Publish or perish

Michigan Law Review

Volumn 98, Issue 4, 2000, Pages 926-951

  Parchomovsky, Gideon ^a  

^a NONE

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EID: 0042493135     PISSN: 00262234     EISSN: None     Source Type: Journal    
DOI: 10.2307/1290335     Document Type: Article

References (92)

1. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
2. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
3. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
4. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
5. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
6. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
7. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 394-414 (1988); ERIC RASMUSEN, GAMES AND INFORMATION 341-48 (2d ed. 1994); see also Giovanni De Fraja, Strategic Spillovers in Patent Races, 11 INT'L J. INDUS. ORG. 139 (1993); Jennifer F. Reinganum, A Dynamic Game of R&D: Patent Protection and Competitive Behavior, 50 ECONOMETRICA 671 (1982); Partha Dasgupta & Joseph Stiglitz, Uncertainty, Industrial Structure, and the Speed of R&D, 11 BELL J. ECON. 1 (1980); Tom Lee & Louis L. Wilde, Market Structure and Innovation: A Reformulation, 94 Q.J. ECON. 429 (1980); Glenn C. Loury, Market Structure and Innovation, 93 Q.J. ECON. 395 (1979).
8. Preemptive publication may also be useful to firms - whether in a race or not - that do not wish to incur the considerable cost of obtaining a patent, but want to retain free access to their R&D. In the same vein, preemptive publication is useful to firms estimating that a competitor is about to patent one of the publishing firm's trade secrets. Publishing, in this case, will enable the firm to keep using the process or innovation.
9. A case in point is the famous race between Amgen and Genetic Institute over the exclusive right to market erythropoietin (EPO) in the United States. Each of the companies patented the technique it developed for producing EPO and sued the other for infringing its patent. At trial, the court held the patents of both companies not invalid and infringed. See Amgen, Inc. v. Chugai Pharm. Co., Ltd., 706 F. Supp. 94 (D. Mass. 1989). On appeal, the Federal Circuit reversed in part, holding that while Amgen's patent was indeed valid and infringed, Genetic Institute's patent was invalid. See Amgen, Inc. v. Chugai Pharm. Co., Ltd., 927 F.2d 1200 (Fed. Cir. 1991). This decision effectively granted the United States EPO market to Amgen.
10. Or, in the language of the Constitution, "[t]o Promote the Progress of Science and useful Arts." U.S. CONST, art. I, § 1, cl. 8.
11. See Pearce v. Mulford, 102 U.S. 112, 118 (1880) ("[A]ll improvement is not invention, and entitled to protection as such.").
12. See 35 U.S.C. § 102 (1994).
13. See 35 U.S.C. § 103 (1994).
14. For a classic statement of the priority rule, see Christie v. Seybold, 55 F. 69 (6th Cir. 1893). Unless the inventor can prove an earlier date, the date of filing is considered the date of reduction to practice for purposes of priority. See id. at 75. The only exception to the general rule stated above is a case in which the second to reduce to practice can show: (1) that she conceived the invention first; and (2) that she was reasonably diligent in reducing her invention to practice. See id. at 76. The practical importance of the exception has proven to be rather miniscule. The process by which priority between two inventors is being determined in such cases is called "interference." Historically, only 0.1% of the applications required an interference process, and of those, the "junior party," the second to file, prevailed in fewer than 0.33%. See Ian A. Calvert & Michael Sofocleous, Interference Statistics for Fiscal Years 1992 to 1994, 77 J. PAT. [& TRADEMARK] OFF. SOC'Y 417, 421 tbl. 4 (1995).
