National Academies Press: OpenBook

A Patent System for the 21st Century (2004)

Chapter: 4 Seven Recommendations for a 21st Century Patent System

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Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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4
Seven Recommendations for a 21st-Century Patent System

The committee supports several steps to ensure the vitality and improve the functioning of the patent system.

  • An open-ended, unitary, flexible patent system. The system should remain open to new technologies with features that allow flexibility in protecting new technologies. Among the features that should be exploited is the United States Patent and Trademark Office’s (USPTO) development of examination guidelines for new or newly patented technologies. The office should seek advice from a wide variety of sources and maintain a public record of the submissions in developing such guidelines, and the results should be given appropriate deference by the courts. The Court of Appeals for the Federal Circuit (“Federal Circuit”) also should ensure its exposure to a variety of expert opinions by encouraging submission of amicus briefs and by exchanges with other courts. In addition to qualified intellectual property professionals, appointments to the Federal Circuit should include people familiar with innovation from a variety of perspectives—management, finance, and economics, as well as nonpatent areas of law affecting innovation.

  • Non-obviousness standard. The requirement that to qualify for a patent an invention cannot be obvious to a person of ordinary skill in the art should be assiduously observed. In an area such as business methods, where the common general knowledge is not fully described in published literature that is likely to be consulted by patent examiners, another method of determining the state of general knowledge needs to be employed. Given that patent applications are examined ex parte between the applicant and the examiner it would be difficult to bring in other expert opinions at that stage. Nevertheless, the Open Review procedure

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

described next provides a means of obtaining expert participation after a patent issues. With respect to gene-sequence-related inventions, a low standard of non-obviousness results from Federal Circuit decisions making it difficult to make a case of obviousness against a genetic invention (for example, gene sequences). In this context the court should return to a stricter standard, which would also be more consistent with other countries’ practices in biotechnology patenting.

  • Open Review procedure. Congress should seriously consider legislation creating a procedure for third parties to challenge patents for a limited period after their issuance in an administrative proceeding before administrative patent judges of the USPTO. The speed, cost, and design details of this proceeding should make it an attractive alternative to litigation to determine patent validity and be fair to all parties.

  • USPTO capabilities. To improve its performance the USPTO needs additional resources. These funds should enable hiring additional examiners, implementing a robust electronic processing capability, and creating a strong multidisciplinary analytical capability to assess management practices and proposed changes. In addition, the funds should be used to provide early warning of new technologies being proposed for patenting, and to conduct reliable, consistent, reputable quality reviews that address office-wide as well as subunit and examiner performance. The current USPTO budget does not suffice to accomplish these objectives and to administer an Open Review procedure.

  • Research liability for patent infringement. In light of the Federal Circuit’s 2002 ruling that even noncommercial scientific research enjoys no protection from patent infringement liability, and in view of the academic research community’s belief in the existence of such an exemption, and behavior accordingly, there should be some level of protection for noncommercial uses of patented inventions. Congress should consider appropriately narrow legislation, but if progress is slow or delayed the Office of Management and Budget and the federal government agencies sponsoring research should consider extending “authorization and consent” to grantees as well as contractors, provided that such rights are strictly limited to research and do not extend to any resulting commercial products or services. Either legislation or administrative action could help ensure preservation of the “commons” required for scientific and technological progress.

  • Litigation elements. Three provisions of patent law that are frequently raised by plaintiffs or defendants (rarely by the courts) in infringement litigation depend on determining a party’s state of mind, and therefore generate high discovery costs. These provisions are (1) “willful infringement,” which if proven, exposes an infringer to possible triple damages; (2) the doctrine of “best mode,” which addresses whether an inventor disclosed in an application what the inventor considered to be the best implementation of the invention; and (3) the doctrine of “inequitable conduct,” concerning whether the applicant’s attorney intentionally misled the USPTO in prosecuting the original patent. To reduce the cost and

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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increase the predictability of patent infringement litigation outcomes, and to avoid other unintended consequences, these provisions should be modified or removed.

  • International harmonization. The United States, Europe, and Japan should further harmonize patent examination procedures and standards to reduce redundancy in search and examination and eventually achieve mutual recognition of results. Differences that among others are in need of reconciling include application priority (“first-to-invent” versus “first-inventor-to-file”), the grace period for filing an application after publication, the “best mode” requirement of U.S. law, and the U.S. exception to the rule of publication of patent applications after 18 months. This objective should be pursued on a trilateral or even bilateral basis as well as a multilateral basis.

Although some of our recommendations parallel those of previous commissions and reports, the most relevant comparison is with the proposals of the Federal Trade Commission (FTC) in its report released in October of last year. Although we approached the operation of the patent system from different perspectives, addressed somewhat different topics, and employed quite different methodologies, there are several areas of agreement.

  • The USPTO and the Court of Appeals for the Federal Circuit should broaden their consideration of relevant economic and technical analysis.

  • The non-obviousness standard should be more vigorously applied, at least in some technological fields.

  • Congress should create a review procedure for challenging and reviewing issued patents.

  • The financial resources of the USPTO should be increased.

  • All patent applications should be published after 18 months.

  • The legal doctrine subjecting “willful” infringers to enhanced damages should be modified or eliminated.

PRESERVE A FLEXIBLE, UNITARY, OPEN-ENDED PATENT SYSTEM

Innovation processes differ markedly from one industrial sector to another. There is ample evidence that development lead times, product cycles, the relative dominance of cumulative or interoperative or stand-alone innovations, capital investment requirements, and even sources of innovation all vary greatly. We know, too, that firms in different industries acquire, value, and exercise patents differently. Accordingly, the optimal number, coverage, and division of patent rights to encourage innovation may vary. These circumstances, some might argue, call for designing a formal (that is, statutory) system in which patent standards, strength, duration, and other features vary from technology to technology and, conceivably, certain technologies are excluded from patenting altogether.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Historically, there has been strong resistance to a differentiated patent system and to subject matter exclusions and fairly consistent adherence to a relatively open-ended unitary system. Exceptions, although more common recently, are relatively few and narrow and usually in the nature of limited exceptions rather than sui generis systems of intellectual property protection. For example, in 1996 Congress exempted medical practitioners and related health care entities using patented medical procedures from infringement liability rather than bar surgical procedure patents altogether.1 It lengthened terms for some pharmaceutical patents to compensate for regulatory delays2 and protected certain experimental uses of pharmaceuticals by generic suppliers from liability.3 Recently, Congress was persuaded that the advent of business method patents might snare longtime users of newly patented business procedures in infringement suits; but, rather than curtail the issuance of such patents or limit their terms, legislation made prior use a defense available to accused infringers of that class of patents.4 A special obviousness provision deals with concurrent process and composition-of-matter claims on biotechnology patent applications.5 The Plant Patent Act of 19526 and the Plant Variety Protection Act of 1970,7 representing modified patent regimes, and the 1984 semiconductor mask protection legislation8 and the 1988 Vessel Hull Design Protection Act,9 representing modified copyright regimes, are the only examples of new statutory classes of intellectual protection designed for particular technologies.

Apart from the very recent congressional ban on human organism patents,10 clearly a special case, there have been no successful legislative attempts to circumscribe patenting. Some members of this committee are concerned about patent incursions on the public domain of ideas and information, particularly in the realm of scientific research results. Even so, they believe that the proper approach is on a case-by-case basis through a mechanism for review of issued patents for conformity with the statutory standards and associated case law rather than an attempt to draw the line more sharply. The entire committee endorses such a postgrant review procedure, described later in this chapter.

The committee also agrees that given the state of our knowledge there are strong reasons to preserve a formally unitary system. For one thing, we do not

1  

35 U.S.C.§ 287(c) (2000); P.L. 104-208, 1996 HR 3610.

2  

35 U.S.C. §§ 155, 156 (2000).

3  

35 U.S.C. § 271 (2000).

4  

35 U.S.C. § 273(b)(1a)(3) (2000).

5  

35 U.S.C. § 103(b) (2000).

6  

35 U.S.C. §§ 161, 164.

7  

7 U.S.C. § Sec 2321 et seq.

8  

17 U.S.C. § 901-14 (2000).

9  

Part of the Digital Millennium Copyright Act, P.L. 105-304.

10  

It has been USPTO policy since 1987 not to issue any human organism patents.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

know enough about innovative processes to advise Congress on the optimal characteristics of different classes of patents in different circumstances. Legislative tailoring of the patent system to each major industry would be a prime opportunity for interest-group politics to influence the results, which could be quite resistant to change or adjustment. Even if Congress were able to get it “right” in economic terms, technological change and industries’ structural evolution might render the specifications obsolete and possibly counterproductive. That appears to have been the case with semiconductor mask protection. Although the industry lobbied vigorously for the legislation, and there have been a number of filings under it, few in the industry still view it as an important way to protect proprietary chip design, primarily because the underlying technology evolved rapidly, obviating the perceived need. The fact that such instances are rare suggests that Congress has no great appetite for crafting industry- or technology-specific patent policies. In any case, it has largely tied its hands by ratifying the TRIPS agreement of 1994, which prohibits signatory states from discriminating in the grant of patents based on the technology involved.11

The committee realizes that there may appear to be some contradiction between this position and our belief in the importance of exploiting the mechanisms and doctrines that reflect differences among technologies or allow for some deliberate discrimination among them by the USPTO, by the courts, and by patent holders themselves. These include subtle differences in the application of the common legal standards of obviousness, enablement, and written description, and the various other policy levers described by Burk and Lemley (2003a). The difference is that these mechanisms, in contrast to legislation, allow for incremental adjustments that are more easily made.

In particular, the committee endorses the USPTO’s development of examination guidelines, outlining how it will apply the statutory standards to emerging technologies. In the case of the utility and written description guidelines for genetic inventions and earlier in the case of computer programs, this was accomplished through a notice and public comment process not unlike that employed by federal regulatory agencies in formal rulemaking proceedings. This is not only a means of achieving some degree of standardization in USPTO practice involving a new technology or newly patented technology well before a number of validity cases are decided by the courts. It is also a means of obtaining advice from a variety of sources in a way that is open to all interested parties.12

The USPTO should solicit comments from legal scholars, economists, and independent experts as well as stakeholders and maintain an open record of the submissions. Further, the guidelines and the record behind them should be part of

11  

Article 27(1).

12  

The USPTO periodically requests comments on issues other than those in proposed rulemaking, and these are publicly available.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

the record in any appeal to a court, where they could be used to inform judicial decisions. There are other ways to expose the courts to a wide range of opinion and analysis.

The Court of Appeals for the Federal Circuit is in most instances the final arbiter of patent law. Both students of and practitioners before the court are in general agreement that the 1982 centralization of patent appeals in the Federal Circuit has been a vast improvement over adjudication in the circuit courts of appeals. It reduced forum shopping, focused attention and thought on neglected issues of patent law, produced innovations at the trial court level, and in general yielded greater consistency. At the same time, specialized institutions have insular tendencies.13 For example, the Federal Circuit appears to rely less on independent scholarly analysis, even legal scholarship, than the regional generalist appeals courts. Nard (2002) found that the circuit courts cite scholarly work roughly four times as often as the Federal Circuit. He acknowledges that the Federal Circuit is more familiar with patent law than regional courts are with, say, copyright or trademark law; but he suggests that the disparity is such that the “court verges on the abstract by failing to give adequate weight to empirical and economic scholarship.”14

We recommend some modest steps to ensure that the Federal Circuit, despite its specialization, has broader exposure to legal and economic analysis in all areas of innovation-related law and to the impact of its decisions on the lower courts and on the Patent Office.

  • Briefs. The Federal Circuit should encourage the submission of briefs that draw upon insights from other judicial decisions, legal scholarship on the patent system, and the growing body of patent-related economics literature. In particular,

13  

The definitive analysis of specialized adjudicative bodies and their biases is by Marver Bernstein (1955). Interestingly, some of the early patent appeals court proposals did not contemplate permanent appointments to the court. For example, the National Research Council (1919) recommended selection by the chief justice from the district and circuit court benches, with service limited to a six-year term unless reappointed. The 1936 National Research Council report recommended permanent appointment, but of judges with diverse scientific and technical backgrounds as well as experience in the trial of patent cases.

14  

Judge Paul Michel, speaking at the University of California, Boalt Hall, Conference on Patent System Reform, March 1, 2002, made a similar point about the recent litigation on the issue of the doctrine of equivalents in FestoCorp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 234 F.3d 558, 56 U.S.P.Q.2d 1865 (Fed. Cir. 2000) (en banc), overruled in part by 535 U.S. 722, 122 S. Ct. 1831, 152 L. Ed. 2d 944 (2002): “Now you might have thought … where there was a concern about the relative needs to promote adequate incentives—or you could say fairness to inventors—on the one hand with the need for competitors to have adequate predictive value and certainty on the other hand, that somebody at least amici and, one would hope, also the parties would have given us some very meaningful data about that. Now I read all the briefs … and I can’t remember anything that I would consider empirical data…. If you trace back the pedigree I suspect that you will find that in a great many cases there never was any meaningful economic or quantified data.”

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

as the court has done in some recent notable cases,15 it should welcome amicus briefs, as these tend to raise broader issues and cite a wider range of literature than do the briefs of parties to cases.

