MICHAEL K. KIRK
AMERICAN INTELLECTUAL PROPERTY ASSOCIATION
SUBCOMMITTEE ON COURTS,
AND INTELLECTUAL PROPERTY,
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
"The U.S. Patent and Trademark Office:
Fee Schedule Adjustment and Agency Reform"
July 18, 2002
2141 Rayburn House Office Building
(download MS Word version kirk.doc)
I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on “The U.S. Patent and Trademark Office: Fee Schedule Adjustment and Agency Reform.”
The AIPLA is a national bar association of more than 14,000 members engaged in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property. Our members represent both owners and users of intellectual property.
At the Oversight Hearing which the Subcommittee held on April 11, 2002 on the “The U. S. Patent and Trademark Office: Operations and Fiscal Year 2003 Budget,” AIPLA testified that achieving a strong and effective Patent and Trademark Office would require focusing on three critical objectives: quality, timeliness and improved electronic filing and processing capabilities. These objectives were stated in H.R. 2047, the “Patent and Trademark Office Authorization Act of 2002.” This legislation calls for the Director to develop a five-year strategic plan that would -
1) "enhance patent and trademark quality;
2) reduce patent and trademark pendency; and
3) develop and implement an effective electronic system for use by the Patent and Trademark Office and the public for all aspects of the patent and trademark processes….”
Under Secretary Rogan announced in March that he was preparing to begin a top- to-bottom review of all non-examination and administrative support operations, and expected to see a compelling justification for every non-examination operation within the agency. Shortly thereafter, the PTO began working intensively to develop a five-year strategic plan called for by Congress. The “The 21st Century Strategic Plan” (hereafter “Strategic Plan”) published on July 5th represents the current status of that effort.
AIPLA established a three-pronged Task Force under the leadership of AIPLA First Vice-President Rick Nydegger – focusing on Patents, Trademarks, and Patent e‑Commerce - to work with the Office to critique and offer suggestions on various proposals that the PTO shared with us and on which our input was solicited. The PTO accepted some of the suggestions of the Task Force for modifying its proposals and rejected others as it developed its Strategic Plan. More recently, the PTO proposed a sweeping adjustment of the patent and trademark fee structure contained in the fee bill which we are asked to address today. The AIPLA Board of Directors then debated and discussed the PTO’s proposed fee legislation and Strategic Plan for more than six hours of meetings and arrived at the views which I express today. We will continue to review the newer proposals which we have only recently received and to provide our comments to both this Subcommittee and the PTO.
PTO’s Proposed Fee Bill
At the outset, I would like to make it very clear that the AIPLA strongly opposes the PTO’s proposed fee bill. In our testimony three months ago on the President’s Budget, we reiterated our strong opposition to any diversion of patent and trademark fees. We added that if there is a need for additional resources for some urgent program or service unrelated to the patent and trademark systems, the President and the Congress should explain that need and, if the existing tax revenues are insufficient, propose a tax increase on all citizens who will receive the benefits of such program or service. It should not be hidden away as a stealth tax increase only on America’s inventive community.
AIPLA continues to oppose diversion and, for that reason and others, we strongly oppose the PTO’s fee bill. The fees are fixed in the fee bill at levels to recover the arbitrary amount of revenue targeted in the President’s February Budget, $1.527 billion. This is the same amount that the President had proposed to raise through the imposition of 19% and 10% surcharges on patent and trademark fees, respectively, in order to raise an additional $162 million in revenue to be available for siphoning-off to other, unrelated government programs. AIPLA opposed the President’s Budget for the PTO principally because of its proposed fee diversion; AIPLA opposes the fee bill proposed by the PTO because it contemplates the same diversion.
At the Oversight Hearing on the PTO’s Fiscal Year 2003 Budget in April, AIPLA stated that “We would support a reasonable statutory fee increase to implement a five year plan that would achieve the goals Congress and we seek.” Unfortunately, the fees contained in the bill are excessive because they are arbitrarily set to bring in a total of $1.527 billion.
Moreover, the fees are not reasonably tied to achieving the objectives of a thoughtful business plan. There are several aspects of the fee bill which fail in this respect. For example, under the President’s FY 2003 Budget, the PTO proposed to collect $1.527 billion in revenue from user fees (including the surcharges noted above) which were to be paid for and used to process 404,600 patent applications and 330,000 trademark applications. Due in part to the current economic downturn, the PTO has downwardly revised its projections for patent and trademark application filings, and now estimates that only 338,000 patent applications and 254,000 trademark applications will be filed in FY 2003. Notwithstanding this significant projected reduction in filings, the PTO still proposes a fee bill designed to raise the same $1.527 billion in fee revenues as proposed in the President’s FY 2003 budget when the combined application filings were projected to be some 24% greater. The fees have simply been set at levels designed to raise the targeted revenue amount of $1.527 billion dollars, rather than being tied to real costs of doing business under the Strategic Plan.
