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107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    107-190

======================================================================



 
         PATENT AND TRADEMARK OFFICE AUTHORIZATION ACT OF 2002

                                _______
                                

 August 2, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2047]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 2047) to authorize appropriations for the United 
States Patent and Trademark Office for fiscal year 2002, and 
for other purposes, having considered the same, reports 
favorably thereon with an amendment and recommends that the 
bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     5
Committee Consideration..........................................     5
Vote of the Committee............................................     5
Committee Oversight Findings.....................................     5
Performance Goals and Objectives.................................     5
New Budget Authority and Tax Expenditures........................     7
Congressional Budget Office Cost Estimate........................     7
Constitutional Authority Statement...............................     9
Section-by-Section Analysis and Discussion.......................     9
Markup Transcript................................................    10

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Patent and Trademark Office 
Authorization Act of 2002''.

SEC. 2. AUTHORIZATION OF AMOUNTS AVAILABLE TO THE PATENT AND TRADEMARK 
                    OFFICE.

    There are authorized to be appropriated to the United States Patent 
and Trademark Office for salaries and necessary expenses for fiscal 
year 2002 an amount equal to the fees collected in fiscal year 2002 
under title 35, United States Code, and the Trademark Act of 1946 (15 
U.S.C. 1051 et seq.).

SEC. 3. ELECTRONIC FILING AND PROCESSING OF PATENT AND TRADEMARK 
                    APPLICATIONS.

    (a) Electronic Filing and Processing.--The Under Secretary of 
Commerce for Intellectual Property and Director of the United States 
Patent and Trademark Office (in this Act referred to as the 
``Director'') shall, during the 3-year period beginning October 1, 
2001, develop an electronic system for the filing and processing of 
patent and trademark applications, that--
            (1) is user friendly; and
            (2) includes the necessary infrastructure--
                    (A) to allow examiners and applicants to send all 
                communications electronically; and
                    (B) to allow the Office to process, maintain, and 
                search electronically the contents and history of each 
                application.
    (b) Authorization of Appropriations.--Of amounts authorized under 
section 2, there is authorized to be appropriated to carry out 
subsection (a) of this section not more than $50,000,000 for fiscal 
year 2002. Amounts made available pursuant to this subsection shall 
remain available until expended.

SEC. 4. STRATEGIC PLAN.

    (a) Development of Plan.--The Director shall, in close consultation 
with the Patent Public Advisory Committee and the Trademark Public 
Advisory Committee, develop a strategic plan that sets forth the goals 
and methods by which the United States Patent and Trademark Office 
will, during the 5-year period beginning on October 1, 2002--
            (1) enhance patent and trademark quality;
            (2) reduce patent and trademark pendency; and
            (3) develop and implement an effective electronic system 
        for use by the Patent and Trademark Office and the public for 
        all aspects of the patent and trademark processes, including, 
        in addition to the elements set forth in section 3, searching, 
        examining, communicating, publishing, and making publicly 
        available, patents and trademark registrations.
The strategic plan shall include milestones and objective and 
meaningful criteria for evaluating the progress and successful 
achievement of the plan. The Director shall consult with the Public 
Advisory Committees with respect to the development of each aspect of 
the strategic plan.
    (b) Report to Congressional Committees.--The Director shall, not 
later than January 15, 2002, or 4 months after the date of the 
enactment of this Act, whichever is later, submit the plan developed 
under subsection (a) to the Committees on the Judiciary of the House of 
Representatives and the Senate.

SEC. 5. EFFECTIVE DATE.

    This Act shall take effect on October 1, 2001.

                          Purpose and Summary

    The purpose of H.R. 2047 is to authorize the Patent and 
Trademark Office (PTO) to retain all of the user fee revenue it 
collects in fiscal year 2002 for agency operations. In 
addition, PTO is to earmark a portion of this revenue to 
address problems relating to its computer systems, and to 
develop a 5-year strategic plan to establish goals and methods 
by which the agency can enhance patent and trademark quality 
while reducing application pendency.

