Patent Baristas

Now that Barack Obama is the President-elect of the United States, what does this mean for patents and technology?  According to the agenda and philosophies posted on the Obama website, the new administration should pursue mostly a pro-patent/pro-technology agenda.

As the 44th President of the United States, Barack Obama will face many great challenges at home and abroad.  Tech will not necessarily be in the top three items on his to-do list and it will be difficult to say what programs will actually receive funding in the end.  However, the administration’s policies on Technology give us a glimpse of things we might see.

Improve America’s Competitiveness

• Promote American Businesses Abroad: Barack Obama and Joe Biden support a trade policy that ensures our goods and services are treated fairly in foreign markets. President Bush has failed to address the fact that China has engaged in ongoing currency manipulation that undercuts US exports; that China fails to enforce U.S. copyrights and trademarks and that some of our competitors create regulatory and tax barriers to the delivery and sale of technology goods and services abroad. Barack Obama will fight for fair treatment of our companies abroad.
• Invest in the Sciences: Barack Obama and Joe Biden support doubling federal funding for basic research over ten years, changing the posture of our federal government from being one of the most anti-science administrations in American history to one that embraces science and technology. This will foster home-grown innovation, help ensure the competitiveness of US technology-based businesses, and ensure that 21st century jobs can and will grow in America.
• Invest in University-Based Research: Barack Obama and Joe Biden strongly support expanding research initiatives at American colleges and universities. The U.S. faces a challenge in funding younger researchers. Obama and Biden will provide new research grants to the most outstanding early-career researchers in the country.
• Make the R&D Tax Credit Permanent: Barack Obama wants investments in a skilled research and development workforce and technology infrastructure to be supported here in America so that American workers and communities will benefit. Obama and Biden want to make the Research and Development tax credit permanent so that firms can rely on it when making decisions to invest in domestic R&D over multi-year timeframes.
• Ensure Competitive Markets: Barack Obama believes we need a business and regulatory landscape in which entrepreneurs and small businesses can thrive, start-ups can launch, and all enterprises can compete effectively while investors and consumers are protected against bad actors that cross the line. As president, Obama and Biden will reinvigorate antitrust enforcement, which is how we ensure that capitalism works for consumers.
• Protect American Intellectual Property Abroad: The Motion Picture Association of America estimates that in 2005, more than nine of every 10 DVDs sold in China were illegal copies. The U.S. Trade Representative said 80 percent of all counterfeit products seized at U.S. borders still come from China. Barack Obama and Joe Biden will work to ensure intellectual property is protected in foreign markets, and promote greater cooperation on international standards that allow our technologies to compete everywhere.
• Protect American Intellectual Property at Home: Intellectual property is to the digital age what physical goods were to the industrial age. Barack Obama believes we need to update and reform our copyright and patent systems to promote civic discourse, innovation and investment while ensuring that intellectual property owners are fairly treated.
• Reform the Patent System: A system that produces timely, high-quality patents is essential for global competitiveness in the 21st century. By improving predictability and clarity in our patent system, we will help foster an environment that encourages innovation. Giving the Patent and Trademark Office (PTO) the resources to improve patent quality and opening up the patent process to citizen review will reduce the uncertainty and wasteful litigation that is currently a significant drag on innovation. As president, Barack Obama will ensure that our patent laws protect legitimate rights while not stifling innovation and collaboration.
• Restore Scientific Integrity to the White House: Good policy in Washington depends on sound advice from the nation’s scientists and engineers and decision-making based on the needs of all Americans. Obama and Biden will restore the basic principle that government decisions should be based on the best-available, scientifically-valid evidence and not on the ideological predispositions of agency officials or political appointees.

See also:  A Second Look at President-Elect Obama’s Technology Platform (Patent Docs)

In a spate of recent articles, it would seem that the world has come to an end in terms of high-tech IPOs — not to mention venture backing of early-stage start-ups.  Because of the recent market turmoil, the M&A market has has come to a screeching halt and the window of opportunity for IPOs has shut completely.  Even angel investors are rethinking investment moves.

According to recent articles in Wired, VCs are mostly pumping money on hand into existing portfolio companies or in large, established start-ups that have already gone through several rounds of funding. What’s more, the slow down may hit the Midwest even harder.  Mirroring the regoin itself, Midwest VCs have are a lot more conservative in their investing than coastal investors.

