No patenting internal link—no discernable decline in patenting post eBay

Filippo, Northwestern University Kellogg School of Management; Timothy, Boston University Questrom School of Business and NBER. “Patent policy and American innovation after eBay: An empirical examination.” Volume 48, Issue 5, June 2019, Pages 1271-1281. LJS

If changes in the law of patent damages or eligibility led to a reduction in U.S. patent value, we should expect to see a reduction in the¶ number (or growth rate) of new U.S. patent applications relative to the¶ rest of the world. Fig. 1 compares the number of annual applications¶ filed at the USPTO and EPO between 1990 and 2016, using data from¶ the World Intellectual Property Organization (WIPO). In this and all¶ subsequent figures, the vertical line represents the 2006 eBay decision,¶ and the gray shaded bar corresponds to the great recession years of¶ 2008 and 2009.17¶ Although applications to both patent offices increased over this 26¶ year period, U.S. applications grew faster in both absolute and per¶ centage terms. Moreover, there is no apparent decline is U.S. utility¶ applications following the 2006 eBay decision, regardless of whether¶ we use the EPO or the pre-eBay U.S. application growth rate as our¶ baseline.¶ Fig. 1 suggests that any decline in U.S. patent value caused by eBay¶ and subsequent patent policy changes was not enough to prevent applicants from continuing to seek them, and indeed, pursuing them with¶ greater intensity than in other parts of the world. It is not clear what¶ this trend means for innovation overall. First, as we have already suggested, patents do not measure total innovative output. Second, there¶ may be other explanations for trends in the figure. For instance, the¶ USPTO may have increased rejection rates over time, leading applicants¶ to divide their ideas across more applications or file more request for¶ continue examinations (RCEs). Nevertheless, Fig. 1 is at odds with the¶ hypothesis that recent changes in U.S. patent law are harming domestic¶ innovation incentives. In fact, if we assume that reductions in patent¶ value have a first order impact on incentives to patent, we would expect¶ to find a reduction in US filings relative to Europe.¶ To understand what is driving the faster growth in US applications¶ observed in Fig. 1, we can look at their composition. Specifically, we¶ use industry codes published by USPTO to divide new utility patent¶ applicants into three broad groups: Computing (ICT), Life Sciences and¶ Other (mainly Mechanical and Electrical).18 Fig. 2 plots the number of¶ new applications in each industry group by year.¶ It is immediately apparent from Fig. 2 that most of the increase in¶ U.S. patent applications is associated with computer technologies (with¶ a bit of an assist from the Other group). Changes in patent eligibility¶ that made it easier to obtain software and business method patents¶ notably the 1998 State Street vs. Signature decision– almost certainly¶ contributed to this pattern. At the same time, it may also reflect a response to real economic changes associated with ICT revolution, as¶ suggested by Kortum and Lerner (1999). The dramatic increase in¶ Computer patents, and the problems associated with them (Jaffe and¶ Lerner 2004), are arguably key drivers of the legal changes we are¶ seeking to evaluate.¶ Importantly for us, there does appear to be some slowing in the¶ growth of computer patents after eBay. Such a slowdown would be¶ consistent with the idea that legal and policy changes reduced incentives to seek Computer patents. However, the timing of this slow¶ down coincides with the financial crisis, and Fig. 1 shows a resurgence¶ in the growth rate of total U.S. patent applications between 2012 and 2016.19¶ In the Appendix, we show that the results in Fig. 2 are not sensitive¶ to the way we classify patents. In particular, Appendix Figure A.1 shows¶ very similar patterns based on the alternative technology classification¶ scheme of Hall et al (2001), and it also shows that the increase in US¶ patenting relative to European patenting between 1990 and 2010 is¶ largely associated with Computing.20 Table A.1 provides estimates from¶ a simple regression model showing that, if anything, US patenting has¶ grown faster than European patenting after the eBay decision. 21¶ Since patenting is not equivalent to innovation, we now turn to¶ alternative measures to see whether they provide any evidence that¶ post-eBay U.S. patent policy produced a measurable impact.22