Patent costs and unlicensed use of patented inventions

University of Chicago Law Review

Volumn 78, Issue 1, 2011, Pages 53-69

  Eisenberg, Rebecca S ^a  

^a UNIVERSITY OF MICHIGAN LAW SCHOOL   (United States)

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EID: 79955974325     PISSN: 00419494     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (110)

1. See, for example, F. Scott Kieff, Property Rights and Property Rules for Commercializing Inventions, 85 Minn L Rev 697, 703 (2001) (Pubitemid 33648758)
2. Frank H. Easterbrook, Intellectual Property Is Still Property, 13 Harv J L & Pub Pol 108, 108-09 (1990)
3. Edmund W. Kitch, Patents: Monopolies or Property Rights?, 8 Rsrch L & Econ 31, 39-1-0 (1986).
4. Consider also James Bessen and Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk 2-28 (Princeton 2008) (arguing that the lack of an effective notice system and higher costs for clearing rights make the patent system function less effectively than other property rights regimes)
5. Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 Tex L Rev 1031, 1032 (2005) (analogizing intellectual property to land limited by the capacity for nonrivalrous consumption, higher costs, and the iterative nature of creation).
6. See, for example, Wesley M. Cohen and John P. Walsh, Real Impediments to Academic Biomedical Research, in Adam B. Jaffe, Josh Lerner, and Scott Stern, eds, 8 Innovation Policy and the Economy 1, 10-11 (MIT 2008)
7. Joseph Straus, Henrik Holzapfel, and Matthias Lindenmeir, Genetic Inventions and Patent Law: An Empirical Survey of Selected German R&D Institutions 26 (Verlag Medien 2004)
8. Dianne Nicol and Jane Nielsen, Patents and Medical Biotechnology: An Empirical Analysis of Issues Facing the Australian Industry 252 (University of Tasmania 2003), online at http://www.ipria.org/publications/reports/ BiotechReportFinal.pdf (visited Mar 20, 2011).
9. I review this literature in Rebecca S. Eisenberg, Noncompliance, Nonenforcement, Nonproblem? Rethinking the Anticommons in Biomedical Research, 45 Houston L Rev 1059, 1063-76 (2008).
10. See Madey v Duke University, 307 F3d 1351, 1362-63 (Fed Cir 2002) (holding that use in academic research infringed a patent). But consider Merck KGaA v Integra Lifesciences I Ltd, 545 US 193, 206-08 (2005) (holding that use in preclinical drug development research fell within 35 USC § 271(e)(1)'s exemption for "uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs").
11. See Mark A. Lemley, Ignoring Patents, 2008 Mich St L Rev 19, 21-22
12. Iain M. Cockburn and Rebecca Henderson, Survey Results from the 2003 Intellectual Property Owners Association Survey on Strategic Management of Intellectual Property D.2 (unpublished survey, Oct 2003), online at http://staging.ipo.org/AM/Template.cfm?/Section=Business-Issues&Template=/ CM/ContentDisplay.cfm&ContentID=22949 (visited Sept 3, 2010).
13. See Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in National Bureau of Economic Research, The Rate and Direction of Inventive Activity: Economic and Social Factors 609, 618 (Princeton 1962)
14. Mark A. Lemley, Ex Ante versus Ex Post Justifications for Intellectual Property, 71 U Chi L Rev 129, 135-38 (2004).
15. See Kieff, 85 Minn L Rev at 710 (cited in note 1)
16. Paul J. Heald, Optimal Remedies for Patent Infringement: A Transactional Model, 45 Houston L Rev 1165, 1173-75 (2008).
17. For an argument that some free riding may be consistent with adequate R&D incentives, see Lemley, 83 Tex L Rev at 1046-58 (cited in note 1).
