Patent Law and the Environment/Technology Paradox

Michael A. Gollin

Mr. Gollin holds a bachelor's degree in biochemistry from Princeton University, a master's degree in zoology and molecular biology from the University of Zurich, and a juris doctor's degree from Boston University. He is registered to practice in the Patent and Trademark Office and has extensive experience with patent matters. Mr. Gollin is currently associated with Sive, Paget & Risel, P.C., where he is focusing on technology-related aspects of environmental law.

[20 ELR 10171]

Advances in technology bring mixed blessings: technology causes pollution at the same time it raises standards of living. Properly directed, technology can also clean up and control some of the environmental problems it caused in the first place. From an environmental perspective, it is important to distinguish between harmful and beneficial technology. For example, beneficial technology includes pollution control devices, cleanup equipment, industrial processes that minimize resources used and waste produced, and consumer products that are environmentally benign. There is mounting consensus that today's environmental regulations do a passable job at regulating harmful technology but do little to encourage beneficial technology.¹

But while environmental law is only beginning to encourage beneficial technology, patent law for centuries has been a dynamic engine of technology innovation. Patents already play a role in the environmental protection business. For example, General Electric contaminated Hudson River sediment with PCBs, then received a patent for PCB-digesting bacteria. ENSR Corp. is defending a lawsuit brought by Unison Transformer Services, Inc., alleging infringement of a patent for cleaning PCBs out of transformers.²

In general, patent law has been insensitive to environmental consequences. The time is ripe to consider whether environmental regulation can harmonize with the patent system to resolve the environmental/technology paradox.

Patent Law and Environmental Technology

Technological progress is promoted by guaranteeing inventors the exclusive right to their inventions long enough for them to reap a just reward without competition from a copyist. By granting the exclusive rights conveyed by a patent, the federal government provides an economic incentive to innovate, but requires in return that the inventor disclose the best known working embodiment of the invention. Thus, a multimillion-patent library has been assembled, providing information for other inventors.

The Patent Act³ sets out statutory requirements for patentability based on a sophisticated recognition of the nature of technological progress. Patent law can provide a framework for innovation in environmental technology and can suggest how regulation should avoid stifling environmentally beneficial inventions.

Under the Patent Act, a person who simply adopts a known technology or adapts it according to principles suggested in the literature has not made a patentable invention.⁴ The inventive process requires a nonobvious advance, often involving a solution to an unsolved problem or a way to fill a need. Moreover, a concept is not patentable until it is "reduced to practice" either as a working prototype or as a design that will work.⁵

When the invention is reduced to practice, the inventor must choose whether to protect it as a trade secret (which lasts indefinitely, but once exposed is lost) or as a patent (which provides exclusive rights for 17 years). To obtain a patent, the inventor submits to the United States Patent and Trademark Office a patent application that describes and claims the invention before it is (1) publicly disclosed, (2) put on sale, or (3) discovered and disclosed by someone else.⁶ Generally, claims are narrowed during the application process to differentiate them from the prior state of the art.

A patent alone conveys no right to commercialize an invention, [20 ELR 10172] since all the normal permitting requirements must still be met. However, once a patent is issued, the owner can prevent others from making, using, or selling the patented invention. The owner may profit from the patent by excluding others and marketing the patented invention, by assigning the patent, or by licensing others either exclusively or nonexclusively. An infringer may be liable for the patent owner's lost profits or a reasonable royalty and may be subject to treble damages and attorneys fees if infringement was willful.

Generally, the stronger the patent right and the easier it is to obtain a patent, the more incentive there is to innovate and disclose inventions. In 1982, Congress created the Federal Circuit Court of Appeals to hear patent appeals from all district courts, which resulted in more certain and uniform application of the patent laws. Since then, companies have sought to build their own patent portfolios and avoid infringement of patents belonging to others.

To promote innovation in environmental technologies, patents for environmental technology should be strengthened and made easier to obtain.

Encouraging Environmental Technology Inventions

The Patent and Trademark Office

An inventor of environmental technology can already receive preferential treatment because the Patent Office regulations were amended in 1982 to provide that if an invention "will materially enhance the quality of the environment or materially contribute to the development or conservation of energy resources," the patent application may be taken out of turn for swifter processing.⁷ As a result, an environmental technology patent can sometimes be granted more quickly than a nonenvironmental patent. But many eligible applicants do not take advantage of the provision, perhaps because it is not well known.

