[House Report 109-372]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-372

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



 
    UNITED STATES PATENT AND TRADEMARK FEE MODERNIZATION ACT OF 2005

                                _______
                                

February 8, 2006.--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. 2791]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 2791) to amend title 35, United States Code, with respect 
to patent fees, and for other purposes, having considered the 
same, reports favorably thereon without amendment and 
recommends that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for the Legislation..........................     2
Hearings.........................................................     7
Committee Consideration..........................................     7
Vote of the Committee............................................     7
Committee Oversight Findings.....................................     7
New Budget Authority and Tax Expenditures........................     8
Congressional Budget Office Cost Estimate........................     8
Performance Goals and Objectives.................................    12
Constitutional Authority Statement...............................    12
Section-by-Section Analysis and Discussion.......................    12
Changes in Existing Law Made by the Bill, as Reported............    18
Markup Transcript................................................    34

                          Purpose and Summary

    The primary purpose of H.R. 2791, the ``United States 
Patent and Trademark Fee Modernization Act of 2005,'' is to 
make permanent a new fee schedule that funds the operations of 
the U.S. Patent and Trademark Office (USPTO).\1\ This 
legislation also prevents future ``diversion'' of USPTO funds 
to programs unrelated to the agency. H.R. 2791 is substantially 
similar to H.R. 1561, which was introduced during the 108th 
Congress and passed the House by a rollcall vote of 379-28.\2\
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    \1\ The fee schedule is set forth in Title VIII of division B of 
the Consolidated Appropriations Act, 2005 (35 U.S.C. Sec. 41 note; Pub. 
L. No. 108-447; 118 Stat. 2924).
    \2\ H.R. 1561, 108th Cong., 1st Sess. (2003) (Rep. Smith (TX), 
sponsor). The floor vote occurred on March 3, 2004.
---------------------------------------------------------------------------
    Permanent enactment of the fee schedule is a necessary 
precursor to implementation of other administrative changes set 
forth in the USPTO's ``Strategic Business Plan'' (The Plan). 
The Plan was developed pursuant to a congressional mandate 
eventually codified in the ``21st Century Department of Justice 
Appropriations Authorization Act.'' \3\ It is designed to 
implement reforms that will enhance patent and trademark 
quality and reduce application pendency and backlogs at the 
agency.
---------------------------------------------------------------------------
    \3\ Pub. L. No. 107-273, Sec. Sec. 13101-13104.
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    Additionally, given that the USPTO is completely funded 
through the imposition of user fees, the ongoing appropriations 
practice of diverting a percentage of fee revenue to non-USPTO 
use is of great concern to Congress, inventors, and trademark 
filers. Representatives of the ``user'' community have stated 
that their members are not opposed to reasonable fee increases 
as reflected in Pub. L. No. 108-447, but are concerned that the 
unused agency revenue will be diverted to non-agency use. 
Section 5 of H.R. 2791 adresses this ``anti-diversion'' 
sentiment by creating a ``refund'' program to eliminate the 
potential incentive for diversion.

                Background and Need for the Legislation

                  REVISED 21ST CENTURY STRATEGIC PLAN

    In General. The ``21st Century Department of Justice 
Appropriations Authorization Act'' required the USPTO to 
develop a 5-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 USPTO to identify corrective measures 
other than hiring more examiners, and to implement electronic 
processing for patents by FY 2004.
    Since June 2002, the USPTO revised its plan in response to 
suggestions from Congress and the user community.\4\ 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 that represent patent and 
trademark filers.\5\ While the agency has demonstrated a 
commitment to embrace top-to-bottom reform consistent with 
congressional mandates, it is equally clear that USPTO requires 
additional revenue to implement these changes. As former USPTO 
Director James Rogan noted:
---------------------------------------------------------------------------
    \4\ 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). A transcript of this hearing may also be accessed at the 
Committee website: www.house.gov/judiciary/courts.
    \5\ 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).
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  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 USPTO news release dated March 7, 2003, 
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 [a new fee schedule that will generate 
        greater revenue]. 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 [USPTO] 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 be 
        issued over the next 5 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.\6\
---------------------------------------------------------------------------
    \6\ 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 
USPTO).




    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 that 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 USPTO website (www.uspto.gov), the agency indicates, 
among other things, that it is pursuing or wishes to pursue the 
following high-profile changes as part of the revised version:

        --LOut-sourcing of search function. The functions of 
        searching and examination would be split, which would 
        include ``out-sourcing'' some search duties to private 
        firms. (Pursuant to Sec. 2(c) of H.R. 2791, however, 
        the practice of out-sourcing the search function must 
        initially be limited to a pilot project);

        --LCertification of USPTO employees. USPTO workers 
        would be subject to a more extensive employee review 
        and certification process;

        --LBilateral and Multilateral Trade Agreements. More 
        trade agreements would be negotiated to ``facilitate 
        global convergence of patent standards;'' and

        --LRamping-up of paperless operations. Changes would be 
        made to expedite the comprehensive implementation of an 
        electronic communications system.

