U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

86–267 PDF 2003

UNITED STATES PATENT AND TRADEMARK FEE

MODERNIZATION ACT OF 2003

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

ON

H.R. 1561

APRIL 3, 2003

Serial No. 12

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

JOHN R. CARTER, Texas 

TOM FEENEY, Florida 

MARSHA BLACKBURN, Tennessee 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

WILLIAM L. JENKINS, Tennessee 

SPENCER BACHUS, Alabama 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

JOHN R. CARTER, Texas 

HOWARD L. BERMAN, California 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York

BLAINE MERRITT, Chief Counsel 

DEBRA ROSE, Counsel 

DAVID WHITNEY, Counsel 

MELISSA L. MCDONALD, Full Committee Counsel 

ALEC FRENCH, Minority Counsel 

(III)

C O N T E N T S 

APRIL 3, 2003

OPENING STATEMENT 

Page 

The Honorable Lamar Smith, a Representative in Congress From the State 

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property .................................................................................................... 1

The Honorable Howard L. Berman, a Representative in Congress From the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 3

WITNESSES 

The Honorable James Rogan, Under Secretary of Commerce for Intellectual 

Property and Director of the U.S. Patent and Trademark Office 

Oral Testimony ..................................................................................................... 6

Prepared Statement ............................................................................................. 7

Mr. Michael K. Kirk, Executive Director, American Intellectual Property Law 

Association [AIPLA] 

Oral Testimony ..................................................................................................... 11

Prepared Statement ............................................................................................. 12

Mr. John K. Williamson, President, Intellectual Property Owners [IPO] 

Oral Testimony ..................................................................................................... 27

Prepared Statement ............................................................................................. 28

Mr. Ronald J. Stern, President, Patent Office Professional Association [POPA] 

Oral Testimony ..................................................................................................... 37

Prepared Statement ............................................................................................. 38

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Lamar Smith, a Representative in 

Congress From the State of Texas, and Chairman, Subcommittee on Courts, 

the Internet, and Intellectual Property .............................................................. 2

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress From the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 4

Letter from Dr. H. C. Ingo Kober, President, European Patent Office ............... 59

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Darrell Issa, a Representative in Congress From the State of California ..................................................................... 69

Prepared Statement of the International Trademark Association ...................... 69

Letter from Mark T. Banner, Chair, Section of Intellectual Property Law, 

American Bar Association ................................................................................... 73

Prepared Statement of the Biotechnology Industry Organization ...................... 78

Response to questions submitted by Representative Howard L. Berman to 

Ronald J. Stern, President, Patent Office Professional Association (POPA) .. 82

Response to questions submitted by Representative Melissa Hart to John 

K. Williamson, President, International Property Owners Association (IPO) 86

Page

IV

Response to questions submitted by Representative Howard L. Berman to 

Michael K. Kirk, Executive Director, American Intellectual Property Law 

Association (AIPLA) ............................................................................................. 89

Response to questions submitted by Representative Melissa Hart to Michael 

K. Kirk, Executive Director, American Intellectual Property Law Association (AIPLA) ......................................................................................................... 92

Response to questions submitted by Representative Howard L. Berman to 

James E. Rogan, Under Secretary of Commerce for Intellectual Property 

and Director of the U.S. Patent and Trademark Office .................................... 95

(1)

UNITED STATES PATENT AND TRADEMARK 

FEE MODERNIZATION ACT OF 2003

THURSDAY, APRIL 3, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subommittee met, pursuant to notice, at 3:08 p.m., in Room 

2141, Rayburn House Office Building, Hon. Lamar Smith, [Chairman of the Subommittee] presiding. 

Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. 

Good afternoon. We have a great hearing scheduled, and we will 

begin in just a second. I am going to recognize myself and the 

Ranking Member, Mr. Berman, for opening statements, and then 

I’ll introduce the witnesses we have here today. 

Patents have played a central role in our industrial and economic 

history since Thomas Jefferson served as the first Patent commissioner. In fact, one of my predecessors, Representative Benjamin 

Butterworth of Ohio, Chairman of the House Committee on Patents 

in 1891, offered this critique of intellectual property and its contributions to the growth and development of the United States. 

He said, ‘‘Neither the most profound thinker, nor the wildest 

dreamer, could have anticipated such marvelous changes and improvements as have been wrought out under our patent system. If 

some members of the Constitutional Convention, endowed with the 

gift of prophecy, had arisen in his place and in plain speech disclosed what their children would behold at the close of the first 

century, as a result of the power conferred upon Congress in article 

I, section 8 of the Constitution, his associates would have felt an 

anxious concern in regard to his mental health.’’ This is what Chairman Butterworth said about the value of our 

patent system more than 100 years ago. What would he say today, 

surrounded as we are now by computers, high-definition television 

sets, cell phones and other patented inventions? 

Well, the jury is in, and the verdict is unanimous. Patents are 

critical to the economic health of our nation and the welfare of our 

citizenry, and that is why we are here today, to evaluate a plan developed by Director Rogan that is intended to strengthen the operations of the U.S. Patent and Trademark Office. 

Director Rogan developed his Five-Year Strategic Business Plan 

for the PTO in response to a congressional mandate. Last year, the 

Subommittee conducted an oversight hearing on the original plan, 

2

which led to informal discussions between the Agency and the 

major user groups. The talks were productive, and we now have a 

revised strategic plan that incorporates many of the suggestions offered by those user groups. 

The most conspicuous provision of the revised plan is a new fee schedule that would generate an additional $201 million in revenue. This represents an average fee hike of roughly 15 percent, 

which is not insignificant to those who write the corresponding 

checks. The fee schedule has been developed, in large part, based 

on funding shortfalls at the Agency that have resulted from revenue diversion. 

Everyone in this room is aware of the ongoing appropriations 

practice of using a portion of PTO fee revenue to subsidize other 

programs unconnected to the Agency. Well, none of us like it, but 

progress has been made in the past two or 3 years in curtailing fee 

diversion. We all want an efficient and productive PTO that has 

the resources it needs to serve the inventors and trademark holders of the United States. 

Besides the fee increase, we must also consider what the extra 

revenue buys. We know about outsourcing the search function at 

PTO, ramping up paperless operations at the Agency and overhauling the certification of employees. But the Subommittee needs 

to evaluate these, and the many other proposals that are part of 

the revised plan. 

We have an excellent roster of witnesses today who are very 

knowledgeable about the PTO, both its strengths and its witnesses, 

and we look forward to their testimony momentarily. 

I will now recognize the Ranking Member, Mr. Berman of California, for his opening statement. 

[The prepared statement of Mr. Smith follows:]

PREPARED STATEMENT OF THE HONORABLE LAMAR SMITH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

It is well-known that patents have played a central role in our industrial and economic history since Thomas Jefferson served as the first patent commissioner. 

In fact, one of my predecessors, Representative Benjamin Butterworth of Ohio, 

Chairman of the House Committee on Patents in 1891, offered this critique of intellectual property and its contributions to the growth and development of the United 

States:

• [N]either the most profound thinker nor the wildest dreamer could have anticipated such marvelous changes and improvements as have been wrought 

out under our Patent System. . . . If some member of the [Constitutional 

Convention], endowed with the gift of prophesy, had arisen in his place, and 

in plain speech disclosed what their children would behold at the close of the 

first century as a result of the power conferred upon Congress in [Article 1, 

section 8 of the Constitution], . . . his associates would have felt an anxious 

concern in regard to his mental health.

This is what Chairman Butterworth said about the value of our patent system 

more than 100 years ago. What would he say today, surrounded as we are by computers, high-definition television sets, cell phones, and other patented inventions? 

The jury is in and the verdict is unanimous: patents are critical to the economic 

health of our nation and the welfare of our citizenry. A corollary of this truth is that 

the system by which we approve patents is important. And that is why we are here 

today—to evaluate a plan developed by Director Rogan that is intended to strengthen the operations of the U.S. Patent and Trademark Office. 

Director Rogan developed his five-year Strategic Business Plan for the PTO in response to a congressional mandate. Last year the Subcommittee conducted an oversight hearing on the original Plan, which led to informal discussions between the 

agency and the major user groups. The talks were productive and we now have a 

3

revised Strategic Plan that incorporates many of the constructive suggestions offered 

by the user groups. 

The most conspicuous provision of the revised Plan is a new fee schedule that 

would generate an additional $201 million in revenue. This represents an average 

fee hike of roughly 15%, which is not insignificant to those who write the corresponding checks. 

The fee schedule has been developed in large part based on funding shortfalls at 

the agency that have resulted from revenue diversion. Everyone in this room is 

aware of the ongoing appropriations practice of using a portion of PTO fee revenue 

to subsidize other programs unconnected to the agency. None of us like it, but 

progress has been made in the past two or three years in curtailing fee diversion. 

We all want an efficient and productive PTO that has the resources it needs to serve 

the inventors and trademark holders of the United States. 

The fee increase will be the focus of today’s hearing, but we must also consider 

what the extra revenue buys. We know about out-sourcing the search function at 

PTO; ramping-up paperless operations at the agency; and overhauling the certification of employees. But the Subcommittee needs to evaluate these and the many 

other proposals that are part of the revised Plan in more detail. 

We have an excellent roster of witnesses who are knowledgeable about PTO, its 

strengths and weaknesses. I look forward to their testimony today. I now recognize 

the Ranking member from California for his opening statement.

Mr. BERMAN. Well, thank you very much, Mr. Chairman. 

I appreciate your calling this hearing, and I apologize if, for parts 

of the testimony, I have to leave because there’s an amendment I’m 

interested in that’s on the floor right now related to the supplemental. I want to welcome Director Rogan and our other distinguished witnesses. 

Basically, going to the points I guess I would like to make. The 

PTO, as the Chairman said, plays a vital role in fostering innovation and generating substantive commercial activities, but we need 

some immediate changes. Currently, patent pendency is over 25 

months. The office has a backlog of 400,000 applications waiting to 

be examined, with over 300,000 more expected to be filed this year. 

My guess is that somewhere in that backlog of 400,000, there are 

life-enhancing, productivity-increasing job producing items, and 

technologies, and new drugs that we would be better having today 

than waiting for. 

The PTO is, and has been, overwhelmed by its ever-increasing 

workload. As many of us know, firsthand, the Strategic Plan is 

comprised of roughly 400 pages, and enthusiastically details a proposal to implement sweeping changes in the way the PTO currently 

conducts its business. 

The Director and others who have labored in creating this ambitious document really deserve, I think, our deepest commendations. 

One of the issues we have talked about for a long time was the absence of a Strategic Plan and the ability to go to others, particularly the appropriators, and say, ‘‘Here’s where the PTO is headed. 

Here’s where that vision of the office is.’’

They have provided us with this, and without that vision, it 

would be nearly impossible for this Subommittee to understand 

and support any provisions of the plan or changes to the fee schedule. But I am concerned about a couple of issues. One of them was 

raised by the Chairman. 

First, I think before we consider the issue of a fee increase, it 

seems to me we’ve got to take a look at the issue of fee diversion 

and to understand where we all stand in terms of our commitment 

to end this practice. Without a willingness on all of us, Members 

4

and interested parties in the PTO to put in a sincere effort to end 

the diversion of PTO funds, I don’t see the logic of raising the fees. 

I have in the past and I’m willing now to work for this goal, but 

I wouldn’t expect my colleagues to champion a cause such as this 

without having the active participation and firm commitment of all 

of the influential industry groups that want us to deal with this 

backlog, that are willing to support a reasonable fee increase to increase the productivity, but don’t prioritize the pro—stopping the 

diversion. 

And let me tell you, I very much want to see greater discretionary funding. If you want to put in a freeze on the top tax bracket, I’m fine with it. If you want to increase the gas tax, I’m fine 

with it. Other ways to find appropriation revenues for the Federal 

Government to spend on the problems of the American people, I 

think it’s very important, but the notion that we’re going to take 

this almost foolish method, which is we’re going to tax innovation 

through a substantial increase in fees in order that that can be diverted into more general funding appropriations is the dumbest 

way to do it, and I don’t see why we should be part of that process. 

So I think we have to address the issue of the diversion, and at 

least I’m not persuaded that the Administration, at its highest levels, is a partner in that effort, and I am not yet persuaded that the 

corporate world and the world of patent applicants is willing to 

prioritize this issue enough to make it possible for us to go beyond 

this Subommittee in terms of prohibiting the diversion. So I think 

we have to address the fact of that prohibition as we consider this 

plan. 

There are a number of other issues involved in the Strategic 

Plan, which I want to ask questions about, but, again, I think it 

is bold and interesting. There are some issues involving increases 

in fees, but decreasing the time for patent examiners, and I want 

to figure out how that affects patent quality, the whole question of 

having someone else do searches, but when I am told that the examiner in the end is going to have to do pretty much a search anyway, and is that really a basis for saving time for the patent examiner I think deserves some probing. I guess there are some questions about how the fee increases are proposed, but the fundamental concern to me is that we address the issue of the diversion 

at the same time as we address the Strategic Plan because that is 

the logic for the fee increases; to make this a better, faster, higherquality patent process, and with the diversions still allowed, we 

could do all of that and get nothing for it. 

Mr. SMITH. Thank you, Mr. Berman. 

Let me thank all of the Members for their presence here, and 

without objection, their opening statements will be made a part of 

the record. 

[The prepared statement of Mr. Conyers follows:]

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR. A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN

It’s nice to see our former Judiciary colleague Jim Rogan back here. The U.S. Patent & Trademark Office always has played a crucial role in America’s economy. The 

last decade has seen an unprecedented boom in technology, due mainly to the invention of new technologies and patents granted on them by the PTO. The importance 

of patents to technological advancement is evidenced by the rapid increase in the 

5

number of patent applications. As our economy grows and technology advances, our 

oversight over the PTO becomes even more important. 

Past oversight indicated that we needed to streamline the PTO. We were able to 

accomplish that to a certain extent with the American Inventors Protection Act of 

1999. Among other things, the bill restructured the agency to make it more efficient 

and effective at examining patents and registering trademarks. Unfortunately, the 

PTO still faces obstacles to becoming completely efficient. 

As you all may be aware, the PTO takes no money from taxpayers; instead, it is fully funded by user fees and generates approximately $1 billion per year in revenues from those fees. This success has been an Achilles’ heel—the Administration 

and appropriators take advantage of the revenues and treat the PTO as a cash cow, 

diverting hundreds of millions of dollars of fees every year for other government programs. That diversion is making it difficult for the PTO to hire or even retain qualified examiners. 

But these are not just concerns about personnel and efficiency—there are real 

world issues. The lack of resources has caused the time period between the filing 

of a patent application and a final decision on it to grow from 19.5 months to 26 

months in just a few years and is expected to be 38.6 months by 2006. At that rate, 

inventions will be obsolete by the time they’re patented. Our technological advancement and our economy can only suffer if Congress and the Administration sit idly 

by while this happens. 

Fortunately, former Subcommittee Chairman Coble, Ranking Member Berman, 

and I worked on several pieces of legislation to address these issues, hoping they 

would send a message that diversion is wrong and must be stopped. Unfortunately, 

the problem continues. 

The PTO now has proposed a new plan to modernize itself. Among other things, 

the plan calls for an increase in filing fees and for the use of outside contractors 

to conduct patent searches. I have reservations about both of these proposals. First, 

it is troubling to me that we would raise fees for patent applicants at the same time 

that their money is being diverted to other, unrelated programs. By increasing fees 

without stopping diversion, we could be creating a bigger pool of money from the 

Administration and the appropriators could steal. 

Second, I believe the use of outside contractors could raise many issues. Searching 

old patents and journals is one of the core functions of the PTO and its examiners, 

giving that job to outside companies would be like having the SEC hire someone 

else to review IPO’s. Moreover, I would like to know what protections patent applicants would have for contractors that do bad searches—would applicants get extra 

time for their applications? Finally, there could be major conflicts of interest if a 

company that seeks patents gets hired as a contractor. 

These are some of the questions I have and hope can be answered during this 

hearing.

Mr. SMITH. Our first witness is the Honorable Jim Rogan, under 

secretary of Commerce for Intellectual Property and Director of the 

U.S. Patent and Trademark Office. We all remember him as a colleague, and a valued one at that, who served on this Subommittee 

from 1997 to 2001. 

Director Rogan has a distinguished career in public service. He 

was a prosecutor in the Los Angeles County District Attorney’s Office and became California’s youngest sitting State court judge in 

1990, before his election to the California State Assembly in 1994. 

Judge Rogan earned a B.A. degree from the University of California at Berkeley, and his J.D. from UCLA School of Law, where 

he also served as a member of the law review. 

Our next witness is Mike Kirk, who serves as the executive director of the American Intellectual Property Law Association. In 

1993, Mr. Kirk served as the acting assistant secretary of Thomas 

and acting commissioner of Patents and Trademarks, and from 

1994 to 1995, he served as the deputy assistant secretary of Commerce and deputy commissioner of Patents and Trademarks. 

Mr. Kirk earned his bachelor’s of science in electrical engineering 

at the Citadel, his juris doctorate from Georgetown Law Center, 

and his master’s of public administration from Indiana University. 

6

Our next witness is John K. Williamson, president of Intellectual 

Property Owners, and chief intellectual property counsel for PPG 

Industries. Prior to joining PPG, in 196, he had been the chief patent counsel for Westinghouse Electric Corporation and for Allegheny International. Mr. Williamson is an adjunct professor of law 

at Duquesne University. He received a B.S. in mechanical engineering and a juris doctorate from the University of Missouri. 

Our last witness is Ronald J. Stern, president of the Patent Office Professional Association. Mr. Stern holds a bachelor’s degree 

from the City College of New York and a law degree from George 

Washington University. He has worked as a primary examiner at 

PTO since 1964. 

It is nice to have you all with us. We have written statements 

from you all, which will also be made a part of the record, and let 

me remind you, we would like to adhere to the 5-minute rule for 

testimony, and there will be ample times, I am sure, for questioning after that. 

With that, Director Rogan, we will begin with you, and look forward to your testimony. 

STATEMENT OF HONORABLE JAMES ROGAN, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY 

AND DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE 

Mr. ROGAN. Mr. Chairman, Ranking Member Berman, and Members of the Subommittee, thank you for the opportunity to testify 

today on the challenges facing the PTO. 

It’s a special privilege, Mr. Chairman, to appear before you in 

your new capacity as Chairman of the Subommittee. You have always shown a keen appreciation for the importance of intellectual 

property in our Nation’s economy. I look forward to continuing 

working with you, and my good friend, the Ranking Member, and 

the other Members of this Committee on the many intellectual 

property issues that will come before this body during your chairmanship. 

Mr. Chairman, as you indicated in your prepared remarks, last 

year, the Subommittee conducted two important hearings on the 

PTO. At those hearings, I detailed the impending crisis confronting 

the office due to our increasing large and complex workload. On 

both occasions, I testified that without fundamental changes to the 

way the PTO operates, the quality of patents and trademarks we 

issue likely will deteriorate, and the time it takes for applications 

to be reviewed will skyrocket. 

I quoted a 1981 U.S.News & Word Report article on the PTO 

which said, ‘‘The U.S. patent process is so sluggish, outdated and 

undependable that it is contributing to the decline of innovation in 

America.’’

Mr. Chairman, what was the reason for this editorial pessimism 

over two decades ago? It was because back then the average tendency for a patent application was 22 months, and there was a backlog of 75,000 applications awaiting review. Over 20 years later, the 

bad news is that the quality and pendency problems facing our 

agency are exponentially greater and a threat to the health of 

America’s intellectual property system. 

7

Currently, the average pendency wait for an application is over 

2 years, and in some critical technologies it can be three, four, five 

or more years, and it is expected to keep going up. Also, we get 

about 350,000 new applications each year, and they are added to 

a backlog that we have right now of almost a half-million pending 

applications. 

As the charts before you show, if the status quo remains, the inventory of unexamined patent applications will speed light years 

beyond the mere 75,000 lamented in that 1981 article. It will explode to a backlog of over one million applications by 2008, more 

than double the current amount. Over 140,000 patents will not 

issue over the next 5 years, and average pendency, will jump to 

over 40 months. The patent system as we know it might well collapse as an effective tool for IP protection. 

The good news is that we now have a 5-year strategic plan, supported by the Administration and scores of America’s largest companies and intellectual property groups, that will help abate this 

crisis. The 21st Century Strategic Plan pursues three main objectives: making the application process simpler and faster, being 

more responsive to the needs of our customers and the demands of 

the global marketplace, and to be more productive. 

Assuming the needed changes to our fee structure are passed by 

Congress, the plan will help enhance the quality of patent and 

trademark operations, control patent and trademark pendency, 

allow us to hire almost 3,000 new patent examiners, transition 

from paper to e-Government processing for trademarks by November of this year and deliver an operational e-Government processing system for patents by October 2004. 

Our plan will ensure that quality permeates every action of the 

PTO by hiring the people who make the best patent and trademark 

examiners, certifying their knowledge and competencies throughout 

their careers and focusing on quality in all aspects of the examination process. 

These initiatives will bolster confidence in the quality of U.S. 

patents and trademarks, which will help spur the economy and reduce litigation costs. 

The consensus we have achieved on this historic plan is due to 

the hard work and dedication of groups, such as are before us 

today: the AIPLA, IPO, the ABA’s Intellectual Property Law section, BIO, INTA and our Patent and Trademark Public Advisory 

Committees, just to name a few. I want to express my sincere appreciation for their partnerships and their support of the plan’s 37 

action initiatives. 

Finally, Mr. Chairman, I commend and thank both you and 

Ranking Member Berman for introducing yesterday H.R. 1561. I 

firmly believe this legislation is a critical step forward in giving the 

PTO the tools needed to avert a catastrophe and to help us field 

a nimble, flexible PTO that can respond rapidly to changing market conditions. 

[The prepared statement of Mr. Rogan follows:]

PREPARED STATEMENT OF JAMES E. ROGAN

Chairman Smith, Ranking Member Berman, and Members of the Subcommittee: 

Thank you for this opportunity to testify today on the challenges facing the 

United States Patent and Trademark Office (USPTO). It is a special privilege, Mr. 

8

Chairman, to appear before you this morning in your new capacity as Chairman of 

this Subcommittee. You have a keen appreciation of the importance of intellectual 

property protection to our nation’s economy, and I look forward to working with you 

and my good friend, Ranking Member Berman, in the months ahead on the many 

intellectual property issues that will come before this body. 

In April and July of last year, this Subcommittee conducted two important oversight hearings on the operations and funding of the USPTO. At both of those hearings, I detailed the impending crisis confronting the Office due to our increasingly 

large and complex workload. On both occasions I testified that without fundamental 

changes to the way the USPTO operates, the quality of the patents and trademarks 

we issue likely will deteriorate, and the time it takes for an application to be reviewed will skyrocket. Indeed, patent pendency rates in the United States now average over two years, and in some critical technologies pendency averages four years. 

Without significant changes to our method of processing applications, the pendency 

time for the average application will soon reach three to four years. 

There is both good news and bad news to report since those hearings took place. 

The bad news is that the quality and pendency crisis facing our agency has not 

gone away. In fact, these problems are a greater threat to the health of America’s intellectual property system than ever. Moreover, the longer we wait to confront 

these issues, the more costly and time consuming it will be to overcome them. 

All is not without hope, however. 

The good news is that we have a plan—a revised, comprehensive five-year strategic plan—supported by the Administration, including the Office of Management 

and Budget, and constituency groups that will put us on a path to meeting these 

challenges in the months and years to come. The 21st Century Strategic Plan is targeted toward timeliness, e-Government, employee development and competitive 

sourcing—all with a central quality focus. Assuming the needed changes to our fee 

structure are passed by Congress, the Plan will boost productivity and substantially 

cut the size of our inventory. It will transform the USPTO into an information age, 

e-commerce based organization, which is the goal of President Bush’s Management 

Agenda. Because intellectual property-based enterprises represent the largest single 

sector of the U.S. economy, the Plan will also promote economic growth. 