  • Appointments. Because the Federal Circuit’s docket extends to diverse cases far removed from patent or, more broadly, innovation law, the few appointments intended to support the court’s expertise in that area should be made with particular care. They should not be confined to intellectual property practitioners and academics. Rather, the court’s perspective should be broadened by appointing judges familiar with innovation more generally, including men and women with backgrounds in antitrust or finance law or, in addition to their legal training, in economics or economic history. Furthermore, some appointments might be through the elevation of regional district court judges, a routine practice with respect to the regional appeals courts but not the Federal Circuit. The addition of one or more district judges with patent litigation experience would give the court perspective not only on problems at the trial court level but also on economic issues outside its jurisdiction.

  • Designations. Trial court judges are often asked to sit by designation in other courts of appeals, helping the system as a whole keep track of jurisprudential trends. Federal Circuit judges have rarely participated in this practice.16 The committee suggests that the Federal Circuit invite regional judges to sit on its panels and regional circuits invite Federal Circuit judges to sit by designation. This would give Federal Circuit judges a better sense of how patent law fits in with other laws influencing innovation and how other courts incorporate economics into their decision making.

REINVIGORATE THE NON-OBVIOUSNESS STANDARD

Non-Obviousness and Business Method Inventions

The non-obviousness determination is necessarily a judgment, not something that can be resolved through a bright line test. Fundamentally, it assumes that an invention is novel and the decision maker must determine whether the hypothetically skilled person in the art would nonetheless have considered the novel invention something within the routine skill of the field. The USPTO and the reviewing courts are concerned that an invention that was genuinely non-obvious before it was made may often look obvious in retrospect. The courts have been vigilant in

15  

For example, the Federal Circuit recently granted an en banc review to consider the willfulness doctrine discussed below and actively solicited amicus briefs on a wide range of issues to aid in its deliberations. See Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana Corp. 344 F.3d 1336 (Fed. Cir. 2003).

16  

See Dreyfuss (forthcoming) for suggestive data on the extent to which circulation of judges into and out of the Federal Circuit occurs.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

preventing hindsight based on the inventor’s patent disclosure from leading to an “obvious” determination. The doctrines that protect against hindsight, while well founded in most other contexts, assume that the USPTO will have access to the state of the art at the time the invention at issue was made. That assumption has not been true in the business methods area.

The prior art by which inventions are judged is defined by 35 U.S.C. § 102. The most common forms of prior art in conventional areas of technology are printed publications, including scientific journals and patents. The prior art also includes prior information “known or used by others.” In foreign patent systems this is known as the “common general knowledge,” which describes the concept somewhat better. Under U.S. and foreign law it is not enough that one or a few people in the field have the information alleged to be prior art. The information must be generally known to be patent defeating. In conventional technologies the published literature in fact represents a fairly good catalog of the common general knowledge in the field, and the USPTO can therefore access it. That is not the case for business methods, which may not be written in any of the places likely to be consulted by examiners.17

Several examples illustrate how the conventional approach to obviousness breaks down in the business methods context. For example, one common form of patent application involves use of a new component or ingredient to replace an old one for a particular function. In patent law this is an issue of “equivalence,” that is, whether the new component is recognized in the prior art as an equivalent of the old component. Section 2144.06 of the Manual of Patent Examining Procedure (MPEP) addresses this issue, relying on three Federal Circuit cases. It states, “In order to rely on equivalence as a rationale supporting an obviousness rejection, the equivalency must be recognized in the prior art, and cannot be based on applicant’s disclosure or the mere fact that the components at issue are functional or mechanical equivalents.” In other words, use of a new ingredient, even a familiar ingredient in other circumstances, can lead to a patentable invention unless the USPTO can determine that such a substitution was part of the state of the art. This understanding in the art can be based on the common general knowledge apart from the published literature.18 In an area like business methods, where the published literature does not fully describe the state of the art, the USPTO is

17  

For example, relevant prior art, such as for the patent on the inverse elasticity rule, appears in economics texts. But much of the prior art for business methods is embodied in services and processes not described in any literature (Laurie and Beyers, 2001).

18  

Graham v. John Deere Co., 383 U.S. 1 at 10 (1966) quoted Jefferson that “[A] change of material should give no right to a patent. As to the making a ploughshare of cast rather than of wrought iron; a comb of iron instead of horn or ivory …” T. Jefferson, Letter to Isaac McPherson (Aug. 1813), VI Writings of Thomas Jefferson, at 181. Presumably this statement was not based on a learned treatise suggesting cast-iron ploughs but the common understanding at the time that cast iron was a general substitute for wrought iron in the latter’s many applications.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

severely handicapped in its ability to make rejections based on the obviousness of a substitution.

A corollary to the common-general-knowledge principle involves the combining of ideas from different sources. Every invention at some level is a combination of old elements. Again, experience has shown that truly non-obvious inventions will be denied patent protection unless the decision maker guards against the use of hindsight.19 USPTO policy reflects this concern. Based on Federal Circuit and Court of Customs and Patent Appeals (CCPA) holdings, MPEP 2143.01 states that “[t]he mere fact that references can be combined or modified does not render the resultant combination obvious unless the prior art also suggests the desirability for the combination.” Again, the poverty of the published literature on business methods makes it difficult for the USPTO to make obviousness rejections.

If the problem of the non-obviousness standard’s application to business method inventions is lack of access to published information regarding the common general knowledge in the field at a particular time, that knowledge is best provided through testimony (affidavit or live) by those active in the field at the relevant time. Consideration should therefore be given as to how the USPTO could obtain such testimony.

Patent applications are examined ex parte in secret between the applicant and the USPTO. The USPTO does not employ experts to provide evidence that might support an obviousness rejection. One approach would be to change this practice to admit the testimony or written opinion of the USPTO-appointed experts. This would, however, prolong the patent prosecution and make it more expensive. Perhaps more importantly, there are significant concerns regarding the USPTO’s ability to maintain the impartiality it should have respecting the merits of an application. The examiner already plays the dual role of adversary and “judge” during the examination process. It is likely that the USPTO’s testimonial evidence will be contradicted by testimony submitted by the applicant. It may not be wise to have the USPTO act as the decision maker resolving the competing evidence where one of the sources is an expert retained by the USPTO itself. This concern is particularly compelling in view of the recent Supreme Court decision, Dickerson v. Zurko,20 which held that on appeal the courts will have to affirm any

19  

An example is In re Fine, 837 F.2d 1071 (Fed. Cir. 1988), which involved a system for detecting and measuring certain nitrogen compounds by using a gas chromatograph, a converter to oxidize the nitrogen compounds into nitric oxide, and a nitric oxide detector. Two previous references were relevant; one disclosed an analogous approach to monitoring certain sulfur compounds, and the other described nitric oxide detectors. Although the examiner and the Board of Patent Appeals thought it obvious to substitute the nitric oxide detector in the system, the Federal Circuit found that there was no support for such a conclusion. The USPTO had not demonstrated that the idea of the combination of teachings was within the state of the art.

20  

527 U.S. 150 (1999) which reversed and remanded In re Zurko, 142 F.3d 1447 (Fed. Cir.1998).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

USPTO finding of fact (for example, what was part of the common general knowledge) unless there was no substantial evidence to support the finding. Merely disagreeing with the USPTO on how the evidence should have been weighed will not be a basis for reversal. The testimony of the USPTO’s witness would almost always meet the substantial evidence test.21 Thus, the use by the USPTO of retained experts during examination does not appear to be a workable solution.

Elsewhere in this report the committee has proposed the implementation of an efficient process in the USPTO by which third parties could challenge the validity of an issued patent. This process, which we call Open Review, would be a preferable method of bringing testimony regarding the common general knowledge to the attention of the USPTO. The parties affected by the patent will likely be in the best position to obtain testimony from those working the field at the relevant time. The USPTO will not have a vested interest in either side’s experts. Further, since obtaining and evaluating testimony requires more resources than conventional patent prosecution, the Open Review forum will tend to confine those costs to cases in which the patent is of some market importance.

It may be argued that the case of business methods is not only unique but transitional and therefore of little broader significance. We are not confident on either score. Some of the apparently obvious patents listed in Chapter 3 appear to have the same characteristic and therefore may have been approved not carelessly but under the prevailing rule that references should not be combined for the purpose of proving non-obviousness unless the examiner can point to a specific piece of prior art that says the references should be combined. The business methods arena lacks a publication culture but even where such a culture exists, scientists, artisans, and creative people generally speaking strive to publish non-obvious information. So if it is obvious to those of skill in the art to combine references, it is unlikely that they will publish such information. It is therefore difficult to imagine that another class of patent applications will not pose the same issue in the future. In the meantime, with business methods patent grants, it is true that there will be a steady accumulation of patent prior art. But even it will be limited if the United States remains the only major country issuing business method patents. Moreover, given the great variety of business method applications, the lack of nonpatent published information may remain a significant handicap in assessing obviousness.

21  

USPTO reliance on expert witnesses raises additional concerns. One concern is whether the office would have to disclose to the applicant any contrary expert opinions it has obtained; in much the same way the applicant must disclose adverse information to the USPTO under the duty of disclosure. It is also questionable whether the USPTO would have access to those persons most knowledgeable about the state of any art. Such individuals may be competitors of the patent applicant. Thus, it will be problematic to retain them for the secret examination process. These are the types of individuals the applicant wishes to exclude.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Non-Obviousness and Gene Sequence-Related Inventions

One basis for rejecting an invention for obviousness has been to allege that the invention was “obvious to try.” This test has been rejected by the courts because it penalizes those who devise a sensible plan of research by exploring the paths most likely to succeed. Particularly when success of the chosen path was not assured, eliminating the patent incentive in such a circumstance was recognized as contrary to the purpose of the patent system. The courts, therefore, have held that an invention is only obvious and unpatentable when the obvious route to try is coupled with a “reasonable expectation of success.”

One of the earliest Federal Circuit decisions in the field of biotechnology, In re O’Farrell,22 found that an invention related to gene expression was unpatentable under the above test even though success was not assured. The O’Farrell court dealt with how high the “reasonable” bar should be set and set it quite low. The court found that the inventors’ own prior publications with similar systems expressing “nonsense” sequences in E. coli provided a reasonable expectation that actual gene sequences from an exogenous source would be expressed into functional proteins. This decision made the obviousness standard easier to use in rejecting applications.23 The USPTO has applied this standard for biotechnology in general.24

If the early technical advance of O’Farrell in the relatively unpredictable period during which recombinant gene expression was still being worked out was obvious under the above standard, it is a fair question to ask why are not most of the gene sequences from the human genome project obvious and therefore unpatentable. After all, the technical question presented by the genome project was not whether the human genome could be sequenced, but which group would finish first. The sequencing of the genome, and other collections of mass sequence-related data (for example, expressed sequence tags [ESTs]) would appear to be obvious to try with a reasonable expectation of success.25 The reasonable expec-

22  

853 F.2d 894, available at 7 U.S.P.Q.2d 1673 (BNA) (Fed. Cir. 1988).

23  

The Supreme Court’s decision in Dickerson v. Zurko, 527 U.S. 150 (1999) should further strengthen the USPTO’s position in making obviousness rejections under the reasonable expectation test. Several of the key issues underlying the obviousness test are factual issues, namely the content of the prior art, level of skill in the art, expectation of success, and motivation to combine prior art. Thus, applicants will have a difficult time overturning adverse USPTO decisions if there is any reasonable evidentiary basis to support an expectation test.

24  

For example, the obviousness standard has defeated patentability for novel monoclonal antibodies prepared against known antigens using routine techniques. Ex parte Erlich, 22 U.S.P.Q.2d 1463 (BNA) (Bd. Pat. App. & Int. 1992).

25  

The law permits an applicant to overcome a presumption of obviousness if an applicant can demonstrate an unexpected or superior property of the claimed invention not shared by the prior art. In re Papesch, 315 F.2d 381, 137 U.S.P.Q. (BNA) 43 (CCPA 1963); In re Dillon, 919 F.2d 688, 16 U.S.P.Q.2d (BNA) 1897 (Fed. Cir. 1990). Thus, patentability for a new gene might lie in the discovery of an unexpected or superior property of the gene, or more likely, the protein it encodes. Many

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

tation test has not been applied because a pair of Federal Circuit decisions dealing with cloning inventions from the 1980s created a de facto rule of per se non-obviousness for a novel genetic sequence.

The In re Bell decision is illustrative.26 The USPTO in that case argued that a defined gene sequence was obvious from prior art, including the sequence of the encoded protein and a general method of cloning. The inventor argued that the prior art relied upon by the USPTO did not suggest all of the modifications to the cited cloning technique to make it operative and that the USPTO had, without supporting evidence, deemed such modifications within the ordinary skill of the field. The Federal Circuit, rather than merely find that the prior art did not provide, for example, sufficient information to make success a reasonable expectation, went one step further. It applied obviousness concepts developed for synthetic chemical compounds.

