Did trips spur innovation? an analysis of patent duration and incentives to innovate

University of Pennsylvania Law Review

Volumn 157, Issue 6, 2009, Pages 1613-1647

  Abrams, David S ^a  

^a UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

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EID: 69849102674     PISSN: 00419907     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (91)

1. The most significant change prior to 1994 was Congress's enactment of 35 U.S.C. §154 in 1952. Patent Act of 1952, Pub. L. No.82-593, 66 Stat 792 (codified as amended in scattered sections of 35 U.S.C).
2. Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex IC, 108 Stat 4809, 1869 U.N.T.S. 299, available at http://www.wto.org/english/ docs-e/ legal-e/27-trips.pdf [hereinafter TRIPS].
3. Uruguay Round Agreements Act Pub. L. No.103465, § 532(a), 108 Stat 4809, 4984-85 (1994) (codified as amended in scattered sections of 15, 17, 19, and 35 U.S.C.).
4. See WILLIAM D. NORDHAUS, INVENTION, GROWTH, AND WELFARE: A THEORETICAL TREATMENT OF TECHNOLOGICAL CHANGE 76 (1969) (noting that a longer patent life "increases invention" but also increases "losses from inefficiencies associated with monopoly").
5. Elasticity is a mathematical term often used in economics that is similar to the derivative in calculus. But whereas the derivative measures the absolute change in the dependent variable with respect to the independent variable, the elasticity is defined as the percentage change in the dependent variable with respect to the percentage change in the independent variable. In this Article, I am interested in the elasticity of production of innovation with respect to patent duration. The elasticity I wish to estimate is percent change in innovation divided by percent change in patent duration.
6. There is also a third approach-based on patent-renewal data-which I describe infra note 10. However, a full analysis under this approach is beyond the scope of this Article.
7. See, e.g., Rebecca Henderson, Adam B. Jaffe & Manuel Trajtenberg, Universities as a Source of Commercial Technology: A Detailed Analysis of University Patenting, 1965-1988, 80 REV. ECON. & STAT. 119, 119-22 (1998) (exploring the use of university patents as an indicator of innovation).
8. See generally Zvi Griliches, Introduction to R & D, PATENTS, AND PRODUCTIVITY 1, 14 (Zvi Griliches ed., 1984) (reflecting on the general theme of the conference, that "patent counts are, after all, one of the few direct quantitative glimpses into the innovation process available to us").
9. See, e.g., Jean O. Lanjouw, Ariel Pakes & Jonathan Putnam, How To Count Patents and Value Intellectual Property: The Uses of Patent Renewal and Application Data, 46 J. INDUS. ECON. 405, 411-18 (1998) (recognizing variance in patent value across time, industries, nationalities, and technology categories);
10. Ariel Pakes, Patents as Options: Some Estimates of the Value of Holding European Patent Stocks, 54 ECONOMETRICA 755, 767-80 (1986) (analyzing the returns on European patent stocks and finding that patent value varies by country);
11. Ariel Pakes & Margaret Simpson, Patent Renewal Data, 1989 BROOKINGS PAPERS ON ECON. ACTIVITY: MICROECONOMICS 331, 355-364 (noting that "patents vary greatly in both their private and social values" while considering how patentrenewal data can be used to analyze patent value).
12. See Bronwyn H. Hall, Adam Jaffe & Manuel Trajtenberg, Market Value and Patent Citations, 36 RANDJ. ECON. 16, 19 (2005) (describing how the valuable economic and technological information provided by patent citations may help gauge the "'value' of patents");
13. Dietmar Harhoff et al., Citation Frequency and the Value of Patented Inventions, 81 REV. ECON. & STAT. 511, 515 (1999) (finding that "patents reported to be relatively valuable by the companies holding them are more heavily cited in subsequent patents");
14. Adam B. Jaffe, Manuel Trajtenberg & Rebecca Henderson, Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations, 108 Q.J. ECON. 577, 583 (1993) (discussing how patent citations carry more weight than academic citations);
15. Adam B. Jaffe, Manuel Trajtenberg & Michael S. Fogarty, Knowledge Spillovers and Patent Citations: Evidence from a Survey of Inventors, 90 AM. ECON. REV. PAPERS & PROC. 215, 217 (2000) (noting how authors increasingly utilize "the total number of citations received by a patent as an indicator of the relative significance of patents");
16. Jean O. Lanjouw & Mark Schankerman, Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators, 114 ECON. J. 441, 44647 (2004) (developing a composite index of patent quality using multiple factors, including backward and forward citations);
17. Manuel Trajtenberg, A Penny for Your Quotes: Patent Citations and the Value of Innovations, 21 RAND J. ECON. 172, 173-75 (1990) (suggesting that patent citations should be used as an index of the value of patents);
