Where No Fed Has Gone Before

The U.S. Patent and Trademark Office is one of the government's pathfinders. Along with the Defense Commissary Agency, PTO is vying to become the federal government's first performance-based organization.

The idea of setting the Patent Office free from its bureaucratic standard orbit is almost blasphemy to some, who argue that it performs a core government function-indeed, its mission is chartered in nothing less than the Constitution itself. However, as a PBO, it would be able to design its own internal management systems, and that flexibility, the theory goes, would translate into dramatically improved performance.

The Patent Office set its sights on that goal more than a decade ago, when its senior leadership-political and career-watched with some envy as international rivals in Britain and Japan began to transform themselves in the race to secure global intellectual property rights. Britain's Patent Office was one of the first of Margaret Thatcher's Next Steps agencies, complete with its own citizen charter, well-paid chief executive officer, and most importantly, a license to operate outside of British civil service and other administrative rules (see "Command Performance," September 1996).

Its U.S. cousin has been doing its best to Americanize the model, and it has emerged as the somewhat wilted centerpiece of the Clinton administration's reinvention strategy. Two years ago, when Vice President Gore first unveiled the proposal for performance-based organizations, he singled out PTO as the prototype, declaring that it was "the right kind of agency to lead the way in this new initiative. It has clearly identifiable customers and products, it is fully funded by user fees, and it has a system in place for measuring results and customer satisfaction."

Indeed, PTO is a government organization where performance matters: Annual patent and trademark applications have increased by almost 100,000 since 1990 and are expected to reach the half-million mark by the year 2000-with projected revenues (from filing fees and the like) projected at $1 billion. More importantly, it is an organization that performs an inherently governmental function, but one that is placed at a competitive disadvantage in relation to its foreign counterparts by government rules.

The Neutral Zone

How does one deal with this dilemma? The answer seems remarkably simple and appealing: take an organization like the Patent Office, a paper "factory" with a tangible product-in this case, patent and trademark applications-and release it from the burden of governmentwide administrative rules and regulations (such as those controlling personnel and procurement). Then, just let it perform, with the organization's managers and members held accountable for bottom line results-such as quality, quantity, unit cost and cycle time-through individual and organizational performance agreements. Patent and trademark examiners would still have to comply with intellectual property law and regulation-that's policy, as distinguished from administration-but in the PBO model, that sovereign function (including the actual grant of a patent) would remain well within the executive branch's side of the Neutral Zone.

As with most new things in government, PBOs have turned out to be more easily said than done, but for a time, it really looked like the Patent Office was on the fast track to administrative immortality. Six bills (one administration, two Senate and three House) were introduced soon after Gore's speech. All versions of the legislation embodied and embraced the PBO concept in one form or another; for example, the administration's proposal would have reinvented PTO as the U.S. Intellectual Property Organization, dividing sovereign and business functions between a Senate-confirmed undersecretary of Commerce and a contract-hired chief executive officer, respectively. One version even authorized six-figure cash performance bonuses for the CEO, after the British approach.

But after more a year of work, a House measure fell short at the tail end of the 104th Congress, and PTO still remains poised on the brink, the details of its future no longer quite so clear. And after months of working with the National Performance Review, OMB, and other PBO candidates, Brad Huther, PTO's Associate Commissioner and senior career executive, has seen the performance-based model lose some of its momentum.

In part, Huther believes that this erosion has been the result of unreasoned fear of the unknown, suggesting that "in some respects, just the debate over the Federal Aviation Administration's landmark legislation [freeing it from civil service and procurement laws] made things difficult for us and other PBO candidates. Everyone got nervous about all of the statutory exemptions and the potential for abuse, especially Congress and the unions, and they all took a 'wait and see' attitude." However, part of it was also the marvel of bureaucracy seeking an equilibrium point somewhere in the middle of conflicting interests. Huther says the Patent Office had to stand by as "the NPR argued for almost unlimited freedom for PBOs, with OMB favoring more traditional controls. We were left in limbo."

Self-Inflicted Wounds

In the process, PTO officials learned some painful lessons. "It's been like going through a maze," says one. "The clearance process [for PTO's legislation] was a killer, with turf issues everywhere we turned. Whoever had the flexibility that we wanted-OPM, GSA, Treasury-were concerned that if they gave it to us, everyone else would want it!"

