Innovation Policy and the Economy

Introduction

Good afternoon.  I’d like to thank the Bureau for the opportunity to be here today and Josh Lerner and Scott Stern for organizing this great event.

During my time with you today, I’ll discuss the USPTO’s plan to distribute data to the public and research community, our activities to engage in and guide a research agenda that will fully inform the Agency in our policy-making and operational capacities and help us to develop a greater understanding of the role and function of IP for American business and industry. 

I’d like to begin today with a little stage setting regarding the increasing criticality of IP in our global economy.  

As we move into the second decade of the 21st Century, it has become increasingly clear that innovation is the only sustainable source of competitive advantage for world economies. 

And the distance between innovation and marketplace is shrinking.  Said another way, innovation is moving more quickly from creation to distribution.   

The result is that IP is a necessary instrument—in some cases, the only available instrument—for innovators and businesses to capture value as ideas move to the marketplace. 

IP is essentially becoming the world’s currency of innovation.

In this new environment, the global legal, economic, and innovation communities bear the challenge and responsibility of creating a market-based, stable exchange rate for the currency of innovation by fostering greater understanding and respect for IP.

Yet, at the USPTO—the nation’s innovation agency—economics has been largely absent from our decision making process relative to the IP system.

That absence does a disservice to the USPTO, and to the U.S. and world economies.  We now know, mainly from researchers and scholars like you sitting in this room today, that the IP system has a major impact on economic activity, and on important issues like industrial competition. 

At the same time, more research must be done to help us understand the economic impact of IP.  The PTO is committed to fostering this economic dialogue.  

First, we have hired our first Chief Economist, Dr. Stuart Graham, to lead the effort. 

Stuart is busy building internal capabilities to conduct economic research, and we expect that he and his team will be very active, generating research that helps illuminate important gaps in our understanding.

We are in the process of detailing specialists in econometrics and statistics from across government to join the Chief Economist’s Office, and looking to hire several more economists over the next year. 

Moreover, Dr. Graham is seeking to bring economists from academia into the Patent Office as special advisors to help us investigate issues as far ranging as the economic costs and competitive effects of application backlogs, to the economic consequences of copyright protection in an increasingly digital marketplace.

And as we work to build our internal capacity for research, we understand that the majority of the economic expertise will remain outside government.  We are therefore keen to work with all of you—no, we must work with all of you.  We want to dialogue with you, to be informed by the important research you are conducting, and we must learn from the knowledge you are producing. 

So while we’re very excited about having Stu on board, we also realize that the Office of the Chief Economist cannot alone accomplish the task of answering the important questions facing the IP system.  We’ll need your input, your expertise, and your advice.   

In the end, this must be a two-way conversation.  We want to learn from the research you are all doing; and we hope to be involved in informing you about the types of research that would be most useful to us as policymakers. 

I’d like to highlight an example.  The USPTO, in coordination with the Department of Commerce today will be issuing a jointly-authored study entitled “Patent Reform:  Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs." This paper sets forth some of the empirical data demonstrating that technological innovation is a key driver of a pro-growth, job-creating agenda and that patent reform will be a powerful, deficit-neutral mechanism for expanding America’s ability to innovate.

We stand at the precipice of passing an historic patent reform bill.  And as the legislation moves forward, it is imperative that we highlight the bill’s impact on jobs and the economy.  The paper sets forth some of the key research done in this area, but as you know, that research remains incomplete and we welcome your engagement with us to further that research. 

As we work to move the United States into a renewed era of technological development and innovation, through patent reform and through other measures, we’re going to rely on people like you, in this room—our economic scholars—to help build the case we must prove, the case I know to be true: IP is fast becoming the world’s currency of innovation. 

Data

With that as background, let’s turn now to what the USPTO can do for the research community.  As you know, evidence-based policymaking depends on answers that we can only generate from primary data.  Therefore, I’d like to speak today not only about research, but also data.

The USPTO houses a treasure trove of scientific and technological information contained in over 8 million patent documents and their associated files -- knowledge not found anywhere else in the world.  Since 1871 the agency has made much of this information available to the public, some free and some at a nominal charge. 

Put simply though—the Agency hasn’t been doing a good enough job. 

As an example, Professor Graham has shared with me an anecdote on how the PTO has, traditionally, stood in the way of research – an anecdote that I suspect mirrors many of your past experiences.  

When working on the NSF funded NBER data project with Professors Cockburn and Hall, Stu was organizing XML data for related patent application data, such as continuations and divisionals.  These original XML data included codes, but the meaning of the codes themselves was not specified. 

Stu placed repeated calls and emails to the PTO trying to determine what these codes represented, but was met with silence, and in one case, outright hostility.  He was finally forced to file a Freedom of Information Act request to secure a 1-page document.

I’m committed to ending the firewall, breaking down the barrier, and moving the USPTO into a new era defined by openness and cooperation that will empower all participants in the IP system. 

We know what’s going to happen here.  Some of the things we learn will make for uncomfortable reading—and believe me I know, I’m the guy who’s going to be reading  it—but it beats shuffling around in the dark.  It beats making things up, and making bad decisions.     

