European Policy for Intellectual Property (EPIP) Conference 2008

OCTOBER 6, 2008

Last Friday and Saturday I was at the 2008 European Policy for Intellectual Property (EPIP) conference, held this year in Bern. I presented my paper on the optimal term of copyright and discussed a paper of Luca Spinesi’s on ‘Imperfect IPR enforcement, inequality, and growth’. Below can be found ‘impressionistic’ notes from some of the other sessions I had a chance to attend.

Jim Bessen: How can and how should economics inform patent policy?

  • What is aim of ‘Property Rights’
  • Look at example of tradable permits for pollution
    1. Do institutions do their jobs
    2. Resources (is air cleaner)
    3. Social welfare
  • For patent system, thanks to recent work, first two are within our reach (though not within our grasp)
  • Institutions. Want:
    1. Specificity
    2. Searchability
    3. Predictability
    4. Transactability
    5. Enforceability
  • Patent system is not doing so well
    1. Specify: reasonable but lots of debate about what claims mean (40% overturn rate on appeal of district court decision re. claim construction)
    2. Search: pretty poor (esp. in ICT). Many firms do not bother to search.
    3. Predictability: low (e.g. no defense insurance)
    4. Transact: can be anti-commons
    5. Enforce: pretty unpredictable
  • Resources (Innovation)
    • Patent system is not doing so well due to overlapping claim (pooling problem)
    • Fuzzy boundaries: dispute costs
      • Value patents (upper bound from renewal, re-assignment, int’l filings, firm market value, surveys, case-studies)
      • Dispute costs (lower bound)
      • For pharma: value ~ $12 billion/year, costs ~ $1 billion
      • Other industries: value ~ $2 billion/year (from 80s to present), costs ~ $1 billion / year up until mid 90s since when they have spiked and now much higher than value – e.g. in late 90s costs 3x value
      • Could use fees to address this (raise from ~$5000 to ~$30000)

Reto Hilty: Enforcement of intellectual property rights on Enforcement of IPRs

  • Huge figures circulate about losses from piracy
    • Most figures are (very) dubious and produced by the industry
  • History of IPRED (and IPRED2)
  • More intl stuff:
    • TRIPS+
    • FTAs (US)
    • EPAs (EU)
    • ACTA
  • Why has this focus on enforcement happened
    • General mantra that strengthening IP rights is good for innovation
    • Patents: probably have over-protection
      • Full patent protection (EPC 1973) – i.e. patent covers subsequent uses even if not anticipated. (probably a mistake)
      • Biological substances – full patent protection particularly problematic
      • Software patents …
      • Drugs and developing countries
    • Copyright law
      • Internet users see constriction not justice
      • Entertainment + TPMs – “unjustified profits”
      • Scientific research: unnecessary constrictions (Open Access)
    • Industrial design
    • Trade-mark law – large extensions in the last 80s (protection of colours, shapes unjustified)
    • Eventually this constant extension generated such opposition that it is now at a standstill
    • Thus, rightsholders move focus to enforcement (focus on ‘efficiency’)
  • But stronger enforcement also causes problems [ed: the strength of a right in fact is is product of enforcement and strength in theory]
    • will there be a backlash?
  • Also extension of IP geographically – esp. to developing countries
  • What justifications are there for IP enforcement
    • IPR not valuable without some enforcement, certainty …
  • One size cannot fit all: whether for IP itself or for enforcement
    • If IPR is misused enforcement can make things worse
  • Suggestions:
    • Decriminalize where too much IP protection
    • Strengthen enforcement where IP truly detrimental
    • Distinguish IP protection from consumer protection (counterfeiting not the same as IP protection)
    • [ed: one concern here is that it seems here we are using enforcement/non-enforcement to correct IP rights which are themselves wrong – enforce where good, don’t enforce where not good. But if that were agreed why couldn’t we correct the underlying problem]

Davis, Davis and Hoisl: Leisure time invention

  • PatVal data (10.5k German patents sampled with survey of inventors)
  • Leisure time has +ve impact on inventive output
  • Leisure time invention +vely linked to interactions with co-workers and outsiders
  • More leisure time invention in conceptual-based technologies rather than science-based technologies
  • Incidence of leisure time invention will be -vely related to project size
  • Most hypotheses confirmed

