Growing pains in the administrative state: the Patent Office's troubled quest for managerial control.

AuthorRai, Arti K.

INTRODUCTION I. CURRENT DYSFUNCTION: THE ROLE OF EXOGENOUS FORCES AND SUBSTANTIVE LAW A. Increased Workload and Backlog B. Causes: Exogenous and Endogenous II. THE MANAGERIAL CONUNDRUM A. The Current State of Play B. Internal Reforms: Examiner Incentives and Prior Art Searching C. Limits on Authority over Fees D. The Blurry Line Between Substance and Procedure E. Negotiating Interest-Group Arguments F. Inequitable Conduct and the Federal Circuit III. THE DESIRABILITY OF INCREMENTAL REFORM A. What the Judiciary Can Do 1. Substance Versus Procedure 2. Inequitable Conduct B. What Congress Must Do CONCLUSION INTRODUCTION

In the last ten years of our "information age," the workload of the Patent and Trademark Office (PTO) has grown dramatically, increasing from 238,850 utility-patent applications in 1998 to over 460,000 in 2008. (1) The flood of recent applications has thrust this previously obscure agency into the spotlight. The PTO faces an unenviable task. The volume of patent applications is obviously extremely large. At the same time, evaluating whether a patent should be granted is often a highly complex endeavor. (2) Proper evaluation requires understanding not only the science in the area in which the patent is sought but also the manner in which the patent statute applies to the science. (3) The patent statute itself sets out only a relatively skeletal set of standards regarding how patentability should be determined. (4)

For all of these reasons, one might expect Congress to have established a highly muscular patent agency. This has not happened. Not only does the PTO lack substantive rulemaking authority, but the PTO's reviewing court, the Court of Appeals for the Federal Circuit, does not give any formal deference to legal decisions made by the agency in its statutorily authorized case-by-case adjudication. (5)

Even in the face of all of these obstacles, the PTO has had some success in reforming substantive law in a manner that gives it more power in the decision-making process. The courts appear to have accepted, at least implicitly, the PTO's argument that these substantive reforms will help the agency manage its workload and improve the quality of the patents that it issues. (6) In the 2005 case In re Fisher, (7) the PTO succeeded in convincing the Federal Circuit of the validity of its heightened standard for evaluating the utility of patent applications. As a consequence, patentees cannot file applications until they have a "specific" and "substantial" use for their inventions. (8) In 2006, the PTO worked with the Justice Department's Office of the Solicitor General to shape Supreme Court interest in and reform of the core patentability standard of nonobviousness. (9) The result was the Supreme Court's 2007 decision in KSR International Co. v. Teleflex Inc., (10) which has made it easier for the PTO to deny arguably "obvious" patents. In October 2008, the PTO was successful in leveraging the threat of Supreme Court intervention on the issue of patentable subject matter (11) to secure from the Federal Circuit an en banc decision, In re Bilski, upholding the PTO policy of excluding from patentability processes that are not tied to a physical transformation or machine. (12) Most recently, the PTO was able to rely on KSR and an earlier Supreme Court decision, Dickinson v. Zurko, (13) which mandated significant deference to factual findings made by the PTO in the context of patent denials, to secure an April 2009 Federal Circuit victory with respect to the PTO's application of nonobviousness to DNA-sequence claims. (14)

In addition, for the first time, the PTO will soon have in-house professional economic assistance to help it make decisions about substantive examination criteria. As one of its final moves, the George W. Bush administration spearheaded the establishment of an Office of the Chief Economist within the PTO Director's Office. (15) If filled properly, with a respected economist who is perceived as being objective, this Chief Economist position could serve as an institutional locus for data-driven thinking about how the patent law's legal standards could best serve innovation-policy goals. Moreover, because the position is set up under the Intergovernmental Personnel Act (IPA), it could attract academic economists in the same manner as similar positions at the FTC and the FCC. (16) While these somewhat jury-rigged mechanisms to influence substantive patent law are hardly a substitute for the power conferred by substantive rulemaking authority," (17) they nonetheless represent a significant win for the PTO.

