Daily Rules, Proposed Rules, and Notices of the Federal Government
The comments will be available for public inspection via the Office's Internet Web site (
The Office proposes these rules under section 10 of the Act (section 10), which authorizes the Director of the USPTO to set or adjust by rule any patent fee established, authorized, or charged under Title 35, United States Code (U.S.C.) for any services performed by, or materials furnished by, the Office. Section 10 prescribes that fees may be set or adjusted only to recover the aggregate estimated costs to the Office for processing, activities, services, and materials relating to patents, including administrative costs to the Office with respect to such patent operations. Section 10 authority includes flexibility to set individual fees in a way that furthers key policy considerations, while taking into account the cost of the respective services. Section 10 also establishes certain procedural requirements for setting or adjusting fee regulations, such as public hearings and input from the Patent Public Advisory Committee and oversight by Congress.
The fee schedule proposed under section 10 in this rulemaking will recover the aggregate estimated costs of the Office while achieving strategic and operational goals, such as implementing a sustainable funding model, reducing the current patent application backlog, decreasing patent pendency, improving patent quality, and upgrading the patent IT business capability and infrastructure.
The United States economy depends on high quality and timely patents to protect new ideas and investments for business and job growth. The Office estimates that the additional aggregate revenue derived from the proposed fee schedule will enable a decrease in total patent pendency by 12 months for the five-year planning horizon (FY 2013-FY 2017), thus permitting a patentee to obtain a patent sooner than he or she would have under the status quo fee schedule. The additional revenue from the proposed fee schedule will also recover the aggregate cost of building a three-month patent operating reserve by FY 2017, thereby continuing to build a sustainable funding model that will aid the Office in maintaining shorter pendency and a smaller backlog.
The proposed rule will also advance key policy considerations, while taking into account the cost of individual services. For example, the proposal includes multipart and staged fees for requests for continued examination and appeals, both of which aim to increase patent prosecution options for applicants. Also, this rule would include a new 75 percent fee reduction for micro entities, and expand the availability of the 50 percent fee reduction for small entities as required under section 10, providing small entities a discount on more than 25 patent fees that do not currently qualify for a small entity discount. All in all, as a result of these proposed adjustments to patent fees, for all applicants the routine fees to obtain a patent (
Unlike section 10 of the Act, section 41(d) of title 35 of the U.S.C. requires the Office to set fees for processing, services, or materials relating to patents at amounts to recover the estimated average cost to the Office of the particular processing, activity, service, or material per action (as opposed to the aggregate cost of all processing,
The fees proposed in the January and February 2012 Proposed Rules are set to recover the Office's costs per action under section 41(d), as opposed to the Office's aggregate costs for all patent-related activities under section 10. The Office intends to finalize fees proposed in the January and February 2012 Proposed Rules within the coming months to meet its implementation obligations under the Act to institute certain new services. However, the Office anticipates that the fees in those final rules will only be needed on a temporary basis, from September 16, 2012, until this rulemaking becomes final. The instant notice of proposed rulemaking (NPRM) does not reopen the comment period for the January and February 2012 Proposed Rules. Rather, this NPRM establishes a different comment period for setting and adjusting fees under section 10. In sum, this parallel rulemaking is necessary so that the Office can comply with both the Act's one-year deadline for instituting certain new services, and commence the lengthier process under section 10 for setting or adjusting fees for all of the Office's patent processing, activities, services, and material. The Office provides additional information about the AIA implementation effort, including how the components of the AIA relate to one another, on its Web site,
The parallel rulemakings discussed in this section work in concert to meet the requirements of the AIA and secure the financial resources necessary to advance the Office's goals.
The Office proposes to set or adjust 352 patent fees—94 apply to large entities (any reference herein to “large entity” includes all entities other than small or micro entities), 94 to small entities, 93 to micro entities, and 71 are not entity-specific. Of the 94 large entity fees, 66 are being adjusted, 19 are set at existing fee amounts, and 9 are newly proposed in this rule. Of the 94 small entity fees, 80 are being adjusted, 5 are set at existing fee amounts, and 9 are newly proposed in this rule. There are 93 new micro entity fees being set at a reduction of 75 percent from the large entity fee amounts. Of the 71 fees that are not entity-specific, 6 are either being adjusted or set as new fees in this rule and 65 are set at existing fee amounts.
