Post-GSK: Where Do We Go from Here? - Annuities

    By Kevin E. Noonan --

A day after the day of rejoicing for inventors, patent practitioners, examiners, and seemingly all of civilization, fair-minded people will concede that the U.S. Patent and Trademark Office faces a daunting task.  After years of neglect - from Congress raiding the users' fees, an inadequate number of examiners, technology-driven increases in the number of applications filed, and a "count" system that has not rewarded a style of examination that encourages prosecution to a definitive end point - the Office is facing a massive backlog of applications without sufficient resources to process them in a timely manner.

If the patent bar is gladdened by District Court Judge Cacheris' decision enjoining implementation of the new rules - representing an attempt, albeit a misguided one, on the part of the Office to address the pendency and backlog problems - it behooves us to propose alternatives.  Patent Docs will be posting a series of such proposals, and we invite our readers to provide their own ideas.  As they used to say in the days of the counterculture, "if you are not part of the solution, you are part of the problem."  Patent Office management clearly thinks the patent bar is part of the problem; it would be satisfying to prove them wrong.

Annuities

To start things off, consider the advantages of requiring an annuity payment to keep an application pending.  This device is used in many countries, particularly in Europe, to encourage applicants to maintain only those applications pending that are considered worth the cost of the annuity.  Adapting this concept to the American patent system would require a few modifications, however.  Small entity applicants would be exempt from the requirement, so as to not put individual inventors, universities, and small businesses at a disadvantage.  Divisional applications would require an annuity based on a schedule starting not at the priority date but on the filing date.  This would be consistent with divisional applications having claims to patentably-distinct inventions, and not the result of strategic decision-making by the applicant that could be manipulated to extend pendency.  What must be avoided is the requirement in Europe that a continuation or divisional application pay the accumulated annuities previously paid in the parent case, which would represent a significant disincentive to serial divisional filing and would exacerbate the backlog problem by encouraging "early" divisional filing.

An additional advantage of this proposal is that it would increase Patent Office revenues in a way tied directly to applicants who file and maintain multiple related applications.  Since the Patent Office contends that these applicants are responsible for increased pendency and the backlog, the annuity would have these applicants pay for the privilege.  An added benefit would be that over time some of the more controversial assumptions the Patent Office made with regard to the new rules would be put to the test, since it would be expected that if a significant portion of continuation applications represent "gaming the system" or planting potential traps for competitors, adding a cost to the process should shift the cost/benefit analysis in the direction of discouraging unnecessary continuation filings.

Comments

[NIPRA anonymous]

Delayed Examination:

In the late 1980s, the JPO was already receiving 400,000+ patent applications per year. They did not have the staff to examine that many applications. A "delayed examination" system was used so that a request for examination could be delayed by up to 7 years from the filing date; if examination was not requested in 7 years, the application went abandoned.

In more than half of those applications, examination was never requested because of changing market conditions or product development plans. And the application burden on the JPO was greatly alleviated.

Even today, Japan uses a delayed examination system where examination is not automatically performed on all patent applications (the period for requesting examination was reduced from 7 to 3 years for applications filed after Dec. 2001). In a significant portion of Japanese applications (currently more than 1/3, I believe), examination is still never requested.

If a delayed examination system were employed in the U.S., this could effectively reduce the backlog (or new increases in the backlog) e.g. in certain fast-changing arts like business-methods and computer software where companies could adopt a "wait and see" approach. (Effectively, business methods applicants already have a de-facto obligatory delayed examination system, so the change in procedure would perhaps be de minimus.)

[Anon]

Similar to your suggestion regarding annuities, a straightforward solution to the filing of continuations would be to charge increasing amounts for each succesive filing. Those applicants that do not want to pay for the subsequent continuation and have no financial incentive to do so will be dissuaded, but not prohibited, from filing simply to 'keep something alive.'

[Reader]

Substantially increase filing fee for continuations and instead of sending meaningless Office Actions, encourage Examiners to conduct a telephonic interview to understand the invention and discuss the prior art.

