Trademark Public Advisory Committee Annual Report November 30, 2000 I. INTRODUCTION The recently appointed Trademark Public Advisory Committee (T-PAC) members were sworn in by Under Secretary Q. Todd Dickinson and that Committee had its initial meeting in Arlington, Virginia on August 22nd and 23rd for the purpose of receiving a comprehensive orientation briefing. Excellent and informative presentations were made by Anne H. Chasser, Commissioner for Trademarks, and Nicholas Godici, Commissioner for Patents, as well as by: Dennis Shaw, CIO, on information systems; Clarence Crawford, CFO/CAO, on budget process and fees; Robert Stoll, Administrator, External Affairs, on legislative matters; Mary Lee, Administrator, Quality Management, on quality initiatives; Kimberly Walton, Deputy CAO, on workforce and labor management issues; and Jo-Anne Barnard, Administrator for Space and Acquisition, on space and facilities. These initial briefings provided a base of information for T-PAC that will prove to be valuable when the United States Patent and Trademark Office (USPTO) presents various proposals and studies to the Committee and seeks its advice on those materials. The information will also be useful to evaluate and advise on the general steps that are being taken and those being proposed for consideration to improve the performance of trademark operations at the USPTO. The presentations also placed the members of the Committee in a better position to consider the proposed 2002 budget that was prepared by the USPTO for submission to the Office of Management and Budget (OMB). The 2002 budget was reviewed by the T-PAC during an executive session meeting on October 23, 2000. Obviously, because of the uncertainty regarding the availability of fees collected by the USPTO in payment for services, the budgeting process is infinitely more difficult than if the Agency knew in advance that all fee collections would be available for expenditure as needed. The uncertainty regarding the availability of funding severely limits the USPTO's ability to address critical problems arising from the proliferation of work above levels experienced in the past. As noted below, the T-PAC believes planning and funding problems would be significantly ameliorated if the goal of having full access to user fees to fund the operations of the USPTO as a Performance-Based Organization (PBO) had been realized. It is our understanding that as a PBO, the USPTO is expected to conduct its business from a performance, financial and accountability standpoint in a manner comparable to a private business. As such, it must rely on customer demand and payments, as well as customer satisfaction and product quality, rather than being viewed by its users and the public as having some of the inefficient attributes associated by many with a Government operation. Thus, the T-PAC firmly believes that the USPTO must seek to parallel the best attributes of both a private and public enterprise. We believe that by designating the USPTO as a PBO, as indicated in the testimony introduced at the hearings and passage of the U.S. Patent and Trademark Office Efficiency Act (Pub. L. No. 106-113 (1999)), Congress intended the USPTO to be a self-funding organization accountable for its policies and performance. Further, it is clear that the only source of revenue available to the USPTO is user fees. It is also manifestly apparent that any policy which imposes responsibility for performance without having available the revenue generated from its operations, is a policy that, in the opinion of the T-PAC, is antithetical to the effective operation of the USPTO and the best interest of its customers, users and fee payers, as well as the general public and the U.S. economy which relies heavily upon the protection of intellectual property rights. In this report, the T-PAC offers a preliminarily review of the USPTO Trademark Operation (Trademarks), notwithstanding the fact the appointment of members took place in the latter part of the fiscal year covered by this first report. We recognize that under the legislation establishing the T-PAC, we have been chosen "to represent the interests of diverse users of the USPTO" regarding Trademarks, and to this end our Committee includes "members who represent small and large entity applicants located in the United States." We acknowledge and are committed to our duties, which include: (1) the review of "the policies, goals, performance, budget and user fees" of the USPTO "with respect to trademarks"; and (2) advising the Director on these matters. In addition, we are required and committed, within sixty days after the end of the fiscal year, to prepare an annual report on the matters referred to in Paragraph (1) and to "transmit the report to the President, the Secretary of Commerce and the Committees on the Judiciary of the Senate and House of Representatives" and to "publish the report in the Official Gazette" of the USPTO. II. MEMBERS OF T-PAC Since any report involves the subjective and objective views of the T-PAC, it may be helpful for the recipients of this report to have a list of the members of T-PAC and a brief statement regarding their background. Chair: Miles J. Alexander of Atlanta, GA, is Senior Partner in the Intellectual Property Group and Co-Chairman of Kilpatrick Stockton LLP, a law firm which has over 500 attorneys in Georgia, North Carolina, Washington, D.C., Virginia, Florida, London, Brussels and Stockholm. He is former General Counsel to the International Trademark Association (INTA). Members: Helen M. Korniewicz of Corte Madera, CA, manages the Trademark group at the Chevron Corporation Law Department. In addition to foreign