Patenting strategies and the value of European patents

Bruno van Pottelsberghe de la Potterie, Nicolas van Zeebroeck, 11 October 2008

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Different authors have recently emphasised the plausible decline in the average value or quality of patents filed around the world (see e.g. Jaffe and Lerner 2004; Guellec and van Pottelsberghe 2007). This trend is apparently due to a growing propensity to file patent applications (as illustrated with the curve in Figure 1 below, which represents a fast growing patent–to-R&D ratio). The direct consequence of filing more patents per dollar of R&D (i.e., a higher propensity to protect inventions with smaller market potentials or the practice of filing more patents for a given invention) is to reduce the average quality or value of these patent filings (as illustrated by the average composite value index put forward by van Zeebroeck (2007a) and the Scope-Year index we propose in van Pottelsberghe and van Zeebroeck (2008).

Figure 1. Value/quality indicators of granted patents and propensity to patent, 1980-1995

Source: adapted from van Zeebroeck (2007a) and van Pottelsberghe and van Zeebroeck (2008)

Note: The series stop in 1995 because ten-year renewal data is used to compute to the two value indicators. SYI is Scope-Year Index; ACV is average composite value.

Development of patent filing strategies

At the same time, filing strategies are developing in terms of how patent applications are drafted, filed, and managed at the European Patent Office (EPO). Stevnsborg and van Pottelsberghe (2007) put forward a typology of patent filing strategies based on the adopted drafting styles and modes of interaction with the patent office during the examination process. These strategies include the increasing recourse to the Patent Cooperation Treaty (PCT, an option aimed at facilitating the international extension of applications and essentially giving more time to patentees to assess the value of their invention), the filing of abnormally large or broad patents (in terms of the number of claims they contain) as compared to the industry average (cf. van Zeebroeck et al. ,2006), the construction of patents by assembly (numerous priorities involved) or disassembly (multiple equivalent applications at the EPO to cover the same invention) (cf. Harhoff, 2006), and the use of divisional filings to break a pending application down into several pieces (divisional filings) that will then each follow their own destiny. Note that similar developments have been observed in the US by Hegde et al. (2007). For instance, Figure 2 shows that there has been a sharp increase in the use of divisional applications and the PCT route during the late eighties and the early nineties.

Figure 2. Evolution of the use of selected filing strategies, 1980-1995

Source: van Zeebroeck and van Pottelsberghe (2008)

Filing strategies and patent value

In recent research (van Zeebroeck and van Pottelsberghe, 2008), we quantitatively test whether these filing strategies can be considered a new potential class of value determinants. Our paper provides empirical evidence suggesting that these strategies are consistently and positively associated with patent value indicators. The empirical implementation relies on a unique dataset (about 250,000 patents granted by the EPO), which allows running large-scale sensitivity tests. The results reveal that filing strategies are the most stable determinants of all. They also underline strong dependencies of several “classical” results to the dependent variables and sampling methodologies, partly explaining several inconsistencies observed in the literature.

Most filing strategies are consistently and positively associated with the value of patents, suggesting that they signal more important patents that will be part of the state of the art (they are more frequently cited), remain active for longer in more countries (they have higher survival rates and larger family sizes), and tend to be more frequently opposed (clearly witnessing economic value on the market).

Four dimensions among filing strategies appear strongly influential across all industries, countries, and indicators: the PCT procedure, the drafting of excessively large applications in terms of the number of claims, the construction by assembly, and the use of divisional filings to split a large patent into smaller pieces.

Since most of these strategies induce substantial delays in the granting process, these results confirm Harhoff’s (2006) assertion that such strategies may well be an endogenous response to value, suggesting that applicants rely on more time and flexibility when the perceived value of their patents is higher.

Finally, there are strong arguments to be concerned that some procedural possibilities allowed by the system, particularly the system of divisional applications, enable firms to manipulate the examination process for strategic purposes (see Hegde, Mowery and Graham, 2007).

Concluding remarks

This strong and consistent relationship between patenting strategies and patent value raises several policy issues. First, such strategies, consisting of drafting excessively long patents – often by assembly or disassembly – and dividing them into smaller applications, may bring substantial benefits to patent holders in terms of inducing further complexity and uncertainty on the market, not to mention a larger field of exclusive exploitation for the patent owner.

