STATEMENT
OF
MICHAEL K.
KIRK
EXECUTIVE
DIRECTOR
AMERICAN
INTELLECTUAL PROPERTY LAW ASSOCIATION
Before the
SUBCOMMITTEE
ON COURTS, THE INTERNET,
AND
INTELLECTUAL PROPERTY
COMMITTEE
ON THE JUDICIARY
At the
OVERSIGHT
HEARING
ON
“THE
OPERATIONS
AND FISCAL YEAR 2003 BUDGET”
2141
Mr. Chairman:
I
am pleased to have the opportunity to present the views of the American
Intellectual Property Law Association (AIPLA) at this oversight hearing on “The U.S. Patent and Trademark
Office: Operations and Fiscal Year 2003 Budget.”
The AIPLA is a national bar association of more than 13,000 members engaged in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property. Our members represent both owners and users of intellectual property.
AIPLA’s VISION FOR THE USPTO
The AIPLA believes that a strong and effective Patent and Trademark Office is critical to maintenance of a robust economy. However, AIPLA believes that achieving that end result will require focus on three critical objectives: quality, timeliness and improved electronic filing and processing capabilities. AIPLA also believes that these critical objectives, of necessity, will only be achieved through the joint efforts and renewed commitment of Congress, the USPTO and the USPTO user community.
Quality. Quality of the patents and trademark registrations granted by the USPTO must be at the forefront of efforts to strengthen and improve the operation of the Patent and Trademark Office. Granting patents or trademark registrations that cannot withstand the rigors of a court challenge does not serve the interests of the USPTO user community. It is costly and wasteful of valuable resources that could be put to better use in other endeavors. Moreover, the existence of patents and trademark registrations that grant unwarranted rights of exclusivity may deter otherwise lawful activity by others in technical and marketing endeavors. On the other hand, the ability to protect investment in research through the grant of strong patent rights, and the ability to protect investment and development in the marketing of products under strong trademark rights, is equally critical. The AIPLA believes that efforts to strengthen and improve USPTO operations should therefore be governed in every instance by a concern, first and foremost, for improving quality of the ultimate rights granted under patents and trademark registrations.
Timeliness. Timeliness in granting strong, enforceable patent and trademark rights is also of critical importance. Long delays in granting patents, even if they are strong and enforceable, are not in the best interests of patent owners and their competitors alike. Such delays place the technology in which investment has been made at risk for undue periods of time in the face of encroachment by others. In addition, these delays subject competitors to uncertainty and stifle efforts to lawfully invent around such patent rights. Likewise, prompt indications of the registerability of trademarks are essential for businesses to plan marketing strategies to launch new products and to enable competitors to avoid infringement of others’ marks. While admittedly quality on the one hand, and timeliness on the other, will at times create tension as to whether certain efforts will or will not ultimately serve to strengthen and improve USPTO operations, the AIPLA believes that both of these objectives must be met.
Electronic
Filing and Processing. The
BACKGROUND
The AIPLA believes that its vision for the USPTO is more critical than ever to the continued viability of our nation’s patent and trademark system. In fact, that viability has been steadily eroded during the last decade. As this Subcommittee is well aware, the Executive Branch and the Congress have participated in diverting fee revenues from the United States Patent and Trademark Office (USPTO) since 1992. To date, approximately $700,000,000 in patent and trademark fees paid by USPTO users have been diverted from, rescinded, or made unavailable to the USPTO. The result is that longer delays in obtaining protection for valuable new technologies and marketing efforts are increasing the uncertainty in the marketplace, and are diminishing the value of the rights ultimately obtained. And while the USPTO has and continues to make efforts to stem these increasing delays notwithstanding the budgetary strictures imposed upon it, the reality is that quality has suffered.
Large
and small companies are increasingly being subjected to litigation (or its
threat) on the basis of questionable patents.
This undermines the confidence of USPTO users and the public in general,
and threatens ultimately to undermine the position of the
Former Federal Trade Commission Chairman, Robert Pitofsky, asked last year:
“Does the patent office have the resources to conduct a rigorous review of patent applications?; and
“Are patent grants justified in terms of utility, novelty and invention, or is the scope of patents that are granted unnecessarily broad?”
