18 June 2017

IP Australia’s Chief Economist on the Role of Economic Modelling, the Innovation Patent... and Perpetual Motion!

Benjamin Mitra-Kahn[Note: This is the third, and final, part of the transcript of my conversation last year with IP Australia’s Chef Economist, Benjamin Mitra-Kahn.  The first two parts were A Conversation with IP Australia’s Chief Economist and Talking ‘Data’ with IP Australia’s Chief Economist.]

The Australian innovation patent system has been under a cloud for some time, with first the (now defunct) Advisory Council on Intellectual Property (ACIP), and then the Australian Government’s Productivity Commission, calling for the system to be abolished.  The original source of evidence behind these calls was a report produced by IP Australia’s Office of the Chief Economist entitled The economic impact of innovation patents.  The report used Australian patent filing data, linked to company-level business information, to make the case that the innovation patent is not achieving the objective of stimulating innovation among Australian small and medium enterprises (SMEs).

Many patent professionals have a different perspective on this issue, albeit one that is strongly influenced by the particular cross-section of users of the innovation patent system that they encounter in their daily practice.  I recently read a ‘defence’ of the system by a New Zealand-based practitioner arguing, in essence, that innovation patents had been useful to a number of his clients, and he would be sorry if they were to be abolished.  While I believe that there is an argument to be made, based upon the data, that more weight should be given to attorney-represented SME applicants in assessing the worth of the innovation patent system, the kinds of ‘feelpinions’ expressed in that article do not, in my view, constitute a very useful contribution to the debate.

But if those at the coal face might have difficulty in seeing the forest for the trees (if you will pardon my carbon-based mixed metaphor), might it not also be the case that economists, with their penchant for aggregating and analysing data, could sometimes fail to see the trees for the forest?  Either way, it seems that a clash of cultures has arisen between those who view the individual trees as important and those who believe that the system can only be properly evaluated via an aerial view of the entire forest.  My own inclination, absent evidence to the contrary, is to presume that each of these perspectives lies at the extreme of a continuum, and that they are therefore equally likely to provide an incomplete view.

In any event, this disparity in the perspectives of IP practitioners and economists was a topic I was very keen to discuss with IP Australia’s Chief Economist, Ben Mitra-Kahn, when we spoke last year.  But before we got to that, we first covered the future of IP Government Open Data, a.k.a. the IPGOD, and the fate of patents on perpetual motion under the new ‘utility’ requirements introduced in 2013 by the Raising the Bar patent law reforms.

The Future of the IPGOD

Mark Summerfield: So can we expect to see other new features coming in future releases?

Ben Mitra-Kahn: There’s more data coming out. Some of the data we are trying to put out includes better data on the processes, as in how many transactions happen and when do they occur. That’s mainly on the price and financial side, and also events. More data on the attorneys, agents, representation and cleaner data. And generally expanding the data set to include more granular bits – something in oppositions and something around patent abstracts, trade mark text and trade mark imagery.

And a lot of this is really demand driven. And when people would say ‘hey do you have this thing’, and we usually end up saying ‘yes, it’s in the computer somewhere’. But we’ve been around for 110 years, and we have computer systems accordingly. So we have to go in and get it, bring it out and clean it up and send it out. So anyone who wants to say ‘hey I’m interested in this particular bit do you have it?’, you just say ‘yes sure’.

MS: Well this will be, I suspect, very difficult for you to get, but I am – and many other people would be – interested in being able to see what grounds for rejection are raised in individual examination reports in patent applications in particular. Often the sort of thing we want to know is, has there been any increase or decrease in the number of manner-of-manufacture-based rejections or prior-art-based rejections. The difficulty I imagine in doing that for you is that, that isn’t recorded I don’t think in any way other than in the text of the reports generated by the examiners.

If you look, for example, at some patent research in the US – Professor Dennis Crouch, who writes the Patently-O blog, has a lot of inside access to USPTO data and often generates very interesting graphs and charts of that kind of information, such as whether there’s been rise or decline in particular technology examination groups in relation to particular kinds of rejections.

