Gaia Bernstein on "Unwired: Gaining Control over Addictive Technologies"

Guest post by Gaia Bernstein Technology Privacy and Policy Professor of Law, Co-Director of the Institute for Privacy protection and the Gibbons Institute for Law Science and Technology, Seton Hall University School of Law, based on her recent TEDx talk.   

Nine years ago, when I sat down to research in a coffee shop took out my laptop, Kindle and phone, but hours later realized that I accomplished little, but felt fatigue. What happened? I realized the hours were wasted on emails, texts and mostly aimless web surfing. I started understanding them that something was wrong.

Patents and Science Fiction: Does Science Fiction Promote Innovation?

Dan Brean and I have just posted a new essay called Enabling Science Fiction. We wrote the essay for the upcoming Association of American Law Schools panel: Science Fiction and the Law, co-sponsored by Biolaw and Intellectual Property. The panel, put together by Nicholson Price, will take place at AALS on January 8th at 11AM EST, and will feature myself (Camilla Hrdy), Dan Brean, Marc Blitz, Deven Desai, and Victoria Sutton.  

The full version of Enabling Science Fiction can be downloaded on SSRN. The essay itself, which will be published in a symposium issue in Michigan Technology Law Review, is under 8000 words. This is like 20% of an average law review article, but below is an even shorter excerpt. We welcome your comments! (chrdy@uakron.edu).

In recent years, patent scholars [such as Janet Freilich and Lisa Ouellette] have [observed that, thanks to lax disclosure and enablement rules] patent examiners are allowing inventors to achieve patents on what seems, quite literally, like "science fiction."

But of course, this is an exaggeration: what’s acceptable in patent law pales in comparison to what is acceptable in literary science fiction. In science fiction, undue experimentation isn’t just permitted, it’s encouraged. Reduction to practice can be, literally, light years away.  ...

However, we argue that, counterintuitively, the genre of science fiction has its own unique enablement requirement: works of science fiction must sufficiently explain—enable—the technologies and inventions that they posit.  ...  

Challenging what we think we know about "market failures" and "innovation"

I really enjoyed the final version of Brett Frischmann and Mark McKenna's article, "Comparative Analysis of Innovation Failures and Institutions in Context." The article was published in Houston Law Review in 2019. But I initially encountered it when the authors presented an early draft at the 2012 Yale Law School Information Society Project's "Innovation Beyond IP Conference," conceived and brought together by Amy Kapczynski and Written Description's Lisa Ouellette. The conference explored mechanisms and institutions besides federal intellectual property rights (IP) that government uses, or could use, in order to achieve some of IP's stated goals. Examples explored include research grants, prizes, and tax credits, among countless others.

Does Administrative Patent Law Promote Innovation About Innovation?

I am at Texas Law today for a symposium on The Intersection of Administrative & IP Law, and my panel was asked to address the question: Does Administrative Patent Law Promote Innovation? I focused my remarks on a specific aspect of this: Does Administrative Patent Law Promote Innovation About Innovation? I think the short answer, at least right now, is "no."

There is a lot we don't know about the patent system. USPTO Regional Director Hope Shimabuku started her remarks today by saying that we know IP creates nearly 30 million jobs and adds $6.6 trillion to the U.S. economy each year, citing this USPTO report. But that's not what the report says. It looks at jobs and value from "IP-intensive industries," defined as ones with "IP-count to employment ratio is higher than the average for all industries considered." As the report acknowledges, it is unable to determine how much of these firms' performance is attributable to IP.

And the real answer is: we don't know. In an article I reviewed for Jotwell, economist Heidi Williams recently summarized: "we still have essentially no credible empirical evidence on the seemingly simple question of whether stronger patent rights—either longer patent terms or broader patent rights—encourage research investments." And even on smaller questions, the existing evidence base is weak.

As I explained in Patent Experimentalism, to make empirical progress we need some source of empirical variation. Economists often look for "natural experiments" with variation across time, across jurisdictions, or across similar technologies, and the closer that variation is to random, the easier it is to draw causal inferences. Of course, it's even better to have variation that is actually random, which is why I have joined other scholars in arguing for more use of randomized policy experiments.