The 21st Century Strategic Plan is built on the premise that American innovators 

need to obtain enforceable intellectual property rights here and abroad as 

seamlessly and cost-effectively as possible. It provides a roadmap for creating an 

agile organization worthy of the leadership role American intellectual property plays 

in the global economy. 

Let me take a few moments to summarize the sequence of events that has led 

us to where we are today. 

When I arrived at the USPTO sixteen months ago, I initiated an aggressive topto-bottom review of the agency to identify new and possibly nontraditional ways to 

improve quality and reduce pendency. This review was in response to the expectations and demands of the President and Secretary of Commerce, Congress, the owners of intellectual property, the patent bar, and the public-at-large. All wanted us 

to boldly address the challenges of improving quality, reducing pendency, and implementing e-government. 

Last year we started to design a new plan for how the USPTO should operate. 

That Plan—our 21st Century Strategic Plan—was unveiled last June and pursued 

three main objectives: (1) to make the application process simpler, faster, and more 

efficient; (2) to be more responsive to the needs of our customers and to the demands of the national and global marketplaces; and (3) to be more productive. 

The original Plan was particularly bold and marked a fundamental departure 

from business as usual. Resistance to change being what it is, some of the Plan’s 

provisions—particularly those concerning deferred examination, applicant-commissioned searches, mandatory Information Disclosure Statements, and changes in 

some of our fees—was criticized. 

We spent much of last summer and fall listening to those who had suggestions 

for ways to improve the Plan. I am pleased to report that these discussions were 

fruitful. They helped us draft a revised Strategic Plan that (while more modest than 

its first incarnation) recognizes that the USPTO’s current business model and fee 

structure fails to meet the realities of the 21st century. Today, the Plan’s 37 action 

initiatives and fee changes are endorsed by the American Intellectual Property Law 

Association (AIPLA), the Intellectual Property Owners Association (IPO), the American Bar Association’s Section of Intellectual Property Law, the Biotechnology Industry Organization (BIO), the International Trademark Association (INTA), our 

Patent Public Advisory Committee and our Trademark Public Advisory Committee. 

9

In addition, nearly one hundred of America’s largest companies and intellectual 

property groups have expressed their support. 

The key features of our revised Strategic Plan, which we submitted to the House 

and Senate last month in conjunction with the President’s 2004 budget request, will:

• Enhance the quality of patent and trademark examining operations through 

consolidation of quality assurance activities.

• Accelerate processing time by transitioning from paper to e-government processing for trademarks by November 2, 2003—in tandem with implementation 

of the Madrid Protocol.

• Deliver an operational system to process patent applications electronically by 

October 1, 2004, including electronic image capture of all incoming and outgoing paper documents.

• Control patent and trademark pendency and reduce time to first Office actions.

• Competitively source patent application classification and search functions, 

and concentrate Office expertise as much as possible on the core examination 

functions.

• Provide for the hiring of almost 3,000 new patent examiners over the next 

five years.

• Expand our bilateral and multilateral discussions to strengthen intellectual 

property rights globally and, through work sharing, reduce duplication of effort among offices.

Changes in the Plan made at the behest of the user community required us to 

jettison our earlier goal of reaching 18-month average pendency. This is because of 

the higher priority the revised Plan places on quality and patent e-government initiatives. Nonetheless, our goal will be to produce, on average, a ‘‘first office action’’

for non-provisional applications at the time of 18-month publication. In addition, we 

seek to have a patent search report for other patent applications issuing in the same 

time frame. 

Let me highlight some of the proposed changes in the Plan that I think are of 

the greatest significance. 

First, we originally called for a legislated deferral of examination of up to 18 

months from the earliest filing date. The revised Plan provides an administrative 

alternative that will give applicants the option of abandoning their applications 

prior to search or examination and receive a partial fee refund. This alternative will 

still achieve many of the benefits of deferred examination. 

Second, the original Strategic Plan required applicants to provide search reports 

obtained from commercial search organizations. Under the new Plan, the USPTO 

will contract the search from commercial search organizations or foreign offices, not 

the applicant. 

Third, the punitive fees we originally proposed for excessive claims and pages of 

complex specifications have been replaced with a linear fee system to ensure that 

fees charged for excessive claims and pages of complex specifications are proportional to the increased processing costs. 

Lastly, the originally proposed four-track examination system has been revised in 

favor of a multiple track of five filing options. 

The revised Plan emphasizes our commitment to testing and evaluating the initiatives, most notably in the areas of outsourcing, quality enhancements and e-Government. All of the initiatives in the Plan will be subjected to thorough evaluation. The 

implementation plans accompanying each of the proposed initiatives contain specific 

milestones for initiating pilot projects and evaluating the data before deployment 

decisions are made. 

Quality must permeate every action taken by every employee of the USPTO, and 

this Plan will assure quality by hiring the people who make the best patent and 

trademark examiners, certifying their knowledge and competencies throughout their 

careers, and focusing on quality in all aspects of the examination of patent and 

trademark applications. For example, quality will be engineered into our processing 

by ensuring proper training and certification of examiners and expanding the ‘‘second-pair-of-eyes’’ review in selected technology areas. We believe these initiatives 

will bolster confidence in the quality of U.S. patents and trademarks, thereby spurring our economy and reducing litigation costs. 

Another critical element of quality enhancement is tied to competitively sourcing 

the search function so that we can concentrate examiners’ expertise as much as possible on the sovereign, core government function of patentability decision-making. 

When examiners are provided with quality search results and do not need to perVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
10

form a separate search, they will be able to concentrate their efforts on what they 

do best: the determination of patentability. Reducing examiners’ prior art search responsibilities will also achieve greater examiner productivity. 

The USPTO has relied upon the European Patent Office’s (EPO) search examiners 

in The Hague to perform searches of applications filed under the Patent Cooperation 

Treaty. These searches, which cover virtually every technology including biotechnology and telecommunications, are one way of managing the massive workload 

problem we face. The results to date on more than 75,000 searches conducted by 

the EPO over the past four years have been positive and confirmed through extensive surveys of U.S. patent applicants who have consistently expressed the view that 

EPO searches are high quality in nature. 

By outsourcing the search function, we can ensure that the patent examiners of 

tomorrow will be like the quality review examiners of yesterday in that they will 

begin with a more complete search and set of information as their starting point. 

To that end, we will be diligent in selecting and monitoring the contract or foreign 

searching authorities to ensure that patent searches provided by them are of the 

highest quality. 

The consensus we have achieved is due to the hard work and dedication of groups 

such as the AIPLA, IPO, the ABA’s Section of Intellectual Property Law, BIO, 

INTA, the Patent Public Advisory Committee and the Trademark Public Advisory 

Committee. I want to express my sincere appreciation for their partnerships. 

It is important to note that our partners recently have expressed concerns that 

the new fee system will not guarantee that the USPTO have access to all of its user 

fees. The Administration shares these concerns. President Bush cut the level of ‘‘fee 

diversion’’ by nearly fifty percent from the FY 2003 Budget level in the Administration’s FY 2004 budget request for our agency. Last month Commerce Secretary Don 

Evans addressed this topic while testifying before a subcommittee of the House Appropriations Committee. There he said ‘‘the Department is working to eliminate the 

practice of using USPTO revenues for unrelated federal programs. Making more fees 

available sooner will enable the agency to increase the quality of patents and trademarks issued.’’ The concern over ‘‘fee diversion’’ has led some in the patent community now to 

recommend that our fee proposal be amended so that any new fee structure would 

sunset after a period of two or three years. This idea, never raised during discussions leading to our accord, is flawed and would cast grave doubt upon the desirability of the Administration supporting a revised fee bill containing such a provision. 

As the Members of the Subcommittee know all too well, Congress has given the 

USPTO clear directives to develop and implement a five-year plan. Subjecting our 

fee structure to a sunset provision would result in an unacceptable level of uncertainty. It would cripple the USPTO from making any long-range planning or investments in infrastructure, training, or recruiting. For example, under a sunset provision, exigencies could force us to lay off the approximately 3,000 patent examiners 

we intend to hire over the next five years. At the very least, a sunset provision 

would frustrate our efforts to recruit qualified scientists and engineers for the patent examining corps. 

A sunset provision would also cast a shadow of uncertainty on American businesses and inventors who, in return for a set fee structure, have an expectation that 

services will be improved with respect to pendency, quality, and e-government. This 

provision would decrease predictability and thereby raise costs and increase pendency. 

Mr. Chairman, if we want to ensure a more vibrant, seamless, and cost-effective 

American intellectual property system, our 21st Century Strategic Plan offers a sensible and pragmatic means for achieving it. But this all hinges on passage of our 

revised fee structure. Without the ability to hire and train new examiners and also 

improve our infrastructure, our hands will be tied. 

The consequences of failing to enact the fee bill and giving the USPTO access to 

those fees will mean quality and pendency will continue to significantly suffer. We 

will be unable to hire needed examiners, and over 140,000 patents will not issue 

over the next five years. The inventory of unexamined patent applications will skyrocket to a backlog of over one million applications by 2008—more than double the 

current amount—and pendency (as measured from the time of filing) will jump to 

over 40 months average in the next few years. This would represent the highest 

pendency rate in many decades. 

11

Surely we all agree that this scenario is unacceptable. Therefore, I am asking this 

Subcommittee to give us the tools needed to avert this crisis—and to let us field 

a nimble, flexible USPTO that can respond rapidly to changing market conditions. 

Time is not on our side, and the ramifications for the future of innovation and our 

economy are great.

Mr. SMITH. Thank you, Director Rogan. 

Mr. Kirk? 

STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, 

AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION 

[AIPLA] 

Mr. KIRK. Thank you, Mr. Chairman, and Members of the 

Subommittee. I am pleased to have the opportunity to present the 

views of the AIPLA on H.R. 1561 and the 21st Century Strategic 

Plan. 

The PTO is in a crisis. The Patent and Trademark systems have declined steadily over the last decade. Over $650 million in user 

fees have been diverted since 1992. Quality has suffered. It is taking longer to get patents, and only a fraction of patent applications 

are filed electronically and none are processed electronically. 

AIPLA strongly endorsed the three principal goals of the original 

Strategic Plan: quality, timeliness and electronic filing and processing. The original plan contained several desirable innovations to 

enhance patent quality. 

There were a number of proposals in the original plan, however, 

that we found objectionable: 

One was for an 18-month statutory deferred examination system. 

Another would allow applicants to select private contractors to perform searches and to provide those searches directly to the PTO. 

We have worked diligently with Under Secretary Rogan and his 

colleagues to find acceptable alternatives. We commend the Under 

Secretary for the manner in which he has engaged with us to find 

consensus on the plan. 

Last fall, Under Secretary Rogan shared with us an early draft 

of the summary that was published in February of this year. In 

view of those refinements, AIPLA endorsed the Strategic Plan. 

On the critical issue of diversion, Secretary Evans testified last 

month for the first time that a very senior Administration official 

had ever testified, stating an intention to work toward the elimination of diversion. This is a first. 

Given his commitment and the proposed lowering of the diversion by 40 percent over the level proposed last year, AIPLA believes that progress has been made on diversion an can support 

H.R. 1561, but only with, now, two important caveats. In our prepared statement before H.R. 1561 was introduced, we expressed 

concern about the effective date. This concern is obviated with the 

effective date provision in H.R. 1561. 

Turning to our remaining concerns, first, any fee bill enacted, in 

our opinion, must have a sunset. Under the sunset provision we envision, the fees set in H.R. 1561 would revert to the current fee 

schedule after 3 years unless extended by Congress. This would 

give the Administration and the user community the opportunity 

to convince the congressional appropriators to reduce and/or eliminate diversion. If the appropriators do not continue on the path 

12

started by the PTO and the Department of Commerce, we see no 

reason for the higher fees to continue. 

AIPLA continues to believe that the PTO’s Strategic Plan, following successful testing and pilot projects, represents the best approach to address the problems of quality, pendency and e-filing, 

given the constraints imposed on the PTO, of which we are all 

aware. Unless our belief is proven wrong, we will be among the 

first to ask Congress to continue the new fee schedule if progress 

is made in eliminating diversion. In the absence of progress in 

eliminating diversion, we believe the higher fees should end on 

September 30, 2006. 

Secondly, H.R. 1561 would authorize the Director to set the fees 

for searching patent applications. This fee has historically been a 

component of the fee for filing of patent application, and Congress 

has always properly reserved for itself the right to set that fee. We 

see no reason to change this practice. 

The PTO has dropped its proposal for a permanent statutory 18-

month deferred examination system, replacing it with a flexible deferred examination system. Allowing the deferral period to be determined by how long it takes the PTO to reach an application is, 

in our view, not acceptable. This would create even greater uncertainty than the original 18-month deferred examination proposal. 

AIPLA wants an average 18-month pendency for all patent applications at the earliest practicable time. Working toward this goal, 

the PTO should focus on providing a search sufficiently early to 

allow applicants to decide whether to proceed with examination before publication occurs at 18 months. This would inform the public 

whether a patent is being sought and would reveal the search results when a decision is made to proceed. 

We recognize that, in the near term, applicants in the worst 

back-logged areas are not going to receive searches in time to make 

decisions about examination prior to 18-month publication. For 

these applicants, AIPLA is not opposed to their being asked whether they wish to proceed at a time closer to when examination would 

actually occur, with the understanding that the PTO will make 

every effort to complete searches so that they can be published 

with the request for examination at 18 months. 

Failure to enact an appropriate fee bill to fund a sound Strategic 

Plan is not an option. We look forward to reviewing the detailed 

proposals in the revised plan published just yesterday and working 

with the PTO, should we find any areas of the plan that we believe 

could be further refined and improved. 

We thank you, Mr. Chairman, for holding this hearing. We would 

be pleased to answer any questions you might have. 

[The prepared statement of Mr. Kirk follows:]

PREPARED STATEMENT OF MICHAEL K. KIRK

Mr. Chairman: 

I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on the ‘‘United States Patent and Trademark Office Fee Modernization Act of 2003.’’

The AIPLA is a national bar association of some 14,000 members engaged in private and corporate practice, in government service, and in the academic community. 

The AIPLA represents a wide and diverse spectrum of individuals, companies and 

institutions involved directly or indirectly in the practice of patent, trademark, copyVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
13

right, and unfair competition law, as well as other fields of law affecting intellectual 

property. Our members represent both owners and users of intellectual property. 

BACKGROUND

AIPLA said last year that the United States Patent and Trademark Office (PTO) 

is in crisis. We believe it remains in crisis. The viability of our nation’s patent and 

trademark systems has been steadily eroded over the last decade. The Executive 

Branch and the Congress have participated in diverting fee revenues from the PTO 

since 1992. To date, over $650,000,000 in patent and trademark fees paid by PTO 

users have been diverted from, rescinded, or made unavailable to the Office. Quality 

has suffered. Large and small companies are increasingly being subjected to litigation (or its threat) on the basis of questionable patents. Patent applicants are encountering longer delays in obtaining protection for valuable new technologies. Until 

the sharp decline in the filing of trademark applications, delays in obtaining trademark registrations were hampering the marketing efforts of large and small businesses, increasing uncertainty in the marketplace. And while over half of all trademark applications are now filed electronically, only a fraction of patent applications 

are filed electronically, and neither patent nor trademark applications are currently 

processed electronically through the Office. 

At the Oversight Hearing which the Subcommittee held on April 11, 2002 on the ‘‘The U.S. Patent and Trademark Office: Operations and Fiscal Year 2003 Budget,’’ AIPLA testified that achieving a strong and effective Patent and Trademark Office 

would require focusing on three critical objectives: quality, timeliness and improved 

electronic filing and processing capabilities. AIPLA expressed its support for the topto-bottom review of the operations which Under Secretary Rogan had undertaken, 

as well as the strategic planning process that the Congress and the user community 

had been requesting for years. While we reiterated our strong opposition to any diversion of patent and trademark fees, we stated that we would support a reasonable 

statutory fee increase to implement a five-year plan that would achieve the goals 

that the PTO, Congress and we seek. 

On June 3rd, the PTO released its original 21st Century Strategic Plan and fee 

legislation to implement it. AIPLA found a number of positive features in the Plan 

and fee bill. Central to the original Strategic Plan’s approach for improving quality 

and reducing pendency of patents was a ‘‘Four-Tracks Patent Examination Process’’

which would base patent examination by PTO examiners on patent searches conducted by private firms and foreign patent offices. By using patent searches from 

these other sources, the PTO hoped to off-load search work from examiners, allowing them to concentrate on the core government function of examination. An 18-

month deferred examination system was an integral feature of the Four Tracks system. 

We stated then and we reiterate now: were AIPLA given a blank sheet of paper, 

we certainly would not have opted for the Four Tracks system. In the abstract, we 

believe that separating search and examination makes no sense. This requires two 

individuals to familiarize themselves with the details of the invention—one to 

search and the other to examine. That is not as efficient as having one person responsible for both search and examination. The one office with the most experience 

with separate search and examination, the European Patent Office, is abandoning 

this approach in favor of having one person perform both functions—the way the 

PTO currently does. 

But AIPLA approaches the evaluation of the PTO’s operational changes in the 

real-world context in which it has been proposed. Notwithstanding the fact that the 

United States patent examination system has been developed and perfected over a 

two-hundred-year period, we recognize that the PTO has to work in a system of constraints imposed by the Executive Branch and the Congress. While the PTO could 

continue to pursue a more traditional approach of asking for increased examiner resources to improve quality and reduce pendency, neither the Executive Branch nor 

the Congress are going to listen. Congressional appropriators have made it very 

clear that they demand a new approach, one that seeks other ways to tackle these 

problems. So we could argue for the old way and watch the system continue to deteriorate. Instead, we choose to work with the PTO to develop alternative ways to address the problems, ways that might gather the needed support. As we stated in 

our earlier testimony, we can either curse the darkness or light a candle. AIPLA 

chooses to light a candle. 

AIPLA found that the original Strategic Plan contained several desirable innovations. We endorsed initiatives to:

• create a competitive compensation package for Supervisory Patent Examiners 

to attract and retain the best employees in these jobs,

14

• develop suitability tests for potential examiner candidates,

• establish ‘‘training art units’’ for new examiners in high volume hiring areas,

• develop a testing process to certify examiners for promotions, and

• expand to other patent areas the ‘‘second set of eyes’’ concept successfully 

used with business method patents.

All of these initiatives will enhance patent quality. We also endorsed charging claim 

fees that would ensure that applicants pay the actual costs of processing applications containing large numbers of claims. 

At the same time, there were a number of features in the original Strategic Plan 

that we found objectionable. One of these was the notion of implementing permanent, statutory, deferred examination for a period of 18 months as included in the 

PTO’s proposed Four-Tracks system and the accompanying fee bill. We believed 

then, and still believe now, that the benefits projected by the PTO for itself and patent applicants were outweighed by the resulting extended period of uncertainty during which the public would be left in the dark regarding whether a patent will issue 

or what its scope will be. We also opposed requiring an applicant to select a Certified Search Contractor to perform the initial prior art search and provide the results to the PTO. In our view, the PTO must remain responsible for ensuring the 

adequacy and scope of the search results returned by the contractor. 

We found the proposal by the PTO to have applicants pay increased excess claim 

fees to fund the extra work such claims might entail to be punitive in nature and 

unrelated to the actual amount of extra work involved. Similarly, we found the surcharges the PTO proposed to levy on applications merely because they contain 

claims that were patentably indistinct from claims in other applications from the 

same applicant would severely penalize applicants who are not seeking to game the 

system. 

During the months following the release of the original Strategic Plan and fee bill, 

AIPLA met with PTO officials to explain our concerns and to work with them to 

find acceptable alternatives. We would like to commend Under Secretary Rogan and 

his staff for the manner in which they engaged in the effort to achieve the quality, 

pendency, and e-filing goals in a manner that addressed our concerns. 

On October 24, 2002, AIPLA joined with the Intellectual Property Owners Association (IPO), the International Trademark Association (INTA), and the Biotechnology Industry Organization (BIO) in a letter to OMB Director Mitchell E. 

Daniels, Jr. to express support for the efforts of the United States Patent and 

Trademark Office (PTO) to address the crisis situation facing the patent and trademark systems (a copy of that letter is attached). We stated that the 21st Century 

Strategic Plan developed by Under Secretary Rogan represented an innovative and 

ambitious program to enhance the quality of patents and trademark registrations, 

to reduce the unacceptably long and growing times it takes to obtain them, and to 

achieve efficient, reliable, and user-friendly electronic filing and processing of patent 

and trademark applications. While we listed our reservations about certain details 

of the Plan, we indicated our full support for the goals that the Plan seeks to 

achieve. We also indicated our willingness to support an increase in funding necessary to implement those portions of the Strategic Plan we endorsed, where their 

effectiveness was proven by appropriate testing and pilot projects. We emphasized, 

however, that our support was contingent on the Executive and Legislative 

Branches effectively addressing the issue of diversion and that we would strongly 

oppose any fee increase not accompanied by an appropriate solution to diversion. 

On November 22, 2002, AIPLA joined with IPO and INTA in another letter to 

OMB Director Daniels to report that, in light of proposed refinements to the Plan 

then recently shared with us by Under Secretary Rogan, we whole-heartedly endorsed the Plan (a copy of that letter is also attached). The three organizations recognized that the PTO would need additional resources to implement its Plan and, 

in that regard, discussed patent and trademark fee increases with the PTO that, 

with projected workload increases, would generate $1.5 billion in FY 2004. We stated that, with proposed refinements to the Plan, including testing and evaluation before deployment where appropriate, we were fully prepared to support a statutory 

fee increase of this magnitude so that the PTO could promptly and fully implement 

the Plan. Again, we reiterated that our support was based upon the assumption that 

the Bush Administration would effectively address the issue of diversion, noting 

that our members would insist that we strongly oppose any proposed fee increase 

that does not include an appropriate solution to diversion. 

15

REVISED STRATEGIC PLAN AND NEW FEE BILL

On February 4th of this year, the PTO published an Executive Summary of its 

revised Strategic Plan and a new fee bill to support it. The first question that must 

be addressed is whether the new fee bill should be supported given the size and nature of the proposed fees (which will raise $1.504 billion), the level of diversion recommended in the President’s Budget ($100 million) and the assurances given by Executive Branch officials to work toward limiting and/or eliminating diversion. As 

previously noted, the amount of fee revenue that would be raised by the revised fee 

bill ($1.504 billion) is in line with what we and our sister organizations indicated 

would be acceptable in our November 22nd letter. 

A Department of Commerce (DOC) press release on its FY 2004 budget contained 

the following language addressing the issue of diversion:

The President has reduced the annual practice of ‘‘fee diversion,’’ under which 

a portion of the United States Patent and Trademark Office’s (USPTO) fees are 

not available to the agency in the year they are collected—by nearly 50% in the 

Administration’s Fiscal Year (FY) 2004 Budget. This bold step is being taken 

as part of Secretary Evans’ efforts to create the conditions for economic growth 

and continued technological leadership by working to eliminate the practice of 

using USPTO revenues for unrelated federal programs.

A PTO press release offered the following comments: 

‘‘The President has reduced the annual practice of fee diversion by nearly 50 

percent in the Administration’s Fiscal Year 2004 Budget,’’ noted Under Secretary James E. Rogan. ‘‘This bold step is being taken as part of Secretary 

Evans’ efforts to create the conditions for economic growth and continued technological leadership by working to eliminate the practice of using USPTO revenues for unrelated federal programs.’’

