Harmonizing the exclusionary rights of patents with compulsory licensing.

• Author: Gwartney, Troy L.

TABLE OF CONTENTS INTRODUCTION I. THE EXCLUSIONARY RIGHT AND COMPULSORY LICENSE DICHOTOMY A. Exclusionary Rights in Patents B. Compulsory Licenses in Patents C. Problems with the Right To Exclude 1. Patent Overlap and the Thicket 2. An Example of Patent Overlap, Patent Holdup, and Royalty Stacking 3. Patently Valid and Invalid Patents a. Invalid Patents and the Presumption of Validity b. Complications in Adjudicating Invalid Patents 4. The Absoluteness of the Right 5. Abusing the Right To Exclude 6. The Problem of Weak Patents a. The Slow To Adapt USPTO b. One Patent Equals One Invention D. Compulsory Licensing--A Change in Judicial Attitude II. THE BALANCING FRAMEWORK A. A Shortened Exclusive Right B. Application of the Renewal of the Exclusionary Right 1. Conditions for Allowing the Right To Renew 2. Forward-Looking/Backward-Looking Implementation C. Application of the Mandatory Licensing Period 1. Reasonable Royalty 2. Calculating the Mandatory License D. Parallel Arguments and Practices 1. Past Arguments for Compulsory Licensing 2. Patent Maintenance Fees III. OUTCOME ASSESSMENTS A. The Patent Interest B. Standard of Success C. The Pharmaceutical Industry 1. Perspective 2. Effects of the Mandatory License D. The Patent Licensing Industry 1. Perspective 2. Effects of the Mandatory License CONCLUSION INTRODUCTION

Although the United States patent system (1) balances the interests of many parties in its enactment, the ultimate goal of the patent system is to promote progress. (2) One way that the patent system accomplishes this goal is by allowing an inventor to start from something rather than from nothing through the disclosure of previous inventions. (3) In that way, inventors can build on the foundations laid by others and add one idea to another, thereby developing a new and useful idea, which can then be used cyclically in developing another new idea. Isaac Newton recognized the benefits of foundational scientific advancement in his oft-quoted letter, "if I have seen further it is by standing on the shoulders of giants." (4) But, as this Note will explain, the exclusionary rights of patents will, at times, interfere with the ability of innovators to build on those foundations laid by others.

In order to obtain a patent for a new discovery, (5) an inventor must file a patent application with the United States Patent and Trademark Office (USPTO) that contains a full disclosure of the invention. (6) For consideration of the inventor's disclosure, (7) the government grants a patent, which gives the patentee the right to exclude others from practicing her invention for a limited time--twenty years from the date of application. (8) Progress is promoted because investors and innovators will capitalize upon the cost of invention and disclose the invention to the public because they are given an enforceable limited monopoly on the invention. The public is benefited by the inventive knowledge disclosed, the inventor is benefited by her potential remuneration, and future inventors have a backdrop of innovation from which to begin.

The changing landscape of patent technologies has exposed problems inherent in the patent right to exclude. Rather than simply granting every patent a term of twenty years, society may prefer a patent system that meritoriously awards innovation. (9) Perhaps the patent system could award the inventor of an antigravitational device (that actually works) a patent term of fifty years, but to the inventor of a bathroom stall latch a patent term of five years. Alternatively, the patent system could award patent terms based on the type of industry; for example, award microelectronic innovation a term of eight years, but mechanical innovation a term of fifteen years. In other words, the patent system could place value on how useful the invention is and award a patent term commensurate to that measure of usefulness. (10) Overhauling the patent system, however, to have a multiplicity of types of patents would be legislatively difficult to implement and pragmatically complicated to practice. (11) This Note explores an alternative method of exclusivity, reigning in a patent's exclusive right with the goal of making enforceable patents more accessible to future innovators sooner--accounting, however, for any potential negative effects on progress.

