INNOVATION AND COMPETITION POLICY, Chapter 1
(2d ed.)
COMPETITION POLICY AND THE SCOPE OF
INTELLECTUAL PROPERTY PROTECTION
Herbert Hovenkamp
This book of CASES AND MATERIALS ON INNOVATION AND COMPETITION
POLICY is intended for educational use. The book is free for all to use subject to an
open source license agreement. It differs from IP/antitrust casebooks in that it
considers numerous sources of competition policy in addition to antitrust,
including those that emanate from the intellectual property laws themselves, and
also related issues such as the relationship between market structure and
innovation, the competitive consequences of regulatory rules governing technology
competition such as net neutrality and interconnection, misuse, the first sale
doctrine, and the Digital Millennium Copyright Act (DMCA). Chapters will be
updated frequently. The author uses this casebook for a three-unit class in
Innovation and Competition Policy taught at the University of Iowa College of
Law and available to first year law students as an elective. The table of contents is
as follows (click on chapter title to retrieve it):
Ch. 1: Competition Policy and the Scope of Intellectual Property Protection
Ch. 2 Complementary Products and Processes: The Law of Tying
Ch. 3 Harm to Competition or Innovation; Remedies
Ch. 4 Competition Policy and the Patent System
Ch. 5 Competition and Innovation in Copyright and the DMCA
Ch. 6 Restraints on Innovation
Ch. 7 Intellectual Property Misuse
Ch. 8 Innovation, Technology, and Anticompetitive Exclusion
Ch. 9 The Innovation Commons
Ch. 10; Post-Sale and Related Distribution Restraints Involving IP Rights

Statutory Supplement and Other Materials
© 2013. Herbert Hovenkamp
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INNOVATION AND COMPETITION POLICY:
CASES AND MATERIALS
HERBERT HOVENKAMP
CHAPTER 1 (2d ed.)
COMPETITION POLICY AND THE SCOPE OF
INTELLECTUAL PROPERTY PROTECTION
WRIGHT CO. V. HERRING-CURTISS CO.
204 F. 597 (W.D.N.Y. 1913)
HAZEL, District Judge.
This bill in equity relates to the infringement of United States letters
patent granted May 22, 1906, to Orville and Wilbur Wright on application
for patent field March 23, 1903, for improvements in flying machines, or, in
other words, for a structure commonly known as an aeroplane. At this date,
owing to articles in daily papers and periodicals with regard to notable
flights in this country and abroad by the late Wilbur Wright, Orville Wright,
defendant Glenn H. Curtiss, and other venturesome aviators, the aeroplane
and the modus operandi thereof are reasonably familiar to the intelligent
public. That such structures are supported in their flight by the reaction of
the air against an inclined surface, and that the advancing air presses against
the plane surfaces, thereby inclining them to rise, while at the same time a
resistance to forward motion is encountered, which is overcome by the
propelling motor, are facts now reasonably familiar to us.
By those who early studied the art the fundamental physical principles
involved in the flight of a plane heavier than air, when advancing against
the wind or currents of air, were well recognized. That a plane descending
in response to the force of gravity naturally inclined in a forward direction,
and that the air resisted its forward descent in proportion to the exposed
surface of the plane, were matters thoroughly understood by those who
were interested in the subject. This knowledge eventuated in the structures
for aerial flying shown in the exhibit publications and in the Wright patent
in suit. The objects of the latter, according to the specification, are:
‘To provide means for maintaining or restoring the equilibrium
or lateral balance of the apparatus, to provide means for guiding the
machine both vertically and horizontally, and to provide a structure
combining lightness, strength, convenience of construction, and
certain other advantages which will hereinafter appear.‘
There are 18 claims in the patent; but claims 3, 7, 14, and 15 only are
infringed, and they read as follows:
‘3. In a flying machine, a normally flat aeroplane having lateral
marginal portions capable of movement to different positions above
or below the normal plane of the body of the aeroplane, such
movement being about an axis transverse to the line of flight,

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whereby said lateral marginal portions may be moved to different
angles relatively to the normal plane of the body of the aeroplane,
and also to different angles relatively to each other, so as to present
to the atmosphere different angles of incidence, and means for
simultaneously imparting such movement to said lateral marginal
portions, substantially as described.‘
‘7. In a flying machine, the combination with an aeroplane, and
means for simultaneously moving the lateral portions thereof into
different angular relations to the normal plane of the body of the
aeroplane and to each other, so as to present to the atmosphere
different angles of incidence, of a vertical rudder, and means
whereby said rudder is caused to present to the wind that side
thereof nearest the side of the aeroplane having the smaller angle of
incidence and offering the least resistance to the atmosphere,
substantially as described.‘
‘14. A flying machine comprising superposed connected
aeroplanes, means for moving the opposite lateral portions of said
aeroplane to different angles to the normal planes thereof, a vertical
rudder, means for moving said vertical rudder toward that side of the
machine presenting the smaller angle of incidence and the least
resistance to the atmosphere, and a horizontal rudder provided with
means for presenting its upper or under surface to the resistance of
the atmosphere, substantially as described.
‘15. A flying machine comprising superposed connected
aeroplanes, means for moving the opposite lateral portions of said
aeroplanes to different angles to the normal planes thereof, a vertical
rudder, means for moving said vertical rudder toward that side of the
machine presenting the smaller angle of incidence and the least
resistance to the atmosphere, and a horizontal rudder provided with
means for presenting its upper or under surface to the resistance of
the atmosphere, said vertical rudder being located at the rear of the
machine and said horizontal rudder at the front of the machine,
substantially as described.‘
The following is a perspective view of the Wright machine:

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:
The defenses are: (1) That the patent is not entitled to a broad
construction; (2) that, if it is broadly construed, it is invalid in view of the
prior art; (3) that, if properly construed as to its scope, the defendants do not
infringe; and (4) that in any event defendants' mode of flying is on a
different principle from complainant's.
The record is replete with publications and oral testimony showing that

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the principal obstacle to the use of the aeroplane before the invention in suit
was the inability to maintain lateral balance, due to disturbing aerial forces
which swerved the aeroplane from its intended course. Indeed, this was the
perplexing problem upon which human flight depended and the one with
which the patentees had to cope. …
Much, indeed, prior to the Wright patent, had been written on the
subject of aerial machinery by Prof. Langley, of the Smithsonian Institute,
Octave Chanute, and others, and there were a number of patents in this
country and in foreign countries disclosing diligent and painstaking efforts
by inventors to achieve success in aerial navigation with heavier than air
machines; but all such efforts for one reason or another were abortive, and
the intentions of the inventors and experimenters miscarried. The prior art
taught that Langley, Lilienthal, Chanute, Maxim, and others had faithfully
endeavored to solve the difficulties and remedy the imperfections in
apparatus. Flying machines of various kinds had previously been built, but
no one had flown save a few, Chanute in this country, and Lilienthal and
Pilcher abroad, who were engaged in experimentation.
In this situation the patentees conceived the idea of hinging dihedral
planes to supports at their front and rear margins, with flexible joints to
permit warping or tilting them at their extreme lateral ends by the use of
suitable levers to impart to the aeroplane surface a helicoidal twist. On this
point the specification says:
‘We prefer this construction and mode of operation for the reason
that it gives a gradually increasing angle to the body of each aeroplane
from the central longitudinal line thereof outward to the margin, thus
giving a continuous surface on each side of the machine, which has a
gradually increasing or decreasing angle of incidence from the center of
the machine to either side. We wish it to be understood, however, that
our invention is not limited to this particular construction, since any
construction whereby the angular relations of the lateral margins of the
aeroplanes may be varied in opposite directions with respect to the
normal planes of said aeroplanes comes within the scope of our
invention.’
It was believed in the beginning that, by warping or depressing the
margins of the supporting planes at opposite ends, the aeroplane could be
controlled in its movements and its equilibrium maintained in flying, and
the proofs show that in their earlier efforts the inventors did not design to
use either a horizontal rudder in front of the machine or a vertical rudder at
the rear; but later, before the application for patent was filed, these
instrumentalities were added. The movable vertical rudder or tail exerts a

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retarding influence on the side of the machine, which in flying has a
tendency to move ahead of the opposite side, and thus assists the wings or
marginal ends in keeping the aeroplane properly balanced….
To induce a construction of the claims in controversy that will exclude
defendants’ aeroplanes, it is contended that the patentees merely improved
the known gliding machine—a contrivance for gliding down slopes—and
that the wing tips, horizontal rudder, and vertical rudder were old separately
and in combination. In the year 1896, and previously, Lilienthal had flown
experimentally with a gliding machine which was afterwards wrecked.
Later, the Pilcher and Chanute structures, of both the monoplane and
biplane type, were used for experimental flying; but they also were failures,
and little success was achieved in correcting their imperfections.
In a published address by Chanute, who had carefully studied the
subject of aero-dynamics and disclosed a keen familiarity with flying
machines of the aeroplane type, there is contained a precursory review of
the aeroplane and its practicability up to the year 1897. In this address he
points out the differences between curved and flat planes with regard to the
effect of air pressure thereon; but his descriptions were not sufficiently
definite to suggest the later improvements by the patentees. He declared that
the use of a horse power motor to facilitate flight, if of sufficiently light
weight, was a minor detail and not a serious problem, and that the
maintenance of the equilibrium was the most important problem in
connection with aerial navigation. While his experimentation and
publications were helpful to the patentees, it is not contended by the
defendants that they were anticipatory of the claims in suit, but merely that
they showed the progress that had been made in efforts to make possible
human flight.
That the prior patents do not show the patented combination of
complainant's construction is evident from an examination thereof.
The Henson British patent of 1842 was for a monoplane having two
pivoted tails independently operated- one a horizontal tail, controlling the
upward and downward movements of the apparatus; the other a vertical tail,
guiding its direction. The statement in the specification as to the dimensions
of the machine indicates its impracticability, and there is nothing to show
that the patentee had in mind the principle that the steering or control of the
machine depended upon the tilt of the wings in connection with the use of
the vertical rudder.
In the Maxim British patent, No. 16,883, of 1889, for an aerial machine,
there is a vertical movable rudder and a horizontal rudder- the former for
guiding the aeroplane in an upward or downward direction, and the latter
for steering to right or left. While the function of the Maxim horizontal
rudder was apparently the same as that of the Wright horizontal rudder, the
function of the vertical rudder was essentially different.

