Testimony

 

of

 

Nils Victor Montan

President

 

International Trademark Association

 

 

United States House of Representatives

Committee on the Judiciary

Subcommittee on Courts, the Internet and Intellectual Property

 

 

 

Oversight Hearing on the United States Patent and Trademark Office

 

               

 

June 7, 2001

 

 

 

 

Introduction

 

Good afternoon, Mr. Chairman. My name is Nils Victor Montan, and I currently serve as President of the International Trademark Association (“INTA”). I am employed by INTA member Warner Bros. as Vice President and Senior Intellectual Property Counsel.  As with all INTA officers, board members, and committee members, I serve on a voluntary basis.

 

INTA is pleased to be here today to participate in this hearing of the Subcommittee on Courts, the Internet and Intellectual Property in connection with its oversight of the United States Patent and Trademark Office (“PTO”).  In many ways, my comments serve as a follow-up to those offered to this subcommittee by my predecessor as President of INTA, Kim Muller, when he testified before you at the last PTO oversight hearing on March 9, 2000.¹ They address such topics as the diversion of PTO funds and the implementation of operational reforms put in place by the American Inventors Protection Act (“AIPA”).²  Additionally, I want to comment on programs at the PTO that are designed to do more work with fewer resources, on quality of examination, electronic filing, and the progress of the Madrid Protocol.

 

INTA is a 123-year-old not-for-profit organization comprised of over 4,000 member companies and firms.  It is the largest organization in the world dedicated solely to the interests of trademark owners.  The membership of INTA, which crosses all industry lines and includes both manufacturers and retailers, values the essential role that trademarks play in promoting effective commerce, protecting the interests of consumers, and encouraging free and fair competition.  The members of INTA, who routinely apply for and maintain trademark registrations, are the customers of the PTO.  INTA therefore has a strong interest in the agency’s performance and in working with the Congress, PTO officials, and others to ensure that the PTO can operate efficiently and in an effective, business-like manner.

 

Personnel, the Backlog, and Funding

 

At the March 2000 oversight hearing, emphasis was placed on the implementation of the AIPA, which reflected the approach of this subcommittee and the Senate Judiciary Committee in creating a more effective government agency.

 

A major part of the AIPA were provisions designed to allow the PTO to be run more like a private sector business, able to keep pace with customer demand through independent control of budget allocations and expenditures, personnel decisions and processes, and procurement.³  This means that government red tape, which had significantly affected PTO efficiency and operations in the past, was to be reduced to the bare minimum.

 

Personnel

 

Unfortunately, Mr. Chairman, the PTO continues to be hampered by governmental processes that the AIPA and this subcommittee’s efforts tried to reduce.  For example, the PTO was subject to a recent agency-wide Department of Commerce (DOC) hiring freeze despite a record-setting backlog of pending, unregistered trademark applications, which, as of April 2001 stood at 547,101.  This figure represents an increase from previous years.  In September 2000, the backlog number was 520,053.  In September 1999, it was 444,616.

 

The letter and spirit of your legislation gave the leadership of the PTO the authority to hire additional personnel on an as-needed basis.⁴  Although the hiring freeze has, for the most part, been lifted, we believe that subjecting the PTO to a hiring freeze at all was inconsistent with your intent and the language in the AIPA.  Nor was it justified in light of the backlog of trademark applications, and the fact that pendency for trademarks is still above the benchmark 3/13 levels.⁵   We hope that no new hiring freeze will be imposed on the PTO in the future and ask for your support in this matter.

 

Funding

 

We believe that the oversight goals of your subcommittee are also undermined when money derived from PTO fees and intended for the examination or maintenance of intellectual property is diverted to other government agencies and programs.  I am referring, of course, to the now annual diversion of PTO money due to “scoring” and limited appropriations allocations.  For FY 2002, the proposed figure is $207 million.⁶  Last fiscal year, the number was $113 million.⁷  The administration plans to withhold an average of $184 million per year through FY 2006.  When will this tax on the customers of the PTO end?

