The Cost of Getting the Law Right

Andrew Pincus (arguing today in Lexmark):

If you look at the Alice case, for example, that obviously had tremendous implications for both the patentees and for people who had entered into license agreements and were paying money for patents that turned out to be invalid. But that was just a consequence of this Court getting the law right.

https://www.supremecourt.gov/oral_arguments/argument_transcripts/2016/15-1189_6468.pdf

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

78 thoughts on “The Cost of Getting the Law Right

  1. Alice related: what was considered patentable subject matter in 1942 by a surely competent authority.

    The Federal Circuit Bar Journal, Vol 14, No. 1, reprinted an article by Giles S. Rich entitled The Relationship between Patent Practices and the Anti-Monopoly Laws, originally published in The Journal of the Patent Office Society, February 1942, XXIV, No. 2., pp. 85-106.

    It is online in the HeinOnline Law Journal Library at the following link:

    link to heinonline.org

    (Maybe this is behind a paywall for some readers? It is not for me.)

    See II. The Patent Right. What is Patentable.

    Quoting…

    “Before examining the patent right itself, let us see what inventions the law allows to be patented. The field of patentable inventions is comparatively narrow. By far the greater portion of human inventions and discoveries lie ouside the domain prescribed by the patent statutes, which limit the grant of patents, generally speaking, to the industrial arts. For example no protection is affored to the novel, useful, and clearly inventive schemes of conducting business such as systems of banking, sales promotion plans, or methods of merchandising; to the discovery of laws of nature or scientific truths; or to pedagogical methods and other sociological improvements of the highest value.

    “The law specifies that only these things shall lie the subject matter of patents (R. S. 4886, 35, U. S. C. 31):

    “Arts (meaning industrial methods and processes)
    Machines
    Manufactures
    Compositions of Matter
    Asexually reproduced planes, not tuber-propagated.

    “These terms are not entirely self-explanatory but we shall not stop to examine into their interpretation.

    “Implicit in the words “invention” and “discovery” is the idea of novelty, which, as we saw in the discussion of monopolies, was a characteristic which set apart the patent grant from other kinds of monopoly.”

    1. “Implicit in the words “invention” and “discovery” is the idea of novelty”

      Exactly. Which renders absurd any “first inventor to file” system that allows a subsequent “inventor” to get a patent for something someone else invented previously.

      1. Except for the fact of the patent right is more than just the inchoate right – by purposeful design of the patent system since day one.

        It helps to understand the big picture when the little nooks and crannies are being explored…

        1. The Constitution authorizes grants to inventors, not to persons who independently come up with something that has already been invented.

          1. The Constitution provides authority to a certain branch of the government to define inventors.

            When you have an inchoate item, you are not at that point legally an inventor.

            Try to use terms of art with an understanding of the art involved.

            1. Inventor is an English word that has a meaning of which I am (and apparently Giles S. Rich was) well aware. I see no authorization to change that definition granted to anyone by the Constitution.

              Try not to be such an arrogant….aspidistra.

              1. Les, I agree. The term inventor should have the meaning of inventor at the time of the constitution. As describe in Pennock v. Dialogue, we look to England for its contemporaneous meaning.

              2. The use of the word has a legal sense to it.

                That is why someone with a mere inchoate “right” does not – in the legal sense – avail to herself the rights of the inventor.

                Independent creation is a reality. You have to deal with that reality, the legal sense of the word is how Congress decided to do that.

                Sure, you can be pedantic about semantics if you want to, but US patent law has always reflected the possibility of more than “the very first” person to invent something to be considered an inventor.

                Heck, the whole notion of trying to hurry innovation hinges on the fact that a race situation exists, and races necessarily involve more than one runner.

                1. The point is that you are being pedantic on “inventor” and you are ig noring the legal context.

                  How do you have a race with only one runner?

                  Do you know what “inchoate” means?

            1. No Ned. You cannot today invent the light bulb. It has already been invented. Though you may make one in your laboratory without being aware of its prior invent, stuck as you seem to be, somewhere around 1750.

      2. Except, Les, that even at the beginning, the Supreme Court seem to understand that one could invent/discover the very same invention as someone else and that is why they had to add that the invention/discovery not be known or used before (by others publicly), or that the inventor not have been first invented by another.

