HOUSE HEARING, 109TH CONGRESS - REVIEW OF U.S. PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY OF PUBLIC ADMINISTRATION REPORTS

REVIEW OF U.S.
PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF

GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY
OF PUBLIC ADMINISTRATION REPORTS
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,

AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
SEPTEMBER 8, 2005
Serial No. 10948

Printed for the use of the Committee on the Judiciary
(
Available via the World Wide Web: http://judiciary.house.gov
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WASHINGTON
23324 PDF
2005
For sale by the Superintendent of Documents, U.S. Government Printing Office

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COMMITTEE ON THE JUDICIARY

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman
HENRY J. HYDE, Illinois
JOHN CONYERS, JR., Michigan
HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia
LAMAR SMITH, Texas
JERROLD NADLER, New York
ELTON GALLEGLY, California
ROBERT C. SCOTT, Virginia
BOB GOODLATTE, Virginia
MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio
ZOE LOFGREN, California
DANIEL E. LUNGREN, California
SHEILA JACKSON LEE, Texas
WILLIAM L. JENKINS, Tennessee
MAXINE WATERS, California
CHRIS CANNON, Utah
MARTIN T. MEEHAN, Massachusetts
SPENCER BACHUS, Alabama
WILLIAM D. DELAHUNT, Massachusetts
BOB INGLIS, South Carolina
ROBERT WEXLER, Florida
JOHN N. HOSTETTLER, Indiana
ANTHONY D. WEINER, New York
MARK GREEN, Wisconsin
ADAM B. SCHIFF, California
RIC KELLER, Florida
NCHEZ, California
LINDA T. SA
DARRELL ISSA, California
CHRIS VAN HOLLEN, Maryland
JEFF FLAKE, Arizona
DEBBIE WASSERMAN SCHULTZ, Florida
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
PHILIP G. KIKO, General Counsel-Chief of Staff
PERRY H. APELBAUM, Minority Chief Counsel
SUBCOMMITTEE
ON
COURTS,
THE
INTERNET,
AND
INTELLECTUAL PROPERTY
LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois
HOWARD L. BERMAN, California
ELTON GALLEGLY, California
JOHN CONYERS, JR., Michigan
RICK BOUCHER, Virginia
BOB GOODLATTE, Virginia
ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee
MAXINE WATERS, California
SPENCER BACHUS, Alabama
MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina
ROBERT WEXLER, Florida
RIC KELLER, Florida
ANTHONY D. WEINER, New York
DARRELL ISSA, California
ADAM B. SCHIFF, California
CHRIS CANNON, Utah
NCHEZ, California
LINDA T. SA
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
BLAINE MERRITT, Chief Counsel
DAVID WHITNEY, Counsel
JOE KEELEY, Counsel
RYAN VISCO, Counsel
SHANNA WINTERS, Minority Counsel
(II)
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CONTENTS
SEPTEMBER 8, 2005
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress from the State

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property ....................................................................................................
The Honorable Howard L. Berman, a Representative in Congress from the
State of California, and Ranking Member, Subcommittee on Courts, the
Internet, and Intellectual Property ....................................................................
1
2
WITNESSES
The Honorable Jon W. Dudas, Undersecretary of Commerce for Intellectual
Property and Director, U.S. Patent and Trademark Office (PTO)
Oral Testimony .....................................................................................................
Prepared Statement .............................................................................................
Ms. Anu K. Mittal, Director, Science and Technology Issues, U.S. General
Accountability Office (GAO)
Oral Testimony .....................................................................................................
Mr. Ronald J. Stern, President, Patent Office Professional Association (POPA)
Oral Testimony .....................................................................................................
Mr. Charles Van Horn, Finnegan, Henderson, Farabow, Garrett, and Dunner,
LLP
Oral Testimony .....................................................................................................
5
8
26
28
149
150
159
161
APPENDIX
MATERIAL SUBMITTED
FOR THE
HEARING RECORD
Prepared Statement of the Honorable Howard L. Berman, a Representative

in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property .........................
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Member, Subcommittee on
Courts, the Internet, and Intellectual Property ................................................
Response from Anu K. Mittal, Director, Science and Technology Issues, U.S.
General Accountability Office (GAO), to questions submitted by the Honorable Zoe Lofgren, a Representative in Congress from the State of California,
and Member, Subcommittee on Courts, the Internet, and Intellectual Property ........................................................................................................................
Executive Summary, U.S. Patent and Trademark Office: Transforming To
Meet the Challenges of the 21st Century, a Report by a Panel of the National
Academy of Public Administration for the U.S. Congress and the U.S.
Patent and Trademark Office, 2005, submitted by the Honorable Lamar
Smith .....................................................................................................................
175
176
177
178
(III)
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REVIEW OF U.S. PATENT AND TRADEMARK

OFFICE OPERATIONS, INCLUDING ANALYSIS
OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL
ACADEMY OF PUBLIC ADMINISTRATION REPORTS
THURSDAY, SEPEMBER 8, 2005
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY,
COMMITTEE ON THE JUDICIARY,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1 p.m., in Room
2141, Rayburn House Office Building, the Honorable Lamar Smith
(Chair of the Subcommittee) presiding.
Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. As is usually the case, I am
going to recognize myself for an opening statement, then recognize
the Ranking Member, then we will get to our witnesses as soon as
possible.
Today the Subcommittee will conduct a hearing on the operations of the U.S. Patent and Trademark Office. This hearing responds to our obligation under House rules to conduct oversight of
those entities that fall within our Committees jurisdiction.
The PTO is the one of the most important agencies of the Federal
Government, but it is often not regarded as such. It directly affects
the producitvity and economic growth of our Nation as well as the
standard of living for all Americans.
For over 200 years the PTO has been responsible for issuing U.S.
Patents. The PTO advises the Secretary of Commerce and the
President on patent, trademark and copyright protection, as well as
on trade-related aspects of intellectual property.
The Subcommittee has conducted oversight hearings on PTO operations during the last two Congresses, but they have mainly
dealt with fees and fee diversion. The scope of this hearing today
will be much broader.
Recent reports by the GAO, the Patent Public Advisory Committee, the Inspector Generals Office and the National Academy of
Public Administration have all focused on day-to-day operations of
the PTO. Among them are the patent application backlog, the implementation of the PTOs electronic application system, hiring and
retention of patent examiners, the relationship between manage(1)
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ment and examiners, and the amount of time examiners require to
process patents.
In addition, the PTO continues to implement its 21st Century
Strategic Plan. The plan lays out a set of commitments aimed at
improving quality and enhancing productivity for the PTO. Among
other provisions, the plan promotes electronic processing of all patents and greater protection of American intellectual property internationally.
The PTO has long sought to improve its patent process through
the use of electronic filing, and has spent over $1 billion in its efforts to provide an electronic patent filing system between 1983
and 2004. The GAO has made several recommendations to helpfully integrate an electronic system. This hearing will allow Members to acquire a status report on planned and ongoing efforts to
modernize the offices operations, especially those that will lessen
its reliance upon paper files and documents.
The Judiciary Committee proposes to authorize that the PTO collect and spend over $1.7 billion, subject to appropriation acts, from
fee collections in fiscal year 2006 to cover operating expenses, including the payment of retirement benefits for employees.
In its submission, the Judicary Committee Members emphasized
that they strongly support full funding of the PTO and the elimination of any incentive to use agency revenues for non-PTO purposes.
We look forward to discussing these and other issues of concern
to the Members today. And before I recognize the Ranking Member, without objection I would like unanimous consent to put into
our record the executive summaries of the reports that we have
gotten, including the U.S. Patent and Trademark Office, Transforming to Meet the Challenges of the 21st Century, and that has
been submitted by the National Academy of Public Administration,
as well as the other reports we have as well.
I would like to put them all in the record, but when each report
runs 300 pages, I think we better just focus on the executive summary.
And, once again, let me just say in conclusion, and, Director
Dudas, this is directed toward you as much as anybody else, that
I would be hard pressed to point to another Government agency
that is as important as yours, that has as much responsibility as
yours does, and has as much impact on the American people. But
I hope that after todays hearing and in coming months, we will
make sure that more people are aware of just how much the PTO
contributes to our well-being.
[The information referred to is printed in the Appendix.]
Mr. SMITH. Now the gentleman from California Mr. Berman is
recognized for his opening statement.
Mr. BERMAN. Thank you very much, Mr. Chairman, for recognizing me and for scheduling this oversight hearing.
The U.S. patent system is the cornerstone of innovation in our
society. Throughout its more than 200-year history, the Patent Office provided incentives for inventors to innovate by providing them
with protection for their ideas in the form of patents and trademarks. Intellectual property-based industries today represent the
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largest single sector of the U.S. Economy, and the USPTO is at the
core.
As the Chairman said, it is probably not highly recognized
among the public, and maybe even many of our colleagues, of the
critical role that the USPTO plays in our economic progress, and
in the advancement and benefits to quality of life that come from
invention. There has been over the recent years criticism, charges
of poor-quality patents and ever-increasing pendency of applications, both of which diminish the stature of the patent system and
reflect poorly on the offices product.
I commend the Patent Office for implementing many of the initiatives cited in its 21st Century Strategic Plan, but nevertheless,
challenges remain.
The first challenge is to us, not to the PTO. Everyone agrees, all
of the witnesses agree, that we must stop fee diversion. Between
fiscal year 1992 and 2004, the office lost access to $741 million of
the fees it collected. A lack of funding is cited in multiple reports
as the primary reason for increased pendency and for not implementing vital quality initiatives.
We cant continue to allow a perverse situation where we kneecap U.S. technology and economic leadership by diverting user fees
to wholly unrelated uses. That is why many of us here today are
original cosponsors of the Patent and Trademark Fee Modernization Act of 2005, to put an end once and for all to this tax on innovation.
However, the fee bill is only the starting point. In order to improve the operations of the Patent Office, we must make a number
of fundamental reforms to the system. Patent pendency, the
amount of time a patent is pending, now stands on average more
than 2 years; backlog of applications awaiting a first review,
600,000. Without a change in the system, current levels are expected to grow to over 1,000,000 backlog by the year 2010. If you
look solely at the most complex cutting-edge technologies where
patent protection may be the most critical, average pendency is
more than 3 years, not much higher than the average.
The light-speed pace of innovation makes this simply unacceptable. Many cutting-edge technologies will be long obsolete by the
time the patent is granted. The troubling factor leading to the everincreasing backlog of patent applications is the USPTO simply does
not have enough experienced examiners to handle the demand.
I applaud USPTO for taking steps to increase the size of its patent examining corps, but attrition remains a serious problem. Only
45 percent of the Patent Office workforce has 5 or more years of
service, and in an agency where it takes roughly 5 of 6 years before
an employee becomes fully productive, this is a troubling statistic.
Another major issue in which the office struggles is the quality
of patents. The current production quota system, known as the
count system, has not been reevaluated since it was first introduced in 1976. The amount of information through which examiners must search to find relevant patent literature has exponentionally increased. Applications are growing evermore complicated,
yet examiners still work under the 1976 assumptions.
Even with advances in the deployment of information technology,
a number of studies have indicated that examiners today simply do
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not have enough time to do their job properly and have been encouraged to take a number of shortcuts. So the natural result?
Quality of patents suffers.
Although USPTO has instituted some quality initiatives in recent years, I think there is still a long way to go. There are additional quality measures and changes to the patent system as a
whole that we hope to address in the Patent Reform Act of 2005.
I wont get into those now, they may come up in the context of
questions, but they are a crucial part of the answer, I think, as
well.
Thank you, Mr. Chairman. I yield back.
Mr. SMITH. Thank you, Mr. Berman.
Without objection, other Members opening statements will be
made a part of the record.
I would like to ask the witnesses to stand, if you would, so I can
swear you in.
[Witnesses sworn.]
Mr. SMITH. Our first witness is Jon Dudas, Under Secretary of
Commerce For Intellectual Property and Director of the the U.S.
Patent and Trademark Office. In a previous life, Director Dudas
worked for this Subcommittee, so we welcome him back. He earned
a bachelors degree in finance summa cum laude from the University of Illinois and a law degree with honors from the University
of Chicago.
Our next witness is Ann Mittal, a Director with the National Resources and Environmental Team of the U.S. Government Accountability Office, or GAO. She is responsible for leading GAOs work
in the areas of science and technology, water resources, and DODs
environmental compliance and clean-up activities. Ms. Mittal received a masters in business administration from the University of
Massachusetts and recently completed the senior executive fellow
program at the JFK School of Government at Harvard University.
The next witness is Mr. Ronald J. Stern, who is president of the
Patent Office Professional Association. Mr. Stern holds a bachelors
degree from the City College of New York, and a law degree from
George Washington University. He has worked as a primary examiner at PTO since 1964.
Finally, our last witness is Mr. Charles Van Horn. Mr. Van Horn
is a partner at Finnegan, Henderson. He joined the firm after a 31year career in the U.S. Patent and Trademark Office. During his
tenure, he served in a variety of leadership positions relating to
patent policy and practice. Mr. Van Horn holds a law degree from
American University and a B.S. From Lehigh University.
Welcome to you all. As you know, we have a 5-minute limit on
your testimony.
And goingjust looking at this introduction, though, let me ask
sort of out of turn a question. It looks like to me, Mr. Stern and
Mr. Van Horn, did you both begin at PTO the same year, or close
to the same year?
Mr. STERN. Exactly the same year.
Mr. SMITH. Now, thats not going to shade your testimony today,
is it, because you were former colleagues?
Mr. STERN. We probably should consider ourselves as colleagues
today.
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Mr. SMITH. Good. Welcome you both and the other witnesses as
well.
Now, Director Dudas, if you will begin.
TESTIMONY OF THE HONORABLE JON W. DUDAS, UNDERSECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY,
AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE
(PTO)
Mr. DUDAS. Thank you very much, Chairman Smith, Ranking

