Introduction
Chairman Wolf, Ranking Member
Serrano, and Members of the Subcommittee:
Thank you for inviting me to appear before you to discuss the United
States Patent and Trademark Office’s (USPTO) operations and budget. I greatly appreciate this opportunity to
discuss the challenges and opportunities facing the USPTO, and I want to
commend you for your leadership and support of the H.R. 1561, the USPTO Fee
Modernization Act, which recently passed the House on an overwhelming,
bipartisan vote.
Mr. Chairman, to quote Dickens,
the state of the USPTO can accurately be described as the “best of times” and
the “worst of times.” First, the bad
news. Quite simply, due to the record
growth that began in the 1990s and continues today, the USPTO is facing a
record workload crisis. The rate of
growth of patent applications has slowed, but we continue to get record numbers
of applications every year. Unless bold
new actions are taken, progress on our quality enhancement and electronic
government initiatives will be in jeopardy, the backlog of unexamined patent
applications will skyrocket, and average patent pendency will dramatically
increase. As this Subcommittee stated
last year, “there is broad
agreement that the patent process is in dire need of reform.” (House Report
108-221).
The good news is that H.R. 1561
offers us a way out of this dilemma. As
I will detail shortly, the additional resources provided in the fee bill will
enable the USPTO to implement our comprehensive 5-year Strategic Plan for
fundamentally reforming and streamlining our operations. We also believe these are the “best of times”
because this body and this Subcommittee has offered a great deal of support as
we work to tackle these challenges. In
that regard, I am particularly grateful for the long-standing support you have
personally provided the men and women of the USPTO, many of whom live in your
district in Northern Virginia. Your
leadership on ensuring sufficient funding for our Office, promoting
telecommuting, and assisting in our move to our new headquarters in Alexandria
have been enormously helpful.
The USPTO recognizes the tough decisions that you
and the Subcommittee members must make every year in the appropriations process. Especially in light of the budgetary
restrictions on domestic spending, we commend you for providing generous
increases in our budget in the last few years – increases that far outpaced
those provided to most other federal agencies.
I can assure you that the management of the USPTO is committed to
ensuring that those monies are well spent.
We want to continue to work in partnership with this subcommittee, so
that we benefit the men and women who work at the agency as well as the
technology community who are our customers.
To that end, let me provide you with a quick update on our telecommuting
programs and our relocation to Alexandria.
The USPTO is very proud of the
progress we have made so far on expanding work@home programs to our employees. In fact, we are considered a leader in
work@home among Federal agencies in the Washington, D.C. metropolitan
area. The USPTO’s telecommuting efforts
have been recognized and benchmarked by the General Services Administration and
the Partnership for Public Service. Our
Trademark work@home program received the Metropolitan Council of Governments’
2001 Commuter Connections Employer Recognition Telework Award. Currently more than 40% of our Trademark
examination workforce -- or 110 examiners -- telecommute, and we
plan to expand that to more than 150 examiners later this year. Doing so not only benefits our
employees and helps reduce regional traffic congestion, it also saves us money
in terms of reduced needs for office space.
On the Patent side of our operation, nearly 800 patent examiners and 220
other employees are currently participating in our work@home
program. We look forward to continuing
to work with you to maximize telecommuting opportunities for USPTO employees.
With respect to our move, I am
pleased to report that already more than one-quarter of our workforce has
successfully transitioned to our new consolidated headquarters in
Alexandria. The five linked buildings that make up USPTO's new facility contain
approximately two million square feet of office and related space. Full occupancy of the new headquarters will
be completed by mid-2005. This
consolidation from 18 different buildings spread out over a mile and a half in
Crystal City is a critical step to achieving and maintaining an agency that is
quality focused, highly productive, and responsive to the needs of its
customers. Our new campus is designed to
facilitate optimum performance from the state-of-the-art technology we will use
for full electronic processing of patent and trademark applications. Modern buildings and equipment and
employee-friendly services, including a childcare center and a fitness center,
will help us attract and retain a highly skilled workforce. Moreover, the General Accounting Office has
concluded that the consolidation will likely save us more than $98 million in
present value dollars over the initial 20-year lease term.