    The Committee on the Judiciary will continue its oversight 
of USPTO operations throughout the 109th 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 Sec. Sec. 13101-13104 of the ``21st 
Century Department of Justice Appropriations Authorization 
Act.''

                    USPTO FUNDING DIVERSION HISTORY

    Amid funding scarcity in 1982, Congress dramatically 
increased fees associated with obtaining and maintaining 
trademark registrations and patents to recover the costs of 
processing patent and trademark applications. By 1990, 
approximately 80 percent of USPTO 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 USPTO 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 5-
year period.
    As part of this budget agreement, a scoring system was 
adopted to ensure that savings would be accurately tracked 
through the appropriations process. To this end, Congress 
mandated that the income from the surcharge be deposited into a 
specially-created surcharge fund in the Treasury. Unlike other 
fees collected by USPTO, those in the surcharge fund counted 
against the expenditure cap of the appropriators. This meant 
that every dollar not spent from the surcharge fund would 
enable the appropriators to spend another taxpayer dollar to 
underwrite a different (non-USPTO) initiative.
    Initially, Congress appropriated the total amount deposited 
in the fund to USPTO. After only 1 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 3 
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 USPTO the ability to spend fee revenue in the 
same fiscal year in which it collects the revenue, the 
appropriators may spend an equivalent amount on some other 
program without exceeding their budget caps. Although the money 
is technically available to USPTO 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 USPTO in each succeeding fiscal year. As a 
result, more than $700 million has been diverted from USPTO 
over the past 11 fiscal years.

      USPTO FUNDING DIVERSION: PREVIOUS JUDICIARY COMMITTEE ACTION

    Previous attempts by the House Judiciary Committee's 
Subcommittee on Courts, the Internet, and Intellectual Property 
to end fee diversion have been met with little success. During 
the 106th Congress, Rep. Coble offered an amendment to the 
House version of the Commerce-Justice-State appropriations 
vehicle \7\ to restore nearly $134 million in USPTO 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).
---------------------------------------------------------------------------
    \7\ H.R. 4690, 106th Cong., 2nd Sess. (2000).
---------------------------------------------------------------------------
    In the succeeding Congress, the Subcommittee reviewed, as 
part of a USPTO oversight hearing, measures that would have: 
(1) cut the appropriators out of the USPTO funding process 
directly; \8\ and (2) created a new point of order against any 
House bill to deny the agency full funding.\9\ Due to 
indications that these measures did not have the general 
support of Congress, no further action was taken.
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    \8\ H.R. 740, 107th Cong., 1st Sess. (2001) (Rep. Coble, sponsor). 
Note that H.R. 4034, the precursor bill to H.R. 740, was reported by 
Committee on the Judiciary and placed on the Union Calendar during the 
106th Congress. Its consideration was ultimately denied as a result of 
opposition from the appropriators.
    \9\ H. Res. 110, 107th Cong., 1st Sess. (2001) (Representative 
Howard Berman, sponsor).
---------------------------------------------------------------------------
    During the 108th Congress, the House passed H.R. 1561, 
which adjusted the old (pre-December 8, 2004) fee schedule by 
raising fees an average of 15 percent. The bill also created a 
mechanism to remit unspent fee revenue to USPTO users, a pilot 
program to gauge the efficacy of out-sourcing the examiner 
``search'' function, and miscellaneous protections for small 
businesses and ``independent inventors.'' As noted, H.R. 2791 
is based on the contents of H.R. 1561.

            ADMINISTRATION AND COMMITTEE BUDGET SUBMISSIONS 
                          FOR FISCAL YEAR 2006

    The Committee proposes to authorize the USPTO to collect 
and spend $1,703,300,000, subject to appropriation acts, from 
fee collections in FY 2006 to cover operating expenses, 
including the payment of retirement benefits for employees. 
This amount is derived from user fees paid by patent and 
trademark applicants or from fees for other services provided 
by USPTO. It reflects a conservative estimate of a minimum 5 
percent increase in patent application filings above the prior 
year. No taxpayer funds are expected or recommended.
    The Administration has requested $1,703,300,000 for USPTO 
operations in FY 2006, derived from offsetting collections 
assessed and collected pursuant to 15 U.S.C. Sec. 1113 
(trademarks) and 35 U.S.C. Sec. Sec. 41 and 376 (patents).
    In its submission, Judiciary Committee members emphasized 
that they strongly support the full-funding of USPTO and the 
elimination of any incentive to use agency revenues for non-
USPTO purposes. All revenue generated under the new fee 
schedule, adopted as part of the Consolidated Appropriations 
Act of 2005, is necessary to implement the USPTO 21st Century 
Strategic Business Plan, including proposed quality 
initiatives, e-government initiatives, and enhanced patent 
processing.
    The Committee on the Judiciary has pledged to work with the 
House Leadership and the Committee on Appropriations to end the 
practice of user-fee diversion without compromising the ability 
of the Committee on Appropriations to conduct oversight of 
USPTO activities.
    The relevant appropriations vehicle funding USPTO in the 
109th Congress is H.R. 2862, which the House passed on June 16, 
2005. The Senate passed its own version on September 15, 2005, 
under the same bill number. Both drafts include ``full'' 
funding for USPTO in Fiscal Year 2006, consistent with the 
House Judiciary request of $1,703,300,000.
    Because of other differences between the two drafts, a 
House-Senate conference was convened. It produced Conference 
Report 109-272 that includes $1,683,086,000 for agency 
operations in Fiscal Year 2006. The House approved this measure 
on November 9, 2005, by a rollcall vote of 379-19. The Senate 
approved this measure on November 16, 2005 by a vote of 94-5 
and President Bush signed it into law on November 22, 2005.\10\
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    \10\ Pub. L. No. 109-108.
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                                Hearings

    The House Committee on the Judiciary held no hearings on 
H.R. 2791.

