Wealth of Ideas Newsletter, October 2010

On September 9, David Kappos held a teleconference with the media to discuss some of the strides the agency has made during his first year as Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office (USPTO). Things are changing for the better – slowly but surely.

This month, we’ll take a look at some of the items on the USPTO agenda for next year: The proposed “Three-Tracks” or “Three-Tier” patent examination model, the response to the Green Technology Pilot Program, and the battle over fee diversion and fee setting at the USPTO.

Change Aplenty at the Patent Office

No segment of our economy is more resistant to change than government. So when David Kappos arrived at the USPTO from a career at IBM, he knew he had to hit the ground running. He wasted no time getting new programs underway. Director Kappos and Robert Stoll, the new Commissioner for Patents, and their management team have been busy.

Proposed Three-Tier Patent Examination System

Kappos took the opportunity during the September conference call to talk about the much-discussed “Three-Tracks” or “Three-Tier” patent examination model. As Kappos described the three-tier system, the tracks would be:
1. Track One: Fast Track – An accelerated examination procedure aimed at having a first Office Action within four months of filing, with final disposition (either patent allowance or a Final Rejection) in no more than a year.
2. Track Two: Status Quo – Track two would represent the examination system as it currently stands.
3. Track Three: Slow Road – Selecting this track would allow an applicant to defer examination on their patent application for up to 30 months from the earliest priority date. This option would be attractive to a variety of entities, according to Kappos – “small entities, large entities, pharma, information technology, and everybody in between” – that wish to defer examination as a cost control measure.

Opting for the first option would come with increased fees, and the fees would likely be reduced for smaller entities or “microentities” (individual inventors). A bill introduced in the House of Representatives in May – the ‘‘Patent and Trademark Office Funding Stabilization Act of 2010’’ (H.R. 5322) – would grant fee-setting authority to the Patent Office. To charge a premium for accelerated examination, the USPTO would need Congressional authority which it does not now have.

Alexander Poltorak, Chairman and CEO of General Patent Corporation, and founder and President of American Innovators for Patent Reform (AIPR), said in a news release, "AIPR is generally in favor of the Three-Tracks proposal. However, just as a one-size-fits-all patent application process no longer addresses the needs of all patent applicants, a one-size-fits-all patent does not meet the needs of the complexities of the innovations of the Third Millennium.”

AIPR’s Executive Director, Alec Schibanoff, testified at a public hearing on the Three-Tracks Proposal in July, detailing the group’s generally favorable view of the proposal, and making specific recommendations to further improve the concept.

Dr. Poltorak and AIPR propose a slightly different sort of multi-tier patent system. In an op-ed he penned for the Washington Times, “Patent Reform Misses the Mark” (May 2010), Dr. Poltorak suggests that the U.S. follow the lead of other countries with existing multi-tier patent systems and offer inventors two additional types of patents:
1. “Senior” patent – a patent whose application is subjected to greater scrutiny, but awarded greater rights and a longer term.
2. “Junior” or “Petit” patent – a patent on a minor improvement to an existing invention; a “junior” patent application could be subjected to a faster examination and would come with a shorter term.

“With about 70 percent of patents awarded to minor improvements, which may qualify for junior-patent status, and 10 percent of inventions qualifying for senior-patent status,” Dr. Poltorak wrote, “only the remaining 20 percent of applications would be considered for a regular patent award – where most ambiguity occurs. Thus, this solution, albeit imperfect, would reduce the obviousness problem by a whopping 80 percent. That means it would improve patent quality by 80 percent (by reducing the ambiguity in issued patents).”

Green Technology Pilot Program

As with most innovations, the USPTO’s Green Technology Pilot Program came with its own learning curve. The USPTO launched the program in December 2009, capping at 3,000 the number of existing patent applications that could be submitted for the program. Filers of patents that qualified for the program could request accelerated status – the purpose being to speed up the issuance of “green” patents, bringing new environmentally-friendly technologies to market and thus encouraging a flurry of activity in the environmental sector.

After its first six months, the program saw modest success. Only 950 applications had been submitted as of May 2010. Perhaps the program had been too narrow? In late May, the Patent Office broadened the Green Technology program to include patents that fall under four general categories:
• Renewable energy
• Technology to improve environmental quality
• Energy conservation technology
• Greenhouse gas reduction technology

This change did have some impact on the program. But although the usual $130 petition fee was waived, as of August 2010 a total of only 1,477 requests had come in for accelerated status. Why the tepid response? It may be due to inadequate publicity, or perhaps the most innovative companies are startups that cannot afford the increased expenses associated with accelerated patent prosecution.

Whatever the reason for the program’s slow start, the USPTO is still “pleased with the pilot program, would like to see more participation and is considering whether to extend it another year,” according to the USPTO’s Director of Public Affairs, Jennifer Rankin Byrne.

Some inventors and businesses did benefit from the program – especially those in the areas of wind power, fuel cells, standby power in electronics and mobile water purification systems. These filers were pleased to see the examination process cut from the average of three years to just under one year. So with some success under its belt, the USPTO’s challenge is to find more participants for the Green Technology Pilot Program.

Funding and Fee Diversion

In the course of his conference call last month, Kappos informed his audience that the USPTO expects to collect between $146 and $242 million more in fees than was appropriated to the Office – and, he added, the final number is likely to be more toward the high end of the estimate. On August 10, President Obama signed into law P.L. 111-224 giving the USPTO the authority to spend an additional $129 million of the fees it collected in Fiscal 2010 that ended September 30. So why is fee diversion – the practice of Congress grabbing Patent Office fees for other uses – still an issue if the USPTO theoretically has all the money it needs to operate and then some?

The problem is the backlog of patent applications. As of June 2010, there were approximately 750,000 pending patent applications clogging up the Patent Office. Since the USPTO currently issues about 180,000 patents a year, that is a three-year-plus backlog! Director Kappos would like to address that backlog by hiring more examiners and making IT infrastructure improvements. And the Patent Office can pay for new patent examiners and make infrastructure improvements without using any taxpayer dollars if it is allowed to keep all the fees it collects.

2011 and Beyond

The Patent Office has definitely made some progress in the right direction in 2010, but it is still an organization that will not serve the needs of its constituency as well as it could until it substantially reduces the patent application log jam. Getting patents issued more quickly – without sacrificing patent quality – will help inventors, American businesses, Americans looking for work, consumers, and America’s overall global competitiveness.