On January 25, 2019, after 35 days of uncertainty and hundreds of thousands of federal employees missing their second paycheck, the partial government shutdown that went into effect on December 22, 2018 ended. Ramifications of the shutdown were felt across a number of industries, thus creating a host of questions on a variety of issues for many companies. One area that the attorneys at Womble Bond Dickinson are closely monitoring for our clients is this event’s impact on the United States Patent and Trademark Office. And, now that the government has reopened, we offer some background on how the USPTO functions during a shutdown, as well as practical suggestions about how businesses may consider tailoring their intellectual property strategy during a time in which a government shutdown may indeed occur again.
The USPTO is a fee funded agency. As customers perform their business with the USPTO, they pay fees for the various processes associated with obtaining and maintaining patents and trademarks. The fees paid serve as the funds from which PTO employees, such as examiners and administrative judges who perform the work of the agency, are ultimately paid. Given this manner of operation and incoming funds, one might presume that the USPTO would not be subject to the challenges presented by a government shutdown. That is not exactly the case, however.
Congress declares an annual appropriation amount that may be spent by the USPTO, should it collect those fees, thus placing limits on office’s authority to expend whatever it collects without oversight. Indeed, under the Patent Act, the USPTO is only allowed to spend congressionally appropriated funds. Should the Patent Office collect more funds than Congress appropriated, those funds can be put in a specific reserve fund held by the United States Treasury. Due to the increasing frequency of government shutdowns and with congressional restrictions placed on money coming in the door, however, the USPTO developed an alternative framework to legally sustain operations when the government is closed.
In recent years, the USPTO has moved to a system of placing some of its appropriated spending into an “Operating Reserve” account, which allows the office to log the money as spent appropriated dollars, though it is instead truly a type of savings. Details about this Operating Reserve and the USPTO’s other budgeting priorities can be found in its annual congressional justification document . It is because of this Operating Reserve account that USPTO is able to continue to function during times of government shutdown. As a result, at the start of the December 2018 shutdown, the office was able to immediately release a statement affirming that it would continue to operate with business as normal.
Despite the PTO’s ability to remain fiscally afloat for a month, when the shutdown proceeded with no clarity as to how long it would continue, the USPTO released a second statement on January 24, 2019 indicating that the absence of an appropriations bill prevented the office from accessing fees collected since the beginning of the shutdown. Accordingly, the office projected that its Operating Reserve for patents would allow it to continue functioning through the second week in February, and its trademark funds through mid-April. Once it was announced on January 25 that the shutdown would end, at least temporarily, the USPTO released a statement confirming that the office was again operating on normal status.
Lessons Learned on IP Strategies Amid the Longest Shutdown
While the US government has been shut down before, the most recent was the longest in United States history. As a result, the USPTO became closer than ever to depleting its Operating Reserve funds. Clients should be mindful that government shutdowns are sweeping political actions that are occurring more frequently, so intellectual property strategy decisions should be made with the lessons we have learned along the way in mind.
Lesson 1: Continue USPTO business as usual – but maintain the ability to go the extra mile to meet deadlines, as needed.
Because the USPTO is able to continue business as usual for a fair amount of time during shutdowns, companies doing business with the agency should similarly plan to continue business as usual. Deadlines should still be respected and met to avoid losing important intellectual property rights. During prolonged shutdowns, should the PTO ever exhaust its funds and cease its ability to operate, it is highly likely that the office will still require customers to adhere to existing deadlines. For example, despite having nonfunctioning electronic filing mechanisms during power outages in past years, most recently in 2018, the Patent Office typically maintained its deadlines.  As a result, customers and their attorneys used traditional mailing options to meet deadlines. The same would likely be required in the face of a shutdown lasting long enough to impact PTO operations.
Lesson 2: Be mindful of and prepared for certain USPTO delays, should its funds run out.
Despite the necessity of customers meeting standing USPTO deadlines in times of shutdown, should funds ultimately deplete prior to the government reopening, certain functions will cease. For example, new applications are likely to be accepted as filed (and accompanying fees processed); however, it is unlikely that those same applications will be examined if the PTO is legally unable to pay its employees. Examiners will be unavailable for interviews or to respond to office actions. The statutorily time-barred year for the Patent Trial and Appeal Board to complete its review of petitions may indeed be pushed out under the six-month “good cause” exception, a process only once before invoked by the agency.  Accordingly, companies need to be prepared to both execute and wait in its dealings with the Patent Office. And, should delays occur in this manner during a shutdown, the backlog will almost certainly cause operational delays once the government reopens.
Lesson 3: Think about court strategies, too – the judiciary can also be impacted by government shutdowns.
USPTO customers often assert IP rights or mount defenses in court while simultaneously pursuing matters at the Patent Office. Federal courts remained open during the recent partial shutdown, but as days went on without a conclusion in sight, the judicial branch also found itself nearing the end of its ability to continue operations. Thus, while taking care to continue meeting Patent Office deadlines, clients should also revisit the strategic approach taken in any federal court matters. Contemplate how the judiciary’s potential inability to function could impact the company’s capacity to assert IP or defend itself from infringement challenges. Assess how those challenges might impact the company’s bottom line. Such an analysis could influence how parties negotiate potential settlement or engage in motion practice, as examples.
Lesson 4: Continue to consider alternative IP strategies that may not be susceptible to shutdowns.
Though always critical to deliberate, in an era where the government is experiencing shutdowns lengthy enough that the Patent Office’s operations could be impacted, clients should be especially mindful of exploring alternative IP strategies. Contemplate whether the important business solution is better protected as a trade secret versus a patent. Can a trademark sufficiently serve its purpose to the business using common law rights versus filing an application? In many cases, the most strategically effective decision is to officially pursue protection at the USPTO, particularly when licensing can serve as a revenue stream or when recovering potential damages is of critical importance. However, clients are encouraged to take extra care when making these decisions, keeping potential shutdowns in mind as one of many realistic concerns.
Thoughts on the Future
The USPTO’s fiscal prudence and foresight allowed its operations to soldier on during what was the longest government shutdown in United States history. The IP community widely supports the agency’s use of an Operating Reserve fund, as evidenced by the Patent Public Advisory Committee’s November 2018 letter to the White House . This committee recommended, among other things, that the USPTO significantly increase its Operating Reserve for patents in particular as soon as practical to support operations for at least three months.
In the meantime, especially for the remainder of this year when there is a real possibility that another shutdown could leave the USPTO with a depleted Operating Reserve fund, clients should consider the above strategies to assist in successfully navigating shutdown challenges and optimally managing IP portfolios.