House Leaders Reach Deal on Letting Patent Office Keep Fees

House leaders agreed today to give the U.S. Patent and Trademark Office greater control over its own funding, paving the way for a floor vote on legislation to overhaul the U.S. patent system.

Under the deal, a special fund would be established to hold user fees collected in excess of the agency’s budget, ending lawmakers’ longstanding practice of steering agency fees toward non-patent purposes. The compromise would ensure that the fund may only be tapped by the patent office, which would have to submit a spending plan to Congress to access the money.

“After six years of working towards patent reform, we are near the finish line,” said Texas Republican Lamar Smith, the Judiciary Committee chairman who sponsored the measure. “This maintains congressional oversight, while making sure that fees collected by the PTO can no longer be diverted.”

Since the passage of a 1990 law requiring the agency to fund itself, Congress has withheld more than $800 million in fees collected by the agency. Guaranteed access to all the fees is the cornerstone of a wide-ranging House bill, H.R. 1249, that mirrors legislation passed by the Senate on a 95-5 vote in March.

Debate on the House bill is scheduled to start tomorrow. If signed into law, the measure would mark the biggest change to the U.S. patent system since 1952.

Democrats’ Support

While supporting the overall measure, the Obama administration said it was concerned that the compromise “does not by itself ensure” that the agency will have full access to its fees.

“The administration looks forward to working with Congress to provide additional direction that makes clear that the USPTO will have timely access to all of the fees collected, subject to the congressional oversight provisions in the bill,” the administration said in a statement.

Democratic leaders support the bill. House Minority Whip Steny Hoyer, a Maryland Democrat, said he had no objection to the new fee language and he hoped the revision would help garner support for the bill. As a former member of the appropriations committee, Hoyer said he was "appreciative of the concept of assuring that there is oversight of the appropriations and expenditures that agencies make."

Purse Power

The House Judiciary Committee approved the bill 32-3 in April, backing Smith’s proposal to let the agency set its own fees and keep all the money it collects. Representatives Paul Ryan, a Wisconsin Republican who heads the Budget Committee, and Harold Rogers, a Kentucky Republican who heads the Appropriations Committee, objected, saying that it would eliminate congressional oversight and give the “power of the purse” to President Barack Obama, a Democrat.

Senators who voted in favor of the bill, backed by the Obama administration and a broad coalition of business groups, have protested efforts by House appropriators to strip or alter the funding provision.

The industry organizations say the patent office needs more money to properly protect innovation, thereby helping to lure investment, foster the creation or expansion of businesses and lead to the hiring of more workers.

Judiciary Chairman Patrick Leahy, a Vermont Democrat, said that while he preferred the Senate’s approach, he was pleased the House was taking up the bill, “but let’s see what we end up with.”

"At the end of the day, we’re going to have a good patent bill," he said.

Application Backlog

The diversion of fees has been linked to an increase in the number of patent applications awaiting first review by agency examiners. It takes, on average, about 34 months to complete a review, and more than 700,000 applications have yet to receive a first response from the agency.

The compromise reached by the Judiciary and Appropriations committees has won support from International Business Machines Corp. (IBM), the largest U.S. patent owner; the Financial Services Roundtable, which lobbies for the banking industry; and the Coalition for 21st Century Patent Reform, a group that represents companies including General Electric Co. (GE), Johnson & Johnson (JNJ) and 3M Co. (MMM)

“The coalition will be vigilant as the full implementation of the commitments made under the agreement is completed,” said Gary Griswold, 3M’s former chief intellectual property counsel who now heads the coalition.

Mid-Sized Companies Oppose

A group representing mid-sized technology companies, including Qualcomm Inc. (QCOM) and Tessera Technologies Inc. (TSRA), was more skeptical, saying it would oppose the version that’s likely to come before the House.

The compromise language “does not end fee diversion permanently and enable USPTO to plan predictably and on a sustainable basis,” said Brian Pomper, executive director of the Innovation Alliance. Without it, he said, the bill is “an unfunded mandate on an important agency that is already overburdened and under-resourced.”

One lawmaker who played a central role in developing the original user-fee language, Senator Tom Coburn, said he opposes the proposed changes and is weighing his options. If the House passes a version of the bill that includes alterations to the fee process, the Oklahoma Republican may block any Senate action.

“You can’t have patents approved if you don’t give the patent office money to approve patents,” Coburn said.

First Inventor

Other language in the bill is facing opposition, including provisions that would grant patents to the first inventor to file an application, create a new process to review patents after they’ve been issued, and limit patents on tax-avoidance strategies.

Republicans Aaron Schock of Illinois and James Sensenbrenner of Wisconsin, and Democrats Maxine Waters of California, Dan Boren of Oklahoma and Marcy Kaptur of Ohio have proposed dropping a section of the bill that would establish a special review of patents for finance-related business methods.

The proposal, which is supported by the banking industry, has drawn objections from DataTreasury Corp., a closely held company that owns patents related to digital images for checks. Paul Michel, former chief judge of U.S. Court of Appeals for the Federal Circuit, has said the proposal improperly establishes different standards for a specific type of patent.

Other provisions would limit lawsuits in which a manufacturer is accused of putting expired patent numbers on packaging; allow for third parties to submit information that could be used in the review process; and establish satellite offices the agency could set up nationwide to tap into local workforces.

The Senate bill is S. 23.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editors responsible for this story: Allan Holmes at aholmes25@bloomberg.net; Katherine Rizzo at krizzo5@bloomberg.net

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