Cesare Righi and Timothy Simcoe
Why do inventors file patent continuations? At first blush, the answer seems obvious: an inventor wants to protect an invention by establishing an early priority date and so applies for a patent before fully understanding the extent of the claims. The inventor can then file continuations to refine the claims language or add new claims for uses not known at the time of the initial filing and still take advantage of the early priority date.
New research from Cesare Righi and Timothy Simcoe, however, offers an alternative explanation: inventors may engage in opportunistic behavior by strategically filing continuations after Standard Setting Organizations (SSO) have published new technological standards, and inventors add claims and modify claim language so that the patent would be essential to the standard, ensuring licensing revenue as a result.
Continuations are a unique feature of the United States patent system. They allow inventors to file patent applications as soon as practicable, to establish a priority date, and then to amend the application by adding or modifying claims as the inventor gains better understanding of the invention and its commercial applications. The use of continuations can nevertheless be controversial because an inventor can tailor the claims to cover uses developed by others after the original filing.
To understand whether inventors file continuations opportunistically, Righi and Simcoe examine Standard Essential Patents (SEP) in the Information and Communication Technology (ICT) standardization process. In ICT, SSOs allow participating parties to coordinate their R&D efforts and seek consensus on the design of the standards that will be used to promote product interoperability. Most SSOs either encourage or require participants to disclose patents that might be infringed by a proposed standard. This disclosure establishes a connection between patents and potentially infringing technology that can be analyzed for opportunistic behavior. The disclosure also establishes a date when the uncertainty surrounding a potential standard is largely resolved and signals to those firms who will be manufacturing products to conform with the standard that they can safely commit to that design in their products. If SSO participants were filing continuations opportunistically, then this is the time when one would expect to see a rise in continuations.
While continuations can simply refine existing claim language or add claims that are natural extensions of the original claims, they can also lead to unexpected changes in the scope of the patent’s claims. These changes can give the impression of applicants using continuations to essentially “invent patents” that derive from technology developed by others. Indeed, if a continuation includes a radically different scope, where did that come from, and whose idea was it? In a highly collaborative environment such as an SSO, it seems likely that continuations filed after the publication of the standard may claim ideas for which others may deserve at least a share of the credit. If that were the case, it could lead to a variety of negative effects, including hindering follow-on innovation.
Righi and Simcoe analyze SEPs filed since November 2000, when the American Inventor’s Protection Act (AIPA) came into effect, and find that 46% of SEPs are filed as continuations, and more than half of all SEPs are filed after the relevant standard was published. Indeed, standardization results in an 80-121% increase in the probability of filing a continuation and that this increase is economically and statistically significant. These results suggest that patent applicants use continuations opportunistically to add claims that cover industry standards after the standard has been published.
Not only is there an increased likelihood of a continuation after the publication of a standard, but especially so immediately upon the publication of the standard, possibly indicating that applicants are filing opportunistic continuations to seek claims covering technology that has been included in a standard. This does not imply, however, that this strategy works: the rate of infringement for SEPs and non-SEPs is very similar in US lawsuits that reach a judgment on the merits. (There are a variety of factors that can affect litigation outcomes, including the decision to file a suit in the first place, the decision to litigate it to conclusion, assertion of patents that cover optional features within a standard, and implementations that are not 100% compliant with the standard.)
Furthermore, a textual analysis of claims in continuations filed after the publication of a common standard shows that textual similarity of claims in continuations is greater than the textual similarity of claims in their parents filed before standard publication, further suggesting that applicants use the delays provided by the continuation process to tailor their claims to cover related standards announced after filing.
What types of firms engage in this opportunistic behavior? The paper examines the behavior of three different business types: (i) product suppliers, product vendors, and system integrators; (ii) components; (iii) pure upstream knowledge developer or patent holding company; and (iv) all others. The two highest rates of continuation filings come from patent holding companies and product suppliers. Patent holding companies have incentives to use continuations strategically to increase their licensing revenues. Interestingly, however, there is either negative or no correlation between standard publication and the probability of continuation filing for producers of components. This suggests that different types of “upstream” players employ different strategies for continuations. One explanation for a relatively strong correlation for product suppliers is that downstream players have an incentive to inflate their SEP portfolios to protect their investments from hold-up risks, increase their bargaining power in cross-licensing negotiations, and obtain freedom to operate.
All of this evidence suggests that companies use continuations to cover standards after consensus forms around a specific design, that a large share of SEPs are continuations filed after standard publication, and that there is a large increase in the continuations of SEPs immediately after a standard is published. Continuations can be useful to applicants with high levels of uncertainty, such as startups or inventors of very novel technologies. On the other hand, continuations increase the uncertainty about the actual scope of patent protection. Unexpected changes can increase the likelihood of inadvertent infringement, reduce incentives to invent around patents, and create a hold-up threat that can increase the costs of technology adoption.
Cited in the USPTO’s Patent Public Advisory Committee’s 2020 Annual Report.