District Courts as Patent Laboratories

" District Courts as Patent Laboratories ," 1 UC Irvine Law Review 307 (2011) Abstract This symposium article engages with Dan Burk and Mark Lemley's recent book, "The Patent Crisis and How the Courts Can Solve It," in which they suggest that courts should and do tailor patent law to particular technologies or industries, with the aim of providing appropriate incentives to innovate under the specific circumstances. Their book understandably focuses on the Federal Circuit’s key role in this tailoring. I seek to enhance their contributions by arguing that federal district courts — which receive less attention in their book — are also particularly crucial for the development and application of technology- and industry-specific patent rules. I suggest possible improvements to the district courts’ practices and relationships that might be fostered between the district courts and the Federal Circuit. These courts — two of the most important components in the development of patent law — could interact in advantageously symbiotic ways to tailor patent law to the particular needs of a technology or industry. In doing so, I discuss how the limitations and advantages of district courts and the Federal Circuit might each, respectively, be minimized and enhanced by treating the district courts as the Federal Circuit’s patent laboratories.

"District Courts as Patent Laboratories," 1 *UC Irvine Law Review* 307 (2011)

									Abstract

This symposium article engages with Dan Burk and Mark Lemley's recent book, "The Patent Crisis and How the Courts Can Solve It," in which they suggest that courts should and do tailor patent law to particular technologies or industries, with the aim of providing appropriate incentives to innovate under the specific circumstances. Their book understandably focuses on the Federal Circuit’s key role in this tailoring. I seek to enhance their contributions by arguing that federal district courts — which receive less attention in their book — are also particularly crucial for the development and application of technology- and industry-specific patent rules. I suggest possible improvements to the district courts’ practices and relationships that might be fostered between the district courts and the Federal Circuit. These courts — two of the most important components in the development of patent law — could interact in advantageously symbiotic ways to tailor patent law to the particular needs of a technology or industry. In doing so, I discuss how the limitations and advantages of district courts and the Federal Circuit might each, respectively, be minimized and enhanced by treating the district courts as the Federal Circuit’s patent laboratories.

Jeanne C. Fromer, District Courts as Patent Laboratories, 1 UC Irvine L. Rev. 307 (2011)