Overview of USPTO Operations
In the last several years,
intellectual property (IP) assets have become an increasingly essential
ingredient of economic vitality. Where
once raw materials and other tangible goods were the main drivers of the
economy, today economic success depends more and more on intangible, information-based
assets, such as the creativity of employees and the knowledge gained from
research. As a result, intellectual
property-based industries, such as biotechnology and motion pictures, now
represent the largest single sector of the U.S. economy. In fact, IP industries export more American
value to the world than the automobile, automobile parts, agricultural, and
aircraft industries combined.
As
the clearinghouse for U.S. intellectual property rights, the USPTO serves as an
important catalyst for U.S. economic growth.
Through the granting of patents and the registration of trademarks, the
USPTO promotes the vitality of businesses and entrepreneurs, paving the way for
investment capital and research and development. We are proud of our 200 year-old legacy of
helping America become a technological and economic giant.
The
growing importance of intellectual property in recent years has directly
impacted the USPTO. Patent applications
have more than doubled since 1992. In
the last five years alone, biotechnology-related patent filings increased 46
percent and pharmaceutical and chemical-related filings climbed
42 percent. As a result, we issued more
patents last year (173,000) than we did in the first forty years of our
Office’s history. Worldwide at our offices
and our counterparts in Europe, Japan and other national IP offices 12 million
patents are pending in the examination pipeline.
In addition to the sheer volume
of these applications, the technical complexity of patent applications is
increasing rapidly. One hundred years
ago more than one-third of our patent filings were bicycle-related.
Today, we routinely examine patent applications in
areas such as nanotechnology, bio-informatics, and combinatorial
chemistry. Some of these patent
applications come in on CD-roms that are literally the equivalent of millions
of pages of paper.
The results of these trends pose
significant challenges for the future of the Office. The volume and technical complexity of patent
applications has increased beyond the capacity of the resources available for
examination, resulting in a backlog of applications awaiting examination. In short, we are burdened by an increasingly
complex and massive workload. Patent
pendency (the amount of time a patent application is pending before a patent is
issued) now averages over two years. In
more complex technologies such as computers, average pendency stands at more
than three years. Without fundamental
changes in the way USPTO operates, average pendency in these areas will likely
double to six to eight years by 2008.
Moreover, the backlog of applications awaiting a first review by an
examiner will grow from the current level of approximately 475,000 to over
1,000,000.
To
put these numbers into historical perspective, back in 1981 when the U.S.
patent system was faced with a workload crunch, U.S. News & World Report published an article on the situation
entitled “Patent System a Drag on Innovation.”
At that time, average patent pendency was 22 months and the backlog of
unexamined cases was 190,000. Today, as
the numbers above show, the workload crisis is far worse.
The
escalating processing delays for patents and trademarks, and the resulting
impact on patent and trademark quality, pose a grave threat to American
businesses and entrepreneurs. The USPTO
is a catalyst for job creation. It is
important for the Subcommittee to understand that without the fee bill, more
than 140,000 patents will not issue over the next five years[AP1]. One can easily appreciate the impact on the
economy and job growth, especially on small business, of that quantity of
patents or capital being injected into the stream of commerce.
Thus,
the nature of technology and the nature of the marketplace make these
processing delays unacceptable – and unsustainable. If intellectual property protection is to
continue to serve as a catalyst for technological innovation and economic
growth, the USPTO must fundamentally break with the status quo. If we are to issue quality patents and
register quality trademarks in a timely manner, we must fundamentally reform
the way we do business. Fortunately, Mr.
Chairman, thanks to the leadership you and many of your colleagues in the House
have shown, we have a way out of this dilemma.
21st Century Strategic
Plan / H.R. 1561
A few years ago this Subcommittee
and your counterpart in the Senate made clear that you had great concerns about
the ability of the USPTO to manage our growing workload. Back in FY 2002, USPTO management was told
that it had not been “sufficiently innovative” and that the Office failed to
provide “a thorough business plan that demonstrates how resources will be used
and what results will obtain.” These
critiques were also echoed by the Administration and our stakeholders in the
private sector.
