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Radical Patent Reform Is Not on the Way

Tags Legal SystemMonopoly and CompetitionPhilosophy and MethodologyPrivate Property

10/01/2009Stephan Kinsella
"Calls for abolition of the patent system — especially those coming from a principled, rights-based approach — are very unlikely to be adopted at the present time."

[This paper is the first of a two-part series. The concluding article is "Reducing the Cost of IP Law"]

Hardly a day passes when we do not hear of one patent abuse or another.[1] Ridiculous patents are issued or filed and companies are enjoined from selling their products. Judgments are issued, and settlements reached, for billions of dollars. (See the Appendix for examples of ridiculous patents and outrageous judgments.) Not surprisingly, there is a growing demand for reform of our patent system.[2]

Whether their demands are modest or radical, the reformers share the belief that the patent system is broken; has gotten out of hand; and is not in sync with our fast-paced, high-tech, open-sourced, digitized world — in short, that it needs to be fixed.

At first glance, it might appear that change is already under way. In recent years the Supreme Court has issued a spate of decisions cutting back patent protection or making it more difficult to obtain patents. One of the most significant cases, KSR v. Teleflex, raised the "obviousness" bar. This raised the standards for getting a patent, and also made it easier to challenge the validity of issued patents.[3]

In eBay v. MercExchange, the Court made it more difficult to get injunctions against the alleged infringer (alas, too late for poor BlackBerry). The MedImmune decision made it easier for licensees to challenge the validity of patents they had previously licensed. Microsoft v. AT&T restricted the global reach of US patent law.[4]

And the Court of Appeals for the Federal Circuit (CAFC) — the sole appellate court for patent cases since its creation in 1982 — changed the standard for "willful infringement" in the Seagate case, making it harder to obtain enhanced (treble) damages. Most recently, in Quanta v. LG Electronics, decided in June 2008, the Supreme Court refined the "patent exhaustion" doctrine to make it more difficult for patentees to extract royalties from multiple parties for the same device or process.[5]

The U.S. Patent & Trademark Office (PTO) has also entered the fray. In August 2007, the PTO released new rules for patent practice that limit how many times a patent application can be "renewed" and also limit the number of "claims" in a patent application (these rules were enjoined just before taking effect, due to a suit from British drug maker GlaxoSmithKline).[6]

Finally, Congress has been considering various amendments to the Patent Act.Download PDF[7] Possible changes include switching from a "first-to-invent" to a "first-to-file" system, reducing damage awards, reducing forum shopping, and making it easier to challenge issued patents.[8]


Plus Ça Change, Plus C'est La Même Chose

According to the organized patent bar and intellectual property (IP) advocates, these recent and proposed developments are "radical." In other words, they go too far.

Patent attorney John R. Harris, for example, ominously intones:

The U.S. has the best patent system in the world. What I'm afraid of is that they are about to throw the baby out with the bathwater.… The new rules are radical. The new legislation is radical. They will cause fewer patents to be issued.[9]

But the truth is that none of the developments noted above are really that dramatic. Patent law is always evolving due to court decisions, new rules issued by the PTO, and new legislation from Congress. Consider this brief sample of notable events in the history of patent law:


Patent Law Development

13.7 billion years ago

God invents the universe. He does this without permission of anyone else. He doesn't look in the Celestial Patent Office filings first to make sure he is in the clear.

1.9 million years ago

Grog invents using fire to cook food. Arrgg sees this and imitates it. Soon, the practice spreads. Ditto with living in caves, using spears to kill animals, building "houses," and dressing in cured animal hides. Nobody sues anybody. No patent system has been invented yet.


Sovereigns grant exclusive rights (monopolies) as a way to raise money without having to raise taxes. Strangely, nobody gets a patent on the idea of granting monopolies.


US Constitution authorizes Congress to grant to "Authors and Inventors the exclusive Right to their respective Writings and Discoveries" "for limited Times" in order "To promote the Progress of Science and useful Arts."


First Patent Act.


Patent exhaustion doctrine clearly established in Adams v. Burke.


Henry v. A.B. Dick Co. confuses the exhaustion rule with the separate doctrine of "implied license."


1912 decision (above) overruled by Motion Picture Patents Co. v. Universal Film Manufacturing Co.