                Background and Need for the Legislation

                    PTO Funding Diversion: a 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. 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. Congress later 
extended the surcharge provisions for an additional 3 years; 
and when it expired at the end of fiscal year 1998, Congress 
increased the statutory fees to compensate for the lapse of the 
surcharge.
    Denying PTO the ability to spend fee revenue in the same 
fiscal year in which it collects the revenue effectively allows 
Congress and the Administration to spend an equivalent amount 
on some other program without exceeding annual budget caps. 
Although the money is technically available to PTO the 
following year, one could argue that 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 
each succeeding fiscal year.
    In sum, since 1992, more than $600 million in PTO fee 
revenue has been diverted, rescinded, or otherwise not made 
available to the agency as a result of these practices.

             The Administration Budget for Fiscal Year 2002

    The budget which President Bush submitted to Congress in 
April estimates that the PTO will raise $1.346 billion in fee 
revenues in fiscal year 2002 and proposes to give the PTO 
$1.139 billion of that sum. This means that if the President's 
budget estimates are accurate, the PTO would have some $207 
million in fee revenues withheld or diverted in the upcoming 
fiscal year.
    Not surprisingly, the Fiscal Year 2002 Corporate Plan of 
the Department of Commerce for the United States Patent and 
Trademark Office, published in April, reveals that pendency 
rates are expected to increase, along with pending application 
backlogs. The Corporate Plan also contains a chart that 
projects patent pendency to escalate to 38.6 months by fiscal 
year 2006, assuming the agency is allowed to retain all the fee 
revenue it collects beginning in fiscal year 2003.
    The outlook worsens when taking into account that the 
President's budget projects annual fee diversion to exceed $184 
million (on average) in each of fiscal years 2003 through 2006. 
Again, even if the PTO receives all of its fee revenue, the 
agency forecasts a patent pendency of 3 years and 2\1/2\ 
months. As a practical matter, however, actual pendency will 
escalate more dramatically since the President's budget would 
divert an additional $700 million-plus in fiscal years 2003 
through 2006.

              Other Agency Problems Addressed by H.R. 2047

    East-West Computer System. Patent agents have complained to 
the Subcommittee about the PTO automated retrieval system used 
by examiners and agents. The PTO has two computer systems in 
place: ``EAST'' (Examiner's Automated Search Tool) and ``WEST'' 
(Web-Based Examiner Search Tool). These computerized systems 
are similar with respect to their search functions and the 
databases that they access (e.g., prior U.S. patents, foreign 
patent abstracts, certain pending U.S. applications, and 
additional proprietary database libraries.). The PTO reports 
that as of February 2001, approximately 2,500 examiners used 
EAST/WEST.
    Briefly, critics assert that these search engines are 
inferior to the old ``APS'' system, especially concerning 
computer screen image quality. Some users of EAST/WEST maintain 
that its alleged deficiencies, combined with the difficulty of 
trying to access non-automated or earlier automated tools, will 
ultimately result in a degradation of future patent searches. 
Further, the PTO is considering the removal and eventual 
destruction of the older ``hard-copy'' paper versions of 
patents in an effort to automate fully. The PTO claims that 63% 
of examiners indicate that they do not need the U.S. paper 
files any longer. Critics respond that the paper files are 
extremely valuable and that their disposal is premature.
    Electronic Filing and Processing of Applications. As part 
of the PTO effort to improve and automate its operations, the 
agency is slowly moving toward the full electronic filing and 
processing of patent and trademark applications. While not yet 
implemented, this planned conversion has generated some 
concerns among filers and examiners.
    The PTO has published a Federal Register notice explaining 
that it is pursuing the mandatory electronic filing of 
trademark applications. Some critics argue that this is a 
heavy-handed Federal mandate that hurts small businesses and 
independent entrepreneurs pursuing trademark registration. 
Instead, they argue that the PTO should provide incentives for 
electronic filing while providing users with the option of 
choosing the method of filing for themselves, based either on a 
reduced fee or some form of expedited processing. The PTO and 
other supporters argue that given the relative simplicity of 
the trademark application, a user should reasonably expect to 
file electronically as an accommodation to efficiency.
    In addition, while the PTO currently permits the electronic 
filing of patent applications, their processing by the PTO is 
likened to an ``empty shell.'' The PTO does not electronically 
process the applications during the examination, but instead 
prints out the applications and circulates the paper through 
the office. It is argued that examiners are more accustomed to 
reviewing patent applications in the paper format. Critics 
charge that this method of processing defeats the efficiency 
gains sought by electronic filing, increases the pendency 
rates, and hurts innovation and the dissemination of knowledge. 
The critics of business method patents are particularly 
concerned since there are thousands of these applications 
currently pending, as the application time lags.

