World Class Faculty & Research / September 4, 2015

Reform the Patent Office to Unleash Innovation

SMITH BRAIN TRUST -- The U.S. patent system is supposed to reward and therefore encourage innovation, but is beset with challenges: Patent applications are growing exponentially, overwhelming patent examiners; patent "trolls" file suits against innovative companies, claiming that they are owed compensation for products designed by other people; and companies like Apple and Samsung sometimes appear to be competing as much through patent litigation as in the marketplace.

The Economist recently floated some possible reforms, including cutting back the number of years for which most patents are granted (from 20), and a "use it or lose it" rule that would prevent people from sitting on patents to extract money from future innovators.

Amid these challenges, the U.S. Patent and Trademark Office has not been sitting still. "My own opinion is that the patent office has undergone a change from saying, 'Leave us alone. We'll handle this,' to admitting that it's hard to keep up with all of the inventions happening around the world," says Joseph P. Bailey, director of the mQuest Honors Program and research associate professor of decision, operations and information technologies at the University of Maryland's Robert H. Smith School of Business. "The office's view now is, 'We want to engage the public in the process.'" 

As a 2014 Thomas Alva Edison Visiting Scholar — a program through which the patent office is tapping top academic experts — Bailey has played a hands-on role in helping to bring new technological tools to bear on the patent office's challenges.

Bailey finds fault with two of The Economist's  proposals: Under a "use it or lose it" policy,  many creators of incremental inventions — those that may have no practical use but which pave the way for future moneymaking innovations — would be denied any reward. Such incremental inventions are the norm in high-tech arenas. As for shortening the length of patent terms, the patent office relies partly on market mechanisms to determine their length. Twenty years is the maximum, but a patent owner must pay fees to maintain the patent, which introduces a cost for sitting on patents and also helps to pay for the expensive patent-examination process.

The most important improvement the office can make, Bailey says, is to ensure all patents are of the highest possible quality, recognizing only truly original and nonobvious contributions, which would reduce the likelihood of future disputes. Here are some of the reforms under way at the patent office, in various stages of implementation:

More training: The office is recruiting volunteer technologists, scientists and engineers to keep patent examiners up to date on quickly changing fields. The more examiners know about their field of focus, the more likely they will be to distinguish original from nonoriginal contributions.

Machine learning: The number of pattents has grown so large that the examiners can easily overlook relevant "prior art," as pre-existing patents and technologies are called. Bailey has devised algorithms and other tools that would allow computers to identify relevant prior art that has eluded human eyes. (This was his focus as an Edison Scholar.)

Crowdsourcing: Private sector experts also might be able to identify prior art that examiners missed, so the patent office wants to introduce a crowdsourcing element. To be sure, this would be a self-selected "crowd," as it's hard to find laymen who want to investigate patent histories for fun. Still, "people in an industry have a lot at stake when patents are granted," Bailey says. "If you were Google, you would be silly not to pay attention to the patents issued to your competitors." Leveraging that self-interest would increase the information at the examiners' disposal. Examiners, of course, not the self-interested parties, would still make the final decisions about originality.

Other reforms are aimed more directly at the problem of lawsuits:

Automatic patent reviews: "My biggest suggestion," Bailey says, "would be if a patent gets litigated — if it is asserted in a lawsuit that that patent was wrongly granted — that should automatically trigger a re-examination of the patent."  Currently, the patent office's work and that of the courts are almost entirely disconnected.

Reimbursed court fees: If a patent troll sues, and loses, it should reimburse the company it challenged. "Unfortunately most cases settled before they get to a final judgment," Bailey says. "Still, what this might do is reduce the amounts that the trolls settle for. That's not a bad thing."

Pro bono help: The patent office is helping connect small businesses who are sued for patent infringement with people who can provide free legal advice.

Patent wars are sure to continue, Bailey points out, as companies are rightly protective of their innovations, but better patents will surely reduce the economic "dead weight" introduced by such disputes.

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About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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