The Right to Exclude: Property Rights and Frictions in the Sale of Patents
Status: Working paper, draft available at SSRN
Abstract: Patent scope is central to the sale of ideas, which can spur economic growth and provide significant gains from trade. Awarding an inventor a patent on a new idea partially solves a commitment problem that would otherwise prevent the inventor from selling the idea. (Arrow, 1962). In the absence of a patent, a prospective buyer cannot credibly promise not to steal the idea should the inventor reveal it, while the inventor cannot credibly promise to reveal the idea should the prospective buyer pay for it. A firm’s ability to use a particular patent to overcome this transactional hurdle derives from two factors: (1) the scope of the patent’s legal right to exclude and (2) the effectiveness of that legal right in providing market exclusivity. I first show that a broader patent is more likely to be sold by employing a causal instrument that provides a plausibly exogenous shock to the scope of a patent’s legal right to exclude, holding fixed the underlying idea. I then examine variation in the effectiveness of the right by interacting the instrument with endogenous firm, industry, and market characteristics. These results shed light on how firms profit from innovation and also connect the important but understudied market for patents, widely believed to be illiquid and inefficient, with fundamental research about how markets function in other contexts.
Does Winning a Patent Race Lead to More Follow-on Innovation? – with Neil Thompson
Status: Working paper, draft available for download
Abstract: This paper provides the first broad-based empirical view of how patent races happen in the real world. Competition between firms to invent and patent an idea, or “patent racing,” has been much discussed in theory. Often modeled as a single-shot game with a winner-take-all outcome, these models produce a dizzying array predictions about firm behavior – including the prediction that that many races should end quickly when one competitor’s lead causes the others to drop out. This paper introduces (i) the first way to use detailed information from the patent system to identify patent races, and (ii) a method for making causal inferences about the effects of winning a patent race. These are then used to test the assumptions and predictions from the theoretical models. Far from finding that long-running patent races are rare, this paper finds that they are common, with 10-11% of all patents involved in a race of some kind. They are most common in technology areas traditionally thought of as having weaker patents (computers and communications), and least common in areas with stronger patents (biotechnology and mechanical). Evidence also suggests that patent racing is not winner-take-all. Typically, both the winner and loser of the patent race end up with patents after a race, but the loser’s patent is much less valuable. Finally, this paper shows (causally) that winning a patent race leads firms to do more follow-on innovation related to the patent, and for that work to be more similar.
Causal Inference on Patent Protection – with Neil Thompson
Status: Working paper
Abstract: The economic consequences of patents—both good and bad—largely depend on their scope, and some patents are much broader than others. Broader patents cover a wider range of competing products, enabling innovators to capture more of the social returns from their inventions through higher prices. Broader patents also cover more subsequent improvements to the inventions, which affects the incentives for follow-on innovation. This paper presents and validates a simple, practitioner-grounded metric for patent scope: the number of words in a patent’s first claim. In our validation exercise, our measure strongly predicts expert views of changes to the patent’s scope across most (but not all) technology classes and also outperforms other measures commonly used in the literature. We extend our measure to show how it can be used to draw causal inferences about patent scope based on random assignment of patents to patent examiners. Lastly, we implement this causal inference approach to show that an exogenous increase in patent scope significantly increases the likelihood of a patent becoming standards essential.
Patent-to-Patent Similarity: A Vector Space Model – with Kenneth Younge
Status: Working paper, draft available at SSRN
Abstract: Current measures of patent similarity rely on the manual classification of patents into taxonomies. In this project, we leverage information retrieval theory and Big Data methods to develop a machine-automated measure of patent-to-patent similarity. We validate the measure and demonstrate that it significantly improves upon existing patent classification systems. Moreover, we illustrate how a pairwise similarity comparison of any and every two patents in the USPTO patent space can open new avenues of research in economics, management, and public policy.
Patent Citations: An Examination of the Data Generating Process – with Kenneth Younge and Alan Marco
Status: Working paper, draft available at SSRN
Abstract: Existing measures of innovation often rely on patent citations to indicate intellectual lineage and impact. We show that the data generating process for patent citations has changed substantially since citation-based measures were validated a decade ago. Today, far more citations are created per patent, and the mean technological similarity between citing and cited patents has fallen significantly. These changes suggest that the use of patent citations for scholarship needs to be re-validated. We develop a novel vector space model to examine the information content of patent citations, and show that methods for sub-setting and/or weighting informative citations can substantially improve the predictive power of patent citation measures.
