Patents are public documents conferring certain rights, privileges, titles, or offices. The word derives from the Latin litterae patentes (open letters); the expression “letters patent” is still used in legal parlance.
A patent of invention is the grant of an exclusive right to the use of a technical invention. This is the only meaning we attach today to the word “patent” standing alone. Defined more precisely, a patent confers the right to secure the enforcement power of the state in excluding unauthorized persons, for a specified number of years, from making commercial use of a clearly identified new and useful technological invention.
What are inventions?
If the patent law is to protect novel and useful inventions, it must be determined just what should be regarded as an “invention” and what as “novel” and “useful.” Legislators and judges have had much trouble answering these questions.
An invention is a new contrivance, device, or composition of matter, or a technical art newly created—in contrast with a discovery of a principle or law of nature that has already “existed” although unknown to man. But not every new way of doing or making something, not every new thing never made before, is regarded as an invention. Some hold that it must be “an unusual mental achievement,” involving more than the exercise of ordinary technical skill. Some courts have declared that to be an invention, a new idea must originate in a “flash of genius,” not merely in the routine experimentation of large laboratories. The United States Congress, annoyed by such narrow judgments, stated in the Patent Act of 1952 that “patentability shall not be negatived by the manner in which the invention was made.”
What is novel and useful?
Subjective novelty is universally rejected in favor of objective tests such as “not previously patented, published, or used.” But whether novelty is to mean “never known anywhere” or only “not yet used within the country” was controversial for a long time. Among other questions long debated and arbitrarily solved were these: Should novel combinations of well-known elements or novel uses of known devices or techniques be patentable? How should priority be decided in cases of nearly simultaneous inventions: Should the patent go to him who was first in getting the idea, or to him who was first in putting it into patentable form, or to him who was first in submitting it to the patent office?
The usefulness of an invention cannot well be determined when the patent is applied for: How can one know whether what may seem useless at the moment will not become useful later? For this reason, patent offices usually have not bothered about economic or commercial utility. Several patent laws, however, deny on grounds of “social usefulness” the patentability of articles designed for “immoral purposes.” Some laws deny protection for “trivial” inventions; some confer only shorter periods of protection for “petty” inventions, such as Gebrauchsmuster (utility models) in Germany; some make “improvement inventions” eligible only for supplementary “patents of addition” of shorter duration, terminating, for example, with the primary patent on the invention that they improve.
The questions of who is to judge the novelty and general patentability of an invention, and at what stage, have received different answers, and different procedures have been adopted in different countries. Under the registration system the validity of a registered patent is examined only if an interested party attacks it in the courts and asks that the patent be invalidated. Under the examination system a patent is issued only after the patent office has carefully examined the patentability of the invention. This examination may include so-called interference proceedings, when the office finds that two or more pending applications seem to claim, partly or wholly, the same invention, so that the priority of one invention has to be established. The examinationplus-opposition system (Aufgebotssystem) provides for an interval of time after the publication of the specifications examined and accepted by the official examiner and before the issuance of the patent, in order to enable interested persons to oppose the patent grant. In such proceedings the grounds of the opposition, such as “prior use” or “prior patent grant,” are heard and examined by the patent office.
The registration system is administratively the cheapest but may burden the economy with the cost of exclusive rights being exercised for many inventions which, upon examination, would have been found nonpatentable. The examination system, it has been argued, avoids a mass of worthless, conflicting, and probably invalid patents, onerous to the public as well as to bona fide owners of valid patents; it prevents fraudulent registration and sale of patents similar to claims patented by others; and it reduces the extent of court litigation.
Period of protection
The duration of patents has been determined by historical precedent and political compromise. The 14-year term of the English patents after 1624 was based on the idea that two sets of apprentices could, in seven years each, be trained in the new techniques, although a prolongation by another seven years was allowed in exceptional cases. The 17-year term in the United States was a compromise between the “historical” 14 and the potential 21 years of protection. The terms vary from country to country: Italy and Mexico grant 15 years from the date of application; Japan, 15 years from publication; United Kingdom, 16 years from the filing of specifications; United States, 17 years from the date of the grant; Germany, 18 years from application; France, 20 years from filing; and Argentina and Chile, 5, 10, or 15 years, depending on the type of invention.
The literature contains a variety of arguments in favor of a longer period of protection: it should be long enough to protect the inventor for the rest of his life; for the average length of time for which a user of an invention might succeed in keeping it secret; for the average time it would take for others to come up with the same invention; or for the average period in which investments of this kind can be amortized. Some pleas have been made for eternal protection through perpetual patents.
In several countries patents terminate prematurely upon failure to pay renewal fees; such fees may increase from very modest charges for the first years to progressively higher levels in later years. The fiscal results of this scheme are insignificant, but it probably fulfills the economic purpose of weeding out worthless patents. Premature termination—revocation, forfeiture, or nonenforcement—of patents may in some countries be ordered as a legal sanction for an “abuse” of the patent grant.
The beginnings, 1200-1624
Occasional privileges by which a sovereign granted the exclusive use of an invention to its inventor or introducer were known as early as the thirteenth century and were quite frequent in the fourteenth. They conferred manufacturing monopolies or only licensing monopolies; they were given either to a producer introducing technology already used abroad or to the “first and true inventor.”
The first patent law was adopted in 1474 by the Republic of Venice, but its grants of protection to inventors existed side by side with special privileges to makers of novel products; Venetian practice included revocation of grants if the invention was not used (compulsory working) and forced reduction of excessive royalty rates (determination of “reasonable royalties”).
Most privileges granted in the Netherlands after 1581 were clearly designed as incentives to invent, whereas most of the patent monopolies granted by the Tudor and Stuart kings in England served protectionist, autarkic, or fiscal purposes, if they were not downright misappropriations and handouts. After several parliamentary attempts to stop this misuse, a court, in the Case of Monopolies in 1603, declared that monopolies, such as that in playing cards, were unlawful unless they were granted for new inventions. The Statute of Monopolies of 1624 outlawed all monopoly patents except a few specified kinds, such as “letters patent and grants of privilege for the term of 14 years . . . to the true and first inventor or inventors of new manufactures.” Incidentally, the inventor under this law was less “true and first” than the inventor under the Venetian law of 1474, since the English “inventor” could be an importer of foreign skills and know-how. Novelty “to the realm” was sufficient; “whether learned by travel or by study, it is the same thing,” declared a court in 1693 (see Fox 1947).
Spread of patent legislation
1624-1845. The English law became the model for statutes adopted by some of the American colonies (Massachusetts in 1641, Connecticut in 1672). South Carolina in 1691 wrote the first law that recognized the inventor’s right to a patent. In 1787 the constitution of the United States gave to Congress the power “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The first patent law of the United States was enacted in 1790 and amended in 1793.
In France in 1791, the Constitutional Assembly adopted a comprehensive patent law, in which the inventor’s right in his creation was declared a “property right” based on the “rights of man.” Despite such ringing words, the law gave the right to the use of foreign inventions, not to the true inventors, but to the domestic entrepreneurs who introduced them in France.
The patent law of Austria (18IO, amended 1820) provided that inventors had neither any property rights in their inventions nor any rights to patents. However, it provided that the government could, if this was in the national interest, grant to inventors privileges that would restrict other subjects’ “natural rights” to imitate the inventor’s ideas.
Between 1810 and 1843 patent laws were enacted in 14 of the states (kingdoms and principalities) of Europe, including four German and four Italian states. Brazil and Mexico were the first Latin American countries to adopt patent laws (in 1830 and 1832, respectively), followed by Chile in 1840 and Paraguay in 1845.
The antipatent movement, 1850-1873
In the early 1850s a movement arose for the abolition of patent protection and against the adoption of patent laws in countries which had none. In Britain three parliamentary committees or royal commissions, in 1851-1852, 1862-1865, and 1869-1872, reported serious abuses of the system. The last committee recommended drastic reforms, including reduction of the patent term to seven years, annulment of patents not put into practice within two years, and compulsory licensing for all patents. A bill with these provisions passed the House of Lords in 1872.
In Germany several trade associations, in 1853 and 1863, recommended weakening or abolishing the system. The Congress of German Economists passed a resolution condemning the patent system as injurious to public welfare. Prussia opposed a patent law for the North German Federation, and in 1868 Chancellor Bismarck recommended that all patent laws be repealed in all of Germany.
In Switzerland, the only industrial country of Europe that had remained without patent legislation, the government and legislature rejected proposals for the introduction of a patent system in 1849, 1851, 1854, and 1863, the last time with a reference to economic experts who had declared the principle of patent protection to be “pernicious and indefensible.” In the Netherlands, which had had a patent law since 1817, the parliament repealed the law in 1869 after a long debate.
The system sustained, 1873-1912
It looked as if patent protection would be abolished everywhere, when the tide turned and, in and after 1873, the friends of the system overwhelmed the opposition by a well-organized counterattack. Various reasons have been advanced for the sudden change. The best historical evidence links the defeat of the antipatent movement with the defeat of the free trade movement after 1873. The depression strengthened the supporters of tariff protection as well as those of patent protection.
The defeat of the opposition was reflected in legislative actions. In Britain the drastic patent reform bill, passed by the House of Lords, was withdrawn in the House of Commons in 1874. In Germany a uniform patent law for the entire Reich was adopted in 1877. Japan, which had adopted her first patent law in 1872, only to abolish it in 1873, enacted another law in 1885. Switzerland held out longer: a referendum in 1882 still rejected patent legislation. A new referendum in 1887 enabled the legislature to pass a law, under which, however, most inventions in the chemical and textile industries were not patentable. Only in 1907, after a German threat of punitive tariffs on Swiss products, did Switzerland drop these exemptions from patent protection. The Netherlands withstood for 40 years all recriminations about “piracy” of foreign technology but finally reintroduced a patent system in 1910, which became effective in 1912.
In 1883 an international convention created the International Union for the Protection of Industrial Property (UIPPI) and established several rules to be observed by participating countries (in part amended in 1900, 1911, 1925, 1934, and 1958). Only three provisions will be mentioned here.
The “national treatment” clause provides that foreigners (nationals of other Union countries) shall receive in each country the same treatment as the nationals of that country. Hence, reciprocity is ruled out: Swiss inventors were able to get patents abroad even when Switzerland granted no patents at all.
The “priority” clause establishes the right of the inventor to obtain patents in all Union countries in which his kind of invention is patentable and in which he applies within 12 months from the time of the original application. Hence, he is protected against others trying to patent elsewhere what he has disclosed to the patent office of one country and against foreign patent offices denying him patents on the ground of “lack of novelty” because of “prior publication.”
The “abuse” clause provides that each country may take measures to prevent abuses resulting from the exclusive rights conferred by patents, such as “failure to use,” but it may revoke these patents only if compulsory licensing is an insufficient remedy. Compulsory licenses cannot be required until three years after issuance of a patent, and then only if the patentee does not produce acceptable excuses.
As of December 1963, only 51 countries belonged to the Union, but the pressure on nonmember countries to join is strong.
In view of the role attributed to patent protection in early stages of industrialization, statistics of patents granted in eighteenth-century England
|Table 1 — Patents of invention issued in the United States|
|Source: Calculated from data in U.S. Bureau of the Census 1960 and U.S. Bureau of the Census Statistical Abstract . . . .|
are of interest: The average number of patents taken out per year between 1700 and 1750 was nine; between 1751 and 1800 it was 34. From 1801 to 1830 an average of 116 patents per year were issued in England.
Patent statistics for the United States from 1790 to 1960 are summarized in Table 1. They show that patenting increased rapidly during the nineteenth century but reached a plateau early in the twentieth century. As the number of scientists and engineers employed in research and development has increased, the number of patents per research and development worker has declined drastically. This decline holds for patent applications as well as for patents issued. The number of scientists and engineers employed in research and development in the United States increased from 87,000 in 1941 to 327,000 in 1958. During these 18 years the number of patent applications filed per year fell from 55 to 24 per 100 persons in this group. One must conclude that it has become more difficult to create patentable inventions, or less customary to take out patents, or both.
Since every patent is a potential source of revenue, and since the international distribution of these revenues may affect a country’s evaluation of the patent system, one may be interested in the relative number of patents granted to foreigners. Table 2 gives this information for several countries for 1957-1961.
The percentage of patents granted to (or applied for by) foreigners evidently reflects the size and the degree of industrialization of the country: it is lowest in large and highly industrialized countries and is high in small countries even if they are industrialized (as in Belgium) and in nonindustrialized countries even if they are large (as in India). Available data are insufficient to prepare a matrix showing the international balances of foreign patenting (i.e., the number of patents obtained abroad compared with the number of patents granted to foreigners) and still less so for the international balances
|Table 2 — Patents granted, in total and to foreigners, selected countries, 1957-1961|
|TOTAL||TO FOREIGNERS||PERCENTAGE TO FOREIGNERS|
|a. Number of patents applied for . Numbers granted not available.|
|b. 1957-1960 . Data for 1961 not ye t available.|
|Source: United Nation s . . . 1964.|
|United Kingdo m||218,995 s||102,866a||47.0|
|Federal Republic of Germany||89,953||33,416||37.1|
|Trinidad and Tobago||495*||466*||94.1|
of earnings from patents (i.e., royalties received from and profits attributable to foreign patents compared with royalties and higher prices paid to foreign holders of patents). The data for Trinidad and Tobago are given only to illustrate the situation of a small, developing country.
Arguments to justify the patent system have been based on natural law, on moral requirements, or on economic considerations. Economic considerations weigh the objectives which patent protection is to serve, the benefits which society is likely to obtain, the excess of these benefits over social cost, and the superiority of the patent device over alternative means to the same end. For moral considerations, material benefits to society are not relevant, although one may still inquire about the cost to society—“justice at any cost” may be too expensive—and whether there are not cheaper ways to discharge the particular moral obligation. Thenatural law argument virtually excludes all assessments of social benefits, costs, or alternatives, since it deems the inventor’s rights to be indisputable, inalienable, and immutable.
