• Do Patent Laws Affect the Location of R&D?

    One of the common complaints about weakening patent protection is that it causes reduced R&D in the country with weakened protection. I’ve always been skeptical of this claim in the modern era, because one can develop anywhere and import into a location with better protection. As a result, one would expect that patent protection is unrelated to R&D offshoring.

    In a draft article called Offshoring Patent Law, Gregory Day (Georgia Business) and Steven Udick (Skiermont Derby LLP) consider this question. Their article is forthcoming in the Washington Law Review and a draft is on SSRN. Here is the abstract:

    Legislators and industry leaders claim that patent strength in the United States has declined, causing firms to innovate in foreign countries. However, scholarship has largely dismissed the theory that foreign patents have any effect on where firms invent, considering that patent law is bound by strict territorial limitations (as a result, one cannot strengthen their patent protection by innovating abroad). In essence, then, industry leaders are deeply divided from scholarship about whether innovative firms seek out jurisdictions offering stronger patent rights, affecting the rate of innovation.

    To resolve this puzzle, we offer a novel theory of patent rights — which we empirically test — to dispel the positions taken by both scholarship and industry leaders. Since technology is generally developed in one country, the innovation process exposes the typical inventor to infringement claims only in that jurisdiction. In turn, we demonstrate that inventors have powerful, counterintuitive incentives to develop technology where patent rights are weaker and enforcement is cheaper. Given that it typically costs more to defend a patent infringement claim in the United States than to lose one in another country (the cost to litigate a patent in the United States averages around $3.5 million and royalty awards have surpassed $2.5 billion), our empirical research contributes to the theoretical understanding of patent rights by shedding new light on the important, yet largely dismissed, dimension of where innovation takes place.

    We received invaluable support from international research organizations and patent attorneys working for top-tier law firms. Notably, the Global IP Project, which is a multinational research group spearheaded by the leading global intellectual property (“IP”) law firm, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, as well as Darts-ip, an international organization dedicated to the study of global IP litigation, provided proprietary data, enabling us to explore whether firms optimize value by placing research and innovation in countries with “better” patent laws. To verify our models, we interviewed notable patent attorneys practicing in the United States, Europe, and Asia.

    The primary takeaway from their approach is that not only might the strength of the laws matter, but also the costs of defense. To tell this story, they use Marvell as an example, but that was actually a rare case where the R&D and sales process itself constituted infringement to trigger worldwide sales. I would expect that companies can usually design in the U.S., send designs overseas (see Microsoft v. AT&T), and ship from there. Thus, the more important complaint is that patent enforcement causes manufacturing to move offshore, not R&D.

    That said, the article performs a regression on R&D and several variables that might affect R&D like tax rates and human capital density, and finds that costs of defense and damages awards are negatively correlated with R&D, while strength of enforcement is positively correlated. This is all reasonable enough, but I’m concerned that the empirical model is incomplete. Though the word “cost” appears dozens of times in the article, not once is it mentioned with respect to the cost of R&D. Might the reason R&D gets offshored be that it’s cheaper? And could cheaper R&D also correlate with lower enforcement of IP? My guess is yes, based on the studies I’ve read over the years. I would have liked to have seen some analysis and discussion of this point.

    While I think this is an interesting paper, I think that the model is underdeveloped in two ways. The first is the focus on costs in only half of the equation. The second is the neglect of trade secret enforcement. Unlike patent law, trade secret laws can affect R&D in the country in which the R&D takes place because the developer can lose value without ever selling into that country. Studies by Lippoldt and Schultz and also by Png demonstrate this pretty well.

    For those interested in this topic, I recommend this article, and I recommend a contrast with Bilir, Patent Laws, Product Life-Cycle Lengths, and Multinational Activity, in the American Economic Review. Bilir develops a similar model, but bases it on location of companies (which covers some of the manufacturing issues), and considers the life-cycle of R&D (long term v. short term protection) as well as trade secrets. Bilir does not directly consider costs of defense, so it would be interesting to see how that notion from this new article would overlay onto Bilir.

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  • Patent Uncertainty: Real Ideas, Real People, Real Harm

    Today, the patent system is a very fluid situation due to recent legislation and court decisions that have caused considerable uncertainty and legal maneuvering.  As a first-time inventor, I had no idea as to the legal battle in the background regarding what ideas should receive a patent… I am in appeal with the United States Patent and Trademark Office regarding whether my invention is routine, conventional or well understood.  And that labeling of my invention as being routine, conventional…

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  • Supreme Court to Hear Rimini Street v. Oracle to Decide if Copyright Act Authorizes Non-Taxable Costs

    The U.S. Supreme Court has granted a petition for writ of certiorari to take up Rimini Street v. Oracle on appeal from the Court of Appeals for the Ninth Circuit. The case will ask the nation’s highest court to solve a split among the Circuit Courts of appeal by determining whether the Copyright Act’s allowance of full costs to a prevailing party under 17 U.S.C. § 505 is limited to taxable costs under 28 U.S.C. § 1920 and 28 U.S.C. § 1821, as has been held in the Eighth and Eleventh Circuits,…

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  • Federal Circuit Takes A Narrow View Of Reasonable Expectation Of Success

    The Federal Circuit decision in Acorda Therapeutics, Inc. v. Roxane Laboratories, Inc. addressed several aspects of obviousness doctrine. We previously wrote about the impact of a blocking patent on consideration of objective indicia of non-obviousness. Here, we look at the court’s treatment of the requirement for a reasonable expectation of success. The Acorda Ampyra® Patents…… Continue reading this entry

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  • The Tide Turns: Rising Legal Services Employment in the United States

    The legal services market in the United States contracted since the Great Recession.  However, there have been reports of a rebound.  CBRE, a commercial real estate firm, has released a report concerning legal services and real estate in the United States.  Part of the report concerns rethinking how square footage in law firms can be used more efficiently, including increasing collaboration space.  Another part of the report examines legal services employment—attorney employment–across the United States. 

    The top five major legal services employment markets are 1) New York City; 2) Los Angeles; 3) Miami; 4) Chicago; and 5) Washington DC.  San Francisco is ninth.  The report states that there has not been much growth in most of the top ten major legal services employment markets except for Los Angeles (experiencing low double digit growth between 2015 and 2017) and San Francisco.  The report states that this is likely due to the growth in the media and tech industries.  In the highest growth markets category, Austin and Atlanta were the leaders in attorney growth.  Austin added more than 10%.  Austin is well-known for its tech industry.  According to the report, the cities of Austin, Atlanta and Kansas City added 10% or more growth in attorney positions since 2015.  The report also discusses the cities with largest decline in law degrees awarded. 

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