Certainty, Fence Building, and the Useful Arts

Indiana Law Journal

Volumn 74, Issue 3, 1999, Pages 759-799

  Nard, Craig Allen ^a  

^a NONE

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EID: 0347669443     PISSN: 00196665     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (210)

1. In the late 19th century, the Commissioner of Patents wrote of the importance of claims as "set[ting] definite walls and fences about the rights of the patentee." Charles Eliot Mitchell, Birth and Growth of the American Patent System, in CENTENNIAL PROCEEDINGS OF THE UNITED STATES PATENT SYSTEM 1891, at 43, 51 (Executive Comm. of the Patent Centennial Celebration ed., 1990).
2. See 35 U.S.C. § 112 (1994) ("The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.").
3. Judge (then patent attorney) Giles Rich wrote a series of articles in 1942 exploring the relationship between patent law and anti-trust law. He wrote of an inducement theory that "is by far the greatest in practical importance." Giles S. Rich, The Relation Between Patent Practices and the Anti-Monopoly Laws, 24 J. PAT. & TRADEMARK OFF. SOC'Y 159, 177 (1942) [This theory] applies to the inventor but not solely to him, unless he is his own capitalist. . . . It might be called the inducement to risk an attempt to commercialize the invention. It is the "business" aspect of the matter which is responsible for the actual delivery of the invention into the hands of the public. Id. (emphasis added); see also Patlex Corp. v. Mossinghoff, 758 F.2d 594, 599 (Fed. Cir.) ("[E]ncouragement of investment-based risk is the fundamental purpose of the patent grant. . . ."), modified, 771 F.2d 480 (Fed. Cir. 1985).
4. See Wesley M. Cohen et al., Appropriability Conditions and Why Firms Patent and Why They Do Not in the American Manufacturing Sector 17 (June 24,1997) (unpublished manuscript, on file with author).
5. Rent-seeking has been defined as "the incentive to overproduce goods that promise a return greater than the cost of production (that is, an economic 'rent'), and to the resulting waste when rents are transformed, through competition to obtain them, into costs." RICHARD A. POSNER, LAW AND LITERATURE: A MISUNDERSTOOD RELATION 342 (1988) (parenthetical in original); see also Michael A. Sartori, An Economic Incentives Analysis of the Jury's Role in Patent Litigation, 79 J. PAT. & TRADEMARK OFF. SOC'Y 331, 339 (1997). Rent seeking occurs when innovators vie for the right to exclude and thereby compete for the ability to collect the economic rent. Rent seeking is deemed socially wasteful because in the "race for the patent" innovators spend more economic resources than is economically justifiable. Economic resources are wasted in research and development by competitors in the patent race duplicating investments and in patent litigation over issued patents. Id. (citations omitted).
6. Rent-seeking has been defined as "the incentive to overproduce goods that promise a return greater than the cost of production (that is, an economic 'rent'), and to the resulting waste when rents are transformed, through competition to obtain them, into costs." RICHARD A. POSNER, LAW AND LITERATURE: A MISUNDERSTOOD RELATION 342 (1988) (parenthetical in original); see also Michael A. Sartori, An Economic Incentives Analysis of the Jury's Role in Patent Litigation, 79 J. PAT. & TRADEMARK OFF. SOC'Y 331, 339 (1997). Rent seeking occurs when innovators vie for the right to exclude and thereby compete for the ability to collect the economic rent. Rent seeking is deemed socially wasteful because in the "race for the patent" innovators spend more economic resources than is economically justifiable. Economic resources are wasted in research and development by competitors in the patent race duplicating investments and in patent litigation over issued patents. Id. (citations omitted).
7. Although courts often speak of the patentee's ability to exclude "others" from making and using his invention and the "public's" need to know of its rights and limitations with respect to the patent grant, it is the competitors (i.e., persons of ordinary skill in the art) of the patentee whose interest is most immediately affected. Thus, I chose the term "competitive certainty" instead of, for example, "societal certainty." See Giles S. Rich, Foreword to DONALD S. CHISUM ET AL., PRINCIPLES OF PATENT LAW iii (1998) ("The power of the federal courts is made available to patentees for the enforcement of this right to exclude others. Who are these 'others'? Competitors, of course.") (emphasis in original).
8. See, e.g., Autogiro Co. of Am. v. United States, 384 F.2d 391, 396 (Ct. Cl. 1967) ("The very nature of words would make a clear and unambiguous [patent] claim a rare occurrence."). See generally RICHARD J. BERNSTEIN, BEYOND OBJECTIVISM AND RELATIVISM: SCIENCE, HERMENEUTICS, AND PRAXIS (1983).
9. Others have written about the Federal Circuit's excessive discretion as it relates to the on-sale bar and the doctrine of equivalents. See, e.g., Martin J. Adelman & Gary L. Francione, The Doctrine of Equivalents in Patent Law: Questions That Pennwalt Did Not Answer, 137 U. PA. L. REV. 673, 682 (1989) ("The doctrine of equivalents is the primary . . . cause of the current uncertainty surrounding the scope of patent claims."); Joseph F. Hagg, Hilton Davis Chemical Co. v. Warner-Jenkinson Co.: An Equitable Solution to the Uncertainty Behind the Doctrine of Equivalents, 80 MINN. L. REV. 1511, 1512 (1996) ("[The doctrine of equivalents] creates uncertainty for competitors as to what will or will not infringe a patent."); Thomas K. Landry, Certainty and Discretion in Patent Law: The On Sale Bar, The Doctrine of Equivalents, and Judicial Power in the Federal Circuit, 67 S. CAL. L. REV. 1151, 1159 (1994) ("On sale doctrine is fraught with uncertainty and demonstrates the consequences of a failure to recognize the value of having a rule."); Victoria Slind-Flor, Federal Circuit Judged Flawed, NAT'L L.J., Aug. 3, 1998, at A1.
10. Others have written about the Federal Circuit's excessive discretion as it relates to the on- sale bar and the doctrine of equivalents. See, e.g., Martin J. Adelman & Gary L. Francione, The Doctrine of Equivalents in Patent Law: Questions That Pennwalt Did Not Answer, 137 U. PA. L. REV. 673, 682 (1989) ("The doctrine of equivalents is the primary . . . cause of the current uncertainty surrounding the scope of patent claims."); Joseph F. Hagg, Hilton Davis Chemical Co. v. Warner-Jenkinson Co.: An Equitable Solution to the Uncertainty Behind the Doctrine of Equivalents, 80 MINN. L. REV. 1511, 1512 (1996) ("[The doctrine of equivalents] creates uncertainty for competitors as to what will or will not infringe a patent."); Thomas K. Landry, Certainty and Discretion in Patent Law: The On Sale Bar, The Doctrine of Equivalents, and Judicial Power in the Federal Circuit, 67 S. CAL. L. REV. 1151, 1159 (1994) ("On sale doctrine is fraught with uncertainty and demonstrates the consequences of a failure to recognize the value of having a rule."); Victoria Slind-Flor, Federal Circuit Judged Flawed, NAT'L L.J., Aug. 3, 1998, at A1.
11. Others have written about the Federal Circuit's excessive discretion as it relates to the on- sale bar and the doctrine of equivalents. See, e.g., Martin J. Adelman & Gary L. Francione, The Doctrine of Equivalents in Patent Law: Questions That Pennwalt Did Not Answer, 137 U. PA. L. REV. 673, 682 (1989) ("The doctrine of equivalents is the primary . . . cause of the current uncertainty surrounding the scope of patent claims."); Joseph F. Hagg, Hilton Davis Chemical Co. v. Warner-Jenkinson Co.: An Equitable Solution to the Uncertainty Behind the Doctrine of Equivalents, 80 MINN. L. REV. 1511, 1512 (1996) ("[The doctrine of equivalents] creates uncertainty for competitors as to what will or will not infringe a patent."); Thomas K. Landry, Certainty and Discretion in Patent Law: The On Sale Bar, The Doctrine of Equivalents, and Judicial Power in the Federal Circuit, 67 S. CAL. L. REV. 1151, 1159 (1994) ("On sale doctrine is fraught with uncertainty and demonstrates the consequences of a failure to recognize the value of having a rule."); Victoria Slind-Flor, Federal Circuit Judged Flawed, NAT'L L.J., Aug. 3, 1998, at A1.
12. Others have written about the Federal Circuit's excessive discretion as it relates to the on- sale bar and the doctrine of equivalents. See, e.g., Martin J. Adelman & Gary L. Francione, The Doctrine of Equivalents in Patent Law: Questions That Pennwalt Did Not Answer, 137 U. PA. L. REV. 673, 682 (1989) ("The doctrine of equivalents is the primary . . . cause of the current uncertainty surrounding the scope of patent claims."); Joseph F. Hagg, Hilton Davis Chemical Co. v. Warner-Jenkinson Co.: An Equitable Solution to the Uncertainty Behind the Doctrine of Equivalents, 80 MINN. L. REV. 1511, 1512 (1996) ("[The doctrine of equivalents] creates uncertainty for competitors as to what will or will not infringe a patent."); Thomas K. Landry, Certainty and Discretion in Patent Law: The On Sale Bar, The Doctrine of Equivalents, and Judicial Power in the Federal Circuit, 67 S. CAL. L. REV. 1151, 1159 (1994) ("On sale doctrine is fraught with uncertainty and demonstrates the consequences of a failure to recognize the value of having a rule."); Victoria Slind-Flor, Federal Circuit Judged Flawed, NAT'L L.J., Aug. 3, 1998, at A1.
13. 28 U.S.C. § 1338(a) (1994); see also id. § 1295(a)(1) (conferring exclusive jurisdiction on the federal circuit for appeals from the district courts on claims under § 1338).
14. See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456 (Fed. Cir. 1998) (en banc).
15. See Pfaff v. Wells Elecs.,Inc., 124 F.3d 1429, 1436 (Fed. Cir. 1997)("[B]oth on-sale and obviousness determinations are questions of law that we review de novo . . . ."); Richardson-Vicks Inc. v. Upjohn Co., 122 F.3d 1476, 1479 (Fed. Cir. 1997) ("It is black letter law that the ultimate question of obviousness is a question of law. And we review that legal question without deference to the trial court."); Avia Group Int'l, Inc. v. L.A. Gear California, Inc., 853 F.2d 1557, 1561-62 (Fed. Cir. 1988) (stating patent "[v]alidity is a question of law"); Paperless Accounting, Inc. v. Bay Area Rapid Transit Sys., 804 F.2d 659, 664 (Fed. Cir. 1986) (stating the question of whether the specification is enabling is a question of law to be reviewed de novo).
16. See, e.g., Exxon Chem. Patents, Inc. v. Lubrizol Corp., 64 F.3d 1553, 1556 (Fed. Cir. 1995) (asserting that the court has the authority to "review the issue of claim interpretation independently without deference to the trial judge").
