[Transcript]

Good morning everyone.  This assembly is the most important that will meet today in Washington, not excluding the United States Congress, because the Congress like the courts produces based on input.  And the courts and the Congress alike are so dependent, more than is commonly realized, on the quality and the breadth of the input.  You are the needed input.  The men and women in this room pooling their knowledge and their experience are, I think, ideally equipped to guide the policy makers, particularly in the Congress, but also in the executive branch and the courts.  Everyone needs, uh, better help, better counsel, sound advice from a wide spectrum of viewpoints.  Now, I want to, uh, congratulate the Innovation Alliance on putting together this event.  It could hardly be more timely.  As you know on Tuesday the House of Representatives subcommittee of – the Judiciary Committee will hold a hearing involving its oversight duties with respect to the Patent and Trademark Office.  And I'm sure that the centerpiece of that hearing on Tuesday will be the problems of resources – of funding of the Patent and Trademark Office.  And that's one of the things I want to try to address in my brief remarks.

It's also timely in that I'm told that today or, if not today, within days the Senate Judiciary Chairman, Patrick Leahy – Senator Patrick Leahy will reintroduce a bill, uh, much like the bill that he, uh, championed in the last Congress.  So we have lots of action on Capitol Hill and it’s coming really fast.  We also – it hardly needs to be mentioned as a reminder to any American but certainly not to the well-informed people in this room, we have a serious problem in our country with employment – I should really say unemployment – with declining revenues for families, for companies, for, uh, governments at all levels.  Whoever could have imagined that any of our states would be threatened with possible bankruptcy?  It's just unimaginable.  Whoever could have imagined that the government – the federal government's premiere technology agency might be hampered with information technology systems – computers and all the rest that are so outdated that they're dysfunctional.  We really have gotten to a sorry state and we need to make some rapid changes, some rapid adjustments.  We need to be, uh, bold but not reckless.  Now, fortunately there's been one very good development, in my opinion.  For the last five years watching the Congressional debate over so-called patent reform, uh, I was quite astounded by the extent to which various people in testimony or in comments in books, articles, speeches and so forth questioned the very purpose and utility of the patent system.  But it seems that that questioning is largely over.

Just three days ago the President of the United States in an op-ed piece in The Wall Street Journal dealing primarily with trying to make regulations less burdensome, uh, addressed part of what we're here to discuss today, uh, the following words.  He said regulatory reform was needed, "To reduce the burdens regulations may place on small businesses.  Small firms drive growth and create most new jobs in this country."  The President of the United States, three days ago.  Last week the newly named chairman of the House subcommittee dealing with patents, Representative Goodlatte from Virginia said the following, "Intellectual property is a major driving force and job creating engine of our economy.  In order to grow our national economy we must ensure that this vital sector is protected and able to flourish."  So here the leaders at the top levels who – who are recognizing the importance of innovation, the link to job creation, to wealth creation, to the future of the country, to technological leadership, to family fiscal, uh, solvency, for governmental solvency and all the rest.  We have a heavy overhang, in my opinion, from the five years of debate that occurred, uh, on the patent reform bills because, in my opinion, uh, while those bills had some valuable features and, with some refinements and improvements, might make quite good legislation there were two problems, uh, with the debate, uh, as I heard it.

Uh, one was that it didn't represent the full spectrum, uh, of opinion.  It was heavily dominated by a certain viewpoint – a viewpoint that deserves to be heard.  It has some validity to it for sure but not the only relevant perspective.  Uh, so that's important.  The second thing is the focus seemed to be on the wording of the statute.  Now, as you know, I'm a lawyer.  I'm formerly a judge so words and statutes are the grist in the mill.  This is how I've made my living for 44 years since graduating from law school and how I've tried to contribute to the society.  But it's important to realize that the words on paper, uh, are only a small part of a much bigger picture.  The innovation system in this country isn't the patent statute words on paper or now on a screen, we might say, it's an echo system that makes certain things happen in the real world not on paper, not mainly in courtrooms but in the real world.  And it seemed like the focus of the – most of the debate, maybe not all of it, most of it, uh, was on how to tinker with the wording of the statute, uh, rather than to focus on making the echo system stronger, more favorable to creation of wealth, new technology, jobs, and all the rest.  So my problem with, uh, uh, much of the debate and really the reason that I decided to retire – you know, I loved being a judge.  I was on the court for 22 years, two months and two weeks.  I enjoyed every day of it.  I really did.  I loved it.  Uh, I don't think I was too bad at it.

