United States

Patent and Trademark Office

S"ongerAfanagementCon"o~

Needed over USPTO's

Projection ofPatent Fee Collections

Final Report OIG-11-014-A

December 14, 2010

FOR PUBLIC RELEASE

Office ofAudit and Evaluation

u.s. DEPARTMENT OF COMMERCE

Office ofInspector General
December 14,20 I0

MEMORANDUM FOR: David J. Kappos, Under Secretary ofCommerce for

Intellectual Property and Director, United States

Patent and Trademark Office

1'~3~ FROM: Todd J. Zinser

SUBJECT: Audit Report No. OIG-II-O 14-A, Stronger Management

Controls Needed over USPTO's Projections oj'

Patent Fee Collections

This memorandum transmits the final report of our audit of USPTO's process for projecting

patent fee collections. The purpose of this audit was to determine whether USPTO has an

effective process for projecting patent revenue that enables it to meet its mission and strategic

goals for patents.

We briefed your staff regarding our findings and recommendations on August 19, 2010, and

provided you with a draft report on September 9. In short, we found that USPTO has consistently

over- and underestimated the amount ofspecific patent fees it will collect in a given fiscal year.

As a result, stakeholders such as the Secretary, USPTO managers and executives, and the

Congress, may not have clear expectations of what the agency will be able to fund because the

differences between the estimated and actual patent fee collections have fluctuated considerably.

We make a series ofrecommendations for stronger management controls that would enhance

transparency and accountability in this very important area.

Your November 19 response to our draft report concurred with our recommendations. We have

summarized the response in our report and included it in its entirety as an appendix. Separately,

you provided technical comments, which we addressed in the report as appropriate. The report

will be posted on our website pursuant to section 8L ofthe Inspector General Act of 1978, as

amended.

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington. D.C. 20230
In accordance with Department Administrative Order 213-5, please provide us with an audit

action plan within 60 days ofthe date ofthis memorandum. We extend our appreciation to

USPTO for the courtesies shown to us during our work. If you have any questions, please contact

me at 202-482-4661 or Ronald C. Prevost, Ph.D., Assistant Inspector General for Economic and

Statistical Program Assessment, at 202-482-3052.

cc: Scott B. Quehl, Chief Financial Officer and Assistant Secretary for Administration

Anthony P. Scardino, Chief Financial Offtcer, USPTO

Mark Olechowski, Deputy Chief Financial Officer, USPTO

Robert L. Stoll, Commissioner for Patents, USPTO

Welton Lloyd, Audit Liaison, Office ofCorporate Planning, USPTO

Attaclunent
Report In Brief

U.S. Department of Commerce, Offi ce of Inspector General

December 14, 2010

 United States Patent and Trademark Offi ce

Stronger Management Controls Needed over USPTO’s 

Projection of Patent Fee Collections (OIG-11-014-A)

Why We Did This Review

What We Found

What We Recommend

The U.S. Patent and Trademark Offi ce (USPTO) is a 

fully fee-funded agency. As 

such, its fees must fund its 

operations. In such an environment, it is especially

important that USPTO

assures its stakeholders that 

the best available fee collection projections are developed and used. Without such 

assurances, the agency risks 

having to adjust spending in 

ways that could disrupt key 

operations and initiatives to 

improve patent quality and 

timeliness.

Our objective was to determine whether USPTO has an 

effective process for projecting patent revenue and that 

enables it to meet its mission and strategic goals for 

patents.

Background

USPTO is the sole federal 

agency responsible for

granting patents and registering trademarks, part of the 

nation’s intellectual property system. Patents--which 

account for most of the 

agency’s work--give inventors exclusive rights to their 

discoveries and contribute to 

the U.S. economy’s vitality 

and strength. Fiscal year

(FY) 2009 patent fees of

$1.7 billion accounted for 

about 90 percent of USPTO’s 

total annual fee collection.

For fi scal years 2006 through 2009, USPTO experienced signifi cant disparities between 

projected and actual patent fee collections; these ranged from shortfalls of about $56.6 

million in FY 2006 to $171 million in FY 2009 (not a typical year for the economy).

USPTO does not have clear guidance or a disciplined, documented process for forecasting patent fee collections. According to offi cials, keeping the overall process of 

developing projections “fl uid” is the reason that a deliberate decision was made not 

to have mandated guidance or documentation. The patent production model, which 

generates data used to project fee collections, also lacks management controls such as 

written policies and procedures. Without these, it is diffi cult for USPTO to learn from 

the variances between forecasts and actual collections, and how to reduce them. As a 

result, in this operational environment, stakeholders may not have clear expectations 

of what the agency will be able to fund because the differences between the estimated 

and actual patent fee collections have fl uctuated considerably. Stronger management 

controls would, therefore, enhance transparency and accountability.