The Patent Office could do more. It could separately classify environmental technology patents and literature to facilitate searches of existing technologies. It could also train patent examiners to provide consistency in patent prosecution for inventions that prevent or clean up pollution. This will not be easy: environmental technologies cross the typical classifications of patents, and it may be difficult to classify inventions that provide both environmental benefits and other advantages, such as a more efficient combustion process or a new inexpensive biodegradable packaging material. At the least, training programs for patent examiners, patent lawyers, and inventors would help in identifying unique aspects of environmental technology patents.

Financial Incentives

As a practical matter, innovation in environmental technology requires financial incentives in the form of grants, tax breaks, or subsidies for beneficial technology on the one hand, or increased cost, taxes, liability, permit restrictions, or disclosure requirements for harmful technology on the other. The need for financial support begins with research and development and remains critical until it can be demonstrated that the technology satisfies environmental permitting requirements. For instance, a power plant incorporating new technologies may find it difficult to obtain financing to develop the project until after a permit is obtained. Existing regulation therefore favors tried and true technology over innovative technology.

Patentability should be a factor in the government's funding process to encourage invention. It will help select the truly meritorious proposals. The availabilityof development funding gives an inventor an extra incentive to come up with a patentable invention, and funding can carry an innovative project through until permits are obtained and other capital is available. Cooperative development contracts, discussed below, also provide support. The funding agency can condition grants and contracts on retaining a share of rights in resulting patents, so that funds available for future grants are replenished by royalties from successful technologies.⁸

Clearinghouses and Awards for Environmental Technology

Inventors tend to focus on existing problems and needs as a starting point for invention. National organizations and environmental agencies should serve as clearinghouses to provide information on the state of the art, including technical problems and needs to be filled, in order to promote environmental protection.

Awards and honors for notable environmental inventors can add an incentive to innovate. For example, the President already can award a National Technology Medal to one who promotes technology for the improvement of environmental well-being.⁹ Such declarations of need and awards for notable environmental patents can help inventors financially, too: they bolster the validity of patents in an infringement lawsuit, because the court is required to consider them in deciding whether a patent is invalid for obviousness.¹⁰

Patent Term Restoration

A patent is generally valid for 17 years from its date of issuance. One notable exception was recently enacted as the Patent Term Restoration Act,¹¹ which provides that a pharmaceutical patent is valid for 17 years from the date of its approval for use by the Food and Drug Administration (FDA). The patent incentive in the pharmaceutical industry had eroded due to the lengthy period of testing and FDA administrative review, a period when the patented drug cannot be commercialized. It makes sense to consider whether delays in environmental permitting of new environmental technologies are likewise seriously eroding the effective term of environmental patents and hence their effectiveness as an incentive to innovate.

[20 ELR 10173]

Compulsory Licensing

As a general rule, a patent owner may enjoin anyone from making, using, or selling the patented invention, and there is no right to a compulsory license. A major exception, however, is that the patentee's remedy is limited to an action for a reasonable royalty in the United States Claims Court when an invention is used or manufactured by or for the United States.¹² As a result, a federal contractor, a subcontractor, or any other person who has the authorization and consent of the government is protected from exposure to injunction, treble damages, and attorneys fees provisions,and can thus have, effectively, a compulsory license.

Under this compulsory license, the federal government is entitled to use whatever environmental technology is appropriate for, say, cleaning up a hazardous waste site, without a patent owner's consent. At the same time, the federal government may insulate its contractors, subcontractors, and others¹³ from a patent infringement action simply by providing authorization and consent for the use of a patented technology.

Thus, parties liable to clean up hazardous waste sites and applicants for wastewater treatment plant permits, if concerned that federal environmental requirements may require use of a patented technology, should seek the government's express authorization and consent, which is generally provided automatically. Even then, the patent user will feel pressure to obtain a direct license from the patent owner to avoid litigation in the claims court to set a reasonable royalty rate. Consequently, in negotiating consent decrees and permit applications, the Environmental Protection Agency (EPA) or delegated state agency should seek at the outset to ensure that reasonable royalties are provided for.

Technology-Based and Performance Standards

Environmental regulation creates the market for environmental technology and is the ultimate driving force for technology innovation. For example, new air and water pollution sources are generally required to adopt demonstrated state-of-the-art pollution controls to obtain permits. Such technology-based standards should be applied with sensitivity to patent issues. In determining whether a technology is available or economical, if the technology is patented, the owner's willingness to license the patent is an important economic issue. Government endorsement of a particular patented technology can give excessive monopoly power to the patent owner. A bind can result for a permit applicant who is required by regulators to use a technology, but is prevented by the patent owner from doing so. This might have happened, for example, when Exxon recently demonstrated Thermal DeNO_x, a patented selective noncatalytic reduction (SNCR) system for removing nitrous oxides from the exhaust of resource recovery incinerators. EPA then designated SNCR as "best available control technology" under the Clean Air Act.¹⁴ However, in this case, Exxon did not achieve a monopoly position, because Fuel-Tech, Inc., has marketed a different SNCR system, NO_xOUT, which gives applicants a choice of how to reduce NO_x emissions. In general, EPA should encourage such competition to stimulate a wide range of invention and innovation.¹⁵

Also, Congress and regulatory agencies should consider whether increased reliance on performance standards might encourage more diverse and inventive technology solutions to pollution problems. Technology-based standards generally lead to industry-wide lock-step adoption of existing technology rather than invention.

