Abstracts

Robert A. Armitage, Eli Lilly
" Patents and Diversity in Innovation:  The Myth of Industry Differences"
Today, a single and unitary set of patentability criteria for a claimed invention (eligible subject matter, practical utility, possession-verifying written description, commensurate enablement, reasonable definiteness, novelty and non-obviousness) exist across all industry sectors and all levels of technological sophistication.  For an emerging area of technology, however, the manner in which these criteria will be applied can take decades to be understood.  This latency between the emergence of a technology sector and a facile understanding of the application of these patentability criteria is universal.  The resulting uncertainties equally bedevil all emerging technology sectors.  Calls for a diversity of patentability criteria would only compound the uncertainties by limiting the ability of a developed understanding of the application of these criteria in more mature technology sectors to be used to accelerate the understanding in emerging sectors.  Thus, “one size fits all” for the set of patentability criteria is the only tenable and potentially efficient premise for designing a patent system.  The experience of the last two decades indicates that in technology sectors such as biotechnology (where there little discernable desire to change existing patent laws) and information technology (where there are calls by some for radically diminishing the effectiveness of patent rights) there exist no significant sector-based differences in the uncertainties in determining the most basic of patentability questions – what is validly patentable and what is not?  The root causes for this unsatisfactory state of affairs are the relative dearth of (1) judicial decisions arising from direct appeals of determinations made by the United States Patent and Trademark Office and (2) patent infringement adjudications that turn on basic patentability issues.  Comprehensive measures that would address these root causes have been recommended by the National Academies of Science and endorsed by the Coalition for Patent Reform.  They have garnered support from companies from a wide swath of industry sectors.  They would provide for greater public input into the patenting process, both before patents issue and in the period immediately after a patent is first granted.  By creating a 9-month, post-issuance window in which to challenge the patent, including through judicial review, thousands of patent appeals would be decided each year that will apply the basic patentability criteria.  Second, these reforms would provide for stripping away the peripheral issues that often dissuade an accused patent infringer from moving forward with a focused challenge to patentability.  These changes, including particularly the elimination of subject elements from patent litigation, would lead to more patent validity issues being tried and more rapid development of the application of patentability criteria to the most commercially important technology.  Third, the reform package would leave the patent law more objective and remarkably less dependent upon non-public information in order to assess and determine whether the criteria for patentability had been fully met.  Optimizing the functioning of the patent system across all technologies depends, therefore, not on fragmenting the system in ways that will only accentuate the existing problems, but by rationally – and comprehensively – reforming it.

 

James Bessen, Boston University
This talk reports on a research project that measures the incentive that patents provide to R&D investment (this is part of a forthcoming book). Using econometric techniques for publicly listed R&D-performing US firms, we calculate the value of patents held less the expected costs of defending against patent litigation. These estimates represent an upper bound on the incentive. We find that as of the late 1990s, incentives were positive for most firms in the pharmaceutical and chemical industries, but negative for most firms in other high tech industries.

Based on our analysis, we attribute most of these industry differences to differences in the nature of patent "notice" across technologies. By "notice," we mean the clarity of patent boundaries and the ease of checking prospective technologies for possible infringement. Looking at different classes of patents, we find that chemical patents have efficient notice, but some other technologies, notably biotech, software and especially business methods, have poor notice.

 

Michael Carroll, Villanova
"Intellectual Property in the Twenty-First Century"

This Article argues that analysts studying the role of intellectual property law in the twenty-first century economy must center on the strengths and weaknesses of a one-size-fits-all approach to intellectual property policymaking. Focusing on patent and copyright law, this Article first reprises earlier work that shows how granting innovators uniform entitlements imposes social cost - uniformity cost - and how patent and copyright use mechanism design (real options) and flexible standards in the definition of intellectual property rights to reduce this cost.

The Article then turns to a more direct strategy for reducing uniformity cost: tailoring or differentiating intellectual property rights according to industry or technology. Under this framework, rights can be differentiated either through legislation or judicial interpretation. A proponent of differentiation must show: (1) that policymakers have reliable evidence of high uniformity cost in relation to a particular industry or form of protected subject matter; (2) that differentiation of rights would be administratively feasible and efficient; and (3) that differentiation is politically feasible in light of the political economy of intellectual property policymaking. This framework should be applied both prospectively to new proposals and retrospectively to the many instances in which rights under patent and copyright law already have been differentiated.

