Will First-to-File Hurt Small Inventors?

(Digital Vision)

The U.S. just passed the first major patent reform in nearly sixty years – which includes as a central provision a change to the patent priority rule. Instead of awarding a patent to the first person to invent, we will join other nations in awarding patents to the first person to file an invention.

David Abrams and Polk Wagner have a great paper looking at whether the proposed change in our patent system from a “first to invent” regime to a “first to file” regime is likely to disadvantage individual inventors.  The concern is that corporate inventors will have an easier time than the individual in gearing up to draft and file a patent application.

The paper ingeniously looks to see what happened when Canada introduced a similar reform in 1989.  The paper is also a great way to teach yourself about the difference-in-difference approach to estimation.  The paper first estimates the pre-reform difference between the U.S. and Canada in the proportion of patents going to individual inventors.  It then looks to see whether this difference changed – that is, whether there was a difference in the difference – after the Canadian first-to-file reform went into effect.

This single picture sums up their central finding:

As the authors explain:

The most compelling evidence for the impact of the first-to-file rule on small inventors is a visual difference in difference. The traditional difference-in-difference subtracts off the change in the control group from the change in the treated group. In this case, the results are so stark that it is easily seen by the visual comparison in [the figure], which reports the representation of individual inventors in the U.S. and Canada. In [the figure] we see a sharp decline in the fraction of individual inventors, from 10.7% prior to the end of 1989 to 7.8% afterward. During the same period in the U.S. the proportion of individual inventors dropped slightly, from 17.4% to 16.5%.

They summarize the article (and signal its policy relevance) in this abstract:

Even as we stand on the cusp of the broadest set of changes to the US Patent Law in two generations, virtually no empirical analysis has been conducted on the impact of the primary components of the proposed reforms. Until now. In this paper we investigate the expected effects on patenting behavior of the major change in the America Invents Act of 2011: a shift in the patent priority rules from the United States’ traditional “first-to-invent” system to the dominant “first-to-file” system. This is a deeply controversial change: Opponents argue that first-to-file disadvantages small inventors and leads to lower quality patents. Those in favor emphasize administrative simplicity and the cost savings of first-to-file. While there has been some theoretical work on this topic, we use the Canadian experience with the same change the US is considering as a natural experiment to shed the first empirical light on the question.

Our analysis uses a difference-in-difference framework to estimate the impact of the Canadian law change on small inventors. Using data on all patents granted by the Canadian Intellectual Property Office and the US Patent and Trademark Office, we find a significant drop in the fraction of patents granted to small inventors in Canada coincident with the implementation of first-to-file. We also find no measurable changes in patent quality. The results are robust to several different specification checks. While the net welfare impact that can be expected from a shift to first-to-file is unclear, our results do reveal that, contrary to the conventional wisdom, the rule change is not free — it is likely to result in reduced patenting behavior by individual inventors.

Joshua Northey

Umm...I was using difference-in-difference to estimate things when I was still in grade school. It is a fundamental mathematical tool. Surely you don't think it is novel to the people who come to this site (who are generally somewhat knowledgeable mathematically/statistically)?

Granted to the general public it is something novel, but the general public is not the readership of this site.

I still remember when I was giving a presentation to a city council and chamber of commerce 5 years ago on the long-term economic situation in their micropolitan area. I started giving them graphs on the change in the ratio between their economic indicators and the the economics indicators in; similar micropolitans in their state, the state, and the nation as a whole. There were 50 leaders of the community there, and it clearly went over almost all of their heads. They could not understand the benefits of the method over just talking about changes in the raw economic indicators But they were a bunch of 45-85 year olds who mostly didn't attend college. Not the readership of this site.

I notice in a lot of the posts here a tendency to "talk-down" to the readership of the site. From a lot of the comments the readership seems fairly erudite. Perhaps the discussion would be of higher quality and less confrontational if a more collegial tone was struck?


Charlie Dodd


While I do appreciate your argument, I would point out that even being college educated, I was not terribly familiar with difference-in-difference. I appreciate Freakonomics as a whole for being willing to put things in simple terms. Indeed, it has seemed to me to be their goal from the outset to explain complex economic tools and findings in a way that nearly anyone can understand.

As for the confrontational tone, you might be correct. It's hard to say what people will and won't respond to. However, always keep in mind that we're talking about the internet. Decorum went out of fashion there long ago.

Best Wishes,

Mike B

The whole "first to invent" system reminds me of the Seinfeld episode where Kramer was getting upset that everyone was "stealing his ideas", one of which included %0 financing on a Toyota 1 ton pickup. A followup question for the above graph would be what is actually causing the drop off? The law could actually be harming people if Joe Inventor invents something, then, while trying to fill out the patent form, some large form also invents the same thing and beats Joe to the parent office. On the other hand if like Kramer there Joe Inventor has an idea, then doesn't really implement it until he discovers that some large firm is going to be using is at which point he runs to file a parent claiming an earlier priority date based on his initial act of "invention" then all you have is sort of a reverse patent troll and such patents should be excluded.

