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New Penn Study: “America Invents Act of 2011” Likely to Cause Drop in Patents Issued to Small Inventors

September 02, 2011
David Abrams R. Polk Wagner

On the eve of a historic vote in Congress that will fundamentally change U.S. patent law, a new study authored by professors David Abrams and R. Polk Wagner of the University of Pennsylvania Law School finds that a rule change moving away from the current “first-to-invent” system used in America for generations to the “first-to-file” system, universally used by foreign countries, is likely to result in a drop in patents requested by and issued to small and individual inventors.

While the upcoming vote on the Hill may see the broadest set of changes to American patent Law in two generations, perhaps surprisingly virtually no empirical analysis has been conducted on the impact of the primary components of the proposed reforms, which are deeply controversial. On the one hand, opponents of the “first-to-file” system, who favor how the current U.S. law operates, argue that proposed reforms disadvantage small inventors and will lead to lower quality patents. Those in favor of moving away from “first-to-invent” – notably the Obama administration – emphasize administrative simplicity and the cost savings of “first-to-file.”

With their groundbreaking new study, Abrams and Wagner investigate the expected effects on patenting behavior of the major change in the so-called “America Invents Act of 2011” on which Congress will vote next week. The study authors looked to the experience of the last industrialized nation to switch from “first-to-invent” to “first-to-file” – Canada, which changed its law in 1989 – as a natural experiment to shed the first empirical light on the question.

Their analysis uses a “difference-in-difference framework” to estimate the impact of the change in Canadian law on that country’s small inventors. A “difference-in-difference” analysis is a research design that controls for effects other than the priority rule change. In Abrams and Wagner’s study, by comparing the observed differences in individual patenting behavior in Canada across the 1989 change in the law to differences in individual patenting behavior in the U.S. during the same time period, the authors were able to isolate the effect of the law change on individual patenting behavior in Canada.

Using data on all patents granted by the Canadian Intellectual Property Office and the U.S. Patent and Trademark Office, Abrams and Wagner find a significant drop in the fraction of patents granted to small inventors in Canada coincident with the implementation of the change over to the “first-to-file” law.

Abrams and Wagner note, however, that they found no measurable changes in patent quality. Moreover, they write, while “the net welfare impact that can be expected from a shift to first-to-file is unclear, our results do reveal that, contrary to conventional wisdom, the rule change is not free – it is likely to result in reduced patenting behavior by individual inventors.”

As background, patent priority rules establish who among competing inventors has the right to receive a patent on an invention. At first blush, Abrams and Wagner point out, this seems a remarkably simple question: the first inventor should receive the patent grant. But the situation becomes much more complex when there are multiple inventors independently working in the same area of technology; only one can receive the patent grant. And while it is simple to establish a rule wherein the first  inventor gets the patent rights, the question is, what act triggers the establishment of the rights? This, then, is the basic difference between the U.S. “first?to?invent” system and the “first-to-file” system used everywhere else in the world. According to current U.S. law, the first “inventor” is given the patent rights, while elsewhere the inventor who first files an application at the patent office will receive the rights.

The paper is available for download at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1883821.

Related Links:
Wall Street Journal (subscription required), “Patent Overhaul Nears”