SUPPORTING BUSINESS LINE ACTIVITIES THROUGH INNOVATIVE FINANCIAL MANAGEMENT

Achieving the most efficient service and products, with the best quality at the least costs, requires planning and decision-making based on timely and accurate financial information. Front line managers depend on information and data analysis to evaluate program strengths and weaknesses. Preparation of financial statements is part of the USPTO’s overall goals to improve financial management and to provide accurate and reliable information that is useful in assessing performance and allocating resources. The USPTO’s financial statements, audited by the independent accounting firm of Ernst & Young LLP, appear immediately following this discussion and analysis, and for the ninth consecutive year the USPTO was issued an unqualified audit opinion. The CFO/CAO organization’s value does not end with the preparation of financial statements. There are several areas where improved financial advice and analyses assist in this evaluation by addressing market challenges. Effective cost and fee management can be maintained in a changing market environment by achieving efficiencies in supply, understanding how costs and fees relate, and implementing automated processes that make important information more readily available for decision-making.

Applying Traditional Business Practices Within Federal Government Parameters

A challenge of any business is to set prices and control costs to maximize goal achievement. The USPTO faces additional challenges to apply traditional financial management within a framework of federal legislation. Legislation largely defines the agency’s mission and ultimately shapes how goals are achieved. Legislation also is the driver of the budget process, where businesses normally plan pricing strategies and prepare cost estimates. While the USPTO is a market-driven agency, the federal budget process makes swift market reaction very difficult. Federal budgets are required to be planned 18 months in advance, are set by Congress within definite budgeting periods, and cannot be increased based on changing costs or requirements driven by market indicators and trends. Therefore, business practices developed to meet private sector financial goals cannot always be applied to the USPTO, creating a need for innovative financial management.

In setting prices, or patent and trademark fees, the USPTO strives to accomplish the objective stated in the AIPA, which is to encourage maximum participation by the inventor community. In addition, appropriation language dictates that the USPTO is to be funded by customer fees. A dollar cannot be spent until a dollar has been collected in fees. Therefore, it is important to maximize participation in the patent system. For example, we charge a smaller fee to price-sensitive customers (small entities) and a larger fee to customers that are not as price-sensitive (large entities). While this pricing strategy is not normally used in the business community as a tool to maximize profit when the quality and complexity of service provided is consistent among customers, it is justified in a government organization.

The USPTO also achieves this maximum participation objective by deferring the payment of a large portion of fees until after a customer has a chance to receive value from the patent received. Initial fees are set low. This pricing strategy makes patent protection more affordable for the customer. Patent maintenance fees to continue protection are set higher and collected at predetermined time intervals. However, if the customer decides it is not prudent to continue protection, they are not required to pay the additional fees. This is a form of product guarantee that significantly reduces the risk to the customer, again encouraging maximum participation.

Patent applications are rising with no sign of slowing. In addition, patent applications are becoming increasingly complex, especially in the biotechnology and computer-related arts. This added complexity results in a need for even more supply efficiencies to meet demand. In previous years, trademark applications also rose at a high annual rate. In FY 2001, trademark applications dropped, consistent with the declining economy. No increases in trademark application filings are expected until FY 2003.

Tracking large swings in demand with supply is a difficult task. It requires innovative personnel resource management and a new look at existing processes and the existing fee structure. Operating under the federal government pay schedule makes retention of highly skilled professionals a major concern. The USPTO is trying new initiatives, such as the work-at-home program and more competitive pay scales to attract and retain patent examiners; however, it must continue to look for creative ways to meet demand instead of simply increasing manpower. While examining the management of processes and leveraging technology, the USPTO also looks at pricing strategies to manage the demand for patent services and to achieve specified goals of quality and timeliness.

Measuring the Financial Life Cycle of a Patent and a Trademark

While the USPTO operates within legislative guidelines, it also operates within parameters set in federal regulations. The Office of Management and Budget (OMB) requires full cost reimbursement for all goods and services provided to the public. To determine fees that need to be charged to achieve full cost reimbursement in the aggregate and over the life of patents and trademarks, the USPTO uses complex projection models. These models weigh variables such as the expected ratio of small to large entity applications, the expected ratio of different product types, and the percentages of customers wishing to continue protection at various time intervals. The use of so many unknowns in fee analyses creates uncertainty regarding the adequacy of fees to cover costs. Understanding how costs and fees relate plays a large part in addressing workload concerns. Once this relationship is determined, the best fee schedule can be proposed to meet program needs.

