Patent Owners Struck With “Sticker Shock” At PTO’s Proposed Fees

The Patent and Trademark Office issued a proposed fee schedule as part of its implementation of the Leahy-Smith America Invents Act; post-grant review fees could deter use of the procedure, Lilly’s general counsel says.

Pharma companies and other intellectual property owners heralded enactment of patent reform legislation that established new procedures for post-grant review and supplemental examination of patents. But they gasped when they saw how much the Patent and Trademark Office plans to charge for them.

“It’s a little bit of sticker shock,” Bruce Artim, Eli Lilly & Co.’s director of federal affairs, said in an interview.

The PTO was granted the authority to set fees for the first time under the Leahy-Smith America Invents Act, the patent reform bill signed into law in September (Also see "Patent Reform Speeds Drug Development, At Least At The Signing Ceremony" - Pink Sheet, 16 Sep, 2011.). As a first step, on Feb. 7, the agency issued proposed patent fees for its patent services. In setting the fees the office said it sought to reduce the backlog of unexamined patent applications and patent application pendency and avoid disruption in agency operations due to economic fluctuations.

The agency has also issued a series of notices of proposed rulemaking to implement provisions of the AIA. They include proposed rules for supplemental examination, inter partes review proceedings and post-grant review proceedings.

The PTO’s Patent Public Advisory Committee held a Feb. 15 hearing devoted exclusively to the proposed fees. In opening the meeting PTO officials emphasized the agency’s need to bring in sufficient funds to meet its goals.

“A key part of this discussion needs to be a realization by all parties that you get what you pay for,” PTO Director David Kappos stated. “What do the American people want? Do they want the 2010-2015 Strategic Plan? If so, certain costs are associated with it.”

The agency’s strategic plan has a goal of reducing the application backlog to 329,500 by 2015, and reducing the average first action pendency to 10 months by 2015 and average total pendency to 20 months by 2016. The agency currently has 650,000 applications in the examination queue and expects to receive approximately 530,000 applications in FY 2012.

Fees Could Deter Requests For Post-Grant Review, Lilly’s Armitage Says

Michelle Picard, PTO’s senior advisor for financial management, explained that at the current fee rate, which includes the 15% surcharge added under the AIA, the agency will receive about $2.4 billion in patent fees in FY 2013. She said that at this fee schedule the office would be able to achieve 12 months pendency to first office action but would not be able to keep pace with applications and pendency would gradually increase.

Under the proposed fee schedule, PTO anticipates collecting $2.686 billion in patent fee revenue in FY 2013, of which $2.549 billion is to be directed to paying for known operational costs. The remaining $137 million is to be placed in an operating reserve to pay for unknown costs or offset revenue loss due to the fluctuation in demand for service. The agency’s operating reserve would total $702 million by 2015 under the proposed fee structure.

“We are concerned that some fees that have been proposed simply defy rationality in terms of a relationship to the services being provided,” Lilly General Counsel Robert Armitage stated.

The proposed fees include a $7,000 fee to request a supplemental examination of a patent and a $20,000 fee for the examination; additional fees would apply if the documents submitted for the examination exceed 20 pages (see chart). A patent owner may request the patent office to conduct a supplemental examination of a patent to consider, reconsider or correct information believed to be relevant to the patent.

The fee for post-grant review will depend on the number of patent claims involved. For example, a review involving 20 or fewer claims would cost $35,800 while a review involving 61-70 claims would cost $125,300.

Eli Lilly & Co. Senior VP and General Counsel Robert Armitage, who spoke at the PPAC hearing on behalf of the American Bar Association’s Intellectual Property Law Section, said these fees could deter people from using the procedure.

“We are concerned that some fees that have been proposed simply defy rationality in terms of a relationship to the services being provided,” Armitage stated.

He noted that a post-grant review proceeding against a patent containing 200 claims has a fee set at $590,000. He said that unless the agency could provide some substantial rationale as to the burden it would face in conducting such a post-grant review, “the magnitude of this fee would actually discourage bringing post-grant review against a patent that indeed might have been the type of patent that is most deserving of scrutiny by members of the public.”

Armitage also noted that the fees for filing a supplemental examination with 10 items of information would be $27,000, assuming all the items were 20 pages in length or less. If the items were 100 pages in length, he said, the fee would be $31,000. And if multiple supplement examinations were needed because the office elected to have a 10 item limit and 50 items were to be considered with 100 pages, then the fee would be $158,000.