Yale Journal of Law and Technology, Vol. 13, pp. 90-139, 2010
Abstract: The United States Patent and Trademark Office (USPTO) receives more prior art submissions by patent applicants than its patent examiners have the capacity to process. Although applicant prior art submissions are highly likely to contain references material to prosecution, evidence suggests that overburdened examiners often fail to utilize references submitted by applicants in their examination of patent applications. The information overload suffered by patent examiners has deleterious effects on patent quality, since examiners fail to identify and apply the references most relevant to the examination of patent applications. The vision of patent examiners as perfect filters of patentability and of information as always benefiting the public good is both idealistic and unrealistic. Despite their expertise, patent examiners are human and fallible, vulnerable to the effects of information processing overload and the cognitive biases attendant to decision-making by a boundedly rational actor. Failing to address these problems will likely result in frustrated applicants, overburdened patent examiners, and reduced patent quality. This article proposes to solve both the plague of inequitable conduct allegations in litigation and the administrative burdens of complying with the duty of disclosure by reframing disclosure obligations for the information age. Reframing the duty of disclosure in this fashion would require no modifications to statutory provisions, few alterations to administrative rules and regulations, and only modest changes to existing case law. Thus, the approach suggested in this article is both legally conservative and administratively feasible.
An Estoppel Doctrine for Patented Standards – with Robert Merges
California Law Review, Vol. 97, No. 1, 2009
Abstract: Technical standards, such as interface protocols or file formats, are extremely important in the network industries that add so much value to the world economy today. Under some circumstances, the assertion of patent rights against established industry standards can seriously disrupt these network industries. We have in mind two particularly disruptive tactics: (1) the snake in the grass, whereby a patentee intentionally keeps a patent quiet while a standard is being designed or adopted, and then later, after the standard is entrenched, asserts the patent widely in an attempt to capitalize on its popularity; (2) the bait and switch ploy where a patentee encourages adoption by offering royalty-free use of standard-related patents, and then, after the standard has gone into widespread use, begins to enforce its patents against adopters of the standard. We propose to counteract these tactics with a simple solution: over time, adopters of a standard ought to build up a reliance interest in the standard. Under our approach – which we call standards estoppel – non-assertion of a patent right in the presence of widespread adoption should create immunity from patent infringement. The fundamental idea behind this doctrine is to prevent strategic assertions of patents that exploit the logic of network lock-in. As we explain, though this is a simple doctrine based on deeply held common law principles, various gaps in the current doctrinal structure make this a necessary addition to the contemporary legal arsenal. In particular, standards estoppel plugs some dangerous conceptual holes in current rules relating to laches, waiver, estoppel, implied licensing, and patent misuse/antitrust. With this modest addition to the doctrinal fabric, patent law can more effectively guard against the risk of illegitimate leverage, thus more effectively fostering innovation in network industries.
Berkley Technology Law Journal, Vol. 22, No. 89, 2007
Abstract: Patentable subject matter historically constituted a significant bar to patentability. However, technological growth coupled with the expansion of patent law under the Federal Circuit has left patentable subject matter largely irrelevant for practical purposes. Although presenting easily surmountable drafting difficulties, subject matter has rarely presented a difficult hurdle to obtaining a patent in recent years. This changed with the Supreme Court’s grant of certiorari in Lab. Corp. v. Metabolite. Although certiorari was ultimately dismissed as improvidently granted, the Supreme Court’s renewed interest in patent law coupled with Justice Breyer’s dissent from dismissal suggests that the Court is ready to take a new look at subject matter doctrine. This Article analyzes the history of the subject matter doctrine and examines in detail the subject matter issues presented by modern technological developments. Ultimately the Article highlights a proposed test for patentabity in the biotechnology space and suggests a new formulation of the patentable subject matter doctrine to deal with patents on abstract technologies. New technology makes patentable subject matter more important, not less, but courts need new tools to enforce patent law efficiently for the latest technological advances.