NHU Citation System.

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DOI：10.6521/NTUTJIPLM.2015.4(2).3

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BEN MCENIERY^*

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In recent times, the courts have been asked to determine whether, and to what extent, the patent system protects claims to inventions that do not involve a machine or other physical device, and do not involve a physical transformation of matter from one state to another. In other words, the courts have been asked to decide whether the patentable subject matter inquiry involves a physicality requirement. The answer to this question has implications for the patentability of many Information Age process inventions, including processes that manipulate information to produce new and useful data and insights, means of communicating or securing data, various computer-implemented methods and new medical diagnostic techniques. Some judges, both those in favor of and those against a physicality requirement have sought to support their reasoning by reference to an historical analysis of patent law and practice. This ordinarily takes the form of an argument to the effect that historically the patent system has, or has not, supported the patentability of purely non-physical methods. While the focus of the patent system has historically been on the production and manipulation of physical artefacts, the case made in this article is that the better view is that its history does not support the view that patent law‘s incentive function is in fact limited in this way.

I. INTRODUCTION

The patent system exists to provide an incentive to encourage the invention and commercialisation of new products and processes and the disclosure by the patent applicant of information sufficient to enable a person skilled in the relevant field of technology to reproduce the claimed invention. This disclosure is the quid pro quo of the patent system; it is the benefit the public receives in exchange for the State bestowing monopoly rights on a private individual.¹

* BA LLB (Hons) (UQ) LLM (QUT) PhD (QUT), Senior Lecturer, Faculty of Law, Queensland University of Technology; Barrister-at-Law.

1 See Mazer v. Stein, 347 US 201, 219 (1954) (―The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare...‖).

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There is no dispute that patent law‘s incentive function is appropriate for promoting the invention of new and useful physical machines or other devices, along with new methods that physically transform matter. However, what is not clear, and what the courts are having difficulty grappling with, is whether the concept of patent eligibility is broad enough to encompass non-physical methods, namely those that do not involve a machine or other physical device, and do not involve a physical transformation of matter from one state to another. In this respect, the courts have been charged with formulating rules that can be used to distinguish between inventions that fall within the scope of patentable subject matter and those that are merely unpatentable abstract ideas or principles. The current state of uncertainty in patentable subject matter jurisprudence is a result of misguided attempts to construct bright-line rules that can supposedly decide the difficult questions of subject matter eligibility according to section 101 of the Patents Act.²

The issue confronting the courts arises now because the world is in the midst of a shift from the Industrial Age to being a knowledge-based economy of the Information Age. Knowledge-based economies are those in which there is a greater reliance on intellectual capabilities than on physical inputs or natural resources. They are ―those which are directly based on the production, distribution and use of knowledge and information.‖³ While manufactured products and manufacturing processes continue to be, and will likely always be, of great worth, we recognize that innovation manifests itself in the reduction of new and useful ideas to specific practical application. As such, the production and manipulation of new kinds of information and ideas will be of substantial value.

Identifying the scope of patent eligibility at this time is an undertaking of significant difficulty and importance as inventors seek to challenge what are the accepted bounds of patentable subject matter. Doing so is integral to determining whether much of the cutting edge innovation we are likely to witness in the emerging technology areas of the Information Age of the late twentieth century and beyond will receive the same encouragement as the industrial and manufacturing technologies of previous times.

Examples of the kinds of rapidly advancing technology for which patents are being sought in the infancy of the Information Age and can be seen in the recently decided Supreme Court cases, particularly those involving non-physical inventions that are computer-implemented business methods. The Supreme Court in Bilski v. Kappos⁴ considered whether a method of hedging risk in electricity markets is patentable subject matter; the idea being to minimise the input costs of an electricity provider faced with variable input costs when purchasing electricity, but which must sell to consumers at a fixed rate. In CLS Bank v Alice Corporation

2 35 U.S.C § 101 (2006).

3 OECD, THE KNOWLEDGE-BASED ECONOMY 7 (1996).

4 561 US 593 (2010).

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Pty Ltd (‗Alice‘)⁵, the patents held by Alice Corporation Pty Ltd disclosed a computerised trading platform that eliminates ―counterparty‖ or ―settlement‖ risk, being the risk that only one party to a financial transaction performs its obligation to pay, leaving the other party without its principal or the benefit of the counterparty‘s performance. Mayo Collaborative Services v. Prometheus Laboratories, Inc.⁶ concerned a method of medical diagnosis designed to ensure a patent receives an optimal dose of a pharmaceutical to maximize the pharmaceutical‘s effectiveness and minimize its side effects. As the court‘s decisions in the cases, and the decisions of the courts below demonstrate, the difficult issues that arise at the margins of patentable subject matter are not easily solved.

The starting point for any discussion of the scope of patent eligible subject matter is 35 U.S.C. § 101, which defines patent eligible subject matter in the following way.

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

While no explicit exclusions follow the broad language of 35 U.S.C. § 101, the Supreme Court has identified three general categories of excluded matter:

laws of nature, natural phenomena, and abstract ideas.⁷ The rationale for these judicially-recognized categories of excluded subject matter is pre-emption, namely that, ―patent law not inhibit further discovery by improperly tying up the future use of these building blocks of human ingenuity.‖⁸ Various scholars have argued that these categories of excluded matter should be applied restrictively so that we do not exclude from the patent system whole fields of endeavor,⁹ that we should rely principally on the other requirements for patentability to preclude undeserving patents,¹⁰ or that we should recognize that § 101 does not impose additional requirements on patentability.¹¹

5 Alice Corp. v. CLS Bank Int‘l, ___ U.S. ___, 134 S. Ct. 2347 (2014).

6 566 U.S. ___, 132 S. Ct. 1289 (2012).

7 Alice Corp. v. CLS Bank Int‘l, ___ U.S. ___, 134 S. Ct. 2347 (2014).

8 Id. (internal quotation marks omitted).

9 John F. Duffy, Rules and Standards on the Forefront of Patentability, 51 WM.&MARY L.

REV. 609, 613 (2009).

