Former USPTO Director Kappos: Inventors Giving Up On Patent System After 200 Years 01/09/2015 by William New, Intellectual Property Watch 1 Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)In a clarion call to policymakers, former United States Patent and Trademark Director David Kappos said recently that this year’s unprovoked drop in patent filings in the United States is unprecedented and signals a shift toward more secrecy by inventors trying to protect their ideas. Meanwhile, the US trend toward antitrust actions at home is having deleterious effects for US businesses overseas, he said. David Kappos addresses audience at the UC Berkeley Faculty Club Kappos, a partner at Cravath, Swaine & Moore in New York, had strong criticism for a national trend toward antitrust laws undercutting the patent system. He spoke at the launch of the Tusher Center for the Management of Intellectual Capital at the University of California-Berkeley Haas School of Business. The 14 July daylong event at the UC Berkeley Faculty Club was the First Annual Management Conference and was titled, “Intellectual Property Issues in a Global Context: Management & Policy Concerns.” The event website includes videos of the speakers. In his keynote remarks, Kappos argued that cracking down on the patent system will drive up the alternative, trade secrecy, which is on the rise. Patent filings are now going down about 2 percent this year, he said, the first time he knows of in the history of the country where this has happened while there is no war, great recession or depression, or any other exogenous event. “Inventors are affirmatively giving up on the patent system,” he said. “They are moving away from it for some reason other than all the reasons they did for the past 200 years.” Trade secrets, by comparison to patents, have infinite life, rather than just 20 years. And, he said, rather than patents, which put knowledge into the public domain, trade secrets keep knowledge out of the public domain, they frustrate collaboration, they lead to inefficient allocation of resources, and they divert attention away from exploitation of technology toward concealment of technology. The US Domestic Bad Example Kappos questioned the example the US is setting, calling it a “domestic bad example.” Kappos has long been a strong patent proponent, having led IBM’s highly successful patenting bonanza several years ago. He argued in his remarks that countries that need to strengthen their IP system are instead being invited by our example to weaken them and damage the value of IP in the US and their own countries “under the guise” of antitrust enforcement. Critics in the US are “all too cavalierly” seeking to add reform on our own system and putting it under its own “domestic siege,” he said. At the same time there is a “surge” in access to today’s cheap technology under the antitrust law. “It’s certainly easy to get access to today’s cheap technology. You can get rid of the IP system and you’ll have access to today’s cheap technology,” Kappos remarked. “The problem is you won’t have much in the future.” This is occurring against a backdrop of competition law being used to “destabilize, debilitate innovation incentives provided by patent protection.” He raised a question about the new rules by the Institute of Electrical and Electronics Engineers (IEEE) on standard essential patents and what he called the Department of Justice’s “overly prompt endorsement” of them. He asked what data there is to show that these major IEEE policy shifts were needed. The IEEE policy came on the heels of the old IEEE policy on 802.11, which IEEE itself touts as a “heritage accomplishment”, perhaps the “single most important standard in the history of mankind”, created under the old rule not the new one,” he noted. It seems “a little odd” that despite the demonstrated success of the old policy, the group would come up with a new policy that “tilts the field in favour of standards implementers over innovators.” Kappos pondered whether the IEEE had taken a page from the playbook of a US patent commissioner in the 1800s who made the infamous statement that “all important inventions have been created.” He also took on those who believe the patent system needs to be improved through the antitrust mechanism. Antitrust authorities and monopolies have a storied rivalry. And as a patent is “in a way” a grant of monopoly rights – “though not really” – it’s no wonder that the system is “scrutinised by agencies attuned to rooting out and busting up monopolies.” But a patent is a “singular and very different kind” of monopoly, he explained. Patents have term limits, so they naturally go away. And a patent is a monopoly on something that wouldn’t even exist but for the patent itself, so to the extent that it takes something away from competitors, it’s taking away something they didn’t have access to in the first place. Patents and the Founding Fathers Finally, he noted that patent protection was seen as so important by the United States’ founding fathers that it is in the US Constitution. Meanwhile, he said, “I’m not aware of any antitrust clause in the Constitution, must less an antitrust exemption to the patent clause.” The priority was always “lean to the future,” and the country needs to get back to that. He continued by countering arguments that “times have changed” and there are unprecedented and unforeseen patent thickets and hold-up now. Nevermind, he said, that Thomas Jefferson himself protected his inventions with over 1,000 patents, and that the first so-called thicket dates back to the sewing machine war of the 1850s. But proponents of stronger regulation tend not to talk about tomorrow’s technology, which without a promise of exclusivity have very little chance of attracting a level of research and development investment required to bring them to fruition, he argued. He pointed to a recent Boston Consulting Group study on mobile technology. One of the issues the competition law seeks to address is artificially inflated prices caused by monopolistic practices. The average mobile subscriber cost per megabyte, even in light of all the so-called patent wars and thickets, has decreased 99 percent from 2005 to 2013. Infrastructure costs have seen a 95 percent fall for 2G to 3G networks and a further 67 percent drop from 3G to 4G