SPEAKERS CONTENTS INSERTS Tables
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57–508
1999
U.S. PATENT AND TRADEMARK OFFICE (PTO)
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS AND INTELLECTUAL
PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
MARCH 19, 1998
Serial No. 126
Printed for the use of the Committee on the Judiciary
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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
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LINDSEY O. GRAHAM, South Carolina
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
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BOB GOODLATTE, Virginia
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
BILL McCOLLUM, Florida
CHARLES T. CANADY, Florida
JAMES E. ROGAN, California
BARNEY FRANK, Massachusetts
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
MITCH GLAZIER, Chief Counsel
BLAINE MERRITT, Counsel
VINCE GARLOCK, Counsel
DEBBIE K. LAMAN, Counsel
ROBERT RABEN, Minority Counsel
EUNICE GOLDRING, Staff Assistant
C O N T E N T S
HEARING DATE
March 19, 1998
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OPENING STATEMENT
Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
WITNESSES
Balmer, Norman L., President, Intellectual Property Owners and Chief Patent Counsel of Union Carbide Corporation
Coe, Roger N., Director, Patents and Licensing at Elkhart Site, Bayer Corporation on behalf of the Section of Intellectual Property Law of the American Bar Association
Kirk, Michael K., Executive Director, American Intellectual Property Law Association
Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, Patent and Trademark Office
Stern, Ronald J., President, Patent Office Professional Association
Stimson, David C., President, International Trademark Association
Tobias, Robert M., National President, National Treasury Employees Union
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LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Balmer, Norman L., President, Intellectual Property Owners and Chief Patent Counsel of Union Carbide Corporation: Prepared statement
Coe, Roger N., Director, Patents and Licensing at Elkhart Site, Bayer Corporation on behalf of the Section of Intellectual Property Law of the American Bar Association: Prepared statement
Kirk, Michael K., Executive Director, American Intellectual Property Law Association: Prepared statement
Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, Patent and Trademark Office: Prepared statement
Letter written to Hon. Howard Coble, dated May 15, 1998
Stern, Ronald J., President, Patent Office Professional Association: Prepared statement
Stimson, David C., President, International Trademark Association: Prepared statement
Tobias, Robert M., National President, National Treasury Employees Union: Prepared statement
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U.S. PATENT AND TRADEMARK OFFICE (PTO)
THURSDAY, MARCH 19, 1998
House of Representatives,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in Room 2237, Rayburn House Office Building, Hon. Howard Coble [chairman of the subcommittee] presiding.
Present: Representatives Howard Coble, Edward A. Pease, James E. Rogan, Bob Goodlatte, William D. Delahunt.
Also Present: Representative Ed Bryant.
Staff present: Mitch Glazier, Chief Counsel; Blaine Merritt, Counsel; Vince Garlock, Counsel; Eunice Goldring, Staff Assistant, and Robert Raben, Minority Counsel.
OPENING STATEMENT OF CHAIRMAN COBLE
Mr. COBLE [presiding]. Good morning, ladies and gentlemen. The subcommittee will come to order.
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Today we will exercise our oversight authority by conducting a review of the operations of the Patent and Trademark Office. While this topic consumes many issues, we are certain to touch on the following subjects; the agency's budget; that is how its revenues are estimated, collected, and spent; the expiration of the patent surcharge fee; the diversion of PTO funds; the possible relocation of PTO facilities; and the treatment of PTO employees.
In light of the Senate consideration of S507, the Senate version of the 21st Century Patent System Improvement Act, I believe our hearing today is most timely and appropriate.
Members and witnesses will recall that House Bill H.R. 400, which we have already passed in our body, is similar to the Senate legislation, in that it contains a section which would liberate the PTO by transforming the agency into a government corporation. The PTO would still be subject to our oversight and the policy edicts of the Executive Branch, but would otherwise be empowered to operate more like an efficient business, which in my opinion, would better serve its users.
I conclude my opening remarks by pointing out that serving these users is in fact the whole point of the agency, or that should be its reason for being. Unlike most other Federal entity, the PTO receives no Federal stipends; it subsists solely and completely on user fees.
Working with Commissioner Lehman and his staff, it is our job to ensure that the individuals and businesses which fund the agency are getting their money's worth, especially since their creativity and ingenuity are so crucial to the welfare of our national economy.
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I appreciate very much the manner in which many of you in this room have worked with our subcommittee. I speak for Mr. Frank, and for all members of the subcommittee and the staff as well. I think you all know that you don't need visas to come to see us. Our offices are always open. These offices belong to you all.
I see we're by ourselves here today, so I am pleased to recognize our opening witness, who is no stranger to this Hill. The first witness on this panel will be the Honorable Bruce Lehman, who is the Assistant Secretary of Commerce, and Commissioner of Patents and Trademarks, and former counsel to our subcommittee.
Bruce attended the University of Wisconsin, where he earned his B.A. degree, and his J.D. in 1970. He is a member of the Bar of the District of Columbia. We have Commissioner Lehman's statement, which I ask unanimous consent to submit into the record for its entirety.
Commissioner, I would like to ask you and the other subsequent witnesses—if you all can do this. I hate to put a gun to your respective heads, but we are going to be on a short leash today. We're going to have votes that will be forthcoming in the House, fairly soon, within the hour. So if you all could confine your oral statements to 5 minutes, as we told you earlier, we would appreciate that. Your written statement and testimony I ensure you will be closely scrutinized, but when you see the red light illuminate, as it is now doing—I will start yours again though, Bruce; I won't penalize you with the one that shows now. But if you all could confine—when you see that red light illuminate in your eyes, Mike, you'll know it's about time to wrap up.
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Commissioner, good to have you with us.
STATEMENT OF BRUCE A. LEHMAN, ASSISTANT SECRETARY OF COMMERCE AND COMMISSIONER OF PATENTS AND TRADEMARKS, PATENT AND TRADEMARK OFFICE
Mr. LEHMAN. Thank you very much, Mr. Chairman. As always, I couldn't be more in sync with your opening statement. It's wonderful to be here because we've really had a good cooperative relationship with this committee.
I just want to add one thing to your opening statement. You have correctly noted that the Patent and Trademark Office is very important to our economy, and I think one of the things that we all need to do is keep reminding people how much that is the case. The Patent and Trademark Office is really a vital organ of the U.S. economy, and has been since 1790.
It's really just as much of a vital organ of the U.S. economy as the stock market on Wall Street. We couldn't have a market economy without that, and we couldn't have a market in technology in products of the mind, if we didn't have a patent system. And it's very important that we issue patents in a very timely manner, so that people can get to the marketplace, and get the financing to put new inventions on the market. It's very important that we do our job properly, because if we issue a patent that is not valid, is not upheld by the courts, then we are doing the opposite of what our job is supposed be; we're sending people into the courthouse to litigate, rather than the capital markets to get capital, and build new businesses, and put products on the market with people.
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So, it's important that we do a good job and it's important that this committee work with us, and provide us with the oversight that we need to see that our customers are satisfied.
Business is booming at the PTO. In Fiscal Year 1997, which ended last October, we had a record of 237,000 patent applications, which was a 15 percent increase over 1996. And I just hope that you'd internalize that for a second, Mr. Chairman, because any business that is confronted with that kind of statistic, a 15 percent increase, is a business that is going to naturally be under some degree of management stress. That's a lot—it's hard to deal with those kinds of increases.
We expect a smaller increase this year, 5 percent, but we can't always be certain. And then in the trademark side we saw a 11 percent increase last year, and we had 224,000 trademark applications, and this year we expect 250,000. This reflects the strength of the U.S. economy. These increases in patent applications are largely coming from U.S. innovators.
It's important to recognize that we're the only patent office in the world—other than Japan—where a majority of the patent applications come from nationals. Indeed, Americans are the largest single patent applicants in every other patent office in the world, period; even over the nationals of those countries except for Japan, and I believe Germany. In the European Patent Office we are the number one applicant. So this tells you a little bit about how important patents are to the U.S. economy and the U.S. system.
It still takes too long to obtain a patent and register a trademark, and so we need to cut down on those times. So the principal management objectives that we have at the USPTO right now, are to reduce processing times and to increase the quality of the patents that we issue.
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In order to do that we have to apply a lot of new management techniques. One of those is to reengineer our approaches to examining applications and providing services, and as in any modern enterprise, the use of sophisticated electronic tools—automation—is absolutely vital to this.
One thing I will say about the PTO's automation program, which this committee ought be proud of. In 1982, this committee mandated the automation of the Patent and Trademark Office. That was not an initiative of the Administration at that time; it was an initiative of this committee, and it has been one of the most successful automation programs in the whole Federal Government.
We're not running on vacuum tubes, like our friends over at the FAA are unfortunately. We haven't spent billions of dollars that we've had to abandon, like some other departments and agencies; we have a very usable and workable electronic examination system, and we're moving toward having an electronic filing system, and that's going to be very important for servicing our customers and achieving efficiencies in the future.
In fact, we have already started having electronic filing for trademarks. That's a technique that we put into effect for our customers last fall. They're just beginning to use it. We've had 50 electronic applications since November, and I look forward to the day when the overwhelming majority of trademark applications will be filed through the Internet.
In 5 years, we want to have complete electronic filing of patents. And that fits into our international initiatives, what we call Wire-the-World, to wire up all of the patent offices of the world so a person can file a patent application in our office, and then automatically have their application disseminated electronically to every other patent office in the world, where they want to file, and get expeditious processing there as well.
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Now, in order to accomplish these initiatives for 1999, the president has recommended that we be given the authority to spend $786 million of the fee revenue that we generate, and that's an increase of $95 million over 1998.
Sixty million of this money would fund 1,032 new positions in patents. And, hiring more patent examiners is very critical to reducing pendency time and achieving our mission, and unfortunately we haven't been able to hire as many as we should have in the last 3 years, and that's one of the reasons that we've had an increase in pendency more than we should have. So we're going to address that problem.
We're going to fund 77 new positions in the trademark operation. And then finally, Mr. Chairman, I want to emphasize the importance of the Administration's request that will be forthcoming to maintain patent fees at the current OBRA level into 1999 and beyond.
You know that the so-called patent surcharge is really the amount of money that is paid by feepayers, that originally was supposed to be the taxpayer portion of our operations It was never contemplated that this was extra money; this was always money that it was contemplated that we would need, but it was thought back in the 1980's that, even though we would be largely fee-funded, that there still should be some taxpayer contribution.
In 1990, Congress decided not to do that; to have the fee-payers fund all of our operations, and I don't think anybody's really questioned that since, given the larger budget problems that we have in the United States. And I have to say, we do not get much complaint about the level of our fees. We're overwhelmingly the cheapest patent office in the world for what you get. And so it would be very reasonable to continue this.
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We are going to have a little bit of a surplus this year, but it's very important to not lose sight of the fact that, even though we can devote that surplus to budget deficit reduction and other things; that in the future we will need the surcharge money if we're going to be able to do our job properly.
So, Mr. Chairman, I'd like to leave you with that thought, and I see the red light went on, and I exceeded my time, and would be happy to answer any questions you, or Mr. Rogan or counsel may have.
[The prepared statement of Mr. Lehman follows:]
PREPARED STATEMENT OF BRUCE A. LEHMAN, ASSISTANT SECRETARY OF COMMERCE AND COMMISSIONER OF PATENTS AND TRADEMARKS, PATENT AND TRADEMARK OFFICE
STATEMENT
Mr. Chairman and Members of the Committee:
Thank you for inviting me here today to testify on the operations and finances of the U.S. Patent and Trademark Office.
In a nutshell, business is booming at the Office. In fiscal year 1997, we received a record 237,045 patent applications. Furthermore, we predict that the 1997 record will be broken during this fiscal year and the number received this year will be substantially exceeded in fiscal year 1999—at least 248,600 and 259,000, respectively. In our capacity as a Receiving Office under the Patent Cooperation Treaty, we received 22,767 international applications, an increase of 19 percent over last fiscal year. We are pleased to note that U.S. residents or nationals represented more than 40 percent of the international applications filed worldwide in calendar year 1997.
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We also received a record 224,355 trademark applications in fiscal year 1997, a 12 percent increase over fiscal year 1996. Furthermore, we expect to break records again in the next two fiscal years given the filing trends. As part of the fiscal year 1999 budget process, we estimated that we would receive 250,000 and 275,000 applications in fiscal years 1998 and 1999, respectively. It is possible that these estimates could be low, and we are monitoring the number of applications closely.
To put these statistics in perspective, we need to broaden our comparisons. We will receive twice as many patent applications this fiscal year as we received yearly in the early 1980s when Congress enacted the current funding arrangement for the Office. In other words, the increase in patent filings during the last 18 years was as large as the increase during the 144-year span between 1836, when we first numbered patents, and 1980. More astounding, the number of applications for trademark registration has quadrupled since the early 1980s.
From these statistics, we could probably draw a number of conclusions about the overall health of the U.S. economy or the level of public confidence in the patent and trademark systems. Most of these conclusions would be comforting. We believe, however, that we need to examine them in light of our current operations and future plans. When we do so, we discover that it is very difficult to sustain high-quality and timely operations in the face of these large annual increases, and we find planning for the future very challenging.
Theoretically, it is possible to provide acceptable service by merely increasing the number of Federal employees and equipment proportionally with the increases in filing. This approach, however, would not be a responsible management approach, nor is it realistic in the long term. As a result, we are committed to increasing productivity by applying new or reengineered approaches to examining applications and providing services. Also, we have to continue to apply advances in information technology to our operations to obtain higher quality services more efficiently.
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In many respects, we are successful. In fiscal year 1997, we issued 122,977 patents. This represents a 5.2 percent increase over the prior fiscal year—a very respectable increase by any standard. In the trademark area, the number of registration certificates issued rose from 78,674 to 97,294, a 24 percent increase. Furthermore, patent examiners, trademark examining attorneys, and managers have at their disposal far more sophisticated electronic tools then ever before. Today, from a desktop computer, patent examiners search a large number of commercial data bases, the full text of over 2.1 million United States patents issued since 1971, images of all U.S. patent documents issued since 1790, English-language translations of 3.5 million Japanese patent abstracts, and English-language translations of 2.2 million European patent abstracts. In fact, they conducted nearly 250,000 text searches and retrieved 10 million patent image pages per month in 1997. In addition, examiners now use the Netscape web browser to search for evidence of the prior art. Trademark examining attorneys rely solely on desktop computers to search for confusingly similar marks and conducted 130,852 searches per month in fiscal year 1997. We are constantly improving these systems to make more information available more easily. During this year alone, we are adding 20 million foreign patent documents to our automated search data bases. We are also replacing our primary search software late this year.
As an aside, I note that for many years ''search'' systems were the most controversial aspect of our automation program. Some claimed that they would never work or would not be as good as a paper search. They have been proven wrong, and little is said today about the search systems, except for suggestions on how to make them even more useful. It seems to me that with each new generation of computer literate examiners and each improvement to the search systems, our reliance on the electronic search systems increases and reliance on the paper systems diminishes. Yet, some of our customers want to retain paper files indefinitely—at very great expense. If our customers have specific concerns about retention of the paper files, I suggest that they work with us to establish responsible ''benchmarks'' for the retention or disposal of the paper files.
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Despite the improvements we made, we are not providing the level of service our customers deserve. Most obviously, it still takes too long to obtain a patent. And, we are still taking too long to issue a trademark first action and to register a trademark.
I firmly believe, however, that we can, working with our customers, other agencies, and the Congress, meet acceptable levels of service for our customers in the short term and provide them with significant improvements in service in the longer term.
Speaking about customers, representatives from the American Intellectual Property Law Association (referred to as AIPLA) met with me and some of our top managers recently to discuss a wide range of problems faced by the members of the Association. More specifically, they stated that patent application filing receipts were not generated accurately or in a timely fashion and they noted increasing pendency periods at the Board of Patent Appeals and Interferences as well as delays in printing patent grants. They were frustrated by lost or misplaced applications or communications in the patent and trademark areas. Also, in the trademark area, they suggested a number of improvements to examination practices.
We were aware of many of these problems and have already started some corrective actions. We will, however, work with AIPLA to positively address all of their concerns, and we welcome constructive criticisms from other customer groups including the Intellectual Property Owners and the International Trademark Association.
It is important to note that the problems raised by AIPLA fall into several categories. Some may be resolved merely by adding resources or management focus. Others, however, are more complex operational problems—mailing accurate filing receipts, locating files, and printing grants promptly—that require more complex solutions. Our greatest hope for eliminating these operational problems once-and-for-all is to harness developments in information technology. Simply put, if we can receive or convert applications in electronic form, we can automatically generate accurate filing receipts promptly, maintain electronic copies with integrity instead of paper copies that are lost or mutilated, and print or disseminate patent information directly, cheaply and quickly from the electronic file.
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This objective is certainly not new. In fact, it was contained in the automation plan submitted in 1982 in response to a Congressional mandate. The difference between 1982 and now is that we are realistically in a position to implement electronic filing, within available resources. Last November, the trademark operation started accepting, as part of a pilot project, applications for registration filed electronically using the Internet. To date, we have received 50 applications from the limited number of customers participating in the pilot project. This may not sound like a large number considering the total number of applications we receive yearly, but it is a very significant technological step forward that demonstrates we can harness the technology.
This pilot project will continue until we make Internet filing available to all who wish by the end of the calendar year. During the next fiscal year, we will begin development of the system that will replace paper applications. While developing this new system, you should note, we still will have to update and replace existing trademark application searching and monitoring systems to stay in business.
On the patent side, things are more complicated, but we are moving forward aggressively. We already scan all incoming applications. We will build upon this technology and use optical character recognition technology and commercially available tools to capture, from standardized forms submitted by the applicants, certain application data including those needed for the filing receipt. Using this captured data, we will print filing receipts. This should eliminate problems noted by AIPLA on the timeliness and accuracy of filing receipts and provide prompt and accurate entries into our database for tracking and monitoring patent applications for those applicants that voluntarily use the standard form. While we originally could not commit to installing this improved receipt system until fiscal year 1999, we are now prepared to begin this summer. Also, we will scan the text of incoming applications and perform some preexamination reviews using the electronic text and application data.
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The implementation of electronic filing and electronic examination is critical to the efficiency, effectiveness, and operational cost reductions associated with processing patent applications. We plan to implement electronic filing and electronic examination in stages. The replacement patent monitoring system and the systems that I just described will provide the foundation for a comprehensive electronic examination capability throughout the prosecution of a patent application. To define and refine requirements, validate assumptions, and mitigate risk, we plan to conduct a prototype of the future electronic workplace beginning in March 1999. The prototype—called Tools for Electronic Application Management or TEAM—will address both the human and technical engineering aspects of the future electronic workplace. Through this prototype, we will connect these systems and existing ones into an electronic ''file wrapper'' for patent applications, thus, replacing paper files. The PTO plans to build on this prototype and other electronic workplace initiatives to implement the electronic workplace in the first industry sector early in fiscal year 2001 and incrementally deploy to the entire patent examining corps through fiscal year 2003. To complement this system, we will also develop a new publication system that will be deployed incrementally through fiscal year 2003. It should vastly improve the quality and timeliness of our patent publications as well as significantly reduce our costs. Let us be clear, that, in the short term, we still will have to hire more staff to meet workload demands and will have to train them.
Not only are we concerned about our ability to examine applications, given the increases in projected workloads, we firmly believe that the workload associated with ever-increasing levels of application filings will present the biggest challenge to the successful administration of patent systems worldwide. In particular, we are concerned that developing countries, as they establish patent regimes that conform to the TRIPS standards, will face serious problems in handling a flood of patent applications filed by our nationals. Furthermore, costs for inventors will increase as the number of countries in which they must file increases.
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As I mentioned, even in the U.S., only hiring additional staff will be neither feasible nor efficient. For many developing countries, it is simply not an option. Instead, new approaches must be used to deal with the problems associated with increased filings. We believe the solutions will lie in the adoption of a more efficient overall patent examination and granting model, one that is made possible through the use of network oriented information technologies.
We propose to establish a secure networked environment among intellectual property offices. We believe that such a network, combined with conventional tools such as phone and fax, could be used to facilitate communications among offices and among examiners during the examination process. Similarly, a secure network could be the means by which new types of information resources are provided at stages in examination where they are useful for examiners. One specific resource being evaluated is a database of search reports and examination records. A database that contains up-to-date records of an application in one office would enable foreign examiners to coordinate their work with the applicant's original office prior to or during their review of an application in that family of applications. Thus, for example, an EPO examiner picking up an application would be able to check the history of examination of the U.S. parent to that application.
At a very minimum, these records will assist a foreign examiner in structuring and conducting a search. Over time, confidence and experience in each other's work product and familiarity with the nature of the different search and examination procedures will produce more consistent search results within a family of cases.
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It is also important to recognize that making these resources available through a secure network to offices in developing countries may offer even more significant short term potential. Specifically, we are aware that many patent offices in the developing world are interested in relying on the work product of the major examining offices in their internal patent granting procedures. Indeed, on a de facto, rather than de jure, basis, many offices in the developing world may be prepared to grant a patent on the basis of results of examination of a prior application in a foreign country. Making the records available on an as-needed and on-demand basis through a global network would greatly facilitate this type of practice.
We proposed that the World Intellectual Property Organization (WIPO) take the lead on this project given their extensive contacts with industrial property offices throughout the world and the resources that they have available not only to establish the necessary infrastructure but to assist countries in using the network. We are very pleased to report that the Governing Bodies of WIPO approved our proposal and established a structure within the organization to facilitate creation and maintenance of such a network. Furthermore, in his first budget for the Organization, the new Director General, Dr. Kamil Idris, recommended a substantial level of resources for a network and, thus, demonstrated his commitment to improving efficiency of industrial property offices worldwide through the use of the latest information technology.
As the Subcommittee is aware, there are a number of other activities coordinated by the World Intellectual Property Organization that could improve the efficiency of industrial property offices worldwide. I specifically refer to the Trademark Law Treaty and the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. As the House of Representatives passed the implementing legislation for the Trademark Law Treaty and the Committee on the Judiciary reported the implementing legislation for the Madrid Protocol, there is no need for me to expound on the substance of these two international instruments. I am pleased to report, however, that on 29 January 1998, the President forwarded the Trademark Law Treaty to the United States Senate for its advice and consent to ratification. Furthermore, the Department of State, consulting with experts from our Office, is working hard to resolve the issues that prevent the United States from acceding to the Madrid Protocol. Finally, we thank you, Mr. Chairman, and Mr. Frank for the leadership you demonstrated in crafting and processing the implementing legislation for the Treaty and the Protocol as well as legislation to protect trade dress. We recognize that these are probably not the most engaging issues before the Subcommittee, but implementation of them will materially advance the interests of U.S. trademark owners.
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We also appreciate your efforts to approve legislation to implement the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty and the difficulties you face. Approval of the legislation and ratification of the Treaties would go a long way to convincing other nations, particularly developing countries, to accede to the Treaties, which are of significant benefit to U.S. copyright interests.
Earlier in this Statement, I spoke about using information technology to improve the operations of the Office. In our view, its use is only one element of a course of action that would enable us to significantly improve the services we provide. One of the other key components is the enactment of legislation to establish the Office as a performance-based organization. Again, there is no need for me to expound on the benefits to be gained. Rather, I must thank Mr. Frank, the other Members of the Subcommittee, and you for your support and for your willingness to work with the Administration on this ground-breaking legislation. We hope that the Senate will pass the legislation this Session, and we hope to work with you during the Conference process on crafting legislation that will put the Patent and Trademark Office in the position to meet the challenges of the next Century and serve as a model for other agencies.
Another key component is adequate funding for the Patent and Trademark Office. For fiscal year 1999, the President recommended that we be given authority to spend $785,526,000 of the fee revenues we generate. This is an increase of $94,526,000 over this fiscal year's enacted level. We can break this increase down into a number of components.
First, we need $21,551,000 for what we call ''adjustments to base.'' These include amounts to cover pay raises, increased contributions to retirement systems, increased rent, and increased printing costs.
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The remainder, $72,975,000, will fund improvements.
