INTRODUCTION
I.  SHOULD INTERNET PATENTS EXIST?
II.  SOMETHING SHORT OF BUSINESS METHOD PATENTS?
III. A NEW "COMPETITIVE ARTS" REGIME
IV. WHAT DO WE DO IN THE MEANTIME (OR WHILE WAITING FOR GODOT)?
CONCLUSION

Internet patents[1] are unquestionably a hot topic. The United States Patent and Trademark Office ("USPTO") is awash in applications.[2] No sooner did the first patents issue than a wave of litigation broke over the marketplace.[3] Commentators of all types, business,[4] academic[5] and even the regular press (electronic and otherwise)[6] which normally avoids the esoteric and boring issues of intellectual property law, have weighed in on the issue. Something interesting, and maybe even important, must be happening; something which deserves a closer look.

Most of the excitement can be traced back to the Court of Appeals for the Federal Circuit ("CAFC") decision in State Street Bank & Trust v. Signature Financial Group.[7] The opinion in that case triggered profound changes in the role of patent law in Internet commerce. First, it consolidated the CAFC's strong support for the patentability of software inventions.[8] Second, and more importantly, it has been widely interpreted[9] as disposing of the venerable, if questioned,[10] doctrine that patents could not be obtained on methods of doing business. These two obstacles cleared, the rush to patent Internet business related innovations began in earnest.

This symposium's topic, the proper scope for this burgeoning crop of Internet patents, requires a two step analysis. First, we must determine how we should feel about such patents-are they a good or bad thing within the patent law and Internet business contexts? That response, in turn, dictates the appropriate approach to the second order determination of how we should deal with the granting and enforcement of such patents. If we are favorably disposed, then the patent system can get on with implementing what State Street Bank started, focusing on issues of prior art identification, examiner expertise and perhaps a few specific, but relatively minor, variations necessary to accommodate this new field of invention. However, if the mere granting of such patents raises concerns, then much greater adjustments aimed at reining them in, or even eliminating them, are required.

The "how we should feel" question is best answered by bifurcating the issue. Patent protection for novel and non-obvious advances in computing (software or hardware) is normatively non-problematic.[11] In contrast, protecting even novel and non-obvious methods of doing business, and specifically the means of competing (the "competitive arts"),[12] fits poorly within the doctrinal, historical and policy foundations of traditional patent law and should be avoided.[13]

The Electronic Age's disruption of the market's normal "first-to-move lead-time" incentive (through the ease and speed of recognizing, identifying and replicating advances in competitive means) justifies, however, some more modest intellectual property protection.[14] Addressing this particular market failure would require extensive and risky modification of either the existing patent or copyright laws. A better solution lies in melding aspects of both systems to create an independent "competitive arts regime" designed expressly, and exclusively, to supplement the reduced lead-time incentive while minimizing interference with desirable market forces.[15]

Achieving this objective calls for combining the demanding and precise qualification structure of patent law with the nuanced rights and remedial approach of copyright law. Patent law's novelty, claiming and independent examination requirements provide the threshold, specificity and vigilance against over-reaching essential to appropriately limiting the regime's reach. Infringement should, similarly, adopt patent law's constrained, claims-based literal and equivalents approach. Proper functioning of the new regime, however, will require significant adjustments to traditional implementation of these requirements. In particular, examiner training and search tools must be tailored, a burden of coming forward with prior art must be imposed on the applicant, and a pre-issuance publication and post-grant opposition procedure must be instituted, in order to properly reflect the business context, the long history and the less frequently documented environment in which competitive arts innovation occurs. Additionally, a more demanding standard of obviousness should be applied, limiting the regime's incentives to paradigm-shifting pioneering innovations and leaving the primary form of competitive arts advance (emulative adoption coupled with modest differentiation) to market forces.

Regarding rights and remedies, the new regime must part company with patent law. Supplementing the weakened first-to-move lead-time market incentive requires only a gentle nudge to competitive arts innovation. Applying a patent holder's "one size fits all" virtually absolute right to exclude provides excessive incentive, leaving the related social costs of lost competition and foregone follow-on improvements unjustified. Copyright law's greater willingness to tailor rights and remedies to the particular need provides a much better approach. Specifically, a set of rights tracking the basic balance reflected in the "cover" concept of § 115 of the Copyright Act[16] (appropriately adjusted to reflect the competitive arts context), can more appropriately bolster the weakened first-to-move lead-time incentives. Granting a right to first implementation preserves any market advantages associated with recognition as the innovator. A modified compulsory licensing scheme requiring royalty payments (designed, however, solely to provide modest cost-differentiation rather than compensation) mimics a lead-time advantage over competitors. Others remain free, as in the marketplace, to compete by adopting and improving upon the technique. The royalty, however, provides the innovator with a cost advantage over subsequent adopters. While they attempt to close this gap, the innovator can pursue advantage consolidating activities similar to those used in the normal competitive marketplace.

Two refinements round out the regime. First, in order to more closely parallel the commercial realities of the market's incentives, the innovator's rights should be limited to a relatively short term (perhaps as little as one year) and recognize independent creation as a complete defense. Second, in order to avoid increased possibilities for jurisdictional gamesmanship afforded by the Internet environment, the rights should extend to any implementation of the technique, independent of its geographic locus, whenever the effects are felt within the United States market.

If we cannot find the fortitude to promptly pursue a new more appropriate form of competitive arts protection, a number of administrative and judicial adjustments to the post-State Street Bank patenting status quo should be instituted immediately. Changes in rights creation, enforcement and remedies, better aligning them with the approaches of the proposed regime, can significantly reduce the consequences of over-protection under traditional patent law.[17]

Because the new regime relies heavily on the patent framework regarding qualification, adjusting current examination procedures can substantially minimize the number of "bad" competitive arts patents (as defined by current patent law objectives) and properly restrict the scope of the rights under "good" ones.[18] As an initial step, claims to competitive arts innovation must always be carefully separated from advances in computing (including the mere fact of Internet implementation). This will ensure appropriate examination for novelty and non-obviousness exclusively within each distinct field of endeavor. Then appropriate substantive examiner expertise, prior art search tools and techniques and non-obviousness standards (mirroring those of the proposed regime) can, and should, be applied. Additionally, examiner evaluation criteria and compensation should specifically encourage investing sufficient time and effort to build the precise and complete examination record necessary to generate well-defined and properly limited claims. Finally, these restricted rights should be fully incorporated into enforcement actions through explicit judicial reference to, and reliance on, the examination record when assessing claims (in particular, those in means plus function format) and applying the doctrine of equivalents.

Remedial adjustments present greater challenges under the current patent statute. A good argument can be made, however, that the courts have the authority to make the basic, but crucial, shift from the present property rules to a liability rules approach. This change would permit the standard infringement remedy to more closely parallel the proposed regime's compulsory licensing strategy, generally replacing injunctive prohibition with a commercially reasonable (and, to the extent statutorily possible, only a modest cost-differentiating) royalty payment. At a minimum, the increasingly routine grant of preliminary prohibitive injunctions should disappear. The courts should insist, even in the face of strong likelihood of success, on truly exceptional circumstances clearly demonstrating the inadequacy of an interim royalty-based cost advantage.

Combining these adjustments with a revitalized application of the judicially created and controlled patent misuse doctrine can substantially reduce the unjustified social costs of even "good" competitive arts patents. The courts should continue to recognize traditional antitrust-based misuse, such as tying and monopolization, in the competitive arts context. However, the misuse doctrine should be expanded to complement the compulsory licensing remedy focus on greater access by fostering voluntary licensing. Specifically, the patent holder should carry the burden of demonstrating a commercially reasonable basis for refusing to grant a requested license. Failure to justify would result in unenforceability of the patent against the party requesting the license. Similarly, if an infringement defendant fails to request a license, then the compulsory licensing remedy could either be replaced with a traditional prohibitory injunction or accompanied by supplemental deterrence based damages.

Finally, and in all instances, any additional harm to competition should be avoided. Building on the learning from the software debates, protection of competitive arts functional innovation must be limited to patent law.[19] The courts should, therefore, consistently reject all attempts to obtain any over-lapping copyright protection of the non-expressive aspects of the innovation.

Part I of this Article addresses the appropriateness of protecting Internet innovations under the current patent regime. It concludes that the doctrinal, historical and policy arguments require different outcomes regarding computing (patentable subject matter) and competitive arts (at best a difficult fit) innovation. Part II argues that the new electronic economy has given rise to a particular kind of competitive arts "market failure" (interference with first-to-move lead-time incentives) which must be addressed. It concludes, however, that tinkering with the existing patent or copyright regimes is not only complex, but poses significant risks, and should be avoided. Part III sketches the outlines of a proposed competitive arts regime, combining the qualification features of patent law with the more nuanced approach to rights and remedies of copyright law. Part IV concludes by outlining a number of interim measures necessary to mitigate the effects of protecting the competitive arts under traditional patent law while awaiting the arrival of the new regime.

The real computing (software or otherwise) issue, therefore, is not about patentability, but avoiding inadvertent and improper entanglement with any underlying activity being implemented.[28] Computing patents should only cover novel and non-obvious computing innovations. Claims which go further and implicate the non-computing activity itself should be dealt with separately, with each type of claim independently standing or falling on its own merits. Separation is not a particularly difficult task, requiring only appropriate limitations in the claims and that the assessment of novelty and non-obviousness focuses on the appropriate art.[29] There is, therefore, no need for anxiety that granting patents for computing innovations must unavoidably spill over to disrupt the competitive balance in non-computing fields.[30] If properly crafted and examined they are computing patents and nothing more.

