October 19, 2004

SUBJECT:  Consideration of the Elimination of Sc[i]³ - the Sunnyvale Center for Innovation, Invention, and Ideas

REPORT IN BRIEF

On May 4, 2004, the City Council provided preliminary direction to eliminate Sc[i]³, the Sunnyvale Center for Innovation, Invention, and Ideas.  Since Sc[i]³’s inception in November 1994, the Council has subsidized the Sc[i]³ program in the amount of $1,575,345.  This amount represents the cost over 10 years.  This report is to confirm Council’s direction to eliminate Sc[i]³ and to present the implementation plan.

BACKGROUND

Silicon Valley and the Bay Area comprise the leading center of biotechnology, computer and communications technology in the world.  Santa Clara County is the recipient of the highest number of patents issued each year, more than anywhere else in the United States.  The presence of top-ranked universities, national research laboratories, large multinational corporations, and small start-ups, a highly educated and entrepreneurial workforce, and numerous sources for venture capital funding are among the reasons why Silicon Valley has been and continues to be at the forefront of invention. 

Since 1963, the City of Sunnyvale has hosted a Patent and Trademark Depository Library through the Sunnyvale Public Library.  On more than one occasion, the efficacy of continuing patent services was considered by the City Council.  In 1994, the City of Sunnyvale partnered with the United States Patent and Trademark Office (USPTO) to deliver enhanced intellectual property services on a cost recovery basis.  The partnership was known as Sc[i]³.

Although charged with full cost recovery, the Sc[i]³ partnership has never been able to achieve this goal.  On July 24, 2001, the issue was brought before the City Council.  At that time, the City Council adopted a plan to redesign and relocate Sc[i]³’s services in an effort to determine if Sc[i]³ could generate enough revenue to cover the fee-based portion of its services, and the basic patent and trademark reference services were incorporated into the library’s operating budget.  The City Council was advised at that time that should cost recovery for Sc[i]³’s fee-based services be unobtainable, a recommendation to cease the partnership would be forthcoming.  By January 2002, Sc[i]³ services were downsized, staff reduced from 6 to 2.54 FTEs, and operations moved from office space at 465 S. Mathilda Ave. to the Main Library.  After more than two years of operating in its downsized and redesigned form, Sc[i]³ continues to demonstrate a need for a subsidy of $19,980 in FY 2002/03 and $34,074 in FY 2003/04 from the City. 

Between February and May 2004, the City Council conducted a new process to prepare, review, and provide initial and final policy direction for the City’s budget and long-term financial plan.  Due to the continuing need for an annual subsidy and the risk that represented to the City, staff identified the elimination of the Sc[i]³ program for Council consideration.  On May 4, 2004, at least four City Council members provided preliminary policy direction to eliminate Sc[i]³.  Since that time, staff prepared a budget that meets Council’s expectations for self-sufficiency.  The submitted and approved budget for Sc[i]³ is very stringent, and projects higher revenues with reduced staff hours and the elimination of the $30,000 annual fee paid by the City of Sunnyvale to the USPTO for access to the resources used in the provision of Sc[i]³’s services.

To have any chance of being successful in FY 2004/05, staff identified four key actions by the US Patent and Trademark Office.  They were the following:  (1) eliminate the subscription fee of $30,000 beginning October 1, 2004;  (2) assist in identifying new lines of business in order to generate sustainable revenue streams;  (3) guarantee delivery of repeat seminars within 45 days of request and be similarly responsive in requests from Sc[i]³ clients in developing new course offerings; and, (4) guarantee one or more annual visits from high ranking USPTO officials in order to interface with the intellectual property community in Silicon Valley as well as to be a fundraising opportunity for Sc[i]³.  Mayor Howe communicated these requests in a letter to Kay Melvin, Executive for Customer Information Services at the USPTO on August 18, 2004.  See Attachment A.  Ms. Melvin’s response letter of August 27, 2004 stated that the $30,000 fee could not be eliminated and failed to address the other three areas of concern.  See Attachment B.

EXISTING POLICY

Library Collection
Action Statement 6.2A.3c	Provide a collection of patents and trademarks.
Finding and Using Materials and Information
Action Statement 6.2B.1d	Provide patent reference services based on demand and financial self-sufficiency for Sc[i]³ services.
Legislative Action Policy 6.2.10	Support the USPTO efforts to streamline and simplify the application process of applying for and obtaining protection for new patents or trademarks. (2003 Library and Economic Development Staff Recommendation)
Legislative Action Policy 6.2.11	Support the USPTO efforts to retain 100% of the fees collected for its services. (2003 Library Staff Recommendation)

 

DISCUSSION

Patent and Trademark Depository Library vs. Partnership Library

An office of the United States Patent and Trademark Office, the Patent and Depository Library Program (PTDLP) administers a nationwide network of public, state and academic libraries in order to disseminate patent and trademark information. Sunnyvale participates in the PTDLP as both one of 85 Patent and Trademark Depository Libraries (PTDLs), and one of 3 partnership libraries in the country.  The five PTDLs in California are San Francisco Public Library, Los Angeles Public Library, San Diego Public Library, the California State Library, and the Sunnyvale Public Library.

