PTO Hiring Freeze and Budget Problems

Rob Clarke, the Director of the Office of Patent Legal Administration at the United States Patent and Trademark Office, just finished his presentation at the 3rd Annual Patent Law Institutesponsored by PLI.  It was an extremely interesting presentation with quite a number of interesting factoids coming out.  Chief among them is that the Patent Office is extremely worried about its budget moving forward because filings are down (I have heard filings are down by 5%) and because allowance rates have dropped to 42% for the first quarter of 2009.  I sent in a question through the webcast “as a question” feature regarding whether the Patent Office is looking at an oncoming budgetary disaster given that 70% of the USPTO budget comes from maintenance fees, which with declining applications and ever declining allowance percentages means serious trouble very soon for the PTO.  Clarke’s response was bleak.  He said: “FY09 will be OK, but long term the trend line is fairly negative.” 

The chart below shows the the sharp decline of patent allowances over recent years.  Given that first maintenance fee payments are due 3.5 years after the issuance of the patent, the Patent Office is already starting to feel the financial consequences of the Dudas Administration efforts to award fewer and fewer patents as a way to measure increased quality.  This situation is only going to get worse in coming years because the 7.5 year and 11.5 year payments are much more expensive.

 One may be tempted to presume that a decrease in the number of filings the Patent Office is seeing this year may be a good thing because it will allow the Office to start to catch up with the enormous backlog.  In the short term that is probably true, as can be seen by the chart below.  Despite the fact that 2008 saw an increase of 6.1% over 2007 in the number of filings, first office actions increased 16.6%. 

Unfortunately, the Patent Office did not budget for a decrease in the number of applications being filed in 2009, but there has been a decline so far this year over last years numbers.  In fact, the PTO budgeted for a 5% increase, so if there is a 5% decline that seems to suggest that the PTO budget set for FY2009 will be wrong by 10%.  This means is that the Patent Office budget for 2009 is not at all likely to be realistic, meaning the Office will be under funded for FY2009.  With the PTO being worried about 2010 and beyond this is alarming! 

The fact that patent application numbers are down in 2009 will no doubt be believed to be due to the enormous financial collapse of the US economy, and that may have something to do with lower numbers to some extent, but if the broader economy were to blame then why didn’t we see a decrease in filings starting in September 2008 or even earlier?  I personally believe it is naive to believe that a decrease in the number of filings is due completely to our economic crisis, particularly given that since 2004 allowance rates have been steadily declining.  With allowance rates in 2009 at 42% we absolutely must consider whether the Patent Office is driving innovation underground and into the realm of trade secret protection.  Quite simply there are many clients that have the money to pursue patent protection and they are not doing that because of the limited realistic likelihood of obtaining a patent at all, let alone in any relevant time frame.  To be sure, the wise decision ought to be to continue filing because with the tremendous downward pressure on the PTO budget something is going to have to change, and patents are going to need to begin to be issued at much higher rates if the Patent Office is going to remain open for business.

Along these same budgetary lines of discussion, over the weekend I learned some more information regarding the false rumor that the Patent Office is laying off patent examiners, which seems to have been started by Greg Aharonian.  I spoke with representatives of the USPTO personally, and spoke with other contacts I have and the word is that there is not going to be any layoffs, which is what I explained last week in USPTO NOT Laying Off Employees.  Notwithstanding, there may have been at least some shred of underlying truth to the Aharonian rumor.  While there is no furloughing or lay-offs coming from the USPTO, there is a hiring freeze at the moment, which obviously will not at all help the growing backlog given that there is continuing attrition.  According to Rob Clarke, there are currently 800,000 pending patent applications awaiting a first office action, so while the situation is not as bad as layoffs, the reality is that there is no longer more help on the way and it is because of the budget problems facing the PTO as a result of decreased filings and decreasing maintenance fees. 

About the Author

Eugene R. Quinn, Jr. President & Founder of IPWatchdog, Inc. US Patent Attorney (Reg. No. 44,294) B.S. in Electrical Engineering, Rutgers University J.D., Franklin Pierce Law Center L.L.M. in Intellectual Property, Franklin Pierce Law Center Send me an e-mail

Gene is a US Patent Attorney, Law Professor and the founder of IPWatchdog.com. He teaches patent bar review courses and is a member of the Board of Directors of the United Inventors Association. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide