Wednesday, August 08, 2012
The Blocking Patent Conundrum
One of the most difficult concepts to teach students in patent law is the idea of the blocking patent. Contrary to common intuition, a patent does not confer a right to use the embodiment that you have patented. It confers only a right to exclude others from using the idea that you claim.
This becomes somewhat more intuitive if we consider a patent on a wheel and on a car. Quite intuitively, we would think that both a wheel and a car should be patentable; but obviously to build a car one needs a set of wheels. Thus, the first inventor of the wheel and of the car each get their own patent. A car manufacturer such as GM needs to pay royalties to both patent holders.
All of that works if everything goes according to plan. Of course, lawyers exist because nothing ever goes according to plan in real life. One of the trickest—and surprisingly unresolved—dilemmas in patent law is this: is a pioneer patent holder entitled to the patent profits of the subsequent improver? In other words, in order for the inventor of the car to come up with his invention, he probably needs to experiment with a set of wheels (or he could never come up with a working car). Can the holder of the patent on the wheel sue the inventor of the car, and seek compensatory remedies in the form of title to the patent over the car?
This question is unresolved in patent law. If the answer is yes, then it basically destroys the idea of blocking patents and patents for improvements, because the inventor of the wheel then gains all subsequent developments including the car. If the answer is no, one has difficulty finding a coherent theory of why not, given our normal theories of consequential damages.
As an aside, this is a pressing issue in the Monsanto case. Apparently, the defendant’s product in that case had not even been sold yet. Monsanto’s theory in that case is that the defendant’s research use of the Monsanto invention—in order to develop the defendant’s own variant—was an infringement that entitled Monsanto to damages. In other words, Monsanto invented the wheel, and the defendant was researching a car.
Posted by Tun-Jen Chiang on August 8, 2012 at 03:04 PM | Permalink
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Hi TJ -
I'm not following your argument. I'm wondering how this can be an unresolved dilemma given that it has been happening since the beginning of the patent system. I guess in particular, I am wondering why there is no middle ground. No, I don't get title to the car. I just get damages associated with the tiny piece of the car that I invented - the wheels.
Indeed, the "research use" issue comes up in many trade secret cases. The plaintiff always asks for ownership of whatever came from the trade secret, and unless that result is almost completely derived from the invention, the plaintiff instead gets damages and maybe a head start injunction.
Sure, Wheel Patent can block Car Patent, but Car Patent will say I'll pay you x% or I won't make it. In theory, x% is 99.9999999% of the profits, but we know that's not the case in practice, because Car Patent will behave strategically and hold out for a bigger percentage or find a design around. It can be inefficient if negotiation costs are high, but I don't see it as an unsolved legal or theoretical problem.
Posted by: Michael Risch | Aug 8, 2012 8:01:09 PM
Maybe I wasn't very clear in my post. Yes, the issue comes up regularly, in the sense that every blocking patent involves some variation of this scenario. But I don't know of any court that has ever expressly considered or rejected the argument that, but for the infringement, the infringer would not have obtained the blocking patent, and therefore the blocking patent (or, at least, the royalties derived from the blocking patent) form part of the compensatory damages of the pioneering patentee.
So you are right that courts routinely resolve this, but they have no theory of how they resolve this. They kind of just come up with an arbitrary number.
Now you suggest a theory yourself. A court should assess the damages based on the value of the "tiny piece of the car." But that is not actually much of a theory, and doesn't actually do more than what courts do already, because, as you later note, the value of that "tiny piece" can range from 0.00001% of the value of the patent on the car, to 99.9999% of the value of the patent on the car, so how should a court choose? Beyond saying that but for the infringement there would be no patent on the car, there is nothing left to say. To be sure, if everything had went according to plan, the parties would have negotiated and strategically held out and whatever and sorted that out themselves. But of course the whole reason this is an unresolved issue is that things did not go according to plan. And one cannot meaningfully recreate the counterfactual of what really would have happened if they did.
Posted by: TJ | Aug 8, 2012 11:44:27 PM
TJ: I'm not sure why "normal theories of consequential damages" would generally award the holder of the pioneer patent title to or the profits from an improvement patent. Consequential damages are intended to put the *plaintiff* in the position it would be in but for the infringement. They are not intended to put the *defendant* in such a position. Unless the inventor of the pioneer invention can show that it would have independently invented and obtained a patent on the improvement but for the improver's infringement --a showing that pioneer inventors will rarely be able to make -- it would not be entitled to the car patent under ordinary theories of consequential damages.
Posted by: AF | Aug 9, 2012 4:08:30 PM
AF, that is a good comment, and in hindsight I think that might have been what Michael was asking about, too. I guess I was conflating two slightly different questions: (1) whether the profits of a subsequent blocking patent can form part of the compensatory damages calculation of the pioneering patentee at all, and (2) if the answer to 1 is yes, to what extent, from 0.001% to 99.999%, where 100% would equal title to the patent.
Both are questions that courts have not really considered at a deep level. And the second question has an intractable valuation problem.
Posted by: TJ | Aug 9, 2012 11:31:53 PM
Well, I don't think it's intractable. In my Surprisingly Useful Requirement article, I make the case that we look to the comparative usefulness of the invention. I suspect that would lead to quite high damages for the wheel - it's a pretty important part of the car, though it can't be 100% because there are other useful parts of the car.
Posted by: Michael Risch | Aug 11, 2012 10:47:19 AM
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