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Report to Congressional Requesters:



United States General Accounting Office:



GAO:



August 2002:



Intellectual Property:



Information on the U.S. Patent and Trademark Office’s Past and Future 

Operations:



Past and Future Operations:



GAO-02-907:



Contents:



Letter:



Results in Brief:



Background:



USPTO’s Past and Future Operations:



Some Differences between the Business and Strategic Plans:



Patent Fee Structure Would Change under Proposed Legislation:



Agency Comments:



Scope and Methodology:



Appendix I: USPTO fee structure	Information Used in Briefings for 

the Chairman of the Joint Economic Committee and Representative Lamar 
Smith:



Appendix II: Comments from the United States Patent and 

Trademark Office:



Tables:



Table 1: USPTO Projections of Patent Pendency under Different 

Assumptions in the Business Plan and the Strategic Plan (Fiscal Years 

2003-2008):



Table 2: Example of How the Basic Patent Fees Would Change for a Small 

Entity Granted a Utility Patent, and Maintaining the Patent through the 

Three Maintenance Fees:



Letter:



August 22, 2002:



The Honorable Jim Saxton

Chairman, Joint Economic Committee

House of Representatives:



The Honorable Lamar Smith

House of Representatives:



The U.S. Patent and Trademark Office (USPTO), which administers U.S. 

patent and trademark laws, had a staff of 6,426 and collected about 

$1.1 billion in patent and trademark fees in fiscal year 2001. Patent 

and trademark laws protect inventors’ and businesses’ inventions and 

encourage innovation and the scientific and technical advancement of 

American industry through the preservation, classification, and 

dissemination of patent information. As the U.S. economy depends 

increasingly on new innovations, the need to patent or trademark 

quickly the intellectual property resulting from such innovations 

becomes more important.



The patent process begins with an applicant filing a patent application 

with USPTO and paying a filing fee. This step begins the patent 

examination process. An applicant may be a small or large entity--small 

entities, which pay reduced fees in many instances, include 

organizations with 500 or fewer employees, non-profit organizations, 

and independent inventors, whereas large entities, according to USPTO 

officials, include all others. As part of the examination process a 

patent examiner searches United States and foreign patents, journals, 

and other literature, and sometimes contacts the applicant to resolve 

questions and obtain additional information to determine the proposed 

invention’s potential patentability. A proposed invention is patentable 

if it is a new and useful process, machine, manufacture, or composition 

of matter, or any new and useful improvement thereof. If the examiner 

decides that a patent is warranted, the applicant is informed and, upon 

payment of an “issue fee,” USPTO grants a patent. The applicant may 

abandon the application any time during this process. If a patent is 

granted, the patent holder has, in most instances, a patent term of 20 

years from the date the application was filed. To keep the patent 

active, the applicant must pay maintenance fees at 3.5 years, 7.5 

years, and 11.5 years. Historically, the time from the date that a 

patent application is filed to the date that either the patent is 

granted or the application is abandoned has been called “patent 

pendency.”:



In April 2001, USPTO estimated in its Fiscal Year 2002 Corporate Plan-

-which was part of the agency’s fiscal year 2002 budget submission and 

included some performance information covering fiscal years 2002 

through 2006--that patent pendency would increase from 25 months in 

fiscal year 2000 to over 38 months in fiscal year 2006.[Footnote 1] 

Expressing concern about USPTO’s plans for the future, the Congress 

directed USPTO in November 2001 to develop a 5-year plan, among other 

things, to improve patent quality and reduce patent and trademark 

pendency. In February 2002, USPTO issued its first 5-year plan, which 

was called the USPTO Business Plan and covered fiscal years 2003 

through 2007. This plan included nine operating initiatives focused on 

improving patent timeliness and quality. For example, the plan included 

hiring hundreds of new patent examiners each year to handle new patent 

applications. The plan also identified changes to the fee structure, 

including a one-time surcharge on patent and trademark fees in fiscal 

year 2003 to begin paying for the new initiatives. The Business Plan 

was developed before the new Under Secretary of Commerce for 

Intellectual Property and Director of the United States Patent and 

Trademark Office (hereafter referred to as the Director) assumed office 

in December 2001. Consequently, the new Director viewed the Business 

Plan as only the first step toward a long-range strategy to strengthen 

the patent and trademark system.



Because the new Director did not believe that the Business Plan went 

far enough, he conducted a review of the USPTO to identify new ways to 

improve quality and reduce pendency. Based upon the results of that 

review, in June 2002 USPTO produced another 5-year plan--called The 

21st Century Strategic Plan. Like the Business Plan, it covered fiscal 

years 2003 through 2007. However, the Strategic Plan used different 

assumptions than the Business Plan about some key factors, such as the 

expected number of patent applications to be filed, and included major 

operating and fee changes that were more aggressive than those in the 

Business Plan. According to USPTO, the Strategic Plan proposed 

fundamental changes in the way the agency operates, such as 

restructuring the patent fee schedule and redesigning the patent search 

and examination system. For example, instead of applicants paying one 

fee that covers filing and examination, applicants would pay a filing 

fee and then decide whether to request and pay for an examination. 