In all, the routine fees to obtain a patent (i.e., filing, search, examination, publication, and issue fees) will decrease by 22 percent under this NPRM relative to the current fee schedule. Also, despite increases in some fees, applicants who meet the new micro entity definition will pay less than the amount paid for small entity fees under the current fee schedule for 88 percent of the fees eligible for a discount under section 10(b). Additional information describing the adjustments is included in
The Office prepared a Regulatory Impact Analysis (RIA) to analyze the costs and benefits of this NPRM over a five-year period. This analysis includes a comparison of the proposed fee schedule to the current fee schedule (baseline) (which is defined to include the January and February 2012 Proposed Rules fee amounts, as adjusted by the final rules) and to three other alternatives described in the RIA. The Office considered both monetized and qualitative costs and benefits. Monetized costs and benefits have effects that the Office can express in dollar values. Qualitative costs and benefits have effects that are difficult to express in either dollar or numerical values. The complete RIA is available for review at
The RIA concluded that the proposed patent fee schedule has the largest net benefit. The incremental net monetized benefit to patent applicants, patent holders, other patent stakeholders, and society of the proposed fee schedule is nearly seven billion dollars (assuming a 7 percent discount rate) for the five-year period. The most significant incremental benefit is the increase in the average value of a patent that stems from a decrease in patent application pendency (the time it takes to have a patent application examined). The Office estimates that total patent application pendency will decrease by 12 months during the time period of this analysis, thereby permitting a patentee to obtain a patent sooner than he or she would have under the Baseline (status quo fee schedule). The proposed fee schedule also has qualitative benefits including fee schedule design benefits and a decrease in uncertainty of patent rights, as discussed below.
To estimate the monetized benefits of the proposed fee schedule, the Office considered how the value of a patent would increase under the proposed fee schedule. When patent application pendency decreases, a patentee holds the exclusive right to the invention sooner, which would increase the private value of that patent. Because the outcomes of this proposed rule would decrease patent pendency by 12 months during the time period of the analysis, the Office expects the private patent value will increase, relative to the baseline. This benefit helps to speed the commercialization of new technologies and the jobs they can create.
The Office also estimated the incremental increase in the costs of its patent operations to determine the monetized costs of the proposed fee schedule. The most significant incremental costs of patent operations are (1) the increased patent examination capacity to work on the large backlog of patent applications in inventory, thus reducing patent application pendency; and (2) building a three-month patent operating reserve by FY 2017 to support a sustainable funding model.
In addition, the Office expects that this proposed rule will result in a short-term reduction in patent applications filed due to the new pricing. The Office estimates that 1.3 percent fewer applications than the number estimated to be filed in the absence of a fee increase will be filed during FY 2013. The Office further estimates that 2.7 percent fewer patent applications will be filed during FY 2014 and 4.0 percent fewer patent applications beginning in FY 2015 as patent filers adjust to the new fees, specifically the increase in the total filing, search, and examination fees for most applicants. However, the Office estimates that patent application filings will return to the same growth rate anticipated in the absence of a fee increase beginning in FY 2016. Overall, the demand for patent application services is generally inelastic and the number of patent applications filed will continue to grow year-over-year. An estimate of the monetized cost to patent applicants, other patent stakeholders, and society associated with this reduction in patent applications filed was also subtracted from the benefit of the increased patent value when estimating the overall net benefit of the proposed fee schedule.
When considering the qualitative benefits of the proposed fee schedule, the Office assessed the impact of the rule on two factors: fee schedule design and decreasing uncertainty. First, the design of the proposed fee schedule offers benefits relating to the three policy factors considered for setting individual fees as described in
The RIA found that the proposed fee schedule generates the largest net benefit based on the analysis of the costs and benefits of: (a) the proposed fee schedule; (b) the no-action alternative (baseline); and (c) the three other alternatives. Additional details describing the costs and benefits is available in the RIA at
The Leahy-Smith America Invents Act was enacted into law on September 16, 2011.
