The Competitiveness of Nations in a Global Knowledge-Based Economy
Our National Patent Policy
American Economic Review,
38 (2)
May 1948,
235-244.
* President’s Committee on Patent
Policy
Our highly developed private enterprise economy demands,
or so the economists tell us, a constant flow of technological innovation. To stimulate that flow we have chosen to
rely principally upon patents for inventions - the grant of temporary private
monopolies for substantial technological innovations. Our patents for inventions are federal
grants to the first inventor for seventeen years of the exclusive right to make,
use, and sell the patented invention.
They are based on the constitutional provision that to promote the
progress of science and useful arts Congress may secure to inventors for a
limited time the exclusive rights to their discoveries.
The temporary right to exclude others from the use of an
invention is an incentive essentially material in its nature, addressed to the
cupidity of men. It brings to bear
upon the individual all the impulsions that can arise from economic necessity.
It has been said of this incentive
(1) that it encourages invention and research; (2) that it induces an inventor
to disclose his invention or discovery, instead of keeping it a trade secret;
(3) that it offers inducement to risk capital for development through the trial
stage that precedes marketing; and (4) that it attracts capital into new
production which might not appear to be profitable if competing producers were
free to follow the leader. Let us
look at these incentives one at a time.
1. As to encouraging invention and research, is it not
the pressure of economic necessity on the inventor or producer that is the truly
effective impulse to technological innovation; is not that the necessity which
is proverbially the mother of invention? Invention is surely an expression of the
deep creative impulse of mankind, an impulse that hardly needs another spur.
So far as organized research is
concerned, that would remain indispensable to modern competitive industry if the
patent system were abolished.
2. But the inventor, like the rest of us, has to live
and so we need to make it possible for inventors to earn a livelihood; we must
make it at least as profitable to supply the continuing demand for inventions as
it is to supply ordinary articles of commerce. The inventor with his new idea in mind
must be able to find a market. His
difficulty is that as Mr. Jefferson was wont to remark, a new idea is something
“which an individual may exclusively possess as long as he keeps it to himself;
but the moment it is divulged it forces itself into the possession of everyone.”
Consequently, if an inventor has no
other choice, no artificial pro-
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tection, he will certainly use all his ingenuity to keep
his invention secret, or as nearly so as may be. Thus the choice is always between full
disclosure in exchange for the temporary monopoly the patent system offers him,
or secret practice to the extent and with all the safeguards that his ingenuity
can devise. All my experience
strengthens in me the conviction that this inducement to choice of disclosure in
preference to secret practice or carefully guarded know-how is the central point
at which the incentive needs to have its maximum effect. Nor is the margin of choice at this point
as deep as a well or as wide as a barn door. The advantage or disadvantage of swapping
disclosure for the temporary monopoly may be a very close question in many
cases, even under a system of temporary monopoly grants considerably more
efficient than ours is today. An
inefficient patent system, or one that begrudges the temporary monopoly, may
very easily defeat its own basic purpose of full and free
disclosure.
3. and 4. The effect of temporary private monopolies to
induce the venturing of risk capital in the initial development stage and in the
stage of commercial production is contingent upon a free enterprise system based
on voluntary investment of private capital in a competitive economy. In such a system these inducements may be
important, but only in such a system. The significance of this has been
emphasized very much, to my mind at least, by our recent doings in the field of
atomic energy. In this field the
government has been driven to reserve to itself a total monopoly of the
production of fissionable material and atomic weapons. The inducements to risk capital have,
therefore, no significance, and so we have done away with the grant of patent
monopolies in these fields. Disclosure has been made mandatory by
law; a compensation is by government award.
Since no patents are to be granted for producing
fissionable material or atomic weapons, any innovations which security
requirements allow the Atomic Energy Commission to publish will become
immediately available to everyone. We will have, in effect, for those
published innovations a general licensing system without payment of
royalty. Indeed, the Attorney
General has recommended that as a basic policy all government-owned
inventions should be made fully and unconditionally available to the public
without charge, by public dedication or by royalty-free nonexclusive
licensing.
