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Patent Reform 101

An Inefficient System Slows the Innovation Economy

blueprint of complex machine SOURCE: iStockphoto Inventions are being created at an ever-increasing pace and have grown increasingly complex, but the rules governing patents have not seen substantial change in decades. As a result, the system is bogged down, hampering investment and job creation. Here’s how to fix things.

Patent System Basics

Patents are issued in the United States by the U.S. Patent and Trademark Office, a part of the Commerce Department, and by similar offices in other countries around the world. They assure inventors a period of time, generally 20 years, to exclude others from using their invention unless those others pay a royalty or work out another arrangement.

Investors are more likely to put capital into new work and novel ideas—and so stimulate the inventive process and the economy—if there is some assurance that others will not be able to freely profit from that work and ingenuity. At the same time, patents foster innovation by those who have been excluded from the initial invention. That’s because inventors, in return for their assurance of exclusivity, must provide a full explication of their creation. That provides a publicly accessible knowledge platform upon which others can make improvements.

To quote the Supreme Court, a patent may be granted for “anything under the sun that is made by the hand of man,” provided that the invention fulfills the three basic requirements of being novel, useful, and non-obvious. Among the immense variety of inventions that have been patented are new materials or devices; methods for making those materials or devices; novel life forms created through the manipulation DNA; mathematical algorithms used to analyze data, organize information, or predict human behavior.

Problems With the Current System

America’s scientific and engineering enterprises are proven engines of innovation and long-term economic growth. The current economic downturn and the prospect of a long and deep U.S. recession demand a reinvigoration of that sector. But private-sector investment in science and technology—and the jobs that can come from those investments—will be limited if the patent system is not working well.

It has been 50 years since Congress made substantive updates to patent law, and more than 30 years since the Patent Office, referred to as the PTO, thoroughly updated its rules governing the examination of patent applications. Meanwhile, inventions are being created at an ever increasing pace and have grown increasingly complex. As a result, the patent system has become bogged down. Among the major problems today:

Backlog: The PTO has a backlog of about 1 million patent applications, and it takes, on average, almost 33 months for a patent application to get approved or rejected. For fast-moving technologies in sectors like communications, that time is 44 months. The resulting uncertainty about which inventions will ultimately be protected and which will not inhibits innovation and investment in new products, since those new products risk eventually being found to infringe on a patent the PTO eventually issues for an older invention.

Patent Quality: Patent examiners are working under old rules and with outdated information technology systems that greatly limit the time and resources they have to review applications. This workload, along with salaries that are not competitive with private-sector jobs requiring similar skills, drives examiners away after an average of three years, the amount of time it takes to become a proficient examiner. These and other administrative and budgetary problems within the PTO have led to a widely perceived decline in the quality of the patents allowed by the office. Adding to the patent-quality problem are overreaching patent applicants who seek to take advantage of the strained system by claiming a larger array of uses for their invention than they have actually proven. That in turn triggers more challenges, including expensive and time-consuming court cases, which inject even more uncertainty into the patent landscape while they get resolved.

Patent “Trolls”: The patent system was created by the nation’s founding fathers not so much to protect individual ownership rights but to foster investment and technological advancement. Some individuals and companies, however, have opted to use the system for a different purpose: They acquire the rights to certain inventions that are crucial for the proper operation of other, larger inventions,, then essentially hold that intellectual property for ransom to be paid by those who need it. These so-called trolls typically do not make any product and, rather than inspiring innovation, tend to have a chilling effect. For a full discussion of the troll issue and how to resolve it, see Daniel P. McCurdy’s article, “Patent Trolls Erode the Foundation of the U.S. Patent System.”

How to Fix the System

The first step is for President-elect Obama to select a PTO director with great organizational skills who is committed to instituting reforms, including changes that would direct greater resources to examiners; increase transparency and communication with applicants; and make fuller use of modern capabilities to share workloads internationally.

Some needed changes can only be accomplished with legislation. Congress could not reach consensus on patent reform in 2008 and will try again in 2009. Among the elements that the Center for American Progress believes are important to address are the formulas by which damages are awarded in patent infringement suits; the rules that govern applicants’ responsibility to tell the patent office everything they know about previous inventions similar to their own; and the need to harmonize certain aspects of the U.S. system with others around the world. For a full discussion of CAP’s recommendations, see Rick Weiss’s article, “Tackling the Challenge of Patent Reform.” Some specifics include:

Budget Control: PTO supports itself entirely through fees collected for patent applications, but Congress has diverted hundreds of millions of dollars away from the office for other government expenses. The office must have more control over its budget and expenses in order to upgrade information technology and make other internal improvements.

Hire and Retain the Best Staff: Better control over its own budget would allow PTO to pay examiners more and reduce their burdensome workload. Some 70 percent of examiners recently told the Government Accountability Office that they had worked unpaid overtime in the past year to meet the extraordinary goals set for reviewing applications. At the same time, the metrics of examiner success must be updated to ensure quality.

Improve Communication with Stakeholders: PTO should seek from stakeholders early and extensive input on rules packages, and provide public access to economic data and guidance on important court decisions, among other reforms.

Improve Information Available to Examiners: The first priority is an upgrade for the office’s information systems. PTO should also avail itself of third-party experts, like those who have participated in experimental systems that allow outsiders to comment on applications and provide information to examiners.

Reduce the Time It Takes to Secure a Patent: The above reforms can all help speed the process and reduce the current backlog, but other measures can further reduce the time between filing and the awarding (or rejection) of a patent. Worksharing among international patent authorities could reduce the enormous redundancies that now occur as multiple offices around the world review the same patent applications in their respective countries. Also, allowing applicants with multiple patents under review to rank their applications in order of importance would also let examiners prioritize work. For more recommendations on how to improve the efficiency of the PTO, see the article by Gerald J. Mossinghoff and Stephen G. Kunin, “Improving the Effectiveness of the U.S. Patent and Trademark Office.” For an in-depth discussion of the international patent system, see Bruce A. Lehman’s article, “Global Patent Protection.”

First to File: The United States is the only country in the world that operates under a “first-to-invent” system. This rewards a person who, after another has filed a patent claim, provides evidence for having created that invention earlier. Although the current U.S. system has some advantages, harmonization with the rest of the world—along with other reforms that would lessen the impact of such a change—would improve the predictability of the system and reduce controversy around patents filed elsewhere around the world.

Reforms for Innovators: Patent applicants have responsibilities for making the system work better as well. Sobered by the economic challenges now facing the nation, cognizant of the tolls imposed by deficient-quality patents, and perhaps encouraged by the clarification of PTO guidelines we hope soon to see, patent applicants can and should do their share by recommitting themselves to the highest and fairest standards as they craft their claims and defend their intellectual property.

Courts: Finally, the courts will continue to weigh in on important issues of patent law. It is to be hoped that they will tread fairly but assertively into the legal frontier that remains unaddressed by the PTO and the Congress.

To learn more, read the reports from the Center for American Progress/Science Progress task force on patent reform:

Tackling the Challenge of Patent Reform (.pdf)
Recommendations for the Obama administration and Congress
By Rick Weiss

Improving the Effectiveness of the U.S. Patent and Trademark Office (.pdf)
By Gerald J. Mossinghoff and Stephen G. Kunin

Patent Trolls Erode the Foundations of the U.S. Patent System (.pdf)
By Daniel P. McCurdy

Global Patent Protection (.pdf)
The International Patent System and the New Administration
By Bruce A. Lehman

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