Patent invalidity versus noninfringement

Cornell Law Review

Volumn 99, Issue 1, 2013, Pages 71-128

  Ford, Roger Allan ^a  

^a UNIVERSITY OF CHICAGO LAW SCHOOL   (United States)

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EID: 84886268598     PISSN: 00108847     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (218)

1. See Limb Dampeners, BOWJAX, INC., http://www.bowjax.com/products/limb- dampeners/ (last visited Aug. 19, 2013). (You may notice that in the course of two paragraphs and two footnotes I have used three versions of the company's name. The company's legal name, according to its filings with the Idaho Secretary of State, is "Bow Jax Inc." Court filings in the patent litigation use "Bow Jax, Inc." - the legal name, plus a comma - while the company's website says "Bowjax, Inc." I use the legal name unless context dictates otherwise.)
2. It is incomplete to call noninfringement a "defense." Although "[n]oninfringement" and "absence of liability for infringement" are specifically listed in the Patent Act as "defenses" to a claim for patent infringement, 35 U.S.C. § 282(b)(1) (2006 & Supp. V 2011), they are not affirmative defenses in the traditional sense because the defendant asserting the defense does not take on the burdens of production or persuasion. Noninfringement is just the inverse of infringement, which the plaintiff must prove to recover. See Tech. Licensing Corp. V. Videotek, Inc., 545 F.3d 1316, 1327 (Fed. Cir. 2008) (explaining that the plaintiff's burden to prove infringement never shifts to the defendant, as "the risk of decisional uncertainty stays on the proponent of the proposition"); see also Gideon Parchomovsky & Alex Stein, Intellectual Property Defenses, 113 COLUM. L. REV. (forthcoming 2013) (manuscript at 13), available at http://ssrn.com/abstract=2247582 ("Generally speaking, a defendant in a patent infringement suit can escape liability by successfully asserting a coverage-related [i.e., noninfringement] or a validity-based defense."). In practice, however, defendants in patent cases nevertheless make strategic decisions between the "defenses" of invalidity and noninfringement. See infra Parts II.A, II.C. In this argument I refer to invalidity and noninfringement as defenses because in most cases it is the defendant that decides which issues will be contested and because both invalidity and noninfringement are ways by which a defendant can avoid liability.
3. See 35 U.S.C. § 282(b) (2006 & Supp. V 2011) (listing defenses to patent infringement based on invalidity); See also id. § 102 (stating the conditions for patentability). See generally John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185, 208 (1998) (finding, in an empirical study, that most invalidity findings were based on problems of novelty or obviousness).
4. There are other defenses, such as the unenforceability of a patent due to inequitable conduct during its prosecution, See Therasense, Inc. V. Becton, Dickinson & Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011) (en banc), but noninfringement and invalidity play by far the largest roles in patent practice, See, e.g., Allison & Lemley, supra note 6 (limiting study on patent-litigation outcomes to validity decisions); Jay P. Kesan & Gwendolyn G. Ball, How Are Patent Cases Resolved? An Empirical Examination of the Adjudication and Settlement of Patent Disputes, 84 WASH. U. L. REV. 237, 271-78 (2006); Parchomovsky & Stein, supra note 5 (manuscript at 13).
5. Recent book-length treatments include JAMES BESSEN & MICHAEL J. MEURER, PATENT FAILURE: HOW JUDGES, BUREAUCRATS, AND LAWYERS PUT INNOVATORS AT RISK (2008);
6. DAN L. BURK & MARK A. LEMLEY, THE PATENT CRISIS AND HOW THE COURTS CAN SOLVE IT (2009);
7. ADAM B. JAFFE & JOSH LERNER, INNOVATION AND ITS DISCONTENTS: HOW OUR BROKEN PATENT SYSTEM IS ENDANGERING INNOVATION AND PROGRESS, AND WHAT TO DO ABOUT IT (2004).
8. See Mark A. Lemley, Ignoring Patents, 2008 MICH. ST. L. REV. 19, 20.
9. See, e.g., Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, 280 SCIENCE 698, 698 (1998) (identifying "an unintended and paradoxical consequence of biomedical privatization: [that a] proliferation of intellectual property rights upstream may be stifling life-saving innovations further downstream in the course of research and product development");
10. Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, in 1 INNOVATION POLICY AND THE ECONOMY 119 (Adam B. Jaffe et al. eds., 2001) (discussing problems caused by the combination of overlapping patent rights and the holdup risk caused by the patent system).
11. WILLIAM M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 294 (2003) (The standard rationale of patent law is that it is an efficient method of enabling the benefits of research and development to be internalized, thus promoting innovation and technological progress.");
12. Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1580 (2003) ("There is virtually unanimous agreement that the purpose of the patent system is to promote innovation by granting exclusive rights to encourage invention.").
13. On the disclosure justification for patents, see Jeanne C. Fromer, Patent Disclosure, 94 IOWA L. REV. 539, 541 (2009) ("[P]atent disclosure indirectly stimulates future innovation by revealing the invention's design so that others can use it fruitfully when the patent term expires and design around, improve upon, or be inspired by the invention, even during the patent term.");
14. Lisa Larrimore Ouellette, Do Patents Disclose Useful Information?, 25 HARV. J.L. & TECH. 545, 556 (2012) ("Disclosure theory focuses on the quid pro quo of the patent system: the inventor receives the exclusive patent right in exchange for fully disclosing the invention to society⋯."). The principal alternative view is provided by prospect theory, which asserts an ex post justification for patents: that by granting a monopoly over a new technology after the technology has been invented, patents encourage investment in developing and commercializing the new invention while avoiding wasteful duplication of effort.
15. See John F. Duffy, Rethinking the Prospect Theory of Patents, 71 U. CHI. L. REV. 439, 440 (2004);
16. Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON. 265, 265-66 (1977);
17. see also Mark A. Lemley, Ex Ante Versus Ex Post Justifications for Intellectual Property, 71 U. CHI. L. REV. 129 (2004) (critiquing ex post justifications for patents).
18. This taxonomy borrows from the one given in Andres Sawicki, Better Mistakes in Patent Law, 39 FLA. ST. U. L. REV. 735 (2012). Sawicki breaks patentability doctrines into four categories: scope, covering patentable subject matter and utility; the invention itself, covering novelty and nonobviousness; disclosure, covering enablement and best mode; and the definiteness doctrine. Id. at 742-44. I include the written-description requirement and group it with the disclosure and indefiniteness doctrines, all of which concern different aspects of the patentee's disclosure to the world.
19. *407 n. 30 ("The grant of a patent⋯ is in the nature of a purchase for the public, to whom the patentee is bound to communicate a free participation in the benefit of his invention, at the expiration of the time limited."); 1 WILLIAM C. ROBINSON, THE LAW OF PATENTS FOR USEFUL INVENTIONS § 221 (1890) ("The consideration for the grant of [an inventor's] exclusive privilege is the benefit which he confers upon the public⋯."). Indeed, the requirement may be constitutional: the Intellectual Property Clause of Article III authorizes Congress to extend exclusive rights only to "Authors and Inventors," U.S. CONST. art. I, § 8, cl. 8, in contrast with the British practice of granting patents to individuals favored by the Crown, inventors or not.
20. See Graham v. John Deere Co., 383 U.S. 1, 5-6 (1966) (noting that the Intellectual Property Clause "was written against the backdrop of the practices⋯ of the Crown in granting monopolies to court favorites in goods or businesses which had long before been enjoyed by the public").
21. But see Tun-Jen Chiang, First-to-File as a Rule of Evidence, 30 YALE J. ON REG. ONLINE 11 (2012) (arguing that even if the Constitution limits patents to inventors, a rule granting a patent to the first filer is a constitutional rule of evidence).
22. See 35 U.S.C. § 102 (Supp. V 2011) (novelty requirements). This description necessarily simplifies a complex set of statutory rules; the statutory limits of novelty are both broader and narrower than this description implies. For example, the United States has traditionally used a first-to-invent rule, awarding patent rights to the first inventor to create an invention even if he or she filed a patent application later than another inventor. This rule was not absolute, however: under the rule, various kinds of prior art counted or did not count to show earlier invention, depending on what kind of prior art they were, what country they were from, when they were from, and so forth. See 35 U.S.C. § 102 (2006), amended by Leahy-Smith America Invents Act, Pub. L. No. 112-29, § 3(b)(1), 125 Stat. 284, 285-87 (2011). Under the America Invents Act, which applies to patent applications filed since March 16, 2013, the United States has switched to a first-to-file rule, under which the first inventor to file a patent application will be entitled to a patent unless the invention was previously patented, described, or used in public, with various exceptions. See § 3(b)(1), (n), 125 Stat. at 293.
