Under Secretary Rogan House Testimony

Statement of James E. Rogan, Under Secretary of Commerce for Intellectual Property
and Director of the United States Patent and Trademark office

before the

Subcommittee on Courts, the Internet and Intellectual Property
Committee on the Judiciary
U.S. House of Representatives

July 18, 2002

Mr. Chairman and Members of the subcommittee:

Thank you for this opportunity to appear before you once again to discuss the future of the United States Patent and Trademark Office (USPTO). As always, Mr. Chairman, it is a pleasure to work with you, Ranking Member Berman, and the other members of the subcommittee on the array of intellectual property issues which are so vital to our nation's economic security.

A little over three months ago, this subcommittee conducted an important oversight hearing on the operations and funding of the USPTO. At that hearing, I described the rather grave situation that confronted the agency due to our increasingly large and complex workload. For example, an estimated seven million patent applications are currently pending in the world's examination pipeline, and the annual workload has been growing at a rate of 20-30 percent. Because of this unprecedented growth, patent pendency rates in the United States now average over two years, and without significant changes to our method of processing applications, data shows pendency soon will reach three to four years. The backlog of unexamined patent applications continues to grow as well. We currently have a backlog of approximately 400,000 applications, and this year we project we will receive a total of 340,000 new patent applications. To complicate matters, the technologies we are examining are increasingly complex, with applications sometimes accompanied by the equivalent of millions of pages of supporting data.

At the April oversight hearing, I indicated that these trends might necessitate fundamental changes in the way USPTO operates if we are to accomplish our mission in a timely and quality-focused manner. To that end, earlier this year I initiated an aggressive top-to-bottom review of the agency to identify new and possibly nontraditional ways to improve quality and reduce pendency. Today I am pleased to report that, after a considerable team effort, that review is now complete. Most importantly, based upon our review, we have put forward a comprehensive plan-the 21st Century Strategic Plan-to transform the USPTO into a quality-focused, highly productive, responsive organization supporting a market-driven intellectual property system. This plan will boost productivity and substantially cut the size of the USPTO's inventory while transforming the agency into an information age, e-commerce based organization that reflects the values of President Bush's Management Agenda.

In proposing this plan, Mr. Chairman, the USPTO has stepped up to the plate and heeded the calls of the administration, Congress, the owners of intellectual property, the patent bar, and the public-at-large to boldly address the challenges of improving quality, reducing pendency, and promptly implementing e-government. Not surprisingly, the 21st Century Strategic Plan is not without controversy. It challenges the status quo and is far-reaching. I submit, however, that anything less would fall woefully short of what the times demand. Furthermore, it is the only existing plan that addresses all of the challenges facing the agency, and does so within the expectations articulated by Congress and the administration.

* * *

The 21st Century Strategic Plan is the USPTO's roadmap 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 is intended to incorporate the best ideas of American inventors and creators, as well as our counterparts in other industrialized countries. It 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 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.

The 21st Century Strategic 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.

The new initiatives in our strategic plan are targeted toward timeliness, e-Government, employee development and competitive sourcing-all with a central quality focus. If Congress provides the USPTO with the funding and statutory changes necessary to implement this new strategy, the plan will:

  • Enhance the quality of patent and trademark examining operations through consolidation of quality assurance activities in fiscal year (FY) 2003.
  • Transition from paper to e-government processing for trademarks by October 1, 2003.
  • Accelerate deployment, by leveraging outside resources, of a fully operational system to process patent applications electronically by the end of 2004.
  • Achieve an average time to first action in patent applications that is more than 50 percent lower than the time projected in the original 2003 business plan (i.e., in 2008 5.8 months from time of request for examination rather than 12.3 months from time of filing).
  • Achieve and maintain 18 months patent pendency (from time of request for examination) by 2008, compared to over 25 months (from time of filing) in the 2003 business plan.
  • Reduce total patent examiner hires through FY 2008 by 2,500 compared to the 2003 business plan projection. We still plan to hire 3,000 examiners through FY 2008, but Congress has made clear that our hiring goals in the 2003 business plan were unrealistic.
  • Competitively source classification and search functions, thereby concentrating office expertise as much as possible on the core examination functions.
  • Expand our bilateral and multilateral discussions to strengthen intellectual property rights globally and, through work sharing, reduce duplication of effort among major industrial offices.

