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Abstract

The U.S. Supreme Court’s decision in Graham v. John Deere (1966) placed neoclassical economic insights at the heart of modern patent law. But economic theory has moved on. Since the 1990s, legal scholars have repeatedly mined the discipline to propose ad hoc rules for individual industries, such as biotech and software. So far, however, they have almost always ignored the literature’s broader lessons for doctrine. This article asks how well today’s patent doctrine follows and occasionally departs from modern economic principles. The analysis begins by reviewing what neoclassical economists have learned about innovation since the 1970s. Legal scholars usually divide this literature into a half-dozen competing and distinct “theories.” Naively, this seems to suggest that any patent doctrines based on these theories must be similarly fragmented. This article offers a way out: far from being in conflict, the putatively separate “theories” share so many common assumptions and mathematical methods that they can usefully be analyzed as special cases of a single underlying theory. Furthermore, much of this theory is known. In particular, it predicts that any economically efficient patent system must accomplish three tasks: (1) limiting reward to non-obvious inventions; (2) choosing patent breadth to balance the benefits of innovation against the costs of monopoly; and (3) prescribing rules for allocating patent rewards where multiple inventors contribute to a shared technology. Remarkably, patent doctrine uses Graham’s PHOSITA concept to address all three principles. This means that doctrinal solutions for one principle can have unintended impacts on the others. This article shows that any doctrinal architecture built on Graham’s PHOSITA test automatically allocates reward among successive inventors. Though reasonable, these default outcomes fall short of the economic ideal. This article analyzes how changes in the Utility, Blocking Patents, Reverse Doctrine of Equivalents, and the Written Description doctrines can mitigate this problem. However, other gaps are inherent and cannot be eliminated without abandoning Graham itself. This radically revised architecture would probably cause more problems than it solves.

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