and domestic trademark and copyright issues, she is responsible for legal services for the e-commerce and communications activities of several Chevron entities and has extensive experience in commercial and consumer credit services. Susan C. Lee of Bethesda, MD, is of counsel to the firm of Pena & Associations, P.C. and specializes in trademarks, copyrights, trade secrets, unfair competition and Internet law. From 1988-1993, she served as a trademark attorney with the United States Patent and Trademark Office, including representing the USPTO before the U.S. Trademark Trial and Appeal Board. David M. Moyer of Terrence Park, OH, is the Associate General Counsel for Trademarks and Trade Relations at the Procter and Gamble Company, with global responsibility for its trademark portfolio. He is also a past board member of the International Trademark Association, and has chaired INTA's Membership Committee. Joseph Nicholson of New York, NY, is a partner at Kenyon & Kenyon whose principal practice is trademark and unfair competition, including large international trademark portfolios. In addition to trademark practice, licensing and litigation, he has significant background in Internet commerce and domain name issues, and has served and continues to serve on various committees of the INTA. Louis T. Pirkey of Austin, TX, is a member of the firm of Fulbright and Jaworski in Austin, TX. He served as the immediate past president of the American Intellectual Property Law Association (AIPLA) and is Adjunct Professor of Trademark Law at the University of Texas School of Law. Griffith B. Price, Jr. of Bethesda, MD, is a partner at the firm of Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P. He specializes in trademark and unfair competition matters. He is the former chair of the USPTO Public Advisory Committee for Trademarks, and the founding chair of the American Intellectual Property Law Association Trademark Law Practice Group. John T. Rose, II of White Plains, NY, is Vice President for Human Resources at ESPN. He previously served as Senior Vice President for Player Relations and Administration for the NBA, where he was responsible for brand protection and trademarks worldwide, and organized an industry- wide task force on intellectual property protection. Prior to that, as Vice President for Law at NBC, he provided legal services on human resources, labor relations, finance, operations and engineering matters. David C. Stimson of Rochester, NY, is the Chief Trademark Counsel for the Eastman Kodak Company. He has worldwide responsibility for Kodak's trademarks, including clearance, registration, oppositions, litigation and licensing. He is a past president of the International Trademark Association and has chaired INTA's Legislation, Finance, and Planning Committees. In addition to the above voting members, the statute provides us with the benefit of the views of three non-voting members representing the USPTO unions. They are: Virginia Cade - Area Vice President for the Trademark Building and Treasurer and Steward of the National Treasury Employees Union (NTEU), Chapter 243, representing Support Staff. Ms. Cade is currently an Applications Classifier and has been with the USPTO for twenty-eight years. Howard Friedman - President of National Treasury Employees Union (NTEU), Chapter 245, representing trademark attorneys in the Trademark Office, as well as attorneys at the Trademark Trial and Appeal Board. Joined the USPTO in 1993. Lawrence Oresky - Vice President of the Patent Office Professional Association (Union) for the past eighteen years. Mr. Oresky is a Patent Examiner and joined the USPTO thirty years ago after obtaining a Masters Degree in Aeronautical Engineering from the University of Illinois. III. INITIAL IDENTIFICATION OF PROGRAMS TO BE REVIEWED The T-PAC, in considering the policies, goals, programs, budget and fees of the USPTO, will be reviewing and addressing, where appropriate, a wide range of issues that have been specifically identified to, or raised by, us following the comprehensive briefing we received at the end of August of this year. The leadership of the USPTO is constructively addressing important challenges it faces. They include, inter alia: Electronic filing Providing incentives for and mandating of electronic filings Trademark Office Budget Current and future general budgetary issues Under-funding resulting from diversion of user fees Analysis of fees Trademark registration rules and practice Legislation Rules changes Creative means of addressing substantive legal issues and needs for legislation Madrid Protocol, TRIPS, and other treaty compliance issues The international role of the USPTO Ethical considerations Office administration and management Current and long-time space needs Automation Expanded use of technology Consolidation of operations Examination overload Likely trend for applications filed and increasing demands on the USPTO Impact of e-commerce and Internet on trademark operations Quality control and accountability Trademark Examining Corps and other Trademark Office personnel issues Home, flex-time, and part-time employment; standards and guidelines Incentive programs and compensation issues General productivity concerns Employee relations, satisfaction, recruitment and retention Impact of private sector compensation levels on recruitment and retention Staff training and educational programs User needs and resources Measurers of customer satisfaction Large user needs Small user needs Facilitating input from the trademark community (and T-PAC's role in doing so) Maintenance of the existing trademark search library User educational programs Trademark Trial and Appeal Board