Thank you Roger [Martin], for that kind introduction.  I would like to thank the Innovation Alliance for having me in today to speak with you about intellectual property’s vital role in today’s innovation economy.

America stands at a critical juncture in our economic evolution, and intellectual property will play a key role in driving our economic growth and renewal.

As technological advances bring great change to the speed and complexity of American innovation, strong intellectual property protection and its effective enforcement will fuel innovation and jump-start our economy.  

Today, I’ll speak about the critical role of IP in spurring innovation – and in increasing America’s competitiveness globally.  

I’ll address the how the USPTO can ensure a well-functioning patent system; a patent system that enables small and medium sized businesses to secure the investment capital they need to bring their goods and services to market, and helps promote the free flow of goods and services across markets.  I’ll discuss the imperative for government leaders – the Executive branch, the Congress and the courts – to nurture an IP eco-system that will promote innovation, and ensure America’s economic well-being.      

The economic success of the United States is deeply rooted in the history of American innovation.  This country was founded by pioneers who developed new ways to cope with an unfamiliar environment, who cured disease and connected a country, and who led the world into the age of flight.  American innovators discovered the power of information technology and digital communication that brought unprecedented commerce, economic growth, and prosperity.

So, our history has been driven by innovation. And our economic security continues to depend upon our ability to innovate – and to compete in an innovation economy.   The key to economic success lies increasingly in innovative product and service development, and in intellectual property protection, which creates value for innovation.   

IP is – in effect -- the global currency of innovation.  

Today, as a share of gross economic value, the United States invests more in intangible assets than any of our major trading partners, and our intangible investments now exceed those in tangible assets by more than 20%.

And it is patent-reliant industries, specifically, that make up the most dynamic parts of the economy—from nanotechnology to pharmaceuticals, from computers to bio-tech, and from fiber optics to green technology.

Timely and high-quality patents are critical to small businesses, which create two out of every three American jobs.   They foster research and development, which requires capital and investment.
And they are essential to attracting the funds needed to bring innovation to market.
 
Let’s take the example of a company called Xencor—outside Los Angeles—which creates cutting-edge biotherapeutics to treat cancer, inflammation, and autoimmune disease.  Xencor uses patents to protect its proprietary design automation technology.   

Xencor CEO Dr. Bassil Dahiyat put it simply: “without patents, you cannot get funding, and without funding, you cannot grow and create jobs.”

In Southeast Michigan, one of the areas hardest hit by the recession, the company Axletech International is a global manufacturer of machine hardware, with a significant patent portfolio upon which it depends heavily.  Since it began as a spin-off in 2002, Axletech has more than doubled its workforce and now employs more than 1,000 people.   

Two different industries, two very different regions, two very different companies.  One thing in common: innovation protected by intellectual property creating jobs.  

The United States Patent and Trademark Office was described in Harvard Business Review as the “biggest job creator you never heard of.”

As our country seeks to regain the 8 million jobs lost during the recent recession, the USPTO is a great place to start.  Countless inventions that can spark new businesses are right there—sitting in the backlog.  And reducing that backlog is one of Secretary Locke’s and my highest priorities.  

The backlog of over 700,000 patent applications stands as a barrier to innovation and economic growth.  A 2010 report concludes that the backlog could ultimately cost the US economy billions of dollars annually in “foregone innovation.”

The next laser, the next energy breakthrough, the next cure for a debilitating disease, is buried in the files of the USPTO—and that is simply unacceptable.   

So what are we doing about it?   First, we’re working to improve the quality of the patent application review process at the USPTO.  Quality patent issuances create certainty in the market.  Market certainty, in turn, facilitates growth.     

Second, we are reforming the USPTO to reflect its criticality to our economy—and transforming the agency to match the fast pace of technology and innovation.    

