The NWC Interview: Jon W. Dudas, U.S. Patent and Trademark Office

What's the significance of intellectual property for the global market?

Intellectual property is critical to the growth of every nation. In the United States, we have $5 trillion to $5.5 trillion worth of intellectual property [IP]. That figure is 45 percent of our whole GDP [gross domestic product], and that's more than the size of any other economy in total throughout the world.

The U.S. PTO [Patent and Trademark Office] has a budget of about $1.7 billion. Do you think that's a fair ratio given the amount of money invested in IP?

Our budget right now is helping us get done what we need to get done in terms of examining patents and registering trademarks. We have a backlog of applications that we would like to overcome. Quite honestly, it's not just an issue of money because we hired 1,200 new examiners in 2006, a thousand in 2005, and we'll hire 1,200 again in 2007. We need to have better information coming in from those seeking intellectual property rights.Do you believe the PTO issues too many patents?

We reviewed 325,000 applications in 2006, and the rejection rate is the highest it's been in the office: Only 54.7 percent [of applications] were approved in 2006. In 2005 it was 57 percent approved. Prior to that, as far back as the records go, it was never under 60 percent approved. It's a record year for rejecting applications.Many observers point to the case of NTP and RIM [Research in Motion], in which the patents used by NTP to sue RIM are likely to be rejected by the U.S. PTO, as a sign of a broken system. How do you respond?

I would say to the contrary, it's not the sign of a broken system but the sign of a healthy system. The system is set up so there's an examination process, and it gives anyone in the world the opportunity to ask for a re-examination of a patent and the opportunity to litigate that patent. In this case, it doesn't surprise me that in issuing 160,000 applications, you would have someone question one.

When companies like IBM are issued thousands of patents a year, does that foster innovation or simply create a stockpile of potential licenses or lawsuits?

There are many strategies that applicants will take. Patents can be used for defensive purposes. I think fundamentally, patents that are granted overall promote innovation. But there's no question we have a concern in the U.S. PTO over certain actions and strategies people have taken.

What is the U.S. PTO doing to reduce excessive or overly broad patents?We put in place a number of initiatives, measuring quality more stringently and more often among examiners. If you look over the last three years, the error rate has come down and the rejection rate has gone up.

What do you mean by error rate?

Every examiner in the PTO--we have 5,000 on staff--has a random sample of examinations they've done, somewhere between six and 18 examples, which get re-examined by a separate team, randomly selected, to determine whether there was an error in the way they examined the patent before they issue. We measure every examiner very carefully, and we retrain where we think there might be issues or concerns, and we have seen that error rate--where we think there may have been a mistake before they issue--driven down to 3.5 percent. We have the lowest error rate we've had in 25 years, but you also see that fewer patents have been granted.