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Patents in the Knowledge-Based Economy Patent Quality
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Patents in the Knowledge-Based Economy Are All Patent Examiners Equal? Examiners, Patent Characteristics, and Litigation Outcomes1 Iain M. Cockburn Boston University and NBER Samuel Kortum University of Minnesota and NBER Scott Stern Northwestern University, Brookings Institution, and NBER ABSTRACT We conducted an empirical investigation, both qualitative and quantitative, on the role of patent examiner characteristics in the allocation of intellectual property rights. Building on insights gained from interviewing administrators and patent examiners at the U.S. Patent and Trademark Office (USPTO), we collected and analyzed a novel data set of patent examiners and patent litigation outcomes. This data set is based on 182 patents for which the Court of Appeals for the Federal Circuit (CAFC) ruled on validity between 1997 and 2000. For each patent, we identified a USPTO primary examiner and collected historical statistics derived from the examiner’s entire patent examination history. These data were used to conduct an exploratory investigation of the connection between the patent examination process and the strength of ensuing patent rights. Our main findings are as follows: (i) Patent examiners and the patent examination process are not homogeneous. There is substantial variation in observable characteristics of patent examiners, such as their tenure at the USPTO, the number of patents they have exam- 1 We thank USPTO personnel for offering their time and insight, members of the STEP Committee on the Intellectual Property Rights in a Knowledge-Based Economy, Wesley Cohen, George Elliott, and an anonymous reviewer for their comments and suggestions. Tariq Ashrati provided excellent research assistance. All errors, however, remain our own.
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Patents in the Knowledge-Based Economy ined, and the degree to which the patents that they examine are later cited by other patents. (ii) There is no evidence in our data set that examiner experience or workload at the time a patent is issued affects the probability that the CAFC will find a patent invalid. (iii) Examiners whose patents tend to be more frequently cited tend to have a higher probability of a CAFC invalidity ruling. Although we interpret these results cautiously, our findings suggest that all patent examiners are not equal and that one of the roles of the CAFC is to limit the impact of discretion and specialization on the part of patent examiners. INTRODUCTION Recent years have seen a worldwide surge in interest in intellectual property rights, particularly patents, in academia, in policy circles, and in the business community. This heightened level of interest has produced a substantial body of research in economics ranging from analyses of decisions to use patents rather than alternative means of protecting intellectual property (Cohen et al., 2000) to studies of the ways in which patents are used and enforced once granted (see, for example, Hall and Ziedonis, 2001; Lanjouw and Schankerman, 2001; Lanjouw and Lerner, 2001). However, little systematic attention has been paid to the process of how patent rights are created. Indeed, only recently have researchers begun to develop a systematic understanding of the differences in intellectual property regimes across countries and over time (Lerner, 2002). Moreover, except for some preliminary aggregate statistics (Griliches, 1984; 1990), there are no published studies of the empirical determinants of patent examiner productivity, or of linkages between characteristics of patent examiners and the subsequent performance of the patent rights that they issue.2 This chapter offers a preliminary evaluation of the role that some aspects of the examination process may have in determining the allocation of patent rights, in particular the consequences of specialization of examiners in specific technologies and their exercise of discretion in examining patent applications. Filling in this gap in our knowledge may yield a number of benefits. First, and perhaps most importantly, it is difficult to assess the likely impact of changes in the funding or operation of the U.S. Patent and Trademark Office (USPTO) without some understanding of the “USPTO production function.” For example, 2 King in this volume offers an examination complementary to the one conducted here, in which he undertakes a detailed analysis of the impact of resource allocation per se on “art unit” performance, whereas our quantitative research focuses on how examiner characteristics and workload might impact litigation outcomes. The overall literature on the use of patent statistics and the impact of patents on innovation is far too large to be summarized here, but see Levin et al. (1987), Griliches (1990), Cohen et al. (2000), and Hall et al. (2001) for an introduction.
