Does law work to deliver economic policy?
The case of patent monopolies
Seminar for the Socio-Legal Research Centre
Griffith University
17 August 2009
Hazel V J Moir
hazel.moir@anu.edu.au
©
commercial rights reserved
Outline of presentation
 Why patent policy matters
 Inventiveness
 Role
 Quantum
 Biases and dysfunctional rules
 Parallels to other economic policy
delivered through law
Why do patents matter?
 Economic health of firms
 Social well-being (employment; resources etc.)
 Very strong form of monopoly
– prevents independent invention
 Repute of legal system
 Patent law decisions seem stunningly bad
 Fairness in trade between nations
 Our path to economic growth denied to Laos,
Central African Republic, etc.
The social contract
Limited Monopoly
in exchange for
Increased Innovation
Body of Liberties, adopted by the
General Court of Massachusetts in 1641
"There shall be no monopolies
granted or allowed among us,
but of such new inventions
as are profitable to the country,
and that for a short time"
(Warshofsky 1994: 32, emphasis added)
Why is inventiveness critical?
 Main gate-keeping function
 Determines balance in patent system
 Costs of monopoly
 Benefits from induced invention
 Benefits > costs, nation better off
 Costs > benefits, nation worse off
 Inventiveness central to the balance
How inventive are patents?
 Large US literature criticising very low
standard of inventiveness
 Smaller Australian literature
(principally Lawson)
 Anecdote not systematic evidence
 Single study of 50 “best” software patents
using USPTO criteria
The inventiveness threshold
uninventive
15%
5%
highly inventive
Assessing inventiveness
 Scrutinised claims to identify inventive core
 translated into english
 Compared to knowledge, products and
services available at time
 Subjective
 Not always documentable
 Full details available through ssrn
 Yardstick:
contribution to knowledge or know-how
Dataset used
 Australian business method patents
(IPC6: G06/17/60; IPC7 G06Q, excl 20/00)
 Grants from filings 2003 - 2006
 Accepted (or sealed) by 30 June 2007
 94 cases reduced to 72
 21 not business methods
(18 from 1 company)
 1 Patent of Addition
Findings
 No contributions to knowledge or
know-how
 A few possible new ideas
 But no idea/artefact distinction
 Patent rules allow monopoly grant for
a scintilla of difference
Monopoly in exchange for
INVENTIVENESS
Monopoly in exchange for
INVENTIVENESS
DIFFERENCE
Generalisability
 TRIPS requires no discrimination by
field of technology
 Low inventiveness standards driven
by chemicals?
 Business methods and software:
existing knowledge often not
documented
Examination history:
rejections and amendments
Claims amendment frequency
1
2
3+
no
evidence
1
9
10
6
7
32
2
2
5
3
--
10
4
--
--
1
--
1
7
2
3
14
26
18
18
14
22
72*
# examiner
rejections
Not rejected
Total
*
Total
Rejection status not known for 3 cases (1 modified examination); 2 of these amended
Examination history:
rejections and amendments
Claims amendment frequency
1
2
3+
no
evidence
1
9
10
6
7
32
2
2
5
3
--
10
4
--
--
1
--
1
7
2
3
14
26
18
18
14
22
70*
# examiner
rejections
Not rejected
Total
*
Rejection status not known for 2 cases (1 modified examination); neither amended
Total
Examination history:
rejections and amendments
Claims amendment frequency
1
2
3+
no
evidence
1
9
10
6
7
32
2
2
5
3
--
10
4
--
--
1
--
1
2
3
14
11
18
14
23
70*
# examiner
rejections
Not rejected
Total
*
7
18
Rejection status not known for 2 cases (1 modified examination); neither amended
Total
Amendment: “A Security System”
 reduce credit card fraud by sending realtime alerts. Combines known processes of
 alerts customers to anomalous CC charges
and
 sends text messages
 not inventive – CitiAlert system
 amended to include feature of
customer defining the anomalous events
AU2003201332, priority 27 October 2000, Australian owner Markets-Alert Pty Ltd
Amendment: “Medical data warning
notifying system and method”
 Computerised expert medical system
sending data from home to doctor
 Rejected twice, each time amended
 Scope reduced from all medical data sent
from home to peritoneal dialysis
 Limited to “server giving a warning message,
then reverting to stand-by mode”
 Last variation unrelated to core of “invention”
AU2003281184, priority 15 July 2002, Japanese owner JMS Co., Ltd.
Combination: "Payment card …"
 Combines credit and store cards
 Rejected: 4 US patents
 Amended. Attorney arguments about existing
knowledge:
 allow for multiple accounts not a single account
 no specific combination of store and credit card
 specific details were not ‘taught’ :