                        Committee Consideration

    On June 28, 2005, the Subcommittee on Courts, the Internet, 
and Intellectual Property met in open session and ordered 
favorably reported the bill H.R. 2791, by voice vote, a quorum 
being present. On November 9, 2005, the Committee met in open 
session and ordered favorably reported the bill H.R. 2791, 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. 2791.

                      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. 2791, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under the section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, December 5, 2005.
Hon. F. 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. 2791, the United 
States Patent and Trademark Fee Modernization Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Melissa Z. 
Petersen (for Federal costs), who can be reached at 226-2860, 
Sarah Puro (for the state and local impact), who can be reached 
at 225-3220, and Paige Piper/Bach (for the private-sector 
impact), who can be reached at 226-2940.
            Sincerely,
                                       Douglas Holtz-Eakin.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 2791--United States Patent and Trademark Fee Modernization Act of 
        2005.

                                SUMMARY

    H.R. 2791 would permanently increase the fees that the 
Patent and Trademark Office (PTO) collects for activities 
related to the processing and filing of patent and trademark 
applications. Under current law, a temporary fee increase 
expires at the end of fiscal year 2006. In addition, H.R. 2791 
would require the Director of the PTO to refund fees paid by 
those seeking services from the PTO that are in excess (if any) 
of the amounts appropriated for the PTO each year. Those fees 
are recorded in the budget as offsetting collections credited 
against discretionary appropriations.
    Under the bill, CBO estimates that PTO fees would increase 
by 15 percent a year starting in fiscal year 2007 compared to 
fees that will be collected under current law. The bill would 
not affect the fee rates assessed in fiscal year 2006. Assuming 
appropriation of all fees collected by the PTO, CBO estimates 
that implementing H.R. 2791 would decrease PTO's net spending 
subject to appropriation by about $43 million in 2007 and $54 
million over the 2007-2010 period due to the lag in time 
between when PTO fees are collected and spent. CBO estimates 
that enacting the bill would increase direct spending by $52 
million in 2007 for refunding PTO fees to those who will pay 
fees in 2006 in excess of the amount appropriated. Enacting the 
bill would not affect revenues.
    H.R. 2791 would impose both intergovernmental and private-
sector mandates, as defined in the Unfunded Mandates Reform Act 
(UMRA), on patent and trademark applicants. CBO estimates that 
the costs of the intergovernmental mandates would not exceed 
the threshold ($62 million in 2005, adjusted annually for 
inflation) established in that act. CBO cannot determine 
whether the costs of the mandate would exceed the annual 
threshold for private-sector entities established in UMRA ($123 
million in 2005, adjusted annually for inflation), because UMRA 
does not specify how CBO should measure the costs of extending 
an existing mandate. Depending on how they are measured, the 
costs to the private sector could exceed the threshold.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 2791 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
------------------------------------------------------------------------
                                        2006   2007   2008   2009   2010
------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION\1\
Increase in PTO Fees Under H.R. 2791
  Estimated Authorization Level            0   -240   -255   -270   -285
  Estimated Outlays                        0   -240   -255   -270   -285
Increase in PTO Spending Under H.R.
 2791
  Estimated Authorization Level            0    240    255    270    285
  Estimated Outlays                        0    197    250    267    282
Net Change in PTO Spending Under H.R.
 2791
  Estimated Authorization Level            0      0      0      0      0
  Estimated Outlays                        0    -43     -5     -3     -3
CHANGES IN DIRECT SPENDING
Refunded PTO Fees
  Estimated Budget Authority               0     52      0      0      0
  Estimated Outlays                        0     52      0      0      0
------------------------------------------------------------------------
1. For 2006, the PTO received a gross appropriation of $1,683 million,
  and CBO estimates that amount will be offset by $1,735 million in fee
  collections.

