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.

By Mike Drummond

Jan2010coverIt’s early November, moments before his keynote address to some 250 attendees at the 14th Annual Independent Inventors Conference, and USPTO Director David Kappos appears as cool as the chilled Cesar salad he just fetched from the luncheon buffet.

He nibbles romaine and then scans a few pages of his speech. He’s keeping it old school – double-spaced text on hard copy. No teleprompter. But he’s mostly engaging in small-talk with the group of a half dozen at the table, including Aldo DiBelardino, who invented the X-IT emergency escape ladder, and Sharon Barner, the USPTO’s new deputy director.

This is the first time Kappos is to speak to so many independent inventors – a relatively small, yet passionate subset of the intellectual property community. And he’s eager to drop his bombshell specifically targeting this group, gathered in the banquet chamber of the U.S. Patent and Trademark Office’s headquarters in Alexandria, Va.

Laced in his 45-minute keynote address is a brand new proposal to fast-track patent applications for independent inventors and small- and mid-sized entities. Those with two or more applications can move to the head of the line, provided they drop one of their other less-pressing applications.

The plan is among those aimed to reduce a backlog of applications and speed up the application process. You also could look at it as a policy olive branch, a smart offering to ease anxiety and opposition to other reforms he’s got cooking.

Kappos, who holds a law degree from UC Berkeley, will need all of his evident smarts to rehab a troubled USPTO.

The office is requesting $1,930 million for 2010, according to its Fiscal Year 2010 President’s Budget report. But it’s facing a $200 million budget shortfall.

“The requested amount … is less than the amount of resources necessary to sustain the USPTO at a desirable production level,” the report states. “The impact of the current economic downturn has led to a dramatic decline in the demand for USPTO products and services.”

A record 485,312 patent applications were filed in 2008, the last year for which data are available. However, that number likely will plateau, if not drop – at least for awhile. Patent application traffic, as it turns out, is not recession-proof. Previous economic downturns in the early 80s and mid-90s saw dips in applications (see chart).

Meanwhile, that $200 million budget shortfall has compelled Kappos to impose a hiring freeze and suspend some needed computer and IT upgrades. The office had 6,143 examiners at the end of the fourth quarter in 2009, down from a high of 6,229 earlier in the year.

Fewer examiners, more applications and clunky technology mean backlogs. There were 770,000 applications awaiting first office action by the fall of 2009, according to USPTO’s own numbers. But the figure actually tops 800,000, says one office insider.

And it takes longer to process patents, a deliberation time known as pendency in the patios of the USPTO. It now takes on average 34.6 months or 2.9 years to obtain or get a final ruling on a patent, up from 27.6 months or 2.3 years in 2004.

Kappos was sworn into office in August. One of his first initiatives was to kill a set of rules that his predecessor, Jon Dudas, had hoped would reduce the growing backlog.

The proposed rules would have limited patent applications to five unique claims and 25 total claims per invention. The proposed rules also would have limited the number of requests to reconsider patent applications as well as requests for continuations, which would curb the number of chances to amend a patent application.

“As a member of the community, I was quick to say, ‘we’re not doing this anymore,’” Kappos told the American Intellectual Property Law Association annual meeting in Washington, D.C.

The rules had upset the patent bar, among others, who said the USPTO director didn’t have the authority to impose such a sweeping set of rules changes without congressional approval.

Although Kappos killed the rules, he still wants to have the authority to change rules and fees without congressional approval. We get to that in an extended question-and-answer session with him below.

Meanwhile, he’s pushed to revamp the examiner count system for the first time in 30 years. Examiners gain points and eventually dollar bonuses for each new case they take. Patent practitioners generally like it, and the Patent Office Professional Association, the union that represents USPTO examiners, gives it the nod.

It will allow examiners an additional hour on each application, while awarding fewer credits for examinations that result in requests for continued examination or RCEs.

Examiners used to receive the same number of credits for RCEs as they did for final actions. Some said this encouraged unwarranted rejections.

