Michael Reid has pled guilty to conspiracy to commit wire fraud with a maximum penalty of 20 years imprisonment after being caught stealing almost $500,000 from the US Patent & Trademark Office (USPTO). Reid has agreed to cooperate in the investigation of his former USPTO employee accomplice – known in the pleadings as Ms. K.L.P. and identified as a financial analyst in charge of the customer deposit funds. K.L.P. has apparently not yet been charged.

According to the stipulated facts, the pair raided dormant PTO deposit accounts of customers who had not responded to PTO inquiries.

K.L.P. engaged in 32 fraudulent transfers, 27 in which the defendant received funds. The total amount of the 32 transactions was $534,338.55. The total amount for the 27 transactions involving the defendant was $451,252.17.

The fraudulent transfers apparently occurred from 1998 through September 2005 when K.L.P. left the PTO. Reed is the minister of music at a Maryland church. The court has not yet scheduled sentencing.

Notes:

• File Attachment: Reid.Facts.pdf (132 KB)
• File Attachment: Reid.Release.pdf (97 KB)
• Washington Examiner Article by Freeman Klopott
• The photo (right) is taken from Reid's MySpace page.

The Office has not issued a notice to pay the annual practitioner maintenance fee for FY2009. The Office has not required payment of the fee by September 30, 2009. No decision has been made to collect the fee in or for FY2009.

Information regarding fees will be “published and sent to practitioners in advance of the due date.” Since FY2009 ends in less than 80 days (September 30, 2009), it is unlikely that any fees will be due by that date. However, the office has not publicly ruled-out the possibility of a retroactive charge.

Background:

• https://patentlyo.com/patent/2008/11/patent-practice.html

I recently created a database of about 17,000 patent applications filed 2000–2005. For each of those applications, I also have a listing of the prosecution history that indicates the timing of any examiner interview. I used this data to consider the effectiveness of examiner interviews. Note two important caveats: I did not look at the underlying documents in the file wrapper, and my data does not distinguish between interviews in person and those done at a distance.

The results: Overall 18% of applications were associated with an examiner interview. I broke the data into two groups.

Early Interviews: In what I call the "early interview" group are applications where the examiner interview took place prior to the mailing of any final office action. Applications in the early interview group had the same grant rate as those that did not have an early interview (70% grant rate of terminated cases). However, those with an interview tended to stay pending longer, and be more likely to have an RCE in the file history.

Late Interviews: In what I call the "late interview" group are applications where an examiner interview took place after a final office action was mailed. Applications in the late interview group had a much higher grant rate than did applications where a final action was mailed but the case was not subsequently interviewed. Here, 74% of those in the late interview group were allowed as compared with only 60% other applications where a final action was mailed. (+/– 3% at 95% CI).

Interviews by Organization: The table below looks at the top twenty filing organizations (as listed in the application correspondence) in my dataset based on the number of applications filed 2000-2005. For each organization, the table lists the number of applications that were interviewed, number of issued patents, percent of cases interviewed, and the percent of cases patented. (Note, this percent of patented cases includes still pending cases in the calculation instead of only terminated cases and is consequently lower than the rates reported above). Although these are organizations who filed the most applications, readers should note that they represent less than 20% of all filed patent applications.

I suppose I’m something of a lone wolf in thinking that the backlog in applications we have now is not much worse (certainly not DRAMATICALLY) worse than the backlog we’ve had all along, or at least since I’ve been in patent law. Your chart shows that 50% of application were disposed of in about 3.5 years and about 90% in roughly 6 years. When I was an examiner, back in 1990 or thereabouts, there was a lot of verbiage given to getting average pendency to 3 years – so it must have been higher than that at the time. It would be interesting, I think, to see the same analysis done for application filed one and two decades earlier then those in these charts, plotting all the data normalized to the starting date. Maybe someone has done this in a meaningful way already; but, I haven’t seen it. If the curves are the curves are substantially the same, it would put the lie to oft heard cries about a burgeoning backlog that’s crushing competitiveness and the false impression given by quoting the raw number of applications now pending.

