On Friday, January 11 the USPTO held a public roundtable to discuss proposed requirements for recordation of real-party-in-interest information throughout application pendency and patent term. The USPTO is considering imposing new requirements on patentees and assignees to better publicize the chain of ownership for patents. This is an important effort by the USPTO that mostly received praise from roundtable participants. Improving patent ownership transparency will provide sunlight to bilateral negotiations in the high-tech space, lessen privateering or other anticompetitive leveraging of patents and better serve innovation markets by allowing companies to more-accurately account for risk.
One of the reasons for the roundtable’s success was its diverse participation. Patent-holding companies, regulators, trade associations and academics converged to provide candid discussion on the problems and potential solutions facing the patent marketplace. The discord between the companies and entities most likely to be impacted by the proposed rule change and the lawyers representing these entities was particularly noteworthy.
IBM, Google and Hewlett-Packard all offered unwavering support to the USPTO in the transparency effort. Google emphasized that settlements are the most efficient means of achieving patent peace and explained knowledge of competitors’, licensors’ and licensees’ patent interests is vital to facilitate settlements. IBM spoke convincingly of the “ultimate parent” and noted that this rule change would benefit companies, the USPTO and the public alike. IBM’s comments were very similar to their comments from last year. Hewlett-Packard explained that it owns more than 20,000 patents, with thousands more likely in the future, and that it would be among the companies bearing the highest cost under the proposed rule changes. That said, Hewlett-Packard openly accepts this burden, and believes that the benefits of an open and transparent IP system will far outweigh any incremental transaction cost that comes with maintaining public disclosure of ownership.
On the flip side of the coin, patent attorneys and representatives from trade associations such as the American Intellectual Property Law Association (AIPLA) were very reluctant to support any new requirements. Although each presentation was different, a few themes developed. First, there is concern over if a real-party-in-interest could and would be identified, even with a more robust reporting requirement. AIPLA mentioned hedge funds are often the de facto controllers of many of these companies and this information would not provide any more clarity. Second, there is a worry that a change in the reporting requirement will complicate other items in patent representation. For instance one attorney identified seven different places in the life of a patent where real-party-in-interest is mentioned or important and suggested we already have different definitions for this term as a result. Theoretically the new requirement would have the opposite effect from its intention and make matters more confusing. Finally, and most vociferously, attorneys suggested that these requirements would create an unreasonable burden on patentees and assignees. Others in the room pushed back during the open dialogue portion and argued patent attorneys would only need to dedicate a small amount of time, and possibly even just check a box to demonstrate no change in control has occurred.
Santa Clara Law Professor and patent reform expert Colleen Chien concluded the morning session with a hypothetical that drove a point home better than any discourse could: context is just as important as content. Ms. Chien read a patent covering the algorithm employed by Pandora to supply music to its customers. Unsurprisingly nobody in the room could speak intelligently about the patent, what it covered or how a competitor could even know about the patent before telling the crowd that it belonged to Pandora. She then suggested that Pandora is the real-party-in-interest for many more patents, but some of these are held by Music Genome or a smaller company Pandora has purchased. A startup internet music company would certainly know to look at Pandora and as a result have constructive and even actual knowledge of Pandora’s patents. However, how could this same startup know to look at the myriad of patents Pandora might own under a different name?
Jeffrey Wilder of the Department of Justice Antitrust Divison embraced the FTC proposal, describing the Antitrust Division’s position as “considerable enthusiasm.” He noted patent transfers often lead to higher royalties and even patent hold-up. Mr. Wilder was followed by former DOJ Assistant Attorney General for Economic Analysis Fiona Scott Morton who emphasized the importance transparency will play in bringing about patent peace among the large stakeholders. Ms. Scott-Morton commented “secrecy is a big part of the strategy” and opined a broad network for cross-licensing is the only reason we ever benefit from new widgets. Ms. Scott-Morton also called objections over the difficulty in actually identifying the real owner a straw-man, instead arguing it is vital to reset the prisoners’ dilemma scenario that leads to mutually beneficial cross-licensing agreements. Both regulators emphasized the difficulty in tracking patent ownership and explained that following the money is not as easy as it should be.
One important theme coming out of this roundtable is the proposed rule change would create costs for patentees. As Mr. Wilder and Ms. Scott-Morton’s comments make clear, this is not a case of creating transaction costs where none exist. Instead, this is a conversation about efficiently re-allocating transaction costs to where it will be least costly. The current regime imposes incredible costs on competitors, startups, regulators and as a result society as a whole. A change in the rules to create an accurate and well-updated real-party-in-interest database would shift the costs to the patentees and assignees, but the overall cost would be lower. This small, potentially incremental expense would allow companies – established and startup alike – to better manage risk, identify licensees/licensors and negotiate without the information asymmetries that destroy negotiations today.