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News: Dr. Robert Rines Founder & Former PresidentBerkeley Technology Law Journal Spring 2002
Symposium Patent System Reform Article
*685 HARMONY AND DIVERSITY IN GLOBAL PATENT LAW
Copyright © 2002 John F. Duffy Abstract The second half of the twentieth century saw the rise of a
broad movement to harmonize patent laws across nation-states. The most recent,
and most significant, manifestation of this movement is the 1994 TRIPS
Agreement, which requires signatory nations to adopt uniform rules on many
major issues of patent law. The TRIPS Agreement has now been implemented by
well over one hundred countries, including
almost all major industrial nations, and it heralds a new level of
international uniformity in patent law. This Article, while acknowledging the value of some
harmonization of national law, explores the possible costs of the harmonization
movement. Patent law itself owes its very birth not to harmony but to diversity
of national law. The fifteenth-century Venetian patent statute was an
experiment in law and a departure from the classical hostility to monopoly.
Throughout the history of patent law, individual nations have varied their law
and practice, and the results of these experiments have strengthened and
improved patent practice. Diversity and experimentation continue today. As case
studies of such experimentation, this Article examines business method patents
and law governing the experimental use defense to patent infringement, an area
in which both commentators and nations have split as to the proper approach for
the law. This Article concludes that the patent law of the twenty-first
century would be enriched if national and international policymakers learn to
value variety. Table of Contents I. Introduction
.............................................. 686 II. Theoretical Reasons for Harmony
and Diversity ............ 693
A. The Case for Harmonization .............................. 693 1. Jurisdictional Externalities
.......................... 693
2. Economies of Scale in Governance ...................... 700
3. Preventing Destructive Protectionism .................. 702
B. The Case for Diversity .................................. 703
1. Matching Local Preferences ............................ 703
2. Competition as a Check on Government .................. 706
3. Permitting Experimentation and Innovation in the Law .. 707 III. Diversity and Innovation in
Patent Law: A Case Study .... 709
A. Historical Examples of Innovation in Patent Law ......... 710
1. The Invention of Patent Law ........................... 710
2. Technical Examination ................................. 713
3. Early Publication of Patent Applications .............. 715
B. Ongoing Experiments ..................................... 716
1. Business Method Patents ............................... 717
2. The Experimental Use Exception to Infringement ........ 717 IV. Implications
............................................. 719
A. Interpreting TRIPS ...................................... 720
B. Beyond TRIPS ............................................ 723 V. Conclusion
................................................ 725 Uniformity of law has an undeniable intellectual appeal. It
simplifies the law, makes it easier to learn and describe, and reduces
administrative costs. Yet uniformity has its costs too. It makes the law
unresponsive to local variations, eliminates interjurisdictional competition
and decreases the possibilities for legal experimentation. The choice between
uniformity and diversity is difficult and has, not surprisingly, generated
great debate in numerous areas of law and social policy, including such diverse
matters as corporate law, international antitrust law, local and international
taxation, tort law, securities regulation, and environmental law. [FN1] The literature *687 in these areas
frequently focuses on whether competing legal regimes will produce inefficient
and socially destructive competition ("races to the bottom") or
wealth maximizing competition ("races to the top"). But
jurisdictional competition is only one of a number of relevant considerations;
the debate encompasses a more general and fundamental inquiry into the social
efficiency of harmonized law. Curiously, the implications of this debate have generally
not been considered in the area of patent law. With few exceptions, the
international patent community has taken as a given the value of creating
uniform patent law on a global scale. For example, in remarks concerning the
future of patent law, the former head of the U.S. Patent and Trademark Office,
Q. Todd Dickinson, simply presumed a
consensus on the need for a global patent system: I think most of us here [at the annual
Fordham Conference on International Intellectual Property Law and Policy] would
say that there definitely should be a global patent system of some sort by
2010. I think we can all list probable benefits of such a system: reduced costs
for inventors and for their assignees, dramatically simpler protection, and
uniformity of that protection throughout the world. [FN2]
Mr. Dickinson's sense of his audience seems correct. The "profound public
policy need for this global system" is a generally accepted postulate, and
the task for policymakers is limited to sorting through the "diversity of
the existing systems and the current proposals" and to "achieving a
consensus on the nature of the global patent" system that should be
created. [FN3] *688
This attitude has produced concrete changes. The second half of the twentieth
century saw the rise of a broad movement to harmonize patent laws across
nation-states. The most recent, and most significant, manifestation of this
movement is the 1994 Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS), which requires signatory nations to conform their
patent laws to a uniform framework of international standards. [FN4] The TRIPS Agreement has now been implemented
by well over 100 countries, including almost all major industrial nations, and
heralds a new level of international uniformity in patent law. In the
post-TRIPS world, harmonization continues to be
a shibboleth in patent circles, and diversity a flaw to be remedied. [FN5] Further harmonization on a global scale would, of course,
provide certain benefits. As Mr. Dickinson notes, it could reduce
administrative costs and provide simplicity and uniformity in application. But
it would also preclude interjurisdictional competition and experimentation in
patent law, among other things. The relevant policy question is to what extent
interjurisdictional diversity and competition should be sacrificed to achieve
global uniformity. This question is important not only for determining the
optimal amount of harmonization to be pursued in the future, but also for
understanding the proper limitations of the steps already taken toward global
harmonization of patent law, particularly the TRIPS agreement. If
jurisdictional diversity retains some merit, then the provisions in TRIPS *689
permitting variance should be interpreted much more broadly than if
harmonization were an unqualified good. To investigate the relative values of harmony and
diversity, this Article draws on the rich literature concerning
interjurisdictional legal diversity and competition that has developed in other
areas. The law of patents can profit from this literature because it provides
valuable insights into the forces driving patent harmonization and the
potential costs of uniformity. Yet the benefits also flow in the other
direction. Not only can patent law borrow from general
theories of interjurisdictional diversity and competition, it can also enrich
those theories. Scholars studying interjurisdictional legal diversity tend
to agree that such diversity has at least two potential values: First, it can
help match the level of public goods to the tastes and resources of the local
population. Second, under certain conditions, it can lead to
interjurisdictional competition that checks inefficient government behavior. A
