Who Feeds the Trolls? Patent Trolls and the Patent Examination Process

WORKING PAPER SERIES NO. 16014 WHO FEEDS THE TROLLS? PATENT TROLLS AND THE PATENT EXAMINATION PROCESS JOSH FENG HARVARD UNIVERSITY XAVIER JARAVEL STANFORD UNIVERSITY DECEMBER 1, 2016

Ho over Institution Working Gro up o n Intellectual Property, Innovation, and Prosper ity Stanfo rd U niv ersity

www.hooverip2.org

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Electronic copy available at: http://ssrn.com/abstract=2838017

Electronic copy available at: http://ssrn.com/abstract=2838017

Electronic copy available at: http://ssrn.com/abstract=2838017

Leave i

one

out Allowance Ratei =

P

k6=i,k2J(i)

GrantDecisionk

NJ(i)

1

J(i) i

NJ(i)

J(i)

i

Tijt = Xijt + aut + vijt vijt = µj + ✓jt + ✏ijt i

j

u

t

Xijt

aut µj ✓jt

✏ijt

vijt

ˆ✏2 = V ar(vijt v¯jt =

1 njt

Pnjt

i=1

v¯jt )

vijt

✓

t t+1 ˆµ2 = cov(¯ vjt , v¯j(t+1) ) njt

µj v¯jt

ˆ✓2 = V ar(vijt )

ˆµ2

ˆ✏2 v¯jt

µj

v¯j =

X

wjt v¯jt

t

hjt wjt = P t hjt

hjt =

1

ˆ✓2

+

ˆ✏2 njt

ExaminerEf f ectj = v¯j V ar(v¯j ) = ˆµ2 + (

P

t

hjt )

1

ˆµ2 V ar(v¯j )

µj

v¯j

ˆµ2

v¯j ExaminerEf f ectj µj

v¯j

ExaminerEf f ectj v¯j

v¯j

ˆµ

ˆµ

ˆµ

ˆµ

j

t

a

(njat , rjat )

r

p

p

p s Beta(↵, ) ↵

L(r|n, ↵, )

= = =

1

n

p=0

r

ˆ

n r n r

! !

!

pr (1

(↵ + ) (↵) ( )

p) ˆ

(↵ + ) ↵ p (↵) ( )

1

(1

p)

1

p)

1

dp

1

pr (1

p)p↵

1

(1

dp

p=0

(↵ + ) (r + ↵) (n r + ) (↵) ( ) (n + ↵ + )

↵ ˆ , ˆ) Beta(↵ ˆ +r, ˆ+n r ↵+r ˆ ↵+ ˆ ˆ+n

n

ˆj + ✏ij N P Eij = E i

✏ij

j

ˆ E

✏

ˆ103a E

N

N

N

N

N

X

µj ✓jt

ˆµ2 = cov(¯ vjt , v¯j(t+k) ) k k = 3, 5 k=1

ˆµ2 = cov(¯ vjt , v¯j(t+k) )

k = 3, 5

N

N

N

N

N

i j

k

NPE =

103(a) =

NPE =

103(a) =

N 1 X min(vj , vk ) N i=1 N 1 X max(vj , vk ) N i=1

N 1 X 2 1 min(vj , vj + vk ) N i=1 3 3 N 1 X 2 1 max(vj , vj + vk ) N i=1 3 3

1.50 ⇤ 10 1.19 ⇤ 10

6

6.15 ⇤ 10

6

6

Number of Words in First Independent Claim 128 128.5 129 129.5

Application's Number of Independent Claims 4.2 4.3 4.4 4.5

40 60 80 Leave-one-out Examiner Allowance Rate

20 100 20

40 60 80 Examiner Leave-one-out Allowance Rate 100 127.5

4.1

20 40 60 80 Leave-one-out Examiner Allowance Rate

20

.09

.0008

.0009

.001

Inventor's Number of Patents that Were Litigated in Previous Years .0011

Number of Patents of Inventor Purchased by NPE in Previous Years .1 .11 .12 .13 .14

Inventor's Numer of Granted Patents in Previous Years .73 .74 .75 .76 .77 .78

.0007

100 20

40 60 80 Leave-one-out Examiner Allowance Rate

40 60 80 Leave-one-out Examiner Allowance Rate

100

100

.0075 Inventor's Number of Patents Litigated in Previous Years .0055 .006 .0065 .007

