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STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION BEFORE THE SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY UNITED STATES HOUSE OF REPRESENTATIVES OVERSIGHT HEARING ON THE UNITED STATES PATENT AND TRADEMARK OFFICE MARCH 19, 1998 Mr. Chairman: The American Intellectual Property Law Association (AIPLA) appreciates the opportunity to present its views on the state of the United States Patent and Trademark Office (USPTO). The AIPLA is a national bar association whose nearly 10,000 members are primarily lawyers 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 practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property Introduction The AIPLA wants the United States Patent and Trademark Office to be the best patent and trademark office in the world. The prompt issuance of strong patents is critical to our Nation's inventors and companies. Early accurate indications regarding the registrability of trademarks and service marks is essential for the protection of American consumers and businesses. These goals can only be accomplished if the USPTO is adequately funded to hire, train, and properly equip the examiners needed to expeditiously process the applications filed each year. In addition, the Office must be properly managed so that problems can be identified early and corrective action taken promptly. As we have testified before this Subcommittee, the enactment of H.R. 400 which would transform the PTO into a government corporation would go far towards accomplishing these goals. In particular, the elimination of arbitrary ceilings on the number of employees, the reduction of bureaucratic red tape and the establishment of Management Advisory Boards to oversee the operation of the Office would significantly improve the performance of the USPTO. In addition, the separation of the policy responsibilities and the operational responsibilities as called for in H.R. 400 will strengthen both. Assistant Secretary Lehman has taken intellectual property from the backwaters of the government policy making machinery to the center of the world stage. But while he is occupied in this vital role, there is another more-than-full-time job running what amounts to a medium-sized corporation that is demanding his time and attention. The two roles simply must be divided. In the absence of the final enactment into law of Title I of H.R. 400 or its Senate counterpart, this hearing is particularly timely. USPTO Funding The most critical problem facing the USPTO is inadequate funding caused by the continuing diversion of user fees for other unrelated programs. In his FY 1999 budget, the President proposes to rescind $116 million in USPTO fees for deficit reduction. This is in addition to the $235 million in patent fees which will already have been diverted through the end of this fiscal year. This problem has been exacerbated by delays in processing the fees received and by exaggerations of the impact of the fee diversion on the operations of the USPTO. Moreover, as I will discuss in greater detail later in my statement, there does not yet appear to be a system in place to accurately forecast the revenue the Office needs or will receive. One year ago, the President proposed withholding $92 million from the $119 million in surcharge fees the Office expected to collect. In its FY 1998 Corporate Plan, the Office stated that it expected to receive $629 million in base fees and $27 million from the surcharge fees. To accommodate this diversion of resources, the USPTO stated that it would: "Freeze the hiring of patent examiners. This will retain the current cadre of patent examiners, but will not fill any examiner slots that come open through normal attrition. The four percent expected growth in patent applications will be added to the applications awaiting examination on a first-in, first-out basis." The USPTO expected the number of patent disposals for FY 1998 to decrease from FY 1997 levels and the number of patent examiners to drop from 2016 to 1843. The out-years of the President's FY 1998 budget proposal indicated that the entire surcharge of $119 million would be withheld for FY 1999 through FY 2002. The USPTO estimated that this would result in pendency rising to 42 months by the end of FY 2002. The members of AIPLA were, to put it mildly, outraged at the prospects outlined by the USPTO for the health of the patent system. We made an all-out effort to contact our Congressional representatives to protest the President's budget proposal. You, Mr. Chairman, introduced legislation, H.R. 673, to stop the diversion of patent fees beginning in FY 1999. This measure was folded into H.R. 400 and adopted by the House last May. It may be that our pleas to stop the diversion of user fees had some effect because it appears that Congress has decided to allow the legislation creating the surcharge to lapse at the end of this fiscal year. However, the Appropriations Committees adopted a new strategy to prevent the USPTO from receiving all of its fee revenues. In past appropriation acts, the USPTO was allowed to collect and spend base patent fees and trademark fees without any limit. This is only logical since the revenue generated by such fees is paid by users to cover the costs of the products and services they request. To restrict the Office from using this revenue means either that some product or service for which an individual has paid will not be timely or accurately delivered or that the fees charged will be higher than they should be. Neither alternative is acceptable. With the probability that the surcharge would sunset, the Appropriations Committees adopted the strategy of capping the amount of fees the USPTO could spend. While the House Appropriations Committee did not cap the USPTO's appropriation, thanks Mr. Chairman to you and Chairman Hyde, the Senate did impose such a cap and the House ultimately accepted it. The existence of this