Additionally, the Strategic Plan’s success was linked to enactment of 

the President’s fiscal year 2003 budget, legislation to change USPTO’s 

current fee schedule, revisions to current rules, and legislation for 

streamlining the patent and trademark system. The administration 

released its fee legislation proposal on June 20, 2002.



In this context, you asked for information on (1) USPTO’s past and 

future operations, particularly patent applications filed, patents 

granted, patent application inventory, patent pendency, patent examiner 

staffing, and fee collections and funding requirements (agency 

appropriations); (2) some of the differences between USPTO’s Business 

and Strategic Plans; and 

(3) changes in the patent fee structure under proposed legislation. The 

results of our work are summarized in this report. Appendix I presents 

the information we used to brief your offices on July 12 and 25, 

2002.[Footnote 2]



Results in Brief:



Patent activity grew substantially from fiscal year 1990 through 2001. 

The numbers of patent applications filed and patents granted nearly 

doubled, and the inventory of patent applications more than tripled; 

patent pendency increased from slightly over 18 months to nearly 25 

months; and the number of patent examiners increased by about 80 

percent. Furthermore, in fiscal year 2001, both fee collections and 

agency funding requirements exceeded $1 billion for the first time in 

the agency’s history. Moreover, projections in USPTO’s Corporate, 

Business, and Strategic Plans indicate future increases in the number 

of patent applications filed and the number of patents granted. Also, 

projections in the Business and Strategic Plans show future increases 

in the number of patent examiners and fee collections and funding 

requirements.



While both 5-year plans cover the same period, the assumptions and 

projected results of the Business Plan are different in several ways 

from the Strategic Plan. For example, the Business Plan projected that 

pendency in fiscal year 2007 would increase by less than a month 

compared to pendency in fiscal year 2001, while the Strategic Plan 

projected pendency would decrease by more than 4 months during that 

period. However, some of the pendency reduction projected in the 

Strategic Plan would result from changing the pendency definition in 

conjunction with proposed changes to the patent system. In addition, 

through fiscal year 2007, the number of patent examiners hired under 

the Business Plan would have been about 2,100 more than under the 

Strategic Plan. Fewer patent examiners would be needed under the 

Strategic Plan partly because examiners would in many cases be relying 

on others outside of USPTO to perform a search of patent records and 

other published information. Furthermore, legislative and regulatory 

changes to restructure patent and trademark fees would be implemented 

by October 1, 2002, under the Strategic Plan, not in fiscal year 2004 

as proposed in the Business Plan. Finally, projected USPTO funding 

requirements for fiscal years 2003 through 2007 would total about $539 

million less under the Strategic Plan than under the Business Plan as a 

result of changing assumptions, such as fewer patent applications would 

be filed and fewer patent examiners would be needed.



The administration’s recent legislative proposal to restructure patent 

fees to implement the Strategic Plan would result in higher fees for 

the majority of patent applicants--large entities--that receive utility 

patents and maintain such patents into the future. While these 

applicants would pay lower fees when filing applications than required 

under the current fee structure, applicants that request USPTO to 

conduct an examination would have to pay a new $1,250 examination fee 

and a higher fee for issuing the patent. And those that decide to keep 

their patents active in the future would pay higher fees to maintain 

them. Consequently, total fees for these applicants would increase by 

nearly $4,100, or 51 percent. Also, total fees for most small entities 

would increase nearly $2,700, or 67 percent, over current fees.



We provided a copy of our draft report to USPTO for review and comment. 

USPTO responded that the factual information in our draft report 

provides a good picture of USPTO’s transition to its new Strategic 

Plan. USPTO’s comments are presented in appendix II.



Background:



Located within the Department of Commerce, USPTO administers U.S. 

patent and trademark laws while ensuring the creation of valid, prompt, 

and proper intellectual property rights. According to the Strategic 

Plan, USPTO’s mission is to ensure that the intellectual property 

system contributes to a strong global economy, encourages investment in 

innovation, fosters entrepreneurial spirit, and enhances the quality of 

life. USPTO also advises the administration on all domestic and global 

aspects of intellectual property.



USPTO management consults with a Patent Public Advisory Committee and a 

Trademark Public Advisory Committee. These committees are comprised of 

voting members from the private sector and non-voting members from the 

three unions represented at USPTO--the Patent Office Professional 

Association and two chapters of the National Treasury Employees Union. 

The committees not only review USPTO policies, goals, performance, 

budget, and user fees related to patents and trademarks, but also issue 

annual reports to the President, the Secretary of Commerce, and the 

House and Senate Committees on the Judiciary.



Fees and volume of patent activity are different for small and large 

entities. Small entities receive a 50 percent discount on many patent 

fees. The majority of patent applicants are large entities filing 

applications for utility patents. USPTO has estimated that in recent 

years patent applications from large entities have comprised over 60 

percent of all patent applications received; small entities have 

accounted for the remainder. In fiscal year 2001, utility patents 

represented over 90 percent of all patents granted that year.