The USPTO has a huge opportunity here to both improve the patent system and help address the key administrative law challenge of encouraging accurate and consistent decisions by a decentralized bureaucracy. There are many questions the agency could help answer using more randomization, as I discuss in Patent Experimentalism. During the panel today, I noted two potential areas: experimenting with the time spent examining a given patent (see this great forthcoming article by Michel Frakes and Melissa Wasserman) and with the possibility that examiner bias affects the gender gap in patenting (which fits within the agency's recent mandate from Congress). I noted ways that each could be designed as opt-in progress to encourage buy-in from applicants and from examiners.

But my main point was not that the USPTO should adopt one of these particular experiments—it was that the agency should study something in a way that allows us to draw rigorous inferences. Failing to do so seems like a tremendous missed opportunity.

IP and the Right to Repair

I ran across an interesting article last week that I thought I would share. It's called Intellectual Property Law and the Right to Repair, by Leah Chan Grinvald (Suffolk Law) and Ofer Tur-Sinai (Ono Academic College). A draft is on SSRN and the abstract is here:

In recent years, there has been a growing push in different U.S. states towards legislation that would provide consumers with a “right to repair” their products. Currently 18 states have pending legislation that would require product manufacturers to make available replacement parts and repair manuals. This grassroots movement has been triggered by a combination of related factors. One such factor is the ubiquity of microchips and software in an increasing number of consumer products, from smartphones to cars, which makes the repair of such products more complicated and dependent upon the availability of information supplied by the manufacturers. Another factor is the unscrupulous practices of large, multinational corporations designed to force consumers to repair their products only through their own offered services, and ultimately, to manipulate consumers into buying newer products instead of repairing them. These factors have rallied repair shops, e-recyclers, and other do-it-yourselfers to push forward, demanding a right to repair.

Unfortunately, though, this legislation has stalled in many of the states. Manufacturers have been lobbying the legislatures to stop the enactment of the right to repair laws based on different concerns, including how these laws may impinge on their intellectual property rights. Indeed, a right to repair may not be easily reconcilable with the United States’ far-reaching intellectual property rights regime. For example, requiring manufacturers to release repair manuals could implicate a whole host of intellectual property laws, including trade secret. Similarly, employing measures undercutting a manufacturer's control of the market for replacement parts might conflict with patent exclusivity. Nonetheless, this Article’s thesis holds that intellectual property laws should not be used to inhibit the right to repair from being fully implemented.

In support of this claim, this Article develops a theoretical framework that enables justifying the right to repair in a manner that is consistent with intellectual property protection. In short, the analysis demonstrates that a right to repair can be justified by the very same rationales that have been used traditionally to justify intellectual property rights. Based on this theoretical foundation, this Article then explores, for the first time, the various intellectual property rules and doctrines that may be implicated in the context of the current repair movement. As part of this overview, this Article identifies those areas where intellectual property rights could prevent repair laws from being fully realized, even if some of the states pass the legislation, and recommends certain reforms that are necessary to accommodate the need for a right to repair and enable it to take hold.

I thought this was an interesting and provocative paper, even if I am skeptical of the central thesis. I should note that the first half of the paper or so makes the normative case, and the authors do a good job of laying out the case.

Many of the topics are those you see in the news, like how laws that forbid breaking DRM stop others from repairing their stuff (which now all has a computer) or how patent law can make it difficult to make patented repair parts.

The treatment of trade secrets, in particular, was a useful addition to the literature. As I wrote on the economics of trade secret many years ago, my view is that trade secrecy doesn't serve as an independent driver of innovation because people will keep their information secret anyway. Thus, any innovation effects are secondary, in the sense that savings made from not having to protect secrets so carefully can be channeled to R&D. But there was always a big caveat: this assumes that firms can "keep their information secret anyway," and that there's no forced disclosure rule.

