What Do the Proposed Patent Fee Changes Really Mean?*

By Eric Guttag
February 18, 2012

Well the proverbial cat is now “out of the bag.” The United States Patent & Trademark Office (USPTO) has issued its long awaited (and in many quarters, apprehensively feared) proposed patent fee changes pursuant to its new authority under Section 10 of the America Invents Act. I usually refer to the AIA as the “Abominable Inane Act” and this new fee setting authority is one reason for that characterization. These proposed patent fee changes are summarized in an 8 page Table to a 34 page Executive Summary which was submitted to the Patent Public Advisory Committee on February 7, 2012. For those true “masochists,” there’s an even longer 85 page detailed Appendix on these proposed patent fee changes to digest.

Page 11 of the Executive Summary provides what it characterizes as summary of the “significant changes” to the current patent fee structure. After getting over my initial “shock” at how high some of these proposed fees are (for the new supplement examination and new post-grant review procedures, as well as the existing ex parte reexamination procedure, these proposed patent fees can be characterized as “astronomical”), as well as how much these proposed fee changes increase current fees, I then asked this question: what do these proposed patent fee changes really mean?

Let’s first consider one of the “bread and butter” components of patent prosecution, the utility application filing fee. Actually, this basic fee comprises three components: the filing fee, the search fee, and the examination fee. In the proposed fee changes, this utility application filing fee will increase from $1250.00 to $1840.00 (or from $625.00 to $920.00 for those qualifying as “small entities,” which get a 50% reduction in this fee). The biggest portion of this increase is reflected in the examination component, which has increased from $250.00 to $780.00 (or from $125.00 to $390.00 for those qualifying as “small entities”). Excess claim fees (total claims in excess of 20 and independent claims in excess of 3) have also gone up significantly, from $60.00 to $100.00, and from $250.00 to $460.00, respectively. (I’ll let you do the math for those qualifying as “small entities.”)

So what impact will this proposed increase in the basic utility application filing fee really have? Frankly, not much, even if a “small entity” is involved (and for qualifying new “micro entities,” which include universities, at a 75% reduction of this fee, even less at $460.00, which is also below the current filing fee for “small entities”). For “small entities,” this basic filing goes up less than $300.00 (and is likely also to be reduced by filing electronically, which reduces the current filing fee by $83.00 for “small entities”). Such an increase is almost miniscule in comparison to what is likely to be charged by a patent attorney or patent agent drafting the patent application. But where “small entities” need to particularly watch out for is the increase in excess claim fees (which have gone up 67% and 84%, respectively). With these significant increases in excess claim fees, filing patent applications with many more than 20 claims total (or many more than 3 independent claims) could get very expensive very quickly.

One fee increase that is sure to raise “eyebrows” is that for requests for continued examination or RCEs. The fee for RCEs has increased from $930.00 to $1700.00 (from $465.00 to $850.00 for qualifying “small entities”), or a whopping 83%. This significant increase in the RCE fee intensifies the existing concern that some patent examiners will even further “game the examination system” by making initial prosecution inefficient and ineffective, for example, by raising feeble “strawman” rejections based on less relevant art and/or by “parceling out” the art for such rejections over the first two Office Actions to force patent applicants to file an RCE in order to finally ““engage” in substantive patent prosecution. Currently, some may say that such “gaming of the examination system” issue is more perceived than real (like many other patent prosecutors, I believe such “gaming” by at least some patent examiners is currently more real than perceived). But this significant increase in the RCE fee will only make the suspicion worse that RCEs are being used by at least some patent examiners (and potentially their supervisors) as a “gravy train” for earning additional disposal “counts,” as well as additional revenue for the USPTO.

Page 16 of the Executive Summary at least acknowledges that this significant increase in the RCE fee “may be controversial because some applicants may feel compelled to file an RCE.” Frankly, this issue is far more than “may be controversial” and is definitely a significant concern for more than “some applicants.” In fact, this page of the Executive Summary says that the USPTO is “currently reviewing other processing options to address these types of situations,” including the following two options: (1) “[w]ays to submit improve the ability to submit an information disclosure statement (IDS) after paying the issue fee in a manner other than through an RCE”: and (2) “[w]ays to incentivize examiners for more consideration on amendments after final rejection for the purpose of identifying and working out allowable subject matter. The first option, while an improvement, doesn’t address the “gaming the examination system” concern.