Member Berman, Congresswoman Lofgren and Congressman Inglis, for inviting me to testify on the state of the U.S. Patent and
Trademark Office.
I first want to note very briefly that while so many eyes are on
the southern part of the United States as we watch the horrible
aftermath of Hurricane Katrina, while our core mission is not related to disaster relief, we at the USPTO are doing everything we
can as part of the massive Federal effort to help those affected, and
my office will work to assist anyone who is not able to meet required deadlines for filing, identifying attorneys and registered
agents, identifying folks who cant receive mail and who need replacement files.
I want to note that our employees are coordinating charitable
events and donating to relief organizations through the Combined
Federal Campaign; we had over 1,000 people participate recently.
And that leads really to a second overall point that I feel is critical to make. I think everyone on this panel would agree our agency is heavily dependent on our people. And I cannot stress how
highly I regard the employees at the USPTO. Their professionalism, their dedication, their effectiveness is unparalleled, and
this is something that is acknowledged, I have seen, domestically
and abroad by folks who work in other offices, and folks who work
before other offices.
So I appreciate the opportunity to discuss the agency and the advancement of our IP system with you. You, the Members of this
Subcommittee, have always been part of the solution, and we recognize that it is not always easy given the challenges that you face
as Members of Congress.
That is why one of my proudest achievements, being part of a
team at the USPTO, and with folks on this Subcommittee, is that
we have dramatically improved the way the rest of Congress views
the USPTO.
Mr. Chairman and Ranking Member Berman, you talked about
making certain people understand how important this system is. A
little over 4 years ago, there was a report that stated that the PTO
had not been sufficiently innovative, a congressional report, one
that said there wasnt full confidence in the information provided
by PTO management regarding its needs and performance, and we
needed to improve upon that. And under the leadership of President Bush and the guidance and efforts of the Members of this
Committee, the last Congress voted 379 to 28 to affirm the USPTO
strategic initiatives. So for your leadership, for the leadership of all
of the Members of the Committee, I want to say thank you.
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Let me use the first few moments to present what I think is a
big oversight picture as I see it. And I am happy to go into whatever detail you want on any particular issue.
Our intellectual property system, as you noted, is fantastically
successful, but it still faces great challenges internationally and domestically.
I have testified before that my job as director is not to identify
problems and give excuses, but to identify opportunities and to deliver results, and I hope to live up to that and intend to live up
to that.
With that in mind, let me tell you what I think we have all accomplished, what has been accomplished for the system in the last
312 years, what still remains to be accomplished, and my thoughts
on how we can achieve further success and address further challenges.
With respect to quality, our most important goal, we have moved,
I believe, from an agency that had insufficient measures to one
that constantly reviews the process and measures quality throughout the process. Moving forward, the challenge is to learn from all
of the information we are collecting on quality. How can we improve training to prevent weak points? We must consider throughout all of our quality initiatives which are in place which are the
most effective and which are less effective. We need to learn from
them, and we need to learn about them.
We must constantly evaluate whether some initiatives need to be
relaxed or adjusted for maximum effectiveness. And one thing I
know for sure is that the examiners at the USPTO are objectively
the most efficient and effective in the world. We must always be
considering how to help them maintain their high, incredibly high,
standards.
Our electronic processing. After more than 20 years of promises
to have full electronic processing within the Office of Patents, the
agency achieved that goal in 2 years, trained 6,000 people, and
scanned hundreds of millions of pages of data. But there is a long
way to go. We need to move to a text-based system that encourages
high levels of electronic filing.
We need to look at the electronic system overall. While Trademarks has been tremendously successful with over 90 percent of
trademark applications filed and processed electronically, we are
still only at about 2 percent electronic filing in Patents.
Furthermore, upon meeting our initial goal of full electronic processing in Patents in a tight timeframe, we are moving forward
more cautiously and more meticulously, putting in place all of the
procedural safeguards to ensure that we get the most for our
money on systems for the least cost. GAOs report has been of great
help to us in that regard as we implement that report as well.
Finally, we must not ignore pendency. The volume of patent applications continues to outpace our current capacity to examine
them, and that means backlogs are growing. We are still faster,
less expensive and more efficient than the other major patent and
trademark offices in the world, and without fundamental changes,
changes I believe that must go beyond just hiring, though hiring
is an incredibly important element of any way to address this
issue, the pendency and backlogs will grow dramatically.
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We appreciate that Congress passed legislation supporting many
of the USPTO strategic initiatives, and since then we have accomplished a great deal in implementing some of the 21st Century
Strategic Plan goals, but we still have more to do.
Let me use a few pictures to explain. Graphs are boring, but pictures are worth a thousand words. I think my time might be running out. The first graph I will show you is where pendency would
be going. The red line you see is where pendency would be going
if we had followed status quo, attrition hiring only, what we had
to do over the last 3 years because of our budget and budget situation.
The green line is what we had under our strategic plan, which
had two major initiatives, dramatic increases in hiring and competitive outsourcing. In the bill that passed in Congress, competitive outsourcing has been delayed, or at least an extensive and important pilot project that will delay outsourcing for 3to 5 years.
So what we have in the case if we follow the strategic plan without competitive sourcing, you see the blue. Pendency has been reduced, but it is still on the rise. So we have to do more when it
comes to pendency. So as I show you chart 2, it shows you what
we can do with dramatically more hiring.
I cannot show you chart 2. There we go. Chart 2 shows the original red line. That is status quo. If we go to a situation where we
are, instead of hiring 860 to 750 a year, if we hire 1,000 new examiners per year, and work on reducing attrition, we can get to the
yellow line, which is we are able to turn the pendency corner. This
is without competitive sourcing, but with dramatically increased
hiring. What I will tell you is that yellow line assumes a 6 percent
increase. We used to assume a 5.5 percent increase. We changed
it to 6 percent because we saw growth, and this year we are showing so far 7.7 percent increase in patent applications, so even higher than our expectations.
Mr. SMITH. Thank you, Director Dudas.
[The prepared statement of Mr. Dudas follows:]
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PREPARED STATEMENT OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF

COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR, UNITED STATES PATENT
AND TRADEMARK OFFICE (PTO)
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ATTACHMENT
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26
Mr. SMITH. Ms. Mittal.
TESTIMONY OF ANU K. MITTAL, DIRECTOR, SCIENCE AND
TECHNOLOGY ISSUES, U.S. GENERAL ACCOUNTABILITY OFFICE (GAO)
Ms. MITTAL. Mr. Chairman and Members of the Committee, we

are pleased to be here today to participate in your oversight hearing of the Patent and Trademark Office.
My testimony today summarizes the results of two GAO reports
that were issued in June of this year. The first report addressed
PTOs ongoing efforts to achieve a paperless electronic patent process, and the second report addressed steps that PTO has taken to
attract and retain a qualified patent examination workforce.
As you know, over the last 10 years, there has been a significant
increase in the volume, complexity and backlog of patent applications that PTO has to process. This has lengthened the time that
PTO takes to process patents, and it has also raised concerns about
the quality of the patents that are issued.
Further complicating this picture is the fact that the agency has
had difficulty competing with the private sector in attracting and
retaining a highly qualified patent examination workforce.
Over the last two decades, and in particular during the last 5
years, PTO has undertaken various efforts to improve its patentprocessing capabilities. However, our two reviews found that the
agency continues to face major challenges in these efforts. Specifically, we found that after two decades, and after having spent over
$1 billion, PTO has made some progress, but has not yet achieved
its goal of implementing an integrated, paperless, fully automated
patent-processing environment.
More importantly, when and how PTO will actually be able to
achieve this capability remains uncertain. This is largely because
PTO has not yet fully instituted disciplined processes and practices
for managing its investments in information technology. We found
that some of the primary systems that the agency is relying on to
enhance its capability, like the electronic filing system and image
file wrapper, have not yielded the level of processing improvements
that PTO had hoped for. For example, PTO had hoped that by
2004, 30 percent of all patent applications would be filed electronically. But as of April 2005, fewer than 2 percent of all applications
were submitted in this format.
Because of ineffective planning and management of its automation initiatives, PTO is at risk of implementing additional information technology that does not support its needs. It is also at risk
of not achieving its goal of implementing a fully electronic patent
application process.
What is particularly troubling to us is that this is not a new
issue for PTO. In 1993, we raised similar concerns about the agencys ability to adequately plan and manage its automated patent
system. And we pointed out weaknesses in its specific management
controls.
As our reportrecent report documents, many of the concerns
that we had 12 years ago with PTOs processes have not diminished. Improvements are still needed if the agency hopes to successfully implement a paperless electronic patent process.
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With regard to PTOs efforts to attract and retain a qualified patent examiner workforce, the story is slightly better. PTO has taken
several steps to enhance its recruiting efforts, and has used many
of the human capital flexibilities available under Federal personnel
regulations to hire over 2,300 examiners in the last 5 years. However, for several reasons we are concerned about PTOs ability to
retain these examiners in the future. First, PTOs recruiting efforts
and benefits have only been available for a short time, and during
this time, because of budgetary constraints, they have not been
consistently sustained. Second, the impact of the economy is still
unknown. In the past when the economy was doing well, the agency had more difficulty recruiting and retaining staff. And finally,
and maybe most importantly, PTO lacks an open, transparent and
collaborative work environment, which has created an atmosphere
of distrust and a significant divide between managers and examiners on important issues that we believe could affect retention.
Both of our reports made a number of recommendations to PTO,
and agency officials have stated that they plan to take actions that
will address the recommendations we made. We look forward to
monitoring PTOs progress as it implements actions to respond to
our recommendations.
Mr. Chairman, this concludes my statement. Thank you.
Mr. SMITH. Thank you, Ms. Mittal.
[The prepared statement of Ms. Mittal follows:]
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PREPARED STATEMENT OF ANU K. MITTAL, DIRECTOR, SCIENCE AND TECHNOLOGY

ISSUES, U.S. GENERAL ACCOUNTING OFFICE (GAO)
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ATTACHMENT 1
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149
Mr. SMITH. Mr. Stern.
TESTIMONY OF RONALD J. STERN, PRESIDENT,
PATENT OFFICE PROFESSIONAL ASSOCIATION (POPA)
Mr. STERN. Thank you, Mr. Chairman, Ranking Member Berman

and Members of the Subcommittee. As many of you know, POPA
represents the engineers, scientists and attorneys who, as patent
examiners, determine the patentability of hundreds of thousands of
patent applications each year.
The agency has come under serious criticism lately. The principal
problems deal with quality and timeliness. In addition, there is a
problem with hiring and retaining our workforce.
The agency manufactures patents, but it does so in the highstress environment of a legal sweatshop. When it comes to patent
examination, you can take steps to get the job done faster or cheaper, but those steps will inevitably decrease the quality of the work.
You cannot increase the quality of examination without providing
examiners the time necessary to do the job. Examiner quotas,
measured in 6-minute increments, currently provide as little as
11.2 hours to primary examiners in low-complexity arts, and only
22.1 hours in the most complex arts.
Quotas established in 1976 are still in use today. In the meantime, technology is more complex, specifications are bigger, applications have more claims, and the amount of literature to be
searched has ballooned. Electronic file wrappers cost examiners 1
to 3 hours of extra work per case. Examiners need a 20 percent increase in time per case.
Applicants pay substantial fees for excess claims, large specifications and information disclosure statements. Examiners must be
given time proportional to these fees to ensure that applicants will
get what they have paid for.
The most common criticism is that examiners do not find the
best prior art. Text searching works in some arts, but not for all.
Speedy searches require updating the U.S. Classification system
regularly, which has not happened.
In the automated databases the wisdom and experience of prior
examiners is lost. Old paper search files were regularly augmented
by examiners explanatory notes and by feeding the shoes newly
discovered references.
There is no problem hiring examiners. The problem is keeping
them. Approximately half leave within their first 3 years on the
job. More important are the midcareer employees who leave the
agency. In fiscal 2005, approximately 40 percent of all of those expected to leave will be employees with between 3 and 15 years of
experience. Some of these employees are leaving without even having another job to go to.
The USPTO has implemented employee benefits such as special
pay rates, flexible work schedules, family-friendly policies and transit subsidies. Benefits, however, are not by themselves sufficient to
overcome many employees dissatisfaction with the production-oriented nature of patent examining. The appeal of the USPTOs benefits is in constant opposition with the stress of the day-to-day legal
sweatshop environment.
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The agency is ruthlessly effective in removing and disciplining
employees. Almost 10 percent of all removals from the nondefense
Federal workforce in fiscal 2001 were removed from the examining
corps. So far this year, in a workforce of fewer than 7,000, the
agency has taken 928 official actions against employees. Sadly, for
every employee who was fired in 2001, there were more than 13
others who left voluntarily; later years are even worse.
The 21st Century Strategic Plan has converted the prior Administrations culture of collaboration into a culture of conflict. Employees bristle with anger over relentless criticism of their work, especially because 40 percent of that criticism turns out to be incorrect.
The USPTO needs to go back to the basics of examining. It needs
to emphasize training and mentoring instead of disciplinary actions. It needs to provide adequate time for doing a quality job.
This will improve examiner retention.
This Subcommittee can help ensure that the agency uses examination fees for examination. We recommend that you amend 35
U.S.C. section 42 to require the agency to use all of the excess
claims fees, excess specification fees, and information disclosure
fees to fund additional examining time for examiners to do the
work for which applicants are paying those fees.
In section 42, Congress has already put a fence around trademark fees. It is time to expand that precedent to patent fees. If the
USPTO truly desires to reduce attrition, it must effectively address
the reason that most examiners leave: job dissatisfaction. It must
recognize that examiners are skilled professionals and deserve to
be treated as such. It must give them the time, the tools, and the
space to do that job. Unless and until the USPTO addresses these
problems, the revolving door of attrition will continue to spin.
Thank you very much, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Stern.
[The prepared statement of Mr. Stern follows:]
PREPARED STATEMENT
OF
RONALD J. STERN
Mr. Chairman, Ranking Member Berman and Members of the Subcommittee:

Thank you for the opportunity to present the views of the Patent Office Professional Association (POPA) on operations at the U.S. Patent and Trademark Office
(USPTO) and, in particular, on the recent reports of the Dept. of Commerce Office
of Inspector General,1 General Accountability Office 2 and National Academy of Public Administration.3
POPA represents more than 4,300 skilled patent professionals at the USPTO. The
vast majority of our members are engineers, scientists and attorneys who, as patent
examiners, determine the patentability of the hundreds of thousands of patent applications the USPTO receives each year. The patent professionals of POPA are diligent, highly skilled, hard working individuals firmly committed to maintaining the
quality and integrity of the U.S. patent system.
The vital role of patents to the U.S. and global economies is without question.
Their value is evidenced by the rapidly expanding efforts of inventors and companies to protect intellectual property throughout the world. The U.S. patent system
is the engine that has driven innovation in America and helped produce the most
powerful and robust economy in history.
1 USPTO should Reassess How Examiner Goals, Performance Appraisal Plans, and The
Award System Stimulate and Reward Examiner Production, U.S. Dept. of Commerce Office of
Inspector General Final Inspection Report No. IPE-15722, September 2004.
2 USPTO Has Made Progress in Hiring Examiners, but Challenges to Retention Remain,
U.S. Government Accountability Office Report No. GAO-05-720, June 2005.
3 U.S. Patent and Trademark Office: Transforming to Meet the Challenges of the 21st Century, Report of the National Academy of Public Administration for the United States Patent
and Trademark Office, August 2005.
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Unfortunately, the USPTO has come under considerable criticism lately for failing
to allow high-quality patents in a timely manner. This criticism has resulted in increased scrutiny of the day-to-day operations of the USPTO as well as review of the
laws governing the patent system. Recently, several government studies and at least
one book have been published that attempt to identify problems facing the USPTO
today while proposing a variety of solutions for those problems. Among the problems
virtually all studies agree on are: the need to hire and retain a highly skilled workforce; improving the quality and timeliness of issued patents; and the ability for the
USPTO to keep and use all its fees for its operations.
While POPA agrees that these are important issues facing the USPTO, it does not
agree with many of the solutions proposed by some of these studies. Many proposed
solutions represent radical changes to the patent system and go far beyond what
is necessary to improve performance at the USPTO. Rather than a massive overhaul
of the agency or a rewrite of the patent statutes, POPA believes that what is necessary is for the USPTO to go back to the basics of its missionexamining patent
applications and issuing valid patents.
To improve the operations of the USPTO, Congress, USPTO management and its
employees need to work together to provide sufficient time for examiners to examine
patent applications, improve the tools that examiners use to identify relevant references (prior art), hire and retain a highly skilled workforce and improve labormanagement relations.
A GOOD JOB TAKES TIME
Faster, Better, Cheaper. Which two would you like? This economic axiom is as
applicable to patent examination as it is to any manufacturing process. The USPTO
manufactures patents. But right now, it manufactures those patents in the highstress environment of a legal sweatshop. When it comes to patent examination you
can take steps to get the job done faster or cheaper, but those steps will inevitably
decrease the quality of the work. You cannot increase the quality of examination
without providing examiners the necessary time to do the job.
The USPTO controls its throughput of patent applications using a rigorous goaloriented production and workflow system that measures examiners work output
(production) in 6-minute increments. On average, a patent examiner has approximately twenty hours to complete the examination of a utility-type patent application. The agency has long recognized that technologies differ in complexity and that
some examiners are more experienced than others. Primary examiners, those at GS
grades 14 and 15 with authority to act independently, are expected to be much more
productive than junior examiners requiring various levels of supervision. The current production system only allows some primary examiners in low complexity technologies as little as 11.2 hours per application. Even primary examiners in the most
complex technologies are only allowed a maximum of 22.1 hours.4 Examiners working on design-type applications or plant applications have even less time than those
working on utility-type applications. On average, these examiners have about five
to seven hours per application.
These agency production goals have remained essentially unchanged since they
were put in place in 1976. Since that time, however, the nature of the work has
changed considerably. Indeed, some technologies such as biotechnology,
nanotechnology, bioinformatics, and business methods either were not patentable or
did not even exist when these goals were put in place. Since 1976, patent applications have become more complex. Applications today often have larger specifications
and higher numbers of claims than applications filed in 1976. Applicant-submitted
information disclosure statements are often so large that they require storage in
boxes. The increased complexity of patent applications has been recognized by both
the USPTO and Congress as evidenced by the recent dramatic increases in fees for
large specifications and excess claims.
Equally problematic is the massive explosion of information that patent examiners have to search through to identify relevant prior art. Almost two million new
U.S. patents have issued just within the last fifteen years. The agencys database
of issued patents grows by thousands every week. The USPTO will soon issue its
7,000,000th patent. Foreign patent literature is also growing at a comparable rate.
The growth of these two sources of prior art pale by comparison to the explosion
of information published in non-patent literature such as scientific and technical
journals, trade magazines, catalogs, internet web pages and other publications that
examiners search to determine the patentability of a claimed invention.
4 National
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If these problems arent enough for examiners, the agencys deployment of the
Image File Wrapper System (IFW) has transferred a considerable amount of clerical
work from the agencys technical support staff to the examining corps. Prior to IFW,
patent applications were legal-size three-fold paper files that examiners worked on
at their desks. All of the relevant papers were readily identifiable and readable.
Now, with IFW, virtually all files are scanned copies of originally filed applications
and only available electronically. Many examiners find these scanned files difficult
to navigate through since individual papers are often difficult to identify. Thus, examiners now spend more time just trying to figure out what papers are in the application. More importantly, most examiners find the scanned images difficult to read
on even the USPTOs high-quality computer monitors. They now spend their precious examining time printing out and collating documents on their desktop printers. Examiners repeatedly tell POPA that the IFW system alone is causing them
from one to three hours of additional work on each application. Since the advent
of the IFW paperless office, paper usage has doubled at the USPTO.
Continuing problems with USPTO automation tools and the dramatic increase in
paper usage were the impetus behind another Government Accountability Office report issued simultaneously with their report on USPTO hiring and retention problems cited above.5 During focus group sessions held in conjunction with this investigation, examiners made the same complaints to Government Accountability Office
investigators as they were making to POPA concerning USPTO automation. Most
interesting is the fact that first line supervisors made similar complaints in their
own focus group sessions. Since examiner goals have not changed since 1976, these
additional hours must come from examiners taking shortcuts, cutting corners on
searching and examination and putting in significant amounts of their own time
(unpaid voluntary overtime) to get the job done. This results in a highly stressful
legal sweatshop environment that ultimately leads to many examiners leaving the
agency.
For years now, the USPTO has alleged that increased reliance on automation will
help it do a better job of examining. When it comes to searching, the agency has
placed all its eggs in the automation basket. It has all but abandoned support for
the U.S. Classification System, a much-needed tool for adequately searching many
technologies that are not readily searched by text searching automated tools. It has
continuously refused to expend the necessary resources to properly integrate all
issued patents into its text and image searchable patent database. It repeatedly fails
to seek adequate input from examiners in the design and testing of hardware and
software before deployment. The agency has spent well over a billion dollars on
automated tools to assist examiners and yet the agency is being criticized for poor
quality patents and an ever-increasing backlog of unexamined applications. This
comes as no surprise to examiners.
No amount of automation can help an examiner read and understand a patent
application and the prior art faster. This is not to say that the agencys efforts have
been a waste of time and money. While many improvements are needed in the
USPTOs automated tools as well as the U.S. Classification System, these tools do
often allow examiners to identify relevant prior art. The problem is that there is
so much more prior art to search, read and understand. This is what takes time.
And this is what has not been addressed by the agency since 1976. Add to this explosion of prior art, the drains on examiners time by the Image File Wrapper system and other added job duties, and it quickly becomes apparent how amazing a
job the examiners of the USPTO really do under the circumstances.
Examiners are not asking for extravagant increases in their goals. A twenty percent increase in time will compensate examiners for the many duties that have been
added to their jobs since 1976 and offset the increasing complexity of the entire examination process. It would help to relieve the stressful USPTO workplace and help
reverse attrition. Most importantly, it will provide examiners with the time they
need to do a better search and examination of patent applications.
For years, the agency has been collecting fees for excess claims and information
disclosure statements, recognizing that these extra items will make examination of
the application more labor intensive. But the agency has never passed those extra
fees on to examiners in the form of additional time to examine the application. Simply insuring that the USPTO provide the additional time to examiners that patent
applicants have already paid for will go a long way towards providing examiners
with the time necessary to do the quality job that everyone desires.
It is important to recognize that providing extra time for examiners to do their
job does not inherently translate into increased application pendency. Better search5 Key Processes for Managing Patent Automation Strategy Need Strengthening, U.S. Government Accountability Office Report No. GAO-05-336, June 2005, pages 1415.
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ing and examination will increase the certainty of rejection of old or obvious ideas.
As patent applicants realize this, they will be less likely to expend effort and resources on patent applications of questionable innovative or economic importance.
Thus, better search and examination by USPTO examiners may actually limit application pendency over time.
Providing examiners with additional time should also benefit the entire nation by
reducing the costs of patent litigation. In a recent study by the National Research
Council of the National Academy of Sciences, John L. King calculated that providing
examiners with a one-hour increase in time would cost the agency about $11.3 million. King calculated, however, that a one-hour increase in examiner time would reduce patent litigation expenses by over $17 million.6
Increasing the quality of patent examination, reducing patent application pendency and stimulating the nations economy by reducing the costs of patent litigation
thereby freeing up resources for other purposes, are clearly worthy goals of the intellectual property community. It should be equally as clear that providing examiners the time needed to do a good job is the most cost-effective means to accomplish
these goals.
A GOOD JOB TAKES GOOD TOOLS
The major criticism on the quality of the USPTOs work revolves around the failure of examiners to find the most relevant prior art. But examiners only have a very
few hours to search the prior art and identify relevant references. They need search
tools that allow them to search and find the most relevant prior art in the shortest
possible time. Here again, the USPTOs heavy reliance on text searching has proven
very shortsighted.
While planning the agencys new complex in Alexandria, Virginia, the USPTO
made a conscious decision to eliminate support for the vast amount of examiner
paper search files. These paper search files, known as shoe files or the shoes
from early days when copies of issued patents were kept in shoeboxes, contained
copies of the U.S. patents classified according to the U.S. Classification System. The
paper search files also contained foreign and non-patent literature classified and
placed in the shoes over the years by examiners in the various technologies. Many
references in the shoes contained additional information such as examiner notes
and/or color drawings placed there by experienced examiners to assist other examiners working in that technology. For many years prior to the advent of automated
search tools, the paper search files represented the best and most comprehensive
search tool for locating relevant prior art. They contained a remarkable wealth of
information found nowhere else in the world.
The paper search files allowed examiners to draw from the experience of those
examiners who had gone before. For many years, examiners were trained to feed
the shoes. Every pay period, examiners were given a stack of references such as
technical and scholarly journals, trade publications, catalogs and other literature.
An examiner would be provided time to peruse these references, identify those relevant to his/her technology, and place them in the appropriate paper search files
according to the U.S. Classification System, i.e., feed the shoes. In addition, examiners would often add notes and other helpful information to these references to aid
themselves and others searching in a particular technology. This continuous process
resulted in a comprehensive database of prior art only available to those at the
USPTO. In addition, the very act of feeding the shoes helped examiners to keep current on developments within their respective technologies. When new examiners
searched the paper search files, they were receiving the benefit of the knowledge
and experience of all those examiners who had preceded them in the technology.
This helped new examiners develop familiarity with the prior art and helped all examiners in quickly and efficiently finding the relevant prior art for each patent application.
Regrettably, as far back as the mid-1980s, the USPTO began transferring classification duties from examiners to technicians. As time went on, management ordered that foreign patents and non-patent literature would no longer be included
in reclassification projects. This rendered these documents all but useless for searching. By the mid-1990s, as planning for a new headquarters facility began in earnest,
support for the U.S. Classification System and maintenance of the paper search files
had virtually ended.
6 King, John L., Patent Examination Procedures and Patent Quality, Patents in the Knowledge-based Economy, National Research Council of the National Academies, National Academies
Press, 2003, pages 5473 at pages 6870.
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Today, the paper search files have all but disappeared at the USPTO. The agency
removed all the copies of issued U.S. patents in preparation for its move to its new
Alexandria, Virginia headquarters. While the remaining foreign and non-patent literature paper search files were moved to the new headquarters, no new references
are being classified and placed in those files and their ultimate fate remains uncertain. At present, those files are stored in the basement of the new facilities but the
agency is contemplating the removal of at least some of those files to free up critically needed space. Sadly, new examiners are not even formally trained to use the
paper search files. The only formal agency training new examiners receive is in the
use of the automated search tools.
The end result of the agencys failure to maintain the U.S. Classification System
and the paper search files is that examiners can no longer benefit from the wisdom
and experience of prior examiners. Today, each search in a patent application is performed essentially from scratch. The agencys emphasis on text searching is resulting in a new generation of patent examiners inexperienced in the use of the U.S.
Classification System.
Another major perennial frustration for examiners is the agencys continued unwillingness to expend the resources to complete the process of getting all issued patents into a single text searchable database. With the advent of the Automated Patent System in the mid-1980s, the USPTO began entering all new issued patents in
both text and image searchable form into its issued patent database. Unfortunately,
while all issued patents were entered in image format, the text-searchable database
only goes back to about 1970. Issued patents prior to 1970 have not been entered
in the database in a readily text searchable form. The agency did submit these older
patents to optical character recognition but did not correct errors and did not index
this database in the same manner as the Automated Patent System database. Thus,
this database, referred to by examiners as the dirty OCR file because of its numerous errors, cannot be readily and reliably searched simultaneously with the Automated Patent System database. Examiners working in older technologies have to
perform two searches of the issued patents to determine patentability of an applicants claimed invention. This is one more uncompensated drain on examiners time.
The current Administration has relied heavily on outsourcing many government
duties. Indeed, many duties at the USPTO have been outsourced to private sector
contractors. Rescanning and indexing the dirty OCR file so that all issued patents
can be searched in one database is a duty begging for outsourcing. The agency has
proposed a major initiative to outsource the entire search duties of examiners, an
initiative of dubious merit, while not expending the resources to perform a one-time
duty that would have clear positive results. POPA believes the USPTO needs to reverse its virtual abandonment of the U.S. Classification System. It needs to improve
its automated search tools to allow examiners to feed the shoes in an electronic
environment, i.e., provide the means for classifying and adding relevant prior art
to the USPTOs automated databases, and provide examiners the time to do so. This
would once again allow examiners to benefit from the knowledge and experience of
other examiners. The agency needs to actively seek the input of employees in the
development and testing of automated tools to increase the likelihood of successfully
deploying functional and efficient products. Finally, POPA believes the agency needs
to do a better job of prioritizing all its automation expenditures to insure that the
agency and the American people receive the maximum benefit from those expenditures.
A GOOD JOB TAKES A GOOD WORKFORCE
An agency can provide all the time and all the best tools available to do a topnotch job, but without a well-trained and dedicated workforce, those tools and that
time will not be enough to get the job done. The need to hire, train and retain a
highly skilled workforce has been a perennial problem for the USPTO. In their book,
Innovation and Its Discontents, Adam B. Jaffe and Josh Lerner provide a brief history of hiring and retention problems at the USPTO dating all the way back to
1829.7 As the authors recognize, however, this problem has become much more
acute recently in view of the increasing importance of intellectual property in a global economy. A lack of adequate funding coupled with the feelings of some in the Senate that the USPTO should not try to hire its way out of its pendency problems resulted in sporadic and insufficient hiring of new examiners over the last ten years.
Indeed, in FY 2003, the agency suspended patent corps expansion altogether, choosing to hire only to compensate for attrition. This sporadic hiring process has left the
7 Jaffe, A. B. & Lerner, J., Innovation and Its Discontents, Princeton University Press, 2004,
pp. 133138.
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agency with a significant shortfall of trained examiners and a burgeoning backlog
of over 550,000 unexamined patent applications.
The USPTOs need to hire and retain new examiners has been the subject of several recent government studies. In 2002, the Dept. of Commerce Inspector General
issued an illuminating report on needed improvements in the USPTO hiring process.8 The Inspector General identified several challenges facing the USPTO in hiring new examiners: a shortage of potential examiners with the necessary technical
training, competition for jobs by the private sector, compensation packages smaller
than private sector compensation, and competition from other federal agencies.
The Inspector General also identified several significant reasons why examiners