Inventors’ natural property rights
As we have seen, the French Constitutive Assembly of 1791 proclaimed the inventor’s “property right” in his idea to be one of the “rights of man.” Statutory patent law was merely to stipulate the ways and means of safeguarding the inventor’s “natural” right. The property right in the patent was only a legal device by which infringements of the inventor’s natural property right in his idea could be prevented.
Under this juridical construction the word “monopoly,” with its bad connotations, was replaced by the word “property,” recognized as a good thing. The public-relations scheme—admitted to be such by Stanislas de BoufBer when he proposed it in introducing the French patent bill of 1791—was successful. It persuaded the public to regard patent protection not as a government intervention designed for a purpose but, rather, as an integral part of the institution of private property; not as an enforcement of a monopoly granted by the state but, rather, as a prevention of theft.
The moral obligation to reward inventors
The moral argument for patents assumes that the system is the best possible way in which society can meet its moral obligation to secure to each inventor his just reward. Critics of this position have questioned whether justice calls for such material rewards and also whether the patent system is the best method of securing them.
The critics contend that the development of technology is largely a cumulative process to which many—scientists, technicians, and tinkerers—contribute in succession until a particularly lucky one happens to put the finishing touch to a novel art. If he alone is rewarded, while those who have prepared the way for him get nothing, critics doubt that this is “just.” Critics also question the justice of the system when two inventors have reached the same solution almost simultaneously and one of them is declared to have been a little earlier and to deserve the full reward; or when the inventor of a toy or a kitchen utensil receives fat rewards, while a scientist who makes a fundamental discovery must be satisfied with a meager bit of glory.
Classical economists, especially Bentham and J. S. Mill, argued that the material reward which a patent can secure for the inventor is fair and just in that it is proportional to the service the inventor has rendered to society. Critics deny that the rewards are commensurate with the achievement. Some of the greatest inventions are ahead of their time and, since their practical application will be deferred, no earnings can be expected from their use within the period of patent protection. Even where inventions can be used without delay, no close relationship, let alone a proportional one, can be expected between the earnings from their exclusive use and the benefits accruing to society. The earnings are associated with the optimum restriction on use rather than with the social optimum of utilization. The profits derived from a patent monopoly cannot be indicative of the social benefits derived from the invention it covers.
This does not mean that expert appraisers estimating the social contribution of inventions would be more successful. Rewards in the form of prizes and bonuses determined by the government may not be any more “just” or “fair” than the monopoly rents from patents. Grave errors of judgment, and perhaps severe misuse of discretionary powers, might occur if government had to determine “just awards” to inventors.
Criticisms leveled against the moral argument for patents need not apply to the various economicincentive arguments. Incentives, to be effective, need not be just: high prizes in a lottery are designed to attract buyers of chances, not to mete out justice.
Compensation for disclosure of secrets
One of the economic arguments for patents emphasizes the benefits society can derive from the disclosure of secret technological information made public through the patents. Society pays for these benefits with grants of exclusive rights as it offers temporary monopolies in exchange for the surrender of “monopolies through secrecy.” In a simpler version of the argument, the promise of a patent monopoly serves as incentive for the inventor to give up his secret.
The formulation of the argument as a “social contract,” or bargain between the state and the inventor, has often been criticized, by James E. T. Rogers (1863), among others, on the ground that it is a rather poor bargain for society. The contract theory held that protection of exclusive use for 14 to 20 years was justified because supposedly this was the average length of time during which a user of a secret technology could expect to keep it secret. The critics objected that this average duration of secrecy becomes a sham if each inventor has the choice of taking the patent or keeping his secret, for he will patent only what he cannot expect to keep secret. Society thus fails to secure disclosure of safe secrets but agrees to grant monopolies restricting the use of technologies that could be found out and made available for general use.
The argument for patent protection as an incentive to disclose technological secrets also includes another effect of early disclosure: knowledge of the patent may inspire competitors to look for substitute processes and substitute products, that is, to try to “invent around the patent.” Lawyers and engineers stress the supposedly beneficial effects of such “competitive invention,” but some economists point to the waste involved in searching for alternative technologies.
Other versions of the argument stress the indirect effects of disclosure. Early disclosure may give other inventors new ideas, not for alternative techniques of making the same products but for entirely different processes or products, perhaps in different industries. In addition, the dissemination of technological information in the descriptions of inventions may serve to bolster general technical knowledge and curiosity. Critics have asked whether such benefits could not obtained at lower cost by other institutions or methods.
Another aspect of this argument deserves consideration : some inventions are disclosed by publication in technical journals or by patents taken out years before the first use, whereas without patents these inventions might become known only when the products for which they are used reach the market. How important this is, no one knows.
Incentives for inventive activity
The classical, traditional argument for patents stresses that the promise of patent monopolies is an incentive to engage in inventive activity. The argument presupposes (1) that without government intervention society would undertake less inventive activity than was good for it and (2) that patent protection is the best possible form such intervention can take.
If “perfect competition” is defined to imply immediate imitation of anything that promises supernormal profits, it follows that under such conditions inventive activity will not pay, and some artificial obstacles to quick imitation will be needed to promote invention. Differently defined, however, perfect competition allows for natural delays and normal friction, and so does not imply immediate imitation. The innovator may then have a natural head start in the practical application of a new invention even without patent, for it takes time until competitors can examine the product, detect the technology used, build the plant and equipment required to produce it themselves, and bring their competing product to the market. In the meantime the first user may have made enough profits to pay for his efforts. This was the counterargument made by Schaffle (1867). Competition, moreover, is seldom perfect, even in the absence of patent monopolies. Newcomers’ competition is slow and imperfect under the oligopolistic organization of many industries, which lengthens the first user’s head start. Finally, the oligopolist’s fear of falling behind in the race with his competitors may be as much of an incentive to invent as the hope for patent monopolies can be. For all these reasons, several economists have refused to accept the assumption that there would not be “enough” inventive activity in the absence of government intervention.
Those who recognize that the state should promote invention may nevertheless reject the assumption that patents are the best method for the purpose. They may hold that prizes and bonuses for important inventions, or subsidies and government contracts for research and development, can serve the purpose more efficiently and at lower cost to society. These alternative methods can do what the patent system cannot, namely, promote technological progress in selected areas. Arnold Plant and others have said that the patent system serves chiefly to steer inventive efforts into different channels, away from industries in which improvements rarely take the form of patentable inventions and toward industries that are favored by the requirements of patentability. Only by coincidence will these be the industries in which inventive efforts would be most productive for society. Selective promotion of technological advance through direct government support of research and development has therefore become the principal approach to the problem, at least in the United States.
The need for and effectiveness of patent protection as incentive to inventive activity has been questioned for economies in which large corporations employ salaried inventors in large laboratories. It is held, however—for example, by John Jewkes—that the patent system still serves its traditional purpose in protecting independent inventors and small producers who could not survive without this protection (Jewkes et al. 1958).
Incentives for development and investment
The cost of postinventive development has become so large relative to the cost of strictly inventive activity that the arguments for patent protection have changed. The emphasis has been shifted from promotion of invention to promotion of development and innovative investment. Patent protection, it is now said, serves less as an incentive to engage in inventive activity than as an incentive to undertake the large investments needed to develop inventions, make them usable in mass production, construct pilot plants, create mass markets, and build the productive facilities to supply the goods. These outlays are said to be so large and so risky that they would not be undertaken without patent protection against competition.
Critics of this argument point to large innovative investments in many industries in which there are no important patents. One cannot deny, of course, that there may be investments which would not be made without the hope of monopoly profits derived from patent protection. The question is whether these investments are more productive or socially more beneficial than other investments. Why should investments that are made attractive only by patent protection be more productive, from the point of view of society, than alternative investments which, if they were not placed at a disadvantage by the incidence of patent protection, would be the highest bidders for available funds? There is no reason why it should be socially desirable to divert investment funds from industries without patents to industries with patents.
The theory of a general lack of investment opportunities has also been adduced to support the argument that patent protection is needed as an incentive to invest. Investable funds might go begging, it is said, and savings might find no outlets, if it were not for the profit opportunities afforded by patents.
Sources of investable funds
Another argument for patent protection is that firms sheltered from competition will, thanks to their higher profits, have larger funds available for investment than will firms exposed to competition. To claim that patents will cure both a scarcity of investment opportunities and a scarcity of investment funds is self-contradictory if “scarcity” refers to an imbalance of potential sources and uses of funds. The contradiction disappears if the alleged scarcity is meant to relate to a desired rate of progress, for one may hold that progress is accelerated if firms have more funds as well as more opportunities to invest. Monopoly positions due to existing patents afford a larger flow of funds to firms, which will be induced to use these funds for activities that will, by leading to additional patents, perpetuate and strengthen their monopoly positions and, in the process, enhance technological progress. This theory as Schumpeter observed (in a short discussion in Capitalism, Socialism, and Democracy),may justify not only patent protection but also other restrictions on competition.
Excess of social over private benefits
Most economic arguments for patents can be formulated as applications of the standard justification of government intervention in a competitive market economy: Where the private marginal product of an activity is smaller than its social marginal product, while private marginal cost is not correspondingly below social marginal cost, the state can increase total welfare by promoting the allocation of additional resources to that activity.
If a new process or product can be imitated by competitors without delay, and output is not limited by any monopolistic restrictions, the market price of the product of the new technology will soon fall to the level of its production cost. This cost does not include expenses for inventing and developing the novel art, for an imitator incurs no such expenses, nor are they a part of the innovator’s marginal costs of production. They are sunk costs; they do not increase as the use of the new technology is increased. Thus, under unlimited competition, output will increase and price will fall to the competitive level, which does not allow recovery of sunk costs.
New technology undoubtedly has “social value,” since it contributes to an increase in national product. But its private value will approach zero if it can be used without restriction. Thus, while consumers will benefit, the inventors, developers, innovators, and their financiers may get insufficient returns on their investments of time and money. Hence, without government intervention, the allocation of resources to inventive and innovative activities would be less than “optimal” from the point of view of society. Intervention attempts to compensate for the shortfall of the private below the social marginal productivity of inventive and innovative activities.
This is a cogent argument for promoting invention, but not necessarily for patent protection; other methods of encouraging, subsidizing, or financing inventive activity may well be more efficient or less costly. The bias inherent in the patent system in favor of technologies that happen to satisfy the requirements of patentability is one of the defects of the system. Another is that the system tries to promote the creation of technical knowledge by restricting its use. What is wanted is a system that does not discriminate between types of technology or operate by restricting the application of the inventions that it stimulates.
Some nonlawyers speak of an “abuse” of the patent monopoly when the social objectives it is supposed to serve are not promoted but, rather, are jeopardized by the way it is used; for example, when the “limits” of the monopoly “intended” by society are overstepped and the monopolistic control is extended in time, scope, or strength. In most countries, the law does not recognize this broad concept of “abuse.”
Patentees may succeed in extending the effective duration of control (a) through procedural devices, especially by prolonging the pendency of the patent between application and issuance; (b) through secret use of the invention prior to the filing of the application; (c) through incomplete disclosure, making it impossible for those without special know-how to use the invention even after the expiration of the patent; (d) through the successive patenting of strategic improvements that make the unimproved invention commercially obsolete after the expiration of the original patent; (e) through the creation of a monopolistic market position based on the good will of a trademark associated with the patented product or process, where the mark and the consumer loyalty continue after expiration of the patent; and (f) through licensing agreements that survive the original patent because they license a series of improvement patents and a possibly endless succession of future patents.
The patentee may succeed in extending the scope and strength of the monopoly beyond the limits consistent with the social objectives of the system—especially, beyond the control of the use of a single invention supposedly in competition with other inventions—to achieve control of an entire industry or of the markets of other goods not covered by the patent. Substantial control of an industry can be achieved by a “basic patent” (on a bona fide basic invention); by an “umbrella patent,” under which illegitimately broad or ambiguous claims, covering the entire industry, have been allowed and are not tested in the courts; by a “bottleneck patent,” which is not basic but is good enough to delay or exclude the entrance of newcomers to the industry; by an accumulation of patents which secure domination of all existing firms and effectively close the industry to newcomers; or by the use of restrictive licensing agreements establishing domination or cartelization of the industry and exclusion of newcomers. Control sometimes is extended to markets for products not covered by the patent through the use of tying clauses in licensing agreements, chiefly in order to increase monopoly revenues by means of price discrimination [SeeMonopoly]. (For example, by selling a material that must be used on a patented machine at a monopoly price, the seller collects more from those who make heavy use of the machine than from those who make less use of it, although the cost of making and using the machine is the same no matter who uses it.) All these “extensions” of control have been objected to by opponents of monopoly, but this does not mean that they have been found to be unlawful.
Patent pooling arrangements, sometimes necessary in order to permit the efficient use of complementary inventions controlled by different firms, have often been the vehicles for highly restrictive cartel agreements. Indignant complaints have been raised against the use of patents to oppress weaker firms by harassing litigation or threat of litigation and against the use of license agreements to bind competitors or customers not to contest the validity of dubious patents. There have been similar complaints against the taking out of patents, not to work the patented invention, but to keep others from working it, especially to “fence out” possibly competing developments of the patented invention or to “fence in” the competition by blocking possible developments of inventions patented to them.
Nonworking and insufficient working
Nonworking of patented inventions has been high on the list of grievances against patent protection. One must distinguish, however, between the nonuse of inventions whose use would be uneconomic and the “suppression” of inventions that could be used economically. In the first category are inventions of nonmarketable articles, inventions of processes that are inoperable or too expensive, and inventions of alternative processes, instruments, or products that are not superior or perhaps are inferior to those in actual use. Neither the patentees nor anyone else may want to use such inventions. If others do want licenses that a producer holding the patent refuses to grant, although he himself does not use the invention, one may suspect a case of suppression. (This prima facie indication could be rebutted by showing that the applicants would not use the invention either, if they could freely choose among all known technologies, including the ones used by the producer who refused to license.) In the absence of any applications for licenses, suppression of inventions is difficult to prove: one would have to show that their use would be economically practical and desirable although the patent owners, perhaps in view of the “premature” obsolescence of their capital equipment, have decided to keep these inventions on the shelf. The proof might be feasible for cost-saving inventions, but hardly for product-improving ones; after all, cost calculations can be checked, but demand estimates are mere conjectures.
