Joe Biden
President-Elect
United States of America
1401 Constitution Avenue, NW
Washington, D.C. 20230

Kamala Harris
Vice President-Elect
United States of America
1401 Constitution Avenue, NW
Washington, D.C. 20230

Dear President-Elect Biden and Vice President-Elect Harris,

We are innovators and supporters of innovation. We write in support of durable and reliable intellectual property protection. Over the past several years, the United States Patent and Trademark Office (USPTO) has made significant improvements in policies and procedures that enhanced predictability in the patent process. This has restored confidence in the U.S. patent system, and led to increased investment in innovation and business formation. If the U.S. is to maintain its leadership in innovation and technological development, it is imperative that we retain and build upon these improvements.

Since its earliest days, the U.S. recognized the importance of innovation, and rewarded inventors with limited exclusive rights to their inventions. This is at the root of America’s economic success and leadership, from a humble agrarian society to the leading industrial power at the center of the innovation economy.

The Founders’ recognition of the importance of protecting intellectual property, and in particular, patents and copyrights, is reflected in the express provision found in our Constitution. Article I, Section 8, clause 8 is the only power conferred on Congress linked to an explicit purpose. In the case of patents, it is to promote the progress of the useful arts. Patents provide innovators – from the sole inventor toiling away in a garage to the R&D department of a multi-national corporation – with the ability to compete on a level playing field, often against more well-established market incumbents.

IP-intensive industries are a major driver of the U.S. economy. In 2016 alone, these industries contributed more than $6 trillion to U.S. GDP, and created 45 million jobs. U.S. Dep’t of Commerce, Intellectual Property and the U.S. Economy: 2016 Update (2016) https://www.commerce.gov/data-and-reports/reports/2016/09/intellectual- property-and-us-economy-2016-update. Intellectual property rights also protect against the theft of ideas, both at home and abroad, and they ensure that everyone who participates in the innovation ecosystem has a shot at the American dream.

The USPTO Director is charged with safeguarding the U.S. patent system, executing the necessary administrative functions consistent with our patent laws, and encouraging innovation for the public good. The current USPTO leadership has worked diligently and effectively to provide balance in the system by adopting policies and practices that have enhanced predictability and patent quality. These efforts have led to increased confidence in the U.S. patent system, which in turn stimulates investment in innovation.

From its earliest days, the U.S. has been a beacon of innovation and creativity. This did not come naturally. It is a byproduct of a finely tuned legal system that balances incentives for innovation with the public good. Throughout our history, the world has looked to the U.S. in creating pro-growth, innovation-oriented laws and policies. The genius of the U.S. patent system is its recognition of the inventor’s inherent private property right.

Robust and reliable property rights is an essential element of any market economy. It fosters specialization, and facilitates collaboration among diverse enterprises. A properly balanced system of intellectual property rights enables many organizations to work together to solve the most complex challenges – whether solutions to a global pandemic or development of complicated communication systems (5G) – well defined property rights make those interactions less risky and more likely to occur favorably. In the absence of reliable IP protection, however, there is greater uncertainty, and thus reluctance to pursue those collaborations.

Policies and practices that undermine U.S. patent rights hurt American inventors, diminish innovation, and divert investment to foreign shores. If America does not respect innovation, we can expect two adverse effects: other nations will likewise fail to respect American innovation; and they will grant inventors the protections that we have forsaken. Innovators and investment will migrate toward more durable and reliable IP protection, and American jobs and economic growth will suffer.

Our country is at a critical juncture. We are facing unprecedented challenges of a global health and economic crisis while simultaneously witnessing profound changes in communications technologies that will have far-reaching, long-term implications. America can best address those developments by reinvesting in what we do best – creating new industries, jobs, and products from the fruits of innovation. Now is the time to reaffirm and support American leadership in innovation and economic growth by supporting the U.S. patent system. As we have shown throughout our nation’s history, this is best done by rewarding innovators for innovating; and this is most efficiently achieved, as the Founders recognized, by granting inventors an exclusive right to their discoveries. Let us devote ourselves to ensuring every inventor is able to access that exclusive right, and that it is reliably bestowed.

As we move forward under a new administration and a new Congress, we urge you to retain and to build upon these improvements to our patent system. We are ready to assist you, and encourage you to call on us as you do so.

Respectfully,

Brian P. O'Shaughnessy
Senior Vice President for Public Policy
LES U.S.A. and Canada, Inc.

Mihaela D. Bojin, PhD, CLP
Associate Director
University of Iowa Research Foundation

James Edwards
Executive Director
Eagle Forum Education & Legal Defense Fund

Aaric Eisenstein
Vice President
Personalized Media Communications LLC

Nick Dudziak
President
Sisvel US

Bob Gourley
Co-Founder and CTO
OODA LLC

Jim Harlan
Senior Director, Standards and Competition Policy
InterDigital, Inc.

Michele Herman
CEO & Founder
Metabl

Paul G. Kaminski
Undersecretary of Defense for Acquisition and Technology (ret.)
CEO
Technovation, Inc.

Patrick Kilbride
Senior Vice President
Global Innovation Policy Center | U.S. Chamber of Commerce

Gary Lauder
Managing Director
Lauder Partners

Ron Laurie
Executive Chairman & CIPO
InventionShare® Inc.

Paul Michel
Chief Judge (Ret.)
U.S. Court of Appeals for the Federal Circuit

Jonathan Rogers
Chief Operating Officer
&
Steven Rogers
Chief Executive Officer
Centripetal Networks, Inc.

Dr. Matteo Sabattini
Director IP Policy
Ericsson Inc.

Kenneth Stanwood
Chief Technology Officer
Wi-LAN

Robert L Stoll
Partner
Faegre Drinker

cc: Members of the Senate Judiciary Subcommittee on Intellectual Property
Members of the House Subcommittee on Courts, Intellectual Property, and the Internet

From its inception, the U.S. wisely and effectively encouraged innovation with a patent system that rewards inventors with a valuable personal property right.  Coupled with prudent technology policy and antitrust enforcement, the U.S. has become the innovation capitol of the world.  This valuable personal property right stimulated creativity, and encouraged investment in myriad enterprises from vast interrelated communications systems to lifesaving treatments and cures.  Often, those investments are capital-intensive, high risk undertakings where returns are not only uncertain but many years off.

Generally, the U.S. patent system has rewarded inventors equally without regard to technological discipline.  Inventors are afforded the same property right regardless whether the invention involved sophisticated, interconnected electronics, biotechnology, or household gizmos and toys.  With this Joint Policy Statement, the USPTO, NIST, and DOJ make clear that the remedies available to such inventors should likewise be technologically agnostic, and without regard to how the invention is used and commercially exploited.

The right conferred by the U.S. Constitution is clear and unambiguous.  It is an exclusive right, i.e., the right to exclude others from exploiting the inventor’s creation.  The joint Policy Statement makes clear that right is not diminished where the invention finds use in a complicated and interrelated device or system made possible through standard setting.  As the agencies made clear, there is no special set of legal rules, and the courts, the ITC, and other decision makers are able to assess appropriate remedies based on current law and relevant facts.  This is as it should be, assessing legal remedies based on objective facts and the law, and without regard to broad generalizations or assumptions.

LES joins the DOJ, the USPTO, and NIST in urging that, by resort to good faith negotiations, respect for property rights, and traditional notions of fair dealing, the US will continue to be the capitol of innovation, and the center of development for sophisticated and interconnected systems and devices.  Through its Standards Initiative, LES is developing voluntary, consensus-based professional practices under the American National Standards Institute’s (ANSI) Essential Requirements.  LES is bringing creators and implementers together to develop business management standards in an open, inclusive, and transparent process.  Those standards will facilitate successful, streamlined practices in negotiation, licensing, and valuation of all technologies, including Standard Essential Patents.   For more information visit LES Standards. 

The Licensing Executives Society (U.S.A. and Canada), Inc. has submitted comments in support of the USPTO's 2019 Revised Subject Matter Eligibility Guidance.  The comments were included in a letter sent to Undersecretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office Andre Iancu.  LES states that the Revised Guidance is a more practical and repeatable approach to patent eligibility assessment, and is entirely consistent with prevailing precedent and traditional approaches. 

On January 7, 2019, the U.S. Patent and Trademark Office ("USPTO") published a Federal Register Notice of its Revised Patent Subject Matter Eligibility Guidance ("Guidance"), and requested public comment.   The Guidance became immediately effective as to all applications, and all patents resulting from applications, filed before, on, or after January 7, 2019. 

Among other things, the Notice cited recent Supreme Court precedent relating to patent eligibility, and acknowledged that the existing framework for assessing eligibility has proven difficult to implement in a consistent manner, and has produced uncertainty.  This uncertainty has made it difficult for inventors, businesses and other stakeholders to predict what constitutes patent eligible subject matter, and to plan and invest accordingly.  The USPTO's Notice further observed that courts are not immune to that uncertainty, and that even our most patent savvy court, the U.S. Court of Appeals for the Federal Circuit, has repeatedly lamented the lack of clarity in this area of law.  To address those concerns, the USPTO has revised its patent eligibility guidance.

In its letter of support, LES stated that the revised Guidance is an appropriate and practical response to the prevailing uncertainty.  According to LES President and Chair of the Board, Bob Held, "This Revised Guidance is an important step forward in securing valuable property rights for American inventors, and will do a great deal to encourage innovation, stimulate economic activity, and serve our public interest."  LES further noted that the Guidance honors the tradition of a broad and inclusive interpretation of patent eligible subject matter while staying true to the prevailing body of precedent, as a whole.  Nonetheless, it is the Society's view that the patchwork of recent Supreme Court precedent, no matter how dutifully applied, is not a proper vehicle for setting national intellectual property policy, especially in the knowledge-based economy of the modern era.  Thus, LES urges Congress to take up the call arising throughout the innovation economy to provide a more potent and policy-oriented approach in the form of legislation. 

LES wishes to acknowledge the contributions of the LES Section 101 ad hoc Committee in compiling comments and preparing the Society's response to the request for comments. 

Click here to see a PDF of the letter.