[Vance]

I think the issue should be addressed in terms of supply and demand.

Our system currently has too much demand (too many applications pending and being filed) and not enough supply (too few examiners to handle the workload). The answer is to decrease demand and increase supply. I think the annuity and delayed examination suggestions are excellent. I also like the idea of increasing the filing fees for continuations and RCE's (e.g., a 25% increase in the filing fee for a 2nd continuation or RCE, 50% for the third, 100% for the 4th, etc.). With respect to claims, the fees for claims 26-50 should be $200/claim, and 51+ should be $400/claim. While these are obviously just examples of fee changes, I think we would all benefit from fee-based initiatives instead of complex rule-based initiatives. Changing the fee structure would have minimal burden on the USPTO in terms of enacting the change and would provide additional revenue to hire and train more examiners. This of course presumes that Congress can keeps their hands off of the fees.

[NIPRA anonymous]

"With respect to claims, the fees for claims 26-50 should be $200/claim, and 51+ should be $400/claim."

The USPTO already proposed an exponential claim fee increase and it was resoundingly opposed by patent applicants and the bar. I believe you simply cannot whimsically charge more for the addition of a single claim than you would for the filing of a new application. No logic (except the applicants be d*mned perhaps) would support such an exponential fee structure.

Why not just say the filing fee entitles you to 3/20 claims. If you want 6/40, you pay double the filing fee, 9/60 triple, etc. so the fee increase for additional claims is unquestionably tied to a real-world metric. Additional claims beyond a tier limit might be had simply by paying individual additional claims fees (like we have today).

[dana]

As long as we are talking about added fees, how about a modest fee for submitted IDS references? Maybe $5/$10 each. Or alternatively, have an increasing fee (e.g. the first 20 be free and then have 21-50 be $25 each and 51+ be $100 each). There might have to be some exceptions (e.g. references already on record from priority cases might be free or cost less). References submitted by third parties could have fees that are significantly higher (doubled?) to discourage meaningless submissions. It is better to pay extra than to be subject to EDS requirements.

[Concerned BioPatAtty]

I'm not in love with the increasing fee thoughts for continuations. This is based on the same flawed rationale that the PTO is using now - that the continuations are being filed for improper purposes. I don't know about all of your experiences, but at least dealing with 1600 often (though not always) requires an RCE or two before the PTO even begins to understand the subject matter. The requirement that 112, 2nd rejections be issued in each case is ludicrous (you all know what I;m talking about).

If you want to incentivize efficient prosecutions, a good start would be to require Examiners to actually be persons of skill in the relevant art. The whole idea of the 112, 2nd rejection is a joke. One of ordinary skill in the art would virtually always be able to attach a reasonable meaning to a claim term. If the Examiner does not understand what that would be, then the problem is with the Examiner, not the claim term. The PTO's current posture of "is it possible to misinterpret this claim term" is the precisely WRONG approach.

Sorry for the rant. Suffice it to say that in my experience the need for multiple continuations/RCEs is less the fault of the Patent Bar and more a result of non-competent (as opposed to incompetent, although unfortunately that happens, too) examination. The PTO should get its house in order inventing spurious outside sources to explain its problems.

The delayed examination is a good one, and has been suggested before. Unfortunately, it also goes beyond the PTO's rulemaking authority. But it certainly would be a nice (for a change) thing to see in a patent reform bill.

I think that a pretty good system would be for applicants to either (1) choose examination right away, under the (again) current system; or (2) choose delayed examination. The delay could be for up to 7 years (Japan's system seems to work pretty well). There would be a filing fee, but no search or examination fees (unless / until examination was requested). There would be an annuity for maintaining the file in the system (thereby pressuring the applicant for a decision), and there would HAVE to be mandatory publication (otherwise we'd be back in submarine-land).

Many businesses would like it, too. It could be a win-win for both applicants and the Office.