18. See Edmund W. Kitch, The Nature and Function of the Patent System, 20 J L & Econ 265, 276-78 (1977)
19. Kieff, 85 Minn L Rev at 726 (cited in note 1).
20. USC §§ 271, 283-84.
21. See In re Seagate Technology, LLC, 497 F3d 1360, 1368 (Fed Cir 2007).
22. See A.C. Aukerman Co v R.L. Chaides Construction Co, 960 F2d 1020, 1028 (Fed Cir 1992).
23. See John M. Golden, Principles for Patent Remedies, 88 Tex L Rev 505, 518-19 (2010).
24. See Alan Devlin, The Misunderstood Function of Disclosure in Patent Law, 23 Harv J L & Tech 401, 404 (2010) (noting that willful infringement liability creates perverse incentives to remain ignorant of patents).
25. See, for example, Clarisa Long, Information Costs in Patent and Copyright, 90 Va L Rev 465, 479-80 (2004).
26. See, for example, Festo Corp v Shoketsu Kinzoku Kogyo Kabushiki, 535 US 722, 732 (2002) ("It is true that the doctrine of equivalents renders the scope of patents less certain· . These concerns with the doctrine of equivalents, however, are not new. Each time the court has considered the doctrine, it has acknowledged this uncertainty as the price of ensuring the appropriate incentives for innovation.").
27. Process-oriented reforms can provoke considerable opposition, as evidenced by reactions of the patent community to proposed reform of continuation practice in the Patent and Trademark Office (PTO).
28. See, for example, Stephen T. Schreiner and Patrick A. Doody, Patent Continuation Applications: How the PTOs Proposed New Rules Undermine an Important Part of the U.S. Patent System with Hundreds of Years of History, 88 J PTO Socy 556, 561-65 (2006).
29. See also Liza Vertinsky, Comparing Alternative Institutional Paths to Patent Reform, 61 Ala L Rev 501, 514-15 (2010) (discussing the variables that affect the cost of transition to a different legal regime and noting their importance in the patent law context).
30. See Long, 90 Va L Rev at 506 (cited in note 14).
31. Bessen and Meurer, Patent Failure at 147-55 (cited in note 1).
32. Bessen and Meurer note that effective reform will require structural changes that may not be politically feasible today.
33. Id at 25-27.
34. Lemley, 2008 Mich St L Rev at 31-34 (cited in note 4). For an analysis suggesting similar problems in the context of real property
35. see Stewart E. Sterk, Property Rules, Liability Rules, and Uncertainty about Property Rights, 106 Mich L Rev 1285, 1296-97 (2008).
36. See Cohen and Walsh, Real Impediments at 12 (cited in note 2)
37. Wesley M. Cohen and John P. Walsh, Access-or Not-in Academic Biomedical Research, in Rochelle C. Dreyfuss, Harry Frist, and Diane L. Zimmerman, eds, Working within the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society 3, 16-18 (Oxford 2010).
38. Cohen and Walsh, Access-or Not at 18-19 (cited in note 21).
39. Katherine J. Strandburg, User Innovator Community Norms: At the Boundary between Academic and Industry Research, 11 Fordham L Rev 2237, 2250 (2009).
40. See also Katherine J. Strandburg, Norms and the Sharing of Research Materials and Tacit Knowledge, in Dreyfuss, Frist, and Zimmerman, eds, Working within the Boundaries of Intellectual Property 85, 88-92 (cited in note 21).
41. Strandburg, 77 Fordham L Rev at 2252-57 (cited in note 23).
42. Cohen and Walsh, Real Impediments at 20-21 (cited in note 2).
43. Strandburg, 77 Fordham L Rev at 2266-67 (cited in note 23).
44. See Jonathan M. Barnett, Property as Process: How Innovation Markets Select Innovation Regimes, 119 Yale L J 384, 410-11 (2009).
45. See id at 434.
46. Barnett identifies historical examples in patent pools and other arrangements for mutual forbearance from enforcement of intellectual property rights relating to automotive technology, semiconductors, information technology, and biotechnology.
47. Id at 434-37.
48. In addition to the costs of coordination and lobbying to achieve legislative change, legislative change to reverse propertization could potentially expose the government to liability in takings actions.
49. Id at 420 n 82, citing Congressional Budget Office, Cost Estimate: S 1145, Patent Reform Act of 2007 (Feb 18, 2008), online at http://cbo.gov/ ftpdocs/89xx/doc8981/s1145.pdf (visited Sept 3, 2010). Legal scholars are not in agreement on the application of the Takings Clause to patents.