In Bell and then In re Deuel27 the court held that a gene is just another type of chemical compound and the issue for non-obviousness is the structure (that is, sequence) of the gene. Unless the sequence is predictable from the prior art, the gene is non-obvious. The court created a per se rule that the obviousness of obtaining the gene could never be relevant to patentability. This per se rule is highly unusual and flies in the face of significant Federal Circuit precedent rejecting the creation of any per se rules relating to non-obviousness.28

In the synthetic chemical field the invention usually resides in the design of the new compound. The method of making the compound might be an additional technical hurdle that adds to patentability, but usually a method is obvious once the compound is designed. Thus, the ease or difficulty of making a newly designed compound could add to its patentability but could not defeat patentability of a compound the structure of which was non-obvious.29 According to current doctrine in synthetic chemistry, the focus of patentability is the non-obviousness of the chemical structure. The fact that if someone had the design they would know how to make the compound has no bearing on patentability.

   

genomics patents, however, only speculate as to usefulness of the novel gene. Such speculation ranges from a virtual “laundry list” of potential applications to a more specific routine comparison of the novel gene to genes of known function. Such speculation is itself obvious and routine and, since it is based on well-known techniques, should not be considered the discovery of an unexpected or superior property.

26  

In re Bell, 991 F.2d 781, available at 26 U.S.P.Q.2d 1529 (BNA) (Fed. Cir. 1993).

27  

In re Deuel, 51 F.3d 1552, available at 34 U.S.P.Q.2d 1210 (BNA) (Fed. Cir. 1995).

28  

In re Ochiai, 71 F.3d 1565, available at 37 U.S.P.Q.2d 1127 (BNA) (Fed Cir 1995); In re Pleuddemann, 910 F.2d 823, available at 15 U.S.P.Q. 2d 1738 (BNA) (Fed. Cir. 1990); In re Durden, 763 F.2d 1406, available at 226 U.S.P.Q. 359 (BNA) (Fed. Cir.1985).

29  

There is one situation when the obviousness of how to make a synthetic chemical invention is highly relevant. A patent can be obtained for a compound the structure of which is disclosed in the prior art if there was no obvious way of making it. The prior art must be enabling for it to be novelty destroying. A hypothetical compound that cannot be made is clearly not in the public domain.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Contrast this with genomics. In this field the structure of the compound is generally not novel, even in the patent sense. The gene sequence exists in nature. To qualify as novel the sequence is claimed in forms not found in nature (for example, purified composition, attached to a radioactive label, or attached to an rDNA expression vector). There is no technical issue with the non-obviousness of the sequence’s design, as this is not the result of human ingenuity. The technical hurdle in this field is determining (i.e., cloning) the sequence.

All other industrialized countries approach the non-obviousness of novel genes by focusing on the technical hurdle the inventors faced—cloning the gene. For example, the European Patent Office (EPO) in the counterpart application for the Bell invention, found that the gene in question was obvious (i.e., lacked inventive step) because it believed there were obvious methods available to clone it.30 The EPO has also taken a strict stance on the obviousness of recent genomics invention. They recognize that generally there is nothing inventive per se in obtaining such sequence. The current view of the EPO is that a genomics invention will only have an inventive step if the applicant can demonstrate either that obtaining the sequence was in fact a technical achievement or that they have discovered a new or unexpected property associated with the gene. Genomics-based inventions are, therefore, not patented as frequently in foreign patent systems.

Ironically, the European approach is analogous to another U.S. patent law doctrine in synthetic chemistry—the doctrine of structural obviousness or the Hass-Henze doctrine.31 Under this doctrine the courts recognized it was within the state of the art to make certain structural changes to a prior art compound and to expect the new compound to have similar properties. For example, if a prior art herbicide is a large aromatic hydrocarbon having a methyl group at a particular ring position, it would be prima facie obvious to substitute an ethyl for the methyl group and expect the new compound to also be an herbicide. The ethyl compound would only be non-obvious if the inventor could show that the ethyl compound was unexpectedly superior relative to the methyl compound or that the ethyl compound had an unexpected property not shared with the methyl compound.

The Hass-Henze doctrine is an example of the non-obviousness standard in practice being tailored to the technical reality of the field of the invention. The European approach to genomics is the same. Just as the Hass-Henze doctrine has worked well for the better part of the 20th century, it can be expected that the European approach to genomics will also be successful over time.

30  

EPO Technical Board of Appeals Decision No. T0475/93-3.3.4 (1997).

31  

In re Hass, 141 F.2d 127 at 130, available at 60 U.S.P.Q. 552 (BNA) (CCPA 1944); In re Henze, 181 F.2d 196, available at 85 U.S.P.Q. 261 (BNA) (CCPA 1950); In re Papesch, 315 F.2d 381, available at 137 U.S.P.Q. 43 (BNA) (CCPA 1963); In re Dillon, 919 F.2d 688, available at 16 U.S.P.Q.2d 1897 (BNA) (Fed Cir 1990). See generally, 2-5 Chisum on Patents § 5.04 [b].

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Novel gene patents have been limited in scope as a consequence of a heightened disclosure requirement created in a controversial decision by the Federal Circuit in Regents of the University of California v. Eli Lilly & Co.32 By narrowing the scope of some gene patents to the actual sequence disclosed it is possible that Lilly might inherently prevent patents on some technologically obvious genes for which Bell would otherwise permit a patent. This, however, is not an adequate solution. First, there is still a loss from the public domain of the sequences described in the patent. Second, patent attorneys have adapted their style of drafting to create claims to genera of DNA molecules that meet the Lilly standard even though the patent’s specification discloses a single DNA molecule.33 Third, the Lilly decision, like the Bell and Deuel decisions before it, abandoned the “person of ordinary skill in the art” standard for testing adequacy of disclosures in the former case and testing obviousness in the latter. These decisions substitute a rigid rule as to what the ordinarily skilled person is capable of at a particular point in time, thus crippling the patent law’s ability to evolve over time with the technology. There is a substantial risk that if this trend continues, patent law will not be able to balance effectively the obviousness and disclosure requirements so that only patents of appropriate scope for non-obvious inventions are granted.

32  

In Regents of the University of California v. Eli Lilly & Co., 119 F.3d 1559, 43 U.S.P.Q.2d (BNA) 1398 (Fed. Cir. 1997), cert. denied, 523 U.S. 1089 (1998), the court held that a patent application containing the sequence of rat insulin cDNA and a protocol on how to clone the closely related human cDNA was invalid to the extent the claims went beyond the rat cDNA because of deficiency in the patent’s disclosure. Surprisingly, the protocol to clone the human cDNA was not found to be lacking in enablement and presumptively put the human cDNA into the public domain. The continuing viability of this case has been called into serious question by other members of the Federal Circuit. See, for example, Enzo Biochem, Inc. v. Gen-Probe, Inc., 63 U.S.P.Q.2d 1618 (BNA) (Fed. Cir. 2002)(opinions by Dyke, J.; Rader, J.; and Linn, J.); Cf. Amgen Inc. v. Hoechst Marion Roussel, Inc., 314 F.3d 1313 (Fed. Cir. 2003) (opinion by Michel, J., joined by Schall, J., refusing to extend Lilly to biological materials generally).

33  

There are several ways that mere drafting by patent lawyers can meet the Lilly standard and recapture scope-of-gene claims without the inventors actually disclosing anything more of substance. It has become accepted practice to define a genus of DNA molecules by a certain percent homology to the disclosed exemplary gene or, even broader, a genus of DNA molecules that encode a protein having a certain percent homology to the protein encoded by the exemplary gene. See, for example, U.S. Pat. No. 6,699,660, “Immediate Early Genes And Methods Of Use Therefore,” assigned to Johns Hopkins University School of Medicine (claims to DNA sequences 90 percent identical to disclosed gene sequence or encoding proteins 70 percent identical to disclosed protein sequence). The USPTO also permits patentees to claim a genus of DNA molecules that hybridize to the gene sequence disclosed in the patent. See USPTO Revised Interim Written Description Guidelines Training Materials, Example 9 (http://www.uspto.gov/web/offices/pac/writtendesc.pdf). Ironically, if the University of California’s patent had been drafted using either of these approaches that arose in response to Lilly, a claim covering a human insulin cDNA would have been patentable even if the technical content of the patent remained unchanged.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

The committee therefore recommends that the USPTO34 and the Federal Circuit abandon the per se rule announced in Bell and Deuel that prevents the consideration of the technical difficulty faced in obtaining pre-existing genetic sequences and consider adopting an approach similar to other industrialized countries when examining the non-obviousness of gene-sequence-related inventions. For example, the committee believes that the reasonable expectation standard of In re O’Farrell is an appropriate test to apply to gene-sequence-related inventions.

INSTITUTE A POSTGRANT OPEN REVIEW PROCEDURE

In the previous chapter we described several grounds for questioning the validity of some proportion of patents being issued in new areas of technology and newly patented technologies. Low or inconsistent patent standards matter for the following reasons:

  • In contrast to incentives to genuine innovation, patents on trivial innovations may confer market power or allow firms to use legal resources aggressively as a competitive weapon without consumer benefit.

  • Poor patents could encourage more charges of infringement and litigation, raising transaction costs.

  • The proliferation of low-quality patents in a technology complicates and raises the cost of licensing or avoiding infringement.

  • The uncertainty about the validity of previously issued patents may deter investment in innovation and/or distort its direction.

There are many ways to address patent quality, and elsewhere we consider those related to standards interpretation and the rigor of the USPTO examination process, which is in part a function of resources. Although it is important to conduct reasonably thorough examinations of patent applications, and needed improvements will cost more than we are now spending, given the volume of applications and the fact that only a small percentage of issued patents achieve any commercial importance, there is a point beyond which it is not practical or economical to invest all of the resources that would be needed to ensure uniformly rigorous and timely examination (Lemley, 2001). Nor can the courts be expected to review patents’ validity in a timely, efficient manner. Typically, litigation does not occur until 7 to 10 years after a patent is issued and resolution

34  

The USPTO has declined to apply the Bell per se rule in at least one instance. Ex parte Goldgaber, 41 U.S.P.Q.2d 1172 (BNA) (Bd. Pat. App. & Int.1996). In that case the prior art was a patent that had an actual example of isolating a new protein and a paper example of how to clone it. Goldgaber claimed the gene. The applicant did not appeal this decision to the Federal Circuit, so it is not known whether the USPTO’s approach would have been accepted by the court. Nevertheless, it is believed that the USPTO has not been following Goldgaber when examining the obviousness of recent gene-related inventions.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

is often delayed another 2 to 3 years. The costs of litigation have been documented above.

Another method of improving quality is to weed out invalid patents or revise and narrow the claims of patents by an administrative process after they are issued.35 Since 1981 the United States has had such processes, known as re-examination, which are available at any time during a patent’s period of enforceability. Re-examination has two forms—ex parte re-examination initiated by a patent holder, the director of the Patent Office, or a third-party challenger who plays no role in the examination and appeal stages of the proceedings; and inter partes re-examination, in which the challenger may participate but until recently has been barred from appealing issues raised and decided in the administrative proceeding.36 Almost one-half of ex parte re-examinations are sought by patent holders hoping to strengthen their patents, usually in the face of newly revealed prior art (Graham et al., 2003). USPTO-initiated re-examinations are very infrequent responses to criticism of issued patents, some of them having been subject to ridicule. Because of the limitations on appeals, inter partes re-examinations have also been rare; there were fewer than 25 requests in 2003. Challengers are loathe to forfeit an opportunity to litigate all of the potential validity issues if accused of infringement.

Although that disincentive has been removed,37 re-examination has another serious drawback. Re-examination may be requested only on the basis of new prior art or prior art considered in the original examination that raises a substantial new question. Issues of patentability, utility, and the adequacy of written description and enablement, which are problematic to varying degrees in different technologies, may not be addressed in re-examinations, only in litigation.

The committee recommends that Congress seriously consider legislation creating an Open Review procedure, enabling third parties to challenge the validity of issued patents on any grounds in an administrative proceeding within the USPTO.38 It is crucial to its effectiveness that the system provide more timely, lower cost, and more efficient review of granted patents and a wider range of

35  

For reasons of economy and efficiency, the committee rejected expanding pre-patent opposition beyond existing opportunities for third parties to submit prior art. Under pre-grant challenges, if exercised, the cost of patent prosecution and the delays in patent issuance could escalate, whereas the objective of our recommendations is to reduce them. Furthermore, we believe it is more efficient to focus challenges on patent claims as issued rather than claims as originally drafted.

36  

35 U.S.C. § 301-07 (1980) (ex parte re-examinations) and 35 U.S.C. § 311-18 (1999) (Inter partes re-examination). See Mossinghoff and Kuo (2002) for a discussion of the features and history of these procedures.

37  

Effective for re-examinations begun on or after November 2, 2002, a third-party requester in an inter partes re-examination proceeding can appeal to the Federal Circuit a decision by the Board of Patent Appeals and Interferences or to participate in an appeal of a BPAI decision by the patent owner.

38  

A postgrant challenge procedure has been endorsed as part of the USTPO’s 21st Century Strategic Plan and recommended by the Federal Trade Commission (2003) in its report on an extensive series of hearings on patents and competition policy.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

remedies than the courts are able to provide. If carefully designed and adequately funded, addressing the entire range of patent quality issues, and not compromised by a conflict of interest, the procedure would represent a superior alternative to either re-examination or litigation.

The details of design will determine whether the system is used, whether it is efficient and fair to all parties, and importantly, whether it is subject to abuses that undermine its purpose. Here we recommend some general features (see also Table 4-1). They do not address all of the legislative considerations:

Process

  • Any third party requesting a review should bear the burden of persuasion, subject to a preponderance of the evidence standard, that the claims of a patent should be cancelled or amended.