Fulfilling TTAB mission IV. ANNUAL REPORT Although it is premature to fully report on our Committee's views of the policies, goals, performance, budget, user fees and the topics listed above, many of which will be addressed by the T-PAC during the coming year, we have been able to reach conclusions with respect to three matters of great importance. Thus, we make the following observations in this report, which is submitted to the President, the Secretary of Commerce and the Committees on the Judiciary of the Senate and the House of Representatives, as required by the legislation creating the United States Patent and Trademark Office Public Advisory Committees. In accordance with the provisions of the law, we have advised the Director of our views. Funding: The unprecedented increase in trademark applications filed since 1992, and in particular in the past two years when they increased at rates of 27% each year, and the growing complexity of fulfilling the mission of the USPTO in the e-commerce world, make it clear that the failure to provide all user fees on a current basis to the USPTO does a tremendous disservice to the agency, its users and the American public. The annual diversion of USPTO user fees during the budget process through "scoring," "carryovers," or other measures, which take customer user fees and withhold them temporarily or permanently for purposes other than trademark operations creates a barrier, in the opinion of the T-PAC, to the ability of the USPTO to fulfill its mission. The fact that the USPTO is self- funded by the users and that those funds are being diverted to other purposes appears to the T-PAC to have no reasonable justification and to work serious and consistent hardship on the USPTO operations. Finally, we would like to note that although Trademark customers paid almost $166 million in fees in FY 2000, Trademarks only had access to approximately $130 million to fund activities associated with the registration of increasing numbers of trademarks. Electronic Filing: A second conclusion reached by the T-PAC is that the USPTO should take immediate steps to expedite the use of technology in fulfilling its mission by mandating electronic filing, to the extent allowed by law, and by replacing paper based processes and information with processes designed to best leverage technology to conduct its business. Most importantly, it needs to move on an expedited basis to mandatory electronic filing of new applications and other papers, to the extent allowed by law. This is necessary for the USPTO to be able to meet the exponentially increasing demands placed upon its workforce and facilities. Madrid Convention: The T-PAC believes that if the U.S. adopts the Madrid Protocol, the benefits to trademark owners and the public who are served by the USPTO would outweigh the costs of implementation to the USPTO. Although the T-PAC will continue its study of funding, electronic filing and the Madrid Protocol, we believe it would be a disservice to the recipients of this Report to fail to provide our unequivocal conclusions in these areas, even as we undertake to address a wide range of other issues during our first full year of service. FY 2000 Performance: Considering the limitations on the availability of user fees and the effect this has on resources, T-PAC has been briefed by the USPTO on, a nd would like to highlight, a number of its reported successes this past year. Pendency and Production: Pendency to mailing first actions increased from 4.6 months to 5.7 months during FY 2000. However, it is of note that applications increased at an unanticipated rate above the prior year (i.e., 27.2% over 295,165 received in FY 1999) to a total of 375,428 new applications. This was substantially above the initial budget planning level for FY 2000 of 282,000 applications that established funding and staffing levels for FY 2000. Although the staffing level planned for FY 2000 with 282,000 new applications would have been sufficient to reduce pendency to the long standing goal of three months, the higher than planned filings clearly had a negative impact on pendency. To note, pendency rose by only one month when the excess filings (i.e., 375,428 minus 282,000) represent approximately four months of potential additional pendency. This reflects very favorably on Trademark's focus on achieving a high level of customer service and the dedication of its employees. It should also be noted that this is the second year in a row that applications increased by 27% which has had a substantial impact on workload distribution and inventories of pending applications in Trademarks. The inability of Trademarks to have full access to funds received to process these applications has a substantial and continuing detrimental impact on the organization's ability to improve, or even maintain, services. Despite its limited resources, Trademark operations had an impressive production year. The Trademark Operation completed 352,400 first actions, a new record and an increase of 4% from the prior year, 275,440 disposals, again a new record and an increase of 21% from the prior year, and 106,383 trademark registrations including 127,794 classes, an increase of more than 29% over the number of registrations issued in 1999. However, Trademarks ended the fiscal year with more than 677,000 classes under examination, an increase of 37% over the prior year. The T-PAC anticipates this examination backlog will continue to rise and service will deteriorate so long as user fees are diverted. Electronic Filing and E-Commerce Examination Offices: In its ongoing efforts to incorporate reengineered, electronic processes into Trademark operations, Trademarks