Popular Science Monthly claims that the Patent Office "has become a national disgrace" because of the backlog of unprocessed patent applications. This complaint is still being made in 2009.


United States v. Univis Lens Co. case harmonizes the exhaustion doctrine with the related law of contributory infringement.


Congress significantly revises patent law, changing various aspects of settled law, e.g., in the areas of misuse and contributory infringement; it also codifies the exhaustion rule of Univis.[10]


Congress amends patent law to allow patents on plants.


Graham v. John Deere "clarifies" obviousness standards.


Patent Cooperation Treaty enters into force.


The Court of Appeals for the Federal Circuit (CAFC) is established and given exclusive appellate jurisdiction in patent cases. This leads to the unification of patent law and the strengthening of patents and patent protection.[11]


CAFC in Mallinckrodt, Inc. v. Medipart, Inc.Download PDF again conflates exhaustion and implied license doctrine as in the overruled 1912 case, A.B. Dick. Exhaustion doctrine to be modified yet again in 2008 Quanta Computer v. LG Electronics case (below).


CAFC's In re Donaldson decision requires the "means-plus-function" test used during patent litigation to be applied by the PTO during patent prosecution as well.


Patent law is amended pursuant to GATT: patent terms changed from seventeen years from the date of issue to twenty years from date of filing. The right to file "provisional" patent applications is established.[12]


Revised PTO examination guidelines, and cases such as Alappat and State Street, make it easier to obtain patents on business methods as well as software and computer-implemented inventions.[13]


In Markman v. Westview Instruments, Supreme Court declares that patent claim interpretation is a matter of law, not a question of fact; this leads to the "Markman hearings."


35 USC 287(c) added to Patent ActDownload PDF to exempt certain surgical methods from patent liability.[14]


The Intellectual Property and Communications Omnibus Reform Act of 1999 enacts "most significant changes" in U.S. Patent law since the 1952 Patent Act, according to PTO Commissioner Dickinson. Changes include early publication of pending-patent applications and a limited first inventor (prior user) defense for prior users of business methods.


Festo case revises the "doctrine of equivalents."


MedImmune makes it easier for licensees to challenge the validity of patents. eBay v. MercExchange makes it more difficult to get injunctions against patent defendants.[15]

2007 (April)

Microsoft v. AT&T restricts the global reach of US patent law. KSR v. Teleflex tightens "obviousness" standards, raising the bar for obtaining a patent, and making it easier to challenge the validity of an existing patent.

2007 (August)

CAFC in Seagate changes the standard for "willful infringement," making it more difficult to obtain enhanced (treble) damages.

2007 (August)

PTO releases new rules for patent practice that limit how many times a patent application can be "renewed" and also limit the number of "claims" in a patent application.

2007 (September)

Congress poised to enact amendments switching from a "first-to-invent" to a "first-to-file" system, reducing damage awards, making it easier to challenge issued patents, and reducing forum shopping.

2007 (September)

Comiskey and Nuitjen cases make it more difficult to claim mere "signals" and also seem to choke back on software, internet, and business method patents.[16]

2008 (June)

In Quanta Computer v. LG Electronics, the Supreme Court arguably overturns Mallinckdrot (1992) and clarifies the exhaustion doctrine yet again — making it more difficult for patentees to extract royalties from multiple parties for the same device or method.[17]

2008 (October)

The CAFC in In re Bilski further modifies the patentability test for software or business-method patents, partially overruling State Street.[18]

As can be seen, since the inception of modern US patent law in 1790, the field has been continually in flux. There is no reason to single out the last few years. Modern patent law has evolved for over two hundred years and will continue to do so. Indeed, frequent and arbitrary change in the law, and the uncertainty that this breeds, is common in state-run, legislation-dominated legal systems.[19] The fact that state law changes is not new.

But though various details of the patent system continue to morph pursuant to political pressures and legal trends, the essential aspects of the patent system have not changed at all: The scope of what is patentable has not shrunk appreciably. The term is still about seventeen years. Patents are still enforceable by injunction. The groundless presumption of validity is alive and well.

Patent defendants who win usually pay their own legal fees, as before. Defending patent lawsuits continues to be incredibly expensive. Lobbying goes on as before. Companies continue to need to obtain patents if only for defensive purposes.

