oversight

Intellectual Property: Fees Are Not Always Commensurate With the Costs of Services

Published by the Government Accountability Office on 1997-05-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Committee on
                  the Judiciary, U.S. Senate



May 1997
                  INTELLECTUAL
                  PROPERTY
                  Fees Are Not Always
                  Commensurate With
                  the Costs of Services




GAO/RCED-97-113
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-274301

      May 9, 1997

      The Honorable Orrin G. Hatch
      Chairman, Committee on the Judiciary
      United States Senate

      Dear Mr. Chairman:

      As requested, this report presents the results of our review of issues related to intellectual
      property fees charged by the Patent and Trademark Office within the Department of Commerce
      and the Copyright Office within the Library of Congress. Our report provides information on the
      manner in which these agencies use fees to provide services. The report specifically discusses
      patents, trademarks, and copyrights. It also provides matters for congressional consideration
      concerning both patents and copyrights and a recommendation to the Register of Copyrights.

      As arranged with your office, unless you publicly announce its contents earlier, we plan no
      further distribution of this report until 30 days after the date of this letter. At that time, we will
      send copies to appropriate House and Senate committees; interested Members of Congress; the
      Secretary of Commerce; the Assistant Secretary of Commerce and Commissioner of Patents
      and Trademarks; the Librarian of Congress; the Register of Copyrights; the Director, Office of
      Management and Budget; and other interested parties. We will also make copies available to
      others upon request.

      If you or your staff have any questions about this report, please call me at (202) 512-3841. Major
      contributors to this report are listed in appendix XIV.

      Sincerely yours,




      Victor S. Rezendes
      Director, Energy, Resources,
        and Science Issues
Executive Summary


             The Congress has begun to consider a number of issues involving the
Purpose      federal agencies that issue or register patents, trademarks, and
             copyrights—commonly known as intellectual property. Furthermore, the
             administration has made the reform of intellectual property a part of its
             plan to “reinvent” government. In this regard, GAO has issued a number of
             reports discussing certain operations of the Patent and Trademark Office
             (PTO) within the Department of Commerce and the Copyright Office within
             the Library of Congress.

             The Senate Committee on the Judiciary is considering funding and
             organizational proposals for PTO and the Copyright Office. To help the
             Committee in its deliberations, the Chairman requested that GAO review
             the manner in which these agencies use fees in providing services. He
             asked GAO to address fees as they relate specifically to patents,
             trademarks, and copyrights and, where applicable, to determine (1) how
             fees are set for the services provided by the federal agencies, (2) the
             extent to which intellectual property fees are recovering the costs of the
             services provided, (3) whether different users of the same services pay
             different fees, (4) whether patent fees encourage or discourage the
             completeness and accuracy of applications, and (5) the potential effects of
             increasing copyright fees. This report addresses these issues in individual
             chapters on patents, trademarks, and copyrights. Because the last two
             issues relate primarily to patents and to copyrights, respectively, the
             report addresses them only in those applicable sections.


             The federal government regulates intellectual property rights through the
Background   grant of patents and the registration of trademarks and copyrights. Patents
             and trademarks are administered by PTO, while copyrights are
             administered by the Library of Congress. While the three types of
             intellectual property bear many similarities, they also have important
             differences.

             Generally, inventors need to obtain patents in order to benefit
             economically from their inventions. The grant of a patent in the United
             States is a complicated process whereby PTO examiners determine that the
             product or process in question is new, useful, and non-obvious. Once the
             patent is issued, the patent holder in most cases has exclusive rights to the
             invention for 20 years from the date the application was filed.

             A trademark is acquired through use rather than registration; however,
             registration does afford the trademark owner procedural advantages



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                   Executive Summary




                   against infringement. The trademark process also requires an examination
                   by PTO to ensure that others have not already registered the same or a
                   similar trademark, but the examination process is more streamlined. A
                   trademark registration has a term of 10 years but, unlike patents and
                   copyrights, can be renewed.

                   A copyright is gained when a work is created, not when it is registered.
                   However, much like trademarks, registration of a copyright affords the
                   copyright owner certain statutory rights that would not be available
                   otherwise. The examination process for copyrights is much different than
                   for either patents or trademarks because the Copyright Office does not
                   verify whether others have already registered the same or similar works.
                   In most cases, a copyright lasts for the author’s life plus 50 years.

                   Both PTO and the Copyright Office charge fees for the services they
                   provide, but they differ in the types of fees charged and the revenues
                   obtained. In fiscal year 1995, patent fees totaled $577.7 million, trademark
                   fees totaled $68.5 million, and copyright fees totaled $14.6 million.


                   Patent fees—like trademark and copyright fees—are set primarily by
Results in Brief   statute. Overall, patent fees recover the costs of the patent process within
                   PTO and, by law, can be adjusted annually for inflation. Despite this
                   self-sufficiency overall, fees for individual services are not necessarily
                   commensurate with the costs of those services because (1) the largest fees
                   are paid at the back end of the patent process, while PTO incurs most of its
                   costs at the front end, and (2) different categories of applicants pay
                   different fees for the same service. Generally, successful applicants and
                   large entities tend to pay more than unsuccessful applicants and small
                   entities for the same services. Furthermore, because fees do not differ on
                   the basis of the complexity of the invention and because fees do little to
                   discourage the submission of inaccurate and incomplete applications,
                   applicants with complicated inventions and applicants who create delays
                   in the process may not pay fees sufficient to recover the additional costs
                   they create.

                   Trademark fees also recover the overall costs of the trademark process
                   and can be adjusted annually for inflation. However, trademark fees are
                   smaller and fewer in number than patent fees. In addition, fees and costs
                   tend to be more closely aligned in the trademark process because most
                   income is received prior to the examination of the application. There are
                   no differences in trademark fees based on the size of the entity applying,



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                            Executive Summary




                            no significant differences in the costs for different types of trademark
                            applications, and fewer costs and delays caused by inaccurate and
                            incomplete applications.

                            Copyright fees are the smallest and simplest of all the federal intellectual
                            property fees. Most applicants pay only an up-front, one-time registration
                            fee of $20, with no differences based on entity size, the accuracy or
                            completeness of the application, or the type of copyright being registered.
                            However, copyright fees do not recover costs either in total or by type of
                            service and, as a result, the Copyright Office receives about $10 million a
                            year in appropriations. Copyright fees have not been increased since fiscal
                            year 1991 because the Copyright Office chose not to raise fees to adjust for
                            inflation in fiscal year 1995. The Copyright Office has supported the need
                            for fee increases in the past and currently supports legislative proposals
                            that would give the Register of Copyrights the authority to raise fees to
                            recover the costs of copyright registration and services. Copyright Office
                            officials do not believe that the Copyright Office itself should be fully
                            self-sustaining through fees because it performs other functions that the
                            officials believe are more appropriately funded through appropriations.
                            Similarly, the Copyright Office did not support a 1996 proposal to make it
                            self-sustaining through fees in a new, government-owned, intellectual
                            property corporation, believing that such a move would lead to
                            unacceptably high fee increases and registration decreases.



Principal Findings

Patent Fees Recover         Most patent fees are set by statute and tend to be the largest and most
Overall Costs but Not the   extensive of all federal intellectual property fees, with 139 individual types
Costs of Individual         of fees ranging as high as $2,900 in fiscal year 1995. Once dependent on
                            appropriations, the patent process has been self-sustaining overall since
Services                    fiscal year 1993. However, for several reasons, individual applicants may
                            not pay fees that are commensurate with the services they receive. First,
                            while most of the costs of the patent process are incurred during PTO’s
                            examination of the application, most of the patent fees are paid after the
                            examination has been completed. In fiscal year 1995, for example, about
                            19 percent of the fee revenues came from issue fees, which are payable
                            after PTO has decided that a patent can be granted, and about 34 percent
                            were maintenance fees, which are payable in three stages after the patent
                            is issued.




                            Page 4                                      GAO/RCED-97-113 Intellectual Property
                           Executive Summary




                           Second, fees do not match the costs of individual services because large
                           entities—for-profit organizations with 500 or more employees—pay fees
                           that are twice the size of those paid by small entities. While this feature
                           was added to the law in 1982 to reduce the burden of increasing fees on
                           small businesses, nonprofit organizations, and individual inventors, PTO
                           officials said there are no differences in the costs associated with the
                           patents granted to large and small entities.

                           Third, any particular patent fee may not recover costs because fees
                           generally do not vary by invention type, even though the time and
                           complexity involved in examining applications for different types of
                           inventions can vary significantly. For example, overall “patent
                           pendency”—the time taken by PTO to examine an application prior to a
                           patent being issued or the application being abandoned—averaged 19.8
                           months for fiscal year 1995. However, pendency varied from 17.4 months
                           for solar heating devices to 26.2 months for computer systems.

                           Finally, patent fees may not recover costs because they generally are not
                           designed to discourage an applicant’s delays in the examination process.
                           Examination time can increase significantly when PTO has to obtain
                           additional information from the applicant because the application was
                           either inaccurate or incomplete. Even though some applicants pay
                           additional fees for such delays, the “extension” fees accounted for about
                           8 percent of total fees collected in fiscal year 1995, while the delays for
                           which extension fees were paid accounted for about 19 percent of the
                           overall average patent pendency.

                           PTO  recognizes that patent fees are not necessarily commensurate with the
                           costs of individual services. However, its current cost-accounting system
                           does not provide sufficient information to determine costs on a per-service
                           basis. For this reason, PTO has undertaken two studies designed to improve
                           its cost-accounting system and to determine how fees for both patents and
                           trademarks compare with the costs of individual services. The first of
                           these—a study of PTO’s cost-accounting system—is due to be completed in
                           December 1997.


Trademark Fees Appear to   While smaller and fewer in number, trademark fees are similar to patent
Be Aligned With Costs      fees in that most revenues come from statutory fees, the fees can be
                           adjusted annually to account for inflation, and fee revenues are sufficient
                           to make the trademark process self-sustaining within PTO. Furthermore,




                           Page 5                                      GAO/RCED-97-113 Intellectual Property
                        Executive Summary




                        the fees do not vary on the basis of the type of trademark for which
                        registration is sought.

                        Trademark fees are more nearly commensurate with the costs of
                        individual services than are patent fees. This is because (1) most costs
                        occur at the front end of the process, with about 76 percent of the costs of
                        the trademark process attributable to the examination of applications;
                        (2) most fees are paid prior to or during examination, with over 71 percent
                        of the trademark revenues obtained through the basic filing fee alone;
                        (3) the fees do not vary on the basis of the size of the entity applying for
                        registration; and (4) registration costs for different types of trademarks do
                        not vary significantly. Similarly, incomplete and inaccurate applications do
                        not create the delays and costs common in the patent process.

                        PTO  officials believe that, despite the relatively close alignment of
                        trademark fees and costs, adjustments may be needed in specific areas,
                        such as appeals, where the current $100 fee is below PTO’s costs of
                        handling these actions. These officials believe that, as with patents, the
                        two studies underway eventually will enable PTO to determine better the
                        costs of the services being provided and the adequacy of the fees charged
                        for these services.


Copyright Fees Do Not   In many ways, copyright fees differ from patent and trademark fees. While
Recover Costs           copyright fees are also set primarily by statute, they do not recover the
                        costs of the Copyright Office either in total or by type of service. In most
                        cases, an applicant pays only $20 to register a copyright, yet the average
                        cost of registration in fiscal year 1995 was $36.53 per application, and the
                        average cost by the type of copyright ranged from $28.32 to $59.60.

                        The basic copyright application fees have not been raised since fiscal year
                        1991, when, with the support of the Copyright Office, they were doubled to
                        $20. Copyright Office officials said that they have supported proposals to
                        increase fees since then but only when they believed such an increase
                        would be cost-effective and would not lead to an unacceptable decrease in
                        applications for copyright registration. In this regard, the Copyright Office
                        has supported proposed legislation that would give the Register the
                        discretion to raise fees to reflect the fair cost of registering copyrights and
                        providing services. The Copyright Office is now planning a fee and cost
                        study to determine the costs of individual copyright services and the fees
                        necessary to recover these costs.




                        Page 6                                       GAO/RCED-97-113 Intellectual Property
Executive Summary




The Copyright Office did not raise fees in fiscal year 1995 to account for
the effects of inflation as authorized by law. The acting Register of
Copyrights at the time did not do so because she believed that the
revenues attributable to the increase were not worth the additional costs
that would be incurred. However, GAO found that fees could have been
raised overall by more than 16 percent, which would have increased net
revenues by about $500,000 in the first year and even more in subsequent
years. In addition, the adjusted fees would have been the basis for future
fee increases.

In September 1996, the Copyright Office opposed proposed legislation that
would have made it self-sustaining through fees in a new,
government-owned, intellectual property corporation. The Register of
Copyrights told the Senate Committee on the Judiciary that, for the
Copyright Office to be self-sustaining under such a proposal, fees would
have to be raised fivefold and applications would fall as a result. GAO found
that the Copyright Office’s projections were based on a worst-case,
least-likely scenario and that other scenarios would have resulted in fees
that ranged from $41 to $89 per application as well as smaller decreases in
applications.

Other studies—including a GAO-contracted management review of the
Library of Congress1 and an internal review by the Library itself—support
the need for a fee increase. In addition, one of the options in the
Congressional Budget Office’s deficit reduction package for fiscal year
1998 would make the Copyright Office self-sustaining, with fees in the
range of $35 to $40 per application. The Register of Copyrights believes
that the copyright process can be made self-sustaining within the Library,
probably by increasing fees to about twice the current level. However, she
said that certain costs of the Copyright Office not directly tied to the
registration process should continue to be funded through appropriations.

On a related issue, costs attributable to the copyright process are higher
than they need to be because of a provision in the law that the Copyright
Office maintain copies of unpublished works for the full term of the
copyright, now estimated to be an average of 125 years. Because the
Library of Congress and the copyright owners rarely retrieve these copies
and many of the works deteriorate after a few years, copyright costs could
be reduced by adopting the same retention requirements for unpublished
works as for published works. In most cases, this would require the

1
 Library of Congress: Opportunities to Improve General and Financial Management
(GAO/T-GGD/AIMD-96-115, May 7, 1996).



Page 7                                                 GAO/RCED-97-113 Intellectual Property
                       Executive Summary




                       copyright holder to pay an additional $270 fee if the works were retained
                       beyond 5 years.


                       In view of the various legislative proposals involving PTO and the Copyright
Matters for            Office currently being considered, the Congress may wish to reexamine
Consideration by the   the fees these agencies charge for particular services. With regard to
Congress               patent fees, the Congress may wish to consider whether fees for particular
                       services should more nearly reflect the costs of those services.
                       Specifically, the Congress may wish to consider whether (1) the fee
                       differential between large and small businesses should be continued, (2) a
                       larger portion of fees should be tied to the examination process itself,
                       (3) larger fees should apply to those applications requiring more
                       examination time, and (4) applicants who delay the examination process
                       should pay larger fees.

                       With regard to copyright fees, the Congress may wish to consider whether
                       the Copyright Office should achieve full cost recovery through fees, as it
                       has done with PTO, and, if so, whether fees for particular services should
                       be commensurate with the costs of those services. In addition, to reduce
                       the costs of the copyright process, the Congress may wish to consider
                       whether storage requirements for unpublished copyrighted works should
                       be made the same as those for published works.


                       To ensure that fees are not further deteriorated by inflation, GAO
Recommendation to      recommends that the Register of Copyrights raise fees to account for
the Register of        inflation when given the opportunity to do so.
Copyrights
                       GAO provided copies of a draft of this report to the Department of
Agency Comments        Commerce and the Library of Congress for their review and comment. At
                       the Library’s request, GAO also met with Library officials to discuss further
                       the Library’s written comments. The comments of the Department and the
                       Library and GAO’s responses to those comments are included in
                       appendixes XII and XIII, respectively.

                       Generally, the Department of Commerce agreed with the information in
                       the draft report, although the Department recommended a number of
                       technical and language changes. The Library strongly disagreed with GAO’s
                       discussion of copyright fees and said that the report was incorrect in
                       stating that the Copyright Office had opposed fee increases, did not



                       Page 8                                      GAO/RCED-97-113 Intellectual Property
Executive Summary




acknowledge the role of the Congress in setting copyright fees, and did not
sufficiently discuss the impact of fee increases on the Library’s collections.
The Library also disagreed with a perceived criticism by GAO of the fee
increase projections that the Register provided the Senate Committee on
the Judiciary in a September 1996 hearing.

Concerning the Department of Commerce’s comments, several of the
technical changes proposed related to GAO’s not having included
$2.4 million in miscellaneous fees in the statistics on patent fees. GAO had
not included these in the draft report because the source materials
indicated such information could not be tied specifically to either patents
or trademarks. After reviewing the Department’s comments, GAO
determined that these fees should have been shown as patent fees and
revised the report accordingly. The Department also noted that the
cost-accounting information PTO expects to have by December 1997 will
greatly enhance the substantive information available with which to
analyze potential changes to the current fee structure. Although it is too
early to know the outcome of PTO’s study, GAO makes the point in this
report that, in order to match fees more closely with services, it will be
necessary to determine the actual costs of those services. Throughout its
comments, the Department emphasized the role that the Congress has
played in creating and developing the existing patent fee structure. GAO
agrees and believes that this point is made clear in the report. GAO also
believes that any policy changes regarding patent fees would require
congressional action. For this reason, GAO has included matters for
congressional consideration dealing with patent fees.

Concerning the Library’s comments regarding the Copyright Office’s
position on fee increases, GAO added information to the report showing
that the Copyright Office has supported the need for fee increases in the
past, believes a fee increase is needed currently, and supports proposed
legislation that would allow the Register to raise fees to cover the costs of
copyright registration and services. GAO continues to believe, however,
that the Copyright Office should have adjusted fees to account for inflation
in fiscal year 1995 because the increase would have been cost-effective,
and Library officials agree that the Register should make adjustments for
inflation in the future.

GAO  disagrees with the Library’s comments that the role of the Congress in
setting fees was not adequately discussed in the draft report. To the
contrary, GAO’s report shows that the Congress has chosen to continue to
recover copyright costs through a combination of fees and appropriations.



Page 9                                      GAO/RCED-97-113 Intellectual Property
Executive Summary




GAO points out that the Congress has chosen to make the patent and
trademark processes self-sustaining. In keeping with this approach, GAO
states that the Congress may wish to consider whether the Copyright
Office should achieve full cost recovery through fees.

GAO  also believes that the report fairly discusses the potential impact of a
fee increase on deposits available for the Library’s collections. Because
the Library (1) has access to all copyrighted materials submitted for
registration, (2) is entitled by law to any other materials under copyright
protection published in the United States, and (3) rarely takes any
unpublished materials, GAO continues to believe that the works available
should not decline substantially even if copyright registration applications
decline.

Finally, GAO believes that the report accurately portrays the Register’s
testimony in the September 1996 hearings. However, GAO clarified the
report to show that the Register’s concern was with the high costs of
making the Copyright Office self-supporting within a new,
government-owned, intellectual property corporation outside the Library.
GAO continues to believe that the fees projected were too high and were
not presented in a proper context. For these reasons, GAO believes it is
necessary to show its analyses of these projections in the report.




Page 10                                     GAO/RCED-97-113 Intellectual Property
Page 11   GAO/RCED-97-113 Intellectual Property
Contents



Executive Summary                                                                                   2


Chapter 1                                                                                          16
                        Background                                                                 16
Introduction            Objectives, Scope, and Methodology                                         20

Chapter 2                                                                                          22
                        The Patent Process Is Designed to Be Self-Sustaining                       22
While the Overall       Individual Patent Fees Are Assessed for Specific Services                  23
Patent Process Is       Individual Fees Are Not Commensurate With the Costs of the                 25
                          Services Provided
Self-Sustaining,        PTO Is Studying the Need for Changes in Patent Fees                        29
Individual Fees Are     Patent Organizations Generally Are Satisfied With Current Fees             29
Not Commensurate        Conclusions                                                                30
                        Matters for Consideration by the Congress                                  31
With Costs of the       Agency Comments and Our Evaluation                                         31
Services Provided
Chapter 3                                                                                          32
                        The Trademark Process Is Self-Sustaining                                   32
Trademark Fees          Trademark Fees Appear to Be Commensurate With the Costs of                 33
Appear to Be Aligned      Services
                        Conclusions                                                                34
With the Costs of       Agency Comments and Our Evaluation                                         35
Services
Chapter 4                                                                                          36
                        Copyright Fees Have Been Adjusted Infrequently                             36
Copyright Fees Do       Current Copyright Fees Are Not Sufficient to Recover the Costs             37
Not Recover the Costs      of Services
                        The Copyright Office Has Opposed Becoming Self-Sustaining                  43
of Copyright Services      Outside the Library
                        Other Studies Support a Fee Increase                                       50
                        Eliminating the Requirement to Retain Copies of Unpublished                51
                           Works Could Reduce Costs
                        Conclusions                                                                53
                        Matters for Consideration by the Congress                                  54
                        Recommendation to the Register of Copyrights                               54
                        Agency Comments and Our Evaluation                                         54




                        Page 12                                  GAO/RCED-97-113 Intellectual Property
             Contents




Appendixes   Appendix I: Objectives, Scope, and Methodology                            56
             Appendix II: Patent Fee Income Received by PTO in Fiscal Year             59
               1995
             Appendix III: Patent Fees for Fiscal Year 1997                            66
             Appendix IV: Comparison of Patent Fees for PTO, Japanese                  71
               Patent Office, and European Patent Office
             Appendix V: Comparison of Patent Pendency by Examination                  72
               Group for Patents Issued or Applications Abandoned During
               Fiscal Year 1995
             Appendix VI: Trademark Fee Income Received by PTO in Fiscal               73
               Year 1995
             Appendix VII: Trademark Fees for Fiscal Year 1997                         75
             Appendix VIII: Copyright Fees for Fiscal Year 1997                        77
             Appendix IX: Copyright Fee Revenues Received by the Copyright             78
               Office in Fiscal Year 1995
             Appendix X: Copyright Office’s Analysis Showing Fees Required             79
               for Self Sufficiency
             Appendix XI: Regression Analysis of Copyright Applications                84
             Appendix XII: Comments From the Department of Commerce                    90
             Appendix XIII: Comments From the Library of Congress                     102
             Appendix XIV: Major Contributors to This Report                          132

Tables       Table 2.1: Fiscal Year 1995 Patent Fee Revenues by Fee Type               23
             Table 3.1: Fiscal Year 1995 Trademark Fee Revenues                        33
             Table 4.1: Comparison of Copyright Fee Revenues and Copyright             38
               Office Appropriations, Fiscal Years 1990 Through 1995
             Table 4.2: Comparison of Copyright Costs and Fees by Type of              39
               Copyright
             Table X.1: Financial Impacts of Separation Expenses in Fiscal             79
               Year 1997 for Copyright Basic
             Table X.2: Fee Per Registration for Full Cost Recovery Current            81
               Organization
             Table X.3: Fees Per Registration for Full Cost Recovery                   82
               Independent Agency in the Library without Offsetting Credits
             Table X.4: Fees Per Registration for Full Cost Recovery                   83
               Copyright Office Outside the Library
             Table XI.1: Regression Results for Copyright Applications                 88

Figures      Figure 4.1: Comparison of Real and Nominal Copyright Fees,1959            40
               Through 1996




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Contents




Figure 4.2: Copyright Registrations, 1945-95                                 46




Abbreviations

CBO        Congressional Budget Office
CPI        Consumer Price Index
GAO        General Accounting Office
GDP        Gross Domestic Product
IPO        Intellectual Property Organization
PTO        Patent and Trademark Office
SBA        Small Business Administration


Page 14                                    GAO/RCED-97-113 Intellectual Property
Page 15   GAO/RCED-97-113 Intellectual Property
Chapter 1

Introduction


               “America’s thinkers and creators are at the heart of technological-based
               economic growth—they are the engine that runs the American economic
               machine.” This statement, from the 1994 strategic plan of the Patent and
               Trademark Office (PTO), effectively summarizes the importance of
               advancing, regulating, and administering patents, trademarks, and
               copyrights—collectively referred to as intellectual property.

               The administration has made intellectual property reform a part of its plan
               to “reinvent” government. The Congress has also recently considered
               legislation that would affect how intellectual property rights are
               administered. Some of these proposals would affect the organization and
               funding of PTO and the Copyright Office. In this regard, the Chairman of the
               Senate Committee on the Judiciary asked us to review various issues
               relating to intellectual property fees.