23. See 35 U.S.C. § 103(a) (2006) (amended 2011); see also KSR Int'l Co. V. Teleflex Inc., 550 U.S. 398, 401 (2007) (discussing the legal test for obviousness); Graham, 383 U.S. at 17-19 (1966) (same). The America Invents Act also included changes to section 103, requiring that a claimed invention not have been obvious at the time of its effective filing date (rather than the time of invention). See § 3(c), 125 Stat. at 287. This change, however, does not change the essential purpose of the obviousness requirement.
24. The current rule is not the only possible balance; patent law could drive a harder bargain. See, e.g., Michael Abramowicz & John F. Duffy, The Inducement Standard of Patentability, 120 YALE L.J. 1590, 1599 (2011) (proposing that the nonobviousness requirement be construed to limit patents to "those inventions which would not [ever] be disclosed or devised but for the inducement of a patent" (quoting Graham, 383 U.S. at 11) (internal quotation marks omitted)).
25. See 35 U.S.C. § 112(a)-(b) (2006 & Supp. V 2011) (laying out the written-description and definiteness requirements); Ariad Pharm., Inc. V. Eli Lilly & Co., 598 F.3d 1336, 1346 (Fed. Cir. 2010) (en banc) (observing that one purpose of the written-description requirement is "to inform the public during the life of the patent of the limits of the monopoly asserted, so that it may be known which features may be safely used or manufactured without a license and which may not"
26. (quoting Schriber-Schroth Co. V. Cleveland Trust Co., 305 U.S. 47, 57 (1938)) (internal quotation marks omitted));
27. Athletic Alts., Inc. V. Prince Mfg., Inc., 73 F.3d 1573, 1581 (Fed. Cir. 1996) (observing that the primary purpose of the definiteness requirement is "to guard against unreasonable advantages to the patentee and disadvantages to others arising from uncertainty as to their [respective] rights" (alteration in original)
28. (quoting Gen. Elec. Co. V. Wabash Appliance Corp., 304 U.S. 364, 369 (1938)) (internal quotation marks omitted));
29. Michael Risch, A Brief Defense of the Written Description Requirement, 119 YALE L.J. ONLINE 127 (2010), http://yalelawjournal.org/2010/03/09/risch. html. To this list of doctrines, one could add the basic requirement that a patentee write claims setting forth his or her invention. See 35 U.S.C. § 112(b)-(f).
30. Nat'l Recovery Techs., Inc. V. Magnetic Separation Sys., Inc., 166 F.3d 1190, 1196 (Fed. Cir. 1999).
31. 35 U.S.C. § 112(a); see also Warner-Lambert Co. V. Teva Pharms. USA, Inc., 418 F.3d 1326, 1336-37 (Fed. Cir 2005) (describing the enablement requirement);
32. Eli Lilly & Co. V. Barr Labs., Inc., 251 F.3d 955, 963-64 (Fed. Cir. 2001) (describing the best-mode requirement);
33. Nat'l Recovery Techs., 166 F.3d at 1195-96 (describing the enablement requirement). The America Invents Act eliminated failure to satisfy the best-mode requirement as a ground for invalidating a patent, though the requirement continues to exist when prosecuting a patent application. See § 15, 125 Stat. at 328 (amending 35 U.S.C. § 282 (2006)).
34. See 35 U.S.C. § 101 (2006) (limiting patents to "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof"); Bilski v. Kappos, 130 S. Ct. 3218, 3225-29 (2010) (evaluating the scope of 35 U.S.C. § 101);
35. Diamond v. Chakrabarty, 447 U.S. 303, 308-10 (1980) (same).
36. See Katherine J. Strandburg, Much Ado About Preemption, 50 HOUS. L. REV. 563, 568 (2012) (noting that patent law seeks to exclude overly conceptual or abstract ideas in order to avoid preempting subsequent ideas but arguing that preemption concerns may be overhyped).
37. Chakrabarty, 447 U.S. at 309.
38. See Brenner v. Manson, 383 U.S. 519, 534-35 (1966) ("Unless and until a process is refined and developed to this point - where specific benefit exists in currently available form - there is insufficient justification for permitting an applicant to engross what may prove to be a broad field.").
39. See Phillips v. AWH Corp., 415 F.3d 1303, 1312 (Fed. Cir. 2005) (en banc) ("It is a 'bedrock principle' of patent law that 'the claims of a patent define the invention to which the patentee is entitled the right to exclude.'"
40. (quoting Innova/Pure Water, Inc. V. Safari Water Filtration Sys., Inc., 381 F.3d 1111, 1115 (Fed. Cir. 2004)));
41. see also Merrill v. Yeomans, 94 U.S. 568, 570 (1876) (observing that claims are "of primary importance" in determining "precisely what it is that is patented").
42. There is extensive recent literature debating whether claims really do, or should, set forth the scope of a patentee's rights and whether courts do, or should, construe claims atextually to further other policy goals. See generally, e.g., Dan L. Burk & Mark A. Lemley, Fence Posts or Sign Posts? Rethinking Patent Claim Construction, 157 U. PA. L. REV. 1743, 1748 (2009) (arguing that patent claims fail to "specify the scope of the rights granted to patentees" and suggesting reforms);
43. Tun-Jen Chiang, The Levels of Abstraction Problem in Patent Law, 105 NW. U. L. REV. 1097, 1101 (2011) (arguing that despite the emphasis on claim construction, "courts select among multiple possible levels of abstraction arbitrarily and silently");
44. Tun-Jen Chiang & Lawrence B. Solum, The Interpretation-Construction Distinction in Patent Law, 123 YALE L.J. (forthcoming 2013), available at http://ssrn.com/abstract=2234193 (arguing that the problem of ambiguity in patent claims is overstated);
45. Christopher A. Cotropia, Patent Claim Interpretation Methodologies and Their Claim Scope Paradigms, 47 WM. & MARY L. REV. 49, 56 (2005) (exploring "the relationship between claim interpretation methodology and patent scope");
46. Christopher A. Cotropia, What Is the "Invention"?, 53 WM. & MARY L. REV. 1855 (2012) (arguing that courts deciding claim-construction disputes are really applying one of two conceptions of the "invention" claimed in a patent);
47. Jeanne C. Fromer, Claiming Intellectual Property, 76 U. CHI. L. REV. 719 (2009) (discussing the different methodologies for claiming exclusive rights used in patent and copyright law);
48. Oskar Liivak, Rescuing the Invention from the Cult of the Claim, 42 SETON HALL L. REV. 1 (2012) (arguing that patent law should pay more attention to the invention claimed in a patent, rather than solely to the words of the patent's claims);
49. Craig Allen Nard, A Theory of Claim Interpretation, 14 HARV. J.L. & TECH. 1 (2000) (discussing various theories of claim interpretation);
50. Michael Risch, The Failure of Public Notice in Patent Prosecution, 21 HARV. J.L. & TECH. 179, 187-91 (2007) (pointing out flaws in patent claims and suggesting methods for enhancing public notice in claim construction);
51. David L. Schwartz, Practice Makes Perfect? An Empirical Study of Claim Construction Reversal Rates in Patent Cases, 107 MICH. L. REV. 223, 259-60 (2008) (finding that district judges are generally bad at claim construction and positing the explanation that "[c]laim construction may be inherently indeterminate"). I do not grapple with that literature here. For present purposes, it suffices to say that the noninfringement inquiry focuses on comparing each accused product or process to each asserted patent claim, regardless of how that claim is construed.
52. ROBERT PATRICK MERGES & JOHN FITZGERALD DUFFY, PATENT LAW AND POLICY: CASES AND MATERIALS 798 (5th ed. 2011).
53. 37 C.F.R. § 1.75(e)(3) (2012); PATENT & TRADEMARK OFFICE, U.S. DEP'T OF COMMERCE, MANUAL OF PATENT EXAMINING PROCEDURE § 608.01(i)(e)(3) (8th ed., rev. 9 2012) [hereinafter MPEP], available at http://www.uspto.gov/ web/offices/pac/mpep/.
54. Seal-Flex, 172 F.3d at 842.
55. This is sometimes called the "All Elements Rule" or "All Limitations Rule." See, e.g., Johnston v. IVAC Corp., 885 F.2d 1574, 1577 n. 3 (Fed. Cir. 1989);
56. ROBERT L. HARMON, CYNTHIA A. HOMAN & CHARLES M. MCMAHON, PATENTS AND THE FEDERAL CIRCUIT § 7.1(a)(i), at 467-68 (10th ed. 2011).
57. Indeed, the Supreme Court has expressly compared the processes of determining invalidity and infringement, both of which involve comparing something - the prior art, or the accused product or process - to the patent claims. See Peters v. Active Mfg. Co., 129 U.S. 530, 537 (1889) ("That which infringes, if later, would anticipate, if earlier."
