Intellectual Property: Patent Examination and Copyright Office Issues
(Stmnt. for the Rec., 09/18/96, GAO/T-RCED/GGD-96-230).

GAO discussed: (1) patent examination issues at the Department of
Commerce's Patent and Trademark Office (PTO); and (2) examined the fees
that PTO and the Library of Congress's Copyright Office charge for their
services. GAO noted that: (1) PTO patent pendency statistics do not
provide inventors and decisionmakers with enough information; (2)
reported pendency depend on the computation method used, type of
invention, filing date, and the amount of time it takes for applicants
to answer additional requests for information; (3) calculating pendency
using the patent filing date significantly increases pendency; (4)
three-fourths of PTO funding and staff were devoted to the patent
process in 1995; (5) since 1986, PTO annual obligations have increased
from $212 million to $589 million, an average annual increase of 20
percent; and (6) PTO examines patent applications and computes pendency
differently from its counterparts in other industrialized countries. GAO
also noted that: (1) the Library's fees do not fully recover the cost of
copyright registrations; (2) the Library could generate additional
revenue by increasing the copyright registration fee; (3) the Library's
hiring process has been adversely affected by a settlement that requires
it to revise its competitive selection process; and (4) the Library's
actions in response to the settlement have resulted in prospective
employees taking other jobs and added additional costs to Library
operations.

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

 REPORTNUM:  T-RCED/GGD-96-230
     TITLE:  Intellectual Property: Patent Examination and Copyright 
             Office Issues
      DATE:  09/18/96
   SUBJECT:  User fees
             Hiring policies
             Cost control
             Patents
             Patent law
             Copyrights
             Statistical data
             Human resources utilization
             Agency proceedings

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


Before the Committee on the Judiciary
U.S.  Senate

Hearing Held on
September 18, 1996
Statement Submitted on
September 18, 1996

INTELLECTUAL PROPERTY - PATENT
EXAMINATION AND COPYRIGHT OFFICE
ISSUES

Statement for the Record by
Allen Li, Associate Director
Energy, Resources, and Science Issues
Resources, Community, and Economic
Development Division

GAO/T-RCED/GGD-96-230

GAO/RCED/GGD-96-230T


(307747)


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

  PTO - x

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

We appreciate the opportunity to participate in the Committee's
hearing on intellectual property issues.  To date, we have completed
work in two broad areas of interest to the Committee and have other
work ongoing.  The first area covers a review of patent examination
issues within the Department of Commerce's Patent and Trademark
Office (PTO).  The second area involves work at the Copyright Office
carried out during a general management review of the Library of
Congress.  At the Committee's request, we also are examining the fees
that PTO and the Library of Congress's Copyright Office charge for
their services.  We plan to complete this work and report our results
to the Committee early next year.  In our statement for today's
hearing, we are providing the Committee with an overview of the work
completed on patent examination issues and Copyright Office issues. 


   PATENT EXAMINATION ISSUES
---------------------------------------------------------- Chapter 0:1

Our work on patent examination issues, which was performed at this
Committee's request, is discussed in detail in our July 15, 1996,
report entitled Intellectual Property:  Enhancements Needed in
Computing and Reporting Patent Examination Statistics
(GAO/RCED-96-190).  This section of our statement discusses the
following three areas:  (1) patent pendency--the amount of time that
PTO spends in examining an application to determine whether an
invention should receive a patent; (2) PTO's resources committed to
the patent process, the trademark process, the dissemination of
information, and executive direction and administration; and (3)
PTO's workload and examination process in comparison with those of
other industrialized countries. 

The importance of the issues addressed in our report has increased
over the past year because of new legislation affecting the term of
most patents.  Public Law 103-465, enacted December 8, 1994, changed
the term for most patents granted by the United States from 17 years
from the date of issuance to 20 years from the date of the earliest
filing of an application.  Accordingly, the time frame for issuance
reduces the effective term of the patent left to the inventor under
the new law. 


      CURRENT PATENT PENDENCY
      STATISTICS DO NOT PROVIDE
      INFORMATION NEEDED
-------------------------------------------------------- Chapter 0:1.1

In analyzing patent pendency, we found that the overall pendency
statistics being reported by PTO do not provide inventors and
decisionmakers with enough information.  This is particularly the
case after Public Law 103-465 changed the patent term for most
applications filed after June 7, 1995. 