The AIPA requires a study of alternative fee structures and the Chief Financial Officers Act of 1990 and OMB Circular A-25 require a review of fees biennially. The USPTO intends to use innovative fee changes to improve workload adjustments. In addition, fee structure changes could directly contribute to workload adjustments, including providing customer incentives for electronic submissions and reduced application complexity, which would result in more streamlined business processes. Ultimately, a fee structure that tightly links costs and fees will allow the USPTO to perform more like a business. This linkage will better ensure that fees cover costs over the financial life cycle, better plan and budget, and better respond to stakeholder questions and concerns. However, in looking at fees, the USPTO must always keep in mind the objective to maximize participation as well as the ultimate impact on the inventor community and the economy in general.

During FY 2001, the USPTO made outstanding strides towards linking costs associated with each patent fee that is currently charged. A complex activity-based cost accounting model has been in place for several years. It analyzes all the costs incurred in various processes and activities. FY 2001 efforts went a step further, tying costs to fees by determining the processes (costs) contributing to each service provided (fee). The USPTO has begun steps to take this analysis even further by comparing the fee streams to the cost streams for the life cycle of an average patent. We also will do the same analysis for an average trademark. These next steps require careful integration of production and performance data with financial data and will ultimately have far-reaching benefits beyond the fee analysis in process.

Promoting e-Government

The USPTO Revenue Accounting and Management (RAM) system, awarded a government agency award for excellence by the Post Newsweek Tech Media Group, publisher of Government Computer News and Washington Technology, is the mission-critical, financial management system that provides subsidiary accounting for fee revenue and deposit accounts. Recognizing the emergence of e-Government, the original RAM system evolved to incorporate contemporary Web technology that has increased its usefulness for patent and trademark customers worldwide. In support of first-line managers’ e-Government goals, RAM was designed with the forethought of a generic storefront interface to allow for efficient and effective integration of processes and to allow thousands of financial transactions to be automatically entered and processed without manual intervention. RAM has integrated patent and trademark e-Government applications for rapid collection of fees over the Internet. RAM uses Secure Socket Layer technology and real time credit card authorization, making an efficient user/system interaction. The RAM e-Government capabilities offer a 24/7 mechanism to conduct patent and trademark business with instantaneous payment capabilities using electronic funds transfer (EFT) or credit card payments. The initiation of "anytime, anywhere" capabilities unquestionably has improved customer service and relations. Customers may pay electronically for trademark applications, patent applications, and patent copies; replenish, charge and obtain balances for deposit accounts; and identify the payment window and pay patent maintenance fees.

With information technology evolving to a distributed environment requiring greater user flexibility, the USPTO began replacing its legacy mainframe core accounting system with an updated scalable, Web-enabled, financial management system. The latest technology of this new system will put the agency on a path for future enhancements and e-Government initiatives allowing efficient and effective integration with other e-Government solutions, such as e-procurement. The new system also integrates processing financial transactions with normal business processes by allowing the creation of electronic folders, routing documents for review and approval and attaching scanned images for electronic filing. While the current core accounting system provides complete and reliable financial and cost information as well as significant electronic transaction processing, this new system will provide this data to USPTO businesses routinely. This will allow first-line managers the opportunity to make more effective, timely, and efficient strategic business decisions.

The new system also will contain flexible reporting tools to meet the challenging new federal financial reporting requirements. In FY 2001, OMB issued Bulletin No. 01-09, promulgating new financial statement form and content guidance. This guidance makes significant strides in addressing issues regarding the usefulness of financial information arising from lack of timeliness. Accelerated reporting and interim reporting are major areas of focus. Annual reporting deadlines are initially shortened by almost a month with plans to accelerate deadlines even more. Interim reporting is required semi-annually initially, followed shortly by a quarterly reporting requirement. Automation is a critical component of the solution to full compliance with this new guidance.

Innovations in the areas of supply efficiencies, fee-setting, and e-Government will help the USPTO achieve a more businesslike environment, where a fee model and a supply plan are in place that are flexible enough to respond to market changes and systems to better manage resources. The better the USPTO understands its business needs – how to set prices and control costs to maximize achievement of the organization’s goals – the better it can express these needs to federal regulators and stakeholders to effect change.