Congress' Decision to Raid Another $100 Million from the U.S. Patent and Trademark Office Will Cause a 'Catastrophic' Setback for American Innovation, Competitiveness and Job Creation

Patent Office Reforms Derailed

April 25, 2011

Milwaukee Wisconsin Journal Sentinel - Reacting to Congress' decision to raid another $100 million from the U.S. Patent and Trademark Office, the agency's director has thrown the brakes on nearly every one of its planned internal reforms, triggering new warnings that the congressional action will cause a "catastrophic" setback for American innovation, competitiveness and job creation.

"It's a tax imposed on innovators," said Paul Michel, recently retired chief justice of the federal court in Washington, D.C., that handles patent cases.

Because the patent office is structured to be self-supporting by charging fees without costing taxpayers a penny, Congress effectively has helped itself to funds that belong to garage entrepreneurs, start-ups and inventors, Michel said Monday.

"Instead of helping innovators by speeding the patent system, Congress is impeding innovators by taxing their innovations," he said.

As reported in a series of stories in the Journal Sentinel since 2009, the patent office has struggled for years to keep up with the burgeoning number and complexity of patent applications it receives. Crippled by the ongoing series of raids on its fees dating to the early 1990s, it has fallen desperately behind and now has a backlog of more than 1.2 million applications awaiting a final decision - nearly tripled from about 10 years ago.

Patent office director David Kappos, a former IBM executive who was appointed less than two years ago to turn around the agency, late last week sent a memo to his examiners that "reluctantly" details how the latest congressional budget actions will cripple his efforts:

• He indefinitely postponed a pilot program that guarantees fast-track examination of applications within a year to those who pay an additional fee. The program would have gone into effect next week.


• For the second time since he took over, Kappos imposed a hiring freeze at the chronically understaffed agency. Since 2005, the patent office has aimed to hire 1,300 new examiners each year just to chip away at the backlog. But with deficits of nearly $1 million per working day, it hires only sporadically at best.


• The agency suspended all overtime - halting one of the few approaches at its disposal to eat into its backlog - and slashed the training budget for new examiners, who typically need three years to gain competence.


• Plans to open the agency's first satellite office, in Detroit, meant to ease overcrowding at its campus outside Washington, have been "postponed until further notice."


• Upgrades to the agency's antiquated and dysfunctional computer system will be cut to "mission critical" upgrades only.

"We have not come by these decisions easily," Kappos wrote. "I recognize that these measures will place additional burdens on your offices, your staff, and your ability to carry out the agency's mission."

Legislators siphoned the funds as part of the emergency spending bill to avert a shutdown of the federal government this month.

"I see a negative impact on pendency (the length of time required to get a patent) and backlog," said Barry Grossman, a senior patent attorney in Milwaukee at the Foley & Lardner law firm. "The program reductions will not promote technological progress and innovation, nor will they reduce pendency, reduce the backlog or improve quality."

According to a Journal Sentinel analysis, patents awarded by the agency last year took nearly four years from application to issuance, on average - more than twice the agency's benchmark of 18 months.

Because more than a half-million new applications arrive every year - the number rises each year - the office has been unable to catch up. Under a best-case scenario made before the latest congressional raid, Kappos predicted that the agency could reduce its backlog to manageable levels by 2015.

While Beijing invests heavily in China's patent system - now the world's third-biggest, behind the United States and Japan - American innovation activists decry Washington's divestment in the U.S. patent system. The patent system has always been linked to the American dream: The issuance of single patents launched IBM, General Electric and Johnson Controls, not to mention much of Silicon Valley as well as Madison's biotech economy.

"There is no great surprise why we are having a jobless recovery," said Eugene Quinn, a Washington, D.C.-area patent attorney and author of the IPWatchdog.com blog.

Washington's policy-makers appear oblivious to the importance of intellectual property and the historical role that the patent system plays in the nation's economy, Quinn wrote in reaction to the latest diversion.

"The PTO has to throw up its hands and cease trying to make progress, treading water at best, but more likely drowning," Quinn wrote. "Pathetic."