We attributed this lack of information to four reasons.  First, PTO's
pendency computation method considers both issued patents and
abandoned applications but does not consider applications still
in-process.  PTO defines pendency as the period from the date when an
application is filed until the date when a patent is issued or an
application is abandoned.  As used by PTO, an abandoned application
is any application that does not result in an issued patent and is
eventually taken out of the examination process by the applicant or
PTO.  While PTO and other decisionmakers may be interested in knowing
that overall pendency in fiscal year 1994 was 20.2 months or that
applications abandoned during the year were pending for an average of
18.3 months, inventors may be most interested in knowing that the
average pendency for patents issued was 21.3 months. 

Second, pendency can vary widely for individual applications,
depending on the type of invention and factors such as whether the
application is subject to a secrecy order.\1 For example, while
overall pendency for fiscal year 1994 was 20.2 months, pendency in
the Computer Systems area averaged 27.6 months, while pendency in the
Solar, Heat, Power, and Fluid Engineering area averaged 16.9 months. 
Similarly, pendency for patents issued and applications abandoned
that were subject to secrecy orders averaged 62.9 months, although
they were so relatively few in number that they had no appreciable
effect on overall pendency.  As above, such variations are of
importance to the inventor, who needs to know the potential
examination time associated with different types of inventions and
factors such as whether a secrecy order will be imposed. 

Third, pendency is higher when the filing date used is that of the
original, rather than the most recent, application for the particular
invention.  Frequently, an application may spawn other applications
during the examination process.  PTO refers to the original
application as the "parent" and any application emerging from the
original as a "child." Some cases can involve several generations of
applications.  PTO's current method for computing pendency considers
the filing date of the current, or child, application whereas, under
the new law, the patent term will be calculated for most patents from
the filing date of the parent.  Thus, PTO's method does not provide
inventors and decisionmakers with an accurate appraisal of how long
applications are under examination. 

We found that calculating pendency by using the parent filing date
rather than the current filing date raises pendency significantly. 
For fiscal year 1994, overall pendency would have been 28 months
rather than 20.2 months.  Applications in process would have been
under examination an average of 25 months rather than 16 months.  If
only those applications that had a parent were considered, the
differences would have been even more dramatic--increasing from 17.9
months to 47.7 months for fiscal year 1994 and from 14.6 months to 45
months for those applications in-process as of October 1, 1994. 

Fourth, the applicants themselves are partly responsible for the time
taken to examine applications.  PTO's current method of computing
pendency includes all of the time between the filing of the
application and the issuance of a patent or the abandonment of the
application.  It does not separate the pendency for which PTO is
responsible from the pendency created by the applicant.  We
calculated the pendency attributable to the applicants in one
area--the time taken to respond to questions raised or requests for
additional information by PTO during examination.  These responses
accounted for an average of 3.6 months of the 20.2 months total
pendency for fiscal year 1994. 

Subsequent to our analysis, PTO made its own analysis of other areas
where the applicant caused delays and computed an additional 3.8
months for fiscal year 1994.  While we did not verify PTO's
computations, adding the applicants' delays that PTO identified to
those we computed would result in about 7.4 months of the 20.2-month
average pendency for fiscal year 1994 being attributable to the
applicants themselves. 

As a result of our findings, we recommended in our report that PTO
compute and report patent pendency statistics that will separately
identify issued patents, abandoned applications, and applications
under examination.  In commenting on our recommendations, the
Department of Commerce said that more was needed than just an
expansion of the pendency statistics now in use.  It said that by
fiscal year 2003, PTO's goal is to complete the examination of each
new patent application within 12 months.  The Department said that
PTO would continue to report pendency as it had in the past until new
procedures associated with this new 12-month goal are implemented. 
We agree that PTO needs to track and report pendency when its new
examination policy is put into effect.  However, because this new
policy may not take effect for several years, we believe that PTO
needs to begin reporting pendency statistics in the interim as we
recommended.  Furthermore, we believe this change is needed
regardless of PTO's organizational placement. 


--------------------
\1 Patent applications for inventions that could affect national
security interests can be placed under a secrecy order by PTO if the
applicable federal agency determines that such protection is
necessary. 


