The monopoly factory: want to fix the economy? Start by fixing the Patent Office

Washington Monthly, June, 2005 by Zachary Roth

The patent office argues that it is simply carrying out the will of Congress. Brigid Quinn, an agency spokeswoman, says that examiners are required by law to grant applications, unless they can find evidence to reject them. "So the office is doing exactly what the law requires that they do," she says. But in fact, as David Martin, an intellectual property consultant, points out, the law as written only says that an applicant "may obtain" a patent if sufficient evidence can't be found to reject it. It doesn't require that the office grant a patent. When the patent office created its Manual of Patent Examining Procedure (MPEP), an internal document used to establish uniform standards of examination, it wrote, "shall obtain," rather than "may obtain." That change has allowed the office to act in its own self-interest by treating applicants as favorably as possible, while simultaneously claiming that its hands are tied by the law. "That subtle substitution of 'shall' for 'may' is one of the key reasons why we have the problems we have right now," says Martin.

The patent office denies that the quality of its patents has declined. And, in fact, there are no comprehensive measures of patent quality. But an internal agency experiment gives an instructive glimpse. In 2001, the office created a new set of rules for reviewing "business method" patents--a relatively new category of patentable material, covering non-technical innovations, such as Amazon.com's "one-click" ordering system (the patent protects the idea, not the technology necessary to carry it out). The complexities of these patents were causing problems for many examiners, so the office instituted a "second-set-of-eyes" system, which simply required an additional examiner to review each application. Under the new system, the allowance rate for business method patents was quickly halved. That suggests patents in other complex fields, such as bio-technology, given without a "second set of eyes," may have similarly higher error rates.

The countless faulty patents that are pumped out through this process can be extremely damaging to the American economy. They force consumers to pay more than they otherwise should. They make the patent office an easy mark for those who would manipulate the system--and indeed have given rise to a whole new category of scammers: "patent trolls" (See sidebar.) Some economists think that all the extra patents in corporate portfolios have artificially enhanced the value of those stocks, creating what they call a "patent bubble," with potentially devastating results for many investors. Worst of all for the economy and for society as a whole, a faulty patent system can create substantial obstacles to basic, critical scientific and technical innovation.

Consider, for instance, the area of breast cancer research. In the early 1990s, a group of American and European genetic scientists, who had been working together to identify and sequence the genes whose mutations had been linked to breast cancer, began to believe they were on the verge of a collective breakthrough. By 1990, the group had significantly narrowed down the location of one of the key genes, BRCA1. The consortium reported that it was "very close" to finding BRCA1, with one researcher declaring that "it will probably be luck, whoever finds it."