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Patents and Innovative Entrepreneurship

Chad Moutray

Innovation is the lifeblood for many entrepreneurial ventures. As William Baumol has written, innovative inventors help to push our economies forward in “revolutionary” ways, helping us to stay competitive and bring new ideas to the marketplace. Indeed, small businesses often base their own entire existence on a select number of patents which “push the envelope” and force their larger counterparts to innovate as well to stay competitive. Of course, Baumol’s comments were an overgeneralization, reflecting the importance of new inventions and their prevalence among small firms. We know that large firms innovate, too. For instance, Apple has been able to create an entirely new tablet segment of the computer market, selling nearly 15 million iPads in a market that did not exist one year ago.

Behind many of these innovations, of course, is a patent. Companies need to have a patent to protect their intellectual property and their overall investment in research and development. Yet, the U.S. Patent and Trademark Office currently has a backlog of 700,000 applications, or 24 months of processing time, according to its Director David Kappos, complicating the patenting process and frustrating inventors. Earlier this week, the Director went before the Commerce, Justice, Science, and Related Agencies Subcommittee of the House Appropriations Committee. The President’s FY 2012 budget proposes to use make PTO fully fundable through its projected $2.7 billion in user fee collections. With these funds, PTO plans to hire 1,500 new patent examiners this year, for a net increase of 1,000 new people. Further complicating this process, the Director said, is that patent applications are dramatically up this year by 7.5 percent, much higher than expected, with the majority of those coming from overseas. The agency is currently undertaking a major structural and technological revamping to improve its overall efficiencies, he added. Of course, in order for PTO to meet its strategic plans, its budget must be approved, as it is currently operating under the continuing resolution at FY 2010 spending levels.

One of the challenges of charging fees is that they might be prohibitive or too cumbersome for individual or small inventors. Director Kappos noted that PTO has reduced its fees for small and micro entities and provides help for these individuals through its Independent Investor Assistance Center. In addition, last year, the agency announced a pilot program for expedited processing for small businesses (for a fee) with two or more patent applications pending.

Moving forward, it will be essential for PTO to reduce its backlog of patent applications, as these transactions are often vital for many entrepreneurial businesses. While we are moving into a period where everyone’s budgets are being re-examined, we should not lose sight of the value of innovation to our nation’s economic growth. It is nice to see that PTO is recognizing the individual inventor and small business community, reducing their fees, and working with them to expedite the process where possible.

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