To this end, we’ve re-engineered the way we motivate and monitor our corps of examiners as well as our leaders; we’ve adopted new ways to recruit and retain top professionals; we’ve redefined performance plans to reflect the importance of high quality patent examination and backlog reduction; fostered more communication between applicants and examiners to improve quality and efficiency; and we’re working to build a new IT infrastructure that will speed patent application processing and improve search quality.  

But—most critically—to decrease pendency while improving the quality of our work product, we have begun to recognize what companies in the shipping business figured out some time ago—that all packages don’t have to get to their destination at the same rate.  Some require next day service, while others can take a week.  

It is clearly time for the USPTO—our nation’s Innovation Agency—to adopt private sector business practices and offer market-driven services.  

 So, the USPTO has instituted various programs enabling applicants to receive accelerated review, including for technologies in areas that are priorities for the Obama Administration – like green technology that is essential to battling climate change.  

Very shortly, we will be issuing a notice regarding the details of Track 1 of the three track proposal we circulated last year, which is our plan to provide a comprehensive, flexible, patent application processing model offering different processing options more responsive to the real-world needs of our applicants.  

Significantly, Track 1 will enable applicants – for a fee – to secure their patent within one year – thus enabling important new products and services to come to market sooner, create jobs and opportunity sooner, and make Americans healthier and more productive—a lot sooner.     

Through programs like these, and through the tireless work of our examining corps, we will focus our efforts more effectively, reduce pendency, bring the backlog down, and foster innovation critical to the economic and social well-being of the United States.  

But, America’s innovation success will require more than an effective USPTO.  It will be a function of many complex and overlapping innovation variables.  

In the proud history of the United States—innovation led development—IP led development—has created economic vitality and good jobs.

In fact, technological innovation is linked to three quarters of our Nation’s post WWII growth rate.  And between 1990 and 2007, compensation for jobs in innovation-intensive sectors increased by two and a half times the national average.  

And the US government has always played a critical role in ensuring innovation-driven growth.  

During the deep recession of the 1970’s—innovation slowed dramatically and the manufacturing sector declined significantly.   In response, the US government launched a Domestic Policy Review aimed at reviving American industrial innovation.  This study, and others like it, led to the creation of the Court of Appeals for the Federal Circuit, which brought clarity to the law and improved certainty around IP rights—increasing their value.  

At the same time, Congress realized the critical role of patents in innovation through university research and development.  So it passed the Bayh-Dole Act, which encourages university patenting.

The increase in patent value and R & D that resulted from the patent system improvements of the late 1970’s and early 1980’s paved the way for a new era of economic growth and opportunity that lasted for the better part of two decades.   

Now, as in the 1970’s and 1980’s, the United States stands at a crossroads of innovation.  Today we are presented with another innovation opportunity – and we again need sound IP policy and enforcement to increase the value of innovation.     

To this end, the USPTO strongly supports comprehensive patent reform and applauds the significant efforts of Members of both the House and Senate to continue to push for these reforms, particularly Chairman Leahy and Chairman Smith who are making getting this bipartisan jobs legislation passed a top priority.
 
Proposals in this legislation – many that will help USPTO do its job better -- have been discussed for the better part of the last 10 years.  And this is the Congress where we should and must finish those many years of work.
 
Parties have debated proposals and amended language many times, to where we now have key provisions that most parties support and that – without a doubt – will add more certainty to litigation, enable greater work sharing between USPTO and other countries, and help USPTO continue with the operational changes we know are needed to support innovators, help companies create jobs and put new, and better products in the marketplace.
 
President Obama talked about patent reform in his meeting with CEOs last month.  Secretary Locke has been and will continue to be a true champion in this endeavor.  And I am committed to continue working with Congress as they work to put forth the best piece of legislation possible. 

And to do so, we’ll use what we’ve learned from recent litigation and court decisions and from the previous Congressional attempts to make Patent Reform law.   We’ll also need your continued feedback and support.  But make no mistake—the time is now, this year, to restore our nation’s innovation system to the global platinum standard it must be.  

In parallel with reform of the patent system, it is incumbent upon us to develop a comprehensive and robust national IP policy focused on leveraging our IP system for economic growth and job creation.

