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Proposal: Unlocking Job Growth with Patent Acceleration


Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog, Inc.
Principal Lecturer, PLI Patent Bar Review Course
Posted: May 19, 2010 @ 9:08 pm

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It seems pretty clear that under the direction of David Kappos the United States Patent and Trademark Office is pursuing an “all of the above” strategy to cutting into the backlog and ultimately reducing the pendency of patent applications.  It is easy to criticize any one of the initiatives that the USPTO is pursuing, but that would be to miss the forest for the trees.  The reality is that unless and until Congress steps up to the plate and does something, which seems extraordinarily unlikely, the Patent Office will be left to attempt to piecemeal together solutions.  So while no one solution can or will solve all of the problems plaguing the patent system, if cascading solutions are employed at least some applicants can be helped and at least some applications can be accelerated.  Of course, the name of the game today is job creation, so I propose a creative way to accelerate patent applications out of order upon proper showing that jobs will be created, and focus my suggestions on those companies that are most likely to create jobs; namely those 5 years or younger and with 99 or fewer employees.

Recently the Patent Office announced expansion of the pilot program that allows a patent application to be expedited if the same applicant abandons another application.  The criticism is that many independent inventors and small businesses don’t have a meaningless or trivial application to abandon like most of the tech giants, but does that mean the plan is not a good one because it will only help a subset of patent applicants?  Of course not!

The reality is that in many cases because an application stays pending for so long when it was filed it was deemed useful and a core component of a future patent portfolio, but due to advancements in the innovation or delay in processing it is no longer viable, or not as viable.  If this is you then give it up to have one of your other applications advanced.  Sounds good to me, particularly if one of your other applications were a Continuation-in-Part that incorporated by reference the earlier application you are now abandoning.  In that situation you lose nothing, so there is only benefit all around.

While the thinning out of unnecessary patent applications without any work by the Patent Office will inure to the benefit of everyone simply by paring down the size of the backlog, criticism of this initiative is completely unfounded if the Application Exchange program is part of a multi-faceted solution.  Don’t begrudge the fortune of another, but do expect that the Patent Office will not stop here and will seek other creative ways to help additional applicants who might not be able to avail themselves of this opportunity.

At the Inventor Roundtable held at the USPTO in March 2010, Kappos explained that the PTO is trying to work out the details with respect to how to accelerate patent applications that realistically could contribute to job growth if and when patents ultimately issue.  He explained they are trying to figure out how such a program would manifest itself because he doesn’t want to put applicants into a position where they would have to make assertions under oath that might not be able to be backed up by reality or facts.  He asked for help and suggested that anyone with an idea should let the Patent Office know.

Picking up on this request I present the following suggestions (see bottom), which admittedly are not going to provide an across the board solution that will help all applicants, but they will help at least some applicants and lead to a greater potential impact on the economy and job creation than not doing anything.  So it is with this in mind that I recommend the Patent Office consider these additional pinpoint programs aimed at filling out an “all of the above” solution that in totality will cut into the backlog and reduce pendency for at least those patent applications most likely to have real commercial and economic impact.  As a preface to my suggestions, however, allow me to explain why I would focus on young start-up companies with 99 or fewer employees.

In March 2010 the Kauffman Foundation released a study titled High Growth Firms and the Future of the American Economy.  This study focused on attempting to identify the characteristics of those companies that create the most jobs and found that the current national conversation would be more productive if focused on creating a favorable environment for entrepreneurship because that is the most fertile source for job creation.  Furthermore, according to Dane Stangler, a senior analyst with the Kauffman Foundation and author of the study, “Without startups, our research shows that net job creation in most years would be negative, so policies that expand firm formation could increase both job creation and the number of high-growth firms.”  See Kauffman Press Release.

The study explains that “the top 5 percent of companies (measured by employment growth), or about 273,000 firms, creates two-thirds of new jobs in any given year. The top 1 percent of companies (about 55,000), generate 40 percent of new jobs in any given year.”    Three figures from the study deserve attention and explain the characteristics of these job creating companies.  It should come as no surprise that they are overwhelmingly between 1 to 5 years old (see Figure 3) and high growth “young firms,” defined as those 3 to 5 years old, overwhelmingly have between 20 to 99 employees (see Figure 5).

With this in mind I offer the following suggestions, aimed at those companies 5 years or younger and with 20-99 employees or less, which I will refer to as “micro-companies.”  I will refer to “sub-micro-companies” as those 5 years or younger but with fewer than 19 employees.

