# Presentation: 377422

## Patent Law & Policy:An Introduction

- Jay Thomas
- Associate Professor of Law
- George Washington University

## Overview of the Patent Law

- Sources of Law

-  The Constitution
-  The Patent Act of 1952 (35 USC)
-  The PTO Regulations (37 CFR) and Manual of Patent Examining Procedure (MPEP)
-  The Case Law of the Supreme Court and Court of Appeals for the Federal Circuit

## Overview of the Patent Law

- Acquisition of Rights

-   Patent rights do not arise automatically.
-   Inventors must prepare and file an application at the PTO.
-   A patent application must completely disclose and distinctly claim the invention.
-   Examiners review the application to ensure that the invention meets the requirements of the Patent Act.

## Overview of the Patent Law

- Term and Scope of Protection

-   Issued patents ordinarily enjoy a term of 20 years measured from the date of filing.
-   Patent proprietors may exclude others from making, using, selling, offering to sell and importing into the United States the patented invention.

## Overview of the Patent Law

- Enforcement of Rights I

-   The patent proprietor bears responsibility for monitoring competitors to detect infringement.
-   The patent proprietor may commence enforcement litigation against accused infringers.

## Overview of the Patent Law

- Enforcement of Rights II

- The scope of patent protection is founded upon, but not limited to, the wording of the claims.
- Accused infringers may assert that the patent-at-issue was improvidently granted.
- However, patents enjoy a presumption of validity that must be overcome by clear and convincing evidence.

## Patent Policy

- Perceived Benefits of the Patent System I

-   Encourages invention.
-   Encourages investment in R&D.
-   Solves public goods problems associated with information products.
-   Encourages disclosure of information.
-   Discourages wasteful expenditures associated with maintaining trade secrets.

## Patent Policy

- Perceived Benefits of the Patent System II

-   Coordinates rivalrous R&D efforts by competing firms, reducing duplicative costs.
-   Stimulates markets.
-   Reduces transaction costs of bargaining by commodifying information.
-   Reduces need for firms to achieve complete vertical integration.

## Patent Policy

- Perceived Detriments of the Patent System I

-   Increases industry concentration.
-   Creates barriers to entry.
-   Attracts speculators.
-   A game industry cannot afford not to play.
-   In terrorem effects upon innovation.

## Patent Policy

- Perceived Detriments of the Patent System II

-   Unified patent bar results in dearth of policy debate.
-   Capture of agency and specialized appeals court.
-   Public goods problems associated with challenging issued patents.
-   Difficult to quantify social consequences of the patent system.

## Four Substantive Requirements

- Three Provisions of the 1952 Patent Act

-   § 101 - Statutory Subject Matter
-   § 101 - Utility
-   § 102 - Novelty
-   § 103 - Nonobviousness

## Statutory Subject Matter

- Section 101

-   Section 101 provides that a "process, machine, manufacture or composition of matter" may be patented.
-   These broad words contain few inherent limitations.
-   Judicial limitations nonetheless traditionally cabined the scope of the patent system.

## Statutory Subject Matter

- Traditional Exceptions to Patentable Subject Matter

-  Laws of Nature
-  Abstract Ideas
-  Mathematical Algorithms
-  Mental Steps
-  Printed Matter
-  Methods of Doing Business

## Statutory Subject Matter

- Broadening Subject Matter Trends

-   The patent system has become increasingly ambitious in terms of subject matter.
-   Traditionally confined to biology, chemistry and physics.
-   Now virtually every human endeavor subject to private appropriation via patenting.
-  "Everything under the Sun made by Man" may be patented.

## Statutory Subject Matter

- Why the Scope of Patentable Subject Matter is Important

-   The patent law offers a robust property right with few restraining principles.
-   The patent law lacks
- - A fair use privilege
- - A meaningful experimental use exception
- - An effective misuse doctrine
- Once an industry is subject to the patent system, firms possess broad power to regulate each other

## Statutory Subject Matter

- Examples of Broadening Trend

- Diamond v. Chakrabarty
- - Supreme Court 1980
- - Living inventions are patentable
- In re Alappat
- - Federal Circuit 1994
- - computer software broadly patentable

## Methods of Doing Business

- Traditional Views

- Ex parte Abraham (Patent Office Commissioner 1869): No patents for "methods of book-keeping."
- Application of Shao Wen Yuan (CCPA 1951):  Constitution opposes exclusive rights "to engage even in ordinary business activities."
- Giles S. Rich, *Principles of Patenability* (1960):  "Diaper service" not patentable.

## Methods of Doing Business

- The State Street Bank Case I

-   Signature obtained U.S. Patent No.  5,193,056 on a "data processing system for managing a financial services portfolio established as a partnership."
-   Such master feeder funds are entitled to certain tax advantages under the Internal Revenue Code and Treasury regulations.
-   State Street Bank brought declaratory judgment action against Signature.

## Methods of Doing Business

- The State Street Bank Case II

-   Trial court strikes down Signature patent on two alternative grounds:
- - Mathematical algorithm
- - Method of doing business
-  On appeal, the Federal Circuit reverses in sweeping language.

## Methods of Doing Business

- The State Street Bank Case III

-   Judge Rich announced that the patentable subject matter should focus upon "the essential characteristics of the subject matter, in particular, its practical utility."
-   Judge Rich reasoned that the transformation of data by a machine through math produces a useful, concrete and tangible result, and is therefore patentable.

## Methods of Doing Business

- The State Street Bank Case IV

- Judge Rich also laid the "ill-conceived" business method exception to rest.
- Judge Rich reasoned that whether an invention is patentable should not depend upon whether the subject matter does "business" instead of something else.

