United States General Accounting Office

GAO Report to the Chairman, Committee on

the Judiciary, U.S. Senate

May 1997 INTELLECTUAL

PROPERTY

Fees Are Not Always

Commensurate With

the Costs of Services

GAO/RCED-97-113

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-274301 

May 9, 1997

The Honorable Orrin G. Hatch

Chairman, Committee on the Judiciary

United States Senate

Dear Mr. Chairman:

As requested, this report presents the results of our review of issues related to intellectual

property fees charged by the Patent and Trademark Office within the Department of Commerce

and the Copyright Office within the Library of Congress. Our report provides information on the

manner in which these agencies use fees to provide services. The report specifically discusses

patents, trademarks, and copyrights. It also provides matters for congressional consideration

concerning both patents and copyrights and a recommendation to the Register of Copyrights.

As arranged with your office, unless you publicly announce its contents earlier, we plan no

further distribution of this report until 30 days after the date of this letter. At that time, we will

send copies to appropriate House and Senate committees; interested Members of Congress; the

Secretary of Commerce; the Assistant Secretary of Commerce and Commissioner of Patents

and Trademarks; the Librarian of Congress; the Register of Copyrights; the Director, Office of

Management and Budget; and other interested parties. We will also make copies available to

others upon request.

If you or your staff have any questions about this report, please call me at (202) 512-3841. Major

contributors to this report are listed in appendix XIV.

Sincerely yours,

Victor S. Rezendes

Director, Energy, Resources,

 and Science Issues
Executive Summary

Purpose The Congress has begun to consider a number of issues involving the

federal agencies that issue or register patents, trademarks, and

copyrights—commonly known as intellectual property. Furthermore, the

administration has made the reform of intellectual property a part of its

plan to “reinvent” government. In this regard, GAO has issued a number of

reports discussing certain operations of the Patent and Trademark Office

(PTO) within the Department of Commerce and the Copyright Office within

the Library of Congress.

The Senate Committee on the Judiciary is considering funding and

organizational proposals for PTO and the Copyright Office. To help the

Committee in its deliberations, the Chairman requested that GAO review

the manner in which these agencies use fees in providing services. He

asked GAO to address fees as they relate specifically to patents,

trademarks, and copyrights and, where applicable, to determine (1) how

fees are set for the services provided by the federal agencies, (2) the

extent to which intellectual property fees are recovering the costs of the

services provided, (3) whether different users of the same services pay

different fees, (4) whether patent fees encourage or discourage the

completeness and accuracy of applications, and (5) the potential effects of

increasing copyright fees. This report addresses these issues in individual

chapters on patents, trademarks, and copyrights. Because the last two

issues relate primarily to patents and to copyrights, respectively, the

report addresses them only in those applicable sections.

Background The federal government regulates intellectual property rights through the

grant of patents and the registration of trademarks and copyrights. Patents

and trademarks are administered by PTO, while copyrights are

administered by the Library of Congress. While the three types of

intellectual property bear many similarities, they also have important

differences.

Generally, inventors need to obtain patents in order to benefit

economically from their inventions. The grant of a patent in the United

States is a complicated process whereby PTO examiners determine that the

product or process in question is new, useful, and non-obvious. Once the

patent is issued, the patent holder in most cases has exclusive rights to the

invention for 20 years from the date the application was filed.

A trademark is acquired through use rather than registration; however,

registration does afford the trademark owner procedural advantages

Page 2 GAO/RCED-97-113 Intellectual Property
Executive Summary

against infringement. The trademark process also requires an examination

by PTO to ensure that others have not already registered the same or a

similar trademark, but the examination process is more streamlined. A

trademark registration has a term of 10 years but, unlike patents and

copyrights, can be renewed.

A copyright is gained when a work is created, not when it is registered.

However, much like trademarks, registration of a copyright affords the

copyright owner certain statutory rights that would not be available

otherwise. The examination process for copyrights is much different than

for either patents or trademarks because the Copyright Office does not

verify whether others have already registered the same or similar works.

In most cases, a copyright lasts for the author’s life plus 50 years.

Both PTO and the Copyright Office charge fees for the services they

provide, but they differ in the types of fees charged and the revenues

obtained. In fiscal year 1995, patent fees totaled $577.7 million, trademark

fees totaled $68.5 million, and copyright fees totaled $14.6 million.

Results in Brief Patent fees—like trademark and copyright fees—are set primarily by

statute. Overall, patent fees recover the costs of the patent process within

PTO and, by law, can be adjusted annually for inflation. Despite this

self-sufficiency overall, fees for individual services are not necessarily

commensurate with the costs of those services because (1) the largest fees

are paid at the back end of the patent process, while PTO incurs most of its

costs at the front end, and (2) different categories of applicants pay

different fees for the same service. Generally, successful applicants and

large entities tend to pay more than unsuccessful applicants and small

entities for the same services. Furthermore, because fees do not differ on

the basis of the complexity of the invention and because fees do little to

discourage the submission of inaccurate and incomplete applications,

applicants with complicated inventions and applicants who create delays

in the process may not pay fees sufficient to recover the additional costs

they create.

Trademark fees also recover the overall costs of the trademark process

and can be adjusted annually for inflation. However, trademark fees are

smaller and fewer in number than patent fees. In addition, fees and costs

tend to be more closely aligned in the trademark process because most

income is received prior to the examination of the application. There are

no differences in trademark fees based on the size of the entity applying,

Page 3 GAO/RCED-97-113 Intellectual Property
Executive Summary

no significant differences in the costs for different types of trademark

applications, and fewer costs and delays caused by inaccurate and

incomplete applications.

Copyright fees are the smallest and simplest of all the federal intellectual

property fees. Most applicants pay only an up-front, one-time registration

fee of $20, with no differences based on entity size, the accuracy or

completeness of the application, or the type of copyright being registered.

However, copyright fees do not recover costs either in total or by type of

service and, as a result, the Copyright Office receives about $10 million a

year in appropriations. Copyright fees have not been increased since fiscal

year 1991 because the Copyright Office chose not to raise fees to adjust for

inflation in fiscal year 1995. The Copyright Office has supported the need

for fee increases in the past and currently supports legislative proposals

that would give the Register of Copyrights the authority to raise fees to

recover the costs of copyright registration and services. Copyright Office

officials do not believe that the Copyright Office itself should be fully

self-sustaining through fees because it performs other functions that the

officials believe are more appropriately funded through appropriations.

Similarly, the Copyright Office did not support a 1996 proposal to make it

self-sustaining through fees in a new, government-owned, intellectual

property corporation, believing that such a move would lead to

unacceptably high fee increases and registration decreases.

Principal Findings

Patent Fees Recover

Overall Costs but Not the

Costs of Individual

Services

Most patent fees are set by statute and tend to be the largest and most

extensive of all federal intellectual property fees, with 139 individual types

of fees ranging as high as $2,900 in fiscal year 1995. Once dependent on

appropriations, the patent process has been self-sustaining overall since

fiscal year 1993. However, for several reasons, individual applicants may

not pay fees that are commensurate with the services they receive. First,

while most of the costs of the patent process are incurred during PTO’s

examination of the application, most of the patent fees are paid after the

examination has been completed. In fiscal year 1995, for example, about

19 percent of the fee revenues came from issue fees, which are payable

after PTO has decided that a patent can be granted, and about 34 percent

were maintenance fees, which are payable in three stages after the patent

is issued.

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Executive Summary

Second, fees do not match the costs of individual services because large

entities—for-profit organizations with 500 or more employees—pay fees

that are twice the size of those paid by small entities. While this feature

was added to the law in 1982 to reduce the burden of increasing fees on

small businesses, nonprofit organizations, and individual inventors, PTO

officials said there are no differences in the costs associated with the

patents granted to large and small entities.

Third, any particular patent fee may not recover costs because fees

generally do not vary by invention type, even though the time and

complexity involved in examining applications for different types of

inventions can vary significantly. For example, overall “patent

pendency”—the time taken by PTO to examine an application prior to a

patent being issued or the application being abandoned—averaged 19.8

months for fiscal year 1995. However, pendency varied from 17.4 months

for solar heating devices to 26.2 months for computer systems.

Finally, patent fees may not recover costs because they generally are not

designed to discourage an applicant’s delays in the examination process.

Examination time can increase significantly when PTO has to obtain

additional information from the applicant because the application was

either inaccurate or incomplete. Even though some applicants pay

additional fees for such delays, the “extension” fees accounted for about

8 percent of total fees collected in fiscal year 1995, while the delays for

which extension fees were paid accounted for about 19 percent of the

overall average patent pendency.

PTO recognizes that patent fees are not necessarily commensurate with the

costs of individual services. However, its current cost-accounting system

does not provide sufficient information to determine costs on a per-service

basis. For this reason, PTO has undertaken two studies designed to improve

its cost-accounting system and to determine how fees for both patents and

trademarks compare with the costs of individual services. The first of

these—a study of PTO’s cost-accounting system—is due to be completed in

December 1997.

Trademark Fees Appear to

Be Aligned With Costs

While smaller and fewer in number, trademark fees are similar to patent

fees in that most revenues come from statutory fees, the fees can be

adjusted annually to account for inflation, and fee revenues are sufficient

to make the trademark process self-sustaining within PTO. Furthermore,

Page 5 GAO/RCED-97-113 Intellectual Property
Executive Summary

the fees do not vary on the basis of the type of trademark for which

registration is sought.

Trademark fees are more nearly commensurate with the costs of

individual services than are patent fees. This is because (1) most costs

occur at the front end of the process, with about 76 percent of the costs of

the trademark process attributable to the examination of applications;

(2) most fees are paid prior to or during examination, with over 71 percent

of the trademark revenues obtained through the basic filing fee alone;

(3) the fees do not vary on the basis of the size of the entity applying for

registration; and (4) registration costs for different types of trademarks do

not vary significantly. Similarly, incomplete and inaccurate applications do

not create the delays and costs common in the patent process.

PTO officials believe that, despite the relatively close alignment of

trademark fees and costs, adjustments may be needed in specific areas,

such as appeals, where the current $100 fee is below PTO’s costs of

handling these actions. These officials believe that, as with patents, the

two studies underway eventually will enable PTO to determine better the

costs of the services being provided and the adequacy of the fees charged

for these services.

Copyright Fees Do Not

Recover Costs

In many ways, copyright fees differ from patent and trademark fees. While

copyright fees are also set primarily by statute, they do not recover the

costs of the Copyright Office either in total or by type of service. In most

cases, an applicant pays only $20 to register a copyright, yet the average

cost of registration in fiscal year 1995 was $36.53 per application, and the

average cost by the type of copyright ranged from $28.32 to $59.60.

The basic copyright application fees have not been raised since fiscal year

1991, when, with the support of the Copyright Office, they were doubled to

$20. Copyright Office officials said that they have supported proposals to

increase fees since then but only when they believed such an increase

would be cost-effective and would not lead to an unacceptable decrease in

applications for copyright registration. In this regard, the Copyright Office

has supported proposed legislation that would give the Register the

discretion to raise fees to reflect the fair cost of registering copyrights and

providing services. The Copyright Office is now planning a fee and cost

study to determine the costs of individual copyright services and the fees

necessary to recover these costs.

Page 6 GAO/RCED-97-113 Intellectual Property
Executive Summary

The Copyright Office did not raise fees in fiscal year 1995 to account for

the effects of inflation as authorized by law. The acting Register of

Copyrights at the time did not do so because she believed that the

revenues attributable to the increase were not worth the additional costs

that would be incurred. However, GAO found that fees could have been

raised overall by more than 16 percent, which would have increased net

revenues by about $500,000 in the first year and even more in subsequent

years. In addition, the adjusted fees would have been the basis for future

fee increases.

In September 1996, the Copyright Office opposed proposed legislation that

would have made it self-sustaining through fees in a new,

government-owned, intellectual property corporation. The Register of

Copyrights told the Senate Committee on the Judiciary that, for the

Copyright Office to be self-sustaining under such a proposal, fees would

have to be raised fivefold and applications would fall as a result. GAO found

that the Copyright Office’s projections were based on a worst-case,

least-likely scenario and that other scenarios would have resulted in fees

that ranged from $41 to $89 per application as well as smaller decreases in

applications.

Other studies—including a GAO-contracted management review of the

Library of Congress1

 and an internal review by the Library itself—support

the need for a fee increase. In addition, one of the options in the

Congressional Budget Office’s deficit reduction package for fiscal year

1998 would make the Copyright Office self-sustaining, with fees in the

range of $35 to $40 per application. The Register of Copyrights believes

that the copyright process can be made self-sustaining within the Library,

probably by increasing fees to about twice the current level. However, she

said that certain costs of the Copyright Office not directly tied to the

registration process should continue to be funded through appropriations.

On a related issue, costs attributable to the copyright process are higher

than they need to be because of a provision in the law that the Copyright

Office maintain copies of unpublished works for the full term of the

copyright, now estimated to be an average of 125 years. Because the

Library of Congress and the copyright owners rarely retrieve these copies

and many of the works deteriorate after a few years, copyright costs could

be reduced by adopting the same retention requirements for unpublished

works as for published works. In most cases, this would require the

1

Library of Congress: Opportunities to Improve General and Financial Management

(GAO/T-GGD/AIMD-96-115, May 7, 1996).

Page 7 GAO/RCED-97-113 Intellectual Property
Executive Summary

copyright holder to pay an additional $270 fee if the works were retained

beyond 5 years.

Matters for

Consideration by the

Congress

In view of the various legislative proposals involving PTO and the Copyright

Office currently being considered, the Congress may wish to reexamine

the fees these agencies charge for particular services. With regard to

patent fees, the Congress may wish to consider whether fees for particular

services should more nearly reflect the costs of those services.

Specifically, the Congress may wish to consider whether (1) the fee

differential between large and small businesses should be continued, (2) a

larger portion of fees should be tied to the examination process itself,

(3) larger fees should apply to those applications requiring more

examination time, and (4) applicants who delay the examination process

should pay larger fees.

With regard to copyright fees, the Congress may wish to consider whether

the Copyright Office should achieve full cost recovery through fees, as it

has done with PTO, and, if so, whether fees for particular services should

be commensurate with the costs of those services. In addition, to reduce

the costs of the copyright process, the Congress may wish to consider

whether storage requirements for unpublished copyrighted works should

be made the same as those for published works.

Recommendation to

the Register of

Copyrights

To ensure that fees are not further deteriorated by inflation, GAO

recommends that the Register of Copyrights raise fees to account for

inflation when given the opportunity to do so.

Agency Comments GAO provided copies of a draft of this report to the Department of

Commerce and the Library of Congress for their review and comment. At

the Library’s request, GAO also met with Library officials to discuss further

the Library’s written comments. The comments of the Department and the

Library and GAO’s responses to those comments are included in

appendixes XII and XIII, respectively.

Generally, the Department of Commerce agreed with the information in

the draft report, although the Department recommended a number of

technical and language changes. The Library strongly disagreed with GAO’s

discussion of copyright fees and said that the report was incorrect in

stating that the Copyright Office had opposed fee increases, did not

Page 8 GAO/RCED-97-113 Intellectual Property
Executive Summary

acknowledge the role of the Congress in setting copyright fees, and did not

sufficiently discuss the impact of fee increases on the Library’s collections.

The Library also disagreed with a perceived criticism by GAO of the fee

increase projections that the Register provided the Senate Committee on

the Judiciary in a September 1996 hearing.

Concerning the Department of Commerce’s comments, several of the

technical changes proposed related to GAO’s not having included

$2.4 million in miscellaneous fees in the statistics on patent fees. GAO had

not included these in the draft report because the source materials

indicated such information could not be tied specifically to either patents

or trademarks. After reviewing the Department’s comments, GAO

determined that these fees should have been shown as patent fees and

revised the report accordingly. The Department also noted that the

cost-accounting information PTO expects to have by December 1997 will

greatly enhance the substantive information available with which to

analyze potential changes to the current fee structure. Although it is too

early to know the outcome of PTO’s study, GAO makes the point in this

report that, in order to match fees more closely with services, it will be

necessary to determine the actual costs of those services. Throughout its

comments, the Department emphasized the role that the Congress has

played in creating and developing the existing patent fee structure. GAO

agrees and believes that this point is made clear in the report. GAO also

believes that any policy changes regarding patent fees would require

congressional action. For this reason, GAO has included matters for

congressional consideration dealing with patent fees.

Concerning the Library’s comments regarding the Copyright Office’s

position on fee increases, GAO added information to the report showing

that the Copyright Office has supported the need for fee increases in the

past, believes a fee increase is needed currently, and supports proposed

legislation that would allow the Register to raise fees to cover the costs of

copyright registration and services. GAO continues to believe, however,

that the Copyright Office should have adjusted fees to account for inflation

in fiscal year 1995 because the increase would have been cost-effective,

and Library officials agree that the Register should make adjustments for

inflation in the future.

GAO disagrees with the Library’s comments that the role of the Congress in

setting fees was not adequately discussed in the draft report. To the

contrary, GAO’s report shows that the Congress has chosen to continue to

recover copyright costs through a combination of fees and appropriations.

Page 9 GAO/RCED-97-113 Intellectual Property
Executive Summary

GAO points out that the Congress has chosen to make the patent and

trademark processes self-sustaining. In keeping with this approach, GAO

states that the Congress may wish to consider whether the Copyright

Office should achieve full cost recovery through fees.

GAO also believes that the report fairly discusses the potential impact of a

fee increase on deposits available for the Library’s collections. Because

the Library (1) has access to all copyrighted materials submitted for

registration, (2) is entitled by law to any other materials under copyright

protection published in the United States, and (3) rarely takes any

unpublished materials, GAO continues to believe that the works available

should not decline substantially even if copyright registration applications

decline.

Finally, GAO believes that the report accurately portrays the Register’s

testimony in the September 1996 hearings. However, GAO clarified the

report to show that the Register’s concern was with the high costs of

making the Copyright Office self-supporting within a new,

government-owned, intellectual property corporation outside the Library.

GAO continues to believe that the fees projected were too high and were

not presented in a proper context. For these reasons, GAO believes it is

necessary to show its analyses of these projections in the report.

Page 10 GAO/RCED-97-113 Intellectual Property
Page 11 GAO/RCED-97-113 Intellectual Property
Contents

Executive Summary 2

Chapter 1 

Introduction

16

Background 16

Objectives, Scope, and Methodology 20

Chapter 2 

While the Overall

Patent Process Is

Self-Sustaining,

Individual Fees Are

Not Commensurate

With Costs of the

Services Provided

22

The Patent Process Is Designed to Be Self-Sustaining 22

Individual Patent Fees Are Assessed for Specific Services 23

Individual Fees Are Not Commensurate With the Costs of the

Services Provided

25

PTO Is Studying the Need for Changes in Patent Fees 29

Patent Organizations Generally Are Satisfied With Current Fees 29

Conclusions 30

Matters for Consideration by the Congress 31

Agency Comments and Our Evaluation 31

Chapter 3 

Trademark Fees

Appear to Be Aligned

With the Costs of

Services

32

The Trademark Process Is Self-Sustaining 32

Trademark Fees Appear to Be Commensurate With the Costs of

Services

33

Conclusions 34

Agency Comments and Our Evaluation 35

Chapter 4 

Copyright Fees Do

Not Recover the Costs

of Copyright Services

36

Copyright Fees Have Been Adjusted Infrequently 36

Current Copyright Fees Are Not Sufficient to Recover the Costs

of Services

37

The Copyright Office Has Opposed Becoming Self-Sustaining

Outside the Library

43

Other Studies Support a Fee Increase 50

Eliminating the Requirement to Retain Copies of Unpublished

Works Could Reduce Costs

51

Conclusions 53

Matters for Consideration by the Congress 54

Recommendation to the Register of Copyrights 54

Agency Comments and Our Evaluation 54

Page 12 GAO/RCED-97-113 Intellectual Property
Contents

Appendixes Appendix I: Objectives, Scope, and Methodology 56

Appendix II: Patent Fee Income Received by PTO in Fiscal Year

1995

59

Appendix III: Patent Fees for Fiscal Year 1997 66

Appendix IV: Comparison of Patent Fees for PTO, Japanese

Patent Office, and European Patent Office

71

Appendix V: Comparison of Patent Pendency by Examination

Group for Patents Issued or Applications Abandoned During

Fiscal Year 1995

72

Appendix VI: Trademark Fee Income Received by PTO in Fiscal

Year 1995

73

Appendix VII: Trademark Fees for Fiscal Year 1997 75

Appendix VIII: Copyright Fees for Fiscal Year 1997 77

Appendix IX: Copyright Fee Revenues Received by the Copyright

Office in Fiscal Year 1995

78

Appendix X: Copyright Office’s Analysis Showing Fees Required

for Self Sufficiency

79

Appendix XI: Regression Analysis of Copyright Applications 84

Appendix XII: Comments From the Department of Commerce 90

Appendix XIII: Comments From the Library of Congress 102

Appendix XIV: Major Contributors to This Report 132

Tables Table 2.1: Fiscal Year 1995 Patent Fee Revenues by Fee Type 23

Table 3.1: Fiscal Year 1995 Trademark Fee Revenues 33

Table 4.1: Comparison of Copyright Fee Revenues and Copyright

Office Appropriations, Fiscal Years 1990 Through 1995

38

Table 4.2: Comparison of Copyright Costs and Fees by Type of

Copyright

39

Table X.1: Financial Impacts of Separation Expenses in Fiscal

Year 1997 for Copyright Basic

79

 Table X.2: Fee Per Registration for Full Cost Recovery Current

Organization

81

Table X.3: Fees Per Registration for Full Cost Recovery

Independent Agency in the Library without Offsetting Credits

82

 Table X.4: Fees Per Registration for Full Cost Recovery

Copyright Office Outside the Library

83

Table XI.1: Regression Results for Copyright Applications 88

Figures Figure 4.1: Comparison of Real and Nominal Copyright Fees,1959

Through 1996

40

Page 13 GAO/RCED-97-113 Intellectual Property
Contents

Figure 4.2: Copyright Registrations, 1945-95 46

Abbreviations

CBO Congressional Budget Office

CPI Consumer Price Index

GAO General Accounting Office

GDP Gross Domestic Product

IPO Intellectual Property Organization

PTO Patent and Trademark Office

SBA Small Business Administration

Page 14 GAO/RCED-97-113 Intellectual Property
Page 15 GAO/RCED-97-113 Intellectual Property
Chapter 1 

Introduction

“America’s thinkers and creators are at the heart of technological-based

economic growth—they are the engine that runs the American economic

machine.” This statement, from the 1994 strategic plan of the Patent and

Trademark Office (PTO), effectively summarizes the importance of

advancing, regulating, and administering patents, trademarks, and

copyrights—collectively referred to as intellectual property.

