How can the Obama administration fix a patent system in crisis? The United States Chamber of Commerce has some ideas. In its December 11, 2008, report entitled "Recommendations for Consideration by the Incoming Administration Regarding the U.S. Patent and Trademark Office" ("Report"), a bipartisan panel of the United States Chamber of Commerce makes the case that the United States Patent and Trademark Office (PTO) is deteriorating, and offers a series of suggestions to improve the quality of the United States patent system.

The panel, which is composed of prestigious intellectual property specialists such as former PTO director Q. Todd Dickinson and former PTO commissioner for patents Nicholas P. Godici, argues that the "U.S. economy simply cannot prosper without a viable patent system," and emphasizes the need to institute reforms that will resolve the many problems affecting the PTO. These problems include a backlog of over 750,000 patent applications (and counting) that await a first office action, the widespread perception that the quality of patents being issued is declining "at a precipitous rate," the potential for patent reform legislation that would create new responsibilities for the already-overburdened PTO, the high attrition rate of patent examiners, and the inefficient use of a $2 billion budget derived from user fees.

The Report comprises eleven brief papers, each of which identifies a change that would benefit the PTO and provides a series of recommendations to institute the change. The recommendations are summarized below:

1) Improve the quality of U.S. Patents. The panel emphasizes that patent examination should be done right the first time around, with thorough prior art searches and early allowance of patentable claims. To do this, the panel suggests the creation of incentives for applicants to assist the examiner with the examination process, which may include pre-search or pre-first action interviews; expansion of training and mentoring programs for examiners; improvement of the quality of search tools used by examiners; creation of a new quality metric for US patents based on input from the user community; and expansion of the peer-to-patent pilot program, which elicits input from the public regarding the patentability of pending applications, among other changes.

2) Provide adequate resources to do the job. From 1991 to 2003, approximately $750 million in user fees was diverted from the PTO to other United States agencies pursuant to the Commerce-Justice-State Appropriations bill. As a result, the PTO was unable to hire or retain enough experienced patent examiners during this time. There is a risk that the recent reduction in patent allowance will cause a drop in user fees (particularly issue and maintenance fees), which will further prevent the PTO from hiring and retaining experienced examiners. The panel suggests that the government can combat this problem by increasing user fees, instituting a permanent legislative end to fee diversion, and/or transforming the PTO into a government corporation.

3) Reform the patent examiner production system. The current production system, which has been in effect for more than thirty years, defines the amount of time an examiner should spend on each patent application and allocates credit only for a few actions taken by examiners on an application. This system is the source of dissatisfaction among examiners, as it does not provide enough time for examiners to thoroughly examine patent applications, nor does it adequately take into account the varying complexities of different technologies.

The panel acknowledges that a production system is essential to the patent system because it provides examiners with necessary production goals, but suggests several changes to improve its efficiency. These changes include making goals dependent upon the complexity of the technology being examined; adjusting the amount of credit given for certain tasks; providing examiners with incentives to allow cases without the need for a Request for Continued Examination (RCE) (which reopens prosecution); and encouraging early interviews between applicants and examiners.

4) Improve the timeliness of administrative actions. Inefficiencies within the patent system as well as staffing limitations prevent the PTO from promptly responding to applicant filings. As such, applicants are forced to wait longer and longer periods for resolution of patentability issues. To combat these delays, the panel recommends, for example, that the PTO continue to hire, train, and retain qualified examiners; institute policies to ensure that examiners have the best prior art at their disposal at the outset of examination, which may require the use of outsourced searches and/or increased communication between the PTO and foreign offices; expand the First-Action Interview Pilot Program; and recognize search and examination results from first-filing offices.

5) Strengthen the PTO's relationship with the user community. The panel recognizes the need for increased communication between the PTO and the user community so that each side understands the other's needs and limitations. The panel points out, however, that the PTO has recently formulated and instituted policies without seeking significant input from the user community, which has led to the current, deteriorated relationship between the PTO and its stakeholders. To salvage this relationship, the panel recommends that the PTO become more transparent by publicizing its problems, seeking input from users, allowing the public greater time to comment upon proposed policy changes, and encouraging input from industry and academia regarding policymaking.

6) Enhance organizational management. The PTO is a performance based organization, which, though it has greater flexibility in managing its personnel, is subject to a wide range of bureaucratic controls as well as the "political vagaries of the appropriation process." As such, the PTO is unable to make management decisions efficiently. The panel notes, however, that the PTO meets all the criteria needed to qualify as a wholly-owned government corporation. Therefore, the panel recommends that the PTO be established as a government corporation. This change in structure will give the PTO the needed flexibility to manage its own affairs efficiently.

7) Appoint a well-qualified undersecretary and director. The PTO should be led by an experienced intellectual property specialist who inspires the confidence of both the public and the government. The panel suggests that this leader have experience with, for example, patent and trademark prosecution and litigation; leading a large enterprise; and intellectual property policy issues.

8) Improve the retention of patent examiners. The US examiner attrition rate is significantly higher than that of other patent offices. The panel notes that one examiner was lost for every two hired from 2002 to 2006. In order to combat this problem, the panel suggests that the PTO reexamine the production system, as discussed in item 3 above; develop programs to improve examiner morale, such as mentoring programs; improve the communication between examiners and their supervisors; provide examiners with greater work flexibilities; hire more part-time examiners; have retired examiners train junior examiners; and arrange for universities to issue patent examiner certificates, among other recommendations.

9) Permit applicants to defer patent examination. One method of combating the 750,000 application backlog is to allow applicants to defer examination of their applications for a limited period of time, thus freeing up time for examiners to chip away at the increasing application backlog. This system would give applicants additional time to examine the commercial potential of their inventions and determine which applications they wish to see through prosecution. This would also give applicants the time to examine competitor products and determine how to shape their own patent claims. The panel acknowledges, however, that a deferral system has its drawbacks. For example, it would create uncertainty for companies who would have to wait longer to determine the scope of their competitors' patent claims.

10) Rethink the current fee schedule. The PTO's fee schedule charges lower fees at the early prosecution stages and higher fees for the issue and maintenance of patents. The panel acknowledges that the PTO is receiving less income as a result of the reduced allowance rate. In order to increase the efficiency of examination, and to make up for the shortfalls in income from the reduced allowance rate, the panel suggests creating fee incentives to file applications electronically, increasing fees for successive continuations or RCE filings, increasing fees for additional independent claims and/or total number of claims, reducing or eliminating fees for multiple dependent claims, and charging fees for references submitted with an information disclosure statement (IDS). The panel also touches on the controversy regarding giving the PTO fee-setting authority, noting that many in the user community would prefer to have Congress retain this authority as a form of oversight.

11) Enhance efficiency of the examination process by reforming examiner and applicant incentives. This change draws heavily on the recommendations discussed above. The panel specifically focuses on reducing the number of RCEs, and notes that examiner incentives need to be changed to encourage early resolution of patentability issues. The panel also suggests pre-examination interviews as a method of speeding up the examination process.

Though the panel urges definitive, immediate action to "reverse the deterioration of the PTO," it notes that the suggestions set forth in the Report are meant to form a blueprint that will stimulate a dialogue between the administration, the PTO, and intellectual property professionals and owners regarding the best ways to improve the PTO's performance. It is hoped that the new administration will study these recommendations and take steps to implement the most concrete of them, perhaps by starting with turning the PTO into a wholly owned government corporation.