A colleague and good friend, Bruno van Pottelsberghe de la Potterie, former chief economist of the EPO and currently Dean and Professor in the Chair of Technological Innovation at the Solvay Brussels School of Economics and Management in Belgium, as well as a Senior Fellow at the European think tank – Bruegel, has been quite prolific in authoring publications on the topic of patent quality and its economic impact and correlation to innovative activity, as affirmed by reviewing his Google Scholar publication listing and citations. His most recent book, published in 2009, is Lost Property: The European patent system and why it doesn’t work.
Bruno has kindly agreed to allow us to present here a “recontextualized” review of his authored work on patent quality in the context of the tenets of the FPIP Strategy Academy to assess the IP strategy and positioning of business enterprises, and explore best-of-breed practices in IP management. The analysis is rich in its breadth and depth, drawing on an empirical dataset that includes more than 250,000 EPO patent grants, as well as patent-filing, -allowance, and -examiner statistics for the USPTO and JPO.
While Bruno’s work mainly looks at the economic jigsaw puzzle from the perspective of national patent offices, it is obvious that its counterpart – the greater business landscape of innovative industrial activity – is symbiotically linked to the evolving structure of patent regimes worldwide and the proliferation of patent litigation. In discussing the quality-quantity tradeoff in IP, and the brain trust of intellectual-property strategists far and wide, we will emphasize this relation, and probe its dynamics, wherever possible.
In the following exposition, secondary references within the articles published by Bruno have been omitted in order to maintain flow and cogency. A bibliographic listing of the primary articles used in this review appears at the end. Other primary references are clearly indicated in the discussion.
The express views of FlashPoint IP are pointed out in the text as best as can be; however, some ideas and opinions might be intimately entwined with the analytical rigor of the studies that support them. For this, along with Bruno’s consent, we take creative liberty in the article’s assemblage in order to provide an engaging discourse that is hopefully convincing in its assertions, while perhaps provocative in its tenacity.
In trying to apply meaningful metrics to different patent indices in order to benchmark various intellectual property regimes, the term “strong patent” is commonly used, with the definition tending to equate “strong patent systems” as those that are essentially “applicant friendly.” The criteria to assess are mainly the number of patentable subject matters (with fewer restrictions being synonymous with stronger), duration, and enforcement mechanisms (provisions for protection loss are viewed as weaknesses, while preliminary injunctions, contributory infringement, and burden-of-proof reversal are seen as strengths).
According to van Pottelsberghe, such a “strong” qualifier may be a misnomer when evaluating a patent regime because more domains can be patentable for longer, in more countries, and with greater legal power. Thus, the annotation should more aptly be applicant friendly, reflecting the patent process from the other side of the prism – that is, from the viewpoint of the patentee or applicant and associated IP strategy. Thus, policies viewed as strengthening rights may in fact weaken them by lowering the bar for patent grant.
It has been suggested that more stringent selection criteria would create longer incumbency (because it takes longer to perform more ambitious innovative projects), thereby raising innovation. Studies on the effects of patent races in a standard-setting environment have shown that patent litigation threats contribute to reducing the propensity to file low-quality applications, while they also hinder the production of strong patents. Narrowing the patent-filtering process is one way of reducing such negative side effects. Moreover, determining patent validity prior to licensing has been shown to be socially beneficial.
Patent-flooding practices, whereby applicants file many similar patents at once, can skew quality assessments due to a high probability that such patents will be allocated to different examining units, and to examiners with heterogeneous skills and varying experience. The net effect is that grant of only one patent out of 10 would be seen as a 100 percent grant rate by the applicant, despite the fact that the “official” grant rate would be 10 percent.
The possibility of “hiding” patents (or claims), through strategic continuation practice as part of an overall IP strategy, introduces uncertainty into the system for intellectual-property rights, especially for entrepreneurs who are active in a technological area covered by hidden claims. In most countries, patent applications are kept secret (unpublished) for 18 months from the date of first filing, after which the patent application is automatically published.
In contrast, the USPTO only automatically publishes patent applications for international markets (under the PCT route) after 18 months. Domestic applications targeting the US market alone can be kept secret during the entire examination process, and be published only if and when patents are granted. In van Pottelsberghe’s view, such an applicant-friendly specificity undermines the US patent system, as it encourages “submarine” strategies that consist of keeping a patent pending (and hence unpublished) until a patent is granted, and then enforcing it immediately through patent litigation.
In Europe, almost all applications are published 18 months after their priority date. It is only possible to hide an application if it is refused by an examiner or withdrawn by the applicant before the official publication date. In Japan, all applications are published 18 months after the application date.
Regarding the US patent system, it has been hypothesized that a vicious cycle exists in which a low-quality examination process leads to the filing of more low-quality applications, which in turn further reduces the examination quality because examiners become overloaded. Such a vicious-cycle hypothesis might also help explain the observed structural differences among the three major patent offices (USPTO, EPO, and JPO); that is, different patent system designs might lead to different outcomes in terms of backlog and patent propensity.
The emergence of the dubiously-named patent troll or Non-Practicing Entity (NPE) as an efficient patent aggregator has reinforced belief in the Patent Portfolio Theory proposed by Wagner and Parchomovsky that creating a strong patent portfolio has synergistic benefits with regard to valuation within the IP strategy beyond the patentable inventions themselves per se. This has led to a progressive shift from patent strategies to patent-portfolio strategies in which patentees no longer rely on a single patent to protect an invention, but rather build a set of intellectual-property rights with a keen eye toward patent litigation. The size and strength of the patent portfolio therefore matters more than the quality of each individual patent.
This change in reliance on, and use of, the patent system has contributed to the well-known surge in patent filings around the world, and has given rise to new schemes in constructing patent filings. In particular, applicants increasingly split national priority filings into a set of applications with a common root that they file or extend to the EPO, and conversely merge several national priority filings to form one single EPO application. EP equivalents (EP filings having at least one priority in common) may potentially contribute to the creation of a patent thicket, defined by Shapiro as “a dense web of overlapping intellectual-property rights that a company must hack its way through in order to actually commercialize a new technology.”