Obviousness and novelty remain the standards for patentability — and these standards are still vague, nonobjective, and subject to unpredictable interpretation by an inept and bureaucratic government agency, by state courts, and by technically inept juries. And the patent system is still widely believed to be legitimate and necessary even while it is widely derided as seriously flawed.

"There is no reason to single out the last few years. Modern patent law has evolved for over 200 years and will continue to do so."

And so, for the foreseeable future, companies will continue to spend lots of money obtaining patents. And small businesses will still face the threat of patent-infringement lawsuits and court-ordered injunctions that could put them out of business.[20] And these suits will continue to cost literally millions of dollars to defend. "Bad" patents will keep being granted, and various patentability standards will always be murky, arbitrary, and uncertain.

This is not to say that recent changes will not be felt at all. Patent attorneys, for example, can expect to see more business as a result of all this legal turmoil.[21] (Why many of them are complaining about these developments is a mystery.)Download PDF

But other than more money being spent on patent attorneys and a relatively small, probably temporary, shift in the balance of power between patentees and alleged infringers, the patent system has not radically changed. All of the problems noted above stem from the basic nature of the patent system. They will not recede by merely tinkering with details and leaving the essential features of the system intact.[22]

Principle v. Pragmatism; Abolition v. Revision

What adjustments, then, should be made to our current patent laws? The answer to this question depends, in part, on one's basic approach to law. Most people with an opinion on IP policy — both pro and anti — have a utilitarian mindset. They favor or oppose various patent policies based on whether or not these policies produce more societal wealth, in the form of extra innovation worth more than the cost of the system.

Others favor or oppose patent rights on more principled or deontological (rights-based) grounds. Some of them, such as Ayn Rand, argue that patent rights are important property rights;[23] others maintain that patents should be abolished precisely because they undercut property rights.[24]

As for the latter position — yes, property rights are indeed undercut by patents. And even on utilitarian grounds, it could be argued that the patent system imposes an overall net cost on the economy,[25] and should therefore be abolished or radically curtailed. It is apparent, however, that the patent system is very entrenched, as is the wealth-maximization approach to policy making.

Calls for abolition of the patent system — especially those coming from a principled, rights-based approach — are very unlikely to be adopted at the present time. In my forthcoming paper, therefore, I recommend certain changes to the patent system short of abolition, assuming a general "costs-and-benefits" approach.

Accordingly, to determine what adjustments ought to be made to the patent system (again, putting arguments for abolition on principled grounds to the side), we need a sufficiently clear understanding of the nature and extent of the costs imposed by the system, as well as its alleged benefits. With this in mind, the forthcoming paper suggests a laundry list of obvious changes that should be made to the patent system to reduce its costs with only minimal impact on its purported advantages. Stay tuned.

Appendix: Examples of Outrageous Patents and Judgments

Examples of (at least apparently) ridiculous patents and patent applications abound (more at PatentLawPractice):

The Supreme Court, in the 1882 case Atlantic Works v. Brady, 107 US 192, itself lists examples of patents issued to "gadgets that obviously have had no place in the constitutional scheme of advancing scientific knowledge … the simplest of devices." These included

  • a particular doorknob made of clay rather than metal or wood, where differently shaped doorknobs had previously been made of clay;
  • making collars of parchment paper where linen paper and linen had previously been used;
  • a method for preserving fish by freezing them in a container that operates in the same manner as an ice-cream freezer.
  • rubber caps put on wood pencils to serve as erasers;
  • inserting a piece of rubber in a slot in the end of a wood pencil to serve as an eraser;
  • a stamp for impressing initials in the side of a plug of tobacco;
  • a hose reel of large diameter so that water may flow through the hose while it is wound on the reel;
  • putting rollers on a machine to make it movable;
  • using flat cord instead of round cord for the loop at the end of suspenders;
  • placing rubber hand grips on bicycle handlebars;
  • an oval rather than cylindrical toilet paper roll, to facilitate tearing off strips.

Below are a few notable or recent examples of large, significant, troubling, or apparently outrageous injunctions, damages awards, and the like:


[1] A patent is a state-granted legal right in an "invention," such as a device or process that performs a "useful" function. It is obtained by filing a "patent application" with the US Patent and Trademark Office (USPTO). The patent gives the patentee the right to exclude, i.e., to prevent others from practicing the patented invention.