        See, Pennock v. Dialogue. link to scholar.google.com

        However, the discovery of an existing composition of matter had to be excluded, and that is why “discovery” was dropped and “new” added in ’93 when “composition of matter” was added to the statutes.

        1. And yet, Ned, 35 USC 100 still includes “discovery.”

          That blows a rather big hole in your “version” of things (no wonder you never talk about 35 USC 100…)

            1. The point being Ned that you are the one that is making a big deal of the “removal” of discovery.

              As for “new,” I have already shared what that means from the records of the 1952 Act.

              That’s just yet another thing that you find convenient to not acknowledge.

                1. Nice attempt at deflection.

                  The point remains – your crowing of removal is simply not only not true, it shows you trying to obfuscate the issue.

                  Maybe you should advocate in a more ethical manner.

        2. I will concede that “invent” or “invention” is sometimes used to refer to a second event. However, it is only because we don’t have a convenient word to describe the second even and the speaker is too lazy to say something like -subsequent creation of the thing that someone else invented-.

          “New” is redundant and included for emphasis only. We can’t know what is literally new given the size and age of the multiverse Ned.

          1. Each filer is a putative inventor (how else can they file?)

            Please watch for the use of the word “inventor” and when (and when not – as in the common vernacular, non-legal use) which meanings apply.

            Only one inventor will take their inchoate rights and make them legally solid. All other inventors will not. That clearly does not – nor cannot – mean that there is only one inventor.

            1. They claim to be an inventor, and may even believe they are inventors, but only one IS the inventor and the Constitution only authorizes a grant to inventors.

              “Only one inventor will take their inchoate rights and make them legally solid. All other inventors will not. That clearly does not – nor cannot – mean that there is only one inventor.”

              No, that doesn’t mean there is only one inventor.

              What means there is only one inventor is the definition of the word inventor.

              1. Except not / and you are merely being pedantic and are refusing to recognize the legal context and meanings involved.

                Who was it that tried that line a few years ago (and went nowhere)… Mastick?

                1. No. Words have meaning. You can come out of your cave and claim to have invented the light bulb. But you are mistaken. The light bulb has already been invented.

                2. Yes – words have meanings – and those meanings vary by context.

                  I am not the one “in a cave” here, Les. That would be you.

    2. Distant, I am utterly floored. Could the author of State Street Bank have written that piece?

      At least at one time, Rich did appear to fully understand the US patent system. Something happened to the man as time went on.

  2. There was a one-sentence comment to a posting on the IPWatchdog blog predicting that in Impression Products v. Lexmark, SCOTUS would follow the Duffy/Hynes brief.

    Alerted by this, I reread that brief yesterday, and, to me, it seemed very illuminating. The Solicitor General’s brief agrees with Duffy/Hynes in pointing out that SCOTUS, in Motion Picture Patents v. Universal Film, had located the statutory basis of the doctrine of exhaustion in the statutory provision in 4884 of the Revised Statutes granting to the patentee … the right to “make, use and vend” the thing patented. This language formed the basis in earlier statutes of 154(a)(i) of Title 35.

    A further websearch after reading the transcript of the oral argument in Impression Products v. Lexmark broad up an excerpt on Google Books from the following book:

    The Supreme Court under Edward Douglass White, 1910-1921, by Walter F. Pratt (1999), which contains a lot of the background history.

    It seems that there was sharp disagreement on SCOTUS in those years regarding whether or not the first sale could impose after-sale restrictions enforceable under the patent laws. On page 82 of Pratt’s book, cited above, the story is told of Henry v. A.B. Dick (1912). It seemed that SCOTUS was down to 7 members, with one seat unfilled, and one member, Justice Day, absent caring for his dying wife. As a result, four members, Justices Lurton, McKenna, Holmes and Van Deventer constituted a 4-judge majority arguing that after-sale restrictions were enforceable under the patent laws (i.e., ruling in a fashion favouring Lexmark and the Federal Circuit position). Chief Justice White wrote a dissent, joined by Justices Hughes and Lamar.

