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Archive for June, 2010


BILSKI: the Good, the Bad, and the Ugly

First, the decision that Bilski’s claims were not considered to be patentable subject matter is not surprising.  The Supreme Court’s hostility to the Bilski patent was evident in oral argument.

THE GOOD

It is not surprising that the most patent friendly Justice (based on the opinions in this case) is Justice Kennedy.  President Ronald Reagan, who was the last president to understand the importance of patents to economic growth, appointed him.  For more information see National Inventor’s Day.  The so-called “conservative” justices on the court could learn a lot by reviewing Reagan’s understanding of patents and how they fit into his economic program.

No categorical rule was proclaimed against business method patents.

Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods. The term “method,” which is within §100(b)’s definition of “process,” at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. p. 10.

The Court acknowledges that the “machine or transformation test” might inhibit patents on software.

The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age—for example, inventions grounded in a physical or other tangible form. However, there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age.  As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals. p. 9.

The Court acknowledges, (Kennedy), that there is no good definition of a business method patent.  I have made a similar observation in Bilski, Software Patents and Business Method Patents.

The following passage provides a ray of hope that the Court may someday reach a proper analysis of section 101:

that the term “process” categorically excludes business methods. The term “method,” which is within §100(b)’s definition of “process,” at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. See, e.g., Webster’s New International Dictionary 1548 (2d ed. 1954) (defining “method” as“[a]n orderly procedure or process . . . regular way or manner of doing anything; hence, a set form of procedure adopted in investigation or instruction”). The Court is unaware of any argument that the “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of “method” excludes business methods. Nor is it clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently. p. 10.

THE BAD

The concurring opinions (Stevens, Ginsburg, Breyer, Sotomayor) (Breyer, Scalia) show that most of the Justices want a categorical rule against business method patents.  However, they fail to provide a definition of a business method patent.  Because the Justices refuse to provide a definition, it is likely that different Justices mean different things by a business method patent.  The only clue as to what they mean by a business method patent is either a way of organizing people or a patent related to finance or money.  I explain why excluding finance and money from patentable subject matter is flawed at Is Money and Abstract Idea.

The Opinion leaves behind a confused set of Jurisprudence on Section 101.  Steve Kunin’s AIPLA presentation is excellent at pointing out the nonsense of the Court’s previous opinions on point.

The Opinion seems to overturn State Street, which was the most intelligent statement of section 101 by our Courts.

THE UGLY

The Court confuses statutory subject matter 101 with Novelty 102 and Non-Obviousness 103.  For instance, Justice Kennedy writes:

In light of these precedents, it is clear that petitioners’ application is not a patentable “process. Claims 1 and 4 in petitioners’ application explain the basic concept of hedging, or protecting against risk: Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class. p. 15.

Whether Bilski claims a well known economic practice is irrelevant to a 101 analysis.  Confusing and blending the different sections of the patent statute is a consistent problem of the Supreme Court,  and first year patent law associates.

The Court again proves that they do not understand that every invention is a combination of known elements and that pointing out that one of the elements is known provides no insight about a patent.  Specifically the Court writes,

These claims attempt to patent the use of the abstract idea of hedging risk in the energy market and then instruct the use of well-known random analysis techniques to help establish some of the inputs into the equation.

For more information see   Non-Obviousness: A Case Study in Judicial Activism.

All of the opinions of the Court embrace the myth that a patent is a monopoly.  A patent is a property right.  Just as individuals have property rights in land or automobiles.  Property rights are derived from Locke’s theory of Natural Rights. This is completely consistent with patents.  For more information, please refer to, The Myth that Patents are a Monopoly: and Scarcity – Does it Prove Intellectual Property is Unjustified? .  The Court would be wise to consult the preeminent  philosopher on Capitalism: see Ayn Rand on Intellectual Property.

The Court repeats the familiar myth about the Preamble to the Patent and Copyright clause of the Constitution.  We know this is a red herring, because the Court and other proponents of this theory never discuss that a trashy novel which does not “promote the Progress of Science and useful Arts” should not receive Copyright protection.  In addition, the same argument is made with respect to the second amendment and the Court clearly rejected this interpretation.  It is Intellectual Fraud to suggest that the Preamble is meant to limit the “rights” of inventors and authors.  For more information see  Levine & Boldrin Argue the U.S. Should End the Patent System .

