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A COST-BENEFIT APPROACH TO PATENT
OBVIOUSNESS
TUN-J EN C HIANG †
I NTRODUCTION ................................................................................
I. DEVELOPMENT OF THE LAW OF OBVIOUSNESS .....................
A. From Hotchkiss to Cuno ................................................ B. Section 103 and Graham v. John Deere Co. ................. C. The Teaching-Suggestion-Motivation Test .................... D. KSR International Co. v. Teleflex, Inc. .......................... E. A Summary of Obviousness Law ................................... II. THE ECONOMICS OF PATENTS ............................................... A. The Benefits of Patents ...................................................
- The Acceleration Benefit ..........................................
- The Problem of Dissipating Surplus ........................
- Calculating the Benefit............................................. B. The Costs of Patents ....................................................... III. A NEW TEST OF PATENTABILITY ........................................... A. Balancing the Benefits and Costs .................................. B. Defining Independent Invention ....................................
- Independence from the Patentee..............................
- Independence from the Patent System....................
- Dedication of the Invention to the Public Domain ...................................................................... IV. OBJECTIONS AND COMPLICATIONS ........................................ A. The Affect on Incentives .................................................. B. Difficulty of Determining Variables ...............................
- The Advantage of Ex Post Verification....................
- Validity Determinations in Initial Examination.....
† (^) Associate, Quinn Emanuel Urquhart Oliver & Hedges, LLP. I thank Judges Timothy Dyk and Richard Posner, and Professors John Duffy, Mark Lemley, and Douglas Lichtman, for their comments on prior drafts of this Article. The views expressed herein are my own.
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- Validity Determinations in Litigation and Reexamination .......................................................... C. The Confiscation Problem .............................................. D. Delay Between Conception and Disclosure .................... V. SUGGESTIONS FOR REFORM .................................................. A. Invalidating Patents Based on Subsequent Independent Invention ...................................................
- Doctrinal Basis for Considering Independent Invention ...................................................................
- Independent Invention as a Secondary Consideration ............................................................ B. Reconsidering the Definition of “Prior Art” ................. CONCLUSION ..................................................................................
I NTRODUCTION The standard for patentability, codified as the “obviousness” standard, 1 holds that an invention is not patentable if it “would have been obvious at the time the invention was made to a person having ordinary skill in the art... .”^2 People, however, have different opinions on what is “obvious,” on what is “innovative,” and subjectivity has proven impossible to remove from the process. In the 150-year history of the standard, courts have articulated a variety of tests to determine obviousness, all to no avail. 3 The Supreme Court’s most recent effort, after deriding the prevailing test in the lower courts for the last
(^1) Nonobviousness is not the only requirement for a valid patent. For example, a patent must be within the statutory class of patentable subject-matter. 35 U.S.C. § 101 (2000); see Diamond v. Diehr, 450 U.S. 175, 185 (1981) (“Excluded from such patent protection are laws of nature, natural phenomena, and abstract ideas.”). A patent must also describe the invention in sufficient detail to enable others to practice it. 35 U.S.C. § 112 (2000). Nevertheless, nonobviousness has been frequently recognized as the “ultimate condition of patentability.” See N ONOBVIOUSNESS—T HE U LTIMATE C ONDITION OF P ATENTABILITY (John F. Witherspoon ed., 1980); Robert P. Merges, Commercial Success and Patent Standards: Economic Perspectives on Innovation , 76 C AL. L. R EV. 805, 812 (1988). (^2) 35 U.S.C. § 103(a) (Supp. IV 2004). (^3) Great Atl. & Pac. Tea Co. v. Supermarket Equip. Corp., 340 U.S. 147, 151 (1950) (“[T]he profession [has come] to employ the term ‘combination’ to imply [innovation’s] presence and the term ‘aggregation’ to signify its absence.... [T]heir employment as tests to determine invention results in nothing but confusion.”); see, e.g. , Sakraida v. Ag Pro, Inc., 425 U.S. 273, 282 (1976) (“new or different function” test); Cuno Eng’g Corp. v. Automatic Devices Corp., 314 U.S. 84, 91 (1941) (“flash of creative genius” test).