The administration has made intellectual property reform a part of its plan

to “reinvent” government. The Congress has also recently considered

legislation that would affect how intellectual property rights are

administered. Some of these proposals would affect the organization and

funding of PTO and the Copyright Office. In this regard, the Chairman of the

Senate Committee on the Judiciary asked us to review various issues

relating to intellectual property fees.

Background In this country, the federal government is the primary regulator of

intellectual property through the grant of patents and the registration of

trademarks and copyrights. In this regard—and because federal statutes

and regulations provide various economic and procedural benefits

concomitant with the grant or registration—these three types of

intellectual property are much alike. In other ways, however, they are

different. Registering copyrights, for example, takes less time than

granting patents or registering trademarks, yet copyrights generally have a

much longer life. Trademarks have the shortest original term; however,

they can be renewed indefinitely while patents and copyrights cannot.

Patents for inventions never brought to market and copyrights for

materials never published nevertheless are protected for their entire

terms, while a trademark can be lost if it is not used.

Similarly, the roles of the agencies regulating and administering

intellectual property differ. Generally, PTO examines patent and trademark

applications in great detail to ensure that others have not already applied

for a patent on the invention or are not using the trademark in question.

The Copyright Office essentially registers any materials that appear to be

copyrightable and for which the application is complete. Unlike PTO, the

Copyright Office generally does not determine whether some other person

has a similar copyright or whether the materials are in the public domain.

The differences in the complexities of the procedures followed by the

agencies are mirrored by differences in the fees and related expenses.

Page 16 GAO/RCED-97-113 Intellectual Property
Chapter 1 

Introduction

Patents A patent is a grant given by a government to an inventor of the right to

exclude others for a limited time from making, using, or selling his or her

invention. In the United States, the sole granting authority for patents is

PTO. The patent process is totally funded through user fees. In fiscal year

1995, PTO issued 114,642 patents.

PTO typically classifies patents as one of four types:

• Over 90 percent of all patent applications are for “utility” patents for

inventions that are either a process, machine, manufactured article, or

composition of matter, or an improvement to one of these. A second type

of patent is the “plant” patent—constituting less than 1 percent of all

applications—which is granted for asexually propagated plants.

Previously, utility and plant patents had a term of 17 years from the date

the patents were issued. For those applications filed after June 7, 1995,

however, utility and plant patents will have a nonrenewable term of 20

years from the date the earliest application is filed.

• The third type of patent is the “design” patent, available for a new, original,

and ornamental design for an article of manufacture. In fiscal year 1995,

design patent applications accounted for about 6.5 percent of all

applications filed. Design patents have a nonrenewable term of 14 years

from the date of issuance.

• The fourth type of patent is the “reissue” patent, which is granted as a

replacement for a patent that was in some way defective. The reissue

patent is granted for the unexpired term of the patent it replaced. Reissue

patents typically account for less than 1 percent of all applications.

Prior to issuing a patent, PTO examines the application to verify that the

patent is indeed new, useful, and non-obvious. In this regard, PTO requires

that every patent application include (1) a specification that describes the

manner and process of making and using the invention as well as the claim

or claims that make the invention patentable; (2) an oath or declaration

that the applicant is the original inventor; (3) drawings, where necessary

for understanding the nature of the invention; and (4) a filing fee.

Additional fees may be necessary during examination, when the patent is

issued, and during the term of the patent.

Within PTO, the patent application examination process consists of several

progressive phases. An applicant files a patent application with PTO, which

reviews the application for accuracy and completeness during a

preexamination phase. Following preexamination, the application is

assigned, or “docketed,” to an examiner within an examination group that

Page 17 GAO/RCED-97-113 Intellectual Property
Chapter 1 

Introduction

has expertise in a specific field, such as computer systems or

biotechnology.

At this point, the examiner begins the process of determining whether the

invention is a new and useful process or product that should receive a

patent. Usually early in the process, the examiner makes a preliminary

decision, or “first action,” which may be followed by contacts with the

applicant to resolve questions and/or obtain additional information. If PTO

decides to issue a patent, termed an “allowance,” it informs the applicant

and, upon the payment of the necessary fees, issues a patent. The

application may be abandoned during any of these stages.

The examination process can be lengthy. During fiscal year 1995, for

example, the average “patent pendency”—the period from the date an

application is filed until the date it is abandoned by the applicant or a

patent is issued by PTO—was 19.8 months. While not required, most

inventors use the services of an attorney to help prepare the application

and to assist them throughout the examination process, according to PTO.

Trademarks A trademark is a word, name, symbol, or design used to distinguish or

identify the goods or services of a particular merchant or manufacturer

from those of others.1

 As with patents, the federal authority for registering

trademarks in the United States is PTO, and the trademark process is

funded through user fees. In fiscal year 1995, PTO issued 65,662 certificates

of registration.

Federal registration does not create a trademark because a trademark can

only be acquired by actually using it in association with particular goods

or services. However, federal registration does offer the registrant

substantial procedural advantages should the trademark owner be faced

with an infringement. Once registration has been obtained, the trademark

must remain in substantially continuous use in order to be preserved.

Trademark registrations have a term of 10 years but can be renewed

indefinitely for additional 10-year terms.

An applicant seeking to register a trademark must file an application

accompanied by a fee, specimens of the trademark as it is actually used, a

drawing of the mark, and various statements describing when the mark

was first used and the types of goods and services on which it is used.

Trademarks are categorized into various classes, such as toys or clothing,

1

As used in this report, “trademarks” refers to both trademarks and service marks.

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Introduction

and, if registration for more than one class is sought, the applicant must

pay an additional fee for each class.

Once filed, the application is examined by an examining attorney within

the Trademark Office of PTO. The attorney verifies that the trademark for

which registration is sought is not “confusingly similar” to trademarks for

other goods or services. If there is no such similarity and there are no

other statutory bars to registration, PTO publishes the trademark and gives

members of the public the right to oppose registration if they feel it is

confusingly similar to another trademark, even if this other trademark is

not already registered. If no problems are identified at this stage, the

trademark is registered. Even then, however, it can be challenged at some

later date if it is not used properly or if a prior user comes forward.

The trademark process can also be lengthy. In fiscal year 1995, for

example, PTO reported that the time between the filing of an application

and the registration of the trademark averaged 16.4 to 16.7 months. While

applicants may use attorneys in the application process, attorney

involvement is not as extensive as with patents, according to PTO officials.

Copyrights A copyright is a type of intellectual property that protects literary and

artistic expression as well as the media where these are displayed. Thus,

copyrights are available for works such as books, periodicals, speeches,

printed and recorded music, plays, computer software, paintings,

sculpture, and motion pictures. Copyright registration in the United States

is the exclusive province of the Copyright Office in the Library of

Congress. In fiscal year 1995, the Copyright Office registered 609,195

copyrights.

As with trademarks, a copyright is not gained through registration but

rather when the work itself is created and reduced to some tangible form

of expression. It is the expression of an idea that is copyrightable, not the

idea itself. Registration does offer advantages, however, because the

copyright owner has better evidence regarding the priority of the claim

and is entitled to certain statutory benefits and damages upon

infringement that would not otherwise be available. A copyright generally

lasts for the (1) author’s lifetime plus 50 years for personal works or

(2) shorter of 75 years from publication or 100 years from creation for

works for hire, anonymous works, or pseudonymous works.

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The copyright registration process is simpler than for patents and

trademarks. The copyright owner submits an application accompanied by

a filing fee and one or two copies of the work, depending on the type. Most

applicants, according to Copyright Office officials, do not use an attorney.

The examination process is also relatively simple, taking an average of 38

to 83 days in fiscal year 1995 to complete, depending on the type of

application. The examiner ensures the application is complete and

accurate, that the materials appear to be copyrightable, that the fee is

proper, and that the required copies are provided. The Copyright Office

does not attempt to verify that others have not already copyrighted the

materials or that the materials are in use, have use, or have value.

Objectives, Scope,

and Methodology

The Chairman of the Senate Committee on the Judiciary, which is

considering various funding and organizational proposals involving PTO

and the Copyright Office, requested that we examine several interrelated

issues concerning the fees these agencies charge for their services. He

asked that we address fees as they relate specifically to patents,

trademarks, and copyrights and, where applicable, determine (1) how fees

are set for the services provided by PTO and the Copyright Office, (2) the

extent to which intellectual property fees are recovering the costs of the

services provided, (3) whether different users of the same services pay

different fees, (4) whether patent fees encourage or discourage the

completeness and accuracy of applications, and (5) the potential effects of

increasing copyright fees. We address these issues in chapters on patents,

trademarks, and copyrights.

In order to answer these interrelated questions, we determined that we

would have to develop data and report on patents, trademarks, and

copyrights separately because each has its own laws, application and

examination procedures, and fee structure. In this regard, we obtained fee

information on patents and trademarks from PTO and copyrights from the

Copyright Office. This information included current fee schedules for each

form of intellectual property as well as a summary of the fees actually

received during fiscal year 1995, the most recent year for which such

information was available. To the extent possible, we subdivided the fee

receipts by fee type and computed the ratio of each fee type to total fees

received.

To determine how fees are set, we reviewed the statutory authority

provided to PTO and the Copyright Office as well as the procedures these

two agencies had developed for adjusting fees. We reviewed the legislative

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history for the statutory fees to determine the reasons for and timing of

the various changes. We obtained information from the agencies showing

the actual process and data used in the most recent fee adjustments

considered.

We also obtained certain workload information from PTO and the

Copyright Office, showing the number of patents, trademarks, and

copyrights issued or registered or for which the applications were

abandoned or rejected during fiscal year 1995. This year was used because

of the need for consistency with the fee receipt data discussed above and

because in most cases it was the year for which the most recent data were

available. In addition, we obtained information the agencies had developed

showing the impact of fee increases on applications. For copyrights, we

also performed a regression analysis to estimate the association between

fee increases and changes in the number of applications while controlling

for the influences of other factors that may affect application levels.

We discussed the establishment of fees, fee history, the equity and fairness

of fees by applicant and type of application, and the potential impact of

adjusting fees with officials from PTO, the Copyright Office, and the

intellectual property community. Where possible, we obtained comparable

fee data for the Japanese Patent Office and the European Patent Office,

the two other large patent offices in the world besides PTO.

We provided a draft of this report to the Department of Commerce and the

Library of Congress. These agencies provided written comments, which

are included in appendices XII and XIII, respectively, along with our

responses. In addition, we met with officials of the Library of Congress

after receiving their comments.

Additional information on our scope and methodology is included in

appendix I.

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By design, the patent process is self-sustaining through a system of fees

assessed by PTO for its services. Changes to the law in 1990 and 1991 set

patent fees at levels that would recover costs overall and authorized PTO to

make annual adjustments for inflation. Despite the self-sufficiency of the

patent process overall, however, individual fees are not necessarily

commensurate with the costs of the services for which they are assessed.

Again, this is by design because (1) the largest fees are paid at the back

end of the process, while most costs occur at the front end of the process;

(2) large and small entities generally are charged different fees for the

same service; (3) costs vary by invention type, while fees do not; and

(4) delays caused by the applicants generate more costs than fees.

Recognizing these anomalies, PTO is studying the need to make the

individual fees more nearly commensurate with the costs of the services

provided.

The Patent Process Is

Designed to Be

Self-Sustaining

Understanding the current patent fee structure first requires an

explanation of how the role of patent fees has changed over the past 4

decades. Until recently, patent fees were not intended to cover the costs of

PTO’s patent process. In 1965, for example, patent and trademark fees were

set at a level that recovered 67 percent of PTO’s costs. By 1980, however,

inflation had reduced the impact of these fees—which had not been

revised in the interim—so that they recovered only 27 percent of PTO’s

operating costs.

In 1980, the Congress revised the patent fee structure. Public Law 96-517,

enacted December 12, 1980, provided that fees would be set to recover

50 percent of the costs of PTO’s patent process. The law also provided that,

like most other industrialized countries, patent fees would be paid not

only for application filing and patent issuance but also for the life of most

patents through fees known as maintenance fees.

Public Law 97-247, enacted August 27, 1982, further modified the patent

fee structure. In addition to raising fees, the law provided that filing, issue,

and maintenance fees would be set by statute and could be adjusted every

3 years on the basis of fluctuations in the Consumer Price Index (CPI). The

law also provided that large entities would pay statutory fees double the

rate of small entities—those entities classified as small businesses by the

Small Business Administration (SBA), nonprofit organizations, and

individual inventors. The purpose of this reduced fee for small entities was

to reduce the impact of fee increases on the inventors most likely to be

burdened by higher fees.

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Public Law 101-508, enacted November 5, 1990, put PTO on the road to

self-sufficiency by increasing statutory patent fees by 69 percent in fiscal

year 1991. This increase, known as a “surcharge,” was a replacement for

appropriations from the general fund. Subsequently, the surcharge was

extended through fiscal year 1998 and modified so that the amounts

specified by statute are collected. Unlike regular fees, which are treated as

offsetting collections for budget purposes and are fully available to PTO,

the surcharge fees were to be treated as offsetting receipts and would be

available to PTO only to the extent appropriated back by the Congress.

Public Law 102-204, enacted December 10, 1991, authorized PTO to adjust

patent fees annually to account for changes in the CPI. Since fiscal year

1993, PTO has been self-sufficient, receiving no appropriations other than

those generated by the surcharges. Actually, PTO has not been allowed to

use all the fees it has collected. Through fiscal year 1997, the Congress has

withheld $142.8 million of the $729.3 million in surcharge fees collected by

PTO.

Individual Patent Fees

Are Assessed for

Specific Services

PTO collects fees for an assortment of patent services. Fiscal year 1995 fee

revenues totaled $577.7 million. While these fees were collected under 139

separate fees for specific services, there were three primary types of

fees—application filing, patent issuance, and patent maintenance. Table

2.1 summarizes fiscal year 1995 revenues by primary type of fee, and

appendix II provides a detailed comparison of these revenues for the

individual fees.

Table 2.1: Fiscal Year 1995 Patent Fee

Revenues by Fee Type

Fee type

Fiscal year 1995

collections Percent of totala

Filing $164,932,389 28.5

Issue 109,374,237 18.9

Maintenance 194,668,049 33.7

Other 108,725,154 18.8

Total $577,699,829 99.9

aDoes not total to 100 percent due to rounding.

Source: PTO, GAO computations.

Each applicant pays a filing fee prior to PTO’s examination of the merits of

the patent application. There are different filing fees for utility, design,

plant, and reissue applications, just as there are different fees for large and

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small entities. In fiscal year 1995, utility patent applications were

dominant, accounting for 89.8 percent of large entities’ filing fees and 85.7

percent of small entities’ filing fees. Overall, large entities paid

$134 million, or 4.3 times the filing fees paid by small entities.

Once PTO decides to allow the grant of a patent, the applicant must pay an

issue fee in order to receive the patent. As with application fees, issue fees

differ by the type of patent as well as by large and small entities. In fiscal

year 1995, utility and reissue patents—which are assessed the same issue

fees—accounted for 97.6 percent of all large entities’ issue fees and 92.3

percent of all small entities’ issue fees. In total, large entities paid

$88.7 million, or 4.3 times the issue fees paid by small entities.

Maintenance fees represent the largest single source of patent fee

collections, accounting for more than a third of all patent fees collected

during fiscal year 1995. The fees are paid at three stages during the life of

the patent—at 3.5, 7.5, and 11.5 years into the patent term—with the fees

at each stage being progressively higher. Unlike filing and issue fees,

maintenance fees are not assessed on design and plant patents. However,

large entities pay maintenance fees at twice the rate of small entities.

Maintenance fees constitute some of the largest individual fees, ranging

from $960 to $2,900 for large entities and $480 to $1,450 for small entities

during fiscal year 1995. In fiscal year 1995, large entities paid

$171.2 million, or 7.6 times the amount paid by small entities.

While filing, issue, and maintenance fees are the three primary types of

fees—accounting for 81.5 percent of all patent fees during fiscal year

1995—PTO collects other types of patent fees. These include such fees as

those paid by an applicant to file and process an international patent

application under the Patent Cooperation Treaty, to appeal a PTO decision,

to revive an abandoned application, and to obtain an extension in the time

to respond to a request or inquiry by PTO during examination. All these fees

are different for large and small entities. Other fees, such as those for filing

a petition to the Commissioner, make no distinctions in the amount of the

fee by the size of the entity.

As noted previously, PTO now has discretion to raise most fees annually to

adjust for inflation. PTO has raised fees each year except one since the

surcharge was added in fiscal year 1991. Most of the discussion of fees in

this chapter is based on fiscal year 1995 data, since this was the most

recent year for which complete statistics on fees and patent examination

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statistics were available at the time of our review. Appendix III shows the

fees in effect during fiscal year 1997.

In commenting on a draft of this report, the Department of Commerce

noted that PTO’s revenues from filing fees in fiscal year 1995 actually were

a greater proportion of total revenues than is normally the case. This was

due to the large number of applications submitted prior to the change in

the patent term that became effective on June 8, 1995. In fiscal year 1994

and 1996, filing fees, according to PTO, accounted for 27.5 percent and

23.7 percent, respectively, of total fee revenues, compared with

28.5 percent in fiscal year 1995.

Individual Fees Are

Not Commensurate

With the Costs of the

Services Provided

PTO notes that it is essentially an agency that provides services and that its

customers pay for these services. At a September 18, 1996, hearing before

the Senate Committee on the Judiciary, for example, the Assistant

Secretary of Commerce and Commissioner of Patents and Trademarks

provided the following testimony:

“The revenues needed to meet the Patent and Trademark Office’s expenditures are, as you

know, more than fully offset by fees paid by those who use our services and buy our

information products. Our workload consists primarily of patent and trademark

applications filed by individuals and businesses in the United States and from other

countries. These applicants, both domestic and foreign, pay fees for the services they

request. Because they pay fees for those services, they expect and deserve prompt and

efficient service, and the Patent and Trademark Office must have the flexibility to deliver

that service.”

While the Commissioner’s statement is correct—PTO’s expenditures are

recovered through fee revenues—this does not mean that individual fees

are set to recover the costs of the specific services provided. Actually,

patent fees are structured so that in effect (1) successful applicants pay

more than unsuccessful applicants, (2) large entities pay more than small

entities, (3) applicants with less complicated applications pay the same as

those with more complicated applications, and (4) applicants who create

delays in the examination process do not pay fees commensurate with the

additional pendency caused by those delays.

Successful and

Unsuccessful Applicants

While PTO does not have a cost-accounting system capable of determining

the costs associated with individual services, PTO officials advised us that

most of the costs of the patent process are attributable to application

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processing and examination. For fiscal year 1995, for example, they

estimated that only 8.6 percent of the costs associated with an individual

patent were attributable to the actual issue of the patent and 0.1 percent

were attributable to its maintenance. As noted above, however, patent

issue fees accounted for 18.9 percent of patent fees collected in fiscal year

1995, while maintenance fees accounted for 33.7 percent.

The dichotomy of front-end costs and back-end revenues causes

successful applicants to pay a larger share of costs than unsuccessful

applicants because so many applications are abandoned during the

examination stage. Of the 186,195 patents issued and applications

abandoned during fiscal year 1995, for example, 114,642 patents, or

61.6 percent, were issued and 71,553 applications, or 38.4 percent, were

abandoned. Patent pendency—the amount of time PTO spends in

examining a patent prior to the patent’s being issued or the application’s

being abandoned—averaged 19.8 months, with 21 months for patents

issued and 17.9 months for applications abandoned. None of the

applications abandoned will pay an issue or maintenance fee because no

patent was issued, even though abandoned applications accounted for

more than a third of total pendency.

Large and Small Entities As noted earlier, large entities typically pay twice the fee that small

entities pay for the same service. Because of this difference in the fee itself

and because large entities submit more applications and receive more

patents, large entities pay a much larger share of overall patent costs. In

fiscal year 1995, for example, large entities accounted for 81 percent of the

$164.9 million in filing fees, 81.1 percent of the $109.4 million in issue fees,

87.9 percent of the $194.7 million in maintenance fees, 83.2 percent of the

$48.4 million in response-time extension fees, 86.8 percent of the

$6.2 million in appeal fees, 73.4 percent of the $3 million in abandoned

application revival fees, and 85.8 percent of the $9.8 million in Patent

Cooperation Treaty filing fees.

These differences in fees are mandated by the law. The Congress added

the fee-differential provision in 1982 to reduce the effects of fee increases

on small businesses, individual inventors, and nonprofit organizations.

However, the differences today are much greater, now that PTO has

become totally dependent on fees and the fees themselves are larger. In

this regard:

• PTO officials told us that the size of the entity has no bearing on PTO’s costs.

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• For patent fee purposes, a small entity is a small business with no more

than 500 employees, a nonprofit organization, or an individual inventor.

The categorization of a small business as defined by the Congress is taken

from the criteria SBA uses to determine whether a business qualifies as a

small business for its programs. While this employee-based criteria may be

useful for SBA, PTO officials said such a definition has little significance

when considering the economic impact of fees on a patent applicant. In

today’s high-tech environment, many businesses that are highly capitalized

and profitable have 500 or fewer employees. Similarly, some of the more

successful applicants are individual inventors or work for small

businesses. As one example, PTO officials noted that one of the most

prolific U.S. inventors—whose patents have returned him hundreds of

millions of dollars—is considered a small entity for patent fee purposes.

