"Reform" at the U.S. Patent and Trademark Office

By Kevin E. Noonan --

Senate bill S. 23 (the "America Invents Act") contains several provisions changing the statutory authority of the U.S. Patent and Trademark Office (falling short, fortunately, of giving the Office substantive rule-making authority).

The most far-reaching of these changes is contained in Section 9, which gives the Office (for the first time) the authority to set its own fees.  (Anyone who remembers the proposal in the earlier part of the last decade to use significantly escalating fees to "solve" the "excess filings" problem, which has matured into the backlog problem, will be understandably skeptical of the motivations, or that the likely use of this authority will not quickly become influential to substantive rights.)  The Section provides that the Director "shall have authority to set or adjust by rule any fee established, authorized, or charged under title 35, United States Code, and the Trademark Act of 1946 (15 U.S.C. 1051 et seq.), notwithstanding the fee amounts established, authorized, or charged thereunder, for all services performed by or materials furnished by, the Office . . ." (Section 9(a)(1)).  This authority is limited solely in that "patent and trademark fee amounts are in the aggregate set to recover the estimated cost to the Office for processing, activities, services, and materials relating to patents and trademarks, respectively, including proportionate shares of the administrative costs of the Office."  In "certain" fiscal years, the bill prescribes a role for the Patent Public Advisory Committee and the Trademark Advisory Committee (Section 9(a)(3)), wherein the Director "shall consult" with these committees "regarding the advisability of reducing any of the fees" (Section 9(a)(3)(A)) and after such consultation, the Director "may" reduce such fees (Section 9(a)(3)(B)), i.e., the Director has the authority to ignore any such recommendations.  With regard to the role of these advisory committees, the Director "shall" submit any proposed fees not less than 45 days before the fees will be published in the Federal Register (Section 9(a)(4)(A)), and at least 30 days to "deliberate, consider and comment (Section 9(a)(4)(B)), wherein the committee will hold a public hearing with the assistance of the Director "including by offering the use of Office resources to notify and promote the hearing to the public and interested stakeholders" (Section 9(a)(4)(B)(i) and (ii)).  The committee is required under these provisions of the bill to prepare and make public a report containing their "comments, advice and recommendations" (Section 9(a)(4)(C)).  The Director is then required to "consider and analyze any comments, advice, or recommendations received from the relevant advisory committee before setting or adjusting any fee (Section 9(a)(4)(D)) and notify Congress, specifically the Chair and Ranking Member of the Judiciary Committees of the House and Senate before issuing any final rule "adjusting" the fees (Section 9(a)(4)(E)).

This Section of the bill also provides several "notice and comment" periods, triggered by publication of any rules (or, presumably, fees) "prescribed under this section" in the Federal Register (Section 9(a)(5)(A)).  Such publication must include "the specific rationale and purpose for the proposal, including the possible expectations or benefits resulting from the proposed change" (Section 9(a)(5)(B)(ii)).  The ensuing public comment period must last at least 45 days (Section 9(a)(5)C)).  And Congress gets its own comment period, also lasting at least 45 days (Section 9(a)(6)), with no fee being effective prior to the expiration of this period.

The Section also provides for fee reductions for small entities and a new category that is a subset of the small entity population, "micro entities" (separately defined in Section 12).  Fees for "filing, searching, examining, issuing, appealing, and maintaining patent applications and patents" are reduced 50% for small entities and 75% for micro entities (Section 9(a)(2)).

Section 9(a)(7) may, like remarriage, be the triumph of hope over experience.  This rule provides that "[n]o rule prescribed under this subsection [i.e., prescribing fees] may diminish (A) an applicant's rights under title 35, United States Code, or the Trademark Act of 1946, or (B) any rights under a ratified treaty."

The Section also has a number of conforming amendments to several laws regulating USPTO fees, including an amendment to 35 U.S.C. § 41(d) deleting the provision that the Director cannot increase any fee after Congress sets a fee schedule (Section 9(b)(e)).  This section of the bill also contains a provision for encouraging electronic filing (Section 9(h)), imposing an additional fee of $400 for any "application for original patent, except for a design, plant or provisional application," that is not filed electronically (subject to reductions for small and micro entities), this "surcharge" to become effective 60 days after the bill is enacted into law (Section 9(h)(2)).  In addition, the bill provides for a 50% reduction in fees to small entities for "prioritized examination" (Section 9(i)).  Except for the provisions of Section 9(h), these provisions of the bill will become effective on the day the bill becomes law.

