Guest Post by Joff Wild – Editor of IAM Magazine and the IAM Blog.
The decline in patent flings and consequent fall in income causing the US Patent and Trademark Office so many worries has been extensively chronicled on PatentlyO, as well as many other US-based blogs and IP news sites. What seems to have received far less attention is that what is currently happening in the US is part of a worldwide phenomenon. The simple fact is that, to a greater or lesser extent, the USPTO's experience is being replicated in just about every other major patent office you can think of.
Take the other two offices of the Trilateral Authorities, for example. At the JPO, the most recent publicly available figures – which cover the six months until the end of March 2009 – show a decline in first filings of 6%. At the EPO, meanwhile, the very latest numbers, which I got today from the office's Controller, Ciarán McGinley, show a first filings fall of 8% so far for 2009. And just like the USPTO, the EPO has introduced a freeze on the recruitment of new examiners.
The story is similar, if not worse, elsewhere. In Korea, applications were down 9% in the first quarter of this year; in France the figure stands at minus 5%. The UK, Australia and Denmark are just three countries in which things are so bad patent office staff have actually been laid off. On the international front, World Intellectual Property Organization Director-General Francis Gurry told delegates at the Trading Ideas conference in Singapore last week that use of the PCT is down 5% compared to this time in 2008 (applications from the US have fallen by a massive 14%, by the way).
In fact, the one major economy which currently seems to be bucking the trend is China. In Singapore, Gurry told delegates that PCT applications with a Chinese origin are up 19% in 2009. At the same event, the head of the Chinese State Intellectual Property Office, Tian Lipu, stated that it had seen a 12% rise in filings in the year to the end of June, including a 23% rise from domestic applicants. For the first time ever in China, invention patent grants made to local applicants now exceed those made to foreign entities.
SIPO currently employs just over 6,100 staff and is actively seeking to bring in more examiners. It will have to. Currently, just 1% of Chinese companies use the country's patent system. Can you imagine the applications the office will have to deal with if that figure merely doubled to 2%? As an aside – any patent prosecution service provider in the world that does not already have a serious Chinese element to its offering (at least in terms of being able to access and understand Chinese prior art) is doing its clients a tremendous disservice.
Anyway, given what is happening globally (China excepted), those seeking to pin the USPTO's income and backlog problems solely or mainly on decisions taken at the office are not seeing the bigger picture. The same trends are being experienced across the world. This suggests to me that some of the solutions that the USPTO under David Kappos may put into place to tackle the difficulties it faces in these areas may also be similar to those introduced elsewhere.
Kappos is a well-known figure internationally and is familiar with the challenges that granting authorities face. Senior officials I have spoken to in both Europe and Asia welcome his potential appointment precisely because there will be no need for any learning on the job. This means that he can hit the ground running in discussions on issues such as reform of the PCT and procedural and substantive patent harmonisation.
In recent years, Kappos has spent a good deal of time in Europe and has expressed his admiration for the EPO's Scenarios for the Future project. This involved research-based scenario construction which was centred on different hypotheses as to how the world may have developed both economically and politically by 2020. The scenarios were then used as launch pads for discussion as to how the patent system may have to evolve to take account of wider change.
One result of the Scenarios project was a document, approved by the EPO's Administrative Council at the end of 2007, entitled Future Workload. There is no doubt that Kappos will also be familiar with this and its suggestion that in order to ensure patent quality and a reduction of the backlog the EPO faces, patent applicants should do more up-front work and pay more money to access a system that will make it harder than ever before to secure patent rights. During his appearance before the Senate Judiciary Committee last week Kappos spoke of the importance of reducing the USPTO backlog and talked about reworking the office's fee structure.
In 2007, EPO president Alison Brimelow told me that the office loses 30% of applicants once the search results and the preliminary opinion have been delivered; while of the 70% that remain, another 30% drop out before the end of the application process. She went on: “The fees that these people have paid do not cover the cost of the work that has been done at the office. I have nothing against what they are doing, but it is not compatible with our current funding model.” Basically, she explained, the office survives on maintenance fees, not those related to applications. As the length of the average patent's life declines, and the office consequently collects fewer maintenance payments, so there is increasing pressure on income. While not proposing a solution, Brimelow posed a question that left little doubt as to what she thought: “Should all applicants pay what it costs for the office to do the work that they request?" I wonder if David Kappos is thinking the same kind of thing.