Patent litigation is a complex system wherein patent law is refined through interactions among the judicial system's constituent components-principally, the litigants, district courts, United States Court of Appeals for the Federal Circuit (Federal Circuit), Supreme Court, Patent and Trademark Office (PTO), and Congress's patent laws. 1 Typically, litigants pore over existing laws-both congressional statutes and judicial opinions-to determine whether to file, defend, or settle a patent suit in a district court. The district court rules on the litigants' claims. When prompted by a losing litigant, the Federal Circuit-the appellate court designated to hear nearly all appeals of patent cases 2 -reviews the district court's decision. Finally, the Supreme Court might entertain further review if it is convinced that the case is sufficiently worthy. This interaction is not unidirectional. For example, the Supreme Court and the Federal Circuit, in articulating rules of patent law in its decisions, are or ought to be attentive to making it straightforward for the district courts to apply these rules properly. 3 Making sure that patent law develops appropriately in the courts requires attention to each of the principal components of the litigation system and their interactions with one another. In their recent book The Patent Crisis and How the Courts Can Solve It, 4 Dan Burk and Mark Lemley suggest that courts should and do tailor patent law to particular technologies or industries, with the aim of providing appropriate incentives to innovate under the specific circumstances. As Part I describes, their book understandably focuses on the Federal Circuit's key role in this tailoring. In this Article, I seek to enhance their contributions by arguing that federal district courts-which receive less attention in their book-are also particularly crucial for the development and application of technology-and industry-specific patent rules. Although district courts' current handling of patent litigation underperforms in many respects, I argue elsewhere that these flaws can be ameliorated by taking advantage of patentography-the geography of patent disputes-to eliminate forum shopping and cluster patent cases by industry or technology in those districts where the particular industry or technology is already geographically clustered. 5 In Part II, I review this other work and build on it to suggest possible improvements to the district courts' practices and relationships that might be fostered between the district courts and the Federal Circuit. These courts-two of the most important components in the development of patent law-could interact in advantageously symbiotic ways to tailor patent law to the particular needs of a technology or industry. In doing so, I discuss how the limitations and advantages of district courts and the Federal Circuit might each, respectively, be minimized and enhanced by treating the district courts as the Federal Circuit's patent laboratories. Dan Burk and Mark Lemley make three persuasive points in their book: that the flexible patent laws ought to be applied in technology-specific ways, 6 that the courts are the best (current) institution to do this refinement, 7 and that the Federal Circuit is already devising some technology-specific patent rules. 8 Burk and Lemley provide example after example of how varied technologies and industries protectable by patent law operate in diverse ways and thus need different forms of patent incentive to stimulate innovation in those areas. For instance, robust patent protection is more important for industries with vast research and development expenditures, like pharmaceuticals and semiconductors, so that they can recoup their investments, than for those industries spending less, like software. 9 As another example, commercially available inventions that are self-disclosing, like some software and mechanical devices, are more in need of patent protection as they are more easily appropriable than are inventions that can be shielded, such as some process inventions. 10 While some might say that evidence of the technology or industry specificity of innovation indicates that Congress or the Patent and Trademark Office (PTO) ought to provide tailored patent rules for different technologies or industries, Burk and Lemley argue against that position. They assert that patent statutes tailored by Congress for different industries would create difficult problems of discerning the industry to which different inventions belong. 11 A profusion of statutes would also be costly to write and would become outdated quickly, given the rapid pace of technology and industry shifts. 12 Moreover, tailored statutes could easily fall prey to special-interest lobbying, rather than serve the general public interest. 13 In Burk and Lemley's view, giving the PTO-the agency responsible principally for patent issuance-the authority to tailor patent law would not fare much better for similar reasons: concerns about special-interest lobbying and the shortsightedness of an agency currently handling only limited aspects of the patent system rather than infringement, licenses, and other disputes. 14 By contrast, Burk and Lemley argue that courts are best suited to tailor patent law, mostly because the antagonistic litigation process occurs in particular factual contexts, giving judges good information to make the best decisions about advancing innovation. 15 They highlight a number of ways that the Federal Circuit has already developed technology-specific patent rules to stimulate innovation properly for different technologies. For example, the Federal Circuit applies the patentability criterion of utility 16 more strictly for biotechnology inventions than those in other areas out of fear that biotechnologists will seek broad patents too early in the research process, thereby cutting off important downstream research. 17 As another illustration, how frequently inventions are found to be nonobviousanother patentability criterion 18 -depends in part on the industry in which an invention is created, given that it is measured by the degree of skill a person having ordinary skill in the art has. 19 Burk and Lemley also suggest a number of areas in which the courts might create more technology-specific policy levers, 20 such as with regard to consideration of the cost of innovation in determining an invention's nonobviousness. 21 While Burk and Lemley convincingly argue that courts ought to be developing industry-and technology-specific patent rules to optimize innovation in its varying forms, their focus is almost entirely on one court: the Federal Circuit. 22 The Federal Circuit is, properly, a central judicial institution in any story about patent litigation (or patent law, for that matter). Before 1982, appeals from a district court's patent decisions would go to its associated regional circuit court. Congress changed that by creating the Federal Circuit. 23 Since 1982, appeals from decisions in cases in which jurisdiction arises under the patent laws lie exclusively in the Federal Circuit, 24 as do appeals from PTO decisions on patentability. 25 In practice, then, with few exceptions, 26 the Federal Circuit is the only intermediate appellate court reviewing district court decisions in patent cases. Moreover, because the Supreme Court reviews relatively few patent cases 27 and Congress rarely revises the patent laws other than to codify judicial decisions, 28 in practice, the Federal Circuit is usually the last word on patent law. Given its importance in patent law, Burk and Lemley's focus on the Federal Circuit is understandable. The Federal Circuit was, in fact, created so that it would become the dominant judicial authority on patent law in two principal ways. One impetus to centralizing all appeals in cases arising under the patent laws in the Federal Circuit was to develop expertise in patent law's complexities, thereby improving the law's accuracy. 29 The second was to make patent law uniform throughout the nation by having only one intermediate appellate court deciding patent cases. 30 That said, as Part II demonstrates, any theory of technology and industry specificity in patent law should contemplate the role of district courts and the relationships between those courts and the Federal Circuit. Burk and Lemley's almost exclusive focus on the Federal Circuit neglects the vital role the district courts-in which most patent cases originate 31 and terminate 32 -ought to have in patent litigation. After demonstrating in Section A the district courts' pivotal role in patent law, Section B highlights the district courts' shortcomings in handling patent cases. Section C concludes with a discussion of how district courts might improve in this regard and how the district courts and the Federal Circuit might work together symbiotically-each doing what it institutionally does best-to advance patent law. If the district courts can be sufficiently bettered so as to serve as patent laboratories for the Federal Circuit, patent law's refinement in the courts ought to be much improved. Despite being marginalized, the district courts have a vital role to play in the judicial development of patent law for at least three reasons. First, the district court is almost always the only court to play a role in the over 2,600 patent cases filed annually. 33 court. 34 Of the small remaining number that are adjudicated on the merits, 35 only about half are appealed to the Federal Circuit, 36 leaving the district courts as the final arbiters on patent law in the other half. Second, even when the Federal Circuit reviews a district court's patent decision, it typically does not review all of the issues decided by the district court. 37 Moreover, for those that it does review, the Federal Circuit, at least in theory, must heavily defer to the district courts' factual findings, whether made by a judge in a bench trial 38 or a jury in a jury trial. 39 Because these factual determinations can strongly influence the contours of legal determinations in patent law, the district court's factual findings can have a substantial impact on the Federal Circuit's legal decisions. Third, if the district courts are doing a poor-or even an inconsistent-job at deciding patent cases, the Federal Circuit becomes hard-pressed to direct its resources efficiently to make good patent law. 40 These reasons underscore how important the district courts are to any robust judicial development of technology or industry specificity in patent law, as proposed by Burk and Lemley. For one thing, given that most district courts are the only judicial actor involved in nearly all patent cases, these courts have a critical role in ruling on the merits and guiding parties toward settlement. To perform these tasks properly, the district courts must succeed in three areas: (1) ascertaining the relevant facts in a particular case; (2) deciding whether patent law as already worked out-by statute or judicial construction of the statute-already governs the case's facts; and (3) if not, gauging what rule should govern these facts. Each of these steps taken by the district courts is important to a sensible development of patent law's technology or industry specificity. Germane to a particular patent case are many types of facts: those concerning the case itself; the parties' industry (or industries), such as pharmaceutical, software, automotive, or retail; and the technology at issue in the relevant patent, such as biotechnology, software, or mechanical devices. To come to a proper legal conclusion, district courts must both correctly determine these facts and also focus their judicial spotlight on the most relevant of them. Most pertinently, district courts must gain sufficient understanding of the technology and industry at issue in any particular case to determine whether and how existing law governs that case, and if not, which of the plausible readings of patent law-should there be more than onebest promotes innovation for the specific technology and industry at issue in the case. Even in the relatively infrequent case that an appeal is taken to the Federal Circuit, the district courts are important to patent law's technology and industry specificity. That is, although the Federal Circuit will be crafting the law in a case, perhaps to apply particularly to the technology or industry at hand, the district court's factual findings on that technology or industry ought to be receiving great deference. In effect, the district courts must act as the Federal Circuit's eyes and ears-developing facts, determining testimonial credibility, and placing a case's facts in the context of a larger legal and economic picture in the first instance. Finally, in their decisions, district courts can act as patent laboratories, using their developed factual record to experiment with and develop industry-and technology-specific patent rules, which the Federal Circuit could then evaluate on appeal. Given that the district courts must therefore occupy an important place in developing an industry-and technology-specific patent law, I now turn to whether the district courts are currently well-placed to do just that. Despite their centrality in patent litigation, the district courts are currently not well suited to help the judicial system effectuate accurate technology-and industry-specific patent law for at least three structural reasons. First, the factual decision makers in the district courts typically do not have a sufficient understanding of the technological and industry facts necessary to reach good legal decisions in patent law. Second, most district court judges do not have a sufficient understanding of the complexities of patent law to derive optimal legal conclusions from properly found facts. Third, when district court decisions are appealed to the Federal Circuit, the Federal Circuit frequently does not grant sufficient deference to factual matters that have been properly found by mislabeling them as legal issues. 