Obama’s Man at the USPTO Seeks to Rehab the Agency

David Kappos spent a career at IBM. He started on the lower rungs and eventually rose to VP and assistant general counsel, overseeing the company’s massive patent and trademark portfolios. In that capacity, he sat before Congress and argued for patent reforms. Some of those proposed reforms put him at odds with many in the independent inventor community. And then last year President Obama installed him as the new director of the U.S. Patent and Trademark Office. Kappos says he supports independent inventors and small entities, even though opponents say some of his proposals would do more harm than good. Undeterred by critics, a huge budget shortfall and an increasing backlog of patent applications, Kappos seeks to reshape the world’s busiest intellectual property system.

Jan2010coverDuring this week, we’re running our extended interview with Kappos, which appears in our January 2010 print edition. Here is Part II:

ID: What does work sharing with foreign patent offices do to the so-called sovereign function – the notion that U.S.-based intellectual property interests should not be beholden to foreign examiners? If you’re outsourcing this function, for lack of a better term, what does it do to the sovereign function of this office?

DK: OK, that’s a great question. Let me meet that one very very carefully.

All right, work sharing is not outsourcing. We have absolutely no intention of substituting the judgment of any foreign person for the judgment of the United States Patent and Trademark Office examiner, OK. We won’t do it. Never gonna happen. Not on my watch, anyway.

What work sharing does do, though, is take advantage of the fact that other patent offices are producing information that can be helpful to our examiners doing their jobs as efficiently as possible.

So what work sharing is about is if some examiner in the (European Patent Office) did a prior art search and found great prior art, work sharing is about getting that prior art in front of our examiner, so that our examiner can use it and issue a precise and appropriate office action that helps the applicant get a patent much more effectively, a patent that’s going to be valid because it’s examined over the prior art and more importantly, because our examiner didn’t have to spend the time reinventing the wheel to find that piece of prior art again that someone in some other office already found. So that is what work sharing is about.

It’s a simple business effectiveness mechanism taking advantage of work that others have done. And then, of course, the U.S. examiner does a full examination and arrives at her or his own judgment and makes a decision on behalf of the United States.

ID: Early interviews with patent examiners. You can do them by phone. Or you can come here to Alexandria. You have a $200 million budget shortfall this year. Ouch. So I guess you can’t do regional offices, then?

That’s another really great question. That goes to what folks refer to as nationwide workforce, the concept of having our employees more distributed around the country. I’m a big believer in the USPTO moving to a workforce where we can permit employees to live where ever they want to live and still be effective examiners and effective members of the U.S. Patent and Trademark Office team.

Now that does not necessarily mean building skyscrapers around the country. We’re currently looking at the best model for implementing the nationwide workforce. It could potentially involve having bricks-and-mortar in places other than Alexandria, but it might not involve that.

I won’t be at all surprised if we find the most efficient nationwide workforce model is simply to permit an employee to live where ever they want and work from home. By the way, we already have the federal government’s most innovative work-at-home program. We already have that infrastructure, we just don’t have enough computing horsepower to do it at the scale.

ID: But that gets back to your $200 million budget shortfall thing. I don’t think we can talk about that without talking about fees. And your discretionary power to raise the fees. Can we talk a little bit about that? Are fees going up?

DK: Of course, as you point out, we have a pretty significant budget shortfall right now. This is a user-fee funded agency. We don’t take any money from the U.S. Treasury. So all the resources that we have to examine patent and trademark applications come from the user community.

It is apparent from the economic downturn last year that the USPTO’s funding model is pretty badly broken. It is a funding model that relies on what’s called cross-subsidies. So what happens right now is that we undercharge, across the board by a pretty substantial margin, for patent application filings and examination and previously that undercharging was subsidized by back-end fees like issuance fees and maintenance fees.

But a problem, from a business perspective with any cross-subsidy, it can work OK as long as people are flush with money. But when things go wrong like they did with the economy last year, the cross-subsidies can fall apart. That’s Business 101. They’re what I call dynamically unstable. They’re dangerous. We found that out last year.