               In this country, the federal government is the primary regulator of
Background     intellectual property through the grant of patents and the registration of
               trademarks and copyrights. In this regard—and because federal statutes
               and regulations provide various economic and procedural benefits
               concomitant with the grant or registration—these three types of
               intellectual property are much alike. In other ways, however, they are
               different. Registering copyrights, for example, takes less time than
               granting patents or registering trademarks, yet copyrights generally have a
               much longer life. Trademarks have the shortest original term; however,
               they can be renewed indefinitely while patents and copyrights cannot.
               Patents for inventions never brought to market and copyrights for
               materials never published nevertheless are protected for their entire
               terms, while a trademark can be lost if it is not used.

               Similarly, the roles of the agencies regulating and administering
               intellectual property differ. Generally, PTO examines patent and trademark
               applications in great detail to ensure that others have not already applied
               for a patent on the invention or are not using the trademark in question.
               The Copyright Office essentially registers any materials that appear to be
               copyrightable and for which the application is complete. Unlike PTO, the
               Copyright Office generally does not determine whether some other person
               has a similar copyright or whether the materials are in the public domain.
               The differences in the complexities of the procedures followed by the
               agencies are mirrored by differences in the fees and related expenses.




               Page 16                                    GAO/RCED-97-113 Intellectual Property
              Chapter 1
              Introduction




Patents       A patent is a grant given by a government to an inventor of the right to
              exclude others for a limited time from making, using, or selling his or her
              invention. In the United States, the sole granting authority for patents is
              PTO. The patent process is totally funded through user fees. In fiscal year
              1995, PTO issued 114,642 patents.

              PTO   typically classifies patents as one of four types:

          •   Over 90 percent of all patent applications are for “utility” patents for
              inventions that are either a process, machine, manufactured article, or
              composition of matter, or an improvement to one of these. A second type
              of patent is the “plant” patent—constituting less than 1 percent of all
              applications—which is granted for asexually propagated plants.
              Previously, utility and plant patents had a term of 17 years from the date
              the patents were issued. For those applications filed after June 7, 1995,
              however, utility and plant patents will have a nonrenewable term of 20
              years from the date the earliest application is filed.
          •   The third type of patent is the “design” patent, available for a new, original,
              and ornamental design for an article of manufacture. In fiscal year 1995,
              design patent applications accounted for about 6.5 percent of all
              applications filed. Design patents have a nonrenewable term of 14 years
              from the date of issuance.
          •   The fourth type of patent is the “reissue” patent, which is granted as a
              replacement for a patent that was in some way defective. The reissue
              patent is granted for the unexpired term of the patent it replaced. Reissue
              patents typically account for less than 1 percent of all applications.

              Prior to issuing a patent, PTO examines the application to verify that the
              patent is indeed new, useful, and non-obvious. In this regard, PTO requires
              that every patent application include (1) a specification that describes the
              manner and process of making and using the invention as well as the claim
              or claims that make the invention patentable; (2) an oath or declaration
              that the applicant is the original inventor; (3) drawings, where necessary
              for understanding the nature of the invention; and (4) a filing fee.
              Additional fees may be necessary during examination, when the patent is
              issued, and during the term of the patent.

              Within PTO, the patent application examination process consists of several
              progressive phases. An applicant files a patent application with PTO, which
              reviews the application for accuracy and completeness during a
              preexamination phase. Following preexamination, the application is
              assigned, or “docketed,” to an examiner within an examination group that



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             Introduction




             has expertise in a specific field, such as computer systems or
             biotechnology.

             At this point, the examiner begins the process of determining whether the
             invention is a new and useful process or product that should receive a
             patent. Usually early in the process, the examiner makes a preliminary
             decision, or “first action,” which may be followed by contacts with the
             applicant to resolve questions and/or obtain additional information. If PTO
             decides to issue a patent, termed an “allowance,” it informs the applicant
             and, upon the payment of the necessary fees, issues a patent. The
             application may be abandoned during any of these stages.

             The examination process can be lengthy. During fiscal year 1995, for
             example, the average “patent pendency”—the period from the date an
             application is filed until the date it is abandoned by the applicant or a
             patent is issued by PTO—was 19.8 months. While not required, most
             inventors use the services of an attorney to help prepare the application
             and to assist them throughout the examination process, according to PTO.


Trademarks   A trademark is a word, name, symbol, or design used to distinguish or
             identify the goods or services of a particular merchant or manufacturer
             from those of others.1 As with patents, the federal authority for registering
             trademarks in the United States is PTO, and the trademark process is
             funded through user fees. In fiscal year 1995, PTO issued 65,662 certificates
             of registration.

             Federal registration does not create a trademark because a trademark can
             only be acquired by actually using it in association with particular goods
             or services. However, federal registration does offer the registrant
             substantial procedural advantages should the trademark owner be faced
             with an infringement. Once registration has been obtained, the trademark
             must remain in substantially continuous use in order to be preserved.
             Trademark registrations have a term of 10 years but can be renewed
             indefinitely for additional 10-year terms.

             An applicant seeking to register a trademark must file an application
             accompanied by a fee, specimens of the trademark as it is actually used, a
             drawing of the mark, and various statements describing when the mark
             was first used and the types of goods and services on which it is used.
             Trademarks are categorized into various classes, such as toys or clothing,

             1
              As used in this report, “trademarks” refers to both trademarks and service marks.



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             Introduction




             and, if registration for more than one class is sought, the applicant must
             pay an additional fee for each class.

             Once filed, the application is examined by an examining attorney within
             the Trademark Office of PTO. The attorney verifies that the trademark for
             which registration is sought is not “confusingly similar” to trademarks for
             other goods or services. If there is no such similarity and there are no
             other statutory bars to registration, PTO publishes the trademark and gives
             members of the public the right to oppose registration if they feel it is
             confusingly similar to another trademark, even if this other trademark is
             not already registered. If no problems are identified at this stage, the
             trademark is registered. Even then, however, it can be challenged at some
             later date if it is not used properly or if a prior user comes forward.

             The trademark process can also be lengthy. In fiscal year 1995, for
             example, PTO reported that the time between the filing of an application
             and the registration of the trademark averaged 16.4 to 16.7 months. While
             applicants may use attorneys in the application process, attorney
             involvement is not as extensive as with patents, according to PTO officials.


Copyrights   A copyright is a type of intellectual property that protects literary and
             artistic expression as well as the media where these are displayed. Thus,
             copyrights are available for works such as books, periodicals, speeches,
             printed and recorded music, plays, computer software, paintings,
             sculpture, and motion pictures. Copyright registration in the United States
             is the exclusive province of the Copyright Office in the Library of
             Congress. In fiscal year 1995, the Copyright Office registered 609,195
             copyrights.

             As with trademarks, a copyright is not gained through registration but
             rather when the work itself is created and reduced to some tangible form
             of expression. It is the expression of an idea that is copyrightable, not the
             idea itself. Registration does offer advantages, however, because the
             copyright owner has better evidence regarding the priority of the claim
             and is entitled to certain statutory benefits and damages upon
             infringement that would not otherwise be available. A copyright generally
             lasts for the (1) author’s lifetime plus 50 years for personal works or
             (2) shorter of 75 years from publication or 100 years from creation for
             works for hire, anonymous works, or pseudonymous works.




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                     Introduction




                     The copyright registration process is simpler than for patents and
                     trademarks. The copyright owner submits an application accompanied by
                     a filing fee and one or two copies of the work, depending on the type. Most
                     applicants, according to Copyright Office officials, do not use an attorney.
                     The examination process is also relatively simple, taking an average of 38
                     to 83 days in fiscal year 1995 to complete, depending on the type of
                     application. The examiner ensures the application is complete and
                     accurate, that the materials appear to be copyrightable, that the fee is
                     proper, and that the required copies are provided. The Copyright Office
                     does not attempt to verify that others have not already copyrighted the
                     materials or that the materials are in use, have use, or have value.


                     The Chairman of the Senate Committee on the Judiciary, which is
Objectives, Scope,   considering various funding and organizational proposals involving PTO
and Methodology      and the Copyright Office, requested that we examine several interrelated
                     issues concerning the fees these agencies charge for their services. He
                     asked that we address fees as they relate specifically to patents,
                     trademarks, and copyrights and, where applicable, determine (1) how fees
                     are set for the services provided by PTO and the Copyright Office, (2) the
                     extent to which intellectual property fees are recovering the costs of the
                     services provided, (3) whether different users of the same services pay
                     different fees, (4) whether patent fees encourage or discourage the
                     completeness and accuracy of applications, and (5) the potential effects of
                     increasing copyright fees. We address these issues in chapters on patents,
                     trademarks, and copyrights.

                     In order to answer these interrelated questions, we determined that we
                     would have to develop data and report on patents, trademarks, and
                     copyrights separately because each has its own laws, application and
                     examination procedures, and fee structure. In this regard, we obtained fee
                     information on patents and trademarks from PTO and copyrights from the
                     Copyright Office. This information included current fee schedules for each
                     form of intellectual property as well as a summary of the fees actually
                     received during fiscal year 1995, the most recent year for which such
                     information was available. To the extent possible, we subdivided the fee
                     receipts by fee type and computed the ratio of each fee type to total fees
                     received.

                     To determine how fees are set, we reviewed the statutory authority
                     provided to PTO and the Copyright Office as well as the procedures these
                     two agencies had developed for adjusting fees. We reviewed the legislative



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Introduction




history for the statutory fees to determine the reasons for and timing of
the various changes. We obtained information from the agencies showing
the actual process and data used in the most recent fee adjustments
considered.

We also obtained certain workload information from PTO and the
Copyright Office, showing the number of patents, trademarks, and
copyrights issued or registered or for which the applications were
abandoned or rejected during fiscal year 1995. This year was used because
of the need for consistency with the fee receipt data discussed above and
because in most cases it was the year for which the most recent data were
available. In addition, we obtained information the agencies had developed
showing the impact of fee increases on applications. For copyrights, we
also performed a regression analysis to estimate the association between
fee increases and changes in the number of applications while controlling
for the influences of other factors that may affect application levels.

We discussed the establishment of fees, fee history, the equity and fairness
of fees by applicant and type of application, and the potential impact of
adjusting fees with officials from PTO, the Copyright Office, and the
intellectual property community. Where possible, we obtained comparable
fee data for the Japanese Patent Office and the European Patent Office,
the two other large patent offices in the world besides PTO.

We provided a draft of this report to the Department of Commerce and the
Library of Congress. These agencies provided written comments, which
are included in appendices XII and XIII, respectively, along with our
responses. In addition, we met with officials of the Library of Congress
after receiving their comments.

Additional information on our scope and methodology is included in
appendix I.




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Chapter 2

While the Overall Patent Process Is
Self-Sustaining, Individual Fees Are Not
Commensurate With Costs of the Services
Provided
                        By design, the patent process is self-sustaining through a system of fees
                        assessed by PTO for its services. Changes to the law in 1990 and 1991 set
                        patent fees at levels that would recover costs overall and authorized PTO to
                        make annual adjustments for inflation. Despite the self-sufficiency of the
                        patent process overall, however, individual fees are not necessarily
                        commensurate with the costs of the services for which they are assessed.
                        Again, this is by design because (1) the largest fees are paid at the back
                        end of the process, while most costs occur at the front end of the process;
                        (2) large and small entities generally are charged different fees for the
                        same service; (3) costs vary by invention type, while fees do not; and
                        (4) delays caused by the applicants generate more costs than fees.
                        Recognizing these anomalies, PTO is studying the need to make the
                        individual fees more nearly commensurate with the costs of the services
                        provided.


                        Understanding the current patent fee structure first requires an
The Patent Process Is   explanation of how the role of patent fees has changed over the past 4
Designed to Be          decades. Until recently, patent fees were not intended to cover the costs of
Self-Sustaining         PTO’s patent process. In 1965, for example, patent and trademark fees were
                        set at a level that recovered 67 percent of PTO’s costs. By 1980, however,
                        inflation had reduced the impact of these fees—which had not been
                        revised in the interim—so that they recovered only 27 percent of PTO’s
                        operating costs.

                        In 1980, the Congress revised the patent fee structure. Public Law 96-517,
                        enacted December 12, 1980, provided that fees would be set to recover
                        50 percent of the costs of PTO’s patent process. The law also provided that,
                        like most other industrialized countries, patent fees would be paid not
                        only for application filing and patent issuance but also for the life of most
                        patents through fees known as maintenance fees.

                        Public Law 97-247, enacted August 27, 1982, further modified the patent
                        fee structure. In addition to raising fees, the law provided that filing, issue,
                        and maintenance fees would be set by statute and could be adjusted every
                        3 years on the basis of fluctuations in the Consumer Price Index (CPI). The
                        law also provided that large entities would pay statutory fees double the
                        rate of small entities—those entities classified as small businesses by the
                        Small Business Administration (SBA), nonprofit organizations, and
                        individual inventors. The purpose of this reduced fee for small entities was
                        to reduce the impact of fee increases on the inventors most likely to be
                        burdened by higher fees.



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                                         While the Overall Patent Process Is
                                         Self-Sustaining, Individual Fees Are Not
                                         Commensurate With Costs of the Services
                                         Provided




                                         Public Law 101-508, enacted November 5, 1990, put PTO on the road to
                                         self-sufficiency by increasing statutory patent fees by 69 percent in fiscal
                                         year 1991. This increase, known as a “surcharge,” was a replacement for
                                         appropriations from the general fund. Subsequently, the surcharge was
                                         extended through fiscal year 1998 and modified so that the amounts
                                         specified by statute are collected. Unlike regular fees, which are treated as
                                         offsetting collections for budget purposes and are fully available to PTO,
                                         the surcharge fees were to be treated as offsetting receipts and would be
                                         available to PTO only to the extent appropriated back by the Congress.

                                         Public Law 102-204, enacted December 10, 1991, authorized PTO to adjust
                                         patent fees annually to account for changes in the CPI. Since fiscal year
                                         1993, PTO has been self-sufficient, receiving no appropriations other than
                                         those generated by the surcharges. Actually, PTO has not been allowed to
                                         use all the fees it has collected. Through fiscal year 1997, the Congress has
                                         withheld $142.8 million of the $729.3 million in surcharge fees collected by
                                         PTO.



                                         PTO collects fees for an assortment of patent services. Fiscal year 1995 fee
Individual Patent Fees                   revenues totaled $577.7 million. While these fees were collected under 139
Are Assessed for                         separate fees for specific services, there were three primary types of
Specific Services                        fees—application filing, patent issuance, and patent maintenance. Table
                                         2.1 summarizes fiscal year 1995 revenues by primary type of fee, and
                                         appendix II provides a detailed comparison of these revenues for the
                                         individual fees.

Table 2.1: Fiscal Year 1995 Patent Fee
Revenues by Fee Type                                                                          Fiscal year 1995
                                         Fee type                                                  collections           Percent of totala
                                         Filing                                                  $164,932,389                        28.5
                                         Issue                                                    109,374,237                        18.9
                                         Maintenance                                              194,668,049                        33.7
                                         Other                                                    108,725,154                        18.8
                                         Total                                                   $577,699,829                        99.9
                                         a
                                             Does not total to 100 percent due to rounding.

                                         Source: PTO, GAO computations.



                                         Each applicant pays a filing fee prior to PTO’s examination of the merits of
                                         the patent application. There are different filing fees for utility, design,
                                         plant, and reissue applications, just as there are different fees for large and



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While the Overall Patent Process Is
Self-Sustaining, Individual Fees Are Not
Commensurate With Costs of the Services
Provided




small entities. In fiscal year 1995, utility patent applications were
dominant, accounting for 89.8 percent of large entities’ filing fees and 85.7
percent of small entities’ filing fees. Overall, large entities paid
$134 million, or 4.3 times the filing fees paid by small entities.

Once PTO decides to allow the grant of a patent, the applicant must pay an
issue fee in order to receive the patent. As with application fees, issue fees
differ by the type of patent as well as by large and small entities. In fiscal
year 1995, utility and reissue patents—which are assessed the same issue
fees—accounted for 97.6 percent of all large entities’ issue fees and 92.3
percent of all small entities’ issue fees. In total, large entities paid
$88.7 million, or 4.3 times the issue fees paid by small entities.

Maintenance fees represent the largest single source of patent fee
collections, accounting for more than a third of all patent fees collected
during fiscal year 1995. The fees are paid at three stages during the life of
the patent—at 3.5, 7.5, and 11.5 years into the patent term—with the fees
at each stage being progressively higher. Unlike filing and issue fees,
maintenance fees are not assessed on design and plant patents. However,
large entities pay maintenance fees at twice the rate of small entities.

Maintenance fees constitute some of the largest individual fees, ranging
from $960 to $2,900 for large entities and $480 to $1,450 for small entities
during fiscal year 1995. In fiscal year 1995, large entities paid
$171.2 million, or 7.6 times the amount paid by small entities.

While filing, issue, and maintenance fees are the three primary types of
fees—accounting for 81.5 percent of all patent fees during fiscal year
1995—PTO collects other types of patent fees. These include such fees as
those paid by an applicant to file and process an international patent
application under the Patent Cooperation Treaty, to appeal a PTO decision,
to revive an abandoned application, and to obtain an extension in the time
to respond to a request or inquiry by PTO during examination. All these fees
are different for large and small entities. Other fees, such as those for filing
a petition to the Commissioner, make no distinctions in the amount of the
fee by the size of the entity.

As noted previously, PTO now has discretion to raise most fees annually to
adjust for inflation. PTO has raised fees each year except one since the
surcharge was added in fiscal year 1991. Most of the discussion of fees in
this chapter is based on fiscal year 1995 data, since this was the most
recent year for which complete statistics on fees and patent examination



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                          While the Overall Patent Process Is
                          Self-Sustaining, Individual Fees Are Not
                          Commensurate With Costs of the Services
                          Provided




                          statistics were available at the time of our review. Appendix III shows the
                          fees in effect during fiscal year 1997.

                          In commenting on a draft of this report, the Department of Commerce
                          noted that PTO’s revenues from filing fees in fiscal year 1995 actually were
                          a greater proportion of total revenues than is normally the case. This was
                          due to the large number of applications submitted prior to the change in
                          the patent term that became effective on June 8, 1995. In fiscal year 1994
                          and 1996, filing fees, according to PTO, accounted for 27.5 percent and
                          23.7 percent, respectively, of total fee revenues, compared with
                          28.5 percent in fiscal year 1995.


                          PTO notes that it is essentially an agency that provides services and that its
Individual Fees Are       customers pay for these services. At a September 18, 1996, hearing before
Not Commensurate          the Senate Committee on the Judiciary, for example, the Assistant
With the Costs of the     Secretary of Commerce and Commissioner of Patents and Trademarks
                          provided the following testimony:
Services Provided
                          “The revenues needed to meet the Patent and Trademark Office’s expenditures are, as you
                          know, more than fully offset by fees paid by those who use our services and buy our
                          information products. Our workload consists primarily of patent and trademark
                          applications filed by individuals and businesses in the United States and from other
                          countries. These applicants, both domestic and foreign, pay fees for the services they
                          request. Because they pay fees for those services, they expect and deserve prompt and
                          efficient service, and the Patent and Trademark Office must have the flexibility to deliver
                          that service.”


                          While the Commissioner’s statement is correct—PTO’s expenditures are
                          recovered through fee revenues—this does not mean that individual fees
                          are set to recover the costs of the specific services provided. Actually,
                          patent fees are structured so that in effect (1) successful applicants pay
                          more than unsuccessful applicants, (2) large entities pay more than small
                          entities, (3) applicants with less complicated applications pay the same as
                          those with more complicated applications, and (4) applicants who create
                          delays in the examination process do not pay fees commensurate with the
                          additional pendency caused by those delays.



Successful and            While PTO does not have a cost-accounting system capable of determining
Unsuccessful Applicants   the costs associated with individual services, PTO officials advised us that
                          most of the costs of the patent process are attributable to application




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                               While the Overall Patent Process Is
                               Self-Sustaining, Individual Fees Are Not
                               Commensurate With Costs of the Services
                               Provided




                               processing and examination. For fiscal year 1995, for example, they
                               estimated that only 8.6 percent of the costs associated with an individual
                               patent were attributable to the actual issue of the patent and 0.1 percent
                               were attributable to its maintenance. As noted above, however, patent
                               issue fees accounted for 18.9 percent of patent fees collected in fiscal year
                               1995, while maintenance fees accounted for 33.7 percent.

                               The dichotomy of front-end costs and back-end revenues causes
                               successful applicants to pay a larger share of costs than unsuccessful
                               applicants because so many applications are abandoned during the
                               examination stage. Of the 186,195 patents issued and applications
                               abandoned during fiscal year 1995, for example, 114,642 patents, or
                               61.6 percent, were issued and 71,553 applications, or 38.4 percent, were
                               abandoned. Patent pendency—the amount of time PTO spends in
                               examining a patent prior to the patent’s being issued or the application’s
                               being abandoned—averaged 19.8 months, with 21 months for patents
                               issued and 17.9 months for applications abandoned. None of the
                               applications abandoned will pay an issue or maintenance fee because no
                               patent was issued, even though abandoned applications accounted for
                               more than a third of total pendency.


Large and Small Entities       As noted earlier, large entities typically pay twice the fee that small
                               entities pay for the same service. Because of this difference in the fee itself
                               and because large entities submit more applications and receive more
                               patents, large entities pay a much larger share of overall patent costs. In
                               fiscal year 1995, for example, large entities accounted for 81 percent of the
                               $164.9 million in filing fees, 81.1 percent of the $109.4 million in issue fees,
                               87.9 percent of the $194.7 million in maintenance fees, 83.2 percent of the
                               $48.4 million in response-time extension fees, 86.8 percent of the
                               $6.2 million in appeal fees, 73.4 percent of the $3 million in abandoned
                               application revival fees, and 85.8 percent of the $9.8 million in Patent
                               Cooperation Treaty filing fees.

                               These differences in fees are mandated by the law. The Congress added
                               the fee-differential provision in 1982 to reduce the effects of fee increases
                               on small businesses, individual inventors, and nonprofit organizations.
                               However, the differences today are much greater, now that PTO has
                               become totally dependent on fees and the fees themselves are larger. In
                               this regard:

                           •   PTO   officials told us that the size of the entity has no bearing on PTO’s costs.



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                             Provided




                         •   For patent fee purposes, a small entity is a small business with no more
                             than 500 employees, a nonprofit organization, or an individual inventor.
                             The categorization of a small business as defined by the Congress is taken
                             from the criteria SBA uses to determine whether a business qualifies as a
                             small business for its programs. While this employee-based criteria may be
                             useful for SBA, PTO officials said such a definition has little significance
                             when considering the economic impact of fees on a patent applicant. In
                             today’s high-tech environment, many businesses that are highly capitalized
                             and profitable have 500 or fewer employees. Similarly, some of the more
                             successful applicants are individual inventors or work for small
                             businesses. As one example, PTO officials noted that one of the most
                             prolific U.S. inventors—whose patents have returned him hundreds of
                             millions of dollars—is considered a small entity for patent fee purposes.
                         •   Patents are the only form of intellectual property for which the size of an
                             entity has a bearing on the fees assessed. There is no such division of fees
                             for either trademarks or copyrights.
                         •   The patent fees themselves are only a portion of the costs of receiving a
                             patent. By definition, a patent represents a new and useful invention or
                             process, and other costs are involved in researching, developing,
                             producing, and marketing these inventions that typically are much greater
                             than would be experienced in obtaining a trademark or copyright
                             registration. In addition, in most cases, attorneys are involved in
                             preparing, filing, and prosecuting the application. While attorneys’ fees
                             vary according to the circumstances, an intellectual property guide
                             published by the Minnesota Small Business Assistance Office in 1992
                             estimated that attorneys’ fees could range from $7,500 to $18,000 per
                             application.
                         •   While patent fees have increased significantly since the surcharges were
                             implemented in fiscal year 1992, inventor organizations generally did not
                             believe they were too high or that they were stifling the inventive process.
                             Furthermore, as shown in appendix IV, U.S. patent fees appear to be
                             among the lowest in the industrialized world.