Second, a common denominator of these strategies is that they also induce considerable delays in the granting process (cf. van Zeebroeck, 2007b). The risk is therefore not negligible that such strategies could facilitate real abuses of the patent system, possibly to the benefits of the owner and to the expense of consumers. For instance, divisional filings – originally conceived to allow excessively broad applications covering distinct features of an invention to be divided into smaller and more homogeneous patents – could easily be abused to maintain provisional exclusive rights at very low cost over some subject-matter which has already been judged unpatentable by the Office.

However, assessing the extent to which these strategies are abusive or just a legitimate exploitation of the procedural possibilities offered by the EPC is far from clear-cut. Should they appear abusive in some cases, these practices should be fought, as they constitute a clear waste of resources (to draft, process, and examine them) and create uncertainty. But if they are legitimate, then understanding the reasons why applicants need so much time and flexibility is critical, in order to adapt the procedures accordingly in a way that would be less time-consuming.

Indeed, the development of the filing strategies may partly be a consequence of the inadequacy of the patent system to the needs of present-day inventors. The growing need for innovative firms to file patent applications ever earlier in the innovation process, or to file several patents to properly cover each invention, may simply indicate that the current system – considering the patent as the only unit of protection and of dispute resolution – is not adapted to competitive processes in today’s technology markets. If these concerns were justified, then these developments – good or bad – would have occurred outside any deliberate action by policy makers. It is therefore important that the legislator – properly informed by economists – should take matters in hand again to formulate adequate policies that will ensure that the economic objectives of the patent system are met and that the changing needs of inventors can be taken into account in an increasingly knowledge-based economy. No matter what the degree of adequacy or inadequacy of the system to today’s technology markets, a situation that is based on deliberate abuse of the law cannot be desirable. Therefore, either the law as it is should be more strictly enforced, or it should be adapted to better fulfil its economic purpose.

References

Guellec, D. and B. van Pottelsberghe de la Potterie (2007), “The Economics of the European Patent System”, Oxford, Oxford University Press.

Harhoff, D. (2006), “Patent Constructionism: Exploring the Microstructure of Patent Portfolios”, Presentation Prepared for the EPO/OECD Conference on Patent Statistics for Policy Decision Making, Vienna, October 23-24, 2006.

Hegde, D., D. Mowery and S. Graham (2007), “Pioneers, submariners, or thicket-builders: which firms use continuations in patenting?”, NBER Working Papers w13153.

Jaffe, A. and J. Lerner (2004), “Innovation and its discontents”, Princeton, Princeton University Press.

Stevnsborg, N. and B. van Pottelsberghe de la Potterie (2007), “Patenting procedures and filing strategies”, in Guellec, D. and B. van Pottelsberghe de la Potterie, Chapter 6, “The Economics of the European Patent System”, Oxford, Oxford University Press, pp. 155-183.

van Pottelsberghe de la Potterie, B. (2007), “The quality challenge in the European patent system”, VOX EU, December 10.

van Pottelsberghe de la Potterie, B. and N. van Zeebroeck (2008), “A Brief History of Space and Time: the Scope-Year Index as a Patent Value Indicator Based on Families and Renewals”, Scientometrics, Vol. 75 (2), pp. 319-338.

van Zeebroeck, N. (2007a), “The Puzzle of Patent Value Indicators”, CEB Working Paper 07-023.RS.

van Zeebroeck, N. (2007b), “Patents only live twice: a patent survival analysis in Europe”, CEB Working Paper 07-028.RS.

van Zeebroeck N., B. van Pottelsberghe de la Potterie and D. Guellec (2006), “Claiming more: the increased voluminosity of patent applications and its determinants”, CEPR Discussion Papers 5971.

van Zeebroeck, N. and B. van Pottelsberghe de la Potterie (2008), "Filing strategies and patent value", CEPR Discussion Papers 6821.

Topics: Productivity and Innovation
Tags: patent value, R&D

Professor at the Université Libre de Bruxelles (SBS), ECARES, CEPR Fellow and Senior Fellow at Bruegel, a Brussels-based Think-Tank.

Nicolas is now Lecturer and Senior Researcher at ULB