When Julio Franco debuted in Major League Baseball in April 1982, he brought with him a solid shortstop’s throwing arm, basestealing speed, and one of the most unusual batting stances ever seen in the profession. Instead of positioning his bat vertically behind his head like most players, Mr. Franco waited for pitches holding his elbows high, his right hand above his head, and his bat pointed directly at the pitcher. The stance was variously claimed to be not only unorthodox but also inferior to more traditional batter positioning. Indeed, Franco’s bat had to travel a longer distance before making contact with a pitch; the longer travel distance increased the amount of time his swing required and thus reduced his ability to react to unanticipated throws. Few baseball experts saw significant, if any, technical benefits in Franco’s mechanics.

 

Nevertheless, Julio Franco enjoyed a remarkable professional baseball career, particularly as relates to his hitting performance. He was a three-time All-Star, a five-time Silver Slugger award winner, and the 1990 All-Star Game Most Valuable Player, an award bestowed on him largely for a scoring at-bat late in the contest. Franco also capped a relatively injury-free career as one of the oldest players ever to be active on a Major League Baseball team roster, which helped him accumulate more than 2,000 hits and 1,000 runs. His career statistics are well above league-wide averages.

 

Although Mr. Franco never attempted to patent his peculiar hitting method, the fact pattern presented in his baseball career is similar to the array of facts sometimes observed in patent proceedings in which the analysis of so-called “secondary factors” like commercial success is warranted. When the technical advantages of an invention are not readily apparent, objective measures of economic market results can provide useful indications about whether the claimed invention reflects inventive steps and whether it makes a substantive advancement to the state of technology. A strong and positive marketplace responsethat is, commercial success-suggests that it does.

 

 

In the December 2011 China IP article entitled “Impact of ‘Commercial Success of Inventions’ upon Judgment of Inventive Step,” Zhang Peng outlines the relevance of secondary considerations in patent examination proceedings. As the article describes, China’s Guidelines for Patent Examination, Chapter 4, Part 2, indicates the importance of secondary considerations like commercial success: “when an invention product is commercially successful, and if its success is caused directly by the technical features of the invention, [it may be concluded that] such inventions have prominent substantive features, and thus they involve inventive steps.”

 

The study of commercial success accordingly implies two distinct parts. First, the market success of the product embodying the patent must be demonstrated. Second, a nexus between the product’s market experience and the patented technology needs to be established: success must result from the patented invention. Were the analysis applied to Julio Franco and his peculiar batting pose, it would involve evaluation of the professional baseball success displayed during Mr. Franco’s career and the extent to which that success stemmed from his batting style.

 

In typical secondary considerations inquiries, analyses of sales and profit data, market share holdings and growth figures, pertinent ratios and trends, as well comparative statistics and econometric findings can all be instructive in reaching conclusions of commercial success.

 

Performed properly, an economic evaluation of commercial success and the nexus between that success and the claimed invention can provide powerful guidance as to the presence of inventive steps. Studies that do not carefully consider data in the appropriate framing or with suitable techniques, however, can be vulnerable to shortcomings and can undermine the purpose of the evaluation.

 

The following sections build on Zhang Peng’s December 2011 article and describe analytical approaches that can be used to construct compelling evidence relating to commercial success. The approaches can be used in isolation or combination, depending on the circumstances of the inquiry and the availability of pertinent data. As means of illustrating certain concepts, the case study of Mr. Franco and his unorthodox offense is also developed.

 

 

The tabulation of data reflecting product sales, profit, pricing, advertising effort and similar statistics over the period of the product’s life to-date is generally a useful way to begin a commercial success evaluation and can set the foundation for further analytical work.

 

In the example of Julio Franco, this type of data gathering would reflect the fact that he accumulated 2,586 Major League Baseball hits during his career. He also managed 1,285 runs, 1,194 runs batted in (RBIs), and 407 “doubles.” Impressive, right? Well, perhaps those are impressive numbers, but to someone who is not a baseball expert contemplating those figures in the appropriate context, the standalone numbers of hits, runs, doubles and RBIs do not necessarily mean a whole lot.

 

The usefulness of simple descriptive statistics is that they set forth the basic known information about the product (or baseball player) in question. They begin to translate the technological proposition of the product into measurable economic and financial terms. They also may provide some direction as to where further analytical attention is necessary. However, they do not directly offer insight related to context, comparison, or trends; they do not consider benchmarks or relative performance; and they do not therefore provide a full picture from which to examine the presence of commercial success.

 

Moreover, descriptive statistics do not incorporate controls to establish any nexus between the claimed invention and the product’s success. Even if Franco’s RBIs are sufficiently high to signal that his batting career was successful, there is no indication whether his statistics exist because of his batting style-or despite it. Perhaps he would have been just as successful using a more conventional technique.

