From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Wednesday, 2 September 2015

Point: The Economist is Infallible - Patents need to be questioned

In good, old high-school debate style, Neil and I are doing a point-counterpoint.  The dividing line? This Economist article from August 8th. The article kicks off with the fundamental economic question for IP - how does it incentivise innovation? Pointing to a number of shortcomings in patents in agriculture and pharmaceuticals, The Economist concludes that patents don’t.  It’s a strong opening and a good one.  If the political justification for a patent system is based on growth and innovation, then the patent system should be held accountable to its impact on these areas.

This is in contrast to the magazine's historical views; the article article notes the magazine’s support for the abolition of the UK patent system in the 19th century. The Economist is not immune to flip-flopping (e.g. flip-flops on African economies). TechDirt finds flip-flops on patents in the last five years. In 2015, The Economist is arguing in favour of patent policy reform with higher thresholds for patentability and shorter terms in what they call a "rough-and-ready" system. 

It's a kind of magic
The Economist also questions the romantic ideal of the lone inventor.  As most innovation is cumulative, the limitations of the patent system's ability to adequately reward multiple innovators is a fair criticism. (See my previous post.) The same TechDirt article argues that here The Economist inappropriately adds "feelings" to the argument.  I disagree with TechDirt; the rhetoric surrounding patents has long evoked emotive case studies where lone inventors, patients with neglected diseases, etc. 'suffer.'  

One phrase in The Economist's article that will no doubt raise the hackles of IPKat readers is, “patent lawyers are masters of obfuscation.” It's a hyperbole, but not completely off the mark. The crafting of a patent claim could be construed as a magic trick. Claims have the illusion of being very specific and are anything but.  However, the charge of obfuscation could equally be levied at economist's penchant for bewitching with numbers.

I question the suggestion that, “under-resourced patent officers will always struggle against well heeled patent lawyers.”  It is unclear who “patent officers” are, but it should not be patent examiners.  It is politicians and policy officials who struggle against heavily-funded lobbying (and sometimes between themselves.) As is always the case with lobbying, it is those that stand to lose or gain the most that lobby the hardest.  In recent patent memory, this has been well-funded patent owners and less well-funded users of patents.

The Economist calls for adjusting key policy levers: introducing a use-it-or-lose-it test, increasing the ease of challenging an existing patent, lowering the bar for invalidity, increasing the non-obviousness requirement and shortening patent term.  All very sensible from the econ-centric perspective, she said blithely (far too much to unbundle in a blog post), but exactly how to put in practice is another matter. 

Kats going haywire
While this clear, rough-and-ready system will have some losers, it is likely the most efficient.  The more complex a system, the more it increases transaction costs such as legal costs.  A system tailored to each case is impossible and inefficient, the one-size-fits-all is an economically efficient solution.  That is not to say that the distribution of the costs and benefits does not matter, but there is a balance to be struck between an efficient system and one that can adapt to the unique characteristics of the economy. Indeed, The Economist calls for shorter terms in fast moving tech areas.  A tricky task, possibly on a slippery slope, and a reason we have such debates.

Overall the question has always been how to strike the right balance between the interests of private innovators and society.  And that is what this article is fundamentally about – questioning whether we have that balance right.

N.B. There is a second article in The Economist on patents, of which IPWatchdog was not a fan. This post focuses on the Op-Ed "Time to Fix Patents."

P.S. A Kat-pat to my personal IP-economics clipping service (a.k.a. D.A.D.) for alerting me to the article while I was distracted by beaches. 
P.P.S. At my favourite conference, EPIP in Glasgow this week.  Looking forward to updating IPKat readers on all things hot and economics.    


Anonymous said...

In truth, though, how much policy freedom do governments have to overhaul their own patents system, given their various treaty obligations? My (received) understanding was always that patents reform was hard to achieve at a governmental level because to change anything but minor aspects of the system would require consensus at international / supranational level.

Séamus Awl said...