Companies looking to secure financing are needing to look beyond venture groups to a variety of non-traditional sources such as hedge funds, retirement accounts, family trusts, deposed dictators, individual or angel investors.  Even the tried and true home equity route is shut down.

Reuters reported that the biotech industry has not seen an IPO since November 2007, when Nanosphere, which develops diagnostic tests, made its $113 million debut at the bottom of its price range. Since then, it is down 68 percent.  Those waiting in line are finding no exit. In the last two weeks, nearly half of the biotech companies in the IPO pipeline have dropped out.  Five biotech companies remain in the pipeline, with deals totaling $330.5 million, according to Thomson Reuters data.

All this is counter-intuitive.  Biotechs are companies that generally sell products — diagnostics and therapeutics — that are unaffected by market conditions.  Then why the long face for biotech start-ups?  The market is skittish about the length of time for return on investment and the prospect of huge returns.  Only seven of the 61 biotech companies to have gone public since 2000 are currently trading above their IPO prices.

So, what is selling?  Biotechs with products ready for market.  The venture spigot is off for early-stage companies including most any Phase 1 or Phase 2 stage company.  Right now, companies on the early side of the curve will need to look to doing more partnerships and mergers.

While all the doom-and-gloom strikes fear in many start-ups and entrepreneurs say that money just isn’t flowing, it could be that this is the perfect time to invest.  Start-up equity can be found cheap in this buyer’s market.  OK, admittedly you don’t get money for having an idea scratched out on a bar napkin just because it involves the internet and sock puppets but there are still opportunities to be had.

The key to survival in this market — as it should be in all markets — is having a great management team and a low burn rate.  That’s a winning venture.

See more here:
Where Have All The Biotech IPOs Gone? (Pharmalot)
Biotech Facing a Long IPO Dry Spell (California Biotech Law Blog)

The Center for American and International Law is holding its 46th Annual Conference on Intellectual Property Law (CAILAW) at its headquarters in Plano on November 10-11, 2008.

From 3:30pm-4:15pm on November 10, I will be part of a law blogger panel “All the News That’s Fit to Blawg,” which asks whether or not bloggers are the journalists for a new generation? The panel promises a vigorous discussion of “cutting-edge topics by some of today’s leading IP bloggers.”

The discussion will be moderated by Bruce S. Sostek of Thompson & Knight LLP of Dallas.  The panel includes:

Stephen Jenei • Patent Baristas, Frost Brown Todd LLC (Cincinnati, OH)
Kyle Fleming • PATracer.com, Renner Otto Boisselle & Sklar, LLP (Cleveland, OH)
Joe Mullin • The Prior Art, IP Law & Business Magazine (San Francisco, CA)
Michael Smith • EDTexweblog.com, Siebman, Reynolds, Burg, Phillips & Smith, LLP (Marshall, TX)
Peter Zura • The 271 Patent Blog, Katten Muchin Rosenman LLP (Chicago, IL)

I’m looking forward to meeting everyone on Monday!  Drop me a note if you’ll be attending.

More information on the conference can be found here.

Like it or not, more and more people find themselves in need of obtaining the time and service of lawyers and, as they say, time is money. Not only that, substantive rights are often on the line as clients deal with life and death matters from wills and trust to contracts and real estate to custody issues and divorce.  So, how do you deal with the lawyer or lawyers who work the front line on your life battles?

Authors Lawrence Fox and Susan Martyn set out a setp-by-step guide in “How to Deal with Your Lawyer: Answers to Commonly Asked Questions.”  This is a resource to guide you through the entire process. In this quick-read guide, the authors present you with the information you need to know about the ethical obligations of your lawyer in a straight-forward and easy to read format.

How to Deal With Your Lawyer answers questions necessary to make you an informed consumer of legal services such as:

• Where do I go to find a lawyer, the yellow pages, the television ads, the courthouse?
• How do I know the right questions to ask about their qualifications, fees, or what to expect?
• Is everything I say confidential?
• What if something goes wrong?

Punctuated by a series of cartoons from the New Yorker, you’ll learn about every lawyers favorite topic, how lawyers get paid.  The book also elaborates on the unique rules that govern lawyer-client interactions — the 4 C’s of a lawyer’s fiduciary duty (Communication, Competence, Confidentiality, and Conflicts of Interest).

