[House Report 108-241]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-241

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



 
    UNITED STATES PATENT AND TRADEMARK FEE MODERNIZATION ACT OF 2003

                                _______
                                

 July 25, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 1561]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 1561) to amend title 35, United States Code, with respect 
to patent fees, and for other purposes, having considered the 
same, reports favorably thereon with an amendment and 
recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     6
Background and Need for the Legislation..........................     6
Hearings.........................................................    10
Committee Consideration..........................................    11
Vote of the Committee............................................    11
Committee Oversight Findings.....................................    11
New Budget Authority and Tax Expenditures........................    11
Congressional Budget Office Cost Estimate........................    11
Performance Goals and Objectives.................................    14
Constitutional Authority Statement...............................    14
Section-by-Section Analysis and Discussion.......................    14
Changes in Existing Law Made by the Bill, as Reported............    20
Markup Transcript................................................    29

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``United States Patent and Trademark Fee 
Modernization Act of 2003''.

SEC. 2. FEES FOR PATENT SERVICES.

  (a) General Patent Fees.--Section 41(a) of title 35, United States 
Code, is amended to read as follows:
  ``(a) General Fees.--The Director shall charge the following fees:
          ``(1) Filing and basic national fees.--
                  ``(A) On filing each application for an original 
                patent, except for design, plant, or provisional 
                applications, $300.
                  ``(B) On filing each application for an original 
                design patent, $200.
                  ``(C) On filing each application for an original 
                plant patent, $200.
                  ``(D) On filing each provisional application for an 
                original patent, $200.
                  ``(E) On filing each application for the reissue of a 
                patent, $300.
                  ``(F) The basic national fee for each international 
                application filed under the treaty defined in section 
                351(a) of this title entering the national stage under 
                section 371 of this title, $300.
                  ``(G) In addition, excluding any sequence listing or 
                computer program listing filed in an electronic medium 
                as prescribed by the Director, for any application the 
                specification and drawings of which exceed 100 sheets 
                of paper (or equivalent as prescribed by the Director 
                if filed in an electronic medium), $250 for each 
                additional 50 sheets of paper (or equivalent as 
                prescribed by the Director if filed in an electronic 
                medium) or fraction thereof.
          ``(2) Excess claims fees.--In addition to the fee specified 
        in paragraph (1)--
                  ``(A) on filing or on presentation at any other time, 
                $200 for each claim in independent form in excess of 3;
                  ``(B) on filing or on presentation at any other time, 
                $50 for each claim (whether dependent or independent) 
                in excess of 20; and
                  ``(C) for each application containing a multiple 
                dependent claim, $360.
        For the purpose of computing fees under this paragraph, a 
        multiple dependent claim referred to in section 112 of this 
        title or any claim depending therefrom shall be considered as 
        separate dependent claims in accordance with the number of 
        claims to which reference is made. The Director may by 
        regulation provide for a refund of any part of the fee 
        specified in this paragraph for any claim that is canceled 
        before an examination on the merits, as prescribed by the 
        Director, has been made of the application under section 131 of 
        this title. Errors in payment of the additional fees under this 
        paragraph may be rectified in accordance with regulations 
        prescribed by the Director.
          ``(3) Examination fees.--
                  ``(A) For examination of each application for an 
                original patent, except for design, plant, provisional, 
                or international applications, $200.
                  ``(B) For examination of each application for an 
                original design patent, $130.
                  ``(C) For examination of each application for an 
                original plant patent, $160.
                  ``(D) For examination of the national stage of each 
                international application, $200.
                  ``(E) For examination of each application for the 
                reissue of a patent, $600.
        The provisions of section 111(a)(3) of this title relating to 
        the payment of the fee for filing the application shall apply 
        to the payment of the fee specified in this paragraph with 
        respect to an application filed under section 111(a) of this 
        title. The provisions of section 371(d) of this title relating 
        to the payment of the national fee shall apply to the payment 
        of the fee specified in this paragraph with respect to an 
        international application. The Director may by regulation 
        provide for a refund of any part of the fee specified in this 
        paragraph for any applicant who files a written declaration of 
        express abandonment as prescribed by the Director before an 
        examination has been made of the application under section 131 
        of this title, and for any applicant who provides a search 
        report that meets the conditions prescribed by the Director.
          ``(4) Issue fees.--
                  ``(A) For issuing each original patent, except for 
                design or plant patents, $1,400.
                  ``(B) For issuing each original design patent, $800.
                  ``(C) For issuing each original plant patent, $1,100.
                  ``(D) For issuing each reissue patent, $1,400.
          ``(5) Disclaimer fee.--On filing each disclaimer, $130.
          ``(6) Appeal fees.--
                  ``(A) On filing an appeal from the examiner to the 
                Board of Patent Appeals and Interferences, $500.
                  ``(B) In addition, on filing a brief in support of 
                the appeal, $500, and on requesting an oral hearing in 
                the appeal before the Board of Patent Appeals and 
                Interferences, $1,000.
          ``(7) Revival fees.--On filing each petition for the revival 
        of an unintentionally abandoned application for a patent, for 
        the unintentionally delayed payment of the fee for issuing each 
        patent, or for an unintentionally delayed response by the 
        patent owner in any reexamination proceeding, $1,500, unless 
        the petition is filed under section 133 or 151 of this title, 
        in which case the fee shall be $500.
          ``(8) Extension fees.--For petitions for 1-month extensions 
        of time to take actions required by the Director in an 
        application--
                  ``(A) on filing a first petition, $120;
                  ``(B) on filing a second petition, $330; and
                  ``(C) on filing a third or subsequent petition, 
                $570.''.
  (b) Patent Maintenance Fees.--Section 41(b) of title 35, United 
States Code, is amended to read as follows:
  ``(b) Maintenance Fees.--The Director shall charge the following fees 
for maintaining in force all patents based on applications filed on or 
after December 12, 1980:
          ``(1) 3 years and 6 months after grant, $900.
          ``(2) 7 years and 6 months after grant, $2,300.
          ``(3) 11 years and 6 months after grant, $3,800.
Unless payment of the applicable maintenance fee is received in the 
United States Patent and Trademark Office on or before the date the fee 
is due or within a grace period of 6 months thereafter, the patent will 
expire as of the end of such grace period. The Director may require the 
payment of a surcharge as a condition of accepting within such 6-month 
grace period the payment of an applicable maintenance fee. No fee may 
be established for maintaining a design or plant patent in force.''.
  (c) Patent Search Fees.--Section 41(d) of title 35, United States 
Code, is amended to read as follows:
  ``(d) Patent Search and Other Fees.--
          ``(1) Patent search fees.--(A) The Director shall charge a 
        fee for the search of each application for a patent, except for 
        provisional applications. The Director shall establish the fees 
        charged under this paragraph to recover an amount not to exceed 
        the estimated average cost to the Office of searching 
        applications for patent either by acquiring a search report 
        from a qualified search authority, or by causing a search by 
        Office personnel to be made, of each application for patent.
          ``(B) For purposes of determining the fees to be established 
        under this paragraph, the cost to the Office of causing a 
        search of an application to be made by Office personnel shall 
        be deemed to be--
                  ``(i) $500 for each application for an original 
                patent, except for design, plant, provisional, or 
                international applications;
                  ``(ii) $100 for each application for an original 
                design patent;
                  ``(iii) $300 for each application for an original 
                plant patent;
                  ``(iv) $500 for the national stage of each 
                international application; and
                  ``(v) $500 for each application for the reissue of a 
                patent.
          ``(C) The provisions of section 111(a)(3) of this title 
        relating to the payment of the fee for filing the application 
        shall apply to the payment of the fee specified in this 
        paragraph with respect to an application filed under section 
        111(a) of this title. The provisions of section 371(d) of this 
        title relating to the payment of the national fee shall apply 
        to the payment of the fee specified in this paragraph with 
        respect to an international application.
          ``(D) The Director may by regulation provide for a refund of 
        any part of the fee specified in this paragraph for any 
        applicant who files a written declaration of express 
        abandonment as prescribed by the Director before an examination 
        has been made of the application under section 131 of this 
        title, and for any applicant who provides a search report that 
        meets the conditions prescribed by the Director.
          ``(E) For purposes of subparagraph (A), a `qualified search 
        authority' may not include a commercial entity unless--
                  ``(i) the Director conducts a pilot program of 
                limited scope, conducted over a period of not more than 
                18 months, which demonstrates that searches by 
                commercial entities of the available prior art relating 
                to the subject matter of inventions claimed in patent 
                applications--
                          ``(I) are accurate; and
                          ``(II) meet or exceed the standards of 
                        searches conducted by and used by the Patent 
                        and Trademark Office during the patent 
                        examination process;
                  ``(ii) the Director submits a report on the results 
                of the pilot program to the Congress and the Patent 
                Public Advisory Committee that includes--
                          ``(I) a description of the scope and duration 
                        of the pilot program;
                          ``(II) the identity of each commercial entity 
                        participating in the pilot program;
                          ``(III) an explanation of the methodology 
                        used to evaluate the accuracy and quality of 
                        the search reports;
                          ``(IV) an assessment of the effects that the 
                        pilot program, as compared to searches 
                        conducted by the Patent and Trademark Office, 
                        had and will have on--
                                  ``(aa) patentability determinations:
                                  ``(bb) productivity of the Patent and 
                                Trademark Office;
                                  ``(cc) costs to the Patent and 
                                Trademark Office;
                                  ``(dd) costs to patent applicants; 
                                and
                                  ``(ee) other relevant factors;
                  ``(iii) the Patent Public Advisory Committee reviews 
                and analyzes the Director's report under clause (ii) 
                and the results of the pilot program and submits a 
                separate report on its analysis to the Director and the 
                Congress that includes--
                          ``(I) an independent evaluation of the 
                        effects that the pilot program, as compared to 
                        searches conducted by the Patent and Trademark 
                        Office, had and will have on the factors set 
                        forth in clause (ii)(IV); and
                          ``(II) an analysis of the reasonableness, 
                        appropriateness, and effectiveness of the 
                        methods used in the pilot program to make the 
                        evaluations required under clause (ii)(IV); and
                  ``(iv) the Congress does not, during the 1-year 
                period beginning on the date on which the Patent Public 
                Advisory Committee submits its report to the Congress 
                under clause (iii), enact a law prohibiting searches by 
                commercial entities of the available prior art relating 
                to the subject matter of inventions claimed in patent 
                applications.
          ``(2) Other fees.--The Director shall establish fees for all 
        other processing, services, or materials relating to patents 
        not specified in this section to recover the estimated average 
        cost to the Office of such processing, services, or materials, 
        except that the Director shall charge the following fees for 
        the following services:
                  ``(A) For recording a document affecting title, $40 
                per property.
                  ``(B) For each photocopy, $.25 per page.
                  ``(C) For each black and white copy of a patent, $3.
        The yearly fee for providing a library specified in section 12 
        of this title with uncertified printed copies of the 
        specifications and drawings for all patents in that year shall 
        be $50.''.
  (d) Adjustments.--Section 41(f) of title 35, United States Code, 
shall apply to the fees established under the amendments made by this 
section, beginning in fiscal year 2005.
  (e) Conforming Amendments.--
          (1) Section 41 of title 35, United States Code, is amended--
                  (A) in subsection (c), by striking ``(c)(1)'' and 
                inserting ``(c) Late Payment of Fees.--(1)'';
                  (B) in subsection (e), by striking ``(e)'' and 
                inserting ``(e) Waivers of Certain Fees.--'';
                  (C) in subsection (f), by striking ``(f)'' and 
                inserting ``(f) Adjustments in Fees.--'';
                  (D) in subsection (g), by striking ``(g)'' and 
                inserting ``(g) Effective Dates of Fees.--'';
                  (E) in subsection (h), by striking ``(h)(1)'' and 
                inserting ``(h) Reductions in Fees for Certain 
                Entities.--(1)''; and
                  (F) in subsection (i), by striking ``(i)(1)'' and 
                inserting ``(i) Search Systems.--(1)''.
          (2) Section 119(e)(2) of title 35, United States Code, is 
        amended by striking ``subparagraph (A) or (C) of''.