      PTO ALLOCATES MOST RESOURCES
      TO THE PATENT PROCESS
-------------------------------------------------------- Chapter 0:1.2

In analyzing the commitment of PTO's resources to various functions,
we found that PTO has consistently committed most of its resources to
the patent process.  In fiscal year 1995, about three-fourths of
PTO's funding--all of which now is generated by fees--and staff were
devoted to the patent process.  Other major activities in PTO include
the trademark process, the agency's executive direction and
administration, and the dissemination of information.  PTO's annual
obligations have increased steadily in recent years.  In the 10-year
period from fiscal year 1986 to fiscal year 1995, PTO's annual
obligations increased from $212 million to $589 million, an average
annual increase of nearly 20 percent. 

The increases in resources allocated to the patent process from
fiscal year 1986 through fiscal 1995 do not appear to have come at
the expense of PTO's other activities.  Funding and staffing for
these activities also increased in most years over this period. 
Overall, the patent process accounted for 56.6 to 75.4 percent of the
obligations in individual years, while the range was 5.4 to 8.5
percent for the trademark process, 6.4 to 20.2 percent for executive
direction and administration, and 9.9 to 18.5 percent for the
dissemination of information. 

The majority of PTO staff also was committed to the patent process
during the 10-year period.  In fiscal year 1986, PTO had a total of
3,180 full-time equivalent (FTE) staff; in fiscal year 1995, the
total was 5,007.  In individual years, the percentage of staff ranged
from 58 to 75.1 percent for the patent process, 6.8 to 9.7 percent
for the trademark process, 7.1 to 15.4 percent for executive
direction and administration, and 8 to 22.4 percent for the
dissemination of information. 


      PATENT EXAMINATION PROCESSES
      DIFFER BETWEEN PTO, JAPAN,
      AND EUROPE
-------------------------------------------------------- Chapter 0:1.3

In comparing PTO's patent examination process with those of other
industrialized countries, we found that they differ markedly.  As one
example, PTO considers the examination process to have begun when the
application is filed.  In the Japanese Patent Office, however, an
application is not considered a request for examination.  Rather, the
applicant must make a separate request for examination, which may
come at any time up to 7 years after the application is filed. 
Similarly, in the European Patent Office, examination is a two-phase
process.  A filing is taken to imply a request for a search to
determine whether the invention is new compared with the state of the
art.  If an applicant then desires a substantive examination for
industrial applicability, the applicant must file a separate request
not more than 6 months after the publication of the search. 

Methods for computing pendency also differ between the three patent
offices.  For example, Japan and Europe consider applications in
process when computing pendency, while PTO considers only those
applications that resulted in a patent or were abandoned.  These
different computation methods would yield fundamentally different
results.  Consequently, caution should be exercised in comparing
workloads and pendency between these offices. 


   COPYRIGHT OFFICE ISSUES
---------------------------------------------------------- Chapter 0:2

Our work on Copyright Office issues was summarized in our May 7,
1996, testimony before the Joint Committee on the Library of
Congress.\2 In October 1995, Senators Connie Mack and Mark Hatfield
asked that we conduct a broad assessment of the Library's management
by the spring of 1996.  To help meet that time frame, given that our
limited resources were already committed to other priority projects,
we contracted with Booz-Allen & Hamilton Inc.  to conduct a general
management review of the Library.  Among the issues that Booz-Allen
addressed in its review that the Senate Committee on the Judiciary
expressed interest in were:  (1) the potential for the Copyright
Office to be transferred from the Library of Congress to another
organization; (2) the possible additional revenues that the Copyright
Office could charge if it recovered all costs; and (3) the impact on
the Library, including the Copyright Office, from revisions to its
competitive selection process as a result of the settlement of a
class-action discrimination suit. 


--------------------
\2 Library of Congress:  Opportunities to Improve General and
Financial Management (GAO/T-GGD/AIMD-96-115). 


      ORGANIZATIONAL
      CONSIDERATIONS
-------------------------------------------------------- Chapter 0:2.1

Given the era of deficit reduction in which the federal government
has found itself and the need for each agency to become as efficient
as possible, Booz-Allen structured its management review to include a
consideration of opportunities that might exist for the Library to
reduce costs and enhance revenues.  Within this context, Booz-Allen
looked at various aspects of the Library's organizational components
and the Library's fee structure.  One such aspect included the
potential for transferring the Copyright Office from the Library to
another organization.  Booz-Allen considered four elements of
copyright operations, including the long-standing relationship
between the Library and the Copyright Office, copyright registration
as a source of material for Library collections, linkages between
cataloging for copyright purposes and for Library collections, and
the revenue potential from copyright receipts.  Booz-Allen pointed
out that its scope did not include an assessment of the operations,
efficiency, or effectiveness of organizations outside the Library
that might be considered potential recipients of the copyright
function or the benefits of transferring it elsewhere. 

