Patent Office Has Funds to Stay Open Three Months Amid Shutdown

The US Patent and Trademark Office can continue operating for about three months if the government shuts down because Congress fails to enact funding legislation by Saturday night’s deadline.

The agency would draw from its $1.04 billion operating reserves, which should cover about three months of patent operating expenses and slightly more than four months of trademark operating expenses, according to a submission it made to Congress in March. That would allow for full staff and operations to continue—at least temporarily—including at the administrative tribunals that hear challenges to patent validity and resolve trademark disputes.

The PTO is self-funded mostly through patent and trademark filing fees, but it is still subject to the annual appropriations process. Congress allocates those collected fees to the office through the annual Commerce-Justice-Science spending bill. For fiscal 2023, the office received appropriations equaling its full fee collection estimate of $4.1 billion, which fully offset its spending and funded its reserve balance.

The PTO stayed open during the most recent government shutdown, which lasted 35 days from December 2018 to January 2019. But some patent attorneys began to worry about the office’s ability to function as the appropriations lapse wore on.

“At the very end of it we started to think, ‘Well if this goes on for much longer, maybe they will have to stop,’ said Jonathan Stroud, the general counsel of Unified Patents. “But it would have been a historic shutdown.”

The expected stability through a short-term shutdown represents a change from the PTO’s past.

Because the PTO’s fee revenue and other income have often exceeded its total estimated spending needs, Congress in past decades diverted part of the revenue to fund other government spending. Former PTO Acting Director Joseph Matal said there is “currently nothing in the law that would prevent appropriators from again diverting fees.”

“While the America Invents Act originally included a provision that would take the USPTO out of the appropriations process and prevent fee diversion, that provision was stripped out of the bill,” he said. During the passage of the AIA in 2011, however, he said, appropriators “made a commitment that they would not divert USPTO fees going forward, and they have stuck to that ever since.”

“If that were to go away, then a shutdown would matter more because then the money is kind of technically going directly into the general” government funding, Stroud said.

A PTO spokesperson didn’t respond to Bloomberg Law’s request for comment.

Practitioners Unconcerned

Matal, now a partner at Haynes & Boone LLP, said none of his clients have asked how a shutdown might affect any work involving the patent office because “everyone’s used to the USPTO being able to weather any kind of shutdown.”

The reserve fund and other PTO practices “have now been in place for over a decade, and it looks like the agency has found its way out of these past messes,” Matal added.

Stroud said the Patent Public Advisory Committee, PTO directors, and the agency’s chief financial officer have “planned this into the budget moving forward and have increased the amount of the reserve fund on purpose.”

Unified Patents is a membership organization that frequently appears before the Patent Trial and Appeal Board, and is a party in one of the 45 PTAB hearings scheduled for October. It isn’t expecting a shutdown of PTO services, according to Stroud.

“I don’t think examiners or firms have any contingency plans in place, but if you get 60 days into a shutdown, that’s when things start getting serious,” he said.

Rulemaking Process

Last week Director Kathi Vidal said the patent office is “getting close” to issuing a narrowed notice of proposed rulemaking regarding changes to the PTAB and releasing additional requests for comment on artificial intelligence issues. A shutdown may affect other agencies that play a role in the process.

The Office of Information and Regulatory Affairs, which reviews agencies’ draft rules, was affected by furloughs during the 2019 shutdown, holding up proposed rules. And the operations at the Federal Register, which publishes notices like the Copyright Office’s recent request for comment on AI protections, will publish documents from funded agencies only “if delaying publication until the end of the appropriations lapse would prevent or significantly damage the execution of funded functions at the agency,” according to its website. If an agency is unfunded, its publication must be necessary “to safeguard human life, protect property,” or “provide other emergency services consistent with the performance of functions and services exempted under the Antideficiency Act.”

Staffing

If a shutdown persists to a point where the reserve can no longer sustain full operations, most PTO employees would need to be furloughed, according to the 2021 contingency plan for the most-recent shutdown threat. The department hadn’t released updated guidance at the time of publication.

While the PTO would continue collecting fees after the current fiscal year ends, it wouldn’t be able to use that funding without authority from Congress.

The trademark and patent reserve funds are separate and may expire at different times, so it’s possible that one aspect of PTO operations would continue normally even if the other shuts down.

Certain patent employees would be exempt from furlough, including staff “charged with protecting mission critical intellectual property,” which includes employees who review foreign activity, who process and review all newly filed patent applications, and who maintain critical licensing and review functions.

“These positions ensure that incoming applications are complete and meet filing requirements, thereby serving to protect patent filing dates,” the 2021 plan said.

Some PTAB employees would be exempt as well. They would manage ongoing contested cases that require orders signed by a judge to preserve party rights, evidentiary rulings for depositions and other discovery proceedings, and contested proceedings scheduled before the shutdown.

The PTO’s regional offices in Detroit, Denver, Dallas, and San Jose would close for the duration of the shutdown, based on the 2021 contingency plan.