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Abstract: While the theory of the patent system is premised on the idea that patents will be used to exclude competitors, only a tiny fraction of patents are ever enforced. Legal and economic scholars have theorized as to how to identify valuable patents based on their individual characteristics. In this paper, we present the results of the largest empirical study ever conducted of the patent system. We compare the characteristics of litigated patents to those of issued patents generally, and we find important differences in a range of dimensions. These data confirm some predictions in the literature regarding patent value and refute others. New patents are more likely to be litigated than old patents. Foreign patent owners are less likely to litigate than domestic patent owners. Patents that issue to individuals or small companies are much more likely to be litigated than those that issue to big companies, though many of those patents have changed hands by the time they are brought to court. Patents that cite more prior art are more likely to be litigated, and those that are litigated tend to be cited more elsewhere. Most significantly, there are substantial differences between industries in the likelihood of patent litigation. Patents in the mechanical, computer, and medical device industries are significantly more likely to be litigated, for example, than patents in the chemical and semiconductor industries. In the paper, we explore the implications of these findings in detail. Taken together, the data give a profile of a few valuable patents that stand out from a field of ordinary ones. They are the patents that their owners spend the most time and money in prosecuting. They are the ones that competitors recognize as most important. They are concentrated in a few industries in which patents play a more significant role in encouraging innovation. And they are patents that issue to individuals or small companies with asymmetric stakes in patent litigation, not to large companies. These conclusions in turn have significant implications for the design of the patent system, patent reform efforts and patent valuation theories - implications we consider at the end of the paper.
patents, patent valuation, patent litigation, intellectual property
Abstract: We have studied all final patent validity decisions issued by the federal courts between 1989 and 1996 reported in United States Patents Quarterly. We test this dataset to determine a number of facts of interest to scholars and patent litigators, including the rate at which patents are held valid, the subject matter of the patents litigated, the rate at which judges and juries hold patents valid, the most common grounds for invalidity, how validity decisions fare on appeal, and numerous other hypotheses.
Abstract: We have studied a large, random sample of U.S. patents issued between 1996 and 1998. We collected a variety of information about these patents, including area of technology, national origin, the number of inventors, nature and size of the owning entity, the number and type of prior art references, and the time spent in prosecution. We seek to establish relationships between a number of variables in issued patents-such as number of inventors, numbers and types of references to the prior art, numbers and types of claims, and length of time between application and issuance-and a number of defined areas of technology. We identify the countries in which particular inventions originated--almost one-half of all issued U.S. patents cover inventions originating in other countries--and test for relationships between the above variables and countries of origin. We also evaluate relationships between countries of origin and areas of technology. The conclusions are somewhat surprising, and point to a patent system that is far from unitary in the way it treats different inventors and different inventions.
Abstract: Although business methods previously had been patented, the Court of Appeals for the Federal Circuit first gave them formal recognition as patentable subject matter in 1998. Internet business method patents have been roundly criticized by most observers as being singularly inferior to most other patents. Many have even argued that business methods should not be patentable subject matter. As a result, Congress and the Patent and Trademark Office (PTO) singled them out for special treatment. All of these criticisms were voiced without empirical support. We gathered data on most Internet business method patents issued through the end of 1999 and compared them with a large contemporaneous data set of patents in general. We also compared them with patents in fourteen individual technology areas within the general patent data set. Our comparison focused on several metrics that we believe serve as good proxies for patent quality and value. We found that Internet business method patents appear to have been no worse than the average patent, and possibly even better than most. They also appear to have been no worse, and possibly even better than patents in most individual technology areas. These findings lead us to question the conventional wisdom that these patents were uniquely deficient. We briefly explore some possible explanations for the chasm between the accepted view and what we believe to have been the reality, including the possibility that negative opinions about these patents may have been characterized by an information cascade. More important, we believe that efforts to single out these patents for special treatment not only lacked sound justification in the particular case but also reveal more fundamental problems associated with ex ante definitions to carve out any particular technology area for different treatment.