Technology innovation variances, available under several environmental statutes, provide another regulatory tool that can provide incentives for commercializing inventions with beneficial environmental effect. Such a variance extends the deadline for complying with regulatory standards if the delay is needed to implement a beneficial new technology.

Technology Transfer

EPA itself owns approximately 100 patents. Most are for wastewater treatment, air pollution control, and sampling devices. But to date, there is little licensing of these patents.

The Federal Technology Transfer Act of 1986 requires all federal agencies to seek effective ways to develop, demonstrate, and market the patented technologies it controls.¹⁶ EPA has recently developed guidelines for cooperative public-private technology development and commercialization ventures. The program provides royalty payments as incentives for EPA and its employees to participate in such ventures and encourages commercial use of inventions through exclusive or nonexclusive licenses of federally developed proprietary technology. Under this program, EPA can contribute expertise and facilities while the private joint venturer provides capital, marketing expertise, and other resources. This is promising program, and it ought to be pursued aggressively.

Conclusion

To date, environmental law has concentrated on controlling harmful technology. Environmental law also needs to encourage beneficial new technologies to reduce consumption of resources, production of waste, and pollution. Patent law can teach us how to harness the nation's ingenuity to create the needed technology innovation.

1. See, e.g., Environmental Law Institute, LAW OF ENVIRONMENTAL PROTECTION §§ 3.02, 3.03, 3.07 (1987 with annual updates); Friedlander, Environmental Issues: Implications for Engineering Design and Education, in TECHNOLOGY AND ENVIRONMENT 167-81 (J. Ausbel & H. Sladovich, eds. 1989); Ashford et al., Using Regulation to Change the Market for Innovation, 9 HARV. L. REV. 419 (1986). The Technology Innovation and Economics Committee of the National Advisory Council for Environmental Technology Transfer, an Environmental Protection Agency advisory committee, is considering proposals for encouraging beneficial technology innovation.

2. See also John Zink Co. v. National Airoil Burner Co., 613 F.2d 547, 559 (5th Cir. 1980) (patented nozzle for smokeless emission of refinery waste gas invented "years before the popular concern with air pollution and the environment . . . is precisely the kind of invention the framers of the Constitution wanted revealed and protected"); I.U. Technology Corp. v. Research-Cottrell, Inc., 641 F.2d 298 (5th Cir. 1981) (patent for stabilizing fly ash and scrubber sludge held obvious in light of prior cement technology environment technology).

3. 35 U.S.C. §§ 101-112. On patent law generally, see D. CHISUM, PATENTS (1990 rev. ed.).

4. 35 U.S.C. §§ 102, 103.

5. 35 U.S.C. § 101.

6. 35 U.S.C. § 102.

7. 37 C.F.R. § 1.102(c).

8. See 35 U.S.C. § 202; Gabig, Federal Research Grants: Who Owns the Intellectual Property?, 9 HARV. J.L. & PUB. POL'Y 639 (1986).

9. 15 U.S.C. § 3711(b).

10. See, e.g., Environmental Designs v. Union Oil Co., 713 F.2d 693, 697 (Fed. Cir. 1983) (regulatory frustration with lack of sulfur-reduction technology and "long-felt need to remove as much sulfur as possible from the air we breathe" were evidence that pollutant-removal patent was not obvious).

11. 35 U.S.C. §§ 155-156.

12. 28 U.S.C. § 1498.

13. It is unclear whether states and local governments are "persons" that can benefit from the protections of 28 U.S.C. § 1498.

14. On best available control technology, see generally Wilson, Martin & Freidland, A Critical Review of the Environmental Protection Agency's Standards for "Best Available Control Technology" Under the Clean Air Act, 20 ELR 10067 (Feb. 1990).

15. See Rite-Research Improves the Environment, Inc. v. Costle, 620 F.2d 1312, 1323 (5th Cir. 1981) (EPA's refusal to consider alternative sewage treatment technology pursuant to 33 U.S.C. § 1255 and pressure to use secondary treatment "amounted to an abuse of power"); see also Wilson et al., supra note 15, at 10071-72.

16. 15 U.S.C. § 3710.