third potential value of diversity-- that it can breed desirable
experimentation and innovation in law--has proven more controversial. On the
one hand, legal scholars have acknowledged the possibility of legal
experimentation and innovation. [FN6] Indeed,
this tradition dates back at least to the time of Justice Brandeis, who in 1932
famously analogized the states in our federal system to
"laborator[ies]" that could experiment with new social and legal
innovations. [FN7] Nevertheless, formal economic
models of interjurisdictional legal diversity and competition often do not
account for the possibility of legal innovation, [FN8]
and some law and economics scholars have questioned the validity of Justice
Brandeis's insight. [FN9] Indeed, one scholar,
Frank Easterbrook, discounts Brandeis's views on legal experimentation as based
on "Panglossian assumptions." [FN10] *690
Moreover, even among scholars who study the process of legal innovation, the
long-term value of legal innovation remains open to question. Legal innovation
might be merely a product of ideological swings, with today's regulatory innovation being undone by tomorrow's
deregulatory innovation. [FN11] If so, the
long-term value of innovation might be slight. Alternatively, legal innovation
might be thought necessary to adapt law to the unique conditions of a
particular time and culture. Legal innovations would then have a significant
value--much in the way that a new phonebook is more valuable than an old
one--but there would not necessarily be any sense of progress, any sense that
the law is getting better with time. [FN12] Legal innovation would be most valuable, however, if it
were like technical innovation--i.e., if it were a permanent, nonobvious
addition to the storehouse of useful knowledge. Under this view, a diverse
legal system has positive externalities for other legal jurisdictions precisely
because it provides information to the other jurisdictions about the value of
different legal rules. When that information shows the efficacy of a particular
legal rule, other jurisdictions may change their laws to adopt the *691
new rule. In this way, the other jurisdictions benefit from the mere fact of
difference, and the technology of law advances. It is here that patent law can enrich the general
theoretical discussion, for the history of patent law demonstrates not only the
reality and value of progress in legal technology, but also the necessity of
legal diversity in fostering that progress. Indeed, the entire field of patent
law owes its birth not to harmony but to diversity of law. The fifteenth
century Venetian statute that pioneered patent
law was an experiment in law, and a departure from the classical hostility to
government-sanctioned exclusive rights. [FN13]
Since then, individual nations have varied their patent law and practice, with
other jurisdictions following where the experiment was deemed successful. At
least some of these innovations resulted in permanent legal advances. This
process of experimentation and innovation continues today. For example,
business methods patents and the experimental use defense have generated great
differences of opinion among courts and legal commentators, and a diversity of
approaches among nations. [FN14] These past and
current experiments in law invigorate and strengthen patent law with new
innovations. None of this denies that consistency has merit too. For
example, the United States has maintained a uniform, national patent system
since 1790. Accepting the value of diversity does not lead to the conclusion
that each of the fifty states should administer its own patent system. Nor does
it even suggest that each nation-state should maintain its own patent system.
Just as in private industry, a certain amount of consolidation may increase not
only social welfare, but also competition. Thus, having four or five competing
patent systems may be better than having one hundred. But a complete international harmonization of patent
laws--particularly, the institution of a single, integrated global patent
system--would eliminate interjurisdictional competition and substantially
stifle innovation in patent law. While the
loss of competition occurs by definition, the reduction of innovation follows
from several effects. First, in a unified global system, experimentation in law
could take place only successively, with the entire world serving as the
"laboratory" for a particular period of time. Because experiments
would be spread out temporally, not geographically, the pace of innovation
would necessarily be slower. Second, the resulting "data" from any
particular experiment may be much harder to interpret because the experiment
lacks a good "control." Thus, for example, the apparent success or
failure of an experiment might be attributable *692 to then-prevailing
world conditions; an innovation adopted at the beginning of a worldwide
economic recession may appear to be less successful than it actually is. For
this reason, experiments conducted on a global scale may produce inconclusive
results and slow the rate at which innovations are adopted. Third and finally,
conducting experiments on a global scale may be much more difficult than doing
so within nation-states or groups of nation-states. Where a global regime is
established by multilateral treaty, the process for modifying the agreement may
require a worldwide consensus, a significant political barrier to legal
experimentation. [FN15] Aficionados of the patent system--a system built to reward
risky experimentation--are particularly well-suited to appreciate the costs
that such a development would entail. It would be both ironic and unfortunate
if a legal system that owes its existence to
experimentation, and that is designed to foster experimentation in technical
areas, were modified to preclude substantial experimentation and further
development of its own norms. Part II of this Article provides a theoretical analysis of
harmony and diversity in patent law. While this analysis finds strong reasons
favoring a certain degree of harmonization, it also uncovers significant
justifications for maintaining some diversity in patent law. At least one of
these justifications for diversity--the value of diverse laws to match local
preferences--has previously been mentioned by other patent law scholars. The
value of diversity in fostering legal innovation has not. Part III explores
this innovation rationale from a historical perspective and demonstrates that
many valuable features of modern patent law began as controversial experiments
in local systems. As shown in Part III.B, such experimentation continues today,
with individual patent systems taking different approaches on controversial
topics in the field. Part IV details the implications of these theoretical and
historical analyses. If patent law's tradition of innovation is to continue,
global patent law must maintain a degree of jurisdictional diversity. Part IV.A
suggests ways to interpret TRIPS to achieve that goal, while Part IV.B suggests
future steps in which a certain degree of additional patent harmonization can
occur without compromising the value of diversity. Finally, Part V offers some
concluding thoughts. *693 II. THEORETICAL REASONS FOR HARMONY AND DIVERSITY Finding the optimal balance between legal uniformity and
diversity requires an analysis of the factors favoring each side. The analysis
here is necessarily limited to qualitative assessments because, as is often
true in other areas of law, quantitative measures of the costs and benefits of
legal diversity are currently not possible. Nevertheless, even a qualitative
analysis is valuable because it can explain the impulses for harmonization and
identify circumstances in which the need for diversity is particularly great. A. The
Case for Harmonization Legal harmonization--whether accomplished by consolidation
of previously independent regimes or by less dramatic measures--is usually
viewed as an appropriate response to three problems: jurisdictional
externalities, economies of scale in governance, and destructive protectionism.
