Backlong impedes innovation

We find evidence that the PTO is indeed overgranting patents during times in which the Agency lacks sufficient resources to meet its expected demand for examination. Moreover, our findings suggest that the PTO is preferentially granting those patents it stands to benefit the most from—those in high-continuation-filing-rate technologies, such as information and communication technologies, which include software, business methods, and information stor- age, and health-related technologies, which include surgical and medical in- struments and genetics. What are we to make of the evidence that the PTO is granting patents in an effort to diminish repeat filings? On the one hand it suggests that policymakers are generally correct in suggesting that the Agency allows too many bad pa- tents. Importantly, however, it also suggests that policymakers have been bark- ing up the wrong tree. By ignoring the important role that repeat filings play in influencing PTO decisionmaking, legal scholarship has overlooked a substantial source of Agency bias. As a result, the recent “fixes” to the patent system to improve patent quality fail to address the substantial overgranting bias identi- fied in this Article.11 Additionally, and equally as worrisome, policymakers have also failed to appreciate that the PTO may not just be biased toward al- lowing patents in general but also be biased toward allowing particular types of patents. Accordingly, recognition of the harms from the granting of bad patents has been underinclusive. To the extent that the PTO is extending preferential treatment to technologies based on backlog incentives and not based on legiti- mate social interests in intervening in certain industries, the Agency may also be undesirably distorting the allocation of resources across different sectors of the economy. That is, because the PTO is preferentially granting patents in high-continuation-rate technologies, such as information and communication and health-related technologies, society may be overinvesting resources in these technological fields. The rest of the Article is organized as follows. Part I briefly describes the primary complaint that scholars and stakeholders have registered against the patent system: the PTO issues too many bad patents. This Part also describes how the literature to date has failed to produce any persuasive empirical evi- dence demonstrating that the Agency is in fact biased toward allowing patents. Part II theorizes the PTO’s possible incentive to grant patents, introducing a model of agency behavior under resource constraints that predicts that the PTO will act on the incentive to grant additional patents when it faces binding re- source constraints—that is, when the Agency cannot meet its expected exami- nation demand through available resources. Part III refines this model of agen- cy behavior by examining how the PTO’s incentive to grant additional patents to curtail repeat filings likely varies across patent types. Part III culminates with the delineation of several testable hypotheses that will guide our empirical analysis. Part IV describes the dataset and the methodology employed to test our hypotheses. The results of our empirical analysis are presented in Part V. In Part VI, we explore the mechanisms of action that may underlie our primary results. Finally, Part VII evaluates the implications of our results and assesses potential methods to reduce the PTO’s tendency toward issuing patents. I. HARMS FROM PTO OVERGRANTING AND INSUFFICIENCY OF EVIDENCE A. Overgranting Explanations and Harms There is near-universal agreement that the U.S. patent system suffers from rampant shortcomings and failures.12 Many believe the root cause of the sys- tem’s malfunction is that the PTO grants too many invalid patents.13 The PTO’s perceived penchant for issuing invalid patents has been at- tributed to a multitude of causes. Some contend that the Agency suffers from poor management, while others argue it is hamstrung by the strength of its pa- tent examiner union. Both have been blamed for the structure of the PTO’s ex- aminer compensation system, which favors patent grants over denials.14 Others have argued that the PTO’s dearth of resources precludes it from spending suf- ficient time inspecting patent applications.15 Still others contend the Agency’s lack of expertise, especially in emerging fields of science, is the root cause of its overgranting proclivities.16 Finally, some have assigned responsibility to the Agency’s culture, noting that the PTO once famously asserted that its “primary mission” is “to help customers get patents.”17 Irrespective of the exact cause, invalidly issued patents—that is, patents that are granted even though the invention fails to meet the patentability re- quirements—impose significant costs on society. Such patents can be utilized by nonpracticing entities or patent trolls to opportunistically extract licensing fees from innovators;18 they can also impede competitors seeking to enter markets19 and stunt further innovation.20 Erroneously issued patents can inhibit the ability of start-ups to obtain venture capital, especially if a dominant player in the market holds the patent in question.21 Finally, such patents can also com- promise business relations for market entrants, as customers may be deterred from transacting with a company out of fear of a contributory patent infringe- ment suit.22 More generally, invalid patents can result in supracompetitive pricing and diminished quantity. While society may accept such consequences for a proper- ly issued patent, an invalid patent imposes these costs upon society without providing the commensurate benefits.23 That is, a PTO that is applying the pa- tentability standards in a patent-protective manner is likely to be routinely granting patents on inventions that either were already known or represent only a trivial advancement over existing scientific knowledge.24 As a result, a grant-biased PTO is likely to systematically issue patents that fail to provide any in- novation benefit.25