PublishedApril 2, 2020

COVID-19’s Impacts on the USPTO’s Budget

It’s been reported that COVID-19 has had significant impacts on patent applicant filing behaviors.  For example, one report shows that patent applications are now being abandoned at almost twice the normal rates.  There are also anecdotal reports of lowered filing rates.

Private businesses are suffering from reductions in demand, and as a user fee-funded agency, the USPTO suffers similarly from reductions in use of its services.  But certain choices the USPTO has made will exacerbate the impacts of COVID-19 on the Patent Office—in particular, its choice to defer the majority of its fee collection to issue and maintenance fees.

I’ll Gladly Pay You In 8 Years For A Patent Today

The USPTO is required by law to set its fees to no more than what is necessary to cover its costs.  But the Office has chosen not to set the fees associated with a given activity—filing, examination, etc.—at the level required to conduct that activity.  Instead, examination fees are set at less than half of the cost to the Office of conducting examination.  That shortfall is only covered when an applicant pays issue and renewal fees.  In fact, for a patent issued to a large company, the USPTO doesn’t fully recover its costs until the 8-year fee is paid—8 years after the patent is issued.  If the patent never issues, or if it’s abandoned before the 8-year fee is paid, the Office loses money on the examination.

This already creates issues—for example, when the Patent Office is faced with continuously increasing patent applications, it runs the risk of the income from maintenance fees on previously granted patents being insufficient to cover the cost of examining the significantly greater number of applications for the current year.  The same is true if patent owners abandon or fail to renew patents at a higher rate than previously predicted. These situations can place budget pressure on the Office that has been empirically shown to correlate to increased grant rates for patents, suggesting patents that would not have been found patentable in times of budgetary sufficiency will be found patentable in times of budgetary stress.

In other words, budget shortfalls can lead to the issuance of patents of marginal quality.

But What If No One Is Paying?

COVID-19 has already had significant impacts on patent applicant behavior.  Twice as many applications are being abandoned as would be expected in normal times—and each abandoned application represents a significant budgetary deficit for the agency.

If abandonment rates stay at the level observed in March for a year—much less if they increase further, as expected—the Office could easily incur significant deficits, where work has been conducted but payment will never be received.  And if the abandonment doubling carries through to decisions not to pay renewal fees, those deficits will be exacerbated because the expected income stream to cover those deficits will be reduced. Research suggests that these deficits will lead to issuance of more marginal patents, patents which may be exploited to chill productive innovative activities in the future.

And all of these problems ultimately come back to the Office’s fee structure—the decision to recover past costs with future revenues.

A Healthier Office

Consider the counterfactual world in which the Office has set examination fees at the level required to recover examination costs, but the same changes in applicant behavior are occurring.

A doubling in application abandonment would have limited impact on the Office’s budget because the work conducted will already have been paid for.  And a similar increase in decisions not to pay renewal fees would have limited impact on the Office because that income stream wouldn’t be required in order to cover the operating costs of the agency.

In other words, by assessing fees at the time the work is incurred, the Office could shield itself from the kinds of unpredictable shifts in behavior currently occurring.

And that, in turn, would shield everyone from the issuance of patents that wouldn’t have been issued in normal times—patents that shouldn’t be issued at all.

Josh Landau

Patent Counsel, CCIA

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.

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