As a PTDL, the Sunnyvale Public Library

• maintains a back file of Official Gazettes and other USPTO documents, directories, publications, and newsletters.
• provides basic reference assistance in the use of patent and trademark resources. 
• provides institutional support for a representative to attend a week-long annual PTDL seminar at the USPTO.  See Attachment C.

As a partnership, Sc[i]³

• provides access to WEST (Web-based examiner’s tool) and EAST (Examiner Automated Search Tool), databases designed for patent examiners to conduct text searches on complete U.S. patents and English language abstracts of European Patent Office and Japanese Patent Office patents.
• provides access to X-search, the search database used by the USPTO’s trademark examiners.
• orders documents such as certified copies of patent applications from the USPTO Office of Public Records with custom handling.
• offers videoconference lecture series and classes taught by USPTO experts who train USPTO patent examiners and trademark examining attorneys.
• facilitates examiner interviews with patent applicants via videoconference.
• provides second-level expert reference assistance.

As further enhancement to the services provided through the partnership, Sc[i]³

• works with local intellectual property attorneys to develop and market seminars, including the lucrative Patent Prosecution Process Certificate Program which by itself accounted for 27% of revenue for the entire Sc[i]³ program.

Are there discernible trends in Sc[i]³’s performance?

Since FY 1995/96, the Council has chosen to subsidize Sc[i]³ with funds from the City’s General Fund to keep the service available for the public.  The subsidy is defined as the difference between expenditures and revenues.  The following chart illustrates the planned and actual subsidy requirements since Sc[i]³ began.

Sc[i]³ Subsidy Planned vs. Actual

* FY 2004/05 Actual subsidy is a projection based upon best available information.

It has not been possible to offset the operating costs with revenues.  This has been caused by increasing staff costs and the requirement to continue to pay the annual $30,000 subscription fee to the Patent and Trademark Office.  Staff has made every effort to end the subsidy through reduction in staff hours and resources as revenues continue to decline.

Based on the larger subsidy in FY 2003/04 than in FY 2002/03, and beginning FY 2004/05 with a reduction in staff hours and resources, the revenue to operating expense ratio is expected to continue to decline, requiring additional funds from the City’s General Fund in order to maintain service levels. The following chart illustrates the declining revenue to operating expense ratio.

Revenue to Operating Expense Comparison

* FY 2004/05 figures are projections based on best available information.

Has Sc[i]³ accomplished what it was designed to do?

The October 1994 Sc[i]³ business plan laid out objectives for Sc[i]³.  Unfortunately, these objectives have only been partially been met.  The primary objectives were:

(1)     Develop a full partnership between the PTO and the City of Sunnyvale, providing specialized services and local face to face interaction with the PTO through seminars, interviews, and videoconferencing.

FY 2004/05 Update:  Tremendous effort has been made to establish a full partnership between the USPTO and the City of Sunnyvale, however, many anticipated services such as face to face interaction between patent examiners and Silicon Valley practitioners through interviews and videoconferencing have never performed to expectation. 

(2)     Provide timely, accurate and cost-effective patent and related intellectual property information with diversified and expanded services operated on a full cost recovery basis.

FY 2004/05 Update:  Sc[i]³ has never been able to operate on a full cost recovery basis.

(3)     House patent services in a commercially accessible, attractive, user-friendly site to enhance the customer’s ability to do business.

FY 2004/05 Update:  As a result of revenue shortfalls and increasing lease costs, Sc[i]³’s services were downsized and moved from the third floor of the 465 S. Mathilda building to the main library in FY 2001/02.  The library is open longer hours than the Sc[i]³ facility used to be, however, some customers have been deterred from using Sc[i]³ when special arrangements could not be made for use before the library opens.

(4)     Provide additional and enhanced business services to the intellectual property community.

FY 2004/05 Update:  Enhanced business services were never able to be developed as anticipated due to underperformance and the lack of capital with which to develop those services.

What does elimination of Sc[i]³ mean?

As part of the prioritization of all City services, a budget supplement was prepared outlining the effects of City Council’s preliminary policy direction.  See Attachment D.  Customer notification of closure would begin in October 2004 with closure to be complete by no later than January 31, 2005.

Could Sc[i]³ be eliminated but still keep the seminars?

Seminars are the most lucrative part of Sc[i]³’s services today.  In FY 2003/04, seminars accounted for $149,556, or 56% of all revenues.  Approximately 48% of all revenue generated from seminars is from one class alone, the Patent Prosecution Process Certification Program.  Sc[i]³, however, does not own the rights to this course, and in the event of the elimination of Sc[i]³, the rights to the program revert back to the attorney who teaches it.  The other revenue generated by seminars is primarily through courses taught by USPTO experts, a benefit of being a partner library.  In order to remain a partner library, the $30,000 subscription fee would need to be paid, significantly reducing any chance of being profitable.

