PERFORMANCE AND ACCOUNTABILITY REPORT AND ACCOUNTABILITY PERFORMANCE Office and Trademark Patent States United FY 2019 United States Patent and Trademark Office PERFORMANCE AND ACCOUNTABILITY REPORT FINANCIAL AND RELATED HIGHLIGHTS % Change For the Year Ended For the Year Ended (Dollars In Thousands) 2019 Over 2018 September 30, 2019 September 30, 2018 Fund Balance with Treasury 3.2% $ 2,448,264 $ 2,372,752 Property, Plant, and Equipment, Net (12.9%) 459,341 527,081 Other Assets 33.7% 35,075 26,227 Total Assets 0.6% $ 2,942,680 $ 2,926,060 Deferred Revenue 1.5% $ 984,971 $ 970,889 Accounts Payable (5.3%) 106,665 112,662 Accrued Payroll, Benefits, and Leave 7.2% 281,532 262,588 Other Liabilities (0.7%) 145,321 146,344 Total Liabilities 1.7% $ 1,518,489 $ 1,492,483 Net Position (0.7%) 1,424,191 1,433,577 Total Liabilities and Net Position 0.6% $ 2,942,680 $ 2,926,060 Total Earned Revenue 2.4% $ 3,388,671 $ 3,309,388 Total Program Cost 4.7% (3,478,168) (3,321,475) Net Cost from Operations 640.4% $ (89,497) $ (12,087) Budgetary Resources Available for Spending 3.4% $ 3,880,416 $ 3,751,315 Net Collections (32.9%) $ (79,169) $ (117,951) Federal Personnel 0.6% 12,652 12,579 On-Time Payments to Vendors – % 99% 99% PERFORMANCE HIGHLIGHTS Performance Measures FY 2019 Target FY 2019 Actual Performance Results* Patent Average First Action Pendency (months) 14.9 14.7 Met Patent Average Total Pendency (months) 23.9 23.8 Met Trademark Average First Action Pendency (months) 2.5-3.5 2.6 Met Trademark Average Total Pendency (months) 12 9.3 Met Trademark First Action Compliance Rate 95.5% 96.4% Met Trademark Final Compliance Rate 97.0% 97.4% Met Exceptional Office Action 45.0% 54.5% Met Trademark Applications Processed Electronically 88.0% 88.4% Met Percentage of prioritized countries for which intellectual property (IP) country teams have made progress on at least 3 of the 4 performance criteria: a. Institutional improvements of IP office administration for advancing IP rights; 66.0% 66.0% Met b. Institutional improvements of IP enforcement entities; c. Improvements in IP laws and regulations; d. Establishment of government-to-government cooperative mechanisms" Number of people, including Foreign Government Officials and U.S. Stakeholders, trained on best practices to 4,500 9,854 Met protect and enforce IP * The performance result of a given measure is either met (100% or greater of target), slightly below (95%–99% of the target), or not met (below 95% of target). Key: Met (100% of target) Slightly below (95%–99% of target) Not met (below 95% of target) TABLE OF CONTENTS Legal Challenges ................................................................20 MESSAGE 1 Systems and Controls ............................................. 21 Message from the Under Secretary of Commerce for Management Assurances .................................................21 Intellectual Property and Director of the U.S. Patent and Trademark Office ................................... 2 Other Compliance with Laws and Regulations ..........22 Other Systems and Control Considerations ...............23 INTRODUCTION 5 Financial Discussion and Analysis ......................... 25 Financial Highlights ..........................................................25 About This Report ....................................................6 Your Guide to Using This Report ..............................7 PERFORMANCE INFORMATION 46 MANAGEMENT’S DISCUSSION Introduction to the USPTO’s AND ANALYSIS 8 Performance Goals and Results ............................ 47 Performance Audits and Evaluations ...........................47 Mission and Organization of the USPTO .................9 Performance Data Verification and Validation ...........49 Our Organization ................................................................. 9 Commissioners’ Performance for FY 2019 ..................49 Patent Organization .......................................................... 10 Patents: Strategic Goal I ........................................ 50 Trademark Organization ....................................................11 Strategic Goal I: Optimize Patent Policy and International Affairs .......................................11 Quality and Timeliness ......................................................51 Our People ...........................................................................12 Trademarks: Strategic Goal II ................................ 59 Significant Case Law Developments ...................... 13 Strategic Goal II: Optimize Trademark Quality and Timeliness ................................................................... 60 Recent Decisions ...............................................................13 Intellectual Property: Strategic Goal III ................. 