aleksandar stojkov, phd spring 2016

Aleksandar Stojkov, PhDSpring 2016

Global Patent Warming

Traditional Economic Literature on Patents

Recent Economic Literature on Patent Systems and Procedures

Quality of Patent Systems

The European Patent System

Conclusions

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,00019

8019

8319

8619

8919

9219

9519

9820

0120

0420

0720

1020

13

1 World

2 Asia

3 Europe

4 Latin America and theCaribbean5 North America

6 Oceania

Figure 1: Absolute number of patent applications (direct and PCT national phase entries) by filling office, 1984-2014

Source: WIPO, 2016.

Global patent warmingfrom the 1990s onwards


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1980

1984

1988

1992

1996

2000

2004

2008

2012

European PatentOffice

Japanese Patent Office

United States Patentand TrademarksOffice

Source: WIPO, 2016.

Figure 2: Absolute number of patent applications (direct and PCT national phase entries) by filling office, 1984-2014


The global patent warming is also called a ‘strategic upsurge’ in patent filings

From a geographical perspective, it is mainly driven by the impressive growth of patent applications in Asia and moderate growth in North America


There are at least five explanations behind this phenomenon:

1. Emergence of new and more patent-intensive technologies (e.g., biotechnology or information and communication technologies)

2. Increase in internationalization of markets and higher importance of securing IPRs abroad

3. Extended use of patents to actively and passively block competitors (e.g., sleeping patents, licensing or cross-licensing agreements).

4. Legal decisions that have allowed the granting of patents for software and business methods.

5. Universities are relatively new actors in the patenting arena. Academic patenting activity increased substantially since the early 1980s in the US and the early 1990s in Europe.


Increased backlog at many patent offices Increased time periods from patent

applications to decisions (pendency time) Problems in retaining patent examination staff Increased litigation, and Allegations of low quality patents being

granted (Bessen and Meurer, 2008; van Pottelsberghe, 2011).


Today, global patent warming is a major concern for policymakers, who try to address it by improving patent office internal efficiency in tackling the examination proceedings as well as, through international agreements between patent offices as witnessed by the current Patent Prosecution Highways (PPHs).


Traditional economic literature◦ Role of patents in encouraging invention and the

disclosure of technology◦ Optimal design (length and scope) of patent rights

Recent economic literature◦ Internal working of patent offices◦ The impact of patent systems and procedures on

patent examiners, patent applicants, and third parties

Traditional literature

Traditionally, patents have been seen as a necessary evil, involving a tradeoff between providing incentives for innovation and disclosure on the one hand, and the creation of a temporary monopoly on the other hand.

The main advantages of patents are that they may:

(i) promote new discovery,(ii) assist in the dissemination of knowledge,(iii) encourage technological transfer and commercialization, (iv) facilitate entry of new small firms, and (v) allow the trading of knowledge (Hall, 2007).


Disadvantages of patents include:

(i) social inefficiency of monopoly, (ii) a duplication of spending (patent races), (iii) increased transaction costs that may delay

new inventions (Langinier and Moschini, 2002).

A patent provides only an imperfect protection since monitoring to detect infringement must be done by the patent holder (Crampes and Langinier, 2002).


Recent studies in the area of economic of patents focuses on:

◦ Grant rates◦ Pendency time: timeliness of patent grant

procedure◦ Patent examiner behaviour◦ Patent applicant behaviour


Calculating the grant rate as the number of patents divided by the number of applications in a given year does not account for the lag between filing and granting.

Using a 3-year lag for the number of applications (average pendency time) provides only a rough estimate, because pendency times vary across technological fields.

Quillen and Webster (2001, 2006) report that 87–95% of US applications are granted a patent.

Recent economic literature

The duration of examination varies across offices, using the number of pending patents as a measure of the backlogs provides a biased proxy.

In some countries applicants may choose to delay the examination, meaning that longer pendency times may be due to applicant behavior rather than to the patent office.

London Economics (2010) indicates that average pendency time has increased over the 1996 to 2008 period in:◦ the USA from 20 to 40 months, ◦ Japan from 22 to 27 months◦ Canada from 60 to over 90 months;◦ In contrast, at the EPO it has fallen to an average of 28.9

months (EPO, 2016).


Unclear applications will affect the ability of the examiner to identify prior art.

The outcome of the patenting process may thus depend upon:◦ the availability of relevant information, ◦ the examiner’s experience, skill and familiarity with

the field, and◦ his/her incentives.

to complete examinations thoroughly.


Availability of relevant information◦ In the USA the applicant must disclose the entire prior

art he is aware of, whereas in Europe disclosure of the prior art by the applicant is not obligatory. The effort required to search for prior art might then differ across countries.