By contrast, the PTO's efforts to regulate the manner in which patent applications are processed, where Congress has explicitly given the PTO rulemaking authority under section 2(b)(2) of the Patent Act, (18) could be viewed as less successful. Perhaps most notably, the PTO rules package that limits the number of "repeat" applications patentees can file and places additional requirements on applications that contain large numbers of claims was the subject of a sweeping judicial challenge that succeeded in the district court. (19) The district court's opinion in this litigation threatened to limit the PTO's rulemaking authority on questions of procedure to relatively narrow concerns. Although the Federal Circuit's March 2009 panel opinion in the case takes a more expansive view of PTO authority, (20) the opinion includes a dissent and may not ultimately persuade the majority of the Federal Circuit.

On first examination, then, it would appear that the agency has enjoyed some success in areas where it has limited authority, and is operating on tenuous ground in areas where it has been delegated explicit authority. More generally, from the perspective of administrative law, the idea that an agency would have circumscribed control over the manner in which it processes its workload is anomalous. An important line of Supreme Court case law stresses that agencies are generally in the best position to articulate their own procedural requirements. (21) And when the agency in question has over 9000 employees (including over 6000 patent examiners), the need for significant managerial control would appear quite pressing.

Perhaps unsurprisingly, on second examination one sees more complexity and nuance. The PTO faces a set of mutually reinforcing challenges that substantially weaken its control over procedure. First, even where reform does not directly involve external interest groups, and thus is unlikely to be the subject of a court challenge, the PTO has limited room for maneuvering. Most notably, the complexities of collective bargaining with a union that represents over 6000 examiners pose a formidable challenge.

Once external interest groups get involved, the challenges grow even larger. Because substance and procedure exist on a spectrum, separated by no bright dividing line, the PTO's lack of substantive rulemaking authority makes it quite vulnerable to interest-group charges that it has overstepped its bounds. Relatedly, as administrative law scholars have long discussed, any attempt to implement significant reform through rulemaking poses a challenge. Perhaps because of the PTO's limited history with rulemaking, it has not shown great aptitude in implementing the interest-group outreach that is often necessary (though hardly sufficient) to meet this challenge. Moreover, although the PTO has procedural-rulemaking authority, it has not been given fee-setting authority, an important concomitant power for an agency with operations that are entirely fee based.

Finally, there is the anomaly of review by a court, the Federal Circuit, that itself can lay claim to specialization and expertise--two characteristics that administrative law scholars typically see as the exclusive attributes of agencies. The Federal Circuit's desire to formulate its own procedural rules for the PTO--perhaps most notably in the area of inequitable conduct--substantially weakens the agency's ability to regulate interactions with applicants.

But the fact that anomalies can be explained does not mean that they should persist. In the case of the PTO, ameliorating the difficult situation is likely to require making it less of an outlier among administrative agencies. Although dramatic changes may be undesirable--and are, in any event, likely to be politically infeasible--a few relatively narrow tweaks affording the PTO some power over procedure could produce significant improvements. (22)

This Article proceeds in three parts. Part I reviews the evidence of dysfunction and discusses the extent to which difficulties have emerged as a consequence of both exogenous forces and problems in substantive legal doctrine. As that Part notes, for better or for worse (perhaps better in the case of substantive legal doctrine, worse in the case of exogenous forces), both exogenous forces and substantive legal doctrine will, at least in the near term, be considerably different than in the recent past. Part II discusses the area of procedure, where little has changed in recent years. It elaborates on the factors, noted above, that limit the PTO's latitude in the area of procedure. Part III outlines realistic near-term possibilities for the path forward, focusing on ways in which the current trend toward tying the PTO more closely to the administrative state in the area of substantive patent law could be mirrored in the area of procedure.

  1. CURRENT DYSFUNCTION: THE ROLE OF EXOGENOUS FORCES AND SUBSTANTIVE LAW

    1. Increased Workload and Backlog

      In the last ten years, the PTO has been confronted with a significant increase in numbers of patent applications. As noted earlier, the number of utility-patent filings nearly doubled between 1998 and 2008, going from about 239,000 in fiscal year (FY) 1998 to over 460,000 in FY 2008. (23) The George W. Bush administration, buoyed by a 2005 decision by congressional appropriators to let the PTO...

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