Patents: Legitimate Property Rights or Grubstakes that Obstruct Progress and Commerce?

by James L. Ewing, IV *

Article I, Section 8, Clause 8 of the U.S. Constitution establishes patents as a private property right that is necessary to promote the progress of science and useful arts, by securing for limited times to inventors the exclusive right to their respective discoveries. However, what some forget is that this constitutionally authorized property right is implemented by federal statutes that undermine, intrude and invade the normal rule of free competition. The Supreme Court in Graham v. John Deere, 383 U.S. 1 (1966), addressed this inherent paradox by recognizing that Article I Section 8 is both a power and a limitation. It recognized the need to limit the statutory exception to instances that foster promotion of advances in the "useful arts." Indeed, the Court noted that U.S. Patent Law derives from the English 1623 statute of monopolies whose chief aim was to dismantle royal monopoly grants that undermined the cause of free competition (usually by allowing friends of the Crown the profitable, but unpopular monopolies). But even the English statute allowed a limited monopoly to persist in the form of 14 year grants of "Letters Patent" for "new manufactures."

This history shows the patent / free competition balance to be dialectical, not static. In this country, since the turn of the century, the pendulum has cycled twice between the patent right and free competition poles. The last free-competition era occurred between 1930-1950. Perhaps the zenith (or nadir, depending on point of view) was Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661 (1944) where the Supreme Court held that tying sales of a non-patented product to a patented product constituted an impermissible extension of the patent monopoly and therefore patent misuse. Ironically, Mercoid facts today could support loss of profits damages under Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995). Partially as a reaction to certain court decisions (including the need to overturn Mercoid), the 1952 Patent Act slowly turned the pendulum back in a pro-patent direction. That movement accelerated full-bore with creation in 1983 of the Court of Appeals for the Federal Circuit to hear all appeals from trial court patent infringement decisions.

Meanwhile, the Supreme Court extended the patent right into areas that were previously in the public domain. The bellwether was Diamond v. Chakrabarty, 100 S. Ct. 2204 (1980) where the Court held previously unpatentable life forms available for patent protection. The Chakrabarty case is the structural underpinning for the massive strides in life sciences research and developments in recent years, much of which is already proving useful to mankind. Nevertheless, patent applications have been filed to cover various aspects of the human genome, and to cover genetic modification of the human embryo. In one recent instance, the breadth of patent rights became a human rights issue when a major biotechnology company bowed to public reaction and discontinued its marketing of seeds featuring the patented "terminator gene" that would prevent replanting of crops.

In the information technology field, the Court expanded the scope of eligible patent subject matter in Diamond v. Diehr, 101 S. Ct. 1048 (1981), where it held patentable certain mathematical algorithms previously considered to be laws of nature or mathematical laws which were the common heritage of mankind. The Diehr case opened the door to the now ubiquitous practice of patenting software. Should there remain any doubt about limits on patenting automated systems, the Federal Circuit ended the "methods of doing business" exception to what is patentable in State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998), cert. denied, 119 S. Ct. 851 (1999).

The resurgence of patent power accompanied, and perhaps precipitated, the acceleration of technology. Around the time of the Chakrabarty and Diehr cases in the early 1980's, Apple launched its Apple II personal computer and IBM the IBM PC. The resulting ubiquity of accessible microprocessor capacity, mobile telephony and the proliferation of the Internet have changed every facet of our lives and will stimulate more changes at an ever increasing pace. Ideas can be incorporated into software or onto the web and thereby almost instantly generate great wealth even today, early in this internet phase, some internet start-up companies enjoy greater market capitalization than major automobile firms.

Yet the software which powers these innovations is different than a plough. In Thomas Jefferson's time, the Patent Office could effectively and accurately search relevant Patent Office records for earlier plow patents in order to determine whether the plough shown in a patent application qualified as "new" and therefore patentable. By contrast, the software which runs a cell phone in order to effectuate radio transmissions, telephone number memory, and interface with the user via keypad and screen contains thousands of lines of code corresponding to hundreds of processes, none of which can easily be shown in a drawing or compared to other systems or processes readily. The result is confusion and unpredictability; for instance, there are over forty patents which purport to cover various aspects of call forwarding. A company which plans to introduce a new product or service finds it more difficult and less reliable every day to search the relevant patent field and determine whether that technology is clear of third party patent rights.

Various patent owners were quick to leverage on this confusion by, for instance, filing multiple patent applications to acquire hundreds of patent claims, many of which never corresponded to an actual device or process actually carried out by the patent owner. Such an array of patent claims, each of which must be independently defeated, combined with the fact that the average cost of litigating a patent case is approximately $1.2 Million, provides perverse incentives for defendants to pay tribute rather than fight on. For instance, many companies that use machine vision or bar code readers have received a demand letter requiring payment of money to a foundation that does not market bar code readers or machine vision products but is instead in the business of owning and enforcing patent rights. Other businesses on the receiving end of patent claims are: electronic programming guides on cable television, interactive voice response and one number calling functionality in telecommunications systems, and maps for consumers on the internet. Obtaining that license does not guarantee that other patent owners will not send the next letter demanding more money to practice the same technology. The potential is that existing lines of business are abandoned and new products and services never get developed because of the patent encumbrance on the balance sheet.

One commentator has described patents as the single most powerful weapon the government places in the hands of an ordinary citizen. Are these weapons out of control today? Are patents promoting the public good, or is the patent right adversely affecting the marketplace? Should scope, procurement or enforcement of patent rights be circumscribed in some manner in the interest of the common good, as is not uncommon with any property right? Should patents continue to enjoy a statutory presumption of validity? Why should that be so where, in some fields, the resources of the Patent Office are inadequate to do the correct examination? Should the clear and convincing burden to overcome the presumption of validity be changed? Should there be a compulsory licensing system to modulate the effect of patent rights on the free market? What say you?

* The author is a partner in the Intellectual Property section of Kilpatrick Stockton LLP in Atlanta and serves as the Chairman of the Patent Subcommittee of the Federalist Society's IP Practice Group.


2001 The Federalist Society