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INTA believes that the Patent and Trademark Office's Trademark Operations must have the freedom to determine the goals and policies that work best for it and be responsive and accountable to its customers. The Trademark Operations needs to have the flexibility to respond quickly to changing workload requirements and to experiment with new workplace procedures. It must also have the means to assure a trained and motivated workforce that is compensated fairly and treated fairly.
INTA has reviewed H.R. 1659 and believes that, if enacted, it would represent a step forward in the administration of the Trademark Operations. INTA believes, however, that the many operational problems currently facing the Trademark Operations can best be solved through the creation of an independent Trademark Office.
The Trademark Operations is large enough to function independent of the Patent Operations. It is 100% supported by user fees and its revenues are projected to continue to grow. The creation of a separate Trademark Office will not require any fee increases.
INTA has drafted a bill to create a separate U.S. Trademark Office as a government corporation independent of the Department of Commerce. We wish to emphasize, however, that we have no position regarding the many proposals that would "dismantle" the Commerce Department. Our sole concern is in the improved performance of the Trademark Operations.
Our bill would free the Trademark Operations from government-wide laws and regulations that make little sense for an agency that is 100% user-fee funded and whose workload is driven by external forces. A Commissioner of Trademarks would be appointed by the President, with the advice and consent of the Senate, for a term of six years. The Commissioner would have responsibility for all government-wide trademark policy and operational matters. A nine member Management Advisory Board would provide oversight and guidance to the agency.
INTA believes that an independent Trademark Office would be more responsive and more accountable to the user community and can be a model for all of government. It will advance the public interest by assuring the prompt delivery of quality services to users of the system and provide the organizational structure necessary for the Office to meet the challenges of the twenty-first century.
Mr. Chairman and Members of the Subcommittee:
The International Trademark Association (INTA) appreciates the opportunity to appear before the Subcommittee today to present its views on various proposals relating to the reorganization of the U.S. Patent and Trademark Office (PTO). My name is Catherine Simmons-Gill, and I currently serve as President and Chairperson of the Board of INTA. As with all INTA officers, board members and committee chairs, I serve on a voluntary basis.
INTA is a 117-year-old not-for-profit membership organization. Its membership has grown from twelve New York- based manufacturers to over 3,000 corporations, package design firms, and professional associations in the United States and in over 100 countries. Our members cross all industry lines, spanning a broad range of manufacturing, retail and service operations. They include small and large businesses as well as general practice and intellectual property law firms. INTA's members, 85% of whom are U.S.-based, own the majority of America's well-known trademarks as well as a substantial portion of all trademarks registered in the PTO.
As we know you appreciate, Mr. Chairman, trademarks are of major importance to a healthy and growing economy. Absent legal recognition of, and protection for, trademarks, business would have little incentive to invest the resources necessary to provide consumers with quality goods and services and consumers would be unable to easily differentiate among competing products. As the U.S. Supreme Court commented in Park 'N Fly v. Dollar Park and Fly, Inc., 469 U.S. 189 (1985): Because trademarks desirably promote competition and the maintenance of product quality, Congress determined that "a sound public policy requires that trademarks should receive nationally the greatest protection that can be given them".
For many companies, Mr. Chairman, their trademark is their most valuable asset. In a 1995 study published in Financial World, for example, the "Coca-Cola" mark was valued at $39 billion; the "Microsoft" mark at $11.7 billion, and the "Kodak" mark at $11.6 billion. The Coca-Cola, Kodak, and Microsoft companies are all members of INTA. An article entitled "The Brand's the Thing," published in the March 4, 1996, issue of Fortune, notes that executives at Coca-Cola like to say that "if the place was, God forbid, obliterated off the face of the earth -- blotto, no more bricks and mortar -- they could walk right over to the bank and borrow $100 billion and rebuild Coca-Cola in a matter of months, just on the strength of the brand."
American business relies heavily upon the PTO with respect to the agency's administration of the federal trademark registration process. The registration system serves the public interest by producing a record, accessible to the public, of new trademark activity to facilitate the clearance of new marks for use, determine the registrability of proposed marks, and avoid conflicts with the rights of others. The issuance of a trademark registration by the PTO confers upon the registrant valuable legal rights, including a presumption that it is entitled to exclusive nationwide use of the mark as registered.
