SECRETARY EVANS TESTIMONY

FROM THE HOUSE APPROPRIATIONS HEARING

Question:

Representative Wolf cited a February Amnesty International report on torture in China. Rep. Wolf noted that the report cited at least 74 J.S. companies as being involved in the manufacture, distribution, supply, or brokering of devices used to inflict torture. asked Secretary Evans to look into changing the Department of Commerce's policy regarding the export of torture devices.

Rep. Wolf

Answer: The Department has a policy of carefully reviewing proposed exports of items, such as handcuffs, that have legitimate crime control uses but could be misused for torture. Such items require a license to virtually all countries and are prohibited from being exported to China. The Amnesty International report does not allege that devices from the United States are being used for torture in China. It

does note that China, along with many other countries, is a supplier of such items. The report does note recent "improvements" in the Department's monitoring of the export of such items.

Question:

Representative Serrano asked why the Department had not issued regulations implementing the Trade Sanctions Reform and Export Enhancement Act by the end of February as required by that law. In addition, on Page 34, lines 749-757, Rep. Serrano stated that the law authorized the export of food and medicine to Cuba contrary to the Secretary's understanding of the law.

Answer: The Trade Sanctions Reform and Export Enhancement Act does not override the provisions of the Cuba Democracy Act regarding the export of medicines and medical devices to Cuba. Such items will continue to require a license for export to Cuba. Applications for such exports are reviewed on a case-by-case basis and will generally be approved unless one of the restrictions set forth in the Cuban Democracy Act or in the Department's Export Administration Regulations applies.

Question:

Representative Wolf asked the Secretary if the Department has received from the Department of Defense a list of Communist Chinese companies operating directly or indirectly in the United States as required by the FY 2001 Defense Authorization Bill.

Answer:

The Department has not yet received the list required by Section 1233 of the National Defense Authorization Act for Fiscal Year 2001 from the Department of Defense.

QUESTIONS SUBMITTED BY CHAIRMAN FRANK WOLF

Patent and Trademark Office

QUESTION: The American Inventor's Protection Act made several changes to the patent system, including introducing new timeliness standards. What actions is PTO taking to ensure it is processing patent applications within the established deadlines? What is the implementation and cost status of these deadlines?

ANSWER: The USPTO is tracking all of the new timeliness standards. The ability of the agency to timely process applications is directly tied to hiring and retention of patent examiners. I will be meeting in the near future with the USPTO on a business plan to address their priorities, including meeting processing time targets.

QUESTION: Have any patents been extended due to PTO processing delays? If yes, how many were extended and for what cause. Please provide data by fiscal year.

ANSWER: The Patent Term Adjustment provisions only impact patent applications with effective filings dates on or after 5/29/2000. Through May 8, 2001, 4,215 patent have issued with effective filings dates on or after 5/29/2000. Only 152 (less than 4%) of those patents received Patent Term Adjustment, and they averaged 25 additional days of patent term. All of those patents received Patent Term Adjustment based on the USPTO exceeding 4-months from issue fee payment to patent grant.

QUESTION: In addition to the request for increased salary rates for patent examiners, what other action has PTO taken within the past 2 years to increase hiring and retention for both patent and trademark examiners?

ANSWER: The USPTO has taken a number of actions related to pay, work place flexibility, and recruitment. In regard to pay, the Agency has used recruitment bonuses and award systems for employees. The USPTO has also provided their employees with state-of-the-art computer systems. The Trademark Organization has implemented a successful work-at-home program and a new productivity incentive award program. The USPTO has also implemented a variety of alternative work schedule programs, tuition reimbursement for law and technical classes, and providing the maximum transit subsidy.

In regard to recruiting, the Agency has aggressively recruited at numerous universities, held job fairs, contacted downsized companies, and utilized referrals and the Internet to attract qualified candidates.

QUESTION: What is PTO's anticipated patent examiner staffing level for fiscal year 2002 and is this staffing level adequate to process patents within the specified time requirements?

ANSWER: Based on the President's Budget level for FY2002, the USPTO anticipates the FY2002 end-of year patent examiner staffing level to be at approximately 2,950. I will be meeting with the USPTO on a business plan to address their priorities, including meeting processing time targets and developing a hiring plan that will impact the staffing levels.

QUESTION: How many new patent examiners can PTO effectively train and absorb annually? What is the basis for the estimate?

ANSWER: Based upon their recent experience in hiring a large number of new examiners in FY1998 and FY1999, the USPTO believes that we can absorb approximately 25-30% of the beginning-of-year patent examiner staff in any one

year.

QUESTION: What factors, other than patent examiner staffing, affect pendency rates?

ANSWER: "Total Pendency” is defined as the total time it takes from the filing of a patent application until the application either issues as a patent or is abandoned. Other than patent examiner staffing, the largest factors that contribute to Total Pendency are the backlog of unprocessed applications in any particular technology, the growth in filings in any particular technology, and the time that applicants take to respond to Office actions.