10 Mark A. Lemley et al., Life After Bilski, 63 STAN.L.REV. 1315, 132-27 (2011); Duffy, supra note 11, at 623.

11 Michael Risch, Everything Is Patentable, 75 TENN.L.REV. 591, 591–93 (2008).

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The Supreme Court, in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (―Mayo‖),¹² set down a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim applications of those concepts. The first asks whether claims are directed to a patent-ineligible concept.¹³ If they are, the second step asks whether the additional elements recited in the claim ―transform the nature of the claim‖ into a patent eligible application by reciting an ―inventive concept‖ that is ―sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.‖¹⁴ The difficulty lies in identifying when a claimed invention falls into one of these judicially recognized categories of excluded subject matter and when it does not; and that difficulty is particularly acute when the patent in question is a method that lacks a physical embodiment.

While the Supreme Court to some extent addressed the question in Bilski v.

Kappos when it held that the presence of a physical aspect in an invention is a

―clue‖ indicating patent eligibility, it failed to set clear guidelines that explain the circumstances in which a non-physical invention might be patentable. Stevens J, in his concurring opinion in Bilski v. Kappos, rightfully criticized the court‘s failure in this regard.

The Court, in sum, never provides a satisfying account of what constitutes an unpatentable abstract idea. Indeed, the Court does not even explain if it is using the machine-or-transformation criteria. The Court essentially asserts its conclusion that petitioners‘ application claims an abstract idea. This mode of analysis (or lack thereof) may have led to the correct outcome in this case, but it also means that the Court‘s musings on this issue stand for very little.

Subsequent Supreme Court decisions have also failed to provide this guidance, despite finding that various non-physical inventions to be not patent eligible.¹⁵ The court‘s failure in this regard has meant that, while it has rejected the notion that a physicality requirement is the sole test for determining patent eligibility, it is not clear whether the lack of a physical embodiment in an invention is being used a de facto proxy for a finding that an invention is an abstract idea and therefore not patentable subject matter.

12 566 U.S. ___, 132 S. Ct. 1289 (2012).

13 Id. at 1297.

14 Id. at 1294.

15 See e.g., Mayo Collaborative Services v. Prometheus Laboratories, Inc. 566 U.S. ___, 132 S.

Ct. 1289 (2012); Association for Molecular Pathology v. Myriad Genetics, Inc., 569 US ___

(2013); Alice Corp. v. CLS Bank Int‘l, ___ U.S. ___, 134 S. Ct. 2347, 2354 (2014).

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These difficulties must be resolved in a way that allows the patent system to accommodate both traditional industrial technologies as well as the new and emerging technologies that are the hallmark of the Information Age. Since the integral elements of the patent system have been apparent since its inception, any discernible rationale for its existence is to be found in both its history and form.¹⁶ As Benjamin Cardozo said in The Nature of the Judicial Process, ―[s]ome conceptions of the law owe their existing form almost exclusively to history‖.¹⁷ Indeed, history is an indelible part of the patentable subject matter test. The term manufacture that is used in 35 U.S.C. § 101 is derived from the expression,

―manner of new manufacture‖ that appears in s 6 of the Statute of Monopolies.¹⁸ Furthermore, it is clear that the United States patent system is based upon and adopts and incorporates many of the features of the English patent practice that preceded it.¹⁹ Thus, an understanding of the historical development of the patent system is necessary in the construction and interpretation of our patent laws as they stand today, since patent eligibility is determined according to what the law has historically regarded as an invention.²⁰

That history was considered in the Federal Circuit‘s decision in In re Bilski,²¹ but which was not replicated in much detail in the opinions published by the Supreme Court when it heard the matter on appeal in Bilski v. Kappos. In the Federal Circuit, both Dyk J for the concurrence and Newman J in dissent asserted that the English patent law and practice that preceded the birth of the United States patent system supported their views regarding the patent eligibility of non-physical business methods. Dyk J expressed the view that ―patents registered in England under the Statute of Monopolies before 1793 were limited to articles of manufacture, machines for manufacturing, compositions of matter, and related processes.‖²²

Newman J, in dissent, took the opposite view, that the Statute of Monopolies only prohibited odious monopolies in favor of known industries, trades and

16 Brad Sherman and Lionel Bently, THE MAKING OF INTELLECTUAL PROPERTY LAW: THE

BRITISH EXPERIENCE,1760-1911 1 (1999) (hereinafter Sherman and Bently, THE MAKING OF);

Ramon A Klitzke, Historical Background of the English Patent Law, 41 JOURNAL OF THE

PATENT OFFICE SOCIETY 615, 615 (1959) (―The basic truths found by the English 400 years ago are still valid today and should continue to influence us in the interpretation and application of our law, even though it has become greatly refined and perfected.‖); Paul E Schaafsma, An Economic Overview of Patents, 79 JOURNAL OF THE PATENT &TRADEMARK OFFICE SOCIETY

241, 242 (1997) .

17 Benjamin Cardozo, THE NATURE OF THE JUDICIAL PROCESS 52 (1921).

18 21 Ja 1, c 3 (1623) (Eng.).

19 See for example Pennock v. Dialogue, 27 U.S. 1, 18, 7 L. Ed. 327 (1829) (Story J).

20 Graham v John Deere Co., 383 US 1, 6 (1966); In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc); National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (High Court of Australia).

21 In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc).

22 Id. at 970.

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products and processes, and that its enactment cannot be used in support of arguments today against the patenting of business methods and other non-physical methods.²³

It is apparent that economic, or ―business method,‖ or ―human activity‖ patents were neither explicitly nor implicitly foreclosed from access to the English patent system.²⁴

With the object of shedding light on the current uncertainty surrounding the patentability of knowledge and information-based method inventions, this article takes up the debate and examines the patent system from its earliest days in the Republic of Venice and in England, to its adoption in the United States of America, through to the present day. It does so with the aim of determining whether there is anything in the history of patent law and practice which reveals whether non-physical method inventions lie within the bounds of patent eligible subject matter, or whether they are inherently excluded from it.

