NanoPundit -Where Society, Science and the Law get really, really small.

Sunday, June 05, 2005

Monopoly Factory?

INSTAPUNDIT is all atwitter about reforming the patent office with links to KAUS who links to The Washington Monthly article by Zachary Roth’s article “The Monopoly Factory.”

Most patent folks can quote Abraham Lincoln "The patent system added the fuel of interest to the fire of genius." Fewer can quote old Abe’s “That some should be rich, shows that others may become rich, and, hence, is just encouragement to industry and enterprise.” Kaus states “unjustified patent proliferation forces researchers and innovators to either challenge the patents in court or abandon their work.” Yes, but so does justified patent proliferation. The trick is to fuel the fires of genius and make legitimate inventors rich without flooding the system with improperly granted patents.

Faulty Patents?
I agree with Roth when he recognizes that there are costs to issuing faulty patents:

No one knows how many mistaken patents the office issues each year. But the results of one patent office experiment suggest that, in some areas, as many as half of those issued may be faulty. Faulty patents may be doing immense damage to the economy. They not only allow patent-holding firms to gouge consumers with exorbitant prices, but they also inhibit innovation and research, put a drag on economic growth, and may even create an investment bubble.

However, it is simplistic to say that “raise the bar” and that will solve all issues. What everyone fails to recognize is that there are costs with raising the bar on the standards of patentability, new, useful and non-obvious. Raising the bar will increase costs and diminish the reward. Small time inventors and even fortune 500 companies are limited in what they can spend on patent expenses.

A few days ago INSTAPUNDIT
posted Robert A. Heinlein comment “Advances which permit this norm to be exceeded- here and there, now and then- are the work of an extremely small minority. . . Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as ‘bad luck.’ ” Inventors fall into this tiny minority and if they fail to see the benefits they move on to other endeavors and it is indeed our ‘bad luck.’

Smart inventors treat patents as assets and perform a cost benefit analysis before filing. Considerations include: what are the chances of obtaining a patent, how broad a technology will the patent cover, what will competitors learn that they can implement without infringing the patent, what was the cost of developing the technology. Patent office costs are a very small part of this equation. The probability of obtaining a patent is a very large factor, make it more difficult and fewer technologies will be revealed to the public in patent filings.

New Technology
Roth discusses the patent offices problems with business methods and biotechnology patents.

[T]he office created a new set of rules for reviewing “business method” patents—a relatively new category of patentable material, covering non-technical innovations, such as's “one-click” ordering system (the patent protects the idea, not the technology necessary to carry it out). The complexities of these patents were causing problems for many examiners, so the office instituted a “second-set-of-eyes” system, which simply required an additional examiner to review each application. Under the new system, the allowance rate for business method patents was quickly halved. That suggests patents in other complex fields, such as bio-technology, given without a “second set of eyes,” may have similarly higher error rates.

I think he misses a big issue. Problems arise more because business methods and biotechnology were new technologies and the patent office had no frame of reference for examining these technologies. The patent examiner looks at collections of prior art, mainly in the form of previously issued patents, to determine patentabilty. When a new technology hits the office, there is no collection of prior art to use to reject patent applications on the new technology. I expect that this is happening in the nanotechnology area now.
As a new technology develops it is initially classified with the closest existing technology, I think that biotechnology was initially examined by examiners who specialized in organic chemistry. As more applications and prior art are received examiners specialize in the new technology and a digest is created for the prior art. The Patent Office has just created a single digest for nanotechnology, look
here for more. Within a few years of a new technology’s introduction the Patent Office is up to speed with well trained examiners and useful systems for determining patentability.

Roth discusses George Selden’s 1879 patent application on a rudimentary car powered by an internal combustion engine. This was a new technology at the time and the patent system did not have the infrastructure in place to rigorously examine Selden’s patent. The Patent Office currently has a number of examiners that specializes in automobiles and all of its components. These folks really know their stuff and have an amazing ability to find relevant prior art. When I was a young examiner I asked my primary examiner if he had seen a specific optical waveguide configuration. He had; he knew what drawer the reference was in; and he knew about how far down in the drawer the reference could be found.