41 In this section, I consider these three concerns in turn. As discussed in the previous section, critical to any accurate technology-or industry-specificity in patent law is having courts select which factual issues in a 41. There is the additional and significant problem with plaintiff forum shopping in patent cases to find the most favorable district court for its case, often to the detrimental development of patent law, an issue I take up in Fromer, supra note 5. patent case are relevant and determine those facts correctly. Recall that tailoring patent law to a particular technology requires both an understanding of that technology and the industry in which it operates to ascertain how patent law can best advance innovation for that technology or industry. 42 For example, consider a sample of the many important factual issues that might need to be resolved in a suit over the validity and infringement of a biotechnology patent. 43 To determine the patent's scope, the district court must construe the patent's claims from the vantage point of a person having ordinary skill in that field, 44 requiring an understanding of what it takes for someone to be skilled in biotechnology and to know how that person would comprehend the patent's claims. To ascertain whether infringement ought to be found beyond the patent claims' literal meaning pursuant to the doctrine of equivalents, the fact finder will need to decide whether the alleged infringement operates in the same way as the patented invention. 45 Whether the patented invention is nonobvious-one of the patentability requirements 46 -and thus valid requires the court to decide whether a person having ordinary skill in biotechnology would have found the invention to be obvious in light of all relevant prior art. 47 A court might also need to rule on whether the patent holder has disclosed enough information about the invention to satisfy patent law's enablement requirement. 48 To do so requires an understanding of what people having ordinary skill in biotechnology do not already know and cannot figure out without undue experimentation as to making and using the invention. 49 That information must be disclosed, and if not, the 42. Supra text accompanying notes 9-10. 43. For more on the importance of factual determinations in patent cases, see Fromer, supra note 5, and Arti K. Rai The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention."). 49. Monsanto Co. v. Syngenta Seeds, Inc., 503 F.3d 1352, 1360 (Fed. Cir. 2007). patent is invalid. 50 Moreover, embedded in these questions of claim construction, the doctrines of equivalents, nonobviousness, and enablement provide enough wiggle room for policy choices about whether upholding the particular biotechnology patent-and ones like it-promotes or impedes progress in the technology and industry. Correctly deciding these legal and policy questions requires a sharp and accurate understanding of the relevant technological and industry facts. In spite of the importance of accurate factual findings in patent cases, there is good reason to believe that the two possible decision makers in patent cases in district courts-judge and jury-are not well equipped to make these critical technology-and industry-specific factual determinations. District court judges are principally not technically trained-and even when they are, it is certainly not in every area in which patents might be granted-making it very hard for them to understand often complex patented technologies and the industries in which they occur. 51 Moreover, they typically do not accrue this proficiency on the bench by repeated exposure to particular industries and technologies because, on average, they tend to handle patent cases relatively infrequently. 52 Jurors' factual decision making seems to run into the same problems, as jurors typically do not have backgrounds in technological areas. 53 In fact, the concern about juries as factual decision makers in patent cases is greater than it is for district court judges in bench trials. Unlike district court judges, a lay juror is unlikely to have repeated exposure to patent cases as a way to learn more about particular technologies or industries. Empirical research, moreover, suggests that there is cause for concern about juries' factual determinations in patent cases. Kimberly Moore shows that juries are less likely to differentiate among the various legal challenges in a patent case by ruling in favor of the same party on all of its claims significantly more frequently than do judges in bench trials. 54 Finally, the concern for jury fact-finding is further compounded by the dramatically growing use of juries in patent cases: from 2.5% of all tried patent cases in 1940 to 59% of them from 1997 through 1999. 55 Apprehensions about district courts' role in patent litigation extend beyond 54. Moore, supra note 53, at 403-04 (finding that, for cases involving multiple claims, juries resolve all of those claims in favor of the same party eighty-seven percent of the time, while judges do so just seventy-two percent of the time). 55. Id. at 366. That said, a low percentage of filed patent cases-under seven percent-reach a trial. Id. at 383. [Vol. 1:2 their inadequacies in fact-finding to their shortcomings in properly deciding legal issues in patent law. District court judges tend to lack backgrounds in patent law 56 and see patent cases rarely. 57 As such, district courts are unlikely to have a good grasp of the law's many intricacies. 58 Pointedly, as Craig Nard observes, although patent law is grounded in statute, "much like the Sherman Act, [it] is a common law enabling statute, leaving ample room for courts to fill in the interstices or to create doctrine emanating solely from Article III's province." 59 Understanding patent law well, then, requires a full-bodied knowledge of many Federal Circuit and other patent decisions, something many district court judges lack. Therefore, even when the facts in a patent case are properly found, there is a sizeable concern that the district court will nonetheless err in its legal conclusions. Given that the district court is more often than not the last court to make a legal ruling in a patent case, 60 any legal missteps it makes are significant. Of course, these shortcomings in finding facts and deciding law should not be viewed in isolation. The Federal Circuit reviews some patent cases. 61 As such, it might be seen to be in a position to correct some factual and legal errors made in the district court. However, that is frequently not the case. As for factual findings by district courts, the Federal Circuit is supposed to review them with a strong degree of deference. The Supreme Court has ruled that the Federal Circuit, like the other federal courts of appeal, must review factual findings in bench trials deferentially for clear error. 62 Relatedly, jury verdicts-always on factual issuesare even harder to overturn on appeal, in that they will be upheld so long as supported by substantial evidence. 63 It is particularly hard for the Federal Circuit to reverse juries' factual errors. Juries typically do not articulate their factual findings in any detailed way to ease appellate review. Even when special-verdict forms are used, the questions answered by juries are relatively general, such as, "Did the defendant prove the patent obvious by clear and convincing evidence?" 64 The Federal Circuit can then do not much more than "presume that the jury resolved the underlying factual disputes in favor of the verdict winner and leave those presumed findings undisturbed if they are supported by substantial evidence." 65 That all said, there is evidence that the Federal Circuit has tended in practice to give too little deference to district courts' findings in factual matters in two ways. 66 First, there is suspicion that the Federal Circuit frequently engages in searching review of district courts' factual findings. 67 Second, as Arti Rai suggests, the Federal Circuit has mislabeled certain critical factual determinations as questions of law, giving the Federal Circuit the opportunity to review them de novo. 68 Perhaps most affected in this regard is patent claim construction. Federal Circuit Judge Plager labels claim construction the most important issue in patent litigation, as its result often dictates the outcomes on infringement and validity issues. 69 Although claim construction might simplistically seem to be about figuring out what the words in a patent document mean-making it seem like statutory interpretation, a clear question of law-it is quintessentially about discerning this meaning from the point of view of a person having ordinary skill in the relevant art at the time of invention, 70 which is a significant factual undertaking. A district court undertaking claim construction might need to review testimony by scientific and industry experts and documentary evidence about the relevant technology, industry, and invention. 71 This inquiry seems to be directed at discerning facts: evaluating credibility, constructing who the person having ordinary skill in the art is and what that person thought when the invention was made, and making sense of the industry, technology, and invention. 72 This critique is so salient that six Federal Circuit judges recently suggested that the labeling of claim construction as a question of law ought to be revisited. 73 Similar critiques have been aimed at various issues related to a patent's validity, which have been labeled as legal despite having overwhelming factual components. 74 Any lack of deference by the Federal Circuit to the district courts on the facts that they have found is problematic when the district court has made sensible factual findings, particularly given that district courts are generally better situated institutionally to determine facts. 75 Some, though, point to the critique that district courts are likely to err in finding the facts as justifying searching review by the Federal Circuit, a court that comparatively has a better understanding of the issues in patent cases. 