SAN JOSE -- Silicon Valley's new patent and trademark office might not be quite the boon local leaders had touted -- at least for taxpayers.
In November, politicians from virtually every branch of government, university leaders and business groups cheered the U.S. government's selection of San Jose City Hall to house the region's first permanent satellite patent and trademark office. Following a four-year push to land the hub, they predicted an economic surge for San Jose and a leg up for Silicon Valley inventors.
But city officials this week revealed a new $4.7 million public cost to bring in the trademark office -- enough to wipe out all the rent payments San Jose will get for the five guaranteed years of the lease. And the patent examiners and judges will take up so much space in the 8½-year-old City Hall that San Jose may have to eventually look elsewhere to house some of its own workers, driving up taxpayer costs further.
What's more, the opening of the office, recently set for this year, has been pushed back to mid-2015.
But city leaders say the overall deal is still worthwhile. They argue that San Jose has repeatedly tried and failed to profit off a City Hall lease for a private company, but no one was interested, partly because the available space is a "shell" that requires $1 million in finishing touches. So they decided the city might as well bring in a tenant that could have an overall positive impact on the economy.
"We're not trying to make money on the deal," Mayor Chuck Reed said. "This is an important office. We want to make sure that they're in San Jose."
They also note that the collapse of redevelopment agencies has hampered the city's ability to spruce up buildings needed to attract tenants and that cuts over the past half-decade have trimmed the city workforce enough that the city now has more space to accommodate outside employers.
The City Council on April 15 is expected to approve the incentives, saying without them they risk losing the office to Palo Alto, Mountain View or some other nearby suburb.
"That was on everyone's mind," said Councilman Sam Liccardo, who represents the area. Besides, he said, "We couldn't give the space away, and a patent office sure beats another Starbucks, so I'll take it."
Silicon Valley is one of four U.S. Patent and Trademark Office satellites authorized by President Barack Obama in 2011, along with a new Detroit office and outposts planned in the Dallas and Denver areas. In San Jose, officials saw an opportunity to drive innovation -- and all the money that comes with it -- in the city that dubs itself the Capital of Silicon Valley.
The U.S. Patent and Trademark Office had asked for the discounts, city leaders said. Because of federal requirements, they said, the patent office would have had to launch an extensive search for market-rate property if no one had offered below-market rates, but it's unclear if anyone else had made a similar offer.
In a statement, the trademark office thanked local leaders and said it was pleased with its new space. It noted plans for the new office were put on hold last year because of federal sequester cuts, "so we are thrilled to be back on track after that delay and working diligently toward opening the permanent office next year," the statement said.
The new details of the deal show the feds would foot the $6 million cost to construct the new 35,200-square-foot office. It will be in the smaller, three-story Wing building along Fourth Street in the downtown City Hall plaza, which cost $510 million and opened in October 2005.
To make room for 110 examiners and other new patent workers, it will cost the city $4.7 million to move existing workers in the Wing across the plaza to the 18-story City Hall tower, where space will be reconfigured and upgraded. With rent from the federal government, the city expects to come out even in the first five years of the lease.
The patent office can choose to stay another five years at half the market rate, and both groups could mutually extend the deal up to an additional 10 years at a normal price, netting the city up to $15.6 million over 15 years. But much of that revenue could be lost as the city might have to lease space outside City Hall to house city workers who wouldn't be able to fit if the city or patent workforce expands in the coming decades.
The delay in opening the office, from late 2014 to July 2015, is the result of two government entities taking months to negotiate and also deciding that a slower construction schedule would be cheaper, city officials said.
The discounted lease is the latest in a series of big-money incentives offered by San Jose to lure employers to town. In this case, the city predicts it will attract spinoff employers such as lawyers that handle trademark cases.
"It's mostly for entrepreneurs and the people that help entrepreneurs but it also is very much a general resource for the community," said Kim Walesh, the city's economic development director, noting the ground floor will have exhibits and other community features. "It could be a bit of a tourist attraction."
Contact Mike Rosenberg at 408-920-5705. Follow him at twitter.com/rosenbergmerc.