The second option only partially addresses the “gaming the examination system” issue by focusing solely on what happens at “final rejection” (usually when the second Office Action is issued, and with significant “time pressure” on the patent applicant to do anything meaningful without resorting to an RCE or increasingly expensive extensions of time), but not on a much bigger “gaming the examination system” concern, namely making prosecution after the first Office Action more effective, efficient, and meaningful in terms of: (a) the art (and all of the art considered by the patent examiner to be relevant) being cited in the first Office Action; (b) making sure all of the rejections being made are substantive and clearly stated (a common problem from my experience) in the first Office Action; and (c) encouraging patent examiners to suggest where subject matter might be allowable in the first Office Action, for example, if the claims are amended appropriately (while this is even stated policy in the MPEP, it is notoriously well known that certain art units have an “unwritten policy” not to allow any patent applications at the first Office Action). While, of course, a poorly drafted patent application or claim set can contribute to the increased use of RCEs, the “gaming the examination system” issue will remain real (rather than simply “controversial”) with this significantly increased RCE fee unless the USPTO addresses carefully and realistically the need for more effective, efficient, and meaningful patent prosecution when the first Office Action is issued (and not simply after “final rejection” is reached).

Another potential trouble spot in the proposed patent fee structure relates to appeals (the significantly increasing number of which are one of the unfortunate “outgrowths” of the “gaming the examination system”/RCE problem). At first glance, the fees for making an appeal appear to have only increased from $1240.00 (combined cost of filing the Notice of Appeal and appeal brief) to $1500.00 (cost of filing the Notice of Appeal only as there is now no appeal brief filing cost). Even more beneficial in this new appeal fee structure is that the patent applicant is no longer out an appeal brief fee (currently $620.00) if the patent examiner reopens prosecution (by withdrawing a “final rejection”) instead of filing an Examiner’s Answer. Ah, but what the new appeal fee structure giveth with one hand is then taken away with the other: if an Examiner’s Answer is filed, the applicant must now pay a new $2500.00 fee to keep the appeal alive. So now the cost of an appeal (after the Examiner’s Answer) under the new appeal fee structure more than doubles to $4000.00. While the cost of having a registered practitioner prepare the appeal brief will undoubtedly be significant, the potentially (and significantly increased) cost of the new appeal fee structure may be even more daunting for some patent applicants’

Now let’s move onto those procedures, many new but some old, which have price tags in the “astronomical” range under the proposed patent fee structure. These include: the new supplemental examination procedure (price tag of $7000.00 to initially file with all but $840.00 being refunded if the supplemental examination doesn’t go any further than the filing stage); the new post-grant review procedure (starting at a hefty $35,800.00 and increasing further, potentially well over $100k depending upon how many claims and whether a “business method patent” is involved); and the current ex parte reexamination procedure (up from the current $2500.00 to $17,760.00 or a hefty 605% increase). Based on the “astronomical” fees proposed for these procedures, many (including me) view these proposed fees as an effort by the USPTO to discourage use of these procedures except where “absolutely necessary,” and by those willing to pay this “gargantuan fee freight” necessitated to begin these procedures, as well as the significant practitioner fees that will likely go along with using these procedures, especially the likely to be complex and certainly adversarial post-grant review procedure.

Many have expressed doubts (Warren Woessner being one of who has expressed those “doubts” in writing on his blog, Patents4Life) as to the value (and even necessity) of using this new supplemental examination procedure. But this high initial “price tag” is certainly not going to encourage use of this new supplemental examination procedure, versus the current reissue procedure (which can achieve most, if not all of the benefits of the new supplemental examination procedure) for which the reissue filing fee (the whole 9 yards including filing, search, and examination components) has increased merely from $1750.00 to $1840.00 (i.e., the same as the new utility application fee), or less than 5%.