cap is taken advantage of in the President's budget proposal to transfer $66 million from FY 1998 to FY 1999 as part of the $116 million rescission I mentioned earlier. With the sunsetting of the authority to impose a surcharge on the base patent fees, the patent fees will drop to the levels set by Congress in FY 1991 plus the cumulative CPI adjustments made since then. It is our understanding that this will result in the Office receiving $182 million less in revenues in FY 1999. To compensate for this, the Administration is proposing to adjust the base or statutory patent fees. If this fee increase is adopted, the USPTO estimates it will receive $836 million in patent and trademark fees in FY 1999. With the $66 million from FY 1998, the total funds the USPTO could have available in FY 1999 is $902 million. However, the President's budget, taking a page from the Congressional appropriators, proposes a cap on the USPTO's ability to spend its fees in FY 1999 -- this is the first time the President has proposed a cap since the Office was permitted to directly spend its fees in 1983. The cap is $786 million. The difference, $116 million, is "to be returned to the Treasury for deficit reduction," a euphemism for using USPTO fees to fund other, unrelated government programs. Since $66 million of the $116 million comes from FY 1998, this means that $50 million of fees collected in FY 1999 will be diverted to fund other parts of the government. Stated in other words, the President is proposing to raise fees by $182 million in order to siphon off $50 million for other programs. This is a $50 million tax on innovation. Mr. Chairman, the AIPLA urges this Subcommittee to not enact a fee increase at the level the Administration is proposing. There is no acceptable justification to raise patent fees solely for the purpose of funding other government programs. We believe that any patent fee increase should be limited so as to raise no more than a total of $132 million, the amount of FY 1999 fee revenues that the President's budget proposes to allow the USPTO to use in FY 1999 to provide the products and services for which the fees will be paid. In urging this course of action, we particularly note the statement in the President's budget that "If the PTO legislative proposal to revise patent fees is not enacted into law, then the Administration will need to reduce the proposed rescission." We would urge that the Congress help the Administration make this statement a reality. There are two additional reasons we oppose the full increase proposed by the Administration. I mentioned the dire consequences the USPTO indicated would occur with the diversion of $92 million in the current fiscal year. The hiring of patent examiners would be frozen, patent pendency would climb, etc. In fact, the fees were diverted, but the USPTO now plans to hire 650 additional examiners this fiscal year. Instead of a patent examining staff of 1,843 as projected in the FY 1998 USPTO Corporate Plan, the Office now projects a year-end staff of 2,561 -- a 39% increase over the FY 1998 Corporate Plan. We are not unmindful of the difficulties caused by unexpected fluctuations in filing rates, by changes in the level of payments of maintenance fees, and by arbitrary budget restrictions. We were informed that the Office is seeking to improve and make transparent its forecasting techniques to produce more credible estimates. To that end, we agreed with the Office that it would be useful to contact firms that file large numbers of patent and trademark applications to learn more about their plans for the coming years. However, until the Office can provide its users and the Congress with more accurate and reliable projections, we have some hesitations about acceding to the full fee increase proposed. If ever a case was made for Title I of H.R. 400, this is it. We believe it is critically important to transform the PTO into a government corporation headed by a chief operating officer appointed for a fixed term with adequate and predictable funding, and oversight by a Management Advisory Board of users. In the absence of that objective, however, we applaud the oversight efforts of this Subcommittee. Until we can rely on the operational and financial information published by the USPTO, we should approach any proposed funding increase very cautiously. In addition, Mr. Chairman, as you know, AIPLA has been spearheading an effort to reduce the costs of patenting. We have sponsored two international symposia on this topic attended by representatives of national, regional and international industrial property organizations as well as bar and trade associations from around the world. We will hold a third symposium in June. We have seen substantial reductions in the fees of the European Patent Office, in the fees of the Patent Cooperation Treaty, in the fees of the Australian Intellectual Property Office, and Japan has indicated that it will lower its fees. All of these fee reductions have the effect of reducing the use of patent fees for unrelated programs or for simply building cash reserves. The United States, which has the most to gain from lower patenting costs worldwide, should lead by setting the proper example. PTO Operations In preparing for this hearing, we attempted to survey as many users of patent and trademark services as we could to provide you with a snapshot of the current operations of the USPTO. To be entirely candid about it, time did not permit us to conduct as extensive a survey as we all would have liked, but we do believe that our findings paint a roughly accurate picture of the current status of the services of the Office. In addition, the President of AIPLA and the Co-Chairs of our Relations with the USPTO Committee met with Commissioner Lehman and several of his senior managers to report our findings and learn what the Office is doing to address the problems. I would like to emphasize that we met with the Commissioner to