Introduction

Allowing an Internet shopper, who is a regular customer of a web site, to complete her selected purchase without having to click a confirmatory button indicating she really meant to buy it may hardly seem like something a well-functioning patent office should have found appropriate for patent protection in 1997.1 Yet, a federal court issued a preliminary injunction to enforce such a patent against Barnesandnoble.com during the 1999 Christmas season, requiring customers to make two or more clicks to complete purchases on that site—a potential annoyance to them and a cause of lost revenue for the company.2 Although the preliminary injunction was eventually vacated on appeal based on the questionable validity of the patent in [*PG57]view of the prior art,3 the defendant’s litigation costs to obtain this result could not have been minor.4

The threat of cases like this has prompted the Federal Trade Commission and the Justice Department’s Antitrust Division to ask in their announcement of joint hearings on such issues:

To what extent do questions about the scope and types of patents (e.g., business methods patents), and the procedures and criteria under which they are issued, raise competition issues? To what extent do substantive and procedural rules, both at agency and judicial levels, have implications for initial and sequential innovation, competition, and appropriability?5

The hearings that followed this announcement spanned most of 2001, during which many critics of the patent system argued that the system may be in steep decline due to an increase in the number of patents issued by the U.S. Patent and Trademark Office (the “Patent Office”) that these critics suggest do not meet the proper patentability standards and, as a result, are too broad or too narrow, unduly tax and retard negotiations, or frustrate competition.6

[*PG58] Although a ratcheting up of the screening done in the first instance by the Patent Office, to achieve a more “hard-look” examination, is an intuitive and often-urged response, this Article makes the counterintuitive suggestion that instead, the Patent Office should do a “soft-look” examination, if any examination at all.7 This Article focuses on a comparative analysis because the question any evaluator must [*PG59]always ask is not whether any one system has negative aspects, but rather how it compares to alternatives.8

To best understand the intuition behind soft-look systems generally, this Article offers as a model a hypothetical alternative system under which patent applications are registered, not examined.9 Study of this model reveals both how the social costs associated with hard-look examination systems are especially large and how the costs associated with soft-look systems—such as the present system and the model registration system—are especially small.10

In focusing on social cost, this Article offers a new normative account of the positive law rules for obtaining patents.11 The registration theory offered in this Article shows how the essential patentability rules mitigate significant social costs and how existing normative views of the patent system fail to account for these social costs.12 Far from defending the present patent system, this Article offers a number of significant modifications expected to mitigate social costs further by embracing, somewhat counterintuitively, the admittedly expensive tools of commercial litigation.13

In the final analysis, the prescriptive conclusions this Article reaches are somewhat modest.14 Although the conclusions of this Article are limited in part because they are likely to turn on empirical determinations and balancing that cannot be done responsibly without further data, this Article does provide a new and practicable framework for making such evaluations.15 In addition, although we already may be operating under a de facto soft-look system, at least in many respects, this Article offers several reforms designed to bring the present system more in line with soft-look systems like the proposed registration model.16 Furthermore, the conclusions drawn here [*PG60]may be influenced by our broader views on the comparative strengths of different decision-making regimes, such as between those that are centralized and those that are individualized and dispersed, and between those based on rules and those based on standards.17 Regardless of the prescriptive value any of this Article’s conclusions may have for positive patent law directly, this Article’s unique elucidation of a normative account of the patent-obtaining rules as operating to minimize certain social costs will help commentators and policymakers evaluate other proposed reforms in the future.18

This Article proceeds in four parts as follows: Part I reviews the existing normative theories of the patent system and shows how they fail to offer practicable approaches for a positive law regime and fail to minimize social costs.19 Part II explores the case for an alternative hypothetical model of a registration system and shows how social costs can be minimized by use of such a system.20 Part III reviews the law and economics of the core patent-obtaining rules and shows how the registration theory is superior to other normative theories, both in ability to be implemented and in ability to account for the patent-obtaining rules in the present system.21 Part IV compares the pure [*PG61]registration model to the present system and then offers some proposed reforms to the present system.22

I.  Context Within the Patent Law & Economics Literature

Prevailing normative views of the patent system fail to account for significant social costs that are mitigated by many of the present patentability rules.23 Although the prevailing views do provide important lessons about how the patent system can mitigate certain social costs, they fail to show, in any practical way, how to mitigate others, or how to mitigate social cost overall. More specifically, they fail to address important issues such as how to evaluate an invention, either to determine its entitlement to some patent or other reward, or to determine its relative entitlement when compared with other inventions.24 These issues turn out not to be small administrative matters.25 The normative view offered in this Article shows how the present patent system has evolved essential tools for making these determinations in ways that mitigate social cost.26

The patent system in this country has generally been seen as offering inventors an incentive to do something they might not otherwise do—for example, invent, disclose, commercialize, or design around.27 These incentives are generated by the grant in each patent of the right to exclude others from doing whatever is covered by the patent’s claims.28 Recognizing that discrete incentives like these, focused on inventors, could be provided directly without the output-[*PG62]restricting effects of the patent right to exclude, commentators have for over a century explored alternative ways to provide these incentives using tools such as cash rewards and tax credits.29

In his 1977 piece on the so-called prospect theory of the patent system, which builds upon work by Yoram Barzel and others, Edmund Kitch showed how granting formal property rights, as opposed to cash rewards, is important for avoiding the social costs associated with racing towards a common prize.30 Called rent dissipation by Mark Grady and Jay Alexander in 1992,31 the racing problem can be demonstrated by the example of an uncoordinated group of individuals who are each seeking a prize of known value. Each such individual might rationally elect to spend up to just less than the value of the prize to get it, meaning that as a group they are spending more in aggregate than the value of the prize.32

[*PG63] Although rent dissipation can be a problem in theory, recent work by Michael Abramowicz adroitly points out a number of factors that may mitigate rent dissipation effects in practice.33 These factors include risk aversion; opportunity costs; diversity among those racing; the time it takes to get the reward; and externalized costs or benefits those racing impose on others, such as the income to those who sell goods and services needed by those racing or the costs to those who are bothered by the activities associated with racing.34

In addition, rent dissipation presumes there is a single prize, or at least a discrete number of prizes.35 But those attempting to solve a problem may not arrive at the same solution; they may get to different solutions and there may be even more solutions available.36 Although multiple solutions to a given problem may be wasteful when the good is not really needed, which is an interesting possibility explored at [*PG64]some length by Abramowicz,37 when the utility of the good is substantial, the benefits of multiple solutions may dominate.38 That is, although more may not always be better, it also may not always be worse. Consider the multiple, independently patentable and non-infringing solutions to the problem of pain and inflammation: aspirin, acetaminophen (Tylenol^Ò), ibuprofen (Advil^Ò, Motrin^Ò), selective COX-2 inhibitors (Vioxx^Ò and Celebrex^Ò), and various steroids.39 Some patients can only take some of these drugs, and some patients can take all, but not at all times. In the real world we cannot know ex ante whether more solutions are going to be redundant, or whether they will both increase consumer choice and provide access to more consumers who could not consume the earlier solutions.40