SEC. 3. ADJUSTMENT OF TRADEMARK FEES.

  (a) Fee for Filing Application.--The fee under section 31(a) of the 
Trademark Act of 1946 (15 U.S.C. 1113(a)) for filing an electronic 
application for the registration of a trademark shall be $325. If the 
trademark application is filed on paper, the fee shall be $375. The 
Director may reduce the fee for filing an electronic application for 
the registration of a trademark to $275 for any applicant who 
prosecutes the application through electronic means under such 
conditions as may be prescribed by the Director. Beginning in fiscal 
year 2005, the provisions of the second and third sentences of section 
31(a) of the Trademark Act of 1946 shall apply to the fees established 
under this section.
  (b) Reference to Trademark Act of 1946.--For purposes of this 
section, the ``Trademark Act of 1946'' refers to the Act entitled ``An 
Act to provide for the registration and protection of trademarks used 
in commerce, to carry out the provisions of certain international 
conventions, and for other purposes.'', approved July 5, 1946 (15 
U.S.C. 1051 et seq.).

SEC. 4. CORRECTION OF ERRONEOUS NAMING OF OFFICER.

  (a) Correction.--Section 13203(a) of the 21st Century Department of 
Justice Appropriations Authorization Act (Public Law 107-273; 116 Stat. 
1902) is amended--
          (1) in the subsection heading, by striking ``Commissioner'' 
        and inserting ``Director''; and
          (2) in paragraphs (1) and (2), by striking ``Commissioner'' 
        each place it appears and inserting ``Director''.
  (b) Effective Date.--The amendments made by subsection (a) shall be 
effective as of the date of the enactment of Public Law 107-273.

SEC. 5. PATENT AND TRADEMARK OFFICE FUNDING.

  Section 42 of title 35, United States Code, is amended--
          (1) in subsection (b), by striking ``Appropriation''; and
          (2) in subsection (c), in the first sentence--
                  (A) by striking ``To the extent'' and all that 
                follows through ``fees'' and inserting ``Fees''; and
                  (B) by striking ``shall be collected by and shall be 
                available to the Director'' and inserting ``shall be 
                collected by the Director and shall be available until 
                expended''.

SEC. 6. EFFECTIVE DATE, APPLICABILITY, AND TRANSITIONAL PROVISION.

  (a) Effective Date.--Except as provided in section 4 and this 
section, this Act and the amendments made by this Act shall take effect 
on October 1, 2003, or the date of the enactment of this Act, whichever 
is later.
  (b) Applicability.--
          (1)(A) Except as provided in subparagraphs (B) and (C), the 
        amendments made by section 2 shall apply to all patents, 
        whenever granted, and to all patent applications pending on or 
        filed after the effective date set forth in subsection (a) of 
        this section.
          (B)(i) Except as provided in clause (ii), sections 41(a)(1), 
        41(a)(3), and 41(d)(1) of title 35, United States Code, as 
        amended by this Act, shall apply only to--
                  (I) applications for patents filed under section 
                111(a) of title 35, United States Code, on or after the 
                effective date set forth in subsection (a) of this 
                section, and
                  (II) international applications entering the national 
                stage under section 371 of title 35, United States 
                Code, for which the basic national fee specified in 
                section 41 of title 35, United States Code, was not 
                paid before the effective date set forth in subsection 
                (a) of this section.
          (ii) Section 41(a)(1)(D) of title 35, United States Code as 
        amended by this Act, shall apply only to applications for 
        patent filed under section 111(b) of title 35, United States 
        Code, before, on, or after the effective date set forth in 
        subsection (a) of this section in which the filing fee 
        specified in section 41 of title 35, United States Code, was 
        not paid before the effective date set forth in subsection (a) 
        of this section.
          (C) Section 41(a)(2) of title 35, United States Code, as 
        amended by this Act, shall apply only to the extent that the 
        number of excess claims, after giving effect to any 
        cancellation of claims, is in excess of the number of claims 
        for which the excess claims fee specified in section 41 of 
        title 35, United States Code, was paid before the effective 
        date set forth in subsection (a) of this section.
          (2) The amendments made by section 3 shall apply to all 
        applications for the registration of a trademark filed or 
        amended on or after the effective date set forth in subsection 
        (a) of this section.
  (c) Transitional Provisions.--
          (1) Search fees.--During the period beginning on the 
        effective date set forth in subsection (a) of this section and 
        ending on the date on which the Director establishes search 
        fees under the authority provided in section 41(d)(1) of title 
        35, United States Code, the Director shall charge--
                  (A) for the search of each application for an 
                original patent, except for design, plant, provisional, 
                or international application, $500;
                  (B) for the search of each application for an 
                original design patent, $100;
                  (C) for the search of each application for an 
                original plant patent, $300;
                  (D) for the search of the national stage of each 
                international application, $500; and
                  (E) for the search of each application for the 
                reissue of a patent, $500.
          (2) Timing of fees.--The provisions of section 111(a)(3) of 
        title 35, United States Code, relating to the payment of the 
        fee for filing the application shall apply to the payment of 
        the fee specified in paragraph (1) with respect to an 
        application filed under section 111(a) of title 35, United 
        States Code. The provisions of section 371(d) of title 35, 
        United States Code, relating to the payment of the national fee 
        shall apply to the payment of the fee specified in paragraph 
        (1) with respect to an international application.
          (3) Refunds.--The Director may by regulation provide for a 
        refund of any part of the fee specified in paragraph (1) for 
        any applicant who files a written declaration of express 
        abandonment as prescribed by the Director before an examination 
        has been made of the application under section 131 of title 35, 
        United States Code, and for any applicant who provides a search 
        report that meets the conditions prescribed by the Director.
  (d) Existing Appropriations.--The provisions of any appropriation Act 
that make amounts available pursuant to section 42(c) of title 35, 
United States Code, and are in effect on the effective date set forth 
in subsection (a) shall cease to be effective on that effective date.

SEC. 7. DEFINITION.

  In this Act, the term ``Director'' means the Under Secretary of 
Commerce for Intellectual Property and Director of the United States 
Patent and Trademark Office.

SEC. 8. CLERICAL AMENDMENT.

  Subsection (c) of section 311 of title 35, United States Code, is 
amended by aligning the text with the text of subsection (a) of such 
section.

                          Purpose and Summary

    The primary purpose of H.R. 1561 is to readjust the fee 
schedule that funds the operations of the U.S. Patent and 
Trademark Office (PTO), thereby generating an additional $201 
million in fiscal year 2004 revenue for agency use. The 
legislation also prevents future ``diversion'' of PTO funds to 
programs unrelated to the agency.
    The Honorable James E. Rogan, Director of the PTO, insists 
that enactment of the fee schedule is a necessary precursor to 
implementation of other administrative changes set forth in the 
agency's ``Strategic Business Plan.'' The Plan was developed 
pursuant to a congressional mandate eventually codified in the 
``21st Century Department of Justice Appropriations 
Authorization Act.'' \1\ The Plan is designed to implement 
reforms that will enhance patent and trademark quality and 
reduce application pendency and backlogs at the agency.
---------------------------------------------------------------------------
    \1\ Pub. L. 107-685, Sec. Sec. 13101-13104.
---------------------------------------------------------------------------
    Additionally, given that the PTO is completely funded 
through the imposition of user fees, the ongoing appropriations 
practice of diverting a percentage of fee revenue to non-PTO 
use is of great concern to Committee members, inventors, and 
trademark filers. Representatives of the user community have 
stated that their members are not opposed to reasonable fee 
increases, but are concerned that the appropriators will divert 
much of the extra revenue to non-agency use. Section 5 of H.R. 
1561 acknowledges this ``anti-diversion'' sentiment by 
empowering the Director to collect and draw upon all of the fee 
revenue that the agency raises in a given fiscal year until 
expended.

                Background and Need for the Legislation


                  REVISED 21ST CENTURY STRATEGIC PLAN

    In General. As noted, Public Law 107-685 required the PTO 
to develop a five-year Strategic Plan to address problems 
regarding quality, pendency, and delays in implementing a fully 
electronic patent environment at the agency. Congress 
specifically directed the PTO to identify corrective measures 
other than hiring more examiners and to implement electronic 
processing for patents by FY 2004.
    Since June 2002, the PTO has revised its Strategic Plan in 
response to comments from Congress and the user community.\2\ 
In its now revised Plan, the agency has addressed these issues 
and identified goals and initiatives that are largely supported 
by the major trade associations which represent patent and 
trademark filers.\3\ While the agency has demonstrated a 
commitment to embrace top-to-bottom reform consistent with 
congressional mandates, it is equally clear that PTO requires 
additional revenue to implement these changes. As Director 
Rogan has noted:
---------------------------------------------------------------------------
    \2\ See The U.S. Patent and Trademark Office: Fee Schedule 
Adjustment and Agency Reform: Oversight Hearing Before the Subcomm. on 
Courts, the Internet, and Intellectual Property of the House Comm. on 
the Judiciary, 107th Cong., 2nd Sess., Final Print Serial No. 92 
(2002). The transcript may also be accessed at the Committee website: 
www.house.gov/judiciary/courts.
    \3\ Letter from Carl B. Feldbaum, President, Biotechnology Industry 
Organization, to the Honorable Mitchell E. Daniels, Jr., Director, 
Office of Management and Budget (November 25, 2002); joint letter from 
Ronald E. Myrick, President, American Intellectual Property Law 
Association, John K. Williamson, President, Intellectual Property 
Owners Association, and Nils Victor Montan, President, International 
Trademark Association, to Director Daniels (November 22, 2002); letter 
from Mark T. Banner, Chair, and Charles P. Baker, Immediate Past Chair, 
Section of Intellectual Property Law, the American Bar Association, to 
Director Daniels (November 22, 2002). It should be noted, however, that 
the signatories qualified their support of the fee increases and other 
changes upon the Administration ``effectively [addressing] the issue of 
diversion'' (Myrick, Williamson, Montan, Banner, and Baker) or 
``[taking] steps to stop diversion'' (Feldbaum).
    In a related matter, the Honorable Donald Evans, Secretary of 
Commerce, testified at a March 6, 2003, hearing before the Subcommittee 
on Commerce, Justice, State and Judiciary of the House Committee on 
Appropriations. According to a PTO news release dated March 7, the 
Secretary stated that ``the Department is working to eliminate the 
practice of using [agency] revenues for unrelated federal programs.''

