Have You Ever Wondered Why the USPTO Approves So Many Crap Patents?

It's because patent examiners are paid for approving crap patents:

The book Innovation and Its Discontents, by Adam Jaffe and Josh Lerner, was first published in 2004. We've cited the book frequently around here, as it did a bang up job describing structural problems with our patent system (and the judicial review of patents). There were a few big points that it made about why our patent system was so fucked up, and a big one was the incentive structure that heavily incentivized approving patents rather than rejecting them.

Specifically, there were two big ideas mentioned in the book about the US Patent & Trademark Office: (1) that because Congress forced the USPTO to fund itself from fees, it had the direct financial incentive to encourage more patent applications, and a good way to do that is to approve a lot more patents and (2) individual examiners were rated and reviewed based on productivity scores on how many patent applications they completed -- and it is much faster and less time consuming to approve a patent, rather than reject one. That's because once you approve a patent it's completed and gone from your desk (and into the productivity metrics as "completed"). But, if you "reject" a patent, it's not done. Even though the USPTO issues what it calls "Final Rejections" there's nothing final about it. The patent applicant can keep going back to the well over and over again, making minor tweaks on the application, requiring the examiner to go through it again. And each time they do, that hurts their productivity ratings. As an additional "bonus" -- the USPTO actually makes significantly more money when it grants a patent, because in addition to application fees, there are also issuance fees and renewal fees.

………

Now there's a new study with even more empirical evidence showing how the Patent Office's entire structure is designed to incentivize the approval of crap patents (first highlighted by Tim Lee over at Ars Technica). The paper is by professors Michael Frakes and Melissa Wasserman, and they used FOIA (yay!) to get data on millions of patent applications between 1983 and 2010. The key point with that date range is that Congress only switch the USPTO over to funding itself off of fees in 1991 -- so the researchers could look at before and after data. It also allowed them to look at different cross sections within the data.

So, for example, the researchers looked at whether or not there was evidence that the USPTO approved more patent applications when there was a big backlog. The answer: hell yes!

Specifically, we compared the Agency’s patent grant rate across different groups of applicants based on the tendency of their associated technologies to file repeat applications; importantly, we performed this across technology comparison for two groups—defined by their average tendency to file repeat applications—before and after periods of budgetary shortfall and increases in application backlog. Our findings suggested that when the Patent Office begins to face mounting backlogs, it appears to act on its incentive to grant patents at higher rates for technologies that are associated with higher rates of repeat application.11 In figure 1, we replicate a figure from Frakes and Wasserman (2015), demonstrating that the Patent Office indeed began to grant at differentially higher rates for high repeat-filing technologies during the mid-1990s, a moment in time when the Patent Office’s application backlog began to increase considerably year-by-year. Again, this analysis is alarming because it suggests that factors other than the underlying quality of applications are affecting the Patent Office’s decision to allow patents.

Then there's a separate question of whether or not the USPTO has a higher approval rate for "profit-maximizing" patents. That is: not all patent fees are the same. Smaller entities get to pay reduced fees. Big companies pay full freight. If the USPTO is being incentivized by fees... then it's likely to approve big company patents faster. And... that's what happened. The study also looked at whether or not the USPTO more readily approved patents in categories where there were higher renewal rates -- meaning a much higher likelihood of generating future fees from renewals. Take a wild guess what they found in both of those studies?

Once again, we see the words of Upton Sinclair in action, "It is difficult to get a man to understand something, when his salary depends on his not understanding it."