A Patent System for the 21st Century (2004) / Chapter Skim
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3 Seven Criteria for Evaluating the Patent System
3 Seven Criteria for Evaluating the Patent System
Pages 39-80
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From page 39... ...
3 Seven Criteria for Evaluating the Patent System PATENTS AND INNOVATION Ultimately, the test of a patent system is whether it enhances social welfare, not only by encouraging invention and the dissemination of useful technical information but also by providing incentives for investment in the commercialization of new technologies that promote economic growth, create jobs, promote health, and advance other social goals. Assessing the system's overall economic impact is no simple task, perhaps an impossible one.
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using data across 60 countries for the period 1960-1990. They found that the strength of intellectual property (IP)
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In the extreme case where an invention is already accessible to the public, or the full scope of what is patented cannot be carried out in practice, there is nothing to be gained and potentially a great deal to be lost by granting a monopoly. Third criterion: The patent system should serve its second function of disseminating technical information.
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Indeed, there is an efficiency argument for the integration of the U.S., European, and Japanese patent systems to reduce public and private transaction costs. Seventh criterion: There should be a level field, with intellectual property rights holders who are similarly situated (e.g., state and private institutions performing research)
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Benson4 that a computer program was not patentable subject matter. Following two later Supreme Court decisions that suggested a shift in this position,5 the Court of Appeals for the Federal Circuit ("Federal Circuit")
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. 11Some members of the committee embarked on our study with great skepticism about the wisdom of patenting business methods in the absence of a convincing case for their protection and with some interest in a contemporary proposal to limit the term of business method patents to three or five years.
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patent system is differentiated in transparent and subtle ways that accommodate differences in technologies or that affect technologies differently. An example of the former is the requirement for patent holders to pay maintenance fees periodically to take advantage of the full statutory patent term.
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In 1851 the Supreme Court distinguished the "work of the skillful mechanic," not justifying protection, from the "work of the inventor"; but for a century, courts struggled without statutory guidance to define an "invention." Finally, in 1952, Congress adopted an alternative formulation, excluding from patentable subject matter what "would have been obvious at the time the invention was made to a person having ordinary skill in the art." Thus, the third substantive requirement for patentability became known as the "non-obviousness" standard.18 The importance of these three conditions in the abstract is uncontested. Patents on known or only trivially modified inventions would confer potential market power to restrict access and raise prices and enable the patent holder to use litigation as a competitive weapon without providing incentives for making genuine advances or disclosing such advances to the public.
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Over the past decade the quality of issued patents has come under sharp attack.19 The conjecture that patent quality is declining or is simply too low has been characterized in two ways. First, some legal scholars have suggested that the standards of patentability -- especially the non-obviousness standard -- have been relaxed as a result of court decisions (Barton, 2000; Dreyfuss, 1989; Lunney, 2001)
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the error rate in USPTO quality assurance reviews of allowed patent applications, and (3) the rate of claim cancellation or amendment or outright patent revocation in re-examination proceedings in the USPTO.26 These indicators show mixed results.
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The patents reviewed are not randomly chosen to assess overall system performance nor is the selection weighted toward technologies in which examination quality may be problematic. Currently, the protocol is designed to take a specific number of applications from each examiner depending upon examiner experience level and certification status.28 Because of the small percentage of allowed applications that are reviewed, the error rates are statistically significant only at the level of the seven technology centers, not the art units.29 27The Federal Circuit is much more likely to affirm a district court's finding of validity than invalidity.
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As a result of the 21st Century Strategic Plan, quality assurance specialists with principal responsibility for the auditing function have been deployed to the technology centers although they report to the Office of Patent Quality Assurance, reporting in turn to the deputy commissioner for patent operations. Previously, the Office of Patent Quality Review was entirely independent of the patent administration.
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but also by the growing complexity of applications as represented by the growth in the number of claims and prior art citations per application (Allison and Lemley, 2002) .30 The number of examiners per 1,000 patent applications is down about 20 percent over the last four or five years (see Figure 3-1)
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It may well be that thorough examination of these organizational and workforce characteristics -- which we were unable to undertake -- would reveal other reasons to be concerned about patent quality as well as important ways to improve it.32 Patent Approval Rates A second reason for concern about changes in quality is that patent approval rates may be significantly higher than officially reported by the USPTO. For a number of years the USPTO has reported that approximately two-thirds of patent applications result in patent grants.
