The Option Value of Patenting

Post date: Nov 5, 2011 12:13:53 AM

By now everyone should know that patent reform has been passed, and the United States is now a first to file system (whoever applies first gets the patent) as opposed to a first to invent system (whoever first invents is entitled to the patent rights). The reform also introduced the pilot First-Track setup which gives the applicant the choice to expedite the patenting process for a premium. Should the USPTO expect different applicant behavior? Of course!

This is not the first patent reform, nor the last, and in the past, applicants have responded full force to changes in incentives!

The below image is public data on patenting. The arrival rate is the curious creature in this picture; notice its large spike in June 1995... what happened in 1995? There was an earlier round of patent reform...

• The patent system moved from 17 years of protection after the date the patent is finally approved to 20 years of protection from the date the patent is filed.

• In short, it used to be possible to play games in the patent system for years, and then emerge with a patent that lasts for 17 years. With the 1995 reform, the time you spend in the patent office eats into your effective patent protection (however, if you have enough money, its always possible to retroactively enforce those rights).

How did the applicants respond to the changes in incentives? The Chemical Discipline (Disc. 1000) quadrupled the number of applications the month before the reform! Why is this? The new rules were only enforced for new cohorts. So if you submitted in June 1995, you got the "extended protection" but if you submitted it in July 1995 you didnt. For the chemical companies, the goal was to get as many patents in the door as possible, play games, and eventually get a protected patent that can be enforced retroactively... did someone say submarine?

Key Question: How will companies respond to expedited patenting? What is the optimal strategy? Pharmaceuticals tend to like delay, but technology companies tend to like speed... will this change the way Americans invent? or will it simply change the strategies of patenting once an invention is made? Certainly for an individual inventor, the game became much more difficult.