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In the Lanchester British patent, No. 3,608, the intention of the patentee
was to secure the lateral balance of his aerial machine by automatic means.
He, however, never succeeded in carrying out his design. In addition to the
horizontal rudder, his machine carried a rear rudder, which was used for
steering, and not for maintaining the equilibrium of the contrivance, and the
wings were immovable….
One additional publication, the Ader article, published in France in
1893, may be dwelt upon. The conception of Ader relates to apparatus for
flying which somewhat resembles the wings of birds or bats, having tips
which, according to the specification, could be moved forward and
backward. The machine was of the monoplane type, and carried a motor;
but, as there was no connection between the warping features and the rudder
by which the lateral balance of the machine was secured, the publication is
not entitled to be considered in limitation of the claims in suit embodying
such elements…..
… As the defendants have not proven that the defects attributable to
such devices could have been removed by the exercise of the skill and
training of an engineer or mechanic, I am of opinion, after complete
consideration of the testimony on both sides, that the patentees, by their
method of securing the equilibrium of the planes, made an important
advance in an embryonic art. They were not the first to conceive the idea of
using monoplane or biplane surfaces for flying, nor the first to support two
planes at their margins one above the other, or to use vertical tails or
rudders for steering, or to place horizontal rudders forward of the machine
to guide it upward or downward in its flight. The prior separate use of such
elements is freely admitted by the patentees; but they assert, rightly, I think,
that the patented combination was a new combination, performing a new
and novel result. The antecedent patents, the efforts to perfect the gliding
machine and to provide means for restoring equilibrium, in short, the many
unsuccessful attempts to remedy existing imperfections in aerial machinery,
all bear witness to the fact that the achievement of the patentees required the
exercise of the inventive faculty. Having attained success where others
failed, they may rightly be considered pioneer inventors in the aeroplane art.
Their concept was practical, and their combination of old and new elements
meritoriously advanced the operativeness of aeroplanes of this type from
which astonishing flights have resulted.
Of course, it is not intended to decide, and such decision should not be
inferred from what has been stated, that by the adaptation described in the
specification and claims in suit the capsizing or upsetting of the aeroplane
has been made impossible or its stability in the air positively assured; for
this is not contended. But that the invention is a strong factor in restoring
equilibrium where, owing to the fluctuations of the wind or to other
disturbing causes, the aeroplane is shifted or swerved from its course, is
undoubtedly proven. When such deflections occur, the warping device,

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imparting to the aeroplane surface a helicoidal twist, is used, and at the
same time the vertical rudder is turned to recover the equilibrium. And even
if the patentees were not strictly pioneers, in the sense of producing an
apparatus novel in its entirety, they nevertheless strikingly surpassed their
predecessors in devising means for restoring lateral balance, and are entitled
to a liberal construction of their claims in controversy, and to the
application of a range of equivalents that will include an aeroplane
appropriating substantially the same instrumentalities and the same
principle of operation.
The defendants urge that the patentees' invention is without practical
utility, that the flat planes described in the specification were never used,
that the vertical rudder is useful merely to equalize resistance, that the
patent fails to disclose the manner of effecting the equalization of the
differences of air pressure, and argue that in turning complainant's machine
the ailerons are warped, with the result that the aeroplane swings or circles
toward the side on which the greater angle of incidence was produced, that
by such maneuvering to prevent upsetting complainant's machine has to be
turned from its course, it being impossible to further turn the vertical
rudder, and they argue that defendants' aeroplane is radically different from
complainant's. They also claim that it was not until the vertical rudder was
constructed to move independently of the ailerons, as in defendants'
aeroplane, that an operative device was produced….
To the aeroplanes later constructed by the complainant there has been
added a supplemental lever for turning the vertical rudder, which, as shown
by the evidence, is used to increase the swing of the machine in one
direction or another, when the conditions are such as to necessitate turning
the rudder further to the right or left to retard the speed of the right or left
wings than can be done by using the cradle. This alteration or additional
feature was not necessary to the practicability or operativeness of the
invention; such rudder still being relied upon in connection with the
warping instrumentality…..
There was much discussion at the bar as to claim 3, which does not
include the vertical rudder as an element. The important feature thereof is
that the lateral marginal portions of the planes must be capable of
movement to different angles relatively to the normal plane of the aeroplane
and about an axis transverse to the line of flight; the purpose of said
movements being to present to the atmosphere different angles of incidence.
It was argued that without the co-operation of the vertical rudder the claim
was wholly impracticable. The complainant company, to the contrary,
rejoins that there is shown a subcombination which is valid, and which
should be sustained. There is evidence that the marginal ends of the
supporting planes are capable of moving simultaneously in different angular
relations to the plane and to each other without the assistance of the vertical
rudder; but the result was not satisfactory as the machine in its flights
skidded to the side, an imperfection which has been remedied by the use of

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the vertical rudder in conjunction with the ailerons. It is not essential to the
validity of claim 3 that all parts of the machine, or all parts specified in
other claims, which are necessary to its operativeness, should be included
therein, and resort must be had to the specification for a disclosure of the
parts necessary to insure the practicability of a patented device. In the
Wright structure a new and novel result was attained simply by having the
ailerons on the ends of the planes, without the supplemental feature of the
vertical rudder. The warping feature is, in fact, the essential part of the
machine, while the vertical rudder, insuring successful flying, is a valuable
adjunct, without which lateral balance could not be restored. The
employment, in a changed form, of the warping feature of its equivalent by
another, even though better effects or results are obtained, does not avoid
infringement. In such circumstances, as I read the authorities, the claim is
valid as a subcombination….. In Railroad Co. v. Dubois, 12 Wall. 47, the
Supreme Court of the United States says:
‘Undoubtedly a patentee may claim and obtain a patent for an entire
combination, or process, and also for such parts of the combination or
process as are new and useful, and he may claim and obtain a patent for
both.’….
It is next contended that defendants’ aeroplane does not infringe claim
3, as its ailerons do not move in either direction above or below the normal
plane of the body portion; but any such alteration, however, is immaterial,
as defendants' planes move at different angles relative to the aeroplane and
to each other, and attain the substantial result of the Wright patent.
Claim 7 is for the elements of (1) an aeroplane; (2) means for moving
the ailerons in different directions; (3) a vertical rudder; and (4) means for
operating the rudder causing it to ‘present to the wind that side thereof
nearest the side of the aeroplane having the smaller angle of incidence, and
offering the least resistance to the atmosphere, substantially as described.’
The description of the modus operandi of the rear rudder plainly discloses
its object and purpose, and is not restricted to the warping ropes or wires.
Claim 14 includes the horizontal rudder, with means for presenting its
underside to the resistance of the air currents, while claim 15 specifies the
location on the aeroplane of the vertical and horizontal rudders. The said
claims must be given an interpretation of sufficiently wide scope to cover
the appropriation of the substance of the invention or the equivalent means
by which the principle is applied to an aeroplane of the type described in the
patent in suit.
This brings me to the final question of whether or not there is in
defendants’ machine a tendency to spin or swerve, which is checked or
counteracted by the operation of its vertical rudder. Upon this phase of the
case considerable oral testimony was given bearing upon the practical and
theoretical sides. Notwithstanding the construction to which the claims are
thought entitled, if the defendants operated their aeroplane upon a different

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principle, using means which were old in aerial navigation or foreign to
complainant’s, then infringement cannot be sustained.
The evidence is that the defendants in their machine have two slightly
curved planes supported by rigid posts placed vertically to the planes at the
front and rear sides, the ends thereof being open the entire length, and that
there are two ailerons or wings on the extreme sides of the planes, each
pivoted to supports and crosspieces midway between the upper and lower
planes. Such ailerons or supplementary planes are extended in part beyond
the edges of the main planes, and are not continuous or integral portions
thereof, as are complainant's. They are adjustable at different angles, and
are raised and lowered by the lateral movement of the body of the aviator,
who is seated in a movable seat in the central portion of the aeroplane. Each
aileron has the same angle to the supporting props as the other, and as the
angles of incidence of the planes change in flying the angles of the ailerons
also change, each presenting unequal angles and resistances. In
consequence of such variation in the angles of the ailerons, the speed of the
high and low sides varies whenever the planes are tilted from the normal
angle. At the rear of defendants’ construction there is a vertical rudder, and
there is a sharp question of fact as to whether such rudder is used to assist
the ailerons in recovering lateral balance by retarding the speed of the high
side and increasing the speed of the opposite side. If it is not so used, then
in my opinion the defendants' machine is not operated on the principle of
claims 7, 14, and 15 in suit. The claim is that such rudder is operated in a
manner to compensate for the difference in head resistance on the ailerons,
due to the unequal angles caused by the continuous alteration of the angle of
incidence of the machine, or, in other words, that the defendants' rudder is
turned to the high side because of the unequal resistance exerted by the
ailerons. This mode of operation the defendants earnestly deny, and there is
much dispute in regard thereto.
In front of their machine the defendants also use a horizontal rudder,
which directs the upward and downward course, and which may be
maneuvered by the aviator to coact with the ailerons and the vertical rudder.
The following is a perspective view of defendants' machine:

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If I am correct in my interpretation of claim 3 and the rule of law
applicable thereto, the ailerons of defendants’ construction and the manner
of using them are within its scope. The witness Curtiss frankly testified that

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the purpose thereof is to preserve the lateral balance ‘without the use of any
other element or part’; it making no difference whether the aeroplane is in a
straight or curved flight. Such concession supports the asserted
infringement of the claim under consideration. There is, however, other
testimony showing the specific manner in which the result is attained. The
witnesses for complainant have sworn that in defendants’ construction the
aviator to restore lateral balance causes the ailerons to be lowered or raised,
thus increasing the angle of incidence of one while decreasing that of the
other, by inclining his body and moving his seat towards the high wing. It is
true that the vertical rudder is not connected so as to coact with the ailerons,
there being no direct connection between them, but each is controlled
separately. According to the evidence, a turning effect is at times produced
in defendants' machine by air disturbances, to counteract which the right
aileron of defendants' machine may be pulled downward as the other is
raised, and the vertical rudder inclined towards the raised aileron.
Defendants firmly deny that there is any turning tendency or swerving
which requires turning the rudder away from its central position; and,
giving effect to the language of the Circuit Court of Appeals in its opinion
on the appeal to be relieved from the preliminary injunction, upon this point
really hangs the question of infringement.
Curtiss testified that he had given particular attention in flying to the
ailerons of his machine, to acquaint himself with their movements, and to
find out whether they caused a swerving of the machine on its vertical axis,
which in its correction necessitated the use of the rear rudder, and he swears
that the rear rudder is not used to assist the ailerons in their functions or to
restore equilibrium, but merely for steering. The witness Willard, who has
many times flown a Curtiss aeroplane, swears that in recovering balance
there is no swerving or turning on the vertical axis, and that in effecting
such maneuver the vertical rudder is held in a central position, and that he
has never noticed any tendency of the machine to swerve because of the use
of the ailerons, and in support of his testimony he cited an instance of the
breakage of the controlling wires leading to the vertical rudder, and said that
he flew ahead for a distance of two miles without its use; but as an
equalizing device was used, and as the ailerons in the machine used were
differently placed than midway between the planes, the incident loses
importance. Captain Beck of the government aviation station, who has
flown the defendants’ aeroplane, substantially testified that there were no
deviations of the aeroplane from its course, owing to the use of the ailerons,
that the vertical rudder was not used to counteract any turning or swerving
due to their use, and that he had never made such use of the vertical rudder;
but he admitted that on one occasion in climbing he tilted abnormally, and
turned his rear rudder in the opposite direction to restore balance, and
succeeded in doing so. Lieut. Ellyson, of the United States Navy, also
testified that he noticed no swerving when flying, and that the vertical
rudder in the Curtiss aeroplane is usually used in starting from the ground,
but not in flying, except for steering purposes. The witness Post testified
that from his observations in experimental tests he could testify positively

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that there is no turning of the machine around a vertical axis when the
balancing planes are used, and that the rudder is used solely for steering….
The defendants are believed to have appropriated the substance of claim
7, and to have infringed claim 14, inasmuch as, in addition to the essential
elements of the Wright patent and the object with which such elements are
used, they also employ in their aeroplane, as hereinbefore shown, a
horizontal rudder for ‘presenting its upper and under surfaces to the
resistance of the atmosphere.’ Claim 15 contains the essential elements, and
specifies the location of a vertical rudder at the rear of the machine and a
horizontal rudder at the front thereof.
The defendants have embodied in their aeroplane the various elements
of the claims in suit. While it is true, as pointed out herein, that the
defendants have constructed their machine somewhat differently from
complainant’s, and do not at all times and on all occasions operate the same
on the Wright principle, yet the changes they have made in their
construction relate to the form only. They have constructed their machine so
that it is capable of restoring equilibrium in substantially the same way as is
complainant's machine, and the evidence is that on occasions, depending
upon aerial conditions or other disturbing causes, they use the vertical
rudder, not only to steer their machine, but to assist the ailerons in restoring
balance.
It is unnecessary to further answer the arguments advanced at the bar
bearing on the defense of noninfringement, as to do so would extend this
opinion beyond reasonable length. Everything relating to the testimony and
the criticisms thereon has not been fully treated, yet the material features
have been sufficiently elaborated. The questions of law in the case are
important; but the questions of fact are controlling, and in view of the
novelty of the claims and their scope, the question of infringement is
resolved adversely to the defendants as to the claims which are the subject
of this controversy.
A decree may be entered, with costs, in favor of the Wright Company,
as prayed in the bill; but, because of the importance of the litigation and of
the questions involved, a supersedeas will be allowed, upon condition that
an appeal be diligently prosecuted.
NOTES AND QUESTIONS
1. Patent scope presents a problem of competition policy as much as
intellectual property policy, does it not?
The markets for most
manufactured products are differentiated but nevertheless at least
moderately competitive. This includes automobiles, computers, televisions
and other consumer electronics, and kitchen appliances, to name a few. The
granting of very broad patent rights can permit a pioneer patentee to exclude

