[House Report 106-722]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-722
======================================================================
PATENT AND TRADEMARK OFFICE REAUTHORIZATION ACT
_______
July 11, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Coble, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany H.R. 4034]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 4034) reauthorizing the United States Patent and
Trademark Office, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.
TABLE OF CONTENTS
Page
Purpose and Summary........................................ 1
Background and Need for the Legislation.................... 2
Hearings................................................... 4
Committee Consideration.................................... 4
Committee Oversight Findings............................... 4
Committee on Government Reform Findings.................... 4
New Budget Authority and Tax Expenditures.................. 4
Congressional Budget Office Cost Estimate.................. 4
Constitutional Authority Statement......................... 7
Section-by-Section Analysis and Discussion................. 7
Agency Views............................................... 7
Changes in Existing Law Made by the Bill, as Reported...... 8
Purpose and Summary
The Patent and Trademark Office (PTO) is a self-sustaining
Federal agency which subsists exclusively on revenue generated
from the collection of fees imposed on the inventor and
trademark communities. Since 1992, however, more than $500
million in PTO fees have been diverted to other programs. The
purpose of H.R. 4034, the ``Patent and Trademark Office
Reauthorization Act,'' is to ensure that the PTO is vested with
the authority to retain all the user fees it collects for
agency expenditures. This change will maximize the ability of
the PTO to serve the growing demand for its services by the
inventor and trademark communities.
Background and Need for the Legislation
PTO Funding Diversion: History
Amid funding scarcity in 1982, Congress dramatically
increased fees associated with obtaining and maintaining
trademark registrations and patents to recover the costs of
processing patent and trademark applications. For the first
time, fee income would be made available to the PTO on a
dollar-for-dollar basis. Certain activities (e.g., high-level
management) would remain funded through appropriations derived
from taxpayer revenues, and not fees.
Under this new system, Congress had to appropriate the fee
revenue to the PTO in the annual Commerce-State-Justice
appropriations bill. The amount of the fees, however, did not
count against the budget ``cap'' on expenditures imposed on the
appropriators. Consequently, they had no incentive to
appropriate less than the amount PTO collected.
By 1990, approximately 80% of PTO operations were funded
through user fees. In an effort to reduce public expenditures
and the national debt, Congress enacted the Omnibus Budget
Reconciliation Act (OBRA), which, among other things,
transformed the PTO into a wholly fee-supported agency. To
compensate for the remaining taxpayer revenue which would be
withdrawn, OBRA imposed a massive statutory patent fee increase
(referred to as a ``surcharge'') on American inventors for a 5-
year period.
As part of this budget agreement, a scoring system was
adopted to ensure that savings would be accurately tracked
through the appropriations process. To this end, Congress
mandated that the income from the surcharge be deposited into a
specially-created surcharge fund in the Treasury. Unlike other
fees collected by PTO, those in the surcharge fund counted
against the expenditure cap of the appropriators. This meant
that every dollar not spent from the surcharge fund would
enable the appropriators to spend another taxpayer dollar to
underwrite a different (non-PTO) initiative. Theoretically, the
unappropriated fee income remained in the surcharge fund, but
as a practical matter the revenue could never be appropriated
to PTO unless the scoring rules were changed.
Initially, Congress appropriated the total amount deposited
in the fund to PTO. After only 1 year, however, Congress began
to withhold a portion of the entire amount deposited in the
fund annually so that it could proved additional money to other
programs. Compounding the problem, Congress later extended the
OBRA surcharge provisions for an additional 3 years to take
further advantage of the arrangement.
Although the surcharge expired at the end of fiscal year
1998, Congress ultimately increased the statutory fees to
compensate for the lapse of the surcharge. In addition, the
income derived from the increase is treated like the old
surcharge funds. As a result, an amount equal to the income
from the increase is added to the amount available to the
appropriators, who then have the option of earmarking that
amount for PTO operations or to other programs.
