[House Report 106-177]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-177

======================================================================



 
 UNITED STATES PATENT AND TRADEMARK OFFICE REAUTHORIZATION ACT, FISCAL 
                               YEAR 2000

_______________________________________________________________________


  June 9, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Coble, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                        [To accompany H.R. 1225]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1225) to authorize funds for the payment of salaries 
and expenses of the Patent and Trademark Office, and for other 
purposes, having considered the same, reports favorably thereon 
without amendment and recommends that the bill do pass.

                           TABLE OF CONTENTS

                                                                  

                                                                 Page
Purpose and Summary........................................           1
Background and Need for the Legislation....................           2
Hearings...................................................           4
Committee Consideration....................................           4
Committee Oversight Findings...............................           4
Committee on Government Reform and Oversight Findings......           4
New Budget Authority and Tax Expenditures..................           4
Congressional Budget Office Cost Estimate..................           4
Constitutional Authority Statement.........................           5
Section-by-Section Analysis and Discussion.................           5

                          Purpose and Summary

    H.R. 1225 will enable the Patent and Trademark Office 
(PTO), a self-sustaining federal agency, to generate as much 
revenue through the collection of user fees as necessary to 
operate, and to

retain all of those funds for this purpose. The bill will 
prevent the diversion of these funds to other federal programs 
or for other endeavors, such as deficit reduction, and will 
proscribe the creation of new statutory surcharges which have 
been used in the past for activities unrelated to PTO 
operations.

                Background and Need for the Legislation

                       Background: 105th Congress

    PTO Operations and the OBRA Surcharge. During the 105th 
Congress, the Administration announced that, in light of the 
expiration of Section 10101 of the Omnibus Budget 
Reconciliation Act of 1990 (OBRA), the patent fees established 
under subsections 41(a) and (b) of title 35 to the U.S. Code 
would revert to their pre-OBRA level. It was stated that, 
unless adjusted, the fees would fall $131,526,000 short of the 
amount the PTO needs to execute the program recommended by the 
President in his Fiscal Year 1999 (FY99) budget. To compensate 
for this reduction in fee revenues, the Administration stated 
that an increase was needed in the base patent fees in an 
amount equal to the reduction in revenue which would result 
from the lapsing of the surcharge authority.
    While all Members of the Committee on the Judiciary were 
very supportive of policies to ensure that the PTO is 
adequately funded to provide the services required by patent 
and trademark applicants, the Administration request received 
by the Subcommittee at the time would actually have raised $50 
million more than the amount the President stated that the PTO 
would need in its FY99 budget. The Administration contended 
that this revenue, along with $66 million from FY98, would be 
used to fund other government agencies and programs. This 
continuing diversion of PTO fee revenues was strongly opposed 
by the Subcommittee and by inventors and the trademark 
community, who pay for patent and trademark applications to 
fund only the services they receive from the PTO.
    The PTO is 100%-funded through the payment of application 
and user fees. Taxpayer support for the operations of the 
Office was eliminated in 1990 with the passage of OBRA. OBRA 
imposed a massive fee increase (referred to as a ``surcharge'') 
on American inventors and industry in order to replace taxpayer 
support the Office was then receiving. The revenues generated 
by this surcharge were placed into a surcharge account. The PTO 
was required to solicit permission from the Committee on 
Appropriations to use the revenues in the surcharge account to 
support that portion of its operations these revenues 
represented. It was anticipated in 1990 that Congress would 
routinely grant the PTO permission to use the surcharge revenue 
since it was generated originally from fees paid by users of 
the patent and trademark systems to support only the cost of 
those systems.
    Unfortunately, the user fees paid into the surcharge 
account became a target of opportunity to fund other, 
unrelated, taxpayer-supported government programs. The 
temptation to use the surcharge, and thus a significant portion 
of the operating budget of the PTO, was proven to be 
increasingly irresistible, to the detriment and sound 
functioning of the patent and trademark systems. Beginning with 
a diversion of $8 million in 1992, Congress increasingly 
redirected a larger share of the surcharge revenue, reaching a 
record level of $54 million in FY97. In total, over the past 
seven fiscal years, more than $142 million has been diverted 
from the PTO to other agencies and programs.
    Administration Request for FY99. In its budget submission 
for FY99, the Administration noted that `` . . . legislation 
will be proposed to set the [PTO] base fee structure for 
1999.'' \1\ The General Counsel of the Department of Commerce 
forwarded the Administration recommendations to adjust the fee 
structure to compensate for the expiration of the surcharge. 
Had Congress adopted the Administration plan from last term, 
PTO resources for FY99 would total roughly $902 million, which 
includes $654 million in fee collections exclusive of the 
expired surcharge, $182 million to compensate for the 
expiration of the surcharge, and $66 million in carryover 
funds.
---------------------------------------------------------------------------
    \1\ Budget of the United States Government, Fiscal Year 1999 
(Appendix) at 210.
---------------------------------------------------------------------------
    As previously noted, the Administration request also 
assumed that $116 million would have been diverted for deficit 
reduction purposes. The diversion was comprised of the $66 
million in carryover funds, and an additional $50 million in 
FY99 revenues.
    Importantly, the President conceded in his budget request 
that ``[i]f the PTO legislative proposal to revise patent fees 
is not enacted into law, then the Administration will need to 
reduce the proposed rescission.'' \2\
---------------------------------------------------------------------------
    \2\ Id.
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    H.R. 3723: Stopping the Diversion. Congress responded to 
this problem by enacting H.R. 3723 (Pub. L.105-358). This 
legislation prescribed a schedule of fees that would recover 
only the amount of money which the Administration has stated it 
needs to execute the program recommended by the President for 
the PTO in FY99 and FY00. In other words, the fee structure 
reflected the Administration request less $50 million, or the 
amount of FY99 fee collections which would be diverted pursuant 
to the President's budget. It still allowed the appropriators 
to divert, at the President's request, the $66 million in 
carryover funds from the preceding fiscal year. Public Law 105-
358 not only fully funded the stated needs of the PTO, it also 
provided a real decrease in fees paid by patent applicants--the 
first actual decrease in fees in at least the last 50 years, 
and perhaps since the patent system was established in 1790.

