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Abstract:
This paper estimates the total cost of patent litigation to alleged infringers. We use a large sample of stock market event studies around the date of lawsuit filings for US public firms from 1984-99. We find that the total costs of litigation are much greater than legal fees and costs are large even for lawsuits that settle. Lawsuits cost alleged infringers about $28.7 million ($92) in the mean and $2.9 million in the median. Moreover, infringement risk rose sharply during the late 1990s to over 14% of R&D spending. Small firms have lower risk relative to R&D.

patent, litigation, litigation cost, property rights

Abstract:
The doctrine of equivalents (DOE) allows courts to expand the scope of patent rights granted by the Patent Office. The doctrine has been justified on fairness grounds, but it lacks a convincing economic justification. The standard economic justification holds that certain frictions block patent applicants from literally claiming appropriately broad rights, and thus, the DOE is available at trial to expand patent scope and overcome these frictions. The friction theory suffers from three main weaknesses. First, the theory is implausible on empirical grounds. Frictions such as limits of language, mistake, and unforeseeability are missing from the leading cases. Second, there is not a convincing answer to the question of why the doctrine of equivalents, rather than some other doctrinal approach, should be used to overcome the frictions. The frictions can be overcome, or at least mitigated, for example, by astutely amending claims during prosecution; through a reissue proceeding after the patent issues; or through artful claim drafting as an initial matter. Third, proponents of a far-reaching DOE fail to pay adequate attention to the notice function of patent claims and are insufficiently sensitive to patent law's delicate incentive dynamic.

We develop a better explanation of why claim breadth falls short of the maximum breadth allowed by patent law. Our explanation replaces the passive patent attorney depicted in the friction theory with an active inventor and attorney who are capable of responding effectively to the frictions mentioned above. Whether an inventor obtains the broadest permissible claim breadth depends mostly on the talent and effort of the inventor and attorney in identifying what has been enabled. A good attorney predicts the embodiments that could be chosen by infringers and finds appropriate language to draft a suitably broad claim. We call this process claim refinement, and we develop a refinement theory of the doctrine of equivalents.

We justify the doctrine of equivalents primarily as a tool for promoting efficient investment in claim refinement. Although critics of the DOE contend the doctrine unduly inhibits competition, we show the degree of competition is often unaffected by the presence or absence of the DOE. The inventor can block competition in the absence of the DOE by drafting broad patent claims. The DOE should be used to avoid socially wasteful preemptive refinement. We reject the popular notion that the DOE is especially appropriate in the case of unforeseeable, later-developed technology. We reach this conclusion because in certain cases patent applicants can capture unforeseen embodiments at relatively low cost through clever claim drafting strategies. And in other cases unforeseen equivalents are unattainable no matter the amount of time and money spent on refinement efforts. In the latter cases, patent applicants would not exert much effort refining their claims to cover these equivalents, and inventor's incentives would not be much affected by a minute probability of loss of effective patent protection.

patent scope, invention, doctrine of equivalents, patent claims

Abstract:
Technological breakthroughs occasionally set off floods of
inventions and associated patents. The decline of the business
method exception to patentability is likely to increase the
frequency of patent floods. Future technological breakthroughs
might now cause two different patent floods: a flood of patents covering the relevant technology, and a flood of patents
covering business methods in the new market opened by the
breakthrough. Furthermore, a technological breakthrough is no
longer a precondition for a patent flood. Any factor that opens a new market might cause a future flood of business method
patents.

A flood of related patents in a new market creates special
problems for competition in addition to the usual problems that arise from market power associated with individual patents.
Patent floods strain the resources of the Patent Office and
adversely affect the quality of issued patents. Of particular
concern, reduced patent quality increases uncertainty about the scope and validity of patents and increases the frequency of
patent litigation. The fragility of the many start-ups in new
markets makes them vulnerable to strategic patent litigation.
Furthermore, a thicket of patents may stultify development of
technology because of the cost of securing patent licenses from the large numbers of patent owners. Cross-license agreements
and patent pools mitigate problems caused by floods, but such
agreements could be difficult to reach in response to future
business method patent floods. The heightened risk of patent
floods is a problem unique to business method patents, and
justifies exceptional treatment of business method inventions.
It is probably socially desirable to use the subject matter and nonobviousness standards for patentability to restrict grants
of business method patents.

