Results of Operation

 

Net Income/Cost

The following table depicts the USPTO's financial operations for the past four fiscal years.

The USPTO incurred a net cost of $43.8 million for FY 2003, a decrease in net cost of $55.8 million, or 56.0 percent, from the net cost of $99.6 million for FY 2002.

The net cost for the patent business line was $69.6 million in FY 2003, a decrease in net cost of $42.6 million, or 38.0 percent, from the FY 2002 net cost of $112.2 million. This is primarily due to an increase in maintenance fees of $26.3 million and an increase in patent issue fees of $33.4 million. Deferred revenue for patents increased by $32.0 million in FY 2003. However, this increase was less than the $87.2 million increase in FY 2002 because the first action pendency increased at a lower rate.

The trademark business line generated net income of $25.8 million in FY 2003, an increase of $13.2 million, or 104.8 percent, as compared to the FY 2002 net income of $12.6 million. This was due to an increase in revenue from various trademark fees and a decrease in trademark program costs of $6.7 million, offset by an increase in trademark deferred revenue of $4.5 million.

Earned Revenue

Earned revenue totaled $1,162.3 million for FY 2003, an increase of $100.9 million, or 9.5 percent, over FY 2002 earned revenue of $1,061.4 million. Of revenue earned during FY 2003, $296.6 million related to revenue deferred in prior fiscal years, $338.5 million related to maintenance fees collected during FY 2003, which were considered earned immediately, and $527.2 million related to work performed for fees collected during FY 2003. Patent and Trademark operating results are discussed in greater detail below.

Patents

Patent operations earned $1,004.5 million in revenue for FY 2003, a $94.4 million, or 10.4 percent, increase over $910.1 million of revenue earned in FY 2002. The accompanying chart depicts the relationship among the most significant patent fee types.

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Traditionally, patent maintenance fees are the largest category of patent fees. Therefore, fluctuations in rates of renewal affect patent revenue significantly. However, there can be no assurance that the USPTO will be able to sustain or improve on historic or current renewal rates in future years. For FY 2003, $338.5 million was collected in this category, a $14.9 million, or 4.6 percent, increase over the $323.6 million collected in maintenance fees for FY 2002. As seen below, the renewal rates for all three stages of maintenance fees have been increasing modestly over the last four years, indicating continued revenue growth from this source.

Trademarks

Trademark operations earned $157.8 million in revenue for FY 2003, a 4.3 percent increase from $151.3 million in FY 2002 earned revenue. This was due to an increase in revenue from various trademark fees, offset by an increase in trademark deferred revenue of $4.5 million.

The USPTO charges a combined fee for the registration of both Use Based and Intent to Use applications. An additional fee is charged for Intent to Use applications because these applications require additional disclosures for trademark examiner review.

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Trademark renewals are required only if continued protection is requested. To some extent, renewals subsidize costs incurred during the initial registration process. As seen below, the renewal rates for trademarks have been increasing modestly over the last four years, indicating continued revenue growth from this source.

Program Costs

Program costs totaled $1,206.1 million for the year ended September 30, 2003, an increase of $45.1 million, or 3.9 percent, over FY 2002 program costs of $1,161.0 million. The USPTO's most significant program costs related to personnel services and benefits costs. These personnel costs traditionally comprise over 50 percent of USPTO's total program costs. Any significant change or fluctuation in staffing or pay rate patterns directly impacts the change in total program costs from year to year. Total personnel services and benefits costs for the year ended September 30, 2003, were $656.6 million, an increase of $26.3 million, or 4.2 percent, over FY 2002 personnel services and benefits costs of $630.3 million. This change is significantly lower than the FY 2002 change of 16.1 percent. This reduction was the result of a 4.3 percent increase in the Federal pay scale, offset by a net decrease of 216 personnel, from 6,939 at the end of FY 2002 to 6,723 at the end of FY 2003 (3.1 percent decrease).

Rent, communications, utilities, contractual services, and depreciation costs traditionally comprise one-third of USPTO's total program costs each year. Contractual services directly attributable to business lines for the year ended September 30, 2003, were $147.1 million, an increase of $3.7 million, or 2.6 percent, over FY 2002 contractual service costs of $143.4 million. Increases were largely in the patent business line due to increases in printing costs and IT maintenance and development costs, as well as general costs related to the preparation for the move to the new USPTO headquarters in Alexandria, Virginia.

Patents

Program costs attributable to patent operations totaled $1,074.1 million for FY 2003, an increase of $51.8 million, or 5.1 percent, over a total patents program cost of $1,022.3 million in FY 2002. Patent costs were spread over four main patent products: utility patents, design patents, plant patents, and PCT. The cost percentages presented were based on direct and indirect costs allocated to patent operations and are a function of the volume of applications processed in each product area.

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Trademarks

Program costs attributable to trademark operations totaled $132.0 million in FY 2003, a decrease of $6.7 million, or 4.8 percent, from the total trademarks program cost of $138.7 million in FY 2002. Trademark costs were comprised of three main products: Intent to Use marks, Use Based marks, and renewals after registration, which involve processing affidavits, corrections, and amendments. While contractual service costs directly attributable to the trademark business increased 9.1 percent, several other cost categories decreased in FY 2003 compared to FY 2002, including personnel services and benefits, rent, communication, and utilities, supplies and materials, and travel and transportation costs.

The Intent to Use cost includes costs related to examining both the application and the additional intent to use disclosures. The overall cost percentages presented are based on both direct costs and indirect costs allocated to trademark operations and are a function of the volume of applications processed in each product area.

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