Monday, April 11, 2011

New Book on Innovation: Rules for Growth

An impressive array of authors have put out a new book, Rules for Growth: Promoting Innovation and Growth Through Legal Reform (free download), funded and organized by the Kauffman Foundation. The book covers a dizzying array of topics, from immigration to tort reform. Although the length (494 pages) is daunting, those who just want the take-home message can look at Table 1.1 on pp. 17-22 for the specific policy recommendations. For example, in terms of PTO reform, the book recommends (1) a second-pair-of-eyes review to weed out bad patents; (2) changing incentives for patent examiners; (3) a tiered review process; and (4) a post-grant opposition process.

Here is the Table of Contents, along with notes about what struck me during my brief skim:
  1. The Importance of Law in Promoting Innovation and Growth (Robert Cooter, Aaron Edlin, Robert Litan, and George Priest). The law and economics literature has not tackled dynamic efficiency. This book's goal is to pin down the connection between legal rules and growth.
  2. Producing Law for Innovation (Gillian Hadfield). We should have "competitive private providers of legal rules and procedures."
  3. Universities and Economic Growth: The Importance of Academic Entrepreneurship (Robert Litan and Robert Cook-Deegan). Bayh-Dole increased efficiency but has problems. Knowledge transfer, not licensing revenue, should be the metric of success. TTOs are underresourced; standardized/centralized licensing might help. Faculty should be able to choose their licensing agent or even have IP rights in their inventions.
  4. U.S. Policy Regarding Highly Skilled Immigrants: Change Whose Time Has Come (John Tyler with input from Peter Schuck). We should encourage more highly skilled immigrants, such as by allowing foreign graduates of U.S. universities to stay.
  5. How to Improve Five Important Areas of Financial Regulation (Hal Scott). Discusses "control of systemic risk, the use of cost-benefit analysis, the revitalization of the private securitization market, the preservation of Fed independence, and the use of securities class actions. The first four subjects have been dealt with in the Dodd-Frank Act but often in a non-optimal fashion."
  6. How Financial Regulation Might Harness the Power of Markets (Frank Partnoy). Regulators should (1) require "'real' market-value based balance sheets," (2) "revitalize reliance on private enforcement of legal claims," and (3) "rely on market measures of risk."
  7. Tax Policy and Growth (Alan Viard). We should adopt a VAT or a progressive consumption tax and should make a redesigned research tax credit permanent.
  8. Advancing Antitrust Law to Promote Innovation and Economic Growth (George Priest). Modern antitrust law is an "admirable achievement" over 1940s-70s policies, but it "could more fully recognize the opportunities of innovation." Rapid market changes and global competition should diminish antitrust prosecutions, and Chicago antitrust views should be applied to the IP/antitrust intersection.
  9. Contract, Uncertainty, and Innovation (Ronald Gilson, Charles Sabel, and Robert Scott). Courts should support innovative contracts that "braid" formal and informal elements to promote innovation.
  10. Torts, Innovation, and Growth (Gideon Parchomovsky and Alex Stein). Tort liability rules are biased against innovation. Possible solutions: (1) replace the "custom" criterion with a "result" criterion that weighs risks and benefits of each technology; (2) form special tribunals to give new technologies a seal of approval; (3) require tort plaintiffs to show that the technology responsible for the damage is inferior to the customary technology.
  11. The Effects of Modern Tort Law on Innovation and Economic Growth (George Priest). The previous chapter is misguided; tort law has bigger problems, and first-party accident insurance would be much more efficient.
  12. Land Use Regulation, Innovation, and Growth (Nicole Garnett). Efforts to slow suburban growth will negatively affect innovation. Instead, we should (1) price growth; (2) promote interjurisdictional competition; and (3) replace zoning with a system of regulatory prices.
  13. Growth-Oriented Law for the Networked Information Economy: Emphasizing Freedom to Operate Over Power to Appropriate (Yochai Benkler). "Variation, selection, adaptation, and survival/replication through user adoption, rather than planning and high investment, have repeatedly offered the more robust approach in this new complex and chaotic environment." Copyrights and patents lead to the wrong result in the networked information environment. We should emphasize exemptions and liability rules that create freedom to operate; cap risks of liability; revise Grokster back to Sony; eliminate business method patents; etc.
  14. Digital Firm Formation (Oliver Goodenough). We should encourage the process of creating and operating firms through media like the web, as is now possible in Vermont.
  15. Can the Patent Office Be Fixed? (Mark Lemley). What won't work: preventing fee diversion; fee-setting authority; retaining patent examiners; outsourcing search. What might work: "second pair of eyes" review; changing examiner incentives; tiered review; post-grant oppositions.
  16. Digital Innovation in Governance: New Rules for Sharing and Protecting Private Information (John Clippinger). A market solution to privacy won't work. The Fair Information Practice Principles (FIPP) are dated. NSTIC is developing a good trust framework.
  17. Innovation and Growth through Open Access to Scientific Research: Three Ideas for High-Impact Rule Changes (Victoria Stodden). Government funding agencies should require openness. Data and software should be made available under the Reproducible Research Standard (RRS).
  18. Innovating Our Way to Disasters? Incentivizing Secure Platforms for Growth’s Future (Benjamin Wittes). The private sector has developed technologies that could be misused to create extreme harm that the government is unable to prevent. We need (1) clear liability rules for recklessly introduced technologies; (2) comfort with a degree of surveillance; and (3) an understanding that some companies "may have unique affirmative obligations to the security of platforms."
  19. Legal Process and the Discovery of Better Policies for Fostering Innovation and Growth (Henry Butler and Larry Ribstein). The authors "suggest harnessing the power of jurisdictional competition among the states through a federal law enforcing contracting parties' choice of law except to the extent that states legislatively override the choice of law and regulate local transactions."
  20. The Political Economy of Reform: Some Concluding Thoughts (Robert Litan). This book is meant to "put still more ideas on the policy shelf." The immigration and tax suggestions might be implemented in times of major legislative reform; the other suggestions are more incremental.
These short notes are necessarily incomplete, so feel free to add more details or point out places where you think I have missed the main point in the comments.