18. Jean O. Lanjouw Sc Mark Schankerman, The Quality of Ideas: Measuring Innovation with Multiple Indicators 1-5 (Nat'l Bureau of Econ. Research, Working Paper No. 7345, 1999), available at http://www.nber.org/ papers/w7345 (using backward and forward citations as indicators of patent quality).
19. In other work, I take a third approach to estimating the change in production of innovation in response to the implementation of TRIPS: using actual renewal decisions by patent holders to estimate the distribution of the private value of patents. In most countries, patent holders must pay a maintenance fee to keep their patents in force. This fee implicitly forces patent holders to make a calculation regarding the future expected returns from the patent. Various scholars have used this patent-renewal approach in analyzing data from European countries.
20. E.g., Jean Olson Lanjouw, Patent Protection in the Shadow of Infringement: Simulation Estimations of Patent Value, 65 REV. ECON. STUD. 671 (1998) (West Germany); Pakes & Simpson, supra note 8 (Norway and Finland);
21. Mark Schankerman & Ariel Pakes, Estimates of the Value of Patent Rights in European Countries During the Post-1950 Period, 96 ECON. J. 1052 (1986) (United Kingdom, France, and Germany);
22. Mark Schankerman, How Valuable Is Patent Protection? Estimates by Technology Field, 29 RAND J. ECON. 77 (1998) (France). The Patents as Options methodology has rarely been used on U.S. data in the academic literature for three primary reasons. First, the United States only began charging maintenance fees for options in 1982. Because this research originated shortly thereafter, three was not enough data available at the time to perform the estimation. Second, U.S. maintenance fees tend to be somewhat lower than those in Europe, which makes estimating the upper tail of the distribution more dependent on functional-form assumptions. Last maintenance fees are only required to be paid three times in the United States (as opposed to annually in Europe), making the estimates on U.S. data less precise. There has, however, been one previous publication making use of patent-renewal data in the United States.
23. See Jonathan A Barney, A Study of Patent Mortality Rates: Using Statistical Survival Analysis To Rate and Value Patent Assets, 30 AIPLA Q.J. 317 (2002) (examining a particular sample of patents granted at a particular point in time). My analysis (forthcoming) will be one of the first applications of the Patents as Options approach to U.S. data, and it will allow for the most sophisticated evaluation of the law change resulting from the TRIPS agreement.
24. For a description of the data used in this Article, see infra Part II.
25. TRIPS, supra note 2.
26. Id. art. 27.
27. Id art 33.
28. See NORDHAUS, supra note 4, at 82 n.18 (quoting SUBCOMM. ON PATENTS, TRADEMARKS & COPYRIGHTS OF THE SENATE COMM. ON THE JUDICIARY, 85TH CONG., AN ECONOMIC REVIEW OF THE PATENT SYSTEM 9 (Comm. Print 1958) (prepared by Fritz Machlup)), which explains the basis for U.S. patent terms.
29. Id.
30. Final Act Embodying the Results of the Uruguay Round of the Multilateral Trade Negotiations, Apr. 15, 1994, 33 I.L.M. 1125 (1994), available at http:// www.wto.org/english/docs-e/legal-e/03-fa.pdf.
31. Uruguay Round Agreements Act, Pub. L. No.103-465, 108 Stat. 4809 (1994) (codified as amended in scattered sections of 15, 17, 19, and 35 U.S.C).
32. See id. §534 (mandating that "the amendments made by section 532 take effect on the date that is 6 months after the date of enactment of this Act").
33. See, e.g, Keith Bradsher, Foes Line Up To Do Battle over GATT, N.Y. TIMES, Oct 3, 1994, at D1 (elaborating on thie battle over GATT);
34. Helene Cooper & John Harwood, World Trade Pact Limps Toward a Showdown, Bruised by Talk Radio, Sovereignty Issue, Politics, WALL ST. J., Nov. 23, 1994, at A16 (listing a variety of roadblocks in GATT's path);
35. Bob Davis & Lawrence Ingrassia, Trade Acceptance: After Years of Talks, GATT Is at Last Ready To Sign Off on a Pact, WALL ST. J., Dec. 15, 1993, at A1 (recognizing that congressional ratification of GATT still faced opposition from American industry);
36. Bob Davis, Unexpected Obstacles Are Threatening To Delay or Derail Congressional Approval of GATT Pact, WALL ST. J., Apr. 8, 1994, at A16 (detailing the problems in getting congressional approval for GATT);
37. Thomas L. Friedman, Dole Explains Trade Treaty Stand, N.Y. TIMES, Sept. 14, 1994, at D2 (explaining the Senate Minority Leader's opposition to parts of GATT);
38. David Sanger, After Years of Talk, Trade Pact Now Awaits Congressional Fate, N.Y. TIMES, Nov. 27, 1994, at A1 (detailing the remaining questions regarding GATT).
39. Id § 154(c)(1).
40. Id. § 154(a)(2).
41. See supra notes 18-19.
42. See supra note 21 and accompanying text.