The case for harmonization in patent law rests mainly on the first two of
these. 1. Jurisdictional Externalities The most compelling justification for harmonization in
patent law mirrors the justification for creating a patent system in the first
place, for both are efforts to account for the positive externalities
associated with the creation of technical
information. In a market economy, free competition between firms is thought to
produce efficient outcomes provided that, among other things, each firm
internalizes all the social costs and benefits of its own activities. [FN16] In the absence of a patent system, however,
that condition does not hold because the production of easily appropriated
knowledge will have positive external benefits. *694
Consider, for example, the situation in which one firm produces a valuable,
innovative product that can be easily reverse-engineered. Once it is marketed,
the innovation will be quickly copied by the firm's competitors, and the price
will be driven down to the marginal cost of manufacturing copies. Accordingly,
the innovating firm will be unable to capture the full social benefit of its innovation--innovation
will have positive externalities--and the incentives to invest in research and
development will be inefficiently low. The patent system can be accurately
described as a regulatory mechanism that attempts to correct this externality
by more closely aligning the private and social value of producing new
information. [FN17] Just as the externalities provide a justification for the
existence of a patent system, so too do they provide a reason for
harmonization. Consider, for example, the situation in which one country
maintains a patent system but its neighbor does not. Because of the incentives
of the patent system in the first country, firms will invest resources in
developing patentable innovations. Consumers
in the first country will pay above-marginal-cost prices for those innovations
and will thus bear the cost of the information necessary to develop the
innovations. By contrast, consumers in the second country will, if competitive
conditions prevail, pay only the marginal cost of reproducing the innovation;
they will free-ride off the investments of their neighbors. The legal regime in
the first country thus has a positive externality for the second country. As the literature on jurisdictional competition
consistently demonstrates, such an externality provides a good reason to
distrust the body of law produced by diverse jurisdictions, [FN18] and also a justification for some form of
transjurisdictional regulation. For example, in a seminal article on the
competition between local jurisdictions to provide public goods, Charles
Tiebout acknowledges that where "external economies and diseconomies are
of sufficient importance, some form of integration [of the *695
competing jurisdictions] may be indicated." [FN19]
Numerous other articles reach similar conclusions. [FN20] In an era characterized by inexpensive communications and
the free flow of information, externalities provide a particularly powerful
justification for transnational patent harmonization because one nation's
patent law can create a global externality. By comparison, the externality
problem with most environmental controls is limited to some extent by
geography; in many cases, stringent
environmental laws benefit only neighboring or downwind jurisdictions. [FN21] In contrast, the disclosure of new
technical information in Europe or the United States can travel to the other
side of the planet almost instantaneously. [FN22] The externalities argument in fact explains much of the
most significant step in patent harmonization, the TRIPS agreement. The
negotiations leading to TRIPS were essentially negotiations between
industrially developed and less-developed countries. [FN23]
Developed countries entered the negotiations with much stronger patent and
intellectual property (IP) systems than those in the developing nations. In
other words, the patent systems of the developed countries created positive
externalities for the developing nations, which were free-riding on the
technological information produced in more developed countries. [FN24] The goal of the developed nations (led by
the U.S.) was to increase IP protections in developing countries. In exchange,
developing countries obtained more open markets for *696 their textile
and agricultural products in developed nations. [FN25]
In effect, the TRIPS negotiations may be viewed as a form of Coasian bargain,
with developing countries accepting valuable consideration in exchange for
their agreement to adopt a legal system addressing the positive externalities
problem. The positive externalities associated with the IP systems
also explain the overarching structure of the TRIPS agreement. If positive
externalities were the chief concern of the
parties in negotiating TRIPS, then the parties should be concerned only that a
country may be providing too little, not too much, IP protection. A nation that
decides to depart from an international norm and provide greater IP protection
would only provide a benefit to other nations. In other words, the resulting
treaty should mandate only minimum standards and, in fact, that is precisely
what TRIPS does. [FN26] It provides only a
harmonized floor; countries remain free to experiment with more stringent
patent rights. For example, TRIPS Article 33 provides that the term of patents
"shall not end before the expiration of a period of twenty years counted
from the filing date." [FN27] Countries
remain free to experiment with longer terms and, in fact, the United States
recently exercised that option by providing patentees with certain patent term
"adjustments" that extend the term where the PTO has failed to meet
certain statutory goals during the prosecution of the application. [FN28] TRIPS also provides little harmonization in areas where the
laws of major industrialized countries diverge. For example, TRIPS makes
disclosure of a "best mode" optional, does not require or forbid
administrative opposition procedures, leaves nations free to choose a
first-to-invent or a first-to-file patent priority rule, and imposes no
obligation for countries to grant a "grace period" within which
inventors can disclose their inventions without destroying their own novelty. [FN29] These unaddressed points represent areas
where the laws of other developed countries
differ but, more importantly, they are also areas where the externalities
associated with choosing one approach or the other are indeterminate or
