Estimating Individual Inventor Returns to Patenting

How much individual inventors earn from patenting is hotly debated today, in an age where enforcement is often outsourced to third-party enforcers. But what about returns to inventors who work for companies? They usually assign their inventions to their employers.  Further, they are often largely driven by factors other than money.  But can all wage incentives be discounted?

That's the question tackled by Domenico Depalo and Sabrina Lucia Di Addario (both of Bank of Italy), who have tied twenty years of individual wage earnings to EPO patent data. The abstract for their paper, Shedding Light on Inventors' Returns to Patents, is:

We estimate individual returns to patents using a unique longitudinal administrative dataset on patents and earnings, following individuals and firms for 20 years (1987-2006). We find that inventors' wages steadily increase before patent applications are submitted to the European Patent Office, reach a peak around the time of submission and then decrease again. We also find that the applications that will eventually lead to a granted patent receive a greater wage increase than those that will not. Finally, we use an event study framework to distinguish among inventor-types and we find that the "star-inventors" (the employees submitting at least three times in their life) receive a lasting wage premium, while the employees with one or two submissions stop receiving the premium after the application date, in line with the "unobserved ability" literature. 

The paper is well worth a read, even beyond the core study. The literature review discusses many studies on incentives to invent, including both monetary and non-monetary. The descriptive statistics shed a lot of light on how many employees contributed to patents and how often. And their model, of course, provides interesting information about how companies might value workers that contribute patentable inventions versus those that do not.

Innovation Law Beyond IP 2

The second "Innovation Law Beyond IP" conference at Yale Law School is this weekend. I helped organize the first conference last year to provide a space for the growing number of scholars who are thinking about the many legal institutions beyond IP laws that govern knowledge production. I posted a round-up of last year's accompanying blog symposium here.

This year we have another great crop of participants and discussants. I have already cross-posted my contribution to this year's blog symposium, on Intellectual Property as Global Public Finance (coauthored with Daniel Hemel). Here are the other posts written in preparation for the conference, along with a sentence pulled from each, ordered based on the conference agenda:

Long Term Trends in IP Litigation

Matthew Sag has posted IP Litigation in United States District Courts: 1994 to 2014 (forthcoming Iowa L. Rev.) on SSRN. The article takes a thirty year look at IP litigation in the district courts:

This article undertakes a broad-based empirical review of Intellectual Property (IP) litigation in United States federal district courts from 1994 to 2014. Unlike the prior literature, this study analyzes federal copyright, patent and trademark litigation trends as a unified whole. It undertakes a systematic analysis of more than 190,000 individual case filings and examines the subject matter, geographical and temporal variation within federal IP litigation over the last two decades.

This article makes a number of significant contributions to our understanding of IP litigation. It analyzes time trends in copyright, patent and trademark litigation filings at the national level, but it does much more than simply count the number of cases; it explores the meaning behind those numbers and shows how in some cases the observable headline data can be positively misleading. Exploring the changes in the distribution of IP litigation over time and their regional distribution leads to a number of significant insights, these are summarized below. Just as importantly, one of the key contributions of this article is that it frames the context for more fine-grained empirical studies in the future. Many of the results and conclusions herein demonstrate the dangers of basing empirical conclusions on narrow slices of data from selected regions or selected time periods.

Some of the key findings of this study are as follows:
First, the rise of Internet file-sharing has transformed copyright litigation in the United States. More specifically, to the extent that the rate of copyright litigation has increased over the last two decades, that increase appears to be entirely attributable to lawsuits against anonymous Internet file sharers. These lawsuits largely took place in two distinct phases: the first phase largely consisted of lawsuits seeking to discourage illegal downloading; the second phase largely consists lawsuits seeking to monetize online infringement.

Second, in relation to patent litigation, the apparent patent litigation explosion between 2010 and 2012 is something of a mirage; however there has been a sustained patent litigation inflation over the last two decades the extent of which has not been fully recognized until now. The reason why this steady inflation was mistaken for a sudden explosion was that the true extent of patent litigation was disguised by permissive joinder.