Links:
I’ve been wondering about “Forrest” in the title of this thread. Is it a family name? Is there a pun in there somewhere? Or is it just the new and improved, bigger (forrest, not forest, and anyway, forests are bigger than woods) American version of the little old British English saying, about being unable to see the wood for the trees?
“Do you really believe that new product announcements are not reflective of real economic activity? Do you think that trademark applications are filed for new non-existent products? Does anybody think that product lifecycle contraction is a figment of ones imagination? Those who think so, have a lot of serious reading to do.”
Wow, it’s like a strawman salad.
I did not say or suggest that I “think Chinese patents are responsible for the Chinese economy” (rather than vice versa) to explain their correlated increases. I also said industrial economy growth, not just any economic growth. [Not an economy based heavily on unregulated financial schemes, a population spending beyond its means on excesses of materialism instead of savings or truely competitive educations, costly foreign military adventures, excessive litigation, etc.]
It would be interesting to learn why some Chinese companies apply for Chinese patents. What value do they see in them?
Interesting paper for one of your students, Dennis?
“To add 2 cents to the excellent detailed commentaries above on the illogical statements of so many others on the economics of patenting, note the interesting correlation of the one country noted above as still having increasing patent applications(China) with the country still having the fastest growing industrial economy (China)”
Paul, please don’t tell me that you think Chinese patents are responsible for the Chinese economy. That would be silly and sad and axx-backwards.
Rich people see an opportunity to make money in China *because* the industrial economy is growing. It’s an opportunity for people who have massive amounts of money to make more. It has nothing to do with “innovation” or “progress”. Many of the same people are also investing in Chinese real estate. It has nothing to do with “innovation” or “progress” and everything to do with making money, somehow, anyway. Try to remember Scott Harris’ infamous comments about the Internet.
No time now, for more than a quick remark.
Did I give the impression that defensive filings, as such, are an abuse? I had thought not.
On whether the USPTO and the EPO bill up front for the full cost of search and examination, I welcome your remarks, Mr Katznelson, and can’t contradict them.
On the unending stream of continuations, it isn’t mere intuition that prompts my remarks but, rather, the responsibilities of giving clearance opinions. I welcome the legal certainty that comes from:
1. First to File and
2. Strict prohibition on adding subject matter after the filing date.
Have to run now.
“Uh, do you think it is the “winning” business plan I listed in my paragraph 1 above?”
No, I think it has to do with all economic activity being down due to the recession. What a dufas.
MaxDrei,
You should read the post of Noise Above Law, who had some good answers for your questions.
As to your point on “Polluter Pays”, if there are any polluters (see comments above), they pay for their share just like everybody else. The USPTO is operating under fees set at cost recovery levels. In 2004, Congress authorized the USPTO to charge exactly the fee levels required for claim examination and search that the USPTO asked for based on its costs. For all other tasks, Congress gave the USPTO a statutory authority and OBLIGATION to set fees at cost-recovery levels. Price index adjustments were also authorized. There is no justification (other than fee diversion) for the USPTO not to have built the appropriate examination corps to handle the load. I presume that the EPO is also operating on a cost recovery basis. Clearly, both offices rely on patent annuity and renewal fees at the back-end as part of the average revenue equation. EPO president Alison Brimelow’s observation that many applicants at the EPO drop out and never reach the phase where their patent issues to later fetch renewal fees (Polluters?) is perhaps best addressed by moving away from the First-To-File policy. This policy causes excessive low-quality premature applications to be filed, only to be abandoned later upon further vetting. See my discussion on factors affecting such high abandonment rates at pages 2-4 in the Appendix attached to my Comments at link to works.bepress.com . Eurpean patent offices can do themselves a lot of good by harmonizing with the American invention date-based patent priority system, which has a lot fewer First-To-File “polluters”. The last thing America should do is move away from our current priority system.
To add 2 cents to the excellent detailed commentaries above on the illogical statements of so many others on the economics of patenting, note the interesting correlation of the one country noted above as still having increasing patent applications(China) with the country still having the fastest growing industrial economy (China).