While the aggregate differences between projections and collections appear to be within 

a generally acceptable margin of forecasting error, such data actually mask much greater

differences for individual fees (of which there are almost 250). USPTO has repeatedly 

over- and underestimated the amount of specifi c patent fees that it will collect in a given 

year, sometimes by as much as 20 to 50 percent. These differences mask discrepancies 

of tens of millions of dollars annually for certain fees. 

During the time of our review, the patent application backlog grew from 701,000 to 

nearly 736,000. Similarly, the amount of time it took to reach a decision on a patent 

application grew between FY 2006 and FY 2009 from about 31 months to about 35 

months. While not demonstrably connected to forecast accuracy and transparency, a

better forecasting process would give stakeholders more comprehensive data with which 

to develop expectations. As USPTO implements a new strategic plan, a framework 

recognizing the importance of risks associated with variances in fee-collection forecasts 

will be increasingly important. 

In order to strengthen USPTO operations over patent fee forecasting, we are making 

three detailed recommendations to the Under Secretary of Commerce for Intellectual 

Property/USPTO Director. These entail (1) directing the agency’s Chief Financial 

Offi cer (CFO) to establish and implement written policies and procedures for developing fee-collection forecasts; (2) requiring the CFO to annually report on the variances 

between projected and actual patent fee collections, including their causes and any noted 

trends; and (3) directing the Commissioner for Patents to establish and implement written policies and procedures for the patent production model. 
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

Contents 

Introduction ..................................................................................................................................... 1 

Findings and Recommendations ..................................................................................................... 3 

Stronger Management Controls Would Enhance Accountability and Transparency in USPTO’s 

Projection of Patent Fee Collections ........................................................................................... 3 

Documentation Lacking for Projecting Patent Fee Collections ............................................. 3

Documentation Lacking for Patent Production Model ........................................................... 4

Aggregate Patent Fee Data Mask Differences between Projected and Actual Fee Collections

 ................................................................................................................................................. 4

An Enhanced Control Environment over Patent Fee Forecasting Would Strengthen 

Operational and Strategic Planning ....................................................................................... 6

Conclusion and Recommendations ................................................................................................. 7 

Summary of USPTO Comments and OIG Response ..................................................................... 8 

Appendix A: Scope and Methodology ............................................................................................ 9 

Appendix B: Differences between Projected and Actual Patent Fee Collections for USPTO’s 

Three Largest Fee Categories ................................................................................................ 10 

Appendix C: Agency Response .................................................................................................... 14 
U.S. Department of Commerce Final Report OIG-11-014 -A 

Office of Inspector General December 14, 2010 

Introduction 

What Is a Patent? 

A patent for an invention is 

the grant of a property right

to the inventor, usually for 

20 years from the patent 

application’s U.S. filing date 

and subject to the payment 

of maintenance fees. The 

patent confers the right to 

exclude others from 

making, using, offering for 

sale, selling, or importing 

the invention. Once USPTO 

issues a patent, the 

patentee must enforce the 

patent without aid from 

USPTO. 

An agency within the Department of Commerce, the United States Patent and Trademark Office 

(USPTO) is responsible for ensuring that the intellectual property system within the United 

States contributes to a strong global economy, encourages investment in innovation, and fosters 

an entrepreneurial spirit. USPTO accomplishes this mission by serving as the sole federal agency 

responsible for granting patents and registering trademarks. Patents, which account for the 

majority of USPTO’s work, provide inventors with 

exclusive rights to their discoveries and contribute to 

the strength and vitality of the U.S. economy. 

As a fully fee-funded agency, USPTO relies upon the 

patent and trademark fees it collects to fund its 

operations and fulfill its mission. These fees are used to 

support all segments of USPTO operations, including 

staffing, information technology systems, and training. 

Patent fees of $1.7 billion accounted for approximately 

90 percent of USPTO’s annual fee collections in fiscal 

year (FY) 2009.1

 Patent fee projections play an integral 

role in planning for upcoming operations and informing 

stakeholders—such as the Secretary, agency managers 

and executives, and the Congress—about what the 

agency plans to accomplish. Without assurances that the 

best available projections for patent fee collections are 

being used, USPTO risks having to adjust spending in 

ways that would disrupt key initiatives to improve 

patent quality and timeliness and hinder its ability to 

accomplish its goals. 

In FY 2009, USPTO collected approximately $171 million less in patent fee collections than 

estimated in the FY 2009 budget. While this significant shortfall occurred during a time of 

economic recession, it raised concerns about USPTO’s overall budget process. During the same 

time that the backlog of patent applications awaiting review had grown to almost 736,000, the 

average time to review patent applications had increased to almost 35 months. 

This audit’s objective was to determine whether USPTO has an effective process for projecting 

revenue and expenses for its patent operations that enables it to meet its operating costs and 

achieve its mission and strategic goals for patents. Because the patent fee projections play an 

integral role in operational and strategic planning, we focused on USPTO’s process for 

developing patent fee forecasts. We met with USPTO program officials about the process for 

projecting patent fee collections and analyzed data on projected and actual patent fee collections 

for FYs 2006–2009. Appendix A outlines in further detail the scope and methodology we 

followed for this audit. 

