basis of a reduction in the cost of printing U.S. patents. Over the twenty-year period from 1990-2009, the PTO proposes reducing costs of operation by $609 million with APS, with $509 million coming from "Application Process Management." However, the current APS project is exclusively devoted to examiner searching and will have no significant impact on application process management.

Indeed, most striking, a system dedicated to "Application Process Management" -- which would bring a huge, almost immediate payback to users of the patent system - has been deferred so that resources can be devoted to the current, scaled-down APS.

For the current APS -- which apparently does will not fully address the urgent need of the PTO to upgrade the extent of its search files -- the PTO projects a 20 year savings of $69 million, which must offset the huge cost of the current APS. In short, the current APS activities within the PTO may represent the worst of all worlds:

deployment of a system too limited in scope to address the quality shortcomings which users have identified as critical to improving PTO searching capabilities.

a technological design which drives costs to levels beyond any reasonable hope of a commensurate benefit.

a diversion of user fees away from other projects which could have a cost-reduction, quality-enhancement effect (e.g., the "Application Process Management" system) in the short term.

As a business matter, continuing the current deployment plans for the APS system represents a business decision which no board of directors would ever approve -- a virtual recipe for insolvency for any business, except one that has a magical power to increase its revenue in an unlimited fashion. To the extent a government-funded PTO might have had such a magical power, a user-fee funded PTO most certainly does not.

The APS cost overruns and mismanagement show that what is lacking at the PTO is an effective, informed, investigative advisory committee, whose functioning might have prevented a technologically imprudent (or at least premature) project from consuming limited capital resources which could be focused on customer-identified, cost-effective enhancements in the quality of services being rendered. Instead of two investigations by the General Accounting Office, Congress could have had the benefit of a continuous investigation by such a committee. During the first ten years of APS, there have been three Commissioners and two Acting Commissioners with overall responsibility for the project. This succession of Commissioners have had a succession of four individuals directly in charge of APS. Such highly unstable management and lack of continuity has also certainly contributed to this enormously expensive ill-fated project.

Recommendations

The PTO has an abundance of problems. The problems have become more acute with the total reliance on revenues raised from fees. These problems are unlikely to be resolved in the near term without a fundamental change in the manner in which the PTO is managed and its work is overseen. This pessimism seems justified based on:

the longstanding nature of the PTO management and oversight issues. Each commission, each report, has advocated structural, institutional change, in preference to a "Band-Aid" approach.

the current crisis in quality. The rapid advance in technology appears to be leaping ahead of the PTO's ability to search and examine it. Examiner turnover rises, U.S patent-based search files become increasingly inadequate, and the PTO responds by focusing its considerable resources on a facsimile database of U.S. patents which is flawed technologically.

the improbability of resumed public financing. With user fees as the only source of income, the PTO will simply not have the flexibility and the raw financial resources to "make mistakes" without putting the entire U.S. patent system at risk. It must make good investment decisions and only good investment decisions.

On this basis the following recommendations appear critical to providing the PTO with the resources it needs and the management and oversight structure it should have to assure that resources are well-invested:

Recommendation One: THE PATENT AND TRADEMARK OFFICE AS A GOVERNMENT CORPORATION

The past studies of PTO problems are particularly relevant given the exceptionally long history of the PTO performing the same function in substantially the same way. Long standing problems persist, as does the inability to effectively address them. President's commissions, formal management studies, and congressional hearings have not been successful in the past and are likely to not be in the future.

The basic problem is that under current conditions the mechanism for an informed reform of the PTO does not exist. History clearly demonstrates this fact. Establishing the PTO as a government corporation, possessing a number of powers which government corporations can be given, would create such a mechanism. Under such a change in circumstances, meaningful improvements in PTO management and the quality of the products and services it provides could be achieved.

1)

Independence From the Department of Commerce Will Facilitate Improved
Management.

The PTO as a government corporation would be independent from the Department of Commerce. The PTO would not be independent from the Office of Management and Budget (OMB), nor could that be achieved. The OMB would retain control over the PTO budget in that the authorization to operate at a specified funding level would be a part of the President's budget submission to Congress.

The nature of OMB control would, however, be changed and lessened. First, the PTO budget would not require any requests for appropriated funds. Therefore, no matter what measure of spending limits or reductions the OMB was imposing on Executive Branch agencies, the PTO request would not be implicated.

Second, with the budget, and the operational implications of it, devised and approved jointly by PTO management and a statutorily established user representative group, it seems unlikely the OMB would attempt to impose its judgment to reject or amend the recommendations of the obviously more qualified and informed proponents of the budget.

Third, the PTO connection with Congress would be considerably strengthened. The Commissioner and the statutory user representative advisory committee would be free to routinely deal with Congress directly, unaffected by the current Commerce Department filters. An apt example is the Legal Services Corporation (LSC). During the entire Reagan Administration, the President requested zero funding for the LSC and the continuing decision to do so proved meaningless. The Board of Directors of the LSC dealt directly with Congress, merely submitting the budget authority requests OMB refused to submit.

The PTO as a corporation would continue to be bound by Executive Branch-wide regulations, directives, and laws. Exceptions to this would have to be contained in the legislation creating the corporation. This issue needs detailed study and evaluation.