So let me get this straight. They remove motivation to combine as a 103 element, they limit the number of continuations, BPAI is endorsing just about all rejections, and the prior USPTO director spent most of his time bad mouthing patent practitioners.
Now, the USPTO has so many worries due to the decline in patent flings and consequent fall in income, but they are sitting there wondering how they could be in this position.
Uh, do you think it is the “winning” business plan I listed in my paragraph 1 above?
Mr Katznelson, thanks again. I accept that:
1. product lifecycle length is diminishing
2. Number of new product launches is increasing
3. which are valid reasons for more patent applications.
You don’t comment on my “Polluter Pays” point (at least, not directly). But, never mind. Let me respond to your “proper patenting” issue. Asia files mostly defensively, to get earlier PTO filing dates than their competitors, to put obstacles in the way of the pat aplns of their competitors (to get an early 102(e) date I suppose you would say in the USA or, in Europe, to maximise the 54(3) prior art). I see that as entirely “proper” but maybe the EPO economists don’t. If I am right, then the number of issued European patents being renewed each year in Germany would be much less than the number of annual maintenance fees being paid on applications pending at the EPO. Is anybody reading this, who has those stats?
So long as an Applicant pays a “proper” quantum of PTO fees to establish the 102(e) or 54(3)effect, I see nothing for the EPO economists to whinge about. That fee has to be enough to cover the cost of a PTO search and patentability opinion which these days, if it is to be of good quality, is fearsomely high. I think that’s why Patent Offices don’t like such high filing numbers: filing and exam fees don’t cover the real cost of the work. And you can’t defer search and exam because then the WO or the A publn emerges with no search report annexed and nobody knows whether the claims as filed are viable or untenable, so nobody can make reasonably informed business decisions.
But I can well understand the efforts being made by PTO management, both sides of the Atlantic, to stop the legal uncertainty of “keeping something pending” through to the end of the 20 year patent term. It is the daughter, grand-daughter, great grand-daughter (and successive generations) divisional problem in Europe, and the ever-continuing app in the USPTO, which is (as I see it) the mischief that needs tackling. Tackling it effectively would reduce quantity but raise the quality of patent applications.
MaxDrei,
It appears that you actually spent some time thinking about your post. Congratualtions, a small step in the right direction.
I should reward such effort by refraining to call your post “crap”. So even though I disagree with what you posted, I commend you on attempting to format your thoughts in a logical manner.
Your first reaction nicely compares some alternative philosophical approaches. The point of the matter between registration only and full examination is that patents are indeed a different legal vehicle than trademarks and the power of a patent is due to that difference. Patents under a registration only system simply would not be the same.
The second philosphical point in your reaction one: pre- versus post- fee breakdown; has its policy driver, as I mentioned above, to encourage filings. As Mr. Katznelson points out in a different manner, those that want to dissuade filings are operating under a false pretense and have a different agenda.
Your reactions 2 and 3 are variations on the same theme and belie your belief in that false agenda. The mere choice of language (polluter) strongly indicates that you also believe that too many filing happens. You don’t quite seem to recognize the point that Ron makes that the “too many” is quite simply an unfounded assertion that is the base of the groundless re-thinking of policy that some want to use to dissuade filings. As you aptly fall into the very pattern that Ron warns (relying on a sense of intuition), you reach exactly the position that those pushing the “too many” agenda want you to have.
MaxDrei,
Good comments. Your skepticism might be a healthy first step in an honest inquiry.
My response to your third point is: Is it credible that the amount of new product introductions (growing exponentially at a doubling rate of 6.5 years) is proportional to what you call “pressure to publish” or “pressure to have a bigger pile of patents?” Do you really believe that new product announcements are not reflective of real economic activity? Do you think that trademark applications are filed for new non-existent products? Does anybody think that product lifecycle contraction is a figment of ones imagination? Those who think so, have a lot of serious reading to do. A good place to start would be the sources I cite in my patenting trends paper and the sources in a slide suggesting a 2.9% lifecycle contraction per year for consumer products over the last century (see Slide 27 in my presentation at link to works.bepress.com ). Yes, your skepticism might be a healthy FIRST step in an honest inquiry. The trouble is, that many patent policy makers stop where you are now and go no further to even imagine real causes.
