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Members of the patent profession share a covert, guilty pleasure. Over the years, the U.S. Patent and Trademark Office has issued a number of patents of . . . shall we say . . . dubious quality. Take No. 6,368,227 — a method of swinging on a swing. Or No. 6,505,984 — a crayon with its own eraser. Or No. 6,464,222 — a dinner-party conversation generator. We all get a chuckle out of these. But even as we laugh, responsible patent attorneys also worry. Some ideologues cast these patents as poster children in their campaigns to revamp or eliminate patents entirely in certain industries. Our laughter is guilty because we know that the patent system is a cornerstone of American business and that weak patents ultimately harm the economy. And nobody finds that amusing. An entire article could be devoted simply to defining patent quality. A systematic approach entails establishing benchmarks and metrics, but this article does not attempt that task. The subject of exactly how many patent applications are allowed, rejected, or abandoned has also sparked lively discussion and PTO rebuttals. This article does not try to join that debate. Instead, PTO Director James Rogan’s frank and refreshing acknowledgement in April 2003 congressional testimony that improving patent quality is an issue that needs to be addressed provides a solid starting point for this discussion. IMPACT OF POOR QUALITY Even lawyers may wonder why anyone, other than a few patent geeks, should really care about patent quality. Start with the fact that patents have become critically valuable assets. Licensing fees that totaled $15 billion in 1990 exploded to $120 billion in 2002, according to a June 10, 2002, article in U.S. News & World Report.Meanwhile, corporations are moving more and more of their physical and financial assets off the balance sheet by establishing outside supply, distribution, and investor networks. As result, intellectual capital is becoming a larger portion of total assets. Difficulties in valuing such corporations are exacerbated when they hold patents of uncertain quality. Moreover, companies have dedicated great sums to research and development. According to the National Science Foundation, the 1990s witnessed the largest increase in U.S. history in corporate R&D spending. Yet the resulting innovations can still face multimillion-dollar litigation — partly due to the perception that many patents can be successfully attacked. Perceived weaknesses in patents can lead to highly unpredictable outcomes at both the trial court level and the U.S. Court of Appeals for the Federal Circuit. Increasingly, companies are beset by patent predators — entities with no real business other than patent enforcement that are joining forces with contingency lawyers hoping for large payoffs. Because these entities are not attempting to develop new products and services, the true merits of their intellectual property matter little to them. Patents are just lottery tickets to be parlayed into nuisance royalties from a large number of other companies or the chance for a big payday in court. Unfortunately, the successes of such predatory conduct are encouraging imitators. ‘AN AGENCY IN CRISIS’ Patent quality won’t be significantly improved without substantial structural changes at the PTO because the agency is already overburdened. Director Rogan inherited a problem that had been building for at least 20 years. As he said in the Los Angeles Timeson Feb. 7, 2003, “This is an agency in crisis, and it’s going to get worse if we don’t change our dynamic.” A rising flood of increasingly complex patent applications is swamping the PTO. According to technology consultants CHI Research Inc., more than 2,000 patent documents are published worldwide every business day. Prior to the current economic downturn, applications were growing at a rate of 10 percent per year, paralleling the rise in R&D spending. Although R&D spending and the number of applications have stayed essentially flat for the last few years, any economic rebound will likely lift them both. In the meantime, listen to the voice of the patent examiners themselves. Radio Free PTO is a Web site maintained by the Patent Office Professional Association ( www.popa.org). On May 20, 2003, it warned, “[T]he technological complexity of applications, the number of pages of description, the number of independent claims and the number of total claims in each application [have] increased substantially. In addition, there has been a veritable explosion of technology information.” The 21st Century Strategic Plan put forward by Rogan last year, as well as other broad reform proposals, address many areas that do not affect patent quality directly. Yet issues such as fee diversion, number of patent examiners, examiner salaries, length of application process, outsourcing of prior art searches, and unified international searches can all have an important indirect impact on quality — for good or ill. TAKE MORE TIME To improve patent quality substantively and directly, the PTO could begin by increasing the amount of time spent examining each patent application. Indeed, this is the most common suggestion for improving quality, minimizing subsequent litigation, and discouraging marginal applications. Patent examiners now spend approximately 25 hours total on each application. During this time, the examiner must comprehend the invention, analyze the claims, find any prior art, and apply key patentability standards. According to one study, the patent litigation rate has risen from 21 suits per 1,000 patents during the years 1991 to 1995, to 38 suits per 1,000 patents during the years 1998 to 2002. Another study suggests that just a 1 percent increase in examination hours might reduce