has continued to champion the Trademark Electronic Application System (TEAS) as the best alternative to paper filing for Trademark customers. Electronic filing and payment have now increased to over 15% of the total applications filed, and in the first two years of TEAS operations, Trademarks received more than 64,800 electronic applications (including 74,900 classes) for registration of trademarks. Further, Trademark customers now have the option of filing seven other trademark forms electronically. To take better advantage of electronic filing, Trademarks established two e-Commerce law offices in late July. These offices are unique in that they handle all electronically filed applications - processing the applications directly into the law office - and they have incorporated all other examination and process activities into the offices creating one-stop electronic examination for customers who file electronically. The T-PAC strongly supports this initiative as a step in the right direction and believes that the e-Commerce law office activity should serve as the foundation for new trademark processes as the office moves from paper to electronic processing. The T-PAC also notes that in the past year, TEAS has been recognized for excellence in two national competitions. TEAS was recognized as a semi-finalist in the 2000 Innovations in American Government Awards Program, sponsored by the Ford Foundation and the Kennedy School of Government at Harvard University, and has been declared a winner of the 2000 Government Technology Leadership Award sponsored by the Government Technology Leadership Institute and the Government Executive Magazine. Recognition in both competitions is clear evidence of the success of this innovative electronic application, and a significant accomplishment for Trademarks considering the level of competition and publicity these programs provide. We would like to add our congratulations for TEAS and strongly encourage Trademarks to continue with innovations of this nature. We commit to work with the USPTO to develop further ways to encourage use of these systems. Trademarks on the Internet: The T-PAC would also like to recognize the successful efforts of Trademarks for setting up the Trademark Electronic Business Center on the USPTO web-site. It provides a convenient single source for locating a multitude of trademark related information and by accessing the Trademark Electronic Business Center over the Internet, customers have access to general information and the same data that is used internally by the Office to process and examine applications. Now the citizens of this country may search the text and images for over 2.7 million active, pending and retired marks, and also locate status information for pending and registered marks over the Internet. No longer is access to this information confined to those who travel to Arlington, Virginia to search in paper files. From anywhere in the world, a potential applicant may conduct a search of U.S. registered trademarks through the Trademark Electronic Search System (TESS), complete and file and pay for a trademark application electronically using TEAS, and check the status of pending applications through TARR, the Trademark Application and Registration Retrieval system. Trademark Work-at-Home (TW@H): Because of the extensive use of automated processes andinformation to support Trademark operations, Trademarks has established an innovative work-at-home program. The T-PAC endorses considering the expansion of this program as evidence of a focus on intelligent use of resources focused on dealing with the issues related to scarcity of financial resources. Specifically, TW@H allows Trademarks to add employees without adding office space. By the end of calendar year 2000, Trademarks will have the equivalent of approximately three law offices of examining attorneys working at home three-four days each week. The organization is preparing to move to a "hotel" concept to house TW@H examining attorneys when they are in the office, which will allow for the expansion of the examining corps if compensation funds are available without a commensurate need for additional office space. Further, given that the Agency will begin moving to new space in 2004, TW@H allows Trademarks to expand operations without incurring additional lease costs or long-term commitments to space that could result in increased expenses as the Agency leaves Crystal City. Without the extensive reengineering of processes and moves to electronic processing that have already taken place, programs such as electronic filing and TW@H would not be possible. We compliment the leadership in the Trademark Office for their focus on the future and willingness to consider forward looking concepts of operation that are of great value to both the customers of the Agency who provide the funds for operations and to its employees who derive on-the-job satisfaction from these programs. We commend these programs to the rest of the Government as an example for alternative ways of conducting business. Finally, the T-PAC believes that if Trademarks had the assurance of access to all of the fees paid by its customers for services, it would greatly facilitate progress toward reengineering its operations because the annual clash between funding production versus change would be alleviated. V. CONCLUSION The T-PAC looks forward to working with the USPTO in addressing the challenges that have been presented to it. We hope to contribute to the success of the governmental organization that is so critical to our country meeting the needs of the intellectual property community and the public during the 21st Century.