[House Report 106-722]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-722

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



 
            PATENT AND TRADEMARK OFFICE REAUTHORIZATION ACT

                                _______
                                

 July 11, 2000.--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. 4034]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 4034) reauthorizing the United States Patent and 
Trademark Office, 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 Findings....................           4
New Budget Authority and Tax Expenditures..................           4
Congressional Budget Office Cost Estimate..................           4
Constitutional Authority Statement.........................           7
Section-by-Section Analysis and Discussion.................           7
Agency Views...............................................           7
Changes in Existing Law Made by the Bill, as Reported......           8

                          Purpose and Summary

    The Patent and Trademark Office (PTO) is a self-sustaining 
Federal agency which subsists exclusively on revenue generated 
from the collection of fees imposed on the inventor and 
trademark communities. Since 1992, however, more than $500 
million in PTO fees have been diverted to other programs. The 
purpose of H.R. 4034, the ``Patent and Trademark Office 
Reauthorization Act,'' is to ensure that the PTO is vested with 
the authority to retain all the user fees it collects for 
agency expenditures. This change will maximize the ability of 
the PTO to serve the growing demand for its services by the 
inventor and trademark communities.

                Background and Need for the Legislation

                     PTO Funding Diversion: History

    Amid funding scarcity in 1982, Congress dramatically 
increased fees associated with obtaining and maintaining 
trademark registrations and patents to recover the costs of 
processing patent and trademark applications. For the first 
time, fee income would be made available to the PTO on a 
dollar-for-dollar basis. Certain activities (e.g., high-level 
management) would remain funded through appropriations derived 
from taxpayer revenues, and not fees.
    Under this new system, Congress had to appropriate the fee 
revenue to the PTO in the annual Commerce-State-Justice 
appropriations bill. The amount of the fees, however, did not 
count against the budget ``cap'' on expenditures imposed on the 
appropriators. Consequently, they had no incentive to 
appropriate less than the amount PTO collected.
    By 1990, approximately 80% of PTO operations were funded 
through user fees. In an effort to reduce public expenditures 
and the national debt, Congress enacted the Omnibus Budget 
Reconciliation Act (OBRA), which, among other things, 
transformed the PTO into a wholly fee-supported agency. To 
compensate for the remaining taxpayer revenue which would be 
withdrawn, OBRA imposed a massive statutory patent fee increase 
(referred to as a ``surcharge'') on American inventors for a 5-
year period.
    As part of this budget agreement, a scoring system was 
adopted to ensure that savings would be accurately tracked 
through the appropriations process. To this end, Congress 
mandated that the income from the surcharge be deposited into a 
specially-created surcharge fund in the Treasury. Unlike other 
fees collected by PTO, those in the surcharge fund counted 
against the expenditure cap of the appropriators. This meant 
that every dollar not spent from the surcharge fund would 
enable the appropriators to spend another taxpayer dollar to 
underwrite a different (non-PTO) initiative. Theoretically, the 
unappropriated fee income remained in the surcharge fund, but 
as a practical matter the revenue could never be appropriated 
to PTO unless the scoring rules were changed.
    Initially, Congress appropriated the total amount deposited 
in the fund to PTO. After only 1 year, however, Congress began 
to withhold a portion of the entire amount deposited in the 
fund annually so that it could proved additional money to other 
programs. Compounding the problem, Congress later extended the 
OBRA surcharge provisions for an additional 3 years to take 
further advantage of the arrangement.
    Although the surcharge expired at the end of fiscal year 
1998, Congress ultimately increased the statutory fees to 
compensate for the lapse of the surcharge. In addition, the 
income derived from the increase is treated like the old 
surcharge funds. As a result, an amount equal to the income 
from the increase is added to the amount available to the 
appropriators, who then have the option of earmarking that 
amount for PTO operations or to other programs.
    Moreover, the appropriators have also taken to capping the 
amount of fee revenue that the PTO may use. For example, in 
fiscal year 1999 PTO fee collections were subject to two caps 
as well as a rescission. The appropriators prohibited PTO from 
spending $116 million in collected fees until the following 
fiscal year (2000). They also created an upper limit cap which 
prevented the agency from spending any fee collections in 
excess of the total amount of fee revenues which PTO had 
estimated it would receive. Thus, when unexpected additional 
filings generated an extra $26 million in fiscal year 1999, the 
PTO could not use the revenue to process the increased workload 
for which the fees had been paid. Finally, Congress simply 
rescinded another $72 million that same fiscal year after PTO 
identified a significant amount of unrecorded fee income from 
fiscal year 1998 that had resulted from accumulated mail-room 
processing delays.
    By denying PTO the ability to spend fee revenue in the same 
fiscal year in which it collects the revenue, the appropriators 
may spend an equivalent amount on some other program without 
exceeding their Sec. 602(b) caps. Although the money is 
technically available to PTO the following year, it has already 
been spent. The legislative response to this funding problem 
has been to increase the amount of fee collections unavailable 
to PTO in that fiscal year.
    To illustrate: in the current fiscal year PTO is scheduled 
to receive $116 million in fiscal year 1999 fee revenues that 
it was not permitted to spend that year. But those funds were 
already diverted in fiscal year 1999 to other programs. The 
Commerce-State-Justice appropriations act for fiscal year 2000 
``solves'' the problem by preventing PTO from accessing $229 
million in fiscal year 2000 collections. The $116 million from 
fiscal year 1999 that PTO is now permitted to tap is actually a 
portion of the $229 million to be collected in fiscal year 
2000; and the difference between the two figures--$113 
million--will in turn be diverted to other government programs 
in fiscal year 2000.
    In sum, since 1992, more than $554 million in PTO revenue 
has been diverted, rescinded, or otherwise not made available 
to the agency.