58. (quoting Peters v. Active Mfg. Co., 21 F. 319, 321 (C.C.S.D. Ohio 1884)) (internal quotation marks omitted));
59. see also Int'l Seaway Trading Corp. V. Walgreens Corp., 589 F.3d 1233, 1239 (Fed. Cir. 2009) ("[I]t has been well established for over a century that the same test must be used for both infringement and anticipation.").
60. This necessarily simplifies a complex question about the scope of a patent's written description and enablement. For a more detailed discussion of the effects of claim construction on the written-description and enablement requirements, see Chiang, supra note 36, at 1131-34; see also Dan L. Burk & Mark A. Lemley, Quantum Patent Mechanics, 9 LEWIS & CLARK L. REV. 29, 46-52 (2005) (discussing ambiguities in claim construction).
61. *3-4 (Fed. Cir. June 21, 2013) (observing that claim construction will usually be required before a court will find a patent claim invalid under § 101).
62. See, e.g., BESSEN & MEURER, supra note 11; JAFFE & LERNER, supra note 11; Joseph Farrell & Robert P. Merges, Incentives to Challenge and Defend Patents: Why Litigation Won't Reliably Fix Patent Office Errors and Why Administrative Patent Review Might Help, 19 BERKELEY TECH. L.J. 943, 944-46 (2004);
63. Mark A. Lemley, Rational Ignorance at the Patent Office, 95 NW. U. L. REV. 1495, 1495-97 Sc nn. 1-4 (2001);
64. Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 BERKELEY TECH. L.J. 577, 589-91 (1999);
65. Sawicki, supra note 21, at 736; R. Polk Wagner, Understanding Patent-Quality Mechanisms, 157 U. PA. L. REV. 2135, 2139-45 (2009).
66. See Lemley, supra note 62, at 1501-03 (observing that a "tiny number" of patents are litigated each year). Conversely, it might be the case that only the close calls make it to a final determination because most patents are valid and defendants choose to license the patents in settlement. But parties settle cases for many reasons, including reducing the risk of an adverse outcome, so it is hard to know how much we can infer from the statistics. See, e.g., George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1 (1984) (observing that because most disputes are settled out of court and settlements occur in the shadow of governing legal rules, it is difficult or impossible to infer overall trends applicable to legal disputes by observing litigation outcomes).
67. Lemley, supra note 62, at 1496 n. 3; see also Corinne Langinier & Philippe Marcoul, Monetary and Implicit Incentives of Patent Examiners (Univ. of Alta. Dep't of Econ., Working Paper No. 2009-22, 2009), available at http://www.economics.ualberta.ca/~/media/economics/FacultyAndStaff/WPs/ WP2009-22-Langinier.pdf (concluding that rewarding patent examiners for rejecting applications, rather than for allowing patents, would give examiners greater incentives to search for information).
68. There is evidence that examiners act more quickly and grant more patents when it is economically advantageous to the PTO for them to do so. See Michael D. Frakes & Melissa F. Wasserman, Does Agency Funding Affect Decisionmaking?: An Empirical Assessment of the PTO's Granting Patterns, 66 VAND. L. REV. 67, 101-18 (2013) (analyzing the influence of the PTO's budget structure on patent decisions).
69. PATENT & TRADEMARK OFFICE, U.S. DEP T OF COMMERCE, FY2001 CORPORATE PLAN 23 (2001), available at http://www.uspto.gov/web/offices/com/corpplan/pt04. pdf.
70. PATENT & TRADEMARK OFFICE, U.S. DEP'T OF COMMERCE, U.S. PATENT STATISTICS CHART: CALENDAR YEARS 1963-2012 (2013), available at http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us-stat.pdf.
71. Notably, this does not mean that examiners actually reject half of the patent applications filed; an applicant who receives a "final rejection" can refile the same application over and over again until the examiner approves of some patent claims or the applicant decides to appeal. See generally 37 C.F.R. § 1.53 (2013) (detailing the filing requirements for a patent application). The real patent-approval rate is in the neighborhood of 70%. See Dennis Crouch, Patent Application Outcomes: Rising Allowances and Falling Abandonments, PATENTLY-O (Dec. 6, 2012), http://www.patentlyo.com/ patent/2012/12/patent-application-outcomes-rising-allowances-and-falling- abandonments.html.
72. See Tamara Dillon, Patent Work: The Other Side of Invention, OCCUPATIONAL OUTLOOK Q., Fall 2009, at 18, 21;
73. Patent Examiner Experience Levels, PATENTLY-O (Feb. 5, 2010), http://www.patentlyo.com/patent/2010/02/patent-examiner-experience-levels.html. Turnover is a significant problem at the agency, with one examiner leaving for every two hired even as the office tries to expand significantly.
74. See U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-07-1102, U.S. PATENT AND TRADEMARK OFFICE: HIRING EFFORTS ARE NOT SUFFICIENT TO REDUCE THE PATENT APPLICATION BACKLOG (2007).
75. See Doug Lichtman & Mark A. Lemley, Rethinking Patent Law's Presumption of Validity, 60 STAN. L. REV. 45, 54-56 (2007);
76. Victor Wong, Going from Inquisitorial to Adversarial, YALE J.L. & TECH. (Apr. 22, 2011), http://www.yalelawtech.org/ip-in-the-digital-age/going- from-inquisitorial-to-adversarial/.
77. About nine million U.S. patents have been issued since the launch of the patent system in the 1790s, of which more than two million are still in force. See USPTO PATENT FULL-TEXT AND IMAGE DATABASE, http://patft.uspto.gov (follow "Advanced Search" hyperlink; choose option for "1790 to present [entire database]" from "Select Years" menu; search "isd/1/1/1790-1/1/2014"; then click "search" button) (searched Sept. 29, 2013) (finding 9,278,679 patents issued since 1790);
78. Dennis Crouch, How Many US Patents Are InForce?, PATENTLY-O (May 4, 2012), http://www.patentlyo.com/patent/2012/05/how-many-us-patents-are-in-force. html.
79. This is especially the case in the information-technology industry, where innovation is an iterative process by which new features and technologies build incrementally on each other. In contrast, the pharmaceutical industry may be a notable exception because pharmaceutical patents can precisely claim a particular molecule, because pharmaceutical-patent claims that are broad and vague enough to apply to many innovations are rare, and because the pharmaceutical industry relies more than many industries on concentrated high-fixed-cost investment that is a better match for patent protection. See generally BURK & LEMLEY, supra note 11, at 37-65 (describing the industry-specific nature of the patent system); see also Alexander Tabarrok, Patent Theory Versus Patent Law, 1 CONTRIBUTIONS TO ECON. ANALYSIS & POL'Y, no. 1, 2002, art. 9, at 19 (suggesting that patent law may be more necessary in the pharmaceutical industry than in other industries because the ratio of innovation costs to imitation costs is higher in the pharmaceutical industry).
80. See supra note 13; see also Henry E. Smith, Intellectual Property as Property: Delineating Entitlements in Information, 116 YALE L.J. 1742, 1799-819 (2007) (discussing the role of information costs in intellectual property). Patent thickets are particularly important in industries like the information-technology industry in which improvements happen through incremental changes and recombinations of previous technologies.
81. See, e.g., Adam Mossoff, The Rise and Fall of the First American Patent Thicket: The Sewing Machine War of the 1850s, 53 ARIZ. L. REV. 165, 171-82 (2011) (describing the history of incremental innovation that led to a patent thicket in sewing-machine technology). One surprisingly common response to patent thickets is simply to ignore them. See Lemley, supra note 12, at 20-22.
82. See generally Jay P. Kesan & Andres A. Gallo, Why "Bad" Patents Survive in the Market and How Should We Change? - The Private and Social Costs of Patents, 55 EMORY L.J. 61, 76-95 (2006) (examining transaction costs in patent disputes).
83. See eBay Inc. V. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (outlining the test for granting permanent injunctions in patent cases).
84. In the three years after eBay was decided, district courts granted permanent injunctions in forty-eight out of sixty-seven cases in which successful patent plaintiffs sought them. Ernest Grumbles III, Rachel C. Hughey & Susan Perera, The Three Year Anniversary of eBay v. MercExchange: A Statistical Analysis of Permanent Injunctions, INTELL. PROP. TODAY, Nov. 2009, at 25, 26.