Response of the Licensing Executives Society USA & Canada to NIST Request for Information:
Federal Technology Transfer Authorities and Processes

July 30, 2018
Via email: roi@nist.gov

RE: RFI Response: Federal Technology Transfer Authorities and Processes
Docket Number: 180220199-819-01

The Licensing Executives Society (USA and Canada), Inc. ("LES") appreciates the opportunity to respond to the NIST Request for Information: Federal Technology Transfer Authorities and Processes as published in the Federal Register, May 1, 2018.  LES commends NIST Director Walter Copan for instituting this "Return on Investment" (ROI) initiative and for his efforts to review Federal Technology Transfer authorities and practices; and in doing so thoughtfully, transparently, and with ample input from the user community within the innovation ecosystem.

LES is a non-partisan, non-profit, volunteer-driven professional society devoted to speeding innovation to market. For over 50 years, LES has been the premiere professional society devoted to promoting innovation and public well-being by bringing products more promptly from lab to market through intellectual property transactions and prudent intellectual capital management practices.  We represent all industries, from high technology to pharma and biotech. Our nearly 3,000 members are inventors, entrepreneurs, business executives, accountants, and lawyers.  We represent licensors as well as licensees.  In short, we represent all sides in all quadrants of the innovation economy. We are a member society of the Licensing Executives Society International (LESI), a global community of over 10,000 licensing professionals committed to predictable, reliable, and durable intellectual property rights.

LES fully supports the NIST ROI initiative.  We look forward to working with NIST in strengthening national innovation policies, and in identifying best practices, developing training programs, and ensuring efficient reporting of discoveries to ensure that the public enjoys maximum benefit from federally supported R&D.

LES joins our esteemed colleagues of the Association of University Technology Managers (AUTM) in their thoughtful and insightful remarks of July 11, 2018 in response to this RFI.  In addition to endorsing and adopting those remarks, we provide additional and/or clarifying comments of our own, below.  

1. What are the core Federal technology transfer principles and practices that should be protected, and those which should be adapted or changed?

LES ardently and fervently endorses AUTM's statement of the benefits of the Bayh Dole Law, and the importance of preserving it and staying true to its original objectives and practices.  LES urges that Bayh Dole itself be preserved, and that its core principles and enduring practices be maintained.  Any modification of Bayh Dole should be modest, incremental, and the product of open, inclusive, and deliberative engagement with the user community. 

AUTM's recommendations are sound, prudent, and worthy.  Chief among these are: 

• Decentralization of technology ownership and management from Washington, D.C. to the creating organization;
• Establishment of clear rules that are uniformly implemented across all government agencies;
• Creation of strong incentives for university-industry partnerships for successful technology transfer; and
• Clarification of patent ownership and related benefits in the federal research and development (R&D) system.

The Bayh Dole Law afforded authority and created incentives for universities of all sizes to manage, protect, and commercialize the fruits of research performed on their campuses, and resulting from the creativity of the leading experts in a wide variety of fields.  This has permitted the private sector to tap into the wealth of knowledge and expertise residing on our university campuses, and to collaboratively develop products and services that have had profound and enormously beneficial effects on our quality of life.  In turn, this collaboration has enabled our universities to fund critical research and better educate our youth with funding not only from the federal government, but also from the private sector. 

The Bayh Dole model has availed universities not only of critical research dollars, but of valuable collaborative opportunities.  The growth in sponsored research fostered by Bayh Dole has opened a new realm of resources for universities from the private sector.  The patterns of academic-industry collaboration that have evolved have allowed the theoretical knowledge of academia to blend with the practical knowledge of the private sector.  This best ensures that knowledge, both theoretical and practical, is efficiently and thoroughly exchanged, and thereby put to use to maximum public benefit. 

Further this decentralized model, which permits universities to exploit the meritorious benefits of our market economy, ensures that useful inventions are efficiently and expeditiously brought to market for the public to enjoy.  Any market-based economy is built upon the principles of stable, durable, and transparent property rights.  It is imperative that the principles and practices of Bayh Dole respect the principle of quiet title in resulting property rights. 

The ownership rights in intellectual property conferred to our universities under Bayh Dole should embody the same respect for stable, durable, and transparent property rights.  Continued adherence to this principle will further advance the remarkable success of Bayh Dole.  Thus, we caution against any enlargement in authority or practices relating to march-in rights, or any other diminution of the property rights conferred under Bayh Dole.  The manner in which march-in rights have been authorized and implemented throughout the history of Bayh Dole is sufficient to protect the public and the government.  We strongly urge that the limited approach to those rights be preserved without enlargement. 

Further, we note that the early success of Bayh Dole was attributable to consistent implementation throughout the federal government, including the government's various R&D funding agencies.  Implementation of the law consistent with Congressional intent is dependent upon uniform application of the principles and mandates of the law throughout our federal government.  A properly empowered oversight office is necessary to achieve that objective, and should be revived.   

For at least the foregoing reasons, LES expressly adopts and endorses the recommendations of our colleagues of AUTM in both of the following:

• Recommendation 1: An oversight office within the Department of Commerce should be reinforced to ensure proper and consistent application of the law and regulations – particularly related to the use of "exceptional circumstances" and "march-in rights." 
• Recommendation 2: Commerce should explore streamlining procedures and adopt best practices across all federal agencies.

Accordingly, we do not reproduce the text of AUTM's remarks here.  However, we emphasize that for Bayh Dole to best achieve its potential in serving the public good by moving technology rapidly from lab to market, the law must be consistently and expansively implemented throughout the federal government, and in a manner that respects the bedrock free market principles of durable, reliable, and transparent title in resulting intellectual property. 

LES combines its response to questions 2 and 3, below:

2. What are the issues that pose systemic challenges to the effective transfer of technology, knowledge, and capabilities resulting from Federal R&D? Please consider those identified in the RFI as well as others that may have inhibited collaborations with Federal laboratories, access to other federally funded R&D, or commercialization of technologies resulting from Federal R&D.
   
   
   And
   
   
   
3. What is the proposed solution for each issue that poses a systemic challenge to the effective transfer of technology, knowledge, and capabilities resulting from Federal R&D?

Here again, LES joins its colleagues of AUTM in citing the damage done to our national innovation policy and the associated ecosystem by the decline in identifiable, durable, and enforceable patent property rights.   We join AUTM's remarks, including Issues 1-5, and the corresponding proposed solutions.  This decline in public confidence in the durability and value of a U.S. patent¹ must be systemically addressed and reversed if the U.S. is to again achieve its place as the leading innovation economy in the world. 

The causes for this decline are attributable to the lack of a coherent and expansive national innovation policy.  To stimulate innovation, our nation's policy must encourage investment in, and implementation of, research and development of new products and processes, regardless of industry or technological discipline.  This demands predictability, durability, and transparency. 

Regrettably, recent precedent has upended traditional notions of patent eligible subject matter so as to unduly constrict that definition, and to cause profound uncertainty.  This uncertainty has been lately lamented by the judges of our lower courts, including those with special expertise in patent law.  See, e.g., Interval Licensing LLC v. AOL, Inc. et al., slip op. at 23-24 (Fed. Cir., July 20, 2018)(Plager, J., concurring-in-part, dissenting-in-part, "Given the current state of the law regarding what inventions are patent eligible, and in light of our governing precedents, I concur in the carefully reasoned opinion by my colleagues in the majority, even though the state of the law is such as to give little confidence that the outcome is necessarily correct.  The law, as I shall explain, renders it near impossible to know with any certainty whether the invention is or is not patent eligible." (emphasis added)). 

Among other things, this confusion arises from precedent conflating the definition of patent eligible subject matter with other statutory criteria for patentability.  The definition of patent eligible subject matter is meant to be a coarse filter; it is not properly used as a substitute for other statutory patentability criteria such as novelty (35 U.S.C. § 102) or obviousness (35 U.S.C. § 103).  Legislation is needed to restore the expansive definition of patent eligible subject matter, and to place it within its proper context as an adjunct of, not a substitute for, the statutory patentability requirements of novelty and nonobviousness. 
Similarly, the rights of patent owners have been compromised by restrictions on the exclusive nature of the right by ill-conceived limitations on the availability of injunctive relief.  The U.S. Constitution grants Congress power to afford inventors the exclusive right to their inventions.  U.S. Constitution, art. I, § 8, cl. 8.  The right to exclude others is thus a fundamental feature of the patent grant.  This right should be revived and clarified via legislation, such as is found in the Stronger Patents Act, pending in Congress as bipartisan companion bills in both the Senate and the House (S. 1390 and H.R. 5340).  We urge you to support legislation that will rectify this diminution of the patent right.

Patent owners, as all other property owners, have an obligation to the public to confine their enforcement actions within the reasonable ambit of the property right granted.  Thus, abusive litigation practices involving patent enforcement deserve attention.  Balanced and practical legislative responses as found in H.R. 6370 "Targeting Rogue and Opaque Letters Act of 2018" ("TROL Act") will further diminish instances of abuse.  We urge support for balanced measures targeting abusive litigation practices that nonetheless preserve the strength and vitality of duly granted U.S. patents.

Finally, the unintended consequences of the America Invents Act (2011) must be addressed and remedied.  Perhaps most significant of these is the USPTO's Inter Partes Review (IPR) process.  IPRs have been implemented in a manner that deprives patent owners of basic due process, exposes patent claims to varying and inconsistent standards of review as between USPTO and Article III proceedings, unduly restricts amendment of claims under review, and denies patent owners quiet title in this important property right.  Patent owners are subject to serial challenges by those having no standing in court; under a claim interpretation standard different than that used in court; and without freedom from challenge throughout the entire life of the patent.   With the advent of IPR as presently constituted, a U.S. patent is forever under a cloud, thereby diminishing confidence, investment, product development and commercialization, and new business formation.  We urge NIST to work with its colleagues at the USPTO and with Congress to effect prompt, remedial action.

