H. Whei Hsueh

ABSTRACT

This comment relates to the third pillar, excellence in customer service, and in particular, Proposal 5: review of current compact prosecution model and the effect on quality.

Patent examination quality can be improved by requiring that all examiners pass the patent bar and complete mandatory continued legal and technical training. Passing the patent bar guarantees a basic fundamental understanding of statutory interpretation of patent law and the Manual of Patent Examination Procedure (MPEP) equivalent to that of patent prosecutors. Additionally, Continuing Legal Education (CLE) provides training with practicing professionals in current case law interpretation of Supreme Court decisions, which is especially important in light of recent controversies about defining patent eligible subject matter under 35 U.S.C. § 101.

PROPOSAL

Training existing patent examiners to be on an equal footing with patent prosecutors can be implemented in two steps. First, starting at the GS-11 level and higher, examiners should be required to pass the patent bar. Over time, this patent bar requirement can then be extended to lower-level examiners, eventually becoming an entry-level requirement. Second, a CLE requirement should be enforced for all levels of examiners, serving a dual purpose of preparing lower-level examiners for the patent bar and educating all examiners about case law developments.

Patent examiners should have an understanding of the technology and the governing patent laws at least equivalent to the understanding of patent prosecutors. As examiners are essentially the gatekeepers for what inventions can be patented, they should be required to pass the patent bar with a minimum score of 70% just as patent prosecutors are required to do. 1

The need to require patent bar passage is evident by the lack of qualified degrees among existing patent examiners. Raw data gathered in a Freedom of Information Act (FOIA) request for examiner statistics suggests that there may not be any examiners with patent bar registration numbers, or at least that there is insufficient data to determine how many examiners have registration numbers. In Art Unit 2100 for Computer Architecture and Software, in 2014, there were only 14 examiners with doctorate degrees (including J.D.), compared to 315 examiners with bachelor’s degrees and 47 examiners with master’s degrees. 2 Thus, only 3.7% of examiners in the 2100 Art Unit potentially have J.D. degrees—or these may be comprised of all Ph.D.’s. 3In the 3600 Art Unit for e-commerce (i.e., business method software), there are only 4 examiners who potentially have law degrees. 4

Because the infrastructure to administer the patent bar exam already exists, testing potential patent examiners would not require the USPTO to make any significant change. Patent bar prep can be easily incorporated into examiners’ training using existing patent bar prep courses, reducing the cost to the USPTO. Furthermore, the qualifications for an entry-level patent examiner (GS-5) already generally satisfy the requirements to register for the patent bar. Therefore, it would not pose a significant burden on the USPTO to enforce patent bar passage on patent examiners.

Second, mandating increased legal training would be more effective and efficient at improving patent quality than a competing proposal to increase the time examiners spend on each application. A 2002 study suggested that an increase in the hours spent on examination improves examination quality and subsequently decreases the number of patents courts must review, reducing litigation. 5 However, the simple solution of increasing the number of examiner hours by an hour for every patent disposal carries substantial costs. John King of the U.S. Department of Agriculture’s Economic Research Service estimated that increasing examiner effort across all examination groups by one hour per patent disposal would mean an increase in examination costs of roughly 5.5%. 6 Based on the number of examiners employed at the USPTO in 2014, a 5.5% increase in patent examination cost would cost roughly $51.2 million.7 Meanwhile, if King’s assumption regarding the statistical relationship between increased examination hours and reduced litigation holds, the one-hour increase in examination time would eliminate approximately twenty-five litigation cases at a savings of $22.5 million. 8

While it does not appear worthwhile to net a potential litigation savings of $22.5 million at the cost of $51.2 million to improve patent examination, more recent data on non-practicing entity (NPE) litigation, particularly with software-related patents, suggests that the potential litigation savings are substantially larger. According to a 2014 RPX study, 63% of all patent litigation cases were filed by NPEs. 9 Of the approximately 2,800 NPE cases, about 30% of those cases were in the software/mobile/e-commerce space, which typically involves 35 U.S.C. § 101 issues.  10 Applying a conservative rate of invalidity at 50% (compared to an estimated 85% invalidity rate for post-grant review in inter partes reviews11 ), approximately 420 of the software NPE cases could be eliminated by improved patent examination. Coupled with the litigation savings of $900,500 per case,12 the litigation savings of preventing 420 NPE cases by improving examination quality could total $378 million, compared to eliminating only twenty-five cases (costing $22.5 million) by merely adding another hour of examination per case (costing $51.2 million).

