United States: Discussion Of USPTO White Paper

The white paper initially discusses the evolution of U.S. genomic inventions. It notes that in the mid-1980’s, a debate raged within the scientific community regarding the investment of limited public research funds into the Human Genome Project. Advocates argued that such research would foster innovation and accelerate research. Contrary opinions argued that the information would develop on its own as a natural consequence of research in other areas. Despite this debate, the paper notes, it was decided to proceed with the Human Genome Project.

The paper then goes on to note that over the past 15 years, technological advances have allowed for the rapid sequencing of genetic information from a variety of organisms, culminating in the June, 2000 draft sequence of the human genome. Also, the report notes that a sequence of D. melanogaster was completed and other organisms, such as the mouse, should be completed by the end of 2001.

The white paper goes on to discuss the important public interest embodied in this work. The public interest is implicated because this work is derived from both private and public research, and because both private and public entities, such as universities, desire to profit from their investment. A portion of this public concern lies in the corporate utilization of information from several genome projects which have been placed in the public domain. The paper stresses that companies have used this information in their own proprietary research, thereby, capitalizing on publicly funded efforts and removing further developments of such efforts from the public domain. There is thus "great consternation that some private concerns are attempting to reap benefits from patented technologies that would not have been possible without publicly funded research."

The second part of the white paper discusses the history of "patent pools." A patent pool is defined as an agreement between two or more patent owners to license one or more of their patents to one another or third parties. Discussing their history, the paper notes that over the last one hundred and fifty years, patent pools have played an important role in shaping both the industry and the law in the United States. In 1856, for example, the Sewing Machine Combination formed one of the first patent pools consisting of sewing machine patents. In 1917, an aircraft patent pool was privately formed encompassing almost all aircraft manufacturers in the United States. A more recent patent pool was formed in 1997, by the Trustees of Columbia University, Fujitsu Limited, General Instrument Corp., Lucent Technologies Inc. and others to jointly share royalties from patents that are essential to compliance with the MPEG-2 compression technology standard.

The white paper then goes on to discuss the dramatic changes in the law regarding patent pools over their history. The paper initially discusses the inherent conflict between the patent and antitrust laws, such as the Sherman Act, which was designed to prevent the creation of monopolies and restraints on interstate commerce, and that scrutiny of patent pools under the antitrust laws began in 1912 with the Supreme Court’s decision in Standard Sanitary Manufacturing Co. v. United States. In this case, the High Court dissolved a patent pool because of antitrust violations. In 1945, the white paper notes, the Supreme Court dissolved one of the most notorious patent pools in Hartford-Empire Co. v. United States. This patent pool of major glass manufacturers covered ninety-four percent of all the glass made in the United States, which allowed its members to sustain glass prices at unreasonably high levels. The paper notes that by the 1960s, the Department of Justice closely evaluated all patent pools and created a list of nine patent licensing practices that were per se antitrust violations (known as the "Nine No-Nos.") Recently, however, the paper notes, the Justice Department and the Federal Trade Commission ("FTC") have recognized that patent pools can have significant pro-competitive effects and may improve a business’ ability to survive this era of rapid technological innovation in a global economy.

Addressing these more recent legal enforcement guidelines, the paper notes that since 1977, the Antitrust Division of the U.S. Department of Justice has had an official regulatory procedure for reviewing various types of business practices proposed by private firms. Since 1979, the FTC has had a similar procedure, in which businesses may seek FTC advisory opinions concerning proposed business practices. These procedures led to Justice Department and FTC policies in the intellectual property licensing area, and in 1995, these agencies issued Antitrust Guidelines for the Licensing of Intellectual Property ("IP Guidelines"), which sets forth their enforcement policies in this area. The IP Guidelines specifically address patent pooling arrangements.

In particular, the IP Guidelines state that intellectual property pooling is pro-competitive when it:

1. integrates complementary technologies,
2. reduces transaction costs,
3. clears blocking positions,
4. avoids costly infringement litigation, and
5. promotes the dissemination of technology.

The IP Guidelines also discuss that excluding firms from an intellectual property pool may be anti-competitive if:

1. the excluded firms cannot effectively compete in the relevant market for the good incorporating the licensed technologies,
2. the pool participants collectively possess market power in the relevant market, and
3. the limitations on participation are not reasonably related to the efficient development and exploitation of the pooled technologies.

The white paper then notes that the Justice Department has applied these guidelines in considering and approving recent pooling arrangements based upon the following additional guidelines:

1. the patents in the pool must be valid and not expired,
2. no aggregation of competitive technologies and setting a single price for them,
3. an independent expert should be used to determine whether a patent is essential to complement technologies in the pool,
4. the pool agreement must not disadvantage competitors in downstream product markets, and
5. the pool participants must not collude on prices outside the scope of the pool, e.g., on downstream products.

Currently, the white paper notes, the guidelines have been "collapsed" into the following two overarching questions: (1) whether the proposed licensing program is likely to integrate complementary patent rights, and (2) if so, whether the resulting competitive benefits are likely to be outweighed by competitive harm posed by other aspects of the program.

Based upon the above analysis, the white paper then goes on to highlight the possible benefits to be derived from the pooling of biotechnology patents. A first benefit discussed in the paper is the elimination of problems caused by "blocking" patents or "stacking" licenses." In biotechnology, the paper stresses, the granting of patents to nucleic acids may create blocking patents or lead to stacking licenses. By creating a patent pool of these basic patents, the authors argue, businesses can easily obtain all the necessary licenses required to practice that particular technology concurrently from a single entity. A second benefit is that patent pools have the potential to significantly reduce several aspects of licensing transaction costs. Patent pools, the paper stresses, can reduce or eliminate the need for litigation over patent rights because such disputes can be easily settled, or avoided, through the creation of a patent pool. A reduction in patent litigation would save businesses time and money, and also avoid the uncertainty of patent rights caused by litigation.

A third major benefit from patent pooling the paper discusses, is the distribution of risks. Like an insurance policy, a patent pool can provide incentive for further innovation by enabling its members to share the risks associated with research and development. The pooling of patents can increase the likelihood that a company will recover some, if not all, of its costs of research and development efforts. Finally, a fourth benefit of patent pooling the paper discusses is an institutionalized exchange of technical information not covered by patents. A patent pool provides a mechanism for free sharing of technical information related to patented technology among its contributing members and its licensees.

The white paper concludes by strongly advocating the use of pooling arrangements in the biotechnology sphere by arguing that "the use of patent pools in the biotechnology field could serve the interests of both the public and private industry, a win-win situation. The public would be served by having ready access with streamlined licensing conditions to a greater amount of proprietary subject matter. Patent holders would be served by greater access to licenses of proprietary subject matter of other patent holders, the generation of affordable pre-packaged patent "stacks" that could be easily licensed, and an additional revenue source for inventions that might not otherwise be developed.

The end result, the authors state, is that patent pools, especially in the biotechnology area, can provide for "greater innovation, parallel research and development, removal of patent bottlenecks, and faster product development."