[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



   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. 109-48

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov

                                 ______

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                       COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California        ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee        SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah                   MAXINE WATERS, California
SPENCER BACHUS, Alabama              MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina           WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana          ROBERT WEXLER, Florida
MARK GREEN, Wisconsin                ANTHONY D. WEINER, New York
RIC KELLER, Florida                  ADAM B. SCHIFF, California
DARRELL ISSA, California             LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona                  CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana                  DEBBIE WASSERMAN SCHULTZ, Florida
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
BOB GOODLATTE, Virginia              RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
SPENCER BACHUS, Alabama              MAXINE WATERS, California
BOB INGLIS, South Carolina           MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida                  ROBERT WEXLER, Florida
DARRELL ISSA, California             ANTHONY D. WEINER, New York
CHRIS CANNON, Utah                   ADAM B. SCHIFF, California
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia

                     Blaine Merritt, Chief Counsel

                         David Whitney, Counsel

                          Joe Keeley, Counsel

                          Ryan Visco, Counsel

                    Shanna Winters, Minority Counsel


                            C O N T E N T S

                              ----------                              

                           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............................     1
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................     2

                               WITNESSES

The Honorable Jon W. Dudas, Undersecretary of Commerce for 
  Intellectual Property and Director, U.S. Patent and Trademark 
  Office (PTO)
  Oral Testimony.................................................     5
  Prepared Statement.............................................     8
Ms. Anu K. Mittal, Director, Science and Technology Issues, U.S. 
  General Accountability Office (GAO)
  Oral Testimony.................................................    26
  Prepared Statement.............................................    28
Mr. Ronald J. Stern, President, Patent Office Professional 
  Association (POPA)
  Oral Testimony.................................................   149
  Prepared Statement.............................................   150
Mr. Charles Van Horn, Finnegan, Henderson, Farabow, Garrett, and 
  Dunner, LLP
  Oral Testimony.................................................   159
  Prepared Statement.............................................   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..........................................   175
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.......................................................   176
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.............   177
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.........................   178

 
   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 Committee's 
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 General's 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 PTO's electronic application 
system, hiring and retention of patent examiners, the 
relationship between management 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 office's 
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 today's 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 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 office's 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 can't 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 ever-increasing 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 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 won't 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 bachelor's 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 GAO's work in the areas of science and technology, 
water resources, and DOD's environmental compliance and clean-
up activities. Ms. Mittal received a master's 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 bachelor's 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 31-year 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 going--just 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, that's not going to shade your testimony 
today, is it, because you were former colleagues?
    Mr. Stern. We probably should consider ourselves as 
colleagues today.
    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 can't 
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 wasn't 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.
    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 3\1/2\ 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. GAO's 
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.
    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:]

 Prepared Statement of the Honorable Jon W. Dudas, Under Secretary of 
 Commerce for Intellectual Property and Director, United States Patent 
                       and Trademark Office (PTO)




                               ATTACHMENT



    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 PTO's 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 
patent-processing 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 agency's ability to adequately plan and manage its 
automated patent system. And we pointed out weaknesses in its 
specific management controls.
    As our report--recent report documents, many of the 
concerns that we had 12 years ago with PTO's processes have not 
diminished. Improvements are still needed if the agency hopes 
to successfully implement a paperless electronic patent 
process.
    With regard to PTO's 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 PTO's ability to retain these 
examiners in the future. First, PTO's 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 PTO's 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:]

 Prepared Statement of Anu K. Mittal, Director, Science and Technology 
              Issues, U.S. General Accounting Office (GAO)




                              ATTACHMENT 1




                              ATTACHMENT 2




    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 
high-stress 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 USPTO's benefits is in constant opposition with the stress 
of the day-to-day legal sweatshop environment.
    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 
Administration's 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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
    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 mission--
examining 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 labor-management 
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 high-stress 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 goal-oriented 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.
---------------------------------------------------------------------------
    \4\ National Academy of Public Administration Report, August 2005, 
Appendix D, Table D-2.
---------------------------------------------------------------------------
    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 agency's 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.
    If these problems aren't enough for examiners, the agency's 
deployment of the Image File Wrapper System (IFW) has transferred a 
considerable amount of clerical work from the agency's 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 USPTO's 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.
---------------------------------------------------------------------------
    \5\ ``Key Processes for Managing Patent Automation Strategy Need 
Strengthening,'' U.S. Government Accountability Office Report No. GAO-
05-336, June 2005, pages 14-15.
---------------------------------------------------------------------------
    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 agency's efforts have been a waste of time and money. While many 
improvements are needed in the USPTO's 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 searching 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\
---------------------------------------------------------------------------
    \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 54-73 at pages 68-70.
---------------------------------------------------------------------------
    Increasing the quality of patent examination, reducing patent 
application pendency and stimulating the nation's 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 USPTO's 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 USPTO's heavy reliance on text searching has 
proven very shortsighted.
    While planning the agency's 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.
    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 agency's 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 agency's 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 agency's 
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 applicant's 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 USPTO's 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 top-notch 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 agency with a significant 
shortfall of trained examiners and a burgeoning backlog of over 550,000 
unexamined patent applications.
---------------------------------------------------------------------------
    \7\ Jaffe, A. B. & Lerner, J., Innovation and Its Discontents, 
Princeton University Press, 2004, pp. 133-138.
---------------------------------------------------------------------------
    The USPTO's 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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 
POPA's 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.
---------------------------------------------------------------------------
    \9\ NAPA Report, August 2005, pages 110-111.
---------------------------------------------------------------------------
    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 year's 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 agency's most serious problem is not hiring new examiners--it 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 USPTO's 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 
USPTO's 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 agency's increasing number of 
performance-based disciplinary actions against employees.\10\ In FY 
2001, 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.
---------------------------------------------------------------------------
    \10\ NAPA Report, pages 108-111.
---------------------------------------------------------------------------
    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 employees--5.7 
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 USPTO's 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 agency's 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. Management's 
assertion is simply reflective of its outdated perception that it must 
have more control over examiners lives.
---------------------------------------------------------------------------
    \11\ NAPA Report, August 2005, page 108.
---------------------------------------------------------------------------
    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 USPTO's 
assertion, the Increased Flexitime Program is one employee benefit that 
is actually doing what it needs to do--providing 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 USPTO's 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 4-3 of the Academy's 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.
---------------------------------------------------------------------------
    \12\ NAPA Report, August 2005, page 109.
---------------------------------------------------------------------------
    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 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 USPTO's 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 facility--something 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 weren't enough, the Quality Initiatives may well 
be the proverbial straw that broke the camel's back.
    It is no secret that patent examining is an inherently subjective 
undertaking. If it weren't, 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 examiner's decisions are being constantly 
criticized by reviewers who, as often as not, have little familiarity 
with the examiner's particular technology. If the examiner 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 agency's 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 DOESN'T 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 good--expanding 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 General's 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 agency's 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 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 
agency's 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. Sec. 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 leave--job 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 resources 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:]

