SPEAKERS CONTENTS INSERTS
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2005
REVIEW OF U.S. PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY OF PUBLIC ADMINISTRATION REPORTS
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
SEPTEMBER 8, 2005
Serial No. 109–48
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Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
DANIEL E. LUNGREN, California
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL ISSA, California
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
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J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
JOHN CONYERS, Jr., Michigan
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
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
CHRIS VAN HOLLEN, Maryland
DEBBIE WASSERMAN SCHULTZ, Florida
PHILIP G. KIKO, General Counsel-Chief of Staff
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PERRY H. APELBAUM, Minority Chief Counsel
Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
RIC KELLER, Florida
DARRELL ISSA, California
CHRIS CANNON, Utah
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
ANTHONY D. WEINER, New York
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ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
BLAINE MERRITT, Chief Counsel
DAVID WHITNEY, Counsel
JOE KEELEY, Counsel
RYAN VISCO, Counsel
SHANNA WINTERS, Minority Counsel
C O N T E N T S
SEPTEMBER 8, 2005
OPENING STATEMENT
The Honorable Lamar Smith, a Representative in Congress from the State of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property
The Honorable Howard L. Berman, a Representative in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property
WITNESSES
The Honorable Jon W. Dudas, Undersecretary of Commerce for Intellectual Property and Director, U.S. Patent and Trademark Office (PTO)
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Oral Testimony
Prepared Statement
Ms. Anu K. Mittal, Director, Science and Technology Issues, U.S. General Accountability Office (GAO)
Oral Testimony
Prepared Statement
Mr. Ronald J. Stern, President, Patent Office Professional Association (POPA)
Oral Testimony
Prepared Statement
Mr. Charles Van Horn, Finnegan, Henderson, Farabow, Garrett, and Dunner, LLP
Oral Testimony
Prepared Statement
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property
Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Member, Subcommittee on Courts, the Internet, and Intellectual Property
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Response from Anu K. Mittal, Director, Science and Technology Issues, U.S. General Accountability Office (GAO), to questions submitted by the Honorable Zoe Lofgren, a Representative in Congress from the State of California, and Member, Subcommittee on Courts, the Internet, and Intellectual Property
Executive Summary, U.S. Patent and Trademark Office: Transforming To Meet the Challenges of the 21st Century, a Report by a Panel of the National Academy of Public Administration for the U.S. Congress and the U.S. Patent and Trademark Office, 2005, submitted by the Honorable Lamar Smith
REVIEW OF U.S. PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY OF PUBLIC ADMINISTRATION REPORTS
THURSDAY, SEPEMBER 8, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1 p.m., in Room 2141, Rayburn House Office Building, the Honorable Lamar Smith (Chair of the Subcommittee) presiding.
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Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. As is usually the case, I am going to recognize myself for an opening statement, then recognize the Ranking Member, then we will get to our witnesses as soon as possible.
Today the Subcommittee will conduct a hearing on the operations of the U.S. Patent and Trademark Office. This hearing responds to our obligation under House rules to conduct oversight of those entities that fall within our Committee's jurisdiction.
The PTO is the one of the most important agencies of the Federal Government, but it is often not regarded as such. It directly affects the producitvity and economic growth of our Nation as well as the standard of living for all Americans.
For over 200 years the PTO has been responsible for issuing U.S. Patents. The PTO advises the Secretary of Commerce and the President on patent, trademark and copyright protection, as well as on trade-related aspects of intellectual property.
The Subcommittee has conducted oversight hearings on PTO operations during the last two Congresses, but they have mainly dealt with fees and fee diversion. The scope of this hearing today will be much broader.
Recent reports by the GAO, the Patent Public Advisory Committee, the Inspector General's Office and the National Academy of Public Administration have all focused on day-to-day operations of the PTO. Among them are the patent application backlog, the implementation of the PTO's electronic application system, hiring and retention of patent examiners, the relationship between management and examiners, and the amount of time examiners require to process patents.
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In addition, the PTO continues to implement its 21st Century Strategic Plan. The plan lays out a set of commitments aimed at improving quality and enhancing productivity for the PTO. Among other provisions, the plan promotes electronic processing of all patents and greater protection of American intellectual property internationally.
The PTO has long sought to improve its patent process through the use of electronic filing, and has spent over $1 billion in its efforts to provide an electronic patent filing system between 1983 and 2004. The GAO has made several recommendations to helpfully integrate an electronic system. This hearing will allow Members to acquire a status report on planned and ongoing efforts to modernize the office's operations, especially those that will lessen its reliance upon paper files and documents.
The Judiciary Committee proposes to authorize that the PTO collect and spend over $1.7 billion, subject to appropriation acts, from fee collections in fiscal year 2006 to cover operating expenses, including the payment of retirement benefits for employees.
In its submission, the Judicary Committee Members emphasized that they strongly support full funding of the PTO and the elimination of any incentive to use agency revenues for non-PTO purposes.
We look forward to discussing these and other issues of concern to the Members today. And before I recognize the Ranking Member, without objection I would like unanimous consent to put into our record the executive summaries of the reports that we have gotten, including the U.S. Patent and Trademark Office, Transforming to Meet the Challenges of the 21st Century, and that has been submitted by the National Academy of Public Administration, as well as the other reports we have as well.
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I would like to put them all in the record, but when each report runs 300 pages, I think we better just focus on the executive summary.
And, once again, let me just say in conclusion, and, Director Dudas, this is directed toward you as much as anybody else, that I would be hard pressed to point to another Government agency that is as important as yours, that has as much responsibility as yours does, and has as much impact on the American people. But I hope that after today's hearing and in coming months, we will make sure that more people are aware of just how much the PTO contributes to our well-being.
[The information referred to is printed in the Appendix.]
Mr. SMITH. Now the gentleman from California Mr. Berman is recognized for his opening statement.
Mr. BERMAN. Thank you very much, Mr. Chairman, for recognizing me and for scheduling this oversight hearing.
The U.S. patent system is the cornerstone of innovation in our society. Throughout its more than 200-year history, the Patent Office provided incentives for inventors to innovate by providing them with protection for their ideas in the form of patents and trademarks. Intellectual property-based industries today represent the largest single sector of the U.S. Economy, and the USPTO is at the core.
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As the Chairman said, it is probably not highly recognized among the public, and maybe even many of our colleagues, of the critical role that the USPTO plays in our economic progress, and in the advancement and benefits to quality of life that come from invention. There has been over the recent years criticism, charges of poor-quality patents and ever-increasing pendency of applications, both of which diminish the stature of the patent system and reflect poorly on the office's product.
I commend the Patent Office for implementing many of the initiatives cited in its 21st Century Strategic Plan, but nevertheless, challenges remain.
The first challenge is to us, not to the PTO. Everyone agrees, all of the witnesses agree, that we must stop fee diversion. Between fiscal year 1992 and 2004, the office lost access to $741 million of the fees it collected. A lack of funding is cited in multiple reports as the primary reason for increased pendency and for not implementing vital quality initiatives.
We can't continue to allow a perverse situation where we kneecap U.S. technology and economic leadership by diverting user fees to wholly unrelated uses. That is why many of us here today are original cosponsors of the Patent and Trademark Fee Modernization Act of 2005, to put an end once and for all to this tax on innovation.
However, the fee bill is only the starting point. In order to improve the operations of the Patent Office, we must make a number of fundamental reforms to the system. Patent pendency, the amount of time a patent is pending, now stands on average more than 2 years; backlog of applications awaiting a first review, 600,000. Without a change in the system, current levels are expected to grow to over 1,000,000 backlog by the year 2010. If you look solely at the most complex cutting-edge technologies where patent protection may be the most critical, average pendency is more than 3 years, not much higher than the average.
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The light-speed pace of innovation makes this simply unacceptable. Many cutting-edge technologies will be long obsolete by the time the patent is granted. The troubling factor leading to the ever-increasing backlog of patent applications is the USPTO simply does not have enough experienced examiners to handle the demand.
I applaud USPTO for taking steps to increase the size of its patent examining corps, but attrition remains a serious problem. Only 45 percent of the Patent Office workforce has 5 or more years of service, and in an agency where it takes roughly 5 of 6 years before an employee becomes fully productive, this is a troubling statistic.
Another major issue in which the office struggles is the quality of patents. The current production quota system, known as the count system, has not been reevaluated since it was first introduced in 1976. The amount of information through which examiners must search to find relevant patent literature has exponentionally increased. Applications are growing evermore complicated, yet examiners still work under the 1976 assumptions.
Even with advances in the deployment of information technology, a number of studies have indicated that examiners today simply do not have enough time to do their job properly and have been encouraged to take a number of shortcuts. So the natural result? Quality of patents suffers.
Although USPTO has instituted some quality initiatives in recent years, I think there is still a long way to go. There are additional quality measures and changes to the patent system as a whole that we hope to address in the Patent Reform Act of 2005. I won't get into those now, they may come up in the context of questions, but they are a crucial part of the answer, I think, as well.
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Thank you, Mr. Chairman. I yield back.
Mr. SMITH. Thank you, Mr. Berman.
Without objection, other Members' opening statements will be made a part of the record.
I would like to ask the witnesses to stand, if you would, so I can swear you in.
[Witnesses sworn.]
Mr. SMITH. Our first witness is Jon Dudas, Under Secretary of Commerce For Intellectual Property and Director of the the U.S. Patent and Trademark Office. In a previous life, Director Dudas worked for this Subcommittee, so we welcome him back. He earned a bachelor's degree in finance summa cum laude from the University of Illinois and a law degree with honors from the University of Chicago.
Our next witness is Ann Mittal, a Director with the National Resources and Environmental Team of the U.S. Government Accountability Office, or GAO. She is responsible for leading GAO's work in the areas of science and technology, water resources, and DOD's environmental compliance and clean-up activities. Ms. Mittal received a master's in business administration from the University of Massachusetts and recently completed the senior executive fellow program at the JFK School of Government at Harvard University.
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The next witness is Mr. Ronald J. Stern, who is president of the Patent Office Professional Association. Mr. Stern holds a bachelor's degree from the City College of New York, and a law degree from George Washington University. He has worked as a primary examiner at PTO since 1964.
Finally, our last witness is Mr. Charles Van Horn. Mr. Van Horn is a partner at Finnegan, Henderson. He joined the firm after a 31-year career in the U.S. Patent and Trademark Office. During his tenure, he served in a variety of leadership positions relating to patent policy and practice. Mr. Van Horn holds a law degree from American University and a B.S. From Lehigh University.
Welcome to you all. As you know, we have a 5-minute limit on your testimony.
And going—just looking at this introduction, though, let me ask sort of out of turn a question. It looks like to me, Mr. Stern and Mr. Van Horn, did you both begin at PTO the same year, or close to the same year?
Mr. STERN. Exactly the same year.
Mr. SMITH. Now, that's not going to shade your testimony today, is it, because you were former colleagues?
Mr. STERN. We probably should consider ourselves as colleagues today.
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Mr. SMITH. Good. Welcome you both and the other witnesses as well.
Now, Director Dudas, if you will begin.
TESTIMONY OF THE HONORABLE JON W. DUDAS, UNDERSECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE (PTO)
Mr. DUDAS. Thank you very much, Chairman Smith, Ranking Member Berman, Congresswoman Lofgren and Congressman Inglis, for inviting me to testify on the state of the U.S. Patent and Trademark Office.
I first want to note very briefly that while so many eyes are on the southern part of the United States as we watch the horrible aftermath of Hurricane Katrina, while our core mission is not related to disaster relief, we at the USPTO are doing everything we can as part of the massive Federal effort to help those affected, and my office will work to assist anyone who is not able to meet required deadlines for filing, identifying attorneys and registered agents, identifying folks who can't receive mail and who need replacement files.
I want to note that our employees are coordinating charitable events and donating to relief organizations through the Combined Federal Campaign; we had over 1,000 people participate recently.
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And that leads really to a second overall point that I feel is critical to make. I think everyone on this panel would agree our agency is heavily dependent on our people. And I cannot stress how highly I regard the employees at the USPTO. Their professionalism, their dedication, their effectiveness is unparalleled, and this is something that is acknowledged, I have seen, domestically and abroad by folks who work in other offices, and folks who work before other offices.
So I appreciate the opportunity to discuss the agency and the advancement of our IP system with you. You, the Members of this Subcommittee, have always been part of the solution, and we recognize that it is not always easy given the challenges that you face as Members of Congress.
That is why one of my proudest achievements, being part of a team at the USPTO, and with folks on this Subcommittee, is that we have dramatically improved the way the rest of Congress views the USPTO.
Mr. Chairman and Ranking Member Berman, you talked about making certain people understand how important this system is. A little over 4 years ago, there was a report that stated that the PTO had not been sufficiently innovative, a congressional report, one that said there wasn't full confidence in the information provided by PTO management regarding its needs and performance, and we needed to improve upon that. And under the leadership of President Bush and the guidance and efforts of the Members of this Committee, the last Congress voted 379 to 28 to affirm the USPTO strategic initiatives. So for your leadership, for the leadership of all of the Members of the Committee, I want to say thank you.