I am proud to say that we
did not bury our heads in the sand and ignore these criticisms. Rather, we heeded the calls of Congress and
our customers to develop a new operational paradigm for the agency. Thanks to the work initiated by former Under
Secretary Jim Rogan, we developed a comprehensive five-year blueprint for
reforming and streamlining our operations.
Our 21st Century Strategic Plan is a detailed plan for fundamentally
transforming the agency into a more productive, quality-oriented, market-driven
organization.
This plan enjoys the
support of nearly one hundred of America’s largest companies and USPTO’s
primary user groups, including the Information Technology Industry Council, the
National Association of Manufacturers (NAM), the Biotechnology Industry
Organization (BIO), the American Chamber of Commerce, the Intellectual Property
Owners Association, the American Intellectual Property Law Association (AIPLA),
and the Intellectual Property Law Section of the American Bar Association (ABA
IPL).
The 21st Century Strategic Plan envisions patent and trademark
operations of the future that innovators and enterprises can depend upon 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 affordably as
possible, and it emphasizes the need for the USPTO to collaborate with other
intellectual property organizations in automation, global patent
classification, and mutual exploitation of search results. These objectives directly support the
President’s Management Agenda, including making the government citizen-centered
and results-oriented.
The Strategic
Plan’s key features will enhance the quality of patent and trademark
examination, increase efficiency by transitioning from paper to e-government
processing, and control patent and trademark pendency. It will allow us to also expand our bilateral
and multilateral efforts to strengthen IP rights globally. Under the Plan, we will be able to hire 2,900
new patent examiners.
While we
continue to enhance operational efficiencies by leveraging improvements in
automation and electronic processing, the core examination function must be
done manually by skilled employees. Ultimately, in order to tackle our
application backlog, we simply must have more examiners to keep pace with
increased filings. Hiring additional
examiners has the added benefit of helping stimulate the local economy, and it
has a multiplier effect on the national economy by providing better IP protection
services to businesses and entrepreneurs.
This, in turn, serves as a catalyst of economic growth.
Implementation
of the majority of the Strategic Plan’s thirty-seven initiatives is contingent
upon adoption of changes in our fee system.
That is why last year the Administration proposed as part of the USPTO’s
FY 2004 budget a modest increase in patent fees. These fee changes, which are contained in
H.R. 1561, the United States Patent and Trademark Office Fee Modernization Act
of 2003, permit revisions in USPTO business practices that are necessary for
the healthy functioning of the U.S. intellectual property system during the
coming century. They raise the funds for
essential technology and other investments that will modernize USPTO
operations. The
proposed fee changes will also benefit USPTO’s user community by allowing
applicants to evaluate the commercial value of their inventions and recover the
cost of search and examination as the situation warrants.
Mr. Chairman, we are encouraged by the strong bipartisan vote on March
3, 2004, in favor of H.R. 1561. We are
especially grateful for your leadership in reaching an agreement with our
authorizers on the House Judiciary Committee that will ensure sufficient
long-term funding for the Office while also maintaining needed oversight by
this Subcommittee.
We look forward to working with the Senate on this legislation. Adoption of the fee bill – and a long-term
commitment to the funding prerequisites of the 21st Century Strategic Plan --
is essential to the USPTO’s success in the future.
I do not want to leave the
impression that the USPTO is sitting idly by waiting for adoption of H.R.
1561. While securing the fee bill’s
additional resources and adoption of the President’s FY 2005 budget request is
vital, we are doing our best within existing budgetary limitations to implement
portions of the 21st Century Strategic Plan. For example, we are moving forward on some
key quality initiatives in order to raise the confidence of the business and
financial sectors in the reliability of the patents we issue.