The fact that we have, almost inevitably, been led to a
system of government awards in the excluded fields of atomic energy and toward a
policy of public dedication of all patentable inventions owned by the government
discloses at once the potentialities and the limitations of any such system of
general compulsory licensing as that recommended by the TNEC seven or eight
years ago. That proposed
substitution of
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compensations fixed by an administrative or judicial
agency of government for temporary monopoly is appropriate enough wherever the
government is prepared to supply the risk capital necessary for the development
of a particular art or has acquired inventions as a result of research or
development already paid for. As an
over-all policy it is consistent with an economy of government ownership, but it
is inconsistent with an economy of private enterprise.
Without attempting here to follow the significance of
this fact into many fields of application of compulsory licensing which have
been suggested, I confine myself to pointing out that the idea of a royalty
fixed by the government necessarily entails some sort of obligation to enforce
the exclusive right against those who do not voluntarily pay royalty; that
standards of reasonable royalty are practically unavailable to a government
agency; and that such a system would be devoid of that separation of the wheat
from the chaff among patented inventions that characterizes the realistic
operation of private grants of temporary monopolies. I may add, however, that my rather
extensive experience during World War II in the administration of governmental
controls in areas where there were no commonly accepted standards of measurement
and no established methods of enforcement leaves me with a deep conviction that
the practical administration of any system of general compulsory licensing lies
utterly beyond the limitations of democratic government.
However that may be, it seems quite clear that in the
critical economic adventure that lies immediately ahead of us we are committed
to our present kind of patent system which aims as a general policy to secure to
inventors for limited times the right to exclude others from the use of their
inventions or discoveries. That
does not mean, in my understanding of it, that compulsory licensing need be
wholly eliminated. We already have
it in more than one area of the patent system. Since 1910 there has been compulsory
licensing for use by or for the government, by act of Congress. And compulsory licensing is recognized by
the Supreme Court as an appropriate means to correct a monopolistic situation
built up in violation of the antitrust laws. Furthermore, the federal courts have
always had and have often exercised the discretion to withhold injunction, after
adjudging validity and infringement, where public health or safety is involved
or where very special circumstances make injunction an excessive hardship for
the defendant without substantial benefit to the plaintiff. Nor have we yet heard the last word on
the subject of compulsory licensing as a remedy for unjustified nonuse. Since one great object of the patent
privilege is to bring inventions into actual use and put their benefits within
the reach of others, it would seem not unreasonable to declare by act
of
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Congress that prolonged and unjustified failure to use
or license is an abuse of the patent right, and to make such abuse a defense to
a suit for injunction and a ground for declaratory judgment proceedings in the
federal courts.
If, as I suspect, we are committed to the granting of
temporary monopolies for the promotion of technological innovation for the
immediate future, the important thing seems to be to make the best of this
resource, as we must now make the best of all our productive resources. Obviously this choice of incentives
entails a cost, since private monopoly is in general inconsistent with free
enterprise. But any scheme of
promotion entails some risk and faint heart ne’er won fair lady. But courage is a virtue only when
directed by prudence, so the real question is whether the particular scheme is
worth its cost. This question has
given rise to much discussion of the virtues and the vices of our patent system.
That discussion has yielded, I
think, very little fruit. It is a
very ancient saying that criticism comes easier than craftsmanship, and that is
peculiarly true of our patent system at the present
moment.
One reason is that we have no basis for factual
comparison with any alternative. While the grant of temporary private
monopolies has been adopted in every industrialized country in the world, no
alternative incentive has ever been tried anywhere except recently in
The grant of temporary private monopolies as an
inducement to sub-
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stantial technological innovations, which is the essence
of our patent system, implies a contract in which the price paid by the inventor
is the disclosure of his invention and the price paid by the government is the
assurance that for seventeen years no one will be permitted to make use of the
invention without the patentee’s consent. This calls for a full and frank
disclosure from the patentee and for good faith and diligence from the
government. That patents shall be
granted only for substantial innovations which the inventor has in fact
originated and fully disclosed and that the protection by government of the
patentee’s exclusive right shall be prompt, sure, and reasonably inexpensive,
are thus requirements inherent in the very nature of the
system.