15. Estee Lauder Inc. v. L'Oreal, S.A., 129 F.3d 588, 593 (Fed. Cir. 1997). The United States is the only country in the world that follows the "first-to-invent" rule; all other countries have adopted the "first-to-file" rule, which determines priority between inventions according to the date of filing, regardless of who invented first. The United States has consistently declined the invitation to join the rest of the world by adopting a "first-to-file" rule. Yet, the pressure to effect this change persists. Several commentators have suggested that switching to a "first-to-file" rule will have virtually no practical implications. See, e.g., Gerald J. Mossinghoff & Vivian S. Kuo, World Patent System Circa 20XX, A.D., 38 IDEA 529, 549 (1998) (arguing that "the United States now has a virtual first-to-file system"). However, switching to a "first-to-file" rule does have an important implication when the possibility of preemptive publication is considered. The "first-to-file" rule extends the period during which a preemptive publication is possible, and thus gives an advantage to intended publishers over intended patentees.
16. Because firms in a patent race operate in an environment of imperfect information, they may have an incorrect belief as to one or more of the following factors affecting the publication decision. First, a firm may wrongly believe that it is involved in a patent race, whereas in fact it is not. This can happen, for instance, when two firms compete for a new drug for treating a certain disease, but each of them is developing a different product. Second, a firm may be incorrect in assessing its ability to beat its competitors to the sought-after patent. Finally, a firm may be incorrect in overestimating the research skills, or the success, of its competitors. Therefore, a firm may sometimes decide to publish even though it is not in its best interest to do so. The possibility of reaching a mistaken decision weakens to some extent the incentive to publish, but it does not eliminate it altogether. It is just another factor a firm must take into account in deciding on an appropriate strategy.
17. Such licensing agreements may have antitrust implications, depending on the importance of the invention and the market positions of the parties involved. A detailed discussion of this issue is beyond the scope of this Article.
18. It is important to note that the investment in R&D is a sunk cost that a firm engaged in a patent race necessarily incurs regardless of the strategy it chooses to pursue.
19. Of the various race models, the most influential is the "memoryless model" of Dasgupta and Stiglitz. See Dasgupta & Stiglitz, supra note 1. The model assumes identical firms with continuous investment in R&D. Furthermore, it assumes that the probability of making a patentable breakthrough depends only on a firm's current decisions as to R&D investment - past investments that failed to yield a patentable invention are completely wasted. Although this assumption is rather unrealistic, it has become the standard assumption in the economic literature on patent races. See De Fraja, supra note 1, at 141.
20. The analysis in this Article shows, however, that even a firm estimating that its probability of winning is higher than that of all other firms should not always attempt to win the patent since it remains exposed to the risk of preemptive publication.
21. For a discussion of what constitutes "sufficient research results," see infra text accompanying notes 22-23.
22. See Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. CHI. L. REV. 1017, 1028 (1989).
23. See DONALD S. CHISUM ET AL., PRINCIPLES OF PATENT LAW 335 (1998).
24. See id.
25. See id. at 335, 531.
26. ROBERT PATRICK MERGES, PATENT LAW AND POLICY 479 (2d ed. 1997).
27. The nonobviousness examination, as formulated by the Supreme Court in the landmark case of Graham v. John Deere Co., 383 U.S. 1 (1966), consists of three steps. First, the court has to determine "the scope and content of the prior art." Then, it must identify "the differences between the prior art and the claims at issue." Finally, the court has to determine the "level of ordinary skill in the pertinent art" at the time the invention was made and decide whether the claimed invention would have been obvious at the time of invention to a person of ordinary skill in the art. Id. at 17. The Court added that the nonobviousness determination may be aided by "secondary considerations" such as "commercial success, long felt but unsolved need, failure of others, etc., [that] might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented." Id. at 17-18.
28. See MERGES, supra note 20, at 479.
29. I am indebted to Ian Ayres for this idea.
30. Adopting such a rule would dramatically undermine the incentive to engage in R&D and, thus, would diminish social welfare.
