The seventh annual Executive Branch Review Conference took place on May 8, 2019, at the Mayflower Hotel in Washington DC. The fourth panel discussed "Division of Authority: DOJ Antitrust; the FTC; the FCC; USPTO."
Several Federal agencies share responsibility for regulating economic competition and intellectual property. Does the division of labor protecting competition and intellectual property result in conflicting or consistent perspectives? How effectively do regulations from the involved agencies coalesce into a framework for businesses and entrepreneurs? When should antitrust and competitive analysis overrule patent protection? Does the development of new technology create confusion or interagency rivalry on who is entitled to regulate? Do quickly-evolving emerging technologies deserve special treatment in antitrust? Join us as we gather with leadership from these agencies to explore these questions and listen to their experiences.
Peter Davidson: Okay. All right. Are we ready back there? You guys, everyone can hear me? Okay, great. Super. Well, good morning, everybody. Thank you very much for being here. My name is Peter Davidson, and I’m the General Counsel of the Commerce Department. And I’m grateful to be here today with two superstars from the Trump administration: Andrei Iancu, who is the Director of the Patent and Trademark Office, and Makan Delrahim is the Assistant Attorney General for Antitrust.
I’m actually truly pleased, and not just reading talking points, because I’ve known Makan for many years, in many different twists in our careers in Washington, and I’ve always known him to be one of the most thoughtful and with the most amount of credibility, and kind of intellectual clarity of many folks I’ve worked with. So, it’s a pleasure to have him here today as well. Andrei I’ve only known for a little over a year now, but he is doing a spectacular job with the Patent and Trademark Office. A newcomer to Washington, he has hit the ground running and is just doing fantastic work over at PTO. So, we have just under an hour to go through about seven hours of topics.
I’m really excited to dive into this because I love this area, and I think we have a very unique opportunity here, with the Department of Justice and the Department of Commerce here, to talk about some of these cutting-edge issues.
I would also like to thank the Telecommunications & Intellectual Property Working Groups of the Federalist Society; [they] do terrific work and [I]encourage you all to join them. If you’d like to join, you can raise your hand right now, and Brian will walk around with a sign-up sheet [Laughter], but, anyway, they do terrific work. Thanks [to all of you for being here].
What we’re going to do is going to start out -- I am going to throw some questions out to Andrei and Makan, and we’re going to do that for the first part of the session. Then I’m going to turn it over to you. So, in the next half an hour or so, if you could be thinking of stimulating questions to ask, we’ll have some good opportunity for some back and forth since we have a good size room here. So, first of all, and what I’ll do is I’m going to actually throw the question to one or the other of these fellows, and then the other one should feel free to chime in as well if they would like to do that.
Andrei, I think I’m going to start with you, and say that a lot of people think about patents as kind of a monopoly or a quasi-monopoly for a period of time. We have someone who deals with monopolies here as well, but to start with you, is that the right way to think about how a patent works, and if not, how should we think about it?
Andrei Iancu: Thanks, Peter, and thanks for the kind words. Really great to be here with you, fabulous working with you at the Department of Commerce. I should say that you’re doing a phenomenal job holding the fort down on all the legal issues that come to the Department. It’s fantastic to have somebody like you in that position. And Makan, it’s been great working with you on IP issues. Both Makan and I have a lot in common. We both come from Los Angeles, and maybe during the rest of the day today, you can figure out all the other things we have in common. But having several folks in the administration who are so knowledgeable about IP in positions of critical importance, like Makan at the DOJ, is really important for our IP and innovation ecosystem for a whole host of reasons.
To go straight to Peter’s question, the bottom line is that folks are throwing around the monopoly word quite loosely, in general, and especially when it comes to patents. People have this popular conception that patents are monopolies. When they are kind, they say “limited monopolies.” But that’s not how I think about it. I actually think that patents are pro-competitive. What do I mean by that? So, a patent will give you a limited right for a limited period of time to be the exclusive one who practices, or has the right, to that particular approach to solving a particular problem. It doesn’t give you a monopoly over the market. Makan is the expert here, but when I think about monopolies, I think about markets. Patents don’t do that.
What patents do do is a) force the inventor to disclose to the public, so everybody knows about the technology. And if you prove your product to be successful, others will look at it and they will say, “Gee! I want to be in that as well because you’re doing really well. But I can’t do it exactly the way you’ve done it because you’ve patented it.” And people get temporarily kind of upset, like, “Dammit! I really want to do that the way you do it!” But you can’t. So, what do you do because you’ve seen the disclosure? You’ve seen the market benefits. You are forced to do one better, to invent around and to create more technology. It’s the exact opposite of the Middle Ages guild periods when everybody was keeping things as a trade secret, and nobody was able to improve upon the technology and to progress.
What the patents have done, they have democratized innovation. And as a result of the U.S patent system, we have created over the past couple of hundred years an explosion of innovation, the likes of which humanity has never known. That is because they incentivize creation, and improvements, and additional creation, and therefore, more and more competition.
Peter Davidson: So, this recent Supreme Court case, Oil States, dealing with some of these bigger
picture questions—any thoughts on that?
Andrei Iancu: I thought you’re not going to ask hard questions.
Peter Davidson: Wait, that’s later.
Andrei Iancu: So, you’re talking about the Oil States case where the court was dealing with post-grant proceedings at the Patent Office which have been instituted by the AIA, the American Invents Act.
Peter Davidson: Largely, also explored, what is the nature of a patent in our system, too?
