The Smother of Invention

The 200-year-old U.S. Patent Office is beginning to show its
age.

Abraham Lincoln understood the value of intellectual property to American prosperity. Lincoln is, in fact, the only President to be awarded a patent (for a device to lift boats over shoals
without discharging their cargo). He later wrote, "The Patent System added the fuel of interest to the fire of genius."

Michael S. Malone- Forbes ASAP

America has never been short of genius. But the challenge has always lain with the first half of Lincoln’s phrase–that is, how to stoke that genius through a system that both rewards
the inventor with a temporary business monopoly while protecting the competition that lies at the heart of the free-market system.

This year marks the 200th anniversary of the U.S. Patent and Trademark Office (USPTO), created by inventor-president Thomas Jefferson. What followed was the greatest flowering of
innovation the world has ever known.

It took a century for this nation of tinkerers and basement inventors to be awarded the first million patents. The last million took half as long as the one before it. Patent No. 6,000,000
was awarded on December 7, 1999, to 3Com for Jeff Hawkins and Michael Albanese’s invention of "hot synchronization" technology for handhelds. Patent No. 7,000,000 will likely
arrive sometime in 2004. Each week the patent office awards approximately 3,500 new patents (and 2,000 trademarks). The applications for these patents average 20 to 40 pages,
but some, especially in biotech and electronics, run to tens of thousands of pages of diagrams and text.

But there is bad news on this bicentennial. After 200 years of lumbering down the tracks, the intellectual-property process in the United States is beginning to go off the rails. Branches
of the government are intervening where they never have before. Opposing camps, many with money and influence, are forming. Small inventors are diverted from where they can
make the greatest contributions. And a culture of litigation, circumvention, and secrecy has evolved from an area where openness and law had long ruled.

THE MOTHER LODE

More than 375,000 ideas for products and processes, designs and logos, reach the USPTO yearly. The scale of this tidal wave of invention is difficult to imagine. You get only a
glimpse by visiting the patent office’s Web site. A better view might be to visit the USPTO Public Search Room in Crystal City, Virginia, where 50 million documents are stored in
library-like stacks. But the best place to see this extraordinary collection–and to gain a unique glimpse into America’s inventive character–is in a converted limestone mine 200 feet
beneath the western Pennsylvania countryside, about 75 miles from Pittsburgh.

This is the home of the Patent Records Office, 50,000 square feet of storage space hewn out of solid rock, the last and safest repository of America’s intellectual property. In here are
copies (the U.S. Archives keeps the originals) of every patent and trademark ever awarded.

It is a place of odd juxtapositions. Linoleum floors suddenly end in the jagged faces of solid limestone walls, some painted silver with sealant. Plastic barriers stretch overhead to
catch the occasional drip of groundwater. Fabric hangings enliven walls that would only bend a picture nail. "Oh, I’m used to it," says Linda Meier, supervisor of the Records Office, "I
grew up around here. I’ve spent a lot of time in mines and caves. Besides, a lot of people work in offices without windows."

Strange too are the wondrous encounters between America’s agrarian past and digital present. Dig into one stack of patents and you may find, written in calligraphic hand, the sketch
for a grain mill or a new plow. A few feet away, another stack yields, in ripe Victorian lettering, a Civil War cannon or sterling flatware pattern. You might even find Bartholdi’s plan for the
Statue of Liberty, or a new design for a silicon-wafer sorter.

Tucked away in these millions of pages are the icons as well: Fulton’s steamboat, Morse’s telegraph, Edison’s lightbulb, Bell’s telephone, the Wright Flyer. Next to them is another
side of American inventiveness: the underwater airplanes, protective glasses for chickens, and 12-foot-long TV remote controls–loony but no less earnest dreams of lone garage
inventors.

Meier and her eight staffers have never been visited by any patent office officials from Washington, and few have ever been there. Their work level grows by the month–and yet most of
the equipment they use is obsolete. Touring the IT area is like visiting a computer museum; the handful of new PCs occupy workspaces alongside 20-year-old terminals and even
older card sorters. This is the equipment that each day processes the most cutting-edge ideas and inventions on Earth.

It is even worse in the storage rooms. There, millions of pages are stored in cardboard boxes, or on microfilm, 35mm movie film, or CD-ROMs, or stacked in one of the ten-foot-tall
Rotomat machines that bisect each room. Although this is all underground, it could just as well be America’s attic. There is no money right now for upgrades.

"We’re hoping," says Meier wistfully. As she speaks, a fresh mountain of patents arrives on the front desk.

