Statement of

Q. TODD DICKINSON

ACTING ASSISTANT SECRETARY OF COMMERCE AND

ACTING COMMISSIONER OF PATENTS AND TRADEMARKS

Before the

SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

On

June 24, 1999

Mr. Chairman and Members of the Committee:

Thank you for providing us with this opportunity to present the views of the Administration on the draft bill regarding federal recordation of security interests in federal intellectual property rights.

The U.S. Patent and Trademark Office (PTO) supports efforts to provide certainty and efficiency when it comes to establishing, maintaining, recording, and transferring rights in intellectual property. However, the Administration has a number of concerns about the approach taken in the draft bill. Accordingly, we cannot support the bill as currently drafted.

The stated purpose of the draft bill is to "make substantive and procedural changes to the law in order to provide uniformity and certainty and to facilitate financing of Federal intellectual property, consistent with the rights of owners and assignees of interests in such property." Since courts have identified different requirements for perfecting notice with respect to copyrights versus patents and/or trademarks, this bill would create a federal financing statement for recording security interests in Federal intellectual property. Filing the federal financing statement would provide nationwide notice to all interested parties of the security interest in a particular intellectual property or properties.

Our comments will focus on the administrative issues raised by the draft bill. First, proposed Section 3(e) would permit the creation of three separate information databases, maintained by the Copyright Office, the PTO, and the Plant Variety Protection Office (in the Department of Agriculture), respectively. If the goal of the proposed federal finance statement is to make searching for security-interest information quick and easy, it is logical that a single database, rather than three separate databases, would fulfill this purpose. Although the current bill leaves open the possibility of a single unified database, we believe it would promote efficiency if the bill would mandate a single database and identify the agency responsible for its set-up and maintenance.

Second, and related to the issue of establishing one or more databases, we must note that even if this legislation is enacted, creating these databases will only be possible if sufficient funding is appropriated. An unfunded mandate will only burden the customers of the three Offices by diverting funds that would otherwise be spent on existing services. As currently drafted, the proposed bill is silent on the subject of funding these new costs.

Although we have identified two areas where more specificity would be helpful, as an overall matter, the Administration would prefer that the legislation be written in more general terms. Guidelines, rather than specific provisos, would ensure that the responsible agency would have the flexibility to implement the bill and to modify its practices as necessary over time. PTO's experience in running large database systems suggests that it is better not to fix details in legislation, especially where turn-around times, fees, and methods of processing data are concerned. Therefore, fees charged in connection with federal security interest filings should be set by regulation, not by statute, to permit market-type flexibility in recovering costs or passing on savings. Turn-around times, such as those marked in Section 3(b)(4)(A)(ii) of the proposed bill, should also be set by internal regulation, keeping in mind the importance of prompt availability.

With specific respect to the PTO, the draft bill would have the following impact.

The PTO presently has an automated system for recording the chain of title relating to specific property interests, as identified by their relevant application, registration, or patent number. The draft bill would require indexing by debtor name and assignment of a number unrelated to the current application/registration numbering systems used by the Patent and Trademark operations. (Section 3(b)(4)(A)(ii)). Therefore, the PTO would either have to substantially modify its current automated system, or build an entirely new system. In either case, the security-interest system would have to coordinate with the current assignment system to ensure complete access to all security-interest information.

The PTO estimates that it would take at least 18 months to create and implement the required database. If paper filings as well as electronic submissions are accepted, total start-up costs and costs for one year's worth of operation would be over $7 million. We estimate that annual operating costs would average $5,000,000 per year. Fees would have to be set to recover operating costs.

The draft legislation would permit the filing of a "federal financing statement" even before a trademark, patent, or copyrightable work has been created or an application filed. This legal aspect of the proposed bill would represent a significant change in practice for the PTO, the Copyright Office, and the Department of Agriculture. With specific respect to trademarks, the proposed legislation would allow security interests to be an exception to the granting of rights in an intent-to-use (ITU) application. (3(b)(5). The purpose of prohibiting assignments of ITU applications, except to a successor in interest, is to avoid trafficking in marks. Although not specifically an issue for the PTO, it is clear that debtors could file ITU applications, grant a security interest in exchange for a loan, and default on the loan. Presumably, the only collateral value would be the $245 filing fee.

The proposed legislation would also permit charging fees "in the same manner as the other fees charged by that office." 3(g). Since some PTO fees are set by statute and others by regulation, it is unclear which fee mechanism should apply. The PTO would prefer that the fees be set by regulation, to permit market-type flexibility in recovering costs or passing on savings. The bill is silent on whether funds would be provided to establish the database.

The bill proposes minor amendments to Section 10 of the Trademark Act and to 35 U.S.C. §261 of the Patent Act to make clear the effect of filing a "federal financing statement."

We note that many of the legal and practical issues raised by the Federal Intellectual Property Security Act may be addressed by a study to be completed by the Franklin Pierce Law Center in cooperation with the PTO. The study, mandated under P.L. 105-277 and Senate Report 105-235 (S.2260), will assess the feasibility of establishing a centralized intellectual property registry. The study shall assess and define the technical, economic and legal requirements associated with such a centralized registry. Federal recordation of security interests in federally created intellectual property rights appears to be an important area of focus for this Congressionally mandated study. We would therefore suggest that the results of the "Franklin Pierce" study, due in early 2000, be taken into account as this draft bill moves through the legislative process.

As a final matter, we note that international discussions in the area of electronic registries for security filings, particularly at the United Nations Commission on International Trade Law (UNCITRAL), are underway. Therefore, consistency with any international developments and obligations should be taken into account as this draft bill moves through the legislative process.

We look forward to working with the Committee to craft a bill that provides service, certainty, and efficiency to security-interest recordation constituents, without jeopardizing the services available to our existing Patent and Trademark Office customers. We also note that the Department of Agriculture continues to evaluate the draft bill and may have further comments.