The Patent and Trademark Office Desperately Needs Financial Independence

Monday, July 25th, 2011

It’s effectively a Ponzi scheme. It depends on a large stream of payments from new customers to fund serving those who have already paid in full. It has a huge unfunded liability in the form of future commitments for which the government has no backing assets. An economic downturn is calamitous because new-customer payments drop precipitously while fully-paid customers still must be served.

Worst of all, in recent decades, Congress has repeatedly redirected customer payments for other purposes, thereby exacerbating the system’s financial woes.

Social Security? Public employee pensions? Well, them too, but I’m talking about the U.S. Patent and Trademark Office.

Since 1992, Congress has diverted for other purposes approximately $900 million in fees paid to the Office by its users.

This fee diversion is a major reason why the Office has a huge patent application backlog. The Office desperately needs to hire thousands of additional patent examiners to catch up.

Presently, the average time from patent application filing to the issuance of a patent or final denial of the application is over 33 months. It takes on average over 27 months to get just an initial response to a patent application. The Office has approximately 700,000 unexamined patent applications. At its current staffing levels, if no other patent applications were filed, it would take the Office over 22 months just to process this backlog.

And it wouldn’t have the money to do so. The Office receives no money other than the fees paid to it by patent (and trademark registration) applicants and owners. The patent part of the Office depends entirely on new fee payments to fund providing services to those who’ve already paid their fees.

The solution hangs in the balance between a bill the Senate passed in March and an amended version the House passed in June.

Congress is considering legislation to massively overhaul our patent laws. The version passed by the Senate would permit the Office to keep all of the fees it receives. This would stop future Congressional appropriations committees from diverting the Office’s fee revenues for other purposes.

When the House considered the Senate’s bill, it gutted this funding reform. The House decided that Congressional appropriations committees should continue to determine how much fee revenue the Office keeps.

The House’s position would undermine support for other financial help for the Office that is in the reform bills. The Office persuaded the intellectual property community to agree that the Office should be given the ability to raise user fees without Congressional approval and that it should be permitted to impose temporary surcharges on patent fees.

This additional money is needed for the Office to try to reach its backlog-reduction goals. But the intellectual property community will not support those provisions if Congress might take the new revenue away from the Office.

The Senate will act next. It could adopt the House’s position or stand by what it passed already. Any differences would have to be worked out in reconciliation and then pass both houses of Congress again. Senator Tom Coburn is pushing the Senate to stand firm and give the Office financial independence.

All of this is on hold because of the federal debt crisis. In theory, the Senate-House difference ought to be resolved quickly once the crisis has passed. Yet, the larger patent reform effort has been bouncing around Congress for several years.

Our economy is increasingly dependent on the financial success of information technology investments. The most valuable patent years for IT inventions are often the first few years after the invention is launched as a product. The slowness of the patent process is preventing the obtaining of patent protection for IT inventions during those critical early years. This discourages investment in developing these products and, thus, hurts our economy.

By John B. Farmer
Published in the Richmond Times-Dispatch
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