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Economic and Constitutional Basis for Patent System

The rational for a patent system is to establish economic incentives for inventors. By granting an inventor the exclusive right to make, use or sell and invention, the inventor then has a greater incentive to invent things. This incentive is even described in the Constitution. In Bonito Boats v. Thunder Craft, 489 U.S. 141 (1989), the Supreme Court, in an opinion by Justic O'Connor, discussed the primarily economic basis for the patent system.

Article I, § 8, cl. 8, of the Constitution gives Congress the power
"[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."
The Patent Clause itself reflects a balance between the need to encourage innovation and the avoidance of monopolies which stifle competition without any concomitant advance in the "Progress of Science and useful Arts." As we have noted in the past, the Clause contains both a grant of power and certain limitations upon the exercise of that power. Congress may not create patent monopolies of unlimited duration, nor may it
"authorize the issuance of patents whose effects are to remove existent knowledge from the public domain, or to restrict free access to materials already available."
Graham v. John Deere Co. of Kansas City, 383 U. S. 1, 383 U. S. 6 (1966).
From their inception, the federal patent laws have embodied a careful balance between the need to promote innovation and the recognition that imitation and refinement through imitation are both necessary to invention itself, and the very lifeblood of a competitive economy.

As an aside, the first part of the the opinion in Bonito_Boats v. Thunder Craft, 489 U.S. 141 (1989) is an excellent overview of many aspects of the patent system, its history, its rationale, and some of the main issues often encountered in patent cases. The reader is encouraged to review it.

As a counter-point, one could argue that there is no need for a patent system and the limited monopoly granted by a patent. Indeed, there is the incentive to be the first one to have a product enter the market. Until competitors copy the idea and/or reverse-engineer product, the first inventor is the only one selling the invention. Furthermore, in a system with no patent rights, there is perfect clarity on the lack of ownership of inventions. A competing company does not have to invest significant resources in determining the extent to which their products and designs may or may not be infringing their competitors' patents.

Exclusive Rights

The basic rights that are associated with a patent are the rights to

  • make;
  • use;
  • offer to sell; and,
  • to sell

the patented invention, 35 USC 271.

35 USC 261 states that "patents shall have the attributes of personal property." What this essentially means is that the owner of the patent can sell or keep the patent, and has all the usual rights with respect to it that an owner of "regular" personal property would have. For example, the owner can sell the patent rights, or part of them, or choose not to, or give them away, just as the owner of an iPod could choose to do the same thing with that property.

Governing Law

The federal laws of the United States are called the US Code, which is organized into 50 Titles. The primary sections of the United States Code governing patents is Title 35, which has four parts:

The main parts we will consider in this course are Parts II and IV. We will study, in detail, the standards for an invention to be eligible for a patent, which is commonly referred to as patentability which is the focus of some of the sections in Part II. Part IV is the focus of the international aspects of patent law.

The parts we will study in most detail are sections 101 through 103 that have the most impact on whether or not an invention is patentable. Hence, they are reproduced here.

35 USC 101 Inventions patentable

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

35 USC 102 Conditions for patentability; novelty and loss of right to patent

A person shall be entitled to a patent unless—

(a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or
(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States, or
(c) he has abandoned the invention, or
(d) the invention was first patented or caused to be patented, or was the subject of an inventor’s certificate, by the applicant or his legal representatives or assigns in a foreign country prior to the date of the application for patent in this country on an application for patent or inventor’s certificate filed more than twelve months before the filing of the application in the United States, or
(e) the invention was described in
(1) an application for patent, published under section 122 (b), by another filed in the United States before the invention by the applicant for patent or
(2) a patent granted on an application for patent by another filed in the United States before the invention by the applicant for patent, except that an international application filed under the treaty defined in section 351 (a) shall have the effects for the purposes of this subsection of an application filed in the United States only if the international application designated the United States and was published under Article 21(2) of such treaty in the English language; [1] or
(f) he did not himself invent the subject matter sought to be patented, or
(1) during the course of an interference conducted under section 135 or section 291, another inventor involved therein establishes, to the extent permitted in section 104, that before such person’s invention thereof the invention was made by such other inventor and not abandoned, suppressed, or concealed, or
(2) before such person’s invention thereof, the invention was made in this country by another inventor who had not abandoned, suppressed, or concealed it. In determining priority of invention under this subsection, there shall be considered not only the respective dates of conception and reduction to practice of the invention, but also the reasonable diligence of one who was first to conceive and last to reduce to practice, from a time prior to conception by the other.

