[Federal Register Volume 73, Number 226 (Friday, November 21, 2008)]
[Notices]
[Pages 70645-70648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-27673]


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FEDERAL TRADE COMMISSION


Public Hearings Concerning the Evolving Intellectual Property 
Marketplace

AGENCY: Federal Trade Commission.

ACTION: Notice of Public Hearings

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SUMMARY: The Federal Trade Commission will hold a series of public 
hearings beginning on December 5, 2008, in Washington, D.C., to explore 
the evolving market for intellectual property (IP). The hearings will 
examine changes in intellectual property law, patent-related business 
models, and new learning regarding the operation of the IP marketplace 
since the FTC issued its October 2003 report, To Promote Innovation: 
The Proper Balance of Competition and Patent Law and Policy (the FTC IP 
Report).\1\ Changes and proposed changes in the law, together with 
evolving business models for buying, selling and licensing IP, could 
significantly influence a patent's economic value and the operation of 
the IP marketplace. The hearings will consider the impact of these 
changes on innovation, competition and consumer welfare.
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    \1\ Federal Trade Commission, To Promote Innovation: The Proper 
Balance of Competition and Patent Law and Policy (October 2003), 
available at (http://www.ftc.gov/os/2003/10/innovationrpt.pdf) (``IP 
Report'').
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    The Commission seeks the views of the legal, academic, and business 
communities on the issues to be explored at the hearings. This notice 
poses a series of questions relevant to those issues on which the 
Commission seeks comment. Each hearing will be transcribed. The 
transcript and any written comments received will be placed on the 
public record.

DATES: The first hearing will be held December 5, 2008, in the 
Conference Center of the FTC office building at 601 New Jersey Avenue, 
N.W., Washington, D.C. All interested parties are welcome to attend. An 
agenda for that hearing will be posted on the FTC's website, 
www.ftc.gov. The Commission may hold

[[Page 70646]]

subsequent hearings in Washington, D.C. and other locations. Prior to 
each hearing, the Commission will publish an agenda on its website.

ADDRESSES: Any interested person may submit written comments responsive 
to any of the topics identified in this Federal Register notice or in 
any subsequent announcement related to hearings on the Evolving IP 
Marketplace. Respondents are encouraged to provide comments as soon as 
possible, but no later than February 5, 2009. The FTC will only accept 
comments submitted by weblink or in hard copy format. Information about 
how to submit comments will be posted on the website for the hearings, 
accessible at (http://www.ftc.gov/ftc/workshops.shtm).
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC 
website, to the extent practicable, at http://www.ftc.gov. As a matter 
of discretion, the FTC makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm.)

FOR FURTHER INFORMATION CONTACT: Erika Meyers, Office of Policy and 
Coordination, Bureau of Competition, 601 New Jersey Avenue, N.W., 
Washington, D.C. 20580; telephone 202-326-2076; e-mail, 
[email protected].

SUPPLEMENTARY INFORMATION:

The October 2003 FTC IP Report

    The FTC is an antitrust enforcement agency, but it also has a 
mandate to study issues related to competition policy. In 2002, the 
agency undertook a study of the patent system under both of these roles 
in response to the increasing significance of patents in the knowledge-
based economy and the role of dynamic, innovation-based considerations 
in antitrust analysis. In support of the study, the FTC and the 
Department of Justice held over 24 days of hearings that involved more 
than 300 panelists, including representatives from large and small 
business firms; the independent inventor community; patent and 
antitrust organizations; and the academic community in economics and 
antitrust and patent law. In addition, the FTC received about 100 
written submissions. Many of the business representatives were from 
technology-intensive industries such as pharmaceuticals, biotechnology, 
computer hardware and software, and the Internet. The Report FTC's 
October 2003 Report on the patent system, To Promote Innovation: The 
Proper Balance of Competition and Patent Law and Policy,\2\ summarizes 
testimony from the hearings and explains the Commission's 
recommendations for improving the patent system.
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    \2\ I.P. Report, supra n.1. In 2007, the Federal Trade 
Commission and the Antitrust Division of the Department of Justice 
released a joint report based on these hearings examining the ways 
in which antitrust analysis should take into account the patent 
system's incentives to innovate. The report recognizes that the way 
antitrust law functions at the patent interface can significantly 
affect IP-driven innovation. U.S. Dep't of Justice and the Federal 
Trade Commission, Antitrust Enforcement and Intellectual Property 
Rights: Promoting Innovation and Competition (April 2007) available 
at (http://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf)
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    The IP Report found that both competition and patents influence 
innovation, which drives economic growth and increases standards of 
living. Patents play an important role in promoting innovation by 
providing an incentive to develop and commercialize inventions. Without 
patent protection, innovators that produce intellectual property may 
not be able to appropriate the full benefits of their innovation when 
competitors are able to ``free ride'' on the innovator's efforts. 
Patents may also encourage firms to compete in the race to invent new 
products and processes. Patent rights make it easier for inventors to 
attract funding and enter the licensing and joint-venture arrangements 
needed to commercialize an invention. Moreover, the public disclosure 
of scientific and technical information made through a patent can 
stimulate further scientific progress.
    The IP Report explained that competition also plays a critical role 
in stimulating innovation. Competition drives firms to identify 
consumers' unmet needs and develop new products and services to satisfy 
them. In some industries, firms race to innovate in hopes of exploiting 
first-mover advantages. The IP Report raises concerns that patents of 
questionable quality-those of questionable validity or having overly 
broad claims-can hinder competition and innovation in several ways, to 
the detriment of consumers. For instance, patents of questionable 
quality can deter follow-on innovation by discouraging firms from 
conducting research and development in areas that the patent improperly 
covers, and raise costs when challenged in litigation or unnecessarily 
licensed. The IP Report made ten recommendations for legislative, 
judicial and administrative changes to the patent system to address 
these concerns, several of which have come to pass or received support 
in Congress. Those recommendations include establishing a more flexible 
obviousness standard under 35 U.S.C. Sec.  103, raising the 
requirements for proving willful infringement, and instituting a patent 
post-grant review procedure in the Patent and Trademark Office.