An additional problem with the prospect and rent dissipation theories is that they present themselves with the very problem they attempt to solve. As Donald McFetridge and Douglas Smith pointed out [*PG65]soon after Kitch, the more effective the patent is in coordinating activities of those in the industry after the patent has issued,41 the greater will be the problems of racing towards the patent application before filing.42 Kitch’s response was to argue that the coordination costs are likely to be low in such early stages because there are likely to be only a small number of players then.43 But this response does not fully answer the problem. As Abramowicz correctly points out, the transaction costs may be high in such a community because the members may have significant cognitive biases.44 The transaction costs to coordinating may also be high if the racers do not know about each other.45

But the central limitation of the rent dissipation and prospect theories is that they do not offer a way to use the social cost lessons of prospecting to design legal rules for obtaining patents that can operate ex ante to mitigate the social costs of prospecting. Instead, Kitch argues that the prospect theory explains why the commercial success associated with a patented invention should be an important factor in determining whether it is patentable.46

Similarly, the rent dissipation theory urges a finely tuned patent system that will grant and enforce patents only when the balance of these pre-patent and post-patent racing costs tips just the right way.47 But the rent dissipation theory does not provide a framework for making such determinations ex ante, at the time a private party would de[*PG66]cide whether to file a patent application or at the time the Patent Office would examine it. Instead, it only identifies a select few reported judicial decisions that, according to the summary accounts of Grady and Alexander, turn out to be ex post examples of results that may have avoided rent dissipation.48

In the final analysis, at least to date, the prospect and rent dissipation theories provide important insights about how the patent system can both increase and decrease rent dissipation-type social costs. But the theories do not offer a tool for comparing these costs against other social costs, assessing net social costs, or doing all of this in a way that would work for making patentability determinations in a timely fashion.49

The importance of being able to make determinations about patentability and patent scope around the time of the application has been emphasized recently in a number of areas of the literature. R. Polk Wagner, in his work on the patent infringement doctrine called the “doctrine of equivalents,” elucidates the importance of information-forcing penalty default rules as inducement to potential patentees to produce socially valuable information early in the life of the patent.50 In addition, Clarissa Long, in her work on the often overlooked signaling function of patents, shows how in certain circumstances the information-signaling function of patents may be even more valuable to the rights holder than the substantive rights conferred by patent law.51

[*PG67] Similarly, my own earlier work on the commercialization theory of patents shows how the patent right to exclude operates, as designed, at the time after inventions are made to help bring such nascent inventions to market through the process called commercialization.52 According to this view, patents allow patentees, and the many others with whom they must negotiate, to achieve commercialization by allowing them to internalize the full benefits of the subject matter claimed, in keeping with the work by Harold Demsetz on the emergence of property rights generally.53 Also according to this view, determinations about the property right must be made early in the commercialization process for that process to [*PG68]occur.54 Indeed, as pointed out in this earlier work, the desire to help the commercialization of inventions was a central motivating factor behind the present patent system, which remains largely based on the 1952 Patent Act.55

To be sure, the commercialization view of the patent system, as elucidated thus far, may not be without its problems. First, as Abramowicz exhaustively explores in at least two of his present projects, there may be ways to modify the patent right to exclude so that commercialization is still achieved, while at the same time minimizing potential output-restricting effects of the strong right to exclude.56 Second, as Abramowicz also points out, the commercialization view may be both over- and under-inclusive.57 Stated differently, the commercialization view as discussed thus far does not fully explain, for example, why the patent system does not afford protection to help commercialize technologies that do not meet the tests for patentability, such as novelty, but nevertheless are not being commercialized presently.58

[*PG69] The commercialization view does offer at least an implicit answer to this problem when it points out the screening role played by competitors of the patentee with the help of a court, a role which would have to be played by government decisionmakers under a reward system.59 Under the commercialization view, the competitors of the patentee are provided with incentives to bring information about a patent’s validity to the attention of a decisionmaker.60 Accordingly, the Barnesandnoble.com case discussed at the beginning of this Article61 represents one example of the screening function contemplated by the commercialization view, albeit at a cost that is not insignificant.62

Although the admittedly significant cost of screening patents through civil litigation presents a serious obstacle to any theory that embraces a soft-look approach, especially registration, these costs must be compared against the costs of allocating or screening patents using other approaches.63 As shown more fully below, by exploring the hypothetical model registration system, the registration theory offers comparatively practicable and inexpensive tools for screening patents.64 The [*PG70]registration theory’s emphasis on the notice aspect of the patent system is in keeping with contemporary theory of property rights, generally.65

II.  The Registration Model

Many patent critics would begin their reform efforts by ratcheting up the level of scrutiny given to patent applications during Patent Office examination to avoid the social costs due to those patents that ultimately would be adjudicated invalid through federal court litigation.66 The registration model, explored more fully below, shows that the level of scrutiny the Patent Office gives patent applications should be ratcheted down, because the cost of thorough examination would be higher than the costs of federal court litigation.67

The hypothetical model patent system differs from our present one in that patent applications would be merely registered in the Patent Office rather than examined.68 Under the present system, patent applications are filed in the Patent Office and examined for compliance with the legal rules for patentability by technically and legally trained staff of that administrative agency.69 Under the examination [*PG71]process, also called patent prosecution, the ex parte exchange between the applicant and the Patent Office examiner typically lasts about three years before an application that has not been either finally rejected or abandoned issues as a patent.70 Having been examined, issued patents enjoy a procedural and substantive presumption of validity, and a party challenging a patent must prove invalidity under the heightened standard for civil litigation of “clear and convincing evidence.”71

In the proposed registration model, patent applications would be filed with the Patent Office but not examined. The Patent Office would maintain original files and make authentic copies available publicly, perhaps via the web for free, as is done with the EDGAR system for securities filings at the Securities and Exchange Commission.72 In addition, the presumption of validity would be eliminated, or at least relaxed, thereby allowing invalidity to be judged under the standard ordinarily used in civil litigation of “a preponderance of the evidence.”73

Recent work by Mark Lemley sheds some light on the strengths of soft-look systems—such as the present system and the proposed registration model—as compared with hard-look systems in which patents are examined with stricter scrutiny.74 Lemley shows that “[b]ecause so few patents are ever asserted against a competitor, it is [*PG72]much cheaper for society to make detailed validity determinations in those few cases than to invest additional resources examining patents that will never be heard from again.”75

Lemley explores one important reason why the making of detailed validity determinations in litigation instead of in the Patent Office leads to lower net costs across all patents when he offers the core insight that litigation and its threat operate to provide important information about society’s level of interest in a given patent—only those patents that matter receive a hard look.76 But this information could be provided through other means, perhaps even directly to the Patent Office, which leaves open the issue of which method of providing this information is cheapest.77

A more complete exploration of this open issue is therefore required to understand the many reasons why the costs of providing such information through litigation are less.78 One advantage of litigation is that, because it comes later, it allows more information about society’s interest in the patent to accrue, thereby decreasing the likelihood of error associated with ex ante efforts to predict which patents should receive close attention.79 Another advantage is that ex post selection of those patents that turn out to matter raises fewer administrative and public choice problems than would ex ante efforts because the attention of both proponents and opponents of a given patent are more likely to be at a peak in later litigation.80 Decision [*PG73]making through litigation mitigates many of the well-known problems associated with making award-type decisions.81

