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The Future of America’s Innovation Economy- Progress and Challenges at the USPTO

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I took fairly detailed notes at last night’s panel on ‘The Future of America’s Innovation Economy Progress and Challenges at the USPTO’. It was sponsored by The Gibbons Institute of Law, Science & Technology; Seton Hall University School of Law; and the New Jersey Intellectual Property Law Association .

The speakers were:
David Kappos, Under Secretary of Commerce for Intellectual Property and Director of the USPTO, and

Q. Todd Dickinson, Former Director of the USPTO and the current Executive Director of the AIPLA


Almost out of the blue, 28th Feb., Senate is going to take on patent reform.


It’s taken 6 years to take S-23 to the floor of the Senate. We assume it will be a 2-3 day discussion, but may be much longer, because of the CR (Continuing Resolution) to fund the government overall.

This is 1st chance to update patent law since 1952. It has funding, change in fees to make them more rational, movement to make US into compliance with global patent standards (get rid of best mode , and move to ‘first to file’).

Dickinson: I thought the theme was jobs, jobs, jobs. Why bother with patent reform now?

Kappos: This is jobs legislation. Note the Harvard Business Review article on “The Little Jobs-Creating Agency You’ve Never Heard Of”. We have zero Budgetary Authority (i.e., we’re totally funded by User Fee), but could create lots more jobs if we processed more apps that people send us. If we move us to global standards that creates more jobs.

Dickinson: A lot of the debate lately has been litigation issues, e.g., injunctive relief. Then we spent a lot of time on damages. Where does that stand?

Kappos: Before that we spent a lot of time on obviousness, then KSR, then willfulness, then Seagate, inequitable conduct, venue (TS Tech and its progeny in and around 5th and 3rd circuit). These have all made progress towards fixing the law of venue. The courts have fixed some of the hardest problems. Judge Raider (Ithaca) fixed the damages issue. Willfulness can also be dropped out of the legislation (per Feinstein’s modification to S-23). I think venue can also away; that’s fixed. Supplementary examination provision is on its way to being addressed thru the Therasense case.

Dickinson: So what’s left? What’s controversial?

Kappos: Post-grant challenges are the main bone of contention.

Dickinson: Are you going to charge a fee for that? (laughter)

Kappos: The current fees ($10-$15K) are way below our real cost ($30-$40K).

Dickinson: We hear the argument regularly that the USPTO can’t handle this with current staff, from a standing start.

Kappos: No inventions are needed to manage the post-grant process [i.e., we just need more funding].

Dickinson: 3 amendments likely to be offered:

1) Financing

2) Schumer, at request of financial services sector, is thinking of bringing an amendment to the floor re: business method patents.

3) Change to ‘first to file’. Feinstein or someone else may offer an amendment to strike this term.

Dr. Tom Coburn’s proposed amendment would end fee diversion [away from the USPTO] by creating a reserve fund.

Kappos: Schumer will likely offer a tactical, time-limited pilot of a post-grant process. Will direct the USPTO to handle Bielsky and post-Bielsky issues in patents that might be called business method related.

Dickinson: Any tax lawyers in the room? Good..[laughter]

Kappos: There’s a tax patent provision: for patents that involve compliance with tax laws, the agency can’t consider tax-related portion of the claims with regard to patentability. This is likely to go thru.

We instituted the first direct-ordered re-exam, to look at a tax strategy patent I thought had been incorrectly granted.

Dickinson: This started as an amendment to 101, which should never have been modified ever.

Kappos: The patent code is not the tax code—it should not be modified often.

Kappos: I view ‘first inventor to file’ as essential to moving US to the 21st century. The current system is arcane, and an incredible trap for the unwary.

Dickinson: Small inventors want a patent to grow their business, and want to be able to do that outside of the US.

Kappos: When I wanted to challenge a patent, I would always use a 131 when possible. This forces the inventor into a 102G contest. If you have a small inventor in 102G, you’ve got him where you want him.

In the last 7 years, there were 2m patent filings. There were just 16 instances in which small parties (with small inventor status) had been 2nd to file but won in a priority contest claiming to be 1st to invent. Exactly 1 of these were independent inventors. You have a better chance of being bitten by a grizzly bear and a polar bear on the same day.