[Anon2]

I don't understand the reason for penalizing additional continuations or for geometrically increasing the fees for mor claims. If the current fees for filing and and additional claims are not covering the expense of examination, then the fees for filing and additional claims need to be increased and the Examiners actually given more time if there are more claims in a case.

I would also be in favor of eliminating the small entity fees. If examining a case costs X dollars, that's what it costs, no matter the size of the entity filing it. Why should large entities subsidize small entities?

Also, if you want to save money for small entities, allowing small entities to delay examination probably saves the small entities more in any case and delayed examination doesn't require the USPTO to discriminate between large and small entities.

And I am absolutely opposed to having applicants pay for additional references cited in an IDS. No other major Patent Office in the world requires an IDS and it is about time that the US joined the rest of the world in this regard. Also, as evidenced by the recent decision by the Australion Patent Office to eliminate its rule requiring applicants to provide, it foreign search reports, the trend appears to be to require less material from applicants rather than more.

Over the last 20+ years, the USPTO has repeatedly attempted to enlarge the scope of the USPTO rules to effectively have the applicants rather than the USPTO conduct an examination of applicant's application. Therefore, it appears that the USPTO will always attempt to abuse the IDS rules to the detriment of patent applicants, and, accordingly, to prevent such behavior by the USPTO in the future, the IDS rules should be abolished.

The above being said, as long as it does not significantly delay prosecution, I do not have a problem with the USPTO creating reasonable rules for accepting search materials from third parties during examination. The big problem with the IDS rules is that they the information comes from the applicant, thereby raising a whole host of issues during litigation.

[NIPRA anonymous]

"The delayed examination is a good one, and has been suggested before."

Yes, GSK suggested it in their comments to the USPTO Jan. 2006 proposed claims and continuations rulemaking (calling it "deferred examination"):

http://www.uspto.gov/web/offices/pac/dapp/opla/comments/fpp_continuation/glaxosmithkline.pdf

Perhaps we should put GSK in charge of the USPTO. (O.K, just kidding.)

[bubba]

Are not all USPTO fees supposed to be "user fees" that reflect the cost to the USPTO of providing the requested services? If so, why convert any such fees into punitives merely to address 2.7% of the USPTO's application workload?

Morever, what is the basis for the judgment that "continuing applicaitons" (RCE's, continuations, CIP's, etc.) are somehow wrong, problematic, or a form of gaming? Why should an inventor not be entitled to obtain patent protection, albeit diminished due to terminal disclaimer, for the full scope of the inventive portion of their disclosure? Is that patent protection not the full quid for their full quo?

[Anon2]

"Are not all USPTO fees supposed to be "user fees" that reflect the cost to the USPTO of providing the requested services? If so, why convert any such fees into punitives merely to address 2.7% of the USPTO's application workload?"

Exactly, this was what I was trying to say.

[bubba]

If the USPTO's difficulty in hiring and retaining examiners with adequate technical and communications skills is a significant part of the issue, why not explore why the root causes of that issue?

For example, why does the USPTO insist on shopping for and locating its examiners in one of the most expensive locales on Earth?

The IRS has processing centers in Cincinnati, Ogden, Austin, and Fresno. Why should the USPTO not take advantage of the lower costs of living and lower prevailing wages to attract sufficiently talented local examiners in say, Lansing, Boise, Huntsville, Kansas City, Fort Wayne, Morgantown, Rochester, etc.?

[outsource]

Or, outsource more work. The PTO currently outsources PCT search and examination reports to the Cardinal Law Group.

But, I like the idea of making satellite offices of the PTO, now that everything is electronic anyway--no need for the one central location for all the files.

[Sean]

One reason the PTO gets itself into trouble is that it often overlooks simple ways to alleviate some problems.

For example, why not encourage the use of multiply dependent claims? There is really no extra burden on the examiner and it should simplify matters. Yet they continue to charge a steep fee for even including one in an application.

Again, much could be learned from Europe.

[NIPRA anonymous]

"Or, outsource more work."

