Tuesday, October 18, 2011

Jonathan Masur: The Ever Expanding Patent System

Could the commonly cited flaws of the patent system be caused by the underlying relationship of its two main players, the PTO and the Federal Circuit? The patent system has come under attack in recent years in light of the growing number of invalid or weak patents and an ever-expanding definition of what can be patented. Critics have blamed this expansion (or “patent inflation”) on a number of factors including lack of funding, capture by private interests, and lack of expertise. In Patent Inflation, Jonathan Masur, a professor at the University of Chicago Law School, suggests this phenomenon may have a more fundamental source—the institutional relationship between the PTO and the Federal Circuit.

In his thought-provoking article, Masur suggests that the administrative nature of patent law creates institutional pressure to expand the boundaries of patentability. He arrives at this novel theory by combining a few simple, yet profound, observations into a model that predicts patent expansion.

First, he observes that the PTO will naturally be inclined to maximize administrative efficiency by minimizing opportunity for costly appeals or reversals. Because of the asymmetric nature of patent appeals (an appeal can only occur when an application is denied), the PTO will err on the side of granting too many (weak or invalid) patents. Second, the Federal Circuit will not be able to review most of these boundary-pushing patents, and when it does have the rare opportunity to review a PTO denial, it is likely that the application at issue will be outside the scope of patentability. Third,  every once in a while as a matter of random chance or because of a favorable panel draw, the Federal Circuit will grant one of these invalid, boundary-stretching patent applications, thus creating new precedent and further expanding the scope of patentability. The predicted result is too many bad patents and inflationary law (a phenomenon that is occurring now, according to many critics).
Masur tests this model by analyzing the development of the rules of patentable subject matter governing software and business method patents, culminating in the Federal Circuit and Supreme Court decisions in Bilski v. Kappos. Masur’s thorough analysis of Bilski and the history of software and business method patents carefully illustrates how, as his model predicts, institutional pressure in the relationship between the PTO and the Federal Circuit will create inflationary patent law.

At the heart of the problem, Masur claims, is the asymmetric nature of patent appeals. To cure this, Masur advocates a mechanism for symmetric review of PTO decisions. He proposes that the best method of achieving this is a workable system of inter partes review with the possibility of appeal to the Federal Circuit. Inter partes review is a trial proceeding before the Patent Trial and Appeal Board initiated by a third party to review the patentability of one or more claims in a patent. This procedure adds symmetry to patent appeals because it provides an opportunity for the Federal Circuit to review patents granted by the PTO on the basis of patentability. To have any substantial effect, however, inter partes review would need to be widely accepted and used. Masur indicates that the procedures (and costs) of inter partes review must be amended before this could occur.

Masur’s contribution is valuable because it provides a comprehensive, testable model to address the commonly cited problems within the patent system. Rather than simply identifying a potential source of the patent system’s ailments, Masur seeks to define and understand this issue in a constructive manner. Masur’s model encourages readers to take a closer look at the uncommon administrative scheme of patent law and to consider institutional solutions for this institutional problem.

Several important questions stem from Masur’s theory. For one, where do you draw the line between patent law inflation that stems naturally from innovative technology and the administrative inflation rebuked in Masur’s article? Might an extensive inter partes review system impede innovation in some instances? For example, one can imagine that a more opponent-friendly inter partes review scheme could be used to abuse smaller patent owners that lack the resources of larger companies. Also, how would an inflation-correcting scheme operate? Masur advocates inter partes review as a potential solution to patent inflation, but what is it going to take to make inter partes review a workable, effective procedure? It remains to be seen how the recently enacted Leahy-Smith America Invents Act will affect procedures like inter partes review in practice (and whether it will satisfy Masur’s concerns); yet on its face at least, the Act does make this procedure more attractive by implementing a shorter timeline and possibility of appeal directly to the Federal Circuit. Much of the change is in the hands of the PTO and its rulemaking based on its interpretation of the Act. For example, the Act implements a new threshold standard for inter partes review that could affect the attractiveness of the procedure depending on the PTO’s interpretation of the new standard.

Although some questions remain unanswered, Masur presents a useful framework with which to consider the shortcomings of the patent system. It will be interesting to watch and see if recent and future developments in patent law reinforce Masur’s novel theory. If the inflation of business model and software patents (exemplified in Bilski) is any indication, however, one can imagine that Masur’s model will continue to grow in significance.

Posted by Craig Carpenter (cccarpente@smu.edu), a third-year student at SMU Dedman School of Law and research assistant to Sarah Tran. His primary scholarship interests are intellectual property, biotechnology, and privacy. He has recently published a case note in The International Lawyer on European biotechnology patent law.

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