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U.S. Patent Policy: Crafting a 21st Century National Blueprint for Global Competitiveness

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Knowledge, Technology & Policy

Abstract

The paper begins with an overview of the legal, institutional, and public policy bases of the U.S. patent granting system and subsequently examines major deficiencies acknowledged in the existing U.S. patent system. The paper then catalogs the essence of four patent reform proposals of the Federal Trade Commission, the National Research Council, and academic economists (Jaffe/Lerner and Maskus), all of which focus on ameliorating alleged major weaknesses in the U.S. patent system. The paper concludes with an analysis of the above cited patent reform proposals, arguing for a proposed set of workable policy recommendations (reflecting recent changes in public policy) focused on patent cost controls, patent quality, patent uncertainty, and patent reform legislation, all designed to contribute to a globally competitive 21st century patent policy for the U.S. economy.

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Notes

  1. Gallini (2002) reviews a growing body of contrarian literature calling into question the effectiveness of patents as a tool for stimulating innovation (although she argues that a secondary benefit which remains intact under patenting is encouraging disclosure and the subsequent facilitating of a market for technological exchange not found under a property regime of trade secrets).

  2. The government entities which make up the U.S. patent system include the United States Patent and Trademark Office, which reviews and re-examines patent applications; the Federal judiciary, which rules on the legality of patent infringement cases; and the U.S. Congress, which enacts legislation defining the enforceable rights of patent holders and the administrative authority of the United States Patent and Trademark Office.

  3. U.S. Patent Act, c.950, 66 Statute 792 (1952).

  4. Public Law 96-517, 94 Statute 3016, § 1 (1980).

  5. See, respectively: Diamond v. Chakrabarty, 447 U.S. 303, 206 U.S.P.Q. {BNA) 193 (1980); Diamond v. Diehr, 450 U.S. 175 (1981); and State Street Bank and Trust v. Signature Financial Group, 149, F.3rd 1368 (Fed. Cir. 1998).

  6. According to Koenig (1980), the Circuit Courts had affirmed 62% of district court holdings of patent infringement over a period of 25 years (1953–1978) before the creation of the CAFC. In contrast, Harmon (1991) found that over the first 8 years after the establishment of the CAFC (1982), 90% of such decisions were affirmed by the Court of Appeals. Furthermore, judicial decisions affirming that a patent was valid or that no infringement had occurred were reversed 28% of the time after the court’s creation (Harmon 1991), compared with the previous rate (before the creation of the CAFC) of 12% (Koenig 1980).

  7. Uruguay Round Agreements Act of 1994 (37 CFR Parts 1 and 3), December 8, 1994.

  8. Public Law 106-113, 113 Statute 1501 (1999).

  9. Public Law 106-113, 113 Statute 1501A-571, § 4606 (1999).

  10. According to data collected by the American Intellectual Property Association (2003), the median discovery costs and legal fees are $790,000 for patent infringement suits with less than $1 million under dispute; between $1 million and $25 million, the costs are $3 million; and for patent infringement suits exceeding $25 million, $6.5 million.

  11. Bessen and Meurer (2008) characterize “patent trolls”, which is a pejorative term, as “people who obtain broad patents not to innovate, but solely to ensnare real innovators who might inadvertently cross the boundaries of the troll’s patents.” The patent troll’s business model is to force settlement or extract licensing royalties by threatening patent infringement suits (Lateef and Stowell 2007).

  12. In applying the “commercial success” test, (1) evaluate on a case-by-case basis whether commercial success is a valid indicator that the claimed invention is not obvious, and (2) place the burden on the patent holder to prove the claimed invention caused the commercial success (Federal Trade Commission 2003). In applying the “suggestion test”, assume an ability to combine or modify prior art references that is consistent with the creativity and problem-solving skills that in fact are characteristic of those having ordinary skill in the art (Federal Trade Commission 2003).

  13. For further background on this issue, see Walsh et al. (2003).

  14. “There is a good reason to achieve some harmonization of patent rules, since it could reduce transaction costs of inventive companies” (Maskus 2006: 27).

  15. Patent pendency is a measurement of the USPTO’s traditional examination processing time, i.e., from filing (under 35 U.S.C. 111(a)) to ultimate disposal (Maskus 2006). The Patent Average Total Pendency in Fiscal Year 2007 has risen to 31.9 months, up from 31.1 months in Fiscal Year 2006, so this will be one goal which will be difficult to attain over the next fiscal year (United States Patent and Trademark Office 2007).

  16. U.S. Patent Act, 35 U.S.C. 41(h)(1).

  17. The number of utility patent applications submitted in 1986 was 122,433, while there were 390,773 patent applications submitted to the USPTO in 2005 (United States Patent and Trademark Office 2006). In a paper by Kortum and Lerner (1998), this increased patenting activity is attributed to a redirection in company R&D management toward applied (rather than basic) research activities.

  18. Blonder (2005) further clarifies this position by including “minor changes in size, shape, or properties whose impact is definitely predicted by science, as well as eliminating entire classes of ideas that are ‘in the air’.”

  19. U.S. Supreme Court. eBay Inc. et al. v. Mercexchange, L.L.C., No. 05-130. Argued March 29, 2006—Decided May 15, 2006 (October Term 2005). The four-factor test requires the plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

  20. HR.1908 passed the House by a vote of 220 to 175, with 37 abstaining or not voting, and voting generally tracking party lines with 73% of Democrats voting in favor and 67% of Republican opposing the legislation (Merritt 2008).

  21. One major coalition supporting HR.1908, the Coalition for Patent Fairness, represents major technology alliances, associations, and companies, including the Business Software Alliance, Information Technology Industry Council, Amazon.com, Dell, Cisco Systems, Microsoft, Oracle, and Time Warner (Coalition for Patent Fairness 2007). Opponents of the bill include the Pharmaceutical Manufacturers and Research Association, the American Federation of Labor and Congress of Industrial Organization, the American Intellectual Property Lawyers Association, General Electric, Meditronic, and Texas Instruments (Merritt 2008). Opponents of the legislation note that, over the last 2 years, several high profile federal court decisions have been rendered essentially creating the reforms that Congress now seeks, including a U.S. Supreme Court decision limiting the use of injunctions in patent infringement cases, (eBay Inc. v. Mercexchange, L.L.C. 126 S.Ct. 1837 (2006) (see Endnote no. 21 for further explanation on this case); another U.S. Supreme Court case involving Microsoft and AT&T with a court decision striking down the practice of granting patent infringement damages for product sales outside the U.S. (Microsoft Corp. v. AT&T Corp. (No. 05-1056) 414 F.3rd 1366, reversed 2007); and a U.S. Federal Circuit decision reducing the use of willful infringement and limiting the scope of waiver resulting from reliance on an opinion of counsel (re Seagate Technology, L.L.C., Misc. Doc No. 830 slip op (Fed. Cir. August 20, 2007). For an incisive critique of the Patent Reform Act of 2007 (and patent reform proponents policy positions), see Choate (2007).

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  1. School of Management, University of Michigan—Flint, 4169 William S. White Building, Flint, MI, 48502-1950, USA

    Thomas A. Hemphill

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Hemphill, T.A. U.S. Patent Policy: Crafting a 21st Century National Blueprint for Global Competitiveness. Know Techn Pol 21, 83–96 (2008). https://doi.org/10.1007/s12130-008-9044-x

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