USPTO’s Past and Future Operations:



Patent Applications Filed:



The number of patent applications filed nearly doubled during fiscal 

years 1990 through 2001, increasing from about 164,000 to about 

326,000, and USPTO’s Corporate, Business, and Strategic Plans projected 

that the number of applications would increase to between 351,000 and 

368,000 in fiscal year 2002. Moreover, each plan projects that the 

number of applications will increase in the future--10 percent annually 

under the Corporate and Business Plans and 5 percent annually for 

fiscal years 2003 and 2004 and 7 percent annually for fiscal years 2005 

through 2007 under the Strategic Plan. The Corporate Plan projected 

that the number of applications would increase to about 539,000 in 

fiscal year 2006; the Business and Strategic Plans project that the 

number of applications filed will increase in fiscal year 2007 to about 

593,000 and 454,000, respectively. The lower projection under the 

Strategic Plan reflects the reduced number of applications expected for 

fiscal years 2002 and 2003 due, in part, to a slowdown in the economy. 

For fiscal year 2002, the Business Plan assumed an application growth 

rate of about 12 percent and the Strategic Plan assumed a growth rate 

of 3 percent; for fiscal year 2003, the growth rate projected by the 

Business and Strategic Plans were 10 percent and 5 percent, 

respectively. The application growth rate is a key factor in projecting 

business indicators, such as pendency, staffing needs, and funding 

requirements. For example, if the number of applications decreases, the 

number of examiners needed to process those applications decreases. 

(See app. I, p. 20.):



Patents Granted:



The number of patents granted increased by over 90 percent during 

fiscal years 1990 through 2001, increasing from about 90,000 to about 

171,000, and USPTO’s three plans projected that the number would 

increase to a range of about 167,000 to 171,000 in fiscal year 2002. 

Furthermore, the three plans project that the number of patents granted 

will increase in the future. The Corporate Plan projected that the 

number of patents granted would increase to about 192,000 by fiscal 

year 2006, and the Business and Strategic Plans project that the number 

of patents granted will increase in fiscal year 2007 to about 314,000 

and 374,000, respectively. (See app. I, 

p. 21.):



Patent Application Inventory:



USPTO’s inventory of unprocessed patent applications increased by 

nearly 250 percent from fiscal year 1990 to 2001, increasing from about 

96,000 to about 332,000, and USPTO’s three plans projected that the 

inventory would increase to between 393,000 and 512,000 in fiscal year 

2002. The Corporate and Business Plans also project increases in the 

future, while the Strategic Plan projects a decrease. The Corporate 

Plan projected that the application inventory would increase to almost 

1.3 million by the end of fiscal year 2006, and the Business Plan 

projects that the inventory would increase to about 584,000 through 

fiscal year 2007. The Strategic Plan, which would speed up some of the 

proposed changes in the Business Plan and make other fundamental 

changes, projects that the inventory will decrease to about 144,000 

through fiscal year 2007. The decrease projected in the Strategic Plan 

reflects several changes in assumptions, including fewer new patent 

applications. (See app. I, p. 22.):



Patent Pendency:



Patent pendency increased from 18.3 months to 24.7 months between 

fiscal years 1990 and 2001. Projections of patent pendency beyond 

fiscal year 2001 vary widely under USPTO’s three plans. USPTO’s three 

plans projected that pendency would increase to between 26.1 months and 

26.7 months in fiscal year 2002. The Corporate Plan projected that 

pendency would be 38.6 months in fiscal year 2006, and the Business and 

Strategic Plans project it will be 25.5 months and 20.3 months, 

respectively, in fiscal year 2007. According to USPTO officials, 

pendency time in the Strategic Plan reflects a proposed fundamental 

redesign of the patent search and examination system. (See app. I, p. 

23.):



Patent Examiner Staffing:



The number of patent examiners on board at the end of the fiscal year 

increased from 1,699 to 3,061, or about 80 percent, from fiscal year 

1990 to 2001. During this period, USPTO annually hired an average of 

380 new examiners and lost an average of 236 examiners through 

attrition. Further, USPTO’s Business and Strategic Plans projected that 

the number of examiners on board at the end of fiscal year 2002 would 

be 3,435 and 3,595, respectively.[Footnote 3] Moreover, both plans 

project increases in the number of examiners through fiscal year 2007-

-to 5,735 in the Business Plan and to 4,322 in the Strategic Plan. (See 

app. I, pp. 24-26.):



Fee Collections and Funding Requirements:



Between fiscal years 1999 and 2001, fee collections increased from 

$887 million to $1.085 billion and funding requirements (USPTO’s 

appropriations) increased from $781 million to $1.039 billion. For 

fiscal year 2002, the Business and Strategic Plans projected fee 

collections of $1.373 billion (includes $27 million for employee 

pension and annuitant health benefits proposed by the President) and 

$1.198 billion, respectively, and both plans projected that funding 

requirements would be 

$1.128 billion. Further, fee collections and funding requirements are 

projected to increase in the future under both plans, but at different 

rates. Under the Business Plan, fee collections are projected to 

increase from $1.527 billion in fiscal year 2003 to $2.078 billion in 

fiscal year 2007, and funding requirements are projected to increase 

from $1.365 billion to $2.078 billion during the same time period. 

