March 28, 2006
SUBJECT: Status Report on the Services and City Subsidy of Sc[i]³ - the Sunnyvale Center for Innovation, Invention, and Ideas – A Partnership between the City of Sunnyvale and the United States Patent and Trademark Office
REPORT IN BRIEF
Since 1963, the City has hosted a Patent and Trademark Depository Library (PTDL) through the Sunnyvale Library. In 1994, the City 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.
Over the years, it has been a challenge to operate the Sc[i]³ partnership and fully recover its costs. Staff has consistently made efforts to deliver quality services to meet the needs and interests of the intellectual property community while holding down associated costs. In the early years of the partnership, the Sc[i]³ Advisory Board, a group of interested parties, were gathered together to advise staff and brainstorm ideas about services and effective outreach methods. In 2001, the Friends of Sc[i]³ which is also known as the Sc[i]³ Foundation, was formed as a tax exempt foundation to assist Sc[i]³ by raising funds for the program.
Despite these various efforts, the Sc[i]³ partnership had never been able to achieve cost recovery until FY 2005/2006. After a $45,300 shortfall in FY 2004/2005, the Library continued to refine Sc[i]3 services, making changes and cuts to limit the City’s subsidy. However, removing a one-time revenue windfall this year allows one to see that revenues are still continuing to decline. Further, temporary measures taken to reduce costs this year cannot be sustained. For these reasons, discussed more fully below, the City subsidy is projected to be $132,000 in FY 2006/2007 if services were to continue.
In May 2004, Council gave preliminary direction to cease the subsidy of the Sc[i]³ program as of June 30, 2005. In November of 2004, when Council considered RTC 04-378, they continued preliminary direction to cease the Sc[i]³ subsidy as of June 30, 2005, and they accepted the Friends of Sc[i]³’s option to increase their fundraising efforts to help eliminate the subsidy. If enough alternative funds were identified, Council would be willing to reconsider continuing the operation of the program. Subsequently, at their March 29, 2005 meeting, Council considered RTC 05-095. They were presented with an option proposed by the Friends of Sc[i]³ to move Sc[i]³ operations to Cogswell College. Council voted to continue operating Sc[i]³ temporarily in order to give the Friends of Sc[i]³ additional time, as they had requested, to work with the USPTO to implement the Foundation’s new, proposed alternative service model which involved transferring Sc[i]³ to Cogswell College.
In order to continue the program at the Sunnyvale Library in the meantime, Council approved a subsidy up to $53,000 through June 30, 2006. The alternative proposed by the Foundation to move services to Cogswell College was dependent on the approval of the USPTO. Since Summer 2005, the Sc[i]³ Foundation and Library staff as well, have made numerous attempts to obtain an answer from the USPTO about the proposed move. While the USPTO has made no official response specific to the Cogswell proposal, they engaged in conversations with Council representatives in Washington, D.C. on March 13, 2006, about partnership matters. As a follow-up to the meeting, the USPTO sent a letter to Sunnyvale City Manager, Amy Chan, acknowledging Sunnyvale’s subsidy for Sc[i]³ and indicating that the USPTO is bearing a subsidy of $90,000 for Sc[i]³ services. The letter stated that the USPTO is in agreement that the time may be right for Sunnyvale to transition from the Partnership Library relationship to a Patent Trademark Depository Library relationship.
Due to the ongoing financial risk to the City and the USPTO, and given the response from the USPTO suggesting Sunnyvale’s possible transition back to a regular Patent and Trademark Depository Library relationship, staff recommends elimination of Sc[i]³ partnership services as of June 30, 2006. Recognizing the importance of the intellectual property activities in Sunnyvale and the Silicon Valley region, however, staff also recommends that the City continues to operate a Patent and Trademark Depository Library. This would require a $5,000 operating budget increase in FY 2006/2007 and continuing in the future, to augment Library resources.
BACKGROUND
The USPTO/Sunnyvale Partnership (Sc[i]³) began in 1994. The partnership was formed because of the burgeoning growth of patent and trademark activity in the Bay Area. Bruce Lehman (a Clinton appointee) was Commissioner when the partnership was formed. He was followed by Q. Todd Dickinson (also a Clinton appointee) James Rogan (a Bush appointee) and Jon Dudas (also a Bush appointee). Since the partnership was formed there have been numerous reorganizations at the USPTO, changes in goals, policies and personnel. Most importantly, the ability to provide extensive patent and trademark information over the Internet has influenced the USPTO's priorities and eroded the traditional intellectual property services housed in libraries under the partnership model.
