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Miguel Figueroa has had enough of the annual Congressional raid on the U.S. Patent and Trademark Office (PTO) funds. Figueroa is a plumber in San Juan, PR, who happens to be the sole inventor named on a pending U.S. patent application. In a legal maneuver reminiscent of a modern-day David and Goliath story, he sued the U.S. government to stop Congress from diverting fees from the PTO.

His August 7 complaint in the U.S. Court of Federal Claims (1) attacks the constitutionality of Congress’s decade-long game of hands-in-the-PTO-till that diverts substantial sums from the fees collected by the PTO for handling patent and trademark applications to other unspecified government programs. He asserts that the lawsuit is on behalf of all persons who have paid fees to the PTO in connection with patent applications or patents since 1991.

Historically, the Omnibus Budget Reconciliation Act of 1990 (2) added an additional charge on top of the statutory patent fees required by the PTO to review patent applications. This additional fee charge expired at the end of fiscal year 1998. The PTO’s Reauthorization Act of 1999 (3) increased those fees, and Figueroa alleges that Congress has been unconstitutionally siphoning funds off all along.

Figueroa’s ire over fee diversions echoes that of mainstream organizations. In annual pilgrimages to Congress, the presidents of the Intellectual Property Owners (IPO) Association have lamented the recrudescent debate over fee diversions. In his March 25, 1999, testimony before the House Judiciary Subcommittee on Courts and Intellectual Property (4), Norman Balmer, then president of IPO, reiterated the point that “[a] regular topic for PTO oversight hearings before this subcommittee has been the diversion of patent fees from the PTO to unrelated government programs.” On July 5, 2000, an industry consortium headed by Hewlett-Packard jointly submitted its petition to Sen. Ted Stevens (R-AK), Chairman of the Committee on Appropriations, to end the annual diversions of hundreds of millions of dollars in patent fees (5). The American Chemical Society has historically lent its support with its public policy statement declaring opposition to the fee diversion (6).

Even members of Congress have joined the simmering debate. Sens. Orrin G. Hatch (R-UT), Robert F. Bennett (R-UT), Bill Frist (R-TN), Patrick Leahy (D-VT), Harry M. Reid (D-NV), and George Allen (R-VA) responded to Bush administration plans to divert $207 million of the anticipated PTO revenues in fiscal year 2002 by writing to the president on February 9, 2001 (7). The senators declared their support for reducing fee withholding from the PTO and urged that sufficient budgetary resources be provided so that the PTO can handle the workload associated with the 21st century economy.

Rep. Howard Coble (R-NC) has sought a legislative solution to the fee diversion problem. In colorful language, Coble has said appropriators should “keep their grubby paws out of the PTO’s coffers” (8). Rep. Howard L. Berman (D-CA) questions whether there is any constitutional impediment to fee diversion (9). Nonetheless, Berman opposes diverting PTO fees and has joined Coble by cosponsoring H.R. 2047 (9, 10), a bill that would prohibit appropriating patent fees for the general treasury.

Consequently, Figueroa’s complaint itself plows a well-tilled field with its allusions to the many well-known shortcomings of the PTO commonly attributed to funding shortfalls or perceived fiscal constraints. Figueroa asserts that the fees being diverted by Congress limits the ability of the PTO to hire and retain persons to examine and process patent applications. The number of patent applications has increased in the period 1990–2000, as has the average application pendency at the PTO. Yet the fee withholding presents the unpalatable prospect of fiscally impeding the PTO’s ability to meet the statutory deadlines in the 1999 American Inventors Protection Act of 1999 for processing patent applications (11). So the upshot is that funding shortfalls still cause delays in the pendency of patent applications, and the situation may worsen. The diverted fees also mean that inventors, such as Figueroa, have that much less money to commercialize an invention or pursue other R&D, which contravenes the constitutional purpose for a patent system.

Figueroa’s constitutional complaint is threefold.

