Loser Pays in Patent Examination

Many scholars and practitioners believe there are too many “weak” patents—those that should not have issued but somehow get approved by the U.S. Patent and Trademark Office (PTO). To the extent they exist, such patents unnecessarily tax real innovation and generate welfare losses for society. Some commentators have focused on the PTO’s failure to exclude weak patents, or the damage caused by these patents in litigation, often by patent trolls. But this scholarly discussion misses the point. The present Article argues that weak patents largely stem from a pricing problem: namely, a patent applicant pays higher patent fees when she succeeds (i.e., receives PTO approval) than when she fails (i.e., is rejected by the PTO). The Article explains why such pricing is precisely backwards, penalizing good patent applications instead of bad ones. It then proposes a novel remedy: import “loser pays” concepts from litigation into patent examination. By forcing unsuccessful patent applicants to pay more, a loser-pays system disincentivizes weak applications and improves application quality. The Article also describes how a loser-pays system could lower patent examiners’ burden and discourage continuation applications, both of which slow down patent examination. In doing so, the Article sketches out a new patent system that is at once more efficient and more effective in weeding out weak patents

Will Delaware Be Different? An Empirical Study of \u3cem\u3eTC Heartland\u3c/em\u3e and the Shift to Defendant Choice of Venue

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, like enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical. The Supreme Court’s recent decision in TC Heartland LLC v. Kraft Foods LLC illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure the impact of this shift using an event study, which measures how the stock market re- acted to the decision. We find that likely targets of “patent trolls”—entities that own and assert patented inventions but do not otherwise use them—saw their company valuations increase the most due to TC Heartland. This effect is particularly pronounced for Delaware-incorporated firms. Our results match litigation trends since TC Heartland, as new cases have dramatically shifted to the District of Delaware from the Eastern District of Texas, previously the most popular venue for infringement actions. Why do investors believe Delaware will do better than Texas in curbing patent-troll litigation? Unlike Texas, Delaware’s economy depends on attracting large businesses that pay high incorporation fees; it is thus less likely to encourage disruptive litigation and jeopardize its privileged position in corporate law. More broadly, we explain why giving defend- ants more control over venue can counterbalance judges’ incentives to increase their influence by encouraging excessive litigation. Drawing on Delaware’s approach to corporate litigation and bankruptcy proceedings, we argue that Delaware will compete for patent litigation through an expert judiciary and well-developed case law that balances both patentee and defendant interests

Will Delaware Be Different? An Empirical Study of TC Heartland and the Shift to Defendant Choice of Venue

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, such as enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical. The Supreme Court’s recent decision in TC Heartland v. Kraft Foods illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure the impact of this shift using an event study, which measures how the stock market reacted to the decision. We find that likely targets of “patent trolls”— entities that own and assert patented inventions but do not otherwise use them—saw their company valuations increase the most due to TC Heartland. This effect is particularly pronounced for Delaware-incorporated firms. Our results match litigation trends since TC Heartland, as new cases have dramatically shifted to the District of Delaware from the Eastern District of Texas, previously the most popular venue for infringement actions. Why do investors believe Delaware will do better than Texas in curbing patent troll litigation? Unlike Texas, Delaware’s economy depends on attracting large businesses that pay high incorporation fees; it is thus less likely to encourage disruptive litigation and jeopardize its privileged position in corporate law. More broadly, we explain why giving defendants more control over venue can counterbalance judges’ incentives to increase their influence by encouraging excessive litigation. Drawing on Delaware’s approach to corporate litigation and bankruptcy proceedings, we argue that Delaware will compete for patent litigation through an expert judiciary and well- developed case law that balances both patentee and defendant interests

Reaching for Mediocrity: Competition and Stagnation in Pharmaceutical Innovation

Patents might incentivize invention but they do not guarantee firms will invest in projects that maximize social utility. We model how risk-neutral firms’ ability to obtain substantial private returns on marginal new technologies causes them to “reach for mediocrity” by investing in socially-suboptimal projects, even in the presence of competition and new entrants. Focusing primarily on pharmaceutical innovation, we analyze various policy interventions to solve this underinvestment problem. In particular, we describe a new approach to patents – a value based patent system, which ties patent protection to the underlying invention’s social value – and show how it incentivizes socially-optimal innovation

