Measuring the Value of Patent Disclosure

How valuable is patent disclosure? It's a perennially asked question. There are studies, like Lisa's, that attack the problem using surveys, and the conventional wisdom seems to be that there are niche areas that read patents, but for the most part patent disclosure holds little value because nobody reads them.

Deepak Hegde (NYU Stern), Kyle Herkenhoff (Minn. Econ), and Chenqi Zhu (NYU Stern PhD candidate) have decided to attack the problem from a different angle: using the AIPA (which required patent disclosure at 18 months) as a natural experiment. The paper is on SSRN, and the abstract is here:

How does the disclosure of technical knowledge through patents affect knowledge diffusion, follow-on invention, and patenting? We study this by analyzing the American Inventor's Protection Act (AIPA), which required U.S. patent applications filed after November 28, 2000 to be published 18 months after filing, rather than at grant, and advanced the disclosure of most U.S. patents by about two years. We estimate AIPA’s causal effect by using a counterfactual sample of identical European “twins” (of U.S.patents) which were not affected by the U.S. policy change and find that AIPA (i) increased the rate and magnitude of knowledge diffusion associated with U.S. patents (ii) increased overlap between technologically distant patents and decreased overlap between similar patents. Patent abandonments and scope decreased, while patent clarity improved, after AIPA. The findings are consistent with the predictions of our theoretical framework which models AIPA as provisioning current information about related technologies to inventors. The information, in turn, reduces follow-on inventors’ R&D and patenting costs. Patent disclosure promotes knowledge diffusion and clearer property rights while reducing R&D duplication.

This was a clever project. There have been AIPA studies before, but none that try to measure the value of the diffusion, so far as I know. What makes it go is the matching with European patents (which had always been published), which allows for their measurements to be independent of quality of invention.

Kuhn & Thompson on Measuring Patent Scope by Word Count

I've seen a number of recent papers that attempt to algorithmically measure patent scope by counting the number of words in the patent's first claim and comparing to other patents in the same technological field (with longer claims → more details → narrower scope). In their new paper, The Ways We've Been Measuring Patent Scope are Wrong: How to Measure and Draw Causal Inferences with Patent Scope, Jeffrey Kuhn (UNC) and Neil Thompson (MIT Sloan) argue that this measure is superior to prior scope measures.

They validate the word-count measure by comparing with survey responses from seven patent attorneys (below). In comparison, they find that previous measures of patent scope—the number of classes, the number of citations by future patents, and the number of claims—are uncorrelated or negatively correlated with their attorneys' subjective responses.

Of course, there are lots of reasons that word count is an imperfect measure, and additional validation would be helpful. (It would also be good to confirm that the attorneys in this study were blinded to the study design.) Those planning empirical patent studies should approach this variable with caution (and with good advice from patent law experts), but it is a potential scope measure that patent empiricists should at least have on their radar screens.

Guest Post by Greg Reilly: Forcing Patent Applicants to Internalize Costs from Overclaiming

Guest post by Greg Reilly (IIT Chicago-Kent College of Law), whose work on patent "forum selling" and patent discovery has previously been featured on this blog.

Conventional wisdom is that patent prosecutors should obtain the broadest possible claim scope or, more precisely, should obtain at least one claim that is as broad as the U.S. Patent and Trademark Office examiner will allow while also hedging with other, narrower claims. A new paper by Oskar Liivak (Cornell), Overclaiming Is Criminal, provocatively argues that this standard practice is not just sub-optimal or improper, but is in fact illegal under federal law – “it is a felony to willfully overclaim in a patent application.” Liivak’s paper is a crucial contribution to the debate over improving patent quality, highlighting the need to alter the patent applicant’s and patent prosecutor’s incentives, not just attempt to improve the Patent Office’s performance.

Liivak’s legal argument is virtually air-tight, and I am sympathetic to his policy concerns, though the practical impact of his proposal is less certain because of the difficulty of identifying “willful overclaiming.” In any event, criminal sanctions are not the only way to alter the incentives of applicants and prosecutors to ensure that they internalize costs from overclaiming. Another possibility is restricting claim amendments in Patent Office post-issuance proceedings, an issue currently before the en banc Federal Circuit in In re Aqua Products, Inc. (More after the jump.)

The Past and Future of Functional Claiming...

