combating applications for patents on  obvious inventions using A system of Defensive disclosure

Martin W. Regehr*

(WORK IN PROGRESS – LAST UPDATED 02/23/09)

Introduction

Perhaps because the difficulty of making a particular invention can vary greatly from inventor to inventor, defining “obvious” inventions has proven to be a formidable obstacle to consistent, predictable application of the rule[1] against patenting such inventions.[2]  But the problem is an important one:  the issuing of patents for obvious inventions leads to rent dissipation in patent races,[3] the deadweight loss of patent monopolies,[4] effort wasted on patent searches, and barriers to further innovation. 

This paper describes a system for reducing or eliminating patent protection for inventions made nearly simultaneously by independent inventors, and argues that such a system could dramatically reduce the costs imposed by the patenting of obvious inventions.

A patent is a bargain between society and the inventor:  for creating and sharing useful knowledge, the inventor is rewarded with a limited-term monopoly on the use of that knowledge.  It has long been recognized that society should offer inventors this incentive only when necessary:[5]  an inventor, who may be motivated in part by a desire for personal recognition or for a head start in the market,[6] shouldn’t be given a patent for an invention she would have made and shared[7] regardless of whether she expected to be rewarded with one.[8]

Other commentators have proposed various modifications to the patent system to address the difficulty of handling obvious inventions,[9] [10] [11] [12]  but none of these proposals appears to be both likely to be effective for this purpose and practical to implement. 

A Defensive Disclosure System

Among the factors traditionally used to determine whether an invention is obvious are the so-called “secondary considerations,” which include a long-felt unmet need and the failure of others to make the invention.[13]   If other inventors have tried and failed to make an invention that meets a long-felt need, then it stands to reason that the invention isn’t obvious, or inexpensive to make.  The converse is also plausible:  if several inventors make the same invention virtually at the same time, then presumably doing so didn’t require access to rare genius nor incurring great expense, at least compared to the expected reward.[14]  Patent races signal that the patent sought will overcompensate the patentee.[15]

It might make sense, then, to reduce the reward for any invention that is made nearly simultaneously by independent inventors.  For example, a patent application might be denied if additional, independent patent applications were filed for substantially the same invention[16] before the first application was published.  Such a system would reduce the cost to society whenever several inventors applied for a patent on the same obvious invention.  It would, however, be ineffective if all but one of the several inventors were deterred from applying for a patent by the cost of prosecuting one.

This situation could be avoided using a system, referred to here as a  “defensive disclosure” system, in which low-cost provisional applications[17] would serve as a record of near-simultaneous invention.  Under this system, the patent office would keep every submitted provisional application confidential initially, but it would publish it after the expiration of a confidentiality interval.  The submission of provisional applications for the same invention by two or more independent inventors within an “obviousness interval” following the first submission would make the invention ineligible for a patent.[18]  Patent examiners would search only issued patents and published patent applications (not provisional applications), but alleged infringers would later be able to use provisional applications, filed by themselves or by others, to attack a patent.

A.  Inexpensive or Costly Inventions

Under such a system it would be difficult to obtain a patent for an inexpensive or obvious invention, because of the likelihood of multiple independent provisional filings being made within the obviousness interval.  Knowing this, an inventor who had made a low-cost invention might file a provisional application as a defensive measure[19] but she would have little incentive to apply for a patent.  This result differs markedly from the result under the existing patent system. Under the existing system, an inventor will apply for a patent provided the expected reward (the likelihood of getting the patent times the value of the patent) exceeds the cost of applying for a patent.[20]

A software solution to a need having recently arisen, for example, may be so inexpensive to create that other incentives, such as a head start in the market, are sufficient to motivate inventors.  The ability to monopolize this solution may be quite valuable, however, and under the existing patent system, there will be a patent race, with the patentee reaping a windfall, in part at society’s expense.  Under the defensive disclosure system, if the shared head start advantage was adequate motivation, multiple inventors would make the invention and submit provisional applications, and no enforceable patent would issue. 

Patents would still issue for inventions that are costly to make, however.  An inventor relying on the reward of a patent would not begin to invest in such an invention until she was reasonably certain that no others would succeed at roughly the same time.[21]  This is true also under the current patent system; no inventor will join a patent race in which the number of contestants makes success unlikely.  For such inventions, then, the defensive disclosure system would leave the patent incentive in place.[22]

B.  Analysis Assuming Equilibrium

  The effects of such a system of rewards can be analyzed under the assumption that the number of inventors will be a Nash equilibrium, i.e., that every non-competing inventor would expect to be worse off if she were to join the competition, and every inventor working towards the invention would expect to be worse off if she were to abandon it.  Under this assumption it is clear that the defensive disclosure system would leave the patent incentive in place in situations where it is needed.  If the incentive of a patent is sufficient to motivate an inventor to make the invention, then the outcome in which no inventor makes the invention is not an equilibrium:  One inventor would expect to be better off by making the invention and obtaining the patent.[23]

