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Performance and Accountability Report Fiscal Year 2009
Management's Discussion and Analysis

Table of Contents | Management | Financial | Auditor | IG | Other

Financial Highlights

The following presents the USPTO’s FY 2009 financial highlights for budgetary resources and requirements, along with results of operations. Details behind these highlights are included in the discussion of the USPTO’s financial statements beginning with Financial Statements.

Budgetary Resources and Requirements

The USPTO was provided appropriation authority to spend all anticipated fee collections in FY 2009 for an amount up to $2,010.1 million. However, as the fiscal year progressed, fee collections were not being received as they had been anticipated, resulting in actual fee collections of $1,874.2 million, which was our final appropriation level. When spending authority is less than fee collections, the additional fee collections are temporarily unavailable. During FY 2007, the USPTO collected an additional $12.2 million in fees that were temporarily unavailable for spending.

The following table presents the source of funds made available to the USPTO, and the use of such funds.

Source and Status of USPTO Funds (Dollars in Millions)
Source and Status of Funds FY 2005 FY 2006 FY 2007 FY 2008 FY 2009

Source of Funds:
Unobligated Beginning Balance $    2.3  $    5.7  $    5.7 $   28.0 $   72.1
Recovery of Prior Year Obligations      7.6      9.1      9.9     12.0     30.7
Spending Authority from Offsetting Collections  1,504.2   1,665.4   1,791.1  1,885.6  1,880.4
Non-Expenditure Transfer        –      (0.1)        –      (1.0)      (2.0)
Net Increase in Unavailable Fees        –         –      (12.2)        –        –
single underline
Total Source of Funds $1,514.1  $1,680.1  $1,794.5 $1,924.6 $1,981.2
double underline

Status of Funds:
Obligations Incurred $1,508.4  $1,674.4  $1,766.5 $1,852.5 $1,862.5
Unobligated Balance, Available      2.7       5.7      28.0     64.1    118.7
Unobligated Balance, Unavailable      3.0         –         –      8.0        –
single underline
Total Status of Funds $1,514.1  $1,680.1  $1,794.5 $1,924.6 $1,981.2
double underline

During FY 2009, total budgetary resources available for spending was 3.4 percent over the amount available in the preceding year. While the total amount available for spending increased during FY 2009, $70.6 million of the remaining unobligated balance at the end of the fiscal year is derived from Trademark fee collections. The increase in budgetary resources available for use over the past four years is depicted by the graph below.

Line graph summarizing annual growth in budgetary resources for the last five fiscal years.D

In FY 2009, the USPTO was provided with use of all of its fee collections. In the past, access to all fee collections had enabled the USPTO to substantially increase the number of patent examiners to assist in addressing the growing complexity of patent applications and increasing workloads and to allocate additional resources towards protecting intellectual property in the United States and abroad. However, the current economic condition complicated managing Agency operations, as evidenced by a decreased demand for our services and a decrease in fee income, over $200 million less than originally planned.

The USPTO’s response to the decline in fee revenues was to implement almost $200 million in budget reductions and cost-savings measures: stopping all overtime, including patent production and fee-generating work; curtailing most non-bargaining unit performance awards; significantly reducing mission-related travel; suspending patent examiner hiring, except for offers made as of February 2009; suspending all hiring but for the most critical positions in other areas; suspending training except where mandatory to sustain critical job qualifications; reducing or eliminating all non-essential, non-trademark, IT business system improvement projects; reducing the funds applied to critical IT infrastructure projects; and reducing the level of services provided by non-IT contracts. The USPTO’s efforts have positioned the Agency to operate within the reduced fee collection levels into FY 2010.

We are certain that the USPTO can not sustain operations in this manner over an extended period of time without a significant operational impact on the patent and trademark systems and putting into question the USPTO’s ability to address its mission at any acceptable level. For example, not replacing patent examiners as they leave the USPTO and eliminating overtime directly impacts our ability to reduce the backlog of existing patent applications. While this measure saves money in the short term, it also reduces revenue earned in the current year and has revenue impact for the future. In addition, delays in upgrades to our IT infrastructure will degrade the USPTO’s ability to sustain core functions. The USPTO expects significant challenges in FY 2010 and beyond without an interim or longer term strategy for stable and reliable funding.

Results of Operations

The USPTO generated a net cost of $54.8 million for the year ended September 30, 2009, an increase of $24.4 million over FY 2008 net cost of $30.4 million. This variation is the result of a few factors, explained in more detail in the Statement of Net Cost discussion.

Due to the increase in pendency, the amount of time an application is waiting before a patent is issued or trademark is registered, the USPTO had been recognizing a steadily increasing deferred revenue liability through FY 2008 for fees received prior to the revenue being earned. From FY 2005 through FY 2008, unearned patent fees increased 27.1 percent. In FY 2009, unearned patent fees decreased 4.6 percent, a result of the economy – as less new patent application filings were received, the USPTO was able to make progress in working off the existing inventory. From FY 2005 through FY 2009, unearned trademark fees decreased 33.3 percent, a result of the increased staffing to address the inventory backlog.

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