Ⅱ.THE EARLY HISTORY OF PATENT LAW

The history of the patent system reveals it to be a tool to promote innovation and economic development. From its earliest days, monopoly protection has been granted to those who disclose new technological advances that promote the progress of the useful arts. Traditionally, this has been understood as being the domain of the industrial manufacturer, artisan, engineer and draftsman.²⁵ This history, coupled with the history of technology‘s development, has led to a generally-held expectation that patent protection is limited to innovation embodied in machines or other physical devices of industrial application and in manufacturing processes that involve manipulating or transforming physical matter.²⁶ However, these traditional conceptions do not necessarily accord with what is at law patent eligible. While the patent eligibility of machines and physically transformative methods is evident from the earliest patent cases,²⁷ it is

23 Id. at 988-9.

24 Id. at 989.

25 Richard H. Stern, Being Within the Useful Arts as a Further Constitutional Requirement for U.S. Patent-Eligibility, 31 EUR.INTELL.PROP.REV. 6, 15 (2009).

26 The King v. Wheeler (1819) 2 B & Ald 345, 349; 106 ER 392, 394-395; Diamond v Diehr, 450 US 175, 184 (1981) (―Industrial processes... are the types which have historically been eligible to receive the protection of our patent laws.‖); Lionel Bently and Brad Sherman, INTELLECTUAL PROPERTY LAW 310 (2nd ed, 2004) (―the image of the invention as the human intervention into nature that brings about a resulting physical change that underpins much contemporary jurisprudence, was well entrenched in British law by the mid-nineteenth century.‖).

27 See for example the discussion of cases such as Boulton and Watt v. Bull (1795) 1 H Bl 463;

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by no means the case that the history of patent law dictates that the scope of patent eligibility is limited to the classes of invention these traditional conceptions envisage.

There are many significant sources, written mainly in the twentieth century, that reveal the early history and rationale of patent law.²⁸ Those sources reveal that it is often mistakenly thought that the origins United States patent law and the legal concepts of invention and inherent patentability lie in the English

126 ER 651 (CP), Hornblower v. Boulton (1799) 8 TR 95; 101 ER 1285 (KB), The King v.

Wheeler (1819) 2 B & Ald 345; 106 ER 392 and Crane v Price (1842) 1 Web PC 393; 4 Man &

G 580; 134 ER 239.

28 E Wyndham Hulme, The History of the Patent System under the Prerogative and at Common Law, 12 L.Q.R. 141 (1896); E Wyndham Hulme, The History of the Patent System under the Prerogative and at Common Law – A Sequel, 16 L.Q.R. 44 (1900); E Wyndham Hulme, On the History of Patent Law in the Seventeenth and Eighteenth Centuries, 18 L. Q. R. 280 (1902); P J Federico, Origins and Early History of Patents, 11 JOURNAL OF THE PATENT OFFICE SOCIETY

294 (1929); D Seaborne Davies, Further Light on The Case of Monopolies, 48 L. Q. R. 394 (1932); Frank D Prager, A History of Intellectual Property from 1545 to 1787, 26 JOURNAL OF THE PATENT OFFICE SOCIETY 711 (1944); Frank D Prager, The Early Growth and Influence of Intellectual Property, 34 JOURNAL OF THE PATENT OFFICE SOCIETY 106 (1952); Frank D Prager, Historical Background and Foundation of American Patent Law, AMERICAN JOURNAL OF

LEGAL HISTORY 309 (1961); William Holdsworth, AHISTORY OF ENGLISH LAW (3^rd ed 1945) vol 4; Harold G Fox, MONOPOLIES AND PATENTS:ASTUDY OF THE HISTORY AND FUTURE OF THE PATENT MONOPOLY (1947); M Inlow, THE PATENT GRANT (1950); Ramon A Klitzke, Historical Background of the English Patent Law, 41 JOURNAL OF THE PATENT OFFICE SOCIETY

615 (1959); Christine MacLeod, INVENTING THE INDUSTRIAL REVOLUTION, THE ENGLISH

PATENT SYSTEM,1660-1800 (1988); Edward C Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 1), 76 JOURNAL OF THE PATENT &TRADEMARK OFFICE

SOCIETY 697 (1994); Edward C Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), 76 JOURNAL OF THE PATENT &TRADEMARK OFFICE SOCIETY 849 (1994); Edward C Walterscheid, The Early Evolution of the United States Patent Law:

Antecedents (Part 3), 77 JOURNAL OF THE PATENT &TRADEMARK OFFICE SOCIETY 771 (1995);

Edward C Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 4), 78 JOURNAL OF THE PATENT &TRADEMARK OFFICE SOCIETY 77 (1996); Edward C Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 5, Part I), 78 JOURNAL OF THE PATENT & TRADEMARK OFFICE SOCIETY 615 (1996); Edward C Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 5, Part II), 78 JOURNAL OF THE PATENT & TRADEMARK OFFICE SOCIETY 665 (1996); Edward C Walterscheid, To Promote the Progress of the Science and Useful Arts: The Background and Origin of the Intellectual Property Clause of the United States Constitution, 2 JOURNAL OF

INTELLECTUAL PROPERTY LAW 1 (1994); Edward C Walterscheid, To Promote the Progress of Useful Arts: American Patent Law and Administration, 1787-1836 (Part 1), 79 JOURNAL OF THE

PATENT &TRADEMARK OFFICE SOCIETY 61 (1997); Edward C Walterscheid, To Promote the Progress of Useful Arts: American Patent Law and Administration, 1787-1836 (Part 2), (1998) 80 JOURNAL OF THE PATENT &TRADEMARK OFFICE SOCIETY 11 (1997); Schaafsma, supra note 16; Adam Mossoff, Rethinking the Development of Patents: An Intellectual History, 1550-1800, 52 Hastings Law Journal 1255 (2000-2001).

