GREGORY J. MAIER, CHAIR
SECTION OF INTELLECTUAL PROPERTY LAW AMERICAN BAR ASSOCIATION
SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES
OVERSIGHT HEARING ON UNITED STATES
PATENT AND TRADEMARK OFFICE
March 9, 2000
Chairman Coble, Members of the Subcommittee:
Thank you for your invitation to testify at today's oversight hearing on the
U. S. Patent and Trademark Office (PTO). I understand that the focal point of the hearing will be the budget for the PTO.
I am Gregory J. Maier, Senior Partner in the Arlington, Virginia intellectual property law firm of Oblon, Spivak, McClelland, Maier & Neustadt. I appear today as chair of the Section of Intellectual Property Law of the American Bar Association. The views I will be expressing represent those of the Section of Intellectual Property Law. These views have not been approved by the House of Delegates or Board of Governors of the ABA, and, accordingly, should not be construed as representing the position of the American Bar Association as a whole.
The Section of Intellectual Property Law has more than 18,000 enrolled members, and is the world's largest organization of intellectual property attorneys. We follow activities in the Congress relating to intellectual property laws, and deliberate on and debate issues about which our members have experience and knowledge. From time to time we offer recommendations to members and Committees of the Congress consistent with our deliberative process and our area of expertise. We hope that our observations and recommendations are useful to the Subcommittee and welcome suggestions on how we might be more helpful.
We are particularly grateful for the opportunity to share our views with the Subcommittee on the subject of funding for the Patent and Trademark Office. Funding and staffing of the PTO are issues that have been of long and continuing interest to the Section of Intellectual Property Law. In preparation for my appearance here today, I reviewed our Sectionís policy statements on these issues, and found that they go back several decades.
Thirty years ago, we approved "the principle that the Patent Office be supported adequately to insure first class staffing, housing and equipment; that the Patent Office should not be self-sustaining; and that any fees charged should be reasonably apportioned in accordance with the cost of providing the particular service."
We continue to support the principle that the PTO should receive adequate funding to insure that quality services can be delivered. The issue of whether the PTO should be self-sustaining, that is to say, fully funded by user fees, was resolved in 1990, with the enactment of the Omnibus Budget Reconciliation Act (OBRA). In the 1980's, Congress began to shift more and more PTO funding from appropriated taxpayer funds to PTO user fees. With the passage of OBRA in 1990, a final giant step was taken to reach full fee funding. A surcharge was imposed upon all statutory patent fees listed in section 41(a) and (b) of Title 35, United States Code. The surcharge was set to raise sufficient additional revenue to make the PTO fully self-sustaining.
The objective of full PTO support from user fees was quickly achieved, but doing so placed a tremendous burden on America's innovators. Combined with other patent fee increases that Congress enacted a few months later, inventors saw their PTO fees more than double in just one year. Yet since that time not a dollar of public funds has been utilized to run the PTO.
It is true that this step was taken as a deficit reduction measure. However, it was not taken to raise money for deficit reduction over and above the amount of revenue needed to effectively operate the PTO. Rather, it was designed only to replace the amount of taxpayer funds then being appropriated for the PTO. For this reason, Section 10101 of OBRA specifies that all surcharge receipts "shall be credited to a separate account established in the Treasury and ascribed to the Patent and Trademark Office...as offsetting receipts". Section 10101 further specifies that these funds "shall be available only to the Patent and Trademark Office, to the extent provided in the appropriations Acts, for all authorized activities and operations of the office,..."
For one short year, the OBRA surcharge was administered as designed and intended. In fiscal year 1991, $99,307,000 was collected and deposited in the fund, and this full amount was appropriated back to the PTO. The following year, $8 million of the $95 million collected was withheld from the PTO. In FY 1993, the amount withheld rose slightly to a little over $12 million. Another slight increase, to a little under $15 million, occurred in FY 1994. In fiscal year 1995, the level of diversion rose substantially, to more than $24 million, with the total amount diverted then reaching $59 million.
