How Patent Practice May Benefit From A Key Economic Idea

In this article for Law360, partner Josh Glucoft discusses applying the work of Israeli psychologists and economists Daniel Kahneman and Amos Tversky in analyzing whether the U.S. patent system is efficiently working as intended.

As described in the Constitution, the U.S. patent system's purpose is to "promote the Progress of Science and useful Arts."[1]

Kathi Vidal, the new director of the U.S. Patent and Trademark Office, recently made headlines when she said that "it's time to rethink everything" in our patent system,[2] indicating her intent to analyze whether the system is efficiently working as intended.

As Vidal undertakes that analysis, she might benefit from standing on the shoulders of giants from other fields, specifically Israeli psychologists and economists Daniel Kahneman and Amos Tversky.

Kahneman won a 2002 Nobel Prize for his and Tversky's work demonstrating that humans are not rational automatons that behave the way that traditional economists assumed we do.[3] Their illumination of human nature warrants reconsidering any policies that are based on the way we think the business world works, rather than on empirically demonstrated reality.

Our patent system is not immune to the types of mismatched expectations that Kahneman and Tversky identified, and this article discusses how policymakers and legal practitioners might revise their practice in view of Kahneman and Tversky's discovery.

As one of many examples within the patent system of such mismatched expectations, in its 2008 Howmedica Osteonics v. Wright Medical decision, the U.S. Court of Appeals for the Federal Circuit recognized that "it is not unusual for there to be a significant difference between what an inventor thinks his patented invention is and what the ultimate scope of the claims is after allowance by the PTO."[4]

In other words, the garage inventor creating some fabulous new widget might not actually be protected in the way she believed she was when she enters the marketplace. The Federal Circuit further explained that "an inventor [may] understand the invention but may not understand the claims, which are typically drafted by the attorney prosecuting the patent application."[5]

An inventor's confusion about the legal jargon defining the scope of her patent rights does not necessarily mean that the patent incentive did not work as intended; after all, the inventor was required to disclose the inner workings of her innovative widget to the public in order to obtain her patent, just as the patent monopoly carrot was designed to incentivize.

But following her potential disillusionment with the scope of her first patent, is the inventor more likely to withhold her next innovation from the public domain and try to protect it as a trade secret instead, eschewing the patent incentive entirely?

And what about the entrepreneur designing a competing widget: Is it net beneficial to effectively require that the entrepreneur retain a patent attorney to determine whether his competing, design-around widget actually sidesteps the inventor's patent?

The introduction of legal complexity into the patent process adds some friction,[6] and we need to understand whether that added friction is net beneficial to society, but we cannot reliably make that determination based only on theoretical reasoning or anecdotes.

We need evidence, and not just on this particular issue. At heart, this is a call for evidence as we rethink everything in the patent system, whether proposing changes to the rules or defending the status quo.[7]

The need for evidence to support a particular rule or procedure is especially acute when the system introduces potentially unnecessary complexity. For example, whether a patent is obvious in view of the prior art is determined from the perspective of a person of ordinary skill in that art.[8]

But as Dennis Crouch, law professor at the University of Missouri School of Law and famous for his Patently-O legal blog, recognized, "most [practitioners] agree that particulars [regarding the ordinary level of skill] are fairly irrelevant,"[9] because in practice the merits almost never actually turn on the precise level of ordinary skill.

So what benefit does society obtain by regularly demanding[10] a case-specific analysis of the ordinary level of skill in the art? Perhaps we could achieve the same benefit more efficiently if the USPTO designated a particular level of ordinary skill for each technology area that the courts used as a default guide, which could then save litigants the burden of addressing the issue in every individual case.

Or perhaps that level-of-skill analysis could be jettisoned entirely with minimal downside. Most importantly though, whether the system retains this — or really any — concept at all and how we most efficiently implement these concepts should be based on evidence.

To be sure, credit is due to the USPTO for its efforts to collect evidence to shape its policy positions. For example, the USPTO regularly solicits feedback from the public,[11] and it also performs economic research regarding the impact of intellectual property on the economy.[12]

But not all rules in the USPTO or courts were based on investigation and evidence; many are creations of common law and are based on theories about the way the economy and people are expected to work, rather than empirical reality.

All of these rules warrant thoughtful reexamination, but, critically, it might be that too much thinking and not enough observation was part of what led to the system's problems in the first place. So while we "rethink everything," we should also be collecting real-world evidence to better align expectations with reality and create the most effective patent system we can.