share what our members reported and to work constructively with the Office to improve its operations. I will outline for the Subcommittee what we reported to the Office as well as what corrective actions the Office indicated it is taking. Having spent over thirty years in the USPTO, I have a very strong belief that no one should provide a critique of the Office to the Congress without first giving those in charge the opportunity to respond. Patents There appear to be several problems in the initial processing of patent applications. Filing receipts, which contain bibliographic information such as the name of the inventor, the serial number of the application, filing date, examining group location, etc., are late and inaccurate. Delays from filing to receiving a filing receipt of up to five and six months were said to be common. Errors such as the wrong filing date, omission of an inventor's name, wrong application number, etc. were reported to exist in almost half of the filing receipts, and there were a substantial number of errors in corrected filing receipts. These errors cause additional work for both applicants and the USPTO even though requests for corrected filing receipts are largely ignored. Where applicants provide a self-addressed post card to learn more promptly the serial number of the application, there are also delays and errors such as a postcard containing two different application numbers or two different postcards having the same application number. Again, correcting these errors causes additional work and expense for both applicants and the USPTO. The Office is aware of these problems and indicated they are addressing them on two fronts. First, an effort has been initiated to better train the contract support personnel handling the initial processing of applications and a new contract will have a goal of mailing filing receipts within 30 days by June. Secondly, the Office is planning to automate more of the initial processing using standardized forms which can be scanned into the Office's database. Other problems in the initial processing included delays of five to six months to complete the formalities review of new applications. Also, in biotech cases, where the Office requests data on computer discs, several individuals mentioned careless handling of the discs. One person reported that of 11 applications submitted with computer discs, the PTO could not locate the disc for 10 of those applications. Finally, applicants reported delays in obtaining certified copies of their applications which they need to claim the filing date of their U.S. applications when they file abroad. The USPTO indicated that they would look into alternatives for processing the discs and plan to be providing certified copies within 17 days of request by May or June. One last aspect of the initial processing involves unprocessed requests for products and services. At the end of FY 1997, there was $87 million of unprocessed work -- paid for by $59 million in checks and $28 million in charges to deposit accounts. A large part of this stemmed from a backlog of 6 to 8 weeks in processing checks and charges to deposit accounts associated with new applications and issue fee payments. To its credit, the USPTO reported this problem and has increased the resources applied to processing these orders. The Office has established a goal processing this work within 10 days of receipt by year's end. Turning to the patent examination process, we found some concern that the transfer of applications within the USPTO to achieve a better balance between workload and staffing appeared to be causing a problem, e.g., biotech examiners reportedly examining semi-conductor applications. On a positive note, several individuals expressed the belief that the technical training and ability of examiners has improved. Also, several people noted that examiners evidence a greater willingness to work with applicants and their attorneys in helping to identify patentable subject matter. On the other hand, concerns were expressed that examiners were unnecessarily requiring applicants to restrict their applications to only one of an alleged plurality of inventions, sometimes to simply make it appear that work was being done on the application. In addition, they sometimes include reasons for the allowance of claims in the files of applications that do not serve to clarify the record. A number of individuals expressed concern about the growing delays in obtaining decisions at the Board of Patent Appeals and Interferences. It is now taking two years or longer, particularly in the area of biotechnology, to obtain a decision on an appeal of an examiner's rejection and even longer in interferences. USPTO officials acknowledged that pendency at the Board was a serious problem and that they were taking steps to address it. Problems were also noted in the patent issuance process. Delays are growing in the time between payment of the issue fee and the actual printing of the patent. Where applicants are required to submit new drawings for purposes of patent printing, difficulties are experienced in getting the drawings matched with the proper application. There were a number of reports of new drawings being lost, resulting in the need to make and submit a further new set of drawings. In cases where an applicant discovers information affecting the patentability of an allowed application and petitions to have it withdrawn from issue, it was reported that it is often not possible to obtain prompt action. A growing problem is that of the Office losing papers or files and not properly or promptly associating papers with the correct file. One examiner reportedly asked to have a copy of correspondence sent to his home so that he could be sure to match it with the file. The inability to associate papers with files is particularly noticeable for papers filed after an application is allowed. Some patent examining groups are reportedly reluctant to