                           BASIS OF ESTIMATE

    Under current law, the PTO is authorized to collect fees 
from the public for specific 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 appropriation 
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 $1,735 million in fees in 
2006, which will offset $1,683 million of appropriated funding 
for that year, resulting in an estimated net appropriation of -
$52 million.
    H.R. 2791 would change the fees that the PTO charges for 
activities relating to processing applications for patents and 
trademarks. The bill also would require that any fees collected 
by the PTO but not appropriated for PTO operating expenses be 
refunded (on a proportional basis) to those who paid the fees. 
Assuming that all amounts collected by the agency are 
appropriated for its use, CBO estimates that the bill would 
decrease spending subject to appropriation by $43 million in 
2007 and $54 million over the 2007-2010 period due to the lag 
in the time between when PTO fees are collected and spent. CBO 
estimates that enacting H.R. 2791 would increase direct 
spending by $52 million in 2007 for refunding PTO fees that 
will be collected during 2006. Enacting the bill would not 
affect revenues.
Spending Subject to Appropriation
    Beginning in 2005, the fee rates that the PTO charges for 
activities related to patent and trademark applications were 
temporarily increased. Under current law, those increased fee 
rates will expire at the end of 2006. H.R. 2791 would 
permanently extend the fee increase. For example, under current 
law, the fee the PTO charges for issuing an original patent 
(other than design or plant patents) is $1,400 in 2006 but will 
decrease to $1,300 starting in 2007. Under H.R. 2791, that rate 
would remain at $1,400. Rates are set in law for several dozen 
categories of fees that support funding of the PTO, but the 
collection of fees is contingent on appropriation action.
    Based on the historical demand for PTO services, CBO 
estimates that the amount collected under the current PTO fee 
structure will decrease from $1,735 million in 2006 to $1,600 
million in 2007 because of the expiring fee rates. After 
accounting for the higher fee rates under H.R. 2791, CBO 
estimates that PTO fees would increase by about 15 percent 
starting in 2007 compared with the fee rates that will apply 
under current law. Relative to the collections that would occur 
under current law, CBO estimates that implementing the bill 
would increase fees collected by the PTO by $240 million in 
2007 and about $1 billion over the 2007-2010 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 $1,840 million in 
2007 and would total $7,925 million over the 2007-2010 period. 
By comparison, the agency collected $1,504 million in 2005, and 
CBO estimates that it will collect $1,735 million in 2006.
    Net discretionary spending for the PTO in 2007 and later 
years depends on future appropriation acts. Future 
appropriation acts could provide the PTO with more or less 
spending authority than the agency receives from fee 
collections. If H.R. 2791 is enacted, however, future 
appropriation acts that provide less funding for the PTO than 
the agency's actual fee collections would result in an 
expenditure to refund the fees not appropriated to PTO. This 
expenditure would occur in the subsequent fiscal year and would 
be considered an advance appropriation.
Direct Spending
    H.R. 2791 would direct the PTO to refund a proportionate 
share of the fees that are not appropriated for the PTO's 
operating expenses to those who paid the fees in each fiscal 
year. In general, patent and trademark fee collections cover 
the PTO's operating expenses. The 2006 appropriation act for 
the PTO, however, places a limit on the amount of fee 
collections that the agency can spend. Of the $1,735 million in 
PTO fees that CBO estimates will be collected in 2006, the act 
allows the PTO to spend about $1,683 million, resulting in an 
estimated net appropriation of -$52 million for that year.
    Under the bill, the refund would apply to fee collections 
in excess of appropriated spending for each year starting with 
fiscal year 2005. For 2005, actual fee collections almost fully 
offset appropriated spending. (Actual collections were about 
$1,504 million and the 2005 appropriation act provided $1,509 
million). For that reason, CBO estimates that enacting H.R. 
2791 would not result in a refund for 2005.
    For 2006, CBO estimates that PTO fee collections will 
exceed funding provided in the 2006 appropriation act by $52 
million. Under H.R. 2791, the PTO would be required to refund 
the excess fee collections to those who paid fees during 2006. 
CBO estimates that enacting H.R. 2791 would increase direct 
spending in 2007 by $52 million for refunding the fees.

              INTERGOVERNMENTAL AND PRIVATE SECTOR IMPACT

    H.R. 2791 would impose both intergovernmental and private-
sector mandates, as defined in UMRA, on patent and trademark 
applicants. CBO estimates that the costs of the 
intergovernmental mandates would not exceed the threshold ($62 
million in 2005, adjusted annually for inflation) established 
in that act. CBO cannot determine whether the costs of the 
mandate would exceed the annual threshold for private-sector 
entities established in UMRA ($123 million in 2005, adjusted 
annually for inflation) because UMRA does not specify how CBO 
should measure the costs of extending an existing mandate. 
Depending on how they are measured, the costs to the private 
sector could exceed the threshold.
    The requirement to pay patent and trademark fees is a 
mandate because the Federal Government controls the trademark 
and patent systems, and no reasonable alternatives to the 
systems exist. Under current law, temporary fee increases will 
expire at the end of fiscal year 2006. The bill would 
permanently increase the fees that the Patent and Trademark 
Office would collect starting in fiscal year 2007.
    In the case of a mandate that has not yet expired, UMRA 
does not specify whether CBO should measure the cost of the 
extension relative to the mandate's current costs or assume 
that the mandate will expire and that it must measure the costs 
of the mandate's extension as if the requirement were new. 
Measured against the costs that would be incurred if current 
law remains in place and the PTO fees decline, the total costs 
of extending this mandate would be $240 million in 2007 and 
rise to $285 million in 2010, with 1 percent to 2 percent of 
those costs accruing to intergovernmental entities. Measured 
that way, the cost of the mandate would exceed the annual 
threshold for the private sector as defined in UMRA. By 
contrast, measured against the fees in place for fiscal year 
2006, the mandate would impose no additional costs because the 
fees under the bill would not differ from those currently in 
effect. Measured either way, the costs to intergovernmental 
entities would be small.
    In addition, if fee collections for a fiscal year exceed 
the amount appropriated to the PTO for that year, the bill 
would require the Director of the PTO to make payments to 
entities who paid PTO fees during that fiscal year. For fiscal 
year 2006, based on the appropriation of $1,683 million for the 
PTO and the CBO estimate of $1,735 million for fees collected, 
CBO estimates that the bill would provide for refund payments 
of $52 million, with most of those payments going to the 
private sector. For other years, the total amount of payments 
refunded, if any, under this provision would depend on the 
level of future appropriations.