Andrei Iancu: To some extent, and they have said that patents, in certain circumstances, are public rights. But the bottom line is, if you’re asking if patents [are] property or not, I do think the statutes, and generally, the law is pretty clear that patents shall be treated as personal property. There are a whole host of rights that come along with a property right, and patents have those characteristics. That does not mean that the government cannot review those rights, correct mistakes it has made in granting those rights, and the like. But time permitting, we can get more into the philosophy of --
Peter Davidson: Anyway, for me, it was a fascinating discussion at the Court. So, Makan, you know our system is a little different here in the United States than they may have elsewhere, but does our system of divided authorities—I don’t know if that’s the right way to say it—does that really create -- when we’re talking about intellectual property and competition policy, is the result at the end of the day kind of a consistent outcome? Or does it kind of ping back and forth between the two depending on which is ascendant?
Makan Delrahim: Let me also just add my thanks and great pleasure to be with you and Andrei here. And a big kudos to The Federalist Society for holding this event particularly with the Executive Branch. I think we, periodically, need to think critically and creatively about the separation of powers, the Executive Branch and the proper checks and balances we have, rather than having a multi-headed fourth branch that roves around and nobody really knows which direction its going. Which gets me to the point of the division of power. When you’re talking about division of power, I’m hoping you mean between patents and antitrust enforcement. In the best situation, they should be totally complimentary. As Andrei said, I think patents are pro-competitive. They create, what I would call, dynamic competition.
And so, it’s not so much we have, whatever it is, the technology called the chandelier, and you charge $100 per unit, and wouldn’t it be great if you charged $90 per unit? Because it would be 10 percent cheaper for the consumer. Some people might view that the role of antitrust is to create competition in that. I think the government’s role of the innovation policy, broadly, a combination of proper antitrust enforcement and patent policies, is not so much to make that cheaper, although you’d like it to be as cheap as possible in the free market, but it is to create the next paradigm shifting invention. The LED light, the recessed lighting, or whatever it might be -- that’s a poor analogy, but that’s the best I could come up with looking up in the sky. But, the LED, that’s the next one because it might use one hundredth of the energy that it uses. It could be 10 times as bright, and it could be a lot better. And you want to encourage that R&D in there, so that’s where the consumer benefits because once that comes out, these guys will be forced not to go down 10 percent, but probably go down 90 percent and sell that. We’ve seen that in almost every area of our lives, whether it’s energy, or communications technology, or any other field that we deal with.
So, the best of all situations is that they would be complimentary in a way that actually enhances dynamic competition and increases the incentive for R&D and investment. And I think, by and large, we’ve gotten it right in this country.
Peter Davidson: So that was my next question. In practice, how does it work? Is there a coordination between these two areas to create kind of a coherent policy? Or is it a regulatory state of nature where everyone is kind of beating each other over the head with a big stick?
Makan Delrahim: You would hope that there’s a good coordination. That’s, I think, in the enforcement of the laws, which we do at the Justice Department, or the procurement of patents and interpretation of the laws Congress writes. You hope that there’s the predictability and the consistency because individual freedom and business freedom relies on that consistency, so you hope it is. In this particular incidence, people look at Andrei and me, and they think that somehow the administration coordinated a policy because we come from certain viewpoints that there does not seem to be any fungus between us.
There’s a lot of other similarities between us. He’s much more handsome, but we both, at one point in our lives, went to UCLA. We both lived in Los Angeles. We both married up. [Laughter] We both immigrated, one at ten, the other at thirteen, from autocratic regimes. I think we get a sense of appreciation of the free markets and the opportunities that a country like this, and a legal regime like this, provides. But neither of us, I don’t think, knew of each other even though, I think, our offices in Century City were probably 50 yards away from each other. Neither of us knew each other before this administration, and it’s just been an incredible pleasure, by pure accident, that we both get to be in this job and do what we’re doing.
Peter Davidson: Well, that’s good to know. I have some of the same things in common with you all. I married up and married a Californian, and immigrated from an oppressive regime, the state of Minnesota. [Laughter] So, we have something in common. But, Andrei, what do you have to say about this coordination/cooperation v. regulatory state of nature? How does it work in practice?
Andrei Iancu: First of all, obviously, we at the Patent Office, we come towards the front end of the innovation process. Makan and antitrust, they come somewhere towards the back end when the patents are already issued, and companies utilize them. So, what we want to make sure that we do as one administration is that we have a coordinated policy to the extent possible. So that we don’t take positions on the front end that DOJ, and others on the back end, find untenable. And vice versa. And I think that is important. As Makan indicates, it’s a stroke of luck, or I don’t know what it is, but the stars aligned, and we don’t have that problem here.
And I should say it’s generally true across the Trump administration, and maybe it’s not a stroke of luck. The folks who hired us in these positions, maybe they were looking for a particular thing. As you know, Peter, the Secretary of Commerce, for example, is very much of the same mind when it comes to IP policy. And it’s not just me at the Department who have particular points of view. Look at Walt Copan at NIST who touches on these issues as well. So, it’s really a broad-based approach, and I think that, generally speaking, it is a very good thing.
Peter Davidson: Okay. That leaves me all warm and fuzzy. So, Makan, let me turn to you and ask you, should competition policy ever overrule patent protections? And if so, in what case?
Makan Delrahim: So, I think a case that we have some experience with, coming from the Supreme Court, is one where private parties have abused the patent system through fraud, and have procured a patent and its exclusionary rights that goes naturally with it, and with that, have tried to co-opt a market. And that’s one where we’ve recognized that. Statutes later recognized it in the world of patent misuse as well, but that’s an area that it could be. So, patents don’t grant antitrust immunity. However, exercising your statutory right that Congress has given with a patent because without the exclusionary right, there is no patent. Or copyright, for that matter, or trademarks. But exercising that right validly, unilaterally, cannot be and should never be an antitrust violation.
