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UNITED STATES PATENT AND TRADEMARK OFFICE 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

MAY 5, 2010 

Serial No. 111–135 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DANIEL MAFFEI, New York 

JARED POLIS, Colorado 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

(III) 

C O N T E N T S 

MAY 5, 2010 

Page 

OPENING STATEMENTS 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Chairman, Committee on the Judiciary ..................... 1 

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

of Texas, and Ranking Member, Committee on the Judiciary ......................... 3 

The Honorable Zoe Lofgren, a Representative in Congress from the State 

of California, and Member, Committee on the Judiciary ................................. 4 

The Honorable F. James Sensenbrenner, Jr., a Representative in Congress 

from the State of Wisconsin, and Member, Committee on the Judiciary ........ 5 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Member, Committee on the Judiciary ............ 6 

The Honorable Adam B. Schiff, a Representative in Congress from the State 

of California, and Member, Committee on the Judiciary ................................. 8 

WITNESSES 

The Honorable David J. Kappos, Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark 

Office 

Oral Testimony ..................................................................................................... 8 

Prepared Statement ............................................................................................. 11 

Mr. Robert D. Budens, President, Patent Office Professional Association 

Oral Testimony ..................................................................................................... 25 

Prepared Statement ............................................................................................. 27 

Mr. Damon C. Matteo, Chair, Patent Public Advisory Committee, Vice President and Chief IP Officer, Palo Alto Research Center 

Oral Testimony ..................................................................................................... 40 

Prepared Statement ............................................................................................. 42 

Mr. James H. Johnson, Board Member, Trademark Public Advisory Committee, Southerland Asbill & Brennan, LLP 

Oral Testimony ..................................................................................................... 49 

Prepared Statement ............................................................................................. 51 

(1) 

UNITED STATES PATENT AND TRADEMARK 

OFFICE 

WEDNESDAY, MAY 5, 2010 

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Committee met, pursuant to notice, at 10:36 a.m., in room 

2141, Rayburn House Office Building, the Honorable John Conyers, 

Jr. (Chairman of the Committee) presiding. 

Present: Representatives Conyers, Watt, Lofgren, Johnson, 

Quigley, Schiff, Maffei, Smith, Sensenbrenner, Lungren, Issa, King, 

Franks, Jordan, and Poe. 

Staff present: (Majority) Perry Apelbaum, Staff Director and 

Chief Counsel; Christal Sheppard, Counsel; (Minority) Sean 

McLaughlin, Chief of Staff and General Counsel; and Allison 

Halatei, Counsel. 

Mr. CONYERS. Good morning. The Committee will come to order. 

We always welcome everyone for coming to this hearing today, an 

oversight hearing on United States Patent and Treatment Office. 

And our objective this morning is to review the operations and 

plans of Patent and Trademark Office under the leadership of Director David Kappos. 

There are several questions that I think will dominate our discussion today. How is the office performing with respect to the patent examination backlog, and what plans are in place to reduce the 

backlog going forward? What steps has the office taken and will 

take to ensure that the United States patents are and remain at 

the highest quality possible? What are the funding needs of the office, and how can these needs be best met and realistically met? 

Now, the patent and trademark protection is increasingly important to the U.S. economy. Our studies indicate that intellectual 

property accounts for as much as 60 percent of the total United 

States exports and generates millions of high-paying jobs. 

So without a doubt, the role of the Patent and Trademark Office 

is critical to the success of us coming out of the downturn in the 

economy that we are now experiencing. It is also critical to that 

success that the office filter out bad patents and trademarks, while 

strengthening deserving patents. 

So funding, of course, is the key to improving quality and bringing down the backlog. The heart of the matter is that the lack of 

adequate and dependable funding for the agency has prevented us 

reducing the backlog, maintaining the high quality of patents approved, and being more generally overall effective. 

2 

And so, to me, the Patent and Trademark Office needs reliable 

and sustainable funding, which means that fee setting authority— 

is important and that there needs to be an end to the fee diversion 

that has plagued us across the years. 

Our Chairman emeritus, Jim Sensenbrenner, knows about this 

first hand. Even his predecessor, Henry Hyde, worked with us in 

a bipartisan way on this Committee, to try to remove the roadblocks. Currently, Lamar Smith, Zoe Lofgren, and Howard Berman 

have all played major roles in trying to grapple with this problem. 

So the question is, how do we do it? And what might we do? Patent and Trademark expects to make between $146 million and 

$232 million in fees. Some would say this is great, but the problem 

here is that, while the agency runs on user fees, it relies on congressional appropriations to get the fees back. And so far, the Congress hasn’t taken any action to ensure that Patent and Trademark 

receives those unanticipated new fees. 

Without action, these fees are likely to be diverted as they always have been. And so, to ensure that this organization has access to this funding, I intend—that the number of us on the Committee work directly with the Appropriations Committee and its 

Chair, the Honorable David Obey, to try to correct this problem 

that has been going on for so long. 

Now, to address the longer-term funding challenges, there has 

been increasing discussion about giving the patent and trade office 

fee-making authority, as was posed in the President’s 2011 budget. 

While the current fee structure was meant to encourage the filing 

of patent applications, the fact that fees are back-loaded means the 

agency may not even have enough money to cover examination 

costs, and the backlog builds up, and the months turn into years, 

and I think I will hear from our witnesses today what that means 

in the real world. 

In the past, appropriation bills allowed the trade of—patent and 

trademark to use up to $100 million above their appropriation if 

the agency collected more fees than it planned on. I would like to 

make sure that they have such a buffer against diversion in the 

next budget coming up. 

And a number of us plan to bring this directly to the attention 

of our friend, Chairman David Obey. 

Now, the other issue is reducing patient pendency, how long it 

takes, and going along with it, increasing quality. I understand 

that Undersecretary Kappos and Deputy Director Sharon Barner’s 

efforts at increasing quality of patents and in reducing patent 

pendency is regarded as their number-one objective. 

However, it seems impossible that you are going to, within 10 

months, support your goals of 10 months to first action and 20 

months to total patent pendency. I think you folks are great, but 

I don’t think you are miracle workers. 

I have talked to those who say that if everything goes well, it 

often takes as long as 51 months. And so I doubt that efficiencies 

can cut patent pendency by half, unless we do something far more 

drastic. And so, I support the examiner count system, giving patent 

professionals more time to do quality examination. By giving them 

more time, we will actually make pendency longer, as well. 

3 

So we need to discuss this, how your hiring experienced examiners is going, and how will it reduce the backlog, and I think improvements to the system is a big goal, and it is a necessity should 

not be delayed. 

I salute your goals, and we want to help you get there with them. 

And so I thank you very much, and I would like now to listen to 

Lamar Smith, who has worked with us carefully on this matter 

over the years. 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, as part of the Judiciary Committee’s oversight responsibilities, we are here to examine the operations of the United 

States Patent and Trademark Office, or PTO. 

Director David Kappos’ job is difficult, but he is working hard to 

reform and modernize the agency. The importance of PTO to inventors, trademark-holders, and the American economy is widely acknowledged. 

Our hearing this morning complements other efforts to pass 

meaningful patent reform in the 111th Congress. We are working 

hard with the Senate to develop necessary changes to their bill 

that will improve patent quality and discourage frivolous lawsuits. 

I am hopeful about that outcome. 

That said, the PTO is one of the most important agencies of the 

Federal Government, but it is not often regarded as such. Its work 

affects the productivity and economic growth of our Nation, as well 

as the standard of living for all Americans. 

For over 200 years, the PTO has been responsible for issuing 

U.S. patents and trademarks. The PTO also advises the secretary 

of commerce and the President on patent, trademark, and copyright protection, as well as trade-related aspects of intellectual 

property. 

In recent years, Congress worked with the Bush administration 

to provide full funding for PTO operations. Following this trend, 

the Obama Administration recommends that we authorize PTO to 

collect and spend more than $2.3 billion in the upcoming fiscal 

year, subject to appropriations. 

Observers estimate that more than $700 million have been diverted from PTO coffers since 1991, funds that could have been put 

to good use by the agency. 

Like you, Mr. Chairman, I support ending this fee diversion. And 

I support the Committee’s efforts to provide the agency with more 

control over its fee schedule and related funding. 

This doesn’t mean we won’t exercise necessary oversight as appropriate, but PTO will solve more of its problems if it is able to 

respond more nimbly to its financial needs as they arise. This 

change, coupled with our ongoing push to end fee diversion, will position PTO as a first-tier 21st-century agency. 

But if Congress does provide PTO with 100 percent funding, the 

agency will have a greater responsibility to explain any of its shortcomings and correct them. 

Specifically, the Committee and PTO must explore the patent application backlog, the state of the agency’s I.T. infrastructure, hiring and retention of patent examiners, the relationships between 

management and examiners, and the amount of time examiners require to process patents. 

4 

Mr. Chairman, I would like to conclude by recounting an event 

that illustrates the importance of the PTO. This involves Dr. William Thornton, architect of the Capitol, who was appointed by 

Thomas Jefferson as the first superintendent of the agency. 

During the War of 1812, British redcoats marched on Washington to burn the city. Thornton realized they would eventually 

get to the Blodgett Hotel, which housed hundreds of patent models. 

Hurrying to the scene, he argued to the commanding British officer 

that burning the hotel and all of its contents would serve no purpose. 

In an impassioned speech, Thornton said the models were useful 

to all mankind, not just to Americans. Anyone who burned them 

would be condemned by future generations, as were the Turks who 

burned the Library at Alexandria. 

Thornton proved convincing, and the Blodgett Hotel was spared; 

in fact, it was the only government building not damaged during 

the attack. Disappointingly, Thornton’s reward was a congressional 

order to vacate the premises. Since the Capitol building had been 

burned, Congress needed a new meeting place, and the Blodgett 

was the most suitable venue. 

Nearly 200 years later, the PTO is no less valuable. Everyone 

here understands the importance of the patent system to our 

knowledge-based economy. 

Mr. Chairman, I look forward to working with the Committee 

and Director Kappos to make the PTO even stronger and more productive and responsive to the needs of the inventor community and 

our country so we can enhance our international competitiveness 

and strengthen our economy. 

Thank you, Mr. Chairman. Yield back. 

Mr. CONYERS. Thanks, Lamar, for that little-known piece of 

American history. 

Mr. SMITH. History lesson. 

Mr. CONYERS. I would like to invite Mel Watt to make any welcoming or opening remarks that he may share. 

Mr. WATT. Mr. Chairman, I appreciate the offer. I am happy to 

welcome the witnesses, but don’t have an opening statement, so I 

will pass and await the wonderful wisdom of our panelists. 

Mr. CONYERS. Before I recognize Chairman Emeritus Sensenbrenner, let me yield to Zoe Lofgren of California. 

Ms. LOFGREN. Well, thank you, Mr. Chairman. And thank you 

for having this hearing. I think it is a very important one. 

