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Patent Reform Fails to Halt Fee Diversion

That Giant Sucking Sound

The America Invents Act approved in September directly affects independent inventors and patent filers of all stripes. We examine how the new law alters the playing field – and what you need to know to avoid new pitfalls and take advantage of new opportunities.

By Joshua Nightingale

Despite the America Invents Act’s sweeping changes to U.S. patent law, most critics agree it will do little to solve the greatest problem plaguing the patent system today: the long time it takes to receive a patent and the massive backlog of pending applications on file at the United States Patent and Trademark Office.

At the time of this writing, the average application pendency time is currently 33.5 months. In certain fast-moving technologies, this average is closer to 44 months.

These long pendency times have created a massive backlog of some 1.2 million applications at the time of this writing. By one estimate, there are 700,000 patent applications sitting in a warehouse, waiting to be read for the first time, and 500,000 applications currently undergoing the slow, halting process that is examination.

Paul Michel, former chief judge of the Court of Appeals for the Federal Circuit, the federal court given exclusive, nationwide jurisdiction over virtually all patent appeals, has stated the biggest deterrent to innovation today is the exceedingly long time it takes to receive a patent.

In a fast-paced global economy, there can be little question that long pendency times are an absolute killer to innovation, business growth and job creation – the very things the America Invents Act is meant to spur.

Fee Diversion

The backlog and application pendency problems can be attributed largely to the glaring mismatch between the resources and capacity of the USPTO and its significant workload.

The USPTO needs more examiners, more review board members, more money to pay its employees and an upgrade of its outdated technology infrastructure. Despite the agency’s best efforts, however, Congress has made these goals unachievable.

The USPTO has been a self-supported agency since 1990, meaning that all expenses needed to run the agency must come from income generated in the office.

This in itself is not problematic, and the USPTO has generally taken in more than enough in patent application fees to support itself.

The problem lies in Congress’s diversion of fees from the USPTO. Instead of allowing the USPTO to keep and utilize all of the fees that it collects, Congress has, through its annual appropriations process, diverted significant amounts of money from the USPTO to other, unrelated federal programs. Since 1990, Congress has diverted some $800 million USPTO fees.

Patent experts and commentators have long targeted fee diversion as a significant factor in causing the USPTO’s inability to keep pace with the number and complexity of the applications that it now receives.

A Report of the National Academy of Public Administration estimates the current backlog of unexamined patent applications is in fact the direct result of fee diversion.  The report estimates that if the USPTO had not experienced fee diversion, then the average application pendency time would have averaged slightly over 21 months as compared with the 30 months to 40 months that it currently takes to process a patent application.

Portions of the America Invents Act seek to address the USPTO’s resources problem, but none go far enough.

Under the AIA, as enacted, the USPTO now has the ability to set its own fees. Prior to this, Congress set all fees. The USPTO likely will use its fee-setting power to raise fees, which may help its resources problem.

However, the new law does not prevent fee diversion. Sen. Tom Coburn (R-OK) proposed an amendment to the bill that would end fee diversion, but it failed by a small margin.

On the Senate floor and elsewhere, Sen. Coburn argued vehemently for the end of fee diversion and speculated that Congress was not willing to stop this practice because to do so would “require letting go of bad habits. Appropriators like to skim money off the patent office, and many other offices and funds, because it is easier to skim than to save and actually cut spending.”

As Sen. Coburn has pointed out, fee diversion is essentially a tax on innovation and a practice that is absolutely incompatible with a nearly-broken USPTO that is in dire need of resources.

Troubling Effects

Along with backlogs and lengthy delays, there are a host of equally troubling “secondary effects” from fee diversion – diminishing quality, for one.

With resources severely restricted, USPSTO examiners must perform their examinations in a short time. Examiners in most technology units can spend an average of just seven to nine hours on each patent application.

Examiners have about one work day to read and understand the application, perform a complete prior art search, and address all claims in a limitation-by-limitation manner.

If the examiner has less time to spend on an application, the likelihood is the resulting patent will be of lower quality and more susceptible to challenges of invalidity.  With more resources at the USPTO, examiners could be allowed to spend more than the bare-minimum amount of time on each application.

Another less obvious consequence of fee diversion is its contribution to the high attrition rate of examiners. The USPTO, aside from just needing examiners, needs experienced examiners.

The resources-pinch that fee diversion puts on the USPTO requires examiners work at a feverish pace in processing applications. This undoubtedly contributes to the high rate of attrition seen at the USPTO.

A high turnover rate and the constant influx of new examiners also contribute to the lowering of patent quality. And with more money diverted from the USPTO, the agency has less money to pay examiners the type of wages necessary to attract and retain talent.

In April 2011, Congress announced appropriations for the remaining five months of FY2011 that would result in $100 million in USPTO fees being diverted to other federal programs.

Responding to this, USPTO Director David Kappos announced significant spending cuts that would result in the elimination of overtime pay, a hiring freeze, training limited to “mandatory training,” cuts to the Patent Cooperation Treaty search funding, indefinite postponement of the opening of a Detroit satellite office, and the elimination of all information technology infrastructure investments except for “mission-critical” issues, among others.

The America Invents Act took a positive step forward by giving the PTO fee-setting authority. However, its failure to stop fee diversion was a huge oversight.

Stopping fee diversion would have been a simple solution that would have benefitted the patent system enormously, and no taxpayer funds would have been involved nor would the nation’s deficit have been affected in any way.

If fee diversion is to continue, other solutions may be necessary to address the USPTO’s resources problem.

Judge Paul Michel has suggested that “fees need to go up and Congress needs to infuse [the USPTO] with a huge amount of cash, probably on the order of about $1 billion a year, at least for a brief transitional period, until it can beat down that backlog, get more experienced examiners, improve its whole process.”

If the USPTO is to get back on track, the backlog must be cleared and the examination process improved so examinations can be completed in one to two years, not three to five as they currently are.

Despite its problems, the U.S. patent system continues to be the primary engine of technological progress and job creation in America, and the importance of strong patent protection remains high.

Innovation is the lifeblood of the country’s economy and essential to maintaining the country’s position in the global economy. America’s inventors continue to rise to the challenges of the 21st century, and they now desperately need a patent office that can keep up with them.


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2 Responses to “Patent Reform Fails to Halt Fee Diversion”

  1. Stopping fee diversion wasn’t even a part of the patent reform bill when it was first brought to the Senate – it was added by amendment (and dropped by the time the bill passed). Is it possible that individuals trying to actually improve the operation of our patent system could somehow overlook fee diversion? No, it is not possible. The individuals who created this bill had other motives. An inventor with a good idea was too much of a threat to corporations with vested interests under the traditional US patent system. The “European-ized” system created by the America Invents Act greatly reduces the threat. Regardless of the hype, the reason for The America Invents Act was to protect corporate vested interests from innovative competition.

  2. […] Patent Reform Fails to Halt Fee Diversion Posted in Patent Application Fees | December 19th, 2011 Tweet Patent Reform Fails to Halt Fee Diversion This in itself is not problematic, and the USPTO has generally taken in more than enough in patent application fees to support itself. The problem lies in Congress's diversion of fees from the USPTO. Instead of allowing the USPTO to keep and utilize … Read more on Inventors Digest […]

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