From Competition to Cronyism: How the Patent Office’s Backslide Threatens American Innovation

COMMENTARY

Cronyism generates stagnation and inefficiency; fair competition generates innovation and growth.

When the United States’ founders established the bedrock for what became the world’s most innovative economy, they understood this principle and enacted laws that allowed the best ideas to win the day. They broke with the patent systems under monarchy — where patents were awarded to the most favored and well-connected — instead granting intellectual property rights based on merit. This foresight gave the United States a competitive advantage, which has paid dividends for hundreds of years.

But we are witnessing a dangerous intellectual property backslide, where hand-picking winners and losers is now being prioritized over rewarding the best ideas. The U.S. Patent and Trademark Office Acting Director Coke Morgan Stewart has now granted herself, and future PTO directors, unprecedented personal influence over the fate of intellectual property rights.

At the PTO there are fundamentally two levels of patent review. New patent applications are reviewed by examiners who determine whether claimed inventions cover topics that are eligible to be patented and meet baseline standards like novelty and usefulness. Examiners have a tough job and do their best, but hundreds of thousands of new patent applications annually paired with limited time and resources mean that patents commonly get issued in error. 

Once these low-quality patents enter the economy they generate a series of bad outcomes. They improperly block competition, cutting off innovation and increasing waste, and are acquired by shell companies and litigation investors who harness them to sue others for patent infringement, pocketing a hefty profit in the process. To reinforce the patent system against this misuse, Congress created a secondary review where members of the public can petition to have a panel of expert judges at the PTO re-review patents and, when necessary, invalidate the ones that shouldn’t have been issued.

For a presidential administration where efficiency is supposedly a priority, this Patent Trial and Appeal Board review is a win-win.

Low-quality patents are invalidated, which might otherwise increase costs by blocking generic prescription drugs from entering the market or be used in lawsuits that stunt startup growth. And an agency that doesn’t cost taxpayers a dime (the PTO is funded exclusively by fees) efficiently self-corrects its own errors.

But, in an unprecedented and likely illegal move, the acting PTO director has inserted herself personally as a barrier between the public and what patents get the added scrutiny of a second expert review.

Instead of the congressionally established process, where patent challenges are reviewed by a panel of judges who assess their merits, now the acting director will first “exercise her discretion” to hand-pick which challenges have the privilege of being considered by the agency’s judges.

This is far closer to a favor-based system than the merit-based system that we should expect in a free, capitalistic society, leaving intellectual property rights hanging in the balance.

PTO leadership has not earned the public’s trust to impartially wield the power it is now asserting. Multiple reports in recent years have exposed troubling trends in how the decisions about who is, and is not, granted intellectual property rights are made.

First, at the initial examination stage, a February 2024 Department of Commerce ethics report found that the USPTO “did not effectively administer the department’s ethics program to protect against potential conflicts of interest by patent examiners,” estimating 30% of patent examiners had financial conflicts related to the patents they were examining, like owning stock in relevant technology fields.

The doubt that examiners’ conflicts cast on whether patent applications are being assessed solely on their merits is made worse by separate ethical concerns raised about the patent reexamination process. A December 2022 Government Accountability Office report included findings like 67% of PTAB judges felt “pressure to change or modify an aspect of their decision in a … proceeding based on Management Review;” the oversight of USTO directors “has affected [patent judges’] independence;” and director and management involvement “may have limited the number of … proceedings initiated.”

If indirect influence over what proceedings were initiated was a concern in 2022, the acting director’s direct control is even more troubling now.

The acting director has not hesitated in exercising her new power. Days after issuing the memorandum, she overturned a decision to review patents being used in a lawsuit against Motorola related to police dashboard and body camera technology. Apparently, the decision made by her agency’s expert judges, that there is a reasonable likelihood the patents are invalid, was not enough to prevent her from cancelling the review and shielding the patents from scrutiny.

The PTO’s recent actions echo long outdated patent practices, raising significant questions about fairness and ethical conflicts. In innovative, dynamic economies, intellectual property rights are based on merit, not individual discretion.

Let’s hope we return to this principle.

Alex Moss is the executive director of the Public Interest Patent Law Institute. Moss previously worked as a staff attorney at the Electronic Frontier Foundation and continues to serve as a special advisor. Before joining EFF, she was an attorney at Sullivan & Cromwell and Durie Tangri, and served as a judicial clerk to the Hon. Timothy B. Dyk of the U.S. Court of Appeals for the Federal Circuit. She can be reached on LinkedIn.