 

Wesley M. Cohen
"Cross-Industry Differences in the Uses of Patents"
This presentation reviews findings on systematic differences across industries in the ways that patents are used, the sources of those differences, and implications for public policy.  We also consider what additional data on the uses and impacts of patents might be gathered as a basis for patent reform.

 

Graeme B. Dinwoodie (Chicago-Kent) and Rochelle Cooper Dreyfuss (NYU)
This conference is concerned with developing patent policy that reflects the diversity of industries and technologies affected by the patent system.  As a normative matter, a nation may wish to structure provisions of its patent law to suit the different demands of diverse industries.  Indeed, scholars such as Dan Burk and Mark Lemley advocate such a position and claim that in many ways, U.S. patent law already applies in a technology-specific manner.

The ability of national legislators to tailor patent protection to reflect the demands of different industries is, however, circumscribed by international intellectual property obligations, most notably the TRIPS Agreement.  We have previously urged an interpretation of the TRIPS Agreement that recognizes that the demands of innovation policy vary among countries and over time, and suggested that WTO dispute settlement panels offer broad latitude to WTO member states to implement their core TRIPS patent obligations in ways that optimize protection as circumstances change.

The TRIPS Agreement contains two types of provisions that constrain national choices.  First, it articulates (really for the first time in binding treaty form) a series of substantive minimum levels of patent protection that WTO members are obliged to provide.  For example, the term of patents must endure for at least twenty years from the date an application is filed.  Second, the Agreement contains structural provisions that appear to cut across the entire patent system (indeed, all intellectual property covered by the Agreement).  For example, protection must be offered on a national treatment basis and member states undertake to provide protection to persons from other WTO members on a most-favored nation basis.  These are essentially provisions prohibiting discrimination.

Article 27 of the TRIPS Agreement, which provides, in part, that “patents shall be available and patent rights enjoyable without discrimination as to the . . . field of technology,” does not fall neatly into either category.  The travaux preparatoires of the TRIPS Agreement emphasize that the provision was intended to guarantee protection for a variety of subject matter previously unprotected by patent in a number of countries.  In this regard, it looks like a substantive minimum provision relating to subject matter.  But because the provision is cast in terms of nondiscrimination, it can also be interpreted as structural.

This ambiguity came to a head in Canada-Patent Pharmaceuticals, when a dispute settlement panel of the WTO gave article 27 broad structural effect, and required exceptions to patent protection in Canadian law to comply not only with the demands of article 30, which regulates permissible exceptions, but also with article 27’s protection against technology-based discrimination.

At this Conference, we will explore whether the broad nondiscrimination principle articulated in Canada—Patents can fairly be identified as an overarching objective of the TRIPS Agreement.  It is by no means clear that nondiscrimination among people (certainly a goal of public international law) and nondiscrimination among technologies (per the panel’s interpretation of article 27) are objectives of equal importance to the international intellectual property system.

Next, we accept that possibility that the Canada-Patents panel reached the right conclusion and consider whether its recognition of a baseline prohibition in article 27 might still allow for some level of tailoring. 

- Does the language of article 27itself contain latitude to differentiate in some ways or at some level of detail: is the “availability” of patent rights subject to more stringent anti-discrimination impulses than “enjoyment” of patent rights? 

- Do the overall objectives of the TRIPS system suggest that once a country satisfies the minimum level of protection, it can give differential treatment above that level? 

- Do other provisions of the TRIPS Agreement create room to maneuver?  The Agreement clearly contains provisions that, in different ways, offer scope for tailoring (e.g., provisions on health, ordre public, therapies, microorganisms, and plants).  Given the divergence in positions regarding remedial measures recently expressed by different industries in the United States, we will pay particular attention to tailoring in the nature of relief that may be provided under national law.

- What is a “field of technology”?  The Canada-Patents panel held that so long as all patented inventions subject to regulatory clearance procedures are treated alike, article 27 is not violated, even if the impact of the exception is confined to pharmaceuticals.  Does this apparent distinction between formal and substantive equality, and between defacto and de iure discrimination, offer member states flexibility to differentiate among technologies based on other market-related factors, such as the need for coordinated standard setting or the prevalence of network effects and lock-in?  Does this approach permit discrimination based on technology-related factors, such as the need for coordination among patentees, or the potential breadth of the claims?   We will consider whether there are other factors that can be used to differentiate among technologies, but that do not run afoul of article 27.