70 Performance Highlights ..........................................14 Strategic Goal III: Provide Domestic and Global Introduction to Performance .......................................... 14 Leadership to Improve Intellectual Property Policy, The USPTO Mission.................................................15 Enforcement, and Protection Worldwide ....................71 The USPTO Vision ...................................................15 Mission Support Goal ............................................. 82 Strategic Performance Framework ................................16 Mission Support Goal: Deliver Organizational Excellence ...............................................83 Summary of Strategic Goal Results ...............................18 Management Challenges and What’s Ahead ..........19 Stable and Sustainable Funding .....................................19 Reliance on Information Technology .............................19 i FINANCIAL SECTION 105 Fraud Reduction Report .........................................158 Reduce the Footprint .............................................159 Message from the Acting Chief Financial officer .................................................... 106 Civil Monetary Penalty Adjustment for Inflation ............................................................159 Principal Financial Statements and Related Notes ................................................ 109 Biennial Review of User Fees ............................... 160 Required Supplementary Information ..................138 The Nature of the Training Provided to USPTO Examiners and Attorneys ..................................... 161 Combining Schedule of Budgetary Resources by Major Budget Account ......................... 138 Patent Examiner Training ............................................... 162 Deferred Maintenance and Repairs ............................ 139 Trademark Examining Attorney Training ...................164 FY 2019 USPTO Workload Tables .....................165 INDEPENDENT AUDITORS’ REPORT 140 GLOSSARY OF ACRONYMS AND ABBREVIATIONS 196 OTHER INFORMATION 146 Summary of Financial Statement Audit and Management Assurances .....................147 INDEX OF URLs 200 Inspector General’s Top Management Challenges Facing the USPTO ...............................148 Other Administrative Updates ..............................152 Optimize Workspace to Meet Workforce Needs ............................................................. 152 Payment Integrity ..................................................155 Risk Assessment .............................................................. 155 Statistical Sampling ......................................................... 155 Improper Payments Reporting, Root Causes, and Corrective Actions ................................................... 155 Accountability................................................................... 155 Recaptures of Improper Payments .............................. 156 Agency Reduction of Improper Payments with the Do Not Pay Initiative ....................................... 157 ii MESSAGE Exterior shot of the USPTO headquarters in Alexandria, Va. (Photo: Jay Premack/USPTO) ii 1 MESSAGE MESSAGE FROM THE UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE Andrei Iancu It has been another successful year at the U.S. Patent Identifying the best prior art promotes compact pro- and Trademark Office (USPTO), during which we have secution and is necessary to issuing patents with continued to advance our strategic goals and bolster appropriate claim scope that can better withstand our progress toward creating a pro-innovation, pro- challenges. A USPTO priority is to increase examiners’ intellectual property (IP) dialogue in the United States. ability to find the best prior art during examination. As I remain humbled by the opportunity to lead this remark- a result, the USPTO is working on numerous efforts to able agency and its nearly 13,000 dedicated employees. help examiners locate the best prior art, including: The work we do each day is vital to our nation’s economy and technological developments. Looking back on • Increased training on proper search techniques fiscal year (FY) 2019, we have recommitted ourselves and strategies, as well as training on search to maintaining and advancing an IP system that is tools, particularly for foreign patents and non- reliable, predictable, and of high-quality. patent literature. • Providing additional resources to examiners who PATENTS are search and classification experts, so that they Throughout FY 2019, Patents made significant progress can assist with prior art searches when needed. on key strategic imperatives that are important to both