This Article makes a radical departure from prior work in the field by showing how, on an individual-patent basis, the costs of providing the information needed to decide validity and the costs of “correct” adjudication with that information are likely to be lower if these determinations are made in litigation than if they are made in patent examination.82 The intuition for this view is that the information relating to validity in litigated cases is rarely in the hands of the government but, rather, is often obtainable by, or in the hands of, a private party who experiences a strong incentive to bring that information to the attention of a court.83 As discussed more fully below, [*PG74]this information is more cheaply obtained, provided, and evaluated by private parties, including the patentee and competitors of the patentee, than by the government.84

III.  The Law & Economics of Patent-Obtaining Rules

The benefits of soft-look patent systems, like either the present system or the proposed registration model, can be seen through the below law and economic analysis of present patent-obtaining rules. Each ma[*PG75]jor statutory requirement for patentability is studied, and its social-cost-minimizing qualities elucidated.85 Seen through this lens, otherwise puzzling aspects of the patent system appear for the first time to fit within a coherent normative framework, under which the positive law rules for obtaining patents operate primarily to minimize social cost.86

Not only does the registration theory depart from existing literature by accounting for the patent-obtaining rules, it also focuses on the verifiable claims of both a patent applicant and its competitors, instead of primarily on those of the applicant.87 That is, rather than first asking what scope of protection a patent applicant “deserves,”88 the registration theory begins with the presumption that the patentee is entitled to the largest scope of protection that does not actually infringe the freedom from patent protection that some competitor of the patentee can claim legitimately to “deserve,” and provides a framework for judging this type of desert.89 In putting the burden on the competitor to justify freedom from the patent, this approach potentially leaves a patentee with what might be viewed as overly broad protection.90 But the theory also saddles the patentee with a strong incentive not to seek “too broad” [*PG76]protection and instead to get the scope “just right.”91 Under this view, as discussed more fully below, the patent-obtaining rules are comparatively easy-to-administer tools that operate, in the case of the prior art rules, to protect prior investment by third parties and patentees and, in the case of the disclosure rules, to facilitate their future investment.92

A.  The Prior Art Rules Inexpensively Protect Investment

Patent law’s rules regarding the prior art—the § 10293 and § 10394 requirements that a patentable invention be novel and nonobvious—protect the investment-backed expectations of both the patentee and its competitors, and they do so in ways that involve remarkably few administrative costs.95 As discussed more fully below, the novelty and nonobviousness requirements protect the investment-backed expectations of those other than the patentee by ensuring that a patent right to exclude will not extend to anything those in the art are doing already or are about to do.96 As also discussed more fully below, the one-year grace period of the statutory bar protects the investment-backed expectations of the patentee.97

As Robert Nozick recognized in his watershed libertarian work on the minimalist state, it is because of patent law’s prior art rules that the patent system does not run afoul of the Lockean proviso that property rights should leave enough in society’s commons for those other than the property holder.98 Patent law achieves this effect by [*PG77]making sure that valid patents leave others free to do whatever they otherwise were doing.99

The registration theory goes further than the libertarian realization that patent law can have this minimal effect on the freedom of those other than the patentee by suggesting that this effect should not be merely a consequence of the patent system, but a goal.100 The registration theory also adds the goal of achieving this effect with the lowest administrative cost possible.101 Once these two relatively modest goals are envisioned, substantial light is shed on the justification and operation of the many otherwise complex positive law rules patent law has evolved for determining what counts as being in the prior art and what preclusive effects it will have on a patent claim.102 Other patent theories fail to provide any explanation for core patent-obtaining rules about the prior art, fail to offer their own workable rules, or yield perverse results.103

Many patent theories try to answer the skeptical question raised about patents by one of the country’s first luminaries to write about them. Thomas Jefferson, who as Secretary of State oversaw the administration of the country’s first patent system,104 felt it important to [*PG78]ask whether each invention was in the first instance “worth to the public the embarrassment of an exclusive patent.”105 But any such theory that tries to tie the legitimacy of a patent to the nature of the invention faces a number of remarkably difficult problems.106 Theories tied to the merit of the invention face the conceptual problems of requiring some preliminary determination of how to judge merit in any practicable fashion.107 They also turn out to have faced serious practical problems concerning their application, as courts applying these approaches tended to avoid finding that any invention met the standard.108

[*PG79] Some other patent theories suggest that the patent-obtaining rules should be adjusted to be sensitive to complex economic factors, like rent dissipation.109 But some of these, like the prospect theory, fail to offer concrete rules usable ex ante to make determinations of patentability and instead just offer general guidelines, such as that patent claims can be better if broader.110 Others, like the rent dissipation theory, offer the perverse recommendation that an invention that is so far beyond the prior art that it is “optimal” should not be patentable under the prior art rules because a patent would both cause too much rent dissipation among those seeking the patent and not be needed to prevent rent dissipation among those who otherwise would race to improve upon it.111

In contradistinction, the registration theory views the prior art rules as designed to achieve the more modest goals of protecting investment-backed expectations based on objective verifiable evidence, which is an approach that is both workable and has explanatory power for the present system.112 The registration theory begins from a [*PG80]presumption in favor of holding inventions to be patentable over the prior art unless some verifiable evidence of sufficient reliance is shown.113 Under this view, the system should have a novelty requirement to protect those investments that have matured into actual technical activities.114 Similarly, the system should have something like a nonobviousness requirement to protect those investments that are about to mature into actual technical activities.115 For both requirements, the system should consider only those investments that verifiably existed before those of the one claiming a patent right.116

The registration theory has great explanatory power for the prior art rules.117 The theory’s presumption in favor of not holding an invention unpatentable over the prior art explains the often-overlooked introductory language to the statutory prior art provisions, which sets forth that “[a] person shall be entitled to a patent unless” any of the conditions subsequently provided in the statute is triggered.118 Indeed, the registration theory also explains the otherwise controversial statutory language that provides such a minimal role for the Patent Office.119 In addition, present patent-obtaining prior art rules have been considered by many, including me, to be “a statutory mine field [*PG81]through which patent applicants must navigate.”120 With the benefit of the registration theory, they can be seen as the expected intricacies of a system rationally designed to consider all verifiable investments.121

What is more, the registration theory’s look to these prior art rules as being triggered by relatively simple fact questions into the existence or nonexistence of specific things or events reveals why it makes sense for patent validity determinations to be made by the same ordinary civil judges and juries that decide other cases. Determinations about what people verifiably have done or are about to do implicate surprisingly simple questions of fact that do not require special technological training or judgment, and therefore are well suited for adjudication by lay juries and judges.122

1.  Novelty and Bar

The patent system’s patent-obtaining rules relating to the prior art begin with those in § 102 of the statute, which relate to novelty and bar.123 “Anticipation by the prior art” is the phrase in patent law used [*PG82]to describe the case where a patent claim is directed to subject matter that is not new.124 “Statutorily barred” is the phrase in patent law used to describe the case where a patent claim is directed to subject matter that, even if new at the time of invention, was exposed to the public more than a year before the application was filed.125 The registration view elucidates why it makes sense for the patent system to have evolved these doctrines in all their detail.126

In accordance with the registration view, printed publications describing a technology count as prior art under the novelty provisions because publicly available documents are good evidence of investment by their authors and of something on which others could rely.127 Any printed publication will count, even if in a foreign country, as long as it is verifiably the type of publication on which a member of the public could rely.128 Indeed, even pending patent applications that later issue as patents, but that are not yet published, count as prior art as of their filing date because their inventors have invested in the verifiable contents of these government-stored documents and those in [*PG83]confidential relationships with their inventors could rely on them as well.129