              Administration Request for Fiscal Year 2001

    The developments in fiscal year 2000 serve as a template 
for the President's budget submission for fiscal year 2001. It 
would allow PTO to spend $229 million in fiscal year 2000 
collections plus an additional $26 million in fiscal year 1999 
collections arising from greater than estimated application 
filings that went unspent pursuant to the budget cap of that 
same fiscal year. On paper, the President's budget also 
prohibits the PTO from spending $368 million in estimated 
fiscal year 2001 fee collections. In reality, however, the $255 
million ($229 million plus $26 million) that PTO is permitted 
to spend will come from the $368 million source. The 
difference--$113 million--will be diverted.
    Should the appropriators adopt the President's budget, the 
PTO will have lost more than $677 million in collected fees 
since fiscal year 1992.

                                Hearings

    The committee's Subcommittee on Courts and Intellectual 
Property held a hearing on H.R. 4034 on March 9, 2000. 
Testimony was received from nine witnesses representing nine 
organizations.

                        Committee Consideration

    On March 23, 2000, the Subcommittee on Courts and 
Intellectual Property met in open session and ordered reported 
the bill H.R. 4034 by voice vote, a quorum being present. On 
May 9, 2000, the committee met in open session and ordered 
reported favorably the bill H.R.4034 by unanimous consent, a 
quorum being present.

                      Committee Oversight Findings

    In compliance with clause 2(1)(3)(A) of rule XI 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 Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(1)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 2(1)(3)(B) of rule XI of the Rules of the House of 
Representatives is technically applicable because the 
Congressional Budget Office has noted that the legislation 
provides (de minimis) new budgetary authority; however, the 
very cost estimate provided by that organization also reveals 
that the changes set forth in H.R. 4034 will generate surplus 
funds amounting to roughly $700 million between Fiscal Years 
2001 and 2005.

               Congressional Budget Office Cost Estimate

    In compliance with clause 2(1)(3)(C) of rule XI of the 
Rules of the House of Representatives, the committee sets 
forth, with respect to the bill H.R. 4034, the following 
estimate and comparison prepared by the director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 19, 2000.
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. 4034, the Patent 
and Trademark Office Reauthorization Act.
    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.