So, when this article's hypothesized right to repair extended to disclosure of manuals, schematics, and other information necessary to repair, it caught my eye. On the one hand, as someone who has been frustrated by lack of manuals and reverse engineered repair of certain things, I love it. On the other hand, I wonder how requiring disclosure of such information would change the incentive to dynamics. With respect to schematics, companies would probably continue to create them, but perhaps they might make a second, less detailed schematic. Or, maybe nothing would happen because that information is required anyway. But with respect to manuals, I wonder whether companies would lose the incentive to keep detailed records of customer service incidents if they could not profit from it. Keeping such records is costly, and if repairs are charged to customers, it might be better to reinvent the wheel every time than to pay to maintain an information system that others will use. I doubt it, though, as there is still value in having others repair your goods, and if people can repair their own, then the market becomes even more competitive.

While the paper discusses the effect on the incentive to innovate with respect to other forms of IP, it does not do so for trade secrets.

With respect to other IP, the paper seems to take two primary positions on the effect of immunizing IP infringement for repair. The first is that the right to repair can also promote the progress, and thus it should be considered as part of the entire system. While I agree with the premise from a utilitarian point of view, I was not terribly convinced that the right to repair would somehow create incentives for more development that would outweigh initial design IP rights. It might, of course, but there's not a lot of nuanced argument (or evidence) in either direction.

The second position is that loosening IP rights will not weaken "core" incentives to develop the product in the first place, because manufacturers will still want to make the best/most innovative products possible. I think this argument is incomplete in two ways. Primarily, it assumes that manufacturers are monolithic. But the reality is that multiple companies design parts, and their incentive to do so (and frankly their ability to stay in business) may well depend on the ability to protect designs/copyright/etc. At the very least, it will affect pricing. For example, if a company charged for manuals, it may be because it had to pay a third party for each copy distributed. Knowing that such fees are not going to be paid, the original manual author will charge more up front, increasing the price of the product (indeed, the paper seems to assume very little effect on original prices to make up for lost repair revenue). Secondarily, downstream repairs may drive innovation in component parts. For example, how repairs are done might cause manufacturers to not improve parts for easy repair. The paper doesn't seem to grapple with this nuance.

This was an interesting paper, and worth a read. It's a long article - the authors worked hard to cover a large number of bases, and it certainly made me think harder about the right to repair.

Samantha Zyontz on CRISPR Adoption

Pierre Azoulay's recent Twitter thread on students from the MIT Sloan TIES PhD program who are currently on the market alerted me to Sam Zyontz's interesting work on the CRISPR genome editing tool. CRISPR has captivated the patent world due to the fight between the University of California and MIT's Broad Institute over key patent rights—Jake Sherkow summarized the dispute in May and reflected on the Federal Circuit's decision in September. But CRISPR is of course also interesting to innovation scholars due to the revolutionary nature of the technology itself (this is why the patent rights were worth fighting for), which has the potential to applied to a tremendous variety of applications. Using data on researchers who attempt to experiment with CRISPR and the smaller number who succeed in publishing new findings using the technology, Zyontz has produced some fascinating findings on hurdles to technological diffusion.

Zyontz's work was made possible because of the nonprofit global plasmid repository Addgene, which received the basic biological tools for CRISPR from researchers at the University of California and the Broad Institute in 2012 and 2013. Since then, researchers have had easy access to CRISPR tools for the low cost of $65 per plasmid.