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Let me use the first few moments to present what I think is a big oversight picture as I see it. And I am happy to go into whatever detail you want on any particular issue.
Our intellectual property system, as you noted, is fantastically successful, but it still faces great challenges internationally and domestically.
I have testified before that my job as director is not to identify problems and give excuses, but to identify opportunities and to deliver results, and I hope to live up to that and intend to live up to that.
With that in mind, let me tell you what I think we have all accomplished, what has been accomplished for the system in the last 3 1/2 years, what still remains to be accomplished, and my thoughts on how we can achieve further success and address further challenges.
With respect to quality, our most important goal, we have moved, I believe, from an agency that had insufficient measures to one that constantly reviews the process and measures quality throughout the process. Moving forward, the challenge is to learn from all of the information we are collecting on quality. How can we improve training to prevent weak points? We must consider throughout all of our quality initiatives which are in place which are the most effective and which are less effective. We need to learn from them, and we need to learn about them.
We must constantly evaluate whether some initiatives need to be relaxed or adjusted for maximum effectiveness. And one thing I know for sure is that the examiners at the USPTO are objectively the most efficient and effective in the world. We must always be considering how to help them maintain their high, incredibly high, standards.
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Our electronic processing. After more than 20 years of promises to have full electronic processing within the Office of Patents, the agency achieved that goal in 2 years, trained 6,000 people, and scanned hundreds of millions of pages of data. But there is a long way to go. We need to move to a text-based system that encourages high levels of electronic filing.
We need to look at the electronic system overall. While Trademarks has been tremendously successful with over 90 percent of trademark applications filed and processed electronically, we are still only at about 2 percent electronic filing in Patents.
Furthermore, upon meeting our initial goal of full electronic processing in Patents in a tight timeframe, we are moving forward more cautiously and more meticulously, putting in place all of the procedural safeguards to ensure that we get the most for our money on systems for the least cost. GAO's report has been of great help to us in that regard as we implement that report as well.
Finally, we must not ignore pendency. The volume of patent applications continues to outpace our current capacity to examine them, and that means backlogs are growing. We are still faster, less expensive and more efficient than the other major patent and trademark offices in the world, and without fundamental changes, changes I believe that must go beyond just hiring, though hiring is an incredibly important element of any way to address this issue, the pendency and backlogs will grow dramatically.
We appreciate that Congress passed legislation supporting many of the USPTO strategic initiatives, and since then we have accomplished a great deal in implementing some of the 21st Century Strategic Plan goals, but we still have more to do.
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Let me use a few pictures to explain. Graphs are boring, but pictures are worth a thousand words. I think my time might be running out. The first graph I will show you is where pendency would be going. The red line you see is where pendency would be going if we had followed status quo, attrition hiring only, what we had to do over the last 3 years because of our budget and budget situation.
The green line is what we had under our strategic plan, which had two major initiatives, dramatic increases in hiring and competitive outsourcing. In the bill that passed in Congress, competitive outsourcing has been delayed, or at least an extensive and important pilot project that will delay outsourcing for 3to 5 years.
So what we have in the case if we follow the strategic plan without competitive sourcing, you see the blue. Pendency has been reduced, but it is still on the rise. So we have to do more when it comes to pendency. So as I show you chart 2, it shows you what we can do with dramatically more hiring.
I cannot show you chart 2. There we go. Chart 2 shows the original red line. That is status quo. If we go to a situation where we are, instead of hiring 860 to 750 a year, if we hire 1,000 new examiners per year, and work on reducing attrition, we can get to the yellow line, which is we are able to turn the pendency corner. This is without competitive sourcing, but with dramatically increased hiring. What I will tell you is that yellow line assumes a 6 percent increase. We used to assume a 5.5 percent increase. We changed it to 6 percent because we saw growth, and this year we are showing so far 7.7 percent increase in patent applications, so even higher than our expectations.
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Mr. SMITH. Thank you, Director Dudas.
[The prepared statement of Mr. Dudas follows:]
PREPARED STATEMENT OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR, UNITED STATES PATENT AND TRADEMARK OFFICE (PTO)
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Mr. SMITH. Ms. Mittal.
TESTIMONY OF ANU K. MITTAL, DIRECTOR, SCIENCE AND TECHNOLOGY ISSUES, U.S. GENERAL ACCOUNTABILITY OFFICE (GAO)
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Ms. MITTAL. Mr. Chairman and Members of the Committee, we are pleased to be here today to participate in your oversight hearing of the Patent and Trademark Office.
My testimony today summarizes the results of two GAO reports that were issued in June of this year. The first report addressed PTO's ongoing efforts to achieve a paperless electronic patent process, and the second report addressed steps that PTO has taken to attract and retain a qualified patent examination workforce.
As you know, over the last 10 years, there has been a significant increase in the volume, complexity and backlog of patent applications that PTO has to process. This has lengthened the time that PTO takes to process patents, and it has also raised concerns about the quality of the patents that are issued.
Further complicating this picture is the fact that the agency has had difficulty competing with the private sector in attracting and retaining a highly qualified patent examination workforce.
Over the last two decades, and in particular during the last 5 years, PTO has undertaken various efforts to improve its patent-processing capabilities. However, our two reviews found that the agency continues to face major challenges in these efforts. Specifically, we found that after two decades, and after having spent over $1 billion, PTO has made some progress, but has not yet achieved its goal of implementing an integrated, paperless, fully automated patent-processing environment.
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More importantly, when and how PTO will actually be able to achieve this capability remains uncertain. This is largely because PTO has not yet fully instituted disciplined processes and practices for managing its investments in information technology. We found that some of the primary systems that the agency is relying on to enhance its capability, like the electronic filing system and image file wrapper, have not yielded the level of processing improvements that PTO had hoped for. For example, PTO had hoped that by 2004, 30 percent of all patent applications would be filed electronically. But as of April 2005, fewer than 2 percent of all applications were submitted in this format.
Because of ineffective planning and management of its automation initiatives, PTO is at risk of implementing additional information technology that does not support its needs. It is also at risk of not achieving its goal of implementing a fully electronic patent application process.
What is particularly troubling to us is that this is not a new issue for PTO. In 1993, we raised similar concerns about the agency's ability to adequately plan and manage its automated patent system. And we pointed out weaknesses in its specific management controls.
As our report—recent report documents, many of the concerns that we had 12 years ago with PTO's processes have not diminished. Improvements are still needed if the agency hopes to successfully implement a paperless electronic patent process.
With regard to PTO's efforts to attract and retain a qualified patent examiner workforce, the story is slightly better. PTO has taken several steps to enhance its recruiting efforts, and has used many of the human capital flexibilities available under Federal personnel regulations to hire over 2,300 examiners in the last 5 years. However, for several reasons we are concerned about PTO's ability to retain these examiners in the future. First, PTO's recruiting efforts and benefits have only been available for a short time, and during this time, because of budgetary constraints, they have not been consistently sustained. Second, the impact of the economy is still unknown. In the past when the economy was doing well, the agency had more difficulty recruiting and retaining staff. And finally, and maybe most importantly, PTO lacks an open, transparent and collaborative work environment, which has created an atmosphere of distrust and a significant divide between managers and examiners on important issues that we believe could affect retention.
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Both of our reports made a number of recommendations to PTO, and agency officials have stated that they plan to take actions that will address the recommendations we made. We look forward to monitoring PTO's progress as it implements actions to respond to our recommendations.
Mr. Chairman, this concludes my statement. Thank you.
Mr. SMITH. Thank you, Ms. Mittal.
[The prepared statement of Ms. Mittal follows:]
PREPARED STATEMENT OF ANU K. MITTAL, DIRECTOR, SCIENCE AND TECHNOLOGY ISSUES, U.S. GENERAL ACCOUNTING OFFICE (GAO)
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Mr. SMITH. Mr. Stern.
TESTIMONY OF RONALD J. STERN, PRESIDENT, PATENT OFFICE PROFESSIONAL ASSOCIATION (POPA)
Mr. STERN. Thank you, Mr. Chairman, Ranking Member Berman and Members of the Subcommittee. As many of you know, POPA represents the engineers, scientists and attorneys who, as patent examiners, determine the patentability of hundreds of thousands of patent applications each year.
The agency has come under serious criticism lately. The principal problems deal with quality and timeliness. In addition, there is a problem with hiring and retaining our workforce.
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The agency manufactures patents, but it does so in the high-stress environment of a legal sweatshop. When it comes to patent examination, you can take steps to get the job done faster or cheaper, but those steps will inevitably decrease the quality of the work.
You cannot increase the quality of examination without providing examiners the time necessary to do the job. Examiner quotas, measured in 6-minute increments, currently provide as little as 11.2 hours to primary examiners in low-complexity arts, and only 22.1 hours in the most complex arts.
Quotas established in 1976 are still in use today. In the meantime, technology is more complex, specifications are bigger, applications have more claims, and the amount of literature to be searched has ballooned. Electronic file wrappers cost examiners 1 to 3 hours of extra work per case. Examiners need a 20 percent increase in time per case.
Applicants pay substantial fees for excess claims, large specifications and information disclosure statements. Examiners must be given time proportional to these fees to ensure that applicants will get what they have paid for.
The most common criticism is that examiners do not find the best prior art. Text searching works in some arts, but not for all. Speedy searches require updating the U.S. Classification system regularly, which has not happened.
In the automated databases the wisdom and experience of prior examiners is lost. Old paper search files were regularly augmented by examiners' explanatory notes and by ''feeding the shoes'' newly discovered references.
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There is no problem hiring examiners. The problem is keeping them. Approximately half leave within their first 3 years on the job. More important are the midcareer employees who leave the agency. In fiscal 2005, approximately 40 percent of all of those expected to leave will be employees with between 3 and 15 years of experience. Some of these employees are leaving without even having another job to go to.
The USPTO has implemented employee benefits such as special pay rates, flexible work schedules, family-friendly policies and transit subsidies. Benefits, however, are not by themselves sufficient to overcome many employees' dissatisfaction with the production-oriented nature of patent examining. The appeal of the USPTO's benefits is in constant opposition with the stress of the day-to-day legal sweatshop environment.
The agency is ruthlessly effective in removing and disciplining employees. Almost 10 percent of all removals from the nondefense Federal workforce in fiscal 2001 were removed from the examining corps. So far this year, in a workforce of fewer than 7,000, the agency has taken 928 official actions against employees. Sadly, for every employee who was fired in 2001, there were more than 13 others who left voluntarily; later years are even worse.
The 21st Century Strategic Plan has converted the prior Administration's culture of collaboration into a culture of conflict. Employees bristle with anger over relentless criticism of their work, especially because 40 percent of that criticism turns out to be incorrect.
The USPTO needs to go back to the basics of examining. It needs to emphasize training and mentoring instead of disciplinary actions. It needs to provide adequate time for doing a quality job. This will improve examiner retention.
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This Subcommittee can help ensure that the agency uses examination fees for examination. We recommend that you amend 35 U.S.C. section 42 to require the agency to use all of the excess claims fees, excess specification fees, and information disclosure fees to fund additional examining time for examiners to do the work for which applicants are paying those fees.
In section 42, Congress has already put a fence around trademark fees. It is time to expand that precedent to patent fees. If the USPTO truly desires to reduce attrition, it must effectively address the reason that most examiners leave: job dissatisfaction. It must recognize that examiners are skilled professionals and deserve to be treated as such. It must give them the time, the tools, and the space to do that job. Unless and until the USPTO addresses these problems, the revolving door of attrition will continue to spin.
Thank you very much, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Stern.
[The prepared statement of Mr. Stern follows:]
PREPARED STATEMENT OF RONALD J. STERN
Mr. Chairman, Ranking Member Berman and Members of the Subcommittee:
Thank you for the opportunity to present the views of the Patent Office Professional Association (POPA) on operations at the U.S. Patent and Trademark Office (USPTO) and, in particular, on the recent reports of the Dept. of Commerce Office of Inspector General,(see footnote 1) General Accountability Office(see footnote 2) and National Academy of Public Administration.(see footnote 3)
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POPA represents more than 4,300 skilled patent professionals at the USPTO. The vast majority of our members are engineers, scientists and attorneys who, as patent examiners, determine the patentability of the hundreds of thousands of patent applications the USPTO receives each year. The patent professionals of POPA are diligent, highly skilled, hard working individuals firmly committed to maintaining the quality and integrity of the U.S. patent system.
The vital role of patents to the U.S. and global economies is without question. Their value is evidenced by the rapidly expanding efforts of inventors and companies to protect intellectual property throughout the world. The U.S. patent system is the engine that has driven innovation in America and helped produce the most powerful and robust economy in history.
Unfortunately, the USPTO has come under considerable criticism lately for failing to allow high-quality patents in a timely manner. This criticism has resulted in increased scrutiny of the day-to-day operations of the USPTO as well as review of the laws governing the patent system. Recently, several government studies and at least one book have been published that attempt to identify problems facing the USPTO today while proposing a variety of solutions for those problems. Among the problems virtually all studies agree on are: the need to hire and retain a highly skilled workforce; improving the quality and timeliness of issued patents; and the ability for the USPTO to keep and use all its fees for its operations.
