RESEARCH

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

It is well known that not every patentable invention will be patented. I demonstrate that there is also an intensive margin to the patenting decision: patent applicants can choose how much of an invention to include in any individual 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 the number of independent claims in a patent. More effective secrecy protection impacts both variables negatively, but patents and claims do not necessarily react simultaneously. About a third of the total effect of the UTSA manifests itself in less disclosure per patent.

By computing the text-similarity of claims in a patent, I produce a measure of each claim's marginal disclosure. I then obtain evidence in support of a simple model of allocation of inventive components into patents. I suggest that the design of patents and the average marginal disclosure per patent claim affect how patentees will react to the weakened incentive to patent, i.e., whether they reduce patents or claims per patent.

Finally, I illustrate how the endogeneity of patent claims can distort the measurement of innovation with patent data. I offer an explanation for the conflicting results of previous studies determining the effect of competition on innovation. Measuring innovation by the number of (sufficiently different) patent claims, I find an inverted-U-shaped relationship for US patentees, in line with the finding of Aghion et al. (2005) for UK patentees.


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.


Strategic Information Disclosure: The Case of Pending Patents

Work in progress (with Bernhard Ganglmair and Jong-Min Oh)

This paper identifies incentives to disclose pending patents to influence competition intensity on the product market and the competitor's R&D decision.


Innovation

Large-scale survey project studying business-university interaction, funded by Research England. Findings published as a NCUB report "The Changing State of Business-University Interactions in the UK". Summary of the key findings available here. The anonymised dataset will be available soon via the UK Data Archive.

The impact of COVID-19 on industry interactions with universities: The case of UK companies

Work in progress (with Alan Hughes, Michael Kitson and Ammon Salter)

This paper explores the impact of the COVID-19 pandemic on the interactions between firms and universities. Although it might be expected that restrictions during COVID-19 made interactions between business firms and universities more challenging, there has been little evidence on this relationship. Drawing on a large-scale survey carried out in the UK during the pandemic which focused on pre-pandemic business interactions with universities, we explore what factors shape whether firms’ interactions with universities were negatively affected by the crisis. We find that firms with broad interactions and with different university partners were negative impacted, whereas those firms with pre-existing formal collaborations and high absorptive capacity were less affected. We explore the implications of these findings for policies to support business-university interactions in the post-pandemic era.


Industrial Economics

Trade Secrets and Exclusive Contracts in the Automotive Industry

Work in progress (with Giacomo Calzolari and Alireza Naghavi)

In this paper, we study the effect of trade secret protection and product characteristics on the organization of supplier relations, namely on the exclusivity of contracts between automobile manufacturers (OEMs) and auto part suppliers. When an OEM transfers sensitive technology necessary to customize a procured component, it faces the risk of misappropriation of the blueprint, particularly in an environment with weak intellectual property rights. As the supplier may use the knowledge acquired to serve other rival firms, an OEM can decide to use an exclusivity clause on the supplier's side to protect its trade secrets. The analysis employs a unique dataset including 11 years of contracts between automotive parts suppliers and manufacturers worldwide obtained from the Marklines "Who Supplies Whom" platform. In an environment with strong intellectual property protection, an OEM is less concerned about its technology being exposed to competitors as it can sign a non-disclosure agreement with its supplier that is enforceable under high-quality legal institutions. This allows the supplier to safely engage in business with and provide inputs to other manufacturers while the protection of the OEM's trade secrets is guaranteed. In a country where the OEM cannot rely on legal enforcement, instead, the only means of protecting its sensitive information is by imposing exclusivity to limit the involvement of its supplier with competing OEMs and prevent the exploitation of its trade secrets. We find a robust positive association between the strength of trade secrets protection in a country and the number of OEMs that a supplier from that country works with. Mapping an index of relationship specificity for each auto part to the component definition provided by Marklines, the effect of trade secrets protection is especially strong for products characterized by an intermediate level of relationship specificity susceptible to the threat of expropriation.


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.