America’s economic security depends on it.  So, in coordination with the White House, the Department of Commerce, and as a part of the President’s Innovation Strategy, the USPTO will lead in creating a National IP Strategy.

And we’ll reach out to the inventor, university and business community to play an active role in formulating this policy, based on sound practices.    

We must provide an environment that allows American innovators, small and large, to protect their IP and attract capital based on their ideas. For businesses to flourish, we must provide timely and high quality access to IP rights.  And we must ensure that universities press forward the frontiers of science, while working with the private sector to ensure that the value they create is both protected and diffused quickly for the benefit of the communities they serve.   

All parts of the US innovation value chain must remain vibrant...and if amplified by good government policy, the current re-aligning trends can support one another to preserve American leadership in the decades to come.

A sound national IP policy will lead to the creation and success of more innovative companies like Xencor and Axletech.  And it will ensure that we can leverage IP to safeguard our economic well-being.    

If we act to meet these challenges, we can fuel decades of American economic growth.  The simple prerequisite:  a national focus on intellectual property as the currency of innovation.  

Thank you.  
 

GENE:  Hi, Director, uh, this morning we talked a little bit about the Microsoft versus i4i case and I don't want to put you on the spot to take a position for the federal government, unless you would like to, but – but one thing that I think it would be important to hear from you about would be is what would happen to the burden of the office, particularly from the examining court if the Supreme Court were to reduce the standard of – from clear and commencing to preponderance – and the patent bar were to do what we suspect they would, which is to dump, uh, prior art on you – back up the truck kind of fashion?  Um, what – what challenges would that prevent and – and I would assume that that would only slow your process and then create a larger backlog.

USPTO DIRECTOR DAVID KAPPOS:  Um-hum, yeah, thanks, Gene, for the question.  It's a – it's a great question.  So, um, I am quite concerned and – and, uh, my colleagues here at the – from the USPTO, I think, share the concern that, um, if the burden of proof were lowered, um, we would, indeed, almost certainly be facing a tremendous additional influx of very marginal value, perhaps no value, prior art that would put a lot more pressure, um, an unneeded pressure on our examining court and on all of our very delicate systems at the USPTO, um, without adding value to, uh, the examination process.  Um, I think that it would pretty clearly be incumbent upon applicants to protect their innovations by trying to get, um, pathologically relevant art, um, irrelevant art, frankly, in front of the agency in order to be able to protect their clear and convincing, um, uh, standard.  It would be very natural for that to happen.  Um, I wouldn't hold it against anyone from doing that if the law, uh, motivated them to do it.  Um, I do not think it would be, um, good for our agency.

I think it would be a real problem.  You know, I was, um, talking to some folks at PTO the other day and they were telling me about a thousand-page IDS that we're dealing with in one particular matter – a thousand-page IDS.  This is the information disclosure statement not all the prior art.  The prior art occupies boxes, right.  Um, I think that we could well be looking at a lot of thousand-page IDS's in the future, um, uh, as a result of – of the possible changes here.  Thanks for the question, Gene.  Other questions, Renée?

RENEE:  Don't act so surprised.  The overwhelming talk, uh, pattern, I should say, is – is that the way to improve innovation and – and improve the USPTO is to improve funding.  How do we do that?

USPTO DIRECTOR DAVID KAPPOS:  Well, um, we have gotten tremendous support from the IP community, the innovation community, the U.S. business community, many folks sitting in this room, um, over certainly the – the year and a half that I've been at the USPTO, tremendous, positive support.  Um, explaining to our country to the decision makers, um, you know, those in the building right over my shoulder here, um, and others inside the Beltway and – and those in many other places about the importance of the USPTO, uh, being able to use – have access to and use the funding that we're collecting.  And I think that has been very helpful.  We've also gotten terrific support from Congress, frankly, in the last session, um, with legislation that moved extraordinarily rapidly through a very cooperative Congress. And we're very thankful for that, um, to get the USPTO access to $129 million that we collected last, um, financial year and has enabled us to double down on bets to do the things that you want us to do.

