Introduction (See breaking news below in Addition One, below)
The United States Patent and Trademark Office (USPTO) uses a fee-for-service model, much as a private company would. It is funded by fees paid by applicants for patent and trademark services. A big pile of money sitting at the USPTO proved a tempting target for legislators looking for money but terrified of tax increases. Fee diversion is the natural result of this legislative temptation. Fee diversion was a huge issue 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. This means the appropriations process can 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 pays for its operations (and sometimes operations of other parts of government) using money from user fees. These include application fees, maintenance fees, appeal fees, issue fees, and any of the many different fees charged by the USPTO.
What is Fee Diversion (and why should I care)?
Fee diversion is the practice of redirecting collected USPTO fees away from the agency’s budget to fund other government activities. The less money the USPTO keeps, the more slowly and ineffectively it becomes. In an extreme example, imagine that 100% of fees were diverted. The USPTO would simply stop functioning. In a less extreme example, if half of the fees were diverted, lower quality examination would be one disastrous result, with low quality patents issuing. If you have ever wondered why the USPTO — with access to the most cutting-edge technology knowledge in the world — operates on antiquated systems, this is your answer (although to be fair, their systems have been improving).
History of Fee Diversion
- Pre-1990s: Fee diversion was a normal event, as USPTO revenues funded unrelated government programs.
- America Invents Act (“AIA”, 2011): Established the Patent and Trademark Fee Reserve Fund to prevent fee diversion, although challenges persisted. Remember that the AIA is a law, and a budget bill is also a law. If the budget bill diverts fees and moves the reserve fund into another agency’s account, the AIA would prove toothless.
- Recent Reforms: Efforts continue to ensure that all USPTO fees collected are reinvested into the agency, protecting innovation. Even if those reforms pass, a counter-reform could easily be included in a different bill.
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.