insignificant: It is simply not clear whether nations with first-to-file rules
create positive externalities *697 for nations with first-to-invent
rules, or vice-versa. Since TRIPS was designed primarily to address an
externality problem, it does not harmonize law on such matters. Similarly,
TRIPS imposes only minimal regulation on the patent application process. It
demands only that Member nations grant rights using "reasonable procedures
and formalities" and that they do so "within a reasonable period of
time so as to avoid unwarranted curtailment of the period of protection." [FN30] Thus, TRIPS produces no substantial savings
on the administrative costs of obtaining worldwide patent rights. This approach
is consistent, however, with the view that TRIPS is directed mainly to the
pre-existing externalities created by the divergent substantive patent laws. [FN31] Despite its theoretical strength and its power in explaining
the TRIPS agreement, the externalities argument has significant limitations as
a justification for comprehensive global patent harmonization. Most
importantly, while positive externalities can lead regimes to free-ride by
adopting suboptimal patent protection, externalities do not necessarily lead to
a race to the bottom where each jurisdiction progressively reduces patent
protection down to nothing. Even assuming
that technical knowledge produced by a patent system benefits all individuals
in the world equally (an extreme assumption), each country still has an
incentive to adopt a patent system because its citizenry will benefit from the
incremental increase in technical progress fostered by its patent system. Where
the country is sufficiently *698 large (in terms of population, wealth,
and inventive capacity), that benefit may outweigh the value of free-riding on
other systems. For example, consider a world consisting of only two
countries: one large-- say, the United States--and the other small--say, Monaco.
For the United States, the incentives to adopt a patent system are almost
identical to those that would exist if there were no externalities. The
external effects of the system on Monaco are sufficiently small so as to be
ignored. The reverse, of course, is not true. Assuming that competition will
drive price to marginal cost where no patent protection exists, the residents
of Monaco will reap enormous benefits by free-riding on the inventions produced
by the U.S. patent system. However, they would gain little by adopting their
own patent system because Monaco's patent system would increase world technical
progress only a small amount. The historical development of patent law reflects the
limited effect of externalities; many nations adopted patent systems even prior
to any significant international cooperation. By the early nineteenth century,
patent systems existed in the United States,
England, France, Russia, Austria, Prussia, the Netherlands, and a number of the
German states. [FN32] In some jurisdictions,
most notably Venice, England and France, rudimentary patent systems date back
to the sixteenth century. [FN33] Other effects also curb the positive externalities
associated with a patent system. Many modern inventions involve technologies
that exhibit significant economies of scale. For those technologies, patents in
a few large markets may be sufficient to confer a de facto worldwide monopoly
because the market not covered by exclusive rights is too small to support an
effective competitor. [FN34] In such
circumstances, consumers in countries *699 without patent systems are
not able to free-ride on innovations created elsewhere. Another important
limitation on patent externalities is that the technical knowledge developed by
a patent system does not benefit everyone in the world equally. Faster computer
chips likely have less value to consumers in Bangladesh than in the U.S. and
European Union. [FN35] Indeed, some innovations
may be highly specific to a particular region. For example, a new composition
of cleaner-burning gasoline may have high value to a single region plagued by
automobile air pollution--say, California--but little value in other countries,
or even in other regions of the same country. [FN36] A more fundamental objection to using patent externalities
to justify comprehensive harmonization is that externalities can be addressed
as effectively by more limited measures. [FN37]The simplest way to prove this point is to
imagine a world with fully harmonized patent standards across all jurisdictions.
Now assume one jurisdiction changes its patent law by (1) narrowing the scope
of patent rights somewhat, but also (2) expanding the patent term to
compensate. If the legal modifications do not change the net expected value of
rents from patents (ex ante), then the modified patent system will provide
inventors the same incentives to innovate and will address the externalities
problem as well as the harmonized system despite the difference in legal
systems. Of course, the assumption here--that two patent systems could be said
to generate the same net rents--may seem unrealistic because of the
extraordinary difficulty of determining what incentives are actually created by
any particular patent system. But in fact, that informational difficulty actually
helps the argument because, ex ante, inventors will view the incentives created
by two patent systems as identical provided that discerning any differences is
sufficiently costly. *700
Again, the structure of TRIPS seems consistent with this limitation on the
externalities argument. TRIPS generally mandates that signatory countries
provide broadly similar patent systems. It does not delve much into the details
of systems in part because the precise effects of those details are not known
with certainty. Thus, as previously mentioned, it remains uncertain which of
the various technical differences between the patent systems of industrialized nations produces the better incentives to
invent. TRIPS rightly leaves those matters open for each country's choice. 2. Economies of Scale in Governance Patent systems exhibit economies of scale in certain
respects--most obviously in the administrative examination of patent
applications. The cost of examining each application does not change whether
the patent office serves a jurisdiction covering six million or six billion
people. In this respect, the administrative function of a patent office
resembles a classic natural monopoly, with its average cost of service
continuously declining as its jurisdiction expands. Thus, the efficient
solution is monopoly--consolidation of the diverse patent offices into one.