Yochai Benkler on Innovation & Networks

Yochai Benkler is a giant within the intellectual history of IP law; some of his work will surely end up on my Classic Patent Scholarship page if I expand it to post-2000 works. Even though I don't agree with all of his conclusions, I think IP scholars should at least be familiar with his arguments. For those who haven't read his earlier works—or who just want a refresher on his take—you might enjoy his recent review article, Law, Innovation, and Collaboration in Networked Economy and Society, 13 Ann. Rev. L. & Soc. Sci. 231 (2017). Here is the abstract:

Over the past 25 years, social science research in diverse fields has shifted its best explanations of innovation from (a) atomistic invention and development by individuals, corporate or natural, to networked learning; (b) market-based innovation focused on material self-interest to interaction between market and nonmarket practices under diverse motivations; and (c) property rights exclusively to interaction between property and commons. These shifts have profound implications for how we must think about law and innovation. Patents, copyrights, noncompete agreements, and trade secret laws are all optimized for an increasingly obsolete worldview. Strong intellectual property impedes, rather than facilitates, innovation when we understand that knowledge flows in learning networks, mixing of market and nonmarket models and motivations, and weaving of commons with property are central to the innovation process.

Note that the shift Benkler is describing is a shift both in scholars' understanding of innovation and in the nature of innovation itself—particularly due to changes in organizational structure made possible by technologies such as the internet. The optimal innovation policy 100 years ago was likely different from the optimal innovation policy in today's more networked economy. To be sure, historical innovation studies can still be quite illuminating—but it is always important to consider how applicable the conclusions are likely to be in the modern context.

NBER Summer Institute 2018: Innovation

Last week I was a discussant at the Innovation section of the 2018 NBER Summer Institute (full schedule here), which I highly recommend to scholars interested in the economics of innovation. The quality of the papers and the discussion was pretty uniformly high. There were a few examples of the insularity of economics, such as remarks about topics that "no one has studied" that have been studied by legal scholars, but I think this just illustrates the benefits of having scholars familiar with different literatures at disciplinary conferences.

Here are links and brief summaries of the innovation-related papers. (There was also a great panel discussion on gender and academic credit, which I might post about separately at some point.)

Examining the Role of Patents in Firm Financing

Just this morning, an interesting new literature review came to my mailbox via SSRN. In Is There a Role for Patents in the Financing of New Innovative Firms?, Bronwyn Hall (Berkeley economics) provides an extremely thorough, extremely helpful literature review on the subject. It's on SSRN, and the abstract is here:

It is argued by many that one of the benefits of the patent system is that it creates a property right to invention that enables firms to obtain financing for the development of that invention. In this paper, I review the reasons why ownership of knowledge assets might be useful in attracting finance and then survey the empirical evidence on patent ownership and its impact on the ability of firms to obtain further financing at different stages of their development, both starting up and after becoming established. Studies that attempt to separately identify the role of patent rights and the underlying quality of the associated innovation(s) will be emphasized, although these are rather rare.

This paper caught my eye for a few reasons.

A Focus on Innovators Instead of Innovations

I noticed this week that my sometimes co-author Colleen Chien (Santa Clara) has posted the abstract for a new paper called Innovators on SSRN:

This Article argues for a shift in how we view and use the patent system, to a way of understanding and cultivating innovators that patent, not just patented innovation, for three reasons. First, who is innovating and where has relevance to a myriad of current social and policy debates, including the participation of women and minorities in innovation, high-skilled immigration, and national competitiveness. Second, though largely overlooked by academics, America’s patent system has long been innovator-, not only innovation-driven, and scholarly engagement can improve the quality of relevant policymaking. Third, the application of new computational tools to open patent datasets makes it possible to more easily approximate and track salient details about innovators that patent - including the geography and settings in which they innovate and the personal demographic traits of innovators - enabling the tailoring and tracking of impacts of interventions on disparate groups of innovators. This Article details why and how to do so by applying novel empirical methods to profiling patentees, revealing broad shifts over the past four decades, and demonstrating—through three mini-case studies pertaining to diversity in the technology sector, the promotion of small and individual inventors, and innovation in medical diagnostic technologies—how improving our understanding of innovators can improve our promotion of innovation.

A draft isn't available yet, but hopefully one will be soon. My thoughts on this abstract, though, are "hear, hear!" I think that too little attention has been paid to the people who innovate. There is, to be sure, a rich history of historians and economic historians who have focused on these points. Zorina Khan, Naomi Lamoreaux, and Ken Sokoloff (z''l) come to mind. In law, Adam Mossoff has provided several case studies and Chris Beauchamp has done outstanding historical work highlighting innovators in their time. Mark Lemley leveraged some historical work in an article about simultaneous inventing, and others have looked at those same innovators to tell competing stories.

