    Intellectual Property: Fees Are Not Always Commensurate With the Costs of
    Services (Chapter Report, 05/09/97, GAO/RCED-97-113).

    Pursuant to a congressional request, GAO reviewed issues related to
    intellectual property fees charged by the Patent and Trademark Office
    (PTO) and the Copyright Office, focusing on: (1) how fees are set for
    the services provided by the federal agencies; (2) the extent to which
    intellectual property fees are recovering the costs of the services
    provided; (3) whether different users of the same services pay different
    fees; (4) whether patent fees encourage or discourage the completeness
    and accuracy of applications; and (5) the potential effects of
    increasing copyright fees.

    GAO noted that: (1) patent fees, like trademark and copyright fees, are
    set primarily by statute; (2) overall, patent fees recover the costs of
    the patent process within PTO and, by law, can be adjusted annually for
    inflation; (3) despite this self-sufficiency overall, fees for
    individual services are not necessarily commensurate with the costs of
    those services because the largest fees are paid at the back end of the
    patent process, while PTO incurs most of its costs at the front end, and
    different categories of applicants pay different fees for the same
    service; (4) generally, successful applicants and large entities tend to
    pay more than unsuccessful applicants and small entities for the same
    services; (5) because fees do not differ on the basis of the complexity
    of the invention and because fees do little to discourage the submission
    of inaccurate and incomplete applications, applicants with complicated
    inventions and applicants who create delays in the process may not pay
    fees sufficient to recover the additional costs they create; (6)
    trademark fees also recover the overall costs of the trademark process
    and can be adjusted annually for inflation; (7) trademark fees are
    smaller and fewer in number than patent fees; (8) fees and costs tend to
    be more closely aligned in the trademark process because most income is
    received prior to the examination of the application; (9) there are no
    differences in trademark fees based on the size of the entity applying,
    no significant differences in the costs for different types of trademark
    applications, and fewer costs and delays caused by inaccurate and
    incomplete applications; (10) copyright fees are the smallest and
    simplest of all the federal intellectual property fees; (11) most
    applicants pay only an up-front, one-time registration fee, with no
    differences based on entity size, the accuracy or completeness of the
    application, or the type of copyright being registered; (12) copyright
    fees do not recover costs and, as a result, the Copyright Office
    receives about $10 million a year in appropriations; (13) copyright fees
    have not been increased since fiscal year (FY) 1991 because the
    Copyright Office chose not to raise fees to adjust for inflation in FY
    1995; (14) the Copyright Office has supported fee increases in the past
    and supports legislative proposals that would give the Register of
    Copyrights the authority to raise fees to recover costs; and (15) Copyr*

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  RCED-97-113
         TITLE:  Intellectual Property: Fees Are Not Always Commensurate
                 With the Costs of Services
          DATE:  05/09/97
       SUBJECT:  Copyrights
                 Patents
                 Trademarks
                 Intellectual property
                 Fees
                 Inflation
                 Proposed legislation

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    Cover
    ================================================================ COVER

    Report to the Chairman, Committee on the Judiciary, U.S.  Senate

    May 1997

    INTELLECTUAL PROPERTY - FEES ARE
    NOT ALWAYS COMMENSURATE WITH THE
    COSTS OF SERVICES

    GAO/RCED-97-113

    Intellectual Property

    (307746)

    Abbreviations
    =============================================================== ABBREV

      CBO - Congressional Budget Office
      CPI - Consumer Price Index
      GAO - General Accounting Office
      GDP - Gross Domestic Product
      IPO - Intellectual Property Organization
      PTO - Patent and Trademark Office
      SBA - Small Business Administration

    Letter
    =============================================================== LETTER

    B-274301

    letter date goes here

    The Honorable Orrin G.  Hatch
    Chairman, Committee on the Judiciary
    United States Senate

    Dear Mr.  Chairman:

    As requested, this report presents the results of our review of
    issues related to intellectual property fees charged by the Patent
    and Trademark Office within the Department of Commerce and the
    Copyright Office within the Library of Congress.  Our report provides
    information on the manner in which these agencies use fees to provide
    services.  The report specifically discusses patents, trademarks, and
    copyrights.  It also provides matters for congressional consideration
    concerning both patents and copyrights and a recommendation to the
    Register of Copyrights.

    As arranged with your office, unless you publicly announce its
    contents earlier, we plan no further distribution of this report
    until 30 days after the date of this letter.  At that time, we will
    send copies to appropriate House and Senate committees; interested
    Members of Congress; the Secretary of Commerce; the Assistant
    Secretary of Commerce and Commissioner of Patents and Trademarks; the
    Librarian of Congress; the Register of Copyrights; the Director,
    Office of Management and Budget; and other interested parties.  We
    will also make copies available to others upon request.

    If you or your staff have any questions about this report, please
    call me at (202) 512-3841.  Major contributors to this report are
    listed in appendix XIV.

    Sincerely yours,

    Victor S.  Rezendes
    Director, Energy, Resources,
     and Science Issues

    EXECUTIVE SUMMARY
    ============================================================ Chapter 0

       PURPOSE
    ---------------------------------------------------------- Chapter 0:1

    The Congress has begun to consider a number of issues involving the
    federal agencies that issue or register patents, trademarks, and
    copyrights--commonly known as intellectual property.  Furthermore,
    the administration has made the reform of intellectual property a
    part of its plan to "reinvent" government.  In this regard, GAO has
    issued a number of reports discussing certain operations of the
    Patent and Trademark Office (PTO) within the Department of Commerce
    and the Copyright Office within the Library of Congress.

    The Senate Committee on the Judiciary is considering funding and
    organizational proposals for PTO and the Copyright Office.  To help
    the Committee in its deliberations, the Chairman requested that GAO
    review the manner in which these agencies use fees in providing
    services.  He asked GAO to address fees as they relate specifically
    to patents, trademarks, and copyrights and, where applicable, to
    determine (1) how fees are set for the services provided by the
    federal agencies, (2) the extent to which intellectual property fees
    are recovering the costs of the services provided, (3) whether
    different users of the same services pay different fees, (4) whether
    patent fees encourage or discourage the completeness and accuracy of
    applications, and (5) the potential effects of increasing copyright
    fees.  This report addresses these issues in individual chapters on
    patents, trademarks, and copyrights.  Because the last two issues
    relate primarily to patents and to copyrights, respectively, the
    report addresses them only in those applicable sections.

       BACKGROUND
    ---------------------------------------------------------- Chapter 0:2

    The federal government regulates intellectual property rights through
    the grant of patents and the registration of trademarks and
    copyrights.  Patents and trademarks are administered by PTO, while
    copyrights are administered by the Library of Congress.  While the
    three types of intellectual property bear many similarities, they
    also have important differences.

    Generally, inventors need to obtain patents in order to benefit
    economically from their inventions.  The grant of a patent in the
    United States is a complicated process whereby PTO examiners
    determine that the product or process in question is new, useful, and
    non-obvious.  Once the patent is issued, the patent holder in most
    cases has exclusive rights to the invention for 20 years from the
    date the application was filed.

    A trademark is acquired through use rather than registration;
    however, registration does afford the trademark owner procedural
    advantages against infringement.  The trademark process also requires
    an examination by PTO to ensure that others have not already
    registered the same or a similar trademark, but the examination
    process is more streamlined.  A trademark registration has a term of
    10 years but, unlike patents and copyrights, can be renewed.

    A copyright is gained when a work is created, not when it is
    registered.  However, much like trademarks, registration of a
    copyright affords the copyright owner certain statutory rights that
    would not be available otherwise.  The examination process for
    copyrights is much different than for either patents or trademarks
    because the Copyright Office does not verify whether others have
    already registered the same or similar works.  In most cases, a
    copyright lasts for the author's life plus 50 years.

    Both PTO and the Copyright Office charge fees for the services they
    provide, but they differ in the types of fees charged and the
    revenues obtained.  In fiscal year 1995, patent fees totaled $577.7
    million, trademark fees totaled $68.5 million, and copyright fees
    totaled $14.6 million.

       RESULTS IN BRIEF
    ---------------------------------------------------------- Chapter 0:3

    Patent fees--like trademark and copyright fees--are set primarily by
    statute.  Overall, patent fees recover the costs of the patent
    process within PTO and, by law, can be adjusted annually for
    inflation.  Despite this self-sufficiency overall, fees for
    individual services are not necessarily commensurate with the costs
    of those services because (1) the largest fees are paid at the back
    end of the patent process, while PTO incurs most of its costs at the
    front end, and (2) different categories of applicants pay different
    fees for the same service.  Generally, successful applicants and
    large entities tend to pay more than unsuccessful applicants and
    small entities for the same services.  Furthermore, because fees do
    not differ on the basis of the complexity of the invention and
    because fees do little to discourage the submission of inaccurate and
    incomplete applications, applicants with complicated inventions and
    applicants who create delays in the process may not pay fees
    sufficient to recover the additional costs they create.

    Trademark fees also recover the overall costs of the trademark
    process and can be adjusted annually for inflation.  However,
    trademark fees are smaller and fewer in number than patent fees.  In
    addition, fees and costs tend to be more closely aligned in the
    trademark process because most income is received prior to the
    examination of the application.  There are no differences in
    trademark fees based on the size of the entity applying, no
    significant differences in the costs for different types of trademark
    applications, and fewer costs and delays caused by inaccurate and
    incomplete applications.

    Copyright fees are the smallest and simplest of all the federal
    intellectual property fees.  Most applicants pay only an up-front,
    one-time registration fee of $20, with no differences based on entity
    size, the accuracy or completeness of the application, or the type of
    copyright being registered.  However, copyright fees do not recover
    costs either in total or by type of service and, as a result, the
    Copyright Office receives about $10 million a year in appropriations.
    Copyright fees have not been increased since fiscal year 1991 because
    the Copyright Office chose not to raise fees to adjust for inflation
    in fiscal year 1995.  The Copyright Office has supported the need for
    fee increases in the past and currently supports legislative
    proposals that would give the Register of Copyrights the authority to
    raise fees to recover the costs of copyright registration and
    services.  Copyright Office officials do not believe that the
    Copyright Office itself should be fully self-sustaining through fees
    because it performs other functions that the officials believe are
    more appropriately funded through appropriations.  Similarly, the
    Copyright Office did not support a 1996 proposal to make it
    self-sustaining through fees in a new, government-owned, intellectual
    property corporation, believing that such a move would lead to
    unacceptably high fee increases and registration decreases.

       PRINCIPAL FINDINGS
    ---------------------------------------------------------- Chapter 0:4

          PATENT FEES RECOVER OVERALL
          COSTS BUT NOT THE COSTS OF
          INDIVIDUAL SERVICES
    -------------------------------------------------------- Chapter 0:4.1

    Most patent fees are set by statute and tend to be the largest and
    most extensive of all federal intellectual property fees, with 139
    individual types of fees ranging as high as $2,900 in fiscal year
    1995.  Once dependent on appropriations, the patent process has been
    self-sustaining overall since fiscal year 1993.  However, for several
    reasons, individual applicants may not pay fees that are commensurate
    with the services they receive.  First, while most of the costs of
    the patent process are incurred during PTO's examination of the
    application, most of the patent fees are paid after the examination
    has been completed.  In fiscal year 1995, for example, about 19
    percent of the fee revenues came from issue fees, which are payable
    after PTO has decided that a patent can be granted, and about 34
    percent were maintenance fees, which are payable in three stages
    after the patent is issued.

    Second, fees do not match the costs of individual services because
    large entities--for-profit organizations with 500 or more
    employees--pay fees that are twice the size of those paid by small
    entities.  While this feature was added to the law in 1982 to reduce
    the burden of increasing fees on small businesses, nonprofit
    organizations, and individual inventors, PTO officials said there are
    no differences in the costs associated with the patents granted to
    large and small entities.

    Third, any particular patent fee may not recover costs because fees
    generally do not vary by invention type, even though the time and
    complexity involved in examining applications for different types of
    inventions can vary significantly.  For example, overall "patent
    pendency"--the time taken by PTO to examine an application prior to a
    patent being issued or the application being abandoned--averaged 19.8
    months for fiscal year 1995.  However, pendency varied from 17.4
    months for solar heating devices to 26.2 months for computer systems.

    Finally, patent fees may not recover costs because they generally are
    not designed to discourage an applicant's delays in the examination
    process.  Examination time can increase significantly when PTO has to
    obtain additional information from the applicant because the
    application was either inaccurate or incomplete.  Even though some
    applicants pay additional fees for such delays, the "extension" fees
    accounted for about 8 percent of total fees collected in fiscal year
    1995, while the delays for which extension fees were paid accounted
    for about 19 percent of the overall average patent pendency.

    PTO recognizes that patent fees are not necessarily commensurate with
    the costs of individual services.  However, its current
    cost-accounting system does not provide sufficient information to
    determine costs on a per-service basis.  For this reason, PTO has
    undertaken two studies designed to improve its cost-accounting system
    and to determine how fees for both patents and trademarks compare
    with the costs of individual services.  The first of these--a study
    of PTO's cost-accounting system--is due to be completed in December
    1997.

          TRADEMARK FEES APPEAR TO BE
          ALIGNED WITH COSTS
    -------------------------------------------------------- Chapter 0:4.2

    While smaller and fewer in number, trademark fees are similar to
    patent fees in that most revenues come from statutory fees, the fees
    can be adjusted annually to account for inflation, and fee revenues
    are sufficient to make the trademark process self-sustaining within
    PTO.  Furthermore, the fees do not vary on the basis of the type of
    trademark for which registration is sought.

    Trademark fees are more nearly commensurate with the costs of
    individual services than are patent fees.  This is because (1) most
    costs occur at the front end of the process, with about 76 percent of
    the costs of the trademark process attributable to the examination of
    applications; (2) most fees are paid prior to or during examination,
    with over 71 percent of the trademark revenues obtained through the
    basic filing fee alone; (3) the fees do not vary on the basis of the
    size of the entity applying for registration; and (4) registration
    costs for different types of trademarks do not vary significantly.
    Similarly, incomplete and inaccurate applications do not create the
    delays and costs common in the patent process.

    PTO officials believe that, despite the relatively close alignment of
    trademark fees and costs, adjustments may be needed in specific
    areas, such as appeals, where the current $100 fee is below PTO's
    costs of handling these actions.  These officials believe that, as
    with patents, the two studies under way eventually will enable PTO to
    better determine the costs of the services being provided and the
    adequacy of the fees charged for these services.

          COPYRIGHT FEES DO NOT
          RECOVER COSTS
    -------------------------------------------------------- Chapter 0:4.3

    In many ways, copyright fees differ from patent and trademark fees.
    While copyright fees are also set primarily by statute, they do not
    recover the costs of the Copyright Office either in total or by type
    of service.  In most cases, an applicant pays only $20 to register a
    copyright, yet the average cost of registration in fiscal year 1995
    was $36.53 per application, and the average cost by the type of
    copyright ranged from $28.32 to $59.60.

    The basic copyright application fees have not been raised since
    fiscal year 1991, when, with the support of the Copyright Office,
    they were doubled to $20.  Copyright Office officials said that they
    have supported proposals to increase fees since then but only when
    they believed such an increase would be cost-effective and would not
    lead to an unacceptable decrease in applications for copyright
    registration.  In this regard, the Copyright Office has supported
    proposed legislation that would give the Register the discretion to
    raise fees to reflect the fair cost of registering copyrights and
    providing services.  The Copyright Office is now planning a fee and
    cost study to determine the costs of individual copyright services
    and the fees necessary to recover these costs.

    The Copyright Office did not raise fees in fiscal year 1995 to
    account for the effects of inflation as authorized by law.  The
    acting Register of Copyrights at the time did not do so because she
    believed that the revenues attributable to the increase were not
    worth the additional costs that would be incurred.  However, GAO
    found that fees could have been raised overall by more than 16
    percent, which would have increased net revenues by about $500,000 in
    the first year and even more in subsequent years.  In addition, the
    adjusted fees would have been the basis for future fee increases.

    In September 1996, the Copyright Office opposed proposed legislation
    that would have made it self-sustaining through fees in a new,
    government-owned, intellectual property corporation.  The Register of
    Copyrights told the Senate Committee on the Judiciary that, for the
    Copyright Office to be self-sustaining under such a proposal, fees
    would have to be raised fivefold and applications would fall as a
    result.  GAO found that the Copyright Office's projections were based
    on a worst-case, least-likely scenario and that other scenarios would
    have resulted in fees that ranged from $41 to $89 per application as
    well as smaller decreases in applications.

    Other studies--including a GAO-contracted management review of the
    Library of Congress\1

    and an internal review by the Library itself--support the need for a
    fee increase.  In addition, one of the options in the Congressional
    Budget Office's deficit reduction package for fiscal year 1998 would
    make the Copyright Office self-sustaining, with fees in the range of
    $35 to $40 per application.  The Register of Copyrights believes that
    the copyright process can be made self-sustaining within the Library,
    probably by increasing fees to about twice the current level.
    However, she said that certain costs of the Copyright Office not
    directly tied to the registration process should continue to be
    funded through appropriations.

    On a related issue, costs attributable to the copyright process are
    higher than they need to be because of a provision in the law that
    the Copyright Office maintain copies of unpublished works for the
    full term of the copyright, now estimated to be an average of 125
    years.  Because the Library of Congress and the copyright owners
    rarely retrieve these copies and many of the works deteriorate after
    a few years, copyright costs could be reduced by adopting the same
    retention requirements for unpublished works as for published works.
    In most cases, this would require the copyright holder to pay an
    additional $270 fee if the works were retained beyond 5 years.

    --------------------
    \1 Library of Congress:  Opportunities to Improve General and
    Financial Management (GAO/T-GGD/AIMD-96-115, May 7, 1996).

       MATTERS FOR CONSIDERATION BY
       THE CONGRESS
    ---------------------------------------------------------- Chapter 0:5

    In view of the various legislative proposals involving PTO and the
    Copyright Office currently being considered, the Congress may wish to
    reexamine the fees these agencies charge for particular services.
    With regard to patent fees, the Congress may wish to consider whether
    fees for particular services should more nearly reflect the costs of
    those services.  Specifically, the Congress may wish to consider
    whether (1) the fee differential between large and small businesses
    should be continued; (2) a larger portion of fees should be tied to
    the examination process itself; (3) larger fees should apply to those
    applications requiring more examination time; and (4) applicants who
    delay the examination process should pay larger fees.

    With regard to copyright fees, the Congress may wish to consider
    whether the Copyright Office should achieve full cost recovery
    through fees, as it has done with PTO, and, if so, whether fees for
    particular services should be commensurate with the costs of those
    services.  In addition, to reduce the costs of the copyright process,
    the Congress may wish to consider whether storage requirements for
    unpublished copyrighted works should be made the same as those for
    published works.

       RECOMMENDATION TO THE REGISTER
       OF COPYRIGHTS
    ---------------------------------------------------------- Chapter 0:6

    To ensure that fees are not further deteriorated by inflation, GAO
    recommends that the Register of Copyrights raise fees to account for
    inflation when given the opportunity to do so.

       AGENCY COMMENTS
    ---------------------------------------------------------- Chapter 0:7

    GAO provided copies of a draft of this report to the Department of
    Commerce and the Library of Congress for their review and comment.
    At the Library's request, GAO also met with Library officials to
    discuss further the Library's written comments.  The comments of the
    Department and the Library and GAO's responses to those comments are
    included in appendixes XII and XIII, respectively.

    Generally, the Department of Commerce agreed with the information in
    the draft report, although the Department recommended a number of
    technical and language changes.  The Library strongly disagreed with
    GAO's discussion of copyright fees and said that the report was
    incorrect in stating that the Copyright Office had opposed fee
    increases, did not acknowledge the role of the Congress in setting
    copyright fees, and did not sufficiently discuss the impact of fee
    increases on the Library's collections.  The Library also disagreed
    with a perceived criticism by GAO of the fee increase projections
    that the Register provided the Senate Committee on the Judiciary in a
    September 1996 hearing.

    Concerning the Department of Commerce's comments, several of the
    technical changes proposed related to GAO's not having included $2.4
    million in miscellaneous fees in the statistics on patent fees.  GAO
    had not included these in the draft report because the source
    materials indicated such information could not be tied specifically
    to either patents or trademarks.  After reviewing the Department's
    comments, GAO determined that these fees should have been shown as
    patent fees and revised the report accordingly.  The Department also
    noted that the cost-accounting information PTO expects to have by
    December 1997 will greatly enhance the substantive information
    available with which to analyze potential changes to the current fee
    structure.  Although it is too early to know the outcome of PTO's
    study, GAO makes the point in this report that, in order to match
    fees more closely with services, it will be necessary to determine
    the actual costs of those services.  Throughout its comments, the
    Department emphasized the role that the Congress has played in
    creating and developing the existing patent fee structure.  GAO
    agrees and believes that this point is made clear in the report.  GAO
    also believes that any policy changes regarding patent fees would
    require congressional action.  For this reason, GAO has included
    matters for congressional consideration dealing with patent fees.

    Concerning the Library's comments regarding the Copyright Office's
    position on fee increases, GAO added information to the report
    showing that the Copyright Office has supported the need for fee
    increases in the past, believes a fee increase is needed currently,
    and supports proposed legislation that would allow the Register to
    raise fees to cover the costs of copyright registration and services.
    GAO continues to believe, however, that the Copyright Office should
    have adjusted fees to account for inflation in fiscal year 1995
    because the increase would have been cost-effective, and Library
    officials agree that the Register should make adjustments for
    inflation in the future.

    GAO disagrees with the Library's comments that the role of the
    Congress in setting fees was not adequately discussed in the draft
    report.  To the contrary, GAO's report shows that the Congress has
    chosen to continue to recover copyright costs through a combination
    of fees and appropriations.  GAO points out that the Congress has
    chosen to make the patent and trademark processes self-sustaining.
    In keeping with this approach, GAO states that the Congress may wish
    to consider whether the Copyright Office should achieve full cost
    recovery through fees.

    GAO also believes that the report fairly discusses the potential
    impact of a fee increase on deposits available for the Library's
    collections.  Because the Library (1) has access to all copyrighted
    materials submitted for registration, (2) is entitled by law to any
    other materials under copyright protection published in the United
    States, and (3) rarely takes any unpublished materials, GAO continues
    to believe that the works available should not decline substantially
    even if copyright registration applications decline.

    Finally, GAO believes that the report accurately portrays the
    Register's testimony in the September 1996 hearings.  However, GAO
    clarified the report to show that the Register's concern was with the
    high costs of making the Copyright Office self-supporting within a
    new, government-owned, intellectual property corporation outside the
    Library.  GAO continues to believe that the fees projected were too
    high and were not presented in a proper context.  For these reasons,
    GAO believes it is necessary to show its analyses of these
    projections in the report.

    INTRODUCTION
    ============================================================ Chapter 1

    "America's thinkers and creators are at the heart of
    technological-based economic growth--they are the engine that runs
    the American economic machine." This statement, from the 1994
    strategic plan of the Patent and Trademark Office (PTO), effectively
    summarizes the importance of advancing, regulating, and administering
    patents, trademarks, and copyrights--collectively referred to as
    intellectual property.

    The administration has made intellectual property reform a part of
    its plan to "reinvent" government.  The Congress has also recently
    considered legislation that would affect how intellectual property
    rights are administered.  Some of these proposals would affect the
    organization and funding of PTO and the Copyright Office.  In this
    regard, the Chairman of the Senate Committee on the Judiciary asked
    us to review various issues relating to intellectual property fees.

       BACKGROUND
    ---------------------------------------------------------- Chapter 1:1

    In this country, the federal government is the primary regulator of
    intellectual property through the grant of patents and the
    registration of trademarks and copyrights.  In this regard--and
    because federal statutes and regulations provide various economic and
    procedural benefits concomitant with the grant or registration--these
    three types of intellectual property are much alike.  In other ways,
    however, they are different.  Registering copyrights, for example,
    takes less time than granting patents or registering trademarks, yet
    copyrights generally have a much longer life.  Trademarks have the
    shortest original term; however, they can be renewed indefinitely
    while patents and copyrights cannot.  Patents for inventions never
    brought to market and copyrights for materials never published
    nevertheless are protected for their entire terms, while a trademark
    can be lost if it is not used.