By requiring patent examiners to pass the patent bar and fulfill CLE requirements, the cost to improve patent examination can be substantially reduced, as both of these requirements would eliminate altogether the need to add another hour of examination per case. CLE training can be easily provided to patent examiners, since the infrastructure for CLE training is already available to patent prosecutors. Furthermore, unifying CLE training to include both examiners and prosecutors could result in more discussion to improve prosecution. Implementing CLE training for patent examiners comes at a comparatively low cost without significant execution hurdles for the USPTO. For example, in California, attorneys are required to have twenty-five hours of CLE training over three years.13 Adding eight hours of CLE training annually to an examiner’s workload, as opposed to an additional hour per case per examiner, would cost the USPTO only $3.58 million, just under 7% of the $51.2 million to require examiners to spend an extra hour per case.14

CONCLUSION

Establishing higher standards for patent examiners by requiring patent bar passage and mandatory CLE training will result in higher patent examination quality, thereby producing higher-quality patents that are less likely to be litigated. The wasteful costs of petty and weak patent litigation can be avoided, and the expensive costs of litigation can be reserved for legitimate, controversial legal issues.

  1.  See Office of Enrollment & Discipline, U.S. Patent & Trademark Office, General Requirements Bulletin for Admission to the Examination for Registration to Practice in Patent Cases before the United States Patent and Trademark Office (2015), http://www.uspto.gov/ip/boards/oed/exam/OED_GRB.pdf.
  2. Response to FOIA Request No. F-15-00019 from Ricou Heaton, U.S. Patent & Trademark Office, to Hain-Whei Hsueh, Kilpatrick Townsend & Stockton LLP (Nov. 10, 2014) (on file with author) [hereinafter FOIA Response]. The FOIA Response identified doctorate degrees, but did not explicitly distinguish a science-based doctorate degree (Ph.D.) from a law degree (J.D.), neither did it state how many examiners had taken the patent bar. Id. Typically, GS-11 or higher patent examiners are expected to take a test equivalent to the Patent Bar in order to be eligible for promotion to GS-13, but it is not a requirement. See Patent Examiner Positions, U.S. Pat. & Trademark Off., http://www.uspto.gov/web/offices/pac/exam.htm [perma.cc/Z9Q7-3AT2] (last visited Feb. 7, 2016).
  3. See FOIA Response, supra note 3. 
  4. Id.
  5.  Ian M. Cockburn et al., Are All Patent Examiners Equal? The Impact of Characteristics on Patent Statistics and Litigation Outcomes (Nat’l Bureau of Econ. Research, Working Paper No. 8980, 2002), http://www.nber.org/papers/w8980.pdf
  6.  John L. King, U.S. Dep’t of Agric., Patent Examination Procedure and Patent Quality, in Patents in the Knowledge-Based Economy 54, 69 (2003), http://www.nap.edu/openbook.php?record_id=10770 [perma.cc/8G7P-37C8]. 
  7.  Based on 9,302 examiners, see U.S. Patent & Trademark Office, Fiscal Year 2014 Performance & Accountability Report 11 (2014),  http://www.uspto.gov/about/stratplan/ar/USPTOFY2014PAR.pdf, at an estimated annual salary of $100,000. See Special Salary Rate Table, U.S. Pat. & Trademark Off., http://careers.uspto.gov/Pages/Misc/SalaryRates.aspx [perma.cc/ZML3-R8YU] (last visited Feb. 7, 2016).  
  8. King, supra note 6. According to the American Intellectual Property Law Association, the cost of an average patent lawsuit (where $1 million to $25 million is at risk) is $1.6 million through discovery and $2.8 million through final disposition. David A. Divine & Richard W. Goldstein, Am. Intellectual Prop. Law Ass’n, Report of the Economic Survey 2013 (2013). Assuming that only 5% of cases proceed to a litigated verdict and that 49% of cases (assumed to cost $50,000) were dropped before the start of discovery, the remaining 46% of patent cases incur some or all of the costs of discovery. With the 2013 AIPLA estimates, an expected cost of litigation can be calculated as: (49% × $50,000) + (46% × $1.6 million) + (5% × $2.8 million) = $900,500 per case, resulting in a total litigation savings of about $22.5 million over twenty-five cases.
  9. See RPX, 2014 NPE Litigation Report 3 (2014), http://www.rpxcorp.com/wp-content/uploads/sites/2/2015/03/RPX_Litigation-Report-2014_FNL_040615.pdf.
  10.  Id. at 4.
  11. See Joseph Casino, Trends From 2 Years of AIA Post-Grant Proceedings, Law360 (Sept. 29, 2014, 10:06 AM), http://www.law360.com/articles/581512/trends-from-2-years-of-aia-post-grant-proceedings [perma.cc/YU7V-AGWN].
  12. See supra note 8.
  13. See MCLE Requirements, The State Bar of Cal., http://mcle.calbar.ca.gov/Attorneys/Requirements.aspx [perma.cc/46VH-VBUJ] (last visited Feb. 7, 2016).
  14. Assuming an increase in salary for the additional eight hours based on the estimated $100,000 salary as before: 8 hours ÷ 2,080 hours (assuming examiners are paid for fifty-two forty-hour weeks) = 0.385% increase in hours = salary increase of $385 per examiner = $3.58 million salary increase for all 9,302 examiners.