Lanjouw Schankerman (2004) - Protecting Intellectual Property Rights

Reference(s)

Lanjouw, Jean O., and Mark Schankerman. "Protecting intellectual property rights: are small firms handicapped?." Journal of Law and Economics 47.1 (2004): 45-74.

@article{lanjouw2004protecting,
 title={Protecting Intellectual Property Rights: Are Small Firms Handicapped?*},
 author={Lanjouw, Jean O and Schankerman, Mark},
 journal={Journal of Law and Economics},
 volume={47},
 number={1},
 pages={45--74},
 year={2004},
 publisher={JSTOR},
 filename={Protecting Intellectual Property Rights}
}

Abstract

This paper studies the determinants of patent suits and settlements during 1978–99 by linking information from the U.S. patent office, the federal courts, and industry sources. We find that litigation risk is much higher for patents that are owned by individuals and firms with small patent portfolios. Patentees with a large portfolio of patents to trade, or other characteristics that facilitate “cooperative” resolution of disputes, are much less likely to prosecute infringement suits. However, postsuit outcomes do not depend on these characteristics. These findings show that small patentees are at a significant disadvantage in protecting their patent rights because their greater litigation risk is not offset by more rapid resolution of their suits. Our empirical estimates of the heterogeneity in litigation risk can help in developing private patent litigation insurance to mitigate the adverse affects of high enforcement costs.

Research question

Research question: Litigation risk is much higher for patents that are owned by individuals and firms with small patent portfolio. Authors try to show that small patentees are at a significant disadvantage in protecting their patent rights since their greater litigation risk is not offset by more rapid resolution of their suit.

Objectives of the paper

1. Identify the main empirical factors that determine which patents are litigated.
2. To understand whether small firms with a small patent portfolio are handicapped in the process of protecting their intellectual property rights.

Data

Small vs. large firm

Listed firms are classified under:

• Large firms: employment above the median of 5,425.
• Small firms: employment below the median.

Litigated patents

Identified from the LitAlert database produced by Derwent(private vendor).

• 13,625 patent cases filed during 1978-99, each identifying the the main patent in dispute
• 9,345 are involved in the sample of suites
• Derwent data matched to all U.S. patent related cases, code 830. (Federal Judicial Center, Federal Court Cases: Integrated Data Base, 1970-89 (1999))

Control group and control variables

• Matched set of patents as control group:
  • For each litigated patent, another was chosen at random from the set of all patents with the same application year and primary three-digit USPC assignment(thus controlling for technology and cohort effect).
• For each litigated and matched patent the following characteristics

1. Nationality of the patent owner
2. Technology field: the first assigned USPC class
3. Number of claims: higher claim number associated with greater patent value and thus more disputes.
4. Citations
5. Ownership: Individual, listed/unlisted company.
6. Patent portfolio size: grouped into 1-100, 100-900, >900
7. Relative size of potential disputants: measure of the asymmetry in portfolio size between a patentee and a representative disputant he can expect to face on each patent.Let [math]Z_{cf}[/math] be the portfolio size for firm $f$ in technology class $c$, and let $Z_c = \sum_f Z_{cf}$ denote all patents in the class. $Z_f = \sum_c Z_{cf}$ is the portfolio size for firm $f$ $Z_c^* Z_c / n_c$ is the average portfolio size of the $n_c$ firms with patents in class $c$.The relative portfolio size of firm $f$ for patent $ i$ is given by:$R_{if} = Z_f /\sum_c w_{ci} Z_c^*$, where $w_ci = F_{ci}/F_i$ is the fraction of forward citations to patent $i$ that falls into technology class $c$.
8. Technology concentration

Model

• Litigation process is analyzed in four steps:

1. The probability that a suit is filed
2. Probability of a post-suit settlement, Pr(settlement| suit is filed)
3. Timing of any post suit settlement
4. Plaintiff (assumed to be the patentee) win rate, Pr(plaintiff wins| adjudication)

• Legal costs are closely related to the stages that a case reaches rather than the actual length.

• Two main models:

1. Divergent expectation(DE)
   • each party estimates the quality of her case with error
   • case goes to trial when one party is sufficiently optimistic about her case
2. Asymmetric information(AI)
   • Probablity of the plaintiff win is private information
   • An uninformed party makes an offer
   • Trials arise in separating equilibria, thus a win rate for the informed party should tend to 100 percent.

• They show that data strongly favors DE.

• Probability of patent suit (Probit)
  • Holders of large portfolios are less likely to file suits involving any given patent in their portfolio.

• Postsuit outcomes
  • Not controlled for selection
  • Given any selection that occurs, is there any remaining association between patent and patentee characteristics and the outcomes? No.