• Patents are the only form of intellectual property for which the size of an

entity has a bearing on the fees assessed. There is no such division of fees

for either trademarks or copyrights.

• The patent fees themselves are only a portion of the costs of receiving a

patent. By definition, a patent represents a new and useful invention or

process, and other costs are involved in researching, developing,

producing, and marketing these inventions that typically are much greater

than would be experienced in obtaining a trademark or copyright

registration. In addition, in most cases, attorneys are involved in

preparing, filing, and prosecuting the application. While attorneys’ fees

vary according to the circumstances, an intellectual property guide

published by the Minnesota Small Business Assistance Office in 1992

estimated that attorneys’ fees could range from $7,500 to $18,000 per

application.

• While patent fees have increased significantly since the surcharges were

implemented in fiscal year 1992, inventor organizations generally did not

believe they were too high or that they were stifling the inventive process.

Furthermore, as shown in appendix IV, U.S. patent fees appear to be

among the lowest in the industrialized world.

Application Complexity Patent applications cover a wide range of inventions, and the more

complicated inventions generally require the most examination time. As

shown in appendix V, the differences in average pendency can vary

significantly among examination groups. For those patents issued and

applications abandoned during fiscal year 1995, the average pendency was

19.8 months. Among the 17 individual examination groups, however,

pendency ranged from a low of 17.4 months for solar, heat, power and

fluid engineering devices to a high of 26.2 months for computer systems.

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Among the more specialized groupings within the examination groups,

pendency can vary even more. For example, average pendency for the

grouping of special receptacles, packages, shoes, and shoemaking was

15.8 months, compared with 29.6 months for the grouping of database and

file management systems.

While pendency alone is not the only determinant of costs, PTO officials

agreed that the more complicated the invention, the more time and

expense are attributable to examination. However, the fee schedule makes

few provisions for these differences in examination time. One such

provision is that, as shown in appendixes II and III, fees for design and

plant applications—which tend to be less complicated—are lower than for

utility patent applications. There are no differences in filing fees, however,

for different types of inventions within the utility patent category, which

accounts for over 90 percent of all patent applications.

Applicant Delays During PTO’s examination of a patent application, the examiner makes a

preliminary decision on the merits of the application as filed. At such time,

the examiner may ask the applicant to respond to questions or provide the

examiner with information. This process may occur a number of times. In

many cases, PTO cannot complete the examination until the applicant has

taken some further action. For example, (1) the applicant may have filed

an incomplete application that must be corrected before it can be assigned

to an examination group, (2) the applicant may need to answer questions

raised by the examiner or provide PTO with additional information, or

(3) PTO may have to wait for the payment of a fee before it can proceed

with the examination process.

In fiscal year 1995, the time taken by applicants to respond to official PTO

“office actions” accounted for 3.7 months, or 18.7 percent, of the total

average pendency of 19.8 months. This does not include any pendency that

was added because PTO had to process the responses.

There are no additional fees for responses made within 3 months of a PTO

office action. However, if the respondent wants to extend the response

time, he or she must pay extension fees, as shown in appendixes II and III.

If no response is received after 7 months—the 3 “grace” months plus the 4

extension months—the application is considered abandoned.

As shown in appendix II, the extension fees received during fiscal year

1995 were $48.4 million, or 8.4 percent of the total patent fees received. As

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noted above, however, the contribution to pendency by the respondents

for all patents issued or applications abandoned during fiscal year 1995

was 18.7 percent. While an exact correlation cannot be made, these

differences indicate that respondent fees may not be commensurate with

the amount of additional pendency they create.

PTO Is Studying the

Need for Changes in

Patent Fees

PTO officials believe that anomalies exist in the current patent fee structure

and have two initiatives under way to address the issue. Under one of

these initiatives, PTO is developing a cost-accounting system that will allow

it to determine the unit costs of particular services, something it cannot do

under its current accounting system. Under the second initiative—which

depends to a large extent on the development of cost centers—PTO will

attempt to determine whether there is a need for revisions in the fee

structure. At the time of our review, PTO officials said the cost study was

expected to be completed in December 1997 and that the fee study would

be completed at an undetermined time after the cost study.

In its Audit Inspection Plan for Fiscal Years 1997-98, the Department of

Commerce’s Inspector General noted that “PTO has no uniform process to

track the costs of operations within its various program areas...[and] does

not have the information that would enable it to develop a fee structure

that would accurately establish fees to recover the full costs of

operations.” In this regard, the Inspector General plans to review PTO’s

cost-accounting and fee-restructuring efforts, beginning in the third

quarter of fiscal year 1997.

Patent Organizations

Generally Are

Satisfied With Current

Fees

Officials from organizations representing patent owners and attorneys

agreed that the current fee system is designed to recover costs in the

aggregate rather than on a per-service basis. While they recognized that

this is in effect a type of subsidy and creates inequities among applicants,

they also said that their constituents were generally satisfied with the

current system because they (1) know what to expect, (2) are familiar with

the fee structure as now designed, and (3) recognize that there is some

logic in creating a fee system in which successful applicants bear a greater

proportion of the costs. In addition, fees paid to PTO are a relatively small

portion of the overall costs of creating a new product, obtaining a patent,

and bringing the product to market.

These officials’ primary dissatisfaction was not in the fee structure itself

but in the Congress’s not appropriating all the surcharge fees back to PTO.

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They fear that, ultimately, this may keep PTO from being able to manage

the patent workload and could lead to higher patent pendency.

The officials from the patent organizations also said that, if the Congress

does wish to look at the appropriateness of fees, now is the time.

Legislative proposals have been made in both the prior and current

sessions of the Congress that would make PTO a wholly-owned government

corporation, and questions have been raised concerning how fees would

be set and who would set them. The officials believed that these questions

should be resolved as a part of the decision on PTO’s organizational status.

Conclusions In many ways, the current patent fee structure is working well. The patent

process within PTO has been self-sufficient since fiscal year 1993 and a

mechanism is in place to ensure that fees can be raised annually to

account for inflation. Furthermore, the applicants appear to be generally

satisfied with the current system.

At the same time, however, individual applicants are not necessarily

paying their own way because (1) there appears to be little correlation

between the service being provided and the cost of that service to PTO and

(2) certain applicants pay more than others for the same services.

Applicants who abandon their applications, qualify as small entities,

submit more complicated applications, and create delays in the

examination process are paying less for the same services than other

applicants who receive patents, are considered large entities, have less

complicated applications, and create fewer delays.

We recognize that there may be policy reasons for having different

applicants pay different fees for essentially the same services. Ultimately,

the question is whether the Congress wants a closer alignment between

the costs of the patent services being provided by PTO and the fees charged

for those particular services. While the current system works from the

standpoint of overall revenue, individual applicants do not always get what

they pay for or pay for what they get.

In order to match fees more closely with services, it will be necessary to

know the actual costs of those services. We believe that PTO is taking the

correct approach in developing a cost-accounting system that will identify

the costs attributable to specific patent services.

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Matters for

Consideration by the

Congress

In considering proposals affecting PTO’s funding and organizational status,

the Congress may wish to consider whether the current patent fee

structure needs to be changed so that fees for particular services more

nearly reflect the costs of those services. Specifically, the Congress may

wish to consider whether (1) the fee differential between large and small

entities should be continued, (2) a larger portion of fees should be tied to

the examination process itself, (3) larger fees should be paid for those

applications that require more examination time, and (4) applicants who

create delays in the examination process should pay for the costs of these

delays.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, the Department of Commerce

generally agreed with the information presented but recommended a

number of technical and language changes. Several of the Department’s

comments concerned our not having included $2.4 million in

miscellaneous fees in the statistics on patent fees. We had not included

these in the draft report because the source materials indicated such

information could not be tied specifically to either patents or trademarks.

After reviewing the Department’s comments, we determined that these

fees should have been shown as patent fees and we revised the report

accordingly.

The Department also noted that the cost-accounting information PTO

expects to have by December 1997 will greatly enhance the substantive

information available with which to analyze potential changes to the

current fee structure. Although it is too early to know the outcome of PTO’s

study, we make the point in this report that in order to match fees more

closely with services, it will be necessary to determine the actual costs of

those services.

Throughout its comments, the Department emphasized the role the

Congress has played in creating and developing the existing patent fee

structure. We agree and believe that this point is made clear in the report.

We also believe that any policy changes regarding patent fees would

require congressional action. For this reason, we have included matters

for congressional consideration dealing with patent fees.

The complete text of the Department’s comments and our responses to

those comments are included in appendix XII.

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the Costs of Services

Like the patent process, the trademark process is self-sustaining. However,

unlike patents, trademark fees do not vary on the basis of the size of the

entity applying, and most fees are paid at the beginning of the process

before PTO begins to incur costs. Consequently, while PTO believes some

adjustments may be needed, fees in the trademark process appear to be

more closely aligned with the costs of services.

The Trademark

Process Is

Self-Sustaining

The trademark process—accounting for receipts of $68.5 million in fiscal

year 1995—now totally depends on fees. However, unlike the patent

process—which has been self-sustaining since fiscal year 1993—the

trademark process’s self-sufficiency began in fiscal year 1983.

In 1965, trademark processing fees were increased, with the most

significant change being an increase in the basic application filing fee from

$25 to $35. These fees remained in effect until fiscal year 1983. Public Law

97-247, enacted August 27, 1982, authorized PTO to increase trademark

fees, this time to a level intended to recover 100 percent of trademark

costs. The increase implemented was substantial, with the basic filing fee

raised to $175 per application. The law also provided that trademark fees

could be used only to fund trademark operations.

Since fiscal year 1983, trademark processing fees have remained

essentially stable, with only some limited changes in the basic filing fee. In

October 1986, PTO raised the basic fee to $200 but in April 1989 lowered it

back to $175. In December 1991, PTO again raised the basic filing fee to

$200, and Public Law 103-179, enacted December 3, 1993, raised it to $245.

This fee is still in effect.

PTO now has the authority to raise trademark processing fees and service

fees annually within the CPI increase of the previous year. In practice, PTO

does not always exercise its authority to adjust fees. Appendix VI shows

trademark processing and service fees received during fiscal year 1995,

and appendix VII shows the fees in effect in fiscal year 1997. The only fees

raised over this period were two service fees, which together accounted

for less than 0.5 percent of revenues in fiscal year 1995.

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Trademark Fees

Appear to Be

Commensurate With

the Costs of Services

Trademark fees are more streamlined and less complicated than patent

fees. In total, there are 19 separate trademark processing fees and 18

separate service fees. Unlike patents, these fees do not differ by the size of

the entity applying to register the trademark, no additional fees are levied

when the trademark is approved for registration, and no maintenance fees

must be paid during the term of the trademark. A renewal fee of $300 per

class is paid only if the trademark owner wishes to extend the trademark

for additional 10-year terms.

According to PTO officials, trademark fee revenues are tied closely to the

trademark examination process. As shown in table 3.1 and appendix VI,

the trademark process generated $68.5 million in fee revenues during

fiscal year 1995. Of this total, 94.5 percent came from trademark

processing fees. More specifically, 71.5 percent of all revenues came from

one fee—the basic application filing fee.

Table 3.1: Fiscal Year 1995 Trademark

Fee Revenues

Fee type

Fiscal year 1995

collections Percent of total

Application filing $48,975,658 71.5

Other processing 15,769,278 23.0

Service 3,741,860 5.5

Total $68,486,796 100.0

Source: PTO, GAO computations.

As with the patent process, PTO does not have a cost-accounting system

capable of determining the costs of particular services. However, PTO

officials estimated that about 76 percent of its overall trademark costs

were related to the examination process. They also told us that there is not

a significant difference in the amount of time spent examining different

types of trademarks. In fiscal year 1995, the average time spent in

examining all trademark applications prior to registration ranged from

16.4 to 16.7 months.

The situation in which successful patent applicants pay more than

unsuccessful applicants does not exist in the trademark process because,

as noted above, there are no separate issue or maintenance fees for

trademarks. Thus, even though 42,214 trademark applications were

abandoned in fiscal year 1995, compared with 75,372 applications that

“matured to registration,” all applicants paid the same basic filing fee in

advance. Unlike patents, there are no separate fees tied to late responses

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to PTO requests for additional information. However, PTO officials said that,

because of the nature of the application, there are fewer occasions to

request additional information during the processing of a trademark

application. Unlike patent regulations, trademark regulations do not

require acceptance of incomplete applications and, as a result, PTO does

not accept and process incomplete trademark applications.

PTO officials believe that fees generally are appropriately allocated to the

services provided. They also said, however, that they were aware of some

individual areas in which the fees probably were not adequate. For

example, they said that the fees for actions such as filing an appeal ($100

per class) were likely to be well below PTO’s costs of handling these

actions. As with patents, PTO officials believed that the two studies now

under way to develop a new cost-accounting structure and to reassess

fees—as discussed in chapter 2—will provide better information on how

well specific fees are tied to specific services and what fees may need to

be adjusted.

The representatives from the trademark community with whom we

discussed fees generally had no problems with the current fee structure.

They believed, like PTO, that the costs were adequately tied to the services

provided.

Conclusions Trademark fees are more streamlined than patent fees. There are fewer

individual fees, the size of the entity applying has no effect on the fee paid,

most fees are tied to the application examination, and most fees are paid

in advance of the examination. There are no separate fees for registration

or maintenance, and the processing time does not appear to vary

significantly by type of application. There also is less reason for PTO to

request additional information on problem applications.

For these reasons, we do not believe fees in the trademark process raise

the issues we identified in the patent process, in which certain applicants

pay more than others for the same services. However, we believe that PTO

should continue its efforts to (1) develop a cost-accounting system that

will allow it to identify the costs attributable to specific trademark

services and (2) reassess the fees paid to determine whether they are

commensurate with the costs of the services provided.

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Agency Comments

and Our Evaluation

In commenting on a draft of this report, the Department of Commerce

generally concurred with the information we provided on trademark fees.

As suggested by the Department, we added information regarding PTO’s

proposed cost-accounting study. The complete text of the Department’s

comments and our responses to those comments are included in appendix

XII.

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Copyright Fees Do Not Recover the Costs of

Copyright Services

Unlike the patent and trademark process, the copyright process is not

self-sustaining, and copyright fees have been adjusted infrequently since

the 1950s. The current fees have been in effect since 1991 and have not

been adjusted for inflation as permitted by law. Most applicants pay a

one-time fee of $20, or about half the cost the Copyright Office incurs to

register a copyright.

Copyright Office officials have supported the need for a fee increase in the

past and currently support proposed legislation that would give the

Register of Copyrights the discretion to raise fees to reflect the fair cost of

registering copyrights and providing services. However, the Register

testified against a 1996 proposal to make the Copyright Office

self-sustaining through fees within a new, government-owned, intellectual

property corporation because she believed fees would increase too much,

applications for registration would decrease, and the Library’s collections

could suffer as a result. Recently, the Register said that she favors making

the copyright process self-sustaining within the Library, joining

others—including the Library itself and the Congressional Budget

Office—that believe a fee increase would be advantageous.

On a related matter, the Copyright Office is now required to retain

unpublished works at no additional cost for the life of the copyright, while

most published works are retained for only 5 years. Because these

unpublished works are rarely used, the full-term storage represents an

unnecessary cost to the government.

Copyright Fees Have

Been Adjusted

Infrequently

The Congress has taken a different direction with copyright fees than with

patent and trademark fees. The copyright process, once self-sustaining,

now depends on appropriations to supplement the revenues obtained

through fees.

For most of the first half of this century, the copyright process was

self-sustaining. The Copyright Act of 1909 required applicants to pay a fee

for the registration of a copyright, and from 1909 to 1942, copyright fee

receipts exceeded expenditures. Over the next 5 years, however, revenues

lagged behind costs.

In 1948, Public Law 501 increased the basic copyright registration fee from

$2 to $4. Consequently, fee receipts once again exceeded expenditures in

1949. From 1950 until 1965, however, the ratio of fees to expenditures

dropped to 63 percent as costs increased while fees remained at the same

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level. Under Public Law 89-297 in 1965, the Congress again increased the

basic registration fee, this time to $6 per claim. At the time, the Copyright

Office estimated that this new fee would result in a recovery of 80 percent

of its costs. By 1976, however, inflation had reduced the value of copyright

fees, and the Congress, under Public Law 94-553, raised the basic fee to

$10, with the increase actually effective in 1978.

Over a decade later, as the value of the basic registration fee again had

been eroded by inflation, the Congress increased the fee to $20 under the

Copyright Fees and Technical Amendments Act of 1989 (P.L. 101-318,

July 3, 1990). This act also authorized the Register of Copyrights to adjust

fees for inflation every 5 years, beginning in fiscal year 1995. Fiscal year

1991 was the last year in which the copyright registration fees were raised

because the Acting Register of Copyrights did not make an inflation

adjustment in fiscal year 1995.

Copyright fees traditionally have had a simpler structure than patent and

trademark fees because there are fewer fees and the fees themselves are

much smaller. As shown in appendix IX, the basic fee for most purposes is

$20. Unlike patent fees, copyright fees do not differ according to the size

of the entity submitting the application. In addition, there are no issue

fees, no maintenance fees, and no renewal fees except on some older

copyrights. In addition to the statutory fees, the Register of Copyrights

sets fees by regulation for special services, such as providing optional

full-term storage of published materials.

Current Copyright

Fees Are Not

Sufficient to Recover

the Costs of Services

Copyright fees do not cover the costs of copyright services, either in total

or by type of service. We found that the (1) gap between total copyright

fee revenues and costs exceeds $10 million a year, (2) gap varies widely by

type of service, and (3) Copyright Office has not raised fees to cover the

effects of inflation. Copyright Office officials said that they have supported

the need for a fee increase that would move toward recovering the full

costs of copyright registration and services.

Costs Exceed Fees by $10

Million a Year

The Copyright Office obtains funding from three sources: (1) copyright

fees, (2) appropriations from the general fund, and (3) cost

reimbursements taken from royalties collected and disbursed by its

Licensing Division and the Copyright Arbitration Royalty Panel. In fiscal

year 1995, the Copyright Office collected $14.6 million in fees, received

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$10 million in appropriations, and recovered $2.4 million in costs from

royalty fees.

As shown in table 4.1, the reliance on appropriations has been relatively

constant at the $9 million to $10 million range since 1991, the year in

which the most recent fee increase became effective. Appendix IX shows

the sources of all copyright fee revenues for fiscal year 1995.

Table 4.1: Comparison of Copyright

Fee Revenues and Copyright Office

Appropriations, Fiscal Years 1990

Through 1995

Fiscal year Fee revenues Appropriations

1990 $ 7,696,295 $12,999,000

1991 $11,805,298 $10,258,000

1992 $13,858,690 $ 9,161,791

1993 $14,499,140 $ 9,511,000

1994 $14,136,233 $ 9,411,000

1995 $14,611,332 $10,045,000

Source: Copyright Office.

The Gap Between Fees and

Costs Varies by Type of

Service

The disparity between the fees applicants pay and the costs of the services

they receive can be considerable on a per-service basis. This is because

some types of copyrights cost more to register than others, while the basic

registration fee is a “one-size-fits-all” fee, and because some service fees

are set below costs.

Although the basic copyright registration fee is $20, an analysis of costs by

the Copyright Office indicates that the average cost of a copyright

registration in fiscal year 1995 was $36.53, or about 183 percent of the

basic fee. As shown in table 4.2, however, the average cost by type of work

varied from a high of $59.60 for a “mask” work—or a work imbedded in a

semiconductor chip—to a low of $28.32 for literary serials.

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Table 4.2: Comparison of Copyright

Costs and Fees by Type of Copyright

Category

Fiscal year

1995 cost Current fee

Literary monograph

registration

$40.83 $20

Literary serial registration $28.32 $20

Performing arts registration $38.81 $20

Visual arts registration $36.25 $20

Sound recording registration $41.15 $20

Mask works registration $59.60 $20

Source: Copyright Office.

Fees for other services were also far below the costs incurred by the

Copyright Office in providing such services during fiscal year 1995. For

example:

• While the Copyright Office charged a fee of $20 per hour for conducting

reference searches of its records, these searches cost an average of $70.02

per hour, or 3.5 times the fee.

• The average cost of recording a document was $77.81, or about 3.9 times

the $20 fee.

• Copyright renewals cost an average of $43.37 each, or more than twice the

$20 fee.

Some high-cost services require no separate fee at all. For example, the

Copyright Office does not charge an additional fee for requesting

additional information from applicants submitting incorrect or incomplete

applications, even though these applications require more time to process.

As of October 1996, approximately 15 percent of all copyright applications

required correspondence with the applicant to complete the registration

process. Copyright Office officials estimated the cost of each

correspondence at approximately $45.

The Copyright Office Has

Not Raised Fees to

Account for Inflation

One of the problems associated with statutory fees is that their value tends

to be eroded by inflation if several years transpire between fee increases.

Thus, the effective fee actually declines during the period. This has been

the case with copyright fees, as shown in figure 4.1. Using 1996 dollars as

the base and adjusting the nominal fee for the effects of inflation, we

found that the “real” fee decreased in value significantly during each

period a particular fee was in effect.

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Figure 4.1: Comparison of Real and

Nominal Copyright Fees,1959 Through

1996

Nominal fee

Real fee, 1996 dollars

1959196119631965196719691971197319751977197919811983198519871989199119931995

0

5

10

15

20

25

30

Year

Copyright registration fee

Note: To measure fees in inflation-adjusted dollars, the nominal fee was adjusted using the

implicit price deflator for Gross Domestic Product, based on 1996 dollars.

Source: Copyright Office, GAO computations.

As noted above, Public Law 101-318 established a new copyright fee

schedule to account for the inflation that had occurred since the fees were

last raised in 1978. The act also granted the Register of Copyrights the

authority to adjust the fee schedule by regulation every 5 years to account

for any inflation as determined by the CPI. The first such adjustment was to

be effective in 1995. In March 1994, an internal Copyright Office task force

recommended that basic registration fees not be increased, and the Acting

Register of Copyrights at the time followed this recommendation. By

statute, the next such increase cannot be made until 2000, and, according

to Copyright Office officials, any increase at that time would consider only

CPI increases since 1995.