In summary, and for purposes of emphasis and supplementation, we urge at least the following action to address the weaknesses that have crept into our national innovation policy, and to reverse the unfortunate decline in the durability, reliability, and value of a U.S. patent grant: 

• Congress should re-assert and clarify its longstanding intention that patent eligible subject matter be interpreted expansively, and in context within the statute as a whole, especially relative to 35 U.S.C. §§ 102, 103, and 112.  We encourage enactment of a new version of 35 U.S.C. § 101 that, among other things, expressly legislatively overrules recent precedent responsible for the prevailing uncertainty.
• Revive, by statute, the exclusive nature of the patent right by clarifying and restoring the presumptive right to injunctive relief as contemplated by the Constitution. 
• Address abusive patent enforcement practices, while preserving meritorious patent rights, as by enacting the TROL Act (H.R. 6730). 
• The USPTO's IPR process, if it is to be retained, must afford patent owners due process protections consistent with those of Article III proceedings.  In particular, the IPR process must apply the same standard of claim interpretation as in Article III proceedings; and there should be appropriate restrictions on standing, and the number and timing of IPR proceedings such that patent owners may, at some point, be assured of quiet title in this valuable and socially beneficial property right.  Patent owners should be afforded liberal opportunities to amend challenged claims within the IPR proceeding. 
  

4. What other ways to significantly improve the transfer of technology, knowledge, and capabilities resulting from federal R&D to benefit U.S. innovation and the economy?  What changes would these proposed improvements require to Federal technology transfer practices, policies, regulations, and legislation?

LES supports the remarks and recommendations of AUTM, with added commentary and suggestions below. 

A Focus on ROI May Undermine Commercialization

An unduly narrow and shortsighted focus on "ROI" is inconsistent with the nature of academic-industry collaboration.  Academicians excel in basic research where commercial applications may not be apparent for many years.  While it is laudable, and in the public interest, to marry the academic's expertise in basic research with the business executive's focus on commercial application, the measurement of success of that enterprise is a notoriously complex and elusive exercise. 

We should be careful to avoid applying narrow and superficial metrics in measuring the success of federal support of research.  Success in this context has many and varying definitions.  ROI is perhaps best achieved by empowering federal labs and academia to employ the principles of the free market, and in fostering an exchange of best practices, and even personnel, between the private sector and academia/federal labs.

Successful and Sustainable Commercialization Requires Supporting Networks and Funding

We should bear in mind that patents are not products, and products are not profits.  There is a broad gulf between an invention in the lab and the successful commercialization of a product, process, or business.  The gulf between start-up funding and sustainable profitability is where most new enterprises fail.  This is the so-called "valley of death."  Our innovation policy should not overlook the need to support enterprises traversing this hazardous territory.  It is a necessary, but inherently risky, exercise.  Programs such as the Small Business Innovation Research (SBIR) program are essential to ensure that fledgling invention is turned into sustainable business.  Thus, the SBIR program and similar supporting networks are critical to bringing federally supported research from lab to market.  Expansion of such programs will enhance ROI on federally supported research. 

We commend NIST in initiating a dialogue on these complex and important topics, and we encourage ongoing exploration and discussion.

5. CONCLUSION

LES gratefully acknowledges the opportunity to share its insights and recommendations to NIST, and we commend Director Copan and NIST in opening this dialogue to the full range of stakeholders.

We urge restoration rather than revolution in the implementation of Bayh Dole.  As originally envisioned, structured, and implemented, Bayh Dole has had a profoundly meritorious effect on U.S. innovation and commercialization of new technologies, and in the health and vitality of our higher education system.  Many countries have copied this regime in the hopes of realizing those same benefits.  Faithful implementation of Bayh Dole consistent with its original intentions and objectives will best yield substantial and worthy ROI.  Further modification deviating from those early principles and practices should be undertaken cautiously, and with open and transparent inclusion of the user community. 

Finally, we urge further development of a consistent national innovation policy that starts with revival and restoration of strong, durable, and reliable intellectual property rights, particularly patent rights.  This requires smoothing out the inconsistencies of "policy by precedent"; an expansive view of patent eligible subject matter; and adherence to the principles of due process and quiet title in property rights such as will encourage investment in, and the creation of, new products, businesses, and industries. 

LES looks forward to working with NIST and other agencies and branches of our government to further improve and enhance the U.S. innovation ecosystem.  We encourage you to contact us as occasions and opportunities to do so arise. 

Very best regards

Brian P. O'Shaughnessy                                      Kim Chotkowski
Immediate Past-President                                  Chief Executive Officer 
LES U.S.A. and Canada, Inc.                               LES U.S.A. and Canada, Inc.

¹See U.S. Chamber of Commerce, Global Innovation Policy Center, IP Index (February 2018), showing that global confidence in the U.S. patent system has declined from a perennial ranking of first in the world to 12th; and this after dropping from first to tenth in the previous year.  The report associates the drop with various unintended consequences of the America Invents Act of 2011. 

Download the response here.

On April 4th, the leadership of LES met with Director Iancu and his senior leadership team to discuss steps the USPTO could take to improve the U.S. patent system.  This change in claim construction was a leading recommendation.  LES is delighted that Director Iancu has chosen to pursue this initiative.  It aligns the public interest and the private rights of inventors.  LES looks forward to working with the USPTO to implement additional changes to restore the reputation of the U.S. patent system as the best in the world, and the U.S. as the premiere destination for investment and innovation

U.S. Representative Steven E. Stivers
1022 Longworth House Office Building
Washington, DC 20515

Dear Congressman Stivers:

On behalf of the Licensing Executives Society (USA and Canada), Inc. ("LES"), we thank you and your co-sponsors for your recent introduction of the STRONGER Patents Act of 2018 in the U.S. House of Representatives. We also thank you for your leadership in raising awareness of the importance of durable, reliable intellectual property rights as an essential element of our economy, a pillar of our legal system, and a benefit for all of humanity. Your remarks on April 10th at the IP LeadershIP 2018 event at the Newseum, Washington, DC, were especially encouraging. We are writing to offer our assistance.

We understand that you plan to hold a hearing on the state of the U.S. patent system, and to explore the phenomenon of "efficient infringement." Efficient infringement is an unfortunate development in technology commercialization. It frustrates the incentives our nation's founders expressly contemplated for authors and inventors in Article I of our Constitution. The diminution of those incentives discourages innovation, reduces investment, and hinders the formation of new businesses and industries.

LES is a non-partisan, non-profit, volunteer-driven professional society devoted to speeding innovation to market. For over 50 years, we have been the only professional society devoted exclusively to the licensing of intellectual property. We represent all industries, from high technology to pharma/biotech. Our members are inventors, entrepreneurs, business executives, accountants, and lawyers. And, we represent licensors as well as licensees. In short, we represent all sides in all quadrants of the innovation economy. We are devoted to the principle that intellectual property is a private property right that must be respected like any other form of private property – through predictable, reliable, and durable legal rights that are worthy of investment and command the respect of the market.

Over its first 225 years, the U.S. patent system has proven to be among the most potent economic engines ever devised. Coupled with the pioneering American spirit, our patent system fostered electrical lighting, the automobile, controlled flight, the silicon chip, and numerous life-altering inventions yet to come. However, to continue along this trajectory, we must preserve the incentives the founders envisioned. To do so, we must provide a legal regime that respects intellectual property rights, and especially the right of inventors to exclude others from trespassing on those rights.

Efficient infringement runs counter to such a legal regime, and it violates the American tradition of respect for the rule of law and the importance of private property rights. It smacks of gamesmanship and sharp practices, and produces profound inefficiencies and inequities in the marketplace. These have an especially harmful effect on the inventor and entrepreneur.

LES is committed to fostering innovation through a fair and equitable marketplace for innovation. The LES Standards Initiative is bringing the licensing industry together to selfregulate, and discourage abuse of our patent system. We are drafting consensus-based voluntary standards for the ethical, prudent, and practical use of intellectual property to drive commerce and improve the human condition. We have briefed members of Congress and various federal agencies on this initiative, and we have appeared in hearings before Congressional Committees. We ask that you consider including an LES representative among your witnesses. We stand ready to assist you in whatever way you deem appropriate as you plan this hearing, and as you work to restore the U.S. patent system to its former glory. Please feel free to contact me at your convenience.

Very best regards,

Brian P. O'Shaughnessy
Immediate Past-President
LES U.S.A. and Canada, Inc.

Download the letter here

Wilbur L. Ross, Jr.
Secretary of Commerce
U.S. Department of Commerce
1401 Constitution Avenue, NW
Washington, D.C. 20230

Re: Appointment of Undersecretary of Commerce for Intellectual Property

Dear Secretary Ross:

To promote the progress of science and the useful arts, the U.S. Constitution empowers Congress to grant authors and inventors an exclusive right in their respective writings and discoveries for a limited term. In the case of invention, society properly demands of the inventor a disclosure of how to make and use the invention. This enlarges the public store of knowledge, fosters improvement, and makes the invention available to all upon expiration of the patent.

The Licensing Executives Society, USA & Canada (LES) is a non-profit, non-partisan professional society of 3,000 business executives, lawyers, entrepreneurs, and inventors devoted to bringing the fruits of innovation rapidly to market through business alliances. These alliances, on the whole, are pro-competitive and enhance economic integration and specialization. They promote business formation, investment, and the creation of good, high-paying jobs. Surely, a system that produces durable, predictable, enforceable intellectual property rights will reduce the risk inherent in such alliances, will promote their formation, and will inure to the public good.

The chief steward of America's patent system is the Undersecretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. The Director "is the principal advisor to the President, through the Secretary of Commerce, and to the Administration on all intellectual property policy matters and the chief executive of the USPTO."¹ Recently, Director Michelle Lee, who held that post since March 13, 2015, resigned.

Now, the Administration must appoint a new Director. LES urges the Administration to do so promptly. The US patent system is a potent economic engine. It stimulates a disproportionate amount of new business formation, job growth, and investment.

In selecting the next steward of our patent system, LES recommends the following qualifications.

Above all, LES recommends appointing a Director dedicated to protecting intellectual property, generally, and patents in particular, as the private property right our nation's founders envisioned. The founders saw great value in rewarding individuals who toil to bring forth from commonly accessible resources useful products and processes by granting to those individuals an enforceable property right. They recognized that such a property right would, in the fullness of time, work a substantial benefit to the public by encouraging innovation and disclosure. We must honor that philosophy. It contributed substantially to America's rapid ascendancy from agrarian economy to industrial powerhouse, and can be traced to America's first patent act of 1792. In affording that private property right, we reward and empower the archetypal American innovator, the individual daring to risk all to bring forth the next big thing, and thereby challenge market incumbents who benefit from stasis and the status quo.