While POPA agrees that these are important issues facing the USPTO, it does not agree with many of the solutions proposed by some of these studies. Many proposed solutions represent radical changes to the patent system and go far beyond what is necessary to improve performance at the USPTO. Rather than a massive overhaul of the agency or a rewrite of the patent statutes, POPA believes that what is necessary is for the USPTO to go back to the basics of its mission—examining patent applications and issuing valid patents.
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To improve the operations of the USPTO, Congress, USPTO management and its employees need to work together to provide sufficient time for examiners to examine patent applications, improve the tools that examiners use to identify relevant references (''prior art''), hire and retain a highly skilled workforce and improve labor-management relations.
A GOOD JOB TAKES TIME
''Faster, Better, Cheaper. Which two would you like?'' This economic axiom is as applicable to patent examination as it is to any manufacturing process. The USPTO manufactures patents. But right now, it manufactures those patents in the high-stress environment of a ''legal sweatshop.'' When it comes to patent examination you can take steps to get the job done faster or cheaper, but those steps will inevitably decrease the quality of the work. You cannot increase the quality of examination without providing examiners the necessary time to do the job.
The USPTO controls its throughput of patent applications using a rigorous goal-oriented production and workflow system that measures examiners' work output (production) in 6-minute increments. On average, a patent examiner has approximately twenty hours to complete the examination of a utility-type patent application. The agency has long recognized that technologies differ in complexity and that some examiners are more experienced than others. Primary examiners, those at GS grades 14 and 15 with authority to act independently, are expected to be much more productive than junior examiners requiring various levels of supervision. The current production system only allows some primary examiners in low complexity technologies as little as 11.2 hours per application. Even primary examiners in the most complex technologies are only allowed a maximum of 22.1 hours.(see footnote 4) Examiners working on design-type applications or plant applications have even less time than those working on utility-type applications. On average, these examiners have about five to seven hours per application.
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These agency production goals have remained essentially unchanged since they were put in place in 1976. Since that time, however, the nature of the work has changed considerably. Indeed, some technologies such as biotechnology, nanotechnology, bioinformatics, and business methods either were not patentable or did not even exist when these goals were put in place. Since 1976, patent applications have become more complex. Applications today often have larger specifications and higher numbers of claims than applications filed in 1976. Applicant-submitted information disclosure statements are often so large that they require storage in boxes. The increased complexity of patent applications has been recognized by both the USPTO and Congress as evidenced by the recent dramatic increases in fees for large specifications and excess claims.
Equally problematic is the massive explosion of information that patent examiners have to search through to identify relevant prior art. Almost two million new U.S. patents have issued just within the last fifteen years. The agency's database of issued patents grows by thousands every week. The USPTO will soon issue its 7,000,000th patent. Foreign patent literature is also growing at a comparable rate. The growth of these two sources of prior art pale by comparison to the explosion of information published in non-patent literature such as scientific and technical journals, trade magazines, catalogs, internet web pages and other publications that examiners search to determine the patentability of a claimed invention.
If these problems aren't enough for examiners, the agency's deployment of the Image File Wrapper System (IFW) has transferred a considerable amount of clerical work from the agency's technical support staff to the examining corps. Prior to IFW, patent applications were legal-size three-fold paper files that examiners worked on at their desks. All of the relevant papers were readily identifiable and readable. Now, with IFW, virtually all files are scanned copies of originally filed applications and only available electronically. Many examiners find these scanned files difficult to navigate through since individual papers are often difficult to identify. Thus, examiners now spend more time just trying to figure out what papers are in the application. More importantly, most examiners find the scanned images difficult to read on even the USPTO's high-quality computer monitors. They now spend their precious examining time printing out and collating documents on their desktop printers. Examiners repeatedly tell POPA that the IFW system alone is causing them from one to three hours of additional work on each application. Since the advent of the IFW ''paperless office,'' paper usage has doubled at the USPTO.
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Continuing problems with USPTO automation tools and the dramatic increase in paper usage were the impetus behind another Government Accountability Office report issued simultaneously with their report on USPTO hiring and retention problems cited above.(see footnote 5) During focus group sessions held in conjunction with this investigation, examiners made the same complaints to Government Accountability Office investigators as they were making to POPA concerning USPTO automation. Most interesting is the fact that first line supervisors made similar complaints in their own focus group sessions. Since examiner goals have not changed since 1976, these additional hours must come from examiners taking shortcuts, cutting corners on searching and examination and putting in significant amounts of their own time (unpaid voluntary overtime) to get the job done. This results in a highly stressful ''legal sweatshop'' environment that ultimately leads to many examiners leaving the agency.
For years now, the USPTO has alleged that increased reliance on automation will help it do a better job of examining. When it comes to searching, the agency has placed all its eggs in the automation basket. It has all but abandoned support for the U.S. Classification System, a much-needed tool for adequately searching many technologies that are not readily searched by text searching automated tools. It has continuously refused to expend the necessary resources to properly integrate all issued patents into its text and image searchable patent database. It repeatedly fails to seek adequate input from examiners in the design and testing of hardware and software before deployment. The agency has spent well over a billion dollars on automated tools to assist examiners and yet the agency is being criticized for poor quality patents and an ever-increasing backlog of unexamined applications. This comes as no surprise to examiners.
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No amount of automation can help an examiner read and understand a patent application and the prior art faster. This is not to say that the agency's efforts have been a waste of time and money. While many improvements are needed in the USPTO's automated tools as well as the U.S. Classification System, these tools do often allow examiners to identify relevant prior art. The problem is that there is so much more prior art to search, read and understand. This is what takes time. And this is what has not been addressed by the agency since 1976. Add to this explosion of prior art, the drains on examiners' time by the Image File Wrapper system and other added job duties, and it quickly becomes apparent how amazing a job the examiners of the USPTO really do under the circumstances.
Examiners are not asking for extravagant increases in their goals. A twenty percent increase in time will compensate examiners for the many duties that have been added to their jobs since 1976 and offset the increasing complexity of the entire examination process. It would help to relieve the stressful USPTO workplace and help reverse attrition. Most importantly, it will provide examiners with the time they need to do a better search and examination of patent applications.
For years, the agency has been collecting fees for excess claims and information disclosure statements, recognizing that these extra items will make examination of the application more labor intensive. But the agency has never passed those extra fees on to examiners in the form of additional time to examine the application. Simply insuring that the USPTO provide the additional time to examiners that patent applicants have already paid for will go a long way towards providing examiners with the time necessary to do the quality job that everyone desires.
It is important to recognize that providing extra time for examiners to do their job does not inherently translate into increased application pendency. Better searching and examination will increase the certainty of rejection of old or obvious ideas. As patent applicants realize this, they will be less likely to expend effort and resources on patent applications of questionable innovative or economic importance. Thus, better search and examination by USPTO examiners may actually limit application pendency over time.
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Providing examiners with additional time should also benefit the entire nation by reducing the costs of patent litigation. In a recent study by the National Research Council of the National Academy of Sciences, John L. King calculated that providing examiners with a one-hour increase in time would cost the agency about $11.3 million. King calculated, however, that a one-hour increase in examiner time would reduce patent litigation expenses by over $17 million.(see footnote 6)
Increasing the quality of patent examination, reducing patent application pendency and stimulating the nation's economy by reducing the costs of patent litigation thereby freeing up resources for other purposes, are clearly worthy goals of the intellectual property community. It should be equally as clear that providing examiners the time needed to do a good job is the most cost-effective means to accomplish these goals.
A GOOD JOB TAKES GOOD TOOLS
The major criticism on the quality of the USPTO's work revolves around the failure of examiners to find the most relevant prior art. But examiners only have a very few hours to search the prior art and identify relevant references. They need search tools that allow them to search and find the most relevant prior art in the shortest possible time. Here again, the USPTO's heavy reliance on text searching has proven very shortsighted.
While planning the agency's new complex in Alexandria, Virginia, the USPTO made a conscious decision to eliminate support for the vast amount of examiner paper search files. These paper search files, known as ''shoe files'' or ''the shoes'' from early days when copies of issued patents were kept in shoeboxes, contained copies of the U.S. patents classified according to the U.S. Classification System. The paper search files also contained foreign and non-patent literature classified and placed in the shoes over the years by examiners in the various technologies. Many references in the shoes contained additional information such as examiner notes and/or color drawings placed there by experienced examiners to assist other examiners working in that technology. For many years prior to the advent of automated search tools, the paper search files represented the best and most comprehensive search tool for locating relevant prior art. They contained a remarkable wealth of information found nowhere else in the world.
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The paper search files allowed examiners to draw from the experience of those examiners who had gone before. For many years, examiners were trained to ''feed the shoes.'' Every pay period, examiners were given a stack of references such as technical and scholarly journals, trade publications, catalogs and other literature. An examiner would be provided time to peruse these references, identify those relevant to his/her technology, and place them in the appropriate paper search files according to the U.S. Classification System, i.e., ''feed the shoes.'' In addition, examiners would often add notes and other helpful information to these references to aid themselves and others searching in a particular technology. This continuous process resulted in a comprehensive database of prior art only available to those at the USPTO. In addition, the very act of feeding the shoes helped examiners to keep current on developments within their respective technologies. When new examiners searched the paper search files, they were receiving the benefit of the knowledge and experience of all those examiners who had preceded them in the technology. This helped new examiners develop familiarity with the prior art and helped all examiners in quickly and efficiently finding the relevant prior art for each patent application.
Regrettably, as far back as the mid-1980s, the USPTO began transferring classification duties from examiners to technicians. As time went on, management ordered that foreign patents and non-patent literature would no longer be included in reclassification projects. This rendered these documents all but useless for searching. By the mid-1990s, as planning for a new headquarters facility began in earnest, support for the U.S. Classification System and maintenance of the paper search files had virtually ended.
Today, the paper search files have all but disappeared at the USPTO. The agency removed all the copies of issued U.S. patents in preparation for its move to its new Alexandria, Virginia headquarters. While the remaining foreign and non-patent literature paper search files were moved to the new headquarters, no new references are being classified and placed in those files and their ultimate fate remains uncertain. At present, those files are stored in the basement of the new facilities but the agency is contemplating the removal of at least some of those files to free up critically needed space. Sadly, new examiners are not even formally trained to use the paper search files. The only formal agency training new examiners receive is in the use of the automated search tools.
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The end result of the agency's failure to maintain the U.S. Classification System and the paper search files is that examiners can no longer benefit from the wisdom and experience of prior examiners. Today, each search in a patent application is performed essentially from scratch. The agency's emphasis on text searching is resulting in a new generation of patent examiners inexperienced in the use of the U.S. Classification System.
Another major perennial frustration for examiners is the agency's continued unwillingness to expend the resources to complete the process of getting all issued patents into a single text searchable database. With the advent of the Automated Patent System in the mid-1980s, the USPTO began entering all new issued patents in both text and image searchable form into its issued patent database. Unfortunately, while all issued patents were entered in image format, the text-searchable database only goes back to about 1970. Issued patents prior to 1970 have not been entered in the database in a readily text searchable form. The agency did submit these older patents to optical character recognition but did not correct errors and did not index this database in the same manner as the Automated Patent System database. Thus, this database, referred to by examiners as the ''dirty OCR file'' because of its numerous errors, cannot be readily and reliably searched simultaneously with the Automated Patent System database. Examiners working in older technologies have to perform two searches of the issued patents to determine patentability of an applicant's claimed invention. This is one more uncompensated drain on examiners' time.
The current Administration has relied heavily on outsourcing many government duties. Indeed, many duties at the USPTO have been outsourced to private sector contractors. Rescanning and indexing the ''dirty OCR file'' so that all issued patents can be searched in one database is a duty begging for outsourcing. The agency has proposed a major initiative to outsource the entire search duties of examiners, an initiative of dubious merit, while not expending the resources to perform a one-time duty that would have clear positive results. POPA believes the USPTO needs to reverse its virtual abandonment of the U.S. Classification System. It needs to improve its automated search tools to allow examiners to ''feed the shoes'' in an electronic environment, i.e., provide the means for classifying and adding relevant prior art to the USPTO's automated databases, and provide examiners the time to do so. This would once again allow examiners to benefit from the knowledge and experience of other examiners. The agency needs to actively seek the input of employees in the development and testing of automated tools to increase the likelihood of successfully deploying functional and efficient products. Finally, POPA believes the agency needs to do a better job of prioritizing all its automation expenditures to insure that the agency and the American people receive the maximum benefit from those expenditures.