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According to the report prepared by the task force, the increase in the CPI

was 16.53 percent from 1989 to 1993, the most recent 4-year period for

which data were available. This would have allowed basic registration fees

to increase from $20 to $23.30. The task force estimated that, if fees were

raised by the maximum allowable, the additional revenues would be

$1 million to $2.1 million in the first year after the fee increase, depending

on the extent to which applications decreased. After deducting $493,866 in

increased costs that would be incurred by the Copyright Office, the task

force estimated that the fee increase would have potentially increased the

Copyright Office’s income by $529,590 in the first year of the fee increase.

Costs associated with the fee increase would decrease to an estimated

$102,869 in the second year and $69,877 in the third year.

In determining the additional costs and other problems of raising fees, the

task force cited the expenses and difficulty of publicizing the new fees to

copyright registrants; the administrative burden of dealing with claims that

arrive with insufficient fees; the necessity of modifying the automated

accounting system; the difficulty that Copyright Office staff and applicants

would have working with an odd fee, and the expenses associated with

drafting, printing, and distributing new applications and circulars

reflecting a fee increase. The task force also believed that applications

would decline, offsetting to some extent any gains made by raising the

fees.

In summary, the task force believed that the additional revenues were not

worth the anticipated problems and expenses and recommended against

raising the basic registration fee. The task force did recommend that

certain service fees, such as those for special handling and full-term

storage of published works, be increased. The Acting Register of

Copyrights raised fees for special services, but opted against increasing

copyright registration fees.

We disagree with the Acting Register’s decision not to raise fees for

several reasons. First, most of the costs would have declined after the first

year. However, overall fee income would have continued to increase each

year, depending on the effect any such increase would have had on

applications. Second, the revised fees would have formed the basis for any

fee adjustments for inflation in the future.

Third, while there may be administrative costs associated with publicizing

fee increases, processing claims accompanied by insufficient remittances,

and modifying paperwork and automation systems to reflect fee increases,

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the task force did not study ways that these costs and difficulties might be

mitigated. For example, Copyright Office officials could not explain why

they would have to take elaborate measures to publicize the fee increase

and to reprint all publications. They said they did not consider as an

option simply rejecting any application with an insufficient fee, nor did

they consider listing a toll-free number or Internet address on the

application where an applicant could obtain information on the

appropriate fee, rather than listing the fee itself.

We also do not agree with the task force’s concern that an “odd fee” would

be difficult for the applicants or the Copyright Office staff to understand

and use. Apparently, the concern is that the $20 fee is easy for applicants

to remember and easy for Copyright Office employees to work with to

ensure that the proper amounts are paid. However, fees of amounts other

than in increments of $5 or $10 are common in commerce and government

operations. For example, the applicant must pay postage in dollars and

cents on each package he or she submits to the Copyright Office. In

addition, millions of taxpayers and Internal Revenue Service employees

work with many different rates and fees each year in computing income

taxes. Furthermore, assuming that the concerns over odd fees were

justified, the Copyright Office could have mitigated the effect by raising its

basic registration fee to the even-dollar amount of $23. This increase

would have been within the CPI ceiling.

Copyright Office Officials

Believe a Fee Increase Is

Needed

Copyright Office officials told us that they believe a fee increase is needed

and support “the goal of moving toward full cost recovery of fee services.”

They noted that this was not the same as saying that all Copyright Office

operations should be paid for through fees because they believe there are

costs of the Copyright Office—such as public information, rulemaking,

development of national and international copyright policy, preparation of

reports and studies for the Congress, administration of section 407

mandatory deposit provisions, and the special funding for the

International Copyright Institute—that should be supported by

appropriations, not fees.

The Register of Copyrights told us that she supports the language in H.R.

672 and S. 506, which would authorize the Register to adjust fees to reflect

the fair cost of registering copyrights and providing services. She said that

she had supported similar provisions in H.R. 1861, which passed the House

of Representatives but not the Senate during the past session of the

Congress. The Copyright Technical Amendments Act, H.R. 672, was passed

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by the House of Representatives on March 18, 1997. The Copyright

Clarifications Act of 1997, S. 506, was introduced in the Senate on

March 20, 1997.

The Register also said that the Copyright Office plans to initiate a fee study

to determine (1) what costs are attributable to the copyright process and

(2) what fees would be necessary to recover costs in total and by type of

service. As of March 1997, Copyright Office officials were deciding on the

scope of the study but had not yet begun the study. The Register said that

the study would probably be conducted by outside consultants.

The Copyright Office

Has Opposed

Becoming

Self-Sustaining

Outside the Library

In September 1996, the Senate Committee on the Judiciary held a hearing

on S. 1961, which, among other things, would have made the Copyright

Office self-sustaining through fees within a new, government-owned,

intellectual property corporation. The Register of Copyrights testified

against this proposal, providing three interrelated reasons for her

opposition. First, to cover the increased costs, fees would have to be

raised to an unacceptably high level. Second, the increased fees would

lead to a decrease in copyright registrations. Third, the decrease in

registrations would reduce the number of free works submitted to the

Copyright Office for consideration by the Library of Congress for its

collections.

While we take no position on S. 1961—which was not passed during the

last session of Congress—we disagree with the fee increases and

application decreases projected by the Register in her testimony. Our

disagreement is based on the Copyright Office’s own study. We also

believe that, even if decreases in applications had occurred, they would

not have created a harmful shortage of works available for the Library’s

collections. Recently, the Register said that she believes the copyright

process could be made self-sustaining within the Library by increasing

fees to about twice their current level.

Costs Would Not Increase

as Projected

In September 1996, the Senate Committee on the Judiciary held a hearing

on S. 1961, the Omnibus Patent Act of 1996. This legislative proposal

would establish an Intellectual Property Organization (IPO) that comprised

essentially the existing PTO and the Copyright Office. This proposal also

called for the Copyright Office to become self-sustaining through

copyright fees. During the hearing, the current Register of Copyrights

testified that the basic copyright registration fee would have to be raised

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“five-fold” to the $100 range in order for the Copyright Office to be

self-sustaining outside the Library of Congress. The Register said that such

an increase would place a substantial burden on copyright owners,

especially those companies that own hundreds or thousands of works.

We reviewed the analysis the Copyright Office used to support the cost

estimates cited in the Senate hearing. We found that, as shown in appendix

X, the Copyright Office’s analysis considered 12 scenarios involving the

Copyright Office’s organizational status, costs, and projected applications.

The fivefold increase in fees presented at the hearing was the worst-case,

least-likely scenario studied. According to the Copyright Office’s analysis,

the other scenarios would have required raising the basic registration fee

from the current $20 to a new fee of $41 to $89 for the first year. Fees

would have increased the second year because the Copyright Office

estimated that registrations would continue to decrease.

We question many of the costs projected in the worst-case scenario

presented by the Copyright Office for several reasons:

• The costs in general were based on the Copyright Office’s becoming an

independent and self-sustaining agency, while S. 1961—the bill under

discussion at the hearings—proposed including it within the IPO, which

would also include patent and trademark offices.

• Facilities were estimated to cost $5 million. This was based on the

Copyright Office’s obtaining new space at a cost of $32 per square foot. It

did not consider leaving the Copyright Office in its current space, where

the facilities are government-owned and there is no rental cost to the

Copyright Office.

• The analysis projected a significant decrease in applications, as discussed

below, but did not consider that costs might be lower if applications were

fewer.

• The analysis assumed that the Copyright Office would have to acquire new

computer equipment and services rather than continue to use those now

shared with the Library of Congress or share such equipment and services

with the other offices within the new IPO.

In discussions with Copyright Office officials concerning the analysis, they

said that the figures were “loose, educated guesses” and that the scenario

used was never intended to be characterized as the most-likely scenario

but rather as one example. They acknowledged that expenses would be

somewhat lower than shown in their analysis if the Copyright Office were

combined with the existing PTO because some costs could be shared. They

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also acknowledged that fee increases appear to have a greater impact on

some types of works than others. They advised against our attempting to

use the estimates they developed in projecting the level of fees that would

be necessary to make the Copyright Office self-sufficient.

Applications May Not

Decrease as Projected

The Copyright Office maintains that fee increases adversely affect

applications for copyright registration. However, both the Copyright

Office’s and our own analyses indicate that any such decrease in

registrations is not likely to be large.

The aforementioned March 1994 report prepared by the Copyright Office

task force studying the need for adjusting fees for inflation also said that

fee increases are a disincentive to registration. As evidence, the report

stated that, when the registration fees were doubled in January 1991,

applications decreased 3.3 percent from the 1990 level after they had risen

an average of 4.1 percent per year for the 8 years prior to the fee increase.

The Register of Copyrights also raised concerns about the effect of a fee

increase on applications during her September 18, 1996, testimony on S.

1961. She said that reorganizing the Copyright Office into a self-sustaining

entity outside of the Library of Congress could mark the end of a vital and

meaningful registration and deposit system. She reasoned that historical

experience has shown that registrations decrease whenever fees are

increased. Because the fee increase would likely be the largest such

increase on record, the Copyright Office anticipated that many individual

copyright owners would choose not to register their works and that

businesses would register fewer works. This would result in a diminished

and less valuable public database on works of authorship, making it more

difficult for users to determine who owns what rights at a particular time.

In addition, there would be a decrease in Library-deposit copies of works

received through copyright registrations.

In examining the support for the Register of Copyright’s concerns over

decreasing registrations, we again looked at the Copyright Office’s

preliminary analysis supporting the projected fivefold increase in fees. We

found that this scenario was based on estimates that registrations would

decrease 30 percent in the first year after the fee increase and an

additional 15 percent in the second year.

As with the estimates on cost increases, these estimates of registration

decreases are questionable for various reasons. For example, decreases of

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the magnitude projected have never occurred in the more than 100 years

for which the Copyright Office has data. As shown in figure 4.2, it is

common for copyright registrations to decrease in the years following a

fee increase. However, the decrease has usually been small, and

registrations have tended to rebound in subsequent years.

Figure 4.2: Copyright Registrations,

1945-95

45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Fiscal years

Number of registrations

$2 $4 $6 $10 $20 Fee

Note: Superimposed dollar amounts are the basic registration fees in effect during each period.

Fiscal year 1976 includes 15 months of data because of the transitional fiscal year.

Source: Copyright Office.

We also question the Copyright Office’s projections because, while they

consider only the overall impact on registrations, Copyright Office officials

agree that some types of registrations are more likely to be affected than

others. Following the 1991 fee increase, for example, applications for

registration decreased significantly for some types of works but remained

stable for others. Applications for performing arts decreased about

14 percent from fiscal years 1990 to 1992, while applications for visual arts

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and motion pictures increased by about 1 percent during the same period.

In addition, the number of copyright registrations for unpublished works

decreased by about 10 percent over the period, while the number of

registrations for published works declined by about 3 percent.1

The Copyright Office’s projections also do not consider the effect on

registrations of changes in internal reporting procedures and other

legislative changes that accompanied past fee increases. We found that

these other factors can affect the number of applications received and

registered. For example, when the registration fee was increased from $6

to $10 in fiscal year 1978, Copyright Office records show about a

27-percent reduction in the number of copyright registrations from the

previous year.2

 However, Copyright Office officials told us that they

reported only 11 months of registrations for fiscal year 1978 rather than a

full 12 months.

Similarly, after the registration fee was increased to $20 on January 1,

1991, the number of applications for copyright registration decreased by

about 3 percent in fiscal year 1991 and an additional 5 percent in fiscal

year 1992. However, the fee increase was not the only change affecting

applications. For example, the Copyright Office initiated group

registration for serial issues during mid-1991. In doing so, all issues of a

weekly, biweekly or monthly serial published within a 3-month period

could be registered on one application at a fee of $10 per issue. According

to Copyright Office officials, this reduced the number of serial

registrations by an unknown amount. In addition, renewal of copyrights

became automatic beginning in 1992. This accounted largely for the

substantial and steady drop in renewal registrations beginning that year.

While registration applications overall decreased by almost 10 percent

from fiscal years 1990 to 1995, applications for these categories decreased

by about 34 percent and 39 percent, respectively.

Because there may be other, external issues—such as the onset of a

recession in 1991—that could have affected applications beyond changes

in copyright fees, we developed a model that allowed us to examine the

association between fee changes and the number of applications while

controlling for the effects of other factors. As discussed in appendix XI, we

found that the association between fee increases and application

1

The number of applications for unpublished and published works received for these years could not

be obtained because the Copyright Office does not record a work’s publication status until it is

registered.

2

The Copyright Office was unable to provide the number of applications received on an annual basis

prior to fiscal year 1986.

Page 47 GAO/RCED-97-113 Intellectual Property
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decreases is likely to be small—about a 0.1-percent decrease in

applications for a 1-percent increase in fees. However, a regression model

of this type is best at estimating such associations for relatively small

changes in explanatory factors. We also found that there may be an even

greater correlation between applications and the level of economic

activity, as measured by the Gross Domestic Product.

Fee Increases Should Not

Affect Library Collections

We also question whether there would be any harmful results to the

government even if copyright applications did decrease in reaction to a fee

increase. The economic benefits of copyright registration primarily are

those that pass to the copyright holder. In fact, the United States is one of

the few countries in the world that even has a government agency

registering copyrights. The primary advantage of registration in this

country is that it provides official evidence of the copyright and provides

statutory damages against infringement. Thus, if a person decides not to

register a copyright, that person assumes the risk of loss.

According to the testimony of the Register of Copyrights in the Senate

hearing on S. 1961, one of the Copyright Office’s primary concerns

regarding a decrease in copyright registrations is that such a decrease

might limit the works available at no cost for the collections of the Library

of Congress. However, because of other provisions in existing legislation,

a decline in registrations should have no significant impact. Section 407 of

the Copyright Act requires that all material under copyright protection and

published in the United States on or after March 1, 1989, be deposited with

the Copyright Office within 3 months of publication.3

 These deposits are

available to the Library of Congress for its collections or for exchange or

transfer to another library. Thus, published documents must be submitted

to the Copyright Office and made available for the Library’s collections

even if copyright registration is not sought. If documents are not submitted

as required by law, the Register of Copyrights can demand that the

deposits be made and subject those not complying to fines and penalties.

Although section 407 does not apply to unpublished material, the Library

of Congress seldom selects unpublished material for its collections, with

the exception of genealogy studies. According to Copyright Office

officials, the Library of Congress selected less than 100 of the

approximately 254,000 unpublished documents that were registered in

fiscal year 1995.

3

Material first published before Mar. 1, 1989, is subject to the deposit requirement if it was published in

the United States with notice of copyright.

Page 48 GAO/RCED-97-113 Intellectual Property
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Copyright Services

Copyright Office Officials

Now Agree That the

Copyright Process Could

Be Self-Sustaining Within

the Library

In March 1997, the Register of Copyrights told us that she supports the

concept of making the copyright process self-sustaining within the Library.

She said that the fivefold increase in fees cited in the Senate hearing in

September 1996 was indeed a worst-case scenario. However, she had

presented this scenario because she viewed the proposal being considered

at that time as entailing the separation of the Copyright Office from the

Library of Congress. She believed that such a move would create

uncertainties, such as whether new space would have to be obtained,

whether a new computer system would have to be purchased, and how

other services the Library and the Copyright Office now provide for each

other at no charge would be provided in the future. Thus, the Register

believed that it was necessary to show the potential fee increases that

might be required under the most costly circumstances.

The Register of Copyrights said that, in retrospect, she recognizes that the

costs and fee increases associated with self-sufficiency would be lower

than those presented at the September hearing, particularly if the

Copyright Office is left in the Library of Congress, as is now being

proposed. While the Copyright Office does not have a current estimate on

what would be required to make it self-sustaining, the Register said that

any fee increase would at a minimum have to replace the approximately

$10 million the Copyright Office now receives in appropriations each year.

She believed this would probably require fees that are about twice the

current level.

In subsequent discussions on a draft of this report, the Register said that

she had not intended to say that she believed the Copyright Office itself

should be self-sustaining. Rather, she believed that it should charge fees

for services that reflect the costs of those services to the Copyright Office.

She said that certain costs—such as those of the Copyright Acquisitions

Division—were not directly related to the copyright process; thus, they

should not be paid for by registrants but are more appropriately covered

through appropriations.

The Register also said in our March 1997 discussion that, if the copyright

process is to be made self-sustaining though fees, these fees should be

commensurate with the services provided. As we have previously noted,

the costs of individual services vary widely, while most users of these

services pay the same fee. In addition, the Copyright Office and the Library

now provide services to each other that are not necessarily related to their

primary missions and for which they are not reimbursed. For example, the

Library provides numerous computer services to the Copyright Office at

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no charge, while the Copyright Office obtains works that were requested

by the Library for its collections but not available through the copyright

registration process, also at no charge. The Register believed that the fee

study now being planned by the Copyright Office will address this issue.

Other Studies Support

a Fee Increase

Other recent studies of the Copyright Office support the need for a fee

increase. In a 1996 report on the results of a management review of the

Library of Congress contracted by GAO,

4

 Booz-Allen & Hamilton

recommended that the Library of Congress focus its efforts on increasing

revenues. As one means for doing so, the report recommended that the

Library pursue full recovery of copyright costs. The report stated that fully

recovering copyright registration costs offers significant opportunities,

both in terms of additional revenues and the relative ease of

implementation. It further stated that the Copyright Office meets two key

criteria for pursuing a fee-based service. First, there are opportunities for

significant revenues. Second, the Copyright Office has been subject to full

cost recovery in the past, so a precedent has been established. To

accomplish full cost recovery, the report recommended that the Copyright

Office establish a differentiated fee structure based on the cost of the

services provided. According to the study, to achieve full cost recovery,

proposed registration fees would range from a low of $10 for group serials

to a high of $38 to $420 for mask works.

In October 1996, an internal management report of the Copyright Office

prepared by a senior Library of Congress official at the request of the

Librarian recommended that the Copyright Office recover relevant fees for

services. However, the report also recommended that the Congress

continue appropriating funds for activities, such as “service to the

Congress,” that are not associated with registration services and that the

Library of Congress continue to provide its support to the Copyright Office

in exchange for the value of the copyright deposits made available to the

Library’s collections. Unlike the Booz-Allen report, the Library of Congress

recommended establishing either a single fee for all copyright registrations

or a separate fee only for visual arts works based on the costs of these

works. If the fee difference for visual arts is less than $5 per registration,

however, the report recommended establishing only a single fee. While the

Library of Congress’s report concluded that a $35 registration fee would

bring fees and costs into balance the first year, it also concluded that a $40

4

GAO contracted with Booz-Allen & Hamilton, Inc. to conduct a general management review of the

Library in order to meet time frames specified by congressional requesters. Booz-Allen’s findings are

summarized in Library of Congress: Opportunities to Improve General and Financial Management

(GAO/T-GGD/AIMD-96-115, May 7, 1996).

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registration fee is desirable to account for the effects of inflation in

subsequent years.

Although the Library of Congress’s report recognized that a fee increase

may harm the Library’s collections through reduced applications, it stated

that any decline in registrations would likely occur primarily in

unpublished works and in relatively low-value published works. It

acknowledged that the demand provisions of section 407 of the Copyright

Act would still apply to published works and that more works might come

from that source than from applications for copyright registrations.

Recently, the Congressional Budget Office (CBO) noted that the fee

structure of the Copyright Office could be revised to generate more

revenue and reduce the need for appropriations. In its March 1997

publication entitled Reducing the Deficit: Spending and Revenue Options,

CBO offered the option of requiring the Copyright Office to achieve full cost

recovery as a deficit-reduction measure. According to the report, achieving

full cost recovery would require that the copyright registration fee be

increased to about $35 or $40 per application.

The CBO estimate of what would be required to make the Copyright Office

self-sufficient is similar to that advanced by the Register of

Copyrights—about double the current level. On the basis of our regression

analysis, we believe that the decrease in applications from doubling the

fees would be about 10 percent in the year following the fee increase.

However, as noted earlier, models such as the one we developed tend not

to be as highly predictive at such a high level of increase.

In discussions we had with intellectual property organizations, they either

opposed or had no opinion regarding any fee increase for copyrights. None

of them provided independent estimates regarding what effect any such

increase would have on applications or the ability of copyright holders to

benefit from their works.

Eliminating the

Requirement to Retain

Copies of

Unpublished Works

Could Reduce Costs

We identified one additional area that, while not essential to a decision to

raise fees, nevertheless affects other costs to the government of the

copyright process and the ability of fees to recover those costs. This is the

requirement in the law to retain copies of unpublished works for the full

term of the copyright.

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Currently, the law requires that the Copyright Office retain unpublished

works for the life of the copyright, which for most works is the author’s

life plus 50 years. Copyright Office officials told us that they estimate this

term to average 125 years. In contrast, the law requires that published

materials that are not selected by the Library of Congress be retained for

the longest period considered practicable and desirable by the Register of

Copyrights and the Librarian of Congress. The Register and the Librarian

have set the period at 5 years for all works except visual arts, which are

kept for 10 years. If a copyright owner wants to extend the retention

period for a published work to cover storage costs for the full length of the

copyright term, the Copyright Office assesses a $270 fee.

As a result of the requirement in the law, millions of unpublished works

could be stored for up to 125 years at taxpayer expense, while few

published works will be stored longer than 5 years. Copyright Office

officials told us that in some cases—as with audio tapes, for example—the

copy is usually of no use after a few years because of the natural

deterioration of the medium. They also said that they are rarely called

upon to extract copies of unpublished works from storage, either by the

Library of Congress or by the holder of the copyright.

As a result of the difference in the retention requirements, published

works consume far less storage space than unpublished works, even

though published works represent the majority of items that are registered

by the Copyright Office each year. Approximately 3.3 million unpublished

works were placed in storage at either the Landover Storage Facility or the

Washington National Records Center between 19785

 and the end of fiscal

year 1996. In addition to this material, other unpublished works have been

microfilmed and are currently stored at the Copyright Office itself. In

contrast, as of December 1996, only an estimated 1.8 million published

works were in storage at the two facilities, and most of these were still

within the statutory 5-year retention period. From fiscal year 1990 through

fiscal year 1995, the Copyright Office received only 85 requests for

extended storage for published works.

