On March 2, 2009, the Practising Law Institute kicked off the Third Annual Patent Law Institute at its New York City headquarters. The West Coast version of this live program started today and will conclude tomorrow, live at the California offices of PLI in downtown San Francisco, CA. Right about now the participants are probably seeing a video of Robert Clarke, the Director of the Office of Legal Administration at the United States Patent & Trademark Office. Clarke was to have attended live both the New York presentation and the California presentation of the Patent Law Institute, but because travel and appearances are being cut back PTO Officials such as Clarke are not able to participate in many, if any, remote events. I encountered a similar situation while I was in Charlotte, North Carolina two weeks ago taping a 10-part mini-series sponsored by the United Inventors Association. A PTO Official was to have participated in the two segments I taped on basic patent law and on avoiding scams, but due to budget problems no PTO representative was able to attend the taping, which took place at the Enventsys studio, where Everyday Edisons is shot and Inventor’s Digest calls home.
In any event, during his presentation on March 2, 2009, Clarke explained that the Patent Office had budgeted for a 5% increase in applications during 2009, and to date the Patent Office has seen a decline in applications instead. I have heard the decline in applications is about 5%, but Acting PTO Director John Doll has said it is 2% year over year. Whether it is 2% or 5%, the reality is that the Patent Office has budgetary problems moving forward in 2009, although Clarke says that the Office feels like it will be fine for this fiscal year. But what is in store for FY2010 and beyond? The Patent Office is worried, and with good reason. So far this year the Patent Office is allowing applications at a rate of 42%, which is dramatically down from the pre-Dudas era. That means with fewer allowances the Patent Office is missing out on issue fees and publications fees because at the direction of Office management examiners are rejecting far more than allowing these days. To put these numbers into perspective, for a small entity the issue fee is currently $755, and for those who do not qualify for small entity status the issue fee is currently $1,510. Whether you are a small entity or not, the publication fee is $300, so for every application the Office rejects they are losing either $1,055 or $1,810 in revenue. Admittedly, not all applications should issue, but historically the allowance rate bounced between roughly 60% and 70%, except for the last four or five years (see chart below). Any way you slice it the new patent philosophy that has been described by some examiners as “reject, reject, reject” is finally starting to catch up with the Patent Office and will devastate the Office budget moving forward.
This are going to look very bleak and only accelerate in a downward spiral for the Patent Office in coming years. This is because, depsite popular misconception, patents do not last 20 years. The general rule is that a patent will fall into the public domain 20 years after its original filing date, but the patent owner must also make so-called maintenance fee payments in order to keep the patent current and out of the public domain. These maintenance fees are due at 3.5, 7.5 and 11.5 years after issuance, and the fees go up over time. Presently, for small entities the fees are $490 for the first payment, $1,240 for the second payment and $2,055 for the final payment. If you do not qualify as a small entity the fees are $980 for the first payment, $2,480 for the second payment and $4,110 for the final payment. Given that most patent owners will not know whether it is economically wise to pay to keep the patent current at only 3.5 years after issue, most patents have the first payment made. When patents really start to slide into the public domain is 7.5 years after issuance, and then even more so 11.5 years after issuance. If you are not not making money on the patent it just doesn’t make sense to keep paying escalating fees. With 20-25% fewer patents being issued on a yearly basis now over just a few years ago it does not take a rocket scientist to figure out what this is going to do to the Patent Office budget. With about 70% of USPTO revenues coming from maintenance fee payments look for the Patent Office budget to spiral out of control down, which will only make the Office more desperate to require applicants to do more and more and receive less and less services.
The Patent Office has made this bed and now they have to deal with the mess. Rather than working to ensure that ridiculous patents are not issued efforts were made to cut patent allowance across the board. Still, at the end of FY2008 there were over 1.2 million application pending and hopelessly trending upward year after year. With fewer and fewer resources it seems that while the Office might be able to stay ahead of the game in FY2009, FY2010 and beyond are not looking good at all. Add this to the recent Federal Circuit decision in Tafas v. USPTO that the claims and continuations rules were procedural (which strikes me as pure nonsense) and Judge Prost saying the USPTO can require applicants to submit additional information in the form of an Examination Support Document (ESD), which basically requires the applicant to examine their own patent and conclusively prove patentability, and it seems likely that the USPTO will be tempted to require all applicants to create and submit onerous ESDs, thereby making it far more expensive to get a meaningful patent moving forward.
Add to all of this the recent revelation that the Patent Academy is closing by the end of 2009. The Patent Academy is the training center at the US Patent Office charged with training new patent examiners. My source within the PTO did not elaborate as to why the Patent Academy would be closing, but with a hiring freeze in place and substantial worries about the budget moving forward one could conclude that hiring new examiners is not in the foreseeable future. This would be an enormous blow to the Patent Office if it is true. I have never been a fan of the Patent Academy because I don’t know what you could do training wise that would take 8 full months, but if there are no new examiners getting hired, and there is a constant and steady stream of examiners leaving and/or retiring, how will the Patent Office be able to keep up?
We are at a pivotal time in the history of the Patent Office, and I have to wonder whether the senior management that has gotten us into this mess is capable of making course corrections to get us back on track. While many will not see the appointment of a new PTO Director as particularly important, this could be the most important appointment President Obama will make. The backlog at the Patent Office is starting to kill innovation. During a recession is the time that new industries based on new and innovative technologies start. Without meaningful patent rights being granted in a technologically relevant time frame there will be no investment, and that would prevent a significant engine that could otherwise create new jobs. So if President Obama really wants to create new jobs he needs to fix the Patent Office and he must do it right away.
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
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