The Court repeats well known myths about the economics of patents.  For instance, the Court writes patents

can discourage research by impeding the free exchange of information, for example, by forcing people to avoid the use of potentially patented ideas, by leading them to conduct costly and time-consuming searches of existing or pending patents, by requiring complex licensing arrangements, and by raising the costs of using the patented methods. Although [e]very patent is the grant of a privilege of exacting tolls from the public. p. 43.

The Court does not understand that inventions are the only method of increasing real per capita income and are property rights not monopolies. By forcing people to invent instead of copy or perform redundant research we increase our wealth and protect property rights.  For more information see Source of Economic Growth.

SCARY

Nonetheless, not every new invention or discovery may be patented. Certain things are free for all to use. “Bonito Boats, Inc. v. Thunder Craft Boats, Inc.

Really, the Constitution states that Congress is to secure “for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”  What part of “Right” do the Justices not understand? The Constitution does not allow Congress or the Supreme Court to decide which inventions ought to receive patent protection.  This complete disregard for the Constitution shows that this Supreme Court is hostile to patents and has no intention of doing their Constitutional duty of securing the Rights of inventors.

 
Q. Todd Dickinson: Patent Reform

I was at an AIPLA conference in Denver on Thursday, June 24, 2010, and Mr. Dickinson did a presentation on the Patent Reform bill.  There has been a push to get patent reform back on track.  Mr. Dickinson has worked very hard on the bill and if they add eliminating fee diversion, he and AIPLA are ready to completely back the bill.  Mr. Dickinson’s presentation was excellent and he clearly is a very intelligent man.  The main justification for the bill is to harmonize our laws with Europe and the rest of the world.  He explained all the changes that have occurred to the bill and the players behind the bill.  Despite this I still have a number of reservation about Patent Reform and oppose its passage.

One point that bothered me about the presentation was no independent inventor groups were discussed as having a seat at the table.  There was token mention of independent inventors and start-ups, but the legislative process seems to ignore people who do not have money to play.  The one except was the very vocal independent inventor’s group from Nevada (Nevada’s for Fair Patent Reform) who are holding Harry Reid’s feet to the fire on several issues in the bill.

Another point that bothered me was Mr. Dickinson’s insistence that “First-to-Invent” issue is really a non-issue.  He pointed out that the system is really the “First-Inventor-to-File” and there will be procedures to show derivation from the true inventor.  This does not seem to solve the problems with a first-to-invent system.  If we are going to replace the few interferences with a few procedures to show derivation, where is the advantage to the US?  Second of all the first-to-filesystem is going to stack the deck in favor of large corporations.  A first to file system will result in many poorly thought out patent applications increasing the PTO’s workload and increasing the number of Continuations-In-Part (CIPs).  The confusion created by this system of filing early and then following up with corrected applications will result in litigation being more expensive and less certain.  In addition, this system will further bias the patent system in favor of large entities.  Large entities will use a first to file system to flood the PTO with patents to overwhelm small entities and individual inventors in the race to the patent office.  Small entities and individual inventors will never be able to compete financially in this race.  According to the SBA, most emerging technologies are created by small entities not large entities.  As a result, we need to make sure that our patent system is friendly for small entities if we want it to encourage innovation.

The result of the first to file system along with the publication system in the rest of the world has been to create a patent system for large entities.  The number of filings by small entities in these countries is trivial compared to the number of patent filings by small entities and individual inventors in the U.S.  There is no evidence that first to file system has spurred innovation in those countries that have this system.  So, the truth here is that the first to file system is not designed to spur innovation – it is a further attempt to bias the patent system in favor of large corporations.