Moreover, the appropriators have also taken to capping the
amount of fee revenue that the PTO may use. For example, in
fiscal year 1999 PTO fee collections were subject to two caps
as well as a rescission. The appropriators prohibited PTO from
spending $116 million in collected fees until the following
fiscal year (2000). They also created an upper limit cap which
prevented the agency from spending any fee collections in
excess of the total amount of fee revenues which PTO had
estimated it would receive. Thus, when unexpected additional
filings generated an extra $26 million in fiscal year 1999, the
PTO could not use the revenue to process the increased workload
for which the fees had been paid. Finally, Congress simply
rescinded another $72 million that same fiscal year after PTO
identified a significant amount of unrecorded fee income from
fiscal year 1998 that had resulted from accumulated mail-room
processing delays.
By denying PTO the ability to spend fee revenue in the same
fiscal year in which it collects the revenue, the appropriators
may spend an equivalent amount on some other program without
exceeding their Sec. 602(b) caps. Although the money is
technically available to PTO the following year, it has already
been spent. The legislative response to this funding problem
has been to increase the amount of fee collections unavailable
to PTO in that fiscal year.
To illustrate: in the current fiscal year PTO is scheduled
to receive $116 million in fiscal year 1999 fee revenues that
it was not permitted to spend that year. But those funds were
already diverted in fiscal year 1999 to other programs. The
Commerce-State-Justice appropriations act for fiscal year 2000
``solves'' the problem by preventing PTO from accessing $229
million in fiscal year 2000 collections. The $116 million from
fiscal year 1999 that PTO is now permitted to tap is actually a
portion of the $229 million to be collected in fiscal year
2000; and the difference between the two figures--$113
million--will in turn be diverted to other government programs
in fiscal year 2000.
In sum, since 1992, more than $554 million in PTO revenue
has been diverted, rescinded, or otherwise not made available
to the agency.
Administration Request for Fiscal Year 2001
The developments in fiscal year 2000 serve as a template
for the President's budget submission for fiscal year 2001. It
would allow PTO to spend $229 million in fiscal year 2000
collections plus an additional $26 million in fiscal year 1999
collections arising from greater than estimated application
filings that went unspent pursuant to the budget cap of that
same fiscal year. On paper, the President's budget also
prohibits the PTO from spending $368 million in estimated
fiscal year 2001 fee collections. In reality, however, the $255
million ($229 million plus $26 million) that PTO is permitted
to spend will come from the $368 million source. The
difference--$113 million--will be diverted.
Should the appropriators adopt the President's budget, the
PTO will have lost more than $677 million in collected fees
since fiscal year 1992.
Hearings
The committee's Subcommittee on Courts and Intellectual
Property held a hearing on H.R. 4034 on March 9, 2000.
Testimony was received from nine witnesses representing nine
organizations.
Committee Consideration
On March 23, 2000, the Subcommittee on Courts and
Intellectual Property met in open session and ordered reported
the bill H.R. 4034 by voice vote, a quorum being present. On
May 9, 2000, the committee met in open session and ordered
reported favorably the bill H.R.4034 by unanimous consent, a
quorum being present.
Committee Oversight Findings
In compliance with clause 2(1)(3)(A) of rule XI of the
Rules of the House of Representatives, the committee reports
that the findings and recommendations of the committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform Findings
No findings or recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(1)(3)(D) of rule XI of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 2(1)(3)(B) of rule XI of the Rules of the House of
Representatives is technically applicable because the
Congressional Budget Office has noted that the legislation
provides (de minimis) new budgetary authority; however, the
very cost estimate provided by that organization also reveals
that the changes set forth in H.R. 4034 will generate surplus
funds amounting to roughly $700 million between Fiscal Years
2001 and 2005.
Congressional Budget Office Cost Estimate
In compliance with clause 2(1)(3)(C) of rule XI of the
Rules of the House of Representatives, the committee sets
forth, with respect to the bill H.R. 4034, the following
estimate and comparison prepared by the director of the
Congressional Budget Office under section 403 of the
Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 19, 2000.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4034, the Patent
and Trademark Office Reauthorization Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark Hadley,
who can be reached at 226-2860.