    Similarly, the roles of the agencies regulating and administering
    intellectual property differ.  Generally, PTO examines patent and
    trademark applications in great detail to ensure that others have not
    already applied for a patent on the invention or are not using the
    trademark in question.  The Copyright Office essentially registers
    any materials that appear to be copyrightable and for which the
    application is complete.  Unlike PTO, the Copyright Office generally
    does not determine whether some other person has a similar copyright
    or whether the materials are in the public domain.  The differences
    in the complexities of the procedures followed by the agencies are
    mirrored by differences in the fees and related expenses.

          PATENTS
    -------------------------------------------------------- Chapter 1:1.1

    A patent is a grant given by a government to an inventor of the right
    to exclude others for a limited time from making, using, or selling
    his or her invention.  In the United States, the sole granting
    authority for patents is PTO.  The patent process is totally funded
    through user fees.  In fiscal year 1995, PTO issued 114,642 patents.

    PTO typically classifies patents as one of four types:

      Over 90 percent of all patent applications are for "utility"
         patents for inventions that are either a process, machine,
         manufactured article, or composition of matter, or an
         improvement to one of these.  A second type of patent is the
         "plant" patent--constituting less than 1 percent of all
         applications--which is granted for asexually propagated plants.
         Previously, utility and plant patents had a term of 17 years
         from the date the patents were issued.  For those applications
         filed after June 7, 1995, however, utility and plant patents
         will have a nonrenewable term of 20 years from the date the
         earliest application is filed.

      The third type of patent is the "design" patent, available for a
         new, original, and ornamental design for an article of
         manufacture.  In fiscal year 1995, design patent applications
         accounted for about 6.5 percent all applications filed.  Design
         patents have a nonrenewable term of 14 years from the date of
         issuance.

      The fourth type of patent is the "reissue" patent, which is granted
         as a replacement for a patent that was in some way defective.
         The reissue patent is granted for the unexpired term of the
         patent it replaced.  Reissue patents typically account for less
         than 1 percent of all applications.

    Prior to issuing a patent, PTO examines the application to verify
    that the patent is indeed new, useful, and non-obvious.  In this
    regard, PTO requires that every patent application include (1) a
    specification that describes the manner and process of making and
    using the invention as well as the claim or claims that make the
    invention patentable; (2) an oath or declaration that the applicant
    is the original inventor; (3) drawings, where necessary for
    understanding the nature of the invention; and (4) a filing fee.
    Additional fees may be necessary during examination, when the patent
    is issued, and during the term of the patent.

    Within PTO, the patent application examination process consists of
    several progressive phases.  An applicant files a patent application
    with PTO, which reviews the application for accuracy and completeness
    during a preexamination phase.  Following preexamination, the
    application is assigned, or "docketed," to an examiner within an
    examination group that has expertise in a specific field, such as
    computer systems or biotechnology.

    At this point, the examiner begins the process of determining whether
    the invention is a new and useful process or product that should
    receive a patent.  Usually early in the process, the examiner makes a
    preliminary decision, or "first action," which may be followed by
    contacts with the applicant to resolve questions and/or obtain
    additional information.  If PTO decides to issue a patent, termed an
    "allowance," it informs the applicant and, upon the payment of the
    necessary fees, issues a patent.  The application may be abandoned
    during any of these stages.

    The examination process can be lengthy.  During fiscal year 1995, for
    example, the average "patent pendency"--the period from the date an
    application is filed until the date it is abandoned by the applicant
    or a patent is issued by PTO--was 19.8 months.  While not required,
    most inventors use the services of an attorney to help prepare the
    application and to assist them throughout the examination process,
    according to PTO.

          TRADEMARKS
    -------------------------------------------------------- Chapter 1:1.2

    A trademark is a word, name, symbol, or design used to distinguish or
    identify the goods or services of a particular merchant or
    manufacturer from those of others.\2 As with patents, the federal
    authority for registering trademarks in the United States is PTO, and
    the trademark process is funded through user fees.  In fiscal year
    1995, PTO issued 65,662 certificates of registration.

    Federal registration does not create a trademark because a trademark
    can only be acquired by actually using it in association with
    particular goods or services.  However, federal registration does
    offer the registrant substantial procedural advantages should the
    trademark owner be faced with an infringement.  Once registration has
    been obtained, the trademark must remain in substantially continuous
    use in order to be preserved.  Trademark registrations have a term of
    10 years but can be renewed indefinitely for additional 10-year
    terms.

    An applicant seeking to register a trademark must file an application
    accompanied by a fee, specimens of the trademark as it is actually
    used, a drawing of the mark, and various statements describing when
    the mark was first used and the types of goods and services on which
    it is used.  Trademarks are categorized into various classes, such as
    toys or clothing, and, if registration for more than one class is
    sought, the applicant must pay an additional fee for each class.

    Once filed, the application is examined by an examining attorney
    within the Trademark Office of PTO.  The attorney verifies that the
    trademark for which registration is sought is not "confusingly
    similar" to trademarks for other goods or services.  If there is no
    such similarity and there are no other statutory bars to
    registration, PTO publishes the trademark and gives members of the
    public the right to oppose registration if they feel it is
    confusingly similar to another trademark, even if this other
    trademark in not already registered.  If no problems are identified
    at this stage, the trademark is registered.  Even then, however, it
    can be challenged at some later date if it is not used properly or if
    a prior user comes forward.

    The trademark process can also be lengthy.  In fiscal year 1995, for
    example, PTO reported that the time between the filing of an
    application and the registration of the trademark averaged 16.4 to
    16.7 months.  While applicants may use attorneys in the application
    process, attorney involvement is not as extensive as with patents,
    according to PTO officials.

    --------------------
    \2 As used in this report, "trademarks" refers to both trademarks and
    service marks.

          COPYRIGHTS
    -------------------------------------------------------- Chapter 1:1.3

    A copyright is a type of intellectual property that protects literary
    and artistic expression as well as the media where these are
    displayed.  Thus, copyrights are available for works such as books,
    periodicals, speeches, printed and recorded music, plays, computer
    software, paintings, sculpture, and motion pictures.  Copyright
    registration in the United States is the exclusive province of the
    Copyright Office in the Library of Congress.  In fiscal year 1995,
    the Copyright Office registered 609,195 copyrights.

    As with trademarks, a copyright is not gained through registration
    but rather when the work itself is created and reduced to some
    tangible form of expression.  It is the expression of an idea that is
    copyrightable, not the idea itself.  Registration does offer
    advantages, however, because the copyright owner has better evidence
    regarding the priority of the claim and is entitled to certain
    statutory benefits and damages upon infringement that would not
    otherwise be available.  A copyright generally lasts for the (1)
    author's lifetime plus 50 years for personal works or (2) shorter of
    75 years from publication or 100 years from creation for works for
    hire, anonymous works, or pseudonymous works.

    The copyright registration process is simpler than for patents and
    trademarks.  The copyright owner submits an application accompanied
    by a filing fee and one or two copies of the work, depending on the
    type.  Most applicants, according to Copyright Office officials, do
    not use an attorney.  The examination process is also relatively
    simple, taking an average of 38 to 83 days in fiscal year 1995 to
    complete, depending on the type of application.  The examiner ensures
    the application is complete and accurate, that the materials appear
    to be copyrightable, that the fee is proper, and that the required
    copies are provided.  The Copyright Office does not attempt to verify
    that others have not already copyrighted the materials or that the
    materials are in use, have use, or have value.

       OBJECTIVES, SCOPE, AND
       METHODOLOGY
    ---------------------------------------------------------- Chapter 1:2

    The Chairman of the Senate Committee on the Judiciary, which is
    considering various funding and organizational proposals involving
    PTO and the Copyright Office, requested that we examine several
    interrelated issues concerning the fees these agencies charge for
    their services.  He asked that we address fees as they relate
    specifically to patents, trademarks, and copyrights and, where
    applicable, determine (1) how fees are set for the services provided
    by PTO and the Copyright Office, (2) the extent to which intellectual
    property fees are recovering the costs of the services provided, (3)
    whether different users of the same services pay different fees, (4)
    whether patent fees encourage or discourage the completeness and
    accuracy of applications, and (5) the potential effects of increasing
    copyright fees.  We address these issues in chapters on patents,
    trademarks, and copyrights.

    In order to answer these interrelated questions, we determined that
    we would have to develop data and report on patents, trademarks, and
    copyrights separately because each has its own laws, application and
    examination procedures, and fee structure.  In this regard, we
    obtained fee information on patents and trademarks from PTO and
    copyrights from the Copyright Office.  This information included
    current fee schedules for each form of intellectual property as well
    as a summary of the fees actually received during fiscal year 1995,
    the most recent year for which such information was available.  To
    the extent possible, we subdivided the fee receipts by fee type and
    computed the ratio of each fee type to total fees received.

    To determine how fees are set, we reviewed the statutory authority
    provided to PTO and the Copyright Office as well as the procedures
    these two agencies had developed for adjusting fees.  We reviewed the
    legislative history for the statutory fees to determine the reasons
    for and timing of the various changes.  We obtained information from
    the agencies showing the actual process and data used in the most
    recent fee adjustments considered.

    We also obtained certain workload information from PTO and the
    Copyright Office, showing the number of patents, trademarks, and
    copyrights issued or registered or for which the applications were
    abandoned or rejected during fiscal year 1995.  This year was used
    because of the need for consistency with the fee receipt data
    discussed above and because in most cases it was the year for which
    the most recent data were available.  In addition, we obtained
    information the agencies had developed showing the impact of fee
    increases on applications.  For copyrights, we also performed a
    regression analysis to estimate the association between fee increases
    and changes in the number of applications while controlling for the
    influences of other factors that may affect application levels.

    We discussed the establishment of fees, fee history, the equity and
    fairness of fees by applicant and type of application, and the
    potential impact of adjusting fees with officials from PTO, the
    Copyright Office, and the intellectual property community.  Where
    possible, we obtained comparable fee data for the Japanese Patent
    Office and the European Patent Office, the two other large patent
    offices in the world besides PTO.

    We provided a draft of this report to the Department of Commerce and
    the Library of Congress.  These agencies provided written comments,
    which are included in appendices XII and XIII, respectively, along
    with our responses.  In addition, we met with officials of the
    Library of Congress after receiving their comments.

    Additional information on our scope and methodology are included in
    appendix I.

    WHILE THE OVERALL PATENT PROCESS
    IS SELF-SUSTAINING, INDIVIDUAL
    FEES ARE NOT COMMENSURATE WITH
    COSTS OF THE SERVICES PROVIDED
    ============================================================ Chapter 2

    By design, the patent process is self-sustaining through a system of
    fees assessed by PTO for its services.  Changes to the law in 1990
    and 1991 set patent fees at levels that would recover costs overall
    and authorized PTO to make annual adjustments for inflation.  Despite
    the self-sufficiency of the patent process overall, however,
    individual fees are not necessarily commensurate with the costs of
    the services for which they are assessed.  Again, this is by design
    because (1) the largest fees are paid at the back end of the process,
    while most costs occur at the front end of the process; (2) large and
    small entities generally are charged different fees for the same
    service; (3) costs vary by invention type, while fees do not; and (4)
    delays caused by the applicants generate more costs than fees.
    Recognizing these anomalies, PTO is studying the need to make the
    individual fees more nearly commensurate with the costs of the
    services provided.

       THE PATENT PROCESS IS DESIGNED
       TO BE SELF-SUSTAINING
    ---------------------------------------------------------- Chapter 2:1

    Understanding the current patent fee structure first requires an
    explanation of how the role of patent fees has changed over the past
    4 decades.  Until recently, patent fees were not intended to cover
    the costs of PTO's patent process.  In 1965, for example, patent and
    trademark fees were set at a level that recovered 67 percent of PTO's
    costs.  By 1980, however, inflation had reduced the impact of these
    fees--which had not been revised in the interim--so that they
    recovered only 27 percent of PTO's operating costs.

    In 1980, the Congress revised the patent fee structure.  Public Law
    96-517, enacted December 12, 1980, provided that fees would be set to
    recover 50 percent of the costs of PTO's patent process.  The law
    also provided that, like most other industrialized countries, patent
    fees would be paid not only for application filing and patent
    issuance but also for the life of most patents through fees known as
    maintenance fees.

    Public Law 97-247, enacted August 27, 1982, further modified the
    patent fee structure.  In addition to raising fees, the law provided
    that filing, issue, and maintenance fees would be set by statute and
    could be adjusted every 3 years on the basis of fluctuations in the
    Consumer Price Index (CPI).  The law also provided that large
    entities would pay statutory fees double the rate of small
    entities--those entities classified as small businesses by the Small
    Business Administration (SBA), nonprofit organizations, and
    individual inventors.  The purpose of this reduced fee for small
    entities was to reduce the impact of fee increases on the inventors
    most likely to be burdened by higher fees.

    Public Law 101-508, enacted November 5, 1990, put PTO on the road to
    self-sufficiency by increasing statutory patent fees by 69 percent in
    fiscal year 1991.  This increase, known as a "surcharge," was a
    replacement for appropriations from the general fund.  Subsequently,
    the surcharge was extended through fiscal year 1998 and modified so
    that the amounts specified by statute are collected.  Unlike regular
    fees, which are treated as offsetting collections for budget purposes
    and are fully available to PTO, the surcharge fees were to be treated
    as offsetting receipts and would be available to PTO only to the
    extent appropriated back by the Congress.

    Public Law 102-204, enacted December 10, 1991, authorized PTO to
    adjust patent fees annually to account for changes in the CPI.  Since
    fiscal year 1993, PTO has been self-sufficient, receiving no
    appropriations other than those generated by the surcharges.
    Actually, PTO has not been allowed to use all the fees it has
    collected.  Through fiscal year 1997, the Congress has withheld
    $142.8 million of the $729.3 million in surcharge fees collected by
    PTO.

       INDIVIDUAL PATENT FEES ARE
       ASSESSED FOR SPECIFIC SERVICES
    ---------------------------------------------------------- Chapter 2:2

    PTO collects fees for an assortment of patent services.  Fiscal year
    1995 fee revenues totaled $577.7 million.  While these fees were
    collected under 139 separate fees for specific services, there were
    three primary types of fees--application filing, patent issuance, and
    patent maintenance.  Table 2.1 summarizes fiscal year 1995 revenues
    by primary type of fee, and appendix II provides a detailed
    comparison of these revenues for the individual fees.

                                   Table 2.1

                    Fiscal Year 1995 Patent Fee Revenues by
                                    Fee Type

                                      Fiscal year 1995
    Fee type                               collections  Percent of total\a
    ------------------------------  ------------------  ------------------
    Filing                                $164,932,389                28.5
    Issue                                  109,374,237                18.9
    Maintenance                            194,668,049                33.7
    Other                                  108,725,154                18.8
    ======================================================================
    Total                                 $577,699,829                99.9
    ----------------------------------------------------------------------
    \a Does not total to 100 percent due to rounding.

    Source:  PTO, GAO computations.

    Each applicant pays a filing fee prior to PTO's examination of the
    merits of the patent application.  There are different filing fees
    for utility, design, plant, and reissue applications, just as there
    are different fees for large and small entities.  In fiscal year
    1995, utility patent applications were dominant, accounting for 89.8
    percent of large entities' filing fees and 85.7 percent of small
    entities' filing fees.  Overall, large entities paid $134 million, or
    4.3 times the filing fees paid by small entities.

    Once PTO decides to allow the grant of a patent, the applicant must
    pay an issue fee in order to receive the patent.  As with application
    fees, issue fees differ by the type of patent as well as by large and
    small entities.  In fiscal year 1995, utility and reissue
    patents--which are assessed the same issue fees--accounted for 97.6
    percent of all large entities' issue fees and 92.3 percent of all
    small entities' issue fees.  In total, large entities paid $88.7
    million, or 4.3 times the issue fees paid by small entities.

    Maintenance fees represent the largest single source of patent fee
    collections, accounting for more than a third of all patent fees
    collected during fiscal year 1995.  The fees are paid at three stages
    during the life of the patent--at 3.5, 7.5, and 11.5 years into the
    patent term--with the fees at each stage being progressively higher.
    Unlike filing and issue fees, maintenance fees are not assessed on
    design and plant patents.  However, large entities pay maintenance
    fees at twice the rate of small entities.

    Maintenance fees constitute some of the largest individual fees,
    ranging from $960 to $2,900 for large entities and $480 to $1,450 for
    small entities during fiscal year 1995.  In fiscal year 1995, large
    entities paid $171.2 million, or 7.6 times the amount paid by small
    entities.

    While filing, issue, and maintenance fees are the three primary types
    of fees--accounting for 81.5 percent of all patent fees during fiscal
    year 1995--PTO collects other types of patent fees.  These include
    such fees as those paid by an applicant to file and process an
    international patent application under the Patent Cooperation Treaty,
    to appeal a PTO decision, to revive an abandoned application, and to
    obtain an extension in the time to respond to a request or inquiry by
    PTO during examination.  All these fees are different for large and
    small entities.  Other fees, such as those for filing a petition to
    the Commissioner, make no distinctions in the amount of the fee by
    the size of the entity.

    As noted previously, PTO now has discretion to raise most fees
    annually to adjust for inflation.  PTO has raised fees each year
    except one since the surcharge was added in fiscal year 1991.  Most
    of the discussion of fees in this chapter is based on fiscal year
    1995 data, since this was the most recent year for which complete
    statistics on fees and patent examination statistics were available
    at the time of our review.  Appendix III shows the fees in effect
    during fiscal year 1997.

    In commenting on a draft of this report, the Department of Commerce
    noted that PTO's revenues from filing fees in fiscal year 1995
    actually were a greater proportion of total revenues than is normally
    the case.  This was due to the large number of applications submitted
    prior to the change in the patent term that became effective on June
    8, 1995.  In fiscal year 1994 and 1996, filing fees, according to
    PTO, accounted for 27.5 percent and 23.7 percent, respectively, of
    total fee revenues, compared with 28.5 percent in fiscal year 1995.

       INDIVIDUAL FEES ARE NOT
       COMMENSURATE WITH THE COSTS OF
       THE SERVICES PROVIDED
    ---------------------------------------------------------- Chapter 2:3

    PTO notes that it is essentially an agency that provides services and
    that its customers pay for these services.  At a September 18, 1996,
    hearing before the Senate Committee on the Judiciary, for example,
    the Assistant Secretary of Commerce and Commissioner of Patents and
    Trademarks provided the following testimony:

         "The revenues needed to meet the Patent and Trademark Office's
         expenditures are, as you know, more than fully offset by fees
         paid by those who use our services and buy our information
         products.  Our workload consists primarily of patent and
         trademark applications filed by individuals and businesses in
         the United States and from other countries.  These applicants,
         both domestic and foreign, pay fees for the services they
         request.  Because they pay fees for those services, they expect
         and deserve prompt and efficient service, and the Patent and
         Trademark Office must have the flexibility to deliver that
         service."

    While the Commissioner's statement is correct--PTO's expenditures are
    recovered through fee revenues--this does not mean that individual
    fees are set to recover the costs of the specific services provided.
    Actually, patent fees are structured so that in effect (1) successful
    applicants pay more than unsuccessful applicants, (2) large entities
    pay more than small entities, (3) applicants with less complicated
    applications pay the same as those with more complicated
    applications, and (4) applicants who create delays in the examination
    process do not pay fees commensurate with the additional pendency
    caused by those delays.

          SUCCESSFUL AND UNSUCCESSFUL
          APPLICANTS
    -------------------------------------------------------- Chapter 2:3.1

    While PTO does not have a cost-accounting system capable of
    determining the costs associated with individual services, PTO
    officials advised us that most of the costs of the patent process are
    attributable to application processing and examination.  For fiscal
    year 1995, for example, they estimated that only 8.6 percent of the
    costs associated with an individual patent were attributable to the
    actual issue of the patent and 0.1 percent were attributable to its
    maintenance.  As noted above, however, patent issue fees accounted
    for 18.9 percent of patent fees collected in fiscal year 1995, while
    maintenance fees accounted for 33.7 percent.

    The dichotomy of front-end costs and back-end revenues causes
    successful applicants to pay a larger share of costs than
    unsuccessful applicants because so many applications are abandoned
    during the examination stage.  Of the 186,195 patents issued and
    applications abandoned during fiscal year 1995, for example, 114,642
    patents, or 61.6 percent, were issued and 71,553 applications, or
    38.4 percent, were abandoned.  Patent pendency--the amount of time
    PTO spends in examining a patent prior to the patent's being issued
    or the application's being abandoned--averaged 19.8 months, with 21
    months for patents issued and 17.9 months for applications abandoned.
    None of the applications abandoned will pay an issue or maintenance
    fee because no patent was issued, even though abandoned applications
    accounted for more than a third of total pendency.

          LARGE AND SMALL ENTITIES
    -------------------------------------------------------- Chapter 2:3.2

    As noted earlier, large entities typically pay twice the fee that
    small entities pay for the same service.  Because of this difference
    in the fee itself and because large entities submit more applications
    and receive more patents, large entities pay a much larger share of
    overall patent costs.  In fiscal year 1995, for example, large
    entities accounted for 81 percent of the $164.9 million in filing
    fees, 81.1 percent of the $109.4 million in issue fees, 87.9 percent
    of the $194.7 million in maintenance fees, 83.2 percent of the $48.4
    million in response-time extension fees, 86.8 percent of the $6.2
    million in appeal fees, 73.4 percent of the $3 million in abandoned
    application revival fees, and 85.8 percent of the $9.8 million in
    Patent Cooperation Treaty filing fees.

    These differences in fees are mandated by the law.  The Congress
    added the fee-differential provision in 1982 to reduce the effects of
    fee increases on small businesses, individual inventors, and
    nonprofit organizations.  However, the differences today are much
    greater, now that PTO has become totally dependent on fees and the
    fees themselves are larger.  In this regard:

      PTO officials told us that the size of the entity has no bearing on
         PTO's costs.

      For patent fee purposes, a small entity is a small business with no
         more than 500 employees, a nonprofit organization, or an
         individual inventor.  The categorization of a small business as
         defined by the Congress is taken from the criteria SBA uses to
         determine whether a business qualifies as a small business for
         its programs.  While this employee-based criteria may be useful
         for SBA, PTO officials said such a definition has little
         significance when considering the economic impact of fees on a
         patent applicant.  In today's high-tech environment, many
         businesses that are highly capitalized and profitable have 500
         or fewer employees.  Similarly, some of the more successful
         applicants are individual inventors or work for small
         businesses.  As one example, PTO officials noted that one of the
         most prolific U.S.  inventors--whose patents have returned him
         hundreds of millions of dollars--is considered a small entity
         for patent fee purposes.

      Patents are the only form of intellectual property for which the
         size of an entity has a bearing on the fees assessed.  There is
         no such division of fees for either trademarks or copyrights.

      The patent fees themselves are only a portion of the costs of
         receiving a patent.  By definition, a patent represents a new
         and useful invention or process, and other costs are involved in
         researching, developing, producing, and marketing these
         inventions that typically are much greater than would be
         experienced in obtaining a trademark or copyright registration.
         In addition, in most cases, attorneys are involved in preparing,
         filing, and prosecuting the application.  While attorneys' fees
         vary according to the circumstances, an intellectual property
         guide published by the Minnesota Small Business Assistance
         Office in 1992 estimated that attorneys' fees could range from
         $7,500 to $18,000 per application.

      While patent fees have increased significantly since the surcharges
         were implemented in fiscal year 1992, inventor organizations
         generally did not believe they were too high or that they were
         stifling the inventive process.  Furthermore, as shown in
         appendix IV, U.S.  patent fees appear to be among the lowest in
         the industrialized world.