31. See 35 U.S.C. § 112 (1994).
32. See, e.g., Seymour v. Osborne, 78 U.S. (11 Wall.) 516, 555 (1870) (holding that in order to constitute an anticipatory reference, a publication must "contain and exhibit a substantial representation of the patented improvement, in such full, clear, and exact terms as to enable any person skilled in the art or science to which it appertains, to make, construct, and practice the invention"); see also Paperless Accounting, Inc. v. Bay Area Rapid Transit Sys., 804 F.2d 659, 665 (Fed. Cir. 1986) ("[E]ven if the claimed invention is disclosed in a printed publication, that disclosure will not suffice as prior art if it was not enabling."); ARTHUR R. MILLER & MICHAEL H. DAVIS, INTELLECTUAL PROPERTY: PATENTS, TRADEMARKS, AND COPYRIGHT IN A NUTSHELL 46, 47 (1983).
33. See Constant v. Advanced Micro-Devices, Inc., 848 F.2d 1560, 1566-69 (Fed. Cir. 1988) ("If accessibility is proved, there is no requirement to show that particular members of the public actually received the information.").
34. See, for example, In re Hall, 781 F.2d 897, 899 (Fed. Cir. 1986), in which the Federal Circuit stated that public accessibility is the "touchstone in determining whether a reference constitutes a 'printed publication.'" A review of the case law reveals that indexing is the key factor in determining public accessibility. For example, in In re Hall, the court held that a doctoral dissertation that had been deposited and indexed in a German library was sufficiently accessible to constitute a printed publication. See id. at 899-900. By contrast, in In re Bayer, 568 F.2d 1357 (C.C.P.A. 1978), it was held that a thesis that had been catalogued but not indexed could not serve as a prior art reference.
35. The permissibility of combining references is what distinguishes the obviousness inquiry from the novelty inquiry. As Judge Lourie explicated in Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568 (Fed. Cir. 1996): If one prior art reference describes the claimed invention, it is worse than obvious in terms of patentability; it lacks novelty. If the invention is different from what is disclosed in one reference, but the differences are such that combination with another reference would lead to what is claimed, the obviousness question then requires inquiry into whether there is reason, suggestion, or motivation [in the prior art] to make that combination. Id. at 1573. Thus, courts will not automatically combine prior art references when making an obviousness determination, but rather look to other factors existent at the time. Such a suggestion may be explicit, see, e.g., In re Sernaker, 702 F.2d 989, 994 (Fed. Cir. 1983), or implicit, see, e.g., In re Nilssen, 851 F.2d 1401, 1403 (Fed. Cir. 1988), in the prior art literature. It may also derive from the knowledge of those skilled in the relevant art, see, e.g., Ashland Oil, Inc. v. Delta Resins & Refractories, Inc., 776 F.2d 281, 297 n.24 (Fed. Cir. 1985), or from the nature of the problem to be solved, see, e.g., In re Rinehart, 531 F.2d 1048, 1054 (C.C.P.A. 1976).
36. Baruch Fischhoff, For Those Condemned to Study the Past: Heuristics and Biases in Hindsight, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES 335, 341 (Daniel Kahneman et al. eds., 1982).
37. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
38. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
39. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
40. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
41. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
42. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
43. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
44. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
45. See, e.g., Baruch Fischhoff, Hindsight [not =] Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, 1 J. EXP. PSYCHOL. 288 (1975) (first to identify the hindsight bias); see also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147, 147-48 (1991); Scott A. Hawkins & Reid Hastie, Hindsight: Biased Judgments of Past Events After the Outcomes Are Known, 107 PSYCHOL. BULL. 311, 312 (1990); Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante, 19 LAW & HUM. BEHAV. 89 (1995); Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996). For possible ways to eliminate the hindsight bias in legal, and other settings, see, for example, Hal R. Arkes et al., Eliminating the Hindsight Bias, 73 J. APPLIED PSYCHOL. 305, 306 (1988); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471, 1523-33 (1998); Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571, 615 (1998); David B. Wexler & Robert F. Schopp, How and When to Correct for Juror Hindsight Bias in Mental Health Malpractice Litigation: Some Preliminary Observations, 7 BEHAV. SCI. & L. 485, 496 (1989).