Kappos: We have to fight very hard to get access to the fees you’re filing, so we can run our agency. Every month, 10s of millions are being diverted away from us. I expect $240-$330m/yr (a new record) to be diverted unless we change something.

Dickinson: I don’t have a senator; I live in DC. But you should all be lobbying your senator.

Kappos: We’re starting to make some progress against problems that we have . If we don’t have access, the backlogs will start building up again.

Dickinson: If government shuts down, only political appointees can work. So you’ll be the only person working.

What prognosis on workflow issues we dicussed previously?

Kappos: This year we kicked back some of the stack of applications. Our models are we’ll be at 655 by end of this year, despite the fa
ct that filings are up 7.5% this year.
Our plan is to nose those numbers down over next few years.

Dickinson: I used to get a lot of heat for allowances. Now it’s way back up.

Kappos: We added 5 new metrics with guide on how to use them on the site. While allowance rate has gone up by several percentage points. I’m comfortable with it going wherever patent apps take it.

Dickinson: House oversight hearing was other day. Congressman Chappins said, “We’ve given $1b from IT over the past 9 yrs. What have you done with it?”

K When I started at USPTO, the first thing I did was Stop, Look, and Listen. I put on hold millions of dollars of IT spend that were underway. We’ve revectored to an agile development methodology. We’re using modern programming languages. We’re making some really good progress on upgrading patents.

Kappos: Over time we’re going to have to reoptimize to use the new Detroit office. We’ll try to bring in automotive experts. People in Detroit are very excited about this. Some people are asking, ‘can we select Detroit to evaluate us?’

D: there are a bunch of new personnel changes. What’s the update?

Kappos: You’ll be impressed by the quality we ‘ve assembled.

Dickinson: Why is that important?

Kappos: Backlog of the board is up to 20,000 cases. Our process to process appeals is particularly bad; # appeals not yet heard forms a vertical line if we graph it.

I just signed an S-152 to approve the hiring of some external lawyers who want to join us to become judges.

We got new leadership coming in.

Dickinson: You’ve gone from being corporate lawyer to being a public figure, being bashed by lawyers. How do you feel about that?

Kappos: No other department is as much a fishbowl as the USPTO. People feel empowered/that they have the right to comment on what USPTO is doing.

Dickinson: You’ve got 3 local Public employee unions (patent office professionals, and the national telecommunications industry association-two chapters). How’s the relationship ?

Kappos: 95% of our employees are union members. We have done a lot to forge strong and productive ties with our 3 unions. The union leadership have been stewards and team players. Todd said the most important thing you can do is reach out to the unions and repair broken relationships. I’ve negotiated on working conditions: sizes of examiner’s offices, carpet colors, maintenance schedules for washrooms, how many printers we have on each floor. No substantial decision fails to get the unions’ input.

Dickinson: A story: I redecorated the carpet and the union board was split 50-50 about the carpet color. They finally brought management in to break the tie.

Kappos: We have legislation that came in thru last congress on teleworking. New legislation allows them to live anywhere in the US. We are required to set up a council with representation from unions to manage this.

Dickinson: You do a fair amount of international work; you’re the senior member of the trilateral group: EPO, JPO, USPTO.

Kappos: Turnover is very fast-I’m the most senior person after 18 months! Trilateral attempts to work on lightweight harmonization issues. We’re under well-deserved pressure from IALPA to consolidate the IBS forms. Industry associations banged our heads together to have just one form. Seems reasonable. We’re finally getting it done.

Dickinson: What about bigger international issues: PCT search. You said you’d guarantee a “world-class PCT search”.

Kappos: I want to be doing as good a job as EPO, JPO, and KEPO (Korea) on this. Team PTO has done a good job on this. We’re now best of class on timeliness and our quality is excellent. We’re now driving those search results to the national stage.

We had built into our contract with the vendor of our PCT search a term that says, they should stop the search when they find the first applicable work of art. That’s not our internal standard, which is to do an exhaustive search. This was a contractual guarantee of inferior work. So we went back and renegotiated it.

