GAO-07-1102 U.S. Patent And Trademark Office: Hiring Efforts Are Not

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United States Government Accountabilit Office GAO Report to the Ranking Member, Committee on Oversight and Government Reform, House of Representatives U.S. PATENT AND TRADEMARK OFFICE Hiring Efforts Are Not Sufficient to Reduce the Patent Application Backlog September 2007 GAO-07-1102 What GAO Found United States Government Accountability Office Why GAO Did This Study H ighlights Accountability Integrity Reliability September 2007 U.S. PATENT AND TRADEMARK OFFICE Hiring Efforts Are Not Sufficient to Reduce the Patent Application Backlog Highlights of GAO-07-1102 , a report to the Ranking Member, Committee on Oversight and Government Reform, House of Representatives Increases in the volume and complexity of patent applications have lengthened the amount of time it takes the U.S.

Patent and Trademark Office (USPTO) to process them. In addition, concerns have continued about USPTO 9s efforts to hire and retain an adequate patent examination workforce that can not only meet the demand for patents but also help reduce the growing backlog of unexamined patent applications. In this context, GAO was asked to determine for the last 5 years (1) USPTO 9s process for identifying its annual hiring estimates and the relationship of these estimates to the patent application backlog; (2) the extent to which patent examiner hiring ... more. less.

has been offset by attrition, and the factors that may contribute to this attrition; and (3) the extent to which USPTO 9s retention efforts align with patent examiners 9 reasons for staying with the agency. For this review, GAO surveyed 1,420 patent examiners, and received an 80 percent response rate. What GAO Recommends GAO recommends that USPTO undertake a comprehensive evaluation of the assumptions that the agency uses to establish its production goals. USPTO generally agreed with this recommendation. In each of the last 5 years, USPTO primarily identified its projected annual hiring estimates on the basis of available funding levels and its institutional capacity to support additional staff and not on the existing backlog or the expected patent application workload. USPTO 9s process for identifying its annual hiring estimates is generally consistent with accepted workforce planning strategies. Each year the agency determines how many new patent examiners it has the budget and supervisory and training capacity to hire. However, because this approach does not take into account how many examiners are needed to reduce the existing patent application backlog or address the inflow of new applications, it is unlikely that the agency will be able to reduce the growing backlog simply through its hiring efforts. Although USPTO is hiring as many new patent examiners as its budget and institutional capacity will support, attrition is offsetting hiring progress, and agency management and patent examiners disagree about the causes for attrition. From 2002 through 2006, one patent examiner left USPTO for nearly every two the agency hired. This represents a significant loss to the agency because 70 percent of those who left had been at the agency for less than 5 years and new patent examiners are primarily responsible for the actions that remove applications from the backlog. According to USPTO management, patent examiners leave the agency primarily for personal reasons, such as the job not being a good fit or family reasons. In contrast, 67 percent of patent examiners identified the agency 9s production goals as one of the primary reasons examiners may choose to leave USPTO. These production goals are based on the number of applications patent examiners must complete biweekly and have not been adjusted to reflect the complexity of patent applications since 1976. Moreover, 70 percent of patent examiners reported working unpaid overtime during the past year, in order to meet their production goals. Such a large percentage of patent examiners who are working extra time to meet their production goals and would choose to leave the agency because of these goals may be an indication that the production goals do not accurately reflect the time patent examiners need to review applications and is undermining USPTO 9s hiring efforts. The retention incentives and flexibilities provided by USPTO over the last 5 years generally align with the primary reasons identified by patent examiners for staying with the agency. Between 2002 and 2006, USPTO used a variety of retention flexibilities such as a special pay rate, performance bonuses, flexible work schedules, and a telework program to encourage patent examiners to stay with the agency. According to USPTO management the most effective retention efforts were those related to compensation and an enhanced work environment. GAO 9s survey of patent examiners indicates that most patent examiners generally approved of USPTO 9s retention efforts, and ranked the agency 9s salary and other pay incentives as well as the flexible work schedule among the primary reasons for staying with the agency. www.gao.gov/cgi-bin/getrpt?GAO-07-1102 . To view the full product, including the scope and methodology, click on the link above. For more information, contact Anu Mittal, 202- 512-3841, mittala@gao.gov . Contents Letter 1 Results in Brief 4 Background 6 USPTO 9s Annual Hiring Estimates Are Determined by Funding and Institutional Capacity and Are Unlikely to Reduce the Patent Application Backlog 9 Attrition Has Greatly Offset Hiring over the Last 5 Years, and Agency Management and Patent Examiners Disagree about the Reasons for Attrition 13 Retention Incentives and Flexibilities Provided over the Last 5 Years Generally Align with the Primary Reasons Patent Examiners Identified for Staying at USPTO 19 Conclusion 23 Recommendation for Executive Action 23 Agency Comments and Our Evaluation 23 Appendix I Objectives, Scope, and Methodology 25 Appendix II Selected Survey Results 31 Appendix III Comments from the Department of Commerce 36 Appendix IV GAO Contact and Staff Acknowledgments 38 Tables Table 1: Retention Incentives and Flexibilities Provided by USPTO by Category, and Other Retention Efforts, Fiscal Years 2002 through 2006 20 Table 2: Number of Bonuses and Bonus Amounts USPTO Awarded, and Number of Patent Examiners Participating in the Telework Program in Fiscal Years 2002 through 2006 21 Table 3: Patent Examiners 9 Views on Compensation-Related and Enhanced Work Environment Incentives and Flexibilities in Decreasing Order of Importance 22 Page i GAO-07-1102 U.S. Patent and Trademark Office Table 4: Summary of Patent Examiner Population and Survey Sample by Stratum 27 Figures Figure 1: USPTO Patent Examiner Projected Hiring Estimates and Actual Number Hired, Fiscal Years 2002 through 2006 11 Figure 2: Patent Examiner Attrition by Years of Experience, Fiscal Years 2002 through 2006 14 Figure 3: Estimated and Actual First Actions Completed, Fiscal Years 2002 through 2006 18 Abbreviations GS general schedule OPM Office of Personnel Management PALM Patent Application Locating and Monitoring POPA Patent Office Professional Association UPR utility, plant, and reissue USPTO U.S. Patent and Trademark Office This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page ii GAO-07-1102 U.S. Patent and Trademark Office United States Government Accountability Office Washington, DC 20548 September 4, 2007 The Honorable Tom Davis Ranking Member Committee on Oversight and Government Reform House of Representatives Dear Mr. Davis: Protecting intellectual property rights and encouraging technological progress are important for ensuring the current and future competitiveness of the United States. The U.S. Patent and Trademark Office (USPTO) helps protect the nation 9s competitiveness by granting patents for innovations ranging from new treatments for diseases, to new wireless technology applications, to new varieties of plants. 