Patent and Trademark Office:

New User Fee Design Presents Opportunities to Build on Transparency and Communication Success

GAO-12-514R: Published: Apr 25, 2012. Publicly Released: Apr 25, 2012.

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irvings@gao.gov

 

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What GAO Found

To successfully manage AIA implementation, USPTO must consider a number of trade-offs as it sets and uses its over 340 fees, as well as maintain an effective fee review process. USPTO officials have stated that the agency’s limited fee-setting authority prior to the AIA and uncertainty about the extent to which its collections would be available contributed to a number of the agency’s operational challenges, such as the current backlog of over 640,000 patent applications and patent application processing time of over 30 months. They said fees that generated over 80 percent of USPTO’s revenues were set in statute, limiting the agency’s ability to ensure that total collections kept pace with total costs as its workload has grown. USPTO can only use its fee collections to the extent that Congress makes them available. In the past, Congress has in some years made available less than the total amount collected; there has been significant debate about the status and use of these fees collected in excess of amounts appropriated.

The AIA made changes to USPTO’s fee design, including granting the agency the ability to set fee rates and changing how any excess collections would be treated. Prior to enactment of the AIA, fees collected were deposited into USPTO’s account and were available to the extent appropriated. The AIA created a second account; USPTO collections in excess of appropriations are to be deposited into the new Patent and Trademark Fee Reserve Fund. As before, these excess collections are available to USPTO only to the extent appropriated by Congress. However, we believe the establishment of this special account increases transparency for the use of these funds because any amounts appropriated, transferred, or rescinded from the fund would be clearly visible.

By law, USPTO patent fees must cover patent costs in the aggregate, but USPTO is not required by law to align individual fees and activity costs on a fee-by-fee basis; we found that individual USPTO fees and costs are not aligned in many cases. We have previously reported that while less precise alignment between fees and costs may result in some inequity or inefficiency, there may be policy and administrative reasons for this choice such as, for example, holding patent filing fees lower than costs in order to encourage innovation. USPTO reported that, not unlike the situation faced by other federal agencies that depend on fee revenue, uncertainty about (1) the extent to which requests for services and related collections match estimates and (2) the level of collections that would be available to the agency annually complicates its ability to execute annual and multi-year plans. To smooth the impact of economic downturns on operations and to help mitigate funding uncertainty, since fiscal year 2010 USPTO has been reserving a portion of the amount Congress makes available annually through appropriations as a designated operating reserve that could be carried over for use in future years, as USPTO is generally appropriated no-year funds. USPTO is drafting an operating reserve policy on the management of this reserve. This practice is consistent with our previous reporting that an operating reserve is important for fee-funded programs to match fee collections to average program costs over time and because program costs do not necessarily decline with a drop in fee collections. However, it will be important that the policy governing the use of this reserve ensures alignment with agency goals. USPTO has a robust fee review process in place and stakeholder communication regarding AIA-related fee adjustments is under way. However, USPTO has not included some information—such as an accounting of program costs and assumptions used to project future program costs—in some past examples of communications with stakeholders and Congress. We have previously reported that tools for oversight are enhanced if the agency clearly reports its methods for setting the fee, including such cost information. While stakeholder groups we spoke with were generally satisfied with USPTO’s communication approach, some interviewees were not certain that this success would be maintained when agency leadership changes. USPTO’s challenge will be to establish guidance and protocols to help ensure consistency over time and through subsequent leadership transitions.

Why GAO Did This Study

This report formally transmits the briefing we gave on January 23, 2012 on the U.S. Patent and Trademark Office’s (USPTO) user fee design, as well as subsequent comments from USPTO. Some updates were made to this briefing after it was initially delivered to USPTO officials.

The Leahy-Smith America Invents Act (AIA), enacted in September 2011, significantly broadened USPTO’s authority to design and set its user fees. Our objective was to analyze how aspects of USPTO’s proposed user fee design may address challenges facing USPTO and stakeholders. We began this work under the authority of the Comptroller General in the context of questions raised over time by USPTO’s appropriations and authorizing committees on the USPTO reauthorization debate, including how USPTO’s fee design affected both its operations and oversight. Subsequently, Congress expressed interest in our analysis and asked that this work be addressed to Congress.

We focused on patent fees and processes, and excluded trademark fees and processes, because patent fees represent almost all of USPTO fee collections. Given the authority to set or adjust patent fees newly granted to USPTO in the AIA, we assessed how USPTO fees are set, used, and reviewed using our Federal User Fees: A Design Guide. We reported on issues related to USPTO fee collections in a previous report.

What GAO Recommends

We make a number of recommendations to strengthen transparency and communication during the implementation of the AIA reforms, including finalizing a policy for USPTO’s operating reserve; providing program costs, fee-setting methods, and the rationale for policy choices in communications with Congress and stakeholders; and establishing protocols for communication with stakeholders.