Section 10(b) of the AIA requires the Office to reduce by 50 percent the fees for small entities that are set or adjusted under section 10(a) for filing, searching, examining, issuing, appealing, and maintaining patent applications and patents.
Section 10(g) of the AIA amends Chapter 11 of Title 35, U.S.C. to add section 123 concerning micro entities. The Act provides that the Office must reduce by 75 percent the fees for micro entities for filing, searching, examining, issuing, appealing, and maintaining patent applications and patents. The implementing procedures for the provisions of 35 U.S.C. 123 are proposed in a separate rulemaking.
The Secretary of Commerce established the Patent Public Advisory Committee (PPAC) under the American Inventors Protection Act of 1999. 35 U.S.C. 5. The PPAC advises the Under Secretary of Commerce for Intellectual Property and Director of the USPTO on the management, policies, goals, performance, budget, and user fees of patent operations.
When adopting fees under section 10 of the Act, the Director must provide the PPAC with the proposed fees at least 45 days prior to publishing the proposed fees in the
Consistent with this framework, on February 7, 2012, the Director notified the PPAC of the Office's intent to set or adjust patent fees and submitted a preliminary patent fee proposal with supporting materials. The preliminary patent fee proposal and associated materials are available at
Consistent with the Office's goals and obligations under the AIA, the overall strategy of this rulemaking is to ensure the fee schedule generates sufficient revenue to recover aggregate costs. Another strategy is to set individual fees to further key policy considerations while taking into account the cost of the particular service. As to the strategy of balancing aggregate revenue and aggregate cost, this rule will provide sufficient revenue to implement two significant USPTO goals: (1) Implement a sustainable funding model for operations; and (2) optimize patent timeliness and quality. As to the strategy of setting individual fees to further key policy considerations, the policy factors contemplated are: (1)
These fee schedule goals and strategies are consistent with strategic goals and objectives detailed in the USPTO 2010-2015 Strategic Plan (Strategic Plan) that is available at
Likewise, the fee schedule goals and strategies also support the
The first fee setting strategy is to ensure that the fee schedule generates sufficient multi-year aggregate revenue to recover the aggregate cost to maintain
As explained in the Strategic Plan, the Office's objective of implementing a sustainable funding model for operations will facilitate USPTO's long-term operational and financial planning and enable the Office to adapt to changes in the economy and in operational workload.
Since 1982, patent fees that generate most of the patent revenue (e.g., filing, search, examination, issue, and maintenance fees) have been set by statute, and the Office could adjust these fees only to reflect changes in the CPI for All Urban Consumers, as determined by the Secretary of Labor. Because these fees were set by statute, the USPTO could not realign or adjust them to quickly and effectively respond to market demand or changes in processing costs other than for the CPI. Over the years, these constraints led to funding variations and shortfalls. Section 10 of the AIA changed this fee adjustment model and authorizes the USPTO to set or adjust patent fees within the regulatory process so that the Office will be better able to respond to its rapidly growing workload.
The Budget delineates the annual plans and prospective aggregate costs to execute the initiatives in the Strategic Plan. One of these costs is the creation of a three-month patent operating reserve to allow effective management of the U.S. patent system and responsiveness to changes in the economy, unanticipated production workload, and revenue changes, while maintaining operations and effectuating long-term strategies. The Office evaluated the optimal size of the operating reserve by examining specific risk factors. There are two main factors that create a risk of volatility in patent operations—spending levels and revenue streams. After reviewing other organizations' operating reserves, the Office found that a fully fee-funded organization such as the USPTO should maintain a minimum of a three-month operating reserve. The fees proposed here will gradually build the three-month operating reserve. The USPTO will assess the patent operating reserve balance against its target balance annually and, at least every two years, will evaluate whether the target balance continues to be sufficient to provide the stability in funding needed by the Office. If the proposed fee structure is implemented, then the USPTO anticipates that the three-month patent operating reserve would be achieved in FY 2017.
