Day 2, Panel 5 (Prosecution): Making sense of the USPTO
December 5, 2025
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Speakers
Molly Kocialski, Holland & Hart (former USPTO Regional Director)
Mark Lemley, Stanford Law School
Panel Resources
Panel Summary
Mark Lemley opened by describing the current state of the USPTO as a “rapid unscheduled disassembly” — borrowing NASA’s euphemism for a rocket exploding mid-flight. Molly Kocialski, who recently departed after nearly a decade as the Denver Regional Patent Office director, confirmed that the office was closed shortly after her departure, with leadership having openly questioned its value and cost. She detailed a sweeping series of personnel-related changes that have fundamentally altered the agency’s culture, including a return-to-office mandate, firing of probationary examiners, cancellation of training contracts, dissolution of the patent examiner union (POPA) under the pretext of national security, and mandatory “days of connection” requiring remote employees to travel to Alexandria at their own expense. Particularly damaging, she explained, was the change in examiner performance standards — raising the fully successful production rate from 95% to 100%, effectively adding six weeks of work per examiner per year, while simultaneously capping performance improvement plans at just 60 days and eliminating union representation. The agency hired far fewer new examiners than it targeted (roughly 250–300 out of a goal of 800), reduced training from four months to six weeks of mostly video instruction, and is experiencing attrition rates among new hires exceeding 70%.
The panel then shifted to the IPR process, which both speakers characterized as being systematically dismantled. Lemley noted that discretionary denial rates have reached between 75% and 97% of petitions filed, driven by a novel “settled expectations” doctrine that effectively bars challenges to patents older than six years — a threshold that eliminates more than 60% of all patents and over 80% of patents asserted by non-practicing entities. Director Squires has centralized all institution decisions in his own hands, issuing one-word rulings with no written explanation, making it nearly impossible for either petitioners or patent owners to understand the basis for any decision. Lemley also flagged that the proposed rulemaking would require petitioners to waive arguments they are not legally required to waive under the statute, and could bar new challengers if any prior challenge — including an ex parte reexam filed by the patent owner themselves — had previously occurred. The two speakers concluded by examining broader administration proposals, including a value-based “patent tax” that could impose fees of up to 100 times current application costs, a 100% tariff on pharmaceutical patents manufactured outside the U.S., a proposed 50% tax on university patents, and possible use of march-in rights to compulsorily license patents from disfavored institutions like Harvard.
Key Learning Points:
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USPTO Workforce in Crisis: A cascade of personnel changes — including union decertification, a shift from 95% to 100% production requirements, truncated 60-day performance improvement plans, reduced new-hire training, and mass attrition among experienced examiners and SPEs — is rapidly eroding the institutional expertise and capacity of the examining corps, with meaningful downstream effects on examination quality and patent pendency (Molly Kocialski).
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IPR Process Effectively Gutted: Discretionary denial rates of 75–97%, a “settled expectations” doctrine targeting patents over six years old, no-explanation institution decisions, and proposed waivers of legally protected arguments have collectively made IPR an unreliable and largely inaccessible challenge mechanism, pushing practitioners back toward costlier district court litigation and ex parte reexamination (Mark Lemley).
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Sweeping Policy Proposals Threaten the Innovation Ecosystem: The Trump administration’s proposals — including a value-based patent tax, tariffs on pharmaceutical patents, taxes on university patents, and potential seizure of university IP — introduce major financial and strategic uncertainty for patent filers, particularly startups and individual inventors who cannot predict or front-load the ultimate value of their patents (Mark Lemley; Molly Kocialski).
Program Transcript
Key Terms: Return to Office Mandate, Patent Examiner Union (POPA), Union Decertification, Probationary Examiner Terminations, Performance Improvement Plan, Production Rate Requirements, Supervisory Patent Examiner (SPE), Primary Examiner, GS-13 Cap, Hiring Freeze, Examiner Attrition, Voluntary Early Retirement Authority, Voluntary Separation Incentive Payment, Fork in the Road, Days of Connection, Examiner Training Academy, Central Reexamination Unit (CRU), Patent Prosecution Highway, First Office Action on the Merits, Continuation Applications, Divisional Applications, Continuations in Part (CIPs), Examination Backlog, Art Unit, Bi-Week Production, Other Time for Training, Quality Assurance Specialists, Non-Bargaining Examiners, Inter Partes Review (IPR), Post-Grant Review (PGR), Patent Trial and Appeal Board (PTAB), Discretionary Denial, Settled Expectations Doctrine, Institution Decision, Ex Parte Reexamination, Central Reexamination Unit, Estoppel, Petition Filing, Director Review, AIA (America Invents Act), Meritorious Petition, Challenger Win Rate, Patent Tax, Value-Based Filing Fee, Pharmaceutical Patent Tariff, University Patent Tax, March-In Rights, Compulsory Licensing, Rapid Unscheduled Disassembly, National Security Designation, Office of Personnel Management, Loyalty Oath, Patent Valuation Appeal Board, Prosecution Laches, Statutory Damages, Statute of Limitations, Maintenance Fees, Non-Practicing Entity (NPE), Claim Construction, Sua Sponte Reexamination, Preponderance of Evidence, Clear and Convincing Evidence, Written Opinion Requirement, Notice of Proposed Rulemaking, USPTO, PTAB, POPA, Holland & Hart, Stanford Law, Office of Personnel Management (OPM), Director Squires, Deputy Director Stewart, Harvard University, Denver Regional Patent Office, Central Reexamination Unit, Office of Internet Policy and International Affairs (OPIA), Office of Patent and Legal Administration (OPLA)
This panel, Making sense of the USPTO, was the fifth prosecution panel of the second day for the event, 26th Annual Berkeley-Stanford Advanced Patent Law Institute. This event was hosted by Berkeley Center for Law & Technology, UC Berkeley School of Law, and Stanford Law. Speakers are Mark Lemley and Molly Kocialski.
[MODERATOR]
So I want to welcome everybody back. So again, you know the introduction of Mark Lemley. If you don’t recognize him by now, I can’t help you.
But somebody that I’m excited to have here for the first time, Molly Kocialski. Molly and I go way back.
She hired me as a trial lawyer 22, 3, 4 years ago. That’s how I got to know her, and then we worked together at the USPTO me out here, and she was actually the one training me.
But Molly spent almost a decade as the director for the Denver Patent Office. I like to say that Molly resigned.
Now she’s at Holland & Hart, and instead of trying to replace her, they just closed the office down. So I’ll let Molly describe if– if that process that I– I’m laying out is exactly right, but that’s what I’m gonna tell.
So with these two you have some different views and some similar views, so we’ll let them go. Please ask questions and press on the differences between the opinions.
[MARK LEMLEY]
Well, we might or might not have different opinions on some of the issues here. We’re gonna talk about the aspirational title, making sense of the USPTO might not in fact be achieved.
In the 1960s in the NASA space program some engineers came up with the term rapid unscheduled disassembly to describe a rocket suddenly exploding in the middle of space. I think we are watching the rapid unscheduled disassembly of the US Patent and Trademark Office And I want to talk about some of the sort of the issues, and we’re gonna break this into kind of, like four or five basic parts.
