By Erik Sherman
IP Law & Business/August 2007

Reprints & Permissions

Business people and lawyers complaining about a federal agency? That's certainly nothing new. But concern in the patent community about the leadership of the Patent and Trademark Office is perhaps stronger than it has ever been. A growing number of experienced patent professionals are openly dissatisfied with agency management. A recent lawsuit asks for the dismissal of the new PTO deputy director. Others decry the politicization of an agency that should be a technocracy. Proposed rules that add new limitations to patent applications are highly unpopular. Yet through it all, the PTO points to numbers that it claims show improvement--and effective management. Who's right?

No one and everyone. Pressures on the PTO come from many directions: corporate users and individual inventors, employees, Congress, and other countries. Conditions that frustrate so many have myriad causes: management decisions, user practices, resource limitations, and legislative constraints, among others. These issues raise the question of whether even the IP equivalent of a superstar CEO could put things right. Problems such as the growing length of pendency, poor patent quality, and lackluster employee retention have been building for years.

But the recent appointment of former congressional counsel Margaret Peterlin as deputy director certainly has crystallized the discontent. Greg Aharonian, a consultant who searches for prior art, has been using his popular Internet newsletter PATNEWS to lambaste the appointment. What's more, in July he and three others sued U.S. Department of Commerce secretary Carlos Gutierrez for Peterlin's removal.

There is more here than a few grumpy complainers. Aharonian claims that under the law of the land, neither Peterlin, nor PTO director Jon Dudas who has been in the job since 2004, is allowed to hold office. He points to statute 35 USC 3, passed by Congress in 1999, which states that both the director and deputy directory must have "a professional background and experience in patent or trademark law." But, in fact, the strength of both officials' pre-PTO resumes is their work for powerful Republicans on Capitol Hill. Dudas was counsel to the House Judiciary subcommittee on courts and intellectual property as well as staff director and deputy general counsel for the committee, and Peterlin was first general counsel to former House majority leader Richard Armey and then counsel for legal policy and national security adviser to then-Speaker of the House Dennis Hastert.

This isn't the first PTO appointment to raise eyebrows. Before Dudas became director, he was deputy director to James Rogan, a former congressman and a House manager of the impeachment trial of Bill Clinton. Rogan got the top spot at the PTO in 2001 after losing a 2000 reelection bid. Aharonian says that Peterlin's appointment in May was "the last straw."

The PTO would not arrange interviews with either Dudas or Peterlin. But a spokesperson points out that Dudas spent two years in a Chicago law office with some part of his time doing trademark work. Peterlin's PTO biography stresses "strong management skills and a solid background in intellectual property, with involvement in every piece of patent-, trademark- and copyright-related legislation considered on the House floor over the past five years." The agency could not provide specifics about her management experience.

A PTO spokesperson said that Aharonian is a lone critical voice. But talk to patent pros, and you quickly find discontent. Neil Smith, for instance, a partner at Sheppard Mullin, feels that top appointments at the PTO have taken on an increasingly political emphasis, with officials not necessarily having backgrounds that lend themselves to managing an agency with more than 8,000 employees and the pressing need to deploy information technology productively. "I don't quarrel with some political [emphasis], but whichever party is in power, there are excellent corporate patent attorneys or leaders in patents who are interested in the job," Smith says. That view is seconded by Jay Erstling, retiring director of the office of the Patent Cooperation Treaty (PCT) and director-adviser for PCT matters to the director general of the World Intellectual Property Organization. "In [the Bush] administration, a lot of the more technical parts of the government have become politicized, and I think that's the case [here]," Erstling says.

Others more specifically question the backgrounds of the top PTO officials. "If you look at Margaret Peterlin, she's got sterling credentials, but I don't see where she has a deep background in understanding patent issues from the perspective of an applicant," says Edward Hejlek, the managing partner at Senniger Powers, a St. LouisÐbased IP boutique. Others are more blunt. "After more than five years of being in the patent office, Dudas has demonstrated skills in dealing with Capitol Hill and getting money for the patent office, but [he] has shown no interest in learning substantive patent law or substantive patent management," says Hal Wegner, a patent partner at Foley & Lardner.

