USPTO diverts funds to Commerce Department as user fee increases are prepared

By Gene Quinn
March 6, 2017

USPTOLast week the Patent Public Advisory Committee (PPAC) held its quarterly public meeting at the United States Patent and Trademark Office (USPTO) in Alexandria, Virginia. In a shocking revelation, Frank Murphy, Acting Chief Financial Officer, explained that the USPTO has been and will continue to make payments to the Department of Commerce under the shared services initiative, which is now known as “enterprise services.”

Not only are these payments to Commerce potentially (or perhaps likely) in violation of the America Invents Act (AIA), but they are being made at a time when the USPTO is suffering revenue shortfalls and is preparing to increase user fees. According to Murphy, the final fees rule will be submitted to the Administration soon, with fee increases likely by September.

The USPTO finds itself caught between the proverbial rock and a hard place. So much of the Office’s funding has historically come from maintenance fees paid by patent owners to continue to enjoy exclusive rights for the entire term of an issued patent. For example, in FY 2011, the USPTO collected $819.3 million in maintenance fees while only collecting $1,035.8 million related to work actually performed for fees collected during FY 2011. But the payment of maintenance fees depends upon patent owners applying for, receiving and then paying to keep the patents they receive.

In recent years, however, thanks in large part to the dismal record for patent owners in inter partes review (IPR) proceedings, an increasingly hostile Supreme Court, and Art Units dominated by America’s largest technology companies where allowance rates are under 5%, less is being obtained in the first place and then maintained even if a patent issues.  It should come as no surprise to anyone that the stakeholder community views many types of patents as harder to acquire and enforce and, therefore, not as valuable or desirable. The USPTO budget is far from secure.*

During the August 20, 2015, Patent Public Advisory Committee (PPAC) meeting, USPTO Director Michelle Lee first announced the shared services initiative. Lee explained this shared services initiative by saying that agencies falling under the Department of Commerce would utilize shared services for human resources, information technology and procurement functions. The fear then, however, was that with the USPTO being funded by user fees it would be required to pay for the IT and other needs of other Commerce agencies using funds that are supposed to be used only for the operation of the USPTO. See AIPLA letter to Secretary Pritzker and Under Secretary Lee. That is precisely what is happening now, only worse.

The new reality today is that the USPTO is paying for shared services that are simply not shared. According to Murphy, the USPTO will not be using the services because the USPTO systems are superior to the shared services being created. The USPTO is still, nonetheless, paying for the creation of these services.

Murphy explained:

“The PTO position has been and remains that we have independent authority over our administrative operations and if it makes sense for us to avail ourselves of those services we would like to do so, but we don’t want to have that as a mandatory because we actually have…  improved our IT services, our HR services our contracting services, so we are already performing at a higher standard than many of the agencies that would benefit from shared services, or enterprise services. That said, we also want the ability to opt-in in the future if we see that the service levels have improved or the cost has come down so we can get the bigger bang for the dollar. With that we have agreed to help with the stand up cost of the enterprise services center so we are paying a pro rata share, a fair share, for the stand up of the enterprise services center, but not for the operational or transactional cost because we are not participating in that.”

Bernie Knight, former USPTO General Counsel and current PPAC member, asked whether he heard Murphy correctly, that the USPTO is essentially going to pursue shared services on a “cafeteria basis which services we want to participate in, but we are still paying a pro rata share of the overall cost to set up the enterprise operation.” According to Murphy, when you built that cafeteria, if you did not participate in the stand up of the facility, then you’d be getting the benefit of what other people spent for free if you were to later enter the cafeteria to purchase something. That may be true, but what is fair or reasonable and what are legal are two different things.

“It just seems to me… that our appropriated fees have to go toward fulfilling the USPTO’s appropriated mission, and you may not buy any of these services if they don’t make any sense,” Knight responded. “So, basically in setting up this enterprise organization we are using user fees to help other Commerce Department bureaus and agencies and I’m not sure from my perspective whether that is a proper use of our appropriated funds.”

Knight would then ask Murphy how much money the USPTO has paid to Commerce. Murphy explained that the USPTO paid the Department of Commerce $6 million in appropriated funds (i.e., user fees) in 2016 and will pay another $13 million in 2017.

“From my perspective there is $20 million of user fees going toward a Commerce Department initiative that may never benefit the patent, copyright and trademark systems,” Knight said. “As an individual member of the PPAC I don’t mind saying that I question the appropriateness of that $20 million payment.”

Knight’s concern almost certainly centers around 35 USC 42(c)(3)(A), which was enacted as part of the AIA and says: “Any fees that are collected under this title, and any surcharges on such fees, may only be used for expenses of the Office relating to the processing of patent applications and for other activities, services, and materials relating to patents and to cover a proportionate share of the administrative costs of the Office.”

