In most analyses of the different aspects of the patent system,
concern has centered on a simple tradeoff. The analysis has concentrated
on how changing patent coverage affects the balance between incentives
to the inventor and underuse of the invention due to patent monopolies.
Thus, Nordhaus's analysis of optimum patent life is concerned
with the tradeoff between increased inventive effort resulting
from longer anticipated patent life and greater deadweight costs
associated with longer monopoly. n122 Kaplow
uses these two variable to analyze the effects of allowing the
patent holder greater freedom regarding licensing agreements.
n123 Gilbert and Shapiro's recent work on
optimal patent length and breadth builds on the tradeoff model,
as does Klemperer's. n124
However, other analyses of the effects of the patent system open
[*869] up a much more complex set of issues. These studies recognize
that at any time many actors may be in the invention game, and
that the game may have many rounds. This broader orientation brings
into view the question of how the lure or presence of a strong
patent can influence the multiactor portfolio of inventive efforts.
n125 It also alerts the analyst to the possible
effects of patents on the ability or desire of different parties
to stay in the inventing competition over time, and on the efficiency
of the inventive effort over the long run. n126
We believe that analysis of the effects of varying patent scope
needs to recognize this dynamic multiactor context. One problem
with the analysis of Gilbert and Shapiro, and Klemperer, is that
this is not done. Both papers treat greater scope as roughly similar
to greater duration in terms of its incentive effect on initial
invention. n127 We have no real trouble with
that. n128 Both treat the social costs of
greater scope as precluding a wider range of substitutes covered
by the patent. n129 Again, no real argument.
However, they treat these substitutes as if they were already
in existence or could be made so trivially. n130
It is [*870] is here that we find their analysis inadequate. Our
concern is with the effects of patent scope decisions on whether
or not, and if so how efficiently, these substitutes are created.
More importantly, these papers for the most part ignore what we
consider a critical set of "substitutes": subsequent
inventions that not only substitute for the initial invention,
but also improve on it in some way. Since some of the follow-on
efforts of inventors could result in something not simply slightly
different but significantly better than the patented technology,
broad patents could discourage much useful research. Thus, these
papers are not of much help in rationalizing and reforming those
aspects of legal doctrine that apply to the economically significant
class of improvement inventions.
The economic models that do try to encompass multiactor dynamics
are quite stylized. In some, invention is analogized to fishing
from a common pool. n131 There are many competitive
inventors, and the first to make an invention gets the patent
on it. Each knows that as others catch (invent) there is less
in the pool for her. The result is "overfishing": too
many people seeking inventions at once. n132
Other economists have modelled technical advance in terms of a
multifirm "race to patent," in which many would-be inventors
identify a particular goal, and the first to achieve the goal
gets the patent. n133 A good deal of variation
has been introduced into these models, with different assumptions
being made about such variables as the strength of patents and
the costs and benefits of innovating versus imitating. n134
Many of the implications of these models are sensitive to particular
assumptions, but some are robust. In particular, under a wide
range of assumptions rivalrous inventive efforts generate a great
deal of inefficiency.
Despite the drawbacks of these models, the authors of this paper
[*871] regard that basic conclusion as persuasive. Not only does
proprietary control of technology tend to cause "dead weight"
costs due to restrictions on use. (We presume here that in general
it is not possible to write licensing agreements to completely
offset this problem, a matter to which we will return shortly.)
Where invention is rivalrous, the process leading to invention
is itself inefficient. With exclusive property rights, we pay
both kinds of costs in exchange for the benefits of technical
advance. But recognition of the costs of rivalrous inventive efforts
leads one to speculate about how these costs might be mitigated.
This question is the source of Edmund Kitch's prospect theory.
1. The Prospect Theory. -- Edmund Kitch, in formulating
his "prospect theory" of patent rights, moved beyond
the static tradeoff model mentioned earlier and incorporated into
his analysis some of the insights of the common pool models. Kitch
analogized patents to mining claims. Like an exclusive claim to
the minerals that may be produced from a plot of land, Kitch emphasized
that patents are granted after invention but before commercialization.
According to Kitch, this has two advantages: (1) it allows "breathing
room" for the inventor to invest in development without fear
that another firm will preempt her or steal her work; n135
and (2) it allows the inventor to coordinate her activities with
those of potential imitators to reduce inefficient duplication
of inventive effort. n136 This amounts to
granting rights over an unexplored pool, with the right-holder
being permitted to charge for access to various parts of the pool.
n137 Thus the inefficiencies associated with
rivalrous uncoordinated invention, as in the fishing or race models,
can be avoided.
Kitch goes further in suggesting that the prospect theory "may
clarify the process and conditions under which a monopolistic
industry will be more efficient than a competitive one."
n138 He states that this enhanced efficiency
"turns not upon the size of the firm, but its dominance over
a fruitful technological prospect." n139
Reacting to the inefficiencies highlighted by the fishing models,
Kitch clearly has a preference for single-firm domination of a
technological [*872] prospect. As Kitch recognizes, this can be
achieved by licensing, where a number of firms hold patents on
components of a key invention. Alternatively, one firm can hold
a single dominant patent. In either case, the advantage seen by
Kitch is that development is under the control of a single entity.
Rivalry is avoided. Planning is possible.
We have trouble with the view that coordinated development is
better than rivalrous. In principle it could be, but in practice
it generally is not. Much of our case is empirical. But there
are sound theoretical reasons for doubting the advantages of centralization.
For one thing, under rivalrous competition in invention and innovation
there is a stick as well as a carrot. Block rivalry and one blocks
or greatly diminishes the threatened costs of inaction. Kitch
assumes a model of individual or firm behavior where if an action
is profitable it will be taken, regardless of whether inaction
would still allow the firm to meet its desired (but suboptimal)
performance goals. Different models of behavior, like Simon's
satisficing hypothesis, predict otherwise. n140
As we shall see, there are many instances when a firm that thought
it had control over a broad technology rested on its laurels until
jogged to action by an outside threat. n141
[*873] More generally, the model of behavior Kitch is employing
ignores the limits on cognitive capacity and the tendency to focus
on past experience that are characteristics of other models and
of organizational behavior as we know it. n142
Once a firm develops and becomes competent in one part of a "prospect,"
it may be very hard for it to give much attention to other parts,
even though in the eyes of others, there may be great promise
there. n143 Again, our empirical explorations
show many examples of this. Consequently, one might expect that
many independent inventors will generate a much wider and diverse
set of explorations than when the development is under the control
of one mind or organization.
This flags still another limitation of the "pool" or
"mining" models. In these models the "fish"
or the "minerals" are out there and known (with perhaps
some uncertainty) to all parties. But with the technological "prospects,"
and perhaps even real life mineral prospects, no one knows for
sure what possible inventions are in the technological pool. n144 It is not even generally feasible to assign
probabilities to possible outcomes on which all knowledgeable
people will agree. Indeed different parties are almost certain
to see the prospect differently. Because of this uncertainty,
development of technology is critically different from other common
pool problems. The real problem is not controlling overfishing,
but preventing underfishing after exclusive rights have been granted.
The only way to find out what works and what does not is to let
a variety of minds try. If a property right on a basic invention
covers a host of potential improvements, the property right holder
can be expected to develop the basic invention and some of the
improvements. But we would expect a single rightholder to underdevelop
-- or even ignore totally -- many of the potential [*874] improvements
encompassed by their broad property right. n145
Of course, Kitch's notions about how a broad patent prospect can
be worked out by the patent holder do not preclude involving many
minds. However, we regard as fanciful the notion that wider talent
can be brought in without real competition through selective licensing
practices. A substantial literature documents the steep transaction
costs of technology licensing, n146 and there
is indirect evidence that these costs increase when major innovations
are transferred. n147 Moreover, various studies
have indicated that transaction costs tend to be very high if
licenses are tailored to particular licensees. n148
It is much [*875] simpler to grant roughly identical licenses
to all who will pay a standard rate. In our own research, we have
not found a single case where the holder of a broad patent used
it effectively through tailored licensing to coordinate the R&D
of others.
Although the preceding analysis applies specifically to patents,
it is interesting that other types of property rights are limited
in scope, perhaps for similar reasons. Kitch himself notes, for
instance, that in mining law "[t]he mineral claim system
restricts the area that can be claimed through rules that specify
maximum boundaries in relation to the location of the mineralization,"
n149 and that boundaries are required to be
clearly marked. n150 While there are no statutory
limits on the number of claims an individual can make, n151
the law requires a claimant who has identified a mineral deposit
n152 to work a claim actively before property
rights will vest. n153 This places practical
limits on the number and dimensions of claims. And state law,
which establishes limited exclusive rights during the prospecting
period prior to the grant of federal rights, similarly requires
persistent and diligent work toward discovery on each claim for
which protection is sought. n154
The obvious goal of these requirements -- to prevent hoarding
and speculation -- is analogous to the goal of patent law doctrines
designed to limit the breadth of patents. Both sets of rules recognize
that although property rights assignments can make development
of an asset more efficient, the scope of rights is crucial. Property
rights that are too narrow will not provide enough incentive to
develop the asset, while overly broad rights will preempt too
many competitive development efforts. Kitch's prospect theory
must be supplemented to take account of this important limitation
on the breadth of property rights. n155
[*876] An interesting general point about the economic literature
on property rights emerges from this analysis. Economists who
theorize about property rights do not appear to have analyzed
extensively the issue of how broad property rights should be.
For the most part this work emphasizes the importance of defining
property rights in the first place. n156 The
usual assumption is that, with low or nonexistent transaction
costs, the parties will bargain to a Pareto superior solution
given any initial assignment of entitlements; therefore the "size"
of the rights is not important. n157 However,
as elaboration of the Coase theorem has made clear, the initial
distribution of property rights can make a difference in the equilibrium
level of output of the bargaining parties. n158
If one were to look at the patent scope problem from this view,
one would conclude that the present authors favor a regime of
property rights that limits the scope of a patent in such a way
that inventors of significant improvements are in a strong bargaining
position with respect to holders of broad patents. n159
This is not a particularly useful way of conceptualizing [*877]
the problem, however, since unlike rights that somehow touch tangible
property -- the usual subject of this analysis -- the allocation
of property rights between technological pioneers and improvers
is not a zero-sum game. n160
Undoubtedly our position is open to criticism. Rivalry no doubt
causes waste. Yet we have little faith in the imagination and
willingness of a "prospect" holder to develop that prospect
as energetically or creatively as she would when engaged in competition.
We are also skeptical about her ability to orchestrate development.
Given the way humans and organizations think and behave, we believe
we are much better off with considerable rivalry in invention
than with too little. n161
Can we prove it? We can present empirical evidence that the granting
of broad patents in many cases has stifled technical advance and
that where technical advance has been rapid there almost always
has been considerable rivalry. However, we grant that it is possible
to see our evidence as not completely persuasive in this regard,
or to posit that we have looked at only a few cases and that these
might not be representative.
And even if our case is accepted that, up to a point at least,
rivalry facilitates technical advance and unified control damps
it, one can respond [*878] by saying "Yes, but what about
the costs and the wastes?" We can rejoin that, in our cases
at least, it is not evident that the waste caused by the presence
of a broad patent is very considerable.
2. Clarifying Assumptions. -- Our argument rests on a simple
premise: when it comes to invention and innovation, faster is
better. What proof do we have that this is true? The answer lies
in the work of scholars who have examined intensively the interrelation
among research and development expenditures, invention, and productivity
growth. Although there are still a great many unanswered questions
in this field, n162 the following general
points seem to be widely accepted: First, increases in research
and development expenditures yield more inventions. n163
Second, the larger numbers of inventions from increased research
and development have a positive effect on future productivity
growth. n164 And third, productivity growth
is important for economic well-being. n165
These findings support our argument only if there is a link between
the speed with which innovations are introduced and the overall
number of innovations. The research just sketched is of no help
if the timing of an innovation is unrelated to the number of subsequent
innovations. Here we must rely on simple economic reasoning. For
the same reasons people prefer to have money in hand now, as compared
to the same amount (and more, depending on the interest rate)
later, society prefers to have improvements now, rather than later.
Again, keeping in mind that at some point increased incentives
for improvement will reduce the incentive to create a pioneer
invention in the first [*879] place, the sooner improvements can
be introduced the sooner the cost-saving (and welfare-enhancing)
effects of those improvements will be felt by consumers. And,
of course, the early availability of improvements will accelerate
the pace with which second-and third-generation improvements --
that is, improvements on the improvements -- will be introduced.
n166
But it is perhaps not enough to demonstrate the consistency of
our thesis with basic economic concepts. Another means of validating
our assumptions is by looking for consistency with the goals and
purposes of the patent law itself. In its grant of priority to
the first to invent; n167 its preference for
an early reduction to practice; n168 and its
provisions designed to encourage early filing of patent applications,
n169 patent law favors not just invention,
but early invention. Thus our concern that improvements be introduced
as quickly as possible simply carries out a basic policy evident
throughout the patent system. While there are those who may challenge
the propriety of these goals from the standpoint of economic policy,
it is both realistic and necessary for courts and the patent office
to pursue the goals implicit in both constitutional and statutory
provisions. Our assumptions, therefore, while not completely unassailable,
are consistent with both economics and policy considerations.
In the remainder of this section we will consider several historical
examples of how technical change proceeds in an industry. In the
following section we explore industries whose development followed
the different models, testing the relative efficacy of a pluralistic
rivalrous system versus one in which technical advance is under
the control of one or a few organizations. Our goal is to determine
whether our theoretical understandings regarding the effect of
patent scope in various industry types are consistent with the
historical record. [*880]
We have noted earlier that, while most analyses of the effects
of the patent system on invention assume implicitly that technical
advance proceeds similarly in all industries, this assumption
is mistaken: the pattern of technical advance varies significantly
from field to field. One of the authors, Nelson, has concluded
that at least four different generic models are needed. n170
The first describes discrete invention. A second concerns "cumulative"
technologies. Chemical technologies have special characteristics
of their own. Finally, there are "science-based" technologies
where technical advance is driven by developments in science outside
the industry. In each of these models patent scope issues take
on a special form. In any industry one or another of these models
may be applicable at any given time, or appropriate characterization
may require a mix. But the mix differs from industry to industry,
and so too, therefore, the salient issues involving patent scope.