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Parliament enacting the Statute of Monopolies in 1624.²⁹ In truth, those origins predate the Statute of Monopolies and lie in the practice of the English Crown granting monopoly rights in inventions that arose prior to the passing of that statute,³⁰ which itself was based on the early patent custom in the Republic of Venice.³¹

A. Early Patent Custom in the Republic of Venice

The Republic of Venice is credited as being the first jurisdiction to issue patents for invention, which it did in the fifteenth century. European patent custom developed from the desire of rulers to encourage the development of new industries within their realms. The idea of granting monopolies originated in early European commerce to encourage individuals, companies and cities to engage in commercial ventures that entailed great risk. Monarchs bestowed trading monopolies upon individuals or guilds. Although concentration of these rights in a limited number of individuals may have allowed industries to regulate their members and impose quality controls, they certainly deprived the public at large from exercising these privileges. These trading monopolies were grants of exclusive rights to practice a certain art, or to make, use or sell a certain article, the object being the promotion of new industries that would provide the realm with new and useful products made domestically without the need to import.³²

In Venice, as was the case throughout medieval Europe, commerce was dominated by guilds.³³ Whoever proposed a new technology needed a specially created power or licence, called a privilege, in order to make, sell or use a new invention, or would otherwise contravene existing monopolies granted in favor of the guilds. The privilege was not necessarily given to an individual, but could be thrown open to the public, nor was it necessarily given to the inventor or first importer of a new art.³⁴ A number of these patents were granted, an early example being the famous patent of 1469 granted to John of Speyer, a German

29 21 Jam 1, Ch 3 (1623) (Eng.).

30 Sherman and Bently, THE MAKING OF, supra note 16, at 208-209 citing United Kingdom, Parliamentary Debates, House of Commons, 14 February 1837, 36 Hansard col. 555 (W Mackinnon MP) (‗there was ―no express statute according to which patents might be granted…

the granting did not rest upon the foundation of statute law‖‘).

31 Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 1), supra note 28, at 710; MacLeod, supra note 28, at 11.

32 Federico, supra note 28, 292; Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, at 855, 856.

33 The guilds were a group of masters maintaining a monopoly over a particular trade. This control was maintained by fixing prices and standards; trading collectively with other groups;

defending their trade against others, including labourers and foreigners; and providing some security for aged and disabled members of the guild: see Prager, A History of Intellectual Property from 1545 to 1787, supra note 28, at 713.

34 Prager, The Early Growth and Influence of Intellectual Property, supra note 28, at 112;

Prager, A History of Intellectual Property from 1545 to 1787, supra note 28, at 714-715.

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printer, to protect the new art of printing that he introduced to the Republic. The patent ‗decreed that for five years next following there should be nobody whosoever who would, could, might or dare exercise said art of book printing in Venice and its territories, except master John himself.‘ The patent referred to the reservation of exclusive rights ‗[i]n the same manner as usual in other useful arts.‘³⁵ For a time, patents such as these were issued on a case-by-case basis before a general patent law was implemented.

The application of early patent law in Venice corresponded with the height of economic prosperity in the Republic from 1400 to 1550. Venice‘s economic prosperity and superiority were due to her being a dominant sea power in control of the then known major trade routes. That superiority dissolved with the discovery of new sea routes to the Far East around the Cape of Good Hope at the end of the fifteenth century. This marked the reversal of migration of skilled tradesmen and artisans, particularly glass workers, who had in the past moved to Venice, but later sought other parts of Europe, taking with them knowledge of Venice‘s patent custom. Following this migration, the use of grants of exclusive rights by governments to encourage inventive industry and the introduction of new technology emerged concurrently in several areas in Western Europe in the fifteenth and sixteenth centuries.³⁶

The earliest known general patent law is a Venetian statute of 1474 that granted a monopoly for 10 years to ‗every person who shall build any new and ingenious device‘.³⁷ The rationale behind these grants was arguably that the rewards of monopoly protection and recognition given would act as an incentive to spur further innovation.³⁸ The text of the Venetian statute of 1474 statute reads:

35 Giulio Mandich, Venetian Patents (1450-1550), 30 JOURNAL OF THE PATENT OFFICE SOCIETY

166 (1948) (trans by FD Prager), 169; Giulio Mandich, Venetian Origins of Inventor‘s Rights, 42 JOURNAL OF THE PATENT OFFICE SOCIETY 378 (1960) (trans by FD Prager); Prager, A History of Intellectual Property from 1545 to 1787, supra note 28, at 715, 750 (extracted and translated in full). According to Prager, this was the first known patent of monopoly preserved in the records of Venice, and there is a remark in the patent that it was a usual practice to grant such monopolies.

36 Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 1), supra note 28, at 710-711; Prager, A History of Intellectual Property from 1545 to 1787, supra note 28, at 720.

37 While it is generally regarded that the custom of granting patents originated in Italy, there is some question as to whether the practice began in Venice or Florence, see Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 1), supra note 28, at 707.

The Republic of Florence allegedly issued a patent to the architect and inventor, Filippo Brunelleschi in 1421 for his ship which transported the Carraran marble for the dome of the Florentine Duomo, however, it seems the practice was not continued: Bruce Bugbee, THE

GENESIS OF AMERICAN PATENT AND COPYRIGHT LAW 17-19 (1967).

38 Id.

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WE HAVE among us men of great genius, apt to invent and discover ingenious devices; and in view of the grandeur and virtue of our city, more such men come to us every day from divers parts. Now, if provision were made for the works and devices discovered by such persons, so that others who may see them could not build them and take the inventor‘s honor away, more men would then apply their genius, would discover, and would build devices of great utility and benefit to our commonwealth. Therefore: BE IT ENACTED that, by the authority of this Council, every person who shall build any new and ingenious device in this City, not previously made in our Commonwealth, shall give notice of it to the office of our General Welfare Board when it has been reduced to perfection so that it can be used and operated. It being forbidden to every other person in any of our territories and towns to make any further device conforming with and similar to said one, without the consent and license of the author, for the term of ten years. And if anybody builds it in violation hereof, the aforesaid author and inventor shall be entitled to have him summoned before any magistrate the said infringer shall be constrained to pay him hundred ducats; and the device shall be destroyed at once. It being, however, within the power and discretion of the Government, in its activities, to take and use any such device and instrument, with this condition however that no one but the author shall operate it.³⁹

