This Article undertakes the first empirical study of the influence of the U.S. Patent & Trademark Office’s (PTO) funding on the agency’s decision-making. More specifically, this Article studies the influence of the PTO’s budgetary structure on the most important decision made by the agency: whether or not to grant a patent. It begins by setting forth a theoretical model predicting that certain elements of the PTO’s fee schedule, such as issuance and maintenance fees, which are only collected in the event that patents issue, create incentives for the PTO to grant additional patents. Using a rich database of previously-unavailable patent grant rates, we then empirically test the predictions of the theoretical model by comparing the agency’s granting patterns before and after 1991, the period at which the agency became almost exclusively funded by user fees.
Our findings suggest that the agency’s fee structure biases the PTO towards granting patents. Moreover, we find the distortion in PTO decision-making has a differential impact across technology and entity size. For instance, with respect to those types of patents for which the PTO is likely to profit the most from granting patents, we estimate a relatively stronger sensitivity to the PTO’s funding structure. Furthermore, we also find that these distortions are more likely to occur when markers indicative of an underfunded PTO are present. As such, our results are relevant to the ongoing debate in administrative law regarding the nature of bureaucrats or government employees. Our findings contradict the idea that bureaucrats seek to maximize their budgets while lending support to the notion that when agencies seek enlarged budgets they do so as a result of being mission minded but financially constrained.
In addition to their theoretical implications, our findings also speak to policy issues concerning patent law. Prior to our study, commentators failed to recognize the extent to which the PTO's fee schedule biased the agency towards issuing patents. As a result, recent patent reform, which was enacted in part to address the harm associated with the PTO issuing too many invalid patents, is unlikely to eliminate the granting pressure identified in this Article.
Administrative Law | Intellectual Property
Date of this Version
Michael D. Frakes and Melissa Wasserman, "DOES AGENCY FUNDING AFFECT DECISIONMAKING?: AN EMPIRICAL ASSESSMENT OF THE PTO’S GRANTING PATTERNS" (February 2012). University of Illinois Law and Economics Working Papers. Working Paper 111.