As we all know, we have worked on reform of patent law for 

many years, going back to H.R. 400 in 1995. And these things can 

get contentious, and I think at this point we have contention once 

again. And, therefore, it is especially important that we are having 

this hearing to focus on what we can agree on, how we can help 

the office in its pendency problem. 

You know, although the parties are often sharply divided here in 

Congress, this is one of those items where we have had marvelous 

bipartisan communication and effort. It has really been very rewarding to work across the aisle as a team on these issues that are 

so important to our country, so I am very interested in hearing 

from the witnesses about the idea of allowing the office to set its 

own fees, even on a temporary basis. Let’s see how it works, as well 

5 

as, you know, not having enough money, but also having some certainty as to what you are going to have to use and how that would 

work to bring down the pendency. 

I wanted to raise another issue, as well, that I think might have 

usefulness in the office. I understand that there is a question or reform, the possibility of field offices that would help in recruiting 

and also might help in terms of telecommuting as work stations, 

and I was recently—actually yesterday—in Silicon Valley at home, 

and I was told that 49 percent of all the patents issued in the 

United States come from Silicon Valley. So that might be a good 

place for a pilot. 

I know that the representative from the professional association 

will want to make sure that the amenities are good enough. That 

is exactly the role he should play, but let me tell you that starting 

at an average of 75 degree temperature in the summer and 65 in 

the winter, it only gets better from that, so I think members would 

be happy with the amenities in the valley, and I am hopeful that 

I can work with both the association and the management as we 

pursue that. 

It is absolutely essential that we do something on pendency and 

quality. Our patent examiners are overwhelmed with volume. And 

that has to affect their productivity. It is just there is no other way 

around it. 

So this is very important. I think we will be able to work together collaboratively to come up with solutions. 

And, Mr. Chairman, I want to commend you for holding this 

hearing and yield back. 

Mr. CONYERS. Did I hear in your comments an invitation to Silicon Valley? 

Ms. LOFGREN. Sure. We should review the potential satellite site 

sometime maybe in August or January, either one. 

Mr. CONYERS. Thank you. 

I now turn to the former Chairman of this Committee, Jim Sensenbrenner, whose experience in this subject is as deep and wide 

as anybody on the Committee, and thank him for all the work he 

has done on the—over the years on the subject matter. 

Mr. SENSENBRENNER. Well, thank you very much for the compliment, Mr. Chairman. And let me return it by saying that this 

is an issue that we all agree on. 

The enemy is not in the Committee. The enemy is in the Appropriations Committee and over on the other side of the Capitol. 

I spent about 21⁄2 years during my chairmanship to try to convince the appropriators that what they were doing was really hurting American productivity. And I wasn’t able to do that by myself, 

and I had to enlist the then-leadership of the House of Representatives to do that, and we were able to prevent a fee diversion from 

fiscal years 2005 to fiscal year 2009. 

However, fiscal 2010 is another story. And we may have a fee diversion of as much as $116 million. And this is completely unacceptable, because as the economy gets better, we are going to have 

more patent applications go in and take the money away to process 

those applications promptly, it’s certainly a step backwards. 

I want to make two points. You know, one is, is that I don’t have 

a problem having the patent office set its own fees, but the quid 

6 

pro quo on that has to be able to prevent the appropriators from 

diverting the fees, because if the fees go up and the patent office 

can’t use those fees, then we are full-speed reverse, rather than reverse a step at a time. 

The other thing that I think is most important is that, with a 

fee diversion, the patent office can’t do what it needs to do in order 

to reduce the backlog and improve the quality. And this Committee 

is hamstrung in being able to do proper oversight over the patent 

office to make sure that the taxpayers’ money is being spent properly. 

Now, if the additional money from fees isn’t being used by the 

patent office, then it can’t be spent either properly or improperly, 

and we are stuck in catch-22. 

So what I would like to say is, we are in this together. You need 

the additional money to be able to cut the backlog. You need the 

additional money in order to provide the improved quality that is 

necessary so that a patent is less likely to be attacked, should there 

be litigation on infringement. 

And, you know, in my opinion, we need to have, you know, a 

much better attitude nationally, not just here on Capitol Hill, on 

the importance of patents in terms of preserving our lifestyle, because our lifestyle is dependent upon increased productivity. 

So, Mr. Kappos, we are from the government, and we are hear 

to help, so tell us how. 

Mr. CONYERS. Thank you, Jim. 

Judge Hank Johnson? 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Chairman. I want to 

thank you for holding this very important hearing. 

And for some time now, the USPTO has struggled with timeliness and quality in reviewing patent applications. Currently, there 

are over 750,000 patents representing inventions and innovations 

which is stuck in line at the USPTO, and this number is growing. 

We have to fix the pendency problem, and I salute Director 

Kappos for setting an aggressive goal of reducing pendency by half. 

At the same time, the USPTO has struggled with getting quality 

right, first by issuing patents on so-called inventions that should 

never have been granted, and more recently by significantly cutting 

back on the number of patent applications that are approved. 

Both these problems—timeliness and quality—has a direct impact on jobs, innovation, and the economy. This is not an esoteric 

discussion, ladies and gentlemen. This is about getting new drugs, 

new technologies, and new innovations out into the world. 

What if there was an invention just sitting on the shelf at the 

USPTO that could have been used to prevent or ameliorate or 

clean up oil spills, such as the one that we are suffering from down 

in the Gulf of Mexico? 

Another problem underlying the entire system is the agency’s information technology infrastructure. Lack of adequate funding for 

the last several years has put the agency’s I.T. in a precarious position. Its aging systems are crashing and are not meeting the needs 

of examiners. 

This is impacting the agency’s ability to deal with the backlog 

and quality problems. Since Director Kappos has taken the helm 

at USPTO, the agency has announced several new initiatives to adVerDate Aug 31 2005 14:12 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 H:\WORK\FULL\050510\56270.000 HJUD1 PsN: DOUGA
7 

dress the backlog, patent quality, and the I.T. infrastructure challenges. I commend him for that effort. 

I look forward to hearing about the USPTO’s new programs, particularly efforts to get to patentability decisions early in the examination process, changes to how examiners are rewarded, and 

greater use of international partnerships that share patent examination burdens. 

I am also interested in hearing about the relationship between 

these initiatives and the USPTO’s funding situation. In particular, 

the USPTO makes the case that the current fee structure is not capable of meeting the USPTO’s needs. That office needs flexibility, 

in my opinion, to adjust its fees and expenditures according to circumstances that arise. 

The current economic slump and rebound is a perfect example. 

In fiscal year 2009, the office fell behind its fee collection due to 

the economic downturn, and Congress had to step in to protect examiner jobs. In fiscal year 2010, filings rebounded, and revenues 

have outpaced the USPTO’s projections, so Congress will have to 

step in yet again if the USPTO is to have access to all the funds 

it collects. 

Fee-setting authority would no doubt give the USPTO more flexibility, which I support, but I also want to be sure any additional 

fees go to worthwhile purposes. I hope Director Kappos can explain 

how the agency plans to use any additional fees collected and how 

the money spent will address the backlog, patent quality, and I.T. 

infrastructure. 

I also want to remind everyone that Article I, Section 8 of the 

Constitution of the United States states that Congress shall have 

power to promote the progress of science and useful arts by securing for limiting times to authors and inventors the exclusive right 

to their respective writings and discoveries. I tell you, those founding fathers were on top of things, and I wonder how they would 

look at us at this time with the state of our USPTO being challenges as it is today. 

So I thank you, and I look forward to all of the witnesses’ testimony. Thank you. 

Mr. CONYERS. Dan Lungren is a senior Member of the Judiciary 

Committee, and we yield to him this time. 

Mr. LUNGREN. Thank you very much, Mr. Chairman. 

I am here to listen to our guests. And after hearing both the 

Chairman and the Ranking Member, I think the issues that I am 

concerned about have been fully articulated, and I await their 

hearing. 

Mr. CONYERS. Steve King, do you want to greet the witnesses or 

make any opening comments? 

Mr. KING. Mr. Chairman, I would greet the witnesses and thank 

you very much. And I pass on my opening comment and yield back 

the balance of my time temporarily. Thank you, Mr. Chairman. 

Mr. CONYERS. Well, that rarely happens around here. Thank you, 

sir. 

Trent Franks, good morning. 

Mr. FRANKS. Mr. Chairman, I am just glad to be here. 

Mr. CONYERS. Okay. 

Mr. Quigley? 

8 

Mr. QUIGLEY. Mr. Chairman, I am always just glad to be here. 

I am anxious to listen to our witnesses. 

Mr. CONYERS. Well, I am glad you didn’t say that you were glad 

to be here and hope to be back, but we are always glad to have 

you here, as well. 

Adam Schiff, could I yield to you at this time? 

Mr. SCHIFF. Thank you, Mr. Chairman. I just wanted to mention 

that I think the most important part of the patent reform legislation in either house, frankly, will be whatever we can include to 

deal with the backlog at the Patent Office and make sure the Patent Office has the fees and revenues necessary to eliminate that 

backlog for all intents and purposes. I think we need to develop a 

5-year plan to get that done. 

We are working on some proposals to help try to structure that 

and encourage that, that we hope will be part of any legislative effort, and I look forward to hearing what you all have to say today. 

Thank you, Mr. Chairman. 

Mr. CONYERS. Thank you. 

We welcome our witnesses, James Johnson, Damon Matteo, Robert Budens, and first witness, David Kappos, undersecretary of 

commerce for intellectual property and director of the United 

States Patent and Trademark Office. 

We will put your distinguished bio in the record. And you were 

not responsible for IBM pulling out of this agreement, although you 

have worked with them in the past. But we welcome you here and 

know of what you have been doing with this new responsibility 

that is yours. 

We met—a few of us met, Lofgren and myself and—met with the 

secretary of commerce and yourself about matters relating to this 

office, particularly the patent bill that seems to be stalled somewhere between the House and the Senate. But we appreciate what 

you are doing, and we invite you to make your statement before the 

Committee now. 

Welcome. 

TESTIMONY OF THE HONORABLE DAVID J. KAPPOS, UNDER 

SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY 

AND DIRECTOR OF THE UNITED STATES PATENT AND 

TRADEMARK OFFICE 

Mr. KAPPOS. Well, good morning, Mr. Chairman. And I will start 

by saying, I am very glad to be here, and I do hope to be back. 

To Chairman Conyers, Ranking Member Smith, Members of the 

Committee, thank you for the opportunity to appear here before 

you today and to discuss the United States Patent and Trademark 

Office’s operations and our various new programs and initiatives. 

As you know, the USPTO currently faces a number of significant 

challenges and difficult budgetary environment. We have made 

process improvements, and we have made progress in recent 

months to address a number of these challenges, which I have detailed in my written testimony. Reducing patent pendency and improving patent quality are our top challenges, and America’s competitive advantage in the innovation economy depends in very large 

measure on our ability to meet these challenges. 

9 

Mr. Chairman, innovation is a principal driver of the U.S. economy. It is an engine of economic growth, and it is a creator of jobs. 

