Mr. Chairman:
I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on the “United States Patent and Trademark Office Fee Modernization Act of 2003.”
The AIPLA is a national bar association of some 14,000 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 said last year that the United States Patent and Trademark Office (PTO) is in crisis. We believe it remains in crisis. The viability of our nation’s patent and trademark systems has been steadily eroded over the last decade. The Executive Branch and the Congress have participated in diverting fee revenues from the PTO since 1992. To date, over $650,000,000 in patent and trademark fees paid by PTO users have been diverted from, rescinded, or made unavailable to the Office. Quality has suffered. Large and small companies are increasingly being subjected to litigation (or its threat) on the basis of questionable patents. Patent applicants are encountering longer delays in obtaining protection for valuable new technologies. Until the sharp decline in the filing of trademark applications, delays in obtaining trademark registrations were hampering the marketing efforts of large and small businesses, increasing uncertainty in the marketplace. And while over half of all trademark applications are now filed electronically, only a fraction of patent applications are filed electronically, and neither patent nor trademark applications are currently processed electronically through the Office.
At the Oversight Hearing which the Subcommittee held on April 11, 2002 on the “The U.S. Patent and Trademark Office: Operations and Fiscal Year 2003 Budget,” AIPLA testified that achieving a strong and effective Patent and Trademark Office would require focusing on three critical objectives: quality, timeliness and improved electronic filing and processing capabilities. AIPLA expressed its support for the top-to-bottom review of the operations which Under Secretary Rogan had undertaken, as well as the strategic planning process that the Congress and the user community had been requesting for years. While we reiterated our strong opposition to any diversion of patent and trademark fees, we stated that we would support a reasonable statutory fee increase to implement a five-year plan that would achieve the goals that the PTO, Congress and we seek.
On June 3rd, the PTO released its original 21st Century Strategic Plan and fee legislation to implement it. AIPLA found a number of positive features in the Plan and fee bill. Central to the original Strategic Plan’s approach for improving quality and reducing pendency of patents was a “Four-Tracks Patent Examination Process” which would base patent examination by PTO examiners on patent searches conducted by private firms and foreign patent offices. By using patent searches from these other sources, the PTO hoped to off-load search work from examiners, allowing them to concentrate on the core government function of examination. An 18-month deferred examination system was an integral feature of the Four Tracks system.
We stated then and we reiterate now: were AIPLA given a blank sheet of paper, we certainly would not have opted for the Four Tracks system. In the abstract, we believe that separating search and examination makes no sense. This requires two individuals to familiarize themselves with the details of the invention—one to search and the other to examine. That is not as efficient as having one person responsible for both search and examination. The one office with the most experience with separate search and examination, the European Patent Office, is abandoning this approach in favor of having one person perform both functions—the way the PTO currently does.
But AIPLA approaches the evaluation of the PTO’s operational changes in the real-world context in which it has been proposed. Notwithstanding the fact that the United States patent examination system has been developed and perfected over a two-hundred-year period, we recognize that the PTO has to work in a system of constraints imposed by the Executive Branch and the Congress. While the PTO could continue to pursue a more traditional approach of asking for increased examiner resources to improve quality and reduce pendency, neither the Executive Branch nor the Congress are going to listen. Congressional appropriators have made it very clear that they demand a new approach, one that seeks other ways to tackle these problems. So we could argue for the old way and watch the system continue to deteriorate. Instead, we choose to work with the PTO to develop alternative ways to address the problems, ways that might gather the needed support. As we stated in our earlier testimony, we can either curse the darkness or light a candle. AIPLA chooses to light a candle.
AIPLA found that the original Strategic Plan contained several desirable innovations. We endorsed initiatives to:
All of these initiatives will enhance patent quality. We also endorsed charging claim fees that would ensure that applicants pay the actual costs of processing applications containing large numbers of claims.
At the same time, there were a number of features in the original Strategic Plan that we found objectionable. One of these was the notion of implementing permanent, statutory, deferred examination for a period of 18 months as included in the PTO’s proposed Four-Tracks system and the accompanying fee bill. We believed then, and still believe now, that the benefits projected by the PTO for itself and patent applicants were outweighed by the resulting extended period of uncertainty during which the public would be left in the dark regarding whether a patent will issue or what its scope will be. We also opposed requiring an applicant to select a Certified Search Contractor to perform the initial prior art search and provide the results to the PTO. In our view, the PTO must remain responsible for ensuring the adequacy and scope of the search results returned by the contractor.