As I stated earlier, one of the main reason Mr. Dickinson gave for passing the Patent Reform bill is harmonization with other countries.  In 2000, we gave up on the two century tradition of keeping patent applications secret during their pendancy.  This was inconsistent with the social contract of patents.  The reward for small inventors was to see patent pendancy skyrocket and to have a totally incompetent Director of the Patent Office appointed, Jon Dudas, who drove up costs and essentially shut down the patent system.  This was particularly true for independent inventors and start-ups that could not afford to fight indefinitely the PTO.  According to Ron Katznelson, pendancy times always increase by about double once a publication system is instituted in a country.  The reward for the US was to have foreign countries steal our technology by just reading our patent publications.  For more information see Pat Choate’s book Hot Property. We are giving away our most valuable asset for free – our technology.  As far as I can tell the Europeans and the rest of the world are not giving up anything for harmonization nor providing any compelling reasons it is in the US interest to harmonize.

Harmonization is a very bad reason for doing anything.  In the 1990’s we were the economic and technological leader of the world.  A decade of harmonization with the rest of the world has turned us into an economic and technological basket case – for more information see my book, The Decline and Fall of the American Entrepreneur. What we need is real patent reform that will help the economy and help start-ups and independent inventors.  Here are my suggestions for real patent reform that would not only help small inventors but the US economy.

1) Repeal Publication: This would restore the social contract

2) Repeal KSR: A subject standard of patentability just increases costs and uncertainty associated with the patent process.  KSR makes bureaucrats the ultimate arbiter of what is patentable instead of logic.

3) Repay PTO & End Fee Diversion:  Congress should repay the over $1B it stole from inventors with interest.  It should also end fee diversion, which if Congress was subject to Sarbane Oxley would land them in jail.

4) Regional Offices for PTO:  This would ensure steady funding of the PTO, increase examiner retention, and ensure that the PTO is not so Washington biased.

5) Repeal eBay:  This decision is a logical absurdity.  If a patent gives you the right to exclude, then if you win a patent infringement case you must be able to enforce your only right – the right to exclude.  This is not an issue of equity, it is an issue of enforcing the right associated with a patent.

6) Eliminate “Combination of Known Elements”:  The fact that the Supreme Court does not understand that every invention in the history of the world is a combination of known elements is pinnacle of ignorance.  Have they ever heard of “conservation of matter and energy”?

7) Patent Reciprocity:  If you drive your car across the border into Canada you do not lose title to your car.  If you take your manuscript across the border into Canada you do not lose the copyright to your manuscript.  But, if you take your invention across the border into Canada, you lose your patent protection and anyone can steal the invention – not the physical embodiment, but the underlying invention.

Patent reciprocity would automatically provide patent rights in a foreign country when you obtained a patent in the US and vice versa.  This idea was first proposed by the US in the mid 1800s according to B. Zorina Kahn’s book “The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920“. Unfortunately, the idea died and since then patent rights have been part of the convoluted process of trade negotiations.

Patent reciprocity would significantly increase the value of patents and increase the value of research and development.  As a result, it would spur investment in innovation.  It would also increase the valuation of technology start-up companies in all countries that participated.  Finally, tt would also increase per capita income.

 
Copyrights: Another Example that Government is not doing its Job

Cosmetic Ideas v. IAC is a recent case related to copyrights for necklaces.  This case raises the issue of whether a copyright owner has to have a registered copyright in order to file a lawsuit.  There is a split between the Ninth, Fifth & Seventh Circuits on one side saying that a plaintiff only needs to have filed for a copyright registration to file a federal lawsuit, while the Tenth and Eleventh Circuits require the copyright owner obtain registration before filing a lawsuit.  The relevant statute is 17 USC 411

Except for an action brought for a violation of the rights of the author under section 106A(a), and subject to the provisions of subsection (b),no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement if notice thereof, with a copy of the complaint, is served on the Register of Copyrights. The Register may, at his or her option, become a party to the action with respect to the issue of registrability of the copyright claim by entering an appearance within sixty days after such service, but the Register’s failure to become a party shall not deprive the court of jurisdiction to determine that issue.

The statute seems to clearly require registration of the copyright, not that the owner of the copyright has just applied for registration.  Note that “preregistration” is a separate process from registration and does not mean having filed for copyright registration.  So the Tenth and Eleventh Circuits seem to have the better argument.  However, from a practical point of view it now takes 6-9 months to obtain a copyright registration.  If a copyright owner has to wait 6-9 months to file a lawsuit, this seriously prejudices their rights.  The Ninth, Fifth & Seventh Circuits appear to have the better practical argument.