Uh, I had originally planned to stay until I was 96.  That was the age of one of my esteemed colleagues – stayed on the court until he was 96 years old and he died a very happy and productive man.  So that was kind of my model.  That's what I thought I was going to do.  I changed my mind.  And it was because the importance of these issues is impossible to overstate.  The future of this country – the economic foundation of this country is at stake.  We can make it better.  We can wreck it.  We can tinker with it and neither improve it nor wreck it but all those are real possibilities, in my opinion.  So I decided to retire to become part of the conversation.  Now, you probably don't know this but federal judges, although they enforce the Bill of Rights don't have first amendment rights.  They really don't.  And it's for – it's for a good reason because they need to be divorced from politics.  They need to be far removed from partisan matters and big policy debates and so forth.  So they're muzzled – they're censored.  Uh, and that was OK with me, uh, then but it became not so OK so I basically retired in order to become part of the conversation that all of you are contributing to and to be able to speak out freely, including on controversial matters, on political matters, on matters that political parties may be debating between themselves.  So here's my problem with our attempt to improve the system.  We've talked a lot about words in the statute.  We've talked a lot about processes and procedures, um, but what we haven't focused on enough, in my opinion, can be summarized in just two words:  how to.  We want a better system.  We want it more efficient.  We want it to create more wealth, create wealth faster, bring on new technologies, commercialize them faster and better.  But for every one of those things and all the goods that will come downstream if we can do that the question is how to do it.

Not whether it's desirable.  Of course, it's desirable but how to do it.  In my opinion, far and away the most important thing to do – the urgent thing to do – the thing we should have done five or ten years ago is fix the patent office.  That mainly means fixing the horrible funding arrangement, uh, at the patent office.  Now, last night some of us met for dinner and it was a kind of interesting discussion.  But one of the things that troubled me about the discussion is, to my recollection, in the entire hour-and-a-half discussion not a single number or hard fact was mentioned – not one.  So let me tell you a couple hard facts.  Uh, somewhere between $700 million and $1 billion of user fees paid by industry to finance patent office operations didn't do that.  It was used for other purposes.  That almost ought to be illegal.  That's almost stealing because the law requires the patent applicants and owners to pay those fees.  They're supposed to go to run the patent office operations.  But a huge amount was lost so that's one of the numbers we should keep in mind and it illustrates, and many others do, too, the importance that numbers can have.  Now, if we could fix the funding, uh, it means two things.  Raise the fees, at least temporarily; prevent what is inelegantly called fee diversion – use of the fee monies for anything other than patent office operations.  Um, now if we did that the question then becomes would it work?  Would it produce great results?

Would it produce it fast enough?  And how can we know?  How can we have any assurance of that?  Well, uh, the patent office, uh, for years has been trying to enlarge the core of examiners.  Uh, and it's been blocked year after year because of the funding crisis.  The patent office has put together a terrific and very detailed plan for, uh, massive upgrading and modernization and improvement of the totally inadequate IT systems.  And it's called the road map.  It was completed in 2007, as I recall; never implemented.  Why not?  No money.  To implement that, they would have had to fire examiners.  There weren't enough examiners in the first place.  So they were in a trap.  They’ve been in a trap for at least five years.  It's ironic to me that the five years that the patent office has been declining, backlog growing, delays growing, questions about quality the same five years that the Congress has mainly been debating the words in the statute.  It seemed to me the priorities got inverted.  So what could you do if you had enough money in the patent office?  You'd implement the strategic plan for the next five years, been drawn up in detail; implement the – implement the road map to fix the IT systems.  And, of course, you need more examiners.  I think a lot more – several thousand.  You need more experienced examiners.  You need to retain the best examiners.  You need to pay people adequately to be able to hire the best people and keep the best people.  It's not magic.  You all – we all know that.  But are there any analogs, uh, sure, uh, NIH has lots of terrific researchers, medical people, doctors, scientists of many kinds, the national laboratories all over this country have very high quality people because they have special pay scales.

