		       Patent Public Advisory Committee

				 Annual Report
			       November 30, 2000

PATENT PUBLIC ADVISORY COMMITTEE

VOTING MEMBERS

Margaret A. Boulware, Chair
  Partner
  Jenkens & Gilchrist
  Houston, Texas

James L. Fergason
  Independent Inventor
  International Liquid Crystal Company-ILIXCO
  Menlo Park, California

Andy Gibbs
  Independent Inventor
  PatentCafe.Com, Incorporated
  Yuba City, California

Patricia Ingraham
  Director
  Alan K. Campbell Public Affairs Institute
  Syracuse University
  Binghamton, New York

Roger L. May
  CEO and General Counsel
  Ford Global Technologies, Incorporated
  Ford Motor Company
  Dearborn, Michigan

Gerald Mossinghoff
  Senior Counsel
  Oblon, Spivak, McClelland, Maier & Neustadt
  Arlington, Virginia

Ronald E. Myrick
  Chief Intellectual Property Counsel
  General Electric Company
  Weston, Connecticut

Vernon A. Norviel
  Vice President and General Counsel
  Affymetrix
  San Jose, California

Katherine E. White
  Assistant Professor of Law
  Wayne State University
  Detroit, Michigan

NON-VOTING MEMBERS

Ronald J. Stern
  President
  Patent Office Professional Association (POPA)
  United States Patent and Trademark Office
  Arlington, Virginia

Melvin T. White
  President
  National Treasury Employees Union (NTEU)
  Local 243
  United States Patent and Trademark Office
  Arlington, Virginia

Julie Watson
  Vice President
  National Treasury Employees Union (NTEU)
  Local 245
  United States Patent and Trademark Office
  Arlington, Virginia

BACKGROUND

   The Patent Public Advisory Committee (P-PAC) is a newly created body 
appointed on  July 17, 2000, to advise on "policies, goals, performance, 
budget and user fees of the United States Patent and Trademark Office 
(USPTO) with respect to patents."1 The P-PAC shall prepare a report 
annually and transmit the report to the Secretary of Commerce, the 
President, and the Committees on the Judiciary of the Senate and the House 
of Representatives.2 In its first report the P-PAC will review the USPTO's 
role in promoting and protecting innovation and the Committee's advisory 
role.

   For over 200 years, the basic purpose of the United States Patent and 
Trademark Office has been to administer the patent and trademark laws of 
this Nation. For patents, these laws derive from the United States 
Constitution to promote the progress of the useful arts by securing for 
limited times to inventors the exclusive right to their respective 
discoveries (Article 1, Section 8, of the United States Constitution).  
Under this system of protection, American business has flourished.  
New products have been invented and marketed, creating employment 
opportunities for millions of Americans.  

   Through the issuance of patents, the USPTO encourages technological 
advancement by providing incentives to invent, invest in and disclose 
new technology worldwide.  By disseminating patent information, the USPTO 
promotes an understanding of intellectual property protection and 
facilitates the development and sharing of new technologies worldwide. 

   The P-PAC is composed of nine voting members appointed by the Secretary 
of Commerce to advise the USPTO and represents interests of the diverse 
users of the USPTO5, and three non-voting members representing each labor 
organization recognized by the USPTO4.  The inaugural appointments were 
made by Acting Secretary of Commerce Robert L. Mallett on July 17, 2000. To 
reflect the rapidly changing intellectual property community, the P-PAC 
includes members from small entrepreneurial businesses, small inventors and 
universities to large U.S.-based corporations in a wide range of technical 
fields, including biotechnology, Internet technology and consumer 
products.5   

   At the outset, the P-PAC wishes to state its unanimously held 
appreciation of the critical importance of high quality U.S. patents -- 
to sustain economic growth in the United States and to 
human progress everywhere.  Patents drive technological innovation and, in 
turn, such innovation has driven the remarkable increase in U.S. 
productivity and the resulting real growth of the economy.  Across ever-
broader sectors of the global market, more and more companies are 
discovering that patents are among their most valuable assets.  
Conservative economic estimates place the value of patents and other forms 
of intellectual property as accounting for two-thirds of the market value 
of corporate America. 

