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Rarely does one government agency tell another that it’s doing a lousy job. But that’s exactly what Timothy J. Muris, chairman of the Federal Trade Commission (FTC), did last fall, taking aim at the U.S. Patent and Trademark Office’s (PTO) record of issuing dubious patents. Muris asserted that “existing means for challenging questionable patents are inadequate” and he proposed a system for administrative review of newly issued patents. A complete overhaul of the government’s procedures for the re-examination of patents is a refreshing idea. It is time we gave serious consideration to a European-style opposition practice in which dubious patent claims can be reconsidered without the multimillion-dollar expense of federal court litigation. How frequently does the PTO grant claims that are broader than they should be? Statistics provided by the PTO itself suggest a pretty consistent error rate in patent allowances of about 5% (from 1999 through 2002). With about 200,000 patents issuing this year, this rate means that 10,000 of those newly minted, 20-year monopolies will be questionable. Important economic consequences flow from the flaws that Muris identified in our patent system. According to a recent FTC report (available at www.ftc.gov/os/2003/10/innovationrpt.pdf ), the issuance of questionable patents lessens competition because firms chose to abandon certain markets altogether rather than risk patent infringement charges. Unduly broad patents also cause companies to forgo research and development in the areas that the patent improperly covers. Even when competitors stay in a market, questionable patents often increase the costs of doing business-and ultimately the cost of goods to consumers-because competitors are compelled to obtain licenses from the holders of bogus patents. Few options in current system There is little one can do once the PTO issues a patent, except to ignore the patent claims-and run the risk of being sued for infringement. Since trying a typical patent infringement case in federal court can cost more than a million dollars, this option is not very attractive to most companies, even if the case against the patent is very strong. There are two procedures for re-examining patents, but both are fundamentally flawed. In the more common current procedure, a member of the public may request a re-examination, but the door is then shut and no one except the patent holder can make arguments to the examiner reconsidering the patent. It is hard to see how a secret review of an issued patent can be deemed fair to the competitor. Not surprisingly, only about 200 patents (one-tenth of 1% of those issued) are examined each year under this procedure, with the patent holder prevailing in about 85% of these cases. The second existing administrative process for re-examining patents was adopted by the PTO following a congressional mandate in 1999 and does permit a competitor to have a say in the proceedings. However, if a challenger fails in its bid to overturn the patent, the current law creates a conclusive presumption (called an estoppel) against the challenger in any subsequent proceeding on any issue that the challenger “raised or could have raised” in the re-examination proceeding. An FTC review of this “inter partes” procedure found that in the three years that it has been available, only four such proceedings were initiated. The FTC panel concluded that the estoppel provisions of the existing inter partes process and perceived bias against challengers has essentially precluded administrative oppositions to patents in the United States. Europe and Japan In contrast, many countries, especially in Japan and among those in Europe, historically have provided a remedy in the form of an opposition proceeding. For example, in Europe, all new patents are published and any member of the public has nine months to object. A separate division of the European Patent Office hears challenges, whereas in the United States,re-examination is conducted by the same group that handled the original application. Europeans oppose approximately 7% of the roughly 40,000 patents issued every year. Of the patents that are challenged, about one-third are revoked, one-third are allowed in amended form, and one-third are upheld without change. Thus, the percentage of total patents that are revoked or amended in Europe roughly corresponds to the error rate identified by the PTO in the United States. The keys to a successful opposition system appear to lie in permitting the opposing party to present evidence, written arguments and rebuttals, and oral testimony, if necessary. Equally important is the need for an independent administrative decision-maker. In Europe, three technically trained examiners, with no relationship to the examiner who granted the patent in the first place, conduct re-examinations. Until the U.S. adopts a fair administrative system for challenging patents, our economy will continue to be burdened by dubious patents and the resulting opportunity costs. And unless Congress and the president act, there will be 10,000 more of them every year. Thomas J. Engellenner is a partner at Boston’s Nutter McClennen & Fish, where he specializes in patenting and licensing biotechnology, pharmaceuticals and medical devices.

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