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A GOOD JOB TAKES A GOOD WORKFORCE
An agency can provide all the time and all the best tools available to do a top-notch job, but without a well-trained and dedicated workforce, those tools and that time will not be enough to get the job done. The need to hire, train and retain a highly skilled workforce has been a perennial problem for the USPTO. In their book, Innovation and Its Discontents, Adam B. Jaffe and Josh Lerner provide a brief history of hiring and retention problems at the USPTO dating all the way back to 1829.(see footnote 7) As the authors recognize, however, this problem has become much more acute recently in view of the increasing importance of intellectual property in a global economy. A lack of adequate funding coupled with the feelings of some in the Senate that the USPTO should not try to hire its way out of its pendency problems resulted in sporadic and insufficient hiring of new examiners over the last ten years. Indeed, in FY 2003, the agency suspended patent corps expansion altogether, choosing to hire only to compensate for attrition. This sporadic hiring process has left the agency with a significant shortfall of trained examiners and a burgeoning backlog of over 550,000 unexamined patent applications.
The USPTO's need to hire and retain new examiners has been the subject of several recent government studies. In 2002, the Dept. of Commerce Inspector General issued an illuminating report on needed improvements in the USPTO hiring process.(see footnote 8) The Inspector General identified several challenges facing the USPTO in hiring new examiners: a shortage of potential examiners with the necessary technical training, competition for jobs by the private sector, compensation packages smaller than private sector compensation, and competition from other federal agencies.
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The Inspector General also identified several significant reasons why examiners leave the USPTO. Seventy two percent of all examiners left the USPTO for one of the following reasons: dissatisfaction with the production-oriented nature and inflexibility of the job (26%); unsatisfactory performance or conduct (23%) and higher pay (23%). In POPA's experience, the vast majority of disciplinary actions at the USPTO are the result of unsatisfactory production or quality, i.e., performance issues. This has been confirmed by the National Academy of Public Administration Report of August 2005.(see footnote 9) Therefore, most of the 23% of examiners in the second category are likely analogous to those who left because of the nature of the job. Thus, almost half of all examiners who leave the agency do so because of their dissatisfaction with the production-oriented culture of the USPTO.
Of all examiners who leave the agency, approximately half leave within their first three years on the job, with thirty percent having less than one year's experience. POPA is aware of instances this year where new examiners have left the USPTO within the first several weeks in the agency. Of potentially greater impact, however, is that more and more mid-career employees are leaving the agency. In FY 2005, approximately forty percent of all those expected to leave will be employees with between three and fifteen years experience. Some of these employees are leaving without even having another job to go to. The agency's most serious problem is not hiring new examiners—it is keeping them.
Over the years, the USPTO has implemented a number of employee benefits such as special pay rates, alternative and flexible work schedules, a family friendly workplace and transit subsidies. While employees appreciate the many benefits offered by the USPTO, these benefits are not, by themselves, sufficient to overcome many employees' overriding dissatisfaction with the production-oriented nature of patent examining. The appeal of the USPTO's many benefits is in constant opposition with the unrelenting stress of the day-to-day ''legal sweatshop'' environment of the agency. As retention statistics show, the unrelenting stress of the job often trumps all the benefits of the agency and takes its toll on employees causing them to leave the agency voluntarily or, on many occasions, involuntarily.
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The USPTO must constructively and effectively address this issue of job dissatisfaction or retention of examiners will remain a serious problem for the foreseeable future. The agency must accept the fact that examiners need more time to do the job or they will ultimately seek employment elsewhere. Training new examiners is both resource and time intensive. It takes about five to six years for an examiner to reach primary examiner status and act independently. It is primary examiners who are the most productive employees in the agency. It is primary examiners who train and mentor new examiners. It is primary examiners who go on to become supervisory patent examiners and other management officials at the USPTO. POPA believes that it is cost effective to provide examiners more time to do their work so that the agency can retain those employees and benefit from their experience for years to come.
POPA is particularly concerned with the involuntary departure of employees through disciplinary actions by the agency. As the exclusive representative of patent professionals at the USPTO, POPA is often called upon to defend employees against agency allegations of poor performance or misconduct. And the USPTO keeps POPA very busy.
At a time when everyone is expressing serious concern about the USPTO's problems retaining examiners, the agency may well be the most ruthlessly effective single agency in the entire Federal government in removing its employees from the Federal workforce. In its August 2005 report, the National Academy of Public Administration published some very disturbing statistics on the agency's increasing number of performance-based disciplinary actions against employees.(see footnote 10) In FY 2001, a total of 210 non-defense Federal employees were removed for poor performance in the entire Federal government. Eighteen of those 210 came from the USPTO. Almost ten percent of all employees fired for performance in the Federal government were fired by the USPTO! While the Federal government as a whole only fired 1in 5,000 employees, the USPTO was busy firing 18 in 3,000 patent examiners. The USPTO fired three times more employees in one year than the U.S. State Department did in seventeen years from 1984 to 2001 (six employees). This is a remarkable number of firings for a relatively small government agency.
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The National Academy of Public Administration report had other equally troublesome statistics that demonstrate an alarming increase in performance-based disciplinary actions at the USPTO. The report shows that between fiscal years 2000 and 2005, the USPTO workforce grew from 6,367 to 6,763 employees, an increase of 396 employees. At the same time, the number of employee relations cases grew from 585 to 928. Incredibly, for those fiscal years, the USPTO took more than twice as many employee relations actions as the number of employees it had hired. For the USPTO patent corps, oral warnings, a form of disciplinary action immediately preceding a written warning, have gone from 70 in FY 1999 to 329 in FY 2004. Written warnings, a form of disciplinary action immediately preceding removal from Federal service, have risen from 19 in FY 2000 to 48 in FY 2004. As of February 2005, the USPTO had already issued 31 written warnings. From FY 1999 to the beginning of FY 2005, the USPTO fired 183 probationary employees—5.7 percent of the 3,216 people hired. By comparison, for fiscal years 2001 and 2002, the Federal government as a whole only fired about three percent of new hires.
The USPTO's aggressive approach to employee relations is not lost on examiners. Rather than being beneficial to the agency, this approach further demoralizes its employees and heightens the stress in an already stress-filled workplace. The agency's willingness to terminate employees hangs like a sword of Damocles over the examining corps every day.
In their report, Academy investigators state that USPTO management attributes this astounding increase in personnel actions to liberalized time scheduling such as the Increased Flexitime Program that allows examiners considerable flexibility in their work schedules.(see footnote 11) POPA finds this assertion laughable. Nothing in the Increased Flexitime Program changed one iota of examiners' production requirements. It does not matter when examiners are physically in the office. What matters is that, when they are in the office, they have to produce. Management's assertion is simply reflective of its outdated perception that it must have more control over examiners lives.
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This need for control is the same pervasive mentality that has significantly delayed the introduction of telework programs in the USPTO and throughout the Federal government. Contrary to the USPTO's assertion, the Increased Flexitime Program is one employee benefit that is actually doing what it needs to do—providing examiners a reason to stay at the USPTO. Sadly, at a time when the USPTO needs its employees the most, agency management has already signaled its intent to curtail this immensely popular program in upcoming contract negotiations.
If the Increased Flexitime Program is not the reason for so many personnel actions, what is? A brief review of recent USPTO history reveals several major events that have severely impacted examiners' ability to do their job in the allotted time: a change of USPTO administration; the implementation of the Image File Wrapper System; loss of the paper search files; disruption associated with the move to new headquarters; and the introduction of Quality Initiatives arising from the 21st Century Strategic Plan.
The USPTO's top-level management changed in 2001 concurrent with the change of the Presidency. The new management team under Director James Rogan took a decidedly more negative slant towards employee and labor relations. This new direction is clearly apparent in the linear increase in employee relations actions from FY 2001 to the present shown in Figure 4–3 of the Academy's report.(see footnote 12) The ''culture of collaboration'' found in the previous USPTO administration quickly degenerated into a ''culture of conflict'' under Director Rogan. This, dramatic change in USPTO culture resulted in a serious decrease in morale among USPTO employees.
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In addition to the change of administration, the deployment of the Image File Wrapper system had considerable impact on examiners. As already discussed above, the Image File Wrapper system added significant time drains for examiners. Especially hard hit are examiners who have found the continuous use of computers necessary with the Image File Wrapper System to be very hard on them physically. Unfortunately, many of these examiners are among the most senior primary examiners and highest producers in the agency. The production of many of these senior examiners has suffered significantly using the Image File Wrapper system.
The loss of the paper search files also impacted many examiners. Some primary examiners were so familiar with the paper search files that they had memorized virtually every patent in their technology. This even included knowing in which shoe, i.e., file drawer, a particular patent was located. This enabled them to quickly search an application and rapidly determine the patentability of a claimed invention. With the loss of the paper search files, examiners now have to rely on the automated search tools to identify relevant prior art. The automated tools, however, do not readily lend themselves to the kind of familiarity with the art that many examiners had previously. Again, this has negatively impacted the ability of many examiners to get the job done in the time they are given.
Another significant impact on examiners has been the disruption in their daily lives associated with the USPTO's move to its new headquarters in Alexandria, Virginia. This move began in December 2003 and was finally completed in July 2005. During this time, examiners have experienced numerous power outages, computer network failures, complete shutdowns of the headquarters facility often preventing employees from doing additional work on weekends, and the loss of many of the benefits and amenities present at the previous location in Arlington, Virginia. Doing a mentally intensive job such as patent examining does not lend itself well to such day-to-day disruptions in routines. Unfortunately, the USPTO is already outgrowing its new headquarters facility—something POPA had warned for years before the new facility was even built in Alexandria. Virtually all junior examiners are being doubled up in offices. The agency is actually contemplating training new examiners at an ''undisclosed location'' away from the headquarters facility for their first six to eight months because it does not have adequate space to house them nor does it have sufficient numbers of primary examiners in critical technologies to train them. Once again, patent examiners are being expected to continuously pay for the shortsighted decisions of USPTO management.
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Finally and, arguably, most significant has been the profoundly negative effect on examiners due to the implementation of the Quality Initiatives of the USPTO 21st Century Strategic Plan. The Quality Initiatives represent a number of initiatives such as ''recertification of primary examiners,'' ''in-process reviews'' and ''second pair of eyes'' intended to improve the quality of examination. The Quality Initiatives have taken the ''culture of conflict'' at the USPTO to new extremes and seriously impacted examiner morale. Indeed, a number of examiners have resigned or retired from the agency rather than put up with this management assault on their integrity and professionalism.
For many years, agency management made it clear to employees that production was ''Job One'' at the USPTO (apologies to Ford Motor Co.). Quality was a distant second. Supervisors made sure examiners understood that as long as their production was high enough, they could be fairly certain that their jobs were secure. At the USPTO, quantity far exceeded quality in importance. Examiners knew that, to maintain a healthy production level, that shortcuts would have to be taken and corners cut. This was not a problem so long as production remained ''Job One.''
With the introduction of the 21st Century Strategic Plan, however, management suddenly reversed direction and promised Congress and the entire intellectual property community that quality was now going to be ''Job One'' at the USPTO. Suddenly, all the shortcuts examiners had learned and all the corners they had cut in order to get the job done had all but evaporated. Management implemented the Quality Initiatives but, once again, made no adjustments to examiners' goals to allow for this sudden change in emphasis.
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Today, examiners at every level of experience are finding themselves angry, frustrated, insulted, bitter and fearful for their jobs. They are looking over their shoulder constantly for fear that reviewers will allege an error in their work. If all the other stresses in the USPTO workplace weren't enough, the Quality Initiatives may well be the proverbial straw that broke the camel's back.
It is no secret that patent examining is an inherently subjective undertaking. If it weren't, there would be little need for applicants and courts to expend so many resources on patent litigation. Two highly skilled and experienced examiners can look at the same patent application and reasonably come to different conclusions on the merits of the case. A patentee and a potential infringer will very likely interpret the issued patent differently.
Just because two reasonable people disagree on something does not make one wrong and the other right. Unfortunately, this fact is often overlooked by USPTO management during the numerous review processes currently in place. Today, an examiner's decisions are being constantly criticized by reviewers who, as often as not, have little familiarity with the examiner's particular technology. If the examiner does not want to be charged with an error, the examiner must spend a great deal of time defending the action. Many alleged errors of examiners are actually nothing more than a subjective difference of opinion between two patent professionals. At mid-year of FY 2005, forty percent of reviewers' alleged errors were being reversed by the USPTO once the examiner defended the action. Unfortunately, by the time the error is reversed, both the examiner and the agency have lost the production time and the agency now has an angry demoralized examiner on its hands. While POPA certainly supports improving the quality of patent examination, examiners believe the agency's implementation of the Quality Initiatives is not the best way to achieve it. POPA believes the Quality Initiatives are doing far more harm than good.
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All the issues discussed above are adversely affecting examiners ability and desire to do the job. Any one of these events would impinge on examiners' time to do the work, but each one by itself might not be sufficient to convince an examiner to leave the agency. Unfortunately, all of these events are occurring relatively concurrently and, taken together, have left the examining corps angry and stressed. The effects of these events are being manifest by rising attrition and alarming increases in personnel actions at the USPTO. If the agency does not take steps quickly to reverse these effects, POPA believes that the situation will only get worse.
WHAT DOES AND DOESN'T NEED TO BE DONE
Everyone in the intellectual property community agrees that there are significant problems at the USPTO that need to be fixed. Unfortunately, many of the proposed solutions will have no effect on those problems and may well fall victim to the law of unintended consequences.