We would use $60,010,000 to fill 1,032 new positions in the patent area, and to continue automation of patent processes. This is necessary to reduce the pendency period for patent applications back to an acceptable level. With the staff and resources we have this year, we believe that we can reduce our cycle time to 15.7 months (''Cycle time is our measure for the average processing time taken by the Office per invention. It does not include time taken by applicants to respond to Office actions but an ''invention'' could encompass a series of related applications.) If we are provided the level of resources requested in the President's budget, we believe we can reduce the cycle time to 13.8 months in fiscal year 1999.
We would use $3,668,000 to fill 77 new positions in the trademark area. Again, this is necessary to reduce the pendency periods in trademarks. At the end of fiscal year 1997, the time between filing and first action was 6.4 months, and the time between filing and registration or abandonment was 16.9 months. We hope to reduce the time to first action to 5.9 months this fiscal year and the time to registration or abandonment to 16.0 months. If we are provided the level of resources requested in the President's budget, we believe we can reduce these times to 3.9 months and 15.5 months, respectively, by the end of fiscal year 1999.
We would use $7,090,000 to develop new information systems that would significantly improve our information dissemination operations. This includes filling 46 new positions.
We would use $2,207,000 to add 6 new positions to ''beef up'' our legislative and international operation and 11 new positions to our management operations, mostly to our financial operations.
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To obtain the resources to carry out our program, the Administration requests amendments to the fee structure established in section 41 of title 35 of the United States Code. Let me explain. In fiscal year 1999, section 10101 of the Omnibus Budget Reconciliation Act of 1990 (OBRA), as amended, will lapse. This lapse has two consequences. First, we will not deposit any money into the Surcharge Fund for appropriation back to the Office. Second, the fees established by subsections 41(a) and (b) will revert to their pre-OBRA level. The latter means that the fees received by the Office will be $182,000,000 lower than they would have been if OBRA did not lapse and would be $131,526,000 short of the amount we need to execute the program recommended by the President.
As a result, we request that the Congress amend subsections 41(a) and (b) to maintain fees at OBRA level (or current fiscal year 1998 levels), and we will transmit draft legislation to do so. In other words, we want the fees to remain the same as they are today. This would enable us to collect $836,000,000—$50,474,000 in addition to the amount we need. The President will request that this additional amount be rescinded and, thus, used to offset other discretionary spending and contribute to the bipartisan goal of balancing the budget.
Furthermore, this year we will spend $691,200,000 in new fee revenue. This includes $27,000,000 from the Surcharge Fund generated by fee revenues. The remainder of the amount deposited in the Surcharge Fund in 1998, $92,000,000, will remain in the Fund and an additional $65,868,000 will be collected but not expended as specified in the appropriations Act for fiscal year 1998. In fiscal year 1999, the President will request that the additional $65,868,000 be part of the fiscal year 1999 rescission.
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We understand that there are some misunderstandings about what has been characterized as a ''lost'' $87 million during fiscal years 1997 and 1998. No money was lost. What people are referring to is the amount of checks and deposit account charges we actually received in fiscal year 1997 that we did not process until fiscal year 1998. Obviously, we cannot process all of the financial transaction requests received during the last days of the fiscal year before midnight on 30 September and we routinely process some prior year requests during the next fiscal year. In fact, we processed approximately $40,000,000 worth of such requests received during fiscal year 1994 and 1995 in the following years, respectively. In fiscal year 1996, the amount grew to approximately $65,000,000.
For fiscal year 1997, the amount of unprocessed checks and deposit account requests was a whopping $86,881,000—approximately half of which was received in the last five business days before the end of the fiscal year. Frankly, we were surprised at the size of the amount. As we discovered, there are a number of unique reasons for it and we have taken steps to reduce it for fiscal year 1998. But, we believe that there will probably always be at least $30,000,000 worth of requests received during one fiscal year and processed in the next.
One reason is due to the timing of our annual fee increases to reflect fluctuations in the Consumer Price Index. As the Subcommittee is aware, we increase fees on 1 October, the first day of the fiscal year. Maintenance fees and issue fees, however, are payable during six-month and three-month windows, respectively. When the windows straddle 1 October, many companies with large portfolios of patents and patent applications elect to pay their fees during the last weeks of the fiscal year to avoid the fee increases and ''dump'' very large payments, representing thousands of individual transactions, on us in late September. This practice can save them hundreds of thousands of dollars but we cannot process them all before the end of the fiscal year. We believe that we need to recognize that this will happen whenever we increase fees at the beginning of a fiscal year.
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In connection with the mailing of filing receipts, I noted that we had delays in processing new patent applications. These delays also held up cashing checks and charging deposit accounts. We plan to eliminate these delays and to alter our procedures to ensure that we execute financial transactions promptly.
We cannot be reasonably expected to process payments instantaneously especially during the September ''dump.'' But, we can be expected to do better than we did in fiscal year 1997 when it was taking more than 10 days to process financial transactions. Then, we processed almost 18,000 transactions per day. We have improved our financial system and now process 11,000 transactions per day so we can reduce the time it takes to process financial transactions to 10 days by the end of this fiscal year.
It is important to reiterate that this money was not ''lost.'' It has been credited to our accounts in the Treasury and has been taken into consideration in developing our programs for fiscal years 1998 and 1999. As a result, it cannot be considered as ''found'' and applied against our request for amendments to the fee provisions of subsections 41(a) and (b) of title 35. Obviously, some of these funds contribute to the $65,868,000 that we will carry over from fiscal year 1998 into fiscal year 1999. Even if these carry over funds were not rescinded, they would be insufficient to fund the program-level that we need in fiscal year 1999 and beyond to provide the level of service our customers deserve. Hence, legislation to amend the fees in subsections 41(a) and (b) is still necessary.
The topic of fees is always controversial and emotional. It is essential, however, that we revise subsections 41(a) and (b) of title 35 to retain the current level of fees if the Office is to have the resources it needs. To make matters worse, there is little time left before the end of the fiscal year to enact these revisions and to notify our customers of the fee changes. As we mentioned, we will soon forward a proposal to you and request that the Subcommittee act upon it promptly. We pledge to do everything we can to assist in your deliberations.
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Thank you.
SUMMARY
The International Trademark Association (INTA), an organization of 3,500 trademark owners and practitioners, appreciates the opportunity to work with the Subcommittee in conducting effective oversight of the U.S. Patent and Trademark Office, an agency which plays a pivotal role in promoting America's leadership in the global economic community.
The USPTO today is among a unique group of government agencies—it is totally user-fee funded. It is also significant to note that customers of the agency have been willing to pay for the protection afforded by a federal registration. In fact, on the trademark side, the number of applications filed annually rose from 36,000 to 175,000 from 1975 to 1995. The number for fiscal year 1997 was close to 225,000 and the Administration expects the figure to grow substantially for at least the next two fiscal years.
Unfortunately, however, IP owners are not receiving what we would consider an acceptable return on our investment. The number of unexamined trademark applications is now close to 107,000—almost half the number of trademark applications the Trademark Office receives in a year. It now takes seven months for the USPTO to even begin examination of a trademark application. At the same time, there are serious lapses in the quality of trademark applications.
The need for reform, and more importantly, money, has never been more crucial in light of these problems. That is why INTA was very disappointed that the President's proposed budget for FY '99 transfers $116 million raised through patent fees to the general treasury. INTA opposes any diversion of money raised through intellectual property user-fees.
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To address these problems, INTA looks forward to working with the Congress, the USPTO and other members of the intellectual property community to:
oppose the diversion of money raised via intellectual property user-fees to the general treasury for eventual use by other government agencies;
reduce the backlog of trademark and patent applications and improve pendency numbers;
improve the quality of trademark examinations;
attain passage of government corporation legislation;
create a long-range business plan at the USPTO which accurately forecasts workload, revenues and expenditures; and
implement an efficient electronic filing system.
The clock is ticking, Mr. Chairman. The appropriations process is already in motion and everyone in Washington is fighting to get a piece of the pie. In this process, we must not forget that it is this nation's intellectual property which has allowed it to become the world's preeminent economic power. Accordingly, the USPTO and the money it raises must not be seen as a ''cash cow'' to be milked by unrelated government agencies and programs. The agency's customers and the Congress should not stand by idly and permit that to happen.
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ADDITIONAL STATEMENT
Business is booming at the Patent and Trademark Office. In fiscal year 1997, we received a record number of patent and trademark applications. Furthermore, we will receive record numbers this year and next. In some ways, this is comforting. It is very difficult, however, to sustain high-quality and timely operations in the face of yearly record increases.
In many respects, we are successful, however. In fiscal year 1997, we issued more patents and registered more trademarks than ever before. Furthermore, patent examiners, trademark examining attorneys, and managers now have far more sophisticated electronic tools then ever before. Despite the improvements made, we are not providing the level of service our customers deserve—it still takes too long to obtain a patent and to register a trademark.
I firmly believe, however, that we can, working with our customers and the Congress, provide acceptable levels of service for our customers in the short term and significant improvements in the longer term. For example, representatives of AIPLA met with me recently to discuss a range of problems. We were aware of many of these problems and have started to correct them. We will, however, work with AIPLA to resolve all of their concerns, and continue to work with other groups including the Intellectual Property Owners and the International Trademark Association.
Our greatest hope for eliminating some of these problems is to harness developments in information technology. Simply put, we believe if we obtain applications in electronic form, we can automatically generate accurate filing receipts promptly, maintain electronic copies with greater integrity, and print or disseminate patent information more cheaply and quickly from the electronic file. Last November, the trademark operation started accepting, as part of a pilot project, applications for registration filed electronically using the Internet. To date, we have received 50 applications. This may not sound like a large number, but it is a very significant step forward that demonstrates we can harness technology. On the patent side, things are more complicated, but we are moving forward aggressively.
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To continue our success and improve the Office, we need adequate funding. For fiscal year 1999, we requested authority to spend $785.5 million from our fees, an increase of almost $95 million over this fiscal year. We would use $60 million of this increase to fill 1,032 new positions in the patent area and nearly $3.7 million to fill 77 new positions in the trademark area. These positions are necessary to reduce the pendency periods back to acceptable levels.
To obtain the resources to carry out our program, the Administration requests amendments to the patent fee structure to maintain fees at OBRA level, and we will forward draft legislation soon. This would enable us to collect $836 million, $50.5 million more than we need. The President will request that this additional amount be rescinded along with $65.9 million that will be carried over from this year. The amounts rescinded will be used to offset other discretionary spending and contribute to the bipartisan goal of balancing the budget.
We request that the Subcommittee act upon our proposal promptly and we pledge to do everything we can to assist in your deliberations.
Mr. COBLE. Commissioner, good to have you with us. We have been hearing a lot of talk on this Hill regarding information that surrounds your search for new space quarters, new procurement for spaces. Some sources have been overly critical, including the National Taxpayers Union, with whom I agree most of the time.
For the record, Commissioner, how much taxpayer money are we talking about here?
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Mr. LEHMAN. Zero, Mr. Chairman, that's why it was a bit surprising to get a letter from Taxpayers Union, since there's no tax money involved here.
Mr. COBLE. My question was rhetorical because I thought that was going to be the answer. So my next question is, what's all the fuss about? Can you tell me? Since there's no taxpayer money involved, is this just people tilting at windmills?
Mr. LEHMAN. Well, I can only speculate, Mr. Chairman, but whenever you're talking about a major move of this type, there's lots of people that—lots of people just don't want to move, for various reasons. Naturally, this is a rather large move, and so people are concerned; have we crossed every ''t'' dotted every ''i'', but I think the answer to that is yes.
I have to tell you, it's a little bit frustrating to me, because one of the hard things about being a Government manager these days is to have to go through all the rigmarole, and red tape, and everything that people in the private sector wouldn't appreciate.
It's important to keep in mind that we lease our space. We're not talking about buying space. The PTO rents its space.
In 1969, we moved out of the Commerce Department, which was Government-owned space, because we outgrew that. And, we moved over to Crystal City into a couple of buildings at that time, and we've grown since then, and those are rented buildings.
And, the reason we are moving is because our leases have expired. If you are living in a house, and your lease expires, and you're on a month-to-month lease, then you have to give some thought, what am I going to do? We are literally on a month-to-month lease in those buildings.
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You cannot run—I don't think I can exercise my fiduciary responsibility to either our employees or our customers, and not try to do something about that. And so over 4 years ago, knowing that the leases were going to expire, we put out an RFP, a Request for Proposals, that would go to everybody, including our current landlord, saying, our leases are going to expire, do you have a better deal for it? And the baseline requirement in the RFP was that the space be cheaper than the existing space, cheaper, rather than more expensive.
And we've done that, and we've followed a procedure where a number of real estate developers have spent a lot of money putting together very elaborate proposals for us, and they have submitted those proposals. And we are now in the process, along with the General Services Administration, of reviewing those. And it would be I think most inappropriate—and I want to emphasize that word ''inappropriate''—to interfere with what is a completely above-board process for the leasing of space. And I know that you agree with that, Mr. Chairman, and I hope that explains where we are.
Mr. COBLE. It does indeed, and Commissioner, I did not tend for my question to be adversarial, I just wanted to spread on the record the fact that there are no taxpayer monies involved here, and I think many people have resorted to scare tactics in an effort to direct attention here in an undue fashion.
Now let me shift gears a minute, Commissioner, I have heard, and I'm sure you have, some concerns regarding quality of work complaints that have been directed to the agency.
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What specific steps in the areas of training and supervision do you have in mind to correct these problems, assuming they are problems? Now, many people have come to me regarding it. I'll let you first of all comment whether or not you think these complaints are well-founded, and if so, how do you plan to correct them.
Mr. LEHMAN. Well, Mr. Chairman, first of all, let me—something I neglected to do at the beginning, is I want to introduce a couple of people here, who are very important people in responding to these kinds of things.
One is Edward ''Kaz'' Kazenske, who's sitting right behind me, who is the senior civil servant in the Patent and Trademark Office; and the other is Todd Dickinson, who the president has nominated to be my Deputy. And that's Todd Dickinson right there, and Kaz Kazenske sitting right next to him, and certainly they're going to be addressing many of these problems.
We always have problems. I think frankly the Patent and Trademark Office is run very well. I think it's a very good organization, and I think most of our customers think so. But in any big organization you always have problems.
But let me say that it's very, very hard. I mean, one thing I can tell you after 5 years, running a Government organization, with all of the restrictions, and problems, and difficulties that you have, and everybody getting into your business, is something that a private sector manager couldn't even comprehend. So it's hard to—I think it's sometimes hard to do everything as well as you might like. But by and large, we are making a lot of progress. We've met with our customers, we know what their problems are, and we're addressing those problems.
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One of the things that we are doing to address those problems, is that we are reorganizing our Patent Corps into what we call industry clusters. We don't know exactly where our business is going to come from at any given time, and 1 year we find the biotech applications are up, and another year they're down. One year we find that in the electronic industry we may get certain kinds of software applications that are up, some are down. And so what we are doing is, we're organizing our various technology groups into clusters, so that we can move employees to where the work is, and help to deal with backlog problems. In addition, we are actively engaged in training our employees.
Now, I know that there's been some criticism by one of your witnesses about our training programs, but I would just note that the American Academy of Public Administration has done a study of this matter, and notes that we devote 5 percent of our budget to training, and they say this amount is generous compared to the training budgets of other Federal agencies and managers—matches the budget allotment for training suggested by the Volker Commission.
We have dynamite training programs at the USPTO, and a combination of training, the automation that I referred to, and reengineering our work processes—and an example is that technology cluster situation that I mentioned, are going to resolve our problems.
One thing that we really need though to fully resolve these problems is the legislation that you refer to in your opening statement.
The Patent and Trademark Office needs a professional chief operating officer to run it, and it needs the freedom of management that your bill, which has been developed in cooperation with the Administration, H.R. 400 gives. And so, I really hope that the Senate will move on that legislation. In the absence of doing that, it's really hard. We do our best, but it's hard to address every single problem.
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Mr. COBLE. Thank you, Commissioner.
Recognizing in order of appearance, the gentleman from Tennessee, Mr. Bryant.
Mr. BRYANT. Thank you, Mr. Chairman, and I very much appreciate your hospitality on this, and I will certainly be brief, recognizing that I'm not actually a member of this subcommittee.
Good morning, Mr. Commissioner. I would like to pose a question to you if I could. Mr. Commissioner, when the Judiciary Committee, and later the House, approved H.R. 400 the 21st Century Patent System Improvement Act last year, we addressed the concern of many that in the event of unusual regulatory delays at PTO, and the approval of patent applications, the commissioner should have the power to extend the applicant's patent term, to restore the time lost in the process. Given the magnitude of the effort of H.R. 400, I wonder whether we should have looked further to consider the effects of similar delays that occur in other Federal regulatory agencies.
For example, under the Hatch-Waxman Act, several of the so-called pipeline drugs experienced extraordinary regulatory delays, well beyond anything that was anticipated by Congress. Some of these delays were for more than 10 years at the FDA.
My question to you is, what would you think about setting up some sort of administrative within PTO to review claims for patent term restoration for these types of pipeline drugs, or other patented products that have been subjected to extraordinary regulatory delays, external to PTO?
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Mr. LEHMAN. Well, Congressman, I can't—the Administration obviously has not fully considered that issue, so I can't speak for the entire Administration; I can only speak for myself in the matter. But I think that that would be an excellent idea.
And in fact, one reason I think it would be an excellent idea is because, before I became the Commissioner, maybe about 6 or 7 years ago, Senator DeConcini, who was then chairman of the counterpart Senate subcommittee to this one, was addressing that very problem, and asked me to come as an impartial expert witness to testify on this, and I said I thought that what we really needed to deal with this problem of private patent bills that we were constantly getting in the Congress, was to have a more objective procedure. And that could be housed in the—and I mentioned several places where that could be done, and it could be done by the Commissioner of Patents and Trademarks, to consider those very questions.
I think the very fact that you have private patent bills every year that pass the Congress—and you do—that extend patents outside the parameters of Hatch-Waxman, suggest that there's a problem, and that should be regularized. And it seems to me that it shouldn't depend on whether you're able to hire good lobbyists or not to get that done. That's not very fair. There should be a more objective procedure, and I think something like you suggest is a very good idea.
Mr. BRYANT. Thank you. Thank you, Mr. Chairman.
Mr. COBLE. I thank the gentleman. The gentleman from Massachusetts, Mr. Delahunt.
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Mr. DELAHUNT. I just have one question, maybe two, for the Commissioner.
In terms of the caseload per examiner, since we last met, which was approximately a year ago, what is that caseload for each of your examiners? Has it gone up?
Mr. LEHMAN. Yes, it's going up, yes. And that's one reason why we have—as I mentioned in my statement, one of my principal objectives is the hiring of over 1,000 new employees, including I think about 600—I think it's 600, isn't it—650 new patent examiners to deal with that problem.
Mr. DELAHUNT. Might this be the basis for some of the complaints that we're hearing about?
Mr. LEHMAN. Absolutely. Absolutely it is. Yes, we've been doing our job just like every other Federal agency, in trying to do more with less. And, you get to a point where I think you get a little frayed. And we recognize that, the Administration recognizes that, and we're moving to address that problem.
Mr. DELAHUNT. And I for one also recognize that, and I want to make that a matter of record. I mean, if we're asking an agency to do the impossible, it's unfair, and this is that kind of a situation. I just want to note that for the record. That's all I have.
Mr. COBLE. I thank the gentleman. Gentleman from Indiana, Mr. Pease.
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Mr. PEASE. Thank you, Mr. Chairman. Mr. Lehman, thank you for being here. I apologize. I'm trying, as many of us, to be in two committees at the same time, and if the things I ask you are things that you've already discussed, tell me, I'll stop.
When this committee was dealing with H.R. 400, which I believe was unanimously supported by this committee, one of the areas that we ended up removing was the whole issue of facility space for the office, and there was a good deal of controversy around that, and some of it seemed to come from a conventional wisdom that the office had not increased its staff size at all, or at least not significantly over the last 10 years or so, and therefore the question, why is there a need for more space.
Can you address that concern?
Mr. LEHMAN. Yes, I can. Well, first of all there are two issues; do we need more space or do we need to have new leases, I guess is what you could say.
As I mentioned earlier to the chairman, it's very important to understand that we rent space. Our leases are expiring. A good many of them already have expired, we're on a month-to-month basis, so we have to something about that. Then the question is, how much space should we rent when we're leasing new space.
We have worked very closely with the General Services Administration, and our RFP is for just shy of 2 million square feet of space, and at the present time I believe we have approximately 1,700,000 square feet of space.
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We are planning on having, by the year 2003, a 37 percent increase in the size of our workforce, but we're only going to increase the amount of space by about 20 percent. So I think that suggests that we're again trying to be as prudent as we possibly can.
The business is booming. In response to Mr. Delahunt, I just indicated we're going to hire new patent examiners. We expect to take our workforce from the current 5,200 to about 7,100 in the next few years to deal with this problem; we got to have a place to put these people. And we're doing that I think very prudently. And in fact we are asking our patent examiners to take a reduction in the size of their offices from the current 150 square feet—I think that's 150 square feet—to 120 square feet.
Mr. PEASE. Are there particular space needs that would increase the cost beyond average office space rentals in the Washington, D.C. area?
Mr. LEHMAN. No. The RFP requires that the space be cheaper than we're now—that the per square foot cost be cheaper than what we are now paying.
Mr. PEASE. I understand that. But I mean, as compared to other office space in the District, or in the area——
Mr. LEHMAN. No. Our costs are comparable to what other—we have a lot to go on, when we look at other Federal agencies that have moved recently, and our costs are pretty much right on the button with everybody else.
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Obviously, one of the advantages of having new leases, and even if we stay in our present location or if we move, having the buildings renovated and so on, is that—I mentioned technology and the importance of technology. I think it should go without saying, there's not a business in America that's going to stay in business very long, if it doesn't wire up and get with the program in terms of electronic automation. And, of course that requires that you have your buildings wired, that you build smart buildings and so on and so forth. That's a factor, but that's a factor that anybody, any private sector organization or any government organization would face.
Mr. PEASE. I appreciate that. Regarding computer systems and upgrades, how do you go about, or have you recently gone through a systemic and systematic review of your computer needs, and if so, what conclusions have you come to, and what purchases have you made, or will you be asking for in the near future?
Mr. LEHMAN. Well, the answer is that, yes, we have; we've done a number of things. First of all, we have just published a strategic plan for automation, which I'd be happy to give to you. I think it's a very fine plan, that will carry us through the next 5 or 6 years or so. I think it's one of the best plans in Government. I think you'll find very few Federal agencies that have such a well documented approach to automation.
But secondly, as I mentioned, our automation program began in 1982 at the direction of this subcommittee, and it's been a pretty successful one. Probably the most recent major event was that we have two—we've always had a major subcontractor that we look to, to handle the big automation projects, and about 2 years ago that contract was expiring, just like our lease is expiring. It was held by a company called PRC, Planning Research Corporation. And again, working with the GSA, we issued an RFP. Anybody that was interested could apply for that, and we went through a very extensive review process, and we selected two contractors to replace PRC. And they each have 5-year $250 million contracts with the PTO, and we do most our automation procurement through them, through using those two contracts. And the reason we went to two contractors is so that we could get them competing with one another for the best deal.
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Mr. PEASE. Thank you very much.
Mr. COBLE. Thank you, Mr. Pease. Thank you gentlemen.
Commissioner, it's good to have you with us.
As I said before, we will continue to stay in touch with you.
Mr. DELAHUNT. Mr. Chairman, can I just have one question, and maybe this has been responded to earlier.
But you indicated the RFP insists that you pay less, I presume on a square foot basis.
Mr. LEHMAN. That's correct, yes.
Mr. DELAHUNT. Has the real estate market, the rental market, declined in the District?
Mr. LEHMAN. Well, first of all, we're not in the District, Mr. Delahunt, we're in Virginia.
Mr. DELAHUNT. Well, Virginia.
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Mr. LEHMAN. And the legislation—there's a specific legislative mandate by the Congress that we stay in Virginia, so we only are——
Mr. DELAHUNT. I was unaware of that.
Mr. LEHMAN. Our area that we looked in was only in Virginia.
Mr. DELAHUNT. You'd be welcome in Massachusetts, because I'm sure—I've got a great place in my district. Cape Cod is nice, even in the winter.
Mr. LEHMAN. It sounds nice to me actually.