 

A private sector business does not have money taken away when there is still work that needs to be done, when, as is the case with the PTO, there is a backlog of unexamined trademark applications.  Nor should money be taken away when the PTO is trying to keep pace with the annual increase in applications through new technology.  INTA has been told that further development of TICRS, a scanning system designed to help keep better track of all documents submitted to the agency that relate to applications and registrations, may be delayed if funds continue to be diverted. With TICRS, instead of the labor-intensive, manual process of trying to track the physical location of hundreds of thousands of documents, an examiner will have instant, electronic access to all documents relating to a particular application or registration.  Not only does this reduce manpower needs, it helps alleviate the all too common problem of “lost” files and the subsequent delays this causes.  A delay in funding initiatives such as TICRS ultimately costs more than just time. A start-and-stop approach to systems development is highly inefficient, as people familiar with the project are pulled off their work and assigned to other tasks.  When funding is restored, new people become involved, and this disconnect increases costs and affects the quality of the technology being developed.

 

Mr. Chairman, I know that you, along with the Ranking Member, Mr. Berman, as well as the leaders of the full Judiciary Committee, Mr. Sensenbrenner and Mr. Conyers, are as disturbed by the habitual diversion of PTO money as are the customers of the agency who are the ones footing the bill.  You have acted above and beyond the call of duty when it comes to finding a solution to the problem.  INTA thanks you for your endeavors and hopes that you will continue to work with us to find a way to ensure that all the money raised through PTO fees stays with the agency.

 

You will no doubt be advised during the course of this hearing and in days and weeks to come that the proposed FY 2002 budget for the PTO will allow the agency to essentially “get by,” “to do its job,” that the money that has been assigned to the PTO by the president is “okay,” and that there is no cause for alarm. I respectfully state, however, that the PTO should have the tools to do more than “just get by” – to do better than just marginally keep its head above water.  The trademark community’s impression is that this was the intent of the AIPA.  Our collective goal should be to take that intent and make it a reality.  Let me also make the obvious point that there should be no fee increases at the PTO until this diversion problem is solved once and for all.⁸  That would add financial insult to financial injury. 

 

 

 

Doing More with Less

 

The PTO is being forced to do more with less, and the agency deserves praise for coming up with ideas that reflect that unwelcome reality.  For example, there is expansion of the  work-at-home program.  Ninety-one trademark examining attorneys now work at home, providing the examiners with more flexible hours.  Practitioners working on the west coast are apt to receive phone calls at 4:00 pm Pacific time from a work-at-home examiner who is taking care of business at 7:00 pm Eastern time.  This is indeed a step in the right direction. 

 

The PTO has also designed a bonus system for examiners, which is reportedly working very well in increasing productivity, as measured by the number of applications examined. Examiners can work overtime and earn up to $10,000 per year in bonuses.  There are also supplemental bonuses for mentoring new examiners and for maintaining quality of examination at an outstanding level.  PTO estimates that the new bonus system will result in a 10% increase in production, which is the equivalent of having 41 additional examiners. 

 

We have had some concerns that in the rush to examine more applications and earn the bonus, examiners may relax their quality standards. Senior PTO personnel have reassured us that for an examiner to receive a bonus, he or she must maintain a “fully successful” quality rating and that the supplemental bonus for quality is intended to help keep examination quality at a high level.  The agency has indicated that it is closely monitoring the connection between quality and the bonus program.

 

Quality of Examination

 

The quality of substantive examination of applications for registration of trademarks remains a significant issue for the trademark community.  Recently, members of the trademark bar have reported concern with the appropriateness of PTO actions refusing registration of trademarks based upon determinations by PTO examining attorneys that the trademark will either be confused with a prior trademark or one that has already been registered with the PTO, a basis for a refusal of registration under §2(d) of the Trademark Act of 1946, or that the mark is “merely descriptive or deceptively misdescriptive” of the goods to which it is being applied, a basis for refusal under §2(e)(1). The 2000 PTO customer satisfaction report, to our knowledge the most recent one that has been published, confirms that less than half of the respondents to the agency’s customer satisfaction survey were satisfied with refusals to register made under 2(d) and 2(e)(1).⁹

 

INTA’s PTO Subcommittee has been working with senior PTO officials, including those at the agency who manage trademark law offices, to try and improve examining attorney performance in the area of 2(d) and 2(e)(1) refusals. We believe that inappropriate refusals are related, to a certain degree, to a lack of experience on the part of examining attorneys.  Coupled with the lack of attorney experience was a very substantial increase in new trademark filings, which required the PTO to move new cases forward more rapidly.  We believe unseasoned employees and emphasis upon quick examination, at least in the first instance, has taken its toll on the quality of examining attorney work product.  To remedy this situation, we have made a number of recommendations, including the following:

 

·        Placing greater emphasis on consistency (i.e. establishing guidelines for evidentiary support for examiner action based on 2(d) and 2(e)(1) refusals).