Abstract: In this Article, we compare a data set of 1000 U.S. patents issued between 1996 and 1998 to a similarly random sample of 1000 patents issued twenty years earlier, between 1976 and 1978. By studying the differences between the groups, we can get a clear picture of how the patent system has changed over time. The results are dramatic. By almost any measure - subject matter, time spent in prosecution, number of prior art references cited, number of claims, number of continuation applications filed, number of inventors - the patents issued in the late 1990s are more complex than those issued in the 1970s. While some of these effects are attributable to the patenting of new technologies like biotechnology and software, unknown in the early 1970s, the increase in complexity is robust even across areas of technology. Further, the patent system in the 1990s is more heterogeneous than it was in the 1970s. There are far greater differences by area of technology and by nationality in how patents are being prosecuted in the 1990s than there were in the 1970s. We explore a number of possible explanations for these results, and discuss the policy implications of the lack of uniformity that now characterizes our patent system.
Abstract: We recently studied the outcomes of every final written patent validity decision at both the district court and Federal Circuit levels between 1989 and 1996. The study produced a variety of interesting statistics on patent validity questions. Using the dataset from that study, and matching it with the panels serving on each case, we describe in this paper how individual Federal Circuit judges voted in patent validity cases during that period. The results may surprise many patent litigators. While there are some interesting differences in voting patterns, our overall conclusion is that the votes of Federal Circuit judges during this period defied easy description. Judges do not fit easily into "pro-patent" or "anti-patent" categories, or into "affirmers" and "reversers." We think this is a good thing for the court system. Still, there are some interesting facts to be found in the data.
Abstract: From the time of the ancients through the middle ages, the Chinese were among the most prolific inventors in the world, but their voluntary insularity prevented most of these inventions from dissemination beyond China. Many of them did not become known outside China until they were "reinvented" elsewhere. Another characteristic of early Chinese attitudes toward products of the intellect was the prevailing view that such belonged to the community as a whole, including creations that would be within the modern realm of copyright and inventions that would be within the modern realm of patent. Creating property-type protection for the inventor was not, therefore, within the mainstream thinking of Chinese culture. Although these attitudes extended to what we view as copyrightable works and trademarks, our focus in this paper is on discovery and invention, that is, intellectual accomplishments that traditionally have been within the purview of patent laws. Previous efforts by foreign nations to impose systems of intellectual property protection failed because such systems ran counter to a deeply embedded cultural mindset derived first from Confucianism and later reinforced by communist socialism. In the post-Mao era, however, the Chinese government has undertaken a widespread restructuring of its legal and economic systems because its leaders (1) foresaw the critical need to attract foreign investment, and (2) recognized that movement toward free-market principles in many economic sectors would be essential to the long-term health of the Chinese economy. To be successful ultimately, an economy based in significant part on free-market principles must provide legal protection for property interests, including intangible property in the form of functional ideas and original expressions. The post-Mao adjustment has included the enactment of a wide array of laws to serve as a foundation for the new economy. For our purposes, the self-evidently most important law is China's pre-adolescent patent law, first effective in 1985, with substantial amendments effective in 1995 that created a patent system closely resembling those of most of the world's economically developed nations. The major elements of the new Chinese patent system are explained and compared with their U.S. counterparts. A patent system cannot properly perform its role, however, without an effective court system, legal profession, and serious attention to the rule of law. For much of the post-Mao period the Chinese have equated enactment with implementation. Fortunately, during the past several years the Chinese have begun to recognize and attempt to remedy this disconnect. Although today's China has a legal system far more well developed than before, a great deal remains to be done. A functional court system and legal profession are developing, with a substantial number of new law schools having been opened and those closed during the Cultural Revolution reopened, a serious commitment to greatly increasing the number and competency of lawyers, and increased training within China and abroad of law faculty and judges. Even more directly pertinent to our study is that special intellectual property courts have been established, staffed by judges having meaningful training in various areas of technology as well as in the law of patents and other intellectual property. Other nations, especially the U.S., have shown impatience with China's efforts to actualize their intentions to provide realistic patent protection for inventions and other intellectual property. Some of that impatience is justified. One must understand, however, that China has had to overcome enormous obstacles. It has had a patent system for only 15 years, with a number of its most critical provisions being only five years old; when juxtaposed with engrained traditions several thousand years old, patience seems to be warranted, especially in light of very substantial progress in the past 6-7 years. Moreover, the central government in Beijing has had more than a little difficulty with "localism"-cadres of local political officials and even locally stationed military personnel acting in complicity with local infringers in defiance of Beijing's dictates. Beginning about 1996, however, the central government has begun to take localism seriously and has attempted to at least ameliorate it. Again, however, as long as China continues to show progress, patience is the watchword, and it will be quite sometime before the nation's young patent system can play the role it is supposed to play in incenting technological advancement. If China is willing to reciprocate by more fully opening its markets to outsiders, unencumbered trade relations between the West and the Chinese can only hasten the realization of that role.