          APPLICATION COMPLEXITY
    -------------------------------------------------------- Chapter 2:3.3

    Patent applications cover a wide range of inventions, and the more
    complicated inventions generally require the most examination time.
    As shown in appendix V, the differences in average pendency can vary
    significantly among examination groups.  For those patents issued and
    applications abandoned during fiscal year 1995, the average pendency
    was 19.8 months.  Among the 17 individual examination groups,
    however, pendency ranged from a low of 17.4 months for solar, heat,
    power and fluid engineering devices to a high of 26.2 months for
    computer systems.  Among the more specialized groupings within the
    examination groups, pendency can vary even more.  For example,
    average pendency for the grouping of special receptacles, packages,
    shoes, and shoemaking was 15.8 months, compared with 29.6 months for
    the grouping of database and file management systems.

    While pendency alone is not the only determinant of costs, PTO
    officials agreed that the more complicated the invention, the more
    time and expense are attributable to examination.  However, the fee
    schedule makes few provisions for these differences in examination
    time.  One such provision is that, as shown in appendixes II and III,
    fees for design and plant applications--which tend to be less
    complicated--are lower than for utility patent applications.  There
    are no differences in filing fees, however, for different types of
    inventions within the utility patent category, which accounts for
    over 90 percent of all patent applications.

          APPLICANT DELAYS
    -------------------------------------------------------- Chapter 2:3.4

    During PTO's examination of a patent application, the examiner makes
    a preliminary decision on the merits of the application as filed.  At
    such time, the examiner may ask the applicant to respond to questions
    or provide the examiner with information.  This process may occur a
    number of times.  In many cases, PTO cannot complete the examination
    until the applicant has taken some further action.  For example, (1)
    the applicant may have filed an incomplete application that must be
    corrected before it can be assigned to an examination group, (2) the
    applicant may need to answer questions raised by the examiner or
    provide PTO with additional information, or (3) PTO may have to wait
    for the payment of a fee before it can proceed with the examination
    process.

    In fiscal year 1995, the time taken by applicants to respond to
    official PTO "office actions" accounted for 3.7 months, or 18.7
    percent, of the total average pendency of 19.8 months.  This does not
    include any pendency that was added because PTO had to process the
    responses.

    There are no additional fees for responses made within 3 months of a
    PTO office action.  However, if the respondent wants to extend the
    response time, he or she must pay extension fees, as shown in
    appendixes II and III.  If no response is received after 7
    months--the 3 "grace" months plus the 4 extension months--the
    application is considered abandoned.

    As shown in appendix II, the extension fees received during fiscal
    year 1995 were $48.4 million, or 8.4 percent of the total patent fees
    received.  As noted above, however, the contribution to pendency by
    the respondents for all patents issued or applications abandoned
    during fiscal year 1995 was 18.7 percent.  While an exact correlation
    cannot be made, these differences indicate that respondent fees may
    not be commensurate with the amount of additional pendency they
    create.

       PTO IS STUDYING THE NEED FOR
       CHANGES IN PATENT FEES
    ---------------------------------------------------------- Chapter 2:4

    PTO officials believe that anomalies exist in the current patent fee
    structure and have two initiatives under way to address the issue.
    Under one of these initiatives, PTO is developing a cost-accounting
    system that will allow it to determine the unit costs of particular
    services, something it cannot do under its current accounting system.
    Under the second initiative--which depends to a large extent on the
    development of cost centers--PTO will attempt to determine whether
    there is a need for revisions in the fee structure.  At the time of
    our review, PTO officials said the cost study was expected to be
    completed in December 1997 and that the fee study would be completed
    at an undetermined time after the cost study.

    In its Audit Inspection Plan for Fiscal Years 1997-98, the Department
    of Commerce's Inspector General noted that "PTO has no uniform
    process to track the costs of operations within its various program
    areas...[and] does not have the information that would enable it to
    develop a fee structure that would accurately establish fees to
    recover the full costs of operations." In this regard, the Inspector
    General plans to review PTO's cost-accounting and fee-restructuring
    efforts, beginning in the third quarter of fiscal year 1997.

       PATENT ORGANIZATIONS GENERALLY
       ARE SATISFIED WITH CURRENT FEES
    ---------------------------------------------------------- Chapter 2:5

    Officials from organizations representing patent owners and attorneys
    agreed that the current fee system is designed to recover costs in
    the aggregate rather than on a per-service basis.  While they
    recognized that this is in effect a type of subsidy and creates
    inequities among applicants, they also said that their constituents
    were generally satisfied with the current system because they (1)
    know what to expect, (2) are familiar with the fee structure as now
    designed, and (3) recognize that there is some logic in creating a
    fee system in which successful applicants bear a greater proportion
    of the costs.  In addition, fees paid to PTO are a relatively small
    portion of the overall costs of creating a new product, obtaining a
    patent, and bringing the product to market.

    These officials' primary dissatisfaction was not in the fee structure
    itself but in the Congress's not appropriating all the surcharge fees
    back to PTO.  They fear that, ultimately, this may keep PTO from
    being able to manage the patent workload and could lead to higher
    patent pendency.

    The officials from the patent organizations also said that, if the
    Congress does wish to look at the appropriateness of fees, now is the
    time.  Legislative proposals have been made in both the prior and
    current sessions of the Congress that would make PTO a wholly-owned
    government corporation, and questions have been raised concerning how
    fees would be set and who would set them .  The officials believed
    that these questions should be resolved as a part of the decision on
    PTO's organizational status.

       CONCLUSIONS
    ---------------------------------------------------------- Chapter 2:6

    In many ways, the current patent fee structure is working well.  The
    patent process within PTO has been self-sufficient since fiscal year
    1993 and a mechanism is in place to ensure that fees can be raised
    annually to account for inflation.  Furthermore, the applicants
    appear to be generally satisfied with the current system.

    At the same time, however, individual applicants are not necessarily
    paying their own way because (1) there appears to be little
    correlation between the service being provided and the cost of that
    service to PTO and (2) certain applicants pay more than others for
    the same services.  Applicants who abandon their applications,
    qualify as small entities, submit more complicated applications, and
    create delays in the examination process are paying less for the same
    services than other applicants who receive patents, are considered
    large entities, have less complicated applications, and create fewer
    delays.

    We recognize that there may be policy reasons for having different
    applicants pay different fees for essentially the same services.
    Ultimately, the question is whether the Congress wants a closer
    alignment between the costs of the patent services being provided by
    PTO and the fees charged for those particular services.  While the
    current system works from the standpoint of overall revenue,
    individual applicants do not always get what they pay for or pay for
    what they get.

    In order to match fees more closely with services, it will be
    necessary to know the actual costs of those services.  We believe
    that PTO is taking the correct approach in developing a
    cost-accounting system that will identify the costs attributable to
    specific patent services.

       MATTERS FOR CONSIDERATION BY
       THE CONGRESS
    ---------------------------------------------------------- Chapter 2:7

    In considering proposals affecting PTO's funding and organizational
    status, the Congress may wish to consider whether the current patent
    fee structure needs to be changed so that fees for particular
    services more nearly reflect the costs of those services.
    Specifically, the Congress may wish to consider whether (1) the fee
    differential between large and small entities should be continued,
    (2) a larger portion of fees should be tied to the examination
    process itself, (3) larger fees should be paid for those applications
    that require more examination time, and (4) applicants who create
    delays in the examination process should pay for the costs of these
    delays.

       AGENCY COMMENTS AND OUR
       EVALUATION
    ---------------------------------------------------------- Chapter 2:8

    In commenting on a draft of this report, the Department of Commerce
    generally agreed with the information presented but recommended a
    number of technical and language changes.  Several of the
    Department's comments concerned our not having included $2.4 million
    in miscellaneous fees in the statistics on patent fees.  We had not
    included these in the draft report because the source materials
    indicated such information could not be tied specifically to either
    patents or trademarks.  After reviewing the Department's comments, we
    determined that these fees should have been shown as patent fees and
    we revised the report accordingly.

    The Department also noted that the cost-accounting information PTO
    expects to have by December 1997 will greatly enhance the substantive
    information available with which to analyze potential changes to the
    current fee structure.  Although it is too early to know the outcome
    of PTO's study, we make the point in this report that in order to
    match fees more closely with services, it will be necessary to
    determine the actual costs of those services.

    Throughout its comments, the Department emphasized the role the
    Congress has played in creating and developing the existing patent
    fee structure.  We agree and believe that this point is made clear in
    the report.  We also believe that any policy changes regarding patent
    fees would require congressional action.  For this reason, we have
    included matters for congressional consideration dealing with patent
    fees.

    The complete text of the Department's comments and our responses to
    those comments are included in appendix XII.

    TRADEMARK FEES APPEAR TO BE
    ALIGNED WITH THE COSTS OF SERVICES
    ============================================================ Chapter 3

    Like the patent process, the trademark process is self-sustaining.
    However, unlike patents, trademark fees do not vary on the basis of
    the size of the entity applying, and most fees are paid at the
    beginning of the process before PTO begins to incur costs.
    Consequently, while PTO believes some adjustments may be needed, fees
    in the trademark process appear to be more closely aligned with the
    costs of services.

       THE TRADEMARK PROCESS IS
       SELF-SUSTAINING
    ---------------------------------------------------------- Chapter 3:1

    The trademark process--accounting for receipts of $68.5 million in
    fiscal year 1995--now totally depends on fees.  However, unlike the
    patent process--which has been self-sustaining since fiscal year
    1993--the trademark process's self-sufficiency began in fiscal year
    1983.

    In 1965, trademark processing fees were increased, with the most
    significant change being an increase in the basic application filing
    fee from $25 to $35.  These fees remained in effect until fiscal year
    1983.  Public Law 97-247, enacted August 27, 1982, authorized PTO to
    increase trademark fees, this time to a level intended to recover 100
    percent of trademark costs.  The increase implemented was
    substantial, with the basic filing fee raised to $175 per
    application.  The law also provided that trademark fees could be used
    only to fund trademark operations.

    Since fiscal year 1983, trademark processing fees have remained
    essentially stable, with only some limited changes in the basic
    filing fee.  In October 1986, PTO raised the basic fee to $200 but in
    April 1989 lowered it back to $175.  In December 1991, PTO again
    raised the basic filing fee to $200, and Public Law 103-179, enacted
    December 3, 1993, raised it to $245.  This fee is still in effect.

    PTO now has the authority to raise trademark processing fees and
    service fees annually within the CPI increase of the previous year.
    In practice, PTO does not always exercise its authority to adjust
    fees.  Appendix VI shows trademark processing and service fees
    received during fiscal year 1995, and appendix VII shows the fees in
    effect in fiscal year 1997.  The only fees raised over this period
    were two service fees, which together accounted for less than 0.5
    percent of revenues in fiscal year 1995.

       TRADEMARK FEES APPEAR TO BE
       COMMENSURATE WITH THE COSTS OF
       SERVICES
    ---------------------------------------------------------- Chapter 3:2

    Trademark fees are more streamlined and less complicated than patent
    fees.  In total, there are 19 separate trademark processing fees and
    18 separate service fees.  Unlike patents, these fees do not differ
    by the size of the entity applying to register the trademark, no
    additional fees are levied when the trademark is approved for
    registration, and no maintenance fees must be paid during the term of
    the trademark.  A renewal fee of $300 per class is paid only if the
    trademark owner wishes to extend the trademark for additional 10-year
    terms.

    According to PTO officials, trademark fee revenues are tied closely
    to the trademark examination process.  As shown in table 3.1 and
    appendix VI, the trademark process generated $68.5 million in fee
    revenues during fiscal year 1995.  Of this total, 94.5 percent came
    from trademark processing fees.  More specifically, 71.5 percent of
    all revenues came from one fee--the basic application filing fee.

                                   Table 3.1

                    Fiscal Year 1995 Trademark Fee Revenues

                                      Fiscal year 1995
    Fee type                               collections   Percent of total\
    ------------------------------  ------------------  ------------------
    Application filing                     $48,975,658                71.5
    Other processing                        15,769,278                23.0
    Service                                  3,741,860                 5.5
    ======================================================================
    Total                                  $68,486.796               100.0
    ----------------------------------------------------------------------
    Source:  PTO, GAO computations.

    As with the patent process, PTO does not have a cost-accounting
    system capable of determining the costs of particular services.
    However, PTO officials estimated that about 76 percent of its overall
    trademark costs were related to the examination process.  They also
    told us that there is not a significant difference in the amount of
    time spent examining different types of trademarks.  In fiscal year
    1995, the average time spent in examining all trademark applications
    prior to registration ranged from 16.4 to 16.7 months.

    The situation in which successful patent applicants pay more than
    unsuccessful applicants does not exist in the trademark process
    because, as noted above, there are no separate issue or maintenance
    fees for trademarks.  Thus, even though 42,214 trademark applications
    were abandoned in fiscal year 1995, compared with 75,372 applications
    that "matured to registration," all applicants paid the same basic
    filing fee in advance.  Unlike patents, there are no separate fees
    tied to late responses to PTO requests for additional information.
    However, PTO officials said that, because of the nature of the
    application, there are fewer occasions to request additional
    information during the processing of a trademark application.  Unlike
    patent regulations, trademark regulations do not require acceptance
    of incomplete applications and, as a result, PTO does not accept and
    process incomplete trademark applications.

    PTO officials believe that fees generally are appropriately allocated
    to the services provided.  They also said, however, that they were
    aware of some individual areas in which the fees probably were not
    adequate.  For example, they said that the fees for actions such as
    filing an appeal ($100 per class) were likely to be well below PTO's
    costs of handling these actions.  As with patents, PTO officials
    believed that the two studies now under way to develop a new
    cost-accounting structure and to reassess fees--as discussed in
    chapter 2--will provide better information on how well specific fees
    are tied to specific services and what fees may need to be adjusted.

    The representatives from the trademark community with whom we
    discussed fees generally had no problems with the current fee
    structure.  They believed, like PTO, that the costs were adequately
    tied to the services provided.

       CONCLUSIONS
    ---------------------------------------------------------- Chapter 3:3

    Trademark fees are more streamlined than patent fees.  There are
    fewer individual fees, the size of the entity applying has no effect
    on the fee paid, most fees are tied to the application examination,
    and most fees are paid in advance of the examination.  There are no
    separate fees for registration or maintenance, and the processing
    time does not appear to vary significantly by type of application.
    There also is less reason for PTO to request additional information
    on problem applications.

    For these reasons, we do not believe fees in the trademark process
    raise the issues we identified in the patent process, in which
    certain applicants pay more than others for the same services.
    However, we believe that PTO should continue its efforts to (1)
    develop a cost-accounting system that will allow it to identify the
    costs attributable to specific trademark services and (2) reassess
    the fees paid to determine whether they are commensurate with the
    costs of the services provided.

       AGENCY COMMENTS AND OUR
       EVALUATION
    ---------------------------------------------------------- Chapter 3:4

    In commenting on a draft of this report, the Department of Commerce
    generally concurred with the information we provided on trademark
    fees.  As suggested by the Department, we added information regarding
    PTO's proposed cost-accounting study.  The complete text of the
    Department's comments and our responses to those comments are
    included in appendix XII.

    COPYRIGHT FEES DO NOT RECOVER THE
    COSTS OF COPYRIGHT SERVICES
    ============================================================ Chapter 4

    Unlike the patent and trademark process, the copyright process is not
    self-sustaining, and copyright fees have been adjusted infrequently
    since the 1950s.  The current fees have been in effect since 1991 and
    have not been adjusted for inflation as permitted by law.  Most
    applicants pay a one-time fee of $20, or about half the cost the
    Copyright Office incurs to register a copyright.

    Copyright Office officials have supported the need for a fee increase
    in the past and currently support proposed legislation that would
    give the Register of Copyrights the discretion to raise fees to
    reflect the fair cost of registering copyrights and providing
    services.  However, the Register testified against a 1996 proposal to
    make the Copyright Office self-sustaining through fees within a new,
    government-owned, intellectual property corporation because she
    believed fees would increase too much, applications for registration
    would decrease, and the Library's collections could suffer as a
    result.  Recently, the Register said that she favors making the
    copyright process self-sustaining within the Library, joining
    others--including the Library itself and the Congressional Budget
    Office--that believe a fee increase would be advantageous.

    On a related matter, the Copyright Office is now required to retain
    unpublished works at no additional cost for the life of the
    copyright, while most published works are retained for only 5 years.
    Because these unpublished works are rarely used, the full-term
    storage represents an unnecessary cost to the government.

       COPYRIGHT FEES HAVE BEEN
       ADJUSTED INFREQUENTLY
    ---------------------------------------------------------- Chapter 4:1

    The Congress has taken a different direction with copyright fees than
    with patent and trademark fees.  The copyright process, once
    self-sustaining, now depends on appropriations to supplement the
    revenues obtained through fees.

    For most of the first half of this century, the copyright process was
    self-sustaining.  The Copyright Act of 1909 required applicants to
    pay a fee for the registration of a copyright, and from 1909 to 1942,
    copyright fee receipts exceeded expenditures.  Over the next 5 years,
    however, revenues lagged behind costs.

    In 1948, Public Law 501 increased the basic copyright registration
    fee from $2 to $4.  Consequently, fee receipts once again exceeded
    expenditures in 1949.  From 1950 until 1965, however, the ratio of
    fees to expenditures dropped to 63 percent as costs increased while
    fees remained at the same level.  Under Public Law 89-297 in 1965,
    the Congress again increased the basic registration fee, this time to
    $6 per claim.  At the time, the Copyright Office estimated that this
    new fee would result in a recovery of 80 percent of its costs.  By
    1976, however, inflation had reduced the value of copyright fees, and
    the Congress, under Public Law 94-553, raised the basic fee to $10,
    with the increase actually effective in 1978.

    Over a decade later, as the value of the basic registration fee again
    had been eroded by inflation, the Congress increased the fee to $20
    under the Copyright Fees and Technical Amendments Act of 1989 (P.L.
    101-318, July 3, 1990).  This act also authorized the Register of
    Copyrights to adjust fees for inflation every 5 years, beginning in
    fiscal year 1995.  Fiscal year 1991 was the last year in which the
    copyright registration fees were raised because the Acting Register
    of Copyrights did not make an inflation adjustment in fiscal year
    1995.

    Copyright fees traditionally have had a simpler structure than patent
    and trademark fees because there are fewer fees and the fees
    themselves are much smaller.  As shown in appendix IX, the basic fee
    for most purposes is $20.  Unlike patent fees, copyright fees do not
    differ according to the size of the entity submitting the
    application.  In addition, there are no issue fees, no maintenance
    fees, and no renewal fees except on some older copyrights.  In
    addition to the statutory fees, the Register of Copyrights sets fees
    by regulation for special services, such as providing optional
    full-term storage of published materials.

       CURRENT COPYRIGHT FEES ARE NOT
       SUFFICIENT TO RECOVER THE COSTS
       OF SERVICES
    ---------------------------------------------------------- Chapter 4:2

    Copyright fees do not cover the costs of copyright services, either
    in total or by type of service.  We found that the (1) gap between
    total copyright fee revenues and costs exceeds $10 million a year;
    (2) gap varies widely by type of service; and (3) Copyright Office
    has not raised fees to cover the effects of inflation.  Copyright
    Office officials said that they have supported the need for a fee
    increase that would move toward recovering the full costs of
    copyright registration and services.

          COSTS EXCEED FEES BY $10
          MILLION A YEAR
    -------------------------------------------------------- Chapter 4:2.1

    The Copyright Office obtains funding from three sources:  (1)
    copyright fees, (2) appropriations from the general fund, and (3)
    cost reimbursements taken from royalties collected and disbursed by
    its Licensing Division and the Copyright Arbitration Royalty Panel.
    In fiscal year 1995, the Copyright Office collected $14.6 million in
    fees, received $10 million in appropriations, and recovered $2.4
    million in costs from royalty fees.

    As shown in table 4.1, the reliance on appropriations has been
    relatively constant at the $9 million to $10 million range since
    1991, the year in which the most recent fee increase became
    effective.  Appendix IX shows the sources of all copyright fee
    revenues for fiscal year 1995.

                                   Table 4.1

                    Comparison of Copyright Fee Revenues and
                    Copyright Office Appropriations, Fiscal
                            Years 1990 Through 1995

    Fiscal year                           Fee revenues      Appropriations
    ------------------------------  ------------------  ------------------
    1990                                   $ 7,696,295         $12,999,000
    1991                                   $11,805,298         $10,258,000
    1992                                   $13,858,690         $ 9,161,791
    1993                                   $14,499,140         $ 9,511,000
    1994                                   $14,136,233         $ 9,411,000
    1995                                   $14,611,332         $10,045,000
    ----------------------------------------------------------------------
    Source:  Copyright Office.

          THE GAP BETWEEN FEES AND
          COSTS VARIES BY TYPE OF
          SERVICE
    -------------------------------------------------------- Chapter 4:2.2

    The disparity between the fees applicants pay and the costs of the
    services they receive can be considerable on a per-service basis.
    This is because some types of copyrights cost more to register than
    others, while the basic registration fee is a "one-size-fits-all"
    fee, and because some service fees are set below costs.

    Although the basic copyright registration fee is $20, an analysis of
    costs by the Copyright Office indicates that the average cost of a
    copyright registration in fiscal year 1995 was $36.53, or about 183
    percent of the basic fee.  As shown in table 4.2, however, the
    average cost by type of work varied from a high of $59.60 for a
    "mask" work--or a work imbedded in a semiconductor chip--to a low of
    $28.32 for literary serials.

                                   Table 4.2

                     Comparison of Copyright Costs and Fees
                              by Type of Copyright

                                           Fiscal year
    Category                                 1995 cost         Current fee
    ------------------------------  ------------------  ------------------
    Literary monograph                          $40.83                 $20
     registration
    Literary serial registration                $28.32                 $20
    Performing arts registration                $38.81                 $20
    Visual arts registration                    $36.25                 $20
    Sound recording registration                $41.15                 $20
    Mask works registration                     $59.60                 $20
    ----------------------------------------------------------------------
    Source:  Copyright Office.

    Fees for other services were also far below the costs incurred by the
    Copyright Office in providing such services during fiscal year 1995.
    For example:

      While the Copyright Office charged a fee of $20 per hour for
         conducting reference searches of its records, these searches
         cost an average of $70.02 per hour, or 3.5 times the fee.

      The average cost of recording a document was $77.81, or about 3.9
         times the $20 fee.

      Copyright renewals cost an average of $43.37 each, or more than
         twice the $20 fee.

    Some high-cost services require no separate fee at all.  For example,
    the Copyright Office does not charge an additional fee for requesting
    additional information from applicants submitting incorrect or
    incomplete applications, even though these applications require more
    time to process.  As of October 1996, approximately 15 percent of all
    copyright applications required correspondence with the applicant to
    complete the registration process.  Copyright Office officials
    estimated the cost of each correspondence at approximately $45.

          THE COPYRIGHT OFFICE HAS NOT
          RAISED FEES TO ACCOUNT FOR
          INFLATION
    -------------------------------------------------------- Chapter 4:2.3

    One of the problems associated with statutory fees is that their
    value tends to be eroded by inflation if several years transpire
    between fee increases.  Thus, the effective fee actually declines
    during the period.  This has been the case with copyright fees, as
    shown in figure 4.1.  Using 1996 dollars as the base and adjusting
    the nominal fee for the effects of inflation, we found that the
    "real" fee decreased in value significantly during each period a
    particular fee was in effect.

       Figure 4.1:  Comparison of Real
       and Nominal Copyright Fees,1959
       Through 1996

       (See figure in printed
       edition.)

    Note:  To measure fees in inflation-adjusted dollars, the nominal fee
    was adjusted using the implicit price deflator for Gross Domestic
    Product, based on 1996 dollars.

    Source:  Copyright Office, GAO computations.

    As noted above, Public Law 101-318 established a new copyright fee
    schedule to account for the inflation that had occurred since the
    fees were last raised in 1978.  The act also granted the Register of
    Copyrights the authority to adjust the fee schedule by regulation
    every 5 years to account for any inflation as determined by the CPI.
    The first such adjustment was to be effective in 1995.  In March
    1994, an internal Copyright Office task force recommended that basic
    registration fees not be increased, and the Acting Register of
    Copyrights at the time followed this recommendation.  By statute, the
    next such increase cannot be made until 2000, and, according to
    Copyright Office officials, any increase at that time would consider
    only CPI increases since 1995.