Indeed, the argument for consolidation here is much stronger than it is in
private markets. Since existing patent offices are already government
monopolies within their respective jurisdictions, consolidation will not have
any efficiency losses associated with eliminating existing competition. Like the externalities point, this economies of scale
argument has a great deal of force. Indeed, it provides a good basis for former
PTO Commissioner Dickinson's promise that a global patent system will deliver
"reduced costs for inventors and for their assignees." [FN38] Because patentees pay filing fees to
support the currently duplicative national examination system, they would benefit most from the reduction in
administrative costs that would accompany global consolidation of patent
offices. Economies of scale also explain a number of developments in
international patent law, including the European Patent Convention (EPC),
Patent Cooperation Treaty (PCT) and even the nineteenth century Paris
Convention. The EPC, which created the European Patent Office (EPO) and
authorized it to serve as an examination office for all EPC member countries, [FN39] is the most obvious example of a reform
motivated by the economies of scale associated with examination. The treaty
allows patent applicants to prosecute their application through a consolidated
patent office *701 with jurisdiction over most countries in Europe. The
PCT also provides a very limited administrative consolidation, as it
streamlines the early stages of patent prosecution on virtually a global scale,
because all major industrialized nations are signatories to the treaty. [FN40] Even the Paris Convention effectively provides
a very limited form of patent office consolidation by permitting applicants to
file in any signatory country and thereby obtain a priority date in all
countries. [FN41] Like the externalities argument, however, an argument based
on economies of scale has significant limitations as a justification for
harmonization. First, the argument does not necessarily provide a reason to
harmonize substantive law. While some substantive patent rules might be
relevant to the examination process--e.g.,
the rules governing priority and grace periods (because they govern the
universe of prior art used in examinations)--others are not. Most obviously, no
administrative economy is realized by having patents run for a uniform term.
Indeed, the point is demonstrated by the EPC, which authorized a unified
examination system but not a unified patent right. Thus, a patent issued by the
EPO is said to be a "bundle" of national patents, with the precise
contours of the substantive rights governed by diverse national laws. Second, the economies of scale argument explains few of the
TRIPS reforms. The TRIPS agreement achieves no degree of administrative
consolidation among patent jurisdictions. Moreover, TRIPS did nothing on the
substantive issues that could assist in administrative consolidation (priority
rules and grace periods), yet did require some degree of harmonization on an
issue like patent terms, which cannot be justified by economies of scale. Third, and perhaps most importantly, administrative
examination systems exhibit economies of scale only in limited respects. While
the administrative costs of examination do not increase where the jurisdiction
gains additional people subject to the resulting patents, the costs do rise
where the examination system processes additional applications. Indeed, in
terms of processing applications, examination systems probably exhibit only
limited economies of scale. Examining patent applications is a labor-intensive
enterprise. Each additional application takes a certain number of examiner-hours,
and the price of labor remains relatively
constant. *702
For such an administrative task, a single entity is probably not the optimal
solution. A number of competing patent offices with overlapping, worldwide
jurisdiction would be better. Patent applicants could choose a patent office
for prosecution, and patent offices could compete with each other based on the
level of their fees and the quality of their examinations. [FN42] To a very limited extent, we can already
see the glimmerings of such a system. The jurisdiction of the EPO overlaps with
that of national patent offices, and the EPO competes to attract patent
applicants. Similarly, the Paris Convention permits any country to establish a
world-wide priority date, and at least one nation has begun overtly advertising
the efficiency of its patent office in providing this service. [FN43] A system of internationally competing
patent offices would demand a certain degree of international cooperation. But
it need not demand complete harmonization of patent laws, and it would preserve
diversity of administrative approaches. 3. Preventing Destructive Protectionism A final reason to favor some form of transjurisdictional
arrangement is to restrain protectionist impulses. The reason is based on the
view, supported by empirical data, that protectionism reduces overall social
welfare. [FN44] However, this reason justifies
only very limited transjurisdictional regulations
that preclude discrimination against free trade. [FN45] The desire to restrain welfare-decreasing protectionism can
be seen in the contemporary American jurisprudence regarding the dormant
Commerce Clause, which generally precludes state discrimination against
interstate free trade and is justified as a means to achieve the desirable goal
of a national common market. [FN46] It also
accounts for the overarching structures of the General Agreement on Tariffs and
Trade (GATT), which generally precludes discrimination against international
trade between member *703 nations but otherwise leaves nations free to
have diverse sets of regulatory laws. [FN47] The anti-discrimination justification explains only a few
parts of TRIPS-- e.g., Article 27's requirement that patent rights be
"available and . . . enjoyable without discrimination as to the place of
invention . . . and whether products are imported or locally produced," [FN48] and the more general requirement in Article
3 that "[e]ach [WTO] Member shall accord to the nationals of other Members
treatment no less favourable than it accords to its own nationals with regard
to the protection of intellectual property." [FN49]
Some of the anti-discrimination rules in TRIPS were already imposed throughout
much of the world by the Paris Convention. [FN50]
But in any event, given the existence of the anti-discrimination norms in
