U.S. Patent and Trademark Office human resource policies influence patentability decisions, potentially increasing the rate at which examiners issue allowances. In our study published in the American Intellectual Property Law Association’s Quarterly Journal, my co-author, Lian Huang, and I analyze the impact of production and quality incentives on the quality of patentability decisions.
Our conclusions are based on an empirical analysis of USPTO transaction data from 2001 to 2012. In addition to finding that USPTO incentive policies may increase allowance rate, we find that applying strong quality incentives may mitigate this effect, and that strong quality incentives may further encourage examiners to withdraw erroneous rejections and provoke fewer ex parte appeals.
There has been relatively little empirical investigation into the root causes of patent quality variance. Examination incentives are a natural focal point for such analysis, yet many practitioners—let alone the general public—are unfamiliar with the complex network of carrots and sticks attached to the examination function and how those incentives could subtly nudge some applications toward allowance and others toward amendment or abandonment. Understanding how these incentive systems operate and interact is critical for effective policymaking.
This information is also valuable for effective patent practice. In most circumstances, examiners have strong incentives to maximize the rate at which they render patentability decisions but relatively weak incentives to maximize patent quality. From an examiner’s perspective, the most important metric is the production rating (also called the “count system”), which roughly tracks the number of patent applications that an examiner reviews per unit time. Each examiner is expected to hit a production rating threshold, adjusted based on seniority and technical area of expertise. Examiners that exceed thresholds may be eligible for bonuses or promotions; those who do not meet targets may be subject to disciplinary measures or termination.
The quality of patentability decisions, by contrast, is more loosely regulated through four channels: reviews by primary examiners prior to signing decisions; supervisory performance appraisals; reviews by the Office of Patent Quality Assurance; and applicant-initiated appeals. We find that each of these channels is limited in effect, and that even in combination, they do not provide a strong incentive for examiners to sacrifice quantitative production in order to increase the quality of patentability decisions.
Based on our own experience as patent examiners, we hypothesized that this combination of strong production incentives and weaker quality incentives could encourage examiners to render decisions that maximize the number of work credits (“counts”) obtained. We further hypothesized that because allowing an application is often the more efficient means by which to obtain counts, these incentives might bias patentability decisions toward allowance and, ultimately, issuance of lower-quality patents. These hypotheses were the focus of our empirical analysis.
The central challenge for a data-driven analysis of examiner incentives is that these incentives are applied almost universally. A difference in treatment is needed to extract cause from effect.
Fortunately for our purposes, the USPTO applies radically different—and much stronger—quality incentives for a discrete period in an examiner’s career shortly before that examiner is given full signatory authority and promoted to GS-14 (the Signatory Authority Review Program). By filing a Freedom of Information Act request, we obtained daily promotion data for every examiner promotion from January 2000 to September 2015, including approximately 4,250 promotions to GS-14. We then combined this information with an extensive database of patent application transactions from 2001 to 2012 that had been previously compiled by professors Michael Frakes of Duke University School of Law and Melissa Wasserman of University of Texas School of Law. By comparing the date of each patentability decision to the date on which the issuing examiner was promoted to GS-14, we inferred whether that decision was likely issued while the examiner was in the Signatory Authority Review Program and subject to strong quality incentives.
The data told a persuasive story. We found that just prior to entering the program, examiners issued a notice of allowance in approximately 32.8 percent of their patentability decisions. During the program, this rate fell to 27.4 percent. The allowance rate then rebounded to 32.6 percent within four weeks after successful completion of the program and promotion to GS-14. In other words, on a per-decision basis, the likelihood that an examiner would issue an allowance dropped by about one sixth when she entered the program, and then returned to the status quo after the program concluded.
We also found that examiners in the program (and thus subject to stronger quality incentives) were less likely to provoke applicant appeals and more likely to withdraw erroneous rejections and issue second-action non-final rejections.
These findings present strong evidence that production and quality incentives meaningfully influence the patentability decisions that examiners render. In particular, the finding that allowance rate drops during a discrete period when examiners are motivated to more carefully administer statutory requirements for patentability suggests that allowance rate may be artificially high at other times.
Our findings thus suggest that the system of production and quality incentives present during the majority of an examiner’s career may tilt the scales toward allowance, and—just as importantly—that application of stronger quality incentives could mitigate that effect. Additionally, our findings highlight the potential to leverage quality-probative events (such as allowance, applicant-initiated appeals, and second-action non-final rejections) as a means by which to gauge the effectiveness of patent examination and to evaluate proposed reforms to USPTO policy.
Our study, titled “Do Heightened Quality Incentives Improve the Quality of Patentability Decisions?: An Analysis of Trend Divergences During Signatory Authority Review Program,” details the USPTO’s examiner incentive systems and sets forth their findings in full. The study is available in AIPLA Quarterly Journal.
A version of this article was originally published in Law360’s Expert Analysis section on July 23, 2018.