Much Ado About Patents

Oui, oui, pain au chocolat!
Maggie by Shawn Harquail
Is patent applicant behaviour rational?  What do validation rates in EPO patents tell us?  These and more questions were subject to economic scrutiny at this morning's CREATe and Queen Mary hosted workshop. Fuelled by pain-au-chocolate, your Katonomist enjoyed chilling with economic enthusiasts to discuss new developments in patent research and methodology.

First up was a team of researchers at Newcastle University using behavioural economics to analyse the decision making process of patent applicants.  Dr. Sven Fischer suggests that applicants may suffer from both an optimism bias and an overconfidence bias.  That is, patent applicants think they're less likely to suffer an negative outcome than they are, and overestimate their abilities. In a laboratory setting, Sven and colleagues are exploring this by creating a decision-making experiment.

Given the challenges of good data in IP, the use of behavioural economics is an exciting development. An experimental setting allows researchers to create a proxy to understand the dynamics in play.  In this case, data is collected on participants who are given a time-consuming task with a potential prize, and can chose when to quit. During the experiment, participants are given some but incomplete feedback on their performance. The process mimics a patent application.  Innovators engage in the costly (time and money) patent application, they don't know if they'll be successful, they then get some feedback (discussions with examiners) and may or may not receive the prize of a patent.
"I'm so going to win"
"No, I'm so going to win"

The researchers' preliminary results suggest the potential prize was enough of an incentive to encourage some participants to make 'bad decisions' -- they kept playing the game even though their choices were irrational.  These findings confirm patent applicants suffer from the cognitive biases of optimism and overconfidence.  Even if the patent application is poor quality, and applicants are given information indicating this, the applicant may proceed with the application when they shouldn't, particularly if they're optimistic. The researchers are also looking at levers that might impact behaviour, and how this could be applied in real life, which might help policy makers and lawyers better advise applicants.

Next up was work by a team at Queen Mary (including Antanina Garansvili and Dr. Georg von Graevenitz), who are looking at validation patterns in Europe. Leading into the Unitary Patent, there are some interesting questions on the interaction between national patents and EPO bundled patents.  Are these patents complements, substitutes or neither? (Do patentees get both national and EPO patents, one or the other, or some other combination?) We have very little understanding as to how these work together on a systematic basis. (We know similarly little about the relationship between national and community trade marks and designs.)

Georg credited IPKat posts (and here) by Blogmeister Emeritus Jeremy and guest Peter Arrowsmith, and readers' comments, for shaping the research questions.  The posts addressed UK firms' relatively low patent rates and queried whether this was evidence of clever patenting by UK firms or a poor level of patenting overall.  This research, which is providing in-depth statistical analysis of validation rates and national patents, looks at this further. So far, the researchers find that UK firms that patent at the EPO tend to validate fairly widely. Additionally, larger R&D intensive firms, relatively, seek a higher proportion of national protection,

Cats go up, cats go down
As IPKat readers will know, there are a lot of factors that determine patent strategies and whether to go a national or EPO route.  One such strategy is to seek national patent in a few large economies to address the largest markets.  This has an additional benefit that, by controlling the largest markets, the patent holder benefits from such an advantage from the economies of scale (costs decrease the bigger you are) that it provides de facto protection in smaller markets where the innovation is not patented.  In this case, a national patent could provide the advantages of a EPO patent but at a cheaper price.

The researcher's initial findings show that validation rates across the major EU economies (percentage of EPO patents validated in these countries) rose after 2002. It's a fairly marked increase and isn't accompanied by a corresponding decrease in patenting in national offices.  The researchers haven't been able to pinpoint the cause, but are keen to hear from readers if they've any ideas.

Overall, the research suggests that EPO and national patents are complements, and not substitutes.

Next steps
Both papers are using novel data to glean insights into patenting. The Katonomist hopes that this trend continues.  The research is on-going, so now would be your chance if you'd like to comment and help shape this work.
Much Ado About Patents Much Ado About Patents Reviewed by Nicola Searle on Thursday, April 14, 2016 Rating: 5


  1. There appear to be quite a few factors not taken into account, possibly skewing the results and conclusions. Let's list them, so that they may be considered in the future:

    - The value to an applicant is often not only in the prize (the final patent), but also in the process: the business uncertainty that this presents to competitors state during the grant procedure. Even if no prize is honestly expected, continuing has value.

