The USPTO’s Proposed Fees: Understanding Context and Keeping Sight of the Big Picture

Guest Post by Rick D. Nydegger. Mr. Nydegger is the former Chair of the Patent Public Advisory Committee and a Past President of the AIPLA.

The USPTO's release last week of its Proposed Patent Fee Schedule will likely spawn a wide range of reaction. Almost certainly some will raise a "hue and cry" and claim that the USPTO is needlessly enriching its coffers in a way that unfairly disadvantages the community of USPTO users. Others, like Horacio Gutierrez, Corp. VP and Deputy GC for Microsoft, will tend toward a more balanced view. In comments posted Feb. 9, 2012, Mr. Gutierrez observed that "Arguably there is no good time for a fee increase, and some will question whether increasing fees in challenging economic times is the right thing to do. But to us, there should be no question that now is the right time to have a discussion about the benefits of investing in further improvements in patent quality and the potential costs of delaying that investment." Mr. Gutierrez is right – this is the right time to have a discussion, and that discussion, at least in the initial stages, should focus on the big picture questions:

  • How important is reaching 10 months to first action and reducing total pendency to 22.9 months by 2015? This is a major assumption that cuts across virtually all the proposed fees.
  • How important is it to build a reserve fund equivalent to 3 months of the USPTO's annual operating expense, and how quickly does that need to be done? By some estimates, the reserve may be being funded at levels ranging from 150 million to 300 million dollars per year. Does this rank in importance with reducing pendency? In other words, should the user community be willing to simultaneously fund both of these objectives through higher fee increases, or would the user community prefer to see a more gradual, staged approach to building the reserve fund so that fee increases need not be quite so steep, at least for the next few years?
  • Will the currently proposed fee schedule permit adequate investment in critical USPTO resources such as improving its IT systems, and continued hiring, training and retention of qualified examiners? What are the projected costs and time frames for accomplishing such investments in human and physical resources? And do these costs rank in importance with reducing pendency and creating a meaningful reserve fund? One could argue that investment in critical resources such as its IT systems and the hiring, training and retaining of qualified examiners is one of the best things the USPTO could do to improve and insure patent quality.

With any proposal as sweeping as this one, and particularly where the impact goes right to the bottom line, there will be a tendency to want to dig in and debate whether the fee changes proposed for each part of the USPTO examination process are justifiable. This will have a tendency to compartmentalize the debate in a way that may not be helpful. That is not to say that it is inappropriate at some stage to have a candid and probing dialogue between the Office and the user community that is designed to help the user community understand the methodology, models and assumptions behind the USPTO's proposed fees. This can only ultimately help the user community provide more meaningful response and guidance to the USPTO. But before that happens, we should first attempt to provide some sense of priority to the Office on the big picture questions, since those will impact fee setting across the board, and in a very substantial way. In other words, as users, we need to help the Office understand what is most important to us, and then be willing to help fund those priorities.

Once that happens, we can then invite the Office to share the assumptions and modeling (such as cost recovery assumptions, front-end fee vs. back end fees as mechanisms for cost recovery, etc.) that will invite productive dialogue and input on the specific fee proposals on a more individualized basis.

In any discussion of this type, the process has to begin someplace. The USPTO's Proposed Patent Fee Schedule released last week is just that – a starting point for discussion. As users of USPTO services, we will have the opportunity on Feb. 15th and Feb. 29th to engage the process and begin providing response to the Office. PPAC should be applauded for providing a set of thoughtful questions to guide those hearings, with focus on the big picture issues. Hopefully, those of us who participate in the process will understand the need to start with the big ticket issues, and will not let the discussion become embroiled in minutiae.

47 thoughts on “The USPTO’s Proposed Fees: Understanding Context and Keeping Sight of the Big Picture

  1. Focusing on fixing the actual problems will deprive our congressmen of their special, um, income enhancements and perks.

    Can’t have that.

  2. Hi – tiredpatentatty here …

    I just wanted to chime-in on the “quality” of examination. I’ve discussed (with examiners) the fact that there is no safeguard to the “reject at all costs” examiners. I’m aware of many successful examiners who haven’t issued more than a handful of allowances in multiple years at the office, and they are proud of it. Some of these examiners even brazenly and proudly post complaint letters on their door. Quality proposal(s):
    1. Increased oversight/review for patent examiners with an under x% allowance rate (X can be statistically low … 15 % ? … just some acknowledge of you are supposed to give allowances to material that you haven’t found should be explicitly recognized)
    2. Increased oversite/review for any rejection that combines more than X references (4 ?) in a 103 rejection. I realize there is no hard and fast limit to the number of citations, but too many is almost always indicative (in my opinion) of a painfully bad rejection based on pure hindsight reasoning.
    3. Increased oversight/review of any examiner who issues restrictions over X % of the time (to make sure the restrictions are proper). A counter attempt can be increased oversight/review on restrictions of examiners who routinely lose petitions on their restrictions. (NOTE: I have one examiner who has issued 4 restrictions in a row on one case, each of which I have won by petition … and he keeps asserting the same bogus restriction – no accountability exists at present)
    4. Increased oversight/review of any examiner who loses petitions for removal of finality too often (set percentage), to prevent bogus finalities from being asserted (especially with the increases in RCE fees)

