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Letters to the 107th Congress

June 25, 2001

The Honorable Frank R. Wolf
Chairman, Subcommittee on
Commerce, Justice, State and Judiciary
Committee on Appropriations
U.S. House of Representatives
Washington, D.C. 20515

The Honorable Jose E. Serrano
Ranking Minority Member, Subcommittee
on Commerce, Justice, State and Judiciary
Committee on Appropriations
U.S. House of Representatives
Washington, D.C. 20515

Dear Mr. Chairman and Representative Serrano:

I am writing to express concerns of the American Bar Association regarding funding for the United States Patent and Trademark Office of the Department of Commerce. I understand that the CJS Subcommittee is expected to mark-up your appropriation bill that includes PTO funding for Fiscal Year 2002 within the next few days.

An effective and efficient intellectual property system is indispensable to create new jobs, protect U.S. industries from unfair foreign competition, maintain a healthy economy, and advance the well being of all our citizens. Maintaining such a system depends upon the ability of the Patent and Trademark Office to act promptly and accurately on all patent and trademark applications. We are convinced that the level of funding proposed for the PTO in the President's budget submission for FY 2002 would make it impossible for the PTO to provide these essential services. More than that, as demonstrated in the Administration's own documentation and explanation of its proposals for funding the PTO, these deficiencies would create grave problems, in both the short term and long term.

The Administration's Budget Proposal recommends funding of $1,139,000,000 for the PTO in FY 2002. While this figure represents an increase of $100 million over PTO resources for the current year, the Administration's April submission indicates that it is over $200 million less than anticipated user fee revenue for FY 2002. This revenue is the product of a series of user fees set by Congress at levels that are necessary to finance all PTO operations. They are not designed to raise a surplus to be used for other purposes. Last year, the ABA House of Delegates adopted a policy calling for all PTO user fees collected to be used for PTO operations. We continue to believe that it is fundamentally unfair to those who pay those fees to allocate the revenue produced to fund unrelated governmental programs. More important, however, the diversion of $100 to $200 million per year necessarily leaves the PTO short of needed funding and unable to maintain essential services at acceptable levels.

Too little money for the examination of patent and trademark applications--the most critical service that the PTO provides--will delay the granting of patents and registration of trademarks, at a time when innovation, job creation and protection from unfair foreign imports demand speed. Resource deficiencies will result in lower quality review and produce defective patents and trademarks, at a time when increased technical and legal complexities call for more exacting review and sounder decision making. The proposed budget would, at best, restrict the PTO to handling a workload that is growing both in numbers and complexity with the same number of examiners it has had for far less demanding times. This was the picture that was drawn by the testimony of PTO Acting Director Godici when he appeared before the House Judiciary Committee to explain the budget proposal earlier this month. He indicated that the Office, which lost 437 patent examiners in FY 2000 during a year that saw a 15% increase in patent applications, was only able to replace 375 of that number. Mr. Godici also testified that the funding called for in the FY 2002 proposal would leave the Office with 9 fewer patent examiners than the 2,959 with which it ended FY 2000. As evidence of the special demands that greatly expanding new technologies impose on the Office, Mr. Godici told the Committee that most of the newly hired patent examiners are being assigned in the software, computer, business methods and biotechnology areas of the Office. While such an allocation of resources is no doubt appropriate and even commendable, with such great attrition across the board, how can the Office keep pace in traditional areas of technology, which are also experiencing ever increasing workloads?

Regrettably, the Administration's proposal for long term funding of the PTO projects a funding shortfall for as far as the budget eye can see. The FY 2002 budget proposal projects denial to the PTO and allocation to other programs in each of Fiscal Years 2003-2006 amounts of $167 million to $186 million of user fee collections. Continuation of this tax on innovation appears destined to send the quality of essential intellectual property programs into a disastrous downward spiral. Such a dire prediction is supported in the PTO Fiscal Year 2002 Corporate Plan, which is the latest version of an annual plan prepared in support and explanation of the Administration's PTO funding proposals. The time that a patent application takes for review in the PTO before issuance has long been recognized as a critical factor in measuring the effectiveness of PTO patent operations, as well as in promoting investments in new jobs. Time from application to first office action and from application to issuance are benchmarks most frequently looked to as measurements. Congress recognized the importance of meeting these time lines in the American Inventors Protection Act when it mandated patent term extensions for failure of the PTO to meet various time limits, including 14 months to first office action and 36 months to issuance.

In his June 7 testimony, the PTO Acting Director indicated that at the end of FY 2000, 81.2% of patent applications were receiving a first office action within 14 months, with an average of 13.6 months. However, the FY 2002 Corporate Plan projects that this figure will more than double to 28.8 months by FY 2006, and that pendency until issuance will rise from a projected 26.2 months in FY 2001 to 38.6 months in FY 2006. The dire nature of this prediction is made all the worse when one realizes that it assumes that the USPTO will have full access to its fees beginning in fiscal year 2003. As noted above, the Administration's budget proposal does not make such an assumption, but rather calls for continued withholding of PTO user fee revenue.

If the PTO's projections are accurate, the backlogs in unexamined patent applications will grow to staggering numbers over the next five years. The Office projects that patent applications will total 538,000 in FY 2006, an 84% increase over the total in FY 2000. In this same time, however, patents granted are expected to increase only 16%, from 165,000 to 192,000. As a result, end-of-the-year pending applications awaiting examiner action would grow from slightly over a quarter of a million in FY 2000 to almost 1.3 million in FY 2006. Not shown in these figures is the deterioration in the quality of patents issued, an almost inevitable result of the widening chasm between demand for examination services and resources to provide those services.

The American Bar Association is convinced, based on evidence such as set forth above, that funding the PTO at levels substantially less than full user fee revenue is a very dangerous and counterproductive practice. This practice threatens to turn our intellectual property system--a primary component of the world's most innovative, productive and growing economy--into a substandard second class operation and a roadblock to innovation. Such deterioration would jeopardize the continued vitality of American innovation and development, and, if permitted to occur, decades would be required to undo the damage. We urge most strongly funding the PTO at a level equal to the full amount of user fees collected for the purpose of supporting the operations of the Office. The revenue so produced, which adjusts itself for increases or decreases in workload, will suffice to provide the high quality services that our nation needs. The record makes plain that user fees do not produce revenue in excess of the needs of the Office, and that withholding the use of substantial amounts of such revenue is seriously degrading the quality of services provided by the Office.

We further believe that the appropriating and authorizing committees of Congress should provide direction and engage in vigorous oversight of the PTO to insure that funds are used and services provided in an efficient and effective manner. H.R. 2047, the PTO authorization bill pending in the Judiciary Committee, provides examples of how this might be done in the bill's provisions relating to long term planning to make greater use of advancements of the electronic age in the operations of the Office.

Thank you for considering these views of the American Bar Association.


Edward G. Fiorito
ABA Section of Intellectual Property Law

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