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The American Intellectual Property Law Association (AIPLA) is a national bar association of 7,200 members, primarily lawyers engaged in the practice of patent, trademark, copyright, unfair competition, and other fields of law which affect intellectual property. The AIPLA membership includes lawyers in private and corporate practice, in government service, and in the academic community.

We appreciate the opportunity to testify today on the operation of the Patent and Trademark Office (PTO). We have provided the Subcommittee an association report, Establishing the Patent and Trademark Office as a Government Corporation, which I will discuss. I also have several comments on the patent information on CD-ROM demonstration project mandated by Congress in the 1991 PTO authorization law which the AIPLA strongly supports.

The AIPLA believes the American patent system needs to be reformed. Not reformed in the sense that a criminal needs to be returned to acceptable behavior, but rather that it must be improved by correcting defects which have emerged in recent years. Less than two weeks ago, AIPLA testified before this Subcommittee in support of the "Patent System Harmonization Act of 1992" (S. 2605). The elements which we believe are needed to reform the patent law are included in that bill. Today, we urge this Subcommittee to significantly improve the manner in which the patent laws are administered by establishing the PTO as a government corporation.

But

Patent system reform has been discussed and analyzed for many years. recommendations for reform have not been implemented. We believe the time for change, and for instituting improvements in the patent system has now arrived. The reason is that

American industrial innovation needs to be strengthened now as never before. Improved patent laws administered more efficiently and effectively will do that.

The PTO, in spite of an abundance of dedicated, talented senior managers, has an abundance of management problems. Some are longstanding well documented institutional problems and some are of very recent vintage. In any commercial operation, ineffective management systems lead to inferior products and services. This is the case at the PTO. The following problems are fully discussed in the association report which we have provided.

A)

B)

C)

D)

The Department of Commerce has no role in the day-to-day quasi-judicial operation of the PTO. Yet the Department assumes a significant role in overseeing PTO finance and administration. According to former Commissioners, the Department for decades has impeded, obstructed, and "deprived [the PTO] of the opportunity to conduct its operations with dignity, dispatch, and efficiency."

Since 1960, the PTO has had eleven Commissioners, whose average term of office has been less than 31 months. The time between Commissioners, where an "Acting" Commissioner has served, has averaged 4.5 months.

The goals and priorities of the PTO are often inconsistent with user needs. While inventors need quality patent examination and valid patents, the Department of Commerce has directed instead that the PTO concentrate resources on the goal of issuing patents quickly.

The decision of the government to withdraw all appropriated funds from the PTO and force the Office to rely totally on user fee revenue for operations makes cost

effective planning exceedingly difficult. Furthermore, the Office cannot easily finance the acquisition of capital assets without precipitous increases in user fees.

Given these debilitating management problems, it is not surprising to find the

following:

A)

B)

The AIPLA surveyed its membership in 1991 with a comprehensive questionnaire directed at the quality of the patent operation of the PTO. Nearly 1,000 experienced patent lawyers from both corporate and private practice responded. The survey results indicate that the patent examining corps:

lacks adequate training and supervision.

is not able to devote sufficient time to patent applications.

does not have satisfactory classified search files, and specifically lacks foreign patent information.

is forced to meet production quotas which adversely impact on the quality of

their work.

is not well versed in substantive patent law principles.

does not exhibit high morale or appear to be highly motivated.

The survey also indicated that the quality of the patent examining process is not improving, but in many critical areas, particularly searching, the patent operation is less capable today than ten or even five years ago.

The cost of operating the PTO has skyrocketed from $100 million in 1980 to $419 million in 1992. Yet the patent application filings, the processing of which comprises 90% of the workload, have increased only 65%. Since 1982, patent fees have

C)

increased 3500%, and today the fees which must be paid to obtain a patent are higher in the U.S. than in any other country in the world.

Two specific high-cost items seem to be beyond the ability of PTO management to restrain. 1) The PTO launched a comprehensive automation program in 1982 which it reported to Congress would cost slightly less than $300 million and be completed in 1990. Today, automation is estimated to be completed in the late 1990's at a cost of $800 million. 2) PTO operations are housed in 19 buildings, 17 of which are privately owned. PTO rent in 1993 will be nearly $50 million, up from $30 million in 1991.

Our Association's concerns over the costs of obtaining patents and the PTO's use of user fees in funding automation projects should not be construed to reflect a lack of support either for adequate funding of a quality patent examining operation or for a sustained commitment to cost effective automation. We support both. Indeed, AIPLA has called for significant changes in U.S. patent law, for example, publication of pending patent applications at 18 months, which will involve significant incremental costs that -- as users of the patent system

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we must bear and are prepared to bear.

There is no reason to believe that, absent institutional reform, the PTO will be responsive to the needs of the public in the future, even though users must now pay 100% of the costs of the PTO operation. There is also no reason to believe that PTO performance will improve without reform. In fact the long history of the PTO, the conclusions of those who have studied PTO problems, and the experiences of many who have served as the

Commissioner all demonstrate ample reason to conclude the opposite.

The testimony of six former Commissioners before this Subcommittee in 1980 is particularly illustrative. All urged that the PTO be separated from the Department of Commerce and that the Commissioner be given a fixed term of office. Instead of meaningful reform, the Department of Commerce began to throw money at PTO problems, primarily user fee money generated by enormous fee increases. Now, 12 years later, the AIPLA survey clearly indicates that effort has failed to improve PTO performance or to solve PTO problems.

As a partial response, the AIPLA recommends three fundamental changes in PTO financing and governance, the keystone of which is the creation of an independent government corporation to replace the current agency. In brief, AIPLA proposes accomplishing the following:

Resolution One: GOVERNMENT CORPORATION STATUS FOR THE PTO

RESOLVED, that the American Intellectual Property Law Association favors
establishing the United States Patent and Trademark Office as a government
corporation, independent from the Department of Commerce.

The government corporation structure has evolved within the executive branch of the federal government over the past forty years in large measure in response to the need to effectively administer government programs funded by user fees rather than annual appropriations. Programs, such as the PTO, must provide services in response to demands which it cannot control, much like private business enterprises. If the PTO is to operate in a business-like manner, it needs management, operating and financial flexibility it does not and cannot possess as a part of the Department of Commerce. Indeed, the flexibility to

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