Application Complexity       Patent applications cover a wide range of inventions, and the more
                             complicated inventions generally require the most examination time. As
                             shown in appendix V, the differences in average pendency can vary
                             significantly among examination groups. For those patents issued and
                             applications abandoned during fiscal year 1995, the average pendency was
                             19.8 months. Among the 17 individual examination groups, however,
                             pendency ranged from a low of 17.4 months for solar, heat, power and
                             fluid engineering devices to a high of 26.2 months for computer systems.



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                   Commensurate With Costs of the Services
                   Provided




                   Among the more specialized groupings within the examination groups,
                   pendency can vary even more. For example, average pendency for the
                   grouping of special receptacles, packages, shoes, and shoemaking was
                   15.8 months, compared with 29.6 months for the grouping of database and
                   file management systems.

                   While pendency alone is not the only determinant of costs, PTO officials
                   agreed that the more complicated the invention, the more time and
                   expense are attributable to examination. However, the fee schedule makes
                   few provisions for these differences in examination time. One such
                   provision is that, as shown in appendixes II and III, fees for design and
                   plant applications—which tend to be less complicated—are lower than for
                   utility patent applications. There are no differences in filing fees, however,
                   for different types of inventions within the utility patent category, which
                   accounts for over 90 percent of all patent applications.


Applicant Delays   During PTO’s examination of a patent application, the examiner makes a
                   preliminary decision on the merits of the application as filed. At such time,
                   the examiner may ask the applicant to respond to questions or provide the
                   examiner with information. This process may occur a number of times. In
                   many cases, PTO cannot complete the examination until the applicant has
                   taken some further action. For example, (1) the applicant may have filed
                   an incomplete application that must be corrected before it can be assigned
                   to an examination group, (2) the applicant may need to answer questions
                   raised by the examiner or provide PTO with additional information, or
                   (3) PTO may have to wait for the payment of a fee before it can proceed
                   with the examination process.

                   In fiscal year 1995, the time taken by applicants to respond to official PTO
                   “office actions” accounted for 3.7 months, or 18.7 percent, of the total
                   average pendency of 19.8 months. This does not include any pendency that
                   was added because PTO had to process the responses.

                   There are no additional fees for responses made within 3 months of a PTO
                   office action. However, if the respondent wants to extend the response
                   time, he or she must pay extension fees, as shown in appendixes II and III.
                   If no response is received after 7 months—the 3 “grace” months plus the 4
                   extension months—the application is considered abandoned.

                   As shown in appendix II, the extension fees received during fiscal year
                   1995 were $48.4 million, or 8.4 percent of the total patent fees received. As



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                         While the Overall Patent Process Is
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                         Commensurate With Costs of the Services
                         Provided




                         noted above, however, the contribution to pendency by the respondents
                         for all patents issued or applications abandoned during fiscal year 1995
                         was 18.7 percent. While an exact correlation cannot be made, these
                         differences indicate that respondent fees may not be commensurate with
                         the amount of additional pendency they create.


                         PTO  officials believe that anomalies exist in the current patent fee structure
PTO Is Studying the      and have two initiatives under way to address the issue. Under one of
Need for Changes in      these initiatives, PTO is developing a cost-accounting system that will allow
Patent Fees              it to determine the unit costs of particular services, something it cannot do
                         under its current accounting system. Under the second initiative—which
                         depends to a large extent on the development of cost centers—PTO will
                         attempt to determine whether there is a need for revisions in the fee
                         structure. At the time of our review, PTO officials said the cost study was
                         expected to be completed in December 1997 and that the fee study would
                         be completed at an undetermined time after the cost study.

                         In its Audit Inspection Plan for Fiscal Years 1997-98, the Department of
                         Commerce’s Inspector General noted that “PTO has no uniform process to
                         track the costs of operations within its various program areas...[and] does
                         not have the information that would enable it to develop a fee structure
                         that would accurately establish fees to recover the full costs of
                         operations.” In this regard, the Inspector General plans to review PTO’s
                         cost-accounting and fee-restructuring efforts, beginning in the third
                         quarter of fiscal year 1997.


                         Officials from organizations representing patent owners and attorneys
Patent Organizations     agreed that the current fee system is designed to recover costs in the
Generally Are            aggregate rather than on a per-service basis. While they recognized that
Satisfied With Current   this is in effect a type of subsidy and creates inequities among applicants,
                         they also said that their constituents were generally satisfied with the
Fees                     current system because they (1) know what to expect, (2) are familiar with
                         the fee structure as now designed, and (3) recognize that there is some
                         logic in creating a fee system in which successful applicants bear a greater
                         proportion of the costs. In addition, fees paid to PTO are a relatively small
                         portion of the overall costs of creating a new product, obtaining a patent,
                         and bringing the product to market.

                         These officials’ primary dissatisfaction was not in the fee structure itself
                         but in the Congress’s not appropriating all the surcharge fees back to PTO.



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              Chapter 2
              While the Overall Patent Process Is
              Self-Sustaining, Individual Fees Are Not
              Commensurate With Costs of the Services
              Provided




              They fear that, ultimately, this may keep PTO from being able to manage
              the patent workload and could lead to higher patent pendency.

              The officials from the patent organizations also said that, if the Congress
              does wish to look at the appropriateness of fees, now is the time.
              Legislative proposals have been made in both the prior and current
              sessions of the Congress that would make PTO a wholly-owned government
              corporation, and questions have been raised concerning how fees would
              be set and who would set them. The officials believed that these questions
              should be resolved as a part of the decision on PTO’s organizational status.


              In many ways, the current patent fee structure is working well. The patent
Conclusions   process within PTO has been self-sufficient since fiscal year 1993 and a
              mechanism is in place to ensure that fees can be raised annually to
              account for inflation. Furthermore, the applicants appear to be generally
              satisfied with the current system.

              At the same time, however, individual applicants are not necessarily
              paying their own way because (1) there appears to be little correlation
              between the service being provided and the cost of that service to PTO and
              (2) certain applicants pay more than others for the same services.
              Applicants who abandon their applications, qualify as small entities,
              submit more complicated applications, and create delays in the
              examination process are paying less for the same services than other
              applicants who receive patents, are considered large entities, have less
              complicated applications, and create fewer delays.

              We recognize that there may be policy reasons for having different
              applicants pay different fees for essentially the same services. Ultimately,
              the question is whether the Congress wants a closer alignment between
              the costs of the patent services being provided by PTO and the fees charged
              for those particular services. While the current system works from the
              standpoint of overall revenue, individual applicants do not always get what
              they pay for or pay for what they get.

              In order to match fees more closely with services, it will be necessary to
              know the actual costs of those services. We believe that PTO is taking the
              correct approach in developing a cost-accounting system that will identify
              the costs attributable to specific patent services.




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                       While the Overall Patent Process Is
                       Self-Sustaining, Individual Fees Are Not
                       Commensurate With Costs of the Services
                       Provided




                       In considering proposals affecting PTO’s funding and organizational status,
Matters for            the Congress may wish to consider whether the current patent fee
Consideration by the   structure needs to be changed so that fees for particular services more
Congress               nearly reflect the costs of those services. Specifically, the Congress may
                       wish to consider whether (1) the fee differential between large and small
                       entities should be continued, (2) a larger portion of fees should be tied to
                       the examination process itself, (3) larger fees should be paid for those
                       applications that require more examination time, and (4) applicants who
                       create delays in the examination process should pay for the costs of these
                       delays.


                       In commenting on a draft of this report, the Department of Commerce
Agency Comments        generally agreed with the information presented but recommended a
and Our Evaluation     number of technical and language changes. Several of the Department’s
                       comments concerned our not having included $2.4 million in
                       miscellaneous fees in the statistics on patent fees. We had not included
                       these in the draft report because the source materials indicated such
                       information could not be tied specifically to either patents or trademarks.
                       After reviewing the Department’s comments, we determined that these
                       fees should have been shown as patent fees and we revised the report
                       accordingly.

                       The Department also noted that the cost-accounting information PTO
                       expects to have by December 1997 will greatly enhance the substantive
                       information available with which to analyze potential changes to the
                       current fee structure. Although it is too early to know the outcome of PTO’s
                       study, we make the point in this report that in order to match fees more
                       closely with services, it will be necessary to determine the actual costs of
                       those services.

                       Throughout its comments, the Department emphasized the role the
                       Congress has played in creating and developing the existing patent fee
                       structure. We agree and believe that this point is made clear in the report.
                       We also believe that any policy changes regarding patent fees would
                       require congressional action. For this reason, we have included matters
                       for congressional consideration dealing with patent fees.

                       The complete text of the Department’s comments and our responses to
                       those comments are included in appendix XII.




                       Page 31                                     GAO/RCED-97-113 Intellectual Property
Chapter 3

Trademark Fees Appear to Be Aligned With
the Costs of Services

                  Like the patent process, the trademark process is self-sustaining. However,
                  unlike patents, trademark fees do not vary on the basis of the size of the
                  entity applying, and most fees are paid at the beginning of the process
                  before PTO begins to incur costs. Consequently, while PTO believes some
                  adjustments may be needed, fees in the trademark process appear to be
                  more closely aligned with the costs of services.


                  The trademark process—accounting for receipts of $68.5 million in fiscal
The Trademark     year 1995—now totally depends on fees. However, unlike the patent
Process Is        process—which has been self-sustaining since fiscal year 1993—the
Self-Sustaining   trademark process’s self-sufficiency began in fiscal year 1983.

                  In 1965, trademark processing fees were increased, with the most
                  significant change being an increase in the basic application filing fee from
                  $25 to $35. These fees remained in effect until fiscal year 1983. Public Law
                  97-247, enacted August 27, 1982, authorized PTO to increase trademark
                  fees, this time to a level intended to recover 100 percent of trademark
                  costs. The increase implemented was substantial, with the basic filing fee
                  raised to $175 per application. The law also provided that trademark fees
                  could be used only to fund trademark operations.

                  Since fiscal year 1983, trademark processing fees have remained
                  essentially stable, with only some limited changes in the basic filing fee. In
                  October 1986, PTO raised the basic fee to $200 but in April 1989 lowered it
                  back to $175. In December 1991, PTO again raised the basic filing fee to
                  $200, and Public Law 103-179, enacted December 3, 1993, raised it to $245.
                  This fee is still in effect.

                  PTO  now has the authority to raise trademark processing fees and service
                  fees annually within the CPI increase of the previous year. In practice, PTO
                  does not always exercise its authority to adjust fees. Appendix VI shows
                  trademark processing and service fees received during fiscal year 1995,
                  and appendix VII shows the fees in effect in fiscal year 1997. The only fees
                  raised over this period were two service fees, which together accounted
                  for less than 0.5 percent of revenues in fiscal year 1995.




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                                        Trademark Fees Appear to Be Aligned With
                                        the Costs of Services




                                        Trademark fees are more streamlined and less complicated than patent
Trademark Fees                          fees. In total, there are 19 separate trademark processing fees and 18
Appear to Be                            separate service fees. Unlike patents, these fees do not differ by the size of
Commensurate With                       the entity applying to register the trademark, no additional fees are levied
                                        when the trademark is approved for registration, and no maintenance fees
the Costs of Services                   must be paid during the term of the trademark. A renewal fee of $300 per
                                        class is paid only if the trademark owner wishes to extend the trademark
                                        for additional 10-year terms.

                                        According to PTO officials, trademark fee revenues are tied closely to the
                                        trademark examination process. As shown in table 3.1 and appendix VI,
                                        the trademark process generated $68.5 million in fee revenues during
                                        fiscal year 1995. Of this total, 94.5 percent came from trademark
                                        processing fees. More specifically, 71.5 percent of all revenues came from
                                        one fee—the basic application filing fee.

Table 3.1: Fiscal Year 1995 Trademark
Fee Revenues                                                                       Fiscal year 1995
                                        Fee type                                        collections            Percent of total
                                        Application filing                             $48,975,658                        71.5
                                        Other processing                                15,769,278                        23.0
                                        Service                                          3,741,860                          5.5
                                        Total                                          $68,486,796                       100.0
                                        Source: PTO, GAO computations.



                                        As with the patent process, PTO does not have a cost-accounting system
                                        capable of determining the costs of particular services. However, PTO
                                        officials estimated that about 76 percent of its overall trademark costs
                                        were related to the examination process. They also told us that there is not
                                        a significant difference in the amount of time spent examining different
                                        types of trademarks. In fiscal year 1995, the average time spent in
                                        examining all trademark applications prior to registration ranged from
                                        16.4 to 16.7 months.

                                        The situation in which successful patent applicants pay more than
                                        unsuccessful applicants does not exist in the trademark process because,
                                        as noted above, there are no separate issue or maintenance fees for
                                        trademarks. Thus, even though 42,214 trademark applications were
                                        abandoned in fiscal year 1995, compared with 75,372 applications that
                                        “matured to registration,” all applicants paid the same basic filing fee in
                                        advance. Unlike patents, there are no separate fees tied to late responses




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              Trademark Fees Appear to Be Aligned With
              the Costs of Services




              to PTO requests for additional information. However, PTO officials said that,
              because of the nature of the application, there are fewer occasions to
              request additional information during the processing of a trademark
              application. Unlike patent regulations, trademark regulations do not
              require acceptance of incomplete applications and, as a result, PTO does
              not accept and process incomplete trademark applications.

              PTO officials believe that fees generally are appropriately allocated to the
              services provided. They also said, however, that they were aware of some
              individual areas in which the fees probably were not adequate. For
              example, they said that the fees for actions such as filing an appeal ($100
              per class) were likely to be well below PTO’s costs of handling these
              actions. As with patents, PTO officials believed that the two studies now
              under way to develop a new cost-accounting structure and to reassess
              fees—as discussed in chapter 2—will provide better information on how
              well specific fees are tied to specific services and what fees may need to
              be adjusted.

              The representatives from the trademark community with whom we
              discussed fees generally had no problems with the current fee structure.
              They believed, like PTO, that the costs were adequately tied to the services
              provided.


              Trademark fees are more streamlined than patent fees. There are fewer
Conclusions   individual fees, the size of the entity applying has no effect on the fee paid,
              most fees are tied to the application examination, and most fees are paid
              in advance of the examination. There are no separate fees for registration
              or maintenance, and the processing time does not appear to vary
              significantly by type of application. There also is less reason for PTO to
              request additional information on problem applications.

              For these reasons, we do not believe fees in the trademark process raise
              the issues we identified in the patent process, in which certain applicants
              pay more than others for the same services. However, we believe that PTO
              should continue its efforts to (1) develop a cost-accounting system that
              will allow it to identify the costs attributable to specific trademark
              services and (2) reassess the fees paid to determine whether they are
              commensurate with the costs of the services provided.




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                     In commenting on a draft of this report, the Department of Commerce
Agency Comments      generally concurred with the information we provided on trademark fees.
and Our Evaluation   As suggested by the Department, we added information regarding PTO’s
                     proposed cost-accounting study. The complete text of the Department’s
                     comments and our responses to those comments are included in appendix
                     XII.




                     Page 35                                    GAO/RCED-97-113 Intellectual Property
Chapter 4

Copyright Fees Do Not Recover the Costs of
Copyright Services

                      Unlike the patent and trademark process, the copyright process is not
                      self-sustaining, and copyright fees have been adjusted infrequently since
                      the 1950s. The current fees have been in effect since 1991 and have not
                      been adjusted for inflation as permitted by law. Most applicants pay a
                      one-time fee of $20, or about half the cost the Copyright Office incurs to
                      register a copyright.

                      Copyright Office officials have supported the need for a fee increase in the
                      past and currently support proposed legislation that would give the
                      Register of Copyrights the discretion to raise fees to reflect the fair cost of
                      registering copyrights and providing services. However, the Register
                      testified against a 1996 proposal to make the Copyright Office
                      self-sustaining through fees within a new, government-owned, intellectual
                      property corporation because she believed fees would increase too much,
                      applications for registration would decrease, and the Library’s collections
                      could suffer as a result. Recently, the Register said that she favors making
                      the copyright process self-sustaining within the Library, joining
                      others—including the Library itself and the Congressional Budget
                      Office—that believe a fee increase would be advantageous.

                      On a related matter, the Copyright Office is now required to retain
                      unpublished works at no additional cost for the life of the copyright, while
                      most published works are retained for only 5 years. Because these
                      unpublished works are rarely used, the full-term storage represents an
                      unnecessary cost to the government.


                      The Congress has taken a different direction with copyright fees than with
Copyright Fees Have   patent and trademark fees. The copyright process, once self-sustaining,
Been Adjusted         now depends on appropriations to supplement the revenues obtained
Infrequently          through fees.

                      For most of the first half of this century, the copyright process was
                      self-sustaining. The Copyright Act of 1909 required applicants to pay a fee
                      for the registration of a copyright, and from 1909 to 1942, copyright fee
                      receipts exceeded expenditures. Over the next 5 years, however, revenues
                      lagged behind costs.

                      In 1948, Public Law 501 increased the basic copyright registration fee from
                      $2 to $4. Consequently, fee receipts once again exceeded expenditures in
                      1949. From 1950 until 1965, however, the ratio of fees to expenditures
                      dropped to 63 percent as costs increased while fees remained at the same



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                           level. Under Public Law 89-297 in 1965, the Congress again increased the
                           basic registration fee, this time to $6 per claim. At the time, the Copyright
                           Office estimated that this new fee would result in a recovery of 80 percent
                           of its costs. By 1976, however, inflation had reduced the value of copyright
                           fees, and the Congress, under Public Law 94-553, raised the basic fee to
                           $10, with the increase actually effective in 1978.

                           Over a decade later, as the value of the basic registration fee again had
                           been eroded by inflation, the Congress increased the fee to $20 under the
                           Copyright Fees and Technical Amendments Act of 1989 (P.L. 101-318,
                           July 3, 1990). This act also authorized the Register of Copyrights to adjust
                           fees for inflation every 5 years, beginning in fiscal year 1995. Fiscal year
                           1991 was the last year in which the copyright registration fees were raised
                           because the Acting Register of Copyrights did not make an inflation
                           adjustment in fiscal year 1995.

                           Copyright fees traditionally have had a simpler structure than patent and
                           trademark fees because there are fewer fees and the fees themselves are
                           much smaller. As shown in appendix IX, the basic fee for most purposes is
                           $20. Unlike patent fees, copyright fees do not differ according to the size
                           of the entity submitting the application. In addition, there are no issue
                           fees, no maintenance fees, and no renewal fees except on some older
                           copyrights. In addition to the statutory fees, the Register of Copyrights
                           sets fees by regulation for special services, such as providing optional
                           full-term storage of published materials.


                           Copyright fees do not cover the costs of copyright services, either in total
Current Copyright          or by type of service. We found that the (1) gap between total copyright
Fees Are Not               fee revenues and costs exceeds $10 million a year, (2) gap varies widely by
Sufficient to Recover      type of service, and (3) Copyright Office has not raised fees to cover the
                           effects of inflation. Copyright Office officials said that they have supported
the Costs of Services      the need for a fee increase that would move toward recovering the full
                           costs of copyright registration and services.


Costs Exceed Fees by $10   The Copyright Office obtains funding from three sources: (1) copyright
Million a Year             fees, (2) appropriations from the general fund, and (3) cost
                           reimbursements taken from royalties collected and disbursed by its
                           Licensing Division and the Copyright Arbitration Royalty Panel. In fiscal
                           year 1995, the Copyright Office collected $14.6 million in fees, received




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                                     Copyright Services




                                     $10 million in appropriations, and recovered $2.4 million in costs from
                                     royalty fees.

                                     As shown in table 4.1, the reliance on appropriations has been relatively
                                     constant at the $9 million to $10 million range since 1991, the year in
                                     which the most recent fee increase became effective. Appendix IX shows
                                     the sources of all copyright fee revenues for fiscal year 1995.

Table 4.1: Comparison of Copyright
Fee Revenues and Copyright Office    Fiscal year                                  Fee revenues             Appropriations
Appropriations, Fiscal Years 1990    1990                                           $ 7,696,295                $12,999,000
Through 1995
                                     1991                                          $11,805,298                 $10,258,000
                                     1992                                          $13,858,690                 $ 9,161,791
                                     1993                                          $14,499,140                 $ 9,511,000
                                     1994                                          $14,136,233                 $ 9,411,000
                                     1995                                          $14,611,332                 $10,045,000
                                     Source: Copyright Office.




The Gap Between Fees and             The disparity between the fees applicants pay and the costs of the services
Costs Varies by Type of              they receive can be considerable on a per-service basis. This is because
Service                              some types of copyrights cost more to register than others, while the basic
                                     registration fee is a “one-size-fits-all” fee, and because some service fees
                                     are set below costs.

                                     Although the basic copyright registration fee is $20, an analysis of costs by
                                     the Copyright Office indicates that the average cost of a copyright
                                     registration in fiscal year 1995 was $36.53, or about 183 percent of the
                                     basic fee. As shown in table 4.2, however, the average cost by type of work
                                     varied from a high of $59.60 for a “mask” work—or a work imbedded in a
                                     semiconductor chip—to a low of $28.32 for literary serials.




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Table 4.2: Comparison of Copyright
Costs and Fees by Type of Copyright                                                    Fiscal year
                                          Category                                      1995 cost                 Current fee
                                          Literary monograph                               $40.83                         $20
                                          registration
                                          Literary serial registration                     $28.32                         $20
                                          Performing arts registration                     $38.81                         $20
                                          Visual arts registration                         $36.25                         $20
                                          Sound recording registration                     $41.15                         $20
                                          Mask works registration                          $59.60                         $20
                                          Source: Copyright Office.



                                          Fees for other services were also far below the costs incurred by the
                                          Copyright Office in providing such services during fiscal year 1995. For
                                          example:

                                      •   While the Copyright Office charged a fee of $20 per hour for conducting
                                          reference searches of its records, these searches cost an average of $70.02
                                          per hour, or 3.5 times the fee.
                                      •   The average cost of recording a document was $77.81, or about 3.9 times
                                          the $20 fee.
                                      •   Copyright renewals cost an average of $43.37 each, or more than twice the
                                          $20 fee.

                                          Some high-cost services require no separate fee at all. For example, the
                                          Copyright Office does not charge an additional fee for requesting
                                          additional information from applicants submitting incorrect or incomplete
                                          applications, even though these applications require more time to process.
                                          As of October 1996, approximately 15 percent of all copyright applications
                                          required correspondence with the applicant to complete the registration
                                          process. Copyright Office officials estimated the cost of each
                                          correspondence at approximately $45.


The Copyright Office Has                  One of the problems associated with statutory fees is that their value tends
Not Raised Fees to                        to be eroded by inflation if several years transpire between fee increases.
Account for Inflation                     Thus, the effective fee actually declines during the period. This has been
                                          the case with copyright fees, as shown in figure 4.1. Using 1996 dollars as
                                          the base and adjusting the nominal fee for the effects of inflation, we
                                          found that the “real” fee decreased in value significantly during each
                                          period a particular fee was in effect.




                                          Page 39                                        GAO/RCED-97-113 Intellectual Property
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Figure 4.1: Comparison of Real and
Nominal Copyright Fees,1959 Through
1996
                                       Copyright registration fee
                                       30



                                       25



                                       20



                                       15



                                       10



                                        5



                                        0
                                            1

                                            3
                                           65



                                            9

                                            1
                                           73

                                            5

                                            7
                                           79

                                           81



                                            5

                                            7



                                            1

                                            3
                                           95
                                           59




                                           67




                                           83




                                           89
                                         196

                                         196




                                         196

                                         197



                                         197

                                         197




                                         198

                                         198



                                         199

                                         199
                                         19




                                         19




                                         19




                                         19
                                         19




                                         19




                                         19

                                         19




                                         19
                                                                                          Year
                                                 Nominal fee
                                                 Real fee, 1996 dollars




                                      Note: To measure fees in inflation-adjusted dollars, the nominal fee was adjusted using the
                                      implicit price deflator for Gross Domestic Product, based on 1996 dollars.

                                      Source: Copyright Office, GAO computations.




                                      As noted above, Public Law 101-318 established a new copyright fee
                                      schedule to account for the inflation that had occurred since the fees were
                                      last raised in 1978. The act also granted the Register of Copyrights the
                                      authority to adjust the fee schedule by regulation every 5 years to account
                                      for any inflation as determined by the CPI. The first such adjustment was to
                                      be effective in 1995. In March 1994, an internal Copyright Office task force
                                      recommended that basic registration fees not be increased, and the Acting
                                      Register of Copyrights at the time followed this recommendation. By
                                      statute, the next such increase cannot be made until 2000, and, according
                                      to Copyright Office officials, any increase at that time would consider only
                                      CPI increases since 1995.




