Many believe the root cause of the patent system’s dysfunction is that the U.S. Patent and Trademark Office (PTO or Agency) is issuing too many invalid patents that unnecessarily drain consumer welfare. Concerns regarding the Agency’s overgranting tendencies have recently spurred the Supreme Court to take a renewed interest in substantive patent law and have driven Congress to enact the first major patent reform act in over sixty years. Policymakers, however, have been modifying the system in an effort to increase patent quality in the dark. As there exists little to no compelling empirical evidence the PTO is actually overgranting patents, lawmakers are left trying to fix the patent system without even understanding the root causes of the system’s shortcomings.

This Article begins to rectify this deficiency, advancing the conversation along two dimensions. First, it provides a novel theoretical source for a granting bias on the part of the Agency, positing that the inability of the PTO to finally reject a patent application may create an incentive for the resource-constrained Agency to allow additional patents. Second, this Article attempts to explore, through a sophisticated natural experiment framework, whether the Agency is in fact acting on this incentive and overgranting patents. Our findings suggest that the PTO is biased toward allowing patents. Moreover, our results suggest the PTO is targeting its overgranting tendencies toward those patents it stands to benefit from the most—that is, those patent applications directed toward technologies that have historically had high repeat-filing rates, such as information, computer, and health-related technologies. Our findings provide policymakers with much-needed evidence that the PTO is indeed overgranting patents. Our results also suggest that the literature has overlooked a substantial source of Agency bias; hence, recent fixes to improve patent quality will not achieve their desired outcome of extinguishing the PTO’s overgranting proclivities.

An Online Appendix elaborating on the discussion of this Article is available at:
http://www.stanfordlawreview.org/sites/default/files/Frakes_Wasserman_67_Stan_L_Rev_Online_Appendix.pdf