1 USPTO 9s ability to keep up with the demand for patents is essential for achieving its mission. However, increases in both the volume and complexity of patent applications have lengthened the amount of time it takes the agency to process them. As a result, the inventory of patent applications that have not yet been reviewed, called the backlog, has been growing for over 15 years 4since fiscal year 2002 alone, the backlog has increased by nearly 73 percent to about 730,000 applications. Inventors submit applications to USPTO to obtain a patent for their inventions and the right it affords the holder to exclude others from making, using, or selling the patented item in the United States. USPTO is funded by fees collected from the public for specific activities related to processing applications. The spending of these fees is subject to provisions determined by Congress in annual appropriations acts. USPTO relies on a workforce of nearly 5,000 patent examiners 4attorneys, engineers, and other scientific and technical professionals 4to review and make decisions on patent applications. The number of these professionals that USPTO hires, as well as the overall size and experience of the patent examination workforce, affects the number of applications that can be reviewed in any given year. As part of the review process, patent examiners are assigned what is known as a biweekly cproduction goal d on the basis of their position in the agency and the types of patent 1 USPTO, an agency within the Department of Commerce, consists of two organizations: one for patents and one for trademarks. This report focuses on the patent organization. Page 1 GAO-07-1102 U.S. Patent and Trademark Office applications they are assigned to review. 2 Production goals are the number of specific actions and decisions that patent examiners must make about patent applications they review during a 2-week period. 3 Patent examiners 9 performance is assessed biweekly on their ability to meet their production goals; their inability to meet these goals could have an impact on their compensation and continued employment with the agency. However, as we noted in 2005, the assumptions underlying the agency 9s production goals were established over 30 years ago and have not since been updated. Since 2000, USPTO has implemented a variety of human capital flexibilities intended to help recruit and retain enough patent examiners and maintain a workforce that is sufficient to meet the demand for patents. These flexibilities have included the use of recruitment bonuses, law school tuition reimbursement, and a casual dress policy. In 2005, in response to congressional concerns about USPTO 9s efforts to attract and retain a qualified workforce, we reported that it was too soon to determine the long-term success of USPTO 9s recruitment and retention efforts because, in part, they had been inconsistently sustained during the limited time they had been in effect, and that not all of the planned initiatives had been implemented. 4 However, concerns have continued because of increasing patent examiner attrition, especially among patent examiners who have been at the agency for less than 5 years, which is causing the 2 USPTO assigns patent applications to one of its eight technology centers for review: (1) Biotechnology and Organic Chemistry; (2) Chemical and Materials Engineering; (3) Computer Architecture, Software, and Information Security; (4) Communications; (5) Semiconductors, Electrical and Optical Systems and Components; (6) Transportation, Electronic Commerce, Construction, Agriculture, National Security and License and Review; (7) Mechanical Engineering, Manufacturing, and Products; and (8) Designs for Articles of Manufacture. 3 USPTO tracks two key milestones in the patent application process to evaluate patent examiners 9 performance. One milestone is the patent examiner 9s initial action on the merits of the case. Most patent applications are removed from the backlog when this initial action is made. The other milestone is when the application is allowed, abandoned, or sent to the Board of Patent Appeals and Interferences. 4 GAO, Intellectual Property: USPTO Has Made Progress in Hiring Examiners, but Challenges to Retention Remain, GAO-05-720 (Washington, D.C.: June 17, 2005). Page 2 GAO-07-1102 U.S. Patent and Trademark Office workforce to grow at a slower rate than would be expected given the number of patent examiners the agency has been hiring each year. 5 In this context, you asked us to determine, for the last 5 years, (1) USPTO 9s process for identifying its annual hiring estimates and the relationship of these hiring estimates to the patent application backlog; (2) the extent to which patent examiner hiring has been offset by attrition at USPTO, and what factors may contribute to patent examiners 9 decisions to leave the agency; and (3) the extent to which the retention incentives and flexibilities USPTO has implemented align with patent examiners 9 reasons for staying with the agency. To determine USPTO 9s process for developing annual hiring estimates and the relationship these estimates have to the patent application backlog, we interviewed agency officials and reviewed agency documents and reports by other organizations relating to USPTO 9s workforce planning process, including data the agency used to identify the number of patent examiners it planned to hire in each of the last 5 fiscal years. We analyzed patent examiner and patent application data for the last 5 fiscal years, as well as USPTO 9s projections of that data through fiscal year 2012. In addition, we reviewed the Office of Personnel Management 9s (OPM) workforce planning guidance and interviewed officials from OPM 9s Human Capital Assessment and Accountability Framework Office to develop criteria to assess USPTO 9s workforce planning process. To determine the extent to which patent examiner hiring has been offset by attrition at USPTO over the last 5 years, we analyzed patent examiner workforce, hiring, and attrition data from this time period. To determine factors that may contribute to patent examiners 9 decisions to leave the agency, we conducted a Web-based survey of a stratified random sample of 1,420 USPTO patent examiners. Overall, we received an 80 percent response rate to our survey. Estimates based on this survey allow us to project our results to all patent examiners at USPTO with a 95 percent level of confidence. All percentage estimates included in this report have a 95 percent confidence interval with plus or minus 5 percentage points. To 5 USPTO includes patent examiners who transfer or are promoted out of the patent examination workforce to another position within the agency in its attrition count, in addition to those patent examiners who leave the agency. This report uses USPTO 9s inclusive definition of attrition in order to be consistent with the agency 9s projections used in this report, and therefore will be different from USPTO attrition data as reported by the Office of Personnel Management, which does not include intra-agency transfers or promotions as part of attrition. Page 3 GAO-07-1102 U.S. Patent and Trademark Office address this objective, we had to rely on the views of current patent examiners because USPTO does not maintain contact information for patent examiners that have left the agency and we could not identify any