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patent and the prospect of monopoly profits, the cure will be developed in, say, 10 years. More specifically still, the benefit is not only that we receive the invention earlier, it is also that we can use the invention during this entire period even though the invention is under monopoly. 8 Paying monopoly prices for 100 years is better than having no cure for 100 years. It follows that the widespread perception that patents are socially costly simply due to their conferring a monopoly is also misguided. Society benefits from inventions even under monopoly conditions—if society would not otherwise have had the invention at all. The cost of a patent accrues only when society could have otherwise had the same invention in perfect competition without a patent. Stated another way, the patent system incurs costs only if the invention would have been independently invented during the life of the patent. Only after independent invention occurs—or rather, would have occurred— does the monopoly cost of a patent accrue. This monopoly cost must then be balanced against the patent’s benefits. An invention should receive a patent if the accrued benefits before independent invention outweigh the costs after independent invention. The Supreme Court recently moved towards this concept, noting that awarding patents “to advances that would occur in the ordinary course without real innovation retards progress... .”^9 As I shall demonstrate, the benefits of awarding patents correspond to the economic concept of consumer surplus, and the costs are the difference between the consumer surplus in monopoly (with the patent) and the
(^8) The value of use during the patent term is frequently overlooked by the courts, which often cite only the benefit of using the invention after patent expiration. See, e.g. , Universal Oil Prods. Co. v. Globe Oil & Refining Co., 322 U.S. 471, 484 (1944) (“[T]he quid pro quo is disclosure of a process or device in sufficient detail to enable one skilled in the art to practice the invention once the period of the monopoly has expired... .”). But cf. Brenner v. Manson, 383 U.S. 519, 534–35 (1966) (“Unless and until a process is refined and developed to this point—where specific benefit exists in currently available form —there is insufficient justification for permitting an applicant to engross what may prove to be a broad field.” (emphasis added)). This oversight is unfortunate. As this Article demonstrates, the primary determinant of whether benefits outweigh costs is use of the invention during the patent term. (^9) KSR , 127 S. Ct. at 1732 (emphasis added). This “would occur” standard is important because it moves away from the approach of emphasizing only what is already known at the time of invention. See, e.g. , Cross Med. Prods., Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293, 1324 (Fed. Cir. 2005).
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consumer surplus under perfect competition (with independent invention). Because both are measurable in a given market for a patented invention, patentability reduces to an objective, empirical question. This Article redefines the patentability standard using economic principles, offering determinable criteria for courts that have struggled to articulate them. Part I outlines the history of the struggle to define a standard for patentability, later codified as the obviousness requirement. Part II discusses the economic costs and benefits of a patent grant. Part III outlines the test, including the important criterion of independent invention. Part IV discusses some complications to the analysis that do not materially change the test. Finally, Part V suggests some modifications to current law in light of the considerations described.