Thoughts for Practitioners

Practitioners can apply the spirit of the concept above in at least the following three ways:

1. Don't take for granted the operation of the law and make sure your client fully understands the often-arcane nuances of the issues you are facing. It's a recipe for disaster if there is a significant difference between what your client believes to be the case and reality, so it is important to explain the unintuitive wrinkles in our field.

2. Build the record with evidence in support of your position on the way the courts should function when hearing patent cases. As the U.S. Supreme Court recognized decades ago in Markman v. Westview Instruments:[13] "Where history and precedent provide no clear answers, functional considerations also play their part."[13]

Arming the courts with evidence to help them understand the real-world implications of their decisions may help nudge the outcome in the right direction, particularly on issues of first impression that might be decided on practical policy grounds.

3. Participate when the door is opened. As discussed above, the USPTO regularly solicits feedback when contemplating policy, and you don't have to be representing a specific client or organization in order to contribute.

I personally weighed in on the interplay between artificial intelligence and the current state of the patent laws,[14] including how AI's ability to produce mountains of content might unintentionally skew the level of ordinary skill in the art, and the USPTO really listened to that feedback, citing it in an official 2020 report on AI.[15]

As practitioners in the trenches, your thoughts on what's working and what isn't can have a genuine impact on the system.

Conclusion

Patent policymakers and practitioners alike should all be trying to practice what the legal profession preaches, which is grounding analysis in evidence.

Admittedly, evidence relevant to the efficient functioning of the patent system is likely much harder to find than the type of evidence unearthed during routine discovery.

On the other hand, it probably does not require Nobel-level genius to figure out how to gather it. Kahneman and Tversky already took care of the hardest part, and now it's our turn to do the — still-hard-but-not-as-hard — rest.

 

[1] U.S. Const. art. I, § 8, cl. 8.

[2] https://www.law360.com/articles/1492820.

[3] See https://www.nobelprize.org/prizes/economic-sciences/2002/press-release/ ("Traditionally, much of economic research has relied on the assumption of a 'homo œconomicus' motivated by self-interest and capable of rational decision-making. Economics has also been widely considered a non-experimental science, relying on observation of real-world economies rather than controlled laboratory experiments. Nowadays, however, a growing body of research is devoted to modifying and testing basic economic assumptions…. This year's laureates are the pioneers in these two research areas."). Mr. Kahneman shared the prize that year with Vernon Smith but not with Mr. Tversky, who had passed away by the time the prize was awarded.

[4] Howmedica Osteonics Corp. v. Wright Medical Tech., Inc. , 540 F.3d 1337, 1347 (Fed. Cir. 2008) (quoting Markman v. Westview Instruments, Inc. , 52 F.3d 967, 985 (Fed.Cir. 1995) (en banc), aff'd, 517 U.S. 370 (1996).

[5] Id.

[6] Notably, former USPTO Director Andrei Iancu recently decried the adverse impact on the patent system from the introduction of legal complexity. See https://www.law360.com/articles/1531835/iancu-calls-for-simpler-patent-system-to-boost-innovation ("A complex system has a chilling effect on those seeking patents as well as those trying to understand and interpret them, because 'if you cannot understand the laws, of any kind, it's very difficult to follow those laws,' Iancu said.").

[7] Others in the field have made similar suggestions.  See, e.g., https://www.iam-media.com/article/saturday-opinion-vidal-reform-do-no-harm.

[8] KSR Int'l Co. v. Teleflex Inc. , 550 U.S. 398, 420 (2007).

[9] https://patentlyo.com/patent/2022/08/expert-ordinary-skill.html.

[10] An express finding regarding the ordinary level of skill is not always required, but it is "always preferable," and in practice litigants do spend time addressing this issue because they cannot be absolutely certain in advance whether their case requires such a finding or not. See Okajima v. Bourdeau , 261 F.3d 1350, 1355 (Fed. Cir. 2001). 

[11] See https://www.uspto.gov/patents/laws/comments-public-response-specific-requests-uspto.

[12] See https://www.uspto.gov/ip-policy/economic-research.

[13] Markman v. Westview Instruments, Inc., 517 U.S. 370, 388 (1996).

[14] See https://www.uspto.gov/sites/default/files/documents/Joshua-Glucoft_RFC-84-FR-44889.pdf.

[15] See https://www.uspto.gov/sites/default/files/documents/USPTO_AI-Report_2020-10-07.pdf.