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Abstract

Since its inception in 1790, the U.S. patent system has been inextricably linked to innovation, the dissemination of knowledge, and numerous other societal benefits. The adoption of a patent claiming system in 1836 has resulted in a series of historical trends, including. (1) the century-plus trend of yearly increases in applications, straining the agency beyond its capabilities,- (2) a highly labor-intensive examination process,- and, (3) the majority ofpatents issued have been valueless. Today the U.S. Patent and Trademark Office ("PTO") is in a selfdescribed workload crisis and under attack for quality concerns. Former Under Secretary and PTO Director James E. Rogan carefully articulated these problems. Through his leadership, Rogan successfully championed a series of initiatives to modernize the PTO. His central theme was modernizing the agency and transforming its nineteenth century business model for the twenty-first century. However, patent reform has become increasingly difficult recently due to the rigors of the legislative process and political considerations. This Article applies game theory, a branch of applied mathematics, to propose a new patent reform whereby the PTO focuses more resources on more rigorous examination offewer applications. Empirical patent scholars have concluded that only a smallfraction of all patents are "valuable, " and scarce examination resources are not properly allocated. Economists liken the patent system to a lottery--individuals seek windfall rewards for their efforts. The Article's proposed examination paradigm avoids arbitrary and irrational resource allocation by applying a market-based mechanism. an auction. An auction will discourage lottery strategies and helps weed out worthless applications. Since our history and tradition encourage promoting innovation and entrepreneurship broadly, the proposal offers inventors a choice for the legal protection of their inventions. Through an auction, inventors could vie for an application's full-scale examination. Alternatively, they would be eligible for another type ofprotection (e.g., a petty patent). Nobel Laureate William Vickrey pioneered a sealed bid, second price variety of auction. It is an ideal mechanism for the allocation of scarce public sector resources, and is also appropriate in the patent context. It permits the more robust examination of a smaller set of applications. This will help ease the PTO's workload crisis, discourage specious applications, and hence enhance patent quality. The Vickrey auction does not seek to maximize revenue so as to punish new inventors, small businesses, and non-profits. Rather, it dynamically finds the most optimal price for government examination services. This Article's new paradigm promises to break the century-plus cycle of dysfunction and offer public policy benefits for each of the participants and society at large.

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