I. DEVELOPMENT OF THE LAW OF OBVIOUSNESS
A. From Hotchkiss to Cuno
The early American patent statutes did not have an express obviousness requirement—all that was required was novelty and usefulness.^10 Even relatively trivial changes satisfied a bare novelty standard, causing predictable problems:
The most frivolous and useless alterations in articles in common use are denominated improvements.... Implements and utensils, as old as the civilization of man, are daily, by means of some ingenious artifice, converted into subjects for patents. If they have usually been made straight, some man of genius will have them made crooked.... If, from time immemorial, their form has been circular, some distinguished [artisan] will make them triangular.... 11 The requirement of some substantial innovation was a judicial gloss on the bare novelty standard, developing over time. Although some early cases had hinted at a requirement stricter than bare novelty, 12 it was Hotchkiss v. Greenwood that finally
(^10) See Patent Act of 1836, ch. 357, 5 Stat. 117; Patent Act of 1793, ch. 11, 1 Stat. 318; Patent Act of 1790, ch. 7, 1 Stat. 109. (^11) Thompson v. Haight, 23 F. Cas. 1040, 1041 (C.C.S.D.N.Y. 1826) (No. 13, 957). (^12) See Evans v. Eaton, 20 U.S. 356, 431 (1822) (“If [two machines] were the same in principle , and merely differed in form and proportion,” it was not
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Following Hotchkiss , the Court had little difficulty in establishing the principle that “use of one material instead of another in constructing a known machine is, in most cases, so obviously a matter of mere mechanical judgment, and not of invention, that it cannot be called an invention.”^19 Similarly, the Court held that “change[s] of form, proportions, or degree, or the substitution of equivalents, doing the same thing as the original invention by substantially the same means, is not such an invention as will sustain a patent, even though the changes of the kind may produce better results.”^20 The Court also declared that “application by the patentee of an old process to a new subject, without any exercise of the inventive faculty, and without the development of any idea which can be deemed new or original in the sense of the patent law” would not be patentable.^21 Finally, the Court established the principle that the “mere aggregation of separate devices, each of which performs the function for which, when used separately, it was adapted” was not patentable,^22 unless the combination produced “a new and beneficial result, never attained before.”^23 The “new result,” however, could not be the “[p]erfection of workmanship, however much it may increase the convenience, extend the use, or diminish expense.”^24 Explaining how an inventive “new result” could do more than increase convenience, extend useful life, and diminish expense proved difficult. Eventually, in the 1941 decision Cuno Engineering Corp. v. Automatic Devices Corp. , 25 the Court decided that the difference between workmanship and inventiveness was a “flash of creative genius.”^26 This unfortunate phrase caused endless confusion in the lower courts, and many suggested that corporate sponsored laboratory research was essentially unpatentable because such research necessarily involved multiple scientists and step-by-step
(^19) Hicks v. Kelsey, 85 U.S. 670, 673 (1873). (^20) Dunbar v. Myers, 94 U.S. 187, 199 (1876). (^21) Brown v. Piper, 91 U.S. 37, 41 (1875). (^22) Stephenson v. Brooklyn Cross-Town R.R. Co., 114 U.S. 149, 157 (1885). (^23) Loom Co. v. Higgins, 105 U.S. 580, 591 (1881). (^24) Reckendorfer v. Faber, 92 U.S. 347, 356–57 (1875). (^25) 314 U.S. 84 (1941). (^26) Id. at 91.
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experimentation with no single “flash” of genius.^27 Finally, in Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corp. , 28 the Supreme Court acknowledged that it had not, could not, and would not articulate a precise test for its inventiveness requirement:
While this Court has sustained combination patents, it never has ventured to give a precise and comprehensive definition of the test to be applied in such cases. The voluminous literature which the subject has excited discloses no such test.... In course of time the profession came to employ the term “combination” to imply its presence and the term “aggregation” to signify its absence, thus making antonyms in legal art of words which in ordinary speech are more nearly synonyms. However useful as words of art to denote in short form that an assembly of units has failed or has met the examination for invention, their employment as tests to determine invention results in nothing but confusion.^29