                                                           

1

Congress, through statute, sets the majority of USPTO’s patent fees; it also sets spending ceilings for USPTO 

through the annual appropriations process. 
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

Summary of Findings 

USPTO funds operations with the fees it collects, necessitating clear guidance and a disciplined 

and documented process for forecasting patent fee collections. The agency, however, lacks 

documented management controls over its patent fee forecasting operations. In the process, 

USPTO has consistently over- and underestimated the amount of specific patent fees it will 

collect in a given fiscal year. While the aggregate differences between projections and 

collections appear to be within a generally acceptable margin of forecasting error, such data 

actually mask much greater differences for individual fees (of which there are almost 250). For 

example, one fee was over its estimate by 30-55 percent between 2006 and 2009; another fee 

was under its estimate during those years by 35-42 percent. When actual fee collections do not 

reach projected levels, USPTO must respond with spending reductions that, in turn, affect the 

agency’s ability to sustain and improve its patent operations. More transparent forecasts—

including the assumptions and uncertainties about revenue streams—would have provided 

internal and external stakeholders with more realistic expectations of what could and could not 

be accomplished, and supported decision making necessary to institute a stable funding and 

budgeting process.

2
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

Findings and Recommendations 

Stronger Management Controls Would Enhance Accountability and 

Transparency in USPTO’s Projection of Patent Fee Collections 

As a fee-funded agency, USPTO may only spend what it collects in patent and trademark fees. 

Operating solely with these fees, USPTO develops its budget and spending plans based upon its 

operating requirements and its projected fee collections. If the agency’s estimated fee collections 

and projected revenues do not materialize, the agency must make management decisions to 

adjust fee rates or modify performance requirements, which ultimately disrupt the patent review 

process. 

In fiscal years 2006 through 2009, total patent fees collected by USPTO have been less than 

projected. Forecasting any type of revenue collection is difficult and is not an exact science, as 

forecasts can include assumptions about future economic events and policy decisions. 

Differences between forecasts and actual collections naturally occur2

 and should be reported, as 

they directly affect budgeting and spending plans. Therefore, strong management oversight and 

controls are necessary to guide forecasting and ensure accountability and transparency. 

Documentation Lacking for Projecting Patent Fee Collections 

Responsibility for projecting collections from approximately 250 different patent fees rests with 

the Forecasting and Analysis Division within the Office of Corporate Planning/Office of the 

Chief Financial Officer. The staff includes a director, three economists, a statistician, and a 

budget analyst. The collection forecasts for each of the fees are developed using data as well as 

professional judgment. 

This important segment of USPTO operations lacks management controls, such as operational 

policies and procedures, for projecting patent fee collection. According to USPTO officials, no 

documented process currently exists for developing fee projections; this is deliberate, to ensure 

that the development process remains fluid. Yet the lack of written guidance and documentation 

prevents agency management from ensuring that reliable and timely information is available to 

guide decision making; similarly, analyzing and reporting risks associated with the projections to 

internal and external stakeholders becomes difficult at best. 

For those patent fee collections that were either much greater or much less than projected, 

USPTO could not provide any documented analysis of these variances or whether it had 

identified opportunities to narrow them. Further, USPTO does not document any work processes 

related to reconciling assumptions and components of fee forecasts to actual collections. Without 

such documented reconciliation of projected fee collections to actual collections and analysis of 

the underlying components used to forecast collections, managers cannot compare actual 

                                                            

2

There is no set standard for what constitutes an acceptable variance between projected and actual revenues. Based 

upon a review of budget forecasting literature, the degree of accuracy needed or the margin of error tolerated—

usually within 5 percent of actual receipts—is generally deemed reasonable.

3
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

performance with planned or expected results, nor can they analyze significant differences to 

identify any risk or potential flaws in the existing fee-projection methodology. Therefore, the 

agency cannot provide documentation to support or defend what actions should be taken to limit 

the differences between projected and actual collections. 

USPTO officials noted that staff needs to provide forecasts for current and upcoming years and 

that they are not always available to provide retrospective analysis. For example, a few years 

ago, an economist prepared supporting statistical and econometric analyses; however, after that 

individual left the agency, the position remained vacant and staff was not available to complete 

this work. Further, USPTO has not conducted any external validation or internal reviews of the 

forecasting model used to project fee collections. Such a periodic external validation would not 

only provide the organization with independent validation of formulas and calculations, but 

would also identify areas for improvement in the model. 

Documentation Lacking for Patent Production Model 

USPTO's patent production model,3 which generates data related to patent production, is one of 

the many sources of data used to project patent fee collections. Patent production model outputs 

used for fee forecasting include the expected number of patents to be allowed and the number of 

initial decisions on a patent application. These and other model outputs are associated with 

activities for which USPTO then charges fees. However, USPTO lacks management controls 

over the model, including written policies and procedures for its operations. 

