10.1.1 Evolution of the patent system
10.1.1.1 Federal governmental and judicial structure
Several distinctive and key features of modern U.S. patent law and case management grow out of the colonial and formative period of U.S. history, including national or federal (as opposed to state) protection for patents, jurisdiction over nearly all legal disputes (including patent cases) in general (nonspecialized) courts, the common-law character of U.S. courts, the availability of jury trials for patent cases and the combination of patent validity and enforcement adjudication in federal courts.
The U.S. judiciary emerged from English law and practices, including the common-law legal tradition. The U.S. patent system grew out of the early English Statute of Monopolies (1623), which prohibited the Crown from arbitrarily issuing letters patent “to court favorites in goods or businesses” while authorizing grants of exclusive rights to the “working or making of any manner of new Manufacture.”1 State patents were granted in most of the original 13 American colonies. Even after the Revolution, under the Articles of Confederation and prior to ratification of the U.S. Constitution, the individual states continued to issue patents.
Conflicts began to arise among the states over steamboat patents, which were issued to two different inventors during this period. With this problem (among others) in mind, the Constitutional Convention of 1789 resolved to create a national patent system rooted in the U.S. Constitution itself. Thus, the provision of Article I, Section 8, Clause 8 authorizes Congress “to promote the Progress of […] useful Arts, by securing for limited Times to […] Inventors the exclusive Right to their […] Discoveries.”
The U.S. Constitution separated federal powers among the legislature (Article I), the executive (Article II), and the judiciary (Article III). It also divided power between the federal government and states through several compromises. Federalists advocated a substantial national government and a strong lower federal judiciary. Anti-Federalists sought to weaken federal power, including judicial authority, however. The latter advocated the passage of a Bill of Rights to protect citizens against the tyranny of national government and preferred judicial power to reside with the states. The clash of perspectives played out in the First Congress in 1789, resulting in a grand compromise that produced the Bill of Rights and a limited system of lower federal courts tied to state boundaries. The Bill of Rights includes the right to a jury trial in the Seventh Amendment to the U.S. Constitution.
10.1.1.2 U.S. patent system history
The first Patent Act, passed in 1790, set forth terse general standards for protection, duration, rights, and remedies, but provided few details. This original institutional structure of the U.S. patent system was, however, short-lived for several reasons. It called upon the Secretary of State (Thomas Jefferson), the Secretary for the Department of War, and the Attorney General to examine patents, which, in light of these officers’ other responsibilities, proved untenable. Second, inventors were displeased with the high and vague threshold for protection: that inventions be deemed “sufficiently useful and important.”
As a result, in 1793, Congress removed the requirement that inventions be “sufficiently useful and important” and replaced the examination process with a registration system, leaving the evaluation of patentability entirely to the courts. The Patent Act of 1793 retained a terse standard for patentability: an inventor could patent “any new and useful art, machine, manufacture or composition of matter, or any new and useful improvement on any art, machine, manufacture or composition of matter, not known or used before the application.”2 The inventor was still required to provide a written description of the invention and the manner of use:
in such full, clear and exact terms, as to distinguish the same from all other things before known, and to enable any person skilled in the art or science, of which it is a branch, or with which it is most nearly connected, to make, compound, and use the same.3
The courts fleshed out this lean statute. Justice Joseph Story, who would emerge as the leading patent jurist of the first half of the nineteenth century, immediately came to see the problems with vague and conclusory descriptions of inventions. Sitting on his first patent case (and the first case to focus on the question of distinguishing a patented invention from the prior art), he noted the “intrinsic difficulty […] to ascertain […] the exact boundaries between what was known and used before, and what [was] new.”4 Consequently, patent drafters began to include formal patent claims at the end of their applications for the purpose of avoiding invalidation on the ground of defective specification. The early judicial focus on patent clarity was directed to the question of patent validity – whether the specification adequately described the invention “in such full, clear and exact terms, as to distinguish the same from all other things before known” – as opposed to patent infringement.5
The lack of an examination system eroded faith in the patent system due to the proliferation of “unrestrained and promiscuous grants of patent privileges.”6 The Senate report accompanying the Patent Act of 1836 lamented that “[a] considerable portion of all the patents granted are worthless and void, as conflicting with, and infringing upon one another,” the country had become “flooded with patent monopolies, embarrassing to bona fide patentees, whose rights are thus invaded on all sides,” and that the “interference and collision of patents and privileges” had produced ruinous vexatious litigation.7
In response, the Patent Act of 1836 instituted examination in a newly constituted Patent Office and introduced other procedural and institutional reforms.8 In the decades following the 1836 Act, the Supreme Court and lower federal courts established and explicated many of the key patent law doctrines: nonobviousness,9 limitations on patentable subject matter,10 written description,11 and the doctrine of equivalents.12
Of particular relevance to patent case management, the Patent Act of 1836 encouraged claiming conventions reflected in jurisprudence by requiring applicants to “particularly specify and point out the part, improvement, or combination, which he claims as his own invention or discovery.”13 The form of patent claiming that emerged during this period – which came to be known as “central” claiming14 – gradually gave way to the “peripheral” format. Peripheral claims use linguistic formulations and claim restrictions, rather than references to specific improvements, to delineate the metes and bounds of the claimed invention.