Under the Strategic Plan, fee collections are projected to increase 

from $1.527 billion in fiscal year 2003 to $1.823 billion in fiscal 

year 2007, and funding requirements are projected to increase from 

$1.365 billion to $1.823 billion during that period. (See app. I, pp. 

27-28.):



Some Differences between the Business and Strategic Plans:



There are a number of differences between USPTO’s Business and 

Strategic Plans, as shown in the following examples. (See app. I, p. 

29.):



* The patent pendency definition is different under each plan. Under 

the Business Plan, pendency is measured from the date an application is 

filed. However, under the Strategic Plan, pendency would be measured 

from the date an applicant pays the examination fee. According to USPTO 

officials, this definition is different than the definition under the 

Business Plan because of the proposed fundamental redesign of the 

patent search and examination system. Also, according to the Strategic 

Plan, this definition is the same measure--the examination duration 

period--used by the European Patent Office and the Japan Patent Office.



This change in definition is partly responsible for the reduction in 

pendency under the Strategic Plan. Historically, applicants have paid a 

single fee that covered filing and examination; under the Strategic 

Plan there would be separate filing and examination fees. The applicant 

has two options for paying fees under the Strategic Plan. Under the 

first option, applicants may elect to pay the patent application fee 

and examination fee at the same time. Under the second option, 

applicants may elect to pay the application fee and defer examination 

and paying the examination fee for up to 18 months. According to USPTO, 

applicants that take advantage of the deferred examination do so for 

various reasons, such as to decide the merits of pursuing the patent or 

to avoid the early expenditure of funds. USPTO estimates that about 9 

percent of all applicants will defer examination. The Strategic Plan 

redefines patent pendency as the examination duration period. As a 

result, under the first option the pendency measure is the same as 

under the Business Plan--it begins from the date the patent application 

is filed. However, under the second option pendency begins when the 

examination fee is paid.



Table 1 shows USPTO’s projections of patent pendency under three 

scenarios using different assumptions. The first scenario shows the 

Business Plan’s pendency projections. The second scenario is based upon 

the Strategic Plan where an applicant pays the filing fee and 

examination fee at the same time, thus seeking immediate examination. 

The third scenario is based on the Strategic Plan where an applicant 

pays the filing fee and then defers examination. Regarding the third 

scenario, the Strategic Plan notes that to determine the average total 

pendency under the Strategic Plan (from the date an application is 

filed to issue of a patent or abandonment of the application), 9 months 

should be added to the plan’s calculation to reflect the estimated 

average examination deferral period. According to USPTO officials, 

fewer months should be added in the early years. Table 1 shows for the 

third scenario that when the deferral time is added, average pendency 

from filing until patents are granted or applications are abandoned 

would be longer under the Strategic Plan than under the Business Plan 

for those applicants who elect to defer examination of their 

applications. USPTO noted that the fiscal year 2008 difference between 

the 18 months in the second scenario and the 27 months in the third 

scenario is a measure of deferred examination.



Table 1: USPTO Projections of Patent Pendency under Different 

Assumptions in the Business Plan and the Strategic Plan (Fiscal Years 

2003-2008):



Fiscal year: 2003; USPTO projections of patent pendency (in months): 

Business Plan: 27.3; USPTO projections of patent pendency (in months): 

Strategic Plan (where applicant seeks immediate examination): 27.7; 

USPTO projections of patent pendency (in months): Strategic Plan (where 

applicant seeks deferred examination): 27.7.



Fiscal year: 2004; USPTO projections of patent pendency (in months): 

Business Plan: 29.2; USPTO projections of patent pendency (in months): 

Strategic Plan (where applicant seeks immediate examination): 28.1; 

USPTO projections of patent pendency (in months): Strategic Plan (where 

applicant seeks deferred examination): 28.1.



Fiscal year: 2005; USPTO projections of patent pendency (in months): 

Business Plan: 27.8; USPTO projections of patent pendency (in months): 

Strategic Plan (where applicant seeks immediate examination): 26.0; 

USPTO projections of patent pendency (in months): Strategic Plan (where 

applicant seeks deferred examination): 30.0.



Fiscal year: 2006; USPTO projections of patent pendency (in months): 

Business Plan: 26.8; USPTO projections of patent pendency (in months): 

Strategic Plan (where applicant seeks immediate examination): 22.7; 

USPTO projections of patent pendency (in months): Strategic Plan (where 

applicant seeks deferred examination): 31.7.



