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Of Trademarks and Brands

Apr 24, 2013 Timothy Greene

As Stacey Dogan noted in her recent review of Bob Bone’s Taking the Confusion Out of “Likelihood of Confusion”: Toward a More Sensible Approach to Trademark Infringement, trademark law is at a bit of a crossroads. Scholars increasingly question basic tenets of trademark law and seek explanations for our blinkered theories of trademarks. Among recent attempts at comprehensive trademark law frameworks, some are good, some great, some … not.

The most insightful and satisfying of these is Deven Desai’s From Trademarks to Brands, which continues a line of research Desai started with Spencer Waller several years ago. From Trademarks to Brands mines the “brand theory” marketing literature for wisdom about the continuous expansion of trademark law. He struck a vein. Desai begins by disaggregating three views of brand value in the literature: (1) the corporate view, in which the firm owns and controls the brand, with consumers passively receiving brand information; (2) the noncorporate view, in which consumers and communities construct brand value; and (3) a synthesized view, in which all these stakeholders co-create brand value by using the brand as an information resource.

Desai argues that trademark law implements brand theory by blurring the focus on source identification. In this traditional focus, a trademark referred to product source. This typically meant that producers limited a mark’s use for a flagship product: Coca-Cola and Pepsi are carbonated drinks and Vaseline is a petroleum jelly.

Trademark law no longer subscribes to that view. Rather, as Desai shows, trademark law has increasingly come to protect (and mark owners increasingly manage) other parts of the brand—namely trade dress and expressive meanings attached to the brand. Sometimes this management is benign; often it’s not.

Consider trade dress protection, which over time has moved from focusing on labeling to product design (and the mysterious tertium quid of Taco Cabana v. Two Pesos). For Desai, “[p]ackaging provided product information and simultaneously served a company’s larger brand project. . . . allow[ing] for greater control over price and distribution, but . . . also creat[ing] a sense of nationhood and belonging.” Desai argues persuasively that the Supreme Court’s trade dress cases aren’t about how to protect particular types of trade dress, but, from a brand perspective, are about how within markets for the same products, “the lack of obvious differences between products [makes] good appearance a ‘necessity.’” The insight is compelling, but should firms be able to use trademark law to protect their interests in differentiation? If so, to what extent?

Desai highlights how trademark law doctrines have moved away from the traditional view. First, the “anonymous source doctrine” holds that when consumers recognize a mark represents a single source, they need not know the specific origin of the good at issue. The doctrine understands the mark to be the thing consumers care about, not the source. It doesn’t matter who’s building the product so long as it bears the appropriate mark, which carries with it information about the consumer’s tastes and the producer’s reputation.

Second, goodwill doctrine holds that trademarks have no intrinsic value, but are reservoirs of consumers’ feelings about a product or producer. Desai contends this doctrine and the expansion of the merchandising and licensing rights are based on a brand view of trademarks. The mark reflects reputation, not a specific product. Thus, consumers value Nike shirts not only because the brand suggests the shirt is high quality, but because consumers like the brand and the message it expresses about their wearing it. That insight applies to house marks and family marks—for example, Apple’s iPod and iPad.

Finally, consider the doctrines of initial-interest confusion, post-sale confusion, and dilution. Desai considers these as close to purely protectionist. Initial-interest confusion doctrine protects brand reputation by preventing others from diverting potential consumers’ attention—even if no actual sales are diverted. Post-sale confusion doctrine seeks to avoid uninterested third-parties’ confusion from knock-off goods; it allows firms to protect brand prestige. Dilution doctrine protects “the substantial investment the owner has made in the mark and the commercial value and aura of the mark itself” notwithstanding a lack of consumer confusion. These doctrines are unmitigated brand protection premised on the “corporate” view of brands, which endows the mark’s owner with most or all of the power to dictate mark usage and meaning.

Desai’s descriptions of trademark law and brand theory are quite convincing. He gives readers several key insights: (1) producers use trademark law to protect more than just source identification, with courts’ acquiescence; (2) this protection is generally exercised to the detriment of competitive and communicative values; and (3) we can fix it.

