James E. Rogan

Under Secretary of Commerce for Intellectual Property
and
Director of the United States Patent and Trademark office

at the

American Bar Association/Intellectual Property Law Section
IPL Summer Conference
Philadelphia, PA

June 27, 2002

As Presented
[TRANSCRIPT PREPARED FROM A VIDEOTAPE]

Let me begin by talking about the office itself, what I am faced with, and that means what all of us are faced with, and where I think we need to go. And then I understand we'll have time for some questions at the end of this.

The good news is that this one is the 200th anniversary of what is now the United States Patent and Trademark Office. Actually, we became a stand-alone agency 200 years ago this month. The office, itself, began earlier than that, 1790 the first patent issued, signed by Thomas Jefferson. So it's a wonderful office with a great history and a magnificent appreciation for its role historically in being the facilitator of moving intellectual property to the forefront of our economy and to our development as a nation.

And if you actually go back and take a look at our Founders and think about what they were creating in the Constitution, as they were creating the framework for this republic that we still enjoy and we inherited from them, while creating the presidency, while creating the courts, while creating the Congress, they saw fit to put into the Constitution, in Article 1, Section 8, Clause 8, the anticipation of what has, modern-day, become the United States Patent and Trademark Office. They wanted to make sure in the Constitution was the anticipation that there would be a period of exclusivity for inventors and creators.

Why? While they were crafting what would be the greatest republic in the history of mankind did they focus, in that very limited document, on that? Because they understood that an agrarian colony could never move to become a technological and economic giant unless there was that incentive for inventors and creators to invent and create and to give them the financial motivation for that limited period of time to enjoy the fruits of their creation.

All of you who participate in the intellectual property laws of our country are the inheritors of that wonderful gift that they gave us. The bad news is that we, in a very real way, have become victims of our own success. As the years go by, technology does not get easier. Technology becomes more difficult.

That's not bad news. The bad news is that we still are operating the Patent and Trademark Office essentially under the same model that it was operated under over 200 years ago. And we can do that, and we can continue to do that, and patents will issue, and trademarks will issue, and patents and trademarks also will be rejected, but the period of time that it will take will continue to grow, and grow and grow.

When Don and Todd held my office, they saw the same thing every day that I see when I walk into the 9th floor. On the walls of the Director's office, all along the corridor, you see all of these lovely framed pieces of art. But it's not the traditional type of art that one sees on the wall--the Renoir's, and prints of Picasso and so forth--it's the art that accompanied applications one or two centuries ago that didn't just make a profit for their inventor, but truly changed the quality of life for mankind--everything from the tin can, to the bullet, to the plow, to the fire engine, to the Statue of Liberty… and the list goes on.

The amazing thing about those pieces of art, those applications, is that we can frame them on a wall because they were basically one page. There was a sketch of what this new invention will do, there was a description of how it worked, and it was signed by the inventor. Technology doesn't allow us to hang too many of the great applications in the modern age on the wall because they are coming in on disks and CD-ROMs, and they don't get easier. They become far more complex.

Our predecessors didn't have to deal with biotechnology and genomic patents. And so because the applications are becoming longer, and more technical and more complex--and we have not had the ability within the Agency to keep up with the hiring and the training that it would take to move these in an efficient manner--we have been developing an incredible backlog at the agency that is causing us to reach a near-crisis mode. And this is not a new story. It's bedeviled me, it bedeviled Todd, it bedeviled Don, and if we don't try to change the paradigm for the congressional support at this time it will bedevil those who come in after us.

This year, the PTO expects to receive on the patent side--I'm going to talk about patents right now because that's where the real critical problem lies--we'll get in about 350,000 applications, and those applications will get in the back of a line and take their place among the 408,000 more applications that are waiting for us to deal with them. Our traditional response has been, particularly since we became a fee-funded agency about 12 years ago is this--Congress turned us into a fee-funded agency I think around 1990.

They said, okay, we're not going to give you taxpayer money any more. You're going to exist on user fees, on application fees, and so you send us your budget, tell us what you need, justify how many examiners you want to hire, how you want to make IT changes, and IT improvements, and training improvements, and all of the things it takes to make this a first-class, world-class agency, cutting edge, the lowest pendency rates, highest quality… and everyone of my predecessors would do that. And they would say, these are the fees we expect to bring in, here's how we want to use them.

And by the time it went through the appropriations process year after year, every single year, a big chunk of those fees had been taken out and diverted to other sources. Now, if you're in business and you take a hit like that, you are able to make up for it. You can raise the cost of your product so that you can continue to expand, and train, and advance. But our fees are set by statute.

