H.R. XX: To authorize the Director of the US Patent and Trademark Office to use trademark funds for patent operations and to authorize the Director to establish a surcharge on patent fees to repay the borrowed funds

H.R. XX

To authorize the Director of the US Patent and Trademark Office to use trademark funds for patent operations and to authorize the Director to establish a surcharge on patent fees to repay the borrowed funds

Sponsor
Rep. John Conyers Jr.

Date
July 7, 2009 (111th Congress, 1st Session)

Staff Contact
Sarah Makin

Floor Situation

H.R. XXX is being considered on the floor under suspension of the rules, requiring a two-thirds majority vote for passage. This legislation was introduced by Rep. John Conyers (D-MI) on July 7, 2009. The bill was referred to the Committee on the Judiciary, which took no official action.

Bill Summary

H.R. XXX authorizes the Patent and Trademark Office (PTO) Director to use FY09 and FY10 trademark funds to support the agency's patent operations. The bill allows the Director to borrow up to $70 million for this purpose, which roughly equates to the trademark surplus. The Director is further empowered to establish a surcharge, in amounts up to $70 million, on patent fees to repay any trademark funds drawn down in this way.

The Director must certify to Congress that the transfer of trademark funds "is reasonably necessary to avoid furloughs or [layoffs], or both at the [agency], and that the use of such funds does not create a substantial risk of a furlough or [layoffs] of [trademark employees]."

The surcharge takes effect no later than September 30, 2011. This provides sufficient time for the agency to develop the surcharge for individual patent services. Any funds borrowed must be paid back via the surcharge within CBO's five-year scoring period.

For budget scoring purposes, all surcharges shall be credited to the US Patent and Trademark Office Appropriation Account in the Treasury as an "offsetting receipt that shall not be available for obligation or expenditure."

The bill requires that the Director's authority expires on June 30, 2010.

Background

The US Patent and Trademark Office is a fee-funded agency. Section 41 of the Patent Act contains a fee schedule that enumerates various services offered by the agency and the corresponding fee inventors and trademark filers must pay for each service. Pursuant to Section 42 of the Act, revenue derived from this statutory fee schedule is deposited in a special Patent and Trademark Office Account in the Treasury. The agency is dependent upon Congress through the appropriations process to receive annual funding from this account.

A separate provision in Section 42 creates a one-way firewall between trademark and patent operations. That is, the PTO Director may not use revenue collected from trademark fees to subsidize patent operations.

Given the ongoing economic downturn, patent fee collections at the PTO are running short based on earlier estimates, and the agency may have to initiate furloughs in the fall. Aside from affecting the individual workers, mostly examiners, this would create another setback in the effort to reduce application backlogs and expedite the processing of new applications.

The bill authorizes the Director to shift necessary funds from the trademark ledger to patent operations.  There would also be an obligation to reimburse the Trademark Office by a date certain, a task accomplished through the imposition of a surcharge to patent fees that would generate the necessary revenue. Trademark operations currently have a projected surplus of $60 to $70 million, although their monthly intake has diminished.

The primary trade association representing the interests of trademark owners has complained about this approach. In light of this criticism, it should be noted that twice in the past 10 years the Trademark Office borrowed more than $24 million from patent operations.

Other prominent trade associations that represent the interests of intellectual property owners believe this has to be done or the agency will have a larger fiscal hole from which to extricate itself. Furloughs will only diminish the productivity of patent examiners, which will be felt by the inventor groups and related intellectual property economy.

The Senate passed a similar bill, S. 1358, on June 25, 2009. However, the Senate text was criticized on the following grounds:

• It does not contain language to authorize the patent surcharge as a source of repayment to trademark operations.

• It does not address the possibility that the transfer of trademark funds could result in furloughs or layoffs for Trademark employees and therefore should not be consummated under these conditions.

• CBO did not score the bill for PAYGO compliance.

• It is possible that S. 1358 is a "revenue" bill for Constitutional purposes, in which case initial consideration by the Senate violates the Origination Clause ("all bills for raising revenue shall originate in the House of Representatives...", US Constitution, Article I, Section VII).

Cost

A CBO score for H.R. XXX was not yet available.