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Patents in the Knowledge-Based Economy at various points in the past there have been shifts in the resources available to the USPTO as well as in the incentives and objectives provided to examiners, recently focused on reducing the time taken between initial filing of a patent application and final issuance. At the same time, court rulings and revisions in USPTO practice have broadened intellectual property protection into new areas, such as genomics and business methods, where the novelty and obviousness of inventions and the scope of awarded claims may be difficult to assess. These developments raise several important policy concerns. How do the structure and process of patent examination impact the allocation of intellectual property rights? How might changes in the structure and process of examination, from the provision of new incentives to the establishment of new examination procedures, impact patent application and litigation outcomes? Our analysis has both qualitative and quantitative components. In the first part of the chapter, we review our qualitative investigation, in which we developed an informal understanding of the process of patent examination and investigated potential areas for differences among patent examiners to impact policy-relevant measures of the performance of the patent system. The key insight from our qualitative analysis is that “there may be as many patent offices as patent examiners.” On the basis of this insight, we hypothesize that there may be substantial—and quantifiable—heterogeneity among examiners and that this heterogeneity may affect the outcome of the examination process. In the remainder of the chapter we develop some exploratory tests of this hypothesis. To perform our quantitative analysis we constructed a novel data set linking USPTO “front page” information for issued patents with data based on the U.S. Court of Appeals for the Federal Circuit (CAFC) record between 1997 and 2000. We considered a sample of 182 patents: those on which the CAFC issued a ruling on validity during this period. For each patent, we identified the primary and secondary examiners associated with the patent and collected the complete set of patents issued by that examiner during his or her tenure at the USPTO. We then constructed measures based on this examiner-specific patent collection, including the examiner’s experience with examination, workload, and measures based on the citation patterns associated with issued patents. Our sample of “CAFC-tested” patents comes with several limitations. First, it is fairly small, giving us relatively little statistical power for testing some of our hypotheses, such as the effect of examiner experience on subsequent judgments of validity. Second, the sample excluded all patent litigation that had been settled before appeal or had not been appealed from the District Court level. It is quite possible that a lot of the more apparent validity decisions were taken care of below the CAFC level. With these caveats in mind, however, our data set does offer a valuable first look at the characteristics of examiners associated with those patents receiving a high level of judicial scrutiny. We hope that follow-up research will be undertaken to examine whether our findings are confirmed using broader samples of court-tested patents.
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Patents in the Knowledge-Based Economy We present our key findings in several steps. First, we show that patent examiners differ on a number of observable characteristics, including their overall experience at the USPTO (both in terms of years as well as total number of issued patents), their degree of technological specialization, their propensity to cite their own patents, and their propensity to issue patents that are highly cited. Indeed, a significant portion of the overall variance among patents in measures such as the number and pattern of citations received, the number and pattern of citations made, and the approval time can be explained by the identity of the examiner—in the language of econometrics, “examiner fixed effects.” These examiner effects are significant even after controlling for the patent’s technology field and its cohort (i.e., the year the patent was issued). We then turn to an examination of whether observable characteristics of our sample of CAFC-tested patents, such as their citation rate or approval time, can be tied to observable characteristics of examiners, such as their experience or the rate at which “their” patents receive citations. Here we find intriguing evidence for the impact of examiners. For example, there is a significant positive relationship between the citations received by a subsequently litigated patent and the “propensity” of its examiner to issue patents that attract a large number of citations. We then tie these relationships to patent validity rulings. Our econometric results provide evidence of a linkage between the patent examination procedures and litigation outcomes. Although the outcome of a test of validity by the CAFC is unrelated to the number of citations received by that particular patent, validity is related to the portion of the citation rate explained by the examiner’s idiosyncratic propensity to issue patents that receive a high level of citations. This examiner-specific citation rate may reflect a number of aspects of the patent examination process, and it may therefore be difficult to attach an unambiguous interpretation to this measure. On the one hand, examiner-specific differences in the propensity of “their” patents to receive future citations may capture differences in the “generosity” of examiners in allowing claims. On the other hand, this variable may capture the impact of examiner specialization, as a consequence of an examiner concentrating on an especially “hot” technology area where patents attract large numbers of future citations. Nonetheless, our empirical findings suggest that USPTO patent examination procedures do allow for significant differences across examiners in the nature and scope of patent rights that are granted. This finding points to an important role for litigation and judicial review in checking the impact of discretion and specialization in the patent examination process. The remainder of the chapter is organized as follows. In the next section, we review our qualitative data gathering, and motivate the evidence for our key testable hypotheses, which we state in the third section. The fourth section describes the novel data set we have constructed, and the fifth section reviews the results. A final section offers a discussion of our findings and identifies areas for future empirical research in this area.
