October 25, 2002

The Honorable Mitchell E. Daniels, Jr.

Director, Office of Management and Budget

Dwight D. Eisenhower Executive Office Building, #252

17th Street and Pennsylvania Avenue, N.W.

Washington, D.C. 20503

PTO 21st Century Strategic Plan and Related Fee Increases

Dear Director Daniels:

This letter is written on behalf of the American Bar Association and its Section of Intellectual Property Law to advise you of our positions on the 21st Century Strategic Plan of the United States Patent and Trademark Office (PTO), June 3, 2002, and on the accompanying draft bill to revise fees of the PTO.

The views set forth below on the proposed fee increases and the Strategic Plan have not been considered by the ABA House of Delegates or its Board of Governors. They represent the views of the ABA Section of Intellectual Property Law and its 20,000 members. The views on ending diversion of PTO user fee revenue to fund programs unrelated to PTO functions have been adopted by the ABA House of Delegates and constitute policy of the more than 400,000 members of the ABA.

While ABA policy generally does not permit the IP Law Section to sign letters jointly with other organizations, we have been consulted in the preparation of the October 24, 2002, letter to you from the American Intellectual Property Law Association (“AIPLA”), the Intellectual Property Owners (“IPO”), the Biotechnology Industry Organization (“BIO”) and the International Trademark Association (“INTA”) concerning the PTO Plan, and we agree with its thrust. We will not duplicate those views here but seek to underscore particular points.

At the July 18, 2002 hearing held by the House Subcommittee on the PTO Plan, witnesses representing the PTO user community expressed concerns about some of its features and the proposed fee bill. The ABA IP Law Section, represented by my predecessor, Charles Baker, was among those voicing such concerns. We understand that based on testimony at the hearing and other comments unfavorable to some components of the Plan and fee bill, some may

The Honorable Mitchell E. Daniels, Jr.

October 25, 2002

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have the impression that Director Rogan’s plans to restructure the Office and to revise the PTO fee structure have no support in the PTO user community. If that impression does in fact exist, we wish to point out that it does not reflect the view of the ABA IP Law Section.

The Strategic Plan responds to instructions from Congress to study the Office and identify new ways to reduce patent pendency, improve patent quality, and speed up automation of PTO functions. While we do not support every one of the Plan’s elements, we do believe that it moves fundamentally in the right direction.

We recognize that increased funding is necessary to ensure patent and trademark quality and to decrease the time an application spends in the Office before final action is taken. We would be glad to meet and discuss with you or your staff at length how important this is; but explained concisely, as Secretary of Commerce Baldrige said, investors in technology can deal with adversity, but they cannot deal with uncertainty. Improved patent and trademark quality will mean that patents and trademarks are more certain to have proper scope (not too broad, nor too narrow) and more certain to be valid. Prompt issuance will mean that that proper scope will be known sooner, which will encourage investment sooner in the technology a patent represents, and it will encourage investment sooner in efforts to develop new technology that improves on a patent.

We continue to urge, however, that ending diversion of PTO user fees be made a part of any legislation to increase fees. While Congress has the power to tax almost anything, we are convinced that it is bad public policy to divert money paid by patent and trademark applicants to purposes other than supporting the Patent and Trademark Office. Since this practice began about 10 years ago, nearly $1,000,000,000 has been diverted in this way. If this money had been left in the hands of patent applicants and patent owners, much of it would have been invested in more research or in creating new jobs in new technology businesses. While the increased fees we support are necessary to improve patent quality and reduce the time it takes to issue a patent, we support them to the extent that fees paid to the PTO are used for their intended purpose of operating the PTO. We continue to urge Congress to end the pernicious and self-defeating diversion of fees. It is simply bad policy to tax innovation, and we oppose it.

The fee increases we will support are ones which the PTO can show are directly related to extra work users ask the PTO to do. For example, it is fair and proper for the Office to charge a larger fee for a longer patent application. Some of the fee increases proposed by the Office, however, have no relation to extra work, but are designed to end practices which applicants like but which the Office does not. For example, the Office has proposed one fee for each patent claim when the number is low, but as the number of claims increases, the Office proposes that the fee for each claim escalate in a way that is excessive relative to the added work

of examining the extra claim. We oppose such punitive fee increases, and we believe the revenue they would generate can be obtained more appropriately by increases in other fees, such as maintenance fees which become due after a patent has issued and its value is better known.

Turning to the Strategic Plan, we agree with the Plan's Vision of a quality-focused, productive and responsive organization supporting the American intellectual property system for the 21st Century. We agree on the Mission elements (see page 3 of the Plan) of enhancing quality, achieving a time to first action of less than 6 months measured from time of filing, achieving 18 months patent pendency measured in the traditional manner from time of filing (not measured from the time of a request for examination), and accelerating processing time by implementing e-Government (provided the implementation is user friendly, pilot tested and otherwise sound, including, e.g., security and provision for outages).

We agree also generally with global development, streamlining and strengthening systems around the world, and sharing search results with other IP offices, but only in areas where costs to the user are not increased and it has been proved by pilot tests that quality is maintained.

We do not agree, however, to reducing the number of patent examiner hires, unless it is established beforehand that it can be done without compromising the quality improvement and the pendency reduction elements of the Plan’s Mission statement. We also do not agree to competitively sourcing classification and search functions unless and until it can be proved by pilot studies that quality is maintained and costs to the user are not increased more than they would be by having the work done by the Office. We understand that the Office is no longer considering use of applicant commissioned searches by private firms, and we agree that such practices should not be adopted. We also oppose examination tracks that permit an applicant to defer examination of his or her application or any other form of deferral.

Concerning the Long-Term Agenda of the Plan, we disagree that Restriction Practice is a long-term item. It should be dealt with promptly, with the objective of implementing PCT unity of invention with specific, practical rules relative to biogenetic inventions by the end of the 108th Congress. The interim will be needed to study and work out appropriate fees and examination practices.

If you would like us to go into the subjects of this letter or its attachment in more detail, or if you have questions, please let us know.

Sincerely yours,

Mark T. Banner

Chair

Section of Intellectual Property Law

cc: Robert D. Evans

Lillian B. Gaskin

IP Law Section Officers