The Patent Examiner Sweepstakes

• Published date: 01 July 2023
• Author: W. Michael Schuster
• Date: 01 July 2023
• DOI: http://doi.org/10.1111/ablj.12233

American Business Law Journal

Volume 60, Issue 3, 599–650, Fall 2023

The Patent Examiner Sweepstakes

W. Michael Schuster, Associate Professor of Legal Studies*

This article presents evidence that patent value varies with random examiner

assignment at the U.S. Patent Office. Prior work analyzed firm growth as a func-

tion of review by “easy”examiners who grant patents at a high rate. The current

research looks past whether a patent is granted and instead focuses on how assign-

ment to an “easy”or “hard”examiner influences the attributes of resultant pat-

ents. Focusing on their propensities to reject applications on novelty or obviousness

grounds, analysis finds that patents issued by lenient examiners tend to be broader

in scope, are more valuable to their owners, and elicit a larger stock market

response when granted. Further analysis quantifies the level of variation (“noise”)

among examiners. This inquiry finds that the noise level in issuing novelty rejec-

tions decreases with examiner experience, while variation among examiners issuing

obviousness rejections actually increases with experience. A third line of investiga-

tion presents evidence that “stricter”examiners disproportionately reach the correct

examination relative to more lenient counterparts. This conclusion is supported by

“twin application”analysis comparing outcomes of related U.S. and European

applications. Consistent with the literature using this method, the European Patent

Office’s outcome is considered the “gold standard” for examination, and thus, its

decision to grant or deny is assumed correct.

INTRODUCTION

Business thrives in the presence of innovation, which the government

encouragesthroughthegrantofpatentrights.Theoretically,apatent’svalue

should be a function of the invention’s importance. However, this article pre-

sents significant evidence that the random assignment of patent applications

to particularly strict or lenient examiners at the U.S. Patent and Trademark

Office (USPTO) significantly influences downstream patent value.

©2023 The Author

American Business Law Journal published by Wiley Periodicals LLC on behalf of Academy of

Legal Studies in Business.

This is an open access article under the terms of the Creative Commons Attribution-

NonCommercial License, which permits use, distribution and reproduction in any medium,

provided the original work is properly cited and is not used for commercial purposes.

599

Prior research finds the likelihood of receiving a patent varies with the

strictness of a randomly assigned examiner.

1

That conclusion is impor-

tant to business, as firms that obtain a patent on their first application

are more likely to succeed in the future.

2

This article builds from that

literature by investigating whether, and in what manners, examiner

strictness influences the attributes of granted patents.

To begin, examiners are analyzed based on their propensity to reject

patent applications for failure to disclose a sufficiently innovative technol-

ogy (i.e., for lack of novelty

3

or for obviousness

4

). Using this data,

analysis finds that—controlling for other relevant variables—lenient

examiners are more likely to grant patents with broader scope and

higher value. The latter attribute is evidenced through the patentee’s

willingness to pay fees to maintain its patent rights, continued innovation

in the relevant field, and stock market response to the patent’s grant.

Beyond quantifying patent value as a function of examiner strictness,

the analysis addresses how differences among patent examiners create

“noise”(i.e., random variation in outcomes) in the patent system.

Implementing recent research from Kahneman et al.,

5

noise levels

regarding novelty and obviousness analyses during examination are

quantified. While the relative noise levels for these metrics do not appear

to differ significantly, the article finds some evidence that the amount of

variation in novelty determinations decreases as examiners become more

experienced while obviousness-related noise increases.

A final analysis asks whether examiner strictness or leniency correlates

with reaching correct decisions regarding whether to grant a patent.

Evidence provides support for the contention that disproportionately

strict examiners—regarding both novelty and obviousness—are more

1

Michael D. Frakes & Melissa F. Wasserman, Patent Trial and Appeal Board’s Consistency-

Enhancing Function, 104 IOWA L. REV. 2417, 2418 (2019) (“There is mounting empirical

evidence that these 8000 patent examiners have sharply divergent grant rates.”).

2

Joan Farre-Mensa, Deepak Hegde & Alexander Ljungqvist, What Is a Patent Worth?

Evidence from the U.S. Patent “Lottery,”75 J. FIN. 639, 641 (2020).

3

35 U.S.C. § 102.

4

35 U.S.C. § 103.

5

Daniel Kahneman, Andrew M. Rosenfield, Linnea Gandhi & Tom Blaser, Noise: How to

Overcome the High, Hidden Cost of Inconsistent Decision Making,94H

ARV.BUS.REV. 38,

38–46 (2016).

600 Vol. 60 / American Business Law Journal

likely to reach correct examination outcomes. This is true with regard to

both the decision to grant a patent or reject an application.

The final section addresses the importance of noise mitigation within

the legal environment. It begins by recognizing that while noise may

“average out”in the long run, its pervasiveness undermines faith in the

patent system and hinders marketplace efficiency by misallocating value

to undeserving firms. The sources of this noise can, however, be identi-

fied through “noise audits”used to identify specific aspects of patent

examination that exhibit disproportionate levels of variation. The article

closes by identifying means to mitigate these specific causes of noise,

including the potential use of technological solutions such as artificial

intelligence to standardize patent examination and its downstream

effects.

I. PATENT LAW

This section introduces the patent examination process with a particular

emphasis on the requirement that a patentable invention be novel and

not an obvious variation of known technologies. This sets the stage for a

discussion of how examiners at the USPTO vary in their application of

these requirements. The second part of this section discusses the means

by which these variations introduce noise into the patent system and the

different forms this noise may take. Later parts address how this noise

influences the legal environment of business.

A. The Examination Process

The process of securing a patent from the USPTO is called

“prosecution,”and it begins with the filing of a patent application. The

application is assigned to an USPTO examination unit that specializes in

reviewing submissions from a particular technological field. Once there,

the application is randomly allocated to one of the unit’s patent exam-

iners who reviews it for compliance with a series of substantive and pro-

cedural requirements.

6

If the examiner finds no faults with the

application, they will issue a notice of allowance and the patent is

6

Qiang Lu, Amanda Myers & Scott Beliveau, USPTO Patent Prosecution Research Data:

Unlocking Office Action Traits 4 (USPTO, Econ. Working Paper No. 2017–10, 2017), https://

papers.ssrn.com/sol3/papers.cfm?abstract_id=3024621; Ronald J. Mann, The Idiosyncrasy of

Patent Examiners: Effects of Experience and Attrition,92T

EX.L.REV. 2149, 2159 (2014).

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