Minimizing costs while ensuring foreign patent maintenance fees are timely paid

globe-flags-money-franklinA few years ago, a clearly irritated client asked me why European maintenance fees were so expensive. Apparently, he had consulted the EPO schedule of fees and found my recent quote to be much higher than the government fee. The final quote in this case was more than double the government fee, which itself is not a small amount as any practitioner who prosecutes European patent applications knows. I had not realized that the annuity payment firm I was using had slowly increased its rates over the years to an unreasonable level. This started a reflection on how to minimize costs to my clients while still ensuring that the maintenance fees were paid.

Also, clients sometimes want to delay payment of maintenance fees to a later date, with payment of a penalty, as is possible in many countries. After doing this a few time and doing a bit of research, I became a bit worried about this practice. These two events made me think a lot about the subject of maintenance fees and what I could do to better serve my clients.

Foreign patent maintenance fees, also called annuities or renewals, differ in many aspects from US maintenance fees. First, in most countries, maintenance fees are annual, as opposed to quadrennial in the US. Also, many countries require payment of maintenance fees even before the application issues to patent. This may be an obstacle to outsourcing of foreign maintenance fees to an annuity payment firm. Indeed, the client may expect or insist that you handle the foreign maintenance fees, at least until the patent issues. In addition, the annual exchanges between you and the foreign associate handling the application provides reassurance that they are indeed still handling and monitoring the application. If there was no new action from the foreign patent office in the previous year, correspondence related to the maintenance fee can create an opportunity to confirm with the associate that the application is still in good standing. I will not discuss here the obvious issues of docketing, disclaimers, and other well known issues that also exist for US maintenance fees. However, I will offer a few hints on how to lower costs and on how to reduce your liability.

There are usually three types of costs in foreign patent maintenance fees: the government fee, the foreign associate fees, and the local agent professional fees. For most countries, there are no savings to make with the government fee. Some countries offer a reduction in fee for individuals or small companies. However, whether or not it is worth researching if the client is entitled to the fee reduction is often not a clear cut answer. Any practitioner who had to explain to an individual inventor what the requirements are to be eligible for micro entity status in the US to file a provisional application will surely understand this point. One important thing to keep in mind is that US patent law is very accommodating to honest mistakes, at least during prosecution. This is not necessarily the case in all countries. For example, in Canada, paying a maintenance fee at the wrong rate (small entity instead of undiscounted rate) can be corrected only for a small period of time. If the small entity fee is paid by mistake, the application is in theory abandoned irremediably after one year, whether the small entity rate payment was an unintentional mistake or not.

The second type of costs is where I got burned and caused me to have a difficult conversation with the client mentioned above. Many foreign firms and annuity payment firms will quote you a total amount for attending to the maintenance fee, and not split the government fee and their fee unless requested to do so. The annuity payment firm I was using was charging an excessive amount for attending to payment, which I discovered only after my client asked me why my cost estimate was so large. If you have not done so recently, I suggest that you compare the government fee, which is available online, with the quotations you receive. You may be surprised and feel that you have to find a more reasonable firm. Of course, as with many things, getting the cheapest rates is not necessarily the best course of action, but in my case, the fees charged by the annuity payment firm was definitively excessive. I made my clients very happy when, after changing firm, their next European maintenance fees were lower than the they were the previous year, even if the exchange rate had become less favorable.

Another manner of reducing costs to your clients would be to pay the patent maintenance fee for many years in advance. Indeed, it is not commonly known that some countries will allow payment of maintenance fees in advance. This may be especially surprising to the US practitioner as the USPTO only opens the payment window for maintenance fees six months before the fee is due. However, this is possible at least for South Africa and Canada. For such countries, it may be best to pay more than one maintenance fee at a time. Then, the professional fees can then be reduced because doing so greatly reduces the amount of work to do. For South Africa, the government fees are so small that it does not make much sense not to pay them all when the first one is due. Indeed, at current exchange rate, the government fees vary from about 5 US$ to about 13US$ per year. There are 17 maintenance fees to pay, for a total of about 150 US$. The total government fee for all years is thus much less than the professional fee for paying just one year, when the local and foreign agent/attorney fees are taken into account.