Here are some specifics on the plan's initiatives for improving quality and reducing pendency.

Quality must permeate every action taken by every employee of the USPTO. Accordingly, this plan will assure quality by hiring the people who make the best patent and trademark examiners, certifying their knowledge and competencies throughout their careers at the USPTO, and focusing on quality in all aspects of the examination of patent and trademark applications. In addition, current quality assurance programs will be enhanced by integrating reviews to cover all stages of examination. For example, quality will be engineered into our processing, including the selective expansion of the "second-pair-of-eyes" review in advanced fields such as semiconductors, telecommunications, and biotechnology. A statistically meaningful sample of all first actions and final actions will be pulled on a continuous basis and reviewed for quality and correctness, and information regarding examination errors will be used for training and continuous quality improvement actions. We believe these initiatives will bolster confidence in the quality of U.S. patents and trademarks, thereby spurring our economy and reducing litigation costs.

With respect to pendency, the 21st Century Strategic Plan would ensure a steady 18-month average examination duration time for patents-by far the fastest in the world-and a 12-month pendency time for trademarks. This will be accomplished through a radical redesign of the entire patent search and examination system based upon four examination tracks, greater reliance on outside searches, and variable, incentive-driven fees. Likewise, trademarks will restructure the way it does business to be compatible with an e-government environment.

For patents, the single-track examination process will be replaced by four examination options that leverage search results of other organizations and permit applicants to choose the timing of the processing of their applications. As part of this new process, the current basic filing fee (which now covers both the search and the examination) will be replaced with a filing fee and separate examination fee. This will allow applicants to file an application and delay deciding whether to request examination for as long as 18 months from the earliest U.S. filing date, giving them time to obtain a commercially provided search regarding patentability and to decide whether the application has sufficient commercial value to justify the costs of having an application examined. This change will eliminate duplication of effort, encourage greater participation by the applicant community and public, improve the quality of patents, and decrease processing time. Indeed, we anticipate that requiring a separate request for examination and a separate examination fee could create a pre-examination "dropout" rate of about 10 percent of all applications. It should be noted that this figure is a conservative estimate, and other industrial property offices have even higher dropout rates. However, only actual experience with the new system will show how much currently needless work will be saved.

In order to achieve greater examiner productivity and reduce pendency, the plan also calls for outsourcing search and classification processes using USPTO-certified search and classification firms and international patent searches. With approximately 45 percent of the USPTO's applications coming from foreign applicants who have filed in other patent offices first, this initiative will enable us to leverage the work product from those other offices. This will result in increased productivity for the USPTO and reduce the office's need to hire additional patent examiners.

In addition to separate filing and examination fees, other proposed revisions to our fee structure in fiscal year 2003 include charging higher fees for longer applications with more claims and charging less for shorter applications with limited claims. Patent applicants also will be given a new market-driven "rocket docket" option of choosing an accelerated examination procedure with priority processing and a pendency time of no longer than 12 months. We are still finalizing the details for the "rocket docket" process, however, so this option is not part of our proposed FY 2003 fee legislation.

Let me make two important points on the proposed fee changes. First, enactment of our proposed FY 2003 fee legislation, while laying the groundwork for reforms of the examination system such as four-track examination, only directly impacts our fee structure. Separate legislation will need to be enacted next year in order to fully institute the needed changes to the examination system. Second, the plan's proposed USPTO fee schedule compares quite favorably with the fee schedules at other major industrial property offices. For example, equivalent filing, issue and maintenance fees in the European Patent Office and the Japan Patent Office would be approximately $54,000 and $24,000, respectively, compared to our proposal of $12,000.