TRIPS, few if any additional transnational regulations could be justified as
measures to preclude destructive
protectionism. B. The
Case for Diversity A review of the justifications for harmonization shows
that, while no clear reason exists for a comprehensive integration of global
patent law, there are reasons for supporting particular forms of transnational
regulation. Yet these justifications for harmony must be balanced against the
costs of harmonization--or, otherwise stated, the values of diversity. 1. Matching Local Preferences The theoretical literature on jurisdictional legal
variation posits that the primary reason for such variation is to permit each
jurisdiction to match its laws to the unique tastes and preferences of its
population. [FN51] The argument *704 has
strong and weak versions. The strong version assumes individuals are free to
move between jurisdictions and concludes that, under certain assumptions, the
resulting diversity of laws between jurisdictions reflects an optimal provision
of public goods. [FN52] While this version of
the argument is important for diversity in local and state jurisdictions, it
has little force in the international setting because changing nationality is
relatively expensive for individuals. More relevant in the international context is a weaker
version of the argument, which assumes a
stable set of preferences within each jurisdiction and concludes that the
diverse laws of each jurisdiction more closely match the individual preferences
within the jurisdiction than would a uniform set of laws imposed across all
jurisdictions. Professors McGinnis and Movsesian rely on this argument in
explaining why the GATT/WTO structure does not attempt to harmonize worldwide
regulatory law: Uniform health, labor, safety, and
environmental regulations are unlikely to be appropriate for all members of the
world trading community, as members of the WTO vary widely in their levels of
development. As a result, they will rationally choose different regulatory
standards. It is wrong to assume, for example, that Indian and American
regulations on water purity should necessarily be the same. Indians may not be
able to afford American water safety standards, just as they unfortunately
cannot afford many other goods that Americans can. [FN53]
A similar point is made in the patent context by Professors Dreyfuss and
Lowenfeld, who advance the following argument for flexibility in the
application of TRIPS: More fundamentally, we are skeptical that
there will always be a "best" rule for every problem that will arise
under the TRIPS Agreement. Promoting innovation requires that care be taken not
to raise the cost of knowledge to so high a level that it impedes further
inventiveness. How that problem is best solved can depend on a country's
intellectual and industrial development, its culture,
and the types of creative work in which its citizens are engaged. Thus, the
nature (and advantage) of a minimum standards regime is that where there is no
"best" rule that will work *705 in every economy, each country
can tailor the law to its own needs. [FN54] Like McGinnis and Movsesian, Dreyfuss and Lowenfeld suggest
that one obvious example of inappropriate uniformity would be applying rules
from "highly developed countries" in the less-developed world. The
concern here is consistent with the general theory, for the widest divergence
of preferences might well be found between developed and less-developed
countries. TRIPS expressly recognizes the value of local diversity.
Its very first article guarantees that "Members shall be free to determine
the appropriate method of implementing the provisions of this Agreement within
their own legal system and practice." [FN55]
Similarly, Article 27, which generally mandates that patents shall be available
in all fields of technologies, allows countries to create exceptions from
patentability "necessary to protect ordre public or morality" [FN56]--a standard understood to "depend[] to
a certain degree on the particular culture of a country or region." [FN57] Consistent with theory, the TRIPS Preamble
explicitly recognizes "the special needs of the least-developed country
Members in respect of maximum flexibility in the domestic implementation of
laws and regulations in order to enable them to create a sound and viable
technological base." [FN58] Special
provision is also made for countries and
nations "in the process of transformation from a centrally-planned into a
market, free-enterprise economy," *706 both of which are likely to
have preferences that widely diverge from those in developed, free-market
nations. [FN59] There are two significant limitations on this local
preferences argument. First, harmonized patent law does not result in the same
degree of uniformity that, for example, a harmonized minimum wage law does. The
patent right does not mandate any particular price for an innovation. Patentees
are free to sell their inventions and license their rights on different terms
in different areas. In fact, the available evidence demonstrates that patentees
often do engage in price discrimination--for example, by lowering the prices of
patented drugs in poorer countries. [FN60] Second, and more importantly for purposes of this Article,
the local preferences argument is less compelling where the diversity occurs
between nations having seemingly similar preferences (e.g., between two
well-developed nations) than where preferences are likely to be widely
divergent (e.g., between developed and developing nations). [FN61] If local preferences were the sole reason
for maintaining legal diversity, a general harmonization of law among similarly
situated nations, e.g., among developed nations, might be desirable. But the
case for legal diversity does rest wholly on the local preferences argument. 2. Competition as a Check on Government Another common justification for permitting jurisdictional
legal variation is that tolerating variation will breed jurisdictional
competition, which checks governmental inefficiency and abuse. This is
sometimes referred to *707 as the "Leviathan" argument because
the competition checks otherwise harmful tendencies of monopolistic
governmental power. [FN62] This argument is not, however, a very powerful reason for
resisting global patent harmonization. The general limitation on the argument
is that, even where harmonization is pursued in a number of legal issues,
competition on other points can still provide an effective check on government.