The examiner’s experience and skills◦ Cockburn et al. (2003) use US data from a survey of 187

examiners of patents invalidated by the Court of appeals from 1997 to 2000 and find evidence of significant heterogeneity among examiners, particularly in the search stage of the examination process.

◦ Lemley and Sampat (2012) use data on pending US applications and find that experienced examiners cite less prior art and have a significant higher grant rate.


How examiners respond to the incentives provided by different patent offices?

◦ Historically, the USPTO has used a formal bonus and award system based on whether examiners exceed pre-determined production goals.

◦ The effectiveness of the incentive system within EPO has been analyzed in Friebel et al. (2006), who provide a survey of EPO examiners.

◦ Explicit incentives based on quantity will likely push examiners to process more patent applications, so that the quality of examination process may suffer.


A high attrition rate of examiners at the USPTO has resulted in a lower overall level of examiner experience (van Pottelsberghe, 2011).

One possible explanation for this turnover is career concerns; examiners may be leaving the patent office to work at firms on the other side of the patent process that might value their experience and their understanding of the patent system.


Filing strategies

◦ Stevnsborg and van Pottelsberghe (2007) divide application filing strategies into four broad categories, based largely on the considerations of duration and information revelation:

good will and fast track, good will and slow track, bad will and slow track, and deliberate abuse of the system.


Filing strategies

A longer filing duration can be encouraged through:◦ application under the Patent Cooperation Treaty

(PCT), and ◦ drafting of a complicated application with too

many claims. Shorter durations can be achieved through:◦ national applications; ◦ drafting of a clear and accurate document; ◦ early requests for examination, and ◦ quick responses to agency feedback.


Filing strategies

◦ Why would a company be interested in delayed granting of patent?

◦ Delaying the granting of a patent may be attractive to an applicant, because: it allows further time to study the commercial value of

the patent, it extends the uncertainty of rivals regarding the

patent, and it delays certain fees associated with its granting.


In general, applicants pay filing, examination, granting and maintenance fees.

Changes in patenting fees will likely change the applicants’ behavior, which, in turn, will affect the examination process.

It has been empirically shown that there exists a negative relationship between patent cost per claim per capita and the number of claims (van Pottelsberghe and Francois, 2009).

It has also been argued that the reduction of fees in Europe has contributed to increased propensity to patent (de Rassenfosse and van Pottelsberghe, 2011).


Another way of altering the fee structure could be to make the applicant choose between two types of examinations (more expensive and more thorough examination or normal and cheaper).

The introduction of a two speed system (or gold-plate system), which will affect the quality of examination through the behavior of the applicant, has been under consideration at the USPTO (Lemleyet al., 2005).

Such a policy could reduce the total number of applications as, in equilibrium, only good applicants will apply for the gold-plate whereas those who apply in the regular system will signal that it is more likely they have bad applications (Atal and Bar, 2011).


Quality is defined as the extent to which patent systems comply in a transparent and stringent way with their legal patentability standards: the novelty and inventiveness conditions (de Saint-Georgesa and Pottelsberghe de la Potterie 2013).

These two legal standards might be similarly codified in patent systems but their implementation, or the extent to which they are fulfilled, varies significantly across countries.


# Variable Rationale1 Ownership of an

invention1 if the prevailing system is "first-to-file“and 0 if the prevailing system is “first-to-invent”. The "first-to-file" rule improves the quality of patent systems through two mechanisms: the faster diffusion of knowledge and the lower uncertainty on the market for patents.

2 Intermediate search report during the examination process

1 if the patent office provides and publishes a search report, and 0 if it does not.

3 Allotted period for an examination request

The presence of a request for examinationrequirement has a positive influence on the patent systems, as it allows for a self-selection process and reduces the number of examinations that are performed for patents that will not be used.



# Variable Rationale4 Post-grant

oppositionThe period during which third parties can file an opposition varies across countries included in the sample from 3 to 12 months after the final publication of the granted patent. The longer the post-grantopposition period, the higher the quality of the system

5 Grace period A grace period is a period during which the inventor is allowed to file a patent after thepublication of the invention. In the absence of a grace period, a published invention cannot be granted a patent because it fails to meet the novelty condition. A system with no grace period has a value of 1.