46. See Rachlinski, supra note 31, at 614.
47. See, e.g., Grain Processing Corp. v. American Maize-Prod. Co., 840 F.2d 902, 907 (Fed. Cir. 1988) ("Care must be taken to avoid hindsight reconstruction . . . ."); Panduit Corp. v. Dennison Mfg. Co., 774 F.2d 1082, 1091 (Fed. Cir. 1985) ("It is not appropriate for the Court to engage in hindsight."); W.L. Gore & Assoc. v. Garlock, Inc., 721 F.2d 1540, 1553 (Fed. Cir. 1983) ("It is difficult but necessary that the decisionmaker forget what he or she has been taught at trial about the claimed invention and cast the mind back to the time the invention was made . . . .").
48. For example, Rachlinski notes that the Supreme Court's invocation of "secondary considerations" in Graham v John Deere Co, 383 U.S. 1, 17 (1966), stemmed, at least in part, from the Court's desire to neutralize the hindsight bias. See Rachlinski, supra note 31, at 614.
49. See Donald R. Dunner et al., A Statistical Look at the Federal Circuit's Patent Decisions: 1982-1994, 5 FED. CIRCUIT B.J. 151, 163-68 (1995). Historically, the invalidation rate was even higher. For example, between 1921 and 1973, district courts invalidated 55% of the patents challenged, and the courts of appeals invalidated 65%. See A. Samuel Oddi, Beyond Obviousness: Invention Protection in the Twenty-First Century, 38 AM. U. L. REV. 1097, 1140 n.241 (1989).
50. See Donald R. Dunner et al., A Statistical Look at the Federal Circuit's Patent Decisions: 1982-1994, 5 FED. CIRCUIT B.J. 151, 163-68 (1995). Historically, the invalidation rate was even higher. For example, between 1921 and 1973, district courts invalidated 55% of the patents challenged, and the courts of appeals invalidated 65%. See A. Samuel Oddi, Beyond Obviousness: Invention Protection in the Twenty-First Century, 38 AM. U. L. REV. 1097, 1140 n.241 (1989).
51. In fact, several leading commentators have questioned the wisdom of reliance on secondary considerations in determining nonobviousness. See, e.g., Robert P. Merges, Commercial Success and Parent Standards: Economic Perspectives on Innovation, 76 CAL. L. REV. 803, 823-24 (1988) (noting that commercial success is not a reliable test of the nonobviousness of the invention). Factors such as commercial success and other secondary considerations may often be poor indications of the obviousness of an invention.
52. This assumption that a monopoly profit is higher than twice the duopoly profit is consistent both with the Bertrand model and the Cornot model of duopoly (assuming linear demand curve and constant marginal cost). In reality, the payoff of the competing firms from publication may be much lower than the duopoly profit. Publication enables all comers to use the information published and thus benefits all firms currently on the market as well as potential entrants.
53. As explained below, I assume that a firm will choose to publish only if its rival will otherwise receive a patent. In other words, a firm will publish only if by so doing it will spoil a patent to its rival. If neither firm obtained sufficient research results to file for a patent, neither will publish. See infra note 42 and accompanying text.
54. In reality, the firm that was on the verge of patenting will have an advantage over its rival because it will have the advantage of being first on the market. Thus, the payoffs of the firms may in many cases not be identical. This, however, does not affect the generality of the results of the model, since the main point here is that publication may yield a positive payoff to the firm trailing in the race.
55. Or, more precisely, to patent under this game, a firm needs a 4 on both rolls (a total of 8).
56. If both firms attained a total of 8 they will divide the patent evenly between them. Or, put differently, each firm will get the whole of the patent with equal probability. For instance, they may flip a coin, or even roll a die, to decide which firm will receive the patent. Thus, they will each earn a profit of $10.
57. Thus, in a race without publication, a firm that rolls a 1 on its first turn will drop out after spending $1 on R&D because it cannot possibly obtain a patent. ("Doing nothing" also enables a firm to maintain trade secrecy protection.) In a race with publication, however, a firm rolling a 1 on its first turn will still have an incentive to remain in the race if its opponent has rolled a 4. The firm will spend the extra $1 to try and preempt its rival, thereby earning a possible stake in the market.
