U.S. IP System Needs Improvements
Wise analysts have articulated important features of IP that may go unnoticed, a point such as that IP (patents, copyrights, trade secrets) is the major value of industrial assets, often over 75% of a company’s worth. Americans think of IP as a legal and then secondarily a technical issue, but IP is foremost an economic issue. The U.S. patent system does spur innovation as the Founders intended, but the American IP process required to gain and use this property is uniquely different from competitor nations. It is the need to improve and modernize the U.S. system that is our subject here. A National Research Council finding was that America’s IP system “does not require fundamental change” but that reform could ensure higher patent quality and reduce abuses by both plaintiffs and defendants in infringement litigation. Most importantly, a stronger patent system will strengthen the national enterprise.
First, the U.S. Patent and Trademark Office (PTO) now carries ponderous delays with over 700,000 applications in backlog (a 500% increase in the past decade) and many classes of patents taking over four years for processing. Second, the general consensus is that the PTO allows too many poor-quality patents (e.g., a patented method to exercise the family cat using a laser pointer on floor) and that examiners have too little time allowed for reviews. A third problem is the dramatic increase of litigation (up 122% between 1990-2005 while civil litigation increased only 5%). For example, in 2002 the litigation rate was 32 per 1,000. How to manage the growing caseload of willful infringements and counterfeiting is a national problem. Lastly, the PTO is saddled with an antiquated and ever-more-difficult-to-use process, not using the defacto world standard of “first to file” but instead a “first to invent.” This means that decisions now hinge on subjective judgments of “what is prior art,” “establishing the invention date” and “invented what.” Adopting a first-to-invent protocol is essential to patent process stability.
Demand for new patents has not increased as fast as backlog, in spite of appearances that industry favors use of patents over other IP means. It is a surer way to obtain financing or conduct cross licensing with a hard asset like a patent in hand. Now that courts have ruled that the PTO can grant patents for computer software, this class of IP has blossomed. But the PTO problem that has developed is a Congressional gotcha that slipped most everybody’s attention. The 1990 Omnibus Budget Reconciliation Act established that patent (applicant) fees would fund the PTO but that excess funds above appropriations by Congress would be deposited to the general Treasury. Concurrently, a 1994 Federal Workforce Act limited PTO hiring with the combined result that Congress added PTO fees to fund spending largess but the PTO cannot hire new patent examiners with collected fees to handle the surge in workload. Work pressures on patent examiners are severe to the extent that in 2000, as example, the PTO lost more examiners than it hired. Also, over the 2000-2007 period, attrition rate was 16%, much higher than federal government average of 6%. This glaring problem in PTO operations is not addressed by pending legislation.
The pending Congressional bills contain varied means to improve patent quality via new allowances to submit prior art information and use of third party re-examination processes. Probably the most fractious provision is the allowance of a post-grant review within 12 months of an awarded patent, included to improve quality and reduce uncertainty, and therefore discourage future litigation and deter fraudulent and malicious applicants from gaming the PTO process. Excessive damage awards since 2000 are up 59%, and they are up 91% compared to the prior two decades.
It is imperative that improvements to the U.S. system of property right protection be enacted. The Congressional bills cited must pass into law without a moment to lose.