And so when we send our budget up, and then fees are diverted, we don't get to say, all right, we'll just get our IT infrastructure done by raising the fees 2 percent or 5 percent. We just don't improve. We don't hire more examiners. Instead of hiring 900 examiners, we hire 300 examiners. Instead of improving an IT effort that is user-friendly and that people will want to use, we just don't do anything or we do a lot less because we don't have the money to do it.

President Bush understands the problem. He submitted a budget request to Congress that made a lot of people in a lot of agencies very angry. In this year of war, every non-homeland security, non-national defense agency received an average of about a 2- or 3-percent budget increase. President Bush recommended the PTO for an almost 22 percent increase, the bulk of that so that we could hire 950 new examiners.

Now think about that. When Thomas Jefferson, as Secretary of State, used to actually examine the patent applications themselves when they came through his shop--he was an inventor--he had I think one or two or three people sitting there working with him. In 212 years, to go from 2 or 3 people looking at applications to that period of today, where we have 3,400 examiners, an investment of 950 new examiners in one year is a very significant commitment to the office.

And yet for us to be able to deal with that backlog that I talked about, and the increase in technology, and the new filings that are coming in, that is insufficient. The PTO has this sort of counterintuitive dynamic. If you give us 950 examiners in one year, the pendency will go up, not down. That doesn't make sense. Why? Because it takes about 6 years to train an examiner to do the job to the point that they simply--that they can sign off and have a full signatory authority on a patent without going through their supervisor.

Every time we hire a crop of new examiners, we have to pull experienced examiners off the line in order to train them. It's expensive. It takes a lot of time. And for us to make a significant dent in that backlog, which is hurting our pendency more than anything, we have to hire 950 new examiners this year. And we probably have to do it next year, and maybe even that for the next 3 or 4 or 5 years under the same model. It's very expensive.

In order to do this, the President was recommending a large surcharge on fees. We've already been told by our friends in Congress that the surcharge is dead, it's not going to happen. And so we're faced with this problem that really doesn't give us a lot of options. We can just stay the course and come to these bar functions every now and then and say: Gee, it's a problem; it's been a problem; it will continue to be a problem; awfully sorry your pendency's going up; awfully sorry that you're having difficulties with quality. We'll do the best we can, but just between you and me, it's all Congress's fault.

In the meantime Congress says: Sure, we're taking your money because you guys aren't being creative. You're doing things the same old way you've always done them. This is the information age. Every time you have a problem at your agency, all you want to do is hire more examiners. You've even admitted in congressional testimony in the past that if we didn't divert your fees, pendency would still go up so why do we want to waste this money on you?

And so really the question for all of us is: is the status quo acceptable or is it not? We feel that it is unacceptable, and I've been blessed to work with the President and the administration that has said: Go ahead and see what you can do to change it. And that is precisely what was the genesis of the 21st Century Strategic Plan that we rolled out and introduced on June 3rd.

I want to tell you what the parameters were on that and how we came to come up with the recommendations that we came up with. What we didn't do is sit around in a conference room among ourselves, we bureaucrats, and say: What makes us--what sounds good to us? And then we'll just go and impose it on the rest of the functioning world. They have to deal with it.

I remember when I was in the state legislature how--what a horrible approach that is. I was a DA and a judge, and so I was on the Public Safety Committee where all the crime bills came through. And I found that among my colleagues on the Public Safety Committee, none of them had a background in law enforcement. But all of them had all of these great ideas for how to change the criminal justice system so they could put it on their campaign brochures and do TV commercials about being tough on crime. But they never ran those ideas through those who were going to have to live with that which they created. So we especially did not want to deal from that framework.

What we did was put together a working group of professionals in the office that had a combined experience of well over 300 years in the PTO. And said: We want you to go out and talk to our customers. We want you to talk to the ABA, AIPLA, IPO, small inventors, our examiners, managers, senior examiners, junior examiners, cast that net as wide as you can. Find out from them what is it that works? What is it that doesn't work? What keeps things from working? What will help you do the job you need to do? What can we do to facilitate getting these technologies to market? You have problems with quality. Tell us where those problems are, what we need to do to address them. What is an acceptable pendency rate?

We try to treat this like a business in the sense that we follow what Todd started, making the culture of the office refer to our applicants as customers. That is an important mental framework in which to get employees to operate.

We said: What if the PTO did not exist today, and we were given the mandate of creating it in the 21st century information age? Would it look like what we have now, or would it look different?