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variations that build in some way on the pioneer’s patent. Further, under
the doctrine of equivalents, patent law can even exclude alternative
technologies that accomplish the same purpose. The result is less
competition – something that might be fully justified if it produces more
innovation. But isn’t that the rub: it seems fairly clear that broad patent
grants reduce competition by permitting pioneers to exclude rival
technologies; whether broader scope produces more innovation is very
much an open question.
2. See Robert P. Merges & Richard R. Nelson, On The Complex Economics
of Patent Scope, 90 COL.L.REV. 839, 890-891 (1990), speaking of the
Wright patent litigation:
The achievement described in the patent -- an efficient
stabilizing and steering system-was in fact a major one, and it did
enable a multiplicity of future flying machines. .. [T]he Wright
brothers were very interested in producing aircraft and in improving
their design, and they did so actively. However, there were other
important people and companies who wanted to enter the aircraft
design and manufacture business. They had their own ideas about
how to advance the design of aircraft, and they strongly resisted
being blocked by the Wright patent. In this case, and others, it
turned out to be extremely difficult to work out a license agreement
that satisfied both the holder of a broad patent and an aggressive
potential competitor who believed that there was a lot of his own
work in his design. The early attempts by the Wright Brothers and
Glenn Curtiss, who was the most prominent such potential
competitor, came to naught. Litigation followed.
There is good reason to believe that the Wright patent
significantly held back the pace of aircraft development in the
United States by absorbing the energies and diverting the efforts
of people like Curtiss. The aircraft case is similar to that of
automobiles in that the problems caused by the initial pioneer
patent were compounded as improvements and complementary
patents, owned by different companies, came into existence. The
situation was so serious that at the insistence of the Secretary of
the Navy, during World War I, an arrangement was worked out
to enable automatic cross licensing. This arrangement, like the
licensing of automobile patents, turned out to be a durable
institution. By the end of World War I there were so many
patents on different aircraft features that a company had to
negotiate a large number of licenses to produce a state-of-the-art
plane.
See also Mfrs. Aircraft Ass'n v. United States, 77 Ct. Cl. 481, 485
(1933), which observed that the existence of a chaotic situation concerning
the validity and ownership of important aeronautical patents seriously

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retarded the development of the aircraft industry in the United States and
that that it was difficult for the Government to obtain fulfillment of orders
because some companies would not expend any money on their plants for
fear that suits brought against them would force them out of business.
Manufacturers Aircraft Ass'n v. United States, 77 Ct.Cl. 481, 483-84 (Ct.
Cl. May 8, 1933). A National Advisory Committee for Aeronautics, which
had been created pursuant to an act of Congress to consider and devise
some plan to remedy the existing difficulties, rendered a report
recommending the formation of the Aircraft Manufacturers Association
among all aircraft manufacturers and suggesting the details of a crosslicense agreement among its members. Id. at 484-85. After discussing the
terms with the airplane manufacturers and representatives of the Wright and
Curtiss Companies, the National Advisory Committee approved the report
and the proposed cross-license agreement.
George Bittlingmayer has argued that royalty-free cross-licensing or
royalty-free pooling of competing patents in the aircraft patent pool
eliminated the possibility that the agreement was a front for a cartel,
assuming there were no restrictions on the prices or output of the final
product and the agreement saved the accompanying costs and the
uncertainty of litigating competing patents. Bittlingmayer, Property Rights,
Progress, and the Aircraft Patent Agreement, 31 J.L. & Econ. 227, 229, 232,
236 (1988). First, such an agreement would not protect the firms from
competition because its terms show that that only a limited set of patents
was covered, so the firms were free to compete for customer in other ways..
They could use price competition as well as nonprice competition in
nonpatentable aspects of aircraft design and construction. Second, the firms
sharing patents without royalties expect to gain more from unrestricted use
of other firms' patents than they lose by not being able to charge for their
own. Third, two exclusions from royalty-free sharing existed in the
agreement: patents of "striking character" received arbitrated royalties, and
patents not pertaining to aircrafts structures were excluded altogether. The
arbitrated royalties would induce the firms who believed the expected value
of their current or future patent is so great to stay in the agreement. The
exclusion of all but aircraft-structure patents from the agreement eliminated
the holdout problems that arise when the different patents crucial to an
innovation are held by different firms.
3. In an important article on sequential innovation Professor Ed Kitch
argued that the patent system “puts the patent owner in a position to
coordinate the search for technological and market enhancement of the
patent's value,” “lowers the cost for the owner of technological information
of contracting with other firms possessing complementary information and
resources,” and “reduc[es] the amount of duplicative investment in
innovation.” However, achieving this normally requires that broad rights
be granted to pioneer patentees. Edmund W. Kitch, The Nature and
Function of the Patent System, 20 J.L. & Econ. 265 (1977). Kitch
analogized the patent to the right to “prospect” that the discoverer of a

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mineral vein such as gold could receive from the government. The gold had
not yet been mined, but the discovery and the staking of a claim entitled the
prospector to an exclusive right in what he had discovered.
Professor John Duffy responded that the patent system is more
analogous to bidding for a natural monopoly, such as a public utility
franchise. The patent is awarded to one of the inventors who agree to start
racing earliest and thus implicitly consent to place the invention in the
public domain first. John F. Duffy, Rethinking the Prospect Theory of
Patents, 71 U. CHI. L. REV. 439, 444 (2004). Duffy quoted Joseph A.
Schumpeter:
It is hardly necessary to point out that competition of the kind
we now have in mind acts not only when in being but also when it is
merely an ever-present threat. It disciplines before it attacks. The
businessman feels himself to be in a competitive situation even if he
is alone in his field.
JOSEPH A. SCHUMPETER, CAPITALISM, SOCIALISM, AND DEMOCRACY 85
(1942).
Further, competition to obtain patentable improvements to maintain
the monopoly position granted by the pioneer patent can help constrain the
monopolist and increase social welfare. Other inventors may try to invent
around the prospect patent rather than compete with the prospect patent
holder for patentable improvements.
FESTO CORP. V. SHOKETSU KINZOKU KOGYO KABUSHIKI
CO.
234 F.3d 558 (Fed. Cir. 2000), rev’d, 535 U.S. 722 (2002)
[The Supreme Court reversed the Federal Circuit in this decision
involving the proper scope of a patented invention. What appears here is (1)
the Reporter’s syllabus describing the facts and the Supreme Court’s
decision; and (2) a dissenting opinion from the Federal Circuit below,
written by Judge Pauline Newman—Ed.]
Syllabus of Supreme Court Reporter
Petitioner Festo Corporation owns two patents for an industrial
device. When the patent examiner rejected the initial application for the first
patent because of defects in description, 35 U.S.C. § 112, the application
was amended to add the new limitations that the device would contain a pair
of one-way sealing rings and that its outer sleeve would be made of a
magnetizable material…. After Festo began selling its device, respondents
(hereinafter SMC) entered the market with a similar device that uses one
two-way sealing ring and a nonmagnetizable sleeve. Festo filed suit,
claiming that SMC’s device is so similar that it infringes Festo’s patents

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under the doctrine of equivalents….
Held: ….
a) To enable a patent holder to know what he owns, and the public
to know what he does not, the inventor must describe his work in “full,
clear, concise, and exact terms.” § 112. However, patent claim language
may not describe with complete precision the range of an invention’s
novelty. If patents were always interpreted by their literal terms, their value
would be greatly diminished. Insubstantial substitutes for certain elements
could defeat the patent, and its value to inventors could be destroyed by
simple acts of copying. Thus, a patent’s scope is not limited to its literal
terms, but embraces all equivalents to the claims described. See Winans v.
Denmead, 56 U.S. (15 How.) 330, 347, 14 L.Ed. 717. Nevertheless, because
it may be difficult to determine what is, or is not, an equivalent, competitors
may be deterred from engaging in legitimate manufactures outside the
patent’s limits, or lulled into developing competing products that the patent
secures, thereby prompting wasteful litigation. Each time the Court has
considered the doctrine of equivalents, it has acknowledged this uncertainty
as the price of ensuring the appropriate incentives for innovation, and it has
affirmed the doctrine over dissents that urged a more certain rule.
(b) Prosecution history estoppel requires that patent claims be
interpreted in light of the proceedings before the Patent and Trademark
Office (PTO). When the patentee originally claimed the subject matter
alleged to infringe but then narrowed the claim in response to a rejection, he
may not argue that the surrendered territory comprised an unforeseen
equivalent…..
(c) Prosecution history estoppel is not limited to amendments
intended to narrow the patented invention’s subject matter, e.g., to avoid
prior art, but may apply to a narrowing amendment made to satisfy any
Patent Act requirement….
(d) Prosecution history estoppel does not bar the inventor from
asserting infringement against every equivalent to the narrowed element.
Though estoppel can bar challenges to a wide range of equivalents, its reach
requires an examination of the subject matter surrendered by the narrowing
amendment…. By amending the application, the inventor is deemed to
concede that the patent does not extend as far as the original claim, not that
the amended claim is so perfect in its description that no one could devise
an equivalent…. [I]n cases in which the amendment cannot reasonably be
viewed as surrendering a particular equivalent—e.g., where the equivalent
was unforeseeable at the time of the application or the rationale underlying
the amendment bears but a tangential relation to the equivalent—the
patentee can rebut the presumption that prosecution history estoppel bars a
finding of equivalence by showing that at the time of the amendment one
skilled in the art could not reasonably be expected to have drafted a claim

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that would have literally encompassed the alleged equivalent.
* * *
Judge Pauline Newman, dissenting from lower court’s decision, 234
F.3d 558, 638 et seq.:
III
INNOVATION AND COMPETITION POLICY
… The modern industrial economy is driven by technological
innovation. It has long been understood that technological advance and
industrial vigor flow from legal and economic policies that encourage
invention and support investment in the products of invention. The
extensive scholarship in this area is founded on the classical studies of
Joseph A. Schumpeter, Capitalism, Socialism and Democracy, Harper, New
York (3d ed.1950) (recognize ng the economic impact of patent-based
innovation as new industries and new goods displace the old), and has been
broadly explored, e.g., Kenneth J. Arrow, Economic Welfare and the
Allocation of Resources for Invention (1962) (discussing intellectual
property rights in a free enterprise economy); Robert Solow, Technical
Change and the Aggregate Production Function, 39 Rev. Econ. & Stat. 312
(1957).
The encouragement of invention and investment in new ideas and
their embodiments is a primary function of patent systems, aimed at the
national purpose of development of new industries, improved productivity,
increased employment, and overall economic growth as well as technologic
advance. There is burgeoning modern scholarship directed to studies of
invention, investment, and patent systems, generally building on the work
of William D. Nordhaus, Invention, Growth, and Welfare: A Theoretical
Treatment of Technological Change, M.I.T. Press, Cambridge (1969), and
other scholars such as Kenneth M. Dam, The Economic Underpinnings of
Patent Law, 23 J. Leg. Studies 247 (1994); David Silverstein, Patents,
Science and Innovation: Historical Linkages and Implications for Global
Technological Competitiveness, 17 Rutgers Computer & Tech. L. J. 261
(1991); and Friedrich–Karl Beier, The Significance of the Patent System for
Technical, Economic and Social Progress, 11 Int’l Rev. Indus. Prop. &
Copyright L. 563 (1980). Critical attention has been given to aspects such
as the nature of the technology, the rate of technologic change in the
particular field, the maturity of the field, the cost of invention and
development for various technologies, market risks and competitive
structures, the ease and cost of imitation, and the choice between disclosure
in patents and maintaining the technology in secrecy. International
patenting and trade aspects have been explored, as well as the cost of
patenting and the cost of enforcement. E.g., Nancy T. Gallini, Patent Policy
and Costly Imitation, 32 RAND J. Econs. 56 (1992) (discussing factors
such as licensing policy and technological difficulties); Richard J. Gilbert &
David M.G. Newberry, Preemptive Patenting and the Persistence of