35 USC 103 Conditions for patentability; non-obvious subject matter

(a) A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made.
(1) Notwithstanding subsection (a), and upon timely election by the applicant for patent to proceed under this subsection, a biotechnological process using or resulting in a composition of matter that is novel under section 102 and nonobvious under subsection (a) of this section shall be considered nonobvious if—
(A) claims to the process and the composition of matter are contained in either the same application for patent or in separate applications having the same effective filing date; and
(B) the composition of matter, and the process at the time it was invented, were owned by the same person or subject to an obligation of assignment to the same person.
(2) A patent issued on a process under paragraph (1)—
(A) shall also contain the claims to the composition of matter used in or made by that process, or
(B) shall, if such composition of matter is claimed in another patent, be set to expire on the same date as such other patent, notwithstanding section 154.
(3) For purposes of paragraph (1), the term “biotechnological process” means—
(A) a process of genetically altering or otherwise inducing a single- or multi-celled organism to—
(i) express an exogenous nucleotide sequence,
(ii) inhibit, eliminate, augment, or alter expression of an endogenous nucleotide sequence, or
(iii) express a specific physiological characteristic not naturally associated with said organism;
(B) cell fusion procedures yielding a cell line that expresses a specific protein, such as a monoclonal antibody; and
(C) a method of using a product produced by a process defined by subparagraph (A) or (B), or a combination of subparagraphs (A) and (B).
(1) Subject matter developed by another person, which qualifies as prior art only under one or more of subsections (e), (f), and (g) of section 102 of this title, shall not preclude patentability under this section where the subject matter and the claimed invention were, at the time the claimed invention was made, owned by the same person or subject to an obligation of assignment to the same person.
(2) For purposes of this subsection, subject matter developed by another person and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person if—
(A) the claimed invention was made by or on behalf of parties to a joint research agreement that was in effect on or before the date the claimed invention was made;
(B) the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and
(C) the application for patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.
(3) For purposes of paragraph (2), the term “joint research agreement” means a written contract, grant, or cooperative agreement entered into by two or more persons or entities for the performance of experimental, developmental, or research work in the field of the claimed invention.

Relationship to State Laws

The supremacy clause in Article VI of the US Constitution states

the laws of the United States ... shall be the supreme law of the land

which means they preempt all state laws. Since the Federal Government has decided to regulate patents, any attempt to do so by the states is invalid. So, for example, if Indiana established its own state patent system, it would be invalid because it would violate the supremacy clause.

However, it is not so clear-cut when some laws of a state conflict with federal laws. Bonito Boats v. Thunder Craft, 489 U.S. 141 (1989) is a good example. In that case:

[i]n September, 1976, petitioner Bonito Boats, Inc. (Bonito), a Florida corporation, developed a hull design for a fiberglass recreational boat which it marketed under the trade name Bonito Boat Model 5VBR. App. 5. Designing the boat hull required substantial effort on the part of Bonito. A set of engineering drawings was prepared, from which a hardwood model was created. The hardwood model was then sprayed with fiberglass to create a mold, which then served to produce the finished fiberglass boats for sale. The 5VBR was placed on the market sometime in September, 1976. There is no indication in the record that a patent application was ever filed for protection of the utilitarian or design aspects of the hull, or for the process by which the hull was manufactured. The 5VBR was favorably received by the boating public, and "a broad interstate market" developed for its sale. Ibid.
In May, 1983, after the Bonito 5VBR had been available to the public for over six years, the Florida Legislature enacted Fla.Stat. § 559.94 (1987). The statute makes
"[i]t . . . unlawful for any person to use the direct molding process to duplicate for the purpose of sale any manufactured vessel hull or component part of a vessel made by another without the written permission of that other person."
§ 559.94(2). The statute also makes it unlawful for a person to "knowingly sell a vessel hull or component part of a vessel duplicated in violation of subsection (2)." § 559.94(3). Damages, injunctive relief, and attorney's fees are made available to "[a]ny person who suffers injury or damage as the result of a violation" of the statute. § 559.94(4). The statute was made applicable to vessel hulls or component parts duplicated through the use of direct molding after July 1, 1983. § 559.94(5).
On December 21, 1984, Bonito filed this action in the Circuit Court of Orange County, Florida. The complaint alleged that respondent here, Thunder Craft Boats, Inc. (Thunder Craft), a Tennessee corporation, had violated the Florida statute by using the direct molding process to duplicate the Bonito 5VBR fiberglass hull, and had knowingly sold such duplicates in violation of the Florida statute.