85. See, e.g., Robert D. Atkinson & Daniel D. Castro, A National Technology Agenda for the New Administration, 11 YALE J.L. & TECH. 190, 192-94 (2009);
86. Wade M. Chumney, David L. Baumer & Roby B. Sawyers, Patents Gone Wild: An Ethical Examination and Legal Analysis of Tax-Related and Tax Strategy Patents, 46 AM. BUS. L.J. 343, 402 (2009);
87. Jay P. Kesan, Carrots and Sticks to Create a Better Patent System, 17 BERKELEY TECH. L.J. 763, 765 (2002);
88. Merges, supra note 62, at 600-15 (making suggestions for improving the examination process); Arti K. Rai, Growing Pains in the Administrative State: The Patent Office's Troubled Quest for Managerial Control, 157 U. PA. L. REV. 2051, 2080-81 (2009);
89. Mark A. Lemley, Fixing the Patent Office 8-12 (Stanford Law Sch. John M. Olin Program in Law & Econ., Working Paper No. 422, 2012), available at http://ssrn.com/abstract=2023958;
90. see also Michael Abramowicz & John F. Duffy, Ending the Patenting Monopoly, 157 U. PA. L. REV. 1541, 1576-601 (2009) (proposing expanded competition in patent examination);
91. Lichtman & Lemley, supra note 70, at 61-63 (proposing a system by which a patent applicant can pay for extra-rigorous patent prosecution and receive a "gold-plated" patent); Stephen Yelderman, Improving Patent Quality with Applicant Incentives (Aug. 16, 2012) (unpublished manuscript), available at http://ssrn.com/abstract=2147491 (proposing ways to give patent applicants incentives to pursue narrower patent claims).
92. The America Invents Act, which was signed into law in 2011, makes one kind of information more easily available to examiners: it permits third parties to submit prior-art information relevant to any application before the examiner issues a notice of allowance. See Leahy-Smith America Invents Act, Pub. L. No. 112-29, § 8, 125 Stat. 284, 315-16 (2011) (codified at 35 U.S.C. § 122(e) (Supp. V 2011)).
93. Such a requirement was, at one point, included in a draft patent-reform bill, though it did not make it into the America Invents Act. See Lisa A. Dolak, The Inequitable Conduct Gyre Widens, 50 IDEA 215, 244-45 (2010) (reporting a proposal to require patent applicants to submit to the PTO "a search report and other information and analysis relevant to patentability" (quoting H.R. 1908, 110th Cong. § 12 (2007) (internal quotation marks omitted));
94. Patent Reform: Required Pre-Filing Search and Patentability Analysis, PATENTLY-O (July 18, 2007), http://www.patentlyo.com/patent/2007/07/patent- reform-r.html (same).
95. The PTO has itself taken this approach in recent years, hiring scores of new examiners and opening or announcing new satellite offices staffed with patent examiners in Detroit, Denver, Dallas-Fort Worth, and Silicon Valley. See David Kappos, Progress Report on Satellite Office Openings, DIRECTOR'S FORUM: A BLOG FROM USPTO'S LEADERSHIP (Sept. 12, 2012), http://www.uspto.gov/blog/ director/entry/progress-report-on-satellite-office.
96. See Edmund W. Kitch, Graham v. John Deere Co.: New Standards for Patents, 1966 S. CT. REV. 293, 345-46 (discussing the validity of unenforced patents);
97. Lemley, supra note 62, at 1514-15 (same); Jonathan S. Masur, Costly Screens and Patent Examination, 2 J. LEGAL ANALYSIS 687, 706 (2010) (discussing unenforced patents).
98. As modified by the America Invents Act, there are three forms of post-grant administrative review available in the U.S. patent system: ex parte reexamination, See 35 U.S.C. §§ 302-307 (2006 & Supp. V 2011); inter partes review, See id. §§ 311-319 (Supp. V 2011); and post-grant review, See id. §§ 321-329 (Supp. V 2011). see also Andrei Iancu & Ben Haber, Post-Issuance Proceedings in the America Invents Act, 93 J. PAT. & TRADEMARK OFF. SOC'Y 476 (2012).
99. See, e.g., Farrell & Merges, supra note 62, at 967; Mark D. Janis, Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent Law, 11 HARV. J.L. & TECH. 1, 93-111 (1997); cf. 35 U.S.C. §§ 301-307 (ex parte reexamination); Id. §§ 311-319 (inter partes reexamination); Id. §§ 321-329 (post-grant review). On the relative merits of pre- and post-grant procedures, see Kesan & Gallo, supra note 75, at 109-12.
100. See, e.g., Jeanne C. Fromer, District Courts as Patent Laboratories, 1 U.C. IRVINE L. REV. 307, 313-19 (2011).
101. See Anup Malani & Jonathan S. Masur, Raising the Stakes in Patent Cases, 101 GEO. L.J. 637, 658-76 (2013) (proposing a set of enhanced rewards and penalties to mitigate error costs in patent litigation).
102. See, e.g., Joseph Scott Miller, Building a Better Bounty: Litigation-Stage Rewards for Defeating Patents, 19 BERKELEY TECH. L.J. 667, 704-30 (2004) (proposing a litigation-based bounty scheme);
103. John R. Thomas, Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties, 2001 U. ILL. L. REV. 305, 340-47 (proposing that the PTO pay bounties to members of the public who provide information leading to the rejection of patent applications);
104. Edward Hsieh, Note, Mandatory Joinder: An Indirect Method for Improving Patent Quality, 77 S. CAL. L. REV. 683, 692-93 (2004) (proposing mandatory joinder of all infringers into a single patent case to eliminate the collective-action problem in challenging patent validity);
105. Matthew K.K. Sumida, Note, Defendant Class Actions and Patent Infringement Litigation, 58 UCLA L. REV. 843, 881-86 (2011) (proposing the use of defendant class actions to resolve patent disputes).
106. See, e.g., Kimberly A. Moore, Markman Eight Years Later: Is Claim Construction More Predictable?, 9 LEWIS & CLARK L. REV. 231, 233 (2005) (noting the unpredictability of claim construction); Schwartz, supra note 36, at 259-60 ("Claim construction may be inherently indeterminate.").
107. In the American patent system, the meaning of a claim's language is a question of law to be resolved by the court. Markman v. Westview Instruments, Inc., 517 U.S. 370, 384 (1996).
108. Generally, partway through a case, the parties will meet and confer to discuss which claim terms are in need of construction and will propose constructions. For terms for which the parties cannot agree on constructions, the parties will submit proposed claim constructions and supporting briefs to the court. The court will then hold a hearing called a Markman hearing; consider the parties' arguments; and construe the claims. See, e.g., N.D. CAL. LOC. PAT. R. 4-1 to 4-7 (providing for claim-construction proceedings);
109. E.D. TEX. PAT. R. 4-1 to 4-6 (same);
110. Phillips v. AWH Corp., 415 F.3d 1303, 1311-19 (Fed. Cir. 2005) (en banc) (discussing the roles of law and fact in claim construction); Id. at 1332-33 (Mayer, J., dissenting) (same);
111. MODEL LOCAL PATENT RULES R. 4-1 to 4-7 (Intellectual Prop. Owners Ass'n 2009) (providing for claim-construction proceedings). Claim construction is essentially the midterm of a patent case, with expert reports that rely on the construed claims, dispositive motions, and trial usually coming later.
112. These trade-offs between narrow and broad claim constructions have been repeatedly recognized by scholars and practitioners. See, e.g., Tun-Jen Chiang, The Advantages of Inter Partes Reexamination, 90 J. PAT. & TRADEMARK OFF. SOC'Y 579, 581 (2008) ("[T]he ideal tactical posture for an accused infringer is to receive a broad claim construction for invalidity analysis but maintain a narrower claim construction for infringement analysis; with patent holders preferring the opposite. Keenly aware of such potential gamesmanship by both sides, the Federal Circuit has repeatedly held that claims must be construed consistently between the two analyses.");
113. Matthew B. Lowrie, Critical Issues in Managing Patent Litigation, 44 IDEA 267, 280 (2004) ("The strategy issues related to what claim construction to ask for also fundamentally impact a patent litigation. The trade-off typically involves whether to ask for a broad construction (infringement is easier, but validity more difficult) or a narrow construction (same, but in reverse).").
114. Giles S. Rich, The Proposed Patent Legislation: Some Comments, 35 GEO. WASH. L. REV. 641, 644 (1967) (emphasis omitted).
115. Patent cases go to trial relatively often compared with other federal civil cases. In one study, for instance, 251 cases were decided by trial verdicts, compared to 377 decided in summary judgment, a ratio of one trial for every 1.5 summary judgments. Kesan & Ball, supra note 10, at 273-74. In federal civil cases as a whole, the ratio is closer to 2.5 summary judgments per trial. See Stephen B. Burbank, Vanishing Trials and Summary Judgment in Federal Civil Cases: Drifting Toward Bethlehem or Gomorrah?, 1 J. EMPIRICAL LEGAL STUD. 591, 616 (2004) (finding, based on data covering civil cases over four years in the Eastern District of Pennsylvania, that about 4.1% of cases ended in summary judgment, compared to 1.6% in trials). As with other kinds of cases, settlements are common, but if a case is likely to make it to judgment, then a trial is likely enough that we should expect parties to consider it when making strategic decisions.