                                Hearings

    The Committee's Subcommittee on Courts, the Internet, and 
Intellectual Property held 1 hearing on the operations of the 
Patent and Trademark Office and H.R. 2047 on June 7, 2001. 
Testimony was received from four witnesses representing four 
organizations, with additional materials submitted by four 
individuals and organizations.

                        Committee Consideration

    On June 14, 2001, the Subcommittee on Courts, the Internet, 
and Intellectual Property met in open session and ordered 
favorably reported the bill H.R. 2047, as amended, by voice 
vote, a quorum being present. On July 24, 2001, the Committee 
met in open session and ordered favorably reported the bill 
H.R. 2047 with an amendment by voice vote, a quorum being 
present.

                         Vote of the Committee

    There were no recorded votes on H.R. 2047.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII 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 on the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    In order to improve PTO performance cost-effectively, the 
agency must develop clearly defined goals and objectives 
relating to patent and trademark quality, patent and trademark 
pendency, and electronic application processing. Users of the 
PTO believe that the quality of patent examination must be 
improved. The agency's fundamental objective should be to 
produce quality patents and trademark registrations on a timely 
basis. Full electronic processing of applications should be 
designed and implemented to improve productivity and enhance 
quality.
    Witnesses at the June 7, 2001, hearing testified that the 
PTO must have additional resources to conduct thorough and 
complete searches and examinations that produce the high 
quality patents and trademark registration that industry needs. 
Today, many U.S. patent applicants routinely file under the 
Patent Cooperation Treaty and request that the European Patent 
Office conduct the search of their applications, the perception 
being that the European system produces higher quality 
searches. The PTO should develop a plan, with identifiable 
milestones, for improving the quality of both its searches and 
examinations to enhance the ultimate quality of the resulting 
patents and trademark registrations. In addition, the PTO 
should develop objective, quantifiable criteria for measuring 
patent and trademark quality. While the Committee recognizes 
that no quality measures can completely eliminate subjectivity, 
the PTO should design criteria that will allow this Committee 
and the users to evaluate the progress of the agency toward 
greater quality. The indicia demonstrating the progress of the 
PTO in achieving enhanced quality should be published on a 
regular basis. The Committee expects to see increasing 
confidence in the business, scientific, and financial sectors 
flowing from stronger and more reliable patents and trademark 
registrations.
    Rising patent and trademark application pendency is 
unacceptable. While the recent slowdown in the economy has 
alleviated the rise in trademark application pendency, the rise 
in patent application pendency continues unabated. The PTO 
itself projects patent application pendency to 3 years by 
fiscal year 2006 even if it receives all of its fee revenues 
beginning in fiscal year 2003. The Committee expects the PTO to 
develop innovative and cost-effective procedures for reducing 
patent application pendency while enhancing the quality of the 
resulting product. For example, the PTO should eliminate any 
task currently imposed on examiners that can be handled by 
administrative staff. It should design its electronic 
processing systems to eliminate unnecessary clerical procedures 
that are currently conducted manually, freeing staff to assist 
examiners by performing more value-added tasks that will 
enhance the productivity of examiners. The PTO also should 
begin taking advantage of the possible efficiencies by relying 
on the earlier search and examination results from the European 
Patent Office performed under the Patent Cooperation Treaty. 
More imaginative use of contract personnel to assist examiners 
in administrative tasks should be evaluated.
    The quest for increasing the reliability and enforceability 
of patents as well as delivering them in a timelier manner 
should take into account the enhancement and use of post-grant 
reexamination proceedings within the PTO. More effective patent 
reexamination can supplement the PTO's examination before 
patent grant and provide confidence to the public that patents 
are valid.
    The Committee recognizes that the plans the PTO is being 
directed to develop will almost certainly demonstrate a need 
for resources that could easily exceed the revenue that the 
Office currently collects. Thus, in the short-term, the PTO may 
need to access previously withheld fee revenues to reverse the 
present decline and place the agency on a road toward recovery. 
The Committee does not rule out the possibility that increases 
in the statutory fees for filing, issuing, and maintaining 
patents and for registering and renewing trademarks may need to 
be examined. A sine qua non of any such consideration, however, 
would be a guarantee that any enhanced revenue would be fully 
dedicated to improving PTO operations.
    The Committee has found that in response to past budget 
uncertainties, the PTO opted to forego planned investments in 
work-saving information technology and focused almost 
exclusively on staffing levels needed to process current 
workloads. Agency plans for more completely and efficiently 
utilizing information technology should be specific, include 
the cost of discrete deliverables, set forth meaningful 
milestones, and identify objective and meaningful criteria for 
evaluating the benefits achieved. Based on the testimony 
presented by the PTO, the Committee expects the agency, with 
adequate funding, to develop a seamless electronic process from 
filing through grant or registration in 3 years. The goal 
should be to create a system that enables the PTO and its 
patent and trademark customers to send all communications to 
each other electronically. Experience with the electronic 
filing system for trademarks to date suggests that it provides 
convenience and lower costs for applicants as well for the PTO. 
While the Committee recognizes that some applicants will not be 
in a position to take advantage of the efficiencies of 
electronic filing and will continue to file in paper, it is 
expected that the agency will provide an appropriate interface 
with the electronic system so as to maximize the benefits of 
the system.
    In developing the plans, milestones, goals, and measurement 
criteria with respect to quality, pendency, and the development 
of information technology programs, the Committee expects the 
Director to consult with the public advisory committees and to 
keep this Committee fully apprised of its progress as well as 
any needs for adjustments in direction and scope.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 2047, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 31, 2001.
Hon. F. James Sensenbrenner, Jr., 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. 2047, the Patent 
and Trademark Office Authorization Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Ken Johnson, 
who can be reached at 226-2860.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers Jr.
        Ranking Member
H.R. 2047--Patent and Trademark Office Authorization Act of 2002.

