Bring Appellate Competition Back to Patent Law

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Pity the United States Court of Appeals for the Federal Circuit.Last month, the Supreme Court overruled its decision in the case ofQuanta v.LG-the fourth successive time in three terms thatthe Supreme Court has overturned its patent rulings. Congresscreated the Federal Circuit as a specialized patent court in 1982,and for the first two decades of its existence the Supreme Courtlargely gave it a free hand to shape patent law. Under new chiefjustice John Roberts, the Court has begun scrutinizing the body oflaw the Federal Circuit crafted over the last quarter-century, andthe justices don't like what they see.

The Supreme Court is hardly the Federal Circuit's only critic.Commentators across the political spectrum have criticized therecent evolution of patent law, which has proliferated low-qualitypatents and caused a surge in patent litigation. Although there isplenty of disagreement about the best substantive reforms, nearlyeveryone seems to agree that the Federal Circuit deserves some ofthe blame for the sorry state of today's patent system.

In a recent paper, law professors Craig Allen Nard and JohnF. Duffy trace the Federal Circuit's poor patent jurisprudence tothe institutional design of the Federal Circuit itself. Itscreation was motivated by concerns that the previous system,spreading patent jurisdiction among the federal appeals courts,produced a fragmented body of patent law. It was hoped that givinga single court jurisdiction over patent appeals would bringuniformity to the nation's patent laws. But the cure has turned outto be worse than the disease. While the problems of too littleuniformity in patent law were obvious in 1982, the policymakers whocreated the Federal Circuit failed to appreciate that excessiveuniformity could be even worse.

Decentralization is at the heart of many successful economic,social, and political systems: markets, federalism, and theacademic process of peer review are examples. There are goodreasons to think that competition is beneficial in the judicialsystem as well. In most areas of U.S. federal law, each of thenation's geographically based appeals courts develops its owninterpretations of federal statutes. The circuit courts look toeach others' precedents for guidance, but they are ultimately freeto disregard their peers if they think a different interpretationis more consistent with statute, the Constitution, and SupremeCourt precedent. The accumulation of precedents in thisdecentralized system closely parallels the commonlaw system imported to the colonies from England, which isresponsible for some of the most fundamental parts of the Americanlegal system, including property, contract, and tort law.

Decentralization at the federal appellate level has threeimportant benefits. First, competition mitigates "path dependence,"the danger that a single poorly argued case will lead to theestablishment of a bad decision as binding precedent. When a singlecourt hears all appeals on a given subject, the first case can havean outsized influence on subsequent decisions, even if that case isatypical in important respects. In contrast, when severalindependent courts hear appeals of one legal issue in parallelcases, more dimensions of the legal issues are revealed, and themajority of them working in parallel are more likely to reach theright result.

That brings us to the second benefit of jurisdictionalcompetition: the role of "circuit splits" in signaling a need forthe Supreme Court's attention. Because the Federal Circuit hearsall patent appeals, it has no sister institutions to voice contraryopinions. This forces the Supreme Court to "fly blind," usingother, less reliable indicators to decide which cases to hear.Duffy and Nard note one sign of the problem: between 2000 and 2005,the Supreme Court requested the input of the Patent Office oncertiorari petitions (petitions to review cases) 15 times andalmost always complied when the Patent Office recommended taking acase. Considering that the Supreme Court requested only 91 suchopinions from the entire executive branch during that period, theSupreme Court appears to be relying heavily on the Patent Office todiscover problems with the patent law-a role that would beperformed better by multiple appellate courts.

The final advantage of jurisdictional competition is that itprovides the Supreme Court with several well-developed bodies oflaw to choose from in crafting new precedents. The Patent Officemay be able to provide the Supreme Court with some advice aboutwhich cases to take, but it is not a good substitute for competingcourts. Ordinarily, if the high court is dissatisfied with onecircuit's precedents, it can look to the other circuits foralternative approaches. Each circuit will boast a well-developedbody of case law, and the high court (perhaps aided by legalscholars) can compare the performance of different legal regimesand determine which has proven most successful. The FederalCircuit's monopoly over patent appeals means that the Supreme Courtmust do much of the heavy lifting itself.

A good example of these principles is the development of thepatent doctrine of obviousness over the last quarter-century.Congress has said that only inventions that are notobvious to someone of "ordinary skill in the art" are eligible forpatent protection, but the exact meaning of this requirement hasbeen a source of significant controversy. Duffy and Nard argue thatsoon after its creation, the Federal Circuit "departed from theSupreme Court's precedents on obviousness," developing a "teaching-suggestion-motivation" (TSM) testthat had the effect of dramatically lowering the obviousness barfor patent applicants. Yet the Supreme Court declined to reviewthese precedents from the early 1980s, resulting in an explosion of low-quality patents. Finally, in2007, the Supreme Court handed down the case of KSR v. Teleflex, which formally rejected the TSMtest.

Had Congress not consolidated patent jurisdiction in one place,it is likely that one of the Federal Circuit's sister circuitswould have articulated an obviousness test more consistent with theSupreme Court's precedents. The resulting circuit split would haveprompted the Supreme Court to consider the issue, and it mostlikely would have overruled the Federal Circuit's test and endorsedone of the alternatives articulated by other courts. The lack ofcompeting jurisdictions made the problem harder for the SupremeCourt to identify, easier to ignore, and harder to remedy. As aresult, obviousness problems festered for almost a quartercentury.

Extending patent jurisdiction to other appeals courts wouldameliorate this kind of problem and improve the law. Duffy and Nardmodestly propose that patent jurisdiction be extended only to acouple of additional appellate courts. That would certainly be animprovement, but policymakers should also consider a remedy that isat once more radical and more conservative: returning to thepre-1982 status quo, in which patent appeals are shared among allcircuits. That system certainly had its flaws, but it workedsignificantly better than today's monolithic appeals process. Italso has the advantage that it requires no new institutionalinnovations-almost all of the federal courts' jurisdiction isalready organized in this fashion. Given the disastrous results ofour last institutional innovation in patent law, it may be wise toreturn to the last institutional design that we know workedreasonably well.