  1. Second Round Funding Advancement. In many situations companies receive some early rounds of funding from a Venture Capital group.  It is common to obtain money and then explain what you will do with it to create value and make the company worth more than the amount invested.  A portion of this can be used pursuing an appropriate patent strategy. Unfortunately, because in many technology areas the pendency has grown so long VCs can and do get restless when the company cannot produce a patent.  Without at least one patent to show companies lose funding and languish and/or die, taking existing jobs with them, not to mention never fulfilling the promise of additional job creation.Therefore, any micro-company that has previously received funding and can demonstrate that additional funding will be provided contingent upon the issuance of a patent should have at least one of their pending patent applications advanced to the front of the line.  One additional patent application should be advanced out of turn to the front of the line for every 10 jobs that will be created through the funding committed.
  2. Initial VC Funding Advancement. Investors love patents and sometimes it can be extremely difficult for start-up companies to attract even modest initial funding without the existence of at least one patent.  This is true for many reasons, including the fact that many (if not most) start-up companies have modest sales records that would hardly justify investment of the funds required, thereby causing them to remain quite speculative investment vehicles.  If a company has only modest sales history but an attractive technology plus an issued patent, then opportunity can open quite dramatically.Therefore, any micro-company that can produce a business plan and has a legally binding commitment from an investor for a minimum of $2,000,000 (a respectable but minimal level of VC funding) contingent upon the issuance of a patent should have at least one of their pending patent applications advanced to the front of the line.  One additional patent application will be advanced out of turn to the front of the line for every 5 jobs that will be created through the funding committed.
  3. Initial Angel Funding Advancement. Investing in the earliest stage start-up comes with enormous risk and great potential reward for success.  Unfortunately, most start-up companies do not succeed and there is a limited number of Angel Investors with the risk tolerance appropriate for providing critical seed funding to put the company in position to appropriately move forward with expansion and so that future rounds of funding can be realistically explored.  In this time frame patent applications need to be filed to protect the fledgling innovation, and that alone comes with substantial costs for those who are bootstrapping a start-up.  Given the “protect it now or lose it forever” reality of innovation, once patent applications are filed there is frequently a shortage of remaining funds to engage in appropriate business development, hiring and sales efforts.  Without some expectation of patents being issued in a reasonable time frame it can be difficult to attract seed money.

    Therefore, any sub-micro-company that can produce a business plan and has a legally binding commitment from an investor for a minimum of $100,000 (a respectable level of seed funding) contingent upon the issuance of a patent will have at least one of their pending patent applications advanced to the front of the line for immediate examination.  One additional patent application will be advanced out of turn to the front of the line for every additional job that will be created through the funding committed.

  4. Licensing Advancement. America has always been blessed with independent inventors and small businesses that engage in the business of innovation for the purpose of licensing their inventions.  While in some corners these folks are referred to as “patent trolls” or “non-practicing entities,” the reality is Thomas Edison was in the business of innovating and hardly anyone would ever call his motives nefarious, at least those who are subscribers to the capitalist culture.  These independent inventors and small businesses deserve to also be able to partake in advancement out of order if their innovations are going to create jobs.

    Therefore, any independent inventor or sub-micro-company that can produce a licensing commitment contingent upon the issuance of a patent, and proof that at least one full-time job will be created will have at least one of their pending patent applications advanced to the front of the line for immediate examination.  One additional patent application will be advanced out of turn to the front of the line for every 5 jobs that will be created through the funding committed.

These acceleration models can be conditioned on the submitting of an affidavit, perhaps a variety of a Rule 132 affidavit, and appropriate documentation demonstrating a sufficient, legally binding commitment.

Let the debate begin!

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Posted in: Gene Quinn, IP News, IPWatchdog.com Articles, Patents, Technology & Innovation, US Economy, USPTO

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

10 comments
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  1. Very interesting findings Mr. Quinn ! Patent backlog certainly needs a push, its high time jobs are created.

  2. I think early-stage investors look more at the quality and novelty of the technology than whether a patent has been granted. As long as patent applications are being timely filed, a high-quality pending application is worth more than a junk patent that has been granted. Sophisticated investors understand that there is a long lead time in getting an actual patent granted. At least that has been my limited experience. Has there been any research that would indicate otherwise?

    As for accelerating patent examination, my solution would be very simple. Rather than trying to pick winners through a variety of criteria as the government is prone to do, just implement a sliding scale of fees. If you want to move up in the queue, you just pay more. If an investor sees the need for a quicker issuance of a key patent application, they would simply factor that into the amount they need to invest. It’s called capitalism.