58. Of the 7/16 possible permutations in which either firm rolls an 8, each firm obtains the patent 3 times outright, whereas they will split the single remaining possibility. Furthermore, because a firm has a 0.5 chance of rolling a 1 on its first turn, each firm will spend an average of $1.50 on R&D. Therefore, the average expected payoff is: [(-$1.50) + (3/16)($20) + (1/16)($10)] = $2.875.
59. With preemptive publication, the rival firm will preemptively publish, thus thwarting 4 of the 7 chances to obtain a patent; therefore, each firm has a 1/16 chance of winning the patent outright, and a 1/16 chance of splitting the patent. Because a firm rolling a 1 will spend an extra $1 whenever its rival rolls a 4, each firm will spend an average of $1.75 on R&D. Therefore, the average expected payoff for each firm is: [(-$1.75) + (4/16)($8) + (1/16)($20) + (1/16)($10)] = $2.125.
60. Of course, in reality the decision of how much R&D to conduct ultimately depends on the value of the patent. Still, in a "winner take all" game, a firm that fell behind in the early stages of research may rationally decide to drop out of the race since its probability of ultimately beating its rivals may not justify the additional investment in R&D. Formally this happens when X > P(Pt).
61. See Scott Erickson, Patent Law and New Product Development: Does Priority Claim Basis Makes a Difference?, 36 AM. BUS. L.J. 327, 336 (1999) (noting that the average processing time of a patent application in the United States is eighteen months).
62. See Rebecca S. Eisenberg, Proprietary Rights and the Norms of Science in Biotechnology Research, 97 YALE L.J. 177, 207 (1987) ("Patent disclosure is unlikely to occur until after a patent issues, which is often years later than disclosure to the scientific community would otherwise occur." (citation omitted)).
63. This will happen when the number 4 appears on four of the faces of the die, and the number 1 only on two.
64. A patent will issue in 21/36 possible two roll permutations (given the weighted die) - 12 times to firm B, 5 times to firm A, and 4 times it will be split. Because firm B has a 2/3 chance of rolling a 4, it will spend the full $2 two-thirds of the time. Thus, unlike firm A which will maintain the $1.500 expenditure, firm B will spend an average of $1.667. The total expected payoff for firm A will be: [(-$1.50) + (5/36)($20) +(4/36)($10)] = $2.389. The total expected payoff for firm B will be: [(-$1.67) + (12/36)($20) + (4/36)($10)] = $6.108.
65. Firm A will be able to preempt 2/3 of B's patents, thus giving B a patent only 6/36 times, while forcing a duopoly profit 8/36 times. Firm B, on the other hand, will be able to preempt 4/5 of A's patents, leaving A with a patent 1/36 times, while forcing a duopoly profit 4/36 times. Furthermore, both A and B will spend the same amount on R&D, choosing to pay the extra dollar 5/6 of the time. Thus, each spends an average of $1.833 on R&D. As compared with the asymmetric race without publication, firm B loses [(8/36)($12) + ($1.833 -$1.667)] = $2.833, while it gains (4/36)($8) = $0.889 from preempting firm A. Thus, its total expected payoff is: [$6.108 + $0.889 - $2.833] = $4.164. Firm A, however, loses only [(4/36)($12) + ($1.833 - $1.500)] = $1.667, but gains (8/36)($8) = $1.778. Thus, its total expected payoff is: [$2.389 + $1.778 - $1.667] = $2.500.
66. Whether and how much of an increase the inferior firm will realize with the possibility of preemptive publication depends on the relative advantage of the superior firm.
67. For an argument that participants in patent races are risk seeking, see John S. McGee, Patent Exploitation: Some Economic and Legal Problems, 9 J L & ECON. 135, 136 (1966).
68. However, even in this case, the smaller firm may serendipitously get to the invention first.
69. The exact impact of preemptive publication depends on the competing firms' attitudes towards risk.
70. See, e.g., Michael A. Heller & Rebecca S. Eisenberg, Can Parents Deter Innovation? The Anticommons in Biomedical Research, 280 SCIENCE 698 (1998) (arguing that the recent proliferation of fragmented intellectual property rights may result in a biomedical anticommons, which will lead, in turn, to underuse of resources and knowledge).
