Yesterday, the Supreme Court unanimously reversed the Court of Appeals for Federal Circuit in Quanta v. LG. Electronics. This was a technical case about the power of patent holders to extract fees from downstream component assemblers, systems integrators, vendors, and end users. Value chains run deep and wide in information technology, and the Federal Circuit's decision would have created a lawyers' playground with new licenses required for every patent at every stage.
Quanta is the latest in a string of cases in which the Supreme Court has had to beat back the Federal Circuit's expansive view of the patent system. The big one -- the scope of patentable matter -- is yet to come.
Last month, the Federal Circuit heard oral arguments in Bilski, an appeal over the refusal of the Patent and Trademark Office to grant a patent on a pure business method for brokering risk. Bilski's attorney argued that everything with "real world" effects should be patentable under Federal Circuit's 1998 State Street decision -- just any effect outside of the human mind. He argued that Congress could easily have changed the State Street standard but had not done so.
The myth of an all-seeing, all-knowing Congress capable of riding to the rescue is a well-used excuse for keeping bad decisions on the books. But the question of just what is patentable is far too loaded and complex for Congress to handle -- especially given all the other problems the patent system faces and the fact that even modest patent reform legislation has stalled. (Not to mention all the other more politically compelling issues that demand attention from Congress.) Furthermore, any attempt to redraw the lines that the Federal Circuit erased in State Street would elicit screams that Congress is confiscating private property and arguments that the federal government may or should be required to pay billions in compensation.
My Profession Is Smarter Than Yours
So, should the patent system be only about technology -- or about everything?
While it may not be surprising that patent lawyers favor everything, it is remarkable to see an amicus brief of 22 patent law and business professors advocating for everything as well. Indeed, the professors (many of whom practice as well) argue that circumscribing limits to the patent system is futile. Why? Because patent lawyers have managed to evade judicially crafted limits to subject matter through clever draftsmanship and will continue to do so. This remarkable argument -- "let's get rid of limits because lawyers will figure out how to get around them" -- is rarely heard in other contexts. Why should it be so compelling in patent law? Are patent lawyers so extraordinarily innovative that judges should throw up their hands and allow anything novel and non-obvious to be patented?
In fact, it has been too easy for patent lawyers to be creative in dealing with an appellate court known as "pro-patent." As one of its long-serving judges, a former patent lawyer, recently explained:
"[I]t was decided to make a major effort to revive the patent incentive, including formation of the Federal Circuit Court of Appeals. Patents were indeed strengthened. The court can take the credit or the blame, depending on your viewpoint, but it was part of that activity."
Wait. Who decided that? The official reason for having a new appellate court hear all patent appeals was to make patent law consistent -- NOT to enhance the patent incentive. Maybe some, including patent lawyers, wanted to do so but that's not what Congress thought it was doing when it created the Federal Circuit in 1980.
Perhaps the Federal Circuit's pro-patent tilt was the inevitable result of staffing a specialized court with patent specialists. As distinguished scholar and jurist Richard Posner puts it, "a specialized court tends to see itself as a booster of its specialty." And if judges can advocate expansion of their specialty, why not professors?
It's undoubtedly flattering to have one's profession regulate all human activity -- rather than just applied technology. Many law schools used to treat patent law as the equivalent of plumbing, a bastard specialty that didn't ask the great questions and could be taught by adjuncts. Business schools didn't teach patents at all. But patents have become the unbounded regulatory regime for the knowledge economy, and patent scholars have become the highest of high priests -- as sought after in academia as patent attorneys are in commerce.
Without citing any evidence and without acknowledging the costs imposed by the patent system, the professors claim that innovation would suffer if patents on business methods were curtailed. This assumes that if patents work for pharmaceuticals, they must work for everything. Yet by extending the patent system to abstract and nontechnological subject matter, the Federal Circuit has undermined this argument. A one-size-fits-all patent system inevitably leads to disparate results as it stretches to cover wildly different forms of innovation. Empirical evidence shows that in most industries, patents now provide a net disincentive, or tax, on publicly traded companies -- and that software and business method patents are the most ambiguous and generate the most litigation. (James Bessen and Michael Meurer, Patent Failure, Princeton University Press 2008)
At the oral argument for Bilski, the same judge who voiced the pro-patent intent behind the appeals court asked the lawyer from the Patent & Trademark Office if the agency had done a study of what would happen if patents for business methods were eliminated. A rhetorical question, since the PTO does not do studies. Nor does Congress. Nor, of course, did the Federal Circuit when it decided State Street and summarily eliminated the business method exclusion as "ill-conceived." State Street nonetheless created a land rush for business method patents - and in doing so created constituencies to fight for these newfound "rights."
The pro-everything professors acknowledge the plethora of bad patents on software and business methods. But they argue that instead of trying to limit what is patentable, we should look to the basic tools of the patent system to eliminate bad patents. In other words, trust us (and our practitioner colleagues). It doesn't matter if you get sued for the way you do business, there are still the requirements of novelty, non-obviousness, utility, enablement, written description, definiteness, along with a bevy of defenses. All things you might not understand, but we can help you. And Congress can help us tweak the system so it works well for everybody.
Yet patent reform is paralyzed. In the industries such as IT where patents matter less than other competitive factors, there are far too many patents, and the system is working poorly. In the industries where patents matter most, there are relatively few patents, and, from industry's perspective, the system is working just fine. For universities and small inventors, who normally don't have to worry about being attacked by patents, the system is working. For law firms, the system works well, because there's no such thing as too many clients or too much business.
Yes, the Supreme Court has recently stepped in to remedy a few of the worst examples of Federal Circuit jurisprudence -- notably low standards of patentability and automatic injunctions. However, a number of the pro-everything professors, along with the organized patent bar, supported the Federal Circuit in those cases - i.e., more plentiful, more powerful, and lower-quality patents.
There appears to be something democratic about patents for everything. Every discipline, field, sector, industry, and niche gets its patents. Doctors, dentists, psychologists, legislators, accountants, athletes, yoga instructors, cooks... Anybody in the real world. You can get them, or not -- it's your choice. But everybody, like it or not, is obliged to search, identify, evaluate, defer to, and negotiate patents -- and to hire the professional help needed to do so cautiously and prudently. Yes, you still might lose in litigation (half the litigants do!) but this is the sport of kings, and it's a privilege to play.