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Quillen and Webster concluded that once continuation, continuation-in-part, and divisional applications33 are accounted for as renewed attempts to protect the subject matter of their applications, the USPTO eventually issued patents on between 85 percent and 97 percent of applications filed between 1993 and 1998 -- 20 to 30 percent higher than official estimates. Quillen and Webster noted the possibility that more than one patent could issue from a single disclosure, but because they did not have the data to correct for such occurrences, they based their calculations on the assumption that "parent" patent applications are abandoned when a continuation application is filed.
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and Japanese Patent Office (JPO) approval rates peaked at approximately the same time but then declined more rapidly, so that in 2000 the USPTO rate was higher although by a substantial margin only under Quillen and Webster's assumptions.
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. of patentability criteria by the USPTO means that firms are better at weeding out inventions that will not result in granted patents.36 Changes in Treatment of Genomic and Business Method Inventions Partially in response to criticisms of the standards being applied to business method and genomic patent applications, the USPTO conducted a broad review of those categories and instituted significant changes in procedures and standards.
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For example, at the same time that DNA patent applications were accelerating, the international Human Genome Project was rapidly depositing human DNA sequence data in the public domain, where it became prior art. A "working draft" of the genome was published in February 2001.
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B = Utility and written description guidelines implemented. FIGURE 3-3 Business method (USPTO Classification 705)
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With respect to DNA patents other factors to be weighed in interpreting patent grants over time is the finite nature of the human genome (an estimated 30,000 genes in all) and the USPTO's "restriction" practice of forcing patent applicants to separate DNA sequences into different applications.
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. Application of the Non-Obviousness Standard A fourth reason to be concerned about patent quality is that there may have been some dilution of the non-obviousness standard as a result of court decisions and their incorporation in the examination guidance compiled in the USPTO's Manual of Patent Examining Procedure (MPEP)
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60 pendency Overall 2002 Q4 705. 2002 Q3 2002 Class Q2 2002 and Q1 application.
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. Since Graham there have been four cases in which the Supreme Court has considered obviousness decisions by the circuit courts of appeal.
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Neither USPTO resources in relation to its workload, nor patent approval rates, nor changes in the treatment of genomic and business method inventions and the non-obviousness standard are, separately, conclusive evidence that patent quality is too low or declining. However, together they lead the committee to conclude that there are reasons to be concerned about both the courts' interpretations of the substantive patent standards, particularly non-obviousness, and the USPTO's application of the standards in examination.
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The first has to do with the publication of patent applications. As part of the international Trade-Related Aspects of Intellectual Property Rights (TRIPS)
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52Some may wonder, especially in light of accelerating technology cycles, why patent applications are not published immediately in the interest of timely disclosure of the technical information they contain. A partial answer is the deeply ingrained notion that patent prosecution is an ex parte proceeding (that is, between the applicant and the agency or examiner)
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As described and illustrated by the figure in the accompanying "Patent Primer" (see Appendix A) , applicants have substantial although not complete control over how long it takes to process a patent application, and they sometimes endeavor to draw the process out even though, for patent applications filed after 1995, delay reduces the lifetime of the eventual patent.
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Average pendency periods were an astonishing 21.4 months shorter in the United States than in the European Patent Office in 2001 and 3 months shorter than in the Japanese Patent Office. The average times to first office action were 14.4 months in the USPTO, 20.7 54The types of re-examinations are described in Chapter 3 and in Appendix A
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Litigation Lag Between Patent Application Filing and Resolution All Valid Invalid Mean 12.26 12.14 12.36 Median 11.3 11.05 11.5 Standard Deviation 5.68 5.29 6.12 Lag Between Patent Issuance and Resolution All Valid Invalid Mean 8.61 8.69 8.49 Median 7.8 8.0 7.5 Standard Deviation 5.08 5.02 5.16 Pendency of Application (time in prosecution) All Valid Invalid Mean 3.64 3.45 3.87 Median 2.7 2.65 2.75 Standard Deviation 2.98 2.56 3.39 SOURCE: Allison and Lemley (1998)
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, from its biannual survey of practitioners, estimates that processing a relatively simple U.S.-origin patent application that progresses through examination without amendment or negotiation costs the applicant at least $7,500 in administrative and legal fees in 2002.57 A complex biotechnology or computer patent subject to multiple amendments could cost tens of thousands of dollars. Albeit with only three data points, 1998, 2000, and 2002,58 the association estimates that the cost is increasing at an annual rate of 6 to 12 percent (AIPLA, 2003)
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Having a large patent portfolio significantly reduces the probability of filing a suit on any individual patent, conditional upon its observed characteristics. For a small domestic company with a portfolio of 100 patents, the average probability of litigating a given patent is 2 percent.