We further recommend that the Administration appoint a Director who has: (1) first-hand experience of at least 20 years in the procurement, and enforcement and/or commercial exploitation of IP rights in a diverse range of technologies, both domestically and internationally; (2) a commitment to the prompt examination and issuance of patents and trademarks of the highest quality; (3) dedication to the administration of the USPTO's duties to ensure transparency, equity, and compliance with prevailing law for the good of industries both large and small, and in a manner that promotes innovation and disclosure; (4) legal and/or executive leadership skills, especially in the operation of an enterprise engaged in the creation or utilization of intellectual property; and (5) a thorough understanding of the role US patent law can play in promoting a fair and level playing field in the world of international trade.

Commercial development of innovation, and new business formation, demands the prompt and predictable grant of durable property rights, and a reasonable expectation of the enjoyment of quiet title upon issuance. Financing of new enterprises, and the growth of existing ones, demands intellectual assets that stand up to challenge, regardless how those assets are derived or commercialized. American innovators deserve strong, predictable, enforceable intellectual property rights, and that starts at the USPTO.

Regrettably, recent changes, both legislative and precedential, have chipped away at US patent rights. Meanwhile, patents issued by other countries are increasingly perceived to be more predictable and enforceable, and thus to have greater value. Investment, and ultimately innovation, will migrate to those environments. We need a USPTO Director dedicated to reviving the US patent system as one of the best in the world, restoring public confidence in the rights it confers, and thereby restoring US prominence in innovation, manufacturing, and new business formation.

The Licensing Executives Society, USA & Canada, would be both pleased and honored to work with you in your selection process, and to provide further advice and counsel as you see fit. We will contact your office independently to explore the prospects for a meeting to discuss this issue. We look forward to discussing this very important issue with you or your staff.

Sincerely,

Brian P. O'Shaughnessy
President & Chair of the Board
Licensing Executives Society (USA and Canada), Inc.
Partner, Dinsmore & Shohl, LLP

¹ U.S. Patent and Trademark Office, at https://www.uspto.gov/about-us/organizational-offices/office-under-secretary-and-director

Download the letter here

Senator Mitch McConnell
317 Russell Senate Office Building
2 Constitution Ave
NE Washington, DC 20510

Senator Harry Reid
522 Hart Senate Office Building
Washington, DC 20510

Dear Majority Leader McConnell and Minority Leader Reid:

The Licensing Executives Society (U.S.A. and Canada), Inc. ("LES") applauds your efforts in addressing litigation abuse in patent cases. This is a complicated and multi-faceted area oflaw that is rapidly changing, and requires a nuanced and cautious approach. For this reason, LES urges you to defer floor consideration ofS. 1137, the "PATENT Act."

LES is a non-profit, non-partisan professional society of about 3,000 members who are bringing the fruits of innovation to market by facilitating the orderly exchange of intellectual property rights through license agreements. LES is the leading licensing organization in North America. Its members represent every industrial sector and a wide array of technological disciplines, from telecommunications to the life sciences. LES is actively engaged in education, public policy, and sharing best practices to promote the effective use of intellectual property to the ultimate benefit of society. LES is a member society of the Licensing Executives Society International (LESI), a global society of 32 sister societies and over 11,000 members.

The PATENT Act reflects certain laudable goals in attacking bad faith patent litigation. However, it is the considered opinion of LES that it is not ready for floor consideration, and less so passage. The bill includes provisions that will substantially increase the risk and raise the cost of enforcing all patents, even in the most meritorious of cases. This will diminish the value of innovation, increase the loss of intellectual property to foreign competitors, and deprive society at large of the fruits of American innovation. Moreover, it will diminish a Constitutionally-created property right that has contributed substantially to American exceptionalism and its robust free market.

The PATENT Act will be especially harmful to individual inventors, start-ups, and smaller corporate entities striving to survive in an increasingly competitive marketplace. They require the effective redress of the courts to level the playing field. However, as it stands, the PA TENT Act imposes great risk on all patent owners, e.g., mandatory fee-shifting. Under that proposed regime, and unlike any other U.S. property right, the "loser" would be obligated to pay the attorney fees of the prevailing party based on an as yet undefined "objectively reasonable standard." That provision will deny access to the courts to countless small businesses and inventors by virtue of the chilling effect worked by that increased risk alone.

Further, the intellectual property legal landscape has recently undergone dramatic change. The Supreme Court has substantially relaxed the standard by which attorney fees may be assessed, and narrowed what constitutes patentable subject matter. The entire innovation economy deserves time to weigh those legal developments, and to see how the lower courts will implement them.

LES urges a judicious approach that affords broad input from all members of the innovation economy, both large and small. In its current form, the PATENT Act would weaken property rights long-enjoyed in the United States, and long since recognized as a benefit to the public weal since the first Patent Act of 1790. Moreover, it would diminish the economic value of intellectual property, and discourage small business formation and capital investment. LES asks that you defer bringing S. 1137 to the floor until the legal landscape is more settled, and the various provisions of the bill are more carefully constructed and broadly considered.

LES welcomes the opportunity to work with you to develop a balanced bill that serves the entire innovation economy, the free market, and society as a whole.

Respectfully submitted,

Bradley J. Olson
Vice-Chair, Public Policy Comiitee (Legislative Initiatives)
Licensing Executives Society (U.S.A. and Canada), Inc.

cc: Members of the U.S. Senate

Download the letter here

Speaker John A. Boehner
H-232 The Capitol
Washington, DC 20515

Minority Leader Nancy Pelosi
H-204 The Capitol
Washington, DC 20515

RE: H.R. 9 "the Innovation Act"

Dear Speaker Boehner and Minority Leader Pelosi:

The Licensing Executives Society (U.S.A. and Canada), Inc. ("LES") applauds your efforts in addressing bad faith patent litigation. We agree that corrective action is required; however, this is a particularly complicated and interdependent area of the law, carrying with it grave potential for profound unintended consequences. A cautious and judicious approach is needed. For this reason, LES urges you not to bring HR 9 "The Innovation Act" to the floor, and we oppose passage in its current form.

LES is a non-profit, non-partisan professional society of about 3,000 members who are bringing the fruits of innovation to market by facilitating the orderly exchange of intellectual property rights through license agreements. LES is the leading licensing organization in North America. Its members represent every industrial sector and a wide array of technological disciplines, from telecommunications to the life sciences. LES is actively engaged in education, public policy, and the sharing of best practices to promote the effective use of intellectual property to the ultimate benefit of society. LES is a member society of Licensing Executives Society International (LESI), a global society.

LES believes that H.R. 9 in its current form is not ready for passage. There are several provisions within the bill that will diminish innovation, and will be especially harmful to small businesses and individual inventors. LES believes that passage ofH.R. 9 will result in an erstwhile "law of unintended consequences."

Of special concern is the bill's imposition of presumptive, mandatory fee-shifting ('loser pays"). That provision would require courts to award attorney fees and costs to the prevailing party unless the patent owner can meet the burden of proving its case was reasonable according to standards that are ill-defined. The risk of such an award will have a chilling effect on the innovation economy as a whole, and especially individual inventors and start-up enterprises; and will discourage resort to judicial relief for even the most meritorious of cases.

H.R. 9 also seeks to chill litigation as an avenue for settling patent disputes by imposing "involuntary joinder" of all interested parties, exposing them to the fee-shifting provisions of loser-pays. That regime will subject third parties to fee awards for actions by plaintiffs over whom they might have no influence or control.

H.R. 9 heightens the pleading standards for patent cases beyond the "notice pleadings" required for other civil matters. H.R. 9 seemingly assumes that full information is available to patent plaintiffs in requiring patentees to identify how each asserted patent claim is infringed by each accused process, product, or device, all without benefit of discovery.

Broad input from the inventive community is needed. H.R. 9 in its current form would weaken patent property rights long-enjoyed in the United States for the betterment of the public since the very first Patent Act of 1790, and it would diminish the vital role that intellectual property rights play in job creation, business formation, and capital investment.

LES asks that you defer bringing H.R. 9 to the floor until its various provisions can be more carefully balanced to protect the salutary benefits that our patent system affords the public interest and the U.S. economy.

LES is eager to work with House members in crafting legislation that balances restrictions on litigation abuse against pro-growth protection of valid and enforceable property rights.

Respectfully submitted,

Bradley J. Olson
Vice-Chair, Public Policy Comiitee (Legislative Initiatives)
Licensing Executives Society (U.S.A. and Canada), Inc.

cc: Members of the U.S. House of Representatives

Download the letter here

MOUNT LAUREL, N.J. – June 22, 2015 — On Friday, June 19, the Licensing Executives Society (USA & Canada), Inc. (LES), filed a brief at the Federal Circuit as amicus curiae in Lexmark International, Inc. v. Impression Products, Inc., Case No. 14-1617.

In Lexmark, the Federal Circuit, sitting en banc, will consider specific aspects of the patent exhaustion doctrine, in particular, whether to retain the rule that foreign sales of patented articles do not exhaust U.S. patent rights, as it held in Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001); and whether the rule of Mallinckrodt, Inc. v. Medi-part, Inc., 976 F.2d 700 (Fed. Cir. 1992), i.e., that lawfully restricted sales of a patented article do not exhaust patent rights, was overruled by Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008)). 

The LES brief supported neither party, and did not advocate for a particular result.  Instead, LES addressed the practical effect on licensing if the Court were to maintain the status quo, or if it were to modify those holdings to enlarge the scope of the doctrine.  If the Court were to reaffirm Jazz Photo and Mallinckrodt, it would permit greater flexibility in license agreements, and the parties would be able to tailor agreements more carefully, e.g., to convey minimal rights, and thereby decrease the cost of those rights. If, however, the Court were to enlarge the doctrine, it may result in agreements of greater simplicity, but also of greater cost, and thus a greater burden on prospective licensees. 