  • The Federal District Courts should be able and encouraged to refer issues of patent validity raised in a lawsuit to an Open Review proceeding, confining themselves to resolving issues of infringement. The Department of Justice or the Federal Trade Commission should be able to request the director of the USPTO to initiate a review if they suspect that an invalid patent or patents are being used to adversely affect competition.

  • The requesting party would pay a fee, but the challenger and the patent holder would each pay their attorney fees and other costs.

  • The challenger would, of course, have access to the history of the patent’s prosecution.

  • The proceeding would be conducted by an administrative patent judge (APJ) or panel of judges of the U.S. Patent and Trademark Office.

  • The APJ would have discretion to allow limited discovery,39 live testimony of experts, and cross-examination.

  • Subject to the Administrative Procedures Act, the USPTO would have broad authority to design procedures drawing on the best practices of other countries but aimed at speed, simplicity, and moderate cost. It should do so in consultation with professionals steeped in the details of the current administrative proceedings—re-examination, re-issues, and interferences—and familiar with their drawbacks.

  • In rare cases, circumscribed in regulation, the USPTO should have discretion to continue an Open Review even if the parties decide to settle their disagreement.40

39  

A principal source of delays and high costs in litigation, discovery, if permitted, must be carefully circumscribed if the benefits of Open Review are to be realized.

40  

Offsetting the desirability of preventing “collusive” settlements is the need to avoid discouraging potential challengers from using the procedure if they do not have the option of settling a dispute before Open Review has run its course.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

TABLE 4-1 Principal Features of U.S. Patent Re-examination, European Opposition, the Proposed U.S. Open Review Procedure, and U.S. Patent Litigation

 

SYSTEM

FEATURES

Original U.S. Re-examination (ex parte)

Revised U.S. Re-examination (inter partes)

European Opposition System

Committee Recommendation for an Open Review Procedure

U.S. Litigation

Process

  • Timing of initiation

During patent term

During patent term

Within 9 months of issue

Within 12 months of issuea

During patent term

  • Third-party participation

Initiate and respond to patent owner statement (if filed)

Yes

Yes

Yes

Yesb

  • Discovery

Noc

Noc

No

Discretionary

Yes

  • Live testimony

Nod

Nod

Yes

Yes

Yes

  • Presumption of validity

Noe

No

Yes

No

Yes

  • Who conducts

Examiner (original only if no other option)

Examiner (original only if no other option)

3-member examiner panel (including original)

USPTO administrative law judges

District court judge

  • Case referrals by courts and enforcement agencies

No

No

No

Yes

Not applicable

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Issues

  • Not patentable subject matter

Only for amended/ new subject matter

Only for amended/ new subject matter

Yes

Yes

Yes

  • Novelty or prior art

PA not examined or PA of record if substantial new question

PA not examined or PA of record if substantial new question

Yes

Yes

Yes

  • Non-obviousness or inventive step

Yes

Yes

Yes

Yes

Yes

  • Utility

Only for amended/ new subject matter

Only for amended/ new subject matter

Yes

Yes

Yes

  • Scope of claims

Only for amended/ new subject matter

Only for amended/ new subject matter

Yes

Yes

Yes

  • Written description/enablement

Only for amended/ new subject matter

Only for amended/ new subject matter

Yes

Yes

Yes

  • Ambiguity of claims

Only for amended/ new subject matter

Only for amended/ new subject matter

Yes

Yes

Yes

Outcomes

  • Confirm, cancel, or amend scope of claims

Yes

Yes

Yes

Yes

Only confirm or cancel

  • Appeal to

USPTO administrative law judges and Federal Circuit (for both levels of appeals, patent owner only, not third party)

USPTO administrative law judges (patent owner or third party)

Technical Board of Appeals

Federal Circuit

Federal Circuit

  • Third-party future challenge restricted

No third-party challenges; new ex parte request must raise new question of patentability

Yes (on any ground third party raised or could be raised)

Only possible in national courts

No

No

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

 

SYSTEM

FEATURES

Original U.S. Re-examination (ex parte)

Revised U.S. Re-examination (inter partes)

European Opposition System

Committee Recommendation for an Open Review Procedure

U.S. Litigation

Duration and Costs

  • Average duration of proceeding

2 years

Insufficient experience

2.1 years (opposition)

2.6 years (appeal)

1 year (objective)

31 months

  • Fees

$2520 per request

$8800 per request

€613

Yes (amount not specified)

 

  • Average or median costs of each party

$10,000-$100,000

Insufficient experience

€30,000-50,000 (both parties)

Not estimated

$1-3 million

  • Paid by

Parties

Parties

Parties

Parties

Litigantsf

aCommittee majority recommendation; minority supports anytime during patent life.

bThird party cannot initiate a challenge on validity or infringement unless there is a reasonable apprehension of suit by the pa tentee.

cCopies of discovery document from litigation may be submitted during the proceeding.

dTranscript of testimony from litigation may be submitted during the proceeding.

eUSPTO Director may initiate based on information provided by enforcement agencies.

fCosts may be assessed to the losing party in some cases.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×
  • The review procedure would substitute for inter partes- and third-party-initiated ex parte re-examination.

Issues and Outcomes

  • Validity could be challenged on any ground—that the invention is not patentable subject matter, is not novel, is obvious, lacks utility, or is not properly disclosed.

  • Matters previously considered by the patent examiner could be reviewed.

  • The outcome would be a confirmation, cancellation, or amendment of the claims in dispute, but claims could not be broadened in a review proceeding.

  • Either party could appeal the APJ’s decision, first to the Board of Patent Appeals and Interferences, and then to the Court of Appeals for the Federal Circuit. Appeal to the Federal Circuit would invoke estoppel.

The committee is not of one view on the important issue of whether patents should be subject to challenge and review for only a limited time after they are issued, as is the practice in Europe, or for as long as they remain in force. A majority of members recommends that the window for a challenge should be limited to one year from the date of grant so that uncertainty is reduced later in the patent’s life. Whenever a patent holder alleges infringement, however, either by filing suit or by notification of an intention to file suit, the review procedure should be available to an accused infringer for a reasonable time. In other words, a review initiated after the one-year window closes would be triggered by an action of the patent holder. A presumption of validity would adhere to a patent after the one-year window closes or to a patent that survives a challenge or is amended in a review proceeding.

A minority of committee members takes strong exception to any time limitation on the exposure of a patent to challenge and review even if the option remains available to an accused infringer. Patents are sometimes issued on speculative utility claims and viewed by others as having no commercial value until another innovator subsequently discovers a valuable utility. By then it might not be possible to challenge the original patent and open the possibility of patenting the valuable utility if the window had closed and the patent owner had not yet attempted to enforce it. Perhaps more frequently, a time limitation would discriminate in favor large companies and institutions with the resources to monitor what patents are being issued. The proponents of having no limitation further point out that although in the EPO opposition system a challenge must be filed within nine months of grant, anyone has standing in most European national patent systems to attempt to invalidate a patent through litigation. In the United States such standing is limited to accused infringers. Obviously, Congress should fully evaluate these opposing positions in considering legislation to create an Open Review system.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

In a formal analysis in the accompanying volume of STEP-Board-sponsored research, Levin and Levin (2003) make a strong theoretical case for the welfare gains of adopting an Open Review procedure. These include the prevention of unwarranted monopoly profits, the alignment of patent costs and benefits to genuine novelty and utility, and the reduction in uncertainty for all participants in the relevant market. These benefits depend heavily on two effects or characteristics of the system—first, that it tends to substitute for rather than lead to litigation and, second, that it is less expensive and faster than litigation. It is also conceivable that Open Review, even though it replaced litigation in many cases, could be so popular that its total costs would exceed the costs of litigation, but this outcome is unlikely.41

Open Review would be consistent in most basic features with the opposition system available in Europe and other countries (see Table 4-1). In the detailed empirical comparison of re-examination and opposition supported by the STEP Board, Graham and colleagues (2003) find considerable evidence that opposition works reasonably well in many respects. For example, it is used with some frequency. Slightly more than 8 percent of European patents were opposed in the period studied, 1981-1998. Moreover, using citations in other patents as an indicator of value, the opposed patents are more commercially important than the unopposed patents. Finally, the system produces significant changes in outcomes even though the European Patent Office examination process is generally highly regarded for its thoroughness and rigor. Fully one-third of opposed patents are invalidated, and another one-third are amended in the course of opposition. In subsequent research Harhoff (2003) finds evidence from Europe supporting the Levins’ prediction that the use of opposition will substitute for subsequent litigation over validity if the process is cheaper, even if it may not be speedier.42

Graham and colleagues do, however, confirm testimony of EPO officials to the committee that the agency’s opposition process is subject to delays, as long as several years. In fact, the average length of time between patent issuance and the conclusion of opposition is approximately the same as the average time between issuance and the conclusion of litigation in the United States. This appears to be largely a function of the ability of either party in an opposition to extend deadlines for actions indefinitely—a state of affairs that we think should be precluded in the careful design of a U.S. system. Thus, either by legislation or by regulation, Open Review procedures should tightly constrain the schedule to ensure both the timeliness and the lower cost of the process compared with litigation. In particular,

41  

The proportion of patents opposed in Europe is probably higher than it would be in the United States, because the European procedure is the only way to invalidate a patent in all European Patent Convention signatory countries. Enforcement and validity determinations through the courts are on a national basis. Nevertheless, it is impossible to predict usage rates without knowing how attractive the features of Open Review make it relative to litigation and relative to foregoing a challenge altogether.

42  

Again, this experience may not translate to the United States because of system differences.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

time limits should be set for discovery and other information-gathering activities and for all responses to actions by the presiding judge or panel. The time limits should not be subject to extension for the convenience of one or both parties but only where meeting the time limit would cause a great hardship or where delay is unavoidable. The objective should be to conclude cases within one year of the request.43

It will certainly require additional resources—money, infrastructure, people, and space—to achieve an effectively functioning review procedure in the USPTO; but it should not be assumed that it cannot be done. In fact, it is encouraging that under recent management the Board of Patent Appeals and Interferences has improved the efficiency of its operations, substantially reducing its backlog of cases. We are convinced that when the expanded board is functioning, it will be superior to the district courts in resolving patent validity issues.

In the past, U.S. adoption of a system comparable to opposition has been strongly opposed by some part of the U.S. “independent inventor” community as a potential weapon of large businesses against individuals and small enterprises. Graham and colleagues (2003) show convincingly that this is not so in Europe. Opposed patents are not disproportionately held by small entities nor are large firms disproportionately responsible for initiating oppositions. On the contrary, there is every reason to believe individuals and small businesses would be beneficiaries of an alternative, cheaper, and faster system of resolving patent validity questions. As Lanjouw and Schankermann (2003) show in their chapter of the accompanying volume, it is in litigation that the greater resources of large firms give them substantial advantages both in prosecuting cases to conclusion and in achieving settlements on favorable terms.

We believe that the availability of Open Review, most often occurring within a short time after a patent is issued, will have important side benefits. First, it will encourage firms to review newly issued patents, increasing technology spillovers. Second, it will provide guidance to patent examiners much earlier in the technology cycle than they currently acquire it from court decisions.

STRENGTHEN USPTO CAPABILITIES

The U.S. Patent and Trademark Office is in a double bind. The quality of its output is often questioned and its decisions are widely considered to take too

43  

The importance of this objective is underscored by the experience reported to the committee of one firm faced with multiple EPO oppositions that dragged on for a total of eight years without resolution, seriously undermining the firm’s ability to enforce its patent rights. If the Federal District Courts were inclined to stay infringement proceedings pending the outcomes of unconstrained USPTO reviews, the ability of patent owners to enforce their rights could be delayed even longer. The USPTO is sensitive to the need to expedite review proceedings, noting in documentation supporting the 21st Century Strategic Plan that electronic filing and processing of cases would contribute to this objective.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

much time. The current discussion of the patent fee structure, fee revenue, and USPTO appropriations suggests that many observers believe that the answer lies mainly in providing more financial resources. We believe that more resources are clearly required but that a careful assessment of needs and priorities should precede a determination of how much more. As our committee was not charged nor appropriately constituted to conduct a thorough management review of the USPTO, our list of needs and priorities is not comprehensive nor have we estimated its cost. Nevertheless, we believe the following steps hold the greatest promise for improving performance.

Personnel

In recent years the number of examiners has not kept pace with the increase in the number and complexity of applications, while employee turnover has been rising. Thus, a relatively smaller, more inexperienced workforce is faced with a growing backlog of applications. Congressional appropriators, skeptical of USPTO management, have grown increasingly reluctant to authorize higher personnel ceilings although they have given the office greater flexibility in pay scales to attract new recruits and retain current employees. To relieve their dilemma, administrators resorted to what we considered dubious solutions in the first version of their 21st Century Strategic Plan. First, they proposed to privatize most of the prior art searches by directly contracting or requiring applicants to contract for such services from performers yet to be identified. Second, they proposed to measure application pendency from the initiation of examination following completion of the search process. The plan assumed that the elimination of examiner searches would save on average four hours of examination time, while the new measure of pendency would reduce the average time to disposition from 24 months to 18 months over a period of time.