    The Court returned to full stength with the return of Justice Day and the appointment of Justice Pitney (who, according to Pratt cited above, had joined the court a week after A.B. Dick). There was then a majority on SCOTUS favouring full patent exhaustion following a first sale. The first opportunity for them came up in Bauer v. O’Donnell. Justice Day, citing Bloomer v. McQuewan, noted the following:

    “The right to make, use, and sell an invented article is not derived from the patent law. This right existed before and without the passage of the law, and was always the right of an inventor. The act secured to the inventor the exclusive right to make, use, and vend the thing patented, and consequently to prevent others from exercising like privileges without the consent of the patentee.”

    Elaborating:

    “To vend is also a term readily understood, and of no doubtful import. Its use in the statute secured to the inventor the exclusive right to transfer the title for a consideration to others. In the exclusive rights to make, use, and vend, fairly construed, with a view to making the purpose of Congress effectual, reside the extent of the patent monopoly under the statutes of the United States.”

    Justice Day concluded by quoting the words of Justice Miller, delivering the opinion of the Court in Adams v. Burke, concluding the quote as follows:

    “But, in the essential nature of things, when the patentee, or the person having his rights, sells a machine or instrument whose sole value is in its use, he receives the consideration for its use and he parts with the right to restrict that use. The article, in the language of the court, passes without the limit of the monopoly. That is to say, the patentee or his assignee having in the Act of sale received all the royalty or consideration which he claims for the use of his invention in that particular machine or instrument, it is open to the use of the purchaser without further restriction on account of the monopoly of the patentees.”

    The A.B. Dick majority dissented in Bauer v. O’Donnell, without authoring a dissenting opinion.

    (The information in the book by Pratt stops here, and I have supplemented it above by further excerpts from the SCOTUS opinions themselves.)

    Further cases followed, and further changes in the membership of the Court, till at last Motion Picture Patents v. Universal Film came before the Court.

    Motion Picture Patents explicitly overruled A.B. Dick, as is often stated in briefs for Impression Products v. Lexmark. Justice Clark delivered the Opinion of the Court. Justice McReynolds concurred in the result. Justice Holmes wrote a dissent, joined by Justices McKenna and Van Deventer.

    Justice Clarke, delivering the Opinion of the Court, described the case in the following terms:

    “It is obvious that in this case we have presented anew the inquiry, which is arising with increasing frequency in recent years, as to the extent to which a patentee or his assignee is authorized by our patent laws to prescribe by notice attached to a patented machine the conditions of its use and the supplies which must be used in the operation of it under pain of infringement of the patent.”

    “The statutes relating to patents do not provide for any such notice, and it can derive no aid from them. Rev.Stats. § 4900, requiring that patented articles shall be marked with the word “Patented,” affects only the damages recoverable for infringement, Dunlap v. Schofield, 152 U. S. 244, and Rev.Stats. § 4901 protects by its penalties the inventor, but neither one contemplates the use of such a “License Notice” as we have here, and whatever validity it has must be derived from the general, and not from the patent, law.”

    Later Justice Clarke wrote:

    “We are concerned only with the right to “use,” authorized to be granted by this statute, for it is under warrant of this right only that the plaintiff can and does claim validity for its warning notice.”

    The following sentence from the opinion seems particularly relevant to Impression Products v. Lexmark:

    “The grant is of the exclusive right to use the mechanism to produce the result with any appropriate material, and the materials with which the machine is operated are no part of the patented machine or of the combination which produces the patented result.”

    I will stop here, as this post is getting long, but it seems to me that Motion Picture Patents v. Universal Film is particular relevant, in its facts and its holding, to Impression Products v. Lexmark.

    1. One of the things that you should also be picking up in your distant perspective is the level of the individual Justices feelings/proclivities and injections of those same non-statutory attributes into their decision processes.

      There is a reason why the Court “appears” to have back-and-forth moments (and other moments of pure schizophrenia).

      And this too is all the more reason for Congress to use their Constitutional authority to employ jurisdiction stripping of the non-original jurisdiction of patent appeals from the High Court (which has repeated its anti-patent history).