Uh, there's no magic to this if you pay people you'll get higher talent.  So with more money that could happen but it will require not only Congress to fix the funding problem but to allow pay scales, particularly to retain experienced examiners, that will work.  Now, some people might say well, you know, it's not so bad.  But it is so bad.  It takes almost four years now, on average, almost four years to get a patent issued for a valid patentable invention.  I think it was Edison who got his patent in six weeks.  So when we start thinking about timeframes and numbers that's the starting point.  But let's look at another number, 18 months.  The law requires, and I think treaties force Congress to pass this law, that nearly all patent applications be published – they're on the internet – at 18 months after filing.  So now we have a delta between when it becomes public and everybody can use it for free and when the protection starts because there's no protection until after the patent issues.  Now, many patents don't issue for five, six, seven, eight, nine years after filing.  So that means for years and years the invention can be used for free by others.  So, obviously, if we are required by international treaties, to which we committed ourselves, to publish at 18 months we better conclude examinations within about 18 months or two years or somewhere in that sort of timeframe.  Four years won't cut it, eight years certainly horrible.  So we have a real problem.  It's a problem of speed.  It's a problem of accuracy.  The answer to both is more examiners, better examiners, better computers, better information sources on those computers.  It's not so complicated.  Now, if we could clear the 1.2 million backlog of applications at the patent office that have not been fully examined – 1.2 million.

If we could clear that whole backlog quickly huge good would come out of just that single act.  We know from historic grant rates that somewhere between 60 and 70 percent, roughly, of the applications will ultimately issue as patents.  So out of 1.2 million do the math 700,000 to 800,000 or something like that patents will issue.  The question is when?  You know, if they issue ten years from they're not going to do us much good.  We've got 20 million fellow citizens unemployed today so we need the jobs soon, as soon as possible.  So clearing that backlog would make a huge difference.  And if we could examine patents within 18 months, let's say, for the newly filed applications after you clear the backlog we would keep churning out innovation for more – incentive for more investment, incentive that then kicks off the cycle, leads to more research, leads to more commercialization, scaling up, job creation and all the rest that – that you know.  So that's where we need to go and I don't think it's too hard to get there.  Let me throw out a couple other analogies.  Uh, take Germany we're struggling to recover from recession, which is now year – in year three.  Germany pretty much side stepped the recession.  We have a terrible balance to payments problem – terrible balance of trade problem.  Germany's exporting stuff like crazy – high value, high tech products selling them all over the world, helping to finance their governmental activities, providing private wealth to employees and stockholders.

So what are they doing that's so good?  Well, they have a patent system that works better, works faster, the quality is better, they have career examiners, they're well paid.  It's not perfect.  It's a little slower than it ought to be as – as it is, uh, everywhere, um, but it's possible to have career examiners if you hire the right people, train them well supervise them well, give them good IT tools and pay them to stay, to retain the talented people – the most productive, the most experienced.  So I'm not saying we should imitate everything that the – Germany does but it's worth borrowing some good ideas when you know they work.  I'll tell you a funny story about a comment made by the head German appellate patent judge, sort of the equivalent of the federal circuit.  It was a gentleman named Peter [PH] Meier Beck.  He pointed out that in Germany, the appellate review in patent cases is concluded at the [PH] bunda [PH] garishstad, the German appellate court.  So it was roughly the equivalent of the federal circuit where they have specialist judges.  And the highest court in Germany, the constitutional court, has no jurisdiction to review those cases because they're generalist judges, so it’s an interesting comparison.  Now, if you look at – back at the patent office at other problems – everything is too slow.  It takes two years, typically, to get a decision out of the appeals board.  It takes three years or more to get a decision out of a re-exam.  We already mentioned it takes four years, on average, and often longer, to get an initial exam concluded.