What we call the discrete invention model corresponds to much
of the standard writing about invention. It assumes that an invention
is discrete and well-defined, created through the inventor's insight
and hard work. In the standard discussions it may be recognized
that the original invention can be improved, or even that improvement
or complementary advances may need to be made if the invention
is to be of much use. The basic invention may be amenable to tailoring
for different uses or customers. But it is implicit that the invention
does not point the way to wide ranging subsequent technical advances.
It does not define any broad prospect. There are many inventions
that fit this model, and these may be of considerable economic
and social value. Two examples are King Gillette's safety razor
n171 and the ball point pen, n172
and many new pharmaceuticals may also fit this model. n173
And in other industries technical advance appears largely to proceed
through inventions of this kind. The consumer goods packaging
industry is likely of this sort, n174 as is
the toy industry. n175 For inventions and
industries like these, while tight and broad control of a particular
invention [*881] may enable a firm to profit handsomely, possession
by that firm of a proprietary lock on the invention is not a serious
hindrance to inventive work by many other firms. This stems largely
from two features of these industries, one having to do with inventive
inputs and the other with inventive outputs. As to inputs, discrete
inventions do not typically incorporate a large number of interrelated
components; they stand more or less alone. n176
On the output side, the products of discrete technology industries
tend not to comprise integral components of some larger product
or system; they therefore do not enable the development of a wide
array of ancillary products.
However, in a number of technologies, the above characterization
is quite inappropriate. In industries like those producing automobiles,
aircraft, electric light systems, semiconductors and computers,
technical advance is cumulative, in the sense that today's advances
build on and interact with many other features of existing technology.
n177 This by no means implies that technical
advance is slow or inconsequential. Over time dramatic advance
occurs in these technologies from improvements to one aspect or
another, adding this new feature or that. n178
In many cases the technology in question defines a complex system
with many components, usbcomponents and parts, and technical advance
may proceed on a number of different fronts at once. n179
In these industries inventions may enhance some feature of a prior
"dominant [*882] design," n180 or
they may be incorporated into subsequent inventions, n181
or both.
There is much more at stake regarding allowed patent scope in
these cumulative technologies than in those where inventions are
discrete and stand separately. Particularly when the technology
is in its early stages, the grant of a broad-gauged pioneer patent
to one party may preclude other inventors from making use of their
inventions without infringing the original patent. Two such examples
are the Selden patent, which was used to control the development
of automobiles, and Edison's successful attack on a broad patent
covering light bulb filaments. n182 Thus,
a broader pioneer patent may give one party legal control over
a large area. Alternatively, in multicomponent products, broad
patents on different components held by several inventors may
lead to a situation in which no one can or will advance the technology
in the absence of a license from someone else. As we shall see,
these are not just theoretical possibilities; they describe the
development of several important technologies.
Despite the nature of technical advance in cumulative-technology
industries, improvement patents (discussed earlier) are no more
common in these industries than in others. n183
This is because an improvement patent is undesirable for the reasons
discussed above, n184 and because patent lawyers
prefer to claim a new or improved component or subcomponent as
a distinct product. Accordingly, it is important not to confuse
the patent-law concept of an improvement patent with the commercial
reality that, in some industries, technical advance proceeds cumulatively,
i.e., via a series of improvements.
Technical advance in the chemical industries has some attributes
that fit the discrete invention model, some that fit the cumulative
technologies model, and some particular characteristics of its
own. A new chemical product is in most cases a discrete entity,
or it may encompass a particular class of products, like penicillin.
But particular chemical product innovations seldom are the keystones
to the development of large numbers of other chemicals. Although
there are recognizable families of chemical products, the invention
of one chemical species seldom gives more than general guidance
in the development of other species. This is primarily a function
of the complex and unpredictable [*883] relationship between chemical
structure and function, most clearly evident in the pharmaceutical
industry. n185 Sometimes, however, a new chemical
entity turns out to have a wide variety of applications. n186
Because of this, not every chemical product invention shares all
the features of a true discrete invention. At the same time, chemical
processes tend to be improved along the lines of the cumulative
technology model, and licensing and cross licensing are well-established
practices in these industries. This tradition of licensing mitigates
the potential impact of broad patents. As a result of these special
features, scope decisions affect the chemical industries differently
from others, a point we return to in Part III.
An invention in any of the three regimes described above may be
assisted by recent developments in science. But technologies whose
advance is predominantly driven by such developments, while rare,
warrant special recognition. In these science-based technologies,
n187 of which modern biotechnology is a prominent
example, research and development efforts attempt to exploit recent
scientific developments. n188 These scientific
developments tend to narrow and focus perceived technological
opportunities in the industry and concentrate the attention of
inventors on the same things.
Such science-based technologies warrant analytic distinction for
[*884] several reasons. In the first place, this is a context
that engenders inventive races of the sort described earlier,
particularly if it is anticipated that the first to apply a scientific
finding will get a patent of considerable scope. Many are rushing
toward the same objective that all see as feasible and several
will get there, but only the first receives a patent. Second,
new scientific and technological developments "in the air"
open the possibility of a major advance over prior practice, and
the contribution made by the individual or firm who first makes
these possibilities operational may be relatively small. n189
The invention may diverge from "prior art," in the sense
of actual technological accomplishments, and sweep the market,
yet still be only a successful application of knowledge that is
apparent to the scientifically sophisticated. n190
When this is a possibility, the patent system should be particularly
careful in awarding patents of broad scope. Third, and this is
where our focus will be, there is a real danger that allowing
patent scope to be overbroad may enable the individual or firm
who first came up with a particular practical application to control
a broad array of improvements and applications.
We now turn to a more detailed discussion of these models of technical
advance, with an eye toward what they can teach us about the effects
of patent scope.
Because we are concerned with the effects of patent scope decisions
on the subsequent development of technology, we are not interested
in the cases of discrete invention. We deal with what we have
called cumulative technologies, chemical technologies and science-based
technologies, in that order.
We have asked two questions about the effects of broad patents
on cumulative technologies. One concerns the consequences of "pioneer"
patents. We wish to test the validity of the hypothesis that the
granting of broad patents is likely to make subsequent invention
and development more orderly and productive. The second question
is how the presence of broad patents on components of a cumulative
technology affects subsequent development.
One must keep in mind, however, what we are not testing. We do
not [*885] ask whether any patent should have been granted in
the following cases. We take it as axiomatic that some degree
of patent protection is necessary and desirable. And we do not
ask whether the scope of the patents discussed should have been
limited to the precise embodiments the inventor had developed
when the patents were filed. We accept that patents claiming the
general inventive principle were justified; and we focus on the
impact of broad scope on the environment for subsequent development
and improvement.
1. Electrical Lighting Industry. -- The chain of reasoning
in our critique of the prospect theory, and our view of the patent
system, is consistent with most of the historical evidence on
cumulative technologies. The early electrical illumination industry
illustrates this most clearly.
Patents played a very important part in this industry from the
beginning. In the field of incandescent lighting, Edison's early
patent gave his company, later General Electric, a dominant position.
But in certain other sectors, most notably arc lighting and the
production of dynamos, efforts to establish dominance via a single
broad patent failed. The contrast between these sectors, where
entry was easy and competition for improvements was intense, and
the incandescent lighting field is noteworthy for our purposes.
Most importantly, the history of the early electrical industry
supports the notion that broad pioneering patents can play a pivotal
role in the evolution of industry structure.
No single patent better illustrates this than Edison's U.S. Patent
223,898, issued in 1880. This was "the basic patent in the
early American incandescent-lamp industry," covering the
use of a carbon filament as the source of light; n191
it proved to have a profound effect on the industry until it expired.
Although the Edison General Electric Company had some difficulty
establishing the validity of its basic patent, once it did the
industry changed drastically. In 1891, U.S. Patent No. 223,898
was held valid and infringed by a competing design. n192
General Electric officials then quickly obtained a series of injunctions
that shut down a number of competitors. n193
As the aptly-named industry historian Arthur Bright stated, "For
twelve years [after the issuance of the 223,898 patent] competition
had been possible; it suddenly became impossible." n194
The company's market share grew from 40 to 75 percent; entry into
the industry slowed from 26 new firms in 1892 to 8 in 1894, the
last year of [*886] the patent's life; n195
and the steady downward trend of lamp prices slowed until the
patent expired. n196
More importantly for our purposes, the validation of Edison's
broad patent slowed the pace of improvements considerably.
Even as the courts were passing on the Edison lamp patent in 1891,
the Edison General Electric Company . . . . [recognized that it]
gradually had been slipping backward in its commercial position,
particularly since 1886 . . . . Its technological contributions
were becoming relatively smaller than they had been during the
early [eighteen] eighties. n197
This was especially true in Great Britain, where the Edison Company's
patent position was even more commanding, due to its control of
a basic patent on a process for producing carbon filaments. A
series of court victories over its largest competitors gave the
British "Ediswan" company "a practical monopoly
of incandescent-lamp production." n198
Given the lack of competition, it is perhaps not surprising that
the pace of technical advance slowed. According to the historian
Bright:
After the introduction of the incandescent lamp and its first
rapid changes . . . . the Edison Electric Light Company did not
introduce many important new developments. Edison himself turned
to other problems, and the company's technical leadership in incandescent
lighting was not revived until after the merger [that formed General
Electric in 1896]. n199
Prior to the enforcement of the patent, Edison's competitors were
quickening the pace of technical advance:
Despite the improvements in the Edison lamp, a number of its competitors
had improved their lamps even more rapidly . . . . Efficiency
advantages permitted many of the other American concerns to compete
very successfully with the Edison lamp after 1885 . . . until
the corporate reorganizations and the establishment of patent
supremacy regained for the Edison lamp commercial supremacy as
well. n200
The same was true overseas: "In England, filament improvement
was almost entirely halted during the period of Edison patent
monopoly [*887] from 1886 to 1893." n201
Bright concludes:
The lengthy and expensive patent struggle in the lamp industry
from 1885 to 1894 was a serious damper on progress in lamp design,
although process improvement continued. The Edison interests concentrated
on eliminating competition rather than outstripping it. . . .
After 1894, when it was no longer protected by a basic lamp patent,
General Electric devoted more attention to lamp improvement to
maintain its market superiority. n202
Thus the broad Edison patent slowed down progress in the incandescent
lighting field. The lesson, however, is not that this patent should
not have been granted. It is rather a cautionary lesson: broad
patents do have a significant impact on the development of a technology
and hence on industry structure, and this should be reflected
in those doctrines that collectively determine patent scope.
Two other sectors of the electrical industry -- ones where broad
patents were invalidated -- demonstrate what can happen in the
absence of dominant patents. The first was in the production of
power generation dynamos, where the Brush Company attempted to
establish patent dominance. Brush, together with several other
companies, acquired a patent they thought "would give absolute
control of all dynamo manufacture in the United States."
n203 But the courts thought otherwise; the
patent was found to have lapsed when a foreign counterpart patent
reached the end of its term. n204 As an historian
of the industry describes it:
The effect of the decision was to free the dynamo from patent
control. Anybody could manufacture it. It was only minor details
in dynamo design and construction -- such as particular coil windings
or commutators -- which were patentable. n205
Because there were no broad patents to discourage entry, entry
was easy and competition for improvements was intense. n206
[*888] The second failed attempt to establish dominance by
way of a broad patent also involved the Brush Company. In 1884
the company brought a test infringement case involving its basic
patent on a double-carbon arc light. n207
Unfortunately for the Brush Company, the court found that the
defendant's design did not incorporate a key feature of the Brush
patent, and thus held that there was no infringement. n208
This ruling had an important effect: "[p]atents were consequently
not a handicap to entry into the industry. Firm after firm was
organized to manufacture its own arc-lighting system. At one time,
nearly fifty different firms were making arc-lighting equipment."
n209
2. Automobiles and Airplanes. -- We move now to two infamous
cases regarding pioneer patents: the Selden patent in the development
of automobile technology, n210 and the Wright
patent's influence on the growth of aircraft technology. As we
have seen, the Selden patent claimed a basic automobile configuration,
one using a light-weight internal combustion engine as the power
source. The Wright patent was on a broadly defined airplane stabilization
and steering system. In both of these cases, the holders of the
pioneer patent engaged in extensive litigation against companies
that did not recognize the patent, n211 and
[*889] the Wrights refused to license theirs. n212
Our question is how the presence of these patents affected the
evolution of the technologies.
The Selden patent had as its key claim the use of a light gasoline-powered
internal combustion engine. This claim was extremely broad and
covered a myriad of possible embodiments. n213
Contrary to the prospect theory, however, neither Selden nor his
assignee used the patent to orchestrate the efficient improvement
of automobile technology; there was no policy of "developing
the prospect." n214 They were willing
to license anyone who would acknowledge the validity of the patent
and pay royalties; to this end they formed the Association of
Licensed Automobile Manufacturers. n215 But
the Association's purpose was to collect royalties, and perhaps
control competition in the industry, n216
rather than to facilitate orderly technological development.
[*890] But did the presence of the Selden patent actually hinder
technological progress in the industry? That is perhaps a bit
more speculative. Law suits based on it surely did absorb considerable
time and attention of people like Henry Ford, whose production
methods revolutionized the industry. n217
Perhaps more importantly smaller firms may have been put off by
the threat of suit. At this early stage in the history of the
technology, those that left the industry or chose not to enter
may well have taken valuable improvements with them.
An interesting result of this experience with patent litigation
was that, even before the Selden patent was pruned back in 1911,
n218 the automobile industry, through the
Association, developed a procedure for automatic cross licensing
of patents. While formal agreements to cross license all new patents
no longer exist, the practice of relatively automatic cross licensing
has endured to the present.
The Wright brothers patent is different in a number of regards.
First of all, the achievement described in the patent -- an efficient
stabilizing and steering -- system was in fact a major one, and
it did enable a multiplicity of future flying machines. n219
Second, the Wright brothers were very interested in producing
aircraft and in improving their design, and they did so actively.