Promoting innovation, stimulating economic growth, creating highpaying jobs are key priorities of the Obama administration and of 

the USPTO. We are proud of the role that the USPTO plays in 

serving America’s innovators and providing the intellectual property protection they need to secure investment capital and to bring 

their products and services to the marketplace. 

Yet today, we face a huge backlog of patent applications, long 

pendency rates, and an outdated I.T. infrastructure. Our ability to 

effectively address these challenges is limited by our current budgetary constraints, and we propose significant changes to our 2011 

budget and our budget process. 

We have developed our fiscal year 2011 budget based on the resources needed to achieve our goals. The good news is that we have 

begun to see a rebound in user fee collections in recent months, a 

trend that reflects both an upward-bound economy and success we 

have had in increasing production at the United States Patent and 

Trademark Office. 

We currently project that the USPTO will collect between $146 

million and $232 million more than its appropriation for fiscal year 

2010. Without access to these additional fee collections in fiscal 

year 2010, we will be unable to achieve our goal of reducing firstaction pendency to 10 months until 2014, and our goal of 20-month 

total pendency is now unlikely to be achieved until 2015. 

While our funding constraints are very real, our new leadership 

team has developed and implemented a broad array of initiatives 

to improve the speed, efficiency and quality of patent processing 

and improved the overall operations of the office. We have taken 

steps to improve the examination process by encouraging more 

interaction between examiners, applicants earlier in the process. 

We have made the USPTO an employer of choice by offering 

workplace benefits, including telework opportunities, provided enhanced training of examiners and supervisors to ensure consistency 

in examination, promoted work-sharing efforts with foreign patent 

offices to better manage our common workloads, and developed customer-friendly initiatives, including our ombudsman program, 

project exchange, and our green tech pilot. 

These initiatives and positive results we have seen to date are 

described in more detail in my written statement. 

Mr. Chairman, progress toward our strategic goals is dependent 

on a number of important elements. Among them are providing the 

agency with authority to set appropriate fees, authorizing an interim fee adjustment on patent fees, and creating an operating reserve to ensure adequate reserves to address multi-year budget 

plans. 

As you know, Mr. Chairman, pending patent reform legislation 

contains a number of provisions that will improve USPTO operations and the patent system in general. Over the last four Congresses, the House and the Senate have weighed possible reforms 

to the patent system. In that time, many of the difficult legal 

issues related to the intellectual property system have been addressed by the courts. 

10 

I personally witnessed the House lead much of the discussion 

around the proposals being considered now in Senate 515 as far 

back as the year 2000. The USPTO and the Administration support 

your efforts and those of your colleagues in the Senate to enact a 

fair and balanced bill this Congress, and we will continue to support your efforts going forward. 

We appreciate your continued support of the USPTO, and we 

look forward to working closely with you and the Members of this 

Committee to meet the challenges before us. Thank you. 

[The prepared statement of Mr. Kappos follows:] 

11 

PREPARED STATEMENT OF THE HONORABLE DAVID J. KAPPOS


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Mr. CONYERS. Thank you for starting us off. 

We now turn to Mr. Robert Budens, who is U.S. Patent and 

Trademark Office, Department of Commerce for many years, going 

back to 1990. He has had a lot to do with the Patent Office Professional Association, has been on the executive committee. This is the 

employee organization. 

And we know that you have some issues that you are hoping will 

be fairly addressed and resolved in the pending legislation. We welcome you here today, sir. 

TESTIMONY OF ROBERT D. BUDENS, PRESIDENT, 

PATENT OFFICE PROFESSIONAL ASSOCIATION 

Mr. BUDENS. Thank you, sir. 

Chairman Conyers, Ranking Member Smith, Members of the 

Committee, POPA represents more than 6,200 patent professionals 

at the USPTO, including more than 6,000 patent examiners who 

determine patentability. 

When I addressed the Oversight Subcommittee in February 

2008, the relationship between the USPTO and its examiners was 

particularly strained. Attrition was high; morale was low; and the 

agency and POPA were in the midst of a contentious negotiation 

over a new collective bargaining agreement. 

Today, I believe POPA and the USPTO are in the midst of a revolutionary and, I hope, long-lasting change in our relationship. 

Under the leadership of Mr. Kappos, the parties have agreed to 

solve problems through less adversarial and more collaborative and 

interest-based methods. 

Since August 2009, the USPTO and POPA have had a joint task 

force in place, led by Deputy Commissioner for Patents Peggy 

Focarino and myself, that has addressed several issues regarding 

time for examination. Among other things, these count system initiatives provided for the first increase in time since 1976, time for 

examiner-initiated interviews, realignment of examiner work credit 

to better reflect when work is done, and an improved awards system. 

In recent months, POPA and USPTO have addressed many other 

issues, including telework, patent applications on green technologies, and expansion of the first action interview pilot. These 

and other changes we have worked on together have led to a decrease in attrition and a new level of morale that is noticeable 

within the examining corps. Allowance rates are starting to go up, 

while the backlog of applications has gone down. 

Nevertheless, a number of issues remain of concern to POPA. 

While the count system initiatives have provided some additional 

time for examiners, more work needs to be done to address the 

question of whether examiners in each particular technology have 

sufficient time to do a quality job. 

To address this issue, the agency and POPA have been working 

together with an outside contractor to do a more in-depth study of 

examination time. POPA has no doubt that the study will show 

that further increases in time are needed to provide quality work. 

Obviously, increases in examining time will necessarily require hiring more examiners if the USPTO is to meet the pendency goals 

of Secretary Locke. 

26 

Recently, there has been increasing interest in work-sharing between the world’s patent offices as a means of increasing efficiency. 

Examiners, however, already use search results performed in other 

countries, so there is no room for efficiency gains by this approach. 

To truly increase efficiency and reduce pendency, a work-sharing 

program must reduce the number of issues and examiner needs to 

address, and it must do so early in prosecution. 

POPA believes that work-sharing must be done as soon as an applicant becomes aware of prior art and/or relevant rejections from 

a first patent office. At that point, the applicant should amend or 

cancel claims or otherwise constructively address the prior art and 

rejections from the first patent office in accordance with the laws 

of the other patent offices in which the applicant has filed a similar 

application. Thus, the issues facing examiners in those other offices 

will be reduced, and there will be a real increase in efficiency. 

Several issues concerning patent reform continue to concern 

POPA. We are dismayed that the 1-year grace period for inventors 

and the requirement for examination to be performed by U.S. examiners have both been lost in the proposals developed by the Senate. We encourage this Committee to ensure that these provisions 

are included in any final patent reform legislation. 

POPA continues to have serious concerns with the proposed postgrant review process. We believe this process will siphon considerable resources away from initial examination while providing little 

benefit to the intellectual property community. Post-grant review 

will not decrease the cost of owning a patent; it will only serve to 

provide one more expensive and time-consuming process that a 

party may use to protract litigation. 

With respect to the budget, POPA recognizes that the agency 

needs agility in adjusting its fees in responding to changing economic conditions. Therefore, POPA supports the creation of a reserve fund that will allow carryover of unused fee income from year 

to year and limited fee-setting authority for the agency. 

POPA does not, however, support giving the agency the authority 

to create new fees or eliminate existing fees with respect to basic 

filing, search and examination activities. We believe that the authority to create such new fees or terminate existing fees should remain in the hands of Congress. 

In addition, the agency’s access to its fees should not be obtained 

at the expense of the oversight responsibilities of Congress. Our experience is that congressional oversight has been very valuable. 

Finally, since the future of patent reform legislation remains in 

question, we encourage the Committee to consider a standalone bill 

to address the agency’s long-term funding and fee-setting authority. 

Thank you for this opportunity to present our views. 

[The prepared statement of Mr. Budens follows:] 

27 

PREPARED STATEMENT OF ROBERT D. BUDENS


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Mr. CONYERS. Thank you very much. 

We are going to carefully review some of the points that you have 

emphasized in your presentation. We are grateful that you are here 

today. 


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Our third witness is Mr. Damon Matteo of the Patent Public Advisory Committee. I am going to put his biography in the record. 

He has won more awards in intellectual property than anybody I 

know of and also speaks frequently, writes frequently, and has a 

very extensive management background in intellectual property 

matters. 

And we welcome you warmly to the Committee today. 

TESTIMONY OF DAMON C. MATTEO, CHAIR, PATENT PUBLIC 

ADVISORY COMMITTEE, VICE PRESIDENT AND CHIEF IP OFFICER, PALO ALTO RESEARCH CENTER 

Mr. MATTEO. Thank you. Good morning, Chairman Conyers, 

Ranking Member Smith, Members of the Committee. 

It is my great pleasure to be here on behalf of the Patent Public 

Advisory Committee of the United States Patent and Trademark 

Office, more commonly known as PPAC. Again, my name is Damon 

Matteo. I am the chairman of PPAC. 

I am particularly grateful for the opportunity, because this testimony comes at a pivotal time, one of transitions in the world economy, the innovation ecosystems, the intellectual property landscape, and certainly at the USPTO itself. And now perhaps more 

than ever, we find all of these factors linked and essential in 

achieving economic success. 

Yet a key link in that chain, the USPTO, is laboring under infrastructure and funding challenges that threaten its progress on 

many important initiatives, challenges—— 

Mr. CONYERS. Pull your mic up a little closer, please. 

Mr. MATTEO. Oh, certainly. Is that better? Great. 

But challenges inevitably create opportunity, and ours is to ensure and enhance the U.S. patent system’s ability to support U.S. 

innovation, job creation, and economic success. In order to keep the 

USPTO the premiere intellectual property office in the world, 

PPAC believes a series of high-level issues need to be addressed 

and recommends focused efforts and measured objectives for pendency and backlog reduction. 

As a first step, we understand the USPTO is targeting 10-month 

pendency to first action on the merits, 20 months total pendency, 

and also to shrinking the backlog which currently stands at over 

700,000 patent applications. 

With regard to patent quality, improving the patent process and 

the product itself, attendant information search and work processes 

is key in providing greater certainty around the timing, scope and 

validity of patents. And in support of these initiatives, I will echo 

perhaps Mr. Conyers’ notions about the budget, recognizing both 

the residual impact of the recent economic downturn and constraints imposed by limited financial vehicles at its disposal. 

PPAC supports the prudent application of several novel mechanisms to help and enhance and support the USPTO’s operations. 

The first is to give the USPTO time to limit its administrative feesetting authority to better accommodate funding needs and also to 

better align costs and incentives with fees. 

PPAC suggests setting the bounds of this fee-setting authority, 

its duration, measurement against agreed metrics for success, the 

41 

scope of the fees, for example, as a percentage increase, and with 

possible oversight by Congress and/or PPAC. 

PPAC also supports legislation to permanently end fee diversion 

and/or earmarks which sideline USPTO revenues that should be directed at its operations, in particular now when the PTO is facing 

such difficult financial situations. 

In addition, PPAC encourages the USPTO to expand its modeling 

of revenue and operational scenarios with an emphasis on identifying priorities, as well as contingency planning, to support and inform optimal strategy developments and tactical execution. PPAC 

also supports allowing the USPTO to employ more flexible financial 

tools such as establishing operating reserves. 