On March 6th, in testimony on the Department of Commerce’s FY 2004 budget 

before the Commerce, State, and Justice Subcommittee of the House Appropriations 

Committee, Commerce Secretary Don Evans stated:

To support technology innovation and provide for intellectual property protection, the Department is working to eliminate the practice of using USPTO revenues for unrelated federal programs. Making more fees available sooner will enable the agency to increase the quality of patents and trademarks issued.

Finally, on March 20th, in testimony on the Department of Commerce’s FY 2004 

budget before the Commerce, State, and Justice Subcommittee of the Senate Appropriations Committee, Secretary Evans stated:

The Department is also working to eliminate the practice of using USPTO 

revenues for unrelated Federal programs so that a greater share of the applicants’ fees are available to the agency in the year that they are collected.

While these statements are not as unequivocal as we would have hoped, and were 

made in the context of an FY 2004 budget that expressly provides for diversion, this 

is the first time since diversion began in the 1990’s that DOC and PTO officials 

have publicly stated an intention to work toward its elimination. Accordingly, while 

the President’s Budget does not recommend an end to diversion, and Executive 

Branch officials have not set any date for eliminating diversion, AIPLA nonetheless 

understands that some real progress has been made on the diversion front. PTO and 

DOC officials have obviously listened to the concerns expressed regarding diversion 

and have made an effort to respond. AIPLA therefore supports the enactment of a 

fee bill along the lines of the revised fee bill released on February 4th, but, based 

on the information available to us at this time, does so only with three important 

caveats. 

1. Sunset Provision 

First, any fee bill enacted must have a ‘‘sunset.’’ AIPLA and other user groups 

have discussed various forms of sunset provisions in the past, but these were tied 

to the level of appropriations the PTO received relative to the amount of fee revenue 

the fee bill would generate. AIPLA now believes that the sunset provision need not 

be linked to the level of diversion. The sunset provision we now advocate would be 

a simple sunset provision that would automatically revert the revised fee schedule 

to the current fee schedule after three years unless extended by the Congress. This 

would give the PTO and the DOC three years to continue the effort they have initiated to reduce and/or eliminate the diversion of PTO fee revenues in the President’s 

Budget. Equally important, this would give the PTO and the DOC three years to 

convince Congressional appropriators to reduce and/or eliminate diversion. In the 

16

final analysis, the elimination of diversion is ultimately in the hands of the Congressional appropriators. If they choose not to continue on the path started by the PTO 

and the DOC, then there is absolutely no reason for the higher fee levels to continue. 

AIPLA continues to believe that full implementation of the PTO’s 21st Century 

Strategic Plan, following successful testing and pilot projects, represents the best 

approach yet proposed to address the problems of quality, pendency, and e-filing, 

given the constraints imposed on the PTO. And unless our belief is proven wrong, 

we will be among the first to ask Congress to continue the applicability of the new 

fee schedule beyond the original period of its effectiveness if effective progress is 

made in eliminating diversion. Should there be no progress in eliminating diversion 

in the next three fiscal years, then the higher fees would end on September 30, 

2006, and applications filed after that date would be assessed fees at the rates set 

in the current fee schedule. 

2. Effective Date 

Second, AIPLA strongly believes that the revised fee bill should become effective 

October 1, 2003. With the enactment of H.J.RES. 2 funding the PTO for the remainder of FY 2003, it is all but certain that any increase in fee revenue collected in 

FY 2003 would serve no purpose other than to send additional user fee revenues 

into the general Treasury. We understand that, under H.J.RES. 2, the PTO received 

an appropriation for FY 2003 of only $1.182 billion. This is less than the PTO expects to collect in fee revenue in FY 2003 under the current fee schedule. We cannot 

support making a PTO fee increase effective prior to FY 2004 simply to send additional PTO user fee revenue to the general Treasury. On the other hand, the prompt 

passage of the revised fee bill with an October 1, 2003 effective date would inform 

the appropriators that increased fee revenues would be collected effective from the 

beginning of FY 2004 and would encourage them to increase the funding of the PTO 

for FY 2004. 

3. Congress Should Set PTO Fees 

Third, new subsection 41(d)(2) of the revised fee bill would give the Director of 

the PTO the discretionary authority to ‘‘. . . establish the fees charged . . . to recover . . . the estimated average cost to the Office of searching applications for patent. . . .’’ The proposed search fee has historically been a component of the fee for 

filing a patent application, and Congress has always properly reserved for itself the 

right to set that fee. While we do not object to the Director having the authority 

to ‘‘. . . establish fees for all other processing, services, or materials relating to patents not specified in this section to recover the estimated average cost to the Office 

of such processing, services, or materials...’’ found in existing section 41(d) 

(moved to section 41(d)(2) in the revised fee bill), these fees do not include the fee 

for filing a patent application, which is set by statute (35 U.S.C. 41(a)). Accordingly, 

while we in no way intend any adverse reflection on the present, or any future, Director, we believe the authority for establishing this fee should remain with the 

Congress and not the Director. 

In commenting on the original ‘‘Business Plan’’ of the PTO for FY 2003 in Congressional testimony in April, 2002, AIPLA made clear its view that all proposals 

for potentially significant fee increases should be brought to the authorizing Committees in the Congress where they could be subject to the normal hearing processes 

in which users have a voice. The lack of such authority should have no adverse effect on the ability of the PTO to function and implement the Plan. The PTO is only 

now starting to identify and pilot test the concept of ‘‘certified search contractors.’’

As it gains experience, it will be able to determine whether the $500 search fee estimate is adequate, and it will have more than ample time to make a case to the Congress and the user community that an adjustment is needed. 

DEFERRED EXAMINATION

AIPLA, IPO, and the IPL Section of the ABA all testified in opposition to the proposal in the June 3rd, 2002, version of the Strategic Plan to establish a permanent, 

18-month, statutory, deferred examination system. The PTO listened to that chorus 

of opposition and has eliminated any permanent, statutory, 18-month, deferred examination system. The PTO has replaced it with a ‘‘flexible or administrative deferred examination system’’ which authorizes the PTO to remit some increment of 

fees to applicants who abandon their applications prior to examination. The new 

system would not require that search or examination be deferred. Under the revised 

fee bill, the PTO will charge a combined filing, search and examination fee of 

$1,000. The PTO plans to ask an applicant, a certain number of months before an 

application would be considered for the first time by an examiner, whether the apVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
17

plicant wants a search. If the answer is ‘yes,’ the PTO would obtain a search. If the 

answer is ‘no,’ the PTO would refund to the applicant a portion of the initial fee. 

For those applicants replying that they do want the search, the completed search 

would be sent to them. Then, at a time closer to the time when the application 

would be initially examined, the PTO would ask the applicant if he/she wants the 

examination to proceed. If ‘yes,’ the examination would proceed; if ‘no,’ there would 

be a more limited refund of the initial fee. 

We understand the reasons for the PTO’s wish to implement a flexible examination system. By offering applicants refunds before search and examination, the PTO 

hopes to avoid the expenditure of resources on applications which applicants are no 

longer interested in pursuing. Upon considering this flexible examination system, 

however, AIPLA concluded that it must be modified to include specific timelines regarding when the request for search and examination must be made. Allowing the 

deferral period to be determined by how long it takes the PTO to reach an application in a given technology area is not acceptable. Such a system would allow applicants to avoid making decisions on whether to proceed with their applications for 

far longer periods, and would create even greater uncertainty in the marketplace, 

than the initial 18-month deferred examination proposal. Moreover, it would be devoid of any meaningful incentives for the PTO to actually reduce the average pendency of applications. 

AIPLA, IPO, and the IPL Section of the ABA all testified in favor of achieving 

an average 18-month pendency at the earliest practicable time. While continuing to 

support that goal, AIPLA indicated that it would accept, but only as an interim step 

on the road to achieving an average 18-month pendency, a system where at least 

a search was made and given to the applicant sufficiently early to allow the applicant to decide whether to proceed with examination before the publication of the application, search, and request for examination at 18 months. This would allow the 

public to know at the time of the 18-month publication whether an applicant intended to seek a patent, as well as the relevant search information pertaining to 

the possible patentability of the invention. 

While the PTO works to achieve the interim goal of publishing the search results 

for all applications that applicants wish to pursue, it must be recognized that for 

some period of time applicants in the worst back-logged PTO examining groups are 

not going to receive searches in less than 30 months. In light of this reality, and 

only for so long as necessary due to the unavailability of searches prior to the 18-

month publication, AIPLA would not oppose applicants being asked whether they 

wish to proceed to examination at a time after publication and closer to the time 

when the actual examination would occur (with a partial refund for those who decline). However, the PTO should develop a schedule for:

(1) phasing-out all ‘‘late’’ examination inquiries as soon as possible so that all 

searches and requests for examination are made in time to be published 

with the application at 18 months; and

(2) achieving an average 18-month pendency in every technology area.

AIPLA wishes to be very clear, however, that it accepts the proposed system with 

the understanding that it is only a temporary administrative ‘‘deferred examination’’

system that will function ultimately to provide searches and final disposition of all 

applications within the average 18-month pendency. 

CONCLUSION

As we have observed several times during the last year, the PTO is in crisis. Failure to enact an appropriate fee bill to fund a sound Strategic Plan is not an option. 

On the basis of the new Executive Summary released on February 3rd, we believe 

that all of our major concerns have been addressed, and we fully endorse the revised 

Plan. However, just as we support the revised fee bill but have some suggestions 

for improving it, we look forward to reviewing the detailed proposals in the revised 

Plan and to working with the PTO should we find any areas of the Plan that we 

believe could be further refined and improved. 

We thank you Mr. Chairman for holding this hearing, and would be pleased to 

answer any questions you might have.

18

ATTACHMENT


Dan1A.eps
19


Dan1B.eps
20


Dan1C.eps
21


Dan1D.eps
22


Dan1E.eps
23


Dan1F.eps
24


Dan1G.eps
25


Dan2A.eps
26


Dan2B.eps
27

Mr. SMITH. Thank you, Mr. Kirk. 

Mr. Williamson? 

STATEMENT OF JOHN K. WILLIAMSON, PRESIDENT, 

INTELLECTUAL PROPERTY OWNERS [IPO] 

Mr. WILLIAMSON. Thank you, Mr. Chairman. 

I appreciate this opportunity to appear before the Subommittee 

today. My testimony is on behalf of the Intellectual Property Owners Association, or IPO, which includes nearly 100 companies that 

own patents, trademarks, copyrights and trade secrets, and collectively employ over 5.5 million Americans. 

I want to compliment Director Rogan and his colleagues for their 

huge effort to address the crisis that exists at the PTO. We were 

delighted to learn that Secretary Evans told the House Appropriations Subcommittee recently that the Department of Commerce is 

working to eliminate the practice of diverting PTO revenues to unrelated Government programs. 

From our perspective, as patent owners and technology users, 

there are three main criteria for judging the performance of the 

PTO: patent quality, early clarification of rights and cost-effectiveness in PTO operations. 

IPO members believe patent quality is deficient. We are being 

fettered by increasing numbers of invalid patents issued by the 

PTO for inventions that do not meet the statutory requirements for 

patentability. This places an enormous burden on the economy, in 

terms of direct costs, when these invalid patents are challenged 

and in lost opportunity costs when they are not. 

With regard to pendency, delays in the PTO have reached unacceptable levels. A graph attached to my prepared statement shows 

pendency will soon be at the highest level in more than 20 years. 

And as Director Rogan just testified, the backlog of pending patent 

applications is approaching a half-a-million cases, an all-time, and 

unacceptable, high. 

And in the third area of concern, cost-effectiveness, the PTO has 

had to forego critically needed investments in e-processing to focus 

on current workload. Considering all of these alarming symptoms, 

we must accept the prevailing view that the PTO is in a crisis. 

Director Rogan and his PTO team have worked incessantly with 

the user community and other interested groups to find a solution 

to this crisis. The PTO has significantly revised its original 21st 

Century Strategic Plan to meet concerns expressed to the 

Subommittee last July by IPO and others. 

IPO now strongly supports the revised plan, because we believe 

it will provide higher quality, earlier determination of rights and 

cost-effectiveness in PTO operations. 

We do support the plan in its entirety, including the somewhat 

controversial initiative to outsource searching, provided there is appropriate initial testing and evaluation. While the separation of 

search and examination may introduce initial inefficiency, we believe there is the potential for greater off-setting benefits. 

IPO also supports the patent and trademark fee increase proposed in the new fee bill, H.R. 1561, provided Congress appropriates an equivalent amount to the PTO for fiscal year 2004 and 

provided certain technical changes are made. 

28

The magnitude of this fee increase is not insignificant, and it will 

have adverse financial implications for large and small patent applicants alike. We are persuaded, however, that the fee increase is 

necessary to implement the Strategic Plan. 

IPO remains steadfast in its opposition to diversion of PTO fees 

to fund unrelated Government programs. Appendix 2 attached to 

my statement shows why. Under current projections through 2004, more than $750 million 

will have been diverted from the PTO to unrelated Government 

programs. In our view, but for the diversion of these funds, the 

PTO already would be realizing the efficiencies associated with eprocessing, and the user community would not be confronted with 

the present crisis in patent quality and pendency. 

We realize the Nation is in a very difficult period, and Congress 

is facing increased demands on scarce resources for the war, homeland security and other critical needs. IPO members are willing to 

pay their share of this added burden in conventional direct taxes, 

but we don’t believe any of these critical needs should be funded 

by what amounts to a hidden tax on innovation. 

We can support legislation to increase PTO collections in 2004 

fiscal year to $1.5 billion, as projected under the draft bill, but only 

if the money is used for the PTO. The Subommittee should ask the 

appropriators to equalize 2004 appropriations and fee collections 

before giving final approval to a bill. 

We also favor amending the bill to include a 3-year sunset provision, a requirement for prompt publication of search reports and a 

requirement that any change in the new search fee must be made 

by Congress. 

In closing, I want to reiterate IPO’s support for the Strategic 

Plan and the fee legislation necessary to pay for implementation of 

the plan. 

Thank you, and I will be pleased to answer any questions. 

[The prepared statement of Mr. Williamson follows:]

PREPARED STATEMENT OF JOHN K. WILLIAMSON

INTRODUCTION

Mr. Chairman and Members of the Subcommittee: 

I appreciate this opportunity to appear before the Subcommittee today to discuss 

the U.S. Patent and Trademark Office’s strategic plan and proposed patent and 

trademark fee legislation. 

My testimony today is on behalf of Intellectual Property Owners Association 

(IPO). I am the current president of IPO and Chief Intellectual Property Counsel 

for PPG Industries Inc., an IPO member. IPO is a trade association that represents 

nearly 100 companies that own patents, trademark, copyrights and trade secrets. 

The members of our association file thousands of patent and trademark applications 

a year and pay more than $200 million a year to the PTO in patent and trademark 

fees. 

IPO members currently employ more than 5.5 million people in the U.S. These 

jobs have been created in substantial part by investments in technology and new 

products that are protected by patent and trademark rights. 

I would like to begin by complimenting Director Rogan and his colleagues in the 

PTO and the Department of Commerce for their enormous efforts to address the crisis that exists at the PTO. When we testified before this Subcommittee a year ago 

at the annual PTO oversight hearing, IPO and others expressed deep concerns about 

inadequate patent quality, backlogs of unexamined patent applications that were 

out of control, lack of progress in implementing electronic processing of patent applications, and diversion of patent and trademark fees to unrelated government programs. 

29

During the past year Director Rogan has worked hard to develop and refine the ‘‘21st Century Strategic Plan’’ to improve office operations, and he has forcefully 

brought the PTO’s problems to the attention of officials at the highest levels of the 

Department of Commerce and OMB. Secretary of Commerce Evans, Deputy Secretary Bodman and others have devoted more time to PTO issues than anyone in 

their positions within memory. We were delighted to hear of the statement by Secretary Evans before the House appropriations subcommittee on March 6, when he 

said, ‘‘To support technology innovation and provide for intellectual property protection, the Department is working to eliminate the practice of using USPTO revenues 

for unrelated federal programs. Making more fees available sooner will enable the 

agency to increase the quality of patents and trademarks issued.’’ While we believe the PTO is indeed in a crisis, I want to emphasize that the PTO 

has a dedicated and competent staff of professional employees who have labored to 

maintain patent and trademark quality and timeliness in an environment they do 

not control. They have been faced with record increases in workload and inadequate 

resources. IPO strongly supports the revised 21st Century Strategic Plan. We also support 

paying for the plan by raising patent and trademark fees to the level proposed in 

the draft legislation if Congress appropriates an amount to the PTO for fiscal year 

2004 equal to projected fee collections, and provided certain technical changes are 

made. 

OBJECTIVES FOR THE PTO

I would like to review IPO’s perspective on PTO reform. When one evaluates the 

PTO, it seems to us that there are two outside stakeholders who are most significant. They are (1) the users or customers of the PTO, i.e., those seeking patents and 

trademark registrations, and (2) the public at large. Owners of intellectual property, 

such as our members, find themselves firmly placed in both camps. When we are 

in the patent-obtaining camp, we want a patent to issue that will withstand attack, 

i.e., that is valid and enforceable, and we want it to issue promptly from a cost-effective process. Considerations for trademark owners are similar. 

When we are in the camp of the public at large, we also want the patents that 

do issue to be valid and enforceable and to issue promptly. We do not want to be 

impeded by invalid or unenforceable patents owned by others. We want patent 

rights to be established promptly so that we have more certainty about what technology is in the public domain. A substantial number of unexamined applications 

of unknown scope deters our technological development. 

We are concerned about the patent process from cradle to grave—from conception 

of the invention to expiration of the patent more than 20 years later. The PTO is 

directly involved in only a short segment of this time period, but the PTO’s actions 

affect the patent application and patent during almost the entire time period. 

From our perspective, there are three key criteria critical to stakeholders in the 

patent process. It is helpful in discussing the 21st Century Strategic Plan and fee 

legislation to determine whether the various proposals for reform address the three 

criteria. The criteria are:

• Quality—Patents should not be granted for inventions that do not meet the 

statutory requirements for patentability;

• Speed—Rights should be clarified early; and

• Cost-effectiveness—Inefficiencies and duplication should be excised and operational excellence should prevail. 

THE CRISIS IN PTO PATENT OPERATIONS

The crisis in patent quality and patent pendency times has been building for several years. 

Patent quality is an elusive concept, but in the view of IPO members, high patent 

quality is even more important than short patent pendency. Patent ‘‘quality’’ in the 

context of PTO work is the degree of excellence achieved by the PTO in determining 

whether an invention described and claimed in a patent application meets the statutory requirements for patentability. The steps necessary to make this determination 

are: (1) analyzing the written description and claims, (2) finding and analyzing the 

prior art relevant to the invention that the applicant is seeking to patent, (3) applying the substantive criteria for granting a patent, and (4) creating a reviewable 

record of the patent examination. 

IPO members believe patent quality is deficient. The number of lawsuits and 

threatened suits against U.S. manufacturers based on invalid patents is rising. One 

of the most important facets of quality is the thoroughness of searches conducted 

30

to find the most relevant prior art. The PTO’s searches frequently do not locate the 

most relevant prior art. The evidence is anecdotal, but many IPO members feel the 

patent searches conducted by the European Patent Office are generally better than 

those conducted by the PTO. The PTO’s 2002 annual report states that quality was 

significantly improved in 2002, with the portion of patent applications reviewed that 

contained a defect reduced to 4.2 percent from 5.4 percent a year earlier. As we understand it, however, the PTO’s quality review process does not necessarily uncover 

defective searches. 

The pendency time of patent applications will soon rise to record levels if no action is taken. The PTO’s recent 2004 budget request to Congress projects that if the 

strategic plan and supporting initiatives are not implemented the pendency time of 

patent applications in the PTO will rise to more than 45 months by fiscal year 2008. 

This 45-month pendency is in stark contrast with the long-time PTO goal of 18 

months average pendency, a goal we have consistently supported. See APPENDIX 

1 attached to this statement, showing actual and projected pendency over the 30 

year period ending in 2008. While actual pendency usually has been above the 18-

month goal, it rarely has been above 24 months. The PTO Official Gazette reports 

that in some of the electrical or electronics technologies patent applications do not 

even receive a first office action (only the initial step in the examination process) 

until more than 40 months after filing. The reported Office-wide average pendency 

figures take into account only applications issuing as patents or abandoned currently. When the long-delayed applications are issued or abandoned, the reported 

pendency will begin to soar. 

Longer pendency times will result in automatic extensions of the life of a far larger number of patents than was envisioned when the patent term adjustment provisions of the American Inventors Protection Act were enacted by Congress in 1999. 

Every patent granted on an application that does not receive a first action in 14 

months receives an automatic extension of the patent expiration date. Congress did 

not intend for a majority of patents to continue in force beyond the 20th year after 

filing. 

It should be pointed out that the dire projections on pendency in the PTO budget 

are based on the assumption that filings will increase 5 to 7 percent a year We understand that filings have not increased so far this year, but even with no increase 

it appears to us that the PTO still lacks the resources needed to effectively address 

its backlog. 

The third area of concern, cost-effectiveness, also demands resources. In the past 

the PTO has had to forego information technology expenditures to focus on current 

workload problems. Full e-processing of patent and trademark applications is a key 

to cost-effectiveness. The 21st Strategic Plan establishes acceptable targets for implementing e-processing, but adequate funding will be required. 

21ST CENTURY STRATEGIC PLAN

In a statement filed with the Subcommittee last July, IPO and other groups expressed several reservations about the initial version of the strategic plan. In the 

months that followed we had numerous meetings with Director Rogan and his staff, 

who were very interested in receiving and understanding our comments. We are 

pleased to report that we support the plan as revised on February 3, 2003, and believe it holds great promise for ending the crisis in which the PTO finds itself. We 

believe the elements of the plan meet the criteria mentioned earlier: patent quality, 

early determination of rights, and cost effectiveness. 

Among others, the following features of the plan are noteworthy:

1) Hiring more patent examiners;

2) Allowing the PTO to use qualified private ‘‘Certified Search Contractors’’ to 

assist in carrying out prior art searches, with the PTO and not the patent 

applicant the contacting party;

3) Making greater use of search reports prepared under the Patent Cooperation Treaty and by other qualified patent offices;

4) Expanding the ‘‘second set of eyes’’ review concept used with business method patent applications to other technology areas, as well as to any substantive refusals to be issued against trademark applications;

5) Enhancing the reviewable record by increasing the amount of information 

included in patent application files regarding applicant/examiner interviews;

6) Creating a competitive compensation package for Supervisory Primary Examiners to attract and retain the best employees for these jobs;

31

7) Developing tests to determine the suitability of candidates for the position 

of examiner;

8) Establishing ‘‘training art units’’ for new examiners in high volume hiring 

areas;

9) Developing a testing process to certify examiners for promotions;

10) Expanding patent application work product reviews, including work product 

reviews of primary examiners;

11) Processing patent applications electronically by the end of fiscal year 2004;

12) Creating an almost paperless trademark operation by the beginning of fiscal year 2004.

Patent searching and examining procedures in the plan represent major changes 

from existing practice. The plan for outsourcing patent searching in particular represents a revolutionary change in approach. Outsourcing will mean that different 

individuals will do the search and the examination, as opposed to the traditional 

process in which both functions are performed by the same person. Separation of 

search and examination introduces inherent inefficiency since two individuals must 

read and understand the patent specification, claims, and prior art. On the other 

hand, outsourcing could have benefits, for example, by enabling faster elimination 

of PTO backlogs and encouraging development of private search companies with 

high levels of expertise in specific technologies. We support the outsourcing initiative provided there is adequate testing and evaluation. 

