ARTICLE CONTENTS INTRODUCTION I. REHABILITATING THE INDUCEMENT STANDARD: A DOCTRINAL FOUNDATION A. The Difficulties with a Cognitive Approach 1. The Imaginary Person of Extraordinary Knowledge and Ordinary Creativity 2. The Degree of Obviousness and the Commingling of Economic Factors B. The Inducement Standard and the Statutory Text 1. "Obvious" and Ease of Discovery 2. "Ordinary" Skill 3. The "Person" Who Possesses the Skill C. Reconciling the Patentability Standard with General Regulatory Theory D. Implications of the Inducement Standard 1. Objectivity 2. Trade Secrecy and Disclosure 3. Nonpatent Inducements for Innovation II. REFINING THE INDUCEMENT STANDARD A. Time B. Competition C. Invention 1. Speculative Patents 2. Kitch's Prospect Theory 3. Merges's Model of Nonobviousness III. ADMINISTERING THE INDUCEMENT STANDARD A. Methodological Questions 1. Heuristics Versus Direct Application 2. Courts Versus Agencies B. A Structured Economic Inquiry 1. Obviousness of the Invention to a PHOSITA 2. Secondary Considerations a. Considerations of Nonobviousness b. Considerations of Commercial Success c. Considerations of Obviousness CONCLUSION The inherent problem was to develop some means of weeding out those inventions which would not be disclosed or devised but for the inducement of a patent.
--A unanimous Supreme Court in Graham v. John Deere Co. (1)
The quotation above is one of the most memorable and insightful lines from arguably the most important patent law case of the twentieth century: the Supreme Court's 1966 decision in Graham v. John Deere Co. (2) Graham's preeminent place in the patent canon is well justified, for it is the Supreme Court's seminal opinion on a patent law doctrine--the "nonobviousness" requirement--that is typically introduced as "the most important of the basic patent requirements," (3) "central to determining patentability," (4) "the key to defining what is a patentable invention," (5) or simply "the ultimate condition of patentability." (6) The basic rule of nonobviousness is easy enough to recite: under 35 U.S.C. [section] 103, a patent may not be granted on an invention that "would have been obvious at the time the invention was made to a person having ordinary skill in the art." (7) But the apparent simplicity of the requirement belies the complexities and difficulties that have historically bedeviled the doctrine. (8) The inducement standard, as articulated in Graham, appears to be vitally important to understanding the statutory nonobviousness requirement, for it offers a simple explanation for why society should deny patents on some innovations: if the innovation would be created and disclosed even without patent protection, denying a patent on the innovation costs society nothing (because the innovation would be developed anyway) and saves society from needlessly suffering the well-known negative consequences of patents, including the restriction on output caused by a patentee's exclusive rights and the administrative and litigation costs associated with running a patent system.
Yet despite its apparent promise as the theoretical basis for the most important patentability doctrine, Graham's inducement standard has achieved only a modicum of influence. (9) Though frequently cited, the inducement standard is often relegated to a passing mention or a footnote in introducing the patentability standard. (10) Some articles have devoted more extended attention to the inducement standard, but these too have generally highlighted the difficulties in using the standard to decide cases or to shape legal doctrine." For example, Ed Kitch's classic verdict on Graham's inducement standard emphasized that the nonobviousness requirement, as articulated by the courts, provides only an "awkvcard" tool "to sort out those innovations that would not be developed absent a patent system," with the "focus" of the legal doctrine always being on other issues. (12) Kitch's view has become the consensus. Thus, in a widely cited and influential 2003 report, the Federal Trade Commission summarized the testimony of numerous legal and economics scholars as demonstrating that, even though the inducement standard represents "the right way to assess whether to grant a patent" from a "theoretical perspective," the standard is not "administrable," so "the more manageable standards of the patent statute have evolved to serve as the means by which to measure when to grant a patent." (13)
In some ways, we agree with these prior assessments of the inducement standard. There is a certain awkwardness in the relationship between the inducement standard and the nonobviousness requirement, at least as that requirement has previously been articulated by the courts. Moreover, the Supreme Court in Graham did not provide a rigorous foundation for deriving the inducement standard from the statutory language. The absence of such a legal foundation may explain why courts and the Patent and Trademark Office (PTO) have typically avoided looking to the inducement standard for guidance in interpreting and applying the statutory nonobviousness requirement. The one exception, an insightful but ultimately flawed panel opinion by Judge Posner, relied on the inducement standard to invalidate a patent but nevertheless failed to identify any administrable test or metrics for applying the inducement standard to the specific facts of that case or other cases. (14) Posner's panel opinion was vacated en banc, (15) and that history has perhaps cemented the notions that the inducement standard conflicts with the statutory obviousness standard, is antipatent, or is simply too difficult to apply in actual cases.