Infrastructure: Extended periods of inadequate funding have left 

much of the USPTO’s I.T. infrastructure aging, unstable and barely 

able to meet the tasks at hand. PPAC sees investment and provision of attendant incremental funding in these I.T. infrastructure 

as on the critical path to success for the USPTO realizing many of 

its key objectives. 

PPAC also enthusiastically supports the USPTO’s recent efforts 

to totally revisit in a fundamental fashion its I.T. infrastructure. 

Process, a common thread that binds many of the USPTO’s other 

initiatives, enhanced process understanding and optimization will 

figure prominently in the USPTO’s ability to realize benefits from 

many other initiatives and to expanding the work exemplified by 

the count system, work share, among others. 

Organizational and hiring: At the core of any organization or its 

people, culture, and work practices, PPAC encourages the USPTO 

to continue its outstanding working in hiring, retention, training, 

to explore new ways to embrace a truly nationwide workforce and 

to foster a culture that inspires and rewards performance and initiative. 

PPAC supports and applauds the broader trajectory of the 

USPTO, but also encourages vigilance to ensure that visibly articulated goals, such as pendency reduction, are not accomplished at 

the expense of other PTO objectives or its resources. 

The USPTO clearly faces many significant challenges, but it is 

also poised to make significant progress against many of them. In 

our short time together, I have done my best to articulate the challenges, opportunities and requisites for success from a PPAC perspective. 

PPAC stands ready to work with the USPTO, with Congress in 

support of the U.S. patent system, the innovation economy. And in 

closing, on behalf of myself and the PPAC, I would like again to 

express my appreciation for this opportunity to speak with you 

about these important issues relating to the United States Patent 

Office. 

Many thanks. 

[The prepared statement of Mr. Matteo follows:] 

42 

PREPARED STATEMENT OF DAMON C. MATTEO


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Mr. CONYERS. Attorney James Johnson manages the international enforcement of the trademark and copyrights of many of 

the most famous and valuable brands. And this includes filing oppositions and lawsuits to protect valuable intellectual property 

rights. He also focuses on unfair competition and domain name disputes. 

And so we are happy to have you here as our final witness, sir. 


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TESTIMONY OF JAMES H. JOHNSON, BOARD MEMBER, TRADEMARK PUBLIC ADVISORY COMMITTEE, SOUTHERLAND 

ASBILL & BRENNAN, LLP 

Mr. JOHNSON. Good morning, Mr. Chairman and Members of the 

Committee. 

My name is Jim Johnson. I am with the Atlanta office of Sutherland Asbill & Brennan. I am here today representing the Trademark Public Advisory Committee. 

My entire professional life has been committed to trademarks. I 

started out working in the trademark office as an examiner, then 

as trademark counsel for Kellogg’s, then Coca-Cola, and now with 

Sutherland Asbill & Brennan. 

I want to thank you for this opportunity to speak with the Committee and to share the concerns of the trademark community with 

the trademark office operations. As you, Mr. Chairman, correctly 

noted at the beginning of this hearing, the intellectual property 

protects and promotes the economic engine that this—that runs 

this country, and the founding fathers recognized the importance 

of intellectual property from the very beginning. 

Our job is to, therefore, protect and nurture this system so that 

it can continue to protect and nurture this great economic country. 

I want to talk about the breach of the fence. As you know, there 

is a law that prevents the use of trademark dollars for patent matters. Recently, due to the economic crisis, the patent office got the 

authorization to borrow up to $70 million until June 30, 2010, to 

use for patent matters. 

The director has assured us that, based on current projections, 

such borrowing won’t be necessary, but our plea to you and plea 

to the Committee from the TPAC is: Keep the fence intact now and 

forever. 

We have had ample discussions on the issue of fee diversions. 

And we agree and we are pleased to note that the Committee supports the view that fee diversion is very bad for the patent and 

trademark system. 

A couple other issues I would like to bring to your attention. One 

is the unauthorized practice of trademark law before the office. We 

are hearing anecdotal reports from examiners and from other PTO 

officials that there are parties that are representing others before 

the trademark office when they are not authorized to do so. In 

other words, they are not lawyers. 

We are in process of assessing how big this situation is, and we 

will address it when we figure that out. But potentially the problem is that parties who don’t know how to handle applications and 

things for parties are going to take unnecessary resources from the 

office. And as Abraham Lincoln said, when you represent yourself—even a lawyer who represents himself will have a fool for a 

client. 

We also want to take this opportunity to issue kudos to the 

trademark operation and the director. The trademark office has 

performed in an outstanding manner in a very difficult economic 

environment. They have created a surplus even when filings were 

down. 

We also applaud the director’s decision to maintain pendency at 

21⁄2 months to 31⁄2 months from the filing of the application. 

50 

To put matters in perspective, when I was an examiner back 

when there were 13 colonies, it often took a year from the time an 

application was filed to when an examiner first looked at it. So to 

be at 21⁄2 months is a tremendous accomplishment. I don’t want to 

suggest that the office got better once I left, but those are the facts. 

We also would like to note that the trademark manual of examining procedure—it is the manual in which the examiners and the 

outside public relies—needs to be updated more often and continually, so for the obvious reason that you need a good resource material review. 

We have also heard talk about the funding for the new computer 

system, and that has to occur in that—and everyone seems to be 

in agreement on that issue. 

The Trademark Trial and Appeal Board is also working well, and 

the only issues we note there is, their manual of examining procedure needs to be updated continually, and we understand that they 

are working toward that. 

The chairman of the Trademark Trial and Appeal Board needs 

to be finally appointed. We have had acting chairmen since October 

of last year. And we need a better structure there, so to whatever 

you can do to promote that or make that happen, that would be 

good. 

And finally—and we would note that TPAC needs to be restructured. And we have outlined in detail the—in written materials 

what has to happen, but what we have now is the terms aren’t 

aligned properly, so you have gaps in membership. 

And the chairman of the TPAC comes from outside of the Committee, so he has a large transition period. He also doesn’t need to 

be chairman for 3 years, because the job of chairman is tremendously demanding, so we need to have a more appropriate succession plan. 

So thank you again for this opportunity to speak to the Committee. We are very pleased with trademark operations, Lynne 

Beresford and her management staff, Debbie Cohn and Sharon 

Marsh, have done a tremendous job, and under the leadership of 

Director Kappos, so we are very happy, we are very proud, and we 

just need a few things to work on. 

Thank you again. 

[The prepared statement of Mr. Johnson follows:] 

51 

PREPARED STATEMENT OF JAMES H. JOHNSON


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Mr. CONYERS. Thank you all for opening us up to some of the nuance that goes on. 


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Mr. Kappos, can you make Attorney Johnson feel more comfortable about all these people practicing without a license before 

you? Have you heard about that before? 

Mr. KAPPOS. Yes, I have, Chairman Conyers. Thank you for that 

question. And as Mr. Johnson pointed out, we are looking into that 

now. The issue was first raised, in fact, by trademark office examiners, and so we are working with the TPAC to look into that issue 

now and do the fact-finding that we need in order to determine 

what actions need to be taken. 

Mr. CONYERS. Mr. Budens, I notice nobody else mentioned much 

about the concerns that you listed. I think there were five or six 

of them maybe. Is there any friendly advice you want to share with 

your other three witnesses this morning while we are all in the 

room together? 

Mr. BUDENS. Other than they should always listen to POPA, because, you know, we are in the trenches right there, I think some 

of our concerns are unique to the association, because we are internal to the agency, we are dealing with the day-to-day work of the 

agency. 

But I think some of our concerns also look to the outside. Now, 

I don’t—for example, our concerns with the post-grant review process proposed in the patent reform legislation. I have a rather simplistic view of it, Mr. Chairman. I don’t have the business acumen 

of my colleagues here on the panel. 

But it seems in the 20 years that I have been looking at patent 

examination and, you know, patents working their way through the 

system, it seems that, no matter what happens, if a patent—we 

issue about 150,000-plus patents a year. Only a handful of them 

ever get into litigation and get real serious. 

But it seems to me, you know, patents that are important go 

through the process. If one party somewhere determines that there 

is some serious money at stake here, that patent is going to make 

its way into the courts and through the litigation process one way 

or the other. 

And what I see as that, when there is serious money at stake, 

the losing party isn’t going to stop, you know, because the patent 

office said no in a re-exam or says no in a post-grant opposition. 

They are going to go onto the next level of the appeal process and 

continue on. 

So my view of post-grant opposition right now, my concerns with 

it, is that it will simply interject another level or step of litigation 

that will prolong the uncertainty, the period of uncertainty of that 

patent, and will increase the expense of the patent holder of maintaining that patent. 

And I think ultimately in the long term I am concerned that that 

will weaken the system and, you know, perhaps make our 

innovators think of other possibilities or other directions to protect 

their intellectual property. That is a serious concern that I think 

we have. 

I am also concerned that it will—there has been some talk about 

being able to accomplish this in, you know, a 1-year period. I have 

not seen us actually accomplish too many things in a 1-year period 

before, so I am a little concerned that that will happen. And if it 

57 

does happen, I am worried that it will come at the expense of initial examination. 

And I am a firm believer that the job we do is important, and 

we really need to be doing the job right the first time, when an examiner picks up the case and do a quality examination, and put 

the strength in the patent, you know, up front, and that, I believe, 

will in the long term, you know, diminish litigation and create a 

stronger patent system. 

Mr. CONYERS. Mr. Matteo, do you think standalone legislation 

may be our final resort, if we can’t really reach agreement? And 

do you have any hopes or fears about such legislation? 

Mr. MATTEO. I am sorry, Chairman Conyers. Do you mean with 

respect to post-grant opposition? 

Mr. CONYERS. No, I mean with respect—if we can’t work out a 

patent bill, that we just write a single bill continuing the patent 

office and giving them the power and the money and the authority 

that they need to keep going on. 

Mr. MATTEO. Extension of status quo, in other words? I think my 

initial reaction to that is, once you take the pressure off, you are 

much less likely to get an end result that I think we are all hoping 

to achieve on a number of fronts, fee diversion, for example. So I 

would—while it may be an expedient solution, I suspect that having done so would probably, again, relieve the pressure and keep 

us from ultimately getting where we want to go. 

Ms. LOFGREN. Would the gentlemen yield? I want to make sure 

I understand. I didn’t understand your comment that it would take 

the pressure off on fee diversion, because the idea is to end fee diversion, was what the Chairman is proposing. Did I understand 

your comment? 

Mr. MATTEO. No, I actually I believe I must have misunderstood 

the question. 

Ms. LOFGREN. I see. 

Mr. MATTEO. I wasn’t aware that it was relevant to fee diversion. 

If the question is, in the absence of being able to pass the patent 

bill in aggregate, would a standalone bill vis-a-vis fee diversion be 

something palatable? Then the answer is an unequivocal yes. 