  1. Like most commentary offering specific policy recommendations designed to improve USPTO processes, Mr. Lemley's article would clearly benefit from the perspective of a patent practitioner.

    As any patent prosecutor could tell you, the PTO already has a version of second-pair-of-eyes review; after issuance of a Notice of Allowance, all patent applications pass through a quality assurance review that in some cases can result in remand to the primary Examiner and the reopening of prosecution. It might be more useful to give Examiners more time to search the prior art and to examine pending applications, however; the time constraints imposed on examiners make it extremely difficult for even the most experienced examiners to do a thorough job, particularly in crowded areas of technology.

    Also, Director Kappos has started reworking the count system by which Examiner productivity is measured in an effort to alter their incentives.

    Proposals to adopt a post-grant opposition process modeled at least in part after that of the EPO are not particularly controversial amongst practitioners, especially if adopted along with a first-to-file system. I can't really comment on the potential value of a "tiered review" without more information.

  2. Thanks for your comment David - it is great to have the perspective of a patent practitioner. The specific "second pair of eyes" review Lemley is talking about is the review that was used in Class 705 (business methods) starting in March 2000, where a second examiner must look at the patent before allowance. According to Lemley (p. 374), this was a success in catching "bad patents." The PTO shut down the program in Class 705 recently, but Lemley thinks it should be reopened and expanded to all classes.

    Lemley also agrees with your point about giving examiners more time - this is part of his "changing examiner incentives" argument, where he thinks changes in workload would be helpful. And it is great to hear that Director Kappos is reworking incentives - I haven't read about this, but it is probably a helpful change. (I don't think Lemley is claiming that these suggestions are new - they are just the suggestions that he thinks are good ideas.)

  3. I mean no disrespect to Mr. Lemley, by the way, it's just he comes at patent policy primarily from a litigation perspective, and I think such policy debates should consider the prosecution perspective as well.

    I'm sure you can find a more detailed explanation after a bit of Google searching, but a brief statement regarding Director Kappos's plan to revise the count system can be found at ("Another change instituted by Director Kappos is the revision of the merit system for examiners, also called the the count system, which, under former Director Dudas, promoted churning of patent applications by examiners resulting often in the need to file a number of Requests for Continued Examination and a series of Amendments before a meritorious patent application would be allowed.")

    I haven't actually read Mr. Lemley's article (as was rather obvious from my initial comment, I suppose), but perhaps you can explain how the 'second pair of eyes' review in the Business Methods Art Unit differs from the usual PTO practice? As I understand PTO procedures, a second examiner -- generally a Supervisory Patent Examiner (SPE) -- reviews all office actions written by the primary Examiners s/he supervises before they are finalized and mailed. I don't know how often review by a SPE results in revision of an Action before mailing, but it's at least a formal possibility.

    I guess I agree with the notion that review by a second pair of eyes is likely to help reduce the issuance of "bad patents." But adding one more task to the already significant workload of the average patent examiner means that even the second pair of eyes review is likely to be completed under extreme time pressure, thereby decreasing the chances a "bad patent" would be flagged for additional review.

    Again, I think giving the examiners more time to examine each application would solve most of the problems raised by Mr. Lemley and other commentators.

    Take the EPO as an example: European examiners don't have the same time constraints placed on them for search and examination as US examiners. As a result, they are generally thought to produce search results of significantly higher quality -- to the point that most patent prosecutors I know (and I've prosecuted biotech patents at two well-regarded AmLaw 100 firms) would routinely advise their clients to select the EPO as International Search Authority (ISA) over any other ISA at the PCT stage (including the US), at least until recent EPC rule changes to the deadline for filing divisional applications in Europe altered the calculus quite a bit.

  4. Thanks for the link! As for your question about how "second pair of eyes" review differs from review by a Supervisory Patent Examiner, I'm not sure, but the PTO seems to treat them as different things in this action paper that I found with a quick Google search. It says that "the direct SPE is required to review at least four applications per year for each of their primary examiners," which makes it sound like not every application is being reviewed, though this may be out of date. And the "second pair of eyes" review is described as a "'universal' review of all allowances in Class 705 with each allowance taking about one hour." At any rate, you are surely right that it doesn't make sense to add the second review for all classes without also hiring more examiners so that they are not trying to review in even less time.