Mr. COBLE. If that gentleman, would yield, shades of Senator Byrd coming——
Mr. LEHMAN. I find Nantucket to be a very lovely place. The only problem is——
Mr. DELAHUNT. Great place with 2 million square feet of——
Mr. LEHMAN [continuing]. I don't know that they want 5,000 or 7,000 employees there; that's a big problem. I know there are a lot of land use problems up there in the Cape.
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In any event, the catchment area, the area that we have, goes all the way out practically to Leesburg, and it's most of Northern Virginia, and we work with the GSA. And there are four companies that have answered our call, and indicated they're willing to provide us space at these prices. I guess the answer is, that the market is saying that we can get away with this.
Mr. DELAHUNT. Thank you.
Mr. COBLE. Thank you, gentlemen.
Commissioner, good to have you with us. We will continue to be in touch with you, and you with us.
Commissioner, as the matter for the record, Representative Burton of Indiana has asked that certain questions be put to you, and request your response, and we have shared that with your staff. And without objection, that correspondence will be made a part of the record.
[The information referred to follows:]
| U.S. Department of Commerce, |
| Patent and Trademark Office, |
| Washington, DC, May 15, 1998. |
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
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Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN: Enclosed are responses to the written questions you forwarded on behalf of Representative Dan Burton in connection with the Subcommittee's March 19, 1998 Oversight Hearing on Patent and Trademark Office funding and operations.
It was a pleasure to discuss a wide range of important issues with you and your Subcommittee members. We look forward to working with you and your staff on PTO's operational and funding matters, as well as on the many significant legislative initiatives relating to the protection of intellectual property.
Sincerely,
| Bruce A. Lehman, |
| Assistant Secretary of Commerce and |
| Commissioner of Patents and Trademarks. |
Enclosure
1. QUESTION: In the past, you have advocated turning the PTO into a performance-based organization. Falling within those plans was a push to move patent applications through the office quickly. According to current PTO policy, how much time should be allotted to each application for examination purposes? Recognizing the importance of issuing quality patents in a timely fashion, once a patent has been referred to the PTO administrative appeals board, how long does it take for the office to take action? Is there an official policy on the length of time internally opposed applications should take to be issued?
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ANSWER: The time allotted per application depends on complexity of the application and the examiner's grade. The current average time for examination by a GS–12 equivalent examiner is 21.26 hours.
We continue to believe that enactment of legislation to transform the Patent and Trademark Office into a performance-based organization would enable us to issue patents in a more timely fashion and to improve the quality of the patents we issue by giving us administrative flexibilities to operate a dynamic and continually growing organization. Even without enactment of this legislation, we now believe that we can reduce our average cycle time to 15.7 months by the end of this fiscal year. (''Cycle time'' is our measure for the average processing time taken by the Office per invention. It does not include time taken by applicants to respond to Office actions but an ''invention'' could encompass a series of related applications.) If we are provided the level of resources requested in the President's budget this year, we believe we can reduce the cycle time to 13.8 months in fiscal year 1999. Our goal is to reach a cycle time of 12 months for all inventions in 2003 and to maintain it in subsequent years.
Although a relatively small percentage of all cases go to our administrative board (2.1%), the Board of Patent Appeals and Interferences (BPAI) takes too long to decide appeals. For example, the average pendency period of the 338 ex parte appeals decided in January 1998 was 25.6 months. This period is measured from the date the application is received by the Board to the date of the Board's decision. We are in the process of hiring an additional 14 Administrative Patent Judges for the Board and hope to reduce the pendency period to 18 months by 2002, given adequate resources in subsequent fiscal years.
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2. QUESTION: How much has the PTO spent on computer systems and upgrades over the last five years? What type of process did proposed system upgrades go through before they were approved and purchased? What evidence is available to confirm that these new computer systems have improved the efficiency of the office?
ANSWER: Total spending on computer system developments, upgrades, operations and maintenance over the last five years is as follows (dollar amounts in thousands):
Our requirements for the use of information technology depend on the needs of the patent examining operations, the trademark examining operations, and the management operations. Thus, planning for the nature of the information technology products to be acquired is integrated with the planning for these operations using the principles set forth in the Government Performance and Results Act. The acquisition of products identified during this planning process is conducted in accordance with the principles set forth in the Clinger-Cohen Act.
Our plans are made available to the public in a document entitled Strategic Information Technology Plan and public comments are encouraged. The most recent version was published last December and was distributed to many of our customers in paper form and is currently available to any member of the public on our ''home page''—''www.uspto.gov''. This document provides considerable detail on our selection, acquisition and evaluation of information technology.
Since our first plan to automate the Patent and Trademark Office, we have maintained that, first and foremost, automation would enable us to improve the quality of the patents and trademarks that we issue. Increased efficiency was and is a significant secondary benefit. During studies conducted a number of years ago, we found that seven percent of the paper records in our search files were missing or misfiled, more in the faster growing areas of technology such as electronics. Using electronic files for searching, however, guarantees that 100 percent of the documentation is available to all examiners at all times. Thus, the quality of the searches we do increases and the quality of the issued patents is enhanced.
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It is very difficult to measure this increase in quality, but there are indications that they are real. For example, we review a statistically significant sample of applications in which the examiner determined that all the claims were patentable. The percentage of instances where the reviewing staff decided that there were mistakes sufficiently significant to warrant a reversal of the examiners patentability determination is called the ''reopening rate.'' This rate has dropped significantly recently and we believe that it is attributable in large measure to a better search file. Also, examiners appear to be using the electronic search systems more than the paper files. This also indicates that they believe that they can retrieve the pertinent information about relevant inventions more quickly and more accurately from the electronic data base, rather than the paper one.
Significant operational improvements have resulted from the deployment of office automation. The work flow within the patent business has been improved through a reduction in the number of steps required in the examination process. Prior to the general availability of office examiners would write their office correspondence in long hand, have it typed, correct the typing, review the retyped document and then submit it for mailing to the applicants. Now, examiners normally type their own correspondence, reducing internal processing time. The networking of the examiners' computers and the deployment of electronic mail has also enhanced performance and efficiency. Examiners share search results, exchange results, and coordinate their work. This previously did not occur, or was done by personal office visits. Examiners now have immediate and convenient access to relevant notices, procedural updates, and general office information. Better informed employees are more dedicated and more productive.
The impacts of information technology investments also have been significant in the trademark business. Currently, trademark records are more readily accessible (both from being available on-line and by tracking the location of the paper files), searchable electronically (from any location that the system is extended to), and processed more quickly (with less manual requirements for publication). Management reports profile the activities in trademark operations, which provides its managers with better decisionmaking support.
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Perhaps, more significantly, we are entering the era when we can accept applications electronically and soon will be able to process them electronically. This should increase our efficiency dramatically. We will be able to generate filing receipts and actions more promptly and more accurately. Furthermore, we will be able to generate and disseminate patent documents electronically, thus reducing costs and maximizing accuracy.
3. QUESTION: You were quoted in a December 8, 1997 Los Angeles Times article commenting on a pending case involving the recently deceased Jerome Lemelson. In essence, you were reported to have said of Mr. Lemelson, ''It's an extortion scheme, pure and simple. I don't believe Lemelson ever opened a factory to produce a product. The Lemelsons of the world and their lawyers are engaged in a huge litigation scheme which does not serve the system,'' According to the Manual of Patent Examining Procedure rule 1701 office personnel shall not express an opinion on validity or patentability of a patent. Given that you are an officer of the U.S. Government and Commissioner of the Patent and Trademark Office, required to represent all patent applications without preference or hostility, what was the purpose of your comments?
ANSWER: The purpose of my comments was to concur with the observations made by the article's author (reflected in the two paragraphs immediately preceding my comments) regarding the ''massive litigation legacy'' created by Mr. Lemelson and his lawyers. My comments in no way expressed an opinion on validity or patentability of Mr. Lemelson's patents.
4. QUESTION: Concerns have been voiced regarding the cost of the proposed new building. Why does the USPTO need a new and bigger campus? It is my understanding that the PTO employee level has remained relatively stagnant and with consolidation there should be significant space savings. If this is the case, can you explain the PTO's need for a 40% increase in building space? Is it true that the reported per square foot cost is two to three times the price of other government buildings with similar amenities and technical requirements? If you maintain that a $45 per square foot price is standard, would you please provide written support for this cost?
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ANSWER: The PTO currently occupies approximately 1.7 million occupiable square feet of space in 16 separate Crystal City buildings leased for us by the General Services Administration (GSA). GSA is in the process of competitively acquiring approximately 2 million occupiable square feet of consolidated leased space to house PTO for a twenty-year term. This process is being done in accordance with the Competition in Contracting Act and with directions given by the prospectus authorizations, the Public Buildings Act, and by the House Committee on Transportation and Infrastructure (on November 16, 1995) and Senate Committee on Environment and Public Works (on October 24, 1995).
All of the basic elements of this procurement, including the amount and type of space required, the maximum rent, and the geographic boundaries for the competition (Northern Virginia), were developed by GSA in cooperation with the PTO, the Department of Commerce, and the Office of Management and Budget, and were approved by the appropriate Congressional committees before GSA initiated the procurement.
The project, as authorized, calls for a 20—not 40—percent increase in the PTO's occupiable space. ''Occupiable'' square footage is the most meaningful measure of the authorized increase in space that we can actually use to house our operations, and is the measure shown in the housing plan that accompanied the prospectus. The Committees authorized the lease of a range of 2.17 to 2.39 million rentable square feet (the measure used to quote rental rates in the local real estate market, which includes a proportionate share of spaces such as lobbies, rest rooms, etc.; the range is provided so as to account for possible differences in the efficiency of proposed buildings). The PTO currently occupies approximately 1.9 million rentable square feet. Design efficiency is one of the factors that is being used to evaluate the ''best value'' offer.
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The PTO requires expansion space whether we consolidate or not. Our current budget projections call for a 37% increase in our work force (from the current level of 5,200 employees to 7,100 by the time we occupy the consolidated facility in 2002). In this same period, the PTO workload is expected to grow by approximately 27%.
Also, to meet our long-term needs and Federal building standards, our existing space would require alterations in order (i) to facilitate the PTO's reengineered processes and automation programs and (ii) to fully comply with current (but not grandfathered) fire, life safety and accessibility codes. Consolidation of our facilities from 16 separate buildings, currently spread over more than a 1-mile distance, to the no more than 8 contiguous structures called for in the procurement will also (i) greatly enhance program efficiency and (ii) make the complex more accessible to our employees and customers.
The prospectus-approved rental rate is $24 per rentable square foot (RSF), in fiscal year (FY) 1996 dollars. The prospectus provides for 2.9% annual escalation to date of occupancy; so the limitation will be $28.49 per RSF by the date of projected occupancy in 2002. The PTO currently pays, on average, about $26 per RSF, as compared to an FY 1998 escalated prospectus limit of $25.41 per RSF. We believe that our long-term rents under this procurement will be comparable to those that we would pay for our current non-consolidated space, much of which is in buildings that are over 25 years old and that require major modernization.
The $45 figure cited refers to the fit-out allowance for the consolidated space. First, it is important to understand the fit-out approach that is being used in the procurement. The Solicitation for Offers (SFO) for the PTO's consolidated space, unlike most Government leases, requires the successful offeror to deliver a facility approximating a ''cold, dark shell'' with certain base building systems in place, plus an $88 million ''fit-out allowance'' to construct all tenant spaces—$44 per occupiable square foot. This fit-out allowance is included in the prospectus-approved rent—i.e., the successful offeror amortizes it in the rent. It is not a one-time or an additional cost to the Government.
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Normally, when the Government leases space, secondary distribution (e.g., electrical circuits, air conditioning ducts/controls and lights) is already in place, in a ''grid'' pattern selected by the developer. Often, the ceiling and floor finishes are also installed. For the PTO lease, this secondary distribution will be designed and constructed as part of the $88 million fit-out allowance. GSA/PTO chose this approach so that secondary distribution can be designed to fit PTO's reengineered space layouts and to improve distribution of heating, ventilation and air conditioning (HVAC). (PTO's employees have identified improved HVAC as their top priority for the consolidated facility). GSA has a detailed independent government cost estimate supporting the $88 million figure, which includes several years of construction cost escalation, since some spaces will not be constructed until 2001–02.
GSA estimates that approximately $26/occupiable square foot (osf) is required to construct the ''cold dark shell'' to ''warm lit shell'' improvements at the PTO's consolidated facility, including carpet and ceiling. This figure includes design fees and lessor markups, as well as cost escalation to the projected time of construction. Approximately $18/osf is budgeted to construct the remainder of the tenant fit-out, including doors, partitions, electrical outlets and support spaces such as galleys and conference rooms. The ''joint use'' spaces, such as the public search facility, auditorium, cafeteria and fitness center are also funded from the $18/oaf. This $18/osf for tenant fit-out is comparable to other recent GSA lease projects. For instance, the Advanced Acquisition Program (AAP) includes the ''warm lit shell'' construction in the base rent and provides $15/osf for tenant fit-out.
5. QUESTION: The mission of the PTO should be to issue valid, defendable patents. To that end, why are foreign patents not being included in the ''shoes,'' even though the office has been directed to do so by Title 35 U.S.C. Section 41(h)(2)(I)1?
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ANSWER: We are well aware of the value of foreign patent documents in the examination process and continue to make them available to examiners. We, however, now make them available in forms other than paper copies filed in the ''shoes'', as the statute cited does not require maintenance of paper files. In fact, some of the new methods of delivering information in these documents are more efficient than searching paper copies. For example, as I mentioned in my testimony, English-language abstracts are available on-line to examiners in searchable form with paper copies of the original documents identified during the search made available if the examiner wishes. Furthermore, we plan to increase electronic access to foreign patent documents in our searching system and to promote through the World Intellectual Property Organization rapid access to the data bases maintained by other industrial property offices, as I mentioned. While we believe that electronic access to this information is more efficient in the long term, we are maintaining the existing paper files of the pre-1995 foreign patent documents at present.
6. QUESTION: You have publicly stated that one of the most critical reasons for 'corporatizing' the PTO is a need to increase the size of the examining corp. If that is the case, why is the office below the current full-time employee cap? Understanding that a highly qualified workforce is necessary in the examining core to ensure high quality patents are issued, why have training opportunities for examiners been reduced?
ANSWER: PTO's fiscal year 1998 approved budget included full-time equivalent (FTE) position ceiling of 5,528. By implementing our hiring plan for this fiscal year, we will come very close to that number. We recognize that the picture was very different at the end of fiscal year 1997. Although the approved level for 1997 was 5,350, the PTO only reached a total of 5,134 FTE at the end of last year. This was 216 FTE under the approved 1997 FTE ceiling and was directly attributed to our decision to curtail hiring due to funding uncertainties.
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This situation changed when the 1998 Appropriations Act provided the PTO with authority to spend at the level of $712 million and we are aggressively attempting to hire a large number of new examiners.
As was the case in hiring, training programs which were in place for several years had to be severely curtailed due to funding uncertainties. However, in November 1997, the Office was able to revise its fiscal year 1998 plans under the provisions of the C-J-S Appropriations Act (P.L. 105–119). The Examiner Education Program was reinstated in its original format. The Law School Tuition Assistance Program and after-hours college technical training programs were carefully studied and modified, and are currently being discussed in partnership with the Patent Office Professional Association (POPA). While we have proposed up to $5,000 per year for after-hours college technical training and up to 24 hours per year for law school, POPA has not yet agreed to our proposal. Therefore, we have been unable to implement these two programs.
For 1999, the proposed average dollar allotment per (full-time equivalent) employee in our Office is $1,320. This allotment excludes costs associated with the initial patent examiner training program and other internal courses that the Office provides. The American Society of Training and Development reports that the annual average for high-tech private-sector companies is $911 per employee. (Attached, for your information, is a copy of the report that was sent to the Chairman of the House Appropriations Committee's Subcommittee on Commerce, Justice, State, the Judiciary, and Related Agencies.)
Mr. LEHMAN. We're happy to do that, Mr. Chairman. Thank you.
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Mr. COBLE. Mr. Rogan, I stand corrected. You have joined us belated. Did you have a question for the Commissioner?
Mr. ROGAN. Mr. Chairman, thank you. Actually, I did want to discuss with the Commissioner, certain areas relating to FDA delay on pipeline drugs, but it's my understanding in my absence that Mr. Bryant did pose those questions. If I have any follow-up questions in that regard, I assume I may simply submit them to the Commissioner. I apologize for my delay in arriving.
Mr. COBLE. Mr. Bryant did put that question on your behalf.
We will now invite our second panel to come forward. The first witness on the second panel will be Mr. David C. Stimson. He is the president of the International Trademark Association. He is responsible for the Worldwide Trademark and Copyrights on the Consumer Imaging and Kodak Professional and Entertainment Imaging Division of Kodak.
Our second witness is Mr. Mike Kirk, who is the Executive Director of the American Intellectual Property Law Association, who should, and I think perhaps does, collect his mail at the subcommittee office. Our next witness on this panel is Mr. Norma L. Balmer, who is President of the Intellectual Property Owners and Chief Patent Council of the Union Carbide Corporation. Mr. Balmer attended the George Washington University National Law Center, earning his J.D. there some recent years ago; recent years comparatively speaking to some of us, Mr. Balmer.
Our last witness on this panel is Mr. Roger Coe, who is the Director of Patents and Licensing at Elkhart Site at the Bayer Corporation, testifying on behalf on the American Bar Association. Mr. Coe's activities include supervision of patent application preparation and worldwide prosecution, the licensing of intellectual property, and preparation of other agreements. Mr. Coe earned his J.D. from Georgetown University and his undergrade degree from the University of Iowa.
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We have written statements from all the witnesses on this panel, and I ask unanimous consent that they be submitted into the record in their entirety.
Gentlemen, good to have you all with us, and I will again respectfully request that you keep a sharp lookout on the red light, and when it illuminates in your eyes, that is a subtle warning to you to sort of wrap her up. Thank you for being with us.
Mr. Stimson, why don't we begin with you.
STATEMENT OF DAVID C. STIMSON, PRESIDENT, INTERNATIONAL TRADEMARK ASSOCIATION
Mr. STIMSON. Thank you, Mr. Chairman, good morning. The International Trademark Association appreciates the opportunity to work with the subcommittee in conducting effective oversight of the U.S. Patent and Trademark Office, an agency which plays a pivotal role in promoting America's leadership in the global economic community.
The first step in any oversight hearing, as you have already said, Mr. Chairman, is to acknowledge that not one penny of taxpayer money goes to running USPTO. Patent and trademark owners pay for all the operating costs.
Intellectual property owners have been willing to pay for the protection afforded by a Federal registration. On the trademark side, as Commissioner Lehman said, the number of applications filed annually has increased greatly. Between 1975 and 1995, it rose from 36,000 to 175,000. As the Commissioner said, the number for the Fiscal Year 1997 is close to 225,000, and that number is expected to grow.
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The growth in filings is evidence of the high level of commercial activity being undertaken not only by American companies, also by those seeking to invest in the United States. I'm obliged, however, to report to the subcommittee that trademark owners are not receiving an acceptable return on our investment. This lack of return is most evident when we look at what I've referred as pendency numbers.
Despite an agreement between the USPTO, Congress, and trademark owners, which calls for first action on trademark applications to be within 3 months, the latest report places the figure closer to 7 months. The average time for receiving final notice of registration is nearly 16.5 months, despite the agreed upon 13 months. Related to these delays is the number of unexamined trademark applications, which now stand at nearly 107,000, almost half the number of all the applications the trademark office received during Fiscal Year 1997.
We are encouraged to see that the administration is placing a priority on bringing first action pendency numbers down to a more manageable level of 3.9 months; yet in the rush to reduce pendency and clear out the backlog, the issue of quality remains a paramount concern for INTA. INTA members have indicated repeated lapses in the quality of trademark examinations.
Every time a mistake occurs, documents must be returned to the PTO for correction, a process which can take up to 6 months. While these corrections are being made, trademark owners are faced with costly delays. First, they must spend more money on outside counsel. Second, without a valid trademark registration, a trademark owner cannot register with the U.S. Custom Service to obtain protection against imported counterfeits. Third, these mistakes can impact the ability of American companies to enforce their rights overseas.
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The need for reform has never been more crucial than today, and that is why INTA is very disappointed to learn that the president's proposed budget for Fiscal Year 1999 transfers $116 million raised through the patent fees to the general treasury.
Let be clear, Mr. Chairman, INTA has in the past, and continues to oppose any diversion of money raised through intellectual property user fees, or any cap on the amount of user fees that the agency can spend for its operating costs. Although we recognize that the administration's budget proposal is directly solely at patent fees, if adopted it clearly will have a negative impact on trademark operations. Many shared services, such as automation and accounting, will lose vital revenue provided by the patent side. The diversion of money raised through payment of fees to USPTO also prevents the agency from meeting the needs of its customers in the future, and will throw the USPTO into an ever-increasing deficit.
The final reason for opposing a diversion of PTO money, Mr. Chairman, is based on an axiom which you and Chairman Hyde stated in your July 9, 1997 letter to Representative Harold Rogers, ''Fees paid to the PTO are paid by PTO customers for particular services in order to protect their intellectual property.''
In essence, the diversion of money raised by the PTO for purposes outside the agency amounts to a hidden tax on intellectual property owners. INTA questions the soundness of a fiscal procedure which places an unwarranted price tag on innovation.
Today, I urge the members of the subcommittee to actively engage the administration on the question of taxing instead of investing in intellectual property. The USPTO is broken, but not beyond repair. Initiatives, such as the Government Corporation proposal, an important part of your legislative agenda, Mr. Chairman, can go a long way toward alleviating many of these problems. INTA strongly supports this effort, and will continue to work with both the House and the Senate to make sure it becomes a reality.
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In addition to the Government Corporation concept, Congress should look at other ways to ensure a more efficient PTO, such as the establishment of a mechanism for the PTO to have an accurate and realistic long-range budget plan. The implementation of an effective electronic filing system also will help to modernize this inadequate process.
In conclusion, the clock is ticking, Mr. Chairman. The appropriations process is already in motion, and everybody in Washington is fighting to get a piece of the pie. In this process we must not forget that it is the Nation's intellectual property which has enabled it to become the world's preeminent economic power. Accordingly, the USPTO and the money it raises must not be seen as a cash cow to be milked by unrelated government agencies and programs. The agency's customers and Congress should not stand by idly and permit that to happen.
That concludes my testimony, Mr. Chairman. I do have one additional comment.
This is the fourth time I've had the honor of appearing before this subcommittee. My term as president of INTA will expire in May, and absent any unusual legislative activity in April, this will be my last appearance. I wanted to thank you, Mr. Chairman, the other members of the committee, the subcommittee staff, especially Mr. Glazier, and Mr. Garlock, and Mr. Merritt, for the courtesies they've shown, and the support you've given to trademark owners. We've worked together on government corporation, giving more autonomy to the Trademark Office. We've worked on Internet issues, Trademark Law Treaty, Madrid Protocol, and I would just like the record to reflect my appreciation, both personally and as president of INTA, for the subcommittee's work on behalf of the trademark owners. Thank you.
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[The prepared statement of Mr. Stimson follows:]
PREPARED STATEMENT OF DAVID C. STIMSON, PRESIDENT, INTERNATIONAL TRADEMARK ASSOCIATION
INTRODUCTION
Good morning Mr. Chairman, Representative Frank, and Members of the Subcommittee on Courts and Intellectual Property. The International Trademark Association (INTA) is pleased to appear before the Subcommittee today to report on what it views as the condition of the United States Patent and Trademark Office (USPTO) and the ways in which the agency can improve in order to meet the rapidly expanding commercial landscape.
My name is David C. Stimson, and I currently serve as Chairperson of the Board of Directors and President of the International Trademark Association. I am employed by INTA member Eastman Kodak Company in Rochester, New York as Trademark Counsel. As with all INTA officers, board members and committee members, I serve on a voluntary basis.
INTA is a 120-year-old not-for-profit membership organization. Since its founding in 1878, membership has grown from 12 New York-based manufacturers to more than 3,500 members that are drawn from across the United States and from 119 additional countries.