However, there were other important people and companies who wanted
to enter the aircraft design and manufacture business. They had
their own ideas about how to advance the design of aircraft, and
they strongly resisted being blocked by the Wright patent. In
this case, and others, it turned out to be extremely difficult
to work out a license agreement that satisfied both the holder
of a broad patent and an aggressive potential competitor who believed
that there was a lot of his own work in his design. The early
attempts by the Wright Brothers and Glenn Curtiss, who was the
most prominent such potential competitor, came to naught. Litigation
followed. n220
There is good reason to believe that the Wright patent significantly
[*891] held back the pace of aircraft development in the United
States by absorbing the energies and diverting the efforts of
people like Curtiss. The aircraft case is similar to that of automobiles
in that the problems caused by the initial pioneer patent were
compounded as improvements and complementary patents, owned by
different companies, came into existence. The situation was so
serious that at the insistence of the Secretary of the Navy, during
World War I, an arrangement was worked out to enable automatic
cross licensing. n221 This arrangement, like
the licensing of automobile patents, turned out to be a durable
institution. By the end of World War I there were so many patents
on different aircraft features that a company had to negotiate
a large number of licenses to produce a state-of-the-art plane.
n222
3. Radio. -- The case of radio in the United States warrants
at least a brief recounting, for it is an excellent example of
what happens when several companies each hold patents of broad
scope. The earliest radio patent was a broad patent granted to
the British inventor Marconi in the field of radio transmission.
n223 Marconi also invented and acquired rights
to the basic technology for tuning, n224 which
he controlled until 1914, and the basic Fleming patent on the
two element vacuum tube, or diode. n225 These
patents helped the Marconi Wireless and Telegraph Company establish
an imposing presence in the early radio industry, which was dedicated
primarily to large-scale commercial uses such as ship-to-shore
communications.
AT&T, as part of its radio operations, n226
acquired rights to two very fundamental patents on the triode
vacuum tube, an early radio wave amplification device patented
by Lee De Forest. n227 While technically [*892]
only an improvement on Marconi's diode, the triode was in fact
a very significant advance; it was called "the heart and
soul of radio." n228
Several other firms had important patent positions. General Electric
entered radio as a natural extension of its expertise in electricity
generating systems. It controlled the important Alexanderson patents
on the electric alternator, the signal generation invention that
made long-range transmission possible. n229
Westinghouse also joined the industry, mostly on the strength
of patents on receiving technology, which served as the basis
of the firm's successful entrance into the inexpensive home receiver
market. n230 Other companies also held American
rights of varying breadth over other important radio technologies.
n231
The situation soon became similar to that in the aircraft industry,
where different companies could block each other from using key
components. A good example is the deadlock between the Marconi
Company and the De Forest interests, a classic instance of blocking
patents. Marconi's diode patent was held to dominate De Forest's
patented triode, n232 yet neither party would
license the other. n233 As a consequence,
no one used the admittedly revolutionary triode for a time. This
is a good example of a case where the reverse doctrine of equivalents
might have been invoked to permit De Forest to practice his improvement.
n234
In at least one other area as well -- long-range transmission
-- licensing proved difficult. n235 The upshot
was that no one could produce state-of-the-art radio technology
without being threatened by litigation. n236
Radio is thus a canonical instance where the presence of a [*893]
number of broad patents, which were held by different parties
and were difficult to invent around, interfered with the development
of the technology. n237 The various pioneers
formed RCA to break the deadlock; the new company promptly acquired
the American rights to the Marconi patents. n238
The companies that owned most major radio patents became RCA shareholders.
n239 With all the constituent radio technologies
under one roof, RCA established itself as the technical leader
in radio and dominated its advance for many years. n240
As shown by the cases of autos, airplanes, and radios, the many
early inventors in cumulative technologies often perform overlapping
research. This may lead to blockages unless basic patents are
not present, or routine licensing and cross licensing is instituted.
We next consider the former possibility by describing important
post-World War II technologies that have advanced rapidly because
no one held a pioneer patent that was used to restrict access.
At the end of this section, we discuss the licensing solution
and its impact on our analysis of patent breadth.
4. Semiconductors and Computers. -- Semiconductors are
a good example of a technology that developed without patent blockages.
There are two instances in the history of this technology where
a broad-gauged patent was issued which could have given its holder
control over a large "prospect," but in fact did not.
One involved the initial transistor patents held by AT&T.
Because of an antitrust consent decree, [*894] AT&T was foreclosed
from the commercial transistor business. n241
Some have argued that it is not clear whether AT&T would have
gone into the merchant transistor business even in the absence
of a consent decree. n242 In any case, given
that it was not going to do so, AT&T had every incentive to
encourage other companies to advance transistor technology because
of the value of better transistors to the phone system. AT&T
entered into a large number of license agreements at low royalty
rates. n243 Many companies ultimately contributed
to the advance of transistor technology because the pioneer patents
were freely licensed instead of being used to block access.
The second instance involved the parallel inventions of the integrated
circuit (by Texas Instruments) and the Planar process for producing
them cheaply (by Fairchild Instruments). Both of these companies
obtained patents on their own inventions, which meant that each
had to license the other to produce integrated circuits effectively.
n244 Cross licensing was favored by the government;
the Department of Defense, which for some time had provided the
lion's share of the market for semiconductors, had a strong interest
in seeing these important technologies become broadly available
throughout the industry. n245 Again, the absence
of a single, broad patent assisted the rapid development of an
industry.
The second recent cumulative technology developed without strong,
broad patents is electronic computers. Although original computer
inventors Eckert and Mauchley did file for and receive a patent
on their basic ENIAC design, the patent was ruled invalid because
of a judgment that the prior art included much of what they claimed.
n246 Since this ruling, patents have played
only a very minor role in the computer industry, and where patents
are concerned, cross licensing is common. n247
As a result, the pace of technical change has been rapid. n248
5. Licensing and Cumulative Technologies. -- In many of
the cases we have examined, licensing and industry consolidation
emerged as solutions to patent blockages caused by patents. This
would appear to have a bearing on our study. Does the consolidation
of the radio industry in RCA, for example, support the position
that development would have [*895] been more efficient had control
been in the hands of one party from the beginning, in the form
of one super-patent? Or does it imply that patent breadth was
irrelevant -- consolidation would have happened even with narrow
patents?
The first possibility seems remote, and there is indirect evidence
that the second is wrong as well. The fact that many inventors
and firms made important advances in various components of radio
technology indicates that no one firm had the inventive firepower
to develop radio on its own. And there is no reason to believe
that one firm could have orchestrated the development of the technology,
since there was no way to know in advance which inventors would
cultivate expertise in each component, or which inventor's approach
would work. There were no "proven" experts in transmission
or reception that a firm could have granted licenses to, for example;
experts emerged only when their inventions turned out to work.
n249 And it would have been impossible to
identify all the potential experts, since everyone was working
on the various components simultaneously. n250
In any event, the inventive scramble that in fact resulted, while
by no means optimal, did result in the fairly rapid commercialization
of a complex, multicomponent technology. It also resulted in a
patent tangle, one that might have been lessened if some of the
key patents had been narrower. But it is difficult to see how
a single broad patent would have led to more rapid commercialization.
The ex post consolidation, in other words, simply does not imply
that a broad ex ante "prospect" would have been effective
in this case. n251
As to the second objection to our analysis -- that the radio industry
would have consolidated regardless of patent breadth -- two points
[*896] seem relevant. First, narrower patents might have made
consolidation unnecessary. If one or more firms could put together
a complete radio system without infringing any patents, consolidation
would not have been essential, at least for patent-related reasons.
One candidate is General Electric: the only essential component
for which patent blockage was a problem was the triode; n252
if De Forest's patent had been narrower, n253
or if inventor Edwin H. Armstrong had won his interference with
De Forest, n254 General Electric might have
put together a noninfringing system.
Second, even if narrower patents would not have prevented the
deadlock, they might have helped break it sooner. Perhaps without
the value of a "holdup right" on an essential component
of radio technology, the firms would have been content to contribute
their patents to a pool and compete on the basis of improvements
and price competition. n255 Finally, even
if this industry eventually consolidated into one firm, there
is no promise that all industries will do so. n256
There is also no reason to assume that when blockages arise industries
will always turn to the deadlock-breaking solutions we have seen,
patent pooling and cross licensing. Though we saw the emergence
of cross licensing among aircraft manufacturers, the impetus was
war-time government pressure. n257 In the
case of the light bulb industry, the government stayed out; when
the firms finally pooled technology, it was only to effectuate
the operation of a cartel. n258
There is therefore no guarantee that pooling, cross licensing,
or consolidation will always emerge to break an industry impasse.
And without these solutions there is nothing to mitigate the effect
of broad [*897] basic patents in cumulative technology industries.
Earlier we saw that theory offered a number of reasons to be concerned
about these patents. The historical evidence available is consistent
with this theory. In most instances this evidence can be read
as supportive of our concerns about the effects of broad patents
on cumulative technology industries. Chemical industries, which
we turn to next, tell a different story.
Chemical industries produce an incredibly diverse range of products,
from bulk chemicals like sulfuric acid, to synthetic materials
like plastics, to pharmaceuticals. n259 Despite
the diversity of products, however, invention in the chemical
industries shares several key attributes. To a large extent chemical
product invention tends to fit the "discrete invention"
model described earlier. n260 Thus product
patents tend to define a well delineated class of substances.
n261 Valium is valium and, although subject
to some variation, sulfuric acid is sulfuric acid. However, research
and development on new chemical products is subject to an unusual
degree of uncertainty and costly experimentation, both because
it is difficult to predict the precise chemical structure needed
to achieve a given end and because the effects of using a new
chemical substance in a particular way can be startling. n262
Further, once a new product or use is discovered, it is easy for
a competitor to replicate. [*898] Thus patent protection on products
or novel ways of applying them is vital if the inventor is to
reap returns. n263
In contrast with product technology, most chemical production
processes evolve cumulatively in the sense discussed earlier.
The first versions of new chemical processes tend to be amenable
to a wide range of improvements. Thus one might expect to see
the same kinds of problems regarding chemical process patents
as we have seen in our examination of other cumulative technologies
in the section above.
To analyze the importance of process and product inventions in
the chemical industries, it is helpful to disaggregate those industries
into three groups: bulk chemicals, synthetics, and pharmaceuticals.
1. Bulk Chemicals. -- Bulk chemicals consist of products
like sulfuric acid, ammonia, ethylene, and other substances that
have been known and widely used for some time. Many are natural
substances. In any case there are no effective product patents
on bulk chemicals. n264
As a consequence, most research and development is concerned with
creating new or improved processes. The development of chemical
process technology tends, as noted, to be cumulative; at any time
there tends to be one process that is the dominant mode of production.
From time to time a dominant process is superseded by a new one.
And the early patent or patents on that new process have the characteristics
of "pioneer" patents. However, these patents have not
generally been used to control subsequent development, which by
and large has proceeded with multiple sources of initiative. n265 This is due primarily to the inherently
limited power of control conferred by patents in the bulk chemical
field. n266 Pervasive cross licensing in chemical
industries confirms this. n267
[*899] Thus, until 1861 the Leblanc process dominated the production
of alkalis. n268 This process was widely licensed
and a number of different companies contributed to its improvement.
n269 When, in 1861, the Solvay process was
developed and patented, the original patent holder also had a
chance to control future development of the process. n270
However, here too the policy of the original patent holder was
one of reasonably wide licensing of the basic patent. A number
of different companies made improvements; these were also cross-licensed.
n271
Of course there are patent suits and short-term hold ups in the
field of bulk chemical process technology, but these problems
are usually settled and licensing is a general practice. n272
The recent development of new processes for making acrylamide
is a good example. Acrylamide is an organic chemical commonly
used to make polymers for "water treatment, pulp and paper
processing, textile treatment, food processing and other applications."
n273 Until the 1960s it was made in a two-step
process using sulfuric acid and ammonia. In the mid 1960s, researchers
at several different companies all began investigating ways to
improve the traditional process. n274 Both
Standard Oil and American Cyanamid came up with processes using
copper as the catalytic agent. Dow Chemical also made several
patentable inventions in this field. n275
Lawsuits were filed. Standard Oil sued American Cyanamid arguing
that American Cyanamid's process infringed Standard Oil's patent.
The court ruled against Standard Oil in this case. n276
On the other [*900] hand, Dow successfully sued American Cyanamid
for infringing its patents. n277 However,
after this round of legal scuffling, the companies cross licensed
each other. No single company tried to hold to itself the right
to use the new technology or control its future development. n278
In short, the pattern of development in bulk chemical process
technology is similar to several of the cases of cumulative technologies
considered earlier. It is sometimes possible to obtain a fairly
broad patent when a new technology is invented. n279
This has the potential to give its holder a measure of control
over subsequent development. However, by and large the chemical
companies have not used their patents that way, partly under the
pressure of competing inventions. These firms choose instead to
license or cross license. Thus several companies tend to be involved
in the subsequent development of the technology.
2. Synthetics. -- Product patents are slightly more important
in the field of synthetic materials, where they are sometimes
connected closely with process inventions; research on a new process
for making an established product may yield a distinct and patentable
version of the product. n280 But just as in
bulk chemicals, reasonably liberal licensing is common in the
synthetic chemical industry. n281
When Du Pont wanted to enter the business of producing Rayon it
took out licenses on the product and the key processes from the
French firm that held them. n282 Du Pont similarly
took out a license on Cellophane technology. n283
Subsequent research and development at Du Pont on both of these
products significantly improved them. n284
In turn, Du Pont licensed Nylon to both Imperial Chemical Industries
of Great Britain and IG Farben of Germany. n285
Both of these companies [*901] later came up with variants on
the original Nylon.
The fact that product patent claims are narrowly bounded keeps
the advance of synthetic material technology competitive. Thus
Du Pont's Nylon provided a superior alternative in many uses to
the earlier Rayon. n286 And newer fibers like
Dacron and Orlon subsequently replaced some of Nylon's market.
n287
Another good example of the interdependence of product and process
technology in synthetic materials is the effort to develop an
improved process for the manufacture of polyethylene. Research
teams at several firms worked on this project simultaneously.
In the 1950s researchers at the Max Planck Institute, led by a
chemist named Karl Ziegler, invented a superior process, based
on a new understanding of catalytic compounds. n288
Not only was the new process patentable, but due to the relatively
restrictive claims on the older polyethylene patent, the product
it produced was outside the scope of Imperial Chemical's basic
patents. n289
In turn, work by an Italian chemist, Giulio Natta, led to significant
improvements in the Ziegler process. Natta's group also discovered
a way to produce polypropylene, another important polymer. n290 Groups at other companies and research institutes
were following the same trail. At least five different companies
filed product patents on a version of polypropylene between 1953
and 1955. n291
Needless to say, the customary round of law suits resulted, and
[*902] dragged on for some time. n292 However,
the result was not that a single company controlled the basic
technology and improvements, but rather a series of cross-licensing
agreements which kept the technology open to a number of firms.
n293
3. Pharmaceuticals. -- We turn now to the two matters regarding
the scope of chemical patents which are especially important in
the pharmaceutical industry: what to do when someone discovers
a new use for an established product, and how to treat a process
invention that yields a much purer form of a natural substance
than was available earlier.