So I want to talk about sort of the people, the personnel, what’s actually going on with the people inside the office right now. We’re gonna hear a lot from Molly on that. We’re gonna hear about sort of changes to the examination process what’s happening, what might be coming in the future and Molly again, will take the lead on that. We’re gonna talk about some things you’ve already heard today and that yesterday, which is some of– a kind of comprehensive guide to what’s going on in the IPR process and I’ll take the lead there And then we’ll talk about the sort of broader, picture outside the PTO of the administration’s policies towards patents and innovation.
And then finally, I think we want to bring it back to sort of, okay, here’s a bunch of things going on in the Patent Office, in the broader administration why should you care as prosecutors, right? And how does this affect you? So all right, so why don’t we start Molly with people, and we’ll start with you, as Wayne mentioned, right? You, until recently headed the Denver Regional Patent Office.
[MOLLY KOCIALSKI]
Mm-hmm.
[MARK LEMLEY]
You have left that position, and in fact there is no longer a Denver Regional Patent Office. Tell us a little bit about that.
[MOLLY KOCIALSKI]
Yeah, so it was actually not, everyone has asked me, it’s like “Did you know that that was going to happen when you left?” And I, you know, in gaming out what might happen in possible scenarios it was definitely a thought process, especially since my boss’s boss, Acting Director Stewart at the time, had said in a town hall where I don’t think that she knew that we were present, that she didn’t know what we did and that our offices were really expensive to run. That’s a direct quote. So kind of the writing was on the wall there, like, maybe what I do isn’t valued by the agency anymore. And so that was, you know, at least one of the causes.
There were several other causes of why I left. I will say that almost every action that they have taken with respect to the USPTO and its personnel, one of the things that made the agency the best place I have ever worked, and I have worked at some phenomenal places, I’ve been very blessed in that perspective, but it was the people, and it was the way that the agency treated its people. We always put them first. I think there’s a quote in Patricia Duffy’s affidavit in the Union lawsuit that is really quite, it actually just summarizes why we were that.
You know, with the goal of wanting to retain skilled employees, the agency in dealing with unsuccessful employee, weighed affording a limited time to show that they can yet again perform. If you terminate and hire a brand new employee at a lower level, who for years will need much more management oversight and resources and who will take years to get to the same level as the terminated experienced examiner.” Right, we really put the people first and literally every action that they have taken from return to office, no other time for training contract cancellations, firing probationary examiners without cause, creating non-bargaining examiners mandatory days of connection where they bring everybody on T back to Alexandria at their own expense. Every single action has been taken as the antithesis of what I was always taught as a leader in the federal government, which was to put my people first.
[MARK LEMLEY]
So can we, let’s try to break down some, there’s a lot on that list
[MOLLY KOCIALSKI]
There’s a lot of
(crosstalk)
Oh, I didn’t even mention the breakup of the union.
[MARK LEMLEY]
There’s more. We’ll get there, right. So, but let me start with the sort of, so that we close the Denver office, don’t know what they’re doing, it’s expensive to run, but we also have a return to office mandate, don’t we?
[MOLLY KOCIALSKI]
Yeah.
[MARK LEMLEY]
At least in part. So what does it mean to return to office at the USPTO?
[MOLLY KOCIALSKI]
Yeah, unsure. I guess if you’re within 50 miles of San Jose, Dallas or Detroit, that means you’re still going into an office.
But for the Denver employees, they actually got to go work from home. What was interesting, of course, was also the data that they used in determining to close the office. They used a December ’24 report that said that there were only ten employees coming to an office, so they used a report from before there was the return to office mandate in order to justify closing the office.
[MARK LEMLEY]
And then–
[MOLLY KOCIALSKI]
Make it make sense.
[MARK LEMLEY]
And then, well, so, and return to office, at least at the outset, applies not to the Patent Examining Corps–
[MOLLY KOCIALSKI]
Correct.
[MARK LEMLEY]
Because they have a union contract that allows them to work from home.
[MOLLY KOCIALSKI]
Had.
[MARK LEMLEY]
Had, well, we’ll see. We’ll get there in just a minute, right?
But applies presumably to everyone else. But, right, one of the things that the Trump administration did this summer was to declare that it was breaking the union for examiners, POPA because patent examiners were critical to national security and you couldn’t have a union for people critical to national security.
[MOLLY KOCIALSKI]
Yeah. That was a, actually a suprise for a lot of people. So I believe there’s maybe two dozen people in the entirety of the US Patent and Trademark Office that hold a security clearance that is above a person of trust, and just for all of you to level set janitors in federal government agencies have a security clearance of a level of person of trust. So right, like, and you only really have two dozen people, and a lot of them aren’t even in the examining corps.
They were in kind of the pre-exam formalities and reviews and then they were also in OPIA and OPLA, OPIA being the Office of Internet Policy and International Affairs, and the Office of Patent and Legal Administration and they were the people who were responsible for reviewing national security applications. There is no training that goes on for your run-of-the-mill examiner about what to do if they think that they have an application in front of them that has national security implications. They have no process in place to make them you know, kind of be able to raise their hand and say, “I think this is a problem.”
And they’ve never been trained on it. And as, at least the 112 panel this morning said, right, like, I mean, the one thing the agency used to be really good at is training its employees as well as making that training available to all of you.
One of the other changes that they made over the course of the last nine months is, 10 months? Is that there is no more other time for training. So when the examiners take a training, it is in their free time. It’s voluntary.
[MARK LEMLEY]
So my instinct is, this is pretextual, right? This is, we’re not– they’re not desperate to make sure that we’re protecting national security. This is, maybe it is now we can make people return to an office. They can’t work from home. Maybe we can change their working conditions or their quotas.
[MOLLY KOCIALSKI]
Well, and that’s exactly what they did. And so for at least the examiners, they made a number of changes to the examiner performance agreement back in early October, and started communicating those out.
I’m sure everybody has, has seen, right, a lot of the angst online about that. But let me put it in pretty stark terms for you and just in terms of one of the changes that they made to the path, so right prior to this year, to be fully successful in the Federal Government as an examiner, you had to achieve a 95% production rate. And the 95% was based on what you could do in terms of your service grade, your technology area, and what you were, like, what the expectation was. And we set it at 95% because it’s a hard job, right?
Most examiners are really one big life event away from not making that 95%, and that was true for years before. You know, if you had a death in the family or you had an illness or something like that, you got in a hole pretty quick.
And it was one of the reasons why the agency was able to say that we were able to do telework, because we knew within a bi-week whenever an examiner was off the rails, ’cause we would see their production go down. And so I think, right, like, 95% was one thing.
It allowed the examiners some flexibility, some work/life balance, all of those other things. They changed that to 100% without actually recognizing what that means for an examiner. But basically they’re asking each and every examiner to add about six weeks of extra work to their docket in order to become fully successful now. And if they’re not fully successful, the removal of the union also means that they don’t have a union rep that’s going to help them negotiate a performance improvement plan.
In addition to all of that, the Office of Personnel Management has said, “Hey, guess what? We wanna make sure that if someone’s on a performance improvement plan, they have a very limited time to come off of that performance improvement plan.”
And so the Office of Personnel Management has strongly suggested that no performance improvement plan should last longer than 60 days. There is not an examiner, I know I couldn’t dig myself out of a production hole if I needed to in 60 days. So I think one of the things that will be the result, when we’ll start seeing this in April at mid-years is, is a result that there are going to be a number of examiners that are gonna be put on performance improvement plans, and then I think we’ll see a further attrition of examiners starting, like, that April, May, June timeframe. So it is really important to, you know, kind of look at that.
