Chapter §1.01 Patents in Context

• Jurisdiction: United States

§1.01 Patents in Context

Patents and patent law are integrally important to the U.S. and international economies. In the twenty-first century, multi-billion-dollar acquisitions of patent portfolios and bet-the-company patent litigation between technology titans are familiar headline news.¹ The expanding recognition of patent rights and remedies as critical to global innovation and trade has ushered this once relatively insular area of the law into the mainstream of legal practice. The rise of the global information economy has heightened the demand for lawyers trained to assist clients in the creation, protection, and enforcement of patent rights, both domestically and worldwide.

[A] Introduction

This treatise targets practitioners of patent law as well as legal academics specializing in the field. The treatise is also intended for attorneys trained in general civil litigation and corporate practice who seek a more in-depth understanding of patent law. Engineers, scientists, business managers, and their employers, who need patent protection for the results of research and development programs, will also benefit. The importance of understanding patent law, as well as copyright, trademark, and trade secret law (collectively, intellectual property or IP law), reflects the growing prominence of these practice areas in the legal and economic infrastructure.²

Chapter 1 introduces key foundational principles intended to enhance the reader's understanding of the rest of treatise. Chief among these principles is the centrality of patent claims, which are meticulously drafted, single-sentence definitions of the patent owner's exclusionary right.³ As the most powerful form of IP protection, patents convey the right to exclude others from unauthorized manufacture or use of a patented invention for a statutorily defined period of time; intentional copying is not required and one may be liable for infringing a patent without any prior knowledge of it.⁴

Chapter 1 next surveys the fundamental economic theory and philosophical justifications on which U.S. patent law is based. The various primary sources of U.S. patent law also are considered, including the Constitution, federal statutes and regulations, and common law (i.e., judicial decisions).

Chapter 1 concludes by introducing the primary actors in the U.S. patent system, namely, the agencies and courts that grant and enforce patents in this country. The complex interactions of these entities exert a powerful influence on the operation of the U.S. patent system.

[B] Patents as Strategic Business Assets

The United States is witnessing a dramatic rise in the importance of the "IP industries" (e.g., high technology and entertainment) as a contributor to its gross domestic product.⁵ United States exports of the "knowledge goods" designed and produced by these industries—information, entertainment, software, movies, books, computers and personal digital devices, and the like—are rapidly growing.⁶

Corporations are recognizing and exploiting the potential economic power conveyed by ownership of IP,⁷ a trend spotlighted in popular business strategy guides such as Rembrandts in the Attic.⁸ "Companies large and small are doing the equivalent of combing through their dusty attics, looking for old patents and licensing arrangements that can be turned into new revenue or leverage."⁹ Leading corporations now make millions of dollars annually from licensing their patents.¹⁰

Likewise, corporations with robust patent portfolios are increasingly targeted for acquisition based on the value of their intellectual property rather than their tangible assets.¹¹ A corporation's very survival may depend on its ability to leverage its patents.¹²

American and multi-national high-technology companies are turning to patent litigation as a source of new revenue and as a competitive weapon. Rather than relying solely on success in the laboratory or factory floor, companies are looking to their IP rights such as patents as "key corporate assets to be exploited to the fullest in an increasingly competitive environment."¹³ Patent litigation is not undertaken lightly, however; it is a high-stakes, high-cost endeavor. The leading IP bar group estimates that in 2017, the median litigation cost of a patent litigation suit involving $10 to $25 million at risk was $2.5 million; the estimated median cost to litigate a patent case with more than $20 million at risk was $3.0 million.¹⁴

Businesses also use their patents defensively. Many technology corporations, particularly those in the electronics, semiconductors, and information technology sectors, have amassed large patent portfolios primarily as a defensive measure.¹⁵ These companies are at relatively greater risk of infringing patents owned by others because their products are multi-component systems involving hundreds if not thousands of technological features. If a competitor accuses some aspect of a company's product or system of infringement, the company may be able to respond by contending that the accuser likewise infringes one or more of the patents in the company's portfolio. Acquiring a substantial portfolio of patents is thus viewed as an important defensive strategy, but may have little to do with the actual innovation achieved in house. Technology corporations not only seek patents to specifically protect their own inventions, but also buy patents to build up their defensive portfolio as a form of freedom-to-operate insurance.

The rise of the patent-owning "non-practicing entity" (NPE) is yet another significant factor in the twenty-first century U.S. patent landscape. The number of lawsuits filed by NPEs rose sharply in the decade of 2000–2010.¹⁶ NPEs are patent owners who do not manufacture or sell any products and do not use patents to protect their market space. Rather, certain NPEs have come under fire for using their patents (of sometimes questionable validity) to extract payments from deep-pocketed targets. These NPEs, pejoratively referred to as "patent trolls," leverage the threat of an injunction (if a court or jury were to find their patents valid and infringed) to extract royalties from their corporate targets.¹⁷ The trolls' targets often find it less risky to take a license than to fight the trolls in expensive, time-consuming patent litigation in federal court.

[C] Patents and Global Trade

Practitioners of international trade and business law also realize that a working knowledge of patent law is important to their field. Although once viewed as a specialized and obscure area of international commerce, the transnational aspects of recognizing and enforcing IP rights such as patents have taken center stage as an issue of global trade in recent years. International IP treaties such as the Trade-Related Aspects of Intellectual Property (TRIPS) Agreement of the World Trade Organization (WTO)¹⁸ continue to spark philosophical and economic debate between the "north" and "south"—pitting the developed, industrialized countries that generally seek strong protection of IP rights against the less- and least-developed countries that have historically opposed strong IP protection because of economic and public health concerns.¹⁹

The 1995 entry into force of the WTO's TRIPS Agreement,²⁰ to which 164 countries are signatories as of 2019,²¹ was a watershed event for the protection of IP worldwide. Under TRIPS, WTO member countries must agree to maintain certain minimum standards of protection for innovation protectable under the law of patents, copyright, trademarks, and trade secrets. They also must commit to instituting minimum acceptable enforcement measures to protect IP rights. Through TRIPS' implementation of the WTO's Dispute Settlement Understanding (DSU), member countries now have a powerful mechanism—the imposition of trade sanctions—for challenging another member country's failure to live up to its obligations under the TRIPS Agreement.²²

[D] Patents and the Public Interest

Patents are centrally implicated in many current issues of public interest and concern. Consider, for example, the controversies raised by patents granted on fragments of the human genome, embryonic stem cells, drug targets, and monoclonal antibodies;²³ patents covering tax planning strategies;²⁴ patents issued on the now-routine finger-swiping method of unlocking an electronic device as ubiquitous as the iPhone TM;²⁵ the assertion of U.S. patents on business methods such as Amazon.com's "One-Click" ordering system;²⁶ patents on industry standards with which manufacturers must comply to ensure product interoperability and consumer safety;²⁷ consumer protests and government investigations over the high cost of prescription drugs (many of which are protected by patent);²⁸ and by the developing world's HIV/AIDS crisis and the corresponding need for low-cost access to patented drugs such as AZT and the "triple cocktail" that are used to treat those diseases.²⁹

[E] Patents as a Form of Intellectual Property Protection

Patents, along with copyrights, trademarks, and trade secrets, are a form of legal protection for intellectual property. Ownership of intellectual property represents a proprietary right in intangible products of the human mind, often referred to as "knowledge goods," such as inventions, ideas, information...