QUESTION: In fiscal year 1999, PTO set a goal of full electronic filing and processing for patents and trademarks by fiscal year 2004. Is PTO on schedule for meeting its electronic filing goals by fiscal year 2004? If not, why? What are the estimated annual cost savings attributable to electronic filing?

ANSWER: The USPTO has implemented electronic filing systems in both Patent and Trademarks. In regard to full-electronic or "paperless" processing, as part of my meeting with the USPTO on a business plan we will also be discussing their plans for paperless processing as the original plans and time lines have been revised. I expect that the USPTO will be developing some form of paperless application processing in the FY2004 time frame and I will be working with them on this plan.

QUESTION: Please describe the information technology efforts focused on decreasing examiner processing time, the implementation time frame for those systems, and the projected impact they will have on examiner processing time.

ANSWER: The USPTO has been a front-runner in their use of IT. The Agency is exploring a number of ways to allow examiners to focus more time on substantive examining and therefore be more productive in their time. The USPTO is out-front in the use of work-at-home programs, and these programs rely on sophisticated automated systems to allow examiners to have all of the electronic search capabilities and support systems they have in the Office. The USPTO has developed state-of-the-art automated search systems that have allowed examiners to do a more complete and thorough search. They have implemented IT systems to gain efficiencies in certain administrative parts of the application process, including pre-examination and publication, and are able to direct resources from those areas to support the examination process.

However, the fundamental part of the job of patent examining is a technical and legal analysis that leads to a conclusion of patentability. Similar to a judicial analysis done by courts, such complex issues and proper analysis simply cannot be automated.

QUESTION: In relation to fee collections, are the various patent and trademark fees set at an appropriate level to recover actual processing costs? Are some types of patent and trademark applications more costly to process than others, e.g. does a biotechnology patent application generally require more hours to process than a mechanical patent application? Should patent fees vary by type of application to reflect actual processing costs?

ANSWER: Some types of applications require more processing time than other types. The USPTO is currently conducting a study of its fee structure as required by the American Inventor's Protection Act of 1999 and these issues will be addressed in that analysis.

QUESTION: Does PTO foresee a decline in applications and resulting fee receipts in the near future and if so, how will this impact PTO's operations and budget?

ANSWER: Based on research and development expenditures, which is the principal driver of patent application filings, and input from the Patent Public Advisory Committee, we do not foresee a decline in patent filings. Patent-related revenues account for approximately 85% of the overall USPTO revenue.

In Trademarks, however, there has been a decline in filings as a result of the unforeseen recent economic downturn. There is a striking correlation between Trademark application filings and the NASDAQ index in recent years, and Trademark application filings experienced a similar volatility as the high tech sector. Our estimate is that Trademark revenue will likely fall by about 15%.

Overall, the USPTO now projects a slightly lower revenue for 2002 than estimated in the President's Budget.

Bureau of Economic Analysis (BEA)

QUESTION: Mr. Secretary, your budget includes an increase of $6.5 million for increased improvement to capture more accurate Gross Domestic Product (GDP) statistics. The dramatic increases in the U.S. economy due to technology and e-commerce have to be captured and disseminated to ensure accurate predictions of our economy. Would the requested increase ensure better statistics? When would we see the results?

ANSWER: Yes, the improvements funded by this increase will result in a more complete and accurate picture of economic activity and will provide policymakers with better data on which to base monetary policy, tax revenue estimates, social security projections, and other critical decisions. The improvements will be introduced over a period of time, but the results will begin appearing in 2003.

The "new economy," with its wide range of new products and services and types of transactions, has created significant measurement problems for the Bureau of Economic Analysis (BEA). The requested increase in funding will enable BEA to move forward with its plans to improve the accuracy and coverage of GDP by developing price and output indexes for new and hard-to-measure economic activities, especially in the service and high-tech areas where there are critical gaps in coverage. These areas include telecommunications goods and services, insurance, investment services, medical equipment and services, and educational services. BEA will also focus on developing better measures of employee compensation (including stock options, bonuses, and employer-provided benefits), expanded surveys of international trade in services, and new measures of financial derivatives. With these types of improvements, the GDP accounts will be able to keep pace with the rapidly changing economy. Without them, the quality of GDP and other vital economic measures will deteriorate, which will have a severe impact on the decision makers who rely on this data.

Bureau of Export Administration (BXA)

QUESTION: Your budget includes an increase of $1.6 million for the redesign and replacement of the Export Control Automated Support System (ECASS). This computer system is intended to provide connectivity with the Department of State and BXA to ensure no adverse national security issues arise relating to export licensing. Does the Department of State have sufficient resources in place to make this system operate as intended?

ANSWER: A redesigned ECASS will improve connectivity and data exchange with