Desai’s explanation of how to fix the doctrine is incomplete, however. He proposes that all stakeholders shift from the corporate view to the synthesized view, which, for Desai, would lead to brands being used as two-way information resources, thereby increasing trademark’s social value. That’s fine in theory, but not in practice. The corporate view wasn’t adopted arbitrarily. Firms are unlikely to relinquish control over their marks, even nominally. (Consider this Salon article about the lengths to which brand managers go in protecting their brands.) The brand view is what leads firms like Chipotle to sue Jack in the Box and Kroger’s for use of the term “chipotle” on food that includes chipotle peppers. That kind of monopoly is bad for all of us. However well-intentioned Desai is, if the brand view were fully adopted, it would injure social welfare even more than the status quo: under the brand view’s logic, if firms compete by differentiating simply through the allure of their brands rather than the quality of their products, then we risk deterring vigorous competition in the marketplace of goods and impoverishment in the marketplace of ideas. Mark owners would assert their marks against legitimate descriptive uses of previously freely-usable terms. (See the Chipotle cases above for a current example.) But for that implication, there’s much to chew on in Desai’s article, which is a model of clarity in discussing the marketing literature.

Marks on Markets and Competition

Mar 22, 2013 Shubha Ghosh

Lemley and McKenna’s recent collaboration is an article I like (lots) because it highlights a provocative anomaly.   Antitrust law offers special treatment to markets for products protected by intellectual property.  But as Lemley & McKenna point out, if you apply antitrust market definition principles to such markets, there are doubts as to their competitiveness.    There is no price at which some loyalists will switch from Pepsi to Coke, the Beatles to the Rolling Stones, Dan Brown novels to Stephen King ones, or Apples to PCs.  Because of this lack of consumer response to a price change, the authors conclude, antitrust law should scrutinize more closely markets defined by the existence of intellectual property rights.

Lemley & McKenna take their cue from Professor Louis Kaplow’s examination of market definition in antitrust law.¹  Building on Kaplow,  the Lemley and McKenna article offers alternative approaches to address intellectual property cases that make reference to market effects without the use of market definition.  I think this is correct.  At the same time, there is another lesson to be gleaned from antitrust law that I think can be developed.  Antitrust law is a branch of competition policy; the normative foundations of desirable competition inform antitrust law.  My point is that intellectual property doctrines should be based on a deeper appreciation of the norms of competition.

But, what are these norms? Lemley & McKenna state in their article: “Competition doesn’t occur in a vacuum; a company must compete with others in some market.”  (p. 2077.)  Of course, competition has to occur in some space, physical or conceptual, but competition occurs in arenas outside of a market.  Lobbyists compete for legislative attention.  Bloggers, advertisers, and commentators compete for the attention of consumers.  Artists and inventors compete with each other for reputation and professional achievement.   What can we say about competition norms?

Some guidance can be found in trade secret law, an area that is surprisingly absent from the article, perhaps because of its focus on federal intellectual property policy.  But trade secret law provides a model for IP competition, with its focus on rules of disclosure and improper means as instruments for regulating the competitive process in information creation and dissemination. ²  Competition norms also arise from alternative mechanisms and informal rules for creating and disseminating creative works, such as in areas like gourmet cooking, stand-up comedy, fashion, and databases. ³   What I like about the Lemley & McKenna article is how it sets the stage for more discussion of competition norms in intellectual property (and  in antitrust law).

One bigger lesson from the article is the relationship between formalism and realism in law.  Market definition was intended to provide structure to the inquiry of market power by basing it in empirical measures of markets and elasticities.  The good intentions of realism, however, eventually lead to a stale formalism unmoored from the goals of addressing antitrust policies.  Articles like Lemley and McKenna’s guide us back to the policies and goals of intellectual property, to the ideas of competition presented in this essay as well as to many other salient ones.  Future research can incorporate the work of thinkers like George Stigler and Albert Hirschman on the dynamics of competition.  Hirschman’s work on exit, voice, and loyalty provides some innovative and unfathomed ideas for looking at intellectual property law.  Given the research paths paved by Lemley and McKenna, there is truly a lot to like and be thankful for.

