The U.S. Patent and Trademark Office (USPTO) released proposed changes to its fee structure -- lowering routine patent fees by 22% -- as part of the America Invents Act. We asked three experts to weigh in on what these changes mean for the patent system at large.
Make the polluters pay!
James Bessen studies the economics of innovation and patents. A Lecturer at Boston University School of Law and Fellow at the Berkman Center on Internet and Society at Harvard, James has also been a successful innovator and CEO of a software company based on developing the first commercially successful WYSIWYG publishing program.
It seems like your normal ho-hum bureaucratic activity. But it’s actually an important move towards fixing the patent mess. For the first time, patent fees are being set by a "polluter pays" principle that could pull the rug out from under patent trolls and large companies who abusively assert patents.
The only problem is that the new proposal doesn’t go far enough – maintenance fees need to be at least 10 times higher. Patent litigation costs society roughly $20,000 per year per patent, but the fees to keep a patent in force more than a decade later are only about $1,000 per year.
Low fees also make it easier for patent trolls to abuse "continuing applications" by re-writing patent claims to cover technology that others develop while the application is kept in process at the patent office for years.
So the USPTO has targeted fee increases to discourage such abuse. It is proposing raising maintenance fees in later years, which punishes patent trolls who use old patents to claim subsequently developed technologies. But this doesn’t harm startups, which pay lower fees early on when patent value is uncertain and pay higher fees later when a successful invention earns enough money to cover the fees. Patent trolls don’t have that advantage.
Litigation is harmful to society. Patent trolls cost firms $29 billion last year in direct payments to lawyers and the trolls. When you include corporate litigation, such as the Apple-Samsung suit, the total costs can be three times as high.
Just as fines prevent drivers and factories from polluting our air, patent holders who harm society should have to pay more.
Then large patent trolls like Intellectual Ventures, which claim to have acquired "70,000 IP assets" in "50+ technology areas covered by our patent assets" would have to pay hundreds of millions of dollars a year to keep them. This way, the USPTO’s fee changes might just affect the viability of the patent troll business.
You’re not helping the little guy by lowering patent fees
Christina Mulligan is at the Information Society Project at Yale Law School, where she is a Postdoctoral Fellow & Lecturer in Law. She holds B.A. and J.D. degrees from Harvard.
Entrepreneurs and small startups do spend money filing patent applications that could be used for hiring and other needs. But don’t assume that low barriers to entry for filing patents are all about helping the little guy. It actually might create more problems.
Cheaper patent applications mean more – and lower-quality! – patents. Lowering filing fees will make more people more likely to file patents. But if the marginal difference in patent fees is holding inventors back from filing applications, the patent is probably covering a low-value invention. More patent applications mean more low-quality patents. Unfortunately, the USPTO is well-known for its tendency to grant patent applications rather than go through the cost and hassle of denial and reversals.
There’s greater likelihood of being blindsided by lawsuits.__* *__More patents mean higher search or discovery costs for inventors seeking to avoid patent infringement. It’s not so bad if you work in an easily "indexable" industry like pharmaceuticals, where a relevant drug can be easily found by searching for a chemical formula. But for industries such as software, there’s no efficient way to search existing patents. Granting more patents will just make patent searches even more difficult.
*Lowering fees means charging more elsewhere. *One goal of the USPTO’s proposed fee structure is to help the smallest ("micro") entities get patents by giving them a 75% discount. But the USPTO has to make up this revenue loss in other ways, which includes increasing patent maintenance fees. Given the tendency to grant patents that will generate more revenue for the patent office, an unexpected consequence of such fee changes is that it incentivizes the USPTO to grant patents to large entities rather than small (see this research by the two contributors below for more details). Larger entities may be paying a higher fee, but they’re effectively paying for an easier time getting patents.
Lower fees won’t meaningfully help the little guy or the public. But being able to avoid unforeseeable lawsuits will. So here are two suggestions for Congress the next time the USPTO’s fee structure is on the table. First, detach the USPTO’s revenue from its funding. Then raise patent fees. A lot. Discouraging low-quality patent applications is a first, small step towards fixing the problem.
Don’t rely so heavily on 'post-allowance' fees to fund USPTO operations
Michael Frakes is an Assistant Professor and Jia Jonathan Zhu and Ruyin Ruby Ye Sesquicentennial Faculty Fellow at Cornell Law School. Melissa Wasserman is an Assistant Professor and Richard W. and Marie L. Corman Scholar at the University of Illinois College of Law.
Given its recently granted fee-setting authority, the USPTO has proposed a new fee schedule that shares similar structural features with the historical fee schedule. Those very features, however, may have contributed to what has been described as a "broken" patent system in the first place.
The USPTO garners most of its budget through three types of fees: (1) filing, search, and examination fees; (2) issuance fees; and (3) maintenance fees. To promote access to the patent system, Congress had historically set filing fees below what it cost the USPTO to examine applications. At the same time, issuance and maintenance fees were set substantially above what it cost the USPTO to perform these functions. Congress had good reasons to set maintenance fees above cost recovery, since inventions covered by patents would re-enter the public domain when patentees let maintenance fees lapse.
But the result is that the USPTO became heavily reliant upon issue and maintenance fees to subsidize the examination process. This created a situation where the fee structure likely biases the USPTO towards granting patents. Our research provides evidence suggesting that the USPTO may indeed act upon this incentive when it needs funds, potentially extending patent grants to a set of otherwise invalid patents.
So on the surface, the USPTO’s proposed fee schedule represents straightforward changes: increasing the filing, search, and examination fees; decreasing issuance fees; and substantially increasing maintenance fees.
When you dig a little deeper, though, you realize that the ratio of "pre-allowance" fees (collected regardless of whether a patent is issued) and "post-allowance" fees (collected upon or after issuance) remains virtually unchanged.
Why does this matter? Because the USPTO remains heavily dependent on the fees it collects only if patents are granted *– *it remains heavily dependent on issuing enough patents to fund its operations.
The optimal fee schedule needs to more carefully reflect these financial realities and the potentially troubling consequences that may arise from over-granting. It may be time to consider limiting the agency’s ability to keep post-allowance fee collections, and to fund the agency partially through tax revenue.
Editor's Note: Given the enormous influence of patents on technology and business -- and complexity of the issues involved -- Wired is running a special series of expert opinions on "the patent fix*". Some of these proposals also advocate specific solutions to the software patent problem to help move reform efforts forward. *
Wired Opinion Editor: Sonal Chokshi @smc90