B. Section 103 and Graham v. John Deere Co.
At the same time that Great Atlantic was pending in the Supreme Court, efforts for a major reform of patent law were pending in Congress. This effort included a codification of the
(^27) See Potts v. Coe, 140 F.2d 470, 472–74 (D.C. Cir. 1944); Picard v. United Aircraft Corp., 128 F.2d 632, 636 (2d Cir. 1942) (“Unless we are to mistake for invention the slow but inevitable progress of an industry through trial and error... there was no invention in this.”); see also William Douglas Sellers, The Flash of Genius Doctrine Approaches the Patent Office , 7 E NG’ G & SCI. MONTHLY 3, 4 (1944) (“If the doctrine of Potts v. Coe is to be recognized and given effect it is doubtful that many patents owned by corporations having research organizations are of any validity.”). Other courts deemed such a result unacceptable and simply announced that they would refuse to follow the “flash of genius” test. See Chi. Steel Foundry Co. v. Burnside Steel Foundry Co., 132 F.2d 812, 817 (7th Cir. 1943). The test of “ flash of genius” has been applied to curtain the field of patentable discovery and to eliminate from the protection of patents, all products... which were... the product of prolonged study and step by step advance. In short, it would eliminate nearly all the advances of history.... Id. (emphasis added). (^28) 340 U.S. 147 (1950). (^29) Id. at 150–51; see also id. at 150 & n.5 (noting that the “Index to Legal Periodicals reveals no less than sixty-four articles relating to combination patents and the theory and philosophy underlying the patent laws,” but the “voluminous literature which the subject has excited discloses no... test” for the standard to be applied).
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Conditions for patentability; non-obvious subject matter
A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made.^35
The Supreme Court first interpreted the new, codified, obviousness standard in Graham v. John Deere Co. 36 The Graham Court first reaffirmed that the newly enacted section 103 was a mere codification of the prior law dating from Hotchkiss , 37 save for the legislative overruling of the “flash of genius” test. 38 Surveying its prior cases, the Court recounted: “[A]s this Court has observed, ‘(t)he truth is, the word (“invention”) cannot be defined in such manner as to afford any substantial aid in determining whether a particular device involves an exercise of the inventive faculty or not.’ ”^39 The Court then proceeded to lay down a new approach to determining patentability:
The Hotchkiss formulation, however, lies not in any label, but in its functional approach to questions of patentability. In practice, Hotchkiss has required a comparison between the subject matter of the patent, or patent application, and the background skill of the calling. It has been from this comparison that patentability was in each case determined. 40
section should have a stabilizing effect and minimize great departures which have appeared in some cases.” S. R EP. N O. 82-1979 (1952), reprinted in 1952 U.S.C.C.A.N. 2394, 2400. (^35) Patent Act of 1952, Pub. L. No. 82-593, § 103, 66 Stat. 792. This remains the statutory standard of obviousness today. 35 U.S.C. § 103(a) (2000). (^36) 383 U.S. 1 (1966). (^37) Id. at 17 (“We conclude that the section was intended merely as a codification of judicial precedents embracing the Hotchkiss condition... .”). (^38) See id. at 15–16 & n.7 (repudiating the flash of genius test). (^39) Id. at 11–12 (quoting McClain v. Ortmayer, 141 U.S. 419, 427 (1891)). (^40) Id. at 12.
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According to the Court, obviousness could be determined using a simple four step analysis. First, “the scope and content of the prior art are to be determined.”^41 Second, the “differences between the prior art and the claims at issue are to be ascertained.”^42 Third, “the level of ordinary skill in the pertinent art [is to be] resolved.” 43 Finally, “[a]gainst this background, the obviousness or nonobviousness of the subject matter is determined.”^44 The Graham formulation gave some structure to the obviousness inquiry. The Court’s opinion, however, provided little insight into how, against the background facts, “the obviousness or nonobviousness of the subject matter” was to be determined. The opinion gave all the appearance of expecting a solution to appear out of thin air once the formula was followed. 45 The lack of an articulable rule meant that determinations of obviousness took the appearance—and arguably the reality—of resting on judicial whim, where the validity of a patent was heavily dependent on the court that was deciding the case, 46 a
(^41) Id. at 17. (^42) Id. (^43) Id. (^44) Id. (^45) In a grudging and opaque concession to the reality that the inquiry was ultimately a subjective one, the Court acknowledged that: “What is obvious is not a question upon which there is likely to be uniformity of thought in every given factual context.” Id. The court nonetheless expressed confidence that “strict observance of the requirements laid down here will result in that uniformity and definiteness which Congress called for in the 1952 Act.” Id. This confidence was soon proven wrong. (^46) A Commission reported to Congress in 1975 that patent validity determinations were perceived to be strongly dependent on whether one appears before a favorable judge: “Nowhere is the quest more vigorously pursued than for the right forum to rule on validity. Patentees now scramble to get into the 5th, 6th and 7th Circuits since the courts there are not inhospitable to patents whereas infringers scramble to get anywhere but in these circuits.” Comm’n on Revision of the Fed. Court Appellate Sys., Structure and Internal Procedures: Recommendations for Change , 67 F.R.D. 195, 370 (1975). The problem of different circuits treating the same patent differently did not originate with Graham ; rather, Graham itself involved a circuit split in which the Fifth Circuit had upheld the very patent that the Eighth Circuit later invalidated. Compare Jeoffroy Mfg., Inc. v. Graham, 219 F.2d 511, 520 (5th Cir. 1955), with John Deere Co. v. Graham, 333 F.2d 529 (8th Cir. 1964), aff’d , 383 U.S. 1 (1966). However, Graham did little to resolve this situation.