6 Hidden applications

1 if the applications are published after a period of maximum 18 months from thefiling date and there is no possibility to hide the application, and 0 otherwise


# Variable Rationale7 Adaptability As technology evolves, patent

owners try to adapt their claims to fit the latest design of their invention.Value of 1 if the system allows:- “patent of addition” (an accessory of an earlier patent

and expires at the same time as the original patent)- “continuation-in-part application” (repeating some

substantial portion or all of the earlier application and adding matter not disclosed in the earlier application)

Value of 0 otherwise.8 Incentives It is assumed that a higher ratio (a higher

budget per employee) translates into better incentives and, hence, into more motivated andexperienced examiners, and lower turnover

9 Workload If the workload per examiner is too high, it could have a negative impact on the quality of theexamination process, as examiners would be forced to perform their task faster

Office Index Office IndexHigh ranking South Korea 59.65

European Patent Office 100.00 Turkey 56.32UK 80.97 Malaysia 56.06Sweden 72.28 Medium low rankingNorway 72.08 Australia 53.55Denmark 71.90 Greece 53.05Finland 71.79 Germany 52.42

Medium high ranking Singapore 51.55Austria 67.84 Spain 51.15Poland 67.37 Brazil 47.89China 67.16 Thailand 47.84The Netherlands 65.23 Mexico 47.16France 63.88 Low rankingJapan 62.21 India 41.53Switzerland 61.88 United States 40.74Chile 61.56 South Africa 39.53Russia 61.16 Canada 39.45Colombia 59.77 New Zealand 35.46


The cross-country comparison reveals that the European Patent Office provides high quality examination.

Still, the European Patent System is a fragmented system with two implications:

(1) Prohibitive cost of patent protection in Europe

◦ In contrast to other large regional or national patent offices in the world, payment of national validation and renewal fees, and the translation requirements must be multiplied by the number of countries, where the applicant wants to have an effective protection.

◦ European patent is still at least five times more expensive than in the United States (van Pottelsberghe de la Potterie and Mejer 2009).

European Patent System

Comparison of costs


Cumulative cost of patenting and patent enforcement. Approximation of cumulative costs is based solely on procedural and renewal fees and does not include the cost of legal advice.EPO-6 stands for the patent validation in six EPC countries: France, Germany,Italy, The Netherlands, Switzerland and United Kingdom; EPO-13 stands for the validation in: EPO-6 and Austria, Belgium, Spain, Denmark, Finland, Ireland, Sweden.Source: Mejer and van Pottelsberghe de la Potterie (2011).

(2) Fragmented system of enforcing patent rights

Patent validity can be challenged independently at both the European and national level. Within 9 months following the decision to grant by the EPO, third parties can file an opposition to the grant before the EPO in order to revoke or amend a patent.

Once the patent is validated in a patent office, the national jurisdiction has the competence to decide on patent litigation cases (infringement and validity cases) with effect on their own territory.


Essentially, there are three different routes by which a patent application may reach the EPO:

EPO-direct filing routes◦ (1) national first filing, subsequently filed directly at the

EPO under the Paris Convention, with the vast majority of priorities filed in the home country of the applicant first,

◦ (2) EPO first filing - an application that claims no priority at any other office;

(3) Euro-PCT filing route◦ Applications under the Patent Cooperation Treaty (PCT)

administered by the WIPO entering the regional phase at the EPO



28%

10%

62%

In 2014 roughly a third of the filings came from the EPO member states and two-thirds from outside Europe. The analysis is based on the European patent filings (Direct European filings under the EPC) and international filings under the PCT)


The share of international filings under the Patent Cooperation Treaty (PCT) has increased significantly over the past five years.

In 2014, total filings at the EPO included close to 60 000 direct European filings under the European Patent Convention and 214 000 international filings under the PCT.


National first filing: The majority (95%) of applications in the 1980s reached the EPO as a subsequent filing to a national first filing. This share dropped very quickly during the course of the 1990s to a level below 50% and fell even further to about 28% recently

EPO-first filing: Rather small - but increasing -numbers and shares of applications entered the EPO system as a first filing. It has meanwhile increased well beyond the mark of 10% recently

Euro-PCT filing route: The patent upsurge in the second half of the 1990s was almost exclusively driven by an increase in the number of Euro-PCTapplications (around 62% of all filings)


Non-EPC members use Euro-PCT filings muchmore often than EPC member states◦ United States, Canada, United Kingdom, Finland, Sweden

and the Netherlands mostly prefer the Euro-PCT route◦ Euro-PCT, by now being the most frequently used filing

route to the EPO, is more often used by SMEs, individual inventors and especially applicants from academia

EPO first filing as well as national first filings are more frequently used by EPC members◦ Sweden and Switzerland

Large countries mostly claim national priority first, which can be explained by the fact that they have a larger domestic market.◦ Japanese and South Korean applicants prefer national

first filings subsequently transferred to the EPO under the Paris Convention


Euro-PCT filings have a higher grant rate than EPO first filing and national first filings. The information provided by the preliminary examination seems to be a benefit for applicants regarding the grant decision at EPO.