Our Lyin’ Eyes: Design Patents and the Perils of an “Eyes Alone” Approach to Novelty and Infringement

Mar 8, 2013 Christopher J. Sprigman

Thanks in large measure to the ongoing worldwide smartphone patent brawl between Apple and Samsung, patents are in the news a lot these days. And that is especially true of design patents – i.e., the branch of the patent law that grants rights in novel, non-obvious and ornamental designs. Apple pressed design patent claims against Samsung that included broad claims of ownership over rectangularly-shaped electronic devices. To many observers, these seemed . . . well . . . crazy. Take Apple’s patents on the shape of the iPhone. Here’s a design drawing from the Apple D677 patent.

The patent claims the shaded portion of the iPhone’s shape – the rectangular shape of the face, the edge-to-edge screen, the shape and placement of the mic. But is this a good patent? The overall shape claimed doesn’t seem novel. Today’s smartphones are increasingly just pocket-sized screens, and screens have been rectangular for a long time. Some have responded that this patent is novel to the extent it claims a rectangle with rounded corners, but the rounded corners are functional – just try carrying a smartphone with sharp corners.  And unlike utility patents, which, as their name suggests, protect useful things, functionality is a disqualifier for a design patent, which is concerned only with a design’s ornamental quality. What about the shape and placement of the mic? Well, if this is the ground of novelty, it’s a trifling one. But for the moment, give the benefit of the doubt to Apple, and say that they are entitled to a monopoly on their claimed shape and placement of a smartphone mic. We still have a problem. How do we get a jury to focus on whether Samsung copied the mic, and only the mic, and not the other features included in the patent drawing – features that, if what’s said above is right, cannot properly be owned by Apple?

This is a problem that recurs constantly in design patent disputes, and one which brings us to Rebecca Tushnet’s new piece in the Intellectual Property Law Journal, The Eye Alone is the Judge: Images and Design Patents.⁴ Tushnet’s piece is short and characteristically lucid, and I would recommend it to anyone interested in grappling with how best to understand the breadth of design patent claims and the test for design patent infringement – both key inquiries in a field that seems to be growing in importance to IP scholars and the public debate about innovation and copying.

As Tushnet notes, most designs involve a mix of novel and non-novel or functional features.  These designs are protectable only to the extent of their novelty, or to the extent they offer a novel combination of otherwise familiar features. But how to separate the novel wheat from the non-novel chaff? Relying on the design drawing pushes us toward a gestalt evaluation of overall appearance, and away from the dissection into novel and non-novel elements that is required to ensure that a patentee monopolizes only those design elements that are truly new. If the overall impression of the design, as conveyed by the design drawing, is the measure of infringement, how are factfinders to avoid expanding the scope of the design patent past its proper limits when an accused design looks like a patented design because of similarities in unprotectable features?

The same problem comes up in copyright, and that branch of the law doesn’t deal with it very well. The “substantial similarity” test invites comparisons that include non-copyrightable elements, despite some courts’ attempts to “filter” such elements out of the analysis.

So should we have a written description requirement for design patents, as we have for utility patents? That is, should we require would-be patentees to describe in words the novel features of their design, and separate those features from other parts of the design that cannot properly be claimed in the patent?

The Federal Circuit, in a case called Egyptian Goddess, Inc. v. Swisa, Inc.,⁵ rejected a general written description requirement for design patents and held that, in most cases, design patent images should be left to speak for themselves. And the Supreme Court has held that the standard for infringement in design patent disputes is also purely visual. In Gorham Co. v. White,⁶ the Supreme Court stated that “if, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.” In sum, the Court held that “the eye alone is the judge of the identity of the two things.”⁷

So in most design patent cases we rely on “the eye alone.”  Is this a good idea?

At least three arguments have been assayed against a written description requirement for design patents. The first is that proper infringement analysis shouldn’t involve any dissection, because ordinary observers view designs as a whole and don’t decompose them into their constituent elements or filter out functional or unprotectable parts. That argument is probably an accurate description of how consumers view designs. But it is nonetheless a weak justification for an “eye alone” approach to design patent. Taking it seriously would require us to abandon the novelty screen for design patent, and this we cannot do without violating the constitutional command that patents be granted only for “inventions.”