Walterscheid opined that as the Venetian patent statute reveals all the fundamental features of today‘s patent system, it is the origin of modern patent law.⁴⁰ This statute clearly involves the use of exclusive rights as an economic tool to encourage technological progress within the Republic. The rationale behind the enactment is the provision of an incentive to invent by prohibiting free-riding to protect the ―inventor‘s honor‖ and presumably economic rights. It reveals novelty in protecting newly invented or imported devices not previously known within the city. It reveals inventiveness by use of the term ―ingenious device‖. It reveals utility in the form of a requirement that a device have ―been reduced to perfection so that it can be used and operated‖. There is a form of patent registration that provides a limited monopoly of ten years after which the device presumably falls into the public domain. There is an enforcement provision for actions against infringers that sets out a fine and provides for delivery up and destruction of offending articles. The patentee has the right to

39 Mandich, Venetian Patents (1450-1550), supra note 35, at 176-177.

40 Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 1), supra note 28, at 709-710. See also Prager, A History of Intellectual Property from 1545 to 1787, supra note 28, at 720; Bugbee, supra note 37, at 24.

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license the patented device, but perhaps not to assign it. Finally, the state is given the option of a compulsory license, with the proviso that ―no one but the author shall operate it.‖

As this early Venetian statute specifically provides that rights of exclusivity will be granted to anyone who builds ―any new and ingenious device in the city‖, it is clear that the statute is directed to the development of an innovation system centred around the invention (or importation) of new physical and tangible devices. This focus on the need for a physical embodiment in the subject matter of a patent was arguably a by-product of the conceptions of technology held at the time, rather than perhaps a hard-and-fast rule for patentability that would last for all of time.

The Italian experience with patents was replicated in other countries, notably in the English patent practice and, later, patent system.

B. The Early English Patent Custom

The concepts observed in this early Venetian patent practice were adopted in the later English patent practice as a means of encouraging the bringing of new manufactures to the realm. In turn, the origins of modern patent law, and the legal concepts of invention and patentability lie in the custom of the English Crown awarding grants of monopoly rights by letters patent (literally meaning ―open letters‖)⁴¹ in exercise of the Royal prerogative to produce specific goods or provide specific services.⁴² Patents at that time were not understood to have the precise and technical meaning that that have acquired over the last 200 years of a grant by the State of monopoly rights to exploit an invention, being a product or process, for a limited period. Rather, the early English patent custom reveals that letters patent were awarded as a tool of industrial innovation policy designed to bring new trades, industries and devices to the realm. During the Middle Ages, England was largely a pastoral, agricultural and mining community dependent on imports of manufactured items in exchange for its raw cloth, wool, hides, tin and lead. Letters patent were used to attract skilled tradesmen to work in England and

41 Letters patent are a particular form of instrument by which the wishes and commands of the Crown are made known to the public at large or to the particular individuals concerned: Prestige Group (Australia) Pty Ltd v Dart Industries Inc (1990) 26 FCR 197, 214 (Federal Court of Australia).

42 William Blackstone, 2 COMMENTARIES ON THE LAWS OF ENGLAND (Robert M. Kerr ed., 4th ed., 1876) 316-317 (1768) (―The king‘s... grants, whether of land, honors, liberties, franchises, or aught besides, are contained in charters, or letters patent, that is, open letters, literae patentes:

so called, because they are not sealed up, but exposed to open view, with the great seal pendant at the bottom; and are usually directed or addressed by the king to all his subjects at large.‖). In contrast to the open letters of letters patent were letters close. Monarchs in England did much of the business of the state by means of charters, letters patent, and letters close. Letters patent were used to set forth their public directives, whereas letters close were used to provide private instructions to individuals.

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as a tool of regional economic and technological development. Beginning in the fourteenth century, King Edward III issued letters patent to foreigners willing to come to England to train subjects in their respective trades in key domestic industries.⁴³ However, these were not patents as we understand them today. They were simply royal licences to allow the recipient to operate in an area that was otherwise within the monopoly control of one of the guilds. Patents were awarded at the request of the petitioner and granted by the grace of the monarch. The early English patent custom thus involved privileges rather than property rights as such, which could be revoked at any time without reason.

C. Patents Under Queen Elizabeth I

It was not until the reign of Queen Elizabeth I (1558-1603) during the middle of the 16th century, however, that we find a truly modern patent grant; one which involved the Crown issuing letters patent to individuals for manufacturing monopolies in accordance with recognized legal principles.⁴⁴ From early in her reign, Queen Elizabeth I pursued an innovation policy to enable England to attain economic power and strength relative to other nation states by regulating commerce and industry in such a way as to favor the creation of new industries and trades. This was to be achieved by stimulating the domestic production of raw and manufactured goods and to foster the creation of local industries to manufacture products that would otherwise have been imported. Elizabeth‘s innovation policy focussed on introducing new trades and industries to the realm and avoiding interference with existing trades and industries and the livelihoods of the established workforce.⁴⁵ This view is substantiated by Lord Coke‘s argument against monopolies made at the time.

43 Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, at 851-852; Schaafsma, supra note 16, at 242; Klitzke, supra note 28, at 620-625;

MacLeod, supra note 28, at 10-11.

44 Seaborne Davies argues that under Elizabeth, in 1561, patent law was introduced in England

―as a system‖: D Seaborne Davies, supra note 28, at 396 ("the Patent System was introduced into England as a system in the second year of Elizabeth's reign); James Lahore, The Legal Rationale of the Patent System (Speech delivered at Healesville, 7 and 8 November 1980) in AUSTRALIAN PATENT OFFICE (ed), The Economic Implications of Patents in Australia, 10, 11 (1981).