76 In all, this section demonstrates that the district courts are not currently well suited to promote technology-or industry-specific development in patent law. Even assuming that the Federal Circuit is best situated to develop technology-and industry-specific patent law, as Burk and Lemley seem to suggest in their book, the district courts must play a strong supporting role in this development. Nevertheless, the district courts are currently inadequately equipped to do so. Whether through judge or jury, there is reason to suspect that district courts might not find technology-and industry-specific facts correctly, causing these courts to misapply the Federal Circuit's case law. Moreover, for the reasons set forth above, district courts might not have a sufficiently refined understanding of the Federal Circuit's legal rules and how and whether to apply them in technology-and industry-specific ways. Finally, in the cases in which the district courts have done a good job at sussing out a case's relevant technology-and industry-specific facts, the Federal Circuit might improperly fail to defer to those findings. Even worse, the district courts-as currently structured-can hinder the Federal Circuit from effectively developing technology-and industry-specific patent rules. The district courts can err in their factual findings in ways that are not easily detected by an appellate court seeing a cold and established record. As such, the Federal Circuit might improperly rely on district courts' factual findings to come to particular legal conclusions, possibly technology-and industry-specific ones. These conclusions may very well be unjustifiable in the face of the actual facts, causing an injustice in the particular case. Moreover, conclusions that are not well supported in fact might have a broader impact by creating opportunities for misapplication in future cases. For example, if the Federal Circuit is under the misimpression-via a district court-that little downstream research is likely in a particular technology, it might more readily give a broader reading to the patent's claims-either literally or via the doctrine of equivalents-than it would have done had it known correctly that downstream research is likely. The impact of erroneous district court actions is further felt: even when the Federal Circuit can detect error in district courts' factual findings and legal conclusions, the Federal Circuit's resources are wasted if error is sufficiently widespread. In these situations, the Federal Circuit's time and energy is siphoned away from focusing on the most complicated issues of patent law and deciding them properly. Moreover, Rochelle Dreyfuss suggests that the Federal Circuit might have molded its legal rules to fit the district courts' lack of patent expertise, thereby causing harm to patent law. 77 She hypothesizes that the Federal Circuit has crafted rigid or formalistic analytical approaches to many patent issues, such as claim construction and nonobviousness, because it cannot scrutinize every substantive outcome. 78 According to Dreyfuss, this focus on district courts' analytical approaches obfuscates the substantive policies patent law ought to promote, harming the quality of this area's legal development. 79 In many ways, formalism is antithetical to any refined technology-and industry-specific patent law. With this articulation of the district courts' shortcomings, the next section discusses how to improve the system of patent litigation, by fostering a mutually beneficial relationship between the district courts and the Federal Circuit, thereby enhancing the technology-and industry-specific development of patent law. Given that patent litigation is a complex system with the district courts as one of its critical components, it is crucial to improve these courts. Bettering the courts' decision-making capabilities in patent cases and finding ways to harness their institutional strengths vis-à-vis the Federal Circuit is critical to fostering accurate technology-and industry-specific patent rules that foster innovation. This section addresses how a beneficial symbiosis might be fostered between the district courts and the Federal Circuit. This section's suggestions are illustrative of improvements that might be made, rather than exhaustive. These suggestions nonetheless coalesce to focus on turning the district courts into patent laboratories for the Federal Circuit, in the sense that they should carefully collect case, technological, and industry facts in each patent case; strive to apply the most appropriate legal rules to those facts; and serve up these factual and legal determinations to the Federal Circuit for further refinement. In turn, the Federal Circuit ought to defer to the district courts' factual findings so long as they are not clearly erroneous and use its bird's-eye view to refine technology-and industryspecific patent law. In light of district courts' importance, a first step toward enhancing the quality of patent litigation is to improve the decision making in which those courts engage. In other work, I recommend taking account of patentography-the geography of patent disputes-to improve district courts' factual and legal decision making. 80 There, I propose making patent suits proper only in the district for the principal place of business of any of the defendants in a case (with a safety valve to avoid due process concerns in a minute number of cases). 81 Beyond nearly eliminating forum shopping, so constraining venue should improve district courts' decision making by tending to cluster patent cases of particular technologies or industries in a limited number of districts. Industries tend to cluster around geographic areas, such as the pharmaceutical industry in New Jersey and the software industry in Silicon Valley and the Boston and Seattle areas. 82 Because of industries' natural geographic clusterings, lawsuits that must be filed in defendants'-industry players'-principal place of business would mean that more industry-or technology-specific patent suits ought to coalesce in districts with relevant industry clusters. Under my proposed venue rules, it would likely entail, for example, clusters of pharmaceutical patents suits in the District of New Jersey and software patent suits in the Northern District of California, the District of Massachusetts, and the Western District of Washington. 83 A simulation of the hypothetical distribution of all of the actual utility patent cases filed in 2005 under my proposal confirms such clustering effects for numerous technologies and industries. 84 When this clustering effect obtains, a handful of district courts would adjudicate many patent cases in particular technologies or industries. The proficiency they would thus develop would help them serve both as skilled fact finders in developing the case record and as patent laboratories for tailoring patent law to promote innovation in their particular clustered technologies or industries. 85 Moreover, judges, juries, and other legal actors located in an industry or technology cluster are likely to have more background knowledge about that industry or technology than jurors located in arbitrary areas. 86 This better understanding might, for example, be because they work in that area, have neighbors or family working in that area, read more stories about that area in the local newspaper, or possess tacit knowledge. 87 It is more useful to harness this typically elevated background knowledge in a district with industry clusters than to locate patent suits in arbitrary locations, such as the current preponderance of software patent cases in the "no bytes' land" of the Eastern District of Texas and 81. Id. 82. Id. 83. Court Locator, http://www.uscourts.gov/courtlinks/ (last visited Mar. 25, 2011) (providing a map of federal district courts). 84. Fromer, supra note 5. 85. I argue also that this system is preferable to a set of district courts specializing in patent law, as some have proposed. Rai, supra note 43. What patent law needs for more accurate, efficient, and thoughtful judicial resolution of patent cases is not a set of district courts handling only patent cases, but enough district courts that, in addition to seeing their usual host of cases, tend to see enough patent cases of particular industries or technologies. Fromer, supra note 5. pharmaceutical cases in the District of Delaware. 88 Harnessing patentography would go a long way toward improving district courts' factual and legal determinations. However, it would probably make more marked improvements with regard to bench trials than jury trials. Even with average elevated background knowledge, jurors almost never have the repeated exposure to patent cases that district court judges would. Moreover, even if jurors would have average elevated background knowledge were patent suits to cluster by industry or technology, some number of jurors would still have little to no such background knowledge. There is, therefore, good reason to worry about jurors' abilities to decide the ever-critical facts in a patent case properly. One way to protect the system of patent litigation from these unknowledgeable jurors would be to mandate that district courts use specialverdict forms in jury trials of patent cases. 89 A mandated special-verdict form specifying separately the factual issues the jury must determine would have two important benefits. First, it would crisply communicate to the jury each factual issue they must determine, which would foster justifiable findings. 90 This communication ought to obviate the need for complicated instructions to the jury on the relevant patent law. 91 Second, if each factual issue is sufficiently articulated separately, post-trial and appellate review of the jurors' individual factual conclusions would be eased. Pertinently, a special verdict with sufficiently differentiated issues would permit a reviewing court a (minor) peek inside the black box of jury findings by enabling surgical reversals of jury error rather than wholesale reversals requiring full-blown new trials. 92 Assuming these changes would lead to improved fact-finding in the district courts (as well as better tailored legal conclusions), it would be productive to ensure that the Federal Circuit grants high degrees of deference to the district courts' factual findings. 93 In that vein, those issues of patent law that have been labeled legal but are principally factual-like claim construction-ought to be relabeled as factual questions. Additionally, those factual issues informing legal issues-like the elements of nonobviousness-should also be granted sufficient deference. A renewed focus on fact-finding in the district courts and the Federal Circuit's deference to those facts absent clear error might also encourage the filing of amicus curiae briefs in patent cases in the district courts. By highlighting key aspects of the technology and industry at issue, these briefs would assist the district courts determining the relevant facts with accuracy. By using these and other techniques, the district courts' power in finding facts-of each case, the associated patented technology, and the relevant industry-could be maximized. The district courts would thereby serve as patent laboratories for the Federal Circuit, by queuing up relevant facts and doing their best to apply patent law accurately to promote innovation for the relevant technology and industry. The Federal Circuit-with its expertise in the law of patents-would supervise these patent laboratories, by providing guidance and refining patent law. In their book, Dan Burk and Mark Lemley articulate an essential insight about the necessity for technology and industry specificity in patent law, so as to encourage the various types of innovation that happen in different industries and with different technologies. To them, the locus of technology-and industryspecific development of patent law ought to be in the courts. In this regard, they focus almost exclusively on the Federal Circuit. In this Article, I supplement their work by arguing that the district courts ought to be an integral part of their story, given their important role in patent litigation. Although district courts currently underperform in their handling of patent cases, they can be improved so as to turn them into reliable patent laboratories, interacting beneficially with the Federal Circuit to refine and improve patent law in technology-and industry-specific ways.