    - The interests of the applicant are not what they appear to be. An applicant does not neccessarily aim for a rational business decision:eg
    a) The applicant may have an owner wishing to create IP right in order to sell the entire applicant-entity later at a better price.
    b) There may be tax advantages to be had which on their own are sufficient to give value to a patent
    c) there are (perceived) status effects to having a patent, both for the individuals as well as for the applicant-entity

    - Business interests are not constant. They change over time, and thereby the 'rationality' of pursuing a patent as well

  2. Often human competitiveness and pride come in the way of rational decision making. People don't amend their claims because they imagine they are in some sort of fight with the Examiner. They can't negotiate with opponents or patentees because they want to 'win'. That means resources are not used efficiently.

  3. "Efficient" use very much depends on the point of view of the person.

    Since, as people have noted, people can be mercurial and even subjectively inconsistent, there is a trap to be avoided by taking the word "efficient" to be some objective and fixed thing - maybe even to the point that hoping for some cold, calculated "efficiency" is the least human efficient thing to do.

    On the other hand, Adam Smith and the invisible hand might have an insight into "efficiency."

  4. Different businesses use the patent system in different ways, and not all of these are particularly bothered if no patent is eventually granted.

    When I was in industrial practice, some of the subsidiary businesses had a policy of filing patent applications related to their new products to discourage competitors from entering the market for as long as possible. They were primarily concerned with being able to say that their product was covered by a patent application, with the initial advantage of details of the application being kept secret for at least 18 months, and the subsequent uncertainty of what would actually get granted. They considered the cost of an abortive patent application to be money well spent. It could be very effective, as I discovered from other subsidiary companies who found themselves in the same position vis a vis applications filed by their competitors.

    Then there was the EP application that we had advised had a snowball's chance in hell of getting granted, but which I was instructed to take to appeal as it related to one of the directors' pet projects. There is also the practice in many bureaucratic organisations of the need to spend all your annual budget or risk having it cut the following year.

    The business conditions of some companies mean that it is only felt necessary to file in those countries where manufacturing takes place, or where the majority of their sales are made. I note from information on the IPO's website (Steering Board minutes dated 19/11/2014) that IBM, formerly one of the IPO's biggest single clients, had announced that it would no longer be filing patent applications in the UK: corporate policy was now to only file in the USA.

  5. Excellent post Ron - some fine examples of "non-efficient" but none the less very real - and important - drivers that just do not fit a "cold and calculating" non-people efficiency driver system.

  6. Dear all - this is great feedback, many thanks! I'll make sure the researchers see it.

  7. A couple of further points to ponder.

    The culture of an applicant's country or business environment can affect the prosecution process.

    When I was in industrial practice in the UK, the esteem in which the company's patent department was held (at any rate before a new bad management started to ignore the advice of its experienced professionals and ruined the company) meant that we had no qualms about telling it "how it was" to inventors or senior management of our subsidiary companies, in the knowledge that our advice would generally be heeded.

    In private practice, dealing with clients operating in a deferential environment, the usual situation was that the [lower status] inventor submitted his invention to [higher status] management, who instructed [lower than management but probably higher than inventor] local/in house patent attorney to draft patent and send instructions to [equally lower status] foreign associate {me}, generally with instructions to file "as is" without any detailed review: cost was often important. If we did happen to notice fundamental errors in the application (such as technical errors in the description or drawings: not an uncommon happening), there was little point in raising this with the instructing attorney, as he would be unable point out to his [higher status] management that [high status] management's instructions were defective. We had to wait until the [higher status than us] patent examiner raised objection, and then forward this [high status] communication, possibly accompanied by our advice on how it might be dealt with, back up the chain, before instructions on how to deal with it trickled back.

    It is worth mentioning that, even when I was in industrial practice, I sometimes found obscurities in cases that had been drafted by others (generally in applications that had been filed by companies that we had acquired) where the inventors had thought that the obscurities were down to the use of patentese rather than the drafting attorney's incomplete understanding of the invention.

    Then there was the urgent instruction from a US attorney to file what was clearly a business method. I did contact him (by telephone of course: the last thing US clients want is a disclosable paper record of anything contentious) to say it was unlikely to go anywhere, but he was only interested in my faxing him a copy of the filing receipt by return. I did not delve into why he was not interested in my view of its likely fate.