17. Even though a patent is presumed valid under 35 U.S.C. § 282 (Supp. II 1996), a persuasive argument can be made that the presumption is procedural in nature, not substantive. See Fromson v. Advance Offset Plate, Inc., 755 F.2d 1549, 1555 (Fed. Cir. 1985) ("The presumption of validity under § 282 is a procedural device, placing the burden of proving invalidity on the party asserting it. It is not substantive law."). As such, the presumption does not translate into substantive agency deference. See Solder Removal Co. v. United States Int'l Trade Comm'n, 582 F.2d 628, 633 & n.10 (C.C.PA. 1978) ("Application of § 282 in its entirety has suffered from analogy of the presumption itself to the deference due administrative agencies."). In the end, although stating that "[d]eference is due the Patent and Trademark Office decision to issue the patent with respect to evidence" that it considered, American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1360 (Fed. Cir. 1984), the court is anything but deferential to the PTO, see, e.g.,In re Zurko, 142 F.3d 1447, 1448 (Fed. Cir. 1998) (en banc) (holding that the Administrative Procedure Act's deferential "arbitrary and capricious" standard of review does not apply to the PTO's factual determinations, rather, the clearly erroneous standard applies); In re Napier, 55 F.3d 610, 613 (Fed. Cir. 1995). It is well established that the ultimate determination of obviousness is a question of law, which we review without deference to the Board's [(i.e., Board of Patent Appeals and Interferences)] judgment. Therefore, it is our responsibility to make the final conclusion based on our reading of the record before us . . . . Id. (citation omitted); see also In re Brana, 51 F.3d 1560, 1568 (Fed. Cir. 1995) ("Traditionally we have recited our standard of review to be, with regard to questions of law, that review is without deference to the views of the agency. . . .").
18. See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 33 (1997) (stating that "claims do indeed serve both a definitional and a notice function"); McClain v. Ortmayer, 141 U.S. 419, 424 (1891) ("The object of the patent law in requiring the patentee [to distinctly claim his invention] is not only to secure to him all to which he is entitled, but to apprise the public of what is still open to them."); Exxon Chem. Patents, 64 F.3d at 1563 (Plager, J., concurring) ("The public generally, and in particular, the patentee's competitors are entitled to clear and specific notice of what the inventor claims as his invention."); Hoganas AB v. Dresser Indus., 9 F.3d 948, 951 (Fed. Cir. 1993) (stating the purpose of claims is "putting competitors on notice of the scope of the claimed invention"); London v. Carson Pirie Scott & Co., 946 F.2d 1534, 1538 (Fed. Cir. 1991) (What "the patentee and the Patent and Trademark Office have agreed constitute the metes and bounds of the claimed invention. Notice permits other parties to avoid actions which infringe the patent and to design around the patent.").
19. See, e.g., Hoechst-Roussel Pharm. v. Lehman, 109 F.3d 756, 759 (Fed. Cir. 1997) ("[T]he claims define the patent owner's property rights . . . ."); Berry Sterling Corp. v. Pescor Plastics, Inc., 122 F.2d 1452, 1454 (Fed. Cir. 1997) ("A properly conducted patent analysis, be it for infringement or validity, necessarily requires construing the patent, and more specifically, the claim."); General Foods Corp. v. Studiengesellschaft Kohle, 972 F.2d 1272, 1274 (Fed. Cir. 1992) ('"It is to the claims of every patent. . . that we must turn when we are seeking to determine what the invention is, the exclusive use of which is given to the inventor by the grant provided for in the statute, - "He can claim nothing beyond them.'"") (quoting Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 510 (1917) (omission added) (quoting in turn Keystone Bridge Co. v. Phoenix Iron Co., 95 U.S. 274 (1877))).
20. Although, the PTO does have technical expertise and is presumably more familiar with the various technological practices. Every patent examiner possesses a technical undergraduate degree and many have doctorates in their respective disciplines. The examiners must also graduate from the Patent Academy; and the judges sitting on the Board of Patent Appeals and Interferences are, as required by statute, not only technically proficient, but have law degrees as well. See 35 U.S.C. § 7(a) (1994). See generally Harold C. Wegner, Patent Simplification Sans Patent Fraud, 20 AIPLA Q.J. 211, 218 (1992) ("The new patent examiner of the 1990's comes to the PTO in many ways a step ahead of his or her counterpart from twenty-five years ago. In biotechnology, for example, the typical new examiner probably has an advanced degree, and many have Ph.D's.").
21. See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1475 (Fed. Cir. 1998) (Radar, J., dissenting). From [a] patent practitioner's standpoint, this court's enthusiastic assertion of its unfettered review . . . has the potential to undercut the benefits of Markman I. Markman I potentially promised to supply early certainty about the meaning of a patent claim. This certainty, in turn, would prompt early settlement of many, if not most, patent suits. Once the parties know the meaning of the claims, they can predict with some reliability the likelihood of a favorable judgment, factor in the economics of the infringement, and arrive at a settlement to save the costs of litigation. Id. (discussing Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995) (Markman I)); see also Adelman & Francione, supra note 8, at 682 ("[U]ncertainty about the scope of patent protection hinders both patent holders and potential defendants from assessing the possible outcome of litigation or from making other business decisions . . . .").
22. Litton Sys., Inc. v. Honeywell, Inc., 87 F.3d 1559, 1580 (Fed. Cir. 1996) (Bryson, J., concurring). Indeed, since 1980, "the number of [patent] cases coming to resolution at the District Court level has risen in an almost linear fashion." Eugene R. Quinn, Jr., Using Alternative Dispute Resolution to Resolve Patent Litigation: A Survey of Patent Litigators, 3 MARQ. INTELL. PROP. L. REV. (forthcoming 1999) (manuscript at 3, on file with author).
23. Of course, I do not mean to suggest that those who draft patent applications are helpless. As a general matter, one can argue that patent litigation is, at least in part, a result of inept claim drafting and myopic written descriptions. See, e.g., ZMI Corp. v. Cardiac Resuscitator Corp., 844 F.2d 1576, 1583 (Fed. Cir. 1988) (Nichols, J., dissenting). Referring to claim drafting, Judge Nichols wrote in dissent that "[w]e are up against what we must realistically consider a growing inability of speakers and writers, lawyers, technicians, and laymen, to say what they intend to say with accuracy and clarity." Id.
24. See Craig Allen Nard, Deference, Defiance, and the Useful Arts, 56 OHIO ST. L.J. 1415 (1995) [hereinafter Nard, Deference, Defiance]', Craig Allen Nard, Legitimacy and the Useful Arts, 10 HARV. J.L. & TECH. 510 (1997).
25. See Craig Allen Nard, Deference, Defiance, and the Useful Arts, 56 OHIO ST. L.J. 1415 (1995) [hereinafter Nard, Deference, Defiance]', Craig Allen Nard, Legitimacy and the Useful Arts, 10 HARV. J.L. & TECH. 510 (1997).
26. See 35 U.S.C. §§ 131-134 (1994). The patent code does provide for an adversarial inter partes proceeding with respect to interferences (i.e., the process by which the PTO determines who is entitled to a. patent as between two or more patent applicants claiming the same subject matter). See id. § 135.
27. See, e.g., Rochelle Cooper Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N.Y.U. L. REV. 1,21 (1989). [T]he courts were properly influenced by the fact that patent prosecutions are largely ex parte, with the applicant in a superior position to the PTO examiner with respect to the information needed to determine patentability. Perhaps fearing that they lacked the tools to control the quality of operations within the PTO, and that therefore patents were sometimes improvidently granted, the regional circuits gave little deference to its decisions. Id.; Lorenz v. F.W. Woolworth Co., 305 F.2d 102,105 (2d Cir. 1962) ("This court has recognized the unavoidable obstacles to an accurate and impartial decision that are inherent in ex parte proceedings in the patent office.").
28. See Gerald Sobel, Examining the Extra Burden Imposed on a Patentee Who Seeks a Preliminary Injunction, 32 AM. U. L. REV. 985, 996 n.69 (1983) ("The allegations of inadequacies in the ex parte process at the Patent Office derive from the view that the Patent Office is deluged with applications and, accordingly, is unable to give full consideration to the prior art references or to demand full disclosure of all relevant information in each proceeding."); infra text accompanying notes 35-38.
29. See John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185 (1998); see also GLORIA K. KOENIG, PATENT INVALIDITY: A STATISTICAL AND SUBSTANTIVE ANALYSIS § 5.05[4] (rev. ed. 1980) (examining 150 patents found invalid from 1953 to 1967) ("[The] proportion of invalid patents wherein uncited prior art [(i.e., prior art not considered by the PTO during prosecution)] figured into the result is between 66 and 80 percent."). See also P.J. Federico, Adjudicated Patents, 1948-54, 38 J. PAT. OFF. SOC'Y 233 (1956), where Federico studied patent validity results during the years 1948-54 and found that parties challenging the validity of patents during litigation had more success when they relied upon prior art that was not considered by the PTO during prosecution.
30. See John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185 (1998); see also GLORIA K. KOENIG, PATENT INVALIDITY: A STATISTICAL AND SUBSTANTIVE ANALYSIS § 5.05[4] (rev. ed. 1980) (examining 150 patents found invalid from 1953 to 1967) ("[The] proportion of invalid patents wherein uncited prior art [(i.e., prior art not considered by the PTO during prosecution)] figured into the result is between 66 and 80 percent."). See also P.J. Federico, Adjudicated Patents, 1948-54, 38 J. PAT. OFF. SOC'Y 233 (1956), where Federico studied patent validity results during the years 1948-54 and found that parties challenging the validity of patents during litigation had more success when they relied upon prior art that was not considered by the PTO during prosecution.
31. See John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185 (1998); see also GLORIA K. KOENIG, PATENT INVALIDITY: A STATISTICAL AND SUBSTANTIVE ANALYSIS § 5.05[4] (rev. ed. 1980) (examining 150 patents found invalid from 1953 to 1967) ("[The] proportion of invalid patents wherein uncited prior art [(i.e., prior art not considered by the PTO during prosecution)] figured into the result is between 66 and 80 percent."). See also P.J. Federico, Adjudicated Patents, 1948-54, 38 J. PAT. OFF. SOC'Y 233 (1956), where Federico studied patent validity results during the years 1948-54 and found that parties challenging the validity of patents during litigation had more success when they relied upon prior art that was not considered by the PTO during prosecution.
32. I should make clear at this point that this Article does not set forth a theory of claim interpretation. That project is for another day. What I do wish to address is how and why we can provide the PTO and patent applicant with more information ("prior art") during patent prosecution.
33. It is not my intention here to discuss the particulars of an opposition proceeding. The Europeans and Japanese have opposition proceedings and the details of such can be gleaned rather easily. My goal is to offer an economic and empirical justification for such a proceeding. For a discussion of opposition proceedings in foreign countries, see Symposium, Opposition Systems, 4 AIPLA Q.J. 92, 104-321 (1976). See also RAPH LUNZER, SINGER: THE EUROPEAN PATENT CONVENTION, 462-80 (rev. ed., Sweet & Maxwell Ltd. 1995); GERALD PATERSON, THE EUROPEAN PATENT SYSTEM: THE LAW AND PRACTICE OF THE EUROPEAN PATENT CONVENTION 188-231 (1992).