Patsy, Who You Callin’ a Patsy?
Roth call the Office “not something to be feared but a patsy.” I work with examiners all the time and few of them could be called patsies. Roth supposes that the examiners as driven by ‘counts.’

While the weight of the workload gives examiners a passive incentive to rubber-stamp patents, the office's worker evaluation system gives them an active one. The size of an examiner's bonus is determined in part by the number of “counts” he amasses. Examiners gain one or more counts each time they open and close a new case. But when examiners reject patent requests, applicants typically adjust the claim and file a “continuation,” denying the examiner a count. So, an examiner concerned about his bonus has a strong incentive to approve the application. “There's a gaming of the system,” says Harold Wegner, a former examiner who now works as a patent attorney with the law firm Foley and Lardner. “You can get a stack of applications and just allow patents and get your [counts] that way.”

I took a course from Hal Wegner while in law school. He knows a lot about patents, and probably as much about the Japanese patent system as anyone in America. But he doesn’t know how to game the system as a patent examiner at the United States Patent Office. The well accepted method of bumping up your counts is not to allow a patent application; one count for one application is for pikers. Allowed applications are also randomly reviewed by quality control so there may be some repercussions to allowing applications. Rejections and new applications are the way to go. No one up the chain will dun you for issuing a rejection.

The trick is to issue a restriction requirement, essentially say the application includes more than one patentable invention and force the inventor to elect a single invention. That leads to new applications being filed on the non-elected inventions and these typically come to the same examiner. Then you beat them about the head and neck with prior art and issue a final rejection on the second action. At this point the inventor has the choice of appealing the rejection (which is expensive and very time consuming) or filing a Continuation.

The fact of the matter is that it is about s much work to follow this route as it is to just do the work. Patent examiners also have pride in their work. The name of the examiner goes on the face of the patent. Examiners are also protective of what gets issued in their technology area. In my years in and out of the patent office I have come up against more cold hearted SOB’s than patsies.

The Biggest Problem
The biggest problem with the U.S. patent system is not the examiners or any incentive to issue patents, it is the god-like status that issued patents have. Under
U.S. law a patent is presumed valid and “[T]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”

This is a heavy burden indeed. A typical patent lawsuit costs in excess of one million dollars but an unrecognized cost is that you cannot bring an invalidity or noninfringement action unless there is a “case or controversy.” There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity." This is legalese for “your fat has to be in the fire before you have the right to spend a million bucks attempting to prove invalidity or noninfringement.”

Another issue that one faces in proving invalidity or noninfringement is that the case can be tried to a jury and typically before a court that sees one or two patent suits a year (the Southern District of New York and Eastern District of Virginia are two exceptions). So you have a judge that sees few patent cases and a jury that has seen none. Neither understand the technology and, therefore; they often defer to the decision made by the examiner in a few hours, possibly without the best prior art or the best arguments for invalidity available.

Look to European Law
Patent litigation is one area where the Europeans have us beat, hands down. In Germany, a nullity action to determine the validity of a patent is heard in the German Patent Office, with an appeal to the Federal Patent Court in Munich (the location of the German Patent Office) and the first non-patent specific court that considers validity is the German Supreme Court (and they do hear patent validity cases).

U.S. law has recently stated to allow the Patent Office to hear inter partes patent reexaminations. The procedure is rarely used because unsuccessful reexamination makes it almost impossible to invalidate the patent in later litigation because estoppel prevents the rehearing of the same issue. No one I know uses the current inter partes reexamination and I cannot think of a situation in which I would be interested in using this. Using the European nullity action as a model would be a huge improvement.


First, identify new technologies early on and develop the infrastructure to rigorously examine patent applications in those areas.

Second, establish meaningful inter partes opposition in the Patent Office that allows the party challenging validity to be fully heard and does not precluding further argument in district court.

Third, establish a unique district court with jurisdiction over patent cases.

And don't even get me started on juries for patent cases, I don't thnk it should be an option but that pesky Constitution keeps getiing in the way. I would guess D.A.'s have similar issues.


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