Under the laws of some countries, especially England, “insufficient working” is regarded as an abuse of the patent monopoly, as is the charging of “excessive prices” for patented articles. Since it is the very essence of patents to restrict competition and to permit output to be kept below, and price above, competitive levels, it is difficult to conceive of economic criteria by which one could judge whether output is less than what would be “reasonably practicable” and whether price is “unreasonably high.”
The patent laws of some countries provide against the domestic nonuse of inventions patented to foreigners who seek mainly to have a sheltered market for their imports. Compulsory working—a threat of revoking patents not worked after a few years—may operate like a protective tariff, leading to uneconomic uses of resources. For this reason, compulsory working was replaced, as a remedy for domestic nonuse of patented inventions, by compulsory licensing of the patents to those interested in taking up production.
Compulsory licensing is not always instituted as a penalty or remedy for “unlawful abuse”; in some countries it may be resorted to whenever deemed necessary to safeguard the public interest. Be it because of “abuse,” as in England, or “in the public interest,” as in Germany, the issuance of a compulsory license may be requested by an interested party whom the patentee has refused to license or may be proposed by a government department. In Germany such actions have been taken to facilitate the use of dependent patents, that is, of patents covering inventions that could not be worked without license under a patent held by someone else. In Britain insufficient use of a patent may be charged in a claim for a compulsory license or for “licenses of right,” especially in a case of food products and medicines (which were made patentable only by the Patent Act of 1949), although these provisions have rarely, if ever, been used. In the United States compulsory licensing has sometimes been ordered by the courts in cases in which patentees have used their patents in violation of the antitrust laws. Some of these compulsory licenses have been royalty-free, while others have provided “reasonable” royalties.
The “effects” of an existing social (legal, economic) institution can be seen only by a mental experiment: one must imagine what difference it would make if the institution were abolished. This is difficult, for institutions are rarely eliminated without something else taking their place. If there were no patent system, what would be done to protect industrial secrets; to prevent the raiding of personnel with special know-how; to maintain, strengthen, or weaken the market positions of the technologically most progressive firms; or to support research and development by trade associations, by government bureaus, and by individual firms? Thus, should one analyze the benefits and costs of the patent system on the assumption that there would be other ways of promoting technological progress or that there would be nothing of the sort? Obviously, arbitrary assumptions cannot be avoided.
One may attribute to the patent system all additions to the national product that are obtained through the use of such technology as is invented, developed, or put to use thanks only to patent protection, actual or expected. Not all inventions actually covered by patents owe their existence or utilization to the patent system. Many inventions would have been made in any case. On the other hand, some inventions not covered by patents may have been inspired by patented technology or stimulated by the hope for patents. Per contra, the patent system may have prevented some inventions from being made or used; for example, if the strong patent position of one firm discourages others from working in the particular field.
The most important distinctions are between (1) inventions which, without patent protection, would never have been made or used; (2) inventions which, without patents, would have been made or used only at a later time; and (3) inventions which would have been made or used at the same time. The additions to national product that are due to the third category of invention cannot be credited to the patent system; and those due to inventions of the second category can be credited only for the years of earlier use.
There is no objective evidence for judging the relative frequency of inventions in the three categories. Some patent lawyers think that almost all inventions fall into the first category; some sociologists regard this as a nearly empty class and judge most inventions as belonging to the third category.
The problem of estimating the increments of national product that depend on new inventions is quite complicated. It is soluble as far as cost-reducing inventions are concerned; for quality-improving and product-innovating inventions one would have to use “welfare indices” based on hypothetical consumer surpluses. There is a further complication in the implications of economic growth. It is relatively easy to estimate the benefits due to a costreducing invention if the supply of labor and other resources remains constant, but if resources and demand grow from year to year, the effects of a cost reduction will increase accordingly. Thus, the present value of the increment to national product attributable to a particular invention will depend not only on the rate of interest but also on the prospective growth rate of the supply of resources.
When some economists said that the patent system costs society nothing, they must have meant that there was no net cost, that is, that the benefits exceeded the cost. Six categories of cost may be distinguished.
(1) Operating costs of the patent system. These are the remuneration of administrators, lawyers, technicians, and clerks in government, in the law offices, and in industry. One must include the time that scientists and engineers spend in expressing their findings in a form that qualifies them as patentable inventions.
(2) Cost of research, invention, and development. These may be counted only to the extent that the activities are induced by the patent incentive. The money cost of research may understate the opportunity cost if, for example, scientists employed in industrial research could do more productive work in teaching or basic research.
(3) Cost of innovation and resource reallocation. The innovation induced by patent protection requires resources in itself and also may accelerate the obsolescence of capital equipment and cause losses through the necessary retraining of displaced labor with specific skills.
(4) Restriction of output due to limited use of patented technology. Such restriction is inherent in the system, since only by holding output below the “competitive norm” can any earnings be secured from the patent monopoly. In the case of inventions that would never have been made without patents, the loss due to output restriction may be entered into the social-cost account only if the benefits from the full utilization of the invention are credited to the patent system. For inventions that would have been made later without patents, the ratio of benefits to costs depends on how much earlier the new technologies come into use as a result of the patent system and for how many years their use is restricted under the exclusive rights.
(5) Restrictions of output due to transcendent strengthening of monopoly positions. The acquisition of strong patent positions may strengthen the market power of firms in areas other than those covered by its patents, leading to smaller outputs in these other areas.
(6) Loss of output due to delayed invention and use. Losses occur where the existence of strong patent positions discourages potential inventors and potential users of inventions from invading the protected area.
Net benefit or loss
Present knowledge does not enable us to make numerical estimates of the total social costs and benefits of the patent system. Apodictic assertions about the “great” net benefit or net loss are without any foundation. Most of those who have made such assertions have not even considered the relative order of magnitude of the various items.
While it may be impossible to estimate the total benefits and costs of the patent system, one may attempt to analyze the marginal benefits and costs of particular moderate changes in the duration, scope, or strength of patent protection. For example, one may examine the probable effects of lengthening (or shortening) the duration of the patent term by one year. The marginal benefit may be found by considering what effects marginal profit expectations would have upon marginal research and development budgets, upon real resources acquired with these funds, upon the flow of inventions and the portion of the flow that can be practically applied, and upon the change in total output that depends on it. The marginal cost may be found by concentrating chiefly on cost items (2) and (4) in the list above. An analysis of this sort for a patent term longer than 15 years conveys the impression that the marginal benefits fall short of the marginal costs.
Similar techniques of analysis may be employed for other changes in the patent system, such as the introduction of compulsory licensing or the extension of the patent system to (or its withdrawal from) particular types of products or processes. Not that we may hope for a consensus of the experts (with their judgments often affected by their interests), but some crucial issues can probably be isolated for special study.
Present knowledge and ignorance
Even where economic analysis seems to have reached conclusive results, the conclusions often are politically ineffectual. There can be little doubt, for example, that in small countries and in nonindustrial countries the social costs of the patent system exceed its benefits, chiefly because many of the benefits could be obtained there without granting patents. Nevertheless, these (perhaps newly independent) nations are anxious to adopt a patent system and, thus, to have the honor of paying higher prices for imported products.
For large industrial countries the net effects of patents are as yet unknown. This ignorance is not likely to be overcome soon, since the information needed to test the essential factual assumptions does not exist. Until we have the evidence, we shall have to be cautious and skeptical regarding both the claims made by enthusiastic supporters of the patent system and the charges preferred by fanatic abolitionists.
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Rights, granted to inventors by the federal government, pursuant to its power under Article I, Section 8, Clause 8, of the U.S. Constitution, that permit them to exclude others from making, using, or selling an invention for a definite, or restricted, period of time.
The U.S. patent system is designed to encourage inventions that are useful to society by granting inventors the absolute right to exclude all others from using or profiting from their invention for a limited time, in exchange for disclosing the details of the invention to the public. Once a patent has expired, the public then has the right to make, use, or sell the invention.
Once a patent is granted, it is regarded as the personal property of the inventor. An inventor's property rights in an invention itself are freely transferable and assignable. Often employees who invent something in the course and scope of their employment transfer and assign their property rights in the invention to their employer. In addition, a patent holder, or patentee, can grant a license to another to use the invention in exchange for payment or a royalty.
Inventors are not required to participate in the patent system, and they can elect instead to try to keep their invention a trade secret. However, if the inventor begins to sell his or her invention or allows the public to use it, others can study the invention and create impostor products. If this happens, the original inventor has no protection because he or she did not obtain a patent.
There are three types of patents: (1) design patents, (2) plant patents, and (3) utility patents. Design patents are granted to protect a unique appearance or design of an article of manufacture, whether it is surface ornamentation or the overall configuration of an object. Plant patents are granted for the invention and asexual reproduction of a new and distinct variety of plant, including mutants and hybrids. Utility patents are perhaps the most familiar, applying to machines, chemicals, and processes.
Patent law in the United States is based upon statutes located in Title 35 of the U.S. Code, including the Patent Act of 1952. The rules of the patent and trademark office, found in Title 37 of the code of federal regulations, provide additional authority. In addition, the general agreement on tariffs and trade (GATT) has led to significant changes in U.S. patent law that are designed to bring some aspects of U.S. law into conformity with those of the country's trading partners. The GATT Implementation Act was signed into law in 1994, and those of its provisions that impact U.S. patent law began to take effect in 1995.
One important change in U.S. patent law resulting from GATT is the duration of U.S. patents. Patents were originally given 14-year terms from the date of issue, until that was changed in 1861. From 1861 until the implementation of GATT, the term of a patent was 17 years from the date of issue. Under GATT, all patents issued after June 7, 1995, have a term of 20 years from the effective filing date. GATT contained a retroactive component which provided that all patents that had been issued, but not yet expired, as of June 7, 1995, would have a term that is the longer of 20 years from its effective filing date or 17 years from the date of issue. The effective filing date is the date on which the earliest U.S. application is filed under which priority is claimed. In the United States, patent rights begin when the patent is issued.
Upon expiration of the term, the invention becomes public property and is freely available for use, reproduction, or sale. Patents can be extended for up to five years under limited circumstances, including interference proceedings (proceedings to determine the priority of an invention), secrecy orders, and appellate review.
The Patent Act provides a broad definition of what can be patented: any new or useful process, machine, manufacture, composition of matter, or any new and useful improvement thereof. Although these categories of patentable subject matter are broad, they are also exclusive, and any item that does not fall into one of them is not patentable.
As defined by the Patent Act, a process is a method of treating certain material to produce a specific physical change in the character or quality of that material. A machine is a device that uses energy to get work done. The term manufacture refers to a process whereby an article is made by the art or industry of people. A composition of matter is a compound produced from the combination of two or more specific ingredients that has properties different from, or in addition to, those separately possessed by each ingredient.
An improvement is any addition to, or alteration in, a known process, machine, manufacture, or composition that produces a useful result. The right to a patent of an improvement is restricted to the improvement itself and does not include the process, machine, or article improved.
Naturally occurring substances, such as a type of bacteria or an element, are not patentable. But a genetically engineered bacterium is patentable. The law of gravity and other laws of nature are not patentable. Other abstract principles, fundamental truths, calculation methods, mathematical algorithms, computer programs, and bookkeeping systems are not patentable. Ideas, mental theories, or plans of action alone, without concrete means to implement them, are not patentable, irrespective of how revolutionary and useful to humanity they might be.
Is the Human Genome Patentable?
Deoxyribonucleic acid (DNA) is often called the "blueprint of life." Between 1980 and the early 2000s efforts were made to patent the human genome, which contains the entire genetic code for the human species. These efforts have generated controversy, especially between members of the scientific and religious communities. In 1980 the U.S. Supreme Court contributed to the controversy by ruling that live, human-made microorganisms are patentable subject matter under the federal Patent Act. Applying the Supreme Court's ruling to the human species, the U.S. patent and trademark office (USPTO) extended patent protection to isolated and purified strands of the human genome.
The U.S. Constitution gives Congress the power to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." U.S.C.A. Const. Art. I Section 8, Clause 8. Pursuant to this authority, Congress enacted the Patent Act of 1952. July 19, 1952, c. 950, 66 Stat. 797. Section 101 of that act allows a patent to be obtained by anyone who "invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." 35 U.S.C.A. 101. Congress also created the USPTO to issue patents.
A patent is like a legally protected monopoly over a specific intellectual property. Patents grant inventors the exclusive right to make, use, or sell their inventions for a period of 20 years. 35 U.S.C.A. 154. Patent holders can prevent anyone else from using their invention, even someone who innocently infringes on the patent holder's intellectual property rights by subsequently developing the same invention independently. Alternatively, patent holders can require that subsequent users pay licensing fees, royalties, and other forms of compensation for the right to make commercial use of an invention. In exchange for this broad, exclusive right over an invention, patent holders must disclose their invention to the public in terms that are sufficient to allow others in the same field to make use of it. 35 U.S.C.A. 112.
The patentability of inventions under U.S. law is determined by the Patent and Trademark Office (USPTO) in the department of commerce. A patent application is judged on four criteria. The invention must be "useful" in a practical sense (the inventor must identify some useful purpose for it), "novel" (i.e., not known or used before the filing), and "nonobvious" (i.e., not an improvement easily made by someone trained in the relevant area). The invention also must be described in sufficient detail as to enable one skilled in the field to use it for the stated purpose (sometimes called the "enablement" criterion). In general, raw products of nature are not patentable. DNA products usually become patentable when they have been isolated, purified, or modified to produce a unique form not found in nature. The USPTO has three years to issue a patent.