Third, in relation to the geography of IP litigation, it appears that filings in copyright, patent and trademark litigation are generally highly correlated. The major exceptions to that correlation are driven by short term idiosyncratic events in copyright and trademark litigation — these are discussed in detail — and by the dumbfounding willingness of the Eastern district Texas to engage in forum selling to attract patent litigation. The popularity of the Eastern District of Texas as a forum for patent litigation is a well-known phenomenon. However, the data and analysis presented in this study provides a new way of looking at the astonishing ascendancy of this district and the problem of form shopping in patent law more generally.

It's a well-developed abstract, so I don't have a lot to add on the coverage. I do have a few thoughts after the jump.

Patents and Antitrust: Hovenkamp on the Rule of Reason and the Scope of the Patent

For anyone teaching or writing on patents and antitrust, I highly recommend Herbert Hovenkamp's new article forthcoming in the San Diego Law Review, The Rule of Reason and the Scope of the Patent. In recent years, patent law scholars such as Robin Feldman and Paul Gugliuzza in a forthcoming article, have argued that antitrust law's defensive doctrines – including a preference for "rule of reason" versus "per se" analysis, and immunities from antitrust enforcement such as the Noerr-Pennington doctrine and its infamously-hard-to-meet "sham" petition exception – are inappropriate for assessing misconduct involving patents. Hovenkamp emphasizes the opposite problem: the limitations of patent-based immunity for determining liability under antitrust law. In his view, the Supreme Court has now recognized this limitation with its decision in FTC v. Actavis (2013), at least with respect to reverse payment settlements given by drug patent holders to generics seeking to enter the market under the FDA's fast-track approval process.

How Courts Adjudicate Patent Definiteness and Disclosure

John Allison has done some great empirical work on patent litigation, including a recent project with Mark Lemley and David Schwartz on all substantive decisions rendered by any court in every patent case filed in 2008 and 2009 (with articles in Texas and Chicago), and a project on repeat patent litigants with Mark Lemley and Joshua Walker that I blogged about back in 2011. This fall he invited me to join his latest project, looking at all decisions on Westlaw (including denials of summary judgment and many unpublished opinions) from 1982-2012 involving any of three § 112 issues: enablement, written description, or indefiniteness. We have now posted a draft of our paper, How Courts Adjudicate Patent Definiteness and Disclosure, which is forthcoming in the Duke Law Journal. Here is the abstract:

Intellectual Property as Global Public Finance

I wrote the following post for the Balkinization blog symposium for the upcoming Innovation Law Beyond IP 2 conference at Yale Law School, where I will be presenting an early work-in-progress with Daniel Hemel. You can read my post on Balkinization here, and you can see all posts in the symposium here.

The conventional justification for IP is that information is a public good (i.e., it is nonrival and nonexcludable), and making information excludable through IP allows it to be efficiently supplied by private markets. Both sides of this account have been questioned: not all information has the characteristics of a public good or can be made excludable through IP, and propertization is not the only way the state compensates public-goods providers. As Daniel Hemel and I analyzed in Beyond the Patents–Prizes Debate, the state also encourages information production through mechanisms such as tax incentives and direct spending. And one challenge for domestic innovation policy is recognizing that like conventional public finance mechanisms, IP facilitates a transfer from consumers to innovators, and that the off-budget nature of this IP “shadow” tax should not affect the innovation policy choice.

In Intellectual Property as Global Public Finance, Daniel and I examine information production at the global level, where conventional public finance mechanisms are lacking. Many information goods are global public goods (or quasi-public goods), so under the conventional account, global coordination is needed to prevent countries from free-riding on each other’s information production. Global IP treaties such as the TRIPS Agreement help solve this global coordination problem by requiring countries to contribute to the extent that they use the information produced under IP laws (with defection punished by trade sanctions). And in the global context, the off-budget nature of IP laws may be an asset, as it facilitates creation of this stable Nash equilibrium in a way that maps onto very different national public finance regimes.

If this were the full story, one would expect to find little state investment in non-IP innovation mechanisms for which free-riding cannot be prevented. And yet governments at all levels do invest significant resources beyond IP in producing information goods.