If the USPTO will not use shared (or enterprise) services it would seem that these payments from the USPTO to the Commerce Department represent a clear and direct violation of 35 USC 42(c)(3).

That the USPTO is making payments in clear violation of 35 USC 42(c)(3) is rather surprising, but this is being done at a time when the USPTO is saying they absolutely must raise user fees because the agency is out of money is shocking.

______________

* While it goes beyond the scope of this article, important questions need to be asked about whether raising fees is the appropriate response. The USPTO has taken on an arms dealer mentality and is hardly viewed as an honest broker anymore. From recalcitrant examiners who seem to see their job as harassing applicants (see here and here), to inordinate delays and unnecessary expense and filings, to post grant challenges that are far too easy. The USPTO charges to issue, they charge to take out patents in post grant, and if your post grant challenge is not accepted you get a refund. Anyone with their eyes even half open can easily see why the USPTO budget is in crisis, and raising fees isn’t the solution.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 29 Comments comments.

  1. STEVEN WEINRIEB March 6, 2017 12:56 pm

    This only underscores the short-sightedness of the USPTO in connection with their maintenance fees – even the largest companies permit a large % of their patents to lapse after the first 3.5 year maintenance fee payment has been made because the maintenance fees, particularly the second and third maintenance fees, have become so outrageously expensive.

  2. Anon March 6, 2017 1:05 pm

    I have been a rather vocal proponent for the necessary transperancy required as part of the AIA’s grant of more power to the administrative agency for fee setting.

    As my Uncle Ben was fond of saying, with great power comes great responsibility.

  3. angry dude March 6, 2017 1:06 pm

    Translation:

    We will continue to do poor underhanded examination arbitrarily allowing or rejecting patent applications
    But not to worry – we can always cancel any patent later if asked by our dear friends in SV corporate boardrooms

  4. Anon March 6, 2017 1:16 pm

    I will also posit (again), that if the current climate for such hostile treatment of granted patents continues, that a serious look at going to a pure registration system should be on the table, with the Office serving more of a cataloguing function (for pennies on the dollar).

    That cost of the system now – at the direct expense of the innovator community (and not even taking into account the type of skimming as presented in this article) – is several Billion dollars annually.

    Innovators simply deserve better.

  5. Anon March 6, 2017 1:26 pm

    “We” (i.e., some companies) need to find a way to make sure that independent inventors are priced out of the system. If that means giving away USPTO fees to prompt higher fees, so be it!

  6. Anon March 6, 2017 1:37 pm

    Thanks different Anon, unfortunately, such a view edges into the state of being reasonable, all things considered.

  7. Gene Quinn March 6, 2017 1:39 pm

    Anon @4-

    I agree. Unless there are going to be major (and I mean monumentally major) changes to process and substance, the USPTO should move to a pure registration system akin to the Copyright Office. We are at a point where there are really no rights unless the PTAB says there are rights, so the current system simply cannot be justified. If you want to file garbage that is what you would get. If you want to have a chance at something down the road then you will continue to file high quality patent applications with robust claims. But we need to stop pretending that examination means anything under the current system. Examination is a charade that only wastes 5 to 10 years, wastes many tens of thousands of dollars, and despite the law does not come with a presumption of validity.

  8. angry dude March 6, 2017 1:44 pm

    Anon @5

    what are you talking about, dude ?

    the whole “fee” thing is mockery and travesty

    so they have micro-entity status with some fees less than paying at no so good restaurant (e.g. provisional patent application filing fee)

    Who cares ???

    it’s just a bait – the real fees come later, in the form of PTAB and IPRs and those start at 300-500K, and if you are lucky (and rich) enough to survive those then be ready to pay 2M for litigation (cause no one else will – contingency patent litigators all went out of business – for a reason)

  9. Anon March 6, 2017 2:38 pm

    angry dude,

    Not everything should be looked at through your eyeglasses.

    What I am talking about it the multi-Billion dollar budget of the entire USPTO supported by innovator funding.

    Perhaps if you controlled your anger and acted in a slightly more helpful manner, you could have easily (and pleasantly) added that there is additional costs beyond the multi-Billion dollar innovater system costs of those costs more directly borne out by those dragged in for post-grant exercises.

    Believe it or not, we are on the same side and your disparagement of my post is neither necessary nor proper.

  10. step back March 6, 2017 3:08 pm

    Just another example of inventors being second class citizens.

    The money siphoned off to general funds is simply a tax.
    A tax levied specially on inventors simply because they are inventors.