The significant “ante” (already sizable before increases due to the number of claims and the type of patent involved) for just opening this new post-grant review procedure is certainly mind-boggling. But for those who didn’t like post-grant review under the AIA to begin with (count me in as one of those who was against this AIA “monstrosity” similar to the expensive and complex European post-grant opposition procedure), making the “ante” a sizable $35k, and even a potentially higher $100k (or more) may be a “blessing in disguise.” For those “small entity” Davids who feared (and rightly so) that their granted patents might be subjected to continuing “siege warfare” from the Goliaths with large “war chests” to spend from, the potentially “astronomical” price tag for simply opening a post-grant patent review request may be too rich even for these Goliaths to use other than in selected instances where “necessity” demands that the granted patent be “annihilated,” or at least rendered “toothless” by narrowing the scope of the granted patent claims. (Then again, the Goliaths may be find even this high “ante” to open a post-grant review request far less expensive than defending against a patent infringement action, or initiating an “offensive” declaratory judgment action to either invalidate potentially troublesome patent claims and/or get a ruling that those patent claims are not infringed.)

What may cause some patentees a degree of “angst” is the significant increase (by 605%) in the cost for initiating ex parte reexamination. Again, like the new supplemental reexamination procedure, the patentee may instead choose to go with a much lower cost reissue application filing.

With a Table of proposed patent fee changes that runs 8 pages long, I won’t promise that I’ve dealt with all of the significant changes which are being proposed for patent fees by the USPTO. (I’ll only briefly note that the proposed increases for maintenance fees, especially for the first 3.5 year maintenance fee, and particularly the last 11.5 year maintenance fee may cause some “soul searching” amongst patentees and especially their financial officers looking for ways to reduce patent administration costs.) Also, there are already “noises” being made about whether the proposed increases for at least of some of these patent fees (and the data/reasoning offered by the USPTO to support those increases) are compliant with Section 10(a)(2) of the AIA that the proposed fees be “set or adjusted” to “recover the aggregate estimated costs of the [USPTO] for processing, activities, services and materials” relating to patents, including “administrative costs” with respect to such patent fees.

In fact, as was pointed out by Andrew Williams on February 8 on the Patent Docs blog with respect to the new supplemental examination procedure, the USPTO has acknowledged that it is not relying upon its “new” fee setting authority under Section 10(a)(2) of the AIA (because the USPTO alleges there’s insufficient time to do so because of the September 16, 2012 deadline to have this new procedure up and running), but is instead relying upon its “old” fee setting authority under existing 35 U.S.C. § 41(d)(2). That the USPTO is relying upon its “old” fee setting authority to set this “astronomical” fee for this “new” procedure which is only authorized by the AIA is sure to raise many “eyebrows.” It also revives old (and continuing) concerns that the USPTO is (once again) “skirting” the rules (and the law) in the interest of “expediency” (as well as its own “agendas”), much like what happened with the now defunct (and much litigated) claim/continuation rules, as well as the originally proposed appeal rules which were allowed to “die” when faced with likely rejection by the OMB. That the new patent fee structure proposed by the USPTO may engender a new Tafas or GlaxoSmithKline lawsuit like the one filed against the enactment of the now “defunct” claim/continuation rules is not out of the question, at which point the USPTO would be faced with defending its compliance with “new” Section 10(a)(2) of the AIA, as well as its right to rely upon “old” 35 U.S.C. § 41(d)(2) to set fees for “new” procedures authorized only by the AIA.

As these proposed patent fee changes are reviewed, analyzed, digested, commented upon, and yes, even “cursed,” there is sure to be much “gnashing of teeth.” Excedrin headaches, sleepless nights, as well as strategies proposed for dealing and coping with the impact of these proposed changes. Again, what I’ve tried to identify here are those proposed patent fee changes that I view as the most significant (and potentially the most worrisome) for patent prosecution and examination, as well as hopefully explaining what they really mean in terms of the cost and impact on future patent prosecution and examination. But as Sherlock Holmes might say, the “game is not yet afoot” for how these proposed patent fee changes will actually play out. We must await how those changes are finalized by the USPTO (after the rule making process concludes), as well as whether court challenges are made (and succeed) in derailing whatever finally comes out from the USPTO as the definitive patent fee structure we’ll be living with in the foreseeable future.

*© 2011 Eric W. Guttag. Posted on IPWatchdog on February 18, 2012.

The Author

Eric Guttag

Eric Guttag  
Mr. Guttag has over 38 years of corporate and private intellectual property law experience on patent, trademark, copyright, trade secret and unfair competition matters, computer and Internet law, including patent application drafting, prosecution, and patentability studies; infringement and validity studies; international patent prosecution; patent and know-how licensing; consulting, confidentiality, clinical study and research agreements; trademark searches and opinions; trademark registration and prosecution; trademark freedom-to-use studies and trademark litigation and dispute resolution.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 7 Comments comments.

