In the popular press there have been a number of stories over the last week or so regarding how the US is losing its edge in innovation as indicated by the drop in patent filings between fiscal year 2008 and fiscal year 2009. The headlines have been sensational at times, claiming that the recession is affecting US innovation. While such headlines no doubt grab attention, they largely mischaracterize what is really happening, which is unfortunate because in today’s sound-bite news culture such headlines could well sway the hearts and minds of the public, and more importantly sway those in Washington, DC who may otherwise be able to help. The truth is that fiscal year 2009 saw more patent applications filed than any other year in the history of the United States, save only one year — fiscal 2008. So while many will no doubt want to blame the dip in filings on the recession, doing so misses the larger picture and obfuscates the real problem, which has little to do with the recession and everything to do with what became an enormously dysfunctional US Patent Office during President Bush’s second term.
Below are charts showing the number of utility patent applications filed and the total number of patent applications (utility, design, reissue and plant) filed between 2000 and 2009.
The charts showing the number of utility patent applications filed and the total number of patent applications (utility, design, reissue and plant) filed between 2000 and 2009.
Looking at the charts above there are a couple things that jump out. First, during fiscal year 2009, which ran from October 1, 2008 through September 30, 2009, had more patent applications filed than any year other than fiscal year 2008. That necessarily (and obviously) means that FY 2009 filings outpaced FY 2007 filings, which is significant because there was no recession at any point in time during FY 2007. According to the National Bureau of Economic Research, the current recession started in December 2007. According to the Wall Street Journal blog, this was determined because December 2007 marked the peak upward swing of the US economy, which started in 2001. So December 2007 marked the beginning of the decline. That means that for most of FY 2008 the US economy was in recession, and was not in recession at any point in time during FY 2007. Therefore, there is no support for the argument that the recession caused FY 2009 patent filings to be lower.
In the comments of my recent article Surprisingly, US Design Patent Filings Down in 2009, Jeff Sweetman (of Inovia IP) and I have been engaged in a cordial discussion regarding whether the recession has an impact on the number of filings. Jeff, who does a lot of work with international filings under the Patent Cooperation Treaty, explained that many of the folks he talks to have and will continue to selectively choose the number of countries they file patent applications in, including the US, and have been and will continue to file on fewer innovations. I don’t doubt that for a minute, but this is not something unique to this recession. Large businesses frequently engage in patent and R&D behavior that is self-defeating.
Big companies do silly things in a crisis, like cut R&D and protect less — as if that is a strategy to advance. Really it is a strategy to stagnate and ultimately take a step back to new competition. But this is a natural process that happens all the time in the patent world, and for a very long time this dip has been more than taken up by new businesses filing. In a recession a lot of creative people get laid off, and they start their own companies. The trouble this time, however, is that the patent allowance rate between 2005 and the first quarter of calendar 2009 dropped at an alarming rate, touching a 42% allowance rate during the first quarter of calendar 2009. You can see this by observing in the issue charts above a steep decline in 2005, followed by depressed numbers in 2006, 2007 and 2008.
What caused this steep decline in 2005? That was when John Doll decided the allowance rate was too high and sought to artificially lower it intentionally. This was the dawn of “second pair of eyes” being applied Patent Office wide. What this did was cause patent pendency to skyrocket and allowance rates to drop. Between having to wait 3, 4, 5, 6 or more years to get a patent and an ever decreasing likelihood that a patent would ultimately be obtained, individuals and small business, who would ordinarily more than take up the large company recession decrease, started opting not to file patent applications, and that is why there was a decrease in FY 2009 — it was as the result of a dysfunctional Patent Office, which did start to right itself in about March 2009 and has continued on a strong and positive path since David Kappos assumed the Directors chair.
The questions I ask are these: (1) Would US filings be more in fiscal 2009 had the Patent Office not had a 4+ year policy of “reject, reject, reject”? (2) Had the USPTO not driven the allowance rate so low, and lengthened the pendency to ridiculous lengths would US filing have been more in fiscal 2009? I think the answer is a resounding YES. Had the USPTO during the second Bush term not tried to kill innovation for so long USPTO projections, which projected an increase in filings for fiscal year 2009 over fiscal year 2008 would have certainly been accurate.
Some innovators are no doubt affected by the recession, but the story hear is that during one of the worst recessions ever, and at a time when the USPTO ceased to be in the patent granting business, FY 2009 was still nearly a record year in term of patent applications filed. So US innovation is not dead, it is just reeling from ineffective, counterproductive and ridiculous patent policy. Kappos and his solid leadership team can make the corrections necessary, but if and only if Congress stands out of the way and doesn’t do any harm. Unfortunately, given that they are prepared to not give the USPTO any more money and divert fees from the USPTO to the general treasury, it seems altogether likely that FY 2010 and beyond will be marred by further nonsensical innovation and patent policy, but this time as a result of a Congress that clearly doesn’t understand innovation, patents or how to successfully spur the US economy.