Deferred Examination: A Solution Whose Time Has Come

By Steven Bennett and David Kappos

There are over 1 million patent applications backlogged at the US Patent & Trademark Office (USPTO), despite the fact that it has a $2.1 billion budget and has hired thousands of new examiners in its effort to catch up. It is no exaggeration to declare that the examination process for US patent applications is struggling. And no single change to the system will fix it. But a major component of the fix is well within our grasp: deferred examination. Deferred examination could easily be implemented. It is a sensible way for the patent community to help the USPTO direct its resources to the most important pending applications, and away from the unimportant ones. The advantages are many, and the drawbacks can be mitigated. The largest barrier to deferred examination is convincing the US patent community that the time has come to adopt this tool.

Deferred Examination – A Reasonable, Balanced Process

A workable process for deferred examination offers an applicant the option to “pay as you go” for the services received from the USPTO. The sidebar and diagram outline our proposal for deferred examination in the US and demonstrate various deferral routes available to applicants.

While not widely used, the USPTO already has a process for deferring examination of applications.¹ Since 2000, that procedure has enabled an applicant to request deferral for up to 36 months from the filing date. To defer, an applicant must pay a $130 processing fee (in addition to the regular filing fee) and choose the number of months for the deferral (between 1 and 36 months). After processing the request, the USPTO grants the deferral for the requested number of months.

IBM proposes leveraging this existing deferral procedure. In our proposal, applications for which deferral is requested are granted a 36 month deferred examination period, which can be exited at any time.² At filing, the applicant pays the filing fee to enable the USPTO to review the application for completeness, assign it a serial number and set the application up in the electronic filing system. If the applicant chooses deferred examination, the filing fee also funds the USPTO to calculate the 36 month deferral deadline, which is granted as a matter of course. Since the deferral is granted without review, the $130 deferral processing fee that is required today is rescinded.

During the 36 month deferral period, the applicant chooses when to pay the search fee. The search fee funds the USPTO to perform and mail a search report.

At 18 months, the application is published. If the search report is available, then it is published as well. Otherwise the search report is published later, separately.

The USPTO’s existing deferral process requires the applicant to choose the number of months for the deferral up front. In our proposal, the applicant is not forced to do this, but can exit the deferral period at any time, simply by paying the examination fee.

Once the applicant pays the examination fee, the application is examined as usual. If the examination fee is not paid by 36 months, then the application is automatically deemed abandoned.

When the application is published at 18 months, our proposal allows a third party to exit deferral by paying the examination fee (and search fee, if not already paid), causing the application to proceed to examination.

Deferred Examination Benefits the USPTO, Patent Applicants, and the Public

Benefits to the USPTO

Because deferred examination results in applications going abandoned before examination, a deferred examination system would leave the USPTO with fewer patent applications to examine – likely significantly fewer. Taking overseas experience of patent systems allowing deferred examination as a point of comparison, the examination percentage for EPO applications is 94 percent and for Japanese applications 67 percent³. A reasonable estimate for the United States, if appropriate incentives are provided to encourage applicants to abandon unnecessary applications, is that 10 percent would go abandoned without expenditure of USPTO examination resources. With nearly 450,000 new applications filed per year, about 45,000 of those applications would be taken out of the examination queue freeing up about 1 million hours of examination time for patent examiners to spend on applications that actually matter.

In addition to reducing its workload overall, deferred examination would enable the USPTO to better examine the deferred applications that are selected for examination. During the period preceding examination, applicants will become aware of prior art related to patentability, enabling them to submit more robust information disclosure statements. While we would like to assume the examiner’s search would have otherwise turned up this art, it is not necessarily the case. For example, some documents do not become available on public search sites until well after the documents otherwise become statutory prior art. Further, a large number of documents are originally in languages other than English. It takes time for an English translation to become available. The deferred examination period allows the US examiner to benefit from information brought to light through the passage of time, resulting in better examination of patent applications.

Benefits to Applicants

Under the existing search and examination process, where all USPTO fees are paid up front and prior art searches occur concurrent with examination, inventors have no incentive, and lack the predicate information, to withdraw applications prior to examination. Thus all applications take up USPTO examination resources. Once the application is examined, the applicant receives the first Office Action, rejecting the claims and the expensive dance of the patent examiner and patent attorney accelerates, even if the claimed inventions have been rendered demonstrably valueless in the period between filing and prosecution. By that time, the applicant has invested too much time and money into the application and feels trapped into moving on, causing many applications to be carried through to issuance than otherwise would have – should have – because they have no significant value as issued patents.