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affecting the obviousness doctrine between 1977 and 2006.^51 In the absence of Supreme Court intervention, the Federal Circuit developed its own structure for obviousness analysis. The first step requires the party challenging patentability to prove a prima facie case of invalidity. 52 If a prima facie case is made, the patentee can then rebut this case by providing facts supporting non-obviousness, such as demonstrating unexpected results, 53 that the prior art teaches away from the claimed invention,^54 that the invention proved to be commercially successful,^55 or that others had attempted and failed to make the invention. 56 When rebuttal evidence is provided, the prima facie case dissolves and obviousness is determined in the totality of circumstances as under Graham. 57 The key to this three-step process, however, was always proving the initial prima facie case because the Federal Circuit created a difficult evidentiary hurdle. In order to establish a prima facie case of obviousness, the party challenging patentability must prove a “teaching,” “suggestion,” or “motivation” to modify prior art references into the claimed invention.^58 The teaching-suggestion-motivation test achieved limited objectivity, but at a heavy cost. To the extent that the test required explicit suggestions to combine elements to achieve an
(^51) Dennison presented the issue of the standard of obviousness. See 475 U.S. at 809–10 (“The [Federal Circuit]... ruled that the references cited by the District Court did not teach the innovations introduced by respondent... .”). The Supreme Court, however, remanded for clarification on whether the Federal Circuit was giving any deference to the district court’s factual findings. Id. at 811. When the case returned the Court denied certiorari. Dennison Mfg. Co. v. Panduit Corp., 481 U.S. 1052 (1987). (^52) 35 U.S.C. § 282 (2006) (stating that an accused infringer in litigation bears burden of proving invalidity); In re Kumar, 418 F.3d 1361, 1366 (Fed. Cir. 2005) (“During examination, the examiner bears the initial burden of establishing a prima facie case of obviousness.”). (^53) See In re Geisler, 116 F.3d 1465, 1469–70 (Fed. Cir. 1997). (^54) See id. at 1471. (^55) See In re Piasecki, 745 F.2d 1468, 1475 (Fed. Cir. 1984). (^56) See In re Wright, 569 F.2d 1124, 1127 (C.C.P.A. 1977). (^57) See In re Oetiker, 977 F.2d 1443, 1445 (Fed. Cir. 1992); In re Spada, 911 F.2d 705, 708 (Fed. Cir. 1990). (^58) In re Kahn, 441 F.3d 977, 986 (Fed. Cir. 2006); see also ACS Hosp. Sys., Inc. v. Montefiore Hosp., 732 F.2d 1572, 1577 (Fed. Cir. 1984) (“[T]eachings of [prior art] references can be combined only if there is some suggestion or incentive to do so.”).
