It is an article of faith among many patent attorneys, inventors, investors, and a good number of corporate executives, that good patent protection is necessarily very expensive. Unfortunately, that attitude is both wasteful and dangerous. Acceptance of the inevitability of high patent costs leads to sloppy patent drafting, mis-allocation of prosecution funds, and reduced funding for research and development.
Part of the problem is that patent attorneys have enormous discretion in drafting claims, and often exercise that discretion in a self-serving manner that maximizes the eventual costs of securing the patent portfolio. This is exacerbated by the fact that most clients have little or no ability to evaluate the quality of the work. This chapter addresses both problems, by providing a realistic view of the costs involved, and guidance with respect to distinguishing "good" patents from "Bad".
People are often told that the cost of securing a patent is about $12,000 - $15,000. That statement is probably correct for simple applications. It costs about $8,000 - $12,000 to search, draft the application, and pay the government filing fees, another $1,500 to $5,000 to argue the application before the patent office, and another $750 to pay the issue fee.
Figure 1 — Costs Of Getting a Patent Issued
The problem is that such charges are often only the beginning. As described below, a single utility application can easily spawn numerous divisional or other continuation applications, and those other applications can increase the costs many fold. Add to that the costs of foreign prosecution foreign application, and what originated as a $15,000 budget can very quickly grow to $750,000 or more. To get a handle on that, let's review the costs of different types of U.S. utility applications, and then focus on the costs of foreign prosecution.
As discussed above, the cost of getting a formal formal application U.S. utility patent application on file application filing is usually about $8,000 - $12,000, depending on the difficulty in searching and drafting the application. The question is, where do these numbers come from?
Figure 2 — Costs Of Getting A Patent Application On File
Ironically, one very common cause for high drafting charges is that the invention is very simple. A new pair of scissors, for example, is incredibly difficult to patent broadly. The concept of scissors has been around for so long that the prior art is a virtual minefield of ideas.
Another common cause for high drafting charges is that the inventor keeps changing his mind about what the invention is. It is one thing to work with an inventor to derive claims, draft the application, and then get final sign-off with relatively few changes. It is quite another thing to spend the better part of a month discussing claims and writing the application, only to start the process all over again when the inventor decides that he wants to claim something different. I worked on an application recently where the inventor's vacillations more than doubled the cost. Indeed, inventor vacillation is probably a major reason that patent attorneys are loath to write patent applications at fixed cost.
A third common cause for high patent application costs is that the inventor has a large number of designs and/or a huge amount of undigested data to consider. Running through all that information can be incredibly time consuming, and patent attorneys sometimes take on the chore because they don't otherwise have a full plate. But the task of reviewing and consolidating such material is best done by the inventor, or at most by the inventor with help from the patent attorney or others. Use of that strategy along can significantly reduce patent drafting charges.
General information about patent fees is available on the Internet, including the latest fee schedule, and related notices. For convenience, the most important USPTO fees are listed in Appendix A. The most important PCT (international application) fees are listed in Appendix B.
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A first (i.e. primary) utility utility application or PCT application is often followed by additional (i.e., secondary) applications, such as divisionals divisional application, continuations continuation application, CIPs CIP application, and so forth. The primary and secondary applications can quickly form a complicated and expensive family of applications, even though these other applications are usually much less expensive to file than the primary application.
Figure 3 — Patent Families Can Be Quite Complicated
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There are firms that charge a lot more than the fees and costs identified above. As unbelievable as it may seem, there are law firms that charge $2000 - $3000, in addition to the government filing fees, to basically photocopy utility applications and file them as PCT applications. That is just unconscionable. In another example, a well-known law firm charged $30,000 to file a provisional.
Some law firms routinely charge $20,000 and even $30,000 to draft a patent application. Those charges are absurd. Just think about it. Let's say a patent attorney having a medium level of experience charges $300 per hour. If he drafts a $30,000 application, he effectively billed for 100 hours of work. That's 2.5 solid weeks of work. Absent very unusual circumstances, no competent patent attorney should have to spend that much time writing a single application.