  3. Also unrelated but for AAA JJ and anon that were in on the discussion of the H1B thing, I didn’t realize this the other day but apparently in January they introduced new legislation to up the min salary to 120k for H1B’s to discourage undercutting. Also this article notes what the original point of the program was, and how the old salary cap is simply a hard number that was left static since the 80’s (lol).

    Of course we’ll have to see if establishment congress critters will let it pass or whether their corporate masters like their indentured servants too much.

    link to livemint.com

    1. I like the increase — it goes along with my basic idea that foreign labor is being used to undermine the wages of US workers. If a young person must face completion against the whole world if he chooses a certain profession, why in the world choose it? Thus, undercutting wages for engineers, scientists, doctors and the like will have long term negative consequences on America.

      1. “If a young person must face completion against the whole world if he chooses a certain profession, why in the world choose it?”

        Well Ned, in the US you have to choose something eventually, or at least you have to if you don’t want to be a NEET (not in employment education or training) your whole life. And in the US today, you face competition against the whole world practically in every field. Thx globalization.

        That being said, a huge number of young men are now just choosing to do nothing, a. not minding being NEETs b. often living of their boomer etc. parents/grandparents or c. not seeing any point in doing much or being very ambitious. And along the lines of c. truthfully there isn’t much point in them doing such in today’s society, especially in the left leaning areas. They can live practically the same lifestyle (no wife, no fam, low amount of property) as they would be anyway without bothering.

        And of course there’s always plenty of women doing no formal job. But you know, #equality and all that means that they have to work too!

      2. “Thus, undercutting wages for engineers, scientists, doctors and the like will have long term negative consequences on America.”

        Absolutely. Every year they remain low with little to no growth is yet another year’s growth lost in the aggregate (to inflation etc.) for literally every year to come thereafter.

      3. Not really sure doctors have much to do with this. The AMA artificially limits the supply of doctors in the US…

        >*my* basic idea

        I’m curious, what do you mean by that? That you’re the one who originally thought of this? Or your gut feeling? (granted, in this case, there happens to be evidence to support this).

        One is slightly arro-gant, the other is a pretty stu-pid way to go through life.

        >If a young person must face completion against the whole world if he chooses a certain profession, why in the world choose it?

        The simple answer is he/she wouldn’t. Price signaling and all that; granted there is a fair amount of information asymmetry here, and time lag from making the initial investment until college.

        However, I’ve seen very few credible economic arguments for protectionism (they do exist, however). While you ‘save’ jobs, higher costs get pushed onto consumers. On the flip side, you have lower costs for consumers, and some/many lose jobs.

        Free trade is almost always better than protectionism, and can make everyone better off assuming transfers (Kaldor-Hicks efficiency). That said, transfers/associated programs are usually DOA, politically, or never funded enough to make up for how much the ‘winners’ win with free trade. And/or transaction costs could be high: job markets change significantly during retraining, and retraining becomes a money sink with no real payout.

        So that’s something.

        1. The problem is that the middle class has been decimated for years. This is what allowed He Who Shall Not Be Named to get elected: This was a backlash against the “establishment”. The terrible thing, too, is everything He Who Shall Not Be Named does goes against the interests of the very people who elected him.

          While I don’t think protectionism helps much (all the companies with do business with, for instance, are multinational organizations), what do we do for the rapidly decreasing middle class? How can we help them? And while I love technology, what happens when we have self-driving Ubers and taxis and trucks? What do these people do? Our manufacturing is already based on robots and the like, and we’re not going to adding many if any jobs suitable for the middle class, at least not without retraining.

          1. ” The terrible thing, too, is everything He Who Shall Not Be Named does goes against the interests of the very people who elected him.”

            Obviously blatantly false. Merica is being MAGAed right as we speak. It’s your media informing you otherwise while downplaying the substantial winnings already had.

            1. Not going to happen.

              First it already appears dead in the water, though people keep trying to resurrect it in pockets. And that’s because in order for it to happen we have to scrap too many programs lefties lurve and other reasons besides. Second, like single payer healthcare, it’ll probably never happen if for no other reason than Krugman’s argument: The nation is too diverse. Whitey will decline to be so straightforwardly economically cuc ked. Indeed, The Great Uncu cke ning is already happening right as we speak, even though plenty of socio-economic-political cuckery remains. It’s likely to continue for a decade or more at least. Especially as the generations become less boomers.