Membership in INTA is open to trademark owners and those who serve trademark owners. Its members are corporations, advertising agencies, professional and trade associations, and law firms practicing trademark law. INTA's membership is extremely diverse, crossing all industry lines and spanning a broad range of manufacturing, retail and service operations. All of INTA's members, regardless of their size or level or international scope, share a common interest in trademarks and a recognition of the importance of trademarks to their owners, to the general public, and to the economy of the United States and the global marketplace.
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The membership of INTA, as well as our associates on the patent side, provide total funding for the USPTO through our user fees and have an enormous stake in how the government uses the money derived from those fees. We are therefore gratified by the willingness of this Subcommittee and its staff to engage the intellectual property community in conducting effective oversight of the USPTO. Let me also add that nothing in INTA's comments today is intended to detract from the high regard we have for the civil service employees who manage and work at the USPTO. INTA appreciates their commitment and hard work. We look forward to working in partnership to improve the operations of the USPTO.
THE USPTO TODAY
The USPTO today is among a unique group of government agencies—it is totally user-fee funded. Not one penny of taxpayer money is used to operate or manage the agency.(see footnote 1) It is also significant to note that the customers of this user-funded agency have, over a significant period of time, been active and willing to turn to the USPTO to register their intellectual property so that it can receive the maximum degree of protection permitted by law. For example, between FY 1975 and FY 1995, the number of trademark applications filed per year rose from 34,900 to 175,307.(see footnote 2) In FY 1997, according to USPTO officials, the number of applications filed was close to 225,000. This is a trend, Mr. Chairman, that shows no evidence of slowing in the future. The Administration estimates that there will be 250,000 trademark applications filed during FY 1998, and an increase to 275,000 in FY 1999.(see footnote 3)
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This growth in filings is evidence of the high level of commercial activity being undertaken not only by American companies, but also by foreign entities seeking to invest in the United States. The customers of the USPTO want to meet the challenges posed by the explosive growth in the global marketplace. In return, we expect prompt notice of filings and timely examination of applications performed by well-trained examining attorneys. I am obliged however to report to the Subcommittee that intellectual property owners, who are the customers of the USPTO, are not receiving what we would consider to be an acceptable return on our investment. This is most evident when we look at what are referred to as ''pendency'' numbers; that is, the length of time for the USPTO to take action on a trademark or patent application.
The pendency situation for trademark applications is of grave concern. Despite a congressional mandate that requires the USPTO to have ''first-action''(see footnote 4) pendency at a level of three months, the most recent report issued by the agency places the average figure at closer to seven months.(see footnote 5) Some INTA members have even reported ''first actions'' issuing after nine months. The average time for the issuance of a registration certificate, Notice of Allowance, or abandonment, was at 16.4 months at the end of December 1997,(see footnote 6) once again despite a congressional mandate which requires that the level be at 13 months. Related to these delays is, of course, the backlog in unexamined applications. INTA was recently informed that the inventory of unexamined new trademark applications now stands at approximately 106,900, an increase of 9,700 since the end of FY 1997(see footnote 7) and almost half the number of applications the Trademark Office received during that same period.
Pendency numbers should be brought down to a more manageable level, but only if a higher standard of quality control can also be put in place at the USPTO. Prior to coming to speak with you today, I consulted with members of INTA who routinely interact with the USPTO. My discussions with them indicated repeated lapses in quality which, in a related private sector customer service organization, would not be tolerated. These quality control problems can be broken down into two categories: substantive and technical.
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In the area of substantive quality control, the experience of INTA members has shown that overworked or insufficiently trained Trademark Examining Attorneys are making mistakes in the examination process. For example, trademark applications that do not meet substantive requirements for registration nevertheless proceed through the examination process; or, conversely, applications are rejected by examiners when there is no substantive basis for doing so. These repeated oversights lead to unnecessary adversarial proceedings at the Trademark Trial and Appeal Board (TTAB) on issues that should have been resolved during the examination process and add to the costs incurred by trademark owners.
Technical mistakes are even more bothersome. Misspellings, typographical errors, and erroneous dates on filing receipts, prosecution papers, and even registration certificates are routine. Sometimes even the wrong party is identified as the owner of the mark. To make matters worse, when a registrant sends documents back to the USPTO for correction, the turnaround rate can take as long as six months. In addition to these ''typos,'' several INTA members have indicated that documents and/or specimens submitted to the USPTO are lost on a regular basis. One attorney even reported that three of the documents he submitted were lost in a single week.
While all these seemingly minor, but essential corrections and document/specimen replacements are made, trademark owners are faced with costly delays. First, they must invest more money in outside counsel to amend documents. Second, without a valid trademark registration, a party may not register with the U.S. Customs Service in order to obtain protection against imported counterfeits. Third, these mistakes can impact the ability of American companies to enforce their rights overseas. Finally, technical mistakes reflect poorly on the integrity of the U.S. Trademark Register. Some trademark owners have even begun to question the need to go through the unnecessarily onerous, and, as errors mount, expensive registration process in the United States when they already have trademark rights under common law.
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THE USPTO'S BUDGET FOR FY 1999
The need for reform, and more importantly, money, has never been more crucial in light of the pendency and quality problems on both the trademark and patent sides of the USPTO. That is why INTA was very disappointed to learn that the president's proposed budget for FY 1999 transfers $116 million raised through patent fees to the general treasury. Let me be clear, Mr. Chairman—INTA opposes any diversion of money raised through intellectual property user-fees.
First, although we recognize that the Administration's budget proposal is directed solely at patent fees, if adopted, it clearly will also have a negative impact on the USPTO's trademark operations. Many shared services, such as automation and accounting, will lose vital revenue provided by the patent side. Although the Trademark Office is only 11% of the total agency, it will be forced to provide more and more funding to joint services as patent money is siphoned off to other parts of the government. In addition, the Trademark Office will be increasingly called upon to advance a grossly disproportionate share of the cost for developing programs and services which are beneficial to both sides of the agency.
Second, from a practical fiscal standpoint, the diversion of money raised through payment of fees to the USPTO prevents the agency from meeting the needs of its customers. More specifically, diverting fees paid for core services to be rendered in the future will throw the USPTO into an ever increasing deficit. If year-end money is diverted from the application it accompanies, then someone else in the future pays for processing those applications. This fiscal deficit will only exacerbate the backlog problem which I spoke of earlier. It will also deprive the agency of its ability to create a proper reserve or cope with unexpected large-scale expenditures.
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A third reason for opposing a diversion of USPTO money, Mr. Chairman, is based on an axiom which both you and Chairman Hyde stated in your July 9, 1997 letter to Representative Harold Rogers, Chairman of the House Appropriations Subcommittee on Commerce, Justice, State and the Judiciary:
''Fees paid to the PTO are paid by PTO customers for particular services in order to protect their intellectual property.''
In essence, Mr. Chairman, both you and Chairman Hyde concur that the diversion of money raised by the USPTO for purposes outside the agency amounts to a hidden ''tax'' on intellectual property owners. INTA wholeheartedly agrees with this position. We, like you, question the soundness of a fiscal procedure which places an unwarranted ''price tag'' on innovation. Intellectual property owners expect that their investment will go into protecting their intellectual property, not for other purposes. When INTA members, for example, pay $245 per class for each trademark application, they expect that all of that money will be appropriated back to the Trademark Office and used to examine the applications in a precise and timely fashion. Why should inventors and trademark owners be taxed for their creativity—for their willingness to contribute to the evolution of the commercial landscape? Today, I would like to urge the members of the Subcommittee to actively engage the Administration on the question of ''taxing'' instead of investing in intellectual property.
PENDENCY VS. QUALITY
The Administration's budget is not all ''doom and gloom.'' Despite the proposed diversion, the budget does call for an increase of more than 200 full-time staff members in the Trademark Office to a level of 843. It is our understanding that the majority of the additional personnel are Trademark Examining Attorneys, a much needed commodity at the Trademark Office if we are to see a noticeable drop in pendency. Speaking of pendency, the Administration has made a commitment to reduce ''first action'' pendency in the Trademark Office to a level of 3.9 months in FY 1999.(see footnote 8) These steps, in our opinion, do in fact show a real commitment by the Administration to address pendency and other related problems at the USPTO.
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Yet, in the rush to clear out the backlog of 106,900 unexamined applications, while coping with the roughly 250,000 new applications expected to be filed in FY 1998, the issue of quality remains of paramount concern to the membership of INTA. Put simply, Mr. Chairman, quality is inextricably linked to pendency. The USPTO must not become so single-minded about pendency that its loses sight of the need to produce a quality product. As I noted earlier, poor quality assurance has real substantive consequences for trademark owners and their ability to protect their trademarks both in the U.S. and abroad.
Mistakes in quality can be alleviated with proper training. We urge the management of the USPTO and the members of this Subcommittee to observe closely how new Trademark Examining Attorneys are integrated into the USPTO. Pressure to reduce pendency as quickly as possible should not be at the cost of limiting the level of training received by new employees. In addition, there must be adequate numbers of qualified supervisors to train the new employees.
Finally, the discussion of qualified supervisors leads us to comment on the need to retain personnel. Experience is the best teacher, Mr. Chairman. If the USPTO is to reach the ''first action'' pendency goal of 3.9 months, then it will need to work on its ability to retain experienced Examining Attorneys—people who know the agency and can effectively address the questions of the private bar.
WHAT IS THE ANSWER?
What is the answer, Mr. Chairman? How can we, as an intellectual property community, protect trademark and patent user-fees, reduce pendency, eliminate technical errors, obtain adequate space for new employees, and secure well-trained and experienced personnel? The list is long, but the goals are attainable. One part of the solution is already on the table—the legislation to transform the USPTO into a government corporation.(see footnote 9)
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As a government corporation, the USPTO would be free to operate in a more business-like manner—a status which is commensurate with the fact that it is a 100% user-fee funded customer-service agency. The corporation, while still under the watchful eye of the Congress, would be free from the onerous government regulations and red-tape which have thus far prevented substantial reform. For example, the corporation would be able to do the following:
eliminate stringent government hiring practices and secure experienced personnel on an as needed basis;
adequately compensate personnel based on their level of experience and performance;
procure space to meet the increased need for additional personnel without going through the lengthy General Services Administration (GSA) process; and
operate with a degree of financial flexibility by being permitted to borrow a set limit of money to meet emerging problems which may not have been contemplated at an earlier point in time.
Under your leadership and with the support of others on this Subcommittee, Mr. Chairman, government corporation legislation passed the House earlier this Congress. The battle has now shifted to the Senate. INTA is working with Senator Hatch to secure passage in that body. Once the government corporation legislation is passed in the Senate, INTA will, of course, avail itself to work with both houses to ensure that the interests of trademark owners are protected in the new government corporation.
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The creation of a government corporation, while desirable, is by no means a total solution. Congress must therefore look at additional ways to ensure increased efficiency at the USPTO. INTA recommends that the Congress establish a mechanism for the USPTO to have a long-range budget plan, accurately forecasting revenues and expenditures several years in advance, without diverting fees to other agencies in the government. This sound fiscal plan should also include provisions relating to space, personnel, and automation, which will enable the agency to handle its increasing workload. As I stated previously, the current USPTO budget process is shortsighted and leads to an uneven and erratic distribution of money.
Another step toward improving efficiency at the USPTO is the implementation of an effective and workable electronic filing system and the removal of bureaucratic encumbrances on its development. This system has been in the development stages for a number of years, but never seems to move beyond very limited pilot programs. Electronic filing will not solve all the problems but, properly executed, it will increase efficiency, enhance accuracy, and modernize an inadequate process.
CONCLUSION
Thank you once again for the opportunity to appear before the Subcommittee on Courts and Intellectual Property and present what trademark owners view as the condition of the USPTO. To summarize, as the USPTO appropriation and improvement processes continue, INTA would like to work with the Congress and other members of the intellectual property community in the following areas:
(1) oppose the siphoning of money raised via intellectual property user-fees to the general treasury for eventual use by other government agencies;
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(2) reduce the backlog of trademark and patent applications and improvement of pendency numbers;
(3) improve the quality of trademark examinations;
(4) attain passage of government corporation legislation;
(5) create a long-range business plan at the USPTO which accurately forecasts workload, revenues, and expenditures; and
(6) implement an efficient electronic filing system.
The clock is ticking, Mr. Chairman. The appropriation process is already in motion and everyone in Washington is fighting to get a piece of the pie. In this process, we must not forget that it is this nation's intellectual property which has allowed it to become the world's preeminent economic power. Accordingly, the USPTO and the money it raises must not be seen as a ''cash cow'' to be milked by unrelated government agencies and programs. The agency's investors and the Congress should not stand by idly and permit that to happen.
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.
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CURRICULUM VITAE
I have been a lawyer on the Trademark, Advertising and Copyright Legal Staff of the Legal Division of Eastman Kodak Company in Rochester, New York since May, 1986. I am responsible for the worldwide trademarks and copyrights of the Consumer Imaging, Kodak Professional and Entertainment Imaging Divisions of the company.
Prior to joining Kodak, I was a partner in the law firm of Rogers, Hoge & Hills in New York City.
I was born in Cincinnati, Ohio. I received my BA from Hamilton College in Clinton, New York and my JD from the University of Cincinnati College of Law.
Mr. COBLE. Well, thank you for your generous remarks, Mr. Stimson, and I hope that it won't be out of sight, out of mind. You're welcomed back; we'll still be out for you, I assure you. We appreciate the contribution that you have extended to this subcommittee.
Gentlemen, if you all don't object, we have two votes pending. We will stand in momentary recess while we go vote, and we will return imminently, so you all rest easy for a few minutes. We should be back in 15, 20 minutes.
[Recess.]
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Mr. COBLE. Mr. Stimson, I believe you had concluded your testimony. Mr. Kirk, good to hear from you.
STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION
Mr. KIRK. Thank you, Mr. Chairman. I appreciate the opportunity to present the views of AIPLA on the Patent and Trademark Office. I will address three topics: funding, operations, and space.
The most critical problem confronting the PTO is the diversion of user fees. Shortly after the establishment of the surcharge on patent fees in 1990, the Appropriations Committees began the practice of diverting PTO fees. The Executive Branch began treating the PTO as a cash cow in this year's budget. With the scheduled sunsetting of the surcharge on patent fees, however, the appropriators adopted a new technique to divert PTO user fees—the placing of a cap on the amount of user fees the Office can spend in a given fiscal year.
To compensate for the expected loss of surcharge fee revenue next year, Fiscal Year 1999, the President's budget proposes, as we heard from Commissioner Lehman, a $182 million increase in the base patent fees, and following the appropriators lead, a proposal to cap on the fee revenue the PTO can spend. The proposed budget would, if adopted, result in the diversion of $116 million in user fees, $66 million from Fiscal Year 1998 and $50 million from Fiscal Year 1999.
The PTO itself has not helped the situation. Last year, facing a $92 million fee diversion, the office stated that no patent examiners would be hired and pendency would rise. Inventors and their representatives were outraged. Now, even though the entire $92 million has been diverted, the PTO has announced, instead of a hiring freeze, they're going to hire 650 patent examiners this year.
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AIPLA wants the PTO to be the best patent and trademark office in the world. However, in light of the fee diversion and uncertainty of it's impact on the PTO, we oppose raising patent fees to collect an additional $182 million. We see no reason to raise fees to facilitate imposing a $50 million innovation tax on inventors. We strongly urge that any fee increase be limited to raise no more than $132 million in Fiscal Year 1999. Moreover, we believe there should be no further fee increases until the PTO is permitted to use all of its fees for the purposes for which they are paid, and only then, if the PTO provides the Congress and the user community with credible data that a further increase is needed to achieve quality examination and issuance of patents, registration of trademarks, and within the established goals.
Turning to operations. In preparing for this hearing, we attempted to take the pulse of our members regarding current PTO operations. They identified several problems in patents. Filing receipts are late and inaccurate; delays of up to five and 6 months are common. Error were reported in almost half of the filing receipts, causing additional work, both for applicants and the PTO.
In the examination process, the internal transfer of applications to achieve a better balance between workload and staffing appears to be causing a problem. The growing delays in obtaining decisions of the Board of Patent Appeals and Interferences, now 2 years or longer, is a serious problem.
We heard the problems on the trademark side earlier from Mr. Stimson. Our members reported similar problems in their comments, particularly the fact that it takes over 6 months to receive a first opinion on registerability of a trademark.
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AIPLA officers met with PTO officials regarding our findings and we were pleased with the reception that we had in discussing the problems in the patent and trademark operations. The Office personnel were aware of most of these problems and are working to correct them. We believe strongly that a similar oversight hearing next year to evaluate the progress the Office has made would be very useful.
Turning now to the space issue. Patent examiners, trademark examiners, and clerical staff are forced to work in quarters with inadequate furnishings and equipment. Many examiners are now forced to share rooms. They are denied the privacy they need to efficiently search and examine applications and to consult with applicants regarding prosecution issues. AIPLA believes that the PTO should acquire the space needed to properly serve it's customers.
We are aware that Congress has been heavily lobbied by interests opposing the effort by the PTO to obtain adequate, modern space for it's employees. We find the opponent's claims unfounded. In our judgment, the most telling aspect of the solicitation was that referred to by Commissioner Lehman—that the prospectus calls for rent at $25.41 a square foot, as opposed to the current average of $26 in their Crystal City location. We believe that this solicitation should go forward; it should not be delayed or sidetracked.
In concluding, let me say that once again, this hearing demonstrates the need for H.R. 400 and it's Senate counterpart S. 507. It is critically important in our opinion 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 with oversight by Congress and a management advisory board of users. Thank you very much, Mr. Chairman. I'd be happy to answer any questions.
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[The prepared statement of Mr. Kirk follows:]
PREPARED STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION
SUMMARY
The AIPLA wants the USPTO 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 to protect 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 identify problems early and take corrective action promptly. The enactment of H.R. 400 which would transform the PTO into a government corporation would go far towards accomplishing these goals.
Funding
The most critical problem is inadequate funding caused by the diversion of user fees for unrelated programs. The President's FY 1999 budget proposes rescission of $116 million in USPTO fees for deficit reduction, $50 million of which is to come from FY 1999 fee revenues. To facilitate this, the budget proposes increasing statutory patent fees by $182 million to offset the sunsetting of the patent surcharge fees. We urge that Congress not impose this $50 million tax on innovation. The proposed increase should be limited to $132 million. The United States, which has the most to gain from lower patenting costs worldwide, should lead by setting the proper example.
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Operations
AIPLA members identified several problems in USPTO operations. In patents, filing receipts are late and inaccurate. Delays of up to five and six months are common. Errors were reported in almost half of the filing receipts, causing additional work for both applicants and the USPTO. Other problems included delays of five to six months to complete the formalities review of new applications and, in biotech cases, several individuals mentioned careless handling of the discs containing sequence data In the examination process, the internal transfer of applications to achieve a better balance between workload and staffing appears to be causing a problem. The growing delays in obtaining decisions at the Board of Patent Appeals and Interferences—now two years or longer—were highlighted. On a positive note, the technical training and ability of examiners has improved and examiners evidence a greater willingness to work with applicants and their attorneys in helping to identify patentable subject matter.
On the trademark side, there were also reports of delays in receiving filing receipts and a high rate of errors when received. Lost files are a continuing problem. A serious problem is the unacceptably long time it takes to obtain a first opinion on registerability. The goal is three months from filing, and it currently takes more than six months. Instances were also reported of applications improperly being declared abandoned due to the failure to match papers with the file, resulting in unnecessary expenses to applicants in getting their applications re-instated.
AIPLA officers met with USPTO officials regarding these findings and were very pleased with the reception they received in discussing the problems in the patent and trademark operations. The Office personnel were aware of most of these problems and are working to correct them. A similar oversight hearing next year to evaluate the progress the Office has made would be useful.
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Space
Patent examiners, trademark examiners and clerical support staff 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.
AIPLA believes that the USPTO should acquire the space needed to properly serve its customers in the 21st century. As users of the patent and trademark systems who will pay for the costs of such facilities, we developed guidelines to evaluate space acquisition efforts and found that the SFO issued by the Office measures up well.
We are aware that Congress has been heavily lobbied by interests opposing the effort by the USPTO to acquire adequate, modern space for its employees. We have reviewed the claims of those opposing the solicitation and find their concerns unfounded. The most telling aspect of the SFO in our judgment is that all of the space is to be made available within the Congressionally-imposed prospectus limit of $25.41 per square foot. The current Crystal City space of the USPTO averages $26 per square foot and recent space acquired to accommodate the expansion of the Trademark Examining Operations cost $30 per square foot. On the basis of all of the presently available information, we would urge that the solicitation not be delayed or sidetracked.
Need for H.R. 400
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This hearing once again demonstrates the need for H.R. 400. We believe it is critically important to transform the USPTO into a government corporation headed by a chief operating officer appointed for a fixed term, with adequate and predictable funding, and with oversight by a Management Advisory Board of users.
STATEMENT
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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:
Any facility should be competitively procured, taking price and quality into consideration
Any facility should be convenient to Metrorail to provide convenient access by employees and users
Any facility should be ''automation ready'' to house modern electronic communications networks
Any facility should provide private offices for examiners, but reflect the private enterprise trend in regard to office size
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Any facility should provide reasonable amenities for employees, comparable to what private enterprise provides, including sufficient parking, health facilities, day care, and reasonably priced eating facilities
Any facility should be sufficiently compact and interconnected to promote efficiency of operations
Any facility should, with the approval of the Congress, have such ''above-standard'' items as are customary in businesses (e.g., uninterrupted power protection for computer systems).
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.
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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.
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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.
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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.
Mr. COBLE. Thank you, Mr. Kirk. As always, good to have you with us.
Mr. Balmer?
STATEMENT OF NORMAN L. BALMER, PRESIDENT, INTELLECTUAL PROPERTY OWNERS AND CHIEF PATENT COUNSEL OF UNION CARBIDE CORPORATION
Mr. BALMER. Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before the subcommittee on behalf of Intellectual Property Owners. Against the backdrop of the poster on the standards of excellence for the PTO, I'll proceed into the heart of our testimony.
My statement will not go into points raised by the other witnesses on this panel, but this does not mean that we are not fully supportive of their comments.
IPO is a trade association of businesses, universities, and individuals who create intellectual property in the United States. We draw from our entrepreneurial backgrounds in evaluating the performance of the PTO. A comparison with our operations provides insights into why we are more efficient and meet performance goals more easily that the PTO.
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Fundamental flaws exist in fiscal policies affecting the PTO, a user fee supported organization. Without correction, the standards of excellence will not be achieved and the PTO will not be able to maintain even its current performance.
It's unthinkable that a business could efficiently operate in the absence of sound fiscal policies. Imagine operating a business or a law firm without any cash reserves; where nearly 40 percent of the revenues are not related to a current business activity; where employees must be extensively trained, yet the number of employees fluctuates dependent not upon customer demands, but rather on available funds. In the private sector we have a word to describe such an operation—it's bankruptcy.
This is the very type of operation facing the PTO management. Plus the PTO has had to accommodate the effects of diverted user fees.
Our third poster graphically depicts the precarious financial position of the PTO. The bar at the far left shows patent examination revenues projected for Fiscal Year 1999. The bottom box is income from filings fees. This income is directly related to the work to be done. The next box represent income from issue fees. The amount of this income is largely within the control of the PTO.
We now turn to ''soft'' income; income outside of the control of the PTO. The third box provides 20 percent of the funds for patent examination. These funds are generated from extensions of times and other fees. Union Carbide, for instance, has reduced is extension of time fees to 10 percent of earlier levels.
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The top box is the softest, but the largest source of revenue for the PTO—maintenance fees. IPO supports maintenance fees. In Fiscal Year 1999, maintenance fees are projected to be 1.6 times the revenues from filing patent applications. Fortunately, the global economy has been robust since the inception of maintenance fees and payments have been running substantially higher than earlier forecast by the PTO. However, maintenance fees are sensitive to economic conditions. The PTO saw a decrease in maintenance fee revenues from German companies following the reunification of Germany. It's naive to assume that the current Pacific Rim financial crisis will not have an effect.
Immediately to the right is a similar bar showing what revenues might be if economic conditions were not so rosy. The difference between the heights of the two bars is the uncertainty of funding. Businesses also have uncertainty of funding. How many widgets will be sold and at what price? How many hours will be billable? Successful business can weather economic storms through the use of reserves and without emasculating their operations. The PTO has no reserves. What must the PTO do if a shortfall in revenue occurs? Fiscal Year 1997 told us—curtail long term improvement programs and allow the examining staff to dwindle.
