Patentable Subject Matter from First Principles:

Insights from User Innovation

Katherine J. Strandburg

Albert B. Engelberg Professor

New York University School of Law

Begin with a Story about Physicians and Patents in the

US …• The Ether Anesthesia Patent Controversy

(1840s – 60s)• Cataract Surgery Patent Controversy

(1990s)• Medical Diagnostic Procedures (2000s)

The Ether Anesthesia Patent Controversy

William MortonDentist, Scam artist (?)

Charles JacksonProf, polymath, priority disputes:telegraph, guncotton, ether anesthesia

• 1846: Morton demonstrates use of ether for anesthesia at Mass General Hospital

• Morton and Jackson obtain patent

• Jackson immediately begins to claim sole credit for the idea (dispute continues unabated for decades)

• Morton attempts to monetize the patent: hired licensing agents, circulated a term sheet to dentists and surgeons• Most practitioners simply refused to pay

Invalidating the Ether Anesthesia Patent

• Morton sues New York Eye Infirmary in 1860s– Medical community is outraged

• Court holds ether anesthesia is an unpatentable natural phenomenon:

“Discoverer [of use of ether for anesthesia] is entitled to be classed among the greatest benefactors of mankind [but] neither the natural functions of an animal [nor] any useful purposes to which it may be applied can form any essential parts of [a patented] combination”

• Ex Parte Brinkerhoff (Patent Office, 1883) - “methods or modes of treatment of physicians

… are not patentable”

Medical Innovation is Community Innovation

• It is “derogatory to professional character” for a physician to hold a patent “for any surgical instrument or medicine” 1847 AMA Code of Ethics

• 1856 AMA Committee Report:• “[E]very real improvement in medicine … [results from]

patient and prolonged investigation, conducted by a succession of cooperative laborers …. not the production and property of an individual … but the legitimate fruits of the common efforts and devotion of a venerable and progressive calling.”

• “[N]ot until the principles of medical science had been applied to [it], by the profession; not until the conditions of safety … had been investigated … by the profession, did anaesthetic etherization become a boon to humanity, or anything else than a seductive and dangerous nostrum.”

• 1940: “unprofessional to receive remuneration from patents … on surgical instruments, appliances, medicines, foods, methods or procedures [or] to retard or to inhibit research or to restrict the benefit to patients or to the public to be derived therefrom.”

• 1954: PTO rules medical processes patentable• 1955: “A physician may patent surgical instruments,

appliances, and medicines or copyright publications, methods, and procedures. The use of such patents or copyrights or the receipt of remuneration from them which retards or inhibits research or restricts the benefits derivable therefrom is unethical.”

• By 1970s: “A physician may patent a surgical or diagnostic instrument he or she has discovered or developed. The laws governing patents are based on the sound doctrine that one is entitled to protect one’s discovery.” Current AMA Ethical Opinion 9.09

Fast Forward to 1990s

The Cataract Surgery Patent Controversy

• Modern cataract surgery involves removing the lens and inserting an artificial replacement

Over time, many surgeons developed and published improvements in surgical technique

Sutureless Cataract Surgery• Important: sutures distort lens during healing

Mike McFarland: 1/90 sutureless surgery

James Gills3/90 “inverted V” incision

Samuel Pallin“chevron” incision4/16/90Patentee

Jack Singer“frown” incision

Pallin v. Singer: History Repeats Itself1993: Pallin seeks royalties from other surgeons, including Singer1994: Singer fights back •2/94 mass mailing: “patenting [incision shape] … is inconsistent with … the advancement of medical science through the free and open exchange of ideas.”

•4/94 speech at ASOS meeting: “An insidious virus … method patents for medical and surgical procedures … [threatens to] block the timeless way of sharing medical and surgical knowledge and … inhibit the interdependent free exchange of information that is the foundation of good medical care. Other victims … include physician autonomy, the doctor-patient relationship, openness in medical research, and free exchange of medical and surgical knowledge.”

1996: Pallin patent invalidated

Medical Community Rallies Against Procedure Patents

• McFarland: “It’s hard for me to conceptualize why anybody would want to bring this whole royalty scheme into ophthalmology . . . . We ought to get back to trying to figure out better ways to fix folks and to share that with our colleagues for the benefit of the patients.”

• Byron: Surgical procedure patents = threat “of a plane flying overseas with a potential hydrogen bomb ready to explode.”

• Physicians lobby against medical procedure patents• 1996: Congress passes an exemption from infringement

remedies for “medical practitioners”• 1996 AMA Ethics Opinion: “The patenting of medical

procedures poses substantial risks to the effective practice of medicine by limiting the availability of new procedures to patients …. Accordingly, it is unethical for physicians to seek, secure, or enforce patents on medical procedures.”

Physician Oppose Diagnostic Method Patents

• Mayo v. Prometheus Labs (2012) (diagnostic procedure unpatentable) • use of drug metabolite levels to adjust dosage for

efficacy and toxicity• Claims merely “inform a relevant audience about

certain [correlations]; any additional steps consist of well understood, routine, conventional activity …”

• AMP v. Myriad Genetics (2013) (“natural” DNA unpatentable, cDNA patentable)• genetic sequences correlated with breast cancer risk

(Note: I represented amici medical associations in Mayo)

What is Going On?• 1800s: all patents unacceptable

• Mid-1900s: drug and device patents acceptable

Triumph of commercialization in medicine?

• 1990-200s: Surprise! medical procedure patents still highly unacceptable

Why would physicians oppose patents on their own innovations?

Hypothesis: Physicians are (still) user innovators of medical procedures and diagnostics, but drug and device innovation requires cooperation with outsiders

User Innovator Communities and Patents

• User innovator communities tend to reject patenting (von Hippel et al) Why?

• Patents are costly:• Inhibit information flow and cumulative progress• Transaction costs

• User innovator communities don’t need them:• Use is an intrinsic incentive for innovation and

for free revealing• Communities can reward innovation with

reputation credit and avoid patent exclusivity costs• Communities use norms to solve free rider

problems

What about Patentable Subject Matter?PSM from First Principles: When should there be

no patent for a new, useful, nonobvious invention? When there is a better way to incentivize that invention! Comparative institutional analysisNo patents where:

Patents are particularly costly and/or There are other ways to solve free rider issues

When are patents especially costly?High transaction costs

Broad claim scope – cumulative innovation Unclear claim boundaries Highly inter-related claims

When are alternative systems available? ?

What about Patentable Subject Matter?Examples Beyond Medical Procedures:

Laws of Nature Costs? Highly interrelated Open science alternative

Also a kind of user innovation

Software Costs? Cumulative Open source software alternative

Most important motivation is use

Business methods? Usually also user innovation Note successful opposition to tax strategy

patents

The “Second Step” Problem

• Step one: Does claim contain unpatentable subject matter?• i.e. patent incentives are not needed because

of alternative innovation incentive system (“community” “knowledge commons”)

• Step two: Does the claim “apply” the unpatentable subject matter?• Q should be: Is a patent needed to incentivize

the application? • i.e. Is the application something that will not

be produced by the incentive system of the community or knowledge commons?

PSM from First Principles

• Step 1: No PSM where– There are alternative institutions to provide

incentives to innovate and avoid deadweight losses

– Especially where transaction costs are expected to be high:• Broad claims with many downstream

possibilities• Claims with many diverse uses• Inter-related overlapping claims (thickets)

• Step 2: PSM where the claim reflects inventive activity that the alternative institution would not produce