Patent and Trademark Office: New User Fee Design Presents Opportunities to Build on Transparency and Communication Success

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special account increases transparency for the use of these funds because any amounts appropriated, transferred, or rescinded from the fund would be clearly visible.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.