In a preview of what Chief Judge Paul Michel of the Federal Circuit plans to focus his energy on after he retires from the Federal Circuit at the end of the month, he recently addressed examiners at the USPTO. His address should serve as a dire warning to the country. The following is a summary of the points of his speech. The complete speech is available here.
American economic security is threatened because our jobs, talent, technology, and production have been leaving this country for places like China and India. We cannot compete on the cost of labor, but previously we have taken the lead in research and development. Now, that leadership is waning.
Research and development requires money and investment. Public finance is largely unavailable due to fiscal mismanagement over the last decade. Given the huge fiscal deficits facing the country, it is unrealistic to hope for large government investment. Therefore, we must turn to private investment.
How does one get venture capitalists and other investors to provide cash and capital necessary to sustain new R&D endeavors? By providing such investors with a reasonable return on their investment in the form of profits. In general, a newly formed entity engaging in R&D has only a single asset: its intellectual property. Thus, “[t]he answer is faster, sounder, and clearer patents.”
Patents were important during technological advances in the 1800’s and during several other instances in our country’s history: before and during World War I, after World War II, and during the information processing revolution of the 1990’s. This was the last time the US had a balanced budget.
What is wrong with the patent system? The PTO has suffered through at least a decade or two of neglect and underfunding. Although many new innovative products have short life cycles, many patents take 4-6 years or more to make it through the PTO. The 18 month publication requirement makes this even more problematic as competitors, including foreign competitors, can copy the invention with impunity until many years later when the patent issues. By that time, the product cycle may be over, rendering the patent useless.
Several PTO problems on the funding front include a 30-year old computer system and too few experienced examiners. The average experience level of the 6,000 PTO examiners is about 3 years. It takes that long for new examiners to become competent and efficient. Before that, many allow claims they should not allow and reject claims they should not reject. This simply adds to the delay for legitimate inventions and permits issuance of more bad patents. After about three years, many examiners are hired by the private sector, whether law firms or elsewhere, and make substantially more money than they make at the PTO.
There is too much public and congressional inaction on this problem. The PTO needs a large influx of cash to update its computer system, hire more examiners, and increase the salaries of more experienced examiners to prevent them from leaving the PTO.
Congress should immediately allocate $1 billion to the PTO that could be used to fix these problems. Since 1992, Congress has diverted over $900 million in patent fees to other uses. This fiscal year, the PTO expects to collect $150-250 million more than its projections last October. This money will also be diverted back to the general coffers. Fee diversion needs to be ended permanently. New Director David Kappos is doing a great job with many new initiatives, but without this influx of money, it will be difficult for him to make a significant difference.
Other ways the PTO could improve operations include opening satellite offices, raising examiner pay levels by taking them off the General Schedule, and providing the PTO the authority to conduct deferred examination which will direct PTO resources towards examining applications where the invention clearly warrants it. Most of these changes require congressional action that seems to be lacking.
If we don’t act quickly on these matters, we risk losing our status as a technological leader.
It should come as no surprise that I think Judge Michel is right on with this speech. Bad patents have gotten a lot more play in the national media than the current state of affairs in the PTO and the patent system regarding good, legitimate inventions that need protection. There is also the anti-patent lobby (such as those challenging the Myriad patents) that argues, without much support, that patents are unnecessary to incentivize investment in R&D. All patents do is block competitors from using the technology. Common sense tells you that without a legitimate return, investors won’t invest in new technologies or R&D. The judge’s suggestions are badly needed.
As far as a bailout for the PTO, given Congress’s theft of PTO fees through fee diversion, I wouldn’t consider it a bailout, but simply a return of the money previously stolen. This would go a long way toward fixing the state of the PTO.