In addition, if you look at, like, what has happened from an attrition level with all of the other actions that the administration has taken, Fork in the Road, the voluntary early retirement authority, the Voluntary Incentive Separation Payment all of that– Hiring freeze outside the union law. The hiring freeze outside, well, for, for eight months it was a hiring freeze full stop.
And then they only became able to you know, really start hiring again in August. When they did start hiring again in August, they changed the rules about what was hiring. So anyone hired from August to, well, whenever, they are hired under the authority that they can only reach a GS-13 perspective, which means they can never become a primary.
You know, primaries are where the office makes their money. Those are the workhorses.
You know, the goal in the past was always to get an examiner from a GS-7 or a GS-9 position into a primary position where they were signing their own cases. And that has changed. They are not eligible for telework. They have to be in person, and they can only reach a GS-13, which will then obviously limit the pipeline for people who become primaries and then also for people who will become SPEs, because you don’t become a SPE unless you were a primary.
[MARK LEMLEY]
So it’s the idea that they’re gonna just phase primaries and SPEs out altogether? But like, I don’t even know how that would work if a non-primary has to have a second sign-off by a primary.
[MOLLY KOCIALSKI]
Even the primaries right now are having to post all of their first office actions on the merits to their SPEs. And the SPE has to sign off on any allowance, which inevitably means, right, like, there’s a bottleneck. When you’ve got a SPE who’s got somewhere north of 13, 14, 15.
If they have 17 or if they’re in a super group where they have like 20 people reporting to them, each one of those primaries generates a first office action on the merits to the tune of about four to six a week. So you do the math.
[MARK LEMLEY]
I like the concept of an examiner super group. I’m envisioning like 1970s rock band.
[MOLLY KOCIALSKI]
Yeah, no no, no.
(Molly laughing)
Although there are some groups in the agency that do have very strong karaoke game, I have to say. The Patent Trial and Appeal Board judges have a very strong karaoke game, and the former Office of Education and Outreach, they even had a dance routine. So, I’m just saying, there’s some strong karaoke game there.
[MARK LEMLEY]
All right. So nonetheless, we no longer have a hiring freeze, we can in theory, hire. It’s maybe a less attractive job. It doesn’t have a promotion ability. But, so the PTO is now trying to hire examiners, right?
[MOLLY KOCIALSKI]
Mm-hmm.
[MARK LEMLEY]
How’s that going?
[MOLLY KOCIALSKI]
Not so well. So, they wanted to hire 800 before the October 1st, you know, changeover from the fiscal year. I believe the number was somewhere around 250, maybe 300 that they managed to get in the door.
That is not going well. Um for at least the August class, I understand that the attrition rate is somewhere north of 70% at this point.
And the attrition rate for first-year examiners was always horrendous, right? Like it was always around 50%, right? So you know, it’s 70% isn’t that shocking to me, but it is relatively shocking. I think the problem with that is also that they changed how the examiners are being trained.
So prior to this administration, examiners would come in, they would receive four months of training in an academy altogether. They would stay with that academy group while also starting to work with their SPEs a little bit over the first year, and then they would transfer out to their SPEs and their art units after their probationary year.
But they had guide rails, they had mentors, they had people who were able to answer all of, kind of, I’ll just call them the silly questions, right? The, “What do I do about this?” And you had some cross-technology areas that, you know, really, I think, made examination better. That has changed. They get six weeks of classroom training that is mostly video now, and they are immediately assigned on day one to their SPEs.
And so now, not only are the SPEs having to do first office action on the merits reviews, allowance reviews for all of their primaries and their, even their juniors, right? They always had to do it for the juniors. But they’re having to do it for the primaries now. But in addition, now they have all of the mentoring, all of the training, all of the handholding of what I like to refer to as baby SPE baby examiners.
And they do need a lot more. In addition, they cut off the other time for the primaries to help. So in the past, right?
Spes could count on primaries to help the juniors sign. That is no longer able to happen. The primaries cannot get any other time for helping juniors along. And so that aspect of mentoring and bringing the baby examiners along is gone.
So it’s all on the SPEs.
[MARK LEMLEY]
Now say something about the new performance review or proposed performance review process.
[MOLLY KOCIALSKI]
So they really got the rug pulled out from under them. Um, in July, August timeframe, the Office of Personnel Management announced that they wanted to be grading on a curve. So only 5% of any personnel in any agency could be outstanding.
Less than 20% could be commendable. The rest had to be fully successful, or people needed to be put If they weren’t making their numbers, they needed to be put on a performance improvement plan to be marginal or I don’t even remember what the one is, but it’s bad.
So and that was supposed to go into effect for FY26. So that would’ve gone into effect starting October 1st of this year. Uh, instead, the agency elected to apply it to, um–every person in the agency for last year’s performance and they made that decision in August.
So, you had people who had been outstanding for their entire career and it affected, I think, people like SPEs and people who were in support organizations like quality assurance specialists, the judges you know, any of those. You had people who have been outstanding for their entire careers, and mind you, there’s a bonus number that’s tied to the outstanding level and all of a sudden they’re fully successful.
And for a lot of the SPEs, that meant that they didn’t even get a bonus this year. So, you’ve had their work, you know, these SPEs have had their workload double at a minimum, and then they’re not getting a bonus for doing what they’re supposed to be doing.
[MARK LEMLEY]
Well, so, um– Hopefully, we’ve sold you on the possibility that you want to apply as an examiner. Um, let me but, but let me, let me, let me raise one final thing as you file your application for the examiner and that is the Donald Trump loyalty oath.
[MOLLY KOCIALSKI]
So, just in case anybody, like, doubts, I actually brought the performance agreement that they wanted me to sign which was one of the precipitating factors to me leaving with me to show you. The first critical element of my performance agreement was faithful implementation of the administration’s priorities.
[MARK LEMLEY]
I will note if you are an applicant rather than simply someone who is already working in the office, this is true throughout the US government, not just the Patent Office. On the applications for civil service positions, which are by law non-partisan positions, one of the questions asked is, “Tell us what your favorite Donald Trump executive order is and why.”
I am not making this up.
(participant asking a question)
[MOLLY KOCIALSKI]
Yes.
[MARK LEMLEY]
So how’s morale at the patent office?
(Molly laughing)
[MOLLY KOCIALSKI]
Let’s see, it’s horrible. And again, right, like, I mean, it is just every action that they are taking is the antithesis of what we were taught to do as federal government leaders and so, yes.
I don’t know of any person there who feels like they are valued, that the work that they do is worthwhile. They are disconnected from the mission and the vision.
I think, you know, there are a couple of things in the patent examiners subreddit feed that are, I feel pure comedy gold. There is someone who is acting as an AI scout who’s the new cheerleader for the administration. That is pure comedy gold.
I highly recommend going to read it. But there’s, I think, a lot of anger. I also think, you know, there’s a lot of recognition, especially for the examiners who have been there for a long time that, you know, the relationship between corporations, the USPTO, and law firms is a very symbiotic one. And I have to tell you, what happens to symbiotic, you know, organisms when one part of them is literally bleeding out?