Historically nearly all PTO outsourcing attempts have been disasters (lots of money with little oversight for very little return). And now unfortunately, nefarious contractors are aware of this (making outsourcing doubly-difficult).

I would think that the agency will need to get its own house in order before it thinks about outsourcing. Moreover, it should never outsource its primary functions such as the search, where it needs expertise. (In industry, outsourcing a secondary function like manufacturing is quite different than outsourcing a primary function like product design. The former lets you concentrate on the latter, whereas the latter is merely erodes any ability you might have had to produce a good product and ultimately leads only to the company's death.)

[MJC]

How about charging a fee for extra time spent on an application? An examiner might spend X hours on it, and then if it needs more time the applicant pays $Y an hour thereafter. That stops applicants wasting the examiners time with confusing claims, poor disclosure of prior art, etc.
If a company wants to get a better service then they can pay for more time spent on their application. They could even pay for multiple examiners on a single application. This would be best for the PTO because they want to save money by limiting the time examiners spend, and this would stop them doing so. It's the same as a patent attorney, if it needs more time spent on it then charge more billable hours to the client.
If a patent attorney had to only spend X hours on a patent application the same problems would happen with his work as well. There could be a potential problem with patent examiners charging more hours than they actually used, but this is unlikely and is no worse than what patent attorneys probably do now. So the cost to the inventor would be minimal because the examiner would be charging less than a patent attorney.
The file wrapper would detail the time spent by an examiner, and the work done. Working from home could become a problem, it may be necessary for examiners to do this hourly charged work from within the office if it was abused. The examiner though would have no financial incentive to abuse the system because the PTO gets the money not home.
However there could be a bonus points system to spend extra hours on an application, similar to the current tendency to send a final office action and get more fees from a RCE. While this would amount to some overcharging by the office (like the extra RCE) it would be better spent because extra time is being spent on the patent application.
If it was hard to get extra examiners then fees for extra time could be increased, and justified by the hourly rates they charge. So this would be easier for the PTO to increase fees, allow them to pay what they need to for good examiners, and also the extra fees would dissuade frivolous correspondence and unnecessary continuations.

[agent007]

I'm not a fan of annuities. Lots of opportunities for applications to go abandoned, and some combination of burdensome deadline tracking by applicant or paying for expensive fee payment services seems to be needed in such systems.

My short list for reform includes:

1) Sort out the count system in the USPTO. This is an unmitigated disaster.

2) Put some real teeth into neglected language in 112 (e.g., "full, clear, concise and exact"). We've probably all seen the encyclopedia-spec, where if there is an invention, it is disclosed in the form of a smattering of pixie-dust buried in a mass of conventional material. Such practice should not be rewarded, and it presently is. A few Federal Circuit invalidations under 112 for "windy prolixity" or "gross surplusage" would be bracing for the system.

3) First inventor to file, as opposed to first to invent (i.e., no more interference practice).

4) Litigation reform to encourage more focus on the core issues of infringement and validity over the prior art, as opposed to trying for cheap knockouts on inequitable conduct in nearly every case.

5) PTO top management must no longer be totally clueless about the "real world". At the very least:
a) The Commissioner for Patents must have 5+ years non-PTO experience as a patent professional prior to appointment.
b) The OED director must have 5+ years non-PTO experience practicing as a registered practitioner prior to appointment.
c) The PTO director and deputy director must have 5+ years of non-PTO experience as patent and/or trademark professionals prior to appointment.

[bubba]

How about a little quality control over Office Actions and the like?

Current Office Actions clearly and all too frequently demonstrate that a rather large minority of USPTO examiners can not reasonably read, write, or speak American English. Numerous volleys, years, and dollars are wasted trying to get such examiners to comprehend what an examiner with appropriate technical, legal, and most importantly, communication skills, could grasp immediately.

Moreover, those same Office Actions demonstrate that the SPE or PE who signs off on those Actions likewise either can not appropriately communicate or simply has not taken the time to review the garbage they are approving. Why does the USPTO repeatedly sanction (by its actions if not its words) this profound wastefulness?

