Wednesday, February 14, 2018

Hall & Helmers on the European Patent Convention's Impact on Patent Filings and Foreign Direct Investment

The Impact of International Patent Systems: Evidence from Accession to the European Patent Convention, which Michael Risch posted about yesterday, caught my eye as well. As Michael explained, economists Bronwyn Hall and Christian Helmers examined the impact on patent filings and foreign direct investment (FDI) for fourteen countries that joined the European Patent Convention (EPC) between 2000 and 2008. (The countries are Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Iceland, Lithuania, Latvia, Norway, Poland, Romania, Slovenia, Slovakia, and Turkey.)

They find only a small change in patenting by a country's domestic entities. Foreign entities, however, rapidly switched to filing at the EPO, causing their filings in national offices to drop by over 90%. This figure nicely illustrates the effect:


There was not a similar change to FDI: "Despite the clear impact on patent filings, using firm-level data on FDI, we find only very weak evidence that non-residents changed their investment in accession countries following accession to the EPC."

Hall and Helmers argue that these results show "the differential effect of accession to a regional patent system on residents and non-residents of the mostly smaller, less developed accession countries in our sample. Non-residents certainly benefit from the expansion of the regional patent system given their strong reaction, but the net effect on residents is a lot less clear." In other words, joining the EPO creates costs for these countries (because there are more foreign patents, with the resulting deadweight loss) without a strong corresponding gain in domestic innovation or FDI.

In his post yesterday, Michael said it wasn't clear to him why we would have expected stronger IP rights to increase FDI, but this has been one of the main arguments for why developing countries might benefit from joining patent treaties such as TRIPS. For just a few of many articles laying out these arguments—and noting the weak evidence base behind them—see the seminal works by Edith Penrose in 1951 and 1973 or the 1998 Duke symposium articles by Carlos Braga & Carsten Fink and by Keith Maskus.

Studying the impact of changes in patent law through cross-country studies is incredibly difficult (as I have previously explained), but I thought this was a nice empirical design with appropriately nuanced conclusions, and it is certainly worth a download for anyone interested in the impact of the internationalization of the patent system.

Tuesday, February 13, 2018

How Does Country Consolidation Affect Patenting?

Just a short entry today about an interesting new NBER paper by Bronwyn Hall (Berkeley Economics) and Christian Helmers (Santa Clara Business) (behind a paywall, sorry, though most academics can download for free). The question is what happened to patenting activity when the ability to consolidate patenting in a single super-entity comes into play. Hall and Helmers consider this question in the context of the European Patent Convention, which allowed inventors to file with a single entity (the EPO) that granted patents good in any one of several member countries.

Here's the abstract of what they found:
We analyze the impact of accession to the regional patent system established by the European Patent Convention (EPC) on 14 countries that acceded between 2000 and 2008. We look at changes in patenting behavior by domestic and foreign applicants at the national patent offices and the European Patent Office (EPO). Our findings suggest a strong change in patent filing behavior among foreigners seeking patent protection in the accession states, substituting EPO patents for domestic patents immediately. However, there is little evidence that accession increased FDI by patenting foreign companies in accession countries. Moreover, there is no discernible reaction among domestic entities in terms of domestic filings, although we do find some evidence that applicants in accession states increased their propensity to file patents with the EPO post-accession. Inventor-level information suggests that the underlying inventions originate in the accession states.
Let's unpack this a little bit. First, for those who were in EPC countries, they continued to file in their home countries and the EPO at the same rate. It's unclear why - perhaps they wanted the extra chance at protection, or perhaps it was for vanity.

Second, in EPC countries, the rate of invention (measured by patent filings) went up, but only a small amount. But because the rates were pretty low, even a small change was a real change.

Third, foreign patent filing shifted to the EPO almost wholesale. Whereas EPC filers chose both, foreign filers seemed to appreciate the ability to get one patent to cover all countries. The implication I take from this is that EPC filers had some strong reason for that national coverage rather than some worry about overlapping protection if one patent were invalidated.

Finally, the foreign filings did not lead to much increased foreign direct investment. In other words, the EPC appears to have allowed for cost savings for foreigners, cost increases for locals (by their choice, mind you), and not much else. From the discussion in the article, one takeaway from this is that strengthening of IP rights did not necessarily increase foreign investment. It's not clear to me why we would have expected this. While strengthening IP in the way that the EPC did should make it cheaper to obtain protection, it is unclear why companies would move R&D that they already have underway to take advantage of it. After all, they are already happy with the R&D they have; the continued national filings of EPC firms imply this. The cost efficiencies alone should be enough (note also that a single source may be cheaper IP, but it may not be stronger - it may be easier to invalidate a single patent in multiple countries than multiple patents in multiple countries).