networks. If there is any industry that the antitrust authorities should be blessing, that would be the one, he said. And virtually all of the mobile investment around the world has come from the private sector, not the governments, and has led to one of the greatest surpluses ever. Meanwhile, consumers are ever-hungry for more, wanting faster data speeds, more coverage, more battery life, and so forth. Data use needs are vastly expanding. Investment is going to be critical going forward to address these needs. Antitrust is proposing a solution to a problem that doesn’t exist, except in the mind of those focused on harvesting the rewards of the innovators so far, said Kappos. “We need to bring antitrust law into the 21st century,” he said. It needs to be acknowledged that the patent law itself is a check on harmful monopolistic practices. Antitrust authorities need to stay on the fringes of IP, going after the most egregious examples of abuse. For instance, he said they were right to go after MPHJ, a patent assertion entity accused of using “manifestly deceptive tactics in extracting royalties for patents by threatening lawsuits that were ostensibly meritless and that it had no intention of ever filing.” When a patent holder crosses the line like that to making “idle and surreptitious” threats, the Federal Trade Commission intervention benefits innovators and consumers alike. He noted the irony that the way the FTC caught MPHJ was not because the thousands of innkeepers and café owners in Vermont and Oregon sent money to MPHJ as they were demanded to do in the letters they received from the patent “troll”. Nobody sent any money. But in the letters, MPHJ said “others are paying us,” which turned out to be the untrue statement that enabled the antitrust enforcement authorities to get them. He noted cases from the past, such as Motorola pagers or Nokia cell phones, where it was feared the company had a monopoly and would harm competition, but where it turned out not to be the case, because, in his view, of their patents which led to competition that superseded them. He concluded that the patent system is the best way to lead to disruption, and the best policy move that can be made to advance the purpose of the antitrust regime is to strengthen the patent system, because it will lead to more entry and disruption to entrenched interests. Antitrust “Runamok” Kappos with IP-Watch Director William New A colourful speaker, Kappos took aim at what he sees as a trend of antitrust activity, including the “very dangerous runamok” of antitrust activity overseas to regulate patent licensing beyond borders. He also said the overextension of the antitrust regime in the US is a “precipitator” of a bad precedent overseas, as the US is “fuelling the wrong-headed belief that antitrust should be used to check IP rights, where it really should be the other way around.” He said “international antitrust runamok” is a way to use competition law to help local champions to the detriment of consumers and everyone else. He gave an “egregious nightmare example” of an antitrust regulator threatening to “flaunt all notion” of international comity, i.e., ensuring that decrees run within the borders and not outside the borders. In his example, an overseas antitrust authority in a hypothetical “big, important” country declares it will use an antitrust action involving patent licensing, and the resolution will cover devices sold and used in the country as well as those made in the country and sold and used in other countries. This, regardless of the nature of the manufacturer, could be big or small, based in their country or another country. Kappos said patents are rights that apply only within a nation’s borders. Most patent laws provide protection for companies, but it becomes complicated when it is applied for making, using and selling, he said. Every sovereign nation has the power to govern its own territory, and that’s it, he said. It is important for each country to decide how to handle its patents. The basic rule is sales and usage of patented products are governed by the country, and no country regulates the licensing of another country, except with manufacturing, said Kappos. “Where is society headed in a world where this basic principle breaks down?” he asked. “Chaos.” “Regulating the licence terms governing the sale and use of patented products in another country creates chaos for international antitrust enforcement,” Kappos said. When there is more than one antitrust authority governing, there are overlapping legal regulations, he said. Then there can be different treatment for two of the same product, depending on where it was manufactured. National antitrust authorities imposing their authority beyond their borders is a “very ripe target,” and as more antitrust authorities gain steam, they are promoting national champions’ interests, not consumers’, Kappos asserted. Comity Needed So what is needed is to use the principle of “comity,” he said, which gives national law preference where they have the greatest interest. For instance, a patent issued in India primarily applies to that product in India. So there would be no competition for protection across international boundaries, and the price of a patent in the US does not affect the price of a patent in China. Courts have limited extraterritoriality, he said. Comity helps provide a restriction on jurisdiction and ensures that the nation with the greatest interest in the case is able to apply its laws and policies, recognising that not every nation arguably having an interest in the situation will have the greatest interest. He proposed a research topic for the new Berkeley centre: helping overseas antitrust counterparts “see the importance of respecting comity, understanding comity, applying comity that is not is just some kind of a convenient American concept that’s being forced on them because the Americans don’t want them enforcing their antitrust laws against American companies, but that it is a matter of international reciprocity.” Image Credits: Bruce Cook, Bruce Cook Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related William New may be reached at firstname.lastname@example.org."Former USPTO Director Kappos: Inventors Giving Up On Patent System After 200 Years" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.