State of Innovation

Patents and Innovation Economics

Real Patent Reform

The present proposal for patent reform, will do nothing to increase innovation, and is built on a foundation of sand.  Pat Choate’s article, Patent Reform is ‘Anything’ But completely debunks the present patent reform proposals.  So what would real patent reform look like?  Here is my list of ten real reforms that will increase innovation and spur economic growth.

1. Double the Funding of the PTO

The absurd length of time and outrageous cost necessary to obtain title (a patent) to one’s invention is a national disgrace.  If it took this amount of time and cost to obtain title to real property, we would assume you were discussing some corrupt third world country.  The major goal for the USPTO should be an average time to a first office action of six months and average pendency of 1.5 years.  Doubling the USPTO’s budget would be a good start.  I suggest the funding be pulled from transportation projects.  This would be a drop in the bucket for the pork laden transportation federal budget.  An aggressively funded patent office results in real innovation and real increases in per capita income.

2.  Regional Offices for the USPTO

The USPTO is located in Arlington Virginia, next to Washington D.C., where the cost of living is expensive and the 9000 government employees have little significance to the state of Virginia.  By having USPTO west in Denver, Portland, Seattle, Austin, Minneapolis, etc. or some combination thereof, examiner retention rates are likely to significantly increase, since the cost of living is lower.  The pool of qualified, English speaking applicants for patent examiners would increase, since the USPTO has admitted they have a hard time keeping examiners who are not from the northeast.

The USPTO mission is about promoting technology and it makes sense that the USPTO should be located near the centers of technology, not the center of political power.  By having the USPTO near great centers of innovation, examiners are more likely to have a better understanding of the underlying technologies they examine.  Locating the USPTO in multiple congressional districts increases the likelihood it will remain fully funded.

3. Repeal the eBay and KSR decisions

The eBay decision denied patent holders their basic right to exclude others from using their invention as a matter of right.  Since the only rights a patent gives the owner is the right to exclude, the courts must enforce this or a patent is as valuable as a blank piece of paper.

The KSR decision overturned 20 years of jurisprudence developing an objective standard of patentability.  KSR’s subjective standard of patentability decreased the value of patents, increased the likelihood of litigation – since no one can objectively tell if a patent is valid, and increased the cost and time associated with obtaining a patent.  The KSR decision is inconsistent with the constitution purpose of patents to promote technological innovation and protect inventors from IP thieves.

4.  Patent Reciprocity

If you drive your car across the border into Canada you do not lose title to your car.  If you take your manuscript across the border into Canada you do not lose the copyright to your manuscript.  But, if you take your invention across the border into Canada, you lose your patent protection and anyone can steal the invention – not the physical embodiment, but the underlying invention.

Patent reciprocity would automatically provide patent rights in a foreign country when you obtained a patent in the US and vice versa.  This idea was first proposed by the US in the mid 1800s according to B. Zorina Kahn’s book “The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920“. Unfortunately, the idea died and since then patent rights have been part of the convoluted process of trade negotiations.

Patent reciprocity would significantly increase the value of patents and increase the value of research and development.  As a result, it would spur investment in innovation.  Reciprocity would increase the valuation of technology start-up companies in all countries that participated.  It would also increase per capita income.

5. Repeal Publication Requirement

The publication rule is a clear violation of the social contract between the inventor and society.  Under the publication rule, society gets the advantage of the disclosure of the invention even if the inventor never receives any property rights in his invention.  Before the publication rule if an inventor felt that the scope of the claims to his invention were too narrow or not allowable, he could withdraw his application and keep his invention a trade secret.  Narrow claims are easy for a competitor to design around providing little protection in exchange for the disclosure of the invention.  In other words if the inventor did not like the deal he was offered from the Patent Office he could reject it and keep his invention a secret.  Even for inventions that can be reverse engineered once the invention is marketed, this is a better deal than the publication rule.  Under the publication rule, it is easy for competitors to find the inventor’s idea on the World Wide Web and copy the invention.  Without publication, a competitor has to spend the time and money to reverse engineer the invention.  This is significantly more costly than reading a patent application that describes the invention in “enough detail that one skilled in the art can practice the invention.”  35 USC 112.  The publication rule is perhaps the most egregious anti-patent change in the patent laws in the history of the US.  It does not promote the useful arts, since it decreases the incentive to file for a patent, which also decreases the diffusion of knowledge by the patent system.  The ability to opt out of publication if the inventor promises not to seek foreign patent rights, does not restore the social contract.

The US should demand the repeal of publication from foreign countries if they want reciprocity under our patent laws.

6. Accelerated Patent Court

A new court similar to the ITC that has expertise in patents and accelerates the patent litigation process is needed.  The court should be sufficiently funded and have procedures that allow patent cases to be resolved in under a year.  Perhaps the court would be limited to issuing injunctions as a remedy as opposed to economic damages.  The goal of this new court is to establish the US as the premier arbiter of patent rights.  The US is the best positioned country to protect patent rights, despite our recent history.  This would increase the US’s standing as a technological leader in the world and draw innovative companies and people to the US.

