by Matthew Troutman
Chief Judge Michel gives a talk on "How to Revise the PTO and the Patent System"
On Tuesday, April 20th, 2010, Chief Judge Paul Michel, recipient of the 2009 PTOS Federico Award for his outstanding contributions to the Patent and Trademark system, was on campus in Madison Auditorium South to give a talk on "How to Revise the PTO and the Patent System". A great turn out was seen from PTOS members as well as Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos was in attendance. The speech is reproduced below:
Fellow Citizens: Be On Guard
By Paul R. Michel, Chief Judge United States Court of Appeals for the Federal Circuit, April 2010
Today, American economic security is threatened in a way not yet recognized. Securing the inflow of natural resources is no longer our biggest challenge. Rather, it is stemming the outflow of jobs, talent, technology and production. These four losses resulted from chronic under-financing of our innovation infrastructure. Strengthening it can restore our prosperity and technological leadership. We must boost invention and make new products our people and the world will need, want and buy. To spur increased innovation, however, we need increased investment. And it is needed immediately because we are losing our international lead in technology and our global competitiveness.
Public finance, however, will be largely unavailable. It has been exhausted by the cost of two, concurrent and continuing wars and a decade of fiscal mismanagement, saddling us with a huge annual debt payments and annual budget deficits of hundreds of billions of dollars. In this recession when tax revenues are down, even a modest increase in public funding will be difficult, if not politically impossible. In any event, private investment has always supported R&D by private research-based companies and other innovators. Only increased private finance, then, can fund the needed increase in research and development. But how do we incentivize more private investment in innovation? The answer is faster, sounder and clearer patents, plus faster, stronger enforcement. After all, no one can be expected to invest without confidence in a sure return. Patents, and the protection of investment they afford, provide the only incentives strong enough to cause increased private investment in research-based companies.
The primary engine of American recovery and resurgence will therefore have to be an improved patent system. Without that, both short term recovery and long-term prosperity will be stunted. By "system", I mean primarily the Patent and Trademark Office, and the Federal courts, which along with the International Trade Commission provide the only mechanisms to monetize patent value.
Patents as the spur for both economic and technological advance is hardly a new idea. They have been a main engine of economic growth and technological progress since 1790 when the First Congress passed the first Patent Act. The founders, better than today's political leaders, understood the central importance of patents to national prosperity and economic growth. Patents continued to promote repeated surges of technological advance throughout the 1800's. Before and during World War I, another huge surge took place. Yet another wave occurred in the aftermath of World War II and the most recent in the information processing revolution of the 1990's. Notice that that was when our country last had a balanced budget.
Note, too, that the new jobs that our country needs to rehire the unemployed and absorb a growing labor force will follow. So will migrations of the technologically talented. If more R&D is done here, they will come here and stay. If not, foreign talent studying at our universities will all return home. Our own leading technologists will also go elsewhere, just as is now happening in firms such as Intel and Applied Materials, both of whom will soon open large new labs in China headed by their top American researchers.
Some commentators assume that needed R&D can be funded by company revenues, but that is not realistic. The most innovative companies are small. Many do not yet make profitable products. Some do not yet sell any products. Therefore, the firms with the least revenue to support their R&D are those most in need of investment. Biotech start-ups are only one example. Without it, many of them will die. With it, medical science will surge. So how does our society convince venture capitalists to finance more R&D for innovative firms? The answer is clear: the promise of profits through properly issued patents that are enforced quickly and vigorously.
Well, what is wrong with the present patent system? First, and foremost: delay. In some technologies it now takes 4-6 years even to get a patent. The product life-cycle may be shorter. For all technologies the average is three years. That is because for two decades the patent office has been underfunded and losing ground. It operates entirely on user fees set by Congress long ago at levels that can no longer finance necessary operations. It lacks both enough examiners, especially experienced examiners, and modern computer systems. Imagine, the government's own technology agency is using 30 year old computer technology! These are the reasons delays are so long. Even worse, because most applications must by law be published at 18 months, others, including foreign competitors, can pirate inventions for years before the patents issue, for until then patent owners have no rights.