    According to the report prepared by the task force, the increase in
    the CPI was 16.53 percent from 1989 to 1993, the most recent 4-year
    period for which data were available.  This would have allowed basic
    registration fees to increase from $20 to $23.30.  The task force
    estimated that, if fees were raised by the maximum allowable, the
    additional revenues would be $1 million to $2.1 million in the first
    year after the fee increase, depending on the extent to which
    applications decreased.  After deducting $493,866 in increased costs
    that would be incurred by the Copyright Office, the task force
    estimated that the fee increase would have potentially increased the
    Copyright Office's income by $529,590 in the first year of the fee
    increase.  Costs associated with the fee increase would decrease to
    an estimated $102,869 in the second year and $69,877 in the third
    year.

    In determining the additional costs and other problems of raising
    fees, the task force cited the expenses and difficulty of publicizing
    the new fees to copyright registrants; the administrative burden of
    dealing with claims that arrive with insufficient fees; the necessity
    of modifying the automated accounting system; the difficulty that
    Copyright Office staff and applicants would have working with an odd
    fee, and the expenses associated with drafting, printing, and
    distributing new applications and circulars reflecting a fee
    increase.  The task force also believed that applications would
    decline, offsetting to some extent any gains made by raising the
    fees.

    In summary, the task force believed that the additional revenues were
    not worth the anticipated problems and expenses and recommended
    against raising the basic registration fee.  The task force did
    recommend that certain service fees, such as those for special
    handling and full-term storage of published works, be increased.  The
    Acting Register of Copyrights raised fees for special services, but
    opted against increasing copyright registration fees.

    We disagree with the Acting Register's decision not to raise fees for
    several reasons.  First, most of the costs would have declined after
    the first year.  However, overall fee income would have continued to
    increase each year, depending on the effect any such increase would
    have had on applications.  Second, the revised fees would have formed
    the basis for any fee adjustments for inflation in the future.

    Third, while there may be administrative costs associated with
    publicizing fee increases, processing claims accompanied by
    insufficient remittances, and modifying paperwork and automation
    systems to reflect fee increases, the task force did not study ways
    that these costs and difficulties might be mitigated.  For example,
    Copyright Office officials could not explain why they would have to
    take elaborate measures to publicize the fee increase and to reprint
    all publications.  They said they did not consider as an option
    simply rejecting any application with an insufficient fee, nor did
    they consider listing a toll-free number or Internet address on the
    application where an applicant could obtain information on the
    appropriate fee, rather than listing the fee itself.

    We also do not agree with the task force's concern that an "odd fee"
    would be difficult for the applicants or the Copyright Office staff
    to understand and use.  Apparently, the concern is that the $20 fee
    is easy for applicants to remember and easy for Copyright Office
    employees to work with to ensure that the proper amounts are paid.
    However, fees of amounts other than in increments of $5 or $10 are
    common in commerce and government operations.  For example, the
    applicant must pay postage in dollars and cents on each package he or
    she submits to the Copyright Office.  In addition, millions of
    taxpayers and Internal Revenue Service employees work with many
    different rates and fees each year in computing income taxes.
    Furthermore, assuming that the concerns over odd fees were justified,
    the Copyright Office could have mitigated the effect by raising its
    basic registration fee to the even-dollar amount of $23.  This
    increase would have been within the CPI ceiling.

          COPYRIGHT OFFICE OFFICIALS
          BELIEVE A FEE INCREASE IS
          NEEDED
    -------------------------------------------------------- Chapter 4:2.4

    Copyright Office officials told us that they believe a fee increase
    is needed and support "the goal of moving toward full cost recovery
    of fee services." They noted that this was not the same as saying
    that all Copyright Office operations should be paid for through fees
    because they believe there are costs of the Copyright Office--such as
    public information, rulemaking, development of national and
    international copyright policy, preparation of reports and studies
    for the Congress, administration of section 407 mandatory deposit
    provisions, and the special funding for the International Copyright
    Institute--that should be supported by appropriations, not fees.

    The Register of Copyrights told us that she supports the language in
    H.R.  672 and S.  506, which would authorize the Register to adjust
    fees to reflect the fair cost of registering copyrights and providing
    services.  She said that she had supported similar provisions in H.R.
    1861, which passed the House of Representatives but not the Senate
    during the past session of the Congress.  The Copyright Technical
    Amendments Act, H.R.  672, was passed by the House of Representatives
    on March 18, 1997.  The Copyright Clarification Act of 1997, S.  506,
    was introduced in the Senate on March 20, 1997.

    The Register also said that the Copyright Office plans to initiate a
    fee study to determine (1) what costs are attributable to the
    copyright process and (2) what fees would be necessary to recover
    costs in total and by type of service.  As of March 1997, Copyright
    Office officials were deciding on the scope of the study but had not
    yet begun the study.  The Register said that the study would probably
    be conducted by outside consultants.

       THE COPYRIGHT OFFICE HAS
       OPPOSED BECOMING
       SELF-SUSTAINING OUTSIDE THE
       LIBRARY
    ---------------------------------------------------------- Chapter 4:3

    In September 1996, the Senate Committee on the Judiciary held a
    hearing on S.  1961, which, among other things, would have made the
    Copyright Office self-sustaining through fees within a new,
    government-owned, intellectual property corporation.  The Register of
    Copyrights testified against this proposal, providing three
    interrelated reasons for her opposition.  First, to cover the
    increased costs, fees would have to be raised to an unacceptably high
    level.  Second, the increased fees would lead to a decrease in
    copyright registrations.  Third, the decrease in registrations would
    reduce the number of free works submitted to the Copyright Office for
    consideration by the Library of Congress for its collections.

    While we take no position on S.  1961--which was not passed during
    the last session of Congress--we disagree with the fee increases and
    application decreases projected by the Register in her testimony.
    Our disagreement is based on the Copyright Office's own study.  We
    also believe that, even if decreases in applications had occurred,
    they would not have created a harmful shortage of works available for
    the Library's collections.  Recently, the Register said that she
    believes the copyright process could be made self-sustaining within
    the Library by increasing fees to about twice their current level.

          COSTS WOULD NOT INCREASE AS
          PROJECTED
    -------------------------------------------------------- Chapter 4:3.1

    In September 1996, the Senate Committee on the Judiciary held a
    hearing on S.  1961, the Omnibus Patent Act of 1996.  This
    legislative proposal would establish an Intellectual Property
    Organization (IPO) that comprised essentially the existing PTO and
    the Copyright Office.  This proposal also called for the Copyright
    Office to become self-sustaining through copyright fees.  During the
    hearing, the current Register of Copyrights testified that the basic
    copyright registration fee would have to be raised "five-fold" to the
    $100 range in order for the Copyright Office to be self-sustaining
    outside the Library of Congress.  The Register said that such an
    increase would place a substantial burden on copyright owners,
    especially those companies that own hundreds or thousands of works.

    We reviewed the analysis the Copyright Office used to support the
    cost estimates cited in the Senate hearing.  We found that, as shown
    in appendix X, the Copyright Office's analysis considered 12
    scenarios involving the Copyright Office's organizational status,
    costs, and projected applications.  The fivefold increase in fees
    presented at the hearing was the worst-case, least-likely scenario
    studied.  According to the Copyright Office's analysis, the other
    scenarios would have required raising the basic registration fee from
    the current $20 to a new fee of $41 to $89 for the first year.  Fees
    would have increased the second year because the Copyright Office
    estimated that registrations would continue to decrease.

    We question many of the costs projected in the worst-case scenario
    presented by the Copyright Office for several reasons:

      The costs in general were based on the Copyright Office's becoming
         an independent and self-sustaining agency, while S.  1961--the
         bill under discussion at the hearings--proposed including it
         within the IPO, which would also include patent and trademark
         offices.

      Facilities were estimated to cost $5 million.  This was based on
         the Copyright Office's obtaining new space at a cost of $32 per
         square foot.  It did not consider leaving the Copyright Office
         in its current space, where the facilities are government-owned
         and there is no rental cost to the Copyright Office.

      The analysis projected a significant decrease in applications, as
         discussed below, but did not consider that costs might be lower
         if applications were fewer.

      The analysis assumed that the Copyright Office would have to
         acquire new computer equipment and services rather than continue
         to use those now shared with the Library of Congress or share
         such equipment and services with the other offices within the
         new IPO.

    In discussions with Copyright Office officials concerning the
    analysis, they said that the figures were "loose, educated guesses"
    and that the scenario used was never intended to be characterized as
    the most-likely scenario but rather as one example.  They
    acknowledged that expenses would be somewhat lower than shown in
    their analysis if the Copyright Office were combined with the
    existing PTO because some costs could be shared.  They also
    acknowledged that fee increases appear to have a greater impact on
    some types of works than others.  They advised against our attempting
    to use the estimates they developed in projecting the level of fees
    that would be necessary to make the Copyright Office self-sufficient.

          APPLICATIONS MAY NOT
          DECREASE AS PROJECTED
    -------------------------------------------------------- Chapter 4:3.2

    The Copyright Office maintains that fee increases adversely affect
    applications for copyright registration.  However, both the Copyright
    Office's and our own analyses indicate that any such decrease in
    registrations is not likely to be large.

    The aforementioned March 1994 report prepared by the Copyright Office
    task force studying the need for adjusting fees for inflation also
    said that fee increases are a disincentive to registration.  As
    evidence, the report stated that, when the registration fees were
    doubled in January 1991, applications decreased 3.3 percent from the
    1990 level after they had risen an average of 4.1 percent per year
    for the 8 years prior to the fee increase.

    The Register of Copyrights also raised concerns about the effect of a
    fee increase on applications during her September 18, 1996, testimony
    on S.  1961.  She said that reorganizing the Copyright Office into a
    self-sustaining entity outside of the Library of Congress could mark
    the end of a vital and meaningful registration and deposit system.
    She reasoned that historical experience has shown that registrations
    decrease whenever fees are increased.  Because the fee increase would
    likely be the largest such increase on record, the Copyright Office
    anticipated that many individual copyright owners would choose not to
    register their works and that businesses would register fewer works.
    This would result in a diminished and less valuable public database
    on works of authorship, making it more difficult for users to
    determine who owns what rights at a particular time.  In addition,
    there would be a decrease in Library-deposit copies of works received
    through copyright registrations.

    In examining the support for the Register of Copyright's concerns
    over decreasing registrations, we again looked at the Copyright
    Office's preliminary analysis supporting the projected fivefold
    increase in fees.  We found that this scenario was based on estimates
    that registrations would decrease 30 percent in the first year after
    the fee increase and an additional 15 percent in the second year.

    As with the estimates on cost increases, these estimates of
    registration decreases are questionable for various reasons.  For
    example, decreases of the magnitude projected have never occurred in
    the more than 100 years for which the Copyright Office has data.  As
    shown in figure 4.2, it is common for copyright registrations to
    decrease in the years following a fee increase.  However, the
    decrease has usually been small, and registrations have tended to
    rebound in subsequent years.

       Figure 4.2:  Copyright
       Registrations, 1945-95

       (See figure in printed
       edition.)

    Note:  Superimposed dollar amounts are the basic registration fees in
    effect during each period.  Fiscal year 1976 includes 15 months of
    data because of the transitional fiscal year.

    Source:  Copyright Office.

    We also question the Copyright Office's projections because, while
    they consider only the overall impact on registrations, Copyright
    Office officials agree that some types of registrations are more
    likely to be affected than others.  Following the 1991 fee increase,
    for example, applications for registration decreased significantly
    for some types of works but remained stable for others.  Applications
    for performing arts decreased about 14 percent from fiscal years 1990
    to 1992, while applications for visual arts and motion pictures
    increased by about 1 percent during the same period.  In addition,
    the number of copyright registrations for unpublished works decreased
    by about 10 percent over the period, while the number of
    registrations for published works declined by about 3 percent.\3

    The Copyright Office's projections also do not consider the effect on
    registrations of changes in internal reporting procedures and other
    legislative changes that accompanied past fee increases.  We found
    that these other factors can affect the number of applications
    received and registered.  For example, when the registration fee was
    increased from $6 to $10 in fiscal year 1978, Copyright Office
    records show about a 27-percent reduction in the number of copyright
    registrations from the previous year.\4

    However, Copyright Office officials told us that they reported only
    11 months of registrations for fiscal year 1978 rather than a full 12
    months.

    Similarly, after the registration fee was increased to $20 on January
    1, 1991, the number of applications for copyright registration
    decreased by about 3 percent in fiscal year 1991 and an additional 5
    percent in fiscal year 1992.  However, the fee increase was not the
    only change affecting applications.  For example, the Copyright
    Office initiated group registration for serial issues during
    mid-1991.  In doing so, all issues of a weekly, biweekly or monthly
    serial published within a 3-month period could be registered on one
    application at a fee of $10 per issue.  According to Copyright Office
    officials, this reduced the number of serial registrations by an
    unknown amount.  In addition, renewal of copyrights became automatic
    beginning in 1992.  This accounted largely for the substantial and
    steady drop in renewal registrations beginning that year.  While
    registration applications overall decreased by almost 10 percent from
    fiscal years 1990 to 1995, applications for these categories
    decreased by about 34 percent and 39 percent, respectively.

    Because there may be other, external issues--such as the onset of a
    recession in 1991--that could have affected applications beyond
    changes in copyright fees, we developed a model that allowed us to
    examine the association between fee changes and the number of
    applications while controlling for the effects of other factors.  As
    discussed in appendix XI, we found that the association between fee
    increases and application decreases is likely to be small--about a
    0.1-percent decrease in applications for a 1-percent increase in
    fees.  However, a regression model of this type is best at estimating
    such associations for relatively small changes in explanatory
    factors.  We also found that there may be an even greater correlation
    between applications and the level of economic activity, as measured
    by the Gross Domestic Product.

    --------------------
    \3 The number of applications for unpublished and published works
    received for these years could not be obtained because the Copyright
    Office does not record a work's publication status until it is
    registered.

    \4 The Copyright Office was unable to provide the number of
    applications received on an annual basis prior to fiscal year 1986.

          FEE INCREASES SHOULD NOT
          AFFECT LIBRARY COLLECTIONS
    -------------------------------------------------------- Chapter 4:3.3

    We also question whether there would be any harmful results to the
    government even if copyright applications did decrease in reaction to
    a fee increase.  The economic benefits of copyright registration
    primarily are those that pass to the copyright holder.  In fact, the
    United States is one of the few countries in the world that even has
    a government agency registering copyrights.  The primary advantage of
    registration in this country is that it provides official evidence of
    the copyright and provides statutory damages against infringement.
    Thus, if a person decides not to register a copyright, that person
    assumes the risk of loss.

    According to the testimony of the Register of Copyrights in the
    Senate hearing on S.  1961, one of the Copyright Office's primary
    concerns regarding a decrease in copyright registrations is that such
    a decrease might limit the works available at no cost for the
    collections of the Library of Congress.  However, because of other
    provisions in existing legislation, a decline in registrations should
    have no significant impact.  Section 407 of the Copyright Act
    requires that all material under copyright protection and published
    in the United States on or after March 1, 1989, be deposited with the
    Copyright Office within 3 months of publication.\5 These deposits are
    available to the Library of Congress for its collections or for
    exchange or transfer to another library.  Thus, published documents
    must be submitted to the Copyright Office and made available for the
    Library's collections even if copyright registration is not sought.
    If documents are not submitted as required by law, the Register of
    Copyrights can demand that the deposits be made and subject those not
    complying to fines and penalties.

    Although section 407 does not apply to unpublished material, the
    Library of Congress seldom selects unpublished material for its
    collections, with the exception of genealogy studies.  According to
    Copyright Office officials, the Library of Congress selected less
    than 100 of the approximately 254,000 unpublished documents that were
    registered in fiscal year 1995.

    --------------------
    \5 Material first published before Mar.  1, 1989, is subject to the
    deposit requirement if it was published in the United States with
    notice of copyright.

          COPYRIGHT OFFICE OFFICIALS
          NOW AGREE THAT THE COPYRIGHT
          PROCESS COULD BE
          SELF-SUSTAINING WITHIN THE
          LIBRARY
    -------------------------------------------------------- Chapter 4:3.4

    In March 1997, the Register of Copyrights told us that she supports
    the concept of making the copyright process self-sustaining within
    the Library.  She said that the fivefold increase in fees cited in
    the Senate hearing in September 1996 was indeed a worst-case
    scenario.  However, she had presented this scenario because she
    viewed the proposal being considered at that time as entailing the
    separation of the Copyright Office from the Library of Congress.  She
    believed that such a move would create uncertainties, such as whether
    new space would have to be obtained, whether a new computer system
    would have to be purchased, and how other services the Library and
    the Copyright Office now provide for each other at no charge would be
    provided in the future.  Thus, the Register believed that it was
    necessary to show the potential fee increases that might be required
    under the most costly circumstances.

    The Register of Copyrights said that, in retrospect, she recognizes
    that the costs and fee increases associated with self-sufficiency
    would be lower than those presented at the September hearing,
    particularly if the Copyright Office is left in the Library of
    Congress, as is now being proposed.  While the Copyright Office does
    not have a current estimate on what would be required to make it
    self-sustaining, the Register said that any fee increase would at a
    minimum have to replace the approximately $10 million the Copyright
    Office now receives in appropriations each year.  She believed this
    would probably require fees that are about twice the current level.

    In subsequent discussions on a draft of this report, the Register
    said that she had not intended to say that she believed the Copyright
    Office itself should be self-sustaining.  Rather, she believed that
    it should charge fees for services that reflect the costs of those
    services to the Copyright Office.  She said that certain costs--such
    as those of the Copyright Acquisitions Division--were not directly
    related to the copyright process; thus, they should not be paid for
    by registrants but are more appropriately covered through
    appropriations.

    The Register also said in our March 1997 discussion that, if the
    copyright process is to be made self-sustaining though fees, these
    fees should be commensurate with the services provided.  As we have
    previously noted, the costs of individual services vary widely, while
    most users of these services pay the same fee.  In addition, the
    Copyright Office and the Library now provide services to each other
    that are not necessarily related to their primary missions and for
    which they are not reimbursed.  For example, the Library provides
    numerous computer services to the Copyright Office at no charge,
    while the Copyright Office obtains works that were requested by the
    Library for its collections but not available through the copyright
    registration process, also at no charge.  The Register believed that
    the fee study now being planned by the Copyright Office will address
    this issue.

       OTHER STUDIES SUPPORT A FEE
       INCREASE
    ---------------------------------------------------------- Chapter 4:4

    Other recent studies of the Copyright Office support the need for a
    fee increase.  In a 1996 report on the results of a management review
    of the Library of Congress contracted by GAO,\6 Booz-Allen & Hamilton
    recommended that the Library of Congress focus its efforts on
    increasing revenues.  As one means for doing so, the report
    recommended that the Library pursue full recovery of copyright costs.
    The report stated that fully recovering copyright registration costs
    offers significant opportunities, both in terms of additional
    revenues and the relative ease of implementation.  It further stated
    that the Copyright Office meets two key criteria for pursuing a
    fee-based service.  First, there are opportunities for significant
    revenues.  Second, the Copyright Office has been subject to full cost
    recovery in the past, so a precedent has been established.  To
    accomplish full cost recovery, the report recommended that the
    Copyright Office establish a differentiated fee structure based on
    the cost of the services provided.  According to the study, to
    achieve full cost recovery, proposed registration fees would range
    from a low of $10 for group serials to a high of $38 to $420 for mask
    works.

    In October 1996, an internal management report of the Copyright
    Office prepared by a senior Library of Congress official at the
    request of the Librarian recommended that the Copyright Office
    recover relevant fees for services.  However, the report also
    recommended that the Congress continue appropriating funds for
    activities, such as "service to the Congress," that are not
    associated with registration services and that the Library of
    Congress continue to provide its support to the Copyright Office in
    exchange for the value of the copyright deposits made available to
    the Library's collections.  Unlike the Booz-Allen report, the Library
    of Congress recommended establishing either a single fee for all
    copyright registrations or a separate fee only for visual arts works
    based on the costs of these works.  If the fee difference for visual
    arts is less than $5 per registration, however, the report
    recommended establishing only a single fee.  While the Library of
    Congress's report concluded that a $35 registration fee would bring
    fees and costs into balance the first year, it also concluded that a
    $40 registration fee is desirable to account for the effects of
    inflation in subsequent years.

    Although the Library of Congress's report recognized that a fee
    increase may harm the Library's collections through reduced
    applications, it stated that any decline in registrations would
    likely occur primarily in unpublished works and in relatively
    low-value published works.  It acknowledged that the demand
    provisions of section 407 of the Copyright Act would still apply to
    published works and that more works might come from that source than
    from applications for copyright registrations.

    Recently, the Congressional Budget Office (CBO) noted that the fee
    structure of the Copyright Office could be revised to generate more
    revenue and reduce the need for appropriations.  In its March 1997
    publication entitled Reducing the Deficit:  Spending and Revenue
    Options, CBO offered the option of requiring the Copyright Office to
    achieve full cost recovery as a deficit-reduction measure.  According
    to the report, achieving full cost recovery would require that the
    copyright registration fee be increased to about $35 or $40 per
    application.

    The CBO estimate of what would be required to make the Copyright
    Office self-sufficient is similar to that advanced by the Register of
    Copyrights--about double the current level.  On the basis of our
    regression analysis, we believe that the decrease in applications
    from doubling the fees would be about 10 percent in the year
    following the fee increase.  However, as noted earlier, models such
    as the one we developed tend not to be as highly predictive at such a
    high level of increase.

    In discussions we had with intellectual property organizations, they
    either opposed or had no opinion regarding any fee increase for
    copyrights.  None of them provided independent estimates regarding
    what effect any such increase would have on applications or the
    ability of copyright holders to benefit from their works.

    --------------------
    \6 GAO contracted with Booz-Allen & Hamilton, Inc.  to conduct a
    general management review of the Library in order to meet time frames
    specified by congressional requesters.  Booz-Allen's findings are
    summarized in Library of Congress:  Opportunities to Improve General
    and Financial Management (GAO/T-GGD/AIMD-96-115, May 7, 1996).

       ELIMINATING THE REQUIREMENT TO
       RETAIN COPIES OF UNPUBLISHED
       WORKS COULD REDUCE COSTS
    ---------------------------------------------------------- Chapter 4:5

    We identified one additional area that, while not essential to a
    decision to raise fees, nevertheless affects other costs to the
    government of the copyright process and the ability of fees to
    recover those costs.  This is the requirement in the law to retain
    copies of unpublished works for the full term of the copyright.

    Currently, the law requires that the Copyright Office retain
    unpublished works for the life of the copyright, which for most works
    is the author's life plus 50 years.  Copyright Office officials told
    us that they estimate this term to average 125 years.  In contrast,
    the law requires that published materials that are not selected by
    the Library of Congress be retained for the longest period considered
    practicable and desirable by the Register of Copyrights and the
    Librarian of Congress.  The Register and the Librarian have set the
    period at 5 years for all works except visual arts, which are kept
    for 10 years.  If a copyright owner wants to extend the retention
    period for a published work to cover storage costs for the full
    length of the copyright term, the Copyright Office assesses a $270
    fee.

    As a result of the requirement in the law, millions of unpublished
    works could be stored for up to 125 years at taxpayer expense, while
    few published works will be stored longer than 5 years.  Copyright
    Office officials told us that in some cases--as with audio tapes, for
    example--the copy is usually of no use after a few years because of
    the natural deterioration of the medium.  They also said that they
    are rarely called upon to extract copies of unpublished works from
    storage, either by the Library of Congress or by the holder of the
    copyright.

    As a result of the difference in the retention requirements,
    published works consume far less storage space than unpublished
    works, even though published works represent the majority of items
    that are registered by the Copyright Office each year.  Approximately
    3.3 million unpublished works were placed in storage at either the
    Landover Storage Facility or the Washington National Records Center
    between 1978\7 and the end of fiscal year 1996.  In addition to this
    material, other unpublished works have been microfilmed and are
    currently stored at the Copyright Office itself.  In contrast, as of
    December 1996, only an estimated 1.8 million published works were in
    storage at the two facilities, and most of these were still within
    the statutory 5-year retention period.  From fiscal year 1990 through
    fiscal year 1995, the Copyright Office received only 85 requests for
    extended storage for published works.

