Recession Not Responsible for Dip in US Patent Filings

By Gene Quinn
December 17, 2009

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.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 21 Comments comments.

  1. Mark Nowotarski December 17, 2009 4:44 pm

    Historical patent issuance rates for the past two hundred years posted here http://bit.ly/7H8pS7

  2. Ted Weisz December 18, 2009 10:31 am

    I beg to disagree. I have been practicing patent prosecution since 1980 and I have never seen a bigger drop in patent work. Big companies cut back drastically, all companies stopped filing and in fact many of them complitely disappeared. In se instances I was requested to abandon applications after allowance!

  3. Gene Quinn December 18, 2009 11:47 am

    Ted-

    I don’t know how you can say you have never seen a bigger drop in patent work. That just is not true. The numbers clearly show that FY 2009 was the second biggest year in terms of patent application filings in the history of the US.

    Your experience is very different than my experience, and very different from those I talk to. Small firms have more work than they can handle, and it is heating up dramatically over the last several months. The only ones who are losing business are the over priced law firms located in downtown (INSERT BIG CITY HERE). Even some big firms I know say they are not losing business and are gaining.

    The facts are what they are. Only 11,000 fewer patent applications were filed in FY 2009 than in FY 2008, and there were more filed in FY 2009 than were filed in FY 2007, which was the last year of economic expansion.

    While it may feel lik “all companies stopped filing” the evidence clearly shows otherwise.

    -Gene

  4. EG December 18, 2009 12:17 pm

    Gene,

    I was interested in your graph of Issued Utility Patents which definitely reflects a downward trend since 2005. (Any explanation for the perciptious plummet in issuances in 2005 alone?) That’s definitely reflective of the “hostile” Dudas adminstration at the PTO.

    Having only one real data point (filings in 2009) to go on (I’m more cautious about how much data we can rely upon), it’s hard to tell whether filing decreases are due to the recession (there tends to be a lag between when recessions start and their effects on R&D and patent filings take hold) or some other factor such as the “hostile” Dudas adminstration (definitely possible), adverse court precedent (KSR certainly has had an impact), or a combination of these factors. We may need an additional 3-4 years of issuance/filing data to even have a chance of knowing the real story here.

    Again, time may tell what’s really going on here, but the data you’ve presented certainly doesn’t support that the current recession is the sole or even primary culprit.

  5. broje December 18, 2009 1:09 pm

    Is there any way to differentiate between US originated applications filed, and those of foreign origin? I would think that you need to make that distinction before drawing any solid conslusions about US innovation. In other words, filter out the foreign innovation.

  6. EG December 18, 2009 2:26 pm

    Broje,

    A very good point that I thought of but didn’t include in my comment. Thanks for doing so.

  7. Mike December 18, 2009 3:05 pm

    I know many large companies brought patent filing in house. This saves money and lets us continue filing applications. This would not be seen on your graph.

    Another thing not shown on your graph, yet, are those that went PCT to wait 30 months before paying fees. Many people used to file US then PCT. But now to save costs and with better search reports and written opinions, many people may be waiting in a PCT application before filing the US Utility application.

    The year isn’t over, I think we may end up at about the same number of filings as last year. We’ll see.

    Mike

  8. Noise above Law December 20, 2009 2:00 pm

    I second Mike’s comment as I have seen the PCT path being taken more and more for both reasons listed – delay of fees and a much better first action/search report.

  9. Jeff Sweetman December 22, 2009 7:35 am

    Hi Gene

    The only issue I had with your earlier article was the assertion that the recession could not possibly have “had any impact on any of this [ie, filing numbers]”. The article above reads a little more moderately to me.

    “The year isn’t over, I think we may end up at about the same number of filings as last year. We’ll see.” Actually, it was the USPTO’s fiscal year, which ended in September. The numbers are final.

    “I don’t know how you can say you have never seen a bigger drop in patent work. That just is not true.”
    Gene, did you just tell categorically tell someone that his own personal experience is “not true”? Why would he lie?

    Regards
    Jeff

  10. Ted Weisz December 22, 2009 8:47 am

    Gene,

    Regarding your comment to me on December 18, I guess we are talking to very different people. The people I talked to agree with me. I wish I was wrong but but unfortunately my income for the last two years the actual list of my clients who have cut back on work prove otherwise.

  11. Gene Quinn December 22, 2009 10:43 am

    Jeff-

    I did not say that Ted was not accurately relaying his experience, but he did say “all companies stopped filing…” That is a blanket statement without support. The facts are what they are.

    Fiscal Year 2009 for the USPTO had the second highest number of patent application filings ever. So clearly not all companies stopped filing.

    I do feel bad for anyone who is having difficulty in business, particularly during a recession created by banks, Congress and irresponsible borrowers. The reality is that in every recession the big companies file less, which is a self destructive path. During recessions independent inventors, start-ups and small businesses file more. The only reason FY 2009 was not better was because of severe Patent Office mismanagement that bleed over into the beginning of calendar year 2009. Many in the industry openly talked about what the point was to file a patent application if you had only a 42% chance of getting a patent, had to spend many thousands of dollars and wait 4+ years for an answer. With those prospects the increase in filings by individuals, small businesses and start-ups were not as much as it otherwise would have been.

    I know a lot of big firms are in trouble. I also know a lot of big firms are doing just fine. The small firms and solos that I talk to are doing great, and patent searchers report an enormous uptick in business over the last several months. All bodes well for a very strong FY 2010.

    -Gene

  12. Jeff Sweetman December 22, 2009 11:12 am

    Ted’s reference to “all companies” clearly related to his own practice, not companies in general.