 

Reto Hilty, Max Planck Institute
"The New Political Economics of Patent Policy: Pressures on a Unitary System"

For decades, we have been observing a broadening of the scope of patent protection. This broadening occurred in different respects and it is due to different factors. However, one of the most important factors is the pursued expansion to new subject matters of protection. Starting from traditional inventions focussing on mechanical products and on processes, the extension of the protection to chemical products as such probably had the most important impact on the patent system. One of the crucial questions in that respect was whether the protection should be purpose-bound or extended to all possible – even unknown – applications (full product protection). That discussion rekindles currently, in particular with regard to one more recently educed layer of chemical product protection: the protection of “living material” (biotechnology). Another important extension of the patent system came about with regard to the protection of software – either to some extent (like in Europe) or even of software “as such”, e.g. in the U.S., going hand in hand with the protection of business methods. Currently we are about to experience a further extension; it occurs with respect to nanotechnology, however, up to now rather unrecognized by the public.

Interestingly, after more “internal” debates with regard to the patentability of chemical products within the sectors of industries concerned, the discussions on the extension of patent protection to biotechnological material as well as to software became highly political. We cannot deny the importance of some of the arguments raised at that stage; however, they were of a mainly ethical nature (“patents on life”) and of socio-political importance (“open source” movement). The economic impacts of these extensions of patent protection were hardly ever in the focus of the public perception. Admittedly, economists have investigated in the field of patent law. However, the approach of that economic research has been rather general. A differentiation with regard to the different subject matters is usually missing or, at least, does not receive attention to a degree that permits conclusions on a diversification of approaches to protection.

This generalization may not be satisfactory since the justification for patent law basically is that it attempts to avoid a market failure. In fact, some legal protection may be appropriate if a potential inventor would otherwise refrain from making investments in the light of the possibility of a non-amortization. However, the question whether a market failure does occur or not depends on all the circumstances of an individual case. Consequently, it is not plausible that all kinds of innovations deserve an identical degree of protection. Rather, we should, at least, try to construct groups with similar framework conditions. If, instead, we stick to the “one-size-fits-all approach”, we risk the consequences of over- or underprotection in certain fields of technology. Actually, an inadequate extent of protection is to the disadvantage of the system as a whole since it causes either a lack of incentives for investments or quasi-monopolistic situations.

 

Steven Kunin, Oblon Spivak
The USPTO faces extreme workload and examination quality challenges in the 21st Century. Mr. Kunin will explore how the USPTO is developing new initiatives to address large backlogs of unexamined applications and continued growth in patent application filings. He will also cover what efforts USPTO is undertaking to improve examiner hiring, training, supervision, work review and retention to improve examination quality and whether these endeavors are likely to succeed.

 

Mark Lemley, Stanford Law School
Talk to lawyers or businesspeople at technology companies about the patent system, and you will get a rather stunning variety of answers.  In the pharmaceutical industry, there seems to be a strong consensus (at least among innovative rather than generic pharmaceutical companies) that patents are critical to innovation.  Their only complaint is that patents aren’t strong enough.  They don’t last long enough to compensate for FDA delays, and the uncertain or probabilistic nature of patent scope and validity leaves them with uncertain protection for their enormous investment.  Those in the biotechnology industry also see patent protection as critical to their survival, though they may also worry a bit about how the many different upstream patents owned by others might affect their ability to do produce products at the end of the day.

Lawyers and executives in the information technology industries, by contrast, almost invariably see the patent system as a cost rather than a benefit to innovation.  Even companies with tens of thousands of patents generally use those patents only “defensively,” to minimize the amount they must pay other patent owners to permit them to sell their products.  Ask most of these companies, and they would probably rather see the patent system disappear entirely, leaving them alone to innovate or at least that it be radically reformed. 