Earlier we observed that chemical products have a surprising range
of uses. Often some of these cannot be foreseen when a product
is invented and patented. In a number of cases researchers looking
for a [*903] way to meet a new need will discover that an old
product can do the job. In other cases, the discovery of a new
use may be accidental -- a byproduct of looking for something
else. In either case, this is important inventive work that ought
to be encouraged and rewarded. How to do this? The Patent Office
and the courts have been struggling with this issue for some time.
The general solution has been to award a process patent to the
discoverer of a new use. We cited a nonpharmaceutical example
earlier, the case of Rohm & Haas v. Roberts Chemical Co..
n294 In this case the defendant's patent on
use of a well-known product as a fungicide was upheld because
this use was not anticipated or claimed in the original patent.
n295 This process patent would not enable
the patent holder to produce the product in question, but rather
only to control its new use. If the use is an important one, such
a process patent can provide a substantial reward to the patent
holder. This is an important doctrine in the pharmaceutical industry,
where new uses are often discovered. n296
Another special problem that crops up in the chemical patent field
involves inventing a synthetic version of a substance found in
humans or animals. Typically the discovery involves enhancing
purity or lowering cost. Today this issue arises mainly in the
field of biotechnology, but the problem has existed for some time.
Thus in 1911 Learned Hand upheld a product patent on purified
human adrenalin made via a new process. n297
The patent was not simply on the process, but also on the purified
natural substance.
The problem with this practice is that it grants patents of unnecessarily
wide scope. The adrenalin patent would be infringed by the use
of a radically different, and better process for making the same
natural product unless the characteristics of the product were
judged substantially different. Yet the argument is not convincing
that what the original inventor invented was the product, in addition
to her particular process for making it.
The recent case involving Genentech, which we mentioned earlier,
illustrates the issue. Genentech had invented a recombinant DNA
method for producing the human blood clotting protein factor [*904]
VIII:C. n298 That process had major advantages
over an earlier, patented technique of purifying the substance
drawn from natural blood. Genentech's process was not only better;
it was completely different. Yet in the first part of the case,
the court upheld the earlier patent, held by the Scripps Institute,
on the ground that it was a legitimate product patent and thus
Genentech's new method of producing it was an infringement. n299
In a later ruling, the court invalidated the Scripps patent, saying
that it did not adequately disclose the purification method that
Scripps itself judged best. n300 But the court
did not retract its earlier judgement that a product patent was
quite legitimate in this case. We think this is unfortunate social
policy. It might well inhibit technical advance in biotechnology,
where much invention involves improving ways to produce purified
natural products. If the initial patent is granted on the product,
rather than the process for making it, subsequent process research
by others will be discouraged. This is a good example of a prospect
that will likely reduce competition for improvements. While licensing
by firms can mitigate this problem, there is no guarantee that
this will take place at such an early stage in the industry. n301
The doctrine of reverse equivalents might be employed to limit
the blocking power of product patents in appropriate cases. Under
this doctrine a court could rule that an important process invention
yielding a more purified form of the product escapes infringement.
Although compulsory licensing might be another option, our law
does not for the most part permit judicially mandated licensing.
n302
C. Science-Based Industries
Earlier, we discussed what makes an industry science-based. n303 Perhaps the most dramatic contemporary example
is the biotechnology industry. Scientific advances, especially
in molecular biology and biochemistry, created this industry,
and continue to feed it ideas, theories, discoveries, and techniques.
n304 Other examples include the chemistry
[*905] of catalysis and semiconductors during the 1950s, n305
and the burgeoning new field of superconductivity. n306
Because science-based industries rely so heavily on scientific
discoveries, one relevant patent issue is the appropriate scope
of patents in the face of the (usually published) science that
makes invention in these industries possible.
The modern biotechnology industry is built around two different
sets of technologies: recombinant DNA and monoclonal antibodies.
Both of these are based on prior, more general advances in molecular
biology and both were initially discovered and employed by scientists
concerned with pure research. One of these technologies was originally
developed in 1975 by Kohler and Milstein, who discovered that
individual immune system cells, which generate antibodies to a
specific antigen, could be fused with immortal cancer cells, to
create a small "factory" for producing antibodies. n307 They did not take out a patent on their
discovery. They were awarded a Nobel prize. n308
The pathbreaking Kohler-Milstein research almost immediately was
recognized as opening up a myriad of commercial possibilities.
n309 Hybritech was an early entry into the
race to develop applications. It was the first to use monoclonal
antibodies in diagnostic kits sold to doctors and hospitals to
identify the presence of diseases (e.g., AIDS) or heightened hormone
levels (e.g. pregnancy tests). It received a patent covering this
whole family of diagnostic kits.
Other companies saw exactly the same opportunity, if not so quickly.
Monoclonal Antibodies, Inc. was one of these, and it created a
similar technique after Hybritech. Monoclonal Antibodies, Inc.
made and sold these kits, and Hybritech sued. n310
Monoclonal defended by claiming the Hybritech patent invalid,
at least in its broad scope, because given the work of Kohler
and Milstein the generic technique was obvious. The trial court
recognized the argument, and acknowledged:
[T]he major advance was the invention of Kohler and Milstein [*906]
in the making of monoclonal antibodies . . . . Onece the scientific
community had the monoclonal antibody it was obvious and logical
to those expert in the field to use them in known assays as substitutes
for . . . polyclonal antibodies . . . of inferior qualities. n311
However, on appeal, the patent was held valid. Granted, the call
was not an easy one: Hybritech clearly invented something. The
question was, given that it was building on public science, what
was the limit of its contribution? The Patent Office allowed Hybritech
a broad prospect and the court concurred.
While a case has not come to court yet, the Patent Office also
allowed Genentech a very broad prospect on the second major technology
of the new biotechnology industry, expression of recombinant proteins.
The basic genetic technique was developed earlier by two scientists,
Cohen and Boyer. n312 The two scientists involved
saw their basic technique -- the insertion of a specific gene
into a host cell and subsequent expression of the protein product
for which the gene codes -- primarily as a contribution to ongoing
public science. Their universities urged them to take out a patent,
which they did, but the patent is licensed to all comers. n313
Genentech's patent is an extension of the Cohen-Boyer work. n314 It covers the basic technology of gene expression,
where the firm clearly made a major early contribution. n315
Their contribution was to refine existing gene expression techniques
to achieve the first successful expression of a human protein
in a bacterium. n316
In their specification, the inventors describe one particular
technique for expressing and recovering proteins and apply this
technique to the production of two polypeptides. n317
The technique disclosed in the patent no doubt legitimately covers
many more specific embodiments than those expressly disclosed.
But it can be argued that they simply were the first to bring
to practice techniques that persons "skilled in the art"
knew could be made to work. It is difficult to tell yet whether
the breadth implicit in this patent will hold up, but it has created
a good deal of trepidation in the industry. n318
According to the [*907] head of a rival biotechnology firm, "If
interpreted most narrowly, there are certain bacterial [production]
systems that wouldn't even be covered. If interpreted most broadly,
it could cover all production systems in bacteria, yeast and cells."
n319
Fortunately for the industry, an even broader patent on gene expression
was rejected on obviousness grounds because several of the inventors
published results prior to the invention. n320
The investigators had discovered that a gene for a non-operational
protein taken from a frog could be inserted into a bacterium and
expressed there. n321 On the basis of that
research they filed a patent claiming a process for producing
proteins comprising "linking a natural or synthetic heterologous
gene [i.e., one from a foreign source] . . . to [an] indigenous
[bacterium] gene portion." n322 It is
worth noting that there is no indication that these claims would
have been rejected because of their breadth. Thus if the prior
publication had not been judged to render the claimed invention
obvious, it might have received a patent. Judging from the quoted
claim language, this would have been very broad indeed.
Biotechnology is not the only industry where scientific breakthroughs
[*908] sparked a scramble to obtain broad patents. The current
rush to obtain patents over superconductors demonstrates that
patent positioning often is important at the birth of science-based
industries. n323
As a new science-based technology matures, the issues relating
to patent scope change largely because particular technologies
become established. Thus the early work on catalysis was science
based. But as catalysts were developed, further innovation became
more cumulative than science-based. Step-by-step process improvements
now dominate the field, succeeding the early advances that came
quickly on the heels of the Ziegler and Natta research. As a result,
the issues involved in setting appropriate patent scope change
as an industry advances.
NOTES
* Associate Professor, Boston University School
of Law.
** Henry Luce Professor of International Political
Economy, ColumbiaUniversity.
We would like to acknowledge the helpful comments and suggestions
receivedfrom the following people: Harold Edgar, Donald Chisum,
Rebecca Eisenberg,Joe Brodley,Steve Marks, and participants in
Faculty Workshops at Boston University and Columbia University
law schools. They contributed helpful advice, but none of the
shortcomings that may remain. We are grateful for support from
the Julius Silver Programin Law,Science and Technology at the
Columbia Law School, and from the SloanFoundation through its
funding of the Consortium on Competition andCooperation.
n122 W. Nordhaus, supra note
3.
n123 See Kaplow, The Patent-Antitrust
Intersection: A Reappraisal, 97 Harv. L. Rev. 1813, 1855-67
(1984). Compared with other economic analyses of restrictive
licensing practices, Kaplow's approach differs in that he is careful
to emphasize the net social benefits of granting a particular
patent. Kaplow criticizes Bowman and Baxter for relying on the
notion that the individual inventor should be given a patent and
allowed to license it using restrictive practices if that inventor's
reward is less than or equal to the value of her invention to
society. Id. at 1849-54. "Such a view," according
to Kaplow, "incorrectly focuses on total social benefits,
rather than net social benefits (the excess of total benefits
over total costs)." Id. at 1828. Kaplow thus structures
his analysis of an optimal system so as to take account of the
social cost of granting a patent or permitting a restrictive practice.
n124 See R. Gilbert & C. Shapiro,
supra note 2, at 2.
Increasing the breadth of the patent typically is increasingly
costly, in terms of deadweight loss, as the patentee's market
power grows. When increasing the length of the patent, by contrast,
there is a constant tradeoff between the additional reward to
the patentee and the increment to deadweight loss . . . . So,
the socially cost-effective way to achieve a given reward to innovators
is to have infinitely-lived patents with enough breadth to attain
the required reward level.
Id.; P. Klemperer, supra note 2, at 2 ("Since any single
prize . . . will induce the same r&d activities, we can equivalently
think of choosing [patent length and breadth] to minimize the
social cost stemming from the resulting monopoly provision rather
than the perfectly competitive provision of a new product . .
. .").
n125 For an overview of work in this
area, see M. Kamien & N. Schwartz, Market Structure and Innovation
105-12 (1982).
n126 See, e.g., Lippman & McCardle,
Dropout Behavior in R&D Races with Learning, 18 Rand J. Econ.
287 (1987). See supra notes 12-14 and accompanying text. Note
that in his article on restrictive licensing practices Kaplow
leaves room for a consideration of some long-term effects:
Kaplow, supra note 123, at 1828 n.35.
n127 See supra note 124.
n128 At least insofar as both length
and scope enter into the "tradeoff" analysis. Note,
however, that broad claims influence who will be involved in further
work in the technology and on what terms. This is different from
giving a patent holder a long time to control a particular invention,
as Gilbert and Shapiro note. See R. Gilbert & C. Shapiro,
supra note 2, at 2 (explaining that their model focusses on patent
scope because increases in scope have greater preclusive effect
than increases in length).
n129 See R. Gilbert & C. Shapiro,
supra note 2, at 4-5 (effect of substitutes on price patentee
can charge); P. Klemperer, supra note 2, at 3 (modelling cost
of precluded substitutes by picturing consumers travelling along
a product distribution line (Hotelling model)). The article by
McFetridge & Rafiquzzaman, supra note 2, raises the same general
problem. These authors argue that the greater the degree of postpatent
competition, or potential competition, the greater the price discipline
on the innovator. The degree of competition is dependent on the
scope of protection given to the innovator. In this model competition
eats into the percentage of cost savings brought about by the
innovator's invention. See id. at 104. This model points generally
to the same conclusions reached in the Gilbert and Shapiro paper.
But note that it considers only the effect of patents on the development
of substitutes for that patented technology and not the effect
of the patent on improvements and extensions of the patented technology.
It is in this sense still more static than dynamic in its approach
and, hence, different from the view taken here.
n130 But cf. R. Gilbert & C. Shapiro,
supra note 2, at 7-8 (cautioning in conclusion that infinitely-lived
patents, with reward adjusted solely by variations in scope, could
"retard subsequent innovation by establishing monopoly rights
to an entire line of research").
n131 See, e.g., Barzel, Optimal Timing
of Innovations, 50 Rev. Econ. & Statistics 348 (1968); Dasgupta
& Stiglitz, Uncertainty, Industrial Structure and the Speed
of R & D, 11 Bell J. Econ. 1 (1980); Wright, The Resource
Allocation Problem in R & D, in The Economics of R & D
Policy 41 (G. Tolley ed. 1985).
n132 See, e.g., Tandon, Rivalry and
the Excessive Allocation of Resources to Research, 14 Bell J.
Econ. 152 (1983); Wright, supra note 131.
n133 See, e.g., Dasgupta and Stiglitz,
supra note 131; Lee & Wilde, Market Structure and Innovation:
A Reformulation, 94 Q.J. Econ. 427 (1980); Scherer, Research and
Development Resource Allocation Under Rivalry, 81 Q.J. Econ. 359
(1967). For recent treatments of the topic, see Lippman &
McCardle, supra note 126; see also Wright, supra note 131, at
41, 49-56 (describing the relationship between the general common
pool model and what we call "race" models: "The
dissipation of the benefits of research before the socially optimal
time . . . is a dynamic intertemporal version of the same type
of market failure [described in the common pool models].").
n134 See, e.g., Dasgupta, Patents, Priority
and Imitation or, The Economics of Races and Waiting Games, 98
Econ. J. 66 (1988) (exploring conditions that make waiting more
profitable than entry in races to invent); Katz & Shapiro,
R & D Rivalry with Licensing or Imitation, 77 Am. Econ. Rev.