I’m doing one of those rare things in Washington where an enforcer or regulator takes away their own power rather than expand it, which is something that is typical, but it’s one where I actually think it harms competition if we enforce the antitrust laws in a way that isn’t aligned with the proper property rights.
Now, two patent owners, as Andrei explained earlier, even though you might be granted a limited monopoly, limited exclusionary right in a particular area—I’ll give a particular example that highlights this—it doesn’t mean you have market power for the purpose of antitrust law. So, even though you might have the patent on Lipitor, the cholesterol lowering medication that some in this room, including myself, would take or we know somebody who does. But at the same time -- and Lipitor is off patent now, but at the time that was under patent, you also had Nevicor. You also had Crestor and about seven or so different statin drugs that lowered cholesterol in the body. All of them were under patent because under that chemical entity, somebody couldn’t directly copy that while under patent. However, they were all substitutes for each other. So, a physician, or a pharmaceutical benefit manager, or whomever, insurer, could say, “Lipitor is no longer on patent; Crestor is, and we’re going to ask your doctor to use Lipitor unless it’s not good for you.”
And so, from an antitrust standpoint, we look at the market. We look at substitutes. And that particular example, even though they’re all under patent, none of them have monopoly power because they have substitutes that removes that incentive for them to engage in abusive practices.
Peter Davidson: Okay. Andrei, you mentioned Walt Copan at NIST in your last comment. With rapidly changing technologies, like AI, Quantum, other things like that, do our existing tools and rules and systems work for those new emerging technologies? Or do we need to look at some different and new ways to deal with some of them? And a little bit of the international economic competition might be relevant here, too.
Andrei Iancu: So, the general concepts are there, and the general concepts, if applied correctly, should work. But we have a lot of work to do, actually. Especially when it comes to Artificial Intelligence, and machine learning, and the like when it comes to IP protections in these areas. And we are working on those issues right now as we speak at the PTO. So, I’ll give you a few examples about that.
So, if you think about machine learning, hugely important for the next technological revolution, or as some people call it, the Fourth Industrial Revolution. We’re on the cusp of that now. First and foremost, we must make sure that that technology is patentable, patent eligible. The rest of the world, including Europe, China, and the like, the major jurisdictions have addressed this issue and have basically solved the issue. We are in the midst of struggling with a question as to the eligibility of these types of technology. We have from the Patent Office point of view, we have just this year issued guidance to try to bring clarity to this area, and we’ll see where we are going. But there is activity in Congress and courts on the same question, so really important for us to get this nailed down as quickly as possible.
Second, when it comes to machine learning, there’s some new things here that are happening that other technologies have not had. So, for example, -- so machine learning: the way it works is you have a program and then you have a data set. Then you train the machine and the more iterations it runs, it learns. So, self-learning, machine learning. And you don’t know exactly how it does that; you don’t know how it gets to the answer, by definition. It’s almost like a black box in some respects. With the traditional patent system, there is this quid pro quo that is a very basic concept of patents. You disclose to the public how you achieve it, and in return, you get this limited exclusionary right.
Well, if you don’t know how the machine does it, what exactly are you disclosing? So, this is a struggle that we need to figure out. Further, what if the machine learns and it creates new things? The machine creates new things. So, the machine creates a new invention for you.
Peter Davidson: How do you patent that?
Andrei Iancu: You could potentially patent it. You first have to know how it does it. Number one, don’t know.
Peter Davidson: The machine has to go and file it’s --
Andrei Iancu: -- Well okay. Who is the owner? Who is the inventor? Are they the machine? You put the machine down. Weird. Is it the current owner of the machine? Or is it the original inventor and original developer of that machine? So, these are untested -- I’ll give you one more example. There are many issues here that relate to IP and the next technological revolution. I’ll give you one more example which is on data.
The data sets are critically important for the advancement of Artificial Intelligence. And as a nation, for us to be able to keep pace with the rest of the world and actually keep leading in this area, the developers need access to the big data sets. Because the more data, the better the machine learns, the quicker it learns, and the like. The problem is how do you protect? What’s the IP protection; what’s the form of protection for data? Patents don’t cover just the data; current patent law doesn’t cover that. Copyright law doesn’t really cover compilations like that.
So what companies are resorting to is trade secrets. They keep these data sets secret, and you see these companies guarding them like the Crown Jewels, right? Google guards its data set. Netflix. Amazon. These are like the most important secret things for the companies. So, I can understand that, and also good because of privacy considerations and all that. But from an IP point of view, because they are guarded, it’s the opposite of a patent system where you’re supposed to disclose. How are the other companies to develop their machine learning? So, you think about the start-up—new guys, small—without access to the big data sets. So, there is a question that’s hotly discussed right now as to what forms of IP can we create, should we create, to incentivize properly and carefully a data protection and development and usage.
Peter Davidson: There’s a whole other conversation I’d like to get back to a little bit later about some of these important decisions that we’re making, policy decisions. Are there people internationally making decisions faster than we are? And are they setting standards that we need to get back to? But we’ll get to that in just a minute. So, Makan, since Joe Simmons isn’t here, this is your opportunity.
Makan Delrahim: Are they part of the government? [Laughter]
Peter Davidson: They’re independent, whatever that means. I don’t know. So, Andrei was just talking about different rules and different ways of looking at things to make sure that we keep up with technology. What about our current jurisdictions within government today? Are those tooled correctly for the next set of issues we’re dealing with, whether it be AI, Quantum, whatever it is?
Makan Delrahim: So that was a little bit of a joke. Joe is a great friend. We’ve worked together for twenty years.
Peter Davidson: And he’s also actually doing a terrific job, too. I’m really impressed with his work.
