The passage last week of sweeping patent reforms may have finally given American businesses and innovators the boost they need to stay competitive in a global economy. But analysts and observers, including a former Under Secretary of Commerce, say it will take a lot more than the America Invents Act of 2011 to ensure the U.S. Patent and Trademark Office (USPTO) can become a facilitator of growth in a stalled economy.
The Senate on Sept. 8 passed the America Invents Act by an overwhelming 89-9 vote, ushering in an era of patent reform that American businesses have been urging for the better part of the past decade.
Central to the new legislation, which President Barack Obama is expected to sign into law within the next week or so, is a move from a “first-to-invent” system of granting patents to a “first-to-file” system favored by most other industrialized nations. The bill would also establish a post-grant review process that would streamline and strengthen the process of re-examining bad patents.
“One consistent motivator [behind these reforms] has been harmonization with the rest of the world,” said Janelle Waack, an attorney specializing in intellectual property law at Novak Druce + Quigg in Houston. “Throughout most of the world, it’s a race to the mailbox – who’s the first one to file the patent application.”
Industry’s View: Short-Sighted?
Some of America’s leading corporations lobbied hard for the reforms and were quick to praise the Senate action on the bill. Only days before the Senate approved the bill, Microsoft Corp. vice president and general counsel Horacio Gutierrez urged lawmakers to pass the reforms, arguing that the bill would “ensure that innovators in our troubled economy can benefit from a predictable and rational patent system, with new tools to eliminate patents that should not have been issued and to speed the processing of patents that should be issued.”
Technology giant IBM, the largest filer of patents in the last 18 years, said in a statement that the legislation “puts our patent system in a much better position to spur innovation and economic growth in the 21stcentury” and would “improve the efficiency of the U.S. Patent and Trademark Office.”
It also represents a victory for Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos.
Not so fast, said Bruce Lehman, who held Kappos’ position during the Clinton administration.
According to Lehman, although the bill is a positive step in the right direction, there is the very real possibility that the USPTO could remain a hostage of the current political dysfunction in Congress.
The patent office continues to be underfunded and understaffed, which is perhaps the most important key to getting good patents issued in a timely manner to protect innovation appropriately and generate jobs.”
While the bill grants the USPTO more leverage in setting fees for patent applications – a key provision to ensure the agency has enough resources to tackle the 700,000+ backlog in applications and modernize a woefully inadequate IT infrastructure – the authority to use those funds as it deems appropriate without the permission of Congress was stripped from the legislation at the behest of House Budget Committee Chairman Rep. Paul Ryan (R-WI) and Appropriations Committee Chairman Hal Rogers (R-KY).
“The legislation permits the USPTO director to set the fees, but not automatically spend the money,” said Lehman. “Basically [Ryan and Rogers] didn’t want the power taken away from them to control a government agency through the appropriations process,” said Lehman. “The Senate was forced to accept the House bill, which stripped out the use of revolving funds.”
Shackled By Congress?
USPTO’s fees are set to recoup the costs of its operations. But in years past, Congress has simply denied the agency access to fees it collected, sending those funds directly to the U.S. Treasury, using them for other pet projects, and ultimately denying USPTO the ability to make capital investments to improve its operations.
The America Invents Act establishes a separate USPTO account for fees, and gives Congress the authority to release those funds to the agency, a step Congress has already taken for the current fiscal year. Lehman called the action “cosmetic” and said the USPTO should be given direct access to the roughly $800 million of unspent money.
A government official close to the negotiations acknowledged that the biggest plus in the legislation as far as the USPTO is concerned is that it would “prevent USPTO funds from going to other government programs.” The official, who spoke to Breaking Gov on condition of anonymity, added that while the USPTO “doesn’t receive a dime of taxpayer dollars, the agency every year still has to go through the appropriations process,” during which it provides Congress an estimate of the dollar amount in fees it expects to collect. But if spending goes over that amount, there is no money available to cover those operations.
Over the course of the past ten years, estimates put the shortfall at about $85 million to $100 million, the official said.
“The good part of the legislation is that is has persuaded the administration and congress to accept a fee surcharge, which will produce an immediate additional revenue source for capital improvements,” said Lehman. The 15% surcharge would be temporary and would terminate once the USPTO exercised its rights to set or adjust patent fees.
But if Congress doesn’t pass an appropriations bill by Sept. 30 or passes a continuing resolution that does not adequately fund the USPTO then all of the potential efficiencies the agency could gain through the reforms could be at risk.
According to Lehman, the ramifications of Congressional inaction on the budget could be worse. “If the surcharge goes into effect, patent filers will be taxed to just put money into the general treasury so that [members of Congress can] have a slush fund to do whatever they want with, like build a bridge to nowhere,” said Lehman.
Waack agrees. “Even though the patent office was given the ability to set its own fees and raise more money, the legislation is not going to eliminate fee diversion,” she said.
Long Road Ahead
The government official who spoke to Breaking Gov said the USPTO expects a 4% increase this year in the number of patent applications it will have to process. And that could spell trouble for an agency that has been hobbled by a budget-driven hiring freeze, little to no investments in IT modernization, and a system so backlogged that it takes an average of three years for a decision to be made on a patent application.
“The USPTO hasn’t had enough resources to review these applications appropriately and has an IT system that is not nearly as modern and efficient as it should be to handle the volume and complexity of the work,” the official said.
USPTO currently employs more than 8,900 employees-including engineers, scientists, attorneys, analysts, and computer specialists. It processed about 500,000 patent applications in 2010 and more than 350,000 trademark applications. And although the agency has digitized its patent application process, the actual IT infrastructure supporting that process leaves a lot to be desired, said Lehman.
“It’s really stuck in a 20-year old technology infrastructure that does not even remotely enable it to take advantage of modern information technology,” said Lehman.
“The electronic filing system is based on a European system that dates from the early 1990s. It’s basically a PDF-based system. You can’t get the full advantages of electronic filing because it is not based on XML-tagging, so you can’t manipulate the data. It’s like getting a paper file,” he said.
Bill Ramey, also an attorney at Novak Druce + Quigg in Houston, said the new legislation would likely improve some workforce issues at the USPTO. In particular, he said the agency would be able to increase administrative law judges to run the new patent trial and appeal board.
But Lehman is less optimistic of the near-term impact. “They’re in a hole right now,” he said, referring to the USPTO’s workforce. “It takes a long time for new people to have an effect. Three years is the rule of thumb from the time an examiner is hired before they can be effective on their own.”
“The jury will be out for a while as to whether the bill is successful,” said Michael Powell, a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC in Atlanta. “The patent office continues to be underfunded and understaffed, which is perhaps the most important key to getting good patents issued in a timely manner to protect innovation appropriately and generate jobs.”