The Decline of Public Benefit in Copyrights and Patents

Jan 19 2004

FTC:WATCH No. 623January 12, 2004

The aai Column

The FTC Report entitled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy" (2003) is a welcome voice in the current policy debates over the proper metes and bounds of copyright and patent protection. The Report cites first the Constitutional purpose of promoting the progress of "Science and the Useful Arts," and then the Supreme Court's instruction in Bonito Boats (1989) that free competition is the baseline on which the Constitutional protection of patents depends. The FTC Report recommends, among other things, that harm to competition be considered before extending the scope of patentable subject matter. Certainly the same caveat would apply to copyright.

This formulation treats copyrights and patents as incentives, as means to the public goals of increasing knowledge and spurring innovation. Deeply embedded in the jurisprudence since the Constitutional Convention, this approach is in sharp contrast to recent expansions of copyright and patent protection founded in the ill-conceived view of intellectual property rights as their own legitimate end. Examples are numerous.

Seventh Circuit opinions in Scheiber (2002) (Posner, J.) and Zeidenberg (1996) (Easterbrook, J.) applied contract and property principles in arguments for amending the incentive structure embodied in the Copyright and Patent Clause. The Federal Circuit, charged with stewardship over patent policy, seems to share the Seventh Circuit's faith in natural property rights and freedom of contract. One example is the ISO Antitrust Litigation (2000) decision, which created a new category of per se legality for most refusals to license patents, taking an approach outside both the instrumentalist logic of patent rights and the fact-intensive antitrust scrutiny called for in the Supreme Court's Kodak (1992) opinion. Moreover, Federal Circuit opinions such as State Street Bank (1998) and Zurko (1997) lowered the patent requirement of non-obviousness without weighing in the Constitutional balance the added benefit of expanded patent protection against the potential harm to competitive innovation. After some resistance, the Patent Office fell into line.

Congress too seems to have joined the growing chorus of natural property rights adherents. Legislation in 1996 twice enlarged copyright protection without taking seriously the public benefits called for by the Copyright and Patent Clause, the debates reflecting an unmediated purpose to extend copyright protection. The Supreme Court opinion in Eldred (2003) did little more than defer to Congressional action in extending copyright term limits.

What differentiates the FTC Report from the kinds of patent and copyright expansion reflected in the examples above is both methodological and normative. The FTC Report's methodological difference appears in the explicit recommendations to take competitive impact into account when determining the scope of patent rights. Were policy makers to follow those recommendations, they would have to strike a balance by weighing the effects on competitive innovation of both expanding and constricting patent rights. The difference is also normative. Policies informed by the FTC Report would seek to balance exclusive patent rights and market access in policies to promote innovation. Exclusive patent rights would not be treated as ends in themselves, as simply rewards for invention.

Still the FTC Report has its own limitations. Two merit comment. First, competition policy is not the only measure of the public interest in patent protection although it is the appropriate one for an antitrust agency to espouse. Knowledge dissemination, for instance, is a separate public benefit expected from the patent system.

Second, competition policy is found not only in antitrust but also in the very heart of patent law itself. Perhaps the clearest example of both the public interest in knowledge dissemination and the centrality of competition is the requirement that patent claims be described well enough to enable someone reasonably knowledgeable in the art, likely a competitor, to understand, construct and operate the device. Despite these limitations, the courts and other policy makers would take major steps in the right direction by following the normative and jurisprudential high road recommended in the FTC Report.

The balancing act of determining optimal patent rights is a daunting enterprise. Indeed, economists who agree on little else do concur that there is currently no sound empirical basis for evaluating the incentive effects of patent or copyright protection. Perhaps that is the reason underlying the recent slide toward natural law formulations. But it is a slide that must be stopped before the public benefits of copyright and patent protection shrivel into history. The FTC Report is a very good starting point.

*Rudolph Peritz, author of Competition Policy in America, is a professor at New York Law School and a Senior Research Fellow of the American Antitrust Institute (