As provided in the revised plan, new procedures must be subject to timely and 

comprehensive testing and evaluation to determine their cost effectiveness and effect on patent quality. Where appropriate, pilot projects should be completed before 

Office-wide introduction of new procedures. We urge evaluation of input from members of the public as a part of the evaluation. 

The strategic plan contains many features that we believe will improve patent 

quality, but we note that the plan does not propose any change to individual examiner productivity goals. Nearly every year IPO has recommended establishing performance goals to reward superior quality by examiners in addition to rewarding superior production. The existing system gives examiners incentives to concentrate 

more on production than on quality. It takes much less examiner effort to grant a 

patent than to deny a patent, so a system that gives top priority to quantity of production biases the PTO in favor of granting patents. 

PATENT AND TRADEMARK FEE LEGISLATION

IPO Support for the Legislation 

IPO supports the discussion draft of patent and trademark fee legislation circulated to the members of the Subcommittee, which is the Administration’s proposal, if Congress appropriates an amount to the PTO for fiscal year 2004 equal to 

projected fee collections, and provided certain technical changes are made. The discussion draft raises patent fees by 15.5 percent for a patent owner who pays all of 

the fees for a basic application and the fees required to maintain the patent in force 

throughout its life. For applicants filing larger than normal numbers of claims and 

pages of specification, the increase could be in the area of perhaps 20 to 25 percent.

32

This fee increase is not insignificant, and will have budget implications for large 

and small patent applicants alike. In some instances the fees may result in fewer 

patent applications being filed by a company. Others may offset higher patent fees 

by reducing R&D expenditures. It is important to understand that the proposed fee 

increase is an incremental adjustment above the annual cost of living adjustments 

already provided for in patent law. 

We are persuaded, however, that a fee increase is in the best interest of our members and the public at large. It is necessary in order to implement the 21st Century 

Strategic Plan and provide higher patent quality, earlier determination of rights, 

and cost-effectiveness in PTO operations. Fees are substantially lower than in the 

bill proposed last year. Fees for excess patent claims and excess pages of specification are significant, but now rise at only a linear rate as the number of claims and 

pages increases, unlike in the earlier draft. We also agree with the effective date 

provision in the discussion draft circulated to the Subcommittee, which would make 

the fee legislation effective on October 1, 2003, or on the date of enactment, whichever is later. 

The strategic plan indicates that after this increase fees will remain steady for 

the foreseeable future. A further fee restructuring could be needed to implement 

adoption of a ‘‘unity of invention’’ standard for determining the subject matter permitted in a single patent application, which the strategic plan indicates will be studied by the PTO during the 108th Congress and which IPO supports, but such a fee 

restructuring should not result in a net increase in fees. 

Eliminating Fee Diversion 

This Subcommittee is well aware that large sums of money have been diverted 

from the PTO to unrelated government programs since 1992. In our view, fee diversion is a major factor contributing to the crisis that now exists. By 2004, if the 

President’s budget for the PTO is adopted, more than $750 million will have been 

diverted since 1992. If PTO fee collections had not fallen below estimates for the 

last three years, the cumulative diversion might be about $1 billion. See APPENDIX 

2 attached to this statement. But for the diversion of these funds, we believe the 

PTO would already be realizing the efficiencies associated with e-processing, and the 

user community would not be faced with eroding patent quality and dire projections 

for increased patent pendency time. 

We realize the nation is in a very difficult period and Congress is facing increased 

demands for scarce resource for the war, homeland security and other critical needs. 

IPO members are willing to pay their share in regular taxes, but patent and trademark fees should not be diverted for any purpose. PTO fee diversion is a tax on 

technological innovation and business investment. The nation must preserve its 

ability to develop new technology. An innovation tax clearly is not in the public interest. 


Will1.eps
33

The 2004 budget proposes a $1.4 billion operating budget for the PTO that is said 

to be adequate to implement the 21st Century Strategic Plan. The budget includes 

fee legislation that would raise PTO fee collections in 2004 up to $1.5 billion. The 

net effect is to divert another $100 million in patent and trademark fees to unrelated government programs. 

We are grateful for Secretary Evans’ support for eliminating fee diversion and for 

the fact that the amount proposed for diversion this year is lower than proposed last 

year. Nevertheless, we cannot embrace an increase in fees for the purpose of facilitating diversion of $100 million. 

At the same time, we believe the fees proposed in the discussion draft are justifiable if that amount of money can be used effectively by the PTO to implement the 

strategic plan. The IPO position on the level of fees, therefore, is that we can support legislation to increase PTO collections in 2004 to $1.5 billion, but only if the 

money is to be used for the benefit of the PTO including implementation of the strategic plan. We suggest that this Subcommittee investigate the financial needs of the 

PTO and work with the Appropriators to equalize appropriations and fee income before deciding on the appropriate level of fees. 

Sunset Provision in Fee Legislation 

We recommend an amendment to the fee bill to provide that after three years the 

fees will revert to a level that would make fee collections equal to what they would 

have been without the legislation, unless Congress passes legislation to extend the 

higher fees. This ‘‘sunsetting’’ provision would give the Subcommittee an opportunity to review operations under the 5-year strategic plan in the third year. A sunset provision would give PTO managers a strong incentive to achieve measurable 

goals on schedule and might help deter diversion of funds that could cause the PTO 

to fall behind schedule and jeopardize the strategic plan. Moreover, a downward adjustment of fees could be made after the third year if electronic processing of patent 

and trademark applications improves productivity and reduces PTO operating costs. 

Any sunset provision should be written so that if Congress allowed the higher fees 

to expire, an across-the-board reduction would be made in the new fees, which includes innovations such as a charge for pages of specification and authority for refunds, rather than reverting back to the current fee structure. 

Prompt Publication of Search Reports 

Early determination of rights is an important attribute of the patent system for 

protecting the interests of the public at large. IPO opposed the proposal in the original strategic plan that would have permitted patent applicants to defer commencement of the examination process for 18 months after filing. The revised strategic 

plan omits that deferral but permits refunds of the search and examination fees as 

an incentive on patent applicants to cease prosecuting applications when circumstances change. Although we continue to strongly support completing examination of all applications within 18 months in order to determine rights at the earliest 

possible time and give the public legal certainty, we recognize that the PTO cannot 

achieve the 18 month complete examination goal for several years. 

We recommend, however, that the discussion draft be amended to insure that the 

public will have the benefit of the search report by the 18th month after the effective filing date, in cases where the Office obtains a separate search report before 

examination. The PTO should send the search report to the applicant promptly and 

give the applicant an opportunity to decide whether to proceed with examination. 

If examination is requested, the PTO should publish the application, the search report, and the fact that examination has been requested, all by 18 months after the 

effective filing date. 

Such a requirement in the statute will benefit the public and avoid having the 

PTO regress to a practice where even the search report is unavailable to the public 

years after the effective filing date. The requirement for publication of the search 

report at 18 months could take effect after a reasonable transition period. 

Search Fee Set by Congress 

The discussion draft leaves authority with Congress to set all major patent fees 

except the new search fee. In the discussion draft, the PTO would set the level of 

the search fee if the search was outsourced. We urge that the search fee be set by 

Congress in the same manner as other patent fees. 

After fee-setting was reviewed during hearings on the American Inventors Protection Act, Congress retained its fee-setting authority for the fees now in the statute. 

We believe this authority provides a desirable system of ‘‘checks and balances.’’ We 

see no rationale for a different policy with respect to outsourced search fees. If 

outsourced searches turn out to cost more than the $500 average that is projected, 

the PTO could ask for Congressional review. 

34

CONCLUSION

We reiterate our support for the revised strategic plan and fee legislation necessary to pay for implementation of the plan. We look forward to working with the 

Subcommittee to continue the search for a permanent solution to the fee diversions 

problem. I will be pleased to answer any questions.

35


Will2.eps
36


Will3.eps
37

Mr. SMITH. Thank you, Mr. Williamson. 

Mr. Stern? 

STATEMENT OF RONALD J. STERN, PRESIDENT,

PATENT OFFICE PROFESSIONAL ASSOCIATION [POPA] 

Mr. STERN. Thank you, Mr. Chairman, and Mr. Berman, and the 

Members of the Subommittee. 

POPA represents more than 3,900 employees, the vast majority 

of whom are patent examiners. Our members are firmly committed 

to maintaining the quality and integrity of the U.S. patent system. 

They strongly believe that our patent system will be seriously and 

irreversibly damaged by the Agency’s new plan. 

Fee diversion is a big issue, but there is not a single provision 

in the Agency’s proposals that would put an end to it. Fee diversion is small right now. In fiscal year 2001, it was about $45 million. 

In fiscal year 2002, it was $23 million. This year, it’s only expected to be $22 million. But the President’s budget for next year sets di- version at approximately $100 million. That’s going in the wrong 

direction. No one should think that this bill will discourage fee diversion. 

The Agency’s fee bill is not simply a proposal for raising fees, but 

instead includes language that will make sweeping changes in the 

examination process, separating search from examination and relying on outsource searches will result in a loss of quality, integrity 

and efficiency. Passage of the proposed legislation will be construed 

by the Agency as congressional approval for its radical revision of 

America’s proven patent system. 

Examiners have raised their collective voice in opposition. Over 

a thousand patent examiners have signed a petition requesting 

Congress to keep search and examination together. 

Search and examination are integral parts of the same process. 

There is a synergy between the two functions that will be lost if 

they are separated. While searching, an examiner simultaneously 

becomes familiar with the state-of-the-art and begins mentally formulating rejections to apply to the claimed invention. Thus, when 

the examiner prepares to take an action in the case, much of the 

decision-making process has already been completed. 

The European Patent Office has recognized the inherent efficiency and synergy in keeping search and examination together. 

After many years of using a separated process, the EPO has begun 

implementing their BEST program, an acronym for Bringing Examination and Search Together. The EPO plans to fully convert to 

a combined search and examination by 2005. 

POPA has surveyed examiners on this issue. Ninety-five percent 

do not believe they will be able to issue valid patents and protect 

the public from unwarranted patents without doing the search 

themselves. Ninety-six percent believe that overall quality will go 

down if search and examination functions are separated. 

A prestigious colleague once said, ‘‘massive claims require massive proof.’’ Here, the Agency is seeking congressional approval before it conducts a pilot to verify whether outsourcing is capable of 

producing a high-quality product at a cost-effective price. We are 

convinced that the Agency’s request for legislation before the successful conclusion of pilots is putting the cart before the horse. 

38

Relying on foreign search reports will also result in tacitly transferring sovereign functions of the United States to foreign powers. 

A patentability determination can only be as good as the prior art 

on which it is founded. When a search is provided by a foreign patent office, then any decision based on that search has been determined by that foreign office. 

The Agency’s fee bill asks Congress for authority to provide a refund of search fees to ‘‘any applicant who provides a search report 

that meets the conditions prescribed by the Director.’’ This language negates the near unanimous patent community opposition to 

allowing the applicant to control the search. This language needs 

to be eliminated. 

Current law prohibits officers and employees of the USPTO from 

owning patents, except in very limited circumstances. This longstanding protection against conflicts of interest should be extended 

to include contractors who assist in search and examination functions. In order to avoid easy evasion of this prohibition by merely 

establishing a subsidiary, it is also important to prohibit parent 

corporations and sister subsidiaries from owning patents. 

Imagine Microsoft’s critical inventions being searched by a subsidiary of Sun Microsystems or IBM. 

The Agency proposes fee increases for additional claims and large specifications that would raise approximately $100 million per 

year. In the past, excess claim fees paid in an application have not 

been used to provide additional examining time for that application. POPA would welcome a moderate fee increase in this regard 

if, and only if, the fees obtained were directly translated into additional time for examiners. Only then will applicants receive value 

for their extra payments. 

Such an increase in funding, without any other increases, would 

pay for enough additional examining time to provide a substantial 

increase in the quality and reliability of patents. Give the examiners more time, and you will get better quality. Let me just repeat 

that as the closing item. Give the examiners more time, and you 

will get better quality. 

[The prepared statement of Mr. Stern follows:]

PREPARED STATEMENT OF RONALD J. STERN

Mr. Chairman and Members of the Subcommittee: 

POPA represents the more than 3,900 patent examiners and other patent professionals who form the backbone of the U.S. Patent and Trademark Office (USPTO). 

Patent examiners comprise the vast majority of our membership. The patent professionals of POPA are diligent, hard-working individuals firmly committed to maintaining the quality and integrity of the U.S. Patent System. 

Today, however, the patent professionals of POPA believe that the very foundations of the U.S. Patent System are in danger of being so substantially and negatively altered by the USPTO 21st Century Strategic Plan, that the integrity of the 

patent system may be seriously and irreversibly damaged. 

For the many reasons set forth below, POPA opposes the proposed USPTO 

fee structure and proposed Agency reforms. 

THE NEW FEE LEGISLATION AND USPTO REFORM

The USPTO proposal for a fee modernization bill is not simply a proposal for raising fees but, instead, includes language that will make sweeping changes in the patent examination process that will significantly and adversely affect the U.S. Patent 

System. The essence of the change is the separation of the search from the remainder of the examination process. It is the USPTO’s intent to rely on searches performed by either commercial providers or foreign patent offices. Approval of the proVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
39

posed USPTO fee legislation will be construed by the Agency as approval by Congress to implement its radical revision of America’s proven patent examination system. These proposed changes are reflected in the form of separate fees for filing, 

searching and examination and by allowing the Director, by regulation, to reduce 

fees for applicants who provide an appropriate search report. 

At the same time, there is not a single provision in the agency’s proposals that 

would put an end to the continued diversion of USPTO fee income through the appropriations process. Any belief by some that passage of this bill will induce appropriators to reduce the amount of fee diversion is not based upon any written commitment or even the oral commitment of those responsible for appropriations. 

Separation of Search and Examination 

Separating the prior art search from patent examination will result in a loss of 

integrity and efficiency of the U.S. Patent System, reduce the quality of patent examination and, for some applications, is tantamount to surrendering the sovereign 

functions of the United States to foreign powers. 

Examiners have raised their collective voice in opposition. Over 1,000 patent examiners have signed a petition requesting Congress to keep the search and examination together. A copy of this petition was submitted to the Subcommittee in July 

2002. Examiners recognize that separating the search and examination would adversely impact the quality of patent examination and be a disservice to the American people. 

Even Director Rogan has recognized that separating search and examination is 

an undesirable procedure. As he said in a town hall meeting with employees in September 2002, ‘‘. . . in a perfect world, we wouldn’t be looking at undergoing such 

radical changes....’’ He then went on to explain that the appropriations committees of Congress are demanding that the USPTO increase its efficiency of examination. He cited to and quoted a portion of the appropriation committee reports including the comment that ‘‘A substantial amount of funds have been expended on information technology projects over the last decade, but no significant increase in examiner productivity has been noted.’’

The agency has known throughout the decade of the Nineties, that the automation projects it was funding were not designed to save examiner time. Instead, the 

principal justification for these projects was to save the real estate and handling 

costs associated with paper prior art files. Any expectation by the appropriations 

committees of increased examiner productivity represents a failure by management 

to provide the appropriators with a correct understanding of either the nature of the 

examiner’s work or the nature of the automation projects to be funded. 

The prior art search and patent examination are integral parts of the same process. There is a synergy between the two functions that will be lost if search and 

examination are separated. As a patent examiner performs a prior art search on a 

patent application, the examiner is simultaneously becoming familiar with the state 

of the art in the subject matter of the application, identifying additional relevant 

search terms, modifying the search in response to preceding search results, and 

mentally formulating rejections to apply to the claimed invention. Thus, when the 

examiner prepares to take action on the case, much of the decision making process 

has already been completed. 

Furthermore, as an examiner continues to search in a particular technology area, 

the examiner becomes more and more familiar with the prior art in that technology, 

increasing the quality of the examiner’s search and examination. Many examiners 

gain such a level of expertise that they are regarded as experts in their technologies 

both within and outside the USPTO. The USPTO represents the single largest accumulation of technological expertise in the federal government. Where else can one 

find a body of engineers and scientists with the collective expertise to examine anything from safety pins to atom bombs? Examiners’ expertise is continuously refreshed through the significant amount of time examiners spend searching the patent and non-patent literature in their assigned area of technology. This is the inherent efficiency of the combined search and examination process. The expertise of examiners will be diminished rather than enhanced by separating the search from examination. This will reduce the quality of patent examination. 

The agency has not identified what the qualifications for a certified searcher will 

be. We do not, however, expect them to be fully qualified patent examiners. Patent 

examiners are specialists in a relatively narrow area of technology whereas commercial searchers will most likely be generalists due to the fact that there is only one 

USPTO but there will be multiple, competing search firms. It is expected that only 

the USPTO will have the volume of work to allow the current level of specialization. 

Secondly, only the USPTO has certain search resources such as a set of foreign patents prior to 1995 that have been classified according to the U.S. Patent ClassificaVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
40

tion system. Most importantly, examiners are knowledgeable in patent law and, 

thus, are trained to identify references that can be legitimately combined under the 

law. If, in fact, a commercial searcher has all of the above advantages, i.e., specialization, search resources and knowledge of patent law, then the searcher is, in effect, 

a patent examiner. At that point, it is more efficient to utilize the searcher as a fullfledged examiner. It should also be obvious that it is more efficient to have one examiner work on a case than to have two examiners work on the case. 

The European Patent Office (EPO) has recognized this inherent efficiency. After 

many years of experience with a separated search and examination process, the 

EPO has begun implementing the ‘‘BEST’’ program—Bringing Examination and 

Search Together. The BEST program places the responsibility for the search and 

examination with the same examiner in the same manner as current USPTO practice. In discussing the procedure in which search and examination are separate, Dr. 

Michel Marandon, a Director at the EPO in Munich has stated that ‘‘. . . it cannot 

be denied that it is not the most economic way of working as both types of examiners have to study the application and the prior art documents. The substantive 

examiners also have to study the reports of the search examiners.’’ Poignantly, in 

his statement before this Subcommittee last July, Charles P. Baker, Chair of the 

Section of Intellectual Property Law of the American Bar Association (ABA), indicated that the ‘‘best testament against separating the search function and an examination function is the fact the European Patent Office, which has had such a system for years, has recently decided to abandon it.’’ POPA agrees with Dr. Marandon 

and Mr. Baker. Now, irrespective of the years of experience of the EPO culminating 

in the BEST program, the USPTO wants to take the opposite approach and separate 

the search from the examination. 

In his statement before this Subcommittee last July, Michael K. Kirk, Executive 

Director of the American Intellectual Property Law Association (AIPLA), expressed 

the concerns of AIPLA that ‘‘the ultimate responsibility in each individual case must 

rest with the PTO examiner, to ensure that the search is complete in the first instance and to conduct supplemental searches as appropriate as the claims in the application are modified as the application advances through the examination process.’’

The USPTO, however, does not intend to maintain its present search capabilities. 

The Strategic Plan contemplates recouping significant overhead expenses by ‘‘putting the prior art search in the hands of private industry’’ and realizing ‘‘substantial 

savings in automation development and maintenance costs for EAST, WEST, ABSS, 

CDB access, etc.,’’ in addition to substantial savings from reduced upkeep and maintenance of both the U.S. and International Patent Classification Systems. These various systems are the very search tools that examiners rely on for performing prior 

art searches. If these tools are no longer available, patent examiners will not be able 

to ensure that prior art searches are complete and of the highest quality. Even 

worse, the 21st Century Plan contemplates reducing the amount of time available 

to an examiner for each case by 20–25% as stated by Director Rogan before this 

Subcommittee last July. Without the time and tools to do the work, the Agency has 

effectively precluded examiners from doing the work. 

Furthermore, as recognized by Mr. Kirk, searching is often done at multiple 

points during the prosecution of a patent application. When an applicant submits 

an amendment that changes the subject matter of the claims, examiners are expected to do an additional search that encompasses the revised claim subject matter. 

In addition, examiners are expected to bring searches up to date each time they 

issue an action after applicants have had an opportunity to amend the claims. The 

agency has not proposed any system for returning the application to the commercial 

search service or a foreign patent office at a time other than when the initial search 

is done. Consequently, stripping the examiner of all his/her search time will reduce 

the quality of patent examination by forcing decisions to be based solely on the 

original search. 

How can patent examiners determine if a search is ‘‘complete’’ without conducting 

searches themselves? How will examiners know if a CSS ‘‘got it right’’ without conducting searches themselves? How will examiners ‘‘conduct supplemental searches 

as appropriate’’ when the very search tools they use today are no longer available 

or properly maintained? How can patent examiners be held ultimately responsible 

in each case, when they are not provided with the necessary tools to perform their 

duties? The plain truth is: they cannot and the USPTO knows it. On the other hand, 

if patent examiners are themselves conducting searches to verify the completeness 

of outsourced searches or carrying out supplemental searches, then where is the efficiency of outsourcing the search and where are the substantial savings to the Agency to justify the outsourcing? This is the inefficiency of the Agency’s Strategic Plan. 

To ensure the integrity of the presumption of validity, patent examiners would be 

41

necessarily duplicating the work of the prior art search performed by others. Clearly, the best method to produce an efficient and quality patent examination is to simply continue having patent examiners do the prior art search themselves. 

USPTO Reliance on Private Sector and/or Foreign Patent Office Prior Art Searches 

Will Not Improve Quality of Examination 

Examiners currently have the ability to utilize searches provided by applicants in 

the form of Information Disclosure Statements (IDS) and/or International Search 

Reports (ISR) provided by a foreign patent office. Examiners routinely review these 

documents when they are provided in a patent application. Indeed, if an examiner 

were to ignore relevant prior art in these documents, such an action could be construed by Agency management as an error against the examiner’s performance rating. Experience has shown, however, that the prior art provided in these documents 

is seldom sufficient for examination purposes. 

This fact has been publicly recognized at a discussion of the USPTO 21st Century 

Strategic Plan sponsored by the National Academy of Sciences last August. Charles 

Van Horn, a partner in the law firm of Finnegan, Henderson, Farabow, Garrett & 

Dunner and a former senior executive at the USPTO, explained that foreign 

searches won’t meet the requirements for a U.S. examination. He said, dryly, that 

the USPTO will indeed need a better post-grant review process to weed out the increased number of bad patents if searches are outsourced. 

POPA has recently surveyed its membership on the wisdom of separating search 

and examination, as well as the adequacy of prior art submissions from applicants 

and from foreign patent offices. The results of this survey are attached herewith as 

Appendix 2. 

Ninety five percent (95%) of examiners do not believe they will be able to issue 

valid patents and protect the public from unwarranted patents without doing the 

search themselves. Ninety six percent (96%) believe that overall quality will go 

down if search and examination functions are separated. 

When asked the following: ‘‘In new applications where an IDS (information disclosure statement) is filed, approximately how often do you need to apply additional 

references when making a rejection in the application,’’ ninety one percent (91%) indicated that they need to apply additional art ‘‘almost all the time’’ (74%) or ‘‘most 

of the time’’ (17%). Only two percent (2%) said they ‘‘almost never’’ need to apply 

additional art. 

Similarly, when asked the following: ‘‘In new applications containing foreign 

search reports, approximately how often do you need to apply additional references 

when making a rejection in the application,’’ ninety two percent (92%) indicated that 

they need to apply additional art ‘‘almost all the time’’ (69%) or ‘‘most of the time’’

(23%). Only two percent (2%) said they ‘‘almost never’’ need to apply additional art. 

These last results clearly illustrate the fact that U.S. patent laws require analysis 

and application of prior art in patent applications in a significantly different manner 

than do foreign patent laws. 

