Earlier this year we learned that General Electric (NYSE:GE) paid no taxes for 2010. See G.E.’s Strategies Let It Avoid Taxes Altogether. Yes, the largest corporation in the United States had a very good 2010. They booked over $14 billion in profits, with over $5 billion coming from U.S. operations, yet they paid not a dime in taxes to the Federal Government. To add insult to injury, General Electric was able to claim a tax benefit of $3.2 billion for 2010, making its effective tax rate for 2010 substantially negative.
But General Electric was not the only large U.S. corporation not to pay taxes. According to Citizens for Tax Justice, General Electric had some company. In fact, American Electric Power, Dupont, Verizon, Boeing, Wells Fargo, FedEx and Honeywell all had tax rates between -0.7 percent and -9.2 percent for the stretch between 2008 to 2010. See Study finds many corporations pay tax rate of effectively zero.
On the other hand, the United States Patent and Trademark Office continues to have user funds siphoned off, making the USPTO a much larger taxpayer than the largest U.S. corporations.
The United States Patent and Trademark Office is a user funded agency, making it unlike any other government agency. One-hundred percent of the funds the USPTO utilizes for operations comes from users. Said another way, not a dime of taxpayer money goes to fund the operations of the United States Patent and Trademark Office.
To the contrary, Congress siphons off money paid by the users of the USPTO to fund other, completely non-related government activities. This happens because Congress appropriates money every year for the operation of the Patent and Trademark Office. The USPTO estimates how much in fees they will collect, and is appropriated money. If user demand is higher than anticipated, which is virtually always the case, the USPTO brings in more work than anticipated, they collect more fees than anticipated, the excess goes into the general Treasury fund, but the USPTO now has more work than anticipated but no additional revenue. Everyone in business knows that is a recipe for disaster. Since this has been going on since 1992 and approximately $1 billion has been siphoned off since then, it is easy to understand why the Patent Office is so hopelessly behind in processing patent applications.
Indeed, as the summer of 2010 was winding down the Patent Office was running out of money. There was going to be $200 million siphoned off by Congress. At the last minute Congress authorized the USPTO to keep $129 million dollars, which was nice, but that still means that $71 million of user fees paid for services to be rendered was denied the Patent and Trademark Office. And Congress has the audacity to complain about how the IT infrastructure of the Office is ridiculously inadequate and dilapidated? Congress has the audacity to complain about the backlog? They are the problem!
When the Patent and Trademark Office is denied access to the fees it collects and monies are passed through to the Treasury for other purposes that amounts to a National Innovation Tax. This year the USPTO is on course to collect between $300 and $400 million more than they have been allocated, which is roughly 15% to 20% of their budget. So while the largest U.S. corporations pay nothing in taxes and even book tax benefits, the U.S. innovation agency will pay somewhere between $300 to $400 million to the general Treasury to be used for purposes other than running the Office.
Referring to the siphoning off of user fees as a National Innovation Tax is the only intellectually honest way to characterize what is going on with the USPTO budget. Like every other tax on an entity it is ultimately paid by the users. Unlike other forms of taxation, however, the users do not get the services or a functioning Office. Instead of being able to set fees high enough account for the tax-man, the USPTO is literally forced to pay the Treasury amounts over what was projected and then has to figure out a way to do the work promised without funding. It doesn’t take a rocket scientist to understand that will cause a collapse of the system. It has seemed to elude the collective understanding of Members of Congress though.
As patent reform efforts worked their way through the United States Senate, Senator Tom Coburn (R-OK) filed an amendment and ultimately managed to gain enough support to once and for all end fee diversion, guaranteeing that the funds collected by the USPTO went to USPTO operations. The Senate passed patent reform by a 95-5 margin. It went to the House where Appropriators and Budget Committee Members protested. The USPTO should have funds appropriated and not be self sufficient. They promise to appropriate all the money the USPTO collects, but then why demand language in House patent reform that doesn’t mandate that? To steal a famous quote: I smell a rat!
Yesterday the Obama Administration released an Statement of Administration Policy. It explained:
To carry out the new mandates of the legislation and reduce delays in the patent application process, the USPTO must be able to use all the fees it collects to serve the users who pay those fees. In this light, the Administration is concerned that Section 22 of the Manager’s Amendment to H.R. 1249 does not by itself ensure such access.
So here we go again! The House is currently debating patent reform, and a vote seems imminent.
The ONLY thing that every stakeholder agrees on relating to patent reform is that the United States Patent and Trademark Office should be allowed to keep 100% of the fees it collects. It should be self sufficient, self funded and Congress should stop fee diversion once and for all. Yet, we seem destined to get patent reform that reforms little, changes a lot, adds burdens to the Patent Office and continues to perpetuate the cycle of the Patent Office being hostage to the appropriations of a Congress that seems incapable or unwilling to do the clearly correct thing relating to funding the USPTO.
Patent reform without ending fee diversion is nothing short of rearranging the chairs on the deck of a sinking ship. Patent reform without an end to fee diversion will do no good for the system, change law for the sake of change and will almost certainly do real harm to an already beleaguered patent system. Simply stated, patent reform without an end to fee diversion is a bad idea.