With regard to the infallibility of The Economist, I like the comment of a US commentator to the effect "The magazine is written by young people pretending to be old people...If American readers got a look at the pimply complexions of their economic gurus, they would cancel their subscriptions in droves". Having said that, as a patent attorney of some years' standing (sitting and full prostration) I found the recent article very interesting and thought-provoking, regardless of whether or not you agreed with it. It was certainly worthy of more consideration than the even more bizarre rantings characteristic of IP Watchdog. If it stimulates some soul-searching on the subject (it still does have one to be searched, I hope) as to the proper place of patents in the promotion of innovation. It undoubtedly has one, but what is it, and in combination with what else?

Meldrew said...

Séamus Awl (I love the nom de chat)

Perhaps the pimply complexions of Economist writers is why CIPA's response referring to "teenage scribblers" did not get published in the print edition?

Séamus Awl said...

Thanks, Meldrew, hadn't seen that CIPA had commented. You might be right - as they'd say in the other bit of this island, they're a quare geg (translation: they're very funny - "they" say (and do) all sorts of odd things up there...). However, there is indeed a completely different side to the whole story, with some serious artillery - such as Nobel Economics laureate Prof. Stiglitz (see his amicus brief on the Myriad case before the US Supreme Court). Indeed, the whole academic economics profession seems to have a distinctly anti-patent tinge, which "The Economist" simply echoes. So, who's right? Or is there even a right? Or does the answer lie somewhere in the middle?

Meldrew said...

Séamus Awl -

"Academic eminence, influence, and utility constitute orthogonal variables".
Let the economists discuss: it will be interesting to see if they ever come to a conclusion.

The possession of a Nobel Laureate does not preclude foolish statements.

It is strange that someone who got a Nobel prize for an analysis of markets with asymmetric information ignores the ultimate informational asymmetry - TIME.

Looking backwards it is easy to see which inventions were important and should have been the centre of attention. Looking forwards all is fog.

There seems to be an assumption among academics that unused IP represents some holding back of wealth from the world and a brake on development. Utter bollocks. Most patent applications cover useless or low value technology: and if you could divine in advance which were the useless ones and which the valuable ones you could make a packet. If someone wants to do something that is covered by a valid patent, that indicates that something of value has been provided to the world, and that deserves reward.

The key thing is, without some chance of return who will invest?

It appears to me that the anti-patent mob have not got to grips with the thoughts that:-
- in the absence of patents market power will rule and the biggest will get bigger by stealing the labour and innovation of the smaller;
- in the absence of patents the inventive will keep their mouths shut depriving society of their invention;
- not everybody is as loudmouthed as academics.

In short, even the brilliant are sometimes brilliantly wrong.

Ron said...

I recall several episodes of "Dragons Den" where the "Dragons" (investors) declined to invest because no sort of IPR had been obtained to protect the business's innovative features.

Anonymous said...

The whole sentence should have been quoted:

"Patents are supposed to spread knowledge, by obliging holders to lay out their innovation for all to see; they often fail, because patent-lawyers are masters of obfuscation."

This is simple claptrap, so need to discuss further. Of course, is some evidence is provided by the ignorant authors, I'll reconsider.

MaxDrei said...

That last comment echoes the attitude in the USA. No patent? No investors.

Contrast that with the view of a speaker I heard at a CIPA Meeting a few years ago. A venture capitalist with a physics degree and a nose for investments in software. He conceded that patent applications, solid ones, are vital in chem/bio (not his field though). In software, most investors suppose that patents are just as important but they are not. Rather, their function is as a "Comfort Blanket" in which the teenage scribbling investors can swaddle themselves. Much more important, for that VC guy, were other factors associated with the management of the Start-Up enterprise needing funds to grow the business.

THE US anon said...


Your view is not complete, and exhibits a fallacy often pointed out. The fallacy is the view that the patent system is ONLY a "but for" system.

"But for" having a patent system, the invention would not be undertaken....

But the response that removes the fallacy is that "but for" is only one of the reasons for a patent system. Sure, the "but for" can and does apply. But it is simply NOT correct to think that such is the only reason for a patent system.

Embarking then on building a tower after constructing such a "straw" foundation only means that your tower is going to crash.

As to your comments on "Comfort Blanket" for software patents, the implication seems apparent that you do not think such is a proper consideration for patents. I am aware of NO source that validates that implication. Quite in fact, there is NO need to even use those terms or draw that comparison. What purpose then do you use such terms?