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Accessing Technologies for Research and Development In a variety of contexts the feasibility and terms of access to patented technology, usually by means of licenses, are crucial to further research, technology development, commercialization, and diffusion of new technologies, for example, · cross-licenses on the myriad elements in semiconductor devices, without which multi-billion dollar investments in fabrication operations would not occur or could be held hostage; · pooled licenses to technologies underlying technical standards permitting interoperability of electronic and communications equipment; · licenses to multifunctional research tools that are crucial to progress in biomedical research. Concerns about access to patented technology, whether from the perspective of innovation or competition, tend to be quite specific to industries and firms.
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Some might overvalue their upstream research tool inventions from the perspective of downstream product developers faced with the enormous costs of bringing medical products to market. Others might insist on conditions (for example, reachthrough rights, downstream royalties)
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Institutional responses include the National Institutes of Health guidelines encouraging research grantees to facilitate access to patented research tools and the steps taken by several research organizations to place results in the public domain, where they become patent-defeating prior art. According to many university and corporate respondents to the survey, one of the most pervasive working solutions is infringement of patents, especially on tools of precommercial laboratory research, in some cases on the presumption that research is legally shielded from infringement liability by a "research exception," and in other cases on the assumption that patent holders will not sue over research uses.
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One example of exclusive access to a foundational discovery that has raised concern -- where it has been argued that broad rather than exclusive access to the discovery would better serve society's interests -- is Geron's exclusive rights to pursue human embryonic stem cell research for three cell types. Other cases of rival-in-use patented technologies that are potentially important inputs into the discovery and development of therapies where exclusive use or licensing has raised similar concerns are described in the sidebar (see Box 3-1)
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The university sued Searle/Pharmacia for patent infringement.
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. Embryonic Stem Cells The University of Wisconsin received a broad patent on its embryonic stem cell discovery in 1998.
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Ruling on a claim of a common law research exemption from patent infringement liability, the court in a case brought against Duke University agreed that research "solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry" is protected; but it held that the protection does not extend to organized scientific research activity pursued as part of the legitimate business of an institution, whether nonprofit or for-profit. The "business" of a university, according to the opinion, is research, education, and reputation enhancement.
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Reducing Redundancies and Inconsistencies Among National Patent Systems Although significant international progress has been made on standardizing the length of patent terms, establishing common rules for the publication of patent applications, and reconciling other national differences, important differences in standards and procedures remain among the U.S., European, and Japanese patent systems, ensuring a burdensome redundancy that imposes high costs on users and hampers market integration. With respect to any economically important invention, at least three sets of examiners analyze essentially the same application and search more or less the same prior art.64 This drives up the costs of obtaining and maintaining worldwide patent protection to a level that can be afforded only by the largest multinational corporations.
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law inventors can disclose their inventions publicly or commercialize them before filing patent applications as long as the applications are filed within one year. The grace period encourages early disclosure, for example, of research results in scientific publications or conferences, or commercialization of an invention without causing inventors to forfeit their rights to protection.
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General Accounting Office (GAO) reported in 2001 that before the Supreme Court's decision, state entities were rarely sued in federal court for patent or copyright violations; there had been 58 cases during a 15-year period, less than 0.05 percent of the total number of cases in federal district courts.
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· In interpreting the Eleventh Amendment to the Constitution, the United States Supreme Court recently raised a troublesome disparity between state and private institutions with respect to their obligations under federal intellectual property law.
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