Rebecca Tushnet: The Inconsistent and Confusing Role of Registration in American Trademark Law

Patent law scholars argue over how much time and money the Patent & Trademark Office (PTO) should spend on pre-grant review of patent applications. Likewise, they argue over the degree to which patents should be given a "presumption of validity" once granted. But what if patent law scholars completely ignored the details of the PTO's review, and simply assumed that patents are generally properly and efficiently granted? What if courts in patent infringement cases treated PTO review as a mere formality and focused exclusively on the appropriate scope of patents and whether they have been infringed in the marketplace? We would probably conclude this to be error. Given the time and public money expended each year on the process of patent examination, not to mention the role of published patent specifications in establishing and providing public notice of granted rights, it is worth paying attention to the administrative procedure through which patents are created and preserving the relevance of the PTO's analysis through doctrines like presumption of validity and prosecution history estoppel.

Yet, according Rebecca Tushnet's new article in the Harvard Law Review, Registering Disagreement: Registration in Modern American Trademark Law, foundational trademark law and scholarship suffer from a similar form of tunnel vision. Not only do they place inconsistent weight on the PTO's assessments during registration for establishing substantive trademark rights, but they do not apply a consistent vision of what the role of trademark registration actually is. Read more at the jump.

Merges & Mattioli on the Costs and (Enormous) Benefits of Patent Pools

Patent pools bundle related patents for a single price, reducing the transaction costs of negotiating patent licenses but creating the threat of anti-competitive harm. So are they a net benefit from a social welfare perspective? Professors Rob Merges and Mike Mattioli empirically tackle this difficult question in their new draft, Measuring the Costs and Benefits of Patent Pools, which at least for now is available on SSRN (though since its takeover by Elsevier, SSRN has conducted some egregious takedowns). Spoiler: They don't reach a one-size-fits-all answer, but they conclude that "[p]ools save enormous amounts of money," which means that "those who are concerned with the potential downside of pools will, from now on, need to make a good faith effort to quantify the costs they describe."

To address the benefit side of the equation, Merges and Mattioli interviewed senior personnel at two patent pool administrators: MPEG-LA, which administers 13 pools and provided information on the High Efficiency Video Encoding (HEVC) pool, and Via Licensing, which administers 9 pools and provided information on the MPEG Audio pool. The two pools focused on were "believed [to] represent[] the average (in terms of scale and cost) among the set of pools they administer." Based on these interviews, the authors estimate the total estimated setup expenses over a two-year period as $4.6M for HEVC and $7.8M for MPEG Audio. (Of course, pool administrators may not be the most unbiased source of information, but the authors itemize the costs in a way that makes it easy for others to check.) Merges and Mattioli then consider the counterfactual world in which all the associated licenses were negotiated individually, in which they estimate the transaction costs at $400M for HEVC and $600M for MPEG Audio. This suggests that the pools resulted in a staggering savings of about two orders of magnitude. They also estimate that the pooling arrangement reduces the ongoing transaction costs.

On the cost side of the equation, Merges and Mattioli state that patent pool critics have raised two main consumer welfare concerns: (1) combining substitutes, such that firms that should have been competitors are able to act as monopolists; and (2) grantback clauses, which could allow pools to suppress future competitors. They note that in practice, these are unlikely to be significant problems: most pools require members to make their patents available independently, which "makes technology suppression through a pool impossible." But if a pool does not have such a provision, how big are the potential consumer welfare losses?

New GAO Patent Studies

The Government Accountability Office released two new reports on the PTO today: one on search capabilities and examiner monitoring, one on patent quality and clarity. They also released the underlying data from examiner surveys.

I think the survey data is more interesting than the conclusions; examiners were asked questions including how much time they spend on different parts of examination, how useful they found PTO training, how often they searched for/used different types of prior art, what factors make prior art searching/examination difficult, how much uncompensated overtime they worked to meet production goals, how confident they were that they found the most relevant prior art, what they think of PTO quality initiatives, etc. Lots of rich data here!

Here are the concluding recommendations from each report, for which the GAO will track the PTO's responses on their website. (I believe the PTO is already working on quite a number of these.)