    The annual cost of the space utilized by the Copyright Office at its
    Landover Storage Facility is $230,000 and is paid for by the Library
    of Congress.  The space utilized by the Copyright Office at the
    Washington National Records Center is owned by the General Services
    Administration and leased to the National Archives.  Although neither
    the Copyright Office nor the Library of Congress pays for this
    storage space, it is a cost of the copyright process and a cost to
    the government.  National Archives officials estimated the fiscal
    year 1996 costs to be $1.56 per cubic foot.  Given the number of
    cubic feet being utilized by the Copyright Office, the fiscal year
    1996 cost was approximately $97,000.

    --------------------
    \7 Prior to 1978, musicals and dramas were the only categories of
    unpublished works that were eligible for copyright registration.

       CONCLUSIONS
    ---------------------------------------------------------- Chapter 4:6

    Unlike PTO, the Copyright Office is not self-sustaining through fees,
    and the government provides about $10 million in appropriations each
    year to cover the costs not recovered by copyright fees or
    reimbursements from royalties.  While the law permits the Copyright
    Office to raise fees periodically to account for the effects of
    inflation, it chose not to do so in fiscal year 1995, the last year
    it had the authority to do so.  Thus, most fees remain at the level
    they were in 1991.  Copyright Office officials have supported the
    need for a fee increase that will match fees to the costs of services
    more closely and are planning a study to show what type of fee
    structure may be needed.

    In September 1996, the Copyright Office objected to a proposal that
    it become self-sustaining within a new, government-owned,
    intellectual property corporation because of fears that the increased
    costs would lead to a burdensome increase in fees, a dramatic
    decrease in registrations, and a reduction in free materials
    available for the Library of Congress's collections.  These concerns
    are not supported by the Copyright Office's own study used for the
    testimony.  In March 1997, the Register of Copyrights agreed that the
    fivefold increase in fees she had projected was a worst-case scenario
    and was based on the uncertainties the Copyright Office would face if
    removed from the Library of Congress.  She said that the copyright
    process could become self-sustaining--probably with fees about double
    those now in effect--under its current organizational structure.

    Recently, other organizations--including the Library itself--have
    recommended fee increases.  CBO has included an option for making the
    Copyright Office self-sustaining in its deficit-reduction package for
    fiscal year 1998, estimating that fees would need to be raised to a
    range of $35 to $40.

    The requirement in the law that unpublished works be retained for the
    life of the copyright adds to the costs of the copyright process
    without providing any measurable benefits to either the copyright
    holders or the government.  We believe that by eliminating this
    requirement, reducing the retention period, or requiring a fee for
    extended retention, the additional costs to the government could be
    reduced or recovered.

       MATTERS FOR CONSIDERATION BY
       THE CONGRESS
    ---------------------------------------------------------- Chapter 4:7

    To promote greater consistency in the government's approach to
    assessing intellectual property fees and to eliminate the need for
    appropriated funds in the copyright process, the Congress may wish to
    consider requiring that the Copyright Office achieve full cost
    recovery through fees.  The Congress may also wish to consider
    setting copyright fees that are more closely aligned with the
    services for which they are assessed.  In addition, to reduce the
    costs of the copyright process, the Congress may wish to consider
    making the storage requirements for unpublished copyrighted works the
    same as those for published works.

       RECOMMENDATION TO THE REGISTER
       OF COPYRIGHTS
    ---------------------------------------------------------- Chapter 4:8

    To reduce the deterioration of fees by inflation, we recommend that
    the Register of Copyrights raise fees to account for inflation as
    provided by law, when given the opportunity to do so.

       AGENCY COMMENTS AND OUR
       EVALUATION
    ---------------------------------------------------------- Chapter 4:9

    We provided copies of a draft of this report to the Library of
    Congress for its review and comment.  At the Library's request, we
    also met with Library officials to discuss the Library's written
    comments further.  The comments of the Library and our responses to
    those comments are included in appendix XIII.

    The Library strongly disagreed with our discussion of copyright fees
    and said that the report was incorrect in stating that the Copyright
    Office had opposed fee increases, did not acknowledge the role of the
    Congress in setting copyright fees, and did not sufficiently discuss
    the impact of fee increases on the Library's collections.  In
    addition, the Library disagreed with a perceived criticism of the fee
    increase projections that the Register provided to the Senate
    Committee on the Judiciary in a September 1996 hearing.

    Concerning the Library's comments regarding the Copyright Office's
    position on fee increases, we added information to the report showing
    that the Copyright Office has supported the need for fee increases in
    the past, believes a fee increase is needed currently, and supports
    proposed legislation that would allow the Register to raise fees to
    cover the costs of copyright registration and services.  We continue
    to believe, however, that the Copyright Office should have adjusted
    fees for inflation in fiscal year 1995 because the increase would
    have been cost-effective, and Library officials agree that the
    Register should make inflation adjustments in the future.

    We disagree with the Library's comments that the role of the Congress
    in setting fees was not adequately discussed in the draft report.  To
    the contrary, our report shows that the Congress has chosen to
    continue to recover copyright costs through a combination of fees and
    appropriations.  We point out that the Congress has chosen to make
    the patent and trademark processes self-sustaining.  In keeping with
    this approach, we state that the Congress may wish to consider
    whether the Copyright Office should achieve full cost recovery
    through fees.

    We also believe that the report fairly discusses the potential impact
    of a fee increase on deposits available for the Library's
    collections.  Because the Library (1) has access to all copyrighted
    materials submitted for registration, (2) is entitled by law to any
    other materials under copyright protection published in the United
    States, and (3) rarely takes any unpublished materials, we continue
    to believe that the works available should not decline substantially
    even if copyright registration applications decline.

    Finally, we believe that the report accurately portrays the
    Register's testimony in the September 1996 hearings.  However, we
    clarified the report to show that the Register's concern was with the
    high costs of making the Copyright Office self-supporting within a
    new, government-owned, intellectual property corporation outside the
    Library.  We continue to believe that the fees projected were too
    high and were not presented in a proper context.  For these reasons,
    we believe it is necessary to show the Copyright Office's analyses of
    these projections in the report.

    OBJECTIVES, SCOPE, AND METHODOLOGY
    =========================================================== Appendix I

    On July 15, 1996, the Chairman of the Senate Committee on the
    Judiciary requested that we review the manner by which the U.S.
    agencies grant or register patents, trademarks, and copyrights and
    use fees in providing services.  He asked that we address a series of
    interrelated questions regarding how fees are set, whether they
    recover costs, and how they are used in the granting and registration
    processes.

    In subsequent discussions with the Committee staff, we agreed that we
    would determine (1) how fees are set for the services provided by the
    Patent and Trademark Office (PTO) and the Copyright Office, (2) the
    extent to which fees are recovering the costs of the services
    provided, (3) whether different users of the same services pay
    different fees, (4) whether patent fees encourage or discourage the
    completeness and accuracy of applications, and (5) the potential
    effects of increasing copyright fees.  Our report discusses these
    issues in individual chapters on patents, trademarks, and copyrights.

    We conducted our work by reviewing available records and interviewing
    knowledgeable officials from PTO, the Copyright Office, and
    intellectual property organizations.  While we developed both
    historical and current information on fees, the information we
    developed on costs was primarily for fiscal year 1995, the last year
    for which complete data were available at the time of our review.
    The cost and fee data used in this report are based on data provided
    by PTO and the Copyright Office.  Except as specifically noted, we
    did not independently verify these data.

    For the first objective, we determined the extent to which fees are
    established by law and by the agencies themselves, the rationale used
    by the agencies in updating fees, and the process used by the
    agencies in determining individual fees.  We also reviewed the
    legislative history regarding intellectual property fees to determine
    the evolution of the current fee structures.  In addition, we
    reviewed economic literature related to fee increases.

    For the second objective, we determined, to the extent that data were
    available, the relationship between the costs and fees charged for
    particular services provided by PTO and the Copyright Office during
    fiscal year 1995.  We then used these data to show the extent to
    which the agencies were recovering their costs in total and for
    individual services.  To the extent possible, we also compared U.S.
    fees and costs with those in Europe and Japan; however, the only data
    that were sufficient for use in our report involved patents.  We did
    not independently verify the information obtained.

    For the third objective, we identified differences in fees for
    various types of services and users of those services.  Specifically,
    we determined the costs and benefits of (1) charging large and small
    entities different fees for the same patent services, (2) charging a
    fee for extended storage of published copyrighted materials while
    storing unpublished copyrighted materials for the life of the
    copyright at no additional cost, and (3) charging a maintenance fee
    for patents and a renewal fee for trademarks but no additional fees
    to keep a copyright current.

    For the fourth objective, we identified areas in which applicants'
    errors and delays added to examination time and determined the extent
    to which fees were assessed for such delays.  Our work for this
    objective primarily involved a comparison of patent extension fees
    with the applicant delays in the patent process as identified in our
    July 1996 report entitled Intellectual Property:  Enhancements Needed
    in Computing and Reporting Patent Examination Statistics
    (GAO/RCED-96-190, July 15, 1996).  To perform this analysis, we
    updated the data to include fiscal year 1995.

    For the fifth objective, we identified areas where fees could be
    increased, and to the extent possible, the potential effects of these
    increases.  This work primarily involved copyright fees because the
    patent and trademark processes were already self-sufficient.  For
    copyrights, we identified potential revenues possible under various
    fee scenarios.  To determine the potential effects of fee increases
    on copyright applications, we also performed a regression analysis
    showing the effect of fees on applications since 1986.

    During the course of our review, we also developed information on
    fiscal year 1995 patent pendency using information from PTO's
    automated Patent Application Location and Monitoring system.  This
    system contains background information on each patent application as
    well as a "prosecution history" that shows the date when key actions
    were taken on each application during examination.  We used these
    data to prepare a report to the Chairman entitled Intellectual
    Property:  Comparison of Patent Examination Statistics for Fiscal
    Years 1994 and 1995 (GAO/RCED-97-58, Mar.  13, 1997).  These data
    were also used in appendix V of this report.

    We provided a draft of this report to the Department of Commerce and
    the Library of Congress.  These agencies provided written comments,
    which are included in appendixes XII and XIII, respectively, along
    with our responses.  In addition, we met with officials of the
    Library of Congress after receiving their comments.

    We performed our work from July 1996 through April 1997.  We
    conducted our work in accordance with generally accepted government
    auditing standards.

    PATENT FEE INCOME RECEIVED BY PTO
    IN FISCAL YEAR 1995
    ========================================================== Appendix II

                                                                                      Percent
    Type of fee and                                         Fee per     Total fee          of
    fee code            Fee title                           service        income       total
    ------------------  -----------------------------  ------------  ------------  ----------
    Patent filing fees
     (large entity)
    101                 Basic filing fee--utility           $730.00  $120,038,488       20.78
    102                 Independent claims in excess          76.00     3,158,166        0.55
                         of 3
    103                 Claims in excess of 20                22.00     3,478,376        0.60
    104                 Multiple dependent claim             240.00       270,234        0.05
    105                 Surcharge--late filing fee or        130.00     4,482,760        0.78
                         oath or declaration
    106                 Design filing fee                    300.00     1,689,243        0.29
    107                 Plant filing fee                     490.00       110,544        0.02
    108                 Reissue filing fee                   730.00       361,458        0.06
    109                 Reissue independent claims            76.00         1,475        0.00
                         over original patent
    110                 Reissue claims in excess of
                         20 and over original patent          22.00        27,708        0.00
    =========================================================================================
    Total patent
     filing fees                                                     $133,618,452       23.13
     (large entity)
    Patent filing fees
     (small entity)
    201                 Basic filing fee--utility           $365.00   $26,825,569        4.64
    202                 Independent claims in excess          38.00       795,620        0.14
                         of 3
    203                 Claims in excess of 20                11.00     1,115,036        0.19
    204                 Multiple dependent claim             120.00        58,893        0.01
    205                 Surcharge--late filing fee or         65.00       983,792        0.17
                         oath or declaration
    206                 Design filing fee                    150.00     1,389,035        0.24
    207                 Plant filing fee                     245.00        69,820        0.01
    208                 Reissue filing fee                   365.00        70,525        0.01
    209                 Reissue independent claims            38.00            77        0.00
                         over original patent
    210                 Reissue claims in excess of           11.00         5,570        0.00
                         20 and over original patent
    =========================================================================================
    Total patent                                                      $31,313,937        5.41
     filing fees
     (small entity)
    Total patent                                                     $164,932,389       28.54
     filing fees
    Patent issue fees
     (large entity)
    142                 Utility issue fee                 $1,210.00   $86,656,572       15.00
    143                 Design issue fee                     420.00     1,914,960        0.33
    144                 Plant issue fee                      610.00        88,905        0.02
    =========================================================================================
    Total patent issue
     fees (large                                                      $88,660,437       15.35
     entity)
    Patent issue fees
     (small entity)
    242                 Utility issue fee                   $605.00   $19,122,870        3.31
    243                 Design issue fee                     210.00     1,521,095        0.26
    244                 Plant issue fee                      305.00        69,835        0.01
    =========================================================================================
    Total patent issue                                                $20,713,800        3.58
     fees (small
     entity)
    =========================================================================================
    Total patent issue                                               $109,374,237       18.93
     fees
    Patent maintenance
     fees (large
     entity)
    181                 Maintenance fees received                        -$33,400       -0.01
                         without explanation
    183                 Due at 3.5 years                    $960.00    55,182,178        9.55
    184                 Due at 7.5 years                   1,930.00    68,797,276       11.91
    185                 Due at 11.5 years                  2,900.00    46,720,870        8.09
    186                 Surcharge--late payment              130.00       488,236        0.08
                         within 6 months
    =========================================================================================
    Total patent                                                     $171,155,160       29.62
     maintenance fees
     (large entity)
    Patent maintenance
     fees (small
     entity)
    283                 Due at 3.5 years                    $480.00    $9,388,440        1.63
    284                 Due at 7.5 years                     965.00     8,871,525        1.54
    285                 Due at 11.5 years                  1,450.00     3,956,618        0.68
    286                 Surcharge--late payment               65.00       312,893        0.05
                         within 6 months
    =========================================================================================
    Total patent                                                      $22,529,476        3.90
     maintenance fees
     (small entity)
    Patent maintenance
     fees regardless
     of entity
    187                 Surcharge--late payment is           640.00        49,435        0.01
                         unavoidable
    188                 Surcharge--late payment is         1,500.00       933,978        0.16
                         unintentional
    =========================================================================================
    Total patent                                                         $983,413        0.17
     maintenance fees
     regardless of
     entity
    =========================================================================================
    Total patent                                                     $194,668,049       33.69
     maintenance fees
    Patent extension
     fees (large
     entity):
    115                 Extension for response within       $110.00    $4,516,399        0.78
                         first month
    116                 Extension for response within        370.00     8,464,762        1.47
                         second month
    117                 Extension for response within        870.00    25,087,326        4.34
                         third month
    118                 Extension for response within      1,360.00     2,167,206        0.38
                         fourth month
    =========================================================================================
    Total patent                                                      $40,235,693        6.97
     extension fees
     (large entity)
    Patent extension
     fees (small
     entity)
    215                 Extension for response within        $55.00      $920,697        0.16
                         first month
    216                 Extension for response within        185.00     1,630,439        0.28
                         second month
    217                 Extension for response within        435.00     4,901,266        0.85
                         third month
    218                 Extension for response within        680.00       681,674        0.12
                         fourth month
    =========================================================================================
    Total patent                                                       $8,134,076        1.41
     extension fees
     (small entity)
    Total patent                                                      $48,369,769        8.38
     extension fees
    Patent appeal fees
     (large entity)
    119                 Notice of appeal                    $280.00    $3,650,465        0.63
    120                 Filing a brief in support of         280.00     1,418,636        0.25
                         an appeal
    121                 Request for oral hearing             240.00       311,503        0.05
    Total patent                                                       $5,380,604        0.93
     appeal fees
     (large entity)
    Patent appeal fees
     (small entity)
    219                 Notice of appeal                    $140.00      $535,305        0.09
    220                 Filing a brief in support of         140.00       230,844        0.04
                         an appeal
    221                 Request for oral hearing             120.00        52,330        0.01
    =========================================================================================
    Total patent                                                         $818,479        0.14
     appeal fees
     (small entity)
    =========================================================================================
    Total patent                                                       $6,199,083        1.07
     appeal fees
    Patent revival
     fees (large
     entity)
    140                 Petition to revive                  $110.00       $32,058        0.01
                         unavoidably abandoned
                         application
    141                 Petition to revive                 1,210.00     2,140,180        0.37
                         unintentionally abandoned
                         application
    =========================================================================================
    Total patent                                                       $2,172,238        0.38
     revival fees
     (large entity)
    =========================================================================================
    Patent revival
     fees (small
     entity)
    240                 Petition to revive                   $55.00       $33,161        0.01
                         unavoidably abandoned
                         application
    241                 Petition to revive                   605.00       753,189        0.13
                         unintentionally abandoned
                         application
    =========================================================================================
    Total patent                                                         $786,350        0.14
     revival fees
     (small entity)
    =========================================================================================
    Total patent                                                       $2,958,588        0.52
     revival fees
    Statutory
     disclaimer fees
    148                 Statutory disclaimer (large         $110.00      $592,634        0.10
                         entity)
    248                 Statutory disclaimer (small           55.00       155,266        0.03
                         entity)
    =========================================================================================
    Total statutory                                                      $747,900        0.13
     disclaimer fees
    =========================================================================================
    Other patent
     processing fees
    111                 Extension of patent term          $1,030.00       $41,075        0.01
    112                 Requesting publication of            840.00        31,153        0.01
                         Statutory Invention
                         Registration prior to
                         examiner's action
    113                 Requesting publication of          1,690.00        83,377        0.01
                         Statutory Invention
                         Registration after
                         examiner's action
    122                 Petitions to the                     130.00     1,853,081        0.32
                         commissioner, unless
                         otherwise specified
    126                 Submission of an information         210.00     2,546,562        0.44
                         disclosure statement
    138                 Petition to institute a            1,390.00         5,480        0.00
                         public use proceeding
    139                 Non-English specification            130.00        94,419        0.02
    145                 Certificate of correction            100.00       565,172        0.10
    147                 Filing a request for               2,320.00       862,997        0.15
                         reexamination
    =========================================================================================
    Total other patent                                                 $6,083,316        1.06
     processing fees
    Patent Cooperation
     Treaty
     application fees
     (large entity)
    956                 International Preliminary           $660.00      $244,906        0.04
                         Examining Authority--U.S.
    958                 International Searching              730.00        60,825        0.01
                         Authority--U.S.
    960                 PTO is not International             980.00       737,127        0.13
                         Searching Authority or
                         International Preliminary
                         Examining Authority
    962                 Claims meet Patent                    92.00        13,448        0.00
                         Cooperation Treaty Article
                         33(1)-(4)--International
                         Preliminary Examining
                         Authority--U.S.
    964                 Claims--extra independent             76.00       352,804        0.06
                         (over 3)
    966                 Claim--extra total (over 20)          22.00       618,319        0.11
    968                 Claims--multiple dependent           240.00       406,912        0.07
    970                 For filing with European             850.00     5,600,936        0.97
                         Patent Office or Japanese
                         Patent Office search report
    154                 Oath or declaration after 20         130.00       414,495        0.07
                         or 30 months from priority
                         date
    =========================================================================================
    Total Patent                                                       $8,449,772        1.46
     Cooperation
     Treaty
     application fees
     (large entity)
    Patent Cooperation
     Treaty
     application fees
     (small entity)
    957                 International Preliminary           $330.00       $50,287        0.01
                         Examining Authority--U.S
    959                 International Searching              365.00        26,682        0.00
                         Authority--U.S.
    961                 PTO is not International             490.00       341,685        0.06
                         Searching Authority or
                         International Preliminary
                         Examining Authority
    963                 Claims meet Patent                    46.00         3,280        0.00
                         Cooperation Treaty Article
                         33(1)-(4)--International
                         Preliminary Examining
                         Authority--U.S.
    965                 Claims--extra independent             38.00        45,385        0.01
                         (over 3)
    967                 Claim--extra total (over 20)          11.00        98,098        0.02
    969                 Claims--multiple dependent           120.00        49,357        0.01
    971                 For filing with European             425.00       703,191        0.12
                         Patent Office or Japanese
                         Patent Office search report
    254                 Oath or declaration after 20          65.00        76,082        0.01
                         or 30 months from priority
                         date
    =========================================================================================
    Total Patent                                                       $1,394,047        0.24
     Cooperation
     Treaty
     application fees
     (small entity)
    =========================================================================================
    Total Patent                                                       $9,843,819        1.70
     Cooperation
     Treaty
     application
     filing fees
    Patent Cooperation
     Treaty processing
     fees
    150                 Patent Cooperation Treaty           $210.00    $3,345,943        0.58
                         transmittal fee
    151                 Patent Cooperation Treaty            640.00       388,476        0.07
                         search fee --no U.S.
                         application
    152                 Supplemental search per              180.00       252,300        0.04
                         additional invention
    153                 Patent Cooperation Treaty            420.00     3,666,851        0.63
                         search fee --prior U.S.
                         application
    155                 Patent Cooperation Treaty--        Variable        15,512        0.00
                         late payment fee
    156                 English translation--after 20        130.00        36,341        0.01
                         months
    157                 Patent Cooperation Treaty--        Variable        49,368        0.01
                         designation confirmation fee
    159                 Overpayments--Patent                               46,103        0.01
                         Cooperation Treaty
    190                 Preliminary examination fee-         460.00     3,478,187        0.60
                         -International Searching
                         Authority was the U.S.
    191                 Preliminary examination fee-         690.00       694,321        0.12
                         -International Searching
                         Authority not the U.S.
    192                 Additional invention--               140.00        76,692        0.01
                         International Searching
                         Authority was the U.S.
    193                 Additional invention--               240.00         1,360        0.00
                         International Searching
                         Authority not the U.S.
    =========================================================================================
    Total Patent                                                  <  b>$12,051,45        2.08
     Cooperation                                                                4
     Treaty processing
     fees
    =========================================================================================
    Total Patent                                                      $21,895,273        3.78
     Cooperation
     Treaty
     application and
     processing fees
    Patent service
     fees
    561                 Printed copy of patent w/o            $3.00    $2,961,287        0.51
                         color, regular service
    562                 Printed copy of patent w/o             6.00         7,279        0.00
                         color, overnight delivery to
                         PTO box or overnight fax
    563                 Printed copy of patent w/o            25.00         6,617        0.00
                         color, ordered via expedited
                         mail or fax, expedited
                         service
    564                 Printed copy of plant patent,         12.00        20,215        0.00
                         in color
    565                 Copy of utility patent or             24.00           834        0.00
                         Statutory Invention
                         Registration, with color
                         drawings
    566                 Certified or uncertified copy         12.00       923,499        0.16
                         of patent application as
                         filed, regular service
    567                 Certified or uncertified copy         24.00       437,799        0.08
                         of patent application as
                         filed, expedited local
                         service
    568                 Certified or uncertified copy        150.00       156,046        0.03
                         of patent-related file
                         wrapper and contents
    569                 Certified or uncertified copy         25.00       175,902        0.03
                         of document, unless
                         otherwise provided
    570                 For assignment records,               25.00       305,648        0.05
                         abstract of title and
                         certification, per patent
    571                 Library service                       50.00           200        0.00
    572                 List of U.S. patents and               3.00           192        0.00
                         Statutory Invention
                         Registrations in subclass
    573                 Uncertified statement                 10.00         6,770        0.00
                         regarding status of
                         maintenance fee payments
    574                 Copy of non-U.S. Document             25.00        69,128        0.01
    575                 Comparing and certifying              25.00        52,118        0.01
                         copies, per document, per
                         copy
    576                 Additional filing receipt,            25.00        20,578        0.00
                         duplicate or corrected due
                         to applicant error
    577                 Filing a disclosure document          10.00       219,570        0.04
    578                 Local delivery box rental,            50.00         4,948        0.00
                         per annum
    579                 International type search             40.00           955        0.00
                         report
    580                 Self-service copy charge, per          0.25     3,965,313        0.69
                         page
    581                 Recording each patent                 40.00     7,844,060        1.36
                         assignment, agreement or
                         other paper, per property
    583                 Publication in official               25.00         3,175        0.00
                         gazette
    584                 Labor charge for services,            30.00        51,897        0.01
                         per hour or fraction thereof
    585                 Unspecified other services                        170,326        0.03
    586                 Retaining abandoned                  130.00        27,975        0.00
                         application
    587                 Handling fee for incomplete          130.00        26,155        0.00
                         or improper application
    588                 Automated Patent Search               40.00       806,589        0.14
                         System text terminal session
                         time, per hour
    589                 Handling fee for withdrawal          130.00           582        0.00
                         of Statutory Invention
                         Registration
    590                 Patent coupons                         3.00     1,023,519        0.18
    591                 Automated Patent Search               15.00         1,644        0.00
                         System text terminal session
                         time at the PTDLs, per hour
    592                 Automated Patent Search               50.00        -9,295        0.00
                         System--Classified Search
                         and Retrieval terminal
                         session time, per hour
    =========================================================================================
    Total patent                                                  <  b>$19,281,52        3.33
     service fees                                                               5
    Patent attorney
     enrollment fees
    609                 Admission to examination            $300.00      $628,080        0.11
    610                 Registration to practice             100.00       110,027        0.02
    611                 Reinstatement to practice             15.00         1,650        0.00
    612                 Copy of certification of good         10.00         1,317        0.00
                         standing
    613                 Certificate of good standing-         20.00           250        0.00
                         -suitable for framing
    615                 Review of decision of                130.00         1,040        0.00
                         Director, Office of
                         Enrollment and Discipline
    616                 Regrading an examination             130.00        15,355        0.00
    =========================================================================================
    Total patent                                                         $757,719        0.13
     attorney
     enrollment fees
    =========================================================================================
    Miscellaneous
     service fees
    607                 Establish deposit account            $10.00          $710        0.00
    608                 Service charge for below              25.00        79,232        0.01
                         minimum balance
    617                 Processing returned checks            50.00        19,045        0.00
    618                 Computer records at costs                         954,665        0.17
                        Unspecified patent fees                         1,378,329        0.24
    =========================================================================================
    Total                                                              $2,431,981        0.42
     miscellaneous
     service fees
    =========================================================================================
    Total patent                                                     $577,699,829       99.98
     fees\a
    -----------------------------------------------------------------------------------------
    \a Percent does not equal to 100 because of rounding.

