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Senator Coons discusses patent reform during keynote remarks at the Duke Law Center for Innovation Policy

Date: June 3, 2015
Location: Washington, DC

"It's truly rare for me in my role as a Senator to be introduced anywhere as a deeply nice guy. I really appreciate that. I appreciate your friendship and your hard work in organizing this conference, and your willingness to engage in what I think is one of the most interesting and important issues facing us in Congress.

"There's a lot going on in the Senate and the House, but to me, the distinctions we make in terms of Intellectual Property and how they impact America's leading global role in protecting and encouraging and incentivizing innovation are absolutely essential. And they have long, impactful, and compounding consequences for our country. So as we move towards a markup this week on a piece of legislation that will significantly affect the future patent litigation, and as you have this conversation today about the post-grant review procedures, we have to remember that neither those procedures nor the acts of Congress exist in a vacuum.

"In my view, patents are absolutely the center of our global leadership and innovation. That's not just because of my eight years spent at a materials-based science company, it's also growing up in Delaware where a little mom and pop called DuPont was sort of the dominant player in my community and later entrants like AstraZeneca were really central features in my community. So my whole life, I've known people who were Ph.D. scientists and patent-holders and inventors and innovators. I did have a B.A. in chemistry, but frankly that didn't earn me much more than the kids' table at Thanksgiving -- in my family of patent holders and entrepreneurs.

"I just want to initially set the framework. I think patents play a central role, this constitutionally protected property right, in leveling the playing field for all businesses. This is certainly well known to all of you. And we have to continue to make our choices to protect that role. That exactly the inventor, exactly the entrepreneur who has a major, disruptive contribution to their field can stand on the same stage with some of the world's leading, most powerful, best financed companies if they have a patent and if the patent litigation system remains robust and protects the rights of those who have earned patents for their groundbreaking inventions. We have to preserve the incentives, not just for the inventor, but also for the investor. For the investor who we expect to take the risk, to invest in that disruptive invention and innovation and help them scale with it, and help them test it, prove it, and grow it out.

"So for these reasons, I think our patent system has to be the vigorously defended as the absolute bedrock of our economy and one of the critical ways in which we distinguish ourselves from other competing economies around the world. So I am particularly concerned about and interested in the markup happening this week.

"When I cast my vote for the American Invents Act back in 2011 as a newly minted Senator from Delaware, I joined many of my colleagues in making a wide range of changes, significant changes actually, in some way, my previous role at GORE participated in that -- I was part of the 21st century patent coalition in the 20th century, and much more senior and seasoned patent attorneys than myself - I am not a patent attorney, I'm not claiming that - participated in those discussions. But it took many, many years, many iterations to make the big and bold and broad changes of the AIA.

"One area, as we all know, that it tried to address was a serious concern, a well-grounded concern, about patent quality. In particular, the creation of a whole new series of procedures in order to deal with patent quality. I know we have a number of folks here who have been the hard work of the PTO and many of the PTAB judges who've worked to implement these new provisions of the AIA.

"Yet where I think we are today, just a few years in, is a crossroads where there is a significant mismatch in legal standards that have led to confusion, uncertainties, delays of enforcement of patent rights and steadily rising costs for both plaintiffs and defendants. The data is in flux, as you've discussed today and as many have debated, but just over the nearly three years since September 2012, early returns suggest that what's happening is much bigger and in some ways different than was anticipated by many of us who sponsored and supported the bill. About 3,000 IPR petitions have been filed, a number that far exceeds the early expectations of PTO. And for those petitions considered by the end of this April, 75% have been granted trials. And of those trials, nearly two thirds, I think 63%, of decisions have rendered all patent claims invalid, and another 21% have held some claims as invalid. So if my math is still sound, that means 16% have rendered all claims as patentable.

"These figures, I think, should give us real pause. Both about the consequences for those patents and patent holders, and for the broader point that when we legislate on Intellectual Property Rights, it can have significant and unintended consequences. And as we move toward the next phase in congressional action on patent rights, I am urging my colleagues to be mindful of unintended consequences and their compounding impact on our country and our role in the world.

"So it begs the question, what does it mean to grant exclusive rights to intellectual property? When granting a patent, as I said, we expect investors to line up to invest significant risk capital to build factories, to prove out inventions, to ultimately, hopefully, hire workers and to expand into our communities. It seems hard to imagine that we would expect anyone but the wildest optimist to invest when a patent only has a 16% chance of being held valid post-grant review proceedings. So my fear is that many investors, if this kill rate continues going forward, will lose trust in the strength of American patents, and we will lose a lot of the energy and the investment needed to scale up startups and to make disruptive technologies available, not just in the United States, but globally.

"These are some of the concerns that motivated me to introduce the STRONG Patents Act, I appreciate your compliment to the witty acronym which really is Dan's invention, not mine. Dan Bachner, by the way, the staff counsel who has made most of this possible. I really am grateful for his determined, professional work in this field, his interactions with many of you, and I'm gratified by the number of colleagues on the Judiciary Committee and off committee to join me, I have bipartisan support from Senator Vitter, Senator Cotton, Senator Durbin, Senator Hirono, and many others who are listening to the arguments I am making and have not yet decided where they will come out ultimately.

"At the time the STRONG Patents Act was introduced, I heard from a number of companies with really compelling developments, particularly in the pharmaceutical and biological space, who were victims of silent extortion, where patent-holders, these patent-holders, were being threatened with IPR challenges and had to pay settlements in order to avoid a process that they felt was unfair, unpredictable, and unjust.