116. This advice is ubiquitous in books on trial strategy. The first four chapters of one trial-advocacy treatise, for instance, are titled "Storytelling," "Storyboarding," "Theming," and "Story Structure." RUSS M. HERMAN, COURTROOM PERSUASION 2D: WINNING WITH ART, DRAMA AND SCIENCE, at xvii (2009);
117. See also, e.g., MARILYN J. BERGER, JOHN B. MITCHELL & RONALD H. CLARK, TRIAL ADVOCACY: PLANNING, ANALYSIS, AND STRATEGY 238-45 (2d ed. 2008) (advocating crafting an argument as a "[b]elievable [s]tory");
118. PAUL BERGMAN, TRIAL ADVOCACY IN A NUTSHELL 13-90 (5th ed. 2013) ("Part 1. Strategies for Developing Argument-Centered Narratives").
119. See Mark Cammack, In Search of the Post-Positivist Jury, 70 IND. L.J. 405, 462-73 (1995) (analyzing juror decision making);
120. Roger Allan Ford, Modeling the Effects of Peremptory Challenges on Jury Selection and Jury Verdicts, 17 GEO. MASON L. REV. 377, 419 (2010) ("The plausibility of a story, though, depends on one's perspective and one's experience with the subject matter of the story.").
121. This reliance on narratives may not be a good thing. See Lisa Kern Griffin, Narrative, Truth, and Trial, 101 GEO. L.J. 281, 301-12 (2013) (warning against narrative bias).
122. Arguably, trial narratives weigh not just in favor of choosing one defense but in favor of noninfringement. See Roger Shang & Yar Chaikovsky, Inter Partes Reexamination of Patents: An Empirical Evaluation, 15 TEX. INTELL. PROP. L.J. 1, 25 (2006) ("Seasoned patent litigators almost always prefer to focus on the noninfringement argument at trial, because, among other reasons, an argument of 'we don't infringe' sounds more moral to a jury than an argument of 'maybe we infringe but other people invented this first[]'⋯.").
123. See Markman v. Westview Instruments, Inc., 517 U.S. 370, 372 (1996) (distinguishing the right to a jury trial of infringement issues from other matters that fall within the court's equitable powers);
124. Shum v. Intel Corp., 499 F.3d 1272, 1276-79 (Fed. Cir. 2007) (distinguishing the right to a jury trial of state-law issues from equitable issues decided by a judge);
125. Gardco Mfg., Inc. V. Herst Lighting Co., 820 F.2d 1209, 1213 (Fed. Cir. 1987) (allowing an inequitable conduct claim to be decided without a jury);
126. DONALD S. CHISUM, 6 CHISUM ON PATENTS § 19.03 (2012) (discussing Gardco and stating that "a district court may properly hold a separate trial directed solely to the issue of inequitable conduct in advance of a trial on the issues of infringement and validity even though the patentee had properly demanded trial by jury on those issues").
127. See Mark A. Lemley, Jamie Kendall & Clint Martin, Rush to Judgment?: Trial Length and Outcomes in Patent Cases, 41 AIPLA Q.J. 169, 172-77 (2013) (finding, in a study of all patent trials over 11.5 years, that juries were significantly more likely to find in favor of patent holders, even controlling for differences in the kinds of cases tried by judges and juries).
128. This is consistent with the conventional wisdom among patent litigators. See, e.g., ABA SECTION OF INTELLECTUAL PROP. LAW, PATENT LITIGATION STRATEGIES HANDBOOK ch. 6.IX.B (Barry L. Grossman & Gary M. Hoffman eds., 3d ed. 2010) (discussing strategic considerations in deciding whether to demand a jury trial);
129. 5 INTELLECTUAL PROPERTY COUNSELING & LITIGATION § 82.02 (Lester Horwitz et al. eds., 2012) ("[A] plaintiff with a weak patent should seek a jury, since jurors will give more deference to the beribboned patent than the Judge.");
130. John M. Griem, Jr. & Emily Jayne Kunz, Jury Trials in Patent Cases: Practical and Legal Considerations, PAT. STRATEGY & MGMT., Jan. 2007, at 1 (discussing strategic considerations in deciding whether to demand a jury trial).
131. See, e.g., Julie Blackman, Ellen Brickman & Corinne Brenner, East Texas Jurors and Patent Litigation, JURY EXPERT, Mar. 2010, at 5.
132. For what it's worth, while the Lemley, Kendall & Martin study finds jury-trial success rates that vary across districts consistently with the conventional wisdom, the differences are "not statistically significant once we factor in the number of patents, the number of defendants, whether a judge or a jury decided the issue, whether there were non-patent issues in the case, and whether the case resulted in a split decision." Lemley, Kendall & Martin, supra note 114, at 184. The authors in that study found, for example, win rates by patent holders of 70.8% in the Eastern District of Texas, a district usually seen as patent-friendly, compared to 44.4% in the Northern District of California, a district usually seen as patent-skeptical. See id. at 184-85. It is also possible that districts are seen as patent-friendly because they produce larger verdicts. The Eastern District of Texas, for instance, has produced two of the five largest patent verdicts in American history - but then the Northern District of California produced one of the others. See Apple-Samsung Verdict Third Largest Ever in U.S. Patent Litigation: Lex Machina Data Confirms Historic Nature of Verdict, LEX MACHINA (Aug. 24, 2012), https://lexmachina.com/2012/08/24/apple-samsung-verdict-third-largest-ever-in-u- s-patent-litigation/.
133. Those five verdicts, as of December 30, 2012, were reached in these cases: (1) Centiocor Ortho Biotech, Inc. V. Abbot Labs., No. 2:07-cv-139-TJW (E.D. Tex. June 29, 2009) ($1.67 billion verdict, later overturned on appeal);
134. 2 Lucent Techs. Inc. V. Gateway, Inc., No. 3:02-cv-2060-B-CAB (S.D. Cal. Feb. 22, 2007) ($1.52 billion verdict, later overturned by the court);
135. 3 Apple Inc. V. Samsung Elecs. Co., No. 11-cv-1846-LHK (N.D. Cal. Aug. 24, 2012) ($1.05 billion verdict, currently on appeal);
136. 4 Monsanto Co. V. E.I. Dupont De Nemours & Co., 4:09-cv-686-ERW (E.D. Mo. Aug. 1, 2012) ($1 billion verdict, case is ongoing);
137. and (5) Mirror Worlds, LLC v. Apple, Inc., No. 6:08-cv-88 (E.D. Tex. Oct. 1, 2010) ($626 million verdict, later overturned on appeal).
138. AM. INTELLECTUAL PROP. LAW ASS'N, REPORT OF THE ECONOMIC SURVEY 2011, at 1-153 (2011).
139. The American Intellectual Property Law Association has long conducted a biennial economic survey of its members. The 1991 survey found that the median patent litigation, through trial, would cost each side $396,000. AM. INTELLECTUAL PROP. LAW ASS'N, REPORT OF ECONOMIC SURVEY 1991, at 29 (1991).
140. In 2001, the survey broke out the average by the amount at stake in the case; with less than $1 million at stake, the median reported cost was $499,000, while if more than $25 million was at stake, the median reported cost was $2,992,000. AM. INTELLECTUAL PROP. LAW ASS'N, REPORT OF THE ECONOMIC SURVEY 2001, at 84-85 (2001). In 2011, those numbers had grown to $650,000 (less than $1 million at stake) and $5 million (more than $25 million at stake). AM. INTELLECTUAL PROP. LAW ASS'N, supra note 117, at I-153 to I-154.
141. 547 U.S. 388 (2006). Before eBay, a successful patent plaintiff was almost always entitled to a permanent injunction; the Federal Circuit applied a "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances." Id. at 391 (quoting MercExchange, L.L.C. V. eBay, Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005), vacated, 547 U.S. 388 (2006)) (internal quotation marks omitted). One study found that after eBay was decided, the proportion of winning patent plaintiffs who obtained an injunction dropped from 100% to 60%.
142. Benjamin N. Simler & Scott McClelland, A Model for Predicting Permanent Injunctions After eBay v. MercExchange, 5 BLOOMBERG LAW REPORTS - INTELLECTUAL PROPERTY (2011).
143. See Microsoft Corp. V. i4i Ltd. P'ship, 131 S. Ct. 2238, 2240 (2011) (invalidity);
144. Centricut, LLC v. Esab Grp., Inc., 390 F.3d 1361, 1367 (Fed. Cir. 2004) (infringement).
145. See, e.g., Microsoft, 131 S. Ct. at 2249 (noting the "rationale underlying the presumption - that the PTO, in its expertise, has approved the claim" (quoting KSR Int'l Co. V. Teleflex Inc., 550 U.S. 398, 426 (2007)) (internal quotation marks omitted));
146. HARMON, HOMAN & MCMAHON, supra note 40, § 1.5(a);
147. Lichtman & Lemley, supra note 70, at 53-56.
148. Other justifications have also been asserted. See, e.g., The Barbed Wire Patent, 143 U.S. 275, 292 (1892) (observing that it was the patent holder "who first published this device; put it upon record; made use of it for a practical purpose; and gave it to the public, by which it was eagerly seized upon, and spread until there is scarcely a cattle-raising district in the world in which it is not extensively employed," and concluding on that basis that "the doubts we entertain concerning the actual inventor of this device should be resolved in favor of the patentee"), quoted in Microsoft, 131 S. Ct. at 2249; Lichtman & Lemley, supra note 70, at 56-57 (observing, with some skepticism, that the presumption of validity "reduces uncertainty and thereby increases a patent holder's incentive to invest in the development and commercialization of his patented technology").