Over the years, Sc[i]³ added value to the USPTO through outreach, community relations and marketing, information dissemination, coordination and facilitation of information gathering activities such as surveys and focus groups, training and education of USPTO users, and direct service. It brought a trusted and visible USPTO presence to Silicon Valley, the center of the USPTO's largest customer base.
Following the formation of Sc[i]3 a number of other libraries became USPTO partners. Detroit Public Library housed the Great Lakes Patent and Trademark Center and for a time Rice University in Texas operated a partnership. Rice ended its partnership due to the onerous subscription fee charged to partners by the USPTO. Detroit Public Library ended its partnership on October 1, 2005 due to a loss of regional funding and a subsequent need to refocus services to a local level. Texas A&M formed a partnership following Rice's decision to cease their operation, and Texas A&M too announced the elimination of partnership services on February 15, 2006 due to an inability to recover costs. Sc[i]³ is now the last remaining partnership with the USPTO.
Sc[i]3 has always been charged with total self-sufficiency so out of necessity it has been the leader in program and service development. The other partnerships have replicated many of Sc[i]³’s services. Despite the goal of self-sufficiency, Sc[i]3 never completely covered its costs (as shown in Attachment 1). In 2001, a nonprofit foundation called the Friends of Sc[i]³ was formed to help with fundraising for the program. It was reported that the fundraising was sparse, less than $1,000 in those initial years. Another group, the Sc[i]³ Advisory Board, already existed and had been formed to help staff develop new ideas and plans for the operational aspects of the Sc[i]³ program.
In 2002, the branch operation was reduced to maximize the opportunity for cost recovery and was moved into the Main Library. Despite this reduction in staff and services, it was increasingly difficult to reach the goal of self-sufficiency. In FY 2002/2003 there was a $9,800 shortfall in Sc[i]3's operation. In FY 2003/2004, there was a $29,800 shortfall and in FY 2004/2005 there was a $45,300 shortfall.
In May 2004 Council gave preliminary direction to eliminate Sc[i]³ as of June 30, 2005 because of the continuing subsidy. At the November 9, 2004 Council meeting, RTC 04-399 Consideration of the Elimination of Sc[i]³ - Sunnyvale Center for Innovation, Invention, and Ideas, was presented to Council (Attachment 2C). At that meeting the Friends of Sc[i]³ indicated that they would renew fundraising efforts to help eliminate the funding gap. In support of that effort, Council approved continuing the Sc[i]³ program with the provision that the City would cease the subsidy as of June 30, 2005.
Subsequently, at the March 29, 2005 Council meeting, staff presented RTC 05-095 (Attachment 2) updating Council on the status of Sc[i]³ and presenting options regarding Sc[i]3 services. It was reported by the Friends of Sc[i]³ that they had raised approximately $40,000 specifically for a new proposal which involved moving Sc[i]3 to Cogswell College. Council approved a subsidy of up to $53,000 to temporarily continue Sc[i]3 services through June 30, 2006, in order to give the Friends of Sc[i]3 additional time to work out the details of their new proposal, which included obtaining permission from the USPTO for Cogswell College to become a Partnership Library site, and transferring Sc[i]³ services from the Sunnyvale Library to Cogswell College.
As of this writing, the USPTO has not approved nor has it officially rejected the request to transition Sc[i]3 to Cogswell College. There have been indications that the USPTO is not interested in new partnerships, and that any consideration of Cogswell College would be as a new partnership. USPTO staff cited previous failed efforts to develop new partnerships and the closure of existing partnerships as evidence that the current partnership model is not working well.
The USPTO previously expressed concern about maintaining partnerships in light of the expense and the limited reach of the program. It has been stated that they only recoup 18% of their costs of the Partnership program. Having lost 2 partnerships in the last 6 months, and with Sunnyvale being the only remaining Partnership Library, it is likely that the USPTO would recoup even less in the future. Furthermore, it is clear that the USPTO is seeking alternative avenues for delivering their services. USPTO staff has reported that their priority is to develop services that will be available on a 24/7 basis via the Web.
In a letter addressed to Sunnyvale City Manager, Amy Chan, dated March 16, 2006 (See Attachment 3), the USPTO stated that “Given that the same products and services are now freely available on the Internet combined with the challenge of finding critical mass of interest for on-going training programs, it is our impression that the City of Sunnyvale and the USPTO agree that the time may be right to transition from a Partnership Library relationship to a streamlined, effective alternative, such as a regular PTDL relationship.” The letter also recognized the subsidy provided by the City of Sunnyvale for the program and further states that the USPTO’s subsidy for Sc[i]3 is $90,000.
EXISTING POLICY
Library Collection
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Action Statement 6.2A.3c |
Provide a collection of patents and trademarks. |
Finding and Using Materials and Information
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Action Statement 6.2B.1d |
Provide patent reference services based on demand and financial self-sufficiency for Sc[i]3’s services.