When asked to provide any written documentation regarding policies and procedures for the 

patent production model, USPTO officials referenced only the 100+ pages of computer 

programming code and provided no further written documentation. USPTO could not, then, 

document any management directives regarding the model; roles and responsibilities for the 

model and its outputs; data sources to be used in the model; requirements for documenting and 

explaining any changes made to the model and the rationale for those changes; oversight 

functions for the model; or requirements for periodic internal and external assessments of the 

model. Such tools are necessary to ensure that USPTO obtains, maintains, reports, and uses 

reliable and timely information for decision making; they likewise provide for continuity of 

operations and assist the agency in appropriately carrying out management directives. 

Aggregate Patent Fee Data Mask Differences between Projected and Actual Fee 

Collections 

From FY 2006 through FY 2009, the total amount of patent fees collected was less than what 

USPTO had originally projected in the President’s annual budget submissions (see figure 1). 

Although patent fee collections had grown to about $1.7 billion in FY 2009, the collections were 

between $56.6 million and $78.5 million less than projected during FYs 2006, 2007, and 2008. 

                                                           

3

The patent business area within USPTO primarily uses this simulation tool to plan and manage patent examination 

operations and to support budget requests.

4
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

In FY 2009, patent fee collections were 

$171 million less than what USPTO had 

originally projected in the President’s FY 

2009 budget. This 9-percent difference was 

much greater than the 3–5-percent 

difference of previous years, due in part to 

the worldwide economic downturn. 

‐$175

‐$150

‐$125

‐$100

‐$75

‐$50

‐$25

$0

FY 2006 FY 2007 FY 2008 FY 2009

Source: OIG based on USPTO data

Figure 1. Dollar Differences Between 

Actual and Projected Patent Fee 

Collections ($ in millions)

These differences, when examined in the 

aggregate (except for FY 2009) show 

USPTO to be operating within a generally 

accepted margin of forecasting error. 

However, the aggregate data mask much 

greater differences between the projected 

and actual fee collections for individual 

patent fees, with the differences translating 

into tens of millions of dollars for USPTO’s 

budget and spending plans. 

To further identify the differences in disaggregated fee data, we analyzed eight fees, which 

represent approximately half of USPTO’s annual patent fee collections.4

 For three of the eight 

fees, projected collections were near the 

amount collected, while for four of the 

fees, the amounts collected were less than 

projected. In one case, collections were 

more than projected. Appendix B contains 

detailed information on the eight patent 

fees analyzed. 

Collections for one patent fee, “request for 

continued examination”, consistently 

surpassed projections by more than 30 

percent (see figure 2). Patent applicants 

pay this fee when asking USPTO to 

continue to examine a patent application 

after the agency has made an initial 

decision to close the review and not grant 

a patent. USPTO’s collections from this 

one fee almost doubled from FY 2006 to 

FY 2009, from $47 million to $92 million, 

and annually account for 3–6 percent of 

USPTO’s total patent fee collections. The 

$25

$50

$75

$100

FY

2006

FY

2007

FY

2008

FY

2009

Source: OIG based on USPTO data

Projected

Collections

Actual Collections

Figure 2. Projected and Actual Fee 

Collections for "Requests for Continued 

Examination" ($ in millions)

                                                           

4

We did not independently evaluate the models or the data used; rather, we reviewed any existing agency process 

and documentation to assess whether management controls were in place to provide an overall structure to the 

process and to require mechanisms for analyzing the models and identifying and reporting the risks associated with 

possible forecasting differences. 

5
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

agency underestimated projected collections by 30–55 percent, which translated into USPTO’s 

collecting an additional $14 million to $33 million. According to USPTO officials, they had 

anticipated some growth and then a leveling off of the growth rate for these requests. However, 

agency officials could not provide any written analysis regarding the continued large gap 

between projected and actual collections for this fee. 

Conversely, collections for one type of patent 

application fee were consistently 35 percent 

less than what was projected. This fee, for 

patent applications for which the total number 

of claims exceeds 20,5 annually accounts for 

2–4 percent of USPTO’s patent fee collections 

(see figure 3). From FY 2006 to FY 2009, the 

agency typically collected about $35 million–

$50 million for this fee, yet this was up to 42 

percent less than projected. These differences 

resulted in USPTO’s collecting $21 million–

$29 million less than projected for this fee. 

USPTO staff explained that the agency 

modified its formula for projecting collections 

from this fee, but these expected changes that 

would affect collections did not occur to the 

extent anticipated. As with the requests for 

continued examination, USPTO could not 

provide any written analysis regarding the 

continued large gap between projected and 

actual collections for this fee. 

