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Because I wrote the patent at issue in the Federal Circuit’s State Street Bank v. Signature Financialdecision, I have been among the most interested readers of the spate of recent reports in the legal, technical, and popular press that have announced that the patent system is broken. In State Street Bank, the court held that software that produces a useful, concrete, and tangible result is patentable subject matter, and that there is no “business method exception” to patentability. Now, especially for software, e-commerce, and business-method patents, the perception is that the U.S. Patent and Trademark Office (“PTO”) cannot do its job, as evidenced by issued patents that are widely believed to be unpatentable. See, e.g., James Gleick, “Patently Absurd,” New York Times, Mar. 12, 2000 (Magazine). To be patented, inventions must be novel and nonobvious advances over the “prior art” — the body of knowledge publicly available to those of ordinary skill in the relevant technology. But the consensus is that absurdly obvious software programs, e-commerce techniques, and business methods are being patented. According to the recent press reports, the usual short answer to the question “How could they patent that?” is that PTO is incompetent or does not have adequate resources, or both. There is genuine cause for concern about the qualifications of Patent Examiners and the tools and information available to them. But the short answer, unsurprisingly, does not fully explain the situation. Examiners, by and large, seek to do a good job. But certain aspects of the patenting process –especially for the relatively new areas of software, e-commerce, and business methods –contribute to the difficulties that Examiners have. So that those unfamiliar with the patenting process can understand how it is possible for seemingly obvious inventions to be patented, I would like to describe the process with reference to a hypothetical invention: the chartreuse light switch. Along the way, a few remedies for improving patent quality will be considered. THE INADEQUATE CONCEPTION: AN OBVIOUS INVENTION IS BORN To begin the hypothetical, suppose that the light switch — the kind with a toggle — has recently been invented. Instead of having to walk to the middle of the room to pull a chain to shut off a light-bulb, now you can put a light switch by a door. Consumers begin buying great quantities of light switches. While working in the hot new field of light-switch design, an engineer at an electronics company has an idea: make the switch’s toggle chartreuse — a brilliant yellow-green. Upon building a prototype, he believes that it has extraordinary aesthetic appeal. “I think that consumers will really like a chartreuse light switch,” the engineer says proudly to co-workers. Let us assume that the engineer’s invention lies simply in the fact that the switch is chartreuse rather than some other color. And assume that there are no utilitarian or functional benefits to using chartreuse — it doesn’t glow in the dark, it’s not more visible to people who are astigmatic, it’s not cheaper to manufacture — it’s just chartreuse, purely an ornamental difference over the prior art. I think we can all agree that this invention is obvious and undeserving of protection in a normal “utility patent.” (“Design patents” are another story, and of little or no concern regarding software, e-commerce, and business-method inventions.) But the engineer, unfamiliar with the nuances of patent law, says to himself, “I’ve never heard or read about a chartreuse light switch; I think I’ve invented a patentable device.” Or perhaps he says, “Well, I don’t know if a chartreuse light switch is patentable, but my company has these invention-disclosure forms that we engineers are supposed to fill out for all our new product ideas.” The engineer remembers a recent monthly staff meeting, when the general counsel reminded engineers about the importance of patents in the company’s arsenal of intellectual property: patents provide protection for the company’s inventions, assets for licensing, or bargaining chips if other companies sue for violating their intellectual-property rights. Or perhaps the engineer, who works for a fledgling company seeking another round of financing, recalls how venture capitalists always seemed so impressed when they heard that the company had patent applications pending. So, the engineer fills out an invention-disclosure form and sends it to the legal department. CORPORATIONS AND PATENT LAWYERS: FAUSTIAN HANDMAIDENS? The engineer’s invention disclosure lands on the desk of his employer’s general counsel, who passes it along to their patent lawyer. Should the patent lawyer conduct a prior-art search before filing a patent application on the chartreuse light switch? There is no legal requirement to do so. Some argue that requiring prior-art searches before applications are filed would be an excellent measure to improve patent quality. Corporations especially, the argument goes, abuse the system by failing to search their own files for pertinent prior art, thus sticking their heads in the sand while dumping applications on an overworked, underprepared PTO. But there are a number of problems with creating a duty to conduct a prefiling prior-art search. First, we should strive to assure that the PTO is fully capable of performing its job. Even if