I. THE FEDERAL CIRCUIT'S SUPERVISORY ROLE IN PATENT LAW

II. DISTRICT COURTS AS THE FEDERAL CIRCUIT'S PATENT LABORATORIES

A. District Courts' Centrality to Patent Law

B. Current Shortcomings of the District Courts


" Diversifying Without Discriminating: Complying with the Mandates of the TRIPS Agreement ," 13 Mich. Telecomm. & Tech. L. Rev. 445 (2007) (with Graeme B. Dinwoodie) Abstract Although the technological community was once fairly united in its needs from the patent system, the recent debate over patent reform has made it clear that this is no longer the case. Rather, it has become increasingly difficult to believe that a one-size-fits-all approach to patent law can survive. In this brief contribution to a symposium tackling Diversity in Innovation Policy, we consider the ways in which intellectual property obligations, most notably the TRIPS Agreement, circumscribe the ability of national lawmakers to tailor patent protection to reflect the concerns of different industries. In particular, we propose that TRIPS art. 27, which is cast in terms of nondiscrimination, should be interpreted to permit "differential treatment." First, we argue that in other areas, treating different cases differently is not always invidious discrimination. Second, we note that many of the proposals for tailoring are not aimed at the nominal legal rights created by patent law, but rather at the economic effects of these patents, a distinction of significance in the WTO's Canada-Pharmaceutical Patents case. Finally, we suggest that member states claiming de facto discrimination should be required to demonstrate some element over and above those required to establish de iure discrimination, and that member states defending an exclusion should be permitted to rebut a showing of disparate treatment by demonstrating a legitimate purpose. While decision makers will need to evaluate the relation between the stated purpose and the means chosen, this analysis would permit members to adopt most of the tailoring initiatives discussed during the Symposium. We give weight to the normative claims of the TRIPS Agreement to facilitate and enhance free trade. But we think that industry-specific patent laws are fully consistent with the language and purpose of the TRIPS Agreement as well as the comparative advantage philosophy that undergirds the modern trade regime.

"Diversifying Without Discriminating: Complying with the Mandates of the TRIPS Agreement," 13 *Mich. Telecomm. & Tech. L. Rev.* 445 (2007) (with Graeme B. Dinwoodie)

									Abstract

Although the technological community was once fairly united in its needs from the patent system, the recent debate over patent reform has made it clear that this is no longer the case. Rather, it has become increasingly difficult to believe that a one-size-fits-all approach to patent law can survive. In this brief contribution to a symposium tackling Diversity in Innovation Policy, we consider the ways in which intellectual property obligations, most notably the TRIPS Agreement, circumscribe the ability of national lawmakers to tailor patent protection to reflect the concerns of different industries. In particular, we propose that TRIPS art. 27, which is cast in terms of nondiscrimination, should be interpreted to permit "differential treatment." First, we argue that in other areas, treating different cases differently is not always invidious discrimination. Second, we note that many of the proposals for tailoring are not aimed at the nominal legal rights created by patent law, but rather at the economic effects of these patents, a distinction of significance in the WTO's Canada-Pharmaceutical Patents case. Finally, we suggest that member states claiming de facto discrimination should be required to demonstrate some element over and above those required to establish de iure discrimination, and that member states defending an exclusion should be permitted to rebut a showing of disparate treatment by demonstrating a legitimate purpose. While decision makers will need to evaluate the relation between the stated purpose and the means chosen, this analysis would permit members to adopt most of the tailoring initiatives discussed during the Symposium. We give weight to the normative claims of the TRIPS Agreement to facilitate and enhance free trade. But we think that industry-specific patent laws are fully consistent with the language and purpose of the TRIPS Agreement as well as the comparative advantage philosophy that undergirds the modern trade regime.