34. It is not my intention here to discuss the particulars of an opposition proceeding. The Europeans and Japanese have opposition proceedings and the details of such can be gleaned rather easily. My goal is to offer an economic and empirical justification for such a proceeding. For a discussion of opposition proceedings in foreign countries, see Symposium, Opposition Systems, 4 AIPLA Q.J. 92, 104-321 (1976). See also RAPH LUNZER, SINGER: THE EUROPEAN PATENT CONVENTION, 462-80 (rev. ed., Sweet & Maxwell Ltd. 1995); GERALD PATERSON, THE EUROPEAN PATENT SYSTEM: THE LAW AND PRACTICE OF THE EUROPEAN PATENT CONVENTION 188-231 (1992).
35. It is not my intention here to discuss the particulars of an opposition proceeding. The Europeans and Japanese have opposition proceedings and the details of such can be gleaned rather easily. My goal is to offer an economic and empirical justification for such a proceeding. For a discussion of opposition proceedings in foreign countries, see Symposium, Opposition Systems, 4 AIPLA Q.J. 92, 104-321 (1976). See also RAPH LUNZER, SINGER: THE EUROPEAN PATENT CONVENTION, 462-80 (rev. ed., Sweet & Maxwell Ltd. 1995); GERALD PATERSON, THE EUROPEAN PATENT SYSTEM: THE LAW AND PRACTICE OF THE EUROPEAN PATENT CONVENTION 188-231 (1992).
36. Patent applications are not publicly accessible. See 35 U.S.C. § 122 (1994). Therefore, with limited exceptions, third parties are unable to challenge the issuance of a patent. The exceptions are "public use proceedings" and a "protest." These proceedings allow a third party to submit to the PTO prior art or information about public use or on-sale activities and explain to the PTO why a patent should not issue. With respect to a protest, the third party, after submitting the prior art, is not permitted to communicate further with the PTO. A public use proceeding involves briefing and testimony. See 37 C.F.R. §§ 1.291-.292 (1997). Needless to say, because patent applications are held in confidence, protests and public use proceedings are rare.
37. In fact, a proposal for an opposition type proceeding in the United States can be traced back to 1936. See Science Advisory Bd., Report of the Committee on the Relation of the Patent System to the Stimulation of New Industries, 18 J. PAT. OFF. SOC'Y 94, 97-99 (1936). In 1995-96, the American Intellectual Property Law Association and the Intellectual Property Section of the American Bar Association adopted resolutions which recommended that the United States implement an opposition proceeding. Professor Harold Wegner has also been an outspoken advocate of an opposition proceeding. Harold C. Wegner, Patent Law Simplification and the Geneva Convention, 14 AIPLA Q.J. 154, 200-01 (1986); Wegner, supra note 16, at 220. For a discussion of the various administrative proposals in American patent law that have been made throughout the years, see Mark D. Janis, Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent Law, 11 HARV. J.L. & TECH. 1 (1997); Allen M. Soobert, Breaking New Grounds in Administrative Revocation of U.S. Patents: A Proposition for Opposition - and Beyond, 14 SANTA CLARA COMPUTER & HIGH TECH. L.J. 63 (1998).
38. In fact, a proposal for an opposition type proceeding in the United States can be traced back to 1936. See Science Advisory Bd., Report of the Committee on the Relation of the Patent System to the Stimulation of New Industries, 18 J. PAT. OFF. SOC'Y 94, 97-99 (1936). In 1995-96, the American Intellectual Property Law Association and the Intellectual Property Section of the American Bar Association adopted resolutions which recommended that the United States implement an opposition proceeding. Professor Harold Wegner has also been an outspoken advocate of an opposition proceeding. Harold C. Wegner, Patent Law Simplification and the Geneva Convention, 14 AIPLA Q.J. 154, 200-01 (1986); Wegner, supra note 16, at 220. For a discussion of the various administrative proposals in American patent law that have been made throughout the years, see Mark D. Janis, Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent Law, 11 HARV. J.L. & TECH. 1 (1997); Allen M. Soobert, Breaking New Grounds in Administrative Revocation of U.S. Patents: A Proposition for Opposition - and Beyond, 14 SANTA CLARA COMPUTER & HIGH TECH. L.J. 63 (1998).
39. In fact, a proposal for an opposition type proceeding in the United States can be traced back to 1936. See Science Advisory Bd., Report of the Committee on the Relation of the Patent System to the Stimulation of New Industries, 18 J. PAT. OFF. SOC'Y 94, 97-99 (1936). In 1995-96, the American Intellectual Property Law Association and the Intellectual Property Section of the American Bar Association adopted resolutions which recommended that the United States implement an opposition proceeding. Professor Harold Wegner has also been an outspoken advocate of an opposition proceeding. Harold C. Wegner, Patent Law Simplification and the Geneva Convention, 14 AIPLA Q.J. 154, 200-01 (1986); Wegner, supra note 16, at 220. For a discussion of the various administrative proposals in American patent law that have been made throughout the years, see Mark D. Janis, Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent Law, 11 HARV. J.L. & TECH. 1 (1997); Allen M. Soobert, Breaking New Grounds in Administrative Revocation of U.S. Patents: A Proposition for Opposition - and Beyond, 14 SANTA CLARA COMPUTER & HIGH TECH. L.J. 63 (1998).
40. In fact, a proposal for an opposition type proceeding in the United States can be traced back to 1936. See Science Advisory Bd., Report of the Committee on the Relation of the Patent System to the Stimulation of New Industries, 18 J. PAT. OFF. SOC'Y 94, 97-99 (1936). In 1995-96, the American Intellectual Property Law Association and the Intellectual Property Section of the American Bar Association adopted resolutions which recommended that the United States implement an opposition proceeding. Professor Harold Wegner has also been an outspoken advocate of an opposition proceeding. Harold C. Wegner, Patent Law Simplification and the Geneva Convention, 14 AIPLA Q.J. 154, 200-01 (1986); Wegner, supra note 16, at 220. For a discussion of the various administrative proposals in American patent law that have been made throughout the years, see Mark D. Janis, Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent Law, 11 HARV. J.L. & TECH. 1 (1997); Allen M. Soobert, Breaking New Grounds in Administrative Revocation of U.S. Patents: A Proposition for Opposition - and Beyond, 14 SANTA CLARA COMPUTER & HIGH TECH. L.J. 63 (1998).
41. Section 202 of Senate Bill 507 would amend 35 U.S.C. § 122 to read, "[E]ach application for patent. . . shall be published, in accordance with procedures determined by the Commissioner, as soon as possible after the expiration of a period of 18 months from the earliest filing date for which a benefit is sought under this title." See S. 507,105th Cong. § 202 (1997) (Although Senate Bill 507 was tabled in 1998, it will most likely be reintroduced in 1999.); see also THE ADVISORY COMMISSION ON PATENT LAW REFORM: A REPORT TO THE SECRETARY OF COMMERCE 61-62 (Aug. 1992).
42. Allison & Lemley, supra note 24, at 233.
43. See infra Appendix. Under 28 U.S.C. § 1338, federal district courts have "original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trade-marks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases." 28 U.S.C. § 1338(a) (1994).
44. See infra Part II.
45. See infra Part III.
46. See, e.g., Autogiro Co. of America v. United States, 384 F.2d 391, 399 (Ct. Cl. 1967) ("In its broader use as source material, the prior art cited in the file wrapper gives clues as to what the claims do not cover."); Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 15 84 (Fed. Cir. 1996) ("[P]rior art can often help to demonstrate how a disputed term is used by those skilled in the art.").
47. See Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 VA. L. REV. 821, 840 (1992).
48. Id. at 841.
49. As one court explained: A patent is a contract between the inventor and the public, the terms of which are formulated by the United States Patent Office. The inventor in such a contract gives as a consideration to the public a new and useful art, machine or composition of matter, and, in return, the public gives as a consideration to the inventor a monopoly expressed by the claims of the patent of a period limited by statute to 17 years [(now 20 years from date of filing)], after which such monopoly expires and becomes dedicated to the public. Davis Airfoils, Inc. v. United States, 124 F. Supp. 350, 352 (Ct. Cl. 1954); see also Fried. Krupp Aktien-Gesellschaft v. Midvale Steel Co., 191 F. 588, 594 (3d Cir. 1911). [A]n American patent is a written contract between an inventor and the government. This contract consists of mutual, interrelated considerations moving from each party to the other for such contract. The consideration given on the part of the inventor to the government is the disclosure of his invention in such plain and full terms that any one skilled in the art to which it appertains may practice it. The consideration on the part of the government given to the patentee for such disclosure is a monopoly for 17 years [(now 20 years from date of filing)] of the invention disclosed to the extent of the claims allowed in the patent. Id.; see also 1 WILLIAM C. ROBINSON, THE LAW OF PATENTS 23-24 (1890). The right of the inventor to his exclusive privilege, in return for the benefit conferred by him upon the public, being once conceded, the idea that his letters-patent created a contract between him and the people naturally followed. This idea seems to have been first suggested by Lord Eldon who, in a case decided in A.D. 1800, stated that a patent was a bargain with the public and was to be construed on the same principles of good faith by which all other contracts were controlled. Id. It should be noted the Federal Circuit has also suggested that a patent is comparable to a statute. See Markman v. Westview Instruments, Inc., 52 F.3d 967, 985-87 (Fed. Cir. 1995), aff'd, 517 U.S. 370 (1996).
50. See infra notes 123-31.
51. See Kenneth W. Dam, The Economic Underpinnings of Patent Law, 23 J. LEGAL STUD. 247, 256 (1994). Of course, transaction costs will still be somewhat of an obstacle, but one can argue that, with an opposition proceeding in place coupled with a property rule entitlement, such costs would pose less of a burden on the parties to the transaction. This is primarily due to the early notice function of publication and the familiarity that the parties will have with respect to the value of the claimed invention. In that regard, a property rule, as opposed to a liability rule, strengthened by an opposition proceeding permits the parties involved, not the state, to assess the value of the patent.
52. See infra Part IV.A.
53. See infra Part IV.B.
54. See Dam, supra note 39, at 264. The patent issuance system itself has the effect of transmitting knowledge that a new patent has been issued and that, the scope of the invention having been captured, R & D of other firms can be terminated. . . . . . . [R]ules favoring early applications for patents tend to reduce rent seeking by inducing early elimination or redirection of R & D by rival firms on issuance. Id. ; see also Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON. 265, 269-70 (1977).
55. With respect to an improver, the prospect of a secure patent is essential as it arms him with much needed bargaining power. The reason for this is that an improver is usually also an infringer, and without a patent, he is an infringer without bargaining power. At least with a patent, the improver can presumably offer the original patent holder something of value with an eye towards a cross-licensing arrangement. See infra notes 148-49.
56. Indeed, a competitor will most likely visit his attorney before manufacturing a competing product The attorney will study the claims of the patent and render advice accordingly. As Louis Kaplow writes: Uninformed individuals act based on their best guess about how the law will apply to their contemplated conduct. Informed individuals act based on actual knowledge of the law. Thus, informed individuals might be deterred from conduct they would have undertaken if they had remained uninformed, which can occur when they learn that such conduct is illegal or subject to a higher sanction than they otherwise would have expected. Or, informed individuals might choose to undertake acts they would have been deterred from committing if they had remained uninformed. Both possibilities are of value to individuals. The value of advice, then, is simply the value of each possibility weighted by the likelihood of its occurrence. Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557, 571 (1992) (footnote omitted).
