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Once brought forth, intellectual work can be owned and otherwise assume the elements of property" only to the extent provided by law. This characteristic of property, or "appropriability of exclusive rights” to innovative work, largely determines whether or not such work is reproduced on a commercial scale. If the results of innovative work were freely available to all who might copy or steal them, then there would be little reason to invest in research and development. The property rights created under the patent and trade secret laws are thus important, if not essential, to the willingness of prudent businessmen to sponsor research and development and to invest in the facilities needed for innovative new products.
A well-functioning patent system meets three criteria. The first is accessibility. The system should be simple, inexpensive, and available to everyone. The second criterion is reliability. The system should allow a person who receives a patent, as well as those who are asked to respect the patent, to know the metes and bounds of the protection and to rely upon the patent's ability to stand up under litigation. The third criterion is selectiveness. The system should protect and encourage singificant discoveries without burdening the public with patents on minor and obvious variants of what was previously known. The inventive contribution must be worthy of the protection provided by the government.
A patent is sometimes referred to as a limited monopoly, but patents truly deserving of that appellation are rare instruments. The usual patent covers only a specific product, product freature or process in such a way that unpatented design alternatives inevitably exist.
Patents are generally granted about two years following filing of the patent application. Interferences, a highly technical quasi-judicial proceeding for resolving priority of inventorship between two or more contestants, can extend the Patent and Trademark Office (PTO) proceeding by many years, as can appeals from adverse decisions by PTO Examiners. The seventeen-year term of a patent is, however, measured from the date of grant, regardless of delays in the patenting process, whether caused by the Government or not. Many innovations are introduced rapidly and so the timing of commencement of the patent right, which must await grant of the patent, is of great importance. The length of the patent term, seventeen years, is generally not considered controversial today except where government actions delay the commercialization of the patented innovation.
There are a number of key distinctions between patents, with which this paper is concerned, and trade secrets, which are not this paper's subject. A patent owner has rights superior to those of a second inventor who makes the same invention, whereas the trade secret proprietor has no rights against a later discoverer of the same trade secret. U.S. patents run for a term of seventeen years from the date of grant, whereas the life of a trade secret is indeterminate. Patents are obtainable only thorugh disclosing to the public the invention and the preferred manner in which it is practiced, whereas trade secrets depend for their existence upon being closely held and known only to a few. Thus, if an invention is ascertainable from a product as sold, the only real protection available is through the patent system.
The patent owner shoulders the burden of detecting infringement and enforcement of his patent. Such enforcement lies through the bringing of a civil action in a federal district court. The federal courts have not been inclined to share their exclusive jurisdiction over patents. The validity of a patent is said to hold such public interest that settlement of a controversy through arbitration is inappropriate. The cost of enforcing or defending against a patent in court is often high, usually amounting to several hundred thousand dollars for each party.
About half of the research and development in the United States is paid for by the federal government. How do government contracts affect patents? Some people favor ownership by the government of most patents on inventions arising out of govenment-funded work. Others, equally numerous, favor retention of patent rights by the contractor. In a later Section, this paper takes up the pros and cons of this controversy and its implications for the generation and utilization of new technology.
The number of U.S. patents issued per year has reached a plateau at approximately 75,000. However, the patents issued to foreign corporations have been increasing for some time by more than 1,000 patents per year and are presently nearing a level of 30,000 patents per year. Thirty-seven percent of all U.S. patents issued in 1977 were issued to foreigners. There has been a steady and noticeable decline in U.S. patents granted to U.S. residents. II. Role of patents
The role of the patent, and of the trade secret law, when applicable, is to give to developed technology the element of controllable property, i.e., appropriability. As already noted, the element of appropriability probably determines in large measure whether or not new technology development will be undertaken at all. To be sure, all advancement of technology would not cease if the patent and trade secret law were repealed. Such advancement would probably continue unaffected in universities, but research and development directly funded by commercial enterprises would decline. Today the commercial sector accounts for about fifty percent of the total R&D funded by all sources in the United States and for most of the R&D directed toward future commercial products.
Patents are used in a number of different ways to reward the innovator. One use of patents is licensing, under which others are permitted to practice the invention in return for royalty payments. Patents also are used to reserve a particular product feature or process for the exclusive use of the patent owner, although probably not as often as commonly believed. Patents occasionally are used as trading stock for freedom to operate under the corresponding patents of others.
Another common role of patents is to provide the basis for acquiring counterpart patents in other countries for use in connection with product sales in those countries. Where export sales may be impractical, patents can be used to support licensing in foreign countries.
