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Super Committee Considering an End to USPTO Fee Diversion

Written by: Bernard J. “Barney” Cassidy
Tessera Technologies, Inc.
Posted: November 9, 2011 @ 2:43 pm
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Today the U.S. patent community sits perilously in the path of an oncoming train. The Leahy-Smith America Invents Act (AIA) Act mandates – but fails to fund – a wholesale conversion of the USPTO from an expert examining agency to one that not only examines patents but also adjudicates patent disputes in ways that promise to be faster and cheaper than patent litigation in our courts.

Senator Kyl is raising PTO funding on the Super Committee.

Without predictable funding, the Congressionally mandated reforms of the AIA will likely turn out like the agency’s “fast track” and Detroit office initiatives: announced, planned, but then delayed by the lack of one essential element – money. Indeed, without predictable funding, the reforms mandated by the AIA will likely result in a greater patent backlog, significant additional delay in finalizing the value of disputed patents, and a confused and discouraged agency workforce, all of which will significantly delay the recovery of our national innovation-based economy.

The coming train wreck would have been avoided if the 95 Senators who voted for ending fee diversion (with the support of every significant stakeholder in the otherwise-divided patent community) had had their way. It can still be avoided at no cost to taxpayers. And it can be avoided quickly, before Thanksgiving’s leftovers are gone, via the Super Committee. Let me explain.

The USPTO is an entirely fee-funded agency. The revenue it collects from fees imposed on inventors and trademark filers is currently deposited in a special USPTO appropriations account in the Treasury. To obtain funding for its operations, the USPTO must request the revenue back from Congressional appropriators. Since the early 1990s, however, more than $1 billion has been diverted from the agency and spent on non-USPTO initiatives. As a result of this diversion, nearly 700,000 patents are waiting for a first review at the USPTO. Hundreds of thousands of patents that could help launch small businesses and create jobs are gathering dust at the USPTO due to the diversion of fees. In the just-ended Fiscal Year 2011, more than $200 million was diverted from USPTO. Section 42 of title 35, United States Code, requires that all fees collected by the Office are to be credited to the Patent and Trademark Office Appropriation Account in the Treasury of the United States. Unfortunately, USPTO has no access to these funds, which have been raided for other purposes.

The Senate went on record, as did the House Judiciary Committee, in supporting the principle that the USPTO could operate more efficiently and productively if the agency had full access to all of its fee-generated revenue. The Senate-passed patent reform bill (S. 23) created a USPTO revolving fund within the Treasury and allowed the agency to keep all of the funds it raises until expended. The revolving fund passed the Senate 95-5. The fund required the Director of the USPTO to submit an annual spending plan as well as an annual year-end report to the House and Senate Appropriations and Judiciary Committees. The House-reported patent reform bill (H.R. 1249) included the revolving fund. But jurisdictional objections from the Chairmen of the House Appropriations Committee and Budget Committee led to the provision’s removal on the House floor.

Many supporters of the AIA supported the revolving fund but did not want to risk complicating or preventing enactment of the bill by entertaining amendments on the Senate floor to either insert the revolving fund or improve the House-passed alternative language. Senate sponsors of the AIA and the revolving fund actively discouraged the consideration of floor amendments to the AIA and opposed an amendment by Senator Tom Coburn to re-insert it. Accordingly, when the AIA was finally enacted it essentially maintained the status quo when it comes to insuring that the USPTO will be funded.

In the meantime, Title 4 of the Budget Control Act of 2011 (BCA) established the Joint Select Committee on Deficit Reduction. The Select Committee – or the so-called “Super Committee” is given broad powers to produce legislation to reduce the deficit by $1.5 trillion over the fiscal years 2012 to 2021. The BCA places no restrictions on the scope of legislation the Super Committee can include in its final legislation other than that the final product must be approved by a majority of the Super Committee’s members. Any approved Select Committee bill must be transmitted to the full House and Senate by December 2, 2011 and voted on by the respective bodies by December 23, 2011. All points of order against the Super Committee’s proposal are waived and the measure cannot be amended. Accordingly, legislation that is made a part of the Super Committee’s proposal stands a very good chance of being enacted.

Standing Committees and individual Members of Congress have been submitting proposals to generate savings or revenues with the Super Committee. To date, there have been party line splits and divisions on most of the major revenue-related measure. Republicans have been focusing on cuts to entitlements and discretionary spending while Democrats have been insistent that any deal include tax increases and other revenue generating proposals. Last week, the talks seemed stalled but, in recent days, the prospects for a deal seem to be improving.

As the Super Committee struggles to find nearly $1.2 trillion in revenue or savings, they should take a serious look at the proposal to give the US Patent and Trademark Office greater control over its budget and fees by creating a revolving fund. At the request of many in the patent community, Senator Jon Kyl – a member of the Super Committee – is proposing that the Super Committee include the revolving fund. The Congressional Budget Office (CBO) has informally indicated that it will score the Kyl provision as saving $700 million over 10 years. By taking the USPTO out of the regular appropriations process, the creation of a revolving fund will take approximately $700 million off budget and help the Super Committee reach their goal. And – besides being a budget saver – the revolving fund is good policy.