"There were legions of naysayers," laments another.

However, running the bureaucratic gauntlet also had a positive effect. For example, PTO discovered that many of the management constraints they were most concerned about were self-inflicted-they were not statutory, nor were they even based in law. Rather, they were plain old bureaucratic barnacles, the kind that accumulate over the years and need to be scraped off the bottom of the ship of state from time to time: internal, administrative impediments imposed by OPM and OMB, their own Commerce Department, and in many cases, themselves.

"We concluded that we didn't need nearly as many statutory exemptions as we first thought," Huther says. "For instance, we were able to reduce our procurement cycle time by half-from 12-18 months down to less than six-just by fully implementing the new procurement reforms and by eliminating all the unnecessary internal reviews and reports and checks that didn't add any value to the end result. And so far, they've stayed unnecessary. The 're-engineered' process has been great for our managers, and there haven't been any protests, formal or otherwise, from our bidders."

PTO is so happy with its new procurement process that it's not sure that it needs any additional statutory exemptions right away. However, there is a risk in revealing this. While scraping off these bureaucratic barnacles-through governmentwide NPR initiatives, internal agency reviews like PTO's, or through reinvention lab waivers, and the like-may help the present ship of state limp along a bit faster, it also makes the case for a new and improved model less compelling.

More Power, Mr. Scott!

There is some anecdotal evidence that the original PBO concept-the notion of almost unlimited management freedom, in exchange for ultimate management accountability-is being watered down, defined only as permission to operate to the maximum extent allowed by current law.

For example, the Office of Personnel Management has published a template of existing human resource management flexibilities-secrets that may have otherwise been hidden under mounds of OPM and agency regulations-that would be made available to performance-based organizations. That template represents nothing more than a blanket regulatory waiver, a concept that has been incorporated into a generic "PBO bill" being circulated by the Clinton administration for agency comment. And its message is clear: buy in to this new, less ambitious model and avoid the "killer" clearance process.

Huther and his peers see these so-called "administrative PBOs" as "half a loaf," at best interim relief for the Patent Office and other PBO candidates. However, Huther says that if he has to serve time in an administrative halfway house, so be it-he'll take what he can get: "At least it lets us experiment with new management approaches while Congress and OMB debate-and it may allow us to convince the outside world, as well as ourselves, that we're ready for the next step."

That next step may already be in the works, at least for Huther's organization. H.R. 400, introduced by Rep. Howard Coble, R-N.C., during the first week of the 105th Congress, goes beyond the PBO model, designating the Patent and Trademark Office as a government corporation and establishing an independently appointed advisory board to augment traditional congressional oversight.

In early March, the House Judiciary Subcommittee on Courts and Intellectual Property approved Coble's bill. The measure would ensure that the user fees PTO collects would be used only to pay for the services it provides. (In recent years, fees PTO has collected have been diverted to other programs.) The agency would be limited to collecting $119 million in fees in fiscal 1999 and each year thereafter.

Early indications are that the administration may be willing to go along with the idea of a corporatized PTO, moving the Patent Office even further beyond its intended orbit.

However, at least one PBO wannabe suggests an ulterior motive: "OMB had begun to get cold feet about the Patent Office/FAA version of a performance-based organization, with all of the statutory exemptions involved. By changing tracks and corporatizing the Patent Office, they can keep the rest of us in the box." This worries the small but vocal community of PBO candidates. One of Huther's peers expresses concern that the Clinton administration may be willing to settle for "PBOs at any price, just to get a quick victory, but handcuffing us in the process. The concept is in danger of being watered down to the point where it's all risk and no reward."

For frustrated PBO candidates, this incremental approach may actually be a blessing in disguise. Here again, the Patent and Trademark Office provides a lesson: Out of bureaucratic necessity, Huther and his staff have had to approach their transformation as an evolution, a series of incremental steps that offered an opportunity to learn along the way.

"So much of this has just been building the right mind-set and skill-set in our organization, preparing it for a new culture," says Huther. "It takes time to build a whole new repertoire of 'business instincts,' as well as the management systems and analytical capabilities that go with them. For example, we're asking all of our managers-even our first-line supervisors-to be entrepreneurial. That's an instinct that they'll have to acquire. It also means that we'll have to give them real financial and performance information, and teach them how to understand it. That's tough to do, but our customers deserve it."

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