Eating Our Seed Corn for Job Creation

Sometimes the problems facing our nation truly are difficult to solve. Reducing the country’s out-of-control budget deficit and fixing our broken public schools systems, for example, each took decades to grow into serious threats to America’s future. And each requires more political vision and national unity to resolve than seem to exist right now.

But other problems are not that difficult to solve, if only our leaders would choose to use some common sense. Take job creation, which is supposed to be the Number 1 policy objective in America right now. The mechanics of job creation are hardly a mystery, after all. We know, for example, that all net new job growth in America comes from startup businesses, not Big Business (see research by the Census Bureau and the Kauffman Foundation).   And we also know that the vast majority of these startups need patents to get the funding from investors they need to start hiring people so they can develop their innovative new products and medical treatments for the public (see the Berkeley Patent Survey of Entrepreneurs).

That’s why I call the patent office, one of the least-known agencies of the federal government, “the biggest job creator you never heard of.” When the patent office is working as it should, entrepreneurs can get the patents and the funding they need to create jobs—as many as 10 jobs per issued patent. When it’s not working, as is the case today, job creation stalls out, like a car without gas.

Everywhere I go, I meet entrepreneurs whose ventures either failed or are slowly dying on the vine because of the outrageous delays they suffered in getting patents. Who would invest the huge sums needed to develop a new medical treatment, for example, without at least the promise of exclusivity and a return on their investment that a patent provides? But because of delays stretching up to seven or more years in getting a patent, these startups lost crucial funding opportunities—or in some cases, even went bankrupt—as a result of the backlog of 1.2 million applications now throttling America’s overburdened and underfunded “innovation agency.”

The backlog is no accident. Over the last 10 years, Democratic and Republican congresses alike have diverted $1 billion in fees earned by the patent office to other uses, such as the census. Bear in mind that the patent office is the only fully self-supporting arm of the federal government, and taxpayers pay not one single dime for its upkeep. Yet it sometimes seems as if elected officials see the patent office not as the nation’s most crucial facilitator of private sector job creation but almost like a petty cash drawer for otherwise unfunded projects.

The result?  Here’s how patent office director David Kappos described the cost to America of the growing backlog and the financial enfeeblement of his agency.

“Hundreds of thousands of groundbreaking innovations are sitting on the shelf, literally waiting to be examined,” Kappos told attendees at a biotechnology conference two years ago. “[This results in] jobs not being created, life-saving drugs not going to the marketplace, companies not being funded, businesses not being formed.”

How many jobs are not being created because of the patent backlog?

“Millions,” said Kappos. “Millions of jobs.”

In my own analysis co-authored for the New York Times last year with Paul Michel, the newly-retired Chief Judge of the U.S. Court of Appeals for the Federal Circuit (the main court for patent appeals), we found that simply clearing the backlog and properly funding the patent office would create as many as 2.25 million jobs over the next three years.

About a year ago, however, it seemed as if Washington had finally begun to grasp the cost to this nation of our chronic weakening of the patent office. The media began to write about the backlog and its cost in American jobs. USPTO Director Kappos went before Congress and the American people to make a compelling case for revitalizing the patent office. And with the support of Secretary of Commerce Gary Locke and the President, Congress last summer did in fact restore some portion of diverted funds to the agency. Most encouraging of all, perhaps, calls were issued from both sides of the aisle to finally end the shameful practice of patent office fee diversion—which, let’s be honest, is akin to a farmer eating his own seed corn.

Then H.R. 1473—the Full-Year Continuing Appropriations Act, 2011—was passed last month to fund the federal government for the rest of fiscal year 2011. H.R. 1473 authorizes a budget for the USPTO that is $100 million less than the fees it expects to collect from applicants during the remainder of the year. But given the slowly-improving economy, the fees the USPTO collects from patent applicants is likely to be even greater than forecast. Therefore, so will the amount diverted by Congress to other uses—up to $150 million, by some estimates.

As a result, the patent office has been forced into a new spiral of retrenchment. Following the passage of this appropriations bill, the agency announced that it was instituting a hiring freeze, cutting overtime, reducing the training of examiners, eliminating investments in badly-needed new search and examination technologies, and indefinitely postponing the opening of satellite regional offices designed to raise patent quality and improve application review.

As if all this wasn’t bad enough, the patent office also announced that it would now have to eliminate the Track One expedited patent examination program open to startups and other small entities. Known as Fast Track, this would have enabled small firms, for a modest fee, to speed up the examination of their patent applications.

The demise of Fast Track can only weaken startup job creators even further and speed the domination of large corporations over the patent landscape in the U.S. Ten years ago, startups and independent inventors earned 35 percent of patents issued to U.S. firms. Today, they receive only 28 percent of patents going to U.S. firms. The death of Fast Track therefore puts one more roadblock in the path of startup innovators.

Congress has in the past shown its willingness to sustain the Founding Fathers’ vision of a democratized intellectual property system that granted patents only to the “first and true inventor” rather than a corporate entity. After the patent office burned down in 1836 and destroyed the nation’s entire repository of new technology, Congress authorized the creation of regional patent offices in up to 20 major cities to help stimulate new invention among ordinary citizens.  At other times as well—such as the first patent law’s stipulation that ordinary citizens applying for patents by mail could do so postage free, to the more recent introduction of reduced fees for startups, universities, and other small entities—Congress has acted to promote the inventive activity of entrepreneurs and small business, the source of all breakthrough innovation.

This time Congress did not appear to be as concerned with the implications of their action for small startups. In the opinion of many entrepreneurs, the so-called “patent reform” bill pending in Congress—which is now being driven by the lobbying efforts of corporate technology giants—will dramatically undermine the interests of startups even further. They say the carrot offered in the bill’s promise to end fee diversion is hardly enough to make up for the bill’s unprecedented weakening of startups’ ability to obtain and enforce their patent rights.

This is what is so frustrating about the paralysis of job creation in America. Our elected leaders openly acknowledge that small startup businesses are the one and only source of net new job growth in the U.S. There is no dispute about this, nor are there any ideological differences about the virtues of entrepreneurialism or the urgent need to create millions of new jobs.

So the solution ought to be simple: put the rancorous fight over “patent reform” aside, and instead restore the patent office funding that everyone agrees is needed to kick-start job creation in America again.