Strengthening the Patent System

America's patent system is at a crossroads. There are many critics of the patent system; some have become increasingly vocal. Some claim the patent system is outdated. Others label it as a “threat to innovation.” As fodder for their arguments, critics often tout examples of one or more patents that, in the words of one academic, are “not new, are obvious, are laughably insipid or sometimes all of the above” (“Patent Prescription: A radical cure for the ailing U.S. patent system,” A. Jaffe and J. Lerner, IEEE Spectrum Online, Dec. 10, 2004).

While one can argue the merits of the particular patents in question, most agree that U.S. economic productivity and competitiveness are based on our ability to innovate. Innovation, however, can only be possible if there is a rigorous intellectual property regime that protects inventors. A sound patent system is a critical part of that regime.

The question is how to assure a sound patent system. Critics suggest fundamental flaws. However, they too often neglect to mention the patent system's quite successful history. They also ignore the fact that in many ways we have simply not given the patent system the tools, some as basic as an adequate budget and resources, it needs to adapt to changing times.

The Value of Today's Patent System

Our patent system has been an unqualified economic success. On the whole, it has incentivized and protected creators, and has given investors reason to invest, build and create jobs.

Patents protect a good portion of our nation's intellectual property assets. These assets are a primary driver of American economic growth and international competitiveness.

Patents protect American ingenuity, foster creativity and are a prime motivator for business investment. To borrow a quote from Abraham Lincoln, the only president to be issued a patent, the patent system adds “fuel of interest to the fire of genius.”

Consider the economic value that the patent system provides to the world's largest patent holder, IBM. Between 1993 and 2002, IBM received well over 22,000 patents that generated approximately $10 billion in licensing revenues during that period.

It is not just big business that benefits from today's patent system. According to Kevin Rivette and David Kline, authors of “Rembrandts in the Attic: Unlocking the Hidden Value of Patents,” in the past 2 decades the number of patents granted to first-time patentees ' a group largely composed of startup firms and independent inventors ' has more than quadrupled. The authors argue that far from being a barrier to innovation, patents serve as “equalizers” on the economic and business development battleground.

Trying to Meet Greater Demands with Less Resources

The patent system protects our most precious asset ' ideas. But the demands on that system are increasing. One of the biggest culprits is our own inventiveness. Patent applications are increasing. Moreover, applications are being submitted for inventions that are increasingly complex. Patents on mechanical inventions usually are relatively straightforward. But in today's world, patents reach into areas of biogenetics, complex computing and nanotechnology ' areas of research and scientific development that have been developed only in the last 2 decades.

The USPTO has tried to keep pace. Last year, it initiated its own Nanotechnology Customer Partnership and began a training program through which approximately 50 examiners a month get nano-specific training.

The problem is these programs are too few and too small. As the demands of our patent system have grown, our investment in supporting that system has not.

In fact, over the years we have systematically starved our nation's patent system of the resources it needs to protect our intellectual property assets. It is the height of irony that as the volume and value of patents has increased, the share of resources we spend to protect those valuable assets have dwindled. Over the past 12 years, the government has diverted nearly three-quarters of a billion dollars ' $750 million ' from the budget of the USPTO to unrelated government programs.

That we would shortchange the system that has been the backbone of our economy, is unconscionable. It has cost the country investment and jobs, and if left on its current course there will be nothing but more trouble ahead.

The Crisis at the USPTO

The USPTO receives more than 300,000 patent applications each year. However, today's backlog of patent applications at the USPTO is approximately 475,000 and climbing. That is nearly a half million potential new products that may not be on the shelves or in the marketplace while we wait for government action. Moreover, the waiting time for completion of the examination of a patent application ' a period that should last only 18 months ' is now between 2 and 4 years.

The situation is bad and getting worse. According to the March 2004 testimony of Jon Dudas, the director of the USPTO, if the current resource levels were not improved “more than 140,000 patents will not be issued over the next 5 years.” He went on to predict that pendency ' the time that companies have to wait for patent approvals ' would increase from 6 to 8 years by 2008 and the backlog of initial reviews by qualified patent examiners would grow from the current level of 475,000 to one million.