In contrast, Internet patents laying claim to underlying non-computing innovations are far more problematic.[31] Stripping away the computing implementation leaves a broad range of activities which raise "business method" patentability concerns. The system might satisfy a regulatory requirement (as in State Street Bank),[32] provide a service (for example, a computer-generated diagnosis or legal advice) or financial product,[33] record a specific transaction (like a stock trade or the purchase of a book or compact-disk) or implement a sales technique,[34] marketing program,[35] or special internal business organizational structure.[36] The sub-class of sales, marketing and internal organization techniques has stirred the greatest controversy in the current Internet patenting debate.[37] Permitting patents on activities such as prospect identification, lead follow-up, or transactions facilitation (in the Internet environment, customer profiling, triggers for displaying particular banner advertisements, affiliate referral systems and one-click checkouts) would grant exclusive control over the general competitive means for delivery of any product or service. Therefore, the following discussion focuses primarily on the question of whether this sub-class of business methods, the competitive arts, is properly patentable subject matter.[38]

The answer to this question has two related effects on business method patenting. It dictates whether patents can issue based on claims reaching beyond computer implementations to all uses of the underlying activity, i.e., pure competitive arts patents. In the current environment, however, this outcome may be of limited practical concern. An Internet business normally will find it entirely satisfactory to limit the claims to the computing implementation of the method, thus avoiding the pure form of business method subject matter challenge.[39] This restricted claiming technique makes the second effect, whether such patents should issue based exclusively on innovation in the underlying business method, critical. Only if the pure competitive arts are proper subject matter, do those advances represent the type of "progress" targeted by the patent law incentive. If they are not, such novelty should not, regardless of the form of the claims, support issuance of a patent.[40]

Business method patentability is hardly a new question.[41] Therefore, the most direct approach to resolving the competitive arts sub-question involves assessing the rationales developed in the cases considering the more general issue. Unfortunately, these materials fail to provide a convincing basis for a decision either way. The "business method exception" opinions offer no logical argument for treating business methods[42] as improper subject matter.[43] In fact, the actual holdings do precisely the opposite, basing their decisions on alternative, case-specific grounds, primarily obviousness considerations.[44] At best, therefore, the exception rests on an ill-defined intuitive sense that patent protection is generally inappropriate.[45] At worst, it improperly over-extrapolates from the series of particular offerings to conclude that every claim to a business method must lack sufficient innovation.[46]

Unfortunately, the dramatic jettisoning of the exception in State Street Bank[47] appears equally devoid of satisfactory explanation.[48] The opinion boldly states that "[s]ince the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method."[49] However, the sole support for this conclusion appears to be the lack of actual precedent for a business method exception.[50] It seems logically insufficient, even if technically correct, to abandon a generally accepted limitation merely because it rests on a long line of dicta. Some explanation of why such a long-held view failed to conform to patent law policies was in order. Perhaps the court intended the analytical loop to be closed by the earlier, but not directly connected, reference[51] to the Supreme Court's much cited opinion in Diamond v. Chakrabarty[52] stating the Patent Act[53] was meant to include "anything under the sun that is made by man."[54] Because the Patent Act does not itself exclude business method innovations (circularly defining the applicable § 101 category of "processes" merely as "a process, art or method"),[55] no room exists for a judicially created exception which conflicts with the expansive scope intended by Congress.[56]

Arguing that the courts should interpret the Patent Act based exclusively on Congressional intent[57] does not hold up under scrutiny, particularly in the statutory subject matter context. The Patent Act does not stand in isolation. Congress's ability to give § 101 statutory subject matter the scope articulated in the much quoted legislative history is constrained by the Constitutional limitations on Congressional power.[58] As it turns out, the source of that power, the Patent Clause, expressly restricts legislative action to "promot[ing] the Progress of [the] . . . useful Arts."[59] Consequently, despite the justifiable conclusion that Congress acted with expansive intent,[60] the language of § 101 of the Patent Act, and specifically the reach of the word "process," must be interpreted by the courts as "terms of art"[61] constrained by the "useful Arts" Constitutional focus.[62]

Determining the scope of the useful arts, and specifically whether it includes the competitive arts, is hardly a straight-forward task. The words "useful arts" are simultaneously limiting and expansive. They are not only indeterminate, but also undefined in the Constitution. Many commentators have, therefore, despaired of finding any meaningful content.[63] However, difficulty does not, at least as a Constitutional matter, permit us to simply ignore the line-drawing exercise. To read out any limitation means virtually all human activities, if properly claimed, become patentable subject matter.[64] This clearly cannot be the case. The Framers deliberately put the words into the Constitution. The thoughtful debate between Thomas Jefferson and James Madison over the need to limit monopolies gave rise to the compromise reflected in the Intellectual Property Clause.[65] Moreover, that general desire for circumspection is further emphasized by the provision's own juxtaposition of the "useful Arts" and "Science."[66] The words clearly were intended to create some restrictions. Inclusio unis, exclusio altris leaves us with no alternative but to search for a rational basis on which to distinguish between the patentable and unpatentable across the wide range of human created processes, including manufacturing methods, ways of doing business, sports moves, formulas for creating literary, musical or other artistic works, legal systems for resolving our differences, political systems for managing our affairs and how to live our lives to increase our happiness and, perhaps, to save our souls.

The courts have struggled to identify appropriate limits. The early decisions, including the Supreme Court's seminal attempt to deal with process patenting in Cochrane v. Deener,[67] focused on the need for some form of physical structure, transformation or effects which characterized early technological advance.[68] This approach, however, ran into (and caused) substantial difficulties with the arrival of the Information Age. As electronics (particularly computing) made human innovation increasingly intangible,[69] the physicality hook became highly problematic.[70] After a long and difficult struggle,[71] it has been largely jettisoned.[72] This evolution has, however, left behind a general sense of congruence between the "useful arts" and the "technological arts."[73]

Although there is doctrinal legitimacy in such an approach,[74] replacing the "useful Arts" with the "technological arts" merely shifts the inquiry from one indeterminate phrase to another.[75] Professor John Thomas has offered an interesting resolution using "philosophical" thinking regarding the nature of technology to help draw the relevant limitations.[76] He concludes that technology is bounded by "production or transformation of artifacts through the systematic manipulation of physical forces,"[77] and its conception as "a form of rational and systematic knowledge, oriented towards efficiency and capable of being assessed through objective criteria."[78] He argues that these attributes are properly captured, and the scope of the patent laws effectively and appropriately limited, by equating the technological arts with the "industrial arts," a term with a long history in other patent regimes.[79]

There are a number of satisfactory arguments for adopting such an approach to defining proper patent law scope. First, this interpretation is consistent with the Framers' historical and philosophical context, and, therefore, likely bears a relationship to what they had in mind when creating the Congressional authority. Such a reading of the useful Arts reduces the threat that the patent power could be used to create naked privilege monopolies, the undesirability of which was made vivid by the English experience.[80] Rather, as appropriate to the historical context of the rising Industrial Revolution, it limits application to fostering investment in, and importation of, the new tools and products which drive economic prosperity.[81] Second, this approach provides the clear division between the "useful Arts" and "Science" necessary to keep the differing patent and copyright regimes from encroaching upon one another.[82] The industrial arts offers a clear distinction between functional activities capable of objective assessment (the "useful Arts" interpreted as the "technological arts") and those which inform or entertain and may involve more subjective judgments of value ("Science" read as knowledge transmitted through the "expressive arts").[83] Additionally, the refinements of the industrial arts concept generated by its long history of application in other jurisdictions may reduce administrative costs.[84] Although disputes will continue over specifics, the array of precedent provides firmer guidance in their resolution than a general admonition that the activity be "useful" or "technological." Finally, the industrial arts limitations generally fall in line with our intuitive sense of patentable innovation.[85] This is not particularly surprising given that those intuitions rest on the same history which supports the industrial arts approach. Nonetheless, it does mean outcomes will generally conform to expectations, avoiding the dislocations of what appears to be unpredictable application.

As important as doctrine, Founders' intent, history, administration and intuition may be (especially when they point in the same direction), they do not speak to the normative validity of the conclusions they generate. No absolute mandate exists that the Founders' context or even their intent should dictate our current view of the proper reach of patent law. As intelligent and forward-looking as Jefferson and Madison were, they could hardly have envisioned claims to intangible technologies like software,[86] to say nothing of the Internet's global virtual marketplace.[87] Similarly our doctrinal efforts to draw limitations and our intuitions, as products of this same history and context, may rest on flawed assumptions which have failed to keep pace with changes in society. Therefore, even though the convincing case for the industrial arts approach to patent law makes competitive arts innovation appear an unlikely candidate for coverage, the important question remains whether support can be found in the policy objectives driving United States patent law. If so, it is well within our power to ignore the Framers' context and intent, modernize our intuitions, update our doctrine and, if necessary, amend the Constitution.

The policy approach requires descending the analytical tree to first principles. Specifically, we must start with a clear articulation of the normative justifications for the United States patent system[88]-unless we know where we are trying to go, it is unlikely we will get there.[89] The justifications can be briefly summarized as follows: A competitive market is the preferred economic engine.[90] When properly operating, such a market generates a steady stream of aggregate social wealth-enhancing innovation as the participants seek to maximize their personal return by gaining competitive advantage.[91] Such advantage can be obtained through identification and control of physical resources and by developing and implementing ideas for new products, services and the means for manufacturing and delivering them ("intellectual products").

Valuable physical resources can be controlled, and related advantage obtained, through possession, thus generating incentives to invest in their rapid identification and acquisition. Taking from competitors offers one particularly efficient means for accomplishing this task. However, the related deleterious effects on social order and incentives to investment in original resource identification and improvement required legal intervention through real and personal property laws.[92]

The intangible nature of intellectual products eliminates the disruptive "taking" rivalry by making mutual, simultaneous possession possible.[93] However, non-rivalrous possession generates its own special set of problems.[94] Unlike physical resources, mere continued possession does not ensure competitive advantage. A competitor might independently create the same idea. Or the idea might be duplicated by observing its use, thereby reducing, or entirely avoiding, the associated development costs and time delays. The likelihood that innovation might quickly spawn disastrous lower-cost competition causes the basic market incentives for idea innovation to fail. The result is under-investment in social wealth-enhancing intellectual product innovation. The solution to this "public goods" problem again lies in legal intervention. Specifically, a patent creates artificial scarcity through the legal right to prevent any use, including by competitors, of an innovation,[95] and thus permits the innovator to profit from the invention's value in the market for a period of time sufficient to restore appropriate incentives to invest.[96] At the end of that period, the innovation becomes available for use by others under the normal rules of the competitive marketplace.

This policy framework provides important guidance regarding the appropriate reach of the patent laws.[97] Patent law replaces the self-interested competitive motivations to innovate in a properly functioning market with the self-interested inducements of legal control. However, despite the appeal in both cases to self-interest, the objective remains increased aggregate wealth for the benefit of the society as a whole.[98] Consequently, advocating an extension of the scope of patent protection to the competitive arts based on claims of inventors' natural rights (whether based on just rewards for labor, personal stake or otherwise) is misplaced.[99]

Additionally, patent law reflects no more than a grudging exception to the preferred competitive market model. Therefore, it should be carefully limited to resolving only the identified market failure and the resulting distortion of incentives to desirable innovation which justifies its existence. Going further risks insulating competitors from the desirable rigors of market competition, limits alternative uses and causes interference with efficient aggregate wealth maximization. Reflecting this important constraint, patent law incorporates a number of requirements intended to ensure actual benefits and avoid unjustified costs, including the twin tests of innovation, novelty and non-obviousness (which ensure "progress"); utility (which, among other things, requires the invention actually produces the claimed result); and the obligation of description and enablement (which facilitates improvements as well as post-term entry of the invention into the competitive market).

