House Passes USPTO Fee Bill

March 3, 2004. The House amended and approved HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003", by a vote of 379-28. See, Roll Call No. 38.

The bill contains increases in user fees that implement the U.S. Patent and Trademark Office's (USPTO) 21st Century Strategic Plan. It also provides for U.S. outsourcing of patent searches, and an end to the diversion of user fees to subsidize other government programs.

The Senate has yet to pass this, or a similar, bill.

Manager's Amendment. While the House Rules Committee had adopted a rule on March 2 that made three amendments in order, the House passed none of these. However, it did pass a manager's amendment [5 pages in PDF] drafted just prior to the floor debate. Rep. James Sensenbrenner (R-WI), the Chairman of the House Judiciary Committee, was the floor manager for the Republicans. This amendment addresses fee diversion, outsourcing of patent searches, and fees for small businesses.

First, this amendment contains language that would end the diversion of user fees. It provides that "There is established in the Treasury a Patent and Trademark Fee Reserve Fund. If fee collections by the Patent and Trademark Office for a fiscal year exceed the amount appropriated to the Office for that fiscal year, fees collected in excess of the appropriated amount shall be deposited in the Patent and Trademark Fee Reserve Fund. After the end of each fiscal year, the Director shall make a finding as to whether the fees collected for that fiscal year exceed the amount appropriated to the Patent and Trademark Office for that fiscal year. If the amount collected exceeds the amount appropriated, the Director shall, if the Director determines that there are sufficient funds in the Reserve Fund, make payments from the Reserve Fund to persons who paid patent or trademark fees during that fiscal year. The Director shall by regulation determine which persons receive such payments and the amount of such payments, except that such payments in the aggregate shall equal the amount of funds deposited in the Reserve Fund during that fiscal year, less the cost of administering the provisions of this paragraph."

For many Congresses members of the House Judiciary Committee, as well as many intellectual property owners, and the groups that represent them, have sought to end to the process of diverting user fees collected by the USPTO to fund other government programs. The members of the House Appropriations Committee (HAC) have been at the center of the opposition to ending the diversion of fees.

However, in early February, Rep. Sensenbrenner negotiated a compromise approach with members of the HAC, that is reflected in this manager's amendment. It provides that the HAC will still set the budget for the USPTO, but that if the total of user fees collected exceed the budget, the excess will be refunded, rather than diverted to other government programs.

Rep. Frank Wolf (R-VA), the Chairman of the HAC's subcommittee with jurisdiction over the USPTO, spoke in support of the compromise language, and the bill, during the floor debate. And consequently, in the final vote, only three of the 65 members of the HAC voted against the bill.

Second, this manager's amendment limits outsourcing of patent searches. In addition to the provisions limiting the USPTO's discretion to outsource patent searches that were already contained in the bill as reported by the House Judiciary Committee, this manager's amendment adds restrictions to assure that any outsourced searching is conducted by U.S. companies and U.S. citizens.

This amendment provides that the Director of the USPTO "shall require that any search by a qualified search authority that is a commercial entity is conducted in the United States by persons that -- (i) if individuals, are United States citizens; and (ii) if business concerns, are organized under the laws of the United States or any State and employ United States citizens to perform the searches."

It also provides that "A search of an application that is the subject of a secrecy order under section 181 or otherwise involves classified information may only be conducted by Office personnel."

It also provides that "A qualified search authority that is a commercial entity may not conduct a search of a patent application if the entity has any direct or indirect financial interest in any [patent, or any] pending or imminent application for patent filed or to be filed in the Patent and Trademark Office."

[Editor's note: TLJ obtained two copies of the manager's amendment on March 2 from staff -- a PDF copy that does not contain the words in brackets, "patent or any", and a paper copy that includes these words inserted by hand.]

The inclusion of these provisions substantially eliminated opposition to the bill based upon outsourcing concerns. However, one member, Rep. Marcy Kaptur (D-OH) still argued against the bill, in part, because of her concerns about outsourcing.

Third, the manager's amendment provides for fee reductions for small businesses. The Rules Committee had made in order a stand alone amendment to be offered by Rep. Don Manzullo (R-IL), the Chairman of the House Small Business Committee, that would have reduced fees for small businesses.

The compromise language in the manager's amendment satisfied Rep. Manzullo. He spoke in support of the manager's amendment, and the bill, during floor debate. And consequently, only one member of the Small Business Committee voted against the bill.

Finally, the Rules Committee had made in order an amendment, to be offered by Rep. Sheila Lee (D-TX), requiring some outsourcing to minority and woman owned businesses. It provided that "the Director shall ensure that a substantial number of searches by qualified search authorities that are commercial entities are conducted by persons that -- (i) if individuals, are United States citizens; and (ii) if business concerns, are organized under the laws of the United States or any State, or are small business concerns, minority-owned business concerns, or business concerns that are owned by women."