As of 2003 over 3 million genome-related patent applications have been filed. U.S. patent applications are confidential until a patent is issued. The human genome represents a biological map of the DNA in a body's cells. The human body is made up of roughly 1 trillion cells. Every cell contains 23 pairs of chromosomes, and each chromosome houses a single DNA molecule. The chief DNA task is to provide cells with instructions for building thousands of proteins that perform most of the body's essential chores. Proteins contain amino acids and enzymes that catalyze hormones, biochemical reactions, and major structural development, a process known as protein synthesis.
The legal controversy surrounding DNA patenting intensified during 1988 when Congress initiated the Human Genome Project (HGP), a 15-year, $3 billion dollar research project designed to map and sequence the entire human genome. The HGP goal is to develop diagnostic tests and treatments for more than 5,000 genetically-based diseases. A rough draft of the entire genome was completed in June 2000.
In 1995 a group of more than 200 Catholic priests, Protestant ministers, Jewish rabbis, and other religious leaders gathered in San Francisco at the annual Biotechnology Industry Organization conference to attack the laws that have allowed scientists to patent the DNA of various organisms. They argued that such laws violate the sanctity of life by unlocking divine secrets and enabling scientists to patent God's creations. Environmentalists, who assert that nature is devalued by laws enabling corporations to reduce a species and its molecules to ownership, have leveled a variation of this criticism. They raise questions about what will happen to society when its most basic notions about the distinctions between animate and inanimate objects are blurred, as human life becomes just another commodity to be bought and sold on the open market.
Some of the strongest criticism has come from the scientific community itself. Certain members of that community have argued that patenting human DNA sequences hampers the free flow of information necessary to most research projects. They contend that having to invest time in tracking down a patent holder, entering into licensing agreements, and paying royalties drives up costs, slows research, and provides disincentives for scientists to undertake research in the first place. They observe that two companies, Incyte Pharmaceuticals Inc. and Human Genome Sciences Inc., own more than half of the U.S. patents on human genetic structures, and thus can exact exorbitant fees from healthcare companies hoping to put their discoveries to use.
Proponents of DNA patenting point to the groundbreaking discoveries that have already been patented, including genetic links to breast cancer, colon cancer, multiple sclerosis, tuberculosis, diabetes, cystic fibrosis, Huntington's disease, and Alzheimer's disease. Proponents maintain that the speed at which these discoveries were made was dramatically increased by laws making them a commercially valuable, patentable invention.
Lyon, Jeff, and Peter Gorner. 1995. Altered Fates: The Genetic Re-Engineering of Human Life. New York: Norton.
Weissman, Gerald. 1995. Democracy and DNA: American Dreams and Medical Progress. New York: Wang and Hill.
However, the 2001 Supreme Court case J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred Intern., Inc., 534 U.S. 124, 122 S.Ct. 593, 151 L.Ed.2d 508 (2001), affirmed that newly developed plant breeds are patentable subject matter. In an opinion written by Justice clarence thomas, the Court said that plants were patentable under the general utility patent statute. To obtain patent protection, a plant breeder must show that the plant it has developed is new, useful, and non-obvious, and must provide written description of plant and deposit of seed that is publicly accessible.
A process that uses a natural law, fundamental principle, or mathematical equation can be patented. For example, in the 1981 decision of Diamond v. Diehr, 450 U.S. 175, 101 S. Ct. 1048, 67 L. Ed. 2d 155, the U.S. Supreme Court decided that an industrial process could be patented in spite of the fact that it depended upon a mathematical equation and involved the use of a computer program.
The Diamond ruling upheld a patent to two inventors for an improved process for molding rubber articles. A patent examiner had previously ruled against the inventors, finding that they sought patent protection for a computer program, which the Supreme Court had expressly said could not be patented. The process in question, which was patented, was developed to calculate with greater accuracy the amount of time required to obtain uniform curves in synthetic rubber molds.
As a further requirement for an invention to be patentable, it must meet three criteria: (1) novelty (it does not conflict with a prior pending patent application or a previously issued patent); (2) utility (virtually any amount of usefulness suffices); and (3) nonobviousness (the invention is not obvious to a person of ordinary skill in the art to which the invention pertains).
It is not always easy to determine what is an "ordinary level of skill" or what is "obvious" in deciding whether an invention meets the criterion of nonobviousness. The U.S. Supreme Court decision in Graham v. John Deere Co., 383 U.S. 1, 86 S. Ct. 684, 15 L. Ed. 2d 545, 148 U.S.P.Q. 459 (1966), provides the analytical framework in which to decide whether an invention is nonobvious. Just because all the parts of an invention may be found in a prior art does not necessarily make the invention obvious.
Patents may be rejected for nonutility when their only use is a violation of public morals, such as a tool that can only be used to commit a crime.
Individuals Entitled to Patents
To be entitled to a patent, an inventor must be the first and original inventor. Joint inventors can obtain a patent for a joint invention, but none of them can obtain a valid patent as a sole inventor.
U.S. law requires that patent applications be filed in the name of and signed by the actual inventor or inventors. If one of the actual inventors is deceased, then the patent application may proceed in the names of the other inventors, but the application must still properly identify all inventors. If all of the inventors, or the sole inventor, are deceased, another person may file a patent application in their place, but only if the filing individual has a legal right to file (such as through descent of the inventors' personal property) and the inventors are still properly identified.
In the United States, the initial right to file for a patent rests with the actual inventor, even if that person is an employee who creates the invention in the course and scope of his or her employment using employer resources. However, it is a regular practice for employees engaged in research leading to patentable inventions to sign written contracts that specify that they will assign to their employer the exclusive rights under any patent obtained during the course of the employment. The employee may receive a certain percentage of the profits earned by the invention in exchange for the assignment of the patent.
Government employees, other than those employed in the Patent and Trademark Office, are entitled to obtain patents for their inventions or discoveries. During the period of employment and for one year thereafter, anyone who is employed in the Patent and Trademark Office is ineligible to acquire or take directly or indirectly, except by inheritance or bequest, any rights in a patent that is issued or to be issued by the office.
Procedure for Obtaining a Patent
To obtain a valid patent, an inventor must make an application to the Patent and Trademark Office. Before making an application, inventors generally make a preliminary patentability search, a relatively low-cost search of all of the patents issued in the United States, to determine if it is feasible to proceed with an application. Often professional searchers perform these searches and give the results to a patent attorney who provides an opinion as to whether the invention is patentable. Although the preliminary search is not required by law, if it is performed, the inventor is required to provide all information obtained through that search to the Patent and Trademark Office if she ultimately files a patent application.
The application must include specifications and drawings of the proposed invention, an oath signed by the inventor, and the requisite fee. The Patent and Trademark Office keeps patent applications confidential until the patent is granted. The term letters patent refers to the document that contains the grant of a patent right.
A specification is a written description of the invention that includes the manner and process of creating, constructing, compounding, and using it. It should also state the practical limits of the operation of the invention. The description must be in complete, clear, concise, and precise terms to make the limits of the patent known, to protect the inventor, and to encourage the inventiveness of others by informing the public of what is still available for patent. Total disclosure of the invention is mandated to allow the public to freely use the invention once the patent has expired. No patent will be granted if the description purposely omits the complete truth about the invention in order to deceive the public.
The specification concludes with the claims, which explicitly describe both the structure of the invention and what it does. By regulation and time-honored tradition, the patent claims are written in the form of a continuous run-on sentence. The claims give the Patent and Trademark Office and the courts the opportunity to determine whether the subject matter is patentable or whether it has been anticipated by a previous invention. A claim can be either rejected by the Patent and Trademark Office or deemed invalid if it is vague, indefinite, or incomplete. The claim should cover only the actual invention. It can also be rejected if it is so broad as to include what is old and known information in addition to what is new. Each claim
must contain only one single and distinct invention, but more than one claim can be included in a single application. The inventor also must disclose in the specification what she considers to be the optimum way of practicing or using the invention.
Drawings must be included in a patent application only when they are necessary for understanding the subject for which a patent is sought. If drawings are omitted, the commissioner of patents can require that they be submitted within two months from the time that the inventor receives notice. Drawings that are submitted after that time cannot be used with the application, and a patent can be denied due to the inadequacy of the specification.
The commissioner can require that the inventor provide a model of the invention. In addition, when the invention involves a composition of matter, the applicant might have to furnish a specimen of it for inspection or experimentation.
Oath and Fee
The application for a patent is accompanied by an oath that the inventor believes herself to be the first and original inventor. The patent laws of the United States do not discriminate on the basis of the citizenship of the inventor. An inventor from another country may apply for a patent on the same basis as a U.S. citizen.
An application for an original patent must be accompanied by a filing fee payable to the Patent and Trademark Office. Fees vary depending upon the type of application and the size of the entity applying for the patent. Small entities pay lower fees. When a patent is issued, the patentee must pay an additional fee. These fees also vary based on the size of the entity to whom the patent is issued. Additional fees are charged for maintaining a patent, which likewise vary with the size of the entity involved in the maintenance of the patent.
Patent and Trademark Office Proceedings
Upon receipt of an application for a patent, the commissioner must examine it to determine whether the applicant is entitled to a patent. The Patent and Trademark Office is not restricted to the use of technical evidence in reviewing applications but can act upon anything that establishes the facts with reasonable certainty.
A patent application can be rejected for substantial and reasonable grounds, such as when the alleged invention lacks usefulness or when the invention has been publicly used or sold previously. If the patent is rejected, the commissioner must notify the applicant of the rejection and the grounds for the rejection. An applicant can request a reexamination of the application and submit evidence to rebut the reasons for rejection. Failure to request a review is considered a waiver of the right to challenge the rejection.
A pending application may be amended until the Patent and Trademark Office ultimately decides the matter, either by issuing the patent or rejecting the patent application. New and enlarged claims can be added by amendment only when they are fairly within the scope of the original claim. An amendment that involves a material departure from the invention described in the original specification or enlarges the scope of the original application is invalid. When made within a reasonable time, amendments relate back to the original date of the application and are treated as if they were included in the original application. This is significant because time determines who will be entitled to the patent when two inventors claim essentially the same invention.
Loss or Denial of a Patent
An individual who has invented or discovered a process or object is entitled to a patent if the item or process falls within the specific categories of patentable matter and possesses the necessary attributes of invention, novelty, and utility.
Anticipation A patent will be denied in the event that anticipation occurs, which means that the complete invention was disclosed before the applicant's invention or discovery. This situation might arise when substantially similar elements that produce, or are capable of producing, the same results are found in previously invented machines that are known and commercially used. However, if the two similar inventions accomplish substantially different results or perform totally different functions, they are not deemed to be anticipated, and the second invention will be patentable even if it is essentially identical structurally to the first invention.
For a prior patent to anticipate a later invention, it must disclose the complete and operative invention in such full, clear, and exact terms as to enable a skilled individual involved in the art to practice the invention without the exercise of his or her own inventive skill. A process or instrument used for one purpose might anticipate an invention that uses essentially the same method for a new use if the latter is so comparable to the original invention that it would be apparent to a person experienced in the field. An invention is not anticipated if it has been produced previously due to an accident but is incapable of being repeated because the necessary knowledge to do so is lacking. If the results could be reproduced, however, the invention is considered anticipated.
Previous experimental efforts that are abandoned before the invention achieves actual results do not anticipate the invention. The invention is anticipated, however, if the experiment proves successful.
Statutory Bar Section 102(b) of 35 U.S.C.A. provides a statutory bar to some otherwise meritorious inventions. Under this rule, an inventor is not issued a patent if her invention was described in a book, catalog, magazine article, thesis, or trade publication in the United States or any other country before she invented it or more than a year before she filed the patent application. This statutory bar applies regardless of who made the invention discussed in the prior publication. Thus, if an inventor publishes a description of an invention or places the invention for sale or for public use, a statutory bar can result. Once an invention is placed for sale in the United States, the inventor has just one year in which to file a patent application or the right to patent that invention is forever lost. The clock begins when the invention is placed for sale, even if it is never actually sold. This rule is intended to guarantee that an inventor cannot expand the period of patent protection for the commercial exploitation of her monopoly.
Abandonment and Forfeiture An inventor can lose the right to obtain a patent through abandonment. An invention is regarded as abandoned when it is subject to free and unrestricted public use.
A recognized exception to this general rule, called the "experimental use exception," occurs when an invention must be placed in the public use to determine its operability. However this exception is very narrow, and the inventor must be careful to document the invention to support a later claim of experimental use.
An inventor forfeits the right to a patent when she delays making a claim or hides the invention for an extensive period of time because such conduct unduly postpones the time that the public would be entitled to the subsequent free use of the invention. Delay in applying for a patent does not constitute abandonment if the inventor can demonstrate that she never intended to abandon the invention.
Priority When two or more inventors dis-cover or invent the same thing, patent priority can deny a patent to one of the inventors. Patents are generally issued to the first inventor, as determined by certain guidelines. The Patent and Trademark Office commences an interference proceeding to determine the priority of invention between two or more inventors who are claiming substantially the same patentable invention and who each appear to be entitled to the patent but for the other's application. Such a proceeding examines the dates of conception and reduction to practice and also considers the diligence exercised by the individual who conceived of the invention first but did not reduce it to practice until after the other inventor had done so. The date of conception is the date when the idea, encompassing all the basic and necessary components of the invention, becomes so clearly defined in the mind of the inventor as to be capable of physical expression. Reduction to practice occurs when the way in which the invention works is readily demonstrable.
An inventor who is the first to conceive of an invention and reduce it to practice is entitled to a patent. When an inventor who first conceives of an invention exercises reasonable diligence in reducing it to practice, she will receive a patent, even if the inventor who was second to conceive of the idea was faster in reducing it to practice.
Another general rule is that an individual who actually reduces an invention to practice has priority over one who constructively reduces it to practice. Actual reduction takes place when the invention is put into practical form, whereas constructive reduction occurs when a patent application is filed with the Patent and Trademark Office.
