PTO Budget Debate: President Gives Full FY2012 Funding; House Diverts FY2011 Fees

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Contrasting approaches to the federal government's budget would affect funding for the Patent and Trademark Office, as budget-cutting members of the U.S. House proposed to limit the agency's spending, while President Obama called for full PTO access to the fees it collects.

The PTO is currently operating with a budget frozen at its fiscal year 2010 level of $1.887 billion, because the lame-duck 111th Congress could only pass a continuing resolution to expire March 4, rather than a full-year FY 2011 budget (81 PTCJ 248, 12/24/10).

The Feb. 11 proposed FY 2011 budget by the House Appropriations Committee would raise the level to $2.016 billion for the year ending Sept. 30, but that is over $300 million less than the PTO originally projected for FY 2011 revenues.

The president, introducing his FY 2012 budget Feb. 14, called for the agency to collect and spend over $2.7 billion in the year beginning next October, including the same 15 percent surcharge on most fees first proposed by the PTO for its 2011 budget.

House Would Limit FY 2011 Spending.

The surcharge, had it taken effect as the administration wanted as of the Oct. 1, 2010, beginning of the current fiscal year, was intended to generate $224 million the first year. Added to the pre-surcharge projection of $2.098 billion in fees, the administration fought for an FY 2011 budget of $2.322 billion (79 PTCJ 668, 4/2/10).

On Dec. 8, the Democrat-controlled House approved FY 2011 funding for the agency at $2.262 billion, in the lame-duck session of the last Congress (81 PTCJ 171, 12/10/10). The $60 million difference between Obama's request and the House bill was accounted for by the inability of the PTO to implement the surcharge on Oct. 1. In any case, legislators could not agree on a FY 2011 budget in December.

However, the new Republican-controlled House's proposed continuing resolution, H.R. 1, aiming to fund the government after the current authorization expires March 4, would keep FY 2011 spending at FY 2010 levels. In FY 2010, the PTO collected $2.068 billion in application and maintenance fees for patents and trademarks. Of that amount, $1.887 was originally budgeted (79 PTCJ 185, 12/18/09), and the president pushed appropriators to allow the agency to use another $129 million in August (80 PTCJ 497, 8/13/10). But the lawmakers kept $53 million in fees and diverted them to other uses, despite Obama's request to allow the agency to keep those funds as well.

Thus, the appropriators' approach would limit the PTO to $2.016 billion spending in FY 2011. If the surcharge is not implemented, the agency will collect--if its earlier $2.098 billion projection is still accurate--$82 million more than it is allowed to spend.

The PTO did not respond to a request for comment on whether the agency would abandon the surcharge if it must abide by the House's proposed spending level.

According to Herbert C. Wamsley, executive director of the Intellectual Property Owners Association, “IPO supports the 15 percent surcharge, but only if there is assurance that the extra income will go to the PTO.” In a message to the appropriators, he added, “The only way we know to assure that the PTO would get the extra income is for the surcharge to be wrapped into an appropriations bill that raises PTO appropriations by an amount that takes the extra income into account.”

President's FY 2012 Budget Gives Full Access.

Obama's proposal for FY 2012 spending was bullish on the PTO: “USPTO will continue its aggressive patent pendency reduction agenda to reduce overall pendency and backlog over the next three years; continue to reengineer its quality management program; make improvements to its information technology infrastructure; and improve intellectual property protections worldwide.”

In a section titled “Improve the Patent System and Protect Intellectual Property,” the president not only requested giving the agency full access to its fee collections, but added a goal to “strengthen USPTO's efforts to improve the speed and quality of patent examinations through a temporary fee surcharge and regulatory and legislative reforms.”

“The surcharge will better align application fees with processing costs,” according to the budget text.

The administration projected $2.706 billion in fees collected in FY 2012 with $263 million attributable to the surcharge. Without the surcharge, that means over 18 percent growth in fees over the $2.068 billion FY 2010 actual collections, or about an 8.7 percent annual growth over the two-year period.