The second argument against written description focuses on the difficulty of describing complex designs in words. There is certainly truth in this. Tushnet gives the example of a star-shaped ceiling fan. The written description for the design requires more than 400 words, and proves difficult to digest, even for someone practiced in the art of understanding patent claims. But even if words are difficult, they often prove necessary, not least because design patent images often fail to speak for themselves.  Tushnet points out that courts dutifully recite the Egyptian Goddess injunction against the need for written description in design patent cases, but then engage in lengthy written analysis comparing the design drawing at issue to the prior art. Obviously, in the view of these courts, it is far from clear that any fair-minded person, viewing the patentee’s image and comparing it with the prior art, would reach the same result the court reaches in a particular case.

The third argument against written description is harder to dismiss. Written description is undesirable, this argument holds, because once you introduce a textual description of the claimed design, it inevitably alters the way we see that design – to wit, written description makes us see the design less well.

Read Tushnet’s article to see her careful response to this argument in full.  If you do, you may be left, as I was, with the following thought. The primary function of a written description requirement would be to push back against the tendency of the “eye alone” approach to grant rights in features that are not novel and properly belong in the public domain.  The effect of this would be to narrow design patents overall, and, as a consequence, to dull the incentives of firms to obtain them. But would that potential disincentive to patent designs, in turn, reduce the incentives of firms in a variety of markets to invest in new designs? That depends on whether competitive forces – including the ways in which design contributes to function – are sufficient to provoke substantial investment in improving product aesthetics. And on that overriding question, we know very little.

Tattoo You

Jan 23, 2013 Michael Madison

Tattooing has gone mainstream.  In the introduction to Intellectual Property Norms in the Tattoo Industry, Aaron Perzanowski lets the facts speak for themselves:  “An estimated twenty-one percent of adults in the United States—more than sixty-five million Americans—have at least one tattoo. For those under the­ age of 40, that percentage nearly doubles.  Not surprisingly, the tattoo business is booming. By some estimates, the U.S. tattoo industry generates $2.3 billion in annual revenue.”

Small wonder, then, that Perzanowski has tackled the originality and copying norms adopted by the communities of tattooers, extending in certain respects – and distinguishing in others – recent work on informal IP norms among stand-up comics, fashion designers, French chefs, magicians, roller derby queens, and fans of jam bands.  The first great contribution that Perzanowski makes in this paper is assembling and describing a collection of qualitative data about the relationship between formal IP rules and informal norms among yet another group of people with their own distinct sets of creative and copying practices.  It’s not surprising, perhaps, that despite the mainstream popularity of tattooing, tattooers continue to regard themselves as outsiders, pirates even, and that they have little use for or reliance on formal IP rules.  Yet unlike their counterpart comics, designers, chefs, and magicians, tattooers have ample opportunity to integrate their work with copyright law. Tattoos are copyrightable subject matter, and infringement claims, while rare in practice, are hardly unimaginable legally.

What makes this paper compelling is that Perzanowski goes beyond the instinct to look at informal anti-copying norms in tattooer communities primarily as substitutes for or complements to formal copyright law.  The insight offered by earlier work on comics, fashion designers, and so on has been that copyright’s formal structure is often overbroad, because creative communities may thrive even when copyright falls short.  Informal social norms can pick up the slack, guiding creative practice and policing copying where needed.  The lesson is specific:  efforts to extend and broaden copyright law in those domains may cause more harm than good.

The lesson in Intellectual Property Norms in the Tattoo Industry, and its second great contribution, is broader.  Norms guiding creative practice and copying can be constitutive of groups themselves, quite independent of their members’ places and times.  That’s a point that cyberlaw scholarship has argued strenuously for decades but primarily from a theoretical perspective.  Cyberlaw scholars have often wanted it to be true more often than they have managed to demonstrate it with evidence.  Work on open source software developers has come closest to documenting the point,⁸ but open source communities are constituted legally by the structure of open source software licenses, making the independent role of the group itself somewhat difficult to dis-entangle.  Perzanowski takes us from free software coders to tattoers, from one group of self-conscious outsiders to another.  And we re-learn what Mencken taught with infant baptism.  We need not merely believe in the existence of communities defined by creative and anti-copying practices that specifically depart from formal legal norms.  We’ve seen it done.  For good measure, we see it in among practitioners of an art that consists of the antithesis of the disembodied, dematerialized communication and expression that usually defines the Internet.  As one of the tattooers quoted in this paper said, “A tattoo is an affirmation that it is your body, … that you own your own self, because you’ll put whatever you want on your own body.”