$30

$45

$60

$75

$90

FY

2006

FY

2007

FY

2008

FY

2009

Projected

Collections

Actual

Collections

Source: OIG Based on USPTO data

Figure 3. Projected and Actual Fee 

Collections for "Applications with 

More than 20 Claims" ($ in millions)

 An Enhanced Control Environment over Patent Fee Forecasting Would Strengthen 

Operational and Strategic Planning 

In organizations that operate on reimbursable funding streams, revenue forecasting plays an 

integral role in organizational decision making by establishing the anticipated funding levels for 

upcoming budgets and laying the foundation of an organization’s long-term planning and 

development. At USPTO, the patent fee forecasts are vital to the agency’s planning process. 

They provide the critical framework for informing key internal and external stakeholders about 

what operations can be maintained, what initiatives can be undertaken, and what strategic goals 

are attainable in the upcoming fiscal years. While the actual fee collections, along with spending 

ceilings set through the appropriations process, ultimately dictate what the agency can and 

cannot spend in a given fiscal year, the forecasts set the expectations and are critical to avoiding 

overly ambitious spending plans. Therefore, having strong controls over the forecasting segment 

of this process—ones that inform stakeholders about the uncertainties of the forecasts and 

attempt to minimize the eventual variance between projected and actual fee collections—can 

                                                           

5

A claim is the portion of a patent that establishes the legal boundaries of the invention (that is, the exclusive rights 

of the owner). Patent claims, written in a formal style and precise terminology, serve as the basis for any 

determination of patent infringement. 

6
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

provide a more realistic framework from which operational and strategic planning can be based, 

including plans to address the backlog and pendency of patent applications. 

USPTO does not have a disciplined, documented, and replicable process that reconciles and 

improves its forecasting processes to the greatest extent possible from prior variances between 

forecast and actual fee collections. In each of the four fiscal years we reviewed, USPTO fee 

collections were less than projected. While the agency monitors incoming fee collections in 

executing its budget during a given fiscal year and adjusts planned spending accordingly, 

planned spending reductions were necessary each year because collections were less than 

forecast. Further, while USPTO provided a monthly spending and performance report to agency 

management during the period covered by our review, which included projected and actual fee 

collections, this important report did not include the ranges of possible fee collections or 

information on the underlying assumptions about the collections. Such relevant information was 

added to the monthly reports beginning in February 2010. 

During the time of our review, USPTO’s patent application backlog grew, as did the length of 

time it takes the agency to make a decision on a patent application. From FY 2006 through FY 

2009, the number of patent applications waiting to be examined increased from about 701,000 to 

nearly 736,000. The average amount of time required to make a decision on a patent application 

also increased, from about 31 months in FY 2006 to about 35 months in FY 2009. More 

transparent forecasts, including the assumptions and uncertainties about revenue streams, may 

not have directly affected USPTO’s ability to address these challenges; however, they would 

have provided internal and external stakeholders with more realistic expectations of what could 

and could not be accomplished. As USPTO implements its new strategic plan, a framework that 

recognizes the risks associated with possible variances in patent fee collection forecasts is all the 

more important as cost proposals are developed to implement strategic initiatives. 

Conclusion and Recommendations 

Patent fee projections play a vital role in developing and executing USPTO’s budget and 

spending plans, calling for a disciplined, documented, and transparent process for forecasting 

these collections. Without an effective process that clearly outlines the assumptions and 

resulting uncertainties associated with the projections, USPTO risks not being able to implement 

much-needed initiatives and other improvements to operations because actual collections are 

much less than forecast. In order to strengthen USPTO operations over its patent fee forecasting, 

we recommend that the Under Secretary for Intellectual Property: 

1. Direct the USPTO Chief Financial Officer to establish and implement written policies and 

procedures for developing fee collection forecasts, including policies and procedures for 

 defining roles and responsibilities for the models; 

 documenting and retaining, for a sufficient period of time, formulas, data, data sources, 

assumptions, and other underlying components used for patent fee forecasts; 

 adequate recording of the impact of policy, economic, regulatory, or other changes on 

patent fee collection; 

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U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

 monitoring, reconciling, and analyzing assumptions used in projections, and actual data 

when they become available; and 

 assessing periodically the patent fee forecasting models, including discussions of possible 

emerging trends and USPTO’s plans to address these trends within the patent fee 

forecasting models. 

2. Require the Chief Financial Officer to report annually on the variances between projected 

and actual specific patent fee collections, including the potential causes for significant 

variances and possible trends to consider. Because of the many patent fees USPTO collects, 

the agency should consider focusing on those fees that make up a significant portion of 

USPTO’s patent fee collections. The agency could report this information in public 

documents such as its annual Performance and Accountability Report or the President’s 

budget, as it did for the fiscal year 2011 budget. 

