europe: Cornelia Kutterer (BEUC, European Consumers Association),commented on the state of play of the European Commission's proposed Directive on the patentability of computer implemented inventions COM 2002 (92), widely referred to as "Software Directive". The legislative process has been complicated and reflected an institutional battle at its peak. In the first reading in September 2003, the European Parliament (EP) adopted it with several amendments viewing the subject matter proposed in the Directive as too broad. The Council reached a political agreement in May 2004, disregarding most of the EP's amendments and following the Commission's proposal (for which Austria, Italy, Belgian delegation abstained and Spain voted against). Poland withdrew its support in November 2004. The EP Legal Affairs Committee requested that the Commission send back the proposal for a first reading the Parliament in January 2005. On March 7, the Council adopted the common position and the ball is now in the Parliament's court.

As to the question of why harmonization is needed: from the consumers' point of view this Directive harms them and benefits large software industries. Software patents will decrease competition because it will help larger companies to keep smaller companies out of the market. The less competition there is, the higher the price the consumer will pay. Moreover, the Directive will not lead to more innovation. Open source and free software provides consumers with more choice and empowers the creative users to participate in future developments in these products. BEUC argues that the Directive should incorporate "technical contributions" as a necessary requisite for a software patent to be granted.

It is equally important from the consumers' point of view to strike a balance and include a fair use clause for interoperability. Interoperablity must be ensured at a lower threshold as it is crucial for consumers.

Education and teaching: Manon Ress (Consumer Project on Technology), explained that education and teaching patents are closely related to business method patents because both are utility patents intended to protect a specific process. Patents on business methods and patents on education and teaching are permissible under U.S. legislation (and elsewhere), but should they be? These kind of patents neither promote innovation nor other kinds of public welfare and are thus not useful or necessary. She took a step farther affirming that they also have the potential to harm consumers by restricting the autonomy of educators and schools, and adversely affecting the teacher-student relation. A teacher would have to pay royalties and obtain licenses from patent-owners or refer the student to another teacher. A teacher should be able to teach in the best possible way without having to pay royalties and actually has a duty to teach with the best methods.

Ms. Ress concluded that the costs of granting education patents outweigh the benefits. Referring to the example set forth by surgeons that avoided the patenting of surgical methods, she advocated for a firm opposition to them on ethical grounds and highlighted the necessity of creating a new decentralized system that rewards innovators and creates incentives in this field.

Discussion

Jens Gaster stated that the EU has much stricter standards of patent examination than the US. The question cannot be whether we have patent examination or not, since we already have national patent offices. Instead, we should discuss how to correctly harmonize and strike a balance between different concerns. He also pointed out that the European Patent Organization is autonomous from the EU. The practice of this office would be much more restricted if the EU took over.

Cornelia Kutterer referred to the fair use clause of the Directive, which has not been taken up in the common position of the Council. This clause is necessary for the open and free market to be able to operate with closed systems. Fair use is crucial for inventors and, at the end, for consumers. Closed systems in DRM are being increasingly used. Most of the download systems in Europe do not work on open software systems. You are often forced to have Microsoft to download.

Patents on standards: What is the reform agenda?

Brian Kahin (University of Michigan), stated that IT standards differ from conventional standards because they are deeply strategic. For this reason they should be treated differently. The internet, for example, should be kept as an open standard and not allowed to be patented. On the other hand, he emphazised the importance of IT standards with regard to their capacity to manage complexity, foster interoperation, raise buyer confidence, encourage market development, promote competition, result in lower prices and democratize technology. With regard to input and implementation, standards are more valuable the more they interact with each other.

Mr. Kahin moved on to talk about some of the problems that the patent system is currently facing. He referred to the evolution of standards from the "flash of genius test" to what is currently a very low standard that is more about mere novelty. He criticized the fact that the increasingly high volume of patents granted leads to a greatly increased number of questionable patents because of the inherent ambiguity of this kind of standard. At the same time, there has been a controversial expansion of the patent system, towards biotech, services and software. He finished by highlighting the ambiguity and opacity in the patent system which favors gaming, tactical silence within standards developing practices and encourages ambush and holdup, especially by small enterprises that don't participate in the market and have thus nothing at risk.

Michael R. Nelson (Director of Internet technology and strategy, IBM), explained that there has been a major shift regarding Intellectual Property at IBM in recent years which has only become apparent in the last 6 months. A broad study released last September showed how innovation is changing within the U.S. and the entire world, which will have a major impact. The study concluded that innovation is not all about invention - as it was understood before - but also about collaboration. We do have a system that encourages invention, but we lack a system of collaboration that takes steps that are actually useful for consumers. In order to achieve this collaboration, industry needs to find a way to lower the barriers of sharing knowledge and techniques.