Deferred examination turns this unproductive process around, giving applicants the financial incentives and information to make intelligent decisions regarding the prosecution of their patent applications, informed by marketplace developments and newly discovered prior art. The financial incentive comes in two forms: (1) a lower filing fee that covers the USPTO’s expenses associated with administrative handling of the new application, but not the cost of search and examination (which may never occur), and (2) the ability to pay for a search report prior to examination, which can save the examination fee and attorney costs associated with responding to Office Actions. Applicants of all sizes gain when they can cut their investment in applications that prove unimportant with time, focusing their resources instead on those applications more likely to generate value.

IBM’s recommended deferred examination process includes the option of a search report sent to the inventor prior to examination. The search report provides the applicant a better understanding of the challenges to come during examination, and enables her to make a more informed decision about whether to proceed with the expense of examination.
As for those applications that do proceed to examination, there is an additional benefit of faster processing time. Once an applicant decides to move forward with examination, it should proceed more quickly than in today’s system since deferred examination will winnow out a significant number of applications that would otherwise take precedence in the examination queue.

Benefits to the Public

While the benefits to the USPTO and applicants are important, the benefits to the public from deferred examination are perhaps the most important. Today, the public finds a “patent thicket” covering many technologies. The public’s burden to design around such patent thickets would be ameliorated if applicants dropped the many patents that are not valuable. Deferring examination promotes winnowing down applications as early in the process as possible. This gives the public clarity. Moreover, IBM’s proposed deferral system provides the public with the search report if the applicant elects a separate search, giving the public additional clarity. And, the requirement of 18 month publication for all deferred applications adds reliability to the corpus of published searchable prior art without exception.

The best interests of the public are served by an efficient government. Through deferred examination, the USPTO is able to focus its efforts on the most important applications as determined by those in the best position to judge importance – the applicants themselves. The USPTO gains efficiency by focusing on work that is important, as opposed to examining applications in rote mechanical order of receipt, as is done today, even when a significant amount of that work is obviated by the time it is commenced.

With deferred examination, the USPTO can focus its work on important applications, without the distraction of the unimportant ones that are abandoned before prosecution. Examination is based on more complete information about the prior art, resulting in better examined applications and thus higher quality patents. The public gains certainty and the patent system gains credibility when the USPTO awards high quality patents.

A Balanced Deferred Examination System Addresses Countervailing Issues

Elsewhere in the world, deferred examination procedures are already available, and have proven effective for decades. The Netherlands adopted deferred examination in 1964; similar procedures were adopted in Germany in 1968, and in Japan in 1970.

Today, the United States has de facto deferred examination because many art units at the USPTO do not examine applications for nearly 36 months. Through this de facto deferred examination, the public and patent applicants are accustomed to examination routinely being delayed for two, three, or more years. However, without an economic incentive to do so, applicants simply leave their unimportant applications in the system to use scarce USPTO examination resources.

Surprising to many in the US patent community, the United States also has de jure deferred examination procedure, as explained above. Although adopted in 2000, that process is not widely used since it has several disadvantages. First, there is a disincentive to use the deferral process since an applicant must pay a $130 processing fee. Second, the application is not added to the examination queue until after the deferral ends. Thus, the application may not be examined until well beyond the intended deferral period. Third, and most troubling, the applicant must specify the length of the deferral up front even though the applicant does not have the necessary facts to choose the appropriate time period for deferral.

It is thus apparent that we currently enjoy the worst of all worlds, with a de jure deferral system that does not work, and a de facto deferral system that serves to exacerbate the problems of application backlog and patent quality. Surely, we can do better.
While deferred examination has been successful for decades elsewhere, the United States has not yet chosen to adopt a useful deferred examination procedure. The arguments against deferred examination, which have hampered past proposals, are addressed by IBM’s proposed approach.

Well-Aligned Incentives

Our proposal removes the disadvantages from the current unused de jure deferral system. There is no fee for deferral. The application keeps its place in the examination queue during the deferral. An applicant can exit the deferral at any time.

Greater Certainty

Our approach to deferred examination improves certainty. As with current practice, a patent application is filed with claims particularly pointing out the invention. Eighteen months later, the application and search report (if applicable) are both published. If the search report has not been requested by the applicant at the 18 month point, it is published as soon as it is requested by the applicant. Applicants deferring examination are not allowed to request non-publication of the application or the search report. The search report provides the public with more information than is currently provided at 18 months (or when later available).