The proposed fees will provide the USPTO with sufficient aggregate revenue to recover the aggregate cost to operate the Office while improving the patent system. During FY 2013, patent operations will cost $2.604 billion (including an offset to spending from other income of $18 million and a deposit in the operating reserve of $73 million). The proposed fee schedule should generate $2.604 billion in aggregate revenue to offset these costs. Once the Office transitions to the proposed fee levels, it estimates an additional $11.8 billion in aggregate revenue will be generated from FY 2014 through FY 2017 to recover the total aggregate cost over the same time period—$11.2 billion in operating costs and $0.6 billion in a three-month operating reserve. (
Under the new fee structure, as in the past, the Office will continue to regularly review its operating budgets and long-range plans to ensure the USPTO uses patent fees prudently.
The Office developed the strategic goal of optimizing patent quality and timeliness in response to intellectual property (IP) community feedback, the
Over the past several years, a steady increase in incoming patent applications and insufficient patent examiner hiring due to multi-year funding shortfalls has led to a large patent application backlog (the number of applications awaiting examiner action) and a long patent application pendency (the time it takes to have a patent application examined). Reducing pendency increases the private value of a patent because the more quickly a patent is granted, the more quickly the holder can commercialize the innovation. Shorter pendency also allows for earlier disclosure of the scope of the patent, which reduces uncertainty for the patentee, potential competitors, and additional innovators regarding patent rights and the validity of the patentees' claims.
To reduce the backlog and pendency, the USPTO must examine significantly more patent applications than it receives each year for the next several years. Bringing the applications in the backlog down to a manageable level, while at the same time keeping pace with the new patent applications expected to be filed each year, will require that the Office collect more aggregate revenue than it estimates that it will collect at existing fee rates. The Office needs this additional revenue to hire additional patent examiners, improve the patent business IT capability and infrastructure, and implement other programs to optimize the timeliness of patent examination. This proposed rulemaking will result in an average first action patent pendency of 10 months in FY 2015, an average total pendency of 20 months in FY 2016, and a reduced patent application backlog and inventory of approximately 350,000 patent applications by FY 2015. This would be a significant improvement over the 22.6 months and 34.1 months for average first action patent pendency and average total pendency, respectively, as of March 2012. Under this proposed rule, the patent application backlog is also expected to decrease significantly from the 644,775 applications in inventory as of March 2012.
In addition to timeliness of patent protection, the quality of application review is critical to ensure the value of an issued patent. Quality issuance of patents provides certainty in the market and allows businesses and innovators to make informed and timely decisions on product and service development. Under the proposed action, the Office will continue to improve patent quality through comprehensive training for new and experienced examiners, an expanded and enhanced ombudsmen program to help resolve questions about applications, improved hiring processes, and guidelines for examiners to address clarity issues in patent applications—all actions intended to place quality at the top of USPTO's priorities. The Office will continue to encourage interviews to help clarify allowable subject matter early in the examination process, and to encourage interviews later in prosecution to resolve outstanding issues. The Office will also continue to reengineer the examination process, and to monitor and measure examination using a comprehensive set of metrics that analyze the quality of the entire process.
In addition to direct improvements to patent quality and timeliness, the USPTO's development and implementation of the patent end-to-end processing system using the revenue generated from the proposed fee structure will also improve the efficiency of the patent system. The IT architecture and systems in place currently are obsolete and difficult to maintain, leaving the USPTO highly vulnerable to disruptions in patent operations. Additionally, the current IT systems require patent employees and external stakeholders to perform labor-intensive business processes manually, decreasing the efficiency of the patent system. This proposed rule provides the Office with sufficient revenue to modernize its IT systems so that the majority of applications are submitted, handled, and prosecuted electronically. Improved automation will benefit both the Office and innovation community.