The grant of a federal registration also has important consequences with respect to protection of U.S. company-owned marks abroad. In many instances, for example, the U.S. company's ability to obtain trademark protection in a foreign country is dependent upon the issuance of a U.S. registration. Thus, an efficiently run PTO is essential for American competitiveness abroad.
In view of the importance of the federal registration system, it is essential that the PTO's public notice and trademark examination functions be performed promptly and accurately. As you know, since 1982, the users of the trademark system have paid 100% of the costs of the Trademark Operations of the PTO. Not one cent of general taxpayer money goes to fund the PTO's Trademark Operations. In return, Congress directed the PTO to issue an initial determination on the registrability of a mark within three months of filing and set an average overall pendency goal of 13 months from filing of the application to registration or abandonment.
Unfortunately, Congress's desires have not always been realized. Despite the fact that the Trademark Operations has been funded entirely through user fees for over a decade, the operation has been beset by numerous problems that have had adverse consequences on U.S. business and consumers. For example, as of January 31, 1996, the average pendency to issuance of an initial determination on registrability was 6.2 months and overall pendency to registration or abandonment was 16.4 months. This far exceeds the so-called "3/13" pendency goals set by Congress. Within the recent past, it was taking almost three months just to get an application from the Trademark Operations mailroom to the Examiners! The backlog in the Post-Registration Unit also far exceeds goals.
While the number of new trademark applications increases steadily, the Trademark Operations is unable to increase the number of examiners by a proportionate amount, despite a surplus of about $18 million in the Operations' fee account and despite the fact that no general taxpayer money goes into the running of the Trademark Operations.
Further, the trademark automation effort has taken far too long and has cost far too much. Examiners still are unable to conduct searches from their desks, a capability which would do much to improve productivity and pendency.
Some of the problems faced by the Trademark Operations, Mr. Chairman, may be traced to government-wide laws and regulations that make little sense for an agency that is 100% user-fee funded and whose workload is driven by external forces. Some of the problems, however, are organizational in nature and have their root in the fact that the Trademark Operations is a relatively small portion of the PTO and in the inability of the head of the Trademark Operations -- the Assistant Commissioner for Trademarks -- to set policy on matters that directly impact on the operation, such as labor- management, personnel and budget, and automation issues.
INTA has carefully reviewed the pending proposals that would create the PTO as a government corporation. As you know, Mr. Chairman, this is not an entirely new idea. For several years now, since a 1989 report by the National Academy of Public Administration (NAPA), there has been considerable discussion and debate within the intellectual property community regarding the government corporation concept. Following publication of the NAPA report, INTA established a Government Corporation Group to review the issue. While taking no position on the merits of the question, at that time the Group reported that there were no constitutional or other impediments to converting the PTO into a government corporation.
When this issue resurfaced last year, INTA established a Task Force to re-examine whether conversion of the PTO into a government corporation would best serve the interests of the trademark community and to review and comment upon the pending proposals. We believe, Mr. Chairman, that the bill introduced by yourself and Representative Schroeder, H.R. 1659, the "Patent and Trademark Office Corporation Act of 1995," would, if enacted, represent a step forward in the administration of the Trademark Operations. We commend you and Representative Schroeder for introducing this far-reaching and innovative bill.
We wish to emphasize, however, that INTA is not taking a position on any proposal that would dismantle the Department of Commerce per se. Our only interest is the improved performance of the Trademark Operations.
To accomplish this objective, we believe that the Trademark Operations must have the freedom to determine the goals and policies that work best for it and be responsive and accountable to its customers. The Trademark Operations needs to have the flexibility to respond quickly to changing requirements and to experiment with new workplace procedures. It must also have the means to assure a trained and motivated workforce that is compensated and treated fairly.
In our view, the above goals can best be met by separating patents and trademarks into two distinct entities and by creating an independent Trademark Office. INTA believes that the merger of patents and trademarks into a single governmental agency, whatever its legal status, no longer serves the public interest. While both patents and trademarks fall under the broad rubric of intellectual property, the similarity ends there.
