Enforcing Intellectual Property Rights

We study the determinants of patent suits and their outcomes over the period 1978-1999 by linking detailed information from the U.S. patent office, the federal court system, and industry sources. The probability of being involved in a suit is very heterogeneous, being much higher for valuable patents and for patents owned by individuals and smaller firms. Thus the patent system generates incentives, net of expected enforcement costs, that differ across inventors. Patentees with a large portfolio of patents to trade, or having other characteristics that encourage “cooperative'” interaction with disputants, more successfully avoid court actions. At the same time, key post-suit outcomes do not depend on observed characteristics. This is good news: advantages in settlement are exercised quickly, before extensive legal proceedings consume both court and firm resources. But it is bad news in that the more frequent involvement of smaller patentees in court actions is not offset by a more rapid resolution of their suits. However, our estimates of the heterogeneity in litigation risk can facilitate development of private patent litigation insurance to mitigate this adverse affect of high enforcement costs. Jean Olson Lanjouw Department of Economics Yale University P.O. Box 208264 New Haven, CT 06520-8264 and the Brookings Institution Email: [email protected] Mark Schankerman Department of Economics London School of Economics and Political Science Houghton Street London WC2A 2AE United Kingdom Email: [email protected] 1 This paper was prepared for the Conference on New Research on the Operation of the Patent System, sponsored by the U.S. National Academy of Sciences in Washington (October 2001). We thank the National Academy of Sciences and the Brookings Institution for financial support and Derwent for generously providing access to the detailed patent information from their LitAlert database, which was critical to making this project feasible. We also thank Bronwyn Hall and Adam Jaffe for their input and provision of data, Joe Cecil from the Federal Judicial Center and Jim Hirabayashi of the U.S. Patent and Trademark office for helpful discussions about the court and patent data, as well as Marty Adelman, Kimberly Moore, and seminar participants at the National Academy of Sciences, the University of Maryland, Wharton and Berkeley for useful comments. Maria Fitzpatrick provided excellent research assistance.