50. Compare Thomas F. Cotter, Do Federal Uses of Intellectual Property Implicate the Fifth Amendment?, 50 U Fla L Rev 529, 529-32 (1998) (reviewing cases and finding a "muddle")
51. With Adam Mossoff, Patents as Constitutional Private Property: The Historical Protection of Patents under the Takings Clause, 87 BU L Rev 689, 690-91 (2007) (arguing that nineteenth-century courts embraced patents as constitutional property protected under the Takings Clause).
52. See Heald, 45 Houston L Rev at 1166-68 (cited in note 6). Heald sees information costs and transaction costs as essential to justifying intellectual property; without these costs, we could rely upon contracts to pay for innovation. See id at 1166.
53. Id at 1172 ("Draconian penalties would most likely stimulate excessive searching for rights holders by potential users and would induce users to enter into unnecessary precautionary licenses or not innovate at all.").
54. For an earlier argument that researchers should be allowed to use patented inventions in biomedical research without ex ante permission, but subject to an ex post reach-through royalty remedy based on the ultimate commercial success of resulting products
55. see Janice M. Mueller, No "Dilettante Affair": Rethinking the Experimental Use Exception to Patent Infringement for Biomedical Research Patents, 76 Wash L Rev 1, 54-58 (2001). (Pubitemid 33689359)
56. See, for example, Kimberly A. Moore, Worthless Patents, 20 Berkeley Tech L J 1521, 1530-19 (2005)
57. Jean O. Lanjouw, Ariel Pakes, and Jonathan Putnam, How to Count Patents and Value Intellectual Property: Uses of Patent Renewal and Application Data, 46 J Indust Econ 405, 428 (1998).
58. In order to maintain a patent in effect, it is necessary to pay increasing maintenance fees to the PTO that are due 3.5 years, 7.5 years, and 11.5 years after issuance of the patent. 35 USC § 41(b). For large firms these fees are currently set at $980, $2,480, and $4,410, respectively.
59. See PTO, Fee Schedule, online at http://www.uspto.gov/web/offices/ac/qs/ ope/fee2009september15.htm (visited Dec 21, 2011).
60. Scholars have examined data on maintenance fee payments to make inferences about patent value.
61. See Bessen and Meurer, Patent Failure at 99-104 (cited in note 1) (reviewing the literature)
62. Jonathan A. Barney, A Study of Patent Mortality Rates: Using Statistical Analysis to Rate and Value Patent Assets, 30 AIPLA Q J 317, 320 (2002) (presenting a twofold approach to predicting the future value of an individual patent based on a statistical survey of historical maintenance fee records and a comparative ranking of existing patents based on their likelihood of high or low maintenance rates); sources cited in note 34.
63. Jonathan S. Masur and David Fagundes, Costly Intellectual Property *16-17 (unpublished manuscript, Feb 2010), online at http://ssrn.com/ abstract=1441987 (visited Sept 3, 2010). They estimate the average costs of obtaining a patent to be approximately $22,000.
64. Id at *17.
65. Id at *18. Masur and Fagundes note that even if patent applicants could overcome initial rejections, higher prosecution costs select against such patents because some patent applicants might abandon their claims rather than incur those costs.
66. Id at *53-54. Other scholars take a different view of the political economy of patent law.
67. Consider F.M. Scherer, The Political Economy of Patent Policy Reform in the United States, 7 J Telecom & High Tech L 167, 179-207 (2009) (reviewing changes in the patent system in the 1970s and 1980s and concluding that while some were well grounded in objective analyses of the problems at hand and what could be accomplished, others were not).
68. Determining the value of an infringer's activities is another information cost problem for owners, who may not know the value to the infringer of using the patented technology rather than an alternative. But owners can make broad distinctions between commercial and academic users, or between profitable and unprofitable firms.