organizations that maintain this information for USPTO staff. In addition, we interviewed USPTO officials, representatives of the patent examiner union 4the Patent Office Professional Association (POPA) 4and an official from the American Intellectual Property Law Association. To determine the extent to which the retention incentives and flexibilities provided by USPTO align with patent examiners 9 reasons for staying with the agency, we interviewed USPTO officials about the retention incentives and flexibilities they have used in the past 5 years, reviewed our previous report on USPTO 9s recruitment and retention efforts, interviewed representatives from POPA and an official from the American Intellectual Property Law Association to obtain their perspectives on factors affecting patent examiner retention and workload, and used the Web-based survey described above to obtain patent examiners 9 views on USPTO 9s retention incentives and flexibilities. Specifically, we sought patent examiners 9 views on the reasons they would choose to stay at the agency. Appendix I contains a more detailed discussion of our scope and methodology. We conducted our work from August 2006 through July 2007 in accordance with generally accepted government auditing standards. In each of the last 5 years, USPTO has identified its annual hiring estimates on the basis of the agency 9s funding levels and institutional capacity to support additional staff and not on the existing backlog or the expected patent application workload. Because of its increasing workload relative to its existing workforce, over the last 5 years, USPTO has had to hire additional patent examiners each year. The primary factors that determined USPTO 9s annual hiring estimates during this time have been the agency 9s annual funding levels and its capacity to train and supervise new patent examiners. About 18 months before the start of the hiring year, USPTO considers these factors to determine its projected hiring estimates for the coming year. During these 18 months, the agency refines these estimates on the basis of its most current budget and patent examination workforce data to determine the number of patent examiners the agency can actually hire. In each of the last 5 years, for various reasons, the number of patent examiners the agency actually hired differed from the hiring estimate that the agency had originally projected. For example, the projected hiring estimate for fiscal year 2004 was 750 patent examiners, but the agency actually hired 443 because of subsequent funding limitations. USPTO 9s current process is consistent with workforce planning strategies endorsed by OPM, though it is a significant deviation Results in Brief Page 4 GAO-07-1102 U.S. Patent and Trademark Office from the agency 9s previous workforce planning strategy, which was more directly linked to the patent examination workload. Over the last 5 years the agency has moved away from its prior strategy because it realized that it did not have the institutional capacity to train and supervise the relatively large number of new patent examiners it would need to hire annually to keep pace with the increasing number of incoming patent applications expected each year. Although shifting to its current approach has enabled USPTO to better match its hiring estimates to its institutional training and supervisory capacity, this approach does not take into account how many patent examiners are needed to reduce the backlog of existing patent applications or address the expected inflow of new applications. Consequently, the patent application backlog has continued to increase, and it is unlikely that the agency will be able to reduce the backlog simply through its hiring efforts. From 2002 through 2006, patent examiner attrition has continued to significantly offset USPTO 9s hiring progress. Although USPTO is hiring as many new patent examiners as it has the annual capacity to supervise and train, for nearly every two patent examiners it has hired over the last 5 years at least one has left the agency. Specifically, USPTO hired 3,672 patent examiners between 2002 and 2006, and 1,643 patent examiners left the agency during this time. More importantly, of those who left, 70 percent had been at USPTO for less than 5 years. This is a significant loss to the agency because, according to USPTO officials, new patent examiners are primarily responsible for making the initial decisions on applications, which removes them from the backlog. We found that within the agency there is significant disagreement about why patent examiners are continuing to leave. According to USPTO management, patent examiners leave primarily for personal reasons 4for example, because the job is not a good fit for them or they need to relocate because of a spouse 9s job. In contrast, patent examiners, and the union officials who represent them, identified unrealistic agency production goals, which were established 30 years ago, as one of the primary reasons patent examiners may choose to leave. For example, union officials told us that attrition can primarily be attributed to the insufficient amount of time provided to patent examiners to meet their production goals. This was supported by our survey of patent examiners, in which 67 percent indicated that the agency 9s production goals were among the primary reasons they would consider leaving USPTO. Moreover, to meet their production goals, the majority of patent examiners had to work substantial unpaid overtime in the last 12 months, while many others worked while on annual leave. According to one of our survey respondents, cvacation time means catch up time. d Such a large percentage of patent examiners working extra time Page 5 GAO-07-1102 U.S. Patent and Trademark Office to meet their production goals, is an indication that USPTO 9s production goals may no longer accurately reflect the time patent examiners need to review applications. Given the high rate of attrition that may result, in part, from such outdated production goals, we are recommending that USPTO undertake a comprehensive evaluation of how it establishes these goals and revise these goals as appropriate. The retention incentives and flexibilities that USPTO has provided over the last 5 years generally align with the primary reasons patent examiners identified for staying at the agency. USPTO management told us that their most effective retention efforts have been those that provide additional compensation to and an enhanced work environment for patent examiners. Specifically, USPTO officials identified the agency 9s special pay rates, which can be more than 25 percent above federal salaries for comparable positions; the agency 9s bonus structure, which allows patent examiners to earn various cash awards for exceeding production goals; and opportunities for patent examiners to work either part-time or full- time from remote locations as being the most effective retention measures for the agency. For example, in fiscal year 2006, USPTO awarded 4,645 bonuses to patent examiners totaling over $10.6 million; patent examiners may receive up to three different types of bonuses in a fiscal year. That same year, approximately 20 percent of patent examiners participated in the agency 9s telework program, which allows patent examiners to work some or all of their time from an off-site location, and approximately 10 percent of patent examiners were enrolled in the hoteling program, through which USPTO provides equipment to those patent examiners who are approved to work full-time from an off-site location. According to our survey, most patent examiners generally identified these types of retention