In conclusion, IPO believes that the PTO must operate with a sound fiscal policy. Without sound fiscal policy, the user pays for inefficiencies as the PTO staff gyrates, long range improvements are delayed, and standards of excellence are not met. The first step toward fiscal policy reform has been taken with H.R. 400; its Senate counterpart, S. 507, needs to be passed; reserves need to be established; the diversion of fees, which has debilitated the PTO, must cease. The PTO should not be forced to sit at the brink of financial disaster, at the mercy of the global economy.
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Thank you, and I did beat the red light.
[The prepared statement of Mr. Balmer follows:]
PREPARED STATEMENT OF NORMAN L. BALMER, PRESIDENT, INTELLECTUAL PROPERTY OWNERS AND CHIEF PATENT COUNSEL OF UNION CARBIDE CORPORATION
Mr. Chairman and Members of the Subcommittee:
I appreciate the opportunity to appear before the Subcommittee today on behalf of Intellectual Property Owners association (IPO).
IPO is a trade association of U.S.-based owners of intellectual property rights—patents, trademarks, copyrights, and trade secrets. Our members file about 30 percent of the patent applications that are filed in the PTO by U.S. companies and inventors, and our members pay well over $100 million a year in fees to support the operations of the PTO.
In our testimony today, IPO will urge more certain funding for the PTO, and we will emphasize the need for continuing improvements in PTO operations. Commissioner Lehman and his staff have worked very hard to improve the PTO—and they should be commended—but we believe that unless the PTO can overcome obstacles it currently faces, it will become almost impossible for the PTO to maintain even current standards of public service. Our conclusions are based on PTO budgetary information and the experiences of IPO members in dealing with the PTO, including my own experience as Chief Patent Counsel at Union Carbide Corp.
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STANDARDS OF EXCELLENCE FOR THE PTO
The PTO is a large and complex organization that is expected to deliver timely, high quality services at reasonable cost. The performance of the PTO is important not only to its customers, but to the economic welfare of the entire country. Our patent and trademark laws are intended to spur innovation, to stimulate business investment, and to protect consumers.
People generally agree on the standards that the PTO should meet in administering the patent and trademark laws:
First, high quality professional examination of patent and trademark applications in the PTO always is critically important. Patents should be granted and trademarks registered only for those inventions and marks that meet the statutory requirements. If the PTO grants invalid patents or trademarks registrations, the result can be extremely expensive court litigation for businesses, universities, and inventors.
Second, processing of patent and trademark applications must be prompt. Eighteen-month average total pendency for patent applications and 3 months between filing and first examination for trademark applications are reasonable standards. Prompt action by the PTO encourages early decisions on introducing new products and processes that benefit the economy. A January 1998 survey conducted by Fortune Magazine and the National Association of Manufacturers reported that several of the businesses surveyed said a 22 month patent review process causes them to delay about a year in introducing a new product to market.
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Third, the cost of obtaining patents and trademark registrations must be reasonable. Patent and trademark fees compete for precious funds at the very time funding is needed to introduce new products. Although some IPO members believe patent and trademark fees are too high even in the U.S., our country has done a relatively good job of controlling the levels of fees that must be paid to our PTO. Patent offices in many foreign countries have substantially higher fees than those in the U.S. The high fees discourage U.S. businesses, universities, and inventors from protecting their inventions abroad. IPO members are participating in a major campaign to reduce the cost of obtaining patent rights globally.
ANALOGIES TO U.S. INDUSTRY
In IPO, where a number of the members are managers of intellectual property law departments in larger companies, we are inclined to evaluate the performance of the PTO by comparing it with operations in our companies. Such a comparison can provide insights into why our companies are able to operate more efficiently than the PTO and meet performance goals more easily.
U.S. industry is forced to be efficient and provide products and services to consumers at competitive prices in order to stay in business. Industry has the ability to give its managers and employees the authority, the flexibility, and the resources that are necessary to be competitive. Many IPO members have undergone reorganizations and dramatic downsizings in order to survive in the face of global competitive threats.
Companies do not face the uncertainty that would be caused if a portion of their income were diverted to other organizations, as has happened to the PTO. Also, companies usually have access to cash reserves or borrowed money that allows them to hire and train enough employees for their long term needs. Ordinarily, they are not forced to turn the hiring faucet on and off every few months in response to arbitrary budget decisions made by people outside their organizations.
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In some respects the PTO is similar to a private business. For example, the PTO must meet the demands of customers to process patent and trademark applications. Unfortunately, the PTO lacks the operating flexibility and certainty about resources that are enjoyed in industry.
Even the highest levels of PTO managers are constrained by government directives and multiple layers of review of every significant administrative decision. The PTO cannot even be certain whether it will be able to spend the money paid by the public for its products and services. Working in this kind of environment, it is remarkable that the PTO performs as well as it does.
GOVERNMENT CORPORATION STATUS FOR THE PTO
The PTO has experienced increasing demand for its services. The number of patent filings per year has doubled since the early 1980's, and number of trademark filings per year has quadrupled during the same period. Private businesses that experience rapid growth have the tools and resources they need in order to adapt, but the PTO continues to face roadblocks that keep it from adapting easily.
Some of the roadblocks would be removed by enactment of title I of H.R.400, Chairman Coble's patent law reform bill that was passed by the House of Representatives last year and is now awaiting action by the Senate. Title I of that bill, which IPO strongly supports, establishes the PTO as a semi-independent government corporation within the Department of Commerce that will have greater operating and financial flexibility than the existing PTO. H.R.400 includes greater flexibility on employment ceilings, pay schedules, contracting, and management of office space. We hope H.R.400 will become law this year.
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One of several features in H.R.400 that would improve the operation of the PTO is a section that recognizes the need for operating case reserves and gives the PTO the authority to accumulate and maintain such reserves. H.R.400 amends section 42 of title 35, United States Code, to state:
Moneys of the Office not otherwise used to carry out the functions of the Office shall be kept in cash on hand or on deposit, or invested in obligations of the United States or guaranteed by the United States, or in obligations or other instruments which are lawful investments for fiduciary, trust, or public funds.
I will explain why the outlook of future funding for the PTO is uncertain and the PTO needs to establish cash reserves.
MORE RELIABLE FUNDING FOR THE PTO
One of the greatest problems facing the PTO is the practice by the Administration and the Appropriations Committees of diverting millions of dollars of patent and trademark user fees every year from the PTO to other government agencies.
For 1998, Congress, on the recommendation of the Administration, is diverting $92 million of PTO fee income to other government agencies. Fee diversion is a major factor contributing to the current trend toward rising patent pendency, which has risen to 22.7 months. In 1997, fee diversion forced an almost complete freeze on PTO hiring for most of the fiscal year, despite the fact that patent and trademark filings were continuing to rise steadily and backlogs of unexamined applications were rising.
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The 1999 budget is proposing to divert even more money to other agencies than in 1998, in the name of ''deficit reduction.'' It is being referred to as deficit reduction even though the 1999 federal budget does not project a deficit. The Administration is asking Congress in 1999 to divert $116 million—which is 13.9 percent of estimated 1999 income—to other agencies. IPO is unalterably opposed to this diversion. While the Administration's proposed 1999 budget will enable the PTO to hire substantial numbers of badly-needed patent and trademark examiners, this appears to be achieved in large part through a one-time accounting adjustment of $66 million. Diversion of any money will hurt the PTO.
The PTO is facing greater-than-ever uncertainty over what portion of its income it will be able to spend to hire and train staff or buy equipment in future years. According to projections in the document entitled ''Department of Commerce—Fiscal Year 1999—Budget in Brief,'' the Administration is planning to begin diverting an additional $100 million a year of current-year patent and trademark fees beginning in 2001. We assume that if this plan becomes a reality, hiring will be shut down once again, and patent and trademark pendency will rise again.
The problems caused by diversion of PTO fees for other purposes are compounded by substantial uncertainty over future patent maintenance fee income. More than 37 percent of PTO revenue that supports patent processing—1.6 times as much revenue as generated by application filing fees—is now coming from patent maintenance fees. IPO supports the concept of maintenance fees, but the large role of maintenance fees makes it important for the PTO to have the ability to practice sound financial management. Maintenance fee income can be highly variable and cannot be assumed to continue at current levels, which are significantly higher than originally forecast by the PTO. For example, weakness in the German economy resulted in a drop in maintenance fees paid in this country by German companies. Given that more than 20 percent of U.S. patents are held by companies from Japan, Korea, and Taiwan, it is naive to assume that the current economic turmoil in Asia will not have any noticeable effect on maintenance fees paid in the U.S. in 1998 or 1999. With very little experience in the U.S. in forecasting maintenance fees and no reliable model for forecasting, it is easy to be lulled into a false sense of security when we have a robust economy.
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With this uncertainty, the PTO cannot plan orderly hiring and training of the professional examining staff that it needs to cope with future workload. It takes 2 to 2 years for a new patent examiner to be trained and reach a reasonable level of productivity. A system that causes examiner hiring to be turned on and off regularly simply does not meet the PTO's needs, and it results in substantial inefficiencies, at a cost to customers of the PTO.
IPO therefore urges the Subcommittee to adopt a system for funding the PTO that will (1) eliminate fee diversions and (2) give the PTO a financial cushion through cash reserves, to enable the PTO to plan and hire on a rational basis.
CONTROLLING PTO FEES
Under existing law, Congress sets the levels of most patent fees by statute. IPO believes Congress should continue to retain its control over patent fees. Congressional control over fees is a check and balance in the system. We support the feature of H.R.400 that would continue Congressional authority over patent fees when the PTO becomes a government corporation.
The Administration's 1999 budget recommends fee legislation to raise regular patent fees by $182 million, in order to offset a loss in PTO revenue of the same amount that otherwise will occur because of the expiration of the statutory patent fee surcharge. IPO would favor this legislation to return fees to their existing levels if the fee revenue were being made available for use by the PTO. However, the Administration in effect is proposing that $50 million of the $182 million increase should be diverted to other government purposes. We recommend that the Subcommittee approve the full amount of the fee increase only if all of the money can be made available for use by the PTO. Any excess funds should used to establish an operating reserve for the PTO to fall back on during economic downturns.
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IPO supports the PTO's current efforts to obtain modern office space and facilities, but IPO urges that careful attention should be paid to costs to avoid affecting patent and trademark fees in future years. On the one hand, new offices must have adequate space for all PTO functions, including patent and trademark searching. Despite continuing progress in automating the PTO's search files, plans for new offices should include space to house the paper search files until it becomes clearer that paper files are no longer needed. On the other hand, the PTO should make every effort to avoid using office space unnecessarily, and should not exceed generally accepted guidelines for office space needed for employees.
I will be pleased to answer any questions.
57508a.eps
57508b.eps
57508c.eps
Mr. COBLE. Well, no one has abused the red light. Well, the Commissioner mildly abused it. [Laughter.]
But other than that, no one has abused this in any way. Thank you, Mr. Balmer.
Mr. Coe.
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STATEMENT OF ROGER N. COE, DIRECTOR, PATENTS AND LICENSING AT ELKHART SITE, BAYER CORPORATION ON BEHALF OF THE SECTION OF INTELLECTUAL PROPERTY LAW OF THE AMERICAN BAR ASSOCIATION
Mr. COE. Mr. Chairman, members of the subcommittee, thank you for the invitation to testify at today's oversight hearing on the PTO.
The views I will be expressing represent those of the Section of Intellectual Property Law, which I chair, and have been approved by neither the House of Delegates nor the Board of Governors of the ABA. The Section of Intellectual Property Law has 17,000 enrolled members. We are particularly grateful for the opportunity to share our views with this subcommittee.
In preparation for my appearance here today, I reviewed the Sections' policy statements on PTO funding adopted over the years. Our position has been and is that the Patent Office should be supported adequately, that the Patent Office should not be self-sustaining, and that fees charged should be reasonably apportioned in accordance with the cost of providing a particular service.
As this subcommittee is aware, the patent surcharge was imposed to make PTO fully funded by fees. The patent surcharge was never intended to raise money over and above the amount of revenue needed to effectively operate the PTO. With the exception of one short year, however, the patent surcharge has not been administered as intended.
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Doug Wyatt, one of my predecessors as chair of the Section of Intellectual Property Law, wrote Senator Hollings in July 1994 that the withholding of user fees paid by patent applicants effectively represents a tax on those inventors and innovators who are building the country's technological and economic base. The observation made by Mr. Wyatt is no less true today than it was 4 years ago. In fact, matters have gotten much worse both in the magnitude of the diversion of funds, and in the fact that the current administration proposes to make the diversion of PTO user fees a permanent fixture of the budgetary landscape.
When the surcharge lapses we do not oppose Congressional readjustment of section 41 (a) and 41 (b) fees, provided, one that all funds raised will be made available for the PTO operations; and two, that the funds be used only for such purposes.
This subcommittee will play a key role in the resolution of the problems which have been dominated, disrupted, and distorted by the process of funding of the PTO during the entire final decade of the 20th century. The resolution of these problems is important to the operation of the PTO, it's important to those of the intellectual property community who use and depend on the services of that office, and it is important to the public.
Several options are open to you and finding the right solution will not be easy. We offer the following recommendations. First, we are told that the amounts withheld from the PTO are still in the account and available for appropriation. We would urge, therefore, that before any fee increases are considered that the funds which have been collected for the PTO be made available to the PTO. Fairness demands that these funds should be used for the purpose they were collected.
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Second, analyzing all of the information that we have available to us, we believe that something less than 100 percent offsetting fee increase will be sufficient to effectively fund the PTO.
Third, we urge you to structure fee and funding provisions of the law within your jurisdiction so as to eliminate or minimize the possibility that any fee revenue will be diverted. Making collections from user fees available to the PTO without the necessity of being appropriated annually might be one possibility.
We wish to thank you, Mr. Chairman and members of the subcommittee, for the opportunity to participate in this important hearing and for your leadership in efforts to stop diversion of PTO user fees. We stand ready to help you in any way we can as you continue those efforts.
[The prepared statement of Mr. Coe follows:]
PREPARED STATEMENT OF ROGER N. COE, DIRECTOR, PATENTS AND LICENSING AT ELKHART SITE, BAYER CORPORATION ON BEHALF OF THE SECTION OF INTELLECTUAL PROPERTY LAW OF THE AMERICAN BAR ASSOCIATION
SUMMARY
The Section of Intellectual Property Law of the American Bar Association is pleased that the Patent Surcharge imposed by the Omnibus Budget Reconciliation Act of 1990 appears likely to expire at the end of this fiscal year. Ending the surcharge will not end the problem of diversion of PTO user fees, but its existence has exposed PTO user fees to easy exploitation, and the false banner of ''deficit reduction'' under which is marches has only served to obfuscate the blatant abuses which are the real product.
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This Subcommittee and the Congress will be making important decisions on the future funding of the PTO. We would like to recommend certain principles for your consideration as you make those decisions.
The first is that the surcharge must end.
Second, the level of funding necessary for the PTO to provide high quality services should be determined. This may not be an easy task, in part because of the uncertainty and distortions that have dominated budgeting and funding for the Office the past several years. Intelligent and thoughtful budget planning, particularly mid and longer range planning, has not been present. It may be that, in the environment that has existed, such planning has not even been possible.
It does not appear that every dollar proposed to be taken from PTO user fees by the proposed rescissions totally $116 million in FY 1999 is a dollar that is essential for the PTO to have if it is to operate efficiently and provide quality services. In this regard, we note that the PTO's own Corporate Plan for Fiscal Year 1999 projects an ability, despite the proposed rescissions, to increase staffing by 15%, including the hiring of 400–450 patent examiners, and to reduce patent pendency from 22.7 months to 20.9 months. In the current fiscal year, for which such dire predictions were issued a year ago when the proposed (now enacted) diversion of $92 was announced, the PTO plans to hire 650 new patent examiners. It appears that something less than a 100% offsetting fee increase with be sufficient to effectively fund the PTO.
We urge the Subcommittee to carefully examine the funding needs of the PTO, and to set fees no higher than the amount necessary to provide that funding.
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Third, 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. Making collections from user fees available to the PTO without the necessity of being appropriated annually might be one possibility. We also believe that there is no justification for raising fees until the PTO has been allowed to spend the surplus of over $240 million in the surcharge account.
Finally, we would urge you to not approve increases in fees to the extent that it appears certain or likely that the increased revenue collected will not be made available to the PTO. We would not recommend that you deny the PTO needed funding. However, if revenue needed is not to be made available, we recommend that you not authorize its collection.
STATEMENT
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.
My name is Roger Coe. I am patent counsel for the Bayer Corporation in Elkhart, Indiana. I appear today on behalf of the Section of Intellectual Property Law, which I chair, 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 Association as a whole.
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The Section of Intellectual Property Law has more than 17,000 enrolled members. We follow activities in the Congress relating to intellectual property laws, and deliberate on and debate issues concerning which our members have experience and knowledge. Through these processes, we from time to time offer recommendations to members and Committees of the Congress. 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. In preparation for my appearance here today, I reviewed our Section's policy statements on PTO funding adopted over the years. I found that they go back almost half a century.
The issues presented in regard to funding for the PTO seem to be similar today to many presented decades ago. 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 finally resolved in 1990, with the enactment of the Omnibus Budget Reconciliation Act. 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 contained in section 41 (a) and (b) of title 35, United States Code. As originally enacted, this surcharge was set at 69% of the then existing 41 (a) and (b) fees. This represented the amount of increase deemed necessary to raise sufficient additional revenue to make the PTO fully self-sustaining.
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As our 1967 policy statement, quoted above, indicates, the Section of Intellectual Property Law of the ABA did not support the elimination of all taxpayer support for the PTO when the issue was first debated. However, we did support reliance upon user fees for an increased role in funding PTO operations. A 1979 policy statement is illustrative in this regard, and also in that it continues the Section's support for funding the PTO at a level which will facilitate high quality services to the public. That policy statement expressed our support for
''adequate funding for the Patent and Trademark Office to permit high quality examination and reasonably prompt disposition of patent applications and to provide adequate services to the public, and submits that patent-related fees should be set at a level appropriate to cover a reasonable portion of costs while not being at such a level as to discourage inventors.''
We have not supported full cost recovery by the PTO from user fees, and have reaffirmed this opposition since the enactment of the OBRA surcharge. Almost from its very inception, the surcharge has been used as a legislative bait and switch scam, under which funds ostensibly raised for an express purpose are diverted to other uses even before they are collected. Victims of this scam—those who pay the user fees—were led to believe that the misuse of funds was a unique and aberrant by-product of the structure and mechanism of the surcharge. They called for an end to the surcharge as the solution to the invidious practice of diversion of revenue from PTO user fees. The Section of Intellectual Property Law joined in that call. However, we were wrong in thinking that ending the surcharge might end the problem. As the surcharge now approaches its sunset, other budgetary machinery has been rolled out to continue, and, in fact, to expand and institutionalize the diversion.
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The Intellectual Property Law Section of the ABA favors the elimination of the patent surcharge. We also favor the elimination of the practice of diverting PTO user fees to fund other unrelated government activities. While we favor the elimination of the surcharge, we do not oppose Congressional readjustment of the section 41 (a) and (b) fees so that the revenue lost with the end of the surcharge will be recaptured, provided that all funds raised will be made available for PTO operations, and only for such purposes.
I would like to apply these principles to the real world situation now facing the Subcommittee, and give you our recommendations. You are being told that fees must be readjusted to provide adequate funding for PTO operations, but you are also on notice that substantial amounts of fee revenue will be diverted for other purposes.
We begin our analysis with the OBRA surcharge. While it is true, as we have noted, that ending the surcharge will not end diversion, we also know that diversion did begin with and under the sponsorship of the surcharge. The situation may be akin to that which followed the elimination of ancient English common law forms of action which were tying the legal system in knots. After their elimination, courts continued to adjudicate cases based on how they would have been handled under common law forms of action, prompting one commentator to note that ''the forms of actions are dead, but they rule us from the grave''. Unless action is taken to prevent it, it now appears that although the surcharge will soon be dead, it will rule us from the grave in that the abuses it spawned in the use of fees collected will continue.
The OBRA surcharge was imposed in order to make the PTO fully fee funded. This objective was quickly achieved, but doing so placed a tremendous burden on America's innovators. Combined with other patent fee increases which Congress enacted a few month later, inventors saw their PTO fees more than double in just one year. It was tough, but America's inventor community collectively swallowed hard and paid up. Since then, not a dollar of public funds has been utilized to run the PTO.
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It is true that this step was taken as a deficit reduction measure. However, this step was taken not to raise money for deficit reduction over and above the amount of revenue needed to effectively operate the PTO. Instead, it was designed to replace the amount of taxpayer funds then being appropriated for the PTO. For this reason, section 1010l 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 in the Department of Commerce 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 appropriations Acts, for all authorized activities and operations of the office, . . .''.
Section 10101 thus requires that surcharge revenue, like the revenue from base fees, must be appropriated back to the PTO. However, section 42 of title 35, providing for making available base fee revenue to the PTO, does not contain the ''shall be available only to the Patent and Trademark Office'' restriction contained in section 10101 of OBRA. Given the more restrictive language of OBRA, it is ironic that surcharge revenue has been found vulnerable to raiding, while base fee revenue was considered, at least until recently, to be unassailable. That irony apparently was not lost on Clinton Administration budget officials and Congressional appropriators, who found an easy transition to base fees as a source of funds to be diverted, even before the expiration of the surcharge.
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, the full amount of which 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.
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In fiscal year 1995, the level of diversion rose substantially, to more than $24 million, with the total amount diverted now 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. At that time, we also developed policy that we still maintain regarding replacement of fee funds which would be lost by an end to the surcharge. We do not oppose adjusting statutory fees under section 41 (a) and (b) of title 35 to offset this loss of revenue, so long as (1) the adjustment in fees does not exceed the amount necessary to offset the loss from the surcharge; (2) all fees collected under section 41 are deposited in the Appropriations Account established under section 42; and (3) all PTO fee revenue is made available to the PTO to support services to users.
In urging Congress to adopt these policies, Douglas W. Wyatt, one of my predecessors as Chair of the IP Law Section of the ABA, wrote Senator Ernest Hollings, Chairman of the Senate Appropriations Subcommittee on Commerce, Justice, and State, The Judiciary and Related Agencies in July of 1994. Mr. Wyatt noted that ''The users who pay in the fees withheld are patent applicants, including small companies, large companies, non-profit organizations and individual inventors. The withholding of the fees paid by these patent applicants effectively represents a tax on these inventors and innovators who are building the country's technological and economic base.''
Those observations are no less true today than they were four years ago. In fact, matters have gotten much worse, both in the magnitude of the diversion of funds and in the fact that the current Administration proposes to make diversion of PTO user fees a permanent fixture on the budgetary landscape.
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We acknowledge that Congressional appropriators are bombarded with requests for money from the various agencies for which they provide funding, and are bound by overall caps on the amount they can appropriate. However, this does not diminish the fundamental unfairness, to those who pay the fees, of the failure to make those user fees available for the purposes for which they were raised.
The appropriators have told us that the amounts withheld from the PTO are still in the account, and available for appropriation at a later time. If this is the case, there is absolutely no justification for raising user fees until the PTO has been allowed to spend over $240 million surplus in user fees in the account.We would certainly welcome such a development, and have expressly gone on record in support of making all these funds available to the PTO. Realistically, we are not optimistic that it will happen. We suspect that the odds that the money will ever be made available are inversely proportionate to the size of the account and the length of the time it has been accumulating.
As we all are well aware, the diversion of user fees has gone from bad to worse the past two years, and threatens to grow even worse: $54 million in FY 97, $92 in FY 98, $116 million requested in FY99, and still more planned for the out years. Until fiscal year 1997, diversion took two forms. One resulted from appropriation committees practicing their shell games of leaving money in the account and spending it elsewhere. The second resulted from specific amendments being offered during the legislative process to increase appropriations for other programs. In order to add money to one program, sponsors of these amendments are required to identify another program to be reduced. For reasons that usually have nothing to do with dissatisfaction with the job being done by the PTO or with its level of funding, the PTO sometimes gets identified as the giver in this process of give and take.
