Today I am in San Diego, California at the Annual Conference of the National Association of Patent Practitioners. I will be speaking later this afternoon regarding the status of Patent Office rulemaking and providing an update of Patent Rules that were implemented over the last year, so I have patent rulemaking and patent reform on the mind. Thus, when I saw a press release in my inbox published by the Manufacturing Alliance on Patent Policy, I read it with great interest. As we all know, assuming that patent reform is still alive, it is on life support and struggling badly. Based on the latest research and analysis of by Case Western Reserve University Economics Professor Scott Shane, I would have to say that patent reform is or will soon be completely dead, which is probably a very good thing. While it is unfortunate that Congress will once again not likely do anything useful to assist the beleaguered US patent system, at least they will not do any harm. The pending patent reform legislation, called patent deform by some, would certainly not have helped because it would not lead to any changes that would streamline the US Patent Office, it did not provide more resources to the Office and it would have substantially increased the workload of the PTO, further starving the Office of resources it desperately needs to bring to bear to reduce the epic backlog and pendency problems patent applicants face.
Several weeks ago, Senator Jeff Sessions (R-AL), Ranking Republican on the U.S. Senate Judiciary Committee, requested that Professor Scott Shane review the impact of the post grant review and inter partes examination. His analysis is now complete and was released today. The research finds that wait-time for patents will increase by more than 25 percent and the cost of defending patents could increase by $2.2 billion. Obviously, any increase in the time it takes to obtain a patent is unacceptable and Congress will have no choice but to kill any provision that would lead to innovation being further held hostage by the Patent Office.
The average wait presently to receive a first action by an examiner on the merits is 25.6 months, and the average time to disposal of a patent application by the PTO is 32.2 months (see USPTO Backlog: Average Patent Pendency Out of Control), but this really only tells a part of the story. During the First Quarter of 2009, the allowance rate for patent application was 42%, which is a historic low. When an applicant gets to the end of an application and is not successful, but is unwilling to give up, either a Continuation or a Request for Continued Examination (RCE) is filed. The Patent Office treats these as new applications for purpose of pendency, even though an RCE is just the payment of a fee to move back into prosecution to get additional consideration by the patent examiner. According to Ron Katznelson, “[b]ecause the PTO considers a disposal that is followed by an RCE an abandonment, it results in a reported allowance rate that can be manipulated downwards by issuing poorly supported, or premature, final rejections.” See: The Perfect Strom of Patent Reform?
For example, two weeks ago Mark Malek and I met with several examiners on applications that had been finally rejected. We now know what the patent examiner will allow and we will file RCEs in each of these cases. Shortly after the RCE is filed the patent examiner will issue the patents, assuming they stick to their word, which is typically the case. So in each case we will have one long pending application and one short pending application that will issue in several months. Repeat this over and over again and you see that the real time average time to first action by a patent examiner and the real time to final disposal of a patent application is far higher than the averages presented by the PTO. Essentially, the PTO is playing some accounting games to lower the averages and still the averages are at or near historic highs.
In any event, returning to Shane’s research, this latest report relating to the likely effects of expanded administrative challenges to U.S. patents picks upon where his previous research on how Congressional patent proposals would impact manufacturers and other patent holders left off. His previous study found that adopting an apportionment-centric system of patent damages would jeopardize up to 298,000 manufacturing jobs and cut R&D investment by up to $66 billion. Highlights of Shane’s report released today indicate that the proposed legislation would likely have the following effects.
- Increase the length of patent pendency. Under the proposed changes, the length of time between patent application and patent issuance would increase from 32 months to 40 months.
- Increase the costs of defending patent validity by an estimated $2.2 billion over the current cost of litigation.
- Reduce investment in R&D. Reducing the value of patents significantly reduces investment in R&D. The proposed changes would lead to an annual reduction of $4.4 billion in industrial R&D.
- Compromise certainty about patent validity. The new post-grant review and expanded inter partes reexamination processes would make uncertain the validity of approximately $1.4 billion to $1.7 billion of patents issued annually, totaling $8.1 billion to $10.3 billion of patents over the six years it takes to get an outcome of the average review case.
- Decrease the disclosure of knowledge necessary for others to build on innovation. Patent disclosures are a source of information which increase U.S. innovation.
- Hinder efforts of U.S. universities to transfer their inventions to the private sector. Weakening patent protections through expanded administrative challenges would jeopardize over $1 billion annually due to a reduction in the amount of university technology that would be commercialized by industry.
- Increase strategic patenting behavior by large, established firms. Strategic efforts to hinder the performance of competitors by forcing them to defend their patents against multiple challenges, beginning with reexamination and review proceedings and ending with litigation, are a likely outcome of the proposed changes.
Republicans, including Senator Jon Kyl (R-AZ) has been questioning the post grant review procedures of patent reform for some time. In fact, Senator Kyl tried to get the Senate Judiciary Committee, of which he is a member, to slow down and consider the impact post grant review would have on the Patent Office and innovation, unfortunately without luck. Even the amendments he offered in the Judiciary Committee were roundly rejected by an overwhelming majority, and not along party lines. But now Senate Democrats are starting to make inquiries relating to post grant procedures, as illustrated by staffers from the Offices of Senator Barbara Boxer (D-CA), Senator Dick Durbin (D-IL) and Senator Jeanne Shaheen (D-NH) all questioned the impact of these administrative challenges. Republicans lead by Senators Sessions and Kyl have raised these issues in the past, and now Democrats are asking questions, so it seems likely that that additional changes will have to be made in the Senate bill before it has any chance of passing, which seems unlikely given the contentious debates ongoing in Congress relating to Health Care and other hot button issues.