Misleading Patent Signals

64 Pages Posted: 29 Nov 2023

See all articles by Greg Reilly

Greg Reilly

IIT Chicago-Kent College of Law

Date Written: November 6, 2023

Abstract

Patent scholars recognize that patented status conveys information to the public beyond the patent’s technical disclosure, suggesting that this creates private value for patent owners in addition to exclusivity, facilitates investments, and reduces information asymmetries between patent owners and the public. But the literature has given only passing thought to the social value of this signaling effect, ignoring or downplaying the way that patents can mislead audiences. This Article collects and catalogs the various ways patents signal information, recognizing that different audiences (e.g., consumers, inventors, sophisticated investors) may perceive patents differently. It also evaluates the accuracy of this information along two axes – (1) theoretical accuracy given the design of the patent system; and (2) practical accuracy based on whether patents correlate with the information in practice. Patented status should convey only limited information and do so only weakly due to shortcomings in the patent system. Yet, at least some audiences treat patented status as a proxy for information that patents are neither designed to signal nor reliably correlate with in practice, including government endorsement, quality, superiority, importance, efficacy, safety, innovativeness, financial value, and likely market success.

Recognizing that weak and false patent signals mislead audiences supports the descriptive claim of the patent signals’ literature that patents convey information in a way that creates value for the patent owner. But it raises serious doubts about the social value of this signaling effect, as this value is not warranted by contributions to technological progress and comes at the expense of the public. Misleading patent signals also raise questions about patent law’s traditional market deference, given that the market looks (to some extent) to patents for the same questions that patent law leaves to markets. Ambiguity as to the scope and impact of the patent signal problem – both in terms of audiences affected and impact on actual decision making – prevents any strong, practical recommendations. But misleading patent signals require greater attention to protecting the public, especially consumers, from being misled about the significance of patent protection.

Keywords: patent, signaling, patent signals, Theranos, patented, patent pending, patent-pending, intellectual property, advertising, patent quality, PTO, USPTO, patent portfolios, patent value, innovation, investors, startups, venture capital, crowdfunding, capital markets

Suggested Citation

Reilly, Greg, Misleading Patent Signals (November 6, 2023). Available at SSRN: https://ssrn.com/abstract=4625076 or http://dx.doi.org/10.2139/ssrn.4625076

Greg Reilly (Contact Author)

IIT Chicago-Kent College of Law ( email )

565 W. Adams St.
Chicago, IL 60661-3691
United States

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