78
continuations have no net social value and (b) any independent claims in a patent application
over the tenth independent claim, or some other arbitrarily set limit, have no net social value.
Both propositions conflict with both logic and our experience, and USPTO has provided
no support for either of them. Logically, there is nothing special about continuation practice
suggesting that a single continuation is the socially optimal number. Nor is there any logical
basis for believing that the socially optimal number of independent claims is 10 or fewer.
12
Our experience has been that continuation practice is essential for properly defining the
scope of intellectual property rights for complex inventions. The examination and prosecution
process is inherently iterative, and each side in the negotiation has generally appropriate
substantive incentives.
13
Applicants seek the broadest defensible scope for their intellectual
property, and examiners deny claims that are either unclear (i.e., “vague and indefinite”), not
, not
supported by the technical disclosure, or overbroad because they cover the prior inventions of
others (i.e., “prior art”). When the process begins, particularly with complex inventions, neither
either
applicants nor examiners can predict the scope of the patent that will be finally approved. This
is
discovery and sharing of information drives the process, which leads to more investigation and
information discovery, and neither examiner nor applicant can perceive that an outcome is fair
until the process has run its course. Price competition among patent attorneys requires them to
o
find the value-maximizing balance between the least-costly path to allowance and the broadest
dest
claims that are legally patentable, to the degree this balance can be predicted a priori, and to
o
pursue the most-efficient path to it at every step.
The proposed rules assume that these uncertainties do not exist and denies the social
value of iterative negotiation to clearly define the scope of an applicant’s legitimate claims.
.
USPTO falsely assumes that, very early in the process, applicants have near perfect knowledge
about (1) all aspects of what was discovered, (2) which aspects of what they have discovered are
re
most valuable, (3) everything relevant to patentability that others invented that preceded their
r
own discovery, and (4) the precise contour of what claims they will eventually be able to
legitimately call their own. Perhaps most perplexingly, USPTO assumes that applicants have
perfect knowledge about how an unknown patent examiner of unknown skill, training, and
and
experience will (5) understand the technology related to a complex invention, (6) evaluate his
his
application and (7) the prior art, (8) apply the patent law and guidance to the invention, and (9)
(9)
that the examiner and applicant will, during examination, find and consider all prior art that all
12
Because of its decades of experience implementing the Paperwork Reduction Act, OMB surely
is familiar with the arbitrary nature of such thresholds, and the extent to which they induce strategic
behavior (e.g., agencies propensity to discover that the optimal number of persons from whom to collect
information is nine).
13
In Attachment F, we explain why examiners’ financial incentives are not compatible with
th
expeditious procedure.
A
TTACHMENT
B: T
T
HE
D
RAFT
R
ULES ARE
“E
CONOMICALLY
S
IGNIFICANT
”
P
AGE
B-4
UNDER
E
XECUTIVE
O
RDER
12,866
68
future potential licensees, litigants, and other challengers to the patent will ever be able to find.
14
Neither preamble analyzes the practicality of any alternative to this iterative dialog or the effect
of cutting it off or limiting it, especially in the context of a complex invention.
USPTO’s proposed rules would damage innovation in at least two other important ways.
First, by raising the cost of filing patent applications the Office will discourage inventors at the
margin from submitting them and divert resources from other innovative activities. To the extent
that innovation is financially motivated, reduced patent applications must translate into reduced
protection for intellectual property, a diminished incentive to innovate, and less future
intellectual property. These social costs may be impossible to quantify, but nevertheless they are
very real.
Second, the proposed rules create vast new uncertainty about whether intellectual
property will be adequately protected in the United States. Uncertainty diminishes economic
actors’ willingness to invest and take risks, and thus will reduce innovation by an unknown but
significant amount.
15
III. Other Costs
USPTO claims that these rules will reduce paperwork burden. For the Limits on Claims
s
rule, this appears to reflect USPTO’s expectation that no applicant will actually submit the
t the
extremely burdensome Examination Support Document (ESD) that the Office would require for
applications designating more than 10 claims for initial examination. For the Continuations Rule,
le,
USPTO appears to assume that either the circumstances that lead to continued examination will
disappear or applicants will simply abandon affected applications.