                                SUMMARY

    H.R. 2047 would authorize the appropriation of funds for 
the Patent and Trademark Office (PTO) in 2002 equal to the 
amount of fees collected by the agency during that year. The 
bill would authorize the appropriation of up to $50 million 
from that total for the development of a new computer system 
for processing patent and trademark applications.
    CBO estimates that implementing H.R. 2047 would increase 
the gross spending of the PTO by $1,198 million over the 2002-
2004 period, subject to appropriation action consistent with 
this bill. Assuming that the 2002 appropriation act permits PTO 
to collect fees as authorized in current law, CBO estimates 
that implementing the bill would not have a significant net 
impact on the budget over the 2002-2005 period. The bill would 
not affect direct spending or receipts; therefore, pay-as-you-
go procedures would not apply.
    H.R. 2047 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on State, local, or tribal 
governments.

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 2047 is shown in the 
following table. The costs of this legislation fall within 
budget function 370 (commerce and housing credit).

                 By Fiscal Year, in Millions of Dollars
------------------------------------------------------------------------
                               2001    2002    2003   2004   2005   2006
------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Net PTO Spending Under
 Current Law
  Estimated Budget Authority    -59        0      0      0      0      0
 \1\
  Estimated Outlays            -272      304     89      0      0      0

Proposed Changes
  Gross PTO Spending
    Estimated Authorization       0    1,198      0      0      0      0
 Level
    Estimated Outlays             0      761    307    107     23      0

Offsetting Collections
  Estimated Authorization         0   -1,198      0      0      0      0
 Level \2\
  Estimated Outlays               0   -1,198      0      0      0      0

Net Changes
  Estimated Authorization         0        0      0      0      0      0
 Level
  Estimated Outlays               0     -437    307    107     23      0

Net PTO Spending Under H.R.
 2047
  Estimated Authorization       -59        0      0      0      0      0
 Level \1\
  Estimated Outlays            -272     -133    396    107     23      0
------------------------------------------------------------------------
1. The 2001 level is the estimated net amount appropriated for that
  year.
2. The 2002 level reflects CBO's estimate of fees to be collected by the
  PTO, subject to appropriation action.