Examiners, those most familiar with the prior art and its application under U.S. 

patent laws, are convinced that separating search and examination functions and 

increasing reliance on private sector or foreign patent office searches will negatively 

impact the quality of patent examination in the USPTO. 

The Search Is A Sovereign Function 

Separating the search and examination will also result in tacitly transferring the 

sovereign functions of the United States to foreign powers. In his keynote address 

to the ABA, on June 27, 2002, Director Rogan indicated that the quasi-judicial determination of patentability is a sovereign function that he believed should never 

be contracted out. Director Rogan did not ascribe that same sovereignty to the prior 

art search. Contrary to Director Rogan’s position, POPA believes that the search 

and examination both represent sovereign functions of the United States. If, as contemplated by the 21st Century Strategic Plan, examiners would have to rely on 

search results provided by a foreign patent office as the basis for patentability determination, the net effect is to delegate that patentability determination to the foreign 

patent office. The patentability determination can only be as good as the prior art 

on which that patentability determination is founded. If the search is provided by 

a foreign patent office, then any decision based on that search has ultimately been 

determined by that foreign patent office. Hence, the sovereign function of patentability determination has been indirectly delegated to a foreign power. POPA opposes such a delegation of sovereignty and opposes the proposed USPTO fee structure that would provide the Agency with the authority to make that delegation. 

42

Conflict of Interest Issues 

In the 21st Century Strategic Plan proposed last July, the agency included a provision by which the applicant would select and directly pay a commercial search provider. In recognition of the inherent conflict of interest created when an applicant 

controls the search provider, the USPTO conceded in its newly revised 21st Century 

Strategic Plan that ‘‘[B]ased upon the valuable and insightful feedback we have received from our constituency groups . . . USPTO will contract with private sector 

commercial organizations in lieu of the previously proposed requirement for applicant-commissioned search reports.’’ The proposed fee bill, however, continues to ask Congress for the authority to provide a refund of search fees to ‘‘any applicant who provides a search report that 

meets the conditions prescribed by the Director,’’ thereby negating the near unanimous patent community opposition to allowing the applicant to control the search. 

This carefully crafted legislative language needs to be eliminated. 

Under current law, officers and employees of the USPTO are prohibited from owning patents except in very limited circumstances. 35 U.S.C. § 4. This long-standing 

protection against a conflict of interest should be extended to include contractors 

who assist search and examination functions and any company or person having a 

direct or indirect financial stake in such contractors. In order to avoid easy evasion 

of the prohibition on the ownership of patents, it is important to extend this protection against conflicts of interest to all subsidiaries of a common parent corporation 

or common owner. 

Can anyone imagine applications from the cutting edge research of a company 

such as Microsoft being searched by a subsidiary of Sun Microsystems or IBM? 

Currently, senior examining personnel are required to file financial disclosure reports pursuant to law as enforced by the regulations of the Office of Government 

Ethics (OGE). Unless Congress explicitly provides for treating search contractors the 

same as government employees, they will not be required to disclose their financial 

interests. As a result, public confidence in the independence and objectivity of the 

search contractors will be compromised. 

Fee Income Diversion 

POPA continues to join its collective voice with all those who oppose the diversion 

of USPTO fee income to fund other unrelated non-USPTO appropriations. POPA believes that such fee diversions represent hidden and unfair taxes on America’s inventors. If a governmental service or program is worthy of appropriation, it should 

be funded from appropriate taxes and general funds, not at the expense of inventors 

and innovators. POPA urges Congress to permit the USPTO the full use of its fee 

income in the year it is received. 

POPA believes the new proposed fee structure is intended, at least in part, to provide additional revenues for the express purpose of funding non-USPTO activities. 

The President’s FY 2004 budget proposal contemplates a diversion of close to $100 

million which is substantially higher than the approximately $45 million in FY 01, 

the approximately $23 million in FY 02 and the expected $22 million diversion this 

fiscal year. It is not clear why some opponents of fee diversion are willing to accede 

to even greater diversion in the near term and the foreseeable future. Several more 

years of continued fee diversion at higher than current levels will create a dependence on patent fees for other government programs which will be politically impossible to eliminate. 

Limitations on the number of application claims and pages 

Although POPA opposes the new USPTO fee structure as presently written, some 

parts of the legislation merit further consideration. Of particular interest to examiners are the fees for additional claims and pages of the application above a threshold number. Examiners can attest to the huge increase in work required to examine 

patent applications as the number of claims increases. Generally, as the number of 

claims increases, so does the number of pages of the application. Further, the 

amount of patent and non-patent literature that must be reviewed also increases 

substantially. POPA is sympathetic to the Agency’s desire to recoup the costs associated with the extra work required with larger applications and applications having 

extra claims. Similarly, there is extra work required when applicants submit large 

numbers of references for consideration by the examiner. The costs of the time spent 

by the examiner reviewing these references also need to be recouped. 

POPA would welcome a moderate fee increase in this regard if, and only if, the 

fees obtained were directly translated into additional time for examiners handling 

the burden of these more complex patent applications. This has not been the case 

in the past. The existing USPTO fee structure already requires additional fees for 

more than three independent and more than 20 total claims. These fees were imVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
43

posed because it was recognized that additional claims place an additional burden 

on the examiner by requiring additional work. In his testimony before this Subcommittee, Director Rogan admitted that complex cases with numerous claims require examiners to spend ‘‘inordinate’’ amounts of time examining such cases. POPA 

agrees with Director Rogan on this point. Unfortunately, examiners have not been 

given the additional time that applicants purchased with the payment of these fees. 

In those very rare instances where a supervisor may provide some time for an exceptional application, the time virtually never approaches the time the examiner actually spent. 

In their respective statements to this Subcommittee last July, both the AIPLA 

and the ABA expressed support for establishing fees that represent the actual costs 

to the Agency to provide necessary examination services. When an application contains a significant number of additional claims, has large information disclosure 

statements (often disclosing a hundred or more prior art references), or requires additional considerations such as review of related cases for double patenting, it is the 

examiner who bears that burden. Yet the Agency does not use the additional fees 

from that complex application to provide additional time to that examiner. The examiner only has a very limited amount of time for each application and cannot be 

expected to provide the same quality examination to a complex application without 

additional time. 

The excess claim and specification fees proposed by the agency would, by themselves, raise approximately $100 million per year. This increase in funding, without 

any other fee increases, would result in, if utilized to pay for additional examining 

time, the potential for substantial additional searching with its concomitant increase 

in the reliability of patent grants. Give the examiners more time and you will get 

better quality. 

Unless examiners are guaranteed the additional time commensurate with the 

Agency fees for additional examination services, both existing and proposed fees for 

additional claims and other services represent nothing more than another hidden 

tax on inventors rather than a payment for examination services rendered. 

THE AGENCY’S PROPOSED QUALITY INITIATIVES

The 21st Century Strategic Plan proposes several initiatives ostensibly for improving patent examination quality at the USPTO. These initiatives include such 

proposals as re-certification of primary examiners, requiring passage of the examiner-relevant portions of the Patent Bar Exam for promotion to GS–13, quadrupling 

the number of work product reviews for primary examiners, and expanding the ‘‘second pair of eyes’’ review. POPA believes these initiatives represent a burdensome 

imposition of managerial authority designed to increase control rather than enhance 

quality. 

No amount of review and no amount of automation can ultimately improve patent 

examination without first providing examiners with the necessary time and resources to properly do the job. The current production quotas were put in place over 

twenty-five years ago and have become the largest single obstacle to quality patent 

examination. Since these quotas were put in place, the technological complexity of 

applications, the number of pages of description, the number of independent claims 

and the number of total claims in each application has increased substantially. In 

addition, there has been a veritable explosion of technology information. Furthermore, examiners have been required to provide more detailed explanations of the 

bases of their decisions. The old quotas no longer provide examiners with sufficient 

time to adequately search and examine current cases. Real increases in quality will 

require real increases in time per case. 

Compounding the problems of production quotas is management’s lack of support 

for adequate search tools to allow examiners to accurately and efficiently search the 

prior art. Management has, by neglect, effectively abandoned the U.S. Classification 

System. Fewer and fewer resources have been allocated for maintaining and updating the U.S. Classification System. Full time classifiers have been slowly phased out 

by attrition until finally, in 2002, management effectively abolished the job position 

and moved the remaining full time classifiers to hybrid classifier/examiner positions. 

U.S. classification of foreign patent documents ended in the mid-1990’s, effectively 

removing this significant source of prior art from classified searches. 

The automated patent databases have also been shortchanged. Management has 

repeatedly failed to allocate adequate resources to finish converting the patent 

image database to a fully text-searchable database. While patent images are available back to 1790, the text searchable database is only adequately usable back to 

1971. Management recently made available an additional database using optical 

character recognition (OCR). The ‘‘dirty’’ OCR database is, however, of such poor 

44

quality as to render it almost useless for text searching with the Agency’s current 

search engine. These are examples of failed management practices that have resulted in decreased quality of patent examination over time. 

The Strategic Plan quality initiatives are designed to reduce or eliminate the freedom and independent judgment of patent professionals. Patent examiners operate 

in a quasi-judicial capacity when making patentability determinations. The proposed quality initiatives would place the examiners under more stringent control of 

management and subject them to political pressures from both management and applicants. This is analogous to a federal judge being under executive branch management control when making judicial decisions. It is analogous to a medical doctor 

having to have a diagnosis and treatment regimen approved by an accountant. At 

the USPTO, many supervisors manage art areas in which they, themselves, have 

not been trained. Hence, patent examiners well trained in their technology, are reviewed by a generalist supervisor. Ultimately, the Strategic Plan initiatives will result in a further erosion of examination quality. 

In almost all professional positions, the professional is tested once and then expected to remain current in his profession through continuous formal and on-thejob training. Attorneys do not retake the bar exam every year or two. Doctors do 

not sit for their board certifications every year. Repeated testing is not the accepted 

way of maintaining professional standards in the private sector and neither should 

it be at the USPTO. POPA has always been a strong proponent of adequate and 

continuing training in both technology and patent laws. The patent professionals of 

POPA are hard-working, dedicated public servants and deserve the honor and respect of USPTO management. Rather than unnecessarily increasing the number of 

managers reviewing one patent examiner, management should provide adequate opportunities for examiners to keep current with changes in patent laws and their respective technologies. Adequate time and training, more than anything else, will directly result in significant improvements in patent examination quality. 

CONCLUSION

POPA opposes the proposed new USPTO fee structure and the 21st Century Strategic Plan as presently written. We would welcome the opportunity to work together 

with the Subcommittee and the USPTO to develop a Strategic Plan and fee structure that would be acceptable to all parties concerned and meet the objectives of 

improving patent quality and decreasing patent application pendency. 

We thank you, Mr. Chairman for this opportunity to present the views of POPA. 

ATTACHMENT

Best

and the

latest trends in Automation in the EPO

by Dr. Michel Marandon, Director BEST-DG2 

(This paper does not necessarily represent the official position

of the European Patent Office on the matters addressed.)

1. Introduction 

The European Patent Convention provides for the grant of a patent in essentially 

two steps: the search and the examination (cf. Article 15 sqq. EPC). Under the 

present arrangements, the search is carried out by the search examiners of DG1 

(The Hague/Berlin) and the examination by the substantive examiners of DG2 (Munich). These examiners have an academic degree or a comparable background. 

This split procedure has historical reasons and results from a compromise aimed 

at integrating search examiners from the previous Institut International des 

Brevets and at giving the seat of the EPO to Germany. Although it has proven to 

work satisfactorily, it can not be denied that it is not the most economic way of 

working as both types of examiners have to study the application and the prior art 

documents. The substantive examiners also have to study the reports of the search 

examiners. 

The office management has for some time been thinking about ways of improving 

the effectiveness of the examination procedure without decreasing the quality of the 

products. The reflections lead to the start of a pilot project with the purpose of 

Bringing Examination and Search Together (BEST). 

45

In this procedure, because of the requirements of the EPC, the examination process is still carried out by the same examiner in two phases with the end product 

of the first phase being a search report. 

The pilot project, called BEST, was launched in February 1989 with the appointment of a Project Leader for BEST in DG1, and the creation of a Steering Committee. 

As BEST in DG1 can only be maintained if DG2 also works under BEST conditions, it was decided to start BEST in DG2 in 1992. 

In 1993, the project has been recognized by the Administrative Council of the 

EPO as one of the most important strategic moves of the Office and go-ahead was 

given. 

2. The BEST project. 

2.1 Principles underlying BEST 

One of the most essential principles underlying BEST is the basic responsibility 

of both DG1 and DG2. DG1 is responsible for search work and DG2 for examination 

work within the Office. This means that each DG in its field of competence is responsible for the Guidelines and Instructions, training, harmonisation and control 

of quality. In this way it can be insured that the quality of search or examination 

will be comparable regardless of where within the Office the search or examination 

has been carried out. 

In order to create an environment that allows for as much harmonisation as possible between DG1 and DG2 the following extra measures have been taken:

a) Both project leaders have search and substantive examination experience in 

DG1 and DG2 respectively.

b) With respect to BEST-DG1 it is pointed out that training is entirely under 

the responsibility of DG2 and is carried out by examiners with substantial 

experience in substantive examination. Similarly, the training of BEST-DG2 

is under the responsibility of DG1 and is monitored by highly experienced 

search examiners.

c) The Directorates for Harmonisation and Quality Control in DG1 and DG2 

look very carefully at the work carried out in the other DG.

d) The examiners participating in BEST attend training weeks in the other 

DG.

e) It is agreed that eventually all technical areas will be dealt with in each DG 

in order to avoid the development of different practises in each DG according 

to the technical areas it deals with and in order to avoid applicants knowing 

beforehand where a particular application will be dealt with.

f) For harmonisation and training purposes DG1 examiners participate in examining divisions in which DG2 examiners are present.

g) Training programmes are the same in DG1 and DG2 and are given by the 

same lecturers. 

2.2 Working methods 

After having tried out different working methods it very soon became apparent, 

that a significant improvement in the procedure could be only obtained when the 

search examiner after completion of his search report directly prepares a first communication. The project now mainly concentrates on this working method. 

It must be stressed that under BEST the European search report is drawn up according to the requirements of Article 92 EPC : the BEST search is a complete one. 

So-called tactical searching is rigorously avoided. 

Oral proceedings when they arise in respect of cases dealt with in DG1 will take 

place in Munich or in DG1 depending up on the wishes of the applicant. Opposition 

on all cases whether examined in DG1 or DG2 will be dealt with by DG2 examiners 

in Munich. Hence oral proceedings thereon will be in Munich. 

2.3 Schedule 

It is expected that in the steady state, about 75% of the EPO workload will be 

treated under BEST (mainly EP and WO applications for which the EPO is ISA). 

The implementation, limited by the training capacity in DG1 and by the availability 

of online search tools in DG2, will be carried out progressively until year 2002. Presently about 250 examiners in DG1 and 50 in DG2 are working on the BEST program. 

In the year 2002, about 55,500 searches and 48,800 substantive examinations will 

be carried out under BEST. 

46

2.4 Advantages of BEST for the Applicants 

It should be stressed that BEST is not only intended to save time per file for the 

EPO, but also to provide a better service. There will an increased harmonisation in 

practice between DG1 and DG2 and the fact that a letter has already been written 

means that an official communication can be issued by the examiner as soon as it 

reaches him during the substantive examination phase. This means that an official 

communication is issued weeks or months faster than under the old system with 

no chance of a sudden divergence of opinion between DG1 and DG2 (e.g. about 

unity). The risk that a substantive examiner will cite an additional document which 

was not mentioned in the search report is also greatly reduced. 

The above advantages apply not only to European applicants but also to PCTs for 

which the EPO is the designated office. 

3. BEST and Automation. 

The BEST project and Automation are deeply inter-connected. The BEST project 

would not be possible without Automation (no search tools available in Munich) and 

the Automation would be certainly more difficult to implement without BEST (ergonomic problems linked to a log time spent in front of a screen necessitate job-diversification). 

BEST mainly relies on the use of the EPOQUE system and the BNS. 

3.1 EPOQUE 

The EPOQUE system comprises the suite of integrated applications to enable an 

electronic search procedure: a search and retrieval system (EPOQUE I) and a 

browsing and navigation tool (EPOQUE II). EPOQUE I provides on-line access to 

internal (EPODOC, WPI, PAJ, INSPEC, IBMTDB, EPOS, F-terms, US classification) and of external (main hosts used: Questel-Orbit, STN, Dialog) databases and 

personal databases using a common command language and a standardised set of 

data formats. The search and retrieval function permits interactive interrogation of 

bibliographic and full text databases. 

EPOQUE II allows an online dual mode access to the full text and drawings of 

patent documents as well as near-line access image (facsimile) databases (BNS 2). 

EPOQUE II contains one patent family member of PCT minimum documentation 

from 1970 onwards and all drawings from drawing-oriented fields (about 70 IPC s/

cl) from 1920-1970. This basic package currently represents a volume of 3.7 millions 

documents and will be expanded according to the needs of the various technical 

fields. 

EPOQUE has mainframe system components which provide the host service for 

making available an ever increasing number of databases to workstations and terminals and a workstation component. The latter comprises a sophisticated multimodule graphical user interface. The user interface allows composition of search 

queries with subsequent viewing followed by printing (if necessary) of both retrieved 

text information and facsimile information. The viewing is carried out on high resolution colour screens and printing can be accomplished on workstation, decentral 

(corridor) postscript printers or in the central print shop. 

The EPOQUE system is the cornerstone of the electronic search systems at the 

EPO. Like all search systems it depends on the quality and amount of available 

data and hence on the database production area. Efforts are being made both to acquire new data internally and externally and at the same time to improve and correct present databases. A new system, DOCTOOL, will allow examiners to associate 

keywords, indexing terms, classifications and free text to documents thus increasing 

the precision of the search results and the navigation through the documents. 

3.2 BNS 

The BACON Numerical Service (BNS) which will essentially be an electronic library server containing the EPO’s complete patent search collection and capable of 

delivering on demand documents to client applications, is an essential step in the 

implementation of the BEST program, and more specifically in Munich where no 

classified paper documentation is available. 

The data for the BNS currently consists of approximately 20 Mio documents containing about 200 Mio scanned page images. The total volume of image data is expected to be around 13 Terabytes in 1995. The BNS is based on a robot technology 

provided by Storage Tek. 

The system will enable a BEST examiner to consult on screen the documents 

which he has identified during a search in online databases using EPOQUE II and 

in a further step to print for deeper study paper copies of those documents which 

have been selected by the consultation on screen. 

47

In a first development phase, BNS at level I will provide batch mode access to 

the retrieved documents. In the second development phase (BNS level 2), the system 

will offer the BEST examiners near line access with high priority (about 15 minutes 

response time) to the selected documents. 

4. Online searching in the future 

BEST-DG2 entirely relies on the new EPO concept, based on three tools:

—identification (EPOQUE I)

—consultation (EPOQUE II)

—document delivery (BNS).

It is expected by successive use of these tools to divide the number of documents 

to be studied by a factor of 10 in each step, e.g.:

2000 doc EPOQUE I> 200 doc EPOQUE II>20 doc study on paper> search report 

5. Conclusion: 

BEST will be a major step in the development plans of the EPO and will expand 

with corresponding improvements and expansion of the on-line search tools available to the examiner. All necessary steps will be taken to ensure at the very least, 

the maintenance of present quality.

48

APPENDIX 1


Stern1.eps
49


Stern2.eps
50


Stern3.eps
51


Stern4.eps
52


Stern5.eps
53


Stern6.eps
54


Stern7.eps
55


Stern8.eps
56

APPENDIX 2


Stern9.eps
57

Mr. SMITH. Thank you, Mr. Stern. 

Director Rogan, I’m going to address most of my questions to 

you, but in just a minute, I will ask the others to respond as well. 

My first question goes to the issue, indirectly at least, of fee diversion. I think they are as close to a consensus on the desire to 

eliminate diversion. And while I know Mr. Stern opposes your strategic plan, generally, both Mr. Williamson and Mr. Kirk have suggested a 3-year sunset to sort of force the issue and not allow the 

increase in fees to continue indefinitely, and therefore sort of set 

the status quo in cement. 

What would be your response to the suggestion to have some 

form of a sunset? 

Mr. ROGAN. Mr. Chairman, first, I am extremely sensitive to the 

basis for the suggestion of a sunset. I have testified before this 

Committee that from the user community’s perspective, they have 

a legitimate argument. Why should I have more fees put upon me 

if they are going to be diverted? And there is no answer to that because neither you, nor I, nor the President can guarantee that 

there won’t be a diversion from some other Committee. 

What I can tell you, Mr. Chairman, the Members of the Committee, and the user community is this: Number one, this Administration is now on record as saying that diversion is wrong, and it 

ought to end. And the President, even during a time of war, still 

was prepared to cut that level of diversion. That, coupled with the 

ability of the Administration to come forward now with the strategic plan, working with the user community, that makes sense has 

shown the appropriators that we are very serious. The appropriators stepped forward in fiscal year 2003——

Mr. SMITH. You don’t think a sunset is necessary if we take the 

President and the Administration’s word for it? 

Mr. ROGAN. Here’s the problem, Mr. Chairman. Whether diversion ends one day or doesn’t end, we still have a backlog of a halfmillion cases going to a million. Whether diversion ends or doesn’t, 

we still have to hire more examiners, we have to train more examiners, we have to improve our IT system, and if we are put in a 

position where we’re going to bring people on board, make those investments only to have that potentially yanked away from us in 

one or two or 3 years because of something unrelated to any of us 

in this room, what position does that put the mission of the PTO 

in? 

If you walk into a room and see an armed robber with a gun to 

the head of a victim, that victim is in distress. It is not an appropriate response to say, ‘‘Drop that gun or I will hurt the victim,’’

and yet that’s the practical effect of what a sunset does. 

Mr. SMITH. Okay. 

Mr. ROGAN. The PTO is in distress. It needs to be able to make 

these investments, and without the predictability of having fees, 

how can I, in good conscience, try to bring on 3,000 more examiners, knowing full well that their jobs will be at the mercy of another Committee that may have a different take on it. 

Mr. SMITH. Let me go back at it another way, to your goal of trying to reduce the pendency and reduce the number of pending 

cases. Both Mr. Kirk and Mr. Stern opposed the outsourcing that 

you have suggested in your strategic plan, the outsourcing of a 

58

source function. Some people would say that you’re increasing the 

fees, and the outsourcing is going to reduce productivity and reduce 

quality. 

What’s the response to why we need to outsource and split the 

function? 

Mr. ROGAN. Mr. Chairman, in a perfect world, if we didn’t have 

this massive backlog problem, if we didn’t have the critical problem 

that we have in the PTO right now, I wouldn’t recommend 

outsourcing it. I would hire more, and more, and more examiners 

and train them, but Congress has already very plainly told us over 

the last several years the PTO is not going to be allowed to simply 

hire its way out of a problem. You are going to have to come up 

with some new different proposals to show that the money is being 

spent differently. 

When we put this plan on the table last year, even the Democratcontrolled Senator appropriators took a look at it and said, ‘‘Finally, the PTO is being responsive to us when they’re suggesting 

all of these different things,’’ and outsourcing was one of the things 

that we could do. 

The bulk of our employees dealing with whether a patent gets 

issued or not are patent examiners. There are essentially two functions there; a search function and an examination function. What 

else is there to outsource? If we don’t outsource the search function, 

which tends to be ministerial. and keep in-house the quasi-judicial 

function of examining that patent, we are not going to be able to 

ever cut through that backlog, and we’re going to be in the same 

condition that we are in right now under the status quo. In a perfect world, I would not suggest it. This is not a perfect world. 