    While not directly relevant to actions taken by the applicant, a speaker at a lecture some years ago did relate that one company for which he had worked had a policy of objecting to competitors' patent applications even on very flimsy grounds. While most of them failed, the view was that tying up the competitors' senior management in defending the oppositions meant that the competitors had correspondingly less time to put into developing their businesses, and this more than compensated for the costs of the failed oppositions.

    I fear that academics and patent office personnel often have little experience of how industry actually uses patents in the real world. I mean no disrespect, but speak from personal experience, having been a UK patent examiner for more than a decade before crossing the fence. It was a real eye-opener seeing how patents and other IP were actually used in real life, such as negotiations and cross-licensing deals where only those involved would be aware of the details, as well as the importance of trade secrets as more appropriate means of protecting certain types of invention than patents. Academics etc. can hardly be blamed for their ignorance of such things.

  8. I often have clients who wish to prolong the proceedings as long as possible to maintain uncertainty for competitors. Further, coming from a large international prosecution firm, I have the impression that in light of the risk of the inescapable trap (Art 123 (2) and (3) EPC and potential personal liabilities we have a tendency to pursue claims that are safe rather than to pursue claims that go to (or beyond) what may be possible. In this respect, I do not think that we are "overconfident" but actually always assume the worst possible outcome.

  9. There is of course another factor to consider, namely "you have to be in it to win it". Sometimes (as with e.g. lotteries) the potential rewards of success encourage an applicant to continue irrespective of what look like unfavourable odds. And who (apart from an appellate body of a patent office or court) can say with absolute certainty that an application will not succeed?

  10. Economists might want to factor in to their deliberations that differences between jurisdictions are the explanation for applicant behaviour which, while rational in one jurisdiction, is irrational if repeated in another jurisdiction. I have in mind in particular the differences between the USA jurisdiction and the EPC jurisdiction.

    In Europe, the substantive law of the validity of patents is settled enough that patent attorneys of sound judgement can tell clients with a high degree of confidence what is patentable and what is not. Not so in the USA. So applicants in the USA will keep trying, endlessly, to "wear the Examiner down". It doesn't work like that at the EPO.

    In Europe, what the Patent Office issues has a presumption of validity, but nevertheless the petitioner for revocation has only to get above a "more likely than not" evidential standard to sweep the patent threat away. No court after grant gives any deference to the Patent Office decision to grant the patent. This reality tempers applicant enthusiasm to go on sinking costs in patent applications. Even if you get to issue, the patent will likely fail to stand up in court. And anyway, even if you assert the patent and win, you're only going to get compensatory damages.

    Otherwise in the USA, where if you can just get to issue, you have the prospect of zillions of damages dollars, with a patent that will likely withstand all attacks on its validity and so poses a huge intimidatory threat. We are talking about "hitting the jackpot".

    Now if those various considerations don't prompt different applicant behaviour between the respective jurisdictions, then applicants really are irrational.

    Publications like "The Economist" are briefed on patent behaviour inside the USA and then assume it's the same all over the world. CEO's read The Economist and perpetuate the error.

  11. The differences in Sovereign choices of law does NOT equate to any such canard of "wear the examiner down"

    That is pure poppycock.

  12. It is some years since I dealt with a US prosecution, but the only time I was able to "wear the examiner down" was one involving highly technical electronics where the first two examiners clearly hadn't understood either the invention or the prior art. During its protracted prosecution (which took place without having to file a continuation) two of the five actions were "final", both of which I was able to refute by pointing out serious flaws in the argumentation, and both of which resulted in the respective subsequent actions being issued by a different examiner.

    Client was not happy about the expense of so many official actions, but nothing could be done about that. At least there were no fees for continuation applications, and the third examiner did grant the patent with claims essentially in their "as filed" state.

  13. Perhaps the expression "wear the Examiner down" means different things to different people.

    What I have in mind is the practice of taking to issue what you can get out of the Examiner, then filing one continuing application after another to push the envelope of protective scope out, bit by bit incrementally wider, the process continuing all the way through to the end of the 20 year patent term.

    I think it was this practice, adopted by Applicants from the USA at the EPO, which was seen as a mischief at the EPO, and prompted the EPO to impose a cap on the time available for filing divisionals.

    At the EPO, the mischief has been stamped out. Not yet at the USPTO though.

  14. MaxDrei,

    The practice of continuations as you have amended to your definition of "wear the examiner down" STILL makes no sense whatsoever.

