79–006

106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 106–722

PATENT AND TRADEMARK OFFICE REAUTHORIZATION ACT

JULY 11, 2000.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. COBLE, from the Committee on the Judiciary,

submitted the following

R E P O R T

[To accompany H.R. 4034]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill

(H.R. 4034) reauthorizing the United States Patent and Trademark

Office, having considered the same, reports favorably thereon without amendment and recommends that the bill do pass.

TABLE OF CONTENTS

Page

Purpose and Summary .............................................................................. 1

Background and Need for the Legislation ................................................ 2

Hearings ...................................................................................................... 4

Committee Consideration .......................................................................... 4

Committee Oversight Findings ................................................................. 4

Committee on Government Reform Findings .......................................... 4

New Budget Authority and Tax Expenditures ........................................ 4

Congressional Budget Office Cost Estimate ............................................ 4

Constitutional Authority Statement ......................................................... 7

Section-by-Section Analysis and Discussion ............................................ 7

Agency Views .............................................................................................. 7

Changes in Existing Law Made by the Bill, as Reported ....................... 8

PURPOSE AND SUMMARY

The Patent and Trademark Office (PTO) is a self-sustaining Federal agency which subsists exclusively on revenue generated from

the collection of fees imposed on the inventor and trademark communities. Since 1992, however, more than $500 million in PTO fees

have been diverted to other programs. The purpose of H.R. 4034,

the ‘‘Patent and Trademark Office Reauthorization Act,’’ is to ensure that the PTO is vested with the authority to retain all the

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user fees it collects for agency expenditures. This change will maximize the ability of the PTO to serve the growing demand for its

services by the inventor and trademark communities.

BACKGROUND AND NEED FOR THE LEGISLATION

PTO FUNDING DIVERSION: HISTORY

Amid funding scarcity in 1982, Congress dramatically increased

fees associated with obtaining and maintaining trademark registrations and patents to recover the costs of processing patent and

trademark applications. For the first time, fee income would be

made available to the PTO on a dollar-for-dollar basis. Certain activities (e.g., high-level management) would remain funded through

appropriations derived from taxpayer revenues, and not fees.

Under this new system, Congress had to appropriate the fee revenue to the PTO in the annual Commerce-State-Justice appropriations bill. The amount of the fees, however, did not count against

the budget ‘‘cap’’ on expenditures imposed on the appropriators.

Consequently, they had no incentive to appropriate less than the

amount PTO collected.

By 1990, approximately 80% of PTO operations were funded

through user fees. In an effort to reduce public expenditures and

the national debt, Congress enacted the Omnibus Budget Reconciliation Act (OBRA), which, among other things, transformed the

PTO into a wholly fee-supported agency. To compensate for the remaining taxpayer revenue which would be withdrawn, OBRA imposed a massive statutory patent fee increase (referred to as a ‘‘surcharge’’) on American inventors for a 5-year period.

As part of this budget agreement, a scoring system was adopted

to ensure that savings would be accurately tracked through the appropriations process. To this end, Congress mandated that the income from the surcharge be deposited into a specially-created surcharge fund in the Treasury. Unlike other fees collected by PTO,

those in the surcharge fund counted against the expenditure cap of

the appropriators. This meant that every dollar not spent from the

surcharge fund would enable the appropriators to spend another

taxpayer dollar to underwrite a different (non-PTO) initiative.

Theoretically, the unappropriated fee income remained in the surcharge fund, but as a practical matter the revenue could never be

appropriated to PTO unless the scoring rules were changed.

Initially, Congress appropriated the total amount deposited in

the fund to PTO. After only 1 year, however, Congress began to

withhold a portion of the entire amount deposited in the fund annually so that it could proved additional money to other programs.

Compounding the problem, Congress later extended the OBRA surcharge provisions for an additional 3 years to take further advantage of the arrangement.

Although the surcharge expired at the end of fiscal year 1998,

Congress ultimately increased the statutory fees to compensate for

the lapse of the surcharge. In addition, the income derived from the

increase is treated like the old surcharge funds. As a result, an

amount equal to the income from the increase is added to the

amount available to the appropriators, who then have the option of

earmarking that amount for PTO operations or to other programs.