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Copyright Fees Do Not Recover the Costs of
Copyright Services




According to the report prepared by the task force, the increase in the CPI
was 16.53 percent from 1989 to 1993, the most recent 4-year period for
which data were available. This would have allowed basic registration fees
to increase from $20 to $23.30. The task force estimated that, if fees were
raised by the maximum allowable, the additional revenues would be
$1 million to $2.1 million in the first year after the fee increase, depending
on the extent to which applications decreased. After deducting $493,866 in
increased costs that would be incurred by the Copyright Office, the task
force estimated that the fee increase would have potentially increased the
Copyright Office’s income by $529,590 in the first year of the fee increase.
Costs associated with the fee increase would decrease to an estimated
$102,869 in the second year and $69,877 in the third year.

In determining the additional costs and other problems of raising fees, the
task force cited the expenses and difficulty of publicizing the new fees to
copyright registrants; the administrative burden of dealing with claims that
arrive with insufficient fees; the necessity of modifying the automated
accounting system; the difficulty that Copyright Office staff and applicants
would have working with an odd fee, and the expenses associated with
drafting, printing, and distributing new applications and circulars
reflecting a fee increase. The task force also believed that applications
would decline, offsetting to some extent any gains made by raising the
fees.

In summary, the task force believed that the additional revenues were not
worth the anticipated problems and expenses and recommended against
raising the basic registration fee. The task force did recommend that
certain service fees, such as those for special handling and full-term
storage of published works, be increased. The Acting Register of
Copyrights raised fees for special services, but opted against increasing
copyright registration fees.

We disagree with the Acting Register’s decision not to raise fees for
several reasons. First, most of the costs would have declined after the first
year. However, overall fee income would have continued to increase each
year, depending on the effect any such increase would have had on
applications. Second, the revised fees would have formed the basis for any
fee adjustments for inflation in the future.

Third, while there may be administrative costs associated with publicizing
fee increases, processing claims accompanied by insufficient remittances,
and modifying paperwork and automation systems to reflect fee increases,



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                             the task force did not study ways that these costs and difficulties might be
                             mitigated. For example, Copyright Office officials could not explain why
                             they would have to take elaborate measures to publicize the fee increase
                             and to reprint all publications. They said they did not consider as an
                             option simply rejecting any application with an insufficient fee, nor did
                             they consider listing a toll-free number or Internet address on the
                             application where an applicant could obtain information on the
                             appropriate fee, rather than listing the fee itself.

                             We also do not agree with the task force’s concern that an “odd fee” would
                             be difficult for the applicants or the Copyright Office staff to understand
                             and use. Apparently, the concern is that the $20 fee is easy for applicants
                             to remember and easy for Copyright Office employees to work with to
                             ensure that the proper amounts are paid. However, fees of amounts other
                             than in increments of $5 or $10 are common in commerce and government
                             operations. For example, the applicant must pay postage in dollars and
                             cents on each package he or she submits to the Copyright Office. In
                             addition, millions of taxpayers and Internal Revenue Service employees
                             work with many different rates and fees each year in computing income
                             taxes. Furthermore, assuming that the concerns over odd fees were
                             justified, the Copyright Office could have mitigated the effect by raising its
                             basic registration fee to the even-dollar amount of $23. This increase
                             would have been within the CPI ceiling.


Copyright Office Officials   Copyright Office officials told us that they believe a fee increase is needed
Believe a Fee Increase Is    and support “the goal of moving toward full cost recovery of fee services.”
Needed                       They noted that this was not the same as saying that all Copyright Office
                             operations should be paid for through fees because they believe there are
                             costs of the Copyright Office—such as public information, rulemaking,
                             development of national and international copyright policy, preparation of
                             reports and studies for the Congress, administration of section 407
                             mandatory deposit provisions, and the special funding for the
                             International Copyright Institute—that should be supported by
                             appropriations, not fees.

                             The Register of Copyrights told us that she supports the language in H.R.
                             672 and S. 506, which would authorize the Register to adjust fees to reflect
                             the fair cost of registering copyrights and providing services. She said that
                             she had supported similar provisions in H.R. 1861, which passed the House
                             of Representatives but not the Senate during the past session of the
                             Congress. The Copyright Technical Amendments Act, H.R. 672, was passed



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                           by the House of Representatives on March 18, 1997. The Copyright
                           Clarifications Act of 1997, S. 506, was introduced in the Senate on
                           March 20, 1997.

                           The Register also said that the Copyright Office plans to initiate a fee study
                           to determine (1) what costs are attributable to the copyright process and
                           (2) what fees would be necessary to recover costs in total and by type of
                           service. As of March 1997, Copyright Office officials were deciding on the
                           scope of the study but had not yet begun the study. The Register said that
                           the study would probably be conducted by outside consultants.


                           In September 1996, the Senate Committee on the Judiciary held a hearing
The Copyright Office       on S. 1961, which, among other things, would have made the Copyright
Has Opposed                Office self-sustaining through fees within a new, government-owned,
Becoming                   intellectual property corporation. The Register of Copyrights testified
                           against this proposal, providing three interrelated reasons for her
Self-Sustaining            opposition. First, to cover the increased costs, fees would have to be
Outside the Library        raised to an unacceptably high level. Second, the increased fees would
                           lead to a decrease in copyright registrations. Third, the decrease in
                           registrations would reduce the number of free works submitted to the
                           Copyright Office for consideration by the Library of Congress for its
                           collections.

                           While we take no position on S. 1961—which was not passed during the
                           last session of Congress—we disagree with the fee increases and
                           application decreases projected by the Register in her testimony. Our
                           disagreement is based on the Copyright Office’s own study. We also
                           believe that, even if decreases in applications had occurred, they would
                           not have created a harmful shortage of works available for the Library’s
                           collections. Recently, the Register said that she believes the copyright
                           process could be made self-sustaining within the Library by increasing
                           fees to about twice their current level.


Costs Would Not Increase   In September 1996, the Senate Committee on the Judiciary held a hearing
as Projected               on S. 1961, the Omnibus Patent Act of 1996. This legislative proposal
                           would establish an Intellectual Property Organization (IPO) that comprised
                           essentially the existing PTO and the Copyright Office. This proposal also
                           called for the Copyright Office to become self-sustaining through
                           copyright fees. During the hearing, the current Register of Copyrights
                           testified that the basic copyright registration fee would have to be raised



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    “five-fold” to the $100 range in order for the Copyright Office to be
    self-sustaining outside the Library of Congress. The Register said that such
    an increase would place a substantial burden on copyright owners,
    especially those companies that own hundreds or thousands of works.

    We reviewed the analysis the Copyright Office used to support the cost
    estimates cited in the Senate hearing. We found that, as shown in appendix
    X, the Copyright Office’s analysis considered 12 scenarios involving the
    Copyright Office’s organizational status, costs, and projected applications.
    The fivefold increase in fees presented at the hearing was the worst-case,
    least-likely scenario studied. According to the Copyright Office’s analysis,
    the other scenarios would have required raising the basic registration fee
    from the current $20 to a new fee of $41 to $89 for the first year. Fees
    would have increased the second year because the Copyright Office
    estimated that registrations would continue to decrease.

    We question many of the costs projected in the worst-case scenario
    presented by the Copyright Office for several reasons:

•   The costs in general were based on the Copyright Office’s becoming an
    independent and self-sustaining agency, while S. 1961—the bill under
    discussion at the hearings—proposed including it within the IPO, which
    would also include patent and trademark offices.
•   Facilities were estimated to cost $5 million. This was based on the
    Copyright Office’s obtaining new space at a cost of $32 per square foot. It
    did not consider leaving the Copyright Office in its current space, where
    the facilities are government-owned and there is no rental cost to the
    Copyright Office.
•   The analysis projected a significant decrease in applications, as discussed
    below, but did not consider that costs might be lower if applications were
    fewer.
•   The analysis assumed that the Copyright Office would have to acquire new
    computer equipment and services rather than continue to use those now
    shared with the Library of Congress or share such equipment and services
    with the other offices within the new IPO.

    In discussions with Copyright Office officials concerning the analysis, they
    said that the figures were “loose, educated guesses” and that the scenario
    used was never intended to be characterized as the most-likely scenario
    but rather as one example. They acknowledged that expenses would be
    somewhat lower than shown in their analysis if the Copyright Office were
    combined with the existing PTO because some costs could be shared. They



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                        also acknowledged that fee increases appear to have a greater impact on
                        some types of works than others. They advised against our attempting to
                        use the estimates they developed in projecting the level of fees that would
                        be necessary to make the Copyright Office self-sufficient.


Applications May Not    The Copyright Office maintains that fee increases adversely affect
Decrease as Projected   applications for copyright registration. However, both the Copyright
                        Office’s and our own analyses indicate that any such decrease in
                        registrations is not likely to be large.

                        The aforementioned March 1994 report prepared by the Copyright Office
                        task force studying the need for adjusting fees for inflation also said that
                        fee increases are a disincentive to registration. As evidence, the report
                        stated that, when the registration fees were doubled in January 1991,
                        applications decreased 3.3 percent from the 1990 level after they had risen
                        an average of 4.1 percent per year for the 8 years prior to the fee increase.

                        The Register of Copyrights also raised concerns about the effect of a fee
                        increase on applications during her September 18, 1996, testimony on S.
                        1961. She said that reorganizing the Copyright Office into a self-sustaining
                        entity outside of the Library of Congress could mark the end of a vital and
                        meaningful registration and deposit system. She reasoned that historical
                        experience has shown that registrations decrease whenever fees are
                        increased. Because the fee increase would likely be the largest such
                        increase on record, the Copyright Office anticipated that many individual
                        copyright owners would choose not to register their works and that
                        businesses would register fewer works. This would result in a diminished
                        and less valuable public database on works of authorship, making it more
                        difficult for users to determine who owns what rights at a particular time.
                        In addition, there would be a decrease in Library-deposit copies of works
                        received through copyright registrations.

                        In examining the support for the Register of Copyright’s concerns over
                        decreasing registrations, we again looked at the Copyright Office’s
                        preliminary analysis supporting the projected fivefold increase in fees. We
                        found that this scenario was based on estimates that registrations would
                        decrease 30 percent in the first year after the fee increase and an
                        additional 15 percent in the second year.

                        As with the estimates on cost increases, these estimates of registration
                        decreases are questionable for various reasons. For example, decreases of



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                                       the magnitude projected have never occurred in the more than 100 years
                                       for which the Copyright Office has data. As shown in figure 4.2, it is
                                       common for copyright registrations to decrease in the years following a
                                       fee increase. However, the decrease has usually been small, and
                                       registrations have tended to rebound in subsequent years.


Figure 4.2: Copyright Registrations,
1945-95
                                       Number of registrations
                                       700,000




                                       600,000




                                       500,000




                                       400,000




                                       300,000




                                       200,000

                                                  $2                  $4                         $6                    $10             $20 Fee
                                       100,000
                                                 45    48   51   54    57   60   63    66   69   72     75   78   81   84    87   90   93
                                                                                      Fiscal years




                                       Note: Superimposed dollar amounts are the basic registration fees in effect during each period.
                                       Fiscal year 1976 includes 15 months of data because of the transitional fiscal year.

                                       Source: Copyright Office.




                                       We also question the Copyright Office’s projections because, while they
                                       consider only the overall impact on registrations, Copyright Office officials
                                       agree that some types of registrations are more likely to be affected than
                                       others. Following the 1991 fee increase, for example, applications for
                                       registration decreased significantly for some types of works but remained
                                       stable for others. Applications for performing arts decreased about
                                       14 percent from fiscal years 1990 to 1992, while applications for visual arts



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and motion pictures increased by about 1 percent during the same period.
In addition, the number of copyright registrations for unpublished works
decreased by about 10 percent over the period, while the number of
registrations for published works declined by about 3 percent.1

The Copyright Office’s projections also do not consider the effect on
registrations of changes in internal reporting procedures and other
legislative changes that accompanied past fee increases. We found that
these other factors can affect the number of applications received and
registered. For example, when the registration fee was increased from $6
to $10 in fiscal year 1978, Copyright Office records show about a
27-percent reduction in the number of copyright registrations from the
previous year.2 However, Copyright Office officials told us that they
reported only 11 months of registrations for fiscal year 1978 rather than a
full 12 months.

Similarly, after the registration fee was increased to $20 on January 1,
1991, the number of applications for copyright registration decreased by
about 3 percent in fiscal year 1991 and an additional 5 percent in fiscal
year 1992. However, the fee increase was not the only change affecting
applications. For example, the Copyright Office initiated group
registration for serial issues during mid-1991. In doing so, all issues of a
weekly, biweekly or monthly serial published within a 3-month period
could be registered on one application at a fee of $10 per issue. According
to Copyright Office officials, this reduced the number of serial
registrations by an unknown amount. In addition, renewal of copyrights
became automatic beginning in 1992. This accounted largely for the
substantial and steady drop in renewal registrations beginning that year.
While registration applications overall decreased by almost 10 percent
from fiscal years 1990 to 1995, applications for these categories decreased
by about 34 percent and 39 percent, respectively.

Because there may be other, external issues—such as the onset of a
recession in 1991—that could have affected applications beyond changes
in copyright fees, we developed a model that allowed us to examine the
association between fee changes and the number of applications while
controlling for the effects of other factors. As discussed in appendix XI, we
found that the association between fee increases and application

1
 The number of applications for unpublished and published works received for these years could not
be obtained because the Copyright Office does not record a work’s publication status until it is
registered.
2
 The Copyright Office was unable to provide the number of applications received on an annual basis
prior to fiscal year 1986.



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                             decreases is likely to be small—about a 0.1-percent decrease in
                             applications for a 1-percent increase in fees. However, a regression model
                             of this type is best at estimating such associations for relatively small
                             changes in explanatory factors. We also found that there may be an even
                             greater correlation between applications and the level of economic
                             activity, as measured by the Gross Domestic Product.


Fee Increases Should Not     We also question whether there would be any harmful results to the
Affect Library Collections   government even if copyright applications did decrease in reaction to a fee
                             increase. The economic benefits of copyright registration primarily are
                             those that pass to the copyright holder. In fact, the United States is one of
                             the few countries in the world that even has a government agency
                             registering copyrights. The primary advantage of registration in this
                             country is that it provides official evidence of the copyright and provides
                             statutory damages against infringement. Thus, if a person decides not to
                             register a copyright, that person assumes the risk of loss.

                             According to the testimony of the Register of Copyrights in the Senate
                             hearing on S. 1961, one of the Copyright Office’s primary concerns
                             regarding a decrease in copyright registrations is that such a decrease
                             might limit the works available at no cost for the collections of the Library
                             of Congress. However, because of other provisions in existing legislation,
                             a decline in registrations should have no significant impact. Section 407 of
                             the Copyright Act requires that all material under copyright protection and
                             published in the United States on or after March 1, 1989, be deposited with
                             the Copyright Office within 3 months of publication.3 These deposits are
                             available to the Library of Congress for its collections or for exchange or
                             transfer to another library. Thus, published documents must be submitted
                             to the Copyright Office and made available for the Library’s collections
                             even if copyright registration is not sought. If documents are not submitted
                             as required by law, the Register of Copyrights can demand that the
                             deposits be made and subject those not complying to fines and penalties.

                             Although section 407 does not apply to unpublished material, the Library
                             of Congress seldom selects unpublished material for its collections, with
                             the exception of genealogy studies. According to Copyright Office
                             officials, the Library of Congress selected less than 100 of the
                             approximately 254,000 unpublished documents that were registered in
                             fiscal year 1995.

                             3
                              Material first published before Mar. 1, 1989, is subject to the deposit requirement if it was published in
                             the United States with notice of copyright.



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Copyright Office Officials   In March 1997, the Register of Copyrights told us that she supports the
Now Agree That the           concept of making the copyright process self-sustaining within the Library.
Copyright Process Could      She said that the fivefold increase in fees cited in the Senate hearing in
                             September 1996 was indeed a worst-case scenario. However, she had
Be Self-Sustaining Within    presented this scenario because she viewed the proposal being considered
the Library                  at that time as entailing the separation of the Copyright Office from the
                             Library of Congress. She believed that such a move would create
                             uncertainties, such as whether new space would have to be obtained,
                             whether a new computer system would have to be purchased, and how
                             other services the Library and the Copyright Office now provide for each
                             other at no charge would be provided in the future. Thus, the Register
                             believed that it was necessary to show the potential fee increases that
                             might be required under the most costly circumstances.

                             The Register of Copyrights said that, in retrospect, she recognizes that the
                             costs and fee increases associated with self-sufficiency would be lower
                             than those presented at the September hearing, particularly if the
                             Copyright Office is left in the Library of Congress, as is now being
                             proposed. While the Copyright Office does not have a current estimate on
                             what would be required to make it self-sustaining, the Register said that
                             any fee increase would at a minimum have to replace the approximately
                             $10 million the Copyright Office now receives in appropriations each year.
                             She believed this would probably require fees that are about twice the
                             current level.

                             In subsequent discussions on a draft of this report, the Register said that
                             she had not intended to say that she believed the Copyright Office itself
                             should be self-sustaining. Rather, she believed that it should charge fees
                             for services that reflect the costs of those services to the Copyright Office.
                             She said that certain costs—such as those of the Copyright Acquisitions
                             Division—were not directly related to the copyright process; thus, they
                             should not be paid for by registrants but are more appropriately covered
                             through appropriations.

                             The Register also said in our March 1997 discussion that, if the copyright
                             process is to be made self-sustaining though fees, these fees should be
                             commensurate with the services provided. As we have previously noted,
                             the costs of individual services vary widely, while most users of these
                             services pay the same fee. In addition, the Copyright Office and the Library
                             now provide services to each other that are not necessarily related to their
                             primary missions and for which they are not reimbursed. For example, the
                             Library provides numerous computer services to the Copyright Office at



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                        no charge, while the Copyright Office obtains works that were requested
                        by the Library for its collections but not available through the copyright
                        registration process, also at no charge. The Register believed that the fee
                        study now being planned by the Copyright Office will address this issue.


                        Other recent studies of the Copyright Office support the need for a fee
Other Studies Support   increase. In a 1996 report on the results of a management review of the
a Fee Increase          Library of Congress contracted by GAO,4 Booz-Allen & Hamilton
                        recommended that the Library of Congress focus its efforts on increasing
                        revenues. As one means for doing so, the report recommended that the
                        Library pursue full recovery of copyright costs. The report stated that fully
                        recovering copyright registration costs offers significant opportunities,
                        both in terms of additional revenues and the relative ease of
                        implementation. It further stated that the Copyright Office meets two key
                        criteria for pursuing a fee-based service. First, there are opportunities for
                        significant revenues. Second, the Copyright Office has been subject to full
                        cost recovery in the past, so a precedent has been established. To
                        accomplish full cost recovery, the report recommended that the Copyright
                        Office establish a differentiated fee structure based on the cost of the
                        services provided. According to the study, to achieve full cost recovery,
                        proposed registration fees would range from a low of $10 for group serials
                        to a high of $38 to $420 for mask works.

                        In October 1996, an internal management report of the Copyright Office
                        prepared by a senior Library of Congress official at the request of the
                        Librarian recommended that the Copyright Office recover relevant fees for
                        services. However, the report also recommended that the Congress
                        continue appropriating funds for activities, such as “service to the
                        Congress,” that are not associated with registration services and that the
                        Library of Congress continue to provide its support to the Copyright Office
                        in exchange for the value of the copyright deposits made available to the
                        Library’s collections. Unlike the Booz-Allen report, the Library of Congress
                        recommended establishing either a single fee for all copyright registrations
                        or a separate fee only for visual arts works based on the costs of these
                        works. If the fee difference for visual arts is less than $5 per registration,
                        however, the report recommended establishing only a single fee. While the
                        Library of Congress’s report concluded that a $35 registration fee would
                        bring fees and costs into balance the first year, it also concluded that a $40

                        4
                         GAO contracted with Booz-Allen & Hamilton, Inc. to conduct a general management review of the
                        Library in order to meet time frames specified by congressional requesters. Booz-Allen’s findings are
                        summarized in Library of Congress: Opportunities to Improve General and Financial Management
                        (GAO/T-GGD/AIMD-96-115, May 7, 1996).



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                        registration fee is desirable to account for the effects of inflation in
                        subsequent years.

                        Although the Library of Congress’s report recognized that a fee increase
                        may harm the Library’s collections through reduced applications, it stated
                        that any decline in registrations would likely occur primarily in
                        unpublished works and in relatively low-value published works. It
                        acknowledged that the demand provisions of section 407 of the Copyright
                        Act would still apply to published works and that more works might come
                        from that source than from applications for copyright registrations.

                        Recently, the Congressional Budget Office (CBO) noted that the fee
                        structure of the Copyright Office could be revised to generate more
                        revenue and reduce the need for appropriations. In its March 1997
                        publication entitled Reducing the Deficit: Spending and Revenue Options,
                        CBO offered the option of requiring the Copyright Office to achieve full cost
                        recovery as a deficit-reduction measure. According to the report, achieving
                        full cost recovery would require that the copyright registration fee be
                        increased to about $35 or $40 per application.

                        The CBO estimate of what would be required to make the Copyright Office
                        self-sufficient is similar to that advanced by the Register of
                        Copyrights—about double the current level. On the basis of our regression
                        analysis, we believe that the decrease in applications from doubling the
                        fees would be about 10 percent in the year following the fee increase.
                        However, as noted earlier, models such as the one we developed tend not
                        to be as highly predictive at such a high level of increase.

                        In discussions we had with intellectual property organizations, they either
                        opposed or had no opinion regarding any fee increase for copyrights. None
                        of them provided independent estimates regarding what effect any such
                        increase would have on applications or the ability of copyright holders to
                        benefit from their works.


                        We identified one additional area that, while not essential to a decision to
Eliminating the         raise fees, nevertheless affects other costs to the government of the
Requirement to Retain   copyright process and the ability of fees to recover those costs. This is the
Copies of               requirement in the law to retain copies of unpublished works for the full
                        term of the copyright.
Unpublished Works
Could Reduce Costs


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Currently, the law requires that the Copyright Office retain unpublished
works for the life of the copyright, which for most works is the author’s
life plus 50 years. Copyright Office officials told us that they estimate this
term to average 125 years. In contrast, the law requires that published
materials that are not selected by the Library of Congress be retained for
the longest period considered practicable and desirable by the Register of
Copyrights and the Librarian of Congress. The Register and the Librarian
have set the period at 5 years for all works except visual arts, which are
kept for 10 years. If a copyright owner wants to extend the retention
period for a published work to cover storage costs for the full length of the
copyright term, the Copyright Office assesses a $270 fee.

As a result of the requirement in the law, millions of unpublished works
could be stored for up to 125 years at taxpayer expense, while few
published works will be stored longer than 5 years. Copyright Office
officials told us that in some cases—as with audio tapes, for example—the
copy is usually of no use after a few years because of the natural
deterioration of the medium. They also said that they are rarely called
upon to extract copies of unpublished works from storage, either by the
Library of Congress or by the holder of the copyright.

As a result of the difference in the retention requirements, published
works consume far less storage space than unpublished works, even
though published works represent the majority of items that are registered
by the Copyright Office each year. Approximately 3.3 million unpublished
works were placed in storage at either the Landover Storage Facility or the
Washington National Records Center between 19785 and the end of fiscal
year 1996. In addition to this material, other unpublished works have been
microfilmed and are currently stored at the Copyright Office itself. In
contrast, as of December 1996, only an estimated 1.8 million published
works were in storage at the two facilities, and most of these were still
within the statutory 5-year retention period. From fiscal year 1990 through
fiscal year 1995, the Copyright Office received only 85 requests for
extended storage for published works.

The annual cost of the space utilized by the Copyright Office at its
Landover Storage Facility is $230,000 and is paid for by the Library of
Congress. The space utilized by the Copyright Office at the Washington
National Records Center is owned by the General Services Administration
and leased to the National Archives. Although neither the Copyright Office

5
 Prior to 1978, musicals and dramas were the only categories of unpublished works that were eligible
for copyright registration.



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              nor the Library of Congress pays for this storage space, it is a cost of the
              copyright process and a cost to the government. National Archives
              officials estimated the fiscal year 1996 costs to be $1.56 per cubic foot.
              Given the number of cubic feet being utilized by the Copyright Office, the
              fiscal year 1996 cost was approximately $97,000.


