As Congress continues to debate the federal budget, patent stakeholders are justifiably concerned that Direct Kappos’ efforts to improve the U.S. patent examination process, enhance patent quality, and reduce the backlog of unexamined applications will be thwarted by inadequate funding. Indeed, if Congress continues to divert hundreds of millions of the USPTO’s user fees to the general fund, any vision of an innovation-driven, patent-backed growth in the U.S. economy will quickly fade away.

The Continuing Resolution

Earlier this month, the House Appropriations Committee proposed a “continuing resolution” to fund the federal government for the rest of fiscal year 2011 (through September 30, 2011). This continuing resolution would hold the USPTO (and many other federal agencies) to its FY 2010 funding level, which was about $2.0 billion. (The current continuing resolution is set to expire on March 4.)

Keeping the USPTO’s spending at its FY 2010 level for the remainder of FY 2011 might not sound too bad, until you remember that the USPTO is funded by user fees that exceed its appropriations. In 2010, Congress diverted over $200 million in USPTO fees to the general fund.

The USPTO expects to generate more revenue in FY 2011, due to increased patent and trademark filings and higher fees. Based on its estimates, the USPTO had requested a budget of $2.32 billion for FY 2011. Holding the USPTO to its 2010 appropriations for FY 2011 means that over $300 million in user fees would be diverted away from the USPTO.

The FY 2012 Budget

Even as the federal government faces shutdowns if the FY 2011 budget is not nailed down by March 4, President Obama has put his 2012 budget on the table. As summarized in a USPTO press release, the budget request for the USPTO is set at $2.71 billion, which corresponds to the USPTO’s estimated fee collections for FY 2012.

The USPTO needs these funds to continue its operations and carry out the objectives of its 2010-2015 Strategic Plan. In particular, the requested FY 2012 budget includes line-items for:

While individuals can quibble over the specific amounts allocated to specific objectives, most will agree that the USPTO needs increased spending authority in order to address the quality and backlog problems that stakeholders have been complaining about.

Can Patent Reform Solve The USPTO’s Budget Woes?

While I have reservations about giving the USPTO some additional authority—such as substantive rulemaking authority—I can’t think of a good reason why the USPTO should not have more fee setting authority and, perhaps more importantly, be able to keep (and spend) the full amount of the fees it collects. Perhaps because this “free money” is too tempting for Congress to let slip away, neither of these provisions have gotten much attention or gained much traction in the ongoing patent reform debate. Still, if Congress is serious about bringing meaningful reform to the U.S. patent system, it should eliminate its own contributions to the USPTO’s problems by permanently disavowing fee diversion.