Makan Delrahim: He’s doing a fantastic job and is somebody who thinks about antitrust and markets the same way, and a great guy who wrote a very important paper on one of the concepts of antitrust law about twenty years ago. So, we have a good working relationship with the Federal Trade Commission. There are historic accidents why we have two agencies doing antitrust enforcement. When I was on the Antitrust Modernization Commission, about ten or so years ago, we issued a report, you know a bi-partisan report. We looked at some of these issues. And one of the issues that was raised was in some areas of industry we have statutorily -- they come to the antitrust division. Telecommunications. Transportation. Banking. A lot of the old ICC cases you’ll see that common reference over there, and it’s not really an accident that Congress was lazy and just picked up a set of laws and said, “Hey, you guys deal with that.”
But there’s a whole set of other areas of the industry that isn’t that, and how do the two agencies divide up the responsibilities? We generally work well; there’s what’s called a clearance agreement between the two. We say you do this, and we’ll do this, and it’s based on some historic expertise that two agencies do. So, you know pharmaceutical cases, mergers, will go to the Federal Trade Commission. Gas station mergers goes there. We do beer; it’s a lot more fun. But we will do insurance. But there’s new areas that are coming up. And I was in the private sector, but Google had bought DoubleClick, and the two agencies -- you know, who does this one? So, the statute under the Hart-Scott-Rodino law that deals with mergers, gives 30 days to parties. Parties cannot close a transaction for 30 days until the agencies review it, and then usually they’ll take longer, but there’s a first issue of 30 days. And the trigger -- it wasn’t until the 29th day that the two agencies worked it out. So, it’s not good government when the two agencies do that. Hopefully, we have the controls in place now where none of our clearances are taking that long, but part of that is because Joe and I are both sensitive to the issue.
Peter Davidson: Well you’ve gotta be proactive, too. When you can look down the road and see, rather than waiting for a particular case to get to the last day, you could look forward and see we’ve got this whole new set of technology challenges, and so how are we going to manage it? Again, it gets a little bit down to personal relationships as well. As long as there aren’t sharp elbows flying, you can get in front of those issues. Right?
Makan Delrahim: And largely, that’s how it has worked, and it’s not a partisan issue. Google was in 2007, so you had Debbie Majoras over at the FTC and Tom Barnett at the Antitrust Division, so two incredibly reasonable and competent people who are also good friends. These things just happen because of the agency jurisdictions, and we deal with those. But one area that isn’t good -- and Sen. Mike Lee and former Chairman Goodlatte had introduced a bill, called the SMARTER Act, that the Antitrust Modernization Commission identified, and the administration supports this legislation. It’s kind of by accident that one agency or another might review a particular merger. However, the legal standard for getting a preliminary injunction is different between the two agencies. So, could you imagine if you’re an investor and you’re looking—well, what do you think the odds are of this merger getting approved or not getting approved—well, it kind of depends on which agency reviews it. --
Peter Davidson: -- That’s not the right way to do it.
Makan Delrahim: -- Well, which agency reviews it? I don’t know! Let’s flip a coin and determine.
Peter Davidson: Or forum shop.
Makan Delrahim: And you might have a billion dollar arbitrage --
Peter Davidson: -- You could theoretically kind of arrange your deal in a way that would go to -- you know Congressional committees do this all the time, right?; they write their bill in a way that‘s going to go to Judiciary or go to Commerce. But you could probably figure out a way to gain the system.
Makan Delrahim: You could try to, and sometimes it has happened. When I was in private practice, I certainly did that. But not successfully all the time. But it was something where -- at least congressional systems have some neutral principles of the committee jurisdiction. And then you can game it here, but you kind of don’t because it really comes down to personality. So, other than that little minor area, the two agencies work. The issue of data and Artificial Intelligence poses two problems for us.
First, data has been very pro-competitive in a lot of areas. They provide pro-consumer benefits when a company, good or bad -- you know when Netflix knows what you like and you don’t like, it can promote to you a particular programming. And that’s not to pick on Netflix, but I think that’s a positive thing. It says: You liked, I don't know, Friends. And maybe you like Three’s Company, and they’re both silly—
Peter Davidson: That’s dating you, Makan.
Makan Delrahim: This is dating me.
Peter Davidson: Recent examples, man.
Makan Delrahim: I see the audience, and a few people might remember what Three’s Company is here! One of my favorite shows of all time. [Laughter] So, I’m just surprised there’s even anybody in this audience. You usually think, you put antitrust and patents together, that’s the quickest way to empty a room! [Laughter] You guys are very kind.
The data on one side, we recognize the pro-competitive benefits. The challenge becomes how do we treat the data, for example, in a merger? And should we, as some people in legislators and presidential candidates have been arguing, should you force the sharing of that data that the company has invested in? By a competitor, maybe a new competitor who wants to come in -- should we force people to have access to Coca-Cola’s formula because without it, they can’t compete? We have taken our policy position as we view data as an asset class, so if two companies have two data that are competing with each other in the same market, in a merger enforcement, we might request a divestiture of one of the data sets to somebody else, so it’s not anti-competitive. However, in an enforcement of a single firm conduct, we are very careful not to—unless an extraordinary circumstance presents itself, which I haven’t seen yet—is to force the sharing of it when a company has been smarter or invested in the collection of that data to help consumers do that. There might be policy reasons that Congress could say, “Look. Maybe we should have a data protection regime.” That you do this for twenty years, and then after that Congress—you know you get in—they did that, and Hatch Waxman contacts the 1984 dealing, which created the generic pharmaceutical industry. But there’s many other areas or patents; you do this for twenty years --
Peter Davidson: -- You’re drawing some policy lines.