leave the USPTO. Seventy two percent of all examiners left the USPTO for one of
the following reasons: dissatisfaction with the production-oriented nature and inflexibility of the job (26%); unsatisfactory performance or conduct (23%) and higher
pay (23%). In POPAs experience, the vast majority of disciplinary actions at the
USPTO are the result of unsatisfactory production or quality, i.e., performance
issues. This has been confirmed by the National Academy of Public Administration
Report of August 2005.9 Therefore, most of the 23% of examiners in the second category are likely analogous to those who left because of the nature of the job. Thus,
almost half of all examiners who leave the agency do so because of their dissatisfaction with the production-oriented culture of the USPTO.
Of all examiners who leave the agency, approximately half leave within their first
three years on the job, with thirty percent having less than one years experience.
POPA is aware of instances this year where new examiners have left the USPTO
within the first several weeks in the agency. Of potentially greater impact, however,
is that more and more mid-career employees are leaving the agency. In FY 2005,
approximately forty percent of all those expected to leave will be employees with between three and fifteen years experience. Some of these employees are leaving without even having another job to go to. The agencys most serious problem is not hiring new examinersit is keeping them.
Over the years, the USPTO has implemented a number of employee benefits such
as special pay rates, alternative and flexible work schedules, a family friendly workplace and transit subsidies. While employees appreciate the many benefits offered
by the USPTO, these benefits are not, by themselves, sufficient to overcome many
employees overriding dissatisfaction with the production-oriented nature of patent
examining. The appeal of the USPTOs many benefits is in constant opposition with
the unrelenting stress of the day-to-day legal sweatshop environment of the agency. As retention statistics show, the unrelenting stress of the job often trumps all
the benefits of the agency and takes its toll on employees causing them to leave the
agency voluntarily or, on many occasions, involuntarily.
The USPTO must constructively and effectively address this issue of job dissatisfaction or retention of examiners will remain a serious problem for the foreseeable future. The agency must accept the fact that examiners need more time to do
the job or they will ultimately seek employment elsewhere. Training new examiners
is both resource and time intensive. It takes about five to six years for an examiner
to reach primary examiner status and act independently. It is primary examiners
who are the most productive employees in the agency. It is primary examiners who
train and mentor new examiners. It is primary examiners who go on to become supervisory patent examiners and other management officials at the USPTO. POPA
believes that it is cost effective to provide examiners more time to do their work
so that the agency can retain those employees and benefit from their experience for
years to come.
POPA is particularly concerned with the involuntary departure of employees
through disciplinary actions by the agency. As the exclusive representative of patent
professionals at the USPTO, POPA is often called upon to defend employees against
agency allegations of poor performance or misconduct. And the USPTO keeps POPA
very busy.
At a time when everyone is expressing serious concern about the USPTOs problems retaining examiners, the agency may well be the most ruthlessly effective single agency in the entire Federal government in removing its employees from the
Federal workforce. In its August 2005 report, the National Academy of Public Administration published some very disturbing statistics on the agencys increasing
number of performance-based disciplinary actions against employees.10 In FY 2001,
8 Patent Examiner Hiring Process Should Be Improved, U.S. Dept. of Commerce Office of
Inspector General Final Inspection Report No. BTD-14432-2-0001, March 2002.
9 NAPA Report, August 2005, pages 110111.
10 NAPA Report, pages 108111.
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a total of 210 non-defense Federal employees were removed for poor performance
in the entire Federal government. Eighteen of those 210 came from the USPTO. Almost ten percent of all employees fired for performance in the Federal government
were fired by the USPTO! While the Federal government as a whole only fired 1in
5,000 employees, the USPTO was busy firing 18 in 3,000 patent examiners. The
USPTO fired three times more employees in one year than the U.S. State Department did in seventeen years from 1984 to 2001 (six employees). This is a remarkable number of firings for a relatively small government agency.
The National Academy of Public Administration report had other equally troublesome statistics that demonstrate an alarming increase in performance-based disciplinary actions at the USPTO. The report shows that between fiscal years 2000
and 2005, the USPTO workforce grew from 6,367 to 6,763 employees, an increase
of 396 employees. At the same time, the number of employee relations cases grew
from 585 to 928. Incredibly, for those fiscal years, the USPTO took more than twice
as many employee relations actions as the number of employees it had hired. For
the USPTO patent corps, oral warnings, a form of disciplinary action immediately
preceding a written warning, have gone from 70 in FY 1999 to 329 in FY 2004.
Written warnings, a form of disciplinary action immediately preceding removal from
Federal service, have risen from 19 in FY 2000 to 48 in FY 2004. As of February
2005, the USPTO had already issued 31 written warnings. From FY 1999 to the beginning of FY 2005, the USPTO fired 183 probationary employees5.7 percent of
the 3,216 people hired. By comparison, for fiscal years 2001 and 2002, the Federal
government as a whole only fired about three percent of new hires.
The USPTOs aggressive approach to employee relations is not lost on examiners.
Rather than being beneficial to the agency, this approach further demoralizes its
employees and heightens the stress in an already stress-filled workplace. The agencys willingness to terminate employees hangs like a sword of Damocles over the examining corps every day.
In their report, Academy investigators state that USPTO management attributes
this astounding increase in personnel actions to liberalized time scheduling such as
the Increased Flexitime Program that allows examiners considerable flexibility in
their work schedules.11 POPA finds this assertion laughable. Nothing in the Increased Flexitime Program changed one iota of examiners production requirements.
It does not matter when examiners are physically in the office. What matters is
that, when they are in the office, they have to produce. Managements assertion is
simply reflective of its outdated perception that it must have more control over examiners lives.
This need for control is the same pervasive mentality that has significantly delayed the introduction of telework programs in the USPTO and throughout the Federal government. Contrary to the USPTOs assertion, the Increased Flexitime Program is one employee benefit that is actually doing what it needs to doproviding
examiners a reason to stay at the USPTO. Sadly, at a time when the USPTO needs
its employees the most, agency management has already signaled its intent to curtail this immensely popular program in upcoming contract negotiations.
If the Increased Flexitime Program is not the reason for so many personnel actions, what is? A brief review of recent USPTO history reveals several major events
that have severely impacted examiners ability to do their job in the allotted time:
a change of USPTO administration; the implementation of the Image File Wrapper
System; loss of the paper search files; disruption associated with the move to new
headquarters; and the introduction of Quality Initiatives arising from the 21st Century Strategic Plan.
The USPTOs top-level management changed in 2001 concurrent with the change
of the Presidency. The new management team under Director James Rogan took a
decidedly more negative slant towards employee and labor relations. This new direction is clearly apparent in the linear increase in employee relations actions from FY
2001 to the present shown in Figure 43 of the Academys report.12 The culture
of collaboration found in the previous USPTO administration quickly degenerated
into a culture of conflict under Director Rogan. This, dramatic change in USPTO
culture resulted in a serious decrease in morale among USPTO employees.
In addition to the change of administration, the deployment of the Image File
Wrapper system had considerable impact on examiners. As already discussed above,
the Image File Wrapper system added significant time drains for examiners. Especially hard hit are examiners who have found the continuous use of computers necessary with the Image File Wrapper System to be very hard on them physically. Unfortunately, many of these examiners are among the most senior primary examiners
11 NAPA
12 NAPA
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and highest producers in the agency. The production of many of these senior examiners has suffered significantly using the Image File Wrapper system.
The loss of the paper search files also impacted many examiners. Some primary
examiners were so familiar with the paper search files that they had memorized virtually every patent in their technology. This even included knowing in which shoe,
i.e., file drawer, a particular patent was located. This enabled them to quickly
search an application and rapidly determine the patentability of a claimed invention. With the loss of the paper search files, examiners now have to rely on the automated search tools to identify relevant prior art. The automated tools, however, do
not readily lend themselves to the kind of familiarity with the art that many examiners had previously. Again, this has negatively impacted the ability of many examiners to get the job done in the time they are given.
Another significant impact on examiners has been the disruption in their daily
lives associated with the USPTOs move to its new headquarters in Alexandria, Virginia. This move began in December 2003 and was finally completed in July 2005.
During this time, examiners have experienced numerous power outages, computer
network failures, complete shutdowns of the headquarters facility often preventing
employees from doing additional work on weekends, and the loss of many of the
benefits and amenities present at the previous location in Arlington, Virginia. Doing
a mentally intensive job such as patent examining does not lend itself well to such
day-to-day disruptions in routines. Unfortunately, the USPTO is already outgrowing
its new headquarters facilitysomething POPA had warned for years before the
new facility was even built in Alexandria. Virtually all junior examiners are being
doubled up in offices. The agency is actually contemplating training new examiners
at an undisclosed location away from the headquarters facility for their first six
to eight months because it does not have adequate space to house them nor does
it have sufficient numbers of primary examiners in critical technologies to train
them. Once again, patent examiners are being expected to continuously pay for the
shortsighted decisions of USPTO management.
Finally and, arguably, most significant has been the profoundly negative effect on
examiners due to the implementation of the Quality Initiatives of the USPTO 21st
Century Strategic Plan. The Quality Initiatives represent a number of initiatives
such as recertification of primary examiners, in-process reviews and second pair
of eyes intended to improve the quality of examination. The Quality Initiatives
have taken the culture of conflict at the USPTO to new extremes and seriously
impacted examiner morale. Indeed, a number of examiners have resigned or retired
from the agency rather than put up with this management assault on their integrity
and professionalism.
For many years, agency management made it clear to employees that production
was Job One at the USPTO (apologies to Ford Motor Co.). Quality was a distant
second. Supervisors made sure examiners understood that as long as their production was high enough, they could be fairly certain that their jobs were secure. At
the USPTO, quantity far exceeded quality in importance. Examiners knew that, to
maintain a healthy production level, that shortcuts would have to be taken and corners cut. This was not a problem so long as production remained Job One.
With the introduction of the 21st Century Strategic Plan, however, management
suddenly reversed direction and promised Congress and the entire intellectual property community that quality was now going to be Job One at the USPTO. Suddenly, all the shortcuts examiners had learned and all the corners they had cut in
order to get the job done had all but evaporated. Management implemented the
Quality Initiatives but, once again, made no adjustments to examiners goals to
allow for this sudden change in emphasis.
Today, examiners at every level of experience are finding themselves angry, frustrated, insulted, bitter and fearful for their jobs. They are looking over their shoulder constantly for fear that reviewers will allege an error in their work. If all the
other stresses in the USPTO workplace werent enough, the Quality Initiatives may
well be the proverbial straw that broke the camels back.
It is no secret that patent examining is an inherently subjective undertaking. If
it werent, there would be little need for applicants and courts to expend so many
resources on patent litigation. Two highly skilled and experienced examiners can
look at the same patent application and reasonably come to different conclusions on
the merits of the case. A patentee and a potential infringer will very likely interpret
the issued patent differently.
Just because two reasonable people disagree on something does not make one
wrong and the other right. Unfortunately, this fact is often overlooked by USPTO
management during the numerous review processes currently in place. Today, an
examiners decisions are being constantly criticized by reviewers who, as often as
not, have little familiarity with the examiners particular technology. If the exam-
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iner does not want to be charged with an error, the examiner must spend a great
deal of time defending the action. Many alleged errors of examiners are actually
nothing more than a subjective difference of opinion between two patent professionals. At mid-year of FY 2005, forty percent of reviewers alleged errors were
being reversed by the USPTO once the examiner defended the action. Unfortunately, by the time the error is reversed, both the examiner and the agency have
lost the production time and the agency now has an angry demoralized examiner
on its hands. While POPA certainly supports improving the quality of patent examination, examiners believe the agencys implementation of the Quality Initiatives is
not the best way to achieve it. POPA believes the Quality Initiatives are doing far
more harm than good.
All the issues discussed above are adversely affecting examiners ability and desire
to do the job. Any one of these events would impinge on examiners time to do the
work, but each one by itself might not be sufficient to convince an examiner to leave
the agency. Unfortunately, all of these events are occurring relatively concurrently
and, taken together, have left the examining corps angry and stressed. The effects
of these events are being manifest by rising attrition and alarming increases in personnel actions at the USPTO. If the agency does not take steps quickly to reverse
these effects, POPA believes that the situation will only get worse.
WHAT DOES AND DOESNT NEED TO BE DONE
Everyone in the intellectual property community agrees that there are significant
problems at the USPTO that need to be fixed. Unfortunately, many of the proposed
solutions will have no effect on those problems and may well fall victim to the law
of unintended consequences.
To a great extent, the USPTO is a victim of its own success. As the importance
of intellectual property has grown, so has the work of the USPTO. When Ford Motor
Company released the Mustang in 1964, the new car was an overnight hit. Did Ford
sit back and tell potential buyers that they would have to wait two or more years
for a new Mustang. No! The company ramped up production as fast as it could, built
additional facilities where necessary and did whatever was needed to sell as many
Mustangs as it could as fast as it could. Today, the USPTO finds itself in the same
position as Ford did in 1964. It has a hit product, the patent, but a shortage of manufacturing capacity to meet demand.
Despite an ever-increasing backlog of unexamined applications and continuous
urging from POPA, agency management did not see fit to expend its resources
where they would do the most goodexpanding the workforce to meet demand. Fortunately, after years of inadequate hiring this is changing. Recognizing the need for
more examiners, Congress has mandated minimum staffing levels in FY 2005 and
is on the verge of approving further increases for FY 2006. After years of dispute
over the diversion of USPTO fees, the agency has finally been allowed to retain its
fees for its own needs. POPA applauds these positive actions and hopes that they
will continue in the future.
Having the necessary resources and using them effectively are two very different
things. This is one area where POPA takes issue with some solutions proposed by
the Dept. of Commerce Inspector General and the National Academy of Public Administration.
Contrary to the findings of the Inspector General, the agency does not need to
rethink examiners performance plans. If examiners jobs were as easy as the Inspector Generals report implies, the USPTO would not have the attrition problems we
are discussing today. It does not need to replace its current awards system with one
that is either unattainable by a majority of employees or would reduce examiners
time per application even more. It needs an award system that will encourage even
more examiners to strive for an award. Examiner awards are easily one of the most
cost effective means at the agencys disposal for increasing production and reducing
pendency.
Contrary to the National Academy of Public Administration, the USPTO does not
need more flexibility in managing its workforce. The USPTO is very effectively managing many examiners right out the door. It is already bypassing employees civil
service rights and extending its ability to summarily remove new employees to two
or three years by using the Federal Career Intern Program as a subterfuge for
standard Federal hiring practices. Instead, it should be using its creative energies
to make sure that new employees are well trained and engaged in the workplace.
The USPTO does not need to gain more power to limit the activities of its labor
unions. It needs to work with its unions to empower employees and tap into the
wealth of knowledge, skills and experience of its workforce. When POPA and the
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USPTO work together as a team instead of fight each other as adversaries, we increase the likelihood of improving employee morale and solving retention problems.
The USPTO does not need to isolate its new examiners in some off-site facility
where they have little interaction with other examiners in their technology. Examining has a very steep learning curve and new examiners need exposure to many
examiners to learn and understand that there can be many right ways to approach
the job. Instead, the USPTO should be immediately acquiring more space to allow
expansion of the agency to meet its hiring needs. It is possible that much of the
agencys old space in Arlington is still available and could be rented. This space is
already wired and configured for USPTO use.
The USPTO does not need to spend countless resources negotiating a new collective bargaining agreement that reduces or eliminates many of the benefits and protections employees currently enjoy. This will only serve to antagonize employees and
make even more of them explore other employment options. When you need every
employee you can get, angering and demoralizing your workforce is not effective
management. Instead, the USPTO should respect its employees and honor both the
spirit and the letter of its existing collective bargaining agreements.
This Subcommittee can also help to insure that the USPTO targets its resources
to its basic mission of examining. POPA recommends that you amend 35 U.S.C. 42
by including in H.R. 2791 a provision that requires the agency to use all of the excess claims fees, excess specification fees and information disclosure fees to fund additional examining time for examiners to do the extra work for which applicants are
paying the fees. In Section 42, Congress has instructed the USPTO to limit the use
of trademark fees for the examination of trademark registrations. It is time to expand that precedent to patent fees.
Mr. Chairman, Members of the Subcommittee, the USPTO has one of the most
highly skilled and dedicated workforces in the Federal government. Every examiner
is a college graduate trained as an engineer or scientist. Many have postgraduate
degrees and/or law degrees. They have other employment options if they choose.
If the USPTO truly desires to reduce attrition, it must effectively address the reasons that most examiners leavejob dissatisfaction and higher pay. It must recognize that examiners are skilled professionals and deserve to be treated as such. It
must realize that, as professionals, examiners want to do a good job they can be
proud of. It must give them the time, the tools and the space to do that job. It must
pay them a reasonable and competitive salary that, coupled with the many other
benefits at the agency, will make the USPTO a much more desirable workplace. It
must reestablish its credibility with employees by honoring its collective bargaining
agreements. It must return to a culture of collaboration, not a culture of conflict.
Unless and until the USPTO addresses these problems, the revolving door of attrition will continue to spin.
Mr. SMITH. Mr. Van Horn.

