Shocked, Shocked To Learn The Patent Office Is Structurally Designed To Approve Shit Patents

from the and-to-create-problems-for-innovators dept

The book Innovation and Its Discontents, by Adam Jaffe and Josh Lerner, was first published in 2004. We’ve cited the book frequently around here, as it did a bang up job describing structural problems with our patent system (and the judicial review of patents). There were a few big points that it made about why our patent system was so fucked up, and a big one was the incentive structure that heavily incentivized approving patents rather than rejecting them.

Specifically, there were two big ideas mentioned in the book about the US Patent & Trademark Office: (1) that because Congress forced the USPTO to fund itself from fees, it had the direct financial incentive to encourage more patent applications, and a good way to do that is to approve a lot more patents and (2) individual examiners were rated and reviewed based on productivity scores on how many patent applications they completed — and it is much faster and less time consuming to approve a patent, rather than reject one. That’s because once you approve a patent it’s completed and gone from your desk (and into the productivity metrics as “completed”). But, if you “reject” a patent, it’s not done. Even though the USPTO issues what it calls “Final Rejections” there’s nothing final about it. The patent applicant can keep going back to the well over and over again, making minor tweaks on the application, requiring the examiner to go through it again. And each time they do, that hurts their productivity ratings. As an additional “bonus” — the USPTO actually makes significantly more money when it grants a patent, because in addition to application fees, there are also issuance fees and renewal fees.

In the years after that book came out, the USPTO actually seemed to pay attention. It changed how it measured examiners’ work and, magically, fewer patents were approved. For a bit. When President Obama appointed David Kappos to head the Patent Office, he decided that the number one problem that the Patent Office had was its huge backlog of patent applications. And, there’s no denying that was a problem — but it was a problem the USPTO created itself by spending the previous dozen years or so agreeing to issue patents on all sorts of crazy things, leading to more applications and more filers hoping to get their own golden patent trolling lottery ticket. So, it was little surprise when soon after Kappos took over, the USPTO started approving patents much more quickly, and a study from 2013 found that (surprise, surprise) it did so by drastically lowering the standards for approving patents.

Now there’s a new study with even more empirical evidence showing how the Patent Office’s entire structure is designed to incentivize the approval of crap patents (first highlighted by Tim Lee over at Ars Technica). The paper is by professors Michael Frakes and Melissa Wasserman, and they used FOIA (yay!) to get data on millions of patent applications between 1983 and 2010. The key point with that date range is that Congress only switch the USPTO over to funding itself off of fees in 1991 — so the researchers could look at before and after data. It also allowed them to look at different cross sections within the data.

So, for example, the researchers looked at whether or not there was evidence that the USPTO approved more patent applications when there was a big backlog. The answer: hell yes!

Specifically, we compared the Agency?s patent grant rate across different groups of applicants based on the tendency of their associated technologies to file repeat applications; importantly, we performed this across technology comparison for two groups?defined by their average tendency to file repeat applications?before and after periods of budgetary shortfall and increases in application backlog. Our findings suggested that when the Patent Office begins to face mounting backlogs, it appears to act on its incentive to grant patents at higher rates for technologies that are associated with higher rates of repeat application.11 In figure 1, we replicate a figure from Frakes and Wasserman (2015), demonstrating that the Patent Office indeed began to grant at differentially higher rates for high repeat-filing technologies during the mid-1990s, a moment in time when the Patent Office?s application backlog began to increase considerably year-by-year. Again, this analysis is alarming because it suggests that factors other than the underlying quality of applications are affecting the Patent Office?s decision to allow patents.

Then there’s a separate question of whether or not the USPTO has a higher approval rate for “profit-maximizing” patents. That is: not all patent fees are the same. Smaller entities get to pay reduced fees. Big companies pay full freight. If the USPTO is being incentivized by fees… then it’s likely to approve big company patents faster. And… that’s what happened. The study also looked at whether or not the USPTO more readily approved patents in categories where there were higher renewal rates — meaning a much higher likelihood of generating future fees from renewals. Take a wild guess what they found in both of those studies?

As theory predicts, the Patent Office does indeed grant patents at notably higher rates to large entities and applicants from high renewal rate technologies when it finds itself in a position of insufficient fee revenue.9 More broadly, the parameters of its fee schedule appear to affect the way in which the Patent Office applies the legal patentability requirements. This is concerning, given that the granting decision should be based solely on whether the application meets the legal patentability standards. If the fee structure were to encourage more patent grants overall (or more grants during times of budgetary shortfalls), the result could be the issuance of patents lacking legal validity, potentially leading to substantial social harms.

Of course, patent system (and patent troll) supporters will cry foul at this for all the usual reasons — insisting that this is all a conspiracy to take away their patents. But that’s ridiculous. Everyone should agree that we’re all better off if the Patent Office is not approving low quality patents. I guess everyone… except those with low quality patents. Basically if people are complaining about the results of this study, there’s a half decent chance that it’s because they hold crap patents.