The annual cost of the space utilized by the Copyright Office at its

Landover Storage Facility is $230,000 and is paid for by the Library of

Congress. The space utilized by the Copyright Office at the Washington

National Records Center is owned by the General Services Administration

and leased to the National Archives. Although neither the Copyright Office

5

Prior to 1978, musicals and dramas were the only categories of unpublished works that were eligible

for copyright registration.

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nor the Library of Congress pays for this storage space, it is a cost of the

copyright process and a cost to the government. National Archives

officials estimated the fiscal year 1996 costs to be $1.56 per cubic foot.

Given the number of cubic feet being utilized by the Copyright Office, the

fiscal year 1996 cost was approximately $97,000.

Conclusions Unlike PTO, the Copyright Office is not self-sustaining through fees, and the

government provides about $10 million in appropriations each year to

cover the costs not recovered by copyright fees or reimbursements from

royalties. While the law permits the Copyright Office to raise fees

periodically to account for the effects of inflation, it chose not to do so in

fiscal year 1995, the last year it had the authority to do so. Thus, most fees

remain at the level they were in 1991. Copyright Office officials have

supported the need for a fee increase that will match fees to the costs of

services more closely and are planning a study to show what type of fee

structure may be needed.

In September 1996, the Copyright Office objected to a proposal that it

become self-sustaining within a new, government-owned, intellectual

property corporation because of fears that the increased costs would lead

to a burdensome increase in fees, a dramatic decrease in registrations, and

a reduction in free materials available for the Library of Congress’s

collections. These concerns are not supported by the Copyright Office’s

own study used for the testimony. In March 1997, the Register of

Copyrights agreed that the fivefold increase in fees she had projected was

a worst-case scenario and was based on the uncertainties the Copyright

Office would face if removed from the Library of Congress. She said that

the copyright process could become self-sustaining—probably with fees

about double those now in effect—under the current organizational

structure.

Recently, other organizations—including the Library itself—have

recommended fee increases. CBO has included an option for making the

Copyright Office self-sustaining in its deficit-reduction package for fiscal

year 1998, estimating that fees would need to be raised to a range of $35 to

$40.

The requirement in the law that unpublished works be retained for the life

of the copyright adds to the costs of the copyright process without

providing any measurable benefits to either the copyright holders or the

government. We believe that by eliminating this requirement, reducing the

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Copyright Services

retention period, or requiring a fee for extended retention, the additional

costs to the government could be reduced or recovered.

Matters for

Consideration by the

Congress

To promote greater consistency in the government’s approach to assessing

intellectual property fees and to eliminate the need for appropriated funds

in the copyright process, the Congress may wish to consider requiring that

the Copyright Office achieve full cost recovery through fees. The Congress

may also wish to consider setting copyright fees that are more closely

aligned with the services for which they are assessed. In addition, to

reduce the costs of the copyright process, the Congress may wish to

consider making the storage requirements for unpublished copyrighted

works the same as those for published works.

Recommendation to

the Register of

Copyrights

To reduce the deterioration of fees by inflation, we recommend that the

Register of Copyrights raise fees to account for inflation as provided by

law, when given the opportunity to do so.

Agency Comments

and Our Evaluation

We provided copies of a draft of this report to the Library of Congress for

its review and comment. At the Library’s request, we also met with Library

officials to discuss the Library’s written comments further. The comments

of the Library and our responses to those comments are included in

appendix XIII.

The Library strongly disagreed with our discussion of copyright fees and

said that the report was incorrect in stating that the Copyright Office had

opposed fee increases, did not acknowledge the role of the Congress in

setting copyright fees, and did not sufficiently discuss the impact of fee

increases on the Library’s collections. In addition, the Library disagreed

with a perceived criticism of the fee increase projections that the Register

provided to the Senate Committee on the Judiciary in a September 1996

hearing.

Concerning the Library’s comments regarding the Copyright Office’s

position on fee increases, we added information to the report showing that

the Copyright Office has supported the need for fee increases in the past,

believes a fee increase is needed currently, and supports proposed

legislation that would allow the Register to raise fees to cover the costs of

copyright registration and services. We continue to believe, however, that

the Copyright Office should have adjusted fees for inflation in fiscal year

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Copyright Services

1995 because the increase would have been cost-effective, and Library

officials agree that the Register should make inflation adjustments in the

future.

We disagree with the Library’s comments that the role of the Congress in

setting fees was not adequately discussed in the draft report. To the

contrary, our report shows that the Congress has chosen to continue to

recover copyright costs through a combination of fees and appropriations.

We point out that the Congress has chosen to make the patent and

trademark processes self-sustaining. In keeping with this approach, we

state that the Congress may wish to consider whether the Copyright Office

should achieve full cost recovery through fees.

We also believe that the report fairly discusses the potential impact of a

fee increase on deposits available for the Library’s collections. Because

the Library (1) has access to all copyrighted materials submitted for

registration, (2) is entitled by law to any other materials under copyright

protection published in the United States, and (3) rarely takes any

unpublished materials, we continue to believe that the works available

should not decline substantially even if copyright registration applications

decline.

Finally, we believe that the report accurately portrays the Register’s

testimony in the September 1996 hearings. However, we clarified the

report to show that the Register’s concern was with the high costs of

making the Copyright Office self-supporting within a new,

government-owned, intellectual property corporation outside the Library.

We continue to believe that the fees projected were too high and were not

presented in a proper context. For these reasons, we believe it is

necessary to show the Copyright Office’s analyses of these projections in

the report.

Page 55 GAO/RCED-97-113 Intellectual Property
Appendix I 

Objectives, Scope, and Methodology

On July 15, 1996, the Chairman of the Senate Committee on the Judiciary

requested that we review the manner by which the U.S. agencies grant or

register patents, trademarks, and copyrights and use fees in providing

services. He asked that we address a series of interrelated questions

regarding how fees are set, whether they recover costs, and how they are

used in the granting and registration processes.

In subsequent discussions with the Committee staff, we agreed that we

would determine (1) how fees are set for the services provided by the

Patent and Trademark Office (PTO) and the Copyright Office, (2) the extent

to which fees are recovering the costs of the services provided,

(3) whether different users of the same services pay different fees,

(4) whether patent fees encourage or discourage the completeness and

accuracy of applications, and (5) the potential effects of increasing

copyright fees. Our report discusses these issues in individual chapters on

patents, trademarks, and copyrights.

We conducted our work by reviewing available records and interviewing

knowledgeable officials from PTO, the Copyright Office, and intellectual

property organizations. While we developed both historical and current

information on fees, the information we developed on costs was primarily

for fiscal year 1995, the last year for which complete data were available at

the time of our review. The cost and fee data used in this report are based

on data provided by PTO and the Copyright Office. Except as specifically

noted, we did not independently verify these data.

For the first objective, we determined the extent to which fees are

established by law and by the agencies themselves, the rationale used by

the agencies in updating fees, and the process used by the agencies in

determining individual fees. We also reviewed the legislative history

regarding intellectual property fees to determine the evolution of the

current fee structures. In addition, we reviewed economic literature

related to fee increases.

For the second objective, we determined, to the extent that data were

available, the relationship between the costs and fees charged for

particular services provided by PTO and the Copyright Office during fiscal

year 1995. We then used these data to show the extent to which the

agencies were recovering their costs in total and for individual services.

To the extent possible, we also compared U.S. fees and costs with those in

Europe and Japan; however, the only data that were sufficient for use in

Page 56 GAO/RCED-97-113 Intellectual Property
Appendix I 

Objectives, Scope, and Methodology

our report involved patents. We did not independently verify the

information obtained.

For the third objective, we identified differences in fees for various types

of services and users of those services. Specifically, we determined the

costs and benefits of (1) charging large and small entities different fees for

the same patent services, (2) charging a fee for extended storage of

published copyrighted materials while storing unpublished copyrighted

materials for the life of the copyright at no additional cost, and

(3) charging a maintenance fee for patents and a renewal fee for

trademarks but no additional fees to keep a copyright current.

For the fourth objective, we identified areas in which applicants’ errors

and delays added to examination time and determined the extent to which

fees were assessed for such delays. Our work for this objective primarily

involved a comparison of patent extension fees with the applicant delays

in the patent process as identified in our July 1996 report entitled

Intellectual Property: Enhancements Needed in Computing and Reporting

Patent Examination Statistics (GAO/RCED-96-190, July 15, 1996). To perform

this analysis, we updated the data to include fiscal year 1995.

For the fifth objective, we identified areas where fees could be increased,

and to the extent possible, the potential effects of these increases. This

work primarily involved copyright fees because the patent and trademark

processes were already self-sufficient. For copyrights, we identified

potential revenues possible under various fee scenarios. To determine the

potential effects of fee increases on copyright applications, we also

performed a regression analysis showing the effect of fees on applications

since 1986.

During the course of our review, we also developed information on fiscal

year 1995 patent pendency using information from PTO’s automated Patent

Application Location and Monitoring system. This system contains

background information on each patent application as well as a

“prosecution history” that shows the date when key actions were taken on

each application during examination. We used these data to prepare a

report to the Chairman entitled Intellectual Property: Comparison of

Patent Examination Statistics for Fiscal Years 1994 and 1995

(GAO/RCED-97-58, Mar. 13, 1997). These data were also used in appendix V of

this report.

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Appendix I 

Objectives, Scope, and Methodology

We provided a draft of this report to the Department of Commerce and the

Library of Congress. These agencies provided written comments, which

are included in appendixes XII and XIII, respectively, along with our

responses. In addition, we met with officials of the Library of Congress

after receiving their comments.

We performed our work from July 1996 through April 1997. We conducted

our work in accordance with generally accepted government auditing

standards.

Page 58 GAO/RCED-97-113 Intellectual Property
Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

Patent filing fees (large entity)

101 Basic filing fee—utility $730.00 $120,038,488 20.78

102 Independent claims in excess of 3 76.00 3,158,166 0.55

103 Claims in excess of 20 22.00 3,478,376 0.60

104 Multiple dependent claim 240.00 270,234 0.05

105 Surcharge—late filing fee or oath or

declaration

130.00 4,482,760 0.78

106 Design filing fee 300.00 1,689,243 0.29

107 Plant filing fee 490.00 110,544 0.02

108 Reissue filing fee 730.00 361,458 0.06

109 Reissue independent claims over original

patent

76.00 1,475 0.00

110 Reissue claims in excess of 20 and over

original patent

22.00 27,708 0.00

Total patent filing fees

(large entity) $133,618,452 23.13

Patent filing fees (small entity)

201 Basic filing fee—utility $365.00 $26,825,569 4.64

202 Independent claims in excess of 3 38.00 795,620 0.14

203 Claims in excess of 20 11.00 1,115,036 0.19

204 Multiple dependent claim 120.00 58,893 0.01

205 Surcharge—late filing fee or oath or

declaration

65.00 983,792 0.17

206 Design filing fee 150.00 1,389,035 0.24

207 Plant filing fee 245.00 69,820 0.01

208 Reissue filing fee 365.00 70,525 0.01

209 Reissue independent claims over original

patent

38.00 77 0.00

210 Reissue claims in excess of 20 and over

original patent

11.00 5,570 0.00

Total patent filing fees

(small entity) $31,313,937 5.41

Total patent filing fees $164,932,389 28.54

Patent issue fees (large entity)

142 Utility issue fee $1,210.00 $86,656,572 15.00

143 Design issue fee 420.00 1,914,960 0.33

144 Plant issue fee 610.00 88,905 0.02

Total patent issue fees

(large entity) $88,660,437 15.35

Patent issue fees (small entity)

(continued)

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Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

242 Utility issue fee $605.00 $19,122,870 3.31

243 Design issue fee 210.00 1,521,095 0.26

244 Plant issue fee 305.00 69,835 0.01

Total patent issue fees

(small entity) $20,713,800 3.58

Total patent issue fees $109,374,237 18.93

Patent maintenance fees (large entity)

181 Maintenance fees received without

explanation

–$33,400 –0.01

183 Due at 3.5 years $960.00 55,182,178 9.55

184 Due at 7.5 years 1,930.00 68,797,276 11.91

185 Due at 11.5 years 2,900.00 46,720,870 8.09

186 Surcharge—late payment within 6 months 130.00 488,236 0.08

Total patent maintenance

fees (large entity) $171,155,160 29.62

Patent maintenance fees (small entity)

283 Due at 3.5 years $480.00 $9,388,440 1.63

284 Due at 7.5 years 965.00 8,871,525 1.54

285 Due at 11.5 years 1,450.00 3,956,618 0.68

286 Surcharge—late payment within 6 months 65.00 312,893 0.05

Total patent maintenance

fees (small entity) $22,529,476 3.90

Patent maintenance fees regardless of entity

187 Surcharge—late payment is unavoidable $640.00 $49,435 0.01

188 Surcharge—late payment is unintentional 1,500.00 933,978 0.16

Total patent maintenance

fees regardless of entity $983,413 0.17

Total patent maintenance

fees $194,668,049 33.69

Patent extension fees (large entity)

115 Extension for response within first month $110.00 $4,516,399 0.78

116 Extension for response within second month 370.00 8,464,762 1.47

117 Extension for response within third month 870.00 25,087,326 4.34

118 Extension for response within fourth month 1,360.00 2,167,206 0.38

Total patent extension fees

(large entity) $40,235,693 6.97

Patent extension fees (small entity)

215 Extension for response within first month $55.00 $920,697 0.16

216 Extension for response within second month 185.00 1,630,439 0.28

217 Extension for response within third month 435.00 4,901,266 0.85

(continued)

Page 60 GAO/RCED-97-113 Intellectual Property
Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

218 Extension for response within fourth month 680.00 681,674 0.12

Total patent extension fees

(small entity) $8,134,076 1.41

Total patent extension fees $48,369,769 8.38

Patent appeal fees (large entity)

119 Notice of appeal $280.00 $3,650,465 0.63

120 Filing a brief in support of an appeal 280.00 1,418,636 0.25

121 Request for oral hearing 240.00 311,503 0.05

Total patent appeal fees

(large entity) $5,380,604 0.93

Patent appeal fees (small entity)

219 Notice of appeal $140.00 $535,305 0.09

220 Filing a brief in support of an appeal 140.00 230,844 0.04

221 Request for oral hearing 120.00 52,330 0.01

Total patent appeal fees

(small entity) $818,479 0.14

Total patent appeal fees $6,199,083 1.07

Patent revival fees (large entity)

140 Petition to revive unavoidably abandoned

application

$110.00 $32,058 0.01

141 Petition to revive unintentionally abandoned

application

1,210.00 2,140,180 0.37

Total patent revival fees

(large entity) $2,172,238 0.38

Patent revival fees (small entity)

240 Petition to revive unavoidably abandoned

application

$55.00 $33,161 0.01

241 Petition to revive unintentionally abandoned

application

605.00 753,189 0.13

Total patent revival fees

(small entity) $786,350 0.14

Total patent revival fees $2,958,588 0.52

Statutory disclaimer fees

148 Statutory disclaimer (large entity) $110.00 $592,634 0.10

248 Statutory disclaimer (small entity) 55.00 155,266 0.03

Total statutory disclaimer

fees $747,900 0.13

Other patent processing fees

111 Extension of patent term $1,030.00 $41,075 0.01

(continued)

Page 61 GAO/RCED-97-113 Intellectual Property
Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

112 Requesting publication of Statutory

Invention Registration prior to examiner’s

action

840.00 31,153 0.01

113 Requesting publication of Statutory

Invention Registration after examiner’s action

1,690.00 83,377 0.01

122 Petitions to the commissioner, unless

otherwise specified

130.00 1,853,081 0.32

126 Submission of an information disclosure

statement

210.00 2,546,562 0.44

138 Petition to institute a public use proceeding 1,390.00 5,480 0.00

139 Non-English specification 130.00 94,419 0.02

145 Certificate of correction 100.00 565,172 0.10

147 Filing a request for reexamination 2,320.00 862,997 0.15

Total other patent

processing fees $6,083,316 1.06

Patent Cooperation Treaty application fees (large entity)

956 International Preliminary Examining

Authority—U.S.

$660.00 $244,906 0.04

958 International Searching Authority—U.S. 730.00 60,825 0.01

960 PTO is not International Searching Authority

or International Preliminary Examining

Authority

980.00 737,127 0.13

962 Claims meet Patent Cooperation Treaty

Article 33(1)-(4)—International Preliminary

Examining Authority—U.S.

92.00 13,448 0.00

964 Claims—extra independent (over 3) 76.00 352,804 0.06

966 Claims—extra total (over 20) 22.00 618,319 0.11

968 Claims—multiple dependent 240.00 406,912 0.07

970 For filing with European Patent Office or

Japanese Patent Office search report

850.00 5,600,936 0.97

154 Oath or declaration after 20 or 30 months

from priority date

130.00 414,495 0.07

Total Patent Cooperation

Treaty application fees

(large entity) $8,449,772 1.46

Patent Cooperation Treaty application fees (small entity)

957 International Preliminary Examining

Authority—U.S.

$330.00 $50,287 0.01

959 International Searching Authority—U.S. 365.00 26,682 0.00

961 PTO is not International Searching Authority

or International Preliminary Examining

Authority

490.00 341,685 0.06

(continued)

Page 62 GAO/RCED-97-113 Intellectual Property
Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

963 Claims meet Patent Cooperation Treaty

Article 33(1)-(4)—International Preliminary

Examining Authority—U.S.

46.00 3,280 0.00

965 Claims—extra independent (over 3) 38.00 45,385 0.01

967 Claims—extra total (over 20) 11.00 98,098 0.02

969 Claims—multiple dependent 120.00 49,357 0.01

971 For filing with European Patent Office or

Japanese Patent Office search report

425.00 703,191 0.12

254 Oath or declaration after 20 or 30 months

from priority date

65.00 76,082 0.01

Total Patent Cooperation

Treaty application fees

(small entity) $1,394,047 0.24

Total Patent Cooperation

Treaty application filing fees $9,843,819 1.70

Patent Cooperation Treaty processing fees

150 Patent Cooperation Treaty transmittal fee $210.00 $3,345,943 0.58

151 Patent Cooperation Treaty search fee—no

U.S. application

640.00 388,476 0.07

152 Supplemental search per additional invention 180.00 252,300 0.04

153 Patent Cooperation Treaty search fee

—prior U.S. application

420.00 3,666,851 0.63

155 Patent Cooperation Treaty—late payment fee Variable 15,512 0.00

156 English translation—after 20 months 130.00 36,341 0.01

157 Patent Cooperation Treaty—designation

confirmation fee

Variable 49,368 0.01

159 Overpayments—Patent Cooperation Treaty 46,103 0.01

190 Preliminary examination fee

fee—International Searching Authority was

the U.S.

460.00 3,478,187 0.60

191 Preliminary examination fee— International

Searching Authority not the U.S.

690.00 694,321 0.12

192 Additional invention—International

Searching Authority was the U.S.

140.00 76,692 0.01

193 Additional invention—International

Searching Authority not the U.S.

240.00 1,360 0.00

Total Patent Cooperation

Treaty processing fees $12,051,454 2.08

Total Patent Cooperation

Treaty application and

processing fees $21,895,273 3.78

Patent service fees

(continued)

Page 63 GAO/RCED-97-113 Intellectual Property
Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

561 Printed copy of patent w/o color, regular

service

$3.00 $2,961,287 0.51

562 Printed copy of patent w/o color, overnight

delivery to PTO box or overnight fax

6.00 7,279 0.00

563 Printed copy of patent w/o color, ordered via

expedited mail or fax, expedited service

25.00 6,617 0.00

564 Printed copy of plant patent, in color 12.00 20,215 0.00

565 Copy of utility patent or Statutory Invention

Registration, with color drawings

24.00 834 0.00

566 Certified or uncertified copy of patent

application as filed, regular service

12.00 923,499 0.16

567 Certified or uncertified copy of patent

application as filed, expedited local service

24.00 437,799 0.08

568 Certified or uncertified copy of

patent-related file wrapper and contents

150.00 156,046 0.03

569 Certified or uncertified copy of document,

unless otherwise provided

25.00 175,902 0.03

570 For assignment records, abstract of title and

certification, per patent

25.00 305,648 0.05

571 Library service 50.00 200 0.00

572 List of U.S. patents and Statutory Invention

Registrations in subclass

3.00 192 0.00

573 Uncertified statement regarding status of

maintenance fee payments

10.00 6,770 0.00

574 Copy of non-U.S. document 25.00 69,128 0.01

575 Comparing and certifying copies, per

document, per copy

25.00 52,118 0.01

576 Additional filing receipt, duplicate or

corrected due to applicant error

25.00 20,578 0.00

577 Filing a disclosure document 10.00 219,570 0.04

578 Local delivery box rental, per annum 50.00 4,948 0.00

579 International type search report 40.00 955 0.00

580 Self-service copy charge, per page 0.25 3,965,313 0.69

581 Recording each patent assignment,

agreement or other paper, per property

40.00 7,844,060 1.36

583 Publication in official gazette 25.00 3,175 0.00

584 Labor charge for services, per hour or

fraction thereof

30.00 51,897 0.01

585 Unspecified other services 170,326 0.03

586 Retaining abandoned application 130.00 27,975 0.00

587 Handling fee for incomplete or improper

application

130.00 26,155 0.00

(continued)

Page 64 GAO/RCED-97-113 Intellectual Property
Appendix II 

Patent Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title

Fee per

service

Total fee

income

Percent of

total

588 Automated Patent Search System text

terminal session time, per hour

40.00 806,589 0.14

589 Handling fee for withdrawal of Statutory

Invention Registration

130.00 582 0.00

590 Patent coupons 3.00 1,023,519 0.18

591 Automated Patent Search System text

terminal session time at the PTDLs, per hour

15.00 1,644 0.00

592 Automated Patent Search System—

Classified Search and Retrieval terminal

session time, per hour

50.00 –9,295 0.00

Total patent service fees $19,281,525 3.33

Patent attorney enrollment fees

609 Admission to examination $300.00 $628,080 0.11

610 Registration to practice 100.00 110,027 0.02

611 Reinstatement to practice 15.00 1,650 0.00

612 Copy of certification of good standing 10.00 1,317 0.00

613 Certificate of good standing—suitable for

framing

20.00 250 0.00

615 Review of decision of Director, Office of

Enrollment and Discipline

130.00 1,040 0.00

616 Regrading an examination 130.00 15,355 0.00

Total patent attorney

enrollment fees $757,719 0.13

Miscellaneous service fees

607 Establish deposit account $10.00 $710 0.00

608 Service charge for below minimum balance 25.00 79,232 0.01

617 Processing returned checks 50.00 19,045 0.00

618 Computer records at costs 954,665 0.17

Unspecified patent fees 1,378,329 0.24

Total miscellaneous service

fees $2,431,981 0.42

Total patent feesa $577,699,829 99.98

aPercent does not equal to 100 because of rounding.