LES was represented on the brief by Daniel Stringfield and Katherine Johnson of Steptoe & Johnson, Chicago, IL, and the brief was filed on behalf of LES by its Regional Vice President, USA, Brian P. O’Shaughnessy of RatnerPrestia, Washington, DC.

“LES is pleased to share its insights with the Federal Circuit on the real-world effect of this case on licensing,” said O’Shaughnessy. “LES is the premiere professional society for those engaged in licensing in the USA and Canada.  Collectively, our membership represents all aspects of the licensing process, in all sectors of the economy.  As such, LES in especially well qualified to assist the court in weighing these issues.”

As a non-profit professional society representative of the entirety of the diverse community of executives, lawyers, and consultants engaged in intellectual property (IP) transactions, commercialization and valuation, LES and its members are devoted to bringing the fruits of innovation rapidly to market for the benefit of the global community. The Society supports robust and effective IP protection in support of reliable and efficient transfers of IP rights, and the corresponding enlargement of markets and enhancements in economic activity.

Oral argument en banc is scheduled for October 2, 2015.

To learn more about LES, visit www.lesusacanada.org.

About LES (USA & Canada):
Established in 1965, the Licensing Executives Society (USA & Canada), Inc. (LES) is a professional society of nearly 3,000 members engaged in the transfer, use, development and marketing of intellectual property. The LES membership includes a wide range of professionals, including business executives, lawyers, licensing consultants, engineers, academicians, scientists and government officials. Many large corporations, professional firms, and universities comprise the Society's membership. Licensing Executives Society (U.S.A. & Canada), Inc. is a member society of the Licensing Executives Society International, Inc. (LESI), with a worldwide membership of more than 10,000 members in 32 national societies, representing over 90 countries. For more information on LES, visit www.lesusacanada.org.

###

After passage of a House bill aimed at curbing abusive patent litigation tactics, and reports that an agreement on a corresponding Senate bill was imminent, Senator Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, officially tabled the Patent Transparency and Improvements Act of 2013 (S. 1720) on May 21 citing "lack of support behind any comprehensive deal."

The Licensing Executives Society, (U.S.A. and Canada), Inc., has been a vocal member of a diverse coalition of IP-oriented companies, universities, and professional societies voicing grave concerns over the structure and scope of both the House and the Senate bills. LES has repeatedly voiced concerns over the very real threat of profound unintended and deleterious consequences for the US patent system, the economy, and jobs if either bill were to have been passed into law as written.

"This is a great development for US innovation," said LES (USA & Canada) Regional Vice President-USA Brian O'Shaughnessy. "We are pleased that our educational efforts helped legislators more fully appreciate the complexities of this issue. Legislative initiatives such as this demand thorough discussion and debate followed by careful deliberation. Our economy is ever more dependent on IP development, protection, and monetization. We simply cannot afford a rush to judgment. Given our role as the leading innovation economy in the world, the consequences are too great. The pause in legislative action occasioned by Senator Leahy's well-reasoned action will permit further discussion and more informed debate should the issue arise again in a subsequent Congress."

In a statement released by his office, Senator Leahy said "Unfortunately, there has been no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions. We have heard repeated concerns that the House-passed bill went beyond the scope of addressing patent trolls, and would have severe unintended consequences on legitimate patent holders who employ thousands of Americans." Press Release

Mr. O'Shaughnessy adds that "LES looks forward to working with Senator Leahy, and other members of Congress and the Administration, on future patent legislation of any sort; and is eager to share its perspectives on the commercial role of IP in the innovation economy, and to assist in the development of prudent reforms that will strengthen the US patent system, further encourage innovation, and thereby improve the human condition."

By Brian O'Shaughnessy

The debate over patent litigation abuse, and its effect on innovation and our economy, continues to rage.  Various interests, and now members of Congress, argue that immediate action in the form of legislation is needed.  Those intimately involved in the daily administration of our patent system,  however, urge caution, saying that focused, incremental approaches are more suited to solving the problem, and will do so at less risk to our economy.  Now, in Kilopass Technology, Inc. v. Sidense Corp., the U.S. Court of Appeals for the Federal Circuit has weighed in, demonstrating that courts do indeed have the authority and the will to combat litigation abuse. 

The final implementation of the America Invents Act (AIA) is now less than a year old.  The AIA effected the most sweeping change in US patent law in decades.  Given the changes contemplated, it is not surprising that legislation took over seven years to wind its way through Congress.  Despite all the informed input and consensus-building over those seven years, many of its provisions remain controversial.  

One would expect a certain amount of patent fatigue prevailing on Capitol Hill.  Not so.  Now we hear the din of a putative rise in patent litigation wrought by "patent trolls" as threatening our economy and stalling innovation.  Some members of Congress and certain special interests urge that still more patent legislation is immediately needed.  In the last year alone, the two houses of Congress crafted at least six different bills styled as anti-troll legislation, and offered innumerable amendments to those under consideration. 

Recently, the House passed H.R. 3309, with lightning speed despite calls from judges, federal agencies (e.g., FTC), and two former USPTO directors, all urging caution, further amendment, and additional investigation and debate.  The Senate is now considering a companion bill, S. 1720, and seems bent on similar fast action.  The speed with which those bills and amendments have moved through the legislative process has wrought disbelief and consternation throughout the innovation economy.  The implications of a legislative fix are myriad and complex, and the repercussions for our economy and our role as world leader in innovation will be profound. 

The Federal Circuit has now shown that courts have the wherewithal and the inclination to combat litigation abuse.  The incremental approach to reform on a case by case basis by learned judges witnessing the acts of litigants firsthand offers an effective solution with greater predictability and less risk to our economy. 

On December 26, the Federal Circuit decided Kilopass Technology, Inc. v. Sidense Corp.  The holding in this case makes it easier for an unjustly accused patent defendant to recover its attorneys' fees. This ups the ante on patent owners who fail in their pre-suit due diligence or deliberately bring patent suits on dubious grounds. 

Before bringing suit, Kilopass had sought an opinion of counsel that Sidense infringed its patent, but that opinion was based on a product disclosed within a Sidense patent, not the accused product itself.  Kilopass later learned that the accused product differed from that in the Sidense patent.  Kilopass then sought an opinion of a second counsel, which, at Kilopass's direction, was never concluded.  Kilopass then hired a third-party to reverse engineer the Sidense product, and it concluded from an "engineer's perspective" that there was infringement.  Kilopass thus had no opinion of competent counsel as an objective foundation for its claim of infringement.

Ultimately, the district court granted summary judgment in favor of Sidense on non-infringement.  Sidense then moved for attorneys' fees urging that Kilopass lacked a sound basis for bringing the suit.  The district court denied the motion for fees.    

The Federal Circuit found the district court's application of the test for fees insufficient and unduly rigid, and vacated and remanded the case for further consideration. 

The Federal Circuit noted the two-part test for awarding attorneys' fees under § 285.  It first requires determining "whether the prevailing party has proved by clear and convincing evidence … that the case is 'exceptional.'"  If so, the court "must then determine whether an award of attorneys' fees is appropriate."  "Absent misconduct in the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless." 

The panel held the district court erred in requiring too great a showing of subjective bad faith, and in its unduly narrow view of the proof that can satisfy the subjective prong of the § 285 analysis.  The court clarified the standard saying that "subjective bad faith only requires proof that the 'lack of objective foundation for [the patentee's] claim 'was either known or so obvious that it should have been known' to the party asserting the claim.'" 

The Federal Circuit analogized to Seagate and its progeny.  "Like a plaintiff seeking to recover attorneys' fees under § 285 based on alleged willful infringement, a defendant need only prove reckless conduct to satisfy the subjective component of the § 285 analysis."  By clarifying the standard for sanctions under § 285, the two cases foster an efficient free market that respects intellectual property rights while facilitating entry of new products.  Seagate relaxed the due diligence required to avoid sanctions for willful infringement.  Kilopass lowered the burden to prove objectively baseless litigation, and therebyincreased the due diligence required to assert infringement.  Together, they insulate the market from patent overreach, while nonetheless encouraging responsible conduct on both sides. 

Finally, the panel's decision is significant for what the panel chose not to do.  The panel favorably acknowledged Sidense's arguments for removing the subjective element altogether, and eliminating the higher "clear and convincing" burden of proof; however, it also acknowledged that, sitting as a panel, it was constrained to abide by the court's precedent.  Chief Judge Rader concurred with particularly telling commentary ("I welcome and join the court's thoughtful analysis, legal scholarship, and improvement in the application of our fee-shifting law.  I also endorse the changes proposed by Sidense that objective baselessness alone should be sufficient for an award of attorney's fees, and that proof by a preponderance of the evidence should suffice.").  While the legal significance of this commentary is quite limited, it is nonetheless a telling indication that the court's fee-shifting precedent is poised for still further change. 

What Now?

For private litigants, there are several lessons to be learned.  Patent owners bringing suit must be able to establish an objective foundation for a claim of patent infringement.  The best means for doing so is a thorough, complete and competent opinion from outside counsel rendered prior to bringing suit.  The opinion should address the accused product, per se, and set forth an objective, well-reasoned basis for the claim of infringement.  An opinion by other than the litigation counsel would likely be strong evidence of an objective foundation for the litigation. 

For those defending themselves against a claim of infringement, act quickly to explore the patentee's basis for bringing suit.  The absence of an objective basis might support dismissal, and an award of attorneys' fees.  The key inquiry is not whether the patentee can establish an objective basis after filing the complaint, but whether the patentee conducted adequate investigation prior to bringing suit.

On the public policy front, there is good cause for legislators to pause, weigh their actions, and re-assess the need for legislation.  Targeted, incremental reform specifically addressing the acts of specific, culpable litigants offers an effective fix without compromising, or further complicating, our patent system as a whole.  Our patent system is the most effective economic engine known to man.  Prudence dictates that we tinker with it cautiously. 

Brian O'Shaughnessy is Regional Vice President, USA for the Licensing Executives Society (USA and Canada), Inc., and a shareholder in the Washington DC office of the law firm RatnerPrestia.  The views expressed herein are not necessarily those of RatnerPrestia, its shareholders, or its clients.

