Introduction (See breaking news below in Addition One, below)
The United States Patent and Trademark Office (USPTO) operates on a fee-for-service model, funded primarily by fees paid by applicants for patent and trademark services. However, fee diversion—a practice of reallocating USPTO fees to other government purposes—has historically impacted the agency’s operations. Fee diversion was a huge issues around a decade ago, but has since faded in the wake of the America Invents Act. This article explores how the USPTO is funded, what fee diversion entails, and its historical context.
The thing to remember about fee diversion is that inventors are the “customers”, and the USPTO is only supposed to charge what is necessary to service the customers. However, it charges the customers way too much so that it can take money inventors paid and use it for whatever other government services it wants to. This is a tax on inventors. While the America Invents Act was supposed to put a stop to fee diversion, it can still happen (like it did 2 years after the AIA was signed). This is because the AIA is just a law, and the federal budget is implemented with laws. So the appropriations process can, at any time, override the AIA and divert fees by providing for that override in whatever law they pass to implement appropriations.
Funding Mechanism: User Fees
The USPTO is financially independent and does not rely on taxpayer dollars. Instead, it generates revenue through various user fees, including:
- Patent application fees: Paid at different stages of the patent process, such as filing, examination, and issuance.
- Trademark application fees: For registering trademarks and maintaining trademark registrations.
- Other service fees: Including appeals, maintenance fees, and international filings.
Fee Diversion: Definition and Impact
Fee diversion refers to the practice of redirecting collected USPTO fees away from the agency’s budget to fund other government activities. This practice has historically led to:
- Budgetary constraints: Limiting the USPTO’s ability to hire examiners, invest in IT infrastructure, and reduce examination backlogs.
- Operational inefficiencies: Slowing down patent and trademark processing times, affecting innovation and economic growth.
History of Fee Diversion
- Pre-1990s: Fee diversion was prevalent, with USPTO revenues being used to fund unrelated government programs.
- America Invents Act (2011): Established the Patent and Trademark Fee Reserve Fund to prevent fee diversion, although challenges persisted.
- Recent Reforms: Efforts continue to ensure that all USPTO fees collected are reinvested into the agency, supporting its mission to promote innovation and protect intellectual property rights.
Conclusion
The USPTO’s financial stability relies on maintaining control over its fee collections to effectively serve inventors, businesses, and the public. Addressing fee diversion challenges remains crucial for sustaining a robust patent and trademark system in the United States.
Addition One
Amidst the full throttle effort of DOGE and the Trump Administration to slash staffing (and in some cases, existence) of federal agencies, the unanswered question is whether user-fee-funded agencies like the USPTO will also see their staffing slashed. Because the USPTO does not contribute to the deficit (and in past years has actually reduced the deficit through fee diversion), the case for DOGE (cutting federal spending by firing federal employees, among other things) does not seem to apply to the USPTO. We will simply have to wait and see if the USPTO is subject to such cuts anyhow. In a related development, the “return to office” rules have already impacted the PTAB by forcing PTAB judges located at great distances from the USPTO (which is the bulk of the judges) to choose between moving and re-entering private practice.
My opinion on cutting USPTO staffing is that it will cripple the US economy. The US may have trade deficits with much of the world, but that is only when we do not count the value of the intellectual property developed in the US. Weakening the ability of the USPTO to issue quality patents (or any timely patents) will discourage the very R&D that powered the United States to account for over 25% of global gross domestic product despite having only 4.22% of the world’s population.