The USPTO is committed to hiring
high quality people who will make the best patent and trademark examiners. We are committed to certifying their
knowledge and competencies throughout their careers. Furthermore, we are committed to focusing on
quality in all aspects of the examination of patent and trademark
applications. To that end, we are
undertaking the more than one dozen quality initiatives, including expanding
our successful “second pair of eyes” quality review that was originally piloted
on a limited basis for business method patents.
If additional resources are provided to the USPTO through the fee
structure in H.R. 1561, we will be able to make even further progress on these
and other initiatives to enhance the quality of patent and trademark
examination. This will greatly benefit
U.S. businesses and IP rights holders by limiting the need for costly
litigation in the courts.
International Efforts
Before I close, Mr. Chairman, I would like to comment on another aspect
of USPTO’s activities that is vitally important to America’s innovators and
entrepreneurs. I know it is also a topic
of great concern to you and this Subcommittee as well: intellectual property
piracy and counterfeiting.
The downside to the increasing
value of IP assets that I spoke about earlier is that the economic benefits of
capitalizing on intellectual property rights have captured the attention of
pirates, organized crime and terrorists.
As a result, pirated and counterfeit goods are abundant in many
areas. For example, approximately 40
percent of software programs are pirated globally. According to the
International Intellectual Property Alliance, this copyright piracy resulted in
a loss of $9.2 billion to the U.S. economy in 2002. Worldwide, IP piracy cost the software
industry $13 billion in lost revenue.
The global criminal nature of IP piracy is all too
real. During a House International Relations
Committee hearing last summer, the Secretary General of Interpol testified that
IP crime “is becoming the preferred method of funding for a number of terrorist
groups.” A customs expert with the
European Commission recently stated that al-Qaeda and Hezbollah are among
organizations believed to be using counterfeit goods to launder money and fund
their activities.
Given these threats to U.S.
economic interests and our national security, the USPTO and our colleagues in
the Department of Commerce are working hard to curb IP crime and strengthen IP
enforcement in every corner of the globe.
Indeed, Secretary Evans has been a champion on this issue and has made
it a top priority for the entire Department.
We need to make sure that American IP owners have sufficient legal tools
to fight piracy, and we need to ensure that other governments have the will –
and the resources – needed to attack IP theft.
Through our Offices of Enforcement and International Relations, the
USPTO works with foreign governments to enact
effective IP protection laws. We review
foreign laws for compliance with international enforcement obligations and
provide technical assistance on creating adequate and effective enforcement
mechanisms. As
co-chair of the National Intellectual Property Law Enforcement Coordination
Council, we also coordinate high-level discussions among agencies involved in
domestic and international IP enforcement.
As you know all
too well, Mr. Chairman, one of the areas of greatest concern with respect to IP
piracy is Asia, particularly China. Despite China’s membership in the World
Trade Organization (WTO) and its requirement to comply with the WTO’s 1994
TRIPs Agreement, the lack of effective IP enforcement in China is a major
problem for U.S. business interests, costing billions of dollars in lost
revenue and tens of thousands of U.S. jobs.
For example, China accounts for 44 percent of the dollar loss due to
piracy in the Asia/Pacific region. IP
enforcement problems are pervasive with piracy and counterfeiting being the
most serious and widespread. These
problems run the gamut from rampant piracy of movies and business software to
counterfeiting of consumer goods, electrical equipment, automotive parts and
pharmaceuticals.
While few statistics
exist on U.S. job losses attributable to IP piracy and counterfeiting in China,
the Business Software Alliance estimates that software piracy in China, where
software piracy rates exceed 90 percent, cost the industry $2.4 billion in 2002,
not counting losses due to Internet piracy, for which data are not yet
available.[1] For every $1 billion generated by software
exports, 22,000 new jobs are created in the U.S.[2] The
auto industry loses $12 billion a year due to counterfeit
automotive parts production, of which China is a leading source.
