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Whether government agencies should be funded from general revenue or funded by “user fees” paid by the private citizens and companies that use the agencies poses an interesting policy question. In the particular case of the U.S. Patent and Trademark Office (PTO), user fees have been funding operations for a number of years. In fact, since 1992, Congress has not only funded the PTO through user fees, but it has diverted $8 million to $200 million per year of user fees away from the PTO’s budget, for other government purposes. This fee diversion (a hidden tax) angers PTO users, who have lobbied unsuccessfully to end the practice. The diverted fees do not reflect a PTO budget surplus. Quite to the contrary, the PTO has an increasing backlog of unexamined patent applications, a shortage of trained patent examiners and ambitious goals for improving its infrastructure for the 21st century. The concern over application backlog, patent quality and increasing pendency time is of particular concern to the PTO and its users. Therefore, it is not surprising that the PTO welcomed recent legislation that increases its funding for the next two years. PTO spokeswoman Brigid Quinn said, “The 2005 appropriations bill is good news for American innovation and commerce at home and abroad. In a year when most non-defense agencies got about a one percent increase, the USPTO was given about 25 percent more than last year. Over the next 22 months, the agency will have more than 370 million new dollars to focus on issuing high quality patents and trademarks, reducing our backlog of applications, and ensuring better protection of American intellectual property rights globally. We will hire and train 1,800 new patent and trademark examiners [in the next two years], enhance our electronic tools to process over 1.1 million patent and trademark applications, and promote [intellectual property] enforcement around the world.” User fees increase The 2005 Consolidated Appropriations Act responsible for the PTO budget increase also is responsible for making immediately effective a new schedule of revised and substantially increased patent fees. For example, the basic filing fee for a short application with few claims has increased from $790 to $1,000, which includes $300 for filing, $200 for examination and $500 for search. The creation of a separate “search fee” raises the possibility, in the future, that the PTO could contract out searching duties to private entities. However, due to a complex schedule of surcharges, the filing fee for a more complex patent application that contains 200 pages, 10 independent claims and 80 total claims has risen from $2,486 to $5,900. The act also increases issue and maintenance fees due for allowed applications and issued patents. Trademark fees are also restructured. Certainly, the increased fees create a burden on patent applicants. Perhaps most affected will be individual inventors and not-for-profit and university PTO customers with more limited budgets than their industry counterparts. Although the PTO has provisions to reduce fees for these types of “small entity” applicants, the percentage increases on small-entity applicants is the same. Many industry groups actually supported fee increases on the condition that they were earmarked exclusively for the PTO budget, as opposed to further diversion to the federal government’s general revenue. These lobbying efforts went unrewarded, however, and some of the revenue collected from the total PTO user fees is expected to be diverted to other government agencies and services. Moreover, the fee increases are for two years only, and unless extended, the expected benefit of new patent examiners could be lost to future budget cuts. Industry groups have expressed a willingness to support a PTO budget increase, despite the immediate impact on user fees, because of the importance of an efficient, high-quality patent examination process to business. For many technology-driven companies, IP rights are one of their most important assets, especially during the startup period preceding the launch of a first product. For some industries, such as biotechnology, the product development period may take many years. Long patent application pendency times at the PTO translates into uncertainty about the IP positions of such companies, which may be an impediment to attracting the capital investment necessary for a company’s survival and growth. Long pendency also may delay the ability of a university applicant to license its technology, or reduce the value it receives for it (if licensed during the pendency of patent applications). Long pendency also creates uncertainty about the value of pursuing expensive foreign patent rights. Even for larger companies, long patent pendency affects the speed and quality of business decisions. For example, it may be difficult to evaluate and prioritize developing product lines when a company remains uncertain as to whether the PTO will grant its own patent applications to protect a product, or grant a competitor’s application that keeps the product from entering the market. Thus, reducing patent pendency is welcomed in many industry circles. Excessive pendency also potentially results in increased patent term, which can delay the time that the general public sees lowered prices through competition. The promise of improved quality through the hiring of new examiners and improved PTO infrastructure also will be welcomed. In many sectors, such as Internet, computer software and business-method patents, perceived problems with patent quality, such as issuing patents of questionable validity, have been well publicized. It is to be hoped that the PTO will be able to use its promised budget increase effectively to address these issues, and Congress will act to end the unfair fee diversion and extend the PTO budget increase for as long as needed to improve patent pendency and quality. David A. Gass is a partner at Chicago-based Marshall, Gerstein & Borun, an intellectual property law firm. He can be reached at [email protected].

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