As Lisa predicted a couple weeks ago, the Federal Circuit issued a new en banc (11-1) opinion today in Williamson v. Citrix without argument or further briefing. Patently-O has full coverage, so I'll get right to the core issue: the Federal Circuit reversed its prior precedent on functional claiming, but not all the way.

By way of background, if you claim a "means plus function" element (e.g., means for adding two numbers) then you need to disclose the structure for your means in the specification, which includes both the hardware and the algorithm (a general purpose computer programmed to take two numbers as an input, add them together, and report the sum as an output). If you don't put that structure in the specification, your claim is invalid as indefinite. Seem absurd for easy or common functions? More on that later.

The question is what you do when the word means is replaced with something else, like "module" or "unit" or "logic." The presumption has long been that this would not be means plus function, and it would be treated like structure unless the opposing party could convince the court that it really was a means plus function in disguise.  Starting in about 2004, the Federal Circuit doubled down on this rule, making this a strong presumption against means plus function that was very difficult to overcome. As a result, the courts affirmed a bunch of patents that claimed functions but didn't actually teach how to do them. More on that later.

In this case, the court backtracked to pre-2004 rules. Rather than looking at the words, we look to see whether the limitation is really just claiming a means for doing a function, or whether the limitation has sufficient structure built right in. For example, you might have a limitation "adding module programmed to take two numbers as an input, add them together, and report the sum as an output." This is clearly functional, but the structure is right there in the limitation. Judge Reyna (along with some of my colleagues in the academy) would go further and argue that any functional claiming has to be in the specification, but I've never been convinced by that argument, in part because you can always put algorithms and structure right into claims. Judge Newman would have stuck with the formalistic requirement of requiring "means" to mean "means plus function," but it is clear that this view is currently disfavored.

My thoughts on what this all means after the jump.

Case watch: Is the Federal Circuit revising functional claiming rules in Williamson v. Citrix?

Last November, the Federal Circuit panel opinion in Williamson v. Citrix held that the district court erroneously construed the limitation "distributed learning control module" as a means-plus-function expression. The majority emphasized that failure to use the word "means" in a claim limitation creates a strong rebuttable presumption that it is not a means-plus-function limitation. In dissent, Judge Reyna argued that the limitation simply substituted the "nonce" word "module" for "means." On December 5 (exactly six months ago), Citrix et al. filed for rehearing en banc, supported by amicus briefs by the EFF and a group of IP professors (including me). The IP professor brief, written by Mark Lemley, argues that patentees have exploited the Federal Circuit's inconsistency in this area to engage in functional claiming without satisfying means-plus-function claim rules.

Based on the timelines in the Federal Circuit's internal operating procedures, it seems improbable that the court could still be deciding whether to act on the rehearing petition. So perhaps the court granted rehearing en banc without argument? Issuing an en banc decision can take a while—Akamai v. Limelight took over 9 months from argument to opinion—but that was unusual, so maybe we will hear something soon. (Here is the Williamson v. Citrix docket on Bloomberg Law, subscription required.)

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:

Teva v. Sandoz: Fact Issues in Claim Construction Reviewed for Clear Error, Ultimate Decision De Novo

The Supreme Court released its opinion in Teva v. Sandoz this morning, holding 7-2 that fact issues in claim construction are reviewed for clear error, as required by Fed. R. Civ. P. 52(a)(6). As I predicted after watching the argument, Justice Breyer wrote the opinion vacating the Federal Circuit's judgment, though he got more votes than I expected: he was joined by everyone except Justices Thomas and Alito. Today's opinion joins a long line of Supreme Court decisions rebuking the Federal Circuit for patent law exceptionalism. But the opinion is also a partial win for the Federal Circuit and the many tech companies favoring de novo review, in that the ultimate claim construction decision will still be reviewed de novo.

Teva v. Sandoz Argument Recap

This morning I attended the Supreme Court argument in Teva v. Sandoz, the case on the standard of review for patent claim construction, which I previewed on this blog. Based on the questions today (transcript here), I think that Chief Justice Roberts, Justice Alito, Justice Sotomayor, and perhaps Justice Ginsburg were inclined to affirm the current de novo approach, and that Justices Scalia, Kennedy, Breyer, and Kagan thought that claim construction involves subsidiary factual issues that must be reviewed under the clearly erroneous standard of rule 52(a). Justice Thomas, as usual, was silent. If I had to guess, I still suspect that the Court will ultimately reject the de novo approach, but I don't think the answer is at all obvious from argument. So we'll have to wait for the opinion to get a definitive (and hopefully clear!) answer. Below are my thoughts about the leaning of each Justice.