TESTIMONY OF CHARLES VAN HORN, FINNEGAN, HENDERSON,
FARABOW, GARRETT, AND DUNNER, LLP
Mr. VAN HORN. Thank you, Mr. Chairman. I am pleased to have

this opportunity to express my views on U.S. Patent and Trademark Office operations and the subject reports. I am here today
representing myself as a private practitioner, and the views I express today are my own. I will note that I had the pleasure and
honor to serve as a panel member on the report of the National
Academy of Public Administration.
The PTO faces significantand unprecedented challenges to meet
expectations of issuing valid patents in a timely manner. It needs
and deserves continued support of Congress and the patent community to enable it to accomplish these important missions.
Ever since I joined the Patent Office in 1964 as a patent examiner, it has always been concerned with both the number of applications processed in a timely manner, and the quality of work associated with the examination of each application.
Given the growing number of applications being filed, the existing inventory of unexamined applications, and the examining re-
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sources available to it, the PTO is struggling to accomplish acceptable results in both the quantity and quality of its work products.
Despite the best efforts of the PTO, which includes the recent
hiring of a huge number of new patent examiners, pendency has
been, is, and will continue to increase in the near term. As the
NAPA report points out, at least one contributing factor to this increase has been the diversion of funds paid by users of the patent
system to activities other than the support of the PTO.
The PTO should be commended for its efforts to identify unnecessary and avoidable work or rework. However, before it seeks to
limit the number and availability of continuing applications, it
should conduct a study of these applications, when, why and in
what technologies they are being filed, to determine the most responsible way to reduce their numbers.
At least one key to building a competent examining staff is the
ability to hire, train, and, most importantly, retain competent people who are dedicated to doing a quality job in a reasonable
amount of time. The NAPA and GAO reports acknowledge recent
steps taken by the PTO and have made additional suggestions that
may assist in attracting and retaining larger numbers of outstanding examiners.
The PTO should be commended for the steps it has taken in addressing at least the perception in the decline of the quality of its
work. It has initiated unprecedented reviews of the competency of
patent examiners and reviews at all phases in the patent examining process. These reviews can be justified to the extent that they
add to the quality of the work product and to the education of examining staff.
There is at least some evidence, however, that the PTO has overreacted in many instances and is now denying patents without
technical or legal justification. In many of these cases, appeal is not
available, because the PTO keeps changing its position to avoid a
review of its action.
The PTO has taken appropriate steps to improve both the quality
and timeliness of actions in reexamination proceedings, and to
eliminate or substantially reduce the cost of unnecessary appeals
in a timely manner. Unfortunately these steps will divert scarce experienced examining resources from the job of training and supervising the growing number of inexperienced examining staff.
We should continue to support efforts of the PTO to provide a
quality examination of all applications in a timely manner, but recognize the process is not and will not be perfect. That reality is at
least one reason that the patent system must have postgrant processes such as reissue and reexamination, and possibly opposition,
to provide an opportunity for the PTO to reevaluate its decisions
on a new and perhaps more robust record.
In closing, Mr. Chairman, I want to thank you and Members of
your Subcommittee for the continuing efforts to improve the patent
system and support the PTO. I thank you for the opportunity to
present my views.
Mr. SMITH. Thank you, Mr. Van Horn.
[The prepared statement of Mr. Van Horn follows:]
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PREPARED STATEMENT
OF
CHARLES VAN HORN
Dear Mr. Chairman:

I am pleased to have this opportunity to express my views on U.S. Patent and
Trademark Office (PTO) operations and the subject reports. I served for 31 years
in various capacities in the PTO until my retirement in February 1995. I am currently a partner in the intellectual property law firm of Finnegan, Henderson,
Farabow, Garrett & Dunner, LLP in its Washington, D.C. office and have had the
pleasure to serve as a panel member on the Report of the National Academy of Public Administration (NAPA): U.S. Patent and Trademark Office: Transforming to
Meet the Challenges of the 21st Century (August 2005). As a 31-year employee of
the PTO and a member of the Patent Bar, I have a keen interest in and concern
for operations of the PTO. The views I express today are my own, and do not necessarily represent those of any member of our firm , its clients, or any of the organizations with which I am associated. As my background and experience focuses on
the patent side of the PTO, I will confine my remarks to the patent operations.
It is significant that the background of this oversight hearing includes several reports from the General Accounting Office, Inspector General, and National Academy
of Public Administration. The fact that these organizations have a significant interest in the operation of the PTO and have provided recommendations for the improvement of PTO operations is a good thing. The PTO plays a critical role in the
maintenance of a robust economy. It both needs and deserves the long term and consistent support of Congress to enable it to accomplish this role.
The PTO faces significant challenges in its patent operations. While several of the
reports focus on problems in PTO operations, we should acknowledge and do appreciate its accomplishments and the efforts being made to improve the patent process.
Ever since I joined the Patent Office in 1964 as a patent examiner, the Office has
always sought to maintain and improve both the quality and quantity of work produced by its examining staff. Arguably, the emphasis may shift from time to time,
but the interest in both the number of patent applications processed in a timely
manner and the quality of work associated with the examination of each application,
have remained focal points for patent operations for at least my association with the
patent system for over 40 years. Today, the PTO is facing unprecedented challenges
in accomplishing acceptable results on both of these critical goals.
Pendency is one key measure that the PTO uses to assess the timeliness of examination of patent applications and it is on the rise. First action pendency now exceeds 20 monthsthe average time period from the filing of a patent application
to the mailing of a communication from the examiner after consideration of the patent application. This pendency to first Office action actually exceeds the total pendency (i.e., the time between the filing of the patent application and the final disposition of that application typically by the granting of a patent or abandonment by the
applicant) that was achieved in 1989 when the average pendency to final disposition
was less than 19 months. Pendency is highly dependent on the patent examiner resources available in the PTO to address the inventory of unexamined applications,
including new applications that are filed every week. Despite the best efforts of the
PTO, which includes the recent hiring of a very large number of individuals as new
patent examiners, pendency is on the increase and will continue to increase in the
near term.
Experience has shown that when the PTO pendency increases, coupled with an
increased volume of filing of new applications, it is more difficult to reverse the
trend of increased pendency than to maintain it at a particular level. One of the
principal reasons for this difficulty is that it typically takes several years to train
an individual to be a primary examineran examiner who is granted independent
authority to make a final decision on whether or not to grant or deny a patent. As
noted in the NAPA Report, hiring a large number of inexperienced examining staff
in selective years is not as efficient or effective as consistent hiring. The influx of
a large number of new individuals as patent examiners requires that the activities
of experienced examiners be diverted to educate the new examiners, both formally
and through on-the-job training. Since these large numbers of new hires are rarely
distributed evenly throughout the patent examining corps, the burden typically falls
in those areas having the greatest need for additional examining resources, and
typically suffering from the least number of experienced examiners.
While it is probably no surprise to members of this Subcommittee, the continued
diversion of PTO fees to other than PTO operations over the years has contributed,
at least in part, to the unfortunate predicament of the PTO. As noted in the NAPA
Report, if the PTO had been given access to the fees paid by users for PTO operations, and assuming that most of these diverted fees would have been used for patent staffing, the current uncontrolled rise in pendency would not have occurred to
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the extent we experience today, and the pendency to first action would have remained at an average of 12.6 months achieved in the 1992 time frame.
It is encouraging that the PTO has been permitted to use most of its fee income
in 2005 for PTO operations. However, we cannot expect the PTO to turn this pendency ship around based on funding in a single year. Nor do I expect that the PTO
is able to absorb 700 to 800 new examiner hires each year without risking an overall decrease in the quality of examination. There are simply not enough really good
examiners who can educate, train and supervise the activities of that number of new
hires. The PTO has excellent people; there are just not enough of them to handle
such an increase in examining staff each year, even if qualified candidates were
available.
The NAPA Report contains several recommendations that can be used to address
the long-term challenges of the PTO in hiring, training, and retaining its skilled examining staff. The PTO should be encouraged to consider and at least evaluate pilot
projects of outsourcing searching of prior art used in determining the patentability
of an invention. On the other hand, it must be noted that other offices, such as the
European Patent Office, that have experience in separating the search and examination function have found that it is not an efficient way to examine a patent application. Accordingly, it may not be realistic to hope for any real gains from this initiative.
Eliminating unnecessary rework also offers another opportunity to increase the
efficiency of the patent examination process. Based on the number of continuation
applications filed and the number of times an applicant requests continued examination of a patent application, the PTO has suggested that 25% of the examiners
work in 2004 could be described as rework. While there is no doubt some unnecessary rework is contained in the 25% of the applications identified by the PTO, it
would be a serious mistake to attribute the entire 25% as constituting unnecessary
rework. There are many reasons for filing a continuation application or requesting
continued examination. Some are associated with a strategic decision by the patent
applicant to obtain a certain level of protection for the invention described in the
first application. Some may be attributed to reasonable differences between the patent examiner and an applicant as to the scope of protection, and applicant elects
to file a continuation application to provide more relevant evidence to the PTO.
Some continuations are caused by the Office in failing to fully appreciate or understand the claimed invention, or not finding the best available prior art until late
in the examination process or perhaps from a search report from another office in
a counterpart application. Before any action is taken by Congress or the PTO to
limit the number or circumstances in which a continuation application can be filed,
a study should be conducted to determine why applicants elect to proceed in this
manner and the technologies in which this procedural expedient is most often employed.
While the quantity of work produced by patent examiners and the average pendency in any PTO work unit or technology can be easily determined, the measurement of the quality of examination is more difficult. Responding to a growing concern about a decline in the quality of examination, the PTO has taken several important steps to address at least the perception of a decline. Some of these steps
are unprecedented in my experience, such as the recertification of experienced examiners. Collectively, these steps seek to identify and address training needs, evaluate the quality of examination during the examination process, enhance the reviewable record, and expand reviews of the work of all examiners, regardless of their
authority to act independently. These initiatives, both individually and collectively,
should assist the PTO in identifying training needs and improving the overall quality of examination.
One concern that has surfaced on a rather frequent basis is that the PTO is overreacting in its implementation of these initiatives and is motivating examiners to
issue rejections that are not supported in law or fact simply to avoid making a decision to grant a patent. One gets the impression sometimes that valuable resources
are being wasted as the checkers are checking the checkers where there has been
no identifiable concern for the quality of examination.
Nonetheless, the PTO has recently adopted several initiatives that address longstanding problems in patent processing. Specifically, a new reexamination unit has
been created that would focus the activities of the PTO in reexamination proceedings with a selected group of examiners, rather than having these unique proceedings distributed throughout the patent examining corps. This initiative should
lead to better management of these proceedings and result in more reliable patentability decisions. A second example of significant PTO responsiveness is the adoption of a pre-appeal brief conference to review final rejections of an examiner before
the filing of an appeal brief becomes necessary. Statistics showed that for every 100
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appeal briefs that had been filed, only 38% of those appeals were followed by the
examiner filing an Examiners Answer, the next step in the appeal process. In 62%
of these cases, the prosecution was either reopened by the examiner or the application was allowed. The concept of a pre-appeal brief conference should save applicants significant resources in time and money in the appeal process.
While the PTO should be applauded for these initiatives, they unfortunately demonstrate a loss of faith in the ability of the average primary examiner or supervisor
to make a correct patentability decision in a timely manner. While these initiatives
are regarded as good news for those using the reexam and appeal procedures, they
will divert scarce experienced examining resources from the job of training and supervising the growing numbers of inexperienced examining staff. Until the PTO can
find ways to build its experienced staff, it may well be forced to make decisions as
to its priority in addressing the quality of examination in unique situations as opposed to improving the overall quality of examination by examiners in general.
Ever since the PTO adopted the initiative to achieve patent processing improvements through the use of information technology in 1981, it has fallen short of some
of its goals. Specifically, and probably most visible to the patent community is the
absence of a user-friendly electronic filing and processing system. In spite of this
failure, however, the PTO has come a long way and made significant contributions
to patent applicants, practitioners, and the public in many patent automation initiatives. The access to full text of patents and published applications and prosecution
histories of recent applications has been a tremendous service to the user community. The PTO website contains a wealth of information on all aspects of its operations that is accessible and a significant benefit to all users of the patent system.
In general, the PTO staff is very responsive to members of the public and the patent community. Responsiveness is the rule, rather than the exception, and the PTO
should be commended for its efforts in maintaining the climate and culture of service to the public.
I want to thank the members of this Subcommittee for their continuing efforts to
improve the patent system and to support the PTO in its important mission. Thank
you for the opportunity to present my views.
Mr. SMITH. Director Dudas, let me direct my first couple of questions to you. You know what Members of Congress want, you know
what inventors and creators and artists across America want, and
that is better patents sooner.
When you look at the past 10 years, we see that the number of
patents approved has increased almost 100 percent, say, at an average of 9 or 10 percent a year. In your testimony you say for the
next few years youre going to be increasing the number of patent
examiners by about 25 percent a year.
That being the case, and getting away from future projections,
but getting just sort of past history, it seems to me that the number of patent examiners is probably going to increase faster, the
rate, the percentage, will increase faster than the percentage increase in patent applications or patents approved. Therefore, why
wouldnt we expect pendency to decrease and quality to increase?
Mr. DUDAS. You would expect pendency
Mr. SMITH. And also, also rolling in the improvements and efficiencies recommended by the GAO, if they are implemented, why
wouldnt all of that argue for some improvement in those tiers?
Mr. DUDAS. It does argue for improvement. There is a constant
tension between pendency and quality. I think you will hear that
from a number of witnesses. You can double the amount of time,
you can cut the amount of time in half. No one would ever, I think,
suggest you cut the amount of time in half toyou will decrease
pendency dramatically. You would have no quality.
But when I showed you the curve, the red line going up, that
would have happened with status quo. With the kind of dramatic
hiring that we are now proposing
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Mr. SMITH. Thats true, except the status quo was just based on
the last 2 or 3 years. I am not sure that I agree with that accurate
projection of the number of patents. If you look at the longer trend,
its not going to go up quite that fast. That was my basis for hoping
for some improvement.
Mr. DUDAS. Well, thatsI think that what we are looking at
right thereIm sorry, if I point to the screen, it is me. But if I
can go to that chart there, the red line is really the best efforts you
can have right now. I mean, that is a 6 percent growth rate on the
red line. Again, that is status quo. Im not coming here telling you
that is what we intend to deliver. What we plan to deliver is the
yellow line.
Mr. SMITH. I saw your chart. I was quibbling with your chart a
little bit on the basis of the percentage increase in patent examiners versus the projected increase in patent applications.
Mr. DUDAS. Well, thatsI will try to hit that directly. The red
line that you saw, we are notin that line we would only be doing
attrition hiring. We would not be seeing a decrease in pendency for
that reason.
The yellow line is giving you the dramatic new hiring increases,
1,000 a year. Again, if we have a 6 percent, you see pendency does
start to turn the corner and then begin to come down.
Now, why does it not happen instantly? That is really because
of the way pendency is measured. Pendency is measuring retroactively. When we say there is 30 months pendency, youre saying
that the patent that is issued today came in our office 30 months
ago.
So I can show younext chart. The third chart shows you what
the hiring increases will be. The red line is the hiring increases at
1,000 a year.
I think whatyou want to measure progress today. Let me take
you to the fourth chart. You see under the red line? That is what
our production would be, the red bar charts, if we didnt hire. The
yellow shows how much more we will produce, how much we will
increase.
Mr. SMITH. I think Im more optimistic than you are. If you go
back to that red line again, you are projecting out that red line for
years to come on the basis of 1 years increase. And if you look at
the increases that I am talking about over several years for your
time, that red line would come down. So I am more hopeful perhaps than you are.
Regardless, you know the standard by which youre going to be
judged, which is pendency going to increase or decrease, and is
quality going to increase or decrease? I simply hope you can
produce like you think you can. Good.
Ms. Mittal, let meyouve made a number of recommendations
to PTO. I think they have implemented about half, and yet you
have said that you, in a number of areas, consider PTO to be at
risk. Those are your words. How much confidence do you have that
PTO will implement the other recommendations that they have not
to date?
Ms. MITTAL. Based on the work that we done over the last 10
years at PTO, we know they take our recommendations seriously.
But the fact is that after 12 years, some of the same problems that
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we identified with their IT implementation strategy are still in existence today.
Mr. SMITH. Do you think the new management is going to improve things?
Ms. MITTAL. Director Dudas has made it very clear that he takes
our recommendations very seriously, that he is very aware of the
weaknesses in the management controls that PTO has over its IT
investments. We are hopeful that he will actually be able to take
these recommendation that weve made and actually implement
them. We will continue to monitor their progress.
Mr. SMITH. Director Dudas, that reminds me of another question
I had for you. Speaking of quality, explain to me why it isI worry
about the nonobvious standard being sort of watered down, to say
the least. And you have a situation where the PTO has approved
patents for a peanut butter and jelly sandwich, they approved a
patent for the swing. You have got the controversy with BlackBerry
where perhaps a patent that may or may notshould have been
issued is going to cost some company hundreds of billionswell,
billions of dollars. How do you guard against that in the future?
Mr. DUDAS. Well, I think one thing I can tell you, and its in
many of the examples you mentioned there, there arethe system
works. There are efforts for reexamination. There are areas where
we can go where you look into these.
There are efforts within the office where you can appeal cases,
and outside of the office. But I think the heart of your question is
what are we doing about quality? We have had a number of initiatives put in place. I think the problem in the way we were measuring quality before was we told you how many errors there were,
but we didnt understand completely why or how to dissect that.
The quality initiatives we have in place now are in process reviews. We measure more. Some people say we measure too much
now. But we measure much deeper. We want to institute what we
learned from that and put it into training.
So those quality initiatives have been put in place, and we are
evaluating them now. Particularly when you are hiring at the rate
we will be hiring, we need to be able to have good measurements,
be able to understand how that comes back to support examiners,
and learn from the training, learn from the measurements we
have, not just report out how many errors there are, but they have
them so we can correct them.
Mr. SMITH. Thank you, Director Dudas.
My time has expired. The gentleman from California is recognized for his questions.
Mr. BERMAN. It sounds like leave no patent behind.
Mr. DUDAS. It takes a village.
Mr. BERMAN. Touche.
I do appreciate your efforts sincerely to enhance quality and improve the reexamination process.
I have a question about interparties reexam. When Congress
originally enacted this process, our goal was to provide a more comprehensive quality check than ex parte reexam, but something that
would serve as an alternative to litigation, which is why we inserted estoppel provisions. As you aptly put it, we need to provide
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a way to say the office got it wrong without resorting to costly litigation.
The following situation has come to my attention, and as to
which, in the very legitimate and understandable search to increase quality of patents, could the office have gone overboard? An
interparties reexam is instituted after a district court decision, very
costly litigation to both sides. It seems like that contravenes
Congresss intent of preventing a second bite at the apple by allowing that to happen, someone to file for interparties reexam. Are we
creating additional disincentives for those that question the validity of a patent to ever use the inteparties process in the first instance; that is, before resorting to costly and lengthy litigation?
And in order to maintain a check on quality, you would still have
the ability, even if you didnt allow that to happen, to institute an
ex parte reexam after litigation, which could be filed at any time.
In other words, the person who is challenging the validity of a patent has a choice: interparties reexam.
We dont like the present situation with inteparties reexam because we think the unintended consequences of the estoppel provisions and the limitations on discovery mean there is already some
disincentives to utilize that process. But the person who is challenging validity had a choice to go in there and, based upon a review, a preponderence of the evidence standard, get a determination of whether or not that patent was, in fact, really valid.
They decide not to do it. They are sued for infringement. They
defend in court. During that whole time they could file an
inteparties reexam to stop the litigation and have it stayed while
they pursue that alternative. They dont do that. They attempt to
prove the patent is invalid by a clear and convincing standard, a
tougher standard, and fail. And so the patent is found to be valid,
and the individual is found to have infringed.
Now they come in after the district court has decided this issue,
after the litigation is over, and say, well, what the heck, now we
dont risk anything more in estoppel, and we have already had the
benefits of discovery in litigation, were going back to the Patent
Office for inteparties reexam.
It seems to me like that is a case where in the abstract effort,
to always be able to look at quality, you are undermining the concept of finality of decisions, and I am wondering if the office is really striking the balance when they allow that to happen.
Mr. DUDAS. Well, you raise a very important point when it comes
to the balance, and particularly on interparties reexamination. I
can look to a time when I was very happy working on this Subcommittee and working on that. I remember it was a very delicate
compromise. But I think you hit the core of this issue, and any
other issue, when you talk about finality of decisions and clarity of
decisions, what estoppel provisions apply. There are different
standards under reexamination versus what they are in court.
But I guess I will make a more general point, which is this is
an area of concern in our office. I look to continuation practice as
another example of whereI think your question might be at what
point do you have finality, what point do you have certainty?
Options are good. There are good reasons for many of the different actions that are taken, postgrant actions that are taken, and
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continuations practice. But the options may be so open at this
point, there are so many options, that we have a question in our
office are there too much options, are there too many bites of the
apple?
Mr. BERMAN. But youre the one who isby allowing people to
proceed with inteparties reexam after a decision, you are the one
who is creating an option that Im not sure was ever intended by
Congress.
Mr. DUDAS. I was assumingand this is what I will have to do
I will actually try to get some more examples. There are estoppel
provisions, and I was assuming that our office was doing what it
was legally bound to do.
There are many casesthere are times when the court will stay
its proceedings until a reexamination.
Mr. BERMAN. This is afterthis is afterat no point did the
party who was challenging the validity of the patent ever pursue
the interparies reexam, either before the litigation or during the
litigation, any of which that
Mr. DUDAS. Once a reexamination is filed in our office, we feel
that we are legally bound to follow through on that reexamination,
on every reexamination.
Mr. BERMAN. Even after a district court decision?
Mr. DUDAS. Yes, even after a district court decision.
Mr. BERMAN. Because?
Mr. DUDAS. Because we find that is where the law has taken us.
I can come back, and we
Mr. BERMAN. You accept that there is never any finality?
Mr. DUDAS. Well, there is aany time a reexamination is filed,
ex parte or inteparties, we follow it to its conclusion in our office.
Mr. SMITH. The gentlemans time has expired. Maybe we can revisit this in a few minutes.
The gentleman from California Mr. Issa is recognized for his
questions.
Mr. ISSA. Thank you, Chairman.
Director, I will be the opposite side. Congratulations on always
looking to the burden that athat you have, which is that you
should never have a patent on your books that is invalid. And if
five different ways, five different people bring you five different arguments for why a patent shouldnt have been granted, I would
hope that five times you will look at it open and for the first time.
I dont share withI mean, I do share with Mr. Berman that it
may not have been the intent of Congress, but I would like to congratulate your office for assuming, whenever possible, that, you
know, the patents can do harm, not just that every inventor is entitled to one. So this may be an example where Im not going to be
saying: How could do you this?
Switching subjects slightly, I am particularly concerned that you
dont seem to have tools to bring down biotechnology patent applications to a level that would be acceptable for this new art. At the
present time, I understand it is about 27 months, but it can be as
much as 8 years. For all practical purposes, you are better off keeping a trade secret than applying for a patent if you cant bring that
down, considering the speed with which the technology is moving
forward.
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Do you have an affirmative program to bring down, to address
specifically biotechnology where these are complex, they require a
completely different group of examiners, and, as of right now, the
numbers are not encouraging, they are discouraging?
Mr. DUDAS. We do have a plan that gets specifically to biotechnology, but it is just a part of the greater plan. As you mentioned, examiners have to have specific skills in the art, and so as
we look at particularly hiring, which is the primary way, and the
most important way and the most logical way now to bring down
pendency, we target hiring, and we target for the particular areas.
The electrical arts are where we are having the biggest problems
with pendency, but we are following very closely the biotechnology
areas as well.
So the answer is yes, we do that, how we are hiring in the
biotech areas.
Mr. ISSA. And along a similar line, but a different pet subject, if
you will, plant patents. You have a stated policy that youre trying
to reach, as much as possible, possible worldwide uniformity. Our
trade agreements are trying to do that. And yet at the present
time, you have gone with an existing standard to the present
standard, you have gone against the rest of the world on plant patents and interpreting their validity.
My understanding now 3 years ago under your predecessor was,
look, Congress has to act. You guys will have to fix this. But then,
at least my piece of legislation put forward, everybody said, well,
were not sure. Were going to remain silent on it.
This Committee, I think, is looking to you to say either, yes, you
need this piece of legislation, and, yes, it will makebecause my
particular bill very much simply says were going to adopt the same