57. Allison & Lemley, supra note 24, at 234. The probability of an invalidity figure (29.6%) for prior art considered by the PTO is also high, suggesting that Article III courts are employing a broad standard of review. See Nard, Deference, Defiance, supra note 20, at 1504.
58. Allison & Lemley, supra note 24, at 234.
59. See infra Appendix.
60. See infra notes 176-78 for representative responses.
61. See infra notes 181-83 for representative responses.
62. See infra text accompanying note 174.
63. See, e.g., Roger D. Blair & Thomas F. Cotter, An Economic Analysis of Damages Rules in Intellectual Property Law, 39 WM. & MARY L. REV. 1585 (1998); Robert P. Merges, Of Property Rules, Coase, and Intellectual Property, 94 COLUM. L. REV. 2655 (1994).
64. See, e.g., Roger D. Blair & Thomas F. Cotter, An Economic Analysis of Damages Rules in Intellectual Property Law, 39 WM. & MARY L. REV. 1585 (1998); Robert P. Merges, Of Property Rules, Coase, and Intellectual Property, 94 COLUM. L. REV. 2655 (1994).
65. R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1, 1-15 (1960); see also Robert D. Cooter, Coase Theorem, in THE NEW PALGRAVE: A DICTIONARY OF ECONOMICS 457 (John Eatwell et al. eds., 1987) ("[T]he Coase Theorem can be regarded as stating that the initial allocation of legal entitlements does not matter from an efficiency perspective so long as the transaction costs of exchange are nil.") (emphasis in original).
66. R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1, 1-15 (1960); see also Robert D. Cooter, Coase Theorem, in THE NEW PALGRAVE: A DICTIONARY OF ECONOMICS 457 (John Eatwell et al. eds., 1987) ("[T]he Coase Theorem can be regarded as stating that the initial allocation of legal entitlements does not matter from an efficiency perspective so long as the transaction costs of exchange are nil.") (emphasis in original).
67. An externality may be defined as a cost or benefit imposed on a third party through actions or transactions.
68. See JOHN W. SCHLICHER, PATENT LAW: LEGAL AND ECONOMIC PRINCIPLES § 2.04 (1995). The implication of Coase's theorem for information production is straightforward. If the law permits users to use freely the information they learn from others, it will be in the interest of users and producers to agree that the producer will make it and users will pay him to do so. If the transaction costs are zero, those agreements will lead to precisely the right amounts and types of information being produced. Id.
69. Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089, 1094-95 (1972).
70. See Coase, supra note 52, at 15 ("The argument has proceeded up to this point on the assumption . . . that there were no costs involved in carrying out market transactions. This is, of course, a very unrealistic assumption.").
71. See infra notes 141-71.
72. See Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609, 615 (Nat'l Bureau of Econ. Research ed., 1962).
73. In discussing Arrow's Information Paradox, Robert Merges writes, "[T]o sell, one must disclose the information, but once the information is disclosed, the recipient has it and need not buy it. On the other hand, if one does not disclose anything the buyer has no idea what is for sale." Robert P. Merges, Intellectual Property Rights and Bargaining Breakdown: The Case of Blocking Patents, 62 TENN. L. REV. 75, 81 (1994).
74. CHlSUM ET AL., supra note 6, at 58 (parenthetical in original).
75. In addition to information, other public goods include national defense, television signals, and police protection.
76. Letter from Thomas Jefferson to Isaac McPherson (Aug. 13,1813), in « THOMAS JEFFERSON WRITINGS 1286, 1291-92 (Merrill D. Peterson ed., 1984); see also Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989, 995 (1997) ("To adapt an old parable, if I give you a fish, I no longer have it, but if I teach you to fish, you or I can teach a hundred others the same skill without appreciably reducing its value.").
77. Letter from Thomas Jefferson to Isaac McPherson (Aug. 13,1813), in « THOMAS JEFFERSON WRITINGS 1286, 1291-92 (Merrill D. Peterson ed., 1984); see also Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989, 995 (1997) ("To adapt an old parable, if I give you a fish, I no longer have it, but if I teach you to fish, you or I can teach a hundred others the same skill without appreciably reducing its value.").
78. See SCHLICHER, supra note 54, § 2.05 ("With high transaction costs and bargaining problems, it is unrealistic to expect. . . agreements between producers and users of information to correct adequately for externalities in information production.").
79. See id. The producer cannot guarantee that only users who are parties to the agreement will have access to the information. The information may become available to non-parties. Each potential user may believe that enough other people will cooperate to produce it without his help. He may decide not to contribute and hope to enjoy the information for free. He will hold out and hope to free ride on the contribution of others. Id.; see also F.M. SCHERER, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 444 (2d ed. 1980).
80. For an explanation of this statement, see OFFICE OF TECH. ASSESSMENT, U.S. CONGRESS, FINDING A BALANCE: COMPUTER SOFTWARE, INTELLECTUAL PROPERTY AND THE CHALLENGE OF TECHNOLOGICAL CHANGE 185 (1992) [hereinafter TECH. ASSESSMENT REPORT]. Indeed, individuals have an incentive not to pay for the good, or to undervalue it, in hopes of getting access as "free riders." The inability to exclude free riders distorts market signals and is thought to result in inefficient allocation of resources to nonexclusive goods and underproduction of them, relative to socially optimal quantities, Id. For a more detailed discussion of public goods and the market failures associated with them, see BRIAN R. BINGER & ELIZABETH HOFFMAN, MICROECONOMICS WITH CALCULUS 562-84 (2d ed. 1998); ROBERT D. COOTER & THOMAS S. ULEN, LAWAND ECONOMICS 46-49, 108-12, 135-41 (1988); ROBERT S. PlNDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 617-41 (2d ed. 1992).
81. For an explanation of this statement, see OFFICE OF TECH. ASSESSMENT, U.S. CONGRESS, FINDING A BALANCE: COMPUTER SOFTWARE, INTELLECTUAL PROPERTY AND THE CHALLENGE OF TECHNOLOGICAL CHANGE 185 (1992) [hereinafter TECH. ASSESSMENT REPORT]. Indeed, individuals have an incentive not to pay for the good, or to undervalue it, in hopes of getting access as "free riders." The inability to exclude free riders distorts market signals and is thought to result in inefficient allocation of resources to nonexclusive goods and underproduction of them, relative to socially optimal quantities, Id. For a more detailed discussion of public goods and the market failures associated with them, see BRIAN R. BINGER & ELIZABETH HOFFMAN, MICROECONOMICS WITH CALCULUS 562-84 (2d ed. 1998); ROBERT D. COOTER & THOMAS S. ULEN, LAWAND ECONOMICS 46-49, 108-12, 135-41 (1988); ROBERT S. PlNDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 617-41 (2d ed. 1992).
82. For an explanation of this statement, see OFFICE OF TECH. ASSESSMENT, U.S. CONGRESS, FINDING A BALANCE: COMPUTER SOFTWARE, INTELLECTUAL PROPERTY AND THE CHALLENGE OF TECHNOLOGICAL CHANGE 185 (1992) [hereinafter TECH. ASSESSMENT REPORT]. Indeed, individuals have an incentive not to pay for the good, or to undervalue it, in hopes of getting access as "free riders." The inability to exclude free riders distorts market signals and is thought to result in inefficient allocation of resources to nonexclusive goods and underproduction of them, relative to socially optimal quantities, Id. For a more detailed discussion of public goods and the market failures associated with them, see BRIAN R. BINGER & ELIZABETH HOFFMAN, MICROECONOMICS WITH CALCULUS 562-84 (2d ed. 1998); ROBERT D. COOTER & THOMAS S. ULEN, LAWAND ECONOMICS 46-49, 108-12, 135-41 (1988); ROBERT S. PlNDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 617-41 (2d ed. 1992).
83. For an explanation of this statement, see OFFICE OF TECH. ASSESSMENT, U.S. CONGRESS, FINDING A BALANCE: COMPUTER SOFTWARE, INTELLECTUAL PROPERTY AND THE CHALLENGE OF TECHNOLOGICAL CHANGE 185 (1992) [hereinafter TECH. ASSESSMENT REPORT]. Indeed, individuals have an incentive not to pay for the good, or to undervalue it, in hopes of getting access as "free riders." The inability to exclude free riders distorts market signals and is thought to result in inefficient allocation of resources to nonexclusive goods and underproduction of them, relative to socially optimal quantities, Id. For a more detailed discussion of public goods and the market failures associated with them, see BRIAN R. BINGER & ELIZABETH HOFFMAN, MICROECONOMICS WITH CALCULUS 562-84 (2d ed. 1998); ROBERT D. COOTER & THOMAS S. ULEN, LAWAND ECONOMICS 46-49, 108-12, 135-41 (1988); ROBERT S. PlNDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 617-41 (2d ed. 1992).
84. Indeed, some commentators have suggested that instead of patents, the government should award prizes to encourage invention. See Michael Polanvyi, Patent Reform, 11 REV. ECON. STUD. 61, 65 (1944).
85. CHISUM ET AL., supra note 6, at 59; see also TECH. ASSESSMENT REPORT, supra note 65, at 185 ("In granting a limited monopoly through copyright or patent, the government attempts to compensate for distortions arising from nonexclusivity [of public goods].").
86. See Calabresi & Melamed, supra note 55.
87. According to Calabresi and Melamed: An entitlement is protected by a property rule to the extent that someone who wishes to remove the entitlement from its holder must buy it from him in a voluntary transaction in which the value of the entitlement is agreed upon by the seller. It is the form of entitlement which gives rise to the least amount of state intervention: once the original entitlement is decided upon, the state does not try to decide its value. It lets each of the parties say how much the entitlement is worth to him, and gives the seller a veto if the buyer does not offer enough. . . . Whenever someone may destroy the initial entitlement if he is willing to pay an objectively determined value for it, an entitlement is protected by a liability rule. This value may be what it is thought the original holder of the entitlement would have sold it for. But the holder's complaint that he would have demanded more will not avail him once the objectively determined value is set. Obviously, liability rules involve an additional stage of state intervention: not only are entitlements protected, but their transfer or destruction is allowed on the basis of a value determined by some organ of the state rather than by the parties themselves. Id. at 1092 (footnote omitted).
88. See Richard A. Epstein, A Clear View of The Cathedral: The Dominance of Property Rules, 106 YALE L.J. 2091, 2092 (1997) ("[O]ur world is not one in which transaction costs are zero. Rather, they are positive and large, so that the choice between the two rules is certain to have major consequences for the overall operation of any legal system.").
89. See id. at 2092 ("The standard practice in virtually all legal systems assumes the dominance of property rules over liability rules, except under those circumstances where some serious holdout problem is created because circumstances limit each side to a single trading partner."). As a patent provides its owner with the right to exclude third parties from making, using, or selling the patented invention, a holdout situation is a concern, particularly when a competitor wishes to improve upon the claimed invention and needs to use the invention in its research. See infra notes 147-49.