Deserving some, but perhaps lesser, condemnation are the abundant Office Actions that fail to interpret the claims according to the law, that is, "in the broadest reasonable manner consistent with the specification as understood by one of ordinary skill in the art".

Instead, far too many examiners insist that they are entitled to interpret the claims in the "broadest reasonable manner", with "reasonable" only constrained by their imagination and/or their patentability-defeating hindsight. This failure to follow the law reflects either lack of appropriate training, lack of quality control (see above), or perhaps, simply contempt for the law, applicants, and/or the process.

Regardless, consistently producing an on-time, on-budget, quality "work product" is the ultimate responsibility of the USPTO's management, and on that score, they miserably fail.

By blaming its customers, that is, applicants and their representatives, instead of correcting its own shortcomings, current USPTO management admits their gross incompetence and unsuitability for the job.

In response, since the White House is unwilling to, Congress should put the USPTO on a very short leash, and again use the budget, if necessary, to motivate appropriate results unstead of the USPTO's current mode of denial, spin, and distraction.

[bubba]

In response to agent007, I agree completely on items 1 and 5, and agree that the issue of item 4 needs attention.

Regarding item 2, "Put some real teeth into neglected language in 112 (e.g., "full, clear, concise and exact"). We've probably all seen the encyclopedia-spec, where if there is an invention, it is disclosed in the form of a smattering of pixie-dust buried in a mass of conventional material. Such practice should not be rewarded, and it presently is. A few Federal Circuit invalidations under 112 for "windy prolixity" or "gross surplusage" would be bracing for the system."

Interesting thought, but I'm stuck on several issues. First, what would be the statutory basis for such invalidations? Section 112 states that the "specification shall _contain_ a written description of the invention", not be _limited_ to such a "description".

Second, in this context, how does one reasonably reconcile "full" with "concise"?

Regarding item 3, I think we need to go further than simply first inventor to file. To greatly reduce the "hidden prior art" problem, I would prefer to see all applications initially published within one month (or less!) of filing. This would go a long way toward improving the quality of pre-filing searches, particularly in rapidly-advancing technologies.

For at least electronically-filed applications, the USPTO could easily (and might already) employ automatic text-searching (semantic filtering) to screen out those applications that raise national security/secrecy issues and those that violate rules of decorum (e.g., those that include profanity, obscenity, hyperlinks(!), etc.), and then give those app's a closer look and/or editing before initial publishing.

[a54]

The real problem lies in the diversion of fees from the USPTO. Congress has siphoned away fees that applicants have paid for examination. Those fees should be used to hire the additional examiners required to overcome the backlog.

It's not the patent system that is the problem, it is the diversion of fees.

[Another Reader]

I can not confirm that the accumulated annuities for divisional applications leads to more early filed divisional applications in Europe. One must not forget that filing a (divisional) application as such is in general expensive enough for attempting not to produce divisional applications in Europe except where absolutely necessary.

[agent007]

"Interesting thought, but I'm stuck on several issues. First, what would be the statutory basis for such invalidations? Section 112 states that the "specification shall _contain_ a written description of the invention", not be _limited_ to such a "description".

Second, in this context, how does one reasonably reconcile "full" with "concise"?"

The statutory basis I had in mind was 112, under either written description or enablement. At the end of the day, the spec needs to actually teach the invention, and if sufficiently large amounts of irrelevant material is included in the spec, a respectable argument can be made that the spec, in fact, teaches nothing. No claims should be granted in cases where there is no disclosure.

There are no easy answers for this --- amusingly named invalidations on this basis would actually cause an unhelpful panic, and enforcing page limits is too crude to be a sensible approach.

To reconcile "full" with "concise" is not as hard. The invention itself should be fully described, while the conventional setting relating to the invention can be describe concisely. Of course, this approach does depend on being able to distinguish the invention from its conventional setting...