We found the proposal by the PTO to have applicants pay increased excess claim fees to fund the extra work such claims might entail to be punitive in nature and unrelated to the actual amount of extra work involved. Similarly, we found the surcharges the PTO proposed to levy on applications merely because they contain claims that were patentably indistinct from claims in other applications from the same applicant would severely penalize applicants who are not seeking to game the system.
During the months following the release of the original Strategic Plan and fee bill, AIPLA met with PTO officials to explain our concerns and to work with them to find acceptable alternatives. We would like to commend Under Secretary Rogan and his staff for the manner in which they engaged in the effort to achieve the quality, pendency, and e-filing goals in a manner that addressed our concerns.
On October 24, 2002, AIPLA joined with the Intellectual Property Owners Association (IPO), the International Trademark Association (INTA), and the Biotechnology Industry Organization (BIO) in a letter to OMB Director Mitchell E. Daniels, Jr. to express support for the efforts of the United States Patent and Trademark Office (PTO) to address the crisis situation facing the patent and trademark systems (a copy of that letter is attached). We stated that the 21st Century Strategic Plan developed by Under Secretary Rogan represented an innovative and ambitious program to enhance the quality of patents and trademark registrations, to reduce the unacceptably long and growing times it takes to obtain them, and to achieve efficient, reliable, and user-friendly electronic filing and processing of patent and trademark applications. While we listed our reservations about certain details of the Plan, we indicated our full support for the goals that the Plan seeks to achieve. We also indicated our willingness to support an increase in funding necessary to implement those portions of the Strategic Plan we endorsed, where their effectiveness was proven by appropriate testing and pilot projects. We emphasized, however, that our support was contingent on the Executive and Legislative Branches effectively addressing the issue of diversion and that we would strongly oppose any fee increase not accompanied by an appropriate solution to diversion.
On November 22, 2002, AIPLA joined with IPO and INTA in another letter to OMB Director Daniels to report that, in light of proposed refinements to the Plan then recently shared with us by Under Secretary Rogan, we whole-heartedly endorsed the Plan (a copy of that letter is also attached). The three organizations recognized that the PTO would need additional resources to implement its Plan and, in that regard, discussed patent and trademark fee increases with the PTO that, with projected workload increases, would generate $1.5 billion in FY 2004. We stated that, with proposed refinements to the Plan, including testing and evaluation before deployment where appropriate, we were fully prepared to support a statutory fee increase of this magnitude so that the PTO could promptly and fully implement the Plan. Again, we reiterated that our support was based upon the assumption that the Bush Administration would effectively address the issue of diversion, noting that our members would insist that we strongly oppose any proposed fee increase that does not include an appropriate solution to diversion.
On February 4th of this year, the PTO published an Executive Summary of its revised Strategic Plan and a new fee bill to support it. The first question that must be addressed is whether the new fee bill should be supported given the size and nature of the proposed fees (which will raise $1.504 billion), the level of diversion recommended in the President’s Budget ($100 million) and the assurances given by Executive Branch officials to work toward limiting and/or eliminating diversion. As previously noted, the amount of fee revenue that would be raised by the revised fee bill ($1.504 billion) is in line with what we and our sister organizations indicated would be acceptable in our November 22nd letter.
A Department of Commerce (DOC) press release on its FY 2004 budget contained the following language addressing the issue of diversion:
The President has reduced the annual practice of "fee diversion,” under which a portion of the United States Patent and Trademark Office’s (USPTO) fees are not available to the agency in the year they are collected-by nearly 50% in the Administration's Fiscal Year (FY) 2004 Budget. This bold step is being taken as part of Secretary Evans' efforts to create the conditions for economic growth and continued technological leadership by working to eliminate the practice of using USPTO revenues for unrelated federal programs.
A PTO press release offered the following comments:
“The President has reduced the annual practice of fee diversion by nearly 50 percent in the Administration’s Fiscal Year 2004 Budget,” noted Under Secretary James E. Rogan. “This bold step is being taken as part of Secretary Evans’ efforts to create the conditions for economic growth and continued technological leadership by working to eliminate the practice of using USPTO revenues for unrelated federal programs.”
On March 6th, in testimony on the Department of Commerce’s FY 2004 budget before the Commerce, State, and Justice Subcommittee of the House Appropriations Committee, Commerce Secretary Don Evans stated:
To support technology innovation and provide for intellectual property protection, the Department is working to eliminate the practice of using USPTO revenues for unrelated federal programs. Making more fees available sooner will enable the agency to increase the quality of patents and trademarks issued.
