Global Dimensions of Intellectual Property Rights in Science and Technology (1993)

Audience discussion of the papers and presentations in this part of the conference was divided into two sessions: one session dealt directly with Chapter 8 by John Armstrong and the remarks of the sectoral discussants; the other dealt with the other presentations on intellectual property rights (IPRs) and corporate strategy.

Much of the discussion focused on the effects of global scientific and technological (S&T) trends on the role of IPRs and, particularly, the effectiveness of current forms of IPRs. John Armstrong's first basic principle in Chapter 8—that the continuing evolution of science and technology will be best served by the flexible application of existing intellectual property concepts—stimulated considerable discussion. Some in the audience expressed the view that existing IPR concepts are incapable of providing the flexibility necessary for protecting new technologies.

It was suggested that the increasing prevalence of important technological breakthroughs that are technically obvious in the patent sense and very easy to reverse engineer is stimulating much of the debate over the effectiveness of current IPRs. This type of innovation, which has been termed incremental innovation bearing know-how on its face or applied scientific know-how, was said to constitute a gap between copyright and patents that

cannot be filled by stretching these paradigms. Solving this problem does not necessarily lead to a plethora of sui generis laws; rather a single law could be developed to deal with this type of innovation.

Members of the audience clearly recognized that the sui generis issue is highly political. They also recognized that the passage of sui generis laws is likely to increase the level of IPR litigation for some time until the new legal issues and questions are settled. Nonetheless there seemed to be considerable opinion that new proposals for IPRs should be examined and that such examination should be conducted with scientific objectivity and impartiality.

A key question in the consideration of alternatives to current IPR forms is whether the current IPR system handles new technology properly. On the one hand, the current system was criticized on the grounds that it creates fuzziness in interpreting the laws. On the other hand, it was suggested that any attempt to define technologies crisply in IPR laws would fail because new technologies typically evolve more rapidly than the intellectual property system is capable of accommodating.

The optical fiber patent dispute between Corning Glass and Sumitomo (described in Chapter 9 by George McKinney) was discussed as an example of the debate over the adequacy of the current IPR system in dealing with new technology. In the opinion of one knowledgeable observer, Corning's optical fiber patent ran into trouble in Japan over a problem of language. This person thought that the invention was not described properly in the patent specification. Another view was also expressed, namely, that the Corning dispute is precisely the type of situation that exemplifies the failure of the system. In this view, if a team of qualified lawyers cannot describe a major invention in a manner that is satisfactory to patent authorities, it is clearly a failing of the patent system.

Another issue raised in the discussion was whether ''use-it-or-lose-it" laws should apply more generally than they currently do. Unlike in some countries, U.S. patent law generally does not require the owner of an intellectual property right to exercise that right through manufacturing. However, U.S. law requires universities and not-for-profit research institutions that obtain IPRs stemming from government-funded R&D to exercise those rights within a certain period of time or risk the government taking them away. One discussant noted that the rationale for this provision is to promote the rapid diffusion of the benefits of government-sponsored R&D to the public at large. The point was also made, however, that manufacturing is not the only economically valuable use of patents. A corporation's use of patents for freedom of action and for access to other advances in technology—through cross-licensing, for example—is very important to that corporation. For this reason, it could be inappropriate and perhaps counterproductive to require firms to manufacture using their intellectual property.

The issue of software patents was also raised in discussion. Some aspects of software have been recognized as patentable. This is causing some confusion and difficulty, arising from the complexity of software and the lack of intellectual clarity in the industry as to its nature. One member of the audience commented that the recent increase in software patents has caused problems in managing small software operations because it seems to require a lot of defensive patenting. Another commented that several problems have arisen in the U.S. Patent and Trademark Office's examination of software patents; for example, there is neither standard terminology nor a standard of nonobviousness. It was suggested that this problem will probably be corrected as the software development community matures and as the Patent and Trademark Office gains experience in examining software patent applications.

Finally, a member of the audience made a plea for more focus on accelerating invention and innovation—that is, the discovery of new things and moving them from the mind to the marketplace. How can we reshape the U.S. system to do this? Speakers agreed that this is a major concern. It was pointed out that although improvements to speed up the patent process are necessary, they will not be sufficient to speed the innovation process. Accelerating the innovation process in the United States will also require companies to speed up their internal processes, as well as more collaborative efforts, low-cost capital, a stable monetary system, and an improved climate for investment, in addition to resolving IPR issues.