Peer Influence on Content Creation

The paper A Bayesian Model to Predict Content Creation with Two-Sided Peer Influence in Content Platforms caught my eye in my SSRN feed. It's by Bin Zhang (Arizona - MIS), Anjana Susarla (Michigan State - Business), and Ramayya Krishnan (Carnegie Mellon - Public Policy). The abstract is here:

While prior research has studied the motivations of individuals to consume content on social media platforms, limited work exists on how contributors are motivated to create content. We examine the role of peer influence in content production on YouTube, where content creators are competing for attention. Given that content creation efforts are driven not only by their personal preferences, but also by the content creation decisions of others in the network neighbors, we develop a new method to analyze discrete choice decisions (such as creating content or not) in a networked environment with panel data. We face a novel set of big data challenges, i.e., both statistical and quantitative, in estimating peer influence. We face computational challenges in that we cannot reasonably estimate peer influence over the entire YouTube network, which has billions of nodes. We employ graph sampling methods to address this issue. Identification of social influence in large-scale social networks such as YouTube is difficult due to the interdependence in decisions of users, correlations between the video's observable and unobservable characteristics and attributes over time. These patterns cannot be modeled with existing autocorrelation models. We design a new method, the Network Auto-Probit Model with Fixed Effects (NAFE), to identify peer influence among content creators on YouTube. Implications for research and practice are also discussed.

This is a complex, dense paper, but I think it has a lot to offer those interested in the incentives of creation. The authors study the collaborative versus competitive effects of limited attention, and how that attention drives the creation of content.

This, of course, is something I understand as a blogger - the more readers you have, the more you feel like you have to deliver content.   And it may explain a little of what Eric Goldman noted, about how blogs engage with each other less than they used to (because they are competing, rather than collaborating).

I think more study and thought will reveal some interesting takeaways for IP.

The Layered Patent System

For those (likely few) people who read this blog but don't read Patently-O, I have a guest post on my article The Layered Patent System, 101 Iowa L. Rev. (forthcoming), at Patently-O today.

Yelderman on Coordination-Focused Patent Policy

If the main benefit of patents is their role in coordination—facilitating transactions in information and thereby increasing collaboration—would we want patent law to look any different? This is the question tackled by Steve Yelderman (Notre Dame Law School) in his working paper Coordination-Focused Patent Policy, which I recently had the pleasure to read.

As Yelderman notes, there is currently much debate among patent scholars on what the best utilitarian justification for the patent system is (as well as whether utilitarianism is even the right foundation). Historically, patents have been seen primarily as ways to incentivize innovators with monetary rewards, though there is disagreement over whether the reward is for ex ante or ex post behavior. But commentators have increasingly argued that the patent system also (or primarily) plays a key role in coordinating communities of innovators; see, e.g., work by Paul Heald, Scott Kieff, Oskar Liivak, Clarisa Long, Rob Merges, and Jason Rantanen. Different scholars emphasize different coordinating functions, but Yelderman notes a unifying theme in this line of work: "reducing costs and risks so that otherwise privately desirable transactions can occur."

In Coordination-Focused Patent Policy, Yelderman does not take sides in this debate over the role of coordination in justifying the patent system. Rather, he is interested in what coordination-focused policy would even look like—a question that is important even if coordination is merely a subsidiary benefit of patents—and he concludes that it would look rather different from a rewards-focused system.

Evidence in Copyright Trials, Blurred Lines Edition

A couple of years ago, everyone had an opinion about the Google v. Oracle copyright case but few looked at the actual evidence presented in the case to inform their opinions. It turned out that the evidence was quite different than the press was saying. Fast-forward to a relatively huge copyright jury verdict in the Williams v. Bridgeport Music case (better known as Blurred Lines copyright case - Gaye v. Thicke and Williams), and I see the same thing happening.

I've read a lot of opinion about the verdict, such as chilling effects (which are sure to be there - don't get me wrong). But I've also read many people say that we just can't hold folks liable for copying a "vibe" or copying Gaye's percussion and background vocals because those weren't protected copyrights back then.

I agree with these sentiments. But I wonder, is that the evidence the jury heard? If this is a bad verdict (and I have no opinion on that), why is it a bad verdict? I am not convinced by the opinions I've read on the topic, because most of them seem contrary to what I understand the admissible evidence to be. Thus, I can't tell if the jury got it wrong on the right evidence, the jury got it wrong on the wrong evidence, the jury got it right on the right evidence (no one seems to think this, except the winners and the jurors, maybe - we'll see about the judge or appeals court), or whether it should have gone to a jury in the first place. I'll elaborate on the evidence after the jump.