But much of this work is historical. Of late, as the abstract notes, it's all about the what: What inventions? What classes? What litigation? How many claims? I think people clamor for stories about innovators; I believe my most downloaded (by far) SSRN paper, Patent Troll Myths, resonated because it looked hard at the innovators - individuals to small entities to large companies. Dan Burk looks at innovators (but without data) in Do Patents Have Gender? 

I'm sure there are examples I'm not thinking of, but more data and analysis in this area would be welcome. Patents exist in service to their inventors, and so it makes sense to understand who those are to better understand whether patents are achieving their goals...or even what the goals are.

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.

Nature Versus Nurture in the Propensity to Innovate

A colleague pointed me to a paper today that I wanted to share. NBER researchers have managed to tie patent inventor data to tax returns to test scores in order to show who is likely to be an inventor on a patent. The study makes some intuitive and nonintuitive findings. The paper, by Alexander M. Bell (Harvard Econ), Raj Chetty (Stanford Econ), Xavier Jaravel (LSE), Neviana Petkova (U.S. Treasury), and John Van Reenen (MIT Econ), is here:

We characterize the factors that determine who becomes an inventor in America by using de-identified data on 1.2 million inventors from patent records linked to tax records. We establish three sets of results. First, children from high-income (top 1%) families are ten times as likely to become inventors as those from below-median income families. There are similarly large gaps by race and gender. Differences in innate ability, as measured by test scores in early childhood, explain relatively little of these gaps. Second, exposure to innovation during childhood has significant causal effects on children's propensities to become inventors. Growing up in a neighborhood or family with a high innovation rate in a specific technology class leads to a higher probability of patenting in exactly the same technology class. These exposure effects are gender-specific: girls are more likely to become inventors in a particular technology class if they grow up in an area with more female inventors in that technology class. Third, the financial returns to inventions are extremely skewed and highly correlated with their scientific impact, as measured by citations. Consistent with the importance of exposure effects and contrary to standard models of career selection, women and disadvantaged youth are as under-represented among high-impact inventors as they are among inventors as a whole. We develop a simple model of inventors' careers that matches these empirical results. The model implies that increasing exposure to innovation in childhood may have larger impacts on innovation than increasing the financial incentives to innovate, for instance by cutting tax rates. In particular, there are many “lost Einsteins” — individuals who would have had highly impactful inventions had they been exposed to innovation.

The finding that inventors are white males that come from higher income families is hardly surprising, and one might imagine a variety of reasons: access to education, access to capital, risk aversion, discrimination, etc. But the interesting part of this paper, as I discuss below, is that the authors believe they can causally show it is not really any of the usual suspects, at least not directly.

Data for the Evergreening Debate

Pharmaceutical companies would like their blockbuster drug exclusivity to last forever. But patents expire and generics enter the marketplace. This ecosystem has led to a battleground, with opposing claims about unfair competition, evergreening, patent misuse, etc. There's a fair amount of data out there, but with respect to evergreening there has been more heat than light. A recent paper by Robin Feldman (Hastings) and Connie Wang (Hastings - student) attempts to change this by gathering data on 16,000 Orange Book entries between 2005 and 2015.

For the unaware (and I'll admit that I'm mildly aware), the Orange Book is an FDA listing of all the "exclusivities" that companies claim related to their New Drug Applications (i.e., their drugs). These exclusivities might relate to patents associated with the drug, research related to the drug, approval to use the drug on new populations or for "orphan" (low incident) diseases.

Feldman and Wang argue that the Orange Book has been used by companies to "evergreen" their drugs - that is, to extend exclusivity beyond patent expiration. The paper is on SSRN and the abstract is here:

Why do drug prices remain so high? Even in sub-optimally competitive markets such as health care, one might expect to see some measure of competition, at least in certain circumstances. Although anecdotal evidence has identified instances of evergreening, which can be defined as artificially extending the protection cliff, just how pervasive is such behavior? Is it simply a matter of certain bad actors, to whom everyone points repeatedly, or is the problem endemic to the industry?