              And to be clear, I’d much rather have the UBI in place than the 100000 programs we have today. At least that way the cuckery can be easily measured, and things like illegals getting benes can be more easily stopped etc. etc.

          2. One soln. Is increase transfers from winners to losers. I realize this is not incredibly popular, but appears to be mainstream economic consensus.

            Don’t know if it’s politically feasible, though.

            On the other hand, do we force consumers to pay more for jobs that could be done more cheaply either via automation or elsewhere?

            1. Yeah but those transfers generally fail, even if they were politically feasible, which as you noted they really aren’t.

              “On the other hand, do we force consumers to pay more for jobs that could be done more cheaply either via automation or elsewhere?”

              Sure.

        2. “Free trade is almost always better than protectionism”

          Citation needed. And yes, on the “whole”. But the “whole” includes a lot of people that are doing way better than 99% of the humans that have ever existed. It’s the ones that aren’t those people in this country that are being harmed to boost up the upper echelons to ever higher peaks.

            1. Krugman, lol, a lefty redistributionist is your “the” expert? There’s way more than him that are “experts” on that topic, and much better than him as well.

              But again, the argument isn’t always an “economic” one. And it certainly isn’t one that has to do with the overall economics, where yes, on avg, and across the whole, freer trade usually is a net benefit comparatively. But that doesn’t address who that net mostly goes to, and who gets the benefit.

              The argument is instead a moral one.

              Stop fcking the lower class to benefit the upper class. It’s wrong. <that's the moral argument.

        3. PatentCat, upping the minimum salary for H1B visas, requiring immigrants to prove they can support themselves, are both acts/policies that favor American workers.

          Truthfully, people need long term stability in order to plan their lives. If we want people to become engineers, programmers, product designers, chemists, etc., we need to assure them that the jobs will be there at the wages they hoped these jobs would pay (economic cycles considered) in order for these people to make the long term investment.

          It is remarkable, but the patent system is there precisely to protect the investment in new technology in order that the investment take place in the first place. Protectionism is required to a degree for both new inventions and to incentivize investment by students in their futures.

          1. Protecting investment is not a part of the Quid Pro Quo, Ned.

            Leastwise as you are attempting to portray it with some sort of “must make” line of thought.

            The Quid Pro Quo is perfectly amenable to someone purely sitting on their rights for the entire length of patent term.

            (That’s part of the understanding of a patent as a negative right)

    2. It’s an improvement, but only marginally. The number appears to have been carefully selected to sound like a lot of money to everyone but the natives actually qualified for the work.

      1. “The number appears to have been carefully selected to sound like a lot of money to everyone but the natives actually qualified for the work.”

        MMmmm, a lot of those jobs go to people just coming out of school. If 120k starting doesn’t sound good to those folks I’m not exactly sure just how great they think it should be. 200k? Remember, that’s the floor.

        1. From what I’ve seen, year 1 compensation at the big silicon valley firms is frequently >160k.

          But even if 120 was average, which would you rather hire: a recent graduate with the freedom to job hop or someone who will be forced to leave the country if they underperform?

          1. “From what I’ve seen, year 1 compensation at the big silicon valley firms is frequently >160k.”

            Oh well of course. That’s in silicon valley lol. These jobs don’t mostly go to silicon valley fyi, they go out all over the country. Though plenty do go to silicon valley nobody is worried about their wages being too low (except for relative to the cost of living there).

            “But even if 120 was average”

            120 isn’t avg. The avg is less. This program is supposed to be for fairly super high skilled positions simply not fillable by Mericans. That’s the point of the bill raising the amount.

            “a recent graduate with the freedom to job hop or someone who will be forced to leave the country if they underperform?”

            That’s why they’re trying to free up the options of the H1B people as well in the bill, to take that “indentured servant” bene away from the employers. It’s at the end of the article iirc.

