The monopoly factory: want to fix the economy? Start by fixing the Patent Office

Until the 1929 stock market crash, the federal government's attitude towards patents had largely favored the rights of patent holders; following the crash, Washington's attitude changed. Policymakers during the Roosevelt administration believed that patents had been issued in too lax a manner and protected the interests of big business at the expense of consumers. From the 1930s through the 1970s, with New Deal and Great Society policies leading the agenda and the prevailing Washington consensus less favorable to big business, the patent office was kept on a tight leash. By the 1970s, the federal government was circulating a list of "Nine No-Nos," which warned patent-holders against the use of a wide range of patent-enforcement strategies.

But the economic shocks of the 1970s and the competitive threat that emerged in the early 1980s from Germany and Japan changed the government's attitude. Economists and business leaders worried that the New Deal patent system was hindering America's ability to compete. Stronger rights for domestic patent holders, they felt, would make it more difficult for foreign companies, particularly those in Japan, to co-opt American inventions and make them on the cheap, as was happening in the electronics and automotive sectors. These economists and CEOs also argued that stronger patent rights would increase the incentives for American companies to experiment and innovate by permitting them to keep more of the rewards. Congress agreed, and, in 1982, it reassigned all patent cases in the country to the D.C. Circuit Court of Appeals, which had proven to be very aggressive in backing patent-holder rights.

Then, in 1991, under pressure to reign in massive budget deficits, lawmakers passed (and President George H.W. Bush signed) a law that revolutionized the way the patent office does business. Borrowing ideas then in vogue among private sector consultants and CEOs to "reengineer" organizations to make them more "customer-driven," Congress instructed the patent office, which had always been funded from government revenues, to now pay its own way through fees charged to applicants, and to make the process of winning a patent easier on them.

In many ways, these changes worked exactly as planned. Partly because patents were easier to get and partly because the 1990s were a period of explosive technological innovation, the agency saw a rush of new business. Patent applications more than doubled from 178,083 in 1991 to 355,418 in 2003. The office became self-financing and flush with cash. Congress was even able to tap its surplus pool of user fees to help pay down the federal deficit. The patent office hired new examiners, and in 2003, moved into fancy new headquarters in a billboard property along the George Washington Parkway near the Pentagon.

"Some might even use the word 'crisis'"

The 1991 decision to make the PTO pay for itself, however, has created a series of perverse incentives that encourage the office to approve undeserving applications, and has made it easier for applicants to game the system.