incentives and flexibilities as among the most important reasons to stay at the agency. For example, 58 percent of patent examiners identified salary, and 49 percent flexible work schedules, as the primary reasons for staying with the agency. In its written comments on a draft of our report (reprinted in app. II), the Department of Commerce agreed with our findings, conclusions, and recommendation. In addition, the agency provided technical comments that we have incorporated as appropriate. To obtain a patent, inventors 4or more usually their attorneys or agents 4 submit an application to USPTO that fully discloses and clearly describes one or more distinct innovative features of the proposed invention and pay a filing fee to begin the examination process. Patent examiners review Background Page 6 GAO-07-1102 U.S. Patent and Trademark Office these applications to determine if a patent is warranted. In making this determination, patent examiners must meet two specific milestones in the patent examination process: first actions and disposals. " First action. Patent examiners notify applicants about the patentability of their invention through what is called a first action. After determining if the invention is new and useful, or a new and useful improvement on an existing process or machine, patentability is determined through a thorough investigation of information related to the subject matter of the patent application and already available before the date the application was submitted, called prior art. Prior art includes, but is not limited to, publications and U.S. and international patents. " Disposal. Patent examiners dispose of a patent application by determining, among other things, if a patent will be granted 4called allowance 4or not. Patent examiners receive credit, called counts, for each first action and disposal, and are assigned production goals (also known as quotas) on the basis of the number of production units 4composed of two counts 4they are expected to achieve in a 2-week period. The counts in a production unit may be any combination of first actions and disposals. The production goals that are used to measure patent examiner performance are based on the same assumptions that USPTO established in the 1970s. At that time, the agency set production goals in the belief that it should take a patent examiner a certain amount of time to review a patent application and achieve two counts based on the patent examiner 9s experience (as determined by the patent examiner 9s position in the agency) and the type of patent application reviewed. As a result, these goals vary depending upon the patent examiner 9s position in the federal government 9s general schedule (GS) pay scale and the technology center in which the patent examiner works. 6 For example, a GS-12 patent examiner working on data processing applications is expected to achieve two counts in 31.6 hours, whereas a GS-12 patent examiner working on plastic molding applications is expected to do so in 20.1 hours. In contrast, GS-7 patent examiners working on these two types of applications are expected to achieve two counts in 45.1 and 28.7 hours, respectively. 6 Technology centers specialize in specific areas of science and engineering. Page 7 GAO-07-1102 U.S. Patent and Trademark Office Patent examiner achievements are recorded biweekly, and, at the end of each fiscal year, those patent applications that have not been reviewed for first action are counted as part of USPTO 9s inventory of unexamined applications, otherwise known as the patent application backlog. In 2002, we reported that the patent application backlog had increased by nearly 250 percent from 1990 to 2001, and that USPTO had projected that the inventory would increase to between 393,000 and 512,000 in fiscal year 2002. 7 In addition, we reported that the agency had made three significantly different predictions about the future of the backlog in three separate reports that were based on different assumptions: " In its Fiscal Year 2002 Corporate Plan , in 2001, USPTO projected that the backlog would increase to almost 1.3 million by the end of fiscal year 2006. " In USPTO 9s Business Plan , in 2002, the agency projected that the backlog would increase to about 584,000 through fiscal year 2007. " In the 21st Century Strategic Plan , in 2002, USPTO projected that the backlog would decrease to about 144,000 through fiscal year 2007. 8 In 2005, we also reported on USPTO 9s efforts and challenges in attracting and retaining a qualified patent examination workforce. Specifically, we reported that USPTO faced human capital challenges because, among other things, it had not established an effective mechanism for managers to communicate and collaborate with patent examiners, and managers and patent examiners had differing opinions on the need to update the monetary award system that is based on assumptions of the time it takes to review a patent application that were established in 1976. We recommended that USPTO develop formal strategies to improve communication and collaboration among management, patent examiners, and the union to resolve key issues identified in the report, such as the assumptions underlying the quota system. In response to that recommendation, USPTO conducted an internal survey on communication, and is working to develop a communication strategy on 7 GAO, Intellectual Property: Information on the U.S. Patent and Trademark Office 9s Past and Future Operations, GAO-02-907 (Washington, D.C.: Aug. 23, 2002). 8 USPTO 9s Corporate Plan was submitted with the fiscal year 2002 budget. USPTO 9s Business Plan was the agency 9s first 5-year strategic plan. It was replaced by the 21st Century Strategic Plan after a new Director decided the Business Plan did not go far enough. Page 8 GAO-07-1102 U.S. Patent and Trademark Office the basis of the results. However, the agency has not addressed the issues we identified relating to the assumptions underlying the quota system. Over the last 5 years, as a result of its increasing workload relative to its existing workforce, USPTO determined that it would need to hire additional patent examiners each year. However, the agency identified its annual hiring estimates primarily on the basis of available funding levels and its institutional capacity to train and supervise new patent examiners, and not on the basis of the number of patent examiners needed to reduce the existing backlog or review new patent applications. While the process USPTO uses to identify its annual hiring estimates is consistent with OPM 9s workforce planning strategies and has enabled the agency to better match its hiring estimates to its institutional capacity, it is unlikely that the agency will be able to reduce the patent application backlog simply through its hiring efforts. According to USPTO, during the last 5 years, the agency has used its available funding levels and its capacity to supervise and train patent examiners as the primary factors for identifying its projected annual hiring estimates. Specifically, USPTO begins the process of identifying projected hiring estimates as part of creating its budget submission for the Office of Management and Budget (OMB) 18 months before the start of the hiring year in order to meet OMB 9s budget submission timeline. As part of this process, the agency considers expected funding levels and patent examiner workforce data that are available at that time. 9 On the basis of these data, USPTO next considers its institutional capacity to supervise and train patent examiners. For example, in identifying its fiscal year 2002 hiring estimate, USPTO determined that funding availability would