Former U.S. patent law only allowed inventive activity that actually took place within the borders of the country to establish a date of invention. GATT has changed this restriction to allow foreign inventors to prove inventive activity that took place in another country to show a date of invention. Because the United States has a "first to invent" patent system, whereas most other countries have a "first to file" system, the United States had effectively discriminated against foreign inventors because it gave patents to the first inventor to actually make the invention in the United States. GATT addressed this issue that for many years was a disadvantage for U.S. trading partners.
Applicants for a patent, or for the reissue of a patent, whose claims have twice been rejected can bring an appeal from the final decision of the primary examiner to the Patent Office Board of Appeals and Interferences. An applicant who is dissatisfied with the decision of the board of appeals can appeal to the U.S. Court of Appeals for the Federal Circuit or start a civil action against the commissioner in U.S. District Court for the District of Columbia within a specified period of time after the board issues its decision. The applicant is not permitted, however, to institute both a civil lawsuit and an appeal to the U.S. Court of Appeals for the Federal Circuit.
Reissue and Disclaimer
A reissued patent is the grant of a new patent that modifies the original invention by the addition of new elements. A reissued patent is essentially an amendment of the original patent effected to rectify some defect or insufficiency in it.
A disclaimer is the voluntary abandonment of some portion of a patent claim that would render it invalid for lack of novelty. It limits the claim to what is new and thereby saves the patentability of the item by circumventing the invalidity that would otherwise defeat the entire claim. An inventor who knows that a patent contains invalid claims should immediately file a disclaimer because the failure to do so could result in the rejection of the patent.
Assignment and Lease
An assignment is a transfer either of the entire patent, encompassing the exclusive right to make, use, and sell the invention, or a specified part thereof, in the United States. The assignment must be in writing and should be recorded in the Patent and Trademark Office. In the event that a patent is assigned but the assignment is not recorded, a later purchaser of the patent can use the purchased patent as if it had never been assigned.
An assignment is different from a license because a license merely provides the licensee with a temporary right to use the patent as agreed. A license need not be in writing. Whether a transfer is an assignment or a license is determined by reference to the contract between the parties. A patent license is personal to the licensee and cannot be transferred unless specifically indicated in the agreement. The licensor, the individual who issued the license to another, ordinarily requires the payment of a royalty for the use of the patent.
Marking Patented Items
A patentee or any authorized party who makes or sells any patented item must provide notice to the public that the article is patented by placing the word patent and the number given to the patent on the article. If the nature of the article prohibits such a designation, a label that contains the same information should be enclosed in, or marked on, its package. This marking requirement is not applicable to a patent for a process.
Inventors can mark their inventions with the words patent pending if they have a patent application on file and pending with the Patent and Trademark Office at the time the products are marked.
Federal law imposes a penalty for various forms of false marking, including marking an unpatented article with the word patent, or any term that implies that the article is patented, for the purpose of deceiving the public. If a patent holder fails to mark the patented product as required, he or she may not recover damages for any patent infringement that may take place as a result.
Infringement is the unauthorized making, using, or selling for practical use or for profit an invention covered by a patent. Effective 1996, GATT also made the offer to sell a patented invention without the permission of the patentee a direct infringement violation.
Although no infringement can occur before a patent is issued, infringement can occur even if the infringer does not have any actual knowledge of the existence of a patent. A direct infringer is one who makes, uses, or sells the patented invention without permission from the patentee. An indirect infringer is one who actively encourages another to make, use, or sell a patented invention without permission. A contributory infringer is one who knowingly sells or supplies a part or component of the patented invention to another, unless the component is a staple article of commerce and is suitable for a substantial noninfringing use.
The definition of an infringement, provided in 35 U.S.C.A. § 271, has been greatly expanded in the late 1980s and 1990s. For example, it is an infringement to apply for federal food and drug administration approval of a patented drug if the purpose is to obtain approval to manufacture, use, or sell the drug before its patent expires. It is also an infringement to provide a substantial portion of the components of a patented invention to someone outside of the United States so that the components can be assembled outside of the reaches of U.S. patent law. Similarly, it is an infringement to import into the United States a product made by a process covered by a U.S. patent although it was produced outside the United States.
The Patent Act provides for several remedies in the event of an infringement, including injunctive relief, compensable damages, treble damages when appropriate to punish the infringer, payment of attorneys' fees in cases involving knowing infringement, and payment of the costs incurred in bringing the infringement claim in court.
The owner of a patent has a right of action for the unlawful invasion of patent rights by an infringement that has arisen within six years from the date when the lawsuit is initiated.
Injunction Courts frequently grant injunctions to protect property rights in patents. An injunction is a court decree that orders an infringer to stop illegally making, using, or selling the patented article. An injunction is only granted when an award of monetary damages will not adequately remedy the situation—for example, when an infringer plans to continue the unlawful acts. If an individual disobeys an injunction and continues to make use of an invention without permission, he will be guilty of contempt and subject to a fine or imprisonment or both.
Damages In an action for infringement of a patent, compensation for prior infringements can be awarded; however, compensation will be denied for use of the invention before the date the patent was issued. Where there is an infringement, the court will award the patentee actual damages adequate to compensate for the loss in an amount that is equal to a reasonable royalty for the infringing use, together with interest or costs set by the court. If the jury in a trial does not determine the amount of damages, the court will. In either case, the court, under the authority of statute, can increase the damages awarded by the jury up to three times the amount determined, called treble damages. Treble damages are punitive and awarded only in certain instances, such as when the infringer intentionally, in bad faith, infringed the patent.
The question of whether amendments to a patent can bar an infringement claim was ruled on by the Supreme Court in the 2002 case of Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 535 U.S. 722, 122 S.Ct. 1831, 152 L.Ed.2d 944 (2002). In that case, the Court unanimously ruled that a patent amendment is not an absolute bar to a claim of infringement under the doctrine of equivalents. Justice anthony kennedy, writing for the court, stated the patentee has the burden of proving that the amendment did not surrender the particular equivalent in question.
Battle, Carl W. 1997. The Patent Guide: A Friendly Handbook for Protecting and Profiting from Patents. New York: All-worth.
Mann, Richard A., and Barry S. Roberts. 2004. Essentials of Business Law and the Legal Environment. 8th ed. Columbus, Ohio.: Thomson/South-Western West.
Walterscheid, Edward C. 1996. "The Early Evolution of the U.S. Patent Law: Antecedents." Journal of the Patent and Trademark Office Society 78 (October).
Wilson, Lee. 1990. Make It Legal: Copyright, Trademark, and Libel Law: Privacy and Publicity. New York: Allworth.
Sections within this essay:Background
Types of Patents
Utility, Distinctiveness, or Ornamentality
Obtaining a Patent
Inventors Entitled to Patents
Provisional Patent Application
Specifications and Claims
Patent Oath and Fees
Review by the Patent and Trademark Office
Inventors' Rights to Patented Items
Duration of Patents
Assignment and Licensing
Applicability of State Law to Patents
American Intellectual Property Law Association (AIPLA)
National Association of Patent Practitioners (NAPP)
National Congress of Inventor Organizations (NCIO)
U.S. Patent & Trademark Office (USPTO), General Information Services Division
Article I of the United States Constitution provides Congress with the power to "promote the progress of science and useful arts, by securing for limited times to—inventors the exclusive right to their—discoveries." Pursuant to this provision, Congress established rules and regulations governing the granting of patents. Congress delegated the administration of these duties to the Patent and Trademark Office. The statutory provisions are contained in Title 35 of the United States Code. The federal statutory scheme was modified considerably in 1995 with the adoption of the General Agreement on Tariffs and Trade (GATT), which aligned U. S. patent law with patent laws in other countries.
Issuance of patents is exclusively a federal concern, so state governments cannot issue patents to protect inventions. However, some state laws may provide protection to inventors if the inventor does not attain a patent.
Only certain types of inventions may be patented. The three major types of patents are utility, design, and plant patents, definitions of which appear in the federal statute. If an invention falls within one of the appropriate types of patents, the invention must still be patentable. First, the invention must be novel, meaning no other prior invention description anticipates or discloses the elements of the new invention. Second, the invention must have utility, that is, usefulness. Third, the new invention must not be obvious to those skilled in an art relevant to the invention. The latter requirement is referred to as "nonobviousness."
Congress and the Patent and Trademark Office require that applicants follow specific steps in order for a patent to be issued. Once a patent has been issued, the right is considered the personal property of the inventor, so it can be sold, assigned, etc. The length of the patent depends on the type of patent issued. Generally, the length is either 20 years (utility and plant patents) or 14 years (design patents). Damages for patent infringement are rather severe, thus providing greater incentive for inventors to follow proper procedures to apply for a patent.
Not all inventions may be patented, even those that are novel and unique. The most basic restriction is that while the application of a certain idea may be appropriate for a patent, the mere idea cannot be patented. Thus, discovery of a scientific formula may not be patented, but development of a method using this formula may be patented. The restriction against patenting ideas is often referred to as the "law of nature" doctrine.
Perhaps the most familiar of the types of patents, utility patents may be issued for "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." In the patent application, an inventor must include a detailed description of how to make and use an invention, "claims" that define the invention, and drawings of the invention, in addition to other procedures required by the Patent and Trademark Office and the federal patent statute.
Design patents may be issued for a new, original, or ornamental design for an article of manufacture. This type of patent is limited to the unique shape or design of an object and only applies to the ornamental or aesthetic value of the object. If the shape serves some function, then the inventor should apply for a utility patent. The design cannot be an adaptation of a known form or ornament to a different article. The patent application for a design patent is similar to a utility patent, though the description and "claim" that defines the design are usually very short.
A plant patent may be issued to someone who invents or discovers a unique variety of plant and asexually reproduces such a plant. This category includes cultivated spores, mutants, hybrids, and newly found seedlings, subject to some restrictions. Plant patents do not apply to sexually reproducible plants, but the Plant Variety Protection Act may provide protection for these types of plants.
An applicant for a utility patent must satisfy three basic requirements for a patent to be patentable: novelty, nonobviousness, and utility. Requirements for a design patent or a plant patent are similar, except that ornamentality (design patent) or distinctiveness (plant patent) is required instead of utility.
The patent statute requires that each invention is novel as a condition for the issuance of a patent. For an invention to be considered "novel," no other reference in "prior art" may anticipate or disclose each of the elements of the invention in the patent application. The term "prior art" is somewhat confusing, as it refers to the state of knowledge existing or publicly available at some time before the application for the patent is filed. Prior art may include prior printed publications from anywhere in the world, patents filed prior to the current patent application, publicly available knowledge or use of an invention in the United States, a foreign patent filed by the applicant, a prior invention in the United States, or the previous sale of an item. The time frame in which prior art refers to an invention is set forth in the statutory section defining prior art. The question in most common cases is whether the publication, patent, etc., existed prior to the earliest provable date of invention or more than one year before the patent application was filed.
Even if prior art exists that relates to an invention, a variation in prior art will likely satisfy the novelty requirement. The most common method to prove the difference between prior art and an invention is to demonstrate physical differences between the two. Other methods for proving novelty may include a showing that a new combination of components of an existing item was used or that the invention is a new use for an existing item.
Even if a patent satisfies the novelty requirement, it must still satisfy the requirement of nonobviousness. Under this requirement, if the differences between the subject matter of a new invention and the subject matter of prior art would have been obvious to a person of ordinary skill in the art relevant to the subject matter of the invention, then the nonobvious requirement has not been met. In other words, a new invention must be more than different from prior art; the difference (or different use) must not be obvious to someone who has ordinary skill in using such an invention.
A final requirement for a utility patent is that the invention has utility, which refers generally to the usefulness of the invention. Practically any level of utility is sufficient; the invention must provide some identifiable benefit. However, if an invention can be used only for a scientific curiosity or could only be used for illegal purposes, the patent application is more likely to be denied.
An applicant for a plant patent needs to demonstrate that the plant is clearly distinguishable from existing plants but does not need to prove usefulness or utility of the new plant. An applicant must similarly prove ornamentality rather than utility. Thus, the inventor must show that the invention serves some ornamental or aesthetic purpose.
Under the Patent Act, only the original and authentic inventors may claim patent rights. Even if an invention may be patentable, the patents will not be granted if the wrong individual applies for the patent. The idea for an invention cannot generally be assigned to another person; only the original inventor may apply for the patent. Thus, if an employee invents an item, he or she cannot assign the right to patent the item to an employer in the name of the employer, even if the original inventor used the employer's resources and created the invention during the inventor's employment. The only permitted assignment is one that permits the assignee to obtain a patent in the name of the original inventor. Note that it is common for employees to agree to assign patents to employers.
The Patent statute permits an inventor to file an abbreviated version of a patent application, called a Provisional Patent Application (PPA). The PPA allows an inventor to establish a filing date earlier than the filing date of a Regular Patent Application (RPA). The PPA must be filed within one year of the filing of the RPA. The PPA is beneficial to an inventor if he or she is concerned that someone else may develop the invention, or the inventor does not want to build and test an invention immediately.
The PPA must describe the invention, including a description of how to make and use it; drawings of the invention, if these are necessary to describe how to make and use the invention; a cover sheet; payment of a fee; and a filing of a small entity declaration, if applicable. If a PPA is filed, and the RPA is filed at a later date, the length of the patent is measured by date of the filing of the RPA.
Two or more inventors can be granted a patent for a joint invention; in fact, if a joint invention is appropriate, none of the joint inventors can claim to be the original inventor individually. Should an application omit parties erroneously or the application otherwise names a wrong party, the application could fail. The Patent Act does allow parties to correct mistakes in some circumstances, such as exclusion of an original inventor from the application.
