[Random-bits] CPTech on EC Consultation on future patent policy in Europe

[James Love]

Today Michelle Childs (CPTech-UK) submitted these comments in the
European Commission's Consultation on future patent policy in Europe
(http://europa.eu.int/comm/internal_market/indprop/patent/
consultation_en.htm).  Jamie


http://www.cptech.org/a2k/cptechECPatconsultation-12april06.pdf
-----
The Consumer Project on Technology=92s Comments on the Commission=92s
Questionnaire on The Patent System In Europe.

12 April 2006

Introduction

The Consumer Project on Technology  (Cptech) welcomes the opportunity
to respond to the Commission=92s Questionnaire on the Patent System in
Europe. Our response focuses on the questions concerning the
principles and features of the patent system, as without a clear
statement of the purpose and objectives of policy in this area, a
move to centralize the present system under a community patent regime
is in danger of entrenching poor outcomes and missing the opportunity
to review the best way to ensure that Europe maximizes its innovation
potential.

The consultation presents the following statement regarding the basic
principles and features of the patent system:

Consultation Section 1 - Basic principles and features of the patent
system

The idea behind the patent system is that it should be used by
businesses and research organisations to support innovation, growth
and quality of life for the benefit of all in society.  Essentially
the temporary rights conferred by a patent allow a company a
breathing-space in the market to recoup investment in the research
and development which led to the patented invention. It also allows
research organisations having no exploitation activities to derive
benefits from the results of their R&D activities. But for the patent
system to be attractive to its users and for the patent system to
retain the support of all sections of society it needs to have the
following features:

*=09clear substantive rules on what can and cannot be covered by
patents, balancing the interests of the right holders with the
overall objectives of the patent system
*=09transparent, cost effective and accessible processes for obtaining
a patent
*=09predictable, rapid and inexpensive resolution of disputes between
right holders and other parties
*=09due regard for other public policy interests such as competition
(anti-trust), ethics, environment, healthcare, access to information,
so as to be effective and credible within society.

1.1   Do you agree that these are the basic features required of the
patent system?

The notion that a basic purpose of the patent system is to allow
firms to recoup investments in R&D is probably a candid statement of
how the patent system is seen by many government officials.  It is
not, however, a very satisfactory explanation of the patent system
for the following reasons.

1.=09The notion that businesses and research organizations "should" use
the patent system to "support innovation, growth and quality of life
for the benefit of all in society" makes it sound as if patent owners
are interested in the public interest.  A better assumption is that
most patent owners will use the system in order to derive commercial
benefits.  If the actions of potential right-owners promote the
public interest, the patent system will be working well, wholly
independently of the motivations of the right-owners.  And, the
patent system itself is just one way to achieve these objectives.  It
would be better to say something like this:

--------
"in areas where it is appropriate and managed properly, if the
benefits outweigh the costs and are superior to alternative
mechanisms, the patent system can play a positive role in stimulating
innovation, and enhancing economic growth and improved quality of
life for the benefit of all in society."
--------

2.=09The statement about recouping investments does not explain why
some investments in R&D would lead to patents, and others would
not.   Patents are limited to cases of inventions.  Investments alone
do not necessarily create a right to a patent, and patents are
clearly available even for inventions where there is no investment at
all.  The Commission is saying the main purpose of the patent system
is to permit firms to recoup investments, but the patent system
neither requires investments, nor guarantees that investments will
result in patents, nor guarantee that patents will yield commercial
profits.  What the patent system does is facilitate commercial reward
for invention, and only invention, with a temporary and limited
commercial exclusivity during which time the patentee may exploit the
invention, or in certain circumstances to be remunerated when others
exploit the invention.

3.=09The awarding of a patent creates private benefits, but is done to
promote the public interest.  By providing patents, certain types of
inventive activity benefit from some exclusive or remunerative
rights.  This creates private incentives to both invent and exploit
new inventions.  The rights associated with a patent are not
available to parties who invest but do not invent, and the rights
only extend to the exploitation of the specifically characteristics
of the invention.  The system also requires disclosure by the
rightsholders in return for exclusivity, in order that society can
benefit from new inventions, which is a key part of the public good
of the system ( although perhaps more useful in some areas of the
economy than in others.)

4.=09The patent system is only used in certain areas of the economy.
Some types of inventive activity are not subject to patents, and some
types of research and development do not benefit from patent
protection.  The limited role for the patent system is deliberate,
and recognizes the importance of other mechanisms, incentives,
rewards, tendencies, and forces in the process of innovation and
progress in the arts and sciences.