To provide some measure of pendency, I created a database of 20,000+ randomly selected patent applications and issued patents filed 2000 - 2007. For each of case, I tallied the final status as of mid-July 2009. (Status is either patented, abandoned, or pending). Using that data, I created a chart of the percent of utility applications still pending as of July 2009. This data can be helpful for someone considering whether their still-pending application is an anomaly. Over 84% of the applications filed in 2007 are still pending (+/– 2% at 95% CI) , while less than 1% of applications filed in 2000 are still pending (+/– 1% at 95% CI).

The second chart standardizes the same data according to the amount of time in prosecution.

Notes:

• This data only includes applications that were either (1) published or (2) patented. I do not know the percentage of cases unpublished cases that are still-pending versus those that are abandoned.
• The data presented here does not distinguish between technology centers, continuations, etc. The still-pending rates varies considerably within those different categories.
• The pendency rate for applications filed Q4 2004 appears unexpectedly high and the rate for Q1 2005 appears unexpectedly low.. That is at least partially explained by a data collection artifact. My data sample includes a relatively large number of applications filed in late December 2004 and early January 2005 rather than being more evenly distributed throughout the respective three months.

What is the cause of this rise?

The White House has announced its intent to nominate David J. Kappos as Director of the United States Patent and Trademark Office (USPTO) with the official title of Under Secretary of Commerce for Intellectual Property. Mr. Kappos has spent his entire career with IBM – both as an electrical engineer and later as a patent attorney. Kappos ends his IBM career (at least for now) as Vice President and Assistant General Counsel, Intellectual Property Law. He is a board member of both AIPLA and IPO.

From the get-go, Mr. Kappos has been a rumored frontrunner to replace Director Jon Dudas and Interim Director John Doll.  In a May 2009 article, I announced my support for Mr. Kappos. In that article, I noted the value of having “a patent office director who understands patents and who has been fully involved with all aspects of the patent system for the past twenty years. I believe that Kappos will be a careful shepherd of the system - leaving it better off in six years than it is today.”

As someone who writes daily about US Patent Law, I am excited about the Kappos nomination because he is likely to open access to previously hidden data and information.  He will also work to create systems that work and measures that are meaningful.

I suspect that the biggest challenge for Mr. Kappos will be moving beyond the unique IBM perspective. Big Blue is an atypical patent owner in its internal systems, patenting volume, and licensing power. As I discussed earlier, it will be important for him to spend time understanding how the rest of the patent community operates.

Notes:

• White House Announcement
• Leahy Statement: “The USPTO faces serious challenges in this difficult economic environment, and the office requires strong leadership.  David Kappos is such a leader.  I look forward to working with him on issues confronting the USPTO, including reducing the backlog and pendency of patent applications and modernizing the patent system as Congress considers the Patent Reform Act.”
• EETimes Article: Quoting Mark Lemley: "The PTO is in crisis, and I think Dave Kappos understands that, and will work creatively to try to find ways out of the crisis, I also think he is sensitive to the need for patent reform, which is a good thing."
• March 2009 Testimony of Kappos
• IP Law Insights (Perkins Coie Blog) summarizes an earlier Kappos article: (1) Patent applicants are responsible for the quality and clarity of their patent applications. (2) Patent applications should be available for public examination. (3) Patent ownership should be transparent and easily discernable. (4) Pure business methods without technical merit should not be patentable.
• Patent Prospector on Kappos and the recent poorly researched WSJ Article.
• From the USPTO Website: “If he is confirmed by the U.S. Senate, Kappos will take control of an office that provides incentives to encourage technological advancement and helps businesses protect their investments, promote their goods and safeguard against deception in the marketplace. The office continues to deal with a patent application backlog of more than 770,000, long waiting periods for patent review, information technology systems that are regarded as outdated and an application process in need of reform.”

776 of the Jan-Feb 2009 ex parte decisions show-up in the Westlaw database. Those 776 decisions were authored by 78 different Administrative Patent Judges. During the two month period, four judges penned more than 25 opinions, although the average is closer to 10 opinions. (If we assume that Westlaw includes 80% of the opinions, then the average jumps to 12 opinions in the two months – or six opinions per month). On an annualized basis this extrapolates to authoring an average of 72 opinions per year. Of course, this average includes opinions by BPAI administration who regularly write only a small handful of decisions. Excluding those individuals pushes the extrapolated average to about 75 opinions per year for each BPAI Judge handling ex parte cases.

