October 31, 2008
IP 3.0 in Action: Three Supreme Court Decisions
Posted by Shubha Ghosh

(posted by Shubha Ghosh)

In the past few posts, I have discussed various aspects of IP3.0, the current focus within intellectual property law on transactional practice and uses of IP, the recognition of IP as a business asset. Today, I examine the implications of IP 3.0 for IP policy.


My appreciation of IP 3.0 arose from the need for IP reform. Like other law professors and practitioners, I have watched the ongoing debates over the past fifteen years or so (roughly when I formally entered into the area of IP with coursework in law school) and the debate over ownership and access and the role of each in promoting innovation. I have watched as these issues were worked out at the statutory and constitutional levels. My continuing concern, however, has been with IP practice in its many ways, in other words, how do the policies of IP become reflected in practice. Of course, practice means different things to different constituencies. For the IP bar, it often means how to ensure that one's patent is granted and not challenged (even seemingly at the expense of whether the patent covers a valuable invention or at the expense of future inventors or users). The IP bar, for obvious reasons, is concerned with strong IP protection even if such protection is not conducive from a broader perspective for innovation. Users and follow-on inventors, creative and inventive people of many stripes, are often ignored in the balance. One needs to recognize IP practice pretty broadly, especially the way in which it is used by and affects wide sets of constituencies, not just ones represented within the IP bar.

The response in these IP debates has been one of balance, which often means find some utilitarian, highly principled way to define legal rights to reach the correct policy result. I have actually become skeptical of this notion of balance, not just in the area of IP, but perhaps more broadly. Focusing on IP policy here, I want to suggest that reaching the right result is not a matter of balance in the abstract, but in recognizing the practices affected by a legal rule and coming up with an approach that attempts to be the least disruptive to the broad set of practices that arguably tend to promote innovation. I want to suggest that recent Supreme Court decisions in the field of intellectual property pursue this goal by implicitly recognizing what I have called IP 3.0 and has been largely successful, especially when compared to reforms pursued by Congress and the USPTO. I want to emphasize this last point: my argument is about relative institutional success as opposed to absolute success. The latter is rarely possible in a world with a large set of often irreconcilable interests.  From the perspective of incremental change and relative competence, Supreme Court patent reform has done a good job.

I will touch on three cases in which the Court has implicitly recognized IP 3.0, the role of IP as a business asset, and make the point for the success of the decision. In eBay v. MercExchange, a 2006 decision, the Court ruled that patent injunctions were discretionary. The Court split three ways on how this discretion was to be exercised, with one group of three supporting traditional equitable principles, another group of three supporting principles based upon patent policies, and a third group supporting principles based on the business effects of the injunction on the defendant. In KSR v. Teleflex, a 2007 decision, the Court attempted to raise the standard for nonobviousness in patent law, in response to concerns over low-quality patents issued by the USPTO that potentially affected the integrity and reputation of the patent system. Finally, in Quanta v LG Electronics, a 2008 decision, the Supreme Court applied the principle of patent exhaustion, specifically the first sale doctrine, to strike down certain licensing practices that allowed the patent owner to control use and distribution by downstream users of the patented technology. Each of these decisions, as well as others I could have mentioned, were shaped by the business use of patent law and potentially its disruptive effect on markets and competition. These cases are examples of IP 3.0 in action.

 As I have stated before, these cases are not examples of perfection. Members of the IP bar and business practitioners are often up in arms about these decisions. But these cases illustrate how to pursue patent reform narrowly, and IP reform more broadly, by giving attention to the use of IP as a business asset. I would suggest that these are examples of practical reforms, ones that attempt to align IP law more effectively with its goals of promoting innovation and shaping markets.

 At a recent conference, a speaker described the Court's treatment of IP as an example of neoconservative appeal to markets and resulting skepticism of IP. I am not sure if this is completely the case. Perhaps there are Justices who are influenced by neoconservative ideology. I am not sure if that is the case for the more liberal justices on the Court. Perhaps, IP 3.0 reflects a neoconservative consensus in the political arena that in turn affects the legal system. I am not convinced of that either; one can identify support for IP from both conservative and liberal camps. A better explanation is that the Court is engaged in common law decision making to resolve what is viewed as the anti-competitive effects of intellectual property law. The eBay decision, with its defense of judicial discretion, is a good example of common law reasoning in action. In their interpretations of the Patent Act, so are the KSR and Quanta decisions.

 Skeptics of my interpretation of the Supreme Court decisions, particularly the appeal of IP 3.0, may point to two decisions in which the Court perhaps supported business interests too readily. In Eldred v Ashcroft, the Court upheld Congress' extension of the copyright term for already created works by 20 years. In Grokster, the Court found a P2P network potentially liable under a novel theory of secondary liability. Arguably, each of these cases reflect how the Court bends too readily to business interests. I have two responses to this argument. First, the cases can be understood under other terms than business ones. In Eldred, the Court was deferring to Congress' legislative judgments, which is admittedly a selective decision by the Court, but one that is ostensibly based on deeply-rooted institutional grounds. In Grokster, the Court was following the logic of its 1984 Sony decision, which was correctly decided (within the terms of IP 3.0) for upholding disruptive technologies, but was fundamentally misguided in reading a broad secondary liability taken from the Patent Act into copyright law. Second, and more importantly, these two cases illustrate the need for what I have called IP 3.0 because in each of these two cases the Court ignored the business implications of the rule at issue and, as a result, decided cases that were antithetical to the principles of competition and innovation that is at the heart of IP 3.0.

 I may already have crossed the line from blog post to (god forbid!) law review article.  So, let me end my writing at this point. For those who read all this, thanks for the attention and I welcome any response. Most importantly, thanks to Gordon Smith and the other members of Conglomerate blog for sharing  this virtual real estate this week.

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