Tuesday, February 07, 2006

Patent Fee Diversion

The U.S. Federal government has, for years, put its hands into the Patent Office's coffers, diverting funds to other endeavors. This is because the USPTO is one of the few government agencies that turn a profit.

Critics have pointed to this appropriation of patent money for projects unrelated to patents as one of the problems with the current system. Because the money is getting sucked away, they say, the patent office can't hire enough examiners and can't keep up with the workload. To remedy this, recent reforms have proposed putting a stop to the diversion of profit away from the Patent Office, and Bush's new budget calls for the office to keep all the fees that it earns.

But to me, this seems like it has the potential to make things even worse, and not only for the citizenry of this country. It also spells disaster for the Patent Office. As I mentioned yesterday, misaligned incentives are central to the problems at the USPTO. The goal of infusing the USPTO with more money, according to sources, is to help the Patent Office "become more efficient at approving patents." More efficient at approving patents? How about more efficient at denying bad patent applications? How about more efficient at re-examining ill-granted patents? How about more thorough at searching for prior art?

The problem with letting the USPTO profit from granting patents is that it provides an incentive to, well, grant more patents -- regardless of patent quality. Now, I know that the people who work at and run the USPTO are not evil, and that the vast majority are probably as concerned with improving patent quality as anyone. But a system that provides incentives for certain behaviors is bound to produce those behaviors. If you wanted the Patent Office to keep granting patents willy-nilly, largely ignoring the issue of patent quality, the best incentive you could give them is increased profits from patent grants.

Here's an alternative proposal: The USPTO keeps none of the funds it collects from granting patents, but does get to keep not only 100% of the fees it collects when it rejects a patent or performs a re-examination, but earns an extra bonus from the federal government when it does so (perhaps 100 times or 1000 times the fee amount).

It sounds radical, I know, and perhaps it goes too far. But it illustrates an important principle: if the USPTO is beholden to the government for its funding, it must answer to the government for its performance, which means that it must answer ultimately to us, its citizens. If, on the other hand, the USPTO relies only on funding from patent applicants, it is beholden to no one but patent holders, and becomes the poster-child example of regulatory capture.

Which one of those scenarios does today's USPTO more closely approximate? I'll give you a hint: it rhymes with "circulatory rapture."


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