43. NORDHAUS, supra note 4.
44. Id at 71.
45. John F. Duffy, A Minimum Optimal Patent Term 2-3 (Jan. 9, 2003) (unpublished manuscript), available at http://papers.ssrn.com/so13/papers.cfm? abstractid=354282 (presenting graphs showing that "an increase in patent terms does not necessarily involve this tradeoff).
46. Id.
47. Steven Shavell & Tanguy Van Ypersele, Rewards Venus Intellectual Property Rights, 44 J.L. & ECON. 525, 530 (2001).
48. Id. at 541-542
49. Id. at 537-541
50. John. F. Duffy, The Marginal Cost Controversy in Intellectual Property, 71 U. CHI. L. REV. 37 (2004);
51. Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813 (1984).
52. Kaplow, supra note 32, at 1844.
53. Michael Abramowicz, Perfecting Patent Prizes, 56 VAND. L. REV. 115, 218-224 (2003).
54. Alexander Tabarrok, Patent Theory Versus Patent Law, CONTRIBUTIONS TO ECON. ANALYSIS & POL'Y, 2002, at 1-2, http://www.bepress.com/cgi/ viewcontent.cgi?article= 1039&context=bejeap.
55. Id. at 8-11.
56. Nancy T. Gallini, The Economics of Patents: Lessons from Recent U.S. Patent Reform, 16 J. ECON. PERSP. 131 (2002).
57. Id. at 136.
58. Gideon Parchomovsky &R. Polk Wagner, Patent Portfolios, 154 U. PA. L. REV. 1 (2005).
59. Id. at 28-29.
60. Josh Lerner, Patent Protection and Innovation over 150 Years (Nat'l Bureau of Econ. Research, Working Paper No. 8977, 2002), available at http://www.nber.org/ papers/w8977.
61. Id. at 26-28.
62. Petra Moser, How Do Patent Laws Influence Innovation? Evidence from NineteenthCentury World's Fairs, 95 AM. ECON. REV. 1214 (2005).
63. Id. at 1216.
64. Id. at 1224.
65. Adam Jaffe also examines recent developments in the U.S. patent system and surveys both the theoretical and empirical literature. While he touches on patent scope, he does not discuss any recent work on patent duration or the impact of the TRIPS agreement, perhaps because there has been relatively little.
66. Adam B. Jaffe, The U.S. Patent System in Transition: Policy, Innovation, and the Innovation Process, 29 RES. POL'Y 531 (2000).
67. Mark A Lemley, An Empirical Study of the Twenty-Year Patent Term, 22 AIPLA Q.J. 369 (1994).
68. See id. at 392-393
69. See id. at 415-416
70. See NORDHAUS, supra note 4, at 70-75 (establishing a framework for the economics of patents).
71. Trajtenberg, supra note 9. For further literature,
72. see other sources cited supra note 9.
73. See id. at 177-178 (discussing demand for CT scanners as analyzed in Manuel Trajtenberg, The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners, 97 J. POL. ECON. 444 (1989)).
74. See id. at 180-181
75. That is, when using a weighting factor of the form c", Trajtenberg finds a higher correlation between the citation index and the measure of patent value when n > 1. Id. at 182.
76. To view this data file in detail, see The NBER U.S. Patent Citations Data File, http://www.nber.org/patents (last visited Apr. 15, 2009). For the source of this database, as well as a description of its enormity and an analysis of its implications,
77. see Bronwyn H. Hall, Adam B. Jaffe & Manuel Trajtenberg, The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools (Nat'l Bureau of Econ. Research, Working Paper No. 8498, 2001), available at http://www.nber.org/papers/w8 498.
78. This Article only reports data for outer windows up to two years, but the results from larger windows are available from the author.
79. See infra app. tbl. 3.
80. Note that there are approximately one-third the number of observations for claims for the five years following the law change as there were before. This is an artifact of the NBER data set which is missing claims data for most of the later observations.
81. Its construction is described in detail infra Part III.
82. See Hall, Jaffe & Trajtenberg, supra note 55, at 41-42 app. 1 (listing the categorizations of patent classes).
83. That is, each point is the average of the PTO processing time for all subsequently granted patents applied for within the previous two years.
84. This date is used because it is the earliest time in which inventors could have reasonably responded to the forthcoming change in the law and thus the earliest that they could have formed their expectations.
85. See Hall, Jaffe & Trajtenberg, supra note 55, at 21-23 (suggesting the generality of a patent as an indicator of its widespread impact in the field).
86. Here and elsewhere I may use causal language about "the impact of the TRIPS agreement." This language is used for simplicity, since the changes are not necessarily due to TRIPS. This is discussed further infra Part V.
87. See Hall, Jaffe &: Trajtenberg, supra note 55, at 21 (suggesting that a high generality score indicates widespread impact of the patent).
88. See supra note 7 and accompanying text.
89. Trajtenberg, supra note 9, at 182-183
90. See supra note 1.
91. See supra text accompanying notes 21-22.