In later chapters, the authors also address key questions you should ask your lawyer throughout your legal process. Discover your lawyer’s role and position within the legal system and how they work within the laws to be your best advocate (Chapter 9).  Particularly important, the guide discusses how to deal with lawyers on the opposing side and how to know if a lawyer is really your lawyer (Chapter 10). And, it doesn’t hurt to know how to evaluate your legal representation, even when you lose (Chapter 11).

While not a John Grisham novel, this book can prepare you for work a little better, informing you of the many difficult bumps you may encounter. After reading this book, you’ll not only approach your case with a new knowledge, but with confidence that your lawyer is fighting for you because you asked all the right questions and knew the answers.

The book is manageable in size but is thick with information that can make for slow reading.  On the upside, there are pages upon pages of useful information for anyone engaging the services of lawyers.  Many of the tips are very practical, including a section Victory Is Not The End. In preparing the reader for the realities of law, is sets out:

Q:  I’ve got everything I want.  The jury came in with a verdict of $75,000 and $150,000 in punitive damages.  I’m so glad I didn’t listen to my lawyer and settle for $100,000.

A:  You still may want to settle.

Q:  After such a victory?

A:  Even with a satisfying jury verdict, you may want to compromise.  As the say, there are many slips twixt the cup and lip.  With that large a verdict, the other side will surely [request] that the judge set the verdict aside.  Then there are  appeals.

We recommend anyone involved in heavy legal wrangling pick up a copy of this handbook.

Lawrence J. Fox is a partner of Drinker Biddle & Reath LLP and the former chairman of the ABA Standing Committee on Ethics and Professional Responsibility.  Professor Susan R. Martyn is a faculty member of University of Toledo and teaches Torts, Legal Ethics and Bioethics.

How to Deal with Your Lawyer: Answers to Commonly Asked Questions (Oxford University Press, USA) is available from Amazon.

The U.S. Court of Appeals for the Federal Circuit gave a high-five to settlement agreements between a patent holder and a generic manufacturer saying it doesn’t violate antitrust laws under the Hatch-Waxman Act.  In re Ciprofloxacin Hydrochloride Antitrust Litigation (08-1097).

The agreements in question involved a reverse payment from the Bayer to Barr, but did not involve the 180-day exclusivity period.  This is not small change as the payments from Bayer to Barr totaled $398.1 million, which Barr shared with HMR.

The District Court granted Bayer’s motion for summary judgment, holding that any anti-competitive effects caused by the settlement agreements between Bayer and the generic defendants were within the exclusionary zone of the patent, and thus could not be redressed by federal antitrust law.

Note that the Agreements were entered into before the 2003 amendments to the Hatch-Waxman Act, requiring a patent holder and a first Paragraph IV ANDA filer who settle their patent litigation to file their agreement with the Federal Trade Commission and Department of Justice for review, and if the agreement is found to violate the antitrust laws, the first ANDA filer loses its right to the 180-day exclusivity period.

Bayer’s patent relates to quinoline- and napthyridine-carboxylic acid compounds with antibacterial properties and methods of administering the compounds to combat bacterial illnesses.  (U.S. Pat. No. 4,670,444).  Specifically, it covers ciprofloxacin hydrochloride, the active ingredient in Cipro®.  The patent expired on December 9, 2003 but the FDA granted Bayer an additional six months of pediatric exclusivity.

Barr filed an abbreviated new drug application (ANDA) for a generic version of Cipro including a Paragraph IV certification on the grounds that the patent was invalid and unenforceable based on obviousness under 35 U.S.C. § 103 and obviousness type double patenting under 35 U.S.C. § 101, and unenforceable due to inequitable conduct.

Under the Hatch-Waxman Act, the first filer of a Paragraph IV ANDA is automatically entitled to a 180-day period of market exclusivity, which, in the version of the Act in effect at the time, begins to run either on the date that the first ANDA filer begins to market its drug or on the date of a final court decision finding the patent to be invalid or not infringed, whichever is earlier.  Thus, as the first Paragraph IV ANDA filer, Barr was entitled to the 180-day exclusivity period.

After Bayer sued Barr for patent infringement, Bayer, Barr, HMR, and Rugby entered into agreements providing that Barr, HMR, Rugby, Apotex, and Bernard Sherman would not challenge the validity or enforceability of the ’444 patent, Barr agreed to convert its Paragraph IV ANDA to a Paragraph III ANDA, thus certifying that it would not market its generic version of Cipro until after the ’444 patent expired, and Bayer agreed to make a settlement payment to Barr of $49.1 million.

