American economic security is threatened in a way Congress has failed to recognize. Our biggest challenge is stemming the outflow of jobs, talent, technology and manufacturing. All four losses drain away national economic power. All result from the same cause: chronic under-financing of our innovation infrastructure. Although invisible, it is our nation’s greatest asset. According to the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC), intellectual property—the backbone of our innovation infrastructure—is worth between $5.0 trillion and $5.5 trillion, which is more than the nominal gross domestic product of any other country. Strengthening our innovation infrastructure can assure our prosperity and restore our technological leadership. We urgently need to increase innovation and make new products that Americans and others will need, want and buy. To increase innovation, however, we must increase investment by fixing the patent system.
As I discussed while speaking at a recent GIPC event, the patent system is failing primarily because the U.S. Patent and Trademark Office is failing. President Barack Obama has appointed the right man to head the USPTO, Director David Kappos. In the past year, Director Kappos has taken the USPTO in the right direction. However, in a single, blunt word, the patent office had become dysfunctional, and Director Kappos needs Congressional support to restore the USPTO. Applications have tripled since 1990, and the PTO simply cannot keep up. Over 735,000 patent applications sit unread in a warehouse in Alexandria, Virginia. The warehoused applications equate to almost two years worth of filings. Another 490,000 applications are currently being examined, but their progress is far too slow. And every year another 460,000 more are filed. Of the 1.2 million applications currently awaiting final disposition, only about 350,000 complete the examination process each year. So the backlog, already intolerable, is actually growing by 110,000 applications per year. It is now four times the backlog of 1990. Delays often exceed five years.
There are too few examiners — mostly young engineers and scientists — and too few with experience. Nearly one-third of the examiner workforce has been at the PTO for less than three years. But it takes at least three years for new examiners to become both competent and efficient. Faulty decisions by inexperienced examiners, like delay itself, harm the system and therefore innovation; such examiners allow patent claims they should reject, blocking innovation, and reject ones they should allow, causing further unnecessary delays. And the lack of adequate quality assurance undermines the presumption of patent validity provided by law and also the credibility of patents in the eyes of the media, academia and Congress.
Therefore, I suggest the following three emergency steps:
First, make a one-time capital investment in the PTO of one billion dollars. This truly would be a one-time investment, as the PTO is entirely financed by user fees, just as it has been for more than two decades. That should be enough to replace the old IT systems, which the PTO Director correctly calls “moribund,” and also pay for new hires to beat down the backlog.
Second, Congress must guarantee by law that the PTO can spend an amount equal to the user fees paid by patent applicants and holders. Between 1992 and 2010, Congress diverted $630 million in fees paid to the PTO by patent holders and applicants, directing it instead to other governmental activity. This year alone, Congress will siphon off an estimated $101 million in PTO user-paid fees. So most of the $1 billion is past fee money that Congress should give back to the PTO. Essentially, PTO users have unwittingly been paying an additional tax subsidizing governmental expenditures that have nothing to do with PTO functions. Permanently ending this Congressional practice, called “fee diversion,” is a necessary precondition to reviving the PTO, and so is raising fees. But if Congress continues spending user fees for other purposes, raising fee levels will have little effect.
Third, the PTO must pay examiners better. Congress controls the pay structure for examiners, and as with the fees, Congress has failed to maintain salary levels that would enable the PTO to compete for young scientists and engineers and to retain skilled examiners.
The bottom line is this: unless Congress invests more in the America patent system, private investors will not. We must encourage investors to boost their investments in order to increase American R&D and the building of new plants to employ more workers. The PTO needs more money, more examiners, more space to house the examiners, and new computers. Congress must “prime the pump.” Only then can private investment take over. This strategy could help restore our status as the technology leader of the world, increase private and public revenues and stock values, raise our standard of living and create millions of new, high-paying jobs.
But because members of Congress don’t understand that patents increase prosperity, they must first hear from you.
Paul R. Michel was the Chief Judge of the U.S. Court of Appeals for the Federal Circuit from 2004 to 2010.