Mr. Nelson pointed out that each type of technology, internet, middleware and applications have different needs and therefore different standards should be put in place. In this context, he predicted that within the next years we will see both property and open standards competing in the market, providing more choice for consumers and for companies to get business solutions. But he believes that, for general products like the internet, the markets will move towards a more open standard. There has been a lot of debate as to what "open standards" actually means. According to IBM, open standards do not need to be royalty-free, but openly available. IBM has understood this change of the market and is reorganizing its way of dealing of intellectual property.

Finally, the standards for granting a patent today are too low, which generates uncertainty in the industry, resulting in higher costs for consumers. Thousands of companies have millions of patents, IBM holding the most with over 3600. The question of who is violating what cannot be predicted anymore. IBM therefore advocates for patent reform, but notes the difficulty of making the whole industry move in the same direction.

James Love (Consumer Project on Technology) advocates for open standards in order to avoid the problem that we currently face with Microsoft, which has excessive control over the formats we all use to communicate with each other. Manufacturing companies wanting to enter a new market face the difficulty of having to investigate who owns the patents they need for the production. Sometimes it is very difficult to know, because the companies that hold the patents themselves often don't know what patents they have in their portfolios, nor have the capacity to find out. In this context, he highlighted the importance of WIPO's proposal to develop a protocol for disclosure of patents and open standards, and praised IBM's new philosophy.

He advocated for publicly available open standards and for wide disclosure of patents, referring not only to the patents the company owns but also what they consist of. He also spoke about the possibility of granting compulsory licenses for essential information and technologies. Just like the WHO has a list of essential medicines, we need a list of essential interfaces and technologies. For consumers to have real influence we have to work closely together with business.

Discussion

Michael Nelson stated that Digital Rights Management is the area of most patented technologies. The consumer electronics industry does not understand what to do if someone comes along with a royalty. Furthermore, we have to have more competitive markets if we want more choice for consumers.

James Love expressed that in the pharmaceutical sector, it would be preferable if the government stepped in.

Cornelia Kutterer stated that when the market does not force standards, there is still a government that could impose mandatory standards.

Michael Nelson pointed out that the key problem of liability has not yet been solved. One reason is that there is not an open source solution for DRM is that there is nobody to sue.

Five miscellaneous policy wonk questions

Rama Rao (World Intellectual Property Organization), reviewed the contribution of WIPO to the Patent System in the world. He began by explaining the global patent system's beginnings with the Paris Convention, and moved on to speak about the more recent developments. Mr. Rao emphasized the need for harmonization. In this context he talked about WIPO's negotiation of the Patent Law Treaty in 2002 that uniformed time, format, application procedures and other formalities but did not cover substantive elements. Later on a Standing Committee on Patents was created aiming at going beyond the provision of the Patent Law Treaty. One of its more important challenges is to find a solution to the problem of the high cost of obtaining international protection for inventions. Since it was created it has had three sessions, but is still working on the difficulties caused by differences in opinion amongst the industrialized and developing countries.

Another problem faced by the international patent system is the duplication of fora. In order to discuss this issue, the committee met in Casablanca in February 2005. Mr. Rao emphasized the importance of a global patent system being open and transparent, fostering innovation, and serving the public interest. In this context, he encouraged WIPO to continue working on the harmonization of the patent system with close cooperation between governmental organizations and other representing stakeholders.

Mark Silbergeld (Consumer Federation of America), started off by differentiating between good and bad quality patents. In his view, good patent quality is one that promotes creation and innovation. Bad quality patents systems, on the other hand, are those that reduce market efficiency, discourage further innovation in the field and create unnecessary costs for litigation. For example, under this system small companies fear becoming subject to patent claims and thus refrain from being inventive. Patent offices do not have the resources to deal with that.

Referring to this distinction, he examined the patent system we have today. Although patents on essential medicine are appropriate because they promote innovation, they are not available in many parts of the world. Therefore we should review the system and create exceptions to it in order to solve this problem. The growing number of silly applications for patents creates inefficiency because the patent office each day finds it more difficult to do the proper research in order to grant patents. Finally, he criticized that the USPTO is still run on annual budget.

