Revolution in the USPTO: New Order and Improved Policies for Fostering American Invention

With my colleague and co-author, May Lin Dehaan, I offer the following brief perspective on the New Order in the United States Patent and Trademark Office. Please feel free to offer your comments, or questions.

Intellectual property is one of the most important strategic resources of the United States today, wherein an increasing intellectual property portfolio, especially of high-tech patentable subject matter, forms a foundation on which individual businesses and, indeed, our economy can prosper. Without patent rights, a competitive edge in the global economy of the 21st century is lost and prosperity fades. Finally after several years of monkey-wrenches in the American patent machine, we have good news for American inventors and small businesses, in particular. Last year, President Barack Obama nominated David Kappos, an experienced patent professional with more than 20 years of experience, as the new Undersecretary of Commerce for Intellectual Property and Director of the U.S Patent and Trademark Office (USPTO). We hope leadership in Congress pays attention to at least some of what David Kappos had said and responds quickly. We are not just protecting our intellectual property; we are protecting our future, and our economic strategic advantage.

David Kappos attended University of California at Davis, receiving a Bachelor of Science degree in Electrical and Computer Engineering in 1983. He subsequently attended University of California at Berkeley, receiving a Juris Doctor degree in 1990. David Kappos’ professional experience includes work in the biotech, the life science, and the high-tech electronic areas. At the time of his nomination, he was serving as vice president and assistant general counsel for intellectual property at International Business Machines, Inc. (IBM), managing the company’s patent and trademark portfolios as well as globally licensing and enforcing its intellectual property. He is believed by many patent professionals as being a proponent of patent reform and in very much in favor of streamlining the examination process of patent applications.

In addition, David Kappos has served on the Board of Directors of the American Intellectual Property Law Association, the Intellectual Property Owners Association, and the International Intellectual Property Society. He has also served as the Vice President of the Intellectual Property Owners Association. He has held various previous leadership positions in intellectual property law associations in Asia as well as in the United States. He has spoken widely in Asia, Europe, and the United States on intellectual property topics.

Since being confirmed by the U.S. Senate, Director Kappos has been in control over the U.S. Patent and Trademark Office since late 2009 and has already begun implementing many internal changes. Director Kappos has signed a new Final Rule rescinding regulations proposed by former Director Dudas. The previously proposed regulations were believed by many patent practitioners and applications to unduly restrict American innovation, particularly that by small business. Those previous regulations, which limited the number of continuation applications as well as the number of claims in relation to each patent application, were published in the Federal Register in August 2007, but were enjoined in an extraordinary by a U.S. District Court in Virginia as exceeding the authority granted the Director under federal statute, and thus never came into effect.

From the outset, the new Director has shown himself to be much more patent-friendly than his predecessor. To wit, Director Kappos has been quoted as follows: “The USPTO should incentivize innovation, develop rules that are responsive to its applicants’ needs and help bring their products and services to market[.] …. These regulations have been highly unpopular from the outset and were not well received by the applicant community. In taking the actions we are announcing today, we hope to engage the applicant community more effectively on improvements that will help make the USPTO more efficient, responsive, and transparent to the public. …. We are grateful to GlaxoSmithKline for working with us to file this joint motion to both dismiss the appeal and vacate the district court’s decision. This course of action represents the most efficient way to formally and permanently move on from these regulations and work with the IP community on new ways to take on the challenges these regulations were originally designed to address.” Further, Director Kappos is dealing with a tremendous backlog of patent applications with long waiting periods for substantive examination, outdated information technology systems, and a long and protracted examination process.

Director Kappos has demonstrated a forward-thinking approach in his intent to expedite examination of patent applications that involve green technologies, to refashion the patent examination process, to reform the count system for motivating examiners toward more rapid disposal of the applications. A key focus, according to Director Kappos, the need to “refashion the fee system” in a manner that more accurately relates official fees with the work performed by the examiners in order to eliminate the backlog. Noteworthy is that he intends to eliminate fee diversion from USPTO to other federal agencies, fee diversion from the USPTO having been a policy of the former Bush Administration, wherein the USPTO did not operate in positive cash flow for the first time in its history. Director Kappos will be further dealing with the increasing use of reexamination as an alternative to litigation and the increasing backlog at the Board of Appeals.