These proposals generated vigorous criticism at our August 2002 conference and elsewhere. The principal objection was that prior art searching is an integral part of the examination to determine novelty and non-obviousness and that separating the two functions would almost certainly further degrade patent quality. The examiner’s need to be familiar with and evaluate the reported prior art would reduce any time saving; hence, the expected reduction in pendency was an arbitrary artifact of redefining the term, not a real gain. As a result of the criticism the USPTO announced that it would conduct a modest-scale, monitored experiment with contracted searches, and it abandoned the redefinition of pendency. We believe that was a wise recourse.

The episode nevertheless underscores the fact that in a patent examination system, as opposed to a patent registration system without any quality control, there is no substitute for having adequate numbers of trained personnel with sufficient time to exercise their considered judgment on the cases assigned to them. Although we do not know how many more examiners are needed to perform

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

quality searches on fewer applications in less time, we are confident that the current number is inadequate to handle the workload now and for some time to come. Other steps may need to be taken to improve examiner competency and reduce turnover.

Electronic Processing

After a series of false starts, the USPTO opted to adopt the European format for storing patent applications in electronic form. The office is working with the EPO to standardize electronic filing in order to increase its usage. This has the advantage of reducing the burden on multinational patent applicants although the format has the distinct drawback of not permitting full-text searches. The USPTO is now implementing an electronic file wrapper and an electronic filing system. The electronic file wrapper allows all those who needed to work on an application anywhere in the USPTO to access the application at their desktops. Among other benefits, this prevents considerable loss of time spent in searching for applications that are moved from one examiner’s office to another. From a quality standpoint an electronic file wrapper could include mechanisms for presearching sections of the application against the patent and possibly nonpatent prior art databases using sophisticated language structure searches as opposed to simple word searches. It could also allow for quickly searching claims or phrases in claims against the specification to locate critical parts of the specification without having to read it in its entirety. Another useful capability would be to electronically search the information disclosures submitted by the applicant. In all likelihood other useful capabilities could be developed.

After the 18-month publication of the patent, the electronic file wrapper should be publicly accessible, so that interested parties can follow the examination and better anticipate its results. Even if this might not encourage the submission of patent-defeating or claim-limiting prior art known to competitors, it would inform their decisions about whether to file an Open Review request. It might also be an incentive for the examiner to exercise more care and maintain a more complete record of the examination process. One of the common occurrences in patent prosecution that should be much better documented is in-person or telephone negotiations between examiners and applicants’ representatives.

Analytical Capability

The USPTO needs a robust multidisciplinary analytical capability with economic, statistical, management, and program evaluation expertise. The agency currently has a small staff engaged in technology assessment and forecasting. In the past this office performed useful analysis of new technology emergence and patenting rates and their impact on USPTO staffing needs. But now the tasks required are much more substantial and the expertise needed more diverse. The

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

first function of an improved analytical capability is indeed to provide an “early warning system” to help the USPTO anticipate the emergence of new technologies being proposed for patenting. The importance of this capacity is threefold. First, it will help inform decisions to amend the patent classification or create a new technology category or class. Second and closely related, it will inform decisions about hiring or training or reassigning supervisors, examiners, and classifiers. Third, it will help the USPTO anticipate the need to develop or acquire information sources on nonpatent prior art or to hold applications until such resources are obtained and examination issues resolved. If the recent decision of the USPTO leadership to contract out patent application classification in any way undermines the office’s ability to detect and respond to the emergence of new technologies, it should be reconsidered.44

A second function of improved analytic capability would be to inform management and evaluate proposed administrative changes. The far-reaching reforms proposed in the first 21st Century Strategic Plan were remarkable for their lack of analytical and empirical support. Take as one example the outsourcing of prior art searches. What private resources were already available? What would prices have to be to induce new investment in high-quality search capabilities? How big an increase in costs would there be for different classes of inventors? How would outsourcing affect examiner behavior and time allocation? How would it affect the quality of examination? Answers to these questions were either lacking or guesswork.

The same was true for proposed fee schedule changes, with great potential to affect examination and patent quality either positively or negatively. What would be the impact on application volume of raising fees across the board? Would substitution of an examination fee for the current application fee affect the volume of applications? How would punitive fees on submitting multiple claims in a single application affect drafting? What would be the effect on different technology classes? What are the economics of changing maintenance versus application fees? These critical questions, too, begged for analysis.

44  

Some guidance on how to recognize new areas of technology is provided by the Manual of Patent Examining Procedure (MPEP) Chapter 700, section 704.11, stating criteria for requiring submission of information “reasonably necessary to the examination or treatment of a matter in an application.”

(a) The examiner’s search and preliminary analysis demonstrates that the claimed subject matter cannot be adequately searched by class or keyword among patents and typical sources of nonpatent literature, or (b) either the application file or the lack of relevant prior art found in the examiner’s search justifies asking whether the applicant has information that would be relevant to the patentability determination. The first instance generally occurs where the invention as a whole is in a new area of technology that has no patent classification or has a class with few pieces of art that diverge substantially from the nature of the claimed subject matter. In this situation the applicant is likely to be among the most knowledgeable in the art, as evidenced by the scarcity of art, and requiring the applicant’s information of areas of search is justified by the need for the applicant’s expertise. At a minimum, there needs to be a procedure for aggregating such information from examiners in an art unit or related art units.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

A third function of an improved analytical capability would be to support a reliable, consistent, reputable quality assurance process, including determining what the sampling rate and frequency should be across art units and what the evaluation procedure should be. Although such a process should itself be subject to continual improvement, the variability in sample size (and therefore the organizational level at which one could draw a statistically valid conclusion) in recent years should be eliminated. A well-designed quality review process that remains consistent over time is best able to provide useful, credible results to examiners and the public. It can greatly inform if not settle debates about trends in patent quality.

Financial Resources

We cannot precisely estimate the additional resources required to implement our recommendations, but we can order both the budget increases and the budget savings that would be entailed as follows (see Box 4-1).

It is clear that the current budget of the USPTO does not suffice to accomplish these objectives. The patent bar has focused much attention on the fact that for the past several years the fees collected from patent applicants and patent holders have exceeded congressional appropriations to the USPTO by a sub-

BOX 4-1
Committee Recommendations with Implications for USPTO Resource Requirements

Recommendation

Savings

Additional Cost

Institute Open Review procedure

 

Significant

Eliminate third-party re-examinations

Small to moderate

 

Eliminate interferences

Small to moderate

 

Expand examiner corps

 

Substantial

Create robust analytical capability

 

Small

Implement electronic file wrapper system

 

Moderate

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

stantial margin. Approximately $638 million in revenue over 10 years and an estimated $100 million in fiscal year (FY) 2004 have been spent on other governmental activities.45 In his FY 2005 budget the President proposes to suspend the practice and devote all of the fees to administration of the office. The corporate patent bar has endorsed an increase in fees provided that none of the revenue is used for other purposes. Certainly these steps would put the USPTO budget closer to what is needed. But it may not be wise to link fee income and expenditures permanently. As a practical matter an abrupt change in the economy could produce a change in revenue but not, given the backlog of applications, a corresponding change in workload. More importantly, Congress should thoroughly consider how fee financing would affect the way the Patent Office conducts its business. Would it, for example, create incentives to issue patents too generously to increase revenue? The patent system serves the broad public purpose of stimulating technological innovation. Its budget should be determined on the basis of what resources are needed to perform the function well.

SHIELD SOME RESEARCH USES OF PATENTED INVENTIONS FROM INFRINGEMENT LIABILITY

In the aftermath of the October 2002 Madey v. Duke University decision of the Federal Circuit Court of Appeals, 307 F.3d 1351 (Fed. Cir. 2002), most organized research using patented inventions is subject to demands for licenses and may in some cases be halted by an injunction or assessed money damages for infringement. Although the lawsuit involved the complaint of a former faculty member against a private university employer continuing to use his inventions, a reasonable interpretation of the court’s opinion is that formal research enjoys no absolute protection from infringement liability regardless of the institutional venue, the purpose of the inquiry, the origin of the patented inventions, or the use that is made of them.

In the judgment of one member of the Federal Circuit, the Madey decision, in combination with a subsequent research exception decision in Integra Lifesciences I, Ltd. v. Merck KGaA,46 cast doubt even on the freedom to investigate into patented inventions to understand them or improve upon them, as had “always been permitted” by the patent system.47

45  

Statement of Intellectual Property Owners Association to the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property (April 3, 2003).

46  

Integra Life Sciences I, Ltd. v. MerckKGaA, 331 F.3d 860 (Fed. Cir. 2003).

47  

Dissent of Judge Pauline Newman in Integra Lifesciences. Indeed, the Federal Circuit on several previous occasions had taken the position that the designing around patents is to be encouraged. See for example, WMS Gaming Inc. v. Int’l Game Tech., 184 F.3d 1339 at 1355 (Fed. Cir. 1999), Westvaco Corp. v. Int’l Paper Co., 991 F.2d 735, 745 (Fed. Cir. 1993), Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268 at 277 (Fed. Cir. 1985), State Indus., Inc. v. A.O. Smith Corp., 751 F.2d 1226 at 1235-1236 (Fed. Cir. 1985).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Although the common law “research exception” from liability claimed by Duke University and upheld by the trial court judge but construed very narrowly by the appeals court may never have been robust, it was widely assumed, especially by academic investigators and research administrators, to shield scientific investigation at universities from lawsuits. The STEP-financed survey of scientists and others involved in biotechnology research and development, conducted before the Madey decision, suggests that there is widespread indifference to the existence of patents on elements of research, leading to frequent infringement. This may help account for there having been fewer acknowledged research hold-ups or delays and less escalation of research costs attributable to the difficulty of gaining access to patented material than some observers had expected (Walsh et al., 2003). Conceivably, the assumption was also prevalent among patent holders and helps account for their restraint in asserting their rights against research performers.

It is premature to speculate whether the Madey decision will result in more frequent patent infringement lawsuits, for example, between patent-holding companies or individuals and universities. There is some evidence that more universities are receiving notices asserting patent rights in 2003 than in 2002.48 These generally take the form of letters from patent owners’ counsel claiming infringement and suggesting or demanding negotiation of licenses or cessation of the activities. Whether these notices are from a few or multiple sources is unclear but perhaps irrelevant. With many more corporations and consultants in the business of asserting patents for royalties, the potential for research disruption and/or cost escalation is present even if the risk of full-blown litigation, injunctions, and damage assessments is not high. The potential disruption or cost will be greater when research institutions are making commercial use of the results of research and/or asserting their patents against commercial enterprises, inviting counter-assertions. Moreover, although some companies and private research sponsors attempt to ensure their freedom of action by examining currently issued patents that may be infringed by a product, service, or research activity, it is much more difficult for university administrations, dealing with large numbers of independent investigators conducting uncoordinated projects supported by multiple sponsors, to exercise such diligence.

The administrative burden on investigators and their institutions and the financial cost of efforts to ensure observance of patent rights could be considerable. At the same time those efforts could be only partially effective because research scientists are often ignorant of the existence of patents. Nevertheless, these are not by themselves compelling reasons to change the outcome of the Madey case. Regulatory requirements serving other objectives—for example, financial accounting, human subjects protection, biosafety—are complicated and costly to implement but have been accommodated by the research system.

48  

See page 76 above.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

We nevertheless believe that there are three other reasons to consider providing some explicit protection from infringement liability. The first has general applicability and relates to Judge Newman’s concern that freedom to work on a patented invention is placed in jeopardy by the recent Federal Circuit decisions. That, as she suggests, would represent a fairly radical change in patent law. The other two reasons have to do with the conduct of fundamental research that advances knowledge and provides the building blocks for useful applications. We described and documented these circumstances in the previous chapter. At present they appear largely confined to biotechnology research, but they may extend to other fields where there is a proximity among fundamental and applied research and product development.

  • First, with the expansion of patenting of research tools the likelihood that research far removed from commercial applications will entail use of proprietary technology may be increasing.

  • Second, at least in biotechnology, restrictions on access to rival-in-use foundational research tools can inhibit realization of their full potential because no single firm can conceive of all of the ways the discovery might be exploited. An example where such restrictions have been imposed, at least for some time, is the BRCA1 gene. Moreover, Henry et al. (2002) find that 68 percent of licenses granted by universities and public labs for genetic inventions were exclusive. The question then becomes what is the net social welfare effect of limiting the number of actors pursuing the development of these technologies.

We believe these circumstances may justify providing some sort of safety valve, but designing a targeted solution is an altogether more difficult matter than deciding whether one is needed. For one thing, not all activities that could be considered research deserve protection. Curiosity-driven inquiry that advances fundamental knowledge perhaps should not be subject to infringement liability, but R&D that is directed at commercializing the patented product should not be free to ignore intellectual property. Where to draw the line is far from obvious. Although much basic research is performed in universities, and companies tend to focus their effects in applied research and development, there is no sharp division of labor, as the Federal Circuit observed in Madey v. Duke University, 307 F.3d at 1362 n. 7: “Duke, … like other major research institutions of higher learning, is not shy in pursuing an aggressive patent licensing program from which it derives a not insubstantial revenue stream.”49

Conversely, many corporate laboratories conduct fundamental research whose results are published in the peer-reviewed scientific literature. So if

49  

The benefits and costs of university patenting and licensing stimulated by the Bayh-Dole Act were discussed in an April 2001 STEP workshop held in conjunction with this project. The full proceedings are available on CD-ROM, Patents in the 21st Century, obtainable from the STEP Board.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

research meriting protection and research not meriting it cannot be clearly distinguished by who performs it or where it takes place, we are left with defining the difference and then trying to apply the definition on a case-by-case basis.

