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FTC Floats Controversial Patent Plan

The Federal Trade Commission is calling for Congress to enact legislation that would make it easier to prove a patent is invalid.
Under the FTC proposal, the burden of proof required to invalidate a patent would be reduced from a "clear and convincing" evidence standard to a preponderance of the evidence.

With yearly applications approximating 300,000, they arrive at the rate of about 1,000 each working day, the FTC said in its executive summary of the report. Patent examiners have from eight to 25 hours to read and understand each application, search for prior art, evaluate patentability, communicate with the applicant, work out necessary revisions, and reach and write up conclusions.

"That would quite definitely change the dynamic of how patent litigation is done and how negotiations are done," said Michael Barclay, a partner at Wilson Sonsini Goodrich & Rosati. "It is the most interesting recommendation and will probably be the most controversial."

The recommendation is included in a 315-page report, issued Tuesday, in which the FTC attempts to ease conflicts between patent and antitrust laws. Long awaited by the patent bar, the report is the culmination of a series of hearings convened by the FTC and Department of Justice in February 2002.

The FTC report proposes 10 ways to improve patent quality through legislation or regulatory measures. The Department of Justices Antitrust Division is to issue its own report that will make similar recommendations for antitrust law.

The patent bar is divided on the issue of revising the standards for invalidating patents. Norman Beamer, a partner at Fish & Neave's Palo Alto office, said changing the burden of proof is not the right thing to do and would not likely be adopted by Congress since it goes against an entrenched standard.

People, whenever confronted with a patent, tend to say, "that's obvious" or "that's been done before," Beamer said. "People can't really prove it. That's why there is a clear and convincing standard there. If a patent is invalid you have to have proof to back it up."

But the FTC pointed to the limited resources of patent examiners in urging that it be easier for individuals to challenge a patent in court.

"Given these constraints, along with presumptions and procedures that favor the granting of a patent application, we believe the clear and convincing evidence burden can undermine the ability of the court system to weed out questionable patents," the FTC said.

Among its proposals, the FTC also recommends that Congress enact legislation to create a new procedure that would allow further review of patents after they have been granted; that the Patent and Trademark Office receive adequate funding; and that the PTO consider possible harm to competition before extending the scope of things that can be patented.

University of California, Berkeley's Boalt Hall School of Law professor Mark Lemley, who testified twice at the joint FTC-Department of Justice hearings, said the report tracks what scholars, policymakers and researchers are saying must be done to change the system.

"We need a cheaper way to attack the validity of a patent," he said. "The presumption of validity shouldn't be as easy as it is given how easy it is to get a patent."

Q. Todd Dickinson, the former head of the PTO, said he was pleased with the agency's report overall, particularly the recognition of the agency's funding needs to ensure patent quality.

"There is a little underappreciation by the FTC for the applications that don't get allowed," he said, adding that more than 80 percent of business method patents are rejected.

Dickinson, a partner at Howrey Simon Arnold & White, also questioned the FTC's statement that it would ask the Patent and Trademark director to reexamine questionable patents that raise competitive concerns.

"Director-ordered re-exams can only happen on prior art evidence," he said. "Anti-competition is not grounds for reexamination."