Abstract: Software patents and university-owned patents represent two of the most controversial intellectual property developments of the last twenty-five years. Despite this reality, and concerns that universities act as "patent trolls" when they assert software patents in litigation against successful commercializers, no scholar has systematically examined the ownership and litigation of university software patents. In this Article, we present the first such examination. Our empirical research reveals that software patents represent a significant and growing proportion of university patent holdings. Additionally, the most important determinant of the number of software patents a university owns is not its research and development ("R&D") expenditures (whether computer science-related or otherwise) but, rather, its tendency to seek patents in other areas. In other words, universities appear to take a "one size fits all" approach to patenting their inventions. This one size fits all approach is problematic given the empirical evidence that software is likely to follow a different commercialization path than other types of invention. Thus, it is perhaps not surprising that we see a number of lawsuits in which university software patents have been used not for purposes of fostering commercialization, but instead, to extract rents in apparent holdup litigation. The Article concludes by examining whether this trend is likely to continue in the future, particularly given a 2006 Supreme Court decision that appears to diminish the holdup threat by recognizing the possibility of liability rules in patent suits, as well as recent case law that may call into question certain types of software patents.
Abstract: We identify the patents litigated most frequently between 2000 and 2007, and compare those patents to a control set of patents that have been litigated only once in that period. The results are startling. The most litigated patents are far more likely to be software and telecommunications patents, not mechanical or other types of patents. They are significantly different from once-litigated patents in ways that signal their value up front. And they are disproportionately owned by non-practicing entities (aka trolls). The results don’t answer all the policy questions; we offer only one important piece of a larger mosaic. But they have significant implications for debates over patent reform, since we show both that the most litigated patents are the most valuable ones and that they are most commonly in the hands of companies other than the ones building new products.
Abstract: We have conducted an empirical study of every reported doctrine of equivalents decision in both the Federal Circuit and the district courts during three periods - one before the Federal Circuit's 2000 Festo opinion, one after that opinion but before the Supreme Court's 2002 opinion, and a third after the Supreme Court's opinion. Two broader findings stand out. First, the multiple changes in the doctrine of equivalents rules over the last ten years have had surprisingly little effect on the actual outcome of doctrine of equivalents cases, and even less effect on the subset of cases dealing directly with prosecution history estoppel. Indeed, to the extent there is any relationship it is an inverse one - patentees did better under less patent-friendly rules. The attention everyone has paid to Festo as changing the value of patent rights therefore seems to have been largely wasted from a practical perspective. The second finding is even more significant: the reason the Festo changes had so little effect seems to be that the doctrine of equivalents was already near death by the late 1990s. Even under the permissive doctrine of equivalents rules in place before 2000, while everyone was focused on the doctrine of equivalents, equivalents claims usually failed, most often on summary judgment. That became even more true after 2000, and the Supreme Court's 2002 decision didn't change the trend. In fact, district courts are more likely to reject doctrine of equivalents claims today than ever before. This left us with a bit of a puzzle: what killed the doctrine of equivalents in the 1990s? We suspected the answer was the growth of claim construction Markman hearings after the Supreme Court's 1996 decision in that case. Once courts were construing claims as a matter of law pre-trial, and finding themselves in a position to resolve virtually all infringement issues on summary judgment, they were naturally inclined to decide the doctrine of equivalents issues too. And a court that has just rejected a literal infringement argument - the only courts likely to spend much time thinking about equivalents issues pre-trial - is unlikely to undo the work of claim construction by sending the issue of infringement by equivalents to the jury. To test this hypothesis, we constructed a fourth dataset, including cases decided in the 1993 to 1995 timeframe. That data bears out our hypothesis. The doctrine of equivalents was alive and well before Markman, but has been in decline ever since.