Teva v. Sandoz Argument Preview

On October 15, the Supreme Court will hear arguments in Teva v. Sandoz, which focuses on a seemingly simple question: What should be the standard of review for patent claim construction? (For those unfamiliar with claim construction, see Polk Wagner's introductory lecture.) The Federal Circuit reviews claim construction de novo, following its en banc decisions in Cybor (1998) and Lighting Ballast (2014). The Teva petitioners argue that claim construction involves questions of fact, and that Fed. R. Civ. P. 52(a) requires that these findings "must not be set aside unless clearly erroneous." And the de novo standard has received plenty of scholarly criticism, including in a recent article by Jonas Anderson and Peter Menell that was featured on this blog (see also their thoughtful amicus brief in Teva, with Arti Rai). Is this yet another case in which the Federal Circuit has made inappropriate patent-specific rules, or will the Supreme Court finally conclude that the specialized patent court is doing something right? And will the Court pay attention to the possibility that tinkering with deference regimes can lead to more (or fewer) deference mistakes?

More on Lemley and Software Patents

Tan Mau Wu's post yesterday on Mark Lemley's Software Patents and the Return of Functional Claiming questions whether restricting software claims to disclosed implementations will really make a difference. Recent posts by Simon Phipps at InfoWorld and by Mike Masnick at Techdirt have suggested that it would, calling Lemley's proposal "[t]he software patent solution" that will "[f]ix[] software patents."

Lemley: Software Patents and Functional Claiming

Here’s a software claim from a recent Federal Circuit decision (pulled from Patently-O):
1. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

Oskar Liivak—Finding Invention

Could limiting the scope of patents to the patented invention provide clear boundaries and the proper breadth of protection to inventors? Professor Oskar Liivak (Cornell Law School) convincingly argues in his article Finding Invention (forthcoming in the Florida State University Law Review) that the protection and predictability of patents may be improved by extending exclusion only to the “patented invention.” In his article, he proposes that the “patented invention” should be viewed as the set of embodiments disclosed in the patent itself, he addresses how an invention-based patent scope would be capable of reaching after arising technology, and he distinguishes the circumstances where narrow and broad protection should be available.

T.J. Chiang: Levels of Abstraction

What is an "invention"? The Wright brothers received a patent for building one embodiment of an "invention" ("a single glider that could barely fly"), but the scope of their patent claims covered a much broader idea of their "invention," which might be interpreted at different levels of abstraction, ranging from all flying machines to only airplanes very similar to the original embodiment. In The Levels of Abstraction Problem in Patent Law (forthcoming in the Northwestern University Law Review), Tun-Jen Chiang (George Mason Law) argues that courts do not even acknowledge that this problem exists; rather, they select a level of abstraction "arbitrarily and silently." Chiang's goal is "to demonstrate that the problem exists and current doctrine fails to acknowledge it" and to "provide the [legal realist] foundation for a more transparent analysis of the problem."

Tim Holbrook: Can presumptions save patents' technical nature?

Are patents legal documents or part of the technical literature? Both, but the balance is currently skewed, says Professor Timothy Holbrook (Emory Law), in Patents, Presumptions, and Public Notice (forthcoming in the Indiana Law Journal): because of patents' "Janus-like nature, reading and interpreting them can be challenging, as courts must parse both the legal and the technical." This article builds nicely on Holbrook's prior work, including Possession in Patent Law (arguing that the purpose of patents is not disclosure, but rather to show that the inventor possessed the invention).

Oskar Liivak: Cult of the Claim

Does the often-used term "invention" have "zero substantive impact" in patent law? This is Professor Oskar Liivak's claim in his draft paper, Rescuing Invention from the Cult of the Claim. Liivak is an Assistant Professor at Cornell Law School, and I have been following in his academic footsteps – from a Ph.D. in Physics at Cornell to a J.D. at Yale – so it is interesting to see where this intellectual background has taken him.