You know, it’s going to affect all of us in some manner or another over the course of the, I would say, the next year. And the worst part about all of this is it has all happened in the last 10 months, right? Like, it is and the pace of change just keeps happening. You know, and it would be one thing if it was just POPA, right?
With the union aspect of it. But they actually got rid of the NTEU 243 which covered all of the legal instrument examiners, all of the support staff along those lines, and they brought those people back to the office.
So, while they aren’t bringing the examiners back yet and I do use the word yet. They have brought back a lot of people which has led to even more attrition in some of those places. So, you are probably–
[MARK LEMLEY]
And a reduction in force outside the examining court, right?
[MOLLY KOCIALSKI]
Yeah. So, outside of the other thing that they did on October 1st was they announced a reduction in force. Now this has been reversed because the court told the administration that that was illegal.
So, they have actually brought back all of the people that they reduced in force on October 1st, but they laid off about 200, 220 people. And if you read the messaging of the agency, and so maybe this is a pro-tip for you as you’re taking it away, dig deeper into the messaging of the agency and understand what they’re really saying. So, the messaging of the agency was that it was just a 1% reduction in the workforce. Well, that’s not really true because what they did for the reduction in force is everybody who was a patent examiner everybody who was a trademark examining attorney, and their direct supervisors were exempted from being considered for the reduction in force.
So, those 220 people came from the remaining, like, aspect of the agency. So, you had a reduction in force of 220 people out of 4,000, which is more like a 20% effect. 50 of those people came from CIO. I don’t know about all of you, but I rely heavily on the IT so do the examiners.
And so there’s, you know, they can’t even get DAV or PALM to work at a 99% rate right now. So, good luck employing an AI tool that’s gonna
(chuckling)
crash the systems.
[MARK LEMLEY]
Question in the back. You got a microphone coming to you.
[MOLLY KOCIALSKI]
Yeah.
(unintelligible)
Please, it’s on. I wanted some audience participation. So, my question to you is, Molly, in your view, why is this being done? Um.
[MARK LEMLEY]
I have a theory too, but–
[MOLLY KOCIALSKI]
Yeah. You know, no, I wanna hear yours.
[MARK LEMLEY]
So I mean, so I.
[MOLLY KOCIALSKI]
Mine is bleak.
(laughing)
[MARK LEMLEY]
Well, I mean, so, like, some of it is chaos, right? Some of this is broader administration OPM dictates, “Everybody must come back to the office. Everybody must write us an email every week telling us what five things they have accomplished for the government right?”
[MOLLY KOCIALSKI]
Which by the way, the USPTO is the only agency that’s still doing that.
[MARK LEMLEY]
Oh, is it, right?
[MOLLY KOCIALSKI]
Yep.
[MARK LEMLEY]
Interesting.
[MOLLY KOCIALSKI]
Only agency.
[MARK LEMLEY]
Yeah, the loyalty, I thought a bunch of this stuff is Trump Administration priorities that come from outside that and the Patent Office are sort of casualties of it. But I also think there’s another thing going on, and we’ll talk a little bit about this as we shift to kinda the changes in the examination process.
I think there is a view in the leadership that three years from now, we’re not gonna need examiners. Ai is gonna do everything. We’re already trying to push AI search. I think the reason we don’t have a promotion category for the new people we’re hiring is we don’t think we’re gonna need primary examiners and SPEs down the line.
We don’t wanna give people a long-term job prospect because we think we’re gonna replace you all with AI. I think that’s gonna work about as well as you expect it will work. But that’s my guess.
I can’t prove that. I don’t know.
You may have another theory.
[MOLLY KOCIALSKI]
Hi, and I might actually piggyback a little bit on you know, the notion that OPM is driving, so right? OPM has been very clear about its opinion of federal government workers. Um, I think some of the terms that especially Russ Vogt has used for federal workers is that they’re lazy, they’re undedicated, they’re just milking the system, all of those other things.
So I think some of those biases are there. Um, I, I will say in, in the first Trump administration, the USPTO was held out as the example of what agencies should be, fully User fee-funded.
We were able to keep track of our people, and even if they worked from home, like I said, within a bi-week, we know when someone’s off the rails. We can prove, right, that people are doing the work of the agency even when they are working from home. And I still say we. I really have to get over that.
But, right, like, we were held out as the example of what an agency should be. And so, to me, having had all of these things be applied to an agency that was functioning, that was efficient, that was effective and that supports 40% of the US GDP is nothing short of tragic and wasteful.
[MARK LEMLEY]
All right. So maybe you’re thinking, “I feel really bad for the people at the PTO, but how does this affect my life?” So why don’t we shift from kind of internal PTO to think about sort of examination, right? So you’ve mentioned already some of the changes to the examination process, right?
[MOLLY KOCIALSKI]
First office action on the merits on the review, right.
[MARK LEMLEY]
Yeah, okay, so, right. So there’s one big change already, right? So what does that mean in practice? So the examiner now, even my primary examiner can’t sign off on something?
[MOLLY KOCIALSKI]
Yep.
[MARK LEMLEY]
Okay. That sounds like another layer of process.
[MOLLY KOCIALSKI]
That’s a bottleneck for sure.
[MARK LEMLEY]
It’s a bottleneck, right?
[MOLLY KOCIALSKI]
For sure.
[MARK LEMLEY]
Is it changing anything? Is it not? Are the SPEs actually overruling the primaries?
[MOLLY KOCIALSKI]
Yes.
[MARK LEMLEY]
Okay.
[MOLLY KOCIALSKI]
Yeah. And so it’s called a streamlined review. So if you see that word used somewhere,
[MARK LEMLEY]
Then that’s how we know there’s more process.
[MOLLY KOCIALSKI]
More process. And you know the SPEs are returning errors back to the examiners even the primaries. What it means is more time between when the examiner is able to issue, you know, kind of do the office action and when you actually receive it in the mail. And so, one of the things, you know, that they’ve touted all along as this emergency is the backlog, backlog, backlog, backlog.
And then in August and September, they took credit for reducing the backlog below 800,000. Well, I have to tell you, as of the USPTO’s own numbers for the end of October, they are back up to 791,173. They will be over 800,000 by the time we get to the end of this year.
So they are not reducing the backlog. That is not good.
The other numbers that you need to, like, really pay attention to is first action pendency is up to 22.5 months across the core. And, you know, especially for patent term adjustments as we talked about in one of the last panels only, in 2024, 32% of apps made the measure of 14 months to first office action. So, right, there was 32% of the applications that got their first office actions within 14 months.
That number as of FY25 is 22. So, by every measure, the office is doing worse under the new regime. So yeah.
Is there any data on Track One examinations? Yeah.
You can look at the patents visualization dashboard. If you don’t have a link to that, just let me know, and I’ll make sure–
(unintelligible)
Well, there’s– –We can get it to you. There’s actually talk of getting rid of Track One. So they’ve done it on the design patents side. You know, there is no expedited examination in design patents anymore, and there’s talk of getting rid of track one on the utility patent side as well.
They are holding to the numbers on track one, though. But even those, I think now with first office action on the merits, you wanna keep your eye on when– ‘Cause I think those numbers are gonna go up too, because you just have a bottleneck. And, like, I’ll be honest, most supervisory patent examiners– and this is also my favorite typo of the administration. They have use or lose leave, right?
