Statement of

Nicholas P. Godici

Acting Under Secretary of Commerce for Intellectual Property

and

Acting 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

June 7, 2001

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to discuss the operations and funding of the United States Patent and Trademark Office (USPTO). At the outset, Mr. Chairman, I want to thank you, Ranking Member Berman and the members of the subcommittee for your continued strong support of our office and for effective global protection of intellectual property.

As the Subcommittee is well aware, intellectual property is at the forefront of the news. Indeed, in light of the rapid growth in patent and trademark filings, our agency faces a number of important operational challenges. With sufficient resources, I am confident that the USPTO can meet these challenges and continue to lead the world in providing customer-valued intellectual property rights that spark innovation, create consumer confidence, and promote creativity.

The USPTO has experienced significant increases in patent and trademark filings in recent years. Patent application filings are currently 13 percent above last year's level; since 1996 they are up over 50 percent. Although trademark filings are currently down 18 percent from this time last year, filings are over 50 percent higher than in 1996.

The USPTO has undertaken a number of significant initiatives over the last year to provide our customers with more efficient, high-quality service.

We are a leader in providing e-government services. Within the past year we have implemented electronic filing of patent applications for all of our customers, expanded electronic filing of trademark applications through our Trademark Electronic Application System (TEAS), and expanded our on-line patent Web database to include every U.S. patent ever issued -- back to the very first patent in 1790. I am pleased to report that our e-government initiatives have been very well received. Our Patent Electronic Business Center, which includes our Electronic Filing System, was selected last November as one of the year's "Best Feds on the Web" by GovExec.com, the website of Government Executive magazine. "Patents on the Web" was recognized by the Smithsonian ComputerWorld Laureate program as one of the five best government projects in the world for 2000. TEAS has received several national awards, including its recent recognition as a finalist in the 2001 Quality Cup Award sponsored by USA TODAY and the Rochester Institute of Technology in New York. Our website (www.uspto.gov) receives over 30 million visits each month and was recently named to Entrepreneur Magazine's Third Annual "Top 100 Best Sites." USPTO received the E-Gov 2001 "Trailblazer" honorable mention award for its efforts to promote innovative Electronic Government programs.

Let me highlight some other noteworthy accomplishments for the USPTO over the last year.

In January, after extensive public comment, we issued our final "Utility Examination Guidelines" for determining the utility of inventions. While the guidelines are applicable to all areas of technology, they are particularly relevant in areas of emerging technologies, such as gene-patenting. Also, earlier this year, we held a groundbreaking ceremony for our new consolidated headquarters facility in Alexandria, Virginia, and, as co-chair of the National Intellectual Property Law Enforcement Coordination Council, we provided a report to the President and Congress focusing on areas in which interagency coordination could improve the Government's performance in IP law enforcement.

Our Patent and Trademark Public Advisory Committees, which include independent inventors, lawyers, corporate executives, small entrepreneurs, and academicians, have met on several occasions since their establishment last summer. Pursuant to the American Inventors Protection Act of 1999 (AIPA), the Committees published an annual report late last year assessing the performance, goals, and policies of the agency. Also pursuant to the AIPA's pre-grant publication provisions, the USPTO on March 15, 2001, published the first patent applications. We expect that over the next eighteen months the number of published patent applications will increase to a weekly rate in excess of 4,000.

On the international front, the USPTO continued working with other national industrial property offices to streamline the procedures for securing protection for patents, trademarks, and copyrights. For example, nearly a year ago, our work with the World Intellectual Property Organization (WIPO) resulted in the United States and 42 other member states signing the Patent Law Treaty. Once the Treaty enters into force, uniform patent filing requirements and formal procedures among the Treaty's member states will help reduce the cost of securing patent protection abroad. In addition to this achievement, our policy specialists in the Office of Legislative and International Affairs engaged in multilateral and bilateral negotiations to strengthen IP protection worldwide and provided technical assistance to strengthen international IP enforcement. The USPTO has taken the lead in developing country-specific, interagency enforcement training initiatives for China, Mexico, and Oman, and sponsored or cosponsored more than a half dozen IP enforcement programs for government officials and private sector interests in Asia, Eastern Europe, West Africa, and the Americas. As the effective protection of intellectual property rights becomes an increasing focus of worldwide trade, the demands for our Office's expertise in this area are growing significantly.