[2] See, e.g., Rick Merritt, Countervailing Forces Propel Patent Reform, EETimes (Sept. 17, 2007); Patti Waldmeir, US Moves to Reform Patent Laws, Financial Times (Sept. 8, 2007); Executive Office of the President — Office of Management and Budget, Statement of Administration Policy: H.R. 1908 — Patent Reform Act of 2007 (2) (Sept. 6, 2007)Download PDF; "Patent Reform Act of 2009," Patently-O (March 3, 2009); "Patent Reform 2009: Reactionary Causes," Patent Baristas (March 3, 2009); Council on Foreign Relations, Reforming the U.S. Patent System: Getting the Incentives Right (2006); 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); also Josh Lerner, The U.S. Patent Game: How to Change It (2004); Greg Blonder, Cutting Through the Patent Thicket, BusinessWeek (Dec. 20, 2005); Reed Hundt, Patently Obvious, Forbes (Jan. 30, 2006); James Bessen & Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk (Princeton University Press, 2008); Patent Reform is Not Enough; A Proposal for Software Patent Reform; Patent Reform for a Digital EconomyDownload PDF and Real Patent ReformDownload PDF, Computer & Communications Industry Association; Declan McCullagh, Patent Reform: Who's On First?, ZDNet News (Sept. 13, 2005). Other groups advocating reform or highlighting abuse include Free Software Foundation; Business Software Alliance; Foundation for a Free Information Infrastructure; Progress & Freedom Foundation; League for Programming Freedom; Electronic Frontier Foundation; Software Freedom Law Center; Coalition for Patent Fairness; End Software Patents; and the U.S. Chamber of Commerce.

Groups opposing significant change (in particular opposing the raising of the "obviousness" bar by the Supreme Court in KSR v. Teleflex, which made it harder to get a patent and easier to challenge an issued patent) include, not surprisingly (1, 2), legal and business interests such as the American Bar Association (ABA), the American Intellectual Property Law Association (AIPLA), the Federal Circuit Bar Association, the Franklin Pierce Law Center Intellectual Property Amicus Clinic, Intellectual Property Owners Association, Pharmaceutical Research and Manufacturers of America, the Manufacturing Alliance on Patent Policy (MAPP), and a descriptively-named group of "Practicing Patent Attorneys."Download PDF

See also the list of various IP groups providing comments on the PTO's proposed new rules of patent practice.

[3] Raising the bar for obtaining patents, while making them harder to obtain in the first place, may also make future patents more difficult to challenge, once they survive the more stringent examination requirements.

[4] On the Microsoft v. AT&T case, see also Patent Law: Baby Steps — Update; Microsoft v. AT&T: Extraterritorial Enforcement of US Patents.

[5] See Mike Masnick, Supreme Court Says Patent Holders Can't Shake Down Entire Supply Chain, techdirt (June 9, 2008); Supreme Court Decides Quanta v. LG Electronics, U.S. (2008), Patently-O (June 9, 2008); Justin Levine, Supreme Court continues its positive trend with patent law, Against Monopoly (June 9, 2008); Supreme Court Reverses CAFC in Quanta: Method Patents Exhaustible, Peter Zura's 271 Patent Blog (June 9, 2008); also Greg Stohr & Susan Decker, Quanta-LG Case at U.S. Supreme Court May Limit Patent Royalties, Bloomberg.com (Jan. 16, 2008); Supreme Court to Decide Patent Exhaustion Case, Patently-O (Sep. 25, 2007); Kinsella, Patent Exhaustion, Mises Blog (Feb. 1, 2008).

[6] See Court Blocks PTO Rules on Eve of Effective Date; All Four Equitable Relief Factors Suggest Injunction, Patently-O (Oct. 31, 2007). For the latest in this saga, see Stephen Albainy-Jenei, Tafas v. Doll: War Without End, Patent Baristas (July 8, 2009); Marcia Coyle, DOJ Seeks Stay on Suit Against New Patent Rules, National Law Journal (July 28, 2009).