The real problem here is that the government is so busy managing everyone else’s business it is too busy to fulfill its constitutional duties.[1] According to futurist, Tom Frey, the US has over 90,000 government entities.  (Please read this excellent article at A Country of 90,000 Governments  http://www.futuristspeaker.com/2010/06/a-country-of-90000-governments/).  The process of registering a copyright is relatively simple.  There is no reason it should take 6-9 months to obtain a copyright registration.  It takes this long because our Government is not adequately funding the Copyright Office.  Similarly Congress has stolen almost $1B in user fee from the Patent Office in the last two decades resulting in delays of 3-10 years to obtain a patent.  This dereliction of duty by our government officials is unacceptable and in this case is resulting in bad law.  If the Copyright Office was adequately funded, there would be no reason for the split in the Circuits on whether a copyright owner has to have a certificate of registration to file a lawsuit.


[1] US Constitution, Article 1, Section 1, clause 8.

 
Non-Obviousness: A Case Study in Judicial Activism

The genesis of the non-obviousness standard (Inventive Step in Europe) was the Supreme Court’s decision in Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248 (1851).  This case first articulated the idea that the improvement that was the subject of a patent had to be more than “the work of the skilful mechanic.”  The case involved making door and other knobs of all kinds of clay used in pottery, and of porcelain.[1]The invention according to the patent holder was:

This improvement consists in making said knobs of potter’s clay, such as is used in any species of pottery; also of porcelain; the operation is the same as in pottery, by moulding, turning, and burning and glazing; they may be plain in surface and color, or ornamented to any degree in both; the modes of fitting them for their application to doors, locks, furniture, and other uses, will be as various as the uses to which they may be applied, but chiefly predicated on one principle, that of having the cavity in which the screw or shank is inserted, by which they are fastened, largest at the bottom of its depth, in form of a dovetail, and a screw formed therein by pouring in metal in a fused state.[2]

The Supreme Court upon reviewing the case made the common error of pointing out that each of the elements in the invention were known.

But in the case before us, the knob is not new, nor the metallic shank and spindle, nor the dovetail form of the cavity in the knob, nor the means by which the metallic shank is securely fastened therein. All these were well known, and in common use, and the only thing new is the substitution of a knob of a different material from that heretofore used in connection with this arrangement.[3]

All inventions are combinations of known elements since conservation of matter and energy means that you cannot create something from nothing, for more information see KSR: Supreme Ignorance by Supreme Court.  As a result, this analysis by the Supreme Court is meaningless and sheds no light on whether the invention should have obtained a patent.

Based on this analysis the Supreme Court then reasons:

for unless more ingenuity and skill in applying the old method of fastening the shank and the knob were required in the application of it to the clay or porcelain knob than were possessed by an ordinary mechanic acquainted with the business, there was an absence of that degree of skill and ingenuity which constitute essential elements of every invention. In other words, the improvement is the work of the skillful mechanic, not that of the inventor.[4] (underlining added)

This ruling states the well known idea that for an invention to be patentable, it must be more than just the work of a skillful mechanic.  Today this is stated as the invention must have taken more than just the work of “one skilled in the art.”

There are a number of problems in the Supreme Court’s ruling in Hotchkiss v. Greenwood. First, where did the Supreme Court get the authority to add an additional requirement above novelty in order for an invention to obtain a patent?  The statute at the time did not contain any such additional requirement.  It was judicial activism to add a requirement not found in the statute.  Another error in the Supreme Court’s reasoning is the use of hindsight.  All inventions are obvious in hindsight and must be described in enough detail that they can be practiced by one skilled in the art (ordinary mechanic) to meet the requirement of the social contract of patents.[5] Another error in the case was the failure to recognize that copying by competitors of the invention or success of the invention tend to show that it was non-obvious.  Finally, the Supreme Court failed to understand the implications of the laws of physics as they apply to inventions, specifically that conservation of matter means all inventions are combinations of known elements.