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With the release of the President's budget proposal for FY 1997, diversion of PTO user fees took on new dimensions, both economically and politically. For the first time, an Administration joined in the feeding frenzy, and it did so in a big way. The Clinton Administration proposed that the bulk of $119 million raised by the surcharge—$92 million—be withheld from the PTO. Despite intensified opposition from Congressional authorizing committees such as your own, Mr. Chairman, and that of the intellectual property community, this proposal was accepted by the Congress.
To make matters worse, the final appropriation took another very damaging step. It capped the amount of revenue collected from base fees which would be made available to the PTO. Always before, Congress had simply stipulated, quite properly, that whatever the Office takes in from base fees, it has available to spend to provide the required services. This tends to provide an appropriate self-adjusting feature: if you take in more in fees than expected, you'll need them to provide the additional services you must provide, and similarly if revenue and work load drop below expectations.
The cap was set at $664 million, the amount then expected to be raised by base fees. The Senate, which initially adopted the cap, would have imposed a cap at $629 million, the amount expected to be raised in FY98 when the proposed budget was first prepared two years earlier. The appropriation as finally enacted provided that if the actual fee collections dropped below $664 million, the appropriation would be reduced by such amount. However, it provided that collections in excess of $664 million cannot be spent, but will carry over and could be made available in the next fiscal year.
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The Statement of Managers accompanying the final legislation turned this setback into a victory for opponents of user fee diversion. It proclaimed that the Senate cap had been ''removed'' and that the legislation contains ''new language allowing all fees collected by the PTO to remain with the PTO to support its activities''. It declared that any fee collections in excess of $664 million ''will remain with the PTO and be available to the PTO on October 1, 1998.'' Finally, the report declares that the legislation ''ensures that all fee revenues collected remains with the agency while ensuring appropriate oversight of PTO's budget to ensure that such funds are used by the PTO in a manner which best serves the needs of the user community.''
The truth is, of course, that collections in excess of $664 million will not ''be available to the PTO on October 1, 1998''. They will be available only if and when an appropriations bill is enacted appropriating the funds to the PTO. In this respect, it did not take the Clinton Administration long to indicate that it has other intentions regarding any carry-over. On February 2, it released its budget proposal for FY 1999. The budget proposal estimated that $66 million in excess of the cap will be collected in FY 1998, and proposes that the full amount be rescinded. ''Rescinded'' means, of course, taken away, gone, never to be seen again by the PTO. No more talk like ''The money is still in your bank account, and you'll get it some fine day,'' as we were told in the days of the surcharge.
Congress could, of course, reject the Administration proposal and make the additional collections available to the PTO next October. Recent history suggests that opponents of PTO fund raiding should not construct a strategy based on this becoming reality. Indeed, even if these funds were to be appropriated to the PTO, it would not necessarily provide any real additional funding. In this regard, we note that the Administration proposes to rescind a total of $116 million PTO fee collections in FY 99: the $66 million carried over from FY 98, plus $50 million from FY 99 collections. Changing this so that the carried-over funds were appropriated to the PTO, and the amount of FY99 collections increased to $116 million, would carry out the pledge make in the Conference Report, but would provide no additional funding.
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In addition to proposing taking away in FY 1999 $116 million in user fees collected by the PTO, the Administration indicates in its budget proposal that it will seek increases in the statutory fee structure in section 41 of title 35 by amounts necessary to offset the loss of revenue from the expiration of the patent surcharge. The estimate is that, without such an increase, $182 million in fee revenue will be lost in FY 1999. We understand that the Administration initially considered even greater increases, but has decided to seek only an offset.
As the point of entry for any such legislative proposal to raise patent fees, the Subcommittee on Courts and Intellectual Property will play a key role in the resolution of the problems that have dominated, disrupted, and distorted the process of funding of the PTO during the entire final decade of the 20th Century. The resolution of these problems is important to the operation of the PTO and to those in the intellectual property community who use and depend upon the services of the Office. However, the importance of a successful resolution reaches far beyond the PTO and its customers. The cost of providing patent protection has become a global issue. The United States has sought, with some success, to restrain and reduce the cost of obtaining patent protection in other major patent offices throughout the world. Failure to get our own house in order would jeopardize those efforts and that progress.
Several options are open to you, and finding the right solution may not be easy. The task of setting an appropriate fee structure is complicated by the convergence—some might say the collision—of the need to provide adequate funding for PTO operations and a need to stop the diversion of user fees to fund other programs. In this respect, in our view, returning the funds to the general fund in the Treasury, through rescission, is simply another form of using the funds to fund other programs.
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One solution might be to simply enact the offsetting fee increase, and continue to fight diversion of user fees, whatever form it might take. If one takes the view that the current fee structure, including the surcharge, produces the appropriate amount of revenue to operate an effective PTO, this might be a plausible course of action to pursue.
A variation of this might be to accept a certain level of diversion, such as the $100 million annual range the Administration has been seeking, and set the fees so as to raise x amount (x being the amount needed to properly fund the Office) plus $100 million. This solution might have some attraction for the PTO, but it is not one that we support.
Another approach might be to resist any offset recovery unless it can be assured that no user fees will be diverted. Factors which might argue in favor of this approach are the necessity for the enactment of legislation to provide funds to be diverted, and indication from the Administration that, if such legislation is not enacted, the Administration may need to reduce the proposed rescission. While this approach has some attraction, some borne out of the frustration of fighting a long, largely losing battle again raiding of PTO user fees, we believe that more calibrated standards for determining a proper fee structure exist.
We are not recommending to you a final fee structure, or a specific level of funding for the PTO which we believe is appropriate. This is in large part because we believe that a determination of the appropriate level of funding, excluding any diversion, is one that should be determined by the Subcommittee in the exercise of your oversight responsibility for the PTO. There are certain principles that we believe should be applied in determining the appropriate level of funding, and hence the fee structure, for the PTO, which we recommend for your consideration.
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First, the surcharge must end. Ending it won't end the problem, but its existence has exposed PTO user fees to easy exploitation, and the false banner of ''deficit reduction'' under which is marches has only served to obfuscate the blatant abuses which are the real product.
Second, the level of funding necessary for the PTO to provide high quality services should be determined. This may not be an easy task, in part because of the uncertainty and distortions that have dominated budgeting and funding for the Office the past several years. Intelligent and thoughtful budget planning, particularly mid and longer range planning, has not been present. To be fair to the Office, it may be that, in the environment that has existed, such planning has not even been possible.
It does not appear, for whatever reason or reasons, that every dollar proposed to be taken from PTO user fees by the proposed rescissions totally $116 million in FY 1999 is a dollar that is essential for the PTO to have if it is to operate efficiently and provide quality services. In this regard, we note that the PTO's own Corporate Plan for Fiscal Year 1999 projects an ability, despite the proposed rescissions, to increase staffing by 15%, including the hiring of 400–450 patent examiners, and to reduce patent pendency from 22.7 months to 20.9 months. In the current fiscal year, for which such dire predictions were issued a year ago when the proposed (now enacted) diversion of $92 was announced, the PTO plans to hire 650 new patent examiners. It is likely that some unusual, one-time factors contributed to this more optimistic picture, such as the receipt of an exceptionally large amount of revenue ($87 million) in the final days of FY 1997, which carried over to FY 1998. Nonetheless, it may be that something less than a 100% offsetting fee increase with be sufficient to effectively fund the PTO.
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We urge the Subcommittee to carefully examine the funding needs of the PTO, and to set fees no higher than the amount necessary to provide that funding.
Third, 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 possibility.
Finally, we would urge you to not approve increases in fees to the extent that it appears certain or likely that the increased revenue collected will not be made available to the PTO. It may not be possible, or course, to determine this with any degree of certainty. However, the Administration has indicated that it may scale back its requests for rescission if offsetting fee increases are not enacted. Perhaps, as these events develop, you may be able to identify increases which are destined for diversion. We urge you not to approve this portion of any fee increases. We would not recommend that you deny the PTO needed funding. However, if revenue needed is not to be made available, we recommend that you not authorize its collection.
We wish to thank you, Mr. Chairman and members of the Subcommittee, for the opportunity to participate in this important hearing, and for your leadership in efforts to stop diversion of PTO user fees. We stand ready to help you in any way we can as you continue those efforts.
STATEMENT REGARDING FEDERAL GRANTS, CONTRACTS AND SUBCONTRACTS
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In compliance with the requirements of House Rule XI, clause 2(g)(4), the Section of Intellectual Property Law of the American Bar Association reports that, in the current and preceding two fiscal years, it has received no federal grants, contracts, or subcontracts.
Mr. COBLE. Thank you, Mr. Coe. And you also beat the deadline, barely. [Laughter.]
Mr. Balmer, if you would have one of your able lieutenants to bring forward the chart indicating the fees that were diverted. I think it was the first chart that was put up. I'd just like to have that available while we question you all.
Gentlemen, thank you for your testimony. And each of you—I know Mr. Kirk and Mr. Coe mentioned it and I think others did too—and these are key words, all of it's fees for the purposes for which collected. I don't think one penny ought to be diverted. I mean, these are user fees collected for the purpose of operating the PTO. And, as evidenced by this chart, continues to escalate.
Let me ask you all a question and I'll start with you, Mr. Stimson, and work to my right. And you all commented regarding the quality of examinations performed and the delay that has been forthcoming—respond as well regarding the quality of clerical support operations at the PTO. I don't think you got into that, but talk to me about that, Mr. Stimson.
Mr. STIMSON. Well, I think there's no question that there hasn't been adequate personnel or funding for clerical support. One of the major reasons for this delay in first action to close to 7 months—it's not an issue of the examiner's delaying, but it's getting the applications to the examiner. The mail room and other clerical supports are not adequately funded or staffed, and therefore, applications will lie in the mail room and otherwise in the pipeline for several months. So, I think a major part of the problem, you're correct, is not with the examiners but lies with the clerical situation.
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Mr. COBLE. I figured it's pretty much synonymously involved. Do you all concur with that, folks? Mike?
Mr. KIRK. I would like to make just one comment on that, if I could. I think that it is right that there's a difficulty with the clerical processing. But I think part of the problem stems from the diversion of fees and the limits on FTE's—full time equivalents—bodies that the PTO can hire.
For reasons that only someone in the bowels of OMB can explain, it is perfectly appropriate to go out and hire huge numbers of contract employees, but not government employees. Not that that makes any sense, but that's the rule. And contract employees have been hired, for example, to process some of the mail and I think the problem that we're seeing is that some of these contract employees are not as good as the Federal employees that we used to have in years past.
So I think it's the combination of diversion of funds and arbitrary restrictions on personnel—and the latter would be corrected in H.R. 400 and S. 507—that contribute to this. I would say that I think the Office does have a lot of very good dedicated clerical support staff, just not enough of them.
Mr. BALMER. I'll add something from personal experience. Union Carbide pays patent fees, critical patent fees, by check. All of our checks go in with a little caption down below, ''not valid after 90 days.'' We've had to increase that to 180 days.
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Mr. COE. Mr. Chairman, one of the problems when I was in the Patent and Trademark Office a long time ago, was the fact that some of the clerical people were not paid as much as in other government agencies. And I don't know why that was and if that's still true. But I would suspect it's still true.
Mr. COBLE. Gentlemen, I lack the wisdom of King Solomon, but I'm going to put a question to you all that may require the wisdom of King Solomon. I think few of us in this room endorse the practice of diverting PTO funds to deficit reduction or any other program for that matter. They ought to be exclusively used for the purpose collected, as mentioned here earlier. Some believe that a worse problem, however, might be created if we don't respond by not replacing the surcharge revenues after October 1. What do you all say to that?
Mr. Kirk, you want to start off on that?
Mr. KIRK. If I could. In the President's budget that was submitted in February and the explanation about the additional fees that would be required—the $182 million, there was an express statement that said that if the entire $182 million increase is not approved by the Congress, then there would have to be some rethinking of the diversion. And it is on that basis that AIPLA concluded that we should take them up on their statement. Let's not give them everything they need because they clearly are going to divert $50 million in fees to paid in Fiscal Year 1999 to so-called deficit reduction. That being the case, let's adopt a cap of our own. Let's cap the increase at $132 million, and then perhaps, reason will prevail and the $50 million will not be taken away. Why, because it won't exist. We'll have to find out.
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Mr. COBLE. Let me ask you this question—either Mr. Kirk or any of you. What lessons can the PTO learn from it's counterparts in Europe, Japan, and Australia with regard to reducing patent costs? Anybody want to weigh in on that?
Mr. KIRK. One of the things that you know, Mr. Chairman, having participated in one of the cost containment symposiums that AIPLA has cosponsored with other organizations—and we and IPO have our third scheduled for the middle of this year in San Francisco—is that we have been asking other major industrial property organizations to cut back on the fees. And so far—and we don't claim credit for this, but we certainly think we didn't hurt the process—so far the European Patent Office, the World Intellectual Property Organization, and the Australian Intellectual Property Office—have all reduced fees effective either January 1 of this year or earlier in 1997. The Japanese Patent Office has indicated that it is going to reduce maintenance fees in the later years.
Here we have the United States, with the most technology of any country in the world and the greatest need to protect this technology around the world, and we have convinced other countries to lower their fees to help us do that, and the United States is not leading by setting the example. We're setting a terrible example and we can only hope that others will do what we say and not what we do.
Mr. COBLE. Yes, Mr. Stimson?
Mr. STIMSON. I think another lesson from other nations' trademark operations is the importance of automation to a more effective and cost efficient operation. I think to move forward more swiftly with the electronic filing program and scannable forms would be quite helpful and that's something that's being done in other nations' operations.
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Something we can learn not necessarily from other countries, but from other parts of government, I think again, is the importance of a government corporation and more autonomous operations. I think that's been shown to be effective in other areas and that would give a lot of ability to address some of these concerns we have today about hiring practices and what people are paid and training. If the office has more autonomy it can do a better job training. It can also have more protection over its budget so that this sort of diversion won't happen in the future.
Mr. COBLE. I see it is I who has now violated the red light rule, so I will recognize my friend from Indiana, Mr. Pease.
Mr. PEASE. Thank you, Mr. Chairman. I appreciate the presentations that were provided; I'm sorry I missed some of it back on the floor. One thing that is helpful to me, and the Chairman got into here at the end, is to be able to view this office in something other than a vacuum. I have nothing to compare it against to know whether it is in fact operating efficiently or not operating efficiently and the discussion of what's happening in the European union and Australia and other places. It's helpful in that regard.
If the monies that were not being diverted from this budget were available either to increase services or to reduce fees, would we then be more on a par with the offices that you believe are—I don't want to say doing a better job—but more on a par with Europe and Australia?
Mr. KIRK. Let me respond by saying that first of all, I think the United States Patent and Trademark Office does a marvelous job in terms of providing the products for the fees that they charge. They are one of the most efficient offices in the world, particularly value per dollar, if you will. The European Patent Office fees are perhaps 10 times higher, for the life a patent than in the U.S. They have, however, reduced their fees by $100 million annually, but they've got a lot more room to work with and we are pressing them to do that. The same is true for the World Intellectual Property Organization. They've got reserves of well over 200 million Swiss francs, which come from Patent Cooperation Treaty fees. We are pressing them to continue the reductions that they have made.
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I think the major benefit of not diverting PTO fees, however, would be to allow the PTO to function more effectively and more efficiently. To accommodate the fee diversions that they have had over the past 7 years, they have had to curtail certain activities in their operations. The fee diversions began in the range of a few percent of their total budget; now it's over 10 percent of their total budget. It is sort of the situation I would liken it to you and I if our incomes were reduced 10 percent. We wouldn't go bankrupt. But, we certainly wouldn't be painting the house or buying a new car or anything of things that you would normally do to maintain your life functioning properly.
In the PTO, they've had to cut back on some of their automation plans. They've had to curtail some of the training in past years. They've had to make a number of hard choices, simply because the revenue wasn't there. And while you can live that way for awhile, over the long term, the atrophy would be horrendous.
Mr. PEASE. I have a follow up question, but if any of you want to add to that, I'd appreciate it.
Mr. BALMER. Let me just add, I think Mr. Kirk is doing an admirable job explaining things—I'd like to provide a little bit of a corporate perspective.
In operating our businesses when we have an economic downturn, we don't close down on mothball facilities. It just cost too much to bring them back up. And with the fluctuation in the Patent Office income, because of the effect of the ever-increasing diversion of fees, that's in essence what's happened. That factory has had to close down facilities and reduce the number of people. When you bring on new people, they don't immediately walk on board fully skilled. There's a training process that goes on and it takes years. And I think that needs to be kept in mind. That's why we in IPO try to stress the importance of having reserve; some kind of balance to weather the downturns. Of course, when there are upturns, the extra revenue can be used to replenish the fund.
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Mr. PEASE. I have a follow up to his, but you've prompted me to another follow up and I don't want to cut the two of you out either. [Laughter.]
How large a reserve is appropriate under your estimate?
Mr. BALMER. It's important to have a reserve and I'm not sure the amount is something that's going to be a science. And one has to factor in the risk. What's the risk that there is going to be a downturn, and how deep will that downturn be? Again, using Mike's example, if salary may vary by 10 percent, one has a little bit different reserve than if salary could vary by 50 percent.
In taking a look at the European Patent Office, and WIPO, which provide some standards, it looks like a reserve in the $100 to $200 million range would not be out of question.
Mr. PEASE. Anybody else before I go back to Mr. Kirk?
Mr. STIMSON. Just a brief comment, Mr. Pease, on your question about whether stopping a diversion would lead to improvement in the operations of the office. I think clearly what we're hearing and saying a lot here is that they need more resources and need more people. But I think there also has to be continued emphasis on quality operations and on training and benchmarking. The money alone is not enough to guarantee a better operation. I think we also have to always keep an eye on making sure that they are quality operations as well. And that's another part of the oversight—we wouldn't want too much emphasis on the diversion and the money—we also—part of the oversight is over the operations.
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Mr. PEASE. Mr. Chairman, if I could ask unanimous consent of myself for one more question? [Laughter.]
Mr. COBLE. There are only two members here, so we have the luxury of extending questions today. [Laughter.]
Go ahead Mr. Pease.
Mr. PEASE. Thank you, Mr. Chairman. I should have asked this of Mr. Lehman, but not knowing some of the things that were going to be said here, I'll ask you and if you can't respond or don't know, I understand that.
He talked about the intention of the office of increasing their staff rather dramatically over the next 5 years. Do you know if that's going to be possible at this rate of diversion, or does it assume that we won't be doing that diversion, or are there assumptions in it that any of you are aware of?
Mr. KIRK. It is my understanding that the increase assumes that they will get the $836 million in Fiscal Year 1999 that would be made possible with the increase in the base statutory fees of $182 million. Now they're only going to get $132 million of that. But with that amount of money, with some excess monies that they found they had because they cut back a little bit too severely in Fiscal Year 1997, they are now in a position that they can begin to vamp up hires.
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The real question, I think, is what happens in Fiscal Years 2000, 2001, 2002? If you look at the President's budget, the President proposes to take $50 million of Fiscal Year 1999 fee money, plus $66 million from earlier years, for a $116 million total in Fiscal Year 1999—and then another $50 million in Fiscal Year 2000. But then in Fiscal Year 2001 and on, it jumps to nearly $150 million and rises. So, will the PTO be able to continue this schedule in the out years? I would be somewhat skeptical unless they come back to impose what amounts to a tax on the user community.
Mr. PEASE. And it takes, as I understand it, a couple of years to get somebody trained to the level that you would assume—feel comfortable with. Isn't that about how long it's going to take before the major increased diversions will kick in?
Mr. KIRK. Well, that's right and I think one of the problems that the Office faces right now. They're hiring 650 new examiners in this fiscal year. They literally could use more, but you have to strike a balance between how many can you bring on and train, and they are at that limit. They would like to go beyond that. And it does take a couple of years to get these people fully trained and functioning and contributing to the system. You've always got constant turnover because you have a lot of people that decide that the PTO is not their career and they move on. You've got to replace them, and you've got to retrain the new people, so it's a continuing and constant struggle. And what will happen in Fiscal Year 2001 and beyond, is anyone's guess.
Mr. PEASE. Thank you very much. Thank you, Mr. Chairman.
Mr. COBLE. Thank you, Mr. Pease.
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Gentlemen, let me conclude with one final two part question to each of you all. A, how crucial is the long term retention of paper files for your members, and B, is it your belief that the Commissioner is on point in attempting to bring the agency into the electronic age?
Mr. Stimson, I'll start with you.
Mr. STIMSON. I think the proper keeping of paper files is not as important as proper keeping of some sort of files. I think the problem with lost files is something that the PTO has. If you're asking about are there concerns about changing over to computerized records, I think as long as those are reliable, then there wouldn't be a reason to keep the paper files. I know at Kodak in going to paperless society, we've put everything on the computer and then we've kept out paper files, as a backup. So I think there is a question of reliability of the computer files.
Secondly, is the Commissioner and the office on target? I think they are moving in the right direction and have the right goals. But for example, the electronic filing program that the Commissioner discussed really was in a trial program, very limited, and has not been expanded into a full blown program available to everybody. So I think where the office wants to go is in the right direction, it's just taking longer to get there than I think they or we would have liked.
Mr. COBLE. Well as we all know, all habits die hard and I think that probably applies here. Do you just want to add to that, to what Mr. Stimson said?
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Mr. BALMER. Let me add from an old time patent searcher. We certainly do at IPO support the patent office in going to computerized records, computerized search files. However, I sort of analogize it to something similar to automatic transmissions for standard transmissions. Automatic transmissions can do a very good job, but when you have a real professional in there, sometimes having those paper files can make all the difference.
Mr. COBLE. Mr. Kirk?
Mr. KIRK. Thank you, Mr. Chairman. In terms of the fundamental thrust of your question, I believe that there is no doubt but that the Office is going to have to go to the electronic searching and the electronic filing system. The burden of this paper 10, 15, 25 years from now, would be enormous. I think the Office simply cannot afford to continue to expend the manpower it takes to properly classify and work with all of this huge paper file. So ultimately we are going to go to an automated system that will be available to everybody in the United States, if indeed not everybody in the world. So, I think it's coming.
The question, I think in our minds is, when is the appropriate time to make the change from all paper—or part paper and part electronic—to all electronic? That day is not here at the moment. I am not in a position to speculate on when that day may come, other than to say, it will come.
Mr. COBLE. Mr. Coe?
Mr. COE. I think I would agree with Michael that the day is not here, although other operations such as the Japanese patent office have gone to electronic filing. It will impact also a relocation, because as I understand it, the Patent and Trademark Office is thinking about moving without their files. And so it will have some impact there.
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Mr. COBLE. Gentlemen, thank you. Mr. Stimson, as you pointed out, there is not substitute for reliability. I think that has got to be the key. Gentlemen, I wish that technology were not moving as such an accelerated pace, but that wish does not cause it to de-accelerate. And I'm not sure that the Congress or anybody else for that matter can keep up with it. But I think we have to do the best we can; at least keep the oars in the water.
Mr. Stimson, best wishes to you. We will miss seeing you around here, but come back to see us. Gentlemen, thank you. Your written testimony will be thoroughly examined again.
Mr. Pease, do you want to add a parting shot?
Mr. PEASE. Mr. Chairman, this has nothing to do with anything we've talked about recently. Why is there a statutory requirement this office be in Virginia? Is there a policy reason or should I just talk to my political friends from Northern Virginia? [Laughter.]
Mr. COE. We would favor Indiana. [Laughter.]
Mr. KIRK. Mr. Pease, there's not a statutory requirement. It has to do with the solicitation for space. Once you get beyond a certain distance, you have to pay relocation for employees to move. For example, if they were to move to Cape Cod or Indiana, there would be a huge moving cost. And so part of it was to hold down the moving cost of relocating the homes, if you will, of the examiners. And then secondly, to keep it near a metro stop. Thirdly, because the cost in Virginia is considerably lower than the cost in the District and, of course, there is an element of politics.
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Mr. PEASE. I understand. Thank you.
Mr. COBLE. There's something refreshing about questions that are not always on the form sheets, so I thank you for that. Mike, thank you for your answer. Thank you gentlemen.