I started reading Liivak's paper after Lemley's Point of Novelty (the subject of my last post) by coincidence, but there are interesting parallels between the two papers. Lemley argues that we have lost sight of what is new about an invention and remarks, as I mentioned, that "[t]he heart of the problem may be the law's focus on the language of lawyer-created claims rather than inventor-created technologies." Liivak sees a similar problem with the current definition of "invention" as "the subject matter circumscribed by a valid patent claim," rather than as "the set of embodiments that the inventor has conceived and reduced to practice." (I have also recently heard James Dabney, who represented KSR in KSR v. Teleflex, describe this same theoretical confusion between the claims and the invention as a guest in a Yale Law class, so this theme has been popping up a lot recently.)

But Liivak explores this problem – and a potential solution – in more detail than I have seen before. His historical explanation of how a substantive concept of invention was wiped out of patent law is delightfully concise, and his exploration of the problems with the "trivial view" of invention (in which the claims define the invention) seems convincing. He then argues for a "substantive view" of invention, mediated by disclosure:

[D]isclosure ... enforces the equivalence between the invented subject matter and the claimed subject matter. A claim complies with the requirements of § 112 if the specification can corroberate that the inventor invented the claimed subject matter. This ensures that the claims are indeed good proxies for the invention.

Under this view, claims are "proxies for the invention" or "administrative tools," and claims can still be broad as long as the disclosure is. It isn't clear to me, though, what Liivak would think of something like the windshield wiper example in my last post. If the inventor only invents intermittent windshield wipers but claims a car using these wipers, is that claim allowed as long as the car is fully disclosed? Lemley would say yes, but that courts should recognize that only the wipers were novel; I'm not sure whether Liivak's "substantive" invention is only the wipers or if it can include the car. But in any case, it's an interesting argument, and Liivak explores a number of resulting details (like whether his claims could reach after-arising technology).

The draft of Liivak's article linked above is from the August 2010 IP Scholars Conference at Berkeley; it was clearly a work-in-progress at that point, but I'm sure it has evolved and improved over the past six months. It doesn't appear to have been accepted for publication yet, so I look forward to seeing where it ends up and reading the final version. (I'll update this post when a more recent version is available.) New law review articles editors, take note!

Mark Lemley: Point of Novelty

Who knew that there were so many novel things to say about novelty! In an earlier post, I described Sean Seymore's argument that the novelty test is too strict for complex inventions. This post examines how Mark Lemley (Stanford Law, and the most cited IP prof) criticizes novelty doctrine in a more fundamental way in Point of Novelty. Lemley argues that although "the goal of the patent system is to encourage new invention," "[p]atent law today goes out of its way to avoid focusing attention on ... the point of novelty of the invention." He argues that courts should focus on the point of novelty when assessing patents.

Lemley notes that patent claims used to describe the new features of the invention ("central claiming"); it was only around 1870 that courts shifted to interpreting claims as defining an invention's boundaries ("peripheral claiming"), a trend that has accelerated with the decline of "Jepson" claims and the Markman decision that interpreting claims is a question of law. Patentees today rarely identify the point of novelty of their inventions; for example, patent claims for a 4-step process will not tell you if only one of those steps is new.

The insistance that there is no point of novelty of an invention developed out of cases in which courts had to determine whether combination inventions (where the novelty lies in the combination) are obvious, but the rule has spread to other patent doctrines, including anticipation, subject matter, best mode, claim construction, infringement, and damages. Lemley notes some areas where the point-of-novelty approach survives, but the most interesting section of his paper is II.B, with examples of where he believes "the no-point-of-novelty doctrine leads [courts] astray":

• Repair vs. reconstruction. In Aro v. Convertible Top, the Supreme Court "held that car owners could bypass the patent on convertible top assemblies by replacing what is arguably the most important part of the top an unlimited number of times," which "allowed a third party supplier to capture a significant part of the value supposedly resident in the invention."
• Written description. Although "[t]he most reasonable theory" for having a separate written description requirement is "to prevent 'late claiming' by a patentee who changes her claims during the prosecution process to cover things she didn't actually understand," "subsequent Federal Circuit decisions have used the no-point-of-novelty rule to read ... the late-claiming concern ... out of written description law."
• Best mode. The no-point-of-novelty rule exacerbates the problem of best mode being "a potential trap for the unwary." Under current doctrine, "the court would invalidate a patent on the car with intermittent windshield wipers if the inventor did not disclose her preferred brand of tires, a rather extreme requirement."
• Infringement. "[A] defendant can avoid infringement by eliminating any one of those elements [of the patentee's invention], even if it appropriates the point of novelty ... in its entirety."