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Monopoly, 72 Am. Econ. Rev. 514, 519, 522 (1982) (industry-specific
conditions such as the existence of patentable substitutes and crosslicensing, as well as costs of litigation, affect strategic behavior).
The field of innovation study has evolved to include such
complexities as “sequential” innovation, wherein one invention follows
from the disclosure of another, e.g., Jerry R. Green and Suzanne Scotchmer,
On the Division of Profit in Sequential Innovation, 26 RAND J. Econ. 20
(1995) (pointing out that patent length and breadth play a different role
when innovation is sequential); G.M. Grossman and E. Helpman, Quality
Ladders in the Theory of Growth, 58 Rev. Econ. Stud. 43 (1991)
(discussing how investment in sequential innovation drives economic
growth).
It is well recognized that all of these aspects have varying weights,
and that the circumstances surrounding the development and utilization of
intellectual property are extremely diverse. Indeed, commentators complain
that a single patent policy and patent law are unsuited to the range of
scientific and commercial activity in today’s economy.
Thus scholarship is providing rigor to understanding the role of
intellectual property in innovation/competition policy, even as the
limitations of economic models of invention, risk, and investment are
recognized. Scholars writing in this field tend to introduce their analyses
with a salute to complexity and an apology for their simplifications.
However, within the growing body of scholarship, studies of the
relationship between industrial innovation and optimal patent policy weigh
against the majority’s policy decision here. A paper entitled Optimal Patent
Design and the Diffusion of Innovations, Carmen Matutes, Pierre Regibeau
& Katherine Rockett, 27 RAND J. Econs. 60, 78 (1996), concludes that “the
optimal scope policy implies that inventors of basic innovations obtain
protection on applications that they have not yet fully worked out. This
would probably require a more lenient review of claims than is the current
practice.” Edmund W. Kitch in The Nature and Function of the Patent
System, 20 J.L. & Econ. 265 (1977) proposes that optimum patent policy
should provide sufficiently broad scope to the inventor who opens a new
field, to provide adequate economic incentives while avoiding duplication
of effort and discouraging recourse to secrecy. D.G. McFetridge and M.
Rafiquzzaman in The Scope and Duration of the Patent Right and the
Nature of Research Rivalry, 8 Research in Law & Economics: The
Economics of Patents and Copyrights 91, 104 (1986) discuss how the
existence of non-infringing substitutes alters the benefit gained by an
inventor, necessarily skewing incentives to invest.
It is generally agreed that long-term economic growth requires a
policy framework that encourages the creation and commercialization of
new technologies, as contrasted with a policy that facilitates appropriation
of the creative product, lest the creative product dry up in the face of too-

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easy appropriation. “Knowledge capital,” secured by intellectual property
rights, now rivals the traditional economic components of labor
productivity, capital formation, and natural resources, as the foundation of
economic growth.
The inventor and the imitator are affected by quite different
economic considerations. The innovator takes the risk of commercial
success or failure of new things in new markets—the risk of unfulfilled
expectations, obsolescence, regulation, technologic failure. The imitator
bears none of these risks; he is interested only in the successful products,
not in the failures; he is interested only in the profitable products, not the
marginal ones; he moves in only after the invention has been made and
tested and the market developed, and can operate at lower margins. The
patent system provides weight on the side of the innovator, aided by the
doctrine of equivalents and its inhibition of close copying, establishing an
incentive whose value has been tested by time. However, it is also well
recognized that competition is essential to a healthy economy. Achieving
the optimum balance of these factors is of vital national importance. A
major policy change in the foundational law affecting innovation and
competition should not be made without adequate study of its
consequences.
Although there is burgeoning literature on technologic intellectual
property rights, the doctrine of equivalents has not, of itself, been a major
focus of legal and economic scholarship. I suspect this is due to the
complexity of the issue, the variety of factual applications, the diversity of
technologies, the breadth of interacting influences on patentees’ and
competitors’ activities, and the complex nuances of competition at the edge
of the products of others. A few authors, however, have critically
considered the doctrine of equivalents. For example, Robert P. Merges &
Richard R. Nelson, in On the Complex Economics of Claim Scope, 90
Colum. L. Rev. 839 (1990), observe that the doctrine of equivalents tends to
diminish incentives for competitors, but point out that the doctrine also
encourages competitors to make “leapfrogging” advances instead of simply
copying at the edge of the claims. The questions raised by the doctrine of
equivalents are not quite the same as those of patent “scope.” The issue of
“scope” is directed to aspects of literal claim breadth, as discussed by Kitch,
supra. The question of equivalency is quite different. Infringement under
the doctrine of equivalents is available only against what is indeed the same
invention with only insubstantial change, as contrasted with issues of broad
claims for broad but undeveloped concepts. Equivalency is a judge-made
response to the pernicious literalism of the system of claiming, not an
enlargement of the scope of the invention.
My colleagues in the majority make the error of the “simplified
model,” which assumes a continuing supply of new products, and ignores
the prior steps of invention and commercialization. The majority concludes
that the elimination of liability for infringement based on equivalency will

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be of public benefit: “The public will be free to improve on the patented
technology and design around it. . . . [C]ertainty will stimulate investment
in improvements and design-arounds.” Maj. op. at 577. However, the
assumption that placing new technology in the public domain is always the
optimum path to industrial growth is not supported by experience.
Empirical studies have added rigor to the common sense knowledge that
reduced profit opportunity affects the supply of capital to launch a new
technology, and often the creation of the technology itself. See, e.g., Joshua
Lerner, The Importance of Patent Scope: an Empirical Analysis, 25 RAND
J. of Econ. 319 (1994) (reviewing 173 venture-backed biotechnology firms
and reported that an increase of one standard deviation in average patent
scope produced a 21% increase in the firm’s value).
The present patent law has supported a blossoming of technologybased industry in a competitive environment that is conspicuous for its
entrepreneurial vigor. The balance among inventor, investor, competitor,
and consumer, and the effect of the doctrine of equivalents on that balance,
is not explored in the parties’ briefs and had sparse amicus participation, for
it was not at issue. Of course no patentee would choose to rely on the
doctrine of equivalents to support commercial investment. The public and
private interests served by the doctrine of equivalents derive from its
deterrence of close imitation, thereby helping to assure to the patentee the
benefit of the invention, while obliging would-be competitors to advance
the technology instead of simply skirting the edge of the claims. Although
its influence is not easy to quantify, it is generally accepted that the doctrine
contributes to an industrial policy that seeks to support technologic
innovation.
CONCLUSION
The policy underlying the doctrine of equivalents has been sustained
by the absence of alternative remedy in meritorious cases, when the
patentee’s invention has indeed been taken by trivial change from the letter
of the claims. By enabling remedy when remedy is warranted, the doctrine
adds strength to the system of patents. Today’s technological vitality arose
on a patent system that included the doctrine of equivalents. A change in the
balance between inventor and imitator requires careful understanding of the
consequences; a preference for the neatness of precise “notice” does not
justify major tinkering with the overall strength of the patent system, with
unknown consequences. This court’s new recipe for risk-free copying of
patented inventions presents policy considerations of national import.
The doctrine of equivalents has not been deemed superfluous as an
instrument as justice, and not until today has it been deemed “unworkable”
by this court. The Federal Circuit’s sua sponte change in this law is a
change in industrial policy that requires public discussion in advance of, not

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after, the law has been changed.1 This court’s initiative flows
uncomfortably as a ruling that affects myriad vested rights, on a novel legal
theory, without briefing or argument.
NOTES AND QUESTIONS
1. Patent scope and market structure. The Patent Act does not give a
patentee the right to an economic monopoly, but only to exclude rivals from
technology covered by the patent’s claims. Market structure is both
formally and practically irrelevant to questions about patent scope. Neither
the text of the Patent Act nor its legislative history suggests that Congress
paid much attention to the question of monopoly. However, broad vs.
narrow scope can make a great deal of economic difference depending on
the underlying competitiveness of the market at issue. Granting broad
interpretation of a patent (for example, with a broad doctrine of equivalents,
see infra) has little impact on market competitiveness if the patent itself is
fairly minor and the underlying market highly competitive. For example, a
broad interpretation of a patent on a self-winding watch may not have much
impact on competition if (1) people do not place a particularly high value on
self-winding; (2) there are very different technologies for achieving selfwinding; or (3) wind-up watches are in intense competition with digital
electronic watches. On the other hand, a broad interpretation of the Wright
Brothers aeroplane patent turned competing designs with quite different
technologies into infringers, thus creating considerable market power,
which included the power to exclude competing, superior technologies.
Should the antitrust concern with the exercise of power be relevant to
questions about patent scope?
2. Patent law’s doctrine of equivalents places limits on inventors’
ability to ‘invent around’ patents by finding infringement for technologies
that do not literally infringe a patent claim, but that (1) perform
substantially the same function, (2) in substantially the same way, and (3)
yield substantially the same result. See Graver Tank & Mfr. Co. v. Linde
1

My colleagues’ complaint about the frequency of issues of
equivalency in litigation must be viewed in context. Less than a hundred
patent cases are fully tried each year, and most of the few hundred appeals
to the Federal Circuit reach us on summary disposition. Infringement cases
often raise issues of equivalency, usually offered as an alternative theory to
literal infringement. These are very small numbers in light of over
1,700,000 unexpired patents, of which 1,200,000 are maintained and in
force. Cases in litigation do not provide courts with a balanced picture of
the workings of commerce. Litigants rarely explore national policy, as
committed parties battle for high stakes. Such cases do not present an
objective exposition of the overriding national interest.

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Air Prod. Co., 339 U.S. 605, 609 (1950):
What constitutes equivalency must be determined against the
context of the patent, the prior art, and the particular
circumstances of the case. Equivalence, in the patent law, is not
the prisoner of a formula and is not an absolute to be
considered in a vacuum. It does not require complete identity
for every purpose and in every respect. In determining
equivalents, things equal to the same thing may not be equal to
each other and, by the same token, things for most purposes
different may sometimes be equivalents. Consideration must be
given to the purpose for which an ingredient is used in a patent,
the qualities it has when combined with the other ingredients,
and the function which it is intended to perform. An important
factor is whether persons reasonably skilled in the art would
have known of the interchangeability of an ingredient not
contained in the patent with one that was.
(emphasis added) Did the aileron-bearing plane with metal wings infringe
the Wright Brothers fabric wing with wing warp under this statement of the
doctrine? See also Warner-Jenkinson Co., Inc. v. Hilton Davis Chem. Co.,
520 U.S. 17 (1997), which affirmed the continued viability of the doctrine
of equivalents under the 1952 Patent Act, but also noted these important
qualifications:
We do, however, share the concern … that the doctrine
of equivalents … has taken on a life of its own, unbounded by
the patent claims. There can be no denying that the doctrine of
equivalents, when applied broadly, conflicts with the
definitional and public-notice functions of the statutory
claiming requirement. Judge Nies identified one means of
avoiding this conflict:
“[A] distinction can be drawn that is not too esoteric
between substitution of an equivalent for a component in an
invention and enlarging the metes and bounds of the
invention beyond what is claimed…. Where a claim to an
invention is expressed as a combination of elements, as here,
‘equivalents' in the sobriquet ‘Doctrine of Equivalents' refers to
the equivalency of an element or part of the invention with one
that is substituted in the accused product or process….
“This view that the accused device or process must be
more than ‘equivalent’ overall reconciles the Supreme Court's
position on infringement by equivalents with its concurrent
statements that ‘the courts have no right to enlarge a patent
beyond the scope of its claims as allowed by the Patent Office.’