The effectiveness of any incentive depends upon its
appeal to the individual to whom the incentive is offered. The nature of the incentive needs to be
such as to arouse in him some eagerness to accept it in preference to other
alternatives. In the case of
inventors this means in preference to the alternative of keeping his innovation
secret, or as secret as he can. To
my mind, the growing emphasis on undisclosed know-how and the broadly expanded
resort to complex patent licensing agreements both reflect, in the realistic
world of American industry, dissatisfaction with the delays and frustrations of
our patent system as now administered.
That within the century there have been significant
changes in the character of our industrial society and particularly in the
relation of the individual inventor to the progress of applied science and
useful arts is clear. It is a
commonplace remark that we have passed from a stable society to an adaptive one,
and nowhere is this more apparent than in the accelerated flow of technological
innovations. This increase in the
tempo of technological improvement and its effect upon the environment of the
patent system has correspondingly increased the importance of clear definition,
simple and prompt procedure, and surety of enforcement. But, unfortunately, in this period we
have suffered retrogression rather than progress. It would be easy to be pessimistic about
this, but I do not think we can afford to be. On the contrary, I think we now need to
treat this situation as one offering an opportunity for correction that could,
at this critical moment in our industrial life, quite significantly promote the
progress of science and useful arts.
The primary functions of the Patent Office are to afford
a publicly accessible general repository of industrial technology, and to act
promptly in granting patents for real inventions and in refusing patents for
anything less. It must be admitted
that the Patent Office is markedly deficient in performing these
functions.
That there should be available in the Patent Office a
greatly im-
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proved repository of industrial technology will be very
clear to anyone who takes the trouble to study the Patent Office classification
system and the equipment of the Patent Office library. Every Commissioner of Patents for years
has been aware of these deficiencies but has never yet had adequate
appropriations to correct them. The
time has now come, I believe, when decisive action in this direction must be
undertaken. Although the problem
lies within the Patent Office, it is closely related to a more general problem
of creating a publicly-accessible repository of the whole body of scientific
knowledge. This relation has been
recognized. In all recent
legislation dealing with governmental research and development there has been
evident a Congressional desire to make scientific and technological knowledge
readily available to the public. It
is a large problem. It warrants, I
believe, immediate and careful consideration by a well-chosen group of experts,
either under the auspices of the executive branch of government, or under the
joint auspices of the Executive and the Congress.
As to prompt issuance of patents by the Patent Office,
the situation, which has long been deteriorating, has now become one of critical
emergency. The backlog of the
Patent Office in the summer of 1946 was two and a half times as great as in 1942
when it was already much too great. There were over 100,000 applications and
amendments awaiting action by the examiners. The average delay in Patent Office
actions was more than a year, and the average time for passing an application
through the Office was six years. This cannot be permitted to continue very
much longer without a breakdown. It
calls for emergency action including increased appropriations. Its permanent correction requires more
than emergency action. Basic
reforms in Patent Office equipment and procedure are needed. Abandonment of the idea that the Patent
Office must be self-sustaining is called for. Better tools for the Patent Office
examiners are an inescapable necessity.
One significant legislative proposal that has met with
pretty general approval is the so-called “twenty-year” law that no patent shall
in any event have a term longer than seventeen years and all patents shall
expire at a date not more than twenty years from the date when the application
was filed, with limited discretion in the Commissioner of Patents to make
allowance of not more than two years from the filing date for unavoidable delays
not chargeable to the applicant. The enactment of this bill could be
expected to put pressure on the applicant and the Patent Office, and even on the
appropriation committees of the Congress, to speed up the issuance of
patents.
A more direct attack, aimed at a reduction of the
overall load on the Patent Office, has been proposed. It is well known that a great many patent
applications are filed, particularly by industrial corporations
but
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not only by them, in cases where the owner of the
innovation does not really want or expect to exercise a monopoly. These are the so-called “defensive”
patent applications. Unfortunately,
the applicant does not get that defensive protection unless the patent issues.