149. See, e.g., Brief Amici Curiae of 37 Law, Business, and Economics Professors in Support of Petitioner, Microsoft, 131 S. Ct. 2238 (No. 10-290) (arguing against the clear-and-convincing-evidence standard);
150. FED. TRADE COMM'N, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY 28 (2003), available at http://www.ftc.gov/os/2003/10/innovationrpt.pdf (recommending that Congress change the burden to a preponderance of the evidence);
151. William Alsup, Memo to Congress: A District Judge's Proposal for Patent Reform; Revisiting the Clear and Convincing Standard and Calibrating Deference to the Strength of the Examination, 24 BERKELEY TECH. L.J. 1647, 1650-54 (2009) (discussing problems with the elevated burden of proof for invalidity);
152. B.D. Daniel, Heightened Standards of Proof in Patent Infringement Litigation: A Critique, 36 AIPLA Q.J. 369, 412 (2008)
153. (arguing that the public has a "paramount interest" in ensuring that only valid patents are granted and that this public interest suggests that the appropriate standard for evaluating invalidity claims is preponderance of the evidence); Alan Devlin, Revisiting the Presumption of Patent Validity, 37 SW. U. L. REV. 323, 333-38 (2008) (arguing that challenges the PTO faces - including limited information, increasing applicants, inadequate funding and improper incentives - undermine the presumption of validity); Lichtman &
154. See, e.g., Chiang, supra note 36, at 1147 n. 295; Lichtman & Lemley, supra note 70, at 51; Matthew D. Henry & John L. Turner, The Court of Appeals for the Federal Circuit's Impact on Patent Litigation, 35 J. LEGAL STUD. 85, 113 (2006) (suggesting that since the Federal Circuit began enforcing a stronger presumption of validity in 1982, "infringement has become the pivotal inquiry in patent cases"). Experimental evidence confirms that the elevated burden of proof can make a difference in jurors' assessments of close cases.
155. See David L. Schwartz & Christopher B. Seaman, Standards of Proof in Civil Litigation: An Experiment from Patent Law, 26 HARV. J.L. & TECH. 429, 459-65 (2013).
156. Asymmetric information is a common assumption in game-theoretic models of litigation, and it can have substantial effects on outcomes. See, e.g., DOUGLAS G. BAIRD ET AL., GAME THEORY AND THE LAW 252-60 (1994) (modeling sequential and unitary trials accompanied by information asymmetries);
157. Kong-Pin Chen et al., Sequential Versus Unitary Trials with Asymmetric Information, 26 J. LEGAL STUD. 239, 250-53 (1997) (same);
158. Michael J. Meurer, The Settlement of Patent Litigation, 20 RAND J. ECON. 77, 78-84 (1989) (modeling patent litigation and settlement licensing assuming, alternatively, common and private information about patent validity).
159. See, e.g., AstraZeneca Pharms. LP v. Apotex Corp., 669 F.3d 1370, 1378 n. 5 (Fed. Cir. 2012) (observing that the plaintiff's complaint had relied upon information contained in the defendants' FDA filings);
160. see also Benjamin N. Roin, Unpatentable Drugs and the Standards of Patentability, 87 TEX. L. REV. 503, 515-17 (2009) (arguing that the patent system is poorly suited to promoting pharmaceutical innovation since the standards of patentability and the social value of a new drug are poorly aligned).
161. See, e.g., Julie E. Zink, Shifting the Burden: Proving Infringement and Damages in Patent Cases Involving Inconsistent Manufacturing Techniques, 2 HASTINGS SCI. & TECH. L.J. 81, 81 (2010) (discussing the role of discovery in patent-infringement cases that depend on the specific manufacturing processes used).
162. Honeywell History, HONEYWELL, http://honeywell.com/About/Pages/our- history.aspx (last visited Sept. 29, 2013).
163. The count includes nintey-one utility patents and fifty-two design patents. USPTO PATENT FULL-TEXT AND IMAGE DATABASE, http://patft.uspto.gov (follow "Advanced Search" hyperlink; choose option for "1976 to present [full-text]" from "Select Years" menu; search "ttl/thermostat and an/honeywell"; then click "search" button) (searched Aug. 30, 2013). A broader search for patents assigned to Honeywell with the word "thermostat" anywhere in the title, abstract, or specification finds 586 patents issued since 1976.
164. USPTO PATENT FULL-TEXT AND IMAGE DATABASE, http://patft.uspto.gov (follow "Advanced Search" hyperlink; choose option for "1976 to present [full-text]" from "Select Years" menu; search "(ttl/thermostat or abst/thermostat or spec/thermostat) and an/honeywell"; then click "search" button) (searched Aug. 30, 2013).
165. See Complaint and Demand for Jury Trial, Honeywell Int'l, Inc. V. Nest Labs, Inc., No. 0:12-cv-00299-SRN-JSM (D. Minn. Feb. 6, 2012).
166. Steve Lohr, Ex-Apple Leaders Push the Thermostat into the Digital Age, N.Y. TIMES, Oct. 25, 2011, at B4.
167. IBM is another good example. IBM has been the leading recipient of patents for every year in the last two decades, receiving patents in a variety of fields relating to computer software and hardware. Press Release, Int'l Bus. Machs. Corp., IBM Tops U.S. Patent List for 20th Consecutive Year (Jan. 10, 2013), http://www-03.ibm.com/press/us/en/pressrelease/40070.wss. IBM was issued 6478 patents in 2012, for a total of almost 67,000 patents between 1993 and 2012. Id. If IBM wanted to assert one of those patents, it would have a wealth of internal knowledge about the history of the computer industry that would help it find prior art and choose patents and claims that the court would be more likely to uphold.
168. Information about prior art and a defendant's invalidity contentions can be obtained through normal discovery tools such as document requests ("Produce copies of all prior art upon which you may rely to prove one or more of the asserted claims is invalid") and interrogatories ("State your complete basis for asserting that each asserted claim is invalid, including the specific prior art upon which you rely"), but several district courts have simplified the process by requiring that parties disclose certain contentions, typically by specific, court-ordered deadlines. See, e.g., N.D. CAL. LOC. PAT. R. 3-1 to 3-4 (requiring parties to disclose infringement and invalidity contentions by certain deadlines);
169. E.D. TEX. PAT. R. 3-1 to 3-4 (same);
170. MODEL LOCAL PATENT RULES R. 3-1 to 3-5 (Intellectual Prop. Owners Ass'n 2009).
171. A potential defendant can bring a claim for a declaratory judgment that a patent is invalid, but only when there is a "substantial controversy" over the patent's validity "of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." MedImmune, Inc. V. Genentech, Inc., 549 U.S. 118, 127 (2007) (quoting Md. Cas. Co. V. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)) (internal quotation marks omitted);
172. see also Nick Walrath, Expanding Standing in Patent Declaratory Judgment Actions to Better Air Public Policy Considerations, 88 N.Y.U. L. REV. 477, 501 (2013) ("If we accept the need for greater consideration of public policy arguments in patent law, expanding standing in patent declaratory judgment actions offers a potentially attractive solution."). If a patent holder has not taken "any affirmative action" asserting its patent rights, though, there is probably no such controversy. 8 CHISUM, supra note 113, § 21.02[1][a][vi][C] (2012). A patent holder can stay under the radar, then, by investigating and waiting until it is ready to bring a claim.
173. Before the America Invents Act, it was in rare cases possible to rely on prior art that was not available to the public. The America Invents Act expressly eliminates several of these corner cases, and may eliminate all of them. See Did the AIA Eliminate Secret Prior Art?, PATENTLY-O (Oct. 10, 2012), http://www.patentlyo.com/patent/2012/10/did-the-aia-eliminate-secret-prior-art. html (probably yes).