Ms. LOFGREN. Thank you. 

Mr. MATTEO. Sorry if I misunderstood the question. 

Mr. CONYERS. David Kappos, what say you? 

Mr. KAPPOS. Well, thank you, Mr. Chairman. So, relative to 

keeping the bill together versus taking a fee setting and other 

issues, I think that we have a heritage opportunity here on the 

part of the intellectual property system overall to pass legislation 

that is generations in the making and that is badly needed. 

And I think we should take advantage of that opportunity and 

press on and get comprehensive patent reform done that includes 

all of the changes needed for the PTO, including fee-setting authority and the others, but also all the other important changes that 

will move the U.S. patent system back to the gold standard of patent systems and will advantage U.S. innovators for many, many 

years, and hopefully generations to come. 

So I applaud the work that the House has done, the leadership 

the House has taken in getting the bill to where it is now. And the 

Administration would like to continue to support the House and 

58 

the Senate in moving this legislation to completion, comprehensive 

patent reform legislation. 

Mr. CONYERS. But we are in this period of intransigence. We are 

intransigent now. We seem to be stuck. Someone asked me where 

we are since we met with you and the secretary. And I said, quite 

frankly, I don’t know. 

But at least you come to the table optimistic. That is a good sign. 

Well, I will match my optimism with your optimism, we still are 

stuck. I don’t know what is the holdup. 

Ms. LOFGREN. Would the gentleman yield? And I appreciate our 

colleagues on the other side of the aisle for indulging me, but are 

you saying, Mr. Kappos, that if our diligent efforts to do a comprehensive bill falls short—and I have been working on this since 

1995, along with the Chairman—that no thanks to the fee-setting 

increase? You would rather not have that and the end of diversion? 

Mr. KAPPOS. Yes, my view is that we can get this legislation 

done. 

Ms. LOFGREN. Yes, but if you are wrong—you are not a legislator. Mr. Conyers has been here a number of decades that I have 

learned to respect and admire his legislative savvy. You are saying 

no thanks to fee authority? 

Mr. KAPPOS. I would like to continue to work with this Committee and with both houses of Congress to get complete, comprehensive—— 

Ms. LOFGREN. No, we got that. And if that fails, you don’t want 

the ability to set fees? Is that what you are saying? 

Mr. KAPPOS. I truly think it would be preliminary for me to 

make a comment on that now. 

Ms. LOFGREN. I think that is stunningly disappointing that you 

would rather not have the money, but certainly the advocacy 

groups, the patent holders, and the technology sector feels quite 

differently. 

Mr. CONYERS. Well, you tried, Lofgren. [Laughter.] 

We will now—let’s see if Trent Franks can do any better. 

Mr. FRANKS. Now the Chairman is being optimistic. 

I think all of us understand that one of the great elements of 

America is this idea of free enterprise and someone launching out 

to do something that they think can not only serve their fellow 

human beings, but also serve themselves and their families. And 

I want you to know, as it happens, I am a patent-holder, and so 

I understand that dream. 

And I believe that there is a tremendous advantage to our system in that, if there is anything that seems to be the product, the 

outcome of our system, it is this word ‘‘innovation.’’ And I think it 

is almost impossible to overemphasize the importance of innovation. 

I mean, it is—in every area of human endeavor, it seems like innovation is a really big deal. And so I—like all of you—want to do 

everything that we can to maintain and protect that process. 

And it seems like one of the great challenges, Director Kappos— 

and this is not a criticism, it is just an observation—is that it 

takes—the time that a person has to spend gaining the patent, 

through the process application and then, of course, the pending 

59 

application, is one of the big challenges. It is one of the big backlogs. 

And I would think that, in a sense, that could spell an equation 

where government is standing in the way of innovation, and that 

is, you know, a significant impact on our economy and our jobs and 

a great deal of things. That seems to me, you know, that could be 

or should be one of our number-one priorities, is to get rid of the 

backlog. 

But there is a concern I have about patent legislation pending in 

the House. It is H.R. 1260. It seems to me like it could worsen that 

issue rather than improve it. It could make the process more complex and more cumbersome. 

In fact, the Manufacturing Alliance for Patent Policy released a 

study by Dr. Scott Shane of Case Western University. And Dr. 

Shane found that the House patent bill, according—you know, this 

is his opinion, his conclusions—would result in a reduction in U.S. 

patent value of around $85 billion. 

Now, again, we will have to see how time underscores his conclusion. He also concluded that a reduction in the value of U.S. public 

companies by as much as $225 billion, a reduction in R&D of up 

to $66 billion, and as many as—nearly 300,000 manufacturing jobs 

would be put at risk. 

Now, I guess my question to you, Director Kappos, how do you 

respond to these findings? What are your conclusions? And what 

specific problems do you have with the House version of the patent 

reform, as it is at this moment? 

Mr. KAPPOS. Okay, well, thank you for that question, Congressman Franks. So I recall having seen that study; it has been 

months, though. So I will give you general responses. 

My view, I completely agree that the backlog is a major, if not 

the major problem that faces the agency. And every one of those 

700,000-plus applications that is sitting in our agency is potentially 

tens, hundreds or even thousands, probably, in some cases of jobs 

that aren’t being created, products and services that aren’t going 

on the marketplace. 

And so fixing the backlog, if you will, addressing the backlog is 

clearly job one. I believe that if we can take the backlog from where 

it is—over 700,000 applications—to its optimal level, which is 

somewhere a little bit over 300,000 applications, which produces a 

steady workflow through the agency—we will unleash many new 

innovations into the U.S. economy. 

We will improve the U.S. trade balance, because there are so 

many innovations that come from Americans. We will help put 

Americans to work. We will help make Americans more healthy. 

We will help save American lives. There is all upside in it. 

I see absolutely no risk of doing damage to our economy. In fact, 

we will do enormous net benefit to our economy. 

Mr. FRANKS. Well, thank you. 

Mr. Chairman, I will just ask one more question, and I will yield 

back here. The post-grant review system envisioned in H.R. 1260 

is very different than the current vision in the Senate compromise 

bill, S. 515. In fact, as I understand it, the differences are so profound that some former opponents of the patent reform bill have 

60 

now been able to embrace S. 515, since it seems to largely satisfy 

at least their primary concerns. 

So, Director Kappos, I will direct a question to you again. Do you 

recognize these differences? Can you give us a little analysis of 

some of those differences? And do you prefer the version now being 

put forward by Senators Leahy and Sessions over the one that is 

before the House? 

Mr. KAPPOS. Okay. Well, thank you very much for that question 

about post-grant. 

So, yes, there are some differences between Senate 515 and the 

House version of the legislation. The differences come in several 

places, including the threshold that it takes to get into post-grant 

challenge, the level of later estoppel that is given, once a post-grant 

challenge is completed, some of the time limits that are involved. 

There are a number of differences. 

The USPTO in its technical advisory capacity is trying to support 

your team here on—the staff on the Judiciary Committee to work 

with their counterparts in the Senate in order to bridge those gaps 

and make the compromises that are needed in order to address the 

issues of parts of the innovation community that still need to be 

accounted for. 

Mr. FRANKS. Well, thank you, Mr. Chairman. 

I guess, Mr. Chairman, I would just suggest that this process, 

this patent process that is essentially wedded to one of the most 

unique essences of America, I think, is vitally important to our society, and I don’t ever want to diminish the incalculable complexity 

of the job that Director Kappos has to deal with. 

And I am hoping that there will be an effort to pull everyone together on this thing, because while I have emphasized the need 

and the importance of protecting the integrity and the value of patents because of all the reasons I have just stated, I have to believe 

that there is somehow a way for industry to come together on this 

one. And it is vital that we do, rather than just try to cram a 

square peg in a round hole, as it were. 

And so I guess that would be my thought on it. I understand Mr. 

Issa has come into the room. It seems he and I are the only two 

people in the Congress that have patents. He has around 30; I have 

only 2. But mine are a lot, lot better than his. [Laughter.] 

And so I just wanted to go ahead and leave that on the record 

and yield back. 

Mr. CONYERS. Well, that is a modest statement if I ever heard 

one. 

Magistrate Hank Johnson? 

Ms. LOFGREN. Mr. Chairman? 

Mr. CONYERS. Wait, excuse me. Zoe Lofgren, excuse me. 

Ms. LOFGREN. I appreciate being recognized, Mr. Chairman. I do 

have to run off and chair the California Democratic delegation 

meeting. 

But before I do, I just want to explore two quick items. One has 

to do with the possibility of satellite offices and how that might 

help. And we had an office that really—it was a virtual office, and 

it is not really what I think we have in mind on this. 

61 

And I understand that the professional association—disabuse me 

if I am wrong—wants to be reassured as to amenities and workspace and the like for patent examiners. And I think that is legit. 

But I am wondering if, as we move forward, it would be possible 

to invite the professional association or key people out to San Jose 

to take a look at my district, and I think you will love what you 

see. I mean, people love living in San Jose. You know, it is the 

weather, it is the technology, it is everything. And I think that we 

could reassure you tremendously if as we move forward we were 

able to do that kind of trip. 

So is it fair to ask you in public whether you would be willing 

to do it? 

Mr. BUDENS. I have no problems with that, Congresswoman 

Lofgren. I actually suspect that the concerns of whether people 

would want to go to a satellite office in San Jose are probably limited. 

I think we would have very limited getting people to volunteer 

to go back west of the Mississippi, including possibly myself. I am 

from west of the Mississippi. 

Ms. LOFGREN. I would welcome a new constituent. 

Mr. BUDENS. And so I don’t think that is—I actually honestly 

don’t think that is as big a concern. I think more of a concern to 

us would be, you know, from an association point of view, are they 

going to have similar office space, similar computer space, amenities and stuff? 

And is distance going to affect our I.T. infrastructure and, frankly, how do we—some of our major concerns are going to be representational. How do we represent somebody foreign? Not foreign, 

but away from—foreign to Washington. 

Ms. LOFGREN. Some in the valley might say that is good, but—— 

Mr. BUDENS. We haven’t had to do that before, so for us, it is 

a growing pain. 

Ms. LOFGREN. Right. 

Mr. BUDENS. I intend to actually—I have intentions of consulting 

with some of our other labor leaders in Commerce who have, you 

know, nationwide situations, to get some of the fees for that. But 

I think your concern is actually probably not nearly as grave as it 

needs to be. I think we will probably have little problem finding 

people willing to go—you know, move back out west. 

Ms. LOFGREN. Thank you very much. And that is good to know. 

And we will keep in touch on that. 

The second question—and I will throw it out to whoever wants 

to answer—obviously, you know, we have been trying to do legislative fixes to various elements of patent law. And as we have, the 

courts have moved ahead, I mean, with the eBay case. 

I mean, you know, we were told it would be the end of the world 

if we did anything with injunctive relief, and the world did not end. 

You know, it is fascinating. 

We have the Bilski case coming up, and we don’t know what the 

court is going to decide, but, you know, you listen to the arguments, you have some ideas. And, of course, they could surprise us. 

