Will USPTO Money Run Out Before FY 09 Ends?

UPDATED: Tuesday, July 21, 2009 at 6:59pm Pacific Time

The last presentation at the NAPP Annual Conference is presently ongoing, with William Smith of Woodcock Washburn giving a presentation regarding hot topics before the Board of Patent Appeals and Interferences. Smith is a former member of the Board while at the USPTO. His presentation is a good one, and sobering all at the same time. He mentioned my interview with Acting Patent Commissioner Peggy Focarino, and noted that the encouragement of allowances that Commissioner Focarino talked about in my interview is being seen by his firm and evidenced by what he called more “lets make a deal” phone calls from patent examiners who are presumably being told to find ways to issue patents. This coincides with what my firm has seen, and what I have heard from others. Sobering about his presentation so far though is that Smith said he fears that the budget problems facing the Office could cause the PTO to limp through the remainder of fiscal year 2009, and perhaps even limp into fiscal year 2010. He suggested that PTO fiscal year 2010 budget is likely going to be difficult to estimate given current economic conditions, and it is even possible that hiring may not restart in October as had been hoped by many of us.  He then suggested there is a chance that even if Congress passes and President Obama authorizes the borrowing from the Trademark Office, the Patent Office may still have to struggle to keep costs down through the end of fiscal year 2009, which will end on September 30, 2009.  These budget concerns were raised in a high profile way in a Wall Street Journal article titled Backlog, Budget Woes Await Patent Chief, which appeared in the paper earlier today.  I was quoted in the article as being cautiously optimistic of the Kappos nomination, but hoping that he does not take positions only friendly to the high-tech sector.

In terms of the PTO budget crisis, I have been writing about this for months, and everyone I know is concerned about what it means.  We frankly do not know what is going on, which leads to speculation.  There is no historical precedent for such an enormous backlog and decreased applications, which makes it difficult to see how this crisis will correct itself without Congressional assistance.  What does seem clear is that the PTO budget problems are real and severe, as evidenced by events and announcements coming from the Office itself.  First, in March 2009, Rob Clarke, the Director of Legal Administration at the Patent Office, told attendees at the PLI Patent Institute that the Patent Office was concerned about its fiscal year 2009 budget due to a drop in applications.  Second, we know that hiring has ceased at the USPTO.  Third, we know that the Patent Office is engaging in cost cutting measures, such as prohibiting over-time and not running the HVAC system on Sundays.  Fourth, the Senate has passed a bill and the House is considering a bill to allow the Patent Office to borrow $60 to $70 million from the Trademark Office.  Fifth, travel has been suspended and those in senior management who typically speak at conferences are not allowed to go to such events.  Finally, Nick Godici has been brought back to the Patent Office on at least an interim capacity to try and address the crisis, which demonstrates that the Obama Administration is not willing to wait for PTO Director nominee David Kappos to be confirmed.  Things do seem very bad at the Patent Office, which is why many, including myself increasingly fear the worst.

We all know that the Patent Office has created this mess by artificially forcing down the allowance rate of applications, which has lead to less revenue from issue fees and publication fees, and which has likely had at least some deterrent effect on some applicants filing new or additional patent applications.  Of course, the real problem is that with fewer applications being granted that means less maintenance fees are being collected, which is the enormous problem that I and others predicted would happen.  You cannot start cutting the patent allowance rate in 2004-2005 and then not realize that with fewer patents you will collect fewer maintenance fees, right?

The problems of the Patent Office are coming home to roost.  Given the struggling economy large corporations are allowing patents to expire prior to the end of their full term by simply not paying one of the three maintenance fees that are due during the life of the patent in order to keep the patent current.  These maintenance fees are due at 3.5, 7.5 and 11.5 years after issuance, and increase over time.  The Patent Office historically gets up to 70% of it revenue from maintenance fees, so this budget problem can easily turn into a catastrophe in the coming months and years.

Innovation is already being held hostage at the Patent Office, with extraordinarily long delays between filing and even a first substantive review of an application, let alone between filing and the issuance of a patent.  If there really is concern that the Patent Office may not make it until the end of the year without additional emergency funding, and if the Patent Office really does not know what the budget will look like in fiscal year 2010, there is a catastrophe brewing.  We need more funding for the Patent Office on a large scale to allow the Office to hire new examiners, and we need to call back all willing retired examiners and PTO employees to help.  Retired examiners can be paid to dive into the backlog, and other can mentor new hires on the job, leaving those experienced examiners to really dive into the backlog and not have to mentor, train or supervise new hires.  Perhaps some retired members of the Board of Patent Appeals can be brought back to dive into the backlog of appeals now pending.  Something needs to be done, and it must start with funding.

It is time not to just fund the Patent Office to keep the lights on, but rather the Obama Administration and Congress need to significantly raise the funding of the Patent Office.  With all the trillions of dollars that are being spent in the name of suring up the banks, helping out AIG, owning car companies and stimulating the economy, not to mention all the money the Federal Reserver is pumping into the economy, why not send a few more measly billions to the Patent Office.  There is no good reason not to significantly raise the USPTO budget, and a huge benefit to the US economy would ensue.  Recessions are times when the next generation of technologies are created by those who have lost jobs in the technology and R&D sector.  Companies that employee people are formed, but all of this requires funding.  Funding comes from issued patents.  Without issued patents start-up companies cannot get funding.

This is not rocket science.  There is plenty of history to draw from.  It is time our leaders realize the magnitude of the problem, learn their history with respect to innovation during recessions and realize that the engine that can grow us out of this horrible downward spiral and economic contraction is sitting right there in Alexandria, VA.  The USPTO can and will help create jobs, create wealth and grow our economy, but if and only if they issue patents, and to do that they need to have money to actually keep the lights on.

My god how did it come to this!  Will someone in Congress or the White House please step up to the plate with a solution?