We will now call forth our final panel for the day. The first witness on our final panel is Mr. Ronald J. Stern who is the President of the Patent Office Professional Association. He earned his B.S. degree in Physics from the City College of New York and his J.D. from George Washington University. Our second witness on this panel is Mr. Robert M. Tobias who is the National President of the National Treasury Employees Union. He received his bachelor's degree and a master's degree in business administration from the University of Michigan and was graduated from the George Washington Law School of Law, where he served on the adjunct faculty.
Gentlemen, we have written statements from you and the statements will be made a part of the record. I ask you now for your consent for that to happen and I'm sure that will.
Now, we have a third witness whom I have not identified.
Mr. TOBIAS. Mr. Chairman, Mr. Friedman is accompanying me. He's the Local Chapter President for the Trademark Society.
Mr. COBLE. Very good. And your name, sir?
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Mr. FRIEDMAN. Howard Friedman.
Mr. COBLE. Howard, I like your first name, Howard. You have a good first name. Good to have you all with us, gentlemen, and I will ask you again if you will keep ever mindful of the red light that will indicate your 5 minutes have expired. Good to have you. Does anybody have a preference for starting?
Mr. Stern?
STATEMENT OF RONALD J. STERN, PRESIDENT, PATENT OFFICE PROFESSIONAL ASSOCIATION
Mr. STERN. I'll be happy to start. Thank you, Mr. Chairman, and thank you for the opportunity to provide the views of the Patent Office Professional Association.
We represent approximately 2,400 patent professionals at the Patent and Trademark Office. The vast majority of us are engineers, scientists, and lawyers who work as patent examiners. There are three bargaining units at the PTO. We represent more employees in our unit than the number of employees represented by the other two units put together.
We're at a crossroads now regarding the quality of patent examination. Confidence in our work product has plunged to an all time low. Our customers give us a satisfaction rating in the mere 50 percent range. Their number one concern is the quality of our work product, especially as regards to the adequacy of the search of the prior art. Our rating is so low that even the Postal Service and Internal Revenue Service have higher overall satisfaction scores.
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In the past 15 years there has been a relentless drive to increase the productivity of examiners. That is, to decrease the amount of time spent on each patent application. At this point, the average amount of time spent per case is approximately 17 hours. Each professional puts as much quality into the product as time granted to him by management allows. In contrast, in the European Patent Office, there's about twice as much time spent on a case.
In the past 3 years, critical search tools have been crippled. Since March 1995 the PTO has ceased classifying new foreign patents according to the U.S. classification system. Reclassification efforts with respect to U.S. patents have been curtailed and many of the remaining projects, that is classification projects, ignore the backfile of foreign patents and non-patent literature.
While the loss of reclassification efforts may not have a dramatic impact at any one point in time, the long term corrosive effect is as sure as the impact of a beach climate on cars. The need for a classification system is independent of whether we automate our search system or maintain our paper files.
In 1997 the PTO canceled virtually all training programs for experienced examiners on the basis of a claimed budget emergency. Later that year, even when the PTO knew that it would have many tens of millions of extra dollars available, it failed to reinstate these programs.
The PTO defines quality only as average cycle time. Look at the President's FY 1999 budget on page 28 in table 7. Nowhere to be found is any measure of the completeness of the search, of the discovery of the most pertinent prior art, or of the correctness of our legal conclusions of patentability. These omissions are shameful and they appear to be ''penny wise and pound foolish.''
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The goal for the next 5 years is to shave 4 months off the existing cycle time, ostensibly to give patent holders 4 additional months of patent protection within the 20 year limitation on patent term.
We should ask our customers, ''how much risk to the potential invalidity of the entire term are you willing to take in order to get an additional 4 months of patent protection?'' And in a system where patent applicants pay hundreds of dollars for an extension of time to respond, I predict that our customers will value patent reliability more than short extensions of their term.
To ensure the reliability of patents, our examiners need more time for examining patent applications, better search files, and training. One question that you might ask is do we have the resources to do a quality job in a reasonable amount of time? The answer has got to be a resounding yes. The PTO is fortunate to have a budget that increased by 250 percent from the beginning of the decade, while we've only processed on a yearly basis, 53 percent more patent applications.
The issue is not merely the total level of resources available, but one of priorities. Right now the PTO collects just under $8,000 in fees for each issued patent over the life of the patent. But less than $800, on average, is allocated to examiners for examining a patent application. The rest is processing costs and overhead. We now collect hundreds of millions of dollars a year—more than we would have collected at the beginning of the decade for the equivalent workload, yet examiners have no more time for cases than before, have less training available than before, and are spending less time maintaining our search files than ever before.
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Where has the extra money gone? Much of the money has been squandered on ill-conceived automation projects. By the way, we will probably get rid of all the automation we have now when we move into a new building. We, as engineers, love technology. Our job steeps us in the love of technology, but we are practical too, and we know the difference between a lemon and a peach.
There are a number of actions that the subcommittee can take. If there is to be a concern for quality then Congress must express that concern. Controlling the total amount of resources available to the agency will not be sufficient to ensure that there will be a concern for quality. We believe the priorities of the agency can only be changed by an explicit direction from Congress and we urge you to provide that explicit guidance, so that we will have our resources devoted to finding the most pertinent prior art relative to each patent application and to ensuring the correctness of our decisions on patentability.
We think that this can be best accomplished as provided in Sections 6(d), 4 and 5 of H.R. 812, introduced by Duncan Hunter by dedicating certain fees for the pay and training of patent examiners, by directing PTO to maintain the U.S. classification system, and by directing the PTO to provide a specific amount of time for training.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Stern follows:]
PREPARED STATEMENT OF RONALD J. STERN, PRESIDENT, PATENT OFFICE PROFESSIONAL ASSOCIATION
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SUMMARY
We are at a crossroads regarding the quality of patent examination. Frankly, confidence in our work product has plunged to an all time low.
In the past fifteen years, there has been a relentless drive to increase the productivity of examiners, that is, to decrease the amount of time spent on each patent application. At this point, the average amount of time spent per case is approximately seventeen hours. Each professional puts as much quality into the product as time granted to him by management allows. In contrast,the European Patent Office spends about twice as much time on a case.
In addition in the past three years, critical search tools have been crippled. Since March of 1995, the PTO has ceased to classify new foreign patents according to the U. S. Patent Classification system. Reclassification efforts with respect to U. S. patents have been curtailed and many of the remaining projects ignore the backfile of foreign patents and non-patent literature.
To add insult to injury, the PTO has terminated almost all education programs for examiners beyond the beginner level.
Our customers give us a satisfaction rating in the mere 50% range. Their number one concern is the quality of our work product, especially as regards the adequacy of the search of the prior art. Our rating is so low that even the Postal Service and the Internal Revenue Service have higher overall satisfaction scores.
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To ensure the reliability of patents, our examiners need more time per patent application, better search files, and training.
The issue is not merely the total level of resources available, but one of priorities with respect to our existing resources. In simple language, it is a question of who gets the money we have first. Right now the PTO collects just under $8000 in fees for each issued patent over the life of the patent. But less than $800, on average, is allocated to examiners for examining a patent application. The rest is processing costs and overhead.
We urge Congress to provide the agency with explicit guidance on the resources to be devoted to finding the most pertinent prior art relative to each patent application and to ensuring the correctness of our decisions on patentability. We think this can be best accomplished by dedicating certain fees for the pay and training of patent examiners, by directing the PTO to maintain the U.S. classification system and classify foreign patents into the U.S. system, and by directing the PTO to provide a specific amount of time for training.
STATEMENT
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to provide the views of the Patent Office Professional Association. Our organization is the exclusive bargaining agent for the approximately 2400 patent professionals at the U.S. Patent and Trademark Office. The vast majority of the employees we represent are engineers, scientists, and lawyers who work as patent examiners.
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There are three bargaining units at the PTO. We represent more employees in our unit than the employees represented by the other two units put together. By the end of this fiscal year, the agency expects to hire 650 new patent examiners, with another 400 scheduled for the year after. These steep increases will also increase the percentage of organized employees that we represent in the PTO.
In the 1990's, the PTO has been in an extremely privileged position: Our budget has increased by 250% and our workload has only risen by 53%. Yet I am here to sound an alarm.
Examination practice in our country is rapidly approaching a stage of major crisis. It is a crisis of confidence in the quality our work product. For examiners, quality basically means a complete search of the prior art, a thorough and clear exposition of all the legal issues, and making correct decisions on patentability. In the past fifteen years, there has been a relentless drive to increase the productivity of examiners, that is, to decrease the amount of time spent on each case. Production quotas are specified in six minute increments and many employees put in lots of voluntary overtime. Each professional puts as much quality into the product as time granted to him by management allows. As the complexity of the technology has expanded, as the size of the search file has expanded, as the complexity of the legal issues has expanded, and as patent procedures have become more complex, there is only one thing that has remained constant—the quota that has been assigned to each examiner.
At this point, the average amount of time spent per application is approximately seventeen hours. How much less time can an examiner spend on a case and still put out a quality decision? Currently, the European Patent Office spends about as much time searching a patent application as our examiners spend on the entire prosecution of a case.
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Our customers have been surveyed numerous times, and have been extensively interviewed in focus groups. Their number one concern is the quality of our work product, especially as regards the adequacy of the search of the prior art. In a survey conducted by the Haelan Group, an outside consulting firm that was hired by management as part of the re-engineering efforts at the PTO, our customers gave us a mere 50% overall satisfaction rating. We are so bad that both the Postal Service and the Internal Revenue Service have higher overall satisfaction scores. Poor quality has become so legendary that it is even cited in text books. In a well respected book on bar codes, the author laments the granting of patents for '' 'inventions' which are overly broad, not truly novel, or perhaps obvious in nature.'' Roger C. Palmer, The Bar Code Book, Helmers Publishing, Inc., third edition, 1995, page 241. Whereas our searches once were the envy of the entire world, we now regularly hear of cases in which a European Patent Office (EPO) examiner has found a relevant reference that was not found by our initial search.
Our employees have also been surveyed by the Haelan Group. In that survey, the number one problem identified by employees was concern over the quality of our work product. Our examiners are strongly motivated to provide a quality work product by their professionalism and by their pride. Every patent lists the names of the examiners who worked on the case, and no one wants to be embarrassed. But our examiners cannot perform miracles. They need time, better search tools, and training.
Our customers have spoken. Our employees have spoken. But, nothing has changed. Production and cycle times still take precedence over quality. And administrative and automation functions still take priority over examination functions.
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The first question that should be asked is: Do we have the resources to do a quality job in a reasonable amount of time? The answer has to be a resounding YES. What other agency has been able to increase its budget by 250% within this decade with only a 53% increase in the number of applications processed during the same time?
The PTO has been fortunate in that its overall budget has increased by such huge amounts. The largest increase in our fee income has been due to the collection of maintenance fees. During this decade, the second and third patent maintenance fee increments became fully operational. In addition, fees for extensions of time became a more significant source of income. At the beginning of the decade in FY '90, the expenditures of the PTO were only about $327 million per year, while the proposed level for FY '99 is $836 million, an average increase of about 11% per year.
Over the same decade, the yearly number of patent applications examined has increased by only 53%. The number of patent applications examined went from about 142,600 in FY '90 to a hoped for 218 thousand in FY '99, a compound rate of increase of a little less than 5%. One might think that the huge increase in available resources would allow for a significant increase in the quality of our service to the patent community. Unfortunately, that has not happened.
We now collect hundreds of millions of dollars more per year than we would have collected at the beginning of the decade for the equivalent workload, yet examiners have no more time per case than before, have less training available than before, and are spending less time maintaining our search files than ever before. Where has the extra money gone?
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The real issue is one of priorities. The agency's priorities are clearly delineated in its budget, what it calls its ''corporate plan.'' On the last page of the section on the patent business, it set forth its performance measures (page 28, Table 7). Incredibly, quality is defined only as average cycle time. Nowhere to be found is any measure of the completeness of the search, of the discovery of the most pertinent prior art, or of the correctness of our legal conclusions of patentability. These omissions are shameful.
And they appear to be penny wise and pound foolish. The goal for the next five years is to shave 4 months off the existing cycle time, ostensibly, to give patent holders 4 additional months of patent protection within the 20 year limitation on patent term. We should ask our customers: How much risk to the potential invalidity of the entire term and how much risk of increased litigation costs are you willing to take in order to get an additional 4 months of patent protection? In a system in which applicants pay hundreds of dollars for extensions of time to respond, I predict that our customers will value patent reliability more than short extensions of their term.
Search File Degradation
Patent reliability and examination efficiency have been threatened because critical search tools have been crippled. Since March of 1995, the PTO has ceased to classify new foreign patents according to the U. S. Patent Classification system and has ceased to distribute them to our search files. In addition, reclassification efforts with respect to U. S. patents have been curtailed and in some cases, where a reclassification project has been conducted, the project did not include the reclassification of foreign patents and non-patent literature. At the beginning of the decade there were about 125 full time classifiers, while now the number has dwindled into the 50's. Even these remaining employees are being used to perform other tasks, such as routing new applications to the examining groups, a job that used to be performed by paraprofessionals. In addition, there used to be substantial examiner detail time to reclassification projects; most of that effort has been eliminated. While the loss of reclassification efforts may not have a dramatic impact at any one point in time, the long term corrosive effect is as sure as the impact of a beach climate on cars.
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The need for a classification system is independent of whether we automate our search system or maintain our paper files. A text based system is woefully inadequate for many searches when, for example, the search terms are inherently commonly used terms. It is well accepted both here and at the European Patent Office that the use of the classification system is necessary for adequately narrowing searches in an automated environment.
Lack of Training
In 1997 the PTO canceled virtually all training programs for experienced examiners on the basis of a claimed budget emergency. The ban included in-house and university technical courses, in-house law courses, the Law School Tuition Assistance Program, the Juris Master program, attendance at most technical conferences, and visits to industry. Later in that year, even when the PTO knew it would have many tens of millions of dollars, it failed to reinstate these programs. Even today, these programs have not yet been reinstated.
Examiner training has been identified as a critical need by our customers. P. Mathis & Associates, an outside consultant hired by the PTO as part of its reengineering effort, conducted two automation studies which concluded that additional training was a critical PTO need. But, even more importantly, every profession has provided for continuing education for its members to improve and maintain skills. The profession of patent examining should be no different.
Last year, the Subcommittee on Appropriations for the Commerce Department (and others), in its report, HR 105–207, thought training for patent examiners was so important that they requested the agency to report back to the Committee by February 2, 1998 on its training plans for FY 1998. To the best of our knowledge, no such report has been submitted, even though FY 1998 is almost half over.
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Automation at the PTO
An Alphabet Soup Spelling ''Failure''
The PTO has had a less than illustrious history when it comes to automation projects. In 1950 the PTO attempted a pilot automated search system in Class 167, ''Medicines, Poisons and Cosmetics.'' This pilot was a failure and was ended in January 1951. In the 1960's the PTO began investigating the automation of the patent search file with ''Project Potomac''. After spending 10's of millions of dollars, the project was abandoned as a complete failure. Over the years there has been an alphabet soup of failed automated systems. HAYSTAQ (Have You Stored Answers To Questions), ILAS (Interrelated Logic Accumulating Scanner), RAMP (Random Access Mechanization of Phosphorus Compounds), CAMP (Card Mechanization of Phosphorus), SECIR (Semiautomatic Encoding of Chemistry for Information Retrieval) , CASSIS, and CSIR have all arrived with great fanfare and have slunk away in costly failure.
The American Intellectual Property Law Association's Information Retrieval Committee in their March 20, 1992 report said ''The point is, no one outside the USPTO seems to have a handle on how much the system will cost to run. All of this to achieve no expected efficiency gain and dubious quality improvements. This is automation for automation's sake, at the cost of at least several hundred dollars more per patent application, and possible thousands more.''
So where has all the money gone? We don't yet have an automated patent retrieval system that can match the speed and efficiency of the paper files. The PTO has recently dropped another alphabet soup of unusable automated systems on the Examiner's desktop, while proposing to remove the only search system that does work . . . the paper search file. This all without any training on how to use the dozen or so new systems. You see, PTO management subscribes to the ''you figure it out'' school of training.
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This alphabet soup of new systems were developed without PTO management seriously considering what examiners or the public want and need in automated systems. PTO management has chosen to simply ignore an Executive Order signed by President Clinton requiring agencies to bargain over the technologies, methods and means of performing work. POPA is not against automation. POPA is against automation that wastes the public's money by failing to produce systems that enable examiners to be more productive. You have to understand that all examiners are either scientists or engineers. Our job steeps us in a love of technology. But, we are practical too and know the difference between a lemon and a peach.
In October 1997, we were notified of the agency's intent to eliminate the paper files before examiners are transferred to the new buildings that the agency wishes to lease. Contrary to intuition, computerized searches do not take less time than searches using the paper files. With the recent elimination of the dual screen cluster workstations, only desktop workstations are available. Those workstations will not even allow one to see an entire page of a patent at a readable resolution. In addition, as currently configured, they do not provide for viewing the images of a collection of patents identified through a text search. While the desktop terminals might work for those who need to find information only occasionally, it is totally inadequate for those searching in a production environment such as ours.
Retaining the paper files is dirt cheap in comparison to automation. We estimate that space costs plus upkeep add up to less than $4 million per year. If the paper files go, so will our classified foreign reference backfile and our classified non-patent literature, neither of which have been captured electronically.
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We find it incredible that PTO management has announced that they will eliminate the paper search files without ever having done a cost/benefit analysis. We have also asked for documentation on any studies which have been performed with respect to quality of examination and search time using automated patent retrieval systems vs. paper systems. The agency says this information doesn't exist.
Actions the Committee Can Take
The examination system is at a critical crossroad. If there is to be concern for the quality of examination, concern for finding the most pertinent prior art and concern for the correctness of decisions on patentability, then Congress must express that concern.
Controlling the total amount of resources available to the agency will not be sufficient to ensure that there will be a concern for quality. While curtailing resources may very well limit what can be accomplished, expanding our resources will not, by itself, produce quality results. We believe it is essential that you provide guidance and oversight as to how those resources are used.
The most significant issue is not the total level of resources available, but the priorities by which those resources will be allocated. Right now the PTO collects just under $8000 in fees for each issued patent over the life of the patent. Less than $800 is allocated to examiners for examining a patent application. The rest is processing costs and overhead.
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We believe this imbalance in the priorities of the agency can only be changed by an explicit direction from Congress. Just as Congress put a fence around trademark fees, by requiring that all trademark fees be used only for trademark registrations and related activities in 35 U.S.C. 42(c), so could Congress declare that certain patent application fees be dedicated to fund the pay and training of patent examiners. H.R.812 at Section 6(d) proposes just such a fence and we strongly support it. Inventors pay application fees principally for the time examiners use to search and evaluate the patentability of an invention. We believe the inventors should be guaranteed the services they paid for, and budget shortfalls accommodated by adjustment of processing and overhead costs.
We believe that the current degradation of our search files can only be overcome by an explicit direction from Congress. Congress could, as provided in Section 4 of H.R. 812, require the PTO to maintain the U. S. Patent Classification system and to actually use it to organize the technical information required to be kept in the search files, including all the foreign patents that form the minimum documentation required to be maintained by the Patent Cooperation Treaty.
We believe that the improved examination quality achievable though the training that customers, employees, and outside experts agree is needed will not happen without an explicit direction from Congress. Congress could, as provided in Section 5 of H.R.812, meet the training need by requiring that 5% of duty time be set aside for training. This matches the budget allotment for training suggested by the Volker Commission. In a patent reengineering workgroup, it was concluded that a specific set aside for training was the best way to ensure that employees actually would be trained. Best practices in U.S. industry provide for 4–6% of an employees' time be spent in training, while 10–12% is the best practice in Europe.
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To provide an economical source of competent and dedicated trainers, H.R.812, at Section 5(b), directs that the PTO develop an incentive program to retain retirement eligible primary examiners. Civil service law currently allows retention bonuses of up to 25% of salary. The section permits, but does not require, monetary incentives.
In summary, we urge you to provide the agency with explicit guidance on the resources to be devoted to finding the most pertinent prior art relative to each patent application and to ensuring the correctness of our decisions on patentability. We think this can be best accomplished by dedicating certain fees for the pay and training of patent examiners, by directing the PTO to maintain the U.S. classification system and classify foreign patents into the U.S. system, and by directing the PTO to provide a specific amount of time for training.
Mr. COBLE. Thank you, Mr. Stern.
Mr. Tobias, we have a vote on. Can you do yours in 5 minutes, you think?
Mr. TOBIAS. I think so.
Mr. COBLE. Why don't we start and if not, we can resume when we come back. Mr. Tobias.
STATEMENT OF ROBERT M. TOBIAS, NATIONAL PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION
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Mr. TOBIAS. Thank you and good morning, Mr. Chairman. My name is Robert Tobias and I'm the President of the National Treasury Employees Union. And as I indicated, with me is Howard Friedman, the President of NTEU Chapter 245.
We represent about 2,500 bargaining unit employees at the two local chapters of the Patent and Trademark Office. The employees in chapters 243 and 245 are involved in all phases of a trademark application process, from handling mail to the other tasks directly related to the judication of the trademark, to the trademark applications.
NTEU wishes to bring several issues to the committee's attention. PTO has set some laudable goals for the agency. Goals with which, for the most part, our union is in complete accord. PTO management intends to expand the electronic filing program to accept applications, check their status, and place orders for information products over the Internet; it intends to move from a paper based to an electronic work environment; it intends to retain the high standards of quality currently present in PTO; and it intends to reduce trademark processing time from six to 3 months for first actions. These are all achievable goals so long as we have the right tools, fair reward for our work, and adequate staffing.
A primary issue for NTEU is that fair pay. We urge that there be a career ladder for trademark attorneys. Trademark attorneys, as you know, Mr. Chairman, research, analyze, and make determinations about trademark applications submitted to PTO. This analysis frequently involves complex and contradictory issues, requiring a high level of professional ability. NTEU concurs with the independent management commission that asserts these positions should include a career ladder to grade 14, rather than the current GS13 level.
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The current classification system used to classify jobs dated back to the early post-war years, reflecting the more hierarchical organization structure of that era. It assumes little, or no, innovation or change, little opportunity for employees to influence the scope of their work, and little independence of judgment on the job. This is not the PTO we envision for the 21st century and it's not the current reality of the persons in these positions.
Action on this matter would be a win for management, employees, and the public. It would make it much easier on the part of management to retain these workers. The trademark office has already lost some of it's best attorneys, forcing it to bear the expense and loss in productivity while training new employees. It would be very detrimental to PTO if it continued to lose the talent to other employers. Furthermore, under the current performance appraisal plan, this production standards for GS14's are higher. Therefore, an increased number of attorneys at this grade can improve productivity and decrease pendency at the trademark office.
NTEU is in a partnership relationship with
Mr. COBLE. Mr. Tobias, if you would suspend. Our second bell has just rung. You hang right where you are.
Mr. TOBIAS. I won't move.
Mr. COBLE. The gentleman from Virginia will probably relieve me. I have got to go to another meeting. My absence here will not indicate any lack of interest. Your written statements will be thoroughly studied and Bob, if you will, I have some questions—I would appreciate it, Bob, if you would—Bob, Mr. Goodlatte, if you would put some questions to them when you come back. And you all rest easy, folks, and we'll be back imminently.
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Mr. TOBIAS. Thank you very much, Mr. Chairman.
Mr. COBLE. Thank you all.
Mr. GOODLATTE. [presiding.] The committee will come back to order. Mr. Tobias, I think you were in mid-thought, when we so rudely interrupted you before, so we invite you to continue your testimony.
Mr. TOBIAS. Thank you very much and thank your for the assumption I was in mid-thought, I appreciate that. That assumes I've been having some thoughts here. [Laughter.]
NTEU is in a partnership relationship with PTO management regarding space allocation and other issues concerning new facilities PTO will occupy after the year 2002. We're confident the new facilities will provide an environment in which our members can work efficiently, productively, comfortably, and safely. We've already come to agreement with PTO management on important issues, such as space allocation in the facility.
However, in the short run, trademark operations has significant space allocation problems in the current building. Over the next 2 years, the trademark office will be hiring a large number of new attorneys and even with the planned expansion and reallocation of existing space, by 1999, many attorneys will be forced to double up in offices, with productivity and morale suffering.
