David French recently sent me an e-mail that got me thinking about the rise in foreign-originated patents in the US patent system.
In most countries, the majority of newly issued patents are foreign originated. David notes that in Canada, for instance, “consistently has had over 90% foreign participation in its patent system for over 50 years.”
Although locals have a majority here in the US, foreign-originated patents are approaching the 50% mark and are quickly on the rise. I suspect that our strong tradition of local innovation and patenting is a large driver in the political economy of the US patent system. Because US patent owners are usually located in the US, there is political support for strong patent rights. Will this support decrease as the percentage of foreign-owners rises?
Notes:
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As the percentage of foreign applicants increases in a country, it can indirectly encourage setting higher fees affecting all applicants.
The answer to your question is that foreign countries have much different enforcement procedures. Civil trials in Europe are generally before a panel of three judges and discovery in Europe is all but non-existent because you collect your own data to litigate a case against the infringer in Europe without the help of the infringers documents. And, for example, in Japan, litigation is very, very slow moving and it takes years to resolve any case. Just the time and money for a Japanese infringment action means that any meaningful litigation is done by a Japanese company is usually done here in the US on their corresponding US patents. So as our large patent awards get published worldwide, there will probably be more foreign companies that decide to file corresponding US patents as a means to enforce their patents.
“Are foreign-based US patent holders more or less likely to litigate their patents then domestic-based US patent holders?”
This is an empirical question that can be tested, adequate patent litigation data provided. An econometric basic probit model will fit the question. Dependent variable (0-1) where 1 is litigation, as a function of several controls (economic value, type of industry, not sure what else) AND where the patent was originated. I imagine the data is there, not sure how easy would be to put it together.
Europe a bellwether? Could be. In Europe, unlike in China or USA, a big patent portfolio of your own is (except maybe in telecoms and the like) no great defence against the day when your competitor asserts their patent against you. So why do US and Asian parties bother to collect patents in Europe? It used to be just pharma, now it’s eTech too. Answer, because in Europe patents function in practice like patents function in theory. And why is it that Asian companies allocate to Europe a smaller proportion of the patent budget than hitherto? Answer, the rising economic importance of China. I imagine there would be a good correlation between the activity of companies at the EPO (relative to their activity at other Patent Offices), and the value of the EU as a market (relative to other territories)for the goods or services those companies sell. Interesting is a typical patent family print out, on an invention of some commercial significance. We see in each jurisdiction outside USA a parent and one or two divisionals. But the USA part of the family shows a slew (typically 10 to 20) of continuations. Does that mean that the US market is worth 10 times as much as any other market?
Maybe the Supreme Court could have engaged in even greater economic policy considerations by adding “patents by foreigners” to the list of business method patents and patent trolls that it believes are suspect in the Ebay decision. After all, not all patents or patentees are created equal.
Luke wrote:
“Surely what drives people to file in the US, whether US-based or not, is that the US is the world’s largest market, and therefore inventors want a slice of the very rich pickings in its considerable economic pie?”
I respond:
Are we sure this is correct? Last time I was paying attention, the United States was no longer the largest market for new consumer electronics. It seems like we’re losing our share of other markets quickly too.
My guess is that foreign companies like U.S. patents because they’re a more secure investment in intellectual property than the alternatives around the rest of the world.
This is a prediction only: IBM and a couple of other domestic companies pioneered a licensing model based on a pooled portfolio of patents – in IBM’s case, some call it the “IBM tax,” which may or may not be fair. It is nevertheless one way to monetize IP assets based purely on the accumulation of a large patent portfolio, only, rather than real technology transfer to others under the terms of a license. When large US patent portfolios are created by foreign entities or enterprises, it is not unreasonable to presume that, sooner or later, some of them will seek to monetize IP assets in the United States using the IBM licensing model or other licensing models.
Perhaps President Bush should also be building a new information border fence to keep out illegal patents as “an important step toward patent reform.”
Europe could be a good bellweather in this regard. As Europe’s lag with respect to Japan, the U.S., Korean and China broadens, will the political support for strong patent rights also weaken. In some respects, the strong opposition to software patents in Europe smacks of the kind of fear of foreign competition normally found in developing countries. Will this spread to other fields?
Also, as a Canadian patent attorney pointed out to me, as the foreign ownership increses, the case for compulsory licensing increases. No country wants its economy too beholden to foreigners.
“Are foreign-based US patent holders more or less likely to litigate their patents then domestic-based US patent holders?”
What we cannot see from the data is the kind of foreign entities that are holding these U.S. patents. Here in Taiwan, many small and medium sized manufacturers have started getting patents in the last ten years to stave off manufacturing competition from China. But if a large U.S. company infringes one of these patents, it is very difficult for a local company to litigate. The same situation applies doubly for individual inventors. But what % of the Taiwanese owned U.S. patents are held by companies like Acer or Taiwan Semiconductor? Those companies have the financial resources (and more importantly, the experience) to vigorously enforce their I.P. rights.
And that is just Taiwan. Who are the European patent holders? Large corporations, small companies, or inventors? Are Europeans more likely to litigate? (I would think that they are, but can offer little support for this).
Surely what drives people to file in the US, whether US-based or not, is that the US is the world’s largest market, and therefore inventors want a slice of the very rich pickings in its considerable economic pie?
The US is unique in that because it is not just the worlds largest market, but also the source of much research activity, it has currently more domestic filings than off-shore filings. I suspect that Dennis may be right in that this may have something to do with the perceived, rightly or wrongly, patent-friendly atmosphere in the US; since one only has to listen to the shrill voices in the US opposing the introduction of first-to-file to see the influence of the “our patent system should advantage us (as in *US*) and not others” lobby.
Everywhere else, patents, because they are mostly filed by foreigners, spread their benefits (or lack thereof) more widely. This may almost certainly encourages an atitude amongst domestic observers, such as your typical voter, should they ever give it any thought, that patents are not in their personal interest. An entirely understandable atitude, one might say, and it is no wonder many in the developing world feel that way.
Maybe the US will one day join the rest of the world in this regard as well?
Dennis, what is chicken, and what egg? Companies spend money on filing patent applications when they think the investment is justified or necessary. Not just US companies but also non-US want to work the US market. They file intensively at the USPTO so they have some IPR “to trade” when they get accused of infringement. Last week a Chinese company asserted its US patent in a US court. First straw in the wind I would say. Look at how the world’s corporate giants now file intensively in China. They want something in China to trade. When patent professionals sculpt new patent laws, they should try to balance the rights given to patent owners against the rights given to those threatened with patent infringement.
Compare design patents. In the past, wherever you looked, only locals filed. Now look at the EU Reg Desns regime. High proportion of filings at OHIM from US and Asian companies. Rational behaviour. Shocks ahead for domestic European industry, when it updates its product designs.
So, not sure it’s your “strong tradition for innovation” that drives US filings. More like your strong tradition to litigate, I should have thought.
According to Allison et al., one of the key characteristics of litigated patents is that they tend to be owned by domestic rather than foreign companies. See John R. Allison, Mark A. Lemley, Kimberly A. Moore, and R. Derek Trunkey, Valuable Patents, 92 Geo. L.J. 435 (2004).
Another related question-
Are foreign-based US patent holders more or less likely to litigate their patents then domestic-based US patent holders?
If foreign-owners are less likely to litigate than the answer to the original question would be that more foreign owners will weaken patent rights since there will be a reduced threat of a court battle occurring and thus more incentive to infringe.
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