Patent Law

Going Bankrupt?

By Gary Odom and Jordan Kuhn

A patent is a piece of intellectual property, a mortgage granted by the patent bank, the USPTO. The patent bank has failed, owing to managerial ineptitude. Will mismanagement hurtle it towards fiscal dilemma and further alienation of its mortgage holders, or will it turn the corner, back to a more historical norm?

Over the past few decades, the PTO has allowed 60% to 70% of the applications filed. Then Jon Dudas, a political creature, became Director in 2002. Responding to corporate pressure, Dudas caved over carping about so-called "junk" patents, and the allowance rate plummeted. The agency clamped down beyond all reason in denying patent grants. Though Dudas has left the building, that continues.

Attrition was terrible. Though they tried, Dudas's crew couldn't hire and retain enough examiners, because the work environment was so poor. Pendency burgeoned.

To counter the pendency spiral, Dudas adopted a strategy of offloading examiner work by foisting it on applicants. In came rules to limit continuations (78), limit RCEs (114), and limit claims unless the applicant thoroughly self-examines the patent application, including an extensive search of the prior art (75 and 265).

Applicants fought back. And won. Then lost. The district court ruled the rules substantial, beyond the scope of PTO purview. But the appeals court late last week, 2-1, rather insanely relegated the rules as merely procedural, and remanded back to district court for further analysis. The Office has announced "[t]he Final Rules will not be implemented at this time."

The turmoil is taking its toll, as is the economic downturn. The Office has projected a 5% increase in applications for 2009, but applications are down, 2%-%5, depending on whose numbers you believe.

The PTO has stopped hiring examiners. Rumor has it that the Office will close its training center, the Patent Academy, by the end of the year.

The trend is ominous. The patent office largely (70%) finances itself, not with application fees, but maintenance fees, which are due at 3.5, 7.5, and 11.5 years, ascending in cost as the patent ages. For individual inventors, the maintenance fees are presently $490 (3.5), $1,240 (7.5) and $2,055 (11.5). For "large entities," i.e., most companies, the fees are $980, $2,480 and $4,110 respectively. Many patent holders abandon their patents over the maintenance fees, especially 11.5-year fee, the patent having yielded nothing for its costs.

There are a lot of 'ifs' in play. The biggest 'if' is as it always has been: management. More thrashing could mean trashing this country's self-protection of innovation. The consequences of that could be felt for decades, in innumerable opportunities lost.

Full post as published by The Patent Prospector on March 23, 2009 (boomark / email).