That would mean nothing but trouble for American technology-based companies, entrepreneurs and the American economy.

Delays not only increase the cost of getting a patent, but they also increase the uncertainty of business planning. Absent patent protection, few businesses will spend the millions of dollars necessary to bring their products to market. Those that bring their products to market without a patent may be blindsided by a patent granted to a competitor years later. Regardless of whether they impact a large corporation or a small startup, delays and complications of patent approval are a clear drag on productivity and competitiveness.

Overburdened by the flood of patent applications, the USPTO can simply push patent awards through the system, without adequate assessment and review, in order to avoid a substantial backlog. Some would argue that this is, in fact, already happening. They would cite that the number of patents awarded has doubled since 1990. Others would claim that the doubling of patents is simply a reflection of new areas of invention, notably business methods, software, biotech and nanotechnology. Indeed, software and Internet patents now account for more than 15% of all patents granted.

Whatever the cause, patent examiners have a tough assignment. Their job is not only to determine whether an application represents a useful and clearly described invention, but also to review the complete record of global human achievement to determine if any “prior art” would invalidate the claim. When faced with the increased volume of patent applications, patents that are of dubious quality sometimes move through the system.

This leads not only to those patent approvals that pundits love to lampoon, such as a patent on making a peanut butter and jelly sandwich, but to patents that are struck down in court after huge sums have been spent counting on patent protection. It can also lead to outrageous suits by shakedown artists based on invalid patents against legitimate firms that settle just to stay out of court.

An Opportunity Missed: The Watering Down of the Fee Bill

One obvious solution is to invest in the patent approval infrastructure. Last year, the business community backed a proposal to do just that. The bill, H.R. 1561, proposed giving needed resources to the USPTO. The resources would be paid not by the average taxpayer, but by those who benefit most directly from the patent system ' patent applicants and owners. The USPTO is a fee-funded organization; that is, the fees from patent applicants fund the agency. Leading business and technology organizations have been so concerned about USPTO resources that they supported a tax on themselves, increasing the fees for patent applications from 15% to 25%. In return, they asked one thing: that ALL patent fees, old and new, be dedicated to improving and modernizing the USPTO. It did not seem that much to ask given the USPTO's serious need for financial and infrastructure support.

The end of the “fee diversion” would benefit inventors and entrepreneurs from businesses large and small. The average legal fees and related costs for a business submitting a basic patent application have been between $5000 and $20,000. With the newly approved 15% to 25% increase in the cost of filing a patent application, it will only be a few hundred dollars more. If this modest increase can reduce delays and improve patent quality, it will be well worth it.

In its lame duck session, Congress did pass a major patent fee bill, but only got it half right.

They had no problem raising the patent fees by 15% to 25%. But they failed to promise an end to the real cause of the problem, the diversion of these fees for unrelated government programs. In fact, in the same bill that raised the fees inventors have to pay for their patents, Congress diverted yet another $30 million of inventors' money from the USPTO for other purposes ' less diversion than the previous year but still diversion.

So while Congress did not mind making inventors pay more, it did seem to object to committing to spending that money to help inventors protect their intellectual property.

What Is at Risk?

First and foremost, confidence in the American patent system. This is no minor issue. If the USPTO cannot assure expeditious and quality patent examination, then inventors and innovators will simply go elsewhere to create and commercialize their intellectual property.

Another victim is capital investment. No company is going to invest millions of dollars to design, manufacture and promote ideas and products they cannot protect. If delays for approval for their inventions go beyond 2 years, both brains and money may go elsewhere.

The eventual victim is the American economy and the American consumer. If our intellectual property is not protected and innovation is not promoted, then our business competitiveness will suffer. That means less job creation.

Moving Forward

There are many critics of our current patent system. Many, including the U.S. Federal Trade Commission and the National Academy of Sciences, have recommended improvements.

But most experts would agree that the patent system is working reasonably well overall. The system needs less of a major overhaul than it does strengthening. Better funding for the U.S. patent system would be a good start. Other improvements, such as establishing a post-patent-grant challenge system, could make sense.

Protecting our intellectual property should be a top priority for the new administration and the new Congress. There is a simple solution. Stop stealing money that entrepreneurs pay to support the patent system.

