Patent Public Advisory Committee
Annual Report
November 30, 2000
PATENT PUBLIC ADVISORY COMMITTEE
VOTING MEMBERS
Margaret A. Boulware, Chair
Partner
Jenkens & Gilchrist
Houston, Texas
James L. Fergason
Independent Inventor
International Liquid Crystal Company-ILIXCO
Menlo Park, California
Andy Gibbs
Independent Inventor
PatentCafe.Com, Incorporated
Yuba City, California
Patricia Ingraham
Director
Alan K. Campbell Public Affairs Institute
Syracuse University
Binghamton, New York
Roger L. May
CEO and General Counsel
Ford Global Technologies, Incorporated
Ford Motor Company
Dearborn, Michigan
Gerald Mossinghoff
Senior Counsel
Oblon, Spivak, McClelland, Maier & Neustadt
Arlington, Virginia
Ronald E. Myrick
Chief Intellectual Property Counsel
General Electric Company
Weston, Connecticut
Vernon A. Norviel
Vice President and General Counsel
Affymetrix
San Jose, California
Katherine E. White
Assistant Professor of Law
Wayne State University
Detroit, Michigan
NON-VOTING MEMBERS
Ronald J. Stern
President
Patent Office Professional Association (POPA)
United States Patent and Trademark Office
Arlington, Virginia
Melvin T. White
President
National Treasury Employees Union (NTEU)
Local 243
United States Patent and Trademark Office
Arlington, Virginia
Julie Watson
Vice President
National Treasury Employees Union (NTEU)
Local 245
United States Patent and Trademark Office
Arlington, Virginia
BACKGROUND
The Patent Public Advisory Committee (P-PAC) is a newly created body
appointed on July 17, 2000, to advise on "policies, goals, performance,
budget and user fees of the United States Patent and Trademark Office
(USPTO) with respect to patents."1 The P-PAC shall prepare a report
annually and transmit the report to the Secretary of Commerce, the
President, and the Committees on the Judiciary of the Senate and the House
of Representatives.2 In its first report the P-PAC will review the USPTO's
role in promoting and protecting innovation and the Committee's advisory
role.
For over 200 years, the basic purpose of the United States Patent and
Trademark Office has been to administer the patent and trademark laws of
this Nation. For patents, these laws derive from the United States
Constitution to promote the progress of the useful arts by securing for
limited times to inventors the exclusive right to their respective
discoveries (Article 1, Section 8, of the United States Constitution).
Under this system of protection, American business has flourished.
New products have been invented and marketed, creating employment
opportunities for millions of Americans.
Through the issuance of patents, the USPTO encourages technological
advancement by providing incentives to invent, invest in and disclose
new technology worldwide. By disseminating patent information, the USPTO
promotes an understanding of intellectual property protection and
facilitates the development and sharing of new technologies worldwide.
The P-PAC is composed of nine voting members appointed by the Secretary
of Commerce to advise the USPTO and represents interests of the diverse
users of the USPTO5, and three non-voting members representing each labor
organization recognized by the USPTO4. The inaugural appointments were
made by Acting Secretary of Commerce Robert L. Mallett on July 17, 2000. To
reflect the rapidly changing intellectual property community, the P-PAC
includes members from small entrepreneurial businesses, small inventors and
universities to large U.S.-based corporations in a wide range of technical
fields, including biotechnology, Internet technology and consumer
products.5
At the outset, the P-PAC wishes to state its unanimously held
appreciation of the critical importance of high quality U.S. patents --
to sustain economic growth in the United States and to
human progress everywhere. Patents drive technological innovation and, in
turn, such innovation has driven the remarkable increase in U.S.
productivity and the resulting real growth of the economy. Across ever-
broader sectors of the global market, more and more companies are
discovering that patents are among their most valuable assets.
Conservative economic estimates place the value of patents and other forms
of intellectual property as accounting for two-thirds of the market value
of corporate America.
The appreciation of the importance of patents to our national well-being
is dramatically reflected in the substantial increase in the number of
patent applications filed in the USPTO. Ten years ago, in Fiscal Year
1990, the USPTO received 163,569 patent applications, which number has
grown to 293,244 in Fiscal Year 2000. The USPTO projects a doubling of the
filings from the current rate by 2006. The following graph tracks the
past and expected filings from 1990-2006:
Congress, at the Administration's urging, wisely established the USPTO
as a performance-based agency to handle that workload. The P-PAC applauds
that development. But the finances must keep pace with the capabilities
of the USPTO and the challenges it will face. Every dollar invested by
inventors and corporate America in the self-supporting USPTO has enormous
leverage. If the USPTO is permitted to retain that investment by USPTO
users--without it being diverted to other unrelated Government programs--
the Committee is convinced that it will be able to handle the exponential
growth of projected workload. If not, the Committee is gravely concerned
that the USPTO will become a bottleneck to small inventors and corporate
America and to technological and economical growth generally.