402 (1987) (exploring effects of post-invention dissemination,
i.e., licensing or imitation, on two-firm strategic race to invent).
n135 Kitch, supra note 12, at 276-77.
In some respects, William Kingston's idea of an "innovation
warrant" is similar to the "breathing room" aspect
of the prospect theory. Kingston, The Unexploited Potential of
Patents, in Direct Protection of Innovation 1, 1-34 (W. Kingston
ed. 1987). What Kingston has in common with Kitch is a focus on
incentives to develop markets. But Kingston's proposal is to give
patent-like "innovation warrants" to the first firm
to commercialize even a minor innovation. This, of course, differs
from Kitch, who implicitly assumes the desirability of maintaining
the patent system's current focus on technological advance, rather
than on mere market innovation.
n136 Kitch, supra note 12, at 279.
n137 Kitch notes that U.S. mining law
performs these two functions as well. Id. at 271-75.
n138 Id. at 286.
n139 Id.
n140 The concept originated with the
economist Herb Simon. See Simon, Theories of Decision-Making in
Economics and Behavioral Science, 49 Am. Econ. Rev. 253, 262-65
(1959); see also J. March & H. Simon, Organizations 140-41
(1958) (most decision making concerned with discovery and selection
of satisfactory, rather than optimal, alternatives). This view
is reflected in the work of some analysts of innovation:
M. Kamien & N. Schwartz, supra note 125, at 68. See generally
R. Brenner, Rivalry in Business, Science, Among Nations 1-28 (1987).
Brenner describes a broad and somewhat iconoclastic view of entrepreneurship
as an activity brought on by frustration and adversity -- the
need to take a gamble. He points out that an increase in rivalry
can bring about these conditions, and thus ties increased rivalry
and competition to increased innovation.
n141 The transition from entrepreneur
to established, cautious firm can be breathtakingly fast. An historian
who studied the beginning of the electrical lighting industry
in the U.S. pointed out that in ten years, Thomas Edison moved
from a maverick trying to get incandescent lighting accepted as
feasible to a staunch opponent of the "dangerous" innovation
of alternating current. H. Passer, The Electrical Manufacturers
1875-1900, at 174 (1953). The same phenomenon has been noted repeatedly.
See, e.g., Scherer, Invention and Innovation in the Watt-Boulton
Steam-Engine Venture, 6 Tech. & Culture 165, 174 (1965), quoting
a letter from James Watt, inventor of the steam engine, to his
partner James Boulton:
See also M. Kamien & N. Schwartz, supra note 125, at 74-75
(examining alternative explanations of why innovators stop innovating).
n142 See R. Nelson & S. Winter,
An Evolutionary Theory of Economic Change, passim (1982).
n143 See R. Nelson & S. Winter,
supra note 142, at 389. To the extent that the holder of a broad
patent has market power, it is relevant to note that analysts
of monopoly power often remark on the monopolist's reduced incentives
to innovate. See K. Arrow, Economic Welfare and the Allocation
of Resources for Invention, in The Rate and Direction of Inventive
Activity 609, 619-22 (R. Nelson ed. 1962) (concluding from model
that monopolist's incentive to innovate is lower than inventor
in competitive industry); M. Kamien & N. Schwartz, supra note
125, at 29-30:
n144 Invention and innovation are
notoriously uncertain activities. C. Freeman, The Economics of
Industrial Innovation 148-50 (2d ed. 1982); E. Mansfield, J. Rapoport,
J. Schnee, S. Wagner & M. Hamburger, Research and Innovation
in the Modern Corporation 9-10 (1971).
n145 As discussed earlier, many improvements
are patentable, a fact that demonstrates the independent inventive
contribution necessary to make a significant improvement. See
supra notes 96-99 and accompanying text. A study of the history
of innovations in almost any field will show the key importance
of improvement inventions. One good source of such studies is
E. von Hippel, The Sources of Innovation 131-207 (1988) (innovation
histories of ten industries). See, for example, von Hippel's description
of innovations in scientific instruments, several of them patented.
He describes the invention of the gas chromatograph, id. at 133-35;
then details the improvements in temperature programming, id.
at 135; capillary columns, id. at 135; silanization ("[a]
major step forward"), id. at 136; argon ionization (patented),
id. at 138; electron capture detector, id. at 139; flame ionization
detector (patented), id. at 139; mass spectrograph linkage (patented),
id. at 140; and process control interface, id. at 141. Likewise,
von Hippel describes the invention of nuclear magnetic resonance
(NMR) imaging, id. at 143, then describes fourteen major improvements,
id. at 145-53. The same pattern holds true for all his innovation
histories. Although von Hippel does not directly compare the difficulty
-- hence cost -- of improvement inventions, it is clear from his
descriptions that many of the improvements were significant technical
achievements. Thus cost and difficulty can be inferred.
n146 See, e.g., F. Contractor, International
Technology Licensing: Compensation, Costs, and Negotiation 104-05
(1981) (transaction costs averaged over $100,000 for licensing
deals studied); D. Teece, The Multinational Corporation and the
Resource Cost of International Technology Transfer 44 (1976) (transfer
costs constituted over 19% of total project costs in international
projects studied); E. von Hippel, supra note 145, at 48 (summarizing
empirical studies finding generally low net returns from licensing).
More subtle transaction costs, such as possible opportunistic
behavior, are described in F. Bidault, Technology Pricing: From
Principles to Strategy 126-27 (B. Page & P. Sherwood trans.
1989), and Teece, Profiting from Technological Innovation: Implications
for Integration, Collaboration, Licensing and Public Policy, 15
Res. Pol'y 285, 294 (1986).
n147 In addition to the studies by Teece
and Contractor cited supra note 146, this point is illustrated
by the terms of a broad cross-licensing agreement between DuPont
and Imperial Chemical Industries, Ltd., of Great Britain. The
agreement provided for blanket licensing of all patents owned
by the two companies (one of the reasons it was found to have
masked a cartel, see infra note 338), but "there was a clause
allowing either party to remove a 'major invention' from the agreement
altogether, so that they could make special terms." 2 W.
Reader, Imperial Chemical Industries: A History 52-53 (1975).
n148 Caves, Crockell & Killing,
The Imperfect Market for Technology Licenses, 45 Oxford Bull.
Econ. & Statistics 249,260-62 (1983). A group led by Edwin
Mansfield of the University of Pennsylvania reached the same general
conclusion after conducting a similar empirical study. See E.
Mansfield, A. Romeo, D. Teece, S. Wagner & P. Brach, Technology
Transfer, Productivity, and Economic Policy (1982).
n149 Kitch, supra note 12, at 273 (footnote
omitted).
n150 Id. See 30 U.S.C. §§
23, 36 (1988); Hubbard, Drafting Private Agreements Relating
to Public Lands, 3 Nat. Resources & Env't 9, 10 (1988).
n151 See 30 U.S.C. §§ 23,
35; Comment, The General Mining Law and the Doctrine of Pedis
Possessio: The Case for Congressional Action, 49 U. Chi. L.
Rev. 1026, 1027 n.6 (1982).
n152 Before a claim can be filed under
federal law, one must identify a mineral deposit. 30 U.S.C.
§ 23. See Thomas v. Morton, 408 F. Supp. 1361 (D.
Ariz. 1976), aff'd sub nom. Thomas v. Andrus, 552 F.2d
871 (9th Cir. 1977) (per curiam).
n153 30 U.S.C. § 28.
n154 State law protection is carried
out under the doctrine of pedis possessio. See Comment, supra
note 151, at 1032-46. On the work requirement and the closely
related requirement of actual occupancy under this doctrine, see
id. at 1033-34. In his study on the evolution of property rights
among prospectors during the California Gold Rush, John Umbeck
observes that even the earliest contracts establishing such rights
included limitations on claim size and minimum working requirements.
J. Umbeck, A Theory of Property Rights With Application to the
California Gold Rush 91-98 (1981).
n155 The literature on common fisheries
suggests that a similar consideration influences the design and
allocation of fishing rights. This literature details a number
of formal and informal limitations on the scope of fishing rights
that are either in effect or have been proposed. See Charles,
Fishery Socioeconomics: A Survey, 64 Land Econ. 276, 279-80 (1988);
see also Clark, Major & Mollett, The Development and Implementation
of New Zealand's ITQ Management System, in Rights Based Fishing
117, 128 (P. Neher, R. Arnason & N. Mollett eds. 1989) (describing
New Zealand fish stock management system, which solves common
pool overfishing problem by granting to fishermen "Individual
Transferable Quotas" (ITQs), limited in scope by the volume
of past catches); Gardner, The Enterprise Allocation System in
the Offshore Groundfish Sector in Atlantic Canada, in Rights Based
Fishing, supra, at 293, 299, 319 (describing similar allocation
system based on historical catches in Canadian fishing industry,
which made "[t]he race for fish . . . a thing of the past").
n156 See, e.g., Coase, The Problem of
Social Cost, 3 J.L. & Econ. 1 (1960); H. Demsetz, Toward
a Theory of Property Rights, in 1 Organization of Economic Activity
104 (1988).
n157 See H. Demsetz, supra note 156,
at 112-13 (discussion of bargaining using example of patents);
see also Anderson, Conceptual Constructs for Practical ITQ Management
Policies, in Rights Based Fishing, supra note 155, at 191, 196
(concluding that the market for randomly-allocated ITQs would
lead to efficient allocation via trading among firms).
n158 See R. Cooter & T. Ulen, Law
and Economics 105 n.15 (1988).
n159 Consider a numerical example. Suppose
an inventor has expected profit of $1000 from a pioneering invention.
An improver has developed a modification which the improver expects
will bring profits of $400. But the improver's entry into the
market will reduce the pioneer's profits by $300 because the improvement
substitutes for some component in the pioneer's product, reduces
the need for replacement parts or the like. If the pioneer's patent
covers the improvement, the improver must take out a license.
If this is known in advance, the pioneer will demand to be compensated
out of the improver's profits for its $300 loss in profits. The
improver's expected profit -- after paying a royalty to the pioneer
under the license -- will be only $100. But if the pioneer's rights
do not cover the improvement, the improver can market it without
a license from the pioneer. Then the improver's expected profit
will once again be $400. It is important to note two things about
this example: first, it demonstrates the increased incentives
for improvements when initial rights are narrow. But second, it
also clearly demonstrates the cost of narrow scope -- a reduced
incentive for the pioneer to innovate in the first place. (Note
that with narrow rights, the pioneer's expected profits drop from
$1000 to $700 after the improver enters without taking out a license.)
In fact, taken to its logical conclusion, this is an argument
for no patent rights at all, clearly the wrong result. Consequently
it is important to restate one point: We are not advocating extremely
narrow rights, designed to maximize the incentives to improve;
we are arguing that, in close cases where scope doctrines are
at issue, decision makers should opt for narrow scope to advance
the important interests of society in encouraging improvements.
n160 In fact, it is the positive-sum
aspects of allowing more competition for improvements that lead
us to advocate narrowing the scope of the initial inventor's patent.
In addition, of course, are the well-known problems of transaction
costs; it seems whimsical to assume that all improvers and potential
improvers will be able to bargain with the holders of pioneering
patents. Imagine the magnitude of these costs: identifying all
the prospective improvers; agreeing on the value of the pioneering
invention and the expected value of the improvement; and finding
an acceptable division of profits from the "surplus"
created when the improvement is combined with the pioneer invention.
For some background on the strategic aspects of licensing transactions,
see F. Bidault, supra note 146, 83-137; see also Meurer, The Settlement
of Patent Litigation, 20 Rand J. Econ. 77,77 (1989) ("patent
validity disputes are not always resolved with licensing agreements
because of incentive problems created by private information about
validity"). For a heroic effort to imagine a world where
these costs are manageable, see Yu, A Contractual Remedy to Premature
Innovation: The Vertical Integration of Brand-Name Specific Research,
22 Econ. Inquiry 660 (1984) (arguing that (1) current property
rights encourage "rushing" of innovation, and (2) a
contractual solution exists whereby manufacturers form pre-invention
contracts with prospective inventors). On the effect of multiple
bargainers, see generally Cooter, Coase Theorem, in 1 The New
Palgrave: A Dictionary of Economics 457, 458 (1987) (example of
many farmers in Coase's famous farmer-railroad bargaining hypothetical).
Without such bargaining the exchange mechanism on which the property
rights literature relies so heavily cannot work. It is worth noting
in this regard that even in the property rights-based fish harvest
schemes described above, the scope of initial entitlements is
carefully crafted. See, e.g., Gardner, supra note 155, at 298.
n161 For a general discussion, see Nelson,
Capitalism as an Engine of Progress, Res. Pol'y (forthcoming).
n162 See, e.g., Griliches, Introduction,
in R & D, Patents, and Productivity 1, 17 (Z. Griliches ed.
1984) (listing several problems concerning the ability to detect
the major effects of research and development on productivity).
One issue that is prior to these -- and that to some is still
undecided -- is whether growth should be the goal of an economic
system at all. See generally H. Arendt, The Rise and Fall of Economic
Growth (1978) (intellectual history of the economic concepts of
progress, growth, and development). For a summary of criticisms
of growth, see id. at 84-97.
n163 See, e.g., Pakes & Griliches,
Patents and R & D at the Firm Level: A First Look, in R &
D, Patents & Productivity, supra note 162, at 55. Of course,
one might argue that narrowing patent scope at the margin will
redirect investment away from pioneering inventions and toward
improvements on existing products. But two factors mitigate this.
First, reducing scope at the margin will not completely eliminate
the advantages of a pioneering invention over an improvement.
Even without patents, pioneering inventions can lead to much higher
returns than mere improvements. Second, narrower scope does not
mean that pioneering inventions have only the scope of an improvement.
There is still a good deal of difference between a narrower-at-the-margins
pioneering patent and a mere improvement patent.
n164 See, e.g., F. Scherer, Innovation
and Growth: Schumpeterian Perspectives 257-59, 270-85 (1984).
n165 A. Link & G. Tassey, Strategies
for Technology-Based Competition 7 (1987); D. Jorgenson, Microeconomics
and Productivity, in The Positive Sum Strategy: Harnessing Technology
for Economic Growth 57, 57-76 (R. Landau & N. Rosenberg, eds.