The definition of "micro entities" in Section 12 is contained in new 35 U.S.C. § 123, wherein the applicant can certify (and must certify) that they qualify as a small entity (§ 123(a)(1)), has not been named on 5 or more previously filed applications, including U.S. provisional applications, international applications "for which the basic national fee has not been paid," or applications filed "in a foreign country"  (§ 123(a)(2)), did not in the prior calendar year have a gross income . . . exceeding 3 times the most recently reported median household income" (§ 123(a)(3)), and "has not assigned, granted, conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the particular application to an entity that had a gross income . . . exceeding 3 times the most recently reported median household income . . . other than an entity of higher education where the applicant is not an employee, a relative of an employee, or have any affiliation with the entity of higher education" (§ 123(a)(4)).  These latter provisions may encompass some sole inventors, and whether they are likely to be beneficial to traditional small entities that make significant contributions to innovation such as universities will depend on how the "other than" provision of § 123(a)(4) is interpreted.

There are a few exceptions to these limitations.  Applications "resulting from prior employment" (i.e., when the applicant is named on earlier patents or applications where she had an obligation to assign her rights) do not "count" within the 5 application limit of § 123(a)(2) (§ 123(b)), and state (but not private) institutions of higher learning are included under the designation of a micro entity (§ 123(d)(1)), provided that the applicant has assigned her rights to the State institution of higher education ((§ 123(d)(1)(B)).  The Director is given the authority to "impose income limits, annual filing limits, or other limits on who may qualify as a micro entity" provided that the Director "determines that such additional limits are reasonably necessary to avoid an undue impact on other patent applicants or owners or are otherwise reasonably necessary and appropriate" (Section 12(a)(2)).  The Director is obligated under these circumstances to notify Congress, through the Judiciary Committees of both Houses, at least three months prior to imposing any such limits.

Section 19(a) provides the Office with the authority to provide funds for "subsistence expenses and travel-related expenses, including per diem, lodging costs, and transportation costs, of non-federal employees attending" programs, studies, or exchanges of items or services regarding domestic and international intellectual property law and the effectiveness of intellectual property protection domestically and throughout the world, and provides the Director with the authority to set administrative patent judges pay (Section 19(b)).

Section 20 of the bill relates to fee diversion and efforts to prevent Congress from continuing to raid USPTO coffers to fund general expenses.  This is done by establishing a new repository for USPTO fees, called the "United States Patent and Trademark Office Public Enterprise Fund" (Section 20(b)(1)(A)) and by revising 35 U.S.C. § 42 to provide that the fees collected by the Office "shall be collected by the Director and shall be available until expended," i.e., the monies are solely available for use by the Director in directing the performance of the duties of the Office (Section 20(b)(1)(B)(ii)).  The effective date of these provisions are a date certain, either October 1, 2011 or "the first day of the first fiscal year that begins after the date of the enactment of this Act" (Section 20(b)(2)(A) and (B)).

Section 20 also provides a "USPTO Revolving Fund" (Section 20(c)) that is "available for use by the Director without fiscal year limitation," i.e., the monies will not revert to the general fund if not expended in any particular fiscal year.  All patent and trademark fees are to be deposited into this Fund (Section 20(c)(2)) (except the paper application surcharge of Section 9(h) or trademark surcharges) and will be available to cover "all administrative and operating expenses, determined in the discretion of the Under Secretary to be ordinary and reasonable, incurred by the Under Secretary and the Director for the continued operation of all services, programs, activities, and duties of the Office relating to patents and trademarks, as such services, programs, activities, and duties are described under" the patent or trademark laws (Section 20(c)(3)).  This section also imposes on the Director an obligation to submit to Congress a report setting forth information on the "operations of the Office" including finances and staff levels for the past fiscal year (Section 20(d)(1)); providing an "operating plan" for the coming fiscal year (Section 20(d)(2)); describing plans for Office modernization (Section 20(d)(3)) and details on progress of such modernization plans (Section 20(d)(4)); and audit results for the Office (Section 20(d)(5)).  This section also imposes the obligation that the Director notify the Appropriations Committees of both Houses of Congress with regard to "the plan for the obligation and expenditure of the total amount of the funds for that fiscal year" (Section 20(e)).  Such a report must contain a summary of Office operations and a detailed operating plan for the current fiscal year (Section 20(e)(2)).  There are also audit (Section 20(f)) and budget (Section 20(g)) requirements, evincing a desire by Congress to retain oversight over the new-found fiscal authority of the Office.

Less urgently, the bill provides for the establishment of "3 or more satellite [Patent] offices in the U.S." (Section 21(a)), for the general purpose of improving the Office's performance and outreach and to attract and retain more examiners (Section 21(b)).  There are "required considerations" for choosing the locations of these satellite offices (Section 20(c)), including "geographic diversity," and such offices are to be "phased in" over a three-year period beginning on the date of enactment of the bill into law (Section 20(d)).  This section also includes a requirement for a Report to Congress describing the "rationale" for choosing the sites for satellite offices, the progress made in doing so, and whether establishing these offices fulfills the statutory mandate (Section 20(e)).  The first of these satellite offices is to be established in Detroit (Section 24), and to be named the "Elijah J. McCoy United States Patent and Trademark Office" (Section 24(a)).

