Current U.S. Patent Law

A patent, in the United States, is an exclusive right to make, use, or sell an invention or allow others to do so. An inventor is awarded a patent in the U.S. patent system if his invention is new, useful, and non-obvious. Generally, the patent’s survival is not contingent on whether or not the inventor puts his patent to use or allows others to do so. The requirement of “working” the patent or compulsory licensing, however, is a fundamental aspect to many other patent systems; for example, many European countries have such a requirement, and Wood and Davé note that an inventor’s failure to work the patent in a certain amount of time is grounds for a compulsory license in China, Japan, and India (n.d., n.p.).

Working the patent and compulsory licensing are an important part of the history of patent regulations. Halewood 1997, p. 251 summarizes the significance:

The earliest discovered patent legislation, the Venetian Patent Act of 1474, required the active exploitation of patents; otherwise, they were cancelled by the Venetian state. Likewise, the English Statute of Monopolies, 1623 mandated the working of

the patent grant. The American Patent Act of 1790, provided what are now referred to as “importation patents,” which gave Americans monopoly rights to import foreign technology, without any obligation to protect

foreign inventors’ rights.

While working the patent is not explicitly required in current U.S. patent law, some argue that parts of it are still alive today in some of the laws. Paraphrasing Barnett (2010, n.p.), the working requirement shows up in the Bayh-Dole march-in provisions, which allow the government to grant a compulsory license if a federally funded invention is not worked in a certain amount of time; and in the maintenance fees required by a patentee

SHOULD AN INVENTOR BE REQUIRED TO “WORK” THE PATENT?

Heather HildrethDepartment of Engineering & Society

STS 2160April 11, y

Working the patent is not explicitly required in current U.S. patent law, but it is a major part of legislation in other countries.

Glossary“Working” the patent: Putting the patent to use by practicing the patented skill; either by making (manufacturing), using, or selling the invention

Compulsory Licensing: A license granted by the government to someone other than the patentee allowing him to make, use, or sell the invention

Non-Practicing Entity (NPE): A patentee that does not practice his invention by making, using, or selling it

Patent Troll: An NPE that seeks out others infringing on its patent with the intention of working out a licensing arrangement or taking the possibly infringing party to court

every 5 years, which are supposed to encourage the patentee to make use of his patent. However, these regulations are hardly sufficient in preventing the consequences that come from the lack of that requirement.

Non-Practicing Entities (NPEs) and other Consequences from this Lack of Requirement

NPEs

Since patentees are not required to work the patent in the U.S., there are many non-practicing entities (NPEs) that own many patent rights, but do not practice the patented skill, keeping the usefulness of the invention from the public. Many NPEs are not purposely trying to keep the public from a useful invention; paraphrasing Papst (2010), smaller inventors, companies, and universities do not have the resources to successfully manufacture their invention, and bigger companies sometimes choose to abandon a field in order to compete in a different market (p.10).

However, many NPEs purposefully do not practice the invention in favor of preying on possible infringers, who may not even know they are infringing. These NPEs have earned the label of “Patent Troll” in the U.S. Consider Nathan Myrhvold’s company Intellectual Ventures, exposed fairly recently in Planet Money’s Program “When Patents Attack” (2011). Accoding to the program, Myrhvold states that that “It [Intellectual Ventures] gathers patents together into a huge warehouse of inventions that companies can use if they want. It's sort of like a department store for patents” (n.p.). The program then notes that some consider it a troll because “Intellectual

Ventures has amassed one of the largest patent portfolios in existence and is going around to technology companies demanding money to license these patents” (n.p.).

Whether NPEs are good or bad, they are on the rise in the states. Colleen Chien (2010) found that the percentage of infringement suits involving NPEs rose from 22% in 2000-2001 to 36% in 2006-2008, counting defendants, or from 10% to 20% counting cases (n.p.).