The second fee setting strategy is to set individual fees to further key policy considerations, while taking into account the cost of the associated service or activity. The proposed fee schedule recovers the aggregate cost to the Office, while also considering the individual cost of each service provided. This includes consideration that some applicants may use particular services in a much more costly manner than other applicants (e.g., patent applications cost more to process when more claims are filed). The proposed fee schedule considers three key policy factors: (1)
To encourage innovators to take advantage of patent protection, the Office proposes to set basic “front-end” fees (e.g., filing, search, and examination) below the actual cost of carrying out these activities. Likewise, consistent with the requirements in the Act, the Office proposes providing fee reductions for small and micro entity innovators to facilitate access to the patent system. Setting front-end and small and micro entity fees below cost requires, however, that other fees be set above cost. To that end, the Office proposes to set basic “back-end” fees (e.g., issue and maintenance) in excess of costs to recoup revenue not collected by front-end and small and micro entity fees. Charging higher back-end fees also fosters innovation and benefits the overall patent system when patent owners more closely assess the expected value of an existing patent over its life, and determine whether to pay maintenance fees to keep the patent in force. Expiration of a patent makes the subject matter of the patent available in the public domain for subsequent commercialization. Determining the appropriate balance between front-end and back-end fees is a critical component of aligning the Office's costs and revenues.
The proposed fee structure helps facilitate effective administration of the patent system by encouraging applicants or patent holders to engage in certain activities that facilitate an effective patent system. In particular, setting fees at the particular levels proposed here will: (1) Encourage the submission of applications or other actions that enable examiners to provide prompt, quality interim and final decisions; (2) encourage the prompt conclusion of prosecution of an application, which results in pendency reduction, faster dissemination of information, and certainty in patented inventions; and (3) help recover the additional costs imposed by some applicants' more intensive use of certain services that strain the patent system.
The proposed fee schedule also provides applicants with flexible and cost-effective options for seeking patent protection. For example, in September 2011, the Office implemented prioritized examination for utility and plant applications, as specified in provisions of section 11(h) of the Act, to offer applicants the choice of a fast track examination for an additional fee. (
The patent fee schedule proposed here will produce aggregate revenues to recover the aggregate costs of the USPTO, including for its management of strategic goals, objectives, and initiatives in FY 2013 and beyond. Using the two Strategic Plan goals (implementing a sustainable funding model for operations and optimizing patent quality and timeliness) as a foundation, the proposed rule would provide sufficient aggregate revenue to recover the aggregate cost of patent operations, including implementing a sustainable funding model, reducing the current patent application backlog, decreasing patent pendency, improving patent quality, and upgrading the patent business IT capability and infrastructure. Additionally, in this rule, the Office considers each individual fee by evaluating its historical cost and considering the policy factors of
There are three primary steps involved in developing the proposed fees:
Step 1: Determine the prospective aggregate costs of patent operations over the five-year period, including the cost of implementing new initiatives to achieve strategic goals and objectives.
Step 2: Calculate the prospective revenue streams derived from the individual fee amounts (from Step 3) that will collectively recover the prospective aggregate cost over the five-year period.
Step 3: Set or adjust individual fee amounts to collectively (through executing Step 2) recover projected aggregate cost over the five-year period, while furthering key policy considerations.
These three steps are iterative and interrelated. Following is a description of how the USPTO carries out these three steps.