Graeme B. Dinwoodie & Rochelle C. Dreyfuss, Diversifying Without Discriminating: Complying with the Mandates of the TRIPS Agreement, 13 Mich. Telecomm. & Tech. L. Rev. 445 (2007)

Graeme B. Dinwoodie
Rochelle C. Dreyfuss

13 MICH. TELECOMM. TECH. L. Rlv. 445 (2007), available at http://www.mttlr.org/volthirteenldinwoodie&dreyfus.pdf Since the Patent Act was revised in 1952, patent law has expanded to cover an array of novel endeavors-new fields of technology (notably computer science and business methods) as well as the activities of researchers engaged in fundamental scientific discovery. These changes have been accompanied by shifts in the organizational structure of the technological community, with smaller firms and universities emerging as important players in the patent system, and by new marketplace expectations arising from consumer demand for interoperable technology and converging functionality. As a result of these developments, structural flaws in the legal order have become evident. Although the technological community was once fairly united in its needs, the recent debate over patent reform has made it clear that this is no longer the case. The broad patents available for basic science present different problems from those associated with the thickets of narrow rights awarded in fields where advances are incremental. Boutique firms with shifting alliances and universities with their spin-off enterprises rely on patents for reasons that are inapplicable to vertically integrated companies that bring research, development, and distribution under one roof. In some cases, a patent acquires value through technical superiority; in others, it does so because it covers a product that is incorporated into a standard or is subject to network effects, market tipping, or lock-in. There are also vast disparities in patent-to-product ratios. In some fields, like pharmaceuticals, the ratio is close to one (one patent covers one product). But in other areas, that ratio can be vastly higher or lower: for example, a single electronic product can require a multiplicity of patent licenses to bring to market;' at the same time, a gene patent can potentially give rise to a multitude of products. 2 In the last few years, it has become increasingly difficult to believe that a one-size-fits-all approach to patent law can survive. There is no shortage of suggestions for making the legal environment responsive to the diverse experiences and demands of the technological community. Some suggestions rely on adjudication to accommodate such diversity. For example, Dan Burk and Mark Lemley have highlighted various policy levers that the courts could use to create a better fit between U.S. patent law and the technologies for which protection is sought. 3 Thus, they suggest that the standard of the person having ordinary skill in the art (PHOSITA) should be deployed more discerningly; they suggest that this approach could, for example, distinguish between emerging and mature technologies. Other proposals depend on legislative initiatives tied directly to the features of innovation markets that warrant differential treatment. Drawing on Wes Cohen's work on discrete and complex product industries,' one can imagine law that differentiates on the basis of the patent-toproduct ratio. Thus, where the ratio is high, and potential holdouts are a serious concern, special rules on remedies and compulsory licensing may be appropriate. 5 Where the ratio is extremely low, there may be a need to prevent patentees from dominating more of a field than they can efficiently exploit. Similarly, when a market is characterized by network effects, compulsory licensing may be necessary to assure that all competitors and potential entrants have access to the patented technology at fair and reasonable rates. 6 There are also suggestions for intervention along administrative lines, through the laws and agencies that regulate industrial sectors where a one-size system causes special problems. For instance, Rebecca Eisenberg has suggested that the data-exclusivity regime administered by the Food and Drug Administration (FDA) might be used as a substitute for patent protection.' Using a separate institutional device for different industrial sectors could help break the impasse in patent reform caused by the widening gap between the needs of the pharmaceutical industry and the demands of the information technology sector. The ability of national courts, legislators, or administrators to tailor patent protection to reflect the differing concerns of different industries is, however, circumscribed by international intellectual property obligations, most notably by the TRIPS Agreement. 8 In previous articles, we have urged an interpretation of the TRIPS Agreement that recognizes that the demands of innovation policy vary among countries and over time, and suggested that WTO dispute settlement panels offer broad latitude to member states to implement their core TRIPS patent obligations in ways that optimize protection as circumstances change. 9 In many cases, we see the compliance issue as not whether industry-specific patent laws can be adopted, but the ways in which these rules are structured. We begin with some background. The TRIPS Agreement contains two types of provisions that constrain national choices. First, it articulates a series of substantive minimum levels of patent protection that WTO members are obliged to provide. For example, the term of patents must endure for at least twenty years from the date an application is filed.' o Even these provisions are not, however, absolute; rather, they offer several opportunities for tailoring. For instance, there are provisions that allow member states to reflect order public, or deal specially with therapies, microorganisms, and plants." Indeed, the scope of the patent section of the Agreement as a whole provides members with some flexibility in that it applies only to inventions "capable of industrial application."' ' 2 Second, TRIPS constrains national lawmakers through a series of structural provisions that appear to cut across the entire patent system. For example, under Article 3, protection must be offered on a national treatment basis, and Article 4 requires that member states provide protection on a most-favored nation basis. These structural provisions are essentially provisions prohibiting discrimination.' 3 Unfortunately, Article 27 of the TRIPS Agreement appears to destroy this nice dichotomy. Its requirement that "patents shall be available and patent rights enjoyable without discrimination as to the ... field of technology," does not fall neatly into either category. The travaux pr6paratoires of the TRIPS Agreement emphasize that the provision was intended to guarantee protection for a variety of subject matter previously unprotected by patent rights in many countries. ' 4 In this regard, it looks like a substantive minimum provision relating to subject matter. But because the provision is cast in terms of nondiscrimination, it can also be interpreted as structural. This ambiguity came to a head in Canada-Protection of Pharmaceuticals Patents,' 5 when a dispute settlement panel of the WTO gave Article 27 broad structural effect, and required exceptions to patent protection in Canadian law to comply not only with the demands of Article 30, which explicitly regulates permissible exceptions from patent protection, but also with Article 27's protection against technology-based discrimination. To be sure, there are normative reasons to support this interpretation. It essentially turns Article 27 into a pre-commitment strategy, binding members to trans-substantive patent law as a way to prevent industries See, e.g., Panel Report, European Communities-Protection of Trademarks and Geographic Indication for Agricultural Products and Foodstuffs, WT/DS174/R (Mar. 15, 2005) [hereinafter EC-GI]. In the EC-GI case, the issue was whether the EC discriminated against non-EC nationals by making recognition of geographic indications contingent on receiving a domestic certification from the home country of the non-EC national. Although it would be difficult to obtain a certification in a nation that lacks the investigatory machinery required by the EC regulation, the EC argued that the condition for protection was not discrimination against nationals because anyone seeking a geographical indication that references an EC locality can utilize the EC system. Nonetheless, the Panel found the system discriminatory, reasoning that the TRIPS Agreement requires "effective equality of opportunities" and focuses on "actual effects of the contested provisions in the marketplace." from dissipating resources by demanding special forms of protection. While such an objective has much to recommend it and a panel has noted with some approval the notion of TRIPS as a check on certain domestic political pressures (such as anti-foreigner legislation),' 6 it is far from clear that the TRIPS Agreement was actually meant to protect the structure of any particular domestic political economy. Indeed, the effect that TRIPS might have on domestic political structures is quite complex. The combined effect of giving strict international scrutiny to legislation impinging on producer interests while leaving domestic legislatures with considerable discretion over abrogating user interests is that legislative deals tend to unravel, and to do so in only one direction: a direction that favors the owners of intellectual property. The best example here is one drawn from copyright, where the United States lengthened the copyright term and at the same time, added new exemptions for playing music in Irish (and other) bars. The Irish bar provision was struck down by the WTO in the US-1 10(5) case, 7 but the term extension was upheld in Eldred v. Ashcroft." International rules that give members more flexibility would at least avoid the unidirectional unraveling problem. Furthermore, a "light" ban on de facto discrimination---one that permits a member to justify its actions-may be enough to prevent the more egregious forms of rent seeking while still allowing states to tailor their law effectively. Additionally, requiring exemptions to be available for all forms of technology as a matter of international law could distort domestic law by inducing national legislators to adopt exemptions that are broader than necessary. This outcome would also conflict with the basic thrust of Article 30, which expressly requires any given exemption to be "limited." A targeted exemption that differentiated between different types of invention would limit a patentee's rights only in areas where there was a perceived imbalance between public and private rights. 9 A formalist over-commitment to technological neutrality is inconsistent with this purposive reading of the TRIPS Agreement. In the end then, for these and a series of other reasons that we have written about at length, we think the Panel was wrong to subject exemptions to the technological neutrality condition. But even if one were to accept the possibility that the Canada-Pharmaceuticals panel reached the right conclusion and that Article 27 is in some respects structural, strong arguments can be made that there is 16. Panel still considerable room for tailoring. Thus, the language of the provision itself may contain latitude to create some level of differentiation. Over the past ten years, arguments grounded in text have proved to have immense attraction to the WTO dispute settlement body in TRIPS cases. Thus, attention to text may, for example, support Brian Kahin's suggestion that the "availability" of patent rights should be regarded as subject to more stringent anti-discrimination scrutiny than the "enjoyment" of patent rights." Certainly, the basic purpose of Article 27 was focused on wholesale exclusions, which seems to suggest that its "availability" provisions should receive more serious international examination. We, however, do not think it is plausible to parse Article 27 in this way: from a grammatical standpoint (if nothing else), it is difficult to have confidence that the legal effect of "availability" and "enjoyment" can be separated. Instead, we propose that any interpretation of Article 27 should require greater attention to the term "discrimination., 2 ' Discrimination is not the same as differential treatment. 22 The Canada-Pharmaceuticals panel acknowledged that "Article 27 does not prohibit bona fide exemptions to deal with problems that may exist only in certain product areas." 23 We see at least three arguments that support such differential treatment. First, as suggested earlier and as the pieces in this volume attest, different sectors experience different problems within the current patent system. Under a normal meaning of the term "discrimination," treating different cases differently is not discrimination. For example, it may not be discrimination to create exceptions to broad patents out of the concern that they dominate too broad a swath of the technological frontier, while giving the holder of a narrow patent the right to exploit the entire domain of his claim. At the end of the day, the value of the exclusivity offered to different technologies is similar. Second, we note that many of the proposals for tailoring are not aimed at the nominal legal rights created by patent law, but rather at the economic effects of these patents: for example, the transactional costs 20. Brian Kahin, Patents and Diversity in Innovation, 13 MICH. TELECOMM. TECH. L. REV. 389 (2007). The panel almost invites this line of analysis in Canada-Patent Pharmaceuticals, when it declined to provide a comprehensive definition of "discrimination" within the meaning of art. 27, but instead sought to "define the concept of discrimination to the extent necessary to resolve [the issued raised before the panel.]" Canada-Pharmaceuticals, supra note 14, at 7.98. Cf id. at 7.94 (noting the dangers of assimilating "discrimination" and "differential treatment" while suggesting that discrimination can result from nominally identical treatment, and differential treatment might be justified). See also id. at 7.101 (listing issues arising in cases of de facto discrimination). associated with patent thickets or the holdouts possible when many patents are required to bring a product to market. Differentiation targeted at such effects arguably finds explicit support in the Canada-Pharmaceuticals report. 