          [Implementation of the revised Strategic Plan] hinges 
        on passage of [H.R. 1561]. Without the ability to hire 
        and train new examiners and also improve 
        infrastructure, our hands will be tied * * *. The 
        consequences of failing to enact the fee bill and 
        giving the [PTO] access to those fees will mean quality 
        and pendency will continue to significantly suffer. We 
        will be unable to hire needed examiners, and over 
        140,000 patents will not issue over the next five 
        years. The inventory of unexamined patent applications 
        will skyrocket to a backlog of over one-million 
        applications by 2008--more than double the current 
        amount--and pendency (as measured from the time of 
        filing) will jump to over 40 months average in the next 
        few years. This would represent the highest pendency 
        rate in decades.\4\
---------------------------------------------------------------------------
    \4\ H.R. 1561, the ``Patent and Trademark Fee Modernization Act of 
2003'': Hearing Before the Subcomm. on Courts, the Internet, and 
Intellectual Property of the House Comm. on the Judiciary, 108th Cong., 
1st Sess. (written testimony of the Honorable James E. Rogan, Under 
Secretary of Commerce for Intellectual Property and Director of the 
U.S. Patent and Trademark Office).

                  SUMMARY OF BASIC FEE SCHEDULE CHANGES
------------------------------------------------------------------------
                                                               Revised
                                                Current fee    proposed
                                                                 fee
------------------------------------------------------------------------
Patent Large Entity:
    Filing....................................         $750         $300
    Search....................................           NA      \1\ 500
    Examination...............................           NA      \1\ 200
    Pre-Grant Publication.....................          300          300
    Issue.....................................        1,300        1,400
    Maintenance (1st Stage)...................          890          900
    Maintenance (2nd Stage)...................        2,050        2,300
    Maintenance (3rd Stage)...................        3,150        3,800
                                               -------------------------
      Total...................................        8,440        9,700
                                               =========================
Patent Small Entity:
    Filing....................................          375          150
    Search....................................           NA      \1\ 500
    Examination...............................           NA      \1\ 100
    Pre-Grant Publication.....................          300          300
    Issue.....................................          650          700
    Maintenance (1st Stage)...................          445          450
    Maintenance (2nd Stage)...................        1,025        1,150
    Maintenance (3rd Stage)...................        1,575        2,500
                                               -------------------------
      Total...................................        4,370        5,250
                                               =========================
Trademark:
    Application (Paper).......................          335          375
    Application (Electronic)..................           NA          325
    Application (Expedited)...................           NA          275
------------------------------------------------------------------------
\1\ Refundable in part depending upon stage of express abandonment.

    In addition to these basic fees, the revised Plan contains 
other recommendations that would create new or higher fees 
based on the complexity of a submitted application. For 
example, applications with drawings and specifications that 
exceed 100 pages are subject to a $250 fee for each additional 
block of 50 pages, while applications which feature four or 
more independent claims or more than 20 total claims would be 
subject to higher fees. These new or higher fees reflect the 
administrative reality that larger and more complex 
applications are more time-consuming for the agency to process.
    Other Highlights. The full text of the original Plan 
exceeds 300 pages. In a 17-page summary, which may be accessed 
at the PTO website (www.uspto.gov), the agency indicates, among 
other things, that it wishes to pursue the following high-
profile changes as part of the revised version:
    Out-sourcing of search function. The functions of searching 
and examination would be split, which would include ``out-
sourcing'' some search duties to private firms. (Representative 
Lamar Smith, Chairman of the Committee's Subcommittee on 
Courts, the Internet, and Intellectual Property, offered a 
relevant amendment on behalf of himself and Representative 
Howard Berman during the May 22, 2003, Subcommittee markup of 
H.R. 1561. Pursuant to the Smith-Berman amendment, the practice 
of out-sourcing the search function must initially be limited 
to a pilot project.)
    Certification of PTO employees. PTO workers would be 
subject to a more extensive employee review and certification 
process.
    Bilateral and Multilateral Trade Agreements. More trade 
agreements would be negotiated to ``facilitate global 
convergence of patent standards.''
    Ramping-up of paperless operations. Changes would be made 
to expedite the comprehensive implementation of an electronic 
communications system.
    The Committee will continue to monitor PTO operations 
throughout the 108th Congress. This will include conducting any 
necessary oversight hearings and responding to appropriate 
legislative requests that will assist the agency in its efforts 
to reduce pendency and backlogs and to improve patent and 
trademark quality consistent with the directives set forth in 
Public Law 107-685.

                    PTO FUNDING DIVERSION: A 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. 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 that would be 
withdrawn, OBRA imposed a massive statutory patent fee increase 
(referred to as a ``surcharge'') on American inventors for a 
five-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 for the purposes of appropriations. 
This meant that every dollar not spent from the surcharge fund 
would enable the appropriations of another taxpayer dollar to 
underwrite a different (non-PTO) initiative.
    Initially, Congress appropriated the total amount deposited 
in the fund to PTO. After only one year, however, Congress 
began to withhold a portion of the amount deposited in the 
surcharge fund annually so that it could funnel additional 
money to other programs. Compounding the problem, Congress 
extended the OBRA surcharge provisions for an additional three 
years to take further advantage of the arrangement and later 
increased the statutory fees to compensate for the lapse of the 
surcharge after it expired at the end of fiscal year 1998.
    By denying PTO the ability to spend fee revenue in the same 
fiscal year in which it collects the revenue, an equivalent 
amount may be appropriated to some other program without 
exceeding their budget 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 
each succeeding fiscal year. As a result, more than $700 
million has been diverted from PTO over the past 11 fiscal 
years.

         PTO FUNDING DIVERSION: PREVIOUS SUBCOMMITTEE RESPONSES

    Previous attempts by the Subcommittee on Courts, the 
Internet, and Intellectual Property to end fee diversion have 
met with little success. During the 106th Congress, 
Representative Howard Coble offered an amendment to the House 
version of the Commerce-Justice-State appropriations vehicle 
\5\ to restore nearly $134 million in PTO funding for Fiscal 
Year 2001 by reducing the budgets for three other programs in 
the bill by an identical amount. Despite a 2\1/2\-hour debate 
on the amendment, it ultimately failed by a substantial margin 
(145-223).
---------------------------------------------------------------------------
    \5\ H.R. 4690, 106th Cong., 2nd Sess. (2000).
---------------------------------------------------------------------------
    In the succeeding Congress, the Subcommittee reviewed as 
part of a PTO oversight hearing measures that would have: (1) 
removed PTO funding from the appropriations process \6\ and (2) 
created a new point of order against any House bill to deny the 
agency full funding.\7\ The general consensus among 
Subcommittee members and industry representatives at the time 
was that neither bill stood a good chance of being enacted, so 
no further action was taken.
---------------------------------------------------------------------------
    \6\ H.R. 740, 107th Cong., 1st Sess. (2001) (Representative Howard 
Coble, sponsor). But note that H.R. 4034, the precursor bill to H.R. 
740, was reported by Committee and placed on the Union Calendar during 
the 106th Congress. It was not considered because of opposition by the 
Appropriations Committee.
    \7\ H. Res. 110, 107th Cong., 1st Sess. (2001) (Representative 
Howard Berman, sponsor).
---------------------------------------------------------------------------

  ADMINISTRATION AND COMMITTEE BUDGET SUBMISSIONS FOR FISCAL YEAR 2004

    The Administration has requested $1,404,130,000 for PTO 
operations in FY 2004, derived from offsetting collections 
assessed and collected pursuant to 15 U.S.C. Sec. 1113 
(trademarks) and 35 U.S.C. Sec. 41 and Sec. 376 (patents). To 
generate this revenue, the Administration recommends that 
Congress amend these statutes by implementing the fee 
modernization legislation under consideration here and certain 
legislative components of the revised Strategic Plan. The new 
fees are estimated to raise an additional $201 million, which 
represents roughly a 15% increase above existing rates.
    The Administration argues that increased fees are essential 
for the PTO to make necessary investments in personnel and 
systems that support the Strategic Plan. At the same time, 
however, approximately $100 million of the revenue would be 
diverted for homeland security and other general treasury 
purposes. This is approximately a 50% decrease from last year's 
amount of diverted fees.
    The Committee on the Judiciary recommended in its views-
and-estimates submission to the Committee on the Budget that 
the PTO receive 100% of its projected fee income in FY 2004. 
Among other things, this additional funding will help to 
expedite implementation of the revised Strategic Plan. The 
Committee therefore submitted a higher recommendation 
($1,500,000,000) than that set forth in the President's budget 
in light of the ongoing diversion of PTO funds. In its 
submission, the Committee noted its concern that the full 
amount of current year fee collections generated by user fee-
paid requests for products and services has not been made 
available to the PTO, and thereby adversely affected delivery 
of services paid for by applicants.

                                Hearings

    The Committee's Subcommittee on Courts, the Internet, and 
Intellectual Property held a hearing on H.R. 1561 on April 3, 
2003. Testimony was received from the Patent and Trademark 
Office, Director, James E. Rogan, and representatives of two 
user groups, and the president of a patent examiner's union.

                        Committee Consideration

    On May 22, 2003, the Subcommittee on Courts, the Internet, 
and Intellectual Property met in open session and ordered 
favorably reported the bill H.R. 1561, with an amendment, by 
voice vote, a quorum being present. On July 9, 2003, the 
Committee met in open session and ordered favorably reported 
the bill H.R. 1561, with an amendment, by voice vote, a quorum 
being present.

                         Vote of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the Committee consideration of 
H.R. 1561.

                      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.

               New Budget Authority and Tax Expenditures

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

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1561, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                                     July 23, 2003.
Hon. James Sensenbrenner, Jr.,
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. 1561, the United 
States Patent and Trademark Fee Modernization Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. the CBO staff contact is Melissa E. 
Zimmerman.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 1561--United States Patent and Trademark Fee Modernization Act of 
        2003

    Summary: H.R. 1561 would increase the fees that the Patent 
and Trademark Office (PTO) collects for activities related to 
the processing and filing of patent and trademark applications. 
The bill also would grant the PTO permanent authority to 
collect and spend those fees. Under current law, the collection 
and spending of those fees is subject to provisions in 
appropriation acts.
    CBO estimates that enacting the bill would result in a net 
decrease in direct spending of about $58 million in 2004, about 
$140 million over the 2004-2008 period, and about $220 million 
over the 2004-2013 period.
    Enacting H.R. 1561 also could reduce the future need for 
appropriated funds for the agency's operating expenses; 
however, in recent years, the net appropriation to the PTO 
(including offsetting collections from fees) has been negative. 
For example, in 2003 the net PTO appropriation is estimated to 
be -$48 million.
    H.R. 1561 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments. H.R. 1561 would 
impose private-sector mandates as defined in UMRA on patent and 
trademark applicants. Based on information provided by the PTO, 
CBO expects that the direct costs of complying with those 
mandates would exceed the annual threshold established by UMRA 
($117 million in 2003, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1561 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2004    2005    2006    2007    2008    2009    2010    2011    2012    2013
----------------------------------------------------------------------------------------------------------------
                                         CHANGES IN DIRECT SPENDING \1\