Moreover, assuming a Nash equilibrium outcome allows us to find the cost to invent at which the defensive disclosure system will avoid the cost of a patent:  Under the defensive disclosure system, if the advantage of a head start in the market is more than twice the cost to invent, then at equilibrium there will be at least two inventors and, if the cost of filing a provisional application is negligible, no enforceable patent will issue.  Under the current patent system, if a patent is worth more than the cost to invent and to prosecute the patent,[24] then at equilibrium k inventors will compete in the patent race, where k is the ratio of the value of the patent to the cost of competing, and one of those inventors will get a patent.   

Conclusion

It makes good sense to deny inexpensive inventions patent protection, thereby eliminating in some cases the social costs of patents.  Obviousness doctrine is consistent with this notion, but has proven difficult to administer, and this has led to the issuing of patents on insignificant inventions.  A system that allows an inventor to stake a defensive claim to her invention at low cost, without demanding a patent, could ease these problems by reducing inventors’ incentives to file for patents on trivial inventions.

Appendix:  Additional Benefits Available by Modifying the System

The benefits of the defensive disclosure system could be enhanced slightly by treating the case of two independent inventors differently from the case of three or more inventors.  Under this modified system, two inventors who filed provisional applications within the obviousness interval of each other would get a consolation prize: they would share a reduced-term patent equally, as tenants in common.[25]

Here we derive, under simplified assumptions, the optimum patent term to be awarded to an invention independently made by two inventors.  We restrict ourselves to inventions the value of which greatly exceeds the cost of prosecuting a patent.[26] Let be social welfare.  Assume that the cost to society of granting a patent is proportional to the patent term and also to the value of the patent to the patent holder, i.e., , where  is welfare if no patent is granted, is the term in years of the patent,   is the value to the holder of a full-term (20-year) patent, andis the ratio of (i) the cost to society of issuing a patent to (ii) the value to the holder of that patent. 

Let  be the cost to invent, and assume that the value of an -year patent to its holder is , i.e., proportional to the term. Assume further that all inventors share any head start profit equally.  Now if the cost to invent  is less than one third of the head start profit  then, at equilibrium, three or more inventors will make the invention.  If the cost to invent is greater than one-third of the head-start profit but less than half of the reduced-term patent’s value, then at equilibrium two inventors will make the invention. If the cost to invent is greater than half of the reduced-term patent’s value, but less than the value of a full-term patent, one inventor will make the invention. To summarize, welfare is given by:[27]

The expected welfare depends on the likelihood of each of these three scenarios.  Assuming that the cost to invent is uniformly distributed between zero and , we get probabilities of one, two, and more than two inventors equal to: 

respectively. The expected welfare is the welfare in each of the three cases, weighted by their respective probabilities: 

.

Substituting for , and , and finding the value of maximizing , gives .  If the head start profit is small compared to the value of the patent, this reduces approximately to , i.e., a reduction of the patent term to half of its normal value. At this value for the term, the term-reduction system reduces the expected loss of welfare by approximately 25%.[28]

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* Author’s note.  Many thanks to Douglas Lichtman for helpful suggestions and comments.

[1] “A patent may not be obtained … if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” 35 U.S.C.A. § 103(a).

[2] E.g., Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 9 (1966) (mentioning “the difficulty in ‘drawing a line between the things which are worth to the public the embarrassment of an exclusive patent, and those which are not.’”) (citation omitted).

[3] William A. Landes and Richard A. Posner, The Economic Structure of Intellectual Property Law 296 (2003).

[4] Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & Econ. 265, 266-267 (1977).

[5] See, e.g., Robert P. Merges, Uncertainty And The Standard Of Patentability, 7 High Tech. L. J. 1, 19 (1992) (“The conventional ideal standard of patentability is that patents should only be awarded to those inventions that would not have been made without the availability of the patent. That is, patents should only be given out when they make a difference.”) (citations omitted).

[6] See, e.g., Pamela Samuelson and Suzanne Scotchmer, The Law and Economics of Reverse Engineering, 111 Yale L.J. 1575, 1586 (2002) (referring to the head start advantage as “lead time.”).

[7] Even if the patent is not needed as an incentive to motivate the inventor to make the invention, the patent may be necessary to motivate the inventor to disclose it, if the invention can be used without disclosing how it works. 