174. See Rochelle Cooper Dreyfuss & Lawrence S. Pope, Dethroning Lear? Incentives to Innovate After MedImmune, 24 BERKELEY TECH. L.J. 971, 1001 n. 121 (2009) ("[Blonder-Tongue] discourages suit because it puts the challenger at a competitive disadvantage with respect to everyone else in the field of the invention: that party must pay the full litigation cost of invalidating the patent while its competitors enjoy the outcome for free. As a result, there is an incentive to hold back, to wait and see whether someone else will do the hard work of putting the invention into the public domain."); Farrell & Merges, supra note 62, at 952 ("[T]he Blonder-Tongue decision makes successful challenge a 'public good' among multiple infringers.");
175. Mark A. Lemley & Carl Shapiro, Probabilistic Patents, 19 J. ECON. PERSP. 75, 88-90 (2005) ("Invalidating the patent is a public good that benefits consumers of widgets, but not any one widget manufacturer or even widget manufacturers collectively."); Miller, supra note 88, at 677-95 (observing that "Blonder-Tongue changed patent invalidity judgments from private to public goods"); Parchomovsky & Stein, supra note 5 (manuscript at 4-5);
176. Michael Risch, Patent Challenges and Royalty Inflation, 85 IND. L.J. 1003, 1022 (2010) ("If invalidation of bad patents is a public good, then one would expect fewer challenges than are socially optimal, because the challenger faces all of the cost and risk but only reaps some of the benefits."); Thomas, supra note 88, at 334 (observing that Blonder-Tongue means that "a potential opponent [of a patent holder] cannot appropriate the benefits of a successful charge of patent invalidity to itself," and thus that "the benefits of a successful charge of patent invalidity became nonexcludable"); Sumida, supra note 88, at 853-57 (modeling the error costs from sequential patent litigation under the Blonder-Tongue rule);
177. Thomas Chen, Note, Patent Claim Construction: An Appeal for Chevron Deference, 94 VA. L. REV. 1165, 1202 (2008) (observing that patent challengers' "patent invalidation efforts would not accrue solely to them but would also extend to any other potentially infringing competitors"); infra notes 151, 153.
178. The classic problem of public goods is that they will be produced less than is socially optimal, not that they will be produced less than some competing good (here, nonin-fringement judgments). See, e.g., William H. Oakland, Theory of Public Goods, in 2 HANDBOOK OF PUBLIC ECONOMICS 485, 485 (Alan J. Auerbach & Martin Feldstein eds., 1987) ("Public goods are of particular relevance to public policy because they tend to be inefficiently provided by private arrangements such as the market mechanism."). The socially optimal output level for invalidity judgments is less clear than that of many public goods, however, since although their consumption is nonrivalrous, invalidity judgments may have externalities stemming from their effects on innovation incentives. But the same economic qualities that generally lead public goods to be underproduced also lead to the narrower conclusion that invalidity judgments may be underproduced relative to noninfringement judgments since the two lead to different outcomes (i.e., are consumed differently).
179. It is not as strange as it may seem to say that a proposed generic drug would not infringe a (valid) patent on the name-brand drug, even for a patent that covers the drug or its formulation, instead of a manufacturing method that could differ between competitors. Under the Hatch-Waxman Act, a generic competitor must prove that its proposed generic drug is bioequivalent to the name-brand drug. Id. § 355(j)(2)(A)(iv); See also id. § 355(j)(8)(B) (defining bioequivalence). But generic drugs can and do have differences in their inactive ingredients, and those differences can cause the active ingredients to be released and absorbed at different rates. Those differences are normally small enough not to matter, but for drugs with a narrow therapeutic index - a narrow window between the amount of the drug necessary to be effective and the amount that would be toxic - they can be significant. See, e.g., Michelle Hottinger & Bryan A. Liang, Deficiencies of the FDA in Evaluating Generic Formulations: Addressing Narrow Therapeutic Index Drugs, 38 AM. J.L. & MED. 667, 689 (2012) ("The current [bioequivalence] range accepted by the FDA may be inappropriate for [narrow therapeutic index] drugs. The FDA employs a [bioequivalence] range to accommodate nearly all drugs, which makes the range wide for [narrow therapeutic index] drugs. This 'one-size-fits-all' approach is dangerous and costly for patients who take [narrow therapeutic index] drugs.");
180. Lesley Alderman, A New Disquiet About Generic Drugs, N.Y. TIMES, Dec. 19, 2009, at B6 (reporting concerns that some generic drugs do not work as well as their name-brand counterparts).
181. Ctr. for Drug Evaluation & Research, Generic Competition and Drug Prices, U.S. Food & Drug Admin., http://www.fda.gov/AboutFDA/CentersOffices/ OfficeofMedicalProductsandTobacco/CDER/ucm129385.htm (last updated Mar. 1, 2010).
182. For example, one study found that around 60% of final terminations in federal civil cases were due to settlement. Gillian K. Hadfield, Where Have All the Trials Gone? Settlements, Nontrial Adjudications, and Statistical Artifacts in the Changing Disposition of Federal Civil Cases, 1 J. EMPIRICAL LEGAL STUD. 705, 732 (2004) (reporting data from 2000).
183. Reliable data in this area turns out to be hard to come by. See Stephen B. Burbank, Keeping Our Ambition Under Control: The Limits of Data and Inference in Searching for the Causes and Consequences of Vanishing Trials in Federal Court, 1 J. EMPIRICAL LEGAL STUD. 571 (2004) (describing numerous difficulties in analyzing data on case outcomes).
184. See Megan M. La Belle, Against Settlement of (Some) Patent Cases, 67 VAND. L. REV. (forthcoming 2014) (manuscript at 16-17), available at http://ssrn.com/abstract=2252849.
185. Indeed, patent holders have even more power to pursue the upside of significant damages while avoiding the downside of invalidity thanks to so-called Super Sack covenants not to sue, which allow patent holders to defeat jurisdiction by unilaterally promising not to enforce patent rights. See Super Sack Mfg. Corp. V. Chase Packaging Corp., 57 F.3d 1054, 1059-60 (Fed. Cir. 1995),
186. abrograted in part by MedImmune, Inc. V. Genentech, Inc., 549 U.S. 118 (2007).
187. Since a patent holder can always grant such a covenant after a case has been filed, Super Sack covenants increase patent holders' ability to file lawsuits and pursue damages while avoiding invalidity. The Supreme Court recently endorsed such covenants. See Already, LLC v. Nike, Inc., 133 S. Ct. 721, 732 (2013) (holding that a unilateral grant of such a covenant not to sue after litigation is underway can render a case moot and thus divest a federal court of jurisdiction).
188. Under the standard model of litigation bargaining, the greater the litigation costs, the more likely settlement is since litigation costs represent the surplus to be obtained by foregoing litigation. See, e.g., William M. Landes, Sequential Versus Unitary Trials: An Economic Analysis, 22 J. LEGAL STUD. 99, 106 (1993) (observing "the well-known result⋯ that a trial is more likely (given mutual optimism) the smaller the cost of litigation, the greater the degree of mutual optimism, and the greater the expected damages").
189. Glynn S. Lunney, Jr., Patent Law, the Federal Circuit, and the Supreme Court: A Quiet Revolution, 11 SUP. CT. ECON. REV. 1, 14-15 (2004);
190. see also Glynn S. Lunney, Jr. & Christian T. Johnson, Not So Obvious After All: Patent Law's Nonobviousness Requirement, KSR, and the Fear of Hindsight Bias, 47 GA. L. REV. 41, 72-75 (2012)
191. (updating study after the Supreme Court's decision in KSR Int'l Co. V. Teleflex Inc., 550 U.S. 398 (2007)).
192. Attorneys have significant agenda-setting power in litigation, and they can affect not only the arguments that courts consider but also the likelihood that courts will reach specific outcomes. See, e.g., Kevin T. McGuire, Repeat Players in the Supreme Court: The Role of Experienced Lawyers in Litigation Success, 57 J. POL. 187, 188-89 (1995).
193. Andrew Pollack, Inventor Finds Ally in Philips, N.Y. TIMES, Nov. 7, 1991, at D4. As the Times reported, the microprocessor "patent was awarded 20 years after Mr. Hyatt applied for it, and he had never brought his idea to practice and was not considered to have played any important role in the subsequent development of the electronics industry." Id.
194. See, e.g., Carl Shapiro, Antitrust Limits to Patent Settlements, 34 RAND J. ECON. 391, 392 (2003) (stating that these types of arrangements may all be viewd as settlements of patent disputes).
195. A particularly naked form of such deals comes in pharmaceutical reverse-payment settlements, in which a patent-holding drug company and a potential generic competitor settle a patent case with (1) the potential competitor agreeing not to enter the market until the patent expires and (2) the patent holder making a (frequently large) money payment to the potential competitor. Since a valid patent that covered the generic drug would prevent the potential competitor from launching its drug until the patent expires, the simplest explanation for the reverse payment is that it is paying the potential competitor not to challenge the patent holder's monopoly by arguing invalidity or noninfringement, or, equivalently, to delay its entry if the patent were found invalid or not infringed. Such concerns led the Supreme Court to hold that reverse-payment settlements are subject to antitrust scrutiny. See FTC v. Actavis, Inc., 133 S. Ct. 2223, 2227 (2013).