Similarly, the primary (if not exclusive) role of the subject matter requirement is to ensure proper targeting and application of the patent incentive. Professor Dennis Karjala's excellent discussion of the appropriate application of patent and copyright law in the software context clearly demonstrates this vital function of each regime's subject matter requirements.[100] As he points out, these two regimes offer very different incentives reflecting substantially different policy objectives and balances. Patent law predominately reflects a market focus, granting powerful, but carefully circumscribed, protection, providing essentially absolute exclusivity regarding the core innovation while avoiding substantial barriers to incremental innovation.[101] In contrast, copyright law "originality" requires less innovation, provides deliberately broader protection against derivative works, but offers only significantly more nuanced rights and remedies reflecting, in part, its additional non-market free-speech concerns and, in part, a desire to avoid significant impediments to subsequent functional innovation.[102]

Subject matter limitations provide the vehicle for avoiding inappropriate application of each regime's incentives.[103] Specifically, copyright law expressly channels functional processes to patent law, statutorily and through the idea-expression and useful article doctrines,[104] subjecting them to that regime's rigorous, but primarily market economic, policy balances.[105] Those which "inform, entertain or portray appearances,"[106] remain subject to the more complex trade-offs between market economics and other countervailing policy considerations drawn under copyright law.[107] Within this inter-regime "channeling" structure, there is little problem identifying patent law as an appropriate regime for competitive arts functional innovation.

Channeling, however, only partially reflects the role of the subject matter requirements. Proper assignment of an innovation to patent or copyright law does not automatically demonstrate that it deserves protection. Before the appropriate regime's additional requirements are applied, the subject matter limitations provide one final, but critical, basis for disqualification.[108] Given the general policy bias in favor of an unfettered competitive market, the proponent of protection bears the burden of demonstrating that for the particular class of innovation applying the incentive will spur supplemental innovation[109] and that overall the resulting benefits likely will outweigh the costs of granting protection.[110]

Therefore, the final subject matter policy decision concerning the patentability of the competitive arts inexorably calls for actual empirical testing.[111] Unfortunately, although the number of studies continues to grow, to date they fail to resolve even the general case for the patent incentive either way.[112] Not surprisingly, the relative newness of competitive arts patenting means an even greater paucity of data and indeterminacy.[113] In this environment, theoretical modeling provides an important tool for understanding the direction the empirical work should take. In particular, any empirical study must carefully define and articulate the hypotheses being tested, an undertaking which serves as the focus of the remainder of this section and the entirety of the next.[114]

Examining the latest judicial word on statutory subject matter, the CAFC's "useful, tangible and concrete result" test,[115] provides an excellent starting point for framing an appropriate hypothesis concerning competitive arts patents as the right stuff. Professor Thomas' analysis of the CAFC's application of that test in State Street Bank reveals a serious problem and points towards its resolution.[116] The flaw lies in the opinion's apparent insouciant conflation of the patentable subject matter limitation with the historically separate (and minimal) utility requirement.[117] Although a semantically tidy fit, such a test offers a virtually unconstrained reach of the patent incentive.[118] Almost any process can be described in a way which demonstrates that it confers an articulable specific utility.[119] An industrial process produces a particular product. The State Street Bank system produces profit and loss allocations. A high-jumping technique produces superior height. A political process generates appropriate resolution of social issues. A process for living one's life provides a clear conscience, greater happiness or salvation. Under such an approach, as the decision implies, only laws of nature, natural phenomena and abstract ideas[120] are likely to be excluded.[121] And even these exclusions rest on specific antecedent Supreme Court interpretations, not a restriction imposed by the specific utility test.[122]

This difficulty can be avoided by focusing on the additional requirements of the CAFC's test. It is not sufficient that the result be "useful." It must also be "tangible and concrete." The court's own attempts to further clarify in State Street Bank, however, are constrained by the fact that the specific words were not well chosen. Clearly, the court did not mean that the financial allocations were literally tangible and concrete. Moreover, the court certainly recognized, particularly in a software case, that the tangible/intangible line had long ago lost its power to draw the necessary distinctions regarding patentable subject matter.[123] The opinion expressly recognizes the problem, avoiding the specific meaning of the words inherited from Alappat[124] and opting instead to focus more generally on "the essential characteristics of the subject matter, in particular, its practical utility" (emphasis added).[125] Although this effort indicates an intention to require more than a specific utility (or at least permits that inference), it does not provide adequate guidance as to precisely what that something more might be.[126]

Supplementing the CAFC's notion of practical utility with Professor Thomas' recognition of the importance of objective assessment in the patenting process provides the answer.[127] The CAFC has expressly recognized that actual patentability rests on additional constraints contained in § 102, § 103 and § 112.[128] It failed, however, to note that the policy gate-keeping function of the subject matter requirement includes ensuring proper application of these other limitations.[129] As Professor Thomas notes,[130] for the patent system to work properly, whatever comes through the patentable subject matter filter needs to exhibit the characteristics which actually permit us to determine if claims "satisf[y] the other requirements for patentability."[131] Only then can we be comfortable that the innovation merits the "embarrassment to the public of granting a patent."[132]

Armed with this understanding, the CAFC's "useful, tangible and concrete results" and "practical utility" patentable subject matter tests can now be properly interpreted and applied. The requirement goes beyond the isolated, but essential, § 101 need to distinguish inchoate abstract ideas from actual applications.[133] It also demands the ability to objectively determine three things: (1) that the invention has been implemented as specified, (2) that the specified result is actually present after implementation, and (3) that the result was caused by that implementation. Only innovations with these characteristics permit the necessary confirmation that specific utility[134] and description/ enablement[135] are present.[136] And only if these requirements are satisfied can we have any confidence that there are actual benefits to offset the costs of applying the patent incentive to the class of invention.[137]

The general operation of this approach to the patentable subject matter inquiry can be demonstrated quickly. An industrial process for curing rubber clearly qualifies. So does the software implementation of that process. In each case, we can objectively determine that when the specifically identified implementation occurs it results in the expected outcome (we do or do not have properly cured rubber or a properly operational computer system).[138] The profit and cost allocations generated through the process at issue in State Street Bank can similarly be objectively confirmed. In contrast, whether a political process generates proper resolution of social issues or whether a method for living produces salvation, are substantially more problematic. Although the specific implementation may be objectively confirmed, the output from the first is largely subjective[139] while the second, sadly, remains indeterminate. Because we cannot objectively determine whether these latter processes actually produce the identified result, there is no way to tell whether they work as claimed. Without this minimal assurance there is no reasonable basis to believe that applying the patent incentive has any chance of increasing social wealth by providing benefits in excess of the costs.[140]

Although necessary, the objective verification requirement is not technically sufficient to qualify a class of inventions as patentable subject matter "useful Arts" for policy purposes.[141] It merely draws the line between the classes of inventions which merit further consideration and those which do not. Theoretically at least, a more precise empirical assessment should still be made to confirm that the actual value of the supplemental innovation generated exceeds the costs of obtaining it. Although possible, the lack of necessary data,[142] the limited confidence in the accuracy of the results and the administrative costs, to say nothing of the need to agree on valuations, makes actually performing such an exercise impractical. In most cases, therefore, the requirement permits the subject matter gate-keeper only to turn-away those classes of inventions which offer no possibility of confirming they make a contribution of any kind.

In some situations, however, further theoretical modeling can help develop appropriate interim working hypotheses regarding likely benefit-cost outcomes. For example, consider the firmly entrenched law of nature exception. Most such "laws," when articulated as a process, produce outputs with the necessary characteristics for objective verification. For example, the process for determining acceleration, F/m = a, or for determining the energy released from a certain quantum of mass, E=mc2, both have eminently verifiable implementations and outputs. Nonetheless, it seems likely, given the nature of scientific inquiry, that applying the patent incentive will produce relatively little incremental innovation compared with the dramatic costs[143] of a twenty-year period of exclusivity. Therefore, until empirical testing demonstrates otherwise, the appropriate hypothesis appears to be that these types of discoveries should not be covered by the patent incentive.

Similarly, one could argue that certain abstract ideas, such as Morse's claim to using "electro-magnetism, however developed for marking or printing intelligible characters, signs, or letters, at any distance,"[144] meet the basic objective verification requirement; that force can clearly be used to accomplish that purpose.[145] However, protecting generalized articulations of a principle, even when objective confirmation is possible, also substantially impedes investment in developing alternative implementations.[146] Consequently, it seems appropriate to hypothesize that empirical studies will reveal too little benefit for the costs incurred in such cases and such broad patent protection should, therefore, be denied.[147]

In other cases, the administrative costs of making necessary distinctions among sub-classes may be sufficiently large to tip the balance. For example, some political process outputs may be difficult to objectively detect (increased social harmony, better decisions) while others permit express measurement (enhancing citizen participation by providing the right to vote). Distinguishing between these subclasses in practice is likely to involve substantial effort. Because the general need for additional economic incentives to drive political system innovation of either kind seems slight,[148] these administrative costs will likely offset what may, at best, be very modest increases in innovation. Consequently, a hypothesis which excludes the entire class from patent coverage seems appropriate.[149]

This approach to patentable subject matter determinations provides useful policy guidance in developing an appropriate hypothesis regarding the patentability of the competitive arts. The gating objective verification requirement raises significant concerns with any hypothesis favoring coverage. The issues can best be demonstrated by an example. Consider claims to a "one-click" on-line checkout method.[150] Objective testing of claims to an over-laid computer implementation is non-problematic. However, this only confirms the equally non-problematic patentability of any incorporated computing innovations. It does not help us determine whether a separate competitive arts patent should issue on the underlying one-click process itself.[151] That inquiry requires independent assessment of the one-click method as a distinct patentable process.

Although implementation of the specific one-click process steps may be highly susceptible to objective confirmation, the difficulty lies in defining and verifying the output. Is it direct operational cost savings, indirect increases in overall efficiency, greater sales, customer convenience and good-will, improved market image as an innovator, all of these, or something else? Similar definitional issues arise in other competitive arts situations such as customer profiling, stimulus triggered banner advertising or affiliate referral processes.

Different identified outputs offer varying levels of confidence as to whether we have an innovation subject to objective verification. Direct cost savings can be readily measured. Using the one-click process either reduces operation costs or it does not. A reduction in indirect or overhead costs or an increase in sales are, however, more difficult to isolate. Increased customer goodwill or market image are even more problematic. Moreover, in the business environment, the question of causation becomes more complicated. Even if an increase in sales or enhanced goodwill can be demonstrated, the question remains whether it arose from the one-click process or from another, unrelated, aspect of the overall transaction or context.[152]

Despite these concerns, the competitive arts are not isolated from the mathematics of the Information Age. It will frequently be possible to generate evidence which supports, with a high degree of statistical confidence, the conclusion that implementing the one-click checkout method actually yields the indicated specific result (whatever it might be). Specific utility and description/enablement can, therefore, be confirmed and some assurance had that benefits are at least present. Therefore, the objective verification requirement should not stand as an absolute barrier to patentability. Rather, the increased risk that such forms of objective verification may erroneously permit competitive arts patents (thus freeing market participants from socially desirable competition and deterring additional investment in further exploration with no offsetting gains in actual innovation)[153] should weigh modestly in favor of a working hypothesis against patentability of the competitive arts.