1986); cf. H. Arendt, supra note 162, at 142-51 (describing the
strong consensus in favor of economic growth).
n166 A noted economist who studied technical
change made a related point. Machlup, The Optimum Lag of Imitation
Behind Innovation, in Selected Economic Writings of Fritz Machlup
485, 502 (G. Bitros ed. 1976) (concluding that "longer imitation
lags are uneconomical . . . , [but] no reliable clue has turned
up as to the length of the optimum lag"). There has been
some debate, however, over the question of the optimal timing
of innovations and improvements. See, e.g., F. Scherer, supra
note 164, at 67-82; Nelson, Uncertainty, Learning, and the Economics
of Parallel Research and Development Efforts, 43 Rev. Econ. &
Statistics 351 (1961). But note that this literature studies optimal
timing from the point of view of the innovating firm; from society's
point of view, there may be additional advantages to sooner rather
than later.
n167 See 35 U.S.C. § 102(g)
(1988).
n168 See 3 D. Chisum, supra note 45,
§ 10.03[1] (describing priority of invention rules, noting
that first to reduce to practice is prima facie true inventor,
and other inventors who wish to claim priority must prove earlier
date of conception).
n169 See 35 U.S.C. § 102(b)
(person entitled to patent unless, inter alia, invention was published,
used or sold more than one year before application was filed).
n170 On cumulative industries, see R.
Nelsond & S. Winter, supra note 142, at 255-62.
n171 See supra notes 25-29 and accompanying
text.
n172 See J. Jewkes, D. Sawers &
R. Stillerman, The Sources of Invention 234-35 (2d ed. 1969).
n173 See E. von Hippel, supra note 145,
at 53 ("[T]he mechanisms by which pharmaceuticals achieve
their medical effects are often not well understood. When this
is so, potential imitators cannot gain much helpful insight from
examining a competitor's patented product.").
n174 See, e.g., Graham v. John Deere
Co., 383 U.S. 1, 26, 148 U.S.P.Q. (BNA) 459 (1966) (invalidating
patent on spray pump bottle with hold-down cap); K. Brown, Inventors
at Work; Interviews with 16 Notable American Inventors 366-68
(1988) (interview with Nat Wyeth, inventor of the plastic soda
bottle).
n175 See, e.g., Moleculon Research
Corp. v. CBS, Inc., 872 F.2d 407, 10 U.S.P.Q.2d (BNA) 1390 (Fed.Cir.
1989) (finding no infringement of patent on "Rubik's
Cube").
n176 Ballpoint pens, for instance, involve
basically a barrel, the point and ink. Note that even here, however,
improvement inventions are possible -- just not very many of them,
compared to cumulative technologies. See, e.g., J. Jewkes, D.
Sawers & R. Stillerman, supra note 172, at 235 (describing
invention of quick-drying ink by inventor unaffiliated with ballpoint
pen inventors). Thus even ballpoint pens have some of the qualities
of a cumulative technology -- demonstrating the difficulties of
any classification scheme along this dimension. Nevertheless,
overall, they must be characterized as a discrete technology.
n177 See R. Nelson & S. Winter,
supra note 142, at 255-62; see also D. Sahal, Patterns of Technological
Innovation 37 (1981) (describing cumulative nature of technical
advance in aluminum products, electrical generation, petroleum
refining and synthetic fiber production); Levin, Appropriability,
R&D Spending, and Technological Performance, 78 Am. Econ.
Rev. 424, 427 (1988) (contrasting chemical and drug industries
prior to advances in genetic engineering -- which the author uses
as examples of discrete technologies -- with "cumulative
industries" such as electronics). It should be noted that
at least one analyst of technical change sees all technical progress
as the process of cumulative change. See D. Sahal, supra, at 112.
n178 See, e.g., S. Hollander, The Sources
of Increased Efficiency: A Study of DuPont Rayon Plants 203-04
(1965) (concluding that "minor" improvements "accounted
for over two-thirds of the unit-cost reductions attributable to
technical change at most of the plants considered"); Enos,
A Measure of the Rate of Technological Progress in the Petroleum
Refining Industry, 6 J. Indus. Econ. 180, 187 (1958) (emphasizing
the cumulative quantitative importance of small improvements in
petroleum refining processes).
n179 A good description of the nature
of invention can be found in the innovation histories of the industries
studied by Eric von Hippel that we would classify as cumulative.
See E. von Hippel, supra note 145, at 163-82 (semiconductors);
id. at 188-95 (tractor shovels). The latter series of innovations
are, of course, only one component in the overall composition
of farm tractors. See D. Sahal, supra note 177, at 132-36.
n180 See, e.g., Dosi, Technological
Paradigms and Technological Trajectories: A Suggested Interpretation
of the Determinants and Directions of Technical Change, 11 Res.
Pol'y 147 (1982).
n181 For example, the semiconductor
industry supplies an essential component for electronics, automobiles
and many other products. See T. Howell, et al., The Microelectronics
Race 4-13 (1988).
n183 See supra notes 96-121 and accompanying text.
n184 See supra note 97 and accompanying text.
n182 See infra notes 191-222 and accompanying
text.
n183 See supra notes 96-121 and accompanying
text.
n184 See supra note 97 and accompanying
text.
n185 C. Taylor & Z. Silberston,
The Economic Impact of the Patent System: A Study of the British
Experience 252 (1973) ("unpredictability [of the behavior
of chemicals in the human body] is of a much higher order than
that found in non-biological areas of chemical research -- and
very much higher than that in engineering fields"); 2 D.
Chisum, supra note 45, § 5.04[6], at 5-312 ("[A] newly-synthesized
compound may be very similar in structure to known and existing
compounds and yet exhibit very different properties."). Several
of the rules governing chemical patents reflect the inability
routinely to predict function given a certain chemical structure.
See, e.g., In re Papesch, 315 F.2d 381, 386-89, 137 U.S.P.Q.
(BNA) 43, 47-50 (C.C.P.A. 1963) (describing chemical obviousness
doctrine whereby compound's structural similarity to prior art
raises presumption that compound is obvious that can be overcome
by evidence that claimed compound exhibits new and unexpected
properties); In re Fisher, 427 F.2d 833, 839, 166 U.S.P.Q.
(BNA) 18, 24 (C.C.P.A. 1970) ("In cases involving unpredictable
factors, such as most chemical reactions and physiological activity,
the scope of enablement obviously varies inversely with the degree
of unpredictability of the factors involved."). On this latter
point, see supra note 68 (discussion of Patent Office rules on
enablement in various arts).
n186 See, e.g., D. Hounshell & J.
Smith, Science and Corporate Strategy: DuPont R&D, 1902-1980,
at 480-81 (1988) (describing applications of Du Pont's polyethylene
in all segments of the plastics market); id. at 482-86, 708 n.42
(describing wide ranging applications for polytetrafluoroethylene,
tradename Teflon).
n187 See R. Nelson & S. Winter,
supra note 142, at 334-37; Dosi, supra note 180, at 148-49 (description
of science-based industries using a different industry taxonomy).
n188 Other examples of science-based
industries include medical diagnostic equipment (e.g., nuclear
magnetic resonance), lasers, and the still nascent superconductor
industry. See generally M. Kenney, Biotechnology: The University-Industrial
Complex (1986); Kenney, Schumpeterian Innovative and Entrepreneurs
in Capitalism: A Case Study of the U.S. Biotechnology Industry,
15 Res. Pol'y 21 (1986) (describing role of scientists, as well
as entrepreneurs and capitalists).
n189 See, e.g., the description of the
commercial development of diagnostic testing kits using monoclonal
antibodies, infra notes 307-313 and accompanying text.
n190 In theory, the nonobviousness requirement
of 35 U.S.C. § 103 (1988) will prevent such obvious
inventions from receiving patents. In practice, for a variety
of reasons, this requirement does not always function properly.
See Merges, Commercial Success and Patent Standards: Economic
Perspectives on Innovation, 76 Calif. L. Rev. 803, 857-58 (1988)
(discussing invention of monoclonal antibody in critique of nonobviousness
doctrine).
n191 H. Passer, supra note 141, at 152.
n192 Edison Elec. Light Co. v. United
States Elec. Lighting Co., 47 F. 454 (C.C.S.D.N.Y. 1891),
aff'd, 52 F. 300 (2d Cir. 1892).
n193 See A. Bright, The Electric-Lamp
Industry: Technological Change and Economic Development from 1800
to 1947, at 89 (1949).
n194 Id. at 89. See United States
v. General Elec. Co., 82 F. Supp. 753, 771, 80 U.S.P.Q. (BNA)
195, 205 (D.N.J. 1949) (describing Edison patents and their
"virtual monopoly of the domestic supply in electric lamps"
from 1891 to 1894, in finding defendant liable for various antitrust
violations).
n195 A. Bright, supra note 193, at 91,
92 (Table XI). The patent expired in 1894 -- instead of 1897,
seventeen years after issue -- because a Canadian counterpart
patent expired in 1894, and thus (under then-existing law), so
did the U.S. patent. See id. at 91.
n196 Id. at 93.
n197 Id.
n198 Id. at 108.
n199 Id. at 122.
n200 Id. at 122-23. See M. MacLaren,
The Rise of the Electrical Industry During the Nineteenth Century
79 (1943) (describing corporate alliances in early electrical
industry resulting from patent blockages); H. Passer, supra note
141, at 324-25 (describing extensive patent blockages leading
to merger of Edison General Electric and the Thomson-Houston Company
to form General Electric).
n201 A. Bright, supra note 193, at 138.
n202 Id. at 138-39. On General Electric's
need to catch up technologically after the Edison patent expired
in 1894, see T. Hughes, American Genesis: A Century of Invention
and Technological Enthusiasm, 1870-1970, at 166-67 (1989). For
a desciption of organizational complacency, and the "shocks"
that can break a firm out of a comfortable torpor, see Cyert &
March, Organizational Structure and Pricing Behavior in an Oligopolistic
Market, 45 Am. Econ. Rev. 129 (1955) (firms with suddenly declining
market shares strove more vigorously to increase their sales than
firms whose shares were steady or increasing). In another paper,
Cyert and March provided an explanation: firms are complacent
"until some form of shock (such as failing to meet its goals)
forces a kind of search behavior on the organization." Cyert
& March, Organizational Factors in the Theory of Oligopoly,
70 Q.J. Econ. 44, 54 (1956).
n203 H. Passer, supra note 141, at 41.
n204 See Gramme Elec. Co. v. Arnoux
& Hochhausen Elec. Co., 17 F. 838 (C.C.S.D.N.Y. 1883).
n205 H. Passer, supra note 141, at 41.
n206 See A. Bright, supra note 193,
at 109; A. Marcus & H. Segal, Technology in America: A Brief
History 144 (1989) ("Brush's initial success in manipulating
dynamos, circuits, and arc lamps . . . engendered competition
and yielded improvements" from several competitors).
n207 Arc lights work because an electrical
current will jump a gap between certain conductors. This is a
different principle from the incandescent lamp, which casts light
because the current meets resistance in the filament, causing
the filament to glow. Arc lights are brighter; this is why they
have been extensively used in outdoor lighting, for instance.
n208 Brush Elec. Co. v. Western Elec.
Co., 69 F. 240, 246 (C.C.N.D. Ill. 1895), aff'd, 76 F.
761 (7th Cir. 1896). Another case previously had held that
the Brush patent had been infringed by he same device at issue
in the Western Electric case, but Brush apparently was unwilling
to litigate the patent for a third time because the later Western
Electric decision is the last regarding this patent. See Brush
Elec. Co. v. Western Elec. Light & Power Co., 43 F. 533
(C.C.N.D.) Ohio 1890).
n209 H. Passer, supra note 141, at 42.
See M. MacLaren, supra note 200, at 70-71 (describing the many
investigators who were attempting to make improvements to the
basic arc light design); D. Noble, America By Design: Science,
Technology and the Rise of Corporate Capitalism 7 (1977) ("Neither
the arc lamp nor the dynamo proved patentable in court tests,
however, and, as a result, the manufacture of arc-lighting systems
became fiercely competitive.") The Brush Company actually
tried to establish patent dominance over another segment of the
industry -- the market for replacement lamp carbons. This effort
failed when, in 1887, its patent on copper-coated carbons was
held invalid; once again, the result was an industry that "strongly
resembled the economist's conception of pure competition . . .
. " Id. at 62.
n210 See supra notes 31-34 and accompanying
text.
n211 See, e.g., Wright Co. v. Herring-Curtiss
Co., 204 F. 597 (W.D.N.Y. 1913), aff'd 211 F. 654 (2d Cir.
1914); Wright Co. v. Paulhan, 177 F. 261 (C.C.S.D.N.Y.)
(L. Hand, J.), rev'd, 180 F. 112 (2d Cir. 1910); W. Kaiser
& C. Stonier, The Development of the Aerospace Industry on
Long Island: Financial and Related Aspects 4-11 (Hofstra Univ.
Yearbook of Business, Series 5, vol. 4 1968); supra notes 31-34
and accompanying text.
n212 See Dykman, Patent Licensing Within
the Manufacturer's Aircraft Association (MAA), 46 J. Pat. Off.
Soc'y 646, 647 (1964) (describing formation of industry licensing
pool at behest of government because, "[n]o one would license
the other under anything like a reasonable basis"). The Curtiss-Wright
dispute was the centerpiece of a larger patent logjam in the early
aircraft industry. See W. Kaiser & C. Stonier, supra note
211, at 4-11.
n213 One can argue that the broad Selden
patent should not have been granted in the first place. His critics
argued that Selden never built or operated the automobile that
was pictured and described in the specification. Of course, this
is not a prerequisite to obtaining a patent. See 3 D. Chisum,
supra note 45, § 10.05[1] (describing doctrine of constructive
reduction to practice whereby filing patent application can constitute
sufficient reduction to practice to merit priority of invention).
His critics argued further that in any event Selden's claims exceeded
what the specifications enabled. Cf. Electric Vehicle Co. v.
