Patents exist to promote progress by increasing inventors’ ability to appropriate the economic returns to their discoveries. However, it is well known that inventors might use patents strategically as competitive weapons against competitors and other inventors. In BSE Working Paper 1320, “Patenting Inventions or Inventing Patents? Continuation Practice at the USPTO,” Cesare Righi and Timothy Simcoe study how inventors use a particular type of patent, called a “continuation”, to obtain protection for technology developed after the original filing date of a first patent, in an attempt to increase licensing revenues.
What Are Continuation Patents and Why Do Inventors File Them?
Continuation patents are a tool provided by the U.S. framework that allow inventors to add new claims to old patents while keeping the benefits of the original “priority date”. The claims define the scope of patent protection, and patent examiners, who have the mandate to allow patent protection only for inventions that are novel and non-obvious, cannot reject claims using technology that becomes publicly available after the priority date during their assessment of novelty and non-obviousness. This enables inventors to draft new claims at a later date, when they have a better understanding of the technology, without the risk that technology developed after the priority date invalidates their new claims. In principle, this should encourage innovation investments and early invention disclosure. However, continuations are controversial because they allow applicants to tailor their patent claims to cover products and technologies developed by others after an invention is disclosed. This raises the question of whether inventors use continuations to patent inventions or to invent patents.
The Empirical Setting: Industry Standards
To study inventors’ strategic use of continuations, Righi and Simcoe focus on the use of continuations to obtain Standard Essential Patents (SEPs) after a Standard Setting Organization (SSO) in the Information and Communication Technology (ICT) sector publishes a new industry standard. In this context, an industry standard describes a technology design that enables compatibility among different products. Prominent examples include the standards for computer memories, for wireless network products, and for cellular network technology. SSOs provide a forum where different parties seek consensus on new standards. A patent becomes a SEP when it is impossible to implement a standard without using the patented technology. Standards greatly increase the adoption of an invention, therefore obtaining a SEP ensures substantial licensing revenues. It is then clear that inventors have an incentive to obtain a SEP.
This setting provides a good opportunity to study the strategic use of continuations for two reasons. First, SSOs often require their members to disclose patents that might be infringed by a proposed standard, creating a link between patents and potentially infringing technology. Second, standard publication produces a sharp drop in uncertainty about technology design, increasing the incentives to engage in strategic behavior and file continuations to obtain SEPs.
The Use of Continuations to Patent Industry Standards
Analyzing data on the SEPs disclosed to the main SSOs in the ICT industry, the authors find that 84% of the SEP continuations (and more than half of all SEPs) are filed after publication of the relevant standard. Moreover, by comparing SEPs with patents on similar technologies and estimating difference-in-difference regressions, they find that standardization leads to an 80-121% increase in the probability of continuation filing. This effect is larger when patent examiners are more lenient (suggesting patentees are more likely to file continuations when they perceive they have a better chance to obtain new claims), and for applicants with licensing-based business models (who have high incentives to use continuations strategically to increase their licensing revenues).
Righi and Simcoe also provide three additional pieces of suggestive evidence on the use of continuations to seek new patents that are infringed by already-published standards. First, they analyze the probability of receiving a “non-statutory double patenting rejection” for a sample of SEP continuations and non-SEP continuations on similar technologies. These rejections are usually issued by patent examiners when the patentee seeks to change the scope of previous patents. They find that SEP continuations filed after standard publication are more likely to receive these rejections. Second, they analyze the textual similarity of the claims of pairs of SEP continuations linked to the same standard and filed after standard publication with the textual similarity of the claims of their pre-standard parent patents. The results show that the textual similarity between the claim of the continuations is higher, providing further evidence that continuations are used to cover standards. Third, they show that SEP continuations are more likely than SEP original patents to be litigated in U.S. district courts, indicating a more aggressive assertion of patent rights against alleged infringers.
The Welfare Tradeoff
This work shows how continuation applications are used to obtain protection for technology developed after a patent application is filed. From a welfare perspective, this generates a complex tradeoff. By helping inventors obtain more valuable patents, continuations can encourage innovation investments. However, they increase uncertainty about the actual scope of patent protection, reducing incentives to invent around patents and increasing the cost of technology adoption. Although the authors recognize the need of further research to quantify costs and benefits of the continuation practice and of delays in patenting more generally, they conclude by suggesting that it might be of policy interest to limit the downsides of opportunistic continuation practice. Possible policy changes include increasing the fee for continuation filings, limiting the use of lengthy continuation chains, and protecting adopters that started using a technology before a continuation was filed.