On its face, preventing someone from using a particular manufacturing process is not the same as granting a monopoly on the invention. States prohibit specific processes all the time, in the interest of safety, etc. However, when the purpose or effect of the prohibition is directly related to the purpose of the patent system, then the state law is invalid. From the Bonito opinion:

[i]n our decisions in Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225 (1964), and Compco Corp. v. Day-Brite Lighting, Inc., 376 U. S. 234 (1964), we found that publicly known design and utilitarian ideas which were unprotected by patent occupied much the same position as the subject matter of an expired patent. The Sears case involved a pole lamp originally designed by the plaintiff Stiffel, who had secured both design and mechanical patents on the lamp. Sears purchased unauthorized copies of the lamps, and was able to sell them at a retail price practically equivalent to the wholesale price of the original manufacturer. Sears, supra, at 376 U. S. 226. Stiffel brought an action against Sears in Federal District Court, alleging infringement of the two federal patents and unfair competition under Illinois law. The District Court found that Stiffel's patents were invalid due to anticipation in the prior art, but nonetheless enjoined Sears from further sales of the duplicate lamps based on a finding of consumer confusion under the Illinois law of unfair competition. The Court of Appeals affirmed, coming to the conclusion that the Illinois law of unfair competition prohibited product simulation even in the absence of evidence that the defendant took some further action to induce confusion as to source.
This Court reversed, finding that the unlimited protection against copying which the Illinois law accorded an unpatentable item whose design had been fully disclosed through public sales conflicted with the federal policy embodied in the patent laws. The Court stated:
"In the present case the 'pole lamp' sold by Stiffel has been held not to be entitled to the protection of either a mechanical or a design patent. An unpatentable article, like an article on which the patent has expired, is in the public domain and may be made and sold by whoever chooses to do so. What Sears did was to copy Stiffel's design and sell lamps almost identical to those sold by Stiffel. This it had every right to do under the federal patent laws."
A similar conclusion was reached in Compco, where the District Court had extended the protection of Illinois' unfair competition law to the functional aspects of an unpatented fluorescent lighting system. The injunction against copying of an unpatented article, freely available to the public, impermissibly
"interfere[d] with the federal policy, found in Art. I, § 8, cl. 8, of the Constitution and in the implementing federal statutes, of allowing free access to copy whatever the federal patent and copyright laws leave in the public domain."
Compco, supra, at 376 U. S. 237.
The preemptive sweep of our decisions in Sears and Compco has been the subject of heated scholarly and judicial debate. See, e.g., Symposium, Product Simulation: A Right or a Wrong?, 64 Colum.L.Rev. 1178 (1964); Lear, Inc. v. Adkins, 395 U. S. 653, 395 U. S. 676 (1969) (Black, J., concurring in part and dissenting in part). Read at their highest level of generality, the two decisions could be taken to stand for the proposition that the States are completely disabled from offering any form of protection to articles or processes which fall within the broad scope of patentable subject matter. See id. at 395 U. S. 677. Since the potentially patentable includes "anything under the sun that is made by man," Diamond v. Chakrabarty, 447 U. S. 303, 447 U. S. 309 (1980) (citation omitted), the broadest reading of Sears would prohibit the States from regulating the deceptive simulation of trade dress or the tortious appropriation of private information.
That the extrapolation of such a broad preemptive principle from Sears is inappropriate is clear from the balance struck in Sears itself. The Sears Court made it plain that the States
"may protect businesses in the use of their trademarks, labels, or distinctive dress in the packaging of goods so as to prevent others, by imitating such markings, from misleading purchasers as to the source of the goods."
Sears, supra, at 376 U. S. 232 (footnote omitted). Trade dress is, of course, potentially the subject matter of design patents. See W. T. Rogers Co. v. Keene, 778 F.2d 334, 337 (CA7 1985). Yet our decision in Sears clearly indicates that the States may place limited regulations on the circumstances in which such designs are used in order to prevent consumer confusion as to source. Thus, while Sears speaks in absolutist terms, its conclusion that the States may place some conditions on the use of trade dress indicates an implicit recognition that all state regulation of potentially patentable but unpatented subject matter is not ipso facto preempted by the federal patent laws.