The point here is familiar to regulated industries scholars: Even where
regulation constrains competition along one axis (e.g., by fixing price), firms
can still compete with each other along other axes (e.g., by improving
quality). Thus, harmonizing law in one particular area (e.g., IP) would leave
jurisdictions free to compete for capital and, to a lesser extent, labor,
through jurisdictional differences in other areas of law (e.g., tax policy,
environmental standards, etc.). A more specific problem with this argument is that, in the
area of patent law, the current diversity of law is not imposing any
significant check on government inefficiency. With few exceptions, the
government of each nation still holds a
monopoly on the power to issue patents within its borders, and thus government
patent offices are not subject to any significant competition under the current
state of affairs. To the extent that a patent office has incentives to be lazy
or abusive, those incentives will not be checked by competition from other
jurisdictions. Therefore, consolidation of national offices into a single world
patent office would not necessarily have any significant costs in terms of
sacrificing competitive checks on bureaucrats. [FN63] 3. Permitting Experimentation and Innovation in the Law Tolerating legal diversity may also permit legal innovation
to occur more rapidly. The point was made famous by Justice Brandeis, who
observed that "[i]t is one of the happy incidents of the federal system
that a single courageous state may, if its citizens choose, serve as a
laboratory, and try novel social and economic experiments without risk to the
rest of the country." [FN64] Legal
experimentation and innovation can be valuable not *708 only to the
jurisdiction that conducts the experiment, but also to other jurisdictions,
which benefit from the information produced by the experiment. Thus, legal
diversity has its own externality, which weighs against harmonization. The innovation rationale has quite different implications
than the other reasons supporting diversity. It provides a more substantial
basis to oppose patent harmonization than
does the Leviathan argument because, as previously explained, enforcing
uniformity in one area of law may still permit significant legal competition to
check government inefficiency. But any degree of harmonization necessarily removes
the harmonized point from parallel experimentation by different jurisdictions
and is thus likely to significantly retard further development as to that
aspect of the law. An experimentation rationale for opposing harmonization
also has different implications than a rationale based on matching local
preferences. Effective legal experimentation may occur in nations that have
highly similar preferences. Indeed, a nation's experiment with a legal
innovation provides the most direct benefits to nations with similar cultures
and preferences, because such nations are likely to have similar experiences
with the innovation. Moreover, legal innovations in an area such as patent law
are probably more likely to occur in developed nations, which already possess a
sophisticated understanding of the area, than in less-developed nations, which
do not have long experience with patent systems. It may also be unwise for
less-developed nations to undertake risky experiments with their embryonic
patent systems, which may not be able to weather a failure. Thus, an
experimentation rationale provides a reason for tolerating diversity between
developed nations. Indeed, it may be sensible to tolerate more diversity
between developed nations than between developed and less-developed nations. The value of jurisdictional diversity in encouraging legal
innovation has remained controversial in the literature. In one leading
article, Professor Susan Rose-Ackerman reached "pessimistic"
conclusions after analyzing the incentives of politicians in a federal system
to take on risky projects and finding that "low-level governments remain
flawed mechanisms to rely on in the search for new ideas." [FN65] But even if the incentives are flawed,
experimentation and innovation are still possible; harmonization imposes a
still greater constraint. Other commentators have been more sanguine than
Rose-Ackerman about the contribution of jurisdictional diversity *709 to
legal innovation. [FN66] The history of patent
law provides a valuable lesson here, for it shows that experimentation--even
experimentation conducted by large nation-states--can produce significant new
ideas in law. III. DIVERSITY AND INNOVATION IN PATENT LAW: A CASE STUDY The desirability of a harmonized patent law cannot be
fairly assessed without some understanding of the important role that legal
diversity has played in the history of the field. As demonstrated in Part III.A
infra, legal experimentation and subsequent change in prevailing legal norms
have been continuing themes throughout the history of patent law. This process
is responsible not only for building essential features of the modern law, but
for creating the very subject of patent law. The process of experimentation and
innovation continues today and, as shown in
Part III.B, it extends to fundamental issues such as the range of patentable
subject matter and the scope of exclusionary rights granted by the patent. The point here is not that significant changes have
occurred in patent law; mere change could represent random shifts in fashion,
with little permanent value. The point is that legal knowledge has progressed
through these changes-- that the process of local diversity and experimentation
has produced permanent, valuable advances in our understanding of legal technology.
Moreover, the experiments leading to these advances have been controversial.
Though many of these legal variations were eventually adopted universally, they
often went against prevailing norms and generated significant opposition in
some nations. In other words, if the law had been globally harmonized at the
time of these experiments, it would have been harmonized against the
experiments. And if a global consensus were needed to engage in the
experiments, that consensus may *710 not have emerged for a very long
time, if ever. Global harmonization threatens to retard this process of
innovation; indeed, the threat is already being realized. A.
Historical Examples of Innovation in Patent Law The relative youth of patent law cannot be overstated. The
law of contract, tort, crime, marriage and other areas can find antecedents
dating back at least to Roman and Greek law.
While specific doctrines and rules in these areas have evolved since antiquity,
the fields have nonetheless been recognized for more than two thousand years.
