Change in Patent Office Philosophy Can Lead Recovery

There is a lot of money sitting on the sidelines just waiting for the climate to change enough to warrant investment.  By some estimates the amount of capital lying in wait is perhaps as much as $10 trillion.  With no end in sight on just how low the Dow will fall, fears that banks will become nationalized have spooked investors.  No doubt the growing fears of hyper-inflation are also dragging down investor enthusiasm, and many are wondering how in the world the United States is ever going to be able to repay the growing mountain of debt we are accumulating for generations to come.  The only way that the Obama economic plan will make any sense is if there is extremely robust growth in the economy starting almost immediately.  Absent tremendous growth, what some call China-like growth, things are going to get far worse before they start to get better, and once they get better we will likely tip-toe our way through another recession caused by inflation before we come out on the other end.  It is hard to believe, but it does seem that we are poised to recreate the tumultuous economic times of the 1930’s all over again.  What we need to get us out of this nose-dive is a coherent plan to revitalize innovation.  Through a comprehensive innovation based plan we can grow the next generation of technologies and plant the seeds for prolonged economic growth with new industries playing a vital role in creating jobs and charting the course for a better future.  This coherent and comprehensive plan for innovation must start with a system wide revamping of the United States Patent and Trademark Office.

At the end of fiscal year 2008 there were 1,240,704 patent applications pending at the US Patent Office.  Of those pending, 140,877 were in preexamination processing, 205,999 were beyond preexamination processing but not yet docketed, and 403,720 were docketed but awaiting a first action by the patent examiner.  That means that a total of 750,596 applications were pending that had yet to be acted on by the Patent Office.  With 495,095 patent applications filed in 2008, and likely about 450,000 patent applications being filed in fiscal year 2009, it doesn’t take a rocket scientist to figure out that the Patent Office is trending in the wrong direction in terms of addressing the backlog.  This is particularly true given that the backlog has grown every year since 1997 (see chart below), which ironically is the last time we saw the stock market at the level it is at today.

The United States Patent Office is also extremely worried about its budget moving forward because patent application filings are down by about 5%, and budget estimates had been created for fiscal 2009 assuming a 5% increase in patent application filings.  So that means that the USPTO budget is going to be off by about 10%, which has lead to a hiring freeze and has made senior level officials at the USPTO worried.  According to Rob Clarke, the Director of the Office of Patent Legal Administration at the United States Patent and Trademark Office, “FY09 will be OK, but long term the trend line is fairly negative.”  Add to this the fact that there has been a sharp decline in the percentage of patents issued and this spells disaster for the Patent Office.  While users of the Patent Office do pay fees, only 30% of the budget comes from filing fees or fees paid during the prosecution of a patent application.  A whopping 70% of the USPTO budget comes from maintenance fees, which are paid at 3.5, 7.5 and 11.5 years after the issuance of the patent to keep the patent from falling into the public domain.  So at a time when patent applications are nearly at all time record highs, the number of pending patent applications continues to balloon and the average pendency of patent applications continues to grow, the Patent Office will be forced to do more with less money.  This is not a recipe for promoting innovation.

While stocks continue to get beaten down and investors sit on the sidelines with massive amounts of cash this is a unique opportunity for the government to proactively enact an agenda that will lead to prosperity, but the Patent Office needs to be fixed.  If applicants could get issued patents in months rather than in years investors looking for growth opportunities would likely invest in start-up companies that could lead the next wave of technology innovation.  Historically during recessions very creative people are laid off, and these individuals create new technologies and new companies that will form the foundation of the next expansion of the US economy.  The difference this time, however, is that the horizon to obtaining any kind of exclusive right in the form of a patent is so long that in some areas by the time a patent would issue the technology would be obsolete.  This must be fixed and it must be fixed now.

The fact of the matter is that no investors would or should be willing to invest any money in any company that does not have some claim to exclusivity or market dominance.  For start-up and research and development companies this can only be achieved by having worthwhile innovations that are protected by patents.  Without a patent there is no reasonable belief that a small company could grow because without the promise of exclusivity, the technology and innovation that comes to market would simply be stolen by larger, well-funded, more dominant companies.  So we must have a patent system that allows independent inventors, entrepreneurs, small business and R&D companies to obtain rights in a timely manner.  That is the only way we are going to create jobs that are necessary to lead us out of this recession and prevent it from truly becoming a depression (assuming that is still possible).

If we have hundreds of trillions of dollars to spend on toxic assets, banks, insurance companies, and health care for everyone, then we should have a few billion dollars to double or triple the budget of the United States Patent Office so that they can lift the hiring freeze, hire talented individuals to examine and issue patents and jump start the road to recovery through invigorating small businesses built on unique and patentable technologies. 

We also need immediate reform, either from Congress or from the Patent Office, with respect to the issuance of patents.  The law says that applicants are entitled to a patent “unless…”  This means the presumption is that a patent should issue, not that all effort will be given on the part of the examiner to deny a patent.  It is beyond belief that the laws could be written to presume the issuance of a patent, yet applications will remain pending for upwards of 8 years in some technology fields. 

I am mindful that with the issuance of patents there is an 800 pound gorilla in the room, and that gorilla is named the presumption of validity.  Even bad patents can be used in wrongful anti-competitive ways.  I do not want to have a system created that solves one problem and leads to many others.  For that reason what needs to happen is that Congress must immediately allow for the issuance of a patent based on a quick-look examination.  Right now there does exist an accelerated examination path, but few if any use this path because it will result in a quick patent that would be completely worthless during enforcement proceedings given the number of admissions and limitations that would haunt the applicant as a result of what is called prosecution history estoppel.  During patent prosecution you want to say as little as possible because the more you say the more your right is limited.  With accelerated examination you not only have to file the patent application but you have to examine the application, thereby doing the work of the patent examiner.  It is enormously costly, and results in a patent that is quite worthless.  So we need another option to break the log jam at the USPTO and get rights in the hands of industry more quickly.

What we need is a novel approach to issuing patents.  It has always seemed strange to me that we call the patent process a non-adversarial ex parte process.  I suppose it is that, but it is hardly a cooperative process.  What we need to do first is change the philosophical view of the Patent Office to get everyone on board with the idea that patents should be granted to applicants.  Next, an examination process needs to evolve so that examiners are allowed and encouraged at a very early stage to work together with the applicant or the applicant’s representative to locate allowable matter and issue the allowable matter.  Essentially, the examiner and the application or applicant’s attorney should work toward finding allowable matter and issuing the patent, much as is required of examiners when inventors represent themselves.  By a cooperative examination process that seeks to issue patents we will put exclusive rights more quickly into the hands of innovators, who can then seek investment and build companies that will employ individuals.  This will undoubtedly result in the preliminary issuance of narrow patent claims, which could then be expanded upon by continuation after continuation. 

Unless and until we fix the Patent Office, the next wave of new industries will not be forthcoming.  This means that new jobs for a new economy are not on the horizon presently, but can be with a modest investment and visionary leadership that can transform the Patent Office from the place where innovation goes to become obsolete to the incubator for US recovery.

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