Figueroa v. United States , 466 F.3d 1023 ( 2006 )

United States Court of Appeals for the Federal Circuit
05-5144
MIGUEL FIGUEROA,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
Heath W. Hoglund, Hoglund & Pamias, P.S.C., of San Juan, Puerto Rico and
Robert H. Rines, Rines & Rines, of Concord, New Hampshire argued for plaintiff-
appellant.
Brian A. Mizoguchi, Trial Attorney, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of Washington, DC, argued for defendant-
appellee. With him on the brief were Peter D. Keisler, Assistant Attorney General, and
David M. Cohen, Director. Of counsel on the brief was Michael B. Briskin, Associate
Counsel, United States Patent and Trademark Office, of Arlington, Virginia.
Appealed from: United States Court of Federal Claims
Senior Judge Bohdan A. Futey
United States Court of Appeals for the Federal Circuit
05-5144
MIGUEL FIGUEROA,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee,
___________________________
DECIDED: October 11, 2006
___________________________
Before NEWMAN, DYK, and PROST, Circuit Judges.
Opinion for the court filed by Circuit Judge DYK. Opinion concurring in the judgment
filed by Circuit Judge NEWMAN.
DYK, Circuit Judge.
This is a suit for a refund of patent fees alleged to have been unlawfully exacted.
The appellant, Miguel Figueroa (“Figueroa”), contends that the statutory patent fees
imposed on him in 2001 and 2002 for filing his patent application and issuing his patent
violated art. I, § 8, cl. 8 of the United States Constitution (the “Patent Clause”), because
the statute was designed to generate revenue to fund federal programs other than the
United States Patent and Trademark Office (“PTO”). Figueroa also contends that the
fees constituted an impermissible direct tax in violation of art. I, §§ 2 & 9, cl. 4 (the
“Direct Tax Clauses”). The Court of Federal Claims granted summary judgment for the
United States on the first claim and dismissed the second. We affirm.
BACKGROUND
The principal issue in this appeal is whether Congress may constitutionally
impose patent fees in an amount above what is used to fund the PTO. The pertinent
facts are not in dispute.
I
Congress has imposed fees on the grant of patent rights since the first Patent Act
in 1790. Under the 1790 Act, patent fees totaled roughly $5. 1 Stat. 109, 112 (1790).
Patent fees did not total more than $100 until 1965, when Congress increased the
statutory patent application fee to $65 and the statutory patent issuance fee to a
minimum of $112. Pub. L. No. 89-83, 79 Stat. 259 (1965).1 In 1980, Congress for the
first time required periodic patent maintenance fees. Pub. L. No. 96-517, § 2, 94 Stat.
3015 (1980). The 1980 legislation established “the Patent and Trademark Office
Appropriation Account” in the treasury and required that all patent fee revenues be
credited to that account. Id. That account continues in existence to this day.
In 1982, Congress set the patent application fee at $300, the patent issuance fee
at $500, and the patent maintenance fees at $400 due three years and six months after
issuance, $800 due seven years and six months after issuance, and $1,200 due eleven
1
In the 1793 Patent Act, Congress increased total patent fees to
approximately $30. 1 Stat. 318, 323 (1793). Patent fees remained stable until 1861,
when Congress imposed separate patent application and issuance fees, set at $15 and
$20, respectively. 12 Stat. 246, 248 (1861). Congress increased those fees to $20
each in 1922, 42 Stat. 389, 393 (1922), $25 each in 1930, 46 Stat. 155 (1930), and $30
each in 1932. 47 Stat. 382, 410 (1932). In the Patent Act of 1952, Congress
established the PTO but did not raise patent fees. Pub. L. No. 82-593, 66 Stat. 792(1952).
05-5144 2
years and six months after issuance. Pub. L. No. 97-247, § 3(a)-(b), 96 Stat. 317, 317-
18 (1982).
In the Omnibus Budget Reconciliation Act of 1990 (“OBRA”), Congress imposed
a sixty-nine percent surcharge on top of both patent application and issuance fees.
Pub. L. No. 101-508 § 10101(a), 104 Stat. 1388, 1388A-391 (1990). The surcharge
expired at the end of fiscal year (“FY”) 1998. Pub. L. No. 103-66, § 8001, 107 Stat. 312,
402 (1993).
For FY 1999 Congress increased the statutory patent application fee to $760,
increased the statutory patent issuance fee to $1,210, and increased patent
maintenance fees to $940, $1,900, and $2,910 due at the previously established time
intervals. Pub. L. No. 105-358, § 3(a)-(b), 112 Stat. 3272, 3273-74 (1998). For FY
2000 Congress set patent application, issuance, and maintenance fees at their current
levels: $690 for the application fee, $1,210 for the issuance fee, and $830, $1,900, and
$2,910, respectively, for the maintenance fees. Pub. L. No. 106-113, § 4202, 112 Stat.
1501, 1501A-554 (1999). The patent fee structure is set forth in 35 U.S.C. § 41 (2000).2
Failure to pay application or issuance fees is treated as an abandonment of the
application, 35 U.S.C. §§ 111(a)(4), 151 (2000); failure to pay required maintenance
fees results in expiration of the patent, 35 U.S.C. § 41(b).
The heart of this case concerns Congress’s decision not to appropriate all of the
fees collected to fund PTO operations. Between FY 1991 and FY 1999 Congress in its
2
Congress has established a slightly different scheme for trademark fees.
Though deposited into the same special treasury account as patent fee revenue, 35
U.S.C. § 42(b) (2000), trademark fee revenue may be used only to fund the PTO’s
trademark operations. 42 U.S.C. § 42(c). There is no such limitation on the
expenditure of patent fee revenue.
05-5144 3
appropriations bills had made patent fee revenue (with the exception of surcharge
revenue) “available [to the PTO] until expended.” See, e.g., Pub. L. No. 108-199, 118
Stat. 3 (2004).3 Beginning in FY 1999, Congress limited the amount of patent fee
revenue the PTO was authorized to spend. See, e.g., Pub. L. No. 105-358, § 3(b), 112
Stat. 3272, 3273-74 (1998). As a result, some patent fee revenue was not available to
the PTO. Figueroa refers to Congress’s withholdings of patent fee revenue as
“diversions” of that revenue.
Also beginning in FY 1999 Congress enacted a series of “rescissions” of PTO
authority to spend revenues from patent fees and redirected the revenue to other
purposes.4 Congress rescinded roughly $71 million in FY 1999 for use in deficit
reduction, Pub. L. No. 105-277, 112 Stat. 2681 (1998), roughly $1 million in FY 1999 to
offset subsidies to the steel, coal, and oil industries, Pub. L. No. 106-51, § 202, 113
Stat. 258 (1999), roughly $3 million in FY 2000 to offset spending on a variety of federal
programs, Pub. L. No. 106-113, Appx. E § 301(a), 113 Stat. 1501, 1501A-303 (1999),
and roughly $1 million in FY 2002 to offset appropriations for homeland security
programs, Pub. L. No. 107-206 § 1403(a), 116 Stat. 820, 898 (2002).
Between FY 1991 and FY 2004, the PTO collected roughly $11.1 billion in total
fee revenue (including surcharge revenue) while its operational costs only totaled
around $10.6 billion, for a surplus of approximately $545.1 million. The Court of Federal
3
Beginning with FY 1992, Congress withheld surcharge revenue from PTO
appropriations, allowing Congress to utilize these funds for other programs.
4
A rescission is a legislative withdrawal of the PTO’s budgetary authority to
spend a portion of the fee revenue collected during the fiscal year.
05-5144 4
Claims found that from FY 1992 to the present, at least $422.5 million in patent fee
revenue has been directed to non-PTO spending.
Figueroa alleges that the following table represents the total amounts of diverted
and rescinded patent fees for FYs 1999 through 2004 (numbers are in millions):
Total
Fiscal Total Patent Total Patent Net Patent Additional Patent
Year Fee Fee Fees Patent Fee Fees
Receipts Appropriations Unavailable Rescissions Diverted
and
Rescinded
1999 $887 $853 $34 $72 $106
2000 $1,006 $886 $120 $3 $123
2001 $1,085 $1,039 $46 - $46
2002 $1,145 $1,121 $24 $1 $25
2003 $1,194 $1,182 $12 - $12
2004 $1,321 $1,223 $99 - $99
Since FY 1991, PTO operations have been funded entirely by fee revenue.
However, PTO employee benefits, including pensions, health insurance, and life
insurance, which are administered by the Office of Personnel Management (“OPM”),
have been funded from the general treasury.5
II
Figueroa filed a patent application on February 27, 2001, and paid the statutory
application fees. On August 7, 2001, he filed a complaint in the Court of Federal
Claims, seeking to recover the fees paid, as well as declaratory and injunctive relief
barring future allegedly illegal exactions of patent fees.6 He alleged that the fees
5
The PTO received general appropriations for employee benefit services
totaling approximately $179 million for FYs 1997 through 2003.
6
In addition, Figueroa sought to certify a class of similarly situated
individuals who had paid patent fees. The Court of Federal Claims stayed the class
05-5144 5
established by the patent fee statute exceeded Congress’s power under the Patent
Clause, constituted an unapportioned direct tax on intellectual property in contravention
of the Direct Tax Clauses, and constituted a Taking under the Fifth Amendment. He
argued that, as a consequence of Congress’s allegedly unlawful diversions and
rescissions of patent surcharge and patent fee revenue, the PTO now is underfunded to
the point that it cannot keep up with the volume of patent applications. Figueroa
subsequently paid the patent issuance fee, and on November 26, 2002, was issued
United States Patent No. 6,484,923. The parties and the Court of Federal Claims
treated Figueroa’s complaint as seeking recovery of the issuance fee as well the
application fee.
The government moved to dismiss Figueroa’s claims pursuant to Rules of the
Court of Federal Claims 12(b)(1) and 12(b)(6). The court (Judge Bohdan A. Futey) held
that Figueroa had standing but dismissed Figueroa’s Direct Tax claim for failure to state
a claim pursuant to Rule 12(b)(6), concluding that the patent fees were a condition for
obtaining an intellectual property right rather than a tax on existing property. The court
also rejected Figueroa’s takings claim, relying on our holding in Commonwealth Edison
Co. v. United States, 271 F.3d 1327, 1329 (Fed. Cir. 2001) (en banc), that “the Takings
Clause does not apply to legislation requiring the payment of money.” The court denied
the government’s motion to dismiss Figueroa’s Patent Clause claim, construing it as a
claim for an illegal exaction over which it had jurisdiction under the Tucker Act, 28
U.S.C. § 1491 (2000). Figueroa and the government then filed cross-motions for
certification issue pending the resolution of dispositive motions. The court later held
that claims accruing before August 8, 1995, were barred by the Tucker Act’s six-year
statute of limitations, 28 U.S.C. § 2501 (2000). The motion for class certification was
denied as moot when the court granted summary judgment for the government.
05-5144 6
summary judgment on the Patent Clause claim. Figueroa argued that the Clause
required that Congress’s imposition of patent fees “promote the Progress of . . . useful
Arts,” and that increasing fees to fund non-PTO programs violated this requirement.
The Court of Federal Claims granted summary judgment for the government. The Court
held that the Patent Clause’s preambular “promotion” language imposes an enforceable
limit on Congress’s authority and assumed that the diversions and rescissions of patent
fee revenue were “permanent and substantial,” Figueroa v. United States, 66 Fed. Cl.
139, 146 (2005), but concluded that Figueroa had failed to establish that there was no
rational relation between Congress’s use of the fee revenue and the promotion of the
useful arts.
Figueroa timely appealed. We have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(3) (2000).
DISCUSSION
We review the Court of Federal Claims’ Rule 12(b)(6) dismissal and its grant of
summary judgment without deference. Moyer v. United States, 190 F.3d 1314, 1317-18
(Fed. Cir. 1999); Alves v. United States, 133 F.3d 1454, 1456 (Fed. Cir. 1998).
I
In both the Patent Clause and Direct Tax claims, Figueroa’s primary claim is that
the patent fees he paid to the PTO were unlawfully exacted because Congress may
only charge fees used to fund the PTO.7 He also alleges that Congress
unconstitutionally diverted patent fee revenue to fund non-PTO programs. He therefore
7
Figueroa does not raise his takings claim on appeal.
05-5144 7
seeks a determination that Congress’s excess fees were unconstitutional, a refund of
patent fees he paid in 2001 and 2002, and an injunction barring future diversions.
As a threshold matter, and as the Supreme Court recently reiterated, we have an
obligation to assure ourselves of Figueroa’s standing under Article III of the Constitution.
DaimlerChrysler Corp. v. Cumo, 126 S. Ct. 1854, 1860 (2006). To establish standing, a
plaintiff must show that he suffered an injury-in-fact that is both fairly traceable to the
challenged conduct of the defendant and likely redressable by a favorable judicial
decision. Id. at 1861; Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); Allen
v. Wright, 468 U.S. 737, 751 (1984).
Figueroa suffered an injury-in-fact from actually paying patent fees. This injury is
both traceable to the challenged conduct of charging fees in excess of that required to
fund the PTO and redressable by a judicial award of a refund upon a finding that this
conduct was unconstitutional. Figueroa thus has standing to challenge the legality of
the fees that he paid. But Figueroa does not have standing to challenge the diversion of
the fees once paid, except to the extent that the diversions are alleged to render the
exaction of fees unconstitutional.
We proceed to consider Figueroa’s claim that the fees he paid were unlawfully
exacted.
II
Figueroa contends that the patent fees that he paid in 2001 and 2002 exceeded
Congress’s power under the Patent Clause for two separate reasons: first, he asserts
that Congress cannot impose fees that exceed the cost of operating the PTO; and
05-5144 8
second, he claims that even if Congress can do so, there is no rational relationship
between the fees imposed and the costs of running the patent system.
A
The Patent Clause, art. I, § 8, cl. 8 of the Constitution, provides, in pertinent part:
That Congress shall have the power . . . [t]o promote the progress of
science and useful arts, by securing for limited times to authors and
inventors the exclusive right to their respective writings and discoveries[.]
U.S. Const., art. I, § 8, cl. 8. The Constitution also empowers Congress to “make all
laws which shall be necessary and proper for carrying into execution the foregoing
powers, and all other powers vested by this Constitution in the government of the United
States.” U.S. Const., art. I, § 8, cl. 18. Figueroa argues that the phrase “to promote the
progress of science and useful arts” in the Patent Clause creates an independently
enforceable substantive limitation on Congress’s authority under the Clause.
In Eldred v. Ashcroft, 537 U.S. 186 (2003), the Supreme Court addressed the
scope of Congress’s authority under Article I, § 8, clause 8, as it relates to copyrights.
The petitioner in Eldred argued that the 1998 Copyright Term Extension Act,8 which
extended the duration of existing and future copyrights by 20 years, exceeded
Congress’s authority under the clause. Eldred, 537 U.S. at 195-96. The petitioner
contended that “the [statute’s] extension of existing copyrights does not ‘promote the
Progress of Science,’ as contemplated by the preambular language of the Copyright
Clause . . . [which] identifies the sole end to which Congress may legislate.” Id. at 211.
The Court assumed, without deciding, that the preambular language imposed a
limitation on Congress’s authority. However, the Court rejected the petitioner’s
8
Pub. L. No. 105-298, § 102(b) & (d), 112 Stat. 2827-28 (1998).
05-5144 9
contention that the extension of copyright terms was categorically beyond Congress’s
power under the Clause, based on “an unbroken congressional practice” of enacting
such extensions dating back to the first Congress in 1790. Id. at 199-200.
The Supreme Court in Eldred went on to consider whether there was a rational
basis for the legislation. It upheld the challenged legislation, finding rational bases for
the conclusion that it “promotes the Progress of Science.” Id. These included making
United States copyright law consistent with that of other nations, see id. at 205-06,
encouraging “copyright holders to invest in the restoration and public distribution of their
works,” id. at 207, and responding to “increases in human longevity and . . . the
substantially increased commercial life of copyrighted works resulting from the rapid
growth in communications media,” id. at 207 n.14.
Like the Supreme Court in Eldred, we assume, without deciding, that the Patent
Clause’s preambular language limits congressional authority to actions necessary and
proper to “promot[ing] the progress of science and useful arts,” and that this limitation is
judicially enforceable. Unlike the Court of Federal Claims, we do not read any decision
of the Supreme Court or our court as being to the contrary.9
B
We reject Figueroa’s contention that the fees were categorically beyond
Congress’s power under the Patent Clause because Congress under that Clause
cannot impose fees that exceed the costs of operating the PTO.
9
See Figueroa, 57 Fed. Cl. at 499-500. The issue was not presented in
either Stiftung v. Renshaw PLC, 945 F.2d 1173, 1180 (Fed. Cir. 1991), or Brenner v.
Manson, 383 U.S. 519, 528-29, 530-33 (1966). And, the Court in Eldred rejected the
notion that such a limitation was established in Graham v. John Deere Co., 383 U.S. 1,
6 (1966). See Eldred, 537 U.S. at 211-12.
05-5144 10
It is axiomatic that Congress is constitutionally empowered to create, administer,
and maintain a “patent system.” Graham v. John Deere Co., 383 U.S. 1, 6 (1966).
“Within the limits of the constitutional grant, the Congress may . . . implement the stated
purpose of the Framers by selecting the policy which in its judgment best effectuates
the constitutional aim.” Id. It is well established that “Congress may set out conditions
and tests for patentability.” Id.10 Patent fees are a condition on the grant of a patent
right; failure to pay the required fees results in denial of a patent. 35 U.S.C. §§ 41, 111;
see also Boyden v. Comm’r of Patents, 441 F.2d 1041, 1043 (D.C. Cir. 1971). Fees
have been an accepted condition of patentability since the first patent statute was
enacted in 1790. 1 Stat. 109, 112. Funding the patent system with patent fee revenue
is clearly within Congress’s authority.
Contrary to Figueroa’s argument, the Patent Clause does not limit fees that
Congress may impose to the amounts directly appropriated for operating the PTO. The
patent system that Congress has established need not be, and is not, limited to the
PTO. United States ex rel. Bernardin v. Duell, 172 U.S. 576, 583 (1899) (“[C]ongress
may provide such instrumentalities in respect of securing to inventors the exclusive right
to their discoveries as in its judgment will be best calculated to effect that object.”).
Indeed, we have previously explained that the Constitution does not require “even that
there be a PTO.” Constant v. Advanced Mirco-Devices, Inc., 848 F.2d 1560, 1564 (Fed.
Cir. 1998). Thus, for example, in the process of construing the Patent Act’s non-
obviousness provision, the Supreme Court in Graham expressly recognized that the
federal courts have a role in “the administration of the patent system,” insofar as courts
10
See also Mast, Foos & Co. v. Stover Mfg. Co., 177 U.S. 485, 494 (1900);
McClurg v. Kingsland, 42 U.S. (1 How.) 202, 206 (1843).
05-5144 11
share with the PTO the task of enforcing the requirements for patentability. Graham,
383 U.S. at 6, 18.11 Moreover, Congress may constitutionally impose fees for patent
application and issuance to serve a purpose other than raising revenue. As the Court
recognized in Eldred, Congress may legitimately seek to advance other public policy
goals related to the objectives of the Patent Clause by enacting legislation pursuant to
the Clause. See Eldred 537 U.S. at 205-07.
We conclude that Congress under the Patent Clause is not limited to enacting
legislation to fund the PTO. We thus turn to the second step in the Eldred analysis:
whether the fees imposed satisfy the rational basis requirement.
C
In deciding whether the legislation was permissible under the Patent Clause, we
accord great deference to Congress’s policy determinations. Graham, 383 U.S. at 6;
Eldred, 537 U.S. at 204-205. As the Court reiterated in Eldred, “judicial review of
legislation enacted . . . pursuant to Article I authorization” is limited to determining
whether Congress’s actions were “a rational exercise of the legislative authority
conferred by the [Patent] Clause.” Eldred, 537 U.S. at 204, 218. The question thus is
whether there is a rational relationship between the present level of patent fees and
Congress’s legitimate objectives under the Patent Clause. Eldred, 537 U.S. at 212-13.
11
See also Duell, 172 U.S. at 583 (“[S]ince 1870 [Congress] has asserted
the power to avail itself of the courts of the District of Columbia” to carry out its Patent
Clause authority); id. (Chapter 7, § 2 of the 1790 patent statute, 1 Stat. 109, “authorized
the issue of patents by the secretary of state, the secretary for the department of war,
and the attorney general.”); Constant, 848 F.2d at 1564 (“Congress was fully within its
constitutional power when it delegated power to the courts in 35 U.S.C. § 282 to
adjudicate the validity of patents in infringement suits.”).
05-5144 12
Figueroa argues that Congress’s reason for enacting fees at their present
levels—the desire to generate additional revenue to fund non-PTO programs—renders
the fees irrational and therefore unconstitutional. We disagree. The question, rather, is
whether there is a rational basis on which Congress could conclude that the level of
fees served legitimate congressional objectives. In the Equal Protection context, the
Supreme Court has held that, for purposes of rational basis review, “[w]here . . . there
are plausible reasons for Congress’s action . . . . [i]t is . . . ‘constitutionally irrelevant
whether this reasoning in fact underlay the legislative decision[.]’” U.S. R.R. Retirement
Bd. v. Fritz, 449 U.S. 166, 179 (1980) (quoting Flemming v. Nestor, 363 U.S. 603, 612
(1960)). The same test applies in this context. In Eldred, the Supreme Court, in
conducting its rational basis review, did not limit itself to the policy justifications that
Congress articulated. See 537 U.S. at 206 (“[P]rovid[ing] greater incentive for . . .
authors to create and disseminate their work in the United States,” though not
specifically articulated by Congress, was a rational basis for the legislation.).
Under this standard it is clear that the fee legislation at issue here had a rational
basis for at least three separate reasons, any one of which is sufficient to satisfy the
constitutional requirement. First, it was rational for Congress to impose the fees to fund
the overall patent system. The costs of that system are not limited to the direct costs of
operating the PTO. The direct costs appropriated by Congress for operating the PTO
do not include employee benefits costs for PTO personnel, which are paid from general
treasury funds under the “Commerce, Justice, State, the Judiciary, and Related
05-5144 13
Agencies” appropriations category.12 Figueroa admits that those costs are substantial,
averaging in excess of $27.5 million per year for FYs 1999 through 2003. In addition,
costs of executive oversight for the PTO and other aspects of the patent system by the
Commerce Department are not included in the PTO appropriation.13 Finally, there are
the costs of operating the federal court system, which provides a forum for resolving
patent disputes, both on appeals from PTO actions and in private infringement litigation.
The appellant here has not even attempted to quantify these other costs of operating
the patent system or made any effort to show that they are disproportionate to the
revenue raised from patent fees that is not directly appropriated to the PTO.
Figueroa complains that the actual dollars collected were not used to fund the
patent system. The Patent Clause imposes no dollar-for-dollar traceability requirement.
Even if the particular revenues are not directly used for the system, the fees bear a
rational relationship to the cost of running the patent system.
Second, even if the fees collected exceeded these secondary costs of operating
the patent system within any given year, Congress also could have rationally concluded
that increased patent fees were necessary to keep pace with the likely future costs of
administering the PTO and the patent system.14 PTO operating costs have increased
12
The government’s expert stated in a deposition that he estimated health
and retirement benefit costs for PTO employees since 1971 at around $3.02 billion.
13
The Department of Commerce is responsible for PTO policy management.
35 U.S.C. § 1(a) (2000) (“In carrying out its functions, the United States Patent and
Trademark Office shall be subject to the policy direction of the Secretary of
Commerce.”).
14
As the Court of Federal Claims noted, “Congress has no duty or obligation
to spend all the patent fees collected as soon as they are collected. In fact, since patent
applications usually take months, if not several years to adjudicate, it would be absurd
05-5144 14
by over $800 million since FY 1991 alone. Congress cannot know in advance precisely
how much patent fee revenue will be generated in any given fiscal year; thus Congress
could rationally decide to set patent fees at a level high enough to ensure sufficient
funding for the patent system even if Congress knew that, in some years, fee revenue
might exceed PTO operating costs. Indeed, because the costs of PTO operations in
issuing and maintaining patents are incurred over a number of years, Congress could
rationally conclude that patent fees should be set in amounts designed to provide
sufficient revenue to carry over into subsequent fiscal years and offset future costs.
Even assuming the rescissions were permanent, the vast majority of diverted patent fee
revenue remains available for later years. On at least one occasion, Congress has
appropriated funds from prior years to the PTO. Pub. L. No. 106-42, 113 Stat. 217(1999).
Finally, even if fees exceeded the existing and predicted costs of operating the
patent system, Congress could also rationally decide to set fees above what is needed
to meet the funding needs of the PTO in order to deter the filing and prosecution of
certain types of patent applications. The Supreme Court has recognized that Congress
may legitimately impose taxes or fees in order to discourage undesirable behavior. See
Dep’t of Revenue of Mont. v. Kurth Ranch, 511 U.S. 767, 780-81 (1994); Nat’l Cable
Television Ass’n, Inc. v. United States, 415 U.S. 336, 341 (1974).
Congress could rationally seek to discourage applications for patents that would
later likely be found invalid. Congress could also rationally seek to discourage patent
applications for inventions where the patent is sought only for the sake of personal
to require such an outcome since the work could well occur in another fiscal year.”
Figueroa, 66 Fed. Cl. at 152.
05-5144 15
recognition.15 And, Congress could rationally decide to discourage patent applications
from inventors who seek the patent only as a means of inhibiting innovation by
competitors.16 Congress could also rationally conclude that increasing patent fees
would discourage the filing of such applications because those applications lack
commercial potential.
We conclude that a rational relationship exists between the fees established and
the operation of the patent system, and thus that summary judgment for the government
was appropriate on Figueroa’s Patent Clause claim. In the light of our conclusion that
the fees are constitutional under the Patent Clause, we need not address the
government’s contention that, even if the Patent Clause imposes some substantive
limitation on Congress’s authority, it does not limit Congress’s authority to impose
15
Congress in 1830 considered increasing patent fees to discourage
meritless applications. See 6 Gale & Seaton’s Register of Debates in Congress 377
(21st Cong., 1st Sess. 1830). Congress has more recently heard testimony advocating
increased patent fees for the same purpose: “We believe that certain types of fees . . .
can be reasonably tailored to foster best practices. Establishing fees to ensure that
applicants will pay the actual costs of the effort required on the part of the PTO to
examine applications could have the salutary effect of discouraging applicants from
needlessly filing inordinately large numbers of claims and excessively long patent
specifications.” Statement of Michael K. Kirk, American Intellectual Property Law
Association, to the House Judiciary Committee, July 18, 2002, 2002 WL 1587908; see
also Mark A. Lemley, Rational Ignorance at the Patent Office, 95 Nw. U. L. Rev. 1495,
1506 (2001) (“[S]ome patents are issued, especially to individuals, not because they
have any market value but simply because the applicant really wants a patent on his
invention, no matter how little commercial value it is likely to have.”); id. at 1508-10
(suggesting that increasing the costs of patent prosecution to inventors may deter
undesirable applications).
16
See id. at 1516 (“[P]otential competitors or follow-on innovators might be
deterred from entering the field by the existence of patents owned by their
competitors.”); see also Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141,
146 (1989) (“From their inception, the federal patent laws have embodied a careful
balance between the need to promote innovation and the recognition that imitation and
refinement through imitation are both necessary to invention itself and the very lifeblood
of a competitive economy.”).
05-5144 16
patent fees because Congress has plenary power to impose such fees under the
General Welfare and Commerce Clauses.
II
Figueroa next contends that the PTO’s assessment of present-level patent fees
amounted to an unconstitutional Direct Tax, and thus an unlawful exaction, insofar as
those fees were used to fund non-PTO programs. Article I, section 2, clause 3 of the
Constitution provides that “direct Taxes shall be apportioned among the several States
which may be included within this Union, according to their respective Numbers.” U.S.
Const. art. I, § 2, cl. 3. The Constitution also provides that “[n]o Capitation, or other
direct, Tax shall be laid, unless in the Proportion to the Census or Enumeration herein
before directed to be taken.” Id. art. I, § 9, cl. 4. Since patent fees are uniform for all
patentees regardless of their state of residence, Figueroa contends, they constitute an
unapportioned direct tax in violation of Article I, section 9, clause 4.
It is doubtful that the patent fees, paid for the privilege of securing a patent grant,
should be viewed as taxes rather than payments for a privilege. See Boyden, 441 F.2d
at 1043 (One “is privileged to seek the [patent] monopoly only upon compliance with the
conditions which Congress has imposed . . . [including] the payment of fees required for
the administration of the patent laws.”). However, we conclude that, even if patent fees
constitute a tax on intellectual property, they are an excise tax rather than a direct tax
and need not be apportioned.
Figueroa argues that patent rights are personal property, and that the Supreme
Court’s decision in Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429 (1895) (“Pollock
I”), established that unapportioned taxes levied on personal property may constitute
05-5144 17
unlawful direct taxes. We agree in both respects. However, in Union Electric Co. v.
United States, 363 F.3d 1292 (Fed. Cir. 2004), we examined Pollock I and its successor
case, Pollock v. Farmers’ Land & Trust Co., 158 U.S. 601 (1895) (“Pollock II”), at length.
We held that Pollock I and Pollock II stand for the proposition “that the only
impermissible direct tax on personal property is a general tax on broad classes of
personal property.” 363 F.3d at 1302.
So too in Union Electric we held that “a tax imposed upon the acquisition,
ownership, or use of particular kinds of categories of property that falls short of being a
general tax on the whole of an individual’s personal property”—is an excise tax which
need not be apportioned. Id. at 1304. It follows that patent fees, to the extent they are
a tax on patent rights, are an excise tax: the fees are levied upon the acquisition and
ownership of patent rights. Patent rights are a “particular kind” of personal property. 35
U.S.C. § 261 (2000).17 A tax on patents, therefore, is like other taxes on specific
categories of personal property that the Supreme Court has sustained against direct tax
challenges. Examples include taxes on community property, Fernandez v. Wiener, 326
U.S. 340, 362 (1945), gifts, Bromley v. McCaughn, 280 U.S. 124, 138 (1929), estate
assets, N.Y. Trust Co. v. Eisner, 256 U.S. 345 (1921), mine production, Stanton v. Baltic
Mining Co., 240 U.S. 103 (1916), foreign-built yachts, Billings v. United States, 232 U.S.
261 (1914), stock sale contracts, Thomas v. United States, 192 U.S. 363, 370 (1904),
proceeds from sugar refining, Spreckels Sugar Ref. Co. v. McClain, 192 U.S. 397(1904), proceeds from tobacco production, Patton v. Brady, 184 U.S. 608 (1902),
17
See also eBay v. MercExchange, L.L.C.,126 S. Ct. 1837, 1840 (2006);
Consolidated Fruit-Jar Co. v. Wright, 94 U.S. 92, 96 (1876); Rhone Poulenc Agro, S.A.
v. DeKalb Genetics Corp., 284 F.3d 1323, 1329 (Fed. Cir. 2002).
05-5144 18
legacies and distributive shares of personal property, Knowlton v. Moore, 178 U.S. 41,
83 (1900), and carriages, Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796). These
taxes were upheld because they were “carefully tailored tax[es] . . . levied upon only
one particular kind of personal property.” Union Elec., 363 F.3d at 1302. The same is
true here even if the fees may be fairly equated to a tax.18
We conclude that Figueroa’s direct tax claim was properly dismissed.
CONCLUSION
For the foregoing reasons, the decisions of the Court of Federal Claims are
affirmed.
AFFIRMED
COSTS
No costs.
18
Patent application and issuance fees may also be viewed as taxes on the
transfer of the patent right to the patentee. We have held that a tax on the transfer of
property does not constitute a direct tax. Nationsbank of Tex., N.A. v. United States,
269 F.3d 1332, 1335 (Fed. Cir. 2001).
05-5144 19
United States Court of Appeals for the Federal Circuit
05-5144
MIGUEL FIGUEROA,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
NEWMAN, Circuit Judge, concurring in the judgment.
Although Mr. Figueroa's petition is not without merit, I conclude that he has not met
the extremely heavy burden of establishing that congressional actions violate the
Constitution. It may be that additional data in support of his various arguments could shift
the balance, but on the record before us, I agree that the judgment of the Court of Federal
Claims must be affirmed. However, I do not share the reasoning of the panel majority. I
would affirm on the ground applied by the Court of Federal Claims, ruling that Congress is
not acting irrationally.
The Court of Federal Claims compared the amount of funds that were diverted from
the PTO, with the government's very rough estimate of the additional patent-related costs
that are paid out of general government funds, including the PTO employee retirement
expenses that are paid by OPM, the costs to the Department of Commerce as the parent
agency of the PTO, the costs of judicial dealings with patent matters, of patent exclusion
activities of the Customs Service and the International Trade Commission, and
miscellaneous other items. The Court of Federal Claims concluded that Mr. Figueroa had
not shown that the diverted funds exceeded these total costs. I agree that the evidence did
not clearly establish that Congress was extracting more money from patentees than the
government spends in administering the system. Thus his potentially viable constitutional
arguments of illegal exaction and improper taxation were not demonstrated so clearly and
convincingly as to establish a constitutional violation.
Mr. Figueroa also makes a strong argument that the unduly high fees are a burden
on the constitutional purpose to promote the useful arts. Although without doubt the patent
system should not be unnecessarily burdened, the absence of quantification and hard
evidence of the effect of the fee structure weakens the constitutional force of this argument.
Although I agree that the dismissal must be affirmed, I cannot join in the panel
majority's reasoning. The panel majority concedes that there must be a rational basis
between the congressional diversion of the PTO fees and the constitutional purpose of
promoting the useful arts; the majority opinion speculates about what such a rational basis
might be, and recites with approval the theory that the imposition of higher than necessary
fees will "deter the filing and prosecution of certain types of patent applications without
commercial potential." Indeed, one occasionally hears the gibe that people will obtain a
05-5144 2
patent simply for the glory of hanging a beribboned document on the wall. Although
generally tongue-in-cheek, and never heard from inventors and investors, the panel
majority includes it as serious justification for the higher fees that enable the ensuing fee
diversion. However, Congress' actual goals are stated in the budgetary diversion, and do
not include those postulated by the panel majority. The beneficiaries of the diverted PTO
collections are identified in the congressional action, such as the $77 million diverted to
homeland security in 2004. It is not pretended that any of the recipients of the diverted
funds has a rational relationship to the constitutional charge to promote the progress of the
useful arts.
Mr. Figueroa argues cogently that high fees place a burden on patent-supported
investment and disclosure and development. Economists stress the importance of patent-
type structures in commercial risk analysis and entrepreneurship. When the patent fee
structure was realigned in 1982 to include fees to be assessed after the patent has issued,
that is, the "maintenance" fees levied at 32, 72, and 112 years after grant, the purpose
was to place the increased burden of patent administrative costs on those patents that
achieve commercial value. Mr. Figueroa is correct that the fee structure was never
intended to provide government income to fund unrelated activities. See 35 U.S.C. '41
(authorizing the Director of the PTO to set fees "to recover the estimated average cost to
the Office of such processing, services, or materials"). However, as the income increased
from maintenance fees, the PTO came to be viewed as a kind of "profit center" for the
05-5144 3
support of unrelated government projects. Meanwhile, the backlog of the PTO is rapidly
increasing,1 and expanded services remain unfunded.
Mr. Figueroa's argument based on the constitutional mandate is elaborated in
Graham v. John Deere Co., 383 U.S. 1 (1966):
At the outset it must be remembered that the federal patent power stems
from a specific constitutional provision which authorizes the Congress "To
promote the Progress of * * * useful Arts, by securing for limited Times to * * *
Inventors the exclusive Right to their * * * Discoveries." Art. I, ' 8, cl. 8. The
clause is both a grant of power and a limitation. . . . The Congress in the
exercise of the patent power may not overreach the restraints imposed by the
stated constitutional purpose.
383 U. S. at 5-6 (footnote and citations omitted). The Court has also explained that
congressional enactments implementing the Patent and Copyright Clause must be
"rationally related" to the constitutional objective. See, e.g., Eldred v. Ashcroft, 537 U.S.
186, 212-13 (2003) (considering whether lengthening the copyright term has a rational
basis to "promoting the progress of science"). The panel majority has inaptly applied the
"rational basis" criterion, for although it is surely rational for Congress to raise money to
support the government, the diverted PTO fees are not used to support activities having
any relation to the progress of science and the useful arts. Thus United States Railroad
Retirement Board v. Fritz, 449 U.S. 166 (1980) does not support the diversion, for in that
1 The Commissioner of Patents recently explained that the application backlog
is now approximately one-million and rising, and the first action on the merits pendency in
some art units exceeds ten years. http://www.uspto.gov/web/offices/pac/dapp/opla/
presentation/chicagoslides_back.ppt.
05-5144 4
case the Court observed that Congress had not articulated its legislative purpose, whereas
here the destination of the diverted PTO collections is plainly stated.
The government argues that its right to divert the PTO fee income is absolute, and is
supported by the broad powers of Congress to tax and to spend. Mr. Figueroa responds
that this diversion is no more than a direct tax on inventors, and violates the constitutional
prohibition of direct taxes that are not apportioned. The Court of Federal Claims lumped all
of the PTO collections together, and held that they are not a tax. A more rigorous analysis
shows that the amount of the fees that are allocated to support PTO services are not an
unapportioned tax; however, the amount that is diverted to support other government
activity can readily be viewed as an unapportioned direct tax, and prohibited by Article I,
section 9, clause 4 ("No Capitation, or other direct, tax shall be laid, unless in Proportion to
the Census or Enumeration herein before directed to be taken.") (modified by the Sixteenth
Amendment, authorizing the levy of income tax). As was explained in Simmons v. United
States, 308 F.2d 160 (4th Cir. 1962):
A direct tax is a tax on real or personal property, imposed solely by reason of
its being owned by the taxpayer. A tax on the income from such property,
such as a tax on rents or the interest on bonds, is also considered a direct
tax, being basically a tax upon the ownership of property. Yet, from the early
days of the Republic, a tax upon the exercise of only some of the rights
adhering to ownership, such as upon the use of property or upon its transfer,
has been considered an indirect tax, not subject to the requirement of
apportionment.
Id. at 166 (citations omitted). The federal government cannot assess an unapportioned tax
on the ownership of property.
The panel majority finds that the PTO fees are not direct taxes but are excise taxes.
I doubt that this is correct as a matter of law. In my view, however, the entire cost of
05-5144 5
government patent operations is relevant to whether the diversion is unconstitutional as an
unapportioned direct tax.
Mr. Figueroa, an inventor, has expressed valid concern for the nation's prosperity
and vigor as derived from advances in science and technology. He exhorts optimum
support of the PTO's assignment, to implement the constitutional purpose. His
constitutional arguments are not devoid of merit, and warrant deeper exploration than they
have thus far received.
05-5144 6