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invention, it was objective.^59 For example, if an invention is the combination of A and B in a single package, people can disagree over whether the idea was ingenious or obvious. On the other hand, if the legal question was transformed to whether there was a piece of paper that explicitly said, verbatim, “combine A and B in a single package,” the inquiry became purely factual and objective. The problem with requiring such a degree of explicitness and specificity, however, is that the obviousness inquiry reduces to a simple novelty inquiry. It would require the prior art reference to describe the invention exactly. To the extent that the patented invention differed from the prior art’s explicit teachings, however, the teaching-suggestion- motivation test could do very little to help unless it was to require patent grants for every novel invention. Obviousness, to have any meaning, involves bridging the difference between the prior art and the patented invention through something that is not explicitly in the prior art itself. In a series of decisions after the Supreme Court granted certiorari in KSR International Co. v. Teleflex, Inc. , 60 the Federal Circuit emphasized that there may be “implicit motivation” from many sources to provide that bridge. 61 The problem is that once this “implicit motivation” standard is accepted, the obviousness question lands back in square one; it is merely a matter of semantics to switch from asking whether
(^59) Some Federal Circuit cases have suggested that the teaching, suggestion, or motivation had to be very explicit. See, e.g. , Winner Int’l Royalty Corp. v. Wang, 202 F.3d 1340, 1348 (Fed. Cir. 2000) (“Although a reference need not expressly teach that the disclosure contained therein should be combined with another, the showing of combinability, in whatever form, must nevertheless be ‘clear and particular.’ ” (quoting In re Dembiczak, 175 F.3d 994, 999 (Fed. Cir. 1999) (citation omitted))); Standard Oil Co. v. Am. Cyanamid Co., 774 F.2d 448, 454 (Fed. Cir. 1985) (“A person of ordinary skill in the art is... presumed to be one who thinks along the line of conventional wisdom in the art... .”). (^60) 126 S. Ct. 2965 (2006) (granting petition for certiorari). (^61) DyStar Textilfarben GmbH & Co. Deutschland KG v. C.H. Patrick Co., 464 F.3d 1356, 1366–71 (Fed. Cir. 2006) (stating that there existed an implicit motivation to combine old elements because the resulting combination was “cheaper, faster, and more convenient”); Alza Corp. v. Mylan Labs., Inc., 464 F.3d 1286, 1294– 95 (Fed. Cir. 2006) (stating that implicit motivation could be based on expert testimony that persons of skill would have expected the invention to work successfully); Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299, 1309 (Fed. Cir. 2006) (asserting that implicit motivation to use one package instead of multiple packages exists because “of the well-known practice of packaging items in the manner most convenient to the purchaser”).
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obviousness endorsed by the Supreme Court is the same as it has always been: Whether something is implicitly motivated and obvious is nothing more than a subjective, inscrutable judgment call. Judges, juries, and experts will have endless debates on this matter of opinion; but it cannot be objectively proved.
E. A Summary of Obviousness Law
Judge Giles Rich of the Federal Circuit once described the pre-codification “invention” standard as the “plaything of the judiciary [that] meant anything the judges chose to make it mean.”^70 The codified standard is unfortunately no different. The court that decided in 1999 that a pumpkin face on a trash bag was nonobvious^71 was a very different court from the one that decided in 2006 that a new method of dyeing textiles that eliminated two steps in the traditional process was obvious;^72 yet both explicitly purported to be applying the same test. 73 Both the teaching-suggestion-motivation test and § 103 have proven to be extremely malleable. As a brief survey of the history of the obviousness standard shows, the problem is a lack of objective criteria to determine obviousness. Although § 103 purports to create an objective test by referencing a hypothetical person, the subjective opinion of a hypothetical person is still subjective: Why, exactly, does the substitution of clay for metal doorknobs not demonstrate
elaborated a broader conception of the TSM test than was applied in the instant matter.” (citing DyStar Textilfarben GmbH & Co. Deutschland KG v. C.H. Patrick Co., 464 F.3d 1356, 1367 (Fed. Cir. 2006); Alza Corp. v. Mylan Labs., Inc., 464 F.3d 1286, 1291 (Fed. Cir. 2006))). The Federal Circuit has taken this quote to be essentially a carte blanche affirmance of the teaching-suggestion-motivation test. See Takeda Chem. Indus., Ltd. v. Alphapharm Pty., Ltd., 492 F.3d 1350, 1355 (Fed. Cir. 2007). Whether the Supreme Court will see KSR as the same ringing endorsement of the teaching-suggestion-motivation test as the Federal Circuit remains to be seen. (^70) Giles S. Rich, Why and How Section 103 Came to Be , 14 F ED. C IR. B.J. 181, 186 (2004). (^71) See In re Dembiczak, 175 F.3d 994, 1000 (Fed. Cir. 1999). (^72) See DyStar Textilfarben GmbH & Co. Deutschland KG v. C.H. Patrick Co., 464 F.3d 1356, 1372 (Fed. Cir. 2006). (^73) The Federal Circuit’s insistence that its holding in DyStar was entirely consistent with its prior cases did not appear convincing to the Supreme Court. See KSR , 127 S. Ct. at 1743 (“We note the Court of Appeals has since elaborated a broader conception of the TSM test... .”).