Claims were not, however, used during this era as the basis for assessing patent infringement. The early infringement standard measured the accused device against the entirety of the patent, sometimes with reference to the patentee’s actual device, using a substantial identity test: “whether that identity is described by the terms, ‘same principle,’ same modus operandi, or any other.”15 Infringement focused on the operative principle of the invention as set forth in the specification and the patentee’s device.
As claims became more significant parts of patents and became standardized, courts increasingly looked to the claim language in assessing infringement. Judges took on the task of interpreting claim language and “the custom developed of having the judge include in his charge to the jury a detailed interpretation of the patent coupled with instructions that his interpretation was binding on the jury.”16
The Patent Act of 1870 formalized the use of patent claims by requiring applicants to “particularly point out and distinctly claim the part, improvement, or combination which he claims as his invention or discovery.”17 Over the next several decades, peripheral claims became the norm in American patent practice. The patent claim quickly emerged as the defining feature of the patent. In his seminal 1890 treatise, William C. Robinson characterized it as “the office of the Claim to define the limits of that exclusive use which is secured to the inventor by the patent”; “[t]he Claim is thus the life of the patent so far as the rights of the inventor are concerned.”18 This shift brought claim construction to a prominent role in patent litigation.
The modern Patent Act, passed in 1952, consolidated patent laws and codified the judge-made nonobviousness requirement in Title 35 of the U.S. Code. It was not until 1982 that Congress established the U.S. Court of Appeals for the Federal Circuit (Federal Circuit), with exclusive jurisdiction over all patent appeals from the United States Patent and Trademark Office (USPTO) and federal district courts. And, although Congress established ex parte patent reexamination in 1980 and inter partes reexamination in 1999 at the USPTO, it was not until the passage of the America Invents Act (AIA) of 201119 that administrative patent review became a robust feature of the American patent system.
10.1.1.3 Growing concerns with economic power
By the late nineteenth century, the patent system was a well-accepted feature of the American economic landscape. Key patents on the light bulb, the telephone system, the basic design of the automobile, and the first airplanes symbolized the technical virtuosity and dynamism of the age. The last two decades of the nineteenth century, however, also saw periods of economic depression and increasing concern over the formation of corporate trusts in key transportation, manufacturing, and mining industries, resulting in the unprecedented concentration of economic power. Consequently, courts became more skeptical of patent protection.20 These concerns contributed to judicial development of the exhaustion doctrine.
Congress passed the Sherman Antitrust Act of 1890,21 prohibiting monopolization and contracts in restraint of trade. Although the antitrust law did not override patent protection, it reflected a shift in attitudes toward monopoly power. Courts drew upon common-law restraints on property and contractual rights as well as emerging antitrust principles to curtail the scope of patent protection.22
Following the stock market crash in 1929 and during the nadir of the Great Depression, Franklin Delano Roosevelt rode a platform of economic justice and combating corporate abuse to the White House in the 1932 presidential election. Roosevelt’s administration brought in policymakers who distrusted corporate power and favored economic regulation and worker protections. In 1939, President Roosevelt appointed William O. Douglas, an idealistic skeptic of corporate power, to the Supreme Court. Justice Douglas’s appointment reinforced the shifting balance of economic regulation and antitrust enforcement. In a series of decisions in the 1940s, Justice Douglas raised the judge-made standard of nonobviousness to require that patentable inventions reflect “a flash of creative genius.”23 He also authored a controversial decision questioning the eligibility of combinations of naturally occurring substances.24 By the end of that decade, Justice Robert Jackson quipped that the Supreme Court’s passion for striking down patents might lead observers to conclude that “the only patent that is valid is one which this Court has not been able to get its hands on.”25
10.1.1.4 Patent codification, revitalization, and compromise: the 1952 Patent Act
The tightening of patent law standards by the Supreme Court produced a concerted effort by the patent bar to loosen the “flash of genius” standard. This coincided with the legislative program of codifying U.S. laws into the U.S. Code. The 1952 Patent Act consolidated prior patent laws into the modern regime. For the first time, the Patent Act set forth the nonobviousness requirement using the more modest bar recognized by the courts prior to the 1940s: “[T]he manner in which the invention was made,” whether “from long toil and experimentation or from a flash of genius,” is immaterial to its patentability.26 Although the Patent Act of 1952 simplified and fleshed out the patent law, it left many important doctrines free-floating in jurisprudence. Even after this codification, the formal patent law still contained no mention of limitations on patent eligibility (or patentable subject matter), the experimental use exception to the statutory bar, the doctrine of equivalents, the reverse doctrine of equivalents, the experimental use defense, the exhaustion doctrine, the patent misuse doctrine, the inequitable conduct doctrine, or equitable estoppel.