The levels of fees necessary to raise the President’s targeted amount of revenue are in fact so high that we believe that the PTO underestimates the adverse impact these fees will have on patent applicants. And it must be kept in mind that U.S. inventors and companies will, under the Strategic Plan proposed by the PTO, have the additional expenses of paying to obtain a search and to request examination based on the search results. These fees and other associated costs will preclude some independent inventors and start-up companies from using the patent system and they will clearly have a dampening effect on the use of the system by major American companies.
We also believe that the fee schedule proposed by the PTO could possibly generate more than $1.527 billion in revenue. In this regard, we understand that, under the President’s Budget, the PTO expected to recover $411,300,000 in maintenance fees in FY 2003. Under the revised fee schedule, where maintenance fees are increased by 48%, the PTO is estimating that in FY 2003 it will receive only $449,632,392 in patent maintenance fees - a mere 9% increase. Similarly, the new patent examination fee of $1250 for utility patent applications is expected to raise $153,500,000 in FY 2003, but we understand from the PTO that this amount represents only one-half of the amount that this new fee will generate in the following years. This is because the Office expects that only 50% of the applicants who file in FY 2003 under the proposed 18-month deferred examination system will request examination in FY 2003. This means that the overall fee revenue for the PTO will automatically increase by more than 10% in FY 2004 from just this one fee, without taking workload or inflation into account. While we cannot definitively say that this will be the case with other fees as we have not yet had sufficient opportunity to study the proposed fees and PTO workload assumptions (which have changed during the process), these points demonstrate some of the reasons why we believe the proposed fee bill must be rejected by this Subcommittee.
We do not, however, want to leave the impression that there are not some useful concepts in the fee bill. We believe that certain types of fees as contemplated in the fee bill can be reasonably tailored to foster best practices. Establishing fees to ensure that applicants will pay the actual costs of the effort required on the part of the PTO to examine applications could have the salutary effect of discouraging applicants from needlessly filing inordinately large numbers of claims and excessively long patent specifications. It would also be fairer to those applicants whose applications are shorter and do not require as much examination effort. We do not believe, however, that steeply escalating fees for claims should begin with the 4th independent claim or the 21st total claim in an application. Beginning moderately increased fees with the 7th independent claim and the 41st total claim would avoid penalizing the more than 95% of applicants who currently fall below these thresholds. Similarly, we believe that the charge for excess pages in patent specifications should not begin at the 51st page if drawings are included – the 76th page would be more appropriate – and that sequence listings, source code listings, and other similar types of lengthy submissions of information, which should be required to be filed on CD-ROMs, should not be included in such calculations.
The imposition of an appropriate surcharge on the filing of continuing applications and continuation-in-part applications beyond a reasonable limit would discourage the filing of such applications and avoid the prolonged public uncertainty as to the scope of any patent that may ultimately be granted. We do not, however, believe that such a surcharge should be imposed on divisional applications necessitated by restriction requirements ordered by examiners. In addition, we do not believe that the Director should have the discretion to begin the imposition of such fees prior to the third continuation or continuation-in-part application.
Thus, fees designed to encourage best practices should be set to begin at limits and levels that are not punitive and do not penalize legitimate practices and events. They should be fixed at limits and levels so that those applicants who file applications with inordinately large numbers of claims and long specifications will pay for the added effort they impose on the PTO. The fee bill would also impose surcharges on applications merely because they contain claims that are patentably indistinct from claims in other applications. The TRANSITIONAL PROVISIONS in Section 4(3)(A) would impose a fee of over $10,000 for a first occurrence of such overlap, with much higher fees for additional cases of such overlap. Revised Section 41(a)(3)(B) in Section 2 of the fee bill would give the Director discretion to adjust this amount. We are informed that this surcharge is “particularly necessary to mitigate any tactical applicant use of multiple applications to circumvent the proposed increases in fees for additional claims.” We believe that such a surcharge would in fact adversely impact applicants who are not seeking to game the system, and that few applicants would engage in such tactics in any event. It is a dangerous solution in search of a problem and should be rejected.