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Patents in the Knowledge-Based Economy THE PATENT EXAMINATION PROCESS Methodology This section reviews the initial stage of our research, a qualitative investigative phase in which we sought to understand the process of patent examination and the potential role of patent examiner characteristics in that process. This type of investigation is precisely what has been lacking from much academic and policy discussion of the impact of patent office practices, procedures, and personnel on the performance of the intellectual property rights system. Although practitioners and USPTO personnel are intimately acquainted with these procedures, there has been little attempt to identify which aspects of the examination process can be linked through rigorous empirical analysis to the key policy challenges facing USPTO. Overall, our qualitative research phase included interviews with approximately 20 current or former patent examiners and an equal number of patent attorneys with considerable experience in patent prosecution. This phase involved three distinct stages. First, we informally interviewed former patent examiners and patent attorneys outside the USPTO to develop a basic grounding in the process and procedures of the USPTO and to evaluate some of our initial hypotheses on the impact of patent examiner characteristics and USPTO practice on the allocation of intellectual property rights. We developed a proposal based on this working knowledge to undertake systematic interviews within the USPTO, and with the assistance of the National Academies’ STEP Board, we met with senior USPTO managers to discuss administering a survey linking detailed information about examiner history with information that could be gleaned from patent statistics about differences among patent examiners. We were unable to obtain approval to distribute a systematic survey of our own design to a broad cross section of current and former examiners, but USPTO management generously allowed us to conduct informal interviews and question-and-answer sessions during several visits with a small number of examiners, mostly those in a supervisory role. These conversations were very helpful in developing more subtle, precise, and econometrically testable hypotheses. In the third stage of qualitative research, we confirmed the viability of our hypotheses with individuals external to the USPTO. The Examination Process Here we describe the patent examination process in general terms, focusing on the aspects for which we identified potential sources of heterogeneity in examination practice. The USPTO is one of the earliest and among the most visible agencies of the federal government, receiving more certified mail per day than any other single organization in the world. Located in a single campus of con-
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Patents in the Knowledge-Based Economy nected buildings, the USPTO is staffed by over 3,000 patent examiners and has more than 6,000 total full-time equivalent employees. In recent years the examiner corps has been responsible for over 160,000 patent approvals per year. The federal government raises nearly $1 billion in revenue per year from the fees and other revenue streams associated with the USPTO. The work flow and procedures associated with patent approval are quite systematic and well-determined.3 After arriving at a central receiving office, and passing basic checks to qualify for a filing date, patent applications are sorted by a specialized classification branch4 that allocates them to one of 235 “Art Units”— a group of examiners who examine closely related technology and constitute an administrative unit. Within the Art Unit, a “Supervisory Patent Examiner” (a senior examiner with administrative responsibilities) looks at the technology claimed in the application and assigns it to a specific examiner. Once the patent is allocated to a given examiner, that examiner will, in most cases, have continuing responsibility for examination of the case until it is disposed of—through rejection, allowance, or discontinuation. The examination process therefore typically involves an interaction between a single examiner and the attorneys of the inventor or assignee. Although the stages associated with this process are relatively structured (and exhaustively documented in the Manual of Patent Examining and Procedure), they leave substantial discretion to the examiner in how to deal with a particular application. The examination of an application begins with a review of legal formalities and requirements and an analysis of the claims to determine what the claimed invention actually is. The examiner also reads the description of the invention (part of the “specification”) to ensure that disclosure requirements are met. The next step is a search of prior art to determine whether the claimed invention is anticipated by prior patents or nonpatent references and whether the claimed invention is obvious in view of the prior art. There is considerable scope for heterogeneity in this search procedure. The prior art search typically begins with a review of existing U.S. patents in relevant technology classes and subclasses, either through computerized tools or by hand examination of hard copy stacks of issued patents, and may then proceed to a word search of foreign patent documents, scientific and technical journals, or other databases and indexes. USPTO’s Scientific and Technical Information Center maintains extensive collections of reference materials. Word searches typically require significant skill and time to conduct effectively. 3 In this short discussion, we do not cover the legal requirements for patentability, because these are covered in great detail elsewhere. Indeed, the departure point between our analysis and more of the prior literature in this area is that we are principally concerned with the actual process of examination rather than the standards as defined by the patent law. 4 This sorting function identifies and appropriately treats applications with national security implications.
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Patents in the Knowledge-Based Economy The applicant may also include significant amounts of material documenting prior art with the application. The extent to which examiners review this nonpatent material may be a function of the nature of the technology, the maturity of the field, and the ease with which it can be searched. For example, in science-intensive fields like biotechnology where much of the relevant prior art is in the form of research articles published in the scientific literature and indexed by services such as Medline, examiners may rely extensively on nonpatent materials. In very young technologies, or in areas where the USPTO has just begun to grant patents, there may be very limited patent prior art. In more mature technologies examiners may have only a moderate interest in nonpatent materials and a limited ability to easily or effectively search them. Although the scope of patent examination prior art searches has been criticized, our interviews of USPTO personnel suggest that senior USPTO management are keenly aware of external critiques of the examination process and that a variety of initiatives have been set in motion to address some of these limitations. Once relevant prior art has been identified, the examiner obtains and reads relevant documents. Again, different examiners and different Art Units may use substantially different examination technologies. For example, although many of the mechanical Art Units have historically relied on the “shoes” (the storage bins for hard copy patent documents), and may search for prior art primarily by viewing drawings, a typical search in the life sciences can involve detailed algorithmic searches by computer to evaluate long genetic sequences and review of tens or hundreds of research articles and other references. Some examiners may develop and keep close to hand their own specialized collections of prior art to facilitate searching. Indeed, patent examiners identify and frequently refer to “favorite” examples of prior art that usefully describe (“teach”) the technology area and the bounds of prior art in a way that facilitates the examination of a wide range of subsequent applications.5 After the specification is reviewed to ensure that it provides an adequate “enabling disclosure” and an appropriate wording of claims, the initial examination is complete. The examiner then arrives at a determination of whether or not the claimed invention is patentable and composes a “first action” letter to the applicant (or, normally, the applicant’s attorney) that accepts (“allows”), or rejects, the claims. Some applications may be allowed in their entirety upon first examination. More commonly, some or all of the claims are rejected as being anticipated by the prior art, obvious, not adequately enabled, or lacking in utility, and the examiner will write a detailed analysis of the basis for rejection. The 5 Many of these “favorites” are university or public sector patents, which may be written less strategically than those for private firms. In part, this may help to explain the finding that university patents are more highly cited than control patents by private firms (Jaffe, Henderson, and Trajtenberg, 1998).