To a great extent, the USPTO is a victim of its own success. As the importance of intellectual property has grown, so has the work of the USPTO. When Ford Motor Company released the Mustang in 1964, the new car was an overnight hit. Did Ford sit back and tell potential buyers that they would have to wait two or more years for a new Mustang. No! The company ramped up production as fast as it could, built additional facilities where necessary and did whatever was needed to sell as many Mustangs as it could as fast as it could. Today, the USPTO finds itself in the same position as Ford did in 1964. It has a hit product, the patent, but a shortage of manufacturing capacity to meet demand.
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Despite an ever-increasing backlog of unexamined applications and continuous urging from POPA, agency management did not see fit to expend its resources where they would do the most good—expanding the workforce to meet demand. Fortunately, after years of inadequate hiring this is changing. Recognizing the need for more examiners, Congress has mandated minimum staffing levels in FY 2005 and is on the verge of approving further increases for FY 2006. After years of dispute over the diversion of USPTO fees, the agency has finally been allowed to retain its fees for its own needs. POPA applauds these positive actions and hopes that they will continue in the future.
Having the necessary resources and using them effectively are two very different things. This is one area where POPA takes issue with some solutions proposed by the Dept. of Commerce Inspector General and the National Academy of Public Administration.
Contrary to the findings of the Inspector General, the agency does not need to rethink examiners performance plans. If examiners' jobs were as easy as the Inspector General's report implies, the USPTO would not have the attrition problems we are discussing today. It does not need to replace its current awards system with one that is either unattainable by a majority of employees or would reduce examiners' time per application even more. It needs an award system that will encourage even more examiners to strive for an award. Examiner awards are easily one of the most cost effective means at the agency's disposal for increasing production and reducing pendency.
Contrary to the National Academy of Public Administration, the USPTO does not need more flexibility in managing its workforce. The USPTO is very effectively managing many examiners right out the door. It is already bypassing employees' civil service rights and extending its ability to summarily remove new employees to two or three years by using the Federal Career Intern Program as a subterfuge for standard Federal hiring practices. Instead, it should be using its creative energies to make sure that new employees are well trained and engaged in the workplace.
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The USPTO does not need to gain more power to limit the activities of its labor unions. It needs to work with its unions to empower employees and tap into the wealth of knowledge, skills and experience of its workforce. When POPA and the USPTO work together as a team instead of fight each other as adversaries, we increase the likelihood of improving employee morale and solving retention problems.
The USPTO does not need to isolate its new examiners in some off-site facility where they have little interaction with other examiners in their technology. Examining has a very steep learning curve and new examiners need exposure to many examiners to learn and understand that there can be many right ways to approach the job. Instead, the USPTO should be immediately acquiring more space to allow expansion of the agency to meet its hiring needs. It is possible that much of the agency's old space in Arlington is still available and could be rented. This space is already wired and configured for USPTO use.
The USPTO does not need to spend countless resources negotiating a new collective bargaining agreement that reduces or eliminates many of the benefits and protections employees currently enjoy. This will only serve to antagonize employees and make even more of them explore other employment options. When you need every employee you can get, angering and demoralizing your workforce is not effective management. Instead, the USPTO should respect its employees and honor both the spirit and the letter of its existing collective bargaining agreements.
This Subcommittee can also help to insure that the USPTO targets its resources to its basic mission of examining. POPA recommends that you amend 35 U.S.C. §42 by including in H.R. 2791 a provision that requires the agency to use all of the excess claims fees, excess specification fees and information disclosure fees to fund additional examining time for examiners to do the extra work for which applicants are paying the fees. In Section 42, Congress has instructed the USPTO to limit the use of trademark fees for the examination of trademark registrations. It is time to expand that precedent to patent fees.
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Mr. Chairman, Members of the Subcommittee, the USPTO has one of the most highly skilled and dedicated workforces in the Federal government. Every examiner is a college graduate trained as an engineer or scientist. Many have postgraduate degrees and/or law degrees. They have other employment options if they choose.
If the USPTO truly desires to reduce attrition, it must effectively address the reasons that most examiners leave—job dissatisfaction and higher pay. It must recognize that examiners are skilled professionals and deserve to be treated as such. It must realize that, as professionals, examiners want to do a good job they can be proud of. It must give them the time, the tools and the space to do that job. It must pay them a reasonable and competitive salary that, coupled with the many other benefits at the agency, will make the USPTO a much more desirable workplace. It must reestablish its credibility with employees by honoring its collective bargaining agreements. It must return to a culture of collaboration, not a culture of conflict.
Unless and until the USPTO addresses these problems, the revolving door of attrition will continue to spin.
Mr. SMITH. Mr. Van Horn.
TESTIMONY OF CHARLES VAN HORN, FINNEGAN, HENDERSON, FARABOW, GARRETT, AND DUNNER, LLP
Mr. VAN HORN. Thank you, Mr. Chairman. I am pleased to have this opportunity to express my views on U.S. Patent and Trademark Office operations and the subject reports. I am here today representing myself as a private practitioner, and the views I express today are my own. I will note that I had the pleasure and honor to serve as a panel member on the report of the National Academy of Public Administration.
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The PTO faces significantand unprecedented challenges to meet expectations of issuing valid patents in a timely manner. It needs and deserves continued support of Congress and the patent community to enable it to accomplish these important missions.
Ever since I joined the Patent Office in 1964 as a patent examiner, it has always been concerned with both the number of applications processed in a timely manner, and the quality of work associated with the examination of each application.
Given the growing number of applications being filed, the existing inventory of unexamined applications, and the examining resources available to it, the PTO is struggling to accomplish acceptable results in both the quantity and quality of its work products.
Despite the best efforts of the PTO, which includes the recent hiring of a huge number of new patent examiners, pendency has been, is, and will continue to increase in the near term. As the NAPA report points out, at least one contributing factor to this increase has been the diversion of funds paid by users of the patent system to activities other than the support of the PTO.
The PTO should be commended for its efforts to identify unnecessary and avoidable work or rework. However, before it seeks to limit the number and availability of continuing applications, it should conduct a study of these applications, when, why and in what technologies they are being filed, to determine the most responsible way to reduce their numbers.
At least one key to building a competent examining staff is the ability to hire, train, and, most importantly, retain competent people who are dedicated to doing a quality job in a reasonable amount of time. The NAPA and GAO reports acknowledge recent steps taken by the PTO and have made additional suggestions that may assist in attracting and retaining larger numbers of outstanding examiners.
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The PTO should be commended for the steps it has taken in addressing at least the perception in the decline of the quality of its work. It has initiated unprecedented reviews of the competency of patent examiners and reviews at all phases in the patent examining process. These reviews can be justified to the extent that they add to the quality of the work product and to the education of examining staff.
There is at least some evidence, however, that the PTO has overreacted in many instances and is now denying patents without technical or legal justification. In many of these cases, appeal is not available, because the PTO keeps changing its position to avoid a review of its action.
The PTO has taken appropriate steps to improve both the quality and timeliness of actions in reexamination proceedings, and to eliminate or substantially reduce the cost of unnecessary appeals in a timely manner. Unfortunately these steps will divert scarce experienced examining resources from the job of training and supervising the growing number of inexperienced examining staff.
We should continue to support efforts of the PTO to provide a quality examination of all applications in a timely manner, but recognize the process is not and will not be perfect. That reality is at least one reason that the patent system must have postgrant processes such as reissue and reexamination, and possibly opposition, to provide an opportunity for the PTO to reevaluate its decisions on a new and perhaps more robust record.
In closing, Mr. Chairman, I want to thank you and Members of your Subcommittee for the continuing efforts to improve the patent system and support the PTO. I thank you for the opportunity to present my views.
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Mr. SMITH. Thank you, Mr. Van Horn.
[The prepared statement of Mr. Van Horn follows:]
PREPARED STATEMENT OF CHARLES VAN HORN
Dear Mr. Chairman:
I am pleased to have this opportunity to express my views on U.S. Patent and Trademark Office (PTO) operations and the subject reports. I served for 31 years in various capacities in the PTO until my retirement in February 1995. I am currently a partner in the intellectual property law firm of Finnegan, Henderson, Farabow, Garrett & Dunner, LLP in its Washington, D.C. office and have had the pleasure to serve as a panel member on the Report of the National Academy of Public Administration (NAPA): U.S. Patent and Trademark Office: Transforming to Meet the Challenges of the 21st Century (August 2005). As a 31-year employee of the PTO and a member of the Patent Bar, I have a keen interest in and concern for operations of the PTO. The views I express today are my own, and do not necessarily represent those of any member of our firm , its clients, or any of the organizations with which I am associated. As my background and experience focuses on the patent side of the PTO, I will confine my remarks to the patent operations.
It is significant that the background of this oversight hearing includes several reports from the General Accounting Office, Inspector General, and National Academy of Public Administration. The fact that these organizations have a significant interest in the operation of the PTO and have provided recommendations for the improvement of PTO operations is a good thing. The PTO plays a critical role in the maintenance of a robust economy. It both needs and deserves the long term and consistent support of Congress to enable it to accomplish this role.
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The PTO faces significant challenges in its patent operations. While several of the reports focus on problems in PTO operations, we should acknowledge and do appreciate its accomplishments and the efforts being made to improve the patent process.
Ever since I joined the Patent Office in 1964 as a patent examiner, the Office has always sought to maintain and improve both the quality and quantity of work produced by its examining staff. Arguably, the emphasis may shift from time to time, but the interest in both the number of patent applications processed in a timely manner and the quality of work associated with the examination of each application, have remained focal points for patent operations for at least my association with the patent system for over 40 years. Today, the PTO is facing unprecedented challenges in accomplishing acceptable results on both of these critical goals.
Pendency is one key measure that the PTO uses to assess the timeliness of examination of patent applications and it is on the rise. First action pendency now exceeds 20 months—the average time period from the filing of a patent application to the mailing of a communication from the examiner after consideration of the patent application. This pendency to first Office action actually exceeds the total pendency (i.e., the time between the filing of the patent application and the final disposition of that application typically by the granting of a patent or abandonment by the applicant) that was achieved in 1989 when the average pendency to final disposition was less than 19 months. Pendency is highly dependent on the patent examiner resources available in the PTO to address the inventory of unexamined applications, including new applications that are filed every week. Despite the best efforts of the PTO, which includes the recent hiring of a very large number of individuals as new patent examiners, pendency is on the increase and will continue to increase in the near term.
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Experience has shown that when the PTO pendency increases, coupled with an increased volume of filing of new applications, it is more difficult to reverse the trend of increased pendency than to maintain it at a particular level. One of the principal reasons for this difficulty is that it typically takes several years to train an individual to be a primary examiner—an examiner who is granted independent authority to make a final decision on whether or not to grant or deny a patent. As noted in the NAPA Report, hiring a large number of inexperienced examining staff in selective years is not as efficient or effective as consistent hiring. The influx of a large number of new individuals as patent examiners requires that the activities of experienced examiners be diverted to educate the new examiners, both formally and through on-the-job training. Since these large numbers of new hires are rarely distributed evenly throughout the patent examining corps, the burden typically falls in those areas having the greatest need for additional examining resources, and typically suffering from the least number of experienced examiners.
While it is probably no surprise to members of this Subcommittee, the continued diversion of PTO fees to other than PTO operations over the years has contributed, at least in part, to the unfortunate predicament of the PTO. As noted in the NAPA Report, if the PTO had been given access to the fees paid by users for PTO operations, and assuming that most of these diverted fees would have been used for patent staffing, the current uncontrolled rise in pendency would not have occurred to the extent we experience today, and the pendency to first action would have remained at an average of 12.6 months achieved in the 1992 time frame.
It is encouraging that the PTO has been permitted to use most of its fee income in 2005 for PTO operations. However, we cannot expect the PTO to turn this pendency ship around based on funding in a single year. Nor do I expect that the PTO is able to absorb 700 to 800 new examiner hires each year without risking an overall decrease in the quality of examination. There are simply not enough really good examiners who can educate, train and supervise the activities of that number of new hires. The PTO has excellent people; there are just not enough of them to handle such an increase in examining staff each year, even if qualified candidates were available.
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The NAPA Report contains several recommendations that can be used to address the long-term challenges of the PTO in hiring, training, and retaining its skilled examining staff. The PTO should be encouraged to consider and at least evaluate pilot projects of outsourcing searching of prior art used in determining the patentability of an invention. On the other hand, it must be noted that other offices, such as the European Patent Office, that have experience in separating the search and examination function have found that it is not an efficient way to examine a patent application. Accordingly, it may not be realistic to hope for any real gains from this initiative.
