According to an article on GovernmentExecutive.com, an announcement regarding appointment of an Undersecretary of Commerce for Intellectual Property (a.k.a., Director of the USPTO) could come within the next week or two. This news of a new leader on the horizon seems to be quite pleasing to Robert Budens, the President of the Patent Office Professional Association, which is an independent union of professional employees formed in 1964 to represent the interests of examiners, classifiers, computer scientists, and other patent professionals who work at the United States Patent and Trademark Office. According to the GovExec article Budens says: “We need a new director just as soon as we can get one.” I know a lot of people in the patent industry outside the Patent Office feel that same way. But who will the new leader be? Among the names being suggested as possibly in contention are Q. Todd Dickinson, who ran the office under former President Bill Clinton and is presently the Executive Director of the American Intellectual Property Law Association; (2) James Pooley, a partner and litigator in the Palo Alto office of Morrison Foerster; and (3) IBM Vice President David Kappos.

Whoever the new leader is there will be plenty of issues that need to be addressed. Perhaps one of the most important issues, even ahead of the backlog, is that the Patent Office IT systems are pitifully inadequate. According to Budens, some within the Patent Office are concerned that the USPTO computer network is “hanging on by bubble gum and bailing wire.” How can that be possible? We all know it to be true, but how can it be possible that the repository of all scientific information in our society has an IT system that has not been updated in a decade? Only recently did the Patent Office become paperless in any real sense of that word. Up until recently an application filed using the Electronic File System (EFS) would be printed and then scanned back into electronic format. This means that the USPTO idea of a paperless electronic system was to print electronic filings, scan them and then destroy the printed copy. Obviously paperless filing is not intended to save trees. But how could anyone in their right mind call this a paperless system? The reality is that the front end EFS system was not compatible with the back end file maintenance systems. And to think that USPTO management actually had the nerve to force rejection after rejection of real inventions. Like they would know a real invention if they saw one! They didn’t even know the meaning of paperless, or have the ability to create an interface that could electronically feed the back-end system.

With the internal operations of the Patent Office being so terrible, with problems stretching from human resource issues to IT systems, one might suspect that David Kappos should be in the lead for consideration of the top job at the USPTO. I do not know the man personally, but on behalf of IBM he has been taking some positions that are not necessarily what the majority of stakeholders would like, although he will undoubtedly make the high-tech community happy. Given that the high-tech computer industry is probably feeling beat up on regarding changes to the Senate version of the patent reform legislation being considered, I wonder if this further elevates his candidacy.

In addition to supporting enhanced post grant review, Kappos also supported damages provisions that would have caused real and substantial injury to manufacturing, start-up technologies, pharma, independent inventors and the green innovation industry. In testimony given by Kappos to the Senate Judiciary Committee on March 10, 2009, he explained:

Patent litigation has increased significantly for more than a decade, in part driven by low patent quality that creates uncertainty around intellectual property rights, spawning increased speculation. This excessive litigation threatens to sap America’s innovative capacity and its ability to compete in the world if left unaddressed.

He went on to say:

This high level of patent litigation, particularly in the IT industry, shows that valuation issues are not being resolved in negotiation. IBM believes that this indicates both that patents of uncertain scope and validity are being enforced, and reasonable royalty damages determinations are not providing the needed guidance for the IP licensing market.

This sounds good, but it is simply not true. Yes, there has been a dramatic increase in the number of patent lawsuits filed since 1980, with an upward trend really being most noticeable since about 1992, but the number of cases that reach trial has remained the same since 1980. So regardless of the number of patent litigations filed there are plus or minus 100 cases that reach trial every year. That was true when there were just over 800 patent litigations commenced in 1980, and it was true last year when there were over 3,000 patent litigations commenced. If you doubt this truth, just take a look at the following charts.

As you can see, the number of patent cases terminated during or after trial has largely remained constant. This is even more clearly demonstrated on the chart below.

The largest growth seen is with those cases terminated with at least some court action being required, but before pretrial hearings. Also increased is the number of cases that are terminated without any court action. So the truth is that despite what Mr. Kappos or IBM thinks, patent litigations are settled through negotiated resolution in the overwhelming number of cases. In fact, since 2000, more than 96% of patent litigations were terminated without requiring a single day of a trial. See chart below.

So it is factually incorrect to say that patent disputes and valuation issues are not resolved through negotiation. Overwhelmingly patent disputes are settled through negotiations, many after filing lawsuits and before the court has taken a single action, as evidenced by the Microsoft v. TomTom matter recently. When parties sue it is almost always to cause the dispute to come to a head, which is exactly what will happen with AOL’s recent lawsuit against Yahoo. The fact that litigation creates leverage and urgency does not mean that patent litigation is out of control. It does not mean that negotiations are useless. It means we have a robust and functioning system that allows the overwhelming majority of plaintiffs and defendants to resolve issues in an orderly manner. What exactly is wrong with that?