The plan creates a flood of cases—clogs the courts

“The Waiting is the Hardest Part: Does Longer Patent Pendency Mean More Valuable Patents? “, https://www.mcneillbaur.com/The%20Waiting%20is%20the%20Hardest%20Part.%20Does%20Longer%20Patent%20Pendency%20Mean%20More%20Valuable%20Patents_Michael%20Ellenberger.pdf published 3-2019, accessed 6-11-2024]

The United States Patent and Trademark Office (USPTO) is one of the busiest patent offices in the world, fielding approximately 500,000 newly filed utility applications annually, and receiving more certified mail per day than any other single entity.1 At such a volume, the time from application filing to issuance is long. Owing to a myriad of factors, the average pendency period in the United States is 25.3 months and can be as long as twenty-eight months for “Networks, Multiplexing, Cable, and Security,” a burgeoning and crowded art space.2 Patent pendency is frustrating for the impatient but potentially lethal for the startup.3 A recent report from the UK Intellectual Property Office estimated that the “combined losses from each year of backlog in the U.S. Patent and Trademark Office, Japan Patent Office, and the European Patent Office [combined] costs the global economy over $10 billion a year.”4 While the pendency brings the costs of lost revenue, it does not necessarily impact the quality of the applications across four classifications: market value, signal, impact, and reputational considerations.

Compared with the bifurcated search and examination stages before the European Patent Office (EPO), the USPTO consolidates the two steps into one, increasing complexity and stress on examiners in their limited time and incorporating additional sources of error.5

Research suggests that the time allotted to each examiner per patent, absent the already inherent intellectual rigor of the position, induces examiners to grant invalid patents already “on the margin.”6 Coupled with a backlog of a half million patents still awaiting examination, the incentives for an examiner to rush through an application and render a quick, rather than quality, decision is all too high.7

Moreover, the view that disclosure-for-monopoly rights is the driving force for patent law in the United States is a faulty “simple view” of intellectual property rights, and one wherein “inventors should be loath to disclose any more information than necessary to obtain patent protection.”8 Mere patent protection provides insufficient incentive for a complete disclosure: such an arrangement is too weak to drive the engine of patent law. There must be more.

Undoubtedly, if patents are considered to have “quality” only if they are both (a) valid and (b) litigation-proof, then the USPTO is failing. Patents are continually challenged, overruled, or invalidated before district courts, the Patent Trials and Appeal Board (PTAB), the Federal Circuit, and the Supreme Court. If instead the consideration is broadened as to what it means for a patent to be “high quality”—if the introduction of patent signaling, reputation, or minor, readily implementable tweaks to the Patent Office are allowed to hold worth— then the situation looks far from disastrous.

Part I of this note will look at the Patent Office’s function and the factors that feed into pendency: application backlog, examiner incentives, and rate of application. Part II will investigate the value-quality-worth dynamics of patents, and how pendency, while depriving applicants of raw financial gain, may not inhibit a patent’s value. In doing so, Part II will further develop a new multifaceted model for patent value. Finally, Part III will consider potential improvements to the patent system in the United States, improvements that will decrease patent pendency without harming patent value when considering the new paradigm proposed in Part II.

I. PATENT OFFICE FUNCTION

A. Pendency

The lack of expedited service at the USPTO is largely due to the substantial number of patents previously filed but not yet examined, a backlog further exacerbated by the uptick in filings in the 21st century.9 The USPTO handled 629,647 applications in 2015—including utility (589,410), design (39,097), and plant (1,140) patent applications.10 325,979 patents were granted.11 According to the Patent Office’s 2016 Performance and

Accountability Report (PAR), patent applications on average received a first action within 16.2 months of filing and remained in the Patent Office 25.3 months.12 While the total pendency measure is within the USPTO fiscal year 2016 target, the time to first action—the period it takes an examiner to determine faults or deficiencies in the filed application—is slower than the USPTO’s published target of 14.8 months.13

That’s not to say change hasn’t come. At the start of the Obama Administration in 2009, the USPTO backlog of unexamined patent applications was about 750,000.14 Driven by USPTO protocol and an increased awareness of such slog, backlog was cut by over 200,000 in the 2016 fiscal year, a 28% decrease in spite of an annual increase in filings of almost 4%.15 Along with shortening the backlog, the USPTO has continually chipped away at pendency, cutting the figure from 25.9 months in January 2009 to 16.2 months in September 2016.16 All of this, says the USPTO, “means that deserving patented technology can reach consumers at home and around the world sooner than they would have in the past, further driving innovation and economic growth.” 17

B. International Patent Office Comparisons

The pendency period before the USPTO is on par with its four peer offices in other countries, collectively comprising the five largest patent offices (IP5): USPTO, Japanese Patent Office, Korea Patent Office, Chinese Patent Office, and European Patent Office (EPO).18 In its 2016 Annual Report, the EPO disclosed that:

For examination, the objective is to progressively reduce the total time for an examination procedure, from receipt of a request for examination to the announcement of the intention to grant a patent under Rule 71(3) EPC, to 12 months on average by 2020. As a first step, median examination pendency has been reduced to 23.3 months.19

Pendency is coming down across the globe. The other countries in the IP5 have similar or longer waits (2.8 years in Korea, 2.9 in China, 5.3 in Japan), but none of the IP5 countries are within striking distance of the one year goal of the EPO.20 By global standards, however, the offices of the IP5 comprise five of the seven fastest global offices to decision—a far cry from the ten and 10.1 years of pendency in Thailand and Brazil, respectively.21

And, while the EPO is quicker to issuance than the USPTO, much of the disparity is covered in the EPO’s production of a search report, which advises potential applicants on the patentability and the technological landscape of their application. The search report takes time to produce, certainly, but heads off many potential fruitless prosecutions.22 Thus, when the EPO patent prosecution timeline is adjusted to account for the lapse between publication of the search report and subsequent examination, “EPO pendency is actually very similar, at least with respect to recent patents, to the USPTO pendency.” 23

The published search report may be an effective tool for the United States to counter long pendency. Before the EPO, the publication discourages investors who have potentially invalid or insignificant inventions from filing applications frivolously and demanding an examiner’s time that could go towards examining a more valid patent.24

And despite the pendency time coming down compared to a decade ago, studies by the National Bureau of Economic Research found that “the pressure to make decisions too quickly may be one reason the patent office grants ‘bad’ patents—approving weak applications that never should’ve been granted in the first place— that allow patent trolls to thrive.” 25 The differences don’t end there. Indeed, the rate of opposition at the EPO is “more than thirty times higher” than the rate of reexamination domestically.26 Before the EPO, judicial challenges lead to revocations of the patent or restriction of the patent right in roughly 35% and 33% of the cases, respectively.27 In the U.S., “re-examination results in a cancellation of the patent right in only 10 percent of all cases.” 28 Since the passage of the America Invents Act, patent pendency and patent rules have changed considerably in both jurisdictions, and the U.S. reexamination procedure has been significantly amended. Still, the idea that stronger patents result from more rigorous (and lengthier) prosecution assignments is still not well-defined.

C. The Cost of Delay

Patents are hardly the only way innovators can protect their investments, but they are one of the most prevalent. As will be explored, patent pendency hurts innovators but may have further ramifications to noninventive society. As patent backlogs continue to linger at major worldwide patent offices, the stress of pending applications may force an examiner’s hand into issuing suboptimal patents, which further reverberates throughout the patent world. As such, pendency can reciprocally harm patent offices in reputation and revenue.