The same is not true of patent law. Legal protection of inventions (or, for
that matter, other categories of intellectual property) simply did not exist in
Roman or Hellenistic law. [FN67] Even in its
most embryonic form, patent law can be traced back little more than five
hundred years, and for all but the last two hundred years the area was so
rudimentary as to be barely recognizable. As late as 1850, a structure central
to modern law--the patent claim--was so unimportant that the leading treatise
of the day did not include the subject in its index. [FN68]
In a comparatively short period of time, patent systems have developed a
complex body of law that defines property rights in many diverse fields of
human creativity. The development of this law provides a case study in legal
innovations pioneered by one jurisdiction and then copied by others. 1. The Invention of Patent Law The most obvious example of innovation is the creation of
patent law itself, which occurred in Renaissance Italy. Perhaps as early as the
fourteenth century, isolated monopolies on industrial developments may have
been granted in other European states, but these older grants were most *711
likely made as matters of discretion rather than of right. [FN69] They seem little more than exercises in industrial protectionism,
rather than a considered policy of encouraging or rewarding technical prowess
or innovation. Scholars typically trace the true origins of modern patent law
to the fifteenth century Venetian Republic. [FN70]
In the latter half of the fifteenth century, Venice granted monopoly privileges
with increasing frequency for allegedly improved industrial devices and
processes brought about by the applicant's "skill and experience,"
"pertinent thoughts and labors," or "efforts, study and
ingenuity." [FN71] This practice was
confirmed in a statute of March 19, 1474, which is the first known legislative
statement of generally applicable patent principles. [FN72] The concept of patent law quickly spread from Venice to
Germany, France and England. [FN73] In Germany,
patents on inventions began about ten years after enactment of the general
Venetian statute, and some historical evidence suggests that the Venetian
patent idea was imported by traveling German businessmen and immigrant Venetian
glassmakers. [FN74] The idea first appeared in
France in 1551 and, tellingly, the first French patent was *712 granted
to an Italian. [FN75] Similarly, in 1559, an
Italian inventor familiar with the Venetian system seems to have been
responsible for introducing the concept of patents into England. [FN76] Modern evidence of borrowing patent law
from other jurisdictions is even stronger. For example, many provisions of
Japanese patent law are simply translations of their German counterparts. [FN77] The creation of patent law was not, however, free from
controversy. In fact, the possibility of providing some legal reward for
innovation had been raised long before the Italian Renaissance, but the
reaction recorded in Aristotle's Politics is typical of the classical hostility
to the idea. [FN78] Aristotle considered the
proposal by Hippodamus of Miletus that "some honour ought to be conferred
on those who suggest an improvement which is of benefit to the city," but
concluded that it "cannot be safely enacted, and has only a specious
sound." [FN79] In detailing his objections
to Hippodamus's proposal, Aristotle focused on providing rewards for improved
laws, which he considered dangerous because "[t]he law has no other source
of strength through which to secure obedience apart from habit." [FN80] Even if *713 Aristotle meant to
criticize Hippodamus' proposal only in so far as it would encourage innovations
in law, [FN81] the criticism still created a
barrier to the development of patent law and intellectual property law in
general. Intellectual property law would be a significant legal innovation and,
under Aristotle's view, legal "change is a matter which needs great
caution." [FN82] Caution in intellectual
property would mean more than one and a half millennia without significant
legal innovation in the field. The creation of the patent law would occur only
after the dissolution of classical societies and the rise of numerous,
advanced, competing jurisdictions, some of which were willing to try the unconventional idea. The controversy surrounding patent law continued even as
the idea spread throughout Europe. Indeed, in the nineteenth century (shortly
after many European nations first adopted patent laws), a wave of opposition
stopped the spread of law and, in Holland's case led to its repeal. [FN83] This tide of patent opposition did not
finally recede until 1910, when Holland reenacted a patent statute. [FN84] Thus, even though the concept of patents
had been pioneered in fifteenth century Venice, at no time before the twentieth
century did all major European nations even have patent laws. [FN85] If legal change had required global
consensus, patent law might have been delayed even longer. 2. Technical Examination The modern patent examination system is another idea that
appeared in one jurisdiction and migrated, haltingly, to the rest of the world.
Many early patent systems included no regularized system for evaluating the
technical merits of the asserted invention over the existing art. The early
English patent law, for example, was based on a registration system, with the
technical merits of the invention reviewed later in infringement suits. [FN86] *714 Institutional review of novelty
and utility was first developed in the French patent system, which in 1699
authorized the French Academy of Science to examine patent applications and
certify the novelty and utility of the inventions
[FN87] The French idea of patent examination spread to the United
States when Congress enacted the Patent Act of 1790. Congress rejected the
English registration system in favor of an examination process similar to the
French model. [FN88] Congress broke with the
French system by having government officials rather than a private organization
(or learned society) conduct the examination. [FN89]
The early U.S. system failed, however, because it imposed the examination duty
on high-level government officials who had too little time to discharge this
duty effectively. [FN90] Accordingly, Congress
abandoned the system in favor of the English registration model within three
years. [FN91] Still, the early American
experience and the French examination system provided precedents, and as
dissatisfaction with the American registration system grew in the early
nineteenth century, leading figures such as Thomas Jefferson considered the
examination system as a remedy. [FN92] When the
U.S. returned to an examination system in 1836, the *715 development
drew upon earlier experiences but also created a specialized bureaucracy to perform
the task. [FN93] The English moved toward an examination system slowly and, as they did so, looked to the experience of other nations that already had patent examination. Prior to the 1851 reform of English patent laws, "several Experts provided information on the various patent examination systems in Europe." [FN94] The movement toward a full examination model was delayed due to the English belief that the U.S. examination system was a failure; this belief generated "vigorous and well-organized opposition to examination on the United States model." [FN95] As the examination system became more entrenched in o | |||||||||||