It's Hard Out There for a Commons

I just finished reading a fascinating draft article about the Eco-Patent Commons, a commons where about 13 companies put in a little fewer than 100 patents that could be used by any third party. A commons differs from cross-licensing or other pools in a couple of important ways. First, the owner must still maintain the patent (OK, that's common to licensing, but different from the public domain). Second, anyone, not just members of the commons, can use the patents (which is common to the public domain, but different from licensing).

The hope for the commons was that it would aid in diffusion of green patents, but it was not to be. The draft by Jorge Contreras (Utah Law), Bronwyn Hall (Berkeley Econ), and Christian Helmers (Santa Clara Econ) is called Green Technology Diffusion: A Post-Mortem Analysis of the Eco-Patent Commons. A draft is on SSRN. Here is the abstract:

We revisit the effect of the “Eco-Patent Commons” (EcoPC) on the diffusion of patented environmentally friendly technologies following its discontinuation in 2016, using both participant survey and data analytic evidence. Established in January 2008 by several large multinational companies, the not-for-profit initiative provided royalty-free access to 248 patents covering 94 “green” inventions. Hall and Helmers (2013) suggested that the patents pledged to the commons had the potential to encourage the diffusion of valuable environmentally friendly technologies. Our updated results now show that the commons did not increase the diffusion of pledged inventions, and that the EcoPC suffered from several structural and organizational issues. Our findings have implications for the effectiveness of patent commons in enabling the diffusion of patented technologies more broadly.

The findings were pretty bleak. In short, the patents were cited less than a set of matching patents, and many of them were allowed to lapse (which implies lack of value). Their survey-type data also showed a lack of importance/diffusion.

What I really love about this paper, though, is that there's an interpretation for everybody in it. For the "we need strong rights" group, this failure is evidence of the tragedy of the commons. If nobody has the right to fully profit on the inventions, then nobody will do so, and the commons will go fallow.

But for the "we don't need strong rights" group, this failure is evidence that the supposedly important patents were weak, and that it was better to essentially make these public domain than to have after the fact lawsuits.

For the "patents are useless" group, this failure shows that nobody reads patents anyway, and so they fail in their essential purpose: providing information as a quid pro quo for exclusivity.

And for the middle ground folks, you have the conclusions in the study. Maybe some commons can work, but you have to be careful about how you set them up, and this one had procedural and substantive failings that doomed the patents to go unused.

I don't know the answer, but I think cases studies like this are helpful for better understanding how patents do and do not disseminate information, as well as learning how to better structure patent pools.

IP and Climate Change

My colleague and friend Josh Sarnoff (DePaul) sent me a review copy of the book he edited: Intellectual Property and Climate Change, even though I told him I wouldn't have much time to look at it. Wouldn't you know, on a quick skim I found it pretty interesting, and thought I would talk about it a bit.

The book is part of the Elgar Research Handbook series. I wrote a chapter that I really like (who am I kidding, I just love that book chapter) in the Research Handbook on Trade Secret Law. But because it's in an expensive book, nobody seems to know about it (and my colleagues in trade secret law will attest that I remind them whenever I review one of their drafts that is remotely in the area of trade secrets and incentives).

So, I thought I would flag this book, so readers would know this is out there. IP will have a growing role in climate change, as this cool story from this week illustrates. The book is comprehensive - it has 26 chapters from a variety of different authors. Some of the topics:

• International law and TRIPS
• Enforcement
• Technology transfer
• Innovation funding and university research
• Antitrust, patents, copyrights, trade secrets, trademarks
• Rights in climate data
• Privacy (this one surprised me)
• Standards
• Energy, transportation, food, natural resources

There is something for everyone in this book. Though it is focused on climate change, much of the discussion can be generalized to other emerging areas of law. In that sense, it does present a little bit like the law of the horse, but given that this is a research handbook, I'm not so sure that's a bad thing.

Evaluating Patent Markets

I've been interested in patent markets for some time. In addition to several articles studying NPE litigation, I've written two articles discussing secondary markets explicitly: Patent Portfolios as Securities and Licensing Acquired Patents.

Thus, I was very interested in Michael Burstein's (Cardozo) draft article on the subject, called Patent Markets: A Framework for Evaluation, which is now on SSRN and forthcoming in the Arizona State L.J.

What I like about the approach of this article is that it takes a step back from the question of whether certain types of parties create a market, and asks instead, is having a market at all a good thing?

Here is the abstract:

Patents have become financial assets, in both practice and theory. A nascent market for patents routinely produces headline-grabbing transactions in patent portfolios, and patent assertion entities frequently defend themselves as sources of liquidity essential for a patent market to function. Much of the discourse surrounding these developments assumes that a robust, liquid market for patents would improve the operation of the patent system. In this Essay, I challenge that assumption and systematically assess the cases for and against patent markets. I do so by taking seriously both the underlying innovation promotion goal of the patent system and the lessons of financial economics, and asking what might be the effects of a market for patents that looked roughly like other familiar markets for stocks, real estate, or secondhand goods.

I conclude that, like much in patent law, the effects of robust patent markets are likely to vary with specific technological and business contexts. When there is a close fit between patents and useful technologies, a patent market can support a market for technology that aids in connecting inventors with developers and sources of capital for commercialization. But when that fit breaks down, market pricing could favor litigation over commercialization. Similarly, a liquid patent market might help to allocate the risks of innovation and of patent infringement to the parties best able to bear it, but a kind of moral hazard familiar to the market for subprime mortgages could lead not to more innovation but to more patents, thereby increasing the overall risk in the system. This analysis suggests that we are having the wrong conversation about patent markets. Rather than assuming their utility and asking how to improve them, we should be undertaking empirical research to determine the circumstances in which they will or will not work and exercising caution in invoking the logic of markets in policy debates about the contours of the patent system.

