How the AIA requires the USPTO to be a patent system arms dealer

In a comment on a recent article, an anonymous individual claiming 10 years of patent prosecution experience lamented the transformation of the U.S. patent system into a Byzantine system that appears to have the goal of denying the benefits of having a patent. “It now looks like a bait-and-switch system,” the commenter known as Ternary wrote. “You will get a patent, which will be taken away in post-issuance procedures, preferably at the moment when you want to obtain its legal benefits as a rightful owner.”

I frequently hear that same sentiment from inventors, small businesses, and patent attorneys. I am even starting to hear it from large corporations that find themselves caught in the snare of the Patent Trial and Appeal Board (PTAB).

Many may be tempted to write off this sentiment as nothing more than emotional ranting, but that would be a mistake. The sentiment runs deep, even shared by some in the industry with intimate familiarity with the looming USPTO budget crisis. So, while frustration can explain some of the underlying anxiety, there is also a factual basis for these feelings too.

[Varsity-2]

Maintenance Fees

A substantial portion of the fees collected by the Patent Office comes from maintenance fee payments. For example, in FY 2011, the USPTO collected $819.3 million in maintenance fees while only collecting $1,035.8 million related to work actually performed for fees collected during FY 2011. Professor Dennis Crouch has called maintenance fees “easy money for the USPTO because the Office has already done the work of examination.”

With that amount of revenue at stake the Patent Office has a conflict of interest if not an outright ethical dilemma. The Office bemoans bad patents, but if they do not issue patents they do not receive issue fees and they cannot charge maintenance fees. To put this in perspective, issue fees are presently $960 per patent for a large entity, and maintenance fees for a large entity presently range from $1,600 for the first payment, to $3,600 for the second payment, and ultimately cap out at $7,400. These fees are in addition to the fees due at the time of filing an application, the extension of time fees if you need more time to respond to an examiner, the inevitable fees for the virtually certain filing multiple requests for continued examination, and in some technology areas the very real possibility that you will only get a patent by winning on appeal.

Budgetary Crisis

The Patent Office finds itself caught between the proverbial rock and a hard place. With so much of the Office’s funding coming from maintenance fees the agency’s budget depends upon patent owners applying for, receiving and then paying to keep the patents they receive. In recent years, however, thanks in large part to the dismal record for patent owners in inter partes review (IPR) proceedings and an increasingly hostile Supreme Court, less is being maintained because the stakeholder community views patents as harder to enforce and, therefore, not as valuable. The USPTO budget is far from secure.

On top of this budgetary uncertainty created by a decrease in applications and a decrease in maintenance fees, during the August 20, 2015, Patent Public Advisory Committee (PPAC) meeting, USPTO Director Michelle Lee announced a shared services initiative. Under this shared services initiative agencies falling under the Department of Commerce will utilize shared services for human resources, information technology and procurement functions. The fear is that with the USPTO being funded by user fees it will be required to pay for the IT and other needs of other Commerce agencies using funds that are supposed to be used only for the operation of the USPTO. See AIPLA letter to Secretary Pritzker and Under Secretary Lee.

At a time of decreased revenue, a shared services initiative threatens to even further deplete USPTO coffers and become the new face of fee diversion.

PTO as Arms Dealer

Applying for and receiving a patent costs money – a lot of money for an applicant. But that is only half the story. Like an arms dealer, the USPTO does not only sell to one side of the patent battlefield. The USPTO sells to both sides, offering those threatened by a patent the ability to invalidate claims to patents in a variety of different procedural offerings.

For example, if you want to challenge on the cheap you can use ex parte reexamination, which for a large entity will only cost you $12,000 to file. Of course, if you want to challenge more than three independent claims or a total of twenty total claims there will be more fees. See Post Issuance Fees.

If you want to avail yourself of the new administrative trials created by the America Invents Act (AIA), a large entity can request institution of an inter partes review (IPR) for up to 20 claims for $9,000, but there will be a post-institution fee of $14,000 for up to 15 claims instituted. In both situations there are the inevitable extra claim fees. But it gets really expensive if you want to file a covered business method (CBM) challenge. The CBM petition fee for a large entity is $12,000 for up to 20 claims, and the post-institution fee is $18,000 for up to 15 claims instituted. Again, in both situations there are the inevitable extra claim fees. See PTAB Fees.

Not only does the Patent Office handsomely charge for the acquisition and maintenance of a patent, they also handsomely charges for the right to challenge those patents after issue. On its face this creates a perverted incentive to actually issue low quality, bad patents.

[Patent-Search]

Is the Patent Office Honest?

Do I think the Patent Office is intentionally manipulating the system so they can charge fees? No, absolutely not. But there are many openly talking about how much the USPTO charges patent applicants and patentees, and then also noticing how much the USPTO charges challengers. The arms dealer nature of how the AIA has transformed the Patent Office is not lost on many within the industry. Add in the insecurity of the USPTO budget and the fact that the Patent Trial and Appeal board (PTAB) directly reports to the Director, thereby not enjoying any true judicial autonomy (at least on paper) and you would be hard pressed to have come up with a more conflicted structure or system.

Many in the stakeholder community have lost faith in the patent system. There is a growing sentiment that the patent system will only pull the rug out from inventors in the end. Perhaps this is why for the better part of a century the Patent Office steadfastly refused to publicly comment on even the possibility that a patent could be invalid. [1] In retrospect the Patent Office not commenting on even the possibility that a patent could be invalid looks like an extremely wise policy and one that should be readopted.

For the patent system to work the Patent Office must be perceived to be an honest broker that is completely agnostic. Now I am not suggesting that anyone at the Patent Office is dishonest, but optics are funny things and no doubt why lawyer ethics are so concerned with the appearance impropriety. Perception can and does become reality, as is happening right now with respect to the patent system.

Conclusion

If you deserve a patent you get a patent, period. That must be how the Patent Office acts, but more importantly it must be the perception of the public. And for goodness sake, the entity handing out the patents cannot be viewed as anti-patent or in favor of getting rid of patents, even bad patents. A Patent Office constantly talking about how many bad patents they have issued and low quality in desperate need of improvement does nothing to inspire confidence in the next generation of innovators and does real long-term damage to the system.

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[1] See Staying Litigation Pending Reexamination of Patents at pg 283, citing United States v. General Electric Co., 183 U.S.P.Q. 551, 552 (Comm’r Pat. 1974) in which the Commissioner of Patents and Trademarks reaffirmed the Office policy of refraining from commenting on possible invalidity of a patent.