The Patent Office, which processes over half-a-million patent applications a year, routinely faces budgetary shortfalls, high patent examiner turnover, and a crushing backlog of patent applications. Given this challenging environment, it is not surprising that the patent examination process generates some degree of error, including errors that culminate in the issuance of a significant number of invalid patents. Given that invalid patents impose substantial harms on society, the question is what should we do about them?
At first glance, the solution seems straightforward: the Patent Office needs to do more to ensure it awards patents only to those inventions that deserve them. A seemingly promising start is to give patent examiners more time to evaluate applications. On average, a U.S. patent examiner spends only nineteen hours reviewing an application, including reading the application, searching for prior art, comparing the prior art with the application, writing a rejection, responding to the patent applicant’s arguments, and often conducting an interview with the applicant’s attorney. If examiners are not given enough time to evaluate applications, they may not be able to reject applications by identifying and articulating justifications with appropriate underlying legal validity. Offering validation for these concerns, our prior empirical work tested the extent to which patent examiner time allocations are causing examiners to grant invalid patents and found that examiners were indeed allowing patents of dubious quality because they are not given sufficient time.
Even in the face of this compelling evidence, however, it is not immediately clear that the solution to the patent quality crisis is to give patent examiners more time. While increasing examiner time allocations will decrease the number of invalid patents issued by the Patent Office, it is possible that the Patent Office is, as Mark Lemley famously wrote, “rationally ignorant.” That is, it may be rational for the Patent Office not to screen patent applications too rigorously because there is another institutional player that could weed out bad patents: the courts. More specifically, Lemley argued that because so few patents are litigated or licensed, it is better to rely upon litigation to make detailed validity determinations in those rare instances rather than increasing the resources to the Patent Office to provide more thorough review of all patent applications. Lemley supports his thesis with a cost-benefit analysis wherein he concludes that the costs associated with doubling the Patent Office’s hours to review patent applications outweighs the benefits gained by the resulting decrease in the number of invalid patents the Patent Office would issue. Although some of the numbers in his analysis reflect hard data, the dearth of empirical evidence available to the time forced him to make several critical assumptions, including assuming (rather than estimating) how many fewer patents the Patent Office would issue if examiner time allocations were doubled.
Although it has been over fifteen years since Professor Lemley wrote his influential and widely-cited article, the debate on how to best rid ourselves of bad patents continues to rage on. In 2011, Congress enacted the most comprehensive reform bill to the patent system in decades, and arguably favored the ex-post approach by creating a new adjudicatory tribunal at the Patent Office wherein third parties can challenge the validity of issued patents. In 2016, for the first time in forty years, the Patent Office began a comprehensive reevaluation of examiner time allocations, arguably favoring an ex-ante approach.
The time is ripe to revisit whether the Patent Office is, in fact, “rationally ignorant.” Should we increase the resources at the Patent Office in an effort to increase the quality of issued patents or should we forego those marginal investments and reserve a larger residual role for the courts? Our Article, begins to answer this question by employing new and rich sources of data along with sophisticated empirical techniques to form novel empirically driven estimates of the relationships that Lemley was forced to guess in his own analysis.
Armed with these new estimates, our Article demonstrates that the savings in future litigation costs and prosecution expenses associated with giving examiners additional time per application outweighs the costs of increasing examiner time allocations. More specifically, we estimate that doubling examiner time allocations would cost the Patent Office approximately $660 million dollars in additional personnel expenses. We also estimate that doubling the amount of hours allocated to review applications would result in $301 million in savings in prosecution expenses to the patent applicant driven by decreased rounds of review at the Patent Office. Finally, we estimate federal litigation-related savings of $491 million and PTAB litigation savings of $112 million. Though the $660 million increase in costs is significant, this amount is still exceeded by the $904 million that may be saved annually in (i) expenses covering litigation in federal court, (ii) PTAB-related legal expenses and (iii) potential savings in prosecution costs. The efficiency gains from marginal investments at the Patent Office are even greater when considering a range of additional harms that may ensue from the issuance of invalid patents by the Agency, such as diminishing cumulative innovation, dead-weight loss, etc. Thus, we conclude the opposite of Lemley: society would be better off investing more resources in the Agency to improve patent quality than relying upon ex-post litigation to weed out invalid patents. Given its current level of resources, the Patent Office is not being “rationally ignorant” but, instead, irrationally ignorant.
The current draft of our article is available on SSRN here. It’s forthcoming in the Vanderbilt Law Review in 2019, so there’s plenty of time for us to incorporate any comments you may have.