The Committee believes that we cannot permit this to happen.
The P-PAC's first meeting was on August 23, 2000, which was a public
meeting to broadly review the USPTO's policies, goals and performance.
The transcript of the public meeting is available on the Internet.6
Prior to the public meeting, the P-PAC was briefed by the Under Secretary
of Commerce and Director of the USPTO, Q. Todd Dickinson, Commissioner of
Patents, Nicholas Godici, and members of the staff, including Chief
Financial Officer and Chief Administrative Officer, Clarence C. Crawford,
to acquaint the P-PAC with current USPTO activities, and to tour the
facilities. The P-PAC has reviewed rule packages on user fees, legislative
implementation and business goals that were in the comment and finalization
process. The institution of the P-PAC after initiation of the rulemaking
process for numerous rule packages prevented the P-PAC?s advisory function
on the front end of the rulemaking process in the last fiscal year.
The P-PAC met on October 11, 2000, in Executive Session to review and
provide comments on the draft USPTO budget for 2002. The budget is
privileged and confidential, and the 2002 budget will not be referred to
specifically in this report. However, there are significant budget issues
that override the operations of the USPTO apart from the review of the 2002
budget that will be the subject of the first section of this report.
Although the P-PAC was in operation for only a part of the last fiscal
year, it has had an opportunity to work with the USPTO and prepare this
report on important issues for the USPTO and user community. The report
will be broken out in sections that correspond to the categories for
statutory review by the P-PAC.
BUDGET
There is a budget crisis at the USPTO that will adversely and seriously
impact future operations, particularly with the escalation of patent
application filings and the desire to enhance the quality of issued
patents. The only funding comes from users of the USPTO, primarily patent
applicants. The USPTO operates on cost-based accounting so that the work
performed on processing and examining the patent applications relates
directly to fees paid by applicants.
The USPTO has endeavored to fulfill its role to examine and issue
patents despite the diversion of significant fee income from its users.
The USPTO has not been able to retain all the income received from its
users, which has included a diversion of $108 million in Fiscal Year 1999,
$116 million in Fiscal Year 2000, and $113 million in Fiscal Year 2001.
This diversion has had its costs with the increasing number of applications
filed each year.
There is an insidious aspect to fee diversion. The USPTO has had to
defer certain imperatives in automation, electronic filing and other
implementation of technology to improve the current ability and efficiency
of the USPTO to handle increased workload and complex technologies. The
diversion of funds has also impaired the USPTO's ability to recruit new
examiners. There is a lack of adequate funds to hire the full complement
of examiners needed to keep up with the increased filings. Also, there is
more industry competition than ever for qualified graduates to work as
patent examiners, especially in the electrical engineering and computer
fields. The Office needs to be able to both operate in today's framework
and paper environment and have sufficient funds to build to the future and
move toward an electronic government environment.
The legislation creating this Committee also recast the USPTO as a
Performance-Based Organization (PBO), only the second in the U.S.
Government. To have a PBO operate without use of its own user fees defeats
the purpose. The value of a PBO is to measure the effectiveness of the
agency against the income received from its users for services.
The P-PAC unanimously passed a resolution at its August 23, 2000,
meeting strongly emphasizing the serious consequences of the budget
shortfall as one of our priorities in this Report. There must be a
permanent fix for access to all USPTO fees.
POLICIES AND GOALS
The P-PAC will review the policies and goals together since they are
interrelated. The USPTO has the exclusive statutory authority to issue
patents and administer other patent functions. Overlayed on the mandated
functions are the priorities on how to administer the functions, and
particularly the interaction with the USPTO user community -- its
customers. The policies and goals developed by the USPTO not only affect
its internal operations but also its users.
The USPTO has developed a Patent Strategic Plan for Fiscal Years 2002-
2006. The P-PAC has reviewed this Plan. There are five goals, and the
performance target rated Goal One is "Enhance the Quality of Our Products."
The P-PAC agrees that quality is a priority goal of the USPTO, and at its
public meeting resolved that the Director's and USPTO's top priority of
putting quality first is supported unanimously by the P-PAC. The
enhancement of the quality of issued patents is not a goal that can stand
without full funding levels at the USPTO.
The second goal is improvement of the quality of the USPTO's services,
which the P-PAC supports, and is closely tied to enhancing the quality of
the patents issued. The third goal is optimizing processing time. The
P-PAC agrees that processing should be secondary to quality goals, but the
severe delays in receiving patents will have adverse consequences. The
P-PAC agrees with the USPTO that quality should be the first priority. If
there are budget deficiencies, then processing time will increase rather
than sacrificing quality.
The P-PAC has concerns that processing delays may create an incorrect
public perception of the inability of the USPTO to do its job properly.