This Article aspires to show those notions to be wrong and to revitalize the inducement standard as the touchstone for understanding and refining the obviousness doctrine. The result should be more coherent, defensible, and predictable decisionmaking than is possible either under the current doctrine or under Judge Posner's treatment, which missed important implications of the inducement standard.
There are two motivations for undertaking this project. First, the time is right. In its 2007 decision KSR International Co. v. Teleflex, Inc., (16) the Supreme Court overturned a quarter-century-old test for nonobviousness that the nation's expert appellate court for patent law, the Court of Appeals for the Federal Circuit, had meticulously constructed. The KSR decision has precipitated a vibrant debate among scholars seeking to help the courts rebuild a pragmatic obviousness doctrine that yields predictable answers and is more theoretically sound than the Federal Circuit doctrine rejected in KSR. (17) That reconstruction project can have little hope of enduring success without reexamining and reevaluating the ultimate goal of the nonobviousness requirement.
A second and more important motivation is the promise of the inducement standard in providing significant insights into some of the most difficult theoretical and practical problems in the field. Economic analysis of patent law frequently begins with the assertion that patents present a social tradeoff between providing incentives for innovation at the expense of accepting the deadweight loss associated with monopoly-like exclusive rights. (18) And even beyond the law-and-economics literature, legal scholars often frame intellectual property law generally and patent law in particular as presenting a conflict between the public and private domains--a choice between openness and exclusivity. (19) If, however, the law follows Graham's inducement standard, such tradeoffs and conflicts do not necessarily exist.
Under a rigorously enforced inducement standard, patents would cover only those innovations that otherwise would not be created or disclosed--in other words, patents would cover only innovations that, without the patent system, would not have been in the public domain. The patent system would then have only positive effects on the public domain: patents would cover only inventions that would otherwise not be in the public domain and, when the patents expire, the inventions would enter into and enrich the public domain. Similarly, the apparent deadweight losses created by patent rights would be an illusion because, if patent rights had not been available, the invention would not have been available from competing firms but instead would have been either unavailable or covered by trade secrecy. As we will show in this Article, the optimal implementation of the inducement standard may not achieve such a Panglossian resolution because, at least in some circumstances, patents should be allowed even if they merely induce earlier innovation. Thus, the analysis suggested by the inducement standard helps to identify more clearly the precise economic tradeoff at issue: patents produce earlier innovation but at the cost of higher prices and associated deadweight loss in a later period (when the invention would have existed even without the inducement of the patent). This point highlights another deep theoretical strength of the inducement standard, for it holds out the hope of grounding patentability decisions in a more rigorous economic framework and thereby bringing patent law closer to the vast body of modern regulatory law that commonly uses economic analysis in making specific decisions about the scope and extent of regulation.
The Article's rehabilitation of the inducement standard begins, in Part I, with an investigation of doctrinal difficulties associated with Graham's inducement standard. As Professor Kitch noted over forty years ago, the nonobviousness requirement seems at first to be an awkward way to implement an inducement standard. We agree that perhaps one natural interpretation of the statutory text points toward a cognitive definition of nonobviousness that focuses on whether individuals have epistemic awareness of technological solutions to problems...