  11. angry dude March 6, 2017 3:25 pm

    Anon @9

    Sorry, dude
    nothing personal and I don’t need eyeglasses – I have 20/20 vision unfortunately, so I can see right through all those machinations – have been watching them for the last 14 years…

    step back is right – this is a tax on inventors and we do not get anything for this, not even adequate patent examination
    When I pay property tax I get some services like garbage pickup etc.
    I did not get anything from USPTO – it’s total waste
    The paper patent they issued me is not even presumed valid under today’s standards (after Alice etc)
    Of course, there is nothing abstract about my patent but it was written in accordance with “best teachings” of claim writing 14 years ago
    Apparently those “best teachings” turned out to be worst teachings

  12. To the board we go ..... March 6, 2017 6:06 pm

    Count Monday extended again because of IT malfunction. This has been a reoccurring theme for the last several months. The diverted money should go to our own IT infrastructure. I find it funny that they say our IT resources are superior, so they won’t use the commerce resources.

    If our IT resources are superior, I would hate to see what the commerce resources are.

    Keep in mind that extending count Monday doesn’t help since the Examiner doesn’t get to make up the lost time.

    When our search databases, docket and office action writing tools are down, what exactly is an Examiner supposed to be doing with their time?

  13. To the board we go ..... March 6, 2017 6:16 pm

    Furthermore….

    When our search databases are down, we are supposed to consider using GOOGLE patents. However, we have been specifically told to limit what we search for in GOOGLE since GOOGLE records everything……which may violate confidentially rules.

    With all the new things we are supposed to be doing (i.e., small things that are not related to actual patent prosecution),I sometimes wonder if the tail is wagging the dog at the PTO.

    I can’t believe I am saying this, but sometimes I miss Dudas.

  14. step back March 6, 2017 6:39 pm

    @12 Board
    I think you should tell readers that you are talking about the PTO’s Electronic Filing System (EFS) being down today. Other wise they wouldn’t know.

    So the examiner search tools went down too?
    Good thing “the Director” is always here to help. 😉

  15. Anon March 6, 2017 6:58 pm

    However, we have been specifically told to limit what we search for in GOOGLE since GOOGLE records everything……which may violate confidentially rules.

    May…?

    I can’t believe I am saying this, but sometimes I miss Dudas.

    …that needs some substantial explaining… (as any type of “rubber-stamping, either Reject Reject Reject or Approve Approve Approve is simply not what those wanting strong patents want)

  16. To the board we go..... March 6, 2017 7:17 pm

    Step back….

    The email I have says east, west, and oacs was down. I had oacs issues. By the time I used east, it was working, but slowly.

  17. To the board we go .... March 6, 2017 7:33 pm

    Anon…

    I was being facetious about Dudas. Sorry if that was not clear. Under Dudas it seemed that there was this idea of reject for the sake of rejecting, which I don’t agree with. But everyone at the PTO knows Dudas wasn’t running the PTO. It was Stoll.

    I actually miss Focarino. I can’t comment to how you all feel about her, but she seemed very genuine.

    There are a lot of Examiners that take their job seriously and are not rejecting or allowing for the sake of rejecting or allowing. Interesting note….under Kappos there was a huge push to allow cases to reduce the backlog. There seemed to be this reoccurring theme about what the Examiner can do to allow claims (e.g., proposed Examiner’s amendments, etc.)

  18. To the board we go.... March 6, 2017 8:07 pm

    Anon….

    Let me explain further….under Dudas, the IT infrastructure worked. I am sure it has happened, but I can’t remember a time when count Monday was extended because of IT issues under Dudas. Now it’s a reoccurring theme. There are many reasons IT doesn’t work at the PTO, most probably wouldn’t have been solved by Dudas. My point being that I would expect the current director, coming from GOOGLE, would have a better handle on this issue.

    As far as confidentiality issues arising from searching GOOGLE patents, I agree with this statement. My point was that it’s completely ridiculous to tell an Examiner they can still search for the invention when the internal databases are down, but at the same time an Examiner can not really search for the invention.

    The practitioners on this website and others constantly complain about Examiner quality. However, I would propose that a large part of this quality issue is directly related to how Examiners are trained as well as the lack of resources available to them.

    How can an Examiner lose 5 hours a bi-week due to internal issues, but still be expected to prosecute with the same quality? Some would say that Examiners need to be more efficient. But I think what is really happening is that some Examiners are rushing to get through cases with reduced time, which affects quality. I am not saying this should be condoned. I am saying this is a fact.

    Before the current director, I never worked VOT to finish a case. Now I find myself working the weekends often due to stupid things. Think about this….the new interview summary form they introduced is terrible. I can spend 15 more minutes than usual just to fill out the damn form even though it doesn’t add much information. The extra time is related to the “bugs” in the software. I know Examiners who will do everything they can to avoid an interview just so they don’t have to use the new form. I am not saying this is the right thing to do….I’m simply saying those are the facts. I could give 5 more examples like this. It would blow your mind to know what it now takes to create the bib data sheet. Also, some documents can’t even be changed into text form in our docket.

