Using renewals in identifying the industries that rely on strategic patenting

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Published on February 18, 2014

Author: uctpapa

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Technis presentation Wednesday the 19th of Feb. 2014

Using renewals in identifying the industries that rely on strategic patenting Presentation for ΤECHNIS 19-02-2014 K.D A.P.

Traditional motive for patenting • To commercialize/license an invention unhindered by competition, i.e. incentives. • However, patents act as incentives to innovate for the pharmaceutical and chemical industry only. • Survey evidence from firm managers shows that in all other industries firms value firm mover advantage, trade secrets and technological superiority more; see Cohen, Nelson and Walsh (2000), Graham et al. (2009). • Plus, the majority of innovations in these industries would have taken place even without of patents; Bessen and Meurer (2008), Jaffe and Lerner (2011).

Puzzle • If patents are valuable as incentives for only a handful of industries, why have we recently seen an explosion of patents that is not restricted to the pharmaceutical and chemical industry; (Lai et al. 2011) . • Explanation: changes in the management of innovation; see Kortum and Lerner (1997). • Managers realized that patents can be employed in holding rivals hostage by controlling technology that they need; see Cohen, Nelson and Walsh (2000), Reitzig (2004). • In short, firms also patent for strategic reasons such as for blocking and negotiating purposes.

Problems • Patents are meant as incentives and not strategic assets. • Unnecessary monopolies. • An expansion of the patent landscape burdens innovation with unwanted uncertainty, and additional monitoring and litigation costs; Merges (2011). • These costs, force inventors to protect their technologies via trade secrets. Lack of disclosure imposes an additional cost to society; Kitch (1977), Mazzoleni and Nelson (1998). • Some firms substitute costly R&D activities with strategic patents as a means to profit; Bessen and Hunt (2007).

Our argument • Strategic patents are prized for the right to exclude others. • The legal ability of a patent to exclude does not depreciate with time. The value of a technology does depreciate in time. • On average firms with technologies facing little depreciation and firms with strategic patents would be keener to renew them.

This argument can explain: • why patents in industries known to value patents as a means to profit from the embodied technology, e.g. pharmaceutical and chemical patents, have been found as less likely to be renewed than computers and communication (or mechanical and electronics) patents, which are known to offer limited long-term protection from imitation; see Bessen (2008), Schankerman (1998).

This logic rests on expectations. • A patentee, prior to renewing, must establish if the technology can account for the maintenance fee and the cost of managing a patent. Since such expectations must depend on a multitude of parameters (e.g. future demand, market structure, technological progress, societal norms, fads, business cycles, policy changes etc.), relying on renewals in identifying strategic patents can be misleading.

A natural experiment • We use a natural experiment that in principle forces the patentees to reveal their type. • We check that our findings accord with the empirical literature. • Knowing the patentees’ type we follow the same pool of patentees and look at renewals. • We find that the patentees that were identified as relying on strategic patents had a greater renewal rate.

TRIPS • Before TRIPS the USPTO granted patents for 17 years since the grant date of the patent. • By implementing TRIPS, the USPTO was obliged to change its practice and start granting patents with a patent length equal to 20 years since the original patent filing date. • As to facilitate the move to TRIPS, the USPTO (unexpectedly) allowed applicants who filed prior to June 8th 1995 a patent length that was equal to the maximum of the two regimes; i.e. a possible small extension in patent length.

We expect that: • Applicants with technologies that can find marketable applications should value the extension more than applicants who aim to use the patent in unforeseen and uncertain bargaining negotiations. • They should be more likely to file prior to June 8th 1995. • When renewing their patents this pattern should reverse and applicants that value the embodied technology should be less likely to renew.

Hypotheses • H1: industries that have been known to value patents as incentives should be keener to file prior to the deadline. • H2: industries that were not keen to file prior to the deadline should be eager to renew.

Did Applicant Take Law Change into Account?

Did Applicant Take Law Change into Account?

In Which Tech Fields Was it More Pronounced? (10-Week Window)

How About Renewals?

Does the Incentive Change by Type of Application? 80 New CAP CIP fore DIV 0 0 20 40 60 80 60 40 20 0 20 40 60 80 100 MECH 100 COMP 100 CHEM New After CAP CIP Before After Before DIV After DIV After 100 60 40 0 20 0 Before CIP CIP 80 100 80 40 20 CAP CAP OTHE 60 80 60 40 20 0 New New ELEC 100 DRUG DIV New CAP Before CIP DIV After New CAP Before CIP DIV After

How About Renewals? New CAP CIP DIV 0 20 40 60 80 0 20 40 60 80 0 20 40 60 80 100 MECH 100 COMP 100 CHEM New CAP CIP DIV New CAP CIP DIV 4 8 4 8 4 8 12 Full 12 Full 12 Full New CAP CIP DIV 0 20 40 60 80 0 20 40 60 80 0 20 40 60 80 100 OTHE 100 ELEC 100 DRUG New CAP CIP DIV New CAP CIP DIV 4 8 4 8 4 8 12 Full 12 Full 12 Full

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