Finally, on March 20th, in testimony on the Department of Commerce’s FY 2004 budget before the Commerce, State, and Justice Subcommittee of the Senate Appropriations Committee, Secretary Evans stated:
The Department is also working to eliminate the practice of using USPTO revenues for unrelated Federal programs so that a greater share of the applicants’ fees are available to the agency in the year that they are collected.
While these statements are not as unequivocal as we would have hoped, and were made in the context of an FY 2004 budget that expressly provides for diversion, this is the first time since diversion began in the 1990’s that DOC and PTO officials have publicly stated an intention to work toward its elimination. Accordingly, while the President’s Budget does not recommend an end to diversion, and Executive Branch officials have not set any date for eliminating diversion, AIPLA nonetheless understands that some real progress has been made on the diversion front. PTO and DOC officials have obviously listened to the concerns expressed regarding diversion and have made an effort to respond. AIPLA therefore supports the enactment of a fee bill along the lines of the revised fee bill released on February 4th, but, based on the information available to us at this time, does so only with three important caveats.
1. Sunset Provision
First, any fee bill enacted must have a “sunset.” AIPLA and other user groups have discussed various forms of sunset provisions in the past, but these were tied to the level of appropriations the PTO received relative to the amount of fee revenue the fee bill would generate. AIPLA now believes that the sunset provision need not be linked to the level of diversion. The sunset provision we now advocate would be a simple sunset provision that would automatically revert the revised fee schedule to the current fee schedule after three years unless extended by the Congress. This would give the PTO and the DOC three years to continue the effort they have initiated to reduce and/or eliminate the diversion of PTO fee revenues in the President’s Budget. Equally important, this would give the PTO and the DOC three years to convince Congressional appropriators to reduce and/or eliminate diversion. In the final analysis, the elimination of diversion is ultimately in the hands of the Congressional appropriators. If they choose not to continue on the path started by the PTO and the DOC, then there is absolutely no reason for the higher fee levels to continue.
AIPLA continues to believe that full implementation of the PTO's 21st Century Strategic Plan, following successful testing and pilot projects, represents the best approach yet proposed to address the problems of quality, pendency, and e-filing, given the constraints imposed on the PTO. And unless our belief is proven wrong, we will be among the first to ask Congress to continue the applicability of the new fee schedule beyond the original period of its effectiveness if effective progress is made in eliminating diversion. Should there be no progress in eliminating diversion in the next three fiscal years, then the higher fees would end on September 30, 2006, and applications filed after that date would be assessed fees at the rates set in the current fee schedule.
2. Effective Date
Second, AIPLA strongly believes that the revised fee bill should become effective October 1, 2003. With the enactment of H.J.RES. 2 funding the PTO for the remainder of FY 2003, it is all but certain that any increase in fee revenue collected in FY 2003 would serve no purpose other than to send additional user fee revenues into the general Treasury. We understand that, under H.J.RES. 2, the PTO received an appropriation for FY 2003 of only $1.182 billion. This is less than the PTO expects to collect in fee revenue in FY 2003 under the current fee schedule. We cannot support making a PTO fee increase effective prior to FY 2004 simply to send additional PTO user fee revenue to the general Treasury. On the other hand, the prompt passage of the revised fee bill with an October 1, 2003 effective date would inform the appropriators that increased fee revenues would be collected effective from the beginning of FY 2004 and would encourage them to increase the funding of the PTO for FY 2004.
3. Congress Should Set PTO Fees
Third, new subsection 41(d)(2) of the revised fee bill would give the Director of the PTO the discretionary authority to “…establish the fees charged … to recover … the estimated average cost to the Office of searching applications for patent….” The proposed search fee has historically been a component of the fee for filing a patent application, and Congress has always properly reserved for itself the right to set that fee. While we do not object to the Director having the authority to “…establish fees for all other processing, services, or materials relating to patents not specified in this section to recover the estimated average cost to the Office of such processing, services, or materials …” found in existing section 41(d) (moved to section 41(d)(2) in the revised fee bill), these fees do not include the fee for filing a patent application, which is set by statute (35 U.S.C. 41(a)). Accordingly, while we in no way intend any adverse reflection on the present, or any future, Director, we believe the authority for establishing this fee should remain with the Congress and not the Director.