It is going to be soon. 

It is possible—or is it possible, I guess is the question—that 

Bilski will be clear enough that will make adjudication of patent 

62 

applications simpler and relieve the burden going forward on the 

office. Who wants to answer that, or no one? 

Mr. Kappos? 

Mr. KAPPOS. Thank you, Congresswoman Lofgren. So without 

speculating about the Supreme Court’s decision in the Bilski case, 

I think it is quite possible that it could be very helpful to clarifying 

standards to—for the first time in many years—providing direction 

to the USPTO and to the entire Federal court system underneath 

the Supreme Court that will enable us to put new, strong, clear 

guidelines in place for our examiners to do a really solid job of examining patent applications relative to statutory subject matter 

and the courts to give us guidance and to take a lot of tension out 

of what has developed into stated law that has become difficult to 

navigate over time. 

Ms. LOFGREN. Right. 

Well, Mr. Chairman, I am going to yield back because of my 

other obligation, but I want to thank you again for this excellent 

hearing, and I look forward to working with you, trying to get resources into the office, and I am sure that will be a bipartisan effort. 

Mr. CONYERS. Darrell Issa, top patent-holder in the Congress, is 

recognized. 

Mr. ISSA. Thank you, Mr. Chairman. 

And what would make the gentlelady from San Jose presume 

that San Diego wouldn’t work equally hard and prevail? After all, 

we do have beach volleyball, better fresh air, stunning views, and 

a lower cost of living, and, of course, Telecom Gulch is in San 

Diego. So do what you want. We are united on movement west. But 

after west, it could be southwest. 

And may the gentlelady give my regards to our colleagues. 

Now, onto less serious matters, look, getting a West Coast opportunity for us to get the best and the brightest to help with our side 

of the problem, to me, is essential. If you are in telecom, if you are 

in some of the new health sciences, or if you are in, if you will, just 

high tech in general—now that the gentlelady has left, I could say 

Silicon Valley; I just couldn’t say it with her in the room—it is very 

clear that it is awful hard to get people to move back, particularly 

if they are in a senior status, if they end up commuting, and I see 

them on the aircraft coming back, working the week in Washington 

and heading back, or telecommuting. 

But either way, it is less than it would be if we could have an 

office. And I think certainly for professionals, if this is a choice between being forced to work out of one’s home only or be in Washington, that doesn’t really give them the opportunity to work in a 

collaborative fashion. 

And this Committee has held numerous hearings on the idea of 

telework. And I would say to Mr. Budens, you already have a problem of people who are seldom in Washington that you oversee their 

well-being, and they do come on our video screens and show us 

that they are in their flip-flops, and they seem quite comfortable 

with their basements. So we think we can do that. 

I have a couple of questions that are only sort of tangentially on 

task for today, but, Mr. Kappos, we don’t get you very often, so I 

am going to take full advantage. 

63 

For three—really, into the fourth Congress, I have been trying to 

get patent pilot, as we call it, the patent reform education act, if 

you will, through. It has left the House repeatedly. It died in the 

Senate with no opposition. 

It finally found opposition, which apparently it costs money to 

have judges and clerks be better at prosecuting patents, even 

though it is only a few million dollars. 

I want to approach one thing for the PTO. If the training element of providing judges who decide to specialize or who, in fact, 

simply are going to be facing cases, if their ability to get up to 

speed on patents, both old law and hopefully new law, if within our 

fee setting of your fees we were able to set a fee and earmark it, 

that you were able to collect against either new patents or reexams or all of your other renewals, would that be acceptable to 

you? 

And I ask this because, as you know, I have been out to your facility. I realize you have foreign dignitaries coming through all the 

time for various trainings that—and I found it incongruous that we 

train people from outside the country, but not our own judges to 

any great extent. Would that be something that you would be interested if the funds were provided? 

Mr. KAPPOS. Well, thank you for that question, Congressman 

Issa. And I will answer it in just a second. 

I would start by saying, as a California native who was in both 

San Diego and the Bay Area, as well as Los Angeles—— 

Mr. ISSA. You know the desirability of San Diego. 

Mr. KAPPOS. That is right. As recently as last week, I could tell 

you that all three of those areas would be wonderful places to have 

West Coast operations for the PTO, not the least of which is my 

home area of the Los Angeles area, in addition to the two that have 

already been mentioned. 

Now, relative to the question—— 

Mr. ISSA. Oh, do you have a particular part of Los Angeles? We 

don’t want to just say ‘‘Los Angeles,’’ because that lets you get a 

pass on too much. Are we talking about the valley? Are we talking 

about Simi Valley? 

Mr. KAPPOS. We are talking about Orange County. 

Mr. ISSA. Orange County, okay. You know, that is a whole different group. You have now alienated all the Los Angeles downtown. [Laughter.] 

Please. 

Mr. KAPPOS. So relative to training judges, the USPTO would be 

very supportive of taking a role in training judges. As you point 

out, we have a wonderful facility, truly state-of-the-art. We do train 

a lot of overseas judges, as well as patent office officials. We think 

we can play a valuable role. 

We do not think that it is extraordinarily expensive. You know, 

the space is already there, and it is already completely outfitted. 

And without talking about details or dollars, from a principle base 

level, I would have no issue with working out a mechanism for 

funding that kind of training. 

I think it is absolutely the right thing to do for our country. It 

is absolutely the right thing to do for our Federal judges, magVerDate Aug 31 2005 14:12 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6601 H:\WORK\FULL\050510\56270.000 HJUD1 PsN: DOUGA
64 

istrates, and all others who are involved in the intellectual property system. 

Mr. ISSA. Excellent. The second one is one near and dear to my 

heart, which is this new problem we have of false marking. As you 

know, coming out of what is yet not a final decision, but a threejudge panel of the Fed circuit, we have a broad decision that essentially everyone has standing to claim that a patent is either false 

marketing because it doesn’t apply to the product it is on, or that 

it has expired and thus deceptive, and hundreds and hundreds of 

cases have been brought strictly on that one part. 

I think there is approaching 100 just in the Chairman’s area of 

Michigan. You have a specialist in your area, Mr. Chairman. 

Those cases, obviously, have a cost. Hundreds of cases have a 

cost to the court. And yet we have an oddity, and I would like you 

to comment on it. That is that the ‘‘revenue that might be received 

by the Federal Government as a portion of these false marketing 

claims is calculated as a loss if we eliminate those cases,’’ even 

though it is not yet a final decision, but the cost to the court for 

having hundreds of cases is not counted. 

Can you reconcile how we would bring that, just knowing what 

patent cases are like in the courts? And I know it is outside your 

jurisdiction a little bit, but maybe you can understand what I can’t 

understand, why there is a PAYGO problem there. 

Mr. KAPPOS. Well, thanks for that question, Congressman. I 

would be happy to comment on it, both from my role advising the 

Administration, but also, you know, generally knowing how the industry works. 

But, first of all, there is a cottage industry that has rapidly developed around false marking suits. The last I knew, there were 

well over 100 filed, all in, of course, Federal district courts, to my 

knowledge, anyway. 

And the cost related to those in terms of the administration of 

justice on the court system is going to be high. You are talking 

about, you know, Federal lawsuits. 

The cost to the litigants on both sides, both especially the parties 

who are being sued on this, you know, sort of brand-new area of 

the law, frankly, windfall area of the law could be expected to be 

very high. It costs at least in the hundreds of thousands of dollars, 

if not into the millions of dollars, to defend patent-related suits. 

And given the possible damages, I would expect that those who are 

sued would have to mount pretty significant defenses. 

And the other thing that to me is very speculative right now is 

the availability of awards, because there has been very little jurisprudence developed in this area, essentially one case that sort of 

caused this cottage industry to form. 

So, unfortunately, I can’t reconcile, you know, how there could be 

a PAYGO kind of a problem right now. I think there is tremendous 

speculation occurring in the area of false marking. 

Mr. ISSA. Well, the CBO has scored that there could be $4 million to $12 million of revenue to the Federal Government, could be 

kind of a guess, but they defend that, as well they should, that 

they were asked to guess, they guessed. 

A hundred cases defended—let’s say 50 of them defended vigorously. What would you guess that is to the court, not the litigants, 

65 

but to the court? Would it be more than $4 million to $12 million 

on balance? 

Mr. KAPPOS. Well, you know, we are both guessing now a bit, but 

my guess is that it would be somewhere certainly in that range, 

and that doesn’t even count the cost on the side of defending the 

litigation, that is, you know, deadweight drag. 

Mr. ISSA. Okay, so we will assume that our guess on the other 

side is as good as the CBO’s guess. 

Lastly, I would like you to comment on the real question. I heard 

earlier the request for fee setting capability. And in the long run, 

I actually think that we should transition to that. 

But what if this Committee had the legislation and the inclination to allow you to build a true line of credit not from excesses 

achieved that were unanticipated, but against revenues that are 

historically inevitable based on your renewals and other fees? 

Is there any reason that you could find that that wouldn’t be the 

most logical? Since we lose money on the applicant, and we make 

money down the road, wouldn’t that be the more logical—just I am 

leading you—but wouldn’t that be the more logical thing for us to 

do, is to allow you to essentially have a line of credit against revenue that is historically predictable? 

Mr. KAPPOS. Okay, so thank you for that question, and it really 

goes to having financial tools available for the USPTO to run its 

operations in a more businesslike and sustainable fashion. And 

while we haven’t asked for a line of credit, it certainly would be 

something that we would be happy to work with—— 

Mr. ISSA. Right, and I use the line of credit. In government, it 

is not truly that, but it is fee anticipation, I think is the term I 

have been told to you. 

Mr. KAPPOS. Right. So what we have requested is the ability to 

form a reserve, because one thing we don’t have a problem with at 

the USPTO right now is collecting revenues. We are actually, as I 

point out, collecting much more than we have the authorization, 

the appropriation to use this year. 

And so if we could have access to those collections, one of the 

things that we would be doing is forming a reserve, which is sort 

of the flipside of a line of credit—— 

Mr. ISSA. Select and retain. 

Mr. KAPPOS. Right, to be able to use money that we are collecting 

this year in the future and build up a buffer so that we can operate 

the USPTO in a more business-like fashion. 

Mr. ISSA. Okay. I want to thank you for that answer, because, 

Mr. Chairman, I do believe that in the years that we have worked 

together on eliminating fee diversion, we really haven’t done the 

second part, which is the fee retention of the fee anticipation. 

And I do believe that, around the appropriators, it is within our 

jurisdiction to do those two, recognizing that they may still feel 

that to use it requires them—but to use it versus to have it seem 

to be two different things. And if we can make sure that they have 

it, then I suspect that the appropriates will always allow them to 

use it for good cause. 

And I thank the Chairman. Mr. Chairman, I yield back. 

Mr. CONYERS. Thank you, Darrell. 

Magistrate Hank Johnson? 

66 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Chairman. 

Mr. Kappos, I am concerned about fees, pendency, quality, all of 

those kinds of issues, and I am also concerned about diversity in 

the workplace. 