7. Eliminate Maintenance Fees

Maintenance fees are a backhanded way of introducing a “working requirement” to patents.  Working requirements for patents have been always been rejected in the US.  These fees favor large entities and reduce the effective life of patents.  There are no working requirements or maintenance fees for copyrights.  Why should inventors be treated so poorly in relation to authors?  Copyrights do not require a complicated, overly formalistic application process and last forever.  There is no justification for treating inventors as less worthy of legal protection than authors.

A strong patent system pays for itself several times over in increased tax revenues from increased economic activity.  The supply side returns from a strong patent system probably exceed the return resulting from lowering the capital gains tax.

8. Gene Patents

No patent should issue for claims directed to genes that occur in nature.  However, those created by man clearly deserve patent protection.

9. Reduce Formalism in PTO, Doctrine of Equivalents, Restrictions

The patent system has become overly formalistic.  Restrictions are required for trivial differences that are embodiments of the same inventive idea.  The doctrine of equivalents has been dead for over a decade.  Formalism over logic rules in the realm of inequitable conduct.  USC 101 issues related to software inventions also place form over function that require absurd recitations to computer hardware.  All of these formalistic requirements favor patent thieves at the expense of real innovators.

10. Eliminate the allowance rate as measure of quality

The USPTO tracks individual examiner’s allowance rates.  Low allowance rates are correlated with more rigorous examinations by the patent office.  (see U.S. Department of Commerce Office of Inspector General, “USPTO Should Reassess How Examiner Goals, Performance Appraisal Plans, and The Award System Stimulate and reward Examiner Production”, Final Inspection report No. IPE-15722/September 2004).  As a result, examiners feel a perverse pressure to have a lower allowance rate than their cohorts.  Low allowance rates are the result of arrogant government bureaucrats, who want the patent system to be an elitist system.  This is not in keeping with the history and goals of the US patent system.  This elitist attitude does not spur innovation and retards economic progress.

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May 29, 2009 - Posted by | -How to, -Law, Patents, Uncategorized

5 Comments »

  1. Some years ago the UK Patent Office was moved from central London to Wales (which, as far as I was concerned) was in the middle of nowhere.

    At the time I thought this was a terrible decision but I now realise that it was one of the best administrative decisions I have seen.

    In particular the Central London Patent Office was facing staffing difficulties and I frequently had dealings with temporary staff who had little or no experience of the patent system and who were rarely able to help me. Once the Patent Office moved to Wales I rapidly found that I was dealing with a stable group of highly experienced, extremely knowledgeable and very friendly people who are an absolute pleasure to work with.

    We, in the UK, are truly blessed to have such a group of people to work with.

    Comment by Brian Lucas | May 29, 2009 | Reply

  2. After reading the book, Against Intellectual Monopoly, I’ve become firmly convinced that patents on everything, should be abolished. You can find the book here: http://www.againstmonopoly.org/index.php?perm=995.

    Remember, patents are a privilege not a right. Congress grants the privilege of patents at they deem to be fit. The only thing I ever see with patents is the exercise of the right to eliminate competition. The book includes an unflattering account of how James Watt used patents to stifle innovation. And that was a very compelling account.

    Doubling the budget of the PTO is only a half measure that will avail the rest of little, if anything in the form of relief from patent abuse. We’ll never know how much innovation was stifled or how many people died due to patents on medical inventions. At least not until patents on everything, especially life, are abolished.

    S

    Comment by Scott Dunn | June 1, 2009 | Reply

    • Scott,

      The countries with the strongest patent laws have also had the most innovation. Those countries with weak patent laws or no patent laws have had almost no innovation. The empirical facts do not support your position.

      Demanding that people not steal your property is not inhibiting innovation – it is inhibiting thievery.

      Your comment, “patents are a privilege not a right”, shows a misunderstanding of the word “privilege.” Privileges are civil rights securing property rights, see Adam Mossoff’s excellent article on this subject. Who Cares What Thomas Jefferson Thought About Patents? Reevaluating The Patent “Privilege” In Historical Context (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=892062). According to Mossoff, “In early American history, legal privileges comprised many fundamental rights, such as due process rights, property rights, and even patent rights.”

      Dale B. Halling

      Comment by dbhalling | June 1, 2009 | Reply

  3. >> The countries with the strongest patent laws have also had the most innovation.

    Not because of patents. When you have other attributes, there is enough innovation so that a patent system can afford to leach of it. Most countries without innovation have bad economic and political systems.

    Look at software advancement with very little patent enforcement. OK, software is a bad example because software is already under copyright and should not be patentable.

    Actually, patents in some areas may help (high cost to manufacture, distribute, etc).

    Thoughts are not property except because a law stated that. Laws can be undone. Thoughts are not limited resources. To promote progress, we have to be very careful what expression we restrict and for how long.

    Comment by Jose_X | July 11, 2009 | Reply


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