USPTO Breaks President Trump’s “One-In Two-Out” Executive Order

           where the USPTO creates patents, are being internally diverted to the PTAB, where the USPTO destroys patents.

President Donald J. Trump

It would appear as if Obama holdover Michelle K. Lee continues to run the USPTO. More than six weeks after President Trump’s Inauguration Lee is delivering remarks at PPAC and PTAB Bar Association on March 2, 2017, appearing as a speaker at industry events (e.g. AUTM), signing notices published in the Federal Register, and signing newly issued U.S. Patents. This could be a very expensive problem for inventors as these patents end up in litigation and defense lawyers inevitably challenge the validity of any patent issued and signed by Lee because there is no clear authority for anyone to sign patents until an official announcement has been made on Lee’s statuts.

The lack of transparency surrounding Lee’s status is but one serious problem at the USPTO; there are others. Take for example the story of how the USPTO under Michelle Lee is pushing a fee increase. We first alerted the Patent Public Advisory Committee (PPAC) in an open letter outlining the problematic nature of the USPTO fee increase just ahead of the first quarterly meeting on March 2, 2017. A major issue is that fees for examination, where the USPTO creates patents, are being internally diverted to the PTAB, where the USPTO destroys patents. Yet, the USPTO wants to increase examination fees anyway, presumably so those fees can still be diverted to fund the financially failing PTAB. The PPAC accepted the letter and will soon publish it on their site.

The contents of our letter were not discussed at the most recent PPAC quarterly meeting, but it was acknowledged for receipt and it appears some PPAC members wanted to discuss it. However, during that meeting serious questions came to light about whether Lee’s USPTO is undermining President Trump ‘One-In Two-Out’ Executive Order.

President Trump’s ‘One-In Two-Out’ Order (formally Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs) mandates that whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed. Moreover, under the ‘One-In Two-Out’ Order, the costs of any new regulations must be offset by the elimination of existing costs of at least two prior regulations. The ‘One-In Two-Out’ Order broadly defines the term “regulation” or “rule” to mean “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency.”

The White House Office of Management & Budget (OMB) issued guidance on implementing the ‘One-In Two-Out’ Order. The OMB Guidance explains, under the heading “Coverage:”

Q: Which new regulations are covered?

A: The EO’s requirements for Fiscal Year 2017 apply only to those significant regulatory actions, as defined in Section 3(f) of Executive Order 12866, an agency issues between noon on January 20 and September 30, 2017. This includes significant final regulations for which agencies issued a Notice of Proposed Rulemaking before noon on January 20, 2017.

At the quarterly PPAC meeting, USPTO Deputy CFO Frank Murphy (listed on the agenda as Acting CFO) stated that USPTO is moving forward with its proposed $710 million fee increase, despite the Trump’s ‘One-In Two-Out’ Order. See Livestream of PPAC at 1:22:30 for discussion. PPAC Member Bernie Knight (former General Counsel of USPTO) then asked Mr. Murphy whether the $710 million fee increase is subject to Trump’s ‘One-In Two-Out’ Order. Mr. Murphy responded that he does not believe the $710 million fee increase is subject to Trump’s ‘One-In Two-Out’ Order because, in his view, it is not a “new” regulation but rather is an “amendment” to an old regulation.

Mr. Murphy also responded that, even if the $710 fee increase were subject to Trump’s ‘One-In Two-Out’ Order, the USPTO would look to eliminate two regulations in other agencies within the Commerce Department, not the USPTO’s own regulations. But how can the USPTO eliminate regulations in other agencies? Can you imagine the likely fight that will occur between the USPTO and those other Commerce Department agencies (NIST, Census, ITA, NOAA, BEA, BIS, NTIA), as the USPTO seeks to gore the ox of these other agencies, without offering any of the USPTO’s own regulations for repeal? And how could such an interpretation be at all consistent with the terms of the ‘One-In Two-Out’ Order, let alone the spirit of the Order?

USPTO’s interpretation is wrong: OMB Guidance does not distinguish between “new” regulations and “amended” regulations. A proposed regulation that would go into effect in FY2017 is “new” and is covered by the ‘One-In Two-Out’ Order so long as it is a significant regulatory action and was published in a “Notice of Proposed Rulemaking before noon on January 20, 2017.”

Here, the USPTO’s proposed fee increase was published in a Notice of Proposed Rulemaking on October 3, 2016 (i.e., before noon on January 30, 2017) and itself admits that it is “significant for purposes of Executive Order 12866” (i.e., having an annual effect on the economy of $100 million or more). See 81 FR at 68179. Therefore, under the OMB’s definition, the USPTO fee increase is both a “new regulation” and a significant regulation to which the Trump ‘One-In Two-Out’ Order applies.

We think the public would be shocked to learn that the USPTO, or any agency, can increase fees by $710 million through rulemaking and claim that this is not a rule subject to the Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs.

Stakeholders and concerned citizens alike need to start asking whether President Obama’s Director of the USPTO, holdover Michelle Lee, is seeking to undermine President Trump from within.