I wanted to—and before I do that, I will say that Mr. Johnson 

and I—if anyone was concerned or alarmed in any way—we are not 

related. He is much smarter and good-looking than I, but it is good 

to have you here, sir. 

And I am glad to know that you were a former patent examiner, 

as well. I did not know that. 

Mr. JOHNSON. Trademark examiner. 

Mr. JOHNSON OF GEORGIA. Hmm? 

Mr. JOHNSON. Trademark examiner. I was on the trademark side 

of the aisle. 

Mr. JOHNSON OF GEORGIA. Oh, okay. You are on the trademark 

side, okay. Kind of right there in the mix, but let me ask Mr. 

Kappos, I understand that, as part of your recruitment program, 

you have been reaching out to historically Black colleges and universities. And I certainly want to applaud you for that. 

Can you specifically describe those efforts? And in particular, 

how does the agency reach out to Black colleges and universities 

or colleges that are designated as Hispanic-serving institutions? 

And also, there still remains some work to be done to increase 

diversity among top-level staff and management in USPTO. What 

percentage of your GS-13, 14s and 15s, and SCCs—SCSs, I am 

sorry—are minorities? 

Mr. KAPPOS. Okay, well, thanks, Congressman Johnson. That is 

a great question and something that I feel very, very passionately 

about, and I will try and answer as many facets as I can. 

Obviously, the statistics we will need to supply after the hearing. 

I don’t have those at my fingertips in terms of GS-12s,-13s, et 

cetera. 

So we take diversity extremely seriously at the USPTO in all of 

its forms. We are, indeed, trying to recruit new examiners, and we 

are trying to do that with an eye toward diversity. 

One way to get to universities that have a high proportion of diverse students is simply to go there and speak there, which I have 

personally done and personally spent time with students trying to 

encourage them to come and apply for opportunities at the USPTO. 

Relative to the leadership corps, I agree with you that the leadership corps of the USPTO can be more diverse and needs to be more 

diverse. And the way you get a leadership corps to be more diverse 

is pipeline. You have to go into the people who are being considered 

for promotion and being developed into the leadership corps, and 

that is exactly what we are doing at the USPTO, to try and develop 

a more diverse pipeline for future promotion into leadership at the 

PTO. 

The last thing I would mention is that we actually have a terrific—in general, the agency has got a terrific track record, including being officially recognized by—as one of the best agencies in the 

Federal Government relative to diversity and actually inaugurating 

as many as five new affinity groups during fiscal year 2010. 

67 

So just, you know, in the time that Deputy Director Barner and 

I have been at the USPTO, we have made very definitive steps to 

move diversity to center stage at the USPTO. 

Mr. JOHNSON OF GEORGIA. Thank you, Director Kappos. 

In the recent past, there have been some patent examiners who 

have alleged that there was racial bias by their supervisors in performance evaluations. And, of course, that is crucial to this pipeline 

effort, which I definitely understand is the way to go with creating 

more diversity in the workplace. 

What are the procedures that the USPTO uses to address such 

allegations? And has the USPTO ever identified instances of racial 

bias? 

Mr. KAPPOS. Okay, well, thank you for that question. Like other 

Federal agencies, we have an office of civil rights at the USPTO 

that we charge with investigating issues regarding racial bias and 

the like. 

We are in the process of recommending or coming into Congress 

with some recommended reorganizational initiatives that will include making sure that that office of civil rights gains attention at 

the very top of the USPTO management, and meaning myself and 

Deputy Director Barner personally taking charge of that office, to 

ensure that any allegations are handled and are investigated in the 

most careful and appropriate manner. 

So we take diversity, as I said, very, very seriously. We take allegations of bias of any sort, especially race-based bias, extremely seriously. And we are actually literally in the process of coming into 

Congress with recommendations to make moves that will strengthen our ability to deal with those matters. 

Mr. JOHNSON OF GEORGIA. And as I understand it, you are going 

to be looking at hiring about 1,000 patent examiners over—each 

year for over a 3-year period. And that creates opportunities—significant opportunities to correct any imbalances that may exist 

with respect to diversity, and that includes African-Americans, 

Latinos, women. It includes Asians and what have you. 

And so I look forward to seeing the results of your initiatives, 

which I applaud you for. 

Mr.—is it ‘‘Budens’’ or ‘‘Budens’’? 

Mr. BUDENS. ‘‘Budens.’’ 

Mr. JOHNSON OF GEORGIA. ‘‘Budens.’’ Okay, Mr. Budens, what 

support services does POPA provide employees who feel that they 

have been discriminated against? 

Mr. BUDENS. I thank you. 

Mr. JOHNSON OF GEORGIA. And after that, I want you to explain 

to me how patent examiners are rewarded or incentivized—and I 

guess I would want to hear from both of you all on that. And also 

if you could elaborate on your concerns about the transfer of feesetting power to the agency as opposed to Congress retaining that 

authority and whether or not perhaps a sunset provision and any 

relinquishment of our fee-setting authority to the agency would 

make you fee more comfortable. 

Mr. BUDENS. Okay, thank you. That is a handful there. 

On the first question—— 

68 

Mr. JOHNSON OF GEORGIA. I just didn’t want to bog us down too 

far on the workplace diversity, which, of course, is very important, 

but there have been some other issues raised, well. 

Mr. BUDENS. On your first issue, POPA is the exclusive representative under the Federal labor management statute of patent 

professionals at the USPTO, both the examiners, and we also have 

other professionals—we have some librarians, accountants, et 

cetera. 

As the exclusive representative, we have the statutory responsibility of representing all, you know, members of our bargaining 

unit, regardless of race, creed, color, sexual orientation, et cetera. 

That is in our Constitution, and it is also required by law. 

So when someone, you know, gets in trouble with management 

or whatever, they have the right and the opportunity to come to 

POPA, and we will, you know, look into their case, and we will represent them before management, if we have looked at their case 

and believe that they have a justifiable grievance before the agency. 

We have a negotiated grievance procedure that covers most aspects of an employee’s work life. And we use that fairly aggressively. I am happy to say that over the course of the last year or 

so that we are working together much better. 

And, in fact, I am happy to say that in the last year, we have 

not had to run—take a single case to arbitration against the agency. And I commend Director Kappos for the fact that we are working much better together in resolving employee issues and coming 

to resolution to those. 

But we will handle employee issues, anything that is covered by 

the fair labor, you know—not the fair labor side, the Federal labor 

management statute and our grievance procedure, we take a very 

serious look at, and we represent a lot of employees. They have to 

come to us, you know, for us to be aware of what their issues are, 

but most of them do, and we try and fix the problems wherever we 

can. 

Mr. JOHNSON OF GEORGIA. Now, on that point, if you could provide me with some numbers in terms of complaints of racial discrimination and over, say, the last 3 or 4 years, 3 to 5 years, and 

how those were resolved, I would greatly appreciate it. 

Mr. BUDENS. I will see what I can do. We generally don’t keep 

track of those numbers. And our numbers, I would point out, are 

not—would not necessarily be reflective of problems at the agency, 

because the only ones we are going to see are the people who come 

to us. 

A lot more people go out the door of the agency than will necessarily come to POPA. Many people, if they get—you know, if they 

get into a conflict with the agency, either choose to just resign and 

leave the office or go their route. 

So while I will see what we can do about getting—you know, 

looking back at, you know, the cases we have handled over the last 

several years on our grievance side, I would caution you that there 

are anecdotal and, you know, may not necessarily accurately reflect 

the overall situation at the agency. 

Okay, I think your second question—let’s see. You had a question—oh, you want to know about the awards. We have had an 

69 

award structure in place for a number of years that basically was 

directed at production of the examiners and only awarded examiners at three distinct increments, 110 percent, 120 percent, and 

130 percent production above their requirements of their performance appraisal plan. 

Recently, as part of these count system initiatives, we have put 

in more granularity to that award system and put in awards at 105 

percent and 115 percent and 125 percent and 135 percent, as a 

means of trying to put, you know, awards within the range of more 

people. Prior to this change, if somebody, you know, was doing 113 

percent, 114 percent, they had no motivation to try and get to 120 

percent if they didn’t feel like they could do it, so they could drop 

back to 110 percent. 

Now we have—by increasing the granularity of the award structure, we are hoping to see more examiners who are at that level, 

for example, go for the 115 percent award, even though they might 

not be able to make 120 percent. And, therefore—and by doing so, 

we are hoping to bring a large number of examiners, you know, 

maybe a little smaller way. 

But if we are doing it with a large number of examiners, the productivity of the examining corps is going to go up. And I am hoping 

you will see that in a reduction of the backlog. 

Your third question was on the—— 

Mr. JOHNSON OF GEORGIA. Does that have anything to do with 

quality of the reviews? 

Mr. BUDENS. There is a quality element in the existing structure 

right now, where if you—you have to maintain either commendable 

or fully successful performance in all the other elements of the performance appraisal plan, which includes quality elements and work 

flow. 

So there is a quality built in. We do not have at this time an actual quality award for quality performance as opposed to the productivity award. Happy to consider doing that, you know, as soon 

as David and I can have a chance to sit down and talk. 

The problem we have had in the past with a quality award is determining how you measure the quality. One of the concerns we 

have is that we need to have an objective standard, you know, for 

employees, as objective as quality can be, and that is not very objective, unfortunately, but to figure out, as objective a standard as 

we can come up with, so that we don’t have a situation where, you 

know, a particular supervisor, you know, likes examiner Kappos 

and will make sure they have good quality and give them award, 

and they don’t like, you know, examiner Matteo and, you know, 

don’t give them awards. 

So that has really been one of the problems in trying to create 

an award system, just based on quality. 

Your third question goes to our concerns about fees. We are all 

in favor of the agency getting a reserve fund, as Mr. Kappos mentioned, and we think that is a great idea, and we should have— 

you know, we hope you all will find a way to institute it and allow 

us when we have carryover money to put it in a rainy day fund. 

The concerns we have with the fee-setting authority actually 

evolves from something basically totally separate, and that was— 

70 

some of you will painfully remember the adventures where you had 

with the rules-making packages for claims and continuations. 

And the concern really arises out of what I think was a total refusal to listen to the comments of the public when we went through 

that rulemaking procedure. That rulemaking procedure gained an 

incredible—you know, had the largest negative response from—in 

comments I think of any rulemaking package in the history of the 

PTO. 

And so what our concern is, is if the agency was willing to—you 

know, and I am not looking at this current Administration, but if 

an Administration is in place that would be willing to just look at 

the rulemaking and just listen to the comments and then ignore 

them completely, I get real concerned when that turns into some 

serious money in reference to raising fees and stuff. 

So while I believe that the—I want the agency to have fee-setting 

authority, I want to make sure Congress keeps its fingers in determining what fees are created. Once you all have decided that there 

should be a fee created for a particular, you know, aspect, statutory 

process like examination search or filing fees, excess claims, stuff 

like that, then I think the agency—you know, would like the agency to have fee-setting authority. But I am leery of having it have 

fee-creation authority. 