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ingenuity? 74 Who is to say that such a substitution required less brilliance than the substitution of carbon for metal filament in the light bulb?^75 And if some expert was to so opine, how could he be proven wrong? Even when everyone agrees on the precise difference between clay and metal down to the last atom, people disagree on the significance of such a difference. With subjective judgment comes the concern that, in hindsight, everything looks obvious and insignificant. 76 Because a subjective judgment is ultimately inscrutable, the hindsight bias cannot be isolated and removed. 77 The problem of subjectivity in the obviousness standard is similar to that in the reasonableness standard of tort law. 78 Like the obviousness standard, reasonableness references the hypothetical judgment of a hypothetical person to create semantic objectivity. 79 In tort law, courts struggled to give the standard of a “reasonable and prudent person” useful meaning, beyond telling jurors that the reasonable person was just like them and allowing jurors to exercise subjective judgment. 80
(^74) Hotchkiss v. Greenwood, 52 U.S. 248, 267 (1850). (^75) See U.S. Patent No. 223,898 (filed Jan. 27, 1880) (Edison’s patent for the light bulb, claiming “[a]n electric lamp for giving light by incandescence, consisting of a filament of carbon of high resistance, made as described, and secured to metallic wires, as set forth.”). (^76) See Graham v. John Deere Co., 383 U.S. 1, 36 (1966) (noting the need “to resist the temptation to read into the prior art the teachings of the invention in issue”); Loom Co. v. Higgins, 105 U.S. 580, 591 (1881) (“Now that [the invention] has succeeded, it may seem very plain to any one that he could have done it as well. This is often the case with inventions of the greatest merit.”). (^77) See Gregory Mandel, Patently Non-Obvious II: Experimental Study on the Hindsight Issue Before the Supreme Court in KSR v. Teleflex, 9 YALE J.L. & T ECH. 1, 16 (2007) (discussing hindsight bias in obviousness determinations, and finding that the teaching-suggestion-motivation test does nothing to mitigate hindsight bias in jurors). (^78) See Panduit Corp. v. Dennison Mfg. Co., 810 F.2d 1561, 1566 (Fed. Cir. 1987) (describing the person of ordinary skill as “not unlike the ‘reasonable man’ and other ghosts in the law”); see also Graham , 383 U.S. at 18 (“What is obvious is not a question upon which there is likely to be uniformity of thought in every given factual context. The difficulties, however, are comparable to those encountered daily by the courts in such frames of reference as negligence and scienter... .”). (^79) Wilkerson v. McCarthy, 336 U.S. 53, 61 (1949) (stating that the standard for reasonableness is “what a reasonable and prudent person would have done under the same circumstances”). (^80) See R ESTATEMENT (SECOND ) OF T ORTS § 290 cmt. e (1965). In general, the actor is required to know everything with respect to the risk of harm which is a matter of common knowledge in the community in
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II. THE ECONOMICS OF PATENTS
A. The Benefits of Patents
- The Acceleration Benefit
The traditional theory of intellectual property was that the rights provided a reward for making investments that “created” inventions. At the time of the Patent Act of 1952, the economic debate over patents reflected this “creation” theory. In a report to Congress surveying the economic literature on patents, Fritz Machlup wrote:
Are the consumers—the non-patent-owing people—worse off for [the patent system]?
