AIPLA Challenges OMB on USPTO Sequestration Funding

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.

Without it being written into the law it was merely an assurance without any obligation. The unfortunate reality is our leaders — on both sides of the aisle — make grandiose promises and then never follow through. Broken promises are cheaper than a dime a dozen in Washington, DC. So without protection for the USPTO written into the law it was only a matter of time before inadequate funding of the USPTO became an issue again. Fee diversion (i.e., confiscating money paid to the USPTO by customers) has a long history that spans at least two decades and three different Presidents, although for a brief time during the Bush Administration it did cease thanks to the efforts of then Director Jon Dudas.

So here we are again. We knew it would happen, but few probably predicted it would happen so soon.

In any event, here are some of the highlights of the AIPLA letter to OMB:

“The USPTO has already made known some of the negative impacts which sequestration will have on its work, and any delay in these improvements represents a major step back from the commitment of the Administration to the AIA and a fundamental challenge to the innovation and job creation these improvements represent.”

“[T]o help fund the new programs and initiatives of the AIA, Section 11 included a 15% surcharge on patent fees, and Section 10 granted the USPTO the authority to set the fees for patent and trademark services. A new patent fee schedule, which included increases for numerous patent services, went into effect on March 19, 2013. Support for these fee increases by AIPLA and others in the user community were based on the understanding that the funds would be available solely to the USPTO…”

“We also believe that the interpretation of the sequestration statute by the Office of Management and Budget (OMB) as it applies to the USPTO is inaccurate and will have a compounding impact on the USPTO’s operations for FY 2013 and into the future.”

“[W]e have serious doubts that the USPTO is lawfully subject to sequestration in the first place because it is funded through fee collections, not through government spending.”

“We believe that [the procedures being applied] restricts the spending authority of fee funded agencies and impacts them asymmetrically and unfairly relative to non-fee funded bodies.”

“President Obama recognized the vital need for resources at the USPTO both when he signed the AIA in September 2011, and when he released his budget for FY 2014 on April 10, 2013… OMB’s apparent reinterpretation of sequestration’s impact on the USPTO runs counter to that goal, counter to the agreement underlying the adoption of the AIA and the Administration’s strong support for it, and will send the wrong message about the Administration’s support of the innovation community.”

Gene Quinn Gene Quinn is a patent attorney and a leading commentator on patent law and innovation policy. Mr. Quinn has twice been named one of the top 50 most influential people [...see more]

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Join the Discussion

5 comments so far.

Ron Katznelson
May 27, 2013 04:01 am
Scott,
You are not missing much here, except that your observations were applicable even before passage of the AIA. There are now two PTO funds accumulation mechanisms: the first existed before passage of the AIA – the “Patent and Trademark Office Appropriation Account in the Treasury of the United States” under 35 U.S.C. § 42(b), which is where user fees are paid into. However, the PTO cannot spend it without Congressional appropriations. Technically, over $1 billion is now “held” at this Treasury account, and the PTO shows this amount on its balance sheet. The AIA makes no change here—§ 42(b) still withholds the PTO’s authority to spend the money it collects unless and until Congress appropriates it.

The second funding mechanism was provided by the AIA which added § 42(c)(2) establishing the “Patent and Trademark Fee Reserve Fund.” This fund is credited by fees collected over the amount appropriated to the PTO for any fiscal year but it too can be spent only “to the extent and in the amounts provided in appropriations acts.”

So your correct interpretation that we should “require that any sequestered fees be set aside in a reserve fund for later use by the PTO” is already in effect today, as it was in effect for the last two decades – money is waiting to be appropriated by Congress; it shows on PTO’s balance sheet every year but we will never see it spent by PTO. The only fees now made available to PTO until expended without fiscal year appropriations are fees collected from prioritized examinations – only a very small fraction of fee revenues.

The patent user community, particularly the AIPLA which now complains to OMB, has to blame itself for blindly supporting the PTO’s front-end application fee increases averaging 35% on top of the 15% surcharge of the AIA (yes!, 50% increase since passage of the AIA). The AIPLA did not complain then to OMB when the PTO set punitive fees for excess claims, appeals and RCEs. The PTO admitted that these fees are designed to “discourage certain applicant activities,” which is legally none other than a tax. The AIPLA did not complain to OMB when the PTO contravened the AIA and set fees above the “estimated aggregated costs to the Office” to “build a reserve” set at the whim of the Office to an arbitrary level of $700M. I wrote about these issues in detail in my BNA article at http://j.mp/PTO-fees-per-AIA-PtI. By the way the PTO set those fees, they are a tax. Is it any wonder that these fees are now treated just like any other Government tax revenue? I am amazed how the patent bar just rolled over and accepted this unprecedented confiscatory fee increase, particularly when it was all but certain that fee diversion will continue.
Scott Zare
May 24, 2013 10:22 am
I was looking throught the AIA (enacted Sept. 11, 2011, and thus passed AFTER the Budget Control Act) and the Budget Control Act of 2011 (enacted August 2, 2011). Under the AIA, 35 USC 42 was amended to read “(A) Any fees that are collected under sections 41, 42, and 376, 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 share of the administrative costs of the Office relating to patents.” Thus, to any extent that the Budget Control Act and the AIA contradict one another with respect the USPTO budget, the later law, in this case, the AIA, should be deemed to override the previous law (the Budget Control Act). In view of sequestration requirements, I think the only harmonious interpretation of section 42 would be to sequester the fees (as requierd by the Budget Control Act) from the USPTO but at the same time require that any sequestered fees be set aside in a reserve fund for later use by the USPTO to process patents and trademarks (as required by 35 USC 42). Is there something I am missing here?
KJP
May 23, 2013 09:57 am
All the government sees is “free” money to pay for other programs when they look at the USPTO. It’s a lot of money they can get their hands on without a “tax” increase so the average voter doesn’t complain and the USPTO doesn’t have a big enough lobby to change the game. Corporations aren’t really rising up in protest because of poor quality examination or because it’s going to take another year or two to get a patent because of lack of funding.

And we’ll all watch the comedy when the new USPTO Director is called before Congress to explain why the USPTO hasn’t reached its targets.

If only we could sue Congress for breach of implied contract in Texas (where your word is your bond: Texaco v. Penzoil)
Steve
May 22, 2013 03:13 pm
And there the government goes again: Lie. Cheat. Steal.

If they don’t immediately back off of their attempt at the illegal sequestration of PTO funds, the AIPLA needs to file suit.

This. Needs. To. Stop.
Anon
May 22, 2013 01:15 pm
Absent here is the notion that all of the fee setting authority given to the Office was conditional.

The fees set with the new power by the Office were set in amounts so determined to balance the budget, in the aggregate- as they were required to be.

With Sequester basically forcing a mid-stream budget change, is there any sense that the fees calculated by the Office will need to be re-calculated in order to meet the legal requirements that accompanied the power provided by the AIA?