The Corner

Patent Fee Diversion Is a Tax on Innovation

Starting with Senate consideration of the so-called patent “reform” bill, Congress’s talk about jobs is sure to feature Washington’s trademarked hype.

A Washington jobs debate is itself a misnomer. Washington does not create jobs. We the People create jobs. One step Congress can take, however, is to eliminate the innovation tax — fee diversion — in the patent-reform bill the Senate hopes to pass this week.

Fee diversion is the practice of congressional appropriators’ diverting fees that innovators and entrepreneurs pay when applying for patents and trademarks to other government programs. Unfortunately, fee diversion is an arcane injustice that does not capture the public’s imagination as easily as outrages like Bridges to Nowhere, stimulus turtle tunnels, and shrimp on a treadmill. Still, fee diversion is no less offensive.

Fee diversion saps the lifeblood of the American economy — innovation and invention — in order to subsidize the desire of career politicians and appropriators in Congress to avoid hard choices. Fee diversion operates like a tax on innovation, because it requires entrepreneurs to spend more money and time on activities than they would otherwise if patent fees remained fees. And we know that if Congress wants to produce less of something — in this case, jobs and innovation — tax it.

The Patent and Trademark Office operates on fees paid when inventors file for patents and trademarks. The office receives no general-revenue funds. Unfortunately, since 1992 Congress has pilfered nearly $1 billion in user fees dedicated to the Patent and Trademark Office and spent those dollars elsewhere. This year, Congress will steal about $80 million from the fund. As a result we have 700,000 patents waiting for a first review that, if approved, could help get our economy moving again. If the PTO had been allowed to keep its money, it could have hired more staff and upgraded its technology, allowing the innovations this country needs to reach the marketplace more quickly.

Politicians, of course, say they want to do the opposite of taxing innovation and robbing from entrepreneurs. They say they want to help create jobs. Doing so, however, will require letting go of bad habits. Appropriators like to skim money off the patent office, and many other offices and funds, because it is easier to skim than to save and actually cut spending.

The Senate has already voted to end fee diversion, by a margin of 95 to 5. That version of the bill the Senate passed included my amendment that sets up a new revolving fund at the Treasury in which user fees that are paid to the Patent and Trademark Office for a patent or a trademark go directly into the revolving fund for the office to use to cover its operating expenses. Congress would no longer have the ability to take those fees and divert them to other programs; fee diversion would be ended once and for all — no more games, no more gimmicks. My amendment was also in the bill that was passed by the House Judiciary Committee by a vote of 32 to 3.

Unfortunately, the House gutted my amendment after negotiations with the House Appropriations Committee. The appropriators are insisting, of course, that they have no intention of diverting fees. History suggests they are not to be trusted. They promised to end this practice in the past and kept doing it.

The appropriators’ real argument comes down to turf and tradition. This is just the way it’s always been done, they argue. Yet, doing things as they’ve always been done isn’t good enough anymore. This bill is not the best we can do. It is the path of least resistance. Taking the path of least resistance has led to our unsustainable debt and credit downgrade. If leaders in both parties continue to be afraid of rolling the appropriators and ending this indefensible practice, sooner or later they will find themselves rolled by voters.

Nevertheless, I intend to give Senate appropriators the chance to back up that claim by voting on my amendment to end fee diversion. If my amendment fails, I will do everything in my power to slow the bill and highlight this egregious tax on innovation.

If politicians in Washington want to be taken seriously in the jobs debate, ending a practice that steals from job creators would be a good first step. Congress should fix the patent bill immediately and restore my language ending fee diversion. If Congress does not make this fix, President Obama should veto it. Otherwise, he will be complicit in a scheme that is rigged to rob the very people we say we want to help — America’s job creators.

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