Let me now discuss our patent and trademark operations in greater detail.

PATENTS

In fiscal year 2000, the USPTO received 291,653 utility patent (patents for invention) applications, an increase of 12 percent over the previous year. Some of the largest increases in patent filings are occurring in the areas of business methods and biotechnology. Last year we granted a record 182,223 patent documents, including 164,490 utility, 16,719 design, 453 plant, 561 reissue patents, and 88 statutory invention registrations. Utility patent grants in fiscal year 2000 represent a 15 percent increase over the total for fiscal year 1999.

To handle the increase in our workload, the USPTO hired 375 new patent examiners last year. However, we lost 437 examiners due, in part, to the strong competition from the private sector. Although we lost ground in terms of the staff necessary to process our incoming work, our end-of-year total examining staff was 2,959, up from 2,212 in fiscal year 1997. Most of the new examiners are assigned in our software, computer, business methods, and biotechnology areas. They have an average of four years of practical experience in those industries and some fifty percent have advanced degrees, including a number of Ph.D.s.

As you might expect, the impact of the AIPA on our Patent operations is profound. The AIPA provides stringent processing times as benchmarks. The USPTO is managing to the "14-4-4-4-36" timeliness standard which provides commensurate restoration of a patent term to diligent applicants when the following requirements are not met by the USPTO: (1) issue a first Office action on the merits within 14 months from the filing date; (2) respond to an applicant's reply to a rejection or appeal within four months of receipt by the Office; (3) act on an application within four months of a decision by the Board of Patent Appeals and Interferences or the federal courts; (4) issue a patent within four months from the payment of the issue fee; and (5) issue a patent within 36 months from the filing date.

In fiscal year 2000, 81.2 percent of applications received a first Office action within 14 months or sooner. End-of-year pendency to first Office action averaged 13.6 months, better than the projected target of 14.2 months.

Other noteworthy developments in Patents included:

· Our traditional internal measure of Patent Quality, based on the error rate in a sampling of allowed applications, improved 30 percent from the end of last fiscal year. A combination of in-process reviews and technical and legal training efforts has contributed to this improvement.

· USPTO management signed an agreement with the Patent Office Professional Association (POPA) concerning a special pay request and the removal of paper-search files. Called the "Millennium Agreement," it provides that, contingent upon approval of a 10 percent special pay request for patent examiner and related-positions, POPA agrees to the phased removal of paper-search files, a work-at-home pilot project, and a customer service element in employees performance plan. This agreement addresses a number of issues that will help the organization move forward, including enhancing retention and recruitment efforts, moving from a paper-based to electronic-based search system, and helping customer service and quality improvement efforts. The Office of Personnel Management approved the special pay rate just last week.

· Patent examiner turnover improved from 13.8 percent in fiscal year 2000 to 9.0 percent in the first half of fiscal year 2001. A factor likely contributing to this decrease was the anticipation of the special pay rate approved by the Office of Personnel Management.

TRADEMARKS

Much like the activity in patents, the trademark side of our operations also experienced significant growth in fiscal year 2000 when we received a record 375,428 trademark application classes, an increase of 27 percent over fiscal year 1999. This was the second year in a row that we received a 27 percent increase in trademark application filings. This rate of increase has declined significantly this year in tandem with the economic slowdown, and we currently project an 18 percent reduction in filings this year compared to fiscal year 2000. We registered 127,794 classes and increased our workforce to 383 by hiring 74 examining attorneys. As a result, trademark pendency to first Office action has improved over the first half of this fiscal year.