    Basically, I’m just proposing some safeguards in place to “flag” examiners exhibiting repeating bad acts and some level of corresponding meaningful corrective action (over X of “bad boy” points … you are not eligible for bonuses achieved through gaming the system ?). In other words, align incentives so that Examiners are not rewarded (all the time) for “bad acts”, which can be defined conservatively (examples given above).

    That is, the above are beginnings to some level of accountability for the lowest (bottom 10%) percentages of examiners … to reduce the point-accumulating gamesmanship that harms all of our clients. I’m all for trying to improve the overall quality … we just need some simple safeguards to address the worse < small percent > of horrendous examiners (protected by the union) to stop rewarding behavior that any rational actor/practitionar knows is wrong.

    Just a thought … comments ?

  3. If it will help reduce patent pendency, open satellite offices, hire more examiners, and upgrade the patent office’s infrastructure — all while giving a substantial discount to micro-entities — then the USPTO’s fee hike is a welcome turn of events, as far as I am concerned.

  4. There you go charge that macro entity 100k and get the important invention patents out the door on the day nof fileing not 10 months.Use the money to pay legal costs for micros sueing macros that infringe and steal startup I.P.and get triple damages to. Use lockering and immediate novelty checks to issue same day patents. With this new system of corruption now in place I am having to switch to having macros pay first into court supervised accounts then I concieve and let them take the risks of litigation so far no takers so the system moves nowhere forward. The America used to invent act.

  5. “sounds in…” ?

    It is not up to you to rewrite the explicit example given because you think it “sounds in.”

    The explicit example also “sounds in” 103. There is no reason for you to muck this up with 102.

  6. WHat does “innocence by association” have to do with Actual Inventor asking you to answer the questions of others?

    This coyness with actually addressing issues, the questions of others, is exactly what Actual Inventor is calling you out for. Whether Actual Inventor is innocent or not is not pat of answering the questions of others.

    You prove his point. Doubly so.

  7. I would not call any of the commenters that engaged you in debate as man iacs.
    Many of whom are respected patent attorneys.

    Your attempts at being facetious, condescending and patronizing do more to show your own intellectual weakness in patent law than doing any harm to the questioning party.

  8. Absolutely agree. Moreover, the substantial increase in RCE fees and appeal fees appears to be a means for discouraging attorneys from challenging the unreasonable and shoddy Office Action Responses Examiner’s can apparently issue with little or no supervision whatsoever.

    In a personal interview I conducted just this past Thursday, I asked a junior Examiner in front of the SPE what motivation and reasoning was being used to combine the two references cited in a 103 rejection. The answer given: “Because that’s what your claims do.” The SPE then stated, “If you disagree with our interpretation, you can appeal.” I find it incredible that the client would have to spend $1500 to file a notice to appeal, then another $2500 to get the appeal in front of the board, (not to mention attorney fees and the 2-3 years of wasted time) just to address the Examiner’s blatant use of hindsight to reject the claims.

    I think the PTO hopes that one day, the patent protection process will consist of the following procedures: 1.) Submit some claims as to what you think your invention is; 2.) We will review your claims, and then we will tell you what your invention is; 3.) Accept the invention, or abandon. Next.

  9. Ned: “Nice strawman, there.”

    You have some nerve after all the straw you posted in the Dealertrack thread only to cut and run when confronted and challenged by the Patent Attorneys there.

    I dare you to go back and answer the questions that were asked of you.

    But you won’t.

    You are a dishonest shill and an intellectual coward.

  10. Under his administration, the patent office also tightened up on section 101, which led to In re Bilski. This lead to a virtual overruling of State Street Bank, all to the good of patent quality.

    Ned’s (implicit) premise:

    Software and business method patents must be low quality patents.

    Mindless and unsupported (and paid) conjecture.

    Thanks for yet another crrp post, Ned.

  11. Nydegger’s post is a bit disingenuous. First he quotes Microsoft’s patent counsel for the proposition that we need to improve qualtiy, then he diverts attention to the speed of obtaining patents. The two are not the same. Reducing the time from filing to issuance has little to do with quality.

    In systems, there is a trade-off between quality, time and cost. Just from my observation, in the last 15 years there have been several shifts in emphasis. First there was an emphasis on reducing both the time to a first action and total pendency. However, during this same time, there was a noticeable drop in patent quality. This is the era when many low quality software and business method patents were issued.

