The Market for Ideas

AMERICAN PATENT law should provide large incentives that reward innovation. Otherwise drug companies would not have the reason or the resources to invest billions in research and development, for example. On the other hand, patents on "innovations" that are obvious to anyone with average skill in a field, or those that contain claims so broad they give the patentee monopoly control over huge swaths of an industry, can easily stifle invention. Take, for example, the case of an 1898 U.S. patent, eventually truncated in court, that issued exclusive rights to a single inventor for adding a gasoline engine to a car chassis -- an overly broad claim that would have resulted in giving that inventor patent rights on virtually all automobiles ever made.

An important Supreme Court opinion last week intelligently relaxed America's sometimes overly restrictive patent system. Even so, legislative action is also necessary to strike a better balance between open competition and patent restriction in the United States.

The court's decision relaxes the standard used to determine when patents are obvious, sensibly concluding that, in general, "if a person of ordinary skill in the art can implement a predictable variation, and would see the benefit of doing so," it would not be worthy of patent protection. Rather, it would simply be "the product not of innovation but of ordinary skill and common sense." This is great news for software, information technology and computer hardware firms, which often have to wade through "thickets" of obvious or overlapping patents to develop new products.

The court's opinion will also please the authors of several studies over the past few years detailing the excesses of current patent regulations. Among other things, the Federal Trade Commission in 2003 called for a more reasonable legal standard of obviousness, as did Keith E. Maskus in a report commissioned by the Council on Foreign Relations late last year. Both reports, however, also identified ways in which Congress can cautiously improve the system, many of which are included in the Patent Reform Act of 2007, which Sens. Patrick J. Leahy (D-Vt.) and Orrin G. Hatch (R-Utah) and Reps. Howard L. Berman (D-Calif.) and Lamar Smith (R-Tex.) introduced last month. The bill would, for example, allow third parties to dispute patents with the U.S. Patent and Trademark Office within a year of approval. This would cut down on the massive litigation costs that deter court challenges to bad patents. It would also allow interested parties to challenge the validity of patents outside of court and without first being threatened with patent infringement lawsuits.

As long as patent holders are afforded adequate protection from frivolous challenges during post-grant review, Congress should pass the legislation.