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Saturday, 4 May 2013

State patents vs US patents: could addition by subtraction be the best bet for dissatisfied US inventors?

While this Kat was trying to understand why EU law scholars are generally adverse to constitutional law (as the on-going process of accession of the EU to the ECHR clearly demonstrates...), his attention was caught by a lonely RSS feed, entitled 'Dissenting State Patent Regimes'. Having a passion for the word 'dissenting' (and 'dissenting opinion' in particular - a fascinating device for an Italian lawyer), he immediately proceeded to SSRN and discovered an original, well-thought paper by Dr. Camilla Alexandra Hrdy. In her article, Hrdy devotes her attention to inventors that are dissatisfied with the current US patent system, either due to ideological reasons, or because they believe 'that information should be shared more freely than it presently is'. She points to a surprising solution, which would ultimately allow these inventors to stimulate a reform of the current US patent system. The abstract clarifies the key idea:

Inventors who believe in open innovation should start applying for state patents instead of U.S. patents. Patenting at the state level prevents rivals from obtaining U.S. patents and generates valuable innovation spillovers in other states where the patent has no legal effect. It also creates a unique opportunity to force patent law reform from the bottom up. In exchange for filing fees, inventors can demand patents based on rules that support open innovation, like shorter terms in fast-moving industries, stricter disclosure requirements, or new restrictions on patenting by non-practicing entities. The lobbyists who stymie reform at the national level will have a much harder time blocking reform in all fifty states. Meanwhile, patent law’s dissenters need only one state to start granting patents in order to get courts, the media, and eventually Congress to pay attention.
The paper identifies several issues that plague the current system (patents thickets, grindlock, patent assertion entities and inadequate disclosures), and examines how 'open innovation communities' (e.g. open source and Creative Commons communities) could restrict their patent rights, without opting out of the patent system. The example found in the article refers to a hypothetical nanotechnologist based in New York, who invented a new technique for isolating a nanomaterial with potential medical uses. The nanotechnologist, who 'worked hard on her invention for many years and is reluctant to give up any ownership stake in it', disagrees with the US patent law's policy of allowing federally funded researchers to obtain private ownership of their work, and 'believes patents generally frustrate research in her field'. However, she needs to fund her research and knows that, in order to attract grants, the research should be patented and ready to generate licensing fees.

The author observes that several studies, in relation to a similar case, suggested using partial or self-limited patents as a plausible solution, focused on defensive use and full disclosure of research results (see Parchomovsky and Mattioli here, Schultz and Urban here), but argues that state patents could provide an even better solution. Hrdy explains that state patents could (1) prevent rivals from obtaining patents, (2) generate valuable 'innovation spillovers' for innovators and competitors, and (3) provide inventors with exclusive right to their invention in a single state. She notes that the federal preemption doctrine (see Article I, § 8, cl. 8. of the US Constitution - which is commonly interpreted as prohibiting state patents which 'might become a significant competitor to federal patent laws, offering investors similar protection without the quid pro quo of substantial creative effort required by the federal statute') would not apply to state patents '[granted] on precisely the same terms and conditions as Congress, or state patents that utilize higher standards of patentability or that reduce the level of protection that US patents afford'.

What would happen if a dissatisfied inventor chose a state patent, rather than a US patent? According to the article, two positive consequences would take the stage. First, innovation spillovers: full disclosure and a limited right of exclusivity would allow inventors to internalize some of the benefits of their inventions, while eliminating any restriction on copying or using the invention outside the state (thus 'permitting problem solving and decision making by other minds to proceed without restrictions'). Second, state patents would stimulate a reform of patent law, centered upon the values of open innovation and free sharing of information. Hrdy describes in depth how state patents could address some of the critical issues of the current patent law system [emphasis added]:
[T]o reduce the number of unnecessary patents and the deadweight loss that occurs when a patent is granted for an invention that would have been developed anyway, states could supplement (though probably not replace) the federal standard for “nonobviousness” with a more refined analysis that asks whether the invention would have been discovered and disclosed, or as rapidly, without the incentive of a patent.
States could also tailor patent terms to specific industries and technologies—for instance, offering shorter terms in fast-moving industries where the cost of invention is low, as Judge Richard Posner suggests.
To tackle the problem of PAEs (so-called "patent trolls"), states could reinstitute the local working requirements that characterized historic state and colonial patents.
To address the distinct issue of "patent thickets" - where licensing requirements create prohibitive transaction costs for researchers in fields with many disperse patent rights - states could create efficient online compulsory licensing systems.
Finally, to promote information sharing, states could institute better disclosure requirements to ensure that patent disclosures are actually useful to future researchers.
The author clarifies that the state patents' limited jurisdiction (coupled with the state legislators' accountability to voters and judicial review) would severely reduce the risk of a distorted development or use of the system, countering the risks that intergovernmental competition could lead to a race to the bottom, to attract potential patentees. This Kat is not entirely persuaded by this conclusion, but he believes that Dr. Hrdy's proposal could spring a useful debate. Could addition by subtraction be the right way to foster research and protect innovation? If not, which are the changes that could improve the efficiency of the current patent law system, addressing the key issues highlighted by the author of the paper? The IPKat is eager to hear his readers' opinions.


