limited life. As an industry matures-or a segment of an industry passes beyond the era of pioneer development--the important patents are replaced by competitively less important improvement patents. A technology changes fast, and what may appear to be an important patent position may suddenly disintegrate to a collection of patents to obsolescent techniques. Moreover, no matter how successful a concern may be in besting its immediate rivals in technological competition, there will always remain research-minded companies in related fields, as well as new business firms, any one of which may seize upon an overlooked technology to obtain its own patent rights and challenge the leader. It is for these reasons that any industry position based upon patent rights is most precarious--especially as compared to an industry position maintained by reason of high cost of entry or expansion, an established large and well organized sales force, supplier relations based on long experience, or like factors.

These considerations account for the fact that the courts have found patents of secondary importance in recent monopoly cases. Alcoa had about 800 patents, but only 11 were considered "competitively significant." With respect to the Alcoa patents, Judge Knox

stated:

Moreover, in a mature industry like aluminum, patents are more apt to have a specific nature than a broad coverage, and, as such, quite likely to fall by the wayside because of the introduction of some other more desirable specific items. For the same reason-and especially among patents covering chemical processes and compositions of matter-it is sometimes necessary to file a great number of applications in order to cover what is really one laboratory development, in which event many consecutively numbered patents may issue, and of which only a small proportion will find use. Thus, of the three sets of consecutively numbered Alcoa patents, totaling 64, only one is now employed. Some patents are alternatives, and others are outmoded design patents. *** 163 United Shoe Machinery Company had nearly 4,000 patents, budgeted over $4 million for research, and in a number of instances had purchased patent rights from outsiders. Yet Judge Wyzanski concluded that "it is clear that United's present dominance does not rest primarily on patents. 164 The most striking illustration of all is found in the General Electric case where the lack of patents effectively covering the "bread and butter" incandescent lamps was the focus of the Government challenge to General Electric's licensing and sales policies as to such lamps.16

The above considerations point to the policy that should be followed in relation to patent accumulations. First, emphasis should be placed upon the acquisition of patent rights through the process of original research and development. Second, a market position based on patent rights should be always open to challenge by actual or potential competitors. In both respects we have direct analogy to the operation of the antitrust laws generally. As to acquisition it is well settled that original creation of resources such as mines, factories, and sales and management organization is favored while purchase of such facilities

16 Id. at p. 387.

14U. S. v. United Shoe Machinery Co., 110 F. Supp. 295, 333 (D. Mass. 1953), aff'd per curiam, 347 U. S. 521 (1954) and see Kaysen, U. S. v. United Shoe Machinery Co. (1956), pp. 78-91. 169 U. S. v. General Electric Co., 82 F. Supp. 753, 805 (D. N. J. 1949).

is suspect.166 Similarly, the antitrust laws prohibit both agreements and other actions that cut off the normal challenge to competitive position. 167 We can be confident that so long as this twofold policy is followed monopoly, or even dominance, arising from patent rights will be rare and unimportant in relation to the over-all economy.

Various decided cases bring out illegal patterns of conduct with respect to the acquisition of patent rights. In a number of instances the courts have found that firms have embarked upon programs to buy up all competitive or potentially competitive patent rights, thus arresting the growth of competition that would otherwise develop.168 In many instances the purchases have been coupled with assignments of future inventions, agreements to stay out of the business, and the like, that label them as devices to thwart competition as distinguished from simple sales of patent rights.169 By way of contrast the courts have looked with favor upon the acquisition of patent rights resulting from original research.170

The recorded cases also point to various types of agreements that are inconsistent with the competitive challenge to accumulations of patents. One arrangement-conspicuous in the early Sherman Act cases-is the pooling by competitors of their patent rights, coupled with a policy of refusing licenses to outsiders. In many instances these agreements have incorporated provisions dividing product fields or otherwise assuring to each participant an area free from likely challenge.172 The courts have also considered and have held illegal quota provisions exacted by patent owners with initially important patent rights with the effect of depressing the incentive of the licensees to engage in research and development.173 In all of these instances the courts have found violations of the Sherman Act in activity which serves to suppress competitive research challenge that would otherwise exist.

