Obama Administration Sets PTO's FY2015 Budget to Exceed $3.4 Billion

Bloomberg BNA’s Patent Trademark & Copyright Law Daily™is the IP industry’s premier news service, offering objective, timely,and reliable daily news coverage and commentary from leading IP law...

By Tony Dutra  

March 4 --The annual budget for the Patent and Trademark Office will exceed $3.4 billion under President Obama's proposal for fiscal year 2015, about 14 percent higher than is projected for the fiscal year ending the coming Oct. 1 and 22 percent higher than actual fee collections in the last full fiscal year, FY2013.

The FY2015 figure represents the fees expected to be collected from patent and trademark applicants and owners, with over 90 percent generated on the patent side.

The related text in the Commerce Department's specific budget is accordingly focused on patent issues: “USPTO will continue its aggressive patent pendency reduction agenda to reduce overall pendency and backlog; continue to enhance patent quality; ensure optimal information technology service delivery to all users; improve appeal and post-grant processes; and improve intellectual property protections worldwide.”

However, the budget indicates that the PTO is planning to spend $250 million less than the amount of fees collected, with the excess going toward the office's operating reserve.

“If the $3.441 billion actually is collected, the PTO will have the authority to spend it, if it chooses, under the appropriations language in the budget,” according to Herbert C. Wamsley, executive director of the Intellectual Property Owners Association. “While we don't object to building up some operating reserves, we hope that the PTO will hire more examiners and judges, and make other improvements, as fast as revenue reasonably permits.”

The budget does show an anticipated increase of 2,000 full-time equivalents over a two-year period ending Oct. 1, 2015. A request to the PTO for more detail on a breakdown of which types of employees will be hired was forwarded to the Commerce Department, which did not respond immediately.

Reserve Buildup

The buildup of the PTO's reserve is not unexpected. The America Invents Act gave the agency the authority to set its own fees to recoup aggregate costs, and the office built a hefty reserve into its aggregate costs when it first proposed to reset fees in 2012 (26 PTD, 2/9/12).

Pushback from the patent community caused the office to reduce its reserve aspirations a bit (13 PTD, 1/18/13), with the PTO committing to keep the reserve at only three months of operating expenses until 2018.

But then sequestration took funds from the PTO--i.e., from patent and trademark owners and applicants--without hope of being returned (160 PTD, 8/19/13), and a government shutdown forced the office to tap into its reserve so that it could remain open for business last Oct. 1 (188 PTD, 9/27/13). Best estimates at the time were that the reserve would last weeks, not months, but that was not tested as the shutdown ended within three weeks.

As of Oct. 1, 2015, according to the budgeted plans, the reserve will be at $1.07 billion. With an operating budget that year of $3.19 billion, the reserve represents at most a four-month operating cushion.

Reliable Estimates?

Wamsley was cautious about making any predictions based on a year-ahead revenue estimate. “Projections of collections this far out have a significant margin of error,” he told Bloomberg BNA.

Further, it appears that the expected revenue growth may be coming from the fee increase that took effect in March 2013. Increases in patent applications have been running at about 5 percent in the last few years, well below the 14 percent annual increase in collections projected in the FY2015 budget. There may be price elasticity resulting in fewer applications or fewer agreements to keep patents alive through increased maintenance fees that could further reduce fee collections.

“We don't know whether the 14 percent increase assumes higher prices,” Wamsley said. “The past practice has been that the PTO makes information available on the underlying assumptions for filings, issue fees, maintenance fees, PTAB fees, etc. We suspect this information will be available in coming weeks.”

Anti-Diversion in the Budget

One new provision in the budget as to how the funds are to be treated is presumably intended to make sure collected fees are not diverted from the PTO to other government uses:

That, notwithstanding any other provision of law, all fees and surcharges assessed and collected by USPTO are available for USPTO only pursuant to section 42(c) of title 35, United States Code, as amended by section 22 of the Leahy-Smith America Invents Act (Public Law 112-29).  

 

The AIA section referenced was of no use to the PTO during sequestration, though.

Section 22 established “a Patent and Trademark Fee Reserve Fund,” and said, “If fee collections by the Patent and Trademark Office for a fiscal year exceed the amount appropriated to the Office for that fiscal year, fees collected in excess of the appropriated amount shall be deposited in the Patent and Trademark Fee Reserve Fund.” Further, fees in that reserve fund “may only be used for expenses of the Office.”

The Office of Management and Budget determined that the PTO's collected fees were not exempt from sequestration, and consequently about $160 million in PTO fee collections in FY 2013 were subject to sequester.

The problem for AIA purposes was that, for various reasons, the PTO's collections that year were substantially lower than the original $2.9 billion appropriation. That meant that the $160 million was not “in excess of the appropriated amount.” Thus, the AIA reserve fund was not triggered.

With a seemingly aggressive $3.44 billion estimate for FY2015, the potential exists for a repeat of diversion.

Wamsley thus saw no benefit to the additional language in the appropriations.

“As we read it, this simply restates in the appropriations act what is already provided for in 42(c) as amended by the AIA and adds no new authority,” he said.

More Push for Patent Troll Legislation

The only mention of the PTO in the broader summary section in the Obama administration's overall budget is in a section titled, “Protects Innovators and Ensures a World-Class Patent System,” that reads:

Through implementation of the America Invents Act, the U.S. Patent and Trademark Office continues to make it easier for American entrepreneurs and businesses to bring their inventions to the marketplace sooner, converting ideas into new products and new jobs. The Budget proposes several legislative reforms designed to improve the transparency and efficiency of the American patent system, complementing a series of administrative actions the Administration announced in June 2013, which will help to protect innovators from frivolous litigation and ensure the highest-quality patents in the system.  

 

The June 4 announcement included five orders “to help bring about greater transparency to the patent system and level the playing field for innovators” (108 PTD, 6/5/13). All but one of the orders called for new efforts at the PTO. The administration issued three more PTO-directed orders on Feb. 20, though the agency's tasks for all three were already underway (35 PTD, 2/21/14).

As for legislation, the Commerce Department's budget also states, “The Budget supports USPTO's administrative efforts to address abusive patent litigation practices and repeats the President's call for Congress to enact legislation that promotes greater transparency in the U.S. patent system and prevents frivolous lawsuits that stifle innovation.”

The June 4 memo cited the administration's support for legislation and the Feb. 20 orders were followed by an even stronger push (37 PTD, 2/25/14). The Innovation Act, H.R. 3309, has passed the House, but the Senate's counterpart, S. 1720, the Patent Transparency and Improvements Act, is a stripped down version. The administration has not expressed a preference.

 

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com


Budget is available at http://pub.bna.com/ptcj/PTOBudgetFY2015.pdf.