90. Epstein, supra note 70, at 2095.
91. See 35 U.S.C. § 283 (1994).
92. See Dam, rapra note 39, at 256. [S]ince a patentee may seek an injunction, including a preliminary injunction pending trial, the patentee will normally be able to bring an infringer to the bargaining table where the parties will have an incentive to agree to license or even assign the patent right to the infringer if he can more efficiently exploit the patent. Id.
93. By suggesting that patent rights are best viewed as property rule entitlements, I am not asserting what the breadth of claim scope should be for any given patent in terms of encouraging optimal innovation. For competing views on optimal claim scope, see Kitch, supra note 42, at 265, and Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839 passim (1990).
94. See Merges, supra note 59, at 78. [A] property rule makes sense for patents because . . . a court setting the terms of the exchange would have a difficult time doing so quickly and cheaply, given the specialized nature of the assets and the varied and complex business environments in which the assets are deployed. Hence, the parties are left to make their own deal. Id.
95. Calabresi & Melamed, supra note 55, at 1106-10; see also Merges, supra note 51, at 2664.
96. See infra Parts IV.A, IV.B.
97. See infra notes 144-45.
98. In the context of collective rights organizations, it has been argued that in the face of high transaction costs, there exist built-in mechanisms within a property rule system that allow the parties to reduce transaction costs and allocate rights to the highest valued entity. See Robert P. Merges, Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organizations, 84 CAL. L. REV. 1293, 1316-17 (1996); see also Merges, supra note 51, at 2655 ("[P]roperty rules can and do work effectively in many situations involving [intellectual property rights ("IPRs")]. This is so because, in the presence of high transaction costs, industry participants have an incentive to invest in institutions that lower the costs of IPR exchange.").
99. See Hilton Davis Chem. Co. v. Warner-Jenkinson, Co., 62 F.3d 1512, 1532 (Fed. Cir. 1995) (en banc) (Newman, J., concurring). [Competitors of the patentee] may add technologic value in a variety of ways: perhaps by developing a different path to the new markets opened by the patentee, perhaps by adapting later-developed technology to enhance that of the patentee, perhaps by perceiving alternatives and opportunities from a different perspective than that of the patentee. Id.
100. As will be discussed infra Part IV.A, an improver seeks to obtain a patent on his improvement because his bargaining position vis àvis the original patent owner will be greatly enhanced. An improvement patent is the difference between being an infringer with bargaining power and an infringer with considerably less bargaining power, if, for no other reason, an improver without a patent faces Arrow's Information Paradox. See supra text accompanying notes 59-60. A competitor designing around a patent claim, on the other hand, seeks to avoid infringement altogether. See infra text accompanying notes 150-53.
101. See Eirik G. Furubotn & Svetozar Pejovich, Property Rights and Economic Theory: A Survey of Recent Literature, 10 J. ECON. LITERATURE 1137, 1139 (1972). Property rights assignments specify the norms of behavior with respect to things that each and every person must observe in his interactions with other persons, or bear the cost for nonobservance. . . . The prevailing system of property rights in the community can be described . . . as the set of economic and social relations defining the position of each individual with respect to the utilization of scarce resources. Id.
102. As Judge Michel of the Federal Circuit has co-written, "[C]ited prior art fits more logically into the intrinsic evidence category. A list of prior art is in every file history. Thus, an argument can be made that competitors are on notice and should be expected to review such before reaching any conclusion as to claim scope." Honorable Paul R. Michel & Lisa Schneider, Vitronics-Some Unanswered Questions, in CHISUM ET AL., supra note 6, at 1101, 1101.
103. Randy E. Barnett, A Consent Theory of Contract, 86 COLUM. L. REV. 269, 301-02 (1986) (footnotes omitted).
104. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 35-37 (3d ed. 1986).
105. See Dam, supra note 39, at 265 ("Since rival firms will not normally know, or at least often cannot be sure, that a patent application has been filed, they may be inclined to continue R & D even though they will later learn, on issuance of the patent, that they should have ceased or redirected their R & D efforts.").
106. See infra notes 140-70.
107. See supra notes 68-88.
108. See Barnett, supra note 85, at 294 ("The legitimacy of principle of contract that determines which transfers of rights are valid depends upon the nature of individual entitlements and the extent to which rights have been or will be acquired by the parties to the transfer."). Contract law, according to an entitlements approach, is thus a body of general principles and more specific rules the function of which is to identify the rights of individuals engaged in transferring entitlements, and thereby indicate when physical or legal force may legitimately be used to preserve those rights and to rectify any unjust interference with the transfer process. Id. at 295.
109. See supra note 37.
110. See infra Part III.B.
111. Allison & Lemley, supra note 24, at 231-34.
112. Id. at 234; see also supra note 45.
113. Allison & Lemley, supra note 24, at 234.
114. See Ryco, Inc. v. AG-BAG Corp., 857 F.2d 1418, 1423 (Fed. Cir. 1988) (stating that although the burden on the party challenging validity "remains on the challenger, it may be more easily met where the challenger produces prior art that is more pertinent than that considered by the Patent and Trademark Office"); American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350,1359-60 (Fed. Cir. 1984). When an attacker [of the patent's validity], in sustaining the burden imposed by § 282, produces prior art or other evidence not considered in the PTO, there is ... no reason to defer to the PTO so far as its effect on validity is concerned. Indeed, new prior art not before the PTO may so clearly invalidate a patent that the burden is fully sustained merely by proving its existence and applying the proper law. . . . When new evidence touching on validity of the patent not considered by the PTO is relied on, the tribunal considering it is not faced with having to disagree with the PTO or with deferring to its judgment or with taking its expertise into account. The evidence may, therefore, carry more weight and go further toward sustaining the attacker's unchanging burden. Id. (emphasis omitted); see Fenton Golf Trust v. Cobra Golf, Inc., 48 U.S.P.Q.2d (BNA) 1198, 1200 (N.D. Ill. 1998) ("[I]n cases such as this one where the patent office examiner did not consider the relevant prior art 'the trial judge is thrown back on nothing more than his own best judgment concerning the implications ofthat prior art. . . .'") (quoting Mueller Brass Co. v. Reading Indus., Inc., 352 F. Supp. 1357, 1367 (E.D. Pa. 1972)).
115. It should be noted, however, that the trend at the Federal Circuit has been to limit the application of the doctrine of equivalents. See, e.g., Sage Products, Inc. v. Devon Indus., 126 F.3d 1420, 1425 (Fed. Cir. 1997) ("[A]s between the patentee who had a clear opportunity to negotiate broader claims but did not do so, and the public at large, it is the patentee who must bear the cost of its failure to seek protection for this foreseeable alteration of its claimed structure.").
116. Barnett, supra note 35, at 840-41.
117. Id. at 841. Barnett asserts that a contractual obligation arises. Indeed, informed consent plays a crucial role in the notice function of the patent claim: In contract law, this informational or "boundary defining" requirement means that an assent to alienate rights must be manifested in some manner by one party to the other to serve as a criterion of enforcement. Without a manifestation of assent that is accessible to all affected parties, that aspect of a system of entitlements that governs transfers of rights will fail to achieve its main function. At the time of the transaction, it will have failed to identify clearly and communicate to both parties (and to third parties) the rightful boundaries that must be respected. Without such communication, parties to a transaction (and third parties) cannot accurately ascertain what constitutes rightful conduct and what constitutes a commitment on which they can rely. Disputes that might otherwise have been avoided will occur, and the attendant uncertainties of the transfer process will discourage reliance. Barnett, supra note 85, at 302 (emphasis and both parentheticals in original).
118. Barnett, supra note 85, at 304 (citation omitted).
119. If the prior art was considered during prosecution, there is a good chance that the resulting patent claims, and thus the conduct of the parties, would have reflected such.
120. Even though the competitor does not have a property interest in the form of a patent, he presumably has invested a great deal of money and resources in designing a product that either improves upon or designs around the patent claims. A finding of infringement under the doctrine of equivalents is a proprietary loss (at times an extraordinary loss) to the competitor not only because he may have to pay damages, but the benefits resulting from his improvement or design-around efforts have been diminished.
121. See Richard E. Speidel, The New Spirit of Contract, 2 J.L. & COM. 193, 194 (1982). [T]he spirit of a people at any given time may be measured by the opportunity and incentive to exercise "freedom to" and the felt necessity to assert "freedom from." Similarly, the nature of a society and its legal order may be determined by the force and permissible scope of these two concepts of liberty and how the inevitable tension between them is resolved. Id.
122. See Douglas Baird & Thomas Jackson, Information, Uncertainty, and the Transfer of Property, 13 J. LEGAL STUD. 299, 300 (1984) ("When we already own property, we want to ensure that we can control its disposition - that a new 'owner' will not come into existence without our consent.") (emphasis omitted); see also Harold Demsetz, Some Aspects of Property Rights, 9 J.L. & ECON. 61, 62 (1966) ("A private property right system requires the prior consent of 'owners' before their property can be affected by others.").
123. See Douglas Baird & Thomas Jackson, Information, Uncertainty, and the Transfer of Property, 13 J. LEGAL STUD. 299, 300 (1984) ("When we already own property, we want to ensure that we can control its disposition - that a new 'owner' will not come into existence without our consent.") (emphasis omitted); see also Harold Demsetz, Some Aspects of Property Rights, 9 J.L. & ECON. 61, 62 (1966) ("A private property right system requires the prior consent of 'owners' before their property can be affected by others.").
124. See Barnett, supra note 35, at 299-300. [T]he consent of the rights holder to be legally obligated is the moral component that distinguishes valid from invalid transfers of alienable rights in a system of entitlements. . . . . . . [Thus] legal enforcement is morally justified because the promisor voluntarily performed acts that conveyed her intention to create a legally enforceable obligation by transferring alienable rights. Id. (footnotes omitted).
125. Randy Barnett writes that the "problem of communicating the requirements of justice is handled by the formal requirements of legality associated with the liberal conception of the rule of law." Barnett, supra note 35, at 856. He cites the work of Lon Fuller as a source of these requirements of legality. Fuller, in The Morality of Law, lists eight ways or "routes" in which "an attempt to create and maintain a system of legal rules may miscarry:" Routes two through four are particularly relevant for present purposes. They are: (2) a failure to publicize, or at least to make available to the affected party, the rules he is expected to observe; (3) the abuse of retroactive legislation, which not only cannot itself guide action, but undercuts the integrity of rules prospective in effect, since it puts them under the threat of retrospective change; (4) a failure to make rules understandable. LON FULLER, THE MORALITY OF LAW 38-39 (1969); see also Barnett, supra note 85, at 298. "[Justice is]. . . rendering every man his due. A man's due is what he has acquired by his own efforts and not taken from some other man without consent. A community in which this conception is realized will be one in which the members agree not to interfere in the legitimate endeavors of each other to achieve their individual goals, and to help each other to the extent that the conditions for doing so are mutually satisfactory . . . . Such a community will be one giving the freest possible rein to all its members to develop their particular capacities and use them to carry out their plans for their own betterment. . . . [T]his activity is The Good for Man. . . ." Id. (quoting Wallace Matson, Justice: A Funeral Oration, SOC. PHIL. & POL'Y, Autumn 1983, at 94, 111-12 (emphasis added) (alterations in original)).