71. In fact, the field of biotechnology developed around two basic discoveries for which no patent protection was claimed. The first was Köhler and Milstein's discovery of a technique of producing antibodies. The second was Cohen and Boyer's discovery of a technique for expression of recombinant proteins. See Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839, 905-06 (1990).
72. See Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424, 424 (1985). For a comprehensive analysis of the potential implications of network externalities to various legal fields, see Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CAL. L. REV. 479 (1998).
73. See Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424, 424 (1985). For a comprehensive analysis of the potential implications of network externalities to various legal fields, see Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CAL. L. REV. 479 (1998).
74. On the relationship between networks and innovation, see Joseph Farrel & Gather Saloner, Standardization, Compatibility and Innovation, 16 RAND J. ECON. 70 (1985).
75. See, e.g., Yoram Barzel, Optimal Timing of Inventions, 50 REV. ECON. & STAT. 348 (1968); Dasgupta & Stiglitz, supra note 1, at 13-14; Jack Hirshleifer, The Private and Social Value of Information and the Reward to Incentive Activity, 61 AM. ECON. REV. 561, 571-72 (1971); Brian D. Wright, The Economics of Invention Incentives: Patents, Prizes, and Research Contracts, 73 AM. ECON. REV. 691, 703 (1983) (asserting that unlimited patents will lead to overinvestment in R&D).
76. See, e.g., Yoram Barzel, Optimal Timing of Inventions, 50 REV. ECON. & STAT. 348 (1968); Dasgupta & Stiglitz, supra note 1, at 13-14; Jack Hirshleifer, The Private and Social Value of Information and the Reward to Incentive Activity, 61 AM. ECON. REV. 561, 571-72 (1971); Brian D. Wright, The Economics of Invention Incentives: Patents, Prizes, and Research Contracts, 73 AM. ECON. REV. 691, 703 (1983) (asserting that unlimited patents will lead to overinvestment in R&D).
77. See, e.g., Yoram Barzel, Optimal Timing of Inventions, 50 REV. ECON. & STAT. 348 (1968); Dasgupta & Stiglitz, supra note 1, at 13-14; Jack Hirshleifer, The Private and Social Value of Information and the Reward to Incentive Activity, 61 AM. ECON. REV. 561, 571-72 (1971); Brian D. Wright, The Economics of Invention Incentives: Patents, Prizes, and Research Contracts, 73 AM. ECON. REV. 691, 703 (1983) (asserting that unlimited patents will lead to overinvestment in R&D).
78. Note, however, that this Article does not suggest that there is no overinvestment problem. That is a complex question that lies beyond the scope of this Article. I claim only that because of the risk of preemptive publication, the amount of overinvestment may be smaller than presently believed.
79. In such races, no firm can know ex ante whether it will be harmed or benefited by the availability of preemptive publication.
80. This result is made possible by the imperfect information firms have about their potential competitors. Having insufficient information about its competitors, the leading firm may overestimate its own ability to beat its competitor to the patent, or merely to beat its competitor's publication. The strategy of increasing the investment runs the risk of being undercapitalized in future projects if the firm is ultimately unsuccessful in obtaining the patent. However, it is important to note that the risk of preemptive publication is by no means the only reason for the observed disparity between the private and social value of certain inventions. Nor is it the most significant one. The main reason for this disparity is the imperfect enforceability of patents. Because patents are not perfectly enforceable, patents generate spillovers. While this result is desirable ex post, it undermines the ex ante incentive of inventors to invest in R&D and thus drives a wedge between the social value of the invention and its private value. Cf. Ian Ayres & Paul Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 MICH. L. REV. 985 (1999) (arguing that encouraging limited amounts of patent infringement while extending patent duration may "substantially reduce the distortionary ex post effects of supracompetitive pricing without reducing the patentee's ex ante incentives to innovate").