Abstract: Following the Federal Circuit's 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc. holding that there was no per se exclusion from patentability for software-implemented business methods, the number of applications for and grants of such patents on increased dramatically. A large number of critics castigated them for two primary reasons: First, some contended that patents should simply not be allowed on such subject matter. Second, a much larger number of critics asserted that these patents were of singularly inferior quality because they had been issued without due consideration to the relevant prior art-documentary evidence of what others had done in the past. In response to these criticisms, the United States Patent and Trademark Office (PTO) instituted an initiative in March 2000 that it called the Second Pair of Eyes Review, intended to make it more difficult to obtain business method patents. Among other features, the SPER program called for a second-level review upon allowance for patent applications in Main Class 705. Each of the authors had independently conducted previous research leading us to conclude that software-implemented business method patents cited prior art that was not inferior in quantity or quality to other types of patents, and that the many prior art-related criticisms were not supported by empirical evidence. Although some business method patents undoubtedly were of low quality, one finds low-quality patents in all fields. Be that as it may, we believe it important to empirically assess the effects of the SPER initiative. The program requires substantial resources, and if it has not had significant positive effects, these wasted resources constitute a tax on innovation because the PTO is supported by user fees. Perhaps a more important reason for evaluating SPER's effects, however, is that the PTO declared it to be a success and announced plans to expand it to other fields. Whether or not the agency expands the program in the near term, it is important to know whether targeting patent reforms at particular technology fields is a model that should ever be replicated. Employing negative binomial regression models, we found that the SPER initiative did indeed have significant positive effects on the quantity and quality of prior art cited in patent applications to which it applied. Using logistic regression, we determined that the SPER initiative also led to a significant increase in the number of Main Class 705 patents that cited at least some prior art. Moreover, we found that, after SPER, examiners themselves added significantly more prior art references that did examiners of closely related patents with Secondary 705 classifications. Success within this narrow operative domain, however, is seriously tempered by a number of factors, leading to the conclusion that attempting to improve patent quality one technology at a time is not a model that should be repeated. Because of definitional problems that are impossible to overcome, and because the patent classification system is very poorly suited for this kind of task, such an approach to patent reform is and always will be grossly underinclusive and subject to gaming by both patent applicants and beleaguered patent examiners. Attempts to improve patent quality should not focus on a single field.
patents, patent quality, patent reform, business methods, business method patents, empirical analysis of regulatory reform, SPER
Abstract: We analyze the relation between patents and the different business models available to firms in the software industry. The paper builds on Cusumano's work defining the differences among firms that sell products, those that provide services, and the hybrid firms that fall between those polar categories. Combining data from five years of Software Magazine's Software 500 with data about the patenting practices of those software firms, we analyze the relation between the share of revenues derived from product sales and the firm's patenting practices. Accounting for size, R&D intensity, and sector-specific effects, the paper finds a robust positive correlation between product-based business models and patenting rates. We also present in this draft preliminary results suggesting that there is no significant relation between patenting practices and the extent to which the firm's revenues are derived from software products and services, as opposed to hardware or other lines of business.
patent, business, software, IP, model
Abstract: We analyze the characteristics of the patents held by firms in the software industry. Unlike prior researchers, we rely on examination of the individual patents to determine which patents involve software inventions. This method of identifying the relevant patents is more laborious than the methods that previous scholars have used, but it produces a dataset from which we can learn more about the role of patents in the software industry. In general, we find that the patents computer technology firms obtain on software inventions have more prior art references, claims, and forward citations than the patents the same firms obtain on non-software inventions. We also find that the patents that software firms obtain on software inventions also have more prior art references, claims, and forward citations than the software patents obtained by the firms that derive revenues from other product lines. Finally, we conclude that the patents of the largest firms are no better (or worse) than the patents of the smallest firms, belying the idea that large firms are plagued by challenges based on the worthless patents of their smaller competitors. The paper closes with a brief discussion of the implications of our empirical analysis. The findings undermine the strongest criticisms about the low quality of software patents. It is simply not accurate to say that software patents as a class have remarkably low numbers of prior art references and forward citations. Thus, they cut against technology-based patent reforms designed to make it more difficult to obtain software patents. On the other hand, the evidence that small firms are no less capable than large firms at producing quality patents vitiates concerns that higher hurdles at the early stage of the patenting process would disadvantage smaller inventors in particular.