upgrade process to converticurrent store cards to dual cards;
migration of data;
in-store issuance of a card; and
activation dependent on customer request.
AU2003262344, priority 5 Sept 2003, US company, General Electric Capital Co.
Computerisation: asset valuation
 Computerises the steps involved in
valuing a house
 Rejected twice
 Patent Attorney argument:
 yes, valuers use computers
 but they often cut corners
 this “structured approach” overcomes
these problems
AU2005203023, priority 12 July 2005, Australian owner EVR Services Pty Ltd
Trivial difference:
Westpac’s “integrated package”
 Combines credit card, loan account and any other
account


combined credit limit for loan and CC
rewards for moving money between accounts

unique feature is single credit limit

attorney argument about trivial differences / semantics
(comparing with Commonwealth Bank Viridian package)
 Rejected (novelty and inventiveness) and amended
 Rejected (inventiveness)

a “benefit” is not a “reward currency” and there are no “reward
program rules”


financial benefits in Viridian package are not rewards
Viridian allows linked CCs, but not required
AU2005204292, priority 26 Aug 2005, Australian owner Westpac Banking Corporation
Setting up a ‘problem’:
Queensland owner: EPIP Pty Ltd
“Means to facilitate delivery of electronic
documents into a postal network”
 Nice idea – print near delivery point
 Sets up ‘problems’ based on PCT application
that has never been granted (WO99/21330)
 ‘Solves’ problems in WO99/21330
 No examiner objections
 ? Defeated by detail in 80 claims (3 repeats)
 Pending in USA; restricted; 2 rejections to date.
AU2003254402, priority date 4 October 2002
No benefit from minor “inventions”
"The production of the knowledge of
how to do in a somewhat different way
what we have already learned to do in a
satisfactory way would hardly be given
highest priority in a rational allocation of
resources"
(Machlup 1958: 51)
Legal standard of inventiveness
 height of inventive step invisible
 massive bias towards applicant




reverse onus of proof
‘combinations’ doctrine
narrow definitions of ‘technology’ fields
analogous use doctrine gone walkabout?
 word-chopping parallels tax evasion?
Legal delivery of economic policy
Tax / Competition / Patents
Small number of large winners
Costs hidden / dispersed
Large incentives to game system
 rule complexity to hide behaviour
Concentrated ownership
Australian patents granted 1990-2001, company patenters only
Australian patents
1400
1200
1000
800
600
400
200
0
1
101
201
301
401
501
601
701
801
901
Number of companies
Note: Excludes 3 companies with most patents, and all with 18 or fewer patents (est at 5,000 +)
Innovating Australian firms
 18% new to Australia/world
 3.8% use patents
 most innovating Australian firms
do not own patents
 at best, 20% most innovative own patents
 CIS1: lead-time & complexity most important
 CIS3: 36% use lead-time; 11-17% patents
(ABS, 2005 – National Innovation Survey / Eurostat 2004)
Who Owns US and Australian Patents?
US patents
Australian patents
In share order (declining): USA; Japan; Australia; Germany; UK; France; Canada; next 10; ROW.
All patents granted from filings in 1990-2001.
Who pays?
 Almost no data
 Only innovative companies sued for
infringement
 Known losers from Australian patent
system:
 Jiejing Pty Ltd (1994) (CCOM case)
 Catuity (2001) (Welcome-Real Time case)
 Sigma Pharmaceuticals (2009)
 IPRIA study of patent judgements does not
include cost data
Propaganda and myth
“Unless kept secret, inventions and
ideas can often be cheaply copied or
imitated by competitors
… impossible for the investor to recoup
the cost of the investment …
Market incentives for investment in
invention would consequently be
deficient.”
(Ergas Report, 2000: 136)
Let’s ignore the evidence
“Apart from patents there are other mechanisms for
commercial appropriation of the benefits of innovation.
An empirical survey by Levin et al found that the
following methods were used by firms to protect their
competitive advantage from innovations: patents;
secrecy; lead time; moving quickly down the learning
curve; and distinctive sales and service to customers.”
…
“The main alternative to the patent system is trade
secrets.”
(Ergas Report, 2000: 141)
Do know that case for patents
never empirically demonstrated
Competition Principles Agreement
5.(1) The guiding principle is that legislation (…)
should not restrict competition unless it can be
demonstrated that:
(a)
the benefits of the restriction to the
community as a whole outweigh
the costs;”
NO SUCH EVIDENCE HAS EVER BEEN
PRODUCED
http://www.ncc.gov.au/pdf/CPAam-001.pdf
Incentives to “game” the system
 Highly skewed returns
 “winner-takes-all” markets
 Hidden by successful propaganda/
framing
 Professional intermediaries group
 Choice in/out of court settlements
 Rule complexity to exclude outsiders
Can patent policy ever be reformed?
 lessons from tax policy reform?
 is lip service to competition strong
enough to drive reform?
 how generate the pressure to offset
the interest groups?
 how offset the decades of simplistic
propaganda?
Lessons from tax policy reform
 State objectives clearly in statute
 Have broad anti-avoidance rules
 Penalties for undermining objectives
 Applicant
 Patent attorney
 Fine bad behaviour
Lessons from trade practices
 Move from industry to competition
portfolio
 Onus of proof to fall on monopolyseeker
 Must provide clear evidence of benefit
to nation
 Beyond reasonable doubt is appropriate
Can law successfully deliver nonlegal policies?
 Rules-based approaches suitable?
 Argument by analogy
 Non-representation of the public
interest
 Imbalance in representation?
Monopolies for legal semantics
"As it reaches the patent office the
application combines technological and
legal invention, and the latter, if of
superior quality, may do much to offset
deficiencies in the former."
(Edwards, 1949: 218)
Drafting complexity
Claim 1: An on line interactive advertising
system which enables viewing of advertising
by a person engaged in an activity in which
the person receives electronic data and/or
images and at the same time and at the
option of the person views said advertising;
the system comprising;
translation:
someone at a computer (or similar) receives
electronic information and chooses whether to
look at advertising too
Drafting complexity
a consumer station which receives electronic data or images; an
information provider which delivers said electronic data or images to
said consumer station, a host having a website with which said
consumer station communicates and interacts, an advertising provider
in communication with said host; wherein the advertising provider
communicates via said host with said consumer station via the internet
upon election by said consumer station responsive to an invitation from
said host; wherein, without requiring software downloaded and
installed into the consumer station, the consumer receives said
advertising material by responding to a random invitation from the
host, which appears at the consumer station wherein, when said
consumer elects to view advertising from said advertising provider via
said host, the consumer receives rewards, credits or benefits
commensurate with the length of time advertising is viewed.
translation: the consumer is using a computer, connected to the
internet, and, in response to an invitation, can choose to enter a
website with advertising without having to download any software; the
invitation is random and if the consumer chooses to look at the ads
s/he gets rewards related to how long s/he looks at the ads.
Defining inventiveness
 A continuum – where draw the line?
 Clear benefit to society