To reiterate the, the supposed "attitude in the USA" is in fact not the prevailing one. Patent systems exist for more than just the "but for" types of innovation.

The analogy of this I do hope that you remember: patent systems are not meant to be street systems, but rather parking lots.

Nicola said...

The discussion here picks up on the wider discussion of critiques of patents and IP as a whole. I would characterise economic analysis of patents not as anti-patent, but pro-innovation. (This pro-innovation approach is not unique to academic economists; economists in government, lobbying and consultancies have a similar starting point.) Economic analysis of IP does, and should, question the status quo.

Perhaps a stronger critique of economic analysis of IP is questioning whether framing IP as fundamentally an incentive to innovate is appropriate.

Seamus Awl - I disagree with your critique of The Economist as having pimply writers. Attack the message, not the messenger; age is irrelevant.

Agatha said...

In terms of flip-flopping, now that China is filing more patents than anyone else, and will presumably shortly be doing that in US and Europe, then there's going to be re-think amongst those who write patent legislation about how strong we want patent protection to be. The Economist is merely preparing preparing us for changes to patent laws that will need to happen as China does more and more of the world's R&D.

MaxDrei said...

Agatha's point. A good one I think. We in Europe have been used to it, for decades, that more than half of all the filings at the EPO are made by entities from outside Europe. But what in other jurisdictions?

Well, in Japan and China, domestic filings still make up the large majority. But the movers and shakers in the media and on the top floor are starting now to notice that in the USPTO the proportion of utility patent filings that originate with aliens is over 50% and still growing.

How to react? The Economist is telling us.

Meldrew said...

China and Japan cannot be put in the same box, they have different engagements with the rest of the world. Japan is becoming more outward looking while China is self-obsessed.

It will be interesting to see whether Chinese patent filings do translate into a tsunami of applications overwhelming patent office elsewhere, but so far we have seen just a ripple. See <a href=">my analysis</a> of last year.

It appears that in China patents are being filed for non-traditional reasons including:-
- Government dictat
- To get favourable tax treatment
- To be able to show customs your products are your technology and not counterfeit
- In the vague feeling that ownership of a patent gives a right to exercise

All of which leads to an inflated demand for domestic patenting.

While in the early years patent examination was haphazard in China, it is now excellent, but even so a business practicing in China faces many hazards, including the utility model system. When will China decide that they are "over-patented"?

THE US anon said...

Nicola's "pro-innovation" is not.

What it is is an attempt to control the narrative.

More patents all the time.
Stronger patents all the time.

THAT is the path to innovation.

And of course, I do mean patents that have met the law and meet the Quid Pro Quo. It is without question then, that once that exchange has been met, BOTH sides benefit, and more of this can only be good.

It is only with the attempted change of Quid Pro Quo that the "more is good" can even be questioned. But that comes only from controlling the narrative and changing the proven success of that exchange.

No thank you.

Agatha said...

Meldrew, I think the Chinese want to develop a fully functional patent litigation system, and so in the present phase of their development they want Chinese companies to engage in attacking and defending patent rights in litigation at home as preparation for doing so in other territories, mostly importantly in the US. At least that is what this article implies:

MaxDrei said...

Would Meldrew care to comment on "over-patenting" in Europe? I have in mind the balance between potency and ease of acquisition of design patent rights in the EU. Europe's politicians supposed, when they set the system up, that domestic filers would far outnumber those from outside Europe. How long before these politicians in Brussels come to realise that the heavy filers are increasingly from outside Europe?

Is there a tendency within the dominant economy in a region to "over-patent"? Germany (patentee-friendly, Gebrauchsmuster law) in the region called Europe? The USA in the Americas? And, in Asia, the PRC? Is retreat from over-patenting a sign that economic dominance is slipping?

THE US anon said...

The entreaties to "but look at the mix of domestic and foreign filers" appears to be nothing but xenophobic attempts to control the narrative.

Let's bring this out of the zone of FUD and back to the basics: Quid Pro Quo.

Once that is reached, it really just does not matter WHO owns the right.

For example, here in the States, our patent system was expressly built to be agnostic as to the "who" and geared the patent right to be a fully and freely alienable property right. It simply does NOT matter that "more foreigners" are using the system. The only nexus of that thought being put forth is the emotive "fear" associated with the idea itself.

