Proposal2

Part II: The Parade of Horribles

Abraham Lincoln said that the “patent system added the fuel of interest to the fire of genius.”[1]  It is the sole specific grant of power by the Constitution directing Congress to award authors and inventors a private property right in new inventions that “promote the progress of science and the useful arts.”[2]  This was an inexpensive way for the new and impoverished federal government to create a national patent system and provide a utilitarian basis to stimulate innovation or what was then known as the “useful arts.”[3]  It is also one of the only constitutional clauses incorporated without debate.[4]  Perhaps because the delegates felt, as Mark Twain expressed it, that “a country without a patent office and good patent laws was just a crab and couldn’t travel any way but sideways or backwards.”[5]

While patents have provided an incentive for national competitiveness[6] and offered a barrier to entry to stimulate investment in new technologies, especially in industries with high start-up and research and development costs, there is a general consensus that the crab is traveling backwards.  The system is very much perceived to be broken.

The law calls for a patent to issue where an invention is novel, useful, non-obvious and described with enough specificity to inform the public how to practice the invention.  Yet of the two million patents in force in the United States,[7] many do not qualify.  Adam Jaffe and Josh Lerner regale the reader in their book Innovation and Its Discontents[8] with horror stories about patents that are anything but “non-obvious,” such as patent number 6,368,227 for “Method of Swinging on a Swing” awarded to a five-year-old boy.[9]  Or patent number 6,574,645, a patent on a method for drafting a patent.[10]  The “Patently Silly” webblog has dozens more.[11]

Applications come in and are granted for inventions that are not novel, as the statute requires. The patent awarded to Smucker’s for the crustless peanut butter and jelly sandwich is, by now, legendary. Jaffe and Lerner describe a patent sought for expirationless options thirty years after economists won the Nobel Prize for the same idea.  Now lawyers are getting into the game, trying to patent estate planning and other legal techniques that have been practiced in the industry for decades.[12]  The problem is that, as we shall discuss in the next Section, as old and obvious as an idea might seem, finding the relevant prior art to invalidate it can often be quite difficult, especially under time and resource constraints.  This creates an opportunity to exploit the deficiencies in the system.

An industry has arisen in patent “trolling”.  Patent trolls, also known as patent holding companies, seek patents primarily for the purpose of licensing them.[13]  Patent law provides the patent owner with a monopoly right to exclude others from using, selling, making or practicing[14] the invention but not a concomitant obligation to use, sell, make or practice that invention.  Thus patent trolls can purchase patents from inventors when they are aware of active infringement and then seek to license the patents to the infringers.  If the infringers fail to take a license, patent trolls have the financial resources to enforce their patents through litigation.  Industries such as software and financial services are particularly vulnerable to patent trolls since patents are relatively new to them.  This is due to recent judicial interpretations of patent law  which expanded the scope of patentable subject matter to include computer implemented inventions and business methods. [15].  Industries that innovate in these fields are unfamiliar with patents and thus are at increased risk of unkowningly infringing patents when they bring new products to market.  This makes them lucrative targets for [17] patent trolls. 

The reality of current patent practice[18] does not conform to the theory of bureaucratic expertise.  “The more complicated and specialized modern culture becomes,” wrote Max Weber, the father of modern sociology, “the more its external supporting apparatus demands the personally detached and strictly objective expert, in lieu of the lord of older social structures who was moved by personal sympathy and favor, by grace and gratitude.  Bureaucrats are supposed to possess “the knowledge that comes from specialized experience.”[19]  Yet the reality is that the supposedly expert bureaucrat – in this case fifty-five percent of patent examiners – has been at the USPTO for less than two years.[20]  It is not surprising given the fact that they are getting paid approximately $55,000 and a first-year associate in a Manhattan law firm earns a base salary of $125,000. In addition to being underpaid, they are also overworked.[21] An examiner has an average of 18-20 hours to do the initial review of an application.[22] Arguably, we have returned to the registration regime we abandoned in 1836.[23]

Patent bureaucrats enjoy a great deal more discretion than their counterparts at other agencies.  They have responsibility for granting a twenty-year monopoly with limited supervision, oversight or review when a first or second year civil servant at another agency would be drafting memos. The wide-ranging discretion of agency officials would not be such a problem, Jaffe and Lerner point out, were it not for the fact that courts are increasingly likely to find in favor of patent holders.[24]  The Supreme Court rarely hears patent-related certiorari petitions[25] (2006 being a notable exception).[26]

Patents are consequently both stronger, easier to get and more likely to be upheld without any concomitant guarantee of their quality.  This has led to a system that sometimes rewards invention at the expense of innovation.   In other words, the inventor may receive the boon of the patent monopoly but the “useful arts,” as the Constitution puts it, are not advanced and social welfare is not promoted. The Constitution demands that society benefit from the reward to the inventor and that is not necessarily the case here.  Instead, the current system has generated tremendous uncertainty with regard to the role patents play in the marketplace.  Whether the cause or the effect, there are double the number of patent applications today.  The venture capital industry demands patents as evidence of barriers to entry and a protection for their investment into new information industries.