Reclassification of PTO fees:
    Estimated budget authority..    -1.3    -1.4    -1.4    -1.5    -1.6    -1.7    -1.7    -1.8    -1.9    -2.0
    Estimated outlays...........    -1.3    -1.4    -1.4    -1.5    -1.6    -1.7    -1.7    -1.8    -1.9    -2.0
Increase in PTO fees under H.R.
 1561:
    Estimated budget authority..    -0.2    -0.2    -0.2    -0.2    -0.2    -0.2    -0.2    -0.3    -0.3    -0.3
    Estimated outlays...........    -0.2    -0.2    -0.2    -0.2    -0.2    -0.2    -0.2    -0.3    -0.3    -0.3
Total PTO fees under H.R. 1561:
    Estimated budget authority..    -1.5    -1.6    -1.7    -1.7    -1.8    -1.9    -2.0    -2.1    -2.2    -2.3
    Estimated outlays...........    -1.5    -1.6    -1.7    -1.7    -1.8    -1.9    -2.0    -2.1    -2.2    -2.3
Spending of PTO fees:
    Estimated budget authority..     1.5     1.6     1.7     1.7     1.8     1.9     2.0     2.1     2.2     2.3
    Estimated outlays...........     1.4     1.5     1.6     1.7     1.8     1.9     2.0     2.1     2.1     2.2
Net changes in direct spending
 under H.R. 1561:
    Estimated budget authority..       0       0       0       0       0       0       0       0       0       0
    Estimated outlays...........    -0.1       *       *       *       *       *       *       *       *       *
----------------------------------------------------------------------------------------------------------------
\1\ Enactment of H.R. 1561 also could lead to changes in discretionary spending if the Congress chose to
  eliminate future appropriations to the PTO in annual appropriation acts. In recent years, net appropriations
  to the PTO have been negative because appropriation acts have limited the agency's spending to a level below
  annual fee collections.

Notes:
*=Savings of less than $50 million.
Details may not sum to totals due to rounding.

    Basis of estimate: Under current law, the PTO is authorized 
to collect fees for activities related to processing 
applications for patents and trademarks. The agency assesses 
and collects fees for a number of different activities, and the 
rate for each is set in law. The collection and spending of 
those fees are subject to provisions in annual appropriations 
acts, and the fees are recorded in the budget as offsets to the 
discretionary spending of the PTO. CBO estimates that the 
agency will collect a total of about $1.2 billion in fees in 
2003.
    In general, those fee collections cover the PTO's operating 
expenses. However, the 2003 appropriation act for the PTO 
placed a limit on the amount of fee collections that the agency 
could spend. Of the estimated $1.2 billion in fees that will be 
collected in 2003, the act allowed the PTO to spend $1.1 
billion. (The Congress also allowed the agency to spend $167 
million from fees collected in prior fiscal years, resulting in 
a gross appropriation for the PTO of $1.2 million and an 
estimated net appropriation of -$48 million for 2003.)

Changes in direct spending

    H.R. 1561 would have two effects on the PTO's collections. 
First, the bill would authorize the PTO to collect and spend 
the fees without further appropriation action. Because the 
PTO's collection and spending of fees would no longer be 
controlled by the availability of appropriated funds, the bill 
would make all of the fees available to the agency for 
spending. Second, the bill would restructure and, in many 
cases, increase the fee rates that the PTO charges for 
activities related to patent and trademark applications. For 
example, the bill would increase the fee the PTO charges for 
issuing an original patent (other than design or plant patents) 
from $1,300 to $1,400, and also would create a new fee for 
trademark applications that are filed electronically.
    Based on historical experience, CBO estimates that the 
amount collected under the current PTO fee structure will 
increase by about 5 percent a year. After accounting for the 
increased fee rates under the bill, CBO estimates that PTO fees 
would increase by about 14 percent in 2004 compared to the fee 
rates that will apply under current law. CBO estimates that 
enacting the bill would increase fees collected by the PTO by 
$192 million in 2004, about $1 billion over the 2004-2008 
period, and about $2.3 billion over the 2004-2013 period.
    CBO estimates that the PTO's collections under current law, 
together with the additional collections resulting from the 
increased fee rates under the bill, would be about $1.5 billion 
in 2004, about $8.3 billion over the 2004-2008 period, and 
about $18.7 billion over the 2004-2013 period. Under the bill, 
spending would no longer be controlled by annual 
appropriations, so the total amount of fee collections in each 
year would be available for the agency to spend. CBO estimates 
that enacting the bill would increase direct spending by about 
$1.4 billion in 2004, about $8.1 billion over the 2004-2008 
period, and about $18.4 billion over the 2004-2013 period. 
Because this spending would be offset by fee collections, CBO 
estimates that the net decrease in direct spending under H.R. 
1561 would be $58 million in 2004, about $140 million over the 
2004-2008 period, and about $220 million over the 2004-2013 
period.

Spending subject to appropriation

    The bill could eliminate potential discretionary savings 
resulting from the PTO collecting more fees than it spends. In 
2003, for example, CBO expects that total fee collections will 
be about $1.2 billion. For that year, the PTO's appropriation 
was about $48 million less than those fee collections. Net 
discretionary spending for the PTO in 2004 and beyond depends 
on future appropriations acts.
    Estimated impact on state, local, and tribal governments: 
H.R. 1561 contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: H.R. 1561 would 
impose private-sector mandates as defined in UMRA on patent and 
trademark applicants. Patent and trademark fees are private-
sector mandates because the federal government controls the 
trademark and patent systems and no reasonable alternatives to 
the systems exist. The bill would increase fees and establish 
new fees for certain patent and trademark services. At the same 
time, the bill would reduce certain filing fees for patents and 
fees for electronic applications to register trademarks. Based 
on information from the PTO, CBO estimates that the aggregate 
direct cost of those mandates would range from about $190 
million in 2004 to about $225 million in 2008 and would exceed 
the annual threshold established by UMRA ($117 million in 2003, 
adjusted annually for inflation) in each of the next five 
years.
    Estimate prepared by: Federal costs: Melissa E. Zimmerman; 
impact on state, local, and tribal governments: Sarah Puro; 
impact on the private sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    Performance Goals and Objectives

    In compliance with, clause 3(c)(4) of rule XIII of the 
Rules of the House of Representatives the Committee notes that 
H.R. 1561 provides significant new funding to the Patent and 
Trademark Office. The Committee expects that the Patent and 
Trademark Office will use that funding in accordance with its 
Revised Strategic Plan.

                   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, section 8, of the Constitution.

