USPTO 21st Century Strategic Plan

Statement of


James E. Rogan

Under Secretary of Commerce for Intellectual Property
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

April 3, 2003

Chairman Smith, Ranking Member Berman, and Members of the Subcommittee:

Thank you for this opportunity to testify today on the challenges facing the United States Patent and Trademark Office (USPTO). It is a special privilege, Mr. Chairman, to appear before you this morning in your new capacity as chairman of this subcommittee. You have a keen appreciation of the importance of intellectual property protection to our nation's economy, and I look forward to working with you and my good friend, Ranking Member Berman, in the months ahead on the many intellectual property issues that will come before this body.

In April and July of last year, this subcommittee conducted two important oversight hearings on the operations and funding of the USPTO. At both of those hearings, I detailed the impending crisis confronting the office due to our increasingly large and complex workload. On both occasions I testified that without fundamental changes to the way the USPTO operates, the quality of the patents and trademarks we issue likely will deteriorate, and the time it takes for an application to be reviewed will skyrocket. Indeed, patent pendency rates in the United States now average over two years, and in some critical technologies pendency averages four years. Without significant changes to our method of processing applications, the pendency time for the average application will soon reach three to four years.

There is both good news and bad news to report since those hearings took place.

The bad news is that the quality and pendency crisis facing our agency has not gone away. In fact, these problems are a greater threat to the health of America's intellectual property system than ever. Moreover, the longer we wait to confront these issues, the more costly and time consuming it will be to overcome them.

All is not without hope, however.

The good news is that we have a plan-a revised, comprehensive five-year strategic plan-supported by the administration, including the Office of Management and Budget, and constituency groups that will put us on a path to meeting these challenges in the months and years to come. The 21st Century Strategic Plan is targeted toward timeliness, e-government, employee development and competitive sourcing - all with a central quality focus. Assuming the needed changes to our fee structure are passed by Congress, the plan will boost productivity and substantially cut the size of our inventory. It will transform the USPTO into an information age, e-commerce based organization, which is the goal of President Bush's Management Agenda. Because intellectual property-based enterprises represent the largest single sector of the U.S. economy, the plan will also promote economic growth.

The 21st Century Strategic Plan 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. It provides a roadmap for creating an agile organization worthy of the leadership role American intellectual property plays in the global economy.

Let me take a few moments to summarize the sequence of events that has led us to where we are today.

* * *

When I arrived at the USPTO sixteen months ago, I initiated an aggressive top-to-bottom review of the agency to identify new and possibly nontraditional ways to improve quality and reduce pendency. This review was in response to the expectations and demands of the president and secretary of commerce, Congress, the owners of intellectual property, the patent bar, and the public-at-large. All wanted us to boldly address the challenges of improving quality, reducing pendency, and implementing e-government.

Last year we started to design a new plan for how the USPTO should operate. That plan-our 21st Century Strategic Plan-was unveiled last June and pursued three main objectives: (1) to make the application process simpler, faster, and more efficient; (2) to be more responsive to the needs of our customers and to the demands of the national and global marketplaces; and (3) to be more productive.

The original plan was particularly bold and marked a fundamental departure from business as usual. Resistance to change being what it is, some of the plan's provisions-particularly those concerning deferred examination, applicant-commissioned searches, mandatory information disclosure statements, and changes in some of our fees-were criticized.

We spent much of last summer and fall listening to those who had suggestions for ways to improve the plan. I am pleased to report that these discussions were fruitful. They helped us draft a revised strategic plan that (while more modest than its first incarnation) recognizes that the USPTO's current business model and fee structure fails to meet the realities of the 21st century. Today, the plan's 37 action initiatives and fee changes are endorsed by the American Intellectual Property Law Association (AIPLA), the Intellectual Property Owners Association (IPO), the American Bar Association's Section of Intellectual Property Law, the Biotechnology Industry Organization (BIO), the International Trademark Association (INTA), our Patent Public Advisory Committee, and our Trademark Public Advisory Committee. In addition, nearly one hundred of America's largest companies and intellectual property groups have expressed their support.

The key features of our revised strategic plan, which we submitted to the House and Senate last month in conjunction with the president's 2004 budget request, will:

  • Enhance the quality of patent and trademark examining operations through consolidation of quality assurance activities.
  • Accelerate processing time by transitioning from paper to e-government processing for trademarks by November 2, 2003-in tandem with implementation of the Madrid Protocol.
  • Deliver an operational system to process patent applications electronically by October 1, 2004, including electronic image capture of all incoming and outgoing paper documents.
  • Control patent and trademark pendency and reduce time to first office actions.
  • Competitively source patent application classification and search functions, and concentrate office expertise as much as possible on the core examination functions.
  • Provide for the hiring of almost 3,000 new patent examiners over the next five years.
  • Expand our bilateral and multilateral discussions to strengthen intellectual property rights globally and, through work sharing, reduce duplication of effort among offices.

Changes in the plan made at the behest of the user community required us to jettison our earlier goal of reaching 18-month average pendency. This is because of the higher priority the revised plan places on quality and patent e-government initiatives. Nonetheless, our goal will be to produce, on average, a "first office action" for non-provisional applications at the time of 18-month publication. In addition, we seek to have a patent search report for other patent applications issuing in the same time frame.

Let me highlight some of the proposed changes in the plan that I think are of the greatest significance.