 

·        Management/senior review of final refusals under 2(e)(1).

 

·        A formal refresher course on 2(d) and 2(e)(1).

 

·        Gathering and maintenance of data on substantive refusal issues that are then withdrawn.

 

·        Encouraging examiner consultation with a manager or senior lawyer in response to applicant request for reconsideration of position.

 

We hope that the PTO will adopt some or all of these recommendations.

 

Electronic Filing

 

INTA does indeed support greater use of the PTO’s e-filing system.  The benefits are clear.  Among them, an applicant for a trademark registration receives his or her filing receipt within 24 hours.  The filing receipt is also free from mistakes by clerical personnel at the PTO, since no additional data entry is required.  The filing receipt is identical to the data submitted by the applicant (or his attorney).  Additionally, use of the e-filing system means less paper and less of a chance therefore that the paper will be lost or misplaced, which is still a common problem at the PTO. 

 

The use of e-filing is increasing.  In FY 2000, 44,108 or 14.9% of the trademark applications were filed electronically.¹⁰ Figures for FY 2001 look promising.  In the first quarter alone, 12,800 or 21% of the applications were filed electronically.¹¹  The PTO’s goal is to reach 30% by the end of this fiscal year.¹²  I believe that trademark owners and their counsel are becoming more familiar with the system and its benefits.  The leadership of the PTO, especially Commissioner for Trademarks Anne Chasser and Deputy Commissioner for Trademarks Bob Anderson, must be complimented, not only for their efforts in educating the trademark bar, but for their responsiveness in addressing their customers' concerns regarding the electronic filing system and its capabilities.  

Additionally, we understand that the PTO continues to fine tune the system and upgrade its capabilities in response to comments made by the trademark bar.  

 

While INTA supports greater use of the PTO’s trademark e-filing system (commonly known as “TEAS”), we are not prepared at this stage to endorse a proposal to make e-filing mandatory.  Earlier this year, there was speculation that the agency was planning to propose a rule change that would create a mandatory e-filing system. Among the reasons offered in support of such a rule were:  (1) reduction paper in light of the increasing number of trademark applications; (2) reduction in space requirements; (3) lower pendency rate; (4) cost reductions; and (5) preparation for the implementation of the Madrid Protocol. 

 

As of this date, the proposed rule has not been published for public comment in the Federal Register.  I think this was a wise choice by the agency, since there would likely have been strong opposition.  Perhaps the projected slowdown in the increase in trademark applications,¹³ increased voluntary use of the e-filing system, and delays in passing the Madrid Protocol were also contributing factors to the decision by the PTO not to press mandatory e-filing at present. 

 

INTA could not agree more with the PTO’s reasons for wanting to see e-filing put to greater use by trademark practitioners. As I noted earlier, the benefits are obvious. In some quarters of the trademark bar, however, there are still concerns about the reliability of the PTO computer systems, especially with regard to transmission of specimens and stylized marks in electronic format.  Moreover, there is concern that the systems will not be able to handle the volume of e-filing applications under mandatory electronic filing. INTA's PTO Subcommittee has raised these and other issues with PTO personnel, and my understanding from reviewing the agency's responses to these concerns is that upgrades have been made to the system and that it is routinely monitored for performance and capacity.  I urge the PTO to make better known to the trademark bar the enhancements that have been made to the e-filing system and the steps that the agency is taking to ensure its reliability.  Certainly, INTA will assist the PTO in this communications effort.