The next step in the analysis, however, significantly increases the concern. Absent empirical data,[154] we are left to develop an appropriate working hypothesis concerning the likely balance between the benefits and the costs of a pro-patenting position. There are convincing arguments indicating that the incentive is largely unnecessary and, consequently, the costs will likely substantially exceed value of what little incremental innovation may be produced.[155]

Although the "public goods" problem associated with intellectual products applies to both industrial and competitive arts innovation, it operates very differently in each context. In the industrial arts, it causes redirection of resources to goods or services less amenable to replication by observation.[156] These include goods, services and processes which can be protected through self-help or under trade secret law. Additionally, investment will be drawn to innovations which have built-in barriers to entry or, at a minimum, offer significant lead-time advantages, even if observed. These include inventions which rely on scarce resources, such as personal talents, or require resource and time intensive ramp-ups, such as building factories, implementing complex fulfillment infra-structures or developing special expertise. As a consequence, investment in innovation is driven by the efficacy of protecting the related competitive advantage rather than the invisible allocative hand of the competitive market. Patent law seems a reasonable way to address these distortions.[157]

In the competitive arts, the ability to redirect investment is substantially more limited. Some of the same distortions found in the industrial arts will be present, with competitors pursuing those opportunities which offer the greatest degree of confidentiality and the highest barriers to replication. However, the very nature of marketing and selling activity means most competitive arts innovations must be made visible to the consumers and, ultimately, to competitors.[158] Additionally, fewer marketing and sales techniques depend on complex enablers[159] and will, therefore, be relatively easy to duplicate once observed. Consequently, the majority of competitive arts innovations will be readily amenable to lower-cost emulation, making investment in such innovations self-defeating. Rather than redirection of resources, the primary consequence of the "public goods" problem in the competitive arts should be stasis, with every competitor eventually becoming frozen into a fixed set of undifferentiated and unchanging sales and marketing activities.

Although patent law would again seem to provide the solution, the value of a pro-patenting hypothesis is brought into question by the anecdotal evidence concerning actual market conditions. Unlike the industrial arts, which have been subject to patent protection throughout the history of the United States, the competitive arts are recent newcomers to the regime.[160] One would expect, therefore, that the absence of the patent incentive would have generated substantial indications of the expected stasis. This does not, however, seem to be the case. Market participants continue to generate a constant stream of sales and marketing innovation,[161] including the development of Internet commerce itself.[162] Consequently, before incurring the costs of the patent incentive, the reasons for this apparent anomaly should be explored.

A likely explanation is that, the theoretical market failure arguments notwithstanding, in practice the market actually continues to provide strong incentives to competitive arts innovation.[163] To the extent stasis starts to set in, competitors on the lookout for even small opportunities to obtain advantage may be motivated to act.[164] Insiders may believe that others, set in their ways, will be unable or unwilling to respond effectively to innovation. Similarly, outsiders may seek to steal the march on the complacent incumbents.

More generally, however, merely moving first provides competitive advantage, even if others eventually adopt the new technique.[165] The key lies in the time it takes competitors to identify, internalize and implement the innovation. During that period, the innovator, of course, gains the incremental returns. More importantly, this built-in lead-time provides the opportunity to lock-in additional advantage further increasing the return.[166] The lock-in may arise simply from first use.[167] Consumers who develop a pattern of going to the innovator/first user will have incentives (familiarity, at a minimum) to maintain the existing relationship rather than shift to a later emulative adopter. Additionally, the market will normally strongly identify the innovator/first user with the technique, pointing new consumers to the innovator rather than subsequent implementors. Affirmative actions by the innovator can enhance the lock-in effect. For example, advertising may expressly condition the market to identify the innovator as the "best" source of the technique. Follow-on incremental improvements, from additional investments or greater experience, may continue to extend the initial lead-time advantage by providing consistently "new and improved" implementations.

Moreover, because the required research and development investment frequently will be low relative to the potential gain, even a modest incentive can generate significant on-going innovation.[168] Industrial arts innovation, even when spawned by a "eureka" insight, normally requires substantial empirical follow-up investment to move from abstraction to implementation. In contrast, competitive arts innovation often only requires a substantially more modest investment. For example, an affiliate referral process rests exclusively on the insight of providing the customer with readily available information about, and access to, the affiliate's goods or services. Implementation may only involve a strategically positioned link on the original merchant's webpage to the affiliate's e-commerce site.[169]

The better hypothesis, therefore, appears to be that the increase in innovation cannot justify the costs of applying the patent incentive to the competitive arts.[170] On the benefit side of the balance, although there remains a possibility that the patent incentive might release a large pent up wave of additional innovation, the chances appear remote.[171] That market failure stasis is holding back innovation seems extremely unlikely. The competitive advantage in moving first not only gives incentive, but requires constant investment in innovation. On the other side of the balance, substituting patent law's twenty-year, virtually absolute, right to exclude all use in place of the market's far subtler first-to-move lead-time advantage will generate substantial costs. The effect would be to eliminate not only the reinstatement of competitive discipline through relatively rapid emulative adoption, but also the loss of broader access, the routine leap-frogging advances of adoption with minor differentiation that provide a constant cycle of small incremental improvements, and additional applications of the new techniques.[172]

These arguments combined with the concerns regarding objective verification[173] and a strong bias in favor of non-interference with the normal operation of the market absent a convincing demonstration of the need to intervene,[174] make the overall case for competitive arts patenting appear extremely weak. Therefore, unless and until empirical evidence demonstrates otherwise, the working hypothesis must be against applying traditional patent law to the competitive arts.

The desire to escape the rent-eliminating disciplines of the market provides one logical explanation.[176] Although understandable and extremely desirable from the individual competitor's standpoint, if the sole motivation is to lock-in competitive advantage to obtain supra-competitive returns, we need look no further. Such protection of the competitive arts stands in dramatic opposition to our fundamental belief in the efficiency of the market's invisible hand and should be avoided.[177]

The long and painful debate over the proper protection for computer software[178] reveals, however, that more is at stake. It was quickly recognized that electronic duplication made investing in such innovations especially problematic.[179] Not only could competitors avoid the innovator's development costs, they could immediately recreate the entire innovation with a few clicks of a mouse. There was no need to build elaborate factories or train people in manufacturing processes; no need for any substantial capital investment, ramp-up time or special skills. In this new context, the "public goods" market failure appeared to threaten destruction of the emerging industry.

Recently the computing industry's e-commerce offspring has caused similar problems to arise in the competitive arts. The accelerating transition of the market from the physical world into the Internet arena is undermining the market's traditional first-to-move lead-time incentives to competitive means innovation.[180] A first-to-move lead-time strategy made perfectly good sense in the original bricks and mortar marketplace. Until competitors physically came to the store, or it was raised by one of their customers, they had no way of knowing about the new technique, much less recognize it as the source of competitive advantage. Even once they recognized the problem, time and resources were required to investigate, identify the method's salient features (by reverse engineering or otherwise), and develop and then execute a competing implementation (including not just the technique, but the related marketing efforts to overcome the innovator's first to market advantages).[181] In this environment, the relatively modest investment required for competitive arts innovation appeared a good risk.[182]

Advancing communications technologies consistently ate away at this incentive. Air-mail, telephone and television offered fertile fields for new marketing and sales techniques. However, they also made it progressively easier for competitors to recognize, identify and implement those innovations. Market intelligence evolved away from expensive and time-consuming reconnaissance trips and direct inquiries of consumers. Instead, a competitor's marketing and sales innovations increasingly could be brought directly to you, requiring only a subscription to a catalog, reading print media advertising and, eventually, just watching television.

The Internet has taken this assault on first-to-move lead-time a significant additional step. In this environment, the only lag in recognizing changes in a competitor's activities is the time it takes to locate the competitor's webpage. More importantly, because the implementation occurs in the computing context, quick and cheap electronic copying dramatically reduces replication time and costs. A direct cut and paste of the innovator's code offers an extremely rapid and efficient catch-up strategy.[183] Better understanding and enhancement can come later, using reverse-engineering and re-programming as required.

E-commerce, therefore, dramatically alters the first-to-move lead-time incentive calculation.[184] The shortened time for identification and replication eliminates virtually all short-term returns on the investment and severely undermines the ability to generate any lock-in effects. Differences among competitors' market positions make these effects even more problematic. For example, such quick follow-on adoption by competitors with greater name recognition or large, established customer bases may not only destroy the innovator's lead-time advantage, but, through a reverse "lock-in," transfer that advantage to themselves.[185] Thus, innovation by new entrants or smaller, less-well known competitors, precisely those which normally have the greatest incentive to innovate, may accelerate their own destruction. Similarly, the risk of immediate appropriation of competitive advantage by others will make it extremely difficult for such new entrants and less financially robust competitors to raise the investment capital necessary to launch or build their businesses.[186]

The adverse effects on traditional market incentives provide an alternative, and likely, explanation for the increased interest in intellectual property protection for business methods. Although some energy has no doubt been redirected toward competitive arts innovations which can be better protected (legally or practically) from copying,[187] other alternatives are being sought to protect investment in the vast range of other highly advantageous innovations which historically relied on first-to-move lead-time strategies.[188] The virtually absolute exclusionary rights under patent law offer a particularly attractive solution, generating the widely recognized boom in business related applications, software and otherwise.

This shift in the market's basic ground rules caused by quick and cheap electronic copying justifies another look at intellectual property law incentives.[189] In the software market, after some exploration of third paradigms,[190] the problem has been quite properly resolved (or at least is in the process of being resolved) by appropriate application of patent and copyright law. The CAFC's decisions in Alappat,[191] State Street Bank[192] and AT&T [193] have finally provided the necessary patent law complement to copyright protection.[194] With that protection now available, Professor Karjala's distinction between functional innovations and works which "inform, entertain or portray an appearance to human beings,"[195] can direct the proper application of the two regimes.[196] Copyright law (easy to obtain, jealous of derivative works, but unhelpful regarding incorporated ideas and suspicious of intrusions on free-speech and transformative use) protects any original expression, whether found in specific coding, interfaces or otherwise, from quick and cheap replication. Patent law (much more circumspectly granted, but far more protective of the novel and non-obvious ideas it does cover) protects the investment in any incorporated computing innovations, whether presented as hardware, software or "as such" (provided they are limited to a computing application), against all use, whether copied, reverse engineered or independently created.

Unfortunately, this same approach does not provide a satisfactory solution to the very different effects of quick and cheap copying in the competitive arts first-to-move lead-time context. The copyright prong of the solution continues to fit comfortably. As with software implementations, protecting the investment in specific original expression of the process against quick and cheap "cut and paste" copying provides adequate supplemental incentive while raising little risk of substantial costs.[197] Later adopters are only prohibited from direct copying. They, therefore, remain free to pursue independent creation or alternative expressive implementations of the underlying technique.