[8] A more sophisticated analysis would consider whether the  incentives offered will hasten invention adequately or excessively.  See Tun-Jen Chiang, A Cost-Benefit Approach To Patent Obviousness 82 St. John's L. Rev. 39 (2008) (containing such an analysis). Society should refuse to issue a patent when doing so would decrease net social welfare.  If, because of rapid technological progress, the cost of making the invention will be far less in the near future, it may be better to wait, and the inventor who rushes ahead to capture the invention at great cost should not be rewarded. For example, an invention that costs $1B to make today but will only cost $10M in three years shouldn’t be made today if the benefit making the invention three years earlier is less than $990M. This situation, which could involve an invention that was useful, novel, and not obvious illustrates the difficulty of using only  these three criteria to identify inventions that should be patentable.  As a practical matter this difficulty may be of little consequence because of the difficulty of forecasting even technological progress, let alone the effect of technological progress on the future cost of making a certain invention. 

An invention that serves primarily to shift wealth from those who don’t possess the invention, to those who do, also may not merit patent protection.  Strategies for avoiding income tax, for example, serve to shift the tax burden to other taxpayers.  Where they confer no net benefit on society, such inventions should perhaps be refused patent protection on the grounds that they are not “useful” in the sense that they produce little or no net social benefit.

[9] Stephen Maurer and Suzanne Scotchmer argue persuasively that allowing an independent invention defense would eliminate much of the social cost of patents on obvious inventions, because anyone threatened with an infringement suit would have the alternative of making the invention independently, and the availability of this alternative would allow the infringer to negotiate an inexpensive license.  Stephen M. Maurer and Suzanne Scotchmer, The Independent Invention Defence in Intellectual Property, 69 Economica 535 (2002). The principal obstacle to implementing this solution is likely that, especially after a patent has issued, it would be difficult to ascertain whether a person claiming to have made the invention independently had in fact copied it. Maurer and Scotchmer acknowledge this concern.  Id., at 544. See also Roger D. Blair and Thomas F. Cotter, Strict Liability And Its Alternatives In Patent Law, 17 Berkeley Tech. L.J. 799, 814 (2002). Maurer and Scotchmer’s proposal doesn’t require that subsequent inventions be completely independent of the first invention, but it does require a minimum “cost of entry”; this minimum cost might not be incurred by a subsequent inventor who cheated by referring to the patent while making her invention. Maurer and Scotchmer’s proof of the beneficial effects of their proposal also assumes that Cournot competition sets the price in the market in which licensed users of the invention compete with each other and with unlicensed firms. Id. at 537. It is unclear that this assumption is realistic: licenses allowing licensees to compete with each other would be less desirable to the licensees than licenses preventing competition; by selling the former, the licensor would forfeit an opportunity to earn monopoly profits.

[10] Similarly, Carl Shapiro has analyzed the possibility of granting near-simultaneous inventors equal “user rights,” and shows that such a system, like the one proposed by Maurer and Scotchmer, would reduce the rewards for patents on obvious inventions.  Carl Shapiro, Prior User Rights, 96 Am. Econ. Rev. 92, 95 (2006). The emphasis in Shapiro’s paper is on analysis rather than implementation and the paper is silent regarding how independent invention would be verified, and what rights simultaneous inventors would have to license the invention or to sue infringers. 

[11] Samson Vermont advocates an independent invention defense for which he defines an independent invention as one made without actual or constructive notice of the first invention. Samson Vermont, Independent Invention As A Defense To Patent Infringement, 105 Mich. L. Rev. 475, 486 (2006). Vermont’s article recognizes that under such a system the best strategy of the first inventor could be to publish her invention immediately, and that consequently the principal benefit of allowing the defense would be to shorten patent races, Id. at 501; it would do little to reduce the issuing of patents for obvious inventions.

[12] John Duffy advocates determining obviousness by whether an invention was made shortly after significant changes in either enabling technology (“supply-side” changes) or in circumstances affecting the demand for the invention (“demand-side” changes).  John F. Duffy, A Timing Approach To Patentability, 12 Lewis & Clark L. Rev. 343, 347, 352 (2008).  Duffy’s article makes a persuasive case that courts should pay more attention to the circumstances surrounding the making of an invention. Duffy’s proposal would still require courts to conduct challenging analyses: Courts would have to assess the role changes in technology and in demand played in the making of an invention.  Duffy’s proposed analysis also entails an obviousness analysis in some cases: “[t]he law should not preclude the possibility that one invention … should follow closely on the heels of another invention….”.  Id. at 360. Nonetheless, Duffy’s insightful proposal seems like a sensible step in the right direction. An important advantage of his proposal is that its implementation would require only a slight change in the approach courts take when assessing obviousness. Id. at 367.

[13] E.g., KSR Intern. Co. v. Teleflex Inc., 127 S.Ct. 1727, 1730 (2007) (citation omitted).    Merges has argued that long-felt but unsolved needs and the failure of others ought to be given greater weight than other secondary considerations. Merges, supra note 5, at 36.