Great post Mr Katznelson. Prompts from me the following reactions:
1. Registration only, or full examination on the merits before issue (compare TM regn sdystems world-wide)? How to pay for full pre-issue examination: taxes, fees the Applicant must pay, or post-issue maintenance fees? How much cross-subsidisation?
2. Perhaps the Patent Offices consume valuable resources examining rubbish, paid for by others (like you and me). Should the Polluter Pays principle apply?
3. Is it credible that the amount of scientific discovery and technological innovation is proportionate to the rise in numbers of scientific papers and patent applications? Does not your intuition tell you, that the pressure on researchers to publish, and the pressure on manufacturers to have a bigger pile of patent applications than their industry competitors, creates a pollution for which the polluter (and not the rest of us) should pay?
There are those in this country who subscribe to the philosophy that there is “excessive growth” in patenting. Apparently, the economists of the EPO also espouse this philosophy. The EPO’s “Future Workload” policy paper linked above ascribes several factors to the “excessive” patent application growth including abuse by applicants. On page 8 of this policy paper we find this remarkable statement, which recites an unsupported speculation by EPO economists:
“These [difficulties to maintain required quality] alone stimulate the growth of (low quality) patent applications, as long pendency times and a lowering of the bar for granting patents make it interesting to use the system for less proper purposes.” We have also heard allegations of abuse by our own USPTO. Although there may be isolated cases of abuse, I have yet to see specific showing of applications that were filed “for less proper purposes” at rates that even make a difference at the fraction of a percent level. Unsupported speculations such as these are disseminated by those who can’t seem to find simple economic explanations for patenting growth trends.
In a remarkable conclusion, the EPO states: “Growth of patent activity is no longer viewed as purely positive”. It than concludes on page 9 that “An ever continuing growth is not only challenging because of the workload aspect, but also effects the proper functioning of the patent system in a wider sense and thus the promotion of innovation, as too many exclusive rights or pretended exclusive rights make it difficult for third parties to decide on investments, entering new markets etc.” This latter assertion is made with absolutely no supporting evidence from ANY credible economic source. The EPO policy paper then suggests: “Patent offices and regulators should try to control the growth of patent applications… “
These folkloristic assertions that “explain” a component of the growth and use unfounded assertions of “too many exclusive rights”, appear ignorant of basic economies of growth. Why do we see exponential growth in patent applications? A brief pointer to a simple economic explanation follows below. The frightening aspect of the conclusions above is that they lead to real damaging policies not just in Europe, as these are the same sentiments that were held by USPTO management when attempting to limit continuations and claims in the infamous enjoined rules.
The first thing the EPO economists (and the one economist at USPTO, if ever hired) are advised to do, is to plot the number of applications in a logarithmic scale and not on a linear scale, as they have in their paper. Any growth phenomenon must be evaluated on a log scale to avoid false discoveries of “excessive growth.” [A well-known artifact of exponential growth plotted in a linear scale is that for ANY choice of a finite time interval, the growth in the last third of the interval ALWAYS looks “excessive” no matter when that last third period is]. Now ponder the following exponential growth statistics (discussed more fully in my patenting trends paper at link to works.bepress.com :
* The number of scientific publications per year grows exponentially, doubling every 14 years. These publications disclose new scientific and technical information. I am not aware of any scientific article author’s abuse of publication rights. This is clearly not “excessive growth.” Not surprisingly, one would expect that the number of original applications and CIP’s, which also disclose new scientific and technical information, would grow at a similar rate, known as the “growth rate of science.” As my article on patenting trends shows in Figure 1, since 1980 they indeed grow exponentially at a doubling rate of 14 years.
* The number of new product introductions per year has grown exponentially at a doubling rate of about 6.5 years. This doubling rate is evidenced by measurable proxies such as new product announcements in press releases and the number of trademark applications filed with the USPTO. I am not aware of any allegations asserting that the exponential growth with 6.5-year doubling rate for trademark applications is a result of abusive filings. One would then expect that continuations filings that attempt to match claims to new products on the market would grow at a similar exponential rate. Indeed they do, as Figures 1 and 4 in my patenting trend paper shows. The ever-contracting product lifecycle is explained to be another contributor to this 6.5-year doubling rate of new product introductions and the related increase in continuations filings since 1980.