limit the number of patent examiners the agency would be able to hire, and used the number of patent examiners it had hired in the most recent year as a guide for its projected hiring estimate. However, in fiscal years 2003 through 2006, USPTO determined that funding levels would not be a limiting factor for hiring, and therefore established its hiring estimates USPTO 9s Annual Hiring Estimates Are Determined by Funding and Institutional Capacity and Are Unlikely to Reduce the Patent Application Backlog USPTO 9s Funding Levels and Supervisory and Training Capacity Determine Its Annual Hiring Estimates 9 In commenting on a draft of this report, USPTO stated that it uses a robust forecasting and modeling process to determine the optimal hiring, staffing, and production levels. This model was evaluated by the National Academy of Public Administration and determined to be appropriate. While we acknowledge that USPTO uses this model to identify optimal hiring levels, we found that the determination of projected estimates was made on the basis of funding levels and the capacity to support additional staff. Page 9 GAO-07-1102 U.S. Patent and Trademark Office primarily based on its institutional capacity to supervise and train patent examiners. In determining its institutional capacity to supervise and train new patent examiners, USPTO considers a number of factors. For example, the agency estimates its supervisory capacity by determining how many additional patent examiners can be placed in each of the technology centers. This number is limited by the number of supervisors available in each center who can sign patent application approvals and rejections and provide on-the-job training for new patent examiners. Although new patent examiners can review the prior art relating to a patent application, only supervisors can authorize a new patent examiner 9s decision to approve or reject a patent application. 10 Therefore, the agency tries to ensure that the patent-examiner 3to-supervisor ratio is about 1 supervisor for every 12 patent examiners; otherwise it could result in delays and inefficiencies in making initial and final decisions on patent applications. Similarly, USPTO 9s training capacity is determined by the number of patent examiners the agency believes it can train in a year. Before fiscal year 2006, training capacity was determined by how many patent examiners could be accommodated in the required training courses offered by the agency to new patent examiners. This training consisted of 2- or 3-week courses that were offered throughout the year and were led by supervisory patent examiners. The courses could accommodate about 16 patent examiners each, and in fiscal year 2004, according to USPTO, the agency offered about 28 training sessions. Because USPTO 9s projected hiring estimates are established at least 18 months in advance of the hiring year, USPTO continues to refine them to reflect changes that might occur during the 18-month period. For example, in 2002 USPTO established a projected hiring estimate of 750 patent examiners for fiscal year 2004 when it created its budget submission for OMB. However, USPTO actually hired 443 patent examiners in fiscal year 2004 because of budget constraints that had to be considered after its original estimates had been developed. Figure 1 shows USPTO 9s projected and actual hiring numbers for fiscal years 2002 through 2006. 10 We are including both supervisory patent examiners and primary examiners as supervisors for the purpose of this report. Page 10 GAO-07-1102 U.S. Patent and Trademark Office Figure 1: USPTO Patent Examiner Projected Hiring Estimates and Actual Number Hired, Fiscal Years 2002 through 2006 0 200 400 600 800 1,000 1,200 1,400 2006 2005 2004 2003 2002 Patent examiner s S o u rce: U S PTO. Fi s cal year P a tent ex a miner hiring e s tim a te s P a tent ex a miner s hired The reasons for the differences between projected hiring estimates and the number of patent examiners hired in fiscal years 2002 through 2006 were primarily related to funding availability. In fiscal years 2003 and 2004, according to USPTO, the agency 9s appropriations were significantly less than the agency 9s budget requests. As a result, the agency could not financially support the number of new patent examiners it had initially planned to hire. Conversely, in fiscal years 2005 and 2006, USPTO hired more patent examiners than originally planned because the agency received greater funding for those years than originally anticipated. The way in which USPTO identifies annual patent examiner hiring estimates is generally consistent with workforce planning strategies endorsed by OPM. OPM has identified key elements that agencies should consider when planning to hire additional personnel, and OPM officials told us that these key elements are well recognized throughout the field of workforce planning. For example, OPM recommends that agencies regularly track workforce trends to ensure updated models for meeting Page 11 GAO-07-1102 U.S. Patent and Trademark Office organizational needs, base decisions on sources of information such as past workforce data, and include in its workforce planning process a workforce analysis system that identifies current and future losses due to attrition. We found that in identifying its hiring estimates, USPTO generally applies these principles because it makes decisions on the basis of trends in hiring, attrition, and total workforce data from recent years, and identifies current losses due to attrition when identifying its annual hiring estimates and estimates of attrition for the hiring year. Although consistent with OPM 9s workforce strategies, USPTO 9s current approach is significantly different from the approach that the agency used prior to fiscal year 2002. At that time, the number of patent examiners USPTO wanted to hire was based on the number of patent applications the agency expected to receive in the hiring year, as well as on the anticipated patent application backlog at the beginning of the hiring year. According to USPTO officials, since fiscal year 2002, the agency has moved away from this approach because it realized that it could no longer supervise and train enough patent examiners to keep up with the increasing workload. However, USPTO recognizes that it needs to increase its institutional capacity to hire more patent examiners, and in this regard is taking steps to increase its training and supervisory capacity. For example, to increase its training capacity, USPTO implemented an 8-month training program in fiscal year 2006 called the Patent Training Academy that will provide the agency a constant annual training capacity of 1,200 new patent examiners for each of the next 5 years. USPTO also believes that the academy may indirectly improve the agency 9s supervisory capacity because it will better prepare new patent examiners to start work in a technology center, and therefore they will need less supervision and on-the-job training. USPTO plans to monitor new patent examiners after they have graduated from the academy in order to determine if the agency can further use this approach to increase its institutional capacity and, therefore, its future annual hiring estimates. Even with its increased hiring estimates of 1,200 patent examiners each year for the next 5 years, USPTO 9s patent application backlog will continue to grow, and is expected to increase to over 1.3 million at the end of fiscal year 2011. According to USPTO estimates, even if the agency were able to hire 2,000 patent examiners per year in fiscal year 2007 and each of the next 5 years, the backlog would continue to increase by about 260,000 