These numbers are comparable to the Court of Appeals for the Federal Circuit. Each of the twelve Federal Circuit judges (not counting Senior Judges) wrote about 28 majority opinions in 2008. In addition, each Federal Circuit judge participated in over 400 cases (most of which were decided without opinion). Thus, while the BPAI judges write more opinions, the Federal CIrcuit judges actually decide more cases.

Notes:

• The lower number of cases found in Westlaw is due – in part – to the fact that many of the cases being appealed are unpublished. In those cases, the BPAI decisions are kept secret. In addition, for some reason, Westlaw is not picking up all of the released BPAI decisions. Still, the Westlaw format is easier to use than the BPAI PDF.

Like examiners, BPAI judges have a count system. BPAI Judges are expected to sit on about 300 panels per year and draft about 100 opinions. In the past, judges would receive credit for drafting full dissents and concurring opinions. That has changed. In an internal email, BPAI Vice-Chief Jay Moore has indicated that these extraneous opinions will no longer ordinarily garner any credit. According to Vice-Chief Judge Moore, "[c]oncurrences, dissents, and remands are not normally efficient mechanisms for securing the 'just, speedy, and inexpensive' resolution of an appeal before the Board." The e-mail is reproduced below:

====

From: Moore, James T
Sent: Thursday, May 07, 2009 9:57 AM

To: All BPAI Judges
Cc: MacDonald, Allen; Fleming, Michael R.; Santiago, Amalia

Subject: Policy Clarification on Dissents, Concurrences and Remands

Importance: High

Colleagues:

Please note that, effective immediately, if you would like a dissent, concurrence, or remand to be considered towards your productivity totals, you must submit a request. The form is attached, and may be used retroactively for cases prior to this date. For cases after this date, it must be submitted to your Vice Chief Judge within one week of mailing of the dissent, concurrence, or remand in order to be considered.

Concurrences, dissents, and remands are not normally efficient mechanisms for securing the “just, speedy, and inexpensive” resolution of an appeal before the Board. (Bd. R. 1). As indicated in the PAPs, a productivity credit is not automatically earned for a concurring opinion, dissenting opinion, or remand. Accordingly, justification is required to explain the need to undertake the extra work and occasion the extra delay in order to ensure efficient and proper utilization of our resources. Further, any credit given for a concurring opinion, dissenting opinion, or remand will be commensurate in scope with the justification provided and the scope of the extra work.

Please see Al or Jay if you have any questions.

Thanks,

Jay Moore
Allen MacDonald

====

The push for efficiency at the BPAI is also seen in the non-judge "patent attorney" program. Many of the BPAI opinions are now ghost written by newly minted patent attorneys and then signed by the BPAI judges. The real problem with this program is that when the patent attorneys are used, the BPAI judge is given a much higher throughput quota.

According to an anonymous observer - "the time constraints [under the Patent Attorney program] are so serious that for many cases, not a single one of the judges signing off on a decision will have read the underlying papers detailing the facts of the case." This observer asked to remain anonymous based on "the intolerance of dissent at the Board."

This need for efficiency is also the driver behind the still-pending BPAI appeal rule changes.

Bottom line here is that it will be helpful to have a patent office director who understands patents and who has been fully involved with all aspects of the patent system for the past twenty years. I believe that Kappos will be a careful shepherd of the system - leaving it better off in six years than it is today.

Kappos believes in the underlying value of innovation. In his words, "the whole system of innovation is more important now than ... ever." Beyond that, he is dedicated to a strong patent system and a strong patent office as mechanisms for fostering innovation. Kappos has been ready to try innovative approaches to "catch the intellectual property system up to the twenty first century." However, he has always been clear that his ideas for innovation "should in no way be confused with denigration or devaluing intellectual property." In addition, his years at IBM have taught him the value of consistency and tradition.

Much of the job of PTO director involves employee relations, and Kappos continues to successfully lead one of the largest private patent departments in the world. His current and former employees are loyal to him as a leader and praise his creativity and genius. The IBM IP office is known for its spirited and open debates on policy and direction. In my view, this corporate management experience and patent prosecution experience are more relevant to running the PTO than - say - running litigation teams at a law firm, managing a congressional committee, or even teaching a group of law students. Before moving forward, I want to note here that former Director Todd Dickinson is also an excellent choice, and he continues to be strongly supported by both examiners and other patent law professionals. Dickinson would almost certainly do the better job of healing the growing rift between examiners and applicants.