As I have had it explained to me by parent attorneys, the whole first to invent system was largely academic. The bar to proving that one was actually the first to invent vs first to file was so high that such claims were rarely successful. Part of the reason is that if there was proper documentation of the invention in the first place the second to invent firm would have probably discovered it in a prior art search and not filed for a patent at all. Therefore the only time the situation comes up is when someone has been working in obscurity or secret...but then there's no actual independent proof to verify the claim.

Under the new system even if inventors were actually first to invent, but later beaten to the patent office, they still have leverage against the second to invent firm as if they can show their work was prior art the second to invent firm gets nothing. Therefore anyone with some proof to their claim can extract a worthwhile payout from said second to invent firm to keep their independent discovery under wraps.

At the end of the day I think we simply need to look at our peer countries around the world. The fact that the United States was the ONLY major economy to use First to Invent sends a pretty big message that we're the one's being crazy.



I like your corollary with Kramer. But he too would be hurt by this new system. I represent a number of small high tech start ups as a patent attorney that often don't have the funds to patent everything they invent. But in an effort to drum up business with large companies they share (against my advice) many inventions with these large companies. On more than one occasion large companies have beat my clients to the patent office. This will increase now. In the past we had recourse and some companies may not have rushed to the patent office because they knew they were not the first to invent. With the new system in place, my client now must either keep their trap shut or come knocking on my door before they talk. This will benefit me at a real cost to my clients. This change will be drastic to many small companies that are already finding it a challenge to operate in this economy.
You also mention patent trolls as benefiting from the previous regime. Somehow trolls have become the scapegoat for all that is wrong with the patent system but they are not as bad as large companies tend to lament as noted by this paper: http://www.patentlyo.com/patent/2011/09/guest-post-patent-troll-myths.html


Mike B

It's not hard for small firms to protect their IP by making anyone they show it to sign some document acknowledging that they are the inventors as well as the date. Remember, first to file should not overturn prior art. In fact the EFF is going around busting vague software patents by finding any example of the claims made prior to the patent filing so if properly enforced that should make honest to god invention theft a fools errand. Furthermore, the Patent Office will now have a system to assert priority without actually filing a full patent application. The whole point is that having court battles resting largely on highly subjective evidence isn't good for anybody.

Anyway, I think the problem here isn't the actual stealing of inventions, but pre invention ideas. I think a lot of small players are tossing around ideas that are kinda there or on the back burner and then their idea gets out and a company with actual resources goes ahead and invents it. It's sort of like the Facebook scenario. If those twins may have had an idea, but like Zuckerberg said if they had really invented Facebook...they would have invented Facebook.


Nick Robinson

Surely the real issue is not whether 'small' inventors are hurt or not, but how the number and quality of patents is affected?

Shouldn't we leave it to the market to work out how small inventors can use their special talents to make money from inventions (perhaps by selling early-stage ideas to larger organisation who can manage the administration better)?


Paul Kimelman

I think there are a few problems here. First of all, the difference in difference masks the actual number of patents we are talking about (which is important) and what they mean by "individual inventor" (I assume they mean not assigned). The question then is whether we care about small companies (e.g. startups) or about actual individuals? Startups would still have assigned patents or they would not get investors in general. So, this study is about tinkerers and not legitimate companies and Universities in most cases.
So, if we are talking about the lone tinkerer in their garage, the question is whether we care? Many of those patents are for ridiculous objects that will never get made. The question is whether the difference shown is because they changed the rules or because Canada tripled the filing price and made the application rules stricter??? This was not discussed in the article.
The real worry has been and will be whether startups can get patents to get protection from being muscled out by large companies that are often more interested in stifling competition than they are in innovation. As I noted previously, provisional patents are the solution and are very inexpensive and easy to file. They give you a whole year to file a non-provisional patent, so a startup could secure funding 1st if needed.



I highly disagree with the shift to a "first to patent" focus. Many things have been seen as examples or ideas created by small businesses, inventors, science fiction writers, etc... that are now being seized upon by big business. Big business does not innovate but copies someone else's idea and is the first to patent because they have the big bucks to do so. Big business strips the rightful rights away from the true innovater in a first to patent system. The new focus has created a patent race with the most wealthy companies benefiting.

Part of this new race by large wealthy companies is to patent everything possible no matter if it is obvious, has prior art, is overly broad, or just non innovative. For example, the biggest one in the news has been Apple's "slide to unlock" patent. What is more obvious than using a graphical representation of what has been done on electronic devices for years with physical switches. It is the first thing any developer thinks of when trying to transition from physical to software or screen based models. It is inherently obvious. Yet, Apple and others have been bombarding the patent office with such patents - more of a race on who has the money to patent every obvious idea possible than true development or innovation.

Hopefuly the downfall of the patent system created by this move to a "first to patent" system will be quickly changed before it destroys competition, small business, and independent inventors.