Bipartisan Questioning of Patent Reform in US Senate

Senator Jeff Sessions (R-AL)

Senator Jeff Sessions (R-AL)

Today I am in San Diego, California at the Annual Conference of the National Association of Patent Practitioners. I will be speaking later this afternoon regarding the status of Patent Office rulemaking and providing an update of Patent Rules that were implemented over the last year, so I have patent rulemaking and patent reform on the mind. Thus, when I saw a press release in my inbox published by the Manufacturing Alliance on Patent Policy, I read it with great interest. As we all know, assuming that patent reform is still alive, it is on life support and struggling badly. Based on the latest research and analysis of by Case Western Reserve University Economics Professor Scott Shane, I would have to say that patent reform is or will soon be completely dead, which is probably a very good thing. While it is unfortunate that Congress will once again not likely do anything useful to assist the beleaguered US patent system, at least they will not do any harm. The pending patent reform legislation, called patent deform by some, would certainly not have helped because it would not lead to any changes that would streamline the US Patent Office, it did not provide more resources to the Office and it would have substantially increased the workload of the PTO, further starving the Office of resources it desperately needs to bring to bear to reduce the epic backlog and pendency problems patent applicants face.

Several weeks ago, Senator Jeff Sessions (R-AL), Ranking Republican on the U.S. Senate Judiciary Committee, requested that Professor Scott Shane review the impact of the post grant review and inter partes examination. His analysis is now complete and was released today. The research finds that wait-time for patents will increase by more than 25 percent and the cost of defending patents could increase by $2.2 billion. Obviously, any increase in the time it takes to obtain a patent is unacceptable and Congress will have no choice but to kill any provision that would lead to innovation being further held hostage by the Patent Office.

The average wait presently to receive a first action by an examiner on the merits is 25.6 months, and the average time to disposal of a patent application by the PTO is 32.2 months (see USPTO Backlog: Average Patent Pendency Out of Control), but this really only tells a part of the story. During the First Quarter of 2009, the allowance rate for patent application was 42%, which is a historic low. When an applicant gets to the end of an application and is not successful, but is unwilling to give up, either a Continuation or a Request for Continued Examination (RCE) is filed. The Patent Office treats these as new applications for purpose of pendency, even though an RCE is just the payment of a fee to move back into prosecution to get additional consideration by the patent examiner. According to Ron Katznelson, “[b]ecause the PTO considers a disposal that is followed by an RCE an abandonment, it results in a reported allowance rate that can be manipulated downwards by issuing poorly supported, or premature, final rejections.” See: The Perfect Strom of Patent Reform?

For example, two weeks ago Mark Malek and I met with several examiners on applications that had been finally rejected. We now know what the patent examiner will allow and we will file RCEs in each of these cases. Shortly after the RCE is filed the patent examiner will issue the patents, assuming they stick to their word, which is typically the case. So in each case we will have one long pending application and one short pending application that will issue in several months. Repeat this over and over again and you see that the real time average time to first action by a patent examiner and the real time to final disposal of a patent application is far higher than the averages presented by the PTO. Essentially, the PTO is playing some accounting games to lower the averages and still the averages are at or near historic highs.

In any event, returning to Shane’s research, this latest report relating to the likely effects of expanded administrative challenges to U.S. patents picks upon where his previous research on how Congressional patent proposals would impact manufacturers and other patent holders left off. His previous study found that adopting an apportionment-centric system of patent damages would jeopardize up to 298,000 manufacturing jobs and cut R&D investment by up to $66 billion. Highlights of Shane’s report released today indicate that the proposed legislation would likely have the following effects.

  • Increase the length of patent pendency. Under the proposed changes, the length of time between patent application and patent issuance would increase from 32 months to 40 months.
  • Increase the costs of defending patent validity by an estimated $2.2 billion over the current cost of litigation.
  • Reduce investment in R&D. Reducing the value of patents significantly reduces investment in R&D. The proposed changes would lead to an annual reduction of $4.4 billion in industrial R&D.
  • Compromise certainty about patent validity. The new post-grant review and expanded inter partes reexamination processes would make uncertain the validity of approximately $1.4 billion to $1.7 billion of patents issued annually, totaling $8.1 billion to $10.3 billion of patents over the six years it takes to get an outcome of the average review case.
  • Decrease the disclosure of knowledge necessary for others to build on innovation. Patent disclosures are a source of information which increase U.S. innovation.
  • Hinder efforts of U.S. universities to transfer their inventions to the private sector. Weakening patent protections through expanded administrative challenges would jeopardize over $1 billion annually due to a reduction in the amount of university technology that would be commercialized by industry.
  • Increase strategic patenting behavior by large, established firms. Strategic efforts to hinder the performance of competitors by forcing them to defend their patents against multiple challenges, beginning with reexamination and review proceedings and ending with litigation, are a likely outcome of the proposed changes.

Republicans, including Senator Jon Kyl (R-AZ) has been questioning the post grant review procedures of patent reform for some time. In fact, Senator Kyl tried to get the Senate Judiciary Committee, of which he is a member, to slow down and consider the impact post grant review would have on the Patent Office and innovation, unfortunately without luck. Even the amendments he offered in the Judiciary Committee were roundly rejected by an overwhelming majority, and not along party lines. But now Senate Democrats are starting to make inquiries relating to post grant procedures, as illustrated by staffers from the Offices of Senator Barbara Boxer (D-CA), Senator Dick Durbin (D-IL) and Senator Jeanne Shaheen (D-NH) all questioned the impact of these administrative challenges. Republicans lead by Senators Sessions and Kyl have raised these issues in the past, and now Democrats are asking questions, so it seems likely that that additional changes will have to be made in the Senate bill before it has any chance of passing, which seems unlikely given the contentious debates ongoing in Congress relating to Health Care and other hot button issues.