BMK: We are currently in the process of – I think everyone is always in the process of upgrading their IT system – but part of that is more standardised reporting from the examiner to say what objections they raised. So that is beginning to come into the data set in a structured format. Which helps us going forward but the question of going backwards is trickier.

So one of the things that we have been tying to do is to use some linguistic recognition software, and then work with the examiners to get standard statements on, for example, if your objection is on the basis of utility, in nine out of 10 reports the examiner may have written it this way. Can we use that text and similar text to find those rejections? But that’s a little bit harder because you need the machine to understand what its reading. But it is doable. And it won’t be great at the start, but I think going forward that it’ll get better.

I know we’re in the process of trying to find a way to get it out of the machines, because like you said, there were processes to take the text apart and strip it back and then identify the bits and pieces, but that is actually in-process at the moment. And we are having an ongoing debate because we want to understand the other side of the economics, right? So the Office makes a decision, the government changes the policy, so now we can raise objections on utility after Raising the Bar. And so what we would like to know: do we use it? And so there’s a six-year evaluation plan in process as to how often does that happen.

Perpetual Motion, Inutility, and Other Objections...

MS: Like perpetual motion machines – we now finally have a mechanism to prevent patents from issuing. Not that there’s a great deal of economic harm in people being granted patents for things that don’t work, but it brings the system into disrepute.

BMK: It does. It’s a bit silly right. Although, I think people really enjoy getting the models on the perpetual motion machines…

MS: Do you still get models?

BMK: Not so much any more, but back in the day… I think that we still have some of them in the warehouse. I think that we usually raise some laughs with perpetual motion machines because question one, it’s not running how we start it? Question two is, why did it stop?

And the other thing we’re doing at the moment, we will start back-capture projects to capture things that were typed up on paper and re-scanned and OCRed [Optical Character Recognition]. And so I’m hoping that’s part of getting the abstracts and specification text into a structured data format. My hope is that we’ll have sections, so this section is the examiner reports action where he rejects or accepts. Okay, we’ve isolated that bit, then we can start comparing them across thousands and thousands of things and start classifying them again. So I think this data is going to get a lot better and if that’s one of those things, then absolutely that’s one of those things we’ll go back and try and do.

MS: I mean it’s an area where you probably don’t need to go back decades. It is going to be of little interest to anybody, for example, prior to the 1990 Act when there was a really significant change in the law. But one thing that might be of interest to researchers in this area, for example, is where the standard for inventive step has changed about three times since the 1990 Act. So to be able to look at the impact of that in terms of inventive step objections, and particularly in some cases over more than one report, whether they were maintained or not, is something that would actually be very useful. And it will be useful looking over time at the impact of Raising the Bar, which brought in the most recent one of those changes.

BMK: Absolutely! So we’ve focused in our evaluation plan of Raising the Bar on utility objections, particularly because of the change there, so that data I think we have actually built a way to get out. But having built that, we can then build the other things. So, absolutely! It’s exactly that sort of thing that economists in IP offices were hired to do. I realise that it probably doesn’t sound all that glamorous but I have worked out the average effect of change in legislation of particular aspects of bits and pieces. It is really cool stuff for a conference and you would probably enjoy it.

MS: It’s probably not really interesting to most patent attorneys either, but there are some people who are interested. There are some people, researchers in universities in both law and economics, who are interested, and things like what was the real impact of the new inventive step standard in the Raising the Bar reform on what’s actually happening in our system. We advise clients that they effectively need ‘better’ inventions now than they used to because the standard is higher. As somebody who gets examination reports and responds to them, it’s not entirely clear to me that it’s really having a major impact on the outcomes in many cases, but maybe the data will say something different.

BMK: That’s the interesting bit.

