Patents, when properly granted, can be vital to our economy. But in recent years patent abuse has become more common, resulting in many low-quality patents and patents whose only value is to block competition on earlier inventions entering the public domain. Companies try to exploit patent system loopholes and maintain monopolies because they can earn outsized profits. This results in an overloaded US Patent and Trademark Office (PTO) that has been granting patents that do not meet the necessary standards. Yesterday afternoon the Senate Judiciary Committee held a hearing on patent quality, and Professor Melissa Wasserman of the University of Texas offered some excellent suggestions on how to improve the PTO and ensure that patents are granted for real inventions.
Patent quality is a determination of whether a patent should have been granted as written. A patent can be high-quality and completely valid, or it can be also be partially or completely invalid. This is because a patent is made up of individual claims and each of these claims may be valid or invalid as written. Low quality patents usually have to be litigated to determine if they are valid or invalid, and that takes a lot of time and money.
Professor Wasserman’s research with professor Michael Frakes found that the PTO is under resourced, and this has resulted in the PTO's issuing lower quality patents that should have never left the patent office. On average the patent examiners only have nineteen hours to examine a patent and determine whether or not it is valid. Their research shows that is simply not enough time for an adequate review.
Wasserman and Frakes have three main suggestions based on their research. First, the PTO's fee schedule should be restructured to eliminate financial incentives for approving patents. Currently the Office's budget relies heavily on granting patents because the application fees don't even cover half of its budget. As a result the PTO is heavily dependent on issuance fees and patent renewal fees, which can only be collected when they grant patents, and this creates a strong incentive to grant patents when budgets are tight.
Second, the PTO can never truly reject a patent application because the company can always file another application, which adds to the patent backlog and causes delays. Wasserman urged Congress to place limits on repeat applications.
And third, examiners should have more time to review patents and determine whether they are valid. Nineteen hours is too short for an in-depth examination of the patents. And Wasserman's research shows that there is a strong correlation between each of these problems and granting more patents, including low quality ones.
Low quality patents harm consumers by increasing drug prices. Drug companies can reap huge rewards based on unearned monopolies built on patents later found to be invalid. Worse, they have a big incentive to seek low-quality patents to earn those monopoly profits. The findings of Wasserman and Frakes are eye-opening and provide further confirmation of the need for patent reform. Her suggestions should be adopted by Congress, and we hope that Senators Thom Tillis and Chris Coons will take them to heart.
We also need to deal with the low-quality patents that have already issued, and that means strengthening the PTO’s own process for taking a second look at low-quality patents – inter partes review. Patients cannot wait and we need to be looking at these low-quality patents now to make sure drug monopolies are deserved.