Paul Michel, Retired Chief Judge of U.S. Court of Appeals for the Federal Circuit Court, Stuns LES Audience With Frank Revelations About the Government’s Egregious Mismanagement of Innovation and the USPTO

By Lydia Steck

In an electrifying address to attendees at the LES (USA & Canada) Annual Meeting in Chicago, Paul Michel, retired Chief Judge of the United States Court of Appeals for the Federal Circuit Court, condemned the United States administration and Congress for their lack of leadership on innovation and their mismanagement of the United States Patent and Trademark Office (USPTO), while challenging intellectual property (IP) leaders to get involved.

"Leadership to strengthen and improve the IP regime is needed now more than ever before because the systems are under siege. And, in the absence of real leadership from those in power in Washington, the leadership is going to have to come from you and your peers. There is a very important role for LES and for individual companies and universities and research institutions and law firms and all of their clients."

The Whole Truth…

Michel retired from the bench in May after 44 years in public service, 22 of which were spent on the Federal Circuit, and is now embracing his freedom to call it like he sees it.

"For 22 years I had to bite my tongue and choke on not being able to tell the truth. And the very reason I resigned from a job I truly loved was so that I could get out from under the censorship that, for good reason, is imposed upon judges," he said. "I've spent the last three month trying to 'blow the whistle' on what the Congress has done, including diverting over $600M dollars of patent fees (since 1992) to other uses. In my view, that's close to stealing. Those fees are paid by companies and individuals to support the operation of the patent examination process. So no money given under legal requirement for that purpose should be used for any other purpose."

Michel added that without an act of Congress another $100M grab would be made this year. A disastrous turn of events for an office, he says, has been  'woefully' underfunded for years due in large part to Congress' unwillingness to adjust fees, that  are the USPTO's sole source of income.

First Do No Harm….

"Washington has it exactly backwards," said Michel. "For the past five years the Congress has been considering various adjustments – some call them reforms and some call them deforms – to the patent statue. What is needed first is to repair the patent office. Any version of patent reform puts huge new burdens on an office that is already in a state of near collapse."

He went on to insist that even after the office is 'fixed,' any reform legislation will have to be very carefully undertaken if it is to 'do substantial good and no harm.'

The Backlog…

In addition to significant funding issues, Michel reported that Congress' failure to exercise oversight over the USPTO has led to the enormous application backlog and delays that continue to grow at an exponential rate.

"Today there are 1.2 million patent applications pending -- four times the number that was pending two decades ago," said Michel. "Half of them have never been read and sit in a warehouse in Alexandria, Virginia. I think that's a disgrace and impossible to justify. So when you file a patent application, it may sit in a warehouse for two years before the examination process even begins. Pendency is currently about three years but in some key technologies it takes five to seven years to get the patent office to finish the examination process."

Within the last year alone, the backlog has grown to well over 100,000. This is a seemingly insurmountable task for the 6,000 patent examiners at the USPTO, a third of them having spent less than 3 years on the job. Another third, Michel said, are working from home because there is simply not enough room at the USPTO and he suggested that an additional 3,000 examiners will be needed to 'beat down' the backlog.

The appeals process is said to be worse than the application process in terms of backlog and delays and these problems are exacerbated by computer systems that are said to be two decades old and highly unreliable.

"This is the technology agency of the U.S. Government! Where has Congress been?" thundered Michel, who then quoted USPTO Director David Kappos as saying, "Clearly thousands of new companies and technologies are not being created, millions of new jobs are not being created by these applications held hostage and billions of dollars in wealth are not being created."

"The irony is that we give away the technology but don't provide the rights to protect it," said Michel. "In 1999, Congress required that all applications be posted on the internet. And so they are at 18 months. I hear from friends in China that large numbers of engineers are not doing research in labs rather they're sitting in computer rooms reading American patent applications that are posted. So your technology gets exposed to the world at 18 months but you may not get your patent until seven years down the road. There is something very wrong with that."

On Reform…

Over the past six years, while debate has ensued over the proposed patent reform bill, Michel says that landmark cases decided by the Supreme Court and the Federal Circuit have addressed many of the problems that were perceived to exist regarding damage calculations, venue abuse, willfulness, inequitable conduct and problems that were raised by the Federal Trade commission in 2003 and by the National Academy of Sciences in 2004. For this reason, he feels the reform bill now looks 'a little out of date' and is otherwise a 'mish mash' of good features, bad features, and features that have unpredictable implications.

In addition to the "not ready for prime time" bill, he bemoaned the lack of inclusivity of the Congressional debate process with thirteen companies seeming to dominate the process and no testimony to date from IP lawyers, licensing professionals or judges.

The Upshot….

Overall, he describes the scenario as pretty "dire" and cited a recent survey of the world's most advanced countries in which the United States ranked last in what it has accomplished over the past decade to strengthen innovation incentives and IP regimes. In first place was Germany, which Michel firmly believes has weathered the economic recession much better than the US and others because of its focus on making its IP system fast, agile, accurate and inexpensive.

"Congress has it all backwards and upside down. And they are going to continue what they're going to do unless leaders elsewhere will speak up," said Michel. "There are many things that need to be done. All of you have important powers to help with this. It won't happen unless there is an upsurge on input from the private sector. I urge you to help strengthen the patent system by guiding and informing Congress so that they'll do things in the right sequence and carefully so that it benefits everyone."

Judge Michel's presentation was one of many highlights at the 2010 Annual Meeting that also included, a keynote address by renowned University of Chicago economist Steven Levitt, author of the New York Times bestseller Freakonomics and Superfreakonomics, presentations by economist and Former Vice Presidential Candidate Pat Choate and Suzanne Michel, Deputy Director of FTC's Office of Policy Planning, presentation of the 2010 Deals of Distinction™ Awards and the highly anticipated release of the Royalty Rates and Deal Term surveys for the life sciences/health care and chemicals, energy, environment and materials sections.