Association and the Student Loan Marketing Association APPLICABILITY OF CRITERIA TO PTO The European Patent Office defines itself as a "business enterprise" (Annual Report 1987, p. 25). In granting patents and trademarks the PTO is exercising sovereign state powers and is not technically engaged in "commercial" transactions as that term is commonly employed. As with the European Patent Office, the PTO, however, is expected to operate much like a business and to recover a major part of its costs through user fees. The European, Canadian, West German and Dutch patent offices are currently entirely self-sustaining with revenues exceeding expenditures. The PTO meets the basic tests established by the Truman criteria, although technically it is not engaged in "commercial" operations. It is clearly revenue producing, is potentially self-sustaining, and must respond to the needs of a market for its services which it does not control. Congress has not made the complete recovery of costs through user fees a condition for establishing a government corporation. Appropriations may be authorized to pay the costs of non-revenue producing programs, as in the case of the Tennessee Valley Authority (TVA), or services which Congress has directed be provided at less than cost, as in the case of certain postal services. Appropriations could continue to be made for a PTO corporation to bridge gaps between costs and fee income or to support functions not subject to charges or full cost recovery. Appropriations also may be made to cover losses, as is regularly done in the case of the Commodity Credit Corporation. Corporations such as the Legal Services Corporation and the Corporation for Public Broadcasting have little income and are primarily funded by annual appropriations. The evidence suggests that the Office of Management and Budget (OMB) and Congress are less likely to grant operating and financial flexibility to corporations dependent on Treasury financing than to those which are self-supporting from their revenues. There is a tendency to apply traditional rules and regulations to any program financed in major part by appropriated funds, particularly when there is no direct relationship between the amount of user fees and the costs of operations. ORGANIZATIONAL OPTIONS The Government Corporation Control Act places corporations in two categories - wholly-owned and mixed ownership. Congress has also created a number of government-sponsored enterprises which are not subject to the Control Act, such as the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Securities Investors Protection Corporation. Since mixed-ownership corporations and government-sponsored enterprises involve some degree of non-federal or private participation in ownership and management, these options would appear to be totally inappropriate for the PTO's functions. Agencies also may be given some or all of the attributes of a government corporation without being incorporated. The U.S. Postal Service has virtually all of the features of a corporation except a separate corporate personality. Public enterprise funds have been established in some federal agencies to finance a continuing cycle of businesslike operations from income derived from user fees. Unincorporated agencies or programs financed by public enterprise funds include the Farmers Home Administration, Bonneville Power Administration, the Federal Housing Administration, and the Veterans Administration loan fund. These revolving funds afford considerable flexibility, and expenditures from the funds are not subject to the appropriation process. In some cases, they may not be subject to budget review. Agencies with public enterprise funds also may be authorized to borrow from the Treasury or Federal Financing Bank. The choice among alternatives, that is: (1) a government corporation, (2) an unincorporated agency with some or all of the powers of a corporation, or (3) a public enterprise fund, depends on a number of tangible and intangible factors. Political acceptability is obviously an important consideration. The differences among the options relate mainly to the degree of organizational autonomy and operating and financial flexibility which Congress is willing to grant, and the public and congressional perception of the organization. Corporations are distinguished by law from other government agencies and, consequently, more persuasive arguments can be advanced for according them treatment consistent with their special status. A government corporation structure should be designed to fulfill effectively the purposes for which the corporation is created. There is no single all-purpose government corporation model. The differences among corporations reflect differences in operating and financial requirements. FINANCIAL FLEXIBILITY The PTO is now confronted with the problem of persuading the President and Congress to provide the resources necessary to finance a rapidly growing workload and at the same time maintain high quality in the administration of patent and trademark statutes. The number of patent applications has increased substantially in the last ten years. In 1987 PTO received over 126,400 utility, plant and reissue applications, about 5,000 more than the previous year. In a period of budgetary restraint, the PTO must compete with other tax-supported programs for a limited number of appropriated dollars. Decisions with respect to the PTO budget may well be influenced by external factors which are not directly related to estimates of its needs. In approving a corporation's business-type budget, Congress does not appropriate funds but authorizes a corporation to utilize its own funds for approved programs. To the extent that they are self-supporting, corporations do not have to compete for limited tax dollars and are less likely to be subject to arbitrary cuts or detailed restrictions on the use of their funds. The present budgetary system is acknowledged to be biased against capital project initiatives. As the General Accounting Office has pointed out, "under the current, cash-based budget, there is a budget bias against capital programs which could lead to uneconomical decisions." No distinction is made between the capital investments and operating expenses of traditional government agencies. If the PTO were a corporation and given borrowing authority, it could follow normal commercial practice and pay for capital improvements over their economic life. In accordance with accepted commercial accounting principles, the corporation would be expected to include depreciation as a cost in its financial statements. OTHER SPECIFIC QUESTIONS RELATING TO THE OF A The foregoing discussion sets forth criteria for establishing government corporations within the federal government and describes the powers characteristic of such entities. The following pages address a number of subsidiary questions particularly applicable to a patent and trademark corporation. These questions were raised in IPO's letter to NAPA of July 29, 1988. Could a PTO Corporation Compensate Executives and Employees at U.S. General Accounting Office, Capital Budgeting for the Federal Government, GAO/AFMD-8844 (Washington: GAO, July 1988), p. 5. As previously noted, the executives and staff of wholly-owned government corporations are officers and employees of the United States. For this reason general laws relating to compensation would apply to a patent and trademark corporation unless the charter provided otherwise. The charter will need either to establish the pay level of the chief executive officer or direct the manner in which that official's compensation will be determined. Experience with such entities as the U.S. Postal Service, Amtrak, and the US. Railway Association (USRA) indicates that Congress is usually willing to consider favorably compensation as high as Executive Level I (that of cabinet officers). Only rarely have higher salaries been authorized for top corporation executives, and it would be unlikely that any rate in excess of Level I would be approved for a PTO corporation. Some corporations such as the TVA, Amtrak and the U.S. Postal Service have also been given general authority to set the compensation of their employees. Another option available to all federal agencies is to seek delegations from the Office of Personnel Management, including authority to exercise flexibility in hiring and compensating employees on a test basis. The Defense Department at its China Lake facility and the National Institute of Standards and Technology have been authorized to conduct such experiments. The PTO clearly needs the authority to cope with such problems as that of recruiting qualified examiners in emerging areas such as biotechnology. The exempting of the PTO corporation from the general statutes relating to employee compensation would, of course, be advantageous in managing the enterprise, but a strong case will have to be made that such treatment is really necessary. What Types of Increased Operating Flexibility Can Be Achieved? As discussed above, the principal increases in flexibility resulting from the incorporation of a public enterprise relate to the financial aspects of its operations. There are, however, certain additional powers, usually conferred by the charter, which can lead to enhanced operational flexibility. |