The determination of the appropriate inventor or inventors in a particular case may not be clear. For example, two individuals may have collaborated throughout a project in which something is invented, while a third individual may have assisted from time to time but added nothing by way of original thought or contribution. The appropriate test for determining whether an individual should be included as an inventor is whether the individual worked on the subject matter and made some original contribution to the thought and final result of at least one claim in the application. In the example above, the first two inventors would most likely be considered joint inventors, while the third most likely would not.
The Patent Act includes two main requirements in a patent application: a specification and a claim. The specification generally requires the applicants to describe why the invention differs from prior art, show that the invention is, in fact, useful, and show that the invention would not be obvious to someone skilled in the art relevant to the invention. The patent statute requires that the application describe the invention in its "best mode" to enable an individual skilled in the art relevant to the invention to be able to repeat the invention. The specification cannot be indefinite and must be "clear, concise, and exact." Moreover, the specification must disclose specifically how to use the invention, including specific times, dosages, etc., that are necessary to use the invention.
A claim defines the inventor's right and illustrates how the invention meets the three requirements for patentability: novelty, nonobviousness, and utility (note that these are described in the specification). The claim should describe the invention and should not merely include functional language. Functional language would include, for example, how a new chip performs in a computer system without describing the chip itself or indicating specifically why it is patentable. Functional language cannot establish patentability, and the application will be rejected because the claim is barred.
An inventor must include with a patent application a signed statement indicating that the applicant is the original and first inventor of the subject matter claimed in the application. The application must also identify each inventor by full name, the country in which each applicant is a citizen, plus several requirements related to foreign applications. Moreover, an applicant must acknowledge that he or she is aware of the necessity to disclose information that is material to the review of the application and must state that he or she understand and has reviewed the specifications and claims.
The applicant must sign the application and be sworn to under oath or include a declaration. The inventor or inventors must make the oath or declaration personally. A legal representative may satisfy these requirements only in certain circumstances described by the Patent Act and the regulations of the Patent and Trademark Office. Fees must accompany the application, as set forth in the statute and the regulations.
When the Patent and Trademark Office receives an application, it can make an initial allowance, a partial rejection, or a complete rejection. If an application is rejected, the inventor may contest the rejection by introducing evidence in reply to the rejection, amend or modify the specification and/or claim, or both. If the application is rejected twice, the applicant must appeal the decision.
The first appeal of a rejected application is to the Patent and Trademark Office's Board of Appeals. The Patent Office will engage in informal communications and interviews with both the examiner and the applicant. The Board will generally raise all issues that give rise to the rejection, including discovery of prior art or problems with patentability. The applicant must refute these problems with particularity. This means the applicant must state precisely why the application is satisfactory, why the invention is indeed patentable, etc. The process may continue through several cycles of rejection, amendments, and refilling of an application (though the amendments are limited after a second rejection). The Patent Office may declare a final rejection any time after a second examination on the merits.
If the Board rejects the application then the applicant may appeal to the United States District Court for the District of Columbia or the United States Court of Appeals for the Federal Circuit. However, courts typically give a considerable amount of deference to the decision of the Patent Office, so prevailing in an appeal is unusual.
The duration of a patent depends on the type of patent that has been granted. One of the more significant effects of the General Agreement on Tariffs and Trade was the duration of a patent in the United States. Prior to 1995 (and dating back to 1861), the length of a typical patent was 17 years. After GATT came into effect in 1995, the length increased to 20 years.
Utility patents filed after June 8, 1995 extend 20 years from the date the application was filed. Plant patents also extend 20 years from the date of filing. Design patents extend 14 years from the date the patent was granted. Once the term of the patent has expired, the invention becomes public property and may be used, sold, and reproduced. In some limited cases, such as proceedings to determine the priority of an invention, the length of a patent may be extended up to five years.
The original and authentic inventor or inventors are preserved to be the owner of any patent application, unless this right has been assigned. An application may be assigned before or after the application is filed, and the assignment must be recorded with the Patent and Trademark Office. The right to sue for present or past infringement cannot be assigned, except as it relates to the assignment itself. An assignment transfers all rights of the inventor, and the assignee takes the application subject to licenses granted by the assignor.
An inventor may also issue a license, which gives the license holder permission to make, use, or sell the invention. The rights transferred in a license depend on the actual transfer. For example, a license may be for exclusive or non-exclusive use of the license. A joint owner of a patent may generally give a valid license without the permission of the other joint owners, unless the joint owners agree other-wise. As noted above, even if the rights to a patent are assigned, the license nevertheless survives according to the terms of the license agreement.
The applicant through an express writing that is signed by the applicant and filed with the Patent and Trademark Office may abandon a patent application. The Patent Office will also consider an application abandoned if the inventor fails to prosecute the application within six months of the filing. A patent may also be abandoned if the applicant fails to pay required fees within three months of a notice of allowance sent to the applicant.
Abandonment of an application differs from an abandonment of an invention. An abandonment of an application does not transfer right to the public, while an abandonment of an invention surrenders or dedicates the invention to the public. Abandonment of an invention may be express or implied.
A patent owner may protest his or her invention by suing for patent infringement, which is a tort for the unauthorized making, using, selling, offering to sell, or importing the subject matter of the patent. To determine whether an infringement has occurred, a court will compare the infringing subject matter with the subject matter covered by the patent. Infringement cannot occur before the issuance of a patent, but an individual may infringe a patent right even if he or she does not know the existence of a patent. Infringement may be direct; indirect, where the infringer encourages someone else to infringe the patent; or contributory, where an individual knowingly sells or supplies a component of a patented machine or other invention to another.
A patent owner may recover significant damages in a successful action for patent infringement. The Patent Act permits a court to award treble damages, which means the court can increase damages by up to three times the amount of the actual damages. Courts may also award attorneys fees in exceptional cases.
The minimum award a patent owner may receive for patent infringement is a reasonable royalty, plus costs and interest fixed by the court. A patent owner may also recover the profit the patent holder would have made on sales of the subject matter relevant to the patent. Profits earned by the patent infringer constitute a factor for determining the appropriate royalty or other damages.
An inventor may have rights based on state law in addition to patent rights to protect the intellectual property related to an invention. However, the Patent Act preempts many state causes of action, especially because Congress is granted the right to issue patents in the United States Constitution. The Supreme Court has held that state unfair competition laws are generally preempted by the Patent Act insofar as the state law provides a cause of action that is functionally similar to recognition of a patent right and a cause of action for patent infringement.
State law governing trade secrets are generally not preempted, so an inventor may be able to protect his or her rights through this cause of action. On the other hand, the protection offered through this cause of action is considerably weaker than the rights protected when a patent is granted. More specifically, a patent right is a monopoly to make, use, and sell an invention, while trade secrets law focuses on the conduct of a party that violates the trade secrets of a party. Stated simply, obtaining a patent right is virtually always preferable.
Code of Federal Regulations, Title 37: United States Patent and Trademark Office, Department of Commerce. U. S. Government Printing Office, 2001. Available at http://www.access.gpo.gov/nara/cfr/waisidx_01/37cfrv1_01.html#101.
Intellectual Property: Patents, Trademarks, and Copyright in a Nutshell. Miller, Arthur R., and Michael H. Davis, West Group, 2000.
McCarthy's Desk Encyclopedia of Intellectual Property, Second Edition. McCarthy, J. Thomas, Bureau of National Affairs, 1995.
Patent It Yourself, 4th Edition. Pressman, David, Nolo Press, 1995.
Patent Law Precedent: Key Terms and Concepts. Aisenberg, Irwin M., Little, Brown, and Company, 1991.
U.S. Code, Title 35: Patents. U.S. House of Representatives, 1999. Available at http://uscode.house.gov/title_35.htm.
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Rights, granted to inventors by the federal government, pursuant to its power under Article I, Section 8, Clause 8, of the U.S. Constitution, that permit them to exclude others from making, using, or selling an invention for a definite, or restricted, period of time.
BlackBerry Case Settles
Research in Motion (RIM), maker of Black-Berry, the ubiquitous wireless e-mail device, escaped a shutdown of its services after the company agreed to pay $612.5 million to settle a patent dispute with NTP, a company based in Arlington, Virginia, which holds several patents related to wireless e-mail technology.
As a result of the settlement, the Canadian-based RIM will license the BlackBerry technology and will allow the wireless services to remain operational, to the relief of BlackBerry users in business, government, emergency services, and other professional fields who have come to rely on the technology in order to be accessible at all times.
Thomas Campana, Jr., a co-founder of NTP, developed a wireless communications system for his pager company, which he patented. Campana and co-founder Donald Stout incorporated NTP to hold these patents. The company does not provide services or create products. However, NTP argued that the wireless technology of the BlackBerry device infringed its patents.
Lawyers for RIM argued that the NTP wireless system only allows users to read and print e-mail, while the BlackBerry allows them to reply to messages and to forward e-mail on a handheld wireless device. RIM's brief stated that the Virginia court had misunderstood the functions of the devices and that the products and services did not infringe the NTP patents.
During a hearing in 2006, U.S. District Court Judge James R. Spencer suggested that if the companies failed to reach a settlement, he would uphold a 2002 decision in which a jury in the U.S. District Court for the Eastern District of Virginia found that RIM had infringed patents held by NTP. Enforcement of the 2002 decision would have led to the total shutdown of the BlackBerry system.
In 2004, the U.S. Court of Appeals for the Federal Circuit upheld the ruling from the lower court, which raised the possibility of a shutdown of the BlackBerry service.
In an interesting twist, the Department of Justice filed a brief late in 2005 in which it requested a delay of any shutdown of BlackBerry service because of the widespread use of Black-Berries among federal employees. It asked for 90 days to compile a list of essential government personnel whose BlackBerry service should not be cut off in the event that the companies did not reach a settlement. However, the companies took the threat of injunction seriously and reached an agreement.
NTP wanted to protect the right to license its patents to other companies, and RIM wanted to ensure that wireless carriers would be protected from future litigation. James Balsilllie, a co-chief executive of RIM, said that the settlement amounted to "taking one for the team" to protect its partners from litigation.
Investors and businesses viewed the issue as a litmus test for ways in which the patent system adapts to the digital world. In a Washington Post article, intellectual property attorney Donald R. Steinberg explained that a settlement is often desirable in patent cases because it limits risk to both companies. "There was some risk to NTP that the patents would ultimately be invalidated and then they wouldn't get anything," he said. He added that the risk to RIM was that the patents would be upheld and they would be enjoined, "and in essence they would have to pay more money to get out of the injunction."
Attorneys for RIM argued against the possible injunction by stressing that it was in the public interest to keep the BlackBerry service operational.
The companies said in a joint statement that all terms have been finalized, and that litigation by NTP had been dismissed. Although Campana died in 2004, Stout said in a written statement that "NTP is pleased that the issue has been resolved and looks forward to enhancing its businesses."
BlackBerry may not be out of the woods yet, however. In May 2006, Visto, a wireless e-mail software company owned in part by NTP, filed a patent infringement lawsuit against RIM in which it seeks to shut down BlackBerry services. Although NTP owns an undisclosed stake in Visto, NTP is not involved in the Visto lawsuit, which seeks an injunction rather than royalties. Visto alleges that RIM was aware of the Visto patents but that it had made no attempt to license them. RIM states that the Visto patents are invalid and is considering suing Visto for infringing the RIM BlackBerry patents.
Supreme Court Rejects Mandatory Patent Infringement Injunctions
When a patent is infringed, the holder of the patent may sue the infringer for damages and may seek an injunction barring further infringement. The federal courts have developed a general rule that an injunction must be granted to the patent-holder once infringement has been proven. This rule came under attack in eBay Inc. v. MercExchange, L.L.C., __U.S.__, 126 S.Ct. 1837, __L.Ed.2d __ (2006). The Supreme Court rejected a categorical rule and held that the decision to issue an injunction must be made on a case-by-case basis using traditional equitable principles.
The infringement case involved the Internet auction site run by eBay Inc., which has become enormously popular and profitable. MercExchange, a small, Virginia-based network engineering firm, claimed in 2001 that eBay had infringed on the patents held by its founder Thomas Woolston for a method of selling fixed-price goods online that included an automatic payment system. The specific patent involved the "Buy It Now" feature on eBay that processes transactions for fixed-price purchasing on the web site. MercExchange filed an infringement lawsuit in federal court, alleging that after it had failed to negotiate a licensing fee from eBay to use its patents, eBay proceeded to use an automatic payment system based on the Woolston patents.
In 2003, a federal district court in Virginia found that eBay had infringed two patents held by Woolston, and ordered the company to pay MercExchange approximately $5.5 million in damages. However, the court refused to issue an injunction that would have prevented eBay from continuing to use the "Buy It Now" feature. The court concluded that because MercExchange had failed to engage in commercial activity to market its patent, there was no pressing need to issue the injunction. It was in business to license and enforce its patents.
In 2005, the United States Court of Appeals for the Federal Circuit overturned the lower court decision, ruling that MercExchange was entitled to an injunction. The appeals court stated that injunctions were the rule, rather than the exception, in patent infringement cases, and that an injunction should be granted in this case. The Supreme Court agreed to hear eBay's appeal to determine whether this general rule mandating patent infringement injunctions was correct.
The Court, in an 8-0 decision (newly-confirmed Justice Samuel Alito did not participate in the consideration of the case), overturned the Federal Circuit's decision and the general rule. However, the Court did not resolve the dispute between the parties, returning the case to the lower courts for reconsideration based on the Court's reasoning. Justice Clarence Thomas, writing for the Court, concluded that the district court and the appeals court used different, but incorrect, reasons to support their decisions. Both courts had failed to apply the basic four-part test used to assess whether a permanent injunction is merited. Under this test, the party seeking the injunction must convince the court that it has suffered irreparable injury, that monetary damages were inadequate, that a balancing of the hardships between the parties favored the plaintiff, and that the public interest "would not be disserved by a permanent injunction."
Justice Thomas found that this test applied "with equal force" to patent disputes and that nothing in the U.S. Patent Act indicated that Congress intended to depart from these principles. Therefore, the court of appeals judgment was vacated and the case was remanded so the four-part test could be applied under the equitable discretion of the district court.