For more information, contact Susan Irving at (202) 512-6806 or irvings@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To strengthen transparency and communication during the implementation of the AIA reforms, the Secretary of Commerce should direct the Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office to finalize an operating reserve policy, including the expected level of reserves, to smooth the impact of economic downturns on operations and to ensure its use aligns with agency goals.

    Agency Affected: Department of Commerce

    Status: Open

    Comments: In March 2013, PTO officials reported that the agency is planning to finalize the operating reserve policy using the concepts provided to the public in support of the initial fee proposal on February 7, 2012, as the foundation. The estimated completion date is June 30, 2014.

    Recommendation: To strengthen transparency and communication during the implementation of the AIA reforms, the Secretary of Commerce should direct the Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office to build on current communication success to provide stakeholders opportunities for substantive, two-way communication when seeking input on the AIA fee-setting process. Moving forward, this should include (1) providing an accounting of program costs and the assumptions used to project future program costs in biennial fee reviews and (2) clearly communicating its fee-setting methods and rationale for policy choices to provide Congress with sufficient information for oversight and transparency for stakeholders and the public.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: The Leahy-Smith America Invents Act (AIA), enacted in September 2011 during the course of the U.S. Patent and Trademark Office (USPTO) User Fee Review, significantly broadened USPTO's authority to design and set its user fees. In October 2011, at USPTO officials' request, GAO team members provided USPTO examples of effective stakeholder outreach from previous GAO work. In January 2012, GAO gave USPTO a preliminary briefing on our work, including a discussion of preliminary recommendations calling for substantive two-way stakeholder communication and information sharing. In April 2012, GAO published final recommendations stating that USPTO should seek substantive, two-way communication with stakeholders and, moving forward, this should include (1) providing an accounting of program costs and the assumptions used to project future program costs in biennial fee reviews and (2) clearly communicating its fee-setting methods and rationale for policy choices to provide Congress with sufficient information for oversight and transparency for stakeholders and the public. In response to our recommendations, at both the proposed and final stages of the rulemaking process, USPTO published a number of documents linked to its Leahy-Smith America Invents Act Implementation website (http://www.uspto.gov/aia_implementation/index.jsp) communicating program cost information, fee-setting methodologies, and rationales used when setting new fee rates. These documents included (1) a "Fee Setting at a Glance" document describing goals, benefits and costs, an overview of the proposed fee structure, and information about individual fee changes; (2) information on USPTO's Activity-Based Information program and costing methodology that supports the fee-setting process; (3) a description of the agency?s statistical examination of the price elasticity of demand of patent user fees; and (4) a Regulatory Impact Analysis for setting and adjusting patent fees. In addition, the proposed and final fee rule documents included a discussion of the agency's 3-step fee setting methodology (based on aggregate costs, aggregate revenue, and consideration of cost-recovery and policy goals), and a discussion of the rationale for individual fee rate choices. Sharing relevant analysis and information is part of effective stakeholder communication.

    Recommendation: To strengthen transparency and communication during the implementation of the AIA reforms, the Secretary of Commerce should direct the Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office to establish guidance and protocols for communication with PPAC and other stakeholders about the fee process in order to help ensure consistency over time and through subsequent leadership transitions.

    Agency Affected: Department of Commerce

    Status: Closed - Implemented

    Comments: The Leahy-Smith America Invents Act (AIA), enacted in September 2011 during the course of the U.S. Patent and Trademark Office (USPTO) User Fee Review, significantly broadened USPTO's authority to design and set its user fees. In October 2011, at USPTO officials' request, GAO team members provided USPTO examples of effective stakeholder outreach based on previous GAO work. In January 2012, GAO gave USPTO a preliminary briefing on its work, including a discussion of preliminary recommendations. In April 2012, GAO published a final report with three recommendations to USPTO. One recommendation stated that USPTO should establish guidance and protocols for communication with the Patent Public Advisory Committee and other stakeholders about the fee process to help ensure consistency over time and through subsequent leadership transitions. In response to this recommendation, USPTO developed an Agency Administrative Order (AAO) establishing a policy and process for a comprehensive biennial fee review. USPTO published the AAO on its website (http://ptoweb.uspto.gov/ptointranet/directives/index.html) in March 2014. Covering all patent and trademark fees, the AAO for the biennial fee review policy and process is intended to ensure that the fee review process enables consistent, effective, timely, and expeditious review of the existing fee schedule as well as research, analysis, and recommendations for potential revisions and additions to the fee schedule. The AAO establishes a process for the consideration of all proposed changes to USPTO fees, including the establishment of new fees, the deletion of fees, and adjustment to current fees. In particular, the AAO describes methods of communication with external stakeholders, which includes formal and informal notification of fee changes and outreach in advance of any rulemaking.

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