                           BASIS OF ESTIMATE

    Under current law, the PTO is authorized to collect fees 
for a variety of activities, including the filing and 
processing of patent and trademark applications. These fees are 
collected to the extent and in the amounts authorized in annual 
appropriations acts, and they are recorded in the budget as 
offsets to the discretionary spending of the PTO. CBO estimates 
that the agency will collect a total of about $1.1 billion in 
fees in 2001.
    In general, these fee collections cover the PTO's operating 
expenses. However, the 2001 appropriation act for the PTO 
placed a limit on the amount of fee collections that the agency 
could spend. Of the estimated $1.1 billion in fees that will be 
collected in 2001, the act allowed the PTO to spend $784 
million. (The act also allowed the agency to spend $255 million 
from fees collected in 1999 and 2000, giving the PTO a gross 
appropriation of $1,039 million and an estimated net 
appropriation of -$59 million for 2001.)
    H.R. 2047 would authorize a gross appropriation for the PTO 
in 2002 equal to the full amount of fees collected by the 
agency in that year. CBO estimates that the agency will collect 
$1,198 million in 2002. From this amount, the bill also would 
authorize the appropriation of up to $50 million for a new 
computer system to process patent and trademark applications. 
Assuming that the 2002 appropriation act permits the PTO to 
collect fees and spend the amounts collected, CBO estimates 
that implementing the bill would cause the gross spending of 
the PTO to increase by a total of $1,198 million over the 2002-
2005 period. However, CBO estimates that the agency's 
collections and spending would offset each other over the 
course of that period.

                      PAY-AS-YOU-GO CONSIDERATIONS

    None.

              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

    H.R. 2047 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would impose no costs on State, 
local, or tribal governments.

                         ESTIMATE PREPARED BY:

Federal Costs: Ken Johnson (226-2860)
Impact on State, Local, and Tribal Governments: Shelley 
    Finlayson (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article 1, section 8, clause 8 of the 
Constitution.

               Section-by-Section Analysis and Discussion

    Sec. 1. Short Title. The short title of H.R. 2047 is the 
``Patent and Trademark Authorization Act of 2002.''
    Sec. 2. Authorization of Amounts Available to the Patent 
and Trademark Office. H.R. 2047 would authorize the PTO to 
receive appropriations for fiscal year 2002 in an amount equal 
to those fees collected by the agency in the same year. If 
enacted, however, this full-funding authorization would still 
be subject to appropriations.
    Sec. 3. Electronic Filing and Processing of Patent and 
Trademark Applications. In light of criticism of agency 
operations by users, section 3(a) of the bill requires the 
Director to develop an electronic system for the filing and 
processing of patent and trademark applications that is user-
friendly. This electronic system must also allow examiners and 
applicants to send all communications electronically, and 
should allow the PTO to process, maintain, and search 
electronically the contents and history of each application. 
Pursuant to an amendment offered with another provision en bloc 
at the full Committee markup, section 3(a) specifies that the 
system will be developed over a 3-year period, consistent with 
the expectations of the PTO and the patent and trademark 
communities. This amendment creates legislative support for the 
3-year program but will not conflict with the 1-year 
authorization set forth in section 2.
    Of the funds available pursuant to section 2 of the bill, 
section 3(b) authorizes $50,000,000 in fiscal year 2002 for 
this purpose, and these funds shall remain available until 
expended.
    Sec. 4. Strategic Plan. Similarly, section 4(a) of the bill 
requires the Director, with the assistance of both PTO public 
advisory committees, to develop a 5-year strategic plan setting 
forth the goals and methods by which the PTO will enhance 
patent and trademark quality, reduce patent and trademark 
pendency, and develop and implement an effective electronic 
system for use by the agency and the public for all aspects of 
the patent and trademark processes. In development of the plan 
and in the public interest of assuring a diversity of sources 
for patent and trademark information, the Director, and the 
advisory committees, shall make every effort not to harm the 
market of private sector patent and trademark information 
service providers who purchase bulk data from the PTO and 
provide services related to patent and trademark information 
for a fee.
    The strategic plan shall include milestones and objective 
and meaningful criteria for evaluating the progress and 
successful achievement of the plan; and the 5-year period for 
its implementation will commence on October 1, 2002.
    Finally, the amendment in the nature of a substitute as 
reported by the Subcommittee required the PTO to submit its 
report governing the development of the 5-year strategic plan 
no later than January 15, 2002, approximately 4 months after 
the date of enactment (October 1, 2001). It is possible, 
however, that Congress will enact H.R. 2047 after October 1, 
2001--late November or December, for example--in which case the 
PTO would have insufficient time to produce a quality report. 
The second amendment adopted en bloc at full Committee 
therefore changes the submission date to January 15, 2002, or 4 
months after the date of enactment, whichever is later. This 
ensures that the PTO will not submit a hastily-developed 
report.
    Sec. 5. Effective Date. The effective date of H.R. 2047 is 
October 1, 2001.