The result is that industry and the
Patent Office are burdened with prosecution of these applications to final
allowance, even though no one expects that the issued patent will, or intends
that it shall, become the basis of a monopoly. It has been proposed that this burden be
lifted from the Patent Office and from industry by authorizing the applicant to
abandon the application after a first action by the Patent Office and after
complying with requirements of the Commissioner as to form, and that an
application so abandoned be published with the same evidentiary effect now
attributed to the filing of a patent application which eventuates in an issued
patent. The proposal is worth very
careful consideration. It may be a
feasible way to reduce very substantially the load on the Patent
Office.
It is an anomaly in our patent system that appeals from
the decision of the Board of Appeals of the Patent Office may follow either one
of two courses, as the dissatisfied applicant may choose. He may either appeal to the Court of
Customs and Patent Appeals, on the record made in the Patent Office, or bring a
bill in equity in a federal district court. It has been suggested that the appeal to
the Court of Customs and Patent Appeals, an administrative procedure, should be
eliminated. Statistical studies and
informed opinion indicate that such change could be expected to result in a
significant reduction in the number of appeals. It would also contribute to that degree
of clarity and uniformity in the actions of the Patent Office examiners and the
Patent Office Board of Appeals which must be achieved to break the intolerable
bottleneck that the Board of Appeals now is.
In the field of judicial interpretation and
administration of the patent laws, considerable thought has been given to the
delays, uncertainties, and costliness of patent litigation and to the very
considerable gap that seems to exist between the Patent Office and the courts as
to what is patentable subject matter. The principal suggestion now current in
this field is the creation of a single court of patent appeals to take over,
subject to review by the Supreme Court on certiorari, the final jurisdiction in
patent litigation that is now divided among the ten Circuit Courts of Appeals
and the Court of Appeals of the
This suggestion has been under discussion for many
years. There are two schools of
thought. One regards the suggestion
as a wise and necessary thing to eliminate conflicts, uncertainties, and
multiplication of litigation on particular patents that now prevail. The other fears
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that separation of the judicial process in patent cases
from the general body of our federal system would tend to isolate the court from
those contacts with human and commercial problems which keep the judicial vision
broad, and would lead to technical and narrow attitudes and judgments
destructive of what should be a living and dynamic system.
Among many suggestions as to how these two points of
view might be reconciled, perhaps the most carefully considered one is that the
proposed single court of patent appeals should have not more than two permanent
judges, one of whom would be chief judge, and that the other judges should be
designated from time to time, for temporary service, by the Chief Justice of the
United States from the federal judiciary, the temporary judges being in the
majority in every case. In this way
it is hoped to secure the uniformity, finality, and reduction of litigation
sought for, and at the same time to retain the beneficent effects of the broader
judicial experience to which the whole body of federal judges is continuously
exposed.
There is another proposal that suggests a somewhat
different approach to many of the problems that grow out of our multiple courts
of appeal. That suggestion is that
the final judgment of a federal court holding a patent or claim thereof invalid
should have the effect to revoke the patent, subject to the right of its owner
to have it reissued after due examination in the Patent Office. This suggestion implies a sort of
continuing responsibility of the Patent Office, called into being, however, only
by a final judgment of a federal court. It seems worthy of careful consideration,
which should include, of course, its possible effect upon the already highly
developed law of reissues.
A great deal has been said and written about the
question whether, and to what extent, and how and why, the monopoly granted
under patents for inventions is in conflict with the antitrust laws. My belief is that there is no necessary
conflict between these two long-established concepts of American life; that, on
the contrary, if properly administered, they complement and support one another.
Yet it cannot be denied that
patents have been made use of in the building up of combinations and
conspiracies in restraint of trade which have violated the antitrust laws, and
that the patent privilege has sometimes been projected beyond its legitimate
scope to interfere with the free flow of commerce in unpatented articles and
materials.