                         ESTIMATE PREPARED BY:

Federal Costs: Melissa Z. Petersen (226-2860)
Impact on State, Local, and Tribal Governments: Sarah Puro 
    (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                    Performance Goals and Objectives

    H.R. 2791 will allow the USPTO to reduce application 
backlogs and pendency without compromising patent quality. This 
general goal is consistent with the agency's ``Strategic Plan'' 
and related Congressional directives since the 107th Congress 
regarding agency operations. The Committee will monitor 
progress by the USPTO in this regard, especially concerning the 
hiring of new examiners and retention of experienced examiners. 
The Committee also believes that enactment of H.R. 2791 will 
help to spur greater use of electronic filing by applicants.

                   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, Sec. 8 of the Constitution.

               Section-by-Section Analysis and Discussion

    Sec. 1. Short Title. Section 1 sets forth the short title 
of the bill, the ``United States Patent and Trademark Office 
Fee Modernization Act of 2005.''
    Sec. 2. Fees for Patent Services. Section 2 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 2 also provides for the establishment of a search 
fee under 35 U.S.C. 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, exceeds 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 Sec. 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 1-month extensions of time. Under Sec. 41(a)(8), 
the fee for filing the first 1-month petition is $120; the fee 
for filing the second 1-month petition is $330; and the fee for 
filing the third or each subsequent 1-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 5 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 (4) $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'' the performance of the search 
function to commercial entities. Empowering the USPTO Director 
to initiate a program to out-source the search function is part 
of a larger effort to make USPTO a modern, productive, and 
efficient Federal agency. The agency, Congress, and the user 
groups whose members pay for USPTO services all want to improve 
USPTO 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 its 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 also 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 USPTO 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 USPTO 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 USPTO 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 3 provides 
that the fee under Sec. 31(a) of the Trademark Act of 1946 (15 
U.S.C. Sec. 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 3 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 3 also provides that 
beginning in fiscal year 2004, the provisions of the second and 
third sentence of Sec. 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 this section. 
Thus, the fees for filing an application for the registration 
of a trademark established under section 3 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 
4 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 4 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 5 
creates a ``refund'' program to eliminate the potential 
incentive for diverting USPTO revenue to non-USPTO programs. 
Briefly, if fee collections in a given fiscal year exceed the 
amount appropriated to the agency, the excess or overage shall 
be deposited in a USPTO ``Reserve Fund.'' At the end of the 
fiscal year the Director determines if there are sufficient 
funds to make payments to persons who paid fees during that 
year. The Director is empowered to determine which recipients 
qualify and in what amounts, except that the payments in 
aggregate must equal the amount of revenue in the Reserve Fund 
during that fiscal year, less the cost of administering the 
program.
    Sec. 6. Repeal of Patent and Trademark Fee Provisions of 
the Consolidated Appropriations Act, 2005. Section 6 repeals 
the provisions of the Consolidated Appropriations Act from the 
108th Congress that authorized the new (current) fee schedule, 
which will otherwise expire in 18 months. Moreover, the current 
provisions do not address out-sourcing, small business 
concerns, and the refund mechanism as the text of H.R. 2791 
does.
    Sec. 7. Effective Date, Applicability, and Transitional 
Provision. Consistent with section 6, section 7 of the bill 
states that, except as otherwise provided, H.R. 2791 and the 
amendments to it shall take effect as of December 8, 2004; in 
other words, on the same date that the Consolidated 
Appropriations Act of 2005 took effect.
    Section 7 also provides that the amendments made by section 
2 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 7 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 7 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 7 also provides that the amendments made by section 
3 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 7 also provides a transitional provision concerning 
the search fees established under Sec. 41(d). Section 7 
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 7 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 7 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 6 
with respect to a PCT international application. Section 7 also 
provides that the Director may, by regulation, provide for a 
refund of any part of the transitional search fees specified in 
section 7 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 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. 8. Definition. Section 8 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. 9. Clerical Amendment. Section 9 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 italics, existing law in which no change 
is proposed is shown in roman):