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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 and trademarks. (2003 Library and Economic Development Staff Recommendation)
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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
Why is the anticipated cost recovery in FY 2005/2006 not sustainable in FY 2006/2007 and beyond?
In FY 2005/2006, the Library has continued to refine Sc[i]3 services, making changes and cuts to limit the City’s subsidy and streamline services according to use. Through the use of temporary contract staff and the deployment of regular staff to duties within the Library when the volume of work in Sc[i]3 is particularly low, there have been additional savings in Sc[i]3. Furthermore, thanks to the escheating process (a process whereby the City was able to keep $26,800 in deposit account funds when the companies that deposited them toward future services could not be found to return the money), there were additional funds to close the gap between expenditures and revenues. It is anticipated that the Sc[i]3 program will have a surplus for the first time ever as a result of this one-time escheating process. Staff is cautiously optimistic that projected expenses will be $236,250 and revenues will be $260,000.
However, if the Sc[i]3 program were to continue, it is not likely that staffing with the assistance of a temporary agency would be an ongoing practice. Nor is it likely that hours would be available within the Library to allow Sc[i]3 staff to perform other duties that would be charged to the Library instead of Sc[i]3. Another concern is that the demand for Sc[i]3 services overall continues to decline as shown in Attachment 4.
Also, an important service provider has given notice that she may not be able to continue offering the very popular series of courses that are part of the program. USPTO regulations have changed this year, too, resulting in more cancellations of courses and more difficulty sustaining the interest of prospective attendees. For all of the reasons listed above, staff roughly estimates that if Sc[i]3 services were to continue at Sunnyvale Library, it would require an ongoing subsidy of approximately $132,000 in FY 2006/2007. This assumes that the surplus from the escheating process in FY 2005/2006 would be applied to FY 2006/2007.
Staff is not certain that the Sc[i]3 program could be offered on a long-term basis providing a mix of services and courses that would be relevant, affordable and readily available to prospective customers. It is clear from the USPTO’s letter of March 16, 2006 to City Manager, Amy Chan, that the USPTO shares concerns with the City about the impact of the changing trends in effective delivery of services and the subsidies required to maintain the current Partnership program.
FISCAL IMPACT
The alternatives offered have different fiscal impacts.
Alternative #1 – Discontinue Sc[i]3 Partnership Services as of June 30, 2006, but Remain a Patent and Trademark Depository Library, and Increase Ongoing Operating Costs in the Amount of $5,000 Beginning in FY 2006/2007
The Library would continue to provide services as a Patent and Trademark Depository Library under the regular reference services offered by Sunnyvale Library. In order to fulfill the obligations of participation in the Patent and Trademark Depository Library program, the Reference Library staff member designated as the Patent and Trademark Depository Library Librarian would be required to attend an annual training conference at USPTO headquarters in Alexandria, Virginia. The amount of $5,000 would pay for participation in this conference. If Council chooses this alternative, an increase of $5,000 in ongoing costs will be budgeted into the proposed Library Department budget starting in FY 2006/2007. There are two regular staff positions and two temporary positions associated with Sc[i]3, all of which would be discontinued. For the staff member in the full-time position, there currently is an equivalent vacancy and hours available so the staff member would be transferred to the other division within the Library. However, for the staff member in the regular part-time position there is no equivalent vacancy in the Library. As a result, the regular part-time staff member would be subject to the Reduction in Force process. The two temporary positions would be eliminated, as they would no longer be needed.
Alternative #2 – Continue Sc[i]3 as Currently Operated and Identify Funding Source for Ongoing Subsidy
The continuation of Sc[i]³ services will require an ongoing subsidy projected to be as much as $132,000 in FY 2006/2007 and a determination of which funds may be used to provide it. Furthermore, it would be subject to the continued support and possible subsidy from the USPTO.
Alternative #3 – Discontinue Sc[i]3 Partnership Services and Patent and Trademark Depository Library services
There is no cost to the City to discontinue Sc[i]³ Partnership Services and Patent and Trademark Depository Library services as of June 30, 2006. This will eliminate ongoing subsidies. There are two regular staff positions and two temporary positions associated with Sc[i]3, all of which would be discontinued. For the staff member in the full-time position, there currently is an equivalent vacancy and hours available so that staff member would be transferred to the other division within the Library. However, for the staff member in the regular part-time position there is no equivalent vacancy in the Library. As a result, that staff member would be subject to the Reduction in Force process. The two temporary positions would be eliminated, as they would no longer be needed.