Fiscal year: 2007; USPTO projections of patent pendency (in months): 

Business Plan: 25.5; USPTO projections of patent pendency (in months): 

Strategic Plan (where applicant seeks immediate examination): 20.3; 

USPTO projections of patent pendency (in months): Strategic Plan (where 

applicant seeks deferred examination): 29.3.



Fiscal year: 2008; USPTO projections of patent pendency (in months): 

Business Plan: No projection made; USPTO projections of patent pendency 

(in months): Strategic Plan (where applicant seeks immediate 

examination): 18.0; USPTO projections of patent pendency (in months): 

Strategic Plan (where applicant seeks deferred examination): 27.0.



Source: GAO analysis of USPTO data.



[End of table]



* Patent examiners’ responsibility for the search function on most 

domestic applications would also be eliminated under the Strategic 

Plan. Instead, with the exception of a new class of applicant--the 

micro-entity--applicants would arrange for such searches by private 

organizations, foreign patent offices, or others; USPTO would continue 

to do searches for micro-entities.[Footnote 4] This change would allow 

examiners more time to focus on the examination function. USPTO assumes 

under the Strategic Plan that a portion of the patent examiners’ time 

will be refocused from non-examination to examination functions. USPTO 

officials told us that most of the refocused time would result from 

eliminating the search function. The detailed action plans supporting 

the Strategic Plan show that eliminating the search function would 

increase examiners’ productivity between 5 and 20 percent.



* Almost 2,100 more new patent examiners would be hired under the 

Business Plan than under the Strategic Plan--4,750 versus 2,688. This 

difference reflects revised assumptions about new hires and the number 

of examiners expected to leave. Under the Business Plan, USPTO expects 

to hire 950 examiners and assumes a 10 percent attrition rate each year 

during fiscal years 2003 through 2007. Under the Strategic Plan, USPTO 

expects to hire 750 examiners annually for fiscal years 2003 and 2004 

and 396 examiners annually for fiscal years 2005 through 2007. USPTO 

assumes 11 percent and 8 percent attrition rates for fiscal years 2003 

and 2004, respectively, and 9 percent attrition annually for fiscal 

years 2005 through 2007. Fewer examiners would be required under the 

Strategic Plan because fewer new applications are anticipated and 

examiners would no longer be required to do the search function for 

most patent applications.



* Patent fee restructuring would be implemented in fiscal year 2004 

under the Business Plan, and by October 1, 2002, under the Strategic 

Plan. There would be a one-time surcharge of 19.3 percent on patents 

and 10.3 percent on trademarks in fiscal year 2003 under the Business 

Plan, but no surcharge under the Strategic Plan. USPTO officials told 

us that the restructured fees would need to be put in place earlier 

than proposed under the Business Plan to compensate for the elimination 

of the one-time surcharge and the expected decrease in patent 

applications, and to implement changes proposed to improve quality and 

reduce pendency.



* Fee collections and funding requirements projected for fiscal year 

2003 in the Business Plan would be the same in the Strategic Plan--

$1.527 billion in fee collections and $1.365 billion in funding 

requirements--but the specifics would change. For example, the 

Strategic Plan’s patent-funding requirements would increase by about 

$27 million and trademark-funding requirements would decrease by the 

same amount. Furthermore, projected funding requirements for fiscal 

years 2003 through 2007 would total about $539 million less under the 

Strategic Plan than under the Business Plan--$8.396 billion versus 

$8.935 billion--as a result of changing assumptions, such as fewer 

patent applications filed and fewer patent examiners needed. For fiscal 

years 2004 through 2007, the Business and Strategic Plans both predict 

that fee collections and funding requirements will equal each other.



Patent Fee Structure Would Change under Proposed Legislation:



There would be some significant changes in the patent fee structure 

under legislation proposed on June 20, 2002. While the proposed filing 

fee under the Strategic Plan would be lower than the current filing 

fee, a new examination fee would be added and other fees would be 

higher. In addition, some new fees would be established for such things 

as surcharges authorized by the USPTO Director in certain instances. 

For example, a surcharge could be charged for any patent application 

whose specification and drawings exceed 50 sheets of paper. (See app. 

I, p. 30.):



Generally, large entities would pay higher fees under the proposed 

legislation. The current fee structure provides that large entities pay 

a $740 patent filing fee that covers both the filing and examination of 

the patent application. While the proposed legislation would have large 

entities pay a $300 patent filing fee, it would also require applicants 

that request examination (assumed by USPTO to be 90 percent of the 

large entity applicants) to pay an additional $1,250 examination fee. 

Patent issue fees would also be higher under the proposed legislation. 

Consequently, a large entity that receives a utility patent would incur 

a fee increase of nearly $1,200, or about 59 percent, over current 

fees. Furthermore, the three fees to maintain the patent through its 

useful life would be higher. If a large entity maintains the patent 

through the payment of the three maintenance fees, the total fee 

increase resulting from the proposed legislation would be nearly 

$4,100, or about a 51 percent increase over current fees. (See app. I, 

p. 31.):



Small entities also would pay increased fees under the proposed 

legislation, as shown in table 2. Instead of paying a $370 patent 

filing fee (50 percent of the $740 fee for large entities) that covers 

both the filing and examination of the patent application under the 

current fee structure, small entities would pay a $150 patent filing 

fee (50 percent of the new $300 fee) under the proposed legislation. 