• First, Congress has the power to promote the progress of science and the useful arts as set forth in the U.S. Constitution, Article I, Section 8, Clause 8. Figueroa seems to have taken a page from the plain-meaning school of constitutional construction. He alleges that the additional fees siphoned from the PTO discourage participation in the patent system in a manner inconsistent with Congress’s constitutional authority to promote science and the useful arts.
• Second, Figueroa believes that the annual congressional raid on PTO fee revenue is an unconstitutional “taking” of private property in violation of the Fifth Amendment to the U.S. Constitution. Other organizations have suggested the same thing, and at least one (IPO) is preparing a position paper.
• Third, Figueroa believes that Congress is sneaking in an additional “tax” on the public, and Congress’s diversion of PTO funds amounts to direct taxation of intellectual property, in violation of the U.S. Constitution, Article I, Section 9.

Figueroa is not alone in his declaration for freedom from taxation. In his March 9, 2000, testimony before the House Judiciary Subcommittee on Courts and Intellectual Property, Ronald Myrick, president of IPO in 2000, warned, “This withholding is nothing more than a government tax on . . . intellectual property rights” (12). Although not declaring a modern-day Boston Tea Party, Myrick declared, “It is time to ask whether Congress has authority to tax intellectual property rights any more than it has authority to impose a direct tax on real estate or other forms of property. Article I, Section 9, Clause 4 of the U.S. Constitution prohibits direct taxation of property.”

Indeed, according to Myrick, the “longer this continues, the more it substantiates that the PTO users [inventors, small companies, universities, corporations, U.S. government agencies, and foreign governments] are not paying user fees at all, but are paying a tax on their intellectual property for the simple purpose of raising money for the general treasury of the federal government.” In a not-so-subtle message, Myrick “wonder[ed] if continued diversion of patent and trademark fees begins to raise serious constitutional questions.”

What does Figueroa want out of this? He wants the court to grant an injunction against any further raids on the PTO till, and he wants restitution, namely the return of diverted or rescinded patent fees to the PTO or to inventors and those who were “taxed”.

The United States, as of September 6, has not yet filed an answer or taken other action, and it is uncertain whether the government will ask to have the case transferred to a more traditional forum, such as the U.S. District Court. Court watchers will be paying close attention to this case in view of the potential political fallout if it goes forward. With today’s shrinking budget surplus and the prospect of diversion of funds to combat terrorism, the case may threaten Congress’ favorite pork-barrel projects.

References

1. Miguel Figueroa v. The United States, Case. 01-457C, filed Aug 7, 2001, U.S. Court of Federal Claims.
2. Omnibus Budget Reconciliation Act of 1990, Public Law 101-508.
3. U.S. PTO Reauthorization Act of 1999, Public Law 105-358.
4. Statement of Norman L. Balmer, President of Intellectual Property Owners Association, before House Judiciary Committee on Courts and Intellectual Property, March 25, 1999; p 6; www.house.gov/judiciary/106-balm.htm.
5. Baskins, A. O.; et al. TechNet letter to Sen. Ted Stevens (R-AK), July 5, 2000; www.ipo.org/TNLetter.html.
6. U.S. Patent & Trademark Office Funding and Intellectual Property Protection. American Chemical Society: Washington, DC, 2001.
7. Hatch, O.; Bennett, R. F.; Frist, B.; Leahy, P.; Reid, H.; Allen, G. Letter to President Bush, Feb 9, 2001; www.techlawjournal.com/cong107/usptofees/20010209let.asp.
8. Clark, D. GovExec.com, April 10, 2001; www.govexec.com/dailyfed/0401/041001td.htm.
9. Clark, D. GovExec.com, June 8, 2001; www.govexec.com/dailyfed/0601/060801td.htm.
10. Coble, H. Patents are vital to our economy’s health. The Hill, Sept 26, 2001; www.hillnews.com/092601/ss_coble.shtm.
11. American Inventors Protection Act, Public Law 106-113; and specifically amended U.S. Code, Section 154, Title 35, Nov 29, 1999.
12. Summary of Statement of Ronald E. Myrick, President of Intellectual Property Owners Association, Before House Judiciary Committee on Courts and Intellectual Property, March 9, 2000; pp 4–5; www.ipo.org/myrick_testimony.htm.

Note: All of the URLs were accessed in November 2001.

Kendrew H. Colton (202-419-7000; kcolton@fitcheven.com) is a patent attorney and partner in the Washington, DC, office of Fitch Even Tabin & Flannery. Please contact the author for copies of Figueroa’s complaint.