You can only accrue so many hours, and then you’ve gotta use your vacation hours. Well, a lot of supervisory patent examiners take the entire month of December off. They actually got told in October that they can’t do that, any leave, of their use or, well, it said loose leaf, as in the paper. But which we’ll talk about when we get to discretionary denials.
‘Cause what do you do if you’re the one case, like, that has your case number and it’s a typo? Anyway– Um, but right, like, so they got told that they can’t take any more, like, using more than a week of leave in December would require a Technology Center Director sign-off and maybe the Acting Commissioner for Patents, sign off. So I–
[MARK LEMLEY]
A note on the statistics. You should look at the statistics, but you should probably do it quickly because they have abolished the Patent Office of the Chief Economist, and at least a significant number of the dashboard things that used to be up there, have Uh–
[MOLLY KOCIALSKI]
There’s still ways to get to it.
[MARK LEMLEY]
Right.
[MOLLY KOCIALSKI]
Some of us know the backdoors.
[MARK LEMLEY]
Okay.
(Molly laughing)
Talk to Molly after, and you can find out how to get the statistics the PTO is calculating and used to be providing.
[MOLLY KOCIALSKI]
Mm-hmm.
[MARK LEMLEY]
All right. So you mentioned, I mean, so it’s interesting. You did mention earlier, right, an increase in the production quotas effectively, right?
[MOLLY KOCIALSKI]
Mm-hmm. Absolutely.
[MARK LEMLEY]
Sort of like 6% increase in production quotas. So but it sounds like that’s being swamped by attrition or the kind of duplicative effort of the sort of additional reviews from primaries.
[MOLLY KOCIALSKI]
Yeah. I mean well, and this is one of the numbers that you can look at. So the agency actually does report kind of the average tenure of the Art Units and from last year to this year, the average length of time that an examiner is there, right, like, you know, average employment length went from 16 years to 12 years this year. So with the fork in the road and with the early retirement and separation payments the agency lost 902 examiners from March to August when they started being able to hire again.
And you can see this in the report. So it’s basically an 11% attrition rate for a corps that used to only have a 4% attrition rate, you know.
And you can even look on in the USPTO’s own data. The average tenure of an examiner used to be closer to 20 years because people came in, and they stayed, and they liked it, and they were valued. So I think that’s one of the things that you wanna keep your eye on because we really are just having many more junior people review applications, and that has an effect not just on the throughput, but it also has an effect on the quality.
And so.
[MARK LEMLEY]
One one other effect I will note, right, and this is the data’s a little old, but Bob and Sam Pat and I did a study on this, right, and found that the junior examiners in their first few years were actually much more likely to reject applications.
[MOLLY KOCIALSKI]
Oh, yeah. They’re terrified. They’re terrified to make a mistake.
[MARK LEMLEY]
Maybe they’re more you know, kind of like, you know, more excited about the prospect. Maybe they haven’t kind of learned how to, like, get to yes in the negotiation process. But for whatever reason, one thing about making the examining court more junior means, I think, fewer grants.
[MOLLY KOCIALSKI]
Which, of course is then , the antithesis of, people are saying about the Squires administration being pro-patent, right? So I have figured out to put it this way. In almost every instance, the stated goal of the administration does not match the reality of the consequences of their actions.
[MARK LEMLEY]
If you do have an examiner who doesn’t want to give you a patent, maybe one of the junior examiners who’s a little too gung-ho, you can always just file a continuation or might. They’d have to file a divisional, right?
[MOLLY KOCIALSKI]
Sure.
[MARK LEMLEY]
Now what happens to the continuation?
[MOLLY KOCIALSKI]
It goes into a pool, and no examiner can pick up the continuation or divisional application. It gets assigned the date that you file it, and no examiner can pick up that continuation or divisional application until their docket is absent of any prior-filed new application.
[MARK LEMLEY]
So just to be clear on what we just said, right, the continuations and the divisionals, right?
[MOLLY KOCIALSKI]
Uh-huh.
[MARK LEMLEY]
And the divisionals–
[MOLLY KOCIALSKI]
And continuations in part.
[MARK LEMLEY]
And CIPs are not gonna be picked up kind of by the same examiner continuing in the course of a normal response. They go back to the back of the line, and they go behind all the new applications, right?
So that means when the examiner in your Biotech Art unit says, “Divisional, you actually have eight different patents here, we’ve reset the now 22-23 month on average thing before we will take a look at any but one of those.”
[MOLLY KOCIALSKI]
Exactly.
[MARK LEMLEY]
Right? And similarly, if you wanna file a continuation or a CIP, instead of doing it kind of with the same examiner at the same time, we’re now kicking it back two years, and that might mean you have a different examiner because of course–
[MOLLY KOCIALSKI]
Most likely.
[MARK LEMLEY]
Yeah.
(Molly Kocialski laughing)
And now that the attrition rate is turning over.
[MOLLY KOCIALSKI]
Yeah, yeah. Well, because right, I mean, most of the people who left over the last year, and I think it will be really telling to see what happens in the December 31st-January 1st timeframe. I mean, I know I’ve signed four retirement cards in the last week for examiners because the older examiners who have their 20 years in are looking at this mess and saying,
(clapping)
“Peace out.” Right? “I got my 20. I can retire with full retirement benefits. I’m gone.” So the agency really is losing its experienced people in rates historically unknown.
[MARK LEMLEY]
All right, so let’s shift gears a little bit, right? We’ve been talking about the examining core who are working harder, got more to do under tougher conditions. One group who I suspect through no fault of their own is not working as hard are PTAB judges.
You have heard already today and yesterday about some of the stuff that’s going on in the IPR process. But I just wanna kinda, like, walk through a little bit the sort of set of things that’s happened in the IPR process. So, background to start with, right?
We’ve had 19,000 IPRs in the 14 years since the AIA. The PTAB has done, frankly, an amazing job of keeping to deadlines, right? So examiners are supposed to get a first pick-up in 14 months, but as Molly says that at, in a good year that’s 35 or 40%.
[MOLLY KOCIALSKI]
I was gonna say, that’s always been a stretch goal.
[MARK LEMLEY]
Yeah, and now it’s down to 25%. But PTAB has never missed a deadline, right? Institution within six months year to thing. The only case in which they have not made that was a case in which somebody filed bankruptcy and therefore, froze the proceeding which I don’t think they can really be blamed for.
And they produced results that, despite sort of like made up fake statistics that you sometimes hear out in the world have been for the last several years within 1% of the same results you get in court. So the actual ultimate challenger win rate in the PTAB depends on how you count partials, right?
Where some claims are invalidated, and some claims are kept standing, runs between 40% and 45%. The invalidation rate in courts is 43.1%.
So it’s a lot cheaper, and you get pretty much the same ultimate results. What’s happened in the last year is a kind of deliberate move, I think, to probably eliminate, but at the least, very significantly weaken and cut back on.
[MOLLY KOCIALSKI]
Oh, definitively.
[MARK LEMLEY]
On the IPR process. Yeah, so we, this starts with this discretionary denial idea, right?
Discretionary denials in the last year, right, now have been somewhere between 75% or, if like Jessica, you’re opt, if you’re optimistic, right, or 97% if you’re pessimistic of the petitions that have been filed. It depends on what’s gonna happen to the sort of remaining petitions. So, how does this happen?