FORMIDABLE FOURSOME

According to intellectual-property experts, the USPTO has succeeded for 200 years based on four precepts.

Efficiency: Patents were intended to be bargains. Even today, at a couple thousand dollars, a patent filing is a bargain–it ultimately may be worth billions. By comparison, patent filings
in Europe or Japan may run up to five times that amount, and that’s before being translated for global dissemination. For years, this remarkably low price had its designated effect,
opening the door to generations of small, private inventors and small business startups. The ideal result has been not only a greater chance for upward mobility but also increased
competitiveness on a level playing field that gives small companies the same rights and options as large ones.

Pendency: For most of America’s history, the time it took between filing for a patent and its award was less than three years. In the agrarian era of early America and the industrial
world of the Centennial, this period of patent pendency was quick compared with the time needed to build a factory; prepare tooling; and build supply chains, distribution networks, and
inventory. This speed propelled the rapid expansion and upgrading of the American economy in the nation’s first two centuries.

Quality: In patents and trademarks, "quality" refers to the expertise of the patent examiners, their number in ratio to the quantity of patents filed, and to the ability of these examiners to
effectively research "prior art" (previous patents) to determine if an application truly represents something new. With occasional exceptions over the past 200 years, the USPTO’s
performance has been equal to, if not better than, that of any country in the world. At times, notably at the end of the 19th century and in the 1960s to 1980s, it was arguably the best-run
operation in the federal government.

Protection: Patents are temporary monopolies, designed to reward the inventor for contributing to the collective knowledge of society. The cost of that monopoly is the publication and
dissemination of that knowledge. Patent a widget in America and you own that technology for 17 years. But now the world knows about that technology as well (which is why secret
formulas such as the ones for Coca-Cola and the filling in Oreos have never been patented). Now, competitors can do their best to circumvent your invention by tweaking your idea just
enough to gain a novel twist, or by advancing it, or by finding a nonequivalent alternative. You may not like that, but it is salutary for society as a whole. Although often a subject of
dispute, and modified several times over the past two centuries by Congress, U.S. patent protection has proven to be adequate to the demands of the marketplace–the proof being the
unmatched competitiveness of the American economy.

ENFEEBLED

And yet, as we celebrate the bicentennial of the office created to promote and protect American inventiveness, all four of these factors have begun to fail.

For instance, take efficiency. At between $400 and $800, a U.S. patent application is still one of the world’s greatest business bargains. But that is no longer the real cost; it’s just the
entrance fee. Because the perceived quality of patent awards has deteriorated–critics complain they were given away almost indiscriminately to dot-coms for only the slightest
changes in prior art–even minor patent applications must be carefully (and expensively) vetted by patent attorneys as protection against lawsuits by aggrieved patent holders. This is
even more the case with potentially valuable patents.

"Applications are cheap, but attorneys’ fees are higher. One reason is that there are few patent lawyers," says attorney Gary Reback, who has represented some of Silicon Valley’s
biggest firms in infringement cases. (See "Patently Absurd".) "The other is that the fees begin to add up when you include not just filing but policing infringement of the patent, keeping
on a patent and modifying it over time as the market changes."

The result is that not only can a single patent filing cost tens of thousands of dollars in fees but also the inventor must file multiple applications as a defense against
competitors–particularly in a global economy. A rule of thumb is that gaining sufficient protection for a patent internationally will cost about $100,000. Filing ten related patents to create
a protective "picket fence" around key patents will cost $1 million. That’s before prototypes, beta tests, manufacturing, distributing, and marketing the product itself. Self-defense has
increasingly put patents out of the reach of the small-time inventor, historically the heart of American innovation.

In many areas, such as semiconductors, biotech, and even software, individual inventors have all but abandoned the field as being too expensive for them to stake a claim. Patent
applications in these fields are now the province of large industrial or academic research laboratories, backed by armies of corporate attorneys. To position their patents for the
inevitable litigation, these entities often produce applications of astonishing complexity–sometimes in the thousands, or even tens of thousands, of pages. The current record–6
million pages–is for a gene patent

. Meanwhile, pendency has not only failed to improve but sometimes stretches beyond three years. It averages 32 months for most high tech patents. This delay might have been
tolerable when Eli Whitney was patenting the cotton gin, but not in the age of Moore’s Law, where a high tech product generation is often less than two years. The current patent office
backlog is 355,000 applications. Why even patent at all, when the eventual award will be obsolete–especially in technology?

