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In 1995, the Department of Justice released new regulations togovern the knotty intersection of intellectual property and antitrust.They had as a broad first principle the idea that “the intellectualproperty laws and the antitrust laws share the common purpose ofpromoting innovation and enhancing consumer welfare.” That was then. This February, the Federal Trade Commission andthe Justice Department began a series of hearings that will put tothe test the idea that patent and antitrust law really are compatible. FTC Chairman Timothy Muris, in announcing the hearings lastNovember, wasn’t so impolitic as to say so explicitly. “Properlyunderstood, IP law and antitrust law both seek to promote innovationand enhance consumer welfare,” he noted. Then, with that lipservice out of the way, Muris made clear that in recent years “perhapsit is intellectual property doctrine that is not showing a properappreciation for the innovation that competition may spur.” If there is any doubt that the hearings are meant to trigger afundamental appraisal of patent law, one need only look at theirbroad scope. While they examine technical areas where the twobodies of law interact, the hearings are also looking at core patentdevelopments — “the proliferation of patents, the changing scope ofpatents, and the role of the Federal Circuit,” said Muris — that arearguably a safe distance from the realm of antitrust. And this scrutiny isn’t taking place in a vacuum. As the value ofsoftware, the Internet, and biotechnology has risen, these areashave been especially fertile grounds for patents. At the same time,there is a growing argument that locking up knowledge with IPrights is inefficient or immoral. Yet rather than step back to considerthe societal utility of strong IP protection, critics have claimed,the courts and the U.S. Patent and Trademark Office have onlymade it easier to get patents. The FTC/DOJ hearings, expected to extend through June, mightsignal a policy shift. But recommendations from them will probablyrequire congressional action, and legislation will take time.There is a more immediate lesson that antitrust lawyers can teachtheir patent colleagues, one from antitrust’s own history — theimportance of doing what you can, with the tools you have. Article I, Section 8 of the U.S. Constitution gives Congress thepower “To promote the progress of science and useful arts, bysecuring for limited times to … inventors the exclusive right totheir … discoveries.” The argument goes that it makes sense togrant patents to the extent that they provide incentives for peopleto come up with inventions that help society. It’s a trade-off. Whena person invents something that is novel, nonobvious, and useful,the person gets a temporary monopoly (now 20 years) on the useof the idea. In exchange, the public gets a description of how theinvention works. And after the patent term expires, the public getsto copy the device gratis. It’s not hard to see what’s prompting the frustration of antitrustenforcers: Simply put, antitrust law is concerned with bustingmonopolies, and patent law is concerned with granting them. Or, asJoseph Bauer, a Notre Dame Law Schoolprofessor and an author of the treatiseFederal Antitrust Law, puts it, “The firstprinciple of antitrust law is that competitionis preferable,” while the whole ofpatent law rests on the benefits ofmonopolies. “These are essentially conflictingprinciples.” The issue isn’t abstract. In 2000, theU.S. Court of Appeals for the FederalCircuit tackled it head-on in CSU, L.L.C.v. Xerox Corp. The court held thatpatent holders have no obligation tolicense their IP to others — even whenthose others are willing to pay reasonableroyalties. That starts to look like ananti-competitive practice ripe for antitrustintervention. Cases such as CSU v. Xerox leadAlbert Foer, president of the AmericanAntitrust Institute, to wonder if “patentlaw is on a bit of a jihad.” That’s anespecially telling choice of words, forpatent defenders do have their article offaith — that the more protection patentsreceive, the better off society is. Considera remark from Q. Todd Dickinson, whoserved as PTO director under PresidentBill Clinton and is now co-chair of the IPpractice at Washington, D.C.’s Howrey Simon Arnold & White: “It may not be that there aretoo many patents today, just too few inthe past.” With that sort of confidence in thesystem, it’s not surprising that patentshave been reaching new heights. Asnoted by FTC Chairman Muris, the numberof patents granted annually has risenby two and a half times since 1980. ThePTO granted more than 182,000 in fiscalyear 2000. And any given patent applicationhas a very good chance of beingapproved. According to a recent studyby Cecil Quillen Jr. and Ogden Webster,former in-house counsel at EastmanKodak (a frequent PTO filer), the approvalrate in the United States ranges from80 percent to 97 percent for the largestcategory of applications that the PTOreceives. Critics have started warning of therisks of this “thicket of patents.” Innovationoften relies on prior inventions.Inventors can most efficiently build onolder ideas when owners of existingpatents are willing to license them. Butinnovation suffers where new researchrequires so many licenses that it isimpractical to contract with such a multitudeof parties. This leads to an ironic situation. ThePTO has prided itself on issuing patentsin cutting-edge fields like software andbiotechnology. Yet critics have arguedthat those two fields are particularly ill-served by patents. Software, the argument goes, isunsuited for patents for several reasons:The pace of innovation is too fast; scholarly publications used by patent examiners often do not document software innovations; originalcomputer code need not be disclosed inpatent applications; and the law does not allow software writers to “reverse engineer” patented code to find and use components that might be helpful for new innovation. (These argumentsare more fully