CONTENTS I. The patent system as a stimulus to competitive effort in research and II. The patent system in relation to the competitive economy- A. Patents and economic power... B. Compulsory licensing-Myth versus fact- C. Patents and the antitrust laws-Tools to a common end.... D. The patent misuse doctrine and the clash of concepts... E. Monopoly by patent accumulation__ C. Some fundamental aspects of patent litigation.. Conclusion-A decade of the past, and a decade of the future.. 4 THE PATENT SYSTEM AND THE MODERN ECONOMY* INTRODUCTION The history of the American patent system spans the growth of the Nation. It is written in the constitutional provision unanimously adopted in 1787,1 the first patent act of 1790,2 and in the numerous patent statutes running down to the present 1952 Patent Code.3 In its inception the system was characterized as an expression of the right of an individual to the fruits of his inventive intellectual accomplishment. Today it operates in a dynamic research-centered economy at a time when application of the scientific method to the arts of both peace and war is a necessary ingredient of world leadership. And-while the individual inventor remains significant-the spotlight has shifted to the salaried scientist and engineer engaged in group research of the kind that accounts for the sustained whirlwind pace of current technical progress. No evaluation of the patent system can ignore these changes. The ultimate consideration, however, is not the fact of the change but rather whether the system performs a useful function in the modern economy. The success of the system in an earlier day can have no significance beyond its bearing on the present. Conversely, abuses of the patent system when patent and antitrust doctrines were less well developed can only stand as historical facts deserving consideration to the extent they represent current conditions. In like measure a meaningful analysis of the patent system demands a proper emphasis upon normal conditions. The patent systemlike the free enterprise economy of which it is a part-takes significance from over-all effect. The unusual is always of interest and the temptation great to concentrate upon it. The normal is by comparison dull and uninteresting. Yet, until the day-to-day operation of the patent system is explored there can be no perspective from which to consider the unusual or to evaluate the opportunities for improve ment. It is an important coincidence that the research and development competition fostered by the patent system has become progressively *In the preparation of the present study the writer has had the benefit of comments and suggestions from a great number of persons skilled in the various technologies and having specific experience with various phases of the patent law in action. The number of such persons is too great for a listing of individual names. To each, the author expresses his sincere gratitude. 1 "The Congress shall have the power ** to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (Constitution, art. 1, sec. 8, clause 8). 21 Stat. 109. 366 Stat. 792. "The utility of this power (art. 1, sec. 8, clause 8) will scarcely be questioned. The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of individuals. The States cannot separately make effectual provision for either of the cases, and most of them have anticipated the decision of this point, by laws passed at the instance of Congress" (The Federalist, No. 43 (Modern Library Edition, p. 279).) more important in recent years. No longer can business management confine competitive effort to existing production, management, and sales techniques. Rather, effort must be directed towards competition in the research and development of improved processes and products. Years ago, change was something to be accepted when it came but I ever encouraged. Even laggard business organizations that awaited the results of the activities of their more progressive rivals could usually adopt changes belatedly without serious competitive consequences. Few business organizations can survive with this attitude. today. Rather, competition in process and product development and innovation is as important to business survival and growth as is management, production, and sales effort. Evidence of this competition appears on every hand. Newspapers and magazines abound with comment on new products and processes developed through competitive research and with announcements of the construction of new laboratory facilities. Stock analysts carefully study not only the traditional accounting and sales figures, but also the extent of research and development effort and accomplishment in relation to competitors. Annual reports likewise reflect the change. No longer do they boast of profits made on the tried and true products of the past. Instead they speak proudly of the new products and processes of the present and point to the proportion of sales volume in products developed through recent research. In countless fields of business, sales effort emphasizes not only price, quality, and like considerations, but additionally concentrates on the new features derived from research. This competition between rival organizations in research, development, and marketing of new products and processes is every bit as important to real economic progress as the classical competition in production and sales. It is crucial to the dynamic economy and is thus essential both to an increased standard of living and to maintenance of world leadership. It is due in large measure to the patent system and appropriately forms the subject of first consideration herein. The patent system is frequently criticized as inconsistent with the competitive economy and the antitrust laws. Misconceptions respecting the economic power conferred by letters patent are responsible for much of this criticism. The fact is that the system is a stimulus to competitive effort, both in terms of the competitive activity of existing firms in product and process development and in terms of inducing the formation and activity of new business based on new products and new processes. The system is accordingly complementary to the antitrust laws in effectuating the overall public policy of competition on all fronts. Of course there are questions with respect to the application of the patent law and the antitrust law to various specific competitive practices. These questions and the relation of the patent system to the competitive economy form the second major subject discussed herein. Finally, a patent system must be workable to be effective. Patent subject matter must be defined; practical procedures must be available for the issuance of patents; and the law must provide for effective enforcement of the rights granted. Judicial decisions and administrative practice have, over the years, given rise to the evolution of numerous patent doctrines and practices. They represent the prac |