Sincerely,
Dan L. Crippen, Director.
Enclosure
cc:
Honorable John Conyers Jr.,
Ranking Democratic Member
H.R. 4034--Patent and Trademark Office Reauthorization Act.
SUMMARY
Under current law, the Patent and Trademark Office (PTO)
collects fees on applications and other activities related to
patents and trademarks. Such fees are recorded as an offset to
discretionary spending and can only be collected and spent as
provided in appropriation acts. H.R. 4034 would authorize the
PTO to collect fees without appropriation action and would make
such funds available to the agency until expended.
CBO estimates that H.R. 4034 would increase revenues
(governmental receipts) and reduce offsetting collections by
about $6.3 billion over the 2001-2005 period. Because such fees
could be spent by PTO without appropriation action, the bill
also would increase direct spending by about $5.6 billion over
the same period. Because H.R. 4034 would affect receipts and
direct spending, pay-as-you-go procedures would apply.
H.R. 4034 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
ESTIMATED COST TO THE FEDERAL GOVERNMENT
The estimated budgetary impact of H.R. 4034 is shown in the
following table. For purposes of this estimate, CBO assumes
enactment near the start of fiscal year 2001. The costs of this
legislation fall within budget function 370 (commerce and
housing credit).
By fiscal year, in millions of dollars
----------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
PTO Baseline Under Current Law -116 255 260 267 275 284
Estimated Authorization Level \1\
Estimated Outlays -100 90 164 196 199 202
Proposed Changes 0 0 -260 -267 -275 -284
Estimated Authorization Level
Estimated Outlays 0 374 -31 -176 -199 -202
PTO Baseline Under H.R. 4034 -116 255 0 0 0 0
Estimated Authorization Level \1\
Estimated Outlays -100 464 133 20 0 0
CHANGES IN DIRECT SPENDING
Estimated Budget Authority 0 1,072 1,158 1,251 1,351 1,459
Estimated Outlays 0 697 1,021 1,188 1,284 1,386
CHANGES IN REVENUES
Estimated Revenues 0 1,072 1,158 1,251 1,351 1,459
----------------------------------------------------------------------------------------------------------------
\1\ The 2000 level is the estimated net amount appropriated for that year. The 2001 level is the estimated
amount appropriated for that year through an indefinite advance appropriation.
BASIS OF ESTIMATE
H.R. 4034 would allow the PTO to collect and spend fees
associated with filing patents and trademarks without
appropriation action. Patent and trademark fees are
governmental in character because such fees result from an
exercise of sovereign power--recognizing and protecting
intellectual property. Therefore, once these fees are no longer
subject to appropriation action, CBO expects that they would be
recorded as revenues in the federal budget.
CBO estimates that patent and trademark fees will bring in
about $1 billion in fiscal year 2000. Based on the historical
growth in applications filed for patents and trademarks, we
project receipts from such fees will total about $6.3 billion
over the 2001-2005 period. Under H.R. 4034, offsetting
collections would decline by this amount and revenues would
increase by the same amount. Based on historical spending
patterns of the agency, CBO estimates PTO would spend about
$5.6 billion of these revenues over the 2001-2005 period.
PAY-AS-YOU-GO CONSIDERATIONS
The Balanced Budget and Emergency Deficit Control Act sets
up pay-as-you-go procedures for legislation affecting direct
spending or receipts. The net changes in outlays and
governmental receipts that are subject to pay-as-you-go
procedures are shown in the following table. For the purposes
of enforcing pay-as-you-go procedures, only the effects in the
current year, the budget year, and the succeeding four years
are counted.
By fiscal year, in millions of dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays 0 697 1,021 1,188 1,284 1,386 1,497 1,612 1,733 1,863 2,003
Changes in receipts 0 1,072 1,158 1,251 1,351 1,459 1,576 1,694 1,821 1,957 2,104
--------------------------------------------------------------------------------------------------------------------------------------------------------
INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT
H.R. 4034 contains no intergovernmental or private-sector
mandates as defined in UMRA and would not affect the budgets of
state, local, or tribal governments.
