Living with patents: insights from patent misuse.

• Author: Chiappetta, Vincent

INTRODUCTION PART I: THE CONTEXT A. Patent Policy-The Economic Efficiency Paradigm, in Brief B. The Origins and Evolution of the Patent Misuse Doctrine PART II: THE ARGUMENT FOR ELIMINATING PATENT MISUSE A. The Current Situation-Why Worry? B. Excess Costs from Patents C. The Argument against an Independent Misuse Doctrine 1. The Antitrust "Gap" Justification for Misuse a. The Market Power Gap b. Antitrust Enforcement Uncertainties/Costs and Doctrinal/Remedial Shortcomings 2. Patent Policy Justifications for Misuse a. Excessive Financial Returns b. Harm to Innovation c. Unjustified Acquisition or Enforcement of Patents i. Improperly obtained patents ii. Inappropriate enforcement of patents PART III: WHAT NEXT? A. Eliminating Misuse B. Living with Patents: Getting What We Want from Patent Law 1. Complaints Involving Improper Implementation 2. Complaints Involving Goal Disagreements CONCLUSION INTRODUCTION

Patent owners have managed to offend almost everyone. Patented pharmaceuticals come at breathtakingly high prices, (1) while their owners pay others not to produce cheaper generics. (2) Dense patent thickets hamper competitive entry and waste existing participants' energies and resources on defensive portfolios and intramural litigation. (3) Patents on the stuff of life constrain agricultural activity (4) and medical innovation, (5) making it harder to eat well and obtain treatment for what ails us. (6) Patent owners attach conditions to goods we buy, limiting our ability to use and sell them to others. (7) Non-producing patent-holding companies ambush industry standards that improve quality and ease of use (8) and demand tolls from anyone doing anything successfully. (9)

There ought to be a law. There is. It is called patent misuse. (10) When a patent owner overreaches, the courts refuse to enforce the patent until the related harm has been undone. That sounds eminently reasonable. When patent owners interfere with society, society takes their patents away.

But not everyone feeling patent pain can legitimately claim misuse. Patent law expressly intends and depends upon patent owners interfering with others' desires. (11) Misuse only occurs when the pain exceeds the inherent costs of the system--the harm society has decided individuals must bear to obtain the regime's benefits.

Distinguishing between inherent and excessive/misuse costs has proven problematic. (12) We do not even agree that the misuse doctrine should exist, much less when it should apply. Some argue misuse stands as a vital guardian of patent policy, particularly the regime's mission of promoting innovation. (13) Others argue that, at best, the doctrine uselessly duplicates the role of other laws (notably antitrust); while at worst it affirmatively interferes with efficient market operation. (14)

Unsurprisingly, confusion also reigns at the coalface of application. The Supreme Court created the doctrine almost a century ago (15) when society was feeling the powerful effects of unchecked monopoly, patent and otherwise, and determining how best to respond. Despite the considerable refinement of the patent and antitrust regimes, the Court has not revisited the substantive law of patent misuse for almost forty years. (16) Congress, the legislative custodian of the patent system, has only kibitzed, indicating that market power is important, but (perhaps) only sometimes. (17) The Court of Appeals for the Federal Circuit (the "Federal Circuit") finds itself in the inopportune middle, seeking to reconcile the Supreme Court's past with its present. The resulting misuse chimera first attempts to apply the vague misuse "exceeding the scope of the patent" test to identify problematic provisions, then makes the determination by awkwardly relying on modern antitrust anticompetitive effects assessment except when Court precedent explicitly requires otherwise. (18)

The time has come to dispense with patent misuse entirely. In the prevailing market efficiency paradigm, the doctrine's limitations on exploitation of patent rights are not only superfluous, but affirmatively harmful. Misuse's purely defensive posture, incoherent and inaccurate "scope of the patent" inquiry, and poorly-calibrated, one-size-fits-all blanket unenforceability remedy have been rendered obsolete by subsequent, more nuanced legal responses to potential patent power. Antitrust law draws more appropriate balances between maximizing patent incentives while minimizing undue interference with market operation and innovation. Inequitable conduct, abuse of process, antitrust sham litigation, and Walker Process liability more effectively control abuses of the patent prosecution process and improper assertions of patent rights. Granted, these regimes remain imperfectly implemented, but their approach and experience provide a far more effective foundation for making the necessary adjustments. Continued availability of the misuse defense wastes time and resources on a pointless struggle to update an antiquated doctrine that unnecessarily decreases access and, contrary to its defender's claims, interferes with rather than advances patent policy.