45 Hulme, The History of the Patent System under the Prerogative and at Common Law, supra note 28, at 151-152; Hulme, The History of the Patent System under the Prerogative and at Common Law – A Sequel, supra note 28, at 44, Holdsworth, supra note 28, at 314-343;

Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, at 855-859; Klitzke, supra note 28, at 624-625. MacLeod, supra note 28, at 12-13, 18;

Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, at 859.

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[A] mans trade is accounted his life, because it maintaineth his life;

and therefore the monopolist that taketh away a mans trade, taketh away his life, and therefore is so much the more odious.⁴⁶

For Elizabeth, innovation meant bringing new technology to the realm, rather than invention as we understand the meaning of that term today, as patents were granted both to new inventors and those who first introduced an invention into the realm through importation.⁴⁷ Thus, the early English patent custom reflects mercantilist ideas by providing incentives to merchants who had the contacts and the capacity to bring new technologies to England.⁴⁸

According to Hulme, the term, inventor, was used to denote the person importing a new art into the realm or the first finder or creator of a new product or process, the rights of the inventor being derived from those of the importer.⁴⁹ Use of the phrase, ―invention and a new trade‖ was used to mean the importation of a new trade or industry, whereas the term, discovery, was used to mean what we in contemporary language describe as an invention, being the use of inventive mental facility to produce something new and non-obvious.⁵⁰

The rule that an inventor included the first importer of patentable ideas was laid down in the early case of Edgeberry v Stephens,⁵¹ and followed in Boulton and Watt v. Bull.⁵² In Boulton and Watt v. Bull, Eyre CJ noted that Edgeberry v Stephens:

establishes, that the first introducer of an invention practised beyond the sea, shall be deemed the first inventor; and it is there said the act is intended to encourage new devices useful to the kingdom and whether acquired by travel or study, it is the same thing.⁵³

His Honor went on to note that:

Whether this construction be logically correct is not material; but it is of greatest importance for the improvement of the trade of the realm

46 Edward Coke, 3 INSTITUTES OF THE LAWS OF ENGLAND 181 (1628).

47 Edgeberry v Stephens (1697) 2 Salkeld‘s Reports 447, followed in Boulton and Watt v. Bull (1795) 1 H Bl 463; 126 ER 651 (CP). See also Moser v Marsden (1893) 10 RPC 350, 359 (Lindley LJ).

48 Hulme, The History of the Patent System under the Prerogative and at Common Law, supra note 28, at 151-152.

49 Id.

50 Id. at 52-53; Hulme, On the History of Patent Law in the Seventeenth and Eighteenth Centuries, supra note 28, at 280-281.

51 (1697) 2 Salkeld‘s Reports 447.

52 (1795) 1 H Bl 463; 126 ER 651 (CP).

53 Id. at 665.

51

that all possible encouragement should be given to the introduction of discoveries useful to man from every region of the globe‘.⁵⁴

Encouraging entrepreneurs to assume the costs and risks associated with introducing a new trade or industry required a powerful incentive in the form of the potential to earn a substantial economic return without causing substantial costs to be incurred by the Crown. A critical component of the policy was the acquisition of superior technology from the Continent, particularly technology that figured in the products most frequently imported into the Kingdom.⁵⁵ Thus, monopolies were primarily granted for the importation of new industries and many went to aliens or naturalised subjects of the Crown.⁵⁶ Patents were not awarded in recognition of some natural right in favor of an inventor to control the use of his or her ideas.⁵⁷

The industrial policy of the time and the rationale behind the Crown granting monopoly rights can be inferred from the conditions attaching to the grants.

Failure to comply with conditions attaching to a grant constituted grounds for revocation of the patent in any action for a writ of scire facias. Generally, conditions would require the grantee to undertake not only to introduce the new art, trade or industry, but also to practice or work it in the Kingdom within a specified time, which might have been as short as two months or as long as three years. Another requirement was that the patentee employ and train local English artisans to practice the art that was the subject of the grant, for the purpose of assuring the establishment of the industry in England and to boost employment.

As Elizabeth I‘s reign progressed, a more general revocation clause came into use allowing the Crown to revoke a patent granted for what is broadly described as its

‗inconveniency‘, which was designed to prevent monopolies that would impede employment and make men idle.⁵⁸ A patent grant was made under the royal prerogative, and was therefore entirely at the discretion of the Crown. The Crown was also free to revoke a patent, as it was expected to do if the monopoly were found to be prejudicial to the common good.⁵⁹ According to Lahore, from this

54 Id. at 666.

55 Marsden v Saville Street Co (1878) 3 Ex 203, 206; Plimpton v Malcolmson (1876) 3 Ch D 531, 555-556 (George Jessel MR); In re Wirth‘s Patent (1879) 12 Ch D 303, 304; In re Avery‘s Patent (1887) 36 Ch D 307, 316-317.

56 Hulme, The History of the Patent System under the Prerogative and at Common Law, supra note 28, at 152; Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, at 855-857; MacLeod, supra note 28, at 11.

57 MacLeod, supra note 28, at 53. See also Mossoff, supra note 28, at 1256-1257.

58 Hulme, The History of the Patent System under the Prerogative and at Common Law, supra note 28, at 153; E Wyndham Hulme, On the Consideration of the Patent Grant, Past and Present, 13 L. Q. R. 313, 313-314.

59 Prager, A History of Intellectual Property from 1545 to 1787, supra note 28, at 741.

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early patent practice of the early seventeenth century we see the basic features of our modern patent system.⁶⁰

While many of the grants made under the exercise of the Royal prerogative by Elizabeth I and James I were genuinely intended to encourage new and useful arts, many were said to be an abuse of that power to reward royal favorites or a means of generating income. It was alleged that in practice the Crown granted monopolies for the making or importing of products regardless of whether the patentee was the inventor or had brought a new product into the realm. Often these monopolies were granted in relation to commodities already in use.

