Are patent fees effective at weeding out low‐quality patents?

• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: http://doi.org/10.1111/jems.12219

Received: 19 January 2015 Revised: 29 July 2017 Accepted: 2 August 2017

DOI: 10.1111/jems.12219

ORIGINAL ARTICLE

Are patent fees effective at weeding out low-quality patents?

Gaétan de Rassenfosse1Adam B. Jaffe2

1École polytechniquefédérale de Lausanne

(EPFL), Chair of Innovationand IP Policy,

College of Management of Technology,

Odyssea, Station 5, 1015, Lausanne,

Switzerland (Email: gaetan.

derassenfosse@epfl.ch)

2Motu Economic and Public Policy Research,

Queensland Universityof Technologyand

Brandeis University,Level 1, 97 Cuba Street,

PO Box 24390, Wellington,6142, New

Zealand (Email: adam.jaffe@motu.org.nz)

Abstract

The paper investigates whether patent feesare an effective mechanism to deter the fil-

ing of low-quality patent applications. The study analyzes the effect on patent quality

of the Patent Law Amendment Act of 1982, which resulted in a substantial increase

in patenting fees at the U.S. Patent and Trademark Office. Results from a series of

difference-in-differences regressions suggest that the increase in fees led to a weed-

ing out of low-quality patents. About 10% of patents in the lowest quality decile were

filtered out, with the effect concentrated in the patents of firms whose overall patent

portfolio was medium to large (more than 20 patents). The study has strong policy

implications in the current context of concerns about declines in patent quality.

1INTRODUCTION

There is much current concern among both scholars and the business press that the issuance of large numbers of low-quality

patents is increasing litigation costs and harming innovation incentives (e.g., Barton, 2000; Bessen & Meurer, 2008; Feld-

man, 2014; The Economist, 2015). Concerns about low-quality patents are particularly acute in the United States and China

(Giacopello, 2012; Liang 2012) but the issue is very much a global one. Data by the Organisation for Economic Co-operation

and Development suggestt hat patent qualityhas declined in t he 2000s compared to the 1990s in all advanced economies (OECD,

2011, p. 190). The main patent offices around the world acknowledge the importance of delivering high-quality patents and are

committed to improving quality standards.1

A potential decline in patent quality raises several interrelated policy concerns. First, the basic welfare tradeoff inherent in

patents—incentives to innovate and reveal information balanced against static and dynamic monopoly distortions—is prob-

lematic when monopoly is granted for nonnovel or obvious inventions. It might seem that the harm from such patents is lim-

ited by the likelihood that they are invalid and hence unenforceable, but Lemley and Shapiro (2005) point out that patents

are seldom (in)valid with certainty. This creates a deadweight loss and distorts ex ante incentives to engage in research

(Farrell & Shapiro, 2008). Bessen and Meurer (2008, p. 145) argue along these lines that the patent system has turned from

a source of net subsidy to research and development (R&D) to a net tax. Second, as patents become easier to obtain, the patent-

ing of marginal inventions increases, which may lead to a fragmentation of intellectual property (IP) rights. Fragmentation

significantly raises the cost of access to and use of knowledge and may ultimately lower R&D investment (Heller & Eisenberg,

1998). This loss is exacerbated by the cumulative process that is prominent in complextechnology industries (Bessen & Maskin,

2009; Hunt, 2006). Finally, the decrease in patent quality creates self-reinforcingoperational challenges to patent offices. A per-

ception that marginal applications are likely to be successful encourages more such applications; the resulting increase in the

rate of application strains examination resources, likely resulting in continued decline in quality—if the patent office does a

rush job to maintain reasonable levels of backlog and pendency (Caillaud & Duchêne, 2011; van Pottelsberghe de la Potterie,

2011).

Most fixes forthe quality problem, such as more rigorous examination, or implementing additional options for postgrant review

of examiner decisions, require increased resources devoted to maintenance of quality. But the interactions among application

decision, the resource cost of examination, and patent quality suggest that reduction in the incentive to apply for low-quality

patents through an appropriate fee schedule might significantly reduce the social cost of achieving the desired level of patent

134 © 2017 Wiley Periodicals, Inc. J Econ Manage Strat. 2018;27:134–148.wileyonlinelibrary.com/journal/jems