But what the Patent Office does, it eliminates, say, about 30 percent of the patent applications because the inventions are not patentable. In most cases, in the remaining 70 percent, the claims are trimmed down to a more reasonable scope. In my judgment, these are great contributions to the certainty of the patent system, and without this, such as in the case of deferred examination system, we would find and experience a number of undesirable results.

I would point out that the European countries that are now developing European patents, are planning on having basically a full examination system, and I know from personal discussions with people such as Dr. Haertel, head of the German Patent Office and the EEC study group, that they feel that the best system is the full examination system.

Moving on to the matter of patent fees and maintenance fees, I would point out that I came in as Commissioner of Patents at the time, just about the time the last fee bill came into effect, and I remember the discussion. There were some groups that said that the patent applicant should not pay any fees. Other groups said that the applicant should pay fees to recover 100 percent of the cost of running the Patent Office, and finally legislation was passed say 65 to 75 percent. But I think everyone recognized that this was sort of a compromise between the different views, sort of picking up a number out of the hat.

So I thought that probably in another 5 years or so, the subject would come up again, and I thought that we ought to try to approach it more logically. So a study was started while I was Commissioner to try to analyze the different operations that we conducted to try to find out who should really pay for these, and it came out that there were certain operations which really a patent applicant should pay for. There were others that were sort of mixed, that the patent applicant and the public should share these. Then there were certain operations clearly for the benefit of the public, and that these should not be paid for by the applicant.

The overall result of the study indicated that about that time fees should recover about one-half of the total costs of operating the Patent Office. Somehow I think that probably the results of that study would still apply to today's situation and the Patent Office fees should probably recover about half of the total cost.

I guess that recovery is now down to about 40 percent, so that on the basis of this study, I would say that it was maybe time to consider a somewhat modest increase in Patent Office fees.

However, if we talk in terms of substantial increases such as have been mentioned in the proposed legislation, the fees could increase 50 to 100 percent, and if this became necessary, I think that the fees, the filing fees, the issue fees, would be getting rather burdensome, particularly on small companies and independent printers.

I have attached to my statement a graph which was printed in the February Issue of Action, the journal of our association, and to me. the interpretation of these figures indicates that the percentage of patents issued to independent inventors was leveling off in the early 1960s for mainly about 4 years ago, and that when the fee bill came in, suddenly there was quite a significant dropoff.

23-932-749

So, my interpretation would lead me to conclude that several thousand applications by independent inventors were not filed because of this fee increase, and I think any big increase in the future would have the same result, and I think that is undesirable. But if we have to have a significant fee increase, I think the concept of S. 1321, of keeping the initial fees down in the range of $100 is not a bad idea. I think it's aimed at trying not to discourage people from coming into the patent system, and I would be in favor of deferring part of the fees, to be paid, not on an annual basis, but perhaps every third, fourth, or preferably every fifth year. I am not in favor of the tremendous fees provided in S. 1321, but I think if, say, the fees are to be increased in the range of 50 to 75 percent of the cost of operating the Patent Office, I think that we could have a situation where you would keep your fees-initial fee relatively low-and yet not have very high maintenance fees.

Moving on to the last of the five subjects, the administrative restructuring of the Patent Office, I might point out that for many years I have been proposing the establishment of a new position of Assistant Secretary of Commerce for Invention and Intellectual Property.

Initially I did not have much support for this, but I think that from many different quarters there is increasing support for elevating the voice of the patent system in the executive branch of Government to say to the Assistant Secretary level.

All things considered, I believe that at this particular point in time, it would be desirable to elevate the position of the Commissioner of Patents in the Department of Commerce such that it would no longer be required to report to the Assistant Secretary of Commerce for Science and Technology, so that the position of the Commissioner of Patents should be elevated to the Assistant Secretary level or preferably the under-secretary level. There are tainly precedents for this in the Department of Commerce because when I was Commissioner of Patents one of the sister bureaus was the Weather Bureau, which has subsequently been raised, I understand, to the level of Under Secretary of Commerce, who reports directly to the Secretary of Commerce. I believe that such a change in the case of the Patent Office would be highly desirable, and would improve the operation of the office, and improve its contribution to the operation of the U.S. patent system.