“No; they are not,” says one group of economists. Patents are granted on inventions which would not have been made in the absence of a patent system; the inventions make it possible to produce more or better products than could have been produced without them....
“Wrong,” says another group of economists. Many of the inventions for which patents are granted would also be made and put to use without any patent system. The consumers could have the fruits of this technical progress without paying any toll charges. Even if some inventions are made and used thanks only to the incentives afforded by the patent system, consumers must pay for all patented inventions....
This is but one of the fundamental conflicts in the economics of the patent system.^86
As the italicized portions demonstrate, the “creation” dispute rested on a dichotomy. Patent proponents asserted that patents created inventions whole, opponents asserted that patents created nothing at all. What both sides ignored was that while virtually every invention would be created sooner or later even
(^86) STAFF OF S. SUBCOMM. ON P ATENTS , T RADEMARKS , & C OPYRIGHTS , S. C OMM. ON THE J UDICIARY, 85 TH C ONG., A N E CONOMIC R EVIEW OF THE P ATENT SYSTEM 44– 45 (Comm. Print 1958) (emphasis added).
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without a patent system, patents created incentives for additional research investment, leading to inventions being made sooner than they otherwise would be.^87 The patent system creates no inventions, it accelerates them. One of the first authors that contributed to this modern understanding was Yoram Barzel, in his paper Optimal Timing of Innovations. 88 As the title itself suggests, innovation is a matter of timing, not creation. Barzel suggested that the patent system created incentives for multiple firms to race for a patent, affecting the timing of when an invention would be developed.^89 Implicit in this idea was that patents affected when, not if, an invention would be created. In response to Barzel, Edmund Kitch crystallized this concept:
If the purpose is to reward the inventor for his invention, then why shouldn’t he be awarded all of the present value of his invention? The simplicity of this argument breaks down, however, if we take the view that the inventor’s contribution is not the invention itself—which eventually would have been made by someone else—but the time of the invention. The patent should reward not for the whole value of the invention, but for the value of being first.^90 Kitch, however, did not fully realize the implications of his theory, believing that the social value of an invention affected the term—and scope—of the optimal patent but not whether it
(^87) DONALD S. C HISUM ET AL ., P RINCIPLES OF P ATENT L AW 67 (3d ed. 2004) (“[T]he inventor’s contribution is often not the invention itself—which would have eventually been invented by someone else—but rather the timing of the invention. In this case, the patent should not be reward for the entire value of the invention, but rather for the value of early discovery and disclosure.”). (^88) Yoram Barzel, Optimal Timing of Innovations , 50 R EV. E CON. & STAT. 348, 348 (1968). This insight did not necessarily originate with Barzel, as others suggested the trade-off between research expenditures and patent rents at almost the same time. See, e.g. , F. M. Scherer, Time-Cost Tradeoffs in Uncertain Empirical Research Projects , 13 N AVAL R ES. L OGISTICS Q. 71 (1966). (^89) See Barzel, supra note 88, at 350–51 (discussing the timing of innovation); see also Jennifer F. Reinganum, The Timing of Innovation: Research, Development, and Diffusion , in 1 HANDBOOK OF I NDUSTRIAL ORGANIZATION 849, 853–54 (Richard Schmalensee & Robert D. Willig eds., 1989) (“Invention is a costly activity, with the cost of invention by any given date being a decreasing convex function of the time prior to invention.”). (^90) Edmund W. Kitch, The Nature and Function of the Patent System , 20 J.L. & E CON. 265, 284–85 (1977) (emphasis added).
