Quality, Scope, and Leniency

Patent office outcomes have a significant influence on the quality and direction of innovation and technological growth. The paper presented in this PRICE Seminar describes how incentive misalignments between applicants and examiners at the US Patent and Trademark Office (USPTO) generate unintended effects across the distribution of the quality of patent applications’ underlying inventions. The author introduces a novel measurement of invention quality based on state-of-the-art natural language processing (NLP) techniques. He uses this measure to document stylized facts: higher-quality inventions face lower acceptance rates but receive broader intellectual property rights when granted. To explain these patterns, he develops a theoretical model that includes applicants strategically adjusting the scope of their applications. The model guides an empirical investigation that reveals a bimodal pattern of patents accepted due to lenient examiners with respect to the distribution of quality. The author shows that this U-shaped distribution arises due to higher incentives for low- and high-quality applicants to “gamble” on lenient examiners when selecting the scope of their applications. These findings underscore the importance of USPTO reform targeting the underlying incentive structure and imply that uniform policy reforms may discourage patent applications by specific inventors along the quality distribution.