Pamela Samuelson, Ph.D.
Richard M. Sherman Distinguished Professor of Law, University of California;
Director, Berkeley Center for Law & Technology
Pamela Samuelson is a leading legal scholar in intellectual property. She is
currently pursuing research on the effects of patent law and policy on
entrepreneurial activity as part of a Kauffman Foundation grant to the Berkeley
Center for Law & Technology at the University of California, Berkeley.
The Federal Trade Commission (FTC) and the National Academy of Sciences (NAS)
are among the many institutions calling for reform of the U.S. patent system
because it no longer promotes innovation and competition as well as it should. A
common refrain in these reports, as well as in the academic literature on patent
reform, is that too many questionable patents have been issued in recent years,
the reexamination process for postgrant review of wrongly issued patents is
flawed, and patent litigation has become too much of a high-stakes gamble.
Reinvigorating the nonobviousness standard and implementing a better postgrant
review process are two urgently needed reforms.
Appellate court decisions have made it too easy to obtain patent protection
for trivial innovations. Many questionable patents have been issued to "patent
trolls"—that is, persons or firms who acquire patents in order to extract
licensing revenues from those who manufacture innovative products and services,
and who may inadvertently use trivial innovations patented by the trolls. Patent
trolls prey on established firms as well as entrepreneurs, but there is reason
to believe that entrepreneurs are more vulnerable to patent troll shakedowns or
chilling effects than established firms. Established players have more resources
and experience with which to contend with trolls; entrepreneurs are more likely
to be distracted from building strong development teams and innovative products
and services if patent trolls suddenly emerge.
Patent trolls typically demand substantial payments from industry players,
including entrepreneurs, which will seem cheap by comparison with the extremely
high costs of patent litigation (often estimated at up to $5 million per side
per year). Among the advantages that accrue to trolls in litigation are the
heavy presumption of patent validity, the frequency with which courts issue
injunctions if patents are infringed, even if the patent is on a trivial
component of a complex system, and the trolls' immunity to cross-infringement
suits because they make no products or services.
At the time of this writing, the U.S. Supreme Court was revisiting the
nonobviousness standard of patent law in KSR International v. Teleflex,
Inc. (Patent law provides that protection is not available for minor
innovations that would be obvious to persons having ordinary skill in the art
(PHOSITAs); if, however, innovations are nonobvious to PHOSITAs, they qualify
for patent protection.)
KSR makes and sells adjustable gas pedals to General Motors for installation
in cars GM manufactures. Teleflex claims that KSR's pedals infringe its patent
on a novel combination of two preexisting elements: use of preexisting
adjustable pedals in conjunction with use of a preexisting type of electronic
control. Because the prior art literature did not contain a written suggestion
that these two elements might usefully be combined, the Court of Appeals for the
Federal Circuit (CAFC) rejected KSR's argument that the combination was too
obvious to be patented.
In KSR, the Supreme Court has an opportunity to reject the CAFC's
"suggestion" test and restore the more rigorous standards that the Court
announced in the Graham v. John Deere case from the 1960s.
Graham directs courts to assess differences between the claimed
invention and the prior art and make a judgment based on a wide array of factors
about whether the claimed invention was obvious or nonobvious. The CAFC's
"suggestion" test fails to recognize that many combinations of existing elements
of technology are so obvious to PHOSITAs that no one in the field would think to
document them. Under the CAFC's test, patent examiners cannot use their
experience or background knowledge to deny patents to obvious but undocumented
innovations. Moreover, examiners cannot consider the implications of rapid
changes in technology that cause know-how in technical fields to evolve rapidly
and previously nonobvious innovations to become obvious.
Reinvigorating the nonobviousness standard would deter weak applications and
make it easier to challenge patents that should not have been issued in the
first place. However, to facilitate timely and effective challenges, it is
necessary to reform the process by which questionable patents may be reviewed.
Patent law currently allows those in possession of relevant prior art to submit
it to the U.S. Patent and Trademark Office (PTO), along with an explanation of
the implications of this art for patentability. However, the grounds upon which
reexamination can be sought are narrow, and there is no opportunity to have a
hearing to debate the challenge. Reexams are, moreover, typically conducted by
the examiners who granted the patent and who may be reluctant to admit that they
made a mistake.
Most patent litigators are wary of using the current reexamination process
because if the PTO rejects the reexam arguments, the litigators can't use the
prior art to question the validity of the patent at trial where they have a
better chance of persuading judges or juries to find in their clients'
favor.
The European Union has a highly effective postgrant review procedure that the
FTC and NAS recommend be adopted in the United States, albeit with some
adjustments to make the process speedier. Big firms will certainly benefit from
a more cost-effective way to challenge questionable patents, but entrepreneurs
may benefit even more. Larger firms can afford to take a $5 million gamble on
patent litigation; many entrepreneurs cannot. With litigation and reexamination
as the only options for challenging an invalid patent, entrepreneurs may
reluctantly agree to a troll's proposal for a $100,000 license for the patent,
whereas with postgrant review as a meaningful and much cheaper way to challenge
questionable patents, entrepreneurs may be willing to gamble on the
challenge.
Drawing upon many years of experience hosting patent reform conferences and
workshops, the Berkeley Center for Law & Technology plans to develop a
research agenda to better understand and make policy recommendations as to how
patent reforms—such as reinvigoration of the nonobviousness standard and a more
effective postgrant review procedure—can be implemented in a way that will
promote entrepreneurial activity. With support from the Kauffman Foundation,
researchers at the Berkeley Center for Law & Technology will investigate how
these and other patent reforms will affect entrepreneurs. We expect this to be
the first stage of a multiyear, multidisciplinary effort to investigate how
intellectual property laws differentially affect entrepreneurs as compared with
established firms. We believe that members of Congress and other policymakers
will be deeply interested in gaining insights about how intellectual property
laws, and reforms of those laws, are likely to affect entrepreneurs. Fine-tuning
intellectual property laws to foster entrepreneurial activity is desirable to
promote economic growth and prosperity.
This essay is an excerpt from the
Kauffman Thoughtbook 2007. To view a table of contents for the 2009 edition, or to order a printed copy of the publication,
please visit our 2009 Thoughtbook page 