    The entire IT infrastructure at the PTO has turned into a huge pile of poop. Just my opinion.

  19. To the board we go..... March 6, 2017 8:17 pm

    Step back…

    Check your work email from between 12-1pm. It was addressed to all patent employees and is from ADCs. The subject is EAST, WEST and OACS issues…..

  20. To the board we go .... March 6, 2017 8:26 pm

    Step back…..

    I just realized you may not be a PTO employee. Sorry to here the EFS was down today too, especially since an attorney I talked to today HAD to file something electronically today.

  21. step back March 6, 2017 9:54 pm

    @20 Nope. Not one of the PTO insiders. Just another deceivious scrivener as the SCOTeti like to refer to us. 🙂

  22. angry dude March 6, 2017 10:50 pm

    My patent has signature of Dudas (granted in 2006)

    They still had some good professional examiners back then and the whole thing was more or less reasonable: in the first office action I got a partial allowance but initial rejection of all independent claims.
    But it was pretty clear that examiner didn’t completely understand the essence and true scope of the invention
    A personal interview (with my attorney by my side) helped to straighten him out
    – I even got 6 additional claims allowed
    I must say I miss Dudas too…
    (not that I am applying for any patents today – it would be sheer madness)

  23. Examiner thoughts ... March 7, 2017 12:07 am

    @to the board we go ….

    I agree with everything you said. Being a pretty new examiner, I try my best to keep up with the quality. The training was great, however, the training needs to continue as true ‘on-the-job’ technical/tips related sessions here and there. A lot of smart people join here but the nature of the job along with the time crunch with the IT issues as cherry on the top makes any examiner’s life harder than what a lot of outsiders may think. Result: gradual compromise on quality throughout career. Again, in not saying everyone does that. But I would just say everyone needs to understand a bit more of how it goes on the other side. Just like a good examiner has to find a balance between time and quality, so does the attorney. In an ideal world, the inventor and his/her great inventions should be looked at with real attn before an unnecessary lengthy prosecution or a rather hasty issuance. I don’t know how all these will be fixed and I’m not very up to date with the history of all the leaders here. But I hope at least IT issues get resolved soon so we can focus on the real problems and work with others to get things going.

  24. Night Writer March 7, 2017 6:21 am

    The maintenance fee increases are just another diminishment of the patent right. You get a granted patent that is greatly diminished because of IPRs and then to even keep it you have to pay huge maintenance fees.

    Maybe the registration system is the way to go. I guess the only problem is the cause of action in federal court. The federal courts might get an awful lot of patent lawsuits from inventors that wrote their own patent applications through the registration system. Other than that, I don’t see a problem.

    The more they diminish what the examiners are doing –i.e., no presumption of validity at the post-grant procedure and huge maintenance fees–the less it makes sense to have examiners. Plus, you could use the foreign systems to prosecute your patent.

    Very sad, but I think it nearly makes sense to turn it into an examination system where when you assert it then you have to get it examined.

  25. Night Writer March 7, 2017 6:22 am

    to the board–I have been harping on the contention that the best way to improve quality is to improve search by giving the examiners betters tools, more time,and better training. (And changing the rules so it is harder for people to change the claims without a new search).

    Make it as good as the EPO search and the quality would soar.

  26. Eric Berend March 7, 2017 6:41 am

    At this point, the entire charade purporting to maintain a bargain of opportunity in exchange for disclosure with inventors; now bears a mere cosmetic resemblance to the past.

    At this astonishingly awful stage of affairs, any inventor who understands the scope and magnitude of this destruction of our property protection rights, on such specious and essentially hateful basis, is abandoning his or her dignity, to not have enormous contempt for vast majority of everyone involved with patents.

    Angry dude is absolutely correct – his tone may be rather bitter and intense; however, that criticism against him – if one dares levy it – fails to recognize the large chunk of his life wasted; as others enjoy being unjustly enriched over his intellectual property, and while the banal crowds condescendingly and self-righteously pour hatred on his very avocation.

  27. Anon March 7, 2017 7:49 am

    Eric,

    My criticism of angry dude does not belittle his feelings. Certainly, he has been (at least self-perceived) greatly pained.

    My criticism has more to do with how those feelings can be turned into a force of positive change.

    There is a huge difference.

  28. step back March 10, 2017 2:57 pm

    @26 Eric

    You are right.
    The judges hate inventors.
    You guys are a bunch of techno smarty pants who make the judges feel inadequate.
    So they lash out ….

    http://patentu.blogspot.com/2017/03/loath-and-disdain-cause-inventor-dared.html

  29. Night Writer March 11, 2017 2:34 pm

    >>as others enjoy being unjustly enriched over his intellectual property, and while >>the banal crowds condescendingly and self-righteously pour hatred on his very >>avocation.

    The others are fueled by K Street paid for by Google bucks.