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The ‘scope’ is not enlarged if courts do not go beyond the
substitution of equivalent elements.”
Warner-Jeckinson, 62 F.3d at 1573-1574 (dissenting from Federal Circuit’s
decision).
We concur with this apt reconciliation of our two lines of precedent. Each
element contained in a patent claim is deemed material to defining the scope
of the patented invention, and thus the doctrine of equivalents must be
applied to individual elements of the claim, not to the invention as a whole.
It is important to ensure that the application of the doctrine, even as to an
individual element, is not allowed such broad play as to effectively
eliminate that element in its entirety.
3. Sequential innovation. Judge Newman noted the crucial role
sequential innovation plays in economic growth. Innovation is sequential, or
cumulative, when “new inventions rely on previous ones.” Oren Bar-Gill &
Gideon Parchomovsky, The Value of Giving Away Secrets, 89 Va. L. Rev.
1857, 1867 (2003). Nearly all industries are characterized by sequential
innovation, and sequential innovation is the “hallmark” of high-tech
industries like software, semiconductors, and pharmaceuticals. Bar-Gill &
Parchomovsky, supra, at 1867–68. See James Bessen & Eric Maskin,
Sequential Innovation, Patents, and Imitation, 40 RAND J. Econ. 611
(2009) (arguing that the relatively weak patent protection found in certain
cumulative-innovation industries is responsible for their rapid growth); Dan
L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV.
1575, 1609–10 (2003) (noting that research on cumulative innovation
shows that “patent rights are important, but that they should not confer
unlimited power to exclude,” and arguing that the balance of rights between
original inventors and subsequent improvers should depend “on the relative
importance of the initial invention and the improvement”); Nancy T.
Gallini, The Economics of Patents: Lessons from Recent U.S. Patent
Reforms, 16 J. Econ. Persp. 131, 136 (2002) (arguing that while stronger
patent rights “give the patent holder . . . the means to ‘hold up’ future
innovations by threatening to litigate infringers, they also increase the
possibility of the patent holder being held up by previous innovators” and
noting “that [i]n this setting, the link between patent strength and innovation
incentives is ambiguous”); J.H. Reichman, Of Green Tulips and Legal
Kudzu Repackaging Rights in Subpatentable Innovation, 53 Vand. L. Rev.
1743 (2000) (arguing that patent law’s property-based rules impede
sequential innovation and raise transaction costs); John H. Barton, Patents
And Antitrust: A Rethinking in Light of Patent Breadth and Sequential
Innovation, 65 Antitrust L.J. 449, 450, 459–60 (1997) (stating that antitrust
law must balance “intellectual property incentives that encourage each
generation of inventions and products against those that encourage later
generations of inventions and products” and arguing that courts hearing
antitrust cases could promote sequential innovation by finding that “refusal
to license a very broad and fundamental patent” violates Section 2 of the

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Sherman Act); Mark A. Lemley, The Economics of Improvement in
Intellectual Property Law, 75 Tex. L. Rev. 989 (1997) (discussing how
patent and copyright laws distinguish between “minor improvers” and
“major improvers”); Robert P. Merges & Richard R. Nelson, On the
Complex Economics of Patent Scope, 90 Colum. L. Rev. 839, 880 (1990)
(describing a variety of industries that feature sequential innovation and
arguing that patent scope should be narrower in these industries).
4. Sequential innovation and amendments of patent claims. In Tun-Jen
Chiang, Fixing Patent Boundaries, 108 Mich. L. Rev. 523 (2010), Professor
Chiang points out that patent claims are “supposed 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 are not.’” (quoting Permuit Co. v. Graver Corp., 284
U.S. 52, 60 (1931)). An amendment process that allows patent holders to
broaden their claims after their patents are issued gives patent holders a
windfall and makes it possible for them to shift losses to their competitors.
This can cost subsequent improvers dearly, especially in dynamic industries
characterized by sequential innovation. Professor Chiang argues that patent
holders should not be allowed to amend claims once their patents are issued
and that even pre-issuance amendments should not get “retroactive priority
against third-party activity.” Even under Professor Chiang’s proposed
changes, however, the doctrine of equivalents would still play a role in
defining claims. See id. at 527 n.17 (doctrine of equivalents “operate[s]
within the structures of the claim itself, retaining some boundary-defining
role for claims even in this context”).
5. In Lear v. Adkins, 395 U.S. 653 (1969), the Supreme Court held that a
licensee may challenge the validity of a patent which it had licensed, and if
the licensee showed that the patent was invalid, it would not be required to
pay further royalties. The Court reasoned that preventing the licensee from
challenging the validity of the patent would “undermine the strong federal
policy favoring the full and free use of ideas in the public domain.” Id. at
673. However, under Lear, the licensee would first need to repudiate the
agreement before it could attack the validity of the patent. Nearly forty
years later in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the
Supreme Court extended Lear by permitting a licensee to challenge the
validity of a licensed patent under the Declaratory Judgment Act, thus
making it unnecessary for the licensee to repudiate the agreement and risk
contract penalties for breach.
The patentee Genentech had given the
licensee MedImmune a choice: pay royalties on an existing license to make
a pharmaceutical drug or face an infringement suit. MedImmune then
brought a declaratory judgment action against Genentech, claiming that the
licensed patent was invalid and unenforceable and in any event did not
cover the drug that MedImmune was making. The district court dismissed
the suit because MedImmune had never stopped paying royalties under the
licensing agreement. Under controlling Federal Circuit precedent, licensees
were required to repudiate their licensing agreements before they could

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establish Article III standing, which requires a “case or controversy” before
a complainant can invoke the jurisdiction of the federal court. Before the
Supreme Court, Genentech argued that MedImmune could not challenge the
validity of the licensing agreement while still benefiting from it, and that
Lear v. Adkins “did not suspend [this] rule for patent licensing agreements,”
as Lear had repudiated the contract before it sued Adkins. The Court
questioned whether Lear’s “repudiation of . . . licensee estoppel was so
limited” but held that it did not matter. Licensees can establish Article III
standing when “payment of a claim is demanded as of right and where
payment is made, but where the involuntary or coercive nature of the
exaction preserves the right to recover the sums paid or to challenge the
legality of the claim.” Nothing in the Constitution requires patent licensees
to “risk treble damages and the loss [most of their] business” before seeking
declaratory judgment that the patent is invalid.
6. Should an innovator be able to obtain licensing royalties on an
invention that was never patented to begin with? In Aronson v. Quick Point
Pencil Co., 440 U.S. 257 (1979), Aronson had filed a patent application for
an ingenious keyholder. Quick Point, a manufacturer agreed to make it and
paid royalties for this exclusive privilege. The agreement also provided that
the royalty rate would be reduced if the patent did not issue within five
years, but did not contain a provision about what would happen if the patent
never issued at all. The patent application was denied but the device itself
was quite successful on the market and others began to copy it. After
paying royalties for fourteen years Quick Point announced that it no longer
had an obligation to pay them, given that the patent had been denied. The
Supreme Court held that because no patent issued there was no federal
question and the enforceability of the license agreement was to be governed
entirely by state contract law. However, the Court suggested that the
contract was probably enforceable given that the parties were bargaining at
arms’ length and must have known that a patent might never issue. Weren’t
the parties simply sharing a risk? Should manufacturers and patentee be
required to wait three years – the average pendency of a patent application –
before negotiating a manufacturing license?
NOTE: THE RELATION BETWEEN MARKET STRUCTURE
AND INNOVATION: THE “INVERTED U”
What is the relationship between market structure and innovation?
Are highly concentrated markets—markets with fewer firms and thus
further from perfect competition—actually more conducive to innovation
than more atomistic markets? In one of the most influential arguments on
the subject, Joseph Schumpeter argued that that monopolized markets are
more conducive to innovation than highly competitive, atomistic markets.
See JOSEPH SCHUMPETER, CAPITALISM, SOCIALISM, AND DEMOCRACY (3d
ed. 1942). There are several reasons why more highly concentrated markets
might better promote innovation: large firms face less competitive pressure,

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which drives prices toward cost, and thus may have more funds to invest in
innovation than smaller firms. Further,, it may be easier for firms in highly
concentrated markets to obtain credit to invest in innovation from within the
firm. Or a strong market position may cause a large firm to be less fearful
of its smaller rivals. If innovations are easily copied by rival firms because
of ineffective intellectual-property protection it may not be economically
rational it for larger firms to invest in innovation. See Jonathan B. Baker,
Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation, 74
ANTITRUST L.J. 575, 578 (2007).
In 1962, Kenneth Arrow argued that, contrary to Schumpeter’s
view, more competitive, less concentrated markets lead to a greater rate of
innovation. See generally Kenneth J. Arrow, Economic Welfare and the
Allocation of Resources for Invention, in THE RATE AND DIRECTION OF
ECONOMIC ACTIVITIES: ECONOMIC AND SOCIAL FACTORS 609 (Richard
Nelson ed., 1962). Arrow argued that a monopolist has less to gain by
innovating; if the monopolist spends a great deal of money researching and
developing in order to innovate, it might see only a limited financial reward
because it has already captured the entire market for the product. Because
innovating would be unlikely to capture new sales, the monopolist would
not be acting economically rationally by investing capital in research and
development. A monopolist particularly does not have an incentive to
innovate when “the post-invention monopoly price is less than the preinnovation monopolist’s costs.” See Michael A. Carrier, Two Puzzles
Resolved: Of the Schumpeter-Arrow Stalemate and Pharmaceutical
Innovation Markets, 93 IOWA L. REV. 393, 404 (2008).
After decades of empirical research, many scholars have concluded
that the relationship between market structure and innovation lies
somewhere between the Schumpeter and Arrow positions, and that market
concentration and the rate of innovation exist in an “inverted-U”
relationship. When a market is too highly concentrated, monopolist firms
do not innovate as much as when the market is slightly less concentrated.
However, there comes a point when too many firms enter a market and the
market starts to become too crowded and atomistic, and innovation tapers
off. See CHRISTINA BOHANNAN & HERBERT HOVENKAMP, CREATION
WITHOUT RESTRAINT: PROMOTING LIBERTY AND RIVALRY IN INNOVATION,
ch. 1 (2012); Richard Gilbert, Looking for Mr. Schumpeter: Where Are We
in the Competition-Innovation Debate?, in 6 INNOVATION POLICY AND THE
ECONOMY 159, 180 (Adam B. Jaffe et al. eds., 2006). The inverted-U
suggests that there is some optimal level—which differs depending on the
market—where innovation happens most frequently, and that this optimal
level falls somewhere between perfect competition and monopoly.
Much of the theory suggests that the inverted-U relationship results
when firms are similarly aggressive in innovating and thus are in close
competition with one another—so-called “neck-and-neck” markets.
Innovation then becomes essential. See Philippe Aghion et. al., Competition