As an example, the Agency will be putting up a dashboard which will show the numbers we use to track and measure progress including various measures of pendency -- where things like RCE's and other types of delays that contribute to pendency will now be included. 

Pendency, when calculated this way, is actually longer than what’s been previously reported.  But having a complete discussion—informed by all the relevant data—will help us all to understand and deal with agency challenges.

We are moving the USPTO from frustrator to facilitator, and reporting operational measures in a more transparent way is only the beginning. 

Our electronic systems were not designed to handle the huge number of public hits, bulk queries and deliveries required to make more USPTO public data available for bulk public access.  And with financial resources to address these challenges extremely limited at the present time, we need to find other solutions.

To this end, the USPTO is working with Data.gov, and has already listed some of our datasets in the Data.gov catalog and made them available for direct download over the Internet.

But we must go further: we envision a partnership with industry to deliver USPTO information in a manner that fully meets the public's needs. 

The solution we're seeking is a no-cost contract under which one or more vendors will develop a secure mechanism for delivering USPTO data at no cost to the agency or the public.  The vendors will in turn be permitted to develop and distribute any enhanced data products and retain any revenue collected from their sale, and of course retain any revenue from advertising on their web sites. 

As a first step in this process, the USPTO issued a Request for Information (RFI), and held a public meeting on September 24, 2009 to obtain feedback from interested parties.  About 60 people representing more than 35 companies registered for the event.  We’ll be holding another public meeting for companies on the West Coast.

We’re off to a good start at making the USPTO's trove of public data accessible to the public in bulk searchable form, without further adding to the agency's financial or information technology burdens. 

We know there are still data inside the Agency that would be useful to researchers, and it is our aim to get these data out and into the hands of researchers who are trying to understand the economic effects of USPTO rules and practices, and, from our perspective equally important, how our rules and practices could be improved to increase efficiency inside and outside the patent office, and positively influence economic growth, technology advancement and dissemination, job creation, and a higher standards of living.

We look forward to your input, feedback, and requests as we move the process forward. 

Research

Moving now to research, I am announcing today that, during the Fall of 2010, we will be convening two conferences, one on each coast, to seek input from academics and industry on the ways social science can be useful to the USPTO, and how the USPTO can be useful to social scientists. 

As Chief Economist, Dr. Graham will be leading this effort along with Arti Rai, our Administrator for External Affairs.  Major agenda items at these dual conferences will be the ongoing development of a research agenda inside the chief economist’s office, but also how the PTO can aid you in allowing your research agendas to flourish – including by providing data. 

We’re engaging on issues of competition as well.  To evaluate which issues at the intersection of patent policy and competition most merit attention, the PTO, DOJ and FTC are sponsoring a workshop called: “The Intersection of Patent Policy and Competition Policy” on May 26 at the USPTO.  This workshop will shed light on issues that affect the competition strategy of American Innovators.

It is in our interest that more research is done.  We are sure that more learning on these topics can only lead to an increased public appreciation of the important role played by IP in the burgeoning knowledge economy, and increased public knowledge can only help the USPTO, and the United States and the world more generally.

Of course, the specific set of research topics in the research agenda of the Chief Economist’s Office are still being constructed and reviewed, but I’d like to preview a few of our myriad areas of interest. 

 Let’s start with quality.  The term “quality” may mean one thing to individual inventors, another to patent applicants, another to firms, another to patent owners, another to lawyers, another to courts, and still another to PTO employees. 

While many of these separate definitions will be related and based on similar criteria, the variation makes the problem of studying patent quality difficult.  The challenge will inevitably be about how we reconcile, and arrive at a workable definition that can be used to implement administrative reforms which are both possible, and, from an economic perspective, welfare improving.  This is but one critical question deserving further study.

 Another area of research interest is the nature of the unitary patent system.  To coin a phrase, there are as many patent systems as there are technologies.  This vast differentiation suggests that, while there is an economic reason to preserve a unitary system in conception, a unitary system does not exist in practice.  The implications for Patent Office policy and behavior deserve further study.

Finally, understanding the nexus between PTO performance and economic performance of innovators is critical to us.  The field has too little understanding of how the functioning of the Patent Office may affect the individual performance of companies, or the aggregate performance of the economy.  We’ll continue to engage with the community to answer this question.   

We want to use what we learn from these and other research efforts as inputs into policymaking, both to increase efficiency and quality output from the PTO, but also to ensure that our actions do good—not harm—for the IP system and the economy.

We are calling on the people in this room to join us.  This moment is a critical one, on several fronts:  the economic crisis, the increasing digitization of and reliance on technology and knowledge in the economy, the increasing use of IP, and globalization. 

We at the PTO are taking determined steps to join the conversation, and to begin taking seriously the work that people like you have been doing for years.  This opportunity is one that may only come about once in our lifetimes.  It is simply urgent that we develop a better understanding of innovation.    

I stand here before you today, asking you to join with us; join us, in our determination to create jobs, advance technology, progress, and standards of living for Americans and for all citizens of the world; join us to make our IP system serve the public, as was envisioned by the Founders in the Constitution; join us in the development, definition, and establishment of our great national asset—Intellectual Property—our currency of innovation. 

Thank you.