USPTO Director Michelle Lee delivers pro-patent speech at MIT

Michelle Lee, Under Secretary of Commerce and Director of the USPTO

Earlier today United States Patent and Trademark Office Director Michelle Lee returned to her old stomping ground to deliver what can only be characterized as pro-patent speech at the Massachusetts Institute of Technology. Lee told an assembled audience that the “role of IP in promoting innovation is more important than ever.”

Although not specifically about software patents, Lee’s prepared remarks have the same pro-innovation, pro-innovator, pro-patent feel of the famous (or infamous) software speech David Kappos delivered at the Center for American Progress in Washington, DC, on November 20, 2012.

Lee’s prepared remarks went on to say:

It wasn’t so long ago that the most valuable assets of companies were often tangible—like their plants, warehouses, and inventory.

Today, however, the most valuable assets of many of our country’s most valuable companies are increasingly intangible — their inventions, algorithms, processes, designs, and brands—their intellectual property.

And because these intangible assets can be more easily copied, the system we use to protect and enforce IP rights is critical to protecting investment and American competitiveness.

Focusing on the need to protect investment has been one of the major points raised by those in favor of a strong patent system. Investors prefer to invest in companies that have patented technology. As prolific inventor and Priceline.com founder Jay Walker has said best, “At the end of the day if you do not own the exclusive rights to the problems you are solving you are going to get copied at an astronomical rate. If we can’t own the solution to the problem the last thing I want to do is invest in the solution.” A focus on the importance patents play in protecting investment suggests a real appreciation of the plight of the start-up innovator, which has been largely missing from the patent debates for much of the last 5 years, perhaps longer.

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Lee explained that lessons on the importance of IP were driven home to her when she recently visited China, pointing out that IP rights being critical to protect investment is something that is often mentioned in her meetings with our economic competitors. “China wants an economy more like ours, in which innovation and IP plays a greater role than low-cost labor,” Lee explained. China wants to strengthen it’s IP protection and enforcement “not just because their trading partners are requesting it, but because China views it as necessary… to an innovation-based economy with technologies developed in China that provide products and services higher up on the value chain.”

Lee would go on to explain that the U.S. economy needs more start-ups, but that start-ups unfortunately can face substantial hurdles caused by frivolous lawsuits or defendants simply sending threatening demand letters. This is a topic Lee, other Administration officials and many Members of Congress have discussed in the past.

What was new, or at least felt new, in Lee’s speech today was an explicit recognition that abuse can and does happen on both sides, which is something that those in the pro-patent camp have repeatedly pointed out over and over again.

To be perfectly honest, the Patent Office will likely quibble with the characterization that Lee’s recognition that abuse happens on both sides of patent disputes as being “new.” They, and she, would be correct to point out that this is not the first time she has mentioned or recognized that abuse can happen on both the patent owner and on the defendant side of a dispute. Up until today, however, Lee’s comments were rather non-specific and seemed (at least to me) less substantive and not particularly in tune with the reality that innovators can be and in fact are pushed around by larger infringers with alarming frequency.

Today Lee’s comments struck a very different tone, and she seemed to be unafraid to talk about patents in a positive light, or at least in a way that I have not heard her speak about patents before.

Lee explained:

Abuse can also happen on the defendant’s side, when a defendant draws out the time and expense of a baseless defense, hoping the plaintiff has neither the will nor resources to pursue its claims.

Either way, abusive patent litigation can have a devastating impact on innovators, especially startups, since the cost of patent litigation can often exceed the amount of its latest round of funding.

USPTO recognizes that there is a cost to society if we issue patents we should not have, just as there is also a cost to society if we don’t issue patents that we should.

This tension speaks to a fundamental balance that I believe the patent system must achieve, between (1) incentivizing innovation and (2) allowing others to make improvements to existing technologies.

It will no doubt be music to the ears of the pro-patent community to hear Lee explicitly recognize the very real cost to society that occurs when patent examiners do not issue patents that should be issued, which I have long written is a very real problem that deserves far more attention than it receives. To have it treated by Lee on an equivalency level with the cost of issuing bad patents is astonishing in a very good way. We hear all the time about the costs of bad patents, but rarely do we hear about how devastating it is for innovators who have their innovations buried at the Patent Office. That prevents investment and stops promising start-ups before they ever really get going.

Following up on this point Lee used the example of a MASER, which stands for Microwave Amplification by Stimulated Emission of Radiation. She noted that the first patent was issued in 1960, the inventors (Charles Townes and Arthur Schawlow) are now members of the National Inventors Hall of Fame, and that more than 55,000 patents relating to MASER technology were granted, which generated billions of dollars and improved lives in countless ways.

The point was clear — granting patents does not inhibit innovation, nor interfere with economic activity. “Design arounds, or follow-on innovations, are a key part of what the patent system is meant to encourage.”

Indeed, the patent system offers what are supposed to be very strong, exclusive rights to the patent owners. They are supposed to create hurdles, real barriers to entry. By creating exclusivity that amounts to a real barrier to entry you encourage creative minds to engineer around to find solutions that will not infringe. That is how innovation is pushed forward, and occasionally we find that innovation takes giant leaps forward when meaningful roadblocks are put in place.

When you have weak patent rights and no real fear of consequences for infringement you either get no innovation or you get incremental innovation that crawls forward. There is no need to do anything original when you can simply take what someone else has done without pain or penalty.

This speech by Director Lee is exceptionally important for two reasons. First, the strong and explicit recognition that abuse can and does happen on both sides of a patent dispute, which can and does lead to large companies taking advantage of smaller innovators. Second, the explicit appreciation of the fundamental purpose of the patent system, to create strong property rights that require others to design around as they seek follow-on innovation.

It will be interesting to watch what, if anything, becomes of this speech from a policy perspective. One would imagine that in the carefully orchestrated Obama Administration this speech would not have been given without the knowledge and approval of Commerce Department officials, and perhaps even some within the White House. Time will tell, but it is possible that we may look back on this speech as a turning point in the patent debate, which ushers in a new appreciation for the trials and tribulations of innovators.

UPDATED: March 31, 2016 at 4:24pm ET