applications to 953,643 at the end of fiscal year 2011. The agency has acknowledged that it cannot hire its way out of the backlog despite its Page 12 GAO-07-1102 U.S. Patent and Trademark Office recent increases in hiring, and is now focused on slowing the growth of the backlog instead of reducing it. Although USPTO is hiring as many new patent examiners as it has the annual funding and institutional capacity to support, increasing attrition among patent examiners has resulted in the loss of one patent examiner for nearly every two hired over the last 5 years. While agency officials cited personal reasons for patent examiner attrition, patent examiners disagreed and cited the agency 9s outdated production goals as one of the primary reasons they would choose to leave the agency. Although USPTO hired 3,672 patent examiners from the beginning of fiscal year 2002 through fiscal year 2006, the patent examination workforce increased by only 1,644 because 2,028 patent examiners either left the agency or moved to other positions. More specifically, during this time, 1,643 patent examiners left the agency, and 385 patent examiners were either transferred or promoted out of the position of patent examiner. As shown in figure 2, of the 1,643 patent examiners who left the agency, approximately 70 percent had been at USPTO for less than 5 years, and nearly 33 percent had been at USPTO for less than 1 year. 11 Attrition Has Greatly Offset Hiring over the Last 5 Years, and Agency Management and Patent Examiners Disagree about the Reasons for Attrition Over the Last 5 Years, One Patent Examiner Has Left USPTO for Nearly Every Two Hired 11 These percentages include patent examiners who transferred or were promoted out of the patent examination workforce, but remained at USPTO, and represent approximately 19 percent of patent examiner attrition from fiscal year 2002 through 2006. Page 13 GAO-07-1102 U.S. Patent and Trademark Office Figure 2: Patent Examiner Attrition by Years of Experience, Fiscal Years 2002 through 2006 0 50 100 150 200 250 300 350 400 2006 2005 2004 2003 2002 Patent examiner s S o u rce: U S PTO. Fi s cal year P a tent ex a miner s a t U S PTO for le ss th a n 1 ye a r P a tent ex a miner s a t U S PTO for le ss th a n 5 ye a r s P a tent ex a miner s a t U S PTO for 5 ye a r s or more Note: In each fiscal year, the number of patent examiners at USPTO for less than 5 years is inclusive of those at USPTO for less than 1 year. The attrition of patent examiners who were at the agency for less than 5 years is a significant loss for USPTO for a variety of reasons. First, because these less experienced patent examiners are primarily responsible for making the initial decision on patent applications, which is the triggering event that removes applications from the backlog, attrition of these staff affects USPTO 9s ability to reduce the patent application backlog. Second, because patent examiners require 4 to 6 years of on-the- job experience before they become fully proficient in conducting patent application reviews, when these staff leave USPTO the agency loses as much as 5 years of training investment in them. Third, the continuous churning of so many new patent examiners makes the overall workforce less experienced. As a result, the more experienced patent examiners who have the ability to examine more applications in less time have to instead devote more of their time to supervising and training the less experienced Page 14 GAO-07-1102 U.S. Patent and Trademark Office staff, thereby further reducing the overall productivity of the agency. Finally, these workforce losses affect the agency 9s supervisory capacity, because they reduce the pool of potential supervisory patent examiners for the future and therefore negatively affect USPTO 9s ability to increase its capacity and ultimately its hiring goals. USPTO Management Links Attrition to Employees 9 Personal Reasons, while Patent Examiners Link It to the Agency 9s Production Goals We found that USPTO management and patent examiners disagree significantly on the reasons for the attrition that is occurring at the agency. According to USPTO management, personal reasons are the primary reasons that cause patent examiners to leave the agency. 12 Some of these reasons include the following: " The nature of the work at USPTO does not fit with the preferred working styles of some patent examiners such as those with engineering degrees who are looking for more chands-on d experiences. " Many patent examiners enter the workforce directly out of college and are looking to add USPTO to their résumés and move on to another job elsewhere rather than build a career at the agency, otherwise known as the cmillennial problem. d " Patent examiners may choose to leave the area, as opposed to choosing to leave the agency, because their spouse transfers to a position outside of the Washington, D.C., area; the cost of living is too high; or the competition is too high for entry into the Washington, D.C., area graduate and postgraduate programs for those patent examiners who would like to pursue higher education. USPTO management told us that the agency is taking steps to help address these issues through efforts such as developing a recruitment tool to better assess applicant compatibility with the agency 9s work environment; targeting midcareer professionals during the recruitment process; and considering the creation of offices located outside the Washington, D.C., area that would provide lower cost-of-living alternatives for employees. While union officials agreed that in some cases personal reasons, such as the high cost of living in the Washington, D.C., area, may lead to attrition 12 The term cprimary reasons d in this report refers to the top three reasons patent examiners leave the agency provided by USPTO management, as well as the top three or more statistically significant reasons provided by patent examiners in our survey. Page 15 GAO-07-1102 U.S. Patent and Trademark Office among patent examiners, they believe that attrition at USPTO can be primarily attributed to the unrealistic production goals that the agency sets for patent examiners. 13 Specifically, union officials explained that the production goals do not allow adequate time for patent examiners to do their work, especially in light of the increased scrutiny and quality initiatives implemented by management. They told us that the production goals have created a csweat shop culture d within the agency that requires patent examiners to do more in less time and has therefore been a significant contributor to patent examiners 9 decisions to leave USPTO. To emphasize this concern, the union joined the Staff Union of the European Patent Office and other international patent examiner organizations in April 2007 to sign a letter declaring that the pressures on patent examiners around the world have reached such a level that in the absence of serious measures, intellectual property worldwide would be at risk. The letter recommended, among other things, an increase in the time patent examiners have to review patent applications. According to our survey of patent examiners, 67 percent, regardless of their tenure with the agency, agree with union officials that the agency 9s production goals are among the primary reasons they would consider leaving USPTO. Moreover, we estimated that 62 percent of patent examiners are very dissatisfied or generally dissatisfied with the time allotted by USPTO to achieve their production goals. According to our survey, 50 percent of patent examiners are also very dissatisfied or generally dissatisfied with the way in which the agency 9s production goals are calculated, and a number of respondents noted that the production goals are outdated, have not changed in 30 years, and some technologies for which they evaluate applications had not even been discovered at the time the agency 9s production goals were set. When asked for suggestions on how to improve the production system, 59 percent of patent examiners felt that the system needs to be reevaluated, including altering the production goals to allow more time for patent examiners to conduct their reviews. 