There are also lingering issues about signatures on an e-filing document. The reports that I have received from some trademark practitioners concern logistical difficulties in getting a client’s signature using the e-system.¹⁴  First, a practitioner has to go on to the PTO website, fill out the e-form, download it, send it to the client to sign, and then get it back onto the PTO site for transmission.  For some practitioners, it is simply easier to do things the “old-fashioned” way by filling out the form, faxing it over to the client for a signature, and then sending it to the PTO via regular or express mail. 

 

We do know that the PTO is looking at ways to simplify the process for obtaining a signature on e-documents.  There are two prototypes in development:

 

 

·        Under the first prototype, the applicant will be able to access the application form directly from a hyperlink included in an e-mail generated upon completion of the form by the trademark practitioner.

 

·        The second prototype allows the trademark practitioner to complete the e-application, print out a hard copy and forward it to the applicant for a traditional pen-and-ink signature.  The practitioner can then scan the application once it is returned and affix it to the original e-version of the application.  The complete trademark application may then be validated and filed electronically.

 

INTA is hopeful that these new innovations will be successful, thereby increasing the use of the e-filing system.

 

If in fact the new signature innovations are not successful in eliminating difficulties in electronic filing, the INTA PTO Subcommittee is prepared to examine whether changes to document signature requirements should be considered, including exploring the possibility of eliminating signature requirements.¹⁵  I want to stress that our subcommittee has not made any recommendation to the INTA Board of Directors concerning signatures.  We do not know whether this change is a good idea.  The INTA PTO Subcommittee plans to canvass the association's membership during the summer and fall to see if elimination of the signature requirement is possible under the present statutory and regulatory scheme, and what effect, if any, elimination of signatures on documents might have on trademark owners.  Of course, if INTA determines a recommendation to eliminate signatures is appropriate, that change may require legislative action, and INTA will work with this subcommittee in that regard.  

 

Madrid Protocol

 

Before concluding my statement, Mr. Chairman, I want to reiterate INTA’s desire to see the Madrid Protocol passed during the 107^th Congress.  We know that you have successfully passed the implementing legislation here in the House¹⁶ and have been encouraging the Senate to follow suit, as well as pass an “advice and consent” resolution.¹⁷  At present, the Senate implementing legislation is awaiting consideration by the Senate Judiciary Committee and the “advice and consent” resolution by the Foreign Relations Committee.

 

INTA thanks you for your efforts, Mr. Chairman, in striving to secure U.S. adherence to the Madrid Protocol and ask that you continue along the same path. There is no reason why the U.S. should not join other major industrialized countries such as France, Germany, Italy, Japan, and the United Kingdom in enjoying the benefits of the Madrid Protocol.  The Protocol saves time and money and will permit United States trademark owners to go to market with their goods and services more quickly in the 51 countries that are currently members of the Protocol.  It should be made available here in the United States as soon as possible.

 

Conclusion  

 

Thank you again, Mr. Chairman, for the opportunity to assist in the subcommittee’s oversight of the PTO.  The PTO plays a critical role in promoting, safeguarding, and maintaining America’s ingenuity and creativity so that the nation can continue to enjoy a robust economy and be a leader in the global marketplace.  INTA looks forward to working with this subcommittee to ensure that the PTO has the necessary resources and flexibility to do its job.

 

House Rule XI Disclosure

                                                                                                                       

 

 

Pursuant to House Rule XI, clause 2(g) (4), the Subcommittee is hereby informed that the International Trademark Association has received no federal grant, contract, or subcontract in the current and preceding two fiscal years.

 

 

 

 

Nils Victor Montan is Vice President, Senior Intellectual Property Counsel at Warner Bros., a division of Time Warner Entertainment Company, L.P.  In this position, Mr. Montan has been responsible for protecting all aspects of the studio’s intellectual property. 

 

Mr. Montan is presently the President of the International Trademark Association and a former Chairman of the Board of Directors of the International Anti-Counterfeiting Coalition.  In addition, he has been a member of the adjunct faculties of the law schools at the University of Southern California, the University of California at Los Angeles, and Loyola University.

 

Mr. Montan is the author of a recent monograph on trademark counterfeiting published by the International Trademark Association entitled “Trademark Anti-counterfeiting in Asia and Pacific Rim.”

 

Mr. Montan received his BA from Cornell University.  He received his JD from the Washington College of Law at American University and an LL.M from the University of Virginia School of Law.