As you know, Mr. Chairman, the constitutional bases of these two forms of intellectual property are different. While the grant of patents is based on that clause of the Constitution vesting in Congress the power to "promote the progress of science and the useful arts," the federal registration of trademarks is based on Congress's power to regulate interstate commerce. Indeed, the first federal Trademark Act was declared unconstitutional by the Supreme Court on the ground that Congress does not have the power under the "patent and copyright clause" of the Constitution to regulate trademarks. Significantly, the Court said that trademarks have no relation to invention and discovery as a trademark is "simply founded on priority of appropriation." See Trade-Mark Cases, 100 U.S. 82 (1879).
Further, the objectives of the patent and trademark laws differ. The patent statute is designed to advance technological progress through the public disclosure of new and useful inventions. The trademark laws are designed to promote the national economy by encouraging the production of quality products and reducing the costs to consumers of making purchasing decisions. We question whether it makes sense to vest in one agency responsibility for administering laws whose focus and purpose are so different.
There are other, more practical, considerations that support creation of a separate Trademark Office. As a result of the fact that the Trademark Operations comprises only about 10% of the total budget of the PTO, the concerns of the Trademark Operations and of trademark owners often take a backseat to the concerns of the patent side of the agency. Because of the disparity of the size of the Trademark Operations vis-a-vis the Patent Operations, PTO policies are virtually always geared to what is in the best interests of the Patent Operations. This "one size fits all" mentality has impacted negatively on the PTO's Trademark Operations. This operational reality persists even though the Trademark Operations receives approximately 40% of all applications filed with the PTO and despite the importance of the federal trademark registration process to the national economy and consumers.
For example, while the technology currently exists to enable the PTO to accept the electronic filing of trademark applications, which would be of immense benefit to the office and to the trademark community, INTA understands that this initiative has been put on "hold" due to technical difficulties relating to the electronic filing of patents. We don't think this serves the public interest. We also understand that it is often difficult for Trademark management to secure the cooperation of the PTO's Automation staff. Patent initiatives always seem to take precedent. Since the Patent Operations pays 90% of the Automation budget, this should not be surprising.
With regard to labor and personnel issues, the desire of the management of the Trademark Operations to implement innovative programs in such areas as part-time employment and work-at-home are frequently stymied by PTO management. Given the disparity in the relative sizes of the trademark and patent examining corps and in the professional backgrounds of trademark and patent examiners, it is often difficult to reach consensus within the PTO, as a whole, on labor and personnel issues.
In this regard, Mr. Chairman, it is important to note that all trademark examiners are attorneys, most of whom possess liberal arts backgrounds. Very few patent examiners are attorneys; most are engineers or scientists by training. This results in a clash of cultures within the PTO. There is virtually no interaction between Patent and Trademark personnel and there are relatively few efficiencies gained from combining the two examining corps in one agency. A trademark examiner cannot examine a patent application and a patent examiner cannot examine a trademark application.
The reality is that the Trademark Operations is a "second-class" citizen within the PTO. We wish to emphasize that this fact is not the fault of any individuals but simply the inevitable result of the disparity in size of the Trademark and Patent Operations. We also wish to emphasize, however, that trademarks are no less important than patents from the standpoint of international competitiveness; indeed, in many instances involving, for example, consumer goods like "Levi's" jeans, trademarks are more important than patents.
While the Trademark Operations may only represent 10% of the PTO budget, it is large enough to function independent of Patents. With a yearly budget of around $50 million, all funded by user-fees, and about 500 employees, the Trademark Operations is already larger than many existing agencies and government corporations. Given projected trends in application filings (i.e., application filings are up 12% this year over last) and the fact that the Trademark Operations is entirely user-fee funded, the future financial integrity of any separate Trademark Office is assured. Indeed, as previously noted, the Trademark fee account has a healthy surplus. Unfortunately, due to government-wide policies restricting the hiring of new employees, this surplus cannot now be spent in an effort to reduce the current backlog in the examination of applications.