[7] For recent status of pending patent reform legislation, see Patent Reform Act of 2009, Patently-O (March 3, 2009); Reid: Patent Reform a Top Priority (Sort Of), The 271 Patent Blog (Jan. 22, 2008); also Patently-O Bits and Bytes No. 12, Patently-O (Feb. 15, 2008) ("IPO reports a strong likelihood that no action will take place in the Senate until April 2008. In the meantime, the Reform Act is in secret revision in Senator Leahy's office.").

[8] The Eastern District of Texas, in particular, has been a popular choice for patent litigation due to its "rocket docket" and patentee-friendly juries. See What Does Forum Shopping In The Eastern District Of Texas Mean For Patent Reform?Download PDF; Why Did Blackboard File in East Texas; Judge Blocks Dynamic Web Patent Troll's "Forum Shopping." The draft amendments would impose strong limitations on venue, which would hamper the ability of patent plaintiffs to sue in this district. See Senator John Cornyn Press Release, Cornyn Pledges to Fight for Fairness for Eastern District of Texas Courts (July 13, 2007).

[9] Katheryn Hayes Tucker, GCs Draw Line in the Sand Over Changes to Patent Law, Daily Business Review (December 13, 2007). Harris goes so far as to raise the possibility of a patent-reform-caused depression: "If we're about to go into a recession and all of a sudden you kill innovation in the country, we might not have a recession. We might have a depression." How Harris knows we have "the best patent system" is not explained; it's commonly believed among patent attorneys, for example, that European Patent Office examiners are much better than ours. See also Dennis Fernandez, 5 Reasons You Should No Longer Bother Getting U.S. Patents, Intellectual Property Today (February 2008).

[10] See Quanta's briefDownload PDF in the Quanta Computer v. LG Electronics case.

[11] See Scott Atkinson, Alan Marco & John L. Turner, Uniformity and Forum Shopping in US Patent Litigation (2006); Matthew D. Henry & John L. Turner, The Court of Appeals for the Federal Circuit's Impact on Patent Litigation (2005)Download PDF; Robert Hunt, Patent Reform: A Mixed Blessing For the U.S. Economy? (1999).Download PDF

[12] See Kinsella, GATT and its Impact on Patents (2005).Download PDF

[13] State Street was partially overruled in 2008; see discussion of In re Bilski case, below. See also Kinsella, Computer Software Patents Are On The Way,Download PDF SHSL IP Report (Fall 1995); Stephan Kinsella & Robert E. Rosenthal, A New Traffic Cop at Intersection of Patents and Financial Inventions,Download PDF The Legal Intelligencer (February 5, 1998).

[14] See Kinsella, How to Operate Within the Law: Patents on Medical Procedures, The Legal Intelligencer (September 3, 1998).Download PDF

[15] However, it is still possible to obtain patent injunctions. See, e.g., Transocean v. GlobalSantaFe (S. D. Tex. Dec. 27, 2006) (permanent injunction granted; leading to acquisition of defendant by plaintiff); and Tivo Inc. v. EchoStar Communications Corp. (S. D. Tex., Dec. 2, 2006) (injunction granted); TiVo Wins on Appeal: Permanent Injunction against EchoStar to be Reinstated, Patently-O (January 31, 2008). Both these cases are discussed in Robert H. Resis, Life after eBay v. MercExchange — The Strong Get Stronger, Intellectual Property Today (December 2007). For an example of an ongoing royalty awarded instead of a permanent injunction, see Paice LLC v. Toyota Motor Corp. (Fed. Cir. October 18, 2007). See also CAFC Approves Compulsory License (but calls it an "ongoing royalty"), Patently-O (October 19, 2007); Innogenetics: Forward Looking Damages Approved, Patently-O (January 21, 2008). For a more recent development in the eBay case, see MercExchange v. eBay: Injunction Denied Again, Patenly-O (December 18, 2007); MercExchange Saga Over: eBay Just Buys The Patents, Techdirt blog (February 28, 2008). Moreover, as injunctions become harder to obtain, patentees simply turn to the ITC. See Eric Bangeman, Permanent Injunctions Getting Scarce; Patent Holders Turn to ITC, ars technica (June 3, 2007).

[16] See discussion of In re Bilski case, below; Signal Claims Are Not Patentable: Nuijten Stands — Rehearing Denied, Patently-O (February 11, 2008).

