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April 01, 2011 (Vol. 31, No. 7)

Watson, the PTO Needs You

Without Transformation of the IT Supporting Patent Examiners, Patent Reform Would Be Fruitless

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    Gerry J. Elman

    The U.S. Senate recently approved the Patent Reform Act of 2011, bill S.23. The words “patent reform” have been on the lips of lobbyists and legislators since 2003. That’s when the FTC issued a white paper proposing a series of changes in the U.S. patent regime. (On March 7, 2011, the agency issued an updated critique.)

    Many of the FTC’s proposals, intended to rebalance the tension between competition and exclusivity, have since been addressed by the courts and are now off the table. Additional proposed changes to our patent system have come at the call of businesses that perceive themselves targets of a dysfunctional process that occasionally awards “junk patents” of dubious validity and yet fails to prevent their owners from unfairly demanding ransom in court. The concerns of such businesses are legitimate.

    Another problem with the patent system arises from the principle that justice delayed is justice denied. A Milwaukee Journal Sentinel article published January 29 by investigative reporter John Schmid was headlined: Patent backlog hinders nation’s job creation.

    Schmid sadly noted that the nation’s economic recovery “is excruciatingly behind schedule.” He wrote: “Many of the missing jobs—hundreds of thousands or possibly millions—are buried under a backlog of 1.2 million unprocessed patent applications that have accumulated over the past 10 years at the U.S. Patent and Trademark Office.”

    Quoting the CEO of a Silicon Valley start-up, Schmid said, “No patent means no funding and no business. Hundreds of thousands of jobs go uncreated each year, all for lack of a patent.”

    On January 21, PTO director David Kappos said publicly that the backlog could ultimately cost the U.S. economy “billions of dollars annually in foregone innovation.” His comment is supported by a white paper issued by the Department of Commerce last April, which candidly admits that: “The current U.S. system is highly prone to delay and uncertainty as well as inconsistent quality.…Delay, uncertainty, and poor quality at the front end ultimately make private investments in innovation less likely and undermine the potential for economic growth and job creation.”

  • Better Examination Process Equals Better Quality

    The April 2010 white paper points to the particular importance of patent quality to biotechnology: “High quality is a feature of patents held by successful, growing companies in industries like the pharmaceutical industry. Moreover, economists have argued that this high quality contributes significantly to making pharmaceutical patents valuable to the industry, even after the costs of defending against patent litigation are taken into account.

    “Similarly, surveys of CEOs and R&D managers have shown that patents are among the most important means for securing competitive advantage from pharmaceutical innovations. The so-called ‘patent premium,’ i.e., the incremental value realized on an invention by patenting it, also tends to be highest for biotechnology, pharmaceutical, and medical device companies. For those companies, a 10% increase in the strength of patent protection available to meritorious patents is associated with a 9% to 10% increase in R&D expenditures, which in turn drives innovation and growth.”

    Unfortunately, to me S.23 seems mostly to rearrange the deck chairs on the Titanic, without plugging the hole in the hull. The only thing in S.23 that might improve the process of examining patent applications would be the provision that allows the PTO to freely raise the level of fees it charges to patent applicants without having to beg Congress, and preventing later diversion of such fees to other purposes.

    Now that the House of Representatives is addressing “patent reform” as well, it seems to be time for us to share a bolder vision of how to use some of that money to strike at the heart of the problem.

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