Source: Patent and Trademark Office; GAO’s computations.

Page 65 GAO/RCED-97-113 Intellectual Property
Appendix III 

Patent Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

Patent filing fees (large entity)

101 Basic filing fee—utility $770.00

102 Independent claims in excess of 3 80.00

103 Claims in excess of 20 22.00

104 Multiple dependent claim 260.00

105 Surcharge—late filing fee or oath or declaration 130.00

106 Design filing fee 320.00

107 Plant filing fee 530.00

108 Reissue filing fee 770.00

109 Reissue independent claims over original patent 80.00

110 Reissue claims in excess of 20 and over original patent 22.00

Patent filing fees (small entity)

201 Basic filing fee—utility 385.00

202 Independent claims in excess of 3 40.00

203 Claims in excess of 20 11.00

204 Multiple dependent claim 130.00

205 Surcharge—late filing fee or oath or declaration 65.00

206 Design filing fee 160.00

207 Plant filing fee 265.00

208 Reissue filing fee 385.00

209 Reissue independent claims over original patent 40.00

210 Reissue claims in excess of 20 and over original patent 11.00

Patent issue fees (large entity)

142 Utility issue fee 1,290.00

143 Design issue fee 440.00

144 Plant issue fee 650.00

Patent issue fees (small entity)

242 Utility issue fee 645.00

243 Design issue fee 220.00

244 Plant issue fee 325.00

Patent maintenance fees (large entity)

183 Due at 3.5 years 1,020.00

184 Due at 7.5 years 2,050.00

185 Due at 11.5 years 3,080.00

186 Surcharge—late payment within 6 months 130.00

Patent maintenance fees (small entity)

283 Due at 3.5 years 510.00

284 Due at 7.5 years 1,025.00

(continued)

Page 66 GAO/RCED-97-113 Intellectual Property
Appendix III 

Patent Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

285 Due at 11.5 years 1,540.00

286 Surcharge—late payment within 6 months 65.00

Patent maintenance fees regardless of entity

187 Surcharge—late payment is unavoidable 680.00

188 Surcharge—late payment is unintentional 1,600.00

Patent extension fees (large entity)

115 Extension for response within first month 110.00

116 Extension for response within second month 390.00

117 Extension for response within third month 930.00

118 Extension for response within fourth month 1,470.00

Patent extension fees (small entity)

215 Extension for response within first month 55.00

216 Extension for response within second month 195.00

217 Extension for response within third month 465.00

218 Extension for response within fourth month 735.00

Patent appeal fees (large entity)

119 Notice of appeal 300.00

120 Filing a brief in support of an appeal 300.00

121 Request for oral hearing 260.00

Patent appeal fees (small entity)

219 Notice of appeal 150.00

220 Filing a brief in support of an appeal 150.00

221 Request for oral hearing 130.00

Patent revival fees (large entity)

140 Petition to revive unavoidably abandoned application 110.00

141 Petition to revive unintentionally abandoned application 1,290.00

Patent revival fees (small entity)

240 Petition to revive unavoidably abandoned application 55.00

241 Petition to revive unintentionally abandoned application 645.00

Statutory disclaimers

148 Statutory disclaimer (large entity) 110.00

248 Statutory disclaimer (small entity) 55.00

Other patent processing fees

111 Extension of term of patent under 1.740 1,090.00

111 Initial application for interim extension under 1.790 410.00

111 Subsequent application for interim extension under 1.790 210.00

112 Requesting publication of Statutory Invention Registration—prior to

examiner’s action

900.00

(continued)

Page 67 GAO/RCED-97-113 Intellectual Property
Appendix III 

Patent Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

113 Requesting publication of Statutory Invention Registration—after

examiner’s action

1,790.00

122 Petitions to the Commissioner, unless otherwise specified 130.00

126 Submission of an information disclosure statement 230.00

138 Petition to institute a public use proceeding 1,470.00

139 Non-English specification 130.00

145 Certificate of correction 100.00

147 Filing a request for reexamination 2,460.00

146 Filing a submission after final rejection (large entity) 770.00

246 Filing a submission after final rejection (small entity) 385.00

149 Per additional invention to be examined (large entity) 770.00

249 Per additional invention to be examined (small entity) 385.00

Patent Cooperation Treaty application fees (large entity)

956 International Preliminary Examining Authority—U.S. 700.00

958 International Searching Authority—U.S. 770.00

960 PTO is not International Searching Authority or International Preliminary

Examining Authority

1,040.00

962 Claims meet Patent Cooperation Treaty Article 33(1)-(4)—International

Preliminary Examining Authority—U.S.

96.00

964 Claims—extra independent (over 3) 80.00

966 Claims—extra total (over 20) 22.00

968 Claims—multiple dependent 260.00

970 For filing with European Patent Office or Japanese Patent Office search

report

910.00

154 Oath or declaration after 20 or 30 months from priority date 130.00

Patent Cooperation Treaty application fees (small entity)

957 International Preliminary Examining Authority—U.S. 350.00

959 International Searching Authority—U.S. 385.00

961 PTO is not International Searching Authority or International Preliminary

Examining Authority

520.00

963 Claims meet Patent Cooperation Treaty Article 33(1)-(4)—International

Preliminary Examining Authority—U.S.

48.00

965 Claims—extra independent (over 3) 40.00

967 Claims—extra total (over 20) 11.00

969 Claims—multiple dependent 130.00

971 For filing with European Patent Office or Japanese Patent Office search

report

455.00

254 Oath or declaration after 20 or 30 months from priority date 65.00

Patent Cooperation Treaty processing fees

150 Patent Cooperation Treaty transmittal fee 230.00

151 Patent Cooperation Treaty search fee—no U.S. application 680.00

(continued)

Page 68 GAO/RCED-97-113 Intellectual Property
Appendix III 

Patent Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

152 Supplemental search per additional invention 200.00

153 Patent Cooperation Treaty search fee—prior U.S. application 440.00

156 English translation—after 20 months 130.00

190 Preliminary examination fee—International Searching Authority was the

U.S.

480.00

191 Preliminary examination fee—International Searching Authority not the

U.S.

730.00

192 Additional invention—International Searching Authority was the U.S. 140.00

193 Additional invention—International Searching Authority not the U.S. 260.00

Patent service fees

561 Printed copy of patent w/o color, regular service 3.00

562 Printed copy of patent w/o color, delivery to PTO box or overnight fax 6.00

563 Printed copy of patent w/o color, ordered via expedited mail or fax,

expedited service

25.00

564 Printed copy of plant patent, in color 12.00

565 Copy of utility patent or Statutory Invention Registration with color

drawings

24.00

566 Certified or uncertified copy of patent application as filed, regular service 15.00

567 Certified or uncertified copy of patent application as filed, expedited

local service

30.00

568 Certified or uncertified copy of patent—related file wrapper and contents 150.00

569 Certified or uncertified copy of document, unless otherwise provided 25.00

570 For assignment records, abstract of title and certification, per patent 25.00

571 Library service 50.00

572 List of U.S. patents and Statutory Invention Registrations in subclass 3.00

573 Uncertified statements re status of maintenance fee payments 10.00

574 Copy of non-U.S. Document 25.00

575 Comparing and certifying copies, per document, per copy 25.00

576 Additional filing receipt, duplicate or corrected due to applicant error 25.00

577 Filing a disclosure document 10.00

578 Local delivery box rental, per annum 50.00

579 International type search report 40.00

580 Self-service copy charge, per page 0.25

581 Recording each patent assignment, agreement or other paper, per

property

40.00

583 Publication in official gazette 25.00

584 Labor charge for services, per hour or fraction thereof 30.00

585 Unspecified expedited services At cost

586 Retaining abandoned application 130.00

587 Handling fee for incomplete or improper application 130.00

(continued)

Page 69 GAO/RCED-97-113 Intellectual Property
Appendix III 

Patent Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

588 Automated Patent Search System—text terminal session time, per hour 40.00

589 Handling fee for withdrawal of Statutory Invention Registration 130.00

590 Patent coupons 3.00

592 Automated Patent Search System—Classified Search and Image

Retrieval terminal session time, per hour

50.00

Patent attorney enrollment fees

609 Admission to examination 40.00

610 Registration to practice 100.00

611 Reinstatement to practice 40.00

612 Copy of certification of good standing 10.00

613 Certificate of good standing—suitable for framing 20.00

615 Review of decision of Director, Office of Enrollment and Discipline 130.00

616 Regarding an examination 225.00

Miscellaneous service fees

607 Establish deposit account 10.00

608 Service charge for below minimum balance 25.00

617 Processing returned checks 50.00

618 Computer records At cost

Source: PTO.

Page 70 GAO/RCED-97-113 Intellectual Property
Appendix IV 

Comparison of Patent Fees for PTO,

Japanese Patent Office, and European

Patent Office

PTO

Fees to obtain

patenta

Fees to maintain

patent Total fees

Large entity $2,060 $6,150 $8,210

Small entity $1,030 $3,075 $4,105

Japanese Patent Office $985 $10,230 $11,215

European Patent Office

One country $4,942 $2,121 $7,063

Eight countriesb $6,546 $71,047 $77,593

All countries $8,608 $117,515 $126,123

Notes: Foreign currency exchange rates based on Oct. 1996 average. Fees as used in this table

are the fees paid to the agency and do not include external fees such as attorneys’ fees. The

European Patent Office has reported that its fees are scheduled to be adjusted downward on

July 1, 1997.

aThe fees to obtain a patent include all basic fees from filing application to grant of patent.

bIn the European Patent Office, additional fees must be paid for each country designated. The

average number of member states designated for each European Patent Office application was

7.9 in 1995. Thus, we made our calculation using the fees for the eight member states that were

designated most often in 1995.

Source: PTO; GAO’s calculations.

Page 71 GAO/RCED-97-113 Intellectual Property
Appendix V 

Comparison of Patent Pendency by

Examination Group for Patents Issued or

Applications Abandoned During Fiscal Year

1995

Group Description

Number of

applications

Average

pendency in

months

1100 General, metallurgical,

inorganic, petroleum and

electrical chemistry and

engineering

12,835 19.2

1200 Organic chemistry drug, etc. 9,473 19.3

1300 Specialized chemical

industries, etc.

8,635 19.4

1500 High polymer chemistry,

plastics, coating,

photography, etc.

14,079 19.4

1800 Biotechnology 12,605 21.6

2100 Industrial electronics,

physics, etc.

10,232 20.9

2200 Special laws administration 5,429 24.4

2300 Computer systems, etc. 8,701 26.2

2400 Packages, cleaning, textiles,

and geometrical instruments

8,006 18.9

2500 Electronic/optical systems,

etc.

15,431 19.6

2600 Communications,

measuring, testing and

lamp/discharge group

13,463 22.1

2900 Special designs 16,134 19.4

3100 Handling and transporting

media

9,121 17.5

3200 Material shaping, tools, etc. 9,132 17.7

3300 Medical technology,

sporting goods, etc.

12,186 18.4

3400 Solar, heat, power and fluid

engineering devices

9,401 17.4

3500 Construction, petroleum and

mining engineering

10,325 18.7

Not determined 1,007 N/A

Total 186,195 19.8

Source: Patent Application Location and Monitoring system, PTO; GAO’s computations.

Page 72 GAO/RCED-97-113 Intellectual Property
Appendix VI 

Trademark Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title Fee per service Total fee income Percent of total

Trademark processing fees

361 Application for registration, per class $245.00 $48,975,658 71.51

362 Filing an amendment to allege use under

section 1(c), per class

100.00

514,920

0.75

363 Filing a statement of use under section

1(d)(1), per class

100.00

2,179,315

3.18

364 Filing a request for a 6-month extension of

time for filing a statement of use under

section 1(d)(1), per class

100.00

3,561,243

5.20

365 Application for renewal, per class 300.00 2,431,445 3.55

366 Additional fee for late renewal, per class 100.00 88,543 0.13

367 Publication of mark under section 12 (c), per

class

100.00

6,939

0.01

368 Issuing new certificate of registration 100.00 22,600 0.03

369 Certificate of correction, registrant’s error 100.00 45,920 0.07

370 Filing disclaimer to registration 100.00 1,300 0.00

371 Filing amendment to registration 100.00 58,800 0.09

372 Filing section 8 affidavit, per class 100.00 305,785 0.45

373 Filing section 15 affidavit, per class 100.00 64,860 0.09

374 Filing combined sections 8 and 15 affidavit,

per class

200.00

5,012,103

7.32

375 Petition to the Commissioner 100.00 92,550 0.14

376 Petition for cancellation, per class 200.00 276,620 0.40

377 Notice of opposition, per class 200.00 903,080 1.32

378 Ex parte appeal, per class 100.00 135,630 0.20

379 Dividing an application, per new application,

(file wrapper) created

100.00

67,625

0.10

Total trademark processing

fees $64,744,936

94.54

Trademark service fees

461 Printed copy of each registered mark,

regular service

$3.00

$4,812

0.01

462 Printed copy of each registered mark,

overnight delivery to PTO box or overnight

fax

6.00

1,148

0.00

463 Printed copy of each registered mark

ordered via expedited mail or fax, expedited

service

25.00

647

0.00

464 Certified copy of registered mark, with title

and/or status, regular service

10.00

84,110

0.12

465 Certified copy of registered mark, with title

and/or status, expedited local service

20.00

217,848

0.32

(continued)

Page 73 GAO/RCED-97-113 Intellectual Property
Appendix VI 

Trademark Fee Income Received by PTO in

Fiscal Year 1995

Type of fee and fee code Fee title Fee per service Total fee income Percent of total

466 Certified or uncertified copy of trademark

application as filed, regular service

12.00

113,705

0.17

467 Certified or uncertified copy of trademark

application as filed, expedited local service

24.00

152,199

0.22

468 Certified or uncertified copy of trademarkrelated file wrapper and contents50.00

21,719

0.03

469 Certified or uncertified copy of trademark

document, unless otherwise provided

25.00

5,204

0.01

470 For assignment records, abstracts of title

and certification per registration

25.00

21,648

0.03

475 Comparing and certifying copies, per

document, per copy

25.00

9,214

0.01

480 Self-service copy charge, per page 0.25 440,631 0.64

481 Recording trademark assignment,

agreement or other paper, first mark per

document

40.00

661,937

0.97

482 For second and subsequent marks in the

same document

25.00

1,846,515

2.70

484 Labor charges for services, per hour or

fraction thereof

30.00

22,467

0.03

485 Unspecified other services At cost 60,335 0.09

488 Each hour of X-SEARCH terminal session

time

40.00

72,132

0.11

490 Trademark coupons 3.00 5,464 0.01

Unspecified trademark fees 125 0.00

Total trademark service fees $3,741,860 5.47

Totala $68,486,796 100.01

aTotal percent does not equal 100.00 percent because of rounding.

Source: PTO; GAO’s computations.

Page 74 GAO/RCED-97-113 Intellectual Property
Appendix VII 

Trademark Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

Trademark processing fees

361 Application for registration, per class $245.00

362 Filing an amendment to allege use under section 1(c), per

class

100.00

363 Filing a statement of use under section 1(d)(1), per class 100.00

364 Filing a request for a 6 month extension of time for filing a

statement of use under section 1(d)(1), per class

100.00

365 Application for renewal, per class 300.00

366 Additional fee for late renewal, per class 100.00

367 Publication of mark under section 12(c), per class 100.00

368 Issuing new certificate of registration 100.00

369 Certificate of correction, registrant’s error 100.00

370 Filing disclaimer to registration 100.00

371 Filing amendment to registration 100.00

372 Filing section 8 affidavit, per class 100.00

373 Filing section 15 affidavit, per class 100.00

374 Filing combined sections 8 and 15 affidavit, per class 200.00

375 Petition to the Commissioner 100.00

376 Petition for cancellation, per class 200.00

377 Notice of opposition, per class 200.00

378 Ex parte appeal, per class 100.00

379 Dividing an application, per new application, (file wrapper)

created

100.00

Trademark service fees

461 Printed copy of each registered mark, regular service $3.00

462 Printed copy of each registered mark, overnight delivery to

PTO box or overnight fax

6.00

463 Printed copy of each registered mark ordered via

expedited mail or fax, expedited service

25.00

464 Certified copy of registered mark, with title and/or status,

regular service

10.00

465 Certified copy of registered mark, with title and/or status,

expedited local service

20.00

466 Certified or uncertified copy of trademark application as

filed, regular service

15.00

467 Certified or uncertified copy of trademark application as

filed, expedited local service

30.00

468 Certified or uncertified copy of trademark-related file

wrapper and contents

50.00

469 Certified or uncertified copy of trademark document, unless

otherwise provided

25.00

(continued)

Page 75 GAO/RCED-97-113 Intellectual Property
Appendix VII 

Trademark Fees for Fiscal Year 1997

Type of fee and fee code Fee title Fee per service

470 For assignment records, abstracts of title and certification

per registration

25.00

475 Comparing and certifying copies, per document, per copy 25.00

480 Self service copy charge, per page 0.25

481 Recording trademark assignment, agreement or other

paper, first mark per document

40.00

482 For second and subsequent marks in the same document 25.00

484 Labor charges for services, per hour or fraction thereof 30.00

485 Unspecified other services At cost

488 Each hour of X-SEARCH terminal session time 40.00

490 Trademark coupons 3.00

Source: PTO.

Page 76 GAO/RCED-97-113 Intellectual Property
Appendix VIII 

Copyright Fees for Fiscal Year 1997

Fee title Fee per service

Application for registration $20.00

Application per issue for group serial registration (minimum fee $20.00) 10.00

Application for group registration of daily newspaper, per month 40.00

Application for restoration of copyright under the General Agreements on Tariffs and Trade treaty

(minimum fee $20.00) 10.00

Recordation, under section 205, of a document containing no more than one title 20.00

Recordation of additional titles; each group of 10 or fewer 10.00

Recordation, under the Uruguay Round Agreements Act, of a notice of intent to enforce copyright,

containing no more than one work 30.00

Additional works contained in the notice of intent to enforce copyright, each 1.00

Additional certificates, each 8.00

Any other certification including Copyright Office records, each, per hour 20.00

Search: reports from official records, per hour 20.00

Search: locating Copyright Office records, per hour 20.00

Filing of notice of intent to make and distribute phone records under section 115(b) 12.00

Receipt for deposit, each 4.00

Special handling for registration 330.00

Special handling for registration given if a single deposit copy covers multiple claims and special

handling is requested only for one 50.00

Special handling for recordation of a document 330.00

Full-term retention of copyright deposits under section 704 (e) 270.00

Expedited additional certificate, per hour 50.00

Expedited in-process search, per hour 50.00

Expedited copy of assignment, per hour 50.00

Expedited certification, per hour 50.00

Expedited copy of deposit stored off-site, first hour 70.00

Expedited copy of deposit stored off-site, each additional hour 50.00

Expedited copy of correspondence file stored in Madison Building or at an off-site storage facility, first

hour 70.00

Expedited copy of correspondence file stored in Madison Building or at an off-site storage facility, each

additional hour 50.00

Expedited reference and bibliographic search, first hour 100.00

Expedited reference and bibliographic search, each additional hour 50.00

Source: Copyright Office.

Page 77 GAO/RCED-97-113 Intellectual Property
Appendix IX 

Copyright Fee Revenues Received by the

Copyright Office in Fiscal Year 1995

Title Fee per service Total fee income Percent of total

Supplementary information for registration $20.00 $68,386 .46

Serial registration 20.00 1,539,664 10.45

Literary works registration 20.00 3,936,280 26.71

Group daily newspaper registration 40.00 77,080 .52

Group serial registration 10.00 267,640 1.82

Mask works registration 20.00 18,580 .13

Motion picture registration 20.00 355,780 2.41

Performing arts registration 20.00 2,833,246 19.22

Sound recording registration 20.00 721,173 4.89

Renewal registration 20.00 646,882 4.39

Visual arts registration 20.00 2,107,476 14.30

Special handling for registrationa 330.00 838,200 5.69

Special handling for recordation of a document 330.00 193,050 1.31

Document recordationb 20.00 544,569 3.70

Surcharges for expedited certifications and reference and

bibliographic searches, first hourc 50.00 114,092 .77

Certificationsd 8.00 123,107 .84

Searches, per hour 20.00 194,849 1.32

Othere Variable 157,676 1.07

Total $14,737,730 100.00

aAn additional fee of $50 is charged for each claim given special handling if a single deposit copy

covers multiple claims and special handling is requested only for one.

bA $10 fee is charged for recording each group of 10 or fewer additional titles.

cA fee of $70 for the first hour and $50 for each additional hour is charged for obtaining copies of

correspondence stored at an off-site storage facility or at the Madison Building and copies of

deposits stored off-site. A surcharge of $100 for the first hour and $50 for each additional hour is

charged for expedited reference and bibliographic searches.

dA $20 per hour fee is charged for additional certifications.

eThis includes various fees collected for miscellaneous services, such as making copies and

inspecting records.

Source: Copyright Office.