81. See, e.g., Timothy F. Bresnahan, Measuring the Spillovers from Technical Advance: Mainframe Computers in Financial Services, 76 AM. ECON. REV. 742, 753 (1986); Michael Kremer, Patent Buyouts: A Mechanism for Encouraging Innovation, 113 Q.J. ECON. 1137, 1141 (1998); Edwin Mansfield et al., Social and Private Rates of Return from Industrial Innovations, 91 Q.J. ECON. 221, 234 (1977).
82. See, e.g., Timothy F. Bresnahan, Measuring the Spillovers from Technical Advance: Mainframe Computers in Financial Services, 76 AM. ECON. REV. 742, 753 (1986); Michael Kremer, Patent Buyouts: A Mechanism for Encouraging Innovation, 113 Q.J. ECON. 1137, 1141 (1998); Edwin Mansfield et al., Social and Private Rates of Return from Industrial Innovations, 91 Q.J. ECON. 221, 234 (1977).
83. See, e.g., Timothy F. Bresnahan, Measuring the Spillovers from Technical Advance: Mainframe Computers in Financial Services, 76 AM. ECON. REV. 742, 753 (1986); Michael Kremer, Patent Buyouts: A Mechanism for Encouraging Innovation, 113 Q.J. ECON. 1137, 1141 (1998); Edwin Mansfield et al., Social and Private Rates of Return from Industrial Innovations, 91 Q.J. ECON. 221, 234 (1977).
84. Again, the analysis in this Section does not address the various antitrust ramifications of coordinated R&D. Negotiations between firms to coordinate may violate the Sherman Act depending on the market power of the participants and the importance of the research. Yet, the exact antitrust implications of coordinated research cannot be determined in the abstract.
85. Under this model, payoffs in the case of a patent are $20 to the patenting firm and $0 to the other firm. The payoff in the case of publication is $8 to each of the firms. Thus, under an assumption of equal bargaining powers, the intended patentees will have to pay the other firm 8 + 0.5(12 - 8) = 10. Formally, the result of this bargaining game can be described as follows: Let denote bargaining power such that 0 < < 1. For any , the amount of the side-payment would be 8 + (4). A necessary condition of bargaining in this case is that the payoff from publication be smaller than half the value of the patent.
86. Yet, even after the introduction of bargaining, the average expected payoffs of the firms are lower than what they would be without publication - in which case, the expected payoffs of firms A and B are $2.388 and $6.277, respectively.
87. Because ex ante contracting occurs before costs are sunk, it lowers the cost of achieving cooperation relative to ex post negotiations. It should be noted, however, that ex ante coordination may give rise to potential antitrust liability for the firms involved.
88. Specifically, Arrow identified the following problem: Without disclosing the information she obtains, the initial holder will not be able to sell or license it to potential buyers; but once the information has been disclosed, she has nothing left to sell or license. See Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY 609, 615 (1962).
89. See Robert P. Merges, Contracting into Liability Rules: Intellectual Property Rights and Collective Rights Organizations, 84 CAL. L. REV. 1293, 1305-06 (1996) (demonstrating the inability of intellectual property owners to distinguish between credible and noncredible threats of infringements).
90. See, e.g., General Elec. Co. v. United States, 654 F.2d 55, 61 (Ct. Cl. 1981) (stating that one of the rationales for enacting the section is a "policy favoring prompt and widespread disclosure of new inventions to the public"); see also Patrick J. Barrett, Note, New Guidelines for Applying the On Sale Bar to Patentability, 24 STAN. L. REV. 730, 732-35 (1972).
91. A famous case that illustrates this point is In re O'Farrel, 853 F.2d 894 (Fed. Cir. 1988). In this case, two of the three patent applicants had reported their research findings in a scientific paper that came out more than a year before the filing date. In determining the validity of the patent, the Federal Circuit ruled that because the publication occurred more than a year prior to the date of filings, it rendered the invention obvious, and thus precluded the patent.
92. See Erickson, supra note 46.