    There followed a reaction the business community that something had to be done about patent quality. Thus a new patent commissioner attempted to address the quality issue with a philosophy of “reject, reject, reject.” Undoubtedly this has a lot to do with today’s backlog, but it probably also had a lot to do with an increase in quality of patents.

    Under his administration, the patent office also tightened up on section 101, which led to In re Bilski. This lead to a virtual overruling of State Street Bank, all to the good of patent quality.

    But I see nothing in Nydegger’s post that suggests we should do anything about quality. His post is all about reducing pendency by increasing the number of examiners and improving IT.

    In my opinion we do have a problem with pendency and with speed. We should be honest that the increase fees are primarily directed to addressing this issue. But we should also agree that we need an improvement in quality. That would require more time for examining an application, including perhaps some rule changes would undue the recent change to RCE practice so prosecution could continue smoothely. Compact prosecution, IMHO, is almost synonymous with poor quality as it sacrifices quality for speed.

  12. Paul, they can set this fee low b/c there will never be a derivation proceeding. But if the post-grant review fee is set low, lots of people will go down that path, so it needs to be set high to discourage its use.

    At least there’s a meaningful discussion for a change on this blog.

  13. Mr. Gutierrez will give you a “moderate” response because his large corporation can comp these absurd fee increases. Ask somebody from a small corporation, who won’t qualify for reduced fee status. This middle class of patent filers is going to be hit the hardest.

    If the placatory author ever had to deal with examinations, post-KSR, he would know that the system is broken. The backlog of appeals, rising in 2007 onward, is indicative. Now, ask how those of us, who have to waste client money fighting these bogus rejections, to tell the client to pay more. Pay more for less. The PTO doesn’t deserve this money. Pumping more money into the broken system will not fix its major faults.

  14. “hiring, training and retaining of qualified examiners”

    Good one! We all know “qualified” is out of the question. Maybe “sober” would be a more realistic goal.

  15. Your logic and your math are off. You should stick to the language arts.

    Prior to the AIA, the Office did not have the authority to set fees higher than cost (with a few critical exceptions – e.g. maintenance fees).

    Also, as can be seen by the current Office estimates, no one paid at-cost prices, much less subsidized anyone else.

    You want to know who (or rather, what) subsidized the discounts?

    Take a look at that huge pile of paid-in-yet not-done work called the backlog. Where do you think all that cash went (I mean, beside the hefty diversions)?

  16. Also, if you’re in a rush for exam, like if you have ongoing infringement, isn’t that why we instituted accelerated examination?

  17. “Are the folks who sit on their txxlxts and come up with new methods of advertising crxp to their virtual friend’s dog “sophisticated”? ”

    What about the folks who sit on their txxlxts and come up with new methods of advertising crxp to their virtual friend’s VIRTUAL dog, are they “sophisticated”?

  18. Blutarsky: it looks like the predominant “issues” that are supposedly being remedied by these fee increases only benefit the sophisticated few

    Are the folks who sit on their txxlxts and come up with new methods of advertising crxp to their virtual friend’s dog “sophisticated”? What about the folks who file claims to old methods of processing “new” information? Are they “sophisticated”?

    I hope not. And I hope those people do get shut out of the system. That will help. It may not help as much as shutting out the wealthy dxpshxts who file on the same stuff, but it’s a start.

  19. Last comment from me…

    If you think people complain about pendency wait until the stigma of “overly narrow” and “worthless” claim coverage gets plastered all over the PTO by angry inventors. With the increase in RCEs fees, practitioners will be forced into obtaining unduly narrow patent protection because clients simply can’t afford to pay the RCE fees to argue for broader coverage.

  20. “and provides inventors with few economical remedies to correct negligent practices at the USPTO”

    Why on earth would we want to provide applicants (or any other member of the public) with economic incentives to “correct” the government, or specifically the PTO? Their sense of civic duty should be overmuch incentive. Besides this, would we not much more desire the government to correct the applicant’s/public’s negligent practices before the governement, and specifically the PTO? I should think we would, as indeed we live in what is practically a police state and certainly a state that tends more and more towards one.

  21. What I am concerned about is the relative differential. No large entity is going to forgo the patent process because there is an increase in filing fees and prosecution costs. Fee increases on small entities that are not as capitalized will create barriers to entry. The micro-entity status is a good start, but how many people are going to actually want to provide evidence of income to justify their “status” as poor to get a break on patent fees? Get real.

  22. With regard to lowering pendency as one of the “goals” of these fee increases, the vast majority of my clients don’t care about pendency, nor do most small to mid-sized companies. Shrinking the pendency timeline only compresses the intervening timeframe between filing and prosecution on the merits. The size of this timeframe is often critical for clients on a budget who can’t afford to shell out for the application and then shell out again for prosecution within months.