    The bigger problem, in my opinion, is the quality of patents that are being granted, not the speed (or lack thereof) in granting them. Higher fees might help in terms of funding a more thorough examination. But as long as the examination process looks primarily at the patent literature, it will never be adequate. Most of the prior art is in non-patent literature, which the PTO largely ignores. Something like peer-to-patent, which actively involves the private sector in vetting patent applications, is the best and only really practical solution, in my opinion. No single human being (i.e. examiner) can possibly unearth all of the relevant prior art. The examiner’s job should be primarily one of evaluating the prior art and properly applying the statutes. The collective knowledge of the community needs to be tapped to provide that prior art to the examiner.

  3. Excellent ideas, Gene! These are some of the most innovative proposals I have seen.

  4. Ron-

    I understand your concerns, but I do have a different take on some things.

    First, you are right that a quality application is or should be more valuable than a junk patent, but prior to the Kappos Administration so many applicants were held hostage for 4, 5, 6 years or more, which caused investors to give up because it seemed like a hopeless cause. Unfortunately, they were right in certain high tech areas where examiners simply stopped granting patents as a result of two pair of eyes review and the disincentive to issue as a result of how quality control was carried out.

    I am not a fan of having government pick winners and losers, but there are certainly patent applications pending that could lead to investment and job creation. For at least a while I would move those to the front of the line in hope of having some positive impact on the economic crisis. Long term I think additional payment for speed is reasonable. There are some who would happily wait years, such as pharma, biotech and Universities, and others who need action quickly. Paying higher fees is just a different way to let the market decide, but wouldn’t necessarily promote the most business formation and job creation.

    Quality is a concern, but don’t forget that quality as the major issue and more important than issuing in a relevant time frame is what caused the patent backlog we now have. That being the case I find it difficult to honestly say that quality is the problem. We have seen that movie before and know how it ends, and it is ugly. I think the far more critical issue is the lack of speed, particularly in certain high tech areas where there is a limited shelf life and limited opportunity to establish a start-up business.

    -Gene

  5. Quality is an important issue, but issue is an important quality.

    Even if sophisticated investors know that patents take a long time, a pending application will always represent more investment risk for them than an issued patent, particularly if it has yet to be examined. Once the patent issues, you know where you stand, you have actual assertable rights, and there’s nothing stopping you from also having a pending application.

    Recognizing the good applications and getting them out of the PTO’s pipeline is part of quality. Aggressive weeding doesn’t do much for your garden unless you also let some flowers bloom.

  6. I don’t mean to minimize the problem of timely issuance. Both quality and timeliness are important. But it hasn’t been my experience or observation that investors would pull the plug on an otherwise promising venture simply because a patent hadn’t yet issued. Even if there were a potential copy-cat competitor, the ability to apply the adjective “patent pending” to the product provides a significant marketing advantage over that competitor. It would be that competitor who would have difficulty keeping investors on board, not the company with the pending patent. Investors are forward-looking, and the prospect of a patent lawsuit in the future, even if there is no immediate threat, is a powerful disincentive to investment.

  7. Ron,

    I don’t buy it. Any patent brings with it the prospect of a patent lawsuit. That prospect is part of the enforcement mechanism.

  8. Ron-

    I guess we travel in different circles. I hear with some frequency about inventors who pull the plug. They wait for many years sometimes, hear and know all the excuses, but at some point in time when the entire value of the company moving forward is based on IP and there is no patent they move on. In many start-up companies there is just no long term value proposition if there is not prospects of exclusive rights.

    -Gene

  9. Gene,

    With the stated qualification that “the entire value of the company going forward is based on IP” then I can see that delay in getting an issued patent would undoubtedly be a factor in an investor’s decision. But I would question whether it would be the only or even the primary factor in that situation. If a number of years have gone by and the company’s sole remaining value proposition is the hoped-for enforcement of patent rights, then there are probably more fundamental underlying problems. The fact that they still need outside capital suggests that the product has not become a great commercial success. Having the issued patent in hand would not necessarily change that. Novelty does not guarantee commercial viability.

    Skeptical,

    To clarify, I meant that the likelihood of being the _target_ of a patent lawsuit would be a disincentive to most investors. Of course I agree that the cost of _bringing_ a lawsuit if necessary to enforce a patent is generally acceptable to investors as a normal risk factor in a high-tech venture.

  10. I think these are great ideas. They show that you have a creative mind, and can think outside the box. If the USPTO were to act on ideas like these, it could certainly give patent law a badly-needed shot in the arm.
    http://www.generalpatent.com/media/videos/learn-more-about-general-patent-corporation