Resident Scholar  Claude E. Barfield

Resident Scholar John  E. Calfee

Congress is preparing to enact far-reaching reforms of the patent system, and the stakes are high: Intellectual property in the U.S., the security of which relies upon the patent system, is worth more than $5 trillion today--roughly 40% of our annual GDP. Sweeping legislative change would, however, be a dangerous mistake.

Critics have complained vigorously about the patent system's perceived inequities and inefficiencies. A proliferation of low-quality patents, skyrocketing litigation costs and potentially ruinous damages for patent infringement have, they argue, combined to undermine the foundations of inventiveness. Congress is sympathetic, but reforms are hotly contested by contending corporate coalitions.

On one side, software and high-tech companies who want weaker patents are allied against biotech and pharmaceutical firms (and some old-line manufacturing companies) who vociferously argue that their ability to compete internationally depends on the full panoply of current intellectual property rights.

Before rushing to enact major changes, Congress should remember that its past reforms have often spawned new problems. For example, the Court of Appeals for the Federal Circuit, a specialized intellectual property court, was created in 1982 in order to centralize judicial decisions on patents and end forum-shopping. It accomplished that, by and large--but at the cost of producing a court, peopled largely by patent attorneys, that instinctively sided with patent holders, strengthened patent protection, lowered the bar for inventiveness ("non-obviousness" in patent-law jargon), and paved the way for large damages against alleged patent infringers.

Similarly, the reinvention of the U.S Patent and Trademark Office (USPTO) as a "fee for service" organization in the early 1990s created strong incentives to move patent applications quickly and at the lowest cost. Congress compounded the problem by raiding the new revenue pool--often drawing off more than half the annual proceeds--just as the USPTO faced a burgeoning workload caused by technological developments such as advances in biotechnology.

Congress should not overlook the surprising ability of self-correcting forces in the patent system and elsewhere to adapt to change in ways less susceptible to the unintended, negative consequences of the blunt-force--and heavily lobbied--legislative process. In April, the Supreme Court raised the bar for granting patents for "obvious" inventions, warning that looser standards would actually "retard progress" for innovation. Similarly, over the past several years the USPTO has demanded greater specificity and detail in patent applications. It even took steps recently to revoke three embryonic stem-cell patents because they duplicated already published research and similar patents.

Incremental reform is a better idea than radical change. Congress would do well to build upon consensus, starting with proposals commanding widespread support among contending interest groups. The most obvious is a first-to-file system--which is what the rest of the world uses. The date of filing with the USPTO should determine control of the patent, not today's confusing "first-to-invent" rule, which produces endless disputes.

Another useful and innovative reform would be a new administrative procedure (a "post-grant opposition proceeding") to provide opponents a brief opportunity to challenge a new patent without costly and time-consuming litigation. It should be bound by strict procedural rules to foreclose deliberate filibustering and, most important, it should extend no more than 18 months. Allowing administrative challenges throughout the life of the patent--as some overzealous reformers desire--would weaken legitimate patent protection and undermine R&D incentives, especially for pharmaceuticals and the small, highly innovative biotechnology companies that rely upon patents to raise capital.

In the contentious area of assessing damages for patent infringement, federal courts have begun to fashion an approach that takes account of the highly fact-dependent nature of equitable solutions in each case. Far better to let the courts apply a rule of reason than to codify a single method by legislation.

Several provisions in the bills before Congress are notably ill-considered, particularly one to grant new substantive rule-making authority to the USPTO. Given the current disarray within the agency and its continuing struggle to master the challenges of emerging technologies, giving it even greater authority just now would be extremely unwise.

This is no time to slice and dice a truckload of compromises among bitterly opposed special interests. The economic cost of forcing the patent system to lean decisively one way or another--crippling the USPTO's and courts' ability to adjust to changing conditions--would be immense. Congress should be mindful of the physician's oath as it contemplates patent reform: First, do no harm.

Claude Barfield is a resident scholar at AEI. John E. Calfee is a resident scholar at AEI.