Patent, Business Method, Patent Pool

Abstract:
This paper provides the first look at patent litigation hazards for public firms during the 80s and 90s. Consistent with our model, litigation is more likely when prospective defendants spend more on R&D, when prospective plaintiffs acquire more patents and when firms are larger and technologically close. Public firms face dramatically increased hazards of litigation as plaintiffs and even more rapidly increasing hazards as defendants, especially for small public firms. The increase cannot be explained by patenting rates, R&D, firm value or industry composition. Legal changes are the most likely explanation.

patent, litigation, settlement, licensing, property rights

Abstract:
I show that copyright law is intimately connected to price discrimination. First, price discrimination is common in markets for copyrighted works. Second, many features of copyright law affect resale or personal arbitrage and so influence the profitability of price discrimination. For example, the first sale doctrine and the fair use doctrine often facilitate arbitrage and discourage discrimination, while the derivative and public performance rights impede arbitrage and promote discrimination. Third, optimal copyright policy requires attention to the social costs and benefits from price discrimination.

I use models of price discrimination to unify the analysis of a wide range of copyright policy issues. I argue that public performance rights are desirable because they support fine-grained price discrimination and displace other forms of price discrimination that have greater social cost. I argue against a broad definition of the derivative right that includes movie merchandise. Movie merchandising usually imposes allocative and implementation costs with little offsetting benefit in terms of creative incentive. I show that personal copying and other activities possibly covered by fair use have mixed effects on price discrimination and social welfare. Finally, I argue that the importation right should not cover gray market goods and should not be used to facilitate geographic price discrimination.

Copyright, price discrimination, arbitrage

Abstract:
Do patents provide critical incentives to encourage investment in innovation? Or, instead, do patents impose legal risks and burdens on innovators that discourage innovation, as some critics now claim? This paper reviews empirical economic evidence on how well patents perform as a property system.

patent, property rights, research and development

Abstract:
The growth of digital information transmission worries copyright holders who fear the new technology threatens their profits because of greater piracy and widespread sharing of digital works. They have responded with proposals for expanded protection of digital works. Specifically, they seek restrictions on personal use rights regarding digital works provided by the fair use and first sale doctrines. The proposed changes in the allocation of property rights to digital information significantly affect the ability of copyright holders to practice price discrimination. Broader user rights make discrimination more difficult; broader producer rights make discrimination easier. I argue that more price discrimination not less piracy or sharing would be the really significant effect of the proposed changes. The problem of digital piracy can probably be handled by technical means with modest changes in copyright law. The so-called problem of sharing is not really much of a problem except for price discriminators. On the other hand, copyright expansion could significantly expand opportunities for price discrimination. Curtailing personal use rights would make it easier for a price discriminator to measure buyer valuations and stop buyers from arbitraging away price differences.

Abstract:
This Article describes how intellectual property (IP) law regulates six types of vertical restraints: restrictions on the field or location of use; restrictions on sharing; control over the frequency of use; restrictions on repair and modification; packaging requirements; and impediments to a buyer's decision to exit its relationship with a seller. There are three reasons to focus on IP oversight of vertical restraints separately from antitrust oversight. First, IP law covers a broader range of vertical restraints. Second, economic analysis of the antitrust-IP conflict focuses mainly on the potential of vertical restraints to exclude downstream competitors. IP doctrines that regulate vertical restraints raise additional policy concerns including whether IP law should aid a seller's attempt to control: the economic life of a durable good; sharing of copyrighted works and patented technology; arbitrage that undermines price discrimination; or a buyer's exit decision. Third, because IP law uses different policy instruments it possibly offers more effective regulation of vertical restraints, and should be used to complement antitrust regulation. IP doctrines that discourage vertical restraints generally cause smaller rent-seeking problems than antitrust doctrines with a similar effect. IP rules that provide background entitlements are relatively clear compared to antitrust rules which require uncertain rule of reason analysis. Furthermore, IP prohibitions that are implemented through preemption or misuse do not give rise to treble damages, and can only be used defensively. In contrast, broad antitrust regulation of vertical restraints creates a threat of opportunistic suits because of uncertainty, the lure of treble damages, and the possibility of initiating an opportunistic or anti-competitive suit against a vulnerable defendant.

