A Trend at Pat Con: Regulating Patents Earlier

I was thrilled to attend "Pat Con 6" this year at Boston College, thanks to this year's host David Olson, along with Andrew Torrence and David Schwartz.  I noted a trend in several of the papers: many sought, either explicitly or implicitly, to shift back the timeline in which bad patents are kicked out of the system or in which low quality patent assertions are halted––presumably in order to avoid the high costs of litigation and the imposition on consumers and downstream innovation. I suppose we can think of this as "ex ante" versus "ex post" regulation of patents. In theory, this is a way to limit the toxic effects of low quality patents, and low quality patent assertions, on the system. Read more at the jump.

Jonathan Masur on Improving Cost-Benefit Analysis at the PTO

Federal agencies are required to use cost-benefit analysis (CBA) for all "economically significant" regulations—those with an impact of at least $100 million. Given the economic importance of patents, even small procedural changes at the PTO likely cross this threshold. But as Jonathan Masur notes in CBA at the PTO, the PTO regularly promulgates regulations without following CBA procedures. The PTO did deem its recent fee-setting regulations economically significant, and Masur writes that "the PTO deserves commendation for attempting CBA in such a difficult field." Yet the resulting analysis "misunderstands basic precepts of patent economics."

CBA is supposed to measure the social costs and benefits of a proposed regulation, not just the private costs and benefits for the agency and the regulated party. The PTO's analysis for its fee-setting regulation correctly counted PTO operating costs as a real administrative cost. But the only other costs and benefits it considered related to the quantity and speed of patent grants—where more/faster patents were viewed as benefits, and fewer/slower patents were viewed as costs. The PTO viewed a "decrease in successful patent application filings" as a "cost to society." As Masur notes, this approach "improperly conflates the private value of patents to their owners with the value of patents to society at large." (As I've previously discussed, this distinction can also be conflated in academic work.) The private value of a patent—the supracompetitive rents it enables—is a transfer from consumers to the patent owner, not a social gain. If there is a social benefit, it is in the dynamic incentives the patent creates.

In addition to making this "fundamental" error about the benefits of patents, the PTO's CBA "entirely ignores the costs that accompany patents" such as deadweight loss and inhibition of follow-on innovation. The PTO did note that uncertainty about the scope of others' patent rights can inhibit innovation, but this was treated "as a cost created by pending patent applications, as if the cost disappears entirely when the patent is granted"—which Masur notes is "entirely backward." In prior work, Masur has explained that high patent filing fees can serve the benefit of screening out low-value inventions. The PTO's CBA, however, "errs by treating lower fees—and greater numbers of patents—as an unalloyed good."

The AIA Is Not a Taking

I have just published, along with Ben Picozzi, a response to Greg Dolin and Irina Manta's article, Taking Patents. In the response we refute Dolin and Manta's argument that the America Invents Act effectuated a compensable "taking" under the Fifth Amendment by making it easier to invalidate patents in administrative proceedings. The response is particularly timely in light of the Supreme Court's upcoming decision in Cuozzo regarding the propriety of interpreting claims using the "broadest reasonable construction" standard in inter partes review proceedings, and whether the PTAB's decision to institute an IPR must be judicially reviewable. The response is available here: http://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article=1041&context=wlulr-online

McDowell & Vishnubhakat on the USPTO Patent Pro Bono Program

Until I came across this new article by Jennifer McDowell (USPTO) and Saurabh Vishnubhakat (Texas A&M), I'll admit I wasn't aware that the USPTO has a pro-bono program to provide free legal assistance to inventors. Here is the abstract:

In recent years, the United States Patent and Trademark Office has systematically been engaging the legal community with inventor assistance beyond the agency’s usual business of examining applications for patents and trademarks. The purpose of the USPTO’s effort has been to support innovators who are constrained by a lack of resources to pay for patent counsel necessary to protect the full scope of their inventions. This Article describes the brief history, flexible structure, and ongoing growth of that effort, embodied in the USPTO Patent Pro Bono Program. The Patent Pro Bono Program is a national network coordinated by the USPTO to connect inventors and small businesses with registered patent attorneys and agents to assist in the filing and prosecution of patent applications for free. At the regional level, a broad array of non-profit organizations, bar associations, community economic development organizations, and institutions of higher education support the USPTO in matching low-income inventors with experienced patent professionals. At the individual level, volunteer patent attorneys and their inventor clients engage in the usual back-and-forth of the USPTO examination process, seeking patent protection as a way to enter or advance in the marketplace. In short, the program is a structural effort to bring independent inventors and startups the same opportunity of investment and economic competition that large and established incumbents enjoy.

In addition to providing a thorough description of the program, the authors attempt to study its impact so far based on initial data from the pilot program in Minnesota. But the analysis is complicated by the small sample size and selection effects. (This is a broader problem—the USPTO implements all its pilots in ways that are difficult to learn anything from, rather than in a controlled way.)

Do Non-Compete Agreements Really Impede Innovation?

I spent my entire practice career in California, representing clients who were, by and large, free to move from company to company due California's ban on covenants not to compete. At the time, the question of inevitable disclosure was unsettled in California; the law allowed for injunctions to stop "threatened" misappropriation, but the question was whether merely being in the same business is a sufficient threat. Most people though no, and the courts eventually went there.

But employees were not always free to do as they wished. I represented many employees against their awful former employers who (wrongfully) claimed that the employee had exited with trade secrets. And I represented many companies against their awful former employees who (wrongfully) claimed they had exited cleanly without trade secrets. For this reason, I've always bristled at the notion that California is a place where everyone happily moves from company to company and nobody cares or legitimately worries about trade secrets because it's all good.

But through this all, I always thought employee mobility was a good thing. I still do. And so do a lot of other people. Indeed, a sort of orthodoxy has arisen where you simply can't be honest, pro-innovation, and pro-noncompete all at the same time. It's as if an entire strand of the literature on how non-competes can improve investments in human capital training got lost in the mix, replaced by theory that says the contrary. This theory is supported by evidence from empirical studies on the matter. It seems crystal clear.

Not so, according to Jonathan Barnett (USC) and Ted Sichelman (San Diego). A draft of their paper, Revisiting Labor Mobility in Innovation is now up on SSRN. In it, they take on the orthodoxy:

It is now widely asserted that legal regimes that enforce contractual and other limitations on labor mobility deter technological innovation. First, recent empirical studies purport to show relationships between bans on enforcing noncompete agreements, increased employee movement, and increased innovation. We find that these studies misconstrue legal differences across states and otherwise are flawed, incomplete, or limited in applicability. Second, scholars have largely adopted the view that California’s policy against noncompetes promoted Silicon Valley as the world’s leading technology center. By contrast, Massachusetts’ enforcement of noncompetes purportedly stunted innovation in the Route 128 region near Boston. We show that this account is incomplete. During the rise of Silicon Valley, California noncompete law did not as vigorously preclude noncompetes as today and firms could substantially mimic noncompetes through contractual and other instruments. Rather, fundamental technological and economic factors more persuasively account for the rise of Silicon Valley and the Boston area has remained a significant innovation center. There is little compelling ground for the view that barring noncompetes and other limitations on employee mobility promotes innovation.

I believe this is an important paper, even if you are not inclined to agree with its conclusions. I'll discuss more after the jump.

Hidden in Plain Sight

I've posted a draft of my new trade secrets article at SSRN. Here is the abstract:

Software developers have long tried to appropriate the value of visible features and functions of their programs. Historically, they used copyright to do so, but then shifted to patenting as copyright protection for methods of operation waned. Given newfound difficulties patenting software functions, developers have one more place to turn: trade secrets.

Trade secrets have always protected the hidden aspects of programs, but can they be used to protect visible or easily discernible program features? This article suggests a new way developers might use trade secrets to protect visible program features. It examines how they might do so, relying on traditional case law and confidentiality precautions used to keep secrets. In doing so, the article considers whether and how such protection could be achieved in theory and in practice.