Ashish Arora: Patents and Innovation

  • Evidence for benefits of patents on innovation is mixed
    • Example of early Swiss and German dye and chemical industries
    • Surveys main evidence which show there are rents from patents but with equivalent subsidy ratio that is not that high
  • Kyle and McGahan: no inducement of research in diseases of poor countries after TRIPs
    • Even if patent protection is important no reason for developing countries to have them (already have protection in developed countries)
  • Thickets, patent litigation and trolls
    • Cockburn MacGarvie and Mueller (2008): fragmentation increasing across all industries
    • Substantial litigation costs
    • Geraldin, … find no thicket problem in 3G telephony
  • Anti-commons
    • Completely unpersuaded by the evidence
    • All examples came from universities: US research universities have made a mess of tech-transfer and patenting, alienating faculty and angering corporate partners (Bayh-Dole has had significant unintended bad consequences)
  • Markets for technology (specialization)
    • The first order effect of patents may be on trade in technology
    • Having people whose business it is to sell technology is really important (particularly if you are a developing country)
    • Licensing flows in US: $66 billion in 2006 (Carol Robbins). Good proportion of domestic R&D
    • Hall and Ziedonis evidence on specialist semiconductor firms
    • Gambardella and Giarratana (2007): software security patents
  • Making patents more useful
    • Much of the problem is bad patents due to:
      1. Invention is poorly understood (underlying knowledge base is poor)
      2. The claims are written with the intent of claiming as much while revealing as little as poorly understood
    • ‘Metes and bounds’ of the patent are unclear to all except handful of patent lawyers
    • Not new: cf. German chemical industry back in 19th century
    • Solution:
      1. Force patents to be written using (i) standard terms (ii) without legal jargon (whose only justification is a futile reach for precision)
      2. Patents should be (i) published expeditiously (ii) transactions (licenses, assignments, beneficial interests) in patents should be recorded and disclosed

Survey on Patent Licensing: Dominique Guellec (OECD)

  • Why licensing out:
    • Value from unused inventions
    • Inventions with applications elsewhere
    • Fabless firms
    • Establishing technology as a standard (may raise Competition issues)
    • Cross-licensing deals (ditto)
  • Expected Economics Effects (+ve)
    • Increases diffusion
    • Reduces duplication
    • Boost downstream competition
    • Facilitates specialization
  • Can also be -ve (mirror image of +ve ones e.g. reduced duplication = less competition)
  • Graph showing huge increase in royalty/license payments since mid 80s: ~$10B/year to ~$110B/year) (source: world bank)
    • But how much of this real (i.e. not tax manipulation etc) – and also includes copyright etc
  • OECD survey implemented by EPO by JPO/University of Japan on licensing behaviour
    • focuses on licensing out
    • response rate: 42% in europe, 34% in japan [ed: japan responses are less reliable for reasons not entirely clear to me]
    • no questions on revenues (people don’t respond when you ask this – either don’t know or don’t what to tell)
  • Results:
    • 35% of european companies license out, 59% of japanese firms
    • Licensing to non-affiliated companies: 20% of Eur, 27% of Japanese
    • U-shaped prob of licensing as a function of size
    • By tech field: highest in chemistry and electronics
    • Younger companies do it more (controlling for size) [ed: issues here though. Old firms which are small are not the same as young firms that are small]
    • Why do it?
      • Earning revenue: 60% EUR, 52% JPN; cross-licensing: 18%, 18%
    • Patents you would have licensed but could not/did not: ~20%
      • Why? Difficulty of finding a partner (25% of EUR and 18% of JPN)
      • Not important: problems of drafting contracts or technology not mature
  • Difficulty of finding partners could be for several reasons but suggests could be role for more/better intermediaries to facilitate transactions (INPIT in Japan)

Patent Thickets and the Market for Ideas: Mark Schankerman (LSE)

  • Market for ideas (patent licensing and sale of patents) [ed: this is obviously not the whole market for ideas …]
  • Study market though new lens: settlement of patent infringement disputes
    • Do not know whether when settlements happen licensing actually occurs
  • Focus on 2 key aspects:
    • Fragmentation of rights (‘patent thickets’)
    • Certainty of enforcement (CAFC led to more certainty – not worrying here about pro-patent bias)
  • Fragmentation:
    • Trad story: bad (higher transaction costs, bargaining failure …)
    • Dissenting voice (Lichtman 2006): greater fragmentation lowers the value at stake in each negotiation and this reduces the incentive to bargain hard. This speeds up settlement. Of course still leaves question of whether this reduces total negotiation time.
  • Model gives us various hypotheses:
    • H1: more complementarity means longer negotiation
    • H2: more fragmentation means shorter negotiations
    • H3: Settlement negotiations will be shorter for patents litigated after CAFC (1982)
    • H4: Impact of fragmentation external rights will be lower after the introduction of CAFC
    • H5: CAFC has a bigger impact where the preceding circuit had more uncertainty
  • Results
    • More fragmentation: leads to lower dispute duration (19.6 months for < 50th percentile frag vs. ~16 months for > 90th percentile)
    • CAFC has a big effect on dispute duration (~33 months to ~18months)
  • Conclusion: looking at delay (not royalty stacking on other issues)
    • Certainty: good
    • Fragementation: not bad (and maybe good)