   The appreciation of the importance of patents to our national well-being 
is dramatically reflected in the substantial increase in the number of 
patent applications filed in the USPTO.  Ten years ago, in Fiscal Year 
1990, the USPTO received 163,569 patent applications, which number has 
grown to 293,244 in Fiscal Year 2000. The USPTO projects a doubling of the 
filings from the current rate by 2006.  The following graph tracks the  
past and expected filings from 1990-2006: 

   Congress, at the Administration's urging, wisely established the USPTO 
as a performance-based agency to handle that workload.  The P-PAC applauds 
that development.  But the finances must keep pace with the capabilities 
of the USPTO and the challenges it will face.  Every dollar invested by 
inventors and corporate America in the self-supporting USPTO has enormous 
leverage. If the USPTO is permitted to retain that investment by USPTO 
users--without it being diverted to other unrelated Government programs-- 
the Committee is convinced that it will be able to handle the exponential 
growth of projected workload. If not, the Committee is gravely concerned 
that the USPTO will become a bottleneck to small inventors and corporate 
America and to technological and economical growth generally.  
The Committee believes that we cannot permit this to happen.

   The P-PAC's first meeting was on August 23, 2000, which was a public 
meeting to broadly review the USPTO's policies, goals and performance.  
The transcript of the public meeting is available on the Internet.6  
Prior to the public meeting, the P-PAC was briefed by the Under Secretary 
of Commerce and Director of the USPTO, Q. Todd Dickinson, Commissioner of 
Patents, Nicholas Godici, and members of the staff, including Chief 
Financial Officer and Chief Administrative Officer, Clarence C. Crawford, 
to acquaint the P-PAC with current USPTO activities,  and to tour the 
facilities.  The P-PAC has reviewed rule packages on user fees, legislative 
implementation and business goals that were in the comment and finalization 
process.  The institution of the P-PAC after initiation of the rulemaking 
process for numerous rule packages prevented the P-PAC?s advisory function 
on  the front end of the rulemaking process in the last fiscal year.  

   The P-PAC met on October 11, 2000, in Executive Session to review and 
provide comments on the draft USPTO budget for 2002.  The budget is 
privileged and confidential, and the 2002 budget will not be referred to 
specifically in this report. However, there are significant budget issues 
that override the operations of the USPTO apart from the review of the 2002 
budget that will be the subject of the first section of this report.  

   Although the P-PAC was in operation for only a part of the last fiscal 
year, it has had an opportunity to work with the USPTO and prepare this 
report on important issues for the USPTO and user community.  The report 
will be broken out in sections that correspond to the categories for 
statutory review by the P-PAC. 

BUDGET

   There is a budget crisis at the USPTO that will adversely and seriously 
impact future operations, particularly with the escalation of patent 
application filings and the desire to enhance the quality of issued 
patents. The only funding comes from users of the USPTO, primarily patent 
applicants. The USPTO operates on cost-based accounting so that the work 
performed on processing and examining the patent applications relates 
directly to fees paid by applicants. 

   The USPTO has endeavored to fulfill its role to examine and issue 
patents despite the diversion of significant fee income from its users.  
The USPTO has not been able to retain all the income received from its 
users, which has included a diversion of $108 million in Fiscal Year 1999, 
 $116 million in Fiscal Year 2000, and $113 million in Fiscal Year 2001.  
This diversion has had its costs with the increasing number of applications 
filed each year.  