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and Innovation: An Inverted-U Relationship, 120 Q. J. ECON. 701 (2005).
Markets can essentially be split into neck-and-neck markets and markets
that contain laggard firms. In neck-and-neck markets, firms typically do not
earn very high pre-innovation profits as a result of the intensely competitive
market. Because an opportunity exists to earn higher post-innovation profits
relative to the low pre-innovation profits it currently earns if the firm were
to innovate and escape competition, these types of firms will typically
invest a great deal in innovation activity (typically measured either by
research-and-development spending or by patenting activity). Id. at 702. On
the other hand, in a laggard market increased product-market competition
will negatively affect a firm’s post-innovation profits. With lower postinnovation profits, firms are not as incentivized to innovate.
In creating these economic models, researchers have made various
assumptions which are subject to attack. For example, Carl Shapiro argues
that economists have incorrectly equated more competition with less
product differentiation. While sometimes a high degree of competition
comes about as a result of a lack of product differentiation, Shapiro argues
that innovation comes about as a result of inventing a new product that is
substantially different from an existing product. Carl Shapiro, Competition
and Innovation: Did Arrow Hit the Bull’s Eye?, in THE RATE AND
DIRECTION OF INVENTIVE ACTIVITY REVISITED 361–404 (Josh Lerner &
Scott Stern eds., 2012). Rather than equate more competition with less
product differentiation, Shapiro suggests a better way to characterize the
empirical results would be to say that “innovation incentives are low if ex
post competition is so intense that even successful innovators cannot earn
profits sufficient to allow a reasonable risk-adjusted rate of return on their
R&D cost.” Id. Shapiro also argues that much of the theoretical literature
conflates more competition with more innovation. He argues that instead,
more competition should be measured by “an increase in the magnitude of
contestable sales, or as an increase in R&D rivalry . . . . Finally, Shapiro
argues that more competition should not be equated with lower market
concentration. Innovation is rewarded with some degree of market power,
and innovative firms will typically grow larger as less innovative firms
shrink. As this happens market concentration will rise. As a result, looking
at the post-innovation market and seeing a lower market concentration does
not mean that there is in fact more competition in markets with lower
market concentration.
TRAFFIX DEVICES, INC. V. MKTG. DISPLAYS, INC.
532 U.S. 23 (2001)
Justice Kennedy delivered the opinion of the Court.
Temporary road signs with warnings like “Road Work Ahead” or
“Left Shoulder Closed” must withstand strong gusts of wind. An inventor
named Robert Sarkisian obtained two utility patents for a mechanism built
upon two springs (the dual-spring design) to keep these and other outdoor

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signs upright despite adverse wind conditions. The holder of the nowexpired Sarkisian patents, respondent Marketing Displays, Inc. (MDI),
established a successful business in the manufacture and sale of sign stands
incorporating the patented feature. MDI’s stands for road signs were
recognizable to buyers and users (it says) because the dual-spring design
was visible near the base of the sign.
This litigation followed after the patents expired and a competitor,
TrafFix Devices, Inc., sold sign stands with a visible spring mechanism that
looked like MDI’s. MDI and TrafFix products looked alike because they
were. When TrafFix started in business, it sent an MDI product abroad to
have it reverse engineered, that is to say copied. Complicating matters,
TrafFix marketed its sign stands under a name similar to MDI’s. MDI used
the name “WindMaster,” while TrafFix, its new competitor, used
“WindBuster.”
MDI brought suit under the Trademark Act of 1946 (Lanham Act),
60 Stat. 427, as amended, 15 U.S.C. § 1051 et seq., against TrafFix for
trademark infringement (based on the similar names), trade dress
infringement (based on the copied dual-spring design), and unfair
competition. TrafFix counterclaimed on antitrust theories.
II
It is well established that trade dress can be protected under federal
law. The design or packaging of a product may acquire a distinctiveness
which serves to identify the product with its manufacturer or source; and a
design or package which acquires this secondary meaning, assuming other
requisites are met, is a trade dress which may not be used in a manner likely
to cause confusion as to the origin, sponsorship, or approval of the goods. In
these respects protection for trade dress exists to promote competition. As
we explained just last Term, see Wal-Mart Stores, Inc. v. Samara Brothers,
Inc., 529 U.S. 205 (2000), various Courts of Appeals have allowed claims
of trade dress infringement relying on the general provision of the Lanham
Act which provides a cause of action to one who is injured when a person
uses “any word, term name, symbol, or device, or any combination thereof .
. . which is likely to cause confusion . . . as to the origin, sponsorship, or
approval of his or her goods.” 15 U.S.C. § 1125(a)(1)(A). Congress
confirmed this statutory protection for trade dress by amending the Lanham
Act to recognize the concept. Title 15 U.S.C. § 1125(a)(3) (1994 ed., Supp.
V) provides: “In a civil action for trade dress infringement under this
chapter for trade dress not registered on the principal register, the person
who asserts trade dress protection has the burden of proving that the matter
sought to be protected is not functional.” This burden of proof gives force to
the well-established rule that trade dress protection may not be claimed for
product features that are functional. Qualitex, supra, at 164–165; Two
Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 775 (1992). And in WalMart, supra, we were careful to caution against misuse or overextension of
trade dress. We noted that “product design almost invariably serves

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purposes other than source identification.”
Trade dress protection must subsist with the recognition that in
many instances there is no prohibition against copying goods and products.
In general, unless an intellectual property right such as a patent or copyright
protects an item, it will be subject to copying. As the Court has explained,
copying is not always discouraged or disfavored by the laws which preserve
our competitive economy. Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,
489 U.S. 141, 160. Allowing competitors to copy will have salutary effects
in many instances. “Reverse engineering of chemical and mechanical
articles in the public domain often leads to significant advances in
technology.”
The principal question in this case is the effect of an expired patent
on a claim of trade dress infringement. A prior patent, we conclude, has
vital significance in resolving the trade dress claim. A utility patent is strong
evidence that the features therein claimed are functional. If trade dress
protection is sought for those features the strong evidence of functionality
based on the previous patent adds great weight to the statutory presumption
that features are deemed functional until proved otherwise by the party
seeking trade dress protection. Where the expired patent claimed the
features in question, one who seeks to establish trade dress protection must
carry the heavy burden of showing that the feature is not functional, for
instance by showing that it is merely an ornamental, incidental, or arbitrary
aspect of the device.
In the case before us, the central advance claimed in the expired
utility patents (the Sarkisian patents) is the dual-spring design; and the dualspring design is the essential feature of the trade dress MDI now seeks to
establish and to protect. The rule we have explained bars the trade dress
claim, for MDI did not, and cannot, carry the burden of overcoming the
strong evidentiary inference of functionality based on the disclosure of the
dual-spring design in the claims of the expired patents.
The dual springs shown in the Sarkisian patents were well apart (at
either end of a frame for holding a rectangular sign when one full side is the
base) while the dual springs at issue here are close together (in a frame
designed to hold a sign by one of its corners). As the District Court
recognized, this makes little difference. The point is that the springs are
necessary to the operation of the device. The fact that the springs in this
very different-looking device fall within the claims of the patents is
illustrated by MDI’s own position in earlier litigation. In the late 1970’s,
MDI engaged in a long-running intellectual property battle with a company
known as Winn-Proof. Although the precise claims of the Sarkisian patents
cover sign stands with springs “spaced apart,” U.S. Patent No. 3,646,696,
col. 4; U.S. Patent No. 3,662,482, col. 4, the Winn-Proof sign stands (with
springs much like the sign stands at issue here) were found to infringe the
patents by the United States District Court for the District of Oregon, and

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the Court of Appeals for the Ninth Circuit affirmed the judgment. Sarkisian
v. Winn-Proof Corp., 697 F.2d 1313 (1983). Although the Winn-Proof
traffic sign stand (with dual springs close together) did not appear, then, to
infringe the literal terms of the patent claims (which called for “spaced
apart” springs), the Winn-Proof sign stand was found to infringe the patents
under the doctrine of equivalents, which allows a finding of patent
infringement even when the accused product does not fall within the literal
terms of the claims. Id., at 1321–1322; see generally Warner–Jenkinson Co.
v. Hilton Davis Chemical Co., 520 U.S. 17 (1997). In light of this past
ruling—a ruling procured at MDI’s own insistence—it must be concluded
the products here at issue would have been covered by the claims of the
expired patents.
The rationale for the rule that the disclosure of a feature in the
claims of a utility patent constitutes strong evidence of functionality is well
illustrated in this case. The dual-spring design serves the important purpose
of keeping the sign upright even in heavy wind conditions; and, as
confirmed by the statements in the expired patents, it does so in a unique
and useful manner. As the specification of one of the patents recites, prior
art “devices, in practice, will topple under the force of a strong wind.” U.S.
Patent No. 3,662,482, col. 1. The dual-spring design allows sign stands to
resist toppling in strong winds. Using a dual-spring design rather than a
single spring achieves important operational advantages. For example, the
specifications of the patents note that the “use of a pair of springs . . . as
opposed to the use of a single spring to support the frame structure prevents
canting or twisting of the sign around a vertical axis,” and that, if not
prevented, twisting “may cause damage to the spring structure and may
result in tipping of the device.” U.S. Patent No. 3,646,696, col. 3. In the
course of patent prosecution, it was said that “[t]he use of a pair of spring
connections as opposed to a single spring connection . . . forms an
important part of this combination” because it “forc[es] the sign frame to tip
along the longitudinal axis of the elongated ground-engaging members.”
App. 218. The dual-spring design affects the cost of the device as well; it
was acknowledged that the device “could use three springs but this would
unnecessarily increase the cost of the device.” Id., at 217. These statements
made in the patent applications and in the course of procuring the patents
demonstrate the functionality of the design. MDI does not assert that any of
these representations are mistaken or inaccurate, and this is further strong
evidence of the functionality of the dual-spring design.
III
In finding for MDI on the trade dress issue the Court of Appeals gave
insufficient recognition to the importance of the expired utility patents, and
their evidentiary significance, in establishing the functionality of the device.
The error likely was caused by its misinterpretation of trade dress principles
in other respects. As we have noted, even if there has been no previous
utility patent the party asserting trade dress has the burden to establish the

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nonfunctionality of alleged trade dress features. MDI could not meet this
burden. Discussing trademarks, we have said “‘[i]n general terms, a product
feature is functional,’ and cannot serve as a trademark, ‘if it is essential to
the use or purpose of the article or if it affects the cost or quality of the
article.’” Qualitex, 514 U.S., at 165 (quoting Inwood Laboratories, Inc. v.
Ives Laboratories, Inc., 456 U.S. 844, 850, n. 10 (1982)). Expanding upon
the meaning of this phrase, we have observed that a functional feature is
one the “exclusive use of [which] would put competitors at a significant
non-reputation-related disadvantage.” The Court of Appeals in the instant
case seemed to interpret this language to mean that a necessary test for
functionality is “whether the particular product configuration is a
competitive necessity.” 200 F.3d, at 940. See also Vornado, 58 F.3d, at
1507 (“Functionality, by contrast, has been defined both by our circuit, and
more recently by the Supreme Court, in terms of competitive need”). This
was incorrect as a comprehensive definition. As explained in Qualitex,
supra, and Inwood, supra, a feature is also functional when it is essential to
the use or purpose of the device or when it affects the cost or quality of the
device. The Qualitex decision did not purport to displace this traditional
rule. Instead, it quoted the rule as Inwood had set it forth. It is proper to
inquire into a “significant non-reputation-related disadvantage” in cases of
esthetic functionality, the question involved in Qualitex. Where the design
is functional under the Inwood formulation there is no need to proceed
further to consider if there is a competitive necessity for the feature. In
Qualitex, by contrast, esthetic functionality was the central question, there
having been no indication that the green-gold color of the laundry press pad
had any bearing on the use or purpose of the product or its cost or quality….
There is no need, furthermore, to engage, as did the Court of
Appeals, in speculation about other design possibilities, such as using three
or four springs which might serve the same purpose. 200 F.3d, at 940. Here,
the functionality of the spring design means that competitors need not
explore whether other spring juxtapositions might be used. The dual-spring
design is not an arbitrary flourish in the configuration of MDI’s product; it
is the reason the device works. Other designs need not be attempted.
Because the dual-spring design is functional, it is unnecessary for
competitors to explore designs to hide the springs, say, by using a box or
framework to cover them, as suggested by the Court of Appeals. Ibid. The
dual-spring design assures the user the device will work. If buyers are
assured the product serves its purpose by seeing the operative mechanism
that in itself serves an important market need. It would be at cross-purposes
to those objectives, and something of a paradox, were we to require the
manufacturer to conceal the very item the user seeks.
In a case where a manufacturer seeks to protect arbitrary, incidental,
or ornamental aspects of features of a product found in the patent claims,
such as arbitrary curves in the legs or an ornamental pattern painted on the
springs, a different result might obtain. There the manufacturer could

