TCS Daily


Patent Reform 101

By Michael Rosen - April 5, 2006 12:00 AM

Our patent system needs help.

On that, almost everyone in the field of intellectual property agrees. Where the factions part ways, however, is on the intensity of the need for change (is it a crisis? A blip?), on the reasons for making adjustments (are patentees too well-protected? Not protected enough?) and on exactly how to do so. The much-discussed eBay-MercExchange case, which went before the Supreme Court on Wednesday, and the BlackBerry controversy implicate precisely these concerns.

I fall somewhere in the middle on all of these issues: there are serious inefficiencies in the current system which, at times, is too favorable to patent-holding companies (also known derogatorily as "patent trolls") and, at others, stymies innovation. Changes to our system must be deliberate, meaningful, and yet reversible, since whatever tinkering we do will inevitably yield unintended side effects.

Thus, I'd like to dedicate my first piece as the TCS IP columnist to sketching the outline of a proposal for patent reform.

In future articles, I hope to explore further, more controversial areas. But permit me to start with an introduction to how the system works. Patent law breaks down roughly into two fields: writing patents (or "prosecuting" them, in the jargon) and litigating them; patent prosecutors present their arguments to the U.S. Patent and Trademark Office (PTO) while patent litigators appear before the courts.

Patent prosecution is an expensive affair, involving not only the filing fees required by the PTO but also significant (billable) attorney time in writing the general background and the specific claims of the patent. There is often a lengthy back-and-forth between prosecutors and the Patent Office examiners.

Once the PTO approves (or "issues") the patent, the inventor can then "assert" the patent, or use it as a basis for a lawsuit, against those who use, manufacture, or sell the invention without permission (or "patent infringers"); this is where the litigators come in to play. Accused patent infringers then have two defenses: (a) there's no infringement; and (b) there's no patent. In other words, "our products operate differently from the invention claimed in the patent and, even if they don't, the patent should not have issued in the first place."

This second "invalidity" defense -- which requires "clear and convincing evidence" that the PTO wrongly allowed the patent -- can rest on numerous grounds. Most typically, the party being sued will spend oodles of bucks looking for other patents, academic papers, and products that existed before the plaintiff's patent was filed and therefore render the invention "obvious" or "not novel", either of which would make it unpatentable.

Thus, the more carefully an inventor prosecutes her patent (read: the more time and money an inventor sinks into prosecuting her patent) by locating -- and distinguishing -- these prior publications and products, the fewer resources she'll have to expend in defending its validity; the reverse holds as well. So, generally speaking, if the PTO were to tighten its standards for issuing patents, inventors would spend more money on prosecution lawyers. And if the PTO loosened up, anyone asserting patent infringement would amass higher litigation bills in defending the validity of a weaker patent.

In fact, even if we elect to abolish the patent system altogether, inventors and companies would continue to sue each other over trade secret, antitrust, and other fields of law. In other words, no matter what happens, IP lawyers will continue to make money.

So if we can't, as Shakespeare wished, just kill all the lawyers, what can we do?

Well, first, as almost everyone involved in the patent reform debate acknowledges, we must fully fund the PTO. The Patent Office is the gateway to the inventive kingdom. It must be properly populated, furnished, and reinforced.

Sadly, the opposite situation prevails. There are not nearly enough examiners to review, revise, and recognize incoming patent applications. There is a backlog of approximately 400,000 such applications -- inventions just sitting around, gathering dust, preventing their inventors from exploiting the fruits of their labor. For the typical application, two years elapse from filing to issuance, a period expected to rise to four years by 2008 (most biotech and electrical patents already take four years to issue).

Delays like these stifle innovation, plain and simple. Would-be inventors are more inclined to throw up their hands, keep their inventions to themselves, and/or embark on the risky path of trade secret protection over their ideas.

Moreover, the filing fees paid by inventors are diverted from the PTO to fund other government projects. The Patent Office is one of a kind: a federal agency that actually produces more revenue than it absorbs, year after year. Unfortunately, as reported by a partner at my firm in this Boston Globe article, between 1992 and 2001, $500 million was siphoned from the PTO to fund the rest of the federal government. Many more hundreds of millions have been filched from the Patent Office's coffers since then.

Fee diversion hurts inventors twice over: first, their fees subsidize the entire federal bureaucracy, not simply the office to which they make their checks out. And second, the PTO is unable to put that extra money -- generally, 10-20 percent of its annual revenues -- to use where it's most needed: ensuring accurate and timely review of applications. While the Patent Office does its utmost to keep up with the times -- earlier this month it announced a new Web-based filing system -- it requires adequate financial support, not de-funding.