Figure 4 — Distribution of Patent Application Charges
Of course, there are plenty of tricks to justify excessive cost. Sometimes the trick is to file a very long application. Some firms routinely submit patent applications that are 80, or even 100 pages long. Yes, there are possible circumstances that justify such a long application, but those circumstances rarely justify the high price. If the unusual length is due to an extensive listing of preferred embodiments preferred embodiment or experiments (as is often the case in the pharmaceutical and other chemical fields), then the high cost is unjustified because those long listings are almost invariably compiled by the inventor(s). In most other instances the excessive length is the result of the attorney's laziness or incompetence. Anyone can make something difficult. It takes hard work and intelligence to make something simple.
Another common trick is to bill large amounts for work of a "INDEX supervising" attorney, who doesn't (or shouldn't) spend anywhere near the amount of time billed. One patent attorney told me that he regularly drafted applications for about $5,000 of time, and that the firm billed about $25,000 for his work! These things are just unconscionable.
Still other tricks for justifying the overcharging of a client include the use of "standard" fees for simple administrative functions. Some firms, for example, charge a $350 administrative fee for opening a new matter, $150 per month docketing fee (even if there is nothing to docket), and up to $1500 per foreign application just for opening the file.
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One should be very careful to avoid filing patent applications through one of the patent mills. Whether these are styled as "invention companies" or law firms, the bottom line is that they pump out hundreds of applications a year, usually with mechanistically drafted specifications and extremely narrow claims. The problem, of course, is that when the patent holder tries to enforce his patent years later, he quickly discovers that all of the claims can be readily circumvented, and that his patent is therefore essentially worthless.
From time to time one of the government agencies takes aim at one of the patent mills, and raises the level of awareness by bringing civil or even criminal charges . Relevant information regarding patent mills can also be found on the website of the National Inventor Fraud Center. But in general, inventors need to watch out for themselves. Unfortunately, it can be very difficult for those outside the patent field to distinguish patent mills from high-value patent firms and practitioners. One red flag is that patent mills often charge a fixed fee, usually about nine or ten thousand dollars, to draft and file the patent application. Another red flag is that patent mills often promise to advertise the patent rights and/or the patented product. There are instances in which such efforts have been successful, but they are few and far between.
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Another area where people waste a lot of money is in unproductively arguing back and forth with the patent examiner. In U.S. prosecution an applicant is usually entitled to two bites at the apple -- one response after a first substantive office action, and then a second response after a second substantive office action. Office actions for technicalities such as missing signatures in filing the application, or restriction requirements (see below) don't count towards the two bites. The second or third office action is almost always a final rejection rejected claims, and prosecution can only continue by filing a continuation application.
The arguing phase is usually completed within about two years from the first office action, and costs less than about $2500. But the process can go much longer. I once took over prosecution of a patent application that had been languishing in the patent office for ten years! The cost to the client in that case, including a series of continuations continuation application, was tens of thousands of dollars. I have also seen incredibly inefficient prosecution, which costs the client many thousands of dollars more than it should!
The key is to know when to fight and when to acquiesce. Attorneys are happy to carry the battle to the death, but of course it's the client's money that the attorneys are fighting with. There are diminishing returns here just as anywhere else.
Figure 5 — Diminishing Returns
The problem from a cost-effectiveness standpoint is that patent attorneys commonly view the examiners in a derogatory light. Even though the patent attorneys are ever-so-polite to the examiners, (as they must be under the patent office rules), they often fail to take the examiner's comments seriously. That results in arguments that sound like two children arguing in a playground. One says "x", and the other says "not x". Then the first one repeats "x", and the other repeats "not x". In the patent world this can go on for years, with the patent attorney developing a hugely thick file to justify all his work. If a patent application is still pending after a second continuation continuation application, one has to seriously consider whether the attorney has the right strategy.
