Innovation Policy in the Patent System: An Administrative Approach

1. Innovation Policy in the Patent System: An Administrative Approach Arti K. Rai Duke Law School

2. Innovation Policy • Economic diversity of invention  one component of innovation policy • “Neutral standards” flexibly address economic diversity of invention over time (some possibility of rent-seeking, but diminished) • Patent statute already has some neutral standards • Question of what institution(s) should use neutral standards (and develop others)

3. Invention or Industry • Software vs. pharma: # of patents; importance of patents • End product drug not “complex”; few patents (but see “reach-through” claims in Ariad v. Eli Lilly) • Modern pharma research  complex; many relevant patents (not as many as pure software but pharma hardly likes all patents)

4. Why Has Impact (Number) Been Different? • Public domain” strategy by NIH • Pharma’s PD strategy (SNP Consortium; GAIN project; Toxicogenomics consortium) • Research infringement often not caught • Pharma has secured favorable policy (PTO utility, WD guidelines) • Saying patents are (or are not) important to “industry” is too simple

5. An Administrative Approach • Does not (necessarily) mean that agency is institution that makes definitive policy • Incorporates insights of administrative law and theory (theories of institutional competence) into how patent systemmakes policy • Patent policy is one type of regulatory policy (let’s not re-invent the wheel)

6. Case Study: In re Fisher and PTO Utility Guidelines • PTO relies on utility guidelines to deny patents on gene fragments of unknown function • Motivating force behind guidelines  policy (“anti-commons”) • Policy is best way to distinguish ESTs from other “research tools” (e.g. microscope)

7. CAFC Decision • Affirms PTO; rejects policy • “Public policy considerations . . . are more appropriately directed to Congress as the legislative branch of government” • Should courts make large-scale economic policy? (most “neutral standards” currently in statute tightly tethered to scientific fact)

8. Reframing Policy • Under administrative law/theory, “policy” well-accepted • What agencies do when language of statute is extremely vague (e.g. “utility”) • “Hard look review” by court addresses concerns re: agency capture • But does not require courts to make large-scale economic policy in first instance • Admin law infiltrating antitrust, tax (other areas of “exceptionalism”); Dickinson v. Zurko

9. Objection 1: Will Chevron Be Brought In? • Policy shades into legal interpretation • PTO subject to capture; does not have economic expertise • Mead: Chevron deference requires substantive rulemaking authority or formal adjudication • No (current) PTO proceedings subject to Chevron

10. Chevron for future reforms? • Substantive rulemaking authority in recent Senate proposal • May be good idea, but need to proceed cautiously (“Notice and comment rulemaking is to public participation as Japanese Kabuki theater is to human passions – a highly stylized process for displaying in a formal way the essence of something which in real life takes place in other venues”) • Chevron for results of opposition proceedings (but that’s good) • Chevron for “gold plated” patents?

11. Objection 2: Does This Matter? • Fisher reached right result (who cares about whether CAFC explicitly recognizes policy) • In re Deuel problem (Judge Rader: “[T]his court has deprived the Patent Office of the obviousness requirement”) • “Economic nonobviousness?” CAFC trying to protect patents on therapeutic genes? (Boyd, 1997) • Only transparent policy analysis can distinguish between therapeutic genes, genes that are “research tools”

12. Objection 3: What About Policy Concerns At Infringement Stage? • Here courts are better suited • Ex post, can tailor relief in specific circumstances faced by two parties • Injunctive relief provision allows for policy considerations that may differ by type of invention

13. Kennedy concurrence “Trial courts should bear in mind that . . . [a]n industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees (cite to FTC report) For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.”

14. Reference • Stuart M. Benjamin and Arti K. Rai, Who’s Afraid of the APA: What the Patent System Can Learn from Administrative Law, 95 Georgetown Law Journal __ (forthcoming 2007)