Good Pro-Patent Policy, Bad Pro-Patent Policy

Revision of the US Patent Law

The Patent Reform Act of 2006 was submitted to the US Senate in August 2006. Since 1980, there has been a significant change in direction from anti-patent to pro-patent in the US, with many rulings in patent infringement trials beginning to go in favor of patent holders. The revision of the US patent law modifies one part of this pro-patent trend.

The main content of the Patent Reform Act of 2006 is as follows: 1. instituting a process for reexamination after patents have been set in order to reduce low quality patents; 2. adopting the “first-to-file principle”, the international standard; 3. curtailing patent trial misuse, such as providing a standard for calculating the damage incurred by patent infringement. (Reference: http://hatch.senate.gov, Press Releases, August 7th, 2006, Hatch Introduces Patent Reform Legislation, last search February 2007). The media is focusing on the second point (adoption of the “first-to-file principle”), but what is particularly important from the perspective of innovation is the first point (reduction of low quality patents).

Why Did Low Quality Patents Increase?

After 1980, a change in the system related to the management of the patent law, such as the establishment of the Court of Appeals for the Federal Circuit (CAFC), along with the reform of the U.S. Patent and Trademark Office (USPTO), which examines patent applications and sets patent rights, were conducted. In the beginning of 1990, management costs of the USPTO started to be covered by patent application fees and in this way patent applicants became “clients” of the USPTO. Patent examiners came to be evaluated for how expeditiously they could complete patent examinations. Even if they were denied once, patent applicants would often modify and reapply. Denials, therefore, essentially extended the examination period, and this created an incentive to allow patents to pass without thorough examination.

These kinds of changes in the USPTO led to an increase in dubious patents such as the “crustless peanut butter and jam sandwich (U.S. Patent No. 6004596)”. The disorder caused by these low quality patents was prominent in fields such as software and business methods, which become patentable after 1980. Because these fields were almost entirely without existing patents and patent examiners frequently were without business backgrounds, the capability to examine the novelty of patents applied for had a tendency to be low, and patents were granted in areas of technology, business practices and knowledge that were already commonly known.

The reason these kinds of patents cannot simply be shrugged off as a laughing matter is because their rights could be strongly protected by “pro-patent” policy. In addition to the policy of courts to protect patent right holders, the fact that jurors make judgments concerning patentability means that patents clearly lacking in novelty (from the viewpoint of experts) are recognized to be patentable. Therefore, contesting the patentability of even the most ludicrous of patents in court is not advisable, and it means having to pay the license fees.

This situation not only brings great disruption to business, but because most high-tech products are systems consisting of many complementary technologies it also can present a formidable obstacle to the development of new products. One could say that the “pro-patent” policy of the US has actually been a “bad-patent” policy that has vigorously protected technologies that should never have been granted patents in the first place.

The Desirable State of Patents

The “improvement of the quality of patents” of the Patent Reform Act of 2006 attempts to mitigate these problems of the US patent system. If this policy can smoothly revoke patents that are not up to par in areas such as novelty from an expert’s point of view, then it could mitigate the disorder related to patent infringement currently occurring in the US.

The patent system is not perfect as a mechanism to promote innovation and spread it throughout society. However, as long as the results of research and development cannot be accurately assessed beforehand, the patent system, which awards compensation according to results, is the second-best option. Hypothetically, suppose that research and development of basic technology were to be financed entirely by the government and patents were not to be recognized. Then, because it would be uncertain how much cost would yield what effect, the appropriateness of such government financing would be unclear. Regardless of the field, such as basic technology or business methods, granting patents only if they are judged to be novel and beneficial to society would, at least theoretically, encourage technological innovation more efficiently than other methods. (For example, refer to Chapter 2 of Suzanne Scotchmer, Innovation and Incentives, MIT Press, 2004).

When discussing problems of the patent system it is not beneficial to argue over “whether strong patent protection is good or bad”. The issue is whether or not appropriate distinctions can be made between novel and beneficial technology/information that should be granted patents and technology/information that should not, and then whether or not the former can be protected to a degree where profits would be guaranteed to be worth the cost (including the cost of other failed projects). The goal should be “good pro-patent” policy.