  1. PTOExaminer February 19, 2012 12:41 pm

    Gene, I disagree with your statement “But this significant increase in the RCE fee will only make the suspicion worse that RCEs are being used by at least some patent examiners (and potentially their supervisors) as a ‘gravy train’ for earning additional disposal ‘counts,’ as well as additional revenue for the USPTO.”

    Gravy train examiners are driven by greed; they don’t care about how much you have to pay for the RCE because they are not seeing any of that money. They are only concerned with getting those extra counts which translates into overtime money or a reduced work load (depending on how the examiner “charges” for the work in his/her time sheet). With the new count system in effect, I believe those examiners are not pushing as hard for RCE’s simply because RCE’s are worth only half a count now. Subsequent rounds of prosecution generate even lower overall counts which translates to less overtime money (or insignificant workload reduction).

    The best way to maximize counts in the new count system is to allow applications during the first round of prosecution. I would love to see statistics showing RCE filing and allowance rates before the new count system was implemented and after it was implemented.

  2. PTOExaminer February 19, 2012 2:18 pm

    Oops. I meant to say Eric, not Gene.

  3. tom gallagher February 19, 2012 3:25 pm

    RCEs are almost mandatory in software and business method patent applications because the examiners do not speak English as a first language and do a piecemeal examination. The typical scenario is that the examiner issues a bogus rejection, you rebut it and he then issues a second bogus rejection and calls it a final because your rebuttal caused it. Then you file an appeal and a request for a pre-appeal brief conference and you get another new final rejection. It sure looks like all of the big companies that started out in a garage are trying to burn down the garage for new companies. How does this promote the progress of science and the useful arts?

  4. Stan E. Delo February 19, 2012 10:55 pm

    Hi Eric-

    One area of the proposed fees seems to be a good idea from my perspective as an independent. It has to do with the shifting of the aggregate cost of the patent over it’s entire term, wherein the initial basic cost of acquiring a patent is reduced somewhat, and the 2nd and 3rd maintenance fees are increased quite a bit. That is not to say that I especially enjoy the idea of almost All of the fees going up significantly, but it seems better to me to reduce the cost to get started, and defer the final expenses until or unless the patent is still profitable 12 years later. If I am not mistaken, the granting of a patent right only represents say 1/3 of the cost of what the PTO has invested in granting the patent right in the first place. Probably quite different in the rest of the world historically, where inventors might not get such a generous ride for their initial nickel. Just my take on it, as I haven’t passed the bar exam quite yet.

    That being said, I fought tooth and claw for about 2 months full time to try to prevent legislation like the AIA from being implemented, and was rewarded by a few fear merchants basically shutting my efforts down by running around and telling everyone that would listen not to sign my Independent’s letter to the Senate opposing Patent Reform circa 2009 for very strange and obtuse reasons. How sad and paranoid…. I got about 260 signatories to my letter, including quite a few major corporations, and I figure I would have been able to get well in excess of 400 if I hadn’t been shut down by completely irrational paranoia. The instigator actually had the nerve to accuse me of taking payments from the proponents of the bill to do their bidding!?! It sorta made me feel like flying down there and having a *personal* conversation with the sorry son of a sea cook, if you can catch my drift a bit. At the end of the day though, I did manage to get copies of the letter protesting *patent reform* to both Senators Mitch McConnell and Harry Reid’s offices in time, complete with a formal letter of receipt from both offices. Whether either of them actually looked at it will never be known, but at least it was there for sure.

    Be that as it may, the AIA damage has already been done, and it will probably be impossible to undo it for at least a decade. I certainly hope Senator Patrick Leahy can finally understand what a tragic mistake he has made some day, but I suppose he won’t care at all, because some of his constituents are probably pretty happy right about now. If you had seen some of the extremely dangerous stuff that he was trying to pull off previous to the AIA, it might give us pause to appreciate that his *desires* were considerably downsized from previous efforts to *fix* US patent law. Completely clueless in my opinion.

    As Tom G suggests, he was able to successfully burn hundreds of garages in one fell swoop, so why should Patrick worry at all? What, him worry? It is what it is, so inventors and their attorneys and agents will just have to adapt to it as best they can manage. At least now we have some real possibilities to influence the rule making process if we are reasonably diligent and tactful about it.