   There is an insidious aspect to fee diversion.  The USPTO has had to 
defer certain imperatives in automation, electronic filing and other 
implementation of technology to improve the current ability and efficiency 
of the USPTO to handle increased workload and complex technologies. The 
diversion of funds has also impaired the USPTO's ability to recruit new 
examiners.  There is a lack of adequate funds to hire the full complement 
of examiners needed to keep up with the increased filings.  Also, there is 
more industry competition than ever for qualified graduates to work as 
patent examiners, especially in the electrical engineering and computer 
fields. The Office needs to be able to both operate in today's framework 
and paper environment and have sufficient funds to build to the future and 
move toward an electronic government environment. 

   The legislation creating this Committee also recast the USPTO as a 
Performance-Based Organization (PBO), only the second in the U.S. 
Government. To have a PBO operate without use of its own user fees defeats 
the purpose. The value of a PBO is to measure the effectiveness of the 
agency against the income received from its users for services.  

   The P-PAC unanimously passed a resolution at its August 23, 2000, 
meeting strongly emphasizing the serious consequences of the budget 
shortfall as one of our priorities in this Report. There must be a 
permanent fix for access to all USPTO fees.

POLICIES AND GOALS

   The P-PAC will review the policies and goals together since they are 
interrelated.  The USPTO has the exclusive statutory authority to issue 
patents and administer other patent functions. Overlayed on the mandated 
functions are the priorities on how to administer the functions, and 
particularly the interaction with the USPTO user community -- its 
customers. The policies and goals developed by the USPTO not only affect 
its internal operations but also its users.  

   The USPTO has developed a Patent Strategic Plan for Fiscal Years 2002-
2006.  The P-PAC has reviewed this Plan.  There are five goals, and the 
performance target rated Goal One is "Enhance the Quality of Our Products."  
The P-PAC agrees that quality is a priority goal of the USPTO, and at its 
public meeting resolved that the Director's and USPTO's top priority of 
putting quality first is supported unanimously by the P-PAC. The 
enhancement of the quality of issued patents is not a goal that can stand 
without full funding levels at the USPTO.  

   The second goal is improvement of the quality of the USPTO's services, 
which the P-PAC supports, and is closely tied to enhancing the quality of 
the patents issued.  The third goal is optimizing processing time.  The 
P-PAC agrees that processing should be secondary to quality goals, but the 
severe delays in receiving patents will have adverse consequences.  The 
P-PAC agrees with  the USPTO that quality should be the first priority. If 
there are budget deficiencies, then processing time will increase rather 
than sacrificing quality.  

   The P-PAC has concerns that processing delays may create an incorrect 
public perception of the inability of the USPTO to do its job properly.  
This is notwithstanding the recent legislation to assure patent terms if 
there are processing delays in the USPTO.  If the funds are not available 
for both quality of examination and timely examination, the choice for 
quality examination will be made, and the receipt of quality patents 
in a timely manner will suffer.  Application processing before allowance 
consumes 93% of USPTO costs. However, this front-end process brings in only 
43% of the fee income.  The USPTO relies on issue fees and maintenance fee 
income from patents previously granted to process applications. An increase 
in Office cycle time delaying patent issuance and the maintenance fee 
income stream would have an adverse impact on fee income.

   Delay in processing patents, which may extend the life of the patents 
past the 20 years from the filing date standard term, will impact consumers 
and businesses alike.  There will be a delay in the patented inventions 
going into the public domain, which will affect future competition.   
Patents are valuable assets for emerging technologies, such as 
biotechnology, and start-ups in the Internet field need issued patents in 
their asset portfolios to attract funding.  Some important industries, such 
as the computer chip technologies, have a relatively short product life.  
Delay in issuing patents for these industries adversely impacts the market 
development that comes with patent protection.

   The P-PAC was briefed on the e-commerce e-government goals by the USPTO.  
The programs include electronic filing of patent a pplications over the 
Internet, searching and other processing of applications. The P-PAC will 
continue to review and advise on these e-commerce initiatives.  Progress in 
the e-commerce area is tied directly to the funding to develop the 
technical infrastructure and personnel training to implement the programs.  