To illustrate the point, the article reports and analyzes more than a dozen in-person qualitative interviews with a diverse group of tattooers throughout the United States, identified through snowball sampling.  It situates the results in a brief but illuminating history of tattoo art and an overview of the market structure of contemporary tattooing. Communities of tattoers distinguish between custom tattooers, who collaborate with their clients in designing and applying bespoke tattoos – subject to relative strict anti-copying norms – and older-style street tattooers, who trade mostly in flash or books of standard designs that are meant to be re-used.  Perzanowski teases from his interviews a series of core creative and anti-copying norms.  One group of norms can be clustered around the idea that tattooers rely heavily on the autonomy interests of their clients in creating custom designs and in protecting those designs from re-use.   A second group can be clustered around the acceptance of flash as a re-usable commodity.  A third group centers on acceptance of borrowing ideas and even details from visual art found in other media.  Perzanowski never overstates his case; the history of tattooing and distinctions between custom tattooers and classic tattooers give the piece a lot of useful nuance without undermining the integrity of the picture of the discipline as a whole.  Tattooers are creators and copyists, but they have clients.  Their norms honor all three dimensions of their practice.

The piece analyzes these norms via the framework introduced by Robert Ellickson.⁹   Ellickson situated his study of Shasta County cattle ranchers in a theory of social norms supported by tight-knit communities characterized by lots of repeat workaday interactions.  He concluded that the ranchers’ norms were sustained because they were welfare-enhancing from the community’s standpoint.  Perzanowski likewise argues that tattooers constitute a tight-knit community (he invokes the metaphor of a medieval guild to describe the apprenticeship obligations of new trainees and the suggestion of some interviewees that the group has gotten too open and too big), that their norms emerged from workaday interactions, and that tattooers’ norms are welfare-enhancing in the sense that the norms preserve the integrity of the group qua group, particularly in the extent to which the group cultivates a market that supplies unique custom tattoos.  Individual tattooers could profit by defecting, but they don’t, because defection would undermine demand for unique tattoos.  A system of informal norms supplies a cheaper and easier way to police the market than a comparable anti-copying regime policed by formal IP rules or by a system of anti-copying contracts with clients.

As careful and disciplined as this piece is from an intellectual property standpoint, its broader themes warrant greater attention by readers.  Perzanowski’s efforts to analyze tattooer practices in Ellicksonian terms may fall a little short, I think, on their own terms.  First, as Perzonowski notes, tattooers themselves do not see themselves as dealing in creative objects or things.  He writes:  “As [tattoers] see it, they are in a service profession. They sell an experience, perhaps even an attitude. Clients don’t pay for a drawing; they pay for the time the tattooer spends rendering that image on their skin.”  If the hypothesis is that Ellicksonian norms in the tattoo industry are explainable as substitutes for enforcement of formal IP rules as incentives for the production of creative objects, then the fact that the artists see themselves as service providers rather than (or in addition to) object producers means that the relevant norms may be doing different work.  Second, as Perzanowski emphasizes throughout the piece, tattooers are not in the creative and copying business only for themselves; they are bound, even at times obligated ethically, to the autonomy of their clients.  That complicates the social welfare calculus associated with tattooer norms.  Third, it is a little speculative to treat tattooers as a close-knit community of the sort that Ellickson experienced and anticipated.  As the piece makes clear, there are thousands and thousands of tattoers in the United States alone.  It is likewise clear that their “community” is not so much tight-knit as it is loosely grouped by shared history and training, increasingly mediated (like many distributed groups) by online experiences, and linked by tattooers’ self-imposed outsider status, by a particular set of economic expectations (some linked to custom designs, some to flash), and by shared perspectives on their art.  IP scholarship (and Cyberlaw scholarship, too) should take those insights to heart.  It would do well to continue to explore how IP norms drive group identity, as well as how group identity drives IP norms.