The rise in Patents; Patent Pools and Clearinghouses

How is a small company to know it is infringing on a patent when the corresponding invention isn’t publicly practiced? Not only is there a rise in NPEs, but there is a rise in patents in general, according to the USPTO’s U.S. Patent Statistics Chart. Due to the rise of patents, particularly software patents, Lee and

GlossaryPatent Pool: an agreement among patentees to license patent rights to one another and third parties

Patent Clearinghouse: an agency that, with a patentee’s permission, sets license terms to others who would then be permitted to use the patent

Mulligan (2012) estimate that, in the widget industry alone, “in which 30,000 firms had one patent apiece and could review one patent per hour, each firm would need to hire around 15 full-time patent attorneys, for a total discovery cost of almost a billion billable hours” (p. 7). Most small companies do not have the time or resources to check if they are infringing. While this is a problem due more to the amount of patents than the number of NPEs, requiring inventors to work the patent would result in more invalid patents and thus fewer patents on which a practicing party could infringe. Additionally, the Shield Act (2012) helps to protect companies involved in software patent cases in suits against NPEs by requiring unsuccessful plaintiffs to pay for the litigation costs of defendants.

In order to further secure themselves against infringement suits, companies sometimes create patent pools and patent clearinghouses. A patent pool, as defined by Nielson and Samardzija (2007), “is an agreement or contractual arrangement between two or more patentees to license their patent rights to one another and third parties” (530), and a patent clearinghouse “administers the rights of several patent owners. Authority by the patent owner is granted to the agency to set license terms to others who would then be permitted to use the patent” (532). Nielson and Samardzija note that the problem with patent pools is that “To be effective, however, patent pools must typically serve a clear technological platform. Unfortunately, this is often missing” (531) and that the problem with patent clearinghouses is that “an entire industry must agree to

participate, which requires government intervention”(532).

Consequences from Requiring Inventors to Work the Patent

Since many countries in Europe have a requirement to work the patent, it would be beneficial to compare the activity of NPEs in Europe with that of the NPEs in the U.S. Summarizing the findings of Fusco (2012), while NPEs exist in Europe, their role is significantly less than those in the U.S., and as a result, they do

not get nearly the same amount of media attention. It is important to note that while an NPE can legally sit on its rights

in the U.S., those in Europe must license patent rights to others; so, not only are there less NPEs in Europe than in the U.S., the ones that do exist allow society to benefit from their invention because it is ultimately being “worked” by someone. Citing Papst, 2010, p.14:

That said, in general there seems to be a strong focus on quality patents among European NPEs. The goal for most is not to threaten infringers and collect litigation avoidance fees, but instead to participate in the success of a valuable technology covered by patents that they own or administer on licence.

It is clear, then, that requiring an inventor to work the patent, i.e., practice it, will lead to less NPEs. This

Requiring the inventor to work the patent results in less NPEs.

consequence explains why opinion on a requirement to work the patent is highly correlative to opinion on the benefit of NPEs and patent trolls.

The Two Patent Protection Theories

Everyone can agree that the ultimate goal of the patent system is “To promote the Progress of Science and useful Arts,” as stated in Article I, Section 8, Clause 8 of The Constitution, but there are disagreements over how to best reach that goal. Summarizing Chapter 1 of Intellectual Property-Patents, Trademarks, and Copyrights in a Nutshell by Miller and Davis (2012), there are two basic theories as to how to promote innovation. The “natural rights” theory is the view that in order to encourage inventors to invent, they deserve the rights of any product that is the result of their hard labor; that is, they deserve to be the ones to get rich off of their invention, especially after diligent and laborious research and development. Supporters of the natural rights theory believe that without significant rewards granted to the patentee, inventors would be less motivated to work towards inventions. The “bargain” theory is the view that inventions are only beneficial if society benefits, so in order to encourage inventors to

disclose their invention, they are offered a fair reward. The natural rights theory stresses the rights of the inventor, while the bargain theory stresses the benefits to society that come from the invention.

Opposed to Requiring a Working of the Patent

Those that are opposed to requiring inventors to work the patent are most likely to believe in the natural rights theory because an inventor should be able to decide what he does with his intellectual property; he isn’t obligated to disclose the invention in the first place, so he shouldn’t be obligated to practice it. Supporters of the natural rights theory, for the same reasons, are against

compulsory licensing, as it should not be the government who decides who has access to the rights of a patent. Additionally, those

opposed are also most likely to believe that NPEs do not negatively affect the patent system, and that there should be more of a focus toward reforming other aspects of patent policy instead of a focus toward reducing NPEs.