America's patent system is at a crossroads. There are many critics of the patent system; some have become increasingly vocal. Some claim the patent system is outdated. Others label it as a “threat to innovation.” As fodder for their arguments, critics often tout examples of one or more patents that, in the words of one academic, are “not new, are obvious, are laughably insipid or sometimes all of the above” (“Patent Prescription: A radical cure for the ailing U.S. patent system,” A. Jaffe and J. Lerner, IEEE Spectrum Online, Dec. 10, 2004).

While one can argue the merits of the particular patents in question, most agree that U.S. economic productivity and competitiveness are based on our ability to innovate. Innovation, however, can only be possible if there is a rigorous intellectual property regime that protects inventors. A sound patent system is a critical part of that regime.

The question is how to assure a sound patent system. Critics suggest fundamental flaws. However, they too often neglect to mention the patent system's quite successful history. They also ignore the fact that in many ways we have simply not given the patent system the tools, some as basic as an adequate budget and resources, it needs to adapt to changing times.

The Value of Today's Patent System

Our patent system has been an unqualified economic success. On the whole, it has incentivized and protected creators, and has given investors reason to invest, build and create jobs.

Patents protect a good portion of our nation's intellectual property assets. These assets are a primary driver of American economic growth and international competitiveness.

Patents protect American ingenuity, foster creativity and are a prime motivator for business investment. To borrow a quote from Abraham Lincoln, the only president to be issued a patent, the patent system adds “fuel of interest to the fire of genius.”

Consider the economic value that the patent system provides to the world's largest patent holder, IBM. Between 1993 and 2002, IBM received well over 22,000 patents that generated approximately $10 billion in licensing revenues during that period.

It is not just big business that benefits from today's patent system. According to Kevin Rivette and David Kline, authors of “Rembrandts in the Attic: Unlocking the Hidden Value of Patents,” in the past 2 decades the number of patents granted to first-time patentees ' a group largely composed of startup firms and independent inventors ' has more than quadrupled. The authors argue that far from being a barrier to innovation, patents serve as “equalizers” on the economic and business development battleground.

Trying to Meet Greater Demands with Less Resources

The patent system protects our most precious asset ' ideas. But the demands on that system are increasing. One of the biggest culprits is our own inventiveness. Patent applications are increasing. Moreover, applications are being submitted for inventions that are increasingly complex. Patents on mechanical inventions usually are relatively straightforward. But in today's world, patents reach into areas of biogenetics, complex computing and nanotechnology ' areas of research and scientific development that have been developed only in the last 2 decades.

The USPTO has tried to keep pace. Last year, it initiated its own Nanotechnology Customer Partnership and began a training program through which approximately 50 examiners a month get nano-specific training.

The problem is these programs are too few and too small. As the demands of our patent system have grown, our investment in supporting that system has not.

In fact, over the years we have systematically starved our nation's patent system of the resources it needs to protect our intellectual property assets. It is the height of irony that as the volume and value of patents has increased, the share of resources we spend to protect those valuable assets have dwindled. Over the past 12 years, the government has diverted nearly three-quarters of a billion dollars ' $750 million ' from the budget of the USPTO to unrelated government programs.

That we would shortchange the system that has been the backbone of our economy, is unconscionable. It has cost the country investment and jobs, and if left on its current course there will be nothing but more trouble ahead.

The Crisis at the USPTO

The USPTO receives more than 300,000 patent applications each year. However, today's backlog of patent applications at the USPTO is approximately 475,000 and climbing. That is nearly a half million potential new products that may not be on the shelves or in the marketplace while we wait for government action. Moreover, the waiting time for completion of the examination of a patent application ' a period that should last only 18 months ' is now between 2 and 4 years.

The situation is bad and getting worse. According to the March 2004 testimony of Jon Dudas, the director of the USPTO, if the current resource levels were not improved “more than 140,000 patents will not be issued over the next 5 years.” He went on to predict that pendency ' the time that companies have to wait for patent approvals ' would increase from 6 to 8 years by 2008 and the backlog of initial reviews by qualified patent examiners would grow from the current level of 475,000 to one million.

That would mean nothing but trouble for American technology-based companies, entrepreneurs and the American economy.