I don't think there is anybody in this room, if they had that charge, that would answer, We'll just keep it the way it works now, because the way it works now is collapsing, and we're having the same problem that Europe and Japan and other industrialized countries have been having. They are drowning in pendency issues.

And so what we did was we looked internally and looked externally. We looked domestically. We looked internationally. We asked ourselves what we can do with the stroke of a pen? What are the things that we can do with the administration sign-off? What are the things that we can do, but we're going to need the cooperation of our users? And finally, the big ticket, what are the things that need to be done but we have to go to Congress and get their ok?

We put together this plan, and I want to personally thank Hayden Gregory and all the other people from your IT section that worked with us very closely. There isn't going to be unanimity among lawyers on anything, so I don't take it personally if one or two even have a complaint about some minor aspect of our plan.

But I think if you take a look at it, what you see are a couple of things. Number 1: from first to last, the focus is on quality. Now the temptation politically is to focus on pendency because pendency can be measured. There are a lot of little gimmicks that we could impose, like shortening your time to respond to us without doing anything else that will give us a reduction in pendency averages, and we could just say: Look, we've reduced pendency. Take a bow and call it quits, and go spend a lot of time in Geneva walking along the lake. But that's not what modern technology is calling for. That's not what my MBA--Harvard MBA boss of a President, with this management agenda he's taking very seriously, is contemplating. So here is essentially a framework from where we think we need to go, and we very much want your support.

The first thing is e-filing. Now, there are a whole bunch of people in this room who have already walked up to me since I got here a couple of hours ago and told me, "We don't like the e-filing system. It's cumbersome, it's not user friendly, and it doesn't work very well, and that's why we don't file electronically." We right now have about a 2 percent e-filing system for patents, and it just doesn't work.

Most practitioners that I've talked to since before I came here all told me, "We like Europe's system far better. Theirs is much more user friendly. It's much more compatible. It's easier to navigate. Why can't you guys use Europe's system or something like Europe?"

When we look at Europe, Japan and the United States, just these three trilateral countries, that accounts for 85 percent of the world's patents. We thought it made better sense, rather than for me to continue with 1,000 employees in our IT section developing our own IT system that we were scheduled to roll out I think in 2006 or 2007--and many of you are not going to file electronically until then because you want to see what we do before you make the investment in your own offices or your clients, so you don't have to do it twice--we thought it made better sense to go out and license a system that's already being used and we think is fairly effective. The deal we have negotiated with the EPO is not to license it. It's that they're going to give it to us, and that we are going to agree to jointly maintain it. And so that filers will be able to use the same system for the United States and the EPO.

Before I met with the EPO and reached that agreement in principle, I met with the head of the Japanese Office, Mr. Oikawa, to tell him we might discuss this. He was also interested. After we had the arrangement with Europe, then Mr. Oikawa and I met and had a more substantive discussion, and the Japan Patent Office is now also on board. As we speak, we've had people up at The Hague working out the details.

We anticipate in the next couple of years to have one system deployed that all three of those offices are on, that you can use from your computer terminal. And having done that, now we've begun to speak to lots of other countries. I think I've spoken now to representatives in 50 or more, to tell them the three of us are developing this; why don't you get on board too? Australia, Austria, individual countries within the EPO, Canada, Mexico, Spain, Finland. I just met with the head of U.K. last week and Jamaica yesterday or the day before. I'm going to be speaking with the head of the Chinese Patent Office in a couple of weeks. Almost all were either extremely enthusiastic and wanted to be a part of it, or at least enthusiastic about going home, talking about it, and trying to be a part of it. This will be a huge change for applicants and will give them the opportunity to file with one system, and will make everybody's life a lot easier. It will certainly help move us toward the goal of having the paperless patent system, which is what we must have.

Now, before 9-11 a lot of you were kicking and screaming that you liked to file paper, and you know, I'm a lawyer, and nobody wants to have--lawyers especially are very reluctant to have to learn anything. We kind of get used to our frames of operation. But let me just tell you, post 9-11, there is no other alternative because the applications that you're sending in to us now are going to trucks-- flatbed trucks in Ohio--and they're sitting there being irradiated, sometimes if you're lucky, only a couple of weeks; if you're not lucky, for months. I told somebody earlier today I just last week got something mailed to me at the PTO that I ordered in October. We're still getting Christmas cards and congratulatory letters on my appointment. If I haven't responded to you yet, please know that I'm not being rude. It just hasn't come in.

Some of the applications that are coming in to us, because they've been irradiated six or seven times, are as brittle as newspaper that's been sitting up in the attic for a hundred years. We have to scan now--we have to take these pages and scan them individually because what we have--we can't archive them. They won't last. They'll fall apart and crumble.

