IP and the Soccer, er, Football

Just a short note this winter break week about a short essay that I enjoyed. Mike Madison (Pitt) has put The Football as Intellectual Property Object on SSRN. At first, I was really excited - looking forward to hearing about the pigskin's development from rugby. But, apparently, there's another kind of football around, but the essay was interesting just the same. Here's the abstract:

The histories of technology and culture are filled with innovations that emerged and took root by being shared widely, only to be succeeded by eras of growth framed by intellectual property. The Internet is a modern example. The football, also known as the pelota, ballon, bola, balón, and soccer ball, is another, older, and broader one. The football lies at the core of football. Intersections between the football and intellectual property law are relatively few in number, but the football supplies a focal object through which the great themes of intellectual property have shaped the game: origins; innovation and standardization; and relationships among law and rules, on the one hand, and the organization of society, culture, and the economy, on the other.

The essay details some of the history of soccer and the soccer ball from a variety of IP and innovation standpoints - sponsorships, standardization, unintended consequences of innovation, etc. The discussion provides a nice, brief survey of the untold life of an everyday object. The essay is part of a larger book that I look forward to reading: A History of Intellectual Property in 50 Objects.

What is Essential? Measuring the Overdeclaration of Standards Patents

Standard essential patents are a relatively hot area right now, and seem to be of growing importance in the academic literature. I find the whole issue fascinating, in large part because most of the decisions are handled through private ordering, and so most of the studies are based on breakdowns.

One such breakdown occurs when companies declare too many patents essential to a standard. This happens if a company claims that too many of its patents must be practiced for the standard. The incentives for doing this are obvious: once declared essential, it is easier to argue for royalties or cross-licensing. But there are also important incentives against leaving patents out, for doing so may bring penalties in terms of participation in formation of the standard in the first place. Given that the incentives all align to disclosure, it is no wonder that some companies push back against paying. That said, if portfolio theory holds true--and I think it does in most cases--it doesn't matter much if there are 10 or 100 patents, as long as the first few are strong and essential. But that's an argument for another day.

Just how prevalent is this overdeclaration problem? One paper tries to figure that out. Robin Sitzing (Nokia), Pekka Sääskilahti (Compass Lexecon), Jimmy Royer (Analysis Group, Sherbrooke U. Economics), and Marc Van Audenrode (Analysis Group, Laval U. Economics) have posted Over-Declaration of Standard Essential Patents and Determinants of Essentiality to SSRN. Here is the abstract:

Not all Standard Essential Patents (SEPs) are actually essential – a phenomenon called over-declaration. IPR policies of standard-setting organizations require patent holders to declare any patents as SEPs that might be essential, without further SSO review or detailed compulsory declaration information. We analyze actual essentiality of 4G cellular standard SEPs. A declaration against a specific technical specification document of the standard is a strong predictor of essentiality. We also find that citations from and to SEPs declared to the same standard predict essentiality. Our results provide policy guidance and call for recognition of over-declaration in the economics literature.

This is an ambitious study. The authors used data on SEP declared patents (for the ETSI 4G LTE standard, among others) that were independently judged* by technical experts. They then performed regressions to determine whether there were specific factors that had an effect on being "actually" essential. One key finding was that when the patent was declared for a specific standards document, it was much more likely to be deemed essential than if it were declared for the standard generally. My takeaway is that when the specifics are outlined, companies know what their patents cover, but when faced with a broad standard, they will contribute anything they think might be close.

They also found that patents later assigned to NPEs were not more likely to be nonessential. Similarly, while firm size and R&D investment had a statistically significant effect on the likelihood of being actually essential, that effect was so small that it was practically insignificant. Finally, they find that longer claims (which are theoretically narrower) are, in fact, less likely to be essential.

As with other papers, there is a lot of data here that is worth looking at. But the final conclusion is an interesting one, worth carrying over to other papers: the traditional measures that economists use to judge patent value (such as citations) do not predict whether a declared patent will be technically essential. This is growing support for paper findings that question the use of these metrics.

*The authors explain the trustworthiness of their data. I'll leave it to the reader to decide whether it holds up.

Bernard Chao on Horizontal Innovation and Interface Patents

Bernard Chao has posted an interesting new paper, Horizontal Innovation and Interface Patents (forthcoming in the Wisconsin Law Review), on inventions whose value comes merely from compatibility rather than improvements on existing technology. And I'm grateful to him for writing an abstract that concisely summarizes the point of the article:

Scholars understandably devote a great deal of effort to studying how well patent law works to incentive the most important inventions. After all, these inventions form the foundation of our new technological age. But very little time is spent focusing on the other end of the spectrum, inventions that are no better than what the public already has. At first blush, studying such “horizontal” innovation seems pointless. But this inquiry actually reveals much about how patents can be used in unintended, and arguably, anticompetitive ways.

This issue has roots in one unintuitive aspect of patent law. Despite the law’s goal of promoting innovation, patents can be obtained on inventions that are no better than existing technology. Such patents might appear worthless, but companies regularly obtain these patents to cover interfaces. That is because interface patents actually derive value from two distinct characteristics. First, they can have “innovation value” that is based on how much better the patented interface is than prior technology. Second, interface patents can also have “compatibility value.” In other words, the patented technology is often needed to make products operate (i.e. compatible) with a particular interface. In practical terms, this means that an interface patent that is not innovative can still give a company the ability to foreclose competition.

This undesirable result is a consequence of how patent law has structured its remedies. Under current law, recoveries implicitly include both innovation and compatibility values. This Article argues that the law should change its remedies to exclude the latter kind of recovery. This proposal has two benefits. It would eliminate wasteful patents on horizontal technology. Second, and more importantly, the value of all interface patents would be better aligned with the goals of the patent system. To achieve these outcomes, this Article proposes changes to the standards for awarding injunctions, lost profits and reasonable royalties.

The article covers examples ranging from razor/handle interfaces to Apple's patented Lightning interface, so it is a fun read. And it also illustrates what seems like an increasing trend in patent scholarship, in which authors turn to remedies as the optimal policy tool for effecting their desired changes.

Fiona Scott Morton & Carl Shapiro on the Alignment of Patent Rewards and Contributions

Fiona Scott Morton (Yale School of Management) and Carl Shapiro (Berkeley School of Business) have posted Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?, which has a nice summary of some recent developments related to patent assertion entities (PAEs) and standard-essential patents (SEPs), even for readers who will disagree with their ultimate conclusions.

Scott Morton and Shapiro argue that there is often a "divergence between the reward that a patent holder can obtain by asserting its patent and the social contribution" of the patent. They do not attempt to measure the social value from patents; rather, their argument is based on economic theory. PAEs can impose high litigation costs with little downside risk, especially when they assert low-quality patents for their nuisance value. And royalty stacking and patent hold-up (backed up by the threat of an injunction) can increase the reward to patentees beyond the patent's value, especially for products that comply with standards for which there are many SEPs.