13 Union officials also identified a recent decision by USPTO management to track when patent examiners enter and leave the building as another reason why patent examiners would choose to leave the agency. Union officials declined to rank the reasons they believe patent examiners leave USPTO, preferring instead that we rely on patent examiner survey results. Page 16 GAO-07-1102 U.S. Patent and Trademark Office USPTO employees who participated in OPM 9s 2006 Federal Human Capital Survey reported similar results. 14 Specifically, 89 percent of the respondents, comprising both patent examiners and managerial/supervisory employees, reported that they believe the work they do is important. 15 However, respondents were almost evenly split on whether their workload was reasonable, with 41 percent considering their workload reasonable and 40 percent considering it unreasonable. We and others have noted in the past that the assumptions the agency uses to calculate patent examiner production goals were established in the 1970s and have not since been adjusted to reflect changes in science and technology. Moreover, the agency uses these production goals to establish its overall performance goals, such as the number of first actions to be completed in a given year. 16 However, the agency has missed its projections for first actions completed in 4 of the last 5 years, as shown in figure 3, which further suggests that these goals may be unrealistic. 14 OPM 9s Federal Human Capital Survey is a tool that measures employees 9 perceptions of whether, and to what extent, conditions that characterize successful organizations are present in their agencies. 15 USPTO respondents to the Federal Human Capital Survey included employees from both the patent organization, which accounts for about 76 percent of the agency 9s resources, and the trademark organization. 16 USPTO predicts first actions by multiplying the number of patent examiners in the workforce by production goals. Page 17 GAO-07-1102 U.S. Patent and Trademark Office Figure 3 : Estimated and Actual First Actions Completed, Fiscal Years 2002 through 2006 Fir s t action s S o u rce: U S PTO. Fi s cal year E s tim a ted fir s t a ction s Act ua l fir s t a ction s 200,000 220,000 240,000 260,000 280,000 300,000 320,000 340,000 360,000 380,000 400,000 2006 2005 2004 2003 2002 Furthermore, according to our survey, patent examiners are discontented with the actions they have to take in order to meet their production goals. According to our survey, during the last year, 70 percent of patent examiners worked unpaid overtime to meet their production goals, some more than 30 extra hours in a 2-week period. The percentage of patent examiners who worked unpaid overtime increased with the length of tenure they had with the agency. We estimated that while 46 percent of patent examiners who had been at USPTO from 2 to 12 months had to work unpaid overtime to meet their production goals; 79 percent of patent examiners with over 5 years 9 experience at the agency had to put in unpaid overtime. In addition, we estimated that 42 percent of patent examiners had to work to meet production goals while on paid annual leave during the past year. The percentage of patent examiners working while on paid leave also was significantly higher for those with a longer tenure at the agency. We estimated that 18 percent of patent examiners who had been at USPTO from 2 to 12 months worked to meet their production goals while on paid leave, and 50 percent of patent examiners with over 5 years 9 experience at the agency had to work to meet production goals while on annual leave. As one respondent to our survey explained, cVacation time Page 18 GAO-07-1102 U.S. Patent and Trademark Office means catch up time. d Another respondent summed up the situation as follows: cI know that the production goals are set to keep us motivated in order to help get over the backlog but if a majority of examiners cannot meet those goals without relying on unpaid overtime or annual leave then something is wrong with the system. d We estimated that because of the amount of unpaid overtime that they have to put into meeting their production goals, 59 percent of patent examiners consider it one of the primary reasons they would choose to leave USPTO, and 37 percent identified the amount of time they must work during paid leave to meet their production goals among the primary reasons they would leave the agency. This extensive amount of unpaid overtime does not appear to be a concern to USPTO management, even though the agency has not been able to meet its productivity goals for the last 4 years. When we queried USPTO management about the agency 9s policy regarding patent examiners working unpaid overtime to meet their production goals, the Deputy Commissioner for Patent Operations told us, cAs with many professionals who occasionally remain at work longer to make up for time during the day spent chatting or because they were less productive than intended, examiners may stay at the office (or remote location) longer than their scheduled tour of duty to work. d From 2002 to 2006, USPTO offered a number of different retention incentives and flexibilities in three main areas to improve the retention of patent examiners, as shown in table 1. 17 Retention Incentives and Flexibilities Provided over the Last 5 Years Generally Align with the Primary Reasons Patent Examiners Identified for Staying at USPTO 17 GAO reported on key practices for effective use of human capital flexibilities in GAO, Human Capital: Effective Use of Flexibilities Can Assist Agencies in Managing Their Workforces , GAO-03-2 (Washington, D.C.: Dec. 6, 2002). Page 19 GAO-07-1102 U.S. Patent and Trademark Office Table 1: Retention Incentives and Flexibilities Provided by USPTO by Category, and Other Retention Efforts, Fiscal Years 2002 through 2006 Category Retention incentive, flexibility, or other " Performance bonuses " Flexible spending accounts that allow patent examiners to set aside funds for expenses related to health care and care for dependents " Law school tuition reimbursement program a " Noncompetitive promotion to the full performance level " Recruitment bonuses of up to $9,900 " Special pay rate b Compensation " Transit subsidy program " Casual dress policy " Flexible work schedules, including the ability to schedule hours off during the day " Improved management communication techniques (e.g., town hall meetings, online chats with the Commissioner) " No-cost health screenings at an on-site health unit staffed with a registered nurse and part-time physician " On-site child care and fitness centers " Creation of a committee to organize recreational and social activities, such as a basketball tournament and Halloween party Enhanced work environment " Work at home opportunities " Additional training for managers, such as workshops on intergenerational issues and technical training for patent examiners " Formation of a Patents Retention Council to focus on patent examiner retention issues at USPTO Other retention efforts " A survey given to potential applicants during the recruiting process to better assess applicant compatibility