               Section-by-Section Analysis and Discussion

    Sec. 1. Short Title. Section One sets forth the short title 
of the bill, the ``United States Patent and Trademark Office 
Fee Modernization Act of 2003.''
    Sec. 2. Fees for Patent Services. Section Two prescribes 
the dollar amounts for certain corresponding general patent and 
patent application fees set forth in 35 U.S.C. Sec. 41(a) and 
(b). Section Two also provides for the establishment of a 
search fee under Sec. 41(d). Section 41 now specifies a search 
fee (subsection (d)(1)) and an examination fee (subsection 
(a)(3)) that are separate from the filing fee (subsection 
(a)(1)).
    Section 41(a)(1) sets out the filing fees for applications 
filed under Sec. 111 of the Patent Code (original or reissue) 
and the basic national fee for Patent Cooperation Treaty (PCT) 
international applications (filed under the treaty defined in 
Sec. 351(a) of the Patent Code) entering the national stage 
under Sec. 371 of the Patent Code. Under Sec. 41(a)(1), the 
filing fees for applications filed under Sec. 111 are as 
follows: (1) the filing fee for an application for an original 
patent, except for design, plant, or provisional applications, 
is $300; (2) the filing fee for an application for an original 
plant patent is $200; (3) the filing fee for an application for 
an original design patent is $200; (4) the filing fee for a 
provisional application is $200; and (5) the filing fee for an 
application for the reissue of a patent is $300. Under 
Sec. 41(a)(1), the basic national fee for any PCT international 
application entering the national stage under Sec. 371 is $300.
    Under Sec. 41(a)(1)(G), there is an additional fee for any 
application whose specification and drawings, excluding any 
sequence listing or computer program listing filed in an 
electronic medium as prescribed by the Director, exceed 100 
sheets of paper (or equivalent as prescribed by the Director if 
filed in an electronic medium). The additional fee under 
Sec. 41(a)(1)(G) is $250 for each additional 50 sheets of paper 
(or equivalent as prescribed by the Director if filed in an 
electronic medium, excluding any sequence listing or computer 
program listing) or fraction thereof. Sequence listings or 
computer program listings filed in an electronic medium as 
prescribed by the Director are excluded to encourage applicants 
to file any sequence listing or computer program listing in the 
appropriate electronic medium.
    Section 41(a)(2) sets out the excess claims fees for each 
independent claim in excess of 3 and for each claim (whether 
dependent or independent) in excess of 20, and the fee for an 
application containing a multiple dependent claim. The excess 
claims fees required by Sec. 41(a)(2) are due at the time of 
presentation of the claim for which payment is required 
(whether on filing or at a later time) in the application or 
reexamination proceeding.
    Under Sec. 41(a)(2)(A), the excess claims fee for each 
claim in independent form in excess of 3 is $200. Under 
Sec. 41(a)(2)(B), the excess claims fee for each claim (whether 
dependent or independent) in excess of 20 is $50. Under 
Sec. 41(a)(2)(C), the fee for each application containing a 
multiple dependent claim is $360.
    Section 41(a)(3) sets out the examination fees for all 
applications (except for provisional applications), including 
PCT international applications entering the national stage 
under Sec. 371. The examination fee for each application for an 
original patent, except for a design, plant, or international 
application, is $200. The examination fee for each original 
design patent is $130. The examination fee for each original 
plant patent is $160. The examination fee for the national 
stage of an international application is $200. And, the 
examination fee for each reissue application is $600. The 
examination fees for patent applications are set at amounts 
that do not recover the USPTO's costs of examining patent 
applications. The USPTO's costs of examining applications are 
subsidized by issue and maintenance fees under 
Sec. Sec. 41(a)(4) and 41(b).
    Under Sec. 41(a)(3), the provisions of Sec. 111(a)(3) for 
payment of the fee for filing the application apply to the 
payment of the examination fee specified in Sec. 41(a)(3) with 
respect to an application filed under Sec. 111(a), and the 
provisions of Sec. 371(d) for the payment of the national fee 
apply to the payment of the examination fee specified in 
Sec. 41(a)(3) with respect to a PCT international application 
entering the national stage under Sec. 371. Thus, the 
examination fee is due on filing for an application filed under 
Sec. 111(a) or on commencement of the national stage for a PCT 
international application. The examination fee, however, may be 
paid at a later time if paid within such period and under such 
conditions (including payment of a surcharge) as may be 
prescribed by the Director.
    Section 41(a)(3) provides that the Director may prescribe 
regulations to provide a refund of any part of the examination 
fee specified in Sec. 41(a)(3) for any applicant who files a 
written declaration of express abandonment as prescribed by the 
Director before an examination has been made of the application 
under Sec. 131. Under the former patent fee structure, an 
applicant who after paying the filing fee had determined that 
it was not worthwhile to proceed with the application had no 
motivation to terminate the application process prior to 
receiving a first Office action by the USPTO because the entire 
filing fee was a sunk cost under that fee structure. Under the 
revised patent fee structure, such an applicant will be 
motivated to terminate the application process before an 
examination of the application under Sec. 131 because the 
applicant may obtain a refund of the examination fee under 
Sec. 41(a)(3) (as well as the search fee under Sec. 41(d)(1)), 
less any portion retained by the USPTO, if the applicant 
terminates the application process by filing a written 
declaration of express abandonment as prescribed by the 
Director before an examination (including any search) has been 
made of the application under Sec. 131. This provision 
authorizes the USPTO to fix (based upon when an application is 
expected to be taken up for search and examination) a time by 
which a written declaration of express abandonment must be 
filed for an application to obtain such a refund, and develop 
procedures for informing applicants of when this time will 
occur.
    The revised patent fee structure will permit the applicant 
to use the period between the filing date of an application and 
when the application is about to be taken up for action by the 
examiner to determine whether the invention claimed in the 
application has sufficient commercial viability to make it 
worthwhile to proceed with search and examination. The 
applicant may decide to terminate the application process 
because the invention does not have sufficient commercial 
viability by filing a written declaration of express 
abandonment as prescribed by the Director before an examination 
(including any search) has been made of the application under 
Sec. 131 (to obtain any refund provided for by the regulations 
prescribed by the Director). This would abandon the application 
and obviate the need for the USPTO to proceed with the 
examination of the patent application.
    Section 41(a)(4) sets out the fees for issuing a patent. 
Under Sec. 41(a)(4), the fee for issuing each original patent, 
except for design or plant patents, is $1,400; the fee for 
issuing each original design patent is $800; the fee for 
issuing each original plant patent is $1,100; and the fee for 
issuing each reissue patent is $1,400.
    Section 41(a)(5) sets out the fee due upon filing a 
disclaimer under section 253 of the Patent Code in a patent or 
a patent application, which is $130.
    Section 41(a)(6) sets out the appeal fees. Under 
Sec. 41(a)(6), the fee due upon filing an appeal from the 
examiner to the Board of Patent Appeals and Interferences is 
$500, the fee due upon filing a brief in support of the appeal 
is an additional $500, and the fee due for requesting an oral 
hearing in the appeal before the Board of Patent Appeals and 
Interferences is an additional $1,000.
    Section 41(a)(7) sets out the fees due upon filing a 
petition to revive an abandoned application or to accept a 
delayed response by the patent owner in a reexamination 
proceeding, which is $1,500, unless the petition is filed under 
Sec. 133 or Sec. 151 of the Patent Code, in which case the fee 
is $500.
    Section 41(a)(8) sets out the fees due upon filing a 
petition for one-month extensions of time. Under Sec. 41(a)(8), 
the fee for filing the first one-month petition is $120; the 
fee for filing the second one-month petition is $330; and the 
fee for filing the third or each subsequent one-month petition 
is $570.
    Section 41(b) sets out the fee for maintaining in force a 
patent based on applications filed on or after December 12, 
1980. Under Sec. 41(b), the maintenance fee due at 3 years and 
6 months after grant is $900; the maintenance fee due 7 years 
and 6 months after grant is $2,300; and the maintenance fee due 
11 years and 6 months after grant is $3,800. Section 41(b) also 
provides that unless payment of the applicable maintenance fee 
is received in the USPTO on or before the date on which the fee 
is due or within a grace period of 6 months thereafter, the 
patent will expire as of the end of such grace period, that the 
Director may require the payment of a surcharge as a condition 
of accepting within such 6-month grace period the payment of an 
applicable maintenance fee, and that no fee may be established 
for maintaining a design or plant patent in force.
    Section 41(d)(1) provides that the Director will establish 
fees for requesting a search of an application for a patent 
(except for provisional applications), including PCT 
international applications entering the national stage under 
Sec. 371. The search fees established under Sec. 41(d)(1) are 
to be set so as to recover an amount not to exceed the 
estimated average cost to the USPTO of searching applications 
for patent either by acquiring a search report from a qualified 
search authority, or by causing a search by Office personnel to 
be made, of each application for a patent. The USPTO is 
expected to test the concept of exploitation of search reports 
obtained from qualified search contractors during examination 
to determine whether such a procedure is a feasible means of 
addressing the USPTO increasing patent workload. It is expected 
that exploitation of search reports obtained from qualified 
search contractors during examination will be tested and 
piloted in a step-by-step process to ensure proof of concept 
prior to any full implementation of such a practice.
    Section 41(d)(1)(A) provides that for purposes of 
determining the fees to be established under Sec. 41(d)(1), the 
cost to the USPTO of causing a search to be made of an 
application by USPTO personnel is deemed to be the transitional 
search fee set forth in Section Five of this Act: (1) $500 for 
each application for an original patent, except for a design, 
plant, or international application; (2) $100 for each 
application for an original design patent; (3) $300 for each 
application for an original plant patent; (4) $500 for each 
national stage of an international application; and (5) $500 
for each application for the reissue of a patent. This 
provision is designed to simplify the process of determining 
the search fee under Sec. 41(d)(1).
    Under Sec. 41(d)(1)(B), the provisions of Sec. 111(a)(3) 
for payment of the fee for filing the application apply to the 
payment of the search fee specified in Sec. 41(d)(1) with 
respect to an application filed under Sec. 111(a), and the 
provisions of Sec. 371(d) for the payment of the national fee 
apply to the payment of the search fee specified in 
Sec. 41(d)(1) with respect to a PCT international application 
entering the national stage under Sec. 371.
    Under Sec. 41(d)(1)(C), the Director may, by regulation, 
provide for a refund of any part of the search fee specified in 
Sec. 41(d)(1) for any applicant who files a written declaration 
of express abandonment as prescribed by the Director before an 
examination has been made of the application under Sec. 131, as 
well as for any applicant who provides a search report that 
meets the conditions prescribed by the Director (as discussed 
above).
    Finally, Sec. 41(d)(1)(E) addresses the ability of the 
Director to ``out-source'' performance of the search function 
to commercial entities.
    Empowering the PTO Director to initiate a program to out-
source the search function is part of a larger effort to make 
PTO a modern, productive, and efficient federal agency. The 
agency, Congress, and the user groups whose members pay for PTO 
services all want to improve PTO operations. The Committee 
believes that the agency would not condone the wholesale use of 
out-sourcing if the practice proved detrimental to its 
operations. Congress--and the Committee in particular--would 
never abandon our oversight responsibilities and permit such an 
occurrence. The user groups, which endorse the Strategic Plan 
and are not opposed to pilot-tested out-sourcing, will always 
offer critical commentary when necessary.
    While permitting the Director to initiate limited out-
sourcing activity, Sec. 41(d)(1)(E) places exacting constraints 
on its use. It permits the Director to conduct a pilot program 
within an 18-month period to determine if commercial entities 
can perform the search function by producing accurate results 
that meet or exceed current PTO standards. At the conclusion of 
the program, the Director must then submit a report on the 
results to the Patent Public Advisory Committee, an independent 
entity that evaluates PTO operations on a biannual basis, as 
well as to the Congress. The report must address a number of 
detailed criteria, such as methodology, cost, and productivity, 
for evaluation by the Advisory Committee and Congress. The 
Advisory Committee must then submit its own report to the 
Director and Congress as to the merits of out-sourcing relative 
to PTO standards. Once the Advisory Committee report is 
completed, Congress will have an entire year if it desires to 
limit or prohibit the wholesale out-sourcing of searches.
    Sec. 3. Adjustment of Trademark Fees. Section Three 
provides that the fee under section 31(a) of the Trademark Act 
of 1946 (15 U.S.C. 1113(a)) for filing an electronic 
application for the registration of a trademark shall be $325. 
If the trademark application filing is done on paper the fee 
shall be $375. Section Three also provides that the Director 
may reduce the $325 fee for filing an application for the 
registration of a trademark in an electronic form prescribed by 
the Director to $275 for any applicant who also prosecutes the 
application through electronic means under such conditions as 
may be prescribed by the Director. Section Three also provides 
that beginning in fiscal year 2004, the provisions of the 
second and third sentence of section 31(a) of the Trademark Act 
of 1946 shall apply to the fees for filing an application for 
the registration of a trademark established under Section 
Three. Thus, the fees for filing an application for the 
registration of a trademark established under Section Three may 
be adjusted once each year (beginning on October 1, 2003) to 
reflect, in the aggregate, any fluctuations occurring during 
the preceding twelve months in the Consumer Price Index, as 
determined by the Secretary of Labor.
    Sec. 4. Correction of Erroneous Naming of Officer. Section 
Four corrects a clerical error in the Intellectual Property and 
High Technology Technical Amendments Act of 2002 (Title III, 
Subtitle B, of Public Law 107-273 (116 Stat. 1758)). 
Specifically, Section Four amends Sec. 13203 of Public Law 107-
273 to make the Deputy Director (and not the ``Deputy 
Commissioner'') of the USPTO a member of the Board of Patent 
Appeals and Interferences and the Trademark Trial and Appeal 
Board, as was the intended result of Sec. 13203(a) of Public 
Law 107-273 (see H.R. Conf. Rep. No. 107-685, at 220 (2002)).
    Sec. 5. Patent and Trademark Office Funding. Section Five 
is based on legislation from previous Congresses.\8\ The text 
consists of the strongest possible language to protect the PTO 
revenues from diversion. The bill accomplishes this goal by 
amending two key provisions of section 42 of the Patent Act, 
which prescribes the PTO funding mechanism.
---------------------------------------------------------------------------
    \8\ See note 5, supra.
---------------------------------------------------------------------------
    First, the requirement in 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 subsection (c) that subjects the 
agency's collected fees to the appropriations process is also 
deleted. This means that the Director will have the authority 
to collect all fees and use them for agency operations until 
expended.
    Sec. 6. Effective Date, Applicability, and Transitional 
Provision. Section Six sets forth the effective date of this 
bill: the later of March 30, 2003 or the date of enactment of 
this Act, except that Section Four takes effect as of November 
2, 2002 (the effective date of Public Law 107-273).
    Section Six also provides that the amendments made by 
Section Two apply to all patents, whenever granted, and to all 
patent applications pending on or filed after the effective 
date of this Act. Since applications pending before the 
effective date of this Act paid filing or basic national fees 
based upon former Sec. 41(a), Section Six also provides that 
the filing, examination, and search fees specified in 
Sec. Sec. 41(a)(1), 41(a)(3), and 41(d)(1), respectively (and 
the refund provisions of Sec. Sec. 41(a)(3), and 41(d)(1)), 
apply only to all applications for patent filed under 
Sec. 111(a) on or after the effective date of this Act, and to 
all PCT international applications entering the national stage 
after compliance with Sec. 371 on or after the effective date 
of this Act, except that the provisional application filing fee 
specified in Sec. 41(a)(1)(D) applies to all provisional 
applications for which the filing fee specified in Sec. 41 was 
not paid before the effective date of this Act. Section Six 
also provides that the excess claims fees specified in 
Sec. 41(a)(2) (and its refund provisions) apply only to the 
extent that the number of claims in independent form, after 
giving effect to any cancellation of claims, is in excess of 
the number of claims in independent form for which the excess 
claims fee specified in Sec. 41 was paid before the effective 
date of this Act, and that the number of total claims (whether 
independent or dependent), again after giving effect to any 
cancellation of claims, is in excess of the number of total 
claims (whether independent or dependent) for which the excess 
claims fee specified in Sec. 41 was paid before the effective 
date of this Act.
    Section Six also provides that the amendments made by 
Section Three shall apply to all applications for the 
registration of a trademark and classes added to an existing 
trademark application filed after the effective date of this 
Act. The last sentence of Sec. 31(a) will pertain to the 
trademark fees established herein. That sentence states that: 
``No fee established under this section shall take effect until 
at least 30 days after the notice of the fee has been published 
in the Federal Register and in the Official Gazette of the 
United States Patent and Trademark Office.''
    Section Six also provides a transitional provision 
concerning the search fees established under Sec. 41(d). 
Section Six establishes a transitional search fee of: (1) $500 
for the search of each application for an original patent, 
except for a design, plant, provisional, or international 
application; (2) $160 for the search of each application for an 
original design patent; (3) $300 for the search of each 
application for an original plant patent; (4) $500 for the 
national stage of an international application; and (5) $500 
for the search of each application for the reissue of a patent. 
Section Six also provides that the provisions of Sec. 111(a)(3) 
for payment of the fee for filing the application apply to the 
payment of the transitional search fees specified in Section 
Six with respect to an application filed under Sec. 111(a), and 
that the provisions of Sec. 371(d) for payment of the national 
fee apply to the payment of the transitional search fees 
specified in Section Six with respect to a PCT international 
application. Section Six also provides that the Director may, 
by regulation, provide for a refund of any part of the 
transitional search fees specified in Section Six for any 
applicant who files a written declaration of express 
abandonment as prescribed by the Director before an examination 
has been made of the application under section 131 of the 
patent code, as well as for any applicant who provides a search 
report that meets the conditions prescribed by the Director (as 
discussed above).
    Sec. 7. Definition. Section Seven clarifies that the term 
``Director'' means the Under Secretary of Commerce for 
Intellectual Property and Director of the United States Patent 
and Trademark Office.
    Sec. 8. Clerical Amendment. Section Eight aligns the text 
of Subsection (c) of Sec. 311 of title 35, United States Code, 
with that of subsection (a) of Sec. 311.