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Patents in the Knowledge-Based Economy applicant then has a fixed length of time to respond by amending the claims and/ or supplying additional evidence or argument. After receiving and evaluating this response, the examiner can then “allow” the application if it is satisfactory (the most common stage in the process at which an application proceeds on to final issuance of a patent), negotiate minor changes with the attorney, or write a “second action” letter, which maintains some or all of the initial rejections. In this letter the examiner is encouraged to point out what might be done to overcome these rejections. Although at this stage the applicant’s ability to further amend the application is formally somewhat restricted, in effect, additional rounds of negotiation between the examiner and applicant may ensue. The applicant also has the opportunity to appeal decisions for re-examination or evaluation within an internal USPTO administrative proceeding. However, such actions are quite rare; most applications are allowed (or not) on the second or third action letter. USPTO operates various internal systems to ensure “quality control” through auditing, reviewing, and checking examiners’ work. This includes the collection and analysis of detailed statistics about various measures of examiner work product flow. For example, Supervisory Patent Examiners, as well as their supervisors, routinely evaluate data relating to the distribution of times to action and the number of actions required before “disposal” of an application through allowance, abandonment, or appeal. These measurements are one of the many tools that USPTO uses to refine the internal management of the examination process. It is also useful to note that examiners are allocated fixed amounts of time for completing the initial examination of the application and for disposal of the application. However, examiners are free to average these time allotments over their caseload. Moreover, there are differences in these time allocations across technology groups, and there also have been changes over time. Although we do not explore this variation in the current study, exploiting these changes in USPTO practice across technology groups and over time could give some leverage for understanding the relationship between time constraints and patent quality. Examiner Training and Specialization Variation among examiners in their conduct of the examination process may arise from several sources. We focus here on two possibilities suggested by our interviews. First, at a given point in time, or for a particular patent cohort, examiners necessarily vary substantially in their experience. Experience may affect the quality of patent examination, and this has been a source of concern in recent years as the rate of hiring into the USPTO has increased, particularly into art areas with little in-house expertise. On the other hand, our qualitative research greatly emphasized the role of the systematic apprenticeship process within the USPTO, which is likely to reduce errors made by junior examiners. For the first several years of their career, examiners are denoted as Secondary Examiners and their work is routinely reviewed by a more senior Primary Examiner. Over time,
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Patents in the Knowledge-Based Economy the Secondary Examiner takes greater control over his/her caseload and the Primary Examiner focuses on teaching more subtle lessons about the practice of dealing with applicants and their attorneys and instilling the delicate “not too much, not too little” balance that the USPTO is trying to achieve in the patent examination process. Second, as alluded to above, Art Units may vary substantially in their organization and functioning. In the most traditional group structure, the allocation of work promotes a maximal amount of specialization by individual examiners. For example, in many of the mechanical Art Units, an individual examiner may be responsible for nearly all of the applications within specific patent classes or subclasses. In other Art Units, however, the approach is more team-oriented. In these groups, there is less technological specialization (multiple subclasses are shared by multiple examiners) and there is likely a higher degree of discussion and knowledge sharing among examiners. In the more specialized organization, there are far fewer checks and balances on the practices of a given examiner. When the examiner has all of the relevant technological information; the cost for an auditor to effectively review his/her work becomes very high. By contrast, in less specialized environments, there are likely to be greater opportunities for monitoring, although, obviously, decreased specialization may reduce examiners’ level of expertise in any specific area. In part because of specialization, primary examiners maintain substantial discretion in their approach to individual applications. Our qualitative interviews suggest that this latitude may result in variation among examiners in how they balance multiple USPTO objectives. Consider the impact of the Clinton administration program (headed up by Vice President Gore) to establish the USPTO as a “Performance-Based Organization” (National Partnership for Reinventing Government, 2000).6 Among other goals, this initiative encouraged examiners to treat applicants as customers and to cooperate with applicants’ attorneys to define and allow (legitimate) claims. Although not changing the formal standards for claims assessment, this program encouraged examiners to use their discretion to increase the applicants’ ability to receive at least some protection for inventions. In our qualitative interviews, there were significant differences among examiners in how they claimed to respond to this new “customer” orientation. Although some acknowledged that it changed their approach to interactions with applicants’ attorneys, others claimed that it had “made no difference” for the day-to-day “balancing act” associated with allowing claims. This heterogeneous response to a single well-defined change in USPTO policy supports our hypothesis that examiners may vary in their approach to the examination process. 6 The interviews for this project took place between June 2000 and June 2001.