This effort may have been feasible in an earlier era but before the distinctions between basic and applied research or between science and technology broke down. Modern technology is science-intensive and modern science is technology-intensive, with the result that many recent advances are dual in character. Biotechnology inventions, for example, can have immediate applications as diagnostics or therapeutics as well as in research. Mathematical algorithms may function simultaneously as building blocks of knowledge and as bases for commercializable software.

A further complication is that even within the realm of fundamental research there are activities that should not be shielded from liability. An example is the use of research tools whose development depends on the incentive provided by patent protection. How often this is the case is unclear, but however infrequent, here we should encourage, not discourage, the observance of intellectual property to promote investment in the development of new and better research tools. Obtaining licenses to use such technologies may entail an immediate cost in licensing fees and in some cases future costs through reach-through rights, but being denied access to the technologies is not usually a problem because their sole or principal market is research applications.

Other countries have addressed these issues by granting a narrow research exception that hinges on the use of the patented technology rather than the characteristics of the research performer or the intended purpose of the research.50 Article 27(b) of the European Patent Convention of 1975 as reaffirmed in 1989 declares, “The right conferred by a community patent does not extend to acts done for experimental purposes relating to the subject matter of the patented invention.” All European Union members except Austria have incorporated this provision in national law, and in several countries there has been case law interpreting it to mean that researchers of any affiliation may freely use a patented invention to

  • determine whether it functions as claimed in the patent;

  • determine whether something known to work in certain conditions will work in different conditions;

  • discover something unknown about it; or

  • improve upon it.

50  

The following description of European law relies on a presentation by Josef Straus, director, Max Planck Institute for Intellectual Property Law, Munich, Germany, to a workshop of the American Association for the Advancement of Science, Washington, D.C., April 24, 2003 (http://sippi.aaas.org/meetings/04242003/straus_files/frame.htm).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

Our search, although not necessarily exhaustive, suggests that other countries that have a statutory research exception have opted for one of comparable (that is, narrow) scope.51

In the United States, Congress has adopted research exceptions in three contexts—the first for use of copyrighted material under certain circumstances,52 the second for “bona fide” research on plant varieties subject to the Plant Variety Protection Act enacted in 1970, and the third in the 1984 Drug Price Competition and Patent Term Restoration (Hatch-Waxman) Act for clinical testing by a generic pharmaceutical company preparing an application to the Food and Drug Administration for marketing approval of a drug subject to an expiring patent. The closest Congress has come to adopting a general research exception was in 1990 when the House Judiciary Committee reported, but neither house passed, a bill that addressed the research tool issue in different terms from, but with similar effect as, the European legislation. That is, it aimed to protect activity intended to gain new knowledge but not the use of patented inventions as research tools.

It shall not be an act of infringement to make or use a patented invention solely for research or experimentation purposes unless the patented invention has a primary purpose of research or experimentation. If the patented invention has a primary purpose of research or experimentation it shall not be an act of infringement to manufacture or use such invention to study, evaluate, or characterize such invention or to create a product outside the scope of the patent covering such invention.53

Other proposals have been advanced, chiefly by legal scholars. Rebecca Eisenberg (1989) has suggested a three-pronged screen. First, no authorization would be needed to use patented inventions for the purpose of checking the validity of the patent holder’s claims. This would permit a degree of reverse engineering and have the benefit of reinforcing the peer-review norm of Mertonian science. Second, free use of patented technology would be allowed for the purpose improving upon the invention. In Eisenberg’s view such uses would not impinge significantly on the patent holder’s financial interest, because the improved product would fall within the scope of the original patent, and its commercialization would therefore require the negotiation of a license and payment

51  

These include Canada, Hong Kong, Iceland, Korea, and Japan. Memorandum of Amelia Miazad to Pamela Samuelson, November 27, 2001. The European Patent Convention (EPC) provision would not, in all likelihood, have covered the Duke University experiments, at issue in the Madey case, using patented laser equipment as a research instrument, not the object of investigation. It is, however, worth noting that some of the EPC countries have had difficulties making the required distinctions (see United Kingdom Royal Society, 2003). Nonetheless, a proposal along the lines of the EPC has been made for U.S. law (see Strandburg, 2004).

52  

17 U.S.C. § 108(h)(1).

53  

H.R. 5598, the Research, Experimentation, and Competitiveness Act of 1990, introduced by Congressman Robert W. Kastenmeier, 136 Congressional Record, H 7498-99, September 12, 1990.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

of royalties. In contrast, research on superseding products would not qualify for the exception because these products would be in competition with the patentee’s technology and thus undermine the patent reward. Third, no exception would be available for research use of a patented invention where research is its primary market; otherwise, the financial reward of the patent would be directly undermined.

Similarly, Maureen O’Rourke (2000) has recommended a solution, analogous to the fair use defense of copyright law,54 requiring an even more discriminating qualitative and quantitative analysis. Under her proposal the court would consider the following five factors:

  • the nature of the advance represented by the infringement;

  • the purpose of the infringing use;

  • the nature and strength of the market failure that prevents a license from being concluded;

  • the impact of the use on the patentee’s incentives and overall social welfare; and

  • the nature of the patented invention.

First, the court would use these factors to determine whether a patented invention could be used without the patent holder’s consent. A second inquiry, using the same factors but giving additional weight to the type of market failure, would determine royalties.

An alternative, outlined by Rochelle Dreyfuss (2003), a member of this panel, is to enact legislation exempting a “basic” researcher who demonstrates the noncommercial nature of the researcher’s work by agreeing to publish findings promptly and refrain from patenting the discoveries made in the course of using the patented invention. This would be done through the investigator’s institution, which would execute a waiver at the outset of the work. Because research is serendipitous and may unexpectedly result in a commercially important discovery requiring patent protection to induce investment in its development, a “buyout” would be permitted to avoid losing these opportunities. The research institution would negotiate directly with the patentee for a license.

Finally, Katherine Strandburg (2004) has recently proposed a categorical statutory exemption for “experimenting on” a patented invention to improve it, whether the experimentation is commercially motivated or not. For experimental use of a patented research tool she proposes some form of compulsory licensing, after a period (perhaps five years) of complete exclusivity, so that the tool inventor is compensated, but others are free to perform tool-based research. She speculates that the delayed compulsory license will rarely be invoked; rather, it will

54  

The copyright fair use defense, 17 U.S.C. § 107, gives those engaged in socially valuable activities, such as news reporting, teaching, scholarship, and research, the right to use copyrighted material without authorization or payment.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

serve as an incentive for the negotiation of voluntary licenses during the exclusive period.

The Eisenberg and O’Rourke approaches have several advantages. They are finely tuned to the needs of basic research, while preserving the incentives to innovate in technologies useful in research and elsewhere. They do not discriminate between sectors, for example, between for-profit and nonprofit or university and corporate research performers. And they are broadly consistent with other industrialized countries’ policies. It is important to minimize national system differences that may induce or discourage the location of economic activity in one country versus another and that may require eventual negotiation. On the other hand, the distinctions inherent in these proposals are difficult to apply, making the rules less transparent and predictable in application.

Dreyfuss’s approach has the advantage of avoiding the need to characterize the invention or the manner of its use or to distinguish between exempt and nonexempt investigators by allowing researchers to self-identify. The government role would be limited to maintaining a registry of waivers. The procedure would be available to scientists in corporate laboratories, although as a practical matter, it is highly unlikely that an industrial employer would allow its corporate R&D staff to commit to publishing all of their results and forego the possibility of patenting or maintaining them as trade secrets. Explicitly, the Dreyfuss proposal is intended to benefit university science and even in some degree to redirect faculty effort away from work with commercial applications or revenue-generating potential.

The assumption is that faculty and university administrators would in appropriate circumstances agree to forego any institutional interest in or financial benefit from the results of the work. That runs counter to research universities’ growing investment in technology transfer through patenting and licensing, encouragement of faculty to disclose inventions to central administrations, and aggressive pursuit of industry-sponsored research. Thus, one drawback of her proposal, acknowledged by Dreyfuss, is the friction likely to be generated or exacerbated between university administrators and researchers over when the waiver option should and should not be exercised.

The waiver approach also devalues patents, including patents on research tools, by reducing the size of the market and conceivably leading to the development of products that compete with the patented technology. Dreyfuss’s response is that waivers will appeal to the relatively few investigators whose work is truly basic, sharply limiting their impact on patent holders; but in that instance the benefit of shifting effort to more fundamental research and expanding the public domain of research results is also limited. The waiver system is not consistent with the approach taken by other major patenting countries and may require negotiation in the context of patent system harmonization efforts.

The Strandburg proposal suffers from the fact that although it may seem relatively simple to distinguish use of a patented invention to “see how it works”

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

or for the purpose of “improvement” from use of a patented research tool, it may be very difficult in practice. The first two categories should enjoy an absolute exception according to Strandburg, while the latter should not, although it may be subject to compulsory licensing. Is testing a drug against a patented cell receptor “improvement” or “seeing how it works” or is it the use of a tool in precommercial research? If the former, should the drug discoverer be able to file a patent and be exempt from paying royalties? A further drawback is the prevalent hostility in industry and among patent holders generally to any form of compulsory licensing.

The lack of a problem-free formulation does not mean that Congress should not consider the options and try to craft a second-best solution. If it does so, some members of the committee believe that a research exception should be more broadly conditioned than simply requiring a commitment to refrain from patenting the results of the protected research. In this view the conditions should include a showing that the results of the research do not undermine a patentee’s commercial markets, a covenant not to use the research results for commercial purposes, and provision for terminating the exemption if the protected research yields patents that are asserted against another party lacking the exemption.

Realistically, the likelihood that Congress will pass research-exception legislation in the absence of compelling circumstances is small. Accordingly, we recommend consideration of administrative action. The federal government could assume liability for patent infringement by investigators whose work it supports under contracts, grants, and cooperative agreements. Under 28 USCA Sec. 1948(a) the federal government can provide “authorization and consent” to contractors who will access U.S. patents in the course of their funded work in the following manner:

For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.55

The authorization has not often been extended to grantees, although the Department of Energy has exercised this option,56 and at least one federal district court decision inferred that the government had extended authorization and consent to a research grant recipient accused of infringement.57

55  

An alternative legal basis for the government to extend protection to federally supported researchers is the Bayh-Dole Act, under which it may assert a “government use” claim on a patented invention rather than the activity as a whole. This would only shield infringement of a government-supported invention, however, whereas “authorization and consent” could shield the use of any patent.

56  

Communication of Paul Gottlieb, Office of General Counsel, U.S. Department of Energy, (Dec. 16, 2002).

57  

McMullen Assoc. v. State Board of Higher Education, 268 F.Supp. 735, 154 U.S.P.Q. 236 (BNA).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

This approach, too, has advantages and disadvantages. First, it is somewhat discriminating without relying on nontransparent distinctions that are difficult to apply. It is somewhat targeted at the fundamental research end of the R&D spectrum simply because a large proportion of basic research, as defined in government surveys of R&D performers, is financed by the federal government at universities and other nonprofit institutions. Furthermore, by shifting rather than removing infringement liability, the approach is somewhat sensitive, too, to the rights of research tool as well as other patent holders, who may seek damages from the government in the Court of Federal Claims. The Court of Claims has no injunctive relief authority, but that would rarely be an appropriate remedy in a research infringement case, because from these research uses there would rarely be ongoing commercial losses to the patent holder.

Extension of “authorization and consent” to grantees neither departs from nor advances international patent harmonization efforts, because it does not limit patent rights. Perhaps most importantly, it can be implemented under existing statutory authority, either on the initiative of each federal research agency or on a government-wide basis more uniformly by an amendment to the Office of Management and Budget Circular A-110, which specifies the generic administrative terms of grant relationships between the federal agencies and with nonprofit institutions. Obviously, it should be carefully circumscribed to avoid conferring unrelated legal protections, for example, from tort liability.

A legitimate concern is the impact of such an arrangement on the federal government’s liability exposure. Would the government be obliged to defend a large number of cases? Could the government be assessed huge damages? In fact, long-standing Court of Claims case law strictly limits recovery from the federal government for infringement to “reasonable costs and fees.” Because the action is equivalent to an eminent domain action and is not a suit in tort, there are no punitive damage awards, let alone treble damages. As the losses attributable to a research infringement are likely to be small, relatively few patent holders are likely to pursue litigation. Of course, they may object that such limitations devalue their patents, undermining incentives to develop improved research tools. That is so, but it is a less severe impact on patentees’ financial interests than outright immunity from infringement liability.

Under this proposal, protection would not be available to corporate research, except that conducted under federal contract, nor would it apply to nonfederally supported research at universities. Thus, federally supported research would enjoy a somewhat privileged status. The committee believes that such status is justified by the public interest nature of publicly financed research and that making it relatively more attractive to conduct such research would be beneficial, not a disadvantage. Nevertheless, a certain amount of fundamental research very similar in character to federally funded basic research, for example, supported by philanthropies, would not enjoy protection.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
×

A side benefit of “authorization and consent” is that it would put federally sponsored research in state and private higher education institutions on the same legal footing, without having to undo the Supreme Court’s state-sovereign-immunity decisions.