24 In that case, the EU argued that Canada was interfering with the internationally guaranteed rights of patentees by intruding upon the ability of pharmaceutical companies to retain a measure of exclusivity after patent expiration. Specifically, the EU claimed that generic manufacturers should not be permitted to conduct the tests necessary for regulatory review during the patent term because those activities allowed the generics to come to market as soon as the patent expired, thus destroying the lead time advantage the (ex-) patent holder would otherwise enjoy. The panel rejected the argument. Post-term exclusivity was not the "natural or normal consequence" of enforcing patent rights. Rather, it was a product of the combination of patent law and regulatory approval that the panel saw as a commercial or economic effect, instead of a legal effect, and thus not the type of exploitation TRIPS was intended to protect. Admittedly, rejecting the relevance of effects in assessing compliance with international patent obligations could-if extended too broadly as an interpretive device-undermine our own efforts in certain circumstances to assess and justify discrimination by reference to marketplace effects. On the other hand, if we read the report more narrowly and confine it to its core holding, it can be understood simply as saying that benefits flowing from non-patent law realities (such as alterations in industry structure or changing relationships between science and technology) cannot be the basis for a claim of guaranteed rights. This latter interpretation, which is more favorable to our argument that we can look at the overall and net effects of a tailored system, is consistent with the idea that the TRIPS Agreement is aimed primarily at ensuring minimum rights. A third argument allowing for the development of industry specific laws focuses on the nature of the discrimination. In the Canada-Pharmaceuticals report, the panel rejected the argument that Canada's regulatory review exception was technology-specific. 26 Any patent in an industry that was subject to marketing approval would be subject to the challenged exception. Thus, the Canadian exception was not regarded as 24. Canada-Pharmaceuticals, supra note 14, at 7.57-58 (discussing normal exploitation under Article 30). Cf Dinwoodie & Dreyfuss, TRIPS and the Dynamics of Intellectual Property Lawmaking, supra note 9, at 112-113 (arguing "that adjudicators should take into account how changing social practices and new technological opportunities alter the balance of protection accorded to innovative works"). 26. Canada-Pharmaceuticals, supra note 14, at 7.102. Spring 20071 effecting a de iure discrimination. Of course, the analysis did not stop there; the panel's report must also be read as prohibiting de facto discrimination. 2 ' However, it does so only in specific circumstances-when the claim includes some additional element, such as an allegation of intent to discriminate. 28 We think it is entirely appropriate that those claiming de facto discrimination should be required to demonstrate some element over and above those required to establish de iure cases of discrimination. But what is the extra element? The Canada-Pharmaceuticals panel does not give us a definitive answer. The panel clearly thought that purpose was relevant. In some passages, the panel imposed a burden on the complainant to demonstrate that the application of a law in a facially neutral manner was a sham. 29 Were that the sole means of proving de facto discrimination, the various forms of tailoring discussed in this conference would likely survive scrutiny. However, the panel also suggested that the complainant could show that "objective indications of purpose demonstrated a purpose to impose disadvantages on [particular industries]". ° Whatever that formulation means, a broad reading appears to endanger all forms of tailoring since they are all intended to effects different industries differently. Further, such an approach appears to collapse de iure and de facto claims. We suggest that those defending an exclusion as compliant with Article 27 should be permitted to rebut a showing of disparate treatment by demonstrating a legitimate purpose. 3 ' We think that this is consistent with Article 1(1) of the TRIPS Agreement, which gives countries deference as to the means by which they implement the general purposes of the TRIPS Agreement. As has been suggested, TRIPS to some extent assumes the character of a "constitutional" international law or a "basic law." In a number of countries, constitutional law has developed a vari- This interpretation of TRIPS Article 3 does not dictate that panels take the same approach to technological discrimination in the context of Article 27. National treatment implicates foundational aspects of the WTO system, and any derogation from it is inherently suspect. This is not true of Article 27; technological differentiation can in fact effectuate the purposes of the Agreement. To put this another way, the EC-GI panel was trying to avoid protectionism, but the goal of tailoring is not to protect local markets from foreign competition: it is intended to make local marketplaces work more efficiently for everyone. Thus, it is by no means clear that nondiscrimination among peoples (certainly a goal of public international law and the focus of the EC-GI case) and nondiscrimination among technologies (per the panel's interpretation of Article 27) are objectives of equal importance to the international intellectual property system. 28. Canada-Pharmaceuticals, supra note 14, at 7.105. Cf id. at 1 7.94 (noting that the "standards by which the justification for differential treatment is measured are a subject of infinite complexity"). ety of tests to assess whether there is a sufficient means-ends nexus to support a statute. For example, one could consider whether the stated objectives behind the law were in any way furthered by the legislative means chosen, or whether it was a rational means, or a particularly appropriate means, or a well-tailored means, or the least burdensome means, of pursuing these objectives. At the very least, we believe that panels may need a way to evaluate the relation between the stated purpose and the means chosen. 32 Thus, differentiation might be satisfied by, for example, demonstrating a close linkage between the exclusion and the particular change in organizational or institutional structure in the country in question. An example might be a law tailored to deal with the problems created by the decision to extend patenting to fundamental research, or the unique problems encountered when patents serve functions other than protection from freeriding. 33 Developing this type of analysis would also open up space to incorporate the economic and empirical work described in this volume, furthering Brian Kahin's call for patent law to expand its horizons in developing policy. 3 Given that analysis, it is evident that the TRIPS Agreement leaves ample room for a member state to adopt most of the initiatives discussed at the outset. Lemley and Burk's legally neutral rules, applied though adjudication, certainly appear to survive challenge. Legislatively constructed industry-specific rules could also be sustained if they were framed in a similarly neutral manner. For example, rules that changed the remedies available for infringement could past muster if proxies for the targeted technologies, such as "discrete product industries" and "complex product industries," were utilized. Indeed, the Canada-Pharmaceuticals panel implicitly permitted use of such a conceptual proxy when it was willing to analyze the Canadian law as being about inventions "subject to marketing approval., 3 The pharmaceutical industry was what Canada meant, but that is not what the statute said, and the panel approved it on that basis. Of course, it might be argued that had such an assessment been expected, the drafters would have written the standard into the Agreement. Cf Agreement on Technical Barriers to Trade, art. 2(2), Apr. 15, 1994, WTO Agreement, Annex 1A, Legal Instruments-Results of the Uruguay Round, vol. 27 (1994), http://www.wto.org/English/docs-e/legal e/1 7-tbt.pdf (requiring a member state to show that the measure in question was the least trade-restrictive possible, etc.). 33. Nor is this merely semantics. Thus, it has been suggested that the differentiation between complex and discrete product industries is artificial because even pharmaceuticals (the quintessential discrete products) are susceptible to multiple claiming strategies. 36 To be sure, this move would turn the pharmaceutical industry into a complex product industry. 33 But if that happened, then presumably the pharmaceutical industry would begin to experience the transaction costs and holdout problems that currently plague information technologies. If so, then a conceptually neutral rule would prove its value: there would be no need to plead for special legislation when a readily available solution is already on the books. 38 By the same token, special rules for industries subject to network effects, standard setting, or lock-in should be acceptable. If the special rule were intended to limit the exclusivity that is derived from the network effect-the tipping of the market in favor of the patented product-then what the Canada-Pharmaceuticals panel had to say about disregarding commercial effects that do not arise solely from the patent would presumably be relevant. After all, the value derived from a tipped market (from being included in a standard or a network) is not a predictable part of the marketing opportunities produced by the patent. Since it would not be a legal effect (not a part of the patentee's "normal" market), there may be ways in which members are free to cut it back. 3 9 Initiatives to deal with the industries in which the patent/product ratio is less than one could presumably be analyzed in the same way. Here is an area where there is a live example: Germany recently enacted a special rule to deal with the broad scope of gene patents. Under the new provision, a gene patent creates an exclusive right over the uses recited in the application, but permits the public to otherwise utilize the gene Cf Cohen et al., R&D Spillovers, supra note 4 (describing how a discrete product industry in the United States can be complex in Japan because of differences in claiming norms). The public choice effects of different interpretations of TRIPS are hard to assess. See Dinwoodie & Dreyfuss, TRIPS and the Dynamics of Intellectual Property Lawmaking, supra note 9. But the Canada-Pharmaceuticals panel was receptive to the idea that some of the provisions of the Agreement were designed to bolster domestic political structures in ways that minimize counterproductive pressures that public choice theory could predict in a global system still largely effectuated through national political institutions. See Canada-Pharmaceuticals, supra note 14, at 7.92 (noting the plausibility of the EC's argument that some of the provisions of TRIPS might have been intended to "ensure that governments do not succumb to [certain] domestic pressures"). 39. Members would not have complete discretion. For example, we doubt that they could curtail the term of a patent. Article 33 makes the required term crystal clear. See TRIPS Agreement, supra note 8, art. 33. free of the patentee's control)" As framed, this provision clearly carves out biotechnology inventions for special treatment. If challenged, Germany is likely to have a difficult time defending this law. 4 ' Nonetheless, the problems associated with a patent-to-product ratio far below one are arguable severe: the patentee acquires rights out of proportion to what it invented. 4 2 Further, the patent can dominate a range of applications far broader than it has the knowledge to exploit. Framing a statute so that it is neutrally applied in every case in which the ratio is less than one (a term like "discrete" or "complex" has yet to be invented) could pass muster, if it is sufficiently limited. A harder case is presented by proposals to deal with the special needs of a particular industry through administrative agencies (such as the FDA) that regulate the industry in question. First, it is not always the case that the desirable variations in the patent system will be coextensive with a particular industrial sector. For example, product-to-patent ratios can be high for some products in an industry, but not for others. Using the scope of regulatory authority over an industry as the proxy for differentiation may fail to effectuate the domestic patent objective; it may be both underand over-inclusive and thus could weaken the nexus between ends and means. Second, surely a measure cannot evade review by the simple expedient of placing it in nonpatent legislation (for example, by burying it somewhere in the U.S. code other than title 35). Indeed, the trademark measures challenged in the so-called Havana Club case were not part of the U.S. intellectual property statutes, but the WTO nonetheless analyzed the restrictions on Cuban marks under the TRIPS Agreement. 4 ' 3 Furthermore, it may be significant that the TRIPS Agreement specifically provides leeway for antitrust authorities, but not for other administrative agencies, to pursue their regulatory objectives notwithstanding intrusion upon the rights otherwise guaranteed by the TRIPS Agreement." Nonetheless, it seems to us that the presence of a regulation within a broader regulatory scheme, such as food and drug law, can furnish powerful support for a claim of a rational relationship to legitimate purposes. Certainly, there are many valid critiques of international lawmaking: there are issues of both transparency and institutional capture. Nonetheless, we take seriously and give weight to the normative claims of the TRIPS Agreement to facilitate and enhance free trade. But we think that industry-specific patent laws are fully consistent with the comparative advantage philosophy that undergirds the modern trade regime. After all, national patent laws reflect local technological capacity. For example, a nation whose comparative advantage lies in upstream research may want to patent fundamental discoveries, but one that specializes in manufactured products may wish to put fundamental discoveries in the public domain while providing strong protection to end products. By the same token, a nation that excels in complex product industries will want to fashion law that deals with the problems that complexity creates. A rigid requirement that each member treat all fields alike potentially interferes with a nation's ability to fully develop its own technological possibilities. Admittedly, it could be argued that the TRIPS Agreement is designed to prevent nations from instantiating advantages through their patent laws. However, wide-ranging legal advantages persist under the WTO. For example, banking and securities laws make it easier for entrepreneurs to attract capital, and labor laws make it easier for employers to keep prices down. Until all the laws relevant to trade are harmonized, it is anomalous to read such inflexibility into the TRIPS Agreement, especially when it has such strong potential to undermine the WTO's capacity to increase social welfare. A better approach is to view TRIPS as an effort to create an efficient marketplace and to treat its minimum substantive requirements as safeguards against one country using its patent law to undermine the industrial policy of another. If TRIPS needs an overarching goal and an interpretive principle to identify the limits on tailoring, then efficiency-of-trade recommends itself as the right focus. CLARK, J. ET AL., U.S. PATENT & TRADEMARK OFFICE, -15 (2000). 2. See, e.g., Helen M. Berman & Rochelle C. Dreyfuss, See Dan L. Burk & Mark A. Lemley, Is Patent Law Technology-Specific?, 17 BERKELEY TECH. L.J. 1155 (2002); Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575 (2003). In turn, of course, the Patent and Trademark Office (5. Carl Shapiro, Navigating the Patent Thicket. Cross Licenses, Patent Pools, and Standard-Setting, in I INNOVATION POLICY AND THE ECONOMY 119 (Adam B. Jaffe et. al. eds., 2001). 6. See, e.g., Rochelle Dreyfuss, Unique Works/Unique Challenges at the Intellectual Property/Competition Law Interface, in EUROPEAN COMPETITION LAW ANNUAL 2005-THE INTERACTION BETWEEN COMPETITION LAW AND INTELLECTUAL PROPERTY LAW (Claus-