Similarly, uses of a technology only count as prior art if corroborated by someone other than the one claiming prior invention because verifiable public use may induce investment in the technology by observers of this use.130 Although § 102(a) only expressly provides, in pertinent part, that the invention must not have been “known or used by others,” the word “public” has been read into that statutory language through case law.131 Use that is not public, yet also is not abandoned, suppressed, or concealed, may also count as prior art under § 102(f) and § 102(g), but only if corroborated by evidence other than inventor testimony.132

[*PG84] Verifiable public use or sale sufficiently in advance of patent application filing, even if by the one seeking a patent, can count as prior art against that application under certain circumstances because it may induce investment in the technology by observers of this use.133 For this reason, the statutory bar provisions treat sale or use in public by either the inventor or a third party as prior art against the inventor’s claim to a patent.134

The patent system even protects the inventor’s own investments to some extent through allowance of a one-year grace period in which to file a patent application before the on-sale and public use bars are triggered. This is important because a patent system in which there is no grace period may provide incentives for decreased rate of disclosure of new technologies, and a decrease in the overall value of patents. The decreased rate of disclosure under a system lacking a grace period would be due to the need to keep potentially patentable information unpublished before filing the patent application.135 The decrease in [*PG85]overall value of patents would be due to the fear of unknown but unavoidable pre-filing disclosures lurking in the history of every patent.136

But the inventor’s own investments have to be balanced against the reasonable reliance interests of others. For this reason, the grace period is limited to one year, which allows others to rely on essentially any public evidence of a technology that is beyond the time of the grace period.137 As soon as an inventor’s use of the technology becomes available to the public,138 or is on sale at any stage past when it is “ready for patenting,” the clock on the one-year window begins.139 The subsequent one year provides time for the inventor to decide whether to prepare and file a patent application, and then to take these steps if elected.140

Taken together, these rules about what counts as prior art allow every patent claim to be judged as of its “critical date” against a piece of prior art’s “effective date.”141 The critical date is either the verifiable date of invention, or one year before the application’s filing date, depending upon whether the invention is being analyzed for anticipation or bar.142 The effective date is the date the piece of prior art is allowed to count as prior art, as discussed above.143

Under § 102, patentability is precluded if any single item that is determined to count as prior art under any single subsection of the [*PG86]statute is found to fully disclose the claimed invention.144 Importantly, case law has provided a remarkably easy test for determining whether an invention is fully disclosed for purposes of this analysis, which can be seen through the use of the schematic claim chart in Table 1, below.145

Table 1 compares the elements of a stylized claim against the prior art for a determination of potential unpatentability or invalidity under § 102.147 The substantive requirement for determining no valid patent claim under § 102 is triggered only if a single prior art reference discloses, either expressly or under principles of inherency, each and every element of the claim, plus enablement.148 When mapped onto [*PG87]this table, this means that a proper holding of invalidity will only lie if a check mark can be found as a matter of fact for every row.149 And to achieve a check mark there must be admissible evidence that as a matter of fact the pertinent content is present in the piece of prior art.150

Although this determination of novelty is relatively easy, the registration theory recognizes that it may not go far enough in that parties may invest in a technology before it fully exists.151 As a result, the patent system may have to go beyond merely requiring inventions be new, or not fully disclosed in a single prior art reference; it may also have to prevent valid patents from covering what anyone is investing towards, if such a determination can be made inexpensively.152 Under the registration theory, this is the role played by the nonobviousness requirement, discussed below.153

[*PG88]2.  Nonobviousness

The patent system has long demanded something more than mere novelty when determining patentability over the prior art. This additional requirement is called “nonobviousness” in the present system.154 It has been given labels in previous systems that are as tautological as “the requirement for invention;” and its various forms have generated great difficulty for the courts for over a century.155 It also raises significant problems for the patent theories in the literature.156

[*PG89] The version of this requirement called nonobviousness was written into the patent system through the 1952 Patent Act to statutorily jettison the prior case law associated with the former, vague and anti-patent, requirement called “the requirement for invention.”157 Even the drafters of this new standard recognized that it did not, on its face, appear to be any more precise in application than the former requirement.158 Nevertheless, as the registration theory would predict, the case law interpreting this new standard correctly has provided an objective and practicable framework tied to third-party investments.159

The analysis for a nonobviousness determination under § 103 begins with the entire body of prior art determined to be available under § 102.160 But important areas of the prior art are then carved out so they can be excluded from the nonobviousness analysis.161 First, only art considered to be analogous may be considered under the nonobviousness analysis.162 Under the registration theory, which looks [*PG90]to protect the reasonable investment-backed expectations of third parties, non-analogous art is properly discarded because it is not likely to be the basis for any such reliance.163 Importantly, as would be predicted by the registration theory, the distinction between analogous and non-analogous art is viewed as important, not as evidence of what the inventor himself or herself could have known about the art, but rather what was knowable to a hypothetical third party having ordinary skill in the art (“PHOSITA”).164 Second, secret prior art that would count only un[*PG91]der § 102(e), (f), and (g) has been statutorily excluded from the nonobviousness analysis if it is owned by the same entity whose patent claim is at issue.165 The exclusion of this art also makes sense under the registration theory because no third-party investments will have been made in art that is commonly owned and kept secret.166

The content of the remaining prior art as a whole must then be surveyed to determine whether it may have reasonably triggered investment-backed expectations in achieving the subject matter of the patent claim in issue.167 Such investments are most likely to have existed only when there can be found among these many remaining pieces of art each and every element of the claimed subject matter along with sufficient teaching, motivation, or suggestion for the pieces that contain those elements to be combined such that there would be a reasonable expectation of success in establishing the claimed subject matter when they are combined.168 The practical operation of this analysis can be seen through the use of the schematic claim chart in Table 2, below.

Like Table 1, Table 2 compares the elements of a stylized claim against the prior art, but this time for a determination of nonobviousness under § 103.170 Invalidity under this rule of nonobviousness also requires the presence in the prior art reference, either expressly or under principles of inherency, of each and every element of the claim, [*PG93]plus enablement. But, unlike the analysis under § 102, the analysis under § 103 allows the elements to be spread among two or more individual pieces of prior art, as long as some additional facts are present: teaching, motivation, or suggestion to combine those references to obtain the subject matter of the claim as a whole (“TMS”), plus a reasonable expectation of success in achieving the claimed subject matter upon the combination (“RES”).171 When mapped onto this table, this means that a proper holding of invalidity or unpatentability under § 103 will only lie if a check mark can be found as a matter of fact for every row and at least some tie can be made across all columns using the TMS and RES that must be found in at least one of the rows.172

Unfortunately, the appropriateness of the nonobviousness requirement is not entirely clear under the registration theory. To the extent that the analysis operates as crisply as suggested by Table 2, it makes sense as a reasonably inexpensive way to protect against verifiable investments that may have been made towards a technology.173 The practice may deviate some from this framework, however, when requiring that in every case some weight be attributed to the so-called secondary considerations of nonobviousness: chiefly, commercial success and long-felt need and failure of others.174 Long-felt need [*PG94]and failure by others may not represent a deviation and may instead fit well within the registration theory’s framework as outlined in Table 2 because they may be probative evidence of a lack of TMS and RES, in which case the art may fairly be said to “teach away” from the failed approaches.175