Chief Justice John Roberts, in a concurring opinion joined by Justices Antonin Scalia and Ruth Bader Ginsburg, noted that "from at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases." Therefore, federal courts were not "writing on an entirely clean slate." Roberts implied that this historical precedent should guide judges when they apply the four-part test.
Justice Anthony Kennedy also wrote a concurring opinion, which was joined by Justices John Paul Stevens, David Souter, and Stephen Breyer. This group of justices argued that while history may be instructive, new economic and technological circumstances may argue against an almost automatic granting of patent injunctions. Kennedy noted that "An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees." For these firms an injunction could be used "as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent." In this situation an injunction might not serve the public interest.
Whether an injunction would cripple eBay was uncertain. An eBay spokesman was quoted in The New York Times as saying that the company had made changes to the "Buy It Now" feature following the 2003 ruling, and that an injunction, if it were granted, would have little effect on the day-to-day function of the web site. MercExchange argued that it did in fact actively practice its patent by licensing technology to companies that compete with eBay, such as Ubid.com and Autotrader.com., suggesting that the company was not the type cited by Justice Kennedy. More troubling for MercExchange was the fact that the Patent and Trademark Office had begun reconsidering the validity of the patents in question. This process could take year to resolve and would likely produce more litigation.
Laboratory Corporation of America v. Metabolite
In Laboratory Corporation of America Holdings v. Metabolite, No. 04-607, 548 U.S. ____ (2006), the U.S. Supreme Court initially granted certiorari on the question of whether a patent that instructed parties/users to "correlate test results" between elevated levels of homocysteine in the body and certain vitamin deficiencies, could validly claim a monopoly over a basic scientific relationship. The Supreme Court had, sua sponte, requested an amicus brief from the Solicitor General, expressing the government's opinion on whether the patent was invalid, since "laws of nature, natural phenomena and abstract ideas" are not patentable. The Solicitor General recommended denying certiorari, noting that the issue of natural phenomenon had not even been raised in the lower courts or in the petition for certiorari. The Solicitor General did not opine as to whether the patent was valid on its merits.
Notwithstanding, the Supreme Court granted certiorari in September 2005. Nine months later, in June 2006, the Court dismissed the certiorari as "improvidently granted," without explanation. However, see below, Metabolite had raised the threshold matter (in its responding brief to the Court) that Laboratory Corporation of America Holdings (LabCorp) did not properly raise the objection of nonpatentable subject matter, i.e., the issue of natural phenomenon, at trial, or preserve it on appeal. Metabolite contended that LabCorp did not even contemplate such an argument until the Supreme Court had requested opinion on this issue from the Solicitor General.
The dismissal of certiorari left standing, then, the underlying decision of the U.S. Court of Appeals for the Federal Circuit, No. 03-1120, 370 F.3d 1354 (2004). That decision affirmed the trial court's finding of patent infringement against LabCorp.
Initially at the heart of this patent infringement case was a "method" patent (sometimes called a "process patent") to detect medical conditions in warm-blooded animals, specifically, humans. As early as the 1980s, researchers at University Patents Inc. (UPI) had discovered a relationship between elevated levels of an amino acid, homocysteine, and decreased levels of certain vitamins in the body, namely folate and cobalamin (components of Vitamin B12). Elevated levels of homocysteine have been linked to several medical problems, including arthritis, lupus, heart disease, renal disease, and Alzheimer's disease.
The research professors then developed an assay (test) to determine homocysteine levels in blood. The two-step test consisted of (1) assaying a body fluid for elevated levels of homocysteine (the homocysteine test), and (2)correlating elevated levels of homocysteine with a deficiency of cobalamin or folate (by conducting a second test using methylmalonic acid, to identify which vitamin was deficient) The patent claim contemplated protection for both tests as a two-step process.
The U.S. Patent and Trademark Office (PTO) initially rejected the application, instructing that it needed to "distinctly claim the subject matter … regard[ed] as the invention." After the professors amended the application to reflect their two-step process, it was accepted and awarded Patent No. 4,940,658 (the '658 patent). Subsequent to that, the patent was assigned to Competitive Technologies, Inc. (CTI), a company that licenses academic technological advancements to private industry. CTI, in turn, licensed the process to Metabolite Laboratories, Inc. Metabolite granted a sublicense to LabCorp to use the process, in return for patent royalties paid to Metabolite and CTI. Royalties were to be paid each time the two-step assay and correlation process was utilized.
All was well until LabCorp discovered that Abbott Industries had come up with a more efficient and faster test. LabCorp reasoned that if it used Abbott's process, it would no longer have to pay royalties to Metabolite.
When Metabolite and CTI learned of LabCorp's switch, they sued in federal district court for breach of contract (licensing agreement), patent infringement, inducing infringement of a patent, and contributory infringement of a patent. The complaint argued that LabCorp was using the patented assay test for homocysteine levels and reporting results to physicians. The physicians, in turn, would correlate the test results (level of homocysteines found) with estimated deficiencies of the B vitamins. According to the complaint, each time a physician did this, Metabolite was entitled to royalty paymet.
In the November 2001 trial, the jury awarded Metabolite nearly $5 million in damages, finding that LabCorp had breached its contract/licensing agreement and had willfully infringed Metabolite's '658 patent. The district court, in light of the jury's finding of willfulness, doubled the jury's infringement award.
LabCorp filed a post-judgment Motion for Judgment as a Matter of Law (JMOL) on the issues of infringement, breach of contract, invalidity, and willfulness of infringement. The motion was denied. The Federal Circuit Court of Appeals, using a standard of review for substantial evidence (to support the jury's finding) found that the record supported the jury's verdicts and the trial court's decisions, and affirmed.
Despite the ultimate dismissal of certiorari previously granted by the U.S. Supreme Court, Justices Breyer, Stevens, and Souter filed a lengthy dissent. They disagreed with the dismissal. Said Justice Breyer,
"The question presented is not unusually difficult. We have the authority to decide it. We said we would do so. The parties and the amici have fully briefed the question. And those who engage in medical research, who practice medicine, and who as patients depend upon proper health care, might well benefit from this Court's authoritative answer."
Rights, granted to inventors by the federal government, pursuant to its power under Article I, Section 8, Clause 8, of the U.S. Constitution, that permit them to exclude others from making, using, or selling an invention for a definite, or restricted, period of time.
KSR International Co. v. Teleflex Inc.
Patent protection is designed to foster innovation and creativity by giving inventors a monopoly for the fruits of their labor. Armed with a U.S. patent, a patent holder is entitled to sue those who do not pay a license fee to use the patented product or process. Alleged infringers typically respond by alleging that the patent is invalid. One such defense is the issue of obviousness. If the combining of parts is obvious and the elements being combined are obvious, then a patent should not be granted because it lacks novelty. The U.S. Supreme Court, in KSR International Co. v. Teleflex Inc., ___U.S.___, 127 S.Ct. 1727, ___L.Ed.2d___(2007), restated its test for obviousness and ruled that a test used by the Federal Circuit Court of Appeals was wrong and could not be used. The ruling favored more stringent standards for obtaining a patent where the innovation is "obvious."
Teleflex Incorporated licensed the rights to a patent held by Steven Engelgau, which was entitled "Adjustable Pedal Assembly with Electronics Throttle Control." The patent described a mechanism for combining an electronic sensor with an automobile accelerator pedal so the pedal's position can be sent to a computer that controls the throttle in the vehicle's engine. The application was filed in 2000 but Engelgau swore in his application that he invented the pedal design in early 1998. KSR International Company, a rival to Teleflex in the design and manufacture of adjustable pedals, was hired in 1998 by Ford Motor Company to supply an adjustable pedal system for various lines of automobiles with cable-actuated throttle controls. In 2000 General Motors hired KSR to supply adjustable pedal systems for Chevrolet and GMC light trucks that used computer-controlled throttles. KSR took the pedal designed for Ford and added a modular sensor system to the pedal. Teleflex accused KSR of infringing the Engelgau patent and filed a suit in federal district court. KSR countered by claiming that the patent was invalid because its subject matter was obvious.
The district court reviewed the details of the patent and a number of other patents preceding Engelgau's that dealt with throttle pedal design and relevant prior art. The court applied a test for obviousness developed by the Supreme Court in 1966. The court first determined the level of skill needed for pedal design, finding that an undergraduate degree in mechanical engineering and familiarity with pedal control systems was sufficient. As to the prior art, including patents and pedal designs, the court noted several pedal designs and found little difference between them and Engelgau's. One patent taught everything in Engelgau's except the use of a sensor to detect and transmit the pedal's position to the computer controlling the throttle. That aspect was revealed in another patent preceding Engelgau's. Based on these findings the court ruled the Engelgau design was obvious and the patent was invalid. The Federal Circuit Court of Appeals, which hears all patent appeals, reversed. The appeals court ignored the Supreme Court, applying its own TSM test: teaching, suggestion, or motivation. Under the TSM test a patent claim is obvious if "some motivation or suggestion to combine the prior art teachings" can be found in the prior art, the nature of the problem, or the knowledge of a person having ordinary skill in the art. In this case the appeals court concluded that the prior pedal patents did not teach anything helpful to Engelgau's purpose. The patents would not have led a person of ordinary skill to put a sensor on the type of pedal described in one of the prior patents.
The Supreme Court, in a unanimous decision, reversed the Federal Circuit's decision and the reasoning embodied in the TSM test. Justice Anthony Kennedy, writing for the Court, rejected the "rigid approach" of the appeals court. In its prior cases involving obviousness the Supreme Court had used an "expansive and flexible approach" that allowed courts to look at any "secondary considerations that would prove instructive." Turning to the appeals court's analysis, Justice Kennedy found that the key question was whether the combination was obvious to a person with ordinary skill in the art, not the patentee himself. Second, the appeals court operated on the mistaken assumption that a person of ordinary skill will be led "only to those elements of prior art designed to solve the same problem." This was wrong because in many cases such a person "will be able to fit the teachings of multiple patents together like pieces of a puzzle." Moreover, a person of ordinary skill was also a person of "ordinary creativity, not an automaton." The Federal Circuit continued down the wrong path by worrying too much about applying "hindsight bias;" its "rigid preventative rules" denied factfinders "recourse to common sense." Justice Kennedy agreed with the district court's analysis that at the time Engelegau designed his pedal it was obvious to a person of ordinary skill to combine a prior patented pedal design with a pedal position electronic sensor.
Microsoft Corp. v. AT&T Corp.
The U.S. Supreme Court in April 2007 rendered a decision in a patent law case involving two giant corporations that were being rep-resented by high-profile attorneys. In Microsoft Corp. v. AT&T Corp., ____U.S.____, 127 S. Ct. 1746, ____L. Ed. 2d____ (2007), the Court held that Microsoft had not infringed AT&T's speech compacting software when Microsoft shipped a master copy of its Windows software overseas to be installed in computers that were manufactured and sold in foreign countries. Former Solicitor General Theodore B. Olson argued the case on behalf of Microsoft, while another former Solicitor General, Seth P. Waxman, advocated on behalf of AT&T.
In 1972, the Supreme Court rendered a decision in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 92 S. Ct. 1700, 32 L. Ed. 2d 273 (1972), which involved a patent for a shrimp deveining machine. The patent holder, Laitram, sued a company, Deepsouth, for infringing on Laitram's patent. Deepsouth acknowledged that it could not sell its deveining product in the United States without infringing Laitram's patent, but Deepsouth argued that it could make parts of its deveiner and sell those parts to foreign buyers to assemble overseas. At that time, the federal patent statute only applied to inventions made "within the United States," and since the product in that instance would have been assembled and used outside of the United States, the Court held that Deepsouth had not infringed Laitram's patent.
Congress responded to this decision in 1984 by amending the Patent Act to expand the definition of infringement to include acts of supplying a patented invention's components from the United States to a place outside of the U.S. The statute provides that infringement occurs when one "suppl[ies] … from the United States," for "combination" abroad, a patented invention's "components." 35 U.S.C. §271(f)(1). The legislative history of the amendment clearly indicated that Congress intended for the change to alter the result that the Court reached in Deepsouth.
Microsoft produces Windows, a highly popular software operating system, at the company's plant in Redmond, Washington. The company sells the system to foreign manufacturers to install on computers that are made outside of the United States. To do so, Microsoft provides a master copy of Windows to the manufacturers, either by shipping a disk with the software or by sending the copy via a secured electronic transmission. The manufacturers then use this master disk to produce copies, and the copies are then installed onto the foreign machines that are sold.
AT&T developed a computer that was capable of digitally encoding and compressing recorded speech. Microsoft packaged Windows with software that allows a computer to process speech in a manner that is claimed by AT&T's patent. AT&T initially brought a patent infringement suit against Microsoft in the U.S. District Court for the Southern District of New York in 2001. AT&T wanted to recover damages for the foreign and domestic installations of Windows. During the course of the litigation, Microsoft conceded that it infringed on AT&T's patent when it installed Windows on its own systems during software development and also when it licensed copies of Windows to manufacturers of computers sold in the United States.
However, Microsoft challenged the imposition of liability based on the foreign sales of computers that had Windows installed on them. According to AT&T, Microsoft was liable under §271(f) because Microsoft supplied "components" of AT&T's patented speech processor when it sent the master copies outside of the U.S. Microsoft countered that unincorporated software, which is intangible information, cannot be characterized as a "component" within the meaning of that term in §271(f). Moreover, Microsoft argued that if it were liable under §271(f), it "would simply pick up [its] manufacturing operation for the golden master, go [one] hundred miles north to Vancouver, set up the operation in Vancouver, [and] burn [its] golden master CDs [there]."
