America Needs Startup Experience in the USPTO Director

Congressman Thomas Massie (R-KY) is an inventor, has built a company based on his patents, and is a strong advocate for startups.

This week Congressman Issa advocated retaining Michelle Lee as the USPTO Director.  I suppose there are about 30 multinational consumer Internet companies like Google that would all agree.  After all, her leadership at the USPTO has thrown the patent system into chaos and that benefits consumer internet companies.  However, the remainder of US companies would probably disagree.  Without question virtually all inventors and startups disagree.

The power of USPTO Director cannot be understated.  The USPTO Director is responsible for the creation of one of the most important property rights in America, patents.  Patents are used by inventors and startups to attract investment at the earliest stages of innovation, and that capitalization effect creates most of our new jobs.  However, the America Invents Act (AIA) errantly granted the power to extinguish those same patent rights to the USPTO Director.  That power to both grant and take away a property right is akin to the dictatorial powers of a third world tyrant and is completely contradictory to our American property right system.  But it is what it is, so selecting the next USPTO Director is a more important decision than it has ever been before.

In the past, USPTO Directors have been recruited from large multinational corporations, big law firms, political careers and lobbying organizations.  Michelle Lee ran Google’s patent strategy.  David Kappos ran IBM’s intellectual property.  Jon Dudas was a lawyer, staffer and lobbyist.  James E. Rogan was a lawyer, politician and a judge.   Todd Dickinson was an in-house patent lawyer at large corporations and a lawyer in a patent law firm.  And Bruce Lehman had a political career as a lawyer working in Congress.

None of these folks were unqualified for the job.  They all knew the technicalities of patent law.  They were well intentioned, professional and had more than adequate intellectual horsepower.  But they all lacked the most important qualification for the job.  None had ever invented something, patented it, and using that patent, funded a company to commercialize the invention.  This is the whole point of the patent system and it is amazing to me that this experience has not been on the resume of even one USPTO Director in more than a generation.

Those who start new companies put it all to risk betting that the government will back up the patent right.  Their investors make the same bet.  These people intimately understand how capital is driven to startup companies and how patents play in that capitalization effect.

The USPTO Director creates policies that directly affect the duration and cost of examination, both critically important elements to startups.  Today examination in the USPTO can last a dozen years or more.  A patent is not an investible asset until it is issued and the claims are known.  So this unacceptable delay alone is killing startups.   Since the AIA, the USPTO Director also has the authority to invalidate the same patents issued by the USPTO.  Patent Trial and Appeal Board (PTAB) procedures today have created titanic uncertainty by radically increasing the risk of invalidation.  An unstable patent right cannot attract capital.

The USPTO Director’s experience becomes their perspective and the foundation of USPTO policy and recommendations to Congress.  I believe that blind spot of understanding the reality of how things work at the grassroots of innovation has led us to where we are with more companies going out of business than starting up for the first time in generations.

USPTO directors are a respected source of knowledge that lawmakers place significant weight on when considering legislation.  Unfortunately, the USPTO Directors who testified in the run up to the AIA could not predict the damage to startups because they did not understand how the AIA’s changes would work at the grassroots level.  As a result, the AIA changed the US patent system to a “first to file” system, which discourages small entities from starting up companies.  The AIA also created the dictatorial powers of the PTAB.  The AIA added both risk and cost to both ends.  It forced inventors to spend thousands of dollars filing for patent protection as the first step in the process of invention, thereby discouraging the creation of new startups.  And at the other end, a patent is now primarily litigated in the PTAB with a very high likelihood it will be invalidated, thus obliterating a patent’s value for investment purposes.

For large corporations, neither first to file nor PTAB procedures are fatal.  Large corporations often have thousands of patents mostly used for marketing purposes, competitor harassment, and defense against patent infringement suits.  They do not capitalize their companies based on their patents.  If patent rights are weakened, there is often no real effect on their operations and very well may help by enabling them to efficiently infringe on the patents of startups.  The patents they invent themselves are not even valued on their books, which means if patent values crash they do not need to be written down. A Director that would bring these views to the Patent Office would be out of touch with the most innovative elements of the American economy, for who PTAB procedures are fatal, harassment is very real, and devaluation of rights is crippling.

The USPTO Director still needs an understanding of law, technology, politics and many other things, as our former USPTO Directors have.  We just don’t need another lawyer or lobbyist to run the USPTO.  We need more this time.  We need someone from the grassroots who understands the very real hurdles facing America’s most innovative segment.

Congressman Thomas Massie (R-KY) comes to mind.  He has built a company based on his patents and is a strong advocate for strong patents for startups.  Hans Høeg, Congressman Massie’s Chief of Staff, also comes to mind.  He is an inventor with a couple dozen patents and a startup built on patents.  He also has four years navigating Congress and the government in his role working for Massie.  He understands how patents work at the grassroots level, he understands the processes of the USPTO, he is experienced in patent law and licensing, and he understands how to navigate politically.

The blind spot of how startups generate investment is a problem of much greater magnitude than just killing off a few startups.  The vast majority of jobs are created by inventors and startups, so America itself needs a USPTO Director with direct experience starting up a company based on a patent.