The problem lies in using patent law to provide the complementary protection of the underlying methodology. The twenty-year patent exclusion provides an excessive response. On the incentive side, much less powerful rights would provide sufficient encouragement for the more limited investment required to generate competitive arts innovation. Before the current difficulties first-to-move lead-time managed to provide strong incentives through only a modest advantage.[198] Even in normal operation, it carries a significant element of risk. A competitor might make an early identification, might quickly recognize its importance, and might have the resources to implement rapidly. Or, the same forces driving the innovator might lead competitors independently to develop similar solutions virtually simultaneously.[199] Moreover, even if greatly reduced in the electronic environment, the market still provides some incentive to competitive arts innovation. Despite the availability of tools permitting quick and cheap replication, competitors may fail to make full or effective use of them. And even if "Internet time" offers only shortened time lags in competitive implementation, those delays still exist and offer some possibility of associated competitive advantage of innovator/first user lock-in.

The cost side is even less reassuring. As discussed above,[200] patent law's exclusive long-term control substantially interferes with the competitive discipline, broad access, and incremental innovation which characterizes the operation of normal first-to-move lead-time incentives. Additionally, objective verification concerns leave serious questions as to whether patent protection drives actual innovation. Granting patents in such circumstances may have the effect of permitting first comers to an idea to block or collect rents[201] from those willing and able to make the necessary refinements to make it work. These costs, combined with the excessive nature of the incentive, make the patent prong of the software solution seem unpromising at best and, more likely, dangerously unjustified.

The existing regimes appear unable to provide appropriate relief. To assume that means no solution is possible, however, reflects too limited a view of the available alternatives. The existing intellectual property paradigms are not cast in stone. Copyright law provides substantial evidence of previous adjustments made in response to new market forces. Section 106[202] expressly contemplates incursions into the copyright holder's rights, subjecting them to a long (and constantly evolving) list of exceptions.[203] These exceptions range from complete defenses, such as fair use,[204] to extremely specific and detailed adjustments applicable to particular situations, such as educational use[205] or operation of the music industry.[206] Not even patent law has been consistently applied in its traditional "all or nothing" formulation. The regime has been cautiously modified on a number of occasions when it appeared necessary to achieve an appropriate balance. For example, adjustments were made to permit competitive application of medical procedures in patient care[207] and the patentee's exclusive rights were cut back to permit pre-expiration use to obtain Federal Food and Drug Administration approval for recombinant-DNA pharmaceuticals.[208]

The possibility of specific modifications has not been lost on those addressing the competitive arts problem. In response to State Street Bank, Congress quickly amended the patent statute to include a "first user" defense, mitigating the effect of business method patents on prior implementors of a competitive arts technique.[209] The commentators have gone even further. One particularly interesting approach suggests incorporating the copyright "scenes a faire" doctrine into business method patenting.[210] Such a modification would prevent patenting "when those wishing to engage in the affected business cannot, as a practical matter, engage in the business without infringing the patent."[211]

Unfortunately, on closer analysis the "modest proposal" of making adjustments to either patent or copyright law faces serious difficulties. In the past the modifications to the existing regimes have primarily involved specific adjustments to the standard holder rights. The competitive arts lead-time market failure, however, requires a fundamentally different solution than the basic approach of either regime. Protecting the functional methodologies forming the core of competitive arts innovation requires a substantial adjustment to copyright law's "original expression" focus.[212] Similarly, reducing the too powerful incentives under current patent law requires a significant redesign of the rights granted.[213] Changing either regime will require more than limited tinkering.

The major concern, however, does not lie in having to make the necessary adjustments, which will be required in any event. The more serious problem is ensuring proper integration of dramatically different protection into the existing regime. The new form of protection must be clearly and completely disentangled from all inapplicable rights and obligations of the original regime. Similarly, the myriad competitive arts refinements must avoid unanticipated and undesirable effects on the regular application of the existing regime.[214] Ensuring that all of these issues are properly identified and fully resolved is an extremely difficult and complex task. Consequently, there is a significant risk that the modification process will produce both an ineffective solution to the competitive arts problem and substantial damage to the host regime.

The logical starting point is to identify the policy drivers: if we don't know where we want to go, we are unlikely to get there.[216] The key concern is the potential under-production of desirable competitive arts innovations. By definition, the competitive arts operate and have value exclusively in the marketplace. Therefore, the same market economics approach guiding patent law provides an appropriate framework for articulating the objectives of the new regime.[217] Stating the regime's goal in these terms is relatively straight-forward: it seeks to provide incentives countering the adverse effects on the market's first-to-move lead-time driver of competitive arts innovation caused by quick and cheap copying, at levels which make it likely that the benefits of supplemental creation outweigh the social cost of lost access by potential users, including competitors, consumers and improvers. The complexity, as always, lies in the details.

As discussed above, traditional copyright law properly and adequately addresses protecting the original expression of competitive arts innovations.[218] The problem (and the new regime's focus) lies in adjusting patent law's overly strong complementary protection for the functionality. A variety of analogs to the patent system's approach are, therefore, an appropriate starting point. First, the regime's incentive, like patent law, should target only actual innovation. Subsequent, independent duplicative invention adds nothing new to the body of competitive arts techniques. Motivating discovery and emulative implementation of techniques already developed by others is best left to normal market forces. The copyright threshold of mere originality is, therefore, too low[219] and must cede to the more demanding patent law requirements of novelty/non-obviousness (invention) and utility/description/enablement (providing objective means to ensure presence of benefits).[220] Second, although personal return may provide the mechanism, the incentive is provided to increase competitive efficiency and maximize aggregate social wealth, not reward the innovator.[221] This focus confirms the need for description/enablement as well as publication and calls for limiting the term of protection, in order that the public might benefit from its investment. Finally, the need to limit disruptive and inefficient over-reaching and in terrorem assertions supports some form of prior examination to ensure that these requirements are met.[222]

Adopting the basic patent model for obtaining protection carries over the concerns bedeviling current business method patenting into the new regime. As Professor Merges has quite properly pointed out, for any regime to operate effectively, improper issuances must be minimized.[223] This can be accomplished in part by improvements in the examination process, such as ensuring that examiners have the requisite training and expertise, and maximizing identification of relevant prior art. The training and expertise requirements can be satisfied by hiring competitive arts examiners with educational and professional backgrounds in the competitive arts; marketing, sales and finance, in particular.[224] As commentators have noted, the relevant prior art will be both more current and far more ancient than existing patent records will reveal.[225] Additionally, by its nature, much of the prior art will not be documented in the manner of traditional industrial and scientific research. Its identification will, therefore, require inquiry into actual activities in the market itself. These special characteristics will necessitate development of new databases and new search techniques (such as on-line inquiry by examiners).[226]

They also make exploring more significant departures from traditional patent examination appropriate. Serious consideration should be given to increasing the applicant's participation in the identification process.[227] The focus should shift from punishing an applicant's intentional misconduct (inequitable conduct)[228] to affirmatively bringing the applicant's business expertise and resources to bear.[229] Requiring more active involvement in the prior art collection process not only improves review of the specific application, but helps build and update the necessary prior art database. Significant value could be added, without significant cost or risk to the applicant,[230] by requiring a modest, well-defined, pre-filing search designed to capture the most accessible information. For example, an appropriate search might be limited to inquiring of those formally associated with the inventor (employees and contractors within the same group of affiliated business organizations) and a review of the applicant's own internal records at the time of application. Additionally, intent to deceive should be abandoned in favor of a disclosure standard requiring the applicant to produce any information a reasonable examiner making a novelty or non-obviousness decision would deem material. Failure to provide such information, either actually known or which "should have been known" based on the required search, would render the related claims invalid.[231]

The quest for comprehensive "up front" prior art identification also argues strongly in favor of incorporating a pre-issuance publication and a post-issuance opposition procedure.[232] Publication and solicitation of submissions from those in the potentially affected markets substantially expands the scope of prior art considered, while making the rights which do issue more reliable and, therefore, more valuable to the holder.[233] Additionally, these gains can be obtained without the substantial traditional patent law concern over pre-issuance secrecy. In most competitive arts cases publication does not force the innovator to forgo a long-term trade secret alternative, as the method will become visible immediately on use. Although some conflicts do remain, these can be largely mitigated by withholding publication until late in the review process and by ensuring that the rights granted preserve the potentially important first to market advantage.[234] A post-issuance opposition procedure avoids undue delay in obtaining rights (including dilatory tactics by well-financed competitors) while providing a number of benefits.[235] The administrative opposition review is cheaper than litigation for all involved[236] and reduces the in-terrorem and wasteful effects of invalid assertions via litigation.[237]

These special concerns should also be expressly reflected in the nature of the examiner's review. A detailed and complete record should be developed during prosecution. It should precisely indicate what has been invented (carefully defining terms and identifying the specific novelty supporting the claims) and document what output it produces, how it does so and how we know. The record should also clearly explain how the particular innovation relates to, and has been distinguished from, the prior art. If prior art is found irrelevant, the record should say so. If amendments are required, the record should explain their objective and scope. Such a record will help guide subsequent judicial interpretation. It reduces ambiguity in terminology and confusion over the scope, novelty and purpose of the invention. It also provides a predicable and justifiable basis for invoking Warner-Jenkinson[238] prosecution history estoppel and its limiting effect on the doctrine of equivalents (especially important in a post-Festo world).[239] To ensure adequate time and energy is applied to the examination process, examiner review criteria and compensation should explicitly incorporate considerations relating to the quality of the examination records produced.[240]

The final "procedural" adjustment related to these prior art concerns involves a change to the presumption of validity normally accorded a granted patent.[241] All evidence should be considered de novo by the fact-finder under a preponderance of the evidence burden imposed on the defendant to demonstrate invalidity.[242] The existing doctrine that when previously unconsidered prior art is raised in litigation no special deference is owed to PTO review, would continue to apply.[243] Regarding previously considered art, however, there would be no specific instruction that special evidentiary weight should be accorded to the issuance of the patent. However, nothing would preclude the finder of fact from giving facts whatever it considered appropriate weight (including taking into account the examiner's expertise) in making its determination. Consequently, the presumption of validity would be limited to whatever special weight the fact-finder wished to accord issuance or examiner expertise under the specific circumstances and to tipping the balance in favor of validity when the fact-finder could not decide based on the evidence before it.[244]

In addition to these procedural modifications, the application of the substantive patent law "innovation" standards requires some refinement to reflect the new context. In every review, a clear separation between a computing implementation and the underlying competitive arts process must be carefully maintained. The former adds nothing to the latter and vice-versa.[245] Substantively, the § 102 and related judicial articulation of novelty (as it may need to continue to evolve to reflect global and technological considerations[246]) properly reflect the similar "progress" (versus copyright "originality") objectives of the proposed regime. Non-obviousness, however, needs re-calibration to reflect the patterns of innovation in the competitive arts environment.[247] Much competitive arts innovation consists of a pattern of catch-up, "me too" adoptions of an existing implementation with minor (but featured) adjustments to provide marketing differentiation.[248] Such activity is primarily motivated by a competitive need to keep current. It neither requires substantial investment nor adds much to the competitive arts. Moreover, many of these substantively meaningless differentiating changes may actually cause more harm than good.[249] Intellectual property intervention, therefore, seems not only unnecessary but inappropriate. The typical emulation and incremental "leap-frogging" can, and should, be left to the marketplace.