    3. Congress could get rid of the whole H1B program as far as I’m concerned. Wouldn’t bother me one bit. But the “job market” for “tech workers” is not meh “because of” the program. The job market is meh because there is a relentless downward pressure on wages (which are the biggest expense for any business) to increase profits. That pressure is not going away, or ever going to be even be slightly reduced, regardless of whether the H1B program is 1) expanded, 2) cut, 3) modified, or 4) eliminated altogether. Paying employees, all employees, whether they are U.S. citizens or not, less is the first option for every business looking to increase profits. Which is all businesses.

      1. Nice Econ 101 argument there. Join us in Econ 401 sometime AAA.

        But you’re right that H1B isn’t the dominant pressure. The point is to unleash a lot of the countervailing pressures that will push upwards against the downward pressure you’re mentioning. And yes, as labor becomes scarcer and scarcer, that pressure builds and builds. There are a million things other than labor scarcity that are upwards pressures but which people today are simply against, and/or we can’t get done politically due to the establishment.

        The fact is, right now, businesses have jiggered the whole economy, politics, etc. etc. to relieve themselves of those upward pressures on wages via their “political speechlol”. And to some extent that’s good, but it’s gone a bit far.

    1. Not on its face. It only applies to nominated persons. They cannot fill the job temporarily until appointed.

      Lee is not nominated. Nor is she temporary.

      1. Unless, Ned, her resignation was accepted – and then the whole can of worms (and more) may apply.

        Reminder: Nixon was not undone for the Watergate break-in, but for the ensuing cover-up.

  4. Ronald Mann at SCOTUSblog:

    I don’t think many people left the courtroom knowing much more about the case than they did when they entered. Perhaps the justices wore themselves out with so much incisive questioning in the morning’s first argument (Microsoft v. Baker), but this argument was much more like the Monday argument in Howell v. Howell on which Amy Howe reported here: a cold bench largely leaving the advocates to their own devices.

    More here: link to scotusblog.com

    1. A court having made up it mind will sit there politely only because it has to.

      This does not bode well for the defenders of Federal Circuit.

      1. Translation: this does not bode well for Justice.

        The Court, already with its mind made up, NEEDS to be taken out of the loop.

  5. Breyer cracks me up. What are the damages? If Sally buys a ball point pen from a licensee (so it’s not an authorized sale) the patent owner isn’t going to do sue her or the other 8 million people using the pen. They will sue the licensee.

    Where this comes into play is distribution chains Suppliers, A, B, C, D –> Integrator E –> distributors F, G, H and I –> Sub-distributors and so on. It’s incumbent on the chain to have proper agreements in place.

    I think I said this before, but what didn’t come up is that the practicing patent owner has a market to protect in the US.

    (1) US developer/manufacturer sells to its US distributors.

    (2) US developer/manufacturer sells to Chinese Distributor in China, with license that only extends to China and expressly limits rights to sell outside of China including no license grant to US patents.

    (3) Chinese Distributor realizes there’s no market in China, has a lot of inventory, knows there’s a thriving market in the US, so sells to a third-party US Distributor (D3) at a 50% discount, D3 takes possession in China, and D3 offers to sell in the US at 65% of price charged by the authorized US Distributors.

    If US Developer/Manufacturer gets an injunction under patent law, they can stop D3. If not, the authorized US Distributors lose end-user sales, inventory sits, and end-users may have a lower price expectation. The market is in shambles.

    Should the Developer/Manufacturer have to go back to China and sue the Chinese Distributor for violating the contract? Or should D3 have to go back and sue the Chinese Distributor for violating their contract?

    One way to look at it is, whose damages are going to be easier to understand and quantify? It sure seems to me it’s D3’s.

    Another way to look at it is who has the greatest interest in the market for the products? Again, it’s the US Developer/Manufacturer and its authorized US Distributors. D3 is gonna dump and run – doesn’t care. D3 also has no interest in keeping end-users happy.

    Breyer seems hyper-focused on Freddy and Sally who buy ball-point pens pursuant to an unauthorized sale. This is a B2B problem.

  6. Except that the court got Alice completely wrong…

    [wait for resulting flame war between Mooney and Anon]

    1. LOL

      (Because it is up to the almighty Supremes to rewrite (scriven) the law in their image for anyone to know what is “right.”

      (So what if it is statutory law and so what if the Constitution delegates the actual authority to write that statutory law to a different branch of the government, eh? 😉 )

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