Eliminating unnecessary ''rework'' also offers another opportunity to increase the efficiency of the patent examination process. Based on the number of continuation applications filed and the number of times an applicant requests continued examination of a patent application, the PTO has suggested that 25% of the examiners' work in 2004 could be described as ''rework.'' While there is no doubt some unnecessary rework is contained in the 25% of the applications identified by the PTO, it would be a serious mistake to attribute the entire 25% as constituting unnecessary ''rework.'' There are many reasons for filing a continuation application or requesting continued examination. Some are associated with a strategic decision by the patent applicant to obtain a certain level of protection for the invention described in the first application. Some may be attributed to reasonable differences between the patent examiner and an applicant as to the scope of protection, and applicant elects to file a continuation application to provide more relevant evidence to the PTO. Some continuations are caused by the Office in failing to fully appreciate or understand the claimed invention, or not finding the best available prior art until late in the examination process or perhaps from a search report from another office in a counterpart application. Before any action is taken by Congress or the PTO to limit the number or circumstances in which a continuation application can be filed, a study should be conducted to determine why applicants elect to proceed in this manner and the technologies in which this procedural expedient is most often employed.
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While the quantity of work produced by patent examiners and the average pendency in any PTO work unit or technology can be easily determined, the measurement of the quality of examination is more difficult. Responding to a growing concern about a decline in the quality of examination, the PTO has taken several important steps to address at least the perception of a decline. Some of these steps are unprecedented in my experience, such as the recertification of experienced examiners. Collectively, these steps seek to identify and address training needs, evaluate the quality of examination during the examination process, enhance the reviewable record, and expand reviews of the work of all examiners, regardless of their authority to act independently. These initiatives, both individually and collectively, should assist the PTO in identifying training needs and improving the overall quality of examination.
One concern that has surfaced on a rather frequent basis is that the PTO is over-reacting in its implementation of these initiatives and is motivating examiners to issue rejections that are not supported in law or fact simply to avoid making a decision to grant a patent. One gets the impression sometimes that valuable resources are being wasted as the checkers are checking the checkers where there has been no identifiable concern for the quality of examination.
Nonetheless, the PTO has recently adopted several initiatives that address long-standing problems in patent processing. Specifically, a new reexamination unit has been created that would focus the activities of the PTO in reexamination proceedings with a selected group of examiners, rather than having these unique proceedings distributed throughout the patent examining corps. This initiative should lead to better management of these proceedings and result in more reliable patentability decisions. A second example of significant PTO responsiveness is the adoption of a pre-appeal brief conference to review final rejections of an examiner before the filing of an appeal brief becomes necessary. Statistics showed that for every 100 appeal briefs that had been filed, only 38% of those appeals were followed by the examiner filing an Examiner's Answer, the next step in the appeal process. In 62% of these cases, the prosecution was either reopened by the examiner or the application was allowed. The concept of a pre-appeal brief conference should save applicants significant resources in time and money in the appeal process.
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While the PTO should be applauded for these initiatives, they unfortunately demonstrate a loss of faith in the ability of the average primary examiner or supervisor to make a correct patentability decision in a timely manner. While these initiatives are regarded as good news for those using the reexam and appeal procedures, they will divert scarce experienced examining resources from the job of training and supervising the growing numbers of inexperienced examining staff. Until the PTO can find ways to build its experienced staff, it may well be forced to make decisions as to its priority in addressing the quality of examination in unique situations as opposed to improving the overall quality of examination by examiners in general.
Ever since the PTO adopted the initiative to achieve patent processing improvements through the use of information technology in 1981, it has fallen short of some of its goals. Specifically, and probably most visible to the patent community is the absence of a user-friendly electronic filing and processing system. In spite of this failure, however, the PTO has come a long way and made significant contributions to patent applicants, practitioners, and the public in many patent automation initiatives. The access to full text of patents and published applications and prosecution histories of recent applications has been a tremendous service to the user community. The PTO website contains a wealth of information on all aspects of its operations that is accessible and a significant benefit to all users of the patent system.
In general, the PTO staff is very responsive to members of the public and the patent community. Responsiveness is the rule, rather than the exception, and the PTO should be commended for its efforts in maintaining the climate and culture of service to the public.
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I want to thank the members of this Subcommittee for their continuing efforts to improve the patent system and to support the PTO in its important mission. Thank you for the opportunity to present my views.
Mr. SMITH. Director Dudas, let me direct my first couple of questions to you. You know what Members of Congress want, you know what inventors and creators and artists across America want, and that is better patents sooner.
When you look at the past 10 years, we see that the number of patents approved has increased almost 100 percent, say, at an average of 9 or 10 percent a year. In your testimony you say for the next few years you're going to be increasing the number of patent examiners by about 25 percent a year.
That being the case, and getting away from future projections, but getting just sort of past history, it seems to me that the number of patent examiners is probably going to increase faster, the rate, the percentage, will increase faster than the percentage increase in patent applications or patents approved. Therefore, why wouldn't we expect pendency to decrease and quality to increase?
Mr. DUDAS. You would expect pendency——
Mr. SMITH. And also, also rolling in the improvements and efficiencies recommended by the GAO, if they are implemented, why wouldn't all of that argue for some improvement in those tiers?
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Mr. DUDAS. It does argue for improvement. There is a constant tension between pendency and quality. I think you will hear that from a number of witnesses. You can double the amount of time, you can cut the amount of time in half. No one would ever, I think, suggest you cut the amount of time in half to—you will decrease pendency dramatically. You would have no quality.
But when I showed you the curve, the red line going up, that would have happened with status quo. With the kind of dramatic hiring that we are now proposing——
Mr. SMITH. That's true, except the status quo was just based on the last 2 or 3 years. I am not sure that I agree with that accurate projection of the number of patents. If you look at the longer trend, it's not going to go up quite that fast. That was my basis for hoping for some improvement.
Mr. DUDAS. Well, that's—I think that what we are looking at right there—I'm sorry, if I point to the screen, it is me. But if I can go to that chart there, the red line is really the best efforts you can have right now. I mean, that is a 6 percent growth rate on the red line. Again, that is status quo. I'm not coming here telling you that is what we intend to deliver. What we plan to deliver is the yellow line.
Mr. SMITH. I saw your chart. I was quibbling with your chart a little bit on the basis of the percentage increase in patent examiners versus the projected increase in patent applications.
Mr. DUDAS. Well, that's—I will try to hit that directly. The red line that you saw, we are not—in that line we would only be doing attrition hiring. We would not be seeing a decrease in pendency for that reason.
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The yellow line is giving you the dramatic new hiring increases, 1,000 a year. Again, if we have a 6 percent, you see pendency does start to turn the corner and then begin to come down.
Now, why does it not happen instantly? That is really because of the way pendency is measured. Pendency is measuring retroactively. When we say there is 30 months' pendency, you're saying that the patent that is issued today came in our office 30 months ago.
So I can show you—next chart. The third chart shows you what the hiring increases will be. The red line is the hiring increases at 1,000 a year.
I think what—you want to measure progress today. Let me take you to the fourth chart. You see under the red line? That is what our production would be, the red bar charts, if we didn't hire. The yellow shows how much more we will produce, how much we will increase.
Mr. SMITH. I think I'm more optimistic than you are. If you go back to that red line again, you are projecting out that red line for years to come on the basis of 1 year's increase. And if you look at the increases that I am talking about over several years for your time, that red line would come down. So I am more hopeful perhaps than you are.
Regardless, you know the standard by which you're going to be judged, which is pendency going to increase or decrease, and is quality going to increase or decrease? I simply hope you can produce like you think you can. Good.
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Ms. Mittal, let me—you've made a number of recommendations to PTO. I think they have implemented about half, and yet you have said that you, in a number of areas, consider PTO to be at risk. Those are your words. How much confidence do you have that PTO will implement the other recommendations that they have not to date?
Ms. MITTAL. Based on the work that we done over the last 10 years at PTO, we know they take our recommendations seriously. But the fact is that after 12 years, some of the same problems that we identified with their IT implementation strategy are still in existence today.
Mr. SMITH. Do you think the new management is going to improve things?
Ms. MITTAL. Director Dudas has made it very clear that he takes our recommendations very seriously, that he is very aware of the weaknesses in the management controls that PTO has over its IT investments. We are hopeful that he will actually be able to take these recommendation that we've made and actually implement them. We will continue to monitor their progress.
Mr. SMITH. Director Dudas, that reminds me of another question I had for you. Speaking of quality, explain to me why it is—I worry about the nonobvious standard being sort of watered down, to say the least. And you have a situation where the PTO has approved patents for a peanut butter and jelly sandwich, they approved a patent for the swing. You have got the controversy with BlackBerry where perhaps a patent that may or may not—should have been issued is going to cost some company hundreds of billions—well, billions of dollars. How do you guard against that in the future?
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Mr. DUDAS. Well, I think one thing I can tell you, and it's in many of the examples you mentioned there, there are—the system works. There are efforts for reexamination. There are areas where we can go where you look into these.
There are efforts within the office where you can appeal cases, and outside of the office. But I think the heart of your question is what are we doing about quality? We have had a number of initiatives put in place. I think the problem in the way we were measuring quality before was we told you how many errors there were, but we didn't understand completely why or how to dissect that.
The quality initiatives we have in place now are in process reviews. We measure more. Some people say we measure too much now. But we measure much deeper. We want to institute what we learned from that and put it into training.
So those quality initiatives have been put in place, and we are evaluating them now. Particularly when you are hiring at the rate we will be hiring, we need to be able to have good measurements, be able to understand how that comes back to support examiners, and learn from the training, learn from the measurements we have, not just report out how many errors there are, but they have them so we can correct them.
Mr. SMITH. Thank you, Director Dudas.
My time has expired. The gentleman from California is recognized for his questions.
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Mr. BERMAN. It sounds like leave no patent behind.
Mr. DUDAS. It takes a village.
Mr. BERMAN. Touche.
I do appreciate your efforts sincerely to enhance quality and improve the reexamination process.
I have a question about interparties reexam. When Congress originally enacted this process, our goal was to provide a more comprehensive quality check than ex parte reexam, but something that would serve as an alternative to litigation, which is why we inserted estoppel provisions. As you aptly put it, we need to provide a way to say the office got it wrong without resorting to costly litigation.
The following situation has come to my attention, and as to which, in the very legitimate and understandable search to increase quality of patents, could the office have gone overboard? An interparties reexam is instituted after a district court decision, very costly litigation to both sides. It seems like that contravenes Congress's intent of preventing a second bite at the apple by allowing that to happen, someone to file for interparties reexam. Are we creating additional disincentives for those that question the validity of a patent to ever use the inteparties process in the first instance; that is, before resorting to costly and lengthy litigation?
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And in order to maintain a check on quality, you would still have the ability, even if you didn't allow that to happen, to institute an ex parte reexam after litigation, which could be filed at any time. In other words, the person who is challenging the validity of a patent has a choice: interparties reexam.
We don't like the present situation with inteparties reexam because we think the unintended consequences of the estoppel provisions and the limitations on discovery mean there is already some disincentives to utilize that process. But the person who is challenging validity had a choice to go in there and, based upon a review, a preponderence of the evidence standard, get a determination of whether or not that patent was, in fact, really valid.
They decide not to do it. They are sued for infringement. They defend in court. During that whole time they could file an inteparties reexam to stop the litigation and have it stayed while they pursue that alternative. They don't do that. They attempt to prove the patent is invalid by a clear and convincing standard, a tougher standard, and fail. And so the patent is found to be valid, and the individual is found to have infringed.
Now they come in after the district court has decided this issue, after the litigation is over, and say, well, what the heck, now we don't risk anything more in estoppel, and we have already had the benefits of discovery in litigation, we're going back to the Patent Office for inteparties reexam.
It seems to me like that is a case where in the abstract effort, to always be able to look at quality, you are undermining the concept of finality of decisions, and I am wondering if the office is really striking the balance when they allow that to happen.
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Mr. DUDAS. Well, you raise a very important point when it comes to the balance, and particularly on interparties reexamination. I can look to a time when I was very happy working on this Subcommittee and working on that. I remember it was a very delicate compromise. But I think you hit the core of this issue, and any other issue, when you talk about finality of decisions and clarity of decisions, what estoppel provisions apply. There are different standards under reexamination versus what they are in court.
But I guess I will make a more general point, which is this is an area of concern in our office. I look to continuation practice as another example of where—I think your question might be at what point do you have finality, what point do you have certainty?
Options are good. There are good reasons for many of the different actions that are taken, postgrant actions that are taken, and continuations practice. But the options may be so open at this point, there are so many options, that we have a question in our office are there too much options, are there too many bites of the apple?
Mr. BERMAN. But you're the one who is—by allowing people to proceed with inteparties reexam after a decision, you are the one who is creating an option that I'm not sure was ever intended by Congress.
Mr. DUDAS. I was assuming—and this is what I will have to do—I will actually try to get some more examples. There are estoppel provisions, and I was assuming that our office was doing what it was legally bound to do.
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There are many cases—there are times when the court will stay its proceedings until a reexamination.
Mr. BERMAN. This is after—this is after—at no point did the party who was challenging the validity of the patent ever pursue the interparies reexam, either before the litigation or during the litigation, any of which that——
Mr. DUDAS. Once a reexamination is filed in our office, we feel that we are legally bound to follow through on that reexamination, on every reexamination.
Mr. BERMAN. Even after a district court decision?
Mr. DUDAS. Yes, even after a district court decision.
Mr. BERMAN. Because?