              Unlike PTO, the Copyright Office is not self-sustaining through fees, and the
Conclusions   government provides about $10 million in appropriations each year to
              cover the costs not recovered by copyright fees or reimbursements from
              royalties. While the law permits the Copyright Office to raise fees
              periodically to account for the effects of inflation, it chose not to do so in
              fiscal year 1995, the last year it had the authority to do so. Thus, most fees
              remain at the level they were in 1991. Copyright Office officials have
              supported the need for a fee increase that will match fees to the costs of
              services more closely and are planning a study to show what type of fee
              structure may be needed.

              In September 1996, the Copyright Office objected to a proposal that it
              become self-sustaining within a new, government-owned, intellectual
              property corporation because of fears that the increased costs would lead
              to a burdensome increase in fees, a dramatic decrease in registrations, and
              a reduction in free materials available for the Library of Congress’s
              collections. These concerns are not supported by the Copyright Office’s
              own study used for the testimony. In March 1997, the Register of
              Copyrights agreed that the fivefold increase in fees she had projected was
              a worst-case scenario and was based on the uncertainties the Copyright
              Office would face if removed from the Library of Congress. She said that
              the copyright process could become self-sustaining—probably with fees
              about double those now in effect—under the current organizational
              structure.

              Recently, other organizations—including the Library itself—have
              recommended fee increases. CBO has included an option for making the
              Copyright Office self-sustaining in its deficit-reduction package for fiscal
              year 1998, estimating that fees would need to be raised to a range of $35 to
              $40.

              The requirement in the law that unpublished works be retained for the life
              of the copyright adds to the costs of the copyright process without
              providing any measurable benefits to either the copyright holders or the
              government. We believe that by eliminating this requirement, reducing the



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                       retention period, or requiring a fee for extended retention, the additional
                       costs to the government could be reduced or recovered.


                       To promote greater consistency in the government’s approach to assessing
Matters for            intellectual property fees and to eliminate the need for appropriated funds
Consideration by the   in the copyright process, the Congress may wish to consider requiring that
Congress               the Copyright Office achieve full cost recovery through fees. The Congress
                       may also wish to consider setting copyright fees that are more closely
                       aligned with the services for which they are assessed. In addition, to
                       reduce the costs of the copyright process, the Congress may wish to
                       consider making the storage requirements for unpublished copyrighted
                       works the same as those for published works.


                       To reduce the deterioration of fees by inflation, we recommend that the
Recommendation to      Register of Copyrights raise fees to account for inflation as provided by
the Register of        law, when given the opportunity to do so.
Copyrights
                       We provided copies of a draft of this report to the Library of Congress for
Agency Comments        its review and comment. At the Library’s request, we also met with Library
and Our Evaluation     officials to discuss the Library’s written comments further. The comments
                       of the Library and our responses to those comments are included in
                       appendix XIII.

                       The Library strongly disagreed with our discussion of copyright fees and
                       said that the report was incorrect in stating that the Copyright Office had
                       opposed fee increases, did not acknowledge the role of the Congress in
                       setting copyright fees, and did not sufficiently discuss the impact of fee
                       increases on the Library’s collections. In addition, the Library disagreed
                       with a perceived criticism of the fee increase projections that the Register
                       provided to the Senate Committee on the Judiciary in a September 1996
                       hearing.

                       Concerning the Library’s comments regarding the Copyright Office’s
                       position on fee increases, we added information to the report showing that
                       the Copyright Office has supported the need for fee increases in the past,
                       believes a fee increase is needed currently, and supports proposed
                       legislation that would allow the Register to raise fees to cover the costs of
                       copyright registration and services. We continue to believe, however, that
                       the Copyright Office should have adjusted fees for inflation in fiscal year



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1995 because the increase would have been cost-effective, and Library
officials agree that the Register should make inflation adjustments in the
future.

We disagree with the Library’s comments that the role of the Congress in
setting fees was not adequately discussed in the draft report. To the
contrary, our report shows that the Congress has chosen to continue to
recover copyright costs through a combination of fees and appropriations.
We point out that the Congress has chosen to make the patent and
trademark processes self-sustaining. In keeping with this approach, we
state that the Congress may wish to consider whether the Copyright Office
should achieve full cost recovery through fees.

We also believe that the report fairly discusses the potential impact of a
fee increase on deposits available for the Library’s collections. Because
the Library (1) has access to all copyrighted materials submitted for
registration, (2) is entitled by law to any other materials under copyright
protection published in the United States, and (3) rarely takes any
unpublished materials, we continue to believe that the works available
should not decline substantially even if copyright registration applications
decline.

Finally, we believe that the report accurately portrays the Register’s
testimony in the September 1996 hearings. However, we clarified the
report to show that the Register’s concern was with the high costs of
making the Copyright Office self-supporting within a new,
government-owned, intellectual property corporation outside the Library.
We continue to believe that the fees projected were too high and were not
presented in a proper context. For these reasons, we believe it is
necessary to show the Copyright Office’s analyses of these projections in
the report.




Page 55                                      GAO/RCED-97-113 Intellectual Property
Appendix I

Objectives, Scope, and Methodology


              On July 15, 1996, the Chairman of the Senate Committee on the Judiciary
              requested that we review the manner by which the U.S. agencies grant or
              register patents, trademarks, and copyrights and use fees in providing
              services. He asked that we address a series of interrelated questions
              regarding how fees are set, whether they recover costs, and how they are
              used in the granting and registration processes.

              In subsequent discussions with the Committee staff, we agreed that we
              would determine (1) how fees are set for the services provided by the
              Patent and Trademark Office (PTO) and the Copyright Office, (2) the extent
              to which fees are recovering the costs of the services provided,
              (3) whether different users of the same services pay different fees,
              (4) whether patent fees encourage or discourage the completeness and
              accuracy of applications, and (5) the potential effects of increasing
              copyright fees. Our report discusses these issues in individual chapters on
              patents, trademarks, and copyrights.

              We conducted our work by reviewing available records and interviewing
              knowledgeable officials from PTO, the Copyright Office, and intellectual
              property organizations. While we developed both historical and current
              information on fees, the information we developed on costs was primarily
              for fiscal year 1995, the last year for which complete data were available at
              the time of our review. The cost and fee data used in this report are based
              on data provided by PTO and the Copyright Office. Except as specifically
              noted, we did not independently verify these data.

              For the first objective, we determined the extent to which fees are
              established by law and by the agencies themselves, the rationale used by
              the agencies in updating fees, and the process used by the agencies in
              determining individual fees. We also reviewed the legislative history
              regarding intellectual property fees to determine the evolution of the
              current fee structures. In addition, we reviewed economic literature
              related to fee increases.

              For the second objective, we determined, to the extent that data were
              available, the relationship between the costs and fees charged for
              particular services provided by PTO and the Copyright Office during fiscal
              year 1995. We then used these data to show the extent to which the
              agencies were recovering their costs in total and for individual services.
              To the extent possible, we also compared U.S. fees and costs with those in
              Europe and Japan; however, the only data that were sufficient for use in




              Page 56                                    GAO/RCED-97-113 Intellectual Property
Appendix I
Objectives, Scope, and Methodology




our report involved patents. We did not independently verify the
information obtained.

For the third objective, we identified differences in fees for various types
of services and users of those services. Specifically, we determined the
costs and benefits of (1) charging large and small entities different fees for
the same patent services, (2) charging a fee for extended storage of
published copyrighted materials while storing unpublished copyrighted
materials for the life of the copyright at no additional cost, and
(3) charging a maintenance fee for patents and a renewal fee for
trademarks but no additional fees to keep a copyright current.

For the fourth objective, we identified areas in which applicants’ errors
and delays added to examination time and determined the extent to which
fees were assessed for such delays. Our work for this objective primarily
involved a comparison of patent extension fees with the applicant delays
in the patent process as identified in our July 1996 report entitled
Intellectual Property: Enhancements Needed in Computing and Reporting
Patent Examination Statistics (GAO/RCED-96-190, July 15, 1996). To perform
this analysis, we updated the data to include fiscal year 1995.

For the fifth objective, we identified areas where fees could be increased,
and to the extent possible, the potential effects of these increases. This
work primarily involved copyright fees because the patent and trademark
processes were already self-sufficient. For copyrights, we identified
potential revenues possible under various fee scenarios. To determine the
potential effects of fee increases on copyright applications, we also
performed a regression analysis showing the effect of fees on applications
since 1986.

During the course of our review, we also developed information on fiscal
year 1995 patent pendency using information from PTO’s automated Patent
Application Location and Monitoring system. This system contains
background information on each patent application as well as a
“prosecution history” that shows the date when key actions were taken on
each application during examination. We used these data to prepare a
report to the Chairman entitled Intellectual Property: Comparison of
Patent Examination Statistics for Fiscal Years 1994 and 1995
(GAO/RCED-97-58, Mar. 13, 1997). These data were also used in appendix V of
this report.




Page 57                                     GAO/RCED-97-113 Intellectual Property
Appendix I
Objectives, Scope, and Methodology




We provided a draft of this report to the Department of Commerce and the
Library of Congress. These agencies provided written comments, which
are included in appendixes XII and XIII, respectively, along with our
responses. In addition, we met with officials of the Library of Congress
after receiving their comments.

We performed our work from July 1996 through April 1997. We conducted
our work in accordance with generally accepted government auditing
standards.




Page 58                                  GAO/RCED-97-113 Intellectual Property
Appendix II

Patent Fee Income Received by PTO in
Fiscal Year 1995


                                                                            Fee per               Total fee      Percent of
Type of fee and fee code        Fee title                                   service                income             total
Patent filing fees (large entity)
101                             Basic filing fee—utility                    $730.00          $120,038,488             20.78
102                             Independent claims in excess of 3             76.00              3,158,166             0.55
103                             Claims in excess of 20                        22.00              3,478,376             0.60
104                             Multiple dependent claim                     240.00                270,234             0.05
105                             Surcharge—late filing fee or oath or         130.00              4,482,760             0.78
                                declaration
106                             Design filing fee                            300.00              1,689,243             0.29
107                             Plant filing fee                             490.00                110,544             0.02
108                             Reissue filing fee                           730.00                361,458             0.06
109                             Reissue independent claims over original      76.00                  1,475             0.00
                                patent
110                             Reissue claims in excess of 20 and over       22.00                 27,708             0.00
                                original patent
Total patent filing fees
(large entity)                                                                               $133,618,452             23.13
Patent filing fees (small entity)
201                             Basic filing fee—utility                    $365.00           $26,825,569              4.64
202                             Independent claims in excess of 3             38.00                795,620             0.14
203                             Claims in excess of 20                        11.00              1,115,036             0.19
204                             Multiple dependent claim                     120.00                 58,893             0.01
205                             Surcharge—late filing fee or oath or          65.00                983,792             0.17
                                declaration
206                             Design filing fee                            150.00              1,389,035             0.24
207                             Plant filing fee                             245.00                 69,820             0.01
208                             Reissue filing fee                           365.00                 70,525             0.01
209                             Reissue independent claims over original      38.00                     77             0.00
                                patent
210                             Reissue claims in excess of 20 and over       11.00                  5,570             0.00
                                original patent
Total patent filing fees
(small entity)                                                                                $31,313,937              5.41
Total patent filing fees                                                                     $164,932,389             28.54
Patent issue fees (large entity)
142                             Utility issue fee                          $1,210.00          $86,656,572             15.00
143                             Design issue fee                             420.00              1,914,960             0.33
144                             Plant issue fee                              610.00                 88,905             0.02
Total patent issue fees
(large entity)                                                                                $88,660,437             15.35
Patent issue fees (small entity)
                                                                                                                 (continued)

                                                   Page 59                             GAO/RCED-97-113 Intellectual Property
                                                Appendix II
                                                Patent Fee Income Received by PTO in
                                                Fiscal Year 1995




                                                                                       Fee per               Total fee      Percent of
Type of fee and fee code      Fee title                                                service                income             total
242                           Utility issue fee                                        $605.00           $19,122,870              3.31
243                           Design issue fee                                          210.00              1,521,095             0.26
244                           Plant issue fee                                           305.00                 69,835             0.01
Total patent issue fees
(small entity)                                                                                           $20,713,800              3.58
Total patent issue fees                                                                                 $109,374,237             18.93
Patent maintenance fees (large entity)
181                           Maintenance fees received without                                             –$33,400             –0.01
                              explanation
183                           Due at 3.5 years                                         $960.00             55,182,178             9.55
184                           Due at 7.5 years                                         1,930.00            68,797,276            11.91
185                           Due at 11.5 years                                        2,900.00            46,720,870             8.09
186                           Surcharge—late payment within 6 months                    130.00                488,236             0.08
Total patent maintenance
fees (large entity)                                                                                     $171,155,160             29.62
Patent maintenance fees (small entity)
283                           Due at 3.5 years                                         $480.00             $9,388,440             1.63
284                           Due at 7.5 years                                          965.00              8,871,525             1.54
285                           Due at 11.5 years                                        1,450.00             3,956,618             0.68
286                           Surcharge—late payment within 6 months                     65.00                312,893             0.05
Total patent maintenance
fees (small entity)                                                                                      $22,529,476              3.90
Patent maintenance fees regardless of entity
187                           Surcharge—late payment is unavoidable                    $640.00                $49,435             0.01
188                           Surcharge—late payment is unintentional                  1,500.00               933,978             0.16
Total patent maintenance
fees regardless of entity                                                                                   $983,413              0.17
Total patent maintenance
fees                                                                                                    $194,668,049             33.69
Patent extension fees (large entity)
115                           Extension for response within first month                $110.00             $4,516,399             0.78
116                           Extension for response within second month                370.00              8,464,762             1.47
117                           Extension for response within third month                 870.00             25,087,326             4.34
118                           Extension for response within fourth month               1,360.00             2,167,206             0.38
Total patent extension fees
(large entity)                                                                                           $40,235,693              6.97
Patent extension fees (small entity)
215                           Extension for response within first month                 $55.00              $920,697              0.16
216                           Extension for response within second month                185.00              1,630,439             0.28
217                           Extension for response within third month                 435.00              4,901,266             0.85
                                                                                                                            (continued)


                                                Page 60                                           GAO/RCED-97-113 Intellectual Property
                                              Appendix II
                                              Patent Fee Income Received by PTO in
                                              Fiscal Year 1995




                                                                                      Fee per               Total fee      Percent of
Type of fee and fee code       Fee title                                              service                income             total
218                            Extension for response within fourth month              680.00                681,674             0.12
Total patent extension fees
(small entity)                                                                                            $8,134,076             1.41
Total patent extension fees                                                                             $48,369,769              8.38
Patent appeal fees (large entity)
119                            Notice of appeal                                       $280.00             $3,650,465             0.63
120                            Filing a brief in support of an appeal                  280.00              1,418,636             0.25
121                            Request for oral hearing                                240.00                311,503             0.05
Total patent appeal fees
(large entity)                                                                                            $5,380,604             0.93
Patent appeal fees (small entity)
219                            Notice of appeal                                       $140.00              $535,305              0.09
220                            Filing a brief in support of an appeal                  140.00                230,844             0.04
221                            Request for oral hearing                                120.00                 52,330             0.01
Total patent appeal fees
(small entity)                                                                                             $818,479              0.14
Total patent appeal fees                                                                                  $6,199,083             1.07
Patent revival fees (large entity)
140                            Petition to revive unavoidably abandoned               $110.00                $32,058             0.01
                               application
141                            Petition to revive unintentionally abandoned           1,210.00             2,140,180             0.37
                               application
Total patent revival fees
(large entity)                                                                                            $2,172,238             0.38
Patent revival fees (small entity)
240                            Petition to revive unavoidably abandoned                $55.00                $33,161             0.01
                               application
241                            Petition to revive unintentionally abandoned            605.00                753,189             0.13
                               application
Total patent revival fees
(small entity)                                                                                             $786,350              0.14
Total patent revival fees                                                                                 $2,958,588             0.52
Statutory disclaimer fees
148                            Statutory disclaimer (large entity)                    $110.00              $592,634              0.10
248                            Statutory disclaimer (small entity)                      55.00                155,266             0.03
Total statutory disclaimer
fees                                                                                                       $747,900              0.13
Other patent processing fees
111                            Extension of patent term                              $1,030.00               $41,075             0.01
                                                                                                                           (continued)




                                              Page 61                                            GAO/RCED-97-113 Intellectual Property
                                            Appendix II
                                            Patent Fee Income Received by PTO in
                                            Fiscal Year 1995




                                                                                   Fee per               Total fee      Percent of
Type of fee and fee code     Fee title                                             service                income             total
112                          Requesting publication of Statutory                    840.00                 31,153             0.01
                             Invention Registration prior to examiner’s
                             action
113                          Requesting publication of Statutory                   1,690.00                83,377             0.01
                             Invention Registration after examiner’s action
122                          Petitions to the commissioner, unless                  130.00              1,853,081             0.32
                             otherwise specified
126                          Submission of an information disclosure                210.00              2,546,562             0.44
                             statement
138                          Petition to institute a public use proceeding         1,390.00                 5,480             0.00
139                          Non-English specification                              130.00                 94,419             0.02
145                          Certificate of correction                              100.00                565,172             0.10
147                          Filing a request for reexamination                    2,320.00               862,997             0.15
Total other patent
processing fees                                                                                        $6,083,316             1.06
Patent Cooperation Treaty application fees (large entity)
956                          International Preliminary Examining                   $660.00              $244,906              0.04
                             Authority—U.S.
958                          International Searching Authority—U.S.                 730.00                 60,825             0.01
960                          PTO is not International Searching Authority           980.00                737,127             0.13
                             or International Preliminary Examining
                             Authority
962                          Claims meet Patent Cooperation Treaty                   92.00                 13,448             0.00
                             Article 33(1)-(4)—International Preliminary
                             Examining Authority—U.S.
964                          Claims—extra independent (over 3)                       76.00                352,804             0.06
966                          Claims—extra total (over 20)                            22.00                618,319             0.11
968                          Claims—multiple dependent                              240.00                406,912             0.07
970                          For filing with European Patent Office or              850.00              5,600,936             0.97
                             Japanese Patent Office search report
154                          Oath or declaration after 20 or 30 months              130.00                414,495             0.07
                             from priority date
Total Patent Cooperation
Treaty application fees
(large entity)                                                                                         $8,449,772             1.46
Patent Cooperation Treaty application fees (small entity)
957                          International Preliminary Examining                   $330.00                $50,287             0.01
                             Authority—U.S.
959                          International Searching Authority—U.S.                 365.00                 26,682             0.00
961                          PTO is not International Searching Authority           490.00                341,685             0.06
                             or International Preliminary Examining
                             Authority
                                                                                                                        (continued)




                                            Page 62                                           GAO/RCED-97-113 Intellectual Property
                                                Appendix II
                                                Patent Fee Income Received by PTO in
                                                Fiscal Year 1995




                                                                                       Fee per               Total fee      Percent of
Type of fee and fee code         Fee title                                             service                income             total
963                              Claims meet Patent Cooperation Treaty                   46.00                  3,280             0.00
                                 Article 33(1)-(4)—International Preliminary
                                 Examining Authority—U.S.
965                              Claims—extra independent (over 3)                       38.00                 45,385             0.01
967                              Claims—extra total (over 20)                            11.00                 98,098             0.02
969                              Claims—multiple dependent                              120.00                 49,357             0.01
971                              For filing with European Patent Office or              425.00                703,191             0.12
                                 Japanese Patent Office search report
254                              Oath or declaration after 20 or 30 months               65.00                 76,082             0.01
                                 from priority date
Total Patent Cooperation
Treaty application fees
(small entity)                                                                                             $1,394,047             0.24
Total Patent Cooperation
Treaty application filing fees                                                                             $9,843,819             1.70
Patent Cooperation Treaty processing fees
150                              Patent Cooperation Treaty transmittal fee             $210.00             $3,345,943             0.58
151                              Patent Cooperation Treaty search fee—no                640.00                388,476             0.07
                                 U.S. application
152                              Supplemental search per additional invention           180.00                252,300             0.04
153                              Patent Cooperation Treaty search fee                   420.00              3,666,851             0.63
                                 —prior U.S. application
155                              Patent Cooperation Treaty—late payment fee            Variable                15,512             0.00
156                              English translation—after 20 months                    130.00                 36,341             0.01
157                              Patent Cooperation Treaty—designation                 Variable                49,368             0.01
                                 confirmation fee
159                              Overpayments—Patent Cooperation Treaty                                        46,103             0.01
190                              Preliminary examination fee                            460.00              3,478,187             0.60
                                 fee—International Searching Authority was
                                 the U.S.
191                              Preliminary examination fee— International             690.00                694,321             0.12
                                 Searching Authority not the U.S.
192                              Additional invention—International                     140.00                 76,692             0.01
                                 Searching Authority was the U.S.
193                              Additional invention—International                     240.00                  1,360             0.00
                                 Searching Authority not the U.S.
Total Patent Cooperation
Treaty processing fees                                                                                   $12,051,454              2.08
Total Patent Cooperation
Treaty application and
processing fees                                                                                          $21,895,273              3.78
Patent service fees
                                                                                                                            (continued)




                                                Page 63                                           GAO/RCED-97-113 Intellectual Property
                                             Appendix II
                                             Patent Fee Income Received by PTO in
                                             Fiscal Year 1995




                                                                                    Fee per              Total fee      Percent of
Type of fee and fee code   Fee title                                                service               income             total
561                        Printed copy of patent w/o color, regular                  $3.00            $2,961,287             0.51
                           service
562                        Printed copy of patent w/o color, overnight                 6.00                 7,279             0.00
                           delivery to PTO box or overnight fax
563                        Printed copy of patent w/o color, ordered via              25.00                 6,617             0.00
                           expedited mail or fax, expedited service
564                        Printed copy of plant patent, in color                     12.00                20,215             0.00
565                        Copy of utility patent or Statutory Invention              24.00                   834             0.00
                           Registration, with color drawings
566                        Certified or uncertified copy of patent                    12.00               923,499             0.16
                           application as filed, regular service
567                        Certified or uncertified copy of patent                    24.00               437,799             0.08
                           application as filed, expedited local service
568                        Certified or uncertified copy of                         150.00                156,046             0.03
                           patent-related file wrapper and contents
569                        Certified or uncertified copy of document,                 25.00               175,902             0.03
                           unless otherwise provided
570                        For assignment records, abstract of title and              25.00               305,648             0.05
                           certification, per patent
571                        Library service                                            50.00                   200             0.00
572                        List of U.S. patents and Statutory Invention                3.00                   192             0.00
                           Registrations in subclass
573                        Uncertified statement regarding status of                  10.00                 6,770             0.00
                           maintenance fee payments
574                        Copy of non-U.S. document                                  25.00                69,128             0.01
575                        Comparing and certifying copies, per                       25.00                52,118             0.01
                           document, per copy
576                        Additional filing receipt, duplicate or                    25.00                20,578             0.00
                           corrected due to applicant error
577                        Filing a disclosure document                               10.00               219,570             0.04
578                        Local delivery box rental, per annum                       50.00                 4,948             0.00
579                        International type search report                           40.00                   955             0.00
580                        Self-service copy charge, per page                          0.25             3,965,313             0.69
581                        Recording each patent assignment,                          40.00             7,844,060             1.36
                           agreement or other paper, per property
583                        Publication in official gazette                            25.00                 3,175             0.00
584                        Labor charge for services, per hour or                     30.00                51,897             0.01
                           fraction thereof
585                        Unspecified other services                                                     170,326             0.03
586                        Retaining abandoned application                          130.00                 27,975             0.00
587                        Handling fee for incomplete or improper                  130.00                 26,155             0.00
                           application
                                                                                                                        (continued)



                                             Page 64                                          GAO/RCED-97-113 Intellectual Property
                                             Appendix II
                                             Patent Fee Income Received by PTO in
                                             Fiscal Year 1995




                                                                                              Fee per               Total fee      Percent of
Type of fee and fee code      Fee title                                                       service                income             total
588                           Automated Patent Search System text                               40.00                806,589             0.14
                              terminal session time, per hour
589                           Handling fee for withdrawal of Statutory                         130.00                    582             0.00
                              Invention Registration
590                           Patent coupons                                                      3.00             1,023,519             0.18
591                           Automated Patent Search System text                               15.00                  1,644             0.00
                              terminal session time at the PTDLs, per hour
592                           Automated Patent Search System—                                   50.00                 –9,295             0.00
                              Classified Search and Retrieval terminal
                              session time, per hour
Total patent service fees                                                                                       $19,281,525              3.33
Patent attorney enrollment fees
609                           Admission to examination                                        $300.00              $628,080              0.11
610                           Registration to practice                                         100.00                110,027             0.02
611                           Reinstatement to practice                                         15.00                  1,650             0.00
612                           Copy of certification of good standing                            10.00                  1,317             0.00
613                           Certificate of good standing—suitable for                         20.00                    250             0.00
                              framing
615                           Review of decision of Director, Office of                        130.00                  1,040             0.00
                              Enrollment and Discipline
616                           Regrading an examination                                         130.00                 15,355             0.00
Total patent attorney
enrollment fees                                                                                                    $757,719              0.13
Miscellaneous service fees
607                           Establish deposit account                                        $10.00                   $710             0.00
608                           Service charge for below minimum balance                          25.00                 79,232             0.01
617                           Processing returned checks                                        50.00                 19,045             0.00
618                           Computer records at costs                                                              954,665             0.17
                              Unspecified patent fees                                                              1,378,329             0.24
Total miscellaneous service
fees                                                                                                              $2,431,981             0.42
Total patent feesa                                                                                             $577,699,829             99.98

                                             a
                                                 Percent does not equal to 100 because of rounding.