5.=09The patent system co-exists with a wide range of other public
policy instruments, including regulation, government procurement,
taxation, public subsidies, and non-patent intellectual property
regimes, which also play a role in innovation and progress in the
arts and sciences.  For policy makers, the patent system does not
have the weight of the world on its shoulders -- it is part of a
larger eco-system that supports innovation.


1.2  Are there other features that you consider important?

It is extremely costly to manage the patent system, in terms of (1)
evaluating pre and post grant disputes over the validity and
relevance of patents, (2) negotiating the rights to use patented
inventions, and (3) reducing the utilization of patented inventions.

If patents were costless, they would not be controversial.   But they
do present costs to society, and in some cases, unacceptable costs.
These include excessive prices for certain patentable inventions
(such as Herceptin, the high priced and often rationed cancer drug,
the high priced breast cancer screening tests protected by the  BRCA1/
BRCA2 patents, and second line AIDS drugs in  newer EC Member
States), restrictions on the supply or inability to meet the demands
of the market (such as Tamiflu), inadequate government stockpiles of
important medicines), patent thickets that make it difficult to adopt
standards for new technologies in the areas of computing and
telecommunication devices, and many other areas.

A good patent system recognizes and addresses the issues of costs and
benefits, by limiting the use of the patent system only to those
areas where the benefits outweigh the costs, and secondly, by
limiting the rights associated with a patent, in order to address
well known problems.   Of course, this is what we expect out of any
other system of government intervention in the economy, such as
programmes that address health, safety or environmental protection.
But it is sometimes obscured in the areas of patent policy, by the
framing of patents as "intellectual property rights," making it seem
as if a patent is something an inventor has a natural right to.


1.3=09How can the Community better take into account the broader public
interest in developing its policy on patents?

The Community should acknowledge the limited role for patents in the
economy, and develop a better understanding how to set appropriate
limits.  For example, why would the Community extend patents to a
field where the benefits outweigh the costs?  Is it because no one is
counting the costs or the benefits?  Are the benefits to be taken on
faith only, and the costs to be ignored?

CPTech believes there are several areas where the evidence suggests
patents should not be used.  These include: (1) business practices,
where innovation is extensive without patent protection and there is
a bad record of low patent quality in countries that issue such
patents, (2) software, where innovation is often threatened by patent
protection, innovations are not formally documented in academic or
technical literature leading to very low patent quality, where the
complex nature of major software programs makes it essentially
impossible to develop new programs that do not infringe patents, and
where software benefits from a host of other protections, including
copyright, trade secret protection and contracts, (3) certain areas
in medicines where the patent system is an unneeded and unwelcome
barrier to the use of innovations, such as recommended doses of
medicines or surgical procedures on humans, to mention only a few areas.

Secondly, when the patent system is used, there must be a robust and
effective mechanism to address abuses, and the public interest in
more liberal use of the inventions.  The limitations and exceptions
to rights must include public authority to authorize both
remunerative and non-remuneration non-voluntary uses of inventions,
and to place constructive obligations on patent owners.

The Community now benefits from such policies as research exceptions,
mandatory compulsory licensing of patents on certain agricultural
biotechnology inventions, and a patchwork of national provisions on
compulsory licensing or uses of patented inventions by governments.
In many respects, state practice in the Community may be thought of
as falling into five separate categories:

1.=09Non-voluntary uses that are permitted without remuneration

These include the research exception, as well as a wide range of
exceptions in such areas as personal use, use by pharmacists, certain
limited exceptions that apply to commercial shipping and aircraft
uses, emerging notions of exceptions for humanitarian use, early
working of patents for purposes of complying with regulatory
procedures, and other areas.

2.=09Non-voluntary uses that address abuses of rights.

These tend to be highly contentious and costly to resolve disputes
over such issues as excessive pricing, anticompetitive refusals to
license, and access to an invention as an essential facility.

3.=09Non-voluntary uses that specially address follow-on inventions.

The Directive 98/44/EC on the legal protection of biotechnological
inventions, creates an obligation for States to provide for mandatory
compulsory licenses for follow- on improvement of seeds. Also, many
Member States have provisions in national patent laws for granting
compulsory licenses in cases where a patented invention is
=91dependent=92 upon another patented invention, a situation addressed in
Article 31.L of the TRIPS Agreement. Policies also provide for
damages in cases of patent infringement, but not injunctive relief,
and also can permit the non- voluntary use of patents, subject to
remuneration, in cases where injunctive relief is inappropriate.