Anonymous said...

I find the paper's proposal too simplistic: if you spend billions to develop a new drug, how can you forgo your only possibility to recoup your investments? However, if the paper's aim was to frame the discussion on how the current law can be improved, it makes more sense. Thanks for reporting on this.

Meldrew said...

Fascinating - and that has worked so well in Europe......

Anonymous said...

I've talked to small UK companies about whether they would like a US patent and what would they do with it. They often have no idea what to do with a US patent, though it would be their most valuable. Practically speaking many businesses operate at a very local level. They simply can't think globally. The don't have the know-how or resources. By analogy I therefore see a lot of sense in state-level patents.

Also, centralised decision-making over a very large system is never going to be sophisticated enough to cater for everyone, and I suspect the author of the article is also being influenced by the general feeling in the US that the central government is not providing adequate solutions. Doing a lot more things at state level makes sense, and that may also apply to patents.

Roufousse T. Fairfly said...

Intriguing. But what about the practicalities?

What sort of right could be instituted by states? A petty patent or a fully examined one?

A registration system would probably only thicken the patent thickets of applicants with thicker wallets. I don't thick, er, think that this would constitute an improvement.

If those patents were to be examined, bureaucracies would have to be put in place. How about making the procedure more efficient through a common interstate procedure with a bundle of state patents issuing from a single application prosecuted under Interstate Patent Convention at an Interstate Patent Office? Er, wait a minute...

Could this convention could recognize Paris Union priorities? I'm quite sure that the US constitution would prevent states, or a common organisation, from accessing the treaty, but what about one way recognition?

Overlapping patent regimes are no novelty. Think of Hong Kong where Mainland, Domestic, British, and indirectly European ones, can coexist.

In Germany, old GDR patents continued to be examined after 1990, and ran to their term, so in a sense the country had two separate patent offices running in parallel, or three if you count the EPO.

There are certainly many other examples.

Rahul said...

Agreed with Anonymous @ 4 May 2013 01:47:00 BST. The proposal is too simplistic. Just saying on the basis of the post here. I think the authors haven't touched international laws, treaties and efforts towards harmonization while "disharmonizing" US law. And also if the state patents were to be granted, will the US continue to be an attractive market for IP intensive products? I wonder if the, let alone large US corporations, US startups, which have tendency to go global in initial years of their set-up, would they accept such laws? To me, this whole debates against patent system etc. sounds like bellyaching of a few, without giving "concrete" substitute of the patent laws. Too many people bellyaching, therefore the clamour against patent law appears loud, like it will fall tomorrow. But even the most ardent critics of patent system know that they do not have ANY viable substitution. The bellyaching, unfortunately, is getting lots of print and electronic space these days. Especially, when the word "corporates", "capitalism", "profit" incites instant hatred for those who go by this system. And irony is, almost whole of the world is driven by these systems. No welfare state has been successful. Apart from a few hit products from "open innovation", which get most space, year after year, 95% of the open innovation efforts result in failure. I do not have data to back this up, also there have been no such studies either. I just believe that open innovation is a hoax, just that it hasn't been proved. While talking of success of open innovation, people often come up with SAME 50-60 examples from last 6-7 years.

Before, such laws to be introduced, there is a need to study the failure of open innovation. There is also need to study whether non-software startups would like to be clubbed with software startups in a patent system debate? There is a lot of clamour (due to being populist, they get more print and electronic space and get more "clamorous" )against these laws but no viable solution.


Anonymous said...

My advice to the nanotechnologist is to not be a hypocrite.

Rahul said...

Adding further to above,

open innovation, as proposed by its conceiver (wondering if that is actually a word),doesn't mean discarding patent system. At least, he has nowhere pointed that. He has stressed on 'licensing' sharing 'risk and rewards', opening up to external innovations, spinning off/outlicensing the un-used internal innovation.Open innovation as developed and conceived workds around a 'firm'. Too many people coming together to develop a product is not open innovation in strictest definition of the term. Open innovation, IMHO, stresses on sharing through licensing,assigning etc. Means. I wonder whether he even came up with 'donating' IP as is done now a days in name of open innovation. The guy's fan of licensing,sharing,opening up, be permeable;never did he imply that you need to donate IPs to a 'humanitarian' group supposedly working towards good of world, and count that gesture as part of CSR policy. Laughable.


Bogin, Munns & Munns, P.A. said...

I like the part that says States could also tailor patent terms to specific industries and technologies - I think this can streamline patents on a state-level.

Anonymous said...

Why not just apply for a patent in Canada?

Anonymous said...

"Parochial" doesn't even begin to describe this paper's tone. Not a single mention of the Paris Convention or, for comparative purposes, of the current situation in Europe. Not a single foreign reference. And her references are all the usual suspects: Posner, Lemley, Scotchmer et al...quite the echo chamber.
Same old libertarian nonsense, with a side helping of "states' rights" absurdity.

Anonymous said...

I like the part that says States could also tailor patent terms to specific industries and technologies - I think this can streamline patents on a state-level.

It would hardly streamline FTO studies, though. It's already complicated enough to calculate the term of a US patent, imagine figuring out the terms across 50 states, each applying different terms for different areas of technology.

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