Get into deeper discussion, and people take pains to note that they don't mean the comments personally and do not question the intelligence or past accomplishments of the two. "This is about the procedures that the office is pursuing and whether it's taking us in a positive direction," says Senniger Powers's Hejlek. He tells of a current patent application sent with 32 claims. The office replied saying that the claims represented 142 separate inventions. "They are reducing invention into smaller and smaller pieces--more specific rather than more generic inventions. As a result, it led to the very problem of which the office is complaining--numerous filings." He is aware of the potential, at least, for repercussions--meaning that doing business at the PTO could become harder for those who publicly complain. But, says Hejlek, "I don't believe that it would be the right thing to not express concern."

It would be unfair to blame all the PTO's problems on its present managers, as Hejlek and almost everyone agrees. A flood of patent applications--443,652 in 2006 versus 311,807 in 2000--is making it impossible to handle the workload.

And it's not just the number of applications, but also their poor quality. "[Companies are] drafting extremely broad claims where they have not themselves looked at the prior art to see what is patentable and not patentable," says commissioner for patents John Doll, the highest-ranking PTO official, with decades of patent experience. "By doing that, they're taking no responsibility at all for the claims that they've drafted." Almost half of the workload comes from patents that are essentially duplicates of filings in Europe and Japan, points out Bruce Lehman, a director of the PTO under President Bill Clinton and presently senior counsel with Akin Gump Strauss Hauer & Feld. Nevertheless, the U.S. system must still examine each. And the flood continues to grow, even though, Lehman further notes, only about 7 percent of patents are actually embodied in products that companies then market.

The PTO's goal of adding up to 1,200 examiners annually translates into hiring about 25 percent of that group every year, an enormous challenge for any organization, public or private. The PTO loses a little over 10 percent of examiners annually--about 500 currently--so even if management reaches target numbers, the net gain is only 700 a year, and that could drop unless retention increases. A program of examiner retention bonuses may help, but federal salaries remain low, and private sector paychecks tempting. Add the three to five years it takes an examiner to really get up to speed, and hiring your way out of the backlog is difficult, to say the least.

Some of Dudas's efforts are paying off. The agency is seeing some improvements in its metrics, setting records in electronic filing, telecommuting, and patent allowance rate and error rate, for example. But the number of patent applications awaiting first action in fiscal year 2012 is projected to be 1.1 million, compared to an estimated 800,000 by the end of fiscal year 2007, even if current hiring and retention goals are met.

In the short run, patent pros' biggest worries surround the PTO's proposed new patent application rules. Those rules, a response by the PTO to its crushing workload, could be approved as early as mid-July by the Office of Management and Budget. The proposals limit the number of continuations--new claims--that can be added to a patent application while the application keeps its place in line, and also limit the total number of claims under each application.

Stephen Schreiner, a partner at Goodwin Procter, likens the rule changes to using "a shotgun to kill ants in your living room." Schreiner points out that continuation applications are only 5 percent of inventor filings, so limiting new claims fails to address the real issues causing the backlog. Yet he fears that limiting applications to just one continuation will effectively restrict an applicant's ability to make its case and could prematurely end the examination process. "I think it's another example of the PTO looking for solutions that really don't address the core issues and really restrict public access to the patent system," he says.

Yet PTO officials say they listened carefully to the patent community when devising the new rules. "I think there's great communication," says patent commissioner Doll. The agency had town hall meetings, received hundreds of comments on the proposals, and then had further meetings with bar groups, intellectual property owners, and other interested parties.

But the patent community is upset that the PTO sent the changed proposed rules directly to the Office of Management and Budget for approval without disclosing the revisions to the public. Doll says that was on the advice of the agency's lawyers. But a PTO spokesperson says that there was no legal prohibition against communicating the changed rules before they were sent to the OMB. Rules have been through several public iterations in the past. To make up for the omission this time, a number of companies and industry groups, including GlaxoSmithKline and the NanoBusiness Alliance, have been bringing their concerns directly to the OMB this spring.

Looking at the broader problems, if you could magically change the ground rules, of course the PTO's woes could be more easily addressed. "If the office had the kind of salary and personnel rules that private companies operate under, the situation could be turned around much more easily," says Herbert Wamsley, executive director of the Intellectual Property Owners Association. For that matter, an unconstrained top manager could decide to recognize European and Japanese patents, use fees to purchase sophisticated information technology and reward examiners on patent quality instead of just for disposing of applications.

But that brings us back to 35 USC 3. Given the very real challenges and constraints facing the PTO, perhaps that statute's requirement doesn't begin to address what's needed. Says Akin Gump's Lehman: "In my view, the typical patent lawyer is not even remotely competent to run the patent office."