Neel Sukhatme: Make Patent Examination Losers Pay

Why do patent applicants pay higher fees when they succeed than when they fail? In a terrific new draft posted last week, "Loser Pays" in Patent Examination, Neel Sukhatme (Georgetown Law) argues that "such pricing is precisely backwards, penalizing good patent applications instead of bad ones." Instead of this "winner pays" system, he argues that the PTO should discourage weak applications by forcing unsuccessful applicants to pay more.

I think most patent scholars would agree that the PTO issues many patents that do not meet the legal standards for validity; see, e.g., work by Michael Frakes and Melissa Wasserman showing that time-crunched examiners have higher grant rates, or work by John Allison, Mark Lemley, and David Schwartz on the large number of patents invalidated during litigation. To address this problem, it may be worth increasing the resources devoted to examination—e.g., examiners could be given more time, and I have argued for some form of peer review. But I think most patent scholars would also agree with Mark Lemley that at some point the costs of increased scrutiny would not outweigh the actual social costs of the invalid patents that slip through (most of which are never asserted or litigated).

Sukhatme's paper builds on a growing body of scholarship that tackles the problem of invalid patents not through increasing the resources spent on examination, but rather through price structures designed to disincentivize socially costly behavior by patent applicants. For example, Jonathan Masur has argued that the high costs of obtaining a patent disproportionately select against socially harmful patents, and Stephen Yelderman suggests a number of more fine-grained way to rationalize application fees. Economists Bernard Caillaud and Anne Duchêne have developed some of these ideas in a formal model, including the possibility of "a penalty for rejected applications" which "would unambiguously encourage R&D" because it would have "no impact on the submission strategy for non-obvious projects." And it seems clear from work by scholars such as Gaétan de Rassenfosse and Adam Jaffe that changes in fees do affect applicant behavior in practice.

Sukhatme does a wonderful job expanding on these ideas to explore how loser-pays rules might be adapted to patent examination. For example, he suggests that applicants could be required to post a bond at the outset of examination, some of which would be returned if the applicant is successful. Continuations could be discouraged by reducing the recoverable bond amount as prosecution proceeds. Additional revenues could be returned to successful applicants, providing stronger incentives for filing valid patents. To reduce unfairness to individual inventors, the PTO could continue the current practice of offering discounts for small and micro entities.

The PTO could implement this system using its fee-setting authority under current law. Indeed, I think Sukhatme could go further and argue that the PTO has not only authority but also some obligation to do so. I've previously blogged about Jonathan Masur's work on cost-benefit analysis (CBA) at the PTO, in which he explains why the PTO's attempt to use CBA for its recent fee-setting regulations was a misapplication of basic principles of patent economics. If the PTO's current fee structure were compared with Sukhatme's under a correct application of CBA, I think Sukhatme's would win.

Use of IP and Alternatives by UK Firms (1997-2006)

This isn't a new report, but it's new on SSRN: the UK Intellectual Property Office commissioned a 2012 report by Bronwyn Hall, Christian Helmers, Mark Rogers, and Vania Sena, The Use of Alternatives to Patents and Limits to Incentives, which presents data on the choice of different IP protection mechanisms by UK firms from 1997 to 2006. The report starts with a terrific literature review, covering works like the Levin et al. (1987) "Yale" survey, the Cohen et al. (2000) "Carnegie Mellon" survey, and the Graham et al. (2010) "Berkeley" survey. Discussion of the UK data begins on p. 41. There are 38,760 observations, but few firms show up over the whole time period.

Just a few teaser results: Only about 30% of firms report any form of innovation, and only 1.3% of firms patent. Within formal IP categories, trademarks are considered the most important right. 92% of firms that do not report product innovations regard patents as unimportant, compared with slightly less than 30% of product innovators. Trade secrecy complements use of patents: almost 40% of patentees consider secrecy to be crucial, compared with 9% of non-patenting firms. The full PDF is 138 pages, so I won't even attempt a summary, but I thought patent scholars who hadn't discovered this yet might be interested.