with the USPTO work environment Source: GAO analysis of USPTO information. a USPTO provided the law school tuition program for 2 years between fiscal years 2002 and 2006. b The special pay rate was approved in 2006 and went into effect in January 2007. According to USPTO management officials, the three most effective retention incentives and flexibilities that they have offered are the special pay rates, the bonus structure, and opportunities to work from remote locations. " Special pay rate. In November 2006, USPTO received approval for an across-the-board special pay rate for patent examiners that can be more than 25 percent above federal salaries for comparable positions. For example, in 2007, a patent examiner at USPTO earning $47,610 Page 20 GAO-07-1102 U.S. Patent and Trademark Office would earn $37,640 in a similar position at another federal agency in the Washington, D.C., area. " Bonus structure. The agency awards bonuses at the end of each fiscal year to patent examiners who exceed their production goals by at least 10 percent. For example, according to USPTO, 60 percent of eligible patent examiners who exceeded production goals by 10 percent or more received a bonus in fiscal year 2006. As table 2 shows, USPTO awarded 4,645 bonuses totaling over $10.6 million to patent examiners in fiscal year 2006. 18 " Opportunities to work from remote locations. In fiscal year 2006, approximately 20 percent of patent examiners participated in the agency 9s telework program, which allows patent examiners to conduct some or all of their work away from their official duty station 1 or more days per week. In addition, when USPTO began a hoteling program in fiscal year 2006, approximately 10 percent of patent examiners participated in the program, which allows some patent examiners to work from an alternative location. 19 Table 2: Number of Bonuses and Bonus Amounts USPTO Awarded, and Number of Patent Examiners Participating in the Telework Program in Fiscal Years 2002 through 2006 2002 200 3 2004 2005 2006 Number of bonuses a 4,877 4,839 5,015 4,567 4,645 Bonus amount (dollars in millions) $10.3 $10.9 $11.5 $10.9 $10.6 Patent examiners in telework program Not applicable b 800 345 1014 999 Source: USPTO. a Up to three types of bonuses may be awarded to one patent examiner in a fiscal year, one of which may be awarded twice per fiscal year. b USPTO did not offer a telework program in fiscal year 2002. 18 USPTO may award up to three types of bonuses to one patent examiner in a fiscal year. 19 Patent examiners who qualify for hoteling are assigned USPTO computer hardware and are not assigned permanent office space but share space when it is necessary for them to come into the USPTO offices. Page 21 GAO-07-1102 U.S. Patent and Trademark Office According to the results of our survey, patent examiners generally identified compensation-related retention incentives and USPTO 9s efforts to enhance the work environment as among the most important reasons for staying with the agency. (See app. II for more detailed information on the questions included in and the results of our survey.) Specifically, as table 3 shows, patent examiners ranked current total pay, flexible work schedules, the hoteling program, and federal benefits as among the primary reasons they would choose to stay at USPTO. Similarly, 51 and 87 percent of the USPTO employees who participated in OPM 9s 2006 Federal Human Capital Survey reported that they were satisfied with their pay and alternative work schedules, respectively. Table 3 : Patent Examiners 9 Views on Compensation-Related and Enhanced Work Environment Incentives and Flexibilities in Decreasing Order of Importance USPTO incentives and flexibilities offered to patent examiners Estimated percentage of patent examiners who identified these incentives and flexibilities as reasons to stay with the agency Current total pay (excluding benefits) 58 The availability of the flexible work schedule program 49 The availability of a hoteling program 38 Current federal benefits 30 The availability of a teleworking program 17 The recent implementation of a special pay rate increase 16 Opportunities for career advancement 15 The ability to be promoted to the next GS level 14 The availability of the law school tuition program 10 The availability of monetary awards 5 The casual dress policy 4 Access to an on-site fitness center 4 The availability of a transit subsidy program 2 The availability of on-site child care 1 The availability of flexible spending accounts (i.e., the program that allows you to pay for eligible out-of-pocket health care and dependent care expenses with pretax dollars) 1 The availability of an on-site health unit 0 Activities offered by the Work-Life Committee 0 Source: GAO survey. Note: To determine the estimated percentages in this table, we included the total number of times patent examiners identified a particular retention incentive and flexibility as one of the three most important reasons they would choose to stay at USPTO. Page 22 GAO-07-1102 U.S. Patent and Trademark Office Despite its efforts to hire an increasing number of patent examiners annually and implement a number of retention incentives and flexibilities over the last 5 years, USPTO has had limited success in retaining new patent examiners. While many of the measures implemented generally align with the primary reasons that patent examiners would stay with the agency, these efforts have not been enough to prevent the agency from losing one patent examiner for nearly every two that it has hired, and especially troubling is the high loss of patent examiners who have been with the agency for less than 5 years. Although USPTO management does not agree, the root of this high level of attrition appears to be the stress resulting from the agency 9s outdated production goals. To meet the agency 9s production goals, most patent examiners, regardless of their tenure with the agency, have had to work unpaid overtime or work during paid leave time, and therefore consider this to be a primary reason for leaving USPTO. Because the production goals appear to be undermining USPTO 9s efforts to hire and retain a highly qualified workforce, we believe the agency will continue to be limited in its ability to meet the increasing demand for U.S. patents and reduce the growth of the patent application backlog, and ultimately may be unable to fulfill its mission of ensuring U.S. competitiveness. We recommend that the Secretary of Commerce direct the Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office to undertake a comprehensive evaluation of the assumptions that the agency uses to establish patent examiner production goals and revise those assumptions as appropriate. We provided a draft of this report to the Department of Commerce and USPTO for review and comment. In its comments, the Department of Commerce agreed with our findings, conclusions, and recommendation and agreed that the agency's hiring efforts are not sufficient to reduce the patent application backlog. In light of this issue, the Department of Commerce stated that USPTO is implementing various initiatives designed to increase the productivity of the agency that will result in a more efficient and focused patent examination process. Once USPTO determines the effect of these initiatives on patent examiner productivity, it will reevaluate the assumptions used to establish patent examiner production goals. The agency also provided technical comments that we have incorporated as appropriate. The Department of Commerce's letter is included in appendix II. Conclusion Recommendation for Execut

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