In 2004, Judge William H. Pauley of the Southern District of New York rejected Microsoft's claims and held the company liable for patent infringement. AT&T Corp. v. Microsoft Corp., No. 01 Civ. 4872, 2004 WL 406640 (S.D.N.Y. March 5, 2004). According to Pauley's opinion, software can be a component of a patented invention or an infringing device. Moreover, the text of the statute does not limit the definition of "component" to exclude software. The court also determined that Microsoft's actions meant that the company had supplied infringing components from the United States.
On appeal, a divided panel of the U.S. Court of Appeals for the Federal Circuit affirmed the district court's decision. AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005). According to the majority opinion, "Were we to hold that Microsoft's supply by exportation of the master versions of the Windows software—specifically for the purpose of foreign replication—avoids infringement, we would be subverting the remedial nature of §271(f), permitting a technical avoidance of the statute by ignoring the advances in a field of technology—and its associated industry practices—that developed after the enactment of §271(f). It would be unsound to construe a statutory provision that was originally enacted to encourage advances in technology by closing a loophole, in a manner that allows the very advances in technology thus encouraged to subvert that intent. Section 271(f), if it is to remain effective, must therefore be interpreted in a manner that is appropriate to the nature of the technology at issue."
The Supreme Court granted certiorari, and in an opinion by Justice Ruth Bader Ginsburg, reversed the Federal Circuit. Unlike the lower courts, Ginsburg's majority opinion did not conclude that software in the abstract could constitute a component. Instead, only a copy of the computer software on a medium, such as a CD-ROM, could constitute such a component. According to Ginsburg, when the foreign manufacturers created copies of Windows from the master disk and then installed the software onto the foreign computers, the copies themselves had not been supplied from the United States. Thus, Microsoft could not be liable under §271(f) because it had not supplied patented components from the United States.
Justice Samuel Alito concurred with Ginsburg's opinion, but differed in opinion about why the software was not a component under the meaning of §271(f). Justice John Paul Stevens dissented, arguing that the software should not be treated differently than components used in other types of devices. "The relevant component in this case is not a physical item like a knife," he wrote. "Both Microsoft and the Court think that means it cannot be a 'component.' But if a disk with software inscribed on it is a 'component,' I find it difficult to understand why the most important ingredient of that component is not also a component. Indeed, the master disk is the functional equivalent of a warehouse of components—components that Microsoft fully expects to be incorporated into foreign-manufactured computers."
Microsoft's victory before the Supreme Court came just over two months after a federal jury in San Diego ordered the company to pay $1.52 billion in damages to Alcatel-Lucent of Paris in a suit related to Microsoft's Windows Media Player. It represented the largest verdict in a patent infringement case in U.S. history, according to the attorney for Alcatel-Lucent.
Microsoft and Alcatel-Lucent Battle Over MP3 and Other Patents in Court
Microsoft spent much of 2007 engaged in a legal dispute with Alcatel-Lucent in a patent infringement case that had wide-reaching implications regarding computer technology. Both sides have claimed victories during the litigation, which continued in 2008. The apparent victor has been Alcatel-Lucent, which was awarded a judgment of $367.4 million in April 2008.
MP3 (MPEG-1 Audio Layer 3) is a type of digital audio decoding which has become highly popular for use in portable audio devices as well as computers. In 1989, American Telephone and Telegraph (AT&T) and Fraunhofer Institute in Germany agreed to develop the technology. AT&T spun off one of its units, Bell Labs, which became Lucent Technologies. Lucent
was later acquired by Alcatel in 2006 to form Alcatel-Lucent. Several companies, including Fraunhofer and Thomson Computer Electronic, claim ownership in MP3 patent rights.
In 2003, Lucent Technologies sued two of Microsoft's customers, Gateway and Dell, for patent infringement regarding the MP3 technology. According to Lucent, the companies committed the infringement through their use of features in the Microsoft Windows operating system. Microsoft filed a declaratory judgment action in San Diego against Alcatel-Lucent, claiming that Microsoft should be the defendant in the case. As a result of the action, Alcatel-Lucent sued Microsoft.
In February 2007, a jury in federal court in San Diego ruled that Microsoft was liable to Alcatel-Lucent in the amount of $1.5 billion for infringing patents on MP3 encoding and decoding technology. Prior to the decision, the judge in the case threw out two of the patent claims and separated the 13 remaining disputes into six groups. The February 2007 decision related to the first of these groups. Microsoft disputed the decision on several grounds, including the fact that the company had previously purchased a license for the technology at issue from Fraunhofer for much less than the amount of the verdict.
“We think this verdict is completely unsupported by the law or the facts,” said Microsoft corporate vice president and deputy general counsel Tom Burt. “Like hundreds of other companies large and small, we believe that we properly licensed MP3 technology from its industry recognized licensor—Fraunhofer. The damages award seems particularly outrageous when you consider we plaid Fraunhofer only $16 million to license this technology.”
Microsoft was not the only company concerned about the outcome of the case. The issue in the dispute focused on how the Windows Media Player software plays MP3 files. Other companies, such as Apple, also use the same technology and had purchased licenses from the same entity as Microsoft. Thus, if the verdict against Microsoft stood, Alcatel-Lucent could then target these other companies. Commentators at the time of the decision expected that an appeal would take a year or two.
About one week after the jury verdict in the first patent dispute, U.S. District Judge Rudi Brewster threw out one of Alcatel-Lucent's claims related to speech recognition software. Burt applauded the decision, noting, “This ruling
reaffirms our confidence that once there's judicial review of these complex patent cases, these Alcatel-Lucent claims ultimately won't stand up,”
In July 2007, Microsoft asked Brewster to reduce the $1.5 billion verdict from February, believed to be the largest in U.S. history. The jury had determined this amount by taking 0.5 percent of the average sales price of an infringing computer and multiplying that amount by every copy of Windows. According Microsoft's lawyers, the trial court had miscalculated the damages by basing the award on the cost of an entire computer instead of the cost of a copy of the Windows software. Alcatel-Lucent lawyers countered that the damage calculation was correct. “Substantial evidence exists to support a royalty base of the entire computer system,” said lawyer Paul Bondor. “The infringing product here is the computer system.”
In August 2007, Brewster issued a ruling where he sided with Microsoft. According to Brewster, the jury's decision could not stand for two reasons. First, Brewster determined that one of the two patents in question had not been infringed. The second patent was co-owned by Fraunhofer, from whom Microsoft had a license. The judge therefore concluded that the “jury's verdict was against the clear weight of the evidence.” Brewster also denied Alcatel-Lucent's request for supplemental damages, prejudgment and post-judgment interest, and a permanent injunction against Microsoft.
Microsoft was less successful in October 2007 when the company, along with Dell and Gateway, failed to convince Brewster to dismiss a $2 billion claim regarding technology used to play DVD, Internet videos, and computer games. Alcatel-Lucent in 2003 joined a technology group known as MPEG-LA, which controls the MPEG-2 computer video standard. Microsoft and the other plaintiffs argued that the move was designed to avoid having to share technology with the 1,000 other companies that belong to MPEG-LA. Brewster's decision meant that a jury would need to resolve the issues that Microsoft and the other companies raised.
In April 2008, a jury determined that Microsoft was liable for $367.4 million for infringing patents related to a user interface found in Microsoft's software. Burt said that the company would move to have the awards overturned, just as was the case with the jury verdict from February 2007. “We will move immediately to have the two verdicts against Microsoft overturned. We feel confident the verdicts will
be overturned, just as the court overturned a verdict last year by a San Diego jury,” said Burt.
Patents have become an important form of intellectual property protection for computer software and informational media, supplementing and sometimes replacing copyright protection. Patents are exclusive rights granted by the federal government to the inventors of new and useful machines, articles, substances, or processes. The patent right is offered in return for full disclosure by inventors as to how to make and use their patented invention.
The holder of a patent has the right to prevent others from making, using, selling, offering to sell, or importing the invention, and he or she can sue for damages if any of these exclusive rights is violated. However, because the patent right is extensive and nearly absolute, patents are granted only for very significant advances in technology: the invention cannot have been obvious to those of skill in that technology.
As a consequence, unlike other forms of intellectual property protection, such as copyrights and trademark rights , patent rights do not arise spontaneously. In the United States, patents are only issued after an administrative application procedure in the United States Patent Office. The inventor must submit an application that fully describes and explains the invention as well as sets out the limits of technology being claimed. This description will form the basis for the published patent once the application is approved. If the patent is granted, a full description of the invention and its use is published by the government in the patent. These published patent disclosures form a fund of knowledge for the public.
The term of the exclusive right lasts for twenty years from the date that the application is filed, and at the end of the patent term, the invention passes into the public domain; that is, anyone may freely use it. Should the Patent Office grant a patent improperly, the patent may be invalidated by a challenge in court.
As in the case of most intellectual property, including copyright and trademarks, there is no such thing as a worldwide patent. Successful applications to the United States Patent Office will result in a patent that is good only in the United States. If inventors desire patent protection in other countries, they must apply for a patent in the patent office of each country where a patent is wanted. The expense of so many patent applications may be prohibitive, so inventors must frequently be selective as to the countries in which they wish to apply. The countries in which an inventor chooses to apply will be determined by long-range business plans; usually, inventors will choose to apply for patents in the countries where they are most likely to license their inventions.
Because patent law covers processes, and computer software constitutes a type of process, patent law might seem a natural form of intellectual property protection for software inventions. However, software and related inventions were nearly excluded from patent protection altogether. Patent protection does not extend to natural "discoveries," as it does to manufactured inventions. Thus, laws of nature and mathematical formulae are typically not considered patentable.
During the early 1980s, the U.S. Supreme Court issued two opinions denying patent protection to computer programs on the grounds that a software algorithm is like a mathematical formula, and therefore unpatentable. The court soon modified this position to hold that computer programs are not patentable by themselves, but only in association with a tangible machine or tangible output. During the next twenty years, this position gradually evolved in lower courts to a position that software would be patentable if it produced a "useful result."
The United States Patent Office began routinely accepting patent applications claiming software inventions first as new and useful processes, or as articles of manufacture when associated with some hardware or tangible media. This acceptance of software as patentable subject matter resulted in the explosive proliferation of software patents during the 1990s and early twenty-first century, both in the United States and abroad.
The acceptance of software patents by U.S. courts opened the door to widespread patenting of other types of processes or methods related to digital media. Because the standard for patentability is a "useful result," many processes involving computers now come under patent protection. Such processes need not be internal to the computer's operation, but may involve activity and interface with the user. Such patentable processes might include web-based methods for instruction, electronic commerce, and informational display. Some of these method patents have been controversial because critics view them as being too obvious to deserve patent protection.
see also Copyright.
Dan L. Burk
Davis, Randall. "The Digital Dilemma." Communications of the ACM 44, no. 2 (2001): 77–83.
Miller, Arthur R., and Michael H. Davis. Intellectual Property in a Nutshell, 3rd ed. St. Paul, MN: West Publishing, 2000.
A patent is the grant of a property right for an invention from the United States Patent Office to the inventor. A patent is granted for a twenty-year term beginning with the date on which the patent was filed in the United States, and U.S. patents are only effective in the United States, its territories, and its possessions. The language of the statute gives the inventor the right to exclude others from making, using, offering for sale, or selling the invention in the United States or importing the invention into the United States. Thus, the inventor is guaranteed the right to exclude others from making, using, offering for sale, selling or importing the invention.
The U.S. Constitution gives Congress the power to enact laws relating to patents in Article I, Section 8, which reads "Congress shall have power…to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." Under this power, Congress has from time to time enacted various laws relating to patents. The first patent law was enacted in 1790. The law now in effect is a general revision that was enacted on July 19, 1952, came into effect on January 1, 1953, and is codified in Title 35 of the United States Code. The patent law specifies the subject matter for which a patent may be obtained and the conditions for patentability. The law established the United States Patent Office to administer the law relating to the granting of patents and contains various other provisions relating to patents.
In the language of the statute, an individual who "invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent," subject to the conditions and requirements of the law. The term process, as defined by law, is a process, act, or method, and primarily includes industrial or technical
processes. The term machine, as used in the statute, needs no explanation; the term manufacture refers to articles that are made and includes all manufactured articles. The term composition of matter relates to chemical compositions, which may include mixtures of ingredients as well as new chemical compounds. These classes of subject matter taken together include practically everything that is made by humans and the processes for making them. Consequently, the Atomic Energy Act of 1954 excludes the patenting of inventions useful solely in the utilization of special nuclear material or atomic energy for atomic weapons. The patent law further specifies that the subject matter must be useful. The term useful, in this context, refers to the condition of the subject matter having a useful purpose and also being operable. That is, a machine that will not operate to perform the intended purpose would not be called useful; therefore, the inventor would not be granted a patent. Recent interpretations of the statute by the courts have defined the limits of the field of subject matter that can be patented. Thus the courts have held that the laws of nature, physical phenomena, and abstract ideas are not patentable subject matter.
A patent may only be granted for the creation of a new machine, manufacture, and so on—not for the mere idea or suggestion of the new machine. A complete description of the actual machine or other subject matter for which a patent is sought must be filed with the U.S. Patent Office.
The U.S. Patent Office administers the patent laws as they relate to the granting of patents for inventions and performs other duties relating to patents. Examiners with the office review patent applications to determine if the applicants are entitled to patents under the law. If the inventor is so entitled, the Patent Office approves and issues the patent. Further, the Patent Office publishes not only a list of issued patents but also various other information concerning patents as well as records of assignments of patents. The U.S. Patent Office has no jurisdiction over questions of infringement and the enforcement of patents.
The major purpose of the U.S. Patent Office as an agency of the U.S. Department of Commerce is to grant patents for the protection of inventions and to register trademarks. Further, the Patent Office advises the Department of Commerce and other governmental agencies concerning intellectual property—patents, trademarks, and so on—as well as assisting inventors and businesses in matters concerning their inventions and corporate products. In essence, the United States Patent Office encourages the scientific and technical advancement of the country.
For further information see the United States Patent and Trademark Office website, http://www.uspto.gov/.
Randy L. Joyner