Despite these errors, it is reasonable to ask did the Supreme Court’s judicial activism result in any lasting problems?  According to Gale R. Peterson, Cox Smith Matthews in their paper, “Obviousness / Non-Obviousness Of The Novel Invention: Hotchkiss v. Greenwood to KSR v. Teleflex 35 U.S.C. § 103 – 1851 to 2006.”[6]

The cases decided after Hotchkiss in 1851, both by the Supreme Court and the lower courts, were chaotic. There was no statute governing the additional hurdle an otherwise novel invention must cross before being deemed a patentable invention.[7]

The Supreme Court’s decision in Hotchkiss v. Greenwood resulted in an unworkable standard of patentability, because it was inherently subjective.  This increased the uncertainty whether an inventor would obtain a patent for their invention and increased the risk that their patent might be held invalid.  It also caused the standard of patentability to vary in different Circuits and the Patent Office.  Today this is widely understood to increase the cost of obtaining a patent and decrease the amount of resources invested in inventions.  The Supreme Court’s judicial activism in Hotchkiss v. Greenwood resulted in numerous problems that haunt us today.  Including the complete nonsense opined by the Supreme Court in the KSR v. Teleflex[8] decision, see KSR: Supreme Ignorance by Supreme Court.

Is there any logical reason for the additional requirement of non-obviousness for patents?  The definition of invention according to Free Dictionary online is “to produce or contrive (something previously unknown) by the use of ingenuity or imagination.”[9] While Merriam Webster (online) defines invention as “a device, contrivance, or process originated after study and experiment.”[10] I will ignore how and invention is created as a criteria and suggest the following definition, “to create something new” as a common sense definition.  This definition differentiates production or manufacturing from invention.  Production is creating something, but it is not creating something new it is creating something old.  If you argue that it is creating something new, then the word new has no meaning in the definition.  This definition does not do a good job of differentiating an invention from a new book or painting.  It might be argued that a new book is not creating something new, but it is not the same as other books.  So I believe this simple common sense definition has to be supplemented.  Specifically, I suggest that invention is “to create something new that has an objective result.”  By an objective result I mean that goal of an invention is an objective result that can be tested as opposed to a subjective result that is the result of a song being played or a book being read or a painting be viewed.  An objective result distinguishes an invention from a new artistic creation.

So how does this common sense definition of invention, “to create something new that has an objective result,” match up with the requirements of patent law (101, 102, 103, 112)?  This definition is generally consistent with section 35 USC 101, statutory subject matter.  It excludes scientific and mathematical discoveries since these are not creations.  Notably it clearly does not exclude software patents.  A software enabled invention is clearly a new creation and it has an objective result.  The same is true of business methods patents (for more on the nonsense associated with business method patent see – Bilski, Software Patents and Business Method Patents.  This definition is clearly consistent with section 102 – new equals novel.  Is this definition consistent with section 35 USC 103?  No this definition is not consistent with section 103.  There is nothing in the definition that suggests a standard above novelty or new.  The general reason given for section 103 is that we do not want trivial inventions that just change the size or the weight or some other trivial feature of an existing invention to obtain a patent.  If a change in size or weight or color does not make a difference in the objective result, it is not new and it is not an invention.  So I believe the definition of invention I have offered covers this issue and therefore there is no reason for an addition standard above novelty.  My suggested definition is neither consistent nor inconsistent with section 35 USC 112, since this section does not define what is an invention.  Section 112 defines the requirements an inventor must meet to obtain a patent for their invention.  Section 112 deals with the social contract between the inventor and society.  Overall the common sense definition I suggested for invention fits nicely with patent law, but there is absolutely no logic for a nonobviousness criteria for patents based on this definition.  The creation of the nonobviousness standard was judicial activism on the part of the Supreme Court without any statutory justification.  The standard has proven to be completely unworkable and completely subjective.  Only the CAFC’s jurisprudence before KSR provided any measure of a stability and logic to the section 103.  The nonobviousness standard has resulted in increase costs to inventors without any benefit.  It has increase the cost of ligation, helped technologies thieves to steal inventions, and decreased the amount invested in new technology.