ESTIMATE PREPARED BY:
Federal Costs: Mark Hadley (226-2860)
Impact on State, Local, and Tribal Governments: Shelley
Finlayson (225-3220)
Impact on the Private Sector: John Harris (226-2940)
ESTIMATE APPROVED BY:
Peter H. Fontaine
Deputy Assistant Director for Budget Analysis
Constitutional Authority Statement
Pursuant to rule XI, clause 2(1)(4) of the Rules of the
House of Representatives, the committee finds the authority for
this legislation in Article I, section 8 of the Constitution.
Section-by-Section Analysis and Discussion
Sec. 1. Short Title. The act may be cited as the ``Patent
and Trademark Office Reauthorization Act.''
Sec. 2. Patent and Trademark Office Funding. H.R. 4034 is
simple and straightforward. It amends two key provisions of
Sec. 42 of the Patent Act, which prescribes the PTO funding
mechanism.
First, the requirement in existing subsection (b) that all
agency funds be credited to a special PTO Appropriation Account
is deleted; instead, such funds are to be credited to a PTO
Account in the Treasury.
Second, the requirement in existing subsection (c) that
subjects agency access to and expenditure of collected fees to
appropriations is also deleted. This means that the
Commissioner will have the authority to collect all fees and
use them for agency operations until expended. The
appropriators are not involved.
Agency Views
The Deputy Secretary of Commerce,
Washington, DC, May 9, 2000.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: I am writing to set forth the views of
the Administration on H.R. 4034, the Patent and Trademark
Office Reauthorization Act. The bill amends section 42 of title
35, United States Code, regarding the fees collected by the
United States Patent and Trademark Office (USPTO), to delete
the introductory clause in the first sentence of subsection (c)
of this section which subjects fees that would otherwise be
available to the USPTO to the discipline of the appropriations
process. Because the effect of the change alters the timing of
the availability of the funds in a way that is inconsistent
with the President's budget for FY 2001, the Administration
would oppose enactment of the bill in its current form.
In FY 2001, the Administration's Budget proposes that of
fees collected in excess of $783,843,000, $367,744,000 shall
not become available to the USPTO before October 1, 2001. In
addition, the Budget proposes that $229,000,000 of fees
collected in FY 2000 and $25,889,000 of fees collected in FY
1999 will also become available to the USPTO in FY 2001. By
amending section 42 to remove the appropriations clause, H.R.
4034 would make all fees collected by the USPTO immediately
available.
The Administration fully supports providing the USPTO with
sufficient resources to serve America's inventors and to
strengthen the Nation's intellectual property system. However,
there are several models that could be considered to ensure the
USPTO receives funds sufficient to meet its resource needs. To
that end, the Administration would like to work with the
Committee to address these concerns.
While the Administration would oppose the bill in its
current form, we look forward to working with the Congress to
meet the needs of the USPTO in furthering the Nation's
technological growth. The Office of Management and Budget
advises that there is no objection from the standpoint of the
Administration's program to the submission of this letter to
the Committee.
Sincerely,
Robert L. Mallett.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
SECTION 42 OF TITLE 35, UNITED STATES CODE
Sec. 42. Patent and Trademark Office funding
(a) * * *
(b) All fees paid to the Director and all appropriations
for defraying the costs of the activities of the Patent and
Trademark Office will be credited to the Patent and Trademark
Office [Appropriation] Account in the Treasury of the United
States.
(c) [To the extent and in the amounts provided in advance
in appropriations Acts, fees] Fees authorized in this title or
any other Act to be charged or established by the Director
shall be collected by and shall be available [to the Director]
until expended to carry out the activities of the Patent and
Trademark Office. All fees available to the Director under
section 31 of the Trademark Act of 1946 shall be used only for
the processing of trademark registrations and for other
activities, services, and materials relating to trademarks and
to cover a proportionate share of the administrative costs of
the Patent and Trademark Office.
* * * * * * *