Enclosure

cc:
        Honorable John Conyers Jr.,
        Ranking Democratic Member
H.R. 4034--Patent and Trademark Office Reauthorization Act.

                                SUMMARY

    Under current law, the Patent and Trademark Office (PTO) 
collects fees on applications and other activities related to 
patents and trademarks. Such fees are recorded as an offset to 
discretionary spending and can only be collected and spent as 
provided in appropriation acts. H.R. 4034 would authorize the 
PTO to collect fees without appropriation action and would make 
such funds available to the agency until expended.
    CBO estimates that H.R. 4034 would increase revenues 
(governmental receipts) and reduce offsetting collections by 
about $6.3 billion over the 2001-2005 period. Because such fees 
could be spent by PTO without appropriation action, the bill 
also would increase direct spending by about $5.6 billion over 
the same period. Because H.R. 4034 would affect receipts and 
direct spending, pay-as-you-go procedures would apply.
    H.R. 4034 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 4034 is shown in the 
following table. For purposes of this estimate, CBO assumes 
enactment near the start of fiscal year 2001. The costs of this 
legislation fall within budget function 370 (commerce and 
housing credit).

                                     By fiscal year, in millions of dollars
----------------------------------------------------------------------------------------------------------------
                                                              2000     2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
PTO Baseline Under Current Law                                 -116      255      260      267      275      284
  Estimated Authorization Level \1\
  Estimated Outlays                                            -100       90      164      196      199      202

Proposed Changes                                                  0        0     -260     -267     -275     -284
  Estimated Authorization Level
  Estimated Outlays                                               0      374      -31     -176     -199     -202

PTO Baseline Under H.R. 4034                                   -116      255        0        0        0        0
  Estimated Authorization Level \1\
  Estimated Outlays                                            -100      464      133       20        0        0

CHANGES IN DIRECT SPENDING
Estimated Budget Authority                                        0    1,072    1,158    1,251    1,351    1,459
Estimated Outlays                                                 0      697    1,021    1,188    1,284    1,386

CHANGES IN REVENUES
Estimated Revenues                                                0    1,072    1,158    1,251    1,351    1,459
----------------------------------------------------------------------------------------------------------------
\1\ The 2000 level is the estimated net amount appropriated for that year. The 2001 level is the estimated
  amount appropriated for that year through an indefinite advance appropriation.

                           BASIS OF ESTIMATE

    H.R. 4034 would allow the PTO to collect and spend fees 
associated with filing patents and trademarks without 
appropriation action. Patent and trademark fees are 
governmental in character because such fees result from an 
exercise of sovereign power--recognizing and protecting 
intellectual property. Therefore, once these fees are no longer 
subject to appropriation action, CBO expects that they would be 
recorded as revenues in the federal budget.
    CBO estimates that patent and trademark fees will bring in 
about $1 billion in fiscal year 2000. Based on the historical 
growth in applications filed for patents and trademarks, we 
project receipts from such fees will total about $6.3 billion 
over the 2001-2005 period. Under H.R. 4034, offsetting 
collections would decline by this amount and revenues would 
increase by the same amount. Based on historical spending 
patterns of the agency, CBO estimates PTO would spend about 
$5.6 billion of these revenues over the 2001-2005 period.

                      PAY-AS-YOU-GO CONSIDERATIONS

    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. The net changes in outlays and 
governmental receipts that are subject to pay-as-you-go 
procedures are shown in the following table. For the purposes 
of enforcing pay-as-you-go procedures, only the effects in the 
current year, the budget year, and the succeeding four years 
are counted.

                                                         By fiscal year, in millions of dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         2000     2001     2002     2003     2004     2005     2006     2007     2008     2009     2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays                                           0      697    1,021    1,188    1,284    1,386    1,497    1,612    1,733    1,863    2,003
Changes in receipts                                          0    1,072    1,158    1,251    1,351    1,459    1,576    1,694    1,821    1,957    2,104
--------------------------------------------------------------------------------------------------------------------------------------------------------

              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

    H.R. 4034 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments.