Transitioning from Science to Patent Law

I have been asked enough times by science and engineering Master's and Ph.D. students about transitioning to patent law that I thought it would be worth summarizing some basic information that I can refer them to. Which is not to say that a science background is necessary for a successful patent-related career, or that all science degrees are created equal from the perspective of patent law employers. If you are thinking of shifting to patent law, you should get guidance on your individual situation. This post is intended merely as a starting point for folks who know nothing about patent law careers.

Most U.S. patent law work falls into three general buckets: (1) being involved in the patent examination process before the Patent & Trademark Office (PTO), either by helping inventors get patents (known as "prosecution") or by working for the patent office to decide which patent applications to grant; (2) helping clients assert their patent rights in court or defend against patent lawsuits ("litigation"); or (3) helping arrange transfers of patent rights ("licensing" or "transactional work"). There are other options, including the growing field of patent office litigation (a hybrid of litigation and practice before the PTO), but I'll focus on these three.

Are Patent Fees Effective at Weeding out Low-quality Patents?

Gaétan de Rassenfosse & Adam B. Jaffe have posted Are Patent Fees Effective at Weeding out Low-quality Patents? (sorry, behind NBER paywall, though many universities have subscriptions). The abstract is here:

The paper investigates whether patent fees are an effective mechanism to deter the filing of low-quality patent applications. The study analyzes the effect of the Patent Law Amendment Act of 1982, which resulted in a substantial increase in patenting fees at the U.S. Patent and Trademark Office, on patent quality. Results from a series of difference-in-differences regressions suggest that the increase in fees led to a weeding out of low-quality patents. About 16–17 per cent of patents in the lowest quality decile were filtered out. The figure reaches 24–30 per cent for patents in the lowest quality quintile. However, the fee elasticity of quality decreased with the size of the patent portfolio held by applicants. The study is relevant to concerns about declines in patent quality and the financial vulnerability of patent offices.

Others have suggested that patent fees be used to weed out patents, for example to weed out low value or to deter patent trolls (who tend to assert later). This paper seems to support that notion, but I'm not sure it gets us all the way there, as I discuss after the jump.

Dueling Patent Reform Letters to Congress

We now have dueling patent reform letters to Congress by economists and legal scholars.

The pro reform side. The anti-major-reform side. My work - including the very same article - is cited in the bibliography added to both letters. I take professional pride in this fact, but it also means that there are arguments to be made by both sides with the same data.

I signed on to the second letter, which was a little bit uncomfortable, because that letter (rightfully) criticizes the generalizability of my data. This has long been a concern about this particular string of articles (there are now three) because I focus on the most litigious patent plaintiffs. In the articles, I explain the methodology and what I think can and cannot be drawn from the data, but readers will have their own takeaways.

In the end, though, I signed the second letter because I think the first letter overstates the case for patent reform. It was intended, I believe, to counter the argument that there's no evidence of harm from patent trolls. But I think this argument is a straw person; I'm not sure anyone says that there is no harm from bad actors in the system. The dispute, it seems to me, is about how much harm there is, and whether particular patent reforms are solutions to that harm. On this, I remain unconvinced.

Regardless of how you fall on the spectrum, these two letters together form a large bibliography on the topic, though they each leave out salient points from the other side, which is nothing new. After the jump, I'll summarize what I think the bulk of these studies tells us, and what remains unanswered. (Note that the only copy of the full pro-reform letter I can find online is on SSRN.)

Making Sense of Aesthetic Functionality

One of my seminar students once wrote a paper on aesthetic functionality in trademark law, which limits product or packaging design in some (non-utilitarian) cases. She struggled mightily. Every time she came to me with a draft, I pointed to other cases that undermined her theory.  The final paper was good, but I'm not convinced that she solved the puzzle of aesthetic functionality in trademark law.

