For fiscal year 1993, we anticipate a four percent increase in patent applications and a six percent increase in trademark applications. This increase in workload will provide us with $48,000,000 of the requested funding increase of $66,559,000. The remainder of our requested increase will be funded from a 3.3 percent increase in fees, which is consistent with the mandate of current law holding fee increases to the changes in the Consumer Price Index.

INFLATION AND BASE ADJUSTMENTS

Almost half of the proposed increase represents the additional cost this year of providing the same services as we did last year, i.e., inflation and base adjustments. Pay raises, replacement hires, and the increased costs of employee benefits, rental of office space, and contracted work will compose the bulk of these increases. The fee increase is not lone sufficient to cover these costs, and about one-half of the funds that will accrue from higher workloads will make up the difference.

WORKLOAD

As I mentioned, we expect that the number of patent applications will increase four percent to 182,000 and the number of trademark applications will increase approximately six percent to 130,000. We will do our best, given the resources we have, to decrease the patent pendency period, but our best projection now is that in fiscal year 1993 the pendency period will be 20 months. On the trademark side, we expect to do better, and reduce the pendency period to our long-standing goal of 13 months by the end of 1993.

QUALITY IMPROVEMENTS

The U.S. Patent and Trademark Office has had an ongoing Total Quality Management (TQM) program since 1989. We are pleased to report that recently we reached an agreement with our public employee unions to radically expand the TQM program to all aspects of our operation. We have learned from experience that this will increase the quality of the services we provide and reduce the costs of those services as the program is expanded into new areas.

AUTOMATION OF THE PATENT AND TRADEMARK OFFICE

Since December 1982, we have embarked on a massive effort to fully automate the patent and trademark functions. It is natural that this effort has been one of our most studied and contentious issues in light of the cost it entails. Nevertheless, we are convinced that completion of the patent and trademark automation improvements program is critical to the future viability of our industrial property system.

The U.S. Patent and Trademark Office (PTO) has invested ten years and just under a half-billion dollars designing, building, and perfecting what we believe is the most advanced technological database in the world a database that, we are convinced, will prove invaluable to American

Industry, and to the PTO's ability to meet its responsibilities into the next century. I would like to talk a few moments to detail the history behind our efforts so that the Subcommittee may be able to place the current debate in perspective.

Our first Automation Master Plan was forwarded to the Congress in 1982. In 1984, a contract to design and construct the Automated Patent System (APS) portion of that Plan was awarded to Planning Research Corporation, which subsequently designed a state-of-the-art system for the PTO.

Like many large development projects of this type, there were some problems early on which primarily were the result of having inadequate resources inside the PTO to monitor project development. By 1986, public concerns over system cost, design, and schedule prompted a study of the system by the General Accounting Office (GAO). GAO made specific recommendations for the correction of perceived deficiencies and further recommended that the Department of Commerce employ outside consultants to identify additional analyses that should be required.

The Department brought in two teams of consultants. One team was from the National Bureau of Standards or NBS (now called the National Institute of Standards and Technology) and the other team was an Industry Review Advisory Committee (IRAC) composed of private sector representatives experienced in the design and construction of large, complex systems. The NBS report was provided as input to the IRAC. In March 1988, the IRAC issued a report finding that the design of the APS system was appropriate, and it would meet user requirements. However, the IRAC criticized the PTO's management oversight of the prime contractor and the life cycle development methodology employed by the agency. As a result, several management changes were instituted at the Patent and Trademark Office to address these concerns, and the PTO modified its systems development methodology to reflect state-of-the-art practices.

Eighteen months later the IRAC was called back to review progress in implementing its recommendations. In January 1990, the IRAC issued its second report, which was positive. The Office of Management and Budget conducted its own review of the APS at the same time and also found the system's design and program management to be sound. Furthermore, the Office of Management and Budget removed the system from the Presidential Priority Systems watch list. Today, the PTO's APS system is used by OMB as a model system appropriate for emulation by other agencies with similar database management requirements.

After a decade of development and testing, and two and one-half years of using the APS test and image system in a production line mode in two examining groups, the Office is confident that the APS is a success and that it is ready to be fully deployed to both the public and the examining corps. I am delighted to report that, as we projected last year, we will finish the loading of the U.S. patent database and will deploy the Automated Patent System to a third Examining Group by the summer of 1993. The fiscal year 1993 request includes over $3,000,000 to enable us to carry this forward. We know from our experience to date that such deployment will result in an improvement in the quality of patents issuing, and will provide an

electronic patent database containing a motherload of technological information that can be searched by the public and our examiners using a powerful combination of text and image search tools that are simply unavailable in a manual, paper-based search environment.

On the trademark side of the automation effort, the story is equally as positive. Our existing trademark system has been operational for a number of years, and is being upgraded to provide the public and trademark users with improved trademark search capability. The faster and more user-friendly search system which we are working on now, and which we will be implementing by mid-1993, will provide the public with a greatly enhanced electronic search tool and better display of the trademark file. In addition, current plans call for developing and testing an electronic trademark application filing system which will further improve trademark quality and processing, and improve access to the system for users.

Despite this progress, public concerns about the patent system prompted some Members of Congress to request late last year that the GAO review our progress and our plans for our automated systems. As requested, the GAO has not looked at our efforts in isolation but has compared them with the efforts of the European and Japanese Patent Offices. As yet, the GAO has not completed its audit, but has only completed the survey portion of its work. When the final report is issued, we will be pleased to review any recommendations contained therein and work with the Congress to implement any reasonable modifications to the system's design or our deployment plans that the Congress may conclude are necessary.

After ten years of study of the problems and development efforts at the U.S. Patent and Trademark Office, however, we have no hesitancy in affirming the following conclusions:

1)

2)

3)

The U.S. Patent and Trademark Office cannot survive into the next century by continuing to work in a paper environment.

The transition to complete electronic search systems must proceed apace to enable us to carry out our responsibilities during the latter half of the decade, and to achieve the establishment of an expanded database that will enable examiners to electronically search the bulk of foreign art that is not currently conveniently accessible by either the PTO or the public.

Finally, the funds that we have requested in this authorization cycle, which will provide the capability to complete the loading of U.S. patent data into the system and begin full deployment, are reasonable and necessary if we are to stay on track with the planned complete deployment of the system by 1997.

Automation is now providing benefits to the public that could not be achieved in a paper system. We now have a pilot program that is providing the capability to search the text portion of patent documents at 14 Patent and Trademark Depository Libraries located throughout the country. Also, our investment in the APS system has enabled us to provide these Libraries with new CDROM products containing patent and trademark information.

Furthermore, studies by our Office of Quality Review show that the APS has improved the quality of the patents we issue. This is due to the fact that the APS provides for more secure files, that is all of the references are always available to the examiner. Examiners are able to extract more references that are pertinent to the application under examination, and the APS provides better and more powerful search tools.

For all of these reasons, we are convinced that the path we are on is the correct one.

SUMMARY

Our objective is to provide the best possible products to the users of our services. We believe that the program we outlined, given the resources available to us, will achieve our objective. As always, we want to work closely with this Committee to ensure that we provide that the level of stewardship that is rightfully expected of us by the Congress and the public.