Conclusion
The Sc[i]³ program has never reached full cost recovery. Even in the current year, the program appears to be self-sufficient but only as a result of the escheating process. Without the deposit funds, there would have been a subsidy of $3,050. As a result of on-going fiscal challenges, the Sc[i]³ program has been under review by Council and has been slated for closure since 2004/2005. All of the USPTO Partnerships Libraries have had problems sustaining their services because of funding issues and declining usage. By now, all of the other partnerships have closed and Sc[i]³ remains the only existing Partnership Library. Meanwhile, the USPTO also has experienced funding challenges under the current partnership model. The USPTO has indicated that they are not interested in establishing new partnerships. While they have not given a formal answer to the request by the Sc[i]³ Foundation and Cogswell College to move the partnership to Cogswell College, they have sent a letter recently indicating their agreement that it may be time for Sunnyvale to transition from a Partnership Library back to PTDL services only.
The USPTO has concerns about the cost effectiveness of the Partnership program. As a result, they have a fairly new requirement that there be a minimum of 10 of attendees for classes. Sc[i]³ frequently would not meet the minimum on its own. There being no other partnerships existing to bolster the number of attendees, it is likely classes would be cancelled quite often. Also, the USPTO hopes to shift away from offering seminars and classes through videoconferencing. They are focusing their efforts on establishing a wider reach through more extensive use of the Internet. The USPTO would like to offer more services on the Web on a 24/7 basis, thereby making services through Sc[i]³ redundant. It is questionable whether the Sc[i]³ program would be able to provide cost effective services competitively, or operate without an ongoing subsidy from the City as well as from the USPTO.
It is possible for the City of Sunnyvale to continue making a contribution to the field of technology, invention and innovation, all of which have been and still are so important here in the Heart of the Silicon Valley. This may be done by maintaining the Sunnyvale Library’s designation as a PTDL and offering less extensive patent and trademark services through the Library’s regular reference services. For an ongoing cost of $5,000 per year, as a PTDL the Library would continue to have access to a specialized collection from the USPTO, would maintain contact with the USPTO staff, and continue to use some of the systems provided by the USPTO. This would allow the Library to continue to help people find information related to patents and trademarks in a manner that is more typical of a library but without requiring a subsidy from the City of Sunnyvale, or from the USPTO for their highly specialized services.
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 the City Clerk’s office.
ALTERNATIVES
1. Discontinue Sc[i]3 Partnership Services as of June 30, 2006, but Remain a Patent and Trademark Depository Library, and Increase Ongoing Operating Costs in the Amount of $5,000 Beginning in FY 2006/2007.
2. Continue Sc[i]3 as Currently Operated and Identify Funding Source for Ongoing Subsidy.
3. Discontinue Sc[i]3 Partnership Services and Patent and Trademark Depository Library services.
RECOMMENDATION
At their meeting on March 13, 2006, the Library Board of Trustees voted unanimously to support Alternative #1: Discontinue Sc[i]3 Partnership Services as of June 30, 2006, but Remain a Patent and Trademark Depository Library, and Increase Ongoing Operating Costs in the Amount of $5,000 Beginning in FY 2006/2007. Continuing as a Patent and Trademark Depository Library offers a unique and valuable service to the community. Failing Alternative #1, the Library Board recommends Alternative #3. The Board actively discourages the selection of Alternative #2 because of the associated subsidy and budgetary impact. An additional factor against Alternative #2 is the fact that the only other two USPTO partnerships in the nation have already chosen to shut down. As such, the Library Board of Trustees believes that the USPTO is unlikely to continue to actively support Sunnyvale as the only remaining partnership in the nation.
Staff recommends Alternative 1: Discontinue Sc[i]3 Partnership Services as of June 30, 2006, but Remain a Patent and Trademark Depository Library, and Increase Ongoing Operating Costs in the Amount of $5,000 Beginning in FY 2006/2007.
Reviewed by:
Deborah L. Barrow, Director, Libraries
Prepared by: Steve Sloan, Supervising Librarian
Reviewed by:
Mary Bradley, Director, Finance
Approved by:
Amy Chan
City Manager
Attachments
1. Sc[i]³ Financial Trends 1995/1996 through 2006/2007 Chart(.xls)
2. RTC 05-095 Sc[i]³ - the Sunnyvale Center for Innovation, Invention, and Ideas – Financial Update
3. Letter of March 16, 2006 to Sunnyvale City Manager Amy Chan, from Ted Parr, Director of Customer Information Services, United States Patent and Trademark Office(.pdf)
4. Sc[i]³ Business Trend Graphs 1995/1996 through 2005/2006(.xls)
5. Draft Board of Library Trustee Meeting Minutes of March 13, 2006