First, we originally called for a legislated deferral of examination of up to 18 months from the earliest filing date. The revised plan provides an administrative alternative that will give applicants the option of abandoning their applications prior to search or examination and receive a partial fee refund. This alternative will still achieve many of the benefits of deferred examination.

Second, the original strategic plan required applicants to provide search reports obtained from commercial search organizations. Under the new plan, the USPTO will contract the search from commercial search organizations or foreign offices, not the applicant.

Third, the punitive fees we originally proposed for excessive claims and pages of complex specifications have been replaced with a linear fee system to ensure that fees charged for excessive claims and pages of complex specifications are proportional to the increased processing costs.

Lastly, the originally proposed four-track examination system has been revised in favor of a multiple track of five filing options.

The revised plan emphasizes our commitment to testing and evaluating the initiatives, most notably in the areas of outsourcing, quality enhancements and e-government. All of the initiatives in the plan will be subjected to thorough evaluation. The implementation plans accompanying each of the proposed initiatives contain specific milestones for initiating pilot projects and evaluating the data before deployment decisions are made.

Quality must permeate every action taken by every employee of the USPTO, and 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, and focusing on quality in all aspects of the examination of patent and trademark applications. For example, quality will be engineered into our processing by ensuring proper training and certification of examiners and expanding the "second-pair-of-eyes" review in selected technology areas. We believe these initiatives will bolster confidence in the quality of U.S. patents and trademarks, thereby spurring our economy and reducing litigation costs.

Another critical element of quality enhancement is tied to competitively sourcing the search function so that we can concentrate examiners' expertise as much as possible on the sovereign, core government function of patentability decision-making. When examiners are provided with quality search results and do not need to perform a separate search, they will be able to concentrate their efforts on what they do best: the determination of patentability. Reducing examiners' prior art search responsibilities will also achieve greater examiner productivity.

The USPTO has relied upon the European Patent Office's (EPO) search examiners in The Hague to perform searches of applications filed under the Patent Cooperation Treaty. These searches, which cover virtually every technology including biotechnology and telecommunications, are one way of managing the massive workload problem we face. The results to date on more than 75,000 searches conducted by the EPO over the past four years have been positive and confirmed through extensive surveys of U.S. patent applicants who have consistently expressed the view that EPO searches are high quality in nature.

By outsourcing the search function, we can ensure that the patent examiners of tomorrow will be like the quality review examiners of yesterday in that they will begin with a more complete search and set of information as their starting point. To that end, we will be diligent in selecting and monitoring the contract or foreign searching authorities to ensure that patent searches provided by them are of the highest quality.

* * *

The consensus we have achieved is due to the hard work and dedication of groups such as the AIPLA, IPO, the ABA's Section of Intellectual Property Law, BIO, INTA, the Patent Public Advisory Committee, and the Trademark Public Advisory Committee. I want to express my sincere appreciation for their partnerships.

It is important to note that our partners recently have expressed concerns that the new fee system will not guarantee that the USPTO have access to all of its user fees. The administration shares these concerns. President Bush cut the level of "fee diversion" by nearly fifty percent from the FY 2003 budget level in the administration's FY 2004 budget request for our agency. Last month Commerce Secretary Don Evans addressed this topic while testifying before a subcommittee of the House Appropriations Committee. There he said "the department is working to eliminate the practice of using USPTO revenues for unrelated federal programs. Making more fees available sooner will enable the agency to increase the quality of patents and trademarks issued."

The concern over "fee diversion" has led some in the patent community now to recommend that our fee proposal be amended so that any new fee structure would sunset after a period of two or three years. This idea, never raised during discussions leading to our accord, is flawed and would cast grave doubt upon the desirability of the administration supporting a revised fee bill containing such a provision.

As the members of the subcommittee know all too well, Congress has given the USPTO clear directives to develop and implement a five-year plan. Subjecting our fee structure to a sunset provision would result in an unacceptable level of uncertainty. It would cripple the USPTO from making any long-range planning or investments in infrastructure, training, or recruiting. For example, under a sunset provision, exigencies could force us to lay off the approximately 3,000 patent examiners we intend to hire over the next five years. At the very least, a sunset provision would frustrate our efforts to recruit qualified scientists and engineers for the patent examining corps.

A sunset provision would also cast a shadow of uncertainty on American businesses and inventors who, in return for a set fee structure, have an expectation that services will be improved with respect to pendency, quality, and e-government. This provision would decrease predictability and thereby raise costs and increase pendency.

* * *

Mr. Chairman, if we want to ensure a more vibrant, seamless, and cost-effective American intellectual property system, our 21st Century Strategic Plan offers a sensible and pragmatic means for achieving it. But this all hinges on passage of our revised fee structure. Without the ability to hire and train new examiners and also improve our infrastructure, our hands will be tied.

The consequences of failing to enact the fee bill and giving the USPTO access to those fees will mean quality and pendency will continue to significantly suffer. We will be unable to hire needed examiners, and over 140,000 patents will not issue over the next five years. The inventory of unexamined patent applications will skyrocket to a backlog of over one million applications by 2008-more than double the current amount-and pendency (as measured from the time of filing) will jump to over 40 months average in the next few years. This would represent the highest pendency rate in many decades.

Surely we all agree that this scenario is unacceptable. Therefore, I am asking this subcommittee to give us the tools needed to avert this crisis-and to let us field a nimble, flexible USPTO that can respond rapidly to changing market conditions. Time is not on our side, and the ramifications for the future of innovation and our economy are great.