There is an obvious correlation between patents granted and R&D undertaken, although few would argue that the correlation is exact. The decline in U.S. patents issued to U.S. residents has been publicly reported for some time. A number of explanations have been advanced, but perhaps the most plausible theory is that while total R&D activity has not decreased, the work in potentially patentable areas has fallen off. Diversions of technology to areas which will not result in patents include research done to protect the environment, to reduce energy consumption, or to comply with certain government requirments and also work done to develop computer software. Diversion of technology to short-range "fire fighting" from longer range, more creative work, has also been called a cause of the decline.
The following sections describe several possible solutions to enhance the contribution that our patent system makes to the invention and innovation processes.
RECOMMENDED CHANGES IN PATENT LAWS OR REGULATIONS TO ENHANCE THE
INNOVATIVE CLIMATE I. First-to-file patent system
The U.S. Patent System provides for "interferences" between two or more patent applicants who seek a patent for substantially the same invention. The interference is a procedure to determine who first made the invention. That party will be entitled to the patent to the exclusion of those who invented later. The interference starts out as a "mini-litigation”, that is, a quasi-judicial proceeding in the PTO, and occasionally proceeds into the Federal Courts as full scale litigation.
Patent interferences are highly technical proceedings of questionable efficacy in terms of reaching equitable determinations of priority of invention. Much time is spent proving what happened before the filing dates; trying to prove that the inventor was incorrectly named, did not really have the invention in hand, failed to discharge various obligations, etc. In a significant majority of interferences the patent is awarded to the first to file after all. According to one informal survey, while approximately 110,000 U.S. patent applications are presently filed per year, our interference practice produces a result different from a first-to-file system in only 75 to 80 instances per year.
The U.S. and Canada are unique among all the industrial countries of the world in utilizing the interference approach. The European countries have always considered that the patent should go to the party first to disclose to the public by filing a patent application. Many countries provide a personal defense to one who can show he was actually the first to invent and use rather than the first to file. Examples include the United Kingdom, France, Germany and Holland. The new European patent system carries along these principles.
Since the purpose of the patent system is to encourage disclosure to the public, the party first to file should be rewarded. The U.S. patent system should be changed accordingly. While converting to a first-to-file principle could result in filing a less complete patent application, it would serve the Constitutional purpose of early disclosure. All other industrial countries (except Canada) have been willing to accept such a possible disadvantage in return for the advantages of a first-to-file system. Even in Canada the Canadian government has proposed a revision in the Canadian Patent Law which would provide for a first-to-file system.
Adoption of a first-to-file system would eliminate patent interference proceedings, simplify patent litigation, enhance certainty with respect to patent validity and generally make the patent system serve the interests of the inventor and the public
III. Arbitration of patent disputes
Commercially important patents often invite controversy. Competitors interested in the patented product or its equivalents frequently disagree with the patent owner as to the true scope and value of the patent. The result may be a suit in the federal courts. Unfortunately, fully contested patent litigation is very expensive, often $500,000 or more for each party. Protracted pretrial procedures coupled with the difficulties of dealing with technical subjects tend to make the litigation very expensive.
Patent litigation is also protracted. A suit on an important patent will commonly take years to resolve. The cost and time required for litigation detract from the ability of patents to foster innovation. The cost of enforcing patents may very well influence business to invest in less risky programs than in the research and development needed for innovation and productivity gains.
In order to reduce the cost and time required for the resolution of certain patent disputes, arbitration should be available for those who wish to use it. In certain judicial decisions, it has been held that patent validity has too great a public impact to allow it to be submitted to arbitration. In other words, only federal judges should rule on it. We believe, however, that arbitration should be a legitimate method for solving patent problems. Arbitration is a common method of resolving disputes in almost all other commecial areas including very large labor settlements, and it is difficult to see why it should not be allowed for patent questions.
The McClellan Bill, S. 2255 of the 94th Congress which passed the Senate in 1976, would have provided for voluntary arbitration of patent disputes, including questions of both infringement and validity. We recommend that a similar statutory provision be passed promptly. Arbitration cannot be required since such a requirement would be a violation of due process, but it should be available when both parties wish to use it. The results of arbitration are, of course, binding only on the participants.
To our knowledge there is very little data on arbitration in patent cases. However, information provided by the American Arbitration Association showed that in a sample of 200 commercial arbitrations in the construction field, it averaged less than four months from filing to issuance of an arbitrator's award. The savings in time and money would be substantial if anything like this could be attained in patent cases. It is certainly worth a try. IV Special patent court
Honest irreconcilable differences occasionally dictate the need to litigate patent questions. Unfortunately, there are sometimes material differences in legal precedents about patents among different judicial circuits. The precedents in one circuit may indicate a favorable result for the plaintiff while the precedents in another circuit may not. Because the result of the litigation can be affected, or even determined, by the circuit selected, the selection process (forum shopping) frequently becomes a major added complication in the controversy.