Like other markets, they are good when they are good, and bad when they are bad. Burstein adds a lot of nuance throughout the article, focusing on arguments why markets may be good or not, but without making too many assumptions about any particular technology or patent owner type.

One thing I would add to the article is the importance of timing. Markets early might be better than markets later, even in the same technological contexts. The article would probably put this into the "business context" category, but I think the importance of diffusion, cumulative innovation, and path dependency merit a separate consideration.

In all events, I think the essay adds to the literature and may produce some testable hypotheses as well.

Patenting Incentives in Universities

 Dirk Czarnitzki and four coauthors from a variety of institutions have posted Individual Versus Institutional Ownership of University-Discovered Inventions to SSRN. The abstract is short and to the point:

We examine how the ownership of intellectual property rights influences patenting of university-discovered inventions. In 2002, Germany transferred patent rights from faculty members to their universities. To identify the effect on the volume of patenting, we exploit the researcher-level exogeneity of the 2002 policy change using a novel researcher-level panel database that includes a control group not affected by the law change. For professors who had existing industry connections, the policy decreased patenting, but for those without prior industry connections, it increased patenting. Overall, fewer university inventions were patented following the shift from inventor to institutional ownership.

In other words, the authors have used a quasi-experimental event - a change in the law - to see what happens under different legal regimes. They have good data and use it to their benefit: actual patenting by individual researchers, a decent control group that did not experience a change in the law, and information about career and publications to correct for general productivity. I'll discuss the results a bit more after the jump.

Do We Need More IP To Promote Commercialization?

The patent system already protects inventors' exclusive rights in their "novel" and "nonobvious" inventions. But do we also need intellectual property rights to promote commercialization? In their influential article Intellectual Property for Market Experimentation, Michael Abramowicz and John Duffy concluded that we might. Just as technical information is subject to free riding by competitors, so is information generated from marketing a new product to the public or a game-changing business model. And "[j]ust as patents encourage risky but ultimately beneficial technological experimentation," they conclude, "some form of intellectual property protection" for "economically nonobvious" products "could result in a socially beneficial increase in market experimentation and entrepreneurial activity."

Sichelman & O'Connor: Can Patents Promote Competition?

In the standard modern account, patents, because they provide the opportunity for market power, "tend to dampen competition."  However, in their fascinating article, Patents As Promoters of Competition: The Guild Origins of Patent Law in the Venetian Republic, Ted Sichelman and Sean O'Connor argue that patents evolved in the Venetian Republic as a way for the government to recruit foreign artisans who otherwise could not effectively compete in trades dominated by the Venetian guilds, particularly in the wool and silk industries.

Kitch & O'Connor: Should Crowdfunding Be Regulated?

"I think I'm here because I wrote an article called The Nature and Function of the Patent System..." This is how Edmund Kitch, Professor of Law at the University of Virginia School of Law, began his talk at a lively panel I attended on Thursday, September 12 at "The Commercial Function of Patents in Today's Innovation Economy," the inaugural academic conference on intellectual property at George Mason University School of Law's new Center for Protection of Intellectual Property (CPIP). Kitch, of course, was referring to his famous article on the role of patents in facilitating commercialization and efficient coordination of research. But patents were not Kitch's topic. Instead, Kitch was here to talk about what he sees as another important mechanism for facilitating commercialization of new ideas and business models: crowd funding.

When should universities patent?

I spoke today about university patenting to the Yale Student Science Diplomats, a group of science graduate students who are interested in science policy issues. It was great to have a chance to engage with scientists about why we allow universities to file patents on federally funded research (which they are permitted to do under the Bayh-Dole Act), and what those justifications tell us about when public-minded universities should be filing patents. As I discuss in my YLJ Comment, patents are not needed to motivate university researchers to innovate or to disclose their inventions—university researchers were innovating and publishing their results long before Bayh-Dole, primarily out of a desire for prestige (and the resulting tenure and prizes). The most compelling justification for Bayh-Dole patents is commercialization theory, the idea that exclusive patent rights are necessary to bring inventions to market. This theory is more convincing for inventions like pharmaceuticals with high regulatory barriers and low imitation costs, but it does not make sense when the exclusive patent right is unnecessary for commercialization—something that is very difficult to determine.

Roin on Unpatentable Drugs

Unpatentable Drugs and the Standards of Patentability, by Ben Roin (Harvard Law), is older than most articles I blog about (published in 2009), though too young to be a classic. But in rereading it for an article I'm working on, I decided it is worth a quick post, especially for those who missed it when it first came out. Roin's basic claim is simple but important: "the standards by which drugs are deemed unpatentable under the novelty and nonobviousness requirements bear little relationship to the social value of those drugs or the need for a patent to motivate their development."

Michael Burstein: Exchanging Information without Intellectual Property

Are intellectual property rights necessary for robust innovation? In his article, Exchanging Information Without Intellectual Property (forthcoming Texas Law Review), Professor Michael Burstein analyzes the role of intellectual property in information exchange. The article explores the range of potential strategies parties may use to enable commercially significant exchange and the ways in which those strategies interact within complex business, cultural, and legal environments.

Scott Kieff – The Perils of Patent Reform & Welcome to Patent Purgatory

What effect will the recently enacted America Invents Act (AIA) have on the commercialization of patents? Professor Scott Kieff’s essays, The Perils of Patent Reform and Welcome to Patent Purgatory, explore some reasons why the AIA may negatively influence the rate and the manner by which invention is brought to market.