Calculating aggregate costs is accomplished primarily through the routine USPTO budget formulation process. The Budget is a five-year plan (that the Office prepares annually) for carrying out base programs and implementing the strategic goals and objectives. The first activity performed to determine prospective aggregate cost is to project the level of demand for patent products and services. Demand for products and services depends on many factors, including domestic and global economic activity. The USPTO also takes into account overseas patenting activities, policies and legislation, and known process efficiencies. Because examination costs are 70 percent of the total patent operating cost, a primary production workload driver is the number of patent application filings (i.e., incoming work to the Office). The Office looks at indicators such as the expected growth in Real Gross Domestic Product (RGDP), the leading indicator to incoming patent applications, to estimate prospective workload. RGDP is reported by the Bureau of Economic Analysis (
The second activity is to calculate the aggregate costs to execute the requirements. In developing its Budget, the Office first looks at the cost of status quo operations (the base requirements). The base requirements are adjusted for anticipated pay raises and inflationary increases for the periods FY 2013-FY 2017 (detailed calculations and assumptions for this adjustment to base are available in Exhibit 8 and Exhibit 9 of the Budget). The Office then estimates the prospective cost for expected changes in production workload and new initiatives over the same period of time (refer to “Program Changes by Sub-Activity” sections of the Budget). The Office reduces cost estimates for completed initiatives and known cost savings expected over the same five-year horizon (
The Budget identifies that during FY 2013, patent operations will cost $2.549 billion (
As described in “
The Office considers economic activity when developing fee workloads and aggregate revenue forecasts for its products and services. Major economic indicators include the overall condition of the U.S. and global economies, spending on research and development activities, and investments that lead to the commercialization of new products and services. The most relevant economic indicator that the Office uses is the RGDP, which is the broadest measure of economic activity and is anticipated to grow approximately three percent for FY 2013 based on OMB and CBO estimates.
These indicators correlate with patent application filings, which are a key driver of patent fees. Economic indicators also provide insight into market conditions and the management of IP portfolios, which influence application processing requests and post-issuance decisions to maintain patent protection. When developing fee workload forecasts, the Office considers other influential factors including overseas activity, policies and legislation, process efficiencies, and anticipated applicant behavior.
Anticipated applicant behavior in response to fee changes is measured using an economic principle known as elasticity, which for the purpose of this action means how sensitive applicants and patentees are to fee amounts or price changes. If elasticity is low enough (i.e., demand is
The introduction of a new class of applicants, called micro entities, requires a change to aggregate revenue estimations, and the Office has refined its workload and fee collection estimates to include this new applicant class.
First, section 123(a) provides that the term “micro entity” means an applicant who makes a certification that the applicant: (1) Qualifies as a small entity as defined in 37 CFR 1.27; (2) has not been named as an inventor on more than four previously filed patent applications, other than applications filed in another country, provisional applications under 35 U.S.C. 111(b), or international applications for which the basic national fee under 35 U.S.C. 41(a) was not paid; (3) did not, in the calendar year preceding the calendar year in which the applicable fee is being paid, have a gross income exceeding three times the median household income for that preceding calendar year; and (4) has not assigned, granted, or conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the application concerned to an entity that had a gross income exceeding the income limit described in (3).
Second, 35 U.S.C. 123(d) provides that a micro entity shall also include an applicant who certifies that: (1) The applicant's employer, from which the applicant obtains the majority of the
The Office estimates that when micro entity discounts on patent fees are available, 31 percent of small entity applications will be micro entity applications, under the criteria set forth in section 123(a) and (d). In making this estimate, the Office considered several factors, including historical data on patents granted. The Office began with patent grant data, because the best available biographic data on applicant type (e.g., independent inventor and domestic universities) comes from patent grant data in the Office's database.
The Office first estimated the number of individuals who were granted patents in FY 2011. There were 221,350 utility patents granted in FY 2011 as reported in the
Concerning the application threshold in 35 U.S.C. 123(a)(2), the Office's Patent Application Locating and Monitoring (PALM) database reports that 62 percent of both foreign and domestic small entity applicants filed fewer than 5 applications in FY 2009. As stated above, an estimated 15,274 patent grants were to individuals both domestic (11,068) and foreign (4,206). Using this information, the Office estimates that 6,862 (11,068 times 62 percent) patents will be granted to domestic applicants who meet the thresholds for micro entity status set forth in sections 123(a)(1) and 123(a)(2), while 2,608 (4,206 times 62 percent) patents will be granted to foreign applicants who meet the same thresholds.
Concerning the income threshold in 35 U.S.C. 123(a)(3), the median household income for calendar year (CY) 2010 (the year most recently reported by the Bureau of the Census) was $49,445.
The Internal Revenue Service (IRS) records show that in 2009 about 97 percent of individuals (as proxied by the total number of IRS form filings) reported adjusted gross income of less than $200,000, and about 87 percent of individuals reported adjusted gross income of less than $100,000.