The latest diversion comes as key Senate and House leaders as well as the White House have started to extol the importance of the agency. President Barack Obama and his advisers have vowed to strengthen the nation's innovation economy, and Commerce Secretary Gary Locke used an appearance in Milwaukee this month to tout the fast-track examination system.

Pending legislation called the America Invents Act of 2011 deals largely with patent litigation but also includes a provision to allow the patent office to keep its fees. Yet even if Congress passes the legislation - it has rejected three previous attempts over the past four years - the agency wouldn't gain control over its finances until the new fiscal year starts Oct. 1.

Michel, the former patent court judge, called the latest diversion "catastrophic and devastating."

Michel noted that small companies and start-ups create the bulk of new jobs in the U.S. economy, and those are the entities hardest hit by a dysfunctional patent office.

"The delays in the patent office are already the biggest problem in the American patent system," Michel said, "and they are holding back new companies, new technologies and new jobs."

IBM May Not Be the Patent King After All

IBM wins more U.S. patents than any other company, but Microsoft's are worth much more money, says a study conducted for Bloomberg BusinessWeek

January 13, 2010

Business Week - No one beats IBM (IBM) on patents. For 17 years running, Big Blue has been granted more U.S. patents than any other applicant, raking in an ­unprecedented 4,914 in 2009. That tally is more than the number of patents granted last year to Microsoft (MSFT), Hewlett-Packard (HPQ), Oracle (ORCL), Apple (AAPL), Accenture (ACN), and Google (GOOG) combined. IBM's worldwide portfolio now covers more than 40,000 inventions for everything from microprocessors for video games to the ­erasable read-write CD.

Nonetheless, a study conducted for Bloomberg BusinessWeek by Ocean Tomo, a Chicago intellectual property consulting firm, concludes that IBM's collection of U.S. patents over the past five years ranks only eighth in value. No. 1 is Microsoft, which ranked third, with 2,906 patents issued last year.

"The arms race approach doesn't pay off," says Mark Chandler, general counsel of Cisco Systems (CSCO). "It doesn't do you a lot of good just to have a lot of patents."

IBM maintains one of the last university-like laboratories in American business and, based on outlays through the first three quarters of 2009, the company spent $5.8 billion on research and development last year, or 6% of its total revenue. Aside from protecting its products and services from imitators, IBM's patents produce considerable income: Fees from licensing and custom-developing intellectual property for other companies through Sept. 30 were on track to top $1.1 billion in 2009.

"Their patent department is a profit center," says Bruce Lehman, former head of the U.S. Patent & Trademark Office and now chairman of the International Intellectual Property Institute, a Washington think tank.

The race for patents is not merely a matter of bragging rights. Pfizer (PFE) relies on a single set of patents covering cholesterol drug Lipitor for a fourth of its total sales, an estimated $11 billion last year. Qualcomm (QCOM) collects almost all its revenue—$10.4 billion in 2009—from selling licenses for and making the chips containing its patented 3G mobile-phone technology, known as CDMA.

Too many service-related patents?

IBM may be shortchanging itself, according to the Ocean Tomo study. To determine the firepower of companies' patent portfolios, the consulting firm analyzed five years of patents awarded to the world's 1,000-largest public companies by revenue. Among the dozens of measuring sticks Ocean Tomo used to judge the significance of a company's breakthroughs were the number of prior patents cited, patent renewal payments, and litigation.

In all, Microsoft's portfolio was assessed at 3.3 times that of IBM's.

"This is something that IBM people won't accept, but it's accurate nonetheless," says Steve Lee, president of Ocean Tomo's patent-rating division.

He says IBM's portfolio includes a large number of service-related patents, which do not command as high a price as the video-game and software patents that heavily weigh in Microsoft's portfolio.

"The ultimate value is not some rating," says Manny Schecter, IBM's chief patent counsel. "It's the leverage we are able to get from the patent [licensing] negotiations."

At Microsoft, Horacio Gutiérrez, the company's chief intellectual property officer, says patents are treated not as a profit center but "as a currency that you use to trade to another company" for its patents.

Volume is an important gauge of a company's innovation, he adds, but "only if they are high-quality patents."

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