Mr. DUDAS. Because we find that is where the law has taken us. I can come back, and we——
Mr. BERMAN. You accept that there is never any finality?
Mr. DUDAS. Well, there is a—any time a reexamination is filed, ex parte or inteparties, we follow it to its conclusion in our office.
Mr. SMITH. The gentleman's time has expired. Maybe we can revisit this in a few minutes.
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The gentleman from California Mr. Issa is recognized for his questions.
Mr. ISSA. Thank you, Chairman.
Director, I will be the opposite side. Congratulations on always looking to the burden that a—that you have, which is that you should never have a patent on your books that is invalid. And if five different ways, five different people bring you five different arguments for why a patent shouldn't have been granted, I would hope that five times you will look at it open and for the first time.
I don't share with—I mean, I do share with Mr. Berman that it may not have been the intent of Congress, but I would like to congratulate your office for assuming, whenever possible, that, you know, the patents can do harm, not just that every inventor is entitled to one. So this may be an example where I'm not going to be saying: How could do you this?
Switching subjects slightly, I am particularly concerned that you don't seem to have tools to bring down biotechnology patent applications to a level that would be acceptable for this new art. At the present time, I understand it is about 27 months, but it can be as much as 8 years. For all practical purposes, you are better off keeping a trade secret than applying for a patent if you can't bring that down, considering the speed with which the technology is moving forward.
Do you have an affirmative program to bring down, to address specifically biotechnology where these are complex, they require a completely different group of examiners, and, as of right now, the numbers are not encouraging, they are discouraging?
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Mr. DUDAS. We do have a plan that gets specifically to biotechnology, but it is just a part of the greater plan. As you mentioned, examiners have to have specific skills in the art, and so as we look at particularly hiring, which is the primary way, and the most important way and the most logical way now to bring down pendency, we target hiring, and we target for the particular areas.
The electrical arts are where we are having the biggest problems with pendency, but we are following very closely the biotechnology areas as well.
So the answer is yes, we do that, how we are hiring in the biotech areas.
Mr. ISSA. And along a similar line, but a different pet subject, if you will, plant patents. You have a stated policy that you're trying to reach, as much as possible, possible worldwide uniformity. Our trade agreements are trying to do that. And yet at the present time, you have gone with an existing standard to the present standard, you have gone against the rest of the world on plant patents and interpreting their validity.
My understanding now 3 years ago under your predecessor was, look, Congress has to act. You guys will have to fix this. But then, at least my piece of legislation put forward, everybody said, well, we're not sure. We're going to remain silent on it.
This Committee, I think, is looking to you to say either, yes, you need this piece of legislation, and, yes, it will make—because my particular bill very much simply says we're going to adopt the same standard as the Europeans for plant patents.
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My question is, if you want to make it the same, can you look at that bill, and can your office stop sitting on the fence post, and say, yes, this is exactly—this bill will enable us to do what our stated mission is, which is to find uniformity? And if not, if there is something wrong with it, if your office could come back to us and say, hey, look, we want to change the rest of the world, so here is how we would like the law written, and then we will go try to change the rest of the world. I don't object to that. I just find it hard to reconcile.
Mr. DUDAS. Well, on the one hand—no, I am kidding.
Mr. ISSA. By the way, you had this while you were here, so this is not new. You used to be on my side.
Mr. DUDAS. What I can tell you is, when you say can we come back and give you an answer, can we tell you what the Patent and Trademark Office believes is the right thing to do, yes, we can and we will. And I pledge to you we will do that.
Mr. ISSA. I think I may actually get done early.
Mr. Chairman, I will yield back.
Mr. HOSTETTLER. We will be happy to take the time. Thank you, Mr. Issa.
The gentlewoman from California, Ms. Lofgren, is recognized for her questions.
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Ms. LOFGREN. Thank you, Mr. Chairman; and thank you for holding this important hearing.
I am intensely interested in the Patent Office. As the Chairman mentioned in his opening remarks, I consider your work to be among the most important to competitiveness in our country; and while we all have questions and concerns, I don't want it to detract from the intense value I assign to the work that you do. I am probably one of the few Members of Congress that, when I go home and have town hall meetings, I actually get questions about the Patent Office from my constituents.
We do have concerns, and the other Members have mentioned it, about the rework issue. At 26 percent, that is, you know, a quarter of the Office's work. I am concerned about what percentage of this rework is continuation applications and what might be done about that or whether something should, in fact, be done about the continuation of a role in the rework issue. Could you address that?
Mr. DUDAS. Absolutely. Thank you.
Right now, we are at—this year, we project about 27 percent—27.8 percent of our applications are continuing applications; and, as Mr. Van Horn pointed out in his testimony, there are legitimate reasons for continuing applications. There is no question.
But there are two reasons for continuing applications. There are illegitimate reasons for continuing applications, or at least concerns that people file continuing applications so they can find out how the market develops and then they can develop around that product or somehow block others. So the illegitimate uses or potential uses are very important.
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From the Office's perspective—I show you those charts—even legitimate uses of continuations, I think the question that we have is, essentially, the legitimate uses, as I interpret them, are do-overs. There may be a mistake. There may be something else that occurred. We need to do this again. But there is priority in getting those applications processed; and, as far as application date, that is a concern.
How many do-overs can you have? Right now, there are an unlimited number of do-overs. And where else in our legal system—where else in any system—do you have the opportunity for unlimited do-overs? So is the burden of proof wrong now that unlimited do-overs is the right place to start and do something to the other side, or should there be some level of how you look at this where there might be some barrier or some level of where you might have to make a threshold showing for a level of continuation?
So that is something we think is worthy of study, and I—again, I offer the USPTO view because it is so much of our work. I don't believe anyone ever says to one client, yes, I am having your continuing application and someone else says, why is it taking so long for my application to get done? I doubt that people ever say, because we are busy doing all these other applications.
Ms. LOFGREN. Do you think you need additional authority from the Congress to deal with this?
Mr. DUDAS. It depends on—quite honestly, it depends on what actions are taken. Certainly it is a realm for policymakers and Congress to be looking at. But there are actions that PTO can take with continuations under the authority it has now.
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Ms. LOFGREN. I want to touch on the issue raised by the Chairman which has to do with the obviousness standard.
I guess many of us have suffered from going to www.sillypatents.com and seen some things that are shocking. I personally believe, though, that we do have a problem on the obviousness standard. If you compare the application for patent load with the publication of truly innovative scientific workloads, there is a mismatch. I think the phenomena that we are seeing is that when the obvious standard is not met then individuals and more likely companies defensively go to patent things that really shouldn't be patented because, otherwise, they have an infringement exposure. So the workload goes up, and the ability to actually give the scrutiny is further deteriorated, and we need to interrupt that cycle in some fashion.
Earlier this year—and I am not suggesting that the ideas were the right ones, but I am wondering if we need to take a look at the obviousness standard itself or the criteria or something of that nature to help with that interruption. Do you have an opinion on that?
Mr. DUDAS. I think it is worthy—I think it is something your Subcommittee has been looking at, and it is worthy of looking at.
I think—again, when I think of the job that our examiners face, it is incredibly difficult; and I can tell from your question how well you understand the obviousness—and this is a term of art. It is not just someone feels something is obvious. So in talking to many folks from Silicon Valley and elsewhere, they recognize that our examiners are getting it right under the law. But they think that perhaps the law might have it wrong, and that is where I think it is worthy of discussion. It is worthy of—our examiners have found situations where they feel that perhaps there should be some prior art out there, but there is not, and I think that is what people are looking at. So I think it is appropriately before the Subcommittee and much can be done.
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I just want to note that, as you point that out, that there are elements where I think our examiners do a fantastic job following the law. I think your question is do we need to look at how that is applied and how the law is applied. I think that is worthy of your consideration.
Ms. LOFGREN. Thank you.
Mr. SMITH. Thank you, Ms. Lofgren; and, actually, you anticipated a couple of questions I was going to ask. One is on the amount of rework, which I think we just addressed.
But, Mr. Van Horn, I wanted to ask you a question on another subject, given your three decades of experience at PTO; and in fact I think Mr. Stern mentioned it. But the problem, if that is the word for it, is the turnover and what you would recommend for a higher retention rate within the PTO?
Mr. VAN HORN. I think at least a NAPA report and perhaps even a GA report mentioned a number of items you could do to enhance the status of an examiner, enhance their salary compensation. I think they have, one, a good job to start with; and more money is not going to make a bad job but a good job. They have good working conditions, and I think they need the supervision and training commensurate with the talents that each individual brings to the office.
I think many of the hires these days are very talented people, but, basically, they are not getting the kind of training and supervision that would permit them to advance and indeed make a valuable contribution in a short period of time.
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Mr. SMITH. Okay, Director Dudas, I want to give you the last word or at least a legitimate word when it comes to treatment of employees. You have heard what Mr. Van Horn said a few minutes ago. Mr. Stern, in my judgment, actually was more critical in his verbal testimony than he was in his written testimony. Do you want to respond to some of those observations about the way the employees are treated.
Mr. DUDAS. Absolutely.
I think—first off, I do think we have the greatest employees in the world. I have had the opportunity to talk to folks that have been before other patent and trademark offices and have said that we do have the greatest employees in the world.
The job is very difficult. They are highly professional folks. And we have been asking for more. Congress has been asking for more, and we have been asking more as well. I will say I think, when we talk about the attrition, the data that we have looked at, we want to solve that problem. But I want to put it in context of the fact that when we look at the corporate leadership councils, looking at private sector, first year attrition is 42 percent; second year attrition is something like is 20.8 percent.
So putting that in context in this area, what we want to do, though, is we want to make certain that we make the environment in our office the right environment for examiners. So we are looking at better ways to communicate, better working with examiners.
I will also say that 57 percent of our examiners work above their goals. Over 57 percent produce more than 110 percent of their goal. Of those examiners, more than 95 percent of them get a commendable or outstanding rating. I think maybe we are making it sound as though our examiners are not producing at the level; they are having difficulty producing at the level. But when you see goals of 110, 120 and 130 percent and having 57 percent reach it, it shows the professionalism of those employees.
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Mr. SMITH. One last question. This goes to fee diversion, a subject that we all care about. We passed a bill last year that I introduced that actually got through the House but not the Senate try to eliminate fee diversion. I, frankly, think just about everybody supports eliminating fee diversion except for a few appropriators in the Senate. But be that as it may, this year the amount the Administration has requested for the PTO budget I think comes pretty close to equalizing the amount that would be generated by fees. That is not to say we shouldn't continue to try to end fee diversion, but would you say that you are getting an adequate budget for your purposes this year?
Mr. DUDAS. Short answer is yes. The slightly longer answer is, you are right. The President's budget didn't have diversion. This year's doesn't have—gives us our full funding.
It looks as though so far in the process next year—and that is the difference between status quo hiring, which is attrition replacement, and being able to turn that corner if we can keep applications at 6 percent—not that we are trying to keep them down—but if they stay at 6 percent. So yes is the short answer.
Mr. SMITH. Thank you, Director Dudas. I know the gentleman from California has some more questions as well, and he is recognized.
Mr. BERMAN. Thank you very much. I am tempted to ask, would you be allowed to say no?
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Mr. DUDAS. I would be allowed, but you just wouldn't see me again. I would be allowed. Yes.
Mr. BERMAN. I will pursue with you personally this inter partes reexamination issue. It is important, but it is narrow.
Your saying 57 percent of the people exceed the quotas doesn't totally answer the question. It—at least for me it doesn't. It doesn't necessarily prove the quotas that have existed since 1976 are the right approach because there are three alternatives one can draw from that as to the group that exceeded their quotas. One is they worked a great deal of uncompensated overtime. The second is they cut corners and thereby jeopardized—faced with the notion of meeting their quota or doing a good job, they chose—I don't want to be harsh, but it is a terrible pressure you are under—but they chose to pursue the quota as the highest priority and perhaps didn't get to pursue some of the things they would have liked to have pursued to raise quality; and the third is they are really quite impressive, incredible people who did a great job and understand real quickly and came to these decisions.
I just detect—my own—from my knowledge of you from here in the office, you are not Simon Legree, I don't think; and I am just wondering if there could be a little more communication between you and the employees in the context of what is life really like under this quota system? Because you have got—it just—I understand the abilities to search better and all of this and—by the way, the reforms we want, which we think will improve quality, will also create new procedures and post grant oppositions and third-party reviews which maybe cut down on search. Because if you can get third-party submissions of prior art, maybe that things come to an examiner quicker than they would if you guys go out and search for it.
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But I am just wondering if there—it seems to me like there is a bit of a problem festering here that we should—we want to be sensitive to, and I just encourage you to take a look at it.
Mr. DUDAS. The answer to your question is absolutely yes. There is much room for more communication. There is much room to be talking more.
Ron and I had the opportunity to meet recently. I go to union meetings, and I have actually asked our commissioners to make certain that they are having monthly meetings with the unions and also weekly meetings, at least once a week outreach, myself included, making certain there is outreach.