69. For example, the Drug Price Competition and Patent Term Restoration Act of 1984 ("Hatch-Waxman Act"), Pub L No 98-417, 98 Stat 1585, codified as amended in various sections of Titles 15, 21, 35, and 42, lowers information costs and assertion costs for owners of drug patents facing possible infringement by generic competitors. The Hatch-Waxman Act requires firms that seek regulatory approval for generic versions of patented products to give notice to patent owners, thereby relieving owners of the cost burden of monitoring potential infringers. See 21 USC § 355(j). The Hatch-Waxman Act also defers regulatory approval of generic products during the patent term and provides for an automatic thirty-month stay of regulatory approval during litigation of infringement claims, thereby relieving patent owners of the cost of seeking preliminary relief in the courts.
70. See 21 USC § 355(q)(1)(G); Eisenberg, 45 Houston L Rev at 1089 (cited in note 2).
71. See Mark A. Lemley, Rational Ignorance at the Patent Office, 95 Nw U L Rev 1495, 1499 (2001).
72. Mark Lemley estimates that patent examiners have an average of eighteen hours to spend on a patent application, including the time spent reading the application, reading the submitted prior art, searching for and reading prior art in databases accessible to the PTO, comparing that prior art to the application, writing an office action, reading and responding to the response to office action, iterating the last two steps at least one and often more times, conducting an interview with the applicant, and ensuring that the diagrams and claims are in form for allowance.
73. Id at 1496 n 3.
74. For a description of the patent examination process, see John R. Thomas, Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties, 2001 U 111 L Rev 305, 312-16.
75. See R. Polk Wagner, Understanding Patent-Quality Mechanisms, 157 U Pa L Rev 2135, 2153 (2009)
76. Stuart Minor Benjamin and Arti K. Rai, Who's Afraid of the APA? What the Patent System Can Learn from Administrative Law, 95 Georgetown L J 269, 316-17 (2007)
77. Mark A. Lemley and Kimberly A. Moore, Ending Abuse of Patent Continuations, 84 BU L Rev 63, 75 (2004). Examiners may also boost their compensation by granting patents quickly.
78. See Gajan Retnasaba, Why It Is Easier to Get a Patent in September *12-18 (unpublished manuscript, May 2008), online at http://ssrn.com/ abstract=1121132 (visited Sept 3, 2010).
79. See PTO, Manual of Patent Examining Procedures § 706 (Sept 2007), online at http://www.uspto.gov/web/offices/pac/mpep/mpep-e8r6-0700.pdf (visited Oct 16, 2010).
80. Although patent applicants have an obligation to disclose prior art that they know about, 35 CFR § 1.56, they have no obligation to conduct a prior art search, and may be well advised not to do so. Conducting a prior art search not only increases the risk of rejection, but it also increases the risk of future findings of inequitable conduct for failure to disclose a reference that a court deems material to patentability. Thomas, 2001 U 111 L Rev at 314-15 (cited in note 44).
81. See 35 USC § 134. Mark Lemley and Bhaven Sampat found in a recent study that although 86.5 percent of the first office actions by the PTO on patent applications were nonfinal rejections, relatively few of these rejections became final. Instead, 73.1 percent of the patents that issue never receive a final rejection.
82. Mark A. Lemley and Bhaven Sampat, Examining Patent Examination, 2010 Stan Tech L Rev 2, 3-5, online at http://stlr.stanford.edu/2010/05/examining-patent- examination (visited Sept 3, 2010).
83. Consider Barnett, 119 Yale L J at 399 figure 2 (cited in note 27) (picturing "Patented assets" as a subset entirely contained within the larger set of "Patentable assets").
84. See, for example, In re Lee, 277 F3d 1338, 1342-44 (Fed Cir 2002): The agency tribunal must set forth its findings and the grounds thereof, as supported by the agency record, and explain its application of the law to the found facts· . It must be based on objective evidence of record· . Deferential judicial review under the Administrative Procedure Act does not relieve the agency of its obligation to develop an evidentiary basis for its findings. To the contrary, the Administrative Procedure Act reinforces this obligation.
85. See, for example, In re Zurko, 258 F3d 1379, 1385 (Fed Cir 2001): [T]he deficiencies of the cited references cannot be remedied by the Board's general conclusions about what is "basic knowledge" or "common sense" to one of ordinary skill in the art· . This assessment of basic knowledge and common sense was not based on any evidence in the record and, therefore, lacks substantial evidence support.