In contrast, competitive art techniques which involve either entirely new paradigms, or significant discontinuities from what has been done previously ("pioneering innovations"), are more likely to produce actual changes in efficient delivery of goods and services or business operations.[250] More critically, investment in, and implementation of, such techniques are much less likely to be motivated by merely keeping up, requiring the ability to lock-in the advantage provided by traditional first-to-move lead-time incentives. These innovations are precisely those targeted by the new regime and deserve protection. Therefore, although it might be argued that traditional notions of obviousness can properly differentiate between unprotected incremental change and paradigm shifting,[251] , the ambiguous nature of the exercise can, and should, be substantially clarified in the case of the competitive arts.[252] The new regime's non-obviousness test should crisply generate the separation by explicitly raising the standard to cover only pioneering change from the prior art. In many cases, this means it will not be sufficient to demonstrate lack of suggestion, long felt need, or commercial success.[253] The regime requires the clear demonstration of a paradigm shift, not merely an accomplishment beyond the reach of one of ordinary skill in the competitive arts.[254]

These increased requirements and standards will undermine the regime's incentives to some extent. Supplemental investigation, dealing with detailed examination and fending off opposition challenges, take time and money. The higher bar for non-obviousness will exclude a substantial amount of competitive arts activity. The requirements that the applicant "should have known" and must disclose any material information introduce enforcement uncertainty. Some of these effects can be mitigated by circumspect judicial review, applying similar standards already used in other areas of the law. For example, the disclosure burden could be tied to the familiar "material to an investment decision" standard in securities law.[255] Similarly, the search requirement and related "should have known" obligation can be tied to specific requirements set using an economic reasonableness gloss similar to the already well-elaborated limitation on "reasonable efforts" found in trade secret law.[256]

More importantly, however, the regime's goal is to supplement the first-to-move lead-time incentive of the marketplace, not provide a safe-haven from competition. The particular costs and risks in the proposed regime appropriately reflect concerns that less demanding qualification standards may result in unmerited social costs attendant to over-protection and unjustified limitations on access by other users.

Turning to rights and remedies under the proposed regime brings the earlier discussed concerns with the patent model back into play. Although the focus on functional innovation and potential over-reaching justify application of its qualification framework, the long-term, quasi-absolute right to exclude provides far too powerful and costly an incentive.[257] Responding to the adverse effects of quick and cheap copying on traditional first-to-move lead-time market drivers requires only a much subtler nudge to bring innovative activities back into proper alignment.[258]

Instead copyright law's more flexible approach of specially tailored rights and remedies, eschewing "one size fits all" exclusions in favor of expressly building in specific limitations reflecting competing policy objectives, provides a far more appropriate framework. For example, § 115 of the Copyright Act[259] was designed to address a similar tension between incenting innovation while avoiding broad foreclosure of subsequent use. Under its provisions the author retains the timing and recognition advantages inherent in being the first to market.[260] However, after such first use, the work must be licensed to third parties (including competitors) for a reasonable (statutorily established) royalty.[261] The resulting incentives and costs are, therefore, both substantially lower than under the patent regime. The compulsory licensing requirement eliminates the powerful motivation of long-term supra-competitive returns potentially available under a pure 20-year right to exclude. On the other hand, the lost social wealth is limited by permitting others to use the technique whenever justified in light of the royalty obligation.

The same basic balance drawn under the "cover" concept matches up well with the proposed competitive arts regime's objective of supplementing the impaired first-to-move lead-time advantage, and provides an appropriate remedial framework.[262] The innovator receives the important right to control first introduction in the market. This right not only preserves the first-to-move advantages associated with initial entry as well as recognition as the source of the new technique,[263] but guarantees that third parties informed of the technique through pre-issuance publication[264] cannot steal the march on the innovator. A compulsory licensing requirement can substantially mitigate the quick and cheap damage to lead-time advantage,[265] while preserving access by others. As under normal market conditions, once an innovation has been introduced, others are free to adopt the technique. Although the regime permits competitive entry, it also imposes a royalty payable to the innovator. Unlike § 115, however, the objective is not to compensate the inventor. The royalty, therefore, need not reflect market value or amortize the inventor's development costs.[266] Rather, because it exists exclusively to provide the innovator a supplemental short-term advantage over competitors, it only need provide a modest cost differential.[267] As with market lead-time, such a royalty provides a limited window of competitive opportunity which closes as rivals identify and develop cost-saving improvements. During this period, however, the innovator can attempt to consolidate its advantage through lock-in techniques similar to those employed under normal first-to-move lead-time conditions.[268]

Some additional refinements to this rights/remedial structure are required to obtain an appropriate benefit-cost balance. The first relates to the term of protection. The new regime's objective is to supplement the damaged market lead-time incentive. That incentive does not normally endure for long periods, even under optimum market conditions. Coupling this need for a relatively weak right with the desire to avoid the costs of unnecessary exclusion points to a much shorter term of protection than copyright's life of the author plus seventy-years.[269] Although empirical study is required, it is not unreasonable to hypothesize that a period as short as one year, but certainly no longer than two or three, after issuance should be more than sufficient.[270]

For similar reasons, the innovator's exclusive right to first implementation should also be time constrained. An inventor controls, and is free to withhold or limit, use of any innovation which can be kept confidential. The competitive arts innovations targeted by the new regime, however, are those disclosed by use and, consequently, motivated by, and depend on, the first-to-move lead-time incentive.[271] Therefore, they will generally provide maximum advantage through quick action. Although market conditions or implementation requirements may affect the precise timing of an introduction, there will normally be a relatively short time period between innovation and market launch. Additionally, society stands to gain from rapid introduction into the marketplace. There is, therefore, little reason, nor much value, in permitting innovators to delay introduction by sitting on their first to introduce rights for extended periods of time.[272] On the other hand, if the system is to encourage early filings, the problem presented by equally early publication must also be taken into account. Consequently, the right to first introduction should extend sufficiently beyond actual issuance to ensure a reasonable period for pre-launch preparations. In all events, the failure to exercise the first introduction right during the reserved window should not effect the compulsory licensing portion of the regime which would go into effect immediately upon expiration of that right.

Careful attention must also be paid to the effect of enforcement actions on competitors' investment in innovation. Despite the adoption of a more flexible "copyright-like" approach to remedies, that regime's "substantial similarity" standard for determining infringement not only covers a lot of ground, but its inherent ambiguity casts an extremely broad shadow.[273] The need for a more limited incentive, and the concerns regarding over-protection, dictate greater attention to the costs generated by ambiguity and over-reaching under the competitive arts regime. The reach of the holder's rights should, therefore, be defined and limited consistent with the manner of their creation, by applying the greater precision and predictability of claims-based infringement used in patent law.[274]

If the objective is precision and predictability, improper or uncertain application of patent law's doctrine of equivalents may still result in over-protection within the context of the competitive arts regime.[275] Recent work by Professors Cohen and Lemley concerning software patents[276] provides a straight-forward approach for determining whether a real problem exists. The appropriateness of the doctrine of equivalents in a particular context lies in the answer to the following question: "[w]hat is to be gained by making infringers out of . . . routine innovators?"[277]

Regarding competitive arts innovation, the answer is "not much, but just enough to merit an expansive view of equivalents." In the competitive arts regime, only paradigm shifting inventions receive protection under the enhanced non-obviousness standard. Thus, the doctrine of equivalents raises a stark conflict. A narrow reading of the claims is inconsistent with the "pioneering" character of the invention and, thus, threatens to undermine the incentive when it is most appropriate.[278] Conversely, an expansive reading makes investment in incremental improvements extremely problematic. Such an innovator will both infringe and be unable to obtain an improvement "blocking patent" with which to negotiate.[279] Consequently, broad protection under equivalents threatens to inhibit the normal emulation-minor differentiation incremental innovation which currently characterizes most competitive arts activity.[280]

Although intractable in the traditional exclusive rights context of patent law, this conflict proves far less problematic in the competitive arts regime. The rights holder has only the privilege of first introduction and thereafter an entitlement to the short-term royalty due under the compulsory licensing system. Even an infringing incremental innovator has the absolute right to make any improvements provided that the royalty is paid. Market incentives will, therefore, continue to drive any improvements whose value at least offsets the royalty. Other improvements only need await the expiration of the short-term of protection. A broad application of the doctrine of equivalents, therefore, permits the regime's incentive to emerge intact, while the limited nature of the rights causes relatively little long-term disincentive to subsequent improvements.

Equivalents problems, therefore, are primarily limited to ensuring that the original claims are appropriately drawn and interpreted in light of the prior art. The fully documented prosecution history, coupled with aggressive application of the Warner-Jenkinson presumption (as further interpreted in Festo),[281] and the modifications suggested by Professors Cohen and Lemley to the "known interchangeability" and "reverse equivalents" doctrines, can mitigate many of these concerns.[282] Regarding "known interchangeability," Cohen and Lemley convincingly argue that when there are problems with ensuring pre-issuance identification of all relevant prior art (as is the case with the competitive arts), a proper result can be reached under the doctrine of equivalents by deciding if the subsequently cited prior art had been before the examiner, that the "patent would have been narrowed in a way that would save the accused improvement."[283] Their expanded view of reverse equivalents similarly reflects the need to properly limit the original claims, but in this instance to ensure that equally pioneering subsequent advances are not inappropriately absorbed.[284] In the competitive arts regime, their approach permits application of the same heightened standard of obviousness to the equivalents question, directing the enforcing court to look out for and protect subsequent dramatic changes of direction and discontinuities.

Although a patent infringement approach provides an appropriately limited scope of rights under the new regime, it does raise one additional significant over-protection concern. Traditional patent infringement inquiries offer virtually no defenses.[285] The market based first-to-move lead-time incentive, however, includes the significant risk that other market participants, driven by the same context and competitive forces, might independently come to the same innovation. Therefore, failure to incorporate an independent creation defense into the supplemental incentive structure simultaneously over-protects the inventor and discourages competitive parallel independent development by others.