10.1.1.5 The U.S. Court of Appeals for the Federal Circuit
Concerns arose in the 1960s and 1970s about overloaded federal court dockets and patent forum shopping due to varying patent law standards among the regional circuit courts of appeals. In response to these concerns, Congress passed the Federal Courts Improvement Act in 1982,27 establishing the Federal Circuit and conferring on this court exclusive jurisdiction over patent appeals. While the Federal Circuit was formed to harmonize patent law and eliminate forum shopping across regional appellate circuits, it has also strengthened the patent law in several ways.
10.1.1.6 The Hatch-Waxman Drug Price Competition and Patent Term Restoration Act of 1984
In 1984, Congress amended the Federal Food, Drug, and Cosmetic Act to encourage the release of low-cost generic versions of drugs on the market without undermining incentives to develop pioneering research or the development of new drugs. The law incentivized generic drug manufacturers to file Abbreviated New Drug Applications (ANDAs) by permitting the ANDA filer to rely on the pioneering drug company’s clinical data and granting the generic filer a 180-day market exclusivity period following the ANDA’s approval by the Food and Drug Administration (FDA) if it could successfully challenge the patent(s) on the pioneering company’s drug. This legislation created a specialized form of patent litigation, which we summarize in Section 10.13.2.1.
10.1.1.7 The Digital Age: the bursting of the dot-com bubble, Supreme Court intervention, and the America Invents Act
Patent litigation ramped up in the United States during 1980s as the economy shifted increasingly from tangible to intangible assets, digital technology industries took off, and the value of patent assets grew. The increased stakes attracted more traditional litigators, who preferred jury trials to bench trials. Software patenting took off in the 1990s as companies sought to build defensive portfolios and attract venture capital. Reversing a longstanding view that business methods were not patentable, the Federal Circuit held in State Street Bank & Trust Co. v. Signature Financial Group, Inc.28 that any method that produced a “useful, concrete and tangible result” is eligible for patent protection, including the transformation of data by a machine – in that case, a method for managing a financial portfolio.
This decision contributed to a growing rate of software patenting. Patents drove venture capital investing and the run-up of initial public offering valuations for internet-related start-ups, which peaked in early 2000.
The bursting of the dot-com bubble in March 2000 resulted in a massive sell-off, causing valuations to plummet, financing to dry up, and many start-ups to be driven into bankruptcy. The resulting auctioning of these start-up patents attracted a new breed of patent-assertion entities that used the often-vague software patents to extract settlements from established technology companies. In addition, Congress heard calls for addressing the large and growing backlog of patent applications and promoting international harmonization.
As Congress struggled to find common ground and balance divergent industry concerns, the Supreme Court and the Federal Circuit addressed much of the reform agenda through statutory interpretation and crafting of judicially-created doctrines. The Supreme Court tightened the standard for obtaining injunctive relief29 and the nonobviousness requirement.30 The Federal Circuit raised the bar for proving a reasonable royalty.31
Only after the courts had resolved the most controversial issues dividing interest groups was there sufficient consensus for Congress to pass the AIA in September 2011. The AIA contained two principal reforms: (1) it shifted the U.S. patent system to a modified first-to-file system (retaining a grace period for inventor disclosure), and (2) it established a far more robust system of administrative patent review. The latter reform dramatically altered the patent litigation landscape by creating a relatively fast and less expensive process for invalidating patents, as discussed in the next section.