                                             Source: Patent and Trademark Office; GAO’s computations.




                                             Page 65                                                     GAO/RCED-97-113 Intellectual Property
Appendix III

Patent Fees for Fiscal Year 1997



Type of fee and fee code            Fee title                                                                      Fee per service
Patent filing fees (large entity)
101                                 Basic filing fee—utility                                                               $770.00
102                                 Independent claims in excess of 3                                                        80.00
103                                 Claims in excess of 20                                                                   22.00
104                                 Multiple dependent claim                                                                260.00
105                                 Surcharge—late filing fee or oath or declaration                                        130.00
106                                 Design filing fee                                                                       320.00
107                                 Plant filing fee                                                                        530.00
108                                 Reissue filing fee                                                                      770.00
109                                 Reissue independent claims over original patent                                          80.00
110                                 Reissue claims in excess of 20 and over original patent                                  22.00
Patent filing fees (small entity)
201                                 Basic filing fee—utility                                                                385.00
202                                 Independent claims in excess of 3                                                        40.00
203                                 Claims in excess of 20                                                                   11.00
204                                 Multiple dependent claim                                                                130.00
205                                 Surcharge—late filing fee or oath or declaration                                         65.00
206                                 Design filing fee                                                                       160.00
207                                 Plant filing fee                                                                        265.00
208                                 Reissue filing fee                                                                      385.00
209                                 Reissue independent claims over original patent                                          40.00
210                                 Reissue claims in excess of 20 and over original patent                                  11.00
Patent issue fees (large entity)
142                                 Utility issue fee                                                                     1,290.00
143                                 Design issue fee                                                                        440.00
144                                 Plant issue fee                                                                         650.00
Patent issue fees (small entity)
242                                 Utility issue fee                                                                       645.00
243                                 Design issue fee                                                                        220.00
244                                 Plant issue fee                                                                         325.00
Patent maintenance fees (large entity)
183                                 Due at 3.5 years                                                                      1,020.00
184                                 Due at 7.5 years                                                                      2,050.00
185                                 Due at 11.5 years                                                                     3,080.00
186                                 Surcharge—late payment within 6 months                                                  130.00
Patent maintenance fees (small entity)
283                                 Due at 3.5 years                                                                        510.00
284                                 Due at 7.5 years                                                                      1,025.00
                                                                                                                        (continued)


                                                   Page 66                                    GAO/RCED-97-113 Intellectual Property
                                               Appendix III
                                               Patent Fees for Fiscal Year 1997




Type of fee and fee code         Fee title                                                                            Fee per service
285                              Due at 11.5 years                                                                           1,540.00
286                              Surcharge—late payment within 6 months                                                         65.00
Patent maintenance fees regardless of entity
187                              Surcharge—late payment is unavoidable                                                         680.00
188                              Surcharge—late payment is unintentional                                                     1,600.00
Patent extension fees (large entity)
115                              Extension for response within first month                                                     110.00
116                              Extension for response within second month                                                    390.00
117                              Extension for response within third month                                                     930.00
118                              Extension for response within fourth month                                                  1,470.00
Patent extension fees (small entity)
215                              Extension for response within first month                                                      55.00
216                              Extension for response within second month                                                    195.00
217                              Extension for response within third month                                                     465.00
218                              Extension for response within fourth month                                                    735.00
Patent appeal fees (large entity)
119                              Notice of appeal                                                                              300.00
120                              Filing a brief in support of an appeal                                                        300.00
121                              Request for oral hearing                                                                      260.00
Patent appeal fees (small entity)
219                              Notice of appeal                                                                              150.00
220                              Filing a brief in support of an appeal                                                        150.00
221                              Request for oral hearing                                                                      130.00
Patent revival fees (large entity)
140                              Petition to revive unavoidably abandoned application                                          110.00
141                              Petition to revive unintentionally abandoned application                                    1,290.00
Patent revival fees (small entity)
240                              Petition to revive unavoidably abandoned application                                           55.00
241                              Petition to revive unintentionally abandoned application                                      645.00
Statutory disclaimers
148                              Statutory disclaimer (large entity)                                                           110.00
248                              Statutory disclaimer (small entity)                                                            55.00
Other patent processing fees
111                              Extension of term of patent under 1.740                                                     1,090.00
111                              Initial application for interim extension under 1.790                                         410.00
111                              Subsequent application for interim extension under 1.790                                      210.00
112                              Requesting publication of Statutory Invention Registration—prior to                           900.00
                                 examiner’s action
                                                                                                                           (continued)




                                               Page 67                                           GAO/RCED-97-113 Intellectual Property
                                             Appendix III
                                             Patent Fees for Fiscal Year 1997




Type of fee and fee code       Fee title                                                                               Fee per service
113                            Requesting publication of Statutory Invention Registration—after                               1,790.00
                               examiner’s action
122                            Petitions to the Commissioner, unless otherwise specified                                        130.00
126                            Submission of an information disclosure statement                                                230.00
138                            Petition to institute a public use proceeding                                                  1,470.00
139                            Non-English specification                                                                        130.00
145                            Certificate of correction                                                                        100.00
147                            Filing a request for reexamination                                                             2,460.00
146                            Filing a submission after final rejection (large entity)                                         770.00
246                            Filing a submission after final rejection (small entity)                                         385.00
149                            Per additional invention to be examined (large entity)                                           770.00
249                            Per additional invention to be examined (small entity)                                           385.00
Patent Cooperation Treaty application fees (large entity)
956                            International Preliminary Examining Authority—U.S.                                               700.00
958                            International Searching Authority—U.S.                                                           770.00
960                            PTO is not International Searching Authority or International Preliminary                      1,040.00
                               Examining Authority
962                            Claims meet Patent Cooperation Treaty Article 33(1)-(4)—International                             96.00
                               Preliminary Examining Authority—U.S.
964                            Claims—extra independent (over 3)                                                                 80.00
966                            Claims—extra total (over 20)                                                                      22.00
968                            Claims—multiple dependent                                                                        260.00
970                            For filing with European Patent Office or Japanese Patent Office search                          910.00
                               report
154                            Oath or declaration after 20 or 30 months from priority date                                     130.00
Patent Cooperation Treaty application fees (small entity)
957                            International Preliminary Examining Authority—U.S.                                               350.00
959                            International Searching Authority—U.S.                                                           385.00
961                            PTO is not International Searching Authority or International Preliminary                        520.00
                               Examining Authority
963                            Claims meet Patent Cooperation Treaty Article 33(1)-(4)—International                             48.00
                               Preliminary Examining Authority—U.S.
965                            Claims—extra independent (over 3)                                                                 40.00
967                            Claims—extra total (over 20)                                                                      11.00
969                            Claims—multiple dependent                                                                        130.00
971                            For filing with European Patent Office or Japanese Patent Office search                          455.00
                               report
254                            Oath or declaration after 20 or 30 months from priority date                                      65.00
Patent Cooperation Treaty processing fees
150                            Patent Cooperation Treaty transmittal fee                                                        230.00
151                            Patent Cooperation Treaty search fee—no U.S. application                                         680.00
                                                                                                                            (continued)


                                             Page 68                                              GAO/RCED-97-113 Intellectual Property
                                         Appendix III
                                         Patent Fees for Fiscal Year 1997




Type of fee and fee code   Fee title                                                                                Fee per service
152                        Supplemental search per additional invention                                                      200.00
153                        Patent Cooperation Treaty search fee—prior U.S. application                                       440.00
156                        English translation—after 20 months                                                               130.00
190                        Preliminary examination fee—International Searching Authority was the                             480.00
                           U.S.
191                        Preliminary examination fee—International Searching Authority not the                             730.00
                           U.S.
192                        Additional invention—International Searching Authority was the U.S.                               140.00
193                        Additional invention—International Searching Authority not the U.S.                               260.00
Patent service fees
561                        Printed copy of patent w/o color, regular service                                                   3.00
562                        Printed copy of patent w/o color, delivery to PTO box or overnight fax                              6.00
563                        Printed copy of patent w/o color, ordered via expedited mail or fax,                               25.00
                           expedited service
564                        Printed copy of plant patent, in color                                                             12.00
565                        Copy of utility patent or Statutory Invention Registration with color                              24.00
                           drawings
566                        Certified or uncertified copy of patent application as filed, regular service                      15.00
567                        Certified or uncertified copy of patent application as filed, expedited                            30.00
                           local service
568                        Certified or uncertified copy of patent—related file wrapper and contents                         150.00
569                        Certified or uncertified copy of document, unless otherwise provided                               25.00
570                        For assignment records, abstract of title and certification, per patent                            25.00
571                        Library service                                                                                    50.00
572                        List of U.S. patents and Statutory Invention Registrations in subclass                              3.00
573                        Uncertified statements re status of maintenance fee payments                                       10.00
574                        Copy of non-U.S. Document                                                                          25.00
575                        Comparing and certifying copies, per document, per copy                                            25.00
576                        Additional filing receipt, duplicate or corrected due to applicant error                           25.00
577                        Filing a disclosure document                                                                       10.00
578                        Local delivery box rental, per annum                                                               50.00
579                        International type search report                                                                   40.00
580                        Self-service copy charge, per page                                                                  0.25
581                        Recording each patent assignment, agreement or other paper, per                                    40.00
                           property
583                        Publication in official gazette                                                                    25.00
584                        Labor charge for services, per hour or fraction thereof                                            30.00
585                        Unspecified expedited services                                                                    At cost
586                        Retaining abandoned application                                                                   130.00
587                        Handling fee for incomplete or improper application                                               130.00
                                                                                                                         (continued)



                                         Page 69                                               GAO/RCED-97-113 Intellectual Property
                                           Appendix III
                                           Patent Fees for Fiscal Year 1997




Type of fee and fee code      Fee title                                                                              Fee per service
588                           Automated Patent Search System—text terminal session time, per hour                              40.00
589                           Handling fee for withdrawal of Statutory Invention Registration                                 130.00
590                           Patent coupons                                                                                    3.00
592                           Automated Patent Search System—Classified Search and Image                                       50.00
                              Retrieval terminal session time, per hour
Patent attorney enrollment fees
609                           Admission to examination                                                                         40.00
610                           Registration to practice                                                                        100.00
611                           Reinstatement to practice                                                                        40.00
612                           Copy of certification of good standing                                                           10.00
613                           Certificate of good standing—suitable for framing                                                20.00
615                           Review of decision of Director, Office of Enrollment and Discipline                             130.00
616                           Regarding an examination                                                                        225.00
Miscellaneous service fees
607                           Establish deposit account                                                                        10.00
608                           Service charge for below minimum balance                                                         25.00
617                           Processing returned checks                                                                       50.00
618                           Computer records                                                                                At cost

                                           Source: PTO.




                                           Page 70                                              GAO/RCED-97-113 Intellectual Property
Appendix IV

Comparison of Patent Fees for PTO,
Japanese Patent Office, and European
Patent Office

                                                           Fees to obtain        Fees to maintain
              PTO                                                 patenta                 patent               Total fees
              Large entity                                           $2,060                   $6,150                 $8,210
              Small entity                                           $1,030                   $3,075                 $4,105
              Japanese Patent Office                                   $985                 $10,230                 $11,215
              European Patent Office
              One country                                            $4,942                   $2,121                 $7,063
              Eight countriesb                                       $6,546                 $71,047                 $77,593
              All countries                                          $8,608                $117,515                $126,123
              Notes: Foreign currency exchange rates based on Oct. 1996 average. Fees as used in this table
              are the fees paid to the agency and do not include external fees such as attorneys’ fees. The
              European Patent Office has reported that its fees are scheduled to be adjusted downward on
              July 1, 1997.
              a
                  The fees to obtain a patent include all basic fees from filing application to grant of patent.
              b
               In the European Patent Office, additional fees must be paid for each country designated. The
              average number of member states designated for each European Patent Office application was
              7.9 in 1995. Thus, we made our calculation using the fees for the eight member states that were
              designated most often in 1995.

              Source: PTO; GAO’s calculations.




              Page 71                                                         GAO/RCED-97-113 Intellectual Property
Appendix V

Comparison of Patent Pendency by
Examination Group for Patents Issued or
Applications Abandoned During Fiscal Year
1995
                                                                                                  Average
                                                                           Number of           pendency in
              Group                 Description                           applications             months
              1100                  General, metallurgical,                      12,835               19.2
                                    inorganic, petroleum and
                                    electrical chemistry and
                                    engineering
              1200                  Organic chemistry drug, etc.                  9,473               19.3
              1300                  Specialized chemical                          8,635               19.4
                                    industries, etc.
              1500                  High polymer chemistry,                      14,079               19.4
                                    plastics, coating,
                                    photography, etc.
              1800                  Biotechnology                                12,605               21.6
              2100                  Industrial electronics,                      10,232               20.9
                                    physics, etc.
              2200                  Special laws administration                   5,429               24.4
              2300                  Computer systems, etc.                        8,701               26.2
              2400                  Packages, cleaning, textiles,                 8,006               18.9
                                    and geometrical instruments
              2500                  Electronic/optical systems,                  15,431               19.6
                                    etc.
              2600                  Communications,                              13,463               22.1
                                    measuring, testing and
                                    lamp/discharge group
              2900                  Special designs                              16,134               19.4
              3100                  Handling and transporting                     9,121               17.5
                                    media
              3200                  Material shaping, tools, etc.                 9,132               17.7
              3300                  Medical technology,                          12,186               18.4
                                    sporting goods, etc.
              3400                  Solar, heat, power and fluid                  9,401               17.4
                                    engineering devices
              3500                  Construction, petroleum and                  10,325               18.7
                                    mining engineering
                                    Not determined                                1,007               N/A
              Total                                                            186,195                19.8
              Source: Patent Application Location and Monitoring system, PTO; GAO’s computations.




              Page 72                                               GAO/RCED-97-113 Intellectual Property
Appendix VI

Trademark Fee Income Received by PTO in
Fiscal Year 1995


Type of fee and fee code     Fee title                                       Fee per service     Total fee income Percent of total
Trademark processing fees
361                          Application for registration, per class                $245.00           $48,975,658             71.51
362                          Filing an amendment to allege use under                 100.00                                    0.75
                             section 1(c), per class                                                       514,920
363                          Filing a statement of use under section                 100.00                                    3.18
                             1(d)(1), per class                                                          2,179,315
364                          Filing a request for a 6-month extension of             100.00                                    5.20
                             time for filing a statement of use under
                             section 1(d)(1), per class                                                  3,561,243
365                          Application for renewal, per class                      300.00              2,431,445             3.55
366                          Additional fee for late renewal, per class              100.00                 88,543             0.13
367                          Publication of mark under section 12 (c), per           100.00                                    0.01
                             class                                                                           6,939
368                          Issuing new certificate of registration                 100.00                 22,600             0.03
369                          Certificate of correction, registrant’s error           100.00                 45,920             0.07
370                          Filing disclaimer to registration                       100.00                  1,300             0.00
371                          Filing amendment to registration                        100.00                 58,800             0.09
372                          Filing section 8 affidavit, per class                   100.00                305,785             0.45
373                          Filing section 15 affidavit, per class                  100.00                 64,860             0.09
374                          Filing combined sections 8 and 15 affidavit,            200.00                                    7.32
                             per class                                                                   5,012,103
375                          Petition to the Commissioner                            100.00                 92,550             0.14
376                          Petition for cancellation, per class                    200.00                276,620             0.40
377                          Notice of opposition, per class                         200.00                903,080             1.32
378                          Ex parte appeal, per class                              100.00                135,630             0.20
379                          Dividing an application, per new application,           100.00                                    0.10
                             (file wrapper) created                                                         67,625
Total trademark processing                                                                                                    94.54
fees                                                                                                  $64,744,936
Trademark service fees
461                          Printed copy of each registered mark,                    $3.00                                    0.01
                             regular service                                                                $4,812
462                          Printed copy of each registered mark,                     6.00                                    0.00
                             overnight delivery to PTO box or overnight
                             fax                                                                             1,148
463                          Printed copy of each registered mark                     25.00                                    0.00
                             ordered via expedited mail or fax, expedited
                             service                                                                           647
464                          Certified copy of registered mark, with title            10.00                                    0.12
                             and/or status, regular service                                                 84,110
465                          Certified copy of registered mark, with title            20.00                                    0.32
                             and/or status, expedited local service                                        217,848
                                                                                                                         (continued)


                                             Page 73                                           GAO/RCED-97-113 Intellectual Property
                                              Appendix VI
                                              Trademark Fee Income Received by PTO in
                                              Fiscal Year 1995




Type of fee and fee code       Fee title                                           Fee per service         Total fee income Percent of total
466                            Certified or uncertified copy of trademark                     12.00                                     0.17
                               application as filed, regular service                                                   113,705
467                            Certified or uncertified copy of trademark                     24.00                                     0.22
                               application as filed, expedited local service                                           152,199
468                            Certified or uncertified copy of trademark-                    50.00                                     0.03
                               related file wrapper and contents                                                        21,719
469                            Certified or uncertified copy of trademark                     25.00                                     0.01
                               document, unless otherwise provided                                                       5,204
470                            For assignment records, abstracts of title                     25.00                                     0.03
                               and certification per registration                                                       21,648
475                            Comparing and certifying copies, per                           25.00                                     0.01
                               document, per copy                                                                        9,214
480                            Self-service copy charge, per page                               0.25                   440,631          0.64
481                            Recording trademark assignment,                                40.00                                     0.97
                               agreement or other paper, first mark per
                               document                                                                                661,937
482                            For second and subsequent marks in the                         25.00                                     2.70
                               same document                                                                          1,846,515
484                            Labor charges for services, per hour or                        30.00                                     0.03
                               fraction thereof                                                                         22,467
485                            Unspecified other services                                    At cost                    60,335          0.09
488                            Each hour of X-SEARCH terminal session                         40.00                                     0.11
                               time                                                                                     72,132
490                            Trademark coupons                                                3.00                     5,464          0.01
                               Unspecified trademark fees                                                                  125          0.00
Total trademark service fees                                                                                         $3,741,860         5.47
Totala                                                                                                           $68,486,796          100.01

                                              a
                                                  Total percent does not equal 100.00 percent because of rounding.

                                              Source: PTO; GAO’s computations.




                                              Page 74                                                   GAO/RCED-97-113 Intellectual Property
Appendix VII

Trademark Fees for Fiscal Year 1997



Type of fee and fee code    Fee title                                                                           Fee per service
Trademark processing fees
361                         Application for registration, per class                                                     $245.00
362                         Filing an amendment to allege use under section 1(c), per                                    100.00
                            class
363                         Filing a statement of use under section 1(d)(1), per class                                   100.00
364                         Filing a request for a 6 month extension of time for filing a                                100.00
                            statement of use under section 1(d)(1), per class
365                         Application for renewal, per class                                                           300.00
366                         Additional fee for late renewal, per class                                                   100.00
367                         Publication of mark under section 12(c), per class                                           100.00
368                         Issuing new certificate of registration                                                      100.00
369                         Certificate of correction, registrant’s error                                                100.00
370                         Filing disclaimer to registration                                                            100.00
371                         Filing amendment to registration                                                             100.00
372                         Filing section 8 affidavit, per class                                                        100.00
373                         Filing section 15 affidavit, per class                                                       100.00
374                         Filing combined sections 8 and 15 affidavit, per class                                       200.00
375                         Petition to the Commissioner                                                                 100.00
376                         Petition for cancellation, per class                                                         200.00
377                         Notice of opposition, per class                                                              200.00
378                         Ex parte appeal, per class                                                                   100.00
379                         Dividing an application, per new application, (file wrapper)                                 100.00
                            created
Trademark service fees
461                         Printed copy of each registered mark, regular service                                         $3.00
462                         Printed copy of each registered mark, overnight delivery to                                    6.00
                            PTO box or overnight fax
463                         Printed copy of each registered mark ordered via                                              25.00
                            expedited mail or fax, expedited service
464                         Certified copy of registered mark, with title and/or status,                                  10.00
                            regular service
465                         Certified copy of registered mark, with title and/or status,                                  20.00
                            expedited local service
466                         Certified or uncertified copy of trademark application as                                     15.00
                            filed, regular service
467                         Certified or uncertified copy of trademark application as                                     30.00
                            filed, expedited local service
468                         Certified or uncertified copy of trademark-related file                                       50.00
                            wrapper and contents
469                         Certified or uncertified copy of trademark document, unless                                   25.00
                            otherwise provided
                                                                                                                     (continued)


                                  Page 75                                                  GAO/RCED-97-113 Intellectual Property
                                 Appendix VII
                                 Trademark Fees for Fiscal Year 1997




Type of fee and fee code   Fee title                                                                       Fee per service
470                        For assignment records, abstracts of title and certification                              25.00
                           per registration
475                        Comparing and certifying copies, per document, per copy                                   25.00
480                        Self service copy charge, per page                                                         0.25
481                        Recording trademark assignment, agreement or other                                        40.00
                           paper, first mark per document
482                        For second and subsequent marks in the same document                                      25.00
484                        Labor charges for services, per hour or fraction thereof                                  30.00
485                        Unspecified other services                                                               At cost
488                        Each hour of X-SEARCH terminal session time                                               40.00
490                        Trademark coupons                                                                          3.00

                                 Source: PTO.




                                 Page 76                                              GAO/RCED-97-113 Intellectual Property
Appendix VIII

Copyright Fees for Fiscal Year 1997



Fee title                                                                                                                  Fee per service
Application for registration                                                                                                        $20.00
Application per issue for group serial registration (minimum fee $20.00)                                                             10.00
Application for group registration of daily newspaper, per month                                                                     40.00
Application for restoration of copyright under the General Agreements on Tariffs and Trade treaty
(minimum fee $20.00)                                                                                                                 10.00
Recordation, under section 205, of a document containing no more than one title                                                      20.00
Recordation of additional titles; each group of 10 or fewer                                                                          10.00
Recordation, under the Uruguay Round Agreements Act, of a notice of intent to enforce copyright,
containing no more than one work                                                                                                     30.00
Additional works contained in the notice of intent to enforce copyright, each                                                         1.00
Additional certificates, each                                                                                                         8.00
Any other certification including Copyright Office records, each, per hour                                                           20.00
Search: reports from official records, per hour                                                                                      20.00
Search: locating Copyright Office records, per hour                                                                                  20.00
Filing of notice of intent to make and distribute phone records under section 115(b)                                                 12.00
Receipt for deposit, each                                                                                                             4.00
Special handling for registration                                                                                                   330.00
Special handling for registration given if a single deposit copy covers multiple claims and special
handling is requested only for one                                                                                                   50.00
Special handling for recordation of a document                                                                                      330.00
Full-term retention of copyright deposits under section 704 (e)                                                                     270.00
Expedited additional certificate, per hour                                                                                           50.00
Expedited in-process search, per hour                                                                                                50.00
Expedited copy of assignment, per hour                                                                                               50.00
Expedited certification, per hour                                                                                                    50.00
Expedited copy of deposit stored off-site, first hour                                                                                70.00
Expedited copy of deposit stored off-site, each additional hour                                                                      50.00
Expedited copy of correspondence file stored in Madison Building or at an off-site storage facility, first
hour                                                                                                                                 70.00
Expedited copy of correspondence file stored in Madison Building or at an off-site storage facility, each
additional hour                                                                                                                      50.00
Expedited reference and bibliographic search, first hour                                                                            100.00
Expedited reference and bibliographic search, each additional hour                                                                   50.00
                                                  Source: Copyright Office.