First happens is this idea of settled expectations. If your patent has been around for a while, the PTO director declares, ‘Well, we have a settled expectation that that patent shouldn’t be challenged.’ The kind of baseline number that starts getting thrown around is six years. Now–
[MOLLY KOCIALSKI]
Which, where does that even come from?
[MARK LEMLEY]
It’s a good question, right? There is in court a laches provision of six years. There’s a statutory damages provision of six years and there’s a statute of limitations that’ll happen after that.
But you can always get six years worth of damages in court. So, we don’t say, ‘You didn’t sue after six years, you lose your case.’ So one thing that’s worth noting, two thirds of all the patents slightly less than two thirds of all the patents, more than 60%, are more than six years old. Right? 75% of the litigated patents are more than six years old, and more than 80% of the patents filed by non-practicing entities are more than six years old.
So we’ve picked out a universe of all or almost all of the things we might actually see in IPR and said, ‘These just don’t get to count at all.’ And that’s assuming six years is a real number. Right?
We’ve seen settled expectations applied to two or three years. We’ve seen arguments for settled expectations in post-grant oppositions, which have to be filed within the first nine months after the patent issues. It’s hard to say you’ve got a settled expectation in the first few months after your patent issues, but people are saying it. So settled expectations already knocks out a big chunk on discretionary denial before you get to the merits.
Then you’ve got a required waiver, not just of arguments that overlap, right? There’s an estoppel rule in the court. Required waiver of arguments that you could not raise in the PTAB, right? Arguments that I can’t make in the PTAB, I must forgo making in court, or we refuse to read your PTAB proceeding.
I think that’s pretty consistently at odds with both the statute and with the Federal Circuit’s decisions in IO Engine versus Ingenico, which tell us, here is the scope of the actual estoppel. And but PTO says, ‘You want us to even read your petition, agree to give up arguments that the law says you don’t have to give up.’ We will also, it appears, reject a meritorious petition even if we decide it’s meritorious in part on the claims, if any of the claims of the patent would survive. And back when the director was actually writing short opinions explaining himself, he explained that he was rejecting a petition that met the standards for institution because some of the claims would survive.
That, I think, is pretty clearly at odds with the Supreme Court’s decision in SAS versus Iancu, right? Which says the standard is if even one claim is, a challenge to even one claim is meritorious, then you’ve gotta consider the whole, the patent as a whole. There’s a proposed rejection in the notice of proposed rule-making. If anyone has tried to challenge this patent anywhere before and failed, then we won’t take a look at it.
You know, you can see to some extent, right, the okay, wait, I don’t want a series of petitions, right? You know, three, four, five people file IPRs, and they fail and I want to add another one. But it’s a little worrisome to say, “You know what? I never had an opportunity to bring a claim, and now, because somebody else brought a claim and lost it, I can’t bring one.”
There’s some suggestion in the rule-making that this would apply even to ex parte re-exam–
[MOLLY KOCIALSKI]
Which, of course, is then contrary to what the Federal Circuit just said in–
[MARK LEMLEY]
Yep.
[MOLLY KOCIALSKI]
In register–
[MARK LEMLEY]
This week.
[MOLLY KOCIALSKI]
Yeah, this week.
[MARK LEMLEY]
In register–
[MOLLY KOCIALSKI]
Which is, right, like the re-examination statute does not provide for any involvement of the requester in the re-examination after the optional reply. So re-examinations can’t count against the person who requested it because it’s the office that maintains the re-examination proceeding.
[MARK LEMLEY]
And in fact, right less true in the last decade or two since we’ve had the Central Re-examination Unit, but it used to be the case, right, that the most common requester of an ex parte re-exam was the patent applicant–
[MOLLY KOCIALSKI]
Themselves.
[MARK LEMLEY]
Themselves. Because they actually wanted to go bulletproof a patent, right, that was ready for litigation.
So the idea that the patent applicant, the patent owner could come in, request an ex parte re-exam get it, right, get their patent confirmed and then say, ‘Oh, now no one else can file an IPR because I myself have re-examined my own patent,’ strikes me as worrisome.
(audience laughing)
[MOLLY KOCIALSKI]
Hmm?
[AUDIENCE MEMBER]
Didn’t they make an exception for that in–
[MARK LEMLEY]
That’s all right, wait for the microphone, please. Yeah.
[AUDIENCE MEMBER]
Didn’t they make an exception for that in the rule-making?
[MARK LEMLEY]
No, not in the proposed rule-making–
[MOLLY KOCIALSKI]
They described it–
[MARK LEMLEY]
Yeah, they did–
[MOLLY KOCIALSKI]
But they used it as a reason for saying that is actually an acceptable course of behavior, and that the patent owner should have the ability to gold plate their patent and cut off other people from challenging.
[MARK LEMLEY]
So there’s also, maybe I’ll kick this back to you briefly, Molly, on this. One of the things, the re-examination, the ex parte re-examination process has actually been working relatively well.
People have been moving to it, right, because in, I think, 2006 we created the Central Re-exam Unit, right?
[MOLLY KOCIALSKI]
Right. 2005.
[MARK LEMLEY]
2005.
[MOLLY KOCIALSKI]
Yep.
[MARK LEMLEY]
I was close. Right, and so whereas you used to go back to the same examiner who’d granted the patent and said, “Hey, do you think you made a mistake?”
(Molly laughing)
Um, we instead now send it to the–
[MOLLY KOCIALSKI]
Always effective.
[MARK LEMLEY]
–the central, Central Re-examination Unit, who were some pretty good and pretty uh–
[MOLLY KOCIALSKI]
Well, they are the most senior.
[MARK LEMLEY]
Senior examiners, exactly.
[MOLLY KOCIALSKI]
Right, yeah. So–
[MARK LEMLEY]
CRU going away?
[MOLLY KOCIALSKI]
Um, it, not quite yet. They’ve lost quite a few people. They’re down one supervisory patent examiner in the CRU, so they went from eight to seven. Um, I believe that the number that left through Vera Visapin, the fork in the road, they used to have 74 GS15 examiners in the CRU.
I believe they’re down to 50. So their throughput is gonna be throttled as well so you’re gonna see those times start extending.
[MARK LEMLEY]
And we’re gonna see, I think, a lot more people shifting to ex parte re-exam if the IPR is not available, right?
[MOLLY KOCIALSKI]
And then you know, and, and sometimes I think both Director Squires and Deputy Director Stewart say the quiet things out loud. Um in, at least one meeting recently Deputy Director Stewart has mentioned that she thinks it’s a really good idea to put the CRU examiners on production, which will then artificially limit the n–time that the CRU examiner has to actually push the re-examination through what is going on.
[MARK LEMLEY]
All right. So there’s more. The director has also told us that he might reject an IPR proceeding because of the nationality of the filer. Uh–
[MOLLY KOCIALSKI]
Mm-hmm.
[MARK LEMLEY]
Right? There’s a, “Hey, wait a minute. You’re a Chinese company. Uh, why should we uh, you know you’re, you’re associated with the Chinese government. Why should we accept your application?”
[MOLLY KOCIALSKI]
And it seems to be only China, though.
[MARK LEMLEY]
I think it is only China.