an inventor and his corporate employer do a thorough prior-art search and genuinely believe that an invention is patentable, the PTO — the agency charged with the responsibility for guarding the public interest and ensuring that only patentable inventions receive the government grant of a limited period of exclusive rights — still must examine the application for patentability. There is a danger that an Examiner will “lower his guard” and fail to conduct a thorough prior-art search on the assumption that a required prefiling search is adequate. Second, a prior-art search imposes additional costs. This is a particular concern for individual inventors and small companies. Third, there is the question of how much searching will be enough to satisfy a new prefiling search requirement. There is precedent for some ambiguity in this regard. For example, a patent applicant who determines that another is engaged in conduct that would be infringing when the patent issues is permitted to petition the PTO to expedite the examining process; but to do so the applicant must file a verified statement averring a thorough familiarity with the prior art or that a “careful and thorough search of the prior art” has been done. SeeManual of Patent Examining Procedure � 708.02. Still, placing a prefiling search requirement on the shoulders of every patent applicant will provide more fodder during litigation for defense counsel trying to prove inequitable conduct owing to a failure to do an adequate search. Finally, it appears that most patent applicants actually do conduct prefiling prior-art searches because there are advantages and incentives to do so. A basic search costs considerably less than the legal fees for drafting a patent application, so a search may convince the inventor that his invention is not patentable, or that broad protection is unavailable. Moreover, doing a prior-art search before filing an application can give the inventor confidence that the issued patent’s validity cannot be challenged, either in licensing negotiations or in litigation. NEEDED IN THE PTO: COMPETENCE AND COURAGE Whether or not a prefiling search is done, let’s assume that a patent lawyer, unaware of any material prior art, prepares and files an application for the chartreuse light switch. Now begin the formal proceedings in the PTO, the focus of the most concerns about patent quality. Of course, some of those concerns arise merely from the fact that the PTO — despite its recent transmogrification into a Performance-Based Organization — remains a government agency. As with any government agency, it has problems attracting and keeping qualified employees — in particular the Examiners who are the principal gatekeepers of the patent system. Other problems are peculiar to the PTO. For example, there is the recently established Congressional habit of diverting revenues from PTO fees to the general revenues, thus reducing the resources that the PTO has to do its job. Surely the federal legislature should recognize that it cannot properly carry out the constitutional exhortation to promote the progress of the useful arts with this budgetary legerdemain. In addition, some have suggested that the PTO’s system for crediting Examiner workflow — the “disposals” that an Examiner gets when rejecting or allowing a patent application — gives subtle incentives for an Examiner to allow a questionable application to issue as a patent. SeeRobert P. Merges, “As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform,” 14 Berkeley Tech. L.J. 577 (1999). Certainly, if a compelling case can be made for fine-tuning this facet of PTO procedures, few would object. Turning from the systemic to the specific, consider the particular Examiner who is assigned to examine the patent application on the chartreuse light switch. First, we hope that the Examiner will genuinely have skill in the pertinent technology, preferably based on industry experience, so that the Examiner will be generally familiar with devices and methods used in the prior art. For example, suppose that in the prior art are chartreuse light switches that were actually built by one or two electronics companies that quickly decided not to commercialize them. An Examiner with industry experience might have seen a chartreuse light switch at a trade show. The Examiner would then know where to look for documentary evidence of this prior art or, if none turns up, could reject the application based on an affidavit reciting his personal knowledge of the prior art. SeeM.P.E.P. � 2144.03. A frequent criticism of the PTO’s ability to examine software, e-commerce, and business-method inventions is that the Examiners in these fields do not have sufficient industry experience to know the prior art or how to find it. Perhaps no one has ever actually built a chartreuse light switch, but the possibility of doing so has been described in prior-art literature. The Examiner may never find that literature if the PTO has an insufficient collection of prior art in the relatively new technology of light switches. There might be a statement in a technical paper on light switches that says “the light-switch toggle may, of course, be any color.” But if, say, only the paper’s abstract is online, a computer-database search might not turn up that statement. With the statement buried in a lengthy paper on light switches that looks like all the other lengthy papers on light