Sometimes monopolies were created over necessities such as salt, starch, saltpetre, paper and glass, thereby harming the existing trade in known commodities.⁶¹ According to one commentator, the ‗financial returns to the Crown were at the most negligible, and, while it may be admitted that fiscal policy and the hope of raising revenue were contributing factors, they were not the main nor even an important motivating force‘.⁶² Others have argued that the complaints against the patent system were a result of a decline in prosperity in the last decade of the sixteenth century and the first impulse was to seek redress from real or imaginary abuses including the grant of monopolies.⁶³

Outrage at what were perceived as the Crown‘s abuses was expressed in 1601 during Elizabeth‘s last Parliament. The struggle that ensued between Parliament and the Queen was one of the most significant in English constitutional history. At stake were the royal prerogative and its pre-eminence over the power of Parliament. The struggle was temporarily stayed when Elizabeth I issued a proclamation in Parliament that revoked a great number of objectionable patents and gave the common law courts the power to determine the validity of monopolies granted by the Crown. Her Majesty thereby abandoned her claim to settle disputes arising from the grant privileges under the royal prerogative and even showed indignation that she had been tricked into making such grants.⁶⁴ That, however, was not the end of the matter, as the common law was soon called upon to address the issue.

It was the grant to a groom of Queen Elizabeth‘s Privy Chamber, Edward Darcy that led to the first common law judicial decision to challenge the nature of the Crown‘s power to grant monopolies and the nature and power of the royal

60 Lahore, supra note 44, at 13.

61 Holdsworth, supra note 28, at 347; Federico, supra note 28, at 299; Schaafsma, supra note 16, at 245; Lahore, supra note 44, a t11; Bugbee, supra note 37, at 37.

62 Fox, supra note 28, at 188.

63 Chris Dent, Patent Policy in Early Modern England: Jobs, Trade and Regulation, 10 LEGAL

HISTORY 71, 75 (2006) citing Walter Scott, THE CONSTITUTION AND FINANCE OF ENGLISH, SCOTTISH AND IRISH JOINT STOCK COMPANIES TO 1720 vol 1 107 (1912) and R Ashton, THE

ENGLISH CIVIL WAR:CONSERVATISM AND REVOLUTION 1602-1649 87-88 (2^nd ed 1989).

64 Holdsworth, supra note 28, at 348-349; Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, at 866-867.

53

prerogative. The case was Darcy v. Allen (also known as The Case on Monopolies).⁶⁵ It involved the grant of an exclusive right issued in 1598 to Edward Darcy to manufacture, import and sell playing cards in England and its dominions, even though the manufacture of playing cards was an established industry. Many vigorously infringed the monopoly. When Allen, a London haberdasher infringed the patent, Darcy brought suit. Allen admitted selling the cards, but pleaded a right to do so. It was argued on behalf of the patentee that the Crown had the sole prerogative in matters of pleasure and recreation and that the grant had been given to control the number of playing cards in circulation and the time spent by servants and apprentices playing cards. The King‘s Bench decided the case in the Easter term of 1603 after the Queen‘s death in 1602. A verdict against Edward Darcy in favor of the defendant, Allen was given.

No written opinions were given, and in the absence of reasons, counsel‘s argument for the defence was reported in full and is regarded as being representative of the court‘s reasoning. The report reveals that, as a rule, monopolies were stated to be generally contrary to law because they are not for the benefit of the realm, raise prices, reduce the merchantability of goods and reduce employment.⁶⁶ However, an argument made on behalf of the defendant expressed one exception to the rule against monopolies that has become a classic principle. That exception was made in favor of monopolies for invention and importation, limited in duration.

[W]hen any man by his own charge and industry, or by his own wit and invention doth bring any new trade into the realm, or any engine tending to the furtherance of a trade that never was used before; and that for the good of the realm;-in such cases the king may grant to him a monopoly-patent for some reasonable time, until the subjects may learn the same, in consideration of the good he doth bring by his invention to the commonwealth, otherwise not‘.⁶⁷

65 Jacob I Corré, The Argument, Decision and Reports of Darcy v. Allen (1996) 45 Emory Law Journal 1261, 1261. The fame of Darcy v. Allen is largely due to the reports of Sir Edward Coke:

(1603) 11 Coke Rep 84b, 77 Eng Rep 1260. Coke appeared as Attorney-General before the Kings Bench in Darcy v. Allen, was one of the reporters of the case and was involved in drafting of the Statute of Monopolies. Two other reports exist: (1603) 72 Eng Rep 830 (Moore 671);

(1603) Noy 173, 74 Eng Rep 1131.

66 Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, 868-869 citing (1603) 11 Coke Rep 84b, 77 Eng Rep 1260, 1263.

67 Extracted in Federico, Origins and Early History of Patents, supra note 28, at 301 and Lahore, supra note 44, at 12.

54

It is said that the arguments put to the court reflect the common law principles relating to monopolies and have formed the basis of patent systems in England, its dominions, the United States, and many other foreign states.⁶⁸

The Clothworkers of Ipswich,⁶⁹ decided in 1615, was the second important case decided before the passing of the Statute of Monopolies, in which the common law courts had an opportunity to deal with the limits of the prerogative to grant patents. The case involved a claim made by a group of tailors incorporated and chartered by King James I to conduct their business in Ipswich against a tailor who was not part of the corporation but practiced his trade in the town. The court stated that the Crown could create corporations with power to make ordinances governing trade, but the power granted did not extend to the creation of a monopoly harmful to free trade. The case report reads as follows.

[I]t was agreed by the Court, that the King might make corporations...

but thereby they cannot make a monopoly for that is to take away free-trade, which is the birthright of every subject.... But if a man hath brought in a new invention and a new trade within the kingdom, in peril of his life, and consumption of his estate or stock, &c. or if a man hath made a new discovery of any thing, in such cases the King of his grace and favor, in recompence of his costs and travail, may grant by charter unto him, that he only shall use such a trade or trafique for a certain time, because at first the people of the kingdom are ignorant, and have not the knowledge or skill to use it: but when that patent is expired, the King cannot make a new grant thereof: for when the trade is become common, and others have been bound apprentices in the same trade, there is no reason that such should be forbidden to use it.⁷⁰

According to Mossoff, the judgment contains all the conditions necessary for the grant of letters patent in the mid-sixteenth century, namely that: the justification for the monopoly is that new industries are introduced into the realm and that no monopoly can issue for pre-existing industries; the monopoly rewards the labour and costs of the inventor; the patentee is to train Englishmen in the trade; and that patents are royal grants of privilege given solely for the purpose of achieving policy objectives based upon the common good.⁷¹

68 Lahore, supra note 44, at 11-12 citing Fox supra note 28.

69 (1615) Godbolt 252; 78 ER 147 (King‘s Bench) (the case is otherwise known as The Case of the Taylors of Ipswich).