For those of you that are filing with us on CD-ROM or on computer disks, lots of luck. A huge percentage of these coming through are coming through warped and melted. We can't use them. So now we have to call you or write you or fax you and tell you to send it in. And, by the way, then when we get it again, when was the filing date? Was it the date that we got this thing from you that we couldn't open and access? How do we know that what essentially is on the second CD 8 months later is the same thing that you had sent?

There is no other way. We are going to move to an electronic, paperless patent system, not just from your filing perspective but from the start of the pipeline to the end of the pipeline. We want our examiners to be able to view this electronically, to communicate with each other electronically, and we don't want to have resources wasted. Millions and millions of dollars wasted on having people push pushcarts of paper files, a lot of paper gets lost, files get lost between 18 different buildings in Crystal City. It takes far too much time. It slows down the process. And we're just not going to do it anymore.

When we looked at what are the things that we could do to truly, meaningfully reduce pendency, there is not a lot of room for maneuver. Our examiners basically do two things: they do searches and they do examinations.

And then they do the quasi-judicial determination through the examination of patentability. That is a sovereign function. And I do not believe that we should ever contract out the sovereign function of making the patentability determination. But the search is different, because particularly among the EPO and the JPO and the United States, the co-pending applications are most of them. I think it's something like 60 percent of our domestic filers are also filing overseas. And if there is an EPO search, or a JPO search, or a PCT search, or an Australia search, or a search from an internationally recognized authority that we trust and we think is valid and we think has a strong probability of validity, do we then ignore all that work and tag an extra year or so onto the application process? Or do we say if you've got that search, we'll take that search. We'll let that search be the starting point. We're not going to just sign off on it without taking a look at it. If you think that there's additional artwork out there that maybe was missed or something needed to be explored further, fine. Talk to your supervisor. See if they agree. Go do it.

But if this search looks full and comprehensive, then let's not foolishly waste our time. Let's use that as the basic search and move to the examination point, which is the core expertise anyway of an examiner.

I had an inventor tell me just a few weeks ago, an American filer, he said: I filed with the PCT first. I got--I did a PCT filing, a preliminary search and examination, I got a PCT report, I'm an American and I checked the United States to be my searching nation. So guess who does the search? We do, the PTO.

After he got the search report, he decided to file in the United States. He wanted to file an American application. So he showed up at the PTO with a PTO search and said: Can we just bypass all of the search stuff? Can we just, like, cut to the chase? No, sorry, that's not the way we do it. Get it line. Got to do the search. He said: But you guys have already done the search. That examiner did the search. I didn't do the search.

If the replication of work is okay with you, if your clients don't need a little more rapidity, then I guess you don't have a problem with that. But if, as I suspect, for most people time is money, and if you really want to make a dent, we have found that to be the place to do it. So what we're proposing is among international searching authorities, some of the nations and the organizations that I just talked about, if there is a search there, we want to use that search.

We also are prepared to look at private industry. If they want to do--if somebody wants to start a search company, that's fine. Go ahead and start it. We're not going to accept it. But if you want to come to us and have us examine your capability, examine your searchers, examine your ability to get it right and get a certification from us and maintain that certification for as long as you want to be considered, we're prepared to do that, too. We want our applicants to be able to say to a group of nations in whom we have confidence--and even through some private industry--I need a search, what am I bid? Rather than us just treating this as a one-size-fits-all where we just tell you to take a number, we want to give--we want to bring that business, that premarket element into the search. And we will do the certification to make sure that it's done right.

We're looking at a four-track examination process that is different than the one-size-fits-all. Right now you pay one fee. If you decide not to pursue your application, we're still going to do the search, and we're still going to do the examination. If you're in front of applications, that speed is more critical, they just have to wait for you. We want to have an examination period where somebody can say we want to test the market. So we're recommending for 18 months that there is a requested examination; somebody called it a deferred examination. I know not everybody likes that idea, but there's a practical reason why we want that.

In Canada, they have a 5 year deferred examination. They have a dropout rate of about 35 percent. That means 35 percent of those files that the Canadian Patent Office receive, they never have to have their examiners yanked off the line to examine them when the thing isn't going anywhere.

We estimate with an 18-month deferred examination, conservatively we estimate there will be a 10 percent dropout rate. Actually, we think that there will be a lot more. Does that bring up the submarine issue? I don't think it does, because right now under law and regulation, you can already get deferral for far more than 18 months. You can have up to 30 months under the PCT. And even if none of those existed, there is already a de facto deferred examination because of the huge backlog that we have.