                                                  Page 77                                             GAO/RCED-97-113 Intellectual Property
Appendix IX

Copyright Fee Revenues Received by the
Copyright Office in Fiscal Year 1995


Title                                                                  Fee per service               Total fee income              Percent of total
Supplementary information for registration                                        $20.00                        $68,386                              .46
Serial registration                                                                 20.00                      1,539,664                       10.45
Literary works registration                                                         20.00                      3,936,280                       26.71
Group daily newspaper registration                                                  40.00                         77,080                             .52
Group serial registration                                                           10.00                       267,640                          1.82
Mask works registration                                                             20.00                         18,580                             .13
Motion picture registration                                                         20.00                       355,780                          2.41
Performing arts registration                                                        20.00                      2,833,246                       19.22
Sound recording registration                                                        20.00                       721,173                          4.89
Renewal registration                                                                20.00                       646,882                          4.39
Visual arts registration                                                            20.00                      2,107,476                       14.30
Special handling for registrationa                                                330.00                        838,200                          5.69
Special handling for recordation of a document                                    330.00                        193,050                          1.31
Document recordationb                                                               20.00                       544,569                          3.70
Surcharges for expedited certifications and reference and
bibliographic searches, first hourc                                                 50.00                       114,092                              .77
              d
Certifications                                                                       8.00                       123,107                              .84
Searches, per hour                                                                  20.00                       194,849                          1.32
Othere                                                                          Variable                        157,676                          1.07
Total                                                                                                        $14,737,730                      100.00
                                             a
                                               An additional fee of $50 is charged for each claim given special handling if a single deposit copy
                                             covers multiple claims and special handling is requested only for one.
                                             b
                                              A $10 fee is charged for recording each group of 10 or fewer additional titles.
                                             c
                                               A fee of $70 for the first hour and $50 for each additional hour is charged for obtaining copies of
                                             correspondence stored at an off-site storage facility or at the Madison Building and copies of
                                             deposits stored off-site. A surcharge of $100 for the first hour and $50 for each additional hour is
                                             charged for expedited reference and bibliographic searches.
                                             d
                                              A $20 per hour fee is charged for additional certifications.
                                             e
                                               This includes various fees collected for miscellaneous services, such as making copies and
                                             inspecting records.

                                             Source: Copyright Office.




                                             Page 78                                                    GAO/RCED-97-113 Intellectual Property
Appendix X

Copyright Office’s Analysis Showing Fees
Required for Self Sufficiency

                                             In September 1996, the Senate Committee on the Judiciary held a hearing
                                             on S. 1961, the Omnibus Patent Act of 1996. Among other things, S. 1961
                                             would have moved the Copyright Office with PTO into a new Intellectual
                                             Property Organization and would have made the Copyright Office
                                             self-sustaining through fees. In the hearings, the Register of Copyrights
                                             opposed making the Copyright Office self-sufficient, stating that fees
                                             would increase fivefold and applications would decrease. This position
                                             was based on one scenario taken from an analysis the Copyright Office
                                             had made that considered fees under 12 scenarios. The entire analysis is
                                             reprinted in the following sections, using the Copyright Office’s own
                                             terminology.


Table X.1: Financial Impacts of Separation Expenses in Fiscal Year 1997 for Copyright Basic
                                                                                              Independent
                                                                    Current                       Agency
                                                                Organization                        in LC             Outside LC
                                                                                                            a
Personals                    Salaries and Benefits                $22,750,000                 $21,900,000            $21,900,000a
                             Increased Staffing for
                             Automation                                                                                 2,000,000b
                             Mandatory Pay Increases                1,000,000                   1,000,000               1,000,000
              c                                                                                          d
Non Personals                Non Automation                         1,600,000                   1,500,000               1,700,000e
                             Automation                               240,000                     240,000               2,240,000f
Overheadg                                                                    ***                8,700,000h              6,000,000
Facilities                   Office, Light Industrial &
                             Warehouse                                       ***                  230,000i              5,000,000j
                             Security                                        ***                                           80,000k
Relocation Costsl            Moving                                                                                        80,000
                             Furnishingsm                                                                               2,500,000
                             Telephonesn                                                                                1,300,000
                             Securityo                                                                                    840,000p
                             Increased Printing                                                                           250,000q
Totals                                                            $25,590,000                 $33,570,000            $44,890,000

                                                                                                         (Table notes on next page)




                                             Page 79                                      GAO/RCED-97-113 Intellectual Property
Appendix X
Copyright Office’s Analysis Showing Fees
Required for Self Sufficiency




*** Provided by the Library
a
  Assumes that Copyright Acquisitions Division ($701,000) and Compliance Records Unit
($144,300) are transferred to the Library.
b
    Replaces automation staff support lost as a result of separation from the Library.
c
    Less the $2,340,000 appropriated for GATT for fiscal 1996 and 1997.
d
 Non personals of $67,624 (8% x 845,300) deducted for Copyright Acquisitions Division and
Compliance Records Unit.
e
  $170,000 increase for two contracts: $9,400 ($185 per week x 52) to send deposits to storage,
and $160,000 ($40,000 x 4) for minimum security staffing.
f
    $2 million increase for mainframe and server processing.
g
    Personnel, Financial and Health Services, Procurement and Contracting Support.
h
  The Library’s overhead rate of 21.4% applied to Copyright’s appropriation of $27,828,000 =
$5,955,192 + $2.7 million for the Library’s estimate of Copyright automation expenses.
i
The Library calculates Copyright’s space usage at $7.6 million. $230,000 is for Landover
warehouse space, and $7.4 million (147,725 sq. ft. @ $50 per sq. ft.) is Madison space. The
space usage in Madison is a “beneficial occupancy” and should not be assessed.
j
    Facility costs calculated at the General Service Administration’s rate of $32 per sq. ft.
k
    Annual maintenance cost.
l
    $5 million.
m
    $5,000 x 500 for workstations + $100 x 500 for file cabinets.
n
    Equipment $250,000, switch $500,000, and wiring 500,000.
o
  Startup costs for knogo gates ($55,000), cameras, and card readers, and intrusive detection
system.
p
    Electronic ($840,000) and non electronic ($80,000).
q
    Reprinting costs for registration forms, circulars, and stationery to include address change.

Source: Copyright Office.




Page 80                                                        GAO/RCED-97-113 Intellectual Property
                                             Appendix X
                                             Copyright Office’s Analysis Showing Fees
                                             Required for Self Sufficiency




Table X.2: Fee Per Registration for Full Cost Recovery Current Organization
                 Decrease in Registration      Decrease in Registration  Decrease in Registration                Decrease in Registration
                      Year 1        Year 2             Year 1            Year 2        Year 1         Year 2          Year 1        Year 2
                        30%           15%                20%               10%           10%             5%              5%          2.5%
Expenses         $25,590,000   $25,590,000     $25,590,000      $25,590,000       $25,590,000   $25,590,000      $25,590,000   $25,590,000
Less Other
Service Fees    –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000 –$ 2,000,000
Plus
Mandatories                    $ 1,000,000                      $ 1,000,000                      $ 1,000,000                   $ 1,000,000
Adj. Expenses    $23,590,000   $24,590,000     $23,590,000      $24,590,000       $23,590,000   $24,590,000      $23,590,000   $24,590,000
Registrations        420,000       357,000          480,000         432,000          540,000         513,000        570,000       555,750
Fee Per
Registration             $56           $69               $49               $57           $44              $48           $41           $44
                                             Assumptions:
                                             Congress mandates full cost recovery.
                                             Enactment of legislation authorizing fee increases.
                                             Fiscal 1997.
                                             Year 1 expenses include $1 million for mandatory pay increases.
                                             Current registrations (600,000) decrease when fees are increased.
                                             Other fees are level.

                                             Source: Copyright Office.




                                             Page 81                                                GAO/RCED-97-113 Intellectual Property
                                            Appendix X
                                            Copyright Office’s Analysis Showing Fees
                                            Required for Self Sufficiency




Table X.3: Fees Per Registration for Full Cost Recovery Independent Agency in the Library Without Offsetting Credits
                 Decrease in Registrations Decrease in Registrations Decrease in Registrations Decrease in Registrations
                     Year 1       Year 2            Year 1           Year 2           Year 1            Year 2           Year 1            Year 2
                  30% Loss     15% Loss          20% Loss         10% Loss         10% Loss           5% Loss          5% Loss         2.5% Loss
Expenses        $33,570,000   $33,570,000     $33,570,000       $33,570,000      $33,570,000      $33,570,000      $33,570,000        $33,570,000
Less Other
Service Fees     $2,000,000    $2,000,000       $2,000,000       $2,000,000       $2,000,000       $2,000,000        $2,000,000        $2,000,000
Mandatory Pay
Increase                       $1,000,000                        $1,000,000                        $1,000,000                          $1,000,000
Adj. Expenses   $31,570,000   $32,570,000     $31,570,000       $32,570,000      $31,570,000      $32,570,000      $31,570,000        $32,570,000
Registrations       420,000      357,000           480,000           432,000          540,000          513,000          570,000          555,750
Fees Per
Registration            $75          $91                $66               $75              $62              $63                 $55          $59
                                            Assumptions:
                                            Congress mandates full cost recovery.
                                            Enactment of legislation authorizing fee increases.
                                            Fiscal 1997 expenses.
                                            Year 1 expenses include $1 million for mandatory pay increases.
                                            LC charges for overhead and facilities and there is no credit for value deposits.
                                            Current registrations (600,000) decrease when fees are increased.
                                            Other fees are level.


                                            Source: Copyright Office.




                                            Page 82                                                   GAO/RCED-97-113 Intellectual Property
                                            Appendix X
                                            Copyright Office’s Analysis Showing Fees
                                            Required for Self Sufficiency




Table X.4: Fees Per Registration for Full Cost Recovery Copyright Office Outside the Library
                 Decrease in Registrations Decrease in Registrations Decrease in Registrations                  Decrease in Registrations
                     Year 1        Year 2           Year 1          Year 2          Year 1           Year 2          Year 1        Year 2
                  30% Loss      15% Loss         20% Loss        10% Loss        10% Loss          5% Loss         5% Loss     2.5% Loss
Expenses        $44,890,000   $39,890,000     $44,890,000      $39,890,000     $44,890,000     $39,890,000      $44,890,000   $39,890,000
Less Other
Service Fees    –$2,000,000   –$2,000,000     –$2,000,000      –$2,000,000     –$2,000,000     –$2,000,000 –$ 2,000,000 –$ 2,000,000
Plus
Mandatories                    $1,000,000                       $1,000,000                       $1,000,000                   $ 1,000,000
Adj. Expenses   $42,890,000   $38,890,000     $42,890,000      $38,890,000     $42,890,000     $38,890,000      $42,890,000   $38,890,000
Registrations       420,000       357,000          480,000          432,000         540,000         513,000         570,000       555,750
Fees Per
Registration           $102         $109                $89             $90              $79             $76            $75           $70
                                            Assumptions:
                                            Congress mandates full cost recovery.
                                            Fiscal 1997.
                                            Year 1 expenses include $1 million for mandatory pay increases.
                                            Year 2 expenses are less $5 million relocation costs.
                                            Enactment of legislation authorizing fee increases.
                                            Current registrations (600,000) decrease when fees are increased.
                                            Other fees are level.


                                            Source: Copyright Office.




                                            Page 83                                                GAO/RCED-97-113 Intellectual Property
Appendix XI

Regression Analysis of Copyright
Applications

                      This appendix discusses the regression model we developed to examine
                      the effect that fee changes have had on copyright applications over the
                      past 11 years.1 We developed a statistical regression model for this
                      analysis that examined whether several factors are associated with
                      changes in applications. We found that although applications were
                      negatively correlated with fees—that is, fee increases were correlated with
                      reduced applications—the primary factor associated with the level of
                      applications was the general level of economic activity as measured by the
                      Gross Domestic Product (GDP). The discussion in this appendix describes
                      the (1) purpose and limitations of the analysis, (2) data sources used,
                      (3) structure of the model, and (4) model’s results.


                      The primary purpose of this analysis was to measure how copyright
Purpose and           applications change in response to fee changes. In order to do this, we
Limitations of This   constructed a regression model that analyzed several factors that we
Analysis              hypothesized, on the basis of economic reasoning, would be related to the
                      level of copyright applications. For example, a considerable amount of
                      economic literature explores the relationship between research and
                      development expenditures and patenting experience. While patents would
                      likely be more related to research expenditures, we hypothesized that one
                      of the driving factors for copyright applications would be the general level
                      of economic activity. Thus, the basic model related applications to the
                      level of economic activity, as measured by the GDP, the application fee, and
                      dummy variables to control for seasonal variation in applications
                      throughout the year.

                      An important caveat to this analysis is that there are likely to be factors
                      that influence copyright applications that are unknown or unmeasurable.
                      Thus, this model may not be highly predictive. In particular, if we wanted
                      to use the model to predict the effect of fee increases on applications, the
                      greater the fee increase we want to analyze, the less valid the model would
                      be in predicting the drop in applications that would result. This is because
                      the results of econometric models are best used for analyzing the effects
                      of small changes in the independent factors. In this case, however,
                      because our model results are stable and statistically significant, the


                      1
                       This time period was required by the fact that “receipt of claims,” or copyright applications, have only
                      been recorded since 1986. As such, we used a quarterly model over this 11-year time period. An
                      alternative measure of quantity could have been registrations of copyrights, but this would pose some
                      problems. First, applications that are rejected because they are incomplete probably represent those
                      that are of minimal economic benefit to the applicant. These same applicants are also likely to be the
                      most deterred by an increase in the fee. Thus, registrations are not likely to be the best measure to use
                      for studying the effects of fee changes.



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                         Appendix XI
                         Regression Analysis of Copyright
                         Applications




                         model is a reasonable tool for analyzing the effects of larger changes in the
                         independent factors, such as fee levels, on the level of applications.


                         All data on copyright applications as well as information on application
Sources for Data         fees were obtained from the Copyright Office. The applications data were
                         obtained for total applications and also for certain specific categories of
                         applications, as discussed later. Additionally, we received information on
                         applications that were cancelled because they were not fully paid for after
                         the 1991 fee increase. Data on specific categories of applications and on
                         cancellation were available on a fiscal year basis, which required that
                         these data be apportioned for a quarterly model.

                         We obtained data on GDP and the implicit price deflator for GDP from Data
                         Resources, Inc.


                         The basic hypothesis underlying this analysis is that copyright applications
Structure of the Model   vary over time and that this variation is related to changes in the level of
                         macroeconomic activity, the fee charged for copyright applications, and
                         seasonal variation in applications over the course of the year. Regarding
                         GDP, we hypothesize that there may be a lag in the relationship between
                         GDP and applications. We also hypothesize that because fee increases are
                         usually announced ahead of time, applications may surge in the period
                         prior to a higher fee. The basic quarterly model is thus:

                                   Qtc= f(GDPlag, feet, seasonal dummies, surge),

                         where:

                         Qtc is the number of applications submitted in period t, GDPlag is the level
                         of real GDP in some lagged time period, fee is the real level of the fee in
                         time period t, seasonal dummies are two dummy variables for winter and
                         summer, and surge is a dummy variable that takes a value of 1 in the
                         quarter before a nominal fee increase and a value of zero in all other
                         quarters.


                         The measurement of the dependent variable—the number of copyright
Measurement of           applications per quarter—was not straightforward. In defining
Dependent Variable       applications, we would prefer to use total applications, not accounting for
                         different categories of copyrights. However, for three categories of



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Appendix XI
Regression Analysis of Copyright
Applications




applications, there were “rule changes” in 1991 that made their inclusion in
this analysis problematic.

First, filings of serials were changed in 1991 so that applicants were
allowed to bundle several issues over a 3-month period and file them
together. In doing so, they were grandfathered in at the old fee: They
continued to pay only $10 per issue for the bundled set. This caused filings
for Class SE, the original serials category, to drop after 1991 and a new
category called Group SE to be established. Unfortunately, however,
within one Group SE filing there are a bundle of issues and thus the counts
over time are reduced not because there were necessarily any fewer
filings, but because some of them are being bundled together. At the same
time, another category, Class RE, which are renewals, also had a drop-off
in applications because renewals became automatic after 1991.2 We were
told by a Copyright Office official that in the office’s own analyses of
applications over time, Class RE, Class SE, and Group SE are usually
eliminated.

As suggested by the Copyright Office, we used one measure of
applications in our model that excluded these three categories. However,
in an effort to retain the data on serials, which constitute a large category
of applications, we made an estimate of the number of individual issues
contained within the average Group SE filing.3 Doing this allowed us to
estimate an alternative measure of applications that only eliminated Class
RE from the total number of applications filed each quarter.

For both measures of applications, we also reduced the original “receipt of
claims” data by the number of cancellations of applications that occurred
due to lack of full payment of the fee. Data on cancellations, available for
fiscal years but not quarterly, were obtained from the Copyright Office.

To summarize, there are two measures of applications that we used. The
first took the total number of applications in a quarter and subtracted the

2
 In particular, after the fee increase in 1991, many applications were received that included the
pre-1991 application fee. The copyright office followed up with letters asking for an additional $10 to
process the application. Many of those additional fees were never received. This is important because
it may indicate that the applicant was put off by the additional fee and chose to let the application be
cancelled. In order to take this into account, the total application counts were reduced by the number
of cancelled applications.
3
 To estimate the number of issues contained within a Group SE filing, we obtained information from
the Copyright Office on the revenues received for Group SE filings. Since each issue contained within
a Group SE filing still retained the $10 fee, we divided the revenue figure by 10 to get the number of
Group SE filings in each year. This allowed us to retain both Class and Group SE filings in the analysis,
but it should be noted that since Group SE filings still retained the $10 fee, including these applications
in the analysis poses some conceptual problems.



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                           Appendix XI
                           Regression Analysis of Copyright
                           Applications




                           number of Class SE, Group SE, Class RE, and cancelled (for nonpayment)
                           applications. The second measure only deleted Class RE and cancelled
                           applications but retained Class SE and Group SE by estimating the number
                           of issues contained within an average Group SE application.


                           There are five independent variables included in the model.
Measurement of
Independent Variables
Real GDP                   As noted earlier, the theoretical basis for including GDP is that one would
                           expect applications to rise and fall with the level of economic activity
                           since this may be a factor in determining how many copyrightable works
                           are developed. For example, during an economic boom, new magazines
                           might be established, more financing might be available for people looking
                           to write a novel, and so forth. Conversely, during a recession, newsletters
                           and magazines might discontinue publishing, fewer contracts might be let
                           for songwriters, and financing for creative projects might be more difficult
                           to obtain. Additionally, since some time might elapse from when projects
                           are begun until copyrights are filed, there could be some lag between the
                           economic activity that gives rise to copyrights. We found that a lag of 2
                           quarters was the best relationship. Therefore, the value of GDP entered into
                           the model is real GDP (in 1996 dollars) for the period 2 quarters prior to the
                           given quarter of each observation.


Application Fee            The application fee is the variable of interest in this model. Although
                           during the 11 years of this analysis there was only one nominal fee
                           increase, inflation was effectively reducing the real fee before and then
                           after the nominal fee increase. We used the implicit price deflator for GDP
                           to adjust the nominal fee into a real fee.


Seasonal Dummy Variables   Two variables were calculated with a value of 1 for a particular quarter
                           and 0 for all other quarters. The first of these was for the second quarter of
                           the fiscal year, and the second was for the fourth quarter of the fiscal year.
                           Thus, the first variable would measure whether applications were
                           systematically higher or lower during winter and the second would
                           measure any systematic difference during summer.




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                                     Appendix XI
                                     Regression Analysis of Copyright
                                     Applications




Surge Variable                       A dummy variable was established that had a value of 1 for the first
                                     quarter of the 1991 fiscal year—right before the nominal fee increase—and
                                     a value of 0 for all other quarters. This was needed because the fee
                                     increase was preannounced and, as such, could be expected to cause
                                     people to rush to file applications in anticipation of the higher fee. This
                                     dummy variable is intended to measure any effect on applications in the
                                     quarter before the announced fee increase.


                                     Table XI.1 presents the results of two specifications of the model:4 for
Model Results and                    specification one the measure of applications was used that eliminates
Interpretation                       Class and Group SE, and the second retains these categories. All
                                     continuous variables—the number of applications, the fee, and the
                                     GDP—are in natural logarithms.


Table XI.1: Regression Results for
Copyright Applications                                                                             Coefficient estimates
                                     Explanatory factor                                   Specification one           Specification two
                                     Fee, 1996 dollars                                              –.09 (–3.7)                –.11 (–4.8)
                                     2 quarter lag of GDP, 1996 dollars                               .92 (10.0)                  .73 (8.7)
                                     Dummy for winter quarter                                          .05 (4.4)                  .05 (4.9)
                                     Dummy for summer quarter                                       –.03 (–2.7)                –.03 (–2.8)
                                     Dummy for quarter before fee increase                             .13 (3.8)                  .12 (3.9)
                                     Summary statistics
                                     n                                                                       44                           44
                                     Adjusted R-square                                                      .80                           .77
                                     Note: t-statistics are in parentheses.

                                     Source: GAO analysis.



                                     We found all of the independent variables included in this model to be
                                     statistically significant and to have the expected effect. Moreover, results
                                     were reasonably stable across the two specifications with different
                                     measures of the dependent variable. In particular, our results indicate that
                                     if fees increase by 1 percent, applications would be expected to fall (the
                                     coefficient is negative) by about .1 percent. Similarly, if GDP rises by
                                     1 percent, applications would be expected to rise by somewhat less than
                                     1 percent. The dummy for the quarter before the price rise suggests that
                                     there was about a 12 to 13 percent rise in applications for that quarter


                                     4
                                     We tested for autocorrelation in this model and found only minimal correlation of the error terms.
                                     Results were affected only slightly by a correction for autocorrelation.



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Appendix XI
Regression Analysis of Copyright
Applications




because of the expected increase in the fee the following quarter. The
seasonal dummies show that applications are about 5-percent higher
during the winter and about 3-percent lower during the summer. Overall,
our findings indicate that GDP, or the general level of macroeconomic
activity, appears to be the driving factor in the level of copyright
applications over time. Changes in the real fee have a small but
statistically significant effect.

We also want to reemphasize that this model may not be highly predictive.
In particular, if we wanted to use the model to predict the effect of fee
increases on applications, the greater the fee increase we want to analyze,
the less valid the model would be in predicting the drop in applications
that will result. This is because the results of econometric models are best
used for analyzing the effects of small changes in the independent factors.




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Appendix XII

Comments From the Department of
Commerce

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




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Commerce




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                       Comments From the Department of
                       Commerce




Now on p. 3.
See comment 1.


Now on p. 3.
See comment 2.


Now on p. 3.
See comment 3.




Now on p. 3.
See comment 4.



Now on pp. 4 and 34.
See comment 5.


Now on p. 4.
See comment 6.



Now on p. 5.
See comment 7.




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                       Appendix XII
                       Comments From the Department of
                       Commerce




Now on pp. 16, 18,
26, and 28.


Now on pp. 5 and 29.
See comment 8.




See comment 9.




See comment 10.




Now on p. 5.
See comment 11.




Now on p. 8.
See comment 12.




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                  Comments From the Department of
                  Commerce




Now on p. 18.
See comment 13.




Now on p. 18.
See comment 14.


Now on p. 19.
See comment 15.




Now on p. 22.
See comment 16.




See comment 17.




Now on p. 22.
See comment 18.




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                  Comments From the Department of
                  Commerce




See comment 19.




Now on p. 23.
See comment 20.




Now on p. 23.
See comment 21.

Now on p.25.
See comment 22.



Now on p. 24.
See comment 23.




Now on p. 25.
See comment 24.




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                  Commerce




See comment 25.



Now on p. 26.
See comment 26.

Now on p. 26.
See comment 27.




Now on p. 27.
See comment 28.