70 (1615) Godbolt 252, 253-254; 78 ER 147, 148 (King‘s Bench).

71 Mossoff, supra note 28, at 1270.

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D.The Statute of Monopolies

James I, who succeeded Elizabeth in 1603 shortly before Darcy v. Allen was decided, was caught in the same struggle on the question of monopolies as his predecessor. His needs and those of his courtiers demanded that patents be freely granted, while Parliament, in contrast, demanded their regulation.

Notwithstanding the outcome in Darcy v. Allen, James continued issuing odious monopolies over existing trades and products. In the face of continuing political pressure, James issued in 1610 a ‗Declaration of His Majesty‘s Pleasure‘ which became known as the Book of Bounty, which is said to have provided a statement acknowledging the common law principles arising from the reports in Darcy v.

Allen.⁷²

Shortly thereafter, in May 1624, Parliament enacted the Statute of Monopolies.⁷³ The Statute of Monopolies reflected the common law‘s suspicion of monopolies, but recognised nonetheless that monopolies limited in duration have the potential to serve the public interest by providing an incentive to invent.

The principal purpose of the Statute of Monopolies was to declare all grants of monopolies void, other than patents for invention, which it allowed for a limited duration.⁷⁴

From a constitutional perspective, the Statute of Monopolies represents an incredible assertion of Parliamentary power and an assertion that the Kingdom was to be ruled by common law, rather than royal prerogative. The object of the passing of the Statute of Monopolies is said to be the curtailment of the practice of the Crown in granting monopolies to court favorites in goods or businesses which had long before been enjoyed by the public,⁷⁵ a practice considered to be contrary to the common law. Thus, the Statute of Monopolies was little more than a declaration of the common law principles then in existence, with the exceptions that it fixed a maximum term of fourteen years and transferred jurisdiction for hearing patent disputes from the Exchequer to the common law courts.⁷⁶

72 Fox, supra note 28, at 96-97.

73 21 Jam 1, Ch 3 (1623) (Eng.). The Statute of Monopolies is the short title of the Act. The long title is ‗An Act Concerning Monopolies and Dispensations with Penal Laws and the Forfeiture Thereof‘.

74 Section 1 of the Statute of Monopolies provides that the central objective of the statute is to encourage free trade and competition by rendering void all monopolies, including those granted under the authority of letters patent. Section 1 provides: ‗All monopolies and all commissions, grants, licenses, charters and letter patent theretofore made or granted or heretofore to be made or granted to any person or persons, bodies politic or corporate whatsoever, of or for the sole buying, selling, making or using of anything within this realm… are utterly void and of no effect.‘

75 Graham v John Deere Co., 383 US 1, 5 (1966) citing Meinhardt, INVENTIONS,PATENTS AND

MONOPOLY 30-35 (1946).

76 Hulme, The History of the Patent System under the Prerogative and at Common Law, supra note 28, at 151-152; Hulme, The History of the Patent System under the Prerogative and at Common Law – A Sequel, supra note 28, at 44; Lahore, supra note 44, at 15; Justine Pila, The

56

Section 6 of the Statute of Monopolies set out the exception in favor of patents for invention and the conditions to be satisfied in order for a patent to be granted. The statute provided that the prohibition against monopolies:

shall not extend to any [letters] Patents and Graunt of Privilege for the tearme of fowerteene yeares or under, hereafter to be made of the sole working or makinge of any manner of new Manufactures within this Realme, to the true and first Inventor and Inventors of such Manufactures, which others at the tyme of makinge such [letters]

Patents and Graunts shall not use, soe as alsoe they be not contrary to the Lawe nor mischievous to the State, by raising prices of Commodities at home, or hurt of Trade, or generallie inconvenient …

The Statute of Monopolies, making reference to a ―grant of privilege‖, did not change the position at law of applicants, who did not have a right to be granted a patent, but were still in the position of a petitioner seeking the monarch‘s favor and were not granted property rights. Likewise, the words ―true and first inventor‖, referred to the person responsible for the introduction of the invention into England. Coke, writing contemporaneously, explained the reasoning behind the sort of monopoly permitted by section 6 of the Statute of Monopolies as being:

because the inventor bringeth to & for the Commonwealth a new manufacture by his invention, cost and charges, and therefore it is reason, that he should have a privilege for his reward (and the encouragement of others in the like) for a convenient time.⁷⁷

Here we have a contemporaneous statement of one involved in the drafting and passage of the Act that describes the incentive function of patent law. In fact,

Common Law Invention in its Original Form, I. P. Q. 209, 223 (2001); Federico, Origins and Early History of Patents, supra note 28, at 302-303; Inlow, supra note 28, at 31; Fox supra note 28, at 115-118, 125. It is not known why the term of 14 years was chosen, but it is probably the sum of two seven-year apprenticeship terms, as it was often the case that one of the conditions attached to the patent was an undertaking by the patentee to train apprentices in the invention.

Once the patent owner had trained two cohorts of apprentices, the invention could be freely used by all, which emphasises that importing new skills was a focus of the system: Walterscheid, The Early Evolution of the United States Patent Law: Antecedents (Part 2), supra note 28, a 867 n 111 citing Coke, 3 Institutes of the Laws of England (1628) 184 (Coke favored a term limited to one apprenticeship period of seven years); Federico, Origins and Early History of Patents, supra note 28, at 304; Hulme, The History of the Patent System under the Prerogative and at Common Law, supra note 28, at 153-154.

77 Coke, Institutes of the Laws of England, supra note 46, at 184.