In his recent testimony to the Senate, Kappos put IBM's support behind the compromise form of the Patent Reform Act. For IBM, it was important that the damages portion of the bill be revised: "we must nevertheless be mindful of the fundamental importance of ensuring that patentees are appropriately compensated or the patent system will fail to provide the incentive innovators require." However, the IBM proposal was that royalties should be based on the "essential features" of a patent. (Quoting Quanta). This proposal is problematic because it would create new-rule uncertainty and also greatly favor holders of large patent portfolios (such as IBM). As director, Kappos should be careful to balance the "right" solution with the need for consistency and stability of rights. IBM also supported the post-grant review system (which I favor) and the venue changes (which I do not favor).

More than his alignment on specific provisions, we can hope that Kappos will bring an important amount of subject matter expertise - helping to ensure that any legislation does not inadvertently disrupt parts of the system that are already working well.

I do have other reservations. Patent pundit Greg Aharonian has oft complained about Kappos and his tendency to talk about patent quality and then charge forward with junky IBM patent applications. Those complaints have merit. The ill defined term 'patent quality' raises red flags in my mind. Here, Kappos has his benign and potentially helpful pet projects of dramatically improving examiner's access (and ease of access) to prior art; improving prior art and patent documents through more standard lexicons; and public collaboration in patent examination (IBM funded the peer to patent program). In the past, Kappos has talked about patent quality as a problem because it leads to a situation where "nobody has an earthly idea of what [a patent] is worth . . . creating a murky and unclear market." These are really proposals to make the prosecution system work more efficiently rather any fundamental changes to patent rights. IBM is good at systems, and Kappos may be as well.

If it is a benefit, it is also a fault that Kappos' blood is saturated with IBM knowledge and culture. Kappos joined IBM in 1983 right out of college (EE / UC Davis) and stayed with the company after law school (Berkeley). At IBM he spent time with the software legal division and also in the Asia/Pacific division. Unfortunately, in the past 25 years, Kappos may have forgotten that most of the world does not operate like IBM. Thus, when he says that "people no longer innovate individually" or that "many new innovations require investments of unprecedented size," I worry that his vision is skewed. Beyond the PTO, IBM has been able to use its large portfolio and market power to build a large licensing pool with very little litigation. Of course, there are few companies in a position to accomplish that result in today's market. It will be important for him to spend time understanding that - in fact - IBM is the atypical market player. On these point, I believe that Kappos will relax his views somewhat once he is no longer the AGC of IBM.

I am excited that Kappos will push the PTO toward a more open system - allowing access to data and information that has been hidden or limited and ready to cooperate on collaborative projects to streamline the system. Kappos has considerable experience with both European and Asian patent systems, and will likely expand cross-border examination collaboration.

On the software side, Kappos will continue to support the idea that software should be patentable - although he argues that patents should at least cover something "technological" and that business methods should be out. Kappos has also spent a lot of time thinking and working with overlapping intellectual property schemes and considering how those interplay with open source software. However, I have not seen any specific proposals.

In the Patently-O reader poll, Kappos earned only 5% of the vote, falling behind Todd Dickinson (36%), Prof Lemley (8%), and "other" (8%).

Other Sources:

• Why Kappos is Unfit
• IP Watchdog on Kappos
• From Greg Aharonian:
• "One rumored candidate to be the next Director of the Patent and Trademark Office is David Kappos, one of the head patent lawyers at IBM. Given IBM's many abuses of the patent system and patent policy over the past few decades, I think it is inappropriate, nay, wrong, for anyone from IBM to be head of the PTO. Might as well as make Bernie Madoff head of the SEC as part of his upcoming jail-time work-release program. IBM patent lawyers for too long have abused the patent system."
• "Case in point. Last week IBM was issued its usual batch of patents, many of which are crap - crappy patents whose sole value is to clog the PTO's patent examination pipelines to the detriment of everyone else. A patent application policy actively embraced by David Kappos. If I was an IBM investor, I would applaud David for doing his best to help IBM. In fact, sometimes I recommend people to buy IBM stock because the company will do anything to maintain its market value. Kudos to David for his efforts in this regard. But the reward for abusing the patent system for the benefit of IBM should be a gold watch at retirement - and should not be the reward of being appointed head of the PTO."