3. Direct the Commissioner for Patents to establish and implement written policies and 

procedures for the patent production model for 

 defining roles and responsibilities for the model; 

 documenting and retaining, for a sufficient period of time, the formulas, data, data 

sources, assumptions, and other underlying components used for the patent production 

model; 

 adequately recording the impact of policy or other changes on the patent production 

model; 

 monitoring, reconciling, and analyzing assumptions used in projections, and actual data 

when they become available; and 

 assessing periodically the patent production model, including periodic external reviews 

and validation, discussions of possible emerging trends, and USPTO’s plans to address 

these trends within the patent production model. 

Summary of USPTO Comments and OIG Response 

In its official response to our draft report, dated November 19, 2010, USPTO concurred with our 

recommendations and outlined steps it has begun to take to strengthen its patent fee forecasting 

operations. Separately, USPTO provided technical comments, which have been addressed in the 

report as appropriate. USPTO also notes that its aggregate fee forecasts have been within 

acceptable ranges with the exception of FY 2009. However, our analysis shows that in prior 

years, USPTO has consistently over- or underestimated some of its major patent fee revenue 

streams, raising concerns that significant variances and trends were not being addressed in the 

patent fee forecasting models. We reaffirm our findings and recommendations. Strengthened 

management controls over patent fee forecasting activities should provide increased 

accountability and transparency over these critical operations. The full USPTO response is 

included as Appendix C of this report. 

8
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

Appendix A: Scope and Methodology 

We conducted this performance audit from August 2009 through August 2010 at USPTO in 

Alexandria, Virginia. Our work covered FY 2006–2009. To assess the process for projecting 

patent fee collections and processes for budget development, execution, and monitoring of 

expenses for patent operations, we completed the following tasks: 

 interviewed USPTO officials to obtain an understanding of the organizational structure, 

the budget development and execution process, the various offices involved in patent fee 

forecasting and budget development, and each office’s relevant policies and procedures; 

 obtained and analyzed data on patent fee projections and actual collections for FYs 2006 

through 2009 to determine the extent of variances between projected and actual patent fee 

collections; 

 reviewed annual USPTO Performance and Accountability Reports, President’s budget 

submissions, and other documents related to its mission and goals; and 

 analyzed USPTO’s spending adjustments for each fiscal year and obtained 

documentation on these adjustments and their impact on the agency’s mission and patent 

goals. 

We obtained an understanding of internal controls for the patent fee forecasting process by 

interviewing staff involved in this process as well as reviewing the data and systems used. We 

reviewed USPTO compliance with applicable provisions of pertinent laws and regulations, 

including various PTO-related laws and the GAO Standards for Internal Control in the Federal 

Government.

6

 Our audit identified internal control deficiencies, which are discussed in this 

report; it did not identify any instances of fraud, illegal acts, violations, or abuse. 

With regard to data reliability, we relied on prior independent audit work on USPTO’s Revenue 

Accounting and Management System and on its Momentum System. These systems serve as the 

sources for fee collection reports and monthly spending and performance reports. We determined 

that the actual patent fee collections data for FYs 2006 through 2009, and the spending 

adjustments made in those years, were sufficiently reliable for the purposes of this audit. 

We conducted this performance audit under authority of the Inspector General Act of 1978, as 

amended; Department Organization Order 10–13 (dated August 31, 2006), as amended; and in 

accordance with generally accepted government auditing standards. Those standards require that 

we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions based on our 

audit objectives. 

 

                                                           

6

Standards for Internal Control in the Federal Government (the Green Book), U.S. Government Accountability 

 Office (AIMD-00-21.3.1, November 1, 1999). 

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U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

Appendix B: 

Differences between Projected and Actual Patent Fee Collections 

for USPTO’s Three Largest Fee Categories 

USPTO charges approximately 250 individual fees for its various activities related to examining, 

issuing, and maintaining patents. It classifies the individual patent fees into 12 broad categories 

(see figure 4). Three of the 12 categories contain a total of 104 distinct patent fees; these three 

categories account for over 75 

percent of the agency’s annual patent 

fee collections. The agency uses 

multiple variables, formulas, factors, 

and models to project the amounts it 

expects to collect from each of these 

fees. 

We reviewed eight patent fees from 

the three patent fee categories that 

account for the majority of USPTO’s 

patent fee collections, documenting 

the differences between projected and 

actual collections. We examined the 

underlying models, assumptions, and 

variables used, and discussed with 

USPTO staff the possible reasons for 

the differences. In addition, we 

discussed the availability of any 

written analysis addressing these 

differences. This appendix contains 

descriptions of the eight fees we 

reviewed and accompanying data. 

33%

28%

15%

8%

7% 9%

Maintenance Fees

Application Filing

Fees

Patent Issue Fees

Patent Extension

Fees

Patent

Cooperation Treaty

Fees

Sum of Remaining

Seven Patent Fee

Categories

Source: OIG based on USPTO data

Figure 4. Fiscal Year 2009 Patent 

 Fee Collections

Patent Maintenance Fees 

In order to keep a patent in force, patent holders must pay maintenance fees to USPTO at set 

intervals after the patent is issued. These fees, if paid, are due in 3.5, 7.5, and 11.5 years (referred 

to as first- , second- , and third-stage maintenance fees, respectively). The patent maintenance fee 

category contains 15 fees related to the three different time frames, large and small entities,7

 and 

late payments. 