At the time for its introduction, Rep. Lee was not present in the House to offer it. The House waited, to give her an opportunity to come to the floor. She did not. No one else offered her amendment.

Floor Debate. The House engaged in a floor debate in which Republicans and Democrats praised the bill. Rep. Sensenbrenner was the Republican floor manager. Rep. Howard Berman (D-CA), the ranking Democrat on the House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property (CIIP), was the Democratic floor manager.

Rep. Sensenbrenner stated that the new fee structure contained in HR 1561 will reduce patent pendency, improve patent quality, and provide for full electronic processing of patent and trademark applications.

He stated that there is a patent backlog of 475,000 now, and that this could grow to over one million if HR 1561 does not become law.

He also stated that "time is money in the intellectual property world". He elaborated that without the bill, pendency could grow to six or eight years.

Rep. Kaptur (at left) was the sole opponent of the bill during the floor debate. (However, Rep. Alcee Hastings (D-FL), spoke in opposition to the bill when the House considered the rule adopted by the Rules Committee.)

Kaptur spoke apocalyptically, and with zeal. She said that "HR 1561 dismantles the Patent and Trademark Office as we have known it." Moreover, the bill "verges on insanity".

She focused on outsourcing. She said that "this is another episode, really, in the outsourcing of American jobs", and that "now the federal government is getting into the act." She raised the specter of foreign outsourcing.

Rep. Berman responded the manager's amendment limits outsourcing to U.S. entities. Rep. Kaptur then stated that U.S. companies could mean Honda and Daimler. Rep. Berman responded that the manager's amendment limits the outsourced work to U.S. citizens. Then, Rep. Kaptur raised "Soviet Union" submarines.

She also held up a copy of the Constitution, read the patent and trademark clause, and argued that the outsourcing provisions of the bill are unconstitutional. She cited no precedent.

She also asked, "How in heaven's name does this make America any more secure?"

Rep. Sensenbrenner repeatedly yielded more time to her.

Rep. Zoe Lofgren (D-CA), who represents a Silicon Valley district, spoke in support of the bill. She said that the innovators in her district do not oppose the fee increases. Rather, they oppose the fee diversions. She called this a "tax on innovation."

Rep. Howard Coble (R-NC), a former CIIP Subcommittee Chairman who has labored for years to end the diversion of USPTO, also spoke in support of the bill. He also argued that the USPTO's Strategic Plan, and this bill, will make the USPTO more "consumer friendly".

Rep. Lamar Smith (R-TX), the current CIIP Subcommittee Chairman, also spoke in support of the bill. He said that "without a strong PTO our economy would be diminished" and "jobs would be lost".

Rep. Robert Wexler (D-FL) also discussed the economic impact. He said that unless this bill is passed, an overburdened USPTO "will deter the innovators of America". He continued that "one of the ways in which to assist American workers .. is to allow the Patent and Trademark Office these reforms."

Final Vote. In the end, there were only 28 no votes. These votes can be characterized. 11 no votes came from members of the Black Caucus, perhaps as a consequence of the Lee amendment not being offered and passed. 10 no votes came white Democrats from rust belt states, such as Rep. Kaptur. 4 no votes came from representatives of the Maryland suburbs of Washington and Baltimore that are the residence of many government workers.

However, while 4 of the 8 members of the Maryland delegation voted no, the Virginia delegation voted 11-0 in favor. The USPTO is located in northern Virginia, and most of its workers live there.

The members of the Black Caucus who vote no were Julia Carson (D-IN), William Clay (D-MO), Elijah Cummings (D-MD), Alcee Hastings (D-FL), Jesse Jackson (D-IL), Sheila Lee (D-TX), John Lewis (D-GA), Kendrick Meek (D-FL), Maxine Waters (D-CA), Diane Watson (D-CA), and Al Wynn (D-MD).

The other Democrats who voted no were Sherrod Brown (D-OH), Jerry Costello (D-IL), Lane Evans (D-IL), Rush Holt (D-NJ), Paul Kanjorski (D-PA), Marcy Kaptur (D-OH), James Oberstar (D-MN), David Obey (D-WI), Dutch Ruppersberger (D-MD), Janice Schakowsky (D-IL), and Strickland Visclosky (D-IL).

The Republicans who voted no were Roscoe Bartlett (R-MD), Duncan Hunter (R-CA), Walter Jones (R-NC), and Ron Paul (R-TX). Rep. Paul, an ardent libertarian, frequently votes no. The other three are all members of the House Armed Services Committee.

And, Bernie Sanders (I-VT) voted no.

Only 3 members from the west coast voted no (Waters, Watson, Hunter). No members from the mountain or prairie states voted no. One member from New England or New York (Sanders) voted no.