         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 italic, existing law in which no change is 
proposed is shown in roman):

TITLE 35, UNITED STATES CODE

           *       *       *       *       *       *       *



PART I--UNITED STATES PATENT AND TRADEMARK OFFICE

           *       *       *       *       *       *       *


CHAPTER 4--PATENT FEES; FUNDING; SEARCH SYSTEMS

           *       *       *       *       *       *       *



Sec. 41. Patent fees; patent and trademark search systems

  [(a) The Director shall charge the following fees:
          [(1)(A) On filing each application for an original 
        patent, except in design or plant cases, $690.
          [(B) In addition, on filing or on presentation at any 
        other time, $78 for each claim in independent form 
        which is in excess of 3, $18 for each claim (whether 
        independent or dependent) which is in excess of 20, and 
        $260 for each application containing a multiple 
        dependent claim.
          [(C) On filing each provisional application for an 
        original patent, $150.
          [(2) For issuing each original or reissue patent, 
        except in design or plant cases, $1,210.
          [(3) In design and plant cases--
                  [(A) on filing each design application, $310;
                  [(B) on filing each plant application, $480;
                  [(C) on issuing each design patent, $430; and
                  [(D) on issuing each plant patent, $580.
          [(4)(A) On filing each application for the reissue of 
        a patent, $690.
          [(B) In addition, on filing or on presentation at any 
        other time, $78 for each claim in independent form 
        which is in excess of the number of independent claims 
        of the original patent, and $18 for each claim (whether 
        independent or dependent) which is in excess of 20 and 
        also in excess of the number of claims of the original 
        patent.
          [(5) On filing each disclaimer, $110.
          [(6)(A) On filing an appeal from the examiner to the 
        Board of Patent Appeals and Interferences, $300.
          [(B) In addition, on filing a brief in support of the 
        appeal, $300, and on requesting an oral hearing in the 
        appeal before the Board of Patent Appeals and 
        Interferences, $260.
          [(7) On filing each petition for the revival of an 
        unintentionally abandoned application for a patent, for 
        the unintentionally delayed payment of the fee for 
        issuing each patent, or for an unintentionally delayed 
        response by the patent owner in any reexamination 
        proceeding, $1,210, unless the petition is filed under 
        section 133 or 151 of this title, in which case the fee 
        shall be $110.
          [(8) For petitions for 1-month extensions of time to 
        take actions required by the Director in an 
        application--
                  [(A) on filing a first petition, $110;
                  [(B) on filing a second petition, $270; and
                  [(C) on filing a third petition or subsequent 
                petition, $490.
          [(9) Basic national fee for an international 
        application where the Patent and Trademark Office was 
        the International Preliminary Examining Authority and 
        the International Searching Authority, $670.
          [(10) Basic national fee for an international 
        application where the Patent and Trademark Office was 
        the International Searching Authority but not the 
        International Preliminary Examining Authority, $690.
          [(11) Basic national fee for an international 
        application where the Patent and Trademark Office was 
        neither the International Searching Authority nor the 
        International Preliminary Examining Authority, $970.
          [(12) Basic national fee for an international 
        application where the international preliminary 
        examination fee has been paid to the Patent and 
        Trademark Office, and the international preliminary 
        examination report states that the provisions of 
        Article 33(2), (3), and (4) of the Patent Cooperation 
        Treaty have been satisfied for all claims in the 
        application entering the national stage, $96.
          [(13) For filing or later presentation of each 
        independent claim in the national stage of an 
        international application in excess of 3, $78.
          [(14) For filing or later presentation of each claim 
        (whether independent or dependent) in a national stage 
        of an international application in excess of 20, $18.
          [(15) For each national stage of an international 
        application containing a multiple dependent claim, 
        $260.
For the purpose of computing fees, a multiple dependent claim 
referred to in section 112 of this title or any claim depending 
therefrom shall be considered as separate dependent claims in 
accordance with the number of claims to which reference is 
made. Errors in payment of the additional fees may be rectified 
in accordance with regulations of the Director.
  [(b) The Director shall charge the following fees for 
maintaining in force all patents based on applications filed on 
or after December 12, 1980:
          [(1) 3 years and 6 months after grant, $830.
          [(2) 7 years and 6 months after grant, $1,900.
          [(3) 11 years and 6 months after grant, $2,910.
Unless payment of the applicable maintenance fee is received in 
the Patent and Trademark Office on or before the date the fee 
is due or within a grace period of 6 months thereafter, the 
patent will expire as of the end of such grace period. The 
Director may require the payment of a surcharge as a condition 
of accepting within such 6-month grace period the payment of an 
applicable maintenance fee. No fee may be established for 
maintaining a design or plant patent in force.]
  (a) General Fees.--The Director shall charge the following 
fees:
          (1) Filing and basic national fees.--
                  (A) On filing each application for an 
                original patent, except for design, plant, or 
                provisional applications, $300.
                  (B) On filing each application for an 
                original design patent, $200.
                  (C) On filing each application for an 
                original plant patent, $200.
                  (D) On filing each provisional application 
                for an original patent, $200.
                  (E) On filing each application for the 
                reissue of a patent, $300.
                  (F) The basic national fee for each 
                international application filed under the 
                treaty defined in section 351(a) of this title 
                entering the national stage under section 371 
                of this title, $300.
                  (G) In addition, excluding any sequence 
                listing or computer program listing filed in an 
                electronic medium as prescribed by the 
                Director, for any application the specification 
                and drawings of which exceed 100 sheets of 
                paper (or equivalent as prescribed by the 
                Director if filed in an electronic medium), 
                $250 for each additional 50 sheets of paper (or 
                equivalent as prescribed by the Director if 
                filed in an electronic medium) or fraction 
                thereof.
          (2) Excess claims fees.--In addition to the fee 
        specified in paragraph (1)--
                  (A) on filing or on presentation at any other 
                time, $200 for each claim in independent form 
                in excess of 3;
                  (B) on filing or on presentation at any other 
                time, $50 for each claim (whether dependent or 
                independent) in excess of 20; and
                  (C) for each application containing a 
                multiple dependent claim, $360.
        For the purpose of computing fees under this paragraph, 
        a multiple dependent claim referred to in section 112 
        of this title or any claim depending therefrom shall be 
        considered as separate dependent claims in accordance 
        with the number of claims to which reference is made. 
        The Director may by regulation provide for a refund of 
        any part of the fee specified in this paragraph for any 
        claim that is canceled before an examination on the 
        merits, as prescribed by the Director, has been made of 
        the application under section 131 of this title. Errors 
        in payment of the additional fees under this paragraph 
        may be rectified in accordance with regulations 
        prescribed by the Director.
          (3) Examination fees.--
                  (A) For examination of each application for 
                an original patent, except for design, plant, 
                provisional, or international applications, 
                $200.
                  (B) For examination of each application for 
                an original design patent, $130.
                  (C) For examination of each application for 
                an original plant patent, $160.
                  (D) For examination of the national stage of 
                each international application, $200.
                  (E) For examination of each application for 
                the reissue of a patent, $600.
        The provisions of section 111(a)(3) of this title 
        relating to the payment of the fee for filing the 
        application shall apply to the payment of the fee 
        specified in this paragraph with respect to an 
        application filed under section 111(a) of this title. 
        The provisions of section 371(d) of this title relating 
        to the payment of the national fee shall apply to the 
        payment of the fee specified in this paragraph with 
        respect to an international application. The Director 
        may by regulation provide for a refund of any part of 
        the fee specified in this paragraph for any applicant 
        who files a written declaration of express abandonment 
        as prescribed by the Director before an examination has 
        been made of the application under section 131 of this 
        title, and for any applicant who provides a search 
        report that meets the conditions prescribed by the 
        Director.
          (4) Issue fees.--
                  (A) For issuing each original patent, except 
                for design or plant patents, $1,400.
                  (B) For issuing each original design patent, 
                $800.
                  (C) For issuing each original plant patent, 
                $1,100.
                  (D) For issuing each reissue patent, $1,400.
          (5) Disclaimer fee.--On filing each disclaimer, $130.
          (6) Appeal fees.--
                  (A) On filing an appeal from the examiner to 
                the Board of Patent Appeals and Interferences, 
                $500.
                  (B) In addition, on filing a brief in support 
                of the appeal, $500, and on requesting an oral 
                hearing in the appeal before the Board of 
                Patent Appeals and Interferences, $1,000.
          (7) Revival fees.--On filing each petition for the 
        revival of an unintentionally abandoned application for 
        a patent, for the unintentionally delayed payment of 
        the fee for issuing each patent, or for an 
        unintentionally delayed response by the patent owner in 
        any reexamination proceeding, $1,500, unless the 
        petition is filed under section 133 or 151 of this 
        title, in which case the fee shall be $500.
          (8) Extension fees.--For petitions for 1-month 
        extensions of time to take actions required by the 
        Director in an application--
                  (A) on filing a first petition, $120;
                  (B) on filing a second petition, $330; and
                  (C) on filing a third or subsequent petition, 
                $570.
  (b) Maintenance Fees.--The Director shall charge the 
following fees for maintaining in force all patents based on 
applications filed on or after December 12, 1980:
          (1) 3 years and 6 months after grant, $900.
          (2) 7 years and 6 months after grant, $2,300.
          (3) 11 years and 6 months after grant, $3,800.
Unless payment of the applicable maintenance fee is received in 
the United States Patent and Trademark Office on or before the 
date the fee is due or within a grace period of 6 months 
thereafter, the patent will expire as of the end of such grace 
period. The Director may require the payment of a surcharge as 
a condition of accepting within such 6-month grace period the 
payment of an applicable maintenance fee. No fee may be 
established for maintaining a design or plant patent in force.
  [(c)(1)] (c) Late Payment of Fees.--(1) The Director may 
accept the payment of any maintenance fee required by 
subsection (b) of this section which is made within twenty-four 
months after the six-month grace period if the delay is shown 
to the satisfaction of the Director to have been unintentional, 
or at any time after the six-month grace period if the delay is 
shown to the satisfaction of the Director to have been 
unavoidable. The Director may require the payment of a 
surcharge as a condition of accepting payment of any 
maintenance fee after the six-month grace period. If the 
Director accepts payment of a maintenance fee after the six-
month grace period, the patent shall be considered as not 
having expired at the end of the grace period.