Indirect purchasers of Cipro and various advocacy groups appealed a summary judgment of federal antitrust claims and dismissal of their state antitrust claims against patent holders and brand-name manufacturers, Bayer AG and Bayer Corp. and the generic manufacturers, Barr Labs, Hoechst Marion Roussel, The Rugby Group, and Watson Pharmaceuticals.

They alleged that the district court erred in its determination that the Agreements did not constitute an unreasonable restraint of trade in violation of section 1 of the Sherman Act: (1) by not finding the Agreements to be per se unlawful, or at least applying a proper rule of reason analysis; (2) by finding the Agreements to be lawful because they fell within the “exclusionary zone” of the ’444 patent; (3) by not considering the law of the regional circuits and government agencies in evaluating the Agreements; (4) by failing to appreciate the effects of the Agreements on other generic manufacturers; and (5) by not considering evidence showing that the Agreements preserved Barr’s claim to the 180-day exclusivity period.

The Sherman Act provides that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”  15 U.S.C. § 1.  Although by its terms, the Act prohibits any “restraint of trade,” the Supreme Court “has long recognized that Congress intended to outlaw only unreasonable restraints.”  Only agreements that have a “predictable and pernicious anticompetitive effect, and . . . limited potential for procompetitive benefit” are deemed to be per se unlawful under the Sherman Act.

The Court of Appeals held that the district court correctly applied a rule of reason analysis, a three-step process: First, the plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market.  Then, if the plaintiff succeeds, the burden shifts to the defendant to establish the pro-competitive redeeming virtues of the action.  Should the defendant carry this burden, the plaintiff must then show that the same pro-competitive effect could be achieved through an alternative means that is less restrictive of competition.  The Court agreed:

Contrary to the contentions of the appellants, the court did undertake a full rule of reason analysis.  It first determined that the relevant market is ciprofloxacin and that Bayer had market power within that market.  Cipro II, 363 F. Supp. 2d at 523.  It then determined that there was no evidence that the Agreements created a bottleneck on challenges to the ’444 patent or otherwise restrained competition outside the “exclusionary zone” of the patent.  Id. at 540.  Thus, the court concluded that the plaintiffs had failed to demonstrate that the Agreements had an anti-competitive effect on the market for ciprofloxacin beyond that permitted by the patent.

The appellants argued that Bayer is seeking not simply to enforce its patent rights, but to insulate itself from competition and avoid the risk that the patent is held invalid.
The Court of Appeals shot this down saying:

Pursuant to the Agreements, the generic defendants agreed not to market a generic version of Cipro until the ’444 patent expired and not to challenge the validity of the ’444 patent, and Bayer agreed to make payments and optionally supply Cipro for resale.  Thus, the essence of the Agreements was to exclude the defendants from profiting from the patented invention.  This is well within Bayer’s rights as the patentee.  Furthermore, there is a long-standing policy in the law in favor of settlements, and this policy extends to patent infringement litigation.

The Second Circuit, in In re Tamoxifen, similarly concluded that the validity of the patent need not be considered in the analysis of whether the settlement agreement violates the antitrust laws unless the infringement suit was objectively baseless …

We conclude that in cases such as this, wherein all anti-competitive effects of the settlement agreement are within the exclusionary power of the patent, the outcome is the same whether the court begins its analysis under antitrust law by applying a rule of reason approach to evaluate the anti-competitive effects, or under patent law by analyzing the right to exclude afforded by the patent.  The essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent.

[In] the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment.

The Court of Appeals for the Federal Circuit handed down the long awaited en banc decision on In re Bilski (07-1130) in which the court looked at the question of when does a claim that contains both mental and physical steps create patent-eligible subject matter and whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101.

Here, the court looked at an abstract idea or mental process.  But, what about where a claim contains both mental and physical steps to create patentably eligible subject matter?  Must a method claim need to result in physical transformation of an article or be tied to machine under 101?

The court ruled that the patent application did not meet the standards for patentability stating “We hold that the applicants’ process as claimed does not transform any article to a different state or thing.”

Astonishingly, the court seems to be making its own new law of patentability setting out that a software or business method patent is valid only if it (a) is tied to a particular machine or apparatus, or (b) transforms a particular article into a different state or thing. (Diamond v. Chakrabarty)

Despite the fact that Congress had earlier noted that “anything” created by humans deserves patent protection, the Federal Circuit decided that software and business methods have a new, higher standard.  Now, software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable. It is possible that a certain number of software and business method patents could now be at risk.  More likely, most such patents will have some claims that do, in fact, include some type of apparatus or transformation.