standard as the Europeans for plant patents.
My question is, if you want to make it the same, can you look
at that bill, and can your office stop sitting on the fence post, and
say, yes, this is exactlythis bill will enable us to do what our
stated mission is, which is to find uniformity? And if not, if there
is something wrong with it, if your office could come back to us and
say, hey, look, we want to change the rest of the world, so here is
how we would like the law written, and then we will go try to
change the rest of the world. I dont object to that. I just find it
hard to reconcile.
Mr. DUDAS. Well, on the one handno, I am kidding.
Mr. ISSA. By the way, you had this while you were here, so this
is not new. You used to be on my side.
Mr. DUDAS. What I can tell you is, when you say can we come
back and give you an answer, can we tell you what the Patent and
Trademark Office believes is the right thing to do, yes, we can and
we will. And I pledge to you we will do that.
Mr. ISSA. I think I may actually get done early.
Mr. Chairman, I will yield back.
Mr. HOSTETTLER. We will be happy to take the time. Thank you,
Mr. Issa.
The gentlewoman from California, Ms. Lofgren, is recognized for
her questions.
Ms. LOFGREN. Thank you, Mr. Chairman; and thank you for
holding this important hearing.
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I am intensely interested in the Patent Office. As the Chairman
mentioned in his opening remarks, I consider your work to be
among the most important to competitiveness in our country; and
while we all have questions and concerns, I dont want it to detract
from the intense value I assign to the work that you do. I am probably one of the few Members of Congress that, when I go home and
have town hall meetings, I actually get questions about the Patent
Office from my constituents.
We do have concerns, and the other Members have mentioned it,
about the rework issue. At 26 percent, that is, you know, a quarter
of the Offices work. I am concerned about what percentage of this
rework is continuation applications and what might be done about
that or whether something should, in fact, be done about the continuation of a role in the rework issue. Could you address that?
Mr. DUDAS. Absolutely. Thank you.
Right now, we are atthis year, we project about 27 percent
27.8 percent of our applications are continuing applications; and, as
Mr. Van Horn pointed out in his testimony, there are legitimate
reasons for continuing applications. There is no question.
But there are two reasons for continuing applications. There are
illegitimate reasons for continuing applications, or at least concerns
that people file continuing applications so they can find out how
the market develops and then they can develop around that product or somehow block others. So the illegitimate uses or potential
uses are very important.
From the Offices perspectiveI show you those chartseven legitimate uses of continuations, I think the question that we have
is, essentially, the legitimate uses, as I interpret them, are doovers. There may be a mistake. There may be something else that
occurred. We need to do this again. But there is priority in getting
those applications processed; and, as far as application date, that
is a concern.
How many do-overs can you have? Right now, there are an unlimited number of do-overs. And where else in our legal system
where else in any systemdo you have the opportunity for unlimited do-overs? So is the burden of proof wrong now that unlimited
do-overs is the right place to start and do something to the other
side, or should there be some level of how you look at this where
there might be some barrier or some level of where you might have
to make a threshold showing for a level of continuation?
So that is something we think is worthy of study, and Iagain,
I offer the USPTO view because it is so much of our work. I dont
believe anyone ever says to one client, yes, I am having your continuing application and someone else says, why is it taking so long
for my application to get done? I doubt that people ever say, because we are busy doing all these other applications.
Ms. LOFGREN. Do you think you need additional authority from
the Congress to deal with this?
Mr. DUDAS. It depends onquite honestly, it depends on what
actions are taken. Certainly it is a realm for policymakers and Congress to be looking at. But there are actions that PTO can take
with continuations under the authority it has now.
Ms. LOFGREN. I want to touch on the issue raised by the Chairman which has to do with the obviousness standard.
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I guess many of us have suffered from going to
www.sillypatents.com and seen some things that are shocking. I
personally believe, though, that we do have a problem on the obviousness standard. If you compare the application for patent load
with the publication of truly innovative scientific workloads, there
is a mismatch. I think the phenomena that we are seeing is that
when the obvious standard is not met then individuals and more
likely companies defensively go to patent things that really
shouldnt be patented because, otherwise, they have an infringement exposure. So the workload goes up, and the ability to actually
give the scrutiny is further deteriorated, and we need to interrupt
that cycle in some fashion.
Earlier this yearand I am not suggesting that the ideas were
the right ones, but I am wondering if we need to take a look at the
obviousness standard itself or the criteria or something of that nature to help with that interruption. Do you have an opinion on
that?
Mr. DUDAS. I think it is worthyI think it is something your
Subcommittee has been looking at, and it is worthy of looking at.
I thinkagain, when I think of the job that our examiners face,
it is incredibly difficult; and I can tell from your question how well
you understand the obviousnessand this is a term of art. It is not
just someone feels something is obvious. So in talking to many
folks from Silicon Valley and elsewhere, they recognize that our examiners are getting it right under the law. But they think that perhaps the law might have it wrong, and that is where I think it is
worthy of discussion. It is worthy ofour examiners have found situations where they feel that perhaps there should be some prior
art out there, but there is not, and I think that is what people are
looking at. So I think it is appropriately before the Subcommittee
and much can be done.
I just want to note that, as you point that out, that there are elements where I think our examiners do a fantastic job following the
law. I think your question is do we need to look at how that is applied and how the law is applied. I think that is worthy of your
consideration.
Ms. LOFGREN. Thank you.
Mr. SMITH. Thank you, Ms. Lofgren; and, actually, you anticipated a couple of questions I was going to ask. One is on the
amount of rework, which I think we just addressed.
But, Mr. Van Horn, I wanted to ask you a question on another
subject, given your three decades of experience at PTO; and in fact
I think Mr. Stern mentioned it. But the problem, if that is the word
for it, is the turnover and what you would recommend for a higher
retention rate within the PTO?
Mr. VAN HORN. I think at least a NAPA report and perhaps even
a GA report mentioned a number of items you could do to enhance
the status of an examiner, enhance their salary compensation. I
think they have, one, a good job to start with; and more money is
not going to make a bad job but a good job. They have good working conditions, and I think they need the supervision and training
commensurate with the talents that each individual brings to the
office.
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I think many of the hires these days are very talented people,
but, basically, they are not getting the kind of training and supervision that would permit them to advance and indeed make a valuable contribution in a short period of time.
Mr. SMITH. Okay, Director Dudas, I want to give you the last
word or at least a legitimate word when it comes to treatment of
employees. You have heard what Mr. Van Horn said a few minutes
ago. Mr. Stern, in my judgment, actually was more critical in his
verbal testimony than he was in his written testimony. Do you
want to respond to some of those observations about the way the
employees are treated.
Mr. DUDAS. Absolutely.
I thinkfirst off, I do think we have the greatest employees in
the world. I have had the opportunity to talk to folks that have
been before other patent and trademark offices and have said that
we do have the greatest employees in the world.
The job is very difficult. They are highly professional folks. And
we have been asking for more. Congress has been asking for more,
and we have been asking more as well. I will say I think, when
we talk about the attrition, the data that we have looked at, we
want to solve that problem. But I want to put it in context of the
fact that when we look at the corporate leadership councils, looking
at private sector, first year attrition is 42 percent; second year attrition is something like is 20.8 percent.
So putting that in context in this area, what we want to do,
though, is we want to make certain that we make the environment
in our office the right environment for examiners. So we are looking at better ways to communicate, better working with examiners.
I will also say that 57 percent of our examiners work above their
goals. Over 57 percent produce more than 110 percent of their goal.
Of those examiners, more than 95 percent of them get a commendable or outstanding rating. I think maybe we are making it sound
as though our examiners are not producing at the level; they are
having difficulty producing at the level. But when you see goals of
110, 120 and 130 percent and having 57 percent reach it, it shows
the professionalism of those employees.
Mr. SMITH. One last question. This goes to fee diversion, a subject that we all care about. We passed a bill last year that I introduced that actually got through the House but not the Senate try
to eliminate fee diversion. I, frankly, think just about everybody
supports eliminating fee diversion except for a few appropriators in
the Senate. But be that as it may, this year the amount the Administration has requested for the PTO budget I think comes pretty
close to equalizing the amount that would be generated by fees.
That is not to say we shouldnt continue to try to end fee diversion,
but would you say that you are getting an adequate budget for
your purposes this year?
Mr. DUDAS. Short answer is yes. The slightly longer answer is,
you are right. The Presidents budget didnt have diversion. This
years doesnt havegives us our full funding.
It looks as though so far in the process next yearand that is
the difference between status quo hiring, which is attrition replacement, and being able to turn that corner if we can keep applica-
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172
tions at 6 percentnot that we are trying to keep them downbut
if they stay at 6 percent. So yes is the short answer.
Mr. SMITH. Thank you, Director Dudas. I know the gentleman
from California has some more questions as well, and he is recognized.
Mr. BERMAN. Thank you very much. I am tempted to ask, would
you be allowed to say no?
Mr. DUDAS. I would be allowed, but you just wouldnt see me
again. I would be allowed. Yes.
Mr. BERMAN. I will pursue with you personally this inter partes
reexamination issue. It is important, but it is narrow.
Your saying 57 percent of the people exceed the quotas doesnt
totally answer the question. Itat least for me it doesnt. It doesnt
necessarily prove the quotas that have existed since 1976 are the
right approach because there are three alternatives one can draw
from that as to the group that exceeded their quotas. One is they
worked a great deal of uncompensated overtime. The second is they
cut corners and thereby jeopardizedfaced with the notion of meeting their quota or doing a good job, they choseI dont want to be
harsh, but it is a terrible pressure you are underbut they chose
to pursue the quota as the highest priority and perhaps didnt get
to pursue some of the things they would have liked to have pursued to raise quality; and the third is they are really quite impressive, incredible people who did a great job and understand real
quickly and came to these decisions.
I just detectmy ownfrom my knowledge of you from here in
the office, you are not Simon Legree, I dont think; and I am just
wondering if there could be a little more communication between
you and the employees in the context of what is life really like
under this quota system? Because you have gotit justI understand the abilities to search better and all of this andby the way,
the reforms we want, which we think will improve quality, will also
create new procedures and post grant oppositions and third-party
reviews which maybe cut down on search. Because if you can get
third-party submissions of prior art, maybe that things come to an
examiner quicker than they would if you guys go out and search
for it.
But I am just wondering if thereit seems to me like there is
a bit of a problem festering here that we shouldwe want to be
sensitive to, and I just encourage you to take a look at it.
Mr. DUDAS. The answer to your question is absolutely yes. There
is much room for more communication. There is much room to be
talking more.
Ron and I had the opportunity to meet recently. I go to union
meetings, and I have actually asked our commissioners to make
certain that they are having monthly meetings with the unions and
also weekly meetings, at least once a week outreach, myself included, making certain there is outreach.
Probably one of the best places I get the best information to help
me manage that office is in the gym, talking to examiners, finding
out how they feel, what is going on. But we are instituting a number of ways that we can more normalize that and make sure that
message gets down not from the 10th floor where our senior level
managers are
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Mr. BERMAN. Is the gym in Crystal City?
Mr. DUDAS. The gym is in Alexandria.
Mr. BERMAN. That is not the new leased space there.
Very good. Mr. Chairman, thank you.
Mr. SMITH. Thank you, Mr. Berman.
The gentlewoman from California, Ms. Lofgren, is recognized for
questions.
Ms. LOFGREN. Thank you, Mr. Chairman.
I just want to touch again on the obviousness issue, and ask
actually, request Mr. Dudas to take a look at two suggestions that
were made to me by some academics, some law professors on the
obviousness issue. I got a critique from the American Intellectual
Property Law Association that was negative, and they may well be
right. But what I am looking forif it is not this, and maybe this
isnt it, what would be a good idea? And if you haveI will be
happy to send both the suggestions sent to me by the law professors and AIPLAs analysis. But if you have some comments and
some alternatives that you think we ought to look at, I would very
much value that. Actually, I will send it to all the witnesses, if they
would look at that.
Finally, I want to talk about user fees. In a rare show of unanimity on the House Judiciary Committee I think we voted unanimously on several occasions to oppose the diversion of fees. The
Chairman is right. This year we are not diverting the money that
outmatches the fees, but I have no real confidence that that will
always be the case. And in fact, historically, it hasnt been the case.
I just cant think how long that is to do. It is a special tax on inventiveness. It is just completely the wrong thing to do.
So one of the things I am thinking about is howwe had a bill
that would have worked. It actually didnt make it all the way
through the legislative process. The National Academy of Public
Administration recently suggested another alternative, which is
that PTO be reorganized as a wholly-owned Government corporation under the Department of Commerce to allow it to borrow its
own money, set its own user fees, and keep them without diversion,
issue its own regulations. What do the witnesses think of this suggestion as an alternative to the measure passed by the House to
end diversion? Mr. Van Horn?
Mr. VAN HORN. Well, certainly, as a member of the NAPA panel
I would support the suggestion. I think it is a good idea as one way
of sort of putting in the hands of the PTO its own destiny, more
control over the management of its resources.
Mr. STERN. The employees have always been concerned about remaining inside the civil service system so that there are opportunities to appeal adverse decisions against you.
In the past, taking us out of title 5 has been a major concern for
folks; and, as a consequence, my organization has been opposed to
the establishment of a corporation. But of course we are very much
in favor of the agency getting to spend all its fees. That is an unfortunate tax on inventors when fees are diverted. They are paying
for a service, and they deserve to get what they are paying for.
Ms. LOFGREN. Let me ask you this. The Post Office used to be
part of the Government. Now it is a corporation, and yet there is
this whole civil service structure that was imposed on that. If there
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was something of that natureI dont want to get too specific
that addressed the civil service nature, how would the employees
feel then is your best guess?
Mr. STERN. I think they would be very comfortable. Remaining
inside the civil service system is very possible even if the agency
has a corporate structure or a somewhat independent structure,
and that would reassure folks that they will be dealt with fairly
and equitably.
Ms. MITTAL. While the issue of lack of fees has come up in various audits that we have done of PTO, we havent really looked at
the whole structure of the organization so I think we would be unable to answer that question right now.
Ms. LOFGREN. Are you allowed to answer, Mr. Dudas?
Mr. DUDAS. I cant give you an official Administration position.
What I can tell you is we would welcome a debate on that. It is
an idea that has been around since the Taft administration. It
came up in the Johnson administration. And this Subcommittee
has
Mr. SMITH. It is probably lost.
Mr. DUDAS. and this Subcommittee has looked at that.
I will just point out it is considered by some internationally a
best practice. Canada has a situation closer to that. Mexico has a
similarand while we are asked to operate like a business and
should operate like a business, we have to be cognizant that we are
Government as well. But keep in mind all the fees we collect
todaywhen I show you those pendencies, all the fees we collect
today will likely go for examinations that occur in the future. So
managing money would bethere are a lot of areas where that
could be helpful.
And it might sound like Ron and I have switched seats here, but
when I look at title 5, one of the issues is making certain that there
are protections and appropriate protections in place but also making sure we can pay market value for examiners, possibly paying
higher than what title V has.
Ms. LOFGREN. There would bean opportunity then. We are competing in a very tough economic market for very important skill
sets, and that would give an opportunity to really compensate.
Thank you.
Mr. SMITH. Thank you, Ms. Lofgren, and thank all of our witnesses today as well. This has been very informative and instructive. We appreciate all the work that is being done at the PTO and
know that it will continue and improve.
We stand adjourned.
[Whereupon, at 2:20 p.m., the Subcommittee was adjourned.]
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APPENDIX
MATERIAL SUBMITTED
FOR THE
HEARING RECORD
PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
Mr. Chairman, thank you for scheduling this oversight hearing of the Patent and
Trademark Office operations and analysis of the GAO and NAPA reports. It is especially appropriate that we do this now, as we move forward with the patent reform
bill next week, which will likely effect the Office.
The U.S. patent system is the cornerstone of innovation in our society. Throughout its more than 200-year history, the Patent Office has provided incentive for inventors to innovate by providing them with the protection for their ideas in the form
of patents and trademarks. Today, intellectual property-based industries represent
the largest single sector of the U.S. economy and the USPTO is at the core.
In recent years, however, the USPTOs patent operation has come under criticism.
Charges of poor quality patents and ever-increasing pendency of applications diminish the stature of the patent system and reflect poorly on the Offices product. I commend the Patent Office for implementing many of the initiatives cited in its 21st
Century Strategic Plan. Nevertheless, challenges remain.
The first challenge, unfortunately, is one that the USPTO cannot influencebut
instead is our job, here in Congress. All the witnesses agree that we must stop fee
diversion. Between FY 19922004, the Office lost access to $741 million of the fees
it collected. A lack of funding is cited in multiple reports as the primary reason for
increased pendency and for not implementing vital quality initiatives. We cannot
continue to allow a perverse situation where we kneecap U.S. technology and economic leadership by diverting user fees to wholly unrelated products. That is why
many of us here today are original co-sponsors of the Patent and Trademark Fee
Modernization Act of 2005, to once and for all put an end to this true tax on innovation.
However, the fee bill is only the starting point. In order to improve the operations
of the Patent Office, we must make a number of fundamental reforms to the system.
Patent pendency, the amount of time a patent is pending, now stands on average
at more than two years. Currently, the backlog of applications awaiting a first review numbers 600,000. Without change to the system, this current level is expected
to grow to over 1,000,000 by the year 2010.
If you look solely at the most complex, cutting-edge technologies, where patent
protection may be the most critical, average pendency is more than three years. The
light-speed pace of innovation makes this simply unacceptablemany cutting-edge
technologies will be long obsolete by the time the patent is granted.
Part of this backlog is due to growing demand for the Patent Offices product
the Patent Office receives record numbers of applications each year. The more troubling factor leading to the ever-increasing backlog of patent applications is that
USPTO simply does not have enough experienced examiners to handle the demand.
I applaud USPTO for taking steps to increase the size of its patent examining
corps. However, attrition remains a serious problem. Only 45% of the Patent Office
workforce has five or more years of service. In an agency where it takes roughly
5 or 6 years before an employee becomes fully productive, this is a very troubling
statistic.
One other major issue with which the Office struggles is the quality of patents.
The current production quota system, known as the count system, has not been
reevaluated since it was first introduced in 1976. The amount of information
through which examiners must search to find relevant patent literature has exponentially increased and applications are growing ever more complicated, yet examiners still work under 1976 assumptions. Even with advances in the deployment of
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information technology, a number of studies have indicated that examiners today
simply do not have enough time to do their job properly, and have been encouraged
to take a number of shortcuts. Not surprisingly, then, the quality of patents suffers.
Although USPTO has instituted some quality initiatives in recent years, it seems
there is still a long way to go.
There are additional quality measures and changes to the patent system as a
whole that we hope to address in the Patent Reform Act of 2005. Through allowing
submissions by third-parties, harmonization with international practice, amending
the inter-partes reexamination system, and creation of a post-grant opposition procedure, it is our hope that the bill will further enhance the quality of patents and
increase confidence in their integrity. I look forward to the testimony here today,
as it will undoubtedly impact the important legislation next week. I also look forward to working further with the USPTO and patent stakeholders to arrive at a
truly innovative reform to the patent system as we know it.
Thank you Mr. Chairman. I yield back the balance of my time.
PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND MEMBER, SUBCOMMITTEE ON
COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
According to a March 2005 PEW Internet & American Life Project survey, young
adults continue to be the largest group of Internet users who share files with others
online. File sharing among students can provide many beneficial uses in education,
research, and professional development. Unfortunately, college students have exploited the intended use of the peer-to-peer network by trafficking in music, movies,
software, video games, and other copyrighted material without permission. While
the Supreme Court unanimously held this past summer in the Grokster case that
the file trading companies can be liable for their misconduct, we cannot turn a blind
eye to the users of such software.
Aside from the issue of copyright infringement, this illegal use of peer-to-peer networks can lead to invasions of student privacy, viruses, and other potential security
threats to the universitys network.
The content industry is stepping up its battle against digital copyright piracy on
college campuses, encouraging higher education leaders to monitor their students
and impose restrictions on violators. On the other hand, monitoring raises privacy
concerns and could chill the use of peer-to-peer technology that can otherwise have
valuable academic rewards. I also would be concerned that monitoring could turn
university officials into spies, thus creating an atmosphere in which the First
Amendment and privacy rights of students are significantly devalued.
Because piracy has proven to be a lethal threat to the content industries, we must
address the legitimate concerns of creators. One approach to reducing peer-to-peer
piracy on university campuses that does not require monitoring seems to be working: providing a legal alternative for students to access music, films, and other
media while educating students about the importance of copyright issues. Two major
universities in my home state, the University of Michigan and Michigan State University, have taken the lead in this approach.
After the University of Michigan inked an agreement with Cdigix, students were
able to choose from a wide variety of media and entertainment services for only a
nominal monthly fee. Because of the Universitys agreement with Cdigix, its acceptable use policy, and its education campaigns on copyright infringement, the Recording Industry Association of America cited the University as a model for how universities should combat illegal file sharing.
At Michigan State University, the University has implemented the multi-tiered
approach of information campaigns, an acceptable use policy, and technical measures to prevent illegal file sharing. These measures have led to a 75% reduction in
the monthly rate of Digital Millennium Copyright Act violations on campus. In addition, MSU is conducting advanced discussions with venders such as Cdigix to provide a legal avenue for students to access digital entertainment. MSUs strategy
strikes the appropriate balance between preventing illegal sharing of copyrighted
files and respecting the privacy of personal communications over the University network.
By providing legal alternatives to file sharing and through education, universities
can and will continue to teach students to make good decisions regarding online entertainment. Furthermore, by becoming familiar with services like Cdigix, students
will develop the habit of paying for music that will extend beyond the university
setting.
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Response.eps
RESPONSE FROM ANU K. MITTAL, DIRECTOR, SCIENCE AND TECHNOLOGY ISSUES, U.S.
GENERAL ACCOUNTING OFFICE (GAO), TO QUESTIONS SUBMITTED BY THE HONORABLE ZOE LOFGREN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
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ES0018.eps
EXECUTIVE SUMMARY, U.S. PATENT AND TRADEMARK OFFICE: TRANSFORMING TO