    It would be wiser that you simply did not use a term that does not fit, instead of trying to spin new "life" into an emotion laden term.

    What you see as "mischief" simply is NOT so - ANY continuation (not a continuation in part) still must flow from what shared on the original date of filing. We DO have a no new matter rule in the US - as I am more than sure you are aware of (because I have personally rubbed your nose in it).

  15. ...and as for the divisional practice in the EPO, but correct me if I am wrong, but was that (ill-fated) venture already terminated?

    How then was "the mischief [ ] stamped out over on your side of the pond?

    Or are you also using a different "definition" of "stamped out"...?

  16. Two fair points from US anon. In Europe, it was belatedly realised that the cap on time to file divisionals was misconceived, unnecessary and counter-productive. What always made it unnecessary: simple strict application of Art 123(2) and (3) EPC. Given such strictness, attorneys can confidently render a firm FTO opinion, based only on the WO publication and a good patentability search report, regardless how long is the cascade of EPO divisionals flowing from the PCT filing.

    Not so in the USA, because of its laxity on what constitutes "new matter".

  17. If that were true Maxdrei then explain the need for judgements such as

    Fujifilm Kyowa Biologics Co Ltd v Abbvie Biotechnology Ltd (Rev 1) [2016] EWHC 425 (Pat) (01 March 2016)

  18. To US anon

    I am not sure that the EPO can be said to have stamped down on the cascading divisionals issue. However, the scary cost of divisional applications filed at the EPO can be a powerful deterrent. The EPO has after many years just stirred itself to issue a partial search report on an EPO regional phase entry I am handling. If the client decides to prosecute the second invention as a divisional application, we are already looking at EPO fees approaching $8000.00, which I imagine will make many applicants cough.

  19. Questions to those last two anonymi:

    Fujifilm v Abbvie. I have a print. Which para am I to address?

    Partial search report: 1) since you have known all along that you were going to get one, and would have to file one or more divs, why did you not ask at the outset for PACE handling? 2) In how many EPC Member States will you be paying annuities after issue? Is it not better to pay one EPO annuity as long as possible rather than one, two or more (depending how many divs you file at the EPO) national annuity fees in up to 38 national Patent Offices? 3) Why does the owner need early issue? Normally its business interest lies in keeping the case pending at the EPO as long as possible, delaying a Rule 71(3) communication as long as possible. Have you explained all this to your client?

  20. I'm late on this conversation, but in terms of 'wearing the Examiner down' remember in the US that examination has a different philosophy to Europe. Each round of examination starts again when you file your RCE, and in theory Examiners should not mind looking at a new set of claims with new or the same arguments. You've paid for that privilege. In Europe we pay one examination fee and that is for sorting out that application, and so progress is needed by the applicant in one way or another.

  21. MaxDrei try from paragraph 56

    If there was no jurisdiction to grant Arrow declarations, then it would be impossible for parties who wished to clear the way for the launch of a product to do so, without facing years of commercial uncertainty posed by cascading divisionals pending before the EPO. This would be so even where a patent had already been revoked or abandoned in the jurisdiction of intended launch, as the patentee could seek to re-monopolise essentially the same subject matter by filing further divisionals

  22. This comment has been removed by a blog administrator.

  23. Being a slave to politeness is a disservice to the fleshing out of arguments.

    Yes, I "get" that my perspective, coming stateside is imbued with a greater tolerance because of our First Amendment disposition, but the lack of tolerance for impoliteness is in a way, every bit as impolite as the "offending" impoliteness itself.

    Food for thought: exactly why did US law develop its First Amendment protections? (hint: it had to do with law and controls).

    Be that as it may, this is your blog, and you are free to do what you will - even as here, it results in a less satisfying fleshing out of the discussion points.

  24. This is to the anon of last Friday. Thanks for your comment.

    the way I see it, you cannot avoid a degree of legal uncertainty through the life of the patent, because you can't go running to the Supreme Court for an answer, the minute you spot a possible infringement or a new line of validity attack. It is no criticism of a patent jurisdiction to point to such am irreducible minimum level of uncertainty.

    As to cascades, remember the stent cases, litigated in the Netherlands. Every time an EPO div got through to issue it was asserted in NL and opposed at the EPO by the accused infringer. after about four generations, the Dutch judge got fed up and threw the Plaintiff out of court, telling him to come back only when DG3 dismissed the opposition. That's the way to do it.


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