To ensure that we make our operations as efficient and user-friendly as possible, Trademarks is utilizing information technology and the Internet to better serve its customers. By reducing or eliminating the number of processing activities in the production process, with end-to-end e-processing of trademark applications, we have the greatest potential for performance improvement. Trademarks' goal is to have all communications with our customers handled electronically by 2003.

The filing of trademark applications via the Internet - a key part of this initiative -- increased 8 percent in the first half of fiscal year 2001 to more than 22 percent of total applications filed. We expect our 100,000^th Internet-filed trademark application to be filed shortly.

In fiscal year 2000, Trademarks also opened its first e-commerce law office for the examination and processing of electronically filed applications for trademark registration. The Trademark e-commerce law office is based on the success of electronic filing of trademark applications and is consistent with the e-Government strategy to do business electronically. The creation of this e-commerce law office demonstrated the opportunity for reducing the length of time it takes to register a mark. As the number of electronically filed applications increases, the USPTO will convert more law offices to e-commerce offices.

Other noteworthy developments in Trademarks included:

· First action pendency fell to 5.6 months at the end of March, its lowest level in 8 months. The estimated end-of-year (EOY) pendency to first action will be 4.8 months.

· The attrition rate among Trademark examining attorneys fell from 13.2 percent at EOY fiscal year 2000 to 8.6 percent in the first half of fiscal year 2001. This drop in attrition is partially attributable to a number of initiatives implemented in the first half of fiscal year 2001 to enhance employee satisfaction.

· Trademarks embarked on two distinct initiatives to stimulate productivity: (1) implementation of a semi-annual incentive award of up to $10,000 for increased productivity, and (2) expansion of the Work-at-Home program.

· The Trademark Work-at-Home program, which began with 18 trademark attorneys in March 1997, now includes more than 90 examining attorneys working from home three days a week.

BUDGET

For fiscal year 2002, the President has recommended that we be given authority to spend $1.139 billion of the fee revenues we expect to generate. This is an increase of $100 million or 10 percent over the fiscal year 2001 enacted level. This level would support the fiscal year 2001 staff levels which include 2,950 patent examiners and 393 trademark attorneys, in addition to special pay raises and performance bonuses for these employees.

The fiscal year 2002 President's budget assumed we would collect $1.346 billion. Since submitting the budget, we have revised our fee collection estimates to reflect the decline in trademark application filings and the reduced levels of requests for early publication of patent applications. Our current 2002 fee collection estimate is $1.218 billion.

Of the $1.218 billion in revenues we expect to collect next year, $857 million will be available to us in fiscal year 2002. We will seek use of the remainder, $361 million, for fiscal year 2003. In addition to the $857 million, we will have access to $282 million carried forward from fiscal year 2001 - for a total of $1.139 billion.

Fiscal year 2002 funding would be used for the following priorities:

· $43.8 million for what we call "adjustments to base." These include amounts to cover cost of living pay increases and other inflation costs.

· $32.5 million to provide special pay rates to enable the recruitment and retention of patent professionals. The quality of patent examination will improve by having a stable and more experienced workforce.

· $17.7 million to fully implement the pre-grant publication provision of the AIPA.

· $6.2 million to provide a financial incentive for higher workload productivity in the Trademark business. This performance incentive award is included in the agreement between the National Treasury Employees Union (NTEU) chapter 245 and the USPTO which was ratified last December. The addition of this productivity award program provides Trademark Examiners with the ability to increase their take-home pay while the USPTO and its customers benefit from increased productivity and quality.

CONCLUSION

Mr. Chairman, as I mentioned at the beginning of my remarks, the USPTO faces a number of important operational challenges. We have made good progress toward meeting those challenges, and we look forward to working with you and the Subcommittee, other interested members of Congress and the Administration to ensure that we have sufficient resources, financial flexibility, and appropriate oversight to meet those challenges and provide first-rate service to our customers.

Thank you.