Posted February 06, 2014
If you are at all interested in patent law, Mark Lemley is a must-read. In 2001, Lemley wrote an article titled Rational Ignorance at the Patent Office, in which he challenges the assertion that the PTO should spend more time weeding out bad patents.
The article is only 35 pages long, but I took notes, and I can sum up his argument using a few of the numbers he provides. Of course, I recommend reading the entire piece, but here's the gist:
- There are 2 million patents currently in force, of which only 125 per year go to trial
- 275,000 new patent applications are filed each year
- 150,000 new patents are issued each year
- It costs about $20,000 per patent to prosecute ($5,000 for continuation applications)
- The overwhelming majority of patents are neither litigated nor licensed (only 2% are litigated, and 2/10ths of 1% go to court); 2/3rds of all patents lapse for failure to pay maintenance fees and are therefore abandoned
- The PTO spends approximately 18 total hours examining each patent application, for a total of $4.33 billion in annual prosecution costs
- If the PTO doubled its examination time to 36 hours per application, total annual prosecution costs would increase by approximately $1.52 billion, for a total of $5.85 billion per year
- Approximately $2.62 billion is spent each year licensing and litigating patents
- If we assume that doubling down on patent examination at the PTO eliminated an additional 10% of patents, that would save $262 million annually (10% * $2.62 billion)
- Lemley's insight is that $262 million in annual savings is less than $1.52 billion per year in added prosecution costs. Therefore, it is much cheaper to only make detailed validity determinations in those few cases where a patent is actually litigated than to invest additional resources on the front end, because most patents just collect dust.
Note that even if we (unrealistically) assumed that doubling down on patent examination would eliminate every single patent that turns out to be invalid during litigation (almost half), that would save approximately $1.31 billion, still less than $1.52 billion in annual costs.
Check out the full article to find out where Lemley gets these numbers from.