Bloomberg News

Patent Agency Would Gain Control of Funding Under House Measure

June 24, 2011

June 24 (Bloomberg) -- The U.S. Patent and Trademark Office would be able to set its own fees and have greater control of its budget under legislation approved by the House to revamp the patent system and speed legal protection for innovation.

The legislation, H.R. 1249, passed 304 to 117 with qualified support from the Obama administration. The Senate passed a similar measure, S. 23, in a 95-5 vote in March. The proposal approved yesterday has to be reconciled with the Senate version before it can be sent to the White House for President Barack Obama’s signature.

The bill, which would be the biggest change to U.S. patent law since 1952, covers who can get a patent, how they are reviewed and whether some ideas are eligible for protection. Its cornerstone is language aimed at giving the patent office more power over its funding. The agency has sought immediate access to all the fees it collects and an end to lawmakers’ practice of steering some money toward non-patent purposes.

Since 1990, the agency says, more than $800 million in fees have been diverted. Business groups and the Obama administration say the money is needed to hire more patent examiners, improve the agency’s computer network and reduce a backlog of more than 700,000 applications that have yet to get a first review.

The legislation has been in the works for more than six years. Democratic and Republican leaders have pointed to protection of inventions as key to enticing new business investment, which in turn could lead to more American jobs.

Appropriations Compromise

“Modernizing our patent system to protect our nation’s innovators, discourage frivolous lawsuits, and expedite patent reviews is a key part of the Republican Plan for America’s Job Creators,” House Speaker John Boehner, an Ohio Republican, said in a statement.

Representative Steny Hoyer of Maryland, the chamber’s No. 2 Democrat, also supported the measure, saying it was part of his party’s “Make it in America” agenda and will “enhance the inventive, innovative and development phases of our economy.”

Passage of the House bill hinged on a compromise reached among Republican leaders to ensure that the Appropriations Committee retained supervision of the agency’s budget. The agreement was contained in an amendment offered by Judiciary Committee Chairman Lamar Smith, a Texas Republican who sponsored the bill, that was approved in a 283-140 vote earlier yesterday.

The administration had said it was concerned that Smith’s amendment didn’t go far enough to ensure that the agency will have “timely access to all of the fees collected” from inventors and trademark owners and said it would work with Congress to make that clear. It supported the overall measure.

Special Fund

Under the compromise, a special fund would be established to hold user fees collected. The agreement 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. The Senate version would remove the patent office from the appropriations process, with some new oversight rules.

Supporters of the bill have linked fee diversion 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.

This year, patent office Director David Kappos froze hiring and scaled back technology projects after Congress passed a fiscal 2011 budget that would give the agency about $85 million less than it’s expected to collect in fees.

“This bipartisan legislation will transform our patent system, enhance our nation’s competitiveness and promote economic growth and job creation,” Kappos said in a statement. “Full funding of the USPTO is necessary for the USPTO to successfully implement this legislation and to more effectively perform its core mission.”

Senate Consideration

Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat who sponsored the Senate version, said that, while there are differences with the House measure, “the core reforms are consistent.” Senate Majority Whip Richard Durbin, an Illinois Democrat who sits on both the Judiciary and the Appropriations committees, said he was optimistic that the chambers could quickly resolve conflicts between their bills.

It is unlikely that efforts to reconcile the House and Senate versions will begin right away. The House is out of session next week, and the Senate is out the week of July 4.

Senator Tom Coburn, an Oklahoma Republican who played a central role in developing the funding provision for the Senate’s bill, criticized the House version before yesterday’s vote. The House Appropriations Committee “has a poor track record of managing such accounts responsibly and honestly,” Coburn said in an e-mail.

Other Provisions

The bill also included 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 establish a special type of review of patents for finance- related business methods.

The legislation has the support of International Business Machines Corp., the largest U.S.-based patent owner; the Financial Services Roundtable, which lobbies for the banking industry; the trade group for the biotechnology industry; the Coalition for 21st Century Patent Reform, a group that represents companies including General Electric Co., Johnson & Johnson and 3M Co.; and the Coalition for Patent Fairness, whose members include Apple Inc., Google Inc. and Intel Corp.

The measure “addresses the interests of all innovators -- large and small -- and represents real progress on patent reform,” said Christopher A. Padilla, vice president of Government Programs for IBM.

Opposition to Bill

Universities were split on the measure. Opponents of the bill included Innovation Alliance, a group representing technology companies including Qualcomm Inc. and Tessera Technologies Inc.; the consumer group Public Citizen; the trade group for generic-drug companies and the conservative Heritage Foundation.

The measure passed yesterday “will not end permanently the diversion of user fees” which is needed to reduce the backlog of applications, Innovation Alliance said in a statement.

Sixty-seven Republicans and 50 Democrats voted against the bill. House Minority Leader Nancy Pelosi, a California Democrat, urged colleagues to reject the measure, saying elements of the bill would hurt small businesses and independent inventors.

Representative Don Manzullo, an Illinois Republican who voted against the measure, said it “would weaken our strong patent system that has protected American entrepreneurs for centuries from overseas companies trying to pirate their inventions.”

Other provisions would limit lawsuits in which a manufacturer is accused of putting expired patent numbers on packaging; limit patents on tax-avoidance strategies; 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.

--With assistance from Loren Duggan in Washington. Editors: Michael Shepard, Romaine Bostick

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

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


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