What Do the Proposed Patent Fee Changes Really Mean?*

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.