Delays not only increase the cost of getting a patent, but they also increase the uncertainty of business planning. Absent patent protection, few businesses will spend the millions of dollars necessary to bring their products to market. Those that bring their products to market without a patent may be blindsided by a patent granted to a competitor years later. Regardless of whether they impact a large corporation or a small startup, delays and complications of patent approval are a clear drag on productivity and competitiveness.

Overburdened by the flood of patent applications, the USPTO can simply push patent awards through the system, without adequate assessment and review, in order to avoid a substantial backlog. Some would argue that this is, in fact, already happening. They would cite that the number of patents awarded has doubled since 1990. Others would claim that the doubling of patents is simply a reflection of new areas of invention, notably business methods, software, biotech and nanotechnology. Indeed, software and Internet patents now account for more than 15% of all patents granted.

Whatever the cause, patent examiners have a tough assignment. Their job is not only to determine whether an application represents a useful and clearly described invention, but also to review the complete record of global human achievement to determine if any “prior art” would invalidate the claim. When faced with the increased volume of patent applications, patents that are of dubious quality sometimes move through the system.

This leads not only to those patent approvals that pundits love to lampoon, such as a patent on making a peanut butter and jelly sandwich, but to patents that are struck down in court after huge sums have been spent counting on patent protection. It can also lead to outrageous suits by shakedown artists based on invalid patents against legitimate firms that settle just to stay out of court.

An Opportunity Missed: The Watering Down of the Fee Bill

One obvious solution is to invest in the patent approval infrastructure. Last year, the business community backed a proposal to do just that. The bill, H.R. 1561, proposed giving needed resources to the USPTO. The resources would be paid not by the average taxpayer, but by those who benefit most directly from the patent system ' patent applicants and owners. The USPTO is a fee-funded organization; that is, the fees from patent applicants fund the agency. Leading business and technology organizations have been so concerned about USPTO resources that they supported a tax on themselves, increasing the fees for patent applications from 15% to 25%. In return, they asked one thing: that ALL patent fees, old and new, be dedicated to improving and modernizing the USPTO. It did not seem that much to ask given the USPTO's serious need for financial and infrastructure support.

The end of the “fee diversion” would benefit inventors and entrepreneurs from businesses large and small. The average legal fees and related costs for a business submitting a basic patent application have been between $5000 and $20,000. With the newly approved 15% to 25% increase in the cost of filing a patent application, it will only be a few hundred dollars more. If this modest increase can reduce delays and improve patent quality, it will be well worth it.

In its lame duck session, Congress did pass a major patent fee bill, but only got it half right.

They had no problem raising the patent fees by 15% to 25%. But they failed to promise an end to the real cause of the problem, the diversion of these fees for unrelated government programs. In fact, in the same bill that raised the fees inventors have to pay for their patents, Congress diverted yet another $30 million of inventors' money from the USPTO for other purposes ' less diversion than the previous year but still diversion.

So while Congress did not mind making inventors pay more, it did seem to object to committing to spending that money to help inventors protect their intellectual property.

What Is at Risk?

First and foremost, confidence in the American patent system. This is no minor issue. If the USPTO cannot assure expeditious and quality patent examination, then inventors and innovators will simply go elsewhere to create and commercialize their intellectual property.

Another victim is capital investment. No company is going to invest millions of dollars to design, manufacture and promote ideas and products they cannot protect. If delays for approval for their inventions go beyond 2 years, both brains and money may go elsewhere.

The eventual victim is the American economy and the American consumer. If our intellectual property is not protected and innovation is not promoted, then our business competitiveness will suffer. That means less job creation.

Moving Forward

There are many critics of our current patent system. Many, including the U.S. Federal Trade Commission and the National Academy of Sciences, have recommended improvements.

But most experts would agree that the patent system is working reasonably well overall. The system needs less of a major overhaul than it does strengthening. Better funding for the U.S. patent system would be a good start. Other improvements, such as establishing a post-patent-grant challenge system, could make sense.

Protecting our intellectual property should be a top priority for the new administration and the new Congress. There is a simple solution. Stop stealing money that entrepreneurs pay to support the patent system.