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Let the Patent Office Keep Its Money

Both the House and Senate recently passed separate bills to change our patent system. Although the two bills are very similar, they differ on one important matter: The Senate would permit the U.S. Patent and Trademark Office (USPTO) to retain all of the fees it collects to process patents, while the House bill would not.

This difference is crucial. Both those in favor and those opposed to patent reform agree that a key part of improving the patent system is making sure the USPTO has enough money to do its job properly. The Senate bill clearly ensures that the USPTO will have enough money by allowing it to keep all of the fees it collects. The House bill fails to do this, because it allocates some of the money to the patent office and puts the rest in an escrow-like account. However, as Senator Tom Coburn points out, Congress doesn’t have a good track record keeping funds in escrow for government agencies.

Unlike most government agencies, the USPTO isn’t allocated funds by Congress. It gets all of its money from the fees paid by those seeking patents and trademarks. Congress hasn’t allowed the USPTO to keep all of those fees. Over the past two decades, Congress has siphoned off more than $800 million, according to the agency. As much as $85 million from patent fees could be diverted this year, according to data compiled by the Intellectual Property Owners Assn.

Fee Diversion’s Drawbacks

Fee diversion is wreaking havoc on the patent system and undermining our national competitiveness. From 2000 to 2010, the annual number of patent applications increased 65 percent, from 315,015 to 520,277. To meet this demand, the USPTO needs more patent examiners to handle the greater volume of applications. By taking away a portion of the patent office’s fees, Congress has prevented the USPTO from hiring enough examiners to evaluate patent applications in a timely manner. As a result, it now takes nearly three years for patent applications to be evaluated. This means that high-tech companies must make investment decisions without knowing for several years if their intellectual property will be protected. It’s not surprising that this uncertainty is making some of them reluctant to invest in new products and services.

Diverting patent fees is shortsighted. Companies get patents to enhance their competitiveness. More competitive companies generate more profits, and those profits can be taxed by the government to pay for its plethora of programs. This potential tax revenue is lost, of course, if companies can’t obtain patents because an underfunded USPTO can’t process patent applications. In fact, the lost tax revenues from hobbling the patent office may actually exceed the amount that Congress has diverted from the USPTO. That sounds to me like the definition of being shortsighted about government funding.

Finally, diverting patent fees is unfair. As Coburn explained, inventors pay fees to the patent office to have their applications evaluated, not to support other parts of the government. "If an American pays a fee, he should get what he pays for," the Oklahoma Republican said on the Senate floor. If Congress really thinks that inventors should pay to support other parts of the government, then it should pass a tax on inventors, not siphon money from the USPTO.

Congress’s Addiction

Many in Congress have understood for years that they are undermining the USPTO and harming our national competitiveness by diverting patent fees to the general fund. But like a drug addict who knows he is doing something wrong but can’t stop, Congress hasn’t been able to bring itself to end patent fee diversion.

So who in Congress opposes ending fee diversion today? Two of the most prominent opponents are Representatives Hal Rogers of Kentucky and Paul Ryan of Wisconsin, both Republicans. "We strongly oppose this proposed shift of billions in discretionary funding and fee collections to mandatory spending," they wrote in a June 6 letter to Representative Lamar Smith of Texas, the Republican who chairs the committee responsible for evaluating patent reform. Translated from Washington-speak, these two congressmen are arguing that an end to patent diversion will contribute to the deficit.

But patent fees account for so little of the general fund that ending fee diversion won’t have a noticeable effect on the deficit. As Congress seeks to reconcile the House and Senate bills, we still have a chance to end patent fee diversion. If the House adopts the Senate’s version, fee diversion will end, but if the Senate adopts the House’s version, then I’m much less optimistic that the USPTO will get the money it needs to operate successfully.

If Congress cannot end patent fee diversion—a move that enjoys wide support from both opponents and backers of the bills—then how will it ever pass more contentious legislation to boost small business competitiveness?

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

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