The Federal Circuit's current "mixed" approach does much to mitigate the problem. But as a circuit court, it remains constrained by Supreme Court precedent. (19) That latter Court should take the earliest opportunity to eliminate its now outdated doctrine. (20) Failing prompt judicial action, Congress should use the current reform effort as a vehicle for legislative abolition.

Beyond clarifying that misuse has outlived its purpose, the inquiry into the doctrine's justifications provides useful insights regarding how to ease the difficult problem of living with patents. An appropriate relationship must be predicated on two facts: first, patents unavoidably cause pain and unhappiness and second, people feeling the adverse effects inevitably will complain. The misuse inquiry reveals that legitimate complaints only arise from two sources: (1) improper implementation producing harms unnecessary to achieve an agreed upon goal, or (2) unhappiness with the goal (currently, that frequently means with the consequences of the prevailing market efficiency paradigm).

The misuse inquiry also clarifies the appropriate response. Punishing those who obtain and use patents in accordance with existing laws resolves neither problem. Our many implementation debates require application of legal expertise to adjust patent law's issuance requirements, rights and remedies, and antitrust and other general law requirements governing market exploitation. But we must avoid conflating those primarily technical problems resolved by applying metrics reflecting the stated goal with complaints arising from the efficiency paradigm's intrinsic inability to produce certain social outcomes. For example, many seeking limitations on pharmaceutical patent holder reverse payments are unhappy with the existing patent system's distributional consequences. Similarly, those labeling patent owner interferences with industry standards "ambushes" and royalty seeking, non-practicing patent owners "trolls" are expressing "moral" disapproval of the intensely self-interested competitive behavior which, as Adam Smith explained, serves as the essential driver of an efficient market economy. (21)

Coherent debate in these latter situations requires explicit identification and discussion of our underlying normative differences. Until we have determined what the patent/legal system should produce, there is little value in proposing and assessing specific implementation strategies. That unproductively jumbles what is to be achieved with how an unresolved "it" can best be produced, guaranteeing the confusion and discord of talking past rather than to each other. It is better to recognize our disagreements on the "right" and seek a mutually acceptable compromise. In that difficult process, we should not only recognize that one person's "justice" is another's "misuse," but that our differing beliefs have, and importantly, are frequently predicated on, their practical consequences. In particular, distributional and behavioral outcomes can profoundly affect our social relationships, including others' ultimate continued participation. When considered from the perspective of preserving the fabric of society, making concessions on patent policy may prove a much simpler proposition.

Part I below provides the general context for the misuse inquiry. It first describes the prevailing efficiency-driven legal paradigm and its implementation in patent and generally applicable law (including antitrust). It then discusses the history of and rationale for the misuse doctrine. Part II explains why misuse cannot be justified within the existing legal paradigm and how its continued existence causes affirmative social harm. Part III discusses appropriate next steps: the prompt legislative or judicial elimination of patent misuse and how we can use the misuse experience to more productively discuss our difficulties in living with patents.

PART I: THE CONTEXT

1. Patent Policy-The Economic Efficiency Paradigm, in Brief

   A doctrine designed to prevent the misuse of a patent system must start from understanding its proper operation. Patents give their owners the legal right to prevent others from using the covered invention. (22) That exclusionary right restricts access and produces related individual and social costs. (23) The decision to grant patents indicates that society has determined some goal justifies absorbing those costs. By definition, a patent owner can only misuse a patent right if the use generates costs exceeding those required to produce the desired outcome.

   There are many possible justifications for creating patent rights. (24) The primary justification for current United States patent law can, however, be readily identified. (25) The regime forms an integral part of a larger commercial law system designed to...