Making the USPTO Work for the American People
At its very best, government is smart, efficient, and capable of getting things done for the people it serves. That’s why, in 1980, Congress established the Office of Information and Regulatory Affairs (OIRA) under the Office of Management and Budget (OMB).
I had the honor of leading this little-known, but critically important, agency at the turn of the century. At the core of our mission was reviewing proposed and final regulations issued by government agencies. We checked the agency’s cost-benefit analyses to make sure each rule is a good deal for the taxpaying public. This practice is now a well-accepted part of the federal rulemaking process, bringing a much-needed level of transparency and accountability to the executive branch of our government. OIRA can only be effective if agencies submit their rules to OIRA for review.
Some agencies have evaded OIRA review as they implement rules that have far-reaching consequences for our economy and our taxpayers. The U.S. Patent and Trademark Office (USPTO), part of the Department of Commerce, is one such agency. Responsible for examining and granting patent and trademark applications and steering intellectual property policy, USPTO has enormous power to influence the direction and strength of our innovation economy. But, by avoiding OIRA review, the USPTO has managed to avoid oversight that would ensure it is acting in the best interest of American citizens.
Executive Order 12866, which was signed in September 1993, requires executive branch agencies to allow OIRA to review proposed rules to ensure they advance the public interest, especially when a rule is ‘economically significant,’ meaning that it could impact the economy by $100 million or more. Clearly, the rules and regulations issued by the USPTO meet this threshold, with rules often having an economic impact that far exceeds $100 million. Yet, the USPTO usually operates outside the requirement for OIRA review, with its rules and regulations going into effect without a cost-benefit analysis.
One particularly egregious example of the USPTO avoiding oversight took place just a few years ago, when the previous USPTO Director issued the so-called “NHK-Fintiv rule.” This rule – which was not the result of notice-and-comment rulemaking – made it more difficult for companies targeted by patent trolls – investor-backed groups that acquire low-quality, overly-broad patents solely for the purpose of asserting them in litigation – to fight costly, predatory litigation.
Congress established the Patent Trial and Appeal Board (PTAB) within the USPTO as part of the America Invents Act in 2011. PTAB offered a way for companies targeted by patent trolls to request a fair, efficient review of the patent being asserted against them by a panel of experts to ensure that it should have been issued in the first place. If PTAB found that the underlying patent was invalid, the company would not be forced to waste money defending itself against meritless litigation. According to one study, PTAB reviews resulted in directed cost savings of more than $2.6 billion in a five-year period.
The implementation of the NHK-Fintiv rule, which instructs PTAB to deny requests for review if a lawsuit has already been filed, has forced companies — big and small — across the economy to divert resources they could use to develop new products or create jobs. Instead, they pay lawyers to defend themselves against frivolous lawsuits from patent trolls. The victims of these bad actors have included organic farmers, semiconductor manufacturers, and even the makers of COVID-19 tests.
The current USPTO Director’s interim guidance on NHK-Fintiv, which curbs its reach, reflects growing concerns about the rule’s abrupt curtailment of PTAB reviews. But more permanent action is needed to restore PTAB’s role in preventing wasteful patent litigation is restored.
The costs to our economy have been massive — to the tune of billions of dollars. It is past time to subject rules issued by the USPTO to the same OIRA cost-benefit analysis required of most federal government agencies.
John D. Graham is a professor at the Indiana University Paul H. O’Neill School of Public and Environmental Affairs. He served under President George W. Bush as Administrator of the Office of Management and Budget’s Office of Information and Regulatory Affairs from 2001 until 2006.