This study examines all drugs on the market between 2005 and 2015, identifying and analyzing every instance in which the company added new patents or exclusivities. The results show a startling departure from the classic conceptualization of intellectual property protection for pharmaceuticals. Key results include: 1) Rather than creating new medicines, pharmaceutical companies are recycling and repurposing old ones. Every year, at least 74% of the drugs associated with new patents in the FDA’s records were not new drugs coming on the market, but existing drugs; 2) Adding new patents and exclusivities to extend the protection cliff is particularly pronounced among blockbuster drugs. Of the roughly 100 best-selling drugs, almost 80% extended their protection at least once, with almost 50% extending the protection cliff more than once; 3) Once a company starts down this road, there is a tendency to keep returning to the well. Looking at the full group, 80% of those who added protections added more than one, with some becoming serial offenders; 4) The problem is growing across time.

I think the data the authors have gathered is extremely important, and I think that their study sheds important light on what happens in the pharmaceutical industry. That said, as I explain below, my takeaways from this paper are much different from theirs.

Liscow & Karpilow on Innovation Snowballing and Climate Law

Patent scholars are often skeptical of the government "picking winners," but in Innovation Snowballing and Climate Law, Zach Liscow and Quentin Karpilow (Yale Law) argue that the government should target specific technologies to address social harms like climate change.

It is well known that green technologies present a double externality problem. Both innovation and environmentally friendly goods have significant positive spillovers (and thus will be undersupplied absent government intervention), and the problem is magnified for environmentally friendly innovations. The standard policy solution is to correct each externality, such as through carbon taxes (or cap and trade) and innovation subsidies (e.g., patents, grants, and R&D tax incentives).

Liscow and Karpilow argue that this approach misses the dynamics of cumulative innovation. We know that innovators stand on the shoulders of giants, but Innovation Snowballing describes recent research on how innovators "prefer to stand on the tallest shoulders in order to get the quickest, largest financial returns." Specific "clean" technologies (like solar) thus need a big push to snowball past "dirty" technologies (like fossil fuels):

Does the Supreme Court Understand Patent Law?

It's been a busy semester, but I thought I would note briefly a provocative essay that just came across my feed by Greg Reilly (Chicago Kent): How Can the Supreme Court Not "Understand" Patent Law? The abstract is here:

The Supreme Court does understand patent law. This invited Essay responds to Federal Circuit Judge Dyk’s remarks at the Chicago-Kent Supreme Court IP Review, in particular, his observation that the patent “bar and the academy have expressed skepticism that the Supreme Court understands patent law well enough to make the governing rules” (a view Judge Dyk did not endorse). The idea that the Supreme Court does not understand the law of patents is implausible. Even more generous interpretations of this criticism – that the Supreme Court insufficiently understands innovation policy, insufficiently understands the patent system that Congress desired in creating the Federal Circuit, or insufficiently understands the technical facts to resolve patent issues – do not hold up under closer scrutiny. Rather, those leveling this charge against the Supreme Court are mistaking policy disagreement for a lack of understanding. This mistake, even if one primarily of rhetoric, has potentially negative consequences for understanding the role of patent law, promoting productive debates about patent law and policy, and preserving the Supreme Court’s legitimacy in patent law and patent law’s (perhaps limited) contribution to the constraints imposed by legal authority in our society.

Despite its relatively short length, there's much to parse here: the Supreme Court's jurisprudence from the lens of law, innovation policy, and technical understanding. While I disagree with some of the points, on the whole this essay resonates with me. There's no doubt that the Court's favoring of standards over rules is something that rubs folks the wrong way, but is consistent with the history of Supreme Court patent jurisprudence dating to the early 1800s. Further, even in those areas where I vehemently disagree with the Court's rulings (e.g. patentable subject matter), I think that disagreement is not because the Court fails to understand the issues. Instead, the Court has made policy choices that I disfavor.