However, small entities that request examination (assumed by USPTO to 

be 90 percent of the small entity applicants) also would have to pay 

the new $1,250 examination fee; with the exception of the new “micro-

entity” category, small entities would not get a discount on the new 

examination fee. In addition, issue fees for small entities are also 

higher. As a result, a small entity that receives a utility patent 

would incur a fee increase of over $1,200, or about 121 percent, over 

current fees. Furthermore, because maintenance fees are higher, if a 

small entity maintains the patent through the payment of the three 

maintenance fees, the total fee increase resulting from the proposed 

legislation would be nearly $2,700, or about a 67 percent increase over 

current fees.



Table 2: Example of How the Basic Patent Fees Would Change for a Small 

Entity Granted a Utility Patent, and Maintaining the Patent through the 

Three Maintenance Fees:



Type of fee: Filing; USPTO fee structure: Current fees for large 

entities: $ 740; USPTO fee structure: Current fees for small entities: 

$ 370; USPTO fee structure: Fees for small entities based on the 

legislative proposal[A]: $ 150; Dollar change for small entities: $ 

(220); : (59.5).



Type of fee: Examination; USPTO fee structure: Current fees for large 

entities: [Empty]; USPTO fee structure: Current fees for small 

entities: [Empty]; USPTO fee structure: Fees for small entities based 

on the legislative proposal[A]: 1,250; Dollar change for small 

entities: 1,250; : [Empty].



Type of fee: Subtotal; USPTO fee structure: Current fees for large 

entities: $ 740; USPTO fee structure: Current fees for small entities: 

$ 370; USPTO fee structure: Fees for small entities based on the 

legislative proposal[A]: $1,400; Dollar change for small entities: 

$1,030; : 278.4.



Type of fee: Issue; USPTO fee structure: Current fees for large 

entities: 1,280; USPTO fee structure: Current fees for small entities: 

640; USPTO fee structure: Fees for small entities based on the 

legislative proposal[A]: 830; Dollar change for small entities: 190; : 

29.7.



Type of fee: Subtotal; USPTO fee structure: Current fees for large 

entities: $2,020; USPTO fee structure: Current fees for small entities: 

$1,010; USPTO fee structure: Fees for small entities based on the 

legislative proposal[A]: $2,230; Dollar change for small entities: 

$1,220; : 120.8.



Type of fee: Maintenance--3.5 years; USPTO fee structure: Current fees 

for large entities: 880; USPTO fee structure: Current fees for small 

entities: 440; USPTO fee structure: Fees for small entities based on 

the legislative proposal[A]: 450; Dollar change for small entities: 10; 

: 2.3.



Type of fee: Maintenance--7.5 years; USPTO fee structure: Current fees 

for large entities: 2,020; USPTO fee structure: Current fees for small 

entities: 1,010; USPTO fee structure: Fees for small entities based on 

the legislative proposal[A]: 1,500; Dollar change for small entities: 

490; : 48.5.



Type of fee: Maintenance--11.5 years; USPTO fee structure: Current fees 

for large entities: 3.100; USPTO fee structure: Current fees for small 

entities: 1,550; USPTO fee structure: Fees for small entities based on 

the legislative proposal[A]: 2,500; Dollar change for small entities: 

950; : 61.3.



Type of fee: Maintenance subtotal; USPTO fee structure: Current fees 

for large entities: $6,000; USPTO fee structure: Current fees for small 

entities: $3,000; USPTO fee structure: Fees for small entities based on 

the legislative proposal[A]: $4,450; Dollar change for small entities: 

$1,450; : 48.3.



Type of fee: Total; USPTO fee structure: Current fees for large 

entities: $8,020; USPTO fee structure: Current fees for small entities: 

$4,010; USPTO fee structure: Fees for small entities based on the 

legislative proposal[A]: $6,680; Dollar change for small entities: 

$2,670; : 66.6.



[A] Fee amounts shown represent a 50 percent reduction from the fees in 

the legislative proposal, except for the examination fee that 

specifically excludes any small entity discount. The amounts do not 

consider any discount that may be applicable to a “micro-entity” since 

USPTO has yet to define in regulations this type of applicant and the 

fee structure applicable to such applicants. Information posted to 

USPTO’s web site on July 29, 2002, indicated that micro-entities would 

pay a proposed $750 examination fee--a $500 reduction from the new 

$1,250 examination fee. However, a USPTO official told us that the 

agency is still studying the micro-entity concept and no final decision 

has been made about the fee levels.



Source: GAO analysis of USPTO data.



[End of table]



Agency Comments:



We provided a copy of our draft report to USPTO for review and comment. 