To be fair, the Committee Reports accompanying the 1952 Act show that Congress intended statutory subject matter to “include anything under the sun that is made by man” but refer to such only in the context of the four specific categories of Section § 101:  process, machine, manufacture, or composition of matter.  Section § 101 has no limits. Laws of nature, physical phenomena, and abstract ideas have been held not patentable.

But software is not a law of nature.  Business methods do not spring forth without human intervention.  So why do they warrant special requirements?

To be fair, the present case was really decided on the basis of the algorithm in question having no uses other than those that would be covered by the claims (i.e., any conversion of BCD to pure binary on a digital computer).  Therefore, the claims pre-empted all uses of the algorithm and thus they were effectively drawn to the algorithm itself.

The court noted:

The question before us then is whether Applicants’ claim recites a fundamental principle and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed.  Unfortunately, this inquiry is hardly straightforward.  How does one determine whether a given claim would pre-empt all uses of a fundamental principle?  Analogizing to the facts of Diehr or Benson is of limited usefulness because the more challenging process claims of the twenty-first century are seldom so clearly limited in scope as the highly specific, plainly corporeal industrial manufacturing process of Diehr; nor are they typically as broadly claimed or purely abstract and mathematical as the algorithm of Benson.

The Supreme Court, however, has enunciated a definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.  A claimed process is surely patent-eligible under § 101 if:  (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.

A claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed.  And a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article.

The question before the court then became whether Applicants’ claim 1 satisfied the transformation branch of the machine-or-transformation test:

We hold that the Applicants’ process as claimed does not transform any article to a different state or thing.  Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.  Applicants’ process at most incorporates only such ineligible transformations.  …  Thus, claim 1 does not involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance.  Given its admitted failure to meet the machine implementation part of the test as well, the claim entirely fails the machine-or-transformation test and is not drawn to patent-eligible subject matter.

Not everyone agreed.  In the dissent by Judges Newman, Rader and Mayer, they argue that the court has imposed a new restriction on the kinds of inventions that are eligible to participate in the patent system:

The court achieves this result by redefining the word “process” in the patent statute, to exclude all processes that do not transform physical matter or that are not performed by machines.  The court thus excludes many of the kinds of inventions that apply today’s electronic and photonic technologies, as well as other processes that handle data and information in novel ways.  Such processes have long been patent eligible, and contribute to the vigor and variety of today’s Information Age.

This exclusion of process inventions is contrary to statute, contrary to precedent, and a negation of the constitutional mandate.  Its impact on the future, as well as on the thousands of patents already granted, is unknown.
This exclusion is imposed at the threshold, before it is determined whether the excluded process is new, non-obvious, enabled, described, particularly claimed, etc.; that is, before the new process is examined for patentability.  For example, we do not know whether the Bilski process would be found patentable under the statutory criteria, for they were never applied.

See the entire 132 page opinion here.

See also:  How Did We Get to Bilski and What Can We Do About It?

According to biotechTransfer week, the IRS set to look over the financial statements of public and private colleges and universities for unrelated income sources like tech transfer.

The Internal Revenue Service is looking to gather information from hundreds of US colleges, universities, and affiliated organizations such as foundations and academic medical centers about their financial practices, including those related to technology licensing, investments, and corporate sponsorship, according to the agency.

Last week, the IRS’ Exempt Organizations Compliance Unit began sending compliance questionnaires to approximately 400 U.S. colleges and universities as part of the agency’s focused effort to study key areas in the tax-exempt community.  The EOCU addresses areas of noncompliance of exempt organization. 

The college and university questionnaire will focus on unrelated business income, endowments and executive compensation practices.  The questionnaires are being sent to a cross-section of small, mid-sized and large private and public four-year colleges and institutions.  Private nonprofit universities are generally exempt from tax under Internal Revenue Code section 501(c)(3) and, like state universities, are subject to unrelated business income tax.

Among other things, the questionnaire will gather information from the schools about how they report revenues and expenses from their trade or business activities, classify their activities as exempt or taxable activities, and calculate and report income or losses on taxable activities.  The questionnaire also will gather information regarding how the organization invests and uses its endowment funds and determines compensation of certain highly paid individuals.