    Source:  Patent and Trademark Office; GAO's computations.

    PATENT FEES FOR FISCAL YEAR 1997
    ========================================================= Appendix III

    Type of fee and fee
    code                 Fee title                                            Fee per service
    -------------------  ------------------------------------------------  ------------------
    101                  Basic filing fee--utility                                    $770.00
    102                  Independent claims in excess of 3                              80.00
    103                  Claims in excess of 20                                         22.00
    104                  Multiple dependent claim                                      260.00
    105                  Surcharge--late filing fee or oath or                         130.00
                          declaration
    106                  Design filing fee                                             320.00
    107                  Plant filing fee                                              530.00
    108                  Reissue filing fee                                            770.00
    109                  Reissue independent claims over original patent                80.00
    110                  Reissue claims in excess of 20 and over original               22.00
                          patent
    Patent filing fees
     (small entity)
    201                  Basic filing fee--utility                                     385.00
    202                  Independent claims in excess of 3                              40.00
    203                  Claims in excess of 20                                         11.00
    204                  Multiple dependent claim                                      130.00
    205                  Surcharge--late filing fee or oath or                          65.00
                          declaration
    206                  Design filing fee                                             160.00
    207                  Plant filing fee                                              265.00
    208                  Reissue filing fee                                            385.00
    209                  Reissue independent claims over original patent                40.00
    210                  Reissue claims in excess of 20 and over original               11.00
                          patent
    Patent issue fees
     (large entity)
    142                  Utility issue fee                                           1,290.00
    143                  Design issue fee                                              440.00
    144                  Plant issue fee                                               650.00
    Patent issue fees
     (small entity)
    242                  Utility issue fee                                             645.00
    243                  Design issue fee                                              220.00
    244                  Plant issue fee                                               325.00
    Patent maintenance
     fees (large
     entity)
    183                  Due at 3.5 years                                            1,020.00
    184                  Due at 7.5 years                                            2,050.00
    185                  Due at 11.5 years                                           3,080.00
    186                  Surcharge--late payment within 6 months                       130.00
    Patent maintenance
     fees (small
     entity)
    283                  Due at 3.5 years                                              510.00
    284                  Due at 7.5 years                                            1,025.00
    285                  Due at 11.5 years                                           1,540.00
    286                  Surcharge--late payment within 6 months                        65.00
    Patent maintenance
     fees regardless of
     entity
    187                  Surcharge--late payment is unavoidable                        680.00
    188                  Surcharge--late payment is unintentional                    1,600.00
    Patent extension
     fees (large
     entity)
    115                  Extension for response within first month                     110.00
    116                  Extension for response within second month                    390.00
    117                  Extension for response within third month                     930.00
    118                  Extension for response within fourth month                  1,470.00
    Patent extension
     fees (small
     entity)
    215                  Extension for response within first month                      55.00
    216                  Extension for response within second month                    195.00
    217                  Extension for response within third month                     465.00
    218                  Extension for response within fourth month                    735.00
    Patent appeal fees
     (large entity)
    119                  Notice of appeal                                              300.00
    120                  Filing a brief in support of an appeal                        300.00
    121                  Request for oral hearing                                      260.00
    Patent appeal fees
     (small entity)
    219                  Notice of appeal                                              150.00
    220                  Filing a brief in support of an appeal                        150.00
    221                  Request for oral hearing                                      130.00
    Patent revival fees
     (large entity)
    140                  Petition to revive unavoidably abandoned                      110.00
                          application
    141                  Petition to revive unintentionally abandoned                1,290.00
                          application
    Patent revival fees
     (small entity)
    240                  Petition to revive unavoidably abandoned                       55.00
                          application
    241                  Petition to revive unintentionally abandoned                  645.00
                          application
    Statutory
     disclaimers
    148                  Statutory disclaimer (large entity)                           110.00
    248                  Statutory disclaimer (small entity)                            55.00
    Other patent
     processing fees
    111                  Extension of term of patent under 1.740                     1,090.00
    111                  Initial application for interim extension under               410.00
                          1.790
    111                  Subsequent application for interim extension                  210.00
                          under 1.790
    112                  Requesting publication of Statutory Invention                 900.00
                          Registration--prior to examiner's action
    113                  Requesting publication of Statutory Invention               1,790.00
                          Registration--after examiner's action
    122                  Petitions to the Commissioner, unless otherwise               130.00
                          specified
    126                  Submission of an information disclosure                       230.00
                          statement
    138                  Petition to institute a public use proceeding               1,470.00
    139                  Non-English specification                                     130.00
    145                  Certificate of correction                                     100.00
    147                  Filing a request for reexamination                          2,460.00
    146                  Filing a submission after final rejection (large              770.00
                          entity)
    246 F                iling a submission after final rejection (small               385.00
                          entity)
    149                  Per additional invention to be examined (large                770.00
                          entity)
    249                  Per additional invention to be examined (small                385.00
                          entity)
    Patent Cooperation
     Treaty application
     fees (large
     entity)
    956                  International Preliminary Examining Authority--               700.00
                          U.S
    958                  International Searching Authority--U.S.                       770.00
    960                  PTO is not International Searching Authority or             1,040.00
                          International Preliminary Examining Authority
    962                  Claims meet Patent Cooperation Treaty Article                  96.00
                          33(1)-(4)--International Preliminary Examining
                          Authority--U.S.
    964                  Claims--extra independent (over 3)                             80.00
    966                  Claims--extra total (over 20)                                  22.00
    968                  Claims--multiple dependent                                    260.00
    970                  For filing with European Patent Office or                     910.00
                          Japanese Patent Office search report
    154                  Oath or declaration after 20 or 30 months from                130.00
                          priority date
    Patent Cooperation
     Treaty application
     fees (small
     entity)
    957                  International Preliminary Examining Authority--               350.00
                          U.S
    959                  International Searching Authority--U.S.                       385.00
    961                  PTO is not International Searching Authority or               520.00
                          International Preliminary Examining Authority
    963                  Claims meet Patent Cooperation Treaty Article                  48.00
                          33(1)-(4)--International Preliminary Examining
                          Authority--U.S.
    965                  Claims--extra independent (over 3)                             40.00
    967                  Claims--extra total (over 20)                                  11.00
    969                  Claims--multiple dependent                                    130.00
    971                  For filing with European Patent Office or                     455.00
                          Japanese Patent Office search report
    254                  Oath or declaration after 20 or 30 months from                 65.00
                          priority date
    Patent Cooperation
     Treaty processing
     fees
    150                  Patent Cooperation Treaty transmittal fee                     230.00
    151                  Patent Cooperation Treaty search fee--no U.S .                680.00
                          application
    152                  Supplemental search per additional invention                  200.00
    153                  Patent Cooperation Treaty search fee--prior U.S.              440.00
                          application
    156                  English translation--after 20 months                          130.00
    190                  Preliminary examination fee--International                    480.00
                          Searching Authority was the U.S.
    191                  Preliminary examination fee--International                    730.00
                          Searching Authority not the U.S.
    192                  Additional invention--International Searching                 140.00
                          Authority was the U.S.
    193                  Additional invention--International Searching                 260.00
                          Authority not the U.S.
    Patent service fees
    561                  Printed copy of patent w/o color, regular                       3.00
                          service
    562                  Printed copy of patent w/o color, delivery to                   6.00
                          PTO box or overnight fax
    563                  Printed copy of patent w/o color, ordered via                  25.00
                          expedited mail or fax, expedited service
    564                  Printed copy of plant patent, in color                         12.00
    565                  Copy of utility patent or SIR, with color                      24.00
                          drawings
    566                  Certified or uncertified copy of patent                        15.00
                          application as filed, regular service
    567                  Certified or uncertified copy of patent                        30.00
                          application as filed, expedited local service
    568                  Certified or uncertified copy of patent--                     150.00
                          related file wrapper and contents
    569                  Certified or uncertified copy of document,                     25.00
                          unless otherwise provided
    570                  For assignment records, abstract of title and                  25.00
                          certification, per patent
    571                  Library service                                                50.00
    572                  List of U.S. patents and Statutory Invention                    3.00
                          Registrations in subclass
    573                  Uncertified statements re status of maintenance                10.00
                          fee payments
    574                  Copy of non-U.S. Document                                      25.00
    575                  Comparing and certifying copies, per document,                 25.00
                          per copy
    576                  Additional filing receipt, duplicate or                        25.00
                          corrected due to applicant error
    577                  Filing a disclosure document                                   10.00
    578                  Local delivery box rental, per annum                           50.00
    579                  International type search report                               40.00
    580                  Self-service copy charge, per page                              0.25
    581                  Recording each patent assignment, agreement or                 40.00
                          other paper, per property
    583                  Publication in official gazette                                25.00
    584                  Labor charge for services, per hour or fraction                30.00
                          thereof
    585                  Unspecified expedited services                               At cost
    586                  Retaining abandoned application                               130.00
    587                  Handling fee for incomplete or improper                       130.00
                          application
    588                  Automated Patent Search System--text terminal                  40.00
                          session time, per hour
    589                  Handling fee for withdrawal of Statutory                      130.00
                          Invention Registration
    590                  Patent coupons                                                  3.00
    592                  Automated Patent Search System--Classified                     50.00
                          Search and Image Retrieval terminal session
                          time, per hour
    Patent attorney
     enrollment fees
    609                  Admission to examination                                       40.00
    610                  Registration to practice                                      100.00
    611                  Reinstatement to practice                                      40.00
    612                  Copy of certification of good standing                         10.00
    613                  Certificate of good standing--suitable for                     20.00
                          framing
    615                  Review of decision of Director, Office of                     130.00
                          Enrollment and Discipline
    616                  Regarding an examination                                      225.00
    Miscellaneous
     service fees
    607                  Establish deposit account                                      10.00
    608                  Service charge for below minimum balance                       25.00
    617                  Processing returned checks                                     50.00
    618                  Computer records                                             At cost
    -----------------------------------------------------------------------------------------
    Source:  PTO.

    COMPARISON OF PATENT FEES FOR PTO,
    JAPANESE PATENT OFFICE, AND
    EUROPEAN PATENT OFFICE
    ========================================================== Appendix IV

                                         Fees to       Fees to
                                          obtain      maintain
    PTO                                 patent\a        patent  Total fees
    ------------------------------  ------------  ------------  ----------
    Large entity                          $2,060        $6,150      $8,210
    Small entity                          $1,030        $3,075      $4,105
    Japanese Patent Office                  $985       $10,230     $11,215
    European Patent Office
    One country                           $4,942        $2,121      $7,063
    Eight countries\b                     $6,546       $71,047     $77,593
    All countries                         $8,608      $117,515    $126,123
    ----------------------------------------------------------------------
    Notes:  Foreign currency exchange rates based on Oct.  1996 average.
    Fees as used in this table are the fees paid to the agency and do not
    include external fees such as attorneys' fees.  The European Patent
    Office has reported that its fees are scheduled to be adjusted
    downward on July 1, 1997.

    \a The fees to obtain a patent include all basic fees from filing
    application to grant of patent.

    \b In the European Patent Office, additional fees must be paid for
    each country designated.  The average number of member states
    designated for each European Patent Office application was 7.9 in
    1995.  Thus, we made our calculation using the fees for the eight
    member states that were designated most often in 1995.

    Source:  PTO; GAO's calculations.

    COMPARISON OF PATENT PENDENCY BY
    EXAMINATION GROUP FOR PATENTS
    ISSUED OR APPLICATIONS ABANDONED
    DURING FISCAL YEAR 1995
    =========================================================== Appendix V

                                                                Number of    Average pendency
    Group               Description                          applications           in months
    ------------------  -----------------------------  ------------------  ------------------
    1100                General, metallurgical,                    12,835                19.2
                         inorganic, petroleum and
                         electrical chemistry and
                         engineering
    1200                Organic chemistry drug, etc.                9,473                19.3
    1300                Specialized chemical                        8,635                19.4
                         industries, etc.
    1500                High polymer chemistry,                    14,079                19.4
                         plastics, coating,
                         photography, etc.
    1800                Biotechnology                              12,605                21.6
    2100                Industrial electronics,                    10,232                20.9
                         physics, etc.
    2200                Special laws administration                 5,429                24.4
    2300                Computer systems, etc.                      8,701                26.2
    2400                Packages, cleaning, textiles,               8,006                18.9
                         and geometrical instruments
    2500                Electronic/optical systems,                15,431                19.6
                         etc.
    2600                Communications, measuring,                 13,463                22.1
                         testing and lamp/discharge
                         group
    2900                Special designs                            16,134                19.4
    3100                Handling and transporting                   9,121                17.5
                         media
    3200                Material shaping, tools, etc.               9,132                17.7
    3300                Medical technology, sporting               12,186                18.4
                         goods, etc.
    3400                Solar, heat, power and fluid                9,401                17.4
                         engineering devices
    3500                Construction, petroleum and                10,325                18.7
                         mining engineering
                        Not determined                              1,007      Not determined
    =========================================================================================
    Total                                                         186,195                19.8
    -----------------------------------------------------------------------------------------
    Source:  Patent Application Location and Monitoring system, PTO;
    GAO's computations.

    TRADEMARK FEE INCOME RECEIVED BY
    PTO IN FISCAL YEAR 1995
    ========================================================== Appendix VI

    Type of fee and                                       Fee per       Total fee  Percent of
    fee code            Fee title                         service          income       total
    ------------------  -----------------------------  ----------  --------------  ----------
    Trademark
     processing fees
    361                 Application for registration,     $245.00     $48,975,658       71.51
                         per class
    362                 Filing an amendment to allege      100.00         514,920        0.75
                         use under section 1(c), per
                         class
    363                 Filing a statement of use          100.00       2,179,315        3.18
                         under section 1(d)(1), per
                         class
    364                 Filing a request for a 6-          100.00       3,561,243        5.20
                         month extension of time for
                         filing a statement of use
                         under section 1(d)(1), per
                         class
    365                 Application for renewal, per       300.00       2,431,445        3.55
                         class
    366                 Additional fee for late            100.00          88,543        0.13
                         renewal, per class
    367                 Publication of mark under          100.00           6,939        0.01
                         section 12 (c), per class
    368                 Issuing new certificate of         100.00          22,600        0.03
                         registration
    369                 Certificate of correction,         100.00          45,920        0.07
                         registrant's error
    370                 Filing disclaimer to               100.00           1,300        0.00
                         registration
    371                 Filing amendment to                100.00          58,800        0.09
                         registration
    372                 Filing section 8 affidavit,        100.00         305,785        0.45
                         per class
    373                 Filing section 15 affidavit,       100.00          64,860        0.09
                         per class
    374                 Filing combined sections 8         200.00       5,012,103        7.32
                         and 15 affidavit, per class
    375                 Petition to the Commissioner       100.00          92,550        0.14
    376                 Petition for cancellation,         200.00         276,620        0.40
                         per class
    377                 Notice of opposition, per          200.00         903,080        1.32
                         class
    378                 Ex parte appeal, per class         100.00         135,630        0.20
    379                 Dividing an application, per       100.00          67,625        0.10
                         new application, (file
                         wrapper) created
    =========================================================================================
    Total trademark                                                   $64,744,936       94.54
     processing fees
    Trademark service
     fees
    461                 Printed copy of each                $3.00          $4,812        0.01
                         registered mark, regular
                         service
    462                 Printed copy of each                 6.00           1,148        0.00
                         registered mark, overnight
                         delivery to PTO box or
                         overnight fax
    463                 Printed copy of each                25.00             647        0.00
                         registered mark ordered via
                         expedited mail or fax,
                         expedited service
    464                 Certified copy of registered        10.00          84,110        0.12
                         mark, with title and/or
                         status, regular service
    465                 Certified copy of registered        20.00         217,848        0.32
                         mark, with title and/or
                         status, expedited local
                         service
    466                 Certified or uncertified copy       12.00         113,705        0.17
                         of trademark application as
                         filed, regular service
    467                 Certified or uncertified copy       24.00         152,199        0.22
                         of trademark application as
                         filed, expedited local
                         service
    468                 Certified or uncertified copy       50.00          21,719        0.03
                         of trademark-related file
                         wrapper and contents
    469                 Certified or uncertified copy       25.00           5,204        0.01
                         of trademark document,
                         unless otherwise provided
    470                 For assignment records,             25.00          21,648        0.03
                         abstracts of title and
                         certification per
                         registration
    475                 Comparing and certifying            25.00           9,214        0.01
                         copies, per document, per
                         copy
    480                 Self-service copy charge, per        0.25         440,631        0.64
                         page
    481                 Recording trademark                 40.00         661,937        0.97
                         assignment, agreement or
                         other paper, first mark per
                         document
    482                 For second and subsequent           25.00       1,846,515        2.70
                         marks in the same document
    484                 Labor charges for services,         30.00          22,467        0.03
                         per hour or fraction thereof
    485                 Unspecified other services        At cost          60,335        0.09
    488                 Each hour of X-SEARCH               40.00          72,132        0.11
                         terminal session time
    490                 Trademark coupons                    3.00           5,464        0.01
                        Unspecified trademark fees                            125        0.00
    =========================================================================================
    Total trademark                                                    $3,741,860        5.47
     service fees
    =========================================================================================
    Total\a                                                           $68,486,796      100.01
    -----------------------------------------------------------------------------------------
    \a Total percent does not equal 100.00 percent because of rounding.

    Source:  PTO; GAO's computations.

    TRADEMARK FEES FOR FISCAL YEAR
    1997
    ========================================================= Appendix VII

    Type of fee and fee code  Fee title                                       Fee per service
    ------------------------  ---------------------------------------  ----------------------
    Trademark processing
     fees
    361                       Application for registration, per class                 $245.00
    362                       Filing an amendment to allege use under                  100.00
                               section 1(c), per class
    363                       Filing a statement of use under section                  100.00
                               1(d)(1), per class
    364                       Filing a request for a 6 month                           100.00
                               extension of time for filing a
                               statement of use under section
                               1(d)(1), per class
    365                       Application for renewal, per class                       300.00
    366                       Additional fee for late renewal, per                     100.00
                               class
    367                       Publication of mark under section                        100.00
                               12(c), per class
    368                       Issuing new certificate of registration                  100.00
    369                       Certificate of correction, registrant's                  100.00
                               error
    370                       Filing disclaimer to registration                        100.00
    371                       Filing amendment to registration                         100.00
    372                       Filing section 8 affidavit, per class                    100.00
    373                       Filing section 15 affidavit, per class                   100.00
    374                       Filing combined sections 8 and 15                        200.00
                               affidavit, per class
    375                       Petition to the Commissioner                             100.00
    376                       Petition for cancellation, per class                     200.00
    377                       Notice of opposition, per class                          200.00
    378                       Ex parte appeal, per class                               100.00
    379                       Dividing an application, per new                         100.00
                               application, (file wrapper) created
    Trademark service fees
    461                       Printed copy of each registered mark,                     $3.00
                               regular service
    462                       Printed copy of each registered mark,                      6.00
                               overnight delivery to PTO box or
                               overnight fax
    463                       Printed copy of each registered mark                      25.00
                               ordered via expedited mail or fax,
                               expedited service
    464                       Certified copy of registered mark, with                   10.00
                               title and/or status, regular service
    465                       Certified copy of registered mark, with                   20.00
                               title and/or status, expedited local
                               service
    466                       Certified or uncertified copy of                          15.00
                               trademark application as filed,
                               regular service
    467                       Certified or uncertified copy of                          30.00
                               trademark application as filed,
                               expedited local service
    468                       Certified or uncertified copy of                          50.00
                               trademark-related file wrapper and
                               contents
    469                       Certified or uncertified copy of                          25.00
                               trademark document, unless otherwise
                               provided
    470                       For assignment records, abstracts of                      25.00
                               title and certification per
                               registration
    475                       Comparing and certifying copies, per                      25.00
                               document, per copy
    480                       Self service copy charge, per page                         0.25
    481                       Recording trademark assignment,                           40.00
                               agreement or other paper, first mark
                               per document
    482                       For second and subsequent marks in the                    25.00
                               same document
    484                       Labor charges for services, per hour or                   30.00
                               fraction thereof
    485                       Unspecified other services                              At cost
    488                       Each hour of X-SEARCH terminal session                    40.00
                               time
    490                       Trademark coupons                                          3.00
    -----------------------------------------------------------------------------------------
    Source:  PTO.

    COPYRIGHT FEES FOR FISCAL YEAR
    1997
    ======================================================== Appendix VIII

    Fee title                                                                 Fee per service
    ---------------------------------------------------------------------  ------------------
    Application for registration                                                       $20.00
    Application per issue for group serial registration (minimum fee                    10.00
     $20.00)
    Application for group registration of daily newspaper, per month                    40.00
    Application for restoration of copyright under the General Agreements               10.00
     on Tariffs and Trade treaty (minimum fee $20.00)
    Recordation, under section 205, of a document containing no more than               20.00
     one title
    Recordation of additional titles; each group of 10 or fewer                         10.00
    Recordation, under the Uruguay Round Agreements Act, of a notice of                 30.00
     intent to enforce copyright, containing no more than one work
    Additional works contained in the notice of intent to enforce                        1.00
     copyright, each
    Additional certificates, each                                                        8.00
    Any other certification including Copyright Office records, each, per               20.00
     hour
    Search: reports from official records, per hour                                     20.00
    Search: locating Copyright Office records, per hour                                 20.00
    Filing of notice of intent to make and distribute phone records under               12.00
     section 115(b)
    Receipt for deposit, each                                                            4.00
    Special handling for registration                                                  330.00
    Special handling for registration given if a single deposit copy                    50.00
     covers multiple claims and special handling is requested only for
     one
    Special handling for recordation of a document                                     330.00
    Full-term retention of copyright deposits under section 704 (e)                    270.00
    Expedited additional certificate, per hour                                          50.00
    Expedited in-process search, per hour                                               50.00
    Expedited copy of assignment, per hour                                              50.00
    Expedited certification, per hour                                                   50.00
    Expedited copy of deposit stored off-site, first hour                               70.00
    Expedited copy of deposit stored off-site, each additional hour                     50.00
    Expedited copy of correspondence file stored in Madison Building or                 70.00
     at an off-site storage facility, first hour
    Expedited copy of correspondence file stored in Madison Building or                 50.00
     at an off-site storage facility, each additional hour
    Expedited reference and bibliographic search, first hour                           100.00
    Expedited reference and bibliographic search, each additional hour                  50.00
    -----------------------------------------------------------------------------------------
    Source:  Copyright Office.