Page 78 GAO/RCED-97-113 Intellectual Property
Appendix X 

Copyright Office’s Analysis Showing Fees

Required for Self Sufficiency

In September 1996, the Senate Committee on the Judiciary held a hearing

on S. 1961, the Omnibus Patent Act of 1996. Among other things, S. 1961

would have moved the Copyright Office with PTO into a new Intellectual

Property Organization and would have made the Copyright Office

self-sustaining through fees. In the hearings, the Register of Copyrights

opposed making the Copyright Office self-sufficient, stating that fees

would increase fivefold and applications would decrease. This position

was based on one scenario taken from an analysis the Copyright Office

had made that considered fees under 12 scenarios. The entire analysis is

reprinted in the following sections, using the Copyright Office’s own

terminology.

Table X.1: Financial Impacts of Separation Expenses in Fiscal Year 1997 for Copyright Basic

Current

Organization

Independent

Agency

in LC Outside LC

Personals Salaries and Benefits $22,750,000 $21,900,000a $21,900,000a

Increased Staffing for

Automation 2,000,000b

Mandatory Pay Increases 1,000,000 1,000,000 1,000,000

Non Personalsc Non Automation 1,600,000 1,500,000d 1,700,000e

Automation 240,000 240,000 2,240,000f

Overheadg *** 8,700,000h 6,000,000

Facilities Office, Light Industrial &

Warehouse *** 230,000i 5,000,000j

Security *** 80,000k

Relocation Costsl Moving 80,000

Furnishingsm 2,500,000

Telephonesn 1,300,000

Securityo 840,000p

Increased Printing 250,000q

Totals $25,590,000 $33,570,000 $44,890,000

(Table notes on next page)

Page 79 GAO/RCED-97-113 Intellectual Property
Appendix X 

Copyright Office’s Analysis Showing Fees

Required for Self Sufficiency

*** Provided by the Library

aAssumes that Copyright Acquisitions Division ($701,000) and Compliance Records Unit

($144,300) are transferred to the Library.

bReplaces automation staff support lost as a result of separation from the Library.

cLess the $2,340,000 appropriated for GATT for fiscal 1996 and 1997.

dNon personals of $67,624 (8% x 845,300) deducted for Copyright Acquisitions Division and

Compliance Records Unit.

e$170,000 increase for two contracts: $9,400 ($185 per week x 52) to send deposits to storage,

and $160,000 ($40,000 x 4) for minimum security staffing.

f

$2 million increase for mainframe and server processing.

gPersonnel, Financial and Health Services, Procurement and Contracting Support.

hThe Library’s overhead rate of 21.4% applied to Copyright’s appropriation of $27,828,000 =

$5,955,192 + $2.7 million for the Library’s estimate of Copyright automation expenses.

i

The Library calculates Copyright’s space usage at $7.6 million. $230,000 is for Landover

warehouse space, and $7.4 million (147,725 sq. ft. @ $50 per sq. ft.) is Madison space. The

space usage in Madison is a “beneficial occupancy” and should not be assessed.

j

Facility costs calculated at the General Service Administration’s rate of $32 per sq. ft.

k

Annual maintenance cost.

l

$5 million.

m$5,000 x 500 for workstations + $100 x 500 for file cabinets.

nEquipment $250,000, switch $500,000, and wiring 500,000.

oStartup costs for knogo gates ($55,000), cameras, and card readers, and intrusive detection

system.

pElectronic ($840,000) and non electronic ($80,000).

qReprinting costs for registration forms, circulars, and stationery to include address change.

Source: Copyright Office.

Page 80 GAO/RCED-97-113 Intellectual Property
Appendix X 

Copyright Office’s Analysis Showing Fees

Required for Self Sufficiency

Table X.2: Fee Per Registration for Full Cost Recovery Current Organization

Decrease in Registration Decrease in Registration Decrease in Registration Decrease in Registration

Year 1

30%

Year 2

15%

Year 1

20%

Year 2

10%

Year 1

10%

Year 2

5%

Year 1

5%

Year 2

2.5%

Expenses $25,590,000 $25,590,000 $25,590,000 $25,590,000 $25,590,000 $25,590,000 $25,590,000 $25,590,000

Less Other

Service Fees –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000

Plus

Mandatories $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000

Adj. Expenses $23,590,000 $24,590,000 $23,590,000 $24,590,000 $23,590,000 $24,590,000 $23,590,000 $24,590,000

Registrations 420,000 357,000 480,000 432,000 540,000 513,000 570,000 555,750

Fee Per

Registration $56 $69 $49 $57 $44 $48 $41 $44

Assumptions:

Congress mandates full cost recovery.

Enactment of legislation authorizing fee increases.

Fiscal 1997.

Year 1 expenses include $1 million for mandatory pay increases.

Current registrations (600,000) decrease when fees are increased.

Other fees are level.

Source: Copyright Office.

Page 81 GAO/RCED-97-113 Intellectual Property
Appendix X 

Copyright Office’s Analysis Showing Fees

Required for Self Sufficiency

Table X.3: Fees Per Registration for Full Cost Recovery Independent Agency in the Library Without Offsetting Credits

Decrease in Registrations Decrease in Registrations Decrease in Registrations Decrease in Registrations

Year 1

30% Loss

Year 2

15% Loss

Year 1

20% Loss

Year 2

10% Loss

Year 1

10% Loss

Year 2

5% Loss

Year 1

5% Loss

Year 2

2.5% Loss

Expenses $33,570,000 $33,570,000 $33,570,000 $33,570,000 $33,570,000 $33,570,000 $33,570,000 $33,570,000

Less Other

Service Fees $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000

Mandatory Pay

Increase $1,000,000 $1,000,000 $1,000,000 $1,000,000

Adj. Expenses $31,570,000 $32,570,000 $31,570,000 $32,570,000 $31,570,000 $32,570,000 $31,570,000 $32,570,000

Registrations 420,000 357,000 480,000 432,000 540,000 513,000 570,000 555,750

Fees Per

Registration $75 $91 $66 $75 $62 $63 $55 $59

Assumptions:

Congress mandates full cost recovery.

Enactment of legislation authorizing fee increases.

Fiscal 1997 expenses.

Year 1 expenses include $1 million for mandatory pay increases.

LC charges for overhead and facilities and there is no credit for value deposits.

Current registrations (600,000) decrease when fees are increased.

Other fees are level.

Source: Copyright Office.

Page 82 GAO/RCED-97-113 Intellectual Property
Appendix X 

Copyright Office’s Analysis Showing Fees

Required for Self Sufficiency

Table X.4: Fees Per Registration for Full Cost Recovery Copyright Office Outside the Library

Decrease in Registrations Decrease in Registrations Decrease in Registrations Decrease in Registrations

Year 1

30% Loss

Year 2

15% Loss

Year 1

20% Loss

Year 2

10% Loss

Year 1

10% Loss

Year 2

5% Loss

Year 1

5% Loss

Year 2

2.5% Loss

Expenses $44,890,000 $39,890,000 $44,890,000 $39,890,000 $44,890,000 $39,890,000 $44,890,000 $39,890,000

Less Other

Service Fees –$2,000,000 –$2,000,000 –$2,000,000 –$2,000,000 –$2,000,000 –$2,000,000 –$ 2,000,000 –$ 2,000,000

Plus

Mandatories $1,000,000 $1,000,000 $1,000,000 $ 1,000,000

Adj. Expenses $42,890,000 $38,890,000 $42,890,000 $38,890,000 $42,890,000 $38,890,000 $42,890,000 $38,890,000

Registrations 420,000 357,000 480,000 432,000 540,000 513,000 570,000 555,750

Fees Per

Registration $102 $109 $89 $90 $79 $76 $75 $70

Assumptions:

Congress mandates full cost recovery.

Fiscal 1997.

Year 1 expenses include $1 million for mandatory pay increases.

Year 2 expenses are less $5 million relocation costs.

Enactment of legislation authorizing fee increases.

Current registrations (600,000) decrease when fees are increased.

Other fees are level.

Source: Copyright Office.

Page 83 GAO/RCED-97-113 Intellectual Property
Appendix XI 

Regression Analysis of Copyright

Applications

This appendix discusses the regression model we developed to examine

the effect that fee changes have had on copyright applications over the

past 11 years.1

 We developed a statistical regression model for this

analysis that examined whether several factors are associated with

changes in applications. We found that although applications were

negatively correlated with fees—that is, fee increases were correlated with

reduced applications—the primary factor associated with the level of

applications was the general level of economic activity as measured by the

Gross Domestic Product (GDP). The discussion in this appendix describes

the (1) purpose and limitations of the analysis, (2) data sources used,

(3) structure of the model, and (4) model’s results.

Purpose and

Limitations of This

Analysis

The primary purpose of this analysis was to measure how copyright

applications change in response to fee changes. In order to do this, we

constructed a regression model that analyzed several factors that we

hypothesized, on the basis of economic reasoning, would be related to the

level of copyright applications. For example, a considerable amount of

economic literature explores the relationship between research and

development expenditures and patenting experience. While patents would

likely be more related to research expenditures, we hypothesized that one

of the driving factors for copyright applications would be the general level

of economic activity. Thus, the basic model related applications to the

level of economic activity, as measured by the GDP, the application fee, and

dummy variables to control for seasonal variation in applications

throughout the year.

An important caveat to this analysis is that there are likely to be factors

that influence copyright applications that are unknown or unmeasurable.

Thus, this model may not be highly predictive. In particular, if we wanted

to use the model to predict the effect of fee increases on applications, the

greater the fee increase we want to analyze, the less valid the model would

be in predicting the drop in applications that would result. This is because

the results of econometric models are best used for analyzing the effects

of small changes in the independent factors. In this case, however,

because our model results are stable and statistically significant, the

1

This time period was required by the fact that “receipt of claims,” or copyright applications, have only

been recorded since 1986. As such, we used a quarterly model over this 11-year time period. An

alternative measure of quantity could have been registrations of copyrights, but this would pose some

problems. First, applications that are rejected because they are incomplete probably represent those

that are of minimal economic benefit to the applicant. These same applicants are also likely to be the

most deterred by an increase in the fee. Thus, registrations are not likely to be the best measure to use

for studying the effects of fee changes.

Page 84 GAO/RCED-97-113 Intellectual Property
Appendix XI 

Regression Analysis of Copyright

Applications

model is a reasonable tool for analyzing the effects of larger changes in the

independent factors, such as fee levels, on the level of applications.

Sources for Data All data on copyright applications as well as information on application

fees were obtained from the Copyright Office. The applications data were

obtained for total applications and also for certain specific categories of

applications, as discussed later. Additionally, we received information on

applications that were cancelled because they were not fully paid for after

the 1991 fee increase. Data on specific categories of applications and on

cancellation were available on a fiscal year basis, which required that

these data be apportioned for a quarterly model.

We obtained data on GDP and the implicit price deflator for GDP from Data

Resources, Inc.

Structure of the Model The basic hypothesis underlying this analysis is that copyright applications

vary over time and that this variation is related to changes in the level of

macroeconomic activity, the fee charged for copyright applications, and

seasonal variation in applications over the course of the year. Regarding

GDP, we hypothesize that there may be a lag in the relationship between

GDP and applications. We also hypothesize that because fee increases are

usually announced ahead of time, applications may surge in the period

prior to a higher fee. The basic quarterly model is thus:

 Qt

c

= f(GDPlag, feet, seasonal dummies, surge),

where:

Qt

c

 is the number of applications submitted in period t, GDPlag is the level

of real GDP in some lagged time period, fee is the real level of the fee in

time period t, seasonal dummies are two dummy variables for winter and

summer, and surge is a dummy variable that takes a value of 1 in the

quarter before a nominal fee increase and a value of zero in all other

quarters.

Measurement of

Dependent Variable

The measurement of the dependent variable—the number of copyright

applications per quarter—was not straightforward. In defining

applications, we would prefer to use total applications, not accounting for

different categories of copyrights. However, for three categories of

Page 85 GAO/RCED-97-113 Intellectual Property
Appendix XI 

Regression Analysis of Copyright

Applications

applications, there were “rule changes” in 1991 that made their inclusion in

this analysis problematic.

First, filings of serials were changed in 1991 so that applicants were

allowed to bundle several issues over a 3-month period and file them

together. In doing so, they were grandfathered in at the old fee: They

continued to pay only $10 per issue for the bundled set. This caused filings

for Class SE, the original serials category, to drop after 1991 and a new

category called Group SE to be established. Unfortunately, however,

within one Group SE filing there are a bundle of issues and thus the counts

over time are reduced not because there were necessarily any fewer

filings, but because some of them are being bundled together. At the same

time, another category, Class RE, which are renewals, also had a drop-off

in applications because renewals became automatic after 1991.2

 We were

told by a Copyright Office official that in the office’s own analyses of

applications over time, Class RE, Class SE, and Group SE are usually

eliminated.

As suggested by the Copyright Office, we used one measure of

applications in our model that excluded these three categories. However,

in an effort to retain the data on serials, which constitute a large category

of applications, we made an estimate of the number of individual issues

contained within the average Group SE filing.3

 Doing this allowed us to

estimate an alternative measure of applications that only eliminated Class

RE from the total number of applications filed each quarter.

For both measures of applications, we also reduced the original “receipt of

claims” data by the number of cancellations of applications that occurred

due to lack of full payment of the fee. Data on cancellations, available for

fiscal years but not quarterly, were obtained from the Copyright Office.

To summarize, there are two measures of applications that we used. The

first took the total number of applications in a quarter and subtracted the

2

In particular, after the fee increase in 1991, many applications were received that included the

pre-1991 application fee. The copyright office followed up with letters asking for an additional $10 to

process the application. Many of those additional fees were never received. This is important because

it may indicate that the applicant was put off by the additional fee and chose to let the application be

cancelled. In order to take this into account, the total application counts were reduced by the number

of cancelled applications.

3

To estimate the number of issues contained within a Group SE filing, we obtained information from

the Copyright Office on the revenues received for Group SE filings. Since each issue contained within

a Group SE filing still retained the $10 fee, we divided the revenue figure by 10 to get the number of

Group SE filings in each year. This allowed us to retain both Class and Group SE filings in the analysis,

but it should be noted that since Group SE filings still retained the $10 fee, including these applications

in the analysis poses some conceptual problems.

Page 86 GAO/RCED-97-113 Intellectual Property
Appendix XI 

Regression Analysis of Copyright

Applications

number of Class SE, Group SE, Class RE, and cancelled (for nonpayment)

applications. The second measure only deleted Class RE and cancelled

applications but retained Class SE and Group SE by estimating the number

of issues contained within an average Group SE application.

Measurement of

Independent Variables

There are five independent variables included in the model.

Real GDP As noted earlier, the theoretical basis for including GDP is that one would

expect applications to rise and fall with the level of economic activity

since this may be a factor in determining how many copyrightable works

are developed. For example, during an economic boom, new magazines

might be established, more financing might be available for people looking

to write a novel, and so forth. Conversely, during a recession, newsletters

and magazines might discontinue publishing, fewer contracts might be let

for songwriters, and financing for creative projects might be more difficult

to obtain. Additionally, since some time might elapse from when projects

are begun until copyrights are filed, there could be some lag between the

economic activity that gives rise to copyrights. We found that a lag of 2

quarters was the best relationship. Therefore, the value of GDP entered into

the model is real GDP (in 1996 dollars) for the period 2 quarters prior to the

given quarter of each observation.

Application Fee The application fee is the variable of interest in this model. Although

during the 11 years of this analysis there was only one nominal fee

increase, inflation was effectively reducing the real fee before and then

after the nominal fee increase. We used the implicit price deflator for GDP

to adjust the nominal fee into a real fee.

Seasonal Dummy Variables Two variables were calculated with a value of 1 for a particular quarter

and 0 for all other quarters. The first of these was for the second quarter of

the fiscal year, and the second was for the fourth quarter of the fiscal year.

Thus, the first variable would measure whether applications were

systematically higher or lower during winter and the second would

measure any systematic difference during summer.

Page 87 GAO/RCED-97-113 Intellectual Property
Appendix XI 

Regression Analysis of Copyright

Applications

Surge Variable A dummy variable was established that had a value of 1 for the first

quarter of the 1991 fiscal year—right before the nominal fee increase—and

a value of 0 for all other quarters. This was needed because the fee

increase was preannounced and, as such, could be expected to cause

people to rush to file applications in anticipation of the higher fee. This

dummy variable is intended to measure any effect on applications in the

quarter before the announced fee increase.

Model Results and

Interpretation

Table XI.1 presents the results of two specifications of the model:4 for

specification one the measure of applications was used that eliminates

Class and Group SE, and the second retains these categories. All

continuous variables—the number of applications, the fee, and the

GDP—are in natural logarithms.

Table XI.1: Regression Results for

Copyright Applications Coefficient estimates

Explanatory factor Specification one Specification two

Fee, 1996 dollars –.09 (–3.7) –.11 (–4.8)

2 quarter lag of GDP, 1996 dollars .92 (10.0) .73 (8.7)

Dummy for winter quarter .05 (4.4) .05 (4.9)

Dummy for summer quarter –.03 (–2.7) –.03 (–2.8)

Dummy for quarter before fee increase .13 (3.8) .12 (3.9)

Summary statistics

n 44 44

Adjusted R-square .80 .77

Note: t-statistics are in parentheses.

Source: GAO analysis.

We found all of the independent variables included in this model to be

statistically significant and to have the expected effect. Moreover, results

were reasonably stable across the two specifications with different

measures of the dependent variable. In particular, our results indicate that

if fees increase by 1 percent, applications would be expected to fall (the

coefficient is negative) by about .1 percent. Similarly, if GDP rises by

1 percent, applications would be expected to rise by somewhat less than

1 percent. The dummy for the quarter before the price rise suggests that

there was about a 12 to 13 percent rise in applications for that quarter

4

We tested for autocorrelation in this model and found only minimal correlation of the error terms.

Results were affected only slightly by a correction for autocorrelation.

Page 88 GAO/RCED-97-113 Intellectual Property
Appendix XI 

Regression Analysis of Copyright

Applications

because of the expected increase in the fee the following quarter. The

seasonal dummies show that applications are about 5-percent higher

during the winter and about 3-percent lower during the summer. Overall,

our findings indicate that GDP, or the general level of macroeconomic

activity, appears to be the driving factor in the level of copyright

applications over time. Changes in the real fee have a small but

statistically significant effect.

We also want to reemphasize that this model may not be highly predictive.

In particular, if we wanted to use the model to predict the effect of fee

increases on applications, the greater the fee increase we want to analyze,

the less valid the model would be in predicting the drop in applications

that will result. This is because the results of econometric models are best

used for analyzing the effects of small changes in the independent factors.

Page 89 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 90 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

Page 91 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

Now on p. 3.

See comment 1.

Now on p. 3.

See comment 2.

Now on p. 3.

See comment 3.

Now on p. 3.

See comment 4.

Now on pp. 4 and 34.

See comment 5.

Now on p. 4.

See comment 6.

Now on p. 5.

See comment 7.

Page 92 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

Now on pp. 16, 18,

26, and 28.

Now on pp. 5 and 29.

See comment 8.

See comment 9.

See comment 10.

Now on p. 5.

See comment 11.

Now on p. 8.

See comment 12.

Page 93 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

Now on p. 18.

See comment 13.

Now on p. 18.

See comment 14.

Now on p. 19.

See comment 15.

Now on p. 22.

See comment 16.

See comment 17.

Now on p. 22.

See comment 18.

Page 94 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

See comment 19.

Now on p. 23.

See comment 20.

Now on p. 23.

See comment 21.

Now on p.25.

See comment 22.

Now on p. 24.

See comment 23.

Now on p. 25.

See comment 24.

Page 95 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

See comment 25.

Now on p. 26.

See comment 26.

Now on p. 26.

See comment 27.

Now on p. 27.

See comment 28.

Now on p. 28.

See comment 29.

Now on p. 29.

See comment 30.

Page 96 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

Now on p. 29.

See comment 31.

Now on p. 30.

See comment 32.

Now on p. 30.

See comment 33.

Now on p. 32.

See comment 34.

Now on p. 33

See comment 35.

See comment 36.

See comment 37.

Page 97 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

The following are GAO’s comments on the Department of Commerce’s

letter dated April 18, 1997.

1. In our draft report, we did not include certain miscellaneous fees that

were not specifically identified as either patent or trademark fees. Upon

further review, we agree with the Department that these miscellaneous

fees should be included as patent fees and adjusted the statistics in our

report accordingly.

2. We revised the executive summary as suggested.

3. We did not revise the report as suggested by the Department. We believe

the report sufficiently shows throughout that the current patent fee system

was established by law and that it is intentionally designed to recover most

costs through issue and maintenance fees. The report also notes in chapter

2 and appendix IV that U.S. patent fees are lower than those in Europe and

Japan.

4. We revised the executive summary to show that trademark income is

received prior to examination.

5. We revised chapter 3 to show that PTO does not accept incomplete

trademark applications.

6. See comment 1.

7. We did not revise the report because, as we have noted in earlier reports

on patent pendency, we believe our statistics—which include design

patents and calculate pendency for the entire fiscal year rather than the

end of the last quarter of the fiscal year—provide a better appraisal of

patent pendency than the statistics reported by PTO.

8. We revised the executive summary and chapter 2 to emphasize that the

additional fees charged are not commensurate with the additional

“pendency” created. Chapter 2 already made the point that it was not

possible to make a direct correlation between extension fees and the costs

of the delays.

9. We did not revise the report further than as discussed in comment 8

because chapter 2 notes that we are discussing only those delays for which

extension fees are charged rather than all delays.

Page 98 GAO/RCED-97-113 Intellectual Property
Appendix XII 

Comments From the Department of

Commerce

10. We did not revise the executive summary because the point made by

Commerce is that filer delays should decrease because of the change in

the patent term. Our point was that the fees charged do not discourage

filer delays.

11. We revised the executive summary to show that most trademark

revenues come from statutory fees.

12. We agree with Commerce and noted in our conclusions in chapter 2

that PTO is taking the correct approach with this study.

