Trump FY 2018 budget cuts $1.5 billion from Commerce, how much will come from the USPTO?

U.S. Department of Commerce

Last week the Trump Administration released the FY 2018 budget blueprint, which includes a $54 billion increase in Defense spending that is offset by a $54 billion decrease in non-Defense spending. While other agencies have been asked to absorb larger cuts, if President Trump’s FY 2018 budget were to be enacted the Department of Commerce will be cut 16 percent, or $1.5 billion. The budget blueprint explains: “The President’s 2018 Budget requests $7.8 billion for the Department of Commerce, a $1.5 billion or 16 percent decrease from the 2017 annualized CR level.” (see page 13).

With respect to the Department of Commerce, the White House budget blueprint identifies an additional $100 million in spending for the U.S. Census Bureau to continue preparations for the 2020 Decennial Census. The blueprint also identifies $631 million in cuts:

• $221 million saved by the elimination of the Economic Development Administration, which provides small grants with limited measurable impacts and duplicates other Federal programs.
• $124 million saved by discontinuing Federal funding for the Manufacturing Extension Partnership (MEP) program, which subsidizes up to half the cost of State centers that provide consulting services to small and medium-size manufacturers.
• $250 million saved by zeroing out targeted National Oceanic and Atmospheric Administration (NOAA) grants and programs supporting coastal and marine management, research, and education.
• $36 million saved by elimination of the Minority Business Development Agency.[1]

With the additional $100 million for the Census Bureau and the $631 million in savings identified, that means $531 million of the $1.5 billion in cuts are identified in the White House budget blueprint. Therefore, identification of approximately $1 billion in additional cuts will be required. It is unclear how much, if any, of the additional $1 billion in cuts will come from the USPTO. The word “patent” does not appear anywhere in the budget blueprint, and the United States Patent and Trademark Office (USPTO) is not mentioned.

The FY 2017 budget request from President Obama sought $9.75 billion for the Commerce Department, but Congress ultimately provided $9.3 billion in funding, which was an almost $71 million increase over FY 2016. The FY 2017 budget request for the USPTO, which is an agency within the Department of Commerce, was for $3.321 billion. Thus, the USPTO budget makes up just over 35% of the entire budget for the Department of Commerce.

With a proposed budget of $7.8 billion and the need to identify an addition $1 billion in cuts over FY 2017, questions are being asked about where those cuts will come. Will they be across the board cuts with the USPTO being asked to account for 35% of the $1 billion, which would reduce the USPTO budget to $2.967 billion for FY 2018?

According to a chart prepared by the Intellectual Property Owners (IPO) Association, the largest single fee diversion came in 2011 when $209 million was diverted from the USPTO. If the USPTO must cut its budget by some $350 million that would far and away be the largest single year fee diversion in the history of the U.S. patent system.

Unlike virtually all other federal agencies, the USPTO charges fees for service to customers. When the USPTO is not allowed to use all the fees collected for its mission it is a tax on the innovation system. It is also technically illegal as the result of the America Invents Act (AIA).

The language of the AIA is quite peculiar on the issue of the USPTO keeping the fees it collects, and to some large extent a bit misleading. A quick read suggests that the AIA put an end to fee diversion because the USPTO will be allowed to keep and use 100% of fees collected. That might make it seem like any attempt to ram cuts down the throat of the USPTO would be an impossibility. Unfortunately, it isn’t quite that simple.

The AIA says:

There is established in the Treasury a Patent and Trademark Fee Reserve Fund. If fee collections by the Patent and Trademark Office for a fiscal year exceed the amount appropriated to the Office for that fiscal year, fees collected in excess of the appropriated amount shall be deposited in the Patent and Trademark Fee Reserve Fund. To the extent and in the amounts provided in appropriations Acts, amounts in the Fund shall be made available until expended only for obligation and expenditure by the Office in accordance with paragraph (3).

However, 35 U.S.C. 42(c) says that the USPTO can only use the funds to the extent that they have been appropriated. Any funds collected in excess of what has been appropriated goes into the reserve fund. So Congress retained the right to appropriate funds to the USPTO, and there is a promise that the funds held in the reserve fund would only be used for obligations and expenditures by the USPTO. Of course, no prior Congress can bind a future Congress, so the ability for the reserve funds to remain available for use by the USPTO will always remain at the discretion of Congress. So fee diversion was not ended by the AIA as much as the industry achieved an uneasy armistice.

That at least some in government might be inclined to raid the USPTO reserve fund should hardly be a surprise. The USPTO fee collection machine has been treated much like a federal piggy bank over the years. But what, if anything, will USPTO Director Michelle Lee do about the President’s budget? Will she go along to get along in hopes of staying on as USPTO Director or obtaining some other government position? Or will Director Lee stand up and demand that any additional cuts to make up the $1 billion decrease in Commerce budget come from outside the fee for service structure of the USPTO? Will Congress repeal 35 U.S.C. 42(c)(3)(A), which requires all fees collected by the USPTO to be used for processing of patent applications and other Office activities? Will Lee point out that if 42(c)(3)(A) is not repealed fees collected by the USPTO simply cannot legally be used outside the Office?

As interesting as those questions are, the most interesting question will be: What will Director Lee do about the USPTO fee increases that we are told will almost certainly go into effect later this year? Why should patent stakeholders have to pay any additional fees at all if the USPTO appropriation is going to be decreased by $350 million? That would mean innovators would be taxed at unprecedented levels in order to pay for things wholly unrelated to USPTO operations, which without a repeal of 35 U.S.C. 42(c)(3)(A) would be illegal.

________________

[1] The White House budget blueprint does not provide an estimate in the amount of savings to be achieved by elimination of the Minority Business Development Agency, but President Obama’s FY 2017 budget requested $36 million. See Written Testimony of Secretary Penny Pritzker.