The case of patent monopolies Seminar for the Socio-Legal Research Centre Griffith University 17 August 2009 Hazel V J Moir [email protected] © commercial.

The case of patent monopolies

Seminar for the Socio-Legal Research CentreGriffith University17 August 2009

Hazel V J [email protected]

© commercial rights reserved

Does law work to deliver economic policy?

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 5%15% 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

# examiner rejections 1 2 3 +

no evidence Total

1 9 10 6 7 32

2 2 5 3 -- 10

4 -- -- 1 -- 1

Not rejected 7 2 3 14 26

Total 18 18 14 22 72** Rejection status not known for 3 cases (1 modified examination); 2 of these amended

Examination history: rejections and amendments

Claims amendment frequency

# examiner rejections 1 2 3 +

no evidence Total

1 9 10 6 7 32

2 2 5 3 -- 10

4 -- -- 1 -- 1

Not rejected 7 2 3 14 26

Total 18 18 14 22 70** Rejection status not known for 2 cases (1 modified examination); neither amended

Examination history: rejections and amendments

Claims amendment frequency

# examiner rejections 1 2 3 +

no evidence Total

1 9 10 6 7 32

2 2 5 3 -- 10

4 -- -- 1 -- 1

Not rejected 72 3 14 11

Total 18 18 14 23 70** Rejection status not known for 2 cases (1 modified examination); neither amended

Amendment: “A Security System”

reduce credit card fraud by sending real-time alerts. Combines known processes of

alerts customers to anomalous CC chargesand

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 problemsAU2005203023, 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

Rejected (novelty and inventiveness) and amended unique feature is single credit limit

Rejected (inventiveness) attorney argument about trivial differences / semantics

(comparing with Commonwealth Bank Viridian package) 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 winnersCosts hidden / dispersedLarge incentives to game system rule complexity to hide behaviour

Concentrated ownership

Australian patents granted 1990-2001, company patenters only

Note: Excludes 3 companies with most patents, and all with 18 or fewer patents (est at 5,000 +)

0

200

400

600

800

1000

1200

1400

1 101 201 301 401 501 601 701 801 901

Australian patents

Number of companies

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

In share order (declining): USA; Japan; Australia; Germany; UK; France; Canada; next 10; ROW. All patents granted from filings in 1990-2001.

Australian patents

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 Agreement5.(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 monopoly-seeker

Must provide clear evidence of benefit to nation Beyond reasonable doubt is appropriate

Can law successfully deliver non-legal 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 claimsMarkqush claims

Redefinition of software as not software because operates in a computer

Patent volume “exploding”

Total US patents granted, 1965 - 2000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1965 1970 1975 1980 1985 1990 1995 2000year of application

US grants:

• doubled 1980-1995

• up by 247% 1965-2000

Patent volume “exploding”

AU patent grants

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

AU grants:

•up by 30% 1990-2000

•up by 46% 1991-1999

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 5%15% 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 14 14trade & logistics 14 28business performance 9 37e-commerce 8 45marketing 6 51betting 6 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: barcodes URLs (rejected NO)

E2: 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

Amendments1. + public searching facility2. + search by distance (defined by user)

Arguments1. 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