And if I may, Mr. Chairman, add 2 days ago the United Kingdom—Great Britain—announced that they are now outsourcing 

searches for the very same reason, because of their patent backlog. 

The Japanese Patent Office has been separating the search from 

the examination for the last 15 or so years. The European Patent 

Office for the last 20 years had the search and the examination 

separated. 

I have a letter from Dr. Kober, the president of the European 

Patent Office, dated today, saying that the representations made 

here that they are now combining them had something to do with 

quality is totally erroneous. They did it for productivity reasons because they had a totally different system. 

Dr. Kober, and the Europeans, are prepared to change their system to join our system and rely upon our outsourced searches. 

Mr. SMITH. Director Rogan, without objection, we will make that 

letter a part of the record. 

Mr. ROGAN. Thank you. 

[The letter from Dr. Kober follows:]

59


Kober1.eps
60


Kober2.eps
61

Mr. SMITH. Thank you for your responses. 

The gentleman from California, Mr. Berman, is recognized for his 

questions. 

Mr. BERMAN. Thank you, Mr. Chairman. 

The problem with the sunset suggestion, it would seem to me if 

this is all about decreasing backlogs, and improving quality, and 

you’re getting a fee increase that is going to be sunsetted, your 

ability to do long-term things is going to be constrained by the notion that you’re not going to have those—you possibly might not 

have those fees, that level of fees, in three or 4 years. 

Your ability to entice people with specialized technology backgrounds or chemistry backgrounds to more quickly evaluate some 

of the new kinds of things that are being penned coming into the 

office, they’re going to be thinking, ‘‘Yeah, this is great, and then 

I get a lay-off in 3 years,’’ and it’s going to be a disincentive to 

doing what I think we all want you to be able to do with the new 

fees. 

So I have doubts about, I don’t quite understand why industry 

is so excited about the sunset. If they’re willing to pay the fees to 

get the quicker results and the better quality, why isn’t the alternative that says, ‘‘The bill that authorizes the fees also caps, and 

then phases down, and then ultimately prohibits the diversion’’? 

We recognize that probably at the director’s pushing, the Secretary of Commerce and the OMB has signed off on a smaller diversion this year than in the past, and that’s good, and so we’re 

not going to——

Mr. ROGAN. Just that it was my gentle suggestion, Mr. Berman. 

Mr. BERMAN. Your political adroitness, as demonstrated in your 

2002 campaign—in your 2000 campaign. 

Mr. ROGAN. You’ve wounded me. You’ve wounded my spirit. 

[Laughter.] 

Mr. BERMAN. You did a good job there, and so, all right, we won’t 

prohibit the diversions right off the bat, but we’ll start a downward 

decline of diversion amounts for this fiscal year, for next fiscal 

year. Maybe in the third year or the fourth year, we ban the diversions. The fee increases are permanent. The diversions get phased 

out. Why isn’t that a better suggestion than the sunset? 

That is to you, Mr. Director, although I don’t know if you’re able 

to speak to those kinds of issues, as Director, given that the Administration probably doesn’t have a position on that, but to the 

other witnesses as well. 

Mr. KIRK. Mr. Berman, if I could speak to that, please. 

If the Subommittee could enact legislation that would phase 

down, in a step manner, the amount of diversion, and tie the hands 

of the appropriators so that it would disappear in ‘‘X’’ years, we 

would endorse that in the strongest possible terms. There is no 

question about that as being a better solution. 

The difficulty has been that in previous Congresses, it has proven impossible to tie the hands of the appropriators in that way. 

The way the PTO currently——

Mr. BERMAN. Remind me when it was last seriously tried. 

Mr. KIRK. It was tried with legislation under former Chairman 

Coble. I can give you a number. It disappeared——

62

Mr. BERMAN. That was an amendment to an appropriations bill, 

if I recall. 

Mr. KIRK. No, he had other bills—— Mr. BERMAN. We both had bills, yeah, they just—— Mr. KIRK.—before you that did not get to the House floor and did 

not move forward that have banned it. We would strongly endorse 

that. That’s not an issue there. 

The difficulty that we have seen in the past is that, as good as 

the intentions are of every member on the authorizing Committee, 

there seems to be a disconnect in conversations between this Committee and the Appropriations Subcommittee. 

Mr. BERMAN. The Appropriations Subcommittee doesn’t get to 

hear that bill. There are a lot of appropriators. If you don’t want 

to do it, it’s not going to happen, but if you make it a priority, and 

you push, you got some arguments in favor of it. 

Republicans like to say that user fees shouldn’t be tax increases. 

This supports that principle. What self-respecting nonappropriator 

Republican is going to vote to allow higher user fees than are necessary for the function in order to see them diverted and thereby 

support tax increases? 

You’re going to have a lot of Democrats, I think, who are going 

to think that the technology promotion issues involved in improving the patent process are so important to the economy that they’ll 

support it, and in the end, while the appropriators, there’s a lot of 

them, they are still less than a majority. 

And if people and the companies make it a priority, why wouldn’t 

you want to at least take the chance and push it a ways and see 

how far you can take it? 

Mr. SMITH. Mr. Berman, your time has expired. Without objection, we will yield you an additional minute, but I would prefer 

that that minute be used to give Director Rogan a chance to respond to your suggestion as well. 

Mr. ROGAN. Mr. Chairman, Congressman Berman, if I had just 

arrived on this job without having the benefit of Washington service, I would probably think it was a great idea to tie into this fee 

bill a statutory end to diversion. 

The practical reality is I don’t think that bill would go anywhere. 

It’s been tried before. Those bills haven’t gone anywhere, and so if 

the suggestion that is being made from the user community is let’s 

just try it again and hamstring this fee bill, then I think we end 

up with the status quo. 

Mr. BERMAN. I’ve been on this Subommittee for 20 years. I don’t 

believe there’s ever been a serious attempt by this Subommittee to 

make this happen—a serious, lobbied, whipped, argued attempt. I 

think there’s been rhetorical flourishes, and bills introduced, and 

then it’s all dissipated into the ether. 

So the question seems to me a little bit is it’s up to us, along 

with the community. 

Mr. SMITH. Thank you, Mr. Berman. 

The gentleman from Virginia, Mr. Forbes, is recognized for his 

questions. 

Mr. FORBES. Thank you, Mr. Chairman. 

Mr. Rogan, let me compliment you on your leadership since taking over as director in December 2001. You’ve given us a bold plan 

63

to modernize outmoded operations, but what I was going to ask 

you, if you could please tell us what actions, if any, the office is 

taking to comply with congressional mandates to establish and implement objective patent quality standards and to establish regular 

reporting with relevant congressional Committees on those matters. 

Mr. ROGAN. Well, of course, this particular Subommittee has 

been aggressive in their oversight, and we welcome and appreciate 

it. 

What we have tried to do, actually, Congressman Forbes, in the 

Strategic Plan, is put pendency issues to the side and make them 

secondary and make quality the permeating factor. The one thing 

I heard from all around the country, and every group that I spoke 

to, was the same message: We don’t like higher pendency, but we 

would rather have higher pendency if it meant better quality. 

Unfortunately, in the world of pie charts and bar graphs, pendency is the one thing that can be measured. Quality is far more 

ephemeral. What is quality? 

And so what we’ve tried to address in this is, to the extent that 

we practically can, let’s take the operation we have now and try to 

implement quality at every stage in the pipeline, rather than simply hire people, train them, send them on their way and do a statistical analysis at the end of the day to see how we’re doing. 

Yes, we’ll continue doing things like we’re doing now with 

supervisorial review and continuing training, but we also want to 

do a lot of other things. We want to raise the bar on hiring, we 

want to raise the bar on training, we want to require that examiners be certified and maintain certification in their relevant technologies. 

Our managers all thought that was a great idea. I went and told 

the managers it’s such a good idea we’re going to make you be certified and maintain your certification in these critical technologies. 

We’re not going to let you be treated like tenured professors in this 

place. 

So we’ve been working very closely with the user community, trying to listen to what their concerns were, listen to the concerns of 

Congress, and to the extent that we can put our resources on the 

quality side, even though it’s not as measurable on a chart, we 

know that that will make a better office because when we make a 

mistake on a patent application it’s not close enough for Government work. 

There are significant economic repercussions that occur if somebody has invested in a company and a technology, and they’ve 

hired people, and somebody else pops up and says, ‘‘Gee, that thing 

they issued to you was a mistake.’’ We get it, and so we’re doing 

everything we can, within the rules of Government, to put our 

focus there first and then push pendency. But pendency should be 

the second rung of our attack. 

Mr. FORBES. And one last question, and I don’t know if there’s 

much you can do about this, but I noticed in a recent article in the 

New York Times that they published concerning the patent quality 

and its impact on a practice of patent donations for tax deductions, 

can you tell me if the office has any plans to help deal with that 

or if they’ve had any discussions along that line. 

64

Mr. ROGAN. I haven’t. I heard about the article. I didn’t read the 

article. We pretty much, we issue, we call ‘‘balls and strikes.’’ We 

issue patents, we don’t issue patents, and then they’re out the door, 

and what people do with them in that regard is really beyond my 

portfolio. 

Mr. FORBES. Thank you, Mr. Chairman. 

Mr. SMITH. Thank you, Forbes. 

The gentlewoman from California, Ms. Lofgren, is recognized for 

her questions. 

Ms. LOFGREN. Thank you, Mr. Chairman. 

I think this is a useful hearing, and I appreciate the efforts being 

made by Mr. Rogan and the PTO on the revised plan, and listening 

and trying to improve it. 

I understand that we have to get some more resources into the 

office. We’ve known that for a long time, but I can’t match Mr. Berman’s tenure on the Committee, but I’ve been on the Committee 

now for a number of years, and every year we say, well, we’re going 

to end the diversion of fees, and we vote unanimously to oppose it, 

and when you were a Member of the Committee, you voted to oppose it, too, but every year it continues. 

And I have sort of reached the conclusion that I should follow the 

First Lady’s advice, ‘‘Just say no.’’ I don’t think I’m going to vote 

to increase any fees until we get this solved. 

I think that the fee increase for a diversion is simply a tax. It’s 

a tax on innovation, and the technology sector, and the inventors 

of the country are willing to pay their income taxes, and they’re 

willing to pay increased fees for the Patent Office. I just don’t think 

it’s appropriate to tax them on inventing. That’s the complete 

wrong direction. 

And I think Mr. Berman is correct. We have never really gotten 

serious enough about this. We’ve all talked about it, and we all 

share the blame. I mean, I’m not going to single any of us out, but 

if we wanted to be serious there are things we could do, and we 

need to involve the private sector, and the business community, 

and lobbying for this, and I think we should do that. 

And we could say that if you divert the fees by an operation of 

law, they are replaced automatically dollar-for-dollar by the Attorney General’s budget and let the Attorney General go fight for his 

money or by the Defense Department. They always get their budget. Let them go fight for that amount or I’ve been, as you know, 

Mike, been working to put together a bill that creates kind of a 

Post Office-type insulation, so that really it would be very difficult 

for appropriators to grab the funds. 

I really think that we need to get very serious about this, and 

I know, Jim, that you agree on the diversion. Obviously, the role 

you have now is different than when you were on the Committee, 

and I understand that everybody who’s an under secretary and Secretary has loyalty, and appropriately so, to the Administration and 

must have at least some discretion in their comments. 

But I think that we do need to work to do this, and I’ve just, I 

guess, had enough of it, and I would issue a call to all of us on the 

Committee, this has always been a bipartisan fight. It’s been unanimous votes of the full Committee year-after-year, and I really 

think we ought to get serious, and we ought to get this done, and 

65

we ought to reach out to not only our organizations here, who we 

rely on so much because of your expertise, but the broader business 

community. 

And at a time when the tech sector is flat on the back, it’s not 

the time to continue to short the Patent Office, its employees who 

care so much, all the way from the commissioner down to the patent examiners and everyone else. And so I’m not going to vote for 

this until we get a solution to it, and I hope that others will join 

me in that, in working for a solution. 

And with that, Mr. Chairman, I don’t have additional questions, 

since I have such strong opinions. I’ll just yield back the balance 

of my time. 

Mr. SMITH. Thank you, Ms. Lofgren. 

The gentleman from Virginia, Mr. Goodlatte, is recognized for his 

questions. 

Mr. GOODLATTE. Thank you, Mr. Chairman. I am delighted to 

have our former colleague, Jim Rogan. I wish we had you back up 

here, but we are glad to have you with us when we can. 

Mr. ROGAN. My wife is much happier with me right here. Thank 

you. 

Mr. GOODLATTE. Yes, I know. I know. 

We see a number of friendly faces back behind you, too, that we 

recognize as well, and we’re glad you brought all of our old friends 

back here. 

I want to follow up on the question that Mr. Forbes raised with 

you. I think that I agree with you, and I agree with congressman 

Forbes, that quality is a vital issue here, and I’d like to know do 

you have in process some specific undertaking to establish some 

clear-cut quality control standards? 

Mr. ROGAN. We do. In fact, if you look at the 37 different action 

items that are basically the guts of the strategic plan, I think you’ll 

find almost all of those relate to quality. I rattled off a few off the 

top of my head a few moments ago for Congressman Forbes. 

It’s, as I said, from a political standpoint, it’s much tougher to 

focus on quality, rather than pendency, because, at the end of the 

day, we who run agencies want to be able to come before Congress 

and say, ‘‘I’ve done something good,’’ and the way I prove I’ve done 

something good is to be able to show you something on a measurement. 

So if I can show you that I came in office, and pendency was at 

26 months, and I got it down to 24 months, therefore, I take a bow, 

and give me more money for my agency. 

Well, I could reduce pendency right now with a stroke of a pen 

by just simply shortening the time the people have to respond. 

Mr. GOODLATTE. You could, and to a certain extent, quality does 

collide with the amount of time it takes to reduce that enormous 

backlog that you’ve got, a growing backlog, I might add. 

But by the same token, if you do have objective quality standards, if you implement something that is clearly identifiable and 

understandable in the process, you can actually expedite the ease 

with which you deal with patents if you clearly have a path that 

you’re following and clear, objective standards that somebody can 

look at and say: Does this application meet these objective standards? Is it reliable not only to the Patent Office, not only to the 

66

patent applicant, but also to other people who are affected by the 

issuance or nonissuance of a patent. 

If you do that, then you may actually accelerate the ability to cut 

through the applications and say: This one clearly doesn’t meet 

these objective criteria. We could move on to the next one, and it 

could be helpful to your process and not in collision with the need 

to get rid of that backlog. 

Mr. ROGAN. Yes, and to the extent that that can be done, we’re 

doing it, we’re trying to do it, and my predecessors have tried to 

do it, but this is very much like sitting in a courtroom and watching legal cases. Every one of these inventions that comes through 

is new, it’s different, and, in fact, our examiners are looking at 

technologies long before anybody else in the country sees it, and so 

we’re trying to follow up. 

I see in the audience my predecessor, Mr. Dickinson, is here. One 

of the things that he did when there was a problem on quality with 

business-method patents was to bring that second set of eyes to 

look at it and to bring people from the outside sectors in who had 

been dealing with this. 

We want to expand upon that in the critical technologies and the 

more complex technologies, but that also takes money. That slows 

down pendency because it means you’re taking senior examiners off 

the line to stop and take a second look at some of these applications, but we’d rather do that and make sure we get it as right as 

we possibly can than kick these things out to try to improve pendency. 

Mr. GOODLATTE. And you have a process underway in which you 

think you’re working towards a more objective, quality metric system than you have now. 

Mr. ROGAN. Yes. 

Mr. GOODLATTE. Thank you. Anything you can submit to us, we 

would welcome to have it. 

Mr. ROGAN. But that’s nothing unique, also, to my Administration. This has bedeviled all of my predecessors, and all of them 

have tried to work with the private sector to see where the holes 

are, and where the gaps are, and we’re continuing in that regard. 

Mr. GOODLATTE. Thank you. 

I would not go as far as the gentlewoman from California with 

regard to her comments on fee diversion and the tie-in to this bill, 

but I would strongly encourage you to look, and I would encourage 

the Committee to look at taking a stronger stand, either in this legislation or parallel to this legislation, doing something about that 

because I think it is a big component to your having the kind of 

flexibility you need to succeed. 

And if there are things that we have not done here to try to nail 

down the Appropriations Committee, I’m more than happy to gird 

up, and go out, and participate in that fight. And if it helps to do 

that with the urgency of what you’re doing to say, ‘‘Look, in order 

to accomplish this goal, we’ve got to also do this,’’ I’m prepared to 

do that. If it needs to be done in a parallel track, and not interfere 

with your legislative initiative, I’m prepared to do that, too. 

But I do think that the gentleman from California is right. We 

do need to make this a renewed battle, and I hope that we’ll have 

the opportunity to do that. 

67

Thank you, Mr. Chairman. 

Mr. SMITH. Thank you, Mr. Goodlatte. 

The gentleman from Florida, Mr. Wexler, is recognized for his 

questions, knowing that we may not have the full 5 minutes. 

Mr. WEXLER. I appreciate that, Mr. Chairman. 

I’ll be brief and just echo the kind words that were said to Mr. 

Rogan and applaud you for the hard work that you’re doing, and 

for your office and your staff, and the commitments, the genuine 

commitments that you and your staff have to the patent reform effort. 

I know that you have made a significant effort, through your 

strategic plan, and otherwise, to retain qualified examiners, and 

you’ve identified that as one of the challenges, significant challenges that you have, and it would seem to me, if I understand 

your testimony, basically, your position would be our primary responsibility or the thing that we can do is to change the fee structure, as you’ve suggested, and I think that’s a fair suggestion. 

But in concert with Mr. Berman, and Mr. Goodlatte, and others, 

I also know you’ve rejected the idea of sunsetting it. And I understand the arguments, but it would seem to me that somewhere in 

between the two maybe there’s some common ground where we 

could change the fee structure, but have some incentive so that it’s 

not there in perpetuity if the fees are diverted, and you don’t have 

the opportunity to do what you need to do. 

I, essentially, would just respectfully suggest maybe you could 

suggest to us other alternatives we might employ to better enable 

you to do what you need to do. 

Mr. ROGAN. Thank you, Congressman Wexler, first, for your graciousness and, second, there are a number of things that can be 

done. 

I don’t want to presuppose to tell or suggest what this Committee 

or Congress ought to do, but what I would hope that this Committee would not consider doing is holding hostage this needed fee 

bill to move these quality initiatives, hold it up so that a different 

fight can be fought. Whether Congress wants to do it in a separate 

stand-alone bill or some other manner, that would be open for discussion. 

But however the legislative strategy develops on the diversion 

issue, the problems of the PTO aren’t going away. They are only 

going to get worse, and we cannot, in this agency, afford not to be 

able to implement the quality initiatives that must be implemented 

if there is anything that is going to hold that ability for us up, and 

diversion is it. 

And it may well be that in the House there are people who think 

diversion is a good idea, but there aren’t a majority of them, and 

I think that that’s probably true, based on my recollection of my 

former colleagues. 

But as we all know, we get over into the Senate, and one appropriator can hold the entire thing up. And we’ve seen just in the last 

year what’s happened with our backlog by not being able to get a 

fee bill last year. This is not like wine. It does not get better with 

age. We’ve got to be able to get these quality initiatives and get eGovernment processing moving today. 

Mr. SMITH. Thank you, Director Rogan. 

68

Thank you, Mr. Wexler, for your questions as well. 

As you all know, there is a vote pending, and the gentlewoman 

from Pennsylvania has asked that we submit some written questions on her behalf to you all, and we hope you will be able to reply 

within 10 days. We appreciate her being willing to do that because 

that will enable us to adjourn and then go vote. 

I also have a couple of written questions that I’d like to submit 

as well. 

The gentleman from California? 

Mr. BERMAN. I would like also just to, I want to just probe more 

on this issue, the issue of the search, not at a hearing, but in written questions. 

Mr. SMITH. We all have written questions for you all then. 

Thank you for being here. You’ve contributed much to the discussion and given us some good ideas, and we will proceed to try to 

improve the PTO. 

With that, we stand adjourned. 

[Whereupon, at 4:12 p.m., the Subommittee was adjourned.] 

(69)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman and Ranking Member Berman, I thank you for holding a Legislative Hearing on H.R. 1561, ‘‘The U.S. Patent and Trademark Fee Modernization Act 

of 2003.’’ I am concerned that Congress will be passing legislation that will tax innovation. 

Quite simply, the United States economy is driven by innovation. The U.S. Constitution grants Congress the power ‘‘to promote the progress of science and useful 

arts, by securing for limited times to authors and inventors the exclusive right to 

their respective writings and discoveries.’’ Addressing the backlog of patents is necessary to ensure that innovation and our economy is not stymied. I applaud United 

States Patent and Trademark Office (USPTO) Director Rogan for his wiliness to address patent pendency. The hiring of 3,000 additional patent examiners will assist 

USPTO in keeping pendency rates at an acceptable level. 

I have discussed my concerns with Director Rogan regarding H.R. 1561, and the 

greatest concern I have is an increase in the initial application filing fees without 

assurances the revenue will remain within the USPTO’s budget. I believe application fees should reflect the actual cost for processing the patents. These fees should 

be used by the USPTO to hire examiners, purchase office equipment, and to keep 

it running efficiently—not to be siphoned off to fund a monorail system traversing 

the Las Vegas Strip or some other unrelated project. 

In the spirit of the Constitution and our founding fathers, I firmly believe we 

should only charge fees required to process the applications. Otherwise, we only perpetuate the practice of taxing innovation. 

I thank the Chairman for scheduling this legislative hearing and look forward to 

working with him and his staff in perfecting this bill.

PREPARED STATEMENT OF THE INTERNATIONAL TRADEMARK ASSOCIATION

Mr. Chairman, Congressman Berman, Members of the Subcommittee: 

The International Trademark Association (INTA) is pleased to submit this statement in connection with the subcommittee’s oversight of the U.S. Patent and Trademark Office (USPTO). We respectfully request that it be made part of the record 

of today’s hearing. INTA’s statement will comment on: (1) the important progress 

that has been made with regard to the trademark elements of the USPTO’s fiveyear strategic plan; (2) the status of USPTO funding for both fiscal years 2003 and 

2004, including the issue of diversion of USPTO funds; (3) the administration’s 

USPTO fee bill; and (4) the implementation of the Madrid Protocol. 

About INTA 

INTA is a 125-year-old not-for-profit organization comprised of over 4,200 member 

companies and firms. It is the largest organization in the world dedicated solely to 

the interests of trademark owners. The membership of INTA, which crosses all industry lines and includes both manufacturers and retailers, values the essential role 

that trademarks play in promoting effective commerce, protecting the interests of 

consumers, and encouraging free and fair competition. The members of INTA, who 

routinely apply for and maintain trademark registrations, along with patent filers 

and owners, are the customers of the USPTO. 

70

1 Under Secretary Rogan’s Statement before the Subcommittee on Courts, the Internet and Intellectual Property, 2 USPTO, 21st Century Strategic Plan, at 6, 13 (February 3, 2003). 

3 Id. at 6. 4 Id.

5 Id. at 7. 6 Id. at 8, 13, 14. 7 Id. at 10. 8 Id. at 1 9 United States General Accounting Office, Intellectual Property: Fees Are Not Always Commensurate With the Costs of Services, 32 (May 1997). 10Pub. L. No. 108–7, H.R. Rep. No. 108–010, 108th Congress, 1st Sess. (2003). The initial ap- propriation was $1.182 billion. When the mandatory across-the-board cut of 0.678% was applied, 

the total appropriation was $1.174 billion. 11Memorandum from Howard Coble, chairman, to Members of the Subcommittee on Courts, 

the Internet, and Intellectual Property, 3 (April 9, 2002). The 10-year period covers FY ’92 

through FY ’02. 12 Budget of the United States Government, Fiscal Year 2004—Apendix, at 216. 13 USPTO, ‘‘President’s ’04 Budget Request Underscores USPTO’s Role in Promoting Economic 

Growth: Resources Increased; Fee Diversion Substantially Reduced,’’ February 4, 2003, at http:/

/www.uspto.gov/web/offices/com/speeches/03–05.htm. 14 Id.