            106th Congress: Administration Request for FY00

    The Administration estimates in its FY00 budget that the 
PTO will collect $946 million based on the existing fee 
structure. It also proposes that the agency impose a surcharge 
that will generate another $20 million that will be earmarked 
for its Employees Health Benefits and Life Insurance Funds. \3\ 
The Administration maintains that this newest surcharge is part 
of a pilot project which, if not discontinued, could function 
as a paradigm for other self-funded government agencies.
---------------------------------------------------------------------------
    \3\ Budget of the United States Government, Fiscal Year 2000 
(Appendix) at 218.
---------------------------------------------------------------------------
    In addition to these revenue sources, the Administration 
estimates that the agency will receive $116 million in 
carryover funds from the preceding fiscal year, bringing total 
PTO collections to $1.082 billion. Since the Administration 
further predicts that $160 million in FY00 funds must also be 
carried-over to FY01, total new budget authority for the agency 
is reduced to $922 million. The collections that will allow the 
agency to operate are actually less ($902 million), since $20 
million reflects the surcharge which, if statutorily 
authorized, must be reserved for the retirement fund.

                                Hearings

    The Committee's Subcommittee on Courts and Intellectual 
Property held one day of hearings on H.R. 1225 and a related 
measure, the Committee Print on the ``American Inventors' 
Protection Act'' (introduced later as H.R. 1907), on March 25, 
1999. Testimony was received from nine witnesses, representing 
seven organizations.