In Attachment M we show that USPTO has seriously underestimated the existing
g
paperwork burden it imposes on the public, and why its estimates of burden reduction are invalid
and unreliable.
14
Patent prosecution is akin to a contract negotiation in which applicant and examiner work to
reach a consensus decision. The Continuations Rule would allow one side (USPTO) to impose on the
other (patent applicants) the restriction that their negotiation shall have no more than two rounds.
15
USPTO may allege that applicants “game the system” by overfiling in various ways. Despite
years of experience, patent attorneys are always uncertain about patent examiners will review and respond
to similar claims, and how it will apply the Manual on Patent Examination Practice (MPEP). In addition
to deterring some applications for patentable inventions from being filed at all, uncertainty about USPTO
behavior logically causes defensive overfiling if (as in the case of patent applications) a failure to advance
a claim means that it is permanently lost. See Office of Management and Budget, Economic Analysis
Under Executive Order 12866 (“For risk-averse individuals, the certainty equivalent of [an uncertain] net
et
benefit stream would be smaller than the expected value of those net benefits, because risk intrinsically
has a negative value”)
A
TTACHMENT
B: T
T
HE
D
RAFT
R
ULES ARE
“E
CONOMICALLY
S
IGNIFICANT
”
P
AGE
B-5
UNDER
E
XECUTIVE
O
RDER
12,866
78
Attachment C
C
The Draft Rules Are Not Required by Patent Law or Necessary to
Implement Patent Law
The most fundamental requirement of Executive Order 12,866 may be the stated
regulatory philosophy:
Section 1. Statement of Regulatory Philosophy and Principles. (a) The Regulatory
ry
Philosophy. Federal agencies should promulgate only such regulations as are required by
law, are necessary to interpret the law, or are made necessary by compelling public need,
such as material failures of private markets to protect or improve the health and safety of
the public, the environment, or the well-being of the American people. In deciding
whether and how to regulate, agencies should assess all costs and benefits of available
regulatory alternatives, including the alternative of not regulating. Costs and benefits
shall be understood to include both quantifiable measures (to the fullest extent that these
can be usefully estimated) and qualitative measures of costs and benefits that are difficult
to quantify, but nevertheless essential to consider. Further, in choosing among alternative
regulatory approaches, agencies should select those approaches that maximize net
benefits (including potential economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity), unless a statute requires another regulatory
approach.
We examine these circumstances justifying regulation in a logical order that is somewhat
different from the text.
I.
Does the statute require another regulatory approach?
USPTO’s rulemaking authority and obligation to examine patent applications are
e
governed by federal patent law, most notably, 35 U.S.C. §§ 2, 3, 131 and 132 (see Attachment
t
O). Nothing in any statute directs USPTO to restrict inventors’ access to continuations, nor does
es
the law direct USPTO to arbitrarily limit the number of claims that will be initially examined in a
single patent application.
16
Furthermore, nothing in the law directs USPTO not to maximize net
et
16
USPTO may assert that the Limit on Claims Rule does not set an absolute limit on the number
of claims that will be examined because applicants who want to have more than 10 claims initially
examined are always free to submit the Examination Support Document (ESD). In Attachment M, Sec.
ec.
II.2, we note that senior USPTO officials have made public statements indicating that they do not expect
ct
applicants to actually utilize this “safe harbor” because it is overly burdensome.
.
A
TTACHMENT
C: T
T
HE
D
RAFT
R
ULES
A
RE
N
OT
R
EQUIRED BY
P
ATENT
L
AW OR
P
AGE
C-1
N
ECESSARY TO
I
MPLEMENT
P
ATENT
L
AW
84
social benefits from the issuance of patents. Thus, the regulatory philosophy in Executive Order
12,866 unambiguously applies to these two draft final rules.
II.
Are these rules required by law or to interpret the law?