13. We revised the language in chapter 1.

14. We revised the language in chapter 1 as suggested.

15. We revised the language in chapter 1 as suggested.

16. We did not revise the introductory paragraph; however, these points

are made in the remainder of chapter 2.

17. See comment 16.

18. We did not revise this section of chapter 2 because it already notes that

it was the Congress that created different fees for large and small entities.

19. We did not revise this section of chapter 2 because the purpose here is

to show only that, after the change in the law, large entities would pay

twice the amounts charged small entities.

20. We revised chapter 2 to clarify that the surcharge fees are not excess

fees but a replacement for appropriated funds.

21. See comment 1.

22. We added a paragraph to chapter 2 to show that fiscal year 1995 had an

unusually large number of filings because of the change in the patent term

and that, correspondingly, filing fees were also abnormally high for that

year.

23. We revised the amount shown as revenues for large entities in chapter

2. However, we did not adjust the percentages shown for large and small

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Comments From the Department of

Commerce

entities because, after discussions with PTO officials, we determined that

the percentages we had included were correct.

24. We revised the language in chapter 2 as suggested.

25. We revised the language in chapter 2 to reflect Commerce’s comment.

26. We did not revise the percentage of maintenance fees paid by large

entities because we determined that the percentage we included in our

draft report was correct.

27. We revised the language in chapter 2 as suggested by Commerce.

28. We revised the language in chapter 2 to reflect Commerce’s comment.

29. We revised the language in chapter 2 to reflect Commerce’s comment.

30. See comment 8.

31. We revised the language in chapter 2 to reflect Commerce’s comment.

We did not include Commerce’s suggested language that most government

accounting systems cannot provide unit costs for particular services

because we do not have such information available to us on these other

systems.

32. We revised the language in chapter 2 as suggested by Commerce.

33. We revised the language in chapter 2 as suggested by Commerce.

34. We did not revise the legal citation. After discussions with PTO officials,

we determined that the citation shown in the draft was correct. Public Law

97-247 specifies that trademark fees be used exclusively for the processing

of trademark registrations and for other services and materials related to

trademarks. Public Law 102-204 modified this provision to allow

trademark fees also to be used to pay a proportion of overall PTO

administrative costs.

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Comments From the Department of

Commerce

35. We did not revise the language in chapter 3 as suggested because this

information is already included in the section.

36. See comment 1.

37. See comment 1.

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Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

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Comments From the Library of Congress

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See comment 1.

See comment 1.

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See comment 2.

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Comments From the Library of Congress

See comment 3.

See comment 4.

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Comments From the Library of Congress

See comment 5.

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Comments From the Library of Congress

See comment 6.

See comment 7.

Now on p. 37.

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Comments From the Library of Congress

Now on p. 37 .

See comment 8.

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Comments From the Library of Congress

See comment 9.

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Comments From the Library of Congress

See comment 10.

See comment 11.

See comment 12.

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Comments From the Library of Congress

See comment 13.

See comment 14.

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Comments From the Library of Congress

Now on pp. 45 and 46.

See comment 15.

See comment 15.

See comment 16.

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Comments From the Library of Congress

See comment 17.

See comment 18.

See comment 19.

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Comments From the Library of Congress

See comment 20.

Now on p. 48.

See comment 21.

See comment 21.

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Comments From the Library of Congress

See comment 21.

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Comments From the Library of Congress

See comment 22.

See comment 23.

See comment 24.

See comment 25.

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Comments From the Library of Congress

Now on p.44.

See comment 26.

See comment 27.

See comment 28.

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Comments From the Library of Congress

See comment 29.

See comment 30.

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Comments From the Library of Congress

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Comments From the Library of Congress

The following are GAO’s comments on the Library of Congress’s letter

dated April 16, 1997.

1. The Library notes that the Copyright Office obtains funding in three

ways: (1) fees set by law or authorized by law to be set by the Register,

(2) appropriations, and (3) deductions from royalty payments. We do not

agree that our report “oversimplifies the fee structure,” because we made

this same point in the report. We included table 4.1 for the specific

purpose of comparing fee revenues and appropriations since the last

statutory fee increase.

2. The Library emphasizes that it is the Congress which determines how

copyright fees should be set and, to date, has chosen to cover copyright

costs through a combination of fees and appropriations. As the Library

acknowledges in its comments, our report makes this same point. It is also

important to recognize that our report does not make any

recommendations to the Congress that fees be raised or that the Copyright

Office become self-sustaining. Rather, we point out that, in view of the

manner in which the Congress has chosen to fund the patent and

trademark processes—both of which were funded partially at one time by

appropriations—it may also wish to consider making the copyright

process self-sustaining through fees. Ultimately, the issue of how the

copyright process should be funded is a matter of policy that depends on a

number of factors and requires a decision that only the Congress can

make.

3. We do not suggest that the Copyright Office has been remiss in “pressing

for full cost recovery” as the Library states in its comments and have

added information showing the Copyright Office’s support for a fee

increase. As we note in our response to comment 2, however, we believe

this is an issue for the Congress. We discuss the Copyright Office’s

documented positions on fee increases since the last statutory fee increase

because we believe the Congress in its own deliberations should be aware

of the positions the Copyright Office has taken on the need for fee

increases, the rationales for these positions, and our evaluation of these

rationales. Thus, while we revised the report to show the Copyright Office

has supported the need for fee increases, we also believe it is important to

discuss (1) the opportunity to raise fees to cover inflation in fiscal year

1995 and (2) the Register’s testimony on S. 1961 in September 1996. We

also cite the Register’s position on this issue as discussed with us in

March 1997 and provide additional information based on our discussion

with Library officials in April 1997.

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Comments From the Library of Congress

4. Our report makes repeated references to the legislative history of

copyright fees and emphasizes that the structure now in place was

established by the Congress and that the Congress chose to fund the

Copyright Office with a mixture of fees, royalty payments, and

appropriations in the past. The focus of our report is on what has occurred

since the last statutory fee increase went into effect in 1991. We revised

the language where appropriate in the report to address this point.

5. We agree that the legislative history for the most recent statutory fee

increase indicated a congressional intent to continue funding the copyright

process through a combination of fees and appropriations. However, as

our report illustrates, much has changed since the last statutory fee

increase, including PTO’s having become totally dependent on fees. Our

report notes only that, in light of these recent events, the Congress may

wish to reconsider the manner in which the copyright process is to be

funded in the future.

6. See comments 4 and 5.

7. See comments 4 and 5. We are not questioning the Copyright Office’s

actions related to fee increases in 1976, 1982, 1984, 1987, and 1991, when

they recognized and supported the need for fee increases. Again, we focus

on what has happened since the last statutory fee increase. We have added

information showing that the Copyright Office currently supports a fee

increase. In discussing the decision on increasing fees for inflation, our

report notes that the Register raised fees for special services. We also

point out that the Copyright Office has set a fee of $270 for full-term

storage of published materials and, in fact, we use this in our discussion of

the high costs of storing unpublished materials without charging an

additional fee.

8. The Library says that “only once” did the Register choose not to raise

statutory fees for inflation. As our report states, this one time was the only

time the opportunity has arisen since the last statutory fee increase.

According to the Copyright Office’s own study of the need for an inflation

adjustment, a fee increase to cover inflation would have been

cost-effective, yet the Acting Register chose only to raise certain

discretionary fees. The Library commented in footnote 12 that the report

did not note that the fee increase, if made, would not have “made fees

come close to recovering costs.” We did not make this statement because,

by its very nature, an inflation adjustment could not make the Copyright

Office self-sustaining if it were not self-sustaining before. Our point in this

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Comments From the Library of Congress

section of chapter 4 is not that an inflation adjustment would have made

the Copyright Office self-sustaining but rather that the increase would

have kept the ratio of fees to costs closer to that established by the

Congress at the point of the last statutory fee increase.

9. Our report does not attempt to determine the exact cost of the copyright

process but rather uses the costs that the Copyright Office and the Library

use in their own documents, including budget submissions. We recognize

that the Library may be providing some services to the Copyright Office at

no cost and that the Copyright Office may be incurring costs that are not

directly related to the copyright process. For purposes of this report, we

consider the costs of the copyright process to be those now being covered

by copyright fees and Copyright Office appropriations. We also consider

these costs as the Copyright Office is now configured, not as it might have

been configured under the provisions of S. 1961. To become self-sustaining

as now configured, the Copyright Office would have to raise fees to a level

that would at least cover appropriations of the Copyright Office.

We also note in our report that the Copyright Office is planning to initiate

a study to determine the costs of the copyright process and the fees that

would be necessary to recover these costs. The results from such a study

should be beneficial to the Congress if it does decide to consider a

statutory fee increase.

10. See comment 9. Again, the purpose of our report was not to discuss the

merits of an agency such as that proposed by S. 1961 but rather to show

that (1) the scenario presented in the hearing was the worst case and

(2) the costs and fee increases needed could change significantly under

various assumptions. We recognize that, if an agency such as that

envisioned under S. 1961 had been created, decisions would be needed on

how to handle certain items now being provided to the Copyright Office at

no cost. However, this would also seem to be true—as the Library notes in

comment 11—for the $13 million in free materials being provided to the

Library by the Copyright Office each year. Thus, if accounting adjustments

are necessary—a point not necessary for the discussion here—it seems

that they would have to be made for both the Library and the Copyright

Office.

11. See comment 10. Our report does not discuss the value of deposits

acquired through the copyright process because this factor—while

certainly of importance to the Library and the nation as a whole—is not

relevant in determining how copyright fees are to be set. Our report points

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Comments From the Library of Congress

out that a copyright fee increase should not materially affect the Library’s

ability to obtain free copies of materials for its collections because (1) by

law, the Library still has access to anything that is submitted for copyright

registration or is published in the United States and (2) it rarely takes any

unpublished materials for its collections.

12. Our report does not discuss the fees necessary for recovering costs to

the government as a whole for the reasons discussed in our response to

comments 9 and 10. Our report also does not discuss these other costs as

they relate to patents and trademarks. For purposes of this report, we use

the costs necessary to fund the agencies as now configured, using the

agencies’ own documentation for these costs. The issue of whether there

are other intellectual property costs—for example, in areas such as treaty

negotiation, judicial proceedings, Customs protection, etc.—is beyond the

scope of this report. Also, our report provides reasons why we disagree

with the Register’s estimates. We point out that, while these estimates

were presented as a likely outcome of the Copyright Office’s becoming

self-sustaining under S. 1961, the Register did not disclose that they were

in fact a worst-case scenario and that the Copyright Office had prepared

other estimates that would lead to other outcomes under other

assumptions. In addition, as noted in the report, we do not believe some of

these costs were necessarily reasonable even under the scenario

presented. For a discussion on the Library’s point on our regression

analysis, see comment 15.

13. Our report does not discuss “three- or four-fold increases” in fees as

reasonable if the Copyright Office were to become a part of an IPO, as

stated by the Library in its comments. The proposal to make the Copyright

Office part of the IPO was withdrawn and, to our knowledge, is not now

under consideration. Our report does not discuss “increasing fees by more

than 100%” because both the Register and the Congressional Budget Office

(CBO) estimated that the Copyright Office could become self-sustaining as

now configured by an approximate doubling of fees.

14. We address the cost projections for S. 1961 in our report because

(1) these were the projections used by the Register in her prepared

statement for the hearing before the Senate Committee on the Judiciary

and (2) S. 1961 was the only proposal to make the Copyright Office

self-sustaining that had been made—and on which the Copyright Office

had taken a published position—since the last statutory fee increase went

into effect in fiscal year 1991. In addition, during the discussion period

following the Register’s testimony, the Chairman questioned the

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Comments From the Library of Congress

projections and noted that he had asked GAO to study the fees issue. The

only fee projection the Register made was for a fivefold increase—the

worst-case scenario developed by the Copyright Office. We believe that it

is important for the Committee to know that the Copyright Office had

developed 12 separate scenarios that had different outcomes using

different assumptions and that the scenario presented at the hearing was

not only the worst-case scenario but also included costs we consider

questionable. Otherwise, the Committee could be left with the impression

that the fivefold increase is a likely scenario for making the Copyright

Office self-sustaining. As we discuss in the report, this is not the case, as

CBO and the Register herself later said that, as presently configured within

the Library, the Copyright Office could probably become self-sustaining by

doubling current fees.

15. Based on the Library’s comments, we believe that it used our model

inappropriately. The report states that our regression analysis indicates a

decrease in applications of about 10 percent in the first year if fees were

doubled but also that a regression model such as the one we used tends

not to be as highly predictive at this high a level of fee increase.

Consequently, the regression analysis would be even less predictive at

even higher levels of fee increases. As noted by the Library and our report,

there is no precedent for fee increases beyond 100 percent.

In discussing the effects of a fee increase on applications, we also believe

it is important to consider what applications would be affected as well as

the impact on the Copyright Office and the Library. As noted in our report,

for example, Copyright Office officials said that some types of applications

would be affected more than others by a fee increase. After the most

recent statutory fee increase, applications for unpublished works

decreased at a rate higher than published works. This would seem to limit

any potentially harmful effects on the Copyright Office and the Library

because (1) a decrease in unpublished submissions would reduce the

Copyright Office’s workload and storage costs and (2) the Library rarely

takes unpublished submissions for its collections. Similarly, according to

Copyright Office officials, higher fees might cause authors and composers

to submit works as collections rather than individual works. This would

appear to reduce the Copyright Office’s workload without reducing the

works available to the Library.

16. We agree that projecting revenues depends on being able to project the

number of applications and that cost recovery depends upon the public’s

being willing to pay the necessary fees. However, this is true of any

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Comments From the Library of Congress

process—including patents and trademarks—where costs are recovered

through user fees. Thus, it seems appropriate for the Congress to consider

what it wants to achieve through the process and who should pay. The

user then must determine whether the benefits are worth the costs. The

real issue here is that, if fees are raised to a level necessary to make the

Copyright Office self-sustaining, there may be uncertainties in projecting

the fees that will be necessary initially because it may be difficult to

predict the behavior of applicants. However, this also would appear to

have been an issue for PTO as well—whose costs and fees are much

higher—when it became self-sustaining. We do not believe that this

concern should be a bar to the Congress’s consideration of funding the

Copyright Office through fees.

17. See comment 16.

18. Our report notes that the Register of Copyrights now supports making

the copyright process self-sustaining within the Library. Furthermore, we

do not use the term “official policy” in discussing the management report

cited in the Library’s comments. However, we believe that we are correct

in citing the findings of the management report in our own report. The

official identified in the Library’s comments as “an advisor to the

Librarian” was in fact a senior Library official and former Acting Register

of Copyrights who was detailed by the Librarian to conduct the review of

the Copyright Office’s operations. The report was provided to us by the

advisor himself and is identified on its face as a Library of Congress

document. There are no references in the report to its being a draft, a

personal opinion, etc. The report was used in a discussion we held with

Copyright Office officials and the advisor as containing the positions of the

Library, and we were given no caveats on its use. We have clarified our

report to show that the management report is an internal Library of

Congress document.

19. The Library states in its comments that the “implication in the report

that full-cost recovery would be met if Congress’s annual appropriation of

$10 million could be eliminated is simplistic” and that there are broader

issues at stake regarding who should pay costs of a public nature. We

believe that the message in our report is accurate as presented: While the

Copyright Office may “support the goal of moving toward full-cost

recovery,” it nevertheless has opposed its current costs being totally

recovered through fees. We understand the Library’s position that there

are other costs allocated to the Copyright Office that are not directly

related to the registration process; however, we note that this is also an

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Comments From the Library of Congress

issue for the patent and trademark processes—where costs and fees are

much higher.

Also, the Library’s comments raise other issues. For example, it appears

that there may be questions regarding what costs should be allocated to

the copyright process. We agree that, in order to determine whether

copyright costs should be recovered through fees, the costs actually

attributable to the copyright process within the Library should be

identified. Thus, if (1) the Library is providing services to the Copyright

Office that are covered by Library-specific appropriations and (2) the

Copyright Office is providing services under its own funding that are not

directly related to the copyright process, there may be a need for some

reallocation—an issue beyond the scope of this report. It is our

understanding this issue will be addressed in the Copyright Office’s

planned study of costs and fees that, according to Library officials, will

help the Copyright Office determine what costs should be charged to the

copyright process and what costs should be recovered through fees. In the

interim—and for the purposes of this report—we assumed the costs of the

Copyright Office were the costs of the copyright process within the

Library. Consequently, to become self-sustaining as now configured, fees

would have to be increased to cover amounts now covered by Copyright

Office appropriations.

Ultimately, deciding what should be recovered through fees is a matter of

policy that only the Congress can determine. As noted by the Library in its

comments, the Congress in the past has chosen to fund the copyright

process through a combination of fees and appropriated funds. Our point

is that—given the direction the Congress has now taken with patent and

trademark fees as well as proposals by others that copyright fees be

raised—the Congress may wish to consider this issue again.

20. See comments 12 and 19.

21. See comment 11. Our report notes that the Library normally takes only

copies of published materials for its collections. Consequently, the

Library’s collections should not suffer from a fee increase because, even if

there is a decrease in applications, the Library still would have access to

all materials that are submitted for registration and is entitled by law to

free copies of all works published in the United States even if not

submitted for registration. In its comments, the Library says that it does

not believe persons would comply with the provisions of section 407 to

provide two copies of unregistered publications. We have no way to

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Comments From the Library of Congress

confirm or dispute this belief. However, if there is a problem, it would

require the offending party to decide not to publish, not to seek

registration, or to ignore the law and face penalties. Ultimately, the

question is to what extent eliminating the risk is worth the cost, and again,

this is an appropriate matter for the Congress to consider.

22. The Copyright Acquisition Division may be an example of a cost to the

Copyright Office that is not directly tied to the copyright process if, as

noted in the Library’s comments, it “exists for the purpose of requesting or

demanding deposits not sent in voluntarily that are identified as desirable

for the Library’s collections.” If not related to the copyright process, this

cost might be allocated to the Library, thereby reducing by about

$1 million the copyright fees that would be necessary to recover costs.

23. Our report does not intend to imply that the Register “misled the

Senate Judiciary Committee.” Rather, as discussed in our report, we do

not believe that the fee projections were presented in the proper context.

If, as stated in the Library’s comments, the Register “has an obligation to

present to the Congress the worst-case scenario that could result from

their proposed legislation,” we believe that the Register also had an

obligation to disclose that it was in fact the worst-case scenario and that,

under different assumptions, other less costly scenarios could be

projected. Instead, her written testimony stated, “(O)ur preliminary

analysis indicates that, if our operational costs otherwise remained the

same, becoming self-supporting outside of the Library would entail a

five-fold increase in fees (from $20 to the $100 range).” During the

discussion period following the delivery of the prepared statement, the

Chairman questioned the Register concerning her use of the worst-case

scenario among many different possibilities. The Chairman also

questioned why the Register found the most drastic of all estimates

provided by the Copyright Office study to be the minimum. As noted

above, the Chairman also told the Register he had asked GAO to look into

the fees issue.

24. See comment 23.

25. We do not question these other scenarios in the report because they

were not presented at the hearing. We do not accept them as fact but note

only that the Register made no mention of them.

26. See comments 23, 27, 28, 29, and 30.

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27. We take no position on the merits of S. 1961. However, if the Copyright

Office had problems with the proposed legislation such as the one

cited—having each of the three agencies cover one-third of overhead costs

when their overhead-related costs would vary—this is the very type of

issue that should be surfaced in a hearing such as the one held. In fact, we

believe that all of the issues raised in the Library’s comments regarding the

effect of a fee increase or organizational move on applications, costs, the

Library’s collections, accounting standards, etc. were appropriate issues to

be raised. This is why we believe the Register should have presented cost

projections under various assumptions rather than stating that fees would

increase fivefold.

28. In our report, we note not only that the Register presented the

worst-case scenario at the hearing but also that some of the costs and

application estimates used in the scenario were questionable. As one

example, we noted that the projection included moving into new space at

a cost of $32 per square foot and did not address the savings that might be

possible if the Copyright Office were to remain located in Library space at

no cost. In its comments, the Library said that, to its knowledge, housing

an executive agency within a legislative entity is unprecedented in the

history of the U.S. government and that doing so would contradict

Statement of Federal Financial Accounting Standards number 4. The

Library said that to “expect the Copyright Office to contemplate such an

unprecedented move” was unwarranted.

Our report does not say we expect the Copyright Office to contemplate

remaining in Library space at no expense nor do we believe the Copyright

Office should contradict federal cost-accounting standards. Again, our

concern is that these issues should have been raised in a proper context at

the hearing instead of simply stating fees would have to increase fivefold.

We do not take any position on whether the Copyright Office could remain

in Library space if it had become a part of the IPO. This issue is moot,

because there is no current proposal to make the Copyright Office part of

a wholly-owned government corporation. However, the Congress could

have allowed the Copyright Office to be housed rent-free at the Library if

the Congress wanted to do so, particularly considering the Library was to

continue to receive free materials worth $13 million a year. Similarly, the

Congress could have provided for the Library’s and the Copyright Office’s

sharing other items, such as computer systems. Again, the issue is that we

believe the Register should have placed her projections within a better

framework.

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Comments From the Library of Congress

Concerning cost-accounting standards, our report does not suggest—nor

do we in any way support—the Copyright Office’s not following applicable

standards. Any discussion of specific cost-accounting standards is beyond

the scope of this report.

29. Our point is that, if applications decrease, workload should decrease.

We do not suggest the Copyright Office would have been able to decrease

staffing but rather note that this issue was not discussed when the Register

presented her projections on the impact of a fee increase at the hearing.

30. See comment 28.

Page 131 GAO/RCED-97-113 Intellectual Property
Appendix XIV 

Major Contributors to This Report

Resources,

Community and

Economic

Development Division

Allen Li, Associate Director

Amy D. Abramowitz

Frankie Fulton

John P. Hunt, Jr.

Mitchell Karpman

Deborah Ortega

Paul Rhodes

Mindi Weisenbloom

(307746) Page 132 GAO/RCED-97-113 Intellectual Property
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