The IRS said the voluntary questionnaire is part of an effort by the agency to better understand tax-exempt organizations and perhaps more intently scrutinize what it considers key areas in the tax-exempt community.  The questionnaire is not an audit and schools will not be penalized for refusing to participate.  But, the IRS reserves the right to open an investigation whether or not the universities participate.

In looking at technology-transfer, the questionnaire asks for information on the nature and amount of unrelated business income in categories such as other royalties, commercial research, patents, and copyrights and trade names or trade secrets.  These are potential sources of unrelated-business income and revenues and expenses from taxable trade or business activities must be reported on Form 990-T, Exempt Organization Business Income Tax Return.

The 33-page-long questionnaire is similar to one that it sent out in 2006 to approximately 600 hospitals, which may have given the EOCU a good insight on reviewing such activities.  The IRS said it expects to receive most of the responses within the next several months, analyze the results of the compliance questionnaire and conduct examinations of a sample of the organizations.  The IRS said it expects to issue a report on the project in 2009.

Let us know if you’ve received a questionnaire and whether or not you intend to reply.

See here for the Compliance Questionnaire – Colleges and Universities.

John J. Doll, Commissioner for Patents, US Patent & Trademark Office, talked today at the BIO Intellectual Property Counsel Committee’s Fall Conference and Committee Meeting, a group with a very keen sense of the importance of patents.

He livened up the discussion in extolling that “We [the Patent Office] don’t have a standard so we’d allow every application if it meets the requirements.  Your [Applicants and Attorneys] job is to get all that the applicant is entitled to.”

This is certainly true.  The patent statutes state that “A person shall be entitled to a patent unless” the patent statutes preclude the grant (35 USC 102).  However, the Commissioner’s statements didn’t sit too well given that these came immediately after he described the plummeting allowance rate at the Patent Office.

In describing the Patent Offices Strategic Plan, Commissioner Doll explained the the two major points are to: (1) improve the quality of examination, and (2) improve the efficiency of system.  This is to be accomplished through the four basic principals of quality, timeliness, cost and effect.

In describing Quality, the Commissioner explained that in order to enhance patent quality, the USPTO implemented an improved Quality Assurance Program.  One important component of the improved program is expanding the quality review of work products, through a “second-pair-of-eyes” program in areas of identified need.  The Office of Patent Quality Assurance (OPQA) administers a program for reviewing the quality of the examination of patent applications. The general purpose of the program is to improve patent quality and increase the likelihood of patents being found to be valid.

The Quality Assurance Specialists re-examine a randomly selected sample of allowed applications to determine whether any claims may be unpatentable. Reviewed applications may be returned to the examining TCs for consideration of the reviewer’s question(s) as to adequacy of the search and/or patentability of a claim(s).

The Commissioner pointed out that the review is not just to find allowances of patents that should not be allowed but to look for rejections that shouldn’t have been made.  He did not present any statistics for how many of the latter type of error occurred.

However, in a session entitled “Constructive Ideas on Managing USPTO’s Workload,” the Commissioner showed that in 2008, the USPTO found a 3.7% allowance error rate, which is historically relatively low.  The target error rate for the USPTO is 4%.  So, technically, they’re under goal but they get to decide the target and they decide what constitutes an “error” or not.  With no independent review, is it any surprise that they hit their goal?

In the biotechnology examination group (TC 1600), the allowance error rate is higher at 4.2%.  Generally, the <quote> error <unquote> is that the Examiner gave the claims too narrow of an interpretation thereby allowing a claim that should have been rejected in light of the overlap with the prior art.

The most striking chart displayed by the Commissioner is one that showed the allowance rate for patents over the past twenty-three years.  After remaining fairly steady over decades, allowance rates have now plummeted from over 70% in 2000 to an allowance rate of 44.3 % in 2007.  Not surprising to anyone in the field, the allowance rate in TC 1600 was just 33.6% (click on the graph at left to see the data).

It is noteworthy that the Commissioner revealed that the number of original applications has remained rather constant.  The explosion in filed application numbers (441,637 applications in FY2007) comes from Request for Continued Examination (RCE) filings.  With RCE filings are up up 80% in FY2008, it’s no surprise that the backlog in filings is now over 800,000 applications.

This, despite the fact that — as we can see from the steep slope of the graph — we clearly haven’t hit the bottom of the allowance rate decrease.  Just how low will the allowance rate have to go before there is an uprising among applicants?

Graph of USPTO Patent Allowance Rate