Any doubts that the patent system is perceived by different industries in fundamentally different ways were dispelled during the course of Congressional debates over patent reform in 2005 and 2006.  The reform process quickly ground to a halt because different industries couldn’t agree on a single principle of reform. The reforms the pharmaceutical and biotech industries wanted – harmonization on first to file, the elimination of the best mode requirement, and the weakening of rules against inequitable conduct – were opposed by the IT industries.  At the same time, the things the IT industry wanted – reforms to limit damages and injunctive relief in patent holdup settings, and an effective administrative process to oppose patents – were anathema to the biomedical industries.

Something very important is going on here.  When some of the most innovative companies in the world think that they would be better off without a law whose entire purpose is to promote innovation, policy-makers should sit up and take notice.  At the same time, the fact that other innovators clearly rely on patent protection to fund research and development means that we can’t simply get rid of the system.  Clearly, patents are doing good in some circumstances, but they are also doing harm in others.  Why is it that different industries focus on different effects?  What should we do about it?  Our effort to think through these problems are at the heart of this book.

We think that the problem is deeper than a question of which companies are on which side of particular cases at any given time.  The economic evidence is overwhelming that innovation works differently in different industries, and that the way patents affect that innovation also differs enormously by industry.  The question for patent policy is how to respond to those differences.  In the various chapters of this book, we suggest that the courts are best situated to deal with these differences, and indeed that they already have the tools to do so, provided they have the self-confidence to use them. 

Saying that the courts should have the power to tailor patent law to the needs of different industries will raise the hackles of many.  To some, it smacks of judicial activism and raises questions about the institutional competence of the courts.  To others, even those happy with the courts in charge, industry-specific rules will seem unworkable or a recipe for business uncertainty.  We will consider these objections in detail later in the book, in chapters __ and __.  But first, it is important to establish the need for such a system.  We therefore begin by examining the overwhelming evidence that innovation generally, and the relationship of patents to innovation in particular, differ by industry.  A truly “unitary” patent law would therefore treat unlike things alike, and is neither fair nor likely to best encourage innovation across the range of industries.  We then discuss the wide variance in theories of the patent system, pointing out how neatly they map to the different needs and understandings of different industries.  Significantly, we explore the myriad ways in which the courts already treat innovation in different industries differently.  The question, therefore, is not whether we should retain a unitary patent system – we don’t have one now.  The only question is whether we should acknowledge and embrace these differences, try to weed them out by fundamentally changing the law, or let the industry-specific characteristics of patent law develop accidentally. Given these alternatives, we think the right choice is clear.

The balance of the book begins the process of fleshing out our vision of a modular patent system. We begin in chapter __ with some of the many industry-specific “policy levers” that courts now use to tailor the nominally unitary patent system to the needs of different industries.  We then discuss in chapter __ some other levers courts have the power to use but currently do not, and some things Congress could do in the course of patent reform to facilitate the use of policy levers by the courts. Finally, in chapters __-__ we offer preliminary assessments of the economics of some significant industries and how policy levers can and do apply to those industries. Our goal in these chapters – and in the book as a whole – is not to offer the last word in how the patent system works in these industries. Rather, it is to begin a conversation about how the patent system can best adapt to the diversity of the modern world.

 

Dr. David E. Martin, M*CAM
“Asymmetric Commercial Consequence of Patents”

Over the past three years, governments, prime contractors, and consumers have increasingly sought indemnity from patent holders insuring them against financial loss arising from injunction or any other action arising from failure to own or failure to enforce the intellectual property underpinning the value of products or services offered for sale. During the past 18 months, significant changes in procurement laws and practices in the U.S. and abroad have defined industry sectors where the economic consequence of patent misrepresentation or value un-substantiation have led to contract termination, mandatory business continuity insurance coverage purchases, and other risk management practices.

In this presentation, we will consider the inter-industry variables effecting risk rating based on patent holdings and the underlying patent prosecution and management strategies such holdings reflect and discuss the emerging frictional cost of contractual indemnity arising from patent holdings.

