Lemley: Classic Patent Scholarship

Professor Mark Lemley (Stanford Law) needs no introduction; as noted by Ted Sichelman in his contribution to the Classic Patent Scholarship Project, Lemley's own classics "will surely number in the league of Beatles' hit singles." When I asked Lemley what classic works he thinks young patent scholars should be familiar with, he said that the earlier contributors have already mentioned several pieces he would include, such as Kitch's Nature and Function of the Patent System, Merges and Nelson's On the Complex Economics of Patent Scope, and Eisenberg's Patents and the Progress of Science: Exclusive Rights and Experimental Use. But he also suggested some pieces that are not yet on the list, which are listed here with my own brief summaries.

Robert P. Merges, Commercial Success and Patent Standards: Economic Perspectives on Innovation, 76 Cal. L. Rev. 803 (1988); Robert P. Merges, Uncertainty and the Standard of Patentability, 7 High Tech. L.J. 1 (1992).

In his 1988 Commercial Success article, which Lemley called "the first sustained economic analysis of the obviousness doctrine," Merges criticizes the Federal Circuit's increased emphasis on commercial success and other secondary considerations of nonobviousness. Commercial success "is a poor indicator of patentability because it is indirect"—it requires the inferences that the success is due to the innovation and that others skilled in the art perceived this likely future success and tried (but failed) to produce the invention. Merges also objects that commercial success "assumes an overly simplistic model of innovation" with firms racing to fulfill equally perceived market needs. The Federal Circuit's misplaced emphasis on commercial success "tends to reward nontechnological assets that contribute to a firm's innovational success, such as a superior distribution system, a uniquely effective organizational structure, or access to more capital," which may "reward monopoly power by insulating firms from technological competition."

Merges also criticizes the use of long-felt need and copying as secondary considerations, and he argues that licensing by competitors should only be used if courts "have considered and rejected . . . alternative motives" for licensing. In contrast, he praises the failure of others as "an analytically rigorous foundation for determining nonobviousness" (if the patentee establishes that those who failed were aimed at the same goal) and argues that courts should "emphasize the importance of [such] evidence."

Merges continues his economic analysis of obviousness in his 1992 follow-up article. He presents an "uncertainty-based view of obviousness," under which "only the results from uncertain research [i.e., projects whose success is uncertain at the outset] should be rewarded with a patent." He discusses how various doctrinal features of obviousness fit under this view, as well as how uncertainty fits with theories of the patent system such as disclosure theory.

Zvi Griliches, Patent Statistics as Economic Indicators: A Survey, 28 J. Econ. Lit. 1661 (1990).

Lemley notes that "Zvi Griliches did the very early work in economics departments on patents and citation counting." This survey summarizes some of his (and others') earlier work. Griliches states that in the "desert of data" on technological change, "patent statistics loom up as a mirage of wonderful plentitute and objectivity." He describes the fundamental problem that "patents differ greatly in their technical and economic significance," and that there is not "yet a good procedure for 'weighting' them appropriately." Furthermore, many significant inventions are not patented (or not patentable). Patents can be used as an indicator for inputs into inventive activity when data on R&D expenditures is scarce (especially for larger firms), but using them to measure outputs is more challenging. Griliches explains that there are three basic sources of data on patent value: (1) surveys of patent owners (who report that a surprisingly large fraction of sampled patents are "used" commercially and that they have very high mean values); (2) renewal rates (which lead to lower value estimates, but which require questionable assumptions about the underlying distribution); and (3) econometric analysis of the relationship with profits or stock value (but patents account for very little of these fluctuations). The large skewness in the distribution of patent values "lead to rather pessimistic implications for the use of patent counts as indicators of short-run changes in the output of R & D," but patents are still "a unique resource" and "there are other ways of using them besides simply counting them"—for example, Griliches is more optimistic about using patents to study R&D spillovers.

Josh Lerner, Patenting in the Shadow of Competitors, 38 J.L. & Econ 463 (1995).

In another important empirical work, Lerner studies the patenting behavior of 419 new biotech firms, looking both at technology subclasses in the U.S. patent classification scheme and litigation costs (estimated from previous suits and financial resources). His main conclusion—an important contribution to the literature on how litigation costs affect behavior—is that "firms with high litigation costs are less likely to patent in subclasses with many other awards, particularly those of firms with low litigation costs." He also contributes to the literature about the overall costs of patent litigation, estimating that six percent of biotech patents are involved in litigation and that "the patent litigation within USPTO and the federal courts begun in 1991 will lead to total legal expenditures (in 1991 dollars) of about $1 billion, a substantial amount relative to the $3.7 billion spent by U.S. firms on basic research in 1991."