    Jeff

  13. Gene Quinn December 22, 2009 11:50 am

    Jeff-

    The unfortunate thing is that patent filings are hardly down at all and yet many are complaining that they are down dramatically. The popular press is buying into the myth that the recession is hurting US innovation and patent filings are down dramatically. That ignores reality, it ignores what has always happened in recessions and it covers up the real problems at the USPTO. Mismanagement is to blame for the drop, which is extremely minor in any event. The USPTO needs more money, and exaggerated claims that patent filings are down and harming US innovation will make it harder for the USPTO to get additional resources and fix the real problem, which is they ceased to grant patents and even take up cases in a reasonable time frame under Dudas.

    -Gene

  14. JB December 22, 2009 3:28 pm

    In addition to Broje’s point about US originated vs non-US originated filings, does the data distinguish between “new” applications and continuations/divisional filings?

    I would have assumed the KSR decision may have caused many to not file or drop some applications. Bilski might do the same.

  15. OldTimer December 30, 2009 4:35 pm

    FWIW, Gene, my experience is perfectly consistent with Ted’s. Our large American or European client companies with significant numbers of US patent attorneys are cutting back in a way that I’ve never seen in all my years of practice. It is across the board, but is most drastic in software/ee/cs fields. This is driven in some part by the recession, but in larger part it is driven by an acknowledgment in their legal departments that the legal ground in the US has become distinctly anti-patent, and that patents are now much harder and more expensive to get, and much, much less likely to be enforced by the courts. My client contacts believe that their reductions in patent filings are permanent, regardless of the state of the economy or their particular company’s performance. In a nutshell, they no longer view the patent system as an effective means to protect their IP, and they are probably correct.

    Small and mid-size companies without significant in-house patent expertise, which is to say those who don’t yet understand the degree to which the patent system has been gutted over the past 5 years, are still filing. Japanese and Korean companies are still filing, and Chinese companies are ramping up big-time. I don’t have statistics, but I suspect if you ran the stats you would find major reductions in US-originated filings, which are being offset by Asian-originated filings.

    If your practice is mostly small inventors then this reduction may not be visible to you. Consider yourself lucky.

    I know you spend a lot of your energy focused on fixing the patent office. This is necessary but not sufficient. Unless we fix the underlying patent law, particularly the absurd standard for obviousness under KSR and patentable subject matter under Bilsky, the U.S. patent system will sink slowly into irrelevance. All this patent office reform stuff is just rearranging the deck chairs on the Titanic. The 40% allowance rate at the PTO was probably artificially low in 2004-2007. After KSR, a 40% allowance rate is probably artificially high. I don’t blame clients at all for opting out of the system right now.

    I can foresee a future, not too far away, in which the primary role of the US Patent Office is to issue worthless patents to Asian companies, the technology sector analogue of a Wall Street investment bank selling worthless mortgage-backed securities–a useless government bureaucracy that exists solely for its own self-perpetuation.

  16. Mike December 31, 2009 8:23 am

    What did you expect? You ship jobs oversees, everyone meets at the lowest cost (no added value to US generated products) and the innovation moves to those that make the product. I would not be surprised to see a dramatic drop in US filings and a dramatic increase in Chinese/Indian filings (since that’s where the manufacturing occurs). You can’t improve or innovate on a system in which you no longer work.

    From my experience with Chinese companies, they don’t even want the US attorney to review. They draft a Chinese style application, have it translated in China, and send it to a US firm for filing without review. The quality of the application leaves little for the US attorney/agent to prosecute as there are very broad claims with little or no support, thus no room for constructive amendments.

    My assessment is that US Patent applications are going the same route as the US auto industry – lowest common denominator for quality (none) and soon it will all be outsourced to China anyway. At least we’re doing are part to help out with the deficit/trade balance.

    To correct this situation we need to increase education, increase small businesses, and increase the quality of US products and services. Simply assembling parts from China will not suffice to correct this imbalance.

    OH yeah, Happy New Year everyone!

  17. Mike December 31, 2009 8:30 am

    “At least we’re doing OUR [are] part to help out with the deficit/trade balance. ”

    – OOPS! One more notch in the low-quality belt.

  18. Ted Weisz December 31, 2009 8:59 am

    I agree with Mike’s comments of December 31. I am also working with many Chinese and Indian associates. I have also visited both countries in an effort to educate patent practitioners. I think I am at a point now where at least some of the Chinese associates trust me sufficiently to redraft the claims.

  19. Gene Quinn December 31, 2009 12:43 pm

    Old Timer-

    I understand what you are saying, and perhaps the downturn is more extreme than in the past, but one thing history has taught us repeatedly is that the companies at the top of the tech world are there for only a brief time. They do things that don’t make sense, like cutting R&D. The patent application numbers don’t lie. FY 2009 was the second highest year in terms of filings ever, and as we all know it has been a horrible economic climate for everyone. I just cannot believe the dip in filings is permanent. I can believe that those who have dipped will permanently dip, but there has always been others to fill the decrease.

    I definitely agree with you that there is a perfect storm brewing. Between PTO mismanagement, KSR and Bilski things have gotten very ugly.

    I am going to focus more on KSR and the law in 2010, but the trouble is that will require Congressional assistance. Getting Congress to do anything, even if it is bad, has proven to be impossible. I have been giving a lot of thought to this and I have a plan (sort of). Look for more to come in the early part of 2010.

    I still want to convince you to write for IPWatchdog!

    -Gene

  20. Isobel Shaw April 28, 2010 12:13 pm

    Our home business was really affected by the Economic recession, we have to cut jobs just to cover up our losses. fortunately, we have already recovered. |