So the situation we find ourselves in is with a broken funding model.

We need to have a more clear and accurate way of funding the activities at the USPTO. Now let me be clear that we don’t intend to exact any penalties on applicants. We don’t intend to charge more than the aggregate cost of the services we’re performing. But what we need to do, though, is better align the fees that we’re charging for every step of the process, better align them with the cost of undertaking the work at that stage of the process.

So if Congress passes legislation that gives us the ability to adjust fees, we’ll be undertaking the consultative process with the patent and trademark user community to adjust fees so they accurately reflect the cost of services.

ID: When I hear “adjust fees,” I hear “fees going up.”

DK: Some fees will go up. Some fees may go down. And some fees will probably stay the same.

ID: What about small entities and independent inventors?

In my mind the exception to all these fee rules … is the small independent inventor community. They already get a 50 percent discount essentially on all fees across the board. We’re at least going to maintain that discount. And where we can – there a places where we can’t because of statutes – but where we can, we’re going to try to give small inventors the biggest breaks I can give them so that any increases in fees we have to make impact the small inventor community as little as possible.

So we’re going to try to ask the large enterprise community to assume the lion’s share of helping the USPTO get to a sustainable funding model.

We’re going to try to ask as little as possible from the small inventor community. In fact, what I’ve got in mind is offering some new additional discount opportunities to the small inventor community in cases where they’ll help us with some things.

I’ll give you an example. And this is brand new. Literally just within the last hour, we received word working with our labor union, POPA, that their executive committee has approved an important new measure that I will be announcing downstairs here in about half an hour. This is the first time anyone’s hearing about this outside of the USPTO – we’re going to be announcing a program only for the small inventor community, enabling small inventors to take a patent application that’s pending and jump the queue up to the very front, in exchange if they’ve got a second application pending that is not important to them and are willing to drop it out of the queue, in other words abandon.

This is trying to do something really proactive, really geared to helping the small innovative community get something that I know they very much want, which is fast processing, while also getting them to help us a little bit with prioritizing our workloads.

This is about the USPTO, for the first time that I know of, reaching out to an important constituency and saying, ‘You can help us prioritize our workload way better than we can, because you can know what’s important. If you help us prioritize the workload, we’ll get on the work that’s most important to you.’

ID: Interesting. We need to talk about first-to-file. But before we get to that, to what extent is your lengthy tenure at IBM influencing you at the USPTO? Are you running it more like a Fortune 500 company?

DK: That’s another great question and I would answer it with yes and no.

Yes in the sense that I am trying to bring business discipline. I have a lot of experience in managing and leading in running businesses and running P and Ls – profits and losses, right – in management processes, in setting cadence, in developing and running a pipeline. These are all disciplines that you learn when you spend your career in the business world.

But those aren’t disciplines that are unique to any one company. Those are disciplines you learn at any responsible business, whether it’s a medium-sized one or a large one. So I do bring that DNA in. I bring business DNA in. No question about that.

But I also say ‘no’ in a sense in that I’ve always prided myself in trying to be a real listener and a real student of the entire innovation system. I have family members who are entrepreneurs. In specific, I’ll tell you a little about my cousin, Richard, who is a dear friend. He is a serial inventor. He runs a small business that has many patents and it’s geared toward the green tech energy space for cleaning effluent out of  smokestacks. Very successful guy.

I spent a lot of time with Richard. I’m here to make the Richards of the world successful. I’m here to make the pharmaceutical industry successful. I’m here to make specialty chemicals successful. I’m here to make medium-sized businesses in California successful.

My family lives in California. I’m a California native. I know the West Coast. I want them to be successful. I view my role as a culmination of listening to lots of people in lots of businesses in lots of roles during my entire life. And assimilating all of that and having a tremendously deep knowledge of the intellectual property system and bringing it all to bear to make everyone successful.

Kappos addresses first-to-invent vs. first-to-file in the next segment …