What was implicit in our decision in Sears we have made explicit in our subsequent decisions concerning the scope of federal preemption of state regulation of the subject matter of patent. Thus, in Kewanee Oil Co. v. Bicron Corp., 416 U. S. 470 (1974), we held that state protection of trade secrets did not operate to frustrate the achievement of the congressional objectives served by the patent laws. Despite the fact that state law protection was available for ideas which clearly fell within the subject matter of patent, the Court concluded that the nature and degree of state protection did not conflict with the federal policies of encouragement of patentable invention and the prompt disclosure of such innovations.
Several factors were critical to this conclusion. First, because the public awareness of a trade secret is, by definition, limited, the Court noted that
"the policy that matter once in the public domain must remain in the public domain is not incompatible with the existence of trade secret protection."
Id. at 416 U. S. 484. Second, the Kewanee Court emphasized that "[t]rade secret law provides far weaker protection in many respects than the patent law." Id. at 416 U. S. 489-490. This point was central to the Court's conclusion that trade secret protection did not conflict with either the encouragement or disclosure policies of the federal patent law. The public at large remained free to discover and exploit the trade secret through reverse engineering of products in the public domain or by independent creation. Id. at 416 U. S. 490. Thus, the possibility that trade secret protection would divert inventors from the creative effort necessary to satisfy the rigorous demands of patent protection was remote indeed. Ibid. Finally, certain aspects of trade secret law operated to protect noneconomic interests outside the sphere of congressional concern in the patent laws. As the Court noted, "[a] most fundamental human right, that of privacy, is threatened when industrial espionage is condoned or is made profitable." Id. at 416 U. S. 487 (footnote omitted). There was no indication that Congress had considered this interest in the balance struck by the patent laws, or that state protection for it would interfere with the policies behind the patent system.
We have since reaffirmed the pragmatic approach which Kewanee takes to the preemption of state laws dealing with the protection of intellectual property. See Aronson, 440 U.S. at 440 U. S. 262 ("State law is not displaced merely because the contract relates to intellectual property which may or may not be patentable; the states are free to regulate the use of such intellectual property in any manner not inconsistent with federal law"). At the same time, we have consistently reiterated the teaching of Sears and Compco that ideas, once placed before the public without the protection of a valid patent, are subject to appropriation without significant restraint. Aronson, supra, at 440 U. S. 263.
At the heart of Sears and Compco is the conclusion that the efficient operation of the federal patent system depends upon substantially free trade in publicly known, unpatented design and utilitarian conceptions. In Sears, the state law offered "the equivalent of a patent monopoly," 376 U.S. at 376 U. S. 233, in the functional aspects of a product which had been placed in public commerce absent the protection of a valid patent. While, as noted above, our decisions since Sears have taken a decidedly less rigid view of the scope of federal preemption under the patent laws, e.g., Kewanee, supra, at 416 U. S. 479-480, we believe that the Sears Court correctly concluded that the States may not offer patent-like protection to intellectual creations which would otherwise remain unprotected as a matter of federal law. Both the novelty and the nonobviousness requirements of federal patent law are grounded in the notion that concepts within the public grasp, or those so obvious that they readily could be, are the tools of creation available to all. They provide the baseline of free competition upon which the patent system's incentive to creative effort depends. A state law that substantially interferes with the enjoyment of an unpatented utilitarian or design conception which has been freely disclosed by its author to the public at large impermissibly contravenes the ultimate goal of public disclosure and use which is the centerpiece of federal patent policy. Moreover, through the creation of patent-like rights, the States could essentially redirect inventive efforts away from the careful criteria of patentability developed by Congress over the last 200 years. We understand this to be the reasoning at the core of our decisions in Sears and Compco, and we reaffirm that reasoning today.