That said, if formation of the EPC were grounded on claims that, if only it were easier to get broad protection, everyone would start doing more R&D in, say, Portugal, then those claims were misguided.

Thursday, February 8, 2018

Kevin Soter on Causation in Reverse Payment Antitrust Claims

Readers of this blog are likely familiar with the Supreme Court's 2013 FTC v. Actavis decision, which concluded that certain "reverse payment" pharmaceutical patent litigation settlements could violate the antitrust laws and that "it is normally not necessary to litigate patent validity to answer the antitrust question." Actavis had plenty of academic input before it was decided and has continued to spark vigorous scholarly debates, such as an article by Edlin, Hemphill, Hovenkamp & Shapiro, a response by Harris, Murphy, Willig & Wright, and a reply from the original group.

But until I read Kevin Soter's forthcoming Stanford Law Review Note, Causation in Reverse Payment Antitrust Claims, I wasn't aware of the developing circuit split over reverse-payment antitrust suits brought by private individuals rather than the government.

Unlike the government, private individuals must establish "antitrust standing," including the need to show causation of injury-in-fact, which limits enforcement to groups like drug purchasers, consumer groups, or insurers that might actually be harmed by the settlement. Under the approach to causation adopted by the Fifth and Third Circuits, "plaintiffs must prove precisely how, absent the illegal settlement agreement, generic entry would have happened earlier," which can require litigation of patent invalidity or noninfringement. Other courts—including the California Supreme Court, three district courts, and perhaps the Second Circuit—use the same inference as in Actavis, "reasoning that a plaintiff who has shown an antitrust violation based on a reverse payment settlement agreement has necessarily shown an agreement to delay generic entry beyond the otherwise expected date of generic entry."

Soter sides with the latter approach, arguing that the causation inquiry for private plaintiffs is no different from the inquiry over anticompetitive effects at issue in Actavis, for which litigation of patent validity is unnecessary. And he notes that a burden-shifting approach could address lingering concerns by allowing defendants to rebut the inference of causation.

The best part of teaching at Stanford is having extraordinarily talented students who can produce works like this, and I thought it was worth highlighting for anyone who has been following the pharmaceutical patent litigation antitrust debates.

Tuesday, February 6, 2018

Can You Copyright a Pose?

An interesting case caught my eye this week, and piqued my interest enough to explore further. In Folkens v. Wyland Worldwide the Ninth Circuit considered whether Wyland's depiction of crossing dolphins copied from Folkens's original. Below is a reproduction from the complaint, but it doesn't really do them justice. Better versions of Folkens (pen and ink) and Wyland (color) highlight the similarities and differences.


Folkens v. Wyland
Folkens (left) v. Wyland (right)

The differences between these two are relatively clear: coloring, "lighting," background, and so forth. But there are undeniable similarities, and the primary similarity is the dolphin "pose," which is strikingly similar. It is this similarity (and the Ninth Circuit's treatment of it) that I'd like to explore. Nothing in this analysis, however, should be taken to mean that I think Folkens should necessarily win here. My concern is only with how the court got there, as I discuss below.

Friday, February 2, 2018

Beebe & Hemphill: Superstrong Trademarks Should Receive Less Protection

I have taught the multifactor test for trademark infringement four times now (using the 9th Cir. Sleekcraft test), and each time, some student has questioned which way the "strength of the mark" factor should cut. As a matter of current doctrine, stronger marks receive a broader scope of protection. But smart Stanford Law students who are not yet indoctrinated with longstanding trademark practices ask: in practice, isn't there less likely to be confusion with a strong mark?

In their new article, The Scope of Strong Marks: Should Trademark Law Protect the Strong More than the Weak?, Barton Beebe and Scott Hemphill expand on this intuition: "We argue that as a mark achieves very high levels of strength, the relation between strength and confusion turns negative. The very strength of such a superstrong mark operates to ensure that consumers will not mistake other marks for it. Thus, the scope of protection for such marks ought to be narrower compared to merely strong marks."

The doctrinal relationship between trademark strength and protection was not always as clear as it is today. For example, Beebe and Hemphill point to a 1988 decision by Judge Rich of the Federal Circuit: "The fame of a mark cuts both ways with respect to likelihood of confusion. The better known it is, the more readily the public becomes aware of even a small difference." This more nuanced approach to consumer confusion also finds support in many foreign trademark cases.

To be sure, Beebe and Hemphill are really making an empirical claim about consumer perceptions, and the evidence base is quite limited (though they cite some related studies at notes 102-03). But as they note, the current doctrine relies "on a jumble of untested empirical assertions," and their argument makes a good deal of intuitive sense. At the very least, this article should spur trademark scholars, practitioners, and judges to reexamine their understanding of the relationship between strength and protection. And the next time one of my students asks about this, I'm glad I'll be able to send Beebe and Hemphill's work their way.