Probably one of the best places I get the best information to help me manage that office is in the gym, talking to examiners, finding out how they feel, what is going on. But we are instituting a number of ways that we can more normalize that and make sure that message gets down not from the 10th floor where our senior level managers are——
Mr. BERMAN. Is the gym in Crystal City?
Mr. DUDAS. The gym is in Alexandria.
Mr. BERMAN. That is not the new leased space there.
Very good. Mr. Chairman, thank you.
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Mr. SMITH. Thank you, Mr. Berman.
The gentlewoman from California, Ms. Lofgren, is recognized for questions.
Ms. LOFGREN. Thank you, Mr. Chairman.
I just want to touch again on the obviousness issue, and ask—actually, request Mr. Dudas to take a look at two suggestions that were made to me by some academics, some law professors on the obviousness issue. I got a critique from the American Intellectual Property Law Association that was negative, and they may well be right. But what I am looking for—if it is not this, and maybe this isn't it, what would be a good idea? And if you have—I will be happy to send both the suggestions sent to me by the law professors and AIPLA's analysis. But if you have some comments and some alternatives that you think we ought to look at, I would very much value that. Actually, I will send it to all the witnesses, if they would look at that.
Finally, I want to talk about user fees. In a rare show of unanimity on the House Judiciary Committee I think we voted unanimously on several occasions to oppose the diversion of fees. The Chairman is right. This year we are not diverting the money that outmatches the fees, but I have no real confidence that that will always be the case. And in fact, historically, it hasn't been the case. I just can't think how long that is to do. It is a special tax on inventiveness. It is just completely the wrong thing to do.
So one of the things I am thinking about is how—we had a bill that would have worked. It actually didn't make it all the way through the legislative process. The National Academy of Public Administration recently suggested another alternative, which is that PTO be reorganized as a wholly-owned Government corporation under the Department of Commerce to allow it to borrow its own money, set its own user fees, and keep them without diversion, issue its own regulations. What do the witnesses think of this suggestion as an alternative to the measure passed by the House to end diversion? Mr. Van Horn?
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Mr. VAN HORN. Well, certainly, as a member of the NAPA panel I would support the suggestion. I think it is a good idea as one way of sort of putting in the hands of the PTO its own destiny, more control over the management of its resources.
Mr. STERN. The employees have always been concerned about remaining inside the civil service system so that there are opportunities to appeal adverse decisions against you.
In the past, taking us out of title 5 has been a major concern for folks; and, as a consequence, my organization has been opposed to the establishment of a corporation. But of course we are very much in favor of the agency getting to spend all its fees. That is an unfortunate tax on inventors when fees are diverted. They are paying for a service, and they deserve to get what they are paying for.
Ms. LOFGREN. Let me ask you this. The Post Office used to be part of the Government. Now it is a corporation, and yet there is this whole civil service structure that was imposed on that. If there was something of that nature—I don't want to get too specific—that addressed the civil service nature, how would the employees feel then is your best guess?
Mr. STERN. I think they would be very comfortable. Remaining inside the civil service system is very possible even if the agency has a corporate structure or a somewhat independent structure, and that would reassure folks that they will be dealt with fairly and equitably.
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Ms. MITTAL. While the issue of lack of fees has come up in various audits that we have done of PTO, we haven't really looked at the whole structure of the organization so I think we would be unable to answer that question right now.
Ms. LOFGREN. Are you allowed to answer, Mr. Dudas?
Mr. DUDAS. I can't give you an official Administration position. What I can tell you is we would welcome a debate on that. It is an idea that has been around since the Taft administration. It came up in the Johnson administration. And this Subcommittee has——
Mr. SMITH. It is probably lost.
Mr. DUDAS. —and this Subcommittee has looked at that.
I will just point out it is considered by some internationally a best practice. Canada has a situation closer to that. Mexico has a similar—and while we are asked to operate like a business and should operate like a business, we have to be cognizant that we are Government as well. But keep in mind all the fees we collect today—when I show you those pendencies, all the fees we collect today will likely go for examinations that occur in the future. So managing money would be—there are a lot of areas where that could be helpful.
And it might sound like Ron and I have switched seats here, but when I look at title 5, one of the issues is making certain that there are protections and appropriate protections in place but also making sure we can pay market value for examiners, possibly paying higher than what title V has.
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Ms. LOFGREN. There would bean opportunity then. We are competing in a very tough economic market for very important skill sets, and that would give an opportunity to really compensate. Thank you.
Mr. SMITH. Thank you, Ms. Lofgren, and thank all of our witnesses today as well. This has been very informative and instructive. We appreciate all the work that is being done at the PTO and know that it will continue and improve.
We stand adjourned.
[Whereupon, at 2:20 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
Mr. Chairman, thank you for scheduling this oversight hearing of the Patent and Trademark Office operations and analysis of the GAO and NAPA reports. It is especially appropriate that we do this now, as we move forward with the patent reform bill next week, which will likely effect the Office.
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The U.S. patent system is the cornerstone of innovation in our society. Throughout its more than 200-year history, the Patent Office has provided incentive for inventors to innovate by providing them with the protection for their ideas in the form of patents and trademarks. Today, intellectual property-based industries represent the largest single sector of the U.S. economy and the USPTO is at the core.
In recent years, however, the USPTO's patent operation has come under criticism. Charges of poor quality patents and ever-increasing pendency of applications diminish the stature of the patent system and reflect poorly on the Office's product. I commend the Patent Office for implementing many of the initiatives cited in its 21st Century Strategic Plan. Nevertheless, challenges remain.
The first challenge, unfortunately, is one that the USPTO cannot influence—but instead is our job, here in Congress. All the witnesses agree that we must stop fee diversion. Between FY 1992–2004, the Office lost access to $741 million of the fees it collected. A lack of funding is cited in multiple reports as the primary reason for increased pendency and for not implementing vital quality initiatives. We cannot continue to allow a perverse situation where we kneecap U.S. technology and economic leadership by diverting user fees to wholly unrelated products. That is why many of us here today are original co-sponsors of the ''Patent and Trademark Fee Modernization Act of 2005,'' to once and for all put an end to this true tax on innovation.
However, the fee bill is only the starting point. In order to improve the operations of the Patent Office, we must make a number of fundamental reforms to the system.
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Patent pendency, the amount of time a patent is pending, now stands on average at more than two years. Currently, the backlog of applications awaiting a first review numbers 600,000. Without change to the system, this current level is expected to grow to over 1,000,000 by the year 2010.
If you look solely at the most complex, cutting-edge technologies, where patent protection may be the most critical, average pendency is more than three years. The light-speed pace of innovation makes this simply unacceptable—many cutting-edge technologies will be long obsolete by the time the patent is granted.
Part of this backlog is due to growing demand for the Patent Office's product—the Patent Office receives record numbers of applications each year. The more troubling factor leading to the ever-increasing backlog of patent applications is that USPTO simply does not have enough experienced examiners to handle the demand.
I applaud USPTO for taking steps to increase the size of its patent examining corps. However, attrition remains a serious problem. Only 45% of the Patent Office workforce has five or more years of service. In an agency where it takes roughly 5 or 6 years before an employee becomes fully productive, this is a very troubling statistic.
One other major issue with which the Office struggles is the quality of patents. The current production quota system, known as the ''count system,'' has not been reevaluated since it was first introduced in 1976. The amount of information through which examiners must search to find relevant patent literature has exponentially increased and applications are growing ever more complicated, yet examiners still work under 1976 assumptions. Even with advances in the deployment of information technology, a number of studies have indicated that examiners today simply do not have enough time to do their job properly, and have been encouraged to take a number of shortcuts. Not surprisingly, then, the quality of patents suffers. Although USPTO has instituted some quality initiatives in recent years, it seems there is still a long way to go.
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There are additional quality measures and changes to the patent system as a whole that we hope to address in the ''Patent Reform Act of 2005.'' Through allowing submissions by third-parties, harmonization with international practice, amending the inter-partes reexamination system, and creation of a post-grant opposition procedure, it is our hope that the bill will further enhance the quality of patents and increase confidence in their integrity. I look forward to the testimony here today, as it will undoubtedly impact the important legislation next week. I also look forward to working further with the USPTO and patent stakeholders to arrive at a truly innovative reform to the patent system as we know it.
Thank you Mr. Chairman. I yield back the balance of my time.
PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN, AND MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
According to a March 2005 PEW Internet & American Life Project survey, young adults continue to be the largest group of Internet users who share files with others online. File sharing among students can provide many beneficial uses in education, research, and professional development. Unfortunately, college students have exploited the intended use of the peer-to-peer network by trafficking in music, movies, software, video games, and other copyrighted material without permission. While the Supreme Court unanimously held this past summer in the Grokster case that the file trading companies can be liable for their misconduct, we cannot turn a blind eye to the users of such software.
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Aside from the issue of copyright infringement, this illegal use of peer-to-peer networks can lead to invasions of student privacy, viruses, and other potential security threats to the university's network.
The content industry is stepping up its battle against digital copyright piracy on college campuses, encouraging higher education leaders to monitor their students and impose restrictions on violators. On the other hand, monitoring raises privacy concerns and could chill the use of peer-to-peer technology that can otherwise have valuable academic rewards. I also would be concerned that monitoring could turn university officials into spies, thus creating an atmosphere in which the First Amendment and privacy rights of students are significantly devalued.
Because piracy has proven to be a lethal threat to the content industries, we must address the legitimate concerns of creators. One approach to reducing peer-to-peer piracy on university campuses that does not require monitoring seems to be working: providing a legal alternative for students to access music, films, and other media while educating students about the importance of copyright issues. Two major universities in my home state, the University of Michigan and Michigan State University, have taken the lead in this approach.
After the University of Michigan inked an agreement with Cdigix, students were able to choose from a wide variety of media and entertainment services for only a nominal monthly fee. Because of the University's agreement with Cdigix, its acceptable use policy, and its education campaigns on copyright infringement, the Recording Industry Association of America cited the University as a model for how universities should combat illegal file sharing.
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At Michigan State University, the University has implemented the multi-tiered approach of information campaigns, an acceptable use policy, and technical measures to prevent illegal file sharing. These measures have led to a 75% reduction in the monthly rate of Digital Millennium Copyright Act violations on campus. In addition, MSU is conducting advanced discussions with venders such as Cdigix to provide a legal avenue for students to access digital entertainment. MSU's strategy strikes the appropriate balance between preventing illegal sharing of copyrighted files and respecting the privacy of personal communications over the University network.
By providing legal alternatives to file sharing and through education, universities can and will continue to teach students to make good decisions regarding online entertainment. Furthermore, by becoming familiar with services like Cdigix, students will develop the habit of paying for music that will extend beyond the university setting.
RESPONSE FROM ANU K. MITTAL, DIRECTOR, SCIENCE AND TECHNOLOGY ISSUES, U.S. GENERAL ACCOUNTING OFFICE (GAO), TO QUESTIONS SUBMITTED BY THE HONORABLE ZOE LOFGREN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
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EXECUTIVE SUMMARY, U.S. PATENT AND TRADEMARK OFFICE: TRANSFORMING TO MEET THE CHALLENGES OF THE 21ST CENTURY, a Report by a Panel of the National Academy of Public Administration for the U.S. Congress and the U.S. Patent and Trademark Office, 2005, submitted by the Honorable Lamar Smith
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(Footnote 1 return)
''USPTO should Reassess How Examiner Goals, Performance Appraisal Plans, and The Award System Stimulate and Reward Examiner Production,'' U.S. Dept. of Commerce Office of Inspector General Final Inspection Report No. IPE-15722, September 2004.
(Footnote 2 return)
''USPTO Has Made Progress in Hiring Examiners, but Challenges to Retention Remain,'' U.S. Government Accountability Office Report No. GAO-05-720, June 2005.
(Footnote 3 return)
''U.S. Patent and Trademark Office: Transforming to Meet the Challenges of the 21st Century,'' Report of the National Academy of Public Administration for the United States Patent and Trademark Office, August 2005.
(Footnote 4 return)
National Academy of Public Administration Report, August 2005, Appendix D, Table D-2.
(Footnote 5 return)
''Key Processes for Managing Patent Automation Strategy Need Strengthening,'' U.S. Government Accountability Office Report No. GAO-05-336, June 2005, pages 14–15.
(Footnote 6 return)
King, John L., ''Patent Examination Procedures and Patent Quality,'' Patents in the Knowledge-based Economy, National Research Council of the National Academies, National Academies Press, 2003, pages 54–73 at pages 68–70.
(Footnote 7 return)
Jaffe, A. B. & Lerner, J., Innovation and Its Discontents, Princeton University Press, 2004, pp. 133–138.
(Footnote 8 return)
''Patent Examiner Hiring Process Should Be Improved,'' U.S. Dept. of Commerce Office of Inspector General Final Inspection Report No. BTD-14432-2-0001, March 2002.
(Footnote 9 return)
NAPA Report, August 2005, pages 110–111.
(Footnote 10 return)
NAPA Report, pages 108–111.
(Footnote 11 return)
NAPA Report, August 2005, page 108.
(Footnote 12 return)
NAPA Report, August 2005, page 109.