126. Randy Barnett writes that the "problem of communicating the requirements of justice is handled by the formal requirements of legality associated with the liberal conception of the rule of law." Barnett, supra note 35, at 856. He cites the work of Lon Fuller as a source of these requirements of legality. Fuller, in The Morality of Law, lists eight ways or "routes" in which "an attempt to create and maintain a system of legal rules may miscarry:" Routes two through four are particularly relevant for present purposes. They are: (2) a failure to publicize, or at least to make available to the affected party, the rules he is expected to observe; (3) the abuse of retroactive legislation, which not only cannot itself guide action, but undercuts the integrity of rules prospective in effect, since it puts them under the threat of retrospective change; (4) a failure to make rules understandable. LON FULLER, THE MORALITY OF LAW 38-39 (1969); see also Barnett, supra note 85, at 298. "[Justice is]. . . rendering every man his due. A man's due is what he has acquired by his own efforts and not taken from some other man without consent. A community in which this conception is realized will be one in which the members agree not to interfere in the legitimate endeavors of each other to achieve their individual goals, and to help each other to the extent that the conditions for doing so are mutually satisfactory . . . . Such a community will be one giving the freest possible rein to all its members to develop their particular capacities and use them to carry out their plans for their own betterment. . . . [T]his activity is The Good for Man. . . ." Id. (quoting Wallace Matson, Justice: A Funeral Oration, SOC. PHIL. & POL'Y, Autumn 1983, at 94, 111-12 (emphasis added) (alterations in original)).
127. Randy Barnett writes that the "problem of communicating the requirements of justice is handled by the formal requirements of legality associated with the liberal conception of the rule of law." Barnett, supra note 35, at 856. He cites the work of Lon Fuller as a source of these requirements of legality. Fuller, in The Morality of Law, lists eight ways or "routes" in which "an attempt to create and maintain a system of legal rules may miscarry:" Routes two through four are particularly relevant for present purposes. They are: (2) a failure to publicize, or at least to make available to the affected party, the rules he is expected to observe; (3) the abuse of retroactive legislation, which not only cannot itself guide action, but undercuts the integrity of rules prospective in effect, since it puts them under the threat of retrospective change; (4) a failure to make rules understandable. LON FULLER, THE MORALITY OF LAW 38-39 (1969); see also Barnett, supra note 85, at 298. "[Justice is]. . . rendering every man his due. A man's due is what he has acquired by his own efforts and not taken from some other man without consent. A community in which this conception is realized will be one in which the members agree not to interfere in the legitimate endeavors of each other to achieve their individual goals, and to help each other to the extent that the conditions for doing so are mutually satisfactory . . . . Such a community will be one giving the freest possible rein to all its members to develop their particular capacities and use them to carry out their plans for their own betterment. . . . [T]his activity is The Good for Man. . . ." Id. (quoting Wallace Matson, Justice: A Funeral Oration, SOC. PHIL. & POL'Y, Autumn 1983, at 94, 111-12 (emphasis added) (alterations in original)).
128. See, e.g., Richard A. Posner & Andrew M. Rosenfield, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. LEGAL STUD. 83, 105-10 (1977) (arguing that under the impossibility doctrine the party who, ex ante, was better able to foresee the risk should bear the loss). A related argument is that the patentee should have conducted a more thorough patent search, and if prior art surfaces during litigation that was not part of the original prosecution, the patentee implicitly assumed such a risk and has no one to blame but himself. See, e.g., Clayton P. Gillette, Commercial Rationality and the Duty to Adjust Long-Term Contracts, 69 MINN. L. REV. 521, 538 (1985) ("If the exchange is . . . a voluntary one between rational actors, then any 'failure' to include specific terms or to consider a specific risk may itself be a voluntary part of the agreement. What the parties have agreed to, in effect, is to consider only certain risks and no others."). This criticism, however, fails to take into consideration (1) knowledge that is supposedly publicly accessible, but practically undiscoverable, see Coffin v. Ogden, 85 U.S. (18 Wall.) 120, 124 (1873); (2) non-patent publications that are in obscure publications or are only indexed (not disseminated) in domestic or foreign libraries, see In re Hall, 781 F.2d 897, 899 (Fed. Cir. 1986), and (3) "secret prior art" under 35 U.S.C. § 102(g) (1994), see Thomson, S.A. v. Quixote Corp., 166 F.3d 1172, 1175 (Fed. Cir. 1999); International Glass Co. v. United States, 408 F.2d 395, 403 (Ct. Cl. 1969).
129. See, e.g., Richard A. Posner & Andrew M. Rosenfield, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. LEGAL STUD. 83, 105-10 (1977) (arguing that under the impossibility doctrine the party who, ex ante, was better able to foresee the risk should bear the loss). A related argument is that the patentee should have conducted a more thorough patent search, and if prior art surfaces during litigation that was not part of the original prosecution, the patentee implicitly assumed such a risk and has no one to blame but himself. See, e.g., Clayton P. Gillette, Commercial Rationality and the Duty to Adjust Long-Term Contracts, 69 MINN. L. REV. 521, 538 (1985) ("If the exchange is . . . a voluntary one between rational actors, then any 'failure' to include specific terms or to consider a specific risk may itself be a voluntary part of the agreement. What the parties have agreed to, in effect, is to consider only certain risks and no others."). This criticism, however, fails to take into consideration (1) knowledge that is supposedly publicly accessible, but practically undiscoverable, see Coffin v. Ogden, 85 U.S. (18 Wall.) 120, 124 (1873); (2) non-patent publications that are in obscure publications or are only indexed (not disseminated) in domestic or foreign libraries, see In re Hall, 781 F.2d 897, 899 (Fed. Cir. 1986), and (3) "secret prior art" under 35 U.S.C. § 102(g) (1994), see Thomson, S.A. v. Quixote Corp., 166 F.3d 1172, 1175 (Fed. Cir. 1999); International Glass Co. v. United States, 408 F.2d 395, 403 (Ct. Cl. 1969).
130. For instance, investments may be made in manufacturing facilities, distribution channels, employees, etc.
131. See infra Part III.
132. These notions are dear to the Austrian School of Economics conception of contract. See Christopher T. Wonnell, Contract Law and the Austrian School of Economics, 54 FORDHAM L. REV. 507, 527 (1986). Professors Kronman and Posner believe the justification for contracts is that both parties ex ante benefit from them. A mistake or subsequent change in circumstances may destroy that mutual benefit, and any such result should, according to Kronman and Posner, be rectified by allocating the risk of that mistake or subsequent change to the party to whom it would have been allocated if both parties had been fully perceptive and informed. The Austrians, by contrast, regard entrepreneurial perceptiveness as an essential skill to be encouraged, and their defense of contract is not that both parties necessarily benefit ex ante from every contract but that over the long run the system of contracting encourages the full use of human knowledge. Id. (footnotes omitted); see also ISRAEL M. KIRZNER, PERCEPTION, OPPORTUNITY AND PROFIT 215- 17 (1979) (discussing the discovery and exploitation of existing errors in a "disequilibrium market").
133. These notions are dear to the Austrian School of Economics conception of contract. See Christopher T. Wonnell, Contract Law and the Austrian School of Economics, 54 FORDHAM L. REV. 507, 527 (1986). Professors Kronman and Posner believe the justification for contracts is that both parties ex ante benefit from them. A mistake or subsequent change in circumstances may destroy that mutual benefit, and any such result should, according to Kronman and Posner, be rectified by allocating the risk of that mistake or subsequent change to the party to whom it would have been allocated if both parties had been fully perceptive and informed. The Austrians, by contrast, regard entrepreneurial perceptiveness as an essential skill to be encouraged, and their defense of contract is not that both parties necessarily benefit ex ante from every contract but that over the long run the system of contracting encourages the full use of human knowledge. Id. (footnotes omitted); see also ISRAEL M. KIRZNER, PERCEPTION, OPPORTUNITY AND PROFIT 215-17 (1979) (discussing the discovery and exploitation of existing errors in a "disequilibrium market").
134. However, in recent years the opposition rate in the European Patent Office ("EPO") has been less than 10%. For example, in 1997, the EPO issued 39,646 patents of which 2518 or 6.3% were opposed. See EPO Website (last modified 1998) ; see also Harold C. Wegner, Patent Law Simplification and the Geneva Convention, 14 AIPLA Q.J. 154, 200-01(1986) (asserting that abusive tactics in the European Patent Convention have been greatly diminished, and that the opposition rate in Europe is only about 10%).
135. However, in recent years the opposition rate in the European Patent Office ("EPO") has been less than 10%. For example, in 1997, the EPO issued 39,646 patents of which 2518 or 6.3% were opposed. See EPO Website (last modified 1998) ; see also Harold C. Wegner, Patent Law Simplification and the Geneva Convention, 14 AIPLA Q.J. 154, 200-01(1986) (asserting that abusive tactics in the European Patent Convention have been greatly diminished, and that the opposition rate in Europe is only about 10%).
136. Greater proprietary security and reducing litigation are two of the primary objectives of the reexamination statute, which permits third parties to challenge the validity of an issued patent if a substantial new question of patentability arises usually as a result of newly found prior art. See Patent Reexamination: Hearings on S. 1679 Before the Senate Comm. on the Judiciary, 96th Cong. 2 (1979) [hereinafter Patent Reexamination Hearings] (opening statement of Sen. Birch Bayh). All too often the granting of a U.S. patent turns out to be an invitation to endless litigation as competitors pull out all of the stops to invalidate or infringe on an important patent. Small businesses and independent inventors are especially susceptible to this threat. . . . . . . The cost of such litigation to both parties frequently exceeds $250,000 [(now usually over $1 million)]. Many independent inventors and small business owners not able to pay such fees are susceptible to being "blackmailed" into allowing infringements on their patents or are forced to license them for nominal fees to avoid going to court. This creates a situation where the patent system is used as a club to beat down the very people that it was formed to protect. While patents are important to all businesses, they are the lifeblood to the independent inventor or small business owner who uses the patent grant as a shield to protect their invention from stronger competitors. Id.
137. Interestingly, in In re Portola Packaging, Inc., 110 F.3d 786, 791 (Fed. Cir. 1997), the Federal Circuit held that for purposes of reexamination, a "substantial new question of patentability" under 35 U.S.C. § 302 (1981) is not created by combining references that were already considered by the PTO during the original examination. See also In re Recreative Tech. Corp., 83 F.3d 1394, 1398 (Fed. Cir. 1996) ("Reexamination is barred for questions of patentability that were decided in the original examination.").
138. Statement of a federal district court judge in response to my questionnaire (on file with author).
139. See Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1583 (Fed. Cir. 1996) ("The claims, specification, and file history . . . constitute the public record of the patentee's claim, a record on which the public is entitled to rely.").
140. See 35 U.S.C. § 112 (1994).
141. Patlex Corp. v. Mossinghoff, 758 F.2d 594, 602 (Fed. Cir. 1985) (citation omitted) (quoting 126 CONG. REC. 29,895 (1980) (statement of Rep. Kastenmeier)).