Beyond Confusion?

Dec 5, 2012 Stacey L. Dogan

Trademark law is in the midst of an identity crisis.  The prevailing economic account of the law has come under sustained attack by scholars, who have both challenged its descriptive accuracy and blamed it for many of the expansions of trademark rights in recent decades.  The likelihood of confusion test – long the nucleus of infringement analysis – has been roundly condemned as indeterminate, incoherent, and normatively empty.  No one seems to agree about why we have trademark law and how best to implement it.  Scholars have cast about for explanations of how we got here and ideas of how to get out of this mess.

In this article, Bob Bone tries his hand at both diagnosis and cure.  His focus is the much-maligned likelihood of confusion standard.  The article (1) explains how we ended up with such a curious test for infringement, (2) critiques the standard, finding it internally inconsistent, normatively deficient, and dangerous, and (3) proposes an alternative that Bone views as more consistent with trademark law’s goals.  To do all of this, of course, Bone must endorse some version of those goals.  It all adds up to an ambitious undertaking, to put it mildly.  And while the article inevitably falls short of fulfilling all of these ambitions, it offers some wonderful insights and enriches the conversation about the values that shape our trademark laws.

After a brief overview of trademark doctrine, the article turns to an engaging account of the history behind the likelihood-of-confusion test.  Bone focuses on the Second Circuit in the mid-twentieth century, given the centrality of that circuit’s Polaroid test in the trademark infringement landscape.  He contends that the Second Circuit crafted the likelihood-of-confusion test as a sort of compromise between two competing visions of trademark law’s goals.  One faction of the Second Circuit had insisted on a showing of either harm or moral culpability as a threshold requirement in trademark cases, while another faction viewed consumer confusion, alone, as an evil to avoid.  The Polaroid test for infringement, Bone contends, reflects an amalgam of these two approaches, incorporating harm and bad faith as factors rather than a threshold requirement, and making likelihood of confusion the ultimate question in trademark infringement suits.  The result is a rudderless, normatively vacuous standard.  I found this portion of the article terrific.  It brings to life the intellectual and legal history of the period, and offers a compelling explanation for some of the standard’s most puzzling factors.  More generally, it powerfully demonstrates the reality that legal rules result as often from happenstance and patchwork as from thoughtful, considered evolution.

The next chunk of the article exposes the inadequacies of the likelihood-of-confusion standard.  Bone contends that the standard “produces bad results, … is doctrinally incoherent, … and is inadequately supported on normative grounds.”  He explains and defends each of these points, drawing upon existing commentary and adding some insightful critique.  One comes away from this discussion convinced that the likelihood-of-confusion test is badly in need of repair.

Having persuaded the reader that trademark law needs better normative footing and doctrine that reflects its goals, Bone turns in the latter half of the article to his alternative formulation.  The article’s essential premise is that trademark law should protect against confusion only when it either causes real harm or results from “morally blameworthy conduct.”  Confusion, Bone declares, “is not a problem in itself.  People are confused all the time and the law does nothing to lend assistance.  Thus, preventing consumer confusion is justified only if the confusion is associated with morally culpable conduct or causes sufficient harm.”  Infringement, in other words, can be proven through one of two things:  a showing of morally blameworthy acts, or a likelihood of confusion that will cause “sufficient harm.”

The notion that trademark law should focus more on harm is a popular one; Bone generally endorses the idea but proposes a somewhat different approach than other harm-requirement advocates.  To me, the more intriguing aspect of his framework is the morality-based alternative.  I found this portion of the article thought provoking, although it left me eager for more.  In developing his moral arguments – i.e., that “morally blameworthy conduct” deserves condemnation regardless of any proof of harm – Bone assumes that society has an interest in punishing those engaged in deliberate deception, without regard to whether their deception causes any harm.  This assumption raised a whole host of questions.  How, for example, do we assess whether someone is engaged in purposeful deception?  Why should we punish deliberate but non-material deception in the trademark context, when the law does not generally punish those who harmlessly lie?  At the other extreme, one might ask why we limit “morally blameworthy conduct” to deliberate deception, and exclude free riding and other acts that at least some people view as morally wrong?  In parts of Europe, for example, it’s viewed as morally problematic to take “unfair advantage” of a mark’s reputation.  If we base the law strictly on morals, whose morality should dictate the rules?  By adopting a non-consequentialist approach to the “moral” branch of trademark infringement, Bone invites questions about the source of his moral compass.  Bone touches upon some of these issues, but they could well absorb a full article by themselves.

