Economics of Innovation and Intellectual Property
Easy to Keep, But Hard to Find: Trade Secrets in Patent Data (previously circulated as "How Patentable Inventions Are Being Kept Secret")
PhD Dissertation Chapter 1 – Job Market Paper
It is well known that not every patentable invention is patented. I argue that there additionally exists an internal margin to the patenting decision: patent applicants can decide on how much of an invention to include in any single patent. I use the staggered enactment of the Uniform Trade Secrets Act across the United States to estimate the effect of strengthened protection of trade secrets on the number of patents and on the number of independent claims contained in a patent. Although the effect is negative for both variables, it is not affecting the two variables in parallel. By computing the text similarity between patent claims I obtain a measure of the marginal disclosure of a claim. Using this I produce evidence in support of a simple model of allocation of inventive components into patents. I suggest that the design of patents and the size of the average marginal disclosure per patent claim affects the way in which patentees will react to the decreased incentive to patent, i.e., whether they reduce patents or claims per patent. I also show how the endogeneity of patent claims can affect the measurement of innovation using patent data. Based on the example of the effect of competition on innovation, I offer an explanation for the difference between the results of previous studies. Measuring innovation by the number of (sufficiently different) patent claims I find an inverted-U shaped relationship in US patent data, in line with the original finding of Aghion et al. (2005).
As Soon as Optimal: Delayed Publication of Patent Applications
PhD Dissertation Chapter 3
It is commonly assumed that a patent race ends when the first firm applies for a patent. Even if each application was granted protection with certainty, this does not have to be true since patent offices around the world have almost universally adopted the policy of publishing patent applications with a delay of 18 months. Compared to some estimates of the average length of patent races this can be a sizeable amount of additional time in which each firm other than the winner potentially continues to spend R\&D resources that have an effective return of zero. The empirical academic literature has focused on the effect of publication of patent applications at all on the diffusion of knowledge. The theoretical literature on competition in R\&D has neglected this feature of the patent system. This paper contributes a first analysis of the effect of a statutory delay in patent publication in races for a single innovation, and then studies cases in which firms may have an incentive to announce their pending patents before they will be published by the patent office. Such incentives may exist when the patentee of a first innovation benefits from her competitor working on a second innovation, which can be the case when, e.g., the first innovation allows generation of licensing revenues (cumulative innovation) or there is some degree of complementarity between the two innovations. Finally, I show that if policy makers were to set the statutory delay to zero there can be an incentive to delay the patenting of some complementary innovations.
This project aims to identify the welfare-maximising schedule of patent-term extensions in the pharmaceutical industry. It builds on evidence that by adjusting the amount of expenditure, pharmaceutical patentees have ample inﬂuence on the duration of the testing and approval phase of new drugs. Accordingly, we seek to determine the schedule that best aligns ﬁrms' spending incentives with innovation value. The paper constructs a mechanism design model with random participation constraints (as introduced by Rochet & Stole, 2002), since entry to the regulatory approval stage depends on stochastic research success. To derive the complete schedule, we solve the model numerically.
This project involves constructing a unique dataset by matching patent data to employment records in Brazil. Our first application is to measure spillovers from university research to private R&D, exploiting the establishment of technical universities throughout Brazil.
This project investigates the determinants of exclusive contracts between car manufacturers and their suppliers. The empirical part aims to shed light on the competitive effects of contract exclusivity. At the same time, we are developing a theory about how the protection of intellectual property rights (especially trade secrets) in the suppliers’ countries and the degree of product complexity inﬂuences the manufacturer's decision on the selection and number of suppliers.
Economics of Litigation
Fee Shifting, Firm Size, and the Incentive to Patent (previously circulated as "The Role of Firm Size in the Enforcement and Choice of Patent Protection")
PhD Dissertation Chapter 2.
A recurring theme in the analysis of patent systems for at least the past 20 years is that their usefulness increases in the size of the patent holder. More recent discussion about the state of the US patent system has focussed on the perceived problem of meritless patent litigation by non-practising entities, or ``patent trolls''. Partly motivated by the lower extent of the problem in European countries, a widely suggested remedy for this latter problem is the shifting of legal fees to the losing party, which is expected to make defending more profitable for manufacturing firms who find themselves accused of patent infringement by a patent troll. This paper studies the complementary question how fee shifting changes the patenting incentive for smaller manufacturing firms by affecting their ability to enforce their patents. In a model incorporating endogenous court judgements, fee shifting, patent quality, and a variable capturing the importance of legal spending, fee-shifting does indeed decrease the profitability of patenting, and small firms are generally the first to forego patenting. The extent of fee-shifting necessary to affect the patenting rate however depends negatively on the importance of spending and on patent quality. To the extent that the United States are characterised by a higher importance of spending in litigation and lower patent quality compared to many European countries, a comparably small amount of fee shifting might be sufficient to reach the effect that requires a much higher amount of fee-shifting in Europe. Introducing the ability to settle litigation, I additionally show that very small patent owners may have an incentive to "be infringed" when their bargaining position is strong and that this incentive is relatively independent of the extent of fee shifting.
Behavioural Biases in Civil Litigation: Litigation When Parties Are Loss Averse
Completed for my MSc dissertation in Economics. Introduces loss aversion into a litigation contest model. Copy available on request.
This dissertation examines the effects of loss aversion in a model of litigation as a contest when legal costs are shifted according to different fee-shifting regimes. It adopts a slightly modiﬁed version of the model developed by Plott (1987). Without loss aversion, all cases reach trial under the American Rule, and litigants’ spending is independent of the evidence in a case. Under the English Rule, meritorious cases will be filed but not defended, while unmeritorious cases will not be filed. When the litigation parties are loss averse, an analytical solution cannot be obtained, but numerical predictions are derived. Three main results stand out. First, expenditure under the American Rule now does change with the evidence parameter, with the party being favoured by evidence spending more. Second, while aggregate expenditure under the American Rule is increased, it is decreased under the English Rule. Third, low degrees of loss aversion have a higher impact on behaviour under the English Rule. Furthermore, two diﬀerent reference points are included in the study. When the reference point is linked to the evidence parameter, the overall variance of expected utility is decreased.
Private Enforcement of EU Competition Law
Completed for my MSc dissertation in Business Administration. An economic assessment of the EU Commission's initiative to increase the use of private litigation in enforcing the competition regulations laid out by the EU treaties. Copy available on request.
The European Commission pursues the goal of enhancing the role that private lawsuits play in the enforcement of EU competition law. In discussing this plan, the dissertation makes three contributions. Firstly, it compares private and public enforcement of competition law; secondly, it examines the actual enforcement regimes in the USA and the EU as well as the plans of the Commission to change the European regimes; and thirdly, it concludes whether the strengthening of private enforcement is a goal worth to pursue.
The main findings are as follows: Public enforcement is superior to private enforcement concerning both deterrence and costs, while private enforcement allows for compensation of victims. Both forms of enforcement can achieve termination and punishment of infringements. The US antitrust enforcement system is very effective in achieving deterrence, termination and punishment. Compensation can be claimed easily, and in most cases it is considerably larger than the individual harm. The main problem of the US system is that costs do not seem anywhere near being minimised.
The EU maintains the probably most effective public enforcement regime in the world, although it is not yet able to achieve an optimal level of deterrence. The direct costs are relatively high, but the overall level of costs of the enforcement system is lower than in the US due to the absence of excessive litigation and strategic abuse of competition law. The incentives to claim injunctive relief seem to be appropriate. Regarding compensation, the expected costs of litigation are, in many cases, far higher than the expected benefits. It therefore seems advisable that the Commission does not make private enforcement of competition law the focus of its attention.