At this point, Lemley addresses the question that his examples raised for me: "If patent owners can hamstring themselves by including prior art elements in their patent claims, why do they do it?" His answer: Much of it is related to damages being calculated as a percent of the sales of the relevant product. "[I]f the inventor of the intermittent windshield wiper claims a windshield wiper, his damages in a lawsuit will be measured by the sale of windshield wipers. But claim the identical invention as a car with an intermittent windshield wiper as an element, and the royalty base is the sale of cars – a much larger number."

But is this really a problem? If all the inventor made was a windshield wiper, why should his royalty base be a car? Doesn't the no-point-of-novelty doctrine help prevent overreaching by patentees? Perhaps Lemley would respond that damages should also be calculated based on the point of novelty, but he doesn't address this question. I do think he is right, however, in his conclusion to this section: "The heart of the problem may be the law's focus on the language of lawyer-created claims rather than inventor-created technologies."

Mike Schuster: Claim Construction and Technical Training

Are judges with a technical background better at construing patent claims? Practitioner W. Michael Schuster (@Patent_Nerd on Twitter) addresses this question in his working paper, Claim Construction and Technical Training: An Empirical Study of the Reversal Rates of Technically Trained Judges in Patent Claim Construction Cases. He claims to show that technically trained district judges are no less likely to be reversed by the Federal Circuit on claim construction than judges without a technical background.

"Technical background" was defined as having an undergraduate degree in science or engineering, and Schuster surveyed judges and searched with the Westlaw Profiler feature to make a database in which 28 out of 617 judges had a technical background. He found 19 patent claim decisions by 8 of these technically trained judges and compared the reversal rate in these cases with the overall claim reversal rates in David Schwartz's Practice Makes Perfect? An Empirical Study of Claim Construction Reversal Rates in Patent Cases (which found that judges with more experience in claim construction were also no less likely to be reversed). Though obviously limited by the small sample size, this is still an interesting result. But as Schuster notes, it is hard to know what to conclude; for example, technical training might only help for patents in that specific area of technology, or claim construction might just be "inherently indeterminate."

Barney & Collins-Chase: Empirical Analysis of District Court Claim Construction

Patent practitioners James R. Barney and Charles T. Collins-Chase have analyzed 211 district court Markman decisions (encompassing 1858 disputed constructions) for their new article, An Empirical Analysis of District Court Claim Construction Decisions, January to December 2009 (published about two weeks ago by the Stanford Technology Law Review). They tried to locate every claim construction decision in that time period, though they note that some may have escaped their search parameters (which they do not reveal). Their main findings:

• The district court adopted the patentee's construction (or a minor variation) 36.8% of the time and the accused infringer's construction 15.1% of the time; in the remaining 48.1% of cases, the court adopted a construction that was substantively different from that proposed by either party.
• The districts with the highest patentee win rates were D. Minn, N.D. Ill, and S.D. Cal.; those with the highest infringer win rates were D.D.C., N.D. Cal., and D. Del.
• Patentees chose the "broader" construction 90% of the time, and the broader construction won 47.8% of the time overall (compared to 15.6% for the narrower construction). The broader construction was 3.5 times more likely to win when proposed by the patentee, but only 1.3 times more likely to win when proposed by the accused infringer.
• The median "C/L" ratio (number of words in construction to number of words in the actual patent limitation) was 3.08 for patentees, 3.6 for accused infringers, and 2.41 for courts. There is an inversely proportional trend between win rate and C/L ratio for constructions by patentees (shorter constructions win more often), but not for constructions by accused infringers.
• The court held that no construction was necessary 38.5% of the time when that argument was put forth by patentees, compared with 13.5% of the time when the argument was made by accused infringers.
• "Carve-out" constructions, like "XY but not Z" or "X, for example Y or Z" were rare (137 out of 1858 disputed constructions); the win rate for these constructions was 19.7% for patentees and 8.4% for accused infringers.

Aside from arguing that there may be "a systemic bias in favor of patentees’ proposed constructions," the authors do not draw any conclusions from these results or make any prescriptive proposals. Still, I am unaware of any similar in-depth analysis of Markman decisions at the district level, so I'm sure these results will be useful to scholars studying claim construction (and to practitioners involved in Markman hearings).