Patent Office Budget Crisis

For those of you following the trials and tribulations of the Patent Office, they are reporting a significant decline income because of the reduction of issue fees being paid. It is even rumored that they may be laying off examiners (denied by PTO management). So we perform a more rigorous examination, and the number of patents issued goes down then we get laid off.... the incentives in the system are completely inappropriate.

Under the Patent Demand model, the $50,000 application fee (for large entities only) covers all fees related to the application, prosecution, appeal to the Board and life of the patent. Applicants pay only once and the USPTO is fully funded by the application fees. Denial or allowance of a patent application becomes irrelevant to the financial health of the USPTO (and the Examination Corp).

Patently-O!

Well, it looks like Patently-O has picked up my work. Thanks Dennis. There are many comments from folks who obviously did not read the article, but just the post from Dennis. I hope that they take the time. I will be reviewing some of the more thoughtful comments here in the next few days.

Patent Demand Published

I have been gone for a while, but am now back and ready to post. I have completed my research on the demand curve for patent applications and have published an article in the International In-House Counsel Journal. Here is a link to the website. Search for Wilson and use the following UID octobertrial and password iicjguest. I would like to get some feedback.

Hopefully, the article will make the patent blogworld.

Patent Prosecution Malpractice

In the December 10, 2007 edition of the National Law Journal, an article discussed the rising rate of patent malpractice claims being filed against firms for prosecution mistakes (Sorry, no link - paid site). The article asserted that the risks of being sued are not keeping up with the rewards, noting that “run-of-the mill prosecutions can net law firms as little as $800 and even more specialized versions can net them only $5,000.” With the number of malpractice claims going up, more firms were likely to end their prosecution practice.

What is the cause of all of this malpractice going on? Well, the article opines, it may be that in 2005 we had 390,733 new utility applications filed, while in 1996, we had 212,377 applications, an 84% increase in work load. You would certainly expect that patent prosecutors under extreme price pressure would file an increasing number of patent applications that give rise to more malpractice claims. If we reduce the number of applications being filed by increasing the fees, the pressure to file will be reduced and clients will be less likely to force their patent counsel to accept such small margins. Fewer patent applications will mean fewer deadlines missed resulting in less malpractice.

The New Rules - Patent Demand By Proxy

The USPTO has recently proposed significant modifications to the prosecution and appeal rules under which patents are granted (here for example). In my estimation (and with some confirmation by the GC of the office - see here), the rules are an attempt by the USPTO to reduce the number of patent applications that it has to examine, or Patent Demand By Proxy.

Of course, the proposed rule-making has created a backlash in the patent holder and prosecution communities because of the damage that the new rules would do to patents and the patent process. The secondary effect of the proposed rules is to drive up the expense of filing and prosecuting patent applications through increased patent applications filed and increased legal bills for complying with the rules. The first set of proposed rules were postponed by a lawsuit filed by GSK, and I would expect a similar result with the second and third sets. However, the USPTO could avoid all of this unpleasantness by simply increasing the filing fees it charges for large entities to a point where the supply of patent applications is reduced to a number that feasible to examine adequately.

What about Trolls?

How would raising the filing fee impact patent trolls? If you are not familiar with patent trolls, check out this excellent blog Troll Tracker. Patent trolls are companies that are set up with the sole purpose of suing other companies for patent infringement on patents that tend to be acquired from individual inventors and companies that have gone out of business.

In a recent post, Troll Tracker reviewed patent lawsuits filed against the Fortune 100 based upon the industry of the defendants in the lawsuits. The most interesting distinction was between the Pharmaceutical Industry and the High Tech Industry. Pharmaceutical had 28 total lawsuits, with 24 coming from competitors and 4 coming from Universities (etc.) but none from patent trolls. High Tech, on the other hand, had 192 lawsuits, with 35 from competitors, 24 from Universities (etc.) and 132 from patent trolls.

What is the distinction between the Pharmaceutical and High Tech industries around patents? Well, first the Pharmaceutical Industry depends on patents to survive because they tend to have a single innovation (the chemical compound used to treat disease x) the price of making a pill is next to nothing and anyone can follow a formula to make a chemical compound. High Tech companies tend to have differentiated products composed of lots of improvements that are very complicated to put together. Second, Pharmaceutical companies spend $800,000,000 to get one new product to market so the consequence of having a weak patent is huge. High Tech also spends a lot of money on new products, but they tend to grow incrementally from one product version to the next.

Pharmaceutical companies tend to have a relatively few number of extremely valuable patents that, were a company go out of business, would quickly be snapped up by a competitor, investor or other interested party, who would produce the compound. High tech companies have lots of patents on small features and if the business should cease, no one really knows the value of the patents. These patents fall through the cracks and end up with the trolls.

If the patent filing fees were raised, then High Tech companies would only file patents on their most important innovations and fewer patents would be more valuable. Thus, they would be less likely to fall through the cracks, and the patent troll market would dry up.

So, What Happens to the Patent Lawyers?

This is an interesting question. When we reduce the number of patent applications by three quarters, where do all the patent lawyers go? The answer for the best and the brightest is nowhere. There will always be a very competitive market for high-end patent drafting and litigation services. Perhaps even more so, with fewer patent applications that are far more valuable than the current crop. I think that raising the application fee to $50,000 will allow the legal bills for obtaining those patents to rise as well. I believe that this will be the end of the $5,000 flat-rate patent application drafting services.

What happens to all of those folks who are currently writing the thousands of patent applications for a single company? Well, they are already highly-trained engineers and lawyers....They should return to the workforce and do something that is productive. Like invent something!!! Think about it, we have thousands of highly-trained professionals working on patents that don't include any innovation. And then we waste millions fighting over patents that should not have been issued in the first place. Increase the fees, reduce the number of patents filed and we will see an end (or at least a massive reduction) in the waste.