The patent system is failing primarily because the patent office is failing. In a word, it is dysfunctional. Over 700,000 applications sit unread in a warehouse in Alexandria, Virginia, often for years. Although 400,000 are under examination, their progress is far too slow. And every year almost 400,000 more are filed.
Most examiners leave after only three years for better pay and working conditions in private industry. The average experience level of the 6,000 examiners has fallen to only about three years. But it takes that long for new examiners to become both competent and efficient. Inexperienced examiners harm the system: they allow patent claims they should reject and reject ones they should allow, further increasing delays and costs. And the lack of quality assurance undermines the presumption of patent validity provided by law and the credibility of patents in the eyes of Congress.
The gears of our patent system seem seized up: public inaction is discouraging private investment. Obviously we need to strengthen and speed both examinations and litigations, but doing so requires public I investment. Although the PTO should remain financed by user fees, it I needs a transfusion of public money to overcome its dysfunction. It needs thousand of additional examiners, salary increases to retain experienced examiners, new computer systems and space to house an expanded work force. (At present, many employees, although lacking extensive experience, work at home where adequate supervision is more difficult and applicant interviews are problematic.) Thus, even if Congress raised fees, which it should, resolving the current crisis requires a large infusion of public money. And it is needed soon. Deferral will have corrosive consequences that cannot be undone. Therefore, I suggest an immediate capital investment of one billion dollars. It could be spent over the next several fiscal years, but it must be appropriated immediately.
In addition, the Congress must guarantee the PTO will keep all fees. Since 1992, Congress diverted over 900 million dollars in patent fees to other uses. 'This fiscal year Congress, once again, will not allow the office to keep all the fees it expects to collect; an estimated $150-250 million will go elsewhere. Permanently ending such "fee diversion" is necessary to reviving the PTO. If Congress continues diverting fees to other purposes, raising fee levels will have little effect. In addition, is it fair that fees provided by private patent applicants finance other government activities?
If public monies are already committed, however, how could Congress find a billion dollars for the PTO? Well, when Congress wishes, it freely spends many billions of dollars per day. I only suggest one billion once, not one billion per day or even per year. Just one billion, period, but soon.
Is my suggestion unrealistic? Maybe, but not if our nation followed proper priorities.
Would such a transfusion as a capital investment fix the patent office? Mostly. Other innovations are also needed; most have already been started by the current Director, David Kappos. But without an immediate, large increase in funding, even his very sound leadership initiatives cannot produce the needed results. In fact, despite his initiatives, the workforce is still declining, losing 500 examiners last year when hiring was frozen because of fee short-falls in .the worst recession in several decades. So just when it needs more examiners, it has fewer.
What else? Let the PTO open satellite offices, in places like Detroit, and Houston, and hire unemployed engineers who are already experienced IP professionals. But again, Congressional authorization is needed. Under current law, most employees must work in Alexandria, Virginia. Congress also controls the pay structure for examiners. The General Schedule that sets pay for civil servants should not apply to the scientists and engineers in the patent office. Industry would willingly pay higher fees to enable the PTO to pay more competitive salaries to highly-skilled examiners. Congress should raise these pay levels.
If necessary, Congress should also clarify the Director's authority to give earlier examination to patent applications in certain promising new technologies and individual applications for pioneer inventions. A first-in, first-examined system makes no sense when many applications have little if any commercial value and often lack technological merit. In addition, applicants should be allowed to defer examination since they often need time to assess their invention's commercial potential.
Such techniques can enable both the patent office and the courts to perform faster and better. Increasing resources, however, requires Congressional action. Unless Congress invests in the America patent system, private investors cannot be expected to. We must encourage them to boost investment to surge American R&D. So Congress must "prime the pump"; only then can private investment take over.
This is the best and perhaps only way to increase innovation and reverse competitive decline. It could restore us as the technology leader of the world, increase private and public revenues and stock value and create millions of new jobs. With so clear a strategy, we need not hesitate to act.