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Moreover, the appropriators have also taken to capping the

amount of fee revenue that the PTO may use. For example, in fiscal year 1999 PTO fee collections were subject to two caps as well

as a rescission. The appropriators prohibited PTO from spending

$116 million in collected fees until the following fiscal year (2000).

They also created an upper limit cap which prevented the agency

from spending any fee collections in excess of the total amount of

fee revenues which PTO had estimated it would receive. Thus,

when unexpected additional filings generated an extra $26 million

in fiscal year 1999, the PTO could not use the revenue to process

the increased workload for which the fees had been paid. Finally,

Congress simply rescinded another $72 million that same fiscal

year after PTO identified a significant amount of unrecorded fee income from fiscal year 1998 that had resulted from accumulated

mail-room processing delays.

By denying PTO the ability to spend fee revenue in the same fiscal year in which it collects the revenue, the appropriators may

spend an equivalent amount on some other program without exceeding their §602(b) caps. Although the money is technically available to PTO the following year, it has already been spent. The legislative response to this funding problem has been to increase the

amount of fee collections unavailable to PTO in that fiscal year.

To illustrate: in the current fiscal year PTO is scheduled to receive $116 million in fiscal year 1999 fee revenues that it was not

permitted to spend that year. But those funds were already diverted in fiscal year 1999 to other programs. The Commerce-StateJustice appropriations act for fiscal year 2000 ‘‘solves’’ the problem

by preventing PTO from accessing $229 million in fiscal year 2000

collections. The $116 million from fiscal year 1999 that PTO is now

permitted to tap is actually a portion of the $229 million to be collected in fiscal year 2000; and the difference between the two figures—$113 million—will in turn be diverted to other government

programs in fiscal year 2000.

In sum, since 1992, more than $554 million in PTO revenue has

been diverted, rescinded, or otherwise not made available to the

agency.

ADMINISTRATION REQUEST FOR FISCAL YEAR 2001

The developments in fiscal year 2000 serve as a template for the

President’s budget submission for fiscal year 2001. It would allow

PTO to spend $229 million in fiscal year 2000 collections plus an

additional $26 million in fiscal year 1999 collections arising from

greater than estimated application filings that went unspent pursuant to the budget cap of that same fiscal year. On paper, the President’s budget also prohibits the PTO from spending $368 million in

estimated fiscal year 2001 fee collections. In reality, however, the

$255 million ($229 million plus $26 million) that PTO is permitted

to spend will come from the $368 million source. The difference—

$113 million—will be diverted.

Should the appropriators adopt the President’s budget, the PTO

will have lost more than $677 million in collected fees since fiscal

year 1992.

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HEARINGS

The committee’s Subcommittee on Courts and Intellectual Property held a hearing on H.R. 4034 on March 9, 2000. Testimony was

received from nine witnesses representing nine organizations.

COMMITTEE CONSIDERATION

On March 23, 2000, the Subcommittee on Courts and Intellectual

Property met in open session and ordered reported the bill H.R.

4034 by voice vote, a quorum being present. On May 9, 2000, the

committee met in open session and ordered reported favorably the

bill H.R.4034 by unanimous consent, a quorum being present.

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 2(1)(3)(A) of rule XI of the Rules of the

House of Representatives, the committee reports that the findings

and recommendations of the committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

COMMITTEE ON GOVERNMENT REFORM FINDINGS

No findings or recommendations of the Committee on Government Reform and Oversight were received as referred to in clause

2(1)(3)(D) of rule XI of the Rules of the House of Representatives.

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 2(1)(3)(B) of rule XI of the Rules of the House of Representatives is technically applicable because the Congressional

Budget Office has noted that the legislation provides (de minimis)

new budgetary authority; however, the very cost estimate provided

by that organization also reveals that the changes set forth in H.R.

4034 will generate surplus funds amounting to roughly $700 million between Fiscal Years 2001 and 2005.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 2(1)(3)(C) of rule XI of the Rules of the

House of Representatives, the committee sets forth, with respect to

the bill H.R. 4034, the following estimate and comparison prepared

by the director of the Congressional Budget Office under section

403 of the Congressional Budget Act of 1974:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, May 19, 2000.

