The controversial Patent Reform Act may be gridlocked in the 110th Congress, but it will surely get another hearing in the 111th. Unfortunately, the proposed reform would do more harm than good, while leaving the basic contours of the problem unchanged. 

The U.S. patent system is complex, to put it mildly. Newer technologies, especially in the biotech and information technology sectors, and greater administrative requirements and procedures have increased the burden on the U.S. Patent and Trademark Office (USPTO), which is tasked with handling more than 200,000 patent applications each year. Some allege that the USPTO is guilty of issuing low-quality patents that violate the criteria of “novelty, non-obviousness, and utility.” 

Take the case of U.S. Patent 5443036, titled “Method of Exercising a Cat.” In 1993, the USPTO issued this patent for using a laser pointer to exercise a cat. Besides violating the criterion of obviousness, this patent also fails the novelty test. Indeed, the USPTO has issued a patent for essentially the same idea several times before! 

Once issued, there are two principal means of challenging such fraudulent patents. The first, called a reexamination proceeding, is relatively cheap but allegedly ineffective. The other, patent litigation, is costly but perhaps more effective. 

The reexamination proceeding was created by the 1980 Bayh-Dole Act. It allows for someone to notify the USPTO and request a reconsideration of the grounds on which the patent was issued. This process is often criticized for being slanted in favor of the patent owner. As evidence, critics cite statistics showing that only 10 percent of reexamination proceedings result in patent revocation. In Europe, the number is closer to 35 percent. 

Lest we forget, the main problem with the U.S. patent system is the issuance of low-quality patents.

The other chief means of patent revocation is litigation. In the United States, the rate of patent litigation—that is, the number of patents tied up in litigation divided by the number of patents in force—is close to 1.9 percent. The direct cost in litigation has been estimated to range from $500,000 to $3 million per suit, depending on the amount at risk. Another estimate places the average cost at around $500,000 per side, per suit. This is far higher than the average cost of a reexamination proceeding, which is about $55,000. 

Critics of reexamination proceedings and litigation want to create a third alternative, known as a “post-grant opposition proceeding.” Supporters argue that this third method would prove more effective at revoking weak patents and would also reduce the amount of costly patent litigation. 

However, a cost-benefit analysis reveals that the costs of an opposition proceeding far outweigh its benefits. Unlike a reexamination, an opposition proceeding involves the use of attorneys for settlement of disputes. In a litigious society like the United States, the demand for lawyers and paperwork would drive up costs and make the opposition proceeding extremely expensive. American lawyer fees are not regulated as heavily as those in Europe. Thus, an opposition proceeding would not provide the faster, cheaper alternative to litigation that the current reexamination system provides. 

Indeed, a recent study that I coauthored with economist Robert Shapiro shows that adopting an opposition system in the United States would increase the costs of patent validation by nearly $16 billion over 10 years. The average cost of an opposition proceeding could vary from $150,000 to $500,000. Many patent challengers, such as single persons and small firms, might find it too costly to enter into opposition proceedings against wealthy patent holders, even if the disputed patents had been granted improperly. In litigation, the party with the most money can often dominate the trial or force its opponent into settlement. An opposition proceeding similar to litigation might have the same impact.

At the same time, a new opposition system could strike at the heart of what the patent system is designed to protect: the incentive to innovate and invest. Given the higher rate of opposition proceedings in Europe, it is very likely that a similar system in the United States would be used more frequently than the current reexamination system. There is a high risk that patent holders would be harassed by multiple challenges, even for strong patents. Shapiro and I estimate that if the rate of opposition proceedings and patent revocations were similar to that in Europe, there would be a 2.8 percent probability that the investment which produces a patent would be lost through opposition proceedings. This compares unfavorably with the current reexamination system, in which the probability of a total loss is 0.02 percent. An opposition regime could significantly reduce investment in R&D and slow the pace of innovation. 

Lest we forget, the main problem with the U.S. patent system is the issuance of low-quality patents. Oppositions and reexaminations and litigation can’t fix that. Only the USPTO can.