Brian Kahin (University of Michigan), explained what makes a patent valuable. He started off by laying out the different standards that can be used to evaluate the quality of a patent - the inventive step, the knowledge value (the information contained in the patent) and the commercial value. He questioned the TRIPS approach to the patent system, which promotes a "one-size-fits all" solution. For TRIPS, patents should be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology, and whether products are imported or locally produced. In his opinion, not every patent should be treated the same. Pointing out some of the reasons why we might want to discriminate, Mr. Kahin stated that empirical research shows patents experienced very differently in different industries. For example, pharmaceutical patents normally refer only to one product, business method patents cover many products, and software products require many patents. Also, innovations in different fields and industries go on under totally different conditions. While software is relatively cheap to invent, biotech products require a great amount of research and are thus very expensive.

Although some patent harmonization is necessary, Mr. Kahin questioned at what level this uniformity should be implemented: internationally, nationally, at the practice of the Patent Office, at the business practice or the interpretative practice in the courts? He underlined the dangers of the current one-size-fits-all system because it leads to investment distortions, opacity, discourages empirical study, creates industry disengagement and capture, inertia, and removal from democratic oversight.

Steven Merrill (National Academy of Sciences), stated that we have a system that is unitary in principle but diverse in practice. When asking which institutional authority should be in charge of amending it, he said that, in the U.S., while most of the people would have relied on Congress for such a task, it has in fact been a task of the federal courts. The system is not unitary because, to a large degree, courts have got it wrong. There is an important lack of formal standard and of evidence of business effects.

Today, there is consensus amongst most of the people and businesses involved in filing patents that there is a serious quality problem in the U.S. patent system, especially with regard to standards. Many patents are granted that have no economic importance and that are never going to be enforced. Although the U.S. Patent Office and the courts have their own process for quality review, the formal processes that might generate conclusion are largely unreliable for coming to any kind of judgment. Congress is starting to discuss possible solutions including higher standards for granting patents, more rigorous examinations and new procedural measures for challenging patents.

Mr. Merrill also spoke about the possibility of including a research exception. This issue has recently been raised by two decisions of the court of appeals. Today nobody can agree on what kind of research exceptions should be written into law. Mr. Merril pointed out that we will not have a solution about this any time soon.

Michelle Childs (Consumer Project on Technology), spoke about the importance of the access to essential medicines in developing countries, which is critical issue because it concerns the extension and saving of life. In trying to find ways to promote a larger access to essential medicines in developing countries three problems are encountered:

1. lack of transparency on the relevant patents; a partial solution has been the creation of the Orange Book -a book in which companies could voluntary disclose their patents with the added incentive that once they signed up, generic companies are prohibited to develop the drugs. Although this system is working, it will be more effective if companies are required to disclose in order to enforce their patents. She also encouraged WIPO to play a more active role in this matter.
2. public policy problems; Ms. Childs called for more harmonized regulations. In this context she believed WIPO should create guidelines that would inform all national patent offices on issues such as when a patent should be granted.
3. and imperfect patent examination processes. There are heavy administrative and procedural costs associated with challenging a patent. As an example, small competitors are driven out of the market by the threat of patent litigation they cannot afford. In this context, a more practical approach should be taken. For example, if a patent is challenged and overturned in one country there should be a mechanism in place that will automatically review the patent in other countries. WIPO could serve as a facilitator by sharing information between the countries. In addition to that Ms. Childs referred to arbitration as an alternative to court system. WIPO is already providing low cost arbitration services in the area of domain names.

Discussion

Cornelia Kutterer said that the biggest problem is the extension of granted patents. The actual period of the patent is not 20 years, as it should be, but much longer.

James Love asked why we need a treaty if we can all agree that standards for granting patents are too low.

Rama Rao stated that the problem is not about the creation of a system of dispute resolution, since there is already one in place. The question is why it is not used. He therefore called upon TACD to investigate why this system of WIPO is not frequently used?

Open discussion and next steps

James Love stressed the importance of getting a sense of what should be done in terms of engaging the different parties.

Machiel van der Velde expressed that commitment is needed in order to work with the organizations. He also underlined the need to work on the highest level.

Cornelia Kutterer pointed out that BEUC has responded to all consultations in the field of Intellectual Property and is engaged in all legislative processes that are currently going on. BEUC is asking for accreditation on WIPO level at the end of September. She called on national consumer organizations to become more engaged. In addition, education is needed in the long run and therefore considered having more seminars.

Felix Cohen emphasized that consumer education is always the first step. Secondly it is important to focus on consumers' perspectives but not to lose sight of the many other interests involved. Furthermore, he pointed out the importance of sitting around a table with policy-makers at the national, as well as European, level. In addition to that he emphasized the importance of consumer groups involving the public, magazines, and the press.

Participants List