Delays and Costs Still Vex U.S. Patent System

President Barack Obama has authorized the U.S. Patent and Trademark Office (USPTO) to spend an additional $129 million of the fees it will collect this year to improve operations and hire new patent examiners. The newly authorized funds represent fee collections that exceed earlier projections for the year, due to an improving economy and a streamlined review process. Despite that bump in productivity, a recent survey of the U.S. patent system found that entrepreneurs believe that the system is merely "muddling through" and does little to encourage innovation. The survey identifies the cost and delays associated with patenting as the primary reason entrepreneurs choose not to patent new technologies.

Though the $129 million additional authorization for the patent office is encouraging for those interested in speeding up the patent review process, it is not unusual. The USPTO is fully funded through the fees paid by patent registrants. Each year, the agency's budget appropriation is set using projections of the year's fee revenues. In years when those revenues exceed projections, the office has petitioned Congress and the White House for an increased spending authorization.

Since 1992, however, a portion of these fees have been redirected for other uses by Congress. Last year, a spending bill provision that would have allowed the agency to spend up to $100 million in additional funds without Congressional approval was dropped at the last minute. This year's agency budget was originally set at $1.887 billion based on anticipated fees, though USPTO now expects to collect an additional $200 million. The new authorization will still fall short of the full fee revenue. Meanwhile, budget constraints within the USPTO have led to a growing backlog of applications that could take another five years to eliminate, according to a Milwaukee Journal Sentinel report.

Read the USPTO announcement at: http://www.uspto.gov/news/pr/2010/10_36.jsp.

Delays in the patent review process can increase the costs associated with patent registration, and can hurt companies that rely on patents to attract investors. A white paper from the Department of Commerce, released in April, suggests that delays in the granting of patents have substantial costs for startups and can discourage venture investors. The paper recommends that Congress pass the long-debated patent reform bill, which would allow the USPTO to set its own fees. This would mitigate the degree to which the agency relies on maintenance fees from patents that have already been granted to subsidize the front-end review process. It also recommends an enhanced post-grant review process to reduce the number of legal challenges, saving money for both patent holders and the agency.

Read Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs at: http://2001-2009.commerce.gov/s/groups/public/@doc/@os/@opa/documents/content/prod01_009147.pdf.

The 2008 Berkeley Patent Survey, the first in an anticipated series of comprehensive surveys of patenting and entrepreneurship in the U.S., revealed a bit of ambiguity on the part of entrepreneurs regarding the patent system. The survey collected responses from more than 1,332 executives from early stage technology companies founded since 1998. Startup executives reported that patents offer relatively weak incentives to innovation, though opinions vary greatly by industry.

Biotechnology, medical device and IT hardware firms see patents as much more important than their counterparts in the software and Internet industries. Among executives in the patent-friendly industries, most saw patents as playing an important role in preventing copying, improving the company's odds of securing investments, imcreasing the odds and quality of a liquidity event and enhancing the company's reputation. Patenting was seen as important to securing startup financing in every industry.

The most commonly cited reason for not pursuing a patent was the cost. Cost considerations, in this case, include the cost of filing a application, maintaining a patent and prosecuting patent infringers. The cost of filing an application was more of a deterrent for smaller firms than for larger firms. Software and Internet companies were the most likely firms to be dissuaded by the cost. Biotechnology companies cited a reluctance to disclose information as their primary reason for not pursuing patents.

The authors conclude that the U.S. patent system is working neither well, nor poorly. Entrepreneurs were more likely to believe that the patent system was working well for their company, than to believe that the system was good for their industry as a whole. Patenting still plays an important role in securing capital for new businesses, but the costs associated with filing and protecting a patent appear to be a significant drain on capital over time. Also, delays in the granting of patents can discourage investors providing timely injections of capital.

Read High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1429049.