Proposals have been made for a single court of appeals for patent litigation. This change would be particularly useful in eliminating much of the costly procedural maneuvering at the early stages of patent litigation devoted solely to selection of the forum.
A single court of appeals should also contribute to greater certainty in the predicted outcome of patent litigation. A single court would tend to develop a more cohesive body of precedents than would the many independent circuit courts. This greater certainty in expected result might also reduce the number of patent suits brought. Few suits are brought or accepted with the expectation of losing.
In a single court there could be difficulties in the handling of issues ancillary to patent validity and infringment. We believe, however, that a single court of appeals for patent litigation would contribute far more to the value of the patent system than it would detract from it. We recommend that passage of legislation establishing such a court. V. Computer software protection
An increasing proportion of money invested in research and development work is being applied to the information processing field. The resulting computer software has not found legal protection in the same manner as afforded other technology, While some of the software may find limited protection under the patent system, much of it appears to be protected by its owners as trade secrets. Some industries have sought to protect computer programs by copyrights. There has been an increasing need for legislation which would better define the protection which is, or should be, available for computer programs under the copyright law. To date no such legislation has been forthcoming.
There have been numerous recommendations that the present copyright statute be amended so as to clearly afford protection for computer programs. One such recommendation is set forth in NBS Publication 500-17 by Roy G. Saltman of the National Bureau of Standards entitled Copyright in Computer-Readable Works: Policy Impacts of Technological Change. Subsequently the National Commission on New Technological Uses of Copyrighted Works recommended on July 31, 1978, to the President of the United States that the copyright laws be amended to make explicit that computer programs are proper subject matter of copyrights:
"The new copyright law should be amended (1) to make it explicit that computer programs, to the extent that they embody an author's original creation are proper subject matter of copyright; (2) apply to all computer uses of copyrighted programs by the deletion of the present Section 117; and (3) to assure that rightful processors of copies of computer programs can use or adapt these copies of their use.'
We urge that the recommendation of the National Commission be implemented. VI. Process patent protection against imports
A problem of patent enforcement which may discourage investment in process development, is the powerlessness of a United States patent over products produced abroad by that process and brought into this country. There is a proceeding available before the U.S. International Trade Commission which may lead to the exclusion of such goods but it has not proven satisfactory to many patent owners. Other major countries, unlike the U.S., do allow a process patent to be enforced through an infringment suit against foreign-made goods brought into the home country of the patent.
In order to encourage investment in process innovation, we recommend expanding the rights available under process patents. Specifically, a patent owner should be able to enforce his patent against goods, made abroad by use of the patended process and then imported into the U.S. Such a right would not bar the importation of identical goods not made by the patented process but would secure to the patent owner what should be rightfully his. VII. Adjustment of patent term for Government-caused delays
Governmental regulatory requirements and resultant delays in clearing products for commercialization often undermine the value of patents obtained on such products by diminishing the effective life of the patent. This is particularly true in the cases of agricultural chemical products (which must be registered by the Environmental Protection Agency before commercialization) and pharmaceutical products (which must be cleared by the Food and Drug Administration before commercialization), and is also true in other fields, such as the electronics industry in connection with the standardization of a particular color television system by the Federal Communications Commission.
The reduced values of such patents occur because, in many cases, they issue a number of years before the products themselves can appear on the market. The patents thus expire relatively early in the commercial lives of the products, and potential infringers are enabled to get into the field quite soon without having to "design around” the patents or develop competing new products. The time in which the innovators of the products can recoup their investments is corresponding shortened and this possibility acts as yet another deterrent to innovation in these fields.
We recommend, therefore, that provisions be added to the patent laws which would allow patent owners to receive extensions, equal to the lengths of the regulatory delays, of the lives of patents which have been prevented by governmental regulatory delays from reaching their full economic potential. To balance this proposed extension of patent rights, there probably should be some maximum total length of time for any extension as well as a precise definition of the kind and causes of regulatory delays which might qualify patents for extensions. An alternate recommendation to solve the problem of regulatory delays would be to allow a patent owner to delay the effective date of his patent protection until any necessary governmental approvals for marketing the patented product are obtained.
RECOMMENDATIONS FOR GOVERNMENT-DEVELOPED TECHNOLOGY 1. Uniform Government contractor policy
It is estimated that in 1979 approximately $51 billion will be spent on research and development in the United States. The federal government will provide $25.8 billion of that sum. Until the 1970's, much, if not most, of such federal funding was spent on military and space programs. In recent years, there has been a growing emphasis on development programs in other areas, such as energy. It is clearly in the national interest that the technology developed by the federal funding be made