Makan Delrahim: -- and disclose that. So, there could be policy reasons, but until there is that, we treat data as that. Where it poses a real challenge is Artificial Intelligence. When two companies, without agreeing with each other, might start setting pricing -- make pricing decisions, almost like collusion or be able to police each other. So, I know that if Peter and I are in same market, and let’s say there’s three of us, I know that if Peter lowers his price by 10 percent, my algorithm is immediately going to lower the price. If you increase it, I will increase it, and we all do that. None of us have agreed with each other, so it’s not necessarily a Sherman Section 1 violation where we would be granted pinstripes courtesy of the federal government. But in that situation where you have Artificial Intelligence do that, it poses real challenges. And that is a real issue for us and for international enforcers.
Andrei Iancu: Peter, before you go on. So, on the data sets, fascinating issues and illustrates, actually, your first question about whether patents and the like are pro-competitive or not. If you think about it, secrecy generally drives to a concentration and bigger growth within a smaller concentrated market. So, if you think about data as a very good example, s we’ve mentioned, very, very difficult for the start-ups to compete when they have access to a much smaller data set as compared to the big guys who have huge amounts and then can utilize it, and therefore, can get huger and huger. So, it further concentrates, and it is exactly what was happening in the Middle Ages before the American patent system, where you concentrated wealth and concentrated resources. So, secrecy, in general, drives towards that. Patents and copyrights and IP, in general, tend to democratize the system.
The question is how do you do it when you have this very difficult nut to crack? These other data, which is very difficult to not keep secret, really. There are models out there. Makan referred to the Hatch-Waxman. There is another form of protection that very few people talk about, but then when you think about pharmaceuticals and biologics, there is actual statutes for data protection of those. Five years for small molecules, so just normal drugs. Twelve years for biologics, DNA type cures and treatments and the like. It’s not quite perfectly analogous, but this gives you some limited time protection of the data set itself. But then, it makes it available to the generics to utilize. So, we can try to think in some of those terms, again, you can’t do it exactly the same.
Peter Davidson: It’s a balancing process and policymakers have to go through that. So, good. So, I wanted to dive into a couple more controversial topics – not too controversial, but some controversial topics. First is probably way over my depth, so let me take a shot at it. This is the area of dealing with standards-essential patents. Many of you in the audience, raise your hand if you know what standards-essential patents are; I just want to -- okay, so you’re all a lot smarter than I am about this. So, you can come up here and do this. So, standards-essential patents, for those of you that don’t know, is basically when a patent is claiming an invention that must be used to comply with the technical standard. So, like JPEG or something like that. And then people have to work around that standard. So, it gets pretty complicated when you’re trying to figure out the standards that these bodies are determining, you know, which patents are essential, and trying to stay within the terms -- I’m not going to get too technical on this. But anyway, there’s a lot of issues that come out here with that, and Makan recently withdrew some guidance at the Department of Justice. Makan, I’d like you to kind of explain why you did that, what that was all about.
Makan Delrahim: Well, yeah, you’ve picked an area that is hotly debated right now. I kind of find it pretty simple. That could be because I’m a simpleton. The issue is you have standard setting; the antitrust laws recognize the pro-competitive effects of creating interoperability and having standards in a certain area. Could you imagine if you had an outlet for your phone charger, and you had different kinds of outlets all throughout -- forget about the country, but every other room, or every building had a different standard? You know you had that 110 standard and 220 down the road and the 330 in the other building, and you would never know. It’s actually very good for consumers that you have standardized some issues. Now assuming that it doesn’t compromise the technology that benefits the consumers. In those situations, patent owners make some commitments. Some call it FRAND, some call it RAND, whatever: fair, reasonable, non-discriminatory provisions under which they will license their patents to the users of that standard.
And standards used to be these rooms where a whole bunch of techno-geeks,who are even more nerdy than Andrei and I in the patents and antitrust worlds, but these are folks, who are true engineers, who would get together and almost like NIH peer-reviewed committees where they would really hotly debate the technical merits of a standard and say, “Look, here’s the way we should do it, and we should use this, and we should do that.” And any one of our products might have a thousand patents on it—a microprocessor, for example. Different folks could say, “Okay. This is the best way to put this together.” And it might read on this patent, “As long as you disclose it up front.” Some people would hide the eight ball, but if you want to participate, you would disclose your patent. Say, “I have this patent or application, which may not be public in others, and I want to make it part of the standard. But I will promise to license this on a reasonable basis.” Well, what the heck does that mean? I don’t know. That’s a contractual commitment that the patent owner gives, and a judge can find if you’ve been reasonable or not.
A theory came by about 14 years ago by a friend of mine, who was a chief economist at the Antitrust Division out of Berkley, who was a consultant to one of the companies, who happened to be a licensee in a patent licensing renewal fight. They came up with this theory that it would be a violation of the antitrust laws if you violated your FRAND commitment. So, a contractual obligation now gives rise to an antitrust violation. Well, that has real policy implications because that’s not what Congress has said. And if you do not license it -- so let’s say I say, “Hey, Peter. My beautiful chandelier is $10 to license if you want to copy it and go sell it. You have to give me $10 per chandelier.”
And you say, “Well, that’s not reasonable.”
And I go, “Well, I think it is. Look, Andrei pays me ten bucks, and Dean pays me ten bucks.”
“Well, you’re discriminate against me. I’m not going to pay you.”
“All right. Then you can’t sell these chandeliers, and I will sue you to bring an injunction suit under the patent laws that Congress has provided pursuant to the Constitution.”
And you say, “Well if you do that, you are now violating the antitrust laws for monopolization.”