These are serious questions which we fear are not being properly addressed.
After an average total pendency for patents of between 18 and 19 months was achieved in 1989 through 1991, patent pendency has risen to 24.7 months. Today, first opinions on patentability (first actions) in some rapidly growing fields are not received by applicants for more than 40 months after filing. While the trademark goals of three months to a first opinion on registerability and an average total pendency of 13 months were also achieved in 1989, these times have generally risen through the last decade until last year. The sharp decrease in filings related to the downturn in the economy permitted the Office to turn the corner on the rising pendency to first action last fiscal year and overall pendency this fiscal year.
The
electronic processing capabilities of the Office also fall woefully short of
the goal of “a paperless office by 1990” announced twenty years ago. To be
fair, the Office has made significant strides in creating electronic databases
in both the patent and trademark operations. Examiners now have the ability to
search electronically every
The trademark operation has also developed and implemented a user friendly and effective electronic trademark application filing system. Currently, nearly one quarter of all trademark applications are filed electronically, which speeds the process and reduces errors.
Unfortunately, the same cannot be said for the filing of patent applications. While the USPTO has made an electronic patent application filing system (EFS) available to applicants and has worked with applicants to instruct them in its use, the vast majority of patent applicants find the system very user-unfriendly. So few applicants have been able to master the EFS that, following the recent Anthrax problems at the Brentwood Postal Facility, the Office was forced to request patent communications to be filed by express mail, by facsimile, and by hand (in addition to electronically).
Moreover, once the twenty-five percent of trademark applications filed electronically and the very small percent of patent applications filed electronically reach the Office, the Office converts them all into paper for processing through the Office in the same manner as it always has. Communications to applicants are sent by mail and replies by applicants return the same way. If the Office receives the 368,000 patent applications and 300,000 trademark applications it has forecast for this fiscal year, on top of the existing backlogs, the Office must store, manage, and keep track of well over one million paper files. It is not hard to understand the burdens under which the Office struggles with this mountain of paper.
A NEW APPROACH
While not abandoning our strong opposition to the diversion of patent fees, we have been working with this Subcommittee to try a new approach to address the comments of the appropriators. The House appropriators observed last year in the report accompanying the appropriation bill, H.R.2500, that:
“PTO and the patent user community have continually criticized the Congress and the Administration for not allowing full access to their fees in the year they are received, yet the PTO has been unsuccessful in proving that increased funding will decrease the amount of time it takes an applicant to receive a patent. PTO bases its budget submission on anticipated fee income, which is derived from an estimation of its anticipated workload. However, there is no indication that the existing level of fees was developed based on any direct relationship to the actual costs of doing business.”
(House Report No. 107–139)
Accordingly, Chairman Coble together with Mr. Conyers and Mr. Berman introduced H.R. 2047, the “Patent and Trademark Office Authorization Act of 2002” on June 7, 2001, calling for the Office to make the type of showing requested. This legislation calls for the Director, working with the Patent and the Trademark Public
Advisory Committees, to develop a five-year strategic plan that would -
“(1) enhance patent and trademark quality;
(2) reduce patent and trademark pendency; and
(3) develop and implement an effective electronic system for use by the Patent
and Trademark Office and the public for all aspects of the patent and trademark processes….”
The strategic plan is to include milestones and objective and meaningful criteria for evaluating the progress and successful achievement of the plan.
Another section of H.R.2047 called for an accelerated effort to develop an electronic system for the filing and processing of patent and trademark applications that is user friendly and includes the necessary infrastructure (A) to allow examiners and applicants to send all communications electronically; and (B) to allow the Office to process, maintain, and search electronically the contents and history of each application.
The House Appropriations Committee called for similar information in its report on H.R. 2500:
“…the Committee directs the United States Patent and Trademark Office, in consultation with the Department of Commerce, to develop a requirements-based budget structure. This revised budget structure proposal should include the number of actual trademark examiners required to perform the examinations, the number of examiners the PTO would be able to hire and train during the fiscal year, the number of patent applications to be processed while maintaining accuracy, and a timeline and incremental budget plan for technological requirements to assist the processing of applications.”