These developments prompted our Section to call upon Congress to repeal the patent surcharge and transfer all the funds withheld since 1991 to the PTO Office Appropriation Account. We did not do so out of a desire to reopen the battle over full funding of the PTO by user fees. Like most people in the inventor community, we had accepted that as a reality. We simply did not then believe, and do not now, that users of PTO services should pay not just 100 percent of the costs of the PTO, but 110 or 120 percent. For this reason, we developed policy six years ago that we still maintain regarding replacement of fee funds lost by an end to the surcharge. In calling for an end to the surcharge because it was a proven instrument of diversion, we also made clear that we did not oppose adjusting existing statutory fees to offset this loss of revenue, so long as the adjustment in fees (1) did not exceed the amount necessary to offset the loss from the surcharge, and (2) all PTO fee revenue was made available to the PTO to support services to users.
Mr. Chairman, two years ago, under your leadership, this Subcommittee carefully examined the Administration's request for PTO fee increases to offset the loss of revenue from the then pending expiration of the patent user fee surcharge. In testimony at your hearing, our Section and others representing the intellectual property community sounded a common theme: adjust the fees to the extent necessary to fund timely and quality services by the PTO, but do not raise fees to produce revenue which will be diverted to other purposes. We are pleased to note that, following your lead, the Congress did just that. In its FY 1999 budget submission, the Administration had announced an intention to rescind $50 million in PTO fee revenue to be collected that year. Taking this into account, your Subcommittee adjusted fees to levels sufficient to offset the revenue lost from the expiration of the surcharge, minus the $50 million already earmarked for rescission. As a result, H.R. 3723, the legislation enacted to adjust patent fees, actually resulted in across-the-board patent fee reductions.
Upon the expiration of the surcharge, if Congress and the Administration had made no changes other than to raise statutory patent fees to make up for the shortfall in fee collections, we would not be facing the continuing problems we face today. Until then, the budgetary chicanery practiced on PTO user fees had been confined to revenue obtained from the surcharge. Revenue raised by the statutory fees had always been appropriated for the use of the PTO in an open-ended fashion, in language setting no dollar limits, but merely providing that the Office could spend all the fee revenue it collected.
Authorizing the Office to spend whatever it raises, without knowing the exact amount in advance, is an important feature of the PTO funding mechanism. A change up or down in revenue signals a change in workload, and a corresponding change in the need for examiners and other Office resources. A "floating" budget allows for timely adjustments.
However, congressional appropriators have recently adopted a practice of "capping" the amount that the PTO may spend in a given year, at a level substantially less than the actual fee collections of the Office. Perhaps this technique was developed so that practices developed under the patent surcharge, which is now dead, can rule from the grave. Capping produces much the same results. For example, the FY 2000 appropriations Act caps the amount that the PTO can spend from fee collections at $755 million-$229 million less than estimated revenue. This disparity is made somewhat less dramatic by the fact that $116 million of 1999 fee revenue carried over as a result of last year's spending cap is made available for the PTO to spend in FY 2000. The "withhold and carry over" practice nonetheless carries with it a number of shortcomings.
The FY 2000 appropriation contains a legislative promise that funds collected above the cap will be made available next year. In fact, the current appropriation honors the commitment to this effect made last year. However, this does not mean that all PTO user fees will ultimately be made available to the PTO. First, the carry-over of fee collections above the cap is itself capped. The FY 2000 appropriation calls for $116 million carried-over from FY 1999 to be available in FY 2000; the actual carry-over will be at least $20 million higher due to increased filings in 1999.
There is also a cap at the other end of the FY 2000 appropriation. Regardless of fee collections, the carry-over to FY 2001 is capped at $229 million. The PTO is experiencing double-digit increases in patent and trademark applications, with corresponding increases in fee collections. These increases are projected to continue into the foreseeable future, and are likely to produce a carry-over in excess of the original estimate of $229 million. Since fee revenue is tied directly to work load, such excess revenue brings with it an increased need for PTO examiners and other resources. However, the Administration and congressional appropriators seem to be set on a course of responding to these needs by withholding and carrying over ever-increasing amounts each year, a disturbing trend that is vividly illustrated by the pending PTO budget proposal.