In contrast, commercial success may deviate materially from the framework of the registration theory, although for reasons different than identified in the literature.176 Exemplifying the literature critical of the commercial success factor, Robert Merges urges that the system will operate better when “focus returns to the invention’s technical merits” because we should question “the spurious inferential connection between success and significant technical advance.”177 In his work on the prospect theory, Kitch takes a different view of commercial success arguing that this factor matters under the prospect theory because it shows that the patent has become “the foundation for a series [*PG95]of now valuable contract rights.”178 On first blush it may appear that the commercialization theory would view commercial success the same way, for similar reasons. That is, commercial success might be seen as relevant not because it says something about how hard it was to make the invention, but only because it says something about how commercially relevant the subject matter has become.179

Although the commercial success consideration may seem to map on to the incentive to commercialize discussed earlier, it is not clear that this factor should be considered if minimizing social cost is the goal.180 With the benefit of the registration and commercialization theories combined, commercial success may turn out to be properly ignored as a potential factor of nonobviousness because the factor places too much focus on the merits of the invention, which leads to it not being workable, and not enough focus on the investment-backed expectations by third parties, which is what matters under these theories.181 Therefore, in the final analysis, it may not be advisable to abandon the § 103 requirement of nonobviousness in its entirety because most of the nonobviousness framework is shown both to work well according to the registration theory and be well explained by the registration theory.182

[*PG96]3.  First-to-Invent

The patent system’s rules governing priority contests between two or more claimants to a patent right protect investment by awarding the patent to the one who was first to invent, not first to file.183 As recognized by the commercialization theory, a shift to a first-to-file system may lead to an increased likelihood that neither party in a priority dispute will remain with a valid patent because the increased incentive to file early that may operate to make one party a winner on priority might also have caused that party to file an application with inadequate disclosure.184

In contrast, under a first-to-invent system there is less of an incentive to rush to file because priority is not determined by filing and, as a result, there is a lower likelihood that the winner on priority will be [*PG97]left with a patent that fails to meet the disclosure requirements.185 The first-to-invent system thereby at least protects the investments of one of the claimants.186 In addition, first-to-file may lead to a winner-take-all mindset for those seeking patents. This, in turn, may cause a reduction in the beneficial inducing power of the reward because each potential claimant may find the possibility of winning the race to be too low. Alternatively, it may cause the harmful, rent-dissipating power to increase as the increase in uncertainty causes even more individuals to gamble on winning the race.187

A first-to-invent regime does increase litigation frequency by bringing priority disputes to available contests, but this is beneficial because such disputes can also reach issues of validity.188 The costs of determining validity in such a proceeding are likely to be less than in a hard-look examination because the opponent in such a priority dispute is like the alleged infringer in litigation in its ability to more cheaply obtain and evaluate the information needed to determine validity.189 The registration theory thereby explains the persistence of the first-to-invent aspect of the present patent system despite har[*PG98]monization efforts to have the United States match the rest of the world, which uses first-to-file.190

4.  Prior Foreign Use

Like the rules governing novelty generally, the rules about prior foreign use make sense under the registration theory as tools for protecting verifiable investment-backed expectations.191 For most of the past century, prior use that was outside of this country would not count for purposes of either staking a claim to priority for purposes of obtaining patent rights in a priority contest or defeating patent rights in a challenge to validity.192 But since 1994, uses that occur in countries that are members of the North American Free Trade Agreement (“NAFTA”) or the World Trade Organization (“WTO”) will be available when seeking to obtain a patent in a priority dispute against another claimant—as a sword—but not when seeking to defeat a patent owned by another—as a shield.193

By making prior foreign use that occurs within a country with whom we are a trading partner under either of these treaties available to support a claim to a patent, these revisions protect those investment-backed expectations made abroad that are sufficiently serious to have led to the filing of a patent application.194 By leaving all other foreign prior use unavailable to defeat a patent, these revisions protect the investments of the one who filed the patent application and disregard those of others whose use is not corroborated by a printed publication.195 The registration theory’s focus on verifiable evidence of potential investment-backed expectations thereby explains what may otherwise appear to be an intricate effort to favor domestic interests.

[*PG99]B.  The Disclosure Rules Help Coordinate

Under the registration theory, the § 112196 disclosure requirements decrease social costs by serving to give clear notice about the property right, and to decrease the chance of duplicative efforts towards the same invention.197 The U.S. Court of Appeals for the Federal Circuit’s strong reading of the written description requirement to put the public on clear notice of what will infringe and what will not makes sense because the patentee, as the drafter, is the least-cost avoider of such ambiguities.198 This legal development was controversial to be sure; yet it marks an important weapon in the system’s arsenal for fighting social cost. Pro-patent arguments against this development because it leads to the invalidation of particular patents should be ignored because this requirement helps to minimize the social cost of the system.199 Anti-patent arguments focused on particular patents—such as those on gene fragments—should also be ignored. Such patents are much less likely to cause the pernicious clogging of downstream innovation than feared. In addition, transaction costs may not be as big of an obstacle as they may seem,200 because under this case [*PG100]law many such downstream activities would not infringe most such valid claims.201

Although not strictly speaking a requirement about the content of a patent application, the new statutory requirement for publication of applications eighteen months after filing is properly considered here.202 This is because it can operate similarly to the disclosure requirements in improving the important signaling function patents play in controlling the potential rent-seeking, and therefore rent-dissipating, behavior of those others who also might be working towards the same invention as claimed in the patent.203 Indeed, the registration model explored in this Article would go a great deal further towards disseminating information about patent applications by posting them on the World Wide Web for free as soon after filing as administratively practicable.204

[*PG101]C.  Summary: The Name of the Game is the Claim

The registration theory’s view that the patent system can and should operate to minimize social costs is confirmed by recent and important empirical work by John Allison and Lemley, which shows that by almost any measure patents are becoming what they call “more complex” over time.205 The increase in the number of prior art references cited and the length of prosecution before the Patent Office, which Allison and Lemley identify and then use as proxies for complexity, can be seen as evidence that issued patents are getting better scrutiny without moving towards a hard-look system.206 Furthermore, the increase in variation among patents identified by the Allison and Lemley article can be seen as evidence of increased selectivity in deciding which patents get increased scrutiny.207

The combination of these two effects provides some evidence that it is patentees themselves who are acting rationally to choose to increase scrutiny on only those patents they believe to be most important.208 If so, then they are acting in a way that both internalizes and [*PG102]mitigates social cost.209

Patentees are motivated to rationally choose to behave this way because they face a complex gamble when selecting claim scope.210 The requirements for patentability discussed above operate in concert to force a form of self-discipline on patent scope that mitigates the complex economic concerns explored by Merges and Richard Nelson.211 As Judge Giles S. Rich often said about patents, “the name of the game is the claim . . . [and] the function of claims is to enable everyone to know, without going through a lawsuit, what infringes the patent and what does not.”212 According to Judge Rich, claims present a fundamental dilemma for every patentee because “the stronger a patent the weaker it is and the weaker a patent the stronger it is.”213 By this he meant that a broad patent claim is strong on offense because it covers more and, therefore, is more likely to be infringed, but it also is weak on defense because it may cover something in the prior art or fail to be supported by a sufficiently detailed disclosure in the rest of the patent, and, therefore, is more likely to be invalid. In contrast, a [*PG103]narrow claim is weak on offense, because it covers less and, therefore, is less likely to be infringed, but it also is strong on defense because it is likely both to avoid the prior art and to be supported by a sufficiently detailed disclosure, and, therefore, also is less likely to be invalid.214