Hon. HENRY J. HYDE, Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4034, the Patent and

Trademark Office Reauthorization Act.

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If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Mark Hadley, who can

be reached at 226–2860.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable John Conyers Jr.,

Ranking Democratic Member

H.R. 4034—Patent and Trademark Office Reauthorization Act.

SUMMARY

Under current law, the Patent and Trademark Office (PTO) collects fees on applications and other activities related to patents and

trademarks. Such fees are recorded as an offset to discretionary

spending and can only be collected and spent as provided in appropriation acts. H.R. 4034 would authorize the PTO to collect fees

without appropriation action and would make such funds available

to the agency until expended.

CBO estimates that H.R. 4034 would increase revenues (governmental receipts) and reduce offsetting collections by about $6.3 billion over the 2001–2005 period. Because such fees could be spent

by PTO without appropriation action, the bill also would increase

direct spending by about $5.6 billion over the same period. Because

H.R. 4034 would affect receipts and direct spending, pay-as-you-go

procedures would apply.

H.R. 4034 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA)

and would not affect the budgets of state, local, or tribal governments.

ESTIMATED COST TO THE FEDERAL GOVERNMENT

The estimated budgetary impact of H.R. 4034 is shown in the following table. For purposes of this estimate, CBO assumes enactment near the start of fiscal year 2001. The costs of this legislation

fall within budget function 370 (commerce and housing credit).

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By fiscal year, in millions of dollars

2000 2001 2002 2003 2004 2005

SPENDING SUBJECT TO APPROPRIATION

PTO Baseline Under Current Law

Estimated Authorization Level 1 -116 255 260 267 275 284

Estimated Outlays -100 90 164 196 199 202

Proposed Changes

Estimated Authorization Level 0 0 -260 -267 -275 -284

Estimated Outlays 0 374 -31 -176 -199 -202

PTO Baseline Under H.R. 4034

Estimated Authorization Level 1 -116 255 0 0 0 0

Estimated Outlays -100 464 133 20 0 0

CHANGES IN DIRECT SPENDING

Estimated Budget Authority 0 1,072 1,158 1,251 1,351 1,459

Estimated Outlays 0 697 1,021 1,188 1,284 1,386

CHANGES IN REVENUES

Estimated Revenues 0 1,072 1,158 1,251 1,351 1,459

1 The 2000 level is the estimated net amount appropriated for that year. The 2001 level is the estimated amount appropriated for that year through an indefinite advance appropriation.

BASIS OF ESTIMATE

H.R. 4034 would allow the PTO to collect and spend fees associated with filing patents and trademarks without appropriation action. Patent and trademark fees are governmental in character because such fees result from an exercise of sovereign power—recognizing and protecting intellectual property. Therefore, once these

fees are no longer subject to appropriation action, CBO expects that

they would be recorded as revenues in the federal budget.

CBO estimates that patent and trademark fees will bring in

about $1 billion in fiscal year 2000. Based on the historical growth

in applications filed for patents and trademarks, we project receipts

from such fees will total about $6.3 billion over the 2001–2005 period. Under H.R. 4034, offsetting collections would decline by this

amount and revenues would increase by the same amount. Based

on historical spending patterns of the agency, CBO estimates PTO

would spend about $5.6 billion of these revenues over the 2001–

2005 period.

PAY-AS-YOU-GO CONSIDERATIONS

The Balanced Budget and Emergency Deficit Control Act sets up

pay-as-you-go procedures for legislation affecting direct spending or

receipts. The net changes in outlays and governmental receipts

that are subject to pay-as-you-go procedures are shown in the following table. For the purposes of enforcing pay-as-you-go procedures, only the effects in the current year, the budget year, and the

succeeding four years are counted.

By fiscal year, in millions of dollars

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Changes in

outlays 0 697 1,021 1,188 1,284 1,386 1,497 1,612 1,733 1,863 2,003

Changes in

receipts 0 1,072 1,158 1,251 1,351 1,459 1,576 1,694 1,821 1,957 2,104

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INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

H.R. 4034 contains no intergovernmental or private-sector mandates as defined in UMRA and would not affect the budgets of

state, local, or tribal governments.