 

Peter Menell, Berkeley
"Toward a Sectoral Analysis of Software Innovation: The Patent Prisoner's Dilemma"

Over the past two decades, the United States has unwittingly pursued a bold experiment in innovation policy: The software industry developed in the 1960s, 1970s and early 1980s without any apparent need for or significant role for patent protection. Trade secret protection, contract, and, to a limited extent, trademark served as the principal appropriability mechanisms. IBM, the dominant firm in the industry, affirmatively resisted patent protection for software. With the advent of the microcomputer and the development of a market for packaged software, copyright augmented the appropriability regime. Beginning gradually in the mid 1980s and accelerating since the mid 1990s, software companies have increasingly added patents to their software protection portfolios. By examining trends in software IP portfolios of the various sectors of the software industry – from custom programming to packaged goods to Internet-based businesses to open source -- this project seeks to assess the net effects of software (and business method) patents on appropriability, investment patterns, disclosure and knowledge diffusion, price competition, and the pace of software innovation. In many respects, it will seek to identify which sectors of the software industry, if any, have needed patents to support innovation and whether the benefits of such protection for these sectors outweigh the significant costs -- in terms of due diligence, hold-ups, costly litigation, and monopoly exploitation -- that software patents have engendered. It will determine whether the software industry finds itself in a prisoner's dilemma in which the vast majority of players would be better off scaling back or abolishing such patents, but individual rationality dictates the rush to the patent office, hoarding behavior, and the emergence of patent "trolls". The project will also consider the experience of other nations with significant software industries (Japan, Europe, Israel, and India) that have been more reluctant to embrace software and business method patents. This research will be used to consider policy alternatives and the political economy of policy reform.

 

Michael Meurer, BU
"If you can’t tell the boundaries, then it ain’t property"
My talk is based on a chapter from book I am preparing with Jim Bessen. The chapter compares the law and institutions that promote patent notice with the corresponding law and institutions that provide notice for tangible property. The patent system fares badly in this comparison; certain institutions that contribute to clear notice are pitifully underdeveloped. It is hardly surprising, then, that patents, unlike tangible property, have a significant problem with inadvertent infringement. Moreover, we find some evidence that notice problems have been getting worse.

We have uncovered four aspects of the notice problem. To begin, inventors can hide patent claims, and thus boundary information, from the public. Next, even when the relevant public has access to the patent claims they are very difficult to interpret. Even assuming the claims are available and clear, there is a danger that the meaning of claim language will change (and become broader) over time. Finally, even when claims are available, clear, and fixed over time, the cost of searching for relevant patents can be quite high. High search costs arise directly because of the high number of patents that potentially apply to certain technologies, and indirectly because the high rate of invalidity and the willfulness doctrine both discourage search.

 

Craig Nard (Case Western) and John F. Duffy (George Washington University)
"Rethinking Patent Law's Uniformity Principle"
The Federal Circuit, created in 1982, was grounded in the desire for uniformity in the application of patent law.  In patent law, as in other areas of the law, uniformity is a virtue.  But uniformity is not the only virtue and centralization has its costs. Changes since the court’s creation, particularly our collective knowledge regarding the role the patent system plays and operates within the world of technological innovation, have brought scrutiny upon the Federal Circuit experiment, prompting questions about whether the court, as an institution, has adequately adapted to this shifting ground.  The problems associated with the Federal Circuit — path dependency and insularity — are largely a result of structural constraints.   The court’s common law does not enjoy the benefit of sister-circuit jurisprudence that would force a competition of rationales and test legal innovations.

This article argues that the time is ripe to rethink patent law’s uniformity principle. This proposed shift in strategy from one based predominately on uniformity, to one where competition and diversity are equally important, must be accompanied by a reconfiguration of patent law’s institutional design at the appellate level. But while centralization has its costs, so too does decentralization. Importantly, therefore, the choice between a centralized or decentralized model cannot and should not be answered with a polar solution.  The issue is one of optimization. 

Thus, this article proposes that in addition to the Federal Circuit, at least one extant circuit court should have jurisdiction to hear district court appeals relating to patent law. Moreover, both the Federal Circuit and United States Court of Appeals for the D.C. Circuit should have jurisdiction over appeals from the Patent and Trademark Office, thereby injecting into the patent system an additional judicial voice with broader expertise in administrative law and regulatory policy.

 

Carl Shapiro, Berkeley
“Prior User Rights”
American Economic Review Papers and Proceedings, vol. 96, no. 2 (May 2006).
A stronger independent invention system will improve performance of the patent system in industries where there is a lot of incremental innovation, with multiple parties making similar discoveries around the same time, without undermining innovation incentives in other industries where patents more often reflect major innovations.