So, Mr. Chairman, that concludes an overview of the highlight of my prepared statement.

Senator HART. Thank you, commissioner, for the summary, and for the statement.

On this business of fees, you made your position clear both in your summary and in your prepared statement. In your prepared statement on page 11, you put it this way: "In my opinion the present Patent Office filing issue fee should definitely not be increased; in fact, it should probably be reduced." And you referred us to the graph attached to your statement which reinforces your concern about the declining number of patents issued to individuals.

I think all of us share that concern. Now, that is the reason for proposing keeping the initial fees to a minimum and getting back

the Patent Office costs through maintenance fees for the life of the patent, and presumably after the invention has been marketed.

Now, the schedule of the maintenance fee provided for in S. 1321, often has been criticized as being too high, and burdensome both to the Patent Office and to the patent holders because it is on an annual basis.

You have reacted to that, suggesting perhaps 3, 4 or even 5 years as the period between fee payments.

Could you elaborate just a little? Let me ask it this way.

Why would it be more burdensome on an annual basis than on a 5-year basis? Is there any significant burden that is avoided by spreading it out?

Mr. BRENNER. I think there is part of this is administrative or clerical, involving having to send out notices and send in fees. Second, there is a professional judgment that has to be made, and if you have to get a committee of people who are experts in different aspects of the company's business, if you have it every year it consumes more professional time than if you had to do this every 5

years.

So I think those are the factors which for anybody who has had experience with the foreign systems of doing this every year, it gets to be quite a task. So the idea here was, I think, that enough money could be raised on a 5-, 12-, 15-year basis or something like that to provide the income, and yet, avoid some of these administrative problems.

The first fee I think is quite important. I think you recognize that in the bill, S. 1321, by giving a patentee enough breathing room timewise to see if he could not generate some interest, and I think that is particularly the most important part of this.

And also I think the system, particularly for independent inventors, should not be too burdensome; because if a person has to pay a fee, he may drop his application. I know of inventors who have done this. This is in foreign countries. They have dropped their patents only to find out that, by golly, somebody had generated some interest, and they could have licensed their patents for a royalty if only they had the patent. Because they did not have the patent, the prospective licensee did not feel justified in commercializing it, and nobody gained from it.

So if we have to have a system of deferred fees, I think it should provide the least disincentive in trying to make the patent system work the way it is supposed to; that is, for the public.

Senator HART. You mentioned the foreign experience. What, to the extent that you understand it, has been the experience abroad with maintenance fees?

How do they keep track of them?

Do you have any ideas about that or any knowledge?

Mr. BRENNER. As I understand it, it is up to the individual or the patent agents to keep track of when these fees are due and to send notices around and to then make these judgments as to when these fees should be paid. These are done either annually-some organizations have computerized systems of doing this. It does involve a lot of shuffling of a lot of paper.

Senator HART. Do you know whether there has been developed firms? Who would engage them? The patent holder or the Patent Office?

This computer business that you mentioned, who has got it?

Mr. BRENNER. As far as I know, the foreign patent offices do not send out notices, and the responsibility rests with, say, your patent agent in Germany or England to keep track of when these fees are due and to send through a notice saying that it is now time to pay, say, the third annuity in Germany.

I happen to work as a consultant for an organization in the United States that has a computerized system, and companies that use that system, and there are other systems, have in a data bank all the information on the foreign patent holdings of different particular clients, and the computer then generates on a quarterly basis which foreign assets have taxes due on a quarterly basis. Then you say pay these, do not pay those. Then these companies will execute your orders by seeing that the fees are paid; and if they are not paid, the patent will then be dropped in a particular case. Senator HART. How expensive is that?