    Stan~

  5. EG February 20, 2012 4:32 pm

    Hey PTOExaminer,

    Thanks much for your comment (and yes that comment should be addressed to me, not Gene). I realize the examining corps has a different view of RCEs (and what causes them) compared to us patent attorneys/agents. But what Tom Gallagher says in his comment is in line with my concern about “making prosecution after the first Office Action more effective, efficient, and meaningful.” As Tom notes, a significant issue (and one I’ve got personal experience with) are many patent examiner for whom English is a second language. When you don’t readingly grasp the language we’re supposed to communicate in, it makes everything difficult, not to mention failure to understand basic concepts of administrative and substantive law (something even those patent examiners who do grasp English well struggle with, also from my experience). When you have both language and administrative/substantive law issues present in the examination process that make first Office Action other than “efficient, effective, and meaningful,” RCE filings unfortunately become the norm, rather than the exception. And can tell you from first hand experience that there are patent examiners who will “sand bag” you, thus giving you the unpleasant and expensive choice to either appeal with a “lousy” factual record, or file an RCE to try to straighten that factual record out before an appeal (unfortunately) becomes necessary.

    I’m also sympathetic to the examining corps’ plight that the amount of time they’re given to review, search, and examine an application is often completely divorced from the realities of application and/or art complexity. But if you have an examination system which is simply driven by inflexible “standards” (e.g., a set time allocated for how long a patent examiner can review, search and examine an application), rather more flexible “what do we need to do to provide a reasonabl quality examination for a given application,” it’s really hard to have an “efficient, effective, and meaningful” examination system that doesn’t necessitate RCEs, especially if making the second Office Action Final is the norm, not the exception (and where making that second Office Action Final is completely within the discretion/control of the patent examiner). Frankly, if it were up to me, I would much prefer an examination system which is more flexible about making second Office Actions Final, and which allows both the applicant and examiner to explore whether there is any basis for allowance, rather bringing the first round of prosecution to what is usually an abrupt conclusion, thus necessitating either a RCE to continue the dialogue (with its attendant cost and delay), or initiating an appeal which usually means all meaningful dialogue has ended.

    I’ll admit there’s no perfect solution here. But significantly increasing the RCE fee without making corresponding changes to the examination process, preferably in making the first Office Action more effective, efficient, and meaningful, or at least making second Office Action practice more flexible then it currently is, just increases the perception that RCEs are viewed as a “revenue generator” which will be exploited by some patent examiners, as well as their supervisors. The only other perception you can reach from so significantly increasing the RCE fee is to discourage such a course of action by applicants; that’s not a perception I believe the USPTO wants the public to have.

  6. EG February 23, 2012 3:52 pm

    To all:

    Let me clarify a few points/errors made in my article:

    Regarding the ex parte reexam, the current fee is $2520.00 (not $2500.00 as I said in my article)

    Regarding the new supplemental examination procedure, the $7000.00 fee covers the request only. If supplemental examination is ordered, the fee will be a whopping $20,000.00.

    Regarding the new post-grant review procedure, the fee is solely determined by the number of claims. The “business method patent” fee relates to a transitional proceeding under the AIAfor defined “covered’business method patents” which will be like any other post-grant review proceeding, but will vanish (“sunset”) in 8 years after the regulations for this transitional proceeding go into effect.

  7. Stan E. Delo February 23, 2012 5:52 pm

    EG-
    I must confess that I was a bit skeptical about your suggestion that some fees might be as as high as $100K, bur I stand corrected after listening to one of the presentations that occurred 2 days ago. One fellow suggested that it might rise to as high as $250K in some very extreme situations were there there might be hundreds of claims being considered, and the neccesary spin-out of consequences arising therefrom. Not a real problem from my particular perspective, but the possibility of such onerous fees tends to raise my hackles quite a lot. MBHB presented a webinar this morning about litigation under the new AIA system that seemed pretty scarey to me, from what I was able to understand.

    There was also the suggestion that the LEGISLATION is trying to alter the behavior of American inventors, instead of the PTO, which makes a lot more sense than what I conjectured about a while back. And this from Senators and Representatives that don’t seem to have any idea of what they are trying to accomplish, outside of trying to make their re-election sponsors happy, and the future of American innovation be damned. Burning garages so new inventors can’t get started in the first place.

    Best regards,
    Stan~