Although our committee is concerned about the discrepancy in status with respect to patent rights introduced by those decisions and we support congressional consideration of a legislative remedy, our committee was not adequately constituted to address either questions of constitutional law or the ramifications of the cases for other areas of intellectual property law.

A more targeted approach to use of the limited immunity of “authorization and consent,” outlined by a member of the committee in another context,58 is to employ it only in cases where access to research tool technologies is not resolved in the marketplace by licensing on reasonable terms. Where use of an important research tool is restricted or prohibitively expensive, an appropriate federal agency such as the National Institutes of Health could award a contract or grant (or conceivably more than one support agreement) incorporating “authorization and consent” for the technology’s use. This would be akin to a compulsory license and in all likelihood the threat of its use would lead to a negotiated solution.59

On balance the committee recommends that federal research-sponsoring agencies include an explicit “authorization and consent” clause in selected funding instruments as a reasonable step that addresses the need to maintain research tool access, as far as we can ascertain that need so soon after the Madey decision.

LIMIT THE SUBJECTIVE ELEMENTS OF PATENT LITIGATION

Among the factors that increase the cost and decrease the predictability of patent infringement litigation are issues unique to U.S. patent jurisprudence that depend on the assessment of a party’s state of mind at the time of the alleged infringement or the time of patent application. Accused infringers are usually charged with having done so “willfully,” which if proven exposes them to a possible penalty of triple damages. The patent holder frequently is faced with the defenses of “best mode” and “inequitable conduct.” The former examines whether the inventor disclosed in an application what the inventory considered to be the best implementation of the invention, while the latter addresses whether the patent attorney intentionally misled the USPTO, usually by failing to disclose important known prior art. Inquiry into these issues requires expensive pretrial discovery. The committee believes that reform in this area would increase predictability of

58  

R. Blackburn. “Owning the Genome?” Presentation to the annual meeting of the Biotechnology Industry Organization, Washington, D.C., June 24, 2003.

59  

Blackburn would require a showing of public harm resulting from the unavailability or high cost of licenses. He does not support general use of “authorization and consent” in federal research grants.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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patent dispute outcomes and reduce the cost of litigation without substantially affecting the underlying principles that these aspects of the enforcement system were meant to promote.

“Willful” Infringement and Enhanced Damages60

Section 284 of the Patent Act governs damages for patent infringement and provides that in addition to an award “adequate to compensate for the infringement,” the court “may increase the damages up to three times.” The statute provides no standard for the court to apply in making this determination. In practice the threshold question, usually submitted to a jury, is whether the defendant has been “willful” in the infringement. If the jury finds willfulness, then the judge will determine whether and how much to increase damages within the permitted range based on a list of factors articulated by the Federal Circuit. Exposure to these additional awards substantially raises the stakes for a defendant in patent litigation.

Providing enhanced damages is premised on a principle of deterrence, similar to the rationale for an award of punitive damages in tort litigation. The presumption is that without some substantial additional risk, deliberate infringement becomes more likely, since the potential infringer will ultimately pay the patent holder no more through litigation than through an agreed license. In any event, intentional infringement is viewed as more culpable, justifying punishment. In practice, exposure to a claim of willfulness is not limited to cases of calculated, deliberate infringement. Knowledge of a patent, coupled with a decision to engage in or continue infringing conduct, is enough to trigger the claim. There is no threshold test for having a charge of willfulness considered by the court, so the required level of prefiling investigation by the plaintiff is relatively modest. Therefore, willfulness is asserted in most cases.61 Because of the stakes for both parties, the issue often overshadows the rest of the litigation.

The most common defense to a claim of willful infringement is good-faith reliance on advice of counsel that the defendant’s product or method did not infringe any valid claim. But the shield seems to have morphed into a sword. Courts have held that once a defendant knows of a possible claim of infringement, the defendant is required to obtain an “exculpatory opinion” from an attorney. In the absence of such an opinion the jury may be instructed to infer that any opinion would have been negative. The net result has been a cottage industry

60  

For a general description and background of the doctrine of willful infringement, as well as a discussion of the problems it provokes in patent litigation, see Powers and Carlson (2001). Also see Heffan (1997).

61  

This was not so before the establishment of the Federal Circuit. Then willfulness was pled only when patent infringement was deliberate and even then damages were rarely increased (Heffan, 1997).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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of lawyers providing such opinions at a cost ranging from $10,000 to $100,000 per opinion.62

Worse, in some business sectors, exposure to claims of willful infringement has led to a practice of deliberately avoiding learning about issued patents, a development sharply at odds with the disclosure function of patent law. Willfulness creates a strong disincentive to read patents, irrespective of whether any infringement allegations are made. The mere existence of the doctrine in its current form means that any time an individual or company learns of a patent that might bear on its products, the company is at risk. Regardless of how the patent comes to light, the company must spend tens of thousands of dollars to obtain an opinion that it is not infringing. And then it foregoes some or possibly all of its attorney-client privilege in the evaluation of the patent.63 To avoid this situation, in-house counsel and many outside lawyers regularly advise their clients not to read patents if they can avoid it (Lemley and Tangri, 2003; Taylor and Von Tersch, 1998). In this respect patent law stands in contrast with trademark law, which premises willfulness in part on a failure to search for prior marks. Other collateral issues that enter into infringement litigation and raise the complexity and cost of pretrial discovery are the competence of the exculpatory opinion and the propriety of opinion counsel appearing as trial advocates.

Against these costs, complications, and uncertainties there has been no empirical demonstration that the availability of enhanced damages provides substantial additional deterrence over and above that associated with the usual costs and risks of defending an infringement claim, the threat of pretrial injunction relief (rare but potentially devastating to an enterprise), and post-trial award of attorney’s fees against deliberate infringement. Thomas Cutter (2004) has analyzed the deterrent effects of enhanced damages for patent infringement generally and concluded that in many circumstances the criteria courts now employ in determining willfulness have an overdeterrent effect—discouraging marginally lawful behavior and taking advantage of the patent disclosure—and therefore undesirable social costs.

Lacking evidence of its beneficial deterrent effect but with evidence of its perverse antidisclosure consequences, the committee recommends elimination of the provision for enhanced damages based on a subjective finding of willful infringement; but we recognize that this is a matter of judgment and that there are a number of alternatives short of elimination that merit consideration.64 A modest

62  

The process of preparing an opinion is described in Poplawski (2001).

63  

Reliance on the advice of counsel may provide a basis for a successful defense, but by choosing to inject its attorney’s advice into the case the defendant waves attorney-client privilege for at least all circumstances and documents relating to that advice and possibly for all advice given before the suit was filed.

64  

As noted above, the Federal Circuit has taken for en banc review a willful infringement case, Knorr-Bremse v. Dana, 344 F.3d 1336 (Fed. Cir. 2003), and signaled its intention to consider many aspects of the doctrine. Whether the outcome will address the committee’s concerns remains to be

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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step is to abolish the effective requirement that accused infringers obtain and then disclose a written opinion of counsel. Another possibility is to limit inquiry into willful infringement to cases in which the defendant’s infringement has already been established. A third alternative that preserves a viable willfulness doctrine but curbs its adverse effects is to require either actual, written notice of infringement from the patentee or deliberate copying of the patentee’s invention, knowing it to be patented, as a predicate for willful infringement (Federal Trade Commission, 2003; Lemley and Tangri, 2003). If some form of willfulness doctrine is retained, there is the question by how much should damages be enhanced. One answer is by the least amount needed to deter deliberate copying and make the victims whole. Lemley and Tangri suggest that in most instances awarding successful plaintiffs their attorney fees will suffice as an adequate penalty. Finally, modification or elimination of willful infringement raises questions about the status of the “duty of care” to avoid patent infringement. This is a matter we did not address that merits further consideration.

“Best Mode” Defense65

Section 112 of the Patent Act requires that an application “set forth the best mode contemplated by the inventor of carrying out his invention.” As interpreted by the Federal Circuit, this requirement is judged by a two-part test; first, did the inventor, at the time of filing, know of a mode of practicing the invention that the inventor believed was preferable to others; and second, was the best mode adequately disclosed, in light of the scope of the claimed invention and the level of skill in the art. The first test is inherently subjective, focusing on the inventor’s state of mind; and although the second test is objective, it is not precise.

The best-mode standard is different from Section 112’s “enablement” requirement, which goes to the sufficiency of the disclosure to teach one of ordinary skill to implement the invention. Best mode requires in addition that if the inventor knows of particular materials or processes for implementing a claimed invention that the inventor believes are most effective, they must be revealed. For example, consider a claim that states a range of temperatures for operation of a method. If at the time of filing the application the inventor believed that a particular temperature or narrower range was optimal, failure to disclose it—even if unintentional—may result in a finding that the claim is invalid. As with other invalidity defenses, establishing a best-mode violation requires “clear and convincing” proof; and the defense is applied only on a claim-by-claim basis. However, if

   

seen. The case raises the question of whether willful infringement should be presumed when an infringer failed to obtain an opinion of counsel before infringing or invokes attorney-client privilege or the work product doctrine to avoid disclosing an opinion obtained.

65  

For a general description and background of the best mode defense, see Chisum (1997) and Hofer and Fitzgerald (1995).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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intent to deceive is shown, the same proof can establish “inequitable conduct,” and the entire patent may be unenforceable.

Only the United States imposes a best-mode requirement. Its goal is to motivate more extensive disclosure to the public by increasing the risk of withholding related information as a trade secret. As explained by the Federal Circuit’s predecessor court, the purpose of the requirement is to “restrain inventors from applying for patents while at the same time concealing from the public preferred embodiments of their invention which they have in fact conceived.”66

Analysis of the best-mode defense is made as of the time the inventor filed the original application; there is no obligation to “update” the application with information discovered during prosecution of the patent. Moreover, the defense applies only to information and belief personal to the inventor, and cannot be established by imputation of knowledge of others in the inventor’s company or working group. Therefore, this doctrine as applied gives only limited assurance that the best mode will be disclosed.

Because the defense depends on historical facts and because the inventor’s state of mind usually can be established only by circumstantial evidence, litigation over this issue—especially pretrial discovery—can be extensive and time-consuming. Foreign patent applicants also criticize the doctrine as unfair, since their previously filed foreign applications cannot simply be translated for filing in the United States without attending to this unusual additional requirement.

Given the cost and inefficiency of this defense, its limited contribution to the inventor’s motivation to disclose beyond that already provided by the enablement provisions of Section 112, its dependence on a system of pretrial discovery, and its inconsistencies with European and Japanese patent laws, the committee recommends that the best-mode requirement be eliminated.

Inequitable Conduct Defense67

Even when a patent claim is valid, if obtained through fraud, it is deemed unenforceable. This concept is codified in Section 282 of the Patent Act. The defense of inequitable conduct applies when the patent applicant has made a material misstatement or omission with intent to deceive the USPTO. Like invalidity, unenforceability through inequitable conduct must be proved through “clear and convincing” evidence. However, unlike questions of invalidity, inequitable conduct is decided by a judge, not a jury.

Inequitable conduct requires proof of both materiality of the information and intent to deceive. Materiality has been measured by a standard similar to that applied in cases of securities fraud: whether there is a substantial likelihood that a

66  

In re Gay, 309 F.2d 769 at 772 (C.C.P.A. 1962).

67  

For a general description and background on inequitable conduct, see Chisum (1997).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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“reasonable examiner” would have considered the information important in deciding whether to issue the patent. A 1992 USPTO rule change appears to have raised the bar on materiality so that now, arguably, a defendant must prove that the information, properly disclosed, would have led the USPTO to reject the relevant claim.68 Intent is, of course, a subjective issue, directed at the state of mind of the patent applicant or the applicant’s attorney. Once a judge has determined that a threshold level of materiality and intent have been proved, the court will consider all of the circumstances surrounding the applicant’s conduct and balance the level of materiality and intent to determine if inequitable conduct exists. In other words, a high level of one might offset a low level of the other so that in some cases inequitable conduct is found despite very little evidence of deliberate misconduct.

Examples of behavior punished as inequitable conduct include failure to cite a known prior art reference unless it is merely “cumulative” to those already cited, “burying” a material reference in a stack of irrelevant information, submitting false or misleading declarations related to dates of invention or enablement, and failure to disclose offers for sale and public uses that would make the claim invalid under Section 102(b) of the Patent Act. The consequences of a finding of inequitable conduct can be severe. First, the entire patent, not just the relevant claim or claims, is rendered unenforceable. Second, other patents in the same family may be deemed “infected” by the fraud. Third, the defendant may be awarded attorneys fees under the “exceptional case” standard of Section 285 of the Patent Act. Finally, the patentee may be exposed to an antitrust claim.69 As with willful infringement and the best-mode defense, discovery is more complex and expensive. Moreover, because the level of disclosure to the USPTO usually involves choices made by the patent attorney, issues of the scope and waiver of attorney-client privilege are implicated. Another major complaint is that the defense is asserted too freely. One judicial opinion commented: “[T]he habit of charging inequitable conduct in almost every major patent case has become an absolute plague.”70

If invalidity, disciplinary action, and reputational concerns are not sufficient deterrent to misconduct, other civil and even criminal remedies exist—antitrust, unfair competition, common law fraud, and tortuous interference. Moreover, since the creation of the inequitable conduct doctrine by the courts, other safeguards

68  

The effect of the USPTO rule change has not yet been decided by the Federal Circuit. In Molins PLC v. Textron., 48 F.3d 1172 at 1179 n.8 (Fed. Cir. 1995), the court merely observed that because administrative rules are not retroactive, and the case arose before the rule change, it did not have to address the issue. However, in Semiconductor Energy Laboratory Co., Ltd. v. Samsung Elecs Co., 204 F.3d 1368 at 1374 (Fed. Cir. 2000), the court applied the new rule to a patent issuing on an application filed after 1992, without any discussion of whether the old standard should apply.