    COPYRIGHT FEE REVENUES RECEIVED BY
    THE COPYRIGHT OFFICE IN FISCAL
    YEAR 1995
    ========================================================== Appendix IX

                                                    Fee per                        Percent of
    Title                                           service  Total fee income           total
    ---------------------------------------  --------------  ----------------  --------------
    Supplementary information for                    $20.00           $68,386             .46
     registration
    Serial registration                               20.00         1,539,664           10.45
    Literary works registration                       20.00         3,936,280           26.71
    Group daily newspaper registration                40.00            77,080             .52
    Group serial registration                         10.00           267,640            1.82
    Mask works registration                           20.00            18,580             .13
    Motion picture registration                       20.00           355,780            2.41
    Performing arts registration                      20.00         2,833,246           19.22
    Sound recording registration                      20.00           721,173            4.89
    Renewal registration                              20.00           646,882            4.39
    Visual arts registration                          20.00         2,107,476           14.30
    Special handling for registration\a              330.00           838,200            5.69
    Special handling for recordation of a            330.00           193,050            1.31
     document
    Document recordation\b                            20.00           544,569            3.70
    Surcharges for expedited certifications           50.00                               .77
     and reference and bibliographic                                  114,092
     searches, first hour\c
    Certifications\d                                   8.00           123,107             .84
    Searches, per hour                                20.00           194,849            1.32
    Other\e                                        Variable           157,676            1.07
    =========================================================================================
    Total                                                         $14,737,730          100.00
    -----------------------------------------------------------------------------------------
    \a An additional fee of $50 is charged for each claim given special
    handling if a single deposit copy covers multiple claims and special
    handling is requested only for one.

    \b A $10 fee is charged for recording each group of 10 or fewer
    additional titles.

    \c A fee of $70 for the first hour and $50 for each additional hour
    is charged for obtaining copies of correspondence stored at an
    off-site storage facility or at the Madison Building and copies of
    deposits stored off-site.  A surcharge of $100 for the first hour and
    $50 for each additional hour is charged for expedited reference and
    bibliographic searches.

    \d A $20 per hour fee is charged for additional certifications.

    \e This includes various fees collected for miscellaneous services,
    such as making copies and inspecting records.

    Source:  Copyright Office.

    COPYRIGHT OFFICE'S ANALYSIS
    SHOWING FEES REQUIRED FOR SELF
    SUFFICIENCY
    =========================================================== Appendix X

    In September 1996, the Senate Committee on the Judiciary held a
    hearing on S.  1961, the Omnibus Patent Act of 1996.  Among other
    things, S.  1961 would have moved the Copyright Office with PTO into
    a new Intellectual Property Organization and would have made the
    Copyright Office self-sustaining through fees.  In the hearings, the
    Register of Copyrights opposed making the Copyright Office
    self-sufficient, stating that fees would increase fivefold and
    applications would decrease.  This position was based on one scenario
    taken from an analysis the Copyright Office had made that considered
    fees under 12 scenarios.  The entire analysis is reprinted in the
    following sections, using the Copyright Office's own terminology.

                                        Table X.1

                         Financial Impacts of Separation Expenses
                         in Fiscal Year 1997 for Copyright Basic

                                                      Current     Independent  Outsi
                                                 Organization    Agency in LC  de LC
    -------------  ----------------------------  ------------  --------------  -----
    Personals      Salaries and Benefits          $22,750,000   $21,900,000\a  $21,9
                                                                               00,00
                                                                                0\a
                   Increased Staffing for                                      2,000
                    Automation                                                 ,000\
                                                                                 b
                   Mandatory Pay Increases          1,000,000       1,000,000  1,000
                                                                               ,000
    Non            Non Automation                   1,600,000     1,500,000\d  1,700
     Personals\c                                                               ,000\
                                                                                 e
                   Automation                         240,000         240,000  2,240
                                                                               ,000\
                                                                                 f
    Overhead\g                                            ***     8,700,000\h  6,000
                                                                               ,000
    Facilities     Office, Light Industrial &             ***       230,000\i  5,000
                    Warehouse                                                  ,000\
                                                                                 j
                   Security                               ***                  80,00
                                                                                0\k
    Relocation     Moving                                                      80,00
     Costs\l                                                                     0
                   Furnishings\m                                               2,500
                                                                               ,000
                   Telephones\n                                                1,300
                                                                               ,000
                   Security\o                                                  840,0
                                                                               00\p
                   Increased Printing                                          250,0
                                                                               00\q
    Total          $                             25,590,000 $    33,570,000 $  44,89
                                                                               0,000
    --------------------------------------------------------------------------------
    *** Provided by the Library

    \a Assumes that Copyright Acquisitions Division ($701,000) and
    Compliance Records Unit ($144,300) are transferred to the Library.

    \b Replaces automation staff support lost as a result of separation
    from the Library.

    \c Less the $2,340,000 appropriated for GATT for fiscal 1996 and
    1997.

    \d Non personals of $67,624 (8% x 845,300) deducted for Copyright
    Acquisitions Division and Compliance Records Unit.

    \e $170,000 increase for two contracts:  $9,400 ($185 per week x 52)
    to send deposits to storage, and $160,000 ($40,000 x 4) for minimum
    security staffing.

    \f $2 million increase for mainframe and server processing.

    \g Personnel, Financial and Health Services, Procurement and
    Contracting Support.

    \h The Library's overhead rate of 21.4% applied to Copyright's
    appropriation of $27,828,000 = $5,955,192 + $2.7 million for the
    Library's estimate of Copyright automation expenses.

    \i The Library calculates Copyright's space usage at $7.6 million.
    $230,000 is for Landover warehouse space, and $7.4 million (147,725
    sq.  ft.  @ $50 per sq.  ft.) is Madison space.  The space usage in
    Madison is a "beneficial occupancy" and should not be assessed.

    \j Facility costs calculated at the General Service Administration's
    rate of $32 per sq.  ft.

    \k Annual maintenance cost.

    \l $5 million.

    \m $5,000 x 500 for workstations + $100 x 500 for file cabinets.

    \n Equipment $250,000, switch $500,000, and wiring 500,000.

    \o Startup costs for knogo gates ($55,000), cameras, and card
    readers, and intrusive detection system.

    \p Electronic ($840,000) and non electronic ($80,000).

    \q Reprinting costs for registration forms, circulars, and stationery
    to include address change.

    Source:  Copyright Office.

                                            Table X.2

                                Fee Per Registration for Full Cost
                                  Recovery Current Organization

                 Year 1    Year 2    Year 1    Year 2    Year 1    Year 2    Year 1    Year 2
                    30%       15%       20%       10%       10%        5%        5%      2.5%
    ---------  --------  --------  --------  --------  --------  --------  --------  --------
    Expenses   $25,590,  $25,590,  $25,590,  $25,590,  $25,590,  $25,590,  $25,590,  $25,590,
                    000       000       000       000       000       000       000       000
    Less             -$        -$        -$        -$        -$        -$        -$        -$
     Other     2,000,00  2,000,00  2,000,00  2,000,00  2,000,00  2,000,00  2,000,00  2,000,00
     Service          0         0         0         0         0         0         0         0
     Fees
    Plus                        $                   $                   $                   $
     Mandator            1,000,00            1,000,00            1,000,00            1,000,00
     ies                        0                   0                   0                   0
    Adj.       $23,590,  $24,590,  $23,590,  $24,590,  $23,590,  $24,590,  $23,590,  $24,590,
     Expenses       000       000       000       000       000       000       000       000
    Registrat   420,000   357,000   480,000   432,000   540,000   513,000   570,000   555,750
     ions
    Fee Per         $56       $69       $49       $57       $44       $48       $41       $44
     Registra
     tion
    -----------------------------------------------------------------------------------------
    Assumptions:
    Congress mandates full cost recovery.
    Enactment of legislation authorizing fee increases.
    Fiscal 1997.
    Year 1 expenses include $1 million for mandatory pay increases.
    Current registrations (600,000) decrease when fees are increased.
    Other fees are level.

    Source:  Copyright Office.

                                            Table X.3

                               Fees Per Registration for Full Cost
                                Recovery Independent Agency in the
                                Library without Offsetting Credits

                                                                                       Year 2
                 Year 1    Year 2    Year 1    Year 2    Year 1    Year 2    Year 1      2.5%
               30% Loss  15% Loss  20% Loss  10% Loss  10% Loss   5% Loss   5% Loss      Loss
    ---------  --------  --------  --------  --------  --------  --------  --------  --------
    Expenses   $33,570,  $33,570,  $33,570,  $33,570,  $33,570,  $33,570,  $33,570,  $33,570,
                    000       000       000       000       000       000       000       000
    Less       $2,000,0  $2,000,0  $2,000,0  $2,000,0  $2,000,0  $2,000,0  $2,000,0  $2,000,0
     Other           00        00        00        00        00        00        00        00
     Service
     Fees
    Mandatory            $1,000,0            $1,000,0            $1,000,0            $1,000,0
     Pay                       00                  00                  00                  00
     Increase
    Adj.       $31,570,  $32,570,  $31,570,  $32,570,  $31,570,  $32,570,  $31,570,  $32,570,
     Expenses       000       000       000       000       000       000       000       000
    Registrat   420,000   357,000   480,000   432,000   540,000   513,000   570,000   555,750
     ions
    Fees Per        $75       $91       $66       $75       $62       $63       $55       $59
     Registra
     tion
    -----------------------------------------------------------------------------------------
    Assumptions:
    Congress mandates full cost recovery.
    Enactment of legislation authorizing fee increases.
    Fiscal 1997 Expenses.
    Year 1 expenses include $1 million for mandatory pay increases.
    LC charges for overhead and facilities and there is no credit for
    value deposits.
    Current registrations (600,000) decrease when fees are increased.
    Other fees are level.

    Source:  Copyright Office.

                                            Table X.4

                               Fees Per Registration for Full Cost
                              Recovery Copyright Office Outside the
                                             Library

                                                                                       Year 2
                 Year 1    Year 2    Year 1    Year 2    Year 1    Year 2    Year 1      2.5%
               30% Loss  15% Loss  20% Loss  10% Loss  10% Loss   5% Loss   5% Loss      Loss
    ---------  --------  --------  --------  --------  --------  --------  --------  --------
    Expenses   $44,890,  $39,890,  $44,890,  $39,890,  $44,890,  $39,890,  $44,890,  $39,890,
                    000       000       000       000       000       000       000       000
    Less              -         -         -         -         -         -         $         $
     Other     $2,000,0  $2,000,0  $2,000,0  $2,000,0  $2,000,0  $2,000,0  2,000,00  2,000,00
     Service         00        00        00        00        00      00 -       0 -         0
     Fees
    Plus                 $1,000,0            $1,000,0            $1,000,0                   $
     Mandator                  00                  00                  00            1,000,00
     ies                                                                                    0
    Adj.       $42,890,  $38,890,  $42,890,  $38,890,  $42,890,  $38,890,  $42,890,  $38,890,
     Expenses       000       000       000       000       000       000       000       000
    Registrat   420,000   357,000   480,000   432,000   540,000   513,000   570,000   555,750
     ions
    Fees Per       $102      $109       $89       $90       $79       $76       $75       $70
     Registra
     tion
    -----------------------------------------------------------------------------------------
    Assumptions:
    Congress Mandates Full Cost Recovery.
    Fiscal 1997.
    Year 1 expenses include $1 million for mandatory pay increases.
    Year 2 expenses are less $5 million relocation costs.
    Enactment of legislation authorizing fee increases.
    Current registrations (600,000) decrease when fees are increased.
    Other fees are level.

    Source:  Copyright Office.

    REGRESSION ANALYSIS OF COPYRIGHT
    APPLICATIONS
    ========================================================== Appendix XI

    This appendix discusses the regression model we developed to examine
    the effect that fee changes have had on copyright applications over
    the past 11 years.\8 We developed a statistical regression model for
    this analysis that examined whether several factors are associated
    with changes in applications.  We found that although applications
    were negatively correlated with fees--that is, fee increases were
    correlated with reduced applications--the primary factor associated
    with the level of applications was the general level of economic
    activity as measured by the Gross Domestic Product (GDP).  The
    discussion in this appendix describes the (1) purpose and limitations
    of the analysis, (2) data sources used, (3) structure of the model,
    and (4) model's results.

    --------------------
    \8 This time period was required by the fact that "receipt of
    claims," or copyright applications, have only been recorded since
    1986.  As such, we used a quarterly model over this 11-year time
    period.  An alternative measure of quantity could have been
    registrations of copyrights, but this would pose some problems.
    First, applications that are rejected because they are incomplete
    probably represent those that are of minimal economic benefit to the
    applicant.  These same applicants are also likely to be the most
    deterred by an increase in the fee.  Thus, registrations are not
    likely to be the best measure to use for studying the effects of fee
    changes.

       PURPOSE AND LIMITATIONS OF THIS
       ANALYSIS
    -------------------------------------------------------- Appendix XI:1

    The primary purpose of this analysis was to measure how copyright
    applications change in response to fee changes.  In order to do this,
    we constructed a regression model that analyzed several factors that
    we hypothesized, on the basis of economic reasoning, would be related
    to the level of copyright applications.  For example, a considerable
    amount of economic literature explores the relationship between
    research and development expenditures and patenting experience.
    While patents would likely be more related to research expenditures,
    we hypothesized that one of the driving factors for copyright
    applications would be the general level of economic activity.  Thus,
    the basic model related applications to the level of economic
    activity, as measured by the GDP, the application fee, and dummy
    variables to control for seasonal variation in applications
    throughout the year.

    An important caveat to this analysis is that there are likely to be
    factors that influence copyright applications that are unknown or
    unmeasurable.  Thus, this model may not be highly predictive.  In
    particular, if we wanted to use the model to predict the effect of
    fee increases on applications, the greater the fee increase we want
    to analyze, the less valid the model would be in predicting the drop
    in applications that would result.  This is because the results of
    econometric models are best used for analyzing the effects of small
    changes in the independent factors.  In this case, however, because
    our model results are stable and statistically significant, the model
    is a reasonable tool for analyzing the effects of larger changes in
    the independent factors, such as fee levels, on the level of
    applications.

       SOURCES FOR DATA
    -------------------------------------------------------- Appendix XI:2

    All data on copyright applications as well as information on
    application fees were obtained from the Copyright Office.  The
    applications data were obtained for total applications and also for
    certain specific categories of applications, as discussed later.
    Additionally, we received information on applications that were
    cancelled because they were not fully paid for after the 1991 fee
    increase.  Data on specific categories of applications and on
    cancellation were available on a fiscal year basis, which required
    that these data to be apportioned for a quarterly model.

    We obtained data on GDP and the implicit price deflator for GDP from
    Data Resources, Inc.

       STRUCTURE OF THE MODEL
    -------------------------------------------------------- Appendix XI:3

    The basic hypothesis underlying this analysis is that copyright
    applications vary over time and that this variation is related to
    changes in the level of macroeconomic activity, the fee charged for
    copyright applications, and seasonal variation in applications over
    the course of the year.  Regarding GDP, we hypothesize that there may
    be a lag in the relationship between GDP and applications.  We also
    hypothesize that because fee increases are usually announced ahead of
    time, applications may surge in the period prior to a higher fee.
    The basic quarterly model is thus:

        Qt\c = f(GDPlag, feet, seasonal dummies, surge),

    where:

    Qt\c is the number of applications submitted in period t, GDPlag is
    the level of real GDP in some lagged time period, fee is the real
    level of the fee in time period t, seasonal dummies are two dummy
    variables for winter and summer, and surge is a dummy variable that
    takes a value of 1 in the quarter before a nominal fee increase and a
    value of zero in all other quarters.

       MEASUREMENT OF DEPENDENT
       VARIABLE
    -------------------------------------------------------- Appendix XI:4

    The measurement of the dependent variable--the number of copyright
    applications per quarter--was not straightforward.  In defining
    applications, we would prefer to use total applications, not
    accounting for different categories of copyrights.  However, for
    three categories of applications, there were "rule changes" in 1991
    that made their inclusion in this analysis problematic.

    First, filings of serials were changed in 1991 so that applicants
    were allowed to bundle several issues over a 3-month period and file
    them together.  In doing so, they were grandfathered in at the old
    fee:  They continued to pay only $10 per issue for the bundled set.
    This caused filings for Class SE, the original serials category, to
    drop after 1991 and a new category called Group SE to be established.
    Unfortunately, however, within one Group SE filing there are a bundle
    of issues and thus the counts over time are reduced not because there
    were necessarily any fewer filings, but because some of them are
    being bundled together.  At the same time, another category, Class
    RE, which are renewals, also had a drop-off in applications because
    renewals became automatic after 1991.\9 We were told by a Copyright
    Office official that in the office's own analyses of applications
    over time, Class RE, Class SE, and Group SE are usually eliminated.

    As suggested by the Copyright Office, we used one measure of
    applications in our model that excluded these three categories.
    However, in an effort to retain the data on serials, which constitute
    a large category of applications, we made an estimate of the number
    of individual issues contained within the average Group SE filing.\10
    Doing this allowed us to estimate an alternative measure of
    applications that only eliminated Class RE from the total number of
    applications filed each quarter.

    For both measures of applications, we also reduced the original
    "receipt of claims" data by the number of cancellations of
    applications that occurred due to lack of full payment of the fee.
    Data on cancellations, available for fiscal years but not quarterly,
    were obtained from the Copyright Office.

    To summarize, there are two measures of applications that we used.
    The first took the total number of applications in a quarter and
    subtracted the number of Class SE, Group SE, Class RE, and cancelled
    (for nonpayment) applications.  The second measure only deleted Class
    RE and cancelled applications but retained Class SE and Group SE by
    estimating the number of issues contained within an average Group SE
    application.

    --------------------
    \9 In particular, after the fee increase in 1991, many applications
    were received that included the pre-1991 application fee.  The
    copyright office followed up with letters asking for an additional
    $10 to process the application.  Many of those additional fees were
    never received.  This is important because it may indicate that the
    applicant was put off by the additional fee and chose to let the
    application be cancelled.  In order to take this into account, the
    total application counts were reduced by the number of cancelled
    applications.

    \10 To estimate the number of issues contained within a Group SE
    filing, we obtained information from the Copyright Office on the
    revenues received for Group SE filings.  Since each issue contained
    within a Group SE filing still retained the $10 fee, we divided the
    revenue figure by 10 to get the number of Group SE filings in each
    year.  This allowed us to retain both Class and Group SE filings in
    the analysis, but it should be noted that since Group SE filings
    still retained the $10 fee, including these applications in the
    analysis poses some conceptual problems.

       MEASUREMENT OF INDEPENDENT
       VARIABLES
    -------------------------------------------------------- Appendix XI:5

    There are five independent variables included in the model.

          REAL GDP
    ------------------------------------------------------ Appendix XI:5.1

    As noted earlier, the theoretical basis for including GDP is that one
    would expect applications to rise and fall with the level of economic
    activity since this may be a factor in determining how many
    copyrightable works are developed.  For example, during an economic
    boom, new magazines might be established, more financing might be
    available for people looking to write a novel, and so forth.
    Conversely, during a recession, newsletters and magazines might
    discontinue publishing, fewer contracts might be let for songwriters,
    and financing for creative projects might be more difficult to
    obtain.  Additionally, since some time might elapse from when
    projects are begun until copyrights are filed, there could be some
    lag between the economic activity that gives rise to copyrights.  We
    found that a lag of 2 quarters was the best relationship.  Therefore,
    the value of GDP entered into the model is real GDP (in 1996 dollars)
    for the period 2 quarters prior to the given quarter of each
    observation.

          APPLICATION FEE
    ------------------------------------------------------ Appendix XI:5.2

    The application fee is the variable of interest in this model.
    Although during the 11 years of this analysis there was only one
    nominal fee increase, inflation was effectively reducing the real fee
    before and then after the nominal fee increase.  We used the implicit
    price deflator for GDP to adjust the nominal fee into a real fee.

          SEASONAL DUMMY VARIABLES
    ------------------------------------------------------ Appendix XI:5.3

    Two variables were calculated with a value of 1 for a particular
    quarter and 0 for all other quarters.  The first of these was for the
    second quarter of the fiscal year, and the second was for the fourth
    quarter of the fiscal year.  Thus, the first variable would measure
    whether applications were systematically higher or lower during
    winter and the second would measure any systematic difference during
    summer.

          SURGE VARIABLE
    ------------------------------------------------------ Appendix XI:5.4

    A dummy variable was established that had a value of 1 for the first
    quarter of the 1991 fiscal year--right before the nominal fee
    increase--and a value of 0 for all other quarters.  This was needed
    because the fee increase was preannounced and, as such, could be
    expected to cause people to rush to file applications in anticipation
    of the higher fee.  This dummy variable is intended to measure any
    effect on applications in the quarter before the announced fee
    increase.

       MODEL RESULTS AND
       INTERPRETATION
    -------------------------------------------------------- Appendix XI:6

    Table XI.1 presents the results of two specifications of the
    model:\11 for specification one the measure of applications was used
    that eliminates Class and Group SE, and the second retains these
    categories.  All continuous variables--the number of applications,
    the fee, and the GDP--are in natural logarithms.

                                   Table XI.1

                        Regression Results for Copyright
                                  Applications

                                             Specification   Specification
    Explanatory factor                                 one             two
    --------------------------------------  --------------  --------------
    Fee, 1996 dollars                          -.09 (-3.7)     -.11 (-4.8)
    2 quarter lag of GDP, 1996 dollars          .92 (10.0)       .73 (8.7)
    Dummy for winter quarter                     .05 (4.4)       .05 (4.9)
    Dummy for summer quarter                   -.03 (-2.7)     -.03 (-2.8)
    Dummy for quarter before fee increase        .13 (3.8)       .12 (3.9)
    Summary statistics
    n                                                   44              44
    Adjusted R-square                                  .80             .77
    ----------------------------------------------------------------------
    Note:  t-statistics are in parentheses.

    Source:  GAO analysis.

    We found all of the independent variables included in this model to
    be statistically significant and have the expected effect.  Moreover,
    results were reasonably stable across the two specifications with
    different measures of the dependent variable.  In particular, our
    results indicate that if fees increase by 1 percent, applications
    would be expected to fall (the coefficient is negative) by about .1
    percent.  Similarly, if GDP rises by 1 percent, applications would be
    expected to rise by somewhat less than 1 percent.  The dummy for the
    quarter before the price rise suggests that there was about a 12 to
    13 percent rise in applications for that quarter because of the
    expected increase in the fee the following quarter.  The seasonal
    dummies show that applications are about 5-percent higher during the
    winter and about 3-percent lower during the summer.  Overall, our
    findings indicate that GDP, or the general level of macroeconomic
    activity, appears to be the driving factor in the level of copyright
    applications over time.  Changes in the real fee have a small but
    statistically significant effect.

    We also want to reemphasize that this model may not be highly
    predictive.  In particular, if we wanted to use the model to predict
    the effect of fee increases on applications, the greater the fee
    increase we want to analyze, the less valid the model would be in
    predicting the drop in applications that will result.  This is
    because the results of econometric models are best used for analyzing
    the effects of small changes in the independent factors.

    (See figure in printed edition.)Appendix XII

    --------------------
    \11 We tested for autocorrelation in this model and found only
    minimal correlation of the error terms.  Results were affected only
    slightly by a correction for autocorrelation.

