A patent is a monopoly granted by law to an inventor. It allows the inventor to prevent others from making, selling, offering for sale or importing into the United States his invention. The Constitution of the United States empowers Congress to grant patents in order to encourage innovation. It is thought that inventors have to make substantial investments to bring their novel ideas to fruition. In order to recover the cost of this investment, inventors need to have freedom to the fix any price for the invented product. If others were allowed to make the same product, they could easily undercut this price, thereby discouraging invention or encouraging the inventor to keep his knowledge a secret. And the public would lose the benefit of this knowledge. The patent system prevents this by rewarding the disclosure of knowledge with a patent. The ultimate purpose of the patent system is to benefit the public through the advancement of science.
Conditions on Patentability
In order to get a patent in the United States, an invention has to be novel, non-obvious and useful. An invention is novel if the inventor was the first person in the U.S. to make the product. Also, the invention should not have been published or patented anywhere in the world. An invention is obvious if a person having ordinary skill in the relevant field of technology could make the product himself without the knowledge revealed by the inventor. The non-obviousness requirement looks at whether the invention is a “non trivial advance” on the state of the art. An invention is useful if it has some practical application.
Patentable Subject Matter
The law provides that any new product or process or any new improvement on an existing product or process can be patented. Judicial decisions have interpreted this provision expansively to include living organisms, software programs, and methods of doing business within patentable subject matter. Many of these patents are controversial. However, laws of nature, such as the law of gravity, natural phenomena and abstract ideas, such as mathematical formulas, cannot be patented.
How to Get a Patent?
In order to get a patent, an inventor has to submit an application to the United States Patent and Trademark Office (USPTO). The application should disclose how to make the product or process. If examiners at the USPTO are satisfied that the invention is new and useful, a patent will be issued. Patent protection lasts for 20 years from the date the application was filed.
Types of Patents
Utility patents: granted for inventions of new and useful products or processes or improvements on existing products of processes
Design patents: granted for inventions of new, original and ornamental designs for an article of manufacture
Plant patents: are granted for inventions or discoveries of new varieties of plants.
The Problems With The Current System
Although the patent system has generally encouraged innovation, the current patent system is riddled with a number of problems. Some of these are: low quality patents in key areas, increased and expensive litigation, and a system ill-suited for key industries.
Low Quality Patents
A patent is of low quality when it does not properly comply with standards of novelty, non-obviousness and utility. In addition, it may not properly disclose how to make the invention and may be overly broad. Experts agree that the quality of patents issued has reduced over the past decade, especially in the software and business method areas. These low quality patents discourage innovation because follow on inventors will not innovate based on a technology covered by a patent. Because certain key courts tend to favor patent owners in litigation, many competitors license these patents rather than challenge them, thus unfairly raising the cost of products containing these patents.
A weakening of the obviousness standard, increasing workload at the USPTO, and the USPTO examiners’ incentive to grant rather than deny patents are cited as factors contributing to decrease in quality.
Current law determines whether an invention is obvious based on the understanding of a person having ordinary skill. While this is a low standard to begin with, for patents claiming combinations of prior art, it had been lowered further by decisions of the Federal Circuit Court of Appeals. Although the Supreme Court over turned the Federal Circuit’s standard in a recent decision, the general standard of obviousness needs to be raised in order to improve patent quality.
The number and complexity of patent applications has increased in recent years. But the USPTO has not been able to hire examiners to keep pace with the workload or the complexity of the applications, resulting in long pendency of patent applications. In addition, the examiners at the USPTO do not have access to sufficient prior art databases. Furthermore, the USPTO as an institution is disposed to grant rather than deny patents.
Increased and Expensive Litigation
Patent litigation and the costs associated with it have increased substantially. One study found that the cost of proceeding with a patent lawsuit through trial is $500,000 per side where the stakes are modest. This cost increases to $4 million per side where more that $25 million is at stake. In addition to these high costs, litigation occupies significant time not only of lawyers but also managers and technical personnel. This is especially difficult on small firms, which do not have sufficient capital to invest in technology and personnel.
Tendency of Certain Courts to Make Patents More Potent Regardless of Quality
The law gives patent owners a virtually unlimited choice of jurisdictions to sue for infringement. Many patent owners use this provision to sue in certain district courts that are known to favor patent owners. Furthermore, all patent appeals go to the Federal Circuit Court of Appeals. This court has pursued a policy of favoring patent owners and making patent protection stronger. This pro-patentee bias combined with a tendency of courts to award exorbitant amounts of damages for infringement, encourages patentees to sue more often. It also puts pressure on those sued to settle lawsuits and license patents regardless of the merits of the case.
