September 8, 2014

The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons

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Libertarians intuitively understand the case for patents: just as other property rights internalize the social benefits of improvements to land, automobile maintenance, or business investment, patents incentivize the creation of new inventions, which might otherwise be undersupplied.

So far, so good. But it is important to recognize that the laws that govern property, intellectual or otherwise, do not arise out of thin air. Rather, our political institutions, with all their virtues and foibles, determine the contours of property—the exact bundle of rights that property holders possess, their extent, and their limitations.

Outlining efficient property laws is not a trivial problem. The optimal contours of property are neither immutable nor knowable a priori. For example, in 1946, the U.S. Supreme Court reversed the age-old common law doctrine that extended real property rights to the heavens without limit. The advent of air travel made such extensive property rights no longer practicable—airlines would have had to cobble together a patchwork of easements, acre by acre, for every corridor through which they flew, and they would have opened themselves up to lawsuits every time their planes deviated from the expected path. The Court rightly abridged property rights in light of these empirical realities.

In defining the limits of patent rights, our political institutions have gotten an analogous question badly wrong. A single, politically captured circuit court with exclusive jurisdiction over patent appeals has consistently expanded the scope of patentable subject matter. This expansion has resulted in an explosion of both patents and patent litigation, with destructive consequences.

Patent Politics without Romance

James Buchanan coined the phrase “politics without romance” to define public choice, a research agenda that studies political outcomes in light of the incentives and constraints that politicians, bureaucrats, judges, and voters face. Contra elementary-school civics lessons (to say nothing of the academic literature), many public policies are enacted not in the general interest, but to benefit groups that successfully manipulate the political system. By concentrating benefits and dispersing costs, the few are able to take from the many.

In patent politics, the romance has been gone for at least three decades. Here’s why. In most areas of law, the loser in a federal trial appeals to the circuit court corresponding to the federal judicial district in which the trial was held. But in 1982, at the urging of the patent bar, Congress consolidated appellate review of all patent cases in a newly created Court of Appeals for the Federal Circuit.

The patent bar had sought this consolidation for some time. As early as 1951, Simon Rifkind, a former federal judge in New York City, warned in a prescient essay that then-current proposals to create a specialized patent court would lead to “decadence and decay.”

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