send files to the file repository because they cannot be retrieved in a timely manner, if at all. The USPTO noted that beginning next month the examining groups will hold allowed applications until the issue fee is paid which should improve matching papers with files in those groups which are currently doing an acceptable job of matching papers. In addition, the PTO has leased a large warehouse in northern Virginia and is currently installing the shelving to be able to file applications serially which should relieve the repository problem. Trademarks Similar to the situation in the patent operations, there were reports of delays in receiving filing receipts for trademark applications and a high rate of errors in the filing receipts when received. Also similar to the situation in the patent operation, lost files appear to be a continuing problem. The PTO indicated that it has started using a new technology called "Trade Ups" which is a precursor to electronic scanning of applications to generate filing receipts. By May, accurate filing receipts should be issued in less than 30 days. A pilot program of electronic scanning will be started in April with the hope of full implementation by June. Regarding lost files, the Office indicated that its new electronic filing system should alleviate the problems, although it will be some time before the system is fully implemented. As might be expected, however, both of these programs have confronted some technological issues and the need for training, but the USPTO indicated it is working through these problems. In addition, the user community needs to take advantage of this technology as well. One of the most serious problems identified by our members is the unacceptably long time it takes to obtain a first opinion on the registerability of a trademark. The goal is three months from filing, and it currently takes more than six months. The USPTO confirmed that the average trademark pendency to first action was over 7 months and in some instances approached 8 months. The problem was said to be the inability of the Trademark Examining Operation to hire examiners to keep pace with the substantial increase in applications. While the restriction on hiring has now been lifted and a number of new examining attorneys will be hired, lack of space to house new examiners has become a problem. The Trademark Examining Operation just acquired 45,000 sq. ft. which will alleviate the space problem, but the related moves will take several months. The bottom line is that the Office does not expect to achieve 3 months pendency to first action until the end of FY 1999. Another difficulty involves the identification of goods and their classification in trademark applications. Trademark applicants are required to identify the goods with which their marks will be used and the class of the NICE International Trademark Classification in which they fall. This impacts both examination and the fees to be paid. Members reported that trademark examiners will suggest an initial goods identification and/or classification in the first action and then change their minds in a second action, and sometimes in a third action. This results in dropping and adding classes which results in additional fees. It can also result in republication of marks with the attendant delays. The USPTO acknowledged that this should not be happening and that it would be discussed with the managers in the trademark operation. On other points involving the failure of trademark examiners to enter corrections and changes of address into trademark applications and the problem of matching papers to the correct file, the Office indicated that it was looking into solutions such as using databases of addresses and the bar coding of papers. Finally, a number of instances were reported of applications improperly being declared abandoned due to the failure to match papers that were timely filed with the file. This results in time and expense to applicants, who must apply to have their applications re-instated. The USPTO is aware of this problem, and indicated it was taking steps to solve it. Overall, we were very pleased with the reception we received in discussing the problems in the patent and trademark operations with the USPTO. As I indicated at the outset, the problems outlined were identified from informal discussions with as many people as possible given the time constraint. While we believe that these problems are genuine, we do not wish to over-dramatize them. The fact that the Office personnel acknowledged many of these problems and is working to correct them is gratifying. We believe it would be useful to have a similar oversight hearing next year to evaluate the progress the Office has made. USPTO Space Needs The USPTO is currently housed in seventeen buildings located in the Crystal City complex in Arlington, Virginia. These buildings range in age from the late 1960s, when the USPTO first moved to Crystal City, to the mid-1980s. Few of these buildings were constructed for modern electronic communication networks that will facilitate the electronic search systems that examiners will increasingly use. In addition, the buildings, far from being contiguous, stretch out through a one-half mile corridor in Crystal City creating considerable lost productivity as the employees traverse between and among the various buildings. AIPLA members interact with patent examiners, trademark examiners and their clerical support staff on a daily basis. They observe that many of these employees are forced to work in cramped quarters with inadequate furnishings and equipment. Many examiners, now forced to share rooms, are denied the privacy they need to efficiently search and examine patent and trademark applications and to consult with applicants regarding prosecution issues. And as previously noted, the Trademark Examining Operation is seriously hampered by the lack of space to even house the new examining attorneys. Quite simply, all examiners should have private offices. Against this backdrop, AIPLA believes that the USPTO should acquire the space needed to properly serve its customers as we enter the 21st century. At the same time, since we, the users of the patent and trademark systems, will pay for the costs of any facilities leased by the USPTO, we have attempted to develop a set of guidelines against which any new space acquisition should be measured:
The Solicitation for Offers (SFO) published by the USPTO seems to generally comport with these guidelines. Accordingly, AIPLA believes that the solicitation should proceed under the watchful eyes of this Subcommittee and the user community. We are aware that Congress has been besieged lately with correspondence from various interests opposing the effort by the USPTO to acquire adequate, modern space for its employees. These communications have emanated from the National Taxpayers Union which is apparently unaware that no taxpayer funds will be used for the lease of any new USPTO facility. Other complaints have been raised by one USPTO employee union (two others are reported to have approved the effort to obtain new facilities). Many of the criticisms made by these organizations appear to be similar to comments given to AIPLA last August by the law firm representing the current principal landlord of the USPTO which is also one of the four finalists in the USPTO procurement. A number of allegedly extravagant aspects of the facility requested in the SFO are highlighted by those opposing the new facility. For example, it is indicated that high-priced programmable lighting systems will be required; lavish granite, hardwood and marble surfacing materials in the elevator surrounds will be required; etc. When these allegations were first brought to our attention in the summer of 1997, we asked that they be committed to writing. We then invited USPTO officials to respond to these claims and invited staff members of both the House and Senate Judiciary Committees to listen to the explanations along with us. The USPTO officials responded, for example, that programmable lighting systems are common features of modern office space and will conserve energy costs. They noted that quality surfacing materials can be found in the lobbies of most contemporary office buildings and specifically in the newer buildings currently occupied by the USPTO. In fact, the buildings currently occupied by the USPTO are, in the view of AIPLA members, by no means lavish. Alarm has also been expressed that the SFO calls for the expenditure of $88 million to outfit and finish the interior of a proposed new facility. In reality, the SFO could have called for an entirely completed facility which would have allowed build-out costs much lower than $88 million; however, the SFO calls for the lessor to provide a building shell which will then be completed according to USPTO specifications so as to better serve the needs of the Office. For example, the USPTO indicated that the standard in their build-out for individual office sizes for examiners will be 120 square feet -- this is a 20% savings over the room sizes in the current facility. The most telling aspect of the SFO in our judgment, however, is that all of the space is to be made available within the Congressionally-imposed prospectus limit (in FY 1998 dollars) of $25.41 per square foot. The elevator decor, programmable lighting, and the $88 million in build-out must all be provided within that $25.41 per square foot rate. We are informed that the current Crystal City space of the USPTO averages $26 per square foot and that the recent space acquired to accommodate the expansion of the Trademark Examining Operations costs $30 per square foot. Finally, some have attempted to cast the space acquisition in a negative light by referring to the construction of a $1.3 billion dollar building and using terms such as "boondoggle." Two points should be made. First, the USPTO is not purchasing a building, it is seeking to lease a building. Second, the Office will pay approximately $1.3 billion in rent over the next 20 years whether they stay in their current space or move to new space. Thus, this bandying about of a large figure has little to do with space acquisition. While the criticisms which have surfaced to date do not persuade us that the space acquisition process should be delayed, one word of caution is in order. In its SFO, the USPTO is seeking to lease 20% more space than it currently occupies. This is proportionately far less than the projected percentage increase of the USPTO workforce by the time the Office would occupy the facility in FY 2002. We understand that part of the reason for this difference is that the USPTO anticipates that examiners' paper search files will not be moved to the new facility. While we endorse full implementation of Automated Patent Searching as soon as possible, we would suggest that contingency plans be made to cover the possibility that some or all of the examiners' paper search files may have to be moved. We understand that the USPTO is currently attempting to calculate the total cost for moving the USPTO from its current location to the other potential locations. This is a factor that obviously needs to be taken into consideration since the moving costs will obviously affect the costs to users over the 20-year life of the lease and this information should be made available to users promptly. We do not, however, believe that the solicitation should be delayed or sidetracked based on all of the information that we currently have available to us. The AIPLA appreciates the efforts of the Subcommittee to continually monitor and review the activities of the USPTO. We look forward to a continuing dialogue with both the Subcommittee and with the Office on the patent and trademark operations and we pledge our continuing cooperation to make the United States Patent and Trademark Office the best in the world. |