Last week David Kappos, Undersecretary of Commerce and Director of the USPTO, told a packed room of people at the BIO International Convention that innovation produces high paying jobs and patents are a critical component of the innovation to commercialization to job creation cycle. He didn’t receive any disagreement, but lets face it, he was preaching to the choir. As Jim Greenwood, President & CEO of BIO told me, “the only thing [most biotech companies] have is intellectual property… They start off with that and then they have to raise money to even begin to have microscopes and bricks and mortar and staff. It is on the strength of that intellectual property that they have to raise all of those dollars for a very long time.” So without patents the biotechnology sector simply wouldn’t exist, and that means many tens of thousands of jobs, if not hundreds of thousands of jobs, wouldn’t exist. So the BIO Convention was well in tune with the message Kappos delivered, but preaching to the choir is only so helpful. With that in mind allow me to take a stab at explaining how vital the US patent system is to the economy, why ignoring the USPTO has directly lead to this recession lasting far longer than it should have, and why properly funding the USPTO is critical to job creation and the US climbing out of this horrible economic crisis.
First, allow me to point out the reality that so many want to ignore. We can all pretend that innovation simply happens without funding, and the naysayers and anti-patent advocates will just assume that is true, but the unspeakable reality is that innovation requires funding. Without funding there can be no innovation, period! Anyone that believes otherwise is ignoring reality and akin to the quacks that run around claiming they have discovered the secrets of a perpetual motion machine. Perpetual motion machines don’t exist, and neither does unfunded innovation. Even if you are operating in an area where innovation doesn’t require enormous capital investment, it always requires the investment of time, which comes with opportunity costs. So please save me the ridiculous, head-in-sand ravings that innovation doesn’t cost. It does, and the overwhelming majority of investors want to see issued patents. It really is that simple.
According to a report by the United States Patent and Trademark Office, which is titled Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs, highly innovative firms rely heavily on timely patents to attract venture capital. More specifically, 76% of start-up managers report that VC investors consider patents when making funding decisions. Said another way, by a 3-to-1 margin, VC investors want to see issued patents. Without issued patents your already slim chance of attracting investors decreases. Do you as a start-up want to decrease the odds of getting funded? Should the federal government continue to allow for a system to exist that actively decreases the odds of start-ups getting funded? Of course you don’t want to reduce your odds of getting fund, but sadly Congress has for years looked the other way as the patent pendecy problem grew to the point where there are presently over 700,000 patent application in the USPTO queue that have yet to be picked up and substantively considered.
If Congress were actively trying to subvert the recovery they couldn’t have done a better job than to continue to year after year allow the United States Patent Office to fail to live up to its Constitutional obligation. Oversight is a dirty word in some circles. It seems that Congress continually wants more and more oversight authority but doesn’t live up to its current obligations to oversee anything. It seems pretty clear to me that a lack of oversight with respect to Fannie and Freddie created the climate for disaster. It also seems pretty clear that the lack of oversight of our financial institutions and Wall Street lead to the taking of extraordinary risk, which was only encouraged with bail-out after bail-out. Likewise, failure to notice the USPTO in decline during the Bush years is staggering. The facts were there for everyone to see; growing pendency, growing backlog, innovations languishing and patents not being issued.
Notwithstanding, let’s give Congress the benefit of the doubt for a moment, and let’s assume that Fannie, Freddie, banks, the stock market generally and Wall Street specifically were too complicated for Congress and Executive Branch regulators to adequately oversee. What exactly is the excuse for Congress allowing our innovation policy, procedure and process to decay to the point where it is actually impeding the recovery? The statistics were there for everyone to see. It’s not like we woke up one morning and there were 1.2 million pending patent application. This patent crisis took years to develop. So the trouble with the patent system didn’t, or shouldn’t have, snuck up on Congress.
Last week there was an article in the Harvard Business Review titled The Biggest Job Creator You Never Heard Of: The Patent Office. The thrust of the article is that we have lost 8.4 million jobs during this recession, there are an unprecedented number of pending patent applications at the USPTO, millions of jobs are not being created by start-up tech companies because they cannot funding because they cannot get patents issued and yet Congress passed a $30 billion jobs bill that is about as likely to succeed in creating jobs as I am likely to run a 4 minute mile. I have written on this topic for at least the last 15 months (see US Economy posts). This is appalling!
- Congress authorized $700 billion to bailout banks as a part of the Troubled Asset Relief Program (TARP), with the purpose of buying up troubled assets, which they never did, although they did dole out money to banks.
- The so-called Obama Stimulus plan cost $862 billion to, well stimulate the economy and create jobs, neither of which apparently happened. A CBS/NY Times survey suggests that only 6% of Americans believe the Stimulus created jobs. See Obama champions stimulus at one-year mark.
- In September 2008 the Federal Reserve pumped $630 billion into the US economy.
- In November 2008 the Federal Reserve announced they would pump $800 billion into the US economy.
- In March 2009 the Federal Reserve announced they would pump another $1.2 trillion into the economy.
What appears above is my best effort to recreate some of the big items of spending/stimulus since the collapse of the financial industry in September 2008. I suspect it is incomplete, but it does at least somewhat show the magnitude of the federal government’s effort to prop up the economy. If you add all this together $4.1 trillion has been pumped into the US economy to stave off depression or a worsening of the recession. I almost can’t believe we are counting in trillions; it is almost surreal.