Economists’ Analysis v Patent Attorneys’ Experience

MAS: Which leads onto the next point which is that, another reason for some degree of disharmony between practitioners and economists – and theoreticians more broadly, is where you get analysis like you did in the economic impact of innovation patents, and it says something based on the data. And then all the people such as myself who actually work with clients and have direct knowledge, at least a very small subset of that data set, as to why certain decisions are made. So we say, well hang on, you’re drawing inferences here, and that doesn’t match with our experience. So what would you say in terms of how to deal with that? Is that a real thing? Should we trust the data when you’ve got larger data sets? Should we be finding ways to bring those two different perspectives together? Do you have any thoughts on that?

BMK: So I guess I take the view that if you have the universal data, as in everything that ever occurred in a particular event, then whatever that data says is going to be factual and correct. So let’s use the data to establish the facts. So, for example, if the data says that 26% of people do a certain unfortunate thing, then that’s just the case. Now if a handful of people or a lot of people don’t see those 26%, then they won’t see them, but if someone else sees them in the data, they’ll see them.

So I think you have made the same point previously. The attorney profession sees a not-unbiased set of observations, because on average people who have attorney representation do better in the innovation patent system. Their patents live longer, they get more certified rights. Yeah that makes sense? But what does it look like for the population? So I think on that, that there’s a difference, and there should be a difference, because you said there’s a sample and there’s the population and getting from one to the other is hard.

MAS: I think in response to that, what certainly I would say, and many others in the profession would probably say is, perhaps we should not be drawing broad conclusions and setting policy on the basis of the applicants in the portion of the data set that are unrepresented because, for better or worse, the patent system is complex. If you don’t know what you’re doing you’re not going to get a good outcome. Actually the better policy would be, in my view at least, to try to discourage those people from spending their time, and in this case relatively minimal amounts of money because they’re not paying attorneys, on filing applications that really have no prospects of resulting in any meaningful rights.

BMK: So this is where the policy and economic section splits up. We do the, ‘hey look, here are all the facts that we can gather, the information you want so that you can prepare your advice, we think this is the best we can do. Do your advice bit.’ On that side of it, bear in mind that I think it’s only like 83% percent of innovation patent applicants are represented, so it is a lot of proportion that very few of them are self-represented, 17% are left over. So, it’s remarkably high in that sense, but the data that we have is not a sample, it is everything. And so on that basis I think you can do a lot.

Now what you do in terms of policy is a very different question. I completely agree with you. If we had a system where only people who win enter, as in only people who are incentivised enter, and they get something good for it and they’re valuable at the end of that, then that would be lovely. Now, as an economist I wonder whether or not the things that are usually discussed in terms of reform, are things that will affect that. I don’t know the answer to that, but I suspect there are other mechanisms that one could think about that would incentivise those people to participate.

Ultimately I want to incentivise you to innovate. I want you to be encouraged and invent something. Once you invent something, I would like you to get the rights that work for you. All the rights, or no rights, if that works for you as a business. The question is always, how much more are you going to do because we’ve got this thing in place, and once you enter that, how much that costs you or not? So, I’d rather take the view that if you’ve got population data, you can do a lot with that. How reform will affect that, I don’t know.

The Fate of the Innovation Patent

MS: We know, of course, that ACIP’s final recommendation before being disbanded was that, perhaps the innovation patent should be completely abolished. That’s a fairly extreme reform. Now the Productivity Commission has taken that up, and they have the results of that consultation process that IP Australia went through on that report and those recommendations.

BMK: We published all the consultation responses. We ran the consultation, we published all the responses and we provided all the responses to the Productivity Commission together with the report as part of our, not submission, but part of the information sharing that’s going on, and the Productivity Commission will take a view. The economics section is also trying to work out a way that we are going to engage with particularly IPTA, who put together a very nice submission, and what I really enjoyed about it was they had an economist to go through the math and say ‘you assume a few things here – I’m not sure that’s right’.