One of the most fundamental issues that is addressed both in the fee bill and in the proposals for procedural and operational changes relates to deferred examination. The notion of deferred examination is an integral feature of the PTO’s proposed Four-Track system. The fee bill addresses deferred examination in two places. First, in the TRANSITIONAL PROVISIONS in Section 4(3)(A), the fee bill sets an initial period of 18 months from the earliest effective U.S. filing date for requesting examination and paying the examination fee. Second, in revised section 41(a)(4) contained in Section 2 of the fee bill, the Director would be given discretion to modify the period for requesting examination and paying the examination fee.
The adoption of a deferred examination system by the United States would be a significant departure from the existing U.S. system where all applications filed are automatically examined. The PTO is proposing 18-month deferred examination to “allocate USPTO resources more rationally and to serve the actual needs of the customer better.” The PTO expects that the imposition of the additional fee for examination, after the opportunity to evaluate the search results, will induce a reduction in the number of applicants opting for substantive examination. It reasons that this will both free up examiner resources and allow applicants to avoid paying the examination fee for applications they are no longer interested in pursuing. The PTO estimates a drop-out rate of 10% with the proposed 18-month deferral period.
With the benefits projected for the PTO and patent applicants, however, come certain costs for the public and the competitors of applicants. Delay in beginning of the examination process extends the period of uncertainty during which the public will not know whether a patent will issue or what its scope will be. Thus, a deferred examination system should only be adopted if it is clear that the benefits outweigh the drawbacks. The balance that AIPLA strikes between these two competing interests is driven by the constraints which exist in the world in which we find ourselves.
Having considered the competing interests and the structure proposed by the PTO in its Four-Tracks system, AIPLA has determined that it would not object to a period of deferral of 14 months or less. We believe that this strikes an appropriate balance; it would allow both domestic and foreign applicants the opportunity to obtain a search from an examiner, Certified Search Service (or CSS), or a foreign patent office, and would minimize the delays inherent in this procedure. For this reason, however, AIPLA opposes the 18-month period of deferral in the TRANSITIONAL PROVISIONS of the fee bill and opposes the provision in revised section 41(a) (4) giving the Director discretion to modify the period for requesting examination and paying the examination fee. Any period of deferral should be fixed by statute.
Finally, we would note that our position on deferred examination is within the context of the proposed Four-Tracks system. Were AIPLA given a blank sheet of paper, we would not have opted for the plan before us today. Thus, whether AIPLA would reach the same conclusion regarding deferred examination in a different context can only be determined after we have had the opportunity to review any such proposal.
For the reasons stated above, we urge the Subcommittee to reject the PTO’s proposed fee bill. We have heard the dire prediction that if this fee bill is rejected, the PTO will not be given sufficient funding to carry out its Strategic Plan. We find that prospect considerably less frightening than a fee bill that prices the inventing community out of the patent system.
Proposals for Procedural and Operational Changes
AIPLA approaches the evaluation of the PTO’s operational changes in the real- world context in which it has been proposed. The United States patent examination system has been developed over a two-hundred-year period, with constant refinements and improvements. And although the Plan before us differs significantly from this time- tested system, we recognize that the PTO has to work in a system of constraints imposed by the Executive Branch and the Congress. While the PTO could continue to pursue a more traditional approach of asking for increased examiner resources to improve quality and reduce pendency, neither the Executive Branch nor the Congress are going to listen. Congress has made it very clear that it demands a new approach, one that seeks other ways to tackle these problems. So we could pursue the old way and watch the system continue to deteriorate, or we can try to work with the PTO to develop alternative ways to fix the problems, ways that might gather the needed support. We can either curse the darkness or try to light a candle. AIPLA has chosen to try to light a candle.
AIPLA appreciates the comprehensive effort the PTO is making to address the quality, pendency, and electronic processing issues it faces. In this regard, the “21st Century Strategic Plan” evidences an effort to develop a strategy for enlisting the capabilities of patent examining offices globally to join in the common struggle all offices face under the increasing crush of patent applications worldwide. While we have concerns about several of the specific details of the Plan, we would not wish our reservations to obscure the desirable innovations proposed.
The initiatives to create a competitive compensation package for Supervisory Patent Examiners to attract and retain the best employees in these jobs, develop suitability tests for potential examiner candidates, establish “training art units” for new examiners in high volume hiring areas, and develop a testing process to certify examiners for promotions are all right-on to enhance patent quality. Expanding the “second set of eyes” concept successfully used with business method patent applications to other technology areas and to the expedited examination options in the trademark area would be welcome. Enhancing the reviewable record by increasing the amount of information included in patent application files regarding applicant/examiner interviews will assist the public to better appreciate the exact metes and bounds of any resulting patent. AIPLA supports these steps and a number of other actions that the PTO has proposed in the papers associated with the Strategic Plan. We turn now to the central features of the restructuring proposed by the PTO.