Now on p. 28.
See comment 29.




Now on p. 29.
See comment 30.




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                  Comments From the Department of
                  Commerce




Now on p. 29.
See comment 31.




Now on p. 30.
See comment 32.


Now on p. 30.
See comment 33.




Now on p. 32.
See comment 34.


Now on p. 33
See comment 35.




See comment 36.




See comment 37.




                  Page 97                           GAO/RCED-97-113 Intellectual Property
Appendix XII
Comments From the Department of
Commerce




The following are GAO’s comments on the Department of Commerce’s
letter dated April 18, 1997.

1. In our draft report, we did not include certain miscellaneous fees that
were not specifically identified as either patent or trademark fees. Upon
further review, we agree with the Department that these miscellaneous
fees should be included as patent fees and adjusted the statistics in our
report accordingly.

2. We revised the executive summary as suggested.

3. We did not revise the report as suggested by the Department. We believe
the report sufficiently shows throughout that the current patent fee system
was established by law and that it is intentionally designed to recover most
costs through issue and maintenance fees. The report also notes in chapter
2 and appendix IV that U.S. patent fees are lower than those in Europe and
Japan.

4. We revised the executive summary to show that trademark income is
received prior to examination.

5. We revised chapter 3 to show that PTO does not accept incomplete
trademark applications.

6. See comment 1.

7. We did not revise the report because, as we have noted in earlier reports
on patent pendency, we believe our statistics—which include design
patents and calculate pendency for the entire fiscal year rather than the
end of the last quarter of the fiscal year—provide a better appraisal of
patent pendency than the statistics reported by PTO.

8. We revised the executive summary and chapter 2 to emphasize that the
additional fees charged are not commensurate with the additional
“pendency” created. Chapter 2 already made the point that it was not
possible to make a direct correlation between extension fees and the costs
of the delays.

9. We did not revise the report further than as discussed in comment 8
because chapter 2 notes that we are discussing only those delays for which
extension fees are charged rather than all delays.




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Comments From the Department of
Commerce




10. We did not revise the executive summary because the point made by
Commerce is that filer delays should decrease because of the change in
the patent term. Our point was that the fees charged do not discourage
filer delays.

11. We revised the executive summary to show that most trademark
revenues come from statutory fees.

12. We agree with Commerce and noted in our conclusions in chapter 2
that PTO is taking the correct approach with this study.

13. We revised the language in chapter 1.

14. We revised the language in chapter 1 as suggested.

15. We revised the language in chapter 1 as suggested.

16. We did not revise the introductory paragraph; however, these points
are made in the remainder of chapter 2.

17. See comment 16.

18. We did not revise this section of chapter 2 because it already notes that
it was the Congress that created different fees for large and small entities.

19. We did not revise this section of chapter 2 because the purpose here is
to show only that, after the change in the law, large entities would pay
twice the amounts charged small entities.

20. We revised chapter 2 to clarify that the surcharge fees are not excess
fees but a replacement for appropriated funds.

21. See comment 1.

22. We added a paragraph to chapter 2 to show that fiscal year 1995 had an
unusually large number of filings because of the change in the patent term
and that, correspondingly, filing fees were also abnormally high for that
year.

23. We revised the amount shown as revenues for large entities in chapter
2. However, we did not adjust the percentages shown for large and small




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Comments From the Department of
Commerce




entities because, after discussions with PTO officials, we determined that
the percentages we had included were correct.

24. We revised the language in chapter 2 as suggested.

25. We revised the language in chapter 2 to reflect Commerce’s comment.

26. We did not revise the percentage of maintenance fees paid by large
entities because we determined that the percentage we included in our
draft report was correct.

27. We revised the language in chapter 2 as suggested by Commerce.

28. We revised the language in chapter 2 to reflect Commerce’s comment.

29. We revised the language in chapter 2 to reflect Commerce’s comment.

30. See comment 8.

31. We revised the language in chapter 2 to reflect Commerce’s comment.
We did not include Commerce’s suggested language that most government
accounting systems cannot provide unit costs for particular services
because we do not have such information available to us on these other
systems.

32. We revised the language in chapter 2 as suggested by Commerce.

33. We revised the language in chapter 2 as suggested by Commerce.

34. We did not revise the legal citation. After discussions with PTO officials,
we determined that the citation shown in the draft was correct. Public Law
97-247 specifies that trademark fees be used exclusively for the processing
of trademark registrations and for other services and materials related to
trademarks. Public Law 102-204 modified this provision to allow
trademark fees also to be used to pay a proportion of overall PTO
administrative costs.




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Comments From the Department of
Commerce




35. We did not revise the language in chapter 3 as suggested because this
information is already included in the section.

36. See comment 1.

37. See comment 1.




Page 101                                  GAO/RCED-97-113 Intellectual Property
Appendix XIII

Comments From the Library of Congress


Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




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Comments From the Library of Congress




Page 103                                GAO/RCED-97-113 Intellectual Property
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                 Comments From the Library of Congress




See comment 1.




See comment 1.




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                 Comments From the Library of Congress




See comment 2.




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                 Comments From the Library of Congress




See comment 3.




See comment 4.




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                 Comments From the Library of Congress




See comment 5.




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                 Comments From the Library of Congress




See comment 6.




See comment 7.




Now on p. 37.




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                 Appendix XIII
                 Comments From the Library of Congress




Now on p. 37 .




See comment 8.




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                 Comments From the Library of Congress




See comment 9.




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                  Comments From the Library of Congress




See comment 10.




See comment 11.




See comment 12.




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                  Comments From the Library of Congress




See comment 13.




See comment 14.




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                        Comments From the Library of Congress




Now on pp. 45 and 46.

See comment 15.




See comment 15.




See comment 16.




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                  Comments From the Library of Congress




See comment 17.




See comment 18.




See comment 19.




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                  Comments From the Library of Congress




See comment 20.




Now on p. 48.
See comment 21.




See comment 21.




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                  Comments From the Library of Congress




See comment 21.




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                  Comments From the Library of Congress




See comment 22.




See comment 23.




See comment 24.




See comment 25.




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                  Comments From the Library of Congress




Now on p.44.
See comment 26.




See comment 27.




See comment 28.




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                  Comments From the Library of Congress




See comment 29.




See comment 30.




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Comments From the Library of Congress




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Comments From the Library of Congress




The following are GAO’s comments on the Library of Congress’s letter
dated April 16, 1997.

1. The Library notes that the Copyright Office obtains funding in three
ways: (1) fees set by law or authorized by law to be set by the Register,
(2) appropriations, and (3) deductions from royalty payments. We do not
agree that our report “oversimplifies the fee structure,” because we made
this same point in the report. We included table 4.1 for the specific
purpose of comparing fee revenues and appropriations since the last
statutory fee increase.

2. The Library emphasizes that it is the Congress which determines how
copyright fees should be set and, to date, has chosen to cover copyright
costs through a combination of fees and appropriations. As the Library
acknowledges in its comments, our report makes this same point. It is also
important to recognize that our report does not make any
recommendations to the Congress that fees be raised or that the Copyright
Office become self-sustaining. Rather, we point out that, in view of the
manner in which the Congress has chosen to fund the patent and
trademark processes—both of which were funded partially at one time by
appropriations—it may also wish to consider making the copyright
process self-sustaining through fees. Ultimately, the issue of how the
copyright process should be funded is a matter of policy that depends on a
number of factors and requires a decision that only the Congress can
make.

3. We do not suggest that the Copyright Office has been remiss in “pressing
for full cost recovery” as the Library states in its comments and have
added information showing the Copyright Office’s support for a fee
increase. As we note in our response to comment 2, however, we believe
this is an issue for the Congress. We discuss the Copyright Office’s
documented positions on fee increases since the last statutory fee increase
because we believe the Congress in its own deliberations should be aware
of the positions the Copyright Office has taken on the need for fee
increases, the rationales for these positions, and our evaluation of these
rationales. Thus, while we revised the report to show the Copyright Office
has supported the need for fee increases, we also believe it is important to
discuss (1) the opportunity to raise fees to cover inflation in fiscal year
1995 and (2) the Register’s testimony on S. 1961 in September 1996. We
also cite the Register’s position on this issue as discussed with us in
March 1997 and provide additional information based on our discussion
with Library officials in April 1997.



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4. Our report makes repeated references to the legislative history of
copyright fees and emphasizes that the structure now in place was
established by the Congress and that the Congress chose to fund the
Copyright Office with a mixture of fees, royalty payments, and
appropriations in the past. The focus of our report is on what has occurred
since the last statutory fee increase went into effect in 1991. We revised
the language where appropriate in the report to address this point.

5. We agree that the legislative history for the most recent statutory fee
increase indicated a congressional intent to continue funding the copyright
process through a combination of fees and appropriations. However, as
our report illustrates, much has changed since the last statutory fee
increase, including PTO’s having become totally dependent on fees. Our
report notes only that, in light of these recent events, the Congress may
wish to reconsider the manner in which the copyright process is to be
funded in the future.

6. See comments 4 and 5.

7. See comments 4 and 5. We are not questioning the Copyright Office’s
actions related to fee increases in 1976, 1982, 1984, 1987, and 1991, when
they recognized and supported the need for fee increases. Again, we focus
on what has happened since the last statutory fee increase. We have added
information showing that the Copyright Office currently supports a fee
increase. In discussing the decision on increasing fees for inflation, our
report notes that the Register raised fees for special services. We also
point out that the Copyright Office has set a fee of $270 for full-term
storage of published materials and, in fact, we use this in our discussion of
the high costs of storing unpublished materials without charging an
additional fee.

8. The Library says that “only once” did the Register choose not to raise
statutory fees for inflation. As our report states, this one time was the only
time the opportunity has arisen since the last statutory fee increase.
According to the Copyright Office’s own study of the need for an inflation
adjustment, a fee increase to cover inflation would have been
cost-effective, yet the Acting Register chose only to raise certain
discretionary fees. The Library commented in footnote 12 that the report
did not note that the fee increase, if made, would not have “made fees
come close to recovering costs.” We did not make this statement because,
by its very nature, an inflation adjustment could not make the Copyright
Office self-sustaining if it were not self-sustaining before. Our point in this



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section of chapter 4 is not that an inflation adjustment would have made
the Copyright Office self-sustaining but rather that the increase would
have kept the ratio of fees to costs closer to that established by the
Congress at the point of the last statutory fee increase.

9. Our report does not attempt to determine the exact cost of the copyright
process but rather uses the costs that the Copyright Office and the Library
use in their own documents, including budget submissions. We recognize
that the Library may be providing some services to the Copyright Office at
no cost and that the Copyright Office may be incurring costs that are not
directly related to the copyright process. For purposes of this report, we
consider the costs of the copyright process to be those now being covered
by copyright fees and Copyright Office appropriations. We also consider
these costs as the Copyright Office is now configured, not as it might have
been configured under the provisions of S. 1961. To become self-sustaining
as now configured, the Copyright Office would have to raise fees to a level
that would at least cover appropriations of the Copyright Office.

We also note in our report that the Copyright Office is planning to initiate
a study to determine the costs of the copyright process and the fees that
would be necessary to recover these costs. The results from such a study
should be beneficial to the Congress if it does decide to consider a
statutory fee increase.

10. See comment 9. Again, the purpose of our report was not to discuss the
merits of an agency such as that proposed by S. 1961 but rather to show
that (1) the scenario presented in the hearing was the worst case and
(2) the costs and fee increases needed could change significantly under
various assumptions. We recognize that, if an agency such as that
envisioned under S. 1961 had been created, decisions would be needed on
how to handle certain items now being provided to the Copyright Office at
no cost. However, this would also seem to be true—as the Library notes in
comment 11—for the $13 million in free materials being provided to the
Library by the Copyright Office each year. Thus, if accounting adjustments
are necessary—a point not necessary for the discussion here—it seems
that they would have to be made for both the Library and the Copyright
Office.

11. See comment 10. Our report does not discuss the value of deposits
acquired through the copyright process because this factor—while
certainly of importance to the Library and the nation as a whole—is not
relevant in determining how copyright fees are to be set. Our report points



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out that a copyright fee increase should not materially affect the Library’s
ability to obtain free copies of materials for its collections because (1) by
law, the Library still has access to anything that is submitted for copyright
registration or is published in the United States and (2) it rarely takes any
unpublished materials for its collections.

12. Our report does not discuss the fees necessary for recovering costs to
the government as a whole for the reasons discussed in our response to
comments 9 and 10. Our report also does not discuss these other costs as
they relate to patents and trademarks. For purposes of this report, we use
the costs necessary to fund the agencies as now configured, using the
agencies’ own documentation for these costs. The issue of whether there
are other intellectual property costs—for example, in areas such as treaty
negotiation, judicial proceedings, Customs protection, etc.—is beyond the
scope of this report. Also, our report provides reasons why we disagree
with the Register’s estimates. We point out that, while these estimates
were presented as a likely outcome of the Copyright Office’s becoming
self-sustaining under S. 1961, the Register did not disclose that they were
in fact a worst-case scenario and that the Copyright Office had prepared
other estimates that would lead to other outcomes under other
assumptions. In addition, as noted in the report, we do not believe some of
these costs were necessarily reasonable even under the scenario
presented. For a discussion on the Library’s point on our regression
analysis, see comment 15.

13. Our report does not discuss “three- or four-fold increases” in fees as
reasonable if the Copyright Office were to become a part of an IPO, as
stated by the Library in its comments. The proposal to make the Copyright
Office part of the IPO was withdrawn and, to our knowledge, is not now
under consideration. Our report does not discuss “increasing fees by more
than 100%” because both the Register and the Congressional Budget Office
(CBO) estimated that the Copyright Office could become self-sustaining as
now configured by an approximate doubling of fees.

14. We address the cost projections for S. 1961 in our report because
(1) these were the projections used by the Register in her prepared
statement for the hearing before the Senate Committee on the Judiciary
and (2) S. 1961 was the only proposal to make the Copyright Office
self-sustaining that had been made—and on which the Copyright Office
had taken a published position—since the last statutory fee increase went
into effect in fiscal year 1991. In addition, during the discussion period
following the Register’s testimony, the Chairman questioned the



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projections and noted that he had asked GAO to study the fees issue. The
only fee projection the Register made was for a fivefold increase—the
worst-case scenario developed by the Copyright Office. We believe that it
is important for the Committee to know that the Copyright Office had
developed 12 separate scenarios that had different outcomes using
different assumptions and that the scenario presented at the hearing was
not only the worst-case scenario but also included costs we consider
questionable. Otherwise, the Committee could be left with the impression
that the fivefold increase is a likely scenario for making the Copyright
Office self-sustaining. As we discuss in the report, this is not the case, as
CBO and the Register herself later said that, as presently configured within
the Library, the Copyright Office could probably become self-sustaining by
doubling current fees.

15. Based on the Library’s comments, we believe that it used our model
inappropriately. The report states that our regression analysis indicates a
decrease in applications of about 10 percent in the first year if fees were
doubled but also that a regression model such as the one we used tends
not to be as highly predictive at this high a level of fee increase.
Consequently, the regression analysis would be even less predictive at
even higher levels of fee increases. As noted by the Library and our report,
there is no precedent for fee increases beyond 100 percent.

In discussing the effects of a fee increase on applications, we also believe
it is important to consider what applications would be affected as well as
the impact on the Copyright Office and the Library. As noted in our report,
for example, Copyright Office officials said that some types of applications
would be affected more than others by a fee increase. After the most
recent statutory fee increase, applications for unpublished works
decreased at a rate higher than published works. This would seem to limit
any potentially harmful effects on the Copyright Office and the Library
because (1) a decrease in unpublished submissions would reduce the
Copyright Office’s workload and storage costs and (2) the Library rarely
takes unpublished submissions for its collections. Similarly, according to
Copyright Office officials, higher fees might cause authors and composers
to submit works as collections rather than individual works. This would
appear to reduce the Copyright Office’s workload without reducing the
works available to the Library.

16. We agree that projecting revenues depends on being able to project the
number of applications and that cost recovery depends upon the public’s
being willing to pay the necessary fees. However, this is true of any



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process—including patents and trademarks—where costs are recovered
through user fees. Thus, it seems appropriate for the Congress to consider
what it wants to achieve through the process and who should pay. The
user then must determine whether the benefits are worth the costs. The
real issue here is that, if fees are raised to a level necessary to make the
Copyright Office self-sustaining, there may be uncertainties in projecting
the fees that will be necessary initially because it may be difficult to
predict the behavior of applicants. However, this also would appear to
have been an issue for PTO as well—whose costs and fees are much
higher—when it became self-sustaining. We do not believe that this
concern should be a bar to the Congress’s consideration of funding the
Copyright Office through fees.

17. See comment 16.

18. Our report notes that the Register of Copyrights now supports making
the copyright process self-sustaining within the Library. Furthermore, we
do not use the term “official policy” in discussing the management report
cited in the Library’s comments. However, we believe that we are correct
in citing the findings of the management report in our own report. The
official identified in the Library’s comments as “an advisor to the
Librarian” was in fact a senior Library official and former Acting Register
of Copyrights who was detailed by the Librarian to conduct the review of
the Copyright Office’s operations. The report was provided to us by the
advisor himself and is identified on its face as a Library of Congress
document. There are no references in the report to its being a draft, a
personal opinion, etc. The report was used in a discussion we held with
Copyright Office officials and the advisor as containing the positions of the
Library, and we were given no caveats on its use. We have clarified our
report to show that the management report is an internal Library of
Congress document.

19. The Library states in its comments that the “implication in the report
that full-cost recovery would be met if Congress’s annual appropriation of
$10 million could be eliminated is simplistic” and that there are broader
issues at stake regarding who should pay costs of a public nature. We
believe that the message in our report is accurate as presented: While the
Copyright Office may “support the goal of moving toward full-cost
recovery,” it nevertheless has opposed its current costs being totally
recovered through fees. We understand the Library’s position that there
are other costs allocated to the Copyright Office that are not directly
related to the registration process; however, we note that this is also an



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issue for the patent and trademark processes—where costs and fees are
much higher.

Also, the Library’s comments raise other issues. For example, it appears
that there may be questions regarding what costs should be allocated to
the copyright process. We agree that, in order to determine whether
copyright costs should be recovered through fees, the costs actually
attributable to the copyright process within the Library should be
identified. Thus, if (1) the Library is providing services to the Copyright
Office that are covered by Library-specific appropriations and (2) the
Copyright Office is providing services under its own funding that are not
directly related to the copyright process, there may be a need for some
reallocation—an issue beyond the scope of this report. It is our
understanding this issue will be addressed in the Copyright Office’s
planned study of costs and fees that, according to Library officials, will
help the Copyright Office determine what costs should be charged to the
copyright process and what costs should be recovered through fees. In the
interim—and for the purposes of this report—we assumed the costs of the
Copyright Office were the costs of the copyright process within the
Library. Consequently, to become self-sustaining as now configured, fees
would have to be increased to cover amounts now covered by Copyright
Office appropriations.

Ultimately, deciding what should be recovered through fees is a matter of
policy that only the Congress can determine. As noted by the Library in its
comments, the Congress in the past has chosen to fund the copyright
process through a combination of fees and appropriated funds. Our point
is that—given the direction the Congress has now taken with patent and
trademark fees as well as proposals by others that copyright fees be
raised—the Congress may wish to consider this issue again.

20. See comments 12 and 19.

21. See comment 11. Our report notes that the Library normally takes only
copies of published materials for its collections. Consequently, the
Library’s collections should not suffer from a fee increase because, even if
there is a decrease in applications, the Library still would have access to
all materials that are submitted for registration and is entitled by law to
free copies of all works published in the United States even if not
submitted for registration. In its comments, the Library says that it does
not believe persons would comply with the provisions of section 407 to
provide two copies of unregistered publications. We have no way to



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confirm or dispute this belief. However, if there is a problem, it would
require the offending party to decide not to publish, not to seek
registration, or to ignore the law and face penalties. Ultimately, the
question is to what extent eliminating the risk is worth the cost, and again,
this is an appropriate matter for the Congress to consider.

22. The Copyright Acquisition Division may be an example of a cost to the
Copyright Office that is not directly tied to the copyright process if, as
noted in the Library’s comments, it “exists for the purpose of requesting or
demanding deposits not sent in voluntarily that are identified as desirable
for the Library’s collections.” If not related to the copyright process, this
cost might be allocated to the Library, thereby reducing by about
$1 million the copyright fees that would be necessary to recover costs.

23. Our report does not intend to imply that the Register “misled the
Senate Judiciary Committee.” Rather, as discussed in our report, we do
not believe that the fee projections were presented in the proper context.
If, as stated in the Library’s comments, the Register “has an obligation to
present to the Congress the worst-case scenario that could result from
their proposed legislation,” we believe that the Register also had an
obligation to disclose that it was in fact the worst-case scenario and that,
under different assumptions, other less costly scenarios could be
projected. Instead, her written testimony stated, “(O)ur preliminary
analysis indicates that, if our operational costs otherwise remained the
same, becoming self-supporting outside of the Library would entail a
five-fold increase in fees (from $20 to the $100 range).” During the
discussion period following the delivery of the prepared statement, the
Chairman questioned the Register concerning her use of the worst-case
scenario among many different possibilities. The Chairman also
questioned why the Register found the most drastic of all estimates
provided by the Copyright Office study to be the minimum. As noted
above, the Chairman also told the Register he had asked GAO to look into
the fees issue.

24. See comment 23.

25. We do not question these other scenarios in the report because they
were not presented at the hearing. We do not accept them as fact but note
only that the Register made no mention of them.

26. See comments 23, 27, 28, 29, and 30.




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27. We take no position on the merits of S. 1961. However, if the Copyright
Office had problems with the proposed legislation such as the one
cited—having each of the three agencies cover one-third of overhead costs
when their overhead-related costs would vary—this is the very type of
issue that should be surfaced in a hearing such as the one held. In fact, we
believe that all of the issues raised in the Library’s comments regarding the
effect of a fee increase or organizational move on applications, costs, the
Library’s collections, accounting standards, etc. were appropriate issues to
be raised. This is why we believe the Register should have presented cost
projections under various assumptions rather than stating that fees would
increase fivefold.

28. In our report, we note not only that the Register presented the
worst-case scenario at the hearing but also that some of the costs and
application estimates used in the scenario were questionable. As one
example, we noted that the projection included moving into new space at
a cost of $32 per square foot and did not address the savings that might be
possible if the Copyright Office were to remain located in Library space at
no cost. In its comments, the Library said that, to its knowledge, housing
an executive agency within a legislative entity is unprecedented in the
history of the U.S. government and that doing so would contradict
Statement of Federal Financial Accounting Standards number 4. The
Library said that to “expect the Copyright Office to contemplate such an
unprecedented move” was unwarranted.

Our report does not say we expect the Copyright Office to contemplate
remaining in Library space at no expense nor do we believe the Copyright
Office should contradict federal cost-accounting standards. Again, our
concern is that these issues should have been raised in a proper context at
the hearing instead of simply stating fees would have to increase fivefold.

We do not take any position on whether the Copyright Office could remain
in Library space if it had become a part of the IPO. This issue is moot,
because there is no current proposal to make the Copyright Office part of
a wholly-owned government corporation. However, the Congress could
have allowed the Copyright Office to be housed rent-free at the Library if
the Congress wanted to do so, particularly considering the Library was to
continue to receive free materials worth $13 million a year. Similarly, the
Congress could have provided for the Library’s and the Copyright Office’s
sharing other items, such as computer systems. Again, the issue is that we
believe the Register should have placed her projections within a better
framework.



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Concerning cost-accounting standards, our report does not suggest—nor
do we in any way support—the Copyright Office’s not following applicable
standards. Any discussion of specific cost-accounting standards is beyond
the scope of this report.

29. Our point is that, if applications decrease, workload should decrease.
We do not suggest the Copyright Office would have been able to decrease
staffing but rather note that this issue was not discussed when the Register
presented her projections on the impact of a fee increase at the hearing.

30. See comment 28.




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Appendix XIV

Major Contributors to This Report


                       Allen Li, Associate Director
Resources,             Amy D. Abramowitz
Community and          Frankie Fulton
Economic               John P. Hunt, Jr.
                       Mitchell Karpman
Development Division   Deborah Ortega
                       Paul Rhodes
                       Mindi Weisenbloom




(307746)               Page 132                       GAO/RCED-97-113 Intellectual Property
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