USPTO was required to issue certain regulations implementing new provisions in the
American Inventors Protection Act of 1999 (AIPA).
17
These two draft rules are neither required
by this law nor needed to interpret any provision of it. Congress has amended the Patent Act
Act
several times in recent decades, but never to limit the opportunities of inventors in any way
ay
analogous to the proposed rules, or to suggest that USPTO should do so. For example, the AIPA
made continued examinations easier, not harder, by adding a new “request for continued
examination” provision as a lower-cost, easier alternative to older mechanisms for continuations.
ns.
It also extended patent term for some classes of continuation applications, and asked USPTO to
study ways to encourage inventors to participate in the patent system, not to restrict
participation.
18
III. Is there a material failure of private markets that would justify these regulations?
The patent process is somewhat unusual insofar as it is a user fee based service the
federal government provides to utilize market forces (intellectual property rights) in the
furtherance of delivering a public good (stimulating innovation). The protection of intellectual
property is precisely the kind of function that only governments can provide. Congress having
acted to provide this public good, it has delegated to USPTO the authority to provide structure,
process and predictability to this process, not to make policy concerning how much of the public
good to provide.
As we discuss in Attachment F, a strong case can be made that the problems USPTO is
is
seeking to remedy through regulation are the result of “government failure.”
19
Unfortunately,
instead of addressing governmental failure directly, USPTO appears to have chosen to further
regulate the inventors and innovators who are the customers who pay user fees for its services.
USPTO is a monopoly provider of these services. One of its problems is overcoming the natural
17
E.g., 65 Fed. Reg. 50092, “Request for Continued Examination Practice and Changes to
to
Provisional Application Practice; Final Rule” and 65 Fed. Reg. 56365, “Changes To Implement Patent
nt
Term Adjustment Under Twenty-Year Patent Term; Final Rule.”
”
18
35 U.S.C. § 132(b); 35 U.S.C. § 154(b) (providing for term extension for certain continuation
n
applications filed under § 120 but not RCE’s under § 132(b)); 113 Stat. 1501 § 4204 (instructing USPTO
TO
to “conduct a study of alternative fee structures that could be adopted … to encourage maximum
participation by the inventor community”).
19
For a lengthy description and analysis of government failure, see Charles Wolf Jr., Markets or
Governments? Choosing Between Imperfect Alternatives. MIT Press, 1988. See also Susan E. Dudley,
Primer on Regulation, Mercatus Policy Series, Policy Resource No. 1, Mercatus Center, 2005.
A
TTACHMENT
C: T
T
HE
D
RAFT
R
ULES
A
RE
N
OT
R
EQUIRED BY
P
ATENT
L
AW OR
P
AGE
C-2
N
ECESSARY TO
I
MPLEMENT
P
ATENT
L
AW
77
characteristics of monopolists – producing less than the optimal quantity at a higher than optimal
price.
20
IV.
Has USPTO decided whether and how to regulate based on an assessment of all
costs and benefits of available regulatory alternatives, including the alternative of
not regulating?
USPTO has disclosed only the results of certain forecasts of changes in backlog (“patent
nt
pendency”). These results are found in the Chicago Town Hall slides.
.
21
None of the results
reported concern social benefits or social costs. Thus, if USPTO has performed any analysis of
f
social benefits and costs, it has not disclosed it. In May 2006, one of the signatories of this letter
informally asked USPTO Deputy Director Office of Patent Legal Administration Robert Clarke
if there were any other supporting data besides the limited information contained in the
preambles to the Notices of Proposed Rulemaking. Mr. Clarke replied via email:
We do not have a complete package of supporting information that is available for public
inspection. The study for these packages was substantiated in a series of pre-decisional
electronic communications that has not been made available to the public.