To bring in more examiners, to work on our IT system, um, to authorize the overtime that is extraordinarily productive for the agency, to bring in new laptops for examiners, give them the tools they need to work with, all the things we're doing funded simply by the agency getting access to the fees we're collecting.  Thanks to the work of the IP community and to the support we got from Congress.  And, Renee, I think simply that same kind of echoing and re-enforcement, um, is going to be needed.  We all need to be reminded in a tight economic environment and a challenging, um, uh, situation relative to, uh, budgets generally and deficits and things like that that the USPTO is what's called zero BA, zero budget authority.  We take no money from taxpayers.  We use only funds that are paid gladly, frankly, by the, um, filers of patent and trademark applications and we're a huge creator of jobs and unleasher, if I can use that word, of innovation and opportunity into our country's economy.  That's a theme that needs to be re-enforced and echoed time and time and time again relentlessly, um, so that all the new people coming in from time to time into this city and people all over the country recognize the importance of what you're doing creating innovation and what we're doing trying to create – help you create value from that innovation.  And so that they'll continue to simply give us access to the fees that we're collecting.  So thanks for the question.  Other questions?

PAT CHOATE:  Yes, um…

USPTO DIRECTOR DAVID KAPPOS:  It looks like, mic back there?

PAT CHOATE:  No, right here.

USPTO DIRECTOR DAVID KAPPOS:  Oh, sorry.

PAT CHOATE:  Uh, my name is Pat Choate, I'm an economist and author.  I'd like to ask you a question about your endorsement of the patent reform legislation.  In the session this morning and the introduction and in your comments several of the challenges that you face were enumerated, uh, deficient IT, a back log of applications, pendency, work space, a massive backlog of post-grant, uh, uh, cases, funding, attracting and retaining personnel.  Will the Leahy Bill in any way help you address those issues and, if so, would you tell us how?

USPTO DIRECTOR DAVID KAPPOS:  Sure.  Well, of course, legislation, um, hasn't yet been introduced but, I believe, is, uh, being circulated right now.  So it would be preliminary for me to, you know, respond on specifics.  We need to see what – what actually winds up, uh, getting – getting dropped here, um, but speaking as a general proposition I would answer the question unequivocally yes.  Um, the legislation that is being circulated and has been discussed and, certainly, what was, um, what was being proposed in the last term of Congress is, um, largely, um, and – and very centrally focused on improving operation of the USPTO.  First, by, um, giving us access to the fees that we collect in order to be able to do our work, second, right, by putting in place, um, improvements to the laws of our country in – in its post-grant inter-parties, um, uh, re-examination systems that will enable us to streamline those processes and, um, execute on them more – more effectively, third, by, uh, putting in place changes that finally harmonize the U.S., um, legal system in some important ways with those of our trading partners that will enable us to much more effectively, um, take advantage of work that is done by smart people in patent offices overseas and leverage that work as our examiners do their examination here.  So just naming a few of the ways in which, um, the legislation that was pending in the last Congress, uh, before the Senate would help us an awful lot to do our job at the USPTO.

But it really starts with, um, getting the funding to the agency that enables us to double down on all these important, um, projects that we're working on to move patent applications through, uh, the USPTO more quickly and at higher quality that we have in the past.  Thanks for the question.  Mike?

MIKE:  Dave, thanks very much.  Um, uh, those of us in our part of the country were very excited recently when you announced that the very first satellite office for PTO will be located in the Detroit area, which is great.  Talk about the thinking that went behind that but, also, sort of your philosophy about pushing your offices around – will there be other satellite offices around the country eventually, do you think, down the road in the next few years?