So a whole lot of this is speed and a lot of it is also quality, but the solution is exactly the same, at least in my opinion.  Now, the resources are inadequate to do the current job well enough and fast enough, I think, by common consensus.  One of the problems with some of the bills pending in Congress is that they would add more burdens to this office that's already staggering under the burdens it’s had all along.  Now, I'm not against changing or improving the patent statute or different aspects of the patent system.  But you got to get the sequence right.  First, you need to fix the patent office and make it functional, speedy, careful, accurate once again.  And then you can consider imposing new burdens but you shouldn't do it in the reverse sequence, it doesn't seem like to me.  So when we discuss patent reform – when the Congress discusses it we ought to consider several principals.  The first, like the physicians, we should say “do no harm.”  Second, base it on facts - not mythology, not philosophy.  This isn't religion.  This is commerce.  This is practical stuff.  We want to make the eco system work in a way that works for all companies of all sizes at all stages and all technologies.  A system that only works for one tiny segment, 15 out of – 15 corporations out of 30,000 is not a reasonable approach.  And we got to get rid of the myths.  The myths – there was a litigation explosion, allegedly.  The truth is that 1.5 percent of extant patents are litigated and that's been true – steady state – for 30 years.  That's the opposite of an explosion.  There was said to be an explosion in the size of damage awards.  The actual average damage award has hovered in the neighborhood of $6 million for years.

So we got to deal with the facts not the myth.  And we've got to deal with what they are today.  If we do patent reform based so heavily on the '03 report by the Federal Trade Commission or the '04 report by the National Academy of Sciences, we're going to be dealing with the last war not where we are now.  The courts have already fixed the problem of damages, venue, willfulness, obviousness and injunctions.  There's no need that I can see, for legislation to do that.  It's been done.  So we need to focus on the basics on making the system run starting with the patent office and then moving right on to the courts that are 200 judges short, also too slow and not accurate enough – same reason – lack of resources.  Who controls that?  The Congress – same solution – the system runs on fuel.  It needs the fuel and Congress has got to provide it.  Thank you.

Q&A SESSION WITH RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL

RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL:  …when, uh, we exceed the time limit, uh, uh, I'm happy to try to answer in terse fashion, uh, any questions you may have, uh, whether it responds to something I have suggested or, uh, or not.  Who would like to go first?  I see a hand see in the back, yes, sir.  We've got a mic, too, several mics, good, good.

TIMOTHY:  Um, thank you judge, for your, um, uh, presentation, very on point.  I had a question related to the fee diversion issue but a little bit, um, aside of that.  I'm sorry, my name's Timothy Tardibono.  I'm with Connect out of San Diego, um, and we deal with tech transfer and commercialization so IP is very important.  Um, the post-grant review, um, systems that are proposed in both the Senate versions and House versions would require administrative burdens on the PTO.  Is there a concern on your part that moving forward with either version or one version would be more administratively challenging than the other as it relates to implementing a new post-grant review system could actually cause further delays in the granting of patents because of the resource shift that would have to occur at the patent office?

RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL:  How can it not?  You add significant new burdens to an agency that can't carry its current burdens - how can it not make it worse, slow it down even more?  You know, the – the board, uh, is supposedly going to do – the administrative patent judges on the board - are supposedly going to be the people who are going to do these trial-like proceedings, uh, on the post-grant review.  Well, the – the inventory of the board two years ago was 3,000 cases.  Today it's 16,000 cases.  They can't handle what they're doing now.  The delays exceed two years in a typical case.  They're getting longer by the day.  They're at – already at an unacceptable level.  How can we possibly give significant additional work to those 80 administrative patent judges?

Same thing with, uh, uh, uh, the examination process if you add new forms of re-examination that will take more resources.  Re-examination's already too slow.  It already takes in excess of three years on average, as I recall.  So, yeah, the resources are finite, uh, and not as good as they need to be or as large, uh, and new burdens will make something worse – maybe make everything worse.  It doesn't mean that post-grant review isn't a good idea.  It just means you've got to have the resources there to do it right.  And we don't now.  So let's add the resources and then add the burdens – sequence.  Other questions, yes.

JOHN:  Uh, John [INDISCERNIBLE], um, education seems like it could play an excellent role in enhancing the three pillars of the patent system which are the execution, the writing of a good patent, the examination and then the enforcement.  It seems to me that with video – with the kind of technology that we have now every SPE that's giving a lecture to all the examiners on what the current law – how it applies to the, uh, the – the written word that kind of information should be in the public domain so that people that are writing patents have the best understanding of what would be the best way to describe and enforce the intellectual property.  The – you know, the better written it is the easier it is to examine it and to enforce it.

RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL:  It takes all the players, uh, cooperating and communicating to make it work – patent prosecutors, patent litigators, patent examiners, and the better the communication is the better the results will be, without a doubt.  Uh, so, uh, I'm very heartened that the patent office has worked so hard to re-establish good relations with the patent owning, patent seeking communities, uh, and that they are listening in a way they didn't before uh, to the input from the private sector.

Uh, and they're eager to do that and, uh, they're to be commended for doing that.  Uh, and it gives us great hope that we can move forward, uh, in a cooperative way that will work for everybody, but you're certainly right, communications through all the modern channels, um, will – will help that a great deal.  Yes, sir.

MALE 1:  Uh, [INDISCERNIBLE].  Do you have, uh, any view on the, uh, potential regionalization of some of the assets within the patent office considering they're sort of cloistered in Alexandria, Virginia?

RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL:  Uh, I sure do and I've said publicly many times that I think satellite offices, uh, are needed, uh, and will produce, uh, many good results.  Uh, I actually suggested Detroit.  I see that they're going to open one in Detroit.  It probably wasn't because I said it but it's just because it's obvious.  Um, and, of course, they should open satellite offices in other places.  For one thing, you can get very good talent.  There's lots of unemployed scientists and engineers in various pockets in the country so why not get seasoned scientists and engineers who'd make great patent examiners, solve an unemployment problem, um, and speed up the whole process?  So I think it's definitely, uh, something that needs to happen and, again, the patent office is moving in that direction.  But, once again, the choke point is resources.  You can't open new satellite offices without money.  You can't get money without Congressional raising the fees and cutting out the diversion.  So it all seems to cycle back to the same basic, uh, solution.  Elizabeth.

MATT:  Hi, Matt Cane with the American Council on Education and current law student. I was just curious do you think if you would mind doing the comparative analysis that Germany's also doing well because their legal education in patent law is better than ours?

RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL:  Well, um, I'm not knowledgeable enough to give opinions about whose legal education is better or not better.  Uh, uh, I do think that, uh, uh, some aspects of German practices are a good model, one being that they put significant emphasis, uh, more than we do on specialization, uh, for judges at the trial level, for judges at the appellate level, for examiners, uh, and for other participants in the system, so you have a high level of expertise.  Uh, I think that's a good value to focus on.  There are other values to consider, too, but, uh, I think if we had, uh, more expertise and better training, uh, of judges at all levels, as well as examiners and supervisory examiners and board members we'd have a better system.  So, of course, yeah, education is a key part of it as the gentleman's earlier question was, uh, suggested.  Uh, uh, and, um, uh, do I think law schools are doing a good job at, uh, uh, uh, educating law students about intellectual property, mediocre, not terrible but not as good as it could be.  So, yeah, that should be tuned up, too.  Yes, Bill.  Thank you for the very nice introduction.  That was very kind.

BILL:  Thank you, uh, yeah, and following on that question what do think of specialized courts at the district court level for dealing with patent issues?

RETIRED FEDERAL CHIEF JUDGE PAUL MICHEL:  Well, I don't think that Congress is very likely to approve, uh, a patent-only trial court, but keeping the same basic structure of our system that we have now – 94 district courts ranging in size from three or four judges in small population districts to dozens in places like New York City and Chicago and so on.  Um, internally within those courts they could have adequate specialization.  And internally they could have much better performance without having a patent-only court.

I saw that recently the Congress passed and the President signed what some people refer to as the [PH] Isa Bill after the congressman who pushed the idea of some specialization of trial judges in patent cases internally within each court by letting judges opt in or opt out based on experience, training, interest and so on.  Uh, but what I thought was so crazy is they approved it but they stripped out the money that would have funded technically trained law clerks to help those judges, which was probably the single most important part of the bill.  So, once again, Congress got it backwards.  They promoted the specialization but they took away the resources that would make it work better.  So I don't want to suggest that resources are the only thing but they're kind of the sine qua non.  If you don't have adequate resources in all these institutions the results will not be satisfactory.  OK, I've said my piece, nice to be with you.