Yelderman on Accuracy in the Patent System

When the USPTO is faced with a patent application of uncertain validity, which way should it err? How do the costs of erroneous patent grants compare with the costs of erroneous patent denials? Steve Yelderman provides an insightful new take on these questions in The Value of Accuracy in the Patent System (forthcoming in the University of Chicago Law Review). In short, he concludes that erroneous patent grants are more harmful than previously assumed, but only when "the unsatisfied patentability requirement is one that seeks to influence a mutually exclusive choice"—i.e., whether it incentivizes invention over non-invention, disclosure over non-disclosure, licensing over reinvention, etc.

Under the conventional account, if one assumes that the legal criteria of patentability are set correctly (an important caveat!), then social welfare is maximized by awarding patents to patentable inventions (true positives) and denying patents to unpatentable inventions (true negatives). Erroneous denials (false negatives) create a cost of decreased ex ante incentives for other inventors (I_FN), while erroneous grants (false positives) and correct grants create ex post costs like deadweight loss (C). If the probability that a given application is patentable is q, then it should only be granted at the threshold q > C/I_FN. (Note that it doesn't matter whether I_FN is included as a cost for false negatives or a benefit for true positives; you get to the same result.) If the ex post costs of patents are low relative to their incentive benefits, they should be granted even for inventions that are unlikely to meet patentability standards, and as the relative weight of these factors reverses, patents should only be awarded when it seems quite likely that they are deserved.

Yelderman's key insight is that this analysis ignores another important cost of erroneous grants: false positives also reduce ex ante incentives because they often narrow the expected difference between inventing and not inventing. This framework can be illustrated as follows, with I_FP shown in blue:

Does Microsoft v. i4i Matter?

Tomorrow, the Supreme Court will hear oral argument in Microsoft v. i4i Limited Partnership, which examines whether the invalidity defense of 35 U.S.C. § 282 must always be proved by clear and convincing evidence. Microsoft has argued that the standard should be a preponderance of the evidence, especially when the prior art used to contest validity is "unconsidered evidence," or evidence not considered by the Patent and Trademark Office (PTO).

Amicus briefs from the legal academic community generally support Microsoft. A brief of 37 law, business, and economics professors (with counsel Mark Lemley) argues that given the constraints on PTO review (e.g., that examiners only have 16-17 hours per patent), the clear and convincing evidence standard is appropriate only when the PTO considered an issue on the record. This echos a 2007 Stanford Law Review article by Lemley and Doug Lichtman, and Lichtman makes the same point in a (tritely titled) New York Times op-ed. Microsoft is also supported by a brief from the William Mitchell Intellectual Property Institute, arguing that the clear and convincing evidence standard is "historically anomalous" and "conflicts with general legal principles," and a brief from digital IP scholar Lee Hollaar, arguing that the heightened standard raises particular problems for software patents. But does the standard of patent validity actually matter?

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).