There can hardly be any doubt that such abuse or misuse
of patent rights is increased by the current obesity of our system of issuing
patents and of interpreting and enforcing patent rights. The inducement and the opportunity for
such abuse might be quite different if we had a patent system in which patents
were promptly issued only for patentable inventions and could be adjudicated and
enforced quickly
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and at minimum expense. Suppose, for instance, that the average
patent application could be processed by the Patent Office in six months from
filing, that a suit for infringement could be brought to decision in a District
Court within six months from filing the complaint, and that another six months
would cover any appeal. The picture
would certainly change its whole aspect.
In the meantime, we can and we should segregate in our
thinking abuses which may arise out of defects in our system of issuing and
enforcing patents or out of defects in the patent grant itself from those
abuses which result from license agreements, contracts, and combinations entered
into by patent owners.
It is as true of owners of patents as it is true of the
owners of other property that they are forbidden by the antitrust laws to enter
into any contract, combination, or conspiracy in restraint of trade, or to
monopolize or attempt to monopolize any part of trade or commerce beyond that
limited monopoly secured to them by existing patents. Within this area of combination
encroaching upon the territory forbidden by the antitrust laws, the patent laws
afford no protection. Such conduct
can be prevented by enforcement of the antitrust laws, and calls for no change
either in the antitrust laws or in the patent law.
Even though it may thus be assumed that the antitrust
laws afford adequate safeguards against bilateral contracts, combinations, or
conspiracies in restraint of trade where patents are involved, yet the fact
remains that a patent monopoly may give the owner a unilateral power, either
without any specific contract or by means of patent licenses which are in
substantial effect unilateral, to interfere with the free flow of commerce in
things which lie outside the patent monopoly.
Thus, throughout the history of the patent law,
questions have arisen as to whether and to what extent the patent owner may use
his monopoly to restrict a licensee or purchaser in the manufacture, use, or
sale of unpatented things. The
result has been to build up judicial interpretation by a considerable body of
law within this field. Particularly
in recent years the Supreme Court has developed a line of cases condemning
unilateral uses of patent monopolies to restrain or interfere with the free flow
of commerce in unpatented articles, materials, or industrial practices; and as
part of this more recent development the Court has evolved the judge-made rule
that a patentee who has so abused or misused his monopolistic rights is debarred
from exercising those rights until the improper use has been
ended.
This case-by-case judicial evolution of restrictions
upon the activities of patent owners has been contemporaneous with growing
concern about our patent system from two opposed points of view. At the one
extreme are those who conclude that free competition calls for abolition
of
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the patent laws, and at the other are those who regard
these restrictions with terrified alarm as destructive encroachments upon the
patent monopoly. Between these
extremes, it would, I suggest, be possible for mature minds to find agreement on
at least two principles: (1) that it is desirable, and consonant with the mores
of the nation, to foster competition in the production of and among patentable
inventions, and (2) that any restriction upon that exclusive right to make, use,
and sell which characterizes the patent monopoly reduces the incentive of the
grant and so tends to discourage disclosure and reduction to practice and to
encourage secret trade practices in preference to disclosure, so that all
excessive or unnecessary restrictions are dangerous in
themselves.
It is clear that dividing lines in this field cannot
accurately be drawn merely on legal considerations. Their location depends rather on the
answers to practical economic questions in our complex and vigorous industrial
structure. Unfortunately, there is
a marked deficiency of real knowledge of the factors that determine the answers
to these practical questions. The
tendency has been rather to resort to emotionally inspired guesses, or even
dogmatic assertions, both in and out of court.
Out of this situation arises a very serious question
whether we should continue to rely upon the gradual, step-by-step development of
these lines of demarcation by judicial process or make a carefully studied
legislative attempt to define more explicitly and with more assurance of
stability those activities of patent owners in the borderland of dispute that
are acceptable and those that are forbidden. It would, of course, be possible to
conduct this sort of rule making partly by legislative action and partly by a
duly authorized and instructed administrative tribunal. The Clayton Act and the Federal Trade
Commission Act are suggestive precedents.
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