           *       *       *       *       *       *       *

  [(d) The Director shall establish fees for all other 
processing, services, or materials relating to patents not 
specified in this section to recover the estimated average cost 
to the Office of such processing, services, or materials, 
except that the Director shall charge the following fees for 
the following services:
          [(1) For recording a document affecting title, $40 
        per property.
          [(2) For each photocopy, $.25 per page.
          [(3) For each black and white copy of a patent, $3.
The yearly fee for providing a library specified in section 13 
of this title with uncertified printed copies of the 
specifications and drawings for all patents in that year shall 
be $50.]
  (d) Patent Search and Other Fees.--
          (1) Patent search fees.--(A) The Director shall 
        charge a fee for the search of each application for a 
        patent, except for provisional applications. The 
        Director shall establish the fees charged under this 
        paragraph to recover an amount not to exceed the 
        estimated average cost to the Office of searching 
        applications for patent either by acquiring a search 
        report from a qualified search authority, or by causing 
        a search by Office personnel to be made, of each 
        application for patent.
          (B) For purposes of determining the fees to be 
        established under this paragraph, the cost to the 
        Office of causing a search of an application to be made 
        by Office personnel shall be deemed to be--
                  (i) $500 for each application for an original 
                patent, except for design, plant, provisional, 
                or international applications;
                  (ii) $100 for each application for an 
                original design patent;
                  (iii) $300 for each application for an 
                original plant patent;
                  (iv) $500 for the national stage of each 
                international application; and
                  (v) $500 for each application for the reissue 
                of a patent.
          (C) The provisions of section 111(a)(3) of this title 
        relating to the payment of the fee for filing the 
        application shall apply to the payment of the fee 
        specified in this paragraph with respect to an 
        application filed under section 111(a) of this title. 
        The provisions of section 371(d) of this title relating 
        to the payment of the national fee shall apply to the 
        payment of the fee specified in this paragraph with 
        respect to an international application.
          (D) The Director may by regulation provide for a 
        refund of any part of the fee specified in this 
        paragraph for any applicant who files a written 
        declaration of express abandonment as prescribed by the 
        Director before an examination has been made of the 
        application under section 131 of this title, and for 
        any applicant who provides a search report that meets 
        the conditions prescribed by the Director.
          (E) For purposes of subparagraph (A), a ``qualified 
        search authority'' may not include a commercial entity 
        unless--
                  (i) the Director conducts a pilot program of 
                limited scope, conducted over a period of not 
                more than 18 months, which demonstrates that 
                searches by commercial entities of the 
                available prior art relating to the subject 
                matter of inventions claimed in patent 
                applications--
                          (I) are accurate; and
                          (II) meet or exceed the standards of 
                        searches conducted by and used by the 
                        Patent and Trademark Office during the 
                        patent examination process;
                  (ii) the Director submits a report on the 
                results of the pilot program to the Congress 
                and the Patent Public Advisory Committee that 
                includes--
                          (I) a description of the scope and 
                        duration of the pilot program;
                          (II) the identity of each commercial 
                        entity participating in the pilot 
                        program;
                          (III) an explanation of the 
                        methodology used to evaluate the 
                        accuracy and quality of the search 
                        reports;
                          (IV) an assessment of the effects 
                        that the pilot program, as compared to 
                        searches conducted by the Patent and 
                        Trademark Office, had and will have 
                        on--
                                  (aa) patentability 
                                determinations:
                                  (bb) productivity of the 
                                Patent and Trademark Office;
                                  (cc) costs to the Patent and 
                                Trademark Office;
                                  (dd) costs to patent 
                                applicants; and
                                  (ee) other relevant factors;
                  (iii) the Patent Public Advisory Committee 
                reviews and analyzes the Director's report 
                under clause (ii) and the results of the pilot 
                program and submits a separate report on its 
                analysis to the Director and the Congress that 
                includes--
                          (I) an independent evaluation of the 
                        effects that the pilot program, as 
                        compared to searches conducted by the 
                        Patent and Trademark Office, had and 
                        will have on the factors set forth in 
                        clause (ii)(IV); and
                          (II) an analysis of the 
                        reasonableness, appropriateness, and 
                        effectiveness of the methods used in 
                        the pilot program to make the 
                        evaluations required under clause 
                        (ii)(IV); and
                  (iv) the Congress does not, during the 1-year 
                period beginning on the date on which the 
                Patent Public Advisory Committee submits its 
                report to the Congress under clause (iii), 
                enact a law prohibiting searches by commercial 
                entities of the available prior art relating to 
                the subject matter of inventions claimed in 
                patent applications.
          (2) Other fees.--The Director shall establish fees 
        for all other processing, services, or materials 
        relating to patents not specified in this section to 
        recover the estimated average cost to the Office of 
        such processing, services, or materials, except that 
        the Director shall charge the following fees for the 
        following services:
                  (A) For recording a document affecting title, 
                $40 per property.
                  (B) For each photocopy, $.25 per page.
                  (C) For each black and white copy of a 
                patent, $3.
        The yearly fee for providing a library specified in 
        section 12 of this title with uncertified printed 
        copies of the specifications and drawings for all 
        patents in that year shall be $50.
  (e) Waivers of Certain Fees.--The Director may waive the 
payment of any fee for any service or material related to 
patents in connection with an occasional or incidental request 
made by a department or agency of the Government, or any 
officer thereof. The Director may provide any applicant issued 
a notice under section 132 of this title with a copy of the 
specifications and drawings for all patents referred to in that 
notice without charge.
  (f) Adjustments in Fees.--The fees established in subsections 
(a) and (b) of this section may be adjusted by the Director on 
October 1, 1992, and every year thereafter, to reflect any 
fluctuations occurring during the previous 12 months in the 
Consumer Price Index, as determined by the Secretary of Labor. 
Changes of less than 1 per centum may be ignored.
  (g) Effective Dates of Fees.--No fee established by the 
Director under this section shall take effect until at least 30 
days after notice of the fee has been published in the Federal 
Register and in the Official Gazette of the Patent and 
Trademark Office.
  [(h)(1)] (h) Reductions in Fees for Certain Entities.--(1) 
Fees charged under subsection (a) or (b) shall be reduced by 50 
percent with respect to their application to any small business 
concern as defined under section 3 of the Small Business Act, 
and to any independent inventor or nonprofit organization as 
defined in regulations issued by the Director.

           *       *       *       *       *       *       *

  [(i)(1)] (i) Search Systems.--(1) The Director shall 
maintain, for use by the public, paper, microform, or 
electronic collections of United States patents, foreign patent 
documents, and United States trademark registrations arranged 
to permit search for and retrieval of information. The Director 
may not impose fees directly for the use of such collections, 
or for the use of the public patent or trademark search rooms 
or libraries.

           *       *       *       *       *       *       *


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] shall 
be collected by the Director and shall be available 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.

           *       *       *       *       *       *       *


CHAPTER 10--PATENTABILITY OF INVENTIONS

           *       *       *       *       *       *       *


Sec. 119. Benefit of earlier filing date; right of priority

  (a) * * *

           *       *       *       *       *       *       *

  (e)(1) * * *
  (2) A provisional application filed under section 111(b) of 
this title may not be relied upon in any proceeding in the 
Patent and Trademark Office unless the fee set forth in 
[subparagraph (A) or (C) of] section 41(a)(1) of this title has 
been paid.

           *       *       *       *       *       *       *


CHAPTER 31--OPTIONAL INTER PARTES REEXAMINATION PROCEDURES

           *       *       *       *       *       *       *


Sec. 311. Request for inter partes reexamination

  (a) * * *

           *       *       *       *       *       *       *

  (c) Copy.--The Director promptly shall send a copy of the 
request to the owner of record of the patent.

           *       *       *       *       *       *       *

                              ----------                              


SECTION 13203 OF THE 21st CENTURY DEPARTMENT OF JUSTICE APPROPRIATIONS 
                           AUTHORIZATION ACT

                          (Public Law 107-273)

SEC. 13203. PATENT AND TRADEMARK EFFICIENCY ACT AMENDMENTS.

  (a) Deputy [Commissioner] Director.--
          (1) Section 17(b) of the Act of July 5, 1946 
        (commonly referred to as the ``Trademark Act of 1946'') 
        (15 U.S.C. 1067(b)), is amended by inserting ``the 
        Deputy [Commissioner] Director,'' after 
        ``[Commissioner] Director,''.
          (2) Section 6(a) of title 35, United States Code, is 
        amended by inserting ``the Deputy [Commissioner] 
        Director,'' after ``[Commissioner] Director,''.