   The P-PAC has been asked to provide comments on the following rule 
packages since the formation of the Committee to the end of Fiscal Year 
2000:

   1. Changes to Implement the Patent Business Goals (RIN 0651-AA98)
   2. Revision of Patent Fees for Fiscal Year 2001 (RIN 0651-AB01)
   3. Rules to Implement Optional Inter Partes Reexamination Proceedings 
(RIN 0651-AB04)
   4. Changes to Implement Eighteen-Month Publication of Patent 
Applications (RIN 0651-AB05)
   5. Changes to Implement Patent Term Adjustment Under Twenty-Year Patent 
Term (RIN 0651-AB06)
   6. Utility Examination Guidelines (RIN 0651-AB09)
   7. Guidelines for Examination of Patent Applications Under the 35 U.S.C. 
  112,  1 "Written Description" Requirement (RIN 0651-AB10)
   8. Request for Continued Examination Practice and Changes to Provisional 
Application Practice (RIN 0651-AB13)
   9. Treatment of Unlocatable Application and Patent Files (RIN 0651-AB19)
   10. Public Information, Freedom of Information and Privacy 
(RIN 0651-AB21)

   As previously discussed, the P-PAC was not in existence, and therefore 
was not involved at the start of the rulemaking process this year. The 
P-PAC looks forward to participating in providing meaningful input to the 
USPTO in the next year. The USPTO is statutorily mandated by the AIPA to 
conduct a Study of Alternative Fee Structures, which impacts both the p
olicy and user fees review role of the P-PAC.  The Committee looks forward 
to participating in this project if alternative fees are proposed by the 
USPTO.  

PERFORMANCE

   The intent of Performance-Based Organizations in the public sector is to
replicate as nearly as possible market and competition factors found in the 
private sector. The USPTO is a natural candidate for a PBO designation 
because its fee structure revenue base essentially provides a private 
sector-like bottom-line approach.  For the PBO model to operate, however, 
certain base conditions must be present.  The most important of these are 
the ability to predict and strategically utilize budgetary resources and 
the ability to manage the human resources of the organization in a flexible 
and strategic way.  This means that PBOs must operate with substantially 
more discretion than "average" public organizations.  It also means that 
PBO status needs to be flexible and responsive to changing market and 
technological demands.  

   The overall performance of the USPTO is going to be increasingly 
dependent on its ability to implement goals that parallel the development 
of e-commerce in the private sector.  The P-PAC strongly supports the 
USPTO's initiatives and priorities to encourage electronic filing for 
patent applications and the paperless processing and examination of those 
applications.  The USPTO has been hindered in implementing the e-government 
initiative due to budgetary constraints.  As previously reviewed, patent 
application filings are continuing to grow every year.  The USPTO, at this 
point, is playing catch-up, building infrastructure and re-engineering the 
internal operation of the patent examination process due to diversions of 
user fees in earlier fiscal years.  

USER FEES

   The P-PAC has been asked to review rule packages, which comprised user 
fee provisions, including the Revision of Patent Fees for Fiscal Year 2001;  
Changes to Implement Eighteen-Month Publication of Patent Applications; and 
Changes to Implement Patent Term Adjustment Under Twenty-Year Patent Term.  
The P-PAC looks forward to working more closely with the USPTO on a 
comprehensive fee study and proposals.  

CONCLUSION

   The P-PAC looks forward to its role in advising the USPTO for the next 
year.  The P-PAC is a resource for the USPTO during challenging times of 
rapid technological advances impacting intellectual property protection.  

1 American Inventors Protection Act of 1999 (AIPA); 35 U.S.C.   5(d).
2 AIPA, 35 U.S.C.   5(d)(2).
3 AIPA, 35 U.S.C.   5(b)(2).
4 AIPA, 35 U.S.C.   5(b)(3).
5 http://www.uspto.gov/web/offices/com/speeches/00-43.htm.
6 http://www.uspto.gov/web/offices/com/advisory/ppacmeet0008.html.