"Does Judicial Ideology Affect Copyright Fair Use Outcomes?: Evidence from the Fair Use Case Law," 31 Columbia Journal of Law & the Arts 517 (2008) (symposium contribution)

"Does Judicial Ideology Affect Copyright Fair Use Outcomes?: Evidence from the Fair Use Case Law," 31 *Columbia Journal of Law & the Arts* 517 (2008) (symposium contribution)

Barton Beebe, Does Judicial Ideology Affect Copyright Fair Use Outcomes?: Evidence from the Fair Use Case Law, 31 Colum. J.L. & Arts 517 (2008) (symposium contribution)

especially strong. Empirical work in other areas of the law, however, such as tax 7 and securities 8 law, has less commonly found evidence that judges' ideological preferences affect outcomes. 9 As Sag, Jacobi, and Stych note, this has led to speculation that in these primarily economic areas of the law, judges' (and our own) underlying ideological beliefs-regarding, for example, the proper relation between liberty and equality or between the state and society-simply do not clearly favor one outcome over another. 1 0 Consider, then, Figure 1. Since the passage into law of the Copyright Act of 1976, the Supreme Court has heard four cases involving section 107 of the act, which establishes the affirmative defense of copyright fair use. 1 ' For each of these cases, Figure 1 arranges along a liberal-conservative continuum each justice's Martin-Quinn ideal point estimate 12 (a leading quantitative measure of Supreme Court justices' underlying ideological preferences) for the term in which he or she voted in the case; a greater ideal point estimate value indicates a more conservative ideology. The figure also shows whether the justice voted in favor of or against a finding of fair use-or otherwise did not address the fair use issue in his or her vote. Clearly, there is no relation in these cases between the justice's ideological position and his or her votes. In Sony v. Universal City Studios, Inc., 13 for example, Justices Marshall and Rehnquist voted together in dissent (something which, according to the Spaeth database, 14 they did exactly 31 times out 6,058 opportunities to do so), while in Campbell v. Acuff-Rose Music, Inc., 15 Justices Stevens and Thomas voted together along with the rest of the unanimous court (the Spaeth database suggests that the two vote together either in the majority or in dissent about 51% of the time Is copyright fair use, then, a non-ideological or at least "ideologically ambiguous"' 18 area of American law? Notwithstanding its importance to freedom of expression and the viability of the public domain, is fair use, as a matter of ideological judging, more akin to securities or bankruptcy law than to civil liberties or environmental law? Sag, Jacobi, and Stych have applied rigorous statistical analysis to Supreme Court intellectual property case law to show that judicial ideology does in fact affect outcomes in that case law. 19 But is copyright fair use an exception to this general finding, not only at the level of the Supreme Court but across the circuit and district courts? This brief paper seeks to answer that question empirically. Part I describes the data set used for the study. Part II reports the study's results. It shows that judges' ideological preferences have no significant effect on their adjudication of the fair use defense. In establishing the affirmative defense of fair use, section 107 of the Copyright Act sets forth four factors that judges "shall" consider in determining whether to find fair use. 20 For a previous study, 21 I developed a data set describing all 306 reported federal court opinions that made substantial use 22 of the section 107 fourfactor test in adjudicating a defense of fair use from the January 1, 1978 effective date of the Copyright Act through 2005.23 For this study, I have excluded from that dataset four opinions written by magistrate judges and an additional nine opinions that found outstanding issues of fact on the fair use issue or issued mixed rulings in which some uses were found to constitute fair use while others were found not to constitute fair use. This left a total of 293 opinions. Overall, including votes cast by judges who joined an opinion, these 293 opinions yielded a total of 454 votes either in support of a finding of fair use or in support of a finding of no fair use. Two of these votes were excluded from consideration because they were cast by International Court of Trade judges sitting by designation. This left a total of 452 votes. For each judge casting at least one of these votes, I included in the new data set his or her values from various widely-accepted-but by no means noncontroversial 24 -indices of judicial ideology. Specifically, I included where possible: (1) the political party of the judge's appointing president, 25 (2) the Poole Common Space score of the judge's appointing president, as developed by Keith Poole and Howard Rosenthal, 26 (3) the judge's Judicial Common Space score, as developed by Lee Epstein, Andrew D. Martin, Jeffrey A. Segal and Chad Westerland, 27 building on work by Michael Giles, Virginia Hettinger, and Todd Peppers, 28 and (4) the judge's NIXONI score, as developed by Robert Howard and David Nixon. The previous study reviewed various summary statistics relating to the original data set of 306 opinions. 30 I provide here only those details about the revised data set that may help the reader to evaluate the findings reported below. Table 1 reports that of the 452 votes studied, 32 were cast by Supreme Court judges, 218 by circuit court judges, and the remaining 202 by district court judges. Of these 452 votes, 193 (42.7%) were cast in support of a finding of fair use, while 259 (57.3%) were cast in support of a finding of no fair use. These proportions do not vary significantly among the three levels of courts being studied. As for the overall ideological distribution of the 452 votes studied, 260 (57.5%) were cast by judges appointed by a Republican president, while 192 (42.5%) were cast by judges appointed by a Democratic president. Figure 2 provides a more nuanced profile of the ideological distribution of the votes. For the 441 votes cast by judges whose NIXONI score is available, the figure shows the distribution of those votes by their judge's score. As with the Martin-Quinn ideal point estimate, a greater NIXONI score indicates a more conservative judge. Consistent with the distribution of votes by the party of their judge's appointing president, the mean 24. For a discussion of the controversy surrounding the measurement of judicial ideology, see Sisk & Heise, supra note 1. 25. On the efficacy of this measure of judicial ideology, see id. But see Orley Ashenfelter, Theodore Eisenberg & Stewart J. Schwab, Politics and the Judiciary: The Influence of Judicial Background on Case Outcomes, 24 J. LEGAL STUD. 257, 260 (1995) (arguing that presidential politics do not explain outcomes). NIXONI score of these 441 votes was a slightly conservative 0.073 (std. dev.=0.255). 31 Thus, though the votes studied are slightly skewed towards a finding of no fair use and their judges towards a conservative ideology, the data set is sufficiently balanced to allow for a relatively straightforward statistical analysis of the effect of judicial ideology on fair use outcomes. Regardless of which measure of judicial ideology is used, the data show no significant relation between a judge's ideology and her adjudication of the fair use defense. Specifically, there is no relation between judicial ideology and a judge's likelihood of finding fair use or no fair use, nor is there any relation between judicial ideology and how judges treated various factor and subfactor considerations that, as the previous study showed, 32 typically drive the fair use analysis. As an initial matter, Table 2 sets forth pairwise correlation coefficients for the relations among five variables in the data set: the four measures of a judge's ideological preferences and a binary variable indicating whether or not the judge found fair use. As expected, the various measures of judicial ideology correlated very strongly with each other. However, none show a significant correlation with judges' fair use findings. Of course, correlation analysis does not control for the facts of the cases. Table 3 reports the results of logistic regression of the outcome of each of the 441 votes for which their judge's NIXONI score is available on various factual findings made by the judge (or the opinion the judge joined) and the NIXONI score of the judge casting the vote. Here again, judicial ideology appears to exert no significant influence over judges' willingness to find fair use or no fair use. Each of the other three indices of judicial ideology included in the data set similarly show no significant influence. With respect to the 18 votes cast in dissent, of which 11 were cast in favor of a finding of fair use, none support the proposition that the court was split along ideological lines. Each of these 18 dissenting votes was cast by a judge who shared his or her ideological sign (-/+), as established by his or her NIXONI score, with at least one judge in the majority. Finally, judicial ideology showed no significant relation with any of the numerous factor and subfactor findings made in the opinions studied. For example, judicial ideology did not help to explain whether a judge was likely to conduct a commercial use inquiry or whether a lower court judge was likely to ignore relevant Supreme Court precedent-a phenomenon explored in detail in the 31. For the 449 votes cast by judges for whom the Poole Common Space Score of their appointing president was available, the mean Poole Common Space Score was 0.094 (std. dev.=0.494). The comparable mean for the Judicial Common Space score was 0.013 (n-227, std. dev.=0.350). It may be encouraging to learn that copyright fair use is not an area of the law in which judicial ideology appears to influence adjudication-and thus that copyright fair use is an exception to Sag, Jacobi, and Stych's more general findings that judicial ideology affects intellectual property outcomes, at least before the Supreme Court. 34 Yet one might tentatively observe that there is also something disturbing about these results. They are disturbing because copyright fair use should be ideological. As intellectual property scholars have long recognized, the stakes involved in fair use adjudication are immense. Fair use outcomes define the contours of the private and public domains of human expression and, in doing so, directly impact our capability for human flourishing. 35 Fair use is far more than an economic area of the law calling for the post-ideological balancing of costs and benefits; it goes to the core of what constitutes a good society. 36 Thus, while the "politics of intellectual property" 37 that James Boyle and others called for many years ago apparently has yet to make itself felt among the ranks of the federal judiciary, one might tentatively hope that some future study of this nature may yield different results. 9. See Staudt et al., supra note 7, at 1799 ("Study after study confirms a PA. L. REV. 549(2008). 22. The data set included all opinions from the period sampled that cited to the § 107 test and referenced at least two factors from the test. See id. at 623. 23. The data set in its present form does not yet include data for opinions filed in 2006 and 2007. However, there is nothing in the data set to suggest that these years would change the results described below. (2006).36. See William W. Fisher III, Reconstructing the Fair Use Doctrine, 101 HARV. L. REV. 1659, 1744-1794 (1988). 37. See James Boyle, A Politics of Intellectual Property: Environmentalism for the Net?, 47 DUKE L.J. 87 (1997).