“Do Inventors Value Secrecy in Patenting? Evidence from the American Inventor’s Patenting Act of 1999,” S. Graham & D. Hegde (2013)

The patent system has many ridiculous properties for us economists to grouse about (Boldrin and Levine have a well-known book on the topic, but I think you’ll find James Bessen’s tome the best). The problem of disclosure, whereby patentholders are meant to exchange a description of how their design works in exchange for the limited monopoly that is a patent, is particularly strange. First, it is not obvious at all that disclosure matters as a method for spreading information – as Petra Moser and coauthors have shown, it is very easy to be obtuse enough in some types of patents that a well-trained outsider will find it impossible to construct the original device, and further, in many cases simply seeing the patented device is sufficient to understand how it works. Second, since patents are not disclosed immediately upon application, there is quite a bit of scope for the dreaded “submarine patent”: I see someone infringing, but I don’t accuse them of anything until they do a bunch of work building up the industry, then at the height I pop up and sue them for all they are worth.

Now, a 1999 law, the AIPA, had a provision meant to restrict submarines somewhat. Eighteen months after applying, your patent application is made public; note that it can take many years for the actual patent to be granted. There are exceptions here, but basically, you can only request the application be kept secret longer if you never want foreign patent protection, and, further, you can also request an earlier disclosure of the app, which the authors do not examine specifically in the current draft. A number of thinkers (among them both Samuelson and Friedman!) were worried that this requirement would be harmful to small inventors, who often lack the legal ability to sue early infringers, particularly when the infringers are foreign firms.

We have data to settle the issue now (Stuart Graham, an academic, is the Chief Economist at the US patent and trademark office; if you want evidence of how bad the economic reasoning behind our IP policy is, note that Graham is the first ever Chief Economist appointed at the PTO!). Graham and Hegde collect data, harmonized in an EU database, of all US patent applications since the policy went into place, and code them by whether they also applied for a foreign patent, the technology class, and whether the applicant was a large firm, a small firm or solo inventor, or a foreign firm. Overall, less than 8% of applicants requested secrecy; of those who could have requested secrecy since they never file overseas, about 15% request secrecy. Small inventors preferences are fairly similar to large firms. Of the patents where secrecy was requested by small inventors, the patents kept secret appear to be, if anything, less important inventions: they receive fewer onward citations, have fewer claims, and are granted in a shorter amount of time (earlier papers suggested that breakthrough inventions tend to involve a lot of finetuning in their claims, hence longer waits between application and grant). In none of the technology classes are more than a quarter of applications kept secret. Unmentioned in the paper is a more recent fact: the percentage of applicants requesting secrecy continues to fall every year.

Given all this evidence against the importance of secrecy, it is perhaps no surprise that there is a currently a bill in Congress that would remove these disclosure requirements. What can you do?

2013 working paper (No IDEAS version). If you want some other cool recent empirical work fighting bogus ideas about innovation (bogus, yes, but which nonetheless carry great weight in policy discussions!), check out the great work by Paul Heald at the U of Illinois law school concerning the question of “necessary property”. An argument by the content industries about why we should retroactively extend copyright (where, for sure, a 2013 law cannot affect incentives to create in 1920) is that IP without an owner will either be overexploited (Mickey in porno films) or not updated (no quality audiobooks of classics, say). Heald shows that music which falls out of copyright is no more or less likely to appear in modern films, and that bestselling books in the public domain (those written 1913-1922) are much more likely to have high-quality audiobook versions for sale than bestselling books still under copyright (those written in the following decade). Heald’s results put the lie to the argument that “content needs an owner to be exploited optimally”, but you don’t even need his research to know this: even if content needed an owner for efficient exploitation, what reason do we have to think that the previous copyright holder is the most efficient one? Why not, say, rotate the rights to the early Mickey Mouse films randomly among preservationists and film firms? Indeed, why not auction off the retroactive extension? (But of course, you know why we don’t do these things: because the executives and congressmen who supported the CTEA care and understand not a whit about the welfare analysis, but quite a bit about lobbying from their “I will never take a lobbying job” hack of an ex-colleague.)

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