Central to the PTO’s plans for restructuring its patent examination process in order to improve the quality and reduce the pendency of patents is its “Four-Tracks Patent Examination Process” which would base examination on patent searches conducted by private firms and other patent offices. By using searches from CSSs, and other patent offices, the PTO hopes to off-load the search work from examiners, allowing them to concentrate on the core government function of examination. And as noted above, the proposed adoption of an 18-month deferred examination system, is an integral feature of the Four-Tracks system.
There is one point about which AIPLA would like to be very clear. Page three of the Strategic Plan states that, provided the PTO receives the funding and statutory changes necessary to implement the Strategic Plan, it will “Achieve and maintain 18 months patent pendency2 by 2008, compared to over 25 months in the 2003 Business Plan.” However, footnote 2 states that
[P]endency [under the Strategic Plan] is redefined as the examination duration period (i.e., from the time the applicant requests examination to the ultimate disposition of the patent application). This measure is the same measure that is used internationally in systems that permit deferred examination and is the proper metric of USPTO examination performance. When the average period of deferral is added, the average pendency from filing of the application to issue or abandonment would be 27 months.
Measuring pendency from the time applicants request examination would change the traditional method for measuring patent application pendency. It would make it appear that the PTO was achieving success in reducing pendency, when the pendency could in fact be greater than today, e.g., note the need to add 9 months to the 18-month 2008 goal if pendency were measured in the traditional manner. While we do not object to the PTO measuring pendency from the date examination is requested to the date of issue/abandonment, measuring pendency from the date an application is filed in the United States to the date of issue/abandonment is the critically important measure of the period of uncertainty that the public and competitors endure.
AIPLA welcomes the PTO’s proposal to make greater use of International Style Search Reports (ISSRs) prepared by International Search Authorities under the Patent Cooperation Treaty and by other patent offices under their national procedures by giving such searches “near full faith and credit.” We understand that such searches will be used by the PTO only following its determination that a given office can produce quality searches, a necessary prerequisite to achieving the quality levels we seek. This is clearly a step in a direction that will lead to greater cooperation and work-sharing among the world’s major patent offices. We are not prepared, however, for the PTO to give “near full faith and credit” to the examination conducted by another patent office. Not only do the laws, practices, and procedures of other patent offices differ from those of the PTO, but even the translation of the claims can distort the exact scope of what was allowed. AIPLA can only agree to giving “near full-faith-and-credit” to the search done by another IP office that has been approved by the PTO.
AIPLA can accept the proposal of the Office to develop qualified CSSs to prepare ISSRs using criteria similar to those used to designate an International Searching Authority under the Patent Cooperation Treaty. Our position is based on the assurances that the PTO has given that it will particularly focus on the competency of the CSS to perform high quality searches and that each CSS will be subject to regular re-certifications.
We do not believe, however, that applicants should be required or even permitted to procure searches directly from CSSs and submit them to the PTO when they request examination of their applications. We are concerned that the presumption of validity could be adversely affected if the PTO simply hands off the responsibility for obtaining the search to applicants and CSSs. The PTO must ultimately be responsible for ensuring that the searches it relies upon are of the highest quality, whether done by its examiners, CSSs, or qualified foreign patent offices. Particularly with a CSS, PTO examiners should always assess whether the search was complete and, if not, demand that the CSS re- search the application and “get it right.” The PTO will select and certify the CSSs and therefore it must exercise the same control over them to provide quality search results as it does over its own examiners. Finally, the ultimate responsibility in each individual case must rest with the PTO examiner, to ensure that the search is complete in the first instance and to conduct supplemental searches as appropriate as the claims in the application are modified as the application advances through the examination process.
Mandatory Information Disclosure Statements (IDS)
For those applicants that have not received a first action on the merits by the time the PTO’s proposed Plan would go into effect, the PTO proposes to impose what it describes as a “limited duty of inquiry” on such applicants (as to documents within their possession) and a mandatory IDS. The PTO’s stated focus of the information to be submitted will be non-patent literature that is related to the claimed invention, including information used to draft the application, information used in the inventive process and information concerning improvements and state-of-the-art. Applicants are to submit the required information, with an explanation of relevancy for citations of patents over twenty and of non-patent literature over twenty. This mandatory IDS procedure is intended by the PTO as a way to transition those applications already on file into a separate search and examination procedure similar to those contemplated under the PTO’s Four-Track system.