Dickinson: Track 1 is the answer to a lot of your problems: 3 mos. to first action, 12 mos. to final disposal. This is “Fedex meets the USPTO”. You pay a premium for this. Only a small percentage request our acceleration (10,000/year). We are charging full boat: what it costs us to do the work.

Only 7% of EPO request their fast track, even though it’s free. There are a lot of theories as to why the figure is so low.

The SMB sector (Small/Medium Businesses, filing under small entity status) values super-fast processing the most, and EPO doesn’t have as big a SMB sector. We charge $4000. USPTO doesn’t have statutory authority to set our own fees, or we’d change that to $2,000.

Before we instituted Track 1, we told Congress we needed their help to do this.

We examine patent applications according to the current state of the law, not as preferred by the Acting Solicitor General.

Kappos: a prominent practitioner says that when we move to first to file, US patent system will finally be “TOPS”, i.e., transparent, objective, predictable, and simple.

Rigorous 112 disclosure will scope out the differences between two similar claims, and then whoever has the first date wins.

Teten: How has and how should the PTO respond to the trend of securitization of patents, e.g., Intellectual Ventures, Acacia Research Group, etc.?

Kappos: You could think of this as a downstream issue, but that’s too simplistic. When you have securitization of any instrument, it’s fundamentally dependent on the quality of the instrument. Our job at the USPTO enables this securitization. We want to enable people to buy & sell IP in the same way that buy & sell cars. It will happen over time as our processes get tighter.

An impediment to securitization is understanding who is the true owner behind the piece of property. In the current system, where we don’t have a good way of tracking patent assignees, where we don’t get notices of patent reassignment , there are a whole host of issues—e.g., confusing I.B.M., IBM, International Business Machines, etc. There’s a project underfoot to work with other parts of government to get unique numbers that assignees can use to identify themselves. That would be the number that Citi (for example) uses with every patent it files. That will help find the real party of interest.

Dickinson: In our recent economic history, one of the challenges is putting in safeguards for bounds of securitization proces
s. People make an analogy to the mortgage market.we see what happened there. People lose the paperwork, don’t treat the instruments the way they’re supposed to.

Kappos: We’ve hired Dr. Stewart Tate, a tenured Georgia Tech econ professor. He’s involved in this project to sort out unique identifiers for owners of IP (e.g., IBM, I.B.M., etc.) He’s working on other projects to link patents to job creation, economic opportunity, etc.

Audience question: Average pending time for a patent application used to be 6-9 months. This allowed the attorney to make an enlightened decision re: foreign filing. Now it’s 2-3 years. How can clients today make an enlightened decision which will keep their priority and determine if it’s worth their while to undergo foreign filing?

Kappos: The problem is funding.

Dickinson: You need to get on your local politician to end the funding diversion.

Audience: one of my problems was making sure patent wasn’t issued too quickly, so you can sync it with marketing.

Kappos: that’s why our target for First Action Penancy Target is 10-20 months.

Kappos: We’ve had 7-8% growth in applications and flat in RCEs, so we’re making progress on that.

We’re coming out with a 117 practice, which will address this problem.

Dickinson: We traditionally say something nice about trademarks.

Kappos: New trademark commissioner Debbie Cohn is ‘the little engine that could and does’. They’re dialed in on first action penancies 1.5-3.5 mos. The “trademark bully study” (which we refer to as the ‘Aggressive Acts Study”) was to research whether there are issuers that are overly aggressively bullying others about trademark ownership. You can email a box on our site to make suggestions on this. Report is due at end of April.

Dickinson: Another hot issue: whether new TLDs are allowed at ICANN.

Kappos: That’s a worrying issue. If you create a defensive requirement for small & large businesses to spend millions/billions to register entirely new classes of domain names, I just think it’s not needed. And to go thru a contested proceeding is not a cheap thing.

Andrea Cammage, President, NJIPLA:

We are awarding Jefferson Medal to Exec. Director of the NJIPLA. Mar. 9 is annual litigation seminar. David Kappos is returning on Apr. 27, joint with NY and CT intellectual property association meetings.

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