2)

The PTO Would Attract and Maintain Better Professional Management With
Greater Flexibility to Perform

The Commissioner of Patents and Trademarks is directly responsible for the operation of the PTO. The Commissioner must manage the PTO, regardless of what policies and goals are being followed. But it is worth considering whether, under current circumstances, any Commissioner can reasonably be expected to effectively meet this difficult responsibility. First, the Commissioner must be a lawyer with extensive experience in both patent and trademark law and how patents and trademarks are obtained, used, and enforced. Such a background is an ideal qualification to allow the Commissioner to fully understand the law he is charged to administer and evaluate how well the PTO is administering the law. Further, the Commissioner can judge whether the needs of users are being met, and seek

to remedy shortcomings in the law and its administration. During the past 60 years, Commissioners have generally possessed these qualifications.

Unfortunately, the Commissioner is virtually the only executive level employee in the Executive Branch with this broad intellectual property expertise in general. That means that if the Executive Branch operates in a common sense manner, the Commissioner will be involved in policy issues involving domestic legislation, administration policy, and bilateral and multilateral treaties involving intellectual property. In other words, the Commissioner's attention is directed towards other important matters outside of PTO management. Nor is it the rule that the Commissioner can look for assistance here to fellow executives with this same comprehensive experience. In only eight of the past 20 years, the Deputy Commissioner has had a private sector patent background. For all of the past 20 years, the Assistant Commissioner for Patents has been a career government employee.

Second, an entering Commissioner faces the difficult task of learning how the PTO operates. Nothing in the private sector can be fully preparatory to understanding government rules and regulations as to financial, personnel and procurement practices, the role of employee unions, and the pressures of intergovernmental dealings. This and more must be learned, primarily from the career employees of the PTO.

The Commissioner has six assistant commissioners to look to for advice and execution of PTO management. All positions but one, the Assistant Commissioner for Trademarks, are filled by career government employees and all but one of those have been PTO employees for the past ten years. The management skills and experience of the Commissioner's assistants are narrowly based. This is not to imply that career PTO executives are not able and dedicated employees. Rather, because of their professional experience, these assistants are not expert in management but in how the PTO is managed. The same is true of the immediate subordinates of the assistants. The PTO management system is, therefore, heavily weighted towards maintaining the status quo, and likely this is the case at many government agencies. This point, as to the PTO, was made in the Kintner Report.

Once the Commissioner is past the learning curve and has ideas for management improvement, the predicate becomes that existing policies or systems need improvement. The Commissioner is now pushing on the bureaucracy which can be expected to, either directly or indirectly, push back. The Commissioner has the authority to order change. But that authority is not comparable to that of a corporate manager assigned to upgrade a troubled operating unit. Aside from lacking the personnel motivation tools possessed by corporate managers, the Commissioner's "superiors" or goal setters in the Department of Commerce and OMB may expect a more efficient PTO but are unwilling to provide PTO management with sufficient flexibility.

But the third, and perhaps most telling, weakness of the current system is the tenure of the Commissioner. During the past 32 years, there have been eleven Commissioners. The average term of office is 31 months. The average vacancy in the position between terms is

4.5 months. This short term tenure is not sufficient for assuming operational control, comprehensively assessing the process, and instituting improvement.

The government corporation gives the opportunity to provide more stability at the highest executive levels of the PTO. The Commissioner should be given a fixed term of office, perhaps six years. The corporation charter should guarantee that term to the extent possible. The Commissioner should have two, or perhaps three, deputy commissioners with terms that coincide with the end of the Commissioner's term. In other words, the Commissioner would be free to select his own top management team. While the Commissioner would be nominated by the President subject to confirmation by the U.S. Senate, the deputy commissioners would not.

The legislation establishing the corporation would contain two provisions to ensure high qualifications in the Commissioner and the deputy commissioners. First, compensation would be set at levels which correspond to executive levels in the private sector. Since there is no direct comparison to the private sector available here, some measure would have to be devised. Second, the qualifications for these positions would be articulated. Except for the first appointment, the legislation should also provide that the President consult with the statutory users' representatives before nominating a new Commissioner.

Legislation would further establish whether or not the Commissioner would be eligible to serve more than one term of office. If a Commissioner resigned before the end of a six-year term, certainly a new Commissioner would be appointed for a full term of his or her own, not merely the remainder of the six-year term of the departing Commissioner. There are both benefits to retaining an able and successful Commissioner for succeeding terms and a risk in multiple terms of an influential Commissioner becoming a permanent "czar" of the PTO. Similar considerations exist for the Deputy Commissioners where an incoming Commissioner might wish to retain the deputies of his predecessor. If the deputy commissioners become long-time PTO managers, the benefits of any "new thinking" may become lost.

The tenure of assistant commissioners should not be an issue. Obviously, the Commissioner would have the authority to reorganize the structure of the PTO and the implementing legislation must specify the authority of the Commissioner to terminate PTO employees. However, compelling reasons exist that support permitting assistant commissioners to serve as career PTO managers. Their strengths lie in experience and expertise in PTO affairs. Those positions are also the logical career goals of their subordinates. Replacing assistant commissioners to coincide with the terms of the Commissioner would very likely be counterproductive and destabilizing.