C.A. Duerr & Co., 172 F. 923, 926 (C.C.S.D.N.Y. 1909),
rev'd sub nom. Columbia Motor Car Co. v. C.A. Duerr & Co.,
184 F. 893 (2d Cir. 1911); Electric Vehicle Co. v. Winton
Motor-Carriage Co., 104 F. 814, 816 (C.C.S.D.N.Y. 1900). See
generally J. Flink, America Adopts the Automobile, 1895-1910,
at 318-19 (1970) (describing Selden's assignment of patent to
the Electric Vehicle Company, whose motive was probably "to
hedge against the possibility that the gasoline automobile might
prove superior" to the electric vehicle being developed by
the company).
n214 If they had used the patent for
this purpose, we would expect to see a record of licensing agreements
whereby firms specializing in various aspects of the automobile
were given licenses and in turn were required to contribute or
license their improvements back to Selden and his assignee. No
such agreements seem to have been made, despite rapid progress
in various aspects of automobile design. Cf. D. Hounshell, From
the American System to Mass Production, 1800-1932: The Development
of Manufacturing Technology in the United States 274 (1984) (describing
Ford's improvements in engines, electric starters, flywheels,
etc.).
n215 In 1903, several years after the
Selden patent survived its first challenge, Winton Motor-Carriage
Co., 104 F. at 816, the Association of Licensed Automobile
Manufacturers (ALAM) was formed. Until it was dissolved in 1911,
following the first case finding that the Selden patent had not
been infringed, the ALAM exercised some measure of control over
the automobile industry through its power to deny licenses to
new companies. See J. Flink, supra note 213, at 321.
n216 Id. Although controlling
competition for improvements might be a part of an orderly development
strategy, there is no evidence that the association was doing
anything to develop the Selden "prospect." Thus its
efforts to control competition look like naked restrictions on
entry, not part of a coordinated development scheme.
n217 One historian of the industry states:
That consumers were in some cases actually intimidated from buying
the products of perfectly "good and reliable" but unlicensed
manufacturers is . . . quite probable; certainly the advertisements
of the A.L.A.M. attempted to accomplish this result. In response
to the association's repeated warning "Do Not Buy a Lawsuit
with Your Automobile," the Ford Company offered to give each
purchaser a bond protecting him against any damages that might
arise from this quarter.
R. Epstein, The Automobile Industry 233 (1928). As to Ford, the
Selden patent did not stop him, but it did slow him down. See
J. Flink, supra note 213, at 323-27 (describing Henry Ford's battle
against the Selden patent).
n218 See Columbia Motor Car Co. v.
C.A. Duerr & Co., 184 F. 893, 908-09 (2d Cir. 1911).
n219 See Wright Co. v. Paulhan,
177 F. 261, 271 (C.C.S.D.N.Y.) (L. Hand, J.), rev'd, 180
F. 112 (2d Cir. 1910); Zollmann, Patent Rights in Aircraft,
11 Marq. L. Rev. 216, 218-19 (1927).
n220 See Wright Co. v. Herring-Curtiss
Co., 204 F. 597, 614 (W.D.N.Y. 1913) (finding that defendants'
admittedly different design infringed plaintiff's broad pioneer
patent on airplane stabilization), aff'd 211 F. 654 (2d Cir.
1914).
n221 See Bittlingmayer, Property
Rights, Progress, and the Aircraft Patent Agreement, 31 J.L.
& Econ. 227, 232 (1988).
n222 See W. Kaiser & C. Stonier,
supra note 211, at 4-11; Bittlingmayer, supra note 221, at 236-40.
n223 See S. Sturmey, The Economic Development
of Radio 16 (1958); H. Aitken, Syntony and Spark: The Origins
of Radio 203-05 (1976).
n224 W. MacLaurin, Invention and Innovation
in the Radio Industry 45 (1949) (acquisition of basic patent by
Lodge on tuning, and issuance of major improvement patent to Marconi,
the famous British 7777 patent and American equivalent, filed
in 1900).
n225 Sturmey cites "a reliable
opinion" as describing the Lodge tuning patent, acquired
by Marconi, as "a master patent, or something very like it."
S. Sturmey, supra note 223, at 17. Marconi's rights in the Fleming
"valve" (vacuum tube) patent -- said to be basic to
the whole art -- dated to its invention in 1904. See id. at 32.
n226 AT&T entered the radio field
when it became concerned that radio could become a possible competitor
to its long distance telephone line technology.
n227 See L. Reich, The Making of American
Industrial Research: Science and Business at GE and Bell, 1876-1926
(1985) (triode invented by Lee De Forest). The history of the
vitriolic interference between De Forest and Edwin Armstrong,
who claimed priority of invention,is summarized in Radio Corp.
of Am. v. Radio Eng'g Laboratories, 293 U.S. 1, 2-7 (1934).
Many believed then, and still believe, that De Forest was wrongly
given priority. See G. Douglas, The Early Days of Radio Broadcasting
12 (1987); McCormack, The Regenerative Circuit Litigation, 5 Air
L. Rev. 282, 293-95 (1934).
n228 See G. Douglas, supra note 227,
at 8.
n229 See W. MacLaurin, supra note
224, at 94.
n230 See G. Douglas, supra note 227,
at 19-20.
n231 See Federal Trade Comm'n, Report
of the Federal Trade Commission on the Radio Industry in Response
to House Resolution 548, 67th Cong., 4th Sess., Dec. 1, 1923,
at 27 (1924) [hereinafter FTC Report].
n232 Marconi Wireless Tel. Co. of
Am. v. De Forest Radio Tel. & Tel. Co., 236 F. 942, 955 (S.D.N.Y.
1916), aff'd, 243 F. 560, 566-67 (2d Cir. 1917).
n233 See FTC Report, supra note 231,
at 26.
n234 See supra notes 96-127 and accompanying
text. De Forest's improvement was considered a major technical
advance. Hugh Aitken stated the the invention of the triode "is
one of the 'great divides' in the history of radio technology;
the whole basis of radio communication begins to shift with the
introduction and diffusion of this device." H. Aitken, The
Continuous Wave: Technology and American Radio, 1900-1932, at
195 (1985) [hereinafter The Continuous Wave].
n235 This was the aborted attempt by
Marconi to acquire General Electric's alternator technology, as
embodied in the Alexanderson patent. This is perhaps anomalous,
however, as General Electric might well have agreed to the transaction
except for an appeal by the American military to keep this sensitive
technology in the hands of domestic interests. See FTC Report,
supra note 231, at 14-16. The U.S. Navy ultimately facilitated
the formation of RCA, which broke the patent impasse. See infra
notes 237-240 and accompanying text.
n236 See FTC Report, supra note 231,
at 25:
The Navy, in a patent investigation in 1919, had "found that
there was not a single company among those making radio sets for
the Navy which possessed basic patents sufficient to enable them
to supply, without infringement, . . . a complete transmitter
or receiver."
(Citation omitted.)
n237 See The Continuous Wave, supra
note 234, at 249 (impetus behind formation of RCA was that patent
rights "threatened to impede further development and commercial
exploitation"); S. Sturmey, supra note 223, at 275 (broad
patents retarded growth of radio industry).
n238 General Electric, "[s]timulated
by the Navy," actually formed the Radio Corporation of America
(RCA) in 1919. W. MacLaurin, supra note 224, at 103; FTC
Report, supra note 231, at 18-21.
n239 See FTC Report, supra note 231,
at 20-21. RCA also entered into a cross-licensing agreement with
General Electric. Id. at 21-22.
n240 RCA used package licenses coupled
with high royalties to maintain its dominant position. See M.
Graham, RCA and the VideoDisc: The Business of Research 41 (1986).
Graham describes RCA's use of package licensing to dominate the
radio industry from the 1920s until the antitrust enforcement
actions of 1958:
Perhaps the most important enduring consequence of the policy
was that it made it uneconomic for most other companies to do
radio-related research, because they could not recoup their investment.
This left control of the rate and direction of technological change
in the radio industry largely in the hands
of RCA.
Id.
n241 See United States v. Western Elec. Co., 1956
Trade Cas. (CCH) P68,246, at 71,137-138 (D.N.J. 1956).
n242 See Levin, supra note 86.
n243 Id. at 76.
n244 Id. at 80; J. Tilton, supra note
86, at 77.
n245 Levin, supra note 86, at 78.
n246 See N. Stern, From ENIAC to UNIVAC:
An Appraisal of the Eckert-Mauchly Computers 2-4 (1981) (citing
Honeywell, Inc. v. Sperry-Rand Corp., No. 4-67 Civ. 138 (Minn.
Oct. 19, 1973)).
n247 See C. Taylor & Z. Silbertson,
supra note 185, at 294-95.
n248 See generally K. Flamm, Targeting
the Computer: Government Support and International Competition
(1987).
n249 Cf. H. Aitken, supra note 223,
at 308 (describing the development of the American radio industry
as "speculative and erratic"); id. at 330 (describing
lack of specialization in early days of radio development); id.
at 333 (describing the early days of radio when the interactions
between scientific, technological, and economic aspects of radio
"were only dimly perceived and when institutions to cope
with them had barely begun to evolve"). Hugh Aitken describes
the progress from the early scientific work of Hertz to Fleming's
diode as "highly empirical in nature, very much a matter
of trial and error." Id. at 303.
n250 For example, the Patent Office
interference action concerning the triode originally involved
four inventors, two of whom -- Edwin H. Armstrong and Irving Langmuir
of General Electric -- filed patent applications on the same day,
October 29, 1913. See McCormack, supra note 227, at 282. And in
1915 Alexanderson's alternator became available for the first
time. H. Aitken, supra note 223, at 281; W. MacLaurin, supra
note 224, at 94. At the same time, AT&T was pioneering
research in vacuum tubes. W. MacLaurin, supra note 224,
at 95-96.
n251 Valuation problems in licensing
transactions are difficult enough after an invention has been
made; they would seem to be inconceivably difficult prior to invention.
Cf. Meurer, supra note 160, at 80-84 (pointing out that patent
validity disputes are not always resolved with licensing agreements
because of asymmetric information about validity). It is therefore
quite believable that ex ante coordination efforts would quickly
break down since prospective inventors would likely value their
future improvements more highly than the coordinating firm.
n252 See The Continuous Wave, supra
note 234, at 389 n.5. Westinghouse is perhaps another plausible
candidate; by acquiring rights to Armstrong's "regenerative
circuit" (triode) patent, see W. MacLaurin, supra note
224, at 106, and an important signal generation patent, they had
what appeared to be an infringement-free transmission system,
but would have needed some rights to make vacuum tubes. The Continuous
Wave, supra note 234, at 476-77.
n253 Work by Irving Langmuir of General
Electric, an original party to the four-way interference over
the triode, might have established some rights in this field.
Cf. The Continuous Wave, supra note 234, at 231 (Langmuir's early
work on triode amplification produced results superior to DE Forest's);
id. at 248 (Langmuir part of original interference).
n254 GE almost acquired Armstrong's
rights during the pendency of the interference, but he eventually
sold them to Westinghouse. See W. MacLaurin, supra note
224, at 106.
n255 This is analogous to the strategic
problem discussed earlier in the context of bargaining between
the holder of a basic patent and the inventor of a very major
improvement. See supra notes 115-120 and accompanying text.
n256 Note too that the savings in transaction
costs accompanying consolidation must be weighed against the potential
anticompetitive effects of the unified firm. See generally O.
Williamson, Markets and Hierarchies: Analysis and Antitrust Implications
155-233 (1975).
n257 See supra notes 221-237 and accompanying
text.
n258 See supra notes 194-196, 199 and
accompanying text.
n259 David Landes, the noted historian
of technology, has called the business of chemical manufacture
"the most miscellaneous of industries." D. Landes, The
Unbound Prometheus: Technological Change and Industrial Development
in Western Europe from 1750 to the Present 269 (1969).
n260 See infra notes 171-180 and accompanying
text; cf. Levin, supra note 177, at 427 (chemical and drug industries
are discrete technology areas "in which innovations . . .
stand alone as isolated discoveries").
n261 Most chemical claims cover a single
compound only in the sense that Gillette's claim covered a single
type of razor. That is, chemical claims routinely embrace minor
variations on the basic structure the inventor discovered. For
example, a patentee might claim a compound of structure "Atom
1-Atom 2- Sidegroup," where "Sidegroup" is defined
in the claim as including either "N-O-O-H" or "N-H2."
See Ex parte Markush, 1925 Dec. Comm'r Pats. 126, 128, 340 Off.
Gazz. Pat. Off. 839 (1924); 2 D. Chisum, supra note 45, §
8.06[2]. The "family" of variations must share a common
principle to be patented using a so-called Markush claim; as stated
in In re Schechter, 205 F.2d 185, 189, 98 U.S.P.Q. (BNA) 144,
149 (C.C.P.A. 1953), such a claim will be allowed "where
the substances grouped have a community of chemical and physical
characteristics which justify their inclusion in a common group,
and such inclusion is not repugnant to the principles of scientific
classification." Id. (citations omitted).
n262 Obviousness and enablement rules
for chemical inventions reflect the accepted unpredictability
of chemical inventions. See supra notes 194-197 and accompanying
text; see also In re Bundy, 642 F.2d 430, 434, 209 U.S.P.Q.
(BNA) 48, 51 (C.C.P.A. 1981) (finding sufficient support for
patent specification despite absence of precise description of
behavior of all analogs of compound); Studiengesellschaft Kohle
mbH v. Eastman Kodak Co., 616 F.2d 1315, 1341, 206 U.S.P.Q.
(BNA) 577, 600 (5th Cir.) ("[I]n catalytic chemistry,
minor changes in components, their ratio, or the external condition
of the reaction may produce major changes in the reaction itself."),
cert. denied, 449 U.S. 1014, 208 U.S.P.Q. (BNA) 88 (1980).
n263 See C. Taylor & Z. Silberston,
supra note 185, at 244-45; see also E. von Hippel, supra note
145, at 66-67 (describing unusual strength of patents in pharmaceutical
and chemical industries relative to other industries).
n264 C. Taylor & Z. Silberston,
supra note 185, at 268: The range of [bulk] products has not widened
very much over half a century, although naturally their relative
importance has greatly changed. Most research efforts are directed
towards the reduction of unit costs and improvements in the purity
and consistency of standard products. There is relatively little
work on new products . . . .
n265 See, e.g., infra notes 268-271
and accompanying text (example of alkali process inventions).
n266 See, e.g., infra note 272 and accompanying
text. This is a function of the unpredictability of chemical inventions.
