The U.S. Supreme Court vs. the U.S. Congress: A Public-Choice Perspective on the Divergence in Patent Reform
Grounded in the U.S. Constitution, the American patent system aims to promote innovation by granting inventors temporary monopolies to recoup their investments. While this intellectual property (IP) protection can stimulate research and development across various economic sectors, it also creates opportunities for gamesmanship and exploitation by special interest groups. Indeed, the political pressures and rent-seeking behavior reshaping the patent system may deter innovation and economic progress. The pharmaceutical industry, in particular, actively engages in lobbying activities to develop a more favorable framework for maximizing profits through patents. Considering that patents effectively create a government-protected monopoly, a profit-maximizing strategy that limits competition can reduce consumer welfare, particularly when patent protection extends beyond the initial period of exclusivity.
There is a significant divergence between how the U.S. Supreme Court and the U.S. Congress respond to such concerns. This piece examines the Supreme Court’s consistent rulings in favor of patent reforms that clarify the role of patents and abuses by patent holders, while Congress continues to pursue legislation to expand monopoly rights. From a public-choice economics perspective, this divergence illuminates the power of concentrated interests in shaping legislation, often at the expense of more dispersed concerns over the potential costs and consumer harms of legislative change.
The U.S. Patent System
The U.S. patent system reflects the economic principle that a temporary period of exclusivity creates an incentive to innovate. However, the optimal balance between inventors’ rights and consumer welfare has been a subject of ongoing debate since the first Patent Act passed in 1790. The law has been revisited on various occasions to clarify what is patentable, to set the duration of a patent (currently 20 years), to create the U.S. Patent and Trademark Office (USPTO), and to establish a framework for patent examination, but its fundamental purpose has been consistent: promote invention and innovation by protecting inventors’ IP.
An increase in patent litigation in the early 2000s raised new questions about the quality of patents issued by the USPTO. The 1998 State Street decision by the U.S. Court of Appeals for the Federal Circuit opened the floodgates for business-method patents and spawned a dramatic rise in patent litigation, particularly in the emerging technology sector. Critics argued that many of these business-method patents failed to meet the legislatively required “non-obvious” and “novel” criteria for patent eligibility. The resulting low-quality patents facilitated abuse by “patent trolls” who amass patent portfolios not to produce products, but to extract licensing fees or settlements from alleged infringers.
Patent-infringement litigation, even if frivolous, is costly and time-consuming—generating widespread calls for patent reform in the business community at large. The issue is exacerbated by overly broad or vague patents that make it difficult for innovators to determine whether their inventions might infringe upon another’s existing IP rights.
In 2011, Congress passed the Leahy-Smith America Invents Act (AIA) to improve patent quality and reduce litigation abuse. Among other things, the AIA included a new tribunal at the USPTO for challenging weak patents that is less costly and time-consuming than a lawsuit. Importantly, it addressed widespread concerns in the business community about the detrimental effects of the much-abused patent system and accompanying patent litigation. Interest in patent abuse has waned in the years since the AIA passed, and the larger coalition of interests that gave rise to the act has dispersed, leaving patent holders as the most vocal interest group on patent reform. Consequently, much of the legislative debate focused on strengthening the rights of patent owners by reversing both Supreme Court precedent and AIA provisions.
The Supreme Court and Patent Policy
Following the surge of litigation inspired by the State Street decision, the U.S. Supreme Court issued several landmark decisions that have reshaped the patent landscape, generally favoring reforms that improve patent quality and minimize opportunities for abuse or gamesmanship by patent holders.
Bilski v. Kappos (2010). This decision narrowed the scope of patent eligibility, effectively closing the door on the problematic business-method and software patents permissible under the State Street decision. The Supreme Court ruled that the machine-or-transformation test (under which a patent claim qualifies for consideration if the process either is implemented by a particular machine in a non-conventional and non-trivial manner or else transforms an article from one state to another) is not the sole test for determining patentability and that abstract ideas are not patentable.
Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012). This case involved a patent on a method for determining the optimal dosage of a drug. The Supreme Court ruled unanimously that the patent was invalid because it effectively claimed patentability for a law of nature (the body’s reaction to a particular drug). This is not patentable subject matter; rather, any patent application centered on a law of nature must include additional elements in order to establish a patentable claim.