One aspect of multiple patent ownership warrants particular consideration. Mere numbers of patents have little significance.174 However, a block or package of patents may have a competitive value as an entity apart from the merits of the respective patents. Typically, one patent in a group is comparatively basic, and the other patents are directed to improvements of relatively small value. The owner of the patents may consider it advantageous to insist upon the taking of a license to the entire package as a condition to grant of a license to the basic patent. Such insistence may be motivated by supposed or real advantages in terms of increased royalty income, avoiding challenge to the improvement patents, prolonging the period of royalty income, or a feeling that the package license policy will deter the rise

166 See e. g., U. S. v. Columbia Steel Co., 334 U. S. 495 (1948); U. S. v. E. I. DuPont De Nemours and Co., 76 S. Ct. 994, 1001 (June 11, 1956).

167 See e. g., U. S. v. American Tobacco Co., 221 U. S. 106 (1911); American Tobacco Co. v. U. S., 328 U. S. 781 (1946).

168 See e. g., U. S. v. Besser Mfg. Co., 96 F. Supp. 301 (E. D. Mich. 1951), aff'd. 343 U. S. 444 (1952); Kobe v. Dempsey Pump Co., 198 F. 2d 416 (10th Cir., 1952).

100 Id.

170 Sec e. g., D. B. Cole v. Hughes Tool Co., 215 F. 2d 924 (10th Cir., 1954).

11 Blount Mfg. Co. v. Yale and Towne Mfg. Co., 166 Fed. 555 (C. C. Mass. 1909); National Harrow Co. v. Hench, 83 Fed. §6 (3d Cir. 1897); U. S. v. New Departure Mfg. Co., 204 Fed. 107 (D. C. W. D. N. Y. 1913). For a more recent case in part involving a "closed" patent pool, see Kobe v. Dempsey Pump Co., footnote 168, supra. For a decision holding a closed patent pool arrangement unenforceable on grounds of public policy see Pope Mfg. Co. v. Gormully, 144 U. S. 224 (1892).

172 See e. g., Blount Mfg. Co. v. Yale and Towne Mfg. Co., footnote 171, supra.

178 U. S. v. General Electric Co.. 82 F. Supp. 753, 814-16 (D. N. J. 1949).

174 Thomas A. Edison personally obtained over 1,000 patents in his lifetime. Norwig, the Patents of Thomas A. Edison, 36 J. P. O. S. 213,275 (1954). Polaroid owns some 400 patents and 150 applications relating in large measure to the research that made possible entry of the company into the camera business. Hearings, October 10-12, 1955, pursuant to S. Res. 92, p. 265. Hazeltine has some 600 patents and 200 applications. Automatic Radio Mfg. Co. v. Hazeltine Research, 339 U. S. 827, 829 (1950).

175

of a technological rival. The frequency with which this situation occurs has been exaggerated, but it has happened. Whatever the actual importance of the problem, however, all hands can agree that when there is coercion to take a multiple patent license it is likely to work against the objectives of the patent system in promoting technological competition. It is now well settled that coercion of this kind to secure licensees to the "package" violates the patent misuse doctrine and, in most instances, the Sherman Act as well. The patent owner is accordingly compelled to exploit the patents as separate entities and to issue licenses and otherwise conduct his business accordingly. Finally, we should not classify the patent system as an aid to the survival of big business. Quite the opposite is usually true. Were the system abolished, established business concerns-and especially leaders in relatively mature industries-would become more secure rather than less secure. In an atmosphere permitting free appropriation of developments, considerations of going concern, established customer and supplier relations on a large scale, and existing large productive capacity would be decisive. They would insure the place of the industry leaders against both the growth of new enterprise and against a raiding of their domains by existing concerns in other fields. The risk of sudden obsolescence resulting from the patented innovations of others would disappear. Considerations of this kind led a student of the electrical industry to state:

In general, the leading concerns have more to gain and less to lose by a repeal of the patent law than have smaller competitors. On the one hand, they are exceedingly vulnerable to suits for infringement, and for purely defensive purposes they must go to considerable expense to patent every aspect of each innovation. On the other hand, they are far less dependent on patents for a sheltered market in which to recoup research and engineering expenses and such capital losses as may result from changes in technique.176

To be sure, none of these considerations precludes attainment of an actual dominant market position--or even a nonopoly position-by reason of patents resulting from research of such scope and success that competitors fall by the wayside. If we are to retain the incentive for technological progress by all concerns we cannot destroy this chance. In the last analysis what is needed is a policy that assures that research and commercialization by all firms offers an opportunity for profit-and that in each instance the merit of the research and commercialization itself is the measure of the reward. Eig research can then enjoy a place in the spectrum to the extent it does a superior job-little research will likewise enjoy the place that its merit dictates. And over-all the combined operation of the patent law effectively administered and the antitrust laws effectively enforced should reduce the chance of actual monopoly by patent accumulation to the rare event that serves as an incentive but does not alter the over-all makeup of research and new product and process competition, and

178 U. S. v. Paramount Pictures, Inc., 334 U. S. 131,138,157 (1948); Automatic Radio Mfg. Co. v. Hazeltine Research, footnote 174, supra, at p. 34.

