Patents.

• Author: Lanjouw, Jean O.
• Position: Research Summaries

The past twenty years have seen very significant changes in U.S. patent law and policy, strengthening the rights of inventors and significantly expanding those rights across the globe. The United States has broadened areas in which patents can be received, notably software, genetic information, and business methods; has instituted a new unified Court of Appeals for the Federal Circuit to hear appeals on patent cases from all district courts; and has given universities and government laboratories the right to patent and license the output of publicly-funded research. Bilateral negotiations and, more recently, international treaties also have led other countries to revise their patent systems. In particular, NAFTA and the intellectual property component of the treaty establishing the World Trade Organization WTO - (known as TRIPS) extensively harmonized and extended patent rights internationally. Jaffe discusses these changes and surveys related empirical studies. (1)

The domestic patent reforms have been driven by the emergence of new areas of research and commerce, and by the view that a healthy knowledge-based economy requires strong protection of intellectual property (IP). At the same time, however, serious concerns have arisen. My work on the patent system as an institution has focused on two such areas of concern. The first is the large and growing costs associated with litigating patent rights. The second is the extension of patent rights on pharmaceuticals to countries in the developing world where drug access is already limited by extreme poverty.

Patent Enforcement

Dealing with patent disputes is part of business life for most firms, but it is not a phenomenon well understood by economists. Josh Lerner and I (2) have provided a survey of the small body of empirical research on patent litigation that was available in the mid-1990s (3). In a set of papers (4) Mark Schankerman and I provide an empirical basis for evaluating what has happened in patent litigation and its implications for R and D incentives and patent policy. We study the determinants of patent suits and settlements during 1978-99 by linking detailed information from the U.S. patent office, the federal courts, and industry sources. In order to characterize litigation risk, we start from a set of almost 10,000 litigated patents and then draw a matching random set from the universe of patents, controlling for technology and year of application. This very comprehensive database reveals that, contrary to popular perception, the incidence of patent suits has not been rising once one controls for the rapid increas e in patenting itself and a shift toward more litigious technology areas. However, we also show that litigation is concentrated and primarily involves firms and patents with particular characteristics. For example, the risk that a given patent is subject to a suit is much higher if it is owned by an individual or a small firm than if it is owned by a corporation. Patentees with a large portfolio of patents to trade, or other characteristics that facilitate "cooperative" resolution of disputes, are less likely to litigate. At the same time, post-suit outcomes -- such as whether a case goes to trial and who wins -- do not depend on these characteristics. Thus, small patentees appear to be at a disadvantage in enforcing their patent rights in that their greater litigation risk is not offset by a more rapid resolution of their suits. Both the benefits of patent portfolio and company size in settling disputes, and the heterogeneity in litigation risk, point to the...