Focus Areas:    Antitrust | Intellectual Property

Kieff on Carrier’s Innovation in the 21st Century

This post is from F. Scott Kieff (Wash U./ Hoover)

I, too, join the rest of the participants in congratulating Michael Carrier on this great book about this great topic.  I have enjoyed reading Michael’s work in the past and I enjoyed meeting him at a conference last year.  He is a wonderfully warm, bright, and engaging person.  Although I wish that I had more of an opportunity to fully read his impressive text before the date of this on-line symposium, I am grateful for the opportunity to read a great deal of the book and to at least skim the remainder.  The wonderful conference that Damien Geradin and his colleagues hosted on these same issues in Amsterdam these past few days was a pleasant distraction.  (For Damien’s conference click here).

Because I share everyone’s support for Michael and his new book, as already detailed by others, I will focus my contribution here on some ways in which the book might have been able to achieve a greater impact.  Recognizing that every project could be improved in some ways, and that ultimately the author must make the difficult choices between completeness and clarity, about his own voice and message, etc, I offer my comments on the chance that those who read Michael’s great book might wonder whether there happens to have been or remain different approaches to the ideas he explores.

As it turns out, the interface between patents and antitrust was one of the two central motivators behind the present US patent statutes, which were codified as the 1952 Patent Act.  In fact, one of the two principle drafters of the ’52 Act, Giles Rich, wrote a series of five articles in the 1940’s that bear a title not unlikely to show up in a computer search on this topic.  (The other principle drafter who also wrote a great deal about the statute was Pat Federico).  And while the 1940’s were indeed a long time ago, because Giles Rich went on to be the longest sitting federal judge, the world’s most famous patent scholar and jurist, the widely recognized father of the modern American Patent System, and a judge on the court that hears most patent appeals, these papers were conveniently republished in a 2004-2005 volume of the Federal Circuit Bar Journal.  The citation is:  Giles S. Rich, “The Relation Between Patent Practices and the Anti-Monopoly Laws,” 14 Fed. Circuit B.J., at pages 5, 21, 37, 67, and 87 (2004-2005).  (The other articles by Judge Rich that are republished in that volume also are instructive on the points explored in Michael’s book).

Judge Rich explored an approach that is focused on predictable validity and enforcement rules rather than the more flexible approaches advocated by Michael (and many others).  Rich was not alone.  His approach was followed in the writings of a diverse group of leading commercial jurists at the time like Learned Hand and Jerome Frank.  (It is worth noting for reasons explored below that if using modern political labels, Judge Frank would be seen as a liberal populist).

The judiciary was not the only branch of government to follow Rich’s view.  Rich provided extensive explicit testimony before Congress about the goals of the ’52 Act in re-aligning the interface between patents and antitrust and in creating an objective standard for determining patent validity.   Congress agreed with the approach he offered in his testimony when it voted for the statute.  The Supreme Court in turn expressly and extensively relied on that legislative history, and especially Judge Rich’s testimony, in the well-known Dawsondecision on patents and antitrust in 1980.  That approach was also affirmed by the current Supreme Court in the ITW v. III case.

As Judge Pauline Newman has reminded on several occasions in law review articles and speeches, we can fast forward to the late 1970’s, when the economy was in difficult times, like it was in the 1940’s and is today, to see that a very diverse pair of US Presidents decided to also adopt an approach to patents like that urged by Rich, Federico, Hand, Frank, and others.  President Carter decided, after a careful study, to put forth a statute designed to strengthen the patent system by creating the Federal Circuit, and President Reagan signed the bill after Congress passed it.

For the past several years, there has been a number of academics writing about this approach to patents – an approach that might be seen as focused on the theory of property more generally (as compared with just intellectual property).  The group includes Richard Epstein, Steve Haber, Troy Paredes (now on leave from this academic work), Henry Smith, Joseph Straus, David Teece, Polk Wagner, Josh Wright, and me (these folks listed so far have worked together on a range of recent works arising out of the Hoover Project on Commercializing Innovation), as well as Michael Abramowicz, John Duffy, and Adam Mossoff.  While a recent posting on Patently-O labels one of these folks listed here (me) as “conservative,” it is not clear what is meant by that term.  If the term is given its normal modern political meaning then it is curious to note that Charles Burson, Al Gore’s former Chief of Staff, co-authored one the recent opinion pieces I helped put together on patent reform, since it is not clear that he would fit that definition of the term.  Then again, this is an approach also advocated by President Carter and Jerome Frank, who also don’t easily fit the modern political use of the term conservative.  Put differently, the issues don’t break down nicely along mainstream political lines.  Nor do most people for that matter.  Nor do folks break down along lines of being pro patent or anti-patent.  These issues are more complex.  And so is any good academic.