And some cases have accepted. And you can imagine, one of our greatest exports out of the United States has been antitrust law the last 40 years. We have 138 antitrust agencies as of count this morning. There might be a couple more in the last few hours, but these guys are finding, “Hey! What a great thing we can do! There’s a technology company.” —I’m not saying there would be any xenophobia involved, but . . .—“Look at this! How great is this?! We could make them take a haircut, and it will be a violation of antitrust law if you have a standards-essential patent and don’t license it to them.”
[Noise from audience]
Whatever that was.
Peter Davidson: That was a standards-essential patent protest. I think you’ve got somebody coming in off the balcony there.
Makan Delrahim: So, the issue becomes the bargaining leverage that the licensee and the patent owner might have, and what that commitment means. Because, if it becomes an antitrust violation, I cannot bring an injunctive action against you. My patent almost -- I don’t have the exclusionary right. So, I will now starve because I don’t get the royalty revenues for which I need to, either, pump into more R&D or recoup the investments I’ve made in the past. But you benefit. The basis from that is you paying zero to maybe the $10, and a judge will determine—however the incredible genius that they might be with three clerks that just came out of law school who are also geniuses—but they will determine what that price should be, rather than the market. Now the other side, the licensees would argue, “Well if you didn’t, now I will suffer because I’m in the business of selling chandeliers, and I can’t. So, now I suffer from that.” That’s the policy argument.
Peter Davidson: How did the guidance affect that balance?
Makan Delrahim: So, the guidance in 2013 that the DOJ and the PTO had put their thumb on the scale of that debate, saying that giving an injunction could violate, could harm consumers and competition. Kind of code words for violations of antitrust law, which I don’t think is sound economics. The Supreme Court has never ruled on this, yet. I’ll find the right case, and hopefully, they’ll settle it one way or the other. And hopefully, they’ll be reasonable and rational in this. But it is an area where, again, unlike your typical Washington regulator saying this should not be an antitrust violation until or unless Congress says it should be, which I hope they don’t. But it’s causing an international debate on this, and devaluing intellectual property through which, I think, it devalues the incentive, which if you take it a little bit further, it actually devalues competition because the Schumpeterian dynamic competition will die.
Peter Davidson: Okay. So, we’ve got to move on to other topics, but Andrei, I don’t know if you have any thoughts on PTO’s role in this area or if you have anything to add to what Makan said on SEPs.
Andrei Iancu: Well, this is a lengthy topic, but the 2013 statement was DOJ and PTO in combination. DOJ has withdrawn now. We are looking at the issue and trying to assess what the approach should be. Whatever we do, we have to make sure that we incentivize, if we incentivize anything at all, we incentivize good behavior and that we do not somehow purposely, or by pure luck, create either a holdout or a holdup situation. We want to have a balanced approach that tries to avoid either one of those bad outcomes.
Peter Davidson: Okay. I’m going to skip a couple of other controversial topics because I’m pretty sure that folks in the audience are going to bring these up. But I wanted to end this section here by talking, going a little bit bigger picture and address to you, first of all, Andrei, how does the U.S. keep its edge in innovation? So, when you look at intellectual property, I’ve heard you talk about before that the number of patents being filed in China are far out-pacing U.S. patents currently, and that their trajectory is even worse. So, they’re going to be going through the roof while we kind of go along at the same rate we’ve been doing for quite some time. So, what can the U.S. do to respond to that? First of all, is that the right metric to look at in terms of, are we in trouble or not? And secondly, what can we do to respond to the threat?
Andrei Iancu: So, China has gone through the roof. Right now, there are four times as many filings by the Chinese at the Chinese Patent Office than Americans at the American Patent Office. So, is that the right measure? Patents are a measure. They are a leading indicator of where the innovation is and how much innovation there is. I do think it’s a very good metric, but you don’t have to trust the patents only. You can look up almost any other metric that’s out there. You can look at the number of peer-reviewed articles, technical and scientific articles in peer-review journals published world-wide. China is ahead now. You can look at the number of standards organization committees that are being chaired. China chairs more than we do now. You can look at the number of technical engineering science graduates every year. It’s not even close any more. China is well ahead. And I want to emphasize that it’s not just that the United States is in competition with China. Obviously, China is a huge country with four times as many people as we have, and they’re very focused on innovation and the like, so that’s definitely a threat. But it’s well beyond that. The whole world is innovating now from the smallest countries. Take Singapore, for example, very innovative. Israel, very innovative. And Switzerland, and then everything in between. Korea. Japan.
Peter Davidson: So, what do we do?
Andrei Iancu: There’s several things. First and foremost, I really think it’s important to recognize this, and I think people need to understand, in the United States, at every level, we all need to understand that just because we have been for the past 100-150 years the technological leaders in the world and still are today, it’s not a guarantee that we will continue to be there 20 years from now, 50 years from now, and in the next technological revolution. That is very important for everybody to understand. Look, very little discussed at all is that China, just a couple of months ago, landed a spacecraft on the dark side of the moon and moved it around controlled from Earth. Okay. People need to understand that they are out there. So, what do we do? So, that’s number one.
Second, we want to make sure that our policies, whether it’s IP, whether there is just investment in innovation and the like in the private sector, in the government, are geared towards encouraging more and more and more innovation. There are quite a few voices out there that are saying, “There’s lots of U.S. patents out there. There’s lots of U.S. innovation out there.” The patent system in the United States has grown, and it has, at the compounded rate in the relevant technical areas, at 4 percent. The Chinese patents have grown at 24 percent year over year. So, compound that rate. So, whatever we’re doing, we need to do much more of it. We need to get more of our people involved in innovation. We cannot compete with China on the number of overall population, so therefore, we need a higher percentage of our people to innovate.