USPTO DIRECTOR DAVID KAPPOS:  Yeah, well, thanks for the question.  And it actually goes back to Pat's question a little bit, too.  I forgot to mention that – that, you know, having access to – to resources enables us to take on innovative, new approaches to managing our workforce and our workload and making it more responsive to the innovation community including, for example, the office in Detroit.  Obviously, you've got to have resources in order to be able to go and do new things.  So as to the Detroit office we're very pleased.  Um, Detroit is, uh, a, you know, wonderful place to start a nationwide workforce, um, program like this.  Uh, we will be bringing on, uh, 25 examiners a quarter starting this spring/summer, um, well, getting up to a strength of about a hundred examiners, uh, within a year.  Um, I really believe that, uh, this is going to be a breakthrough for the USPTO in terms of having our workforce – parts of our workforce close to, um, the – the innovation community where we can respond effectively, where people can actually conduct interviews, um, uh, in live with their examiners, without having to always fly to Washington, D.C., but, most importantly, um, to help us relative to putting our examiners where they want to be and not requiring people to be in the Washington, D.C. metropolitan area in order to be examiners at the USPTO.

There are terrifically talented engineers, scientists, etc., in the Detroit area and in lots of other places across the country who, I have learned in my year and a half here, would love to work and do love to work at the USPTO.  And we want to get access to those folks.  We think this will be very helpful relative to recruiting, relative to retention, right, relative to the geographically diversification of our workforce and there's all upside.  And I'll just tell you one little story.  I was talking to someone at the agency just the other day.  Um, an examiner who, uh, now is, for the first time, he's worked for the PTO for something like ten years, and now, for the first time, is able to move back to her home state and home city, Detroit, Michigan, um, and I didn't even know about any of this, uh, because, you know, the USPTO is now going to have a place there.  So you find you open up all kinds of new vistas when you do this.  And I'm very happy, more so than even when we made the decision, um, to have chosen Detroit as a starting point.  Now, Mike, to the last part of your question, we do want to, um, open up offices in some more places.  Um, this is, frankly, a bit of an experiment.  We're going to learn some things, we're going to adapt, uh, we're going to get better at this, we're going to probably try some different models in different places and we're going to work closely with our, um, our, uh, uh, colleagues in – in the POPA labor union to do this right.  We're not going to do it too fast but we're also not going to stop and just sort of sit on one thing and – and, uh, do nothing else going forward.  So we'll find the right, uh, pace and cadence and we're work together, um, uh, to – to try some other models out and – and really, over time, I'd love to see the USPTO have a really responsive, national, um, footprint and workforce, uh, that – that, uh, mirrors what's going on in our country.  Thanks for the question.

BARNEY CASSIDY:  Just a quick follow up.  I'm Barney Cassidy from TESSERA.  Let's say you're, uh, in a region, in a city, in an area, uh, that's interested in – in participating in the next experiment what, uh, should one do to get the attention of the patent office in order to say, hey, come out to California or come out to North Carolina?

USPTO DIRECTOR DAVID KAPPOS:  Don't send more letters.  I’m already getting enough of those.  Um, look, uh, seriously, though, uh, perfectly happy to hear from whether it's Silicon Valley or we were talking about San Diego, um, uh, with the – the previous panel or – or wherever, folks, um, feel like there's a good connection and we can have a good discussion.  Obviously, there are a lot of factors that we weigh and did weigh in the case of, um, Detroit and we'll continue weighing that sort of ends up narrowing down the list for us.  But we're very open to talking to – to anyone who's interested in having the discussion.  OK, any other questions?  Paul?

PAUL:  Director, isn't it, uh, the case that in addition to having guaranteed to all the fees collected that implementing the newly published five-year strategic plan will also require those fees to be increased?  And isn't it true that an increase would require affirmative action by Congress?

USPTO DIRECTOR DAVID KAPPOS:  Yeah, Paul, thank you.  You remind me of another key provision in, um, in the patent reform legislation that was pending in the last Congress, which is fee setting authority for the agency.  And that is, it turns out, very important.  For us to be responsive to what's going on in the innovation community, to set our fees in rational ways that are irrationally related to the cost for us to conduct the work that you want us to conduct we really need to be much more nimble.