196. See supra note 128. To be sure, this view is not unanimous; many patent holders and practitioners have argued that eliminating the elevated burden of proof for invalidity would unduly weaken patent rights and the incentives to innovate. See generally Microsoft v. i4i Limited Partnership, SCOTUSBLOG, http://www.scotusblog.com/case-files/cases/microsoft-v-i4i-limited-partnership/ (last visited Sept. 29, 2013) (linking to numerous amicus briefs in support of the elevated burden of proof for validity). These arguments have generally been rejected by legal scholars. Notably, of the twenty-four amicus briefs filed in Microsoft v. i4i, 131 S. Ct. 2238 (2011), in support of a elevated burden of proof for invalidity, none were filed by legal scholars. See id.
197. Such a rule would standardize an area of practice that has previously been quite heterogeneous, with judges exercising their case-management discretion in many different ways. Some authorities argue that because invalidity is an affirmative defense, it should only be decided after the claim for relief - patent infringement - has been decided in a way that makes it necessary to consider the defense. Others respond that courts should consider validity first because leaving validity undecided, as would happen if a court does not find infringement, inevitably leaves some invalid patents in force. See generally 6 CHISUM, supra note 113, § 19.02[1] (discussing the opposing views on the order in which courts should decide issues of validity and infringement). Both ordered sequences are common, as is simultaneous litigation of both invalidity and noninfringement; the venerable Chisum on Patents hedges its bets, opining that "[w]hen both validity and infringement are at issue, the better practice is to consider the question of validity first or concurrently." Id. § 19.02. A bifurcation rule for patent cases in American courts would not be unique; Germany has long decided validity and infringement in separate proceedings in separate courts. Infringement claims are considered private-law matters and are decided in ordinary civil courts. Invalidity claims, however, are decided by a special patent court, the Bundespatentgericht. See M.A. Smith et al., Arbitration of Patent Infringement and Validity Issues Worldwide, 19 HARV. J.L. & TECH. 299, 334 (2006) (observing that the "dual character" of the German patent court "reflects the simultaneously public and private conception of patent validity in Germany");
198. Sarah R. Wasserman Rajec, Evaluating Flexibility in International Patent Law, HASTINGS L.J. (forthcoming) (manuscript at 22 n. 83), available at http://ssrn.com/abstract=2248398.
199. See BAIRD ET AL., supra note 130, at 251-60; Chen et al., supra note 130, at 250-53; Landes, supra note 166, at 115-24; Kathryn E. Spier, Litigation, Economics of, in 5 THE NEW PALGRAVE DICTIONARY OF ECONOMICS 162, 164 (Steven N. Durlauf & Lawrence E. Blume eds., 2d ed. 2008);
200. Jef P. De Mot, Barbara Luppi & Francesco Parisi, Are Sequential Trials Really Better than Unitary Trials? (Minn. Legal Studies Research Paper No. 12-38, 2012), available at http://ssrn.com/abstract=2139787.
201. This is so because high litigation costs mean that the surplus to be gained from settlement is greater, See supra note 166, and because asymmetric information and optimism make it harder for parties to agree on a settlement amount that improves on each party's expected outcome from litigation. For general overviews, see Amy Farmer & Paul Pecorino, Dispute Resolution, in 2 THE NEW PALGRAVE DICTIONARY OF ECONOMICS, supra note 189, at 500; Spier, supra note 189.
202. Courts sometimes vacate rulings after a case settles, usually at the request of the parties. E.g., Brice Dumais, Baker Botts LLP, Vacating a Judgment or Order as Part of Post-Trial Settlement - Potentially Attractive, But Not Guaranteed to Work, 7 INTELL. PROP. REP. (July 2010), available at http://www.bakerbotts.com/file-upload/2010JulyIPReport.htm.
203. The Supreme Court has disallowed the practice, at least when an appeals court is asked to vacate the ruling under review. See U.S. Bancorp Mortg. Co. V. Bonner Mall P'ship, 513 U.S. 18, 29 (1994). If my bifurcation proposal were implemented, courts would need to likewise refuse such requests lest patent holders "buy out" invalidity findings in later settlement agreements.
204. The median patent case takes more than thirty months to reach trial, and almost 20% of cases take more than four years to reach trial. PRICEWATERHOUSECOOPERS LLP, 2012 PATENT LITIGATION STUDY 20-21 (2012), available at http://www.pwc.com/en-US/us/forensic-services/publications/assets/2012- patent-litigation-study.pdf.
205. See Kesan, supra note 78, at 787-97 (proposing a "one-way, pro-defendant, fee-shifting system" when patent claims are invalidated based on specific kinds of prior art (footnote omitted)); Michael J. Meurer, Controlling Opportunistic and Anti-Competitive Intellectual Property Litigation, 44 B.C. L. REV. 509, 535-38 (2003) (proposing fee shifting to discourage "opportunistic" patent litigation); Miller, supra note 88, at 704-30 (proposing that a patent's holder be required to pay a bounty to a successful challenger of that patent); Thomas, supra note 88, at 340-47 (proposing that the PTO pay patent bounties to members of the public who provide information leading patent applications to be rejected); Yelderman, supra note 78, at 45-48.
206. See, e.g., Sara Jeruss, Robin Feldman & Joshua Walker, The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation, 11 DUKE L. & TECH. REV. 357, 361 (2012) (finding that nearly 40% of patent cases in 2012 were filed by nonpracticing entities).
207. See Lear, Inc. V. Adkins, 395 U.S. 653, 673-74 (1969) (holding that a patent license agreement may not be enforced after the licensed patent has been held invalid);
208. JAY DRATLER, JR. & STEPHEN M. MCJOHN, LICENSING OF INTELLECTUAL PROPERTY § 2.02[1][a] (2013); Dreyfuss & Pope, supra note 150, at 991-1003 (analyzing incentives under the Lear rule);
209. Rochelle Cooper Dreyfuss, Dethroning Lear: Licensee Estoppel and the Incentive to Innovate, 72 VA. L. REV. 677 (1986) (same). As Michael Risch has pointed out, one side effect of this rule is to inflate the royalties paid by patent licensees. See Risch, supra note 150, 1003-04.
210. The Rule 11 standard for sanctionable litigation misconduct provides a good example. See FED. R. CIV. P. 11. Another good example comes in cases deciding whether a liability insurer is obligated to defend a policyholder who has been sued, in which the question is typically not whether the policyholder is liable under one of the grounds covered by the policy but whether the policyholder has been sued for any claim that is potentially covered by the policy. See Steven P. Inman & Robert Kinder, Securing Insurance Coverage for Patent Infringement Lawsuits Under CGL Insurance Policies Could Save Millions, INTELL. PROP. TODAY, Mar. 2012, at 13, 13-15.
211. See MedImmune, Inc. V. Genentech, Inc., 549 U.S. 118 (2007); Walrath, supra note 143;
212. See generally David I. Levine & Charles E. Belle, Declaratory Relief After MedImmune, 14 LEWIS & CLARK L. REV. 491 (2010) (discussing the impact of MedImmune).
213. Alternatively or additionally, Parchomovsky and Stein's proposal to permit the voluntary joinder of additional defendants in a patent-infringement suit would give potential invalidators another way to contribute to the effort to invalidate a patent. See Parchomovsky & Stein, supra note 5 (manuscript at 29-30); see also Joseph Scott Miller, Joint Defense or Research Joint Venture? Reassessing the Patent-Challenge-Bloc's Antitrust Status, 2011 STAN. TECH. L. REV., art. 5, at 2, http://stlr.stanford.edu/pdf/miller-joint-defense. pdf (proposing "strong-form joint defense agreements among multiple accused infringers" as another approach to overcome the public-good problem in challenges to patent validity).
214. See Stephen McG. Bundy, The Policy in Favor of Settlement in an Adversary System, 44 HASTINGS L.J. 1, 37-43 (1992) (discussing the public-interest benefits of settlement);
215. Margaret Meriwether Cordray, Settlement Agreements and the Supreme Court, 48 HASTINGS L.J. 9, 35-41 (1996) ("Recognizing the benefits that flow from the private settlement of disputes, the Supreme Court has repeatedly endorsed the policy favoring settlement.").
216. See Lear, Inc. V. Adkins, 395 U.S. 653, 670 (1969) (holding that estoppel does not prevent a patent licensee from challenging the patent's validity, in part because "the equities of the licensor do not weigh very heavily when they are balanced against the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain");
217. Pope Mfg. Co. V. Gormully, 144 U.S. 224, 235 (1892) (similar).
218. See generally Grain Processing Corp. V. Am. Maize-Prods. Co., 185 F.3d 1341, 1349 (Fed. Cir. 1999) (summarizing the legal standards for a patent holder to recover lost profits and a reasonable royalty, the two standard forms of patent damages).