The solution is for the patent attorney to do the heavy mental lifting involved in figuring out where the invention lies relative to the prior art, and to write concise, commercially relevant short claims that focus on the point of novelty. Merely focusing on technical distinctions is anathema to good patenting. The emphasis should be on claiming improvements that can be broadly patented, and that have significance in the marketplace (see Chapter V, infra). Once the patent attorney clearly understands and claims the novelty over the prior art, the patent examiners are usually quite supportive.
It is also true that high charges in some prosecutions are justified. From time to time an applicant pulls a bad examiner, and costs run up because the examiner doesn't know, or won't follow the law. I once had an examiner who insisted upon rejecting claims on the grounds of obviousness, while admitting that the independent parent claim independent claims was allowable allowable claims! Such a rejection rejected claims is completely illogical and wrong. In other instances patent prosecution charges can run up because the patent attorney is trying to keep a continuing application alive, even though there is essentially nothing to claim. In that case the continuing application is an insurance policy, allowing new claims to be filed without loss of priority in the event a competitor figures out how to circumvent the claims issued in the parent application. High prosecution costs can also be justified where the applicant chooses to keep his application pending rather than have narrow claims issue. In such instances the patent pending status of the application can be more valuable in the marketplace than an issued patent with narrow claims.
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As explained above, the cost of getting a U.S. patent application on file should be $8,000 - $12,000. In rare cases the cost can go up to $15,000. By the time the patent issues, the total cost may run from $15,000 to as high as $20,000. So far so good.
Figure 6 — The Cost Of Filing A Single Application Is Reasonable
But many companies want to file foreign applications foreign application. It is quite common, for example, for patent applications on medical devices to be filed in Europe, Japan, China (PRC), Korea, Canada and Mexico. In those circumstances the added cost of at least $10,000 per country is well justified by the extremely high profits generated in each of the various foreign countries.
Figure 7 — The Cost Can Still Be Reasonable With Foreign Filing
Now look at what happens when the single U.S. application spawns both divisionals and foreign filings. The patent budget will easily rise above $300,000.
Figure 8 — Divisional Applications Raise The Cost Considerably
Finally, look at what happens when there are multiple U.S. applications. The original $10,000 - $20,000 U.S. patenting costs runs up a bill nearing a million dollars. Of course, for most individuals, and many companies, those numbers are just unacceptable. This is why people should be focusing on cost effectiveness. There are strategies for achieving the desired results, without triggering all that cost.
Figure 9 — Multiple Applications Make It Much Worse
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Patent applicants often have an unrealistic view of the costs of patent protection. The bottom line is that an applicant needs to allocate at least $12,000 to get a patent issued in the United States. In cases where the prosecution is likely to be difficult, he needs to allocate $15,000 - $20,000. When confronted with those figures applicants often want to come into the office and meet for an hour to discuss how they can reduce the charges. That is all well and good, but at the end of the day those will still be the charges. Discussing the issues for an hour will either increase the charges, or will cause the patent attorney to write off that amount of time from his billing for the day. The only thing an attorney has to sell is his time, and although attorneys are often willing to spend several hours with a potential client, one cannot keep providing services without charging.
Applicants also inquire from time to time as to whether we can guarantee that a patent will issue. The answer to that question is no. It is impossible for an attorney (or anyone else) to identify all of the prior art, no matter how much searching is performed, and therefore it is impossible to know whether the invention is patentable. That result obtains not only because of the difficulties inherent in searching, but also because patent applications are generally not published until 18 months. Newly revealed prior art will be coming out for years even after the application is filed. As an aside, it is almost always possible to secure a narrow patent, but such patents are generally worthless. The reality is that a patent applicant is trying to beat out numerous other players, and to thereby secure rights that could be worth many millions of dollars. If he is willing to lay out the funds needed to get a patent issued, he can get in the fight. Otherwise he is just wasting everyone's time.
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Given the very high cost of patenting, it behooves applicants to choose very carefully between technology that should be pursued and that which should be eschewed. But that rarely happens. The inventors usually care little about the financial effects of patenting, and the business people typically have little understanding of technology. The result is that every little improvement finds its way to the patent attorney for filing.