The Senate Appropriations Committee also called for the development of such a plan in its report on H.R. 1215, Senate Report No. 107 - 42.
USPTO BUSINESS PLAN
The USPTO published a Business Plan in February of this year to accompany the FY 2003 Budget submission of the President. In the critical areas of quality, pendency, and electronic processing, the Plan states that the Office will:
In patents:
Improve quality by 55% by FY 2006 by reducing the “error rate” from 6.6 to 3%
Reduce total pendency to 26 months by FY 2006 by hiring 950 examiners
Initiate the TEAM* project to prepare for electronic processing of applications
* “Tools for Electronic Application Management”
In trademarks:
Improve quality by 50% by reducing the “error rate” from 6 to 3%
Reduce total pendency to 12 months by FY 2004
Complete its transition to fully electronic operation during FY 2004
The goals of the Plan need to be evaluated in terms of whether they truly meet the critical objectives toward which they are aimed. In the patent quality context, it is difficult to have confidence in a program that is in part dependent on the agreement of the judged. Before a patent application can be re-opened to prosecution on the basis of a finding of an “error” by the Quality Review Office, the relevant Group Director must agree. If a Group Director does not agree (and they do not in nearly 20% of the cases), no “error” is counted. We need the quality of the patents granted by the USPTO to convince critics such as former FTC Chairman Pitofsky that they are “justified in terms of utility, novelty and invention,” and that their scope is commensurate with the patentable contribution of the inventor.
Let me hasten to add that we fully recognize that it is easy to criticize the “quality” of patents; it is far more difficult to identify how patent “quality” can be measured, and to offer constructive suggestions to enhance quality. For this reason, AIPLA has created a special Task Force to work with the USPTO to develop some practical and effective proposals on how the Office can enhance patent quality.
We appreciate the Plan’s promise “to hire 950 new examiners each year,” but this statement must be considered in the context of the President’s Budget which calls for adding only 250 FTE patent examiner positions. We also note that, even with this promised increase, the goal in the Business Plan is to reach an average total pendency of 26 months by FY 2006, essentially making no inroads on the current situation. We would like to see more progress on this front; however, the effort to reduce pendency should not be permitted to overshadow the more important objective of patent quality. Thus, the goal of reducing pendency through increased hiring needs to be tempered by realistic measures for improving and strengthening examiner training and supervisory capacity, not simply increasing the sheer number of examiners.
Finally, we note that the stated goal of “initiating” a project “to prepare for electronic processing” of applications, absent more, falls far short of offering real hope that the patent operations will be fully electronically processing applications, from initial filing through examination and prosecution, by the end of the five-year period covered by the Plan.
Turning to the trademark side of the Office, we applaud the plans to develop “a comprehensive internal quality review program focused on improving examination quality to complement the corporate quality review program already in place,” but, without details, it is difficult to evaluate the planned effort. The pendency goals in the trademark operation of 2 months to first action by FY 2004 (down from 3 months for FY 2002 as reported in the Plan), and total pendency of 12 months by FY 2006 (down from 15.5 months for FY 2002 as reported in the Plan) are both commendable and appear to be achievable in light of the respite in the number of trademark applications currently being filed. Finally, we have previously applauded the advancements made by the USPTO in implementing electronic filing of trademark applications. We are heartened to see the goals of increasing the number of new trademark applications filed electronically to 80% in FY 2003 and to complete the transition to a fully electronic trademark operation during FY 2004.
THE PRESIDENT’S BUDGET
The proposed budget would fund the Office at a level of $1.365 billion. This would come from three different sources:
1) $1.220 billion from existing statutory fees
2) $0.100 billion from the nearly $0.500 billion in fees classified as “unavailable” in the year they were received
3) $0.045 billion from a new “one time” surcharge (which will raise $0.207 billion, with $0.162 billion being used for non-USPTO programs)
A major problem with the President’s Budget Proposal is that there is no guarantee that the Congressional appropriators will use the revenues as proposed. They may well agree to impose a surcharge, but then use the revenues generated elsewhere. Similarly, there is no guarantee that they will make available any of the monies previously withheld.