Exponential growth (with rare temporary dips) is what one would expect from economic realities. So when the EPO or the USPTO argues that patent filing growth is “excessive”, ask them on what grounds they come to such conclusions. What growth rate would NOT be excessive and why? When they devise rules and procedures to limit patent claims and applications, why shouldn’t such logic apply to limit the growth of trademark applications, which grow at an even more than “excessive” rate?
Patent Rulemaking by folklore must end and planning examination resources based on real economics must begin. When the number of applications grows, so does the fee revenue. When the number of claims in an application grows, so do the claim fees. When patentees are allowed to pursue continuations and CIPs, the resulting patents have longer lifetimes, thereby fetching higher renewal fees. This is not rocket science. It merely requires simple observations and long term resource planning. I hope that Mr. Kappos is ready for this one facet of his task, as he deserves our full support.
>>Yawn. Wasn’t funny the first time, dood. Now >>it’s just sad. Especially on a Friday.
Perhaps not to you, but then you posting the same statements over and over again isn’t exactly entertaining. Particularly on a Friday as you point out.
A chart comparing the number of patent applications filed,
on a year-to-year basis over the past twenty years,
with the number of scientific articles published would be interesting.
A chart comparing the number of patent applications filed with the number of scientific articles published would be interesting.
>>The increase in patent trolling and bogus >>invention trafficking is not something that >>should be promoted. I understand that patent >>trolls and less than ordinary inventors may >>disagree.
I see my MM-trollbot is functioning fine. It has completely forgotten all previous posts and is automatically generating a comment for this new post. Excellent.
“The story is similar, if not worse, elsewhere.”
Why “worse”? Is there something about the number of patent applications filed in 2007 that was particularly ideal or magical? Seems to me that the rise in filings is a bit excessive, not unlike the rise in home prices in Davis, California. The rate of house flipping is lower and surely that’s a good thing … unless house flipping is a way of life for you.
The increase in patent trolling and bogus invention trafficking is not something that should be promoted. I understand that patent trolls and less than ordinary inventors may disagree.
“Another EPO revenue-enhancing method is that if applicant files a divisional, he has to pay annuities relating all the way back to the original EPO filing date. This can be very painful.”
excellent point
don’t bother
USPTO benefits somewhat because of RCE fees (EPO has no equivalent), but they lose out delaying the big maintenance fees until after issue.
Another EPO revenue-enhancing method is that if applicant files a divisional, he has to pay annuities relating all the way back to the original EPO filing date. This can be very painful.
don’t bother,
…but in entirely different ways. Annuity fee comparisons are not comparable for the reasons Tino points out.
“The EPO fee structure seems to reward stringing applicants along as long as possible.”
So does the USPTO fee structure.
“Basically, [Brimelow] explained, the office [EPO] survives on maintenance fees, not those related to applications. As the length of the average patent’s life declines, and the [EPO]consequently collects fewer maintenance payments, so there is increasing pressure on income”
This is odd coming from the EPO. Unlike the USPTO, which waits until the patent issues, the EPO collects sizeable annuities even during pendency. Unclear what “average patent’s life” means since they all have 20 year terms. Does she mean time spent in prosecution? If the EPO acts quickly to reject an application, they may collect fewer annuities for that patent if the applicant gives up. The EPO fee structure seems to reward stringing applicants along as long as possible.
Is it just the recession? Or is it the frustration with the long pendency times?
“In 2007, EPO president Alison Brimelow told me that the office loses 30% of applicants once the search results and the preliminary opinion have been delivered”
does the US lose 30% of the applicants upon issuance of the first OA on the merits?
“PCT is down 5% compared to this time in 2008 (applications from the US have fallen by a massive 14%, by the way).”
Is it “not seeing the bigger picture”, or possibly, “not seing the entire picture”, or even the picture is seen, but the US drop eclipses what is happening around the world?
If the US drop-off is appreciably greater than the rest of the world (China excepted), then the premise of “the USPTO’s income and backlog problems solely or mainly on decisions taken at the office” may still be largely accurate. Also, the stats you supply do not address the maintenance fee drop-offs, which may not be directly analagous with foreign office annual fees.
As to the “pay the costs” scenario, it is not news that the costs are shifted to the end, but rather a well known policy to encourage more filing. It seems counter intuitive that an answer to a reduction in filings would be to drop a policy that encourages filings in the first place.
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