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ILAW: Fisher on Patents

First up this morning @ ILAW: Professor William "Terry" Fisher on patents.

[I missed a bit both at the beginning and at the end; I suggest that you check out Frank Field's notes on the session, as he is catching what I miss.]

Terry: Examples of things outside the zone of patent protection: abstract ideas, plants, naturally occuring substances, business methods. Patent protection, however, has steadily been growing.

Adrenalin has been purified; it can now be patented. Rosy periwinkle originates in West Indies; spread far. Groups began using the plant to treat diseases. The Eli Lilly company sent reps to the area, obtained a sample and tested it. It was found effective for fighting leukemia. Gave it a trade name and sought patents on the drug. Didn't get them, initially. Possible claimaints included the government of the area. But Eli Lilly ultimately wins.

This is an area of great controversy. This was seen as a form of economic imperialism.

In 1930, the plant protection act. Extended to asexually producing plants. Subject a plant to radiation and it changes color; this is patentable under the new law.  

In 1970, the PVPA, and in 1980 the US Supreme Court extends patent protection further. The microbes that eat oil slicks are patentable. These are patentable animals because they are made by man. 2000 Pioneer Hi-Bred.

Software. Surgical procedures. For a long time it has been accepted that you patent a medical device or drug--but not a technique. But quietly, the Patent & Trademark Office began to grant patents for techniques.

Cataract surgery, for example. Dr. Palen discovered that a certain kind of incision was effective for preserving vision. He ascertained the optimal angle and sought patent protection. He got it. Informed all the other eye surgeons. Feel free to use my technique, but pay me a fee. Huge outcry. Violating the Hyppocratic oath.

In the end, this was denied. But not by denying its validity; rather, by immunizing doctors and nurses from infringement charges.

[...]

This suggests a trend. So we arrive at the controversial business-method patents. It used to be that no one could patent business methods. But again, the Patent and Trademark Office begins quietly to grant these BMPs.

1998: State Street Bank case is the first major challenge. There is a data processing system, they obtain a patent. A competitor sought declaratory judgment that the patent was invalid.

Holdings: It is patentable subject matter. Meaning: software is patentable. This is a nearly final step establishing this.

But the ruling also repudiates BMPs.

The result was a surge in applications for BMPs. In 1999, my students would come to me to discuss a new idea for a business. They would say, "I heard I could patent this." Pioneer an application on the Internet, and patent it.

[Shows graph with patents rising through 2001.]

Examples of BMPs: single-click ecommerce check out system. Amazon--first generation ecommerce sites. These sites commonly believed that visitors ought be coddled. Barnes & Noble appeared to have copied this one-click technique.

Another BMP: Behavioral profiling. "Psychographic" profile, created with information about your online behavior. This technique is patented.

My favorite example: "Freedom of Information (TM)."

Big backlash against this trend. 1/ Bounties. Bounty Quest, rewarding those who uncover prior art, 2/litigation (legal test: subject matter coverage, novelty, non-obvious, utility, enablement).

Let's look at the "non-obvious" requirement. Historically, this has generally increased--but then, it declined. Various courts of appeals have disagreed dramatically in this area. The "non-obvious" requirement has been stabilized, but also lowered.

In the UK, they had a low "inventive step" requirement--then it ramped up. In Germany we have an interesting case. Low "inventive step," then leap up with the Nazi era.

Standards are generally converging.

Here's the way the doctorine is stated in the US (Graham Factors): You ask 1/what's the scope and content of prior art? 2/difference between prior art and claims made in patent, 3/level of skill in prior art, and 4/secondary, "objective" factors.

This is brought to bear on BMPs. The Amazon/Barnes & Noble dispute. A lower court ruled in favor of Amazon. Controversy intesifies; the higher court reverses.

Tightening of standards: AIPA (1999), prior-use defense for BM patents. In 2000, PTO revises guidelines. There is a proposed BM Patent Improvement Act.

In Europe, there are initiatives: EPC articles 52 2 & 3 prevent patenting of BM "as such." Case law clouds the issue a bit. There is also a struggle among memeber countries. Roughly speaking, stalemate is the state of affairs in Europe.

Yes, you can get BMPs in Europe: credit management for electronic brokerage, for example. Japan in the same position.

Bottom line: it's easier to get BMPs in the US, and a bit harder in Europe and Japan.

Now, on from doctorine to theory. Economic conditions created by the grant of intellectual property right.

Suppose that I invent a new mousetrap. The cost of producing the trap is low and flat. In the absence of patent, copying and competition will drive the price down to close to marginal cost. Problem: knowing this, I won't have an inventive to create the better mouse trap.

Opposite extreme: the law gives me a patent. Profit-maximizing behavior by patentee who can engage in price discrimination. Monopoly profits. From an incentive standpoint, this is great.

But I don't have the information required to price discriminate perfectly. It's trial-and-error. Strategy of reducing price; must keep within a certain range. Marginal revenue curve. The optimal pricing strategy--profit maximizing behavior.

Side effects: some consumer surplus. A certain amount of deadweight loss with loss of consumer surplus.

In the context of AIDS drugs in Africa, this situation means that millions of people die.

[...]

Lesson is: patents are always costly. You should only have them if you get certain benefits.

Cumulative inventions. You invent the telephone; others build on it with waves of improvement. When patents enter the equation, there are concerns. Loci of rent dissipation. Proposed cures: Kitch and Merges.

[...]

Returning to BMPs. You don't need patent protection to stimulate innovation in BMPs. And the patents have serious disadvantages: 1/high costs, 2/large deadweight loss, 3/impediments to cumulative innovation, 4/unavoidable rent dissipation.

Bottom line: BM patents should be repudiated, in the US and around the world.

[...]

If you don't offer patent protection for businesses, they will use trade secret law instead. That in the long run would be worse; the public would never get the benefit. Patents are only 20-years long. Trade secrets are forever.

But BMPs cannot be justified on this basis. BMPs cannot be hidden; it can generally be reverse-engineered.

Frank Morris: The main justification for filing the patent is often that you cannot hide it--can't use trade secret.

Terry: ...New drugs cost money; they can be reverse-engineered. So patent protection is thought to be appropriate in the context of pharmacueticals.

Participant: Would PressPlay be patentable?

Terry: This would be patentable currently.

Anrdew Rens: There is no justification for BMPs.

Terry: Well, that's basically the point of this lecture.

Lisa Rein: If Pythagorous were alive now, would you have to pay him for the chart you used?

Terry: Yes, it's possible. But courts are sensible; they don't press these things to their logical conclusions.

But let us consider the patents on athletic moves. Here's a method for holding a putter; it is patented. The reason this hasn't been litigated is that it's a terrible way to play golf. [Big laugh.]

[...]

Participant: Having decided to repudiate BMPs, how do we define them?

Terry: Good question. Many things plausibly considered BMPs are not categorized as such. This is an issue by no means crystal clear.

Participant: I see no way to draw a bright line. Would a method of counting pages copied in a copy machine, be considered a BMP?

Terry: I would say yes. Admittedly, the line is blurry. But it is drawable.

[Concluding remarks; end of session.]