Thus, the user community is being asked to accept a fee increase to generate additional revenues, only 25% of which is targeted for the USPTO (and there is no guarantee that even that amount will reach the USPTO), to implement a USPTO plan which has serious shortcomings.
USPTO MANAGEMENT
We wish to make it perfectly clear at this juncture that our observations are not directed at the new management team in the USPTO or at the career employees. Under Secretary Rogan did not officially assume the duties of office until December 10 of last year. It is our understanding that on his second day in office, he was given a copy of the “passback” from the Office of Management and Budget for the USPTO’s budget for FY 2003. The “passback” informs an agency what level of funding the financial officials in OMB have decided to allow it to request. The budget proposals requested by the USPTO, to which the passback responds, were sent to the Department of Commerce and then to OMB many months earlier. Thus, Under Secretary Rogan essentially had no realistic opportunity to shape the operating plan or to press the case for adequate funding for the Office.
This is also not a criticism of the career employees in the USPTO. Having observed first hand what occurs when a new Administration comes into power, I can say that it is very difficult for career officials to represent adequately the interests of the patent and trademark systems to a new Commerce Department administration. The lack of an appointed political leader in the Under Secretary’s position makes it very difficult for the career managers to be heard. In fact, a very good plan could have been prepared and forwarded, but then rejected: we will never know.
Of course, a roadblock that continues to plague anyone in the Office who seeks to develop an effective plan for addressing the problems confronting patent applicants, trademark applicants, and, very importantly, the public, is that the individuals who control the decisions never have to publicly justify their decisions. While no Under Secretary/Director or career official can do anything but support the position dictated by Commerce Department and OMB officials, the individuals who make those decisions never have to justify those decisions before this Subcommittee.
You have heard from Under Secretary Rogan, this morning. We are extremely heartened with what he is saying and doing at the USPTO. He has instituted a top-to-bottom review of the entire Office to eliminate duplicative, wasteful, and low priority programs. In the statement issued late last month, Under Secretary Rogan observed:
“The Business Plan was completed before I assumed office last December; in reviewing it, I prefer to think of it as a “First Step Business Plan.” I am preparing to begin a top-to-bottom review of all non-examination and administrative support operations, and will expect to see a compelling justification for every non-examination operation within the agency.”
We are encouraged by these comments; we hope he will be permitted to succeed.
AIPLA POSITION ON THE 2003 PTO BUDGET AND BUSINESS PLAN
It will come as no surprise to
anyone on this Subcommittee that AIPLA strongly opposes any diversion of patent
and trademark fees – irrespective of the clothes it wears. If there is a need
for additional resources for some urgent program or service, the President and
the Congress should explain that need and, if the existing tax revenues are
insufficient, propose a tax increase on all citizens who will receive
the benefits of such program or service. It should not be hidden away as a
stealth tax increase only on
In addition, we strongly oppose any fee increase through the mechanism of a “surcharge” as proposed by the President. This procedure denies the user community any opportunity to participate effectively in the evaluation of the increase or the purposes to which it will be put. It also, quite frankly, undercuts the role of this Committee in its oversight of the USPTO. This procedure not only dictates the details of the operation of the Office, but also the level of contribution that users are forced to make to the general tax coffers.
Finally, we wish to be very clear on one point. As we stated at the outset, AIPLA wants the United States Patent and Trademark Office to be, simply, the best in the world in terms of quality, timeliness, and full electronic processing. If the current level of funding from user fees is inadequate to allow it to achieve this status, we are prepared to consider the increases needed. We would support a reasonable statutory fee increase to implement a five-year plan that would achieve the goals Congress and we seek.
The AIPLA looks forward to the next iteration of the Business Plan promised by Under Secretary Rogan. As previously noted, we urge that the next iteration include an action program designed to enhance patent and trademark quality. While we agree that pendency is important, especially for applicants in rapidly moving fields, the competitors of those applicants and the public have an equally strong claim to freedom from challenges based on questionable patents.
With the assurance that only quality patents will issue, we also wish to see the Office propose a detailed plan to achieve the long standing goal of 18-months average total pendency. In this regard, it is very important that the fluctuations in pendency among the various technical fields not have great disparities. Not only do rapidly advancing technologies deserve protection before obsolescence, but the public also has an interest in patents expiring twenty years after their U.S filing dates.