Association for Molecular Pathology v. Myriad Genetics, Inc. (2013). In a unanimous decision with significant impacts on both biotechnology and genetic research, the Court ruled that human and other naturally occurring gene sequences are not patentable, even when isolated from the genome. Again, concerned about potentially adverse impacts on innovation and discovery, the Court asserted that, absent additional human intervention, neither laws of nature nor natural phenomena are eligible for patents.
Alice Corp. v. CLS Bank International (2014). This case further refined and narrowed the scope of patent-eligible subject matter, particularly for business-method and software patents, which, as noted, had become problematic after the State Street decision. The Court established a two-step test that determines whether a patent application’s claims relate to an abstract idea and whether the patent application’s claims transform that abstract idea into a patent-eligible invention.
Nautilus, Inc. v. Biosig Instruments, Inc. (2014). Here, the Court addressed the problem of overly broad or ambiguous patent claims. Patent claims must be clear enough for experts in the field to understand what the invention covers; otherwise, the patent may be held invalid for reasons of indefiniteness. Specifically, Section 112 of the U.S. Patent Act requires that patent claims be definite. This decision elevated the standard for clarity when filing for a patent. In other words, a patent is granted with the expectation that it will contribute to the intellectual commons, and a lack of clarity with respect to the scope of the invention impedes this expansion of knowledge.
Octane Fitness, LLC v. ICON Health & Fitness, Inc. (2014). This decision lowered the bar for “fee shifting,” or awarding attorney fees to the prevailing party in patent cases. The Court found that an “exceptional” case (which justifies fee shifting) can include considerations like whether a party’s case is especially weak or unreasonable. The goal was to discourage litigation brought by patent assertion entities (the “patent trolls” from earlier) using frivolous or unreasonable litigation tactics. The decision was motivated by a desire to combat perceived abuses and excessive litigation in the patent system.
Highmark Inc. v. Allcare Health Management Systems, Inc. (2014). Released in conjunction with its Octane Fitness decision, the Supreme Court held that appeals courts should defer to district courts’ determinations as to whether to award attorney fees in patent cases. This decision was a clear attempt to address the issue of frivolous patent litigation by granting more authority to district courts when considering fee shifting in instances of unreasonable or weak patent litigation.
Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. (2015). In this case, the Supreme Court held that a district court decision about claim construction in a patent case must be viewed as fact rather than as law and, therefore, should receive substantial deference when reviewed by the Federal Circuit Court. In other words, when reviewing a decision, the higher court should defer to the lower court with respect to findings of fact and technical details, such as the specific language in a patent claim. According to the decision, the higher court also should focus more on the application of the law rather than a review of the facts. By increasing deference to the factual findings of the lower court, this decision aimed to improve the ability of lower courts to resolve patent litigation decisively.
TC Heartland LLC v. Kraft Foods Group Brands LLC (2017). This case significantly restricted the locations where patent infringement lawsuits can be filed, effectively ending the practice of forum shopping in patent cases—particularly in the Eastern District of Texas, where a single judge in a town of 24,000 was handling 25 percent of the nation’s patent litigation. This decision continued the broader trend of U.S. Supreme Court rulings aimed at reining in perceived abuses in patent litigation.
Oil States Energy Services, LLC v. Greene’s Energy Group, LLC (2018). In this case, the Supreme Court upheld the constitutionality of the inter partes review (IPR) process, the administrative process for challenging the validity of patents before the USPTO’s Patent Trial and Appeal Board (PTAB). The Court made the important distinction that patents are a public right granted by the government and are legally different from tangible, physical property rights. Accordingly, a non-Article III tribunal can review patents outside of the regular court system. In addition to upholding the IPR process established under the AIA, this decision highlighted the differences between physical property rights and the rights imbued in a patent.
In summary, these 10 rulings reflect a growing concern within the U.S. Supreme Court about the economic costs of overly broad patent protections. In general, the Supreme Court has pursued a more balanced patent system while taking steps to combat gamesmanship and frivolous litigation. As a result, the Court has narrowed the scope of patent eligibility—particularly for abstract ideas, business methods, and software—while emphasizing the need for clearer, more precise patent claims. This trend aims to improve patent quality and prevent overly broad and low-quality patents from stifling innovation.