USPTO responded that the factual information in our draft report 

provides a good picture of USPTO’s transition to its new Strategic 

Plan. USPTO added that the Strategic Plan is USPTO’s road map for 

creating, over the next 5 years, an agile and productive organization 

fully worthy of the unique leadership role the American intellectual 

property system plays in the global economy. In addition, USPTO 

provided technical clarifications and corrections to our draft report, 

which we incorporated as appropriate. USPTO’s comments are presented in 

appendix II.



Scope and Methodology:



To provide information on past and future USPTO operations, including 

information on the number of patent applications filed, patents 

granted, inventory of patent applications, patent pendency, patent 

examiner staffing, and fee collections and funding requirements, we 

reviewed key USPTO documents, such as its April 2001 Corporate Plan, 

February 2002 Business Plan, and June 2002 Strategic Plan. We also 

reviewed various budget documents, performance and accountability 

reports, planning and other internal documents, and historical data 

provided by the agency. In addition, we interviewed USPTO senior 

management and other officials, as well as representatives of the 

Patent Public Advisory Committee and the Patent Office Professional 

Association.



Recognizing that a detailed examination of the Strategic Plan would be 

premature until congressional action is taken on the fee legislation 

proposal and USPTO’s fiscal year 2003 budget request, we agreed to 

identify some of the differences between the Business and Strategic 

Plans.[Footnote 5] We compared selected aspects of those plans, 

including key assumptions and proposed operating changes. We also 

discussed with USPTO officials how USPTO develops projections of key 

business indicators, such as pendency and funding requirements. For 

example, we obtained information about USPTO’s Patent Production Model, 

which is a computer-based system that estimates staffing needs, 

production, pendency, and other key business indicators for managerial 

decisionmaking.



To determine how the current patent-fee structure would change under 

the proposed fee legislation, we compared current fees with the June 

20, 2002, fee legislation proposal. We obtained USPTO officials’ views 

on the accuracy of our analysis. In addition, we reviewed the results 

of published analyses of the fee proposal by others, including the 

American Intellectual Property Law Association and the Intellectual 

Property Owners Association.



Although we did not independently verify the data provided by USPTO, to 

the extent feasible we corroborated it with other agency sources. We 

performed our work from April 2002 through July 2002 in accordance with 

generally accepted government auditing standards.



As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 7 days 

after the date of this letter. At that time, we will send copies to 

appropriate House and Senate Committees; the Under Secretary of 

Commerce for Intellectual Property and Director of the United States 

Patent and Trademark Office; the Chief Financial Officer and Chief 

Administrative Officer, USPTO; the Secretary of Commerce; and the 

Director, Office of Management and Budget. This letter will also be 

available on GAO’s home page at http://www.gao.gov.



If you or your staffs have any questions concerning this report, please 

call me on (202) 512-6225. Key contributors to this report included 

John P. Hunt, Jr., Byron S. Galloway, and Don Pless.



John B. Stephenson

Director, Natural Resources and Environment:



Signed by John B. Stephenson:



[End of section]



Appendix I: Information Used in Briefings for the Chairman of the Joint 

Economic Committee and Representative Lamar Smith:



This appendix contains the information used to brief the staff of 

Representative Lamar Smith on July 12, 2002, and the staff of the 

Chairman of the Joint Economic Committee on July 25, 2002.



[See PDF for image]



Source: USPTO.



[End of section]



Appendix II: Comments from the United States Patent and Trademark 

Office:



UNITED STATES PATENT AND TRADEMARK OFFICE:



Under Secretary of Commerce For Intellectual Property and Director of 

the United States Patent and Trademark Office Washington, DC 20231 www. 

uspto. gov:



AUG 14 2002:



Mr. John B. Stephenson:



Director, Natural Resources and Environment United States General 

Accounting Office 441 G Street N. W.



Washington, D.C. 20548-0001:



Dear Mr. Stephenson:



Thank you for the opportunity to review your draft report entitled 

Intellectual Property: Information on the U. S. Patent and Trademark 

Office’s Past and Future Operations (GAO-02-907). The factual 

information included in the report provides a good picture of the 

United States Patent and Trademark Office’s (USPTO) transition to our 

new 21st Century Strategic Plan.



Comparing the Strategic Plan to the 2003 Business Plan is a little like 

comparing apples and oranges. The 2003 Business Plan was focused on 

performing our core functions - the processing of patent and trademark 

applications - resulting in the highest quality of products and 

services and the shortest pendency times possible. It deferred changes 

to the fee structure until fiscal year 2004 and instead relied on the 

Administration’s proposed surcharge to generate the fee collections 

needed to meet quality and pendency goals.



The Strategic Plan takes a global perspective by envisioning the patent 

and trademark systems of the future that American innovators will need 

to remain competitive around the world. It is built on the premise that 

American innovators need to obtain enforceable intellectual property 

rights here and abroad as seamlessly and cost-effectively as possible. 

The Strategic Plan emphasizes the need for the USPTO to collaborate 

with other intellectual property organizations in automation, global 

patent classification, and mutual reliance on search results.