Finally, we urge the Office to develop an effective, user friendly, electronic filing system and an internal electronic processing system. The Office should look to every source available for assistance in developing an electronic filing system, especially the European Patent Office, which a number of observers believe has already developed such a system. The obvious savings in personnel, space, and the elimination of errors which would flow from the ability of the Office to electronically receive, process, and communicate with applicants make the prompt development of such a system an imperative.
The AIPLA recognizes that these objectives will not be attained without a price. As we have already noted, however, we are prepared to support a reasonable statutory fee increase to fund a sound plan to achieve them. This may mean that this Subcommittee should hold a follow-on hearing when the USPTO has developed its “Second Step Business Plan,” perhaps in conjunction with the fee restructuring promised in the President’s Budget submission.
LONGER TERM SOLUTION
As the members of this Subcommittee are fully aware, the USPTO has gone through twelve consecutive years during which it has failed to receive all of the fee revenues it collected. During this same period, we have seen the services the Office provides gradually deteriorate. Concerns about patent quality are higher now than at anytime in memory.
Congressional appropriators are not solely to blame for this situation. The Executive Branch budget proposals have similarly followed the political expedient of funding other more favored programs by suggesting the use of USPTO fee revenues. Is it realistic to expect that the USPTO can engage in sensible long range planning for major automation projects such as electronic processing when the funds available fluctuate year to year?
We believe that the perennial problem of under-funding the USPTO will be solved only by transforming it into a wholly owned government corporation. As this Subcommittee knows well, this suggestion has been raised several times during the past decade. This question has been studied by the National Academy of Public Administration (NAPA) several times. In its 1989 study, NAPA concluded that USPTO “meets the criteria for conversion to a wholly-owned federal corporation” and “could be placed on a fully self-sustaining basis within a reasonable period after its activation.” In a follow-on study in 1995, NAPA again found the USPTO an appropriate candidate for becoming a government corporation and added that it should have the power “To retain and utilize its revenues for any purposes of the corporation.”
A number of bills that would have “corporatized” the Office were considered in the 104th, 105th, and 106th Congresses, including H.R. 1659 and H.R. 3460 in the 104th Congress, H.R. 400 in the 105th Congress, and H.R. 1907 in the 106th Congress. All of these measures met with strong opposition due in large part to other features such as inter partes reexamination, prior use defense, and 18-month publication of pending patent applications. We submit that it is timely to try once again to achieve this change, but with the authorities needed to effectively manage the USPTO.
The earlier bills, for the most part, never solved the funding problem. Funding for the proposed corporation was generally subject to the flawed process that we have today. Contrary to the recommendations in the NAPA reports, these measures did not allow the corporation to actually run like a corporation where it could set its fees to obtain the funds needed to carry out its responsibilities under the oversight of this Subcommittee and a representative body of users. Although efforts were made, these bills did not, for the most part, give the managers of the corporation an exemption from title 5 of the United States Code so that they could set competitive salaries to attract and retain skilled engineers and attorneys to provide the quality services users and the public desire.
In addition, these earlier measures flirted with, but never quite overcame the cultural ties that placed the policy authority and the management authority in the same individual. The President needs an individual of his choosing to whom he can turn for advice on intellectual property questions, both here and abroad. This is a critically important and demanding, full time assignment; America’s future depends on worldwide protection of its intellectual assets. However, a $1.365 billion government corporation responsible for the examination and grant or registration of reliable patents or trademarks also needs full time attention. Moreover, while there are dedicated public servants like Under Secretary Rogan who are prepared to serve at Executive Level II salaries to assist in conducting the President’s agenda, we should be realistic and understand that talented COO’s are not going to be attracted to a job paying that same salary and offering job security only until the next Presidential election.
These and many other details need to be discussed and debated to develop an appropriate legislative remedy for the problems which the USPTO is facing. But we need to become engaged in this exercise now. If we do not pursue this or some other permanent fix, we will return here next year at this time for our annual hand-wringing exercise.
Thank you for the opportunity to present our views. We will be pleased to work with the Subcommittee in any way we can to resolve these difficult funding and operational problems.