Process as Purpose: Administrative Procedure, Costly Screens and Examination at the Patent Office

The United States Patent and Trademark Office has, by this point, acquired a well-deserved reputation for ineptitude and inefficiency. Patent examiners do a remarkably poor job of screening out invalid applications, and yet the patent examination process remains surprisingly expensive. Proposals for reforming the patent office—of which there are many—have thus focused on improving the quality of patent review while decreasing the attendant costs. In so doing, scholars have entirely overlooked the valuable function performed by the high costs associated with obtaining a patent. These process costs force applicants to disclose private information regarding the value of their intellectual property and serve as a costly screen against a particularly insidious class of low-value patents: those that are useful only as a means of extracting nuisance settlements from commercial firms. The patent system‘s continuing viability therefore rests in significant part upon the barrier imposed by administrative cost. And though the patent office is the most prominent forum in which this type of passive screening operates, it is far from the only one. Administrative procedures function as costly screens in areas as diverse as landlord-tenant and employment law, environmental permitting, and immigration law. In each case, the private costs of the navigating the process may pose a more effective barrier to entry than the process itself. I. THE PATENT OFFICE: HISTORIC PROBLEMS AND CONVENTIONAL REMEDIES 5 A. Rational Examiners and Misguided Incentives 6 B. The Costs of “Bad” Patents 11 C. Classic Reforms 13 II. PATENT PROCEDURES AS COSTLY SCREENS 17 A. Costs 18 1. PTO Fees 18 2. Attorneys’ Fees and Prosecution Expenses 20 3. Internal Firm Costs 22 2. Process as Purpose 24 C. Low Barriers and Nuisance Values 27 1. Valuable Inventions 28 2. Opinion Letters and Nuisance Payments 29 3. Price Barriers to the Nuisance Market 31 4. Tradeoffs 33 III. ADMINISTRATIVE COSTS AS INFORMATION-FORCING BARRIERS 35 A. Due Process and Summary Process 36 1. Employee Termination Hearings 36 2. Housing Evictions 38 † Assistant Professor, University of Chicago Law School. I thank Douglas Baird, Jacob Gersen, Todd Henderson, Anup Malani, Anne Joseph O‘Connell, Matthew Stephenson, and participants in the 2007 Berkeley Administrative Law Conference for helpful comments. The Price of Process 2 B. Environmental Permits 39 C. Immigration and Naturalization 42 CONCLUSION 45