                 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 months--the 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 examiner--an 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 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 over-reacting 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 long-standing 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 appeal 
briefs that had been filed, only 38% of those appeals were followed by 
the examiner filing an Examiner's 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 you're 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 wouldn't 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 wouldn't 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 to--
you 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----
    Mr. Smith. That's 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, it's not going to go up quite that fast. 
That was my basis for hoping for some improvement.
    Mr. Dudas. Well, that's--I think that what we are looking 
at right there--I'm 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. 
I'm 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, that's--I will try to hit that directly. 
The red line that you saw, we are not--in 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, you're 
saying that the patent that is issued today came in our office 
30 months ago.
    So I can show you--next 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 what--you 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 
didn't hire. The yellow shows how much more we will produce, 
how much we will increase.
    Mr. Smith. I think I'm 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 year's 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 you're 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 me--you've 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 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 we've 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 is--I 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 not--should have been issued is going to cost some 
company hundreds of billions--well, billions of dollars. How do 
you guard against that in the future?
    Mr. Dudas. Well, I think one thing I can tell you, and it's 
in many of the examples you mentioned there, there are--the 
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 didn't 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 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 Congress's 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 didn't 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 don't 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 don't 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 don't risk anything more in estoppel, and we have 
already had the benefits of discovery in litigation, we're 
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 where--I 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 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 you're the one who is--by allowing people 
to proceed with inteparties reexam after a decision, you are 
the one who is creating an option that I'm not sure was ever 
intended by Congress.
    Mr. Dudas. I was assuming--and 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 cases--there are times when the court will 
stay its proceedings until a reexamination.
    Mr. Berman. This is after--this is after--at 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 a--any time a reexamination is 
filed, ex parte or inteparties, we follow it to its conclusion 
in our office.
    Mr. Smith. The gentleman's 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 a--that 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 shouldn't 
have been granted, I would hope that five times you will look 
at it open and for the first time.
    I don't share with--I 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 
I'm not going to be saying: How could do you this?
    Switching subjects slightly, I am particularly concerned 
that you don't 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 can't bring that down, considering 
the speed with which the technology is moving forward.
    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 you're 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, we're not sure. We're 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 
make--because my particular bill very much simply says we're 
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 exactly--this 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 don't object to that. I just find it hard to 
reconcile.
    Mr. Dudas. Well, on the one hand--no, 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.
    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 don't 
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 Office's 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 at--this 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 Office's perspective--I show you those charts--
even legitimate uses of continuations, I think the question 
that we have is, essentially, the legitimate uses, as I 
interpret them, are do-overs. 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 system--do 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 I--
again, I offer the USPTO view because it is so much of our 
work. I don't 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 on--quite 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.
    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 shouldn't 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 year--and 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 worthy--I think it is something 
your Subcommittee has been looking at, and it is worthy of 
looking at.
    I think--again, 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 obviousness--and 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 of--our 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.
    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 think--first 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 shouldn't 
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 President's budget didn't have 
diversion. This year's doesn't have--gives us our full funding.
    It looks as though so far in the process next year--and 
that is the difference between status quo hiring, which is 
attrition replacement, and being able to turn that corner if we 
can keep applications at 6 percent--not that we are trying to 
keep them down--but 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 wouldn't 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 
doesn't totally answer the question. It--at least for me it 
doesn't. It doesn't 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 jeopardized--faced with the notion of meeting their 
quota or doing a good job, they chose--I don't want to be 
harsh, but it is a terrible pressure you are under--but they 
chose to pursue the quota as the highest priority and perhaps 
didn't 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 detect--my own--from my knowledge of you from here 
in the office, you are not Simon Legree, I don't 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 got--it 
just--I understand the abilities to search better and all of 
this and--by 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 there--it seems to me like there 
is a bit of a problem festering here that we should--we 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----
    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 
for--if it is not this, and maybe this isn't it, what would be 
a good idea? And if you have--I will be happy to send both the 
suggestions sent to me by the law professors and AIPLA's 
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 hasn't been the case. I just can't 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 how--we had a 
bill that would have worked. It actually didn't 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 was something of that nature--I don't 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 haven't 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 can't 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 similar--and 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 today--when 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 
be--there 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.]


                            A P P E N D I X

                              ----------                              


               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 USPTO's 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 Office's 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 
influence--but instead is our job, here in Congress. All the witnesses 
agree that we must stop fee diversion. Between FY 1992-2004, 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 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 unacceptable--many 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 
Office's 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 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 university's 
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 
University's 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. MSU's 
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.

 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



 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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