We just released a study of the PTO that shows that of U.S. inventors today, as named on American patents, only 12 percent are women. We’re basically competing with one hand tied behind our backs. We need more women to innovate; we need other minorities and under-privileged individuals. We need folks from a broader spectrum of the national geography to innovate. Innovation, right now, is highly concentrated in the United States. Mostly on the coasts. You can think about Silicon Valley and the like, and a few other spots. Broad swaths of the United States are left out of this ecosystem. So, we need to do much more of that.
I put it in three major categories. We need to identify our priorities as a nation. We need to inspire people to innovate, and we need to empower people to innovate at higher and higher rates.
Peter Davidson: Great. So, the last comment here before we go to questions, Makan, talk to me a little bit about -- it’s obviously antitrust. I mean there’s a lot of issues, bankruptcy antitrust. Although those types of policies are critical in terms of accomplishing some of the things that Andrei is talking about, what are the differences between U.S. antitrust, Chinese antitrust, and how do other Chinese rules, laws, regulations operate to either give them an advantage or a disadvantage in the international marketplace?
Makan Delrahim: Chinese Antitrust enforcement is in a flux right now. So, their Anti-Monopoly law, as they call it, is about ten years old. It was put in place in 2008, so eleven years old now. Just about six months ago -- so, they had created three different agencies, the Ministry of Commerce and two other agencies. They seem to have a little bit more wisdom than we do since we have 53 antitrust agencies in this country. After doing a study, they combined them all into one. The State Administration of Mergers or Monopoly Regulation, I think it’s called, SAMR. [the State Administration for Market Regulation]
So, they are at the infancy, but fortunately, they have done a lot of good of moving towards a market-based approach for antitrust enforcement. To the extent there have been some stories saying that their deploying their antitrust enforcement in a way to disadvantage foreign competitors. We are keeping a close eye on them. We’re in negotiations with them as also as the broader trade discussions that are going on.
Peter Davidson: You work with the USTR.
Makan Delrahim: With the Trade Reps Office, your former agency. And I guess my former agency at one point. They’re doing some great work over there, and we’ll see what it results. But antitrust is part of the discussion there, and I hope that they stay in line and continue. We’ve provided technical assistance wherever we can. We send folks, in fact, Roger Alford, my international deputy is there now and just gave a speech yesterday. The challenge becomes, and I’d be curious to know in the patent office, is how many of those patents are state owned by their federal laboratories or companies that are owned by their government. That should give us an indication of what kind of benefits they might have as opposed to our state owned or government -- of course, federal labs and NIH and others file for patents, but relatively, I would be curious to know what that is.
Andrei Iancu: What difference does it make? It’s a centralized, communist regime. And hard to tell the difference. But I don’t have off the top of -- if you’re thinking like Huawei, for example, I don’t know if you’re considering that as a private company, it’s hard to separate --
Makan Delrahim: I’ll leave to other divisions of the Justice Department to determine that.
Peter Davidson: Alright. Well, that’s an excellent point. Really, and we could have a whole session on that because it’s kind of apples and oranges --
Makan Delrahim: -- But that gets into the trade discussion of, are they unfairly subsidizing various parts of the industry that we can’t really compete with? That’s an important one.
Andrei Iancu: Because I know a lot of people have questions, very quickly on that point, there are two separate issues when it comes to China. One is their unfair practices when it comes to IP. And there’s certainly a lot of them, and the administration is very focused on addressing that. And that’s a fantastic thing. Separate from that, or in addition to that, even if they were to stop all the unfair stuff, they’re doing their own innovation, and we can’t lose track of that, either.
Peter Davidson: Yeah. Good. Okay, so going back to the era of Three’s Company, I’m going to be John McLaughlin, and going to be ruthless in terms of making sure that the questioners ask a question and do not give a speech because we only have about ten minutes. So quick questions and we’re going to cycle through these like bam, bam, bam like McLaughlin Group. Okay, first question.
Questioner 1: What do you see the role of the patent office in evaluating a patent? Should the examiner review the patent to determine whether it is accepted or rejected? Or should the examiner try to help the inventor make the best patent? I want to give you a little content on this. This is very important. I feel medicine, in methods and biomarkers, where there’s a lot of controversies, and there’s billions of dollars involved. And this small inventor doesn’t have a chance against foreign companies because of huge litigation costs. And the claims in medicine are inherently ambiguous. It’s not like a device where [there’s] a wide range of possibilities. So, if a claim is written and the patent examiner says it’s too broad, does he have a duty to tell the inventor how to make the best claim or just an acceptable claim? Or vise versa? If the claim is too narrow, should the patent examiner accept it or offer a bigger claim?
Andrei Iancu: It’s a good question. The answer is: a little bit of both. So, I believe that the first obligation of the patent examiner is to make sure that the patent application, specification, and the claims, and so on comply with all the statutory requirements, and reject it if it doesn’t. But in addition, the patent examiner should help the applicant, to the extent possible, draft appropriately scoped claims. Good claims. Help them get good claims that are commensurate to the invention and the disclosure of the specification. And that will withstand challenge down the road.
Peter Davidson: Next.
Questioner 2: The issues that you’ve been talking about clearly would benefit from high quality economic analysis. I’ve been doing off and on review of patent regulation about 15 years, and a consistent pattern is that the Patent Office does not do any economic analysis. It doesn’t write regulatory impact analyses. It does all these very large regulations without much at all.
Peter Davidson: Andrei, what do you say to that? Is that true?
Questioner 2: What are you doing to try to institute that capacity to do economic analysis to inform decision-making along these lines?
Andrei Iancu: Yeah. So, we do have a chief economist. We have a whole office of the chief economists with several economists on staff. We do quite a bit of analysis when it comes to intellectual property in the United States. And we have folks from the outside who come in, for example, we have a couple of folks who just joined us. We call them Edison Scholars; these are academics who come work with us for about a year or so. So, we’re quite active in that area. We publish reports.