RE:  H.R. 3309, and Manager's Amendment

Dear Speaker Boehner and Minority Leader Pelosi:

The Licensing Executives Society (U.S.A. and Canada), Inc. ("LES") opposes the passage of H.R. 3309 as it now stands.  While the bill has laudable goals and several worthy provisions, LES is of the view that the bill as a whole is not ready for passage, and greater input from the user community is needed.  In its present form, the bill would weaken fundamental property rights, diminish the value of intellectual property and innovation, and suppress business formation and job growth.  We ask that you defer bringing this bill to the floor until its various provisions can be more thoroughly explored and refined; and, if brought to the floor, we encourage House members to withhold their support of the bill.

LES is a non-profit, non-partisan professional society of about 4,000 members who are bringing the fruits of innovation to market by facilitating the orderly exchange of intellectual property rights through license agreements.  LES is the leading licensing organization in North America.  Its members represent every industrial sector and a wide array of technological disciplines, from telecommunications to the life sciences.  LES is actively engaged in education, public policy, and the sharing of best practices to promote the effective use of intellectual property to the ultimate benefit of society.  LES is a member society of Licensing Executives Society International (LESI), a global society. 

LES shares the views of many distinguished members of our intellectual property community who have publicly expressed opposition to substantial provisions of the bill, including: Randall Rader, Chief Judge, US Court of Appeals for the Federal Circuit; Paul Michel, Chief Judge (ret.), US Court of Appeals for the Federal Circuit; Kimberly Moore, Judge, US Court of Appeals for the Federal Circuit; and David Kappos, Undersecretary of Commerce for Intellectual Property and Director, US Patent and Trademark Office (ret.). 

In addition, many of our sister societies and industry-oriented groups have noted the laudable goals of the bill, but have written in opposition to substantial provisions of the bill. We believe those concerns are well founded, and, in the interest of good order, require more measured and deliberative evaluation.  The recently enacted America Invents Act is still very much in its infancy, and its implications unresolved.  Further substantive manipulation of our patent system without extensive input from the user community is particularly ill-advised at this time. 

Among other things, we are of the opinion that H.R. 3309 would improperly interfere with the federal courts' role and responsibility in conducting patent litigation and the control of its docket, and would unduly limit judicial discretion.  It would add to the cost of litigation through heightened pleading requirements and associated disclosure obligations that unfairly target a particular type of property right rather than attack the root problem of abusive litigation tactics.  The bill in its current form would also discourage the enforcement of valid property rights by imposing formulaic fee shifting.  Fee shifting in the absence of judicial discretion operates as a disproportionate threat to fledgling enterprises, which are often undercapitalized but yet offer great potential for business formation and job growth, and are a potent resource for future innovation. 

LES strongly encourages the amendment of H.R. 3309 to include the principal feature of H.R. 3349.  This would afford the USPTO access to all of the revenue it generates from fees, which are paid entirely by the user community.  Our innovation-oriented enterprises should be afforded the high quality examination that would come from re-investing those resources in the USPTO.  This simple step would improve patent quality, which, over the long term, would be the single most effective step in reducing the incidence of frivolous patent enforcement. 

LES is eager to work with Congress in developing worthy legislation that balances restrictions on litigation abuse against pro-growth protection of valid and enforceable property rights.  Our founding fathers recognized the importance of promoting the progress of the useful arts by affording inventors exclusive rights to their inventions by means of reliable, equitable, and affordable access to the federal courts.  We request the opportunity to participate in further revisions to the bill that more effectively strike that balance. 

Respectfully submitted,

Brian P. O'Shaughnessy
Regional Vice President, USA
Licensing Executives Society (USA and Canada), Inc.


cc: Members of the U.S. House of Representatives
      Members of the U.S. Senate

Download the letter here.

Dear Chairmen Leahy and Goodlatte and Ranking Members Grassley and Conyers,

On behalf of industry groups, professional organizations, and leading companies in America's most innovative industries, including technology, communications, manufacturing, consumer products, energy, financial services, medical devices, software, pharmaceuticals, and biotechnology, we are writing to express our opposition to recent legislative proposals expanding the America Invents Act's "covered business method patent" program. These proposals could harm U.S. innovators – a driving force of economic growth and job creation in this country – by unnecessarily undermining the rights of patent holders.

Under Section 18 of the America Invents Act ("AIA"), transitional post-grant review proceedings for "covered business method patents" (CBM program) allow the USPTO to take a second look at a patent after that patent's grant or reissuance, in order to determine its validity. A "covered business method patent" is a business method patent that relates to a "financial product or service." Unlike regular post-grant review proceedings, which require that a proceeding must be requested no later than nine months from a patent's grant date or reissuance date, a request for a "covered business method patent" proceeding can be made at any time until September 16, 2020 – the date the transitional program is scheduled to sunset.

During congressional consideration of the AIA, proponents of Section 18 argued that it was a necessary and temporary measure to review a very narrow class of financial-services-related patents. However, recently-introduced legislation proposes to make the transitional proceedings of Section 18 permanent and expand the definition of "covered business method patent" to include data processing patents used in any "enterprise, product, or service." This means that any party sued for or charged with infringement can always challenge an extremely broad range of patents at the USPTO. The request for a proceeding need not be related to financial products or services and can be submitted any time over the life of the patent.

This would have far-reaching implications, because data processing is integral to everything from cutting-edge cancer therapies to safety systems that allow cars to respond to road conditions in real time to prevent crashes. Subjecting data processing patents to the CBM program would thus create uncertainty and risk that discourage investment in any number of fields where we should be trying to spur continued innovation.

The US patent system for more than 200 years has succeeded spectacularly in promoting "the progress of science and useful arts," as the Founders intended, in part because it has always provided the same incentives for all types of inventions. To expand and make permanent the CBM program would be to turn ill-advisedly and irrevocably in a new direction — discriminating against an entire class of technology innovation.

Moreover, expanding the CBM program could inadvertently undermine many valid patents by giving infringers a new procedural loophole to delay enforcement. Because of the way Section 18 works, infringers would be able to delay legitimate lawsuits they face in district court by initiating CBM proceedings at the PTO. This would buy time to gain market share on innovative, patent-holding competitors.

Expanding Section 18 will not only stymie innovation at home, but it could also impact the relationship of the United States with its trading partners. We have already received questions from our colleagues abroad regarding how this expansion could be justified as compatible with the obligation of the United States under the Agreement on Trade-Related Aspects of Intellectual Property Rights to make patents "available and patent rights enjoyable without discrimination as to . . . the field of technology." Apart from this question, however, it is clear that if this discriminatory treatment of a select category of patents opposed by special interests in the United States were to be made a permanent feature of U.S. law, it would create a harmful precedent for our trading partners to enact exceptions in their laws to protect special interests in their countries.

As innovators, educators, developers and US employers, we hope Congress will set aside the ideas related to expanding the CBM program as it looks to further improve our patent system.

We look forward to working with you to achieve those goals.

Sincerely,
3M
ActiveVideo Networks, Inc.
Adobe Systems
Advanced Technology Ventures
Allison Transmission, Inc.
Architecture Technology Corporation
Beckman Coulter, Inc.
BGC Partners, Inc.
Bi-Level Technologies
Biotechnology Industry Organization
Boston Scientific
Brash Insight Corp.
BSA - The Software Alliance
Cabochon, Inc.
California Healthcare Institute (CHI)
Cantor Fitzgerald L.P.
Caterpillar, Inc.
Ciencia, Inc.
Cleveland Medical Devices Inc.
Colorado Technology Consultants
CONNECT
Cotera Inc.
The Cummins Allison Corporation
Dolby Laboratories
Domain Associates
Donohue Consulting, Inc.
The Dow Chemical Company
DR Systems, Inc.
DuPont
Eatoni Ergonomics, Inc.
Eli Lilly & Company
Embedded Systems LLC
Entrepreneurs for Growth
Entropic Communications, Inc.
ExploraMed Development, LLC
Fairchild Semiconductor
Fairfield Crystal Technology
Fallbrook Technologies Inc.
Flocel Inc.
Forsight Labs
ForSight VISION4, Inc.
Foundry Newco XII, Inc. (d/b/a Twelve)
Freescale Semiconductor
GearMax USA Ltd.
General Electric
General Nanotechnology LLC
Global Network Computers
Great Lakes Neuro Technologies Inc.
Holaira, Inc.
IBM
IEEE-USA
Illinois Tool Works Inc.
Innovation Alliance
Inogen, Inc.
Insight Legal
Interknowlogy
Inventors Network of the Capital Area
IP Advocate
IP Pipeline Consulting, LLC
Irwin Research & Development, Inc.
Johnson & Johnson
Karbonique, Inc.
KeepSight LLC
Kovogen, LLC
Lauder Partners, LLC
Licensing Executives Society (USA & Canada), Inc.
Lightstone Ventures
MediaFriends, Inc.
Medical Device Manufacturers Association
MH Systems, Inc.
Micron Technologies
Microsoft
Miramar Labs, Inc.
Mogenthaler Ventures-Life Sciences
National Association of Manufacturers (NAM)
Neodyne Biosciences, Inc.
NeoTract, Inc.
NeuroPace, Inc.
NeuroWave Systems Inc.
Nevro Corp.
NuGEN Technologies, Inc.
NuVasive, Inc.
OL2, Inc. (OnLive)
Orbital Research Inc.
Patent Office Professional Association
Power Auctions LLC
Precision Combustion
PreEmptive Solutions
Procter & Gamble
Prometheus Research, LLC
Qualcomm
Rearden Companies, LLC
Restoration Robotics, Inc.
Sapheon, Inc.
Software Partners LLC
Soleon Robotics LLC
Tessera
The Foundry LLC
TM Technologies, Inc.
Trading Technologies
U.S. Business and Industry Council
Vibrynt, Inc.
Xerox Corporation

The SHIELD Act and What it Purports to do
The SHIELD Act, or “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013”, H.R. 845, purports to stem the tide of “frivolous” patent litigation by targeting “patent trolls,” otherwise commonly known as “Non-Practicing Entities” (or “NPEs”).  The archetypal troll does not make a product or offer a service.  Instead, the troll is most commonly a company whose sole source of revenue is derived from patent licenses.  The troll purchases one or more U.S. patents, and then typically offers to license the patents relatively inexpensively, banking on the high cost of litigation to deter potential licensees from filing suit to have the patents declared invalid and/or not infringed.  The license fee is less than the legal fees that would be incurred in merely figuring out whether the patents are invalid and/or not infringed prior to bringing any formal action for relief.