The easy solution of directly importing the "independent creation" copyright defense[286] into the new regime, however, would ignore critical differences in the latter's operation. Unlike copyright law, the competitive arts regime requires a substantial investment in obtaining protection which could be destroyed by an independent creation exception. More importantly, the description and enablement requirements, coupled with publication, will raise strong suspicions that most subsequent adoption will actually occur by copying. To accommodate these differences, the proposed regime's independent creation defense should shift the burden of proof. The plaintiff could still demonstrate the likelihood of "copying" through access and substantial similarity (including the related possibility of innocent copying).[287] However, it would remain the defendant's burden in each case, whether the plaintiff produced evidence or not, to demonstrate by a preponderance of the evidence that the innovation was actually internally developed by the defendant or another party from whom it was received.[288]

Some attention should also be paid to non-market uses of protected innovations. The description/enablement and publication requirements eliminate much of the need for a reverse engineering exception.[289] Nor does the compulsory licensing system categorically prevent experimental use. Nonetheless, it might be argued that a potential subsequent adopter should be permitted to better understand the technique or experiment with modifications before incurring the royalty obligation. The primary focus of the compulsory licensing requirement, however, is on providing the holder with an opportunity to "lock-in" advantage in the marketplace, not compensation. It, therefore, seems most consistent with this objective to avoid any "free" competitor ramp-up opportunities by requiring payment for any use.

Additionally, the regime should expressly internalize the territoriality issues raised by the Internet. As with other intellectual property regimes, United States competitive arts protection will only have effect within its domestic jurisdiction. This raises issues concerning computer implementation residing "off-shore."[290] To avoid this type of gamesmanship, the regime should avoid predicating liability on the geographic location of the computing activity. The right of first implementation and compulsory licensing provisions should, therefore, apply to any use of protected competitive means which affects competition within the United States market.[291]

Finally, the question of authority to create the proposed regime should be briefly addressed. The action should be well within Congressional power. If the competitive arts are part of the useful arts, then the Intellectual Property Clause expressly permits such limited time protection for the purpose of advancing progress in this particular sub-field. If the competitive arts are not within the useful arts, certainly a plausible argument,[292] then the Commerce Clause should provide ample authority.[293] Regarding the United States' TRIPS[294] treaty obligations, that agreement states that its patent requirements apply only to "all fields of technology . . . capable of industrial application."[295] Because TRIPS expressly adopts the "industrial arts" limitation,[296] it is highly unlikely that a WTO panel would, nor should it, find that the United States' lesser protection of competitive arts (as distinguished from computing) innovations violated these provisions.

The above regime addresses the special first-to-move lead-time market failure arising between Internet competitors. The question remains whether it should be extended to non-Internet implementations. Although without empirical testing we cannot be sure, strong arguments support adopting a hypothesis favoring general application to all innovations in the competitive arts, Internet or otherwise.

First, the Internet-triggered market failure spills over to non-Internet implementations. The Internet harms first-to-move lead-time, whether or not the subsequent competing implementation takes place on or off of the Internet. Similarly, if a competitor is permitted to implement the inventor's non-Internet innovation on the Internet, all further adoptions by the inventor's competitors will at least reflect some lead-time compression.

Second, drawing the necessary distinction between Internet and non-Internet implementations in a world of digital convergence is hardly a straight-forward or cost-free exercise. Should protection attach whenever any Internet use is demonstrated, even if the bulk of the application occurs in the world of bricks and mortar? Does an Internet implementation mean only use on a traditional website, or is any readily visible supplier-buyer connection sufficient? And because the Internet is hardly static, how does the dividing line get updated to ensure its continued applicability in the face of technological advance? These ambiguities will generate substantial costs for the regulatory agency charged with administration, the courts, and private parties.

Finally, because competitive arts implementations increasingly involve computing implementations, the underlying quick and cheap copying problem is likely affecting all competitive arts innovation, Internet and otherwise. General application of the new regime would not only mitigate this general distortion, but its public disclosure and post-term dedication structure would provide the same social benefits of the comparable patent law requirements.[297]

The earlier policy arguments, and the resulting outline of a new competitive arts regime, provide substantial guidance for this effort. The application of the existing intellectual property laws should target, to the maximum extent possible, the same policy objective justifying the proposed regime: remedying the effects of quick and cheap copying on the normal first-to-move lead-time market incentive to competitive arts innovation while minimizing related social costs. This results in two fundamental guiding principles. First, the damage caused by applying existing intellectual property laws must not be increased. The primary regimes applying incentives to innovation are patent and copyright law.[298] The functional nature of competitive arts method inventions makes them far better suited to protection under the former rather than under the latter. State Street Bank, as presently interpreted and applied, effectively performs the necessary channeling function by offering strong traditional patent protection. However, making the adjustments suggested below will substantially reduce the scope of those rights and the related competitive advantage, increasing the motivation to look elsewhere.[299] Any resulting attempts to obtain copyright protection for more than specific expression risks serious additional distortions and should be consistently and forcefully rejected.

Second, the adverse effects of applying patent law can be substantially reduced by aligning the qualification requirements, rights, and remedies as closely as possible with the characteristics of the proposed competitive arts regime. Because the proposed regime generally parallels the patent approach to qualification, a variety of ready adjustments to traditional patent law can substantially reduce the number of "bad" competitive arts patents (those which are unjustified even under the terms of traditional patent law) and appropriately limit the reach of "good" ones (those that, although technically justified, offer excess incentive and generate excess costs in the case of the competitive arts).

The necessary adjustments to examination procedures are well within the USPTO's discretion. The number of inappropriate competitive arts patents can be substantially reduced by carefully distinguishing between computing and competitive means innovations. Applicants should be routinely challenged concerning the precise point of innovation as a method for separating the two categories.[300] Not only will this better define the appropriate claims, but it will clearly focus the investigation for relevant prior art. Claims supported only by innovation in computing (increased speed of calculation, efficiency in resource use and the like) should be clearly and expressly limited to cover only the specific computing advance. Any attempt to extend such claims to preempt alternative implementations or general use of the competitive arts technique itself should be routinely treated as over-broad and appropriately restricted.[301] Similarly, claims which do preempt all use of a competitive arts technique must be supported by demonstrated innovation in that technique, independent of the computing implementation.[302]

Nor should there be hesitation in ensuring that the examiners have appropriate training and experience in the competitive arts, or that the necessary tools and techniques are available and applied to locate relevant prior art.[303] Moreover, examiner incentives can easily be adjusted to drive the creation of the complete and precise record necessary to ensure well-defined and appropriately limited claims.[304]

Making substantive legal changes in the qualification process, requires dealing with the constraints of existing law. Many mitigating changes are, however, possible with only minor cooperation from the judiciary. Regarding identification of prior art, although legislative action is required to institute a third party opposition procedure,[305] courts can help increase the pressure on applicants to come forward with prior art during examination. Even a modest adjustment in the application of the inequitable conduct doctrine could place an appropriately greater burden on the applicant to identify reasonably accessible information.[306] Many applicants will have wide ranging knowledge of actual market activity. The critical inequitable conduct question when assessing applicant knowledge, therefore, should be whether the applicant was aware of relevant prior activity, not merely whether they knew of specific published references. Similarly, inventorship should be read expansively to draw in additional knowledge of the prior art.[307] Many competitive arts advances will involve collaboration among a number of people in a particular business organization and the information available to each of the inventors should be tested.

Additionally, the State Street Bank admonition that "business methods [are] subject to the same legal requirements for patentability as applied to any other process or method,"[308] echoed in AT&T with "ultimate validity . . . depends on . . . satisfying the other requirements for patentability such as those set forth in 35 U.S.C. §§ 102, 103, and 112,"[309] make it clear that the traditional requirements of novelty, non-obviousness and description-enablement continue to apply. Nonetheless, the current judicial interpretations of those requirements provide significant opportunity for damage control.

The existing rules governing obviousness and utility can be easily adapted to specifically reflect the competitive arts context.[310] For example, the three-step obviousness analysis set out in Graham v. John Deere Co.[311] provides ample room for appropriate calibration. Examination should proceed on the assumption that a person of ordinary skill in the less technically intricate competitive arts requires far less in the way of suggestion or motivation to make connections among references.[312] Similarly, because the competitive arts possess far greater inherent interconnectivity, someone of ordinary skill in one of these arts (marketing, for example) should normally be credited with a working familiarity of a substantial range of other business practices (sales, order processing and fulfillment, etc).[313] Finally, the examiner should be especially suspicious of non-obviousness assertions predicated solely on having implemented a pre-existing business technique on the Internet,[314] or relying on secondary considerations because objective verification difficulties[315] make the necessary chain of inferences even more problematic than normal.[316]

Nor does existing judicial precedent preclude requiring a demonstration of actual utility. Alleging that a process increases the efficient operation, sales or goodwill of a business does not make it so. To support the issuance of a patent, the applicant may be required to provide credible supporting empirical evidence, demonstrating not only the expected output occurred, but the causal connection with the claimed innovation.[317]

Finally, the courts should not only permit, but also employ these same damage mitigating approaches when making their validity and scope of claims determinations. The examination record should be carefully scrutinized to ensure compliance with the above described requirements, including the heightened requirements of non-obviousness and utility. The rule that no particular deference is owed (despite the presumption of validity) regarding prior art not considered by the PTO on examination,[318] should be readily invoked whenever applicable. Additionally, judicial infringement determinations should reflect the carefully circumscribed rights, relying heavily on the examination record for definitions of terms as well as the appropriate scope of the claims (including those in means plus function form). In particular, the record should be routinely used to apply the Warner-Jenkinson-Festo narrowing presumptions regarding equivalents[319] and, in conjunction with the heightened non-obviousness standard, for invoking the doctrines of known-interchangeability and reverse equivalents.[320] The courts should also generously read the ambiguities in the statutory "prior user" defense,[321] particularly regarding the scope of coverage,[322] resolving them in favor of an expansive application of the provision to all forms of competitive arts patents.[323]

The most difficult adjustments involve remedies. Mirroring the proposed regime requires a fundamental shift from a "property rules" to a "liability rules" approach.[324] The judiciary has, under CAFC guidance, traditionally (and arguably, increasingly) applied a property rules standard in patent infringement cases. This has led to a substantial increase in preliminary injunctions, and virtually routine permanent injunctive relief, prohibiting any continued use of the patented invention by the defendant.[325] The appropriateness of the property rules approach has been supported by a number of arguments which must be overcome for the necessary shift to take place. Particularly appealing to the courts in recent years has been to view the statutory right to prevent use by others as giving the holder a virtually Blackstonian property right, thus justifying equivalent remedial treatment.[326] Additionally, the novel and non-obvious nature of a patented invention may be said to make it unique, triggering the traditional related presumption that compensatory damages are inadequate. Finally, the uncertainty caused by the difficulty of properly determining damages makes it very difficult to provide "fair compensation" under a "take and pay" liability rule remedy. This failure may, in turn, substantially undermine the incentives to innovation at the heart of the patent system.