Down to the Last Strike: The Effect of the Jury Lottery on Criminal Convictions

How much does luck matter to a criminal defendant in a jury trial? We use rich data on jury selection to causally estimate how parties who are randomly assigned a less favorable jury (as proxied by whether their attorneys exhaust their peremptory strikes) fare at trial. Our novel identification strategy uniquely captures variation in juror predisposition using data unobserved by the econometrician but observed by attorneys. Criminal defendants who lose the “jury lottery” are more likely to be convicted than similarly-situated counterparts, with a significant increase (18-20 percentage points) for Black defendants. Our results are robust to alternate specifications and raise questions about race and the use of peremptory strikes in the criminal justice system

Vertical Mergers and the MFN Thicket in Television

Increasingly, cable and satellite TV services (known as “MVPDs”) seek to acquire upstream programming creators, as illustrated by AT&T’s recent merger with Time-Warner. At the same time, the pay-TV industry is rife with “most-favored nation” (MFN) agreements, which can sharply constrict the competitive process. The most problematic variety, so-called “unconditional” MFNs, raise serious antitrust concerns, as they may forestall effective entry by new streaming-based platforms; penalize pro-competitive deviations from the status quo; and facilitate de facto coordination among integrated MVPDs.While vertical mergers in the industry have received significant antitrust attention, the MFN concerns are interrelated. Problematic MFNs may naturally induce a double marginalization problem, even if the parties are otherwise capable of contracting around it. This creates a strong motivation for integration, but it also raises a question as to whether a merger is the only way to avoid double marginalization. Further, MFNs might compel a problematic form of reciprocal dealing that generates de facto price fixing between integrated rivals. Consequently, the industry’s trend toward integration may trigger other kinds of anti-competitive conduct

Who Cares About Patents? Cross-Industry Differences in the Marginal Value of Patent Term

How much do market participants in different industries value a marginal change in patent term (i.e., duration of patent protection)? We explore this research question by measuring the behavioral response of patentees to a rare natural experiment: a change in patent term rules, due to passage of the TRIPS agreement. We find significant heterogeneity in patentee behavior across industries, some of which follows conventional wisdom (patent term is important in pharmaceuticals) and some of which does not (it also appears to matter for some software). Our measure is highly correlated with patent renewal rates across industries, suggesting the marginal value of patent term increases with higher expected profits toward the end of term

Health Care Costs and the Arc of Innovation

Health care costs continue their inexorable rise, threatening America’s long-term fiscal stability, competitiveness, and standard of living. Over the past half-century, efforts to rein in spending have uniformly failed. In this Article, we explain why, breaking with standard accounts of regulatory and market dysfunction. We point instead to the nexus of economics, mutual empathy, and social expectations that drives medical innovation and locks in low-value technologies. We show how law reflects and reinforces this nexus and how and why health-policy-makers avert their gaze. Next, we propose to circumvent these barriers instead of surmounting them. Rather than targeting today’s excessive spending, we seek to leverage available legal tools to bend the arc of innovation, away from marginally-beneficial technology and toward high-value advances. To this end, we set forth a novel, value-based approach to pricing and patent protection—one that departs sharply from current practice by rewarding innovators in proportion to the therapeutic benefits new tests and treatments yield. Using cancer therapy as an example, we explain how emerging information technology and large troves of electronic clinical data are opening the way to near-real-time assessment of efficacy. We then show how such assessment can power ongoing adjustment of pricing and patent terms. Finally, we offer a blueprint for how laws governing health care payment and intellectual property can be tailored to realize this value-focused vision. For the reasons we lay out, the transformation of incentives we urge will both slow clinical spending growth and greatly enhance the social value that this spending yields