Discussion of the presentation on IPRs and competitive strategy focused on the issue of possible abuse of IPRs, among others. One member of the audience suggested that strong patent protection may be appropriate, as argued by Otto Stamm, but that it may lead to injustices, as pointed out by Michiyuki Uenohara, when, for example, firms misuse patent protection to avert competition. This person offered the view that it is entirely appropriate for firms that receive strong patent protection to be subject to consent decrees, such as that imposed on AT&T by the Department of Justice in 1956, which required AT&T to license anyone who wanted a license at a fair fee.

Others replied that the patent, like many other legal instruments, is subject to abuse and a regime is certainly needed to handle such abuse. There are in fact patent misuse doctrines and other laws to take care of the improper use of patents. Consent decrees may not be the most effective way of protecting against abuse because they are based on a particular set of technological conditions, which necessarily change over time, and it is

difficult to get them modified to take into account changed conditions and circumstances.

Another person noted in reply that large companies, particularly in the pharmaceutical industry, are often criticized for using their patents to create monopolies and to harm small companies. This person argued that patents do not, in fact, create monopolies. Moreover, the same critics blame the pharmaceutical industry for not immediately creating drugs against cancer and other important diseases. It should also be pointed out, as George Rathmann does in Chapter 13, that the same patent system allows small biotechnology companies to protect their innovations and to license them.

As pointed out by a member of the audience, the legal framework of IPRs cannot be separated from issues of organizational and market structure when discussing competitive strategy, particularly in an industry such as telecommunications, which was heavily represented on the panel. The question was posed as to what market structure was favored by the panelists? Michiyuki Uenohara's reply indicated support for the current, very competitive market situation, which he noted is quite different from that previously enjoyed by AT&T. William Keefauver commented that in his opinion the U.S. structure for the industry is fine, Japan is moving in the right direction, but the European Community should push the members' Post, Telephone and Telegraph agencies to open up their cartels faster. Michiyuki Uenohara commented further that AT&T's near monopolistic position in the past helped considerably in achieving international communication interconnection standards. In his view, leadership is needed today, otherwise it will be very difficult to establish common standards for computer communication.

A member of the audience asked why software was excluded from patent protection under the recent changes in the Mexico's industrial property law. Antonio Medina Mora Icaza attributed it to the government's insistence that software is not patentable. International discussions on this issue have not yet been resolved. A further comment was made that the exclusion in Mexican law is the same as that in the laws of the European Community and the United States.

Another question from the audience concerned the practical effects on corporate competitive strategies of the differences in patent law and practice between Japan and the United States. Michiyuki Uenohara replied that until recently, Japan permitted only a single claim per patent application, but that has now been changed to multiple claims, as practiced by the United States. Nonetheless, Japanese companies believe it is important to apply for so-called peripheral patents, in addition to basic or central patents, to produce a marketable product. The huge amounts Japanese firms have paid in royalties to U.S. firms for basic patents have created real problems in serving the marketplace. He requested that U.S. firms also apply for peripheral patents, in addition to basic, central patents.

In a final comment, data were cited that appeared to dispute Otto Stamm's suggestion that countries without protection for pharmaceuticals have been unable to innovate in this area. It was also suggested that given the high concentration of pharmaceutical innovation among a small number of developed countries, patent protection for pharmaceuticals should be regarded as a necessary, but not a sufficient, condition for significant investments in R&D. Stamm replied that to evaluate the data it would be necessary to discuss further the nature of innovations made and whether they were of fundamental importance to the industry.

From the chapters and discussion in this section, it is clear that the process of scientific and technological advance is changing in ways that challenge the effectiveness of IPRs in stimulating economically valuable innovations. A number of central issues were raised in this discussion: Is the current IPR system capable of handling new technologies adequately? If not, is it preferable to modify existing IPR forms or to examine alternatives? What might be the nature of those alternatives? These issues were discussed from many perspectives, but not resolved. They are examined again in more depth in Section V.