Most significantly, the USPTO allowance rate has been rising in the half quarter of 2010 following the appointment of Director Kappos. This trend appears to indicate an increase in allowance rate from less than 50% to approximately 65% during this first quarter. This increase in allowance rate may be attributed to Director Kappos’ applicant-friendly approach to handling patent applications. Since his appointment, a series of initiatives have been presented, and some already implemented, that encourage communication between the examiner and the applicant which have contributed to the increase in allowance rate. Such initiatives include the First Action Interview Pilot Program, the Project Exchange, and the Patent Ombudsman Program.

With respect to the First Action Interview Pilot Program, this procedure provides for conducting an interview with the Examiner before issuance of a first office action. The policy behind this procedure is fostering more open communication between the examiner and the applicant in order to arrive at a better and earlier understanding of the invention in order to streamline the examination process. With respect to the Project Exchange, this procedure provides for allowing an applicant, having a plurality of pending applications to withdraw a given application in exchange for an expedited examination of another application. This procedure permits an applicant to “triage,” expedite, and prosecute the best pending applications. With respect to the Patent Ombudsman Program, this procedure provides for generally encouraging cooperation between the USPTO and the applicant.

Another change instituted by Director Kappos is the revision of the merit system for examiners, also called the the count system, which, under former Director Dudas, promoted churning of patent applications by examiners resulting often in the need to file a number of Requests for Continued Examination and a series of Amendments before a meritorious patent application would be allowed. Director Kappos also intends to promote work-sharing projects, such as the Patent Prosecution Highway, in order to accelerate the prosecution of applications that have already passed muster in other countries, and to promote patent reform discussions in Congress.

Some other patent reform ideas promoted by Kappos include a procedure for post-issuance review, to challenge improperly granted patents without the needs for judicial proceedings, a pre-issuance submission of information by third parties to challenge whether a patent should be issued after publication but before issuance, an enhanced inter partes (multiple party) reexamination, procedure greater restrictions on potential patent suit damages, an encouragement of green innovation, and a facilitation of patent procedures in favor of independent inventors.

Further, Director Kappos described funding as the largest challenge to the operations of the USPTO. Following the economic downturn, the Patent and Trademark Office experienced a $200M shortfall due to a decrease in filings, issuances and maintenance payments. Consequently, the USPTO has suspended hiring for fiscal year 2010. Director Kappos has stated, “Addressing our financial challenges so that the Agency can function effectively is my highest priority. I remain dedicated to working with our stakeholders, the Department of Commerce and members of Congress to ensure that we are able to perform our mission properly in the short-term – and to develop and adopt a sustainable funding model that will allow us to serve this country’s innovators in the future.” In order to implement improvements to the funding process, the USPTO has established certain objectives, including: a first action pendency to ten months and overall pendency to twenty months; decreasing the backlog of cases; reducing the pendency of appeals to three months; and reducing the pendency of reexaminations to one year.

Director Kappos will need to address the problems associated with the large number of examiners that are working remotely from home. This situation unfortunately eliminates the ability of examiners to confer with each other on a daily basis regarding issues, such as guidance in searching for prior art, in the technical understanding of the claimed subject matter and of the prior art, in the state of the patent law, in the manner in which the prior art is to be applied, and in the current USPTO procedures that are applicable to a particular patent application. In addition, both the USPTO and the Department of Justice announced that they do not intend to seek further review of the Federal Circuit's decision in Wyeth v. Kappos, No. 2009-1120 (Jan. 7, 2010), a case which provided greater patent term adjustment that was decided prior to Director taking Office.

All in all, the consensus in the IP community is that Director Kappos’ “good karma” will grace the USPTO, American inventors, and small business vital to our economic recovery.