Kappos also is pushing for expanding ways for challengers to ask the USPTO to examine already-granted patents or so-called post-grant review. The proposal is part of S.515, the patent reform legislation that lingered in the Senate for most of last year – and was still there as of this writing.

The office has two systems for reviewing approved patents. One way permits challengers to remain more involved in the review; the other allows more limited participation. Last year there were 2,120 total pending re-examinations.

The new process would bring complaints on a broader range of challenges in front of patent judges rather than patent examiners. Some liken this to a quasi-court inside the patent office, but without the expense of formal litigation.

Rulings would occur within a year from the filing date.

Critics say the new review process would make it easier to launch repeated attacks against a patent and that it would pit larger, established companies against smaller firms.

IBM, among others, supports this breed of post-grant review. In a statement, it called the proposed process “a low-cost alternative to litigation.”

Small companies and research universities, meanwhile, say big businesses could use post-grant review to stifle innovation and keep products from the market.

The National Venture Capital Association said it could be harder for start-ups to secure funding if their patents were targeted by repeated attacks.

“This may be catastrophic for a start-up or small inventor,” Dean Kamen, decorated inventor and founder of the robotic completion FIRST, told the Wall Street Journal. “You get this young guy who quit his job to make this gizmo and he shows up at the bank or to his father-in-law. The first thing the bank or that venture capitalist will say is, ‘Do you have a patent?’”

A dozen Republican senators voiced support for the smaller firms in an Oct. 15 letter to leaders of both parties.

And then there’s first-to-file. The United States has had a lone and longstanding policy of granting patents based on first-to-invent. The U.S. system represents, among other things, the high value Americans place on the individual. The rest of the world abides by a first-to-file system. Critics say first-to-file would trigger big corporations to rush to the patent office and would retard innovation.

“Harm will not merely arise due to the ‘race to the patent office,’” Ron Katznelson, president of Bi-Level Technologies, wrote on the IPWatchdog blog. “Harm will be inflicted due to the race to the patent office with the wrong application, for the wrong invention, and for the wrong reasons, while exhausting precious resources in the process.”

Katznelson says the first-to-file proposal has “undergone no study or evaluation of the expected effects on U.S. patenting practices, the balance of costs and risks for small and large U.S. businesses, or of the adverse effects on patent quality and the increased USPTO workload.

“Do you not think that we ought to see such studies and projections undertaken prior to any enactment of (first-to-file) that overturns more than 200 years of American patent law?”

First-to-file supporters, even some not aligned with multinationals, note that big corporations never rush to do anything, let alone file patents.

In any case, Kappos is pushing for first-to-file. He actually calls it “first inventor-to-file.”

Kappos’s boss, President Obama, is confronting a two-front war, the worst economic slide in decades, a dysfunctional healthcare system, and aging transportation and utilities infrastructures, among other things.

So it could be worse. Kappos could be in Obama’s shoes.

Instead, Kappos merely faces some of the biggest challenges the U.S. patent system has ever confronted. To recap, he seeks to reduce a record backlog of applications, speed up the freakishly long application process, improve the quality of patents and beef up the agency’s IT infrastructure – and do all of this with fewer examiners and fewer dollars.

It’s against this backdrop that I found myself in his 10th floor corner office, an hour before his keynote address at the Independent Inventors Conference. The décor hadn’t changed since I last visited to chat with Dudas. The director’s office looked almost identical. The only thing that seemed different was the man behind the desk.

I found this constant amid the clamor for change comforting. Rather than re-arranging deck chairs, Kappos seems focused and determined to fix all that ails the USPTO at the moment.

“He’s in the honeymoon stage,” one USPTO insider tells me. “There’s a sense that they can do all the things they want to do.”

Time, resources, his skill at navigating bureaucracy, and political and industry opposition will tell whether Kappos can achieve his goals. How does he expect to do this? Tune in tomorrow for the first installment of our Q-and-A …