There are two other sections of the bill that relate to U.S. Patent and Trademark Office practices.  Section 22 authorizes the Director to establish, "subject to available resources," a Patent Ombudsman Program, to "provid[e] support and services relating to patent filings to small business concerns."  Section 23 provides "priority examination for technologies important to American competitiveness," amending 35 U.S.C. § 2(b)(2) by adding subparagraph (G):

(G) may, subject to any conditions prescribed by the Director and at the request of the patent applicant, provide for prioritization of examination of applications for products, processes, or technologies that are important to the national economy or national competitiveness without recovering the aggregate extra cost of providing such prioritization, notwithstanding section 41 or any other provision of law.

Section 14 of the bill bans patents on tax strategies, by providing that they are deemed to be "within the prior art."  Tax strategy patents are defined as claiming "any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent" (Section 14(a)), where "tax liability" is defined as "any liability for a tax under any Federal, State, or local law, or the law of any foreign jurisdiction, including any statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability" (Section 14(b)).  The bill provides (Section 14(c)) that these provisions are not to "be construed to imply that other business methods are patentable or that other business-method patents are valid," reacting no doubt to such arguments made by Bilski and amici in Bilski v. Kappos regarding provisions of the American Inventors Protection Act (1999).  The bill specifically excludes any invention that is "a method, apparatus, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing" (Section 14(e)), and that the effective date of these provisions is the "date of enactment of this Act and shall apply to any patent application pending and any patent issued on or after that date" (Section 14(d)).

Finally, Section 25 provides that, unless otherwise provided in this Act," the provisions of the bill will become effective one year after enactment and will apply "to any patent issued on or after that effective date," i.e., will be retroactive to all pending applications.

For additional information regarding thisand other related topics, please see:

• "Few 'Reform' Provisions Remain in S. 23 Relating to the Judiciary," Marech 21, 2011
• "Additional Opportunities for Pre- and Post-grant Review, and Brand New Patent Trial and Appeal Board in S. 23," March 17, 2011
• "Post-grant Review Provisions of S. 23," March 16, 2011
• "Inventor's Interests, If Not Rights, Limited by S. 23," March 15, 2011
• "What Are the Provisions of the Proposed "First-Inventor-to-File" System in S. 23?" March 14, 2011
• "Obama Administration Supports S. 23," March 9, 2011
• "Reaction to Senate Passage of S. 23," March 8, 2011
• "Senate Passes S. 23," March 8, 2011

Comments

[Skeptical]

Nothing like sowing the seeds of conflicting messages, given that the Court in Bilksi has already held that the Congress HAS more than impliedly construed that business method patents ARE patentable subject matter, with the Tax Section language that sidesteps an actual disavowel of the section that the Court used to make its finding.

Such waffling can only cause trouble. If the good Senators who wrote this section MEAN to disavow business methods as patentable subject matter, they shoudl come straight out and state it. By NOT doing so, there is nothing in the Tax Section portion that indicates that the Supreme Court holding is over-ruled, and thus - the side swipe is completely ineffectual.

Very poor drafting.

[Kevin E. Noonan]

Dear Skeptical:

The Senators (and the President) don't want to do that because it could (and probably would) constitute a taking, for which big players like Visa and Amex and most banks would most certainly sue for damages. Since the technology disclosed in these patents arguably includes prior "trade secrets" that the promise of patenting induced them to disclose, they may have a point. But it would be costly.

If the court (any court) does it, however, it isn't a taking. Which explains the language in S.23.

Thanks for the comment.

[Dave Korpi]

Remember when they wanted to close the Patent Office because everything had been invented? Then, folks invented more stuff? Now.. In 2011, the USPTO is saying there are too many inventions? Is'nt this the same thing happening again?

I truly believe that patents have been out of reach of the "little guy" and the Provisional Patent has made way to allow the "little guy" to benefit from the rewards of their inventive idea.

So, I say.. FILE AWAY guys and gals! They will figure out how to deal with your filings!

[patent litigation]

Even if done surreptitiously as "patent reform," almost any measure that will serve to reduce the USPTO's backlog and prop up the domestic economy in sagging areas is welcome. So if we have Detroit and Denver, will the 3rd satellite office be on the east coast? And if so, where? New Jersey, Pittsburgh, or Florida. perhaps? Any insight? Personally, I'd hope for an office in California.
http://www.washingtonpost.com/blogs/post-tech/post/qanda-small-inventors-raise-patent-reform-concerns/2011/03/28/AFLJ9NpB_blog.html