142. Furthermore, an opposition proceeding would allow significantly greater third-party involvement than the current reexamination proceeding.
143. See Patent Reexamination Hearings, supra note 112, at 2 ("All too often patent holders find themselves in lengthy court proceedings where valuable patents are challenged on the grounds that the patent examiner missed pertinent data during the initial patent search."); id. at 21 (testimony of Donald R. Dunner, President of the American Patent Law Association) ("[I]t is our feeling that regardless of how much money is spent in the patent system to improve the operation of the Patent Office, it is inevitable, with computers or otherwise, that all of the prior art will not be uncovered.").
144. See KOENIG, supra note 24, § 5.05[4] ("In many cases the Patent Office and the courts are not determining patentability on the bases of the same prior art. Where this is true, the Patent Office may be faulted for not finding the best prior art, but not for applying a lower standard of patentability."); see also Federico, supra note 24, at 249.
145. See Allison & Lemley, supra note 24, at 234.
146. Much of this prior art is, for practical purposes, publicly inaccessible and searching for such would likely result in inordinate search costs. For example, 35 U.S.C. § 102(a) (1994) states that a patent shall issue unless "the invention was known or used by others in this country." Id. Although the terms "known" and "used" have been interpreted to mean publicly known or used, see Gayler v. Wilder, 51 U.S. (10 How.) 477, 496 (1850), the publicity required will be satisfied in the absence of deliberate concealment, see State Indus., Inc. v. Rheem Mfg. Co., 223 U.S.P.Q. (BNA) 305, 316-17 (M.D. Tenn. 1984), aff'd in part and rev'd in part, 769 F.2d 762 (Fed. Cir. 1985). Another example of invalidating activity that is practically inaccessible is "on-sale" events as set forth in § 102(b). 35 U.S.C. § 102(b). Section 102(b) states that an applicant will be barred from obtaining a patent if the invention was offered for sale or on sale more than one year before the filing of the patent application claiming the invention. Id. Rarely will the PTO be aware of on-sale activity. Section 102(g) is yet another example of practically inaccessible prior art. Id. § 102(g). Prior art under § 102(g) is a form of so-called secret prior art in that, unlike § 102(a), there is no publicity requirement. See Thomson, S.A. v. Quixote Corp., 166 F.3d 1172, 1175 (Fed. Cir. 1999); International Glass Co. v. United States, 408 F.2d 395 passim (Ct. Cl. 1969) (discussing 35 U.S.C. § 102). Importantly, prior art under § 102(a) (i.e., knowledge and use) and (g) is usually not documented, and thus must be proven through the use of oral testimony.
147. Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1549 (Fed. Cir. 1983); see also In re Portola, 110 F.3d 786, 789 (Fed. Cir. 1997) (Discussing the policy justifications for a reexamination proceeding, the court cited the congressional testimony of Donald R. Dunner, the president of the American Patent Law Association, who stated, "[I]t is inevitable . . . that all of the prior art will not be uncovered [by the PTO]. A determined advocate, desiring to do in a patent, spending tens of thousands of dollars in litigation situations, can often, if not always, find something that has not been considered by the [PTO].").
148. FRIEDRICH A. HAYEK, The Use of Knowledge in Society, in INDIVIDUALISM AND ECONOMIC ORDER 77-78 (1948); see also Brian J. Loasby, Economics of Dispersed and Incomplete Information, in METHOD, PROCESS, AND AUSTRIAN ECONOMICS 114 (Israel W. Kirzner ed. 1982).
149. FRIEDRICH A. HAYEK, The Use of Knowledge in Society, in INDIVIDUALISM AND ECONOMIC ORDER 77-78 (1948); see also Brian J. Loasby, Economics of Dispersed and Incomplete Information, in METHOD, PROCESS, AND AUSTRIAN ECONOMICS 114 (Israel W. Kirzner ed. 1982).
150. HAYEK, supra note 124, at 80. Although when discussing the virtues of a market system, Hayek was not necessarily referring to scientific knowledge, id., his point is nevertheless applicable to scientific knowledge in the context of patent prosecution. By publishing the patent application, the PTO as a centralized coordinator is placing competitors of the patent applicant and others on notice that a patent has been presumptively granted. This publication ameliorates the knowledge problem because competitors in possession of material knowledge (i.e., prior art) will be "smoked ouf" and encouraged to come forward with their knowledge. See Barnett, supra note 35, at 842-43. Insuperable knowledge problems prevent us from allocating jurisdiction [(i.e., as Barnett phrases it later in his article, "jurisdictions of diverse individuals and associations over physical resources")] on the basis of which particular person or group of persons is actually in the best position to know how certain resources may be used. If a centralized institution charged with allocating jurisdictions knew what it needed to know to make such allocations, a decentralized jurisdictional strategy would be unnecessary. The most we can hope for is to determine the general characteristics of those who are in the best position to have knowledge of potential resource uses, regardless of whether they in fact always have the best knowledge. In sum, we rely on these general characteristics to establish a presumption of competence in favor of individuals and groups who have access to the personal and local knowledge pertaining to their own situation. Id.
151. Often times, the commercial success of a patented invention is not realized until several years after the patent has issued. See Dam, supra note 39, at 258 ("[M]any fundamental patents are not successfully commercialized for a decade or even substantially longer after issuance."). As such, potential opposers may refrain from filing an opposition lest, in hindsight, they come to realize an opposition was not worth pursuing. For this reason, not only should the present reexamination proceeding allow for greater third-party participation, but potential opposers also need an incentive to file an opposition. For example, if a competitor does not oppose the issuance of a patent, perhaps a strengthened presumption of validity will accompany the patent during litigation or the competitor may be estopped during litigation from challenging the validity of the patent on certain grounds.
152. Barnett, supra note 35, at 842.
153. Statement of a federal district court judge in response to my questionnaire (on file with author).
154. 35 U.S.C. § 112 (1994) ("The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.").
155. Rich, supra note 6, at vi (emphasis in original).
156. Giles S. Rich, Extent of Protection and Interpretation of Claims - American Perspectives, 21 INT'L REV. INDUS. PROP. & COPYRIGHT L. 497, 499 (1990).
157. An Interview with Circuit Judge S. Jay Plager, J. PROPRIETARY RTS., Dec. 1993, at 2, 6.
158. Markman v. Westview Instruments, Inc., 517 U.S. 370, 390 (1996) (alterations in original) (citations omitted).
159. Litton Sys., Inc. v. Honeywell, Inc., 87 F.3d 1559, 1580 (Fed. Cir. 1996); see Merrill v. Yeomans, 94 U.S. 568, 573-74 (1877) ("[N]othing can be more just and fair, both to the patentee and to the public, than that the former should understand and correctly describe just what he has invented, and for what he claims a patent.").
160. Statement of a federal district court judge in response to my questionnaire (on file with author).
161. Consequetialism holds that "all actions are right or wrong in virtue of the value of their consequences." THE OXFORD COMPANION TO PHILOSOPHY 154 (Honderich ed. 1995). Consequentialists, as the name suggests, focus on the consequences our patent laws have on the public good.
162. Edwin C. Hettinger, Justifying Intellectual Property, 18 PHIL. & PUB. AFF. 31, 48 (1989). See generally JEREMY BENTHAM, AN INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION (J.H. Burns et al. eds., 1970) (discussing in part, the concept of societal and individual utility).
163. Edwin C. Hettinger, Justifying Intellectual Property, 18 PHIL. & PUB. AFF. 31, 48 (1989). See generally JEREMY BENTHAM, AN INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION (J.H. Burns et al. eds., 1970) (discussing in part, the concept of societal and individual utility).
164. Hettinger, supra note 137, at 48 (emphasis added) (parenthetical in original); see also Jeremy Waldron, From Authors to Copiers: Individual Rights and Social Values in Intellectual Property, 68 CHI-KENT L. REV. 841, 854 (1993) (According to the utilitarian justification, "useful works will be elicited through the rational self-interest of authors [and inventors] up to the point at which their social costs exceed their social benefits."); Mazer v. Stein, 347 U.S. 201, 219 (1954) ("The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ' Science and useful Arts.'") (quoting U.S. CONST, art. I, § 8, cl. 8).
165. See Rich, supra note 131, at 499, 501. The U.S. is strictly an examination country and the main purpose of the examination, to which every application is subjected, is to try and make sure that what each claim defines is patentable. . . . . . . [T]he function of claims is to enable everyone to know, without going through a lawsuit, what infringes the patent and what does not. Id.
166. Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262 (1979).
167. See, e.g., RICHARD R. NELSON & SIDNEY O. WINTER, AN EVOLUTIONARY THEORY OF ECONOMIC CHANGE 130 (1982); Merges & Nelson, supra note 75, at 843-44; Suzanne Scotchmer, Standing on the Shoulders of Giants: Cumulative Research and the Patent Law, J. ECON. PERSP., Winter 1991, at 29, 30-31.
168. See, e.g., RICHARD R. NELSON & SIDNEY O. WINTER, AN EVOLUTIONARY THEORY OF ECONOMIC CHANGE 130 (1982); Merges & Nelson, supra note 75, at 843-44; Suzanne Scotchmer, Standing on the Shoulders of Giants: Cumulative Research and the Patent Law, J. ECON. PERSP., Winter 1991, at 29, 30-31.
169. Kitch, supra note 42, at 271.
170. CHISUM ET AL., supra note 6, at 5 n. 16 (emphasis added).
171. See Standard Oil Co. (Indiana) v. United States, 283 U.S. 163, 171 n.5 (1931). Referring to cross-licensing, the Court stated: This is often the case where patents covering improvements of a basic process, owned by one manufacturer, are granted to another. A patent may be rendered quite useless, or "blocked," by another unexpired patent which covers a vitally related feature of the manufacturing process. Unless some agreement can be reached, the parties are hampered and exposed to litigation. And, frequently, the cost of litigation to a patentee is greater than the value of a patent for a minor improvement. Id.
172. See Lemley, supra note 62, at 1067 n.350. While it might seem irrational to think that an original inventor would suppress an improvement within her control if it truly was valuable, several circumstances might induce her to do so. If the improvement requires a new manufacturing technology or a different market approach, there may be substantial fixed costs associated with switching over production from the old to the new way. The further removed the improvement is from the original invention, the worse this problem is likely to be.. . . The alternative to switching over production facilities . . . is also unlikely to be attractive to the original inventor. Even if the licensor could extract the full value of the improvement in a licensing transaction, which seems unlikely, its market control will disappear along with the intellectual property right. Id. For a general discussion of blocking patents, see Merges, supra note 59.
173. Dam, supra note 39, at 267.
174. See United States v. Univis Lens Co., 316 U.S. 241, 249 (1942).
175. See Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. Cm. L. REV. 1017, 1072-73 (1989). The risk that the parties will be unable to agree on terms for a license is greatest when subsequent researchers want to use prior inventions to make further progress in the same field in competition with the patent holder, especially if the research threatens to render the patented invention technologically obsolete. Id.; see also JOHN W. SCHLICHER, LICENSING INTELLECTUAL PROPERTY 47 (1996) (stating that the primary transaction costs are 1) the information costs of identifying buyers and sellers, and informing buyers of the rights for sale, and 2) the costs of negotiating agreements, performing under them, and detecting and stopping violations). An argument can be made that an opposition proceeding will have the effect of reducing the information costs as patent applications will be published, presumably in journals that are read on a regular basis.