That is a very poor strategy. A better approach is to: (1) focus on patenting as a critical component in defining the goals and resources; (2) choose the market(s) with patentability in mind; (3) target patent strategies to the choke points; and (4) develop tactics that cost-effectively implement the patent strategies.
Just because something can be done doesn't mean that it should be done. A good businessperson takes stock of the resources, and matches them up against the goals to determine what is realistic. It is almost impossible, for example, for a company to enter the automobile industry to mass-produce new cars. It's just way too expensive to design and build the cars, and way too expensive to distribute them. It is possible, however, to build a specialty line of vehicles, such as those adding a new body to a chassis and frame of a mass-produced car.
Figure 10 — "INDEX Can Do" Is Different From "Should Do"
The resources are usually quite apparent to management, or to an individual inventor. Resources obviously include funds to pay for patent drafting and prosecution, as well as time and effort of individual researchers, scientists, and other inventors, building and equipment, and so forth. Less apparent is that resources include institutional knowledge, motivation of the inventors, opportunity funnel and other less tangible assets.
The goal portion of the equation also involves some items that are commonly appreciated, and some that are more obscure. For example, most people appreciate that patenting goals include generating higher profits and increasing market share. Less appreciated goals can include increasing business opportunities, improving company image, and optimizing resources.
Higher profits and increased market share arise because a patent gives the patent holder a sword with which to attack the competition by precluding them from even entering the marketplace. For example, a patent on an ink cartridge for a laser printer allows the manufacturer of the printer to adopt a razor blade strategy, selling the non-consumable printer at a very low price while profiting from the consumable cartridge. In the absence of a patent, competitors would quickly enter the cartridge market, and deprive the innovator of a long-term benefit from development of the printer. Of course, a patent applicant isn’t always the dominant player in an industry, and doesn’t need to be. But a good strategy takes into account what level of dominance is acceptable. Does the applicant insist upon being the clear leader in the field, or is it acceptable to be a shared leader, a significant player, or merely a niche player?
Patents can also increase business opportunities. Consider a company that wants to enter the water purification market. If the company has enough money, it can buy its way into the market through acquisition. But it is often very difficult to gain a dominant position in that manner. A patent on a breakthrough technology such as expanded carbon allows the company to purchase a second or third tier player in the marketplace, and then catapult that acquisition to the top of the market. Patent rights to core aspects of a new technology, even if such rights are inchoate, can give the company an opportunity to develop side technologies that can effectively foreclose all competition in the field.
Another viable goal is company image. Dominant players in the film camera business, for example, looked quite old-fashioned when digital cameras broke into the marketplace. Simply moving into the new digital imaging field as a "me too" player may stop the company from going out of business, but it is the patenting of new technologies that can help convince the financial markets that the company will be a serious player in the digital world.
The other viable goal of patenting is optimizing resources. It is just all too easy for researchers to develop fascinating technologies that can be reverse engineered, and knocked off by the competition. Such products will have little or no impact on the bottom line because the profit margin will collapse. By focusing on what is patentable before the R&D is even begun, a company can greatly improve its profitability.
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A thorough goals/resources analysis invariably leads to a number of different markets that can be attacked. The question is, which ones should be chosen and which ones passed up. Here it is useful to map out potential growth of different markets with respect to the degree of patent protection available. In the chart below growth is mapped against patentability. The best markets are those that have both high growth and are open to patentable subject matter (upper right quadrant).
The upper left and lower two quadrants, however, represent market areas that are all poor choices. High growth markets where there is little chance of securing broad patent protection will likely be inundated with competition. An example might be the wheelchair market. There will certainly be an increase in market as the population ages, but there are relatively few patentable improvements that are likely in that field. Unless there are other barriers to entry, the product will be subject to commoditization, and the margins will be weak. Markets where broad patents are likely, but have little chance of growth, will have good margins but weak sales. In this category one might find an invention that helps window washers handle work in high-rise buildings. No matter how great the invention is, the market is likely to be extremely limited.
