Unconstitutionality of S.507 --Part II

by Brian Elfman (August 1997)


[1] The prime object of S. 507/HR400 ('507) Title I, is to privatize the Patent and Trademark Office (Patent Office). This is the second in an open series of papers questioning the constitutionality of '507. Part I, relying on U.S. v. Duell, (1899) 172 U.S. 576, concludes that the Commissioner of Patents is subject to the Appointments Clause, Article II, Section 2, cl.2., U. S. Const., which post in '507 is demoted to that of a high level civil service manager.

[2] Duell also teaches that there are two parties to a patent application, the general public as grantor and the Inventor as grantee. Nonetheless, by some means, '507 replaces the grantor with a private government owned corporation and transmogrifies the grantee into the role of a "customer". Business practices acceding to "best customers", "the customer is always right" and so forth, are plainly discordant with the judicial process. Here, Part 2 touches on certain of the means and their consequential issues altering Inventors' rights .

[3] In July 1997, the Senate Report 105-42 (Report 42) in support of '507 was released, giving a background of legislative history and legislative intent that was strongly lobbied for by the Administration. "the Patent Office is a transaction-based self-sustaining business and that Inventors are its "customers"." Report 42 at Title I. Thus, the key issues of Title I are contained in the phrase "transaction-based self-sustaining business". Whereas, "transaction-based" means the exchanging of Title 35 services for fees; "self-sustaining" means the Patent Office must collect enough to cover expenses; and, the phrase "business" means a private government owned corporation. This is inconsistent with constitutional authority:

"Unlike the postal power, . . . [the power over patents] is neither an agency nor an instrumentality of the federal government, but requires the federal government to create something rather than to regulate some private enterprise which already exists." *Willis, Const. Law (1936) at p.418

*Note on the cited paragraph: Professor Willis (U.Ind.) also anticipates Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989) (States making patent grants . . . as to be unconstitutional.)

[4] Now the phrase "transaction-based" is merely a convoluted descriptor of what the Patent Office has been doing, more or less, since 1790, the phrase in and of itself presents no issue. However, the phrases "self-sustaining" and "business" are descriptors wholly incongruent with how the Patent Office has been operated, ever. Inferentially the issues are 1) mandating the Patent Office collect enough to cover expenses; and, 2) converting the Patent Office into a private government owned corporation. Insofar as the first issue: mandating the Patent Office collect enough to cover expenses, consider the following paragraph quoted from the PTO 1996 Annual Report to Congress:

"To provide market incentives for those seeking patents, the current patent fee structure allows for lower initial fees that are supplemented by income from other sources, such as maintenance fees, to cover the full cost of the patent examination and issuance process as well as other PTO operations (e.g., patent documentation and quality review). As with the decision to apply for a patent, the decision to renew a patent rests entirely with the patent owner and is subject to industry and market considerations. However, since the maintenance fees are the largest category of fee income, fluctuations in rates of renewal can significantly affect revenues." Id. at Financial Review

(Notes: 1. The Patent Office levies coercive periodic payments otherwise denoted "maintenance fees" on valid patents. (coercive; meaning the patent expires upon nonpayment.) 2. Thus, the terms "renew" and "renewal" are '507 equivocations for -- payment of the maintenance fee.)

[5] The first sentence, "market incentives for those seeking patents" connotes that control of patent application fees makes patenting more attractive; this affixes a monetary standard to control the phrase "to promote the sciences" and is therefore impermissible. The second sentence, "is subject to industry and market considerations" is wholly inconsistent with the Inventor's constitutional right not to make, use, vend or license a patent. (Citations omitted.)

[6] Likewise, the Administration's fee control policy is furthered with: "the current patent fee structure allows for lower initial fees that are supplemented by income from other sources, such as maintenance fees." Id. at first sentence. This reasoning is '507 fallacy - on one hand, the Administration contends maintenance fees are responsible for lower patent application fees to make patents more attractive; on the other hand, maintenance fees "subject to industry and market considerations", above, result in an 86% rate of attrition. (Where 79%, 55%, 32% for each of the three periods, at each stage respectively result in only 14 out of 100 issued patents that will realize a full statutory term.) Id. at Financial Review. What is more, the Administration discloses in the third sentence, "maintenance fees are the largest category of fee income". Id. For this reason, without maintenance fees, the concept of "self-sustaining" falls.

[7] The second issue goes to the heart of the most controversial part of Title I, privatizing the Patent Office. Interestingly, much of the legislation to make it a wholly independent agency is in place. To start with, in 1990, Congress made the Patent Office a federal agency. See Pub. L. 101-508, title X, Sec. 10102, Nov. 5, 1990, 104 Stat. 1388-392, (For the purposes of Federal law, the Patent and Trademark Office shall be considered a Federal agency.) The legislative intentions of Congress are well declared in 5 U.S.C. 901, (to promote the better execution of the laws, the more effective management of the executive branch and of its agencies and functions, and the expeditious administration of the public business; to reduce expenditures and promote economy.)