In any event, this essay is worth a read regardless of your view of Court jurisprudence.

Galasso & Schankerman on the Effect of Patent Invalidation on Subsequent Innovation by the Patentee

In a paper previously featured on this blog, economists Alberto Galasso (Toronto School of Management) and Mark Schankerman (London School of Economics) pioneered the use of effectively random Federal Circuit panel assignments as an instrumental variable for patent invalidation. That paper looked at the effect of invalidation on citations to the patent; they now have a new paper, Patent Rights and Innovation by Small and Large Firms, examining the effect of invalidation on subsequent innovation by the patent holder. They summarize their results as follows:

Patent invalidation leads to a 50 percent decrease in patenting by the patent holder, on average, but the impact depends critically on characteristics of the patentee and the competitive environment. The effect is entirely driven by small innovative firms in technology fields where they face many large incumbents. Invalidation of patents held by large firms does not change the intensity of their innovation but shifts the technological direction of their subsequent patenting.

Their measure of post-invalidation patenting is the number of applications filed by the patent owner in a 5-year window after the Federal Circuit decision. They also present results suggesting that large firms tend to redirect their research efforts after invalidation of a non-core patent (but not for a core patent), whereas "the loss of a patent leads small firms to reduce innovation across the board, rather than to redirect it." (A "core" patent is one whose two-digit technology field accounts for at least 2/3 of the firm's patenting.)

This is a rich paper with many, many results and nuances and caveats—highly recommended for anyone interested in patent empirics.

Dan Burk on Perverse Innovation

Innovation is the focus of IP law, but innovation is rarely viewed as an end in and of itself—rather, it is desirable because it often leads to economic growth, development, human flourishing, etc. So when might innovation not be desirable? In a new forthcoming article, Perverse Innovation, Professor Dan Burk considers innovations that are purely directed toward exploiting regulatory and legal loopholes. For example:

• Mutagenic chemical or radiation treatments have been used to circumvent the EU's limits on genetically modified crops, even though most scientists would call mutagenic crops "genetically modified" and might think they raise greater concerns than crops created through more controlled recombinant DNA techniques.
• Chrysler's PT Cruiser was created with an innovative "footprint" that allowed it to be regulated under the EPA's rules for "light trucks" rather than "passenger cars."
• Grokster was created to avoid the copyright liability that befell Napster; Aereo's "Rube Goldberg" antennae system was created to fit through a copyright loophole. (Neither attempt was ultimately successful.)

Regulatory circumvention can be concerning not only because these innovations may thwart the regulatory aims, but also because the resources directed toward these innovations might have been better spent elsewhere. Burk argues, however, that some perverse innovation "may prove to be unexpectedly beneficial," and that "[r]ather than try to close the formalist loopholes that prompt perverse innovation, which would likely become an ongoing exercise in futility, regulators might intentionally design loopholes so as to purposefully, rather than haphazardly, promote innovative responses."

Burk explains why these loopholes must be designed such that innovating is "the least costly alternative, with literal compliance, lobbying, and non-compliance following in increasing cost order," and that preventing socially wasteful innovations that serve duplicative ends is best accomplished through "some enforcement rule similar to the patent Doctrine of Equivalents." Of course, Burk acknowledges that designing such loopholes is not easy—and it may end up being as much an exercise in futility as trying to close them in the first place. But it is a tremendously important problem, and I'm glad Burk is shining light on it.

A Literature Review of Patenting and Economic History

Petra Moser (NYU Stern) has posted Patents and Innovation in Economic History on SSRN. Is is a literature review of economic history papers relating to patents and innovation. In general, I think the prestige market undervalues literature reviews, because who cares that you can summarize what everyone in the field should already know about (or can look up on their own)? In practice, though, I think there is great value in such reviews. First, knowing about articles and having them listed, organized, and discussed are two different things. Second, not everyone is in the field, nor does everyone take the time to look up every article. Even in areas where I consider myself a subject matter expert (to avoid critique, I'll leave out which), a well done literature review will often turn up at least one writing I was unaware of or frame prior work in a way I hadn't thought of.