The creation of a separate Trademark Office will not require any fee increases. The attached Trademark Office Business Plan (see Attachment "A") shows that, even assuming a separate Trademark Office would incur increased costs for computer equipment, administrative staff, and space, the office would still have a net surplus of almost $9.5 million in 1996. Further, and most importantly, over the long-term, INTA believes that a separate Trademark Office would result in a much more cost-efficient and effective trademark operation, thereby providing significant savings to trademark owners. For this reason, the trademark community supports the creation of a separate Trademark Office even at the cost of some short- term inefficiencies. If making the PTO independent of the Department of Commerce will result in operational efficiencies and improved performance, so too will a separate Trademark Office result in improved performance.
INTA believes the time is right for the creation of a new, independent U.S. Trademark Office and has drafted proposed legislation to that end. We respectfully request that our proposal be given serious consideration by the Subcommittee during its deliberations on how best to reorganize the PTO.
Our bill, Mr. Chairman, is modeled after H.R. 1659. It would establish a separate U.S. Trademark Office as a government corporation independent of the Department of Commerce. A Commissioner of Trademarks would be appointed by the President, with the advice and consent of the Senate, for a term of six years. The Commissioner would have responsibility for all government-wide trademark policy and operational matters.
A nine member Management Advisory Board would be formed to provide oversight and guidance to the agency. Eight members of this Board would be appointed by the President and one member would be elected by the employees of the Trademark Office. In our view, the creation of such a board is essential, given that the Office will continue to be funded entirely by user fees.
The bill would provide the Trademark Office flexibility in employee compensation, personnel policy, contracting, and management of office space. Its provisions on these subjects mirror those found in H.R. 1659. Trademark fees would continue to be set administratively, subject to fluctuations in the Consumer Price Index and public notice and comment. The agency would have borrowing authority to cover certain capital expenses.
In addition to long term savings and greater operational efficiencies, we believe that creation of a separate U.S. Trademark Office would also give rise to a greater sense of professionalism within the office. This would, hopefully, help reduce turnover and result in improved quality and customer service.
We believe, Mr. Chairman, that our proposal would result in a Trademark Office that is more responsive and more accountable to the user community. In turn, the user community can be expected to develop greater confidence and loyalty in the office and to help support and nourish it. The upshot, we believe, will be a Trademark Office that will offer more cost-efficient and quality service. In fact, we believe that the Trademark Office can be a model for all of government.
Absent creation of a separate government corporation for the Trademark Operations, INTA suggests that H.R. 1659 be amended to provide the Trademark Operations with operational autonomy within an overall PTO corporation. We believe it is possible to structure the corporation to consist of two autonomous entities, one headed by a Commissioner of Patents and the other headed by a Commissioner of Trademarks. Each Commissioner would be responsible for all aspects of the corporation's patent or trademark activities and each could pursue separate policies on such matters as labor-management relations. This would lead to some healthy competition between the two entities that could spur improved performance by both.
We also believe strongly that, assuming the Trademark Operations remains part of an overall PTO, it should have its own Management Advisory Board structured as set forth in our proposal. This would provide a structure to enable the trademark user community to influence developments within the Trademark Operations. Having several seats on a much larger PTO-wide Advisory Board does not provide the necessary guarantee that the views of those who pay for the Trademark Operations will be understood and taken into account in the setting of trademark policy.
We also urge the Subcommittee to amend H.R. 1659's audit provisions so as to enable the Management Advisory Board(s) to select the independent certified public accountant that will audit the financial statements and to provide that, at least once every three years, the scope of the audit include a review of the Office's fees and fee structure.
Finally, assuming Congress decides, at this point in time, not to create a separate Trademark Office, INTA requests that Congress authorize the National Academy of Public Administration to conduct a study and prepare a report within a time certain on the desirability of creating a separate Trademark Office.
CONCLUSION
INTA believes that the creation of a separate U.S. Trademark Office as a government corporation would be consistent with the guiding tenets behind the Administration's efforts to reinvent government and with the philosophy of bringing government closer to those it serves. It will advance the public interest by assuring the prompt delivery of quality services to the user community and provide the organizational structure necessary for the corporation to meet the challenges of the twenty-first century.
We look forward to working with members of the Subcommittee and staff in an effort to accomplish these important goals and objectives.