software, patents
Abstract: Software patents have been controversial since the days when "software" referred to the crude programs that came free with an IBM mainframe. Different perspectives have been presented in judicial, legislative, and administrative fora over the years, and the press has paid as much attention to this issue as it has to any other intellectual property topic during this time. Meanwhile, a software industry developed and has grown to a remarkable size, whether measured by revenues or profitability, number of firms or employees, or research expenditures. The scope of software innovation has become even broader, as an increasing number of devices incorporate information technology, requiring modern manufacturing firms outside the software industry to employ developers and programmers to ensure that increasingly diverse functions are performed more efficiently. Although inventors have consistently asserted their need for patents in order to compete with industry incumbents, patent protection has not been easily or consistently available for much of this period. Rather, the legal system has responded gradually to the burgeoning software industry by broadening the scope and strength of protection for software-related inventions in fits and starts. The explosive growth of the industry is largely attributable to demand generated by the efficiency of software solutions; the expansion of the venture capital industry over the same period largely explains the lack of industry concentration. The "garage" mentality can be explained by the fact that even some of the largest industry incumbents began with one or two (largely unfunded) inventors. Also, there is every reason to believe that increased patent protection has contributed to the ability of independent inventors and smaller firms to compete. Moreover, the ability to obtain patents on software always has been important to some of the industry incumbents, while others have exhibited little need for patents and, displayed in some cases, strenuous opposition to the patentability of software. The incumbents are a diverse group. Some produce only software; others have substantial hardware product lines. Some sell to other technology firms and others sell applications to end users in a broad range of markets. And some sell prepackaged software products, while others focus on services - custom programming, installation, or maintenance. Regardless of the sector in which they participate, the incumbents spend massive amounts on research and development (R&D) - about 14% of their annual revenues, more than $60,000 per employee. However, there are important patterns in patenting practices that raw data on R&D investments cannot explain.
Abstract: In 2004, John Allison, Mark Lemley, Kimberly Moore, and Derek Trunkey published an article, Valuable Patents, reporting the results of the most comprehensive study ever done comparing various characteristics of patents that ended up in infringement litigation with patents that had not been litigated. Allison et al. compared a very large population of unlitigated patents - approximately three million - with a set of more than 6,800 litigated patents for which the infringement litigation terminated in 1999 or 2000. Appropriate adjustments were made for the different ages of the patents. Because of the size of the data set, the large study was not finely graded. Thus, Allison et al. also performed a much more finely graded study comparing characteristics of a random sample of 300 of the litigated patents that were issued during 1996-1998 (25% of the litigated patents issued during that time period) with a random sample of 1,000 unlitigated patents issued during the same time period. Based on the consensus that litigated patents are on average more valuable than unlitigated ones and thus represent a subset of all valuable patents, Allison et al. found among other things that litigated patents have significantly more total claims, independent claims, prior-art references, and forward citations (citations to the patents by later patents) than unlitigated patents. Litigated patents are also relatively young; that is, litigation tends to occur during the first few years after patents are issued. The authors concluded not only that many valuable patents can be identified retrospectively but also that reasonable predictions can be made about patents that are likely to be valuable enough to be litigated. David Adelman and Kathryn DeAngelis challenge the use of patent characteristics to identify valuable patents either retrospectively or prospectively. Adelman and DeAngelis's primary empirical contentions regarding the unsuitability of patent characteristics for identifying valuable patents are that: (1) the distribution of the value of patents is highly skewed, with most having little or no value and only a relatively small portion having any value at all; (2) the distributions of the several patent characteristics (called patent metrics by Adelman and DeAngelis) often viewed as indicators of value are skewed, thus rendering them unreliable as relevant value metrics; (3) Valuable Patents' findings of differences in the characteristics of litigated and unlitigated patents that are statistically significant does not mean that the differences are of a practically significant magnitude; and (4) the base-rate problem, which may occur when attempting to predictively identify a small subset of a population, prevents Valuable Patents' results from having any predictive power. In this article, the authors rebut each of the Adelman-DeAngelis criticisms. With one exception, we demonstrate that all of these criticisms are misplaced, and the other criticism is unlikely to present a problem in virtually any of the circumstances in which patent characteristics are actually used to identify valuable patents.
Patents, patent value, patent quality, empirical legal scholarship, intellectual property
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