And so it is with this draft; the abstract is below. Many different studies are discussed, dating back to the 1950's. They are organized by topic and many are helpfully described. As you would expect, more space is devoted to Moser's work and the analysis and critique tends to favor her point of view on the evidence (though she does point out some limitations of her own work). To that, my response is if you don't like the angle or focus, write your own literature review that highlights all the other studies and their viewpoints. Better yet, do some Bayesian analysis!

A strong tradition in economic history, which primarily relies on qualitative evidence and statistical correlations, has emphasized the importance of intellectual property rights in encouraging innovation. Recent improvements in empirical methodology - through the creation of new data sets and advances in identification - challenge this traditional view. These empirical results provide a more nuanced view of the effects of intellectual property, which suggests that, whenever intellectual property rights have been too broad or too strong, they have discouraged innovation. This paper summarizes existing results from this research agenda and presents some open questions.

Sampat & Williams on the Effect of Gene Patents on Follow-on Innovation

Bhaven Sampat (Columbia Public Health) and Heidi Williams (MIT Econ) are two economists whose work on innovation is always worth reading. I've discussed a number of their papers before (here, here, here, here, and here), and Williams is now a certified genius. They've posted a new paper, How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome, which is an important follow-up to Williams's prior work on gene patents. Here is the abstract:

We investigate whether patents on human genes have affected follow-on scientific research and product development. Using administrative data on successful and unsuccessful patent applications submitted to the US Patent and Trademark Office, we link the exact gene sequences claimed in each application with data measuring follow-on scientific research and commercial investments. Using this data, we document novel evidence of selection into patenting: patented genes appear more valuable — prior to being patented — than non-patented genes. This evidence of selection motivates two quasi-experimental approaches, both of which suggest that on average gene patents have had no effect on follow-on innovation.

Their second empirical design is particularly clever: they use the leniency of the assigned patent examiner as an instrumental variable for which patent applications are granted patents. Highly recommended.

Heidi Williams on Measuring the Effect of Patent Strength on Innovation

When I was in law school, I was surprised (and fascinated) to learn how little scholars actually know about how patent laws affect innovation. My article Patent Experimentalism explains why this is such a hard empirical question, summarizes a lot of the empirical work that has been done, and analyzes the institutional design options (including policy randomization) to help make more empirical progress. Two of my favorites among the empirical pieces I discuss are by MIT economics professor Heidi Williams—one on IP-like contractual restrictions on human genes (summarized previously on this blog), and one on the skew in cancer drug R&D toward late-stage cancer patients (with Eric Budish and Ben Roin). In June, Williams posted a new paper that reflects on the challenges of measuring the relationship between patent strength and research investments, summarizes these two studies, and discusses directions for future research.

Although "a literal interpretation of the current set of available empirical evidence . . . would be that the patent system generates little social value," Williams explains that "drawing such a conclusion would be premature." The "dearth of empirical evidence" stems from two problems: measuring specific research investments, and "finding any variation (much less 'clean' or quasi-experimental variation) in patent protection." Her recent papers "identified and took advantage of new sources of variation in the effective intellectual property protection provided to different inventions." If you aren't familiar with those two papers, this piece contains a great summary.

Looking for similar kinds of variation seems like a promising avenue for future research, although Williams cautions against jumping quickly from her work to broad conclusions for patent policy. For example, while her work on contractual restrictions on human genes led to persistent decreases in follow-on research and commercial product development, her preliminary results from a follow-on project with Bhaven Sampat suggest that "on average gene patents have had no effect on follow-on innovation." As Williams notes, the U.S. Supreme Court has been concerned about the effects of patents on follow-on research in its recent forays into patentable subject matter, and perhaps further empirical work along these lines will help inform this muddled area of doctrine.