And so we want an 18-month deferred examination. Let us get the dropout rate. If somebody is not ready to go to market or is not sure that there's a market, let us have our examiners working on things that are ready to go to market. And at 18 months, we will publish and somebody will either move to examination or we will drop their application.

As I said earlier, from start to finish our focus has been quality. It's not pendency, although we believe we can significantly reduce pendency by focusing on quality.

We want to have a continuous sampling on all first actions and final actions that we're doing through out the office. We want to expand upon Todd's initiative of having a second look at business methods. Actually we want to move that second look to the more critical technologies, particularly high-tech and biotech. We want to certify our examiners, whether they are on the line or managers, and we want them to maintain their certification. We don't want somebody to get full signatory authority and essentially be treated as a tenured professor, which is what happens now. If somebody's in a critical technology or technology is changing, it is advancing, it is becoming more complex, if they want to work in that area, we want them to maintain their training and their certification and keep maintaining it for as long as they're going to be in it.

We don't want to have a system where give it our best shot right now and kick out a patent, and if there are problems with it, well, that's what the courts are for, or post-grant examination that nobody uses anymore. We don't want to have a system like that. We want a system where quality is built in every step along the way.

We want to continue surveying practitioners, not just on individual applications but also on the global survey that is already being done, and we intend to certify the searching authorities and hold them to the highest possible standards.

The other thing we want to do is look internally and make sure that we are utilizing our resources to the best possible extent, and to me, the best possible extent is looking at every single job at PTO that is not related to quality and is not related to pendency, it's not related to production, and have then each of those jobs justified. And if there really isn't a justification above and beyond, and even beyond the line, we want to move those resources back on the line.

We just finished that, and we are looking at $80 million this year and another $40 million next year of moving resources to the line. So we're not just asking other people to bite the bullet. We are willing to do that too, to look internally and put as many resources as possible on the examination line.

So I think maybe I should wrap this up. I'm not sure what the adjournment time is, but I want to leave time for questions. There's a--it's on the website. There's about a 30-page executive summary that will go through this and other things. We're anticipating by Friday, OMB--Friday or Monday, OMB is going to clear three or four hundred pages more fully explaining these with all of the documentation, and we hope that you'll take a look at it. We hope that you'll pick it apart.

I want to give you my personal commitment that this is not a one-time deal. This is not one thing that we put in a blue binder and say here's our plan; we hope you like it, but if you don't--this is a work in progress. This must always be a work in progress. Like any other business, we are prepared to try things that are creative and dynamic to be responsive, and if they don't work, we'll say so and we'll try something else. But that input has to come from you.

I appreciate all you've done as a group to aid us as we have begun this restructuring process. I certainly hope that we will be able to have your support on the individual issues. And we're always open to negotiation. Hubert Humphrey told me on my first trip to Washington, D.C., as a kid. He said, "Fight for the full loaf, take half a loaf, you can always come back and fight for the other half tomorrow."

Anyway, thank you very much. I've been delighted to be here with you today.

[Applause.]

QUESTION: [inaudible].

UNDER SECRETARY ROGAN: The question is could I be more detailed on how my plan will end the diversion problem. The short answer is no, because I can't, because diversion is not within my bailiwick. What I can tell you--diversion is in Congress' appropriations process. What I can tell you is that during my time in Congress and now, the major excuse the appropriators have used in diverting funds is that they don't feel that the PTO is being responsive on issues of pendency and quality to their satisfaction.

What they basically have been saying repeatedly--and Todd's heard it, I've heard it--is that all you guys ever want to do is just hire your way out of the problem. You keep saying: Don't take our money, let us hire more examiners, and the problem will go away. They've been accusing us of not being creative and not being sensitive to the needs of the 21st century economy. I'm trying to make it as hard as possible for that to still be the reason to do it.

QUESTION: [inaudible].

UNDER SECRETARY ROGAN: The question was: Has any consideration been given in the plan to changing the substantive standards of patentability? The short answer is no, because, as you know, we don't get to decide what is or is not patentable. We have to take our cue from the courts and from Congress. We certainly are prepared to weigh in on the suggestions. One of the areas we've been trying to weigh in heavily right now is on changing the post-grant--the post-grant opposition process. But I can only go--my primary focus right now is taking the hand that I've been dealt and trying to make it work as practically as possible. But, no, we didn't build that into the plan because that's ultimately a congressional decision.

UNDER SECRETARY ROGAN: Thank you.

[Applause.]
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