New knowledge or know-how
Lumpy large investment
Science or technology field
Genuinely easy to copy
Applicant to prove inventiveness
Statute of Monopolies 1623, S. 6:
the inventions exception
“the sole working or making of any manner of
new manufactures within this Realm, to the true
and first inventor and inventors of such
manufactures, which others at the time of making
such letters patent and grants shall not use,
so as also:
 they be not contrary to the law
 or mischievous to the State, by raising prices of
commodities at home or hurt of trade,
 or generally inconvenient”
Australian Patents Act 1990
 An invention defined as “any manner
of new manufacture” referencing S6
 Must be novel
 Must be inventive
 Plus other criteria
My recs to ACIP








Clear statement of goal
Limit to technologies (ie not science/maths)
Raise inventive step substantially
Require clarity (use prosecution version for all
subsequent)
Stop importing case law
Overturn bad judicial decisions
Regular independent evaluation
Send to competition portfolio
 Presumptions to grant
 Limitations to body of knowledge
 No obligation to provide information
Semantic games
 Swiss medical claims
Markqush claims
 Redefinition of software as not
software because operates in a
computer
Patent volume “exploding”
Total US patents granted, 1965 - 2000
US grants:
200,000
• doubled
1980-1995
180,000
160,000
• up by 247%
1965-2000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1965
1970
1975
1980
1985
1990
1995
2000
year of application
Patent volume “exploding”
AU patent grants
AU grants:
•up by 30%
1990-2000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
•up by 46%
1991-1999
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Types of inventiveness allowed
 Use of computers or networks
 with well-known methods
 Combining well-known elements
 the more elements the easier to claim
 Trivial variations on existing methods
 e.g. application of well-known techniques in new
“fields” (audit, benchmarking)
 No embodiment
 no distinction between “idea” and artefact
Type I and type II errors
uninventive
15%
5%
highly inventive
Summary
 practical application of legal
definitions gives absurd outcomes
 act of application, and persistence,
usually sufficient to obtain monopoly
 negative impact falls on inventors
Why is the patent system totally
impervious to reform?
 Small # winners / distributed losers
 Propaganda and myth
 no-one will invent without a monopoly
 entitlement to “ownership”
 importance of property rights in
economic system
 Lack of public interest
Innovating Australian firms
 most innovating Australian firms
do not own patents
 at best, 20% of the firms at the
innovation forefront own patents
(ABS, 2005 – National Innovation Survey)
A “right” to own ideas?

