MIGUEL FIGUEROA v. UNITED STATES
05-5144
United States Court of Appeals for the Federal Circuit
October 11, 2006
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
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.
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
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
Failure to pay application or issuance fees is treated as an abandonment of the application,
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
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
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):
| Fiscal Year | Total Patent Fee Receipts | Total Patent Fee Appropriations | Net Patent Fees Unavailable | Additional Patent Fee Rescissions | Total Patent Fees 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
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,
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,
Figueroa timely appealed. We have jurisdiction pursuant to
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
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. Cuno, 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
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[.]
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
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.
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 Micro-Devices, Inc., 848 F.2d 1560, 1564 (Fed. Cir. 1988). 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
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.
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
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
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.
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
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.”
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
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.
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.
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
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
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 3 1/2, 7 1/2, and 11 1/2 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
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
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
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.