Recent Changes to the Patent System

    The patent system has experienced significant change since the FTC 
released its first IP Report in October 2003, and more changes are 
under consideration. The courts and patentees are exploring the full 
implications of Supreme Court and Federal Circuit decisions on 
injunctive relief, patentability and licensing issues. Congress has 
considered sweeping legislative patent reform, and new debates on the 
appropriate methods for calculating infringement damages have engaged 
the patent community. New business models for buying, selling and 
licensing patents have emerged and evolved since 2003. In addition, 
there is new learning regarding the operation of the patent system and 
its contribution to innovation and competition.
    Three of these recent developments have brought the issues of 
patent remedies and their impact on innovation and consumers to the 
forefront. In 2006, the Supreme Court ruled in eBay v. MercExchange\3\ 
that district courts may no longer automatically grant a permanent 
injunction barring future infringement following a finding of 
infringement, but must consider traditional principles of equity. In 
2007, in In re. Seagate Technologies, Inc.,\4\ the Court of Appeals for 
the Federal Circuit abandoned its ``duty of due care'' standard, and 
held that proof of willful infringement requires ``at least a showing 
of objective recklessness,'' thus making it more difficult for a 
patentee to obtain treble damages. While the patent system grapples 
with the application of those decisions, debate continues in the patent 
community over the appropriate methods for calculating

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reasonable royalty damages and whether legislative changes are needed.
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    \3\ 547 U.S. 388 (2006).
    \4\ 497 F.3d 1360, 1371 (Fed. Cir. 2007).
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    Remedies available in patent litigation--a permanent injunction 
barring future infringement, compensatory damages for past 
infringement, and trebled damages for willful infringement--play an 
important role in determining the value of all patents. The parties' 
assessment of the remedy a court might award heavily influences the 
settlements that resolve the vast majority of patent infringement 
actions, and even licensing negotiations that take place without the 
initiation of a court action. Thus, these changes and proposed changes 
could have far-reaching effects on the value of patents and the 
operation of the market for intellectual property.
    Three other recent Supreme Court decisions affect the value of 
patents and the operation of the IP marketplace through rulings on what 
patents are valid, when licensees may challenge validity, and who may 
owe royalties. In KSR International v. Teleflex, Inc.,\5\ the Supreme 
Court propounded a flexible approach to obviousness doctrine. In doing 
so, the Court discussed the detrimental effects of obvious patents, 
which withdraw from the public what is already known and diminish the 
resources available to support innovation. In Medimmune, Inc. v. 
Genentech, Inc.,\6\ the Court allowed a patent licensee to challenge a 
patent's validity through a declaratory judgment action because the 
harm of paying royalties on an invalid patent generates a ``substantial 
controversy between parties having adverse legal interests.''\7\ In 
Quanta Computer Inc. v. LG Electronics,\8\ the Court affirmed the 
exhaustion doctrine even where the initial patent license purported to 
limit the rights transferred to subsequent purchasers of a covered 
product.
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    \5\ 127 S. Ct. 1727 (2007).
    \6\ 549 U.S. 118 (2007).
    \7\ Id. at 771.
    \8\ 128 S.Ct. 2109 (2008).
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    Some of the most significant recent changes in markets for 
intellectual property have occurred not through the courts, but through 
the emergence of new business models involving the buying, selling and 
licensing of patents. Companies have always used intellectual property 
as a strategic asset: sometimes offensively to maintain exclusivity 
over a technology, to capture royalties from competing products, or to 
support technology transfer, and sometimes defensively, to stave off 
potential infringement litigation. New business models have emerged in 
recent years, however. Some business models seek to monetize patents 
based on strategic acquisition and assertion. Others establish a 
cooperative venture that buys and licenses patents to its members for 
defensive purposes. Still others seek to create sector-specific funds, 
similar to mutual funds, that allow investors to earn revenue from 
royalty streams. There are likely other developing business models that 
use intellectual property as their primary asset.