explained by professorsJulie Cohen of Georgetown University Law Center and Mark Lemley of the University of California, Berkeley’s Boalt Hall School of Law in the January 2001 issue of the California Law Review; and by Pamela Samuelson, another Boalt Hall professor, in comments made at aFebruary 2000 conference on IP rightssponsored by the National Academies’ Board on Science, Technology, and Economic Policy.) The patent system also might slow down biotech research, for two main reasons. First, biotech patent holders tend to assume that their innovations have blockbuster potential, making them less willing to license their technology ata reasonable fee. Second, unlike in otherfields, there often is no way to “inventaround” biotechnology. That is, there might well be no substitute for a given sequence of DNA. (Professors Rebecca Eisenberg and Michael Heller of the University of Michigan Law School laid out these arguments in 1998 in Science and elsewhere.) There is growing recognition of the problems that expansive patent law poses. But there also seems to be something of a consensus among critics that it will take new legislation to implement real change: That is, only Congresscan fix these problems. This attitude was exemplified by Quillen, the former Kodak counsel, at a National Academy of Science conference in 2000, when he said, “If we have lowered in the courts the standards forpatentability in this country, you cannotfault the Patent Office for conformingto the lowered standards.” Or, as John Thomas, a professor at George Washington University Law School, says, “The PTO’s role in the system isvery limited. It just looks at patentapplications and approves of them.” To be sure, there are limits on the discretionthe PTO has. But limited isn’t thesame as absent. And the antitrustenforcers running the current hearingsshould know better than anyone else themarked effect that a little bit of discretioncan have. After years of relative stagnation during the Reagan administration, antitrust enforcement was reinvigorated under the first President George Bush. Robert Pitofsky, head of the FTC under Clinton, describes the change as “quiet but quite substantive.” Says Pitofsky: “Much ofwhat had been deleted from the agenda was restored.” And this was done with laws already in place: “The most important set of tools were the enforcement guidelines adopted at the beginning of the Reagan years. But [the Bush administration] interpreted them in a moreactivist, enforcement-oriented way.” What caused all this? To simplify just a bit: James Rill. Rill, now co-chair of the antitrustpractice at Howrey Simon, was assistantattorney general for antitrust under thefirst President Bush. Although he offers amodest take on his three-year tenure — “The changes in the Bush years wereincremental” — it’s fair to say that Rill,along with then-FTC Chairwoman JanetSteiger, changed the direction of antitrustenforcement. As The WashingtonPost reported in 1990, antitrust officials”publicly and explicitly reject[ed] thefree-market theories of the ChicagoSchool that had informed the Reagan erapolicy.” Says Rill: “In FY 1991, I’madvised that we brought more mergerenforcement proceedings than at anytime since 1973.” None of this means that Rill broughtantitrust enforcement back to the heightsof the 1960s and 1970s. New York LawSchool professor Rudolph Peritz, authorof “Competitive Policy in America 1888-1992,” calls the change a “shift to a morehistorically normalized approach.” Headds, “To the extent that antitrustenforcement can be seen as cyclical, it ispossible that there were broader andlarger pressures that were already beingbrought to bear on the pendulum.” Rillagrees that there were “external forces”encouraging greater enforcement — including increased enforcement activityin the European Union and at the statelevel here. Yet all this change happened throughthe discretion of antitrust enforcers.”These were fairly important policy initiativesbut didn’t require any legislativeendorsement,” Rill recalls. Antitrust discretion can only serve asa model for patent overseers, of course,if they have their own discretion to exercise.Not surprisingly, like most administrativeofficials, they do. As much asCongress and the Federal Circuit laydown the broad limits of the law, it’soften left to the PTO and other agenciesto fill in the gaps. Dickinson, the previous PTO chief,stated in 2000 that “we recognize thatour examiners … serve in a quasi-judicialrole, responsible for ‘judging’ thepatentability of applications.” And JamesRogan, the current director of the PTO,noted at his confirmation hearing lastNovember that the office “advises thepresident, through the secretary of commerce,and our federal agencies, on allnational and international intellectualproperty policy issues.” Neither statementdescribes an agency that simplyfollows the law as interpreted by others. This discretion can have very realeffects. Consider the history of softwarepatents. Professors Cohen and Lemleytraced that history in their law reviewarticle last year: As early as 1983, thePTO issued patents for “software-basedencryption algorithms.” In the mid-1990s,after initially rejecting patents for”computer programs embodied in a tangiblemedium,” the PTO decided not tocontest a Federal Circuit case brought byIBM. Instead, in 1996, the office issuednew guidelines allowing “pure softwarepatents” (where the software is not integratedinto a larger invention). Yet theFederal Circuit did not explicitly approvesuch patents until 1998. According to Stanford Law Schoolprofessor Lawrence Lessig in his newbook, “The Future of Ideas”, “patent applicationsfor software-related patents wentfrom 250 in 1980 to 21,000 in 1999, andthe number granted has increased eight-ornine-fold.” That rise may have been,as Dickinson said in 2000, “an evolutionarydevelopment.” But it’s an evolutionthat markedly altered the patentworld. And it’s an evolution that the PTOplayed a key role in advancing. The PTO has also exercised its discretionin