Under the
direction of Secretary Evans, the USPTO has been working
extensively to reduce piracy and counterfeit activity in China. For the past two summers we have stationed an
IP enforcement attorney – who is fluent in Mandarin -- in our embassy in
Beijing to help with IP enforcement issues in the region. Working with industry
groups such as the Business Software Alliance, we held
enforcement conferences in Beijing, Shanghai, Guangzhou, Wuhan, and Chengdu
that addressed end-user piracy and Internet piracy issues. Working with the
DOC’s Technology Administration, we provided technical assistance to software
development parks in Dalian and Shenzhen on IP rights protection. We also held meetings
with local copyright enforcement officials in a number of Chinese cities and
have worked with China’s Supreme People’s Court to encourage greater
transparency in its regulation-like “judicial interpretations.” The USPTO intends to detail an IP
enforcement attorney to China soon for an extended period to provide in-country
support for this initiative and to further our government’s efforts to combat
piracy and counterfeiting.
Last fall, Secretary Evans
led a mission to China and highlighted China’s lack of IPR enforcement. The Secretary met with high-ranking Chinese
officials and reiterated a continuing concern; that effective IPR protection requires that criminal
penalties for stolen intellectual property theft and fines are large enough to
be a deterrent rather than a business expense.
Secretary
Evans believes in the strong enforcement of our trade laws and is taking new
and proactive measures to strengthen the enforcement and compliance of our
trade agreements. He has tasked Commerce
agencies, such as PTO and the new Office of Investigations and Compliance under
Commerce’s International Trade Administration, to coordinate their efforts to
vigorously pursue allegations of IPR violations wherever they occur, especially
in China.
As a follow up to the Secretary’s October 2003 trip,
two weeks ago I led a delegation to China for consultations with senior
officials at China's patent and trademark and other intellectual property
agencies. Our delegation also met with
U.S. companies facing intellectual property issues in China. A primary focus of this trip was to further
the Administration's goals of improving the intellectual property environment
for U.S. companies doing business in China and, specifically, of addressing
widespread counterfeiting and piracy.
This trip also was intended to pave the way for next month’s meeting of
the Joint Commission on Commerce and Trade (JCCT) on trade issues with China,
as well as other Department of Commerce IPR initiatives in China.
While our visits were well-received
and we were pleased to note a continuing and increasing awareness among Chinese
officials of the importance of IP protection and enforcement, we have not yet
seen significant progress on most of the key issues we have been urging China
to act on for some time. These issues
include enhanced criminal enforcement, protecting copyrights over the Internet,
and stopping the export of counterfeit goods. For example, we have yet to see even a plan
for China’s IPR "task force", notwithstanding a stated commitment to
solving intellectual property rights problems "step-by-step" at a
U.S. Embassy "roundtable" in November 2004.
During
meetings with industry, representatives reported that in some cases piracy and
counterfeiting matters have gotten worse.
U.S. government statistics show a worsening situation as well. For example, U.S. Customs reported that in
mid-2003 China accounted for 70 percent of the domestic value for all seizures
of infringing goods; this is a steady increase from 16 percent in 1999.[3] Many industries also have come to suspect
that the Chinese government, by restricting market access, is providing free
reign for counterfeiters, pirates and criminals to exploit the void created by
the lack of legitimate products. [AP2]Given these
trends, we hope to make significant progress improving China’s IPR regime in
next month’s meeting of the Joint Commission on Commerce and Trade.
Conclusion
As I
have detailed, this is a time of great challenge – and opportunity -- for
Commerce and the USPTO. We face what is
arguably the greatest workload and operational crisis our agency has ever
confronted in its more than two hundred years of existence.
I do not think it is an
exaggeration to say that a great deal is at stake. While it’s easy to take America’s
technological prowess and high standard of living for granted, the innovations and discoveries that serve as the foundation of our
successes are not a given. There must be
financial incentives in place for innovators and businesses to create and
market their discoveries. To ensure
those incentives, we must have an efficient, cost-effective patent and
trademark system that is adapted for the 21st century.
Mr. Chairman, the Administration commends you for your consistent
leadership and support of the USPTO and intellectual property issues. We look forward to continuing to work with you
and the Subcommittee to ensure that the United States maintains its standing as
the world’s premier technological incubator.
Thank you very much.