TITLE 35, UNITED STATES CODE

           *       *       *       *       *       *       *


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. For the 3-year period beginning 
        on December 8, 2004, the fee for a search by a 
        qualified search authority of a patent application 
        described in clause (i), (iv), or (v) of subparagraph 
        (B) may not exceed $500, of a patent application 
        described in clause (ii) of subparagraph (B) may not 
        exceed $100, and of a patent application described in 
        clause (iii) of subparagraph (B) may not exceed $300. 
        The Director may not increase any such fee by more than 
        20 percent in each of the next 3 1-year periods, and 
        the Director may not increase any such fee thereafter.
            (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; and
                            (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.
            (F) The Director shall require that any search by a 
        qualified search authority that is a commercial entity 
        is conducted in the United States by persons that--
                    (i) if individuals, are United States 
                citizens; and
                    (ii) if business concerns, are organized 
                under the laws of the United States or any 
                State and employ United States citizens to 
                perform the searches.
            (G) A search of an application that is the subject 
        of a secrecy order under section 181 or otherwise 
        involves classified information may only be conducted 
        by Office personnel.
            (H) A qualified search authority that is a 
        commercial entity may not conduct a search of a patent 
        application if the entity has any direct or indirect 
        financial interest in any patent or in any pending or 
        imminent application for patent filed or to be filed in 
        the Patent and Trademark Office.
            (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)] (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)] (f) Adjustments in Fees.--The fees established in 
subsections [(a) and (b)] (a), (b), and (d) 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)] (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) Fees charged under subsection (a) or (b)] (h) 
Reductions in Fees for Certain Entities.--(1) Subject to 
paragraph (3), fees charged under subsections (a), (b), and 
(d)(1) 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.

           *       *       *       *       *       *       *

    (3) The fee charged under subsection (a)(1)(A) shall be 
reduced by 75 percent with respect to its application to any 
entity to which paragraph (1) applies, if the application is 
filed by electronic means as prescribed 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)  * * *

           *       *       *       *       *       *       *

    [(c)] (c)(1) To the extent and in the amounts provided in 
advance in appropriations Acts, 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 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.
    (2) There is established in the Treasury a Patent and 
Trademark Fee Reserve Fund. If fee collections by the Patent 
and Trademark Office for a fiscal year exceed the amount 
appropriated to the Office for that fiscal year, fees collected 
in excess of the appropriated amount shall be deposited in the 
Patent and Trademark Fee Reserve Fund. After the end of each 
fiscal year, the Director shall make a finding as to whether 
the fees collected for that fiscal year exceed the amount 
appropriated to the Patent and Trademark Office for that fiscal 
year. If the amount collected exceeds the amount appropriated, 
the Director shall, if the Director determines that there are 
sufficient funds in the Reserve Fund, make payments from the 
Reserve Fund to persons who paid patent or trademark fees 
during that fiscal year. The Director shall by regulation 
determine which persons receive such payments and the amount of 
such payments, except that such payments in the aggregate shall 
equal the amount of funds deposited in the Reserve Fund during 
that fiscal year, less the cost of administering the provisions 
of this paragraph.

           *       *       *       *       *       *       *


PART II--PATENTABILITY OF INVENTIONS AND GRANT OF PATENTS

           *       *       *       *       *       *       *


                   CHAPTER 11--APPLICATION FOR PATENT

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.

           *       *       *       *       *       *       *


PART III--PATENTS AND PROTECTION OF PATENT RIGHTS

           *       *       *       *       *       *       *


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

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,''.

           *       *       *       *       *       *       *

                              ----------                              


 TITLE VIII OF DIVISION B OF THE CONSOLIDATED APPROPRIATIONS ACT, 2005

                 [TITLE VIII--PATENT AND TRADEMARK FEES

[SEC. 801. FEES FOR PATENT SERVICES.

    [(a) General Patent Fees.--During fiscal years 2005 and 
2006, subsection (a) of section 41 of title 35, United States 
Code, shall be administered as though that subsection reads 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) 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.
            [``(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.--During fiscal years 2005 and 
2006, subsection (b) of section 41 of title 35, United States 
Code, shall be administered as though that subsection reads 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.--During fiscal years 2005 and 
2006, subsection (d) of section 41 of title 35, United States 
Code, shall be administered as though that subsection reads 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. For the 3-year period 
                beginning on the date of enactment of this Act, 
                the fee for a search by a qualified search 
                authority of a patent application described in 
                clause (i), (iv), or (v) of subparagraph (B) 
                may not exceed $500, of a patent application 
                described in clause (ii) of subparagraph (B) 
                may not exceed $100, and of a patent 
                application described in clause (iii) of 
                subparagraph (B) may not exceed $300. The 
                Director may not increase any such fee by more 
                than 20 percent in each of the next three 1-
                year periods, and the Director may not increase 
                any such fee thereafter.
                    [``(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 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; 
                                and
                                    [``(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) 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.
                    [``(F) The Director shall require that any 
                search by a qualified search authority that is 
                a commercial entity is conducted in the United 
                States by persons that--
                            [``(i) if individuals, are United 
                        States citizens; and
                            [``(ii) if business concerns, are 
                        organized under the laws of the United 
                        States or any State and employ United 
                        States citizens to perform the 
                        searches.
                    [``(G) A search of an application that is 
                the subject of a secrecy order under section 
                181 or otherwise involves classified 
                information may only be conducted by Office 
                personnel.
                    [``(H) A qualified search authority that is 
                a commercial entity may not conduct a search of 
                a patent application if the entity has any 
                direct or indirect financial interest in any 
                patent or in any pending or imminent 
                application for patent filed or to be filed in 
                the Patent and Trademark Office.
            [``(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.--During fiscal years 2005 and 2006, 
subsection (f) of section 41 of title 35, United States Code, 
shall apply to the fees established under this section.
    [(e) Fees For Small Entities.--During fiscal years 2005 and 
2006, subsection (h) of section 41 of title 35, United States 
Code, shall be administered as though that subsection is 
amended--
            [(1) in paragraph (1), by striking ``Fees charged 
        under subsection (a) or (b)'' and inserting ``Subject 
        to paragraph (3), fees charged under subsections (a), 
        (b), and (d)(1)''; and
            [(2) by adding at the end the following new 
        paragraph:
            [``(3) The fee charged under subsection (a)(1)(A) 
        shall be reduced by 75 percent with respect to its 
        application to any entity to which paragraph (1) 
        applies, if the application is filed by electronic 
        means as prescribed by the Director.''.