22
In September 2006, another signatory filed a formal Freedom of Information Act (FOIA)
request. In October 2006, USPTO FOIA Officer Robert Fawcett replied that USPTO had
“identified 114 pages of documents that are responsive to [the] request and are releasable.”23
Mr. Fawcett did not acknowledge the existence of pre-decisional materials exempt from FOIA
disclosure or explain why they were exempt, and none of the 114 pages released contain readily
analyzable data that adhere to OMB’s (or USPTO’s) principles for information quality, most
notably, the principles of transparency, reproducibility, and objectivity.
20
See W. Kip Viscusi, John M. Vernon, and Joseph E Harrington Jr., Economics of Regulation
and Antitrust (2d ed.), MIT Press 1995.
21
See Attachment N, slides 49-54.
54.
22
http://www.uspto.gov/web/offices/pac/dapp/opla/comments/fpp_continuation/alderucci.pdf,
page 39.
23
See Attachment N. The 114 pages are the materials found in these four web pages:
:
http://www.uspto.gov/web/offices/pac/dapp/opla/presentation/chicagoslides.ppt
http://www.uspto.gov/web/offices/pac/dapp/opla/presentation/chicagoslidestext.html
http://www.uspto.gov/web/offices/pac/dapp/opla/presentation/focuspp.html
http://www.uspto.gov/web/offices/pac/dapp/opla/presentation/laiplabackgroundtext.html
A
TTACHMENT
C: T
T
HE
D
RAFT
R
ULES
A
RE
N
OT
R
EQUIRED BY
P
ATENT
L
AW OR
P
AGE
C-3
N
ECESSARY TO
I
MPLEMENT
P
ATENT
L
AW
84
If the responses that we received are full and accurate, USPTO did not perform any
analysis of regulatory effects as required by Section 1(a) of Executive Order 12,866.
24
V.
What constitutes a “compelling public need”?
?
The primary stated benefit of these two draft rules is to reduce USPTO’s backlog, and
thereby improve various performance metrics. For example, the Office has established the
reduction in backlog (“patent pendency”) as a performance goal under the Government
nt
Performance and Results Act (GPRA).
25
Unfortunately, USPTO’s management goal of reduced patent pendency is, at best, a poor
proxy for output. Better output measures might include:
:
1.
Maximizing the number of patent claims issued that meet some established standard
of quality, and maximizing the number of patent claims denied that fail to meet this
standard; and
2.
Minimizing the number of erroneous decisions, including both invalid claims issued
and valid patent claims denied.
As a proxy for these output measures, patent pendency is not very helpful. Among pending
patents, one cannot easily distinguish between valid and invalid patents being delayed. The
social cost of delaying a valid patent is almost certainly much greater than the social cost of
delaying an invalid patent, as there is no mechanism to compensate an innovator for the lack of
or delay in obtaining a valid patent whereas invalid patents may be attacked or limited in several
ral
ways.
More importantly, all output measures are inherently defective because they do not take
account of the outcomes that the patent examination program was created to achieve –
–
maximizing the social value of protection provided for patentable intellectual property net of the
24
Public comments by senior USPTO officials also indicate that the Office did not analyze its
data to ascertain whether applicants or examiners were predominantly responsible for its “rework”
problem, which was the presumed cause of backlog. At one of the pubic “Town Hall” meetings, held in
New York on April 7, 2007, a question was asked by a member of the audience, and answered by
by
Commissioner Doll as follows:
Question: Commissioner Doll, did you do any studies to identify where these rework
applications are coming from? Do you have any sense for whether they’re caused by the
he
examiner screwing up or the applicant screwing up? How are you getting into that
problem?
Commissioner Doll: No, I didn’t differentiate between whether it was an applicant error
r
or an examiner error.
25
United States Patent and Trademark Office, 2007-2012 Strategic Plan
n
(http://www.uspto.gov/web/offices/com/strat2007/stratplan2007-2012.pdf).
A
TTACHMENT
C: T
T
HE
D
RAFT
R
ULES
A
RE
N
OT
R
EQUIRED BY
P
ATENT
L
AW OR
P
AGE
C-4
N
ECESSARY TO
I
MPLEMENT
P
ATENT
L
AW
Documents you may be interested
Documents you may be interested