I suggest the radical notion that logically the nonobviousness standard, 35 USC 103, should be repealed.  If it is not repealed then we should demand a statutory definition that is as objective as possible.  One objective solution would be to codify the CAFC’s teaching, suggestion, motivation (TSM) test.  I have proposed an alternative standard for 35 USC 103 that I believe is even more objective, clearer, and more consistent with reality than the TSM test – see Obviousness Flow Chart .  By adopting any of these solutions we will reduce the cost and uncertainty of obtaining a patent and litigating patents.  This will increase the value of issued patents and increase the investment in new technologies, which are the only way to increase real per capita income – see The Source of Economic Growth.

PS

As an interesting intellectual exercise I attempted to use ordinary definitions of novelty and obviousness to determine if the Supreme Court’s seminal decision in Graham v. Deere[11] had any basis in logic and was in anyway consistent with the statutory language.  The non-obviousness standard was added to U.S. patent law in the 1952 Patent Act.  The Courts’ job is to interpret the statute.  The key portion of the non-obviousness statute states:

A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.  (underlining added)

While many lawyers will want to immediately jump to the legislative history to interpret the statute, this is only appropriate if the statute is not clear on it face.  Based on the wording and the fact that section 103 was added later than the novelty requirement, logically 103 is intended to be an additional requirement above the novelty requirement.  According to Dictionary.com, novelty means “of a new kind; different from anything seen or known before: a novel idea.”  The nonobviousness requirement logically requires something more than an invention be novel.  In order to understand what nonobvious means, lets find out what obvious means.  Then anything that does not meet the definition of obvious is nonobvious.  According to Dictionary.com obvious means, “easily seen, recognized, or understood; open to view or knowledge; evident.”  It is axiomatic to patent law that whether an invention is nonobvious has to be determined at the time the invention was made, in other words before the invention was known.  How can an invention that has not been made be easily seen, recognized, or understood; open to view or knowledge; evident (obvious)?  Clearly, an invention that has not been made cannot be open to view and how can you have knowledge of something that does not exist.  Evident means, according to Dictionary.com, plain or clear to the sight or understanding, which cannot be true of something that does not exist.  Unfortunately, this line of examination does not lead to any useful results.  No wonder the 1952 Statute has not lead to meaningful clarification of what is patentable!


[1] Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248, 249 (1851)

[2] Ibid 250-251

[3] Ibid 266

[4] Ibid 268

[5] 35 USC 112, first paragraph (Modern)

[6] Gale R. Peterson, Cox Smith Matthews, “Obviousness / Non-Obviousness Of The Novel Invention: Hotchkiss v. Greenwood to KSR v. Teleflex 35 U.S.C. § 103 – 1851 to 2006.” 11th Annual Advanced Patent Law Institute, October 26-27 2006.

[7] Ibid 3.

[8] KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (2007).

[9] http://www.thefreedictionary.com/inventor (6/16/10).

[10] http://www.merriam-webster.com/netdict/invention (6/16/10).

[11] Graham v. John Deere Co. of Kansas City, 86 S.Ct. 684 (1966)

 
Confusing the Property Right with the Implementation of the Property Right

Many  entrepreneurs, inventors, and economists complain about the Patent System and intellectual property rights.  However, when you examine their complaints they are often concerned about how the patent system is implemented as opposed to the concept of property rights for inventions – patents.  For instance, an extremely successful entrepreneur and angel investor I know complained that patents increase the uncertainty when investing in a start-up company.  Because of the long time that it takes patents to issue, he protested that it is difficult to know when a patent might suddenly issue, affecting the business plan of a start-up in which he has invested.   Other common complaints include that the patent system is expensive, time consuming, and difficulties in determining the boundaries of a patent. Some people go so far as to suggest that this shows that patents are not a true property right.  After all, they reason, it is easy to determine the boundaries of real property and obtaining title to real property (land) is a straight forward process.

Here, the complainers show that their ignorance of history.  Before title insurance buyers of real property paid an attorney a lot of money to determine if they would receive “good title” to land if they bought it from the seller.  This title opinion did not come with a guarantee and it was not cheap.  In addition, you would have to pay a surveyor to determine the boundaries of your real property.  The survey process was expensive and fraught with problems until the advent of modern technology, such as GPS.  Our ancestors fought each other tooth and nail over the boundaries to their land.  In fact, court battles over land are a great way to trace your ancestry, because these battles were so common.