[SEC. 802. ADJUSTMENT OF TRADEMARK FEES.

    [(a) Fee For Filing Application.--During fiscal years 2005 
and 2006, under such conditions as may be prescribed by the 
Director, the fee under section 31(a) of the Trademark Act of 
1946 (15 U.S.C. 1113(a)) for: (1) the filing of a paper 
application for the registration of a trademark shall be $375; 
(2) the filing of an electronic application shall be $325; and 
(3) the filing of an electronic application meeting certain 
additional requirements prescribed by the Director shall be 
$275. During fiscal years 2005 and 2006, 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. 803. EFFECTIVE DATE, APPLICABILITY, AND TRANSITIONAL PROVISION.

    [(a) Effective Date.--Except as otherwise provided in this 
title (including this section), the provisions of this title 
shall take effect on the date of the enactment of this Act and 
shall apply only with respect to the remaining portion of 
fiscal year 2005 and fiscal year 2006.
    [(b) Applicability.--
            [(1)(A) Except as provided in subparagraphs (B) and 
        (C), the provisions of section 801 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), 
        subsections (a)(1) and (3) and (d)(1) of section 41 of 
        title 35, United States Code, as administered as 
        provided in this title, shall apply only to--
                    [(I) applications for patents filed under 
                section 111 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 administered as provided in this title, 
        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 administered as provided in this title, 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 provisions of section 802 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 fiscal years 2005 and 
        2006, 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.

[SEC. 804. DEFINITION.

