Patents Pending: The U.S. Patent System Is More Important Than Ever. It's Also a Mess. but, According to Claude Barfield and John E. Calfee, Help May Finally Be on the Way

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Q Are patents important?

A More than ever. The Founders did the right thing when they inserted patent protection directly into the Constitution (Article I, Section 8). A substantial fraction of the value of U. S. firms--on the order of 30 percent--consists of so-called intangible property, much of which comprises patents, along with copyrights and trademarks. Patents are particularly important in the pharmaceutical and biotech industries. A small number of patents--sometimes, just one--can provide the foundation for years of research and development before a drug is ready for Food & Drug Administration approval and public use. For the most part, the FDA requirements make it impossible to keep these inventions secret; patents protect drug developers from having their inventions poached by competitors. If pharmaceutical patents didn't exist, most of the best drugs of the past half-century or so might never have been developed.

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Q Is the patent system in a mess?

A Yes, but there are encouraging signs of improvement. Five or ten years ago, the situation was bleak. Patent and Trademark Office (PTO) examiners faced incentives to grant all sorts of questionable patents, were overworked in the face of sweeping new technologies, were losing much of their user-fee revenues to other government operations, and sometimes found the courts opposed to common-sense limits on patents. There was talk of impending disaster.

Q So what happened?

A Self-correcting forces prevailed. Users of high-tech patents have formed complex but nonetheless workable licensing pools. The PTO has reined in some of the stranger patenting offshoots such as business-methods patents (the notion of patenting a way of doing something, like recording an online sales transaction) and excessively broad patents for stem cells and other innovations. The Court of Appeals for the Federal Circuit, which handles all the patent cases that are appealed from District Court opinions, has been favoring plaintiffs in infringement suits only 40 percent of the time, compared with 60 percent earlier. The Court of Appeals has also been beefing up the traditional "written description" requirement (the notion that the inventor has to describe the invention clearly) in order to overturn especially far-reaching patents held by the University of California and the University of Rochester. And in its KSR International v. Teleflex decision, the Supreme Court made clear that it will demand more in the way of novelty for some patented inventions. In the meantime, research institutions in academia have found ways to deal with a vast array of other people's science-based patents while still getting research done.

Q What were those academics worried about?

A Universities are doing a lot of patenting. The University of California alone has pulled in $500 million in license fees in the past five years while vigorously defending its patent portfolio. But many academics and people in high-tech industries have worried about "patent thickets" that would make a lot of clever research impossible unless researchers managed to track down scores of patent holders to negotiate licensing deals. The result would be an "anticommons," in which too much diversified ownership of intellectual property would impede R&D investment--just the opposite of the "tragedy of the commons," in which nobody invests in a commons area because no one owns it. Fortunately, that hasn't happened. Academic research continues to flourish even as patents multiply like biotech mice, and the patent system does not seem to get very much in the way.

Q So what problems remain?

A For one thing, many patents are still in force that should not have been granted in the first place. But there are also some serious problems in how the patent system works, both before and after patents are granted. …