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Now one partial solution to this office space crunch, in addition to procuring new space, is to renew and expand the flexiplace demonstration project. This pilot program, initiated a year ago, allows 18 trademark attorneys to work part of the time from home. A final evaluation is scheduled for the end of Fiscal Year 1999. NTEU's preliminary judgment is that the pilot is working well and should be expanded to allow up to 25 percent of the trademark attorneys to exercise this option.
NTEU agrees with management on the importance of worker training and continuing professional education, however, and most importantly, we find that the pressure to reduce pendency makes it almost impossible for our employees to take advantage of training opportunities, even when funding is available. The short term loss of staff time to process applications will certainly be made up in the long run by the improved productivity of better trained employees.
NTEU joins the administration in supporting reauthorization of the Patent and Trademark Office surcharge, which sunsets in December 1998. However, NTEU has strong objections to the practice of diverting any fees collected from PTO customers into general revenues. NTEU wishes to reaffirm our support for the legislation to make PTO a government corporation structured to operate like a business and with increased human resource and personnel flexibilities.
As you know, the House has already passed H.R. 400, while the Senate has yet to complete action on it's bill S. 507. And of course, we're continuing to ask the Senate to pass this important bill this year, so that PTO can function in a way that is mutually beneficial to customers, employees, and the public.
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I very much appreciate the opportunity to testify and Mr. Friedman and I are happy to answer any questions you or the members of the committee may have. Thank you very much.
[The prepared statement of Mr. Tobias follows:]
PREPARED STATEMENT OF ROBERT M. TOBIAS, NATIONAL PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION
SUMMARY
NTEU represents more than 2,500 bargaining unit employees at the Patent and Trademark Office. PTO has set some laudable goals for the agency, goals of which, for the most part, our union is in complete accord. These goals are achievable only with personnel policies that retain the best employees and provide them with a workplace in which they can be productive and fairly treated.
A primary issue for NTEU is the classification of trademark attorneys. Trademark attorneys research, analyze, and make determinations about trademark applications submitted to PTO. This analysis frequently involves complex and contradictory issues and requires a high level of professional ability. NTEU believes these positions should include a career ladder to grade 14. A reclassification would make it much easier to retain these workers. The skyrocketing number of applications is ample evidence in itself of the demand in the private sector for experienced trademark attorneys. Furthermore, under the performance appraisal plan, the production standards for GS–14 are higher. Therefore, an increased number of attorneys at this grade can improve productivity and decrease pendency at the Trademark Office.
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NTEU is in a partnership relationship with PTO management regarding space allocation in the new facilities PTO will occupying. We are confident the new facilities will provide an environment in which our members can work efficiently, productively and safely. However, in the short run, trademark operations has significant space allocation problems in the current building. Over the next two years, the Trademark Office will be hiring a large number of new attorneys. By 1999 many attorneys will be forced to double up in offices with productivity and morale suffering. One partial solution to this office space crunch, in addition to procuring new space, is to renew and expand the flexiplace demonstration project. Another option that will help relieve the interium space cruch is implementation of a maxiflex program. The experience of the flexiplace program has already shown that rigid structures are not necessary to maintain customer service or high levels of productivity.
NTEU agrees with management on the importance of worker training and continuing professional education. However, we find that the pressure to reduce pendency makes it almost impossible for our employees to take advantage of training opportunities even when funding is available.
NTEU supports reauthorization of the Patent and Trademark Office Surcharge, which sunsets in December of 1998. This will allow PTO to remain an entirely fee-funded organization and not have to rely on general tax revenues to support its operations. Without this reauthorization, staffing levels will not be able to rise with workloads and pendency periods.
However, NTEU objects to the diversion of fees collected from PTO customers into general revenues. The PTO FY 1999 budget request has $116 million in fee collected revenue transferred to the General Fund. This rightful and needed revenue should be used to give PTO customers better service and to fund many of the recommendations we have made today.
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NTEU reaffirms our support for legislation to make PTO a government corporation structured to operate like a business and with increased human resource and personnel flexibilities. We ask the Senate to pass this important bill this year.
STATEMENT
Good morning Chairman Coble and members of the House Judiciary Subcommittee on Courts and Intellectual Property. My name is Robert M. Tobias. I am the National President of the National Treasury Employees Union (NTEU). With me is Howard Friedman, President of NTEU Chapter 245. We very much appreciate the Committee's invitation to be here today to present our union's views on the operation and proposed budget of the U.S. Patent and Trademark Office (PTO).
NTEU represents more than 2,500 bargaining unit employees at two local chapters at the U.S. Patent and Trademark Office. The employees at NTEU Chapter 243 are involved in all phases of the patent and trademark application process—from handling mail, to other tasks directly related to the adjudication of the patent and trademark applications. The Trademark Society, NTEU Chapter 245, represents the attorneys who process trademark applications.
As the Subcommittee is well aware, the Patent and Trademark Office plays a critical role in the development of new industries in our economy. PTO's employees perform the quasi-judicial function of adjudicating patent and trademark applications. The American public and business community place great importance on the registration of patents and trademarks in the United States as a key to the protection of valuable intellectual property rights. The PTO's employees are vital to the successful operation of the Office and can and should play an important role in increasing efficiency and productivity.
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NTEU wishes to bring several issues to the Committee's attention. PTO has set some laudable goals for the agency, goals with which, for the most part, our union is in complete accord. PTO management intends to expand the electronic filing program to accept applications, check their status and place orders for information products over the Internet; it intends to move from a paper-based to an electronic work environment; it intends to retain the high standards of quality currently present in PTO; and it to intends reduce trademark processing time to three months for first actions. This last goal is the most ambitious as over the past few years staffing levels have not increased in concert with the growth of applications. Trademark attorneys, who examine an application, make a determination on the registrability of a trademark, prepare briefs on objectionable applications, and approve marks, have a six month backlog of cases.
These are all achievable goals. Yet their achievement is only possible with personnel policies and labor standards that retain the best employees and provide them with a workplace in which they can be efficient, productive and fairly treated. The Commissioner has publicly stated that he wants to build ''a cadre of highly skilled and trained employees.'' He has also stated that ''we work our people to the bone.'' Our members are one of the hardest working and highly skilled workforces in the federal service and are capable of being the best group in the public or private sector, so long as we have the right tools, a fair reward for our work, and adequate staffing levels.
PTO continues to receive an increasing number of patent and trademark applications and these applications are of increasing complexity. The Department of Commerce and the American public are very fortunate to have the young, progressive and innovative workforce represented in NTEU's bargaining units. They are extremely computer literate, professionally savvy and open to new ideas. In our testimony today, I want to outline some important issues that must be addressed if we are to maintain the high level of productivity and morale PTO needs in this demanding era.
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A primary issue for NTEU is the classification of trademark attorneys. Trademark Attorneys research, analyze, and make determinations about trademark applications submitted to PTO. This analysis frequently involves complex and contradictory issues, requiring a high level of professional ability on the part of the Trademark Attorney. NTEU concurs with independent, management commissioned research that asserts these positions should include a career ladder to grade 14. Currently, trademark attorneys are limited to a grade 13. The current classification system dates back to the early postwar years, reflecting the more hierarchical organization structure of that era. It assumes little or no innovation or change, little opportunity for employees to influence the scope of their work, and little independence of judgment on the job. This is not the PTO we envision for the 21st century and it is not the current reality of persons in these positions. A reclassification would be a win for both management, employees and the public. It would make it much easier on the part of management to retain these workers. The skyrocketing number of applications is ample evidence in itself of the demand in the private sector for experienced trademark attorneys. The Trademark Office has already lost some of its best attorneys, forcing it to bear the expense and loss in productivity while training new employees. It would be very detrimental to PTO if it continued to lose this talent to other employers. Furthermore, under the current performance appraisal plan, the production standards for GS–14 are higher. Therefore, an increased number of attorneys at this grade can improve productivity and decrease pendency at the Trademark Office.
NTEU is in a partnership relationship with PTO management regarding space allocation and other issues concerning new facilities PTO will occupy after the year 2002. We are confident the new facilities will provide an environment in which our members can work efficiently, productively, comfortably and safely. We have already come to agreement with management on important issues such as space allocation in the facility.
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However, in the short run, trademark operations has significant space allocation problems in the current building. With the increasing workload and resulting increased staffing, we cannot wait until the next millennium to resolve the current space allocation issue at the Trademark Office. Over the next two years, the Trademark Office will be hiring a large number of new attorneys. Even with the planned expansion and reallocation of existing space, by 1999 many attorneys will be forced to double up in offices with productivity and morale suffering. One partial solution to this office space crunch, in addition to procuring new space, is to renew and expand the flexiplace demonstration project. This pilot program, initiated a year ago, allows eighteen trademark attorneys to work part of the time from home. A final evaluation is scheduled for the end of Fiscal Year 1999. NTEU's preliminary judgment is that the pilot is working well and should be expanded to allow up to 25% of the trademark attorneys to exercise this option. Another option that will help relieve the interim space crunch is implementation of a maxiflex program. The experience of the flexiplace program has already shown that rigid structures are not neccesary to maintain customer service or high levels of productivity.
NTEU agrees with management on the importance of worker training and continuing professional education. However, we find that the pressure to reduce pendency makes it almost impossible for our employees to take advantage of training opportunities even when funding is available. PTO management needs to better avoid being penny wise and pound foolish. The short term loss of staff time to process applications will be made up in the long run by the improved productivity of better trained employees.
NTEU joins with the Administration in supporting reauthorization of the Patent and Trademark Office Surcharge, which sunsets in December of 1998. This will allow PTO to remain an entirely fee-funded organization and not have to rely on general tax revenues to support its operations. Without this reauthorization, staffing levels will not be able to rise with workloads and pendency periods, which are already on the rise, will increase even more dramatically.
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However, NTEU has strong objections to the practice of diverting any fees collected from PTO customers into general revenues. The PTO FY 1999 budget request has $116 million in fee collected revenue transferred to the General Fund. We find this an inappropriate use of user fees. This rightful and needed revenue should be used to give PTO customers better service, to meet the growing challenges of the Office and to fund many of the recommendations we have made today. Beyond these needs, any excess funds should be carried over to future years so that PTO customers will not have their applications delayed for any reason.
NTEU wishes to reaffirm our support for legislation to make PTO a government corporation structured to operate like a business and with increased human resource and personnel flexibilities. The House has already passed HR 400 while the Senate has yet to complete action on its bill, S. 507. We continue to ask the Senate to pass this important bill this year so that PTO can function in a way that is mutually beneficial to customers, employees and the public.
Mr. Chairman, I appreciate the opportunity to testify today. Mr. Friedman and I are happy to answer any questions you or the members of the committee may have. Thank you.
BIOGRAPHY
Since August 1983, Robert M. Tobias has served as the chief officer and spokesperson of the National Treasury Employees Union (NTEU), the nation's largest independent federal sector union. He is recognized as the leading authority on issues affecting federal employees.
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Tobias, 53, is a 29-year veteran of NTEU. Immediately prior to his election as national president, he was NTEU executive vice president and general counsel, supervising a staff of 45 attorneys and field representatives nationwide, as well as the litigation and negotiations staff and the NTEU training program. He also was chief spokesperson for all of NTEU's national agreements.
As NTEU president, Tobias has broken new ground in the federal sector, instituting the first negotiated alternate work schedules for employees and the first cooperative labor/management programs for on-site child care and employee monetary awards. Tobias is personally responsible for litigating the first federal union lawsuit against a United States president and for winning a case establishing federal employees' right to participate in informational picketing.
As the recognized federal sector union authority on Total Quality Organizations (TQO), Tobias has led implementation of TQO in government through NTEU's partnership with several federal agencies, including the Department of Energy, the U.S. Customs Service and the Internal Revenue Service, which is considered one of the most successful quality improvement efforts in the federal government.
Tobias is a member of President Clinton's National Partnership Council, the Federal Advisory Committee on Occupational Safety and Health and sits on the Executive Committee of the Internal Revenue Service and the Executive Improvement Team at the U.S. Customs Service.
Tobias is on the board of directors of the American Arbitration Association and is co-founder and treasurer of the Federal Employees Education and Assistance Fund (FEEA). He also advises the president of the United States as a member of the Federal Salary Council.
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Tobias, a Michigan native, worked in Detroit as a labor relations specialist for General Motors. He also was a labor relations specialist for the Internal Revenue Service.
Tobias received a bachelor's degree and a master's degree in Business Administration from the University of Michigan, and he graduated from the George Washington University Law School, where he served on the adjunct faculty.
Tobias, who lives in Maryland with his wife Susan, has received the Union Leader Recognition Award from the Society of Federal Labor Relations Professionals and is listed in Who's Who in America.
For more information, please contact:
Jim Watkins/Kathy Walsh
Public Relations Department
901 E Street, N.W., Suite 600
Washington, D.C. 20004
(202)783-4444
Mr. GOODLATTE. Thank you, Mr. Tobias.
Mr. Stern, it's my understanding that the PTO solicitation contemplates 120 square foot offices for all patent examiners and supervisory examiners and group directors and senior patent management, and that this is also the trend in private industry as well. Does the POPA endorse this proposal?
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Mr. STERN. No, we do not. As a matter of fact, we think it's a very unwise direction to go and will not provide examiners with the space that they need to have a conference with applicants or with public searchers. What the agency intends to substitute for individual office space is group wide meeting rooms. The actual total amount of space that the agency plans on using is really not very much different than the current total amount of space, when you give each individual examiner the 150 square feet he has now. It will be reorganized to provide for lots of meeting and conference rooms. It really is very inefficient to get up and walk away to another room, try to schedule it with other people, so that you can hold the meeting. It's much more efficient to have small meetings in your own office.
Our public demands almost instant answers sometimes. Public searchers come to examiners and the expectation is that you will immediately take 5 or 10 minutes to review the disclosures that they have with them and that you will point them in the right direction for searching. It is much more efficient to do that in your own office.
Mr. GOODLATTE. And what percentage of the time do you have such individuals in your office?
Mr. STERN. Actually, I don't know. We have not done a study of that. The PTO did do a study a long time ago. There was something called, ''the beeper study'' done. And if I remember correctly, there was about 7 percent interruption time—that's meeting with others over Office business.
Mr. GOODLATTE. But some of those others, are other people—employees—within the facility that you're in.
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Mr. STERN. Some of those others are other employees.
Mr. GOODLATTE. Aren't a lot of the examiners doubling up in offices right now?
Mr. STERN. Yes they are.
Mr. GOODLATTE. I would think that would be far more disruptive to have another person attempting to do work while you're conferring in your office with somebody else, than it would be to share a group of conference rooms that you could utilize exclusively and have a slightly smaller office, but an office that you alone get to utilize without the interruption when you need to have that time to be thinking about what you're processing, and not have somebody sitting at a table across the room with a discussion with somebody else on a completely different issue.
Mr. STERN. You make an excellent point, but you need to know that, the people who are doubled up are the junior examiners who have just come into the agency. They're not the ones who are, in general, providing the search advice to others. The people who are providing the search advice to others are the senior examiners, and anyone who has been at the agency approximately 4 years to 5 years is in their own private room. That's the point at which you will have more meetings. And if you know, by the way, in the early stages of your career that you are going to get a private room, you look forward to that time when you do get the private room.
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Mr. GOODLATTE. Perks to the office. I understand that.
Mr. Tobias, has the Patent and Trademark Office been receptive to your idea to raise the career ladder for trademark attorneys to grade 14?
Mr. TOBIAS. The report that I cite in the testimony is rather recent. We haven't had extensive discussions, so I can't say one way or the other, but we're certainly hopeful that they're going to respond favorably to that. There hasn't been any response to date.
Mr. GOODLATTE. And how tough is it to retain qualified trademark attorneys?
Mr. TOBIAS. Well, maybe Mr. Friedman, has the actual turnover statistics, but they're large and that's why we're suggesting this career ladder to grade 14, both in terms of retention, increased productivity. And also, the study by the National Association of Public Administration was actually sponsored by Mr. Lehman, and the goal was to take a look at where a pay disparity—where the greatest pay disparity exists. The NAPA group focused on the trademark attorneys as the place where there needed to be change.
Mr. GOODLATTE. Mr. Stern, isn't is true that the P. Mathis Associates' study which you cite in your written testimony, reveal that most examiners liked automated patent searches?
Mr. STERN. I think folks do like the automated system. I don't think that the Mathis study said that most examiners preferred that over the paper files. Pat Mathis did not do a straight comparison of the paper search versus the automated system. At the time, by the way, just if you want a little more detail—at the time, one of the principal uses of our automated system was the e-mail system and employees have loved the e-mail system. It doesn't get any patent work done or patents examined, but it is definitely a useful system to communicate with each other.
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Mr. GOODLATTE. Without getting up from that desk or out of that office.
Don't you think that automation is going continue to replace paper in most every American and international commercial endeavor and, if we don't continue to move in that direction, what does the agency do with 36 billion pieces of paper?
Mr. STERN. Well, as a matter of fact, we're very much in favor of certain kinds of automation where it's going to produce productivity gains. And when you talk about what is the agency going to do with 36 billion, the actual number of pieces that we have in terms of documents, is about 20 million. And the cost of maintaining our paper search files for those 20 million documents is about $4 million a year. The cost of maintaining our automated search system I estimate to be on the order of $40 to $60 million a year.
What hasn't been mentioned here is that much of our current automation system is likely to be trashed when we go into a new building. You are not going to pull the wires and the fiber optic cables out of the old buildings. We really are going to need—and this is going to be part of the cost of moving to a new building—about $100 to $200 million worth of new automation equipment. The automation equipment that we currently have probably will not follow us into the new building.
Mr. GOODLATTE. Mr. Tobias, I wonder if you would elaborate on why you believe the 21st Century Patent System Improvement Act will benefit the PTO, it's workers, and it's users.
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Mr. TOBIAS. Well, I think that primarily because PTO would have some flexibilities that it doesn't have today; it would have some funding that it doesn't have today; and I think that it would, I believe, would be more responsive to it's customers because it would see itself and it would be perceived by it's customers as a separate entity. And, as such, I think would respond more favorably. So for all of those reasons, I think it makes a whole lot of sense to create the kind of organization that's described in H.R. 400.
Mr. GOODLATTE. The last part of your testimony, which I heard, referred to people working at home. Are you wanting to expand that—is that the flexiplace or maxiflex program?
Mr. TOBIAS. Correct. We now have 18 folks who are doing that and the preliminary data shows a quite dramatic increase in productivity from those who work at home a certain period out of the 80 hour pay period—out of the 2 week pay period.
Mr. GOODLATTE. All those amusements at home don't distract them from their work?
Mr. TOBIAS. It's kind of interesting because people have tended to work throughout the day and on into the evening, rather than at a set period of time, because they have an office, they have all of their equipment, they have their work. It's there and they can do it. The goal, it seems to me here, is whether or not there's increased productivity, and there is. So when you couple that with the idea of space and space allocation, it's a winner, we think.
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Mr. FRIEDMAN. If I may add to tie up two points that have been made. One is dealing with independent study that you had referred to in a prior question, and the other issue of flexiplace. Clearly, preliminary results have shown that productivity is up and it's up in a couple of areas. One, while there may be distractions at home, under our performance appraisal plan, we have a strict production schedule. So regardless of what distractions there are at home or at work, you've got to get a certain number of widgets out before the week is over, before the bi-week's over, before the month's over, before the quarter's over, etc.
Mr. GOODLATTE. You have more flexibility to do that when you don't have to go back to the office at night. If it's right there at home, you can work on it in the evening, or
Mr. FRIEDMAN. You have that. You're not distracted by your peers. And from a customer service viewpoint, under the current program, you still have to come in a couple of days a week to work on files, to get input from other examiners. So it's not a program yet where you're completely at home. There are still certain restrictions on it.
Additionally, under the President's budget that was submitted to Congress, it makes very clear that during the evaluation in 1999, if the evaluation is positive, that program can be expanded up to 25 percent of the examining core, which could equal up to 80 attorneys. Obviously, if you have 62 more attorneys that we have now at home that would be one good way to alleviate the space crunch that we have now that we'll have in 1999, and that we'll have in 2000. The office benefits because they get increased productivity. As I've also mentioned, there are clearly checks and balances, because at the end of the week, you have to show how many applications you've worked on. And so that program on balance is working well and we anticipate it being made permanent.
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Back to our prior question, if I may, to embellish what Mr. Tobias had said. We have not——
Mr. GOODLATTE. Before you get back to that, let me just ask both of you if you feel that the agency is receptive to the proposal to expand the flexiplace and maxiplace flex programs?
Mr. TOBIAS. I think that they will be. We hope that they will be. The study hasn't been completed, but when we—we expect it to show the increased productivity. We expect the agency to be responsive.
Mr. GOODLATTE. Okay, Mr. Friedman, sorry to interrupt you.
Mr. FRIEDMAN. And similarly, I was telling Bob in between our sessions here that, an attorney had recently come up to me and said she—she works on flexiplace, she's one of the 18 people on flexiplace—and she had worked more than 600 hours of overtime. What we're also finding, in addition to people being more productive, is that attorneys who previously didn't work overtime, are working overtime. And attorneys who prior to flexiplace were working on overtime, are working—are even do more overtime, so you not only get productivity, but you get productivity over a greater and larger number of hours. Which of course goes to the heart of what the office is trying to do, which is to reduce pendency. So again, it's one of those situations that is as it's expanded, it's a win-win situation.
Relative to the prior question in reference the independent report commissioned by the Commissioner. We were only briefed on that report 13 days ago, so we're still in the preliminary stages. We will be having talks with not only senior trademark management, but with the Commissioner and his offices. There were 10 major occupations evaluated. Of those 10 major occupations, only 1 was it suggested was getting underpaid, and I represent that bargaining unit. Those are the trademark attorneys.
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I want to emphasize what was noted in Mr. Tobias' testimony. We want to make sure that it doesn't get lost in the shuffle. That also is a win-win situation. Under our performance appraisal plan, the higher the grade level, the greater the productivity. The GS13 has to produce 1.2 applications per hour. The GS14, of which there are 18 of them in our bargaining unit, has to produce at 1.3 applications an hour. Which means, if you're working a 10 hour day, you're putting out 13 applications a day, 14 and change, if you're at the outstanding level. The point being if we go up to a grade 14, even though the 905 GS attorney series that we're under, only talks about a 14 being a 14 based on independence of work and the complexity of work, we've always taken the position and we continue to take the position, that those GS14's would produce at the higher production rate. Which means as you have 14's, you have greater production of those 14's, and which of course means there's a corresponding decrease in pendency, which again is what the office's primary goal is now and as is mandated by Congress.
Mr. GOODLATTE. Gentlemen, those are all the questions that I have and I don't see anybody else to ask any. So I'm going to at this point, thank you for your participation. We very much appreciate the contribution that you've made and this concludes the oversight hearing of the U.S. Patent and Trademark Office. The record will remain open for 1 week. We thank all of you for coming today.
The meeting stands adjourned.
[Whereupon, at 1:02 p.m., the subcommittee adjourned subject to the call of the Chair.]
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(Footnote 1 return)
United States, General Accounting Office, Intellectual Property: Fees Are Not Always Commensurate With the Costs of Services (Washington: GAO, May,1997) 32.
(Footnote 2 return)
United States, U.S. Patent and Trademark Office, Setting the Course for the Future: A Patent and Trademark Office Review—Fiscal Year 1995 (Washington, USPTO, 1996) 99.
(Footnote 3 return)
United States, U.S. Patent and Trademark Office, Fiscal Year 1999: Corporate Plan In-Brief (Arlington, VA, February 27, 1998) 9.
(Footnote 4 return)
The term ''first-action'' refers to the amount of time it takes the USPTO to begin examination of trademark applications.
(Footnote 5 return)
United States, U.S. Patent and Trademark Office, Trademark Operation, Status Report for First Quarter: Fiscal Year 1998, (Arlington, VA., January, 1998) i.
(Footnote 6 return)
U.S. Patent and Trademark Office, Status Report, i.
(Footnote 7 return)
U.S. Patent and Trademark Office, Status Report, i.
(Footnote 8 return)
USPTO, FY 1999 Corporate Plan, 4.
(Footnote 9 return)
H.R. 400 and S. 507, 105th Congress.