Euro-PCT applications are a tool for strategic patenting, also using the 30 month period in the PCT system as well as the PCT search report to gather additional information about own patent application


The cost to file an opposition before the EPO varies between €6,000 and €50,000 (including patent lawyers’ fees). However, in case of multiple litigations in national jurisdictions, the costs must be cumulated over the number of countries where litigation is initiated.


The United Kingdom is by far the most expensive jurisdiction among EPC member states. The cost is much higher than in the three other jurisdictions (France, the Netherlands and Germany), and is nearly as high as their cumulated costs.


In the early 1980s Epilady invented its famous device: a ‘hair remover for use on ladies legs’.

Once having been granted a European patent for its invention in 1986, Epiladysuccessfully marketed it in eleven EPCcontracting states. During the first 2 years of marketing and selling, Epiladysued 28 competitors who infringed its patented invention by producing one-to-one products and won in all cases.

In 1988, Remington entered the European market with Smooth and Silky, a device that performed exactly the same function as Epilady but with a slightly different mechanism (the former used a rotating helical spring system whereas Smooth and Silky used a rotating rubber bar with slits in it).


Within the same year it had filed an opposition at the EPO questioning the validity of Epilady’s patent.

In order to maintain its monopolistic position within Europe Epiladybrought a patent infringement action against Remington in Austria, Belgium, Germany, France, Italy, the Netherlands and the United Kingdom. Meanwhile, in 1991 the EPO upheld the Epilady patent.

Despite the harmonised laws on interpretations of the extent of protection granted through European patents, the subsequent rulings of the national courts on infringement differed across jurisdictions.


Courts in Austria, France and the United Kingdom judged that there was no infringement of the Epiladypatent, whereas courts in Belgium, Germany, Italy and the Netherlands ruled that

infringement took place.


20 January 2013: Entry into force of two EU regulations. They will only apply from the date of entry into force of the Agreement on a Unified Patent Court (UPC):

◦ Regulation (EU) No 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection

◦ Council Regulation (EU) No 1260/2012 of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation arrangements.

◦ Regulations (EU) No. 1257/2012 and (EU) No. 1260/2012 are now in force for 26 of the 28 EU member states (exceptions: Croatia and Spain).


The unitary patent is “a European patent with unitary effect”.

The unitary patent will co-exist with national patents and traditional (classical) European patents.

The Unified Patent Court (UPC) will be a court common to the Contracting Member States and thus part of their judicial system. It will have exclusive competence in respect of classical European patents and European patents with unitary effect.


Innovation

European Patent Office European

Patent Office

National Patent “Classical” EuropeanPatent

European Patent with a Unitary Effect

National Patent Office







We are witnessing a global patent warming, mainly due to strategic increase of patent filings.

Traditional economics of patents focuses on pros and cons of patent protection, whereas recent economic research examines the implications of internal working of patent offices.

Recent economic studies have also attempted to measure the quality of modern patent systems.

Significant heterogeneity is observed across countries. The EPO and the patent offices of the UK and several Nordic countries have the highest-quality metrics.

Over the years, the PCT system has become more and more prominent, with the number of Euro-PCT applications increasing over the whole time period.

National first filings, on the other hand, declined over time.

EPO first filings are still the most rarely used filing route to the EPO.

The European Patent System is a fragmented system with two implications: (1) prohibitively high cost of patent protection in Europe, and (2) (2) fragmented system of enforcing patent rights.

Recent legislative reforms towards unitary patent protection promise brighter days and lower costs for the European inventors and entrepreneurs.

de Saint-Georgesa, M. and B. Pottelsberghe de la Potterie (2013). “A quality index for patent systems.” Research Policy 42 (2013): 704–719.

Bessen, J. and Meurer, M. (2008) Patent Failure: How Judges, Bureaucrats and Lawyers put Innovators at Risk. Princeton, NJ: Princeton University Press.

van Pottelsberghe de la Potterie, B. (2011) The quality factor in patent systems. Industrial and Corporate Change 20: 1755–1793.

Mejer, M. and B. van Pottelsberghe de la Potterie (2011). Economic incongruities in the European patent system. Eur J Law Econ (2012) 34:215–234.

Eckert, A. and C. Langinier (2014). A survey of the economics of patent systems and procedures. Journal of Economic Surveys (2014) Vol. 28, No. 5, pp. 996–1015.

Frietsch, R., P. Neuhäusler, and O. Rothengatter (2013) Which road to take? Filing routes to the European Patent Office. World Patent Information 35 (2013) 8-19.

aleksandar stojkov, phd spring 2016

Documents