Patent Demand – A Simple Path to Patent Reform

[Read Tim Wilson’s Paper] Tim Wilson (Senior IP Counsel at SAS US) has been concerned about patent quality for some time. In part, the sheer number of patent applications being filed creates a host of problems. Wilson's solution is to raise patent fees – he says the fees should go as high as $50,000 for large corporate applicants. The result – according to natural tendencies of supply and demand – is that fewer applications will be filed and fewer patents will issue. In all likelihood, however, those that are filed will be better applications covering higher quality inventions.

Wilson did not simply pull his $50,000 figure out of his ear. Using the powerful computing resources of SAS, Wilson calculated an estimated demand curve for patent applications using both (1) historical filing reactions to increases in PTO fees and (2) an assumption that the budgets of corporate patent departments is fairly inelastic. Wilson then created his Figure 5 – showing the demand curve for patent applications drawn with respect to the patent application fees.

Wilson's approach is admittedly only an estimate, but his intuition has to be correct that a dramatic increase in PTO fees would lead to a dramatic decrease in PTO filings.

An average high technology patent contains a minor improvement on a small portion of a product and the patent application is typically written using outside counsel working for a flat fee of a few thousand dollars. Imagine what would happen to the high technology company's patent process if each patent application cost $50,000 just to file. The high technology company would file far fewer, but more important patent applications and they would spend more time and effort doing so. The pharmaceutical company's process probably would not change much because a billion dollar decision depends on the outcome of the patent process. What would happen to non-practicing entities, sometimes derisively referred to as patent trolls? I believe that these entities will change to patent market facilitators, or cease to exist. When the value of all patents is increased substantially, it is very unlikely that any patent will be available to fall to these non-practicing entities. First, each individual patent will be more valuable to the current owner of that patent, so it will be less likely that an owner would be willing to part with it to a troll. Second, if a company does fail, competitors of that company may be more willing to buy that patent rather than allow it to fall to a company that may sue the competitor. Finally, fewer issued patents mean that it will be easier for companies to monitor patents issuing in their product space and less likely that they will allow those patents to fall into the hands of a troll.

DDC Comment: Wilson's proposal has some merit, and his work on the demand curve is especially interesting. However, the proposal suffers from three fundamental problems: First, the proposal implicitly equates economic value with technologic value – the two are related but different. Many important technical advances have only limited economic value, but still serve as building blocks for future advances. (i.e., standing on the shoulders of giants). Second, the proposal greatly favors technologies where the economic value is well known up front. Again, many important technologies are eventually found valuable – but the very high up-front price will greatly limit those applications – and consequently, the upstream incentive to innovate in that area. Third, the proposal favors firms with cash – i.e., those that have performed well in the past and have saved their money. However, many innovation experts believe that most of the breakthrough work comes from these mainstream companies. To his credit, Wilson addresses this problem by stating that the high-price only applies to large companies. However, that approach would tend to allow the "non-practicing entities" to continue to obtain patents (against one of Wilson's primary goals). In addition, the prospect of small entities paying only $500 while large entities pay $50,000 would surely lead to other political and practical problems.

• Tim's paper is published in the recent edition of the International In-house Counsel Journal.

  

Comments

[KCB]

I believe that the way to create better patents is by repeal of a blantantly unconstitutional section of the patent code. the e, f and g exceptions under 35 USC section 103

[Lowly]

"I thought most of the money in prosecution was made with drafting the application and not on OA responses."

Applications are a nice chunk at once, however there is plenty of money to be made in responding to a steady stream of OA's. My time each month is split fairly evenly between drafting applications and responding to office actions.

As PDS has pointed out, sophisticated corporate clients don't get upset at the attorney when examination is poor and the attorney must spend more time to get the case allowed. Companies who file hundreds of patents a year know and understand exactly what is going on at the PTO.

Poor examination only makes me more money..

[Tazistan Jen]

Can someone explain the harm done by poor quality patents? I suppose they offend our sense of aesthetics, but what harm do they do otherwise? I see a risk in raising fees to discourage patenting, and I am not sure what the point of taking this risk is.

Disclosure - I am a patent prosecutor and I know I have a pro-patent bias. But on the other hand I like to think I don't file "poor quality" patents so I have no particular need to get defensive about them. :-)

[anon]

This comment is based on a few comments upstream. I wonder if the PTO has ever tried to produce a metric of how long, on average, it takes an Examiner to examine 1 claim.

It seems to me this would not be so difficult to do, assuming that Examiner time is tracked on an per application basis. It must be if Examiners are only allowed a maximum of 30 hours per app. If the PTO could produce this kind of metric, then it would be a no-brainer to scale the length of time allowed per application to the length and/or number of claims in the application.

Just a thought...

[6000]

"I suppose they offend our sense of aesthetics, but what harm do they do otherwise?"

Are you kidding? You put a lot of effort into your post, but if you're smart enough to be an attorney, you sure as he11 are smart enough to figure out what the "bad" thing about having "bad" patents around is.

[Paul F. Morgan]

Most seriously, this theory is based on and perpetuates the myth that the value of inventions, much less patent claims thereon, can be accurately determined at the early date on which patent applications must be filed. That is usually before the product has been fully developed and tested, mass manufacturability established, essential market success [at the whim of the public] established, and then competitive alternatives or design-arounds developed.

[Michael Valentine Smith]

anon,

Re your idea about timing for 1 claim examination & extrapolating:

Interesting, but there are a LOT of variables that would still need to be taken into account. These would include:

the field of art of the claim;
the experience of the examiner;
the competence of the examiner;
the length of the claim;
the details in the claim;
how much of the length and/or details are conventional & how much are well known;
is there actually prior art out there on that claim;
how well the claim is written;
how well the spec is written;
etc...

IF you can take ALL of this into account, you MIGHT have a starting place, but there would be a LOT of work still to do.
We all know that claims are not cookie-cutter & vary with regard to all of the above. So, even if you had a decent accounting for all of the above, you would then need to determine how to modify that number for all of these (and any other) variables to come up with a metric that would be usable for other cases & claims.

Not trying to be negative, just pointing out that most solutions are not so easy when you really get down to the brass-tacks of things. People often do not consider all of the variables when suggesting something & so something may sound good at 1st blush but when really analyzed flaws develop. And, unless people are willing to accept that their ideas have flaws & are willing to adjust to take other factors into account, the ideas are usually more harmful than beneficial (much like the rules packages that they tried to push thru).

Just like the 1d10t on here & his idea about adjusting production for examiners by the number of pages of spec & the # of claims. AT BEST, that would be a zero-sum game (which he has admitted) & be like rearranging deck chairs on the Titanic. In practicality, would probably result in LESS time for examiners to do a case & be like seeing the iceberg & ordering "Full steam ahead!"

Personally, I would love to see changes made to production as well as a lot of other things in the examination process. However, until we get people on BOTH sides of prosecution to agree to their role in the problems and be willing to compromise to get to a better solution for everyone, the public, applicant, assignee, examiner, and attorney alike, things will not get better.

Just my 2 cents.

MVS

[MCS]

What impact do you think articleonepartners.com will have regarding patent reform?

http://www.forbes.com/feeds/ap/2008/11/17/ap5702436.html