176. See Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. Cm. L. REV. 1017, 1072-73 (1989). The risk that the parties will be unable to agree on terms for a license is greatest when subsequent researchers want to use prior inventions to make further progress in the same field in competition with the patent holder, especially if the research threatens to render the patented invention technologically obsolete. Id.; see also JOHN W. SCHLICHER, LICENSING INTELLECTUAL PROPERTY 47 (1996) (stating that the primary transaction costs are 1) the information costs of identifying buyers and sellers, and informing buyers of the rights for sale, and 2) the costs of negotiating agreements, performing under them, and detecting and stopping violations). An argument can be made that an opposition proceeding will have the effect of reducing the information costs as patent applications will be published, presumably in journals that are read on a regular basis.
177. This is not to say that the improver may not proceed in his experimentation without a license, particularly if the improver was confident that he could patent the improvement and thus position himself at the bargaining table with the original patentee. See Eisenberg, supra note 148, at 1044 ("Some subsequent researchers might find it worthwhile to improve a patented invention even without a license if the improvement itself were patentable.").
178. Several economists and courts have asserted that a patent grant does not necessarily translate into monopolistic market power. See HERBERT HOVENCAMP, ECONOMIC AND FEDERAL ANTITRUST LAW 156, 219 (1985) ("[A] patented article . . . may compete intensely with similar products which are either unpatented or covered by different patents.... More often than not the patent. . . makes a product 'distinguishable' but confers little or no measurable market power upon its owner."); SCHERER, supra note 64, at 446 ("[F]ew patents are sufficiently basic and broad to 'fence in' a field altogether."). See also Justice O'Connor's concurring opinion in Jefferson Parish Hospital v. Hyde, 466 U.S. 2 (1984), wherein she rejected the majority's presumption that a patent or copyright leads to market power: A common misperception has been that a patent or copyright . . . suffice[s] to demonstrate market power. While. . . [this] factor[] might help to give market power to a seller, it is also possible that a seller in these situations will have no market power; for example, a patent holder has no market power in any relevant sense if there are close substitutes for the patented product. Id. at 38 n.7; Abbott Lab. v. Brennan, 952 F.2d 1346, 1354 (Fed. Cir. 1991) ("A patent does not of itself establish a presumption of market power in the antitrust sense."); Chiuminatta Concrete Concepts, Inc. v. Target Prods., Inc., No. CV 92-1523-LGB (SX), 1992 WL 465720 (C.D. Cal. 1992), aff'd mem., 19 F.3d 41 (Fed. Cir. 1994). Of course, there are occasions where a patent, particularly a pharmaceutical patent, in and of itself confers monopolistic market power.
179. See Slim Fold Mfg., Inc. v. Kinkead Indus., Inc., 932 F.2d 1453, 1457 (Fed. Cir. 1991) ("Designing around patents is . . . one of the ways in which the patent system works to the advantage of the public in promoting progress in the useful arts, its constitutional purpose.").
180. State Indus., Inc. v. A.O. Smith Corp., 751 F.2d 1226, 1236 (Fed. Cir. 1985); see also Hilton Davis Chem. Co. v. Warner-Jenkinson Co., 62 F.3d 1512, 1520 (Fed. Cir. 1995)(en banc) (per curiam). The ability of the public successfully to design around - to use the patent disclosure to design a product or process that does not infringe, but like the claimed invention, is an improvement over the prior art - is one of the important public benefits that justify awarding the patent owner exclusive rights to his invention. Id.; In re Alappat, 33 F.3d 1526, 1553 (Fed. Cir. 1994) ("Even after a patent has been awarded for a new, useful, and nonobvious practical application of an idea, others may learn from the underlying ideas, theories, and principles to legitimately 'design around' the patentee's useful application."); London v. Carson Pirie Scott & Co., 946 F.2d 1534, 1538 (Fed. Cir. 1991) ("[D]esigning or inventing around patents to make new inventions is encouraged."); Yarway Corp. v. Eur-Control USA, 775 F.2d 268, 277 (Fed. Cir. 1985). But see SCHERER, supra note 64, at 386-87 (arguing that resources used in designing around patents could be put to better use); Donald F. Turner, The Patent System and Competitive Policy, 44 N.Y.U. L. REV. 450, 455 (1969) (arguing that resources used to design around patents could be spent on unsolved problems instead).
181. See Carson Pirie Scott, 946 F.2d at 1538. [C]laims must be "particular" and "distinct," as required by 35 U.S.C. § 112, so that the public has fair notice of what the patentee and the Patent and Trademark Office have agreed constitute the metes and bounds of the claimed invention. Notice permits other parties to avoid actions which infringe the patent and to design around the patent. Id.
182. See Key Pharm. v. Hercon Lab. Corp., 161 F.3d 709, 716-17 (Fed. Cir. 1998); Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1583 (Fed. Cir. 1996). In those cases where the public record unambiguously describes the scope of the patented invention, reliance on any extrinsic evidence is improper. The claims, specification, and file history, rather than extrinsic evidence, constitute the public record of the patentee's claim, a record on which the public is entitled to rely. In other words, competitors are entitled to review the public record, apply the established rules of claim construction, ascertain the scope of the patentee's claimed invention and, thus, design around the claimed invention. Id.
183. See Read Corp. v. Portéc, Inc., 970 F.2d 816, 828 (Fed. Cir. 1992) ("Of course, determining when a patented device has been 'designed around' enough to avoid infringement is a difficult determination to make. One cannot know for certain that changes are sufficient to avoid infringement until a judge or a jury has made that determination.").
184. Pauline Newman, The Federal Circuit: Judicial Stability or Judicial Activism?, 42 AM. U. L. REV. 683, 687 (1993).
185. Ortho Pharm. Corp. v. Smith, 959 F.2d 936, 944 (Fed. Cir. 1992).
186. See Portec, 970 F.2d at 829 n.9 ("An opinion of counsel, of course, need not unequivocally state that the client will not be held liable for infringement. An honest opinion is more likely to speak of probabilities than certainties.").
187. The Federal Circuit has held that a "finding of willfulness requires the fact-finder to find that clear and convincing evidence shows 'that the infringer acted in disregard of the patent. . . [and] had no reasonable basis for believing it had a right to do the acts.'" American Med. Sys., Inc. v. Medical Eng'g Corp., 6 F.3d 1523, 1530 (Fed. Cir. 1993) (quoting Stickle v. Heublein, Inc., 716 F.2d 1550, 1565 (Fed. Cir. 1983) (omission and alteration in original)). Under 35 U.S.C. § 284, a finding of willfulness can lead to treble damages. 35 U.S.C. § 284 (1994); see King Instruments Corp. v. Perego, 65 F.3d 941, 947 (Fed. Cir. 1995).
188. 991 F.2d 735 (Fed. Cir. 1993).
189. Id. at 744.
190. Id. at 745.
191. Id.
192. Id.
193. 751 F.2d 1226 (Fed. Cir. 1985).
194. Id. at 1234.
195. Id. at 1235.
196. See id. at 1235-36.
197. Id. at 1236.
198. See, e.g., Berry Sterling Corp. v. Pescor Plastics, Inc., 122 F.3d 1452, 1454 (Fed. Cir. 1997) ("A properly conducted patent analysis, be it for infringement or validity, necessarily requires construing the patent, and more specifically, the claim."); Zenith Lab., Inc. v. Bristol-Myers Squibb Co., 19 F.3d 1418, 1423 (Fed. Cir. 1994) ("As we have repeatedly said, it is error for a court to compare in its infringement analysis the accused product or process . . . . The only proper comparison is with the claims of the patent").
199. In retrospect, a more accurate question would have been, "Have you tried any cases in which the validity of a patent was at issue?"
200. See infra Figure 1. One empirical study conducted by Lawrence G. Kastriner in 1995 indicated that there is significant support by corporate patent counsel for an opposition proceeding. Mr. Kastriner conducted a survey of 65 patent counsel cutting across the technological spectrum. Of those 65, 42 responded. Of those 42, 90% stated that they would favor a post-grant opposition proceeding. See Nard, Deference, Defiance, supra note 20, at 1509 n. 111.
201. See Figure 2b.
202. See infra Figure 3.
203. Some representative comments were: 1. "There are few federal judges who are knowledgeable and experienced enough to preside over patent trials. Few of us have a scientific/mechanical background on the bench. Evidentiary issues are twice as hard for a federal judge as they would be for a judge with a scientific/mechanical background. We judges are interested in a just result. I feel most inadequate when I preside over a patent trial because the subject matter is so foreign to me." 2. "We see so few patent cases, that on the rare occasion when one is filed, it takes a considerable amount of time to come up to speed. Even so, the highly technical nature of the issues presented is often very difficult for the average judge to fully comprehend." 3. "Prior review by examiners skilled in the pertinent art-considering technical arguments challenging patentability can only serve to eliminate (or at least focus) patent ambiguities lay judges must consider when construing a patent." 4. "The [opposition] procedure would allow an expert in the PTO to make the initial determination of many issues which later arise in court, a less efficient and more expensive forum."
204. Some representative comments were: 1. "This [opposition procedure] could save litigants money." 2. "Such a procedure might resolve issues at the administrative level, thus eliminating issues or cases (or perhaps refining the legal arguments) before the parties get involved in expensive and cumbersome litigation." 3. "This procedure would conserve judicial resources." 4. "I believe proceedings of this sort would likely result in less litigation and fewer instances in which the district court is compelled to invalidate a patent after it is issued." 5. "I should think that such a proceeding might serve to obviate protracted and expensive litigation challenging the validity of a patent after it is issued."
205. Some representative comments were: 1. "Such a prior proceeding might help to better define the patent claims." 2. "[An opposition proceeding] would clarify what the patent covers and the state of the art." 3. "[An opposition proceeding] might provide useful guidance for deciding issues of patentability."
206. For example, some judges qualified their "yes" answer because of appellate review issues, namely their concern with respect to broad standards of review.
207. See infra Figure 4.
208. Some representative comments were: 1. "The opposition proceeding is subject to abusive use for purposes of delay and harassment." 2. "[An opposition proceeding] would do nothing but further delay issuance of patents. A pre-issuance disclosure would probably cause mischief discouraging applications." 3. "Such a proceeding would further slow down the Patent Office, which is already understaffed and swamped." 4. "I have sufficient faith in the expertise of the patent examiners and very little faith in the honesty of competitors who would contrive evidence at an early stage."
209. Some representative comments were: 1. "A sufficient level of scrutiny already exists. An additional procedural hurdle to patentability is both unnecessary and potentially expensive to the patentee." 2. "[An opposition proceeding] isn't needed." 3. "The present system seems to work very well." 4. "The process works fine as now in place."
210. Some representative comments were: 1. "The system needs to be simplified; not another layer of administrative overload and expense. Let the system work." 2. "It would add just another level of litigation." 3. "[An opposition proceeding] would add more confusion to an already complicated process."