This is notwithstanding the recent legislation to assure patent terms if
there are processing delays in the USPTO. If the funds are not available
for both quality of examination and timely examination, the choice for
quality examination will be made, and the receipt of quality patents
in a timely manner will suffer. Application processing before allowance
consumes 93% of USPTO costs. However, this front-end process brings in only
43% of the fee income. The USPTO relies on issue fees and maintenance fee
income from patents previously granted to process applications. An increase
in Office cycle time delaying patent issuance and the maintenance fee
income stream would have an adverse impact on fee income.
Delay in processing patents, which may extend the life of the patents
past the 20 years from the filing date standard term, will impact consumers
and businesses alike. There will be a delay in the patented inventions
going into the public domain, which will affect future competition.
Patents are valuable assets for emerging technologies, such as
biotechnology, and start-ups in the Internet field need issued patents in
their asset portfolios to attract funding. Some important industries, such
as the computer chip technologies, have a relatively short product life.
Delay in issuing patents for these industries adversely impacts the market
development that comes with patent protection.
The P-PAC was briefed on the e-commerce e-government goals by the USPTO.
The programs include electronic filing of patent a pplications over the
Internet, searching and other processing of applications. The P-PAC will
continue to review and advise on these e-commerce initiatives. Progress in
the e-commerce area is tied directly to the funding to develop the
technical infrastructure and personnel training to implement the programs.
The P-PAC has been asked to provide comments on the following rule
packages since the formation of the Committee to the end of Fiscal Year
2000:
1. Changes to Implement the Patent Business Goals (RIN 0651-AA98)
2. Revision of Patent Fees for Fiscal Year 2001 (RIN 0651-AB01)
3. Rules to Implement Optional Inter Partes Reexamination Proceedings
(RIN 0651-AB04)
4. Changes to Implement Eighteen-Month Publication of Patent
Applications (RIN 0651-AB05)
5. Changes to Implement Patent Term Adjustment Under Twenty-Year Patent
Term (RIN 0651-AB06)
6. Utility Examination Guidelines (RIN 0651-AB09)
7. Guidelines for Examination of Patent Applications Under the 35 U.S.C.
112, 1 "Written Description" Requirement (RIN 0651-AB10)
8. Request for Continued Examination Practice and Changes to Provisional
Application Practice (RIN 0651-AB13)
9. Treatment of Unlocatable Application and Patent Files (RIN 0651-AB19)
10. Public Information, Freedom of Information and Privacy
(RIN 0651-AB21)
As previously discussed, the P-PAC was not in existence, and therefore
was not involved at the start of the rulemaking process this year. The
P-PAC looks forward to participating in providing meaningful input to the
USPTO in the next year. The USPTO is statutorily mandated by the AIPA to
conduct a Study of Alternative Fee Structures, which impacts both the p
olicy and user fees review role of the P-PAC. The Committee looks forward
to participating in this project if alternative fees are proposed by the
USPTO.
PERFORMANCE
The intent of Performance-Based Organizations in the public sector is to
replicate as nearly as possible market and competition factors found in the
private sector. The USPTO is a natural candidate for a PBO designation
because its fee structure revenue base essentially provides a private
sector-like bottom-line approach. For the PBO model to operate, however,
certain base conditions must be present. The most important of these are
the ability to predict and strategically utilize budgetary resources and
the ability to manage the human resources of the organization in a flexible
and strategic way. This means that PBOs must operate with substantially
more discretion than "average" public organizations. It also means that
PBO status needs to be flexible and responsive to changing market and
technological demands.
The overall performance of the USPTO is going to be increasingly
dependent on its ability to implement goals that parallel the development
of e-commerce in the private sector. The P-PAC strongly supports the
USPTO's initiatives and priorities to encourage electronic filing for
patent applications and the paperless processing and examination of those
applications. The USPTO has been hindered in implementing the e-government
initiative due to budgetary constraints. As previously reviewed, patent
application filings are continuing to grow every year. The USPTO, at this
point, is playing catch-up, building infrastructure and re-engineering the
internal operation of the patent examination process due to diversions of
user fees in earlier fiscal years.
USER FEES
The P-PAC has been asked to review rule packages, which comprised user
fee provisions, including the Revision of Patent Fees for Fiscal Year 2001;
Changes to Implement Eighteen-Month Publication of Patent Applications; and
Changes to Implement Patent Term Adjustment Under Twenty-Year Patent Term.
The P-PAC looks forward to working more closely with the USPTO on a
comprehensive fee study and proposals.
CONCLUSION
The P-PAC looks forward to its role in advising the USPTO for the next
year. The P-PAC is a resource for the USPTO during challenging times of
rapid technological advances impacting intellectual property protection.
1 American Inventors Protection Act of 1999 (AIPA); 35 U.S.C. 5(d).
2 AIPA, 35 U.S.C. 5(d)(2).
3 AIPA, 35 U.S.C. 5(b)(2).
4 AIPA, 35 U.S.C. 5(b)(3).
5 http://www.uspto.gov/web/offices/com/speeches/00-43.htm.
6 http://www.uspto.gov/web/offices/com/advisory/ppacmeet0008.html.