In another section of the budget, the administration endorsed the recent decision of the PTO to offer accelerated examination for an enhanced fee. The agency published a notice Feb. 4 announcing a proposed $4,000 fee for applicants who would prefer fast-track examination of about 12 months from the application date, compared to the current average of about 35 months (81 PTCJ 464, 2/11/11).

However, the authority for the PTO to set the prioritized examination fee--under 35 U.S.C. §41(d)--does not include the authority to determine which fees can be discounted, such that the agency cannot offer small entities services at half price, as it does with base search and examination fees. Only Congress currently has that authority.

The president's budget addressed the PTO's limited fee-setting authority directly: “the Director shall reduce fees for providing prioritized examination of utility and plant patent applications by 50 percent for small entities that qualify for reduced fees under 35 U.S.C. 41(h)(1), so long as the fees of the prioritized examination program are set to recover the estimated cost of the program.”

If Congress agrees with the president, the PTO said in its notice that the fast-track examination fee would rise to $4,800 for large firms, and hence be $2,400 for small entities.

PTO Announces Spending Plans.

“The budget will fund a number of key initiatives to fulfill the commitments in the USPTO 2010-2015 Strategic Plan,” according to a Feb. 14 PTO press release.

The announcement also included a note that the growth in fees anticipated in FY 2012 “includes a 1.4 percent Consumer Price Index (CPI) adjustment on patent statutory fees,” so fees will rise even if the surcharge is not implemented.

In addition to the fast-track initiative, the press release mentioned spending on the following programs:

• hiring 1,500 patent examiners, of which 500 would replace examiner attritions, and 300 would be dedicated to accelerated examination processing;

• reengineering patent processes to increase efficiency;

• establishing a nationwide workforce by expanding telework and focusing on hiring examiners with previous intellectual property experience from around the country;

• facilitating work sharing arrangements with overseas patent offices to eliminate unnecessary duplication; and

• continuing with the development and implementation of a new generation of patent and trademark information technology systems.

President Sends Message on Fee Diversion.

“In addition, the Administration proposes to reform the patent system to accelerate innovation and provide greater certainty to businesses,” according to the president's budget.

The reference was undoubtedly to current patent reform efforts in Congress, at least as to provisions that would give the PTO the authority to set fees and end the diversion of fees by appropriators (81 PTCJ 451, 2/11/11).

“To fulfill the commitments in the USPTO 2010-2015 Strategic Plan and the FY 2012 budget, the USPTO needs the flexibility to set fees along with other improvements contained in proposed patent reform legislation, and the resources provided by both the FY 2011 and FY 2012 budget requests,” the PTO's press release said. “The administration continues to support granting the USPTO fee-setting authority as a significant part of a sustainable funding model that would allow the director to propose and set fees in a manner that better reflects the actual cost of USPTO services.”

Text in the Obama budget plan itself aligned with the idea of a fee diversion ban--a proposal not yet introduced in either house but expected to be part of the patent reform effort. The budget requested “[t]hat any amount received in excess of $2,706,313,000 in fiscal year 2012 shall remain available until expended.” A further statement was made to ensure that the surcharge collections will remain available to the PTO “without fiscal year limitation, for all authorized activities and operations of the Office.” In fact, the budget actually called for the PTO to spend only $2.599 billion to meet projected FY 2012 expenses, so the administration essentially anticipated that excess funds would remain available at the end of FY 2012.

Though more patent reform provisions were surely implicated in the budget plan's stated expectation of “regulatory and legislative reforms,” as well as in the goal to “provide greater certainty to business,” neither the budget not the press release provided further information as to the administration's stance on the patent reform efforts ongoing in Congress.

By Tony Dutra  

Figures on Obama's 2012 budget derived from multiple documents available at

PTO's 2010-2015 Strategic Plan is at