Scrutiny of these arguments reveals that none of them supports the routine granting of prohibitory injunctions, permanent or preliminary, for infringement of competitive arts patents. The analogy to Blackstonian property rights rests on seriously flawed logic. Merely because patent rights include some (or even many) of the same characteristics as tangible forms of property ownership does not automatically make property rules remedial treatment appropriate.[327] The remedies must be more carefully tailored to best accomplish the regime's specific policy objectives.[328] Patent rights exist as incentives to innovation for the good of society. Although that incentive is generally articulated in the form of the patent holder's right to exclude others, the precise nature of the right (absolute or conditioned) should be defined and limited by the related desire to avoid unjustified social costs (particularly in terms of denied access). For the reasons discussed earlier,[329] the incentive for competitive arts innovation requires only a brief initial right to prohibit any use (first-to-move) followed by a short-term conditional exclusivity released on payment of a modest royalty (mimicking the lead-time advantage). Twenty-year, property rule full prohibitory exclusivity, therefore, substantially over-protects, generating social costs well in excess of the benefits, and must cede in competitive arts cases to a remedy reflecting this more qualified "right to exclude."

"Uniqueness" is equally unconvincing. Although unique in the technical sense, competitive arts inventions do not raise the traditional need to ensure the inventor's possession of the single available exemplar of a specific item. The uniqueness interest patent law instead involves preserving artificial scarcity by prohibiting the entirely possible non-rivalrous possession by others. Policy does not support protecting the innovator's mere subjective desire to prohibit this possession by others, having expressly rejected the natural rights or personhood interests of the inventor.[330] This scarcity form of uniqueness must therefore find support in the incentive-cost balancing, which as noted immediately above, it cannot provide.

Nor are competitive arts inventions unique in the sense that the total absence of a relevant market makes valuation impossible.[331] In fact, the innovation's value comes exclusively from its ability to provide commercial advantage in the marketplace. Valuation difficulties nonetheless offer the best argument for prohibitory injunctions in patent infringement cases. Although the presence of the market makes calculating damages caused by patent infringement theoretically possible, in practice accurate determinations based on predictions of market conditions and reactions over an extended future time horizon are extremely problematic. The related risk of consistent under-valuations (even if merely as subjectively viewed by the inventor) can, therefore, have a significant adverse effect on the ability of the patent incentive to drive investment.[332] In traditional "industrial arts" patent law, the problem is avoided through prohibitory injunctions which leave it to the discretion of the patentee to decide how to best maximize the value of the patent. The characteristics of competitive arts innovation and the reduced need for incentives, however, make these under-valuation risks relatively inconsequential and property rules inappropriately over-protective.[333] These innovators do not require assurance of a fair return on the related investment, only that the damage done to normal market first-to-move lead-time advantage by quick and cheap emulation can be avoided. Because this assurance can be adequately provided through the first-to-market right and a royalty based cost advantage,[334] the valuation difficulty justification for denying others access through a prohibitory injunction is eliminated.

For these reasons, prohibitory preliminary and permanent injunctions in the competitive arts generally should be abandoned and replaced by compulsory licensing injunctions mirroring the remedy offered under the proposed new regime. A strong argument can be made that this shift to compulsory licensing injunctions is within the discretion of the courts. Section 281 of the Patent Act does not mandate any injunctive relief, much less injunctions prohibiting all use by the infringer.[335] Traditional equitable principles, including adequacy of money damages (sufficient to compensate for interfering with normal first-to-move lead-time competitive advantage), balancing of the hardships and, particularly, harm to the public (the serious costs of over-protection on the operation of the market), all justify this more appropriate tailoring of the remedy to the specific circumstances of competitive arts innovation.[336]

Permanent remedies present a relatively straightforward case. Upon a finding of infringement, the court should permit continued use of the invention against payment of an appropriate royalty.[337] The infringer retains the right to compete by using the invention, along with the right to invest in improvements or employ other efficiencies to overcome the holder's cost advantage. A complete implementation of the proposed regime's cost-differentiating compulsory licensing system, however, faces two serious technical difficulties under the current Patent Act. First, § 284[338] has historically been read to require a "fair market value" royalty, rather than merely the cost-differentiating royalty called for under the proposed regime. Using a fair market value royalty would over-compensate the patent holder. However, unless the courts are willing to specially interpret § 284's requirement of "adequate to compensate" in the competitive arts context, legislative adjustment will be required. Nonetheless, even an overly compensatory compulsory licensing approach is preferable to the prohibition of all competitive use under the current permanent prohibitory injunction approach.

Second, the duration of the injunction will undoubtedly raise significant issues in face of the statutory twenty-year term for patent protection.[339] The most appropriate solution would be to limit compulsory licensing injunctions to a period of time comparable to that proposed in the new regime.[340] An alternative more consistent with the statutory language, might read the patent term as a moving window of protection against infringements. Under this view, injunctions would issue at any time during the term, but would each last for only a limited period of time. Despite the policy justifications, however, given the language of the statute it is unlikely that courts would be willing to place time limits on the royalty obligations shorter than the remainder of the applicable patent's term. Some over-compensation of holders will, therefore, likely be unavoidable. Once again, the mitigating effects of a change to compulsory licensing remains preferable to the more serious effects of routine grants of prohibitory injunctions.

Preliminary relief raises substantially more serious balancing concerns. Granting a prohibitory preliminary injunction frequently has the practical effect of deciding the dispute between the parties. Once ordered to stop use, the defendant must immediately find alternatives. Additionally, during the pendency of the trial (and appeals), the plaintiff can take steps to establish substantial lock-in advantages over the defendant. Even if the preliminary injunction is subsequently reversed, the defendant's commitment to the alternatives and the locked-in advantages of the plaintiff may make the defendant's ultimate victory of little consequence. As a result, improperly granted prohibitory preliminary injunctions on competitive arts patents can seriously disrupt the normal operation of the market. Therefore, the courts should abandon the ready granting of such relief, insisting on a clear demonstration of non-compensable harm even when the plaintiff shows a strong likelihood of success.[341] The situation most likely to justify preliminary prohibitory relief would be when the patent-holder has not yet had a reasonable time to introduce the innovation itself. In such circumstances, failure to promptly stop the competitor's use would deprive the holder of the distinctive benefits associated with first introduction.

The virtually complete elimination of preliminary relief in most cases would, however, ignore the equally serious adverse effect on the competitive arts inventor. Even if the innovator ultimately prevails, obtaining the post-judgment compulsory licensing royalty cost advantage may come too late to be of significant value. The competitor's ability to use the innovation during the extended course of the litigation will have already undermined or destroyed any possible lead-time advantages.

Ready granting of compulsory licensing preliminary relief upon a strong showing of likelihood of success on the merits cannot resolve these conflicting interests entirely, but does provide a better balance. After circumspect judicial vetting beyond the USPTO examination,[342] the system should favor protecting the lead-time advantage vital to a meaningful incentive. Unlike prohibitory injunctions, the compulsory licensing remedy provides some lead-time protection while giving the competitor who believes ultimate success on the merits is probable, if not inevitable, the option of continuing use. If the defendant believes there is a strong likelihood of eventually prevailing, steps might even be taken to mitigate the adverse effects of the unjustified cost-differentiation. For example, interim financing may be available for all or part of the differential using the anticipated recovery from the plaintiff's bond posted as security.

It is preferable that such preliminary relief require only payment of the modest royalty proposed under the new regime. The interim nature of the remedy provides a much stronger argument that even a fully "compensatory" interpretation of the language of § 284 should yield to general equitable principles in these cases, permitting a more appropriately balanced outcome. In all events, regarding competitive arts patents, even a fully compensatory compulsory license remains superior to a prohibitory preliminary injunction or, in proper circumstances, no preliminary relief at all.

The courts can further mitigate the effects of over-protection of competitive arts innovation under traditional patent law by revitalizing the doctrine of patent misuse.[343] The courts should not hesitate to apply traditional antitrust-based misuse and treat unjustified[344] price-fixing, tying or exclusive dealing activities[345] as falling outside the protective umbrella of the patent grant. Similarly, when a patent provides sufficient market power, monopoly entrenchment doctrines should be brought to bear.[346] These antitrust concerns, however, will likely have, at most, limited application to competitive arts patents.[347]

To effect the appropriate balance the courts should break away from the limited view of patent misuse as merely an extension of antitrust law[348] and apply the doctrine to promote greater access (as would be available under the proposed regime) through encouragement of voluntary licensing. This could be accomplished by returning to the basic conception of misuse articulated by the Supreme Court in Motion Picture Patents Company v. Universal Film Manufacturing Company[349] as the attempt to obtain advantage beyond the rights granted under the patent laws.[350] Specifically, the appropriate scope of a competitive arts patent is not properly defined by an absolute right to exclude, but rather by the more restricted compulsory licensing remedy. Consequently, at worst an infringing defendant is entitled to a license on reasonable terms. Viewed in this light, a holder's refusal to enter into a commercially reasonable license on request constitutes an impermissible extension of the patent right. By forcing the competitor/defendant into litigation, the patent holder is unjustifiably prolonging the exclusion. In such circumstances the patent should be unenforceable against the party/infringer that requested the license.[351]

Because the abuse concerns only unjustifiably forcing the infringer into litigation, the existence of a reasonable basis for refusing to deal should be a complete defense. Acceptable reasons might include factors specific to the requestor, such as a history of breach in other dealings, uncreditworthiness or a failure to agree to clearly reasonable licensing terms (as measured by the terms that would be set under a judicially mandated compulsory license).

The primary obstacle to such an approach is § 271(d) of the Patent Act; in particular, the express statement that no patent owner should be "deemed guilty of misuse . . . by reason of . . . refus[al] to license . . . any rights under the patent . . . ."[352] Properly interpreted, however, this provision should be limited to its original policy context of traditional utility patenting and arguments over patent suppression.[353] Therefore, when other factors are present, such as an unjustified refusal to license a competitive arts patent, the courts should have free rein to invoke the misuse doctrine. However, to more fully align the expanded misuse doctrine with the statute, as well as to avoid defendant's routinely asserting misuse to harass or threaten patent holders, the courts might limit competitive arts refusal to license misuse to cases where the infringer can demonstrate that the particular innovation provides a substantial competitive advantage. For example, an infringer might be required to demonstrate that control over the technique at issue provides sufficient market power to support a traditional tying violation.[354]

Finally, the move away from generally available prohibitory relief means that infringers must also be encouraged to seek a voluntary license. Absent a counter-incentive, in such circumstances the rational infringer should simply adopt the innovation (made readily available through description in the patent) and await the holder's response. At best, the use will not be detected and no sanction will be imposed. At worst detection will result in the payment of commercially reasonable royalties. To avoid such strategic behavior by potential infringers, the system should augment the sanctions in infringement actions whenever the infringer has failed to request or accept a commercially reasonable license. Such additional relief might include deterrence based punitive damages or, at the extreme, the issuance of a prohibitory injunction for some period of time.