To be sure, a patentee’s offensive drive is strong, but it is also strongly undercut by the defensive drive via the linkage through claim breadth.215 This is because the costs of preparing a patent with claims of meaningful scope are substantial, whereas an adjudication of invalidity destroys all private value of the patent.216 The patentee’s drafting decisions before filing must take into consideration several factors. First, compliance with the disclosure requirements, when tested in litigation, looks to the disclosure made at filing.217 Second, if the patentee amends the application that was originally filed, then the scope the patentee may later be able to capture in an infringement suit through recourse to the doctrine of equivalents (“DOE”) may be cabined by the doctrine of prosecution history estoppel, which is triggered by such amendments.218 Third, because the best information about validity is most likely to be held by parties other than the pat[*PG104]entee,219 the patentee experiences substantial incentive either to err on the side of narrowness or to obtain that information so the patent can be drafted around it.220 It is this incentive for the patentee to make its own correct determination of validity and scope before filing that helps explain the evidence discussed above from Allison and Lemley that patentees themselves are making decisions that tend to keep their own patent scope “just right” from a social perspective.221

This view of what makes scope just right under the registration theory is quite different from those under the reward, prospect, or rent dissipation theories. Importantly, scope that is just right under the registration theory is scope that is determined using lowest administrative costs possible to do two things: (1) protect verifiable investment-backed expectations by avoiding patenting of the prior art; and (2) facilitate bargaining over, and avoidance of, the patent by ensuring the application’s disclosure and claims combine to leave the patent scope as clear as possible. Patent scope achieved this way does not simply depend upon trivial decisions on the margin to file additional claims of different scope. Rather, each claim can be thought to represent a class of potentially infringing members. Under the patent-obtaining rules, that class must be adequately disclosed and none of its members must have been within the prior art. Under hard-look systems, such claims may have pernicious impact because they may be presumed valid although actually likely to be proven invalid if challenged. Under soft-look systems, especially the registration model, the private benefit an applicant would get from strategic games involving the filing of excessive variation in claims decreases. At the same time, for those claims that happen to have appropriate scope, the public cost decreases and the public benefit increases. Indeed, the patentee’s private efforts, at the time of drafting, to achieve the maximum scope allowable under the patent-obtaining rules facilitates later evaluation of the patent’s potential validity and infringement by potential transaction partners, competitors, and courts.222 Therefore, as suggested by [*PG105]the registration theory, there are a number of essential registration aspects inherent in the present examination system and they help minimize social costs.

IV.  Lessons from the Model for the Present Patent System

The registration model and its accompanying registration theory show that the present patent system, which is based on examination, in fact operates with many registration aspects.223 Nevertheless, the registration theory shows how the system could be improved by a number of reforms of varying severity. More specifically, the registration theory elucidates the benefits of a number of reforms relating to statutory subject matter and utility, DOE, deference to the Patent Office, and post-issuance procedures, which could all be adopted without switching to a fully soft-look system like the registration model.224 The registration theory also elucidates the benefits of reforms relating to litigation of patents and the presumption of validity that essentially would have the effect of switching to a soft-look system like the registration model.225

A.  Reforms for Subject Matter and Utility

The § 101226 requirements of utility and statutory subject matter should be amended to avoid the public choice and administrative costs they have inflicted over the years.227 Both of these requirements [*PG106]have been used to invalidate patents or deny patents based on arguments that make no sense when mapped onto the patent system.228 They are vestiges of reward theories and are unworkable.

Although § 101 of the statute is generally viewed as setting forth two requirements for patentability—utility and subject matter—the case law229 provides some authority for the proposition that this section is either merely prefatory, or designed to rule in what years of case law had tried to rule out. Section 101 provides in its entirety:

§ 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.230

During a surprisingly active exchange of cases between the U.S. Supreme Court and the Court of Customs and Patent Appeals (“C.C.P.A.”) (the predecessor court to the U.S. Court of Appeals for the Federal Circuit) involving the famous cases of In re Bergy and Dia[*PG107]mond v. Chakrabarty, the anatomy of this statute was carefully dissected.231 In 1979, the C.C.P.A. in Bergy decided that “in 1952 Congress voiced its intent to consider the novelty of an invention under § 102 where it is first made clear what the statute means by ‘new’, notwithstanding that this requirement is first named in § 101.”232 The same reasoning would support the view that the word “utility” should be considered under the disclosure requirements of § 112, such as “enablement,” despite that it is first named in § 101 as well.

If a statutory construction approach is unconvincing, a review of theory may be. The utility requirement should be low because the requirement itself serves no economic purpose. A useless patent will not be infringed.233 Moreover, for a patent that lacks utility because of a lack of practical application, at least the information published in the patent teaches something good (and again no one will infringe). If there is lack of utility due to the inventor getting the science or engineering underlying the alleged invention wrong, then the information published is valuable in teaching others what not to do. Finally, a patent of uncertain commercial utility provides incentives for the patentee to license broadly.234

The case law controlled by the 1995 decision of the Federal Circuit in In re Brana has largely adopted this view and today, as a matter of positive law, courts give a great deal of deference to a patent applicant’s assertion of utility.235 To some extent this case law may be inconsistent with the Supreme Court’s 1966 decision in Brenner v. Manson.236 Never[*PG108]theless, because a utility requirement would not protect any investment-backed expectations and proponents of a strong requirement fail to give any test for utility that is administrable, the registration theory suggests the requirement should simply be abandoned.237

The statutory subject matter requirement should also be low—fixed at “anything under the sun made by man”238—to avoid both the problems of setting categories of subject matter and the inevitable wasteful costs that would be spent by parties near the margins between categories.239 The charge that the law must change to accommodate new subject matters for which patents are being sought makes little sense. Among the many legal regimes that might possibly face a charge of not being designed to deal with new technologies, the patent system must have the best defense precisely because it is the one system expressly designed with such unforeseen technologies in mind.240 Indeed, technologies that are so foreseeable as to be obvious are not patentable in view of the system’s most basic patentability requirement: that the claimed invention not be in the prior art. As a result, we should, at a minimum, avoid adopting the suggestion by some critics that we develop special rules to accommodate particular areas of patentable subject matter where protection is only recently being sought, such as biotechnology, computer software, and finance. We perhaps also should be clearer in holding that the law is firmly settled on this issue by expressly stating that statutory subject matter raises no distinct hurdle to patentability.241

[*PG109]B.  Reforms for the Doctrine of Equivalents

An understanding of incentive for individual patentees to get patent scope “just right”242 provides some guidance on the ongoing battle over the DOE, which allows a patentee to win an infringement suit against something that is not literally covered by the claims.243 Allowing the patentee recourse to this doctrine is bad in that it weakens the important self-disciplining effect described above; eliminating the doctrine would be good in that it would accentuate this incentive.244

Importantly, this criticism of the DOE is not merely driven by concerns about absolute crispness, or advantages of rules over standards.245 Rather, the core argument is a matter of comparative institutional economics.