The article then asks how software licensing would change if trade secret protection of discernible features were achieved. It considers how software might be delivered (including software as a service), the potential for trade secret trolls, the role of open source development, and the potential effect on innovation incentives.

Finally, the article considers the alternative normative views associated with this new type of software protection.

 Comments are appreciated!

Ben Picozzi on the Role of the Solicitor General in Patent Law

This is a Guest Post by Ben Picozzi, J.D. Candidate at Yale Law School and Student Fellow at the Information Society Project. Ben discusses a prize-winning paper he recently posted on SSRN about the litigating relationship between the PTO and the DOJ. In the paper he argued that the DOJ has used its exclusive litigating authority as an administrative control mechanism in patent law. Ben summarizes his argument in the paper, and tells readers how he would have done things differently in hindsight.  Read more at the jump.

What If They Forgot to Record the Super Bowl?

I've been slow in my blogging due to a heavy semester, though I've got some new posts coming.

In the meantime, I have a new post at the Villanova Moorad Sports Law Journal page, in which I discuss the legal ramifications of broadcast network failure to retain copies of Super Bowl I (and the lone individual who made his own recording of the broadcast).

Larry Helfer on Access to Medicines

Readers interested in the social justice concerns described in Monday's post may be interested in a book chapter that was recently posted by Professor Laurence Helfer: Pharmaceutical Patents and the Human Right to Health: The Contested Evolution of the Transnational Legal Order on Access to Medicines. Helfer is one of the leading scholars of international IP institutions; see, e.g., his classic work on regime shifting.

In this new chapter, he describes the collision of two "transnational legal orders" (TLOs): one focused on IP, and one on the right to health. He breaks down the history into three phases. In Phase 1 (pre-mid-1990s) the two TLOs "existed in relatively stable but distinct policy spaces." In Phase 2 (mid-1990s to 2000), the IP TLO rapidly expanded. Phase 3 (2000 to the present) has involved "a backlash against pharmaceutical patents and a campaign by developing countries and civil society groups to increase A2M [access to medicines]." In broad strokes, this account is probably familiar to many IP scholars, but for those interested in the detailed institutional dynamics behind this story, Helfer's chapter is well worth a read.

In related news, the pharmaceutical firm GlaxoSmithKline made headlines with its recent announcement that it will stop filing patents in 50 low-income countries and will grant licenses to generics manufacturers in another 35 lower-middle-income countries.

Peter Menell on IP and Social Justice

Professor Peter Menell recently posted a new essay, Property, Intellectual Property, and Social Justice: Mapping the Next Frontier, from a conference celebrating Professor Joseph Singer. As he explains, "[t]he ascendency of intangible resources profoundly affects social justice—from access to life-saving genetic information to the control of knowledge dissemination, creative freedom, group identity, and, increasingly, the distribution of wealth." His essay canvases a huge array of topics in just 52 pages, and it is a great review of the literature in this area. (The essay is worth downloading even just for the collection of key works in footnote 13, from scholars including Anupam Chander and Madhavi Sunder and Amy Kapczynski.)

For each of the four main bodies of IP law, Menell examines the law's internal legitimacy (is IP the best way of achieving the law's goals?) and external effects (how does the law affect various social justice considerations?). For example, he compares patent law with the other legal institutions that Daniel Hemel and I discuss in Beyond the Patents–Prizes Debate, and he reaches the same conclusion we do: each institution has limitations, and "the patent system works best in conjunction with other institutions." On patent law's external effects, Menell notes the troubling implications of patent law's use of price as an allocation mechanism for certain technologies such as medicines. He notes that this does not require one to reject the patent system—rather, it highlights the need in certain areas for non-patent institutions such as government health care policies. (Of course, as Ted Sichelman nicely summarizes, we think the negative distributional effect of patents will be replicated by any system that taxes users of the technology—marginal cost pricing can only be obtained by requiring consumers to broadly subsidize each other's technology use, which is the whole idea of government health care and other health insurance programs.)