All in all, this article sheds important new light on the source and the shortcomings of the likelihood of confusion standard.  Just as importantly, it opens a fascinating conversation about the appropriate role of “morality” in trademark law.  I look forward to the next chapter.

Linking Financing To Decisionmaking In The U.S. Patent System

Oct 17, 2012 Michael W. Carroll

As patent law has grown in social and economic importance, a growing number of scholars have given attention to analyzing the structure of the patent system.  The number of patents issued per year has increased significantly in the past few decades, and, in at least some fields, the breadth of products or activities on which these issued patent claims read has also increased.  Scholars studying the system have given the design and functioning of the U.S. Patent and Trademark Office (PTO) increased scrutiny on a number of fronts.  Among its many duties, central is the PTO’s power and obligation to decide whether the rights to control a putative invention belong to the patent applicant, to a different applicant, or to the public.

Although patent prosecution is an ex parte proceeding, the patent examiner stands between the applicant and the public in deciding who shall receive the entitlement to use, or exclude others from using, the invention.  Due process norms usually require such decisionmakers to be unbiased and free from conflicts of interest.  However, since 1991, the PTO has been paid to make this decision from fees paid by one of the parties to the decision:  the applicants or patentees.  Not surprisingly, senior PTO officials have on more than one occasion referred to applicants and patentees as the office’s “customers.” Might this financing arrangement affect the agency’s interpretation and application of the law?  Most scholars have assumed that it does to some extent, but this extent and the operation of this assumed bias has been underexamined.  Until now.

Michael Frakes and Melissa Wasserman rightly decided that the hypothesis of PTO bias was testable.  They have done a very nice job in identifying which aspects of the agency’s funding scheme exert the greatest incentives toward favoring a patent grant in a close case.  In particular, more than half of the PTO’s budget is funded from issuance and renewal fees, which are paid only after the agency has made a positive patentability determination. The key takeaways from their paper, Does Agency Funding Affect Decisionmaking?: An Empirical Assessment of the PTO’s Granting Patterns, are these:

[O]ur findings suggest the PTO is preferentially granting patents on technologies with high renewal rates and patents filed by large entities, as the PTO stands to earn the most revenue by granting additional patents of these types. Furthermore, we also find that these distortions are more likely to occur when markers indicative of an underfunded PTO are present.

By using the 1991 change in financing to test for decisionmaker bias, the authors had to control for a number of other variables. They detail how they did so in Appendix B of the paper.  Further details on the methodology are well explained in the paper. (A note to the reader:  I am conversant in basic statistics, but I admit that I lack the qualifications to conduct rigorous peer review of the statistical methodology used.  The authors appear to have considered and accounted for the likely confounding influences that would undermine confidence in their causality inferences.  There may be some minor corrections needed, but given the care and detail with which the authors have designed their study and reported their findings, I am sufficiently confident in the soundness of their work to recommend their article.)

To those who may object to the selection of this article for review because it primarily reports the result of empirical analysis rather than legal analysis, I have two responses.  First, while most legal scholars lack the training and expertise to conduct empirical studies of the legal system, some do, and that’s a good thing.  Those who study law and policy are particularly well-suited to design studies such as this.  While many other legal scholars were willing to simply assume bias, these authors dug in to examine the evidence.  Second, legal scholars will always have to make certain empirical assumptions when conducting policy or legal analysis because not all empirical hypotheses are testable, and, even when they are, time and research funding constrain our collective ability to test these.  Meanwhile, the world turns on.  So, it becomes a matter of judgment to determine which hypotheses are testable and worth testing.  Kudos to Professors Frakes and Wasserman for judging this to be one such hypothesis.