Has Justin Hughes (Loyola LA) solved it? He has posted Cognitive and Aesthetic Functionality in Trademark Law (forthcoming Cardozo L. Rev.) on SSRN. Here is the abstract:

This article explores trademark law’s controversial and confusing aesthetic functionality doctrine, a doctrine that has been largely unexamined in the legal literature. The article argues that the most convincing cases for aesthetic functionality aren’t really about aesthetics, but concern cognitive and psychological responses in consumers that come from evolution or acculturation. At the same time, much of the instability of aesthetic functionality case law comes from the doctrine being an unrecognized battleground in the shift from trademarks being purely indicators of source to trademarks being valuable intangibles in and of themselves. Based on these observations, the Article proposes that aesthetic functionality makes the most sense – and would be a more stable, helpful doctrinal tool in trademark law – if it is limited to situations in which the consumer preference at issue comes from cognitive, perceptual, or aesthetic biases that are widespread among consumers before the trademark owner began its own marketing efforts. The Article explores how this insight lines up with most of the aesthetic functionality case law and prevents the doctrine from being used to undermine modern marketing, branding, and trademark realities.

I've bolded his proposed test. I don't have too much to say on this paper because I think this is a messy area and it will take more time and thought than I have for this blog post to parse it. Unsurprisingly, I do have a couple comments, though.

More on Valuing the Public Domain

Michael Risch previously posted on the study by Paul Heald, Kris Erickson, and Martin Kretschmer on the value of public domain photographs on Wikipedia. Those authors, along with Fabian Homberg and Dinusha Mendis, have posted a new paper, Copyright and the Value of the Public Domain: An Empirical Assessment, an independent report commissioned by the UK Intellectual Property Office. Their 90-page report has the ambitious goals of defining the public domain, mapping its size and frequency of use, identifying business models that benefit from the public domain, and evaluating existing theories of creativity based on these results. This report builds on work by scholars such as Yochai Benkler, Larry Lessig, and James Boyle, who have sought to define "the public domain" not just as the absence of copyright, but as an independent and valuable thing that is worth defending.

In this new UK IPO report, Erickson et al. define the public domain as including (1) works for which copyright has expired, (2) works that were never protected by copyright (from antiquity and folklore), (3) underlying ideas not being substantial expression, and (4) works offered to the public domain by their creator under a free and open license (including for commercial use). (While I think their definition makes sense, it might be worth trying to disentangle value from works with expired copyrights, which conceivably might not exist without copyright, and other works.) They do not attempt to quantify the overall value of the public domain (a perhaps impossible task). Rather, they describe results from three empirical studies as an initial step toward a larger assessment. In addition to the Wikipedia photo study that Michael described, they present results from interviews with 22 UK firms that used public domain materials and from a study of public-domain materials on Kickstarter.

Is Patent Discovery Different?

Greg Reilly (Cal. Western School of Law) has posted Linking Patent Reform and Civil Litigation Reform.The article considers whether discovery reform in patent cases should be viewed in a vacuum. The abstract:

Patent reform increasingly focuses on discovery. Discovery is perceived as disproportionately expensive and burdensome in patent cases. Excessive discovery is said to fuel so-called “patent trolls” and impose an unhealthy tax on innovation and competition. These supposedly exceptional problems have led to exceptional patent-only reform proposals, such as delaying most discovery for over a year and reversing the 75-year old allocation of discovery costs.

Treating patent litigation as exceptional has a siloing effect. Patent reform debates ignore parallel debates over general civil litigation reform that raise the same arguments about disproportionately expensive and burdensome discovery and propose their own set of reforms. This Article links patent reform to civil litigation reform, arguing that patent discovery is not exceptional in its costs, supposed effects, or causes. Instead, patent discovery is representative of a subset of discovery-intensive civil cases. The main problem with discovery in patent cases is not abusive tactics of “patent trolls” or inherent technical complexity but rather complex and open-ended remedial doctrines. Doctrinal complexity is not unique to patent litigation.

Pinpointing the source of patent discovery problems also suggests a solution – delaying costly and burdensome remedial discovery until after liability is established. This solution need not be limited to patent cases. Greater use of staged litigation – litigating and resolving some potentially case-dispositive issues before any discovery or other litigation occurs on more discovery-intensive issues – is a potentially valuable tool for reforming general civil litigation. Notably, staged litigation preserves the plaintiff’s access to information and right to a jury trial, overcoming objections to other efforts to reduce civil litigation costs, like Twombly/Iqbal plausibility pleading.

I think the abstract and the paper speak for themselves quite nicely, and comport with my experiences litigating complex cases, both patent and non-patent alike. I do have a few thoughts to add.