Recent court decisions have highlighted the power of the exclusive right and the debate regarding how far this right extends. (12) The Federal Circuit in NTP v. Research In Motion (RIM) awarded NTP a permanent injunction that threatened to force a shutdown of RIM's popular BlackBerry service. (13) NTP, as a company that only holds patents to license them, did not have any interest in practicing its patents. As a result of the court order, RIM had little choice but to acquiesce to NTP's licensing demands, costing RIM $612.5 million. (14) The Supreme Court in eBay v. MercExchange rejected the Federal Circuit's "general rule" of permanent injunction (15) and instead stated the same traditional four-part equity test used in other areas of law to determine injunctions in patent suits. (16) These two decisions elucidate the struggle between exclusive patent rights and forced compulsory licensing. The NTP decision shows the windfall that can occur with a valid and infringed patent when the exclusive right is exercised in an extortive way so that under threat of injunction, licensing negotiations are lopsided. (17) The eBay decision weakens the exclusive right by taking away the presumption of injunction and providing, as an equitable remedy, a compulsory license in denying an injunction under the four-factor test. (18)

Although the right to exclude and the compulsory license are fundamentally at odds, this Note seeks to harmonize the two and proffer a patent system framework that incorporates both exclusionary rights and compulsory licensing. Part I will define the exclusionary interest and compulsory license in terms of a patent. It will further develop the dichotomy and explore past and current jurisprudence with regard to the patent holder's right to exclude. Part II will introduce a patent system change, a new framework that will attempt to reward patentees with the right to exclude, yet create a mandatory licensing scheme for certain patentees. Finally, Part III will theoretically apply the framework to the pharmaceutical industry and patent licensing companies in an attempt to elucidate the possible effects the framework would have on the promotion of progress.

1. THE EXCLUSIONARY RIGHT AND COMPULSORY LICENSE DICHOTOMY

   1. Exclusionary Rights in Patents

      The source of exclusionary right of patents is rooted in the Constitution. (19) "The Congress shall have Power ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." (20) Congress has implemented this right in 35 U.S.C. [section] 154, which states, "Every patent shall ... grant to the patentee ... the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States...." (21) A patent is a grant to exclude, not a grant to practice; hence the responsibility to assert the exclusionary interest against a potential infringer falls on the patentee. (22) The exclusionary right, however, is subject to restrictions, such as compulsory licensing in the courts and statutory provisions.

   2. Compulsory Licenses in Patents

      According to Black's Law Dictionary, a compulsory license is a "statutorily created license that allows certain people to pay a royalty and use an invention without the patentee's permission." (23) The patent system already contains elements of compulsory licensing. (24) For instance, the patent system allows a court in an infringement proceeding to "grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable." (25) So when a court fails to grant a permanent injunction despite infringement, a compulsory license is created.

      One of the most famous cases where a court denied an injunction was in City of Milwaukee v. Activated Sludge. (26) Activated Sludge sued the City of Milwaukee for infringement of a patent in processing raw sewage. (27) The Court of Appeals for the Seventh Circuit, however, did not grant an injunction against the City because the alternative was for Milwaukee instead to dump the sewage into Lake Michigan, the source of the city's drinking water, posing a public health hazard. (28) Even though the court did not enjoin the city, it did award monetary damages to Activated Sludge, effectively granting a compulsory license for use of the patent. (29)

      Other examples of compulsory licenses in the patent system include patents whose subject matter cover areas of technology of particular interest to the government or public welfare. (30) Furthermore, the federal government cannot be excluded from using a patent--hence a compulsory license is mandatory. (31) Finally, antitrust violations can also lead to a compulsory license. (32) For example, when a licensing arrangement harms competition through price-fixing or market division, the competitor can be given a royalty-free (compulsory) license. (33)

   3. Problems with the Right To Exclude

      1. Patent Overlap and the Thicket

         Unlike a piece of real property, the boundary of a patent property right is not so easily determinable. Patents consist of one or more "claims" which legally define what the patent covers, but claims can overlap between different patents. (34) A series of patents are analogous to a set of Russian wooden matryoshka dolls, with each individual patent being a slightly smaller, more defined iteration of the largest. One patentee can hold a patent that actually resides inside the rights of another patent...