other significant ways. StephenMerrill, executive director of theBoard on Science, Technology, andEconomic Policy where he heads up aninvestigation into IP law, points outthat in 2000 the PTO “tightened up thecriteria for judging genomic utility, andthereby reduced the number of genefragment patents being issued. Thatwas a purely administrative act.” That same year, the PTO exercisedsimilar discretion with business methodpatents. According to Merrill, the PTO”didn’t explicitly revise the criteria forissuing patents, but instituted a secondlevel of review. And that had a majorslowing-down effect on the number ofbusiness method patents.” The numberof such patents issued fell from about900 in 2000 to about 430 in 2001. And it’s not just the PTO that overseespatents. Other agencies help decide howstrong the protection of already-issuedpatents should be. For instance, the government foots thebill for more than 35 percent of thiscountry’s research and development(based on data from the National ScienceFoundation). Thanks to the Bayh-DoleAct of 1980, the government grants thepublic and private recipients of its fundsthe patent rights to inventions that comefrom such research. But the rights theyget are not the same as they would havereceived had they financed the researchthemselves. The difference is that thegovernment retains the right to “marchin” and take back the patent if the holderis not commercializing the invention.This is a potentially powerful tool,already on the books, with which thegovernment can exert control over howwidely many patents are made available. But, more than 20 years after Bayh-Dolewas written, the government hasyet to exercise its march-in rights evenonce. This was not the intent, says JohnRaubitschek, who helped draft the regulationsimplementing Bayh-Dole andnow is patent counsel at the Departmentof Commerce. “Since we were concernedwith due process rights, we made it difficult for agencies to exercise march-inrights,” he says. “But maybe we made ittoo difficult.” As for patents that arise from purelyprivate funding, the government alsohas leverage to make them more widelyavailable. Section 1498 of Title 28 of theU.S. Code gives parties the right to suewhen infringement takes place “by orfor the United States.” While patentowners can win monetary damages, thestatute doesn’t give them the right tostop the government from using thepatent. That means that, for all patents,the government can force owners tomake their inventions more accessible,for a price. The government does rely onthis provision sporadically, but it “certainlycould be done more aggressively,”says Thomas, the GW professor. Similarly, the PTO could make greateruse of its power to re-examine (that is,review again) already-issued patents.According to PTO statistics, the patentcommissioner initiated such proceedingsonly 49 times from 1996 to 2000. In2000 itself, he did so only nine times.The PTO could do more. And, finally, federal antitrust enforcerscould take substantial action now, withoutwaiting for legislation. They couldredraft the 1995 guidelines to make clearthat there is great tension betweenantitrust and patent values, and theycould continue vigilant prosecution ofquestionable business tactics by patentholders. Lemley, the Boalt professor, alsonotes that antitrust enforcers have theability to dodge the Federal Circuit andkeep certain cases in the potentiallymore-sympathetic regional circuits. Thisnot only might lead to a more antitrust-friendlyresult in a given case, but couldalso trigger a split between circuits thatwould force the Supreme Court to step in. The fact that the government can takeall these discretionary actions makessense. Professor Douglas Lichtman of theUniversity of Chicago Law School pointsout that “in the patent system, it’salways been clear that intellectual propertyis different in some important waysfrom regular property. So it’s alwaysbeen kept in focus that we’re doing thisfor policy-driven reasons.” So the discretion of governmentofficials to addresscomplaints about the patentsystem is real. Equally important thesedays are the parallels to the “externalforces” that prompted antitrust changesin the late ’80s. For example, at theQatar meeting last November, WorldTrade Organization members (includingthe United States) addressed an ongoingcontroversy over expensive patenteddrugs by declaring that “Each memberhas the right to grant compulsory licensesand the freedom to determine thegrounds upon which such licenses aregranted.” The language gives nations thecover they need to respond to publichealth emergencies by manufacturingthemselves the necessary pharmaceuticals(to treat AIDS, for instance, oranthrax). Movement in the internationalsphere might prompt further discretionaryaction from the executivebranch, even if Congress does nothing. And there’s also another impetus — anideological one — that might prompt arethinking of patent law from within theBush administration. The administration,in theory, prefers less regulation andmore free-market activity. Patent law is aform of regulation that works againstmarket forces. Thus, says Lessig, theStanford professor, “There is a clear culturethat the Bush administration bringsto government regulation that would doa great deal of good if applied consistentlyand applied in a principled mannerto the patent field. And the culturethey bring is to assume that regulationwon’t do good until it’s proved that itdoes good.” Less regulation, in otherwords, could be a rallying call for lesspatent protection. As Rogan goes forward at the PTO, hewill, no doubt, respond to any legalchanges that Congress or the courtsmake. But absent such new developments,the new director is likely to seehis job as staying the course. WhatRogan and other patent overseers needto realize is that they have real powernow to respond to legitimate criticismsof the patent system. As the antitrustexperience shows, even limited discretioncan make all the difference.

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