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perhaps prove that those aspects do not serve a purpose within the terms of
the utility patent. The inquiry into whether such features, asserted to be
trade dress, are functional by reason of their inclusion in the claims of an
expired utility patent could be aided by going beyond the claims and
examining the patent and its prosecution history to see if the feature in
question is shown as a useful part of the invention. No such claim is made
here, however. MDI in essence seeks protection for the dual-spring design
alone. The asserted trade dress consists simply of the dual-spring design,
four legs, a base, an upright, and a sign. MDI has pointed to nothing
arbitrary about the components of its device or the way they are assembled.
The Lanham Act does not exist to reward manufacturers for their innovation
in creating a particular device; that is the purpose of the patent law and its
period of exclusivity. The Lanham Act, furthermore, does not protect trade
dress in a functional design simply because an investment has been made to
encourage the public to associate a particular functional feature with a
single manufacturer or seller. The Court of Appeals erred in viewing MDI
as possessing the right to exclude competitors from using a design identical
to MDI’s and to require those competitors to adopt a different design simply
to avoid copying it. MDI cannot gain the exclusive right to produce sign
stands using the dual-spring design by asserting that consumers associate it
with the look of the invention itself. Whether a utility patent has expired or
there has been no utility patent at all, a product design which has a
particular appearance may be functional because it is “essential to the use or
purpose of the article” or “affects the cost or quality of the article.” Inwood,
456 U.S.,at 850, n. 10.
TrafFix and some of its amici argue that the Patent Clause of the
Constitution, Art. I, § 8, cl. 8, of its own force, prohibits the holder of an
expired utility patent from claiming trade dress protection…. We need not
resolve this question. If, despite the rule that functional features may not be
the subject of trade dress protection, a case arises in which trade dress
becomes the practical equivalent of an expired utility patent, that will be
time enough to consider the matter. The judgment of the Court of Appeals
is reversed, and the case is remanded for further proceedings consistent with
this opinion.
NOTES AND QUESTIONS
Professor Thomas Cotter writes that antitrust and IP law both seek to
minimize the expected costs of (1) false positives, cases wrongly decided in
favor of IP defendants or antitrust plaintiffs; (2) false negatives, cases
wrongly decided in favor of IP plaintiffs or antitrust defendants; and (3) the
costs of adjudication itself. Thomas F. Cotter, The Procompetitive Interest
in Intellectual Property Law, 48 Wm. & Mary L. Rev. 483, 490–91 (2006).
But the fact that antitrust and IP law may share broad goals does not
necessarily mean that they should share particular policies. See id. at 491.
While it may be “good antitrust policy to incur substantial adjudication
costs to define the market and ascertain anticompetitive consequences,” in

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certain kinds of IP cases it may make sense to avoid these costs when “the
stakes are sufficiently low” or if we are reasonably sure that the “expected
costs, including error costs,” of ruling for the IP plaintiff will outweigh the
costs of ruling for the IP defendant. In cases like TraFfix, the Supreme
Court “seems to suggest that the appropriate scope of trademark protection
is narrow because otherwise the social costs, including the potential for
trademark rights to interfere with competition and technological progress,
outweigh the social benefits.” In Cotter’s analysis, several IP doctrines
condemn IP owners or excuse IP infringers for the “express purpose of
promoting competition,” including misuse doctrine, where IP condemns
conduct that antitrust allows absent proof of market power; merger or fair
use doctrine, where courts do not require IP defendants to define the market
or measure “in any way comparable to the plaintiff’s burden in antitrust
litigation”; and functionality doctrine, where courts allow copying when it
is justified by competitive need but do not ask whether exclusive rights
would harm competition in a well-defined market. Cotter argues that courts
should not “take upon themselves of promoting competition” via a “greatly
expanded misuse doctrine.” On the other hand, fair use and trade dress
should probably be more aggressively procompetitive than antitrust
principles would suggest, id., and Cotter asks whether trade-dress protection
“is ever worth even a small risk of anticompetitive harm.”
NOTE: DESIGN PATENTS AND
INTEROPERABILITY
The Patent Act permits inventors to obtain two main types of patents,
utility patents and design patents. A utility patent, which is the most
common type, is for “any new and useful process, machine, manufacture, or
composition of matter, or any new and useful improvement therefor....” 35
U.S.C. § 101. Someone can receive a design patent for something that is
new, original, ornamental and nonobvious. 35 U.S.C. §§171, 101. Design
patents are generally granted much faster and more easily than utility
patents. See Dennis Crouch, Design Patents: Sailing through the PTO,
http://www.patentlyo.com/patent/2009/04/design-patents-sailing-throughthe-pto.html, April 2, 2009. However, the design claimed in a design patent
cannot be dictated by functional requirements. “[W]here a design contains
both functional and non-functional elements, the scope of the claim must be
construed in order to identify the non-functional aspects of the design.”
OddzOn Prods., Inc. v. Just Toys, Inc., 122 F.3d 1396, 1404 (Fed.Cir.1997).
The policy is fairly clear. As in TrafFix, it is to prevent a design
patent from monopolizing a function, thus effectively converting a design
patent into a utility patent. See CHISUM ON PATENTS §23.03[4] (2006).
Courts have formulated different tests to determine whether a claimed
design patent is impermissibly functional, including whether the patent’s
claims are “dictated solely by function”, “solely functional,” or “primarily
functional.” Perry J. Saidman, Functionality and Design Patent Validity and

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Infringement, 91 J. Pat. & Trademark Off. Soc'y 313, 315 (2009). If a
design patent is primarily functional rather than primarily ornamental, it is
invalid. Avia Group Int'l, Inc. v. L.A. Gear Cal., Inc., 853 F.2d 1557, 1563
(Fed.Cir.1988). Evidence of alternative designs tend to show that a
patented design is not dictated solely by functional requirements. See, e.g.,
L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117 (Fed.Cir. 1993).
Design patents can limit interoperability when someone makes a
durable good such as an automobile or computer printer and then protects
replacement parts with a design patent whose claims write on the
interconnection features. For example, in Chrysler Motors Corp. v. Auto
Body Panels of Ohio, Inc., 908 F.2d 951 (Fed. Cir. 1990), Chrysler
designed its aftermarket bumpers in such a way that rivals in the
replacement bumper market could not make one that would fit a Chrysler
without infringing Chrsler’s design patents. See also Static Control
Components, Inc. v. Lexmark Intern., Inc., 487 F.Supp.2d 830 (E.D.Ky.
Apr. 24 2007), modified, 615 F.Supp.2d 575 (E.D.Ky. March 31, 2009), in
which Lexmark used a microprocessor chip protected by a design patent in
order to activate a newly installed replacement ink cartridge. The patent
thus prevented rivals from making replacement cartridges that would fit into
the Lexmark printer.
In Best Lock Corp. v. Ilco Unican Corp. 94 F.3d 1563, 1564
(Fed.Cir.1996), a key manufacturer attempted to maintain a design patent
on a key which had a wider key profile than standard keys and included
other features to deter lock picking. The manufacturer claimed that
“although a particular key and its corresponding lock must mate to operate
the lock, an unlimited number of key blade and corresponding keyway
designs are available.” Nevertheless, the court found the key design patent
invalid on the ground that the functional concern that the key has to interact
correctly with the lock dictated the key design:
The parties do not dispute that the key blade must be designed as
shown in order to perform its intended function -- to fit into its
corresponding lock's keyway. An attempt to create a key blade with
a different design would necessarily fail because no alternative
blank key blade would fit the corresponding lock. In fact, Best Lock
admitted that no other shaped key blade would fit into the
corresponding keyway, and it presented no evidence to the contrary.
Therefore, we find no clear error in the court's finding that the
claimed key blade design was dictated solely by the key blade's
function. Any aesthetic appeal of the key blade design shown in the
'636 patent is the inevitable result of having a shape that is dictated
solely by functional concerns.
Do these holdings amount to condemning a particular type of “tying
arrangement” without requiring a showing of market power? Granted,

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under the Chrysler holding an automobile manufacturer cannot use a design
patent in order to force its customers to purchase its own aftermarket
bumpers, but why should this be a problem given that there are plenty of
automobiles not manufactured by Chrysler? Do the patent laws have an
interest to protect here that reaches beyond antitrust?
Compare the American approach to design protection with that taken in
the European Union, created by Council Regulation of 12 December 2001
(Reg. 6/2002).2 The system is directly applicable in every EU Member
State.3 Under this regulation, two types of design protection are available,
the Unregistered Community Design (‘UCD’) and the Registered
Community Design (‘RCD’). Reg. 6/2002 was subsequently implemented
by Commission Regulation of 21 October 2002 (‘Reg. 2245/2002’), which
lays down all kinds of formal and procedural requirements. The Office for
Harmonization in the Internal Market (Trade Marks and Designs)(‘OHIM’)
is responsible for carrying out the tasks assigned in Reg. 6/2002, such as the
maintenance of a system for application and registration of RCD’s and the
implementation of an enforcement system. Upon application for
registration, the OHIM does not engage in a substantive examination of the
design.4 The OHIM will merely check whether the offered product is one
within the subject-matter of design protection under Article 3(a) of Reg.
6/2002 and whether the design doesn’t violate principles of public policy
and morality.
Reg. 6/2002 defines "design" as “the appearance of the whole or a part
of a product resulting from the features of, in particular, the lines, contours,
2

Council Regulation (EC) No. 6/2002 of 12 December 2001 on
Community designs, OJ 2002, L 3/1. See
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2002:003:0001:0024:E
N:PDF. Reg. 6/2002 was amended by Council Regulation No. 1891/2006 of
18 December 2006 to give effect to the accession of the European
Community to the Geneva Act of the Hague Agreement concerning the
international registration of industrial designs, OJ 2006, L 386/14. See
http://oami.europa.eu/ows/rw/resource/documents/RCD/regulations/62002_
en_cv.pdf.
3
Design protection was previously harmonized by Directive 98/71/EC
of the European Parliament and of the Council of 13 October 1998 on the
legal protection of designs, OJ 1998, L286, p. 28 / 35. However, design
protection was still limited to the territories of the different Member States
under this Directive, which could lead to a division of the internal market,
see par. 4 of the Preamble to Reg. 6/2002. Therefore, the EU legislature
deemed the introduction of a system of unified design protection necessary.
4
Par. 18 of the Preamble to Reg. 6/2002.