Notably, the Act does not prohibit trolls from filing a patent infringement suit; instead, it provides that, where a patent is found invalid or not infringed, the defendant “shall” recover their “full costs” for defending the suit.  Under current law, costs are only awarded where the court finds the case to be “exceptional,” usually due to material and substantial litigant misbehavior.   

Instead of defining “patent trolls” or “NPEs,” the bill specifically exempts three classes of patent holders from its provisions:

(1) where the patent holder is “the original inventor, a joint inventor, or … the original assignee of the patent;”
(2) where the patent holder “can document…substantial investment…in the exploitation of the patent through production or sale of an item covered by the patent;” or
(3) where the patent holder “is…an institution of higher education …or …a technology transfer organization [associated with] one or more institutions of higher education.”

LES Opposes the SHIELD Act for at least the following reasons:

1. The Act would apply where a patent owner files suit, and the suit reaches a decision on validity and/or infringement.  However, only about 5% of all patent cases go through trial to final resolution.  Moreover, many trolls do not file suit, and when they do they aim for early settlement under compelling terms well below the costs of suit.  The Act would do little or nothing to preclude that behavior.
2. The Act does nothing to prevent “trolling” by any of the exempted groups; and might have the unintended consequence of encouraging trolling by those groups.
3. The Act applies not only to suits brought by trolls, but also to declaratory judgment suits, i.e., suits brought against the patent owner seeking judgment that a patent is invalid or not infringed.  This may have the unintended consequence of encouraging  declaratory judgment suits as the patent holder will more likely be responsible for the costs of the suit.
4. Existing law affords remedies for frivolous lawsuits, and for other abusive or illegal litigation tactics; and wisely leaves it to the court’s discretion to grant such remedies.  As courts are in the best position to evaluate the evidence, and are firsthand witnesses to the conduct of the parties, an attempt to codify and eliminate that discretion is unwise. 
5. The Act would dispense with substantial precedent as to what constitutes a frivolous law suit, and introduces uncertainty as to what would constitute an “egregious legal dispute.”  Increased uncertainty will chill enforcement, diminish the value of intellectual property, and frustrate the Constitutional purpose of our patent system – to promote the progress of the useful arts.  Innovation will suffer, and industrial development will decline. 
6. The Act will harm those who lack manufacturing capabilities but who nonetheless wish to capitalize the fruits of innovation by granting rights to others.  The increased risk that those downstream purchasers of intellectual property will be held accountable for well reasoned licensing and/or enforcement efforts, means that innovation generally will decline in value.  This will diminish the market value for innovation, and weaken our patent system – perhaps the most potent economic engine known to man. 
7. In a merger or acquisition, where the value of the acquired company is attributable at least in part to its intellectual property, that value will be diminished.  The acquiring company might not be the “original assignee” under the Act, and the risks associated with implementing and/or enforcing its intellectual property will be greater.  Product development will diminish, and society will have fewer choices. 

LES is a non-profit professional society of about 4,000 members throughout the US and Canada who are engaged in technology licensing to bring the fruits of innovation to market.  It is the leading licensing organization in the North American continent, and counts among its members representatives from all technological and industrial disciplines.  LES is engaged in education, networking, public policy, and the sharing of best practices to promote the effective use of intellectual property regimes to the ultimate benefit of society.  LES is a member society of Licensing Executives Society International (LESI), a global society. 

June 19, 2013

      Re: H.R. 845, SHIELD Act

Dear Chairman Goodlatte and Ranking Member Conyers:

The Licensing Executives Society (USA & Canada), Inc. (LES USA & Canada) is a professional society dedicated to high standards and ethics among executives engaged in the profession of technology licensing. Our 4,000 members represent all 50 states and every technology-oriented industry. LES is the leading U.S. organization in standards development, education, and best practices in the development and commercialization of innovation through effective intellectual property laws and policies.

LES (USA & Canada) opposes passage of the SHIELD Act, or “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013”, H.R. 845. We invite your attention to the attached LES USA & Canada Resolution. Most notably, the Act does not establish an effective regime to remedy abusive and/or baseless patent litigation. The Act would diminish invention and innovation by compromising the rights and remedies of IP owners, and invites gamesmanship in a misbegotten attempt to define troll-like behavior. Efforts to remediate such behavior are best left to courts to address on a case-by-case basis.

Promoting invention and innovation through effective intellectual property laws and policies is paramount to LES (USA & Canada). We look forward to working with Congress to achieve that objective.

Sincerely,

Brian O’Shaughnessy
Regional Vice President, U.S.A.
LES (USA & Canada), Inc.
cc: United States House of Representative Judiciary Committee

Our patent system is a powerful economic engine. It fosters innovation, rewards investment in research and development, and leads to the development of new industries, new businesses, and new jobs. The full and effective funding of the PTO is essential to maintaining the efficient operation of that engine. We thank you for your past support of the needs of the USPTO, and your willingness to work with the user community to ensure those needs continue to be met.

LES US/C members are representative of that user community. We are a non-­partisan, non-­profit, professional society of approximately 4,500 members throughout the US and Canada representing corporations, universities, government laboratories, entrepreneurs, and inventors in every major technology-­oriented industry. Our members are devoted to public outreach, education, and sharing of best practices pertaining to the development, protection, and commercialization of intellectual property and the effective management of intellectual assets.

We stand ready to assist you and your Committee in supporting and furthering the valuable work of the USPTO, and satisfying the Constitutional mandate of promoting the progress of the useful arts. Please feel free to call on us at your convenience

Read the letter here.

Until such passage, the USPTO is operating under H.J. Res. 101, which provides continued funding through December 18, 2010, but at last year's levels. We support an anomaly amendment to H.J Res. 101 to fund the USPTO at levels providing for:

• a temporary 15% surcharge on patent fees, provided the fee collections are available to the agency and without diversion to other agencies; and
• a buffer sufficient to ensure USPTO access to all its user-fee derived revenue based on Fiscal Year 2011 fee projections.

Our patent system is a powerful economic engine. It fosters innovation, rewards investment in research and development, and leads to the development of new industries, new businesses, and new jobs. The full and effective funding of the PTO is essential to maintaining the efficient operation of that engine.

We thank you for your past support of the needs of the USPTO, and your willingness to work with the user community to ensure those needs continue to be met.

LES USA/Canada members are representative of that user community. We are a professional society of over 5,000 members throughout the US and Canada representing corporations, universities, government laboratories, entrepreneurs, and inventors in every major technology-oriented industry. Our members are devoted to public outreach, education, and sharing of best practices pertaining to the commercialization of intellectual property and effective management of intellectual assets.

We stand ready to assist you and your Committee in supporting and furthering the valuable work of the USPTO, and satisfying the Constitutional mandate of promoting the progress of the useful arts. Please feel free to call on us at your convenience.

Read the letter to the House here.

Until such passage, the USPTO is operating under H.J. Res. 101, which provides continued funding through December 18, 2010, but at last year's levels. We support an anomaly amendment to H.J Res. 101 to fund the USPTO at levels providing for:

• a temporary 15% surcharge on patent fees, provided the fee collections are available to the agency and without diversion to other agencies; and
• a buffer sufficient to ensure USPTO access to all its user-fee derived revenue based on Fiscal Year 2011 fee projections.

Our patent system is a powerful economic engine. It fosters innovation, rewards investment in research and development, and leads to the development of new industries, new businesses, and new jobs. The full and effective funding of the PTO is essential to maintaining the efficient operation of that engine.

We thank you for your past support of the needs of the USPTO, and your willingness to work with the user community to ensure those needs continue to be met.

LES USA/Canada members are representative of that user community. We are a professional society of over 5,000 members throughout the US and Canada representing corporations, universities, government laboratories, entrepreneurs, and inventors in every major technology-oriented industry. Our members are devoted to public outreach, education, and sharing of best practices pertaining to the commercialization of intellectual property and effective management of intellectual assets.

We stand ready to assist you and your Committee in supporting and furthering the valuable work of the USPTO, and satisfying the Constitutional mandate of promoting the progress of the useful arts. Please feel free to call on us at your convenience.

Read the letter to the House here.

Until such passage, the USPTO is operating under H.J. Res. 101, which provides continued funding through December 18, 2010, but at last year's levels. We share the concerns of Senate Report 111-229 and the call for adequate resources to enable the USPTO to reduce patent pendency and patent backlog. We support an anomaly to H.J Res. 101 to fund the USPTO by providing for:

• a temporary 15% surcharge on patent fees, provided the fee collections are available to the agency and without diversion to other agencies; and
• a buffer sufficient to ensure USPTO access to all its user-fee derived revenue based on Fiscal Year 2011 fee projections.

Our patent system is a powerful economic engine. It fosters innovation, rewards investment in research and development, and leads to the development of new industries, new businesses, and new jobs. The full and effective funding of the PTO is essential to maintaining the efficient operation of that engine.

We thank you for your past support of the needs of the USPTO, and your willingness to work with the user community to ensure those needs continue to be met.

LES USA/Canada members are representative of that user community. We are a professional society of over 5,000 members throughout the US and Canada representing corporations, universities, government laboratories, entrepreneurs, and inventors in every major technology-oriented industry. Our members are devoted to public outreach, education, and sharing of best practices pertaining to the commercialization of intellectual property and effective management of intellectual assets.

We stand ready to assist you and your Committee in supporting and furthering the valuable work of the USPTO, and satisfying the Constitutional mandate of promoting the progress of the useful arts. Please feel free to call on us at your convenience.

Read the letter to the Senate here.

Contrary to Mr. Crovitz's contention, the patent system does not restrict the disclosure of information, it promotes it. Abraham Lincoln said the patent system adds the "fuel of interest to the fire of genius." By rewarding inventors, we create a powerful economic engine driven by market forces but held in check by a Constitutional restriction granting only limited exclusive rights to inventions.