The most recent report that I’ve mentioned is with respect to the participation of women in the innovation ecosystem. You can look at the report at uspto.gov. That was handled by the chief economist’s office. We have also done studies by our economists in conjunction with the Department of Commerce economists on the volume of IP industries in the United States. For example, what percentage of American GDPs driven by intellectual property and the like. So, we’ve done those studies and recently updated them as well. We’ve done studies on the value of a patent, trying to quantify the value of a patent to a start-up, and showing the great benefits of those. So, these are just some examples. We do quite a bit of it.
Trish Paoletta: Thank you. Trish Paoletta, Harris, Wiltshire & Grannis. I’m in the Telecom practice group.
Peter Davidson: I have to apologize. I think most of what we were talking about today is highly relevant to the telecom world. We haven’t had telecom specific discussions though. I apologize for that, but you’ve got your chance.
Trish Paoletta: No apology needed. I’ve enjoyed Mr. Yance’s comments on AI, both this year and last year. There’s been a lot in the press, at least in the Telecom press, about government policy for 5G. I’m not talking about government-run networks. I think that was asked and answered; that’s over. Obviously, there is a dimension of keeping out vendors that pose national security risks, so that’s kind of Makan’s area. Discussion of having increased presence of U.S. folks on standard-setting bodies, and obviously, that’s Peter and all of you guys. And AI, right? 5G is a great way to facilitate AI, right? So, there’s inter-agency discussions, of course, on broadband through the American broadband initiative, but are there interagency discussions that all your jurisdictions, and others, on 5G policy and how to keep the U.S. in the lead technically, so we can have broad appointment of 5G in a safe and secure manner?
Makan Delrahim: We have been involved at the White House, and the NEC, NIC sponsored discussions to the extent that it relates to us. With respect to 5G, we’ve had staff that coordinate with that. We obviously work closely with the Federal Communications Commission on a number of areas in addition to kind of being their Hobbs Act attorneys. That’s been delegated to us, so we have the great pleasure of defending a lot of their rules once they get sued for their rules on behalf of the United States Government. So, we work very closely, not only on the litigation, but on policies, including mergers that might have some impact in that world. There’s some of that. We’ve been in discussions with NIST and the PTO and others on some other policy related. So, depending on the issue, I think there’s interagency groups that work --
Peter Davidson: -- I would just add my two cents to kind of a bigger picture than just your question, which is that international standard-setting bodies, both narrowly and large, so I would say something like privacy, for example, by not -- that others may get out in a setting a standard in front of the United States in a way that’s not necessarily before the ITU, or something like that, or other standard setting bodies. But I think the administration is acutely aware of the need for the United States to provide leadership in all of these areas. And so, we are focused in a number of different ways. Again, there’s AI working group. Makan talked about some of the areas that we do. I’m dealing with privacy and a number of other folks in different areas. So, yes, I think U.S. leadership in the world, in terms of this, is really critical. And if we don’t provide leadership, someone else will, and we won’t end up being in a very good place. So, Bill . . .
Bill (sp): So, Makan, it may be that antitrust and IP are a buzzkill for a lot of people, but for me, I woke up looking forward to this panel. So, thank you. It’s great, and you guys are great. Very grateful for all three of you gentlemen and the important work you’re doing, which is so important to our economy. Hugely important. So, my question is: injunctions. Post-eBay, it’s become very difficult if you’re a licensor to get an injunction. There used to be a presumption of an injunction or arguably, there might have been. There’s now a presumption, arguably, against injunctions. What impact, if any, do you see that having on innovation, and what needs to happen in the jurisprudence or legislation surrounding this?
Makan Delrahim: You know, I think the eBay issue is one where -- you know, it’s a Supreme Court ruling. I actually think that the Court, as a matter of policy, interpreted that properly. Some people might be surprised by that viewpoint because they might think my strong intellectual property views might think that they should get an automatic injunction. That’s not what Congress laid out. There’s an equitable relief that is provided that the Supreme Court said you have to look at the four-part test, to the extent district courts of the federal circuit may not be applying those standards properly. That should be an area of concern because it actually does change the balance of the incentive, intellectual property versus the user. But, if you meet the standards of irreparable harm and all of that, then they should be granting those. But I think the Supreme Court interpretation of the law, as its written by Congress is -- now, of course, Congress could change that, but you hope, like in any other part of the law, that the lower courts actually apply it properly and are interpreting what the Supreme Court and Chief Justice Roberts said in that case the right way.
Andrei Iancu: So, very briefly, the Supreme Court found that when the Constitution says “exclusive rights” to the inventors, it can be remedied with non-exclusive rights. So, you can see, perhaps, why the lower courts are having somewhat of a difficult time figuring out how to draw those lines because of that potential ambiguity. What is absolutely critical is that the courts apply the Supreme Court’s decision appropriately and carefully because, otherwise, if you end up in a situation where the de facto outcome is a presumption against injunctions, to begin with, then you incentivize bad behaviors in the marketplace. And instead of, for example, lowering the amount of litigation, you potentially end up in a situation where you disincentivize settlements and license agreements, and as a result you increase the amount of litigation and multiply the costs on the economy and the burdens on the economy. And that’s just one example. So careful balance is important.
Peter Davidson: Great. Well, listen, I apologize for the people in line. I’ve got to get you out of here for lunch. I promised to get you out; otherwise, you’re going to be cut off; there will be no food. No, I’m just kidding. So, I just want to thank our two panelists, Makan and Andrei, for a terrific presentation today. So, thank you very much.
Andrei Iancu: Thank you so much.
Makan Delrahim: Thank you.