17 Kottke, Electrical Technology and the Public Interest (1944), p. 59. And see the like comment as to General Motors Corp. at pt. 2, TNEC hearings p. 330.

should preclude continuance of such monopoly against the normal competitive challenges that can be expected to lead to its destruction.

It is no accident that the nation with the strongest patent system is also most dedicated to the principles of competition. Patents in fact stimulate competition. Far from being the beneficiary of a broad and far-reaching escape from competition, the patent owner is circumscribed by various economic, patent law, and antitrust law considerations. At most the patent accords an incentive to develop the patented technology to the fullest. It confers no freedom from the product and process competition inevitably generated as business rivals observe success. Actual histories of recent cases-such as Ray-O-Vac, Linde, and Cellophane-demonstrate beyond doubt that the economic power actually associated with even important patents is consistent with competition and falls short of conferring monopoly power.

These considerations are too often overlooked. As a nation we have fallen into the habit of looking upon patents and competition as antagonistic. Too frequently patent victories are viewed as affronts to competition, or enforcement of the antitrust laws is regarded as necessarily weakening the patent system. The fact is that we need both an effective and viable patent system and a vigorous policy of antitrust law enforcement-for only in this manner can we enjoy the benefits of competition extending over the full spectrum of business activity.

PART III-ADMINISTRATION OF THE PATENT SYSTEM

An effective patent system necessarily entails procedures by which patentable subject matter is defined, patents are issued for such subject matter, and remedies are made available in the event of infringement. These must be related to the nature and character of the patent system in the economic and legal order of which it is a part. They must also reflect both the interests of the patent owner and the interests of others. Space limitations preclude exhaustive consideration of the manifold technical aspects of the patent law, or any extensive reconciliation between the patent practice as it exists and the economic purposes of the patent system. We can explore, however, some of the more significant current problems in the light of the general considerations discussed above. This analysis points to some matters requiring positive corrective action, to some demanding changes in approach within the framework of existing legal doctrine, and to some that involve inherent limitations as to what can be done. Our task is made easier by enactment of the Patent Code in 1952.177 This statute-enacted on the basis that the patent law is fundamentally sound-includes revisions relating to patentable subject matter, the standard of invention, the form of patent claims, reissues, disclaimers, contributory infringement, and other matters. It was the result of a cooperative effort by the Congress, officials of the Patent Office, and the bar. While many controversial matters were put to one side, the code overcomes many procedural and technical difficulties that had crept into the patent law over the years. Additionallyand contrary to common impression-the code incorporates a large number of desirable substantive changes in the law.178 Because of these various revisions it is unnecessary here to discuss a number of practical problems, both substantive and procedural, that existed prior to enactment of the code.

In evaluating the mechanisms by which the patent system is administered, due regard must be given to the problem of complexity and the expense the system necessarily entails. This is a problem of first importance, and one demanding the attention of all concerned. Patents have been characterized as one of the most difficult legal documents to prepare. 179 One might add that the conduct of a Patent Office interference with the effective handling of the preliminary statement, the motion period, testimony, and final hearing ranks with the most complicated of litigation in terms of demands for the careful marshaling of facts, intensive study and planning, and skill

177 66 Stat. 792. For general discussion of the code see Federico, Commentary on the New Patent Act (35 U. S. C. A. (West edition), p. 1); and Harris, Some Aspects of the Underlying Legislative Intent of the Patent Act of 1952, 23 Geo. Wash. L. Rev. 658 (1955).

178 As examples of provisions of the code involving what are unquestionably substantial changes in the law the following may be listed: Sec. 112 (last paragraph modifying or rendering obsolete the decision in Halliburton Oil Well Cementing Co. v. Walker, 329 U. S. 1 (1946)); sec. 116 (providing for application in appropriate circumstances by less than all of a group of joint inventors and for dropping a person named by mistake); sec. 118 (providing for the filing of a patent application by the assignee or one with sufficient proprietary interest when the inventor cannot be found or refuses to sign); sec. 121 (providing for a requirement of restriction by the Commissioner and in effect making the decision final as to the matter in future infringement suit). The above are but a few of the changes that could be listed.

179 See, e. g., Arthur M. Smith, Patent Law (1954), preface, p. viii.