switches, it will be difficult — given the limited amount of time that an Examiner has to conduct a search — to find the invalidating reference. These problems in searching the prior art have been identified among the prime culprits in the poor quality widely ascribed to software, e-commerce, and business-method patents. The PTO, well aware of the mounting criticism, announced on March 29, 2000 its “Business Methods Patent Initiative: An Action Plan” (available at www.uspto.gov). Among other things, the PTO promises to obtain feedback from the software, Internet, and e-commerce industries, expand its prior-art collections, and add a new second-level review for allowed applications, with special attention paid to complying with search requirements, reasons for allowance, and the scope of protection sought. As to whether this initiative will be effective, the proverbial jury is still out. But whatever patent-quality initiatives are implemented, suppose that the Examiner cannot find prior art that would invalidate the chartreuse light switch. This may be because the Examiner does not find it, or because it simply does not exist. Perhaps no one ever thought to write down the trivial notion that a light switch could be chartreuse; perhaps no one in human history ever thought of making a chartreuse light switch. As things stand today, under our hypothetical, but for one saving grace, the PTO would likely issue a patent on the chartreuse light switch. PTO representatives, offering a defense for issuing patents widely viewed to be invalid, frequently assert that their hands are tied if they cannot find invalidating prior art: “We can’t reject a patent application by saying that it’s obvious to us.” But I believe, in effect, that the PTO can do this. The saving grace is a rule of law. If an Examiner were presented with a patent application on the chartreuse light switch and no invalidating prior art were found, the Examiner should cite to a legal rule first applied in a reported decision in In re Seid, 161 F.2d 229 (C.C.P.A. 1947). There the court, affirming a PTO board of appeals decision, held that matters relating to ornamentation only — matters that have no mechanical function — cannot be relied upon to patentably distinguish over the prior art. But what if there is no such rule? Well, every rule has its first pronouncement. In Seid, an Examiner or the PTO’s board of appeals rejected a patent application based on the rule announced, and the Court of Customs and Patent Appeals — the predecessor to the Court of Appeals for the Federal Circuit — affirmed that rule. Applying (or announcing) the rule that ornamental differences alone do not patentably distinguish over the prior art, the Examiner should reject the application on the chartreuse light switch. With respect to software, e-commerce, and business-method inventions, I believe that the state of the law is analogous to the situation just before the PTO and the C.C.P.A. ruled in Seid. A rule of law that would operate to prevent obvious inventions in these technologies from being patented has not yet been announced. The kind of rule applied in Seidexists at an intermediate level of analysis: it is not at as low a level as a ruling regarding a specific patent or application in view of particular prior art, nor is it at as high a level as a standard for analyzing obviousness for all inventions, such as the Supreme Court’s Graham v. John Deerefactors. But this kind of intermediate-level rule can apply to any patent or application in certain technologies. For example, the rule in Seidhas little or no applicability to biological inventions, but does apply to all mechanical inventions. And it is a kind of rule that follows naturally from the character of the technology involved. Ornamental differences are not something that one of ordinary skill in the mechanical arts would consider being nonobvious distinctions over the prior art. The Manual of Patent Examining Procedure lists a number of these intermediate-level rules. SeeM.P.E.P. � 2144.04. One or more rules at this intermediate level of analysis need to be announced by the PTO or the courts for software, e-commerce, and business-method inventions. For example, there should be a rule of law that addresses whether well-known bricks-and-mortar business methods that are adapted to the Internet are obvious or not. Tempted as I am to offer my own proposed rules, I will leave it to the PTO and the courts to divine the rules from actual cases. The courts apparently have not had yet enough cases to consider these kinds of intermediate-level rules. And the PTO thus far seems unwilling to reject patent applications based on these kinds of rules in the absence of clear legal authority. But the PTO did so in the Seidcase, and it was affirmed by the court of appeals. In my view, the Examiners and the PTO board of appeals need a bit of courage right now. If sufficient invalidating prior art is not found with respect to a software, e-commerce, or business-method invention as obvious as the chartreuse light switch, the PTO or a court should apply a rule of law that follows from the nature of the technology to hold the invention unpatentable over the prior art that is available. Steven I. Wallach is a partner with Pennie & Edmonds LLP. Steven D. Chin, an associate with the firm, assisted in the preparation of this article.

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