86. 550 US 398 (2007).
87. Id at 403 ("Rigid preventative rules that deny recourse to common sense are neither necessary under, nor consistent with, this Court's case law.").
88. 35 USC §§ 102-03.
89. See Thomas, 2001 U 111 L Rev at 318 (cited in note 44).
90. Previously issued patents are a particularly poor measure of the prior art in fields that are relatively new to the patent system, such as information technology and business methods, making it especially difficult for the PTO to make cost-effective assessments of patentability in these fields.
91. See 35 USC § 282.
92. Hybritech Inc v Monoclonal Antibodies, Inc, 802 F2d 1367, 1375 (Fed Cir 1986).
93. See Lemley, 95 Nw U L Rev at 1514 (cited in note 43) ("[T]he fundamental fact remains that litigation of a few patents is a far more efficient way of determining validity than giving a detailed ex ante examination of all patents.").
94. Id at 1527.
95. Apart from avoiding search costs, awareness of patents may subject users to enhanced damages for willful infringement. See Thomas, 2001 U 111 L Rev at 314-15 (cited in note 44); text accompanying note 10.
96. See Rebecca S. Eisenberg, Bargaining over the Transfer of Proprietary Research Tools: Is This Market Failing or Emerging?, in Rochelle Cooper Dreyfuss, Diane Leenheer Zimmerman, and Harry First, eds, Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society 223, 225, 231 (Oxford 2001).
97. See Michael J. Meurer, Controlling Opportunistic and Anti-competitive Intellectual Property Litigation, 44 BC L Rev 509, 517 (2003).
98. Of course, it is possible that an exhaustive search for prior art will be unavailing. Technology users may have a better sense than examiners of whether a claimed invention was already practiced in the technological community prior to the inventor's activities, making it more likely that nondocumentary prior art will be uncovered after issuance than during prosecution.
99. It is also possible that owners and users will deploy these signals in a misleading fashion for tactical reasons in bargaining.
100. See Nancy T. Gallini, The Economics of Patents: Lessons from Recent U.S. Patent Reform, 16 J Econ Persp 131, 141-44 (2002) (reviewing the literature).
101. Id at 132.
102. Id at 141.
103. Heald, 45 Houston L Rev at 1187-91 (cited in note 6). See also notes 31-33 and accompanying text.
104. Compare Samson Vermont, Independent Invention as a Defense to Patent Infringement, 105 Mich L Rev 475, 484-92 (2006) (arguing that independent invention should be a defense to patent infringement), with Heald, 45 Houston L Rev at 1187 (cited in note 6) (arguing for a limited remedy when independent invention is more cost-effective than transacting).
105. Mark A. Lemley, Should Patent Infringement Require Proof of Copying?, 105 Mich L Rev 1525, 1532 (2007).
106. See note 10 and accompanying text.
107. Christopher A. Cotropia and Mark A. Lemley, Copying in Patent Law, 87 NC L Rev 1421, 1443 (2009).
108. Even willful infringement does not require proof that the defendant derived the invention from the patent holder, only that the defendant infringed the patent recklessly, meaning that the defendant "acted despite an objectively high likelihood that its actions constituted infringement of a valid patent." In re Seagate Technology, LLC, 497 F3d 1360, 1371 (Fed Cir 2007).
109. As John Golden explains, "[a] patent holder who practices the invention commercially or otherwise competes with the infringer may be able to use internal knowledge and experience, as well as greater familiarity with the nature of a business like the potential infringer's, to make more informed guesses about the potential infringer's cost-benefit analysis." John M. Golden, "Patent Trolls" and Patent Remedies, 85 Tex L Rev 2111, 2132-33 (2007).
110. See John R. Allison, Mark A. Lemley, and Joshua Walker, Extreme Value or Trolls on Top? The Characteristics of the Most-Litigated Patents, 158 U Pa L Rev 1, 26 (2009) (finding that nonpracticing entities filed 80 percent of the lawsuits involving the set of patents that were litigated eight times or more between 2000 and 2007).