Mr. BRENNER. I think depending upon which type of system you operate, you probably have to pay a fee between $10 and $25 per payment over and above the payment per se. Actually in some of these countries the cost of paying the fee is more than the particular fee at a particular time.

Senator HART. The last question, how would you suggest the amount of the maintenance fee be set?

Mr. BRENNER. I think it would be interesting to maybe look at those previous studies in the Patent Office. I forget what we had. I think we may have had something like $100 at 5 years and $200 at 10 years and $300 at 15 years.

I think the studies indicated that this would provide enough income to keep the level of recovery at this 50 percent level for quite a while in the future. The higher the fee, of course, the more people you discourage, and you get less income. We based our estimates on some European experience, and I think we were satisfied that you could operate, say, on a 5, 10, 15 year level, with something on the order of a fee of $100 or $300.

Senator HART. Mr. Brennan.

Mr. BRENNAN. Mr. Brenner, why should the taxpayers bear half the cost of the examination process in the Patent Office?

Mr. BRENNER. You can compare a full examination system, with say a registration system such as France had for many years, where nobody has to pay anything. In this case the patent system works in that you encourage people to come into the patent system, have their applications published, and disclose new technology.

That is the basic purpose, to give people, to encourage people, to provide them with an incentive to come forward and have this technology published. Yoy will do that and fulfill the basic principle of the patent system by encouraging people to come in and having their application published for the benefit of the public.

You do not have to have an examination, but I think it is helpful to the public to know if the invention is patentable; and if so, what

is the scope of it. I think it is also perhaps equally beneficial to an applicant to know that when the chips are down he does have a patentable invention of such and such a scope.

So in my judgment it is clearly to the benefit of both to have a system of examination. It is of benefit to both of these parties. What the exact share is I do not know, but our studies said, well, it is of equal benefit, 50-50.

Mr. BRENNAN. You can make the same argument about many other government functions, for example the public benefit from radio and television stations. Should they pay part of the filing fees of the broadcaster at the FCC?

Mr. BRENNER. Mr. Brennan, I am not an expert in that field. Perhaps that might be the case.

Mr. BRENNAN. I am not trying to belabor this particular issue. Since I work for the chairman of the Appropriations Committee, I have to bear in mind the burdens which the committee has in trying to live within the existing budget.

Turning to another issue, the previous witness emphasized that much of the reduction in the backlog in the Office was accomplished by stressing quantity at the expense of quality; and hordes of invalid patents have been pouring out of Crystal City in the last several years.

Would you comment on that in two parts? First, during the term of your service as Commissioner, and then your observation of the scene since you left the Patent Office.

Mr. BRENNER. First of all I would say I do not think the system will ever be perfect, and I think there is no doubt that there are invalid patents that are issued for one reason or another-some because certain prior art was not available before the examiner, some because one person might think it is patentable while another person may not.

I think that when you work with this matter of quality you must consider many different factors. If you want to run full-scale validity proceedings at the Patent Office such as in the case of litigation, instead of spending a hundred or a thousand dollars for the proceeding and somebody has got to pay for it-you are up to the tens of thousands or the hundred thousands of dollars.

I do not think that it is an economic procedure to try to have the Patent Office operate as a court. I do not think you can afford to give that kind of treatment to 100 percent of the applications.

But when I was there as Commissioner of Patents we did change our procedures, which increased the output of the Patent Office, and we kept very careful figures on those. And we changed the system in a way in which-actually we increased the percent of the amount of time that was spent on searching the prior art.

I knew that some people who had not made an analysis started going around and saying that the quality was lower, but I will be happy to sit down and go over those figures we have in the Patent Office with anybody and show that we actually did improve in my judgment, improve the quality of the product and increase the search time.

As far as I know, this has continued. I have no reason to believe that there has been any change in this quality in the past 10 years.