We selected for further review the three maintenance fees for large entities (fee codes 1551, 

1552, and 1553). Since FY 2006, USPTO has annually collected $437 million–$510 million 

                                                           

7

Small entity status is granted to an individual inventor, a nonprofit organization, or a small business that meets the 

size standards set forth in 13 CFR §§121.801-.805 to be eligible for reduced patent fees.

10
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

from these three fees, and they account for approximately 90 percent of the total patent 

maintenance fees collected each year. 

Table 1. First Stage Maintenance Fee (Fee Code 1551) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $106.96 $107.92 $0.96 0.9%

2007 112.18 112.63 0.45 0.4%

2008 113.96 105.31 (8.65) -7.6%

2009 107.99 97.94 (10.05) -9.3%

Source: OIG analysis of USPTO data 

Table 2. Second Stage Maintenance Fee (Fee Code 1552) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $176.46 $182.76 $6.30 3.6%

2007 194.33 202.96 8.63 4.4%

2008 215.83 224.79 8.96 4.2%

2009 228.53 205.86 (22.67) -9.9%

Source: OIG analysis of USPTO data 

Table 3. Third Stage Maintenance Fee (Fee Code 1553) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $146.37 $145.94 ($0.43) -0.3%

2007 150.93 160.04 9.11 6.0%

2008 171.36 180.39 9.03 5.3%

2009 179.50 185.47 5.97 3.3%

Source: OIG analysis of USPTO data

Patent Application Filing Fees 

USPTO charges patent application filing fees for a variety of activities related to a patent 

application. This broad category includes fees that address the attributes of a patent application, 

such as the size of the application and the number of claims, as well as requests for continued 

examination. The agency divides approximately 80 fees in this broad category between fees for 

large and small entities. 

We selected four of the 40 large-entity application fees for further review: search of utility patent 

application (fee code 1111), independent claims in excess of three (fee code 1201), total claims 

11
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

in excess of 20 (fee code 1202), and request for continued examination (fee code 1801). We 

selected these based on the dollar differences between the projected and actual fee collections 

(whether positive or negative) and because large entities constituted over 80 percent of the total 

patent application filing fees collected. 

Table 4. Search of Utility Patent Application (Fee Code 1111) 

Fiscal 

Year 

Projected Collections

(in millions)

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $97.45 $101.84 $4.39 4.5%

2007 113.85 104.46 (9.39) -8. 2%

2008 118.41 105.75 (12.66) -10.7%

2009 121.10 99.44 (21.66) -17.9%

Source: OIG analysis of USPTO data 

Table 5. Independent Claims in Excess of Three (Fee Code 1201) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $50.12 $36.67 ($13.45) -26.8%

2007 51.38 34.96 (16.42) -32.0%

2008 39.90 31.15 (8.75) -21.9%

2009 42.81 26.34 (16.47) -38.5%

Source: OIG analysis of USPTO data 

Table 6. Total Claims in Excess of 20 (Fee Code 1202) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $81.67 $52.49 ($29.18) -35.7%

2007 80.77 52.50 (28.27) -35.0%

2008 59.30 38.74 (20.56) -34.7%

2009 58.45 34.08 (24.37) -41.7%

Source: OIG analysis of USPTO data 

 

12
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

Table 7. Request for Continued Examination (Fee Code 1801) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

millions) 

Percentage 

Difference

2006 $32.98 $46.82 $13.84 42.0%

2007 37.61 54.48 16.87 44.9%

2008 56.69 73.78 17.09 30.1%

2009 59.62 92.41 32.79 55.0%

Source: OIG analysis of USPTO data

Patent Issue Fees 

The nine fees in this category relate to fees USPTO charges for issuing various types of patents 

(for example, utility, plant, reissue, and design). We selected the utility issue fee (fee code 1501), 

which USPTO charges for issuing a utility patent to a large entity. Large entities account for 

about 87 percent of actual total patent issue fees collected for FY 2006–FY 2009, and fee code 

1501 had the greatest dollar difference between projected and actual collections during this time. 

Table 8. Utility Issue Fee (Fee Code 1501) 

Fiscal 

Year 

Projected 

Collections 

(in millions) 

Actual Collections

(in millions)

Dollar 

Difference (in 

(in millions) 

Percentage 

Difference

2006 $190.36 $161.48 ($28.88) -15.2%

2007 208.02 169.94 (38.08) -18.3%

2008 200.71 176.32 (24.39) -12.2%

2009 202.58 203.08 0.50 0.2%

Source: OIG analysis of USPTO data 

 

13
Appendix C: Agency Response 

UNITED STATES PATENT AND TRADEMARK OFFICE

UNDER SI;CRETARV OF COM~'ERCI: FOR JNTIlI.I.ECfUAL I'ROPERn' ANI)

DIRECfOR OFTIlE UNITED STATES I'ATENT ASO TRAOEMMK OFFICE

NOV 19 LU;O

MEMORANDUM FOR Ronald Prevost, Ph.D.