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Patents in the Knowledge-Based Economy FIGURE 5 Self-citations by examiners. In Table 3A, we present a simple ANOVA analysis based on our complete sample of 298,441 patents attributed to the 196 CAFC-tested examiners. The results indicate that examiners matter: A significant share of the variance in this sample in the four variables capturing the volume and pattern of citations by and to a particular patent (Citations Made, Citations Received, Originality, and Generality) is accounted for by fixed examiner effects, with a particularly strong ef- TABLE 3A Analysis of Variance of Patent Characteristics (N = 289,441; 196 Examiner Effects; 36 Technology Subclass Effects; 24 Cohort Effects) Variable Fraction of Variance Explained by Examiner Effects F-Statistic for No Examiner Effect F-Statistic for No Examiner Effect, Controlling for Detailed Technology Class and Cohort Citations Made 0.077 121.71 52.64 Citations Received 0.117 193.40 51.07 Approval Time 0.083 131.77 78.92 Claims 0.030 44.83 16.06 Generality 0.079 105.56 38.97 Originality 0.069 104.23 61.30
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Patents in the Knowledge-Based Economy fect in the ANOVA of Citations Received. A similar result is obtained for the length of time between application and grant: About 8 percent of the variance in this measure can be attributed to differences among examiners. A much smaller share of variance is explained for the number of claims on each patent. These results are robust to controlling for differences across technology classes. As Table 3B shows, there are visible differences across technology classes in the fraction of variance explained by examiner effects. There appears to be much more homogeneity across examiners in examination of mechanical patents, with significantly less homogeneity in Citations Made for chemical patents, and in the approval time for electrical/electronic patents. Overall, these results confirm the intuition we developed in our qualitative investigation: There is substantial heterogeneity across examiners, even after controlling for the important technology and cohort effects. The above analysis suggests that examiners vary, particularly in terms of the rate at which their patents tend to receive citations. But how does this variation, which we have suggested as a proxy for examiner discretion and/or specialization, affect our set of CAFC-tested patents? Table 4 presents regressions relating Citations Received by the CAFC-tested patents to a set of examiner characteristics and, in particular, Examiner Cites Per Patent. One result is particularly striking: There is a very strong relationship between Examiner Cites Per Patent and Citations Received by CAFC-tested patents. The effect is slightly reduced, but still quite significant, after conditioning on the patent’s detailed technology subclass, cohort, and assignee type. In each of the specifications in Table 4, increasing Examiner Cites Per Patent by one patent (less than one-third of a standard deviation) increases the predicted number of citations of the CAFC-tested patent by more than one (recall that CAFC-tested patents have much higher overall citation rates). Other observable examiner characteristics have a less clear relationship with Citations Received. The overall level of self-citation, experience (both in terms of years as well as the total level of issued patents), and a measure TABLE 3B Analysis of Variance of Patent Characteristics by Technology Class Fraction of Variance Explained by Examiner Effects Variable Chemical ICT Drug/Med Electronic Mechanical Other Citations Made 0.123 0.054 0.104 0.078 0.054 0.059 Citations Received 0.058 0.099 0.110 0.066 0.076 0.072 Approval Time 0.098 0.083 0.074 0.116 0.053 0.053 Claims 0.033 0.027 0.028 0.022 0.031 0.037 Generality 0.084 0.112 0.078 0.086 0.055 0.081 Originality 0.087 0.964 0.044 0.063 0.069 0.082
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Patents in the Knowledge-Based Economy TABLE 4 Citations-Received Equation Citations Received Dependent Variable (4-1) (4-2) (4-3) (4-4) Examiner Characteristics Examiner Cites Per Patent 2.68 1.83 1.82 1.69 (0.41) (0.53) (0.54) (0.58) Self-Cite 25.80 40.56 (26.18) (28.03) Experience (years) 0.13 0.32 (0.27) (0.30) 3-Month Volume 0.01 0.01 (0.04) (0.04) Patent Characteristics Generality 11.28 (6.70) Originality 1.90 (6.33) Control Variables Cohort Fixed Effects Sig. Sig. Sig. Technology Subclass Fixed Effects Sig. Sig. Sig. Assignee Fixed Effects Insig. Insig. Insig. Regression Statistics Adj. R-squared 0.19 0.44 0.45 0.45 No. of Observations 182.00 182.00 170.00 170.00 Note: Standard errors are in parentheses. of near-term work flow (3-Month Volume) are all insignificant in their impact on Citations Received. Many factors may affect how many citations a patent receives. Citations received are frequently thought to reflect the technological significance of the claimed invention. Pioneering inventions with broad claims and no closely related prior art will tend to be cited frequently as follow-on inventors improve on the original invention. Citations may also reflect the quality or scope of the disclosure accompanying the claims. We cannot directly measure either of these factors here. Nonetheless, these results do indicate that a significant fraction of the variation in citations received by any particular patent is driven by a single aspect of examiner heterogeneity, the average propensity of “their” patents to attract citations. This is true even after controlling for other important attributes of the patent such as the technology class, the year when it was approved, and the type of assignee.
