Patent Value, Uncertainty, and the Debate about Patent Quality

When I was the Chief Economist at the U.S. Patent and Trademark Office (USPTO), I sometimes encountered people who were surprised to know that I existed. Well, not me as an individual, but the role of Chief Economist. Why does the USPTO have economists? Now, many of these individuals were Congressional staffer-types on their fourth Mojito at the Hay Adams, so I learned to be quick with my answer. I told them this:

Globally and historically—the primary driver of economic growth is technological change. (And, when I say “primary driver,” it’s not even close.)

?The real question is, why wouldn’t there be economists at the Patent Office—the agency tasked with assigning property rights to the very inventions that give rise to technological change? What I left out of my elevator pitch is that the link between patent rights (and more broadly intellectual property rights, or IPRs) and technological change depends critically on the value of IPRs.

Valuable patent rights are necessary to satisfy the Constitutional imperative to incentivize “progress in the useful arts.” The patent system relies on patent value to attract investment in research and development. If new inventions are easily copied by competitors, then the inventor has little incentive to commercialize the product. As I tell my students, patents are designed to be a solution to a market failure: they enable the inventor to appropriate the returns from solving the problems necessary to bring the product to market. Appropriability—in the form of valuable IPRs—incentivizes innovation.

That’s the idea anyway.

The patent system has its detractors. They argue that lots of patents aren’t valuable. Overlapping property rights cause confusion and disputes. Patent enforcement and litigation is costly. Often the fault is laid at the foot of the Patent Office for issuing too many poor-quality patents. Moreover, some innovations are incentivized by other means like scientific grants, first-mover advantages, or open innovation networks. Critics argue that regardless of the theory, in practice the patent system does a poor job of incentivizing real technological change.

Many a research paper has been written, and much data has been mined, attempting to measure the practice of the theory.

My contention is that there is one main culprit that separates a well-functioning patent system from that described by its critics. In a word: uncertainty.

Uncertainty causes confusion and disputes. Uncertainty undermines the incentives to invest. Uncertainty is the deal-killer. And uncertainty is at the heart of understanding patent quality.

Over the next several weeks, I will explore several topics related to uncertainty in IPRs. We’ll talk about the elusive concept of patent quality, how uncertainty affects the asset value of patents, and what can be done about it. I hope you’ll join me.

Dr. Alan Marco is the Chief Economist for Ocean Tomo, a part of J.S. Held, having previously served as the Chief Economist for the USPTO. He is an economist who specializes in intellectual property and innovation. To learn more about Dr. Alan Marco, visit: https://www.oceantomo.com/team/alan-marco-phd/