Sequestration’s Effect on USPTO, FDA and Judiciary

September 29, 2013

In the six months that the federal budget sequestration has been in effect, it has had a detrimental impact on the U.S. Patent and Trademark Office, the Food and Drug Administration and the federal judiciary. Various bills have been introduced in Congress to eliminate these impacts but have had little success.

The PTO has a $2.9 billion fiscal 2013 budget and is self-funded by fees assessed on patent and trademark applicants.  In past years Congress has diverted a total of about $1 billion in patent fees into the general treasury, making it difficult for the PTO to implement its plans for improving patent quality and reducing delays in patent examination.  A peak backlog of 721,000 patent applications was reached in December 2010, but the PTO has been able to reduce this backlog to 590,000 applications currently waiting for examination. These large backlogs result in a wait of many years for patent applicants before their applications are picked up for review by the PTO.

The Leahy–Smith America Invents Act, signed into law in September 2011, was designed to allow the PTO to keep all of the fees it collects, yet the sequester has forced the office to divert funds soon after the AIA went into effect.  The AIA also required the PTO to establish regional offices. Opening regional offices will allow PTO users more direct contact with the office without traveling to Washington DC, such as when patent applicants meet with PTO examiners during the patent application process to discuss patentability issues, or when challenging decisions of the Patent Office.  Detroit, Silicon Valley, Denver and Dallas-Fort Worth were selected as locations for regional offices.  However, only Detroit currently has permanent office space while the other three locations have begun limited operations in temporary facilities.  In Silicon Valley, the PTO opened a temporary office in the USGS building on Middlefield Road in Menlo Park. It is expected that Silicon Valley office will eventually employ as many as 150 examiners.  However, the current office only has 4,700 square feet of space and is hiring only a small number of judges for the PTO’s Patent Trial and Appeal Board.  The PTAB judges help reduce the board’s inventory of appeal cases and AIA trials, which in turn helps drive down cost prohibitive court appearances and resolves disputes earlier and more efficiently. Michelle Lee, a former Google executive, heads up the Silicon Valley PTO office.  In May when the temporary office was opening, Ms. Lee indicated that permanent space of 30,000 to 40,000 square feet was being sought in San Jose, Santa Clara, Sunnyvale or Mountain View.  In July, however, it was announced that plans for a permanent Silicon Valley office were being put on hold due to “unforeseen budget changes.”   Shortly after this announcement, Neil Smith, the first of six patent judges appointed by the Secretary of Commerce to serve in the Silicon Valley office, resigned citing difficulties in traveling to the temporary office space in Menlo Park.  Fees were recently raised at the PTO, presumably in part to open the new offices and improve customer service, but now a portion of those fees is being used for government operations unrelated to the PTO.

Silicon Valley lawmakers Mike Honda, Zoe Lofgren and Anna Eshoo have introduced a bill in the U.S. House of Representatives that would exempt the self-funded PTO from the sequester cuts.  However, it has been unclear since its introduction whether this bill will gain traction, and now its passage seems even more unlikely under the current budget negotiation climate in Washington.

The FDA stands to lose more than $200 million from sequestration cuts this year.  Over 35 percent of the FDA’s budget every year is made up of private funding. These private dollars, known as user fees, are paid by companies when they file an application for the FDA to review a new drug or device, and have been used to expedite the drug and medical device review process.  It is estimated that sequestration will result in the loss of approximately $85 million in privately funded user fees for the FDA in 2013.

Representative Leonard Lance has introduced H.R. 2725 in the House of Representatives, and Senator Mark Prior has introduced a similar bill S. 1413 with bipartisan sponsorship in the Senate in an effort to protect FDA user fees from future sequestration in the fiscal year beginning October 1.

In a letter to Vice President Joe Biden in August, Chief Judges in 87 federal district courts indicated that the 2013 fiscal appropriations for the judiciary have been slashed by $350 million and that further cuts would undermine the federal court’s ability to conduct their constitutional duties.  The cuts have resulted in the departure of over 1,000 staff among clerks of court and pretrial services office in 2013, which is in addition to about 2,100 staff that have exited these offices since 2011. One of the worst impacts of the sequestration cuts has been the $50 million reduction in funding for public defender services, which satisfy the Sixth Amendment’s provision of the right to an attorney even for defendants who lack the financial means to hire one themselves. With the federal judiciary having exclusive jurisdiction over most patent litigation matters, and with the high level of judicial resources required by these cases, the courts may have difficulty in hearing intellectual property cases in a timely manner if the sequestration cuts continue.

Medical Device Tax
On a brighter note, early this morning the House of Representatives voted 248-174 to repeal the 2.3% excise tax on medical devices.  The medical device tax was enacted at the beginning of this year (see Medtech Brief of December 17, 2012).  The Senate as a whole would not normally be inclined to also pass a repeal of the tax. But since this repeal is being used as a bargaining chip in negotiations to avoid a government shutdown on Tuesday, it is unclear what prospects it may now have in the Senate.  The Medical Devices Group ( is urging everyone involved in the medical devices field to take just a few minutes of their time to contact their senators to ask for a vote on repeal and/or thank them for their ongoing support.  It takes two clicks to reach your senator on this issue:

By Medtech Briefs

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