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Patents in the Knowledge-Based Economy The Impact of Examiner and Patent Characteristics on Litigation Outcomes We now turn to the final part of our analysis—linking examiner characteristics to litigation outcomes. Although the overall probability of validity being upheld is approximately 50 percent, there is substantial variation in this percentage across technological area, year of patent approval, and even the type of assignee (see Figures 6-8). For example, although pharmaceutical and medical patents are more likely than not to be upheld, a substantial majority of computers and communications equipment patents are overturned. As well, the age of a patent seems to be an important predictor of validity—pre-1990 approvals are much more likely to be upheld by the CAFC than post-1990 approvals. As we emphasized in the second section of this chapter, these findings suggest the importance of controlling for detailed technology classes and cohorts in our analysis as we seek to evaluate the sensitivity of validity findings to examiner characteristics. We begin our analysis in Tables 5 and 6, which compare the means of examiner characteristics and patent characteristics, conditional on whether the CAFC ruled the patent valid. Several issues stand out. First, the conditional means associated with most of the patent characteristics are roughly the same. It is useful to note that there is less than a 10 percent difference in the level of Citations Received between the two groups. The only striking difference is in Approval Time, where the time taken to approve invalid patents is significantly higher than the time taken to approve those that were found to be valid. Although it is hard to establish a “negative” result in the context of our highly selected CAFC-tested sample of patents,21 this finding does offer evidence against a simplistic relationship between approval times and validity rulings. Turning to the mean examiner characteristics by validity (Table 6), the striking differences are in terms of Examiner Cites Per Patent and 3-Month Volume. There is no significant difference in the means according to experience level; if anything, invalid patents are associated with examiners with higher mean levels of experience, both in terms of TABLE 5 Patent Characteristics: Means Conditional on CAFC Validity Ruling Invalid Valid Claims 20.73 20.28 Citations Received 17.38 16.04 Originality 0.36 0.41 Generality 0.41 0.41 Approval Time 845.51 760.90 21 As argued above, the selectivity effect biases against finding such a result.
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Patents in the Knowledge-Based Economy TABLE 6 Examiner Characteristics: Means Conditional on CAFC Validity Ruling Invalid Valid Experience (no. of patents) 2276.40 2077.81 Experience (years) 18.82 18.51 Examiner Cites Per Patent 6.89 5.72 Self-Cite 0.10 0.10 3-Month Volume 45.56 37.19 volume and tenure. This stands in useful contrast to the most naïve interpretation of hypothesis H4, which predicts that Experience should be positively correlated with Validity. In contrast, consistent with the suggestion in hypothesis H5, invalid patents do seem to be associated with examiners who have a higher average citation rate. Of course, these conditional means ignore the important differences across technologies (Figure 6), cohorts (Figure 7), or assignees (Figure 8) and the poten- FIGURE 6 CAFC patents by technology.
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Patents in the Knowledge-Based Economy FIGURE 7 CAFC patents by year issued. tial for correlation among the examiner characteristics themselves. We therefore turn to a more systematic set of regression analyses in Table 7. The dependent variable in the regressions takes the value 1 if the CAFC-tested patent is ruled valid, 0 otherwise.22 The first two columns of Table 7 provide a test for hypothesis H4, the sensitivity of the probability of a validity finding to the experience of the examiner. Whether or not detailed controls are included, there is no significant relationship between any measure of experience and the probability of a ruling of validity. Indeed, we have experimented with a wide variety of specifications relating to these experience measures and there is no systematic relationship between validity and these measures in these data. Once again, these “negative” results must be interpreted with caution given the special nature of the sample; they might suggest that a mechanical relationship between examiner experience and the outcomes of validity rulings, if it exists, may be more subtle than some would argue. 22 Both Tables 7 and 8 employ a linear probability model, either OLS or IV. The coefficients are therefore easily interpretable and comparable with each other, and we avoid the technical subtleties associated with an implementing instrumental variables probit in the context of a small sample. We experimented with a probit model for the reduced-form OLS results, and the results remain quantitatively and statistically significant.