    I have clients occasionally grumble about pendency, but most would gladly trade pendency for reasonable fees and quality examinations. The non-final/final system we have is broken anyway. It encourages lazy examination practices and provides inventors with few economical remedies to correct negligent practices at the USPTO.

    So who then benefits from reduced pendency? From what I can tell, only overly litigious companies that frequently rush products to market like Microsoft and IBM.

    In sum, it looks like the predominant “issues” that are supposedly being remedied by these fee increases only benefit the sophisticated few, while the actual costs are being borne by a much larger section of the community who don’t find these “issues” to be issues at all.

  23. As previously noted, the mere $400 proposed fee for starting a “derivation proceeding” does not make sense and could not possibly be related to realistic PTO cost projections. It will be a contested inter partes proceeding, not unlike present interference derivation litigation. Yet this $400 fee is wildly inconsistent with the vastly higher fees being set even for ex parte reeexaminations, much less all other inter partes contested matters.

  24. Re above comments, there already is a substantial large entity penalty fee. Who do you think has been subsidizing all the small entities by paying for their big fee breaks? Did you think Congress was covering the PTO’s small entity application costs? Large entities will now also be almost fully subsidizing micro entities and universities by paying for almost all of the PTO’s costs for all of those applications.

  25. “How important is reaching 10 months to first action and reducing total pendency to 22.9 months by 2015? This is a major assumption that cuts across virtually all the proposed fees.”

    and

    “Will the currently proposed fee schedule permit adequate investment in critical USPTO resources such as improving its IT systems, and continued hiring, training and retention of qualified examiners?”

    Comment:

    Another major assumption behind the proposed fees is that the Congress will let the PTO actually spend the collected money on hiring, training and retaining of qualified examiners and in reducing the application pendency. If not, the extra fees will merely be another tax on invention that goes into the general revenue to reduce the federal budget deficit, while the application backlog continues.

    Any reserve fund with money in it is a serious temptation to the Congressional Budget Committees. Past behavior is not reassuring.

  26. Unfortunately, “hoteling” of many of the more experienced examiners makes them less able to personally train and mentor new examiners.

  27. Dream on.

    The PTO still hasn’t figured out how to hire examiners that can read and draft office actions using proper English. I sympathize with the burden placed upon an examiner when they have to construe the limitations of a claim and they don’t appreciate the syntax and grammar used to craft the claim.

  28. The AIPLA sent out a blurb earlier today with some quotes from Executive Director Todd Dickinson’s comments to PPAC. The quotes were very non-committal; since the full statement wasn’t provided, I don’t know if they track the piece above of Mr. Nydegger (a former AIPLA president). I like Blutarsky’s idea of a large entity fee rate, which perhaps could be based on market capitalization instead of number of employees. I also think it’s worth back-loading the fees. Most applicants don’t know when they file if a valuable patent is going to result, but if a granted patent is worth keeping alive, then pay up. (It’s the same logic that drives the reason why prep + pros attorney fees are lower than litigation attorney fees – if you’re litigating, it’s known to be valuable, so you spend money on it.)

  29. Reserve Fund…?

    Is that the same as Slush Fund?

    Given that the Agency is still threatened by your favorite representative’s ability to divert funding, is any funding above minimal costs a reasonable thing to do, given that there is no real guarantee that any such innovation tax will actually serve the purpose provided? And while we are at it, why don’t we just ask all those “favorite representatives” to give back the monies ALREADY COLLECTED and diverted to fund these oh so necessary investments?

    Or would such “honest dealings” somehow not be able to be “balanced” with political reality?

    And further, “compartmentalize or not, ALL fee increases MUST still meet the actual budget in the aggregate. There are serious problems with the numbers because you simply cannot increase everything and somehow make it back down to the actual “in the aggregate” number you MUST match.

    Timing, in reality, is a real bugger, as ALL fee increase rationalizations (read that as actual calculations) are affected with this requirement to zero out in the aggregate PER BUDGET PERIOD.

    Should we be “discussing” this? Absolutely. But we need much more information and far less slushing. As they say, the devil is in the details, and you cannot escape the minutiae.

    And yes, Blutarsky’s comment has merit too. One must consider the source (he who gets to frame the [big picture] questions gets to control the agenda). AIPLA does not have a stellar reputation for objectively representing the complete community of USPTO users; especially the users that byand large are tracked to those that create jobs with their IP (as opposed to amassing a war chest, or multinationals that move jobs abroad).

  30. The opinions of practitioners who are entirely shielded from the impact of fee increases should be granted little weight, if any. Microsoft will continue to participate, regardless of the price. Neither this attorney, nor his client, have anything to fear from these increases. His “balanced view” is a product of his detachment from the realities of dealing with clients that have limited resources. If the proposed fee schedule included a “macro entity” category where companies the size of Microsoft were charged 100K to file an application, I wonder if he would have the same “balanced view.”

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