                         ESTIMATE PREPARED BY:

Federal Costs: Mark Hadley (226-2860)
Impact on State, Local, and Tribal Governments: Shelley 
        Finlayson (225-3220)
Impact on the Private Sector: John Harris (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                   Constitutional Authority Statement

    Pursuant to rule XI, clause 2(1)(4) of the Rules of the 
House of Representatives, the committee finds the authority for 
this legislation in Article I, section 8 of the Constitution.

               Section-by-Section Analysis and Discussion

    Sec. 1. Short Title. The act may be cited as the ``Patent 
and Trademark Office Reauthorization Act.''
    Sec. 2. Patent and Trademark Office Funding. H.R. 4034 is 
simple and straightforward. It amends two key provisions of 
Sec. 42 of the Patent Act, which prescribes the PTO funding 
mechanism.
    First, the requirement in existing subsection (b) that all 
agency funds be credited to a special PTO Appropriation Account 
is deleted; instead, such funds are to be credited to a PTO 
Account in the Treasury.
    Second, the requirement in existing subsection (c) that 
subjects agency access to and expenditure of collected fees to 
appropriations is also deleted. This means that the 
Commissioner will have the authority to collect all fees and 
use them for agency operations until expended. The 
appropriators are not involved.

                              Agency Views

                  The Deputy Secretary of Commerce,
                                       Washington, DC, May 9, 2000.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: I am writing to set forth the views of 
the Administration on H.R. 4034, the Patent and Trademark 
Office Reauthorization Act. The bill amends section 42 of title 
35, United States Code, regarding the fees collected by the 
United States Patent and Trademark Office (USPTO), to delete 
the introductory clause in the first sentence of subsection (c) 
of this section which subjects fees that would otherwise be 
available to the USPTO to the discipline of the appropriations 
process. Because the effect of the change alters the timing of 
the availability of the funds in a way that is inconsistent 
with the President's budget for FY 2001, the Administration 
would oppose enactment of the bill in its current form.
    In FY 2001, the Administration's Budget proposes that of 
fees collected in excess of $783,843,000, $367,744,000 shall 
not become available to the USPTO before October 1, 2001. In 
addition, the Budget proposes that $229,000,000 of fees 
collected in FY 2000 and $25,889,000 of fees collected in FY 
1999 will also become available to the USPTO in FY 2001. By 
amending section 42 to remove the appropriations clause, H.R. 
4034 would make all fees collected by the USPTO immediately 
available.
    The Administration fully supports providing the USPTO with 
sufficient resources to serve America's inventors and to 
strengthen the Nation's intellectual property system. However, 
there are several models that could be considered to ensure the 
USPTO receives funds sufficient to meet its resource needs. To 
that end, the Administration would like to work with the 
Committee to address these concerns.
    While the Administration would oppose the bill in its 
current form, we look forward to working with the Congress to 
meet the needs of the USPTO in furthering the Nation's 
technological growth. The Office of Management and Budget 
advises that there is no objection from the standpoint of the 
Administration's program to the submission of this letter to 
the Committee.
            Sincerely,
                                         Robert L. Mallett.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

               SECTION 42 OF TITLE 35, UNITED STATES CODE

Sec. 42. Patent and Trademark Office funding

    (a)  * * *
    (b) All fees paid to the Director and all appropriations 
for defraying the costs of the activities of the Patent and 
Trademark Office will be credited to the Patent and Trademark 
Office [Appropriation] Account in the Treasury of the United 
States.
    (c) [To the extent and in the amounts provided in advance 
in appropriations Acts, fees] Fees authorized in this title or 
any other Act to be charged or established by the Director 
shall be collected by and shall be available [to the Director] 
until expended to carry out the activities of the Patent and 
Trademark Office. All fees available to the Director under 
section 31 of the Trademark Act of 1946 shall be used only for 
the processing of trademark registrations and for other 
activities, services, and materials relating to trademarks and 
to cover a proportionate share of the administrative costs of 
the Patent and Trademark Office.

           *       *       *       *       *       *       *


                                
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