French General Assembly, 1791
"It happens that those who started using the word property in
connection with inventions had a very definite purpose in mind:
they wanted to substitute a word with a respectable connotation,
"property," for a word that had an unpleasant ring, "privilege." This
was a very deliberate choice on the part of politicians working for
the adoption of patent law in the French Consitutional Assembly.
De Bouffer, reporting the bill to the Assembly, knew that "the spirit
of the time was so much for liberty and equality, and against
privileges and monopolies of any sort" that there was no hope of
saving the institution of patent privileges except under an
acceptable theory. Thus, according to Rentzsch, de Bouffer and his
friends in deliberate insincerity "construed the artificial theory of
the property rights of the inventor" as part of the rights of man."
(Machlup and Penrose, 1950: 16)
Simultaneous invention
 Myths of the “first” inventor
 knowledge cumulates so where do you
start counting?
 evidence on simultaneous invention
“being sought in many minds, it is not
wonderful that it was developed in
different and independent forms"
(US Supreme Court, 1878)
Subject matter extensions







improvements
processes
chemical compounds
“life” forms
software
methods of medical treatment
business methods
Key characteristics of dataset




Speed: much faster, 30 “expedited”
Australian: 54% (compared to 8%)
Individuals:18% (compared to 8%)
Subject matter:
finance
trade & logistics
business performance
e-commerce
marketing
betting
14
14
9
8
6
6
14
28
37
45
51
57
“Inventiveness” types
Type of “inventiveness”
Number of cases
Known methods electrified
18
Known method applied in new field
10
Combinations of known methods
16
Trivial variations
18
Simple logic or pure idea
6
Possible contribution to knowledge;
possibly new ideas
4
The “best” of the bunch
 Possible knowledge contributions
 BP7:
Key inventive feature in amendment
 Possibly inventive ideas
 E4:
 E2:
barcodes  URLs (rejected NO)
Key inventive element in subsidiary claim
(no AU objections)
 T&L14:
biometrics added to monitoring database
(granted UK) (no AU objections)
Possible new idea
(spam blocker)
 expedited – i.e. other developing similar products
 main claim amended “to clarify the
invention over the cited prior art”
 not a “challenge/response” system
 independent market analysis:
it is a “challenge / response” system
– but others do not block at source
 this potentially novel idea is in subsidiary claim 11 and
optional in marketed product
 lack of focus on core of “invention”
priority date: September 2003
Electronic collaboration
1. claims amended
 plus context of terminal use drives
information displayed
2. detailed semantic arguments used
 keywords do not fully describe context
 grouped information not same as document
lists
priority date: March 2003
Known techniques:
with computers or networks






real estate
a phone conversation
sales contracts
performance assessment
simple data systems
set up problems to overcome
Known techniques in new fields





1000 year old trading method
classification systems
benchmarking
audit
expert systems
Combinations
 reverse proof problem
 T&L4; M2
 very large number elements
 M5 (115 claims); T&L 2
 no technology
 working for pocket-money
How trivial is trivial?
 Small general amendments
 Gateway MS3;
 Small limiting amendments
 e3
 Minor variations in word meaning
 BP8
 No excuse
 E8 (not even novel); T&L 14
Is simple logic obvious?
 Betting based on probability theory
 by definition pure logic
 Small limiting amendments
 e3
 Minor variations in word meaning
 BP8
 No excuse
 E8 (not even novel); T&L 14
Remote ID card production
 new feature added in a new claim
 checking the identity of the buyer’s
computer
 rejected as “just a ‘cookie’”
 claims further amended
priority date: April 2004
Trivial difference:
“Mobile Report Capture”
 Prepares text/image reports about properties
using handheld mobile device
 Pre-formatted template
 Date and time stamp
 After certain point amendment prohibited
 Not inventive – website & US patent
 Existing knowledge different:
 Data collected remotely, report done on server;
 No date & time stamping;
 Images optional
AU2003246060, priority 12 Sept 2003 , Australian owner Valorem Systems Pty. Ltd
On-line employment register
Amendments
1. + public searching facility
2. + search by distance (defined by user)
Arguments
1. use of statistical word-association technique
(used since 1961)
2. narrow design features
(e.g. listing not ranking of candidates)
priority date: November 2005
Database system
 four novelty/inventiveness rejections
simple design features in known system
 expedition request (potential “infringement”)
 amendments more design features
added, then addition of an interface
 finally limited by the interface feature
priority date: November 2005
An unimprovement?
 rejected on technical equivalence
grounds
 accepted within a week of argument
that the differences were more than this
priority date: May 2004
An unimprovement?
“… the step of asking … specific questions … is a
technical equivalent to the practice … of assessing
a potential seller's spare parts surplus by directly
examining [their] … databases.”
“[no, it] …provides a more refined understanding
of whether a particular spare part is excess to …
foreseeable needs … than would be achieved by
simply examining the potential seller's …
databases”
priority date: May 2004