                        Committee Consideration

    On May 20, 1999, the Subcommittee on Courts and 
Intellectual Property met in open session and ordered favorably 
reported the bill H.R. 1225 by voice vote, a quorum being 
present. On May 26, 1999, the Committee met in open session and 
ordered favorably reported without amendment by voice vote, a 
quorum being present.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of Rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of Rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 3(c)(4) of Rule XIII of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 7, 1999.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1225, the United 
States Patent and Trademark Office Reauthorization Act, Fiscal 
Year 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark Hadley, 
who can be reached at 226-2860.
            Sincerely,
                                  Dan L. Crippen, Director.
H.R. 1225.--United States Patent and Trademark Office Reauthorization 
        Act, Fiscal Year 2000.
    CBO estimates that implementing H.R. 1225 would not have a 
significant effect on the federal budget. The bill would not 
affect direct spending or receipts; therefore, pay-as-you- go 
procedures would not apply. H.R. 1225 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act and would not affect the budgets 
of state, local, or tribal governments.
    H.R. 1225 would authorize the appropriation of $116 million 
for the Patent and Trademark Office (PTO) in fiscal year 2000, 
to be derived from fees collected in fiscal years 1999 and 
2000. The bill would prohibit PTO from charging new fees to pay 
for the accrued indirect personnel costs associated with post-
retirement health and life insurance of employees.
    Under current law, PTO collects a number of user fees that 
are spent by the agency to the extent provided in appropriation 
acts. Last year, the Congress limited the amount of 1999 fee 
income that PTO can obligate in 1999, resulting in an advance 
appropriation for 2000 that CBO estimates will total $167 
million. Hence, H.R. 1225's authorization of $116 million is 
already encompassed by the advance appropriation available 
under current law.
    The CBO staff contact is Mark Hadley, who can be reached at 
226-2860. This estimate was approved by Robert A. Sunshine, 
Deputy Assistant Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, clause 8, section 8 of the 
Constitution.

               Section-by-Section Analysis and Discussion

                          H.R. 1225: Generally

    There are only two differences of consequence between H.R. 
1225 and Pub. L. 105-358. First, H.R. 1225 makes available an 
authorization of $116 million in carryover funds to the PTO 
(the figure was $66 million last fiscal year). Second, the 
agency is not authorized to implement a surcharge for the 
purposes of subsidizing its Employees Health Benefits and Life 
Insurance Funds, but may use carryover funds to pay for this 
expense. With a surplus of fees carried over from the prior 
fiscal year, it would not constitute sound policy to impose yet 
another surcharge on applicants.

                        Analysis and Discussion

    Section 1. Short Title. Section 1 sets forth the short 
title of the bill, the ``United States Patent and Trademark 
Office Reauthorization Act, Fiscal Year 2000.''
    Section 2. Authorization of Appropriations. Section 2 
authorizes the PTO to pay FY00 salaries and necessary expenses 
in the following amounts from the following sources: $116 
million in carryover funds from the preceding fiscal year; and 
``such fees as are collected'' in FY00 from patent and 
trademark applicants and owners.
    Further, Section 2 prohibits the PTO from charging and 
collecting any additional fees to cover the accrued indirect 
personnel costs associated with post-retirement health and life 
insurance benefits for PTO retirees. The PTO may use existing 
fees charged and collected pursuant to the Patent Act and the 
Trademark Act to pay for such costs.
    This qualification means that the agency may not create 
another new surcharge that will divert funds from agency 
operations, as was the case with the expired OBRA surcharge. 
Offering PTO employees a competitive retirement package as a 
means of attracting and retaining quality personnel is a 
worthwhile goal that the Subcommittee supports; however, no 
other fee-funded agency has been conscripted by the 
Administration to subsidize its employee post-retirement funds 
in this way. Rather than support the creation of yet another 
new surcharge, the proponents of the legislation would prefer 
that the PTO receive an annual authorization that will cover 
all of its needs--including those related to post-retirement 
benefits--and which are immediately accessible by the agency. 
In other words, Section 2 is an attempt to inhibit further 
diversion of PTO funds.
    Section 3. Effective Date. Section 3 sets forth the 
effective date of H.R. 1225: October 1, 1999.

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