Blueprint of a gear train.

 Robert J. Yarbrough
Patent Attorney

 Patents - Inventions - Trademarks 


Letter to Senator Orrin G. Hatch, March 17, 2004

March 17, 2004

Hon. Orrin G. Hatch
Committee on the Judiciary
United States Senate
224 Dirksen Senate Office Building
Washington, DC 20510

Re: Pennsylvania Intellectual Property Forum

Dear Sen. Hatch,

This letter is to advise you of our concerns relating to the U.S. Patent and Trademark Office and the pending fee bill (H.R. 1561).
The Pennsylvania IP Forum is an organization of patent practitioners and intellectual property attorneys located principally in Southeastern Pennsylvania. While some of us represent large entities, all of us represent individual inventors and small entities. Large entities already have significant advocates in Washington. Our purpose is to provide a voice to individual inventors and small entities that otherwise would not be heard.
A.The Pennsylvania IP Forum has the following concerns:
1.    H.R. 1561 disproportionately affects small business.
While we agree that the Patent and Trademark Office (“PTO”) needs a dedicated funding source and additional revenues, we do not believe that the burden should fall disproportionately on small business. Vast differences exist between the length, complexity and time required to prepare and hence to review different patent applications. Although exceptions always will exist, individuals and small businesses generally produce shorter and simpler applications while large businesses generally produce lengthier and more complex applications. H.R. 1561 provides some recognition of the disparity in applications by providing a discount to small business. Nonetheless, we believe that the discount does not adequately reflect reality and that small business, particularly individual inventors and businesses with only a few employees, will subsidize large businesses under H.R. 1561.

Large businesses easily can afford the fee increases. Small businesses and individual inventors frequently operate on a shoestring and will be disproportionately affected by the increased fees. Fees can, and will, be a significant barrier to the development and protection of intellectual property by small business. The net result will be less innovation by small business and individual inventors and a less competitive economy.
2.    The PTO routinely ignores its duty to consider the effect of its rulemakings on small business.
The PTO has launched several massive rulemaking proposals in recent months. In each of the rulemakings, the PTO has ignored its obligations under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) to consider and explain the effect that each rulemaking will have on small business. Those rulemakings will have a substantial impact on patents and hence on innovation. We are concerned that the PTO is rushing to change its rules without a deliberate and extensive internal review and without fully considering the implications of its actions.

The Regulatory Flexibility Act requires that an agency evaluate and disclose the impact of a proposed regulation on small business. If there will be no impact, the head of the agency may so certify and the factual basis for the certification is required to be published in the Federal Register. See 5 USC 605(b). In each of the recent rulemakings, the PTO has certified that there will be no impact on small business. In each of the rulemakings, the PTO has failed to publish the factual basis for its certification.

We believe that the PTO has failed to publish the factual basis for the certification because the certification is not true and not supportable and no factual basis exists. Attached as Appendix 1 are copies of several emails exchanged between Stuart Bowie, a member of the Pennsylvania IP Forum, and the PTO’s Office of General Counsel relating to this issue. Although we have repeatedly requested that the agency supply us with the factual basis required by the Regulatory Flexibility Act for the certification, the PTO has failed to supply us with that factual basis. We can only conclude that a factual basis does not exist.

Our position is explained in detail in the attached letter to Acting Commissioner Dudas of the PTO. A copy of that letter is attached as Appendix 2. We believe that the proposed rules are void and any resulting regulations will be unenforceable due to the PTO’s failure to comply with the Regulatory Flexibility Act.

Principal among the recent proposed rulemakings is the “Changes to Support Implementation of the United States Patent and Trademark Office 21st Century Strategic Plan,” published at 68 Fed. Reg. 53816 (September 12, 2003). This rulemaking proposes substantial and important changes to the patenting system.  The ability of interested persons to comment on this rulemaking, or to even know that they are interested persons, is substantially impaired by the PTO’s failure to comply with the Regulatory Flexibility Act. The comments that the Pennsylvania IP Forum submitted relating to that rulemaking are attached as Appendix 3.
B.    Actions we request:

        1.     H.R. 1561
We request that H.R. 1561 be amended to reduce its effect on small business. At a minimum, the discount to small business should apply to all fees, including petition fees. The power of the PTO to create new categories of fees by regulation should be curtailed. If the PTO incorrectly takes an action that causes an applicant to incur a fee, such as a petition fee, the PTO should be required to reimburse the applicant for the fee and for the applicant’s reasonable attorney’s or agent’s fees in responding to the PTO action.

We request that an additional category of ‘micro’ businesses be created against which only nominal fees are assessed. A reasonable cutoff point for a ‘micro’ business would be, say, 20 employees. Such a category would serve to foster innovation among the youngest and most entrepreneurial businesses with the least ability to pay substantial fees.

We submit that Congress should impose upon any government agency which seeks to impose cost-based fees on taxpayers an absolute burden to present verifiable financial analyses justifying the monies sought. We submit that Congress should require that the financial analyses be prepared in accordance with the most current and conservative accounting principles that U.S. businesses must follow.  If the PTO has conducted no such studies, we request that such studies be conducted prior to the taking up by the Judiciary Committee of H.R. 1561 for consideration.

We request that the Judiciary Committee require the PTO to produce all studies used by the PTO to develop or justify H.R. 1561. We request that all such studies be made available to the public and made available on PTO’s web site.

We believe that the PTO has not met its burden and has not justified the fee increases of H.R. 1561, particularly as those fees apply to small businesses. The cost of examining a patent application is directly related to the size and complexity of the application. Unless the PTO has made a valid financial analysis of its costs in handling applications based on the size and complexity of the applications and has demonstrated how that analysis supports each newly proposed fee, we submit that the PTO has not met its burden and the fee request should be denied.
2. Regulatory Flexibility Act
We request that the PTO be held to the letter of Regulatory Flexibility Act and should be required to carefully consider the effect of its rulemakings on small business. We petition that the Judiciary Committee investigate the PTO’s failure to comply with the Act and the PTO’s failure to publish the factual basis for its conclusions. We further request that the Committee not accept unsupported conclusions by the PTO that there will be no effect on small business.
Thank you for your attention to this matter.


Robert J. Yarbrough
Pennsylvania Intellectual Property Forum

Sen. Charles E. Grassley                Sen. Patrick J. Leahy
Sen. Arlen Specter                       Sen. Edward M. Kennedy
Sen. Jon Kyl                                Sen. Joseph J. Biden, Jr.
Sen. Mike DeWine                         Sen. Herbert Kohl
Sen. Jeff Sessions                         Sen. Diane Feinstein
Sen. Lindsay Graham                      Sen. Russell D. Feingold
Sen. Larry Craig                            Sen. Charles E. Schumer
Sen. Saxby Chamblis                      Sen. Richard J. Durbin
Sen. John Cornyn                          Sen. John Edwards

Members of the House Committee on the Judiciary, Subcommittee on Courts, the Internet, and Intellectual Property

Hon. Jon W. Dudas, Acting Under Secretary and Acting Director, PTO
Mr. Thomas Sydnor, Esquire