           *       *       *       *       *       *       *


                           Markup Transcript



                            BUSINESS MEETING

                        WEDNESDAY, JULY 9, 2003

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr., [Chairman of the Committee] presiding.
    [Intervening business.]
    AFTERNOON SESSION
    Chairman Sensenbrenner. The Committee will be in order. A 
working quorum is present, and the next item on the agenda is 
H.R. 1561, the ``United States Patent and Trademark Fee 
Modernization Act of 2003.'' The Chair recognizes the gentleman 
from Texas, Mr. Smith, Chairman of the Subcommittee on Courts, 
the Internet, and Intellectual Property for a motion.
    Mr. Smith. Mr. Chairman, the Subcommittee on Courts, the 
Internet, and Intellectual Property reports favorably the bill 
H.R. 1561 with a single amendment in the nature of a 
substitute, and moves its favorable recommendation to the full 
House.
    Chairman Sensenbrenner. Without objection the bill will be 
considered as read and open for amendment at any point.
    [The bill, H.R. 1561, follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. And the subcommittee amendment in 
the nature of a substitute, which the Members have before them, 
will be considered as read, considered as the original text for 
purposes of amendment, and open for amendment at any point.
    [The amendment in the nature of a substitute follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from Texas, Mr. Smith, to strike the last word.
    Mr. Smith. Mr. Chairman, I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Smith. Mr. Chairman, H.R. 1561 implements the Patent 
and Trademark Office's revised strategic business plan to 
transform the agency's operations. The bill incorporates a 
revised fee schedule previously submitted by the PTO that would 
generate an additional $201 million in revenue. This is the 
first step towards improving patent and trademark quality while 
reducing application backlogs and pendency at the agency. These 
goals are critical to the health of cutting edge industries and 
our economy. Americans lead the world in the production and 
export of intellectual property and related goods and services.
    Time is money in the intellectual property world. If the 
PTO cannot issue quality patents and trademarks in a timely 
manner, than inventors and trademark filers are the losers. The 
strategic business plan will result in more jobs, a higher 
standard of living, and a consuming public that will benefit 
from patented products.
    Because of the ongoing appropriations practice of using a 
portion of the PTO fee revenue to subsidize unrelated programs, 
the fee schedule factors in funding shortfalls that have 
resulted from revenue diversion. Fee diversion is regrettable 
and counterproductive. It needs to be addressed. In response, 
the subcommittee unanimously adopted an amendment at our markup 
that ends this practice by authorizing the PTO to keep all of 
the fee revenue it generates.
    Finally, Mr. Chairman, I will offer an amendment on behalf 
of Mr. Berman and myself that addresses the issue of 
outsourcing the search function at PTO, an issue that has 
generated some concern among members and inventors. The 
amendment responds to this matter in a fair and bipartisan way 
and I urge the Members to support it and the bill as well.
    Mr. Chairman, I yield back the balance of my time.
    Chairman Sensenbrenner. The gentleman from California, Mr. 
Berman.
    Mr. Berman. Thank you, Mr. Chairman. And I ask unanimous 
consent that my entire statement on this measure and the 
substitute as amended be included in the record.
    Chairman Sensenbrenner. Without objection.
    Mr. Berman. Thank you. Mr. Chairman, thank you for bringing 
to markup H.R. 1561 today, and let me also thank Chairman 
Smith, who has worked very cooperatively with the minority on 
this as well as many other issues in our subcommittee, in 
putting together what I think is a very good legislative 
product reflected by this. I might also mention, I think a 
special word, one part of this issue the Chairman made 
reference to is the issue of patent fees and diversion, and 
former Chairman Coble, who is here, spent a great deal of time 
working on this issue as well, and sort of pioneered the first 
efforts to really try to deal with the problem of diversion of 
patent fees, and I think we greatly all appreciate his efforts 
in all of this.
    But basically, this bill makes a serious, it's not an 
outrageous, but a serious increase in the fees that applicants 
for patents will pay, probably averaging around 15 percent that 
will generate an additional $200 million. And the folks who are 
most impacted by those increased fees, support it, but only on 
one condition, that that additional revenue goes to deal with 
all the fundamental problems that the Patent Office now faces. 
Everyone knows the Patent Office has been losing ground for 
some time, and it finds itself in a near crisis situation. It 
faces allegations of issuing poor quality patents of 
diminishing value, an enormous backlog of applications, ever 
increasing pendency and an overburdened examining corps.
    So faced with this, Congress directed the PTO to develop a 
strategic plan to resolve these problems, and these problems 
are at the heart of innovation and technology in this country, 
the heart of where our economy is going. Sensitive to the needs 
of the PTO, the user groups, as I mentioned, have agreed to 
support this fee increase, but only if this money is not 
diverted for general fund appropriations, because otherwise, 
it's only one thing. A fee increase is a tax on innovation and 
a tax on new technologies and new patents, having nothing to do 
with the more efficient functioning of the Patent Office, the 
reduction of backlogs, the improvement of patent quality. So in 
this legislation, as the Chairman mentioned, we have a very 
flat prohibition against any diversions to the general 
appropriations. That's not what this fee was for. And the 
impact of allowing this to continue will I think turn many of 
us against any fee increase at all. In other words, our support 
for this fee increase is conditioned on the money being able to 
be used by the Patent Office to implement a number of the 
reforms that Director Rogan, a former colleague of ours, is 
proposing to try and correct some of the ills faced by the 
growing, complicated nature of and number of patents being 
submitted for approval.
    At this point, I think I won't go on with my statement, but 
that's the fundamental part. We'll have an amendment later on 
dealing with the issue of outsourcing on searches, and I yield 
back.
    Ms. Lofgren. Would the gentleman yield, rather than----
    Mr. Berman. I'd be happy to yield.
    Ms. Lofgren. Just very quickly, I will certainly vote for 
this bill, but for years we have--and I think it's been 
unanimous on the Judiciary Committee--opposed the diversion of 
fees from this office. And the appropriators always thought 
better. We don't know whether the language in this bill is 
going to work. I'm willing to take a stab at it and to believe 
that it will.
    But if we face again appropriators stealing the money, I'm 
going to introduce a bill to reverse the fee increase. If you 
talk to Jim Rogan privately, he will tell you how serious is 
the situation at the Patent Office and how desperately we need 
to provide the resources to upgrade our systems and the like.
    I come from a county where the largest number of patents in 
the world are issued to someone in Santa Clara County. The 
Patent Office is the engine for the technology miracle that 
will shape and carry our economy forward. So I hope that we 
understand, and we should let the appropriators know, that this 
money is not even going to be there if they try and steal it 
again, and I thank the gentleman for yielding.
    Chairman Sensenbrenner. The gentleman's time has expired. 
Without objection, all Members may place opening statements in 
the record at this point.
    Chairman Sensenbrenner. Are there amendments?
    Mr. Smith. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Texas.
    Mr. Smith. I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment to the Amendment in the Nature of a 
Substitute to H.R. 1561 Offered by Mr. Smith of Texas and Mr. 
Berman. Page 8, the following----
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read, and the gentleman from Texas will be 
recognized for 5 minutes.
    [Mr. Smith and Mr. Berman's amendment follows:]
      
      

  


      
      

  


      
      

  


    Mr. Smith. Thank you, Mr. Chairman. I offer this amendment 
on behalf of the Ranking Member, Mr. Berman, and myself. It 
addresses the desire of the Patent and Trademark Office to test 
the possibility of outsourcing the search function of the 
agency to commercial entities, empowering the PTO Director to 
initiate a program to outsource the search function as part of 
the larger effort to make PTO a modern, productive and 
efficient Federal agency. Our Committee and the Appropriations 
Committee have documented the need for PTO to abandon business 
as usual routines and improve patent and trademark quality 
while reducing backlogs and pendency.
    The House and Senate Appropriators have urged the agency in 
recent years to develop innovative management techniques and to 
shift PTO resources to high-priority areas. Allowing Director 
Rogan to test an outsourcing initiative supports the purpose of 
the agency's strategic business plan developed in response to 
congressional directives. This subcommittee should assist the 
Director in his efforts, not hinder him.
    The agency, Congress and the user groups whose members pay 
for PTO services, all want to improve PTO operations. There is 
no way that the agency would condone the wholesale use of 
outsourcing if the practice proved detrimental to its 
operations. Congress and our Committee in particular would 
never abandon our oversight responsibilities and permit such an 
occurrence. The user groups which endorse the strategic plan 
and are not opposed to pilot testing outsourcing will always 
offer critical commentary when necessary.
    While permitting the Director to initiate limited 
outsourcing activity, the amendment places constraints on its 
use. It permits the Director to conduct a pilot program within 
an 18-month period to determine if commercial entities can 
perform the search function by producing accurate results that 
meet or exceed current PTO standards.
    At the conclusion of the program the Director must them 
submit a report on the results to the Patent Public Advisory 
Committee, an independent entity that evaluates PTO operations 
on a biennial basis, as well as to the Congress. The report 
must address a number of detailed criteria such as methodology, 
cost and productivity for evaluation by the Advisory Committee 
and Congress. The Advisory Committee must then submit its own 
report to the Director and Congress as to the merits of 
outsourcing relative to PTO standards. Once the Advisory 
Committee report is completed, Congress will have an entire 
year, if it desires, to limit or prohibit the wholesale 
outsourcing of searches.
    Mr. Chairman, this amendment is a fair, balanced and 
bipartisan response to those questions raised about the 
efficacy of outsourcing the search function. I urge the Members 
of the Committee to support the amendment.
    And before I yield back the balance of my time, I do want 
to thank Mr. Berman for helping to work out a compromise on the 
outsourcing and for coming up with a good idea on the pilot 
program, and we appreciate his input and his suggestions.
    And with that, I'll yield back the balance of my time.
    Chairman Sensenbrenner. The gentleman from California.
    Mr. Berman. Thank you, Mr. Chairman. I join with the 
Chairman in supporting this amendment. One of the more 
controversial parts of Director Rogan's proposals is the 
outsourcing of these searches for prior art. A number of people 
who are familiar with the patent process tell me that an 
examiner needs to be involved himself or herself in that prior 
art search to fully understand and familiarize himself with 
what the patent involves and the whole question of the issues 
of whether or not the invention is novel and all the other 
standards that go into granting a patent. The compromise here 
is to try this on a pilot basis with an independent evaluation. 
I do say to the Patent Office, this is supposed to be a pilot. 
This is not we do 99 percent of what we want to do system wide 
and call it a pilot. It's a pilot of limited scope and limited 
duration, evaluated by an objective and independent body.
    And then if Congress decides as a result of that survey 
they want to stop it from happening, we can initiate 
legislation to do so, but nothing in this amendment keeps the 
Patent Office from going ahead if and when the independent 
evaluation says this does make sense, this will save money, 
this will give examiners more time to work on the applications 
and allow faster processing of them without reducing patent 
quality.
    I yield back, Mr. Chairman.
    Chairman Sensenbrenner. The question is on the amendment 
offered by the gentleman from Texas, Mr. Smith. Those in favor 
will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it. The amendment 
is agreed to. Are there further amendments?
    Mr. Coble. Mr. Chairman?
    Chairman Sensenbrenner. Gentleman from North Carolina.
    Mr. Coble. Move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Coble. And I promise you, Mr. Chairman, I won't take 5 
minutes. I want to commend Chairman Smith and Ranking Member 
Berman for including the matter of diversion in this bill, and 
I thank Mr. Berman for his generous comments. This is an issue 
that has attracted my interest for a long time. The diversion 
of fees from the Patent and Trademark Office, Mr. Chairman and 
colleagues, continues to be a problem that plagues the PTO, and 
I am pleased that Mr. Berman and Mr. Smith have seen fit to 
include this in the bill, and I hope that we can get a firm 
handle on it before the end of this session.
    And I thank the Chairman and yield back my time.
    Chairman Sensenbrenner. Are there further amendments?
    [No response.]
    Chairman Sensenbrenner. The question is on agreeing to the 
substitute of the subcommittee. Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
amendment in the nature of a substitute is agreed to.
    A reporting quorum is not present. Without objection, the 
previous question is ordered on reporting the bill, and we will 
vote on that question as soon as 19 Members appear.
    [Intervening business.]
    Chairman Sensenbrenner. A reporting quorum is present, and 
the Chair will now go to the motion to report the bill H.R. 
1561 favorably, the ``United States Patent and Trademark Fee 
Modernization Act of 2003.'' Those in favor of reporting this 
bill favorably will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
motion to report favorably is agreed to. Without objection, the 
bill will be reported favorably to the House in the form of a 
single amendment in the nature of a substitute, incorporating 
the amendments adopted here today. Without objection, the 
Chairman is authorized to move to go to conference pursuant to 
House rules. Without objection, the staff is directed to make 
any technical and conforming changes, and all Members will be 
given 2 days as provided by House rules in which to submit 
additional dissenting, supplemental or minority views.

                                
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