                           Markup Transcript



                            BUSINESS MEETING

                         TUESDAY, JULY 24, 2001

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr. (Chairman of the Committee) presiding.
    Chairman Sensenbrenner. The Committee will be in order. A 
working quorum is present.
    The last item on the agenda is H.R. 2047, the Patent and 
Trademark Office Authorization Act of 2002.
    [The bill, H.R. 2047, follows:]
    
    
    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from North Carolina, Mr. Coble, for purposes of making a 
motion.
    Mr. Coble. Mr. Chairman, the Subcommittee on Courts, the 
Internet, and Intellectual Property reports favorably the Bill 
H.R. 2047 with a single amendment in the nature of a substitute 
and moves its favorable recommendation to the full House.
    [The statement of Mr. Coble follows:]
 Prepared Statement of the Honorable Howard Coble, a Representative in 
               Congress From the State of North Carolina
    Mr. Chairman, H.R. 2047 would help to correct the diversion problem 
at the PTO by authorizing the agency to keep all of the fee revenue it 
raises in fiscal year 2002. In addition, and consistent with this 
emphasis on oversight, the legislation sets forth two problem areas 
that PTO should address in the coming fiscal year, irrespective of its 
overall budget: First, the PTO Director is required to develop an 
electronic system for the filing and processing of all patent and 
trademark applications that is user friendly and that will allow the 
Office to process and maintain electronically the contents and history 
of all applications. Fifty-million dollars are earmarked for this 
project in fiscal year 2002. Second, the Director, in consultation with 
the Patent and Trademark Public Advisory Committees, must develop a 
strategic plan that prescribes the goals and methods by which PTO will 
enhance patent and trademark quality, reduce pendency, and develop a 
21st Century electronic system for the benefit of filers, examiners, 
and the general public.
    Mr. Chairman, H.R. 2047 will allow the patent and trademark 
communities to get more bang for their filing and maintenance buck, 
while enhancing the likelihood that the agency will receive greater 
appropriations in the upcoming fiscal year and in the future. It is a 
bill that benefits the PTO, its users, and the American economy. I urge 
my colleagues to support it.

    [The amendment follows:]
    
    
    Chairman Sensenbrenner. Okay. Without objection, the bill 
will be considered as read and open for amendment at any point.
    And the Subcommittee amendment in the nature of a 
substitute, which the Members have before them, will be 
considered as read and considered as the original text for 
purposes of an amendment.
    I understand the gentleman from North Carolina has an 
amendment to the Subcommittee amendment.
    Mr. Coble. I have two amendments at the desk which will be 
offered en bloc.
    [The statement of Mr. Coble follows:]
 Prepared Statement of the Honorable Howard Coble, a Representative in 
               Congress From the State of North Carolina
    Mr. Chairman, this is an en bloc amendment that contains two minor 
noncontroversial changes that have been drafted with the participation 
of the minority.
    First, the amendment will specify that section 3(a) of the bill 
which governs the development of the electronic filing and processing 
system will be done over a three-year period. This three-year timetable 
is consistent with the expectations of the PTO and the patent and 
trademark user communities. This revision creates legislative support 
for the three-year program but will not conflict with the one-year 
authorization set forth in section 2.
    Second, the substitute as reported by the Subcommittee requires the 
PTO to submit its report governing the development of the five-year 
strategic plan no later than January 15, 2002, approximately four 
months after the date of enactment (October 1, 2001). It is possible, 
however, that Congress will enact H.R. 2047 much later than October 1, 
2001--late November or December, for example--in which case the PTO 
would have insufficient time to produce a quality report. The amendment 
therefore changes the submission date to January 15, 2002, or four 
months after the date of enactment, whichever is later. This ensures 
that the PTO will not submit a hastily-developed report.
    Again, Mr. Chairman, these are noncontroversial changes that will 
improve the legislation, and I urge their adoption.