One particular statistic is devastating. Each examiner is given an average quota of 20 hours per patent, with a few being summarily rejected in no time at all. Assume–a large
assumption in the case of arcane new technologies–that the examiner is an expert in the discipline demanded by the patent. In the equivalent of two and a half workdays, that
examiner must analyze the application, extract its key contributions, and then search through all the existing documents in that field to find any instances of prior art.

Imagine doing this with a 110,000-page patent application–searching for prior art not only through half a million pages of existing patents but also thousands of technical papers,
trade magazine articles, and, in the newest form, Web sites devoted to publishing new inventions to forestall competitive patents. (See "The Detailed Life of a Patent Examiner".)

If that weren’t enough, the very scope of patents themselves has come under legal attack, with cases being argued in court to determine whether broadening protection or narrowing
protection hastens or hinders innovation. In one of the biggest, Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., the Supreme Court on May 28 ruled in favor of inventors by
unanimously overturning a federal court decision that had limited patent holders’ ability to amend their patents. In doing so, the high court upheld inventors’ rights to sue so-called
copycats who make "equivalent” products.

This case had broad business implications, with companies such as IBM and Intel, which generate large numbers of patents, favoring the lower-court decision to limit the so-called
"equivalency doctrine.” They were opposed by Sun Microsystems, Verizon Communications, and others that urged the Supreme Court to broaden protections, arguing that restrictions
would dilute the value of original research and existing patents.

This case and others challenging the validity of patent protection call into question whether the USPTO is abdicating its role of supporting inventors, both big and small, and is
becoming an impediment to American innovation. If so, the implications for both our short-term ability to emerge from the current high tech downturn, and the long-term health of the
U.S. economy, are ominous.

GLAMOUR, AT LONG LAST

Festo could be a watershed. If broader protection becomes the new order of the day, then so will the call for more patent lawyers. If tradition holds, even more patent litigation will
follow.

Thirty years ago, patent lawyers were the pediatricians of the legal profession: necessary but not getting a lot of respect from their peers. With patent litigation becoming a growth
industry, patent law has become a legal glamour job. As long as the downturn in high tech continues, we should see a growing number of scientists and engineers pursuing patent
law as a way to use their expertise. At Santa Clara University in Silicon Valley, Elizabeth Powers, assistant dean for law and technology, already teaches a course "to get engineers
hooked on IP law."

PICKING THE PATENT POCKET

This is not another case of a government agency crying poor in order to pick taxpayers’ pockets. The patent office is not even a standard government agency. Rather, it is a PBO, or
performance-based organization, that is chartered to generate the revenues on which it runs. It can’t earn a profit, but it can end up with revenues that match its expenses.

And there’s the rub. The USPTO’s annual budget is about $1.2 billion. But in each of the past three years, Congress has pulled roughly $90 million from the patent office’s
revenues–$1 billion over the past eight years–and diverted it to the government General Fund.

"It goes into the General Fund and it never comes back," says Andy Gibbs, CEO of PatentCafe.com, an inventors’ Web site. He also serves on a federally appointed committee to
advise the director of the USPTO on policies and performance. "It’s supposed to be repaid, but it seems that Congress found a loophole, called a ‘carry-forward,’ that ultimately means
it never will."

Heeding Gibbs’ advice, the head of the USPTO, former U.S. Representative James Rogan, a California Republican, tried to push full funding through Congress. But, in the aftermath of
September 11, every government agency’s budget took an approximate 10% hit for "homeland security."

This missing $90 million owed to the USPTO each year could define the future health of the American economy. But a little payback will buy a lot. Consider the problem of speed. The
USPTO currently has 3,300 examiners. Add 1,000 more, pay them a competitive wage, especially in the key "art units" such as biotech and software, shift some of the burden of
research onto patent attorneys, and you can probably cut tech pendency from 32 months to 24 months. Rogan has made this one of his goals.

And that’s the least of it. The patent office examiners’ search tools are fully electronic. But from that point on, everything the patent office does is on paper, including printing out all of its
searches and findings. Worse, at the end of the process, the patent office sends its files to a contractor for scanning and importing into electronic files, wasting additional time.
Replace this system with a state-of-the-art information management system and the USPTO moves a long way toward regaining its once-lofty status.

Plans for a widespread modernizing effort are afoot, and many of the documents in the USPTO’s vast research library have been scanned to create a publicly searchable database. In
addition, Rogan says he is considering a requirement for all patent applications to be filed electronically. Finally, the results of the examiners’ effort would in turn be added to the
overall knowledge base–enabling future examiners to build off it.

"If we would put that $90 million each year into examiners and an IT system, we could kick butt," says Gibbs.

http://forbes.com/asap/2002/0624/032_print.html