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Patents in the Knowledge-Based Economy FIGURE 8 CAFC patents by assignee type. In the last two columns of Table 7, we turn to hypothesis H5, the sensitivity of a validity ruling to other examiner characteristics. The only significant relationship is with Examiner Cites Per Patent, which has a significant and large negative coefficient. Moreover, this coefficient increases in absolute value when detailed technology and cohort controls are included. According to (7-4), by increasing the Examiner Cites Per Patent by one standard deviation (3.49), the probability of validity is predicted to decline by over 14 percentage points, from a mean of 48 percent. In other words, the probability of validity is strongly associated with the average rate at which that examiner’s patents have received citations. As we have emphasized in our hypothesis development, the interpretation of this result is subtle. On one hand, the results provide evidence that even high-level litigation outcomes are related to examiner characteristics that result from two key features of the organization of the USPTO—specialization of examiners in narrow technology areas and exercise of discretion by examiners in allowing claims. Moreover, when we control for specialization, the results become stronger, providing a hint that variation among examiners in their “generosity”—a phenomenon we observed in our qualitative interviews—may be important for understanding the allocation of intellectual property rights that result from patent examination procedures.
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Patents in the Knowledge-Based Economy TABLE 7 Reduced-Form OLS Validity Equation Valid Dependent Variable (7-1) (7-2) (7-3) (7-4) Examiner Characteristics Experience (no. of patents) −2.97 E-05 −4.97 E-05 2.43 E-05 −7.60 E-05 (3.26 E-05) (3.52 E-05) (4.57 E-05) (5.53 E-05) Experience (years) −0.002 −0.005 −0.0003 −0.002 (0.008) (0.008) (0.008) (0.009) Self-Cite −0.41 −0.190 (0.67) (0.797) 3-Month Volume −0.002 0.001 (0.0014) (0.001) Examiner Cites Per Patent −0.024 −0.041 (0.011) (0.015) Control Variables Cohort Fixed Effects Insig. Insig. Technology Subclass Fixed Effects Sig. Sig. Assignee Fixed Effects Insig. Insig. Regression Statistics Adj. R-squared 0.000 0.113 0.017 0.143 No. of observations 182.00 182.00 182.00 182.00 Note: Standard errors are in parentheses. This finding motivates our final set of regressions, using the instrumental variables procedure, in Table 8. As discussed in the third section of this chapter, we investigate the mechanism by which Examiner Cites Per Patent might affect patent validity rulings by restricting its impact to the citation rate of the litigated patent. In other words, we impose the exclusion restriction that, but for its impact on Citations Received, Examiner Cites Per Patent is exogenous to the validity decision. The results of this IV analysis are striking. On the one hand, the OLS relationship between validity and Citations Received is insignificant (8-1). However, the coefficient on Citations Received in the instrumental variables equations is significant, large, and negative. Although validity is unrelated to the total number of citations received by a patent, validity is strongly related to the portion of the citation rate explained by the examiner’s average propensity to grant patents that attract citations. Moreover, the size of this coefficient increases substantially after the inclusion of technology, cohort, and assignee effects, as well as with the inclusion of other characteristics of CAFC-tested patents. If our results were being driven by unobserved variation across examiners in the types of technologies examined, these controls would likely condition out some of this heterogeneity; the fact that our results become stronger after the inclusion of controls
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Patents in the Knowledge-Based Economy TABLE 8 Validity Equation Valid Dependent Variable (8-1) OLS (8-2) IVa (8-3) IVa (8-4) IVa Patent Characteristics Citations Received −0.0007 −0.0090 −0.0228 −0.0242 (0.0017) (0.0042) (0.0106) (0.0111) Claims 0.003 (0.002) Originality 0.238 (0.227) Generality 0.188 (0.268) Approval Time −0.00006 (0.00009) Control Variables Cohort Fixed Effects Sig. Sig. Technology Subclass Fixed Effects Sig. Sig. Assignee Fixed Effects Insig. Insig. Regression Statistics Adj. R-squared 0.000 NA NA NA No. of observations 182.00 182.00 170.00 170.00 aIV: Endogenous = Citations Received; instrumental variable = Examiner Cites Per Patent. Note: Standard errors are in parentheses. makes our findings even more suggestive. In other words, even relying on a test that only allows examiner effects to matter through their impact on the citation rate of the litigated patent, and controlling for differences in the timing and type of litigated technology, we find that the CAFC invalidates patent rights associated with examiners whose degree of specialization or exercise of discretion results in an unusually high level of citations received. DISCUSSION AND CONCLUSIONS We have conducted an empirical investigation, both qualitative and quantitative, of the role that patent examiners play in the allocation of patent rights. In addition to interviewing administrators and patent examiners at the USPTO, we have constructed and analyzed a novel data set on patent examiners and patent litigation outcomes. Starting with a sample of patents for which the CAFC decided on validity between 1997 and 2000, we collected historical data on those who examined these patents at the USPTO. For each of these examiners, we