Figure 11 — Choosing The Market Based On Growth And Patentability
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Once a market is selected, the next step is to figure out where the choke points lie. Consider the market below, in which there are four dominant competitive technologies, A-D. Here a contemplated patent portfolio would effectively block or render technologies A and C obsolete, but have no effect on technology B. Technology D is also blocked, but a derivative technology circumvents the patent. This market is probably a poor prospect for a new entrant. The contemplated patent portfolio, even if it could be obtained, would fail to secure a dominant position for the patent holder.
All of this, of course, harkens back to the original goals with respect to dominance in the market. An applicant can be very successful being niche or merely significant player.
Figure 12 — Target Patent Strategies Based On Choke Points
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Once those strategic considerations are considered, the final step is to focus on patenting tactics. Here the main consideration is the tradeoff between the number of patents and the breadth of those patents.
Sad as it may seem, many venture capital funds, angel investors, and others have little or no ability to assess the value of a patent. Their usual fallback position is to consider all patents to be of relatively equal value, and to use the number of patents as a measure of the value of the patent portfolio. That approach does have some merit, since an allegedly infringing competitor would generally be more reluctant to fight 10 patents than to fight a single patent, and would be more concerned about 100 claims than five claims.
But those having more experience in the patent world evaluate the strength of patents based upon the breadth of the claims, not their number. It's a bit like employees. In some circumstances its better to have a single good salesperson than many mediocre ones.
This leads naturally to the issue of what is the best way to build a patent portfolio. Securing broad patent claims takes a lot more mental horsepower than drafting a slew of narrow claims, and can take longer to get through the patent office. But in the long run the costs are much less.
The diagram below graphs breadth of claims against number of claims. The goal is to get from the bottom left position (no patent protection) to the top right position (strong patent protection). But how to do it? As is usually the case in the real world, the path is almost never straight, and there are several options. And even though the paths may end up in the same place, some paths are more pleasant to travel than others. If an applicant takes the lower right path, he spends a lot of money up front, filing a lot of patent applications that aren't worth very much. If the applicant takes the upper left path, he files fewer patents and spends less early on. The number of patents only increases (by divisionals and other filings) at a later stage when the company likely has more funds and a better grip on the market impact of the technology. For a patent attorney the lower right path brings in the most profit. But for the client, the upper left path is usually preferable.
Figure 13 — How Best To Build A Patent Portfolio
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Conceptualizing and patenting new inventions is much less expensive than actually creating new products and getting them on the market. But patenting can still be a waste of money. It all depends on how the money is spent. The best strategy has the patent attorney involved in both the R&D and strategic planning efforts, helping to secure broad monopolies and creating roadblocks against competitors.
Some engineers, scientists and programmers have a difficult time with this concept. They tend to focus on actually building things, optimizing their performance, and reducing production costs. But that doesn't necessarily create a monopoly. As demonstrated by the myriad companies that went bust during the dot com frenzy of the late 1990s, successful companies have to find some way of creating a monopoly or some other barrier to entry against competitors. In the patent world this means finding a creative patent attorney who understands how to manipulate the patent laws for commercial benefit, implementing a policy of creative and cost-effective patenting, and then helping to locate the funds needed to make it happen.
See, e.g., FTC v. Davison Assocs., 431 F. Supp. 2d 548 (D. Pa. 2006) ↩
Go.com was in existence for only four years but supposedly cost the Walt Disney Company almost $800,000,000. Webvan™ raised $375,000,000 in IPO, and went bust less than a year later. kosomo.com™ raised $280,000,000 and even secured a $150,000,000 deal with Starbucks, but was out of business within two years. Pets.com™ raised more than $80,000,000 in an IPO and went bust nine months later. eToys.com™ and boo.com™ each managed to run through more than $150,000,000 in only a few years. Aside from the fact that these were all Internet ventures, the key similarity is that they were pure "action plays". They added nothing to science or technology. ↩
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