Congress Strikes Back
Because the Supreme Court remains insulated from direct lobbying pressures, it has been easier for them to consider the broader economic impact of patents as well as the interests of more dispersed groups that may not have a strong voice in the legislative process. In recent years, Congress has countered the Court’s public-interest focus with legislation that strengthens or expands patent holder rights.
This divergence can be explained through the lens of public-choice economics, which examines the economics of political decision making. In particular, public-choice scholars have found that well-organized interest groups and corporations, in advocating for policies that directly benefit their specific interests, traditionally have had a disproportionate influence on legislation due to the more concentrated nature of the pressure they can apply to decision makers (as opposed to the more diffuse pressure available to the general public). In this respect, the patent system’s recent and publicly adverse evolution can be seen as the result of competing interest groups vying for favorable legislative outcomes. Therefore, it should not be surprising that the lucrative, heavily patent-dependent pharmaceutical and health care products sector boasted 2023’s highest annual lobbying expenditures, totaling more than $382 million; the pharmaceutical manufacturers trade association, Pharmaceutical Research and Manufacturers of America (PhRMA) spent $27.6 million by itself.
While the AIA aimed to improve patent quality and reduce litigation, it was enacted in the wake of widespread concerns over frivolous patent litigation that reached far beyond the ambit of traditional groups focused on patent policy. This broader support created a winning coalition that helped ensure the AIA’s passage. Yet, once these concerns were addressed, the larger group dissipated—yielding power to more concentrated interests like the pharmaceutical industry, whose influence is reflected in recent legislative efforts on patent reform, primarily focused on two main targets: (1) reversing key Supreme Court decisions on patent eligibility, such as those referenced above, for the benefit of patent owners; and (2) limiting the scope of USPTO patent reviews established in the AIA and validated by the Supreme Court.
The Patent Eligibility Restoration Act (PERA), for example, is a bill introduced by Sens. Thom Tillis (R-N.C.) and Chris Coons (D-Del.) to reform Section 101 of the U.S. Patent Act, which defines what can be patented. The bill would expand patent eligibility by overriding Supreme Court decisions that narrow the scope of patentable subject matter. PERA would make it easier to seek patents in fields like biotechnology and diagnostic testing, in which the Supreme Court has raised concerns over problematic patents based on abstract ideas and/or laws of nature. Significantly, overly broad patents in these fields would limit follow-on research and innovation to the detriment of consumers and patients.
Similarly, the Promoting and Respecting Economically Vital American Innovation Leadership Act, introduced by Sens. Coons, Tillis, Dick Durbin (D-Ill.), and Mazie Hirono (D-Hawai‘i), aims to narrow the patent review process, making it more difficult to invalidate questionable patents. The act proposes several changes to the PTAB’s IPR process, including limiting who can challenge patents, restricting the number of challenges allowed, and increasing the burden of proof for invalidating patents. These and other changes would make patent challenges even more costly and time-consuming, reduce incentives for improving patent quality, and make it easier to create and defend patent thickets (dense webs of patents surrounding the main patent)—moves that ultimately could hinder competition, particularly from generic drug manufacturers, and could potentially lead to higher drug prices for consumers.
The fact that the most prominent legislative initiatives on patent reform favor patent holders aligns with public-choice theory, which predicts that concentrated interests (in this case, PhRMA and its member companies) are more likely to influence legislation than are dispersed interests that ultimately bear the costs resulting from adverse legislative changes.
The success of patent holders in pushing for favorable legislation is attributable to their ability to organize effectively, pool resources for lobbying, and articulate clear benefits from legislation change. At the same time, the costs of these measures would be widely dispersed across consumers and taxpayers, making it difficult to organize a countervailing interest group.
Conclusion
The divergence between the U.S. Supreme Court’s approach to patent reform and recent initiatives in the U.S. Congress highlights the political challenges inherent in shaping patent policy. While the Supreme Court has consistently ruled in favor of reforms that clarify patent eligibility, improve patent quality, and limit abuses by patent holders, Congress frequently has pursued legislation that would strengthen the monopoly rights of patent owners. This contrast can be understood through the application of public-choice economics, which illuminates how concentrated interests, such as the pharmaceutical industry, can exert disproportionate influence on specific legislative policies despite these policies’ potentially broader economic costs.
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