Patent systems were first created to promote the exchange of information by rewarding disclosure as an alternative to secrecy, where the invention might die with the inventor, thereby depriving society of its benefits. Disclosure benefits us all by providing not only free exploitation of the invention upon termination of the patent, but a jumping off point for further invention during the term. Patent systems promote the progress of the useful arts by encouraging, rather than hindering, the exchange of information.

Read the Letter to the Editor.

The Hatch-Waxman Act enhances competition in the pharmaceutical industry by offering an incentive to challenge questionable patents. The challenger is, in effect, a private attorney general eliminating unjustified monopoly profits. The successful challenger gains an exclusive six month's lead time in the market, after which others may enter and prices correspondingly decline.

Businesses capitalize risk, and increased risk reduces value. A patent challenge is fraught with risk. One side risks the loss of a lucrative market; the other, the considerable expense of unsuccessful patent litigation. The Act would increase those risks by mandating a zero-sum game.

Fewer than 5% of patent cases go to trial, most settle. Yet this Act would make settlement of drug patent cases illegal if the challenger "receives anything of value" from the patentee. Settlement is often the most prudent option, and sometimes essential to avoid a "fight to the death." Under the Act, owners of drug patents would be allowed to settle only by proving with "clear and convincing" evidence that the procompetitive benefits would outweigh the [presumed] anti-competitive effects.

The parties cannot know beforehand whether a settlement will overcome that presumption, leaving that to the discretion of often slow and cumbersome administrative agencies. Worse still, the parties might find themselves charged with an antitrust violation. This is an enormous disincentive.

The Act would frustrate the Hatch-Waxman Act, and diminish access to affordable generics. If litigants are unable to settle cases, they become as captives on a runaway train - if unable to disembark, few will board. The Hatch-Waxman regime will suffer, and fewer, not more, generic drugs will become available. We agree with Senators Hatch, Kyl, Cornyn, and Coburn:

By effectively preventing the parties from settling, it is likely that this bill will discourage generic drug companies from bringing challenges to brand companies’ patents in the first place—and as a result, the bill will ultimately reduce competition and raise prices for drugs that are currently subject to invalid or low-quality patents.

Patent cases are complex, expensive, and nuanced. Parties continually evaluate risk, and consider settlement options. The patentee's right to exclude is a valuable asset, and a reliable tool in structuring settlement. Those settlements often work to society's benefit in preserving resources, stimulating innovation, and enhancing competition.

Our courts know how to assess and redress illegal anti-competitive behavior. This Act does not further that effort. Improvements are best left to the courts to develop on a case-by-case basis. Such an evolutionary, rather than revolutionary, approach offers the best prospects for realizing the worthy goals of the Hatch-Waxman Act.

Patent settlement agreements have already given us many drugs at reduced cost, generating tens of billions of dollars in savings for American consumers. LES US/C supports continuing, rather than curtailing, those efforts. We look forward to working with you to continue reducing health care costs through effective intellectual property protection and sound policies.

Read the letter here.

Much of our national attention is now focused on health care reform. As the bill lumbers toward a vote, lawmakers are tacking on one appendage after another. Unfortunately, one of these add-ons will increase, rather than decrease, the cost of health care by limiting the ability of generic and branded pharmaceutical companies to work together to settle disputes and bring more affordable drugs to market.

Several political factors are responsible. For one, the recent economic meltdown and the near death of companies "too big to fail" have prompted a call for better antitrust enforcement. At the same time, some say our patent system is outdated, and needs to be fixed. Those objectives have been bundled together in the health care legislation. But in fixing one we damage the other, and nothing comes out as planned. It's no surprise when one uses health care legislation to modify antitrust law to fix the patent system. Under attack is the practice of settling lawsuits over patented drugs. Both generic and branded pharmaceutical companies agree: the proposed cure will only make the patient sicker.

Those three topics are complicated enough on their own. What's more, they each have their own objectives. For example, health care legislation aims to improve access and reduce cost. Low-cost pharmaceuticals are an important part of the formula, and this has become an end in itself. While laudable, it highlights the tension between cheap drugs now and a robust pipeline of new drugs for the future.

Despite considerable safeguards, our patent system occasionally issues invalid patents. Invalid patents are costly. They artificially inflate prices without improving the state of the art. The Hatch-Waxman Act rids the system of invalid patents by providing an incentive to challenge patents in court. The incentive is a 180-day exclusivity period for the challenger during which its only competitor is the patentee. The challenger can charge as much for the drug as the patentee, but without the research and development investment, and thereby reap huge profit. Thus, we remedy errors in the patent system with the same incentive: exclusivity.

But challenging a pharmaceutical patent is expensive. Each side will spend at least $5 million. Sometimes, a seemingly good case is not so good. Both sides want to reduce risk, cut their losses, and move on. The money saved will be used to challenge other questionable patents or in the search for new drugs. Either way, the public benefits.

When this happens, the two sides will often settle the case under a license agreement. The terms of such license agreements vary. The generic challenger might agree to sell the patented drug in return for royalty payments to the patent owner; or the generic challenger might take a license to another valuable patented drug unrelated to the challenged patent. Both options work to the benefit of the respective parties, as well as the consumer.

The use of license agreements is an essential tool in sustaining an innovative market-based economy. Among other things, it permits companies with different skill sets to work together and share their intellectual property to maximize their respective competencies. This works to everyone's benefit by bringing new and improved products more efficiently to market. For example, through licensing, a research-intensive enterprise can team up with one having a global sales and distribution capability. Through a license agreement they agree to share the resulting profit, and the public enjoys the benefit of a new product.

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) agree that licensing is a highly beneficial economic activity. In a joint report, they pronounced that intellectual property licensing is pro-competitive; and that licensing contributes to an efficiency-enhancing integration of economic activity.

It is no less so within the pharmaceutical industry. Under the Hatch Waxman regime, a potentially invalid patent gets tested. It may be that the parties decide the patent does not warrant further scrutiny, and they enter into a license agreement that exposes one or more patented drugs to the benefits of competition in advance of patent expiration. This is a win-win-win result.

Despite the acknowledged benefits of such license agreements, the pending health care legislation carries a provision that would make all such settlement agreements illegal as anticompetitive and a violation of antitrust law. This goes too far, and is a grave disservice to both the generic and branded pharmaceutical industry, and to the public at large. Legislators considering the pending health care legislation should demand that provision be removed.

Such settlement agreements have resulted in many products being made available to the American consumer at reduced cost, generating tens of billions of dollars in savings. This pro-competitive result has been consistently acknowledged as a proper use of patent law, and one that should be promoted, rather than prohibited, by our antitrust laws. The Licensing Executives Society, USA & Canada, Inc. (LES USA & Canada) supports the use of licensing to bring just such economic benefits to the consumer.

It is true that agreements in settlement of patent litigation have the potential for abuse. The so called "pay for delay" agreements pay the challenger to drop the lawsuit and go away. These are particularly suspect when the payment exceeds what the challenger could hope to recoup during its period of Hatch Waxman exclusivity. However, those agreements are now consistently condemned, and as a result are rare if not nonexistent. This shows that there are measured and prudent approaches to eliminating anti-competitive agreements.

Our courts are well equipped to assess the anti-competitive effect of agreements and to declare them illegal under current law. It would be appropriate and far less disruptive to permit the law to develop on a case-by-case basis under existing law. Alternatively, carefully tailored legislation might reasonably give authority to either the FTC or DOJ, or to the court in which the patent litigation is pending, to review and approve proposed settlement agreements. Under either approach, an evolutionary, rather than revolutionary, process unfolds giving greater predictability to the industry and greater efficiencies for the benefit of the consumer.

Brian P. O’Shaughnessy is a Trustee of the Licensing Executives Society, USA & Canada, Inc., and Chair of its Committee on Public Policy and Legislation. He is also a shareholder at Buchanan Ingersoll & Rooney, PC, and Chair of its Chemical Patent Practice Group. He can be reached at brian.oshaughnessy@bipc.com or 703-836-6620.

One of the most effective tools at our disposal for reinvigorating innovation, and jump starting the economy with new products, industries, and jobs is to support effective and proper protection for intellectual property. This bill, while making many much needed changes, will impose new burdens on the USPTO. And, the USPTO has long since suffered from outdated infrastructure and inadequate staffing, contributing to a substantial backlog of patent applications. The USPTO must have reliable means for planning for and budgeting to meet the new demands of the legislation, and to address the longstanding backlog of applications. The Coburn Amendment will better ensure that the USPTO is well and properly equipped to do just that. We ask for your support by voting in favor of the Coburn Amendment.

Read the letter here.

As the Health Care Overhaul Bill wound its way through the Senate, an amendment was added imposing strict antitrust scrutiny on agreements settling pharmaceutical patent litigation. In effect, such agreements, regardless of their terms, would have become presumptively illegal, thereby frustrating the efforts of branded and generic companies to structure deals to promptly resolve such disputes.

At the urging of members from both the branded and generic industries, the LES (USA & Canada) Committee on Public Policy and Legislation prepared a paper analyzing the provision in an effort to educate both legislators and the public at large. The Committee noted that such agreements can be highly pro-competitive, and that the prompt resolution of such disputes conserves resources often applied to additional research or more meritorious claims. Additionally, such settlements can bring generic drugs to market sooner than they might otherwise. The paper was announced publicly in a press release and distributed to every member of both the Senate and the House. Although the provision remained in the Senate Bill as sent to the House, legislators removed it from the House version just days before passage.

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About Licensing Executives Society (USA & Canada) Established in 1965, the Licensing Executives Society (USA & Canada), Inc. (LES) is a professional society comprised of over 5,000 members engaged in the transfer, use, development and marketing of intellectual property. The LES membership includes a wide range of professionals, including business executives, lawyers, licensing consultants, engineers, academicians, scientists and government officials. Many large corporations, professional firms, and universities comprise the Society's membership.

Licensing Executives Society (U.S.A. & Canada), Inc. is a member society of the Licensing Executives Society International, Inc. (LESI), with a worldwide membership of over 11,000 members in 32 national societies, representing over 90 countries. For more information on LES, see www.lesusacanada.org