intellectual property, vertical restraints, antitrust, durable goods, price discrimination, sharing, exclusionary contracts

Abstract:
It is useful to think of intellectual property (IP) law both as a system of property rights that promotes the production of
valuable information and as a system of government regulation
that unintentionally promotes socially harmful rent-seeking.
This Article analyzes methods of controlling rent-seeking costs associated with opportunistic and anti-competitive IP lawsuits. My thinking is guided to some extent by the analysis of
procedural measures for controlling frivolous litigation, and analysis of antitrust reforms designed to control strategic abuse of antitrust law. These analogies lead me to focus on pre-trial and post-trial control measures that reduce the credibility of weak IP lawsuits. I conclude that intellectual property courts show some awareness of the value of fee-shifting and summary judgment as tools for controlling opportunistic and anti-competitive lawsuits. Courts display less awareness of the need to restrict preliminary injunctions or encourage declaratory judgments as control measures. Antitrust suits have only a limited role in deterring the most egregious anti-competitive conduct.

Besides attacking the credibility of weak lawsuits, it is probably desirable to eliminate the threat of some kinds of IP lawsuits entirely. This could be accomplished by eliminating or restricting IP rights such as business method patents, trade dress protection of product configuration and design, and copyright protection of art reproductions. In other words, it may be desirable to curtail the "standing" of parties who own IP rights that generate a substantial threat of opportunistic or anti-competitive litigation with little corresponding benefit in terms of productive incentives.

Intellectual Property, Litigation, Frivolous Lawsuits, Predatory Litigation, Patent, Copyright, Trademark

Abstract:
In this article I introduce legal scholars to concepts of fairness developed by microeconomic theorists. My starting point is a review of the books: Cooperative Microeconomics: A Game-Theoretic Introduction, by Herve Moulin, and Equity: In Theory and Practice, by H. Peyton Young. The books explain how to use cooperative game theory to study the fair allocation of benefits and costs. I illustrate the use of cooperative game theory by applying it to various problems of fair division in the law. I believe formal analysis of fair division is valuable because it allows scholars to connect their intuitive sense of fairness to a particular solution concept and an underlying set of axioms. I apply the Shapley value and the nucleolus solutions to the problem of the fair assignment of property rights in a nuisance problem. I explain the axioms that give rise to each of these solution concepts, and I suggest that one can identify the moral significance of a solution concept with the content of its axioms (and the implicit assumptions hidden in the statement of the problem). Finally, I comment on the problems with implementing fair division schemes, and the relationship between fairness and efficiency.

Abstract:
This Article reviews empirical patent litigation research to reveal patent policy lessons. First, the Article presents facts about patent litigation. Next, it analyzes the patent premium. Patent litigation research reveals little about the magnitude of the patent premium, but the research reveals the strategies firms use to capture the patent premium and the patent policy instruments that determine the patent premium. Next, the Article evaluates the patent prosecution process and notes that making efforts to refine a patent application can affect the value of the patent. The Article then identifies reforms for improving PTO performance. Finally, the Article discusses policy changes that patent litigation research suggests would improve procedural fairness and reduce patent litigation costs.

patent, litigation, settlement, licensing, property rights

Abstract:
Pharmacogenomics promises to revolutionize medicine by using genetic information to guide drug therapy. Genetic tests will help doctors improve drug safety and efficacy by better matching patients and drugs. This Article evaluates the effectiveness of patent-based incentives to create genetic tests, and the optimal mix of public and private sector pharmacogenomic R&D. Drug patent owners have a strong incentive to develop genetic tests that predict adverse drug reactions and allow them to market drugs that otherwise would be shelved. Incentives are also strong for genetic tests that are created as part of the drug development process. Incentives tend to be weaker for genetic tests that are used in conjunction with existing drugs. Drug patent owners might gain or lose profit from introduction of genetic tests into existing drug markets. Profits may fall because of lost sales; or profits may rise because drugs are more valuable to appropriate patients, and because drugs become more differentiated.

