Innovation Solution to US Economy with USPTO Help

By Gene Quinn
Posted on Monday, 18th May 2009

As I have been writing for many months on my IPWatchdog.com blog, innovation and technology have historically lead us out of recessions. This is true because when scientists and engineers lose their jobs they face no opportunity costs associated with pursuing their own inventions. These creative and energetic individuals develop technologies that lead to the creation of new industries, but given the dysfunctional state of the U.S. patent system we cannot and should not expect innovation and technology to save us unless there are dramatic and sweeping changes at the U.S. Patent Office and inventors and companies actually get patents issued to them rather than being endlessly denied and prevented from acquiring the rights that are the prerequisite to encouraging funding from investors. You see, the nasty little secret that so many seem to want to ignore is that innovation requires funding, and funding requires patents. To help the U.S. economy we need more funding for the Patent Office and leaders dedicated to tackling the problem, as was President Reagan.

Without funding the best ideas that could lead to inventions of tomorrow that will spur economic growth, give birth to new industries and employ millions will simply not come to fruition. Simply stated: Without issued patents there will be few, if any, investors willing to provide the capital necessary to commercialize and grow new businesses, including those green businesses we hear so much about that will provide jobs that cannot be outsourced. So instead of spending hundreds of billions of dollars to artificially prop up the economy, our leaders need spend a fraction of that sum, just a few billion dollars, on a overhaul of the Patent Office. If there is no stomach for a few billion dollars then why not simply change the philosophy and direct the Patent Office to start issuing patents. Issuing patents should be fairly cheap and easy to accomplish, even for the US Patent Office. Creating monetizable assets free of charge, at least from the government perspective, is a common sense approach to stimulus, but sadly it would be a revolutionary concept.

The average pendency of U.S. patent applications is out of control. Everyone involved in the industry knows this to be true, but it might be easy to forget just how bad it is at times. During my professional life I have not known a Patent Office that could issue a patent on average in 18 months. When Ronald Reagan became President he wanted to reinvigorate business based on innovation and technology, so he set out to revitalize the US Patent Office. The Reagan Administration successfully accomplished that goal by bringing the average pendency of patent applications down to 18 months. As you can see from the chart below, this lasted (for the most part) through the Administration of President George H. W. Bush, and almost through the Clinton first term, and then something went horribly bad for the Patent Office, which means that whoever is the next Director of the Patent Office will need to fix a problem that has been brewing for at least 14 years.

At the end of fiscal year 2008 there were 1,240,704 patent applications pending at the US Patent Office. Of those pending, 140,877 were in preexamination processing, 205,999 were beyond preexamination processing but not yet docketed, and 403,720 were docketed but awaiting a first action by the patent examiner. That means that a total of 750,596 applications were pending that had yet to be acted on by the Patent Office. With 495,095 patent applications filed in 2008, and likely about 450,000 patent applications being filed in fiscal year 2009, it doesn’t take a rocket scientist to figure out this is trending in the wrong direction.

There are many reasons why patent application filings are down, but assuming it is all due to the recession we are in now is not only naive, but is dangerously incorrect. The facts are clear. During economic trouble over the last 45 years patent application filings have grown, so there must be something else to explain this alarming drop in the number of patent applications (see chart below). Sadly, there is more than one explanation, but the short answer is that the US patent system has become so dysfunctional that we will not be able to look to innovation and entrepreneurship to lead us out of this economic debacle unless we quickly get our act together and form a national innovation strategy.

The Patent Office is now allowing only 42% of patent applications to mature into an issued patent, which is at least 25% lower than the historical average allowance rate. With about 4 in 10 applications resulting in a patent, and 5 or more years waiting to be one of those 4 in 10, the U.S. is on the verge of forfeiting its dominant position in technology and innovation, and turing our back on the solution to our economic crisis.

The only way that the Obama economic plan will make any sense is if there is extremely robust growth in the economy starting almost immediately. Absent tremendous growth, what some call China-like growth, things are going to get far worse before they start to get better, and once they get better we will likely tip-toe our way through another recession caused by inflation before we come out on the other end. It is hard to believe, but it does seem that we are poised to recreate the tumultuous economic times of the 1930’s all over again. What we need to get us out of this nose-dive is a coherent plan to revitalize innovation. Through a comprehensive innovation based plan we can grow the next generation of technologies and plant the seeds for prolonged economic growth with new industries playing a vital role in creating jobs and charting the course for a better future. This coherent and comprehensive plan for innovation must start with a system wide revamping of the United States Patent and Trademark Office.

For more on this topic please read my articles on IPWatchdog.com:

Change in Patent Office Philosophy Can Lead Recovery

Innovation Will Lead Recovery if Patent System Allows

Revise Patent Examination to Stimulate the Economy

Patent Stimulus to Solve Great Depression II

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