WASHINGTON (AP) _ It came to him in a dream. Richard Chereton saw forests of trees being felled and shipped directly to a landfill. He also saw two envelopes.

The next morning, the California computer consultant picked up a business-size envelope, turned it around a few times and saw the future _ a reversible envelope that companies could use for their monthly billings and customers for their return payments.

The idea was disarmingly simple, but it was unique and useful enough for the U.S. Patent and Trademark Office, which awarded Chereton one of the 121,697 patents granted last year.

Over the last five years, the number of patent applications has increased about 6 percent a year, said Edward Kazenske, acting associate commissioner of patents. Applications for the first half of 1997 were up about 8 percent. In the high-technology sectors of telecommunications and electronics, which Americans have dominated, patent applications have skyrocketed over the last two years, growing about 17 percent a year, Kazenske said.

The number of works submitted to the Library of Congress for copyright protection is also rising.

``There is a brain boom,'' said Bruce Lehman, assistant commerce secretary and commissioner of patents. ``We are living in a period that is equivalent to the transition from the agricultural to the industrial age. An increasingly large percentage of our work force makes its living simply off mental activity.''

The creative burst has been fueled by a vibrant economy, court rulings that strengthened patent security and extended patents to computer software and a greater awareness of the value of intellectual property protection in a global marketplace made smaller by the Internet.

But that burst of creativity has a price. Increased filings, coupled with budget cuts and staff reductions, have led to unprecedented backlogs in both patents and copyrights. Patent proposals that used to take about 18 months to review now take nearly a year longer, while copyright registrations are completed in 18 weeks, compared to six weeks in 1993.

Marybeth Peters, the registrar of copyrights, told Congress this summer that compared to 1980, she had 25 percent fewer workers processing a workload that was 26 percent larger.

``This unacceptable time frame must be reduced, otherwise the copyright system will collapse,'' Peters said in asking Congress for more money for next year.

Copyright filings are expected to grow even faster when an electronic registration system now being tested goes on line.

The more than 700,000 works submitted for copyright in 1996 are just ``the tip of the iceberg of creative America,'' Peters predicted.

The Patent and Trademark Office said it had to cut by half the number of examiners it had hoped to hire this year because of budget restrictions, and office upgrades have been delayed. Though it deals daily with cutting-edge technology proposals, much of the work on the 207-year-old patent system remains on paper.

The patent office became self-supporting in 1992 under legislation that required it to raise fees nearly 70 percent to replace taxpayer support of its budget. But the same legislation also allowed for some of that increased revenue to go toward offsetting the federal budget deficit. The amount diverted for budget reduction since fiscal year 1992 has increased annually and totals $142 million; the proposed withholding for the fiscal year beginning Oct. 1 is $92 million.

The patent office is supposed to gain control over its fee income starting in fiscal year 1999. Additionally, a bill making its way through Congress would convert the office into a wholly owned government corporation, giving it some operating and financing autonomy.

But a proposed spending cap on the office contained in pending legislation for the new fiscal year has the patent community worried that lawmakers have found another way to continue tapping what some believe has become the government's ``cash cow.''

``This is the most critical thing facing the PTO (Patent and Trademark Office) right now, bar none,'' said Kirk. ``Without the money you can't hire the examiners, and without the examiners you can't process the work.''

Allowed to continue, the patent community argues, the system won't be able to keep pace with technology and will become irrelevant. Without patent protection, though, inventors won't be able to secure the loans needed to start businesses and make products.

For now, the strong economy still has businesses looking for ways to increase productivity, said David Wyss, research director at DRI/McGraw-Hill, the nation's largest economic consulting firm.

``They are willing to sink more money into research,'' he said. ``Research fuels profits. It's being able to mine those patents that has provided those companies a lot of the increase in profits.''

The growth of the economy and technology have become so intertwined that many agree with Kazenske that ``the pace of technology is becoming an element driving the economy today; intellectual property is becoming a force in the economy.''