Patent bonanza is bad for business

(MoneyWatch) If you thought that overly broad patents were flooding the business world and often undercutting innovation and competition, you've only seen the beginning. According to a study from the University of Richmond School of Law, the effective percentage of patent applications granted in the U.S. reached 89 percent last year.

This rate has climbed steadily since 2009 from levels that hovered around 60 percent, as law professor Dennis Crouch points out on his PatentlyO blog. The result is likely to be that more questionable patents are moving through the system.

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Patents have become increasingly controversial in business, research and public policy. One of the underlying concerns is that companies receive excessively broad and general patents that can unreasonably block competition. In the 2000s, the U.S. Patent and Trademark Office (USPTO) began to tighten scrutiny of patents in an attempt to weed out "bad quality" patents -- those that were too derivative of previous work or that unfairly locked down large areas of innovation. An example might be Apple's main multi-touch interface patent, which was initially granted despite significant evidence of previous work in the area and that is now being challenged by the USPTO.

Driving down the percentage of patent applications that received grants caused a corporate backlash, as the allowance rate dropped below 50 percent. That and a series of controversies forced previously acting USPTO director John Doll out of office. His replacement was David Kappos, former patent head of IBM.

Kappos had a mandate to clear up a backlog that caused patent examinations, the process of deciding whether an application for a patent was worth granting, to take years. As Crouch has shown, the main mechanism seems to have been to say yes far more often than before, as the slowdown comes in the series of denials and responding challenges from the party that filed the application.

What is remarkable about the findings of this study from Christopher Cotropia, Cecil Quillen Jr., and Ogden Webster is that, using data from the USPTO, when they took into account not only regular patent applications but the versions that companies often re-file if initially turned down, the effective allowance rate rose to 89 percent last year. Put differently, so long as they have the resources to be sufficiently persistent, companies have only one chance in ten of not receiving a given patent.

The result is an even larger mass of patents that can act as land mines in innovation. Companies must work around existing patents to avoid leaving themselves open to expensive lawsuits.

In addition, the more liberal patent granting policy has at best helped keep the total backlog of applications roughly level, suggesting that the USPTO lacks the processes and resources to maintain more stringent standards. Without some fundamental change, businesses will have to contend with either overly broad patents that make it difficult for them to bring products to market or longer waits to see a patent application through the system.