While the critics are wrong in their comparison between real property and patents, they are correct that we need systems that reduce the cost and uncertainty of determining the boundaries of patents (inventions) and whether the owner has good title (102, 103 issues).  In short, we need the equivalent of title insurance for patents.  I believe that standards committees (e.g., IEEE 802.11 WiFi) are acting like title insurance companies.  They determine which patents are essential to practice the invention.  In effect, they determine the boundaries of patents with respect to the standard and to some extent determine if these patents have good title to an invention.  I also believe that NPEs (Non-Practicing Entities) also act like title insurance companies.  Of course, many of the critics of the patent system do not like NPEs either.

I, too,  agree that the patent system takes too long to issue patents.  However, the problem is not with the concept of a patent system but with a government that has failed to fully fund the Patent Office.  In the last two decades, about billion dollars in user fees have been diverted from the Patent Office to Congressional pet projects.  In the US, the Patent Office has always been funded by user fees, which are the fees that inventors pay to the Patent Office when they file for a patent.  However, when an inventor writes a check to the Patent Office the money is deposited directly to the general treasury account of the federal government.  Congress then appropriates these fees back to the Patent Office.  When Congress diverts (steals) a billion dollars of user fees from the Patent Office, it is not surprising that the Patent Office will take longer to determine issues of patentability,  increasing uncertainty for start-ups.  If Congress was subject to Sarbanes Oxley, they would all be thrown in jail for this diversion of fees.  In my opinion, the patent process has also become too formalistic and complicated.

These complaints that I have cataloged here are not about patents per se, but with the implementation of the patent system.  I agree that the present patent system is overly cumbersome, too formalistic, too expensive, and takes too long.  As an aside, I will point out that the critics of patents (IP) complain about their complexity but raise just a peep about a tax system that is over 10,000 pages and a new securities law that is over 1400 pages.  There appears to be a disconnect in their thinking.

Some of the solutions to the problems with our patent system will occur if the free market is allowed to create solutions like title insurance for patents.  Fully funding the Patent Office will solve many of the other problems, such as the lengthy pendency times.  Patents are completely consistent with Locke’s formulation of property.  Patents like real property rights are  fundamental to economic progress and human rights.

 
Corporations Have the Rights of a Person?

There has been a lot of anger at corporations lately and many people are wondering when and why the courts ever stated that corporations have the rights of a “legal person.”  The case Citizens United v. Federal Election Commission, recently overturned the limits on corporate spending on elections based on the idea that corporations have free speech rights under the 1st amendment.  This upset many people and many questioned why the court believed that corporations should have rights under the 1st amendment.  The crony capitalism of the Bush and Obama administrations has added to this frustration at corporations.  The British Petroleum Gulf oil spill debacle is adding fuel to the flames.  Is this idea that a corporation is a “legal person” with rights some sort of judicial activism?

The first US case to recognize that a corporation is a “person” for legal purposes, able to sue and be sued was Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 4 L. Ed. 629 (1819) (see http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=17&invol=518)

This 1819 case was really about the Contract Clause of the Constitution and in today’s world would be characterized as a property right’s issue.

“Trustees of Dartmouth College v. Woodward“, 17 U.S. (4 Wheat.) 518 (1819), was a landmark United States Supreme Court case dealing with the application of the Contract Clause of the United States Constitution to private corporations. The case arose when the president of Dartmouth College was deposed by its trustees, leading to the New Hampshire legislature attempting to force the College to become a public institution and thereby place the ability to appoint trustees in the hands of the governor. The Supreme Court upheld the sanctity of the original charter of the College, which pre-dated the creation of the State.  (http://en.academic.ru/dic.nsf/enwiki/101008)

Since the case did not revolve around whether a corporation was a “legal person” it is my opinion that this was a generally accepted principle in the legal community at the time.  As this case shows, if corporations are not treated as a “legal person” then the government will use this as an excuse to violate private property rights.  The idea that a corporation is a “legal person” is not new and makes sure that private property rights are not violated.

 

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