Thus, shoring up the PTO is the first step toward bolstering our patent regime. With sufficient resources, the Patent Office can weed out bad applications while inviting and hastening the approval of good ones.

The next, pressing question is how exactly the PTO, and the system as a whole, can most effectively determine and challenge the patentability of an invention. Stay tuned...

Michael M. Rosen, TCS Daily's intellectual property columnist, is an attorney in San Diego.

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11 Comments

If you work inside the box...
It seems like with your prosecute/litigate dichotomy, you're setting up your ongoing discussion to work "inside the box". Will there be room in your discussion for fairly popular reform proposals such as requiring affirmative steps to commercialize in order to keep a patent or varying fees and terms for different types of inventions?

I don't think that at this point, you can say that fully funding the patent office will solve all our problems. If the government is granting enforceable monopolies, that ought to be a "profit center", not something that just self-funds.

I'm really not too terribly radical on patent reform and your first article sounds too conservative on the issue. What we really need is ideas that will work, because in their absence, we will end up with the whole system just being scrapped, either by legislation or an unwillingness of juries and judges to enforce patents uniformly.

The box has iorn walls...
Changing the patent system as BoscoH suggests is tremendously difficult. The United States is party to several international agreements, requiring our patent system to look a certian way. Granted, many of these agreements were designed to make other countries' patent systems look like ours, but we're now stuck with them. For instance, due to the TRIPS agreement, we cannot, at present, create separate patents for Software and Pharmaceuticals.

PTO Funding Corruption
Allowing the USPTO to receive funding solely from patent holders and patent applicants results in a massively corrupt income stream which encourages the patent office to grant as many patents as possible, regardless of the quality of applications.

http://righttocreate.blogspot.com/2006/03/funding-patent-office-corruptly.html

This is exacerbated by the fact that examiners are evaluated on how many cases they close (by either granting or rejecting), even when a reject almost always results in a re-opening by the patent applicant and their attorneys.

I also question the idea that the problem is one of not-enough-examiners... More examiners only means that the USPTO will be able to grant more patents, faster than before.

What we really need is for the patent office to grant FEWER patents, HIGHER QUALITY patents. And we need the PTO's economic incentives to be aligned with that goal. Instead, what we have today is a system which is very beneficial for lawyers (every patent granted, good or bad, increases the number of litigation opportunities) and for shady "paper inventors" who invest none of the time needed to realize the practicalities of implementing an idea, but instead focus on submitting legalese and paperwork to the PTO.

Not to turn this into an ad-hominem attack, but I wonder if Michael Rosen's vocation as a patent attorney doesn't color his perspective on all this. Obviously, adding more examiners to the USPTO and increasing their funding has some direct benefit on Rosen's profession.

PTO funding Corruption
Your point is well taken, however in order for your ideal world of fewer, higher quality, patents, we need more examiners. This is because patent applications often run into the hundreds of pages, with 10-100 prior art references, each as long. If you really want the patent examiner to have the time to sort through this morass, and conduct a serious prior art search himself, then you must give them fewer applications.

But the number of applications is increasing. This means we need more examiners to handle the load. There are ways of decreasing the number of application, but without significant structural reform, of the kind that may be impossible due to our international agreements, we will only succeed in delaying the inevatible.

A brief response
Both Jojojo and Crc128, as well as BoscoH, raise important points.
First, allow me to point out that hiring more examiners is only the first step; in future columns, I'll address much thornier issues, including issuing patents to "patent trolls."
Second, as crc128 points out, more examiners will mean more time spent on each application. Perhaps incentives ought to be adjusted in the PTO to reinforce this relationship, but the relationship exists nonetheless. Third, I don't take Jojojo's comments as an ad hominem inquiry, but as I noted in the article, no matter how you skin this cat, the lawyers will continue to do well. If anything, increasing the quality of issued patents will reduce the number of invalidity challenges brought in court; in theory, then, it's possible that my colleagues in patent prosecution would thrive while litigation would slow (arguably bad for me personally). But the system would be better off.
-Michael Rosen.

Circumventing Competition
The Perverse Consequences of the DMCA
Cato Institute, March 21, 2006

When Congress passed the Digital Millennium Copyright Act (DMCA) in 1998, it cut the courts out of this role and instead banned any devices that "circumvent" digital rights management (DRM) technologies, which control access to copyrighted content.

Today, the copyright industry is exerting increasing control over playback devices, cable media offerings, and even Internet streaming. Some firms have used the DMCA to THWART COMPETITION BY PREVENTING RESEARCH AND REVERSE ENGINEERING. Others have brought the weight of criminal sanctions to bear against critics, competitors, and researchers.