 

In some special cases, the general rule that descriptive statistics in themselves provide no indication of nexus is relaxed. With respect to pharmaceutical products for which the entire molecule and method of use is disclosed in a single patent, for instance, the patented invention and the product are one in the same. Common sense points to a tentative conclusion for such products that sales, profits, and market share which are attributable to the product profile itself (as opposed to, e.g., advertising) are likewise due to the claimed invention.

 

Nevertheless, in any case, more sophisticated analysis typically is necessary to establish evidence of success and the reasons for that success.

 

 

Benchmarking and comparative analysis can begin to lift the fog relating to questions raised through descriptive statistical analysis, such as whether sales, profit, and other economic measures of market activity for the product under consideration “good” or not relative to peer products or other relevant comparators.

 

For instance, while Julio Franco’s 1,285 runs might sound like quite a lot of good hitting in isolation, the number is hardly more than half the number of runs completed by Franco’s contemporary player Rickey Henderson, with 2,295. Then again, Mr. Franco scored 105 runs more than baseball icon Yogi Berra. Played out to its extreme, the exercise of benchmarking performance against peers generates a comprehensive comparative ranking along the analyzed variable: Julio Franco ranks 127^th all-time in Major League runs out of the more than 16,000 players in the history of the league. Also pertinent in this line of analysis is recognition of performance through awards like Mr. Franco’s receipt of the 1991 American League batting title, as well as trend analysis examining how Mr. Franco fared under given conditions or throughout the duration of his career relative to others. Awards are often a qualitative signal of relative success, while comparative trends can provide more quantitative indications.

 

Certainly benchmarking and comparative analysis with baseball players appears to be a relatively straightforward undertaking. There is little question that stacking up Julio Franco against other Major League Baseball players is a reasonable way to begin analyzing relative hitting proficiency. It is less clear, however, whether Mr. Franco’s batting performance should be evaluated against all professional players, only those to have played during the same period as he did, or only those to have played in the same league division. Perhaps there is even good reason to exclude from comparison left-handed batters or players from Franco’s own teams. Without an initial study of the salient features of the landscape in which the survey is conducted, ostensibly useful—but in fact improper—benchmarks could be included and might pollute the analysis. The essential undertaking is to identify the right comparators since benchmarking is inherently a study of relative success.

 

Determination of whether a given benchmark is relevant or not often turns on the extent to which the possible comparator and the studied product are broadly similar and perhaps substitutable. If a commercial success analysis relates to a formulation of prescription painkiller tablets, then suitable benchmarks are most likely to be found among other painkiller pill products. While substitutability can be a helpful criterion, it is not a necessary characteristic to enable meaningful comparison-indeed, no one would consider replacing a deflated tractor tire with a low-profile radial, even though the two might be pertinent comparators under the right circumstances. The appropriate test for relevance in benchmarking is informed by the nature of the analysis and of the product and invention in question.

 

Regardless of the specific context of the undertaking, benchmarking and comparative analysis do not directly address the nexus consideration of commercial success. More targeted analysis is usually necessary to probe the nexus issue.

 

 

While descriptive statistics and comparative analytics contemplate the question of whether a product has exhibited commercial success, ratio analysis can provide insight into both the presence of commercial success and the reasons for that success. An incisive ratio analysis is thus a useful way of addressing the nexus between the patented feature and the product’s commercial experience.

 

To illustrate the flexibility of ratio analytics, consider a hypothetical prescription painkiller tablet undergoing evaluation. The product has earned a total lifetime profit of 3 million RMB and a lifetime revenue of 10 million RMB, which gives a profit rate of 30 percent. A relevant benchmark painkiller pill product has generated total lifetime profit of 25 million RMB and revenue of 250 million RMB, which exhibits a profit rate of just 10 percent. This kind of analysis addresses the presence of commercial success. A higher profit rate suggests a commercially successful product but says nothing about its cause.

 

Next consider the two products’ advertising expenditures. T he first product was supported with a 3 million RMB advertising campaign, while the other was supported with a 20 million RMB advertising push. The first product supported a higher profit rate per RMB of advertising spend than the comparator. This analysis suggests that the reason for the first product’s market success is something other than the quantum of advertising developed in support of it. By undertaking several such pairwise analyses of, on the one hand, the commercial result and, on the other, a commercial input, a picture can emerge regarding the extent to which the analyzed product’s sales, profits, and market share result from the patented feature rather than other inputs.

 

Oftentimes a ratio analysis of the type described, undertaken across a host of variables, is the most sophisticated analytical technique deployed in commercial success inquiries. The analysis can yield powerful results with relatively low data requirements if properly formulated. Additionally, ratio analytics are simple to understand and can readily be verified if necessary. There also can be substantial intuitive appeal to such examination, and the study may serve as a useful entry point for evaluating industry specific dynamics, including those that may be counterintuitive.