AIPLA opposes the imposition of this kind of obligation as well as the proposed requirement for applicants to explain the relevancy of prior art to the claims for any references in excess of twenty. The PTO proposal goes far beyond the current duty of candor under Rule 56(c). This proposal would unfairly impose an incredible burden on tens of thousands of applicants who have filed patent applications in the last few years, paid the required fees, and expect examination. In terms of time and costs, this burden will fall particularly hard on the largest filers, corporations with hundreds of unexamined applications in the pipeline.
We also strongly disagree with the PTO’s statement that the public’s concern with the issue of inequitable conduct can be addressed simply by amending Rule 56. Not only would a rule not adequately protect applicants from challenges under the judicially- created doctrine of inequitable conduct, but the specific rule proposal once again, as in the case of the proposed CSS procedure, seeks to shift the responsibility for conducting the examination from the PTO to the applicant.
One final comment about the PTO’s plans to enhance patent quality is in order. Throughout the proposals by the PTO for restructuring the patent examination process, a consistent theme is that a more vigorous post-grant review procedure will be established as a safety net. While AIPLA has long advocated and supported a robust post-grant opposition system, we do not agree with the emphasis of the PTO on using such a procedure as an integral part of its quality enhancement plans. In our view, the PTO should “get it right the first time.”
In conversations which the AIPLA Patent Task Force had with the PTO, it was reported that the emphasis on post-grant review was in response to mandates it faces to measure the success it makes in improving quality. We cannot see any basis from either the extent of use or the outcome of post-grant proceedings for drawing conclusions of this type as to the quality of the examination process. For example, there has been a grand total of four inter partes reexamination proceedings instituted since that procedure was created in 1999. The only conclusion we draw from this fact is the conclusion almost everyone already knew: that procedure is fatally flawed. It informs no one about the quality of the patents being issued by the PTO.
Finally, as noted above, AIPLA supports a vigorous post-grant review procedure as we have stated previously in testimony before this Subcommittee. While there are several features in the post-grant procedure proposed by the PTO with which we agree, we also have a number of suggestions for improvements which we are prepared to offer at an appropriate time.
The PTO is proposing that trademark applicants be allowed to choose between four filing options that will affect fees, method of filing, and speed of process. The first of these options would have the trademark applicant provide a likelihood of confusion search from a USPTO Certified Search Service. AIPLA does not believe that this option will enhance quality or reduce pendency or costs. The searches that trademark examining attorneys perform for likelihood of confusion issues are straightforward computer searches of PTO records which can be done with relative ease. The issues in the trademark examining operation are very different from those in the patent examining operation. Moreover, there is concern that search quality, the presumption of validity, and the value of trademark registrations may suffer. Given the absence of any demonstrated need for this proposal, such as a shortage of examiners or growing pendency (as exists on the patent side), AIPLA opposes this option.
We would like to express our continued support for the Trademark e-Government plan to implement an electronic file management system and begin e-Government operations on October 1, 2003. Full electronic processing of trademark applications will improve quality and restrain, if not reduce, costs and the need for increasing numbers of employees or contractors to handle increases in filings as the reliance on paper disappears from internal processes.
AIPLA fully supports the PTO’s ongoing effort to accelerate its electronic filing and processing initiatives in the patent operations. The implementation of a truly effective, user-friendly system that would permit applicants not only to file, but also to prosecute, their applications electronically will save resources in terms of staff, space, and the reduction of clerical errors. We have continuing concerns, however, that those initiatives will not be sufficiently user-friendly to encourage widespread electronic filing of patent applications. Notwithstanding all of the agreements the PTO has entered into with contractors and other IP organizations, we still have not seen evidence that applicants will even be able to easily and quickly file their patent applications. Notwithstanding any agreements or contracts that constrain the manner in which the PTO processes information internally or shares files with other patent offices, we urge the PTO to adopt a system that will permit applicants to electronically file documents produced using image files (such as .pdf or .tif) or documents produced using Word or WordPerfect and to receive office actions and all other PTO communications in such formats.
While AIPLA strongly opposes and urges the rejection of the proposed fee bill for the reasons stated above, we recognize that the PTO must be adequately funded if it is to achieve the quality, pendency, and e-commerce goals it has announced and which AIPLA fully supports. The Task Force established by AIPLA has worked very hard to assist the PTO in its restructuring efforts. Notwithstanding our views on the fee bill, as well as on a number of the structural changes, AIPLA is committed to continuing the efforts begun by the Task Force. The road to strong and healthy patent and trademark systems is going to be long and arduous. There will be no magic wands. We believe that a foundation is being laid on which we can make real and lasting improvements to the PTO. AIPLA pledges its continuing support for the goals Under Secretary Rogan is seeking to accomplish and its willingness to work with the PTO and this Subcommittee to achieve those goals.