[MOLLY KOCIALSKI]
I think it’s only China, because otherwise, I would have expected him to bring in, like, the 371 list, right, like the, the watch list of bad countries.
[AUDIENCE MEMBER]
Question, is that for an actual submission of the application or?
[MARK LEMLEY]
This was an IPR, and yep, so, right, yeah.
[MOLLY KOCIALSKI]
That’s IPR.
[MARK LEMLEY]
This is all IPR, right?
[MOLLY KOCIALSKI]
We’re still gonna let them file patent applications, though.
[MARK LEMLEY]
Well, yeah, or, or, or–
[MOLLY KOCIALSKI]
In big ways.
[MARK LEMLEY]
That would solve the backlog. If we got rid of all the Chinese patent applicants.
[MOLLY KOCIALSKI]
Well, well, but one of, one of the interesting things, though, right, like that they also made to the examiner, eh production is that Patent Prosecution Highway cases are now only going to be counted for– So every patent application that gets filed gets two counts for the examiners, and it’s divvied up based on what actions they take. The new performance agreement says that patent prosecution highway, applications are only getting 1.75. So that means all of those applications from China that come through on the patent prosecution highway, the examiner actually has less time to examine those cases despite the language, I’ll say, the loose understanding of US intellectual property law that, that exists in, in China about what they can and can’t do here, which we see on the trademark side of the house.
So, right, that baffles me as to why they would do that. It, the, if you were really looking at this, you would actually give the examiners 2.25 to examine patent prosecution highway cases, especially those that are coming from, you know, certain countries.
[MARK LEMLEY]
Where the document is translated and there are other kind of challenges.
[MOLLY KOCIALSKI]
Exactly.
[MARK LEMLEY]
All right. So and then, of course as you have heard the Director Squires brought all of the IPR decisions in-house to decide them himself, right, taking the institution decisions away from the PTAB, right? Now, let’s be clear, right, with the number of IPR petitions that have been filed and are pending, there is no way the director can himself evaluate all of these things on the merits.
[MOLLY KOCIALSKI]
He might have the Superman costume underneath his suit. I don’t know. But not only that but I know one of the earlier PTAB panels said, “Oh, well, it’s done in conjunction with three Patent Trial and Appeal Board judges.”
[MARK LEMLEY]
It can be.
[MOLLY KOCIALSKI]
It can be. It doesn’t have to be. And I think that’s a key point.
[MARK LEMLEY]
And I think, I mean, so I have not talked to PTAB judges about whether they are kind of, like doing the work sub rosa and recommending to him, but that’s my impression of what’s happening. We don’t know because one of the things he’s done is decided not to write anything at all other than affirmed or denied about the petitions, right? So you get a your petition goes to the Director Director says, “Denied.” Now he tells us, actually, I guess, “Discretionarily denied or denied on the merits.”
So you know that it was denied for one of the several reasons I just gave you, though you don’t know which one. Or you know that it was denied on the merits, but you don’t know why.
[MOLLY KOCIALSKI]
And it may not even be your case. I mean, right?
Okay. So they release the, you know, the director decides that he’s going to sua sponte, you know, order reexamination of the Pokemon patent because he read, I think, an article that talked about the outrage that this patent was being enforced. So he goes ahead and he issues the press release on that patent and puts the wrong serial number of the patent on the press release. My understanding is that he actually ordered the reexam for the correct serial number, but, you know, we’ve already talked about two typos that have significant meaning in this talk from this administration.
And so I just sit there. And I go, you know, if you’re the person who gets your case discretionarily denied just by a number, and that number’s wrong, you have no recourse. You’re done.
[MARK LEMLEY]
The good news is that as we move to AI, the likelihood of hallucinations and number changes.
[MOLLY KOCIALSKI]
Oh, sure. That’s gonna go down. I’m excited about that.
[MARK LEMLEY]
All right. But so I want to know one final thing about this sort of this kind of no explanation issue, right? Which is, he has actually instituted a few cases. I think it may be six now.
[MOLLY KOCIALSKI]
Is it six? I thought it was only four.
[MARK LEMLEY]
It’s six.
[MOLLY KOCIALSKI]
Six?
[MARK LEMLEY]
Some of which are post-grant oppositions. Two PGRs and four IPRs. So now, great news. You made it through the kind of 97% that have been rejected or are in limbo.
You are one of the three to 4% that actually got granted. But you have no idea why. Neither does the patent owner.
So now we go to briefing, right? We have, institution has happened, right?
The patent owner gets to file a brief in response to the institution decision.
[MOLLY KOCIALSKI]
I was right.
[MARK LEMLEY]
Exactly. What’s it gonna say, right? Yeah. Clearly, the arguments you didn’t find persuasive for some reason that I don’t know should have persuaded you. The petitioner then can say, “No, we were right.”
[MOLLY KOCIALSKI]
We were right.
[MARK LEMLEY]
“We don’t know what to brief because we don’t have a claim construction. We don’t have a sense of which grounds were considered valid, whether there are some claims but not all that are viewed as important. So we have no idea how that’s gonna work, but my estimate is poorly.”
[MOLLY KOCIALSKI]
Sure.
[MARK LEMLEY]
Okay. All right. Now, finally, we got about eight minutes left. Let me zoom out a little bit from the Patent Office to the sort of patents in the innovation system more broadly, where there’s some other interesting stuff going on.
A lot of this is more preliminary because it’s coming from the main administration and not from the PTO, and Donald Trump has a tendency to say things and then they might or might not happen. But here are some of the things that the, that the Trump Administration has said we’re gonna do with respect to the patent system. First is we’re going to ensure that the patent office gets a return on its investment in examining your patents. How are we gonna do that?
We’re gonna tax your patent. We’re gonna charge you a fee based on the value of your patent. So instead of paying whatever fee you currently pay to file a patent application, you would pay us a fee that was some percentage of the ultimate value of your patent if you get it.
[MOLLY KOCIALSKI]
Well, and this goes back to why I think, like, I query why the settled expectations are at six years. So the patent model or the financial model of the agency is that no, the agency doesn’t actually break even on any application until the second maintenance fee is paid at seven and a half years.
So what’s to stop every patent owner who has a patent at six years from enforcing for a year and a half, and then never paying the seven and a half and 11 and a half year maintenance fees? If people decide to do that, the entire financial model of the agency collapses.
[MARK LEMLEY]
Yeah. I mean, presumably if you wanna sue in court, you gotta, you’re gonna have to have kept the patent in force, right?
[MOLLY KOCIALSKI]
For a period time.
[MARK LEMLEY]
But a lot of people don’t have to, right? That’s fair.
[MOLLY KOCIALSKI]
But if you make all your money from the demand letters?
[MARK LEMLEY]
So I got two problems with the whole, “We’ll tax you as a percentage of your value,” right? One is well, maybe I have three problems.
(laughing)
How many people, when they file their patent application know how much money it will ultimately make over the in apparently 20 years? Feel free to raise your hand. Don’t be shy.
[AUDIENCE MEMBER ONE]
Priceless.
[MARK LEMLEY]
Priceless. There we go, right, yes.
[AUDIENCE MEMBER TWO]
Or they’re all worthless, they don’t care.
[MARK LEMLEY]
Worthless, exactly.
(all laughing)
[MOLLY KOCIALSKI]
There we go.