69  

See Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965).

70  

Burlington Industries, v. Dayco Corp., 849 F.2d 1418 at 1422 (Fed. Cir. 1988).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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have been adopted by Congress and the USPTO to support the integrity of the patent system. These include third-party- and USPTO-initiated re-examination on withheld prior art, publication of pending applications, and third-party access to pending prosecution papers and the ability to submit material information. The Open Review process we propose would also contribute to the integrity of the system.

In view of its cost and limited deterrent value the committee recommends the elimination of the inequitable conduct doctrine or changes in its implementation. The latter might include ending the inference of intent from the materiality of the information that was withheld, de novo review by the Federal Circuit of district court findings of inequitable conduct, award of attorney’s fees to a prevailing patentee, or referral to the USPTO for re-examination and disciplinary action. Any of these changes would have the effect of discouraging resort to the inequitable conduct defense and therefore reducing its cost.

Our recommendations would almost certainly simplify litigation and curb unproductive discovery and thereby reduce its expense, but to what extent? And if only one or two rather than all three elements of patent litigation areas of law were reformed, which would yield the largest litigation cost saving? We are not certain, but we have benefited from the opinions of a large group of highly experienced patent litigators, most of them in private practice. Knowing the committee’s interest in these questions, the fellows (senior members and former officers) of the American Intellectual Property Law Association conducted an informal survey of their colleagues on the three elements of litigation considered. A substantial minority of 93 respondents supported the modification or elimination of one or more of these rules even though they are beneficiaries of the complexity and cost of patent litigation. A slight majority considered them significant cost drivers, although some of them suggested that uncontrolled discovery was a problem of civil litigation generally. Respondents split evenly in identifying willful infringement versus inequitable conduct as the main cost factor. Best mode ranked a distant third.

HARMONIZE THE U.S., EUROPEAN, AND JAPANESE PATENT EXAMINATION SYSTEMS

As early as 1966 a presidential commission appointed by President Johnson recommended that the United States adopt the otherwise universal first-inventor-to-file basis for determining patent priority as a step toward making the major industrial countries’ patent systems compatible. The Carter administration’s policy review on innovation and Commerce Secretary Mosbacher’s commission on the patent system in the first Bush administration also urged progress toward harmonization. The adoption of the 20-years-from-filing-patent term and publication of most patent applications at 18 months, both under the TRIPS agreement, were important recent steps in that direction. The United States is currently

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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engaged in negotiations under the World Intellectual Property Organization (WIPO) aimed at substantive patent law harmonization. These developments are a recognition that in an increasingly integrated global economy, differences in patent law create redundancy and inconsistencies that raise the cost of doing international business.

The committee did not consider the thorny issues associated with reconciling differences in intellectual property protection between developing and industrialized countries but is primarily concerned with differences in patent examination among the latter, especially the United States, Europe, and Japan. In that context greater harmonization has taken on more urgency with the increase in patent filings generally and the increase in multinational filings in particular (see Figure 4-1).

Each of the three major patent offices has had difficulty coping with the surge in applications, yet work sharing is minimal. For most commercially important inventions, technically and legally skilled patent examiners in each office analyze the same application, search more or less the same prior art, and perform similar examinations, sometimes with identical results, sometimes with results dictated by differences in law.

The committee believes that the United States, Europe, Japan, and other countries should continue to harmonize substantive laws regarding patentability, application priority, rules of prior art, and standards of examination with the objective of establishing systems of reciprocity or mutual recognition of the results of searches and examinations. This goal will require changes in law and practice on all sides. The committee members agree that the following are among the principal differences that need to be reconciled, and we agree on the preferred terms of an agreement on patent system harmonization.

First-to-Invent Versus First-Inventor-to-File Priority

The United States should conform its law to that of every other country and accept the first-inventor-to-file system. There are several reasons for this shift. First, the discrepancy means not only that in some cases different people will own patents on the same invention in different countries but also that there are radical differences in procedure. The United States has an elaborate legal mechanism, both in the USPTO and in the courts, for determining who was the first to invent. Because the rest of the world has no analogous process, foreign patent applicants are subject to uncertainty and perhaps challenges that are entirely unfamiliar. The governments tend to view U.S. acquiescence to the first-to-file as the cornerstone of international harmonization.

Second, U.S. inventors also file their applications in ignorance of whether they are the first or second to invent and when an opponent might be expected to file. For those subject to challenge under first-to-invent, the proceeding is costly and often very protracted; frequently it moves from a USPTO administrative pro-

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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FIGURE 4-1 USPTO, EPO, and JPO patent application filings, 1982-2002. SOURCE: OECD (2003).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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ceeding to full court litigation. In both venues it is not only evidence of who first reduced the invention to practice that is at issue but also questions of proof of conception, diligence, abandonment, suppression, and concealment, some of them requiring inquiry into what an inventor thought and when the inventor thought it.

A third reason to adopt the first-inventor-to-file priority basis is that for the overwhelming majority of applicants, that is the system the United States has. Of the more than 300,000 applications the USPTO receives each year only about 200 to 250—less than 0.1 percent—end up in interference proceedings because a second filer claims to be the first inventor.

There are, nonetheless, three concerns that merit attention in considering whether to abandon first-to-invent. The first concern is how often first inventors would be unfairly deprived of their inventions by second inventors who happened to file with the Patent Office first? The answer, it turns out, is a nontrivial number or at least a non-negligible proportion of applicants involved in interferences. Lemley and Chien (2003) examined two sets of interference cases—first, 76 final adjudications by the Board of Patent Appeals and Interferences (BPAI) between 1990 and 1991 that were decided by determining who was the first inventor; and second, a random selection of the few hundred interference proceedings reported on the BPAI web site between 1997 and 2003. They concluded that second filers won approximately 43 percent of the cases. Nevertheless, in a large proportion of these cases first- and second-filers’ invention dates were so close as to be nearly simultaneous.

A second concern is the inducement inherent in a first-to-file system to file early and perhaps before the invention is fully characterized, which could be a source of patent quality deterioration. The incentive for early filing surely exists but is mitigated by two factors. First is provisional application filing whereby inventors who file a complete technical disclosure secure priority rights without a major expenditure of resources for legal services. This allows the applicant a year to characterize, refine, consider claims for, and assess the commercial value of an invention before submitting a formal application. The second mitigating factor is that inventors already have significant incentives to file applications early, for instance any inventor who seeks protection outside the United States competes in a first-to-file system.

Most important from a fairness and a political point of view, first-to-file is claimed to disadvantage individual inventors and small business, who may not have the resources to be as fast as large companies. This has been the premise of very effective “independent inventor” opposition to first-to-file and harmonization generally for a very long time. To illuminate the issue Gerald Mossinghoff (2002) studied all 2,848 interference decisions between 1983 and 2000 to determine whether small inventors were more likely to prevail in priority disputes. He found that the first-to-invent system did not benefit small inventors on average. Of that number, 203 were decided in favor of a small entity filing second, but in 201 other cases small-entity first filers lost. For another perspective on the small-

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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entity issue, Lemley and Chien (2003) examined on whose behalf the interference cases in their study were initiated. Strikingly, of the 94 initiators for which status data were available, 77 percent were large firms while only 18 percent were small entities. Of the responding parties 43 percent were individuals or small businesses while 53 percent were large entities. Both sets of evidence support the conclusion that the first-to-invent system is not working to the benefit of small entities; rather, in the preponderance of cases large firms are ensnaring small companies in complex, costly interference proceedings. Even if this were not so, small businesses increasingly oriented toward international markets might prefer harmonization as a way to reduce the total costs of multimarket protection. According to a 2002 General Accounting Office survey, 70 percent of small business respondents agreed with that objective.

Grace Period

The United States should retain and seek to persuade other countries to adopt a grace period, allowing someone to file a patent application within one year of publication of its details without having the publication considered prior art precluding a patent grant.71 This provision encourages early disclosure and is especially beneficial for dissemination of academic research results that may have commercial application. As other countries try to accelerate the transfer of technology from public research organizations to private firms through patents and licensing, the idea of a grace period is likely to become more widely accepted. Germany recently adopted such a provision.

Best-Mode Requirement

The “best mode” requirement, having no analog in foreign patent law, imposes an additional burden and element of uncertainty on foreign patentees in the United States. This, in addition to its dependence on discovery aimed at uncovering inventor records and intentions, justifies its removal from U.S. patent law.

Prior Art

In the interest of arriving at a uniform definition of prior art, the United States should remove its limitation on non-published prior art and its rule that foreign patents and patent applications may not be recognized as prior art as of their filing dates. In connection with moving to a first-inventor-to-file system, the foreign patent prior art rule for unpublished prior patent applications should also

71  

35 U.S.C. § 102(b).

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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be adopted. A common misconception about the EPO and other foreign systems like that of the EPO is that they are winner-take-all systems similar to the U.S. interference proceeding. A difference in prior art treatment, however, prevents this from occurring. Abroad an unpublished prior patent application is available for prior art purposes only under the novelty standard. It cannot be used in a non-obviousness (or equivalent) rejection. This allows the later filing applicant to obtain claims to a disclosed aspect of the invention that is novel with respect to the prior application even if it would have been obvious. This has the affect of giving some reward to near simultaneous inventors. Where the second to file is first with a commercially important embodiment of the invention, the foreign rule increases cross-licensing and enhances competition in the marketplace.

Application Publication

The United States should abandon its exception to the rule of publication after 18 months for applicants not intending to patent abroad. This, too, would promote the disclosure purpose of the patent system. Eliminating the non-publication option would minimize the uncertainty associated with submarine patents, which remain a problem as a consequence of the continuation practice, enabling an applicant to abandon one application and file a continuation or pursue an application to issue while maintaining a continuation on file—in either case in the hope of winning a better patent eventually. Moreover, universal publication would extend to all patentees the provisional rights under 35 U.S.C. Sec. 154(d) (2000) that give a patentee a reasonable royalty for infringement that occurs after publication but before patent issuance under certain conditions (Lemley and Moore, 2004).

Other Issues

There are other differences regarding the scope of patentable subject matter and the standards for non-obviousness and utility that we have not examined in detail and for which we therefore have no precise prescriptions. Given that patent laws are part of historically evolved national legal systems there may be limits to harmonization, but these are likely to recede over time as the international economy becomes more integrated and enterprises more dependent on global markets. Reconciling patent system differences will be challenging but would make the outcome of this so-called “deep harmonization” more rewarding.

The committee supports the pursuit of harmonization through WIPO but recognizes the difficulty of achieving agreement among 180-odd countries with widely divergent views of intellectual property protection generally and the patent system in particular. There is a risk that harmonization of the three major patent systems could be sidetracked by disagreements between the developing and developed countries. We believe that harmonization should and can be pursued in

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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trilateral or even bilateral negotiations or on selected issues whose results, if there is agreement, will have a beneficial demonstration effect on other countries. In the meantime, the practice of convening international panels from the three patent offices to explore common approaches to search and examinations in new technological areas should be continued. This practice is helpful not only in identifying issues for negotiation but, more immediately, in informing patent applicants how their inventions are likely to be treated in each of the patent offices.

The committee recognizes that its proposals, apart from foreign adoption of a grace period, would represent U.S. conformity with other patent systems and may be subject to the charge that we favor “Europeanizing” the U.S. patent system. That is a narrow view. It presumes that only the items enumerated are part of a negotiated package. It implies that the U.S. system features we propose changing are important to its integrity. We disagree. Most important, it ignores what we expect to be the benefits of harmonized priority and examination procedures for U.S. inventors, whether large or small entities—first, faster, more predictable determinations of patentability; second, simplified, less costly litigation; and third, less redundancy and much lower costs in establishing global patent protection.

Suggested Citation:"4 Seven Recommendations for a 21st Century Patent System." National Research Council. 2004. A Patent System for the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/10976.
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The U.S. patent system is in an accelerating race with human ingenuity and investments in innovation. In many respects the system has responded with admirable flexibility, but the strain of continual technological change and the greater importance ascribed to patents in a knowledge economy are exposing weaknesses including questionable patent quality, rising transaction costs, impediments to the dissemination of information through patents, and international inconsistencies. A panel including a mix of legal expertise, economists, technologists, and university and corporate officials recommends significant changes in the way the patent system operates.

A Patent System for the 21st Century urges creation of a mechanism for post-grant challenges to newly issued patents, reinvigoration of the non-obviousness standard to quality for a patent, strengthening of the U.S. Patent and Trademark Office, simplified and less costly litigation, harmonization of the U.S., European, and Japanese examination process, and protection of some research from patent infringement liability.

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