"Thanks to the much more public, recent activities of Kyle Bass and his fund, some of my Senate colleagues I think now understand the stake here in these administrative proceedings, which I think is, particularly in the area of pharmaceuticals, nothing less than our leadership in the world. My colleagues are confronting, hopefully, the reality that our ability to solve complex technological issues, to invent new, groundbreaking materials and to cure diseases is at stake. In my view, our strong patent system, which has encouraged inventors and researchers to toil for months or years to create products and cures and materials and devices that have saved and improved countless lives will be put at risk if we significantly weaken our patent system.

"I just got a letter from 93 different patient-advocacy organizations -- led by epilepsy Foundation of America -- that voiced this I think significant and credible fear. The organizations cautioned about the impact of weakening faith in our patent system. They told me they are concerned that, and I quote, "the high rate of patent invalidation in post-grant proceedings will chill investment in new treatment for patients."

"I found this letter particularly meaningful because these are exactly the organizations that are often in to talk with me, concerned with the makers of branded drugs and devices, concerned about rising cost issues, and access, and who often are at logger heads with companies who presumed to be behind the moves to weaken IPR. So these debates continue, but both sides understand, in this context, the fundamental importance of a strong patent system to advancing the frontiers of medicine, to giving hope to those who are suffering diseases currently without any known cure or treatment. So, in my view, both in medicine and in materials where I worked, and in software and other fields, the decisions of the PTAB reverberate throughout our whole innovation ecosystem.

"So as a result, while the data is still coming in, and we're just closing out the third year, I think the time is ripe for discussion on the merits of what can be done to address substantive, procedural concerns in post-grant proceedings, and I'd like to touch on two of those briefly if I could.

"First, I think it is important that patents granted by the United States' PTO enjoy a presumption of validity. I think we should require arguments of invalidity to clear a clear and convincing evidence hurdle.

"Revoking the validity of an existing patent doesn't just disrupt investments in the patent at issue, but sends a ripple, as I just described, through the whole innovation landscape, casting a shadow over ALL patents in all sectors. I think we cannot forget that our respect for patents sets us apart as a nation.

"In this important respect, it doesn't matter to me, and I think it shouldn't matter in the future, that a post-grant proceeding is held at the Patent and Trademark Office rather than in a very busy District Court, like say, hypothetically, the District of Delaware. Now what matters is that when a startup with a new idea approaches a potential investor seeking seed money, that investor has a reasonable basis to believe that the patent -- already granted by the U.S. Government PTO after the investment of significant time and energy and review -- will be upheld unless the evidence is clear and convincing that the original grant was in error.

"I think it's also important to remember in this discussion that among the patents most likely to be challenged are those that represent significant disruptions to existing industries. It is exactly those inventions that we as a nation should be most on-guard to make sure have a reasonable chance of advancing. Yet they are the most vulnerable when a mere preponderance of the evidence standard can render those patents invalid.

"Under the current framework, a patent that challenges the market position of some of the largest companies can be challenged many times, so it can challenge 10 market-dominant companies with a new category redefining invention, it can be challenged 10 different times in Inter Partes Review. Only one loss, and the entire basis for investment in a new invention can be wiped out. Why would you invest in a groundbreaking invention that you know is going to be pounded into the ground over the ensuing series of challenges?

"Second, I think we can and should address the issue of limiting the abuse we are seeing through the manipulation of public markets while still giving a broad range of businesses the opportunity to challenge genuinely weak patents. I believe we can find this balance by changing to a reasonable standing requirement. Limit the currently overbroad threat to patent valuation while still allowing for a wide range of challenges.

"For example, any company that's been accused of patent infringement should be allowed to challenge that patent, even if they have only received a demand letter. In addition, coalitions representing small businesses and other non-profits should be able to challenge patents that have been the source of repeated abuse of conduct, particularly patents commonly asserted against unsophisticated end-users, which is what initially gave rise to the so-called "patent troll' mood in the Congress just a few years ago.

"In my work on the STRONG Patents Act, I've been grateful to receive support from not only large companies in R&D-intensive sectors -- pharmaceuticals, biotechnology, medical device companies -- but also those where I think much of the ground work of applied science happens -- Universities, the National Small Business Association, the United Inventors Association.

"I welcome input from all of you on these proposals, and I look forward to a vigorous debate. I am hopeful that the Senate Judiciary Committee after this week's markup will hold additional hearings, so that the whole Senate Judiciary Committee can hear from the whole range of folks whose interests and concerns and often life work are often at stake in this proposed series of changes to patent litigation.

"Throughout these debates, I hope we can all remember that what matters is whether an investor today will decide to take a risk on a small team of inventors with a terrific idea -- an idea that could change the world or save lives -- when absent patent protection, patent protection that is predictable and strong, it would be simply crazy to do so.

"Protecting these smaller companies and individual inventors ultimately benefits all of us, even the larger companies, such as the one for which I worked, that often obtain many of their best, new products through acquisition or licensing. Nowhere is this more apparent, or important, than in the field of biotechnology and advanced medicine, where university spin-offs are at the heart of a drug pipeline that often ends with a major new breakthrough.

"Of course, there's many other business models in our country, and there's business models that I've heard from repeatedly, from small-business owners, and from large business players in retail and service sectors and the development of apps and IT, where patents play a very different role. And where the impact of IPR is quite different, and where their concerns are quite different. I understand that. But as I said earlier, my key concern as we move toward further litigation in the Congress is that we have a clear-eyed assessment of the likely, unintended, and costly consequences of overreach and of change that is too swift and too broad.

"Rather than chose one business model over another, we must resolve to maintain a patent system that is strong, vibrant, and works for everyone, and by doing so, preserve our nation's most important method of spurring small business innovation.

"I don't think I overstate the case when I say the world is literally watching, and we have to continue to lead. Doing nothing is not acceptable, but overreaching and over fixing a modest problem, I think has the very unfortunate likelihood of serious unintended consequences that will reverberate through our patent system for years to come.

"Thank you for the chance to speak with you today."


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