Hence, the court concluded that

[w]e believe that the Florida statute at issue in this case so substantially impedes the public use of the otherwise unprotected design and utilitarian ideas embodied in unpatented boat hulls as to run afoul of the teaching of our decisions in Sears and Compco.

Governing Regulations

The Code of Federal Regulations are the regulations promulgated by Federal agencies in furtherance of their duties established through the US Code. The main section dealing with patents is Title 37. Chapter 1 contains the detailed regulations for the processes by which patents are handled by the PTO and is extremely detailed. We will rarely reference the CFR, but to give an example, Section 1.52 which deals with margins, paper, etc., is multiple pages long!

Federal Court System

Because the relationship between the states and the federal government in the United States is characterized by federalism, there are parallel systems of state and federal courts. Whether a case is adjudicated in a federal court depends, basically, on two factors:

  • whether or not the adjudication involves an issue of federal law, called subject matter jurisdiction or
  • whether or not the parties to the adjudication are from different states, called diversity jurisdiction.

Because patent law is federal, all patent cases are subject to the jurisdiction of the federal courts.[1]

There are three levels to the federal court system:

  • district courts;
  • appellate or circuit courts; and,
  • the Supreme Court.

As we will see, because of the technical nature of patent cases, a special appellate court has been created to handle appeals of patent cases called the Court of Appeals for the Federal Circuit.

District Courts

There are 94 federal court districts, organized by state counties. For example, St. Joesph County, Indiana, is in the Indiana Northern District. The Northern District is divided by county into Divisions, and there is a South Bend Division, which encompasses Cass, Elkhart, Fulton, Kosciusko, LaPorte, Marshall, Miami, Pulaski, St. Joseph, Starke and Wabash Counties. If you plan to make a federal case out of something, you will do it at 204 S Main Street in South Bend, but it will cost you.

There are rules governing at which court a case should be filed. Basically, the defendant needs some connection to that area. Otherwise, lawyers being the way they are, they would file lawsuits in the most inconvenient place possible for the defendants.

District courts are where trials are held. If there is an appeal, the trial is not held again at the appellate court. Instead the record from the trial is sent there and and lawyers have a limited time to argue why the outcome was either correct or not.

Cases from the appellate court from the geographic region in which the district court is located and the US Supreme Court serve as binding precedent for a district court, i.e., a district court can not make a decision that is contrary to the holdings of the higher courts. A district court is not bound by precedent from the appellate courts for the other circuits; however, they are generally afforded deference.

Circuit Courts

If you want to appeal the result from a trial, you do so to an appellate court. In the U.S. federal court system, these appeals are to the U.S. Courts of Appeals. There are 12 geographic regional circuits, and the appeal is typically to the appellate court for the circuit in which the district court is located that held the trial. Indiana is part of the 7th circuit and the main office is in Chicago.

However, since patent law is complicated, all patent cases are appealed to a court that is independent of the geographic location of the district court, and that court is called the Court of Appeals for the Federal Circuit.

The Court of Appeals for the Federal Circuit

The United States Court of Appeals for the Federal Circuit (the CAFC) is located in Washington, D.C., and handles appeals of cases involving a variety of subject areas, including international trade, government contracts, patents, trademarks, certain money claims against the United States government, federal personnel, and veterans' benefits. This is the only federal appellate court that has nation-wide jurisdiction.

The CAFC was established on October 1, 1982. The first case of the CAFC was to decide what previous cases were binding precedent for it. In South Corp. v. US 690 F.2d 1368 (1982), it decided that the holdings of the the CCPA and the U.S. Court of Claims are binding precedent in the Federal Circuit.

When studying opinions from patent cases, it is important to take note of the court. If it is from the Supreme Court or CAFC, it is considered strong precedent. Much of the motivation for creating the CAFC was the concern for a lack of consistency among the various circuits in handling patent matters; hence, it is frequently possible to find cases from different circuits that come to opposite conclusions on many patent matters prior to the establishment of the CAFC.

The United States Supreme Court

The Supreme Court of the United States is the only court specifically established by the Constitution, and is the highest judicial body in the United States. Its decisions are binding precedent in all courts in the United States.[2] Hence, anything regarding patents in a Supreme Court decision is binding for the district courts and the CAFC.

The United States Patent and Trademark Office

The United States Patent and Trademark Office (PTO) is an agency of the Department of Commerce. For patents, it is where patent applications are filed and is where patents are examined and issued.

Patent Term

Patents as Property

Other Forms of Intellectual Property

Trade Secrets




  1. It is possible for a patent case to end up in the federal courts. For example, as discussed subsequently, a court may need to consider whether or not a state law conflicts with federal law. Bonito Boats v. Thunder Craft, 489 U.S. 141 (1989), which is considered subsequently, is an example of such a situation.
  2. Anyone that was paying attention in a civics course will remember, of course, that in Marbury v. Madison, the Supreme Court gave itself the authority of judicial review which gave it the power to declare actions of other branches of the government to be unconstitutional!