As you so aptly point out in your report, our Strategic Plan proposes 

fundamental changes in the way we operate, such as restructuring the 

patent fee schedule and redesigning the patent search and examination 

functions. When implemented, our strategic plan will transform the 

organization into a quality driven, highly productive, and cost-

effective organization.



The 21st Century Strategic Plan is the USPTO’s road map for creating, 

over the next five years, an agile and productive organization fully 

worthy of the unique leadership role the American intellectual property 

system plays in the global economy. The Plan is predicated on 
behavioral 

changes within the USPTO and a willingness to embrace change among all 

players in the intellectual property system. The Plan pursues three 
main 

objectives. First, make USPTO’s processes simpler, faster, and more 

accurate. Second, listen more closely to the voices of USPTO applicants 

and to the demands of the national and global marketplaces. Third, be 

more productive while hiring 2,500 fewer examiners than was proposed 

under the 2003 Business Plan --and spending half a billion dollars 

less than originally planned.



Your report provides an extensive description of our legislative fee 

restructuring proposal. It is essential, however, to understand the 

dynamics behind the proposed fee changes. The existing fee structure is 

inadequate --it is failing to serve applicants promptly, it is less 

equitable to applicants who file more recently than earlier filers, and 

it is less equitable to applicants who have modest complexity in their 

applications.



The existing fee structure offers so much for a low flat fee that 

applicants routinely overwhelm the system capacity. Applicants with 

greater complexity consume more examiner resources, with no significant 

difference in fees paid, as compared to applicants with lesser 

complexity and who are able to obtain their desired patent protection 

in a single application. Instead, the cost incurred by all is the 

opportunity cost of delayed prosecution, as those earlier in the queue 

and with greater complexity and volume disproportionally absorb 

available examining resources.



The fee restructuring proposal would create parity among applicants --

those who consume less USPTO resources would pay lower fees. Fee 

amounts also would be aligned so that we provide service when the 

applicant has been able to decide that it is needed. This will allow 

the Office to better allocate its examining resources among all 

applicants in a more equitable alignment. We plan to work with the 

Congress to achieve a fee structure that supports the goals and 

objectives in our Strategic Plan, while not impeding full participation 

of all potential applications in the intellectual property system.



In closing, let me say yes, our 21st Century Strategic Plan does 

challenge the status quo and is aggressive and far-reaching, but 

anything less would fall woefully short of what the times demand. I 

have enclosed several minor suggested changes regarding the report for 

your consideration.



Sincerely,



James E. Rogan: 



Signed by James E. Rogan:



Enclosure:



[End of section]



FOOTNOTES



[1] In lieu of traditional budget submissions, in 1998 USPTO began 

submitting corporate plans to the Congress that integrated the agency’s 

performance plan and budget. While these plans covered only the budget 

year, they included selected performance information, such as pendency 

and other workload data, for multiple years. USPTO officials said that 

corporate plans were submitted in anticipation of USPTO becoming a 

performance-based organization. USPTO became a performance-based 

organization in 2000.



[2] Patent information in this report relates to “utility,” “plant,” 

and “reissue” patents issued by USPTO. Utility patents protect useful 

processes, machines, articles of manufacture, and compositions of 

matter; plant patents protect invented or discovered asexually 

reproduced plant varieties; and reissue patents replace unexpired 

defective patents.



[3] The Corporate Plan contained no staffing projections.



[4] The micro-entity category is referred to in USPTO’s Strategic Plan 

and legislative fee proposal. USPTO does not plan to define micro-

entities until legislation is enacted. At that time, USPTO will publish 

proposed regulations related to micro-entities. Information posted to 

USPTO’s web site on July 29, 2002, indicated that micro-entities will 

be a subset of “independent inventors,” with incomes below a specified 

level. Independent inventors comprise about 18 percent of all patent 

application filers.



[5] On June 26, 2002, the Senate adopted by unanimous consent an 

amendment to H.R. 2047--An Act to authorize appropriations for the 

United States Patent and Trademark Office for fiscal year 2002, and for 

other purposes. The amendment changed the Act’s title to “An Act to 

authorize appropriations for the United States Patent and Trademark 

Office for fiscal years 2003 through 2008, and for other purposes.” 

Among other things, the amended Act would (1) authorize USPTO’s 

appropriations for each fiscal year at an amount equal to the fees 

estimated to be collected in each year, and (2) require annual reports 

(for five calendar years after the Act’s enactment) on the USPTO’s 

progress made in implementing the Strategic Plan and any amendments to 

the plan. On July 18, 2002, the Subcommittee on Courts, the Internet, 

and Intellectual Property of the House Committee on the Judiciary held 

an oversight hearing focusing on the USPTO’s proposed fee structure and 

agency reform. Also, on July 24, 2002, the Senate Committee on 

Appropriations adopted S. 2778--Departments of Commerce, Justice, and 

State, the Judiciary, and Related Agencies Appropriations Act, 2003--

which provides $1.146 billion to the USPTO. This is a $219 million 

decrease from the President’s $1.365 billion budget request. 



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