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Patents in the Knowledge-Based Economy collected data on all of the other patents that they examined during their career, allowing us to compute a number of interesting examiner characteristics. The data set obtained by matching these two sources is, of course, based on a highly selected sample, because very few patents make it to the CAFC. Nonetheless, we view the analysis of these CAFC cases as a very useful first step, largely conditioned by the ease of accessibility to data, in exploring a number of hypotheses about the connection between the patent examination process and the issuance of patent rights. Our results are preliminary, but they suggest a number of interesting findings. First, patent examiners and the patent examination process are not homogeneous. There is substantial variation in observable characteristics of patent examiners, such as their tenure at the USPTO, the number of patents they have examined, the average approval time per issued patent, and the degree of specialization in technology areas. There is also systematic variation in outcomes of the examination process—such as the volume and pattern of citations made and received by patents—that can be attributed to idiosyncratic differences among examiners. Most interestingly, examiners differ in the number of citations made to “their” issued patents, even after controlling for technology class, issuing cohort, and other factors. Second, we find no evidence in our sample for the most “naïve” hypotheses about examiner characteristics and quality of examination. In particular, we find no strong statistical association between examiner experience or workload at the time a patent is issued and the probability of the CAFC finding it to be invalid if it is subsequently litigated to the appeals court level. We hesitate to make any policy prescriptions based on this “negative” finding, however, unless it were confirmed in subsequent research using a larger sample. Third, we find that “examiners matter”: Although highly structured, and carefully monitored by USPTO, patent examination is not a mechanical process. Examiners necessarily exercise discretion and are focused in very narrow technology areas, and occasionally the claims allowed under this process are overturned by subsequent judicial review. Our core finding is that the examiners whose patents are cited most often are also more likely to have their patents ruled invalid by the CAFC. Our econometric procedure distinguishes between citations received by a particular patent because of the scope of its claims or the significance of an overall technology area and citations received because of examiner-specific differences in propensity to allow patents that attract citations. It is only the second of these mechanisms that has a statistical relationship with CAFC validity rulings. The fact that patent examination cannot be mechanistic, and that idiosyncratic aspects of examiner behavior appear to have a significant impact on the nature of the patent rights that they grant, suggests a significant role for the organization, leadership, and management of USPTO. The management literature recognizes the value of corporate culture in the form of informal rules, common values, exemplars of behavior, etc. in providing guidance on how to exercise
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Patents in the Knowledge-Based Economy discretion. Although idiosyncratic behavior of examiners can be controlled to some extent by formal processes such as supervision, selection of examiners, training, and incentives, the institution’s cultural norms necessarily play an important role in their exercise of discretion in awarding patent rights. Policy changes that impact the organizational structure and internal culture of the USPTO should be careful to take patent examiner behavior into account. REFERENCES Cohen, W., R.R. Nelson, and J.P Walsh. (2000). “Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not).” NBER Working Paper No. 7552. Griliches, Z., ed. (1984). R&D, Patents and Productivity.Chicago, IL: Chicago University Press. Griliches, Z. (1990). “Patent Statistics as Economic Indicators: A Survey.” Journal of Economic Literature 92: 630-653. Hall, B., A. Jaffe, and M. Trajtenberg. (2001). “The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools.” NBER Working Paper No. 8498. Hall, B., and R. Ziedonis. (2001). “The Patent Paradox Revisited: An Empirical Study of Patenting in the US Semiconductor Industry 1979-1995.” RAND Journal of Economics 32(1): 101-28. Jaffe, A., R. Henderson, and M. Trajtenberg. (1998). “Universities as a Source of Commercial Technology: A Detailed Analysis of University Patenting, 1965-1988.” Review of Economics and Statistics 80(1): 119-127 King, J. (2003). “Patent Examination Procedures and Patent Quality.” In W. Cohen and S. Merrill, eds., Patents in the Knowledge-Based Economy. Washington, D.C.: The National Academies Press. Lanjouw, J., and M. Schankerman. (2001). “Characteristics of Patent Litigation: A Window on Competition.” RAND Journal of Economics 32(1): 129-151. Lanjouw, J., and J. Lerner. (2001). “Tilting the Table? The Use of Preliminary Injunctions.” Journal of Law and Economics 44(2): 573-603. Levin, R., A. Klevorick, R. Nelson, and S. Winter. (1987). “Appropriating the Returns from Industrial R&D.” Brookings Papers on Economic Activity, No. 3: 783-831. Lerner, J. (2002). “150 Years of Patent Protection.”American Economic Review Papers and Proceedings 92(2): 221-225. Waldfogel, J. (1995). “The Selection Hypothesis and the Relationship Between Trial and Plaintiff Victory.” Journal of Political Economy 103: 224-260.
Representative terms from entire chapter: