The Economist recently published an interesting opinion article on the impact of innovation on the economy -- specifically the negative impact of patent backlogs on business (particularly small entrepreneurial business).
INNOVATION and jobs have become a modern version of motherhood and apple pie in Washington, DC. Everyone in America’s capital wants lots more of both, or so they say. So how come Congress and the White House have decided not merely to underfund a crucial cog in American’s innovation machine but actually to take away revenue it earns? And that at a time when that cog, the Patent and Trademark Office, is already struggling to keep up with the growing demands upon it? The recent budget deal for fiscal 2011 (the year to September 30th) allows the Patent Office to spend only $2.1 billion. That is less than it expects to collect in fees from applicants—$100m or so will disappear instead into Treasury coffers—and far less than it needs to do its job properly.
Ever since Thomas Jefferson became the first head of what became the Patent Office in 1790 and decided to grant patents only to innovations that were useful and genuinely novel, America’s system of intellectual property has played a crucial role in generating economic growth, encouraging inventors and entrepreneurs by ensuring that they can make money from their good ideas. Last year the Patent Office granted 244,358 patents out of the applications it examined. Although you can debate how many jobs are created on average per patent, there is no doubt that, collectively, they are a useful contribution to an economy that is still struggling to grow.
Imagine, though, how much bigger that contribution might be had the Patent Office been able to process the applications that it has still not even looked at. There are more than 700,000 of these. On average, hopeful inventors wait for two years until their applications are even considered. Ten months more may go by before they learn whether they have been successful. While they wait for a decision, the American economy is losing out.
The backlog extends the uncertainty that the process causes to businesses, applicants and competitors alike, slowing investment and constraining the economy. It may also push back the launch of the new product for which a patent is sought, depriving customers of the benefits. Entrepreneurial small businesses, which are increasingly recognised as an important source of new jobs and often need a patent to raise the capital they need to grow, tend to be hit particularly hard. The delay may also cause firms to seek alternative methods of protecting their intellectual property, especially through trade secrets. That may in turn impose further costs on the economy by slowing the dissemination of knowledge which the patent system helps to bring about.
On April 26th a scheme to process applications more quickly for an additional fee was put on ice by David Kappos, the head of the Patent Office, who blamed this on its new spending cap. Even in today’s difficult fiscal circumstances, it should not be beyond Congress to find the money to allow the Patent Office to introduce this reform. Simply letting it keep all its fees would do the trick—even if this comes at the expense of some other programme that contributes less to the economy.
Congress should also hurry up and pass the patent reforms that it has been considering, mostly favourably. Certainly, there are things to quibble about in the proposed legislation. Not everyone is convinced by its bias towards the first applicant to file for a patent rather than (as now) the first applicant to have the idea, nor by its lack of an easier way to challenge patent awards. Yet, overall, it makes sense. Most sensible of all is the part that would let the Patent Office determine its own fees and keep all the money that it collects. That would presumably enable it to reduce the backlog of applications. The sooner Congress passes this legislation, the easier it will be to take seriously the claims of America’s politicians to be doing all they can to foster innovation.