4.=09Non-voluntary uses that address public interests uses.

These are areas where it is not necessary to prove an abuse of
rights, only that the non-voluntary use will provide net benefits to
society. This includes, for example, some parts of the French and
Belgium ex-officio licenses on certain health care technologies, or
the US compulsory licenses for patents on civilian nuclear energy or
clean air technologies.

5.=09Non-voluntary uses by or for governments.

Nearly every country reserves for the state the right to use or
authorize the use of patents for government purposes.


The Commission should look at developing new approaches to ensure
greater public benefits, whilst rewarding inventors. . For example:
Remunerative versus exclusive rights.  Increasingly, experts are
considering more formally the benefits in certain areas of treating
patents as a right to remuneration, rather than a right to exclude.
This is already the case for certain agricultural biotechnology
inventions, through the Community=92s mandatory compulsory licensing
provisions in the Biotechnology Directive.

The patent system would work better in some areas if it were managed
as a liability rule, rather than as an exclusive right.   This is
because of the importance of follow-on research, and the problems
presented by patent thickets.  The major barrier for greater adoption
of liability rules (a right to use, subject to remuneration) for
patents concerns how to determine valuation of the patent.   However,
there are areas where this can be a manageable problem.  By looking,
for example, at market outcomes from patent pools in areas of
standards, such as the patents on consumer electronics technologies,
it seems clear that single digit royalties payable to patent pools
are considered reasonable.  Bargaining could be reduced by simply
providing a compulsory license on a pool of patents that was capped
at a reasonable figure, such as 1,2,4 or 6 percent of sales of the
devices or services, depending upon standard practices in the
relevant industry.

Some researchers think this concept could also be extended into areas
of research tools for new medicines, where the use of any tool would
be authorized in return for a reasonable reach-through royalty
against the new product.

In any of these cases, parties could voluntarily negotiate lower
royalties, much like the case today involving negotiations over the
use of copyrighted songs that are subject to statutory licensing.

In addition, The Commission should consider the following issues.

Patent policy should enable and not undermine the development of
standards that promote investment and development of new knowledge
goods.  Standards involve particular technical approaches to
important problems, including methods that can be patented.  The
efficient development of technical standards requires disclosure of
relevant patents, and global norms for patentability that eschew
trivial extensions of technological know-how in areas that create
unwarranted encroachments on the public domain.  Failures to require
disclosure of relevant patents, or adoption of low standards of
inventive step will increase transaction costs and raise private
incentives to block new standards.

Global negotiations on patent norms should seek outcomes that promote
global welfare, rather than short-term competitive advantage.   New
patent norms are durable.  If some governments create low standards
of inventive step in order to protect domestic industries or engage
in rent seeking activities, other governments will likely follow-
suit, as a defensive measure.  This is particularly harmful when the
low standard of inventive step is associated with strong levels of
exclusive rights.   The long run equilibrium of such policies will be
unwarranted encroachments on the public domain, higher transaction
costs for technological innovation, and difficult to curb
anticompetitive behavior. Countries that may believe they benefit
from such policies in the short run are unlikely to have a permanent
benefit, as other countries respond with defensive measures, leading
to even greater declines in global welfare.  Global norms for
inventive step and the rights of patent owners can be either too high
or too low.  There do not exist sufficient global mechanisms to
address the growing problem of low standards for patentability.  The
Commission should pursue this issue in discussions at the World
Intellectual Property Organisation.


WTO Opt-Out decision.   The European Commission made a serious
mistake when it proposed that no EU Member State would ever use the
30 August 2003 WTO Decision as an importer of generic medicines,
including remarkably even cases of national emergencies.   This
decision is not grounded upon any responsible analysis of the
interests of EU Member States, and it does not recognize the mounting
evidence that EU Member States will need to address cases of public
interest or abuses of patent rights in situations where importing
medicines from either non-Member States or even between Member States
is appropriate.

Further Information

Cptech would be happy to provide additional information.  Please
contact in the first instance Michelle Childs, Head of European
Affairs, Consumer Project on Technology, 24 Highbury Crescent, London
N5 1RX , e-mail michelle.childs at cptech.org



---------------------------------
James Love, CPTech / www.cptech.org / mailto:james.love@cptech.org /
tel. +1.202.332.2670 / mobile +1.202.361.3040

"If everyone thinks the same: No one thinks."  Bill Walton