The US Patent Office’s Impending Financial Crisis and What Sort of Disruptive Innovations Might be Seen as a Result

By | December 31, 2008
US Patent Office

US Patent Office

My postings have been light for the past few weeks because of the Holidays. I plan on re-posting regular content after the New Year. Nonetheless, I couldn’t help posting something this week during my vacation after coming across this wonderful analysis of recent patent issuances post-KSR from Matt Buchanan of the Promote the Progress website and blog. Matt’s analysis of PTO issuances over the past several years shows that KSR definitely had an effect on the number of patents issued in the last year.

What is obvious from Matt’s 2008 issuance data is the fact that the PTO experienced a significant decline in revenue over the past year due to the reduction in issue fees paid by successful patentees. Moreover, this revenue decline will certainly be felt over the next 10 plus years as a result of a reduction in maintenance fees that would have been paid for these issued patents. When coupled with the current economic crisis and the need for the U.S. government to fund agencies and projects that are arguably much more critical to the health of the national economy, there is no doubt that the PTO will be faced with a significant revenue shortfall in the immediate future. As an additional issue, with the huge budget issues that the U.S. government will be facing, I believe it is highly doubtful that the PTO will see the end of fee diversion in the foreseeable future. Taken together, these factors lead me to predict that we will soon see irrefutable evidence that the PTO is in a “world of hurt” from a revenue perspective.

The good news may be that, like for the rest of the US economy, near collapse of the existing status quo may provide opportunity for the PTO to experience disruptive innovation. This is in contrast to what, in my opinion, has been only incremental innovation over the past several years. What do I think such innovation would look like?First, I think the archaic “count system” by which PTO examiners are evaluated should be rejected wholly. This “game” allows patent examiners to work the system and reject applications for trivial reasons. While many patent applications are bogus and should never be filed in the first place, the count system sets up a bureaucratic maze whereby the merits of a patent application are often lost in the process of proving the examiner wrong. As a result, many bad patents issue, many good patents don’t issue and the costs of obtaining patent protection are undoubtedly magnified. Indeed, I believe the only beneficiaries of the PTO count system are patent attorneys who get rich arguing with patent examiners.

A further disruptive change that should happen in the PTO is the elimination of the requirement that examiners have “face time” on a regular basis at the PTO facilities in Alexandria, Virginia. That is, although many examiners work from home, they can do so only up to 4 days a week, with the additional day requiring “hoteling” at a shared office space in the DC area. With all due respect to those living in Metro DC, the cost of living there is not conducive to encouraging people to establish roots in the area, a fact which reduces the ability of the PTO today to hire employees who seek to join the PTO as a career. As a result, turnover at the PTO has been horrendous in recent years.

Moreover, many examiners are young and appear to me to often be minimally supervised. In my opinion, this lack of experience and supervision no doubt reduces issued patent quality because these examiners do not have the substantive knowledge to apply decades of detailed patent caselaw correctly. Additionally, this lack of experience and supervision certainly increases the probability that reactionary rejections will occur because such youthful examiners often fail to fully comprehend the nuances embedded in decisions such as KSR.

In a personal correspondence to me on Twitter, Matt Buchanan wondered aloud whether regional/satellite PTO facilities would accommodate the need of the PTO to improve its ranks of long term employees. While I would rather see a wholly virtual PTO examiner corps, if the leaders of the union representing patent examiners (Patent Office Professionals Union) will not agree to such a radical reinvention of the PTO examiner corps, Matt’s idea would appear to address the currently conflicting requirements of PTO union “face time” and the need to develop career PTO examiners who can provide for their families in locations with significantly lower costs of living than the DC Metro area.

Of course, it would also be great if the long reached-for goal of reduction or elimination of PTO fee diversion could occur. However, in the current economic climate it is doubtful that such a radical step will happen. At a minimum, I remain hopeful that the new PTO commissioner to be named in the very near future will be focused toward changing the PTO to make it more efficient and to provide maximum value for both small inventors and large inventors.

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