 

One example of this is occasionally observed in product advertising efforts. Although a relatively high ratio of promotional expenditure to total product sales would appear to suggest that sales are due to advertisements and the like, deeper study may be necessary. It may be the case that unanticipated strong early-stage product sales-initially supported by very small advertising support - led to later investments in additional promotional spend with the aim of taking advantage of a popular product’s intrinsic characteristics. That is, the commercial success of the product was due to the product features themselves, and the initial success caused more promotional spending—rather than the other way around.

 

V. Econometrics

 

When sufficient data observations are available and there is reason to believe a more sophisticated inquiry than can be generated through benchmarking and ratio analysis is needed, an econometric approach can be applicable. Econometric study addresses the nexus consideration of a commercial success inquiry.

 

Under an econometric study, multiple variables are analyzed at once, which can allow for each studied variable’s standalone impact on commercial success to be measured. The study can reveal with some level of confidence the degree to which different factors contributed to product sales, profit, market share, or other market results. Ultimately, if properly specified, an econometric inquiry can be used to show either that the patented feature had a statistically significant impact on product market performance, or that the patented feature was not a significant driver of that performance.

 

Without getting into the mechanics of econometrics, the essential approach is to develop a mathematical model that describes the relationship between product market performance and the factors that affect it. A model might be comprised of several “independent” variables and one “dependent” variable. The independent variables would typically represent product “inputs” that are believed to affect the economic performance of products like the one in question. Examples of such input variables can be things like measures of advertising effort and pricing as well as product characteristics (e.g., size, dosage, etc.) and branding. It may be possible that the patented feature is represented somehow in the independent variables or that it is not. The dependent variable would generally reflect some economic measure of product economic success such as sales or market share.

 

Consider Julio Franco again for an illustration of how this type of analysis works. If the relevant measure of batting success in Major League Baseball is the number of RBIs and it has been determined that Mr. Franco’s count of RBIs is sufficiently great to be considered successful, then the question turns to whether Mr. Franco’s unusual technique accounted for any appreciable part of that success.

 

Now, imagine that the only relevant measurable “inputs” for RBIs generated by professional players are deemed to be: 1) the quality of pitchers faced by the hitter; 2) the batting efficiency of the batter’s own teammates; and 3) the player’s number of at-bats. These factors would then be used to create a model to analyze data compiled for all baseball players comparable to Julio Franco. The data would be run through the model and “parameters” for each variable determined. The parameters would reveal how many of comparable players’ RBIs, on average, resulted from each of the variables. For instance, a parameter of 0.2 relating to number of atbats would indicate that, for each player’s at-bat, an average of 0.2 RBIs would occur. By subjecting data related to Mr. Franco’s opposing pitcher quality, teammate batting efficiency, and at-bat appearances to the parameter estimates from the model, it could be estimated how many RBIs Mr. Franco would have been expected to hit had his batting effectiveness been equal to that of all comparable players. If Mr. Franco’s actual RBIs were greater than the value anticipated by the model, it could be determined that his batting technique actually did provide him with a performance advantage and that his unique style contributed to his batting success - because all other factors affecting batting performance were accounted for in the model.

 

The exercise of determining the appropriate variables for study in an econometric undertaking is the crucial first step in carrying out an analysis that provides useful information. Economic investigation, based on study of the space and informed by economic principles, should evaluate causal relationships and dynamics in the relevant industry (or sport). Studies like this can reveal unanticipated linkages between variables that change perspective about what is initially perceived in the data and can thus provide uncommonly incisive results.

 

Nevertheless, econometric analysis may not be applicable to every commercial success inquiry. Other analytical techniques outlined above can provide sufficiently useful evidence of commercial success and its causes. Since the data requirements for a full econometric study are very high, these other techniques may be preferred simply because the necessary observations for econometrics are unavailable or because of cost considerations. Finally, as noted, other methods may provide results with greater intuitive appeal, which may be simpler to understand and explain.

 

 

Whether Julio Franco’s unorthodox batting method contributed to his success in Major League Baseball certainly has not been settled here. However, the mystery of Mr. Franco’s hitting career does provide an illustrative case study in how data and contextual understanding should underpin effective inquiries into commercial success and its causes. Because effective analysis must derive from a comprehensive evaluation of data and industry-relevant dynamics, the ideal study of commercial success will depend on the set of circumstances and informational constraints related to the undertaking.

 

To improve the odds of success in properly analyzing secondary considerations in patent matters, it is a good idea to bear in mind the advantages and limitations of each of the general analytical approaches described. Mr. Franco succeeded at multiple elements of batting by scoring runs, hitting doubles and converting RBIs. In this same regard, the strongest commercial success inquiries will involve not just one analytical technique, but a mix of several that collectively address both the presence and causes of market success.