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colours, shape, texture and/or materials of the product itself and/or its
ornamentation”5 Design protection is thus available for a wide range of
items.6 The Preamble to Reg. 6/2002 specifies that no protection shall be
awarded for a design that is solely dictated by a technical function.7
An unregistered design only protects against copying for three years after
it has been disclosed to the public. The registered design confers an
exclusive right on its owner for up to 25 years,8 which extends to
independent development by a third party. Article 19(1) of Reg. 6/2002
specifies the rights conferred by a RCD:
“A registered Community design shall confer on its holder the
exclusive right to use it and to prevent any third party not having his
consent from using it. The aforementioned use shall cover, in
particular, the making, offering, putting on the market, importing,
exporting or using of a product in which the design is incorporated
or to which it is applied, or stocking such a product for those
purposes.”
The owner of a RCD can therefore prevent anyone from using the
design, regardless of the product that incorporates the design.
Considering the broad nature of the subject-matter eligible for
Community design protection, it is likely that a designer might also want to
obtain other forms of industrial property rights on its design. The Preamble
to Reg. 6/2002 states that “This Regulation does not preclude the
application to designs protected by Community designs of the industrial
property laws or other relevant laws of the Member States, such as those
relating to design protection acquired by registration or those relating to
unregistered designs, trade marks, patents and utility models, unfair
5

Article 3(a) of Reg. 6/2002.
Article 3(b) of Reg. 6/2002 explicitly mentions that a design, the
appearance of a product, can extend to component parts of a complex
product, packaging, get-up, graphic symbols and typographic typefaces.
7
Par. 10 of the Preamble and Article 8(1) of Reg. 6/2002. For an
example, see Decision of the OHIM Invalidity Division of 3 March 2011,
ICD 7081 (Firma Weremczuk Spółka Jawna v. Marzena Karczmarek
Agrotop- Kaczmarek), par 13. See
http://oami.europa.eu/ows/rw/resource/documents/RCD/caselaw/invalidity/ICD%20000007081%20decision%20_EN_.pdf. The
Invalidity Division of the OHIM declared a design for a harvesting machine
invalid because “Every essential feature of the design has been chosen with
a view to achieving the best possible technical performance.”
8
Article 12 of Reg. 6/2002. A registered design initially confers
protection for five years. This term is renewable up to four times.
6

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competition or civil liability.”9 Moreover, the Preamble recognizes that
Community design may cumulate with protection under the copyright laws
of the different EU Member States. Since copyright law is not completely
harmonized within the European Union, the Member States decide on the
scope of protection of their copyright laws.10
Designs are distinguished from patents by Article 8(1) of Reg. 6/2002,
providing that the appearance of a design may not be ‘solely dictated by its
technical function’. It seems that the OHIM has interpreted this provision to
hold that “As long as the designer has some freedom in the development of
the feature of appearance of this element, said feature is not solely dictated
by the technical function of the product.”11
NOTE:
COMPETITION AND THE “TRADEMARK USE” DOCTRINE
To establish trademark infringement under the Federal Lanham Act,
a trademark holder must prove: (1) ownership of a valid mark that is
entitled to protection, and (2) that the accused infringer’s use of the
trademark is likely to cause confusion within the consuming public. A
trademark is “used in commerce” in connection with goods when the mark
is “placed in any manner on the goods or their containers or the displays
associated therewith or on the tags or labels affixed thereto, ... or on the
documents associated with the goods or their sale.” 15 U.S.C. § 1127. A
mark is also “used in commerce” in connection with services when the
mark is “used or displayed in the sale or advertising of services and the
services are rendered in commerce ....” Ibid.
However, courts have
interpreted the meaning of “use” differently depending on whether the
alleged defendant uses the trademark “as a mark” – that is, whether it
misleadingly created the impression that the mark holder is the source of the
accused infringer’s goods or services.
Customers generally rely on trademarks to identify goods and
services of one business and distinguish them from those of others. See
Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 412 (1916) (the
"primary and proper function" of a trademark is to "identify the origin or
ownership of the article to which it is affixed").
Today, however,
consumers also use internet search engines or other computer assisted
procedures to locate goods or services. Suppose that a firm (1) uses
someone else’s mark for comparative advertising purposes, or (2) sells
“keywords,” including the trademarks of others, in displaying search
9

Preamble to Reg. 6/2002, par. 31.
Par. 32.
11
OHIM Invalidity Division, Decision of 7 September 2011, Case ICD
8225 (ASSTEC Assembly Technology GmbH & Co. KG v. Thomas Nagel),
par. 17.
10

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results.
In 1-800-CONTACTS Inc. v. WhenU.Com Inc., 414 F.3d 400, 40405 (2d Cir. 2005), the defendant WhenU.Com provided a software program
that runs in the background as a computer user surfs the Web. The
defendant’s program opened a “pop-up” advertising window related to
subject matter that the user was viewing. For example, if the user was
viewing a website advertising Toyota automobiles a pop-up window
advertising Nissan’s might appear. The pop-up did not suggest that Toyota
made Nissans. Mainly it created an opportunity for the user to compare the
virtues of Toyotas and Nissans. Plaintiff 1-800-CONTACTS alleged that
the pop-up advertisements generated by the program on behalf of the
plaintiff's eye care competitors infringed its trademark when computers
users visited the plaintiff’s website. The 2nd Circuit found that the
WhenU.com did not “use” 1-800’s trademarks, mainly because the specific
advertisement in question generated by WhenU.Com's software was not
triggered by a trademark at all, but rather by an internal product category
associated with the plaintiff's Web address. The Court found:
…WhenU does not … “place” 1-800 trademarks on any goods or
services in order to pass them off as emanating from or authorized by 1800.…
A company's internal utilization of a trademark in a way that does
not communicate it to the public is analogous to an individual's private
thoughts about a trademark. Such conduct simply does not violate the
Lanham Act, which is concerned with the use of trademarks in
connection with the sale of goods or services in a manner likely to lead
to consumer confusion as to the source of such goods or services.
That seems right, doesn’t it? Suppose a television advertisement for
Chrysler also includes pictures of Fords, including Ford’s trademarks, so
that Chrysler can compare the virtues of its own cars to those of other
brands. In this case Chrysler “uses” the Ford trademark, but it does not use
it “as a mark” – that is, it does not use it to confuse customers by getting
them to think that its cars are really Fords.
By contrast, in Rescuecom Corp. v. Google Inc., 562 F.3d 123, 12526 (2d Cir. 2009), Rescuecom challenged Google’s practice of allowing
advertisers to purchase keywords, including trademarks, which Internet
users could enter as search terms. As the court described the practice:
When a searcher uses Google's search engine by submitting
a search term, Google may place advertisements on the user's
screen. Google will do so if an advertiser, having determined
that its ad is likely to be of interest to a searcher who enters the
particular term, has purchased from Google the placement of
its ad on the screen of the searcher who entered that search

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term. What Google places on the searcher's screen is more than
simply an advertisement. It is also a link to the advertiser's
website, so that in response to such an ad, if the searcher clicks
on the link, he will open the advertiser's website, which offers
not only additional information about the advertiser, but also
perhaps the option to purchase the goods and services of the
advertiser over the Internet.
The case involved a motion to dismiss, and one of the things that
Rescuecom alleged is that a reader could not always distinguish the hit that
constituted an advertisement from other hits. So, for example, someone
searching “Toyota” might also call up an advertisement for Nissan. There
was no allegation that the search actually excluded “Toyota” hits, but only
that it added other hits as well.
The court concluded that this constituted a “use” covered by the
Lanham Act:
First, in contrast to 1–800, where we emphasized that the
defendant made no use whatsoever of the plaintiff's trademark,
here what Google is recommending and selling to its
advertisers is Rescuecom's trademark. Second, in contrast with
the facts of 1–800 where the defendant did not “use or
display,” much less sell, trademarks as search terms to its
advertisers, here Google displays, offers, and sells
Rescuecom's mark to Google's advertising customers when
selling its advertising services. In addition, Google encourages
the purchase of Rescuecom's mark through its Keyword
Suggestion Tool.
But doesn’t Google’s practice also provide an efficient way for
customers to find desired products and services by comparing them with
one another? Comparison and confusion are not the same thing. For
example, a drug store typically places its own store-brand generic products
next to the trademarked products they emulate in order to induce a customer
who has specifically sought out the trademarked product to consider the
store's less-expensive alternative. As a result you might walk into the store
looking for “Tylenol,” but leave with a bottle of acetaminophen, a cheaper
generic that is chemically identical. Google employs this same marketing
strategy by informing computer users who have sought out a specific
trademarked product about available alternatives that may be of interest to
them. Second, computer users are much more sophisticated now than
before. The court suggested that Google’s practice might cause customer
confusion, but there is little empirical support for that conclusion. How
many customers searching for, say, “Canon” cameras, and then seeing a
website for “Minolta” cameras would believe they are buying a Canon
when they are actually purchasing a Minolta. See Mark A. Lemley & Mark
P. McKenna, Owning Mark(et)s, 109 MICH. L. REV. 137 (2010).

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In Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144 (4th Cir. 2012),
Rosetta Stone, the maker of a popular piece of language-learning software,
alleged that Google’s use of Rosetta’s trademark in the advertising of
others’ products resulted in customer confusion. Google used search terms
as “triggers” that would launch advertising for products made by others that
used the trademarked product in their advertising. In some cases these ads
were actually for pirated or infringing goods. The district court granted
summary judgment in favor of Google, holding that Google’s policy was
not likely to cause confusion, in part because the consuming public was
sufficiently sophisticated so as to not be confused. The Fourth Circuit
reversed, holding that there was a genuine issue of material fact as to
whether Google’s use of Rosetta Stone’s mark was likely to confuse
consumers.
Google’s policy permitted limited use of trademarks in advertising
that accompanied its search results as long as “(1) the sponsor is a reseller
of a genuine trademarked product; (2) the sponsor makes or sells
component parts for a trademarked product; (3) the sponsor offers
compatible parts or goods for use with the trademarked product; or (4) the
sponsor provides information about or reviews a trademarked product.” Id.
at *3. Rosetta Stone presented evidence that suggested that some customers
were nonetheless confused by the placement of ads on Google’s searchresults page, and the confused customers mistakenly purchased counterfeit
versions of the Rosetta Stone software. Because of this evidence, along with
a study commissioned by Google that showed that “the likelihood of
confusion remains high when trademark terms are used in the title or body
of a sponsored link appearing on a search results page,” the Fourth Circuit
concluded that whether customers were confused and whether customers
were sufficiently sophisticated were issues that should be decided at trial,
rather than at the summary judgment stage. Id.at *9.
The court concluded:
… [T]here is sufficient evidence in the record to create a question of
fact as to consumer sophistication that cannot be resolved on
summary judgment. The record includes deposition testimony from
Rosetta Stone customers who purchased counterfeit ROSETTA
STONE software from sponsored links that they believed to be
either affiliated with or authorized by Rosetta Stone to sell genuine
software. The evidence also includes an internal Google study
reflecting that even well-educated, seasoned Internet consumers are
confused by the nature of Google's sponsored links and are
sometimes even unaware that sponsored links are, in actuality,
advertisements. At the summary judgment stage, we cannot say on
this record that the consumer sophistication factor favors Google as
a matter of law. There is enough evidence, if viewed in a light most
favorable to Rosetta Stone, to find that this factor suggests a

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likelihood of confusion.
Query: should it be Google’s job to ensure that firms advertising on its
search engine results to ensure that they are not promoting infringing
products? Think of the consequences of a rule that made newspapers liable
for damages if products that they advertised were liable for patent,
copyright, or trademark infringement? If the local Toyota dealership wants
to advertise a promotion on the Prius in the Gazette, should the Gazette be
required to do a global IP search to see if anything in the Prius infringes
someone else’s IP rights. Suppose, however, that the Gazette already
knows about an infringement? Should it have a duty to deny the
advertisement?

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