Why the effort to review the money pumped into the US economy? Well, the United States Patent and Trademark Office, the only branch of the United States federal government that can create assets and wealth out of whole cloth simply by issuing patents and granting trademarks, has about a $2 billion annual operating budget. How ridiculous is that? We have collectively dumped trillions into the US economy to save jobs, helping those reckless companies who were too big to fail, and the one agency that can create wealth simply by recognizing the ingenuity of an innovation is starved for resources? How can that make sense to anyone?
We don’t have to rehash the sins of the past insofar as the USPTO is concerned. Suffice it to say that over the years that coincided with the Bush Administration the collective eye of the Agency was taken off the ball, with focus being placed on things that not only didn’t enhance efficiency, but caused the Office to grind to a screeching halt. That is why we have more than 1,000,000 patent applications pending, with more than 700,000 that have yet to even be picked up for an initial substantive review. So the mess facing the Patent Office is admittedly of its own making, but how could Congress have let it get this bad?
As the USPTO study shows, and everyone in the industry knows, patents are the lifeblood of high-tech start-up companies. Jobs in the high-tech sector pay higher, much higher, than other jobs. There are trillions of dollars sitting on the sideline in the pockets of investors, many who are fearful of increased taxes and the sluggish recovery. We need to be manipulating the greed of these otherwise fearful investors, speeding up the issuance of patents, getting quality innovations protected, fostering a climate of investment that will lead to company creation, industry creation, job growth and economic prosperity. This can all be done with a functioning patent system.
A rising tide lifts all boats. So if Congress wants to play a meaningful role in actually ending the recession, creating jobs and reducing unemployment they will not just adequately fund the Patent Office, they will OVER fund the Patent Office. While it is nice to hear that Congress has clued in on fee diversion being bad, not only should Congress put an end to fee diversion, but Congress must stop to think of the USPTO as a user fee funded Agency, for at least the foreseeable future. In fact, Congress should dramatically increase the funding to the USPTO and not see this as a zero-sum game. To be sure, seeing the patent system as a zero sum game (from a revenue/funding perspective) would be a major step in the right direction, but is sadly not enough.
The Patent Office needs to hire more examiners and lots of them. They need to call back into service as many retirees as possible, who should have as their primary role the training of the newbies. Younger retirees who are still interested in working and putting in the hours should be given no administrative responsibilities and should be given whatever they need to dig in and assault the backlog of patent applications. A complete revising of the IT infrastructure should be undertaken to streamline the process and increase work-flow and collaboration efficiencies. Inequitable conduct should be reformed so that the USPTO can realistically obligate applicants to meaningfully participate in the prosecution of patent applications without the fear that what they say will be misconstrued by the Federal Circuit to be fraud on the Patent Office. This isn’t rocket science, just good business!
David Kappos and his team of senior level managers at the USPTO are ushering in a lot of changes and doing their level best. Under Kappos the USPTO has revised the Examiner Count System, which should give conscientious examiners incentive to issue allowable patents earlier in the process and take the incentive out of gaming the system to achieve their quota goals. Green technologies can now be accelerated. In a matter of months provisional patent applications will effectively remain pending for 24 months, not 12 months. There is a recognition at the Office that some applicants may want a faster patent process, while others (such as in the biotech or University sectors) may want a slower process, so be on the look out for revised acceleration rules that will allow applicants to slot themselves for faster, or slower, action by the Patent Office.
Good things are happening, but just like with start-up companies, nothing is possible without adequate funding. What would be possible if the USPTO were to have its budget increased by 50% for the next few years? Congress just authorized $18 billion in job creation funds, and we all know that won’t work, or at least it will be ineffective to solve the riddle of the economic crisis, which isn’t even a riddle although it has perplexed many of our leaders for the most part. Why not try something cheap, at least by Washington DC standards, and tell the Patent Office they can keep everything they collect plus an extra $1 billion?
I am not a fan of just throwing money at a problem, and a long-term and sustainable solution to the growing demand for patents needs to include at least some international harmonization of laws and real work-sharing between and among the Patent Offices of the world. In the meantime, invest in the USPTO and watch jobs be created by the private sector as start-up high-tech companies get funded. Investors will show up and take their money off the sidelines and place it into the game. That will spur the economy far more than hundreds of billions or even trillions of dollars, and the Constitutional objective of getting innovation into the hands of society to create a better existence will actually happen as per plan of the founding fathers.
Let’s face, we are going to spend the money anyway sooner or later, likely on some half-baked scheme. Why not spend it in a way that is likely to succeed? I for one am tired of calling plays from the Playbook made up of plays that have never worked. Newsflash… they haven’t worked anytime they were tried for a reason. They are not “due” for success, the plays simply STINK! Use the Playbook with plays that have worked, tending toward those that work EVERY TIME they are tried.
If we can spend trillions in a failed effort couldn’t we spend a billion or two in an effort that is virtually guaranteed to succeed? I say for every $1 trillion wasted we should spend at least $1 billion on things that will work. By my estimates that means $4 billion more for the Patent Office. Not being a greedy guy I am happy to take that in four equal installments of $1 billion over a 4 year period. For those who are math adverse, that would mean the USPTO budget for FY 2011, 2012, 2013 and 2014 would be whatever they collect plus $1 billion, which for FY 2011 would likely be in the neighborhood of about $3.2 billion.
Unleash the Patent Office! Admittedly not as catchy as “Unleash the Kraken,” but it will get the job done. The question is just whether there is the political will. There is plenty of political will for trillions, but for billions? Sadly I doubt it, but hopefully I will be proven wrong.