The most direct reason why it makes sense to go though all of this intellectual history, naming all of these names of folks who have written about the topics Michael explores (but in a different way than he does), is that Michael’s book does not seriously address any of them or their work.  Indeed, Michael has confirmed that his book doesn’t cite to or even mention most of these names or their work.  And the few times when he does mention some of them, it is in a very minor way, for propositions that are uncontroversial and different from the potential areas of debate they would have with him.  Two notable exceptions, which I appreciate, are Joseph Straus and me.   Michael mentions me once in a short catalog of different approaches to patent theory.  And while he does mention one or two of Joseph’s pieces that have discussed a lack of evidence of a patent hold up problem in the European biotechnology setting, and Michael seems to conclude in that section of his book that patents have posed less of a problem for basic science than some might have feared, he still concludes that “A few high-profile lawsuits against researchers would knock out the scaffolding currently supporting this precarious state of affairs.”  What is so precarious about this state of affairs and why would a few lawsuits disrupt it?  A few airlines crash once in a while and yet the airline sector still does business and people who elect for safety reasons to drive over taking commercial flights are generally not seen as acting in a sufficiently rational way to drive prudent policy on the issue.  Rather than trying to sit as a seemingly neutral judge weighing the empirical evidence Michael elects to discuss in this part of the book, a reader might want to know more about the reasons why patent hold up in this area is not a big issue (and why an “experimental” or “fair” use exception may be) and the book would have made a greater impact in this area if it had addressed more of that work.

The bottom line is that while Michael has good reasons for not engaging the body of work discussed here, readers might like to at least know about the work, as well as the history, so that they can make up their own minds about these issues after due consideration of the range of views.  For those who are interested, much of it is available for free download on the web at www.innovation.hoover.org.

A more indirect reason why it matters to consider these other views is that many of them apply a form of comparative institutional analysis generally associated with the field of New Institutional Economics.  In addition to taking seriously the transaction cost problems of property rights that underlie a big part of Michael’s analysis, this comparative approach also takes seriously the political economy problems that underlie how government actors will apply different decision-making rules.  Application of this comparative analytical framework highlights some of the complexities of the more flexible approaches Michael recommends in his book.

For example, when it comes to dealing with the problem of bad patents (and there are many such patents – ones that don’t really meet the requirements for validity but have nonetheless been issued by the PTO), Michael endorses the currently-popular proposals for more flexible approaches to weeding out.  These proposals generally go by several names including “second window,” “opposition,” “reexamination,” etc.  In his words:

“An added bonus of the proposal would be its effect on antitrust. By providing a low-cost avenue to remove invalid patents, it would reduce the incidence of market power”

But as economists love to say, there is no such thing as a free lunch.  Faster and less financially expensive proceedings for policing bad patents are not without their costs.  The way they go faster and burn fewer dollars per hour in attorney time is that they allow an official actor, whether in the PTO or the courts, the flexibility and discretion to deny patents based on a subjective report about what was within the skill of those in the prior art, rather than the objective and more-fact-based inquiry into the contents and existence of actual laboratory notebooks, printed publications, and sample products which has been the rule since the 1952 Act.

Flexibility sounds cool – who wants to be rigid? – but it has a significant Achilles heel.  Giving courts and examiners a pass from having to get the hard evidence that used to be required to prove invalidity over the prior art does not come without serious cost. Asking a decision maker to use her legal or technical expertise as the primary basis for her decision about what she thinks the state of the art was at a particular time in history gives her greater discretion than asking an ordinary jury whether a particular document or sample product existed at a particular time and what that document actually contains. By increasing the discretion of government bureaucrats, flexibility increases uncertainty, not decreases it, and it gives a built-in advantage to large companies with hefty lobbying and litigation budgets. That may be a big reason why some big firms want it, but what’s good for some big businesses is not always good for business overall.

Indeed, while much is made about the uncertainty of patents – it’s all the rage today – one of the central problems with many of the legal changes that Michael proposes is that these changes inject into the patent system a much greater uncertainty, and an uncertainty of a much more pernicious type.  Business can deal well with factual uncertainty – in fact many forms of business thrive on it (think options, futures, insurance, etc) – but the one type of uncertainty that is particularly bad for business overall is the uncertainty caused by having the underlying legal rules of the game enforced as a function of fashion and politics. But this is what you get when the enforcement mechanism (the details of the particular framework of the legal institutional design) are matters of flexible discretion.

And to take things back to where they started, we have already run this experiment in this country.  The relevant legal framework for adjudicating patentability before the 1952 Act was that courts were asked to determine whether a patented invention constituted an “invention.”  A bit of a tautology.  And very flexible.

The drafters of the 1952 Act did not think that the words “obviousness” and “nonobviousness” were any clearer, on their face.  But they picked these words precisely because they wanted to jettison the interpretive baggage associated with the old legal framework and create a new body of case law that focused on more objective factors.

History can sometimes offer us some good ideas; and while we often like to emphasize the importance of invention, our efforts to re-invent our legal thinking in this area without the benefit of that historical wisdom may not play out so well.