The report suggests some ways to try to fix these incentives — or at least to minimize the social cost of them. One is to stop making the PTO so reliant on fees. You can understand why it was appealing for Congress to make the PTO funded by fees in the first place: not having to allocate taxpayer money to an agency seems like a good thing. But it’s important to pay attention to what kinds of incentives that can create — and how it could create serious problems, as it has here. The report suggests raising patent filing fees — such that they cover the costs of the actual examination, thus making it less likely for there to be budgetary shortfalls that create these warped incentives.

Because the actual fees paid to the Patent Office for the examination of a patent application are a fraction of the overall cost of securing a patent (which includes attorney fees), there is reason to believe that even a two-fold or three-fold increase in examination fees will not substantially impede access to the U.S. patent system. As a bonus, increasing examination fees will likely also result in raising the quality of patent applications filed with the Patent Office, as applicants become more judicious in selecting those inventions for which they choose to pursue patent rights.

While that increase in filing fee may feel unfair to some, they also propose doing away with the issuance fee — so there won’t be additional expense for actually getting the patent upfront (there are still renewal fees, but that’s much further down the road). As for renewal fees:

Instead of eliminating renewal fees, we recommend that Congress decouple the renewal fee income from the revenue stream that the Patent Office can immediately access for funding. While this decoupling goal could be achieved in various ways, we propose the most straightforward approach: Congress would abolish the requirement that the Agency?s aggregate fee income not exceed its operational costs. Renewal fees would then be allocated to a separate fund, similar to the Patent and Trademark Fee Reserve Fund, and earmarked for Patent Office use only. This fund would then be used to provide rebates to small and micro-entities. As a replacement for the guaranteed fee discount for any given small- or micro-entity application, the Agency?s excess renewal fee income would be used to subsidize the small- and micro-entity examination fee.

Perhaps an even more important modification — and one that’s been obvious for many, many years — is to actually have final rejections of bad patent applications, so people and companies can’t just keep refiling over and over again without end. As the paper notes, it’s not at all clear what societal benefits allowing repeat filings creates. It overburdens the system, creates incentives for bad patents to get approved, and provides no benefit to anyone other than the entity applying for bad patents. The specific proposal in the paper is that filers can get just one chance to refile the application.

It’s good to see more research being done on all of this — and to see more empirical evidence. What’s troubling is that almost all of this was clearly shown more than a dozen years ago, and Congress still hasn’t done a damn thing to fix any of it.

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Comments on “Shocked, Shocked To Learn The Patent Office Is Structurally Designed To Approve Shit Patents”

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Mark Syman says:

Re: funny

You guys are funny. Trying to parse the whole “count system” and how it affects the outcome of patent applications is funny. I used to be a patent examiner, and the only examiners who paid much attention to their counts were the examiners who were close to failing based on their counts. The count system was designed to boot out the examiners who didn’t do much work. That is pretty unusual. The examiners are all engineers and their work ethic is generally acceptable, if not very good. We even had one senior examiner who had authored a bunch of books on database technology, while he worked at the Patent Office. Examiners used to ask him for advice on cases.

Jason says:

Not only did they start approving more patents, but they also raised the fees to challenge a patent. To have a patent undergo an ex-parte reviewed went from about $2,000 to $18,000 and for an intra-parte it went from about $9,000 to about $40,000 (I could be off on the numbers, I was fighting a patent troll back in 2012 because of this nonsense, so just going from memory).

So someone realized they could make even more money, simply by approving bad patents

An Onymous Coward (profile) says:

Re: Re:

The above is probably the primary motivator for approving patents regardless of merit.

I have to challenge the early assumption in the article that approving lots of patents earns more revenue. A rejected patent will be modified or updated and then resubmitted, with another fee attached. This can continue for the same patent many times until it is either approved or given “final rejection” status. For this reason, rejecting patents (however flippantly) would earn more application fee revenue than approving them would.

However, if they earn huge fees from reviewing bad patents then there you have your fiscal impetus for mass approvals.

Mark Syman says:

Re: Re:

Here we have another amateur telling us how the patent system works: “A rejected patent will be modified or updated and then resubmitted, with another fee attached”. Anyone who understands patents would be totally confused by your description, none of that makes sense.

Do you mean the claims of a patent application can be modified in a response, do you mean the specification and claims can be updated with new matter and a continuation-in-part filed claiming priority to the rejected application ? And BTW – “patents” are not rejected, patent applications are rejected.

Your ignorance is on full display.

Joe L (profile) says:

Re: Re:

The USPTO employees who decide whether a patent application should be allowed are the patent examiners. Ideally, a patent examiner with signatory authority decides whether a patent examiner’s work on an office action is adequate and, if and only if so, signs the office action. Patent examiners do not benefit at all from your listed fees.

However, certain high-level patent examiners who work in what used to be called "Quality Assurance" check patent examiners’ office actions and sometimes send them back to the examiners. But, even these high-level examiners are unlikely to be motivated to increase your above-listed fees because they look bad when the quality of patents goes bad.