    [The amendment follows:]
    
    
    [The statement of Mr. Berman follows:]
Prepared Statement of the Honorable Howard L. Berman, a Representative 
                in Congress From the State of California
    Mr. Chairman,
    Thank you for agreeing to markup H.R. 2047 today.
    I ask that my colleagues support both H.R 2047 and the en bloc 
amendment to be offered by Mr. Coble. This bill, as amended, 
accomplishes several important goals related to the efficient 
functioning of the PTO.
    While prior authorizations for the PTO have depended on the amounts 
appropriated, this bill authorizes the PTO to use all the fees it 
collects in fiscal year 2002. In doing so, H.R. 2047 brings us one step 
closer to the goal of legislating full PTO funding. It also puts the 
burden on appropriators to justify an appropriation of less than the 
authorized amount.
    The PTO's ability to use all its fees directly affects its ability 
to fulfill its critical mission of promoting innovation and creativity. 
PTO fees are determined based on the cost of providing services. Thus, 
the fees paid by patent and trademark applicants are supposed the 
reflect the cost of processing their applications. When fees are 
diverted to fund unrelated agencies, much less unrelated activities 
within the PTO, insufficient revenues remain to promptly examine and 
issue high quality patents and trademarks.
    The PTO collects well over a billion dollars a year in user fees, 
and every year a substantial portion of that money is diverted--used as 
an interest-free loan to promote unrelated programs. These yearly 
diversions are cumulative and may total nearly $900 million by the end 
of FY 2002.
    I believe Congress should repeal the Innovation Tax by ensuring 
that the PTO can use all the fees it receives, and we can start this 
process by passing H.R. 2047.
    H.R. 2047 also requires the PTO to develop and send to Congress a 
five-year strategic plan. To date, the appropriators have excused their 
fee diversions on the basis that the PTO cannot explain the need for 
these fees. I agree that the PTO needs to do a better job of clearly 
and specifically outlining how it would use all fee revenues. H.R. 2047 
would generate this information by requiring the PTO to provide a five-
year strategic plan to Congress.
    H.R.2047 also would accomplish an important substantive goal. The 
bill requires the PTO to establish a system for the electronic 
processing, maintenance, and searching of patent applications. 
Currently, the PTO has set up a sort of Potemkin village, where patent 
applications can be electronically filed, but then must be printed out 
and examined in hard copy. This system incurs unnecessary 
administrative costs, sometimes results in the loss of key information, 
and effectively prevents pending applications from becoming a useful 
source of prior art.
    In sum, H.R. 2047 is a good bill that will increase the 
effectiveness and efficiency of the PTO.
    Again, I ask the support of my colleagues in favorably reporting 
H.R. 2047.
    I yield back the balance of my time.

    Chairman Sensenbrenner. The clerk will report the 
amendments. Without objection, they will be considered en bloc. 
Without objection, the amendments will be considered as read.
    Those in favor of the amendments en bloc will signify by 
saying aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
amendments en bloc are agreed to.
    The question is on the amendment in the nature of a 
substitute, as amended.
    Those in favor will signify by saying aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
amendment in the nature of a substitute is agreed to.
    The Chair notes the presence of a reporting quorum.
    The question occurs on the motion to report the bill H.R. 
2047 favorably, as amended by the amendment in the nature of a 
substitute.
    All in favor will signify by say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
motion to report favorably is adopted.
    Without objection, the bill will be reported in the form of 
a single amendment in the nature of a substitute reflecting the 
amendments adopted today.
    Without objection, the Chair is authorized to move to go to 
conference pursuant to House rules.
    Without objection, the staff is directed to make any 
technical and conforming changes, and all Members will be given 
2 days, as provided by House rules, in which to submit 
additional dissenting supplemental or minority views.
    And the Chair thanks the indulgence of everybody. We have 
accomplished a lot of work today, and the Committee stands 
adjourned.
    [Whereupon, at 12:24 p.m., the Committee was adjourned.]