found it disturbing that the Director Iancu would circumvent the prerogative of Congress with recently announced proposed PTAB claim construction changes, though she admitted the decision wasn’t unlawful. She expounded for several minutes on issues of res judicata, which could tie the hands of the PTAB in light of district court or U.S. International Trade Commission (ITC) decisions regarding patent validity. “[This] would completely blow up what we were trying to do as a Congress,” Lofgren said. “It looks to me that the people who disagreed with [the AIA] and lost in the Congress, they went to the Supreme Court, they lost in the Supreme Court, and now they’re going to you, and you are reversing what the Congress decided to do and what the Court said was permissible to do.”
To fix the current incarnation of the U.S. patent system and reinvigorate the American economy, Judge Michel called upon the House IP subcommittee to adopt seven specific action items. Five of the action items relate to improvements to patent law for the strengthening of patent rights while optimizing PTAB procedures already in place, while two other action items focus on the administration of the USPTO.
Under President Trump’s FY 2018 budget the USPTO will receive $3,586,193,000 from fees collected and to be available until expended. This appropriation would result in $0 being provided to the USPTO from the general fund of the United States. Any fees collected by the USPTO in excess of that amount would be deposited into the Patent and Trademark Fee Reserve Fund and remain available until expended. There does not appear to be any mention of any fee diversion anywhere, which would mean the USPTO has dodged the fee diversion hands of an often greedy federal government who over the last 30 years has frequently diverted user fees to other purposes.
With a proposed budget of $7.8 billion and $1 billion in cuts to identify, questions arise about where those cuts will come. Is the USPTO budget safe?Will the cuts 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.
In a shocking revelation, Frank Murphy, Acting Chief Financial Officer, explained that the USPTO has been and will continue to make payments to the Department of Commerce under the shared services initiative, which is now known as “enterprise services.” Not only are these payments to Commerce potentially (or perhaps likely) in violation of the America Invents Act (AIA), but they are being made at a time when the USPTO is suffering revenue shortfalls and is preparing to increase user fees. According to Murphy, the final fees rule will be submitted to the Administration soon, with fee increases likely by September.
The United States Patent and Trademark Office would be exempt from turning over its collected fees to the Treasury. The USPTO, however, would be required no later than March 1 of each year to submit to Congress a report that describes any fee, fine, penalty, or proceeds from a settlement collected by the Office for the previous fiscal year. So why is the USPTO specifically excluded from this particular government wide agency fee diversion? That is a very good question.
Unfortunately, Mr. President, after five years I cannot report back that the AIA has yet ”improve[d] patent quality and help[ed] give entrepreneurs the protection and the confidence they need to attract investment, to grow their businesses, and to hire more workers.” The current implementation of PTO post issuance proceedings is undermining confidence in our patent system, chilling innovation at its roots, and, in eyes of some, giving the AIA a bad name.
Clinton’s proposal for accomplishing this goal would be twofold: (1) to reduce excessive patent litigation through additional patent reform; and (2) strengthening the operational capacity of the USPTO by allowing the USPTO to keep and spend all the fees it collects. “You are looking at a 14-page detailed document. There is a lot of thought put behind this agenda,” explained Todd Dickinson, former Director of the United States Patent and Trademark Office under President Bill Clinton who was reached by telephone for comment. Not surprisingly, Dickinson has has been an advisor to the campaign regarding intellectual property matters. “Other campaigns will be hard pressed to match the depth and thoughtfulness of these proposals.”
User fees fund our patent system. The patent system turns ideas into assets. Those assets are used to secure financing and gain access to markets. Financing and market access fuel the rise of new industries, businesses, and jobs. Regrettably, however, those user fees are frequently diverted to fund other, unrelated government agencies and programs, which amounts to a tax on innovation.
This extra attention on Wisconsin, coupled with Paul Ryan being the dream candidate for those who favor an open Republican Convention, provides us with a somewhat manufactured, yet novel and non-obvious opportunity to examine Ryan’s views on patents. Oddly, much like those of candidate Kasich, Ryan’s views have been in favor of fee diversion, which have been identified by former heads of the U.S. Patent & Trademark Office as the single biggest problem that has or will face the Office. Indeed, the mentality that leads Donald Trump to exalt the virtues of eminent domain for the greater good isn’t all that different from the thinking that must be required when Paul Ryan (and Kasich too) decide it is appropriate to siphon off user fees from the USPTO.
Not only does the Patent Office handsomely charge for the acquisition and maintenance of a patent, they also handsomely charges for the right to challenge those patents after issue. On its face this creates a perverted incentive. The arms dealer nature of how the AIA has transformed the Patent Office is not lost on many within the industry. Add in the insecurity of the USPTO budget and the fact that the Patent Trial and Appeal board (PTAB) directly reports to the Director, thereby not enjoying any true judicial autonomy (at least on paper) and you would be hard pressed to have come up with a more conflicted structure or system.
What Kasich doesn’t explain, however, is how he achieved a balanced budget. As part of the Kasich-Clinton deal the budget of the United States Patent and Trademark Office (USPTO) was raided for additional money to help plug shortfalls elsewhere. The appropriations cap placed on the USPTO for fiscal year 1998 was $691 million, and according to the IPO $199 million was collected but diverted, which means 22.4% of fee collections were taken from the USPTO in FY 1998 and used for other purposes… Republicans, including Kasich, love to lay claim to the Reagan legacy. But President Reagan was a supporter of the patent system. He never would have tolerated raiding the USPTO budget for any reason. We know that because it was President Reagan that demanded a build up of the USPTO as part of his overall strategy to make America great again and compete with the Japanese for technology dominance.
This year our panel of industry insiders is quite diverse, with commentary from Bob Stoll (Drinker Biddle), Ashley Keller (Gerchen Keller), Paul Morinville (US Inventor), Alden Abbot (Heritage Foundation), Marla Grossman (American Continental Group) and Steve Kunin (Oblon). Unlike last year where there was near unanimous agreement that the Supreme Court’s decision in Alice v. CLS Bank was the biggest moment of the year, this year our panel of industry experts focused on a variety of different matters. There was one recurring theme, however. The inability of patent reform to advance on Capitol Hill was undoubtedly one of the biggest stories of the year.
Dissent among members of Congress on the nature of the Innovation Act was evident from the opening remarks of the committee’s two ranking members. Congressman Bob Goodlatte (R-VA), the House Judiciary Committee Chairman and the Innovation Act’s major sponsor, stated that the Innovation Act would “ensure that the patent system lives up to its constitutional underpinnings” while targeting the abusive patent litigation which has been central to the debate on patent trolls. The ranking Democratic member of the committee, Congressman John Conyers (D-MI), said the bill was overly broad and yet it didn’t adequately address issues significant to this debate, including abusive demand letters and the ending of fee diversions from the U.S. Patent and Trademark Office’s budget.
During a free-flowing conversation the former leaders of the Patent Office agreed on a number of items, including the biggest problem for the Patent Office over the last generation: fee diversion. Both Dickinson and Mossinghoff pointed to fee diversion as a constant and continuing challenge. Dickinson recalled one particular budget where nearly $250 million was diverted from the Patent Office budget, a huge sum given that at the time the USPTO annual budget hovered around $1 billion.