2013 turned out to be a very big year for IP, and especially patents, and the year took a course that few would have predicted this time last year. At that time, the senior team at the PTO was primarily focused on the imminent departure of our then-boss, David Kappos, and the end of what had clearly been an extraordinarily active and successful tenure. The AIA had been almost entirely implemented, the new Patent Trial and Appeal Board was up and running, and most of us expected 2013 to be focused on implementation and execution of the AIA and the other initiatives that had been set in motion under Director Kappos.
But things turned out rather differently. Nobody would have predicted a year ago that President Obama would personally call for additional patent reform legislation to curb patent troll litigation. Or that a comprehensive patent litigation reform bill would speed through the House by a lopsided margin and be heading to Senate consideration with a full head of steam. Nobody also would have predicted that the USPTO would also fall victim to sequestration and once again be denied full access to its fees so shortly after the passage of the AIA, which held forth the promise of full access to fees. And few would have predicted that the PTO would be without stable political leadership since Dave Kappos left eleven months ago. Or that a new Chief of Staff and a new Deputy and Acting Director would be named before a new Director was nominated. This unusual and lengthy transition period has caused understandable concern in the IP community, but we should all be pleased that a new Acting Director has been named and will take the reins on an acting basis in just two weeks.
Yesterday, the House Judiciary Committee held a hearing on the “Innovation Act,” HR 3309, a bill sponsored by the Chairman of the House Judiciary Committee and co-sponsored by 10 other Members from both sides of the aisle, including the Chairman of the IP Subcommittee.
The hearing focused on the effect the Innovation Act would have on the problem of abusive litigation practices and on the patent system as a whole. Three central themes emerged from the hearing: 1) there is an urgent need to fully fund the PTO; 2) significant skepticism remains about expansion of the Covered Business Method (“CBM”) program; and 3) some of the more technical aspects of the Innovation Act would help rid the patent system of expensive and wasteful lawsuits. Divergence of opinion remained among the Members, however, about whether Congress should address fee shifting at this time or wait for the Supreme Court to hear the two fee shifting cases before it, although the witnesses agreed that legislation on fee shifting would be helpful, and Congress should proceed with legislation on this front.
Note when reading the report below that the “Innovation Act,” HR 3309, is different than the “Innovation Protection Act,” HR 3349. The Innovation Act is the patent litigation reform measure introduced by House Judiciary Committee Goodlatte and others. The Innovation Protection Act is the PTO funding bill introduced by House Judiciary Committee Ranking Member Conyers and others.
The letter to Congressmen Wolf and Fattah was short and to the point, saying: “We write to request your assistance in addressing the Office of Management and Budget’s (OMB) recent decision to sequester user fees which fund the United States Patent and Trademark Office (USPTO). As a result, almost $150 million in inventors’ fees in Fiscal Year 2013 have been locked in USPTO’s general fund. We request that the Approrpiations Committee allow USPTO to access the sequestered user fee funds.”
Even though the USPTO is funded solely by patent user fees, the sequester requires cuts of nearly $150 million in the agency’s funding. Without a legislative remedy, the shortfall effectively stops the agency from opening new, highly anticipated regional patent offices across the country, including one located in Silicon Valley. See USPTO Announces Satellite Office Locations. Not surprisingly, each of the sponsors of the bill represent districts in Northern California in the greater San Jose area, which explains their keen interest in the opening of the Silicon Valley satellite Patent Office location. Honda represents the 17th District, Lofgren represents the 19th District and Eshoo represents the 18th District.
The PATENT Jobs Act would enable USPTO to access the fee revenue sequestered in Fiscal Year 2013, which would otherwise sit unused and untouchable, and would add the USPTO to the list of agencies exempt from sequestration orders. This is not a new budgetary concept. Congress has recognized the uniqueness of user-fee-funded agencies in the past, exempting them from sequestration in the Statutory Pay-As-You-Go Act of 2010. The legislation follows a bipartisan letter sent earlier this week by members of the California delegation to the Commerce, Justice, and Science Appropriations Subcommittee asking for a remedy.
On Tuesday, May 21, 2013, Jeffery Lewis, who is the President of the American Intellectual Property Law Association (AIPLA), sent a letter to Sylvia Matthews Burwell, who is the Director of the Office of Management and Budget (OMB). In this letter Lewis, speaking on behalf of the AIPLA and its 15,000 members, challenged the legal interpretation of the budget cuts the Obama Administration says are required of the USPTO thanks to sequestration.
In the letter Lewis points out that the USPTO is at a critical point in the implementation of the America Invents Act (AIA), and this significant reduction in USPTO funding is based on an erroneous legal interpretation. Lewis also points out that the cut in funding to the USPTO is contrary to the promises made at the time the AIA was passed.
Those of us who followed the AIA debate and passage knew that it would only be a matter of time before the government reneged on its assurances that the USPTO would be allowed to keep 100% of the fees it collected. Senator Tom Coburn (R-OK) championed an amendment that ultimately failed, which would put into the Statute the requirement that 100% of fees collected be allowed to be used by the USPTO. That was rejected by Republican House leaders, who in turn promised in a letter that they would still provide 100% funding. A promise in a letter is, of course, worthless in Washington, DC.
In this installment, the third and final segment of my interview with David Kappos, Under Secretary of Commerce for Intellectual Property and the Director of the United States Patent and Trademark Office, we learn from Director Kappos that the USPTO budget is not a problem whatsoever. While it is well known that the Office did not achieve a permanent end to fee diversion, less well known is the fact that Congress appropriated $2.7 billion for the USPTO for this fiscal year. The USPTO is NOT operating under a Continuing Resolution (CR) as is the case with most of the rest of the federal government. Furthermore, current projections have the USPTO collecting $2.5 billion in fees this fiscal year, so there will be a $200 million subsidizing of the USPTO by the General Treasury.
In this segment Kappos also says that the USPTO is looking to hire 80 more Judges for the Board of Patent Appeals. “Tell your readers, if you’re an experienced patent attorney and you want to have a great career move, we give you a robe and a wig and a gavel and you get to be a judge,” Kappos said. We also discuss the Detroit Satellite Office and Director Kappos’ thoughts on harmonization.
News broke several days ago that Senator Jon Kyl (R-AZ) has raised the issue of funding for the United States Patent and Trademark Office in his role as a member of the so-called Super Committee, which is charged with finding $1.2 trillion in budget cuts over the next 10 years. See Super Committee Considering an End to USPTO Fee Diversion. This means the patent community has another chance to urge Congress to do the right thing and adequately fund the USPTO. Everyone in the patent community can and should get involved and be heard — patent attorneys, patent agents, patent bar groups, patent bloggers, corporations, inventor groups, inventors and industry organizations such as the ABA IP Section, the AIPLA and IPO. It is time to get involved!
Many will recall that recently we came up to the doorstep of putting an end to fee diversion through the creation of a revolving fund for the USPTO. The revolving fund proposed by Senator Tom Coburn (R-OK), would have tied a revolving fund together with taking the USPTO out of the appropriations process. This would have meant that the USPTO would be guaranteed to keep 100% of the user fees collected without Congress being able to divert fees over and above what they specifically appropriated. The revolving fund made it into the enacted America Invents Act, but not the part about taking the USPTO out of the regular appropriations process, which essentially just kept the status quo.
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.