Booz-Allen concluded that while the transfer of the Copyright Office
to another organization might not have negative operational impacts,
the benefits of such a move were unknown and might cause significant
disruption.  Booz-Allen concluded that while there was little
operational reason for housing the copyright function at the Library
of Congress, the physical relocation of the Copyright Office could
result in the office incurring an annual cost of $800,000 for leasing
facilities that are now provided by the Library or the Architect of
the Capitol at no cost to the Copyright Office.  Also, the Booz-Allen
analysis showed that while the Library saved $13 million a year from
not having to purchase material obtained through copyright deposits
and that this source of materials could be legislatively protected if
the copyright function were housed elsewhere, the transportation and
coordination aspects of such a shift would have to be assessed and
would likely impose additional costs.  Booz-Allen found that although
both the Library and the Copyright Office perform cataloging
processes, their purposes and methods were substantially different. 


      COST RECOVERY
-------------------------------------------------------- Chapter 0:2.2

With regard to the fees collected by the Library for copyright
registrations, which amounted to $12.6 million in fiscal year 1995,
Booz-Allen noted that the Library's fee does not recover its full
cost.  Booz-Allen estimated that by increasing the fee to recover
full cost, the Library could generate revenue in the range of $24
million to $29 million (or an additional $11 million to $17 million
over current fees charged).  In developing this estimate, Booz-Allen
cautioned that it was predicated on the comparison of fees received
in fiscal year 1995 with its estimate of the full cost of the
copyright registration process and did not take into account possible
changes stemming from a fee increase, such as a potential drop in the
number of registrations received.  Booz-Allen also said that the
effect of increasing fees could adversely affect that part of the
Library's mission that deals with building its collection.  As
Booz-Allen also reported, the Copyright Law provides the Library with
the authority to adjust fees at 5-year intervals to reflect changes
in the Consumer Price Index, but the Copyright Office has elected not
to do so.  In its commentary concerning the recovery of all copyright
fees, Booz-Allen also pointed out that the Library would first have
to (1) refine its cost data and cost assumptions for the Copyright
Office to obtain better cost information and (2) establish the
capability and mechanisms to handle fee changes and possible multiple
fee schedules. 


      COMPETITIVE SELECTION
      PROCESS
-------------------------------------------------------- Chapter 0:2.3

As part of its management review, Booz-Allen studied how well the
Library of Congress managed its human resources.  Since this part of
the study was Library-wide in nature, the findings do not relate
specifically to the Copyright Office or any other components of the
Library but would apply generally to the Copyright Office. 
Booz-Allen found that the Library's hiring process had been adversely
affected by its settlement of a class action suit, commonly referred
to as the Cook Case, which asserted the Library practiced
discriminatory employment practices that denied African-American
employees opportunities for promotion and advancement. 

The settlement required the Library to revise its competitive
selection process, make a specified number of promotions and
reassignments, pay monetary relief to the class, provide Library
supervisors with specified training, and eliminate any discriminatory
criteria for noncompetitive personnel actions.  As part of the Cook
Case settlement, which was approved by the court in September 1995,
the court reserved jurisdiction for 4 years to ensure compliance with
the settlement.  The settlement agreement is currently under appeal
which would delay the start of the 4-year period. 

Booz-Allen found that while efforts to revise the competitive
selection process had resulted in significant improvements in the
Library's racial/ethnic profile, the revised process was viewed by
many Library managers and human resources staff as lengthy and
cumbersome.  Booz-Allen found that the median number of calendar days
to fill vacancies during fiscal years 1993 through 1995 was 177 days
at the Library.  In comparison, three other agencies took from 30 to
120 days to hire employees.  As a result of inefficiently hiring
qualified employees, Booz-Allen found that the Library potentially
loses highly qualified candidates to other jobs, employees lack trust
in the system, the Library pays the additional costs of contractors
and internal staff time, and the Library is not able to handle
changes to recruitment and selection requirements. 


-------------------------------------------------------- Chapter 0:2.4

Mr.  Chairman, this concludes our statement. 


*** End of document. ***