In commenting on the original “Business Plan” of the PTO for FY 2003 in Congressional testimony in April, 2002, AIPLA made clear its view that all proposals for potentially significant fee increases should be brought to the authorizing Committees in the Congress where they could be subject to the normal hearing processes in which users have a voice. The lack of such authority should have no adverse effect on the ability of the PTO to function and implement the Plan. The PTO is only now starting to identify and pilot test the concept of “certified search contractors.” As it gains experience, it will be able to determine whether the $500 search fee estimate is adequate, and it will have more than ample time to make a case to the Congress and the user community that an adjustment is needed.
AIPLA, IPO, and the IPL Section of the ABA all testified in opposition to the proposal in the June 3rd, 2002, version of the Strategic Plan to establish a permanent, 18-month, statutory, deferred examination system. The PTO listened to that chorus of opposition and has eliminated any permanent, statutory, 18-month, deferred examination system. The PTO has replaced it with a “flexible or administrative deferred examination system” which authorizes the PTO to remit some increment of fees to applicants who abandon their applications prior to examination. The new system would not require that search or examination be deferred. Under the revised fee bill, the PTO will charge a combined filing, search and examination fee of $1,000. The PTO plans to ask an applicant, a certain number of months before an application would be considered for the first time by an examiner, whether the applicant wants a search. If the answer is ‘yes,’ the PTO would obtain a search. If the answer is ‘no,’ the PTO would refund to the applicant a portion of the initial fee. For those applicants replying that they do want the search, the completed search would be sent to them. Then, at a time closer to the time when the application would be initially examined, the PTO would ask the applicant if he/she wants the examination to proceed. If ‘yes,’ the examination would proceed; if ‘no,’ there would be a more limited refund of the initial fee.
We understand the reasons for the PTO’s wish to implement a flexible examination system. By offering applicants refunds before search and examination, the PTO hopes to avoid the expenditure of resources on applications which applicants are no longer interested in pursuing. Upon considering this flexible examination system, however, AIPLA concluded that it must be modified to include specific timelines regarding when the request for search and examination must be made. Allowing the deferral period to be determined by how long it takes the PTO to reach an application in a given technology area is not acceptable. Such a system would allow applicants to avoid making decisions on whether to proceed with their applications for far longer periods, and would create even greater uncertainty in the marketplace, than the initial 18-month deferred examination proposal. Moreover, it would be devoid of any meaningful incentives for the PTO to actually reduce the average pendency of applications.
AIPLA, IPO, and the IPL Section of the ABA all testified in favor of achieving an average 18-month pendency at the earliest practicable time. While continuing to support that goal, AIPLA indicated that it would accept, but only as an interim step on the road to achieving an average 18-month pendency, a system where at least a search was made and given to the applicant sufficiently early to allow the applicant to decide whether to proceed with examination before the publication of the application, search, and request for examination at 18 months. This would allow the public to know at the time of the 18-month publication whether an applicant intended to seek a patent, as well as the relevant search information pertaining to the possible patentability of the invention.
While the PTO works to achieve the interim goal of publishing the search results for all applications that applicants wish to pursue, it must be recognized that for some period of time applicants in the worst back-logged PTO examining groups are not going to receive searches in less than 30 months. In light of this reality, and only for so long as necessary due to the unavailability of searches prior to the 18-month publication, AIPLA would not oppose applicants being asked whether they wish to proceed to examination at a time after publication and closer to the time when the actual examination would occur (with a partial refund for those who decline). However, the PTO should develop a schedule for:
(1) phasing-out all “late” examination inquiries as soon as possible so that all searches and requests for examination are made in time to be published with the application at 18 months; and(2) achieving an average 18-month pendency in every technology area.
AIPLA wishes to be very clear, however, that it accepts the proposed system with the understanding that it is only a temporary administrative “deferred examination” system that will function ultimately to provide searches and final disposition of all applications within the average 18-month pendency.
Conclusion
As we have observed several times during the last year, the PTO is in crisis. Failure to enact an appropriate fee bill to fund a sound Strategic Plan is not an option. On the basis of the new Executive Summary released on February 3rd, we believe that all of our major concerns have been addressed, and we fully endorse the revised Plan. However, just as we support the revised fee bill but have some suggestions for improving it, we look forward to reviewing the detailed proposals in the revised Plan and to working with the PTO should we find any areas of the Plan that we believe could be further refined and improved.
We thank you Mr. Chairman for holding this hearing, and would be pleased to answer any questions you might have.
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