Summarizing Geradin (2011), NPEs should be seen as neither good nor bad, and can in fact increase innovation by becoming a competitor in the patent business- that is, by getting to certain claims or inventions first. He finds that

more investigation should be done on the effects of NPEs on the economy and patent system before labeling them as bad. Schwartz

GlossaryNatural Rights Theory: The view that inventors deserve a significant reward for invention

Bargain Theory: The view that society deserves to benefit from an invention

The debate on requiring patentees to work their invention boils down to a debate on the role of NPEs, and ultimately, to the two theories of patent policy.

NPEs “purchase patents from those who do not have the resources or expertise to take their patented technologies to market” –Schwartz (2012)

(2012) goes so far as to say that NPEs are good, claiming “They purchase patents from those who do not have the resources or expertise to take their patented technologies to market such as individual inventors… Thus, NPEs create opportunities, perhaps the only opportunities, for non-manufacturing patentees to monetize their patents” (n.p.).

Summarizing Barnett (2010), NPEs like research universities should not be discouraged by a requirement to work the patent, and he believes that if there were to be such a requirement, universities should be excluded.

In Favor of Requiring a Working of the Patent

Those in favor of requiring patentees to work their invention are most likely to support the bargain theory, because the bargain theory stresses the benefits of invention to society, and working the invention ensures that society is able to see it (and possibly use it) in some form other than a published patent document. In support of the bargain theory, Yosick (2001) believes that compulsory licensing “would promote the public interest without detrimentally affecting the incentive to invent and to disclose inventions” (1277).

Those in favor will also seek to rid the patent system of what they see as patent trolls, as they believe that the inventor should not sit on his invention, nor profit from unreasonable licensing fees. Gene Quinn (2010) blogs that patent trolls are “patent vampires” who “increasingly instituting a strategy of sue everyone you can…This just shifts the

burden of due diligence onto the defendant, who many times is… without

enough resources to fight”(n.p.).

Quoting the abstract of “The Private and Social Costs of Patent Trolls” from Bessen and Meureur (2011):

NPE lawsuits are associated

with half a trillion dollars of lost wealth to defendants from 1990 through 2010, mostly from technology companies. Moreover, very little of this loss represents a transfer to small inventors. Instead, it implies reduced innovation incentives.

It should be noted that some see this study as controversial; paraphrasing the findings of Schwartz (2012), that number is more like $6.7 billion, and more research is needed to compare that to the cost of litigation between practicing entities.

Believing that requiring an inventor would solve this problem, Posner (2012) notes that making “a patent contingent on producing the product or process…within a specified time” would “reduce the troll problem, by clearing out patents that are obtained to extort license fees” (n.p.).

Finding a Solution

Figuring out whether working the patent and compulsory licensing should be a part of U.S. patent legislation comes down to figuring out the role of NPEs and ultimately picking one of the two patent

“NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010” –Bessen and Mesurer (2011)

policy theories. Those that favor the natural rights theory will want to allow the inventor to do as he wishes with his patent rights, and those that favor the benefits to society will want to encourage inventors to make their invention available in some form for use to the public. It is evident that creating such a requirement would reduce the number of NPEs and their patents, and most can agree that at least some NPEs prey on small companies by charging licensing fees at the threat of suing. For those that believe NPEs help small inventors by buying their patents, what good is that patent if it merely changes ownership and does not end up being practiced?

A solution should appeal to both theories, and also agree with any contracts to which the U.S. is bound; for example, the Agreement on Trade Related Aspects of Intellectual Property Rights, or TRIPS. Perhaps the right solution is to require a patentee to either work the patent or license it within 2 years of inventing; if he or she fails to do so, then the government can take control of licensing it (compulsory licensing) or put it directly into the public domain. The licensing fees must be fair and reasonable according to the appropriate industry, and if they are not, they can be grounds to bring the patentee to court. In order to avoid patentees bribing other parties to pay licensing fees on his patent, another requirement could be added that requires the party paying licensing fees to work those patent rights. Some may argue that this solution puts undeserved burden onto the inventor, but the system emphasizes due diligence in obtaining a patent; shouldn’t it emphasize the same diligence in ensuring the utility of the patent is maximized? This solution allows the inventor to benefit from his patent by giving him ample time to put it to use or

license it to someone while ensuring that the invention does in fact get worked.

References Cited

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