In addition, all Sc[i]³ staff contribute to the development, scheduling, marketing, registration, instruction, and evaluation of seminars.  There would therefore be no staff reduction, resulting in operations at a sizeable deficit.  Finally, it should be mentioned that the nature of seminars has changed over the last 10 years whereas previously topics focused on utilizing the resources within the PTDL, now topics center less on the resources and more on changes in USPTO policies and procedures.  In other words, the seminar instruction is less aligned with the mission of a public library and more aligned with being a branch of the United States Patent and Trademark Office.  For all of these reasons, it does not appear feasible to offer seminars independent of the Sc[i]³ partnership. 

Could Sc[i]³’s services be relocated to a nearby community?

A 1991 study revealed a lack of ability or interest among local libraries to becoming a part of the Patent and Trademark Depository Library Program.  Given the fiscal challenges facing local government today, it is unlikely that a new study would yield a different result.  There may be other potential partners such as Stanford University Libraries, Santa Clara University Libraries, or the combined San Jose State University/San Jose Public Library.  Since another PTDL exists at San Francisco Public Library, it’s possible that central location may suffice to support the intellectual property needs in the region.  Still, it is the USPTO which has the responsibility for determining who may become a PTDL or partner library and fulfill all of the obligations which that status requires in the Patent and Trademark Depository Library Program.

How would the closure of Sc[i]³ be implemented?

Twelve weeks will be needed to implement the closure of Sc[i]³, if Council elects to do so.  What follows is a timeline of the significant actions which will need to be taken during the closure process.  Each category below contains a number of steps not included here.

Week 1	USPTO notification
Week 1	Set end dates for each service
Weeks 1-12	Staff reassignment
Week 2	Customer Notification
Weeks 2-8	Close deposit accounts
Weeks 2-12	Customer referrals and problem solving
Week 3	News Release
Weeks 3-12	Return USPTO materials/equipment
Weeks 10-12	Archive files

 

FISCAL IMPACT

The alternatives offered have different fiscal impacts.

Alternative # 1

The historical performance of Sc[i]³ has demonstrated that it has not been possible to cover the complete costs of service, including the free reference services, nor the fee-based services by themselves.  Due to the fluctuating nature of Sc[i]³’s business, it is very difficult to project what the results for FY 2004/05, however, based on knowledge about past performance, the ongoing factors impacting the business, and the reduction in staff hours and resources this fiscal year, it is highly likely a subsidy will be required at the end of the fiscal year in an amount larger than the $34,000 required at the end of FY 2003/04.  The continuation of Sc[i]³ services will require acknowledgement by Council of this ongoing and uncertain subsidy requirement and a determination of which funds may be used to provide it.

Alternative # 2

The costs associated with moving Sc[i]³ into the Library’s operating budget and eliminating the partnership but remaining a patent and trademark depository library as suggested in the letter from Ms. Melvin are in the form of

• space to house and maintain the patent and trademark documents,
• staff hours to liaison with the USPTO, including receiving training, conducting training of other staff, responding to customer questions, provide referrals, marketing the resources in the collection, and preparing finding aids to assist customers in accessing patent and trademark information, and
• funds to send one representative from the Sunnyvale Library to the USPTO to attend the annual PTDL seminar.

In order to fulfill the obligations of participation in the Patent and Trademark Depository Library Program and because these costs are currently absorbed by Sc[i]³, it is estimated that 1080 part-time librarian hours would need to be added to the existing library budget.  This entails an annual cost of $46,127 and an additional $3,000 for annual conference attendance.  The ongoing costs are therefore estimated to be $49,127.

Alternative # 3

Elimination of the fee-based patent and trademark services will have no impact on the General Fund.  There are a number of Sc[i]³ customers who maintain balances with the City through deposit accounts.  Many of these accounts have been inactive for more than a year, and these customers will have an opportunity to retrieve their unspent money.  Although basic questions about patents and trademarks would still be answered, the back file of documents from the USPTO will no longer be maintained and space currently used for Sc[i]³ equipment and dedicated Internet computers will be reclaimed for other library uses.  Library positions will be reduced by 2.5, but there will be no layoffs.  Existing regular staff members will be able to move into positions held vacant for this purpose.  This action eliminates both revenues and expenditures.  It results in no General Fund savings but provides future subsidy cost avoidance.  Current budget shows zero subsidy.

PUBLIC CONTACT

Sc[i]³ customers were notified of this Report to Council and the opportunity to address the City Council on this issue through an e-mail to the Sc[i]³ customer e-mail list.  Public contact was also made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s Web page, and the availability of the report in the Library and City Clerk’s office. 

ALTERNATIVES

1.     Continue Sc[i]³’s programs and services, acknowledging the likelihood of an annual subsidy requirement.

2.     As suggested by the August 27, 2004 letter from the Kay Melvin, Executive for Customer Information Services at the United States Patent and Trademark Office, become a patent and trademark depository library, recognizing the annual cost to the City will be $49,127.

3.     Eliminate all specialized patent and trademark services, but continue to provide free basic reference service through existing Adult Services resources.

RECOMMENDATION

Staff recommends alternative 3.

Reviewed by:

Victoria Johnson Director, Libraries

Prepared by: Steve Sloan, Supervising Librarian