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4 comments so far.

  • [Avatar for Ron Katznelson]
    Ron Katznelson
    July 23, 2009 02:14 pm

    Paul Morgan said: “Unfounded experienceless speculation” about “legislation making mere minor improvements in inter parte reexaminations and adding a very time limited opposition system are not helping rational decision making on the subject.”

    Paul, who bears the burden of providing analysis of these PGR provisions? For purposes of “rational decision making”, have the proponents of this PGR legislation provided, or can you provide, an ALTERNATIVE analysis that demonstrates your own “unfounded experienceless speculation” that the proposed PGR will be “minor” in its effect? In doing so, please focus on specific items you chose to ignore: (i) The extremely low threshold for starting PGR or expanded inter-partes proceedings (ii) There is no set time limit for a determination in a PGR proceeding and the mere commencement of a PGR proceeding would eliminate the statutory presumption of validity essential to a patent’s enforceability. There is no time limit for that holding.

    It is clear that the PGR language was not crafted for purposes of improving quality. We all know (and your thoughtful comments in other blogs suggest that you agree) that patent quality should be addressed using proven production quality principles (Deming), by improving examination process quality at the PTO in the first instance rather than by patching another costly stage post grant. The very companies who suggest the PGR “quality” system are those who have embraced Deming’s quality control principles in their own production operations. They know that if an end-product exhibits defects, one does not tack on another quality test station patched at the end of the production line because it only reduces yield and does not fix the root problem. They know very well how to solve quality problems.

    No, the primary goal of PGR proponents was not to improve quality, although there is no doubt that they also seek to improve patent quality. Rather, these provisions were written predominantly to weaken patents generally and suppress incentives to obtain patents. A market incumbent will be able to tie up a new entrant patentee in PGR proceedings indefinitely. These are not “minor” issues for startup patentees. In some cases, the mere issuance of a patent will result in the patentee being driven out of business by having to defend the patent, having no control over an incumbent competitor’s initiation of prohibitively costly PGR proceeding.

    Thus, the burden is on those who propose this PGR language to show why the additional expert APJ resources they wish the PTO set aside for this new “production quality PGR patch station” should not be used instead for improved monitoring, examiner training and enhancing quality in the first instance in the “first production station” of the PTO production line. The experts that can serve in this APJ capacity are the very ones who are in rare supply to turn the PTO around by training and supervising the growing examiner corp.

  • [Avatar for Gene Quinn]
    Gene Quinn
    July 21, 2009 12:30 pm


    You cite protests, which are never used because you can only protest prior to an application being published, but how could you know a secret application was filed before it was published? Of course, you cannot know.

    Normal prosecution will be delayed because the USPTO will need to create a new division to handle these post grant review proceedings, which are hardly “limited” in nature. By needing to staff up at a time when the PTO cannot hire and are losing many employees would mean that fewer examiners would be available to examine pending applications, so the backlog would grow. It is really quite simple if you stop and think about it.

    These are not “unfounded experienceless speculation” and the fact that you hold that position suggests you either do not understand patent prosecution or have an agenda. In either case, it is not at all helpful to sugar-coat reality, or simply ignore what is guaranteed to happen. Luckily members of the Senate are getting clued into facts on the ground, and are no longer being misled by statements like yours.


  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    July 21, 2009 12:17 pm

    Unfounded experienceless speculation by some academic about allegedly huge impacts on patent application backlog delays by pending patent reform legislation making mere minor improvements in inter parte reexaminations and adding a very time limited opposition system [long before most patents are ever even asserted] are not helping rational decision making on the subject. For example, under the currently pending bill and its PTO implementation plan, both inter parte reexaminations and a this very limited opposition system for only recently issued patents will be solely handled by the PTO trial team APJs, not by any ordinary examiners, and thus cannot possibly delay any normal application prosecution. Furthermore, extensive prior USPTO experience with protests, public use proceedings, reexaminations, and all other third party prior art citation systems demonstrates that their risk of strengthening rather than weakening patents and their costs has discouraged and prevented their use for more than a tiny percentage of all applications and patents.

  • [Avatar for New Here]
    New Here
    July 21, 2009 11:23 am

    I wish first to ask a question about the future without a post-grant review; will, those patent applications granted patents get a “rubber stamp” approval by the PTO alone. Not trying to be ugly, but it seems the cost of patent applications in time and money is the big problem and not the quality that is the larger question.

    The real danger in having a “quick-patent” is that the work load of the PTO is going to grow, grow, as, it’s not the same thing, but not very different at all in reason for the flood of “quick-refunds” at tax time. This “flood”, time is going to grow for applications wait, and cost in short time too when, the PTO must hire many more to balance the new work load in a “quick-patent” time frame.

    The question here at this point, is what quality metric is to be trusted to the PTO when I believe the flood gate opens in a no-post-grant-review, in the patent world; to me this is a very important question, because it’s where patent folk are going with this as they must trust or control the PTO, that there IP is respected even with others IP at the PTO in the same market(s).