Harmful Effect on Key Industries
Problems with the patent system are especially harmful to the Information Technology (IT)industry. Low bars to patentability, a presumption of validity for issued patents and unlimited range of patentable subject matter ensure that an excessive number of patents are issued. In the IT industry, a single product contains a number of patented technologies. Therefore, companies have to identify and evaluate patents in order to avoid inadvertent infringement. Smaller firms find it expensive to hire an attorney to examine the validity of patents and often choose to license patents.
Furthermore, courts award extremely high amounts of damages for patent infringement. Too often, this amount is based on the value of the entire product rather than the infringed technology. For the IT industry, this means that damages are far in excess of the value of the patent.
Public Knowledge’s Position
Public Knowledge believes that flaws in the patent system are discouraging innovation. Patent reform is necessary to enhance patent quality, reduce litigation and make the patent system fair and balanced. We believe that the following changes to the law will enhance patent quality:
Raising the standard from determination of obviousness from the person having “ordinary skill” in the art to a person having “recognized skill” in the art.
Peer review of patent applications.
Permitting third parties to submit prior art, and rewarding them with fee reimbursement if successful.
Permitting post-grant review of patents by the USPTO prior to litigation.
We also that the following litigation reforms will reduce the cost of litigation and restore some balance in the system:
Removing the presumption of validity that issued patents enjoy.
Apportioning damages to be proportional to the value of the patent.
Allowing circuit courts other than the Federal Circuit to hear patent appeals.
Limiting litigation venues to those jurisdictions with a meaningful connection to one of the litigants.
Reform Efforts
Legislative Efforts
A number of attempts have been made to reform the patent system. Congress has introduced several bills in the past proposing changes to patent law. Although previous attempts to pass a reform legislation have not succeeded, Congress is currently considering a Bill called “The Patent Reform Act of 2007”. The House has passed this Bill and the Senate is considering passage. The following is a brief outline of the Bills’ provisions:
Change the first-to-invent system to a first-inventor-to-file system Allow third party submission of patent defeating documents before a patent issues.
A new post-grant-review procedure would allow competitors to challenge an issued patent in an administrative proceeding before the USPTO Require patent holders alleging willful infringement to give notice to alleged infringers mentioning with particularity how their product infringes.
Apportion damage so that they bear some relation to the value of the patent infringed.
Change the venue rules so that patent holders can only sue in jurisdictions that have a relation to the parties.
Although these Bills don’t contain all the changes that Public Knowledge would have liked, it is a significant first step.
The Bills face significant opposition from groups representing independent inventors, small businesses and the pharmaceutical industry. These groups claim that they rely on the strength of patents to attract investments. High damages awards and the presumption of validity attached to issued patents deter infringement. They claim that many provisions in the Bills, particularly the provisions relating to apportionment of damages will weaken patents and benefit infringers.
Judicial Decisions
In addition to legislative reforms, recent decisions of the Supreme Court and the Federal Circuit Court of Appeals are likely to have a positive effect on the patent system. We will discuss a few of these decisions.
In eBay v. MercExchange, decided in 2006, the Supreme Court reversed the Federal Circuit’s rule that injunctions should issue automatically when there is an infringement. The Supreme Court said that patent infringement cases do not warrant special treatment. Courts should consider traditional factors based on equity for grant of injunctions. This decision is significant for the IT sector because the automatic injunction rule threatened to shut down entire product lines, even when the allegedly infringing technology was only a small part of a much larger product.
In KSR Int’l Co. v. Teleflex Inc., the Supreme Court raised the level of obviousness for combinations of prior art by over ruling the lower standard applied by the Federal Circuit Court of Appeals. The court observed that patents should not be granted on trivial advances in technology that would have been obvious to anyone in the industry.
In In re Seagate, decided in 2007, the Federal Circuit Court of Appeals overruled its previously established standard for determination of willful infringement. While the old standard imposed a duty on competitors to ascertain scope of patents and avoid infringement, the new standard would hold a party liable for willful infringement only if he acted recklessly. This ruling is likely to mitigate the tendency of the law of willful infringement to discourage innovation.
The Peer-to-Patent Project
The Peer-to-Patent Project is a pilot project being launched by the USPTO in co-operation with New York Law School’s Institute for Information Law and Policy. Its goal is to improve the quality of issued patents by allowing peer review of patent applications.
Under the project, entire patent applications will be posted online for peer review if the applicants consent. Members of the public would be able to provide prior art references and explain its relevance. The system would allow participants to rate each other’s submissions. The top 10 submissions would be forwarded to the patent examiner.
The project is limited to computer related patent applications. It is being supported by IT companies like IBM, HP, Microsoft and Intel who have agreed to have their applications scrutinized.