To understand the intuition of the argument it may help to first consider that the DOE is structurally at odds with the basic approach to claims under the present positive law rules of the patent system, which together yield an approach known as “peripheral claiming”—as distinct from “central claiming”—in which the function of the patent claim is not to set forth the heart of the protected subject matter but rather to set forth its outer bounds.246 A determination of infringement under a central claiming approach requires the court to determine the heart of the invention and whether the putative infringement is close enough to that heart to justify a judgment of infringement. A determination under peripheral claiming requires the court to determine only the outer bounds of the claim. Anything within those bounds infringes and anything outside does not. The [*PG110]DOE in the present patent system, even though not provided for in the statute, is an odd exception to the peripheral nature of our present peripheral claiming system precisely because it allows the patentee to capture something outside of the claim.247

Although the DOE has some general intuitive attraction because it gives some flexibility, the registration theory shows how the patentee can achieve even greater flexibility in a manner that is not only less costly to the patentee but also to all third parties by simply drafting a better patent disclosure at the outset. Under the disclosure rules of patent law, the patentee at the time of filing can draft a disclosure that will support claims of varying scope.248

It may be possible that the information-forcing benefits of a system with no DOE would be outweighed by the added costs it may encourage some patent applicants to incur as a precaution. But, on a per-patent basis, the direct costs to patentees of this drafting effort (largely legal fees) are substantially less than those associated with litigating DOE issues later in court. In addition, the indirect costs of having to decide whether this extra flexibility on scope is worth such direct costs will be cabined to some extent by the small size of the potential gain from avoiding the direct costs themselves. Even if it turned out that putative patentees, on average, do not make at least roughly appropriate decisions about which of their own patents deserve more or less attention at the drafting stage, a significant moral hazard problem certainly would arise if decisions on application of the DOE were understood to turn on this type of error by individual patentees. Moreover, the DOE imposes substantial litigation costs on competitors of the patentee. The general uncertainty arising out of the DOE can also chill business transactions of all sorts, including commercialization efforts by competitors and downstream developers as well as by business partners of even the patentee.

It also may be possible that the information-forcing benefits of a system with no DOE would be outweighed by other costs to the system. One major component of these countervailing costs will be the decreased commercialization benefits to society that would be associated with those inventions protected by patents whose patentees, at [*PG111]the time of filing, elected to spend too little on patent drafting. But once again, a significant moral hazard problem certainly would arise if decisions on application of the DOE were understood to turn on this type of error by individual patentees as well.

Alternatively, as Douglas Lichtman suggests, information forcing may be of no benefit if, at the time of filing, the patentee may not be able to draft an application that could convey appropriate patent scope given the inevitably changing state of technological vocabularies.249 But to the extent it suggests that a patentee somehow deserves the broader scope captured by the DOE, this view of what is an appropriate patent scope would seem to be based on a version of a reward theory and would fail to account for the focus on minimizing social cost that is central to positive law rules for patentability—especially the disclosure rules—as elucidated by the registration theory.250

In addition, it is not clear whether such concerns about changes in technology actually obtain, as a practical matter, under a peripheral claming system. Under a peripheral claiming approach, each claim can be viewed as a simple logical list in which each word, or element, in the claim is considered a required item in the list. This list of elements can be compared against the allegedly infringing product or process in much the same way it was compared against the prior art in Tables 1 and 2.251 Patent infringement occurs when each and every element of the claim can be found in the allegedly infringing product or process.252 According to such a comparison, the more elements there are, the harder it is to infringe. Instead of trying to determine and then recite in the claim every particular use by potential future infringers, a prudent patentee under such a system tries to determine the general nature of these potential uses and then recites them as a class in the claim. For example, rather than drafting a claim that recites, among other elements, a list of specific expected fastener technologies such as nails, screws, and Velcro^(r), a prudent patentee might recite “a fastener” as a claim element and then elsewhere in the pat[*PG112]ent provide a careful disclosure of what is meant by this term including a qualitative description and representative examples.253

This approach to claiming and drafting deals well with even unknowable future technologies. Put simply, this is the job of a good patent lawyer and one reason why patents are legal documents drafted by lawyers for interpretation by judges and lawyers, not technical documents evaluated by peer review.254 The standard for satisfaction of the disclosure rules’ written description requirement is merely whether the disclosure as filed conveys to a PHOSITA255 that the inventor had possession of the claimed invention at that time; ipsis verbis disclosure is not needed.256 As a result, a prudent drafter easily can employ claim elements that are disclosed to be a “genus and its constituent species” (or a class of constituent members) without having to identify in the disclosure every single species (or member), as long as the disclosure provides a clear indication of how to determine membership in the genus (or class), which can be shown through the analogy to a path through a forest marked by certain trees:

It is an old custom in the woods to mark trails by making blaze marks on the trees. It is no help in finding a trail . . . to be confronted simply by a large number of unmarked trees. Appellants are pointing to trees. We are looking for blaze marks which single out particular trees.257

To be sure, the crafting of a disclosure that complies with these rules may itself be difficult; and no disclosure will be perfect. Recent opin[*PG113]ions of the various Federal Circuit judges evidence a particular tension about whether this disclosure standard is so fixed, and whether it can be satisfied.258 Thus, the disclosure rules themselves to some extent raise many of the same concerns as the DOE. In the final analysis of the tension between the effort to achieve flexibility through either the DOE or the disclosure requirements, the registration theory’s contribution is to highlight, as a matter of comparative institutional [*PG114]economics, why reliance on the disclosure rules is less likely to trigger these important concerns as extensively.

C.  Reforms for Deference to the Patent Office

The patentees’ incentive to make their own correct determination of validity also raises serious issues for some of the present administrative law doctrines relating to the Patent Office.259 Because the Patent Office regulations governing a patentee’s duty to disclose information material to validity provides no added incentive for the patentee to seek out such information,260 they may be unnecessary under either a hard-look or a soft-look system. In addition, deference to the Patent Office’s decisions on validity as being well-informed is questionable because the Patent Office is not the lower cost provider of information relating to validity.261 Moreover, to the extent decisions on validity can be made for so-called legal reasons that are based on facts, there is real potential for social costs relating to public choice and administrative problems in shaping those reasons and how they are applied.262

The costs of a hard-look system are, therefore, made worse by the rule of deference. Information about validity over the prior art needed to catch potentially pernicious invalid, or bad, patents is better provided through litigation. In addition, low deference to the agency protects good patents by leaving less room for incorrect decisions on validity grounded in improper application of putative legal rules such as utility, subject matter, and the so-called requirement for invention, each of which has occurred in the past, as discussed earlier.263 As a result, many of the proposed shifts towards a hard-look system should be avoided in part because they have a greater potential [*PG115]for public choice and administrative problems, especially under the present regime of heightened deference to the Patent Office.264

D.  Reforms for Post-Issuance Procedures

Although the registration theory elucidates advantages of soft-look registration systems over hard-look examination systems, a number of middle-ground approaches might also be considered. These [*PG116]may offer the informational advantages of registration while trying to mitigate the high costs of full civil litigation through various post-issuance procedures to challenge an issued patent but conducted before the Patent Office. Approaches that have been tried include those called ex parte reexamination, inter partes reexamination, and inter partes opposition.265