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

                           Markup Transcript



                            BUSINESS MEETING

                      WEDNESDAY, NOVEMBER 9, 2005

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable F. 
James Sensenbrenner, Jr. (Chairman of the Committee) presiding.
    Chairman Sensenbrenner. The Committee will come to order.
    [Intervening business.]
    Chairman Sensenbrenner. The next item on the agenda is the 
adoption of H.R. 2791, the ``United States Patent and Trademark 
Fee Modernization Act of 2005.'' The Chair recognizes the 
gentleman from Texas, Mr. Smith, the Chairman of the 
Subcommittee on Courts, the Internet, and Intellectual 
Property, for a motion.
    Mr. Smith. Mr. Chairman, the Subcommittee on the Courts, 
the Internet, and Intellectual Property reports favorably the 
bill H.R. 2791 and moves its favorable recommendation to the 
House.
    Chairman Sensenbrenner. Without objection, the bill will be 
considered as read and open for amendment at any point.
    [The bill, H.R. 2791, 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's recognized.
    Mr. Smith. Mr. Chairman, the Patent and Trademark Fee 
Modernization Act of 2005 enables the Patent and Trademark 
Office to implement its revised Strategic Business Plan by 
making permanent a new fee schedule enacted last year that will 
generate extra revenue for the agency.
    This is a crucial step toward 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, then inventors and trademark filers are the losers.
    Through the granting of patents and registration of 
trademarks, the PTO affects the vitality of businesses and 
entrepreneurs, paving the way for investment capital and 
research and development. Intellectual property-based 
industries represent the largest single sector of the U.S. 
economy. Approximately 50 percent of U.S. exports now depend on 
some form of IP protection.
    The downside to the increasing importance of intellectual 
property protection is that the PTO is staggering under an 
increasingly complex and massive workload.
    Patent pendency--the amount of time a patent application is 
pending before a patent is issued--now averages over 2 years. 
Without fundamental changes in the way the PTO operates, 
average pendency in these issues will likely double to 6 to 8 
years.
    Moreover, the backlog of applications awaiting a first 
review by an examiner will grow from the current level of 
475,000 to over a million. These delays pose a threat to 
American businesses and entrepreneurs. The nature of technology 
and the nature of the marketplace make these delays 
unacceptable and unsustainable.
    In order to fund the initiatives set forth in the strategic 
plan, we must make the new fee schedule permanent. The proposed 
fee changes accurately reflect the PTO's cost of doing business 
and will benefit PTO's customers by reducing application filing 
fees and allowing applicants to evaluate the commercial value 
of their inventions and recover the cost of search and 
examination as the situation warrants.
    Most importantly, the new fee structure will enable the PTO 
to reduce pendency time, improve quality and customer service 
through electronic processing, and gain greater enforcement of 
intellectual property rights abroad. For example, the 
additional revenue provided by the fee bill will allow the PTO 
to hire an additional 2,900 patent examiners and move to the 
full electronic processing of patent and trademark 
applications.
    The only difference between H.R. 2791 and H.R. 1561, the 
fee bill from the 108th Congress, is that the effective date 
has been changed to supersede the corresponding provisions in 
the omnibus appropriations act.
    Mr. Chairman, the House passed H.R. 1561 last year by a 
vote of 379-28. For our purposes, this is a bipartisan and non-
controversial measure that benefits our high-tech economy.
    I hope my colleagues support the bill, and, Mr. Chairman, I 
yield back the balance of my time.
    Chairman Sensenbrenner. The gentlewoman from California is 
recognized for 5 minutes.
    Ms. Lofgren. Mr. Chairman, I am pleased to be a cosponsor 
of this bill, and I'm also happy that the bill was reported 
favorably by voice vote from the Subcommittee on Courts, 
Internet, and Intellectual Property. As the Chairman has 
mentioned, this is basically the same bill as last year except 
with the dates changed. We had a great vote in the House. 
Unfortunately, the Senate did not follow along, so we need to 
start this process over again.
    As the Chairman has mentioned, pendency is a terrible 
problem in the Patent Office. In fact, with pendencies of 2 
years or more, the pendency exceeds product cycle dates. This 
is a terrible situation for American technology and innovation, 
and in order to fully fund the 21st century strategic plan, we 
need to adopt this bill.
    As the Committee may know, over the past 11 fiscal years, 
over $700 million in patent fees have been diverted to other 
projects. In the past, we've discussed this as kind of a 
special tax on innovation, and what this bill does I think is 
quite clever. In Section 5 of the bill, it designates that the 
funds, all of the patent fees will be used for Patent Office 
projects. And should that not occur, the fees will be rebated 
to the patent applicants, removing any incentive that 
appropriators might have to try and divert the fees.
    We have strong bipartisan support for this measure. I am 
pleased that we're starting again in the House, and I am 
looking forward to working with my colleague, the Chairman, in 
trying to get the Senate to see the wisdom of our approach to 
this. It is very important to our country that the measure make 
it all the way to the President's desk for his signature. And I 
yield----
    Mr. Conyers. Would the gentlelady yield?
    Ms. Lofgren. I would yield.
    Mr. Conyers. Thank you. I just wanted to add that the 
measure before us requires that contractor employees conducting 
searches must all be citizens, and in addition, we're 
prohibiting contractors from having any financial interest in 
any patent application, which mimics the statutory provision 
that prevents PTO employees from submitting their own 
applications. And I support the position of the gentlelady from 
California that we all support the legislation.
    Thank you.
    Ms. Lofgren. And I yield back. Thank you.
    Chairman Sensenbrenner. Without objection, all Members may 
include opening statements in the record at this point.
    Are there any amendments?
    Mr. King. Mr. Chairman?
    Chairman Sensenbrenner. The gentleman from Iowa, Mr. King, 
for what purpose do you----
    Mr. King. Move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. King. Thank you, Mr. Chairman.
    I want to thank Subcommittee Chairman Smith for bringing 
this legislation. I want to acknowledge at the beginning that 
the knowledge base on his Subcommittee is far greater than the 
knowledge base that I'm speaking from here today. I'm going to 
support this bill out of Committee, and just for the record, I 
wanted to register a couple of concerns, and one is that 
because of the fee structure, I am concerned that individual 
entrepreneurs may have more difficulty than they've had in the 
past, and I trust that that's been considered in this analysis.
    And the question of--since we have about $200 billion in 
intellectual property that's pirated or stolen from United 
States entrepreneurs, the question of does this make that 
information more available or less available to those pirates 
is another one of the issues that I'm concerned about.
    So, on balance, I think this is a good bill, but I do have 
my reservations, and I appreciate the opportunity to speak on 
it, and I yield the balance of my time.
    Chairman Sensenbrenner. Are there any amendments to the 
bill? Are there any amendments to the bill?
    [No response.]
    Chairman Sensenbrenner. Hearing none, a reporting quorum is 
present. The question occurs on the motion to report the bill 
H.R. 2791 favorably. All in favor, say aye? Opposed, no?
    The ayes appear to have it. The ayes have it. The motion to 
report favorably is agreed to. Without objection, the staff is 
directed to make any technical and conforming changes, and all 
Members will be given 2 days as provided by the rules in which 
to submit additional, dissenting, supplemental, or minority 
views.
    [Intervening business.]
    This concludes the business for which this markup was 
called. The Chair thanks everybody for dealing with these 
matters expeditiously, and without objection, the Committee 
stands adjourned.
    [Whereupon, at 11:37 a.m., the Committee was adjourned.]

                                 
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