The DMCA is anti-competitive. It gives copyright holders -- and the technology companies that distribute their content -- the legal power to create closed technology platforms and EXCLUDE COMPETITORS FROM INTEROPERATING WITH THEM.

Repeal of the DMCA would not lead to intellectual property anarchy. Prior to enactment, the courts had already been developing a body of law that strikes a sensible balance between innovation and the protection of IP -- it FOCUSED ON ACTIONS OF PEOPLE rather than on the design of technologies...

http://www.cato.org/pub_display.php?pub_id=6025

More Examiners = Higher Quality Patents?
I don't think examiners will *ever* have enough time to sufficiently determine obviousness, utility, and search through all possible prior art, not matter how many you hire.

Expediency seems to be the major concern among those interested parties pushing for more examiners. If you speed up the patent process, this is sure to attract more patent applicants. More applicants means you need more examiners. And under the current funding structure, it also means more money for the USPTO. And thus we ever circle towards granting more patents, expanding the scope of what patents can cover, further impeding true innovation by constructing unnavigable patent thickets.

Instead, why can't we just admit that no single person is able to justly and fairly determine patentability, no matter how super genius the examiner might be. It is too large a task, and far too subjective in nature. The utility requirement alone is nearly impossible to determine without examining a working copy of the invention, yet we abandoned submitting working copies many decades ago. Prior art? Are you kidding? Even though I am personally considered an expert in one tiny little sliver of the field of computer security, I can't keep up with every paper or book that is published in that area, and I don't have 15 100-page applications sitting in my inbox waiting for me to 'grant' or 'reject'.

Instead of putting all this burden on the examiner and then sqwaking like banshees when bad patents get through, why don't we just realign incentives to produce the behaviour we desire?

For example, let's make the applicant do the prior art search. Anyone finding invalidating prior art after a patent issues gets a finders fee, which is funded by a fine levied on the applicant (who did an insufficient search before trying to acquire their 20-year monopoly).

For example, let's open up the examination process to those beyond the one PTO employee doing the examination, and let's go ahead and let adversarial forces (competitors, existing players) use their own survival as an incentive to participate. And let's let the poor overworked patent examiner act more as a judge or referee in this activity (instead of adversary, advocate, AND judge).

For example, let's stop funding the PTO with patent applicant and patent-holder dollars. At least let's not fund it exclusively that way, so that the office is accountable to me, the taxpayer, and to my elected officials, instead of just to patentees.

For example, let's make the filing of Statutory Invention Registrations FREE, to give inventors without monopoly interests and incentive to file SIRs (thus making prior art searches much easier, and blocking bad patents from being granted). If we could convince players that SIRs have all the defensive advantages of regular patents, without the negative amassing of patents for 'mutually assured destruction' gaming, this would also reduce the number of bad patents sought by big corporations, etc.

The system is set up to act as it now does. When the incentives are there to encourage entities to abuse them, what did we think would happen? No wonder patent trolling has become not only a well-established practice, but an entire business model -- we set up the rules and incentives for just this result.

iron walls made of foam
We routinely ignore international agreements. If it is in our best interest to not comply with TRIPS, we should not comply with TRIPS.

Expecting countries to behave in any way but in their own self-interest is delusional (that doesn't keep us from trying, of course. The TRIPS agreement is a good example of that).

Well said.
I agree compleatly. Do you read Slashdot.org?

What?
Anybody who says that the patent office "grants as many patents as possible" has never tried to get a patent through the patent office. It is clearly NOT true.

Furthermore, the office gets many of its fees regardless of whether a patent is granted or not.

Finally, it often takes years to obtain a patent, is some cases it is four years before a case even starts getting examined. Thus, calling for more examiners is not about personal benefit, it is about fixing a broken system.

For your information, patents should be granted for any invention that meets the legal test. There is nothing wrong about granting MORE patents if they represent actual inventions. jojojo is clearly against patent in his call for FEWER patents.

And for jojojo information, few patents are ever litigated.

-Bob

No way!
Making the applicant do a prior art search will merely reward big companies, who can afford to do such a search, at the expsense of the independent inventor, who cannot afford to do so. Searches will cost over a thousand dollars. Furthermore, the idea of levying a "fine" for missing something is just plain silly!

Finally, the USPTO is already accountable to the public by the nature of Congress making the laws by which it runs. Anybody who thinks that the USPTO makes decisions based on maximizing its fees has never worked with the agency, as it makes MANY decisions that actually reduce the amount of money the office makes on a case. Furthemore, the USPTO is not a "for profit" enterprise, and does not "profit" from extra fees. It can do nothing with the money without Congressional authorization. So the idea that the USPTO is trying to maximize its income is just ludicrous, to say the least, and is clearly NOT borne out by reality.

-Bob

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