The patent system “has overall worked very well in encouraging innovation and, particularly in our case, in allowing us to grow to a significant company,” remarked Qualcomm co-founder Irwin Mark Jacobs at the Heritage Foundation last week. To many, the patent system works too well. Our present system awarded a patent for a garbage bag that looks like a pumpkin, for example. Someone else patented a method for swinging on a swing. Jacobs acknowledges patent quality is critical and wants Congress to allow the Patent & Trademark Office to retain all of its user fees, but warns that other reforms could have unintended consequences.
Besides ending the diversion of some $90 million in PTO fees to fund other government programs, the chairman of the House subcommittee responsible for intellectual property, Rep. Howard L. Berman (D-CA), also wants to “improve patent quality, deter abusive practices by unscrupulous patent holders, and provide meaningful, low-cost alternatives to litigation for challenging patent validity.”
As noted by Professors Adam B. Jaffe and Josh Lerner in Innovation and Its Discontents (2004), our current problems stem from Congress’ last attempt to create a perfect patent system.
Beginning in 1982, the U.S. Congress made two adjustments to how the patent system operates … the process for judicial appeal of patent cases in the federal courts was changed, so that such appeals are now all heard by a single, specialized appeals court … [and] Congress changed the structure of fees and financing of the U.S. Patent and Trademark Office (PTO) itself, trying to turn it into a kind of service agency whose costs of operation are covered by fees paid by its clients (the patent applicants). It is now apparent that these seemingly mundane procedural changes, taken together, have resulted in the most profound changes in U.S. patent policy and practice since 1836.
This explanation is largely compelling. But, as noted by Professor Mark D. Janis (2001), another part of the problem has been a Supreme Court preoccupied – until very recently – with other matters.
The Supreme Court has rendered itself well nigh invisible in modern substantive patent law. The Court of Appeals for the Federal Circuit, created in 1982, has become the de facto supreme court of patents. In those rare patent cases when the real Supreme Court has materialized, the Court has left behind a largely uninspiring jurisprudence.
Under Chief Justice John Roberts, the Supreme Court has agreed to consider several patent cases. In eBay v. MercExchange (2006), the Court addressed the problem of virtually “automatic” injunctions. Automatic injunctions are a recent problem, created by the Court of Appeals for the Federal Circuit. The Supreme Court ruled that the traditional four-factor test used by the courts when considering virtually any petition for injunctive relief (irreparable injury, inadequate legal remedies, balance of hardships and the public interest) should likewise apply to patent disputes. The availability of automatic injunctions made it particularly appealing for some patent holders or their assigns (so-called patent trolls) to lie in wait for an opportunity to hold up other innovators in the final stages of commercializing their innovations. The “new” rule will restore some sanity.
Now the Supreme Court is considering the problem of patent quality in KSR v. Teleflex. During the oral arguments,the current “teaching-suggestion-motivation” test received amusing and especially harsh criticism from Chief Justice Roberts, Justice Scalia and Justice Breyer. The test is widely criticized for making it easy to obtain a patent, even if the invention is trivial. The oral arguments before the Supreme Court suggest the party may be ending.
Jacobs predicts that better patents will reduce extensive litigation, which makes sense. It’s often said that no one likes to be overturned on appeal; and assuming the Supreme Court issues a clear decision in the near future, the incentives for patent office examiners and the judges who review their decisions will change with or without an additional $90 million in funding. That, in turn, will affect patent applications. As Jaffe noted last month in testimony before Berman’s subcommittee,
While the increase in the rate of patent applications over the last two decades is driven by many factors, one important factor is the simple fact that it has gotten so much easier to get a patent, so applications that would never have been submitted before now look like they are worth a try. Conversely, if the PTO pretty consistently rejected applications for bad patents, people would understand that bad patent applications are a waste of money.
The proposal to end the diversion of patent office fees won’t, in itself, solve anything. Without better oversight than that which Congress is usually capable of, it would allow the PTO to subsidize its inefficiencies and then go back to its “clients” (the patent applicants) demanding higher fees in the future. In part, additional funding would facilitate additional layers of procedure at the patent office to improve patent quality via more review and opportunities for third-party challenges. But procedural improvements are often overrated and frequently lead to cancerous inefficiencies, as noted in this context by James DeLong:
Multiplying procedures based on erroneous or fuzzy standards does not improve decisions. If standards are clear and incentives appropriate, then one procedure plus an appeal is enough. If they are not, additional procedures add expense and quirkiness to the system without improving quality.
All of which raises the following question: Should Congress be wading into an ambitious patent reform effort at all?