All we have to fear, is fear itself.

Innovation will take care of itself. Perhaps what is missing from those putting forth that "fear factor" is that realization that a patent does NOT stop innovation itself. A patent that blocks is in fact a good thing, as it stirs the creative juices and prompts even more innovation.

Sadly, only too sadly, this critical thinking is lacking in conversation (and even more sadly, when those conversations are being put forth by the U.S. judiciary as a type of support for their own philosophical law-writing from the bench).

Agatha said...

US Anon, if by law-writing from the bench you are referring to Mayo, Myriad and Alice, then you must see that the Supreme Court has a potentially very valid point in cutting back patent rights for natural product based, business method and software inventions. The building blocks of innovation should be free for all to use. Congress has shown no appetite or ability to tackle this issue and so the Supreme Court has had to.

THE US anon said...

My dear Agatha, on what constitutional (US Constitution) basis does the Judiciary have authority to write law?

Of course, that is a trick question - they expressly do not have that authority.

Just because Congress does not, does not empower a different branch here to "pick up the slack." That is simply not how our Rule of Law is supposed to work.

The whole notion of "building blocks of innovation" SHOULD be free is quite frankly nothing more than buzzwords. What exactly is a "building block?" How many are there? Who decides? Why? Under what authority?

Meldrew said...


Thank you. That is an interesting article. I mentioned “government dictat” as being one reason for high filing in China, but had been thinking of this more on the lines of promotion of an innovation/patenting economy. It appears to me that a positive plan to roll out patents across the world is a plan that does not need to be made. It will just happen. The U.S. is the biggest originator of foreign patents not because of government dictat, but for business reasons. As more Chinese companies find China too small for their ambitions, the more will file outside China. The slow down in Chinese growth may be just the spur that will cause more to look abroad.

As for a functioning patent litigation system, China has one, and a busy one. According to SIPO “In 2014, the courts all over China received 95,522 intellectual property civil cases, and 94,501 cases of them were concluded, respectively up 7.83% and 7.04%. and ”According to the latest data of China's SIPO, in 2014, the total number of cases solved through patent administrative enforcement was 24,479, representing a year-on-year increase of 50.9%. The social satisfaction rate on patent protection has been further promoted.” This is mostly Chinese companies suing Chinese companies – very satisfying.

Max Drei,

In like vein, German companies like suing German companies, partly because it is the biggest EU market, but mostly due to the patentee-biased bifurcated litigation system and the high number of patents and utility models in force there. This encourages a lot of proactive patent challenges, which is why most European oppositions are German companies opposing German companies. See my post of a couple of years ago.

Your point on the ridiculous ease of getting EU designs is well taken, but so far EU designs are primarily filed by EU applicants. The unitary patent will be an interesting addition to the patent landscape and will almost certainly be widely used by non-EU patentees.

There is a simple reason why big economies have a lot of patents – each patent in a big country is worth more than a patent in a small country so there is more justification in getting one. The correlation of GDP with patent numbers is pretty good. So we may get more patents in Europe, which may drive litigation up, but signs are the evils of bifurcation will not dominate.

[Sorry for quoting two of my own posts, but worriting at the effect of the unitary patent is one of my current favourite pastimes – sad isn’t it].

U.S. Anon

“For example, here in the States, our patent system was expressly built to be agnostic as to the "who" and geared the patent right to be a fully and freely alienable property right”

Really? Hilmer? How soon we are forgotten.

THE US anon said...

The Hilmer doctrine is inapposite to the points under consideration here.

Look again at what that doctrine portended - look again at what I have stated as to property rights (not the inchoate, and merely filed applications).

I have not forgotten what was never real, which to be direct, was the misperception that so often accompanies the Hilmer doctrine.

Anonymous said...

Notwithstanding that last comment it is still interesting to compare how 35USC102 has changed with the AIA. No more Hilmer discrimination against foreigners. Instead, WO publications in Chinese available for both novelty and obviousness attacks as of the priority they declare, and regardless whether they enter the US national phase. Could anything be further from the Hilmer Doctrine?

Garfield said...

The Hilmer doctrine: "All inventions are equal but some inventions are more equal than others."

Meldrew said...

U.S. Anon


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