[MARK LEMLEY]
So that would be a logical thing to say–
[MOLLY KOCIALSKI]
There’s someone who understand tax.
[MARK LEMLEY]
You get a free patent application, sir. All right, if you litigate, and I’m gonna, and I’m a defendant, I tell you I’m gonna come back and say, “Here’s what they told the patent office the entire value of their patent would be.” I am but one potential infringer. My damages must be less than that.
[MOLLY KOCIALSKI]
Absolutely.
[MARK LEMLEY]
Now, so you could of course pick a high number to avoid that, but then you have to pay a high tax.
[MOLLY KOCIALSKI]
Well, and what did you say when you valued your patent portfolio to the, oh, I don’t know, IRS?
[MARK LEMLEY]
Yep, that’s a good one. Okay, so four problems.
(audience laughs)
My, but my second problem, now maybe my third problem, is let’s say you actually do give the real number and you think, “This is a really valuable patent, this is something I intend to enforce.” Well, that means you gotta pay a big number up front to file the application, right? Or maybe at the issuance date, right?
Not after you’ve already collected royalties and revenue from this patent but up front. Now, maybe you are rich and you can afford to do that, and your company has decided to spend a bunch of extra money on its patents and system that it has not had to spend in the past. But if you’re a startup or an individual or a company who’s a bit frugal when their pay comes to their patent system, right? The idea that you might have to pay, we don’t know exactly what the percent would be, but let’s say, you know, potentially for the really valuable patents, a 10X or 100X multiple of the current application fee in advance, and hope that you’ll get it back on the back end seems like a bad idea.
[MOLLY KOCIALSKI]
Well, and I think your premise though, Mark, is that it is the actual patent owner who’s determining the valuation. I’m not sure that that’s what the administration is thinking from some of the comments that have been made.
[MARK LEMLEY]
Maybe it’ll be the Office of the Chief Economist at the Patent Office that is abolished.
[MOLLY KOCIALSKI]
Oh, God, but we fired him. So, no. But, right, like, I mean, from what, you know, has been said, again, the quiet things out loud is that they expect that patent tax to generate about two trillion dollars into the US government’s budget. And so that clearly means that they think they’re going to be setting the valuation of those patents.
[MARK LEMLEY]
Or that, I mean, but if they sold like so the current office budget about $4 billion, right?
[MOLLY KOCIALSKI]
Yes.
[MARK LEMLEY]
Yeah, so, okay, So that’s what? 500x?
[MOLLY KOCIALSKI]
Something.
[MARK LEMLEY]
Yeah. Okay, so maybe on average you’ll pay only 500 times for application fees, what you do right now.
[MOLLY KOCIALSKI]
But the other part of that is when the government sets a tax and sets a value on something, you as a US citizen, usually get the opportunity to appeal said valuation of what that is. So, and I will say this has not made me popular with my former Patent Trial and Appeal Board judge friends, but I have joked that they will become the Patent Valuation Appeal Board.
[MARK LEMLEY]
Ah, yep.
[MOLLY KOCIALSKI]
And they all look at me, and there’s a rude gesture that goes along with that.
(laughter)
[MARK LEMLEY]
I just wanna note one additional problem I have with this, which is a broader systemic problem, right? Which is the idea that we are gonna create a special tax just on innovation strikes me as uniquely dumb, right? If you wanna raise two trillion dollars by taxing corporate profits across the board, great, right? But if you were to pick a thing to impose a special tax that nobody else has to pay, innovation seems a really, really bad idea of a thing to tax.
This is not however, the only way in which you’re planning to tax innovation. We have already announced, Trump has already announced, and I think actually started to implement this time, a 100% tariff on patents, pharmaceutical patents. So if you have a patented pharmaceutical and you manufacture outside the United States, we are imposing a special 100% tariff on you, over and above other tariffs that might come from your country, and over and above any importation of a non-patented pharmaceutical, right? Now, in theory, the result will then be, “I will negotiate with you pharmaceutical company, “to lower your prices in exchange for waiving this tariff.”
And we have one case in which that has actually happened.
[MOLLY KOCIALSKI]
Oh.
[MARK LEMLEY]
The Wegovy, Novo Nordisk agreed to cut the price of Wegovy in exchange for being exempted from the 100% tariff that will be applied to its competitors, like Pfizer, right? So, maybe you kind of negotiate your way around this. But again, the idea that we’re going to impose a tax just on patented pharmaceuticals as a means of reducing the cost of drugs to US citizens strikes me as odd.
We also want to tax university patents. There’s a proposed 50% tax on university patents.
And we might actually employ the march-in right against universities we don’t like, particularly Harvard and seize their patents and require them to be, sort of like compulsorily licensed.
[MOLLY KOCIALSKI]
And to be clear, there’s, I think, going to be a lot of hidden taxes. Like, one of the effects of all of the maneuvers that they made in terms of personnel moves was, you know, patent examiners were safe.
So you had any number, and there are actually five technology centers that don’t have an R2AS or a T2AS associated with them, the quality assurance specialists. They’re gone. They went back to examining.
So, like, the hidden tax that’s part of all of the personnel moves that the agency has made is actually that quality is on you. If you want an enforceable patent, it’s on you.
[MARK LEMLEY]
So that brings us, I think to like where we’re gonna close, right? Which is the sort of, You know, if we think about sort of like why you should care, right? There are some of these things, right, that if you’re just, my interest is just prosecuting patents, you might wanna celebrate, right?
A lot of patent owners are happy to see the IPR process go away. I think that’s a little shortsighted because what they’re gonna see is more litigation and more cost and time. But I understand why they’re like, “Hey, there were ways my patent was being invalidated and now it doesn’t.”
But I think if you look at the sort of broader ecosystem, right? Even if your interest is only, “I want to get as many patents through the office as possible, as cheaply as possible,” you should be worried about, “Am I gonna be taxed?” Right?
“Is the backlog gonna increase? Can I not file continuations and divisionals and get them examined in a reasonable period?” And then I think maybe we should worry about the people.
[MOLLY KOCIALSKI]
Yeah, well, and we go back to the people. Like, I really do think, right, once we get to the point, right? A lot of the PTAB judges have been shifted over to ex parte appeals.
It looks like, I mean, if the numbers are right, the ex parte appeal inventory is gonna be zero in June of 2026. If that’s true, you have this massive reduction in the number of post-grant proceedings that the judges have to do, and you have a 0% inventory of ex parte cases that they can work through. The agency’s going to be forced to right-size the Patent Trial and Appeal Board. I mean, they’ve lost 19% of the judges already over the last nine months.
Um, I, I think that at you know, you could very well see a reduction in force at the Patent Trial and Appeal Board. Depending on, again, how many people retire.
We’re getting to the end of the year. Most federal workers who have reached their 20 year will wait until the end of the year. There’s a couple of really tax beneficial things for the employees. So you know, another thing to keep your eye on over the course of the next several weeks is, you know, how many more people are retiring from the agency, both in the examining core as well as the Patent Trial and Appeal Board.
[MARK LEMLEY]
All right. We promised that Molly And I would disagree with each other. I don’t think we did, so we failed you.
[MOLLY KOCIALSKI]
Oh.
[MARK LEMLEY]
And we apologize, but we are out of time. Thank you for listening.
(applause)