It may tickle some people's funny bones, but J.M. Smucker Co. takes its patent for making Uncrustables--sealed pockets of peanut butter and jelly--very seriously. In 2001, it ordered Albie's Foods Inc. of Gaylord, Michigan, to desist from selling its own crustless PB&J sandwiches, claiming that the small grocery and catering company was infringing its patent protecting the sandwiches' uniquely sealed edges. Albie's then challenged the patent's validity, and the case eventually made it way to the U.S. Court of Appeals for the Federal Circuit.

"People think it is amusing to talk about patents on a peanut butter and jelly sandwich, but it is a patent that never should have been issued," says Adam B. Jaffe, professor of economics and dean of Arts and Sciences at Brandeis University in Waltham, Massachusetts. "This is a technology--if you can call it that--that has been around in many forms for many years." And it's not the only dubious patent that has left many scratching their heads. In recent years, the U.S. Patent and Trademark Office (PTO) has extended intellectual property protection to an "animal-time" watch which would run seven-times faster than usual for dogs (U.S. Patent No. 5,023,850) and a "method of swinging on a swing" developed by a five-year-old (U.S. Patent No. 6,368,227).

Patenting such frivolous things is hampering innovation and driving up product costs for consumers, say critics. According to a recent article on The Wall Street Journal, the PTO sorts through more than 350,000 patent applications a year and approves nearly 65% of them. Or over 85% if you would believe the calculations by intellectual property attorney Cecil D. Quillen Jr. who factored out the refiling of rejected applications.

Because patents are so easy to come by, they have lost much of their prestige and are thus less likely to secure much-needed financing for upstarts. According to Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, this hurts young, innovative firms, who get less value from patents and don't receive the recognition they deserve. Lerner and Jaffe have co-authored a book exploring the ailing system called Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress and What to Do About It, which was published last year.

Upstarts are also stymied a second way by the U.S. patent system, the professors point out. Not only are their patents devalued but they are also often "targets of patent litigation," Lerner says in an interview with Harvard Business School Working Knowledge (HBSWK). "In many cases, an established firm, frequently one whose competitive position and innovative activity are declining, realizes it has a valuable stockpile of issued patents. This firm then approaches rivals, demanding that they take out licenses to its patents." Smaller and younger companies often cannot fight back because they lack the financial resources to win a lengthy legal battle. In fact, the median cost of litigating a major patent case today is about $4 million, according to a recent survey.

The poorly running patent system is also forcing innovation to move overseas. While the professors point out that laughable patents are a global problem--patent offices around the world are similarly overburdened--they say that the issue is especially pronounced in the U.S. "I agree that this will tend to depress the share of the U.S. in innovation," Lerner says in the interview.

According to the professors, two congressional reforms are to blame for the sorry state of the patent system. First, in 1982, the U.S. Congress created the U.S. Court of Appeals for the Federal Circuit--a centralized appellate court for patent cases. Second and more profound, in the early 1990s congress changed the PTO from an agency funded by tax revenues to one that funds itself through application and maintenance fees (they used to be nominal). Both changes "make it easier to obtain patents, to enforce patents against others, and to extract large financial awards from such enforcement but harder for those accused of infringing patents to challenge the patents' validity," the professors write in an IEEE Spectrum article. Since the reforms, the success rate of patent holders defending their cases at the federal district court level has climbed from about 32% to 67% in recent years.

Today, the patent office is actually turning a profit for the government--in some years, up to $200 million or about 15% of total revenues. And instead of being used to hire more examiners, experts and administrators for the PTO, this money goes to the U.S. Treasury. "The new orientation creates strong incentives for the patent office to process applications as quickly as possible, and at the lowest possible cost," says Lerner in the HBSWK interview. "As a result, there has been a widely perceived decline in the rigor with which patent applications are reviewed. This, in turn, encourages more people to apply for dubious patents." In short, it's become a vicious cycle.

How do we get ourselves out of this jam? Jaffe and Lerner offer a patent policy reform agenda that involves three proposals. First, they suggest establishing incentives and opportunities for parties to challenge the uniqueness of an invention before the PTO approves a patent. Second, they recommend creating multiple levels of application review, with the rigor of the examination increasing as the application gets to higher levels. This way, examiners don't have to waste too much time on dubious patents but at the same time, can thoroughly review applications that have merit. Third, in cases where the patent's validity is being challenged because of its questionable novelty, they recommend handing the decision-making over to judges (currently, juries mete out judgment) who can consult with experts. This way, parties that are stymied by invalid patents have a better chance of effectively arguing their cases to the court.

"The first two proposals aim to make the PTO more effective at a reasonable cost," they write in IEEE Spectrum. "The third addresses the reality that since even the best of all possible PTOs will make mistakes, we need a court system capable of correcting them."

Sources:

Patent No. 6,004,596: Peanut Butter and Jelly Sandwich
Sara Schaefer Munoz
The Wall Street Journal, April 5, 2005
online.wsj.com/article_email/0,,SB111266108673297874-INjgYNolad4o5uoaXyGb6qGm5,00.html

The U.S. Patent Game: How to Change It
Ann Cullen
Harvard Business School Working Knowledge, December 20, 2004
hbswk.hbs.edu/tools/print_item.jhtml?id=4548&t=career_effectiveness

Patent Prescription
Adam B. Jaffe & Josh Lerner
IEEE Spectrum, December 2004
www.spectrum.ieee.org/careers/careerstemplate.jsp?ArticleId=i120204