The USPTO Strategic Plan 

On February 3 of this year, the USPTO released the summary of its revised 21st 

Century Strategic Plan. Under Secretary of Commerce and USPTO Director James 

Rogan has described the plan as a ‘‘roadmap for creating—an agile and productive 

organization.’’ 1 INTA worked closely with the agency to revise elements of the 

plan’s earlier draft, which was released last summer. 

July 18, 2002, at http://www.house.gov/judiciary/rogan071802.htm. 

With regard to trademarks, the revised plan highlights the use of ‘‘electronic endto-end processing,’’ 2 including a ‘‘trademark electronic file management system’’ 3— a concept long supported by INTA. We view electronic filing as an effective means 

to reduce errors and improve pendency in the examination process. The USPTO intends for the new system to begin operation on November 2, 2003, in tandem with 

the Madrid Protocol.4 The strategic plan also calls for greater harmonization of 

trademark office practices around the world 5 and improved examiner training,6 proposals that INTA continues to support. One notable difference between the earlier 

and most recent iteration of the plan is the deletion of the four-track examination 

system, which included the certified searches strongly opposed by INTA and others 

when the initial plan was released last summer. The USPTO now proposes a threetiered approach, without the certified search service as a feature.7

These developments are promising. We thank Director Rogan and his staff for addressing many of the issues that we raised when the initial plan was released last 

summer. And, while INTA must review the detailed version of the revised plan 

when released before providing its formal endorsement, we believe the strategic 

plan promises to achieve the USPTO’s vision of a ‘‘quality-focused, highly productive, responsive organization’’ that is ‘‘fully worthy of the unique leadership role the 

American intellectual property system plays in both the American and the global 

economies.’’ 8 At this time, we urge the USPTO to release the detailed revised plan 

as soon as possible so that intellectual property organizations can provide feedback 

and the agency can begin to implement the final plan. 

Funding and Diversion 

The key to implementing the strategic plan in its final form will be adequate 

funding for the agency. The money paid to the USPTO by its customers is the agency’s sole source of funding. The USPTO attends to its responsibilities without the 

assistance of a single penny of taxpayer money.9

USPTO estimates place the fee collections for FY 2003 at $1.204 billion. The FY 

2003 appropriation for the USPTO is $1.174 billion,10 representing a diversion of 

$30 million. This is less than the amount diverted in past years, but only because 

USPTO revenues have decreased. Diversion is still a significant problem. According 

to this subcommittee’s own figures, over a 10-year period, diversion has cost intellectual property owners $582.1 million.11

Diversion is a factor in FY 2004. A $100 million diversion is part of the president’s proposed overall $1.504 billion FY 2004 appropriation for the USPTO.12 This 

is 50% less than what the administration had proposed in FY ’03.13 The administration maintains that this reduction is a step towards eliminating the practice of diversion.14 In support of the president’s budget proposal, Commerce Secretary Donald Evans stated in testimony before the Commerce, State, and Justice SubVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00074 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
71

15 USPTO, ‘‘Commerce Secretary Tells Congress the Administration is Working to Eliminate 

Fee Diversion: Full access to fees will allow agency to improve patent and trademark quality,’’ at http://www.uspto.gov/web/offices/com/speeches/03–10.htm. 16http://www.uspto.gov/web/offices/com/strat21/feebill.htm. 17 Id. at § 3. The basic filing fee for an e-application would be $325 (technically down from the current $335, which was raised through regulation earlier this year to meet fluctuations in 

the consumer price index). 18 Id. The $275 fee would be for tier 1 applications that are filed under the revised strategic 

plan’s three-tiered filing system. We understand the ‘‘conditions’’ for the $275 fee include filing 

a fully completed e-application that must, among other things, use the USPTO’s ID Manual. 19 Id. 20Supra n.2. 

committee of the House Appropriations Committee: ‘‘To support technology innovation and provide for intellectual property protection, the Department is working to 

eliminate the practice of using USPTO revenues for unrelated federal programs. 

Making more fees available sooner will enable the agency to increase the quality 

of patents and trademarks issued.’’ 15

INTA welcomes Secretary Evans’ comments and appreciates his support. Diversion must come to an end. 

The Proposed Fee Bill 

Statements by administration officials are certainly a step in the right direction 

to ending diversion. However, they are not a guarantee that the flow of USPTO dollars to unrelated parts of the government will stop any time soon. To that end, 

while INTA is supportive of the trademark provisions in the proposed United States 

Patent and Trademark Office Fee Modernization Act,16 our support is contingent 

upon an immediate conclusion to diversion. Alternatively, INTA’s concerns might be 

addressed by a commitment by the administration that it intends to work with Congress to end diversion combined with the addition of a ‘‘sunset’’ provision. This ‘‘sunset’’ provision would require fees to return to 2003 levels at a date certain unless 

the legislation is extended by an act of Congress. The ‘‘sunset’’ provision will give 

both Congress and the private sector the opportunity to assess where we stand with 

regard to diversion and to evaluate the USPTO’s implementation of the strategic 

plan before deciding whether the increased fees should continue. 

INTA is also seeking a clarification in this proposed fee bill. In this proposal, 

there is a single fee increase for trademarks; the basic filing fee for applications submitted on paper would rise to $375.17 The USPTO has abandoned its earlier proposal that would have granted the director unlimited authority to raise trademark 

fees across-the-board. The clarification we seek relates to the provision for a fee decrease—a $275 basic filing fee ‘‘for any applicant who prosecutes the application 

through electronic means under such conditions as may be prescribed by the director.’’ 18 This fee decrease is not mandatory, however. The draft legislation states that 

the director ‘‘may reduce the fee.’’ 19 We understand that this flexibility is deliberately built into the bill because of the uncertainty of when the fee bill will pass 

versus when the USPTO will have the electronic systems in place to implement the 

‘‘trademark electronic file management system.’’ 20 Our requested clarification is 

simple: that the lower fee should become effective upon the implementation of the 

electronic file management system. 

Finally, INTA believes that the proposed fee bill should not take effect before the 

beginning of FY 2004. Absent a supplemental appropriation to the USPTO from 

Congress, which at this time appears unlikely, the USPTO would be unable to access the additional money raised through the increases during FY 2003. The money’s fate would therefore be uncertain; perhaps it would be used as additional fodder 

for diversion. To avoid this uncertainty we suggest that the fee bill take effect at 

the beginning of FY 2004. 

Implementation of the Madrid Protocol 

The year 2003 is crucial for the USPTO’s trademark operation, not only because 

of the anticipated implementation of the strategic plan, but also due to the scheduled implementation of the Madrid Protocol. The Madrid Protocol is a treaty that 

facilitates the international registration and maintenance of trademarks. Under the 

Madrid Protocol, a trademark owner in a member state is able to seek protection 

for its trademark in as many Protocol countries as desired by filing a single application in its home trademark office in either English or French and upon payment 

of a single set of fees. This approach offers savings in terms of time and money for 

both large and small businesses. 

72

21Pub. L. No. 107–153. 22Treaty No. 106–41. 23Madrid Protocol, Article 14(4)(b). 24Letter from Paul V. Kelly to Hon. Henry Hyde, March 21, 2003. 

In 2002, after a decade of consideration the Madrid Protocol Implementation Act

was approved by Congress and signed into law by President Bush.21 Also in 2002, 

the Senate provided its ‘‘advice and consent’’ to the treaty.22 This success was due 

in large part to the efforts of this subcommittee and its staff. 

Based on statements made to INTA by USPTO officials, the USPTO is working 

towards a November 2, 2003, activation date for the Madrid Protocol, which would 

be one year after the president signed the implementing legislation. INTA takes this 

opportunity to commend the USPTO, in particular, Director Rogan, Commissioner 

for Trademarks Anne Chasser, and Deputy Commissioners for Trademarks Bob Anderson and Lynne Beresford, for taking the initiative and working in earnest to 

meet their November 2 deadline. 

At present, the USPTO appears to be on track to being ready for the November 

2, 2003, start date. On March 28, the agency released its proposed rules package 

for implementing the Madrid Protocol. INTA is currently reviewing the package and 

will provide comments. 

The other player in the implementation process is the State Department, which 

is charged with depositing the instrument of accession with the World Intellectual 

Property Organization in Geneva. To begin Madrid operations on November 2, the 

State Department must deposit the instrument on August 2 in order to allow for 

the treaty’s three-month notice period to other Protocol countries.23 On the matter 

of the State Department’s schedule, Paul V. Kelly, the department’s assistant secretary for legal affairs, recently wrote to House International Relations Chairman 

Henry Hyde that deposit of the instrument of accession is dependent on the readiness of the USPTO to implement the treaty.24 It is therefore up to the USPTO to 

give the State Department the ‘‘green light’’ far enough in advance so that the instrument of accession will be ready for deposit by August. 

We will naturally keep this subcommittee informed of the progress that is being 

made towards Madrid implementation and look forward to a November 2, 2003, 

start date. 

Conclusion 

Thank you for the opportunity to submit a statement in connection with the subcommittee’s oversight of the USPTO. INTA looks forward to working with the administration, this subcommittee, and our colleagues in the intellectual property community towards the successful implementation of the USPTO strategic plan; the enactment of fee legislation that provides funding for the plan; an end to the diversion 

of USPTO money; and implementation of the Madrid Protocol on November 2, 2003.

73


ABA1.eps
74


ABA2.eps
75


ABA3.eps
76


ABA4.eps
77


ABA5.eps
78

1 In 2000, approximately 21,800 biotechnology-related patent applications were filed with the 

U.S. Patent and Trademark Office. See Jeff Donn, ‘‘As Disease-Causing Genes Are Discovered, 

the Rush to the Patent Office Grows,’’ AP Newswire, Aug. 21, 2001. In all categories, a total 

of 21,671 patent applications were filed in 1880. U.S. Patent Activity, Calendar Years 1790– 2001, at http://www.uspto.gov/web/offices/ac/ido/oeip/taf/h—counts.htm. 2 U.S. Patent and Trademark Office, the 21st-Century Strategic Plan (Feb. 3, 2003), available 

at http://www.uspto.gov/web/offices/com/strat21/stratplan—03feb2003.pdf. 

3 United States Patent and Trademark Fee Modernization Act of 2003, H.R. 1561, 108th Cong. 

(2003), available at http://www.uspto.gov/web/offices/com/strat21/feebill.htm. 

PREPARED STATEMENT OF THE BIOTECHNOLOGY INDUSTRY ORGANIZATION

SUMMARY: 

The Biotechnology Industry Organization (BIO), the trade association for more 

than 1,100 biotechnology and biopharmaceutical companies, academic institutions 

and related organizations strongly supports a vibrant and effective system of intellectual property protection. Intellectual property is essential to securing the benefits 

of biotechnology for our society. Strong and predictable patent protection enables the 

flow of investment capital that is vital to achieving biotechnology’s promise. 

BIO supports the efforts of the Administration to strengthen and improve the patent system, to ensure adequate funding for the operations of the Patent and Trademark Office (PTO), to avoid diversion of funds to nonpatent purposes, and to improve the quality of both patent examination and issued patents. BIO can support 

an increase in patent fees provided that it is accompanied by realistic and effective 

means to prevent diversion of funds. In addition, for the reasons outlined below, 

BIO believes that the committee should effectively link ‘‘unity of invention’’ reform 

to enactment of a fee bill. The testimony concludes with suggestions on how to 

achieve these goals. 

Background: 

BIO represents many different entities and interests, including start-up biotechnology companies, universities, state biotechnology centers and related groups. 

All of BIO’s members share the goal of improving the human condition through the 

delivery of new products, goods or services flowing from biotechnology. Before most 

inventions can become commercially available, years of work and millions of dollars 

of investment capital are required to secure the necessary approvals or to complete 

adequate testing. This commercialization relies on the premise that the originator 

of an invention should be protected against copying by imitators. BIO is an advocate 

of a highly effective and patent system that functions well to secure this protection. 

Quality examination and review that produces strong and enforceable patents of an 

appropriate scope and duration is an essential condition to creating the biotechnology industry’s platform of success.1

There is little doubt that the current American patent system has many 

strengths. Our patent system has shown remarkable resilience and flexibility in 

dealing with new technologies. Our system, however, requires replenishment with 

new ideas and new funds to secure improved results. For that reason, BIO supports 

the broad goals of the Administration’s 21st-Century Strategic Plan.2 This thoughtful document outlines many worthwhile reforms aimed at further improving the 

quality of patent examinations, the review patent applications receive in complex 

cases, and the strength of issued patents. While BIO believes a strong case can be 

made for increasing the financial resources at the Patent and Trademark Office to 

achieve these worthwhile goals, we look forward to seeing the details of how the 

PTO plans to do it. 

Diversion of Funds from the PTO: 

The challenge for all policy-makers in this field, however, is to provide adequate 

resources for the vital operations of the Patent and Trademark Office without diverting to other governmental functions fees that the PTO has collected from patent 

applicants. At present there is no effective mechanism for ensuring that diversions 

will not continue, even though the PTO insists that it wishes to avoid diversion. BIO 

is concerned that the pending fee bill3 does not yet contain sufficient safeguards to 

prevent diversion of funds. The failure of the bill to address the source of the most 

significant problem facing the office could undermine the very goals of the strategic 

plan. 

This committee is fully familiar with the issue of diversion and has attempted 

over many, many years to end this practice. BIO defers to the wisdom of the committee on how best to achieve this shared goal. It might be possible to link the 

achievement of improved outcomes within the PTO to authorization of fee increases. 

As the President noted when he signed the most recent reauthorization of the PreVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00082 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
79

4 Restriction practice is a workload management tool employed by the PTO. Under the authority of 35 U.S.C. 121, the office may require an applicant to ‘‘restrict’’ the examination of the 

application to a single ‘‘independent and distinct’’ invention. If the finding is that the application 

contains more than one independent and distinct invention, the PTO requires the applicant to 

file an additional application to permit examination of the second or third ‘‘invention.’’ Doing 

so allows the office to collect an additional set of fees, and gives the patent examiner an additional time credit. 5See, for example, Convention on the Grant of European Patents (European Patent Convention) of October 5, 1973, Art. 82 ‘‘Unity of Invention’’ (‘‘The European patent application shall 

relate to one invention only or to a group of inventions so linked as to form a single general 

inventive concept.’’), available at http://www.european-patent-office.org/legal/epc/e/

ma1.html#CVN. 6See, for example, Japan Patent Office, Examination Guidelines for Patent and Utility Model 

in Japan, ch. 2 ‘‘Requirements for Unity of Application’’ (Dec. 2000) and Japan Patent Law, Section 37 (Law No. 121 of April 13, 1959 as amended by Law No. 220 of December 22, 1999), 

available at http://www.jpo.go.jp/quick—e/index—tokkyo.htm. 7Patent Cooperation Treaty, June 19, 1970, 28 U.S.T. 7645, 1160 U.N.T.S. 231, available at 

http://www.wipo.org/pct/en/. 8The current discretionary practice of dividing a single invention into multiple applications 

has a great impact on start-up biotechnology companies. Biotechnology patent applications experience the PTO’s restriction practice more than any other sector of the U.S. economy. This is 

because biotechnology inventions are complex and the law is still developing in this area. In 

order for a biotechnology inventor to obtain the best possible coverage for her inventions, she 

must submit an application that touches on several aspects of a single invention. Although these 

aspects are related, the PTO divides these aspects into many different groups, forcing a biotech 

inventor to file multiple applications on what is in reality a single inventive concept. Each application requires additional fees and costs for the party prosecuting the application such as patent 

counsel as well as cost in time for the applicant’s attention. Two applications multiply the cost 

by two; 10 applications multiply the cost by 10, etc. So when an examiner divides one application into several applications, the costs multiply accordingly. 

scription Drug User Fee Act (PDUFA), the practice of linking fees to reform (with 

concrete metrics like timeliness of reviews and achievement of management goals) 

can be a powerful incentive to secure goals in the public interest. 

Restriction Practice/Unity of Invention: 

One component of a valid strategic plan for the patent system in the United 

States should be the immediate, and rapid, review and implementation of reforms 

to the restriction practice currently used in the U.S. patent system.4 In its strategic 

plan, the PTO has pledged to work with other patent offices to develop a workable 

international framework for these reforms, including movement toward the international examination system often called ‘‘unity of invention.’’ While the PTO has 

agreed to implement unity of invention as part of its long-term agenda, it’s current 

proposal does not seek the statutory authority to secure that goal. The PTO appears 

willing to submit legislation to implement changes in this area in the future but 

has not clearly committed to do so within a definite timeframe. While those steps 

are commendable, BIO believes that steps to address problems related to ‘‘unity of 

invention’’ should be taken now, in conjunction with implementation of a fee bill. 

What exactly is unity of invention? In its simplest terms, it is the idea that a single invention should be filed and reviewed—and, as appropriate, issued—without 

being unnecessarily broken into multiple component parts. This approach to patent 

examination is, for the most part, already in effect in most patent offices around 

the world (e.g., the European Patent Office,5 and the Japanese Patent Office 6) either directly or as a result of the Patent Cooperation Treaty.7 The United States 

currently generally follows this practice in its handling of international applications 

filed under the Patent Cooperation Treaty. The United States should take steps to 

implement a unity of invention examination system that is in harmony with these 

other offices.8

Adopting a practice that allows biotechnology companies to keep related features 

of a single invention together in a single application will greatly facilitate the process of examining these applications. It will also significantly reduce the administrative workload of the PTO. Unlike the rest of the world, the PTO traditionally separates claims even though they are directed at one particular invention. Using the 

biotechnology sector as an example, the PTO currently separates claims directed at 

as a single DNA sequence, the protein that DNA sequence encodes and antibodies 

that bind to the protein into different inventions. As a result, applicants are required to prosecute what should be considered one application as multiple applications. The current restriction practice of the PTO (the practice of imposing limits 

on the scope of what can be examined in a single application), especially in biotechrelated groups, produces unnecessary filings, work and complications for both the 

80

9 Restriction practice refers to the way that the PTO determines how many claims it will consider as a single application. When a patent is submitted, historically the PTO would often respond with a ‘‘restriction requirement,’’ which separated claims into groups according to their 

similarity with each other. In biotech patents, this often meant that, for example, all diagnostic 

claims would be grouped into one ‘‘divisional application’’ and all therapeutic claims would be 

grouped in to another divisional. This resulted in the applicant filing two or more, but a small 

number, of separate patent applications. This policy has recently changed, however. The PTO 

is now restricting gene patents into large numbers of divisional applications. This results in an 

unmanageable number of individual patent applications, with associated unreasonable filing 

costs. One BIO member, a small diagnostics company, recently had an application restricted into 

more than 40 separate divisional applications. The governmental costs alone for this technology 

would be over $300,000.00, assuming the patents issue. This cost figure does not include attorney costs or any other costs associated with filing these applications. 

Another biopharmaceutical member recently had an application restricted into more than 900 

separate divisionals. The company would therefore be forced to decide which applications it is 

capable of pursuing, leading to incomplete protection of its inventions. 10Small biotechnology companies experiencing this practice are unable to cover the whole of 

their invention. As an example, for one small biotechnology company, the PTO divided a single 

application into over 20 groups. In order to obtain coverage for a single invention, the biotechnology company would have to pursue over 20 applications. For a small company, the cost 

of 20 applications for a single invention is prohibitive. The company would, therefore, be forced 

to decide which application it is capable of pursuing, leading to incomplete protection of its inventions. 

Under unity of invention practice, any inventor can pay up front to have the PTO review a 

number of claims in the same application instead of dividing the claims into numerous applications. This can make a significant difference in the ability of a company with limited resources, 

such as a small biotech start-up company, to protect all aspects of its inventions. Under the current practice in the PTO, this is not possible without exorbitant fees.

PTO and applicants.9 Simplifying this process would significantly improve the examination system. We recognize that the PTO, in the case of multiple inventive concepts in a single application, may appropriately demand the applicant to elect to either pay additional fees or file separate or divisional applications to obtain examination of related inventions that are presented in a single application. The fees that 

should be applied in these instances should be proportional to the additional work 

implicated by the consolidation of the related features of the invention in a single 

application. BIO believes, however, that the use of scores of ‘‘restrictions’’ on nonDNA sequence patents, or literally hundreds and hundreds of ‘‘restrictions’’ on DNA 

sequence patents, is unfair and should be ended.10

BIO members are most frequently start-up firms with limited capital. The imposition of PTO ‘‘restrictions’’ that, in effect, divide a single application into so many 

parts causes prosecution of a single invention to become prohibitively expensive. 

This result deters investment in biotechnology and unfairly discriminates between 

firms solely based on their ability to bear the costs of patent prosecution. Addressing 

these ‘‘restriction practice’’ issues is a high priority for the biotechnology industry. 

Linkage: 

As the committee knows, BIO has previously expressed concern about the magnitude of any fee increase and its impact on the small businesses that are the bulk 

of BIO members. Today we are concerned that the PTO’s plans for implementing 

its fee proposal will create uncertainty that is harmful for our members. Until the 

PTO’s current restriction practice is replaced with unity of invention, applicants 

have no way of fully assessing the impact of the proposed fee increase. As the proposal is currently structured, Congress may be asked to consider fee legislation 

twice within a one- or two-year period of time: once in a fee bill and again in an 

amendment to take into account changes in PTO practice around what constitutes 

a complete patent application (that is without undue restrictions). 

Currently, the Administration is asking the Congress to pass fee legislation while 

promising to submit unity of invention legislation later in the 108th Congress. This 

two-step process should be combined. Unless the biotechnology industry knows how 

the PTO’s fees will be implemented it cannot determine the net effect of a fee bill, 

especially on small and medium entities and BIO’s nonprofit members. Without full 

consideration of a unity of invention reform measure, BIO cannot effectively gauge 

the impact on its members because it cannot know in advance how the PTO will 

divide up, or treat, its applications. 

There are several ways in which the committee could achieve linkage of the two 

fee-related issues. First, the Congress could enact a one-year bill fee in the form of 

a surcharge bill and return to the fuller fee reform proposal later along with unity 

of invention legislation. Second, the Congress could consider, on the merits, changes 

to fees that would reflect an examination model that permits consolidation of related 

81

features of an invention rather than separate application with separate applications 

fees. 

Finally, the committee could adopt an amendment that would mandate a review 

of the fee bill one year after enactment. In the event that no unity of invention reform was in effect then, the fee reforms proposed for future years would be held in 

abeyance until such a measure was implemented. 

CONCLUSION: 

BIO supports efforts to strengthen the patent system of the United States. The 

Administration deserves abundant praise for its efforts to secure a strategic plan to 

achieve that result. The Department of Commerce and the Patent and Trademark 

Office understand and support the efforts of Congress and others to prevent diversion of patent fees. BIO remains concerned, however, that sufficient safeguards are 

not yet in place to prevent the diversion of patent fees. Finally, BIO urges the Congress to take steps to make sure that unique interests of the biotechnology industry, 

especially those relating to unity of invention, are fully and completely dealt with 

in the legislative process.