Another problem we saw was in 2005 with the initial attempts 

to outsource searching. They tried to do that with creating the fee 

structure that we currently have. We found that, and thanks to the 

hard work of, at that time, the Subcommittee on Courts, the Internet and, you know, Intellectual Property, we kind of got that circumvented a little bit, but that is another major concern we have. 

We do want the agency to keep all of its fees and have access 

to it. That we agree totally with. How we do that, I am not exactly 

sure. I don’t see an easy answer to it. 

We don’t want to see the Congress—you know, the ability to 

oversee the agency’s actions lost in the process of trying to solve 

the fee diversion problem, but I don’t—I wish I had an easy answer, you know, to suggest. 

I think one of the issues is, is there a way to get us out from 

under the scoring process? You know, because I think that is a big 

headache, but I don’t even begin to claim to be an expert on the 

scoring process. It boggles my brain. 

Mr. JOHNSON OF GEORGIA. Thank you. 

Mr. Kappos, anything you want to say about it? And either Mr. 

Matteo or Mr. Johnson, if you choose to weigh in on any of the 

issues that I have raised or that have been discussed? With the 

Chairman’s consent, I would like for you to. 

Mr. KAPPOS. Well, thank you, Congressman Johnson. I would 

just add to what Mr. Budens has said, that I believe our examiners 

are also highly incented by the ability to contribute, the ability to 

know that they are doing something important, and to have the 

time they need in order to do a good job, to do a high-quality job 

in examining patent applications. 

And in that regard, I will read a very brief quote from an e-mail 

that I received no less recently than last night from an examiner. 

I get literally hundreds of e-mails from USPTO examiners, and this 

particular person—who, by the way, I don’t know and have never 

71 

met—says, ‘‘I am supremely grateful for the work you have done 

through the revamping of the count system and now through the 

production goal study.’’ 

Mr. Budens mentioned both of those. 

‘‘The quarter more I get for new cases and the quarter for finals 

have made the difference between sink or swim. The 2 more hours 

we received has also been extremely helpful in writing quality office actions.’’ 

So this is a person who is writing an e-mail, not to talk about 

salary or awards or bonuses or any of that stuff, but to talk about 

doing a good job. It is really, really important, right? It is a key 

driver to morale. It is a key driver to retention. It is a key driver 

to job satisfaction. It is a key driver to everything that makes an 

effective workforce. It is a key driver to leadership, right? And that 

is what I am here to bring. 

And it is enabling people to know that they are contributing that 

I think is a major, major incentive to USPTO examiners. 

Mr. JOHNSON OF GEORGIA. Thank you all. 

Mr. CONYERS. We now recognize our Ranking Member, who has 

returned, Lamar Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

Director Kappos, I have a couple of questions to direct to you. 

And I was gone for a few minutes, and if you answered these questions, let me know or give me a truncated answer, one or the other. 

The first question is, in regard to PTO having fee-making authority, if you did have fee-making authority, what fees would you consider increasing? And by how much? 

A corollary of that is—one proposal has been made that there be 

a 15 percent surcharge, 15 percent increase across the board. If you 

were to do that or increase the other fees that you might mention 

now, would that succeed in reducing the backlog in months from, 

say, 35, 37 to the 20-months goal that you have set for 2014? 

Mr. KAPPOS. Right, well, thank you for those questions, Ranking 

Member Smith. 

So a number of components to how we think that the fees would 

need to be adjusted, one is short term, and that is the 15 percent 

surcharge. And we gave consideration—before making that recommendation, we gave consideration to whether it might be better 

to recommend an interim or short-term adjustment of different levels to different fees, and we decided in the end that it was probably 

better to make a simple adjustment to all fees of 15 percent that 

would enable us to collect money that we need in order to get going 

immediately on reducing the backlog, so—— 

Mr. SMITH. My questions were a little bit more specific than that. 

As far as what fees, how much, and would they reduce the backlog 

and achieve your goal? 

Mr. KAPPOS. Right, okay. So that is the second part of the answer, right? Finish with the 15 percent surcharge for short term. 

Longer term—— 

Mr. SMITH. Okay, how long is short term? 

Mr. KAPPOS. Short term is between a year and 18 months, and 

the reason for that is that, even if we had fee-setting authority 

today, we have to go through a comment process, notice and comment rulemaking, et cetera, et cetera. It takes at least a year to 

72 

get that done, okay? So that is why a 15 percent surcharge short 

term. 

Mr. SMITH. Okay. 

Mr. KAPPOS. Long term—now, your question, how would we 

change fees? There are some fees at the USPTO that are just a 

small fraction of the cost to actually do the work. 

Re-examination fees, right, as an example, in that part of the office, fees related to appeals, also. Those fees are a tiny, tiny fraction—those fees run into the—in most cases, in to the few thousands of dollars. And the actual cost to perform the work is in the 

tens of thousands of dollars. So those fees, I believe, would need 

to be raised substantially. 

Other fees we would raise potentially not at all, including some 

of the fees related to publications, where we want to incent parties 

to publish or permit the USPTO to publish—— 

Mr. SMITH. You anticipate that those fees that you propose raising would allow you to reduce the backlog to the 20-month goal 

within 3 or 4 years? 

Mr. KAPPOS. Yes, they will be extremely helpful for us to get 

there. 

Mr. SMITH. Okay, great. My next question goes to something you 

mentioned briefly in your prepared remarks, and that is the perception survey results from individuals who are teleworking. I have 

never heard of a perception survey before. It doesn’t sound to me 

like it is particularly credible. When you ask individuals if they 

enjoy working from their home, you can probably guess the response that you are going to get. 

My question is this. Are there any metrics available showing 

whether or not those individuals who telework from their homes or 

elsewhere actually approve as many patents as those who don’t 

telework? Is there any kind of an evaluation that has been made 

showing whether those individuals are as productive or possibly 

more productive or less productive than individuals who don’t 

telework? 

Mr. KAPPOS. Okay, well, thank you for that question, Ranking 

Member Smith. 

The answer is, there are some factual indications, and I will tell 

you about them. I have give you a couple of examples. 

One is that we track statistics regarding sick leave. And statistically—— 

Mr. SMITH. I am not interested in that. I am interested in 

metrics that would show whether those individuals are more productive or less productive. I would expect them—because as I understand it, you are not offered the opportunity to telework until 

you have worked for USPTO for at least 2 years, so these individuals will have more experience than the more junior members. I 

would expect them to be more productive. 

And I am just looking for any kind of a study or evaluation that 

has been done showing and comparing work productivity with 

those who telework or at least the days they telework compared to 

those who don’t. 

Mr. KAPPOS. Okay. Well, I guess I am a little confused. People 

who are sick aren’t working at all, right? So we—— 

73 

Mr. SMITH. And I know—yes, my question, again—and maybe 

your answer is there is no such study, and if so, we can discuss 

whether or not there should be. But individual metrics that would 

have been evaluated comparing the productivity of those who 

telework versus those who don’t telework, a part of that might well 

be more days taken for sick leave versus not. 

But I am still looking for the overused word ‘‘bottom line,’’ as far 

as productivity goes. One way to measure that, it seems to me, 

would be by the number of patents that are approved. I don’t know 

if that is a legitimate metric or not, but that strikes me as possibly 

being one. But have any studies or evaluations been conducted getting at that answer? 

Mr. KAPPOS. Right, okay. So, yes, the kind of study I think that 

you are looking for would probably be measuring things like balance disposals. And we are actually working on that now to take 

us—a very cold statistical look at, as you say, allowance or balance 

disposals for employees who are on telework versus those who 

aren’t. 

Mr. SMITH. But that is a study that you have initiated or that 

is about to begin? 

Mr. KAPPOS. It is about to begin, yes, yes. We are just starting 

on it. 

Mr. SMITH. Okay, when would you think that that would be completed? 

Mr. KAPPOS. I would say a few months, speaking generally. 

Mr. SMITH. A few months, all right. And I would be interested 

in the results when you get them in. 

Mr. KAPPOS. Sure. 

Mr. SMITH. I would also like to discuss with you, before you commence that study, if you are interested in discussing the methodology and questions and some of the metrics that might be used. 

Mr. KAPPOS. Sure, we would be happy to do that. 

Mr. SMITH. If that is something that we can discuss sometime 

after this hearing, I would appreciate that. 

Mr. KAPPOS. Okay, sure. 

Mr. SMITH. Thank you, Director Kappos. 

Thank you, Mr. Chairman. 

Mr. CONYERS. You are welcome. 

Hank Johnson wanted to add one more question to our discussion today. 

Mr. JOHNSON OF GEORGIA. Yes, thank you, Mr. Chairman. 

Mr. Budens, at page 10 of your testimony, first paragraph, it 

says, ‘‘The proposed manager’s amendment to S. 515 does not contain a provision to maintain the 1-year grace period for inventors 

filing in the U.S.’’ 

Is that a fact that the manager’s amendment in the Senate 

leaves that provision out? 

Mr. BUDENS. It is my understanding, unless I missed it somewhere, you know, in the 100-and-some pages of that bill, I thought 

they had moved away from it as they moved toward the first to file 

process, and they were looking at more of a situation where—if I 

understand the process correctly—where a particular inventor, his 

prior art or her prior art references could not be used against them 

by the examiner. 

74 

However, if somebody else published something in that same 1- 

year period that was along the same—was related or disclosed— 

their invention, you know, through—because they went to a scientific conference or something, that that could be used as prior art 

against them, whereas I think right now the situation is under 

102(a) that the publications would not be able to be used against 

the inventor, so that basically the inventors would have that 1-year 

period. 

And the reason we are concerned about it is because we think, 

you know, particularly in the academic communities and stuff, 

there is a—you know, in America, we have kind of a publish-or-perish mentality for people in the academic communities, and we want 

to make sure that they can go to scientific, you know, conferences 

and disclose their discoveries and start working—you know, get the 

information out to people or go to different technical meetings, you 

know, or publish their papers in the science or technical journals 

and not be—find themselves having, you know, in a situation 

where they suddenly have a body of prior art out against them, you 

know, within that 1-year period. 

If I have missed it somewhere in the manager’s amendment, I 

will happily stand corrected. But it was a concern that—— 

Mr. JOHNSON OF GEORGIA. If you would, just simply get back 

with my office and let us know. If you would clarify that statement 

in your testimony, I would greatly appreciate it. 

Mr. BUDENS. We will. 

Mr. JOHNSON OF GEORGIA. Thank you. 

And thank you, Mr. Chairman. 

Mr. CONYERS. You are more than welcome. 

My thanks to all of the witnesses. This has been a very informative hearing. I am going to go through the transcript with my 

three staffers back here, and then I am going to take the liberty 

with the Members that participated on the Committee, invite you 

for just an informal discussion about some of the issues that have 

been raised. 

And your time and comments have been very valuable. And with 

that, the hearing is adjourned. 

[Whereupon, at 12:41 p.m., the Committee was adjourned.] 

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