Once the 21st Century Strategic Plan is implemented, market forces will drive our business model. Fees will remain steady for the foreseeable future. Geography and time will be irrelevant when doing business with the USPTO. We will strengthen our ability to be ranked as one of the highest quality, most-efficient intellectual property organizations in the world. Our products and services will be tailored to meet the needs of customers. Examination will be our core expertise. U.S. industry and the public will benefit from stronger, more enforceable intellectual property rights worldwide. Our workplace will become a state-of-the art facility designed for the 21st century.

The 21st Century Strategic Plan will create a nimble, flexible enterprise that responds rapidly to changing market conditions. Under the plan, we will make the USPTO a premier place to work; we will rely on a cadre of highly trained and skilled employees; and we will place greater reliance on the private sector, including drawing on the strengths of the information industry. We will enhance the quality of work life for our employees by exploring expansion of work-at-home opportunities and moving to the new Carlyle campus facility in Alexandria, Virginia. In addition, we will establish alliances with our friends in other national and international intellectual property organizations to strengthen American intellectual property rights around the world.

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This strategic plan reflects both a thorough internal process review and a systematic attempt to incorporate the best thinking of our applicants, USPTO career experts, and the experiences and best practices of intellectual property offices in other countries. We are grateful for the wisdom and experience of the many individuals who contributed to the plan's development, and for the candor and positive spirit of representatives of industry groups and other associations who shared their views. Key stakeholders also include our dedicated employees, without whose commitment the strategic plan could not have been developed and its success could not be assured.

This strategic plan is only the first step toward creating a quality-focused, highly productive, responsive USPTO that supports a market-driven intellectual property system for the 21st century. Once the initial phases of this plan have been supported, adopted and implemented, the USPTO will explore further options to enhance its ability to operate more like a business.

We intend to refine and update our strategic plan periodically to adjust to changing conditions and to incorporate the best thinking of the entire intellectual property community. We are eager to work with those who believe, as we do, that American innovators and businesses must have the very best intellectual property system in the world. This 21st Century Strategic Plan represents an important first step in the pursuit of this goal.

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Mr. Chairman, the 21st Century Strategic Plan is yet another manifestation of the Bush administration's firm commitment to ensuring that the USPTO continues to lead the world in producing the most timely and reliable intellectual property rights protection for American innovators. I am hopeful that the continued support of the members of this subcommittee, coupled with the administration's dedication to our agency, will enable the USPTO to meet the challenges that lie ahead.

Implementation of the 21st Century Strategic Plan will not be painless. It will require new ways of thinking among USPTO employees and our users. It will depend upon our ability to streamline operations and the enactment of President Bush's budget request to fund these needed changes. It will require revisions to current rules. It also will require congressional support for enacting legislation relating to our fee schedule and examination system.

Change is never easy, and there are those who say that they cannot support a fee increase until USPTO is allowed to retain all of its fee revenue. The USPTO does not have the luxury of sitting back and waiting for that to occur. As many have stated before this subcommittee, the office is in crisis and bold action is needed.

Mr. Chairman, we have embraced the counsel of many and put forth an innovative, comprehensive plan for the future. We have upheld our end of the bargain. As noted earlier, the 21st Century Strategic Plan is the only plan that exists that addresses all of the challenges facing the office and does so within the constraints imposed by Congress and the Administration. However, it is only a first step, and it must remain a continual work in progress. President Franklin D. Roosevelt once said: "Try something; if it doesn't work, try something else. But for goodness sake, try something." We have heeded that advice. If aspects of the plan fail to meet expectations, we will say so and try something else. But failure to try is no longer an option.

We need the support of this subcommittee and of our user community to ensure the USPTO can do the job our Founding Fathers intended us to do: make the USPTO the world's premier intellectual property office. This plan offers a modern day roadmap to remain faithful to their vision.