## Methods of Doing Business

- The Amazon.com One-Click Patent I

- Amazon.com was awarded U.S. Patent No.  5,960,411, directed towards a method of placing an order to purchase an item on the Internet.
- Timeline
- - Patent Issued September 1999
- - Suit Filed Against BarnesandNoble.com on October 1999
- - Preliminary Injunction Issued December 1999
- - Federal Circuit Lifted Injunction February 2001

## Methods of Doing Business

- The Amazon.com One-Click Patent II

-  The Internet Version of a Vending Machine?
-  Concerns Over Consumer Lock-In
-  Patents don't have to be enforceable for very long to have a signficant marketplace impact.

## Methods of Doing Business

- The Contemporary Scope of Patentable Subject Matter

-   The patent system extends to virtually every field of endeavor:
- - Accounting
- - Aesthetic Arts
- - Architecture
- - Finance
- - Legal Compliance
- - Marketing
-  The patent system as the ultimate regime of private regulation.

## The Utility Requirement

- Basic Principles

- To be patentable, an invention must be useful:
- - Generally, a very lenient standard.
- - Must be minimally operable for a known use.
- - Must be different, not necessarily better than the state of the art.
- - The patent system is generally not considered the place for technology assessment.

## The Utility Requirement

- Biotechnology & Chemistry

- The utility requirement plays a larger role in unpredictable arts such as biotechnology and chemistry.
- In those fields, inventors often develop compounds with uncertain uses.  Further testing is needed.
- When inventors seek patent protection on such compounds, they may confront the utility standard.

## The Utility Requirement

- The Leading Case

- The leading utility decision on utility is *Brenner v. Manson* (Supreme Court 1966).
- Manson attempt to obtain a patent on a method of making a steroid that was similar to a known steroid with tumor-inhibiting properties.
- However, Manson did not know whether his steroid actually worked.

## The Utility Requirement

*Brenner v. Manson*

- The Court upheld the rejection of the application.
- "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."

## The Utility Requirement

- Why the Utility Requirement is Important

- A robust utility requirement prevents patenting too close to the laboratory bench.
- Otherwise concerns arise over the tragedy of the anti-commons.
- Patent law is traditionally about downstream products, not upstream ideas.
- If multiple patents exist between pure research and the marketplace, transaction costs and hold-up rights may threaten commerce.

## The Utility Requirement

- Subsequent History

- The rigor of the utilty requirement has wavered since *Brenner v. Manson*.
*In re Brana* (Federal Circuit 1995) - more lenient than *Brenner v. Manson*.
- Utility Guidelines, Phase I (PTO 1995) - in keeping with *Brana*.
- Utility Guidelines, Phase II (PTO 2001) - a return to *Brenner v. Manson*?

## The Utility Requirement

- The PTO Guildelines, Phase II

- Under the Utility Guildelines, the applicant must demonstrate either
- - A specific, substantial and credible utility; or
- - A well-established utility.
- A single such named utility suffices.

## Novelty

- Section 102

- To be patentable, an invention must be new.
- Novelty is a lenient requirement that implies mere difference from a single source of public domain knowledge.
- The United States employs a first-to-invent system where applicants are allowed to assert that they actually invented prior to the date a prior art reference became publicly available.

## Novelty

- Statutory Bars

- One problem with a first-to-invent system is that few incentives exist for the first inventor to file a patent application.
- So the Patent Act encourages inventors to file by creating a statutory bar.
- If an inventor publicly discloses or commercially uses an invention more than one year before filing at the PTO, the patent is invalid.

## Novelty

- Prior Art Effect of Trade Secrets

- Generally speaking, an inventor's commercial use of a trade secret for more than one year before the filing date bars the issuance of a patent.
- However, if another independently invents the same technology, then a third party's trade secret use does not bar the patent application.

## Novelty

- Prior Art Effect of Pending Patent Applications

- If a U.S. patent application is allowed to issue, that patent has a prior art effectiveness date as of its filing date.
- Because patent applications have traditionally been held in secret by the PTO, this "section 102(e) date" conflicts with the normal rule that trade secrets don't block patents.

## Nonobviousness

- Section 103

- In addition to being strictly different than public domain knowledge, an invention must have been "nonobvious" to be patentable.
- Under Section 103, no patent may issue if "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to person having ordinary skill in the art."

## Nonobviousness

- The Standard of "Invention"

- Nonobviousness descends from the earlier, amorphous requirement of "invention."
- Some courts required that inventions represent a flash of genuis; synergy; something unexpected or exciting; or even "that impalpable something."
- This standard is negated by section 103.

## Nonobviousness

- The *Graham *Factors

- In *Graham v. John Deere & Co. *(1966), the Supreme Court stated that the following factors influence the nonobviousness determination:
- - The scope and content of the prior art.
- - The differences between the prior art and the claimed invention.
- - The level of ordinary skill in the pertinent art.
- - Secondary considerations such as commercial success and long-felt need in the art.

## Nonobviousness

- Obvious to Try.
- 	- It is not enough that the prior art simply suggests a possible field for experimentation.
- Use of Hindsight.
- 	- Nonobviousness should be judged within the framework of the prior art, not at the time of examination or litigation.
- Unmotivated Combination of Prior Art Teachings.

- Disfavoured Frameworks for Nonobviousness

## Novelty & Nonobviousness

- Preserve patent-free zone around the state of the art.
- Preserve and ultimately augment the public domain.
- Libraries, not laboratories.

- Why are novelty and nonobviousness important?