In my sample, the first non-final rejection came in some combination of six basic forms: anticipation; obviousness; lack of enablement or written description; indefiniteness; new matter; and double patenting.

The surprising results are that only 3.5% (3 of 86) of the rejections were prior art related rejections. In three of the cases, the examiner rejected the pending application as obvious in light of the prior art, and in one of those cases the examiner also asserted that the claimed design was anticipated by the prior art. In the remaining 83 cases, the examiner conducted prior art searches but indicated that the claimed design was patentable over the art. Combining probabilities: My data indicates that fewer than 1% of recently issued design patents ever received a novelty or anticipation rejection. (At 99%CI, this may go as high as 2.5%). In other words, design patent applications sail through the PTO.

Although design patent prosecution does not have much focus on inventiveness, examiners are keen to ensure that the scope of the patent claim (via the drawings) is well defined. The most common rejection in my sample was based on confusion created by the drawings. In a design patent application the drawings represent the majority of the specification and also define the claim scope. Thus, it makes sense that confusing or inconsistent drawings would lead to rejection based on both the first and second paragraph of 35 USC 112. In my sample, 79.1% of the rejections (68 of 86) raised a combination of both lacking enablement/description and indefiniteness.

16.2% of the rejections (14 of 86) included an obviousness-type double patenting rejection against an applicant's own previously-filed application. Those rejections are curably through a terminal disclaimer. However, some applicants prefer to argue over the rejection and save patent term. Finally, 3.5% (3 of 86) of rejections focused on new matter added during prosecution. Often, the new matter was allegedly added when the applicant submitted pen and ink drawings to substitute for photographs found in the original.

A Registration System: My data indicates that our design patent system is approaching a registration system. But, there is no problem with a system of design registration - especially if design patents continue to be narrowly construed. Europe's design registration is working well as are the US systems of trademark and copyright registration. In the US, most property rights are registered or recorded rather than thoroughly examined, and those lower-cost mechanisms should probably be the default unless we have some reason to believe that thorough examination is necessary.

Notes:

• See, Dennis Crouch, Design Patents: Sailing Through the PTO, Patently-O (April 2, 2009).
• My samples of recently issued design patents consists of design patents issued Feb-April 2009.
• As I mentioned in the earlier post, these numbers are a bit skewed because the file histories of abandoned design patent applications are kept secret by the PTO unless used as a priority document. Just under 20% of design patent applications are abandoned during prosecution, and I suspect that a greater percentage of those are rejected during prosecution. This consideration would thus skew the results for someone considering the likelihood that a pending design patent application will be rejected.
• In an upcoming paper (not yet available) I note that design patents are often used as substitutes for trade-dress protection, but that the overlapping of regimes does not create significant problems.

The first chart below shows a time series for the percentage of continuation applications and RCE filings as compared to the total UPR filings (Utility, Plant, and Re-Issue applications). Remember here, that for most PTO statistics, RCE filings are counted as a utility application. According to this data, 27.6% of all of the UPR filings thus far in FY09 are RCEs - continuing a steady trend of of rising RCE filings. (Note - the RCE data also includes historical data for CPA and R129 filings).

For the next chart, I extrapolated the partial FY 09 data to the entire fiscal year to find some expectation of the total filings for the year. I also removed the RCE/CPA data because most practitioners would not consider those as separate applications. As mentioned above, both the original and continuation filings are down to around FY 04 levels. As compared to FY 08, original filings are on track to drop about 10% while continuations will likely be down over 20%. The large drop in continuation filing is likely an artifact due to the large number of continuations filed at the beginning of FY 08 in anticipation of the looming limits on continuation practice.

In the title of this post, I link the economic downturn with the downturn in patent filings. Some may also link the drop in patent filings with other recent events that may drop the allure of a patent application - namely, KSR v. Teleflex; eBay v. MercExchange; Bilski; Seagate; the prospect of further patent reform; the Second Pair of Eyes review; 750,000 backlog of unexamined patents; and the 26 month average pendency before the first OA.
> Although not in the title of the graph, the numbers do include plant patent filings which have hovered around 1,000 per year.
Of course, other factors may also