[8] There are explicit constitutional dissimilarities between the purely-public quasi-judicial autonomy of an independent agency and that of a quasi-private financially-oriented transaction intradependence of a government corporation. Compare generally, the CIA to AMTRAK. Moreover, the Patent Office's quasi-judicial functions have been construed in United States v. Duell, 172 U.S. 576 (1899) to be constitutionally independent of the administration by the Executive Branch. "[the Commissioner] deciding patent cases was essentially judicial . . . and not subject to review by the executive head [the Secretary], an appeal to the courts having been provided for [from the Commissioner] . . .." United States v. Duell, 172 U.S. 559 (1899) quoting United States v. Butterworth, 112 U.S. 50 (1884). See also, 3 Willoughby, Const. Law, 1097, n.27-28 at p. 1663 (1929) (The Delegation of Judicial Power: noting Duell approves "more strongly" the adjudication of claims for patents being judicial in character.)

[9] Butterworth was critical to Chief Justice Fuller's conclusion in Duell, "it is of vital importance that the line of demarcation . . . among the three great departments of government should be observed . . . we find no such encroachment on the domain of the other . . . to justify holding the act in question unconstitutional." In other words, the quasi-judicial functions of the Patent Office were held to be wholly independent from any other part of the Executive Branch. Thus, it turns out that the Patent Office is right now an independent agency of which its quasi-judicial Article I functions are independent of the Executive Branch. Thus, the remedy for the Executive Branch moving the Patent Office in or out of a Department is 5 U.S.C. 901 et seq.(Executive Reorganization.)

[10] As a quasi-judicial Article I function, the Patent Office has all the salient juristic components that make up other Article I judicial functions. The Patent Office, like the tax court and bankruptcy courts, has its own bar. Similarly, like the tax and bankruptcy courts, the Patent Office administers laws expressly codified out of Article I. There is a tax system. There is a bankruptcy system and there is a patent system. "The Patent Office is not the patent system." Donald W. Banner, The Recent Proposal to Change the United States Patent System, 2 PLR 565 (1970).

[11] In contrast to other Article I courts, patent examination entails a special body of technical and legal jurisprudence, see generally Duell, 172 U.S. 559, and grants monopolies. "Equality of rights, privileges, and capacities unquestionably should be the aim of the law; and if special privileges are granted, or special burdens or restrictions imposed in any case, it must be presumed that the legislation designed to depart as little as possible from this fundamental maxim of law." Cooley, Const. Lim. 8th ed. p.813 (Citations, inter alia, to English law on monopolies, where in part, the Patent and Copyright Clause, Art. 8, Sec. 8, cl.8., was patterned.)

[12] Furthermore, the patent system is subject to the usual constitutional limitations, like due process. While the patent itself is subject to special limitations, such as its power confined to the United States. Brown v. Duchesne, (1856) 60 U.S. 183, 195. Like the patent system and the patent itself, the Patent Office is also subject to limitations, particularly as a quasi-judicial Article I function where "special privileges are granted, or special burdens or restrictions". Cooley at paragraph 9, above. The paramount constitutional limitation is that "the legislation [be] designed to depart as little as possible from this fundamental maxim [equality of rights, privileges, and capacities] of law". Id. Thus, it is manifest that the Patent Office conduct its quasi-judicial function of making grants within the same express limitations that bound the patent system and the patent itself.

[13] The patent system of granting a limited monopoly as instituted by the Framers adapting English common law into constitutional law, the 200 years of copious case law history and legislation following thereto, notwithstanding leading constitutional authorities - support the proposition that the Patent Office is a purely-public quasi-judicial Article I function. "[The Postum Cereal Co. v. California Fig Nut Co., 272 U.S. 693] ruling on a Patent Office determination was "judicial." Whether it was or not is immaterial because, as already noted, Article I courts, like Article III courts, exercise "judicial" power. Glidden Company v. Zdanok, 370 U.S. 530, * (1962)(*Fn.11 at Second in dissent by Mr. Justice Douglas with whom Mr. Justice Black concurs.)

[14] In sum, by any analysis, the intentions of the Framers, case law, or tradition -- the Administration's Patent Office budget and management policies manifesting interference with the granting of patents to gain the support of Congress and the '507 demotion of the post of Commissioner into a high level civil service manager -- are in contravention of constitutional law. In any similar analysis, converting the Patent Office into a private government owned corporation defeats how the Patent and Copyright Clause has been construed for 200 years. While all the foregoing constitutional infirmities are built on maintenance fees, which themselves are a certainty to be subject to constitutional limitations. Wherefore, '507 is constitutionally bankrupt.

Brian Elfman cdi@ricochet.net

(c) Copyrights 1997. Granted when cited with author; and notice for personal use; Brian Elfman, P.O. Box 748, Alameda, California. 94501.

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