Safeguarded Against Submarine Patents

Our approach to deferred examination does not promote “submarine” patents. Our proposal allows a third party to pay the search and examination fee at any time and force an application to be examined. There are two reasons a third party will do this: (1) for very important patent applications where the third party is keen to understand the scope of patent protection that will be granted; and (2) for patent applications that might threaten the third party. Armed with this right, a third party will be able to force an application to be searched and examined without deferral. To protect the third party, the identity of the third party who forces an application to be examined would be shielded.

Intervening Rights to Protect Prior Good-Faith Commercialisation

Our approach avoids unfair results for those who in good-faith commercialise the invention during the deferral period, through intervening rights. Under US law, third parties are already protected by two forms of intervening rights. First, US law provides for equitable intervening rights against claims in a reissued (or reexamined) patent that did not exist in the original patent. Second, quasi intervening rights are available where the claim in a patent is not substantially identical to the claim in its published application.

We agree with the approach of enacting legal intervening rights to protect a third party from “late claims” in a deferred patent application.⁴ If the third party practices what is only later claimed by the deferred patent applicant, then the third party retains a legal intervening right to practice that late-claimed invention.⁵

Such legal intervening rights will not discourage applicants from using the deferral period, just as publication and equitable intervening rights have not discouraged applicants from filing patent applications or seeking reissue or reexamination.

No Extension of Patent Term

IBM’s approach to deferred examination does not extend the inventor’s patent monopoly. The act of deferring examination of a patent application would not enable the applicant to seek a patent term adjustment. As with other applications, the patent term would be 20 years from the priority date.

Faster Processing for Non-Deferred Applications

Deferred examination does not slow down an eager inventor. Deferred examination procedures are under the applicant’s control. The applicant may choose not to elect for deferred examination. If elected, then the applicant may request examination at any time. In fact, the availability of deferral will accelerate the examination of those applications that proceed to examination, since there will be fewer applications in the queue ahead of them.

New Business Opportunities for Patent Bar

We understand the concerns raised by members of the patent bar that some of their clients – particularly those outside of the United States who are already accustomed to deferring examination – may be quick to take advantage of deferring examination in the United States. Rather than fear lost income from applications that will be abandoned without examination, we believe that embracing the deferred examination as a best practice in the best interests of the client can provide opportunities for new forms of client work. For example, the issuance of search reports before examination will require patent attorneys to review the cited art and counsel their clients on its impact. Moreover, clients will need guidance throughout the deferral period to choose the best times to proceed with the search, the examination, or to allow abandonment of a case. And clients will need guidance regarding the advisability of triggering examination of others’ deferred applications.

Conclusion

Deferred examination is straightforward to implement. It is a best practice aimed at improving government efficiency by creating incentives for those in the best position to determine what work is important – patent applicants – to direct the government’s resources at that work. It will save substantial USPTO resources, ease patent application pendency, and improve patent quality. All of these effects will accrue to the benefit of the USPTO, patent applicants, and the public. The time has come to move beyond the patent politics of the past, and adopt a balanced approach to deferred examination.

Steven Bennett is an IP attorney at International Business Machines Corp. David Kappos is vice president and assistant general counsel, IP law & strategy at International Business Machines Corp.

¹ 37 CFR §1.103(d) and MPEP §709.
² We note that the particulars of our proposal can be adjusted in various ways. For example, while we speak of a 36 month deferral period, a different maximum duration could be elected. In addition, we encourage the USPTO to consider reallocating fees (currently $330, $540, and $220) to better match the funding needed for filing, searching and examination.
³ There are several reasons why different patent offices employing different deferral processes see different examination percentages. For example, while the filing fee is inexpensive in Japan (about $150), the examination fee is about $2,000 for 10 claims, and about $2,600 for 30 claims. The high cost of examination affects the percentage of applications selected by applicants for examination in Japan.
⁴ Harold C. Wegner among others, has advanced this idea. Mr. Wegner is a partner at Foley & Lardner and former director of the Intellectual Property Law Program at George Washington University Law School. In his current writings (including his presentation titled Deferred Examination: A Realistic Solution to Deal with a 1.2 Million Patent Application Backlog vs. Hiring Thousands of Examiners), Mr. Wegner offers compelling analysis of the USPTO backlog issue and how deferred examination can mitigate it.
⁵ The “Fordham Legal Intervening Rights Proposal” sets forth three statutory changes to enact legal intervening rights. The Fordham Proposal is explained in Mr. Wegner’s paper, A Comparative View of American Patent Reform, presented to the Fourteenth Annual Conference on International Intellectual Property Law and Policy, Fordham University School of Law, April 20‐21, 2006, New York.