Assistant Inspector General for

Economic and Statistical Program Assessment

FROM: DavidJ. Kappos 0t'?v-f, t~tbT Under Secretary ofC~~:ce for Intellectua P operty..and

Director of the United States Patent and Trad mark Office

SUBJECT: Response to Draft Report No. OAE-19833,

"Stronger Alanagemellt Controls Needed Over USPTO 's

Projections ofPatelll Fee Collections" (September 2010)

We appreciate the efforts of your statT in evaluating the process for projecting patent fcc

collections at the United States Patcnt and Trademark Office (USPTO). We concur with the

three recommendations in the draft report, and we have begun documenting the policies and

procedures that we use for managing the patent production model and forecasting patent fee

collections. We will also work to improve our annual reporting on patent fees by fonnally

reporting potential causes for significant variances and trends to consider. .

The USPTO has a good track record of projecting its fees, and except for during the

unprecedented recession in fiscal year 2009, has estimated patent fees within acceptable

tolerance levels. As mentioned in your report, fee projections and actual collections are

important data sets for managing the USPTO. My colleagues and I rely on the fee and patent

production model infonnation produced at the USPTO to make critical management decisions.

We are also keenly aware of the level of uncertainty associated with forecasting fees and

routinely share our fee infonnation with the Department ofCommerce, Office of Management

and Budget, and Congress in an effort to continuously educate our partners on the flexibility

necessary to accommodate the expected level of uncertainty.

We had asked that the detailed technical comments provided to you in a separate transmittal be

incorporated into your report. We understand that all of our comments will not be incorporated

into the fir131 report, but we appreciate your efforts to address some of our concerns. Our

response to each recommendation is discussed in detail below.

PO. Box 1450, Alexandria, Virginia 22313-1450 -WV\oW.USPTD.GOV

U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

14
U.S. Department of Commerce Final Report OIG-11-014-A 

Office of Inspector General December 14, 2010 

(OAE-19833) 

15

• IG Recommendation (I): Direct the Chief Financial Officer to establish and implement

written policies and procedures for developing fee collection forecasts.

USPTO Re>pollse: The agency agrees to establish and implement written policies and

procedures for developing fee collection forecasts. Written policies and procedures will

provide for continuity of operations and a record for the underlying components of forecasts,

but they will not eliminate the risk of reducing or stopping initiatives or operational

improvements during a fiscal year due to actual fee collections being less than the amount

forecasted. The USPTO has begun implementing this recommendation and we are

documenting roles, responsibilities and underlying components used with fee collection

forecasts. This includes developing written policies and procedures for analysis and

modeling activities that are currently in place, but not fully documented.

• /G Recommendation (2): Require the Chief Financial Officer to report annually on the

variances between projected and actual specific patent fee collections, including the potential

causes for significant variances and possible trends to consider.

USPTO Respollse: The agency agrees to report annually on the variances between projected

and actual specific patent fee collections, including potential causes for significant variances

and possible trends to consider. As is noted in your report, we reported this information to

the public in the fiscal year 2011 President's Budget. We will continue to assess the optimal

public reporting vehicle for patent fee collections, including the appropriate level of detail.

• IG Recommendation (3): Direct the Commissioner of Patents to establish and implement

written policies and procedures for the patent production model.

USPTO Respollse: The agency agrees to establish and implement written policies and

procedures for the patent production model. Like documenting fee forecasting procedures,

these written policies and procedures will not eliminate the risk ofreducing or stopping

initiatives or operational improvements during a fiscal year when actual fee collections are

less than the amount forecasted. The Agency started its documentation effort by launching

an interactive patent pendency model (PPM) on the USPTO Web site in December 2009.

The model, along with supporting documents defining the calculation fonnulas, inputs and

outputs, can be found in the Patent statistics area ofthe USPTO Web site

(www.uspto.gov/patents/stats/patentyrod_modeJ.jsp). The feedback from the public has

been very positive and is being considered as we continue to enhance the model and increase

transparency into our operations. We will improve upon our documentation effort by

developing written policies and procedures that will provide for continuity ofoperations and

a clear understanding ofthe underlying components ofthe model. We will document roles

and responsibilities and develop the written policies and procedures for analysis and

modeling activities that are currently in place, but not documented well.

In summary, while our policies and procedures around the patent production model and fee

forecasting operations are not documented completely, we are confident that our methodologies

are sound. Again, we thank you for your efforts and we intend to implement the recommendations

in a diligent manner. We hope to work with the OIG in the future to help the USPTO address the

challenges we face in implementing a sustainable funding model for operations.

2