.32 Inventor's Number of NPE Patents In Previous Years .26 .28 .3

1.9 Inventor's Number of Patents Granted in Previous Years 1.7 1.8

100

20

40 60 80 Leave-one-out Examiner Allowance Rate

100

20

40 60 80 Leave-one-out Examiner Allowance Rate

100

4.8

128.5

Number of Words in Patent's First Independent Claim 129 129.5 130

Patent's Number of Independent Claims 5 5.2 5.4

130.5

5.6

40 60 80 Leave-One-Out Examiner Allowance Rate

.005

.24

1.6

40 60 80 Leave-one-out Examiner Allowance Rate

100

20

40 60 80 Leave-one-out Examiner Allowance Rate

100

Number of Patents Granted to Inventor in Previous Years .9 .95

20

.85

20

20

40 60 80 Leave-one-out Examiner Allowance Rate (%)

100

Regression includes class-artunit-year fixed effects.

Sample excludes continuations and repeated inventor-examiner pairs, and keeps accepted applications only.

The allowance rate is adjusted for docket timing.

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p

e

p

e

p

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p 8 < 1 if g(e, p) > 0 G= : 0 else 8 < 1 if p(e, p) > 0 & G = 1 P = : 0 else

8 < 1 if l(e, p) > 0 & G = 1 L= : 0 else 8 < 1 if pN P E (e, p) > 0 & G = 1 P NP E = : 0 else LN P E

8 < 1 if lN P E (e, p) > 0 & G = 1 = : 0 else

8 < 1 if i(e, p) > 0 & L = 1 I= : 0 else

f (e, p) e

p

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j

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t t A¯j,t

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2

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1

E[2(Aijt A¯j,t

1

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=0

Pt 1 Pt 1 PN E[(µj + ✓jt + ✏it ) · (µj + t 1 1 k=1 ✓jk + (t 11)N k=1 i=1 ✏ik )] E[Aijt A¯j,t 1 ] ↵= = Pt 1 Pt 1 PN E[(A¯j,t 1 )2 ] E[(µj + t 1 1 k=1 ✓jk + (t 11)N k=1 i=1 ✏ik )2 ]

2 ✓)

↵=

E[µ2j ] E[µ2j ]

+

1

2 t 1 E[✓jk ]

2

+

1 2 (t 1)N E[✏ik ]

=

2 µ

1

+

t 1

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↵ ↵ ˆ

µˆj =

2 ✓

⇣µ

2 ✓

+

2 ✏

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2 ✏

⌘

µj

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1

t t

1 t A¯j,t

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(

µj

)

µ

1)

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h(A¯j,t

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max{µj }Jj=1 ⇧Jj=1 ⇡(µj |A¯j,t

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6 B A¯j,t 1 B / ⇧j 6 ⇣ 4 @r 1 t 1

(A¯j,t ⇣ 1

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2 µ

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1

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2 1 µt 1

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N ! 1 µˆj ! A¯j,t

1

X

⇢XY = p

cov(EX1 ,EY 2 ) cov(EX1 ,EX2 )·cov(EY 1 ,EY 2 )

Y

N

N

Tijat =

0

+

1 P atentedijat

P atentedijat = i

j

0

+

1 Zijat

a

+ Controls + ✏ijat

+ Controls + ⌘ijat t

Tijat = ↵0 + ↵1 Zijat + Controls + ⇣ijat

N

N

N

✓jt

Zijat =

ngrant jat

P atentedijat nappl jat

1

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.7 .6 .5 .4

Non-NPE Litigation

.3 -.5

0

.5

Leave-one-out Non-NPE Examiner Effect

Sample restricted to patents that appear on the FDA Orange Book.

1

-.005 .5

1

-1

0 europe_grant

.5

1

0 europe_grant

.5

1

-.5

1

.5

1

.0005 -.5

0 europe_grant

.5

1

-1

-.5

.004 .0039 NPE_purchased .0037 .0038

20

40 reversed_rate

0 europe_grant

Sample restricted to NPE examiner effect < p50

.0036 .0035

.5

-.001 -1

Sample restricted to NPE examiner effect < p50

0

0 europe_grant

litigated_v2 -.0005 0

.002 nonnpe -.002 0 -.004 -.5

-.006

-1

Sample restricted to NPE examiner effect < p50

-1

Sample restricted to NPE examiner effect > p50

.004

.001 .0005 NPE_portfolio -.0005 0 -.001 -.0015

-.5

Sample restricted to NPE examiner effect > p50

.001

0 europe_grant

-.0015

-.5

-.001

-.0005

0

nonnpe

litigated_v2 0 .0005

.005

.001

.0015

.01

.003 .002 NPE_portfolio 0 .001 -.001 -.002 -1

Sample restricted to NPE examiner effect > p50

60

80