For example, enablement doctrine requires greater support for
a broad chemical claim than for a broad mechanical claim. See
supra notes 38 and 180-181 and accompanying text. On the other
hand, this same feature of chemical inventions makes it easier
to establish nonobviousness. See, e.g., In re Papesch, 315
F.2d 381, 391-92, 137 U.S.P.Q. (BNA) 43, 51-52 (C.C.P.A. 1963)
(even close structural similarity to the prior art may be overcome
by evidence that the claimed compound exhibits new and unexpected
properties). Thus, chemical patents are easier to obtain, but
narrower in scope.
n267 C. Taylor & Z. Silberston,
supra note 185, at 271-72; D. Hounshell & J. Smith, supra
note 186, at 145, 174, 206, 439, 465, 494, 545 (describing widespread
licensing of various Dupont Patents).
n268 See C. Freeman, supra note 144,
at 28-29; D. Landes, supra note 259, at 111.
n269 C. Freeman, supra note 144, at
28-29.
n270 J. Jewkes, D. Sawers & R. Stillerman,
supra note 172, at 50.
n271 On the improvement patent of 1873,
see J. Jewkes, D. Sawers & R. Stillerman, supra note 172,
at 50; Solvay Process Co. v. Michigan Alkali Co., 90 F. 818
(6th Cir. 1898). On the American licensee, see D. Noble, supra
note 209, at 14.
n272 Christopher Freeman has described
how the pattern of rather liberal cross licensing in chemical
industries led to the development of a separate industry of chemical
plant construction firms:
Technological progress in established basic industrial chemicals
is so rapid and so internationalised that more is usually to be
gained for both the firm and the country if each national process
innovation is exploited by licensing the contracting industry
and selling know-how.
Freeman, Chemical Process Plant: Innovation and the World Market,
45 Nat'l Inst. Econ. Rev. 29, 50 (1968).
n273 Standard Oil Co. v. American
Cyanamid Co., 774 F.2d 448, 450 227 U.S.P.Q. (BNA) 293, 294 (Fed.
Cir. 1985).
n274 See id. at 450-51, 227 U.S.P.Q.
at 294-95.
n275 Id. at 450, 227 U.S.P.Q. at
294 (Standard Oil patent); id. at 451, 227 U.S.P.Q. at
295 (American Cyanamid patent); Dow Chem. Co. v. American
Cyanamid Co., 816 F.2d 617, 617, 2 U.S.P.Q.2d (BNA) 1350, 1350
(Fed. Cir.) (Dow patent), cert. denied, 484 U.S. 849 (1987).
n276 See Standard Oil, 774 F.2d
at 453, 227 U.S.P.Q. at 296.
n277 See Dow Chemical, 816 F.2d at
617, 2 U.S.P.Q.2d at 1350.
n278 None of the patents at issue in
the various suits appear broad enough to serve the "prospect"
function. Under the cases, for example, the Standard Oil process
does not appear to infringe Dow's patents. Thus an independent
route to the acrylamide-producing process is left open.
n279 The original Solvay alkali patent
was of this nature; see supra notes 268-271 and accompanying text.
n280 Catalytic research led to the invention
of polypropylene, for example. See infra note 294 and accompanying
text.
n281 See, e.g., Standard Oil Co.
v. American Cyanamid Co., 774 F.2d 448, 450, 227 U.S.P.Q. 293,
294 (Fed. Cir. 1985) (listing licensees of acrylamide production
process patent); id. at 451, 227 U.S.P.Q. at 295 ("[Standard
Oil] offered Cyanamid a license . . . [but] Cyanamid took the
position that it did not need a license . . . .").
n282 See Mueller, The Origins of the
Basic Inventions Underlying DuPont's Major Product and Process
Inventions, 1920 to 1950, in The Rate and Direction of Inventive
Activity, supra note 143, at 326.
n283 See id. at 328.
n284 See C. Freeman, supra note 144,
at 61; see also S. Hollander, supra note 178, at 52-120, 199-200
(detailed study of major and minor process improvements at various
DuPont rayon plants).
n285 2 W. Reader, supra note
147, at 52-53. Du Pont researchers first synthesized nylon in
the late 1930s. The company obtained a series of broad product
patents, C. Taylor & Z. Silberston, supra note 185, at 342,
culminating with the "Nylon 66" patent covering a commercially
valuable form of the fiber. See O'Brien, Patent Protection and
Competition in Polyamide and Polyester Fibre Manufacture, 12 J.
Indus. Econ. 224, 225 (1964).
n286 See D. Hounshell & J. Smith,
supra note 186, at 384-86.
n287 Id. at 420-22.
n288 See J. Jewkes, D. Sawers &
R. Stillerman, supra note 172, at 341-42. In the early 1950s,
researchers at Phillips Petroleum were working on the same problem.
Id. at 342.
n289 The original patent contained limitations
relating to temperature, pressure and oxygen concentration. In
fact one historian of the industry suggests that the search for
high-density polyethylene may have been motivated in part by a
desire to skirt the Imperial patents. J. Allen, Studies in Innovation
in the Steel and Chemical Industries 47 (1967) ("Many of
the early would-be Ziegler licensees . . . were, however, probably
seeking a route free from the I.C.I. patents, either because they
wished to be free, or could not get the know-how as well as the
patents."). See Standard Oil Co. v. Montedison, 494 F.
Supp. 370, 374-75, 206 U.S.P.Q. (BNA) 676, 685-87, 207 U.S.P.Q.
(BNA) 298 (D. Del. 1980), aff'd, 664 F.2d 356, 212 U.S.P.Q.
(BNA) 327 (3d Cir. 1981), cert. denied, 456 U.S. 915 (1982).
n290 C. Freeman, supra note 144,
at 67; Montedison, 494 F. Supp. at 374-75, 206 U.S.P.Q. at
685-86. Polypropylene has emerged as a substitute for polyethylene
in several key applications. See Smoluk, Poyolefin Foams Take
More Performance Jobs, Modern Plastics, Feb. 1988, at 98-100;
Mansfield, Nonwovens Report, Textile World, May 1987, at 12.
n291 See Montedison, 494 F. Supp.
at 374, 206 U.S.P.Q. at 685 (patent interference between four
firms). The fifth firm apparently bowed out of the competition.
See id. at 374 n.4, 206 U.S.P.Q. at 685 n.4.
n292 The interference just mentioned,
for example, was declared in 1958 and resolved by the District
Court only in 1980. See also United States Steel Corp. v. Phillips
Petroleum Co., 865 F.2d 1247, 1248, 9 U.S.P.Q.2d (BNA) 1461, 1462
(Fed. Cir. 1989) (upholding Phillips' polypropylene product
patent).
n293 Polyethylene was discovered in
1935-36 by scientists from Imperial Chemical Industries of Great
Britain; Imperial held the early product patents. 2 W. Reader,
supra note 147, at 351-54; id. at 357 ("In the USA, the
most important market, ICI held a 'composition of matter' patent
which protected polythene [i.e., polyethylene] itself, regardless
of the process by which it was made."); J. Allen, supra note
289, at 24-25; J. Jewkes, D. Sawers & R. Stillerman, supra
note 172, at 280. Du Pont, however, held a patent on a commercially
valuable form of the polyethylene. See O'Brien, supra note 285,
at 229; C. Taylor & Z. Silberston, supra note 185, at 342.
As part of a general cross-licensing and market-sharing arrangement,
the two companies licensed these valuable patents to one another
for production in their respective home markets. See 2 W. Reader,
supra note 147, at 52-53.
This arrangement was challenged by United States antitrust authorities
in the late 1940s and early 1950s. Id. at 428-44. The resulting
consent decree ordered Du Pont and Imperial to license all patents
covered by their agreements, including those remaining on nylon
and polyethylene. See United States v. Imperial Chem. Indus.,
105 F. Supp. 215, 93 U.S.P.Q. (BNA) 360 (S.D.N.Y. 1952). The
compulsory licensing of polyethylene was ordered id. at 223.
A follow-up study in Congress concluded that
Staff of the Subcommittee on Patents, Trademarks, and Copyrights
of the Senate Comm. on the Judiciary, supra note 7, at 13 (showing
the Imperial had issued nine licenses on polyethylene by 1955;
Du Pont had issued 17 for polyethylene and 40 for nylon); see
also The Polyethylene Gamble, Fortune, Feb. 1954, at 134, 136
(describing eight firms competing in this field under licensing
agreements). It is possible that Imperial would have licensed
competitors in exchange for new process research, which its competitors
pursued party to gain leverage in licensing negotiations. See
2 W. Reader, supra note 147, at 357 (Imperial was fortunate
to have a United States product patent "because in Union
Carbide, unknown to ICI, work was going on to develop a process
entirely independent of ICI's, and it succeeded."); id. at
433 (describing DuPont's strategy of pursuing process-oriented
research to lower the royalty Imperial could charge on polyethylene);
see also United States v. Studiengesellschaft Kohle, m.b.H.,
670 F.2d 1122, 1124, 212 U.S.P.Q. (BNA) 889, 891-92 (D.C. Cir.
1981) (describing Ziegler's exclusive license to make and
sell catalysts to Hercules Incorporated, as well as his licensing
of several others to use those catalysts in in-house production).
n294 245 F.2d 693, 113 U.S.P.Q. (BNA)
423 (4th Cir. 1957); see supra notes 53-55 and accompanying
text.
n295 Id.; see also 1 D. Chisum, supra
note 45, § 1.03[8][c] (collecting other cases on this point).
n296 See P. Grubb, Patents for Chemists
158 (1982); Marshall, Penn Charges Retin-A Inventor with Conflict,
247 Sci. 1028 (1990) (dispute between University of Pennsylvania
and scientist over scientist's attempt to obtain a "new use"
patent for Retin-A as a wrinkle reducer).
n297 Hand held that the purified adrenalin,
although it existed in the human body, was transformed by the
inventor's purification process into a useful drug and therefore
constituted "for every practical purpose a new thing commercially
and therapeutically." Parke-Davis & Co. v. H.K. Mulford
& Co., 189 F. 95, 103 (C.C.S.D.N.Y. 1911) (L. Hand, J.),
aff'd in part and rev'd in part, 196 F. 496 (2d Cir. 1912).
n298 See Scripps Clinic &
Research Found. v. Genentech, Inc., 666 F. Supp. 1379, 1390, 3
U.S.P.Q.2d (BNA) 1481, 1488 (N.D. Cal. 1987), patent invalidated
in Scripps Clinic & Research Found. v. Genentech, Inc.,
707 F. Supp. 1547, 11 U.S.P.Q.2d (BNA) 1187 (N.D. Cal. 1989).
n299 See id.
n300 Scripps Clinic & Research
Found., 707 F. Supp. at 1552, 11 U.S.P.Q.2d at 1191.
n301 See, e.g., Sit, Biotech, Amgen
Remain at Odds, Boston Globe, Apr. 18, 1990, at 41, cols. 3, 3-5
(successful effort of Amgen to stay cross-licensing ordered by
district court after both parties were found to infringe each
other's patents on erythropoietin (EPO)).
n302 See supra note 12 and accompanying
text.
n303 See supra notes 187-188 and accompanying
text.
n304 See M. Kenney, supra note 188;
Kenney, supra note 188. But cf. Koenig, A Bibliometric Analysis
of Pharmaceutical Research, 12 Res. Pol'y 15, 35 (1983) (reviewing
data on the number of industrial patents that cite basic scientific
research articles in various pharmaceutical industry sectors,
including biotechnology-derived pharmaceuticals, and concluding
that industrial research feeds basic science in this field).
n305 At least in its earliest stages.
See Nelson, The Link Between Science and Invention: The Case of
the Transistor, in The Rate and Direction of Inventive Activity:
Economic and Social Factors, supra note 143, at 549; Shockley,
The Path to the Conception of the Junction Transistor, 23 IEEE
Trans. on Electron Devices 597 (1976).
n306 Advances in Conductor Materials,
N.Y. Times, Sept. 30, 1989, at 32, col. 1; Pool, Superconductor
Patents: Four Groups Duke It Out, 245 Sci. 931 (1989).
n307 See Kohler & Milstein, Continuous
Cultures of Fused Cells Secreting Antibody of Predefined Specificity,
256 Nature 495, 495-97 (1975).
n308 Three Immunology Investigators
Win Nobel Prize in Medicine, N.Y. Times, Oct. 16, 1984, at A1,
col. 4.
n309 In fact, the last sentence of the
Kohler-Milstein paper itself noted these possibilities. See Kohler
& Milstein, supra note 307, at 497; see also Mackenzie, Cambrosio
& Keating, The Commercial Application of a Scientific Discovery:
The Case of the Hybridoma Technique, 17 Res. Pol'y 155 (1988).
n310 This discussion is taken from a
longer account of the case in Merges, supra note 190, at 857-58.
n311 Hybritech, Inc. v. Monoclonal
Antibodies, Inc., 623 F. Supp. 1344, 1353, 227 U.S.P.Q. (BNA)
215, 221 (N.D. Cal. 1985), rev'd 802 F.2d 1367, 231 U.S.P.Q.
(BNA) 81 (Fed. Cir. 1986), cert. denied, 480 U.S. 947 (1987).
n312 See Cohen, et al., Construction
of Biologically Functional Bacterial Plasmids In Vitro, 70 Proc.
Nat'l Acad. Sci. 3240 (1973).
n313 The prosecution and licensing of
this patent are ably described in Ku, Licensing DNA Cloning Technology,
23 LES Nouvelles 112 (June 1983). On the licensing of this patent,
see M. Kenney, supra note 188.
n314 See U.S. Patent No. 4,704,362,
issued Nov. 3, 1987.
n315 See S. Hall, Invisible Frontiers:
The Race to Synthesize a Human Gene 317 (1987).
316 Id. at 152-53.
n319 See Genentech Receives Broad
Patent For Basic Gene-Splicing Techniques, Wall St. J., Nov. 4,
1987, at 8, col. 1 (quoting George B. Rathman, Chairman and Chief
Executive Officer of Amgen, Inc.). There are some indiiications
that Genentech is pursuing a strategy of construng the patent
claims broadly, but charging a fairly low royalty so as not to
create an incentive to challenge the patent. See G-tech to Push
for Royalties, BioEngineering News, Nov. 12, 1987, at 1, col.
1.
n320 In re O'Farrell, 853 F.2d 894,
7 U.S.P.Q.2d (BNA) 1673 (Fed. Cir. 1988).
n321 Id. at 899-901, 7 U.S.P.Q.2d
at 1677-78. The frog protein was not truly nonoperational;
it formed part of the structure of ribosomes, the cell components
where proteins are made. This relatively rare type of ribosomal
protein is to be contrasted with the much more common proteins
coded for in a cell's DNA -- everything from hormones to collagen
to antibodies. See id. at 897-98, 7 U.S.).Q.2d at 1676.
n322 Id. at 895, 7 U.S.P.Q.2d at
1674.
n323 See Pool, supra not 306 (organizations
fighting over superconductivity patents).