Although ex parte reexamination was introduced into the patent system in 1980 to help address the concerns about the pernicious impact of issued patent claims whose validity is questionable,266 it turns out not to work as a cost-effective means for removing such claims. This is because it only involves the same parties responsible for allowing the claim in the first instance: the applicant and the Patent Office.267 In 1999, inter partes reexamination was introduced to allow for more meaningful participation by third parties.268 To prevent patentees from having their patents held up in perpetual reexamination, however, this new procedure estops the third party, including the real party in interest, from re-litigating anything that was or could have [*PG117]been decided during the reexamination.269 As a result, third parties who are not yet sure they have the best argument may rationally elect to save it for use in later litigation rather than use it and lose it through the more sterile process of administrative adjudication, which does not allow for consideration of non-documentary forms of evidence.270 Inter partes opposition proceedings are used in Europe and allow more types of evidence than the administrative procedures available for reexamination in the United States, but these must be filed within a short time after the patent has issued.271

An alternative approach might be to include a special provision for declaratory judgment jurisdiction to allow anyone who has sufficient interest, but not necessarily reasonable apprehension of suit, to bring an action in court challenging the validity of the pat[*PG118]ent.272 This would give access to better procedures and would not have the time restrictions of the opposition proceedings, but would then subject patentees to more potential challenges.273 In the final analysis, this approach begins to look most like the registration model, which in turn raises a number of litigation conduct issues that are discussed below.

E.  Reforms for Litigation

To be sure, the balancing effect on claim scope that draws the attention of most patent critics is imperfect and must be further explored. These critics are correct that many issued patents are held invalid through federal court litigation.274 But the number of patents held invalid has decreased over time.275 Critics are also correct that, although many issued patents may be invalid but also irrelevant to the market,276 some may be invalid and relevant in a bad way—through their in terrorem effect—without ever reaching litigation.277 This leaves alleged infringers to decide among several options: federal court litigation to get the patent adjudicated invalid, obtaining per[*PG119]mission from the patentee, or not operating in a way that allegedly infringes. The question raised by such patents is how best to decrease the social costs of allowing the alleged infringer to make and implement the socially optimal decision.

According to the registration theory, these social costs may be decreased by use of tools in the proposed registration model that are slightly modified versions of two recent legal trends in the case law of the present system.278 These tools operate to decrease incentives for strategic behavior and increase incentives for sharing information, thereby helping ensure that the alleged infringer is able to make and implement the socially optimal decision on the choice discussed above.279

The first tool arises from an important innovation in Federal Circuit case law that can be used to decrease incentives for strategic behavior by patentees. Despite the critics’ view of the Federal Circuit as a court that is unduly pro-patentee, the Federal Circuit has led the charge in Rule 11 sanctions in cases such as Judin v. United States, [*PG120]where a discretionary ruling of no sanctions was vacated in 1997 with instructions to award appropriate sanctions against a patentee, and its trial and appellate counsel.280 Such disciplining of errant patentees also may be achieved with other similar legal devices including 28 U.S.C. § 1927 (counsel’s liability for vexatious litigation), and 35 U.S.C. § 285 (attorney fees for exceptional cases).281 Importantly, Judin involved the patentee’s failure to conduct a pre-filing investigation on infringement. Under a system like the proposed registration model, such a disciplining device might also be extended to curb patentees’ failure to conduct pre-filing investigations on validity.

The second tool arises from a highly evolved body of law in the patent area that can operate to punish clients and their lawyers for reliance on unsatisfactory opinions of counsel.282 The standards for opinions of counsel used by alleged infringers to insulate themselves from liability could be applied to potential plaintiff patentees before they are allowed to bring an action claiming liability. This would improve a system like the proposed registration model by spreading the costs of validity determinations among patentees and alleged infringers. The cost-shifting effects discussed above will provide incentives for patentees and likely infringers to exchange information about the strength of their respective cases, thereby somewhat mitigating the risk of duplicative expenditures. This effect is enhanced by the patentee’s interest in communicating with alleged infringers so as to make the alleged infringement appear willful and thereby win treble damages.283 The essential insight of the registration theory here is that requiring the patentee also to have a good faith belief about patent validity makes this interest in communicating symmetrical—potential infringers will have a similar incentive to communicate validity information to patentees.

Although implementation of these tools would not be a trivial matter, it is conceptually not that difficult. The market for opinions of counsel for both patentees and competitors that is present under the existing system would grow. Cost-sharing techniques would likely [*PG121]evolve, in which groups of interested parties could focus upon a given patent’s potential validity or infringement,284 rating organizations might arise,285 private bounties for pertinent prior art might be offered to increase the information content of opinions,286 and shares in potential costs and profits of litigation could be sold.287

Although ultimately the subject of an empirical question for further research, the costs associated with these reform proposals are likely to be less than the costs under the existing system—costs associated with those pernicious issued patents presumed to be valid but likely to be held invalid if tested in court.288 The combined effect would be positive in several respects. For those patents that are pernicious under the present regime because of the litigation and in terrorem costs they impose on third parties, the proposed reforms would allow third parties to bear only the lower costs associated with the opinion markets, including costs and benefits of the fee-shifting techniques. For those patents that have proper scope,289 the proposed re[*PG122]forms would allow patentees to have essentially the same costs as under the present system associated with patent drafting and litigation, except that the costs of opinions will decrease slightly (or quality improve slightly) as the market for them becomes more developed.290 Finally, one effect that may be seen as positive or negative, depending on point of view, is that there will be a slight decrease in the value of all patents due to the costs to patentees associated with the new need to litigate their own affirmative validity cases. Interestingly, all of these effects combine to yield a system that may be comparatively advantageous over the present system for small players in particular for several reasons: it will save them from the in terrorem effect of junk patents, it will save them their own patent prosecution costs, and they will have ready access to markets to facilitate with funding or strategic partnerships in their own litigation and commercialization efforts when needed. Therefore, according to the registration theory, we should adjust our present system to be more like the registration model by adopting the proposed reforms of weakened or no presumption of validity, fee shifting, and enhanced reliance on opinions of counsel (for both patentees and competitors) to cabin the very pernicious effects explored by advocates of hard-look approaches.291

[*PG123]Conclusion

Patent law can operate to minimize social costs, including those typically associated with information, administration, public choice, races for a common prize, and bargaining. The case for an alternative model registration system helps reveal, for the first time, a normative theory of the law and economics of the positive law patent-obtaining rules called the registration theory. The case for an alternative model registration system also is helpful in showing why increased scrutiny of patent applications would worsen, not improve, the present system’s performance.

Some may argue that a full-blown shift to registration may not be optimal. Indeed, the present patent system already has evolved some powerful disciplining tools that restrict patents’ ability to cause many of the social costs that prompted criticism. To the extent this effect should be increased, it may be beneficial to dial back somewhat the presumption of validity and increase the patentee’s burdens of conducting pre-filing investigations on both infringement and validity before bringing suit to enforce a patent.

Finally, regardless of the prescriptive aspects of this Article, the new normative registration theory for the patent-obtaining rules offered herein turns out to have more explanatory power than the reward, prospect, and rent dissipation theories in the literature. The registration theory thereby contributes to the literature by both elucidating how and why these rules operate and by serving as a new lens through which subsequent reforms can be judged.

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