MEET THE CHALLENGES OF THE 21ST CENTURY, A REPORT BY A PANEL OF THE NATIONAL ACADEMY OF PUBLIC ADMINISTRATION FOR THE U.S. CONGRESS AND THE
U.S. PATENT AND TRADEMARK OFFICE, 2005, SUBMITTED BY THE HONORABLE
LAMAR SMITH
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HOUSE HEARING, 109TH CONGRESS - REVIEW OF U.S. PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY OF PUBLIC ADMINISTRATION REPORTS

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HOUSE HEARING, 109TH CONGRESS - REVIEW OF U.S. PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY OF PUBLIC ADMINISTRATION REPORTS

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HOUSE HEARING, 109TH CONGRESS - REVIEW OF U.S. PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF GOVERNMENT ACCOUNTABILITY OFFICE, INSPECTOR GENERAL, AND NATIONAL ACADEMY OF PUBLIC ADMINISTRATION REPORTS

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REVIEW OF U.S.

PATENT AND TRADEMARK OFFICE OPERATIONS, INCLUDING ANALYSIS OF

SUBCOMMITTEE ON COURTS, THE INTERNET,

COMMITTEE ON THE JUDICIARY

Serial No. 10948

For sale by the Superintendent of Documents, U.S. Government Printing Office

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COMMITTEE ON THE JUDICIARY

LAMAR SMITH, Texas, Chairman

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The Honorable Lamar Smith, a Representative in Congress from the State

Prepared Statement of the Honorable Howard L. Berman, a Representative

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REVIEW OF U.S. PATENT AND TRADEMARK

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Mr. DUDAS. Thank you very much, Chairman Smith, Ranking

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PREPARED STATEMENT OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF

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