82


POPA1.eps
83


POPA2.eps
84


POPA3.eps
85


POPA4.eps
86


IPO1.eps
87


IPO2.eps
88


IPO3.eps
89


Berman1.eps
90


Berman2.eps
91


Berman3.eps
92


Smith1.eps
93


Smith2.eps
94


Smith3.eps
95


Berman.eps
96


SmithA.eps
97

FOLLOW-UP QUESTIONS AND ANSWERS FOR THE HONORABLE HOWARD L. BERMAN

Question 1

I again commend your efforts in putting together this impressively lengthy and detailed strategic plan as it no doubt represents a tremendous amount of effort. However, it seems to me that any discussion of a fee increase or the detail of any substantive changes is premature without some mechanism in place to end the discussion of funds. Without an end to this practice, any increase in revenue would be prey 

for appropriators and would most likely not ever be available to fund the ideas contained in your plan. What steps have you or the administration of PTO taken, or intend to take with respect to stopping this practice? Are you and your office willing 

to solicit industry support and approach the Bush Administration and appropriators 

with a sincere lobbying effort to end diversion? 

Answer: 

As you know, ‘‘fee diversion’’ is a topic of great interest to many, including the 

patent community, independent inventors, and small businesses. You will be 

pleased to know that I have personally devoted a great deal of time and attention 

to bring this matter up at the highest levels of the Administration. As I stated in 

my written testimony before the Subcommittee:

‘‘The Administration shares these [′′fee diversion′′] concerns. President Bush cut 

the level of ’fee diversion’ by nearly fifty percent from the FY 2003 Budget level 

in the Administration’s FY 2004 budget request for our agency. Last month 

Commerce Secretary Don Evans addressed this topic while testifying before a 

subcommittee of the House Appropriations Committee. There he said ’the Department is working to eliminate the practice of using USPTO revenues for unrelated Federal programs. Making more fees available sooner will enable the 

agency to increase the quality of patents and trademarks issued.’’

In my capacity as Under Secretary of Commerce for Intellectual Property and Director of the USPTO, I fully support the efforts under way by the Administration. 

I am confident that the Congress, including the Appropriations Committees, will use 

their best judgment, and support the President’s Budget, as they consider agency 

funding during the annual appropriations cycle. 

Question 2

Given the subjective nature of quality assessment, from a practical standpoint, lay 

out for me specifically some of the main methods the PTO intends to use to both as- sess quality and to determine the cause of poor quality. What individuals or entities 

would be charged with this duty and how autonomous would they be from PTO Administration? To what extent was the entire Strategic Plan made available for review 

by the general public? 

Answer: 

As I have previously testified twice before the Subcommittee, patent quality will 

always be the highest priority while I am at the United States Patent and Trademark Office (USPTO). Several years ago, you voiced concerns about Business Method Patents. My predecessor, Q. Todd Dickinson, instituted several quality initiatives 

in this technology area in response to such concerns. These included enhancing 

training for examiners, expanding the available patent literature for prior art, and 

a second level review (also known as the ‘‘second pair of eyes’’) prior to the approval 

of a patent. These initiatives have been well received by the patent community and 

have met with considerable success. 

Under the 21st Century Strategic Plan, the USPTO will work to enhance the 

quality of patent examining operations through additional comprehensive quality assurance programs. For example, Patents will enhance the quality of its products and 

services by integrating various quality review programs into a single Quality Assurance Program in each of the Technology Centers, as well as expand the quality review of work products and improve the connection between the review findings and 

subsequent training. Patents will expand the in-process review to cover all stages 

of examination from first action to allowance or abandonment. The results of these 

reviews will be used to check the quality of work products during examination rather than after the fact, and determine examiner-training needs. Moreover, as part of 

our Plan, the USPTO will hire the people who make the best patent examiners, certify their knowledge and competencies throughout their careers at the USPTO, and 

focus on quality in all aspects of the examination of patent and trademark applications. 

In summary, our number one priority is to emphasize patent and trademark quality and make it the primary focus of everything we do. The assessment of quality 

98

lies with the most senior managers of the patent examining corps, but we also are 

now in the early stages of procuring private sector assistance in developing new, 

more objective metrics of quality. 

The patent system is, to a great extent, established by Congress through statute. 

Currently, the examination of patents is a quasi-judicial function that rests solely 

with the USPTO and its highly trained ranks of examiners who possess scientific 

and engineering backgrounds. Under the Strategic Plan, this would continue. One 

long-standing check on the quality of patents is the participation in the system by 

third parties who raise issues in the Federal courts, which as you know are autonomous. 

The Strategic Plan was developed in response to a specific mandate from Congress 

during the 107th Congress. Last summer, after a top-to-bottom review, the USPTO 

developed and submitted to the Hill our original Strategic Plan. That Plan was posted on the USPTO website for public comments. Answers to every question or comment have also been posted on the website. The House Judiciary Subcommittee on 

Courts, the Internet and Intellectual Property held on oversight hearing regarding 

this proposal. Additionally, the USPTO vetted both versions of the plan with numerous companies, inventor groups, trade associations and our two Public Advisory 

Committees. As a result of comments and criticism from the patent user community 

and the public, the USPTO developed the new version of the Strategic Plan. The 

revised Strategic Plan was developed and incorporates 95% of the old strategic plan. 

In February, a 17-page summary of the plan, the 37 action items, and the proposed 

Fee Legislation were posted to the USPTO website. In addition, your congressional 

office received a hard copy of these documents. 

Question 3

Aside from diversion and changes to the fee schedule, in your opinion, what components of the strategic plan will require legislation? Would additional legislation be 

required to authorize the separation of search from the examination function or does 

the PTO have the authority in the absence of such specific legislation? Assuming for 

a moment that the search function was outsourced, what type of search would be 

talking about, at what stage in the application process would it occur and what materials (i.e. the abstract? the disclosure? the claims?) would be available to the entity 

conducting the search. 

Answer: 

A great deal of the revised Strategic Plan can be carried out administratively. 

However, the fee legislation is the key to many of the objectives that the USPTO 

is pursuing. For example, we need statutory authority to refund a portion of the 

search and examination fees when the applicant discontinues prosecution prior to 

either stage of processing. In addition to the revisions found in the fee bill, two examples of reforms that do require future legislation are the creation of a patent opposition system that would permit post-grant review and possible revisions to our 

unity of invention or restriction practice. 

The USPTO already has the authority to split the search and examination functions. Under our Plan, the USPTO will forward copies of patent applications to 

search contractors to conduct the search. The contractor’s work products will be 

monitored by the USPTO to ensure that the contractor is producing searches according to established requirements and are of sufficient quality. The USPTO will pilot 

the outsourcing of searches in FY 2004 to test the concept before a full scope implementation. For more detailed information on our search outsourcing proposal, please 

see the answer to Question #5 below. 

As I indicated in my written testimony, the USPTO has already received more 

than 75,000 patent search reports from the European Patent Office pursuant to the 

Patent Cooperation Treaty (PCT) over the past few years. In addition, we have 

signed agreements with our Trilateral Partners to assess further the mutual exploitation of search reports for national and PCT applications. The fee legislation requires enumerating a separate search fee because this change will permit private 

contracting entities to search and necessitate a different type of fee. 

The USPTO’s FY 2004 proposed budget contains funding for a pilot for splitting 

search and examination activities, and the major administrative costs. We have requested $1.5 million to pilot the outsourcing of searches to prove the concept before 

changing the patent examination process. The pilot will focus on the outsourcing of 

PCT Chapter I search activities. The results of the PCT pilot will provide the Office 

with the information necessary to implement the best possible transition from examiner searches to contractor searches. During the pilot, the USPTO will determine 

the costs that will have to be paid to the commercial search services for conducting 

99

these prior art searches. Upon successful completion of the pilot, the use of commercial search services for prior art search reports will be phased in over several years. 

The most significant overhead component associated with separating the search 

and examination is monitoring the quality of the searches provided by the commercial search services. Under a separate initiative in the FY 2004 budget, the USPTO 

has requested $2.8 million to assess and monitor the quality of the searches provided by these commercial searching authorities. We also have requested $470,000 

for system modifications needed to support the outsourcing of the PCT Chapter I 

search activity. 

Question 4

What is the rationale for separating search and examination? I understand that 

doing so would allow the PTO to charge another fee, but what is the logic in terms 

of quality to separate these seemingly integral functions. Given that the examiners 

want to do the search and in fact consider it to be an integral component in their 

examination, should we not defer to their judgment when considering issues of patentability? 

Answer: 

As I explained in my written testimony, the USPTO and its sister patent offices 

throughout the world have considerable experience in splitting the two tasks of 

search and examination. Contrary to the assertion that quality suffers under such 

a structure, the reverse is true. During the April 3rd hearing, I entered into the 

record a letter from the President of the European Patent Office (EPO), Dr. Ingo 

Kober, which discusses Europe’s experience in this area. While the EPO does not 

competitively source the search function, search and examination have been separated within the EPO for more than twenty years without any detriment to quality. 

In addition, please refer to the answer for Question #6 below. 

Question 5

Your proposed fee schedule imposes a new ‘‘search fee’’. Under your plan, conducting the prior art search would be out-sourced to the financial detriment of the 

applicant. Have you provided in your plan and made available for critique the mechanics and economics involved in setting up the administrative infrastructure to implement and oversee the certification, compliance and quality of the entities conducting the search? Specific details please. 

Answer: 

The USPTO has obtained public comment on our plans and posted on our website 

for many months the answers to questions or suggestions we have received from the 

public, our patent examiners, and the professional associations with whom we have 

worked extensively. We recently published on our website a detailed action plan 

which describes our implementation approach. What follows are the highlights of 

the administrative structure and processes we are fully prepared to implement. 

Traditionally, while the USPTO has always required applicants for a patent to 

pay for a search, that cost was bundled into the initial filing fee. The fee legislation 

breaks out a separate search fee because, in the future, that will reflect the cost 

to the applicant by the private search entity. We believe that ultimately competition 

in the marketplace will result in higher quality and more cost-effective searches. Additionally, we intend to refund the search fee component whenever we receive a 

search report from another certified industrial property office. This is the reason 

that the Plan permits the Director to set the fee in the future. The advantages of 

outsourcing provide benefits, rather than detriments, to all patent applicants. The 

outsourcing of a search to private entities is part of the President’s Management 

Agenda. 

To meet the requirements of our customers and to determine the feasibility of 

competitively sourcing search functions, the decision has been made to implement 

a proof of concept through a pilot program. We will assure quality of contractor performance through evaluations and continuous monitoring of the pilot. 

The USPTO will use the contractors to prepare complete and accurate reports for 

patent applications. One or more contracts would be awarded. It is anticipated that 

there will be at least one contract specializing in each discipline. The contractor may 

be a private or commercial search entity with demonstrated expertise and search 

skills. The request for a search and the resulting search report are activities between the USPTO and the contractor. 

The USPTO would administer the same preliminary processing procedures currently established for new application filings. A copy of the application would be forwarded to the contractor approximately three months prior to the examination. The 

contractor would perform a prior art search and prepare a report using PCT guideVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00103 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
100

lines and USPTO search guidelines for additional non-patent literature (NPL) resources as stated above. 

Upon completion of the report, the application would be forwarded to the Patent 

Technology Center to await review by the examiner. The examiner would then review the report and prior art cited. If the report was inadequate or if the examiner 

was personally aware of other prior art, the examiner could request time to search 

them, or have the report sent back to the contractor with an explanation of the deficiency and a request for supplemental information. 

The USPTO would maintain the authority to certify that a private firm, individual, or commercial entity was capable of providing a valid, thorough, and complete search of the prior art for patent examination processes. A certification process 

would be done at the USPTO. The process could be given to firms or individuals 

or a combination thereof. The certification process may be based on industry specific 

criteria and be given on an individual basis based on the firm’s or individual’s qualifications. Similar to the Primary Examiner at the USPTO, a senior member of the 

firm could sign off on an ‘‘assistant’s’’ search. Thus, while there are multiple options 

available, a preferred one would be to certify the ‘‘firm’’ which, in turn, would be 

responsible for certifying their individual searchers. 

The critical measures of success would be determined based on the contractors’ ability to: (1) determine if disclosed invention is subject to an international search; 

(2) identify a field of search that would cover the disclosed invention; (3) select the 

proper tools and art collections to perform the search; (4) determine the appropriate 

search strategy for each of the selected search tools and art collections; (5) search 

the art collections using the selected search tools and search strategy, and using any 

additional strategy suggested by the art that is found; (6) retrieve sufficient information from art that is identified during the search to evaluate the pertinence of 

the art; (7) select the prior art that is most pertinent to the claimed subject matter; 

(8) record the results of the art that is selected according to the criteria set forth 

in the guidelines; and (9) determine if certain claims are found to be searchable subject matter and/or lack clarity or distinctness. 

The contractor would have to prove that it has ready access to the appropriate 

industry specific search tools. Much of the work in developing industry specific 

search tools is either in the process of being done or has already been published on 

the USPTO intranet in the form of Search Guidelines. These guidelines were developed by Quality Action Teams and represent a listing of appropriate search tools 

and databases for each technology. The guidelines include PCT Minimum Document 

requirements, appropriate text search systems, as well as the pertinent commercially available databases. In addition to using the established guidelines, a classified search using the U.S. Patent Classification system would also need to be performed, if appropriate. 

Another requirement would be the technical qualifications of the contractors’ staff. 

Just as in examining, varying levels of technical expertise are required for searching 

different technologies. In addition, the contractor would have to provide proof of a 

thorough understanding of the patent examining procedures and patent statutes. It 

is essential that any contractor have the ability to read and analyze claims, as well 

as broadly apply the prior art to produce a PCT-type search report, which would 

be submitted to USPTO. The contractor would need to be aware of patent law and 

practice and be able to understand such concepts as ‘‘motivation’’ for example. This 

could be ensured through testing requirements. Finally, the contractors’ ability to 

provide timely reports would be essential to the program’s success. Special attention 

would be paid to ensure treaty deadlines were enforced. 

For proper examination and quality comparisons, a search submission would be 

expected to include, at a minimum, a listing for every search including: (1) text 

search systems; (2) commercial databases; (3) USPC classified search, if appropriate; 

(4) the complete search statement and logic; and (5) a statement regarding the 

teachings and applicability of each reference against each claim. 

The USPTO also would have to maintain a ‘‘search quality review process’’ in 

order to ‘‘sample’’ the quality of searches submitted by the certified search authorities. A component of the in-process review activity is to evaluate the quality of the 

search results for each contractor. A statistically valid sample of cases would be reviewed using criteria such as whether the search was based on what is claimed and 

reasonably expected to be claimed. Additionally, an experienced examiner will conduct a separate search on the same application, to ensure the contractor used the 

proper search procedures. 

The Office would retain the ability to terminate any contract and ‘‘de-certify’’ authorities that submit a number of poor searches from either the test sample or from 

other sources such as examiner reports, requests for re-examination or post-grant 

opposition that show clear errors. 

101

It is possible that separate contractor support would be needed to set up, implement, and maintain the necessary certification procedures, along with a dedicated 

staff of search and examination experts. 

Contractors may be required to supply certified translations or English language 

equivalents, with valid dates, for any non-English language prior art references 

cited, which would also eliminate the need for examiners requesting certified translations, partial translations and/or on-the-spot translations of non-English documents. 

The USPTO recognizes that the use of contractors to provide prior art search and/

or opinion reports for patent applications is a major change to current patent examination processes. The USPTO also understands customer concerns for excellence in 

a prior art search. To ensure quality art searches are maintained and that there 

is uninterrupted service to all USPTO customers, the Office would use the results 

of the PCT pilot as its foundation for competitively sourcing all other search activities within the Office. By using the pilot study, the USPTO will be able to accurately assess the feasibility of competitively sourcing prior art searches. Performance and product will be reviewed to ensure the highest quality is maintained, using 

both an in-process review procedure and separate searches performed by experienced examiners. 

The PCT competitive sourcing pilot will be implemented in multiple arts to ensure 

the contractors can provide a quality search report for any technology. Between 

three and six different art areas, all with generally high backlogs, would be selected 

as pilot areas. The results of the PCT pilot will provide the Office with the information necessary to implement the best possible transition from examiner searches to 

contractor searches. Prior to full-scale implementation, a final report would be developed that identifies the strengths, weaknesses, costs and benefits. This report 

would be published and made available for general review prior to a decision on 

whether to further implement outsourcing in other areas of the Office. 

There would be multiple evaluations of the search and reports prepared by the 

contractors. Examiners would complete an evaluation every time a contracted 

search is used in the examination of a U.S. application. There would also be independent evaluations both during in-process reviews, and by independent third parties (similar to a quality review of the examination). Failure of a contractor to maintain the high quality expectations could result in the ‘‘forfeit’’ of the contract to the 

contractor. 

Regarding the costs of the commercial search, our view is that quality has not 

been properly emphasized in recent years. Accordingly, we have listened to patent 

applicants and the consistent message they have conveyed to us is that quality must 

be improved and the cost of improving quality is something for which they are prepared to pay. 

Question 6

The examiners feel that because of the synergy between exam and search in determining patentability, it will still be necessary for them to conduct their own search 

to maintain high quality. If the functions of search and examination are separated, 

is this not extremely duplicative? Further, as I read your plan, the time given to the 

examiner to review a case would be reduced by 1/3 if the search is outsourced. If 

the examiner effectively has to do his own search to maintain quality, is this not forcing them to do more work in less time? Additionally, the amount by which their time 

decreased has no relation to the amount you have picked to change the applicant for 

the search. Can you explain this seemingly arbitrary assignment of cost? 

Answer: 

With all due respect, I wish to clarify this point because you will find that not 

all examiners believe this characterization about splitting the functions. Clearly, you 

are referring to the testimony of one organization—the Patent Office Professional 

Association (POPA). The USPTO held a town hall meeting with our employees last 

fall, and I am happy to inform you that I personally spoke with many examiners 

who did not share POPA’s views. 

With respect to the assignment of cost, the cost assignment is not arbitrary but 

reasonable in light of the greatly diminished work any examiner must conduct once 

a search report is already provided. We expect a savings of time within the range 

of 15–20 percent if the examiners receive search reports that can be relied upon 

from either foreign intellectual property offices or commercial search firms. In the 

case of a search report from a commercial search firm, the examiner would review 

the report and prior art cited. If the report was inadequate or if the examiner was 

personally aware of other prior art, the examiner could request additional time to 

search the prior art, or have the report sent back to the contractor with an explaVerDate 0ct 09 2002 10:27 May 20, 2003 Jkt 000000 PO 00000 Frm 00105 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\040303\86267.000 HJUD1 PsN: 86267
102

nation of the deficiency and a request for supplemental information. Thus the examiner would not be forced to do more work in less time. 

As we reported in a previous response to examiner questions, the European Patent Office’s (EPO) gradual transition to combining search and examination functions 

is different than the four-track examination process as proposed in the 21st Century 

Strategic Plan. Under the traditional EPO practice, two or more examiners within 

the EPO work on a single application. That is, a search examiner performs the 

search function, and a substantive examiner performs the examination function on 

a single application (sometimes as many as three perform this task). The EPO is 

moving towards combining the search and examination functions in order to improve examiner productivity of the combined functions. 

Question 7

Has the PTO attempted to create a fee structure that approximates the actual cost 

of examining an application? In other words, assigning to each examiner an hourly 

rate based on her seniority and experience. Then, have the examiner record the actual 

time spent examining the application. Next, multiply the two numbers and charge 

the applicant accordingly. This method seems not only obvious, no pun intended, but 

also quite equitable. It would effectively charge an applicant the cost of examining 

the actual application, ie, an applicant with a single claim, simple invention would 

be charged a substantially lower fee than an applicant submitting 500 claims for a 

complex bio-tech patent. And, it would provide the opportunity to credit an examiner 

with an appropriate amount of time for each application. 

Answer: 

In part, the concept of equating the labor required to examine an application to 

its fee is one of the crucial elements of our Strategic Plan. One of the strengths of 

the U.S. patent system is certainty for all parties that participate. There are several 

reasons that we would be unable to charge an applicant in the manner you suggest, 

(i.e., per hour of examination). For example, such a system would mean that applicants would not know at the time they file how much their applications would cost 

to examine. This ‘‘blank check’’ approach would deter applicants and chill the patent 

system, particularly for independent inventors and small businesses. Further, 

USPTO management does not receive information about how long an examiner actually takes to examine an application. We do, however, measure total examination 

time spent on the total number of cases actually examined. 

You will be pleased to learn that the original and revised Strategic Plans contain 

provisions that make the application process more equitable. These provisions, 

which require the fee bill or other legislation in order to be implemented, add fees 

for applications that exceed a certain number of claims or pages or, in other words, 

require more examiner time to review. The USPTO’s current fee structure does not 

adequately cover the costs of processing complex patent applications. 

The proposals to provide a more equitable application process are still part of the 

revised Strategic Plan, although they were scaled back from the original plan due 

to industry opposition. In addition, I refer you to POPA’s April 3rd testimony which, 

while opposing some portions of the Strategic Plan, was supportive of these concepts 

to relate the application fee to the size of the application. 

Question 8

Regarding restriction practice, the patent act allows restriction of claims based on 

a finding that the claims to be restricted out are ‘‘independent and distinct’’. The 

PTO directive, however, allows an examiner to make a restriction requirement based 

upon a finding that the claims are either independent or distinct from each other. 

This interpretation operates to the significant detriment of the patent applicant. What 

would be your suggestion for resolving this conflict? [See 35 USC .121 and MPEP 

803 and 802.01]. 

Answer: 

As explained in detail below, the 1952 Patent Act codified the existing restriction 

practice at that time which permitted restrictions to be made in cases where inventions were either ‘‘independent’’ or ‘‘distinct’’ from each other. While the statute 

states ‘‘independent and distinct,’’ the legislative history makes it clear that the 

word ‘‘and’’ is to be interpreted in the alternative. Accordingly, we have not deviated 

from this practice. 

The legislative history of the 1952 Patent Act reveals that section 121 was intended to simply codify the already existing administrative standards within the 

USPTO for restriction practice. The Senate and House Reports make Congress’ intent regarding this straightforward codification very clear: ‘‘Section 120 and 121 express in the statute certain matters which exist in the law today but which had not 

103

before been written into the statute, and in so doing make some minor changes in 

the concepts involved.’’ S. Rep. No. 1979, 82d Cong., 2d Sess. 20, reprinted in 1952 

U.S. Code Cong. & Ad. News 2394, 2400; H.R. Rep. No. 1923, 82 Cong., 2d Sess. 

20 (1952). The Revision Note for section 121 in the House and Senate Reports accompanying the 1952 Patent Act similarly described Congress’ intent: ‘‘This section 

enacts as law existing practice with respect to division [now called restriction], at 

the same time introducing a number of changes. Division is made discretionary with 

the Commissioner. The requirements of section 120 are made applicable and neither 

of the resulting patents can be held invalid over the other merely because of the 

being divided by several patents.’’

The Office’s handling of restrictions in patent applications is based on historical 

practice and legislative history. Prior to the 1952 Patent Act, a number of inventions, such as combination and a subcombination thereof, as well as a process and 

apparatus used in the process, were properly restricted by the Office. Nothing in the 

language of the statute (35 U.S.C 121) or the Congressional hearings indicated any 

changes were to be made to the substantive law on this subject. Office practice has 

consistently set forth that inventions may be properly divided if they are in fact 

‘‘distinct’’ inventions, which would separately support more than one patent. 

Question 9

What is the accurate and current status of the EPO with respect to separation of 

search and examination functions? 

Answer: 

During the Subcommittee hearing, a letter from EPO President, Dr. Kober, was 

entered into the record. In this letter, he explains the current status of the EPO’s 

operations, and I believe that this is the best source to comment on the matter.

Æ