the amount of litigation by four patent suits per year. The estimated cost to the PTO would be $2 million. On the other side of the ledger, one less patent trial would easily save private litigants $2 million in attorney fees and costs. Spending more time examining individual applications may, over the long term, free up even more time as fewer applications of marginal quality are filed. The PTO has already implemented a procedure that gives more examiner time to business method applications, an area in which there has been particular concern that weak patents might be issuing. The previous director of the PTO, Q. Todd Dickinson, initiated a review process whereby a “second pair of eyes” from a senior examiner looks over any business method application preliminarily allowed by the first examiner. This process has dramatically lowered the percentage of business method patent applications ultimately approved. Elsewhere in the PTO, approximately 67 percent of patent applications are allowed, whereas in the business method area, only 17 percent go through. The number of business method applications filed has also dropped more than 40 percent from 2001 to 2002. Citing another study, some have argued that simply eliminating continuation practice (i.e., the filing of later applications based on earlier applications) would reduce the PTO’s workload by 25 percent. Those resources could be devoted to a more thorough examination of the original applications. IMPROVE THE INFORMATION A second broad approach to improving patent quality would be to increase the quality of information available to patent examiners. At least one witness at joint Federal Trade Commission/Justice Department hearings on competition and intellectual property in April 2002 testified that the PTO needs better information, not just more examiners. Three sources of more information are generally being suggested: competitors and other interested third parties, the applicants themselves, and other databases, repositories, libraries, etc., especially ones containing nonpatent technical literature. The current system of confidential assessment of patent applications effectively inhibits outside participation. Opening up the examination to third parties, especially competitors — in what would essentially be a pre-grant opposition system — would likely bring out substantially more pertinent information. It has also been suggested that a post-grant opposition process modeled on the European system would improve patent quality. The European system permits more extensive and, thus, more effective participation by third parties. One study compared European patent oppositions with U.S. patent re-examinations in February 2002, and found that the rate of European oppositions was 30 times higher than the rate of U.S. re-examinations and that oppositions led to patent revocation in 41 percent of the cases versus 12.2 percent of the re-examination cases. Another way to raise the quality of information reaching the PTO would be to require patent applicants to conduct prior art searches and to discuss references they cite to the PTO, neither of which is mandatory now. (In the past, applicants had to discuss the relevance of their references.) But such an approach is very controversial among companies that conduct massive R&D and file many patent applications. The cost in time and money would likely be very high. Applicants are also concerned that prosecution history estoppel and inequitable conduct challenges will be raised later in enforcement litigation based on their characterization of references. Under Director Rogan, the PTO has begun several initiatives to expand the information at the patent examiners’ fingertips. Greater use of automated search tools, whether controlled by examiners inside the PTO or outsourced, could serve up prior art faster. These systems can, in theory, tap into large collections of nonpatent prior art. At present, the recall and precision of such systems is not high, but they do offer substantial economies and efficiencies over manual searching. The PTO is also discussing use of searches conducted by its counterparts in the European Union, Japan, and elsewhere. With the cooperation of interested industries, the agency is establishing libraries of nonpatent prior art. And there’s an expectation that if the PTO hires more examiners with recent advanced degrees, that too should help improve access to more relevant information. DON’T MISS THE BIG PICTURE The preceding discussion is not, of course, an exhaustive list of the many proposals to improve patent quality. For example, the examination process may be narrowing the prior art search too soon. Currently, incoming applications are screened and assigned to a particular technology unit. One observer has noted that subsequent prior art searches tend to be restricted within this initial classification. When more intellectual effort, rigor, and analysis is brought to bear on the subject of patent quality, additional avenues for reform will surely become apparent. Instead of laughing privately over bad patents, the patent community needs to publicly support Director Rogan’s efforts to improve quality. Patent professionals and other stakeholders must work together to create and implement specific changes. Snickering covertly among ourselves won’t solve the problem. James R. Myers is a partner and Christopher A. Ott is a senior associate in the D.C. office of Kilpatrick Stockton. Myers leads the D.C. IP litigation group, of which Ott is a member. They can be reached at [email protected]and [email protected], respectively. The opinions expressed here are those of the authors and do not necessarily reflect the views of their law firm or their clients.

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