Discrimination against foreigners in the patent system

A recent stream of the academic literature suggests that there might be discrimination against foreigners in the patent system. Firms of foreign origin may be treated unfavorably compared to local firms when filing for patent protection. Estimates suggest that foreign firms might be as much as ten percentage points less likely to have their patents granted than locals. This article takes stock of the literature. It explains what we know — and don’t know yet — about the issue. It targets intellectual property (IP) professionals, policymakers, graduate students, and anyone with a keen interest in IP, innovation, or technology protectionism.

The national treatment principle

Using the patent system to discriminate against foreigners is as old as the patent system itself. The Patent Act of 1836 set application fees of $30 for U.S. applicants, $500 for any “subject of the King of Great Britain,” and $300 for all other persons. Meanwhile, in the German state of Württemberg, the Trade Act of 1828 introduced application fees that ranged from 5 to 25 Gulden, with state residents paying the lowest fees.

Governments typically want the weakest possible protection for foreign firms in their domestic markets to facilitate free-riding on foreign technologies.

A patent is a jurisdictional right; it protects an invention from imitation only in the country that issues it. Thus, anyone can freely use a technology in countries in which it is not patented. Discriminating against foreigners is particularly attractive for governments in developing countries. Lack of patent protection provides a chance for local companies to learn from and build on advanced foreign technologies freely — by reading the patent literature and implementing the inventions in their own products or manufacturing processes.

Discriminating against foreigners, therefore, violates these international treaties.

Evidence of discrimination in the modern era

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Photo by CHUTTERSNAP on Unsplash

These two papers hint at the fact that there might be discrimination in the patent system.

However, this method has its limits. Although it compares the same invention by the same applicant in different jurisdictions, there might still be systematic differences across jurisdictions. For example, local firms may hire more qualified patent attorneys or know best how to navigate their national patent system’s intricacies.

This finding led the authors to conclude that, at least in China, the patent system might serve technology protectionism.

The story does not end here

The literature discussed so far has considered ‘output’ measures, such as the grant outcome or the length of pendency. More recent research has focused on process-based indicators in an attempt to understand the root cause of discrimination. Petit and colleagues (forthcoming ECARES working paper) track several metrics related to the intensity of the search performed by patent examiners at the USPTO, EPO, and JPO. Although they find traces of discrimination using output measures, they find overall no convincing evidence that discrimination occurred during the patent prosecution process. The authors conclude that offices do not seem to discriminate against foreigners — it would seem that applicants themselves may be less prone to have their patents granted ‘at all costs’ in foreign jurisdictions.

Collectively, these studies have only scratched the surface of the discriminatory treatment of foreigners.

We need to dig more into the data to understand the root causes of the apparent discrimination. Scholars have proposed new statistical methods and have looked at different points in the patent prosecution process. We need more statistical methods (or ‘identification strategies’ in economists’ jargon) and more metrics to identify the channels through which discrimination might occur. We also need to realize that not all offices may be discriminating against foreigners. The literature has focused primarily on the USPTO and the EPO because these offices provide high-quality data. But the opaquer offices might also be those discriminating the most. Furthermore, we should look beyond the patent prosecution process. Invalidation proceedings and litigations are natural places to look next, and some work in this direction has already emerged.

Written by

I am a Professor of Innovation Policy at Ecole polytechnique fédérale de Lausanne.

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