And, you know, we love what Congress is doing to try and be supportive - but there's, in my view, there's, frankly, no way that we can expect Congress to be able to adjust USPTO fees with the kind of, um, accuracy and precision that's going to be needed and the kind of time cycles that are going to be much more rapid, and are now much more rapid, than they were in the past.  So we clearly need fee setting authority.  Now, for those who are concerned, and I would be concerned.  I am concerned about the future of our agency, um, in terms of ensuring that any fee setting authority we're given is executed on in a very balanced and deliberative and rational way.  I thought that what was, um, proposed in Congress by the past in terms of lots of safeguards and lots of notice and comment and lots of opportunity, in fact, requirement for the agency to work with the innovation community in the process of setting fees is really important.  And I not only am fine with it, I think it is – it is, frankly, mandatory.  It's – it's critical in a democratic system like the one we have that we have those kinds of feedback loops and checks and balances.  So fee setting authority for the USPTO very important, uh, you know, I know this now from being in the agency for a year and a half like probably few people do we can do a much better job of meeting the needs of the IP community, um, be much more responsive if we're able to adjust the amount of money that we're charging for various things in – in rational, reasonable, balanced ways and we simply are hamstrung from doing that right now.  So, Paul, I'll give you one other example.  I mentioned track one that we're going to be, uh, putting into play here very, very soon.  One of the early discussions that Commissioner Stoll and I had on this when we really began firming it up, um, uh, you know, a month or two ago is, you know, we immediately said, well, we want to give a 50 percent discount for independent inventors and small entities that meet the – the small entities status rule.

And then you immediately – after that you say oh, my God, we can't do that because we're statutorily prevented from discounting fees, only Congress can do that.  And so, unfortunately, we're going to have to come out with a, um, a system where we're not able to, uh, to give a discount for small entities initially, um, and that's because we simply, uh, are statutorily prohibited from doing it.  If we had the ability to set our own fees clearly, uh, we would be including that as we come out with that provision.  So, many, many examples of fee setting, uh, turns out to be really important to the agency.  Any other questions?

SEAN MURPHY:  Thank you, Sean Murphy with Qualcomm.  Uh, you – a moment ago you voiced the Administration's support for trying to get a patent reform bill done this year.  And, I think, many in the room would be supportive of that depending, of course, on what's in it.  Uh, one of the thornier issues, uh, that has, uh, been contentious over the last few years is damages.  Um, and I was wondering if you have any thoughts on, uh, how – how we might be able to, uh, move forward, uh, there are, you know, two very different proposals out there – so called apportionment, uh, versus the so called gatekeeper.  Thank you.

USPTO DIRECTOR DAVID KAPPOS:  OK, Sean, great question.  And so, you know, I'll give you my personal view on this one now because it's a, you know, sort of a new discussion in that with the new Congress coming in.  Um, this is in one of those areas where, frankly, in my view, we've gotten lucky.  Um, due to some nice work, frankly, by the federal circuit, um, over the last few years culminating with – and – and, uh, one or two district court decisions culminating with decisions as recently as this month, um, I believe that the law of damages is well on its way toward being corrected in the areas that it needed to be corrected.

Um, and as a result, in my view, uh, there's a lot of new room in the incoming, um, discussions that will be had to do, um, new things relative to damages, including potentially just dropping damages out of the legislation altogether.  You know, again, just giving you a personal view on this the courts are or have fixed major issues in damages is the first one that comes to mind.  And two Congresses ago they fixed, um, uh, the injunctions issue, um, then they fixed the obviousness issue and on and on and on.  And now, I think, we've gotten lucky again and they fixed the damages issue and we no longer need – in my view, we no longer need legislation, uh, in order to fix that.

MALE 1:  I think that's, uh, that's all.  So thank you very much.

USPTO DIRECTOR DAVID KAPPOS:  OK, you bet.