ESTIMATE PREPARED BY:

Federal Costs: Mark Hadley (226–2860)

Impact on State, Local, and Tribal Governments: Shelley Finlayson

(225–3220)

Impact on the Private Sector: John Harris (226–2940)

ESTIMATE APPROVED BY:

Peter H. Fontaine

Deputy Assistant Director for Budget Analysis

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to rule XI, clause 2(1)(4) of the Rules of the House of

Representatives, the committee finds the authority for this legislation in Article I, section 8 of the Constitution.

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

Sec. 1. Short Title. The act may be cited as the ‘‘Patent and

Trademark Office Reauthorization Act.’’

Sec. 2. Patent and Trademark Office Funding. H.R. 4034 is simple and straightforward. It amends two key provisions of §42 of the

Patent Act, which prescribes the PTO funding mechanism.

First, the requirement in existing subsection (b) that all agency

funds be credited to a special PTO Appropriation Account is deleted; instead, such funds are to be credited to a PTO Account in

the Treasury.

Second, the requirement in existing subsection (c) that subjects

agency access to and expenditure of collected fees to appropriations

is also deleted. This means that the Commissioner will have the

authority to collect all fees and use them for agency operations

until expended. The appropriators are not involved.

AGENCY VIEWS

THE DEPUTY SECRETARY OF COMMERCE,

Washington, DC, May 9, 2000.

Hon. HENRY J. HYDE, Chairman,

Committee on the Judiciary,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: I am writing to set forth the views of the

Administration on H.R. 4034, the Patent and Trademark Office Reauthorization Act. The bill amends section 42 of title 35, United

States Code, regarding the fees collected by the United States Patent and Trademark Office (USPTO), to delete the introductory

clause in the first sentence of subsection (c) of this section which

subjects fees that would otherwise be available to the USPTO to

the discipline of the appropriations process. Because the effect of

the change alters the timing of the availability of the funds in a

way that is inconsistent with the President’s budget for FY 2001,

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the Administration would oppose enactment of the bill in its current form.

In FY 2001, the Administration’s Budget proposes that of fees

collected in excess of $783,843,000, $367,744,000 shall not become

available to the USPTO before October 1, 2001. In addition, the

Budget proposes that $229,000,000 of fees collected in FY 2000 and

$25,889,000 of fees collected in FY 1999 will also become available

to the USPTO in FY 2001. By amending section 42 to remove the

appropriations clause, H.R. 4034 would make all fees collected by

the USPTO immediately available.

The Administration fully supports providing the USPTO with

sufficient resources to serve America’s inventors and to strengthen

the Nation’s intellectual property system. However, there are several models that could be considered to ensure the USPTO receives

funds sufficient to meet its resource needs. To that end, the Administration would like to work with the Committee to address these

concerns.

While the Administration would oppose the bill in its current

form, we look forward to working with the Congress to meet the

needs of the USPTO in furthering the Nation’s technological

growth. The Office of Management and Budget advises that there

is no objection from the standpoint of the Administration’s program

to the submission of this letter to the Committee.

Sincerely,

ROBERT L. MALLETT.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics,

existing law in which no change is proposed is shown in roman):

SECTION 42 OF TITLE 35, UNITED STATES CODE

§ 42. Patent and Trademark Office funding

(a) * * *

(b) All fees paid to the Director and all appropriations for defraying the costs of the activities of the Patent and Trademark Office will be credited to the Patent and Trademark Office øAppropriation¿ Account in the Treasury of the United States.

(c) øTo the extent and in the amounts provided in advance in

appropriations Acts, fees¿ Fees authorized in this title or any other

Act to be charged or established by the Director shall be collected

by and shall be available øto the Director¿ until expended to carry

out the activities of the Patent and Trademark Office. All fees

available to the Director under section 31 of the Trademark Act of

1946 shall be used only for the processing of trademark registrations and for other activities, services, and materials relating to

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trademarks and to cover a proportionate share of the administrative costs of the Patent and Trademark Office.

* * * * * * *

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trademarks and to cover a proportionate share of the administrative costs of the Patent and Trademark Office.

* * * * * * *

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