Engineers at a California-based company called Danger Inc. filed a patent in 2000 for just the kind of innovation that helped the United States gain a reputation for ingenuity. But the company’s experience with the patent process illustrates why the nation is gaining another kind of reputation—that of losing a step. It’s a problem that the Senate debated this week as it considered an overhaul of the patent system.

The office, one of the few self-funded federal agencies,may not be able to use an estimated $200 million in fees to be collected from patent and trademark owners in fiscal 2011 because of a budget impasse in Congress. Director David Kappos has said that money is needed to hire examiners and speed up new patent reviews to reduce a backlog of 700,000 applications, many of them by technology companies such as Intel Corp.


“It’s infuriating, fees are being paid into the office that aren’t being used for the work they were paid for,” said Q. Todd Dickinson, former head of the patent office who’s now executive director of the American Intellectual Property Law Association in Arlington, Virginia. “It’s scandalous.”

Getting to the money wouldn’t be an issue if the patent office was given the power to keep all its fees. Instead, a budget is set for the agency based on estimates of what it will collect. Any money above that figure is put into the U.S. general treasury, where Congress can use it for other purposes.

“I don’t see why Congress treats user fees specifically designed to fund the patent office as if they were taxpayer’s funds,” Paul Michel, the former chief judge of the U.S. Court of Appeals for the Federal Circuit who retired last year, said in an interview. “Not a single dollar of tax money is involved. The funding is private money from private corporations.”

$800 Million


More than $800 million has been kept by Congress since a 1990 law mandated the office pay for itself through fees, according to the agency’s 2010 performance report. President Barack Obama has sought to change that. His federal budget proposal for fiscal 2011 would have boosted the patent office’s preapproved spending about 23 percent to $2.3 billion and let the agency keep any fees it collects above that.

Five months into the 2011 fiscal year, Congress has yet to vote on that budget. Obama on Feb. 14 presented his fiscal 2012 spending proposal, which includes a 34 percent increase for the patent office over 2010 levels. House leaders have said there may be a need to set all federal spending at 2008 levels for the rest of this fiscal year, which would amount to about $1.98 billion for the patent office.

That may mean no new hiring and overtime, and delays on information technology improvements as 2010 budget levels are insufficient, Kappos told a House subcommittee on Jan. 25.


‘Held Hostage’


The patent office “is being held hostage as part of a larger budget battle,” said Herb Wamsley, executive director of the Intellectual Property Owners Association, a Washington-based lobbying group whose members include Microsoft Corp., Google Inc., Monsanto Co. and Wal-Mart Stores Inc.

Businesses have agreed to pay a 15 percent surcharge on certain fees to support Kappos and his efforts to fix the backlog and improve the quality of patents being issued, as long as the agency keeps 100 percent of the fees it collects. Senator Tom Coburn, an Oklahoma Republican, has proposed a revolving fund where excess money would be used only by the patent office.

Senator Patrick Leahy, a Vermont Democrat who heads the Senate Judiciary Committee and is a member of the Appropriations Committee, supports the measure. He said it should be brought as an amendment when a broader patent measure is considered by the full Senate, scheduled for the week of Feb. 28. The Senate bill includes a provision that would let the patent office set its own fees without waiting for congressional approval.

Money’s Worth


“Users are prepared to pay what it costs to promptly issue patents after a full and thorough examination,” Carl Horton, the chief intellectual property counsel for Fairfield, Connecticut-based General Electric Co., told the House Judiciary Committee on Feb. 11. It is “fair to ask that we receive $100 worth of service for every $100 we pay,” he said.

Representative Lamar Smith, a Texas Republican who heads the committee, said a House version of the patent bill is still a “work in progress.”

“I am sympathetic to efforts by the PTO to retain the funds they collect from inventors and trademark filers who use their services,” Smith said in an e-mail. “Addressing fee-diversion is certainly something we will consider as we work toward an achievable patent reform bill.”


David Simon, associate general counsel for intellectual property policy at chipmaker Intel, told Smith’s committee that letting the patent office keep all its fees “has been one of the few provisions all of the stakeholders have been able to agree to” over at least five years of debate on patent law.

“The PTO cannot engage a long-term strategic plan, due to their inability to know whether they will be able to retain their fees at the end of each year,” Simon said.

‘Foregone Revenue’

In fiscal 2010, the PTO collected $181.5 million above its $1.89 billion budget that year. Congress passed a resolution last year letting the agency keep $129 million of the extra money, leaving $52.5 million unspent.

The patent office estimates that it will have collected $2.02 billion in user fees -- the most it’s currently allowed to spend -- by the end of August, assuming the fee increase isn’t implemented.

In Jan. 25 testimony, Kappos said the failure to pass the budget has resulted in $115 million of “foregone revenue” from surcharges that it would have been collected had the budget gone into effect when the fiscal year began.

“We’re not asking the public to pay a dollar here,” said Gary Griswold, 3M Co.’s former chief intellectual property counsel who now heads a coalition including Johnson & Johnson and GE that is lobbying for changes to patent laws. “With the strong leadership it has today, why wouldn’t you provide the fees it needs?”



Editors: Romaine Bostick, Joe Winski

 To contact the reporter on this story:
Susan Decker in Washington at +1-202-624-1941 or
sdecker1@bloomberg.net.

 To contact the editor responsible for this story:
Allan Holmes at +1-202-654-7377 or
aholmes25@bloomberg.net

In his State of the Union, President Obama challenged America's scientists and engineers to "out-innovate" global competition.

But America's ability to drive economic growth and job creation through innovation is currently hampered by an enormous backlog at the U.S. Patent and Trademark Office .

As Congress seeks to stoke the American economy and spur job growth, the Patent and Trademark Office could play a key role, said PTO Director David Kappos Friday.

Speaking to a crowd at a conference organized by Innovation Alliance, a group of companies seeking to protect patent rights, Kappos said his unheralded agency could help pump jobs and billions of dollars back into the economy if Congress is successful in passing legislation to ease a massive backlog in patent applications.