    COMMENTS FROM THE DEPARTMENT OF
    COMMERCE
    ========================================================== Appendix XI

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    The following are GAO's comments on the Department of Commerce's
    letter dated April 18, 1997.

    1.  In our draft report, we did not include certain miscellaneous
    fees that were not specifically identified as either patent or
    trademark fees.  Upon further review, we agree with the Department
    that these miscellaneous fees should be included as patent fees and
    adjusted the statistics in our report accordingly.

    2.  We revised the executive summary as suggested.

    3.  We did not revise the report as suggested by the Department.  We
    believe the report sufficiently shows throughout that the current
    patent fee system was established by law and that it is intentionally
    designed to recover most costs through issue and maintenance fees.
    The report also notes in chapter 2 and appendix IV that U.S.  patent
    fees are lower than those in Europe and Japan.

    4.  We revised the executive summary to show that trademark income is
    received prior to examination.

    5.  We revised chapter 3 to show that PTO does not accept incomplete
    trademark applications.

    6.  See comment 1.

    7.  We did not revise the report because, as we have noted in earlier
    reports on patent pendency, we believe our statistics--which include
    design patents and calculate pendency for the entire fiscal year
    rather than the end of the last quarter of the fiscal year--provide a
    better appraisal of patent pendency than the statistics reported by
    PTO.

    8.  We revised the executive summary and chapter 2 to emphasize that
    the additional fees charged are not commensurate with the additional
    "pendency" created.  Chapter 2 already made the point that it was not
    possible to make a direct correlation between extension fees and the
    costs of the delays.

    9.  We did not revise the report further than as discussed in comment
    8 because chapter 2 notes that we are discussing only those delays
    for which extension fees are charged rather than all delays.

    10.  We did not revise the executive summary because the point made
    by Commerce is that filer delays should decrease because of the
    change in the patent term.  Our point was that the fees charged do
    not discourage filer delays.

    11.  We revised the executive summary to show that most trademark
    revenues come from statutory fees.

    12.  We agree with Commerce and noted in our conclusions in chapter 2
    that PTO is taking the correct approach with this study.

    13.  We revised the language in chapter 1.

    14.  We revised the language in chapter 1 as suggested.

    15.  We revised the language in chapter 1 as suggested.

    16.  We did not revise the introductory paragraph; however, these
    points are made in the remainder of chapter 2.

    17.  See comment 16.

    18.  We did not revise this section of chapter 2 because it already
    notes that it was the Congress that created different fees for large
    and small entities.

    19.  We did not revise this section of chapter 2 because the purpose
    here is to show only that, after the change in the law, large
    entities would pay twice the amounts charged small entities.

    20.  We revised chapter 2 to clarify that the surcharge fees are not
    excess fees but a replacement for appropriated funds.

    21.  See comment 1.

    22.  We added a paragraph to chapter 2 to show that fiscal year 1995
    had an unusually large number of filings because of the change in the
    patent term and that, correspondingly, filing fees were also
    abnormally high for that year.

    23.  We revised the amount shown as revenues for large entities in
    chapter 2.  However, we did not adjust the percentages shown for
    large and small entities because, after discussions with PTO
    officials, we determined that the percentages we had included were
    correct.

    24.  We revised the language in chapter 2 as suggested.

    25.  We revised the language in chapter 2 to reflect Commerce's
    comment.

    26.  We did not revise the percentage of maintenance fees paid by
    large entities because we determined that the percentage we included
    in our draft report was correct.

    27.  We revised the language in chapter 2 as suggested by Commerce.

    28.  We did not revise the language in chapter 2 because the section
    already notes that the small business categorization was set by law
    and is that used by the Small Business Administration.

    29.  We revised the language in chapter 2 to reflect Commerce's
    comment.

    30.  See comment 8.

    31.  We revised the language in chapter 2 to reflect Commerce's
    comment.  We did not include Commerce's suggested language that most
    government accounting systems cannot provide unit costs for
    particular services because we do not have such information available
    to us on these other systems.

    32.  We revised the language in chapter 2 as suggested by Commerce.

    33.  We revised the language in chapter 2 as suggested by Commerce.

    34.  We did not revise the legal citation.  After discussions with
    PTO officials, we determined that the citation shown in the draft was
    correct.  Public Law 97-247 specifies that trademark fees be used
    exclusively for the processing of trademark registrations and for
    other services and materials related to trademarks.  Public Law
    102-204 modified this provision to allow trademark fees also to be
    used to pay a proportion of overall PTO administrative costs.

    35.  We did not revise the language in chapter 3 as suggested because
    this information is already included in the section.

    36.  See comment 1.

    37.  See comment 1.

    (See figure in printed edition.)Appendix XIII
    COMMENTS FROM THE LIBRARY OF
    CONGRESS
    ========================================================== Appendix XI

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    See comment 2.

    (See figure in printed edition.)

    See comment 4.

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)

    The following are GAO's comments on the Library of Congress's letter
    dated April 16, 1997.

    1.  The Library notes that the Copyright Office obtains funding in
    three ways:  (1) fees set by law or authorized by law to be set by
    the Register, (2) appropriations, and (3) deductions from royalty
    payments.  We do not agree that our report "oversimplifies the fee
    structure," because we made this same point in the report.  We
    included table 4.1 for the specific purpose of comparing fee revenues
    and appropriations since the last statutory fee increase.

    2.  The Library emphasizes that it is the Congress which determines
    how copyright fees should be set and, to date, has chosen to cover
    copyright costs through a combination of fees and appropriations.  As
    the Library acknowledges in its comments, our report makes this same
    point.  It is also important to recognize that our report does not
    make any recommendations to the Congress that fees be raised or that
    the Copyright Office become self-sustaining.  Rather, we point out
    that, in view of the manner in which the Congress has chosen to fund
    the patent and trademark processes--both of which were funded
    partially at one time by appropriations--it may also wish to consider
    making the Copyright office self-sustaining through fees.
    Ultimately, the issue of how the copyright process should be funded
    is a matter of policy that depends on a number of factors and
    requires a decision that only the Congress can make.

    3.  We do not suggest that the Copyright Office has been remiss in
    "pressing for full cost recovery" as the Library states in its
    comments and have added information showing the Copyright Office's
    support for a fee increase.  As we note in our response to comment 2,
    however, we believe this is an issue for the Congress.  We discuss
    the Copyright Office's documented positions on fee increases since
    the last statutory fee increase because we believe the Congress in
    its own deliberations should be aware of the positions the Copyright
    Office has taken on the need for fee increases, the rationales for
    these positions, and our evaluation of these rationales.  Thus, while
    we revised the report to show the Copyright Office has supported the
    need for fee increases, we also believe it is important to discuss
    (1) the opportunity to raise fees to cover inflation in fiscal year
    1995 and (2) the Register's testimony on S.  1961 in September 1996.
    We also cite the Register's position on this issue as discussed with
    us in March 1997 and provide additional information based on our
    discussion with Library officials in April 1997.

    4.  Our report makes repeated references to the legislative history
    of copyright fees and emphasizes that the structure now in place was
    established by the Congress and that the Congress chose to fund the
    Copyright Office with a mixture of fees, royalty payments, and
    appropriations in the past.  The focus of our report is on what has
    occurred since the last statutory fee increase went into effect in
    1991.  We revised the language where appropriate in the report to
    address this point.

    5.  We agree that the legislative history for the most recent
    statutory fee increase indicated a congressional intent to continue
    funding the copyright process through a combination of fees and
    appropriations.  However, as our report illustrates, much has changed
    since the last statutory fee increase, including PTO's having become
    totally dependent on fees.  Our report notes only that, in light of
    these recent events, the Congress may wish to reconsider the manner
    in which the copyright process is to be funded in the future.

    6.  See comments 4 and 5.

    7.  See comments 4 and 5.  We are not questioning the Copyright
    Office's actions related to fee increases in 1976, 1982, 1984, 1987,
    and 1991, when they recognized and supported the need for fee
    increases.  Again, we focus on what has happened since the last
    statutory fee increase.  We have added information showing that the
    Copyright Office currently supports a fee increase.  In discussing
    the decision on increasing fees for inflation, our report notes that
    the Register raised fees for special services.  We also point out
    that the Copyright Office has set a fee of $270 for full-term storage
    of published materials and, in fact, we use this in our discussion of
    the high costs of storing unpublished materials without charging an
    additional fee.

    8.  The Library says that "only once" did the Register choose not to
    raise statutory fees for inflation.  As our report states, this one
    time was the only time the opportunity has arisen since the last
    statutory fee increase.  According to the Copyright Office's own
    study of the need for an inflation adjustment, a fee increase to
    cover inflation would have been cost-effective, yet the Acting
    Register chose only to raise certain discretionary fees.  The Library
    commented in footnote 12 that the report did not note that the fee
    increase, if made, would not have "made fees come close to recovering
    costs." We did not make this statement because, by its very nature,
    an inflation adjustment could not make the Copyright Office
    self-sustaining if it were not self-sustaining before.  Our point in
    this section of chapter 4 is not that an inflation adjustment would
    have made the Copyright Office self-sustaining but rather that the
    increase would have kept the ratio of fees to costs closer to that
    established by the Congress at the point of the last statutory fee
    increase.

    9.  Our report does not attempt to determine the exact cost of the
    copyright process but rather uses the costs that the Copyright Office
    and the Library use in their own documents, including budget
    submissions.  We recognize that the Library may be providing some
    services to the Copyright Office at no cost and that the Copyright
    Office may be incurring costs that are not directly related to the
    copyright process.  For purposes of this report, we consider the
    costs of the copyright process to be those now being covered by
    copyright fees and Copyright Office appropriations.  We also consider
    these costs as the Copyright Office is now configured, not as it
    might have been configured under the provisions of S.  1961.  To
    become self-sustaining as now configured, the Copyright Office would
    have to raise fees to a level that would at least cover
    appropriations of the Copyright Office.

    We also note in our report that the Copyright Office is planning to
    initiate a study to determine the costs of the copyright process and
    the fees that would be necessary to recover these costs.  The results
    from such a study should be beneficial to the Congress if it does
    decide to consider a statutory fee increase.

    10.  See comment 9.  Again, the purpose of our report was not to
    discuss the merits of an agency such as that proposed by S.  1961 but
    rather to show that (1) the scenario presented in the hearing was the
    worst case and (2) the costs and fee increases needed could change
    significantly under various assumptions.  We recognize that, if an
    agency such as that envisioned under S.  1961 had been created,
    decisions would be needed on how to handle certain items now being
    provided to the Copyright Office at no cost.  However, this would
    also seem to be true--as the Library notes in comment 11--for the $13
    million in free materials being provided to the Library by the
    Copyright Office each year.  Thus, if accounting adjustments are
    necessary--a point not necessary for the discussion here--it seems
    that they would have to be made for both the Library and the
    Copyright Office.

    11.  See comment 10.  Our report does not discuss the value of
    deposits acquired through the copyright process because this
    factor--while certainly of importance to the Library and the nation
    as a whole--is not relevant in determining how copyright fees are to
    be set.  Our report points out that a copyright fee increase should
    not materially affect the Library's ability to obtain free copies of
    materials for its collections because (1) by law, the Library still
    has access to anything that is submitted for copyright registration
    or is published in the United States and (2) it rarely takes any
    unpublished materials for its collections.

    12.  Our report does not discuss the fees necessary for recovering
    costs to the government as a whole for the reasons discussed in our
    response to comments 9 and 10.  Our report also does not discuss
    these other costs as they relate to patents and trademarks.  For
    purposes of this report, we use the costs necessary to fund the
    agencies as now configured, using the agencies' own documentation for
    these costs.  The issue of whether there are other intellectual
    property costs--for example, in areas such as treaty negotiation,
    judicial proceedings, Customs protection, etc.--is beyond the scope
    of this report.  Also, our report provides reasons why we disagree
    with the Register's estimates.  We point out that, while these
    estimates were presented as a likely outcome of the Copyright
    Office's becoming self-sustaining under S.  1961, the Register did
    not disclose that they were in fact a worst-case scenario and that
    the Copyright Office had prepared other estimates that would lead to
    other outcomes under other assumptions.  In addition, as noted in the
    report, we do not believe some of these costs were necessarily
    reasonable even under the scenario presented.  For a discussion on
    the Library's point on our regression analysis, see comment 15.

    13.  Our report does not discuss "three- or four-fold increases" in
    fees as reasonable if the Copyright Office were to become a part of
    an IPO, as stated by the Library in its comments.  The proposal to
    make the Copyright Office part of the IPO was withdrawn and, to our
    knowledge, is not now under consideration.  Our report does not
    discuss "increasing fees by more than 100%" because both the Register
    and the Congressional Budget Office (CBO) estimated that the
    Copyright Office could become self-sustaining as now configured by an
    approximate doubling of fees.

    14.  We address the cost projections for S.  1961 in our report
    because (1) these were the projections used by the Register in her
    prepared statement for the hearing before the Senate Committee on the
    Judiciary and (2) S.  1961 was the only proposal to make the
    Copyright Office self-sustaining that had been made--and on which the
    Copyright Office had taken a published position--since the last
    statutory fee increase went into effect in fiscal year 1991.  In
    addition, during the discussion period following the Register's
    testimony, the Chairman questioned the projections and noted that he
    had asked GAO to study the fees issue.  The only fee projection the
    Register made was for a fivefold increase--the worst-case scenario
    developed by the Copyright Office.  We believe that it is important
    for the Committee to know that the Copyright Office had developed 12
    separate scenarios that had different outcomes using different
    assumptions and that the scenario presented at the hearing was not
    only the worst-case scenario but also included costs we consider
    questionable.  Otherwise, the Committee could be left with the
    impression that the fivefold increase is a likely scenario for making
    the Copyright Office self-sustaining.  As we discuss in the report,
    this is not the case, as CBO and the Register herself later said
    that, as presently configured within the Library, the Copyright
    Office could probably become self-sustaining by doubling current
    fees.

    15.  Based on the Library's comments, we believe that it used our
    model inappropriately.  The report states that our regression
    analysis indicates a decrease in applications of about 10 percent in
    the first year if fees were doubled but also that a regression model
    such as the one we used tends not to be as highly predictive at this
    high a level of fee increase.  Consequently, the regression analysis
    would be even less predictive at even higher levels of fee increases.
    As noted by the Library and our report, there is no precedent for fee
    increases beyond 100 percent.

    In discussing the effects of a fee increase on applications, we also
    believe it is important to consider what applications would be
    affected as well as the impact on the Copyright Office and the
    Library.  As noted in our report, for example, Copyright Office
    officials said that some types of applications would be affected more
    than others by a fee increase.  After the most recent statutory fee
    increase, applications for unpublished works decreased at a rate
    higher than published works.  This would seem to limit any
    potentially harmful effects on the Copyright Office and the Library
    because (1) a decrease in unpublished submissions would reduce the
    Copyright Office's workload and storage costs and (2) the Library
    rarely takes unpublished submissions for its collections.  Similarly,
    according to Copyright Office officials, higher fees might cause
    authors and composers to submit works as collections rather than
    individual works.  This would appear to would reduce the Copyright
    Office's workload without reducing the works available to the
    Library.

    16.  We agree that projecting revenues depends on being able to
    project the number of applications and that cost recovery depends
    upon the public's being willing to pay the necessary fees.  However,
    this is true of any process--including patents and trademarks--where
    costs are recovered through user fees.  Thus, it seems appropriate
    for the Congress to consider what it wants to achieve through the
    process and who should pay.  The user then must determine whether the
    benefits are worth the costs.  The real issue here is that, if fees
    are raised to a level necessary to make the Copyright Office
    self-sustaining, there may be uncertainties in projecting the fees
    that will be necessary initially because it may be difficult to
    predict the behavior of applicants.  However, this also would appear
    to have been an issue for PTO as well--whose costs and fees are much
    higher--when it became self-sustaining.  We do not believe that this
    concern should be a bar to the Congress's consideration of funding
    the Copyright Office through fees.

    17.  See comment 16.

    18.  Our report notes that the Register of Copyrights now supports
    making the copyright process self-sustaining within the Library.
    Furthermore, we do not use the term "official policy" in discussing
    the management report cited in the Library's comments.  However, we
    believe that we are correct in citing the findings of the management
    report in our own report.  The official identified in the Library's
    comments as "an advisor to the Librarian" was in fact a senior
    Library official and former Acting Register of Copyrights who was
    detailed by the Librarian to conduct the review of the Copyright
    Office's operations.  The report was provided to us by the advisor
    himself and is identified on its face as a Library of Congress
    document.  There are no references in the report to its being a
    draft, a personal opinion, etc.  The report was used in a discussion
    we held with Copyright Office officials and the advisor as containing
    the positions of the Library, and we were given no caveats on its
    use.  We have clarified our report to show that the management report
    is an internal Library of Congress document.

    19.  The Library states in its comments that the "implication in the
    report that full-cost recovery would be met if Congress's annual
    appropriation of $10 million could be eliminated is simplistic" and
    that there are broader issues at stake regarding who should pay costs
    of a public nature.  We believe that the message in our report is
    accurate as presented:  While the Copyright Office may "support the
    goal of moving toward full-cost recovery," it nevertheless has
    opposed its current costs being totally recovered through fees.  We
    understand the Library's position that there are other costs
    allocated to the Copyright Office that are not directly related to
    the registration process; however, we note that this is also an issue
    for the patent and trademark processes--where costs and fees are much
    higher.

    Also, the Library's comments raise other issues.  For example, it
    appears that there may be questions regarding what costs should be
    allocated to the copyright process.  We agree that, in order to
    determine whether copyright costs should be recovered through fees,
    the costs actually attributable to the copyright process within the
    Library should be identified.  Thus, if (1) the Library is providing
    services to the Copyright Office that are covered by Library-specific
    appropriations and (2) the Copyright Office is providing services
    under its own funding that are not directly related to the copyright
    process, there may be a need for some reallocation--an issue beyond
    the scope of this report.  It is our understanding this issue will be
    addressed in the Copyright Office's planned study of costs and fees
    that, according to Library officials, will help the Copyright Office
    determine what costs should be charged to the copyright process and
    what costs should be recovered through fees.  In the interim--and for
    the purposes of this report--we assumed the costs of the Copyright
    Office were the costs of the copyright process within the Library.
    Consequently, to become self-sustaining as now configured, fees would
    have to be increased to cover amounts now covered by Copyright Office
    appropriations.

    Ultimately, deciding what should be recovered through fees is a
    matter of policy that only the Congress can determine.  As noted by
    the Library in its comments, the Congress in the past has chosen to
    fund the copyright process through a combination of fees and
    appropriated funds.  Our point is that--given the direction the
    Congress has now taken with patent and trademark fees as well as
    proposals by others that copyright fees be raised--the Congress may
    wish to consider this issue again.

    20.  See comments 12 and 19.

    21.  See comment 11.  Our report notes that the Library normally
    takes only copies of published materials for its collections.
    Consequently, the Library's collections should not suffer from a fee
    increase because, even if there is a decrease in applications, the
    Library still would have access to all materials that are submitted
    for registration and is entitled by law to free copies of all works
    published in the United States even if not submitted for
    registration.  In its comments, the Library says that it does not
    believe persons would comply with the provisions of section 407 to
    provide two copies of unregistered publications.  We have no way to
    confirm or dispute this belief.  However, if there is a problem, it
    would require the offending party to decide not to publish, not to
    seek registration, or to ignore the law and face penalties.
    Ultimately, the question is to what extent eliminating the risk is
    worth the cost, and again, this is an appropriate matter for the
    Congress to consider.

    22.  The Copyright Acquisition Division may be an example of a cost
    to the Copyright Office that is not directly tied to the copyright
    process if, as noted in the Library's comments, it "exists for the
    purpose of requesting or demanding deposits not sent in voluntarily
    that are identified as desirable for the Library's collections." If
    not related to the copyright process, this cost might be allocated to
    the Library, thereby reducing by about $1 million the copyright fees
    that would be necessary to recover costs.

    23.  Our report does not intend to imply that the Register "misled
    the Senate Judiciary Committee." Rather, as discussed in our report,
    we do not believe that the fee projections were presented in the
    proper context.  If, as stated in the Library's comments, the
    Register "has an obligation to present to the Congress the worst-case
    scenario that could result from their proposed legislation," we
    believe that the Register also had an obligation to disclose that it
    was in fact the worst-case scenario and that, under different
    assumptions, other less costly scenarios could be projected.
    Instead, her written testimony stated, "(O)ur preliminary analysis
    indicates that, if our operational costs otherwise remained the same,
    becoming self-supporting outside of the Library would entail a
    five-fold increase in fees (from $20 to the $100 range)." During the
    discussion period following the delivery of the prepared statement,
    the Chairman questioned the Register concerning her use of the
    worst-case scenario among many different possibilities.  The Chairman
    also questioned why the Register found the most drastic of all
    estimates provided by the Copyright Office study to be the minimum.
    As noted above, the Chairman also told the Register he had asked GAO
    to look into the fees issue.

    24.  See comment 23.

    25.  We do not question these other scenarios in the report because
    they were not presented at the hearing.  We do not accept them as
    fact but note only that the Register made no mention of them.

    26.  See comments 23, 27, 28, 29, and 30.

    27.  We take no position on the merits of S.  1961.  However, if the
    Copyright Office had problems with the proposed legislation such as
    the one cited--having each of the three agencies cover one-third of
    overhead costs when their overhead-related costs would vary--this is
    the very type of issue that should be surfaced in a hearing such as
    the one held.  In fact, we believe that all of the issues raised in
    the Library's comments regarding the effect of a fee increase or
    organizational move on applications, costs, the Library's
    collections, accounting standards, etc.were appropriate issues to be
    raised.  This is why we believe the Register should have presented
    cost projections under various assumptions rather than stating that
    fees would increase fivefold.

    28.  In our report, we note not only that the Register presented the
    worst-case scenario at the hearing but also that some of the costs
    and application estimates used in the scenario were questionable.  As
    one example, we noted that the projection included moving into new
    space at a cost of $32 per square foot and did not address the
    savings that might be possible if the Copyright Office were to remain
    located in Library space at no cost.  In its comments, the Library
    said that, to its knowledge, housing an executive agency within a
    legislative entity is unprecedented in the history of the U.S.
    government and that doing so would contradict Statement of Federal
    Financial Accounting Standards number 4.  The Library said that to
    "expect the Copyright Office to contemplate such an unprecedented
    move" was unwarranted.

    Our report does not say we expect the Copyright Office to contemplate
    remaining in Library space at no expense nor do we believe the
    Copyright Office should contradict federal cost-accounting standards.
    Again, our concern is that these issues should have been raised in a
    proper context at the hearing instead of simply stating fees would
    have to increase fivefold.

    We do not take any position on whether the Copyright Office could
    remain in Library space if it had become a part of the IPO.  This
    issue is moot, because there is no current proposal to make the
    Copyright Office part of a wholly-owned government corporation.
    However, the Congress could have allowed the Copyright Office to be
    housed rent-free at the Library if the Congress wanted to do so,
    particularly considering the Library was to continue to receive free
    materials worth $13 million a year.  Similarly, the Congress could
    have provided for the Library's and the Copyright Office's sharing
    other items, such as computer systems.  Again, the issue is that we
    believe the Register should have placed her projections within a
    better framework.

    Concerning cost-accounting standards, our report does not
    suggest--nor do we in any way support--the Copyright Office's not
    following applicable standards.  Any discussion of specific
    cost-accounting standards is beyond the scope of this report.

    29.  Our point is that, if applications decrease, workload should
    decrease.  We do not suggest the Copyright Office would have been
    able to decrease staffing but rather note that this issue was not
    discussed when the Register presented her projections on the impact
    of a fee increase at the hearing.

    30.  See comment 28.

    MAJOR CONTRIBUTORS TO THIS REPORT
    ========================================================= Appendix XIV

    RESOURCES, COMMUNITY AND ECONOMIC
    DEVELOPMENT DIVISION

    Allen Li, Associate Director
    Amy D.  Abramowitz
    Frankie Fulton
    John P.  Hunt, Jr.
    Mitchell Karpman
    Deborah Ortega
    Paul Rhodes
    Mindi Weisenbloom

    *** End of document. ***