How brilliant it is to have that conversation, and say, ‘look here’s our results, here’s how we did it’ and people can go out, pick that apart, ‘I don’t think you’re right’. And then the economist goes, ‘okay, sure, we might have been wrong, how will we fix that?’ And that to me is really exciting, that IPTA responded like that, and that we can have a conversation like that. We’ve go to work out how to have that conversation in the context of the Productivity Commission, but I think that is really great! Because suddenly we are not having a debate about, I think this, I think that. It’s now about you’ve assumed this bit, that’s where that falls apart. OK, excellent let’s see how badly it falls apart. OK, that may change our conclusion.

MS: I suspect, as you say, that the result of that is a positive thing because you now have people who talk the same language effectively, interacting with each other. From IPTA’s perspective it’s a question of fighting fire with fire.

BMK: Sure. The good thing about fighting this kind of fire with fire is that you don’t usually end up in ashes, because the way that we try to do it, maybe separate from the consultation stage and the policy stage, during the evidence stage. So, here are the assumptions, here’s what we think we’re doing right, and we’re not going to publish the results and leave all that stuff behind. We’ll give it to you and then say, ‘OK, pick it apart’. Trust me, we went through it a lot internally and we gave it to externals to pick it apart before we used it. So we are reasonably comfortable with it. We are confident this is the best we can do in the time limits and data that we have and we want to have a conversation about this. The fact that we can do that, I think is brilliant!

I accept that there are people, I think there’s one attorney in particular, who referred to us as soul-destroying (which was not very nice), but he then went on to say, ‘and it’s complete nonsense because I have client who made $5 million dollars on innovation patent’. I said, ‘oh that’s fantastic! Over how much time?’ ‘Over the eight years, $5 million dollars at the end of it’. ‘OK, that’s $625,000 a year’. And from our analysis, what we’re saying is the value to the average applicant is between $10,000 and $250,000 a year here. That fits perfectly with the world view that we’re talking about. That’s true.

The question is, just how many of those people are there? And did we get close to that? And it’s a point I made earlier, are we in the right ballpark? I think we are in the right ballpark, but if it turns out we’re not, I am going to be first person to stand up and say, we are not in the right ballpark here guys, here’s where it went wrong. This is the ballpark you should be talking about. That’s the case of the costs and the benefits and the impacts and if we can find more data, so much the better.

MS: To some extent the game always ends up biased because, in my experience, no matter what rights you have, no matter what rules you put in place, no matter what you make available to people, some people will always find ways to use that strategically in manners that were not intended.

BMK: True.

Conclusion – Towards Common Ground?

So on that rather appropriately open-ended note, my conversation with Ben Mitra-Kahn draws to a close... for now, at least.  I hope we will have the opportunity to speak on-the-record again in the future, after the matters we discussed, such as the recommendations of the Productivity Commission, the effect of the Raising the Bar reforms, and improvements in publicly-available data, have had some chance to play out.

I also hope that this short series may have gone some way towards helping IP practitioners and economists to understand one another’s points of view a little better, or at least demonstrate that we can actually all get along!  Patent attorneys, in particular, need to recognise that advocating for the interests of their clients – whether they be backyard inventors, SMEs, or multinational pharmaceutical companies – may not, by itself, win a national policy debate against economists’ advice backed by hard data.  Economists, for their part, should not lose sight of the fact that the world is a complex and messy place, in which you never really have all of the data, and any model you build is necessarily, at best, a gross oversimplification of reality.

It is also worth keeping in mind that the ‘truth’, assuming we could find it, might not be what our intuition and experience suggests it should be, no matter our background.  I have seen the following quotation attributed to Benjamin Franklin:

Common Sense is neither common nor sensical. Much of what passes for common sense is not based on any underlying principle it’s just anecdotes that have worked for the current situation.

I can find little supporting evidence for the attribution, though the fact that this quotation may be apocryphal makes it no less relevant.  It seems somewhat more likely that Albert Einstein (who turned our ‘common sense’ understanding of the way the universe works on its head) said something along the lines of ‘common sense is nothing more than a deposit of prejudices laid down in the mind before you reach eighteen.’

In any event, the nature of ‘common sense’ may be hard to agree on, but that should not stop us from seeking common ground.


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