But, as I suggest in another comment, the authoritarian culture at the USPTO grants far too much discretion to Supervisory Patent Examiners (SPEs), who know they can easily cheat the system with impunity.

Ninja (profile) says:

Add a requirement to put the product on the market to both retain and be able to litigate on the patent. The simple trolling would be greatly decrease. We also need to deal with independent discovery/invention and split eventual gains. And I’d make startups more resilient from most patent litigation by imposing a mandatory license for new, small companies.

Plenty of stuff need to be fixed indeed. Good to see the flaws being called into attention with hard data.

Anonymous Coward says:

Re: Re:

Mandating products for retention is a terrible idea. What if someone designs a brand new ground breaking Lidar system for self driving cars, but they can create nothing more than prototypes because their new design costs them $1 million to make right now. Should they not be able to get a patent while they work on a way to get costs down to viable levels? Many times things are patented years before they are able to go to market due to feasibility of production.

Mark Syman says:


“And I’d make startups more resilient from most patent litigation by imposing a mandatory license for new, small companies.”

My gosh, a mandatory license just to exist as a startup ? some sort of flat fee, regardless of how much they are infringing. To make the startups “more resilient” ? How about to make them more bankrupt ?

Anonymous Coward says:

Who cares if rubber stamped? Real tests ALWAYS come later.

You are unfamiliar with history: patent struggles over who invented the vacuum tube — that was the American DeForest with NO help except from Edison — went on for decades. And that was back when patents were few and the field clear.

So, the business opportunity for anyone who wants, is to patent better faster rubber stamps for the patent-office.

Then maybe Masnick will quit annoying us with this topic, while offering zero thoughts on solution, just demand that it be solved.

Mike Masnick (profile) says:

Re: Who cares if rubber stamped? Real tests ALWAYS come later.

Then maybe Masnick will quit annoying us with this topic, while offering zero thoughts on solution, just demand that it be solved.

The post above lists out numerous possible solutions.

As for "zero thoughts on solutions" you should at least TRY to make statements that aren’t so easily proven false:

And that’s not even all of the first results on a search on this site for "how to fix the patent system."

That One Guy (profile) says:

Re: Re: Who cares if rubber stamped? Real tests ALWAYS come later.

That’s what TD wants you to think, it’s been clear for years now that TD has developed magic coding that forces people to read articles they didn’t want to, such that the only recourse they have is after the fact complaints about how TD is writing things they don’t want to read.

I mean, were the magic coding not in play they’d be whining about something they chose to do, and since that would make them out to be buffoons clearly they were forced into reading articles entirely without their consent.

Anonymous Coward says:

Re: Re: Re: Who cares if rubber stamped? Real tests ALWAYS come later.

You forgot to mention the magic code that forces people who hate this website with every fiber of their being to somehow not be capable of visiting other websites that better suit their ideological stances.

Hell, one sucker is so obsessed with the site he’s developed a habit of insulting others, swearing to leave, then reappear under another hastily-chosen pseudonym shortly after, just to repeat the cycle…

The Wanderer (profile) says:

Re: Re: Re: Who cares if rubber stamped? Real tests ALWAYS come later.

Now, now, be fair.

What they’re complaining about is not that they had to read the article, but that the article was written and posted in the first place.

Why that’s something worthy of being complained about is another question; I can understand it intuitively, but translating that intuitive understanding into an explainable rationale – however faulty – is a trick I’ve not yet managed.

The Wanderer (profile) says:

Re: Re: Re:3 Who cares if rubber stamped? Real tests ALWAYS come later.

Reading the article isn’t a prerequisite for being annoyed that the article was written; the only prerequisite for that is knowing that the article exists, and that is easily satisfied by seeing the headline in the front-page feed.

Also, I see no indication that he’s annoyed about reading the article – only that it existed to be read. (Believe it or not, with the right mindset, those two perspectives are not contradictory.)

Joe L (profile) says:

My SPE bypassed the signatory authority requirement.

I used to work as a patent examiner for the USPTO (until late 2004), and I observed a practice, by my SPE, which is likely to result in plenty of "crap patents."

My SPE’s personality repelled all the examiners with signatory authority from his art unit. He needed someone to help him in deciding whether examiners’ office actions should be signed. He had an examiner ("pet examiner"), who was his friend, but who had no signatory authority at all, place stickies on the file wrappers of those the pet examiner decides should be signed. The stickies said, "[first name of SPE], OK to sign. [signature of pet examiner]." The pet examiner was awarded "other time" as a "trainer" or something similar.

I photocopied several of the file wrappers with the stickies, and I still have them. At one point, I sent an email, concerning this observation, to my Tech Center Director and cc’d a copy to my SPE. Neither of these USPTO managers responded, but the stickies no longer appeared on the outsides of the file wrappers. I’m sure the practice continued.

One time, before I had discovered the stickies, while I was in his office, he said to me, "Joe, how would you like to be a trainer?" I responded, "But, to be a trainer, don’t you have to have signatory authority?" He replied, "Uhhh, ummm, yeah, yeah." I was puzzled about why he had asked me the question.

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