Hearings on the Evolving IP Marketplace.

    The extent and cumulative impact of these changes and proposed 
changes on the patent system are poorly understood. They could 
potentially significantly influence a patent's economic value and a 
patentee's compensation. If patentees were systematically under-
compensated due to legal doctrines that drive down the value received 
through remedies and licensing, patents would be devalued. This would 
undermine the patent system's incentives to innovate, to the detriment 
of consumers who benefit tremendously from innovation. On the other 
hand, if the relevant legal rules operate to systematically 
overcompensate patentees, supra-competitive prices for technology would 
unduly dampen future innovation, and prices for products incorporating 
patented inventions would increase unjustifiably. Both under- and 
overcompensation of patentees present the potential for consumer and 
competitive harm.
    The Commission plans to hold a series of hearings that will examine 
the recent and proposed changes in the IP marketplace and consider the 
effects of those changes on the alignment of patent and competition 
policy. The first hearing will occur on December 5, 2008 in Washington, 
D.C.
    The December 5\th\ hearing will include three panels addressing a 
range of topics related to the valuation of patents and the operation 
of the market for intellectual property. A primary goal of this first 
hearing is to identify those issues that require more in-depth study in 
subsequent hearings. In the first panel, participants will discuss the 
operation and impact of emerging business models, aspects of the patent 
system that support those models, and industry responses. The second 
panel will explore remedies law and the need for economic analysis in 
this area. In the third panel, participants will examine legal 
doctrines that affect the value and licensing of patents, such as the 
recent Supreme Court cases on obviousness, declaratory judgment and 
exhaustion, and doctrines that make the scope and enforcement of 
patents unpredictable. The panel will consider whether the notice 
function of patents operates to support an efficient marketplace.
    The Commission invites public comments discussing the current 
marketplace for intellectual property, in particular its impact on 
innovation incentives and competition concerns and the role of economic 
analysis in this assessment. The Commission will accept comments, as 
described above, until February 5, 2009. Comments addressing any of the 
following questions would be particularly helpful.
    1. How has the IP marketplace changed in the past five to ten 
years? What changes are expected in the future? What aspects of the 
patent system drive those changes? What is the impact of those changes 
on innovation?
    2. What are the new business models involving intellectual 
property? What has motivated the development of these business models? 
What is their impact on innovation?
    3. What economic evidence is relevant when analyzing whether to 
grant a permanent injunction following a finding of infringement? What 
proof have courts required? How should the analysis take into account 
the incentives to innovate provided by the patent system and the 
benefits of competition? What is the appropriate remedy when the court 
has denied a permanent injunction after a finding of infringement?
    4. Do the legal rules governing patent damages result in awards 
that appropriately compensate patentees? Are there circumstances in 
which they result in overcompensation or undercompensation of 
patentees? What evidence is there of the extent of these problems? What 
information would be helpful to better assess whether damage awards 
appropriately compensate patentees? Are courts and juries able to make 
damages determinations with sufficient accuracy? To the extent that 
there are problems resulting from the determination of damages for 
patent infringement, how should they be addressed?
    5. How have changes in willfulness doctrine changed the behavior of 
patentees and potential infringers? Do recent changes in the law 
adequately address the concerns with willfulness doctrine identified in 
the October 2003 FTC IP Report?
    6. How will changes in patent law rendered by Supreme Court and 
Federal Circuit decisions of the past five years affect the value of 
patents? How will these changes affect the operation of the

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IP marketplace? How will they affect innovation and competition?
    7. How does uncertainty regarding the validity and scope of patents 
affect the operation of the IP marketplace? Does the current system 
adequately fulfill the notice function of patents? How does uncertainty 
influence the operation of the IP marketplace? What are the sources of 
uncertainty that affect the value of patents and the operation of the 
IP marketplace? What could be done to address them?
    8. How transparent is the current IP marketplace? Can it be made 
more transparent? Is that desirable?
    9. During the past five years, what new learning has furthered the 
understanding of the patent system and the IP marketplace?
    By direction of the Commission.

Donald S. Clark,
Secretary.
[FR Doc. E8-27673 Filed 11-20-08: 8:45 am]
[BILLING CODE 6750-01-S]