Public sector R&D should target genetic tests that are likely to be underprovided by the private sector because private returns are low relative to social returns or private costs are high relative to social costs. Private returns are relatively low when the rate of adoption of a genetic test is apt to be low, when test results increase consumer heterogeneity and consumer bargaining power, and when a test reveals information relevant to the use of more than one drug. Private costs are relatively high when test innovators need to obtain costly patent and trade secret licenses.

patent, genetic test, pharmacogenomics, pharmaceuticals, research subsidy

Abstract:
Do patents behave substantially like property rights in tangible assets, in that they encourage development and innovation? This article notes that historical evidence, cross-country evidence, economic experiments, and estimates of net benefits all indicate that general property rights institutions have a substantial direct effect on economic growth. Conversely, with a few important exceptions like chemicals and pharmaceuticals, empirical evidence indicates that intellectual property rights have at best only a weak and indirect effect on economic growth. Further, it appears that for public firms in most industries today, patents may actually discourage investment in innovation for fear of winding up on the losing side of a patent fight, and routine injunctive relief from patent protection may contribute to this problem.

property, intellectual property, property rights, patent, property law, patent law, Industrial Revolution, economic growth, natural economic experiments, Eastern European economies, Eastern European transition, free-riders, generic drug

Abstract:
The authors develop an informal model of the impact of the nonobviousness standard on the choice of research projects. Previous models assume that the basic question confronting a researcher is, "Shall I produce this particular invention?" More realistically, the authors think a researcher asks, "Which research path shall I pursue?" The model shows that a patent serves as a carrot to induce the choice of more difficult projects than would be pursued under the no-patent alternative. The nonobviousness standard serves as a stick to prod researchers to choose even more difficult projects. The results of the model help us understand why a fact-intensive issue like obviousness is a question of law. The model also helps us understand the optimal relationship between the nonobviousness standard and patentable subject matter exclusions. Commentators often suggest subject-matter exclusions are unnecessary if the nonobviousness standard is used appropriately. The authors' model suggests this intuition is wrong for inventions characterized by large social spillovers and high social costs of patenting; a simple subject matter exclusion would be more efficient.

obviousness, nonobviousness, patent, subject matter, question of law, question of fact, 102

Abstract:
In this brief filed in Bilski vs. Kappos, pending before the U.S. Supreme Court, we argue that the "useful Arts" limitation of the the Intellectual Property Clause of the U.S.Constitution restricts the scope of Congress's patent power to technological advances. Beyond this constitutional limitation, Congress has not extended patent protection to business methods. The subject matter provision of the 1952 Patent Act merely codified existing subject matter categories and limitations, including the exclusion of business methods. The First Inventor Defense Act of 1999 did not alter this limitation on patentable subject matter. It did not amend the subject matter provision. It merely created a prior user defense. To read § 273 to override more than two centuries of jurisprudence as well as § 101 without an express statement to that effect would be unwarranted and unwise.

We also address warnings that upholding the business method exclusion would hamper innovation. Economic research indicates that restoring the business method exclusion could well promote progress, innovation, and competition. Although we doubt that these considerations bear significantly if at all on the interpretive questions before the Court, they should certainly not be weighed on the side of extending patent protection to business methods.

The courts and the Patent Office successfully navigated the line between technological and non-technological fields for over two centuries. Patent systems throughout the world continue to do so. Reestablishing technological advance as the touchstone for patent protection in the United States will help to restore confidence in, the efficacy of, and the logic of this vital institution.

Patents, Business Methods, Intellectual Property, Constitutional Interpretation, Statutory Interpretation, Innovation, Patentable Subject Matter

Abstract:
A model of patent dispute resolution, which alsoconsiders early stage patent and development investments by both the patentowner and the possible defendant, is presented. The model is comprised of three stages involving an investment firm and aninfringing firm. The three stages of the model are described: 1)stage oneconsists of the investment firmchoosing an investment in patent"refinement"; 2) stage two addresses the investment choices of bothfirms; and 3) stage three describes the four possible outcomes of thesituation. Using the Nash equilibrium to analyze the stages of the model, the solutionsregarding settlement, lawsuit, acquiescence and deterrence are discussed.Profitability of each firm is examined. The implications of the model areanalyzed, including the probability of litigation and the disparity of R&Dspending among industries. The model provides a means of measuring the impact of the patent law changesupon the certainty of patent rights, as well as on profit, developmentinvestment, and patenting behaviors. (AKP)

Patent infringements, Patent law, Patent litigation, Patents, Intellectual property, Licenses, Litigation