[17] See also Ladas & Parry, A Brief History of the Patent Law of the United States.

[18] The court here abandoned State Street's "useful, concrete, and tangible result" test for patentability and reaffirmed the "machine-or-transformation" test. Under this latter test, such a patent is valid only if (a) it is tied to a particular machine or apparatus, or (b) it transforms a particular article into a different state or thing. See "Appeals Court Smacks Down Software And Business Method Patents without Apparatus or Transformative Powers," Patent Baristas (October 31, 2008); In re Bilski: Patentable Process Must Either (1) be Tied to a Particular Machine or (2) Transform a Particular Article, Patently-O (October 30, 2008).

[19] See Kinsella, Legislation and the Discovery of Law in a Free Society (1995).Download PDF

[20] Such a threat was the reason RIM, BlackBerry's maker, paid $600 million to NTP even though NTP's patents were being re-examined by the PTO: RIM couldn't risk even a short-lived injunction. See also Patent Office Rejects Blackboard E-Learning Patent One Month After It Wins Lawsuit, Techdirt (March 31, 2008). Even after the eBay case, injunctions are still granted, as noted in endnote 15, above; or patent holders find alternative means of blocking competitors, such as ITC actions.

[21] Other than Seagate, which reduces the value of the lucrative "patent opinions" patent practitioners are often hired to write. On the uncertainty engendered by legal turmoil, see Kinsella, Legislation and the Discovery of Law in a Free Society.Download PDF

[22] The process by which the patent law ebbs and flows, and continually changes, provoking cries of doom and disaster from biased, special-interest chicken littles, calls to mind an analysis by Llewellyn H. Rockwell, Jr., in his book The Left, the Right, and the State (Auburn, Alabama: Mises Institute, 2008), pp. xiii-xiv (emphasis added):

What is the state? It is the group within society that claims for itself the exclusive right to rule everyone under a special set of laws that permit it to do to others what everyone else is rightly prohibited from doing, namely aggressing against person and property.

Why would any society permit such a gang to enjoy an unchallenged legal privilege? Here is where ideology comes into play. The reality of the state is that it is a looting and killing machine. So why do so many people cheer for its expansion? Indeed, why do we tolerate its existence at all?

The very idea of the state is so implausible on its face that the state must wear an ideological garb as means of compelling popular support. Ancient states had one or two: they would protect you from enemies and/or they were ordained by the gods.

To greater and lesser extents, all modern states still employ these rationales, but the democratic state in the developed world is more complex. It uses a huge range of ideological rationales — parsed out between left and right — that reflect social and cultural priorities of niche groups, even when many of these rationales are contradictory.

The left wants the state to distribute wealth, to bring about equality, to rein in businesses, to give workers a boost, to provide for the poor, to protect the environment.… The right, on the other hand, wants the state to punish evildoers, to boost the family, to subsidize upright ways of living, to create security against foreign enemies, to make the culture cohere, and to go to war to give ourselves a sense of national identity.…

So how are these competing interests resolved? They logroll and call it democracy. The left and right agree to let each other have their way, provided nothing is done to injure the interests of one or the other. The trick is to keep the balance. Who is in power is really about which way the log is rolling. And there you have the modern state in a nutshell.

Likewise, the vested interests moan and caterwaul at the slightest change, thus making sure that serious, radical change is not even considered. This way, they keep the basic system intact.

[23] See Ayn Rand, "Patents and Copyrights" in Capitalism: The Unknown Ideal, p. 131, 133; also Ayn Rand Biographical FAQ, sec. 5.2.2; Kinsella, Rand and Marx (2006).

[24] See Kinsella, Against Intellectual Property; idem, "The Case Against IP: A Concise Guide."

[25] See Kinsella, Yet Another Study Finds Patents Do Not Encourage Innovation, Mises Blog (July 2, 2009); Michele Boldrin & David K. Levine, Against Intellectual Monopoly (Cambridge University Press, 2008).

  • 26. Apparently, Acacia has collected settlement amounts — rumored to be between $50,000 and $400,000 each — from a very long list of licensees.

Stephan Kinsella

Stephan Kinsella is an attorney in Houston, director of the Center for the Study of Innovative Freedom, and editor of Libertarian Papers.