The President's budget proposal for Fiscal Year 2001 has been sent to Congress, and it proposes that the gap between total user fees paid into the PTO and the amount of those fees which the Office can spend should continue to grow, not just next year, but every year for the foreseeable future. For example, the PTO budget history shows that $108 million in user fee collections was withheld from the PTO and carried over from FY 1998 to FY 1999. From 1999 to 2000, this grew to $142 million. Under the current enacted budget, this total amount will grow by $113 million to $255 million to be carried over into FY 2001. The President's budget proposal for FY 2001 calls for the total to rise by an equal amount, $113 million, meaning that $368 million will be withheld from FY 2001 fee collections and carried over into FY 2002.
Few, if any, persons who are knowledgeable in the workings of congressional budgeting and appropriations believe that, as these amounts grow into hundreds of millions of dollars, these funds will eventually all be made available to the PTO. This is particularly true if we suffer an economic downturn that results in diminished patent and trademark applications and reduced fee revenue.
Two years ago, when this Subcommittee met to examine the issues surrounding funding for the PTO and diversion of PTO user fees, many of your witnesses called for an end to the patent surcharge, in the hope that ending the surcharge would end the practice of diverting PTO user fees to fund other programs. The surcharge was allowed to expire, but diversion of user fees continues. The techniques and the nomenclature may have changed, but the abusive practices remain.
This convoluted appropriation process is particularly detrimental to the quality of PTO services at this moment in our history when the workload of the PTO is growing at a double-digit rate. That growth in workload indicates that innovation and inventiveness are likewise growing both here and abroad. Yet inventors cannot reap the full benefits of their discoveries unless and until they have been issued patents by the PTO.
As Ronald Reagan said in his National Inventors Day Proclamation in 1983:
"...inventors are the keystone of the technological progress that
is so vital to the economic, environmental and social well being
of this country. Individual ingenuity ...spurred by the incentives
of the patent system, begin the process that results in improved
standards of living, increased ...productivity, creation of new
industries, improved public services, and enhanced
competitiveness of American products in world markets."
Today we see all around us the improved standards of living, increased productivity and new industries that President Reagan spoke of, springing from the work of inventors spurred by the incentives of the patent system.
It is the fees paid by these very inventors and their employers that fund the PTO. We believe that the PTO must have the freedom to commit all such fee income to improved services that will result in top quality examinations and quickly issued patents. These are the services that inventors pay for and are entitled to receive. We believe that it is damaging to inventors and to the continued well being of our country to deny PTO access to even a portion of these fees if the result is to limit the quality of PTO services or slow the issuance of patents.
The Section of Intellectual Property Law of the American Bar Association continues to support the principle that patent and trademark users' fees should be made available for the use of the PTO, and only for the use of the PTO, and that they should be made available for use as they are collected and as soon as they are collected.
The enactment of H.R. 3723, which specifically rejected a request for fee increases which would not have been made available to the PTO, was an excellent reflection of that principle, and we commend you for it. We also believe that the enactment of the American Inventors Protection Act of 1999 last November, and in particular Subtitle G giving the USPTO increased operational and budget authority, was a step in the right direction. We are disappointed that OMB and congressional budget and appropriations authorities do not interpret that enactment as freeing user fees from the tampering which we are addressing today.
As a result, we believe that more remains for you to do. Unless there is successful intervention to stop it, the budget process seems to set on a course of extracting a permanent annual surcharge of $115 to $120 million from PTO users each year above and beyond the amounts made available to run the Office. Regarding the best form for such intervention to take, I would simply repeat the recommendation offered two years ago by Roger Coe, one of my predecessors as Chair of the IPL Section. After recommending steps that you have already taken in adjusting the fee schedules, Mr. Coe stated:
... we urge you to structure fee and funding provisions
of the law within your jurisdiction so as to eliminate the possibility
that the revenue will be diverted. You are of course better able than
we to determine the measures that are most likely to be achievable and
effective. Making collections from user fees available to the PTO
without the necessity of being appropriated annually might be one
We understand that the Administration is considering recommending that Congress address these matters with some form of permanent authorization for the use of PTO user fees. We know that you will carefully consider any such proposal that is forthcoming, and we hope that you will move ahead toward a solution of your own initiation if needed. We stand ready to assist in any way we can.