Canada is a bit different as the government fees are a bit larger. I often offer my clients, especially individual inventors and small businesses, to pay Canadian maintenance fees for a few years at a time. One bundle that makes sense is to pay the first three maintenance fees in a single payment. This pays all maintenance fees up to the deadline for requesting examination, at which point the client may want to pay annually until the patent issues. Once the patent issues, the financial incentive to pay for many years at once are not as clear as patentees often abandons their patents before they expire. However, if the patentee is a practicing entity and sales of the patented product are good, one big advantage of paying all fees until the end of the patent term is that in that case, we are sure that it is impossible to have the patent go abandoned by mistake. This is highly advantageous in Canada as there is no provision to reinstate a patent after the first anniversary of a missed maintenance fee. This will also save some attorney fees of course. Another approach for Canada would be to pay fees synchronized with a corresponding US patent, every four years.

The last issue my reflections brought me to is related to liability. As mentioned above, in many countries, you can pay a maintenance fee late within a predetermined window with payment of a surcharge. When a client is unsure of the value of a foreign patent, or if money is tight, he will often ask if late payment is possible and ask you to “just remind me the deadline for late payment when it approaches”. Note that in these cases, you are basically flying without a parachute. If for any reason you miss the deadline, in some countries, there is no way to reinstate the patent, even if the missed payment was unintentional. This is the case for Canada. Extreme care should be taken when docketing these issues, and if possible, it would be a good idea to get a release from the client of any liability should the patent become abandoned by mistake.

Thinking about these issues and implementing them, for example by adding a sentence or to to form letters, should not take too much time. The payoff in client satisfaction and reduced liability makes at least thinking about them worthwhile.


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4 comments so far.

  • [Avatar for Manuel Fortin]
    Manuel Fortin
    June 8, 2016 12:03 pm

    @Dave Oppenhuizen

    Thank you for pointing this out. Banking fee can be problematic indeed. Many firms are reluctant to accept credit card payment as they are then charged fees by the credit card company. In the end, someone has to pay for these fees and they are passed to the client. Some countries forbid explicit passing of credit card charges to clients. This is the case at least for the province of Quebec, where I operate my business. But in the end, if a merchant knows that credit cards will be used for most purchases, they simply incorporate this charge in their price.

    You are right that eventually companies will offer low cost payment services. I don’t know what international rates are for such services as we are lucky to have a bank that charges very reasonable banking fees for wire transfers (30$ or less for transfers that often are in the tens of 1000$). However, for domestic transfers, Interac offers in Canada transfers up to 3000$ for a fixed charge of 1.50$, which is paid by the sender. This is hard to beat.

  • [Avatar for Manuel Fortin]
    Manuel Fortin
    June 8, 2016 11:49 am

    @Richard Schafer.

    I agree that the risk/benefit ratio seems rather large for maintenance fee. Unfortunately for me, being based in Canada, this is not an option as when a Canadian agent is of record in a patent application, the only person allowed to pay the maintenance fee is this agent while the application is pending. There were some proposed legislation to change that a while ago, but it has not been enacted yet.

    If you think about it though, our business is inherently mostly risky. I know that I don’t like being responsible for foreign applications for which I did not choose the foreign associate. This may happen when a client transfers a file from another firm. There are some countries in which I am uncomfortable period. So many things can do wrong. This is ever worse than maintenance fees. At least, for maintenance fees, you can docket them in advance as they are predictable. Office actions are worse as you depend in many countries on the foreign associate to report them and to file the response. Luckily, this is changing as patent offices are increasingly allowing online access to prosecution history of published application.

  • [Avatar for Dave Oppenhuizen]
    Dave Oppenhuizen
    June 4, 2016 09:18 am

    There is also some room to save clients money by finding cost effective ways to transmit the funds to the foreign attorneys. Bank wire transfer fees can be excessive, and their exchange rates are, in my experience, quite bad. I have just recently seen a situation with a renewal in which the bank’s wire transfer fees actually exceeded the foreign attorney’s fees. Paying multiple fees at once can help to some degree.

    In some cases, payment by credit card or through other services that compete with banks can be a much better option. I believe there are services out there that will disrupt the banks’ wire transfer services in the next couple of years. These services are already available, but they haven’t yet hit the tipping point.

  • [Avatar for Richard Schafer]
    Richard Schafer
    June 2, 2016 09:55 pm

    The better question might be whether you really want to be in the annuities/maintenance fee business. For about 10 years now I’ve seen risk management people argue that law firms should tell clients that the firm won’t handle annuities for them at all.