[14] This is the case if each inventor is able to estimate the likely progress of other inventors in a patent race and will drop out of the race if the likelihood of winning becomes sufficiently small.

[15] These observations appear to have motivated some of the other proposals for changes, discussed supra, notes 9-12, at least in part.  Excluding “obvious,” i.e., inexpensive, inventions from patent protection doesn’t quite optimize social welfare:   The social cost of granting a patent on something of great utility is considerably greater than that for something of slight utility, and society should require greater investment from the inventor of the former in exchange for a patent.

[16] Such a system essentially substitutes the requirement that the inventor be the “only to invent” (within some time interval) for the current requirement that an inventor be first to invent.  “Substantially the same” is, of course, vague.  More specifically, the term of claims reading on disclosures in the subsequent independent application might be limited.

[17] A fee would need to be charged to deter frivolous filings, but the defensive disclosure system would be more effective if the fee were quite low, i.e., considerably lower even than the current fee of $110 (for a small entity) for filing a provisional application.  For a purely electronic system, the cost could be as low as a few cents per kilobyte with a minimum of a few dollars per submission without imposing an additional burden on the federal budget. The inventor would also bear the cost of producing an enabling disclosure, as it would be impractical to give effect to obscure disclosures.  The Patent Office could set up an on-line database for submissions, and a publicly searchable on-line database of published provisional applications, to which submissions would be automatically transferred after the expiration of the confidentiality interval. 

[18] If multiple submissions were discovered after a patent had issued, they would be grounds for invalidating claims reading other disclosures submitted during the obviousness interval. This is roughly equivalent to a rule holding that any invention made nearly simultaneously by two or more independent inventors is obvious as a matter of law. The length of the obviousness interval would be set to provide a suitable reduction in expected reward for inexpensive inventions, while maintaining an adequate incentive to make costly inventions.   While it is difficult to say what lengths should be used for the confidentiality and obviousness intervals, one or two years might be close to optimal.

[19] Provided the cost of provisional applications was sufficiently low; see note 16, supra.

[20] Even under the existing patent system, an inventor can publish her invention “defensively” instead of applying for a patent, to guard against the possibility of later being sued by a subsequent inventor who patents the invention.  Under the existing system, however, publication is effective only for the first to invent, and she also has the greatest incentive to apply for a patent instead of publishing. Moreover, publication may be costly: To be published, a scientific or technical article must typically meet certain standards of quality and novelty which may be more onerous than the requirements of the patent office, and some journals levy page charges.  See, e.g., OPA (Overseas Pub. Ass'n) Amsterdam BV v. American Institute of Physics, 973 F.Supp. 414, 427 (S.D.N.Y. 1997) (mentioning the page charges levied by the American Institute of Physics).

Under the defensive disclosure system proposed here, any one of several near-simultaneous inventors would be able to disclose defensively, at little cost; this possibility would diminish all inventors’ incentive to apply for a patent.  

[21] Inventors generally have at best incomplete information about what their competitors are doing, and this could reduce the efficiency of the system proposed here.  Such inefficiencies also exist in the current patent system.  An inventor who overestimates her competition may forego making an invention, and one who underestimates the competition may waste effort on an invention only to lose the patent race.

[22] The systems proposed by Maurer and Scotchmer, supra note 9, and by Shapiro, supra note 10, also reduce the incentive for applying for patents on trivial inventions, while leaving in place the incentive to make costly inventions.  The principal advantage claimed for the system proposed here is that it may overcome some of the practical difficulties associated with implementing earlier-proposed systems.

[23] Maurer and Scotchmer’s proposed system has the same desirable property, provided independent invention is not too inexpensive.  Maurer and Scotchmer, supra note 9, at 535-536.

If the invention is one that can be exploited as a trade secret, then it is possible that several inventors could be better off by making the invention and using it in secret.  This is not an equilibrium situation, however, because any one of them would be better off still by applying for a patent.

[24] Provided the cost is not so low that the patent is denied on the grounds of (traditional) obviousness.

[25] More precisely, they would share ownership in all claims for which both provisional applications contained enabling disclosures.

[26] The analysis is easily extended to take into account a finite cost to prosecute, but doing so clutters the formulae without providing much additional insight.  Note also that in the special case where the value of the patent is less than the cost to prosecute, no patent will issue, even under the current patent system.

[27] The unmodified defensive disclosure system produces welfare given by

and under the current patent system welfare is .

The improvement in welfare depends on the distribution of the value of inventions and of the cost to invent.  If the great majority of inventions of a given value are inexpensive relative to their value, then the savings would be considerable.

[28] Additional improvements would be possible by further increasing the number of tiers, i.e., offering a further-reduced term to inventions made by three or more independent inventors.