Should a deal come together, the adoption of the revolving fund is one area where “modest” savings can be achieved. Given that out year cost-cutting pressures will likely increase pressure on Congress to raid the USPTO’s fees, the creation of a revolving fund for the PTO certainly is “consistent with the goal” of the Select Committee. Insuring that the $1.5 trillion in cuts are not disproportionately borne by inventors or at the expense of the innovation economy’s seed corn arguably justifies inclusion of the revolving fund in the BCA. And $700 million in savings could be one brick in the foundation of a package that makes more significant reforms.

In the end, winning support of a majority of the Members of the Select Committee is the beginning and end of what will be required to include the revolving fund in the Super Committee’s bill. It’s highly unlikely that fee diversion will influence any particular Member of the Select Committee’s vote one way or the other in the final product. So, with unanimous stakeholder support and overwhelming Congressional support on both sides of the aisle, this could be the sort of measure that might make its way into the final package, once a majority of the Select Committee Members becomes convinced to support it.

May I suggest that readers let the Super Committee know their views? The 12 Members of the Super Committee are:

House: James Clyburn (S.C.), Chris Van Hollen (Md.), Xavier Becerra (Cal.), Fred Upton (Mich.), Dave Camp (Mich.) and Jeb Hensarling (Texas).

Senate: Jon Kyl (Ariz.), Rob Portman (Ohio), Pat Toomey (Pa.), Max Baucus (Mont.), John Kerry (Mass.) and Patty Murray (Wash.).

Which is worse, a natural disaster that damages a nation’s economy, or a self-inflicted one of equal magnitude that occurs when an expert community can foresee a “train wreck” coming but does nothing about it? Surely the latter: we can’t just blame it on the weather.

 

About the Author

Bernard J. “Barney” Cassidy is general counsel and executive vice president of Tessera Technologies, Inc., a Silicon Valley company that develops, invests in, licenses and delivers innovative miniaturization technologies and products for next-generation electronic devices.

PLEASE NOTE: The views expressed in this article are the author's and not necessarily the views of Tessera Technologies, Inc.


8 comments
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  1. Great article. Mr. Cassidy

    Although from personal experience, Portman has been less then stellar at even acknowledging the content of inputs.

  2. “By taking the USPTO out of the regular appropriations process, the creation of a revolving fund will take approximately $700 million off budget and help the Super Committee reach their goal.”

    Diverting less fee revenue from the PTO to general government purposes counts as a money-saving budget cut for the government? This is a joke, right? I’ve read it a bunch of times, and I still don’t know what I’m missing.

    If this is “one brick in the foundation of a package that makes more significant reforms”, I hope I never need to rely on that foundation for support.

  3. Barney-

    Thanks a lot for letting us know about this, as it sounds like a great way to get rid of fee diversion that other congressfolks won’t be able to prevent. Luckily my Senator Murray is on the committee, so I will do my best to try to get her to support Senator Kyl’s proposal. Kudos to Senator Kyl for his efforts, and I certainly hope he is successful, and that the bill doesn’t get stalled by partisan politics. Time to get on the phone and see if I can find the right staffer to talk to.

    Stan~

  4. BTW- For those trying to contact their Congress folks, you will probably want to Call them, instead of e-mailing them, as I have found that e-mails seem to take at least two weeks to get through, and I think time is a real issue in this case.
    Stan~

  5. Barney,
    Please respond to IANAE comments. I am also confused by your diversion/cost saving logic.

  6. Dave and IANAE-

    One factor is that if Kappos and et al can get funded adequately, they might be able to double the amount of patent applications that they are able to process in the coming years. I wonder how much That might be worth to the US economy? Possibly many billions, and who knows how many new *good* jobs here in the US?

  7. My non-expert understanding is that in general the federal government’s accounting system allocates spending into two buckets: discretionary (i.e., subject to the appropriations process) or mandatory (i.e., outside of the appropriations process). If the revolving fund supported by 95 Senators were created to end the diversion of the USPTO fees paid by the patent community, the accountants would shift that spending from the discretionary bucket to the mandatory bucket.

    When spending is discretionary, any incoming revenue is deemed “spent” when Congress appropriates the money into a Treasury account. When mandatory, it is not deemed “spent” until it is actually spent out of a Treasury account.

    Switching buckets would build in delay between the collection and spending of USPTO funds, and thus those funds would earn interest “savings” – which add up to $700 million over ten years. Accordingly, the Congressional Budget Office has indicated to Sen. Kyl and others in Congress that the creation of a revolving fund will “score” as a producing a net benefit to the Treasury.

    For the record, my aim is to end fee diversion so that the USPTO can effectively execute the significantly enlarged role Congress mandated for the agency under the America Invents Act. Ending fee diversion by creating a revolving fund – and insuring that each dollar paid to the USPTO is spent by the USPTO – is the “brick in the foundation” of reforms to which I was referring. My fear is that if the patent community stands by and does nothing, the result will be a new layer of delay and uncertainty about patent rights, causing significant harm to the hoped-for recovery of the nation’s innovation-based economy.

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