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Criticism Attacks Patents as Impediments to Innovation
The Legal Intelligencer
With the U.S. Supreme Court's grant last week of certiorari in the Myriad Genetics case (to answer the question whether human genes isolated from the body are patentable) and the antipathy of the court, perceived by many, to patents generally, we are reminded to consider what may be the underpinnings of such antipathy.
For those of us invested in the patent system, it is an article of faith that the system promotes innovation. No less a document than the U.S. Constitution tells us so. But an increasingly evident crescendo of criticism attacks that proposition head-on. Congress, the Supreme Court, the U.S. Court of Appeals for the Federal Circuit and the U.S. Patent and Trademark Office have responded in ways that should blunt the criticism to a significant degree. This has not dissuaded critics of the system. For example, these responses are largely ignored in the September publication, "The Case Against Patents," by researchers at the Federal Reserve Bank of St. Louis.
Those researchers conclude, "The aim of policy, in general, should be that of slowly but surely decreasing the strength of intellectual property interventions, but the final goal cannot be anything short of abolition." With similar views expressed increasingly in other media, ignoring the criticism endangers the health of the patent system.
Seventh Circuit Judge Richard A. Posner and other critics of the system have not gone so far, but many are headed in the same direction, however far out and unlikely that ultimate objective may be.
As a basic premise, these critics of the patent system argue that the effectiveness of patents to promote innovation has never been proven and the negative value of patents as impediments to innovation and impediments to competition outweighs their unproven innovation-promoting value. Therefore, the system cannot justify itself. A complete response to these criticisms would include a study of what motivates research and the extent to which patents play a part in that motivation. Such a study would likely conclude, as even some critics admit, that the value of patents, as a motivating factor, varies greatly from industry to industry or, even more importantly, across the spectrum of business models of individual players in any industry.
At one extreme, in a business model where price is the only competitive factor, innovation and patents are irrelevant. In fact, patents may be a negative factor in that innovative products will be more expensive. If the business model is to compete in an environment with short product life cycles, patents may also be less valuable and therefore less of an incentive to innovate. But in many other business models, innovation and the need to innovate play a much greater role. Patents then become important, particularly so if the innovation can be easily copied. A prospective investor in an innovation-generating endeavor would necessarily weigh the prospective cost and probability of success of the innovation against the commercial value of successful innovation in light of the ease with which its value can be usurped by a copier.
While the pharmaceutical industry has done a good job of educating critics on the huge investment and long lead time associated with innovative products and thus the necessity of strong patents in that industry, other industries have been much less effective in that educational process.
These observations are not new, but what has been lacking, at least according to my modest research, are competent, objective studies of the motivational value of patents to incentivize investments in research in all industries, particularly those where incremental innovation is the norm. Such studies would permit a more fact-based analysis of the value of the patent system versus its costs, i.e., the impediments to innovation and the impediments to competition perceived to be inherent in patents.
Those perceived impediments, however, also bear discussion, because critics rely on these impediments to justify their criticisms.
Although now eight years old, the National Academies' National Research Council's report titled "A Patent System for the 21st Century" provided what is probably the best and most comprehensive study of the patent system. With the background of a series of academic and technical reports of nine groups of technical and economic scholars, published separately, the National Academies' report acknowledged questions regarding the value of the patent system and also acknowledged that the role of patents varied in different industries. As an overall conclusion, however, its executive summary began with the statement, "The U.S. patent system has played an important role in stimulating technological innovation by providing legal protection to inventions of every description and by disseminating useful technical information about them."
That report reflected detailed consideration of the various impediments to innovation and competition alluded to by less objective critics of the patent system, including:
The National Academies' report also made detailed recommendations for overcoming these impediments. With one exception, every one of these detailed recommendations has been met with positive responses by one or more of Congress, the Supreme Court, the Federal Circuit and the PTO. While it may be some time before these responses can be fully evaluated, critics of the system would do well to consider these responses rather than ignoring them.
Some problems identified in the National Academies' report extend beyond the patent system. The escalation of litigation costs, for example, is not unique to patent litigation.
And certain of the problems alluded to in the National Academies' report may well justify further response. For example, there has been no response to the report's concern for the impediment to research and development based on the absence of patent infringement immunity for R&D. Indeed, many proponents urging the Supreme Court to reverse the Federal Circuit's opinion in Association for Molecular Pathology v. U.S. Patent and Trademark Office, 689 F.3d 1303 (2012), 103 U.S.P.Q.2d 1681 (usually referred to as the Myriad Genetics case), in which the Federal Circuit held that a patent claim to an isolated human gene is valid, base their opposition on the impediment to further research such patents represent. This could best be resolved legislatively, but there appears to be little movement in that direction.
Perhaps of greater concern, we should acknowledge the uncertainty created by an overburdened patent examination corps. Long patent application pendency times are only one result of this problem. Many knowledgeable observers believe the quality of issued patents generally suffers as a result of this problem. Collectively, the effects of increasingly technical inventions, increasing numbers of patent applications both from the United States and abroad, and the limited resources necessarily available for patent examination may to some degree impede investment in innovation and enhance the prospects for litigation. That problem, while overblown by outright critics of the patent system, remains seemingly intractable, notwithstanding heroic efforts of the outgoing under secretary of commerce for intellectual property, David Kappos.
One solution may be to adopt an add-on to the patent system that has long been a part of traditional European models and is now common in other countries as well. This would allow for the issuance of what are commonly known as petty patents or utility model patents. Typically, such patents are not examined unless sued upon, published quickly, narrowly construed and of more limited duration than other patents.
This may free up the examination system to reduce pendency times and improve the quality of the U.S. patent examination process. It also responds to two other concerns reflected in the National Academies' report. The first of these concerns is for better and more timely dissemination of both the technical information in patents and the patent-based barriers to product development in industries characterized by complex technologies and short product life cycles. The second concern to which the implementation of a petty patent system would respond is that of better tailoring the patent system to the needs and characteristics of different industries.
Again, innovations in industries characterized by short product life cycles may find those innovations adequately protected by narrow and short-term patents while not being burdened with patents still unexpired but well beyond the life of the innovative products they were designed to protect.
Relatively little has been published to suggest serious consideration of such a system in the United States.
Given the increasingly vocal critics of the patent system, this and other system improvements should continue to be addressed. Unfortunately, Congress may have little appetite for wading into this problem after its seven-year march to the Leahy-Smith America Invents Act that it finally passed in 2011. Also unfortunately, those interested in improving or justifying the system are so confident that the value of the system to incentivize innovation is generally recognized and acknowledged that they see little need to prove that value. This of course is exactly the void to which critics of the system point.
As in many other situations, if those of us involved in the patent system do not move to continue to improve the system, the system will most likely be diminished by those who attack it. The Supreme Court's decision in Myriad Genetics could be one more step in that direction.
Paul F. Prestia is senior counselor and strategic adviser at RatnerPrestia, the firm he co-founded and led as CEO for many years. His current practice is focused largely on IP counseling for risk management due diligence, strategic IP protection and IP value realization.
This article originally appeared in The Legal Intelligencer.