The proposed rules for supplemental examination, published in the Jan. 25 Federal Register, specify that each request for supplemental examination is limited to the presentation of 10 items of information. The rules state that if a limit of 10 items is not sufficient, more than one request for supplemental examination of the same patent may be filed at any time.

Reserve Fund Is Needed To Assure Constant Capital, PTO Says

Herbert Wamsley, executive director of the Intellectual Property Owners Association, told the PPAC hearing that his organization questioned whether substantial funds should be set aside for an operating reserve. He said the funds could be a tempting target for Congressional appropriation. The AIA established a reserve fund for fees that exceed the amount Congress appropriates to the agency but the PTO must go through the appropriation process to obtain access to the fees.

During a PTO webinar Feb. 21, Kappos said it was necessary for the agency to have reserve funds to deal with unexpected events, such as a downturn in the economy or decline in incoming fees. He noted that the agency came close to shutting down in the summer of 2009 and considered furloughing employees.

Comments on the proposed fees are due by Feb. 29. A final proposed fee schedule will be published in a Federal Register notice, expected in June 2012. Final rulemaking will be issued around December and the new fees will go into effect in February 2013.

While the PPAC hearing focused on fees, Armitage noted that members of the patent community are concerned about the proposed rules implementing the AIA. Among other things, he said people have told him they think the new post-grant review and inter partes review proceedings are too complex, that supplemental examinations require more information than would appear to be necessary, and that changes made with regard to the inventor’s oath and declaration impose costs and burdens on the applicant.

The PTO issued proposed rules for post-grant review and for inter partes review proceedings in the Feb. 10 Federal Register. Comments on these proposed rulemakings are due by April 10.

Under the post-grant review procedures, a person who is not the owner of a patent may file a petition with the PTO to institute a review of the patent no later than nine months after it is granted, unless the petitioner has filed a civil action challenging the patent’s validity. The petition must identify each claim challenged, the grounds on which each claim is challenged, and evidence supporting the challenge. The PTO director may not authorize review unless the information in the petition demonstrates that it is “more likely than not” that at least one of the challenged claims is unpatentable, or the petition raises a novel or unsettled legal question important to other patents or patent applicants.

PTO’s proposed rules require the patent owner to file a preliminary response to a petition no later than two months from the date of the notice that a request for post-grant review has been given a filing date. The Patent Trial and Appeal Board (which is to replace the Board of Patent Appeals and Interferences) must determine whether to institute a review within three months from the filing of the patent owner’s response.

Under the new inter partes review proceedings, a third party may petition for review of a patent nine months after the patent is granted or the date of termination of post-grant review. The PTO director must find that there is a “reasonable likelihood” that the petitioner would prevail with respect to at least one of the claims challenged in the petition. The review may not be initiated if the petition is filed more than one year after the petitioner or real party in interest has been sued for infringement of the patent.

U.S. Patent and Trademark Office’s Proposed Fees
Description	Current Large Entity Fee (includes 15% surcharge added under the AIA)	Proposed Large Entity Fee	Dollar Change	Percent Change
Utility – basic filing, search and exam (total)	$1,250	$1,840	$590	47%
Request for continued examination	$930	$1,700	$770	83%
Notice of appeal	$620	$1,500	$880	142%
Filing an appeal	$0	$2,500	$2,500	102%
Petition for inter partes review, 20 or fewer claims	$27,200	$27,200	0	0%
Post grant review, 20 or fewer claims	$35,800	$35,800	0	0%
Request for ex parte reexamination	$2,520	$17,760	$15,240	605%
Request for supplemental examination	$5,180	$7,000	$1,820	35%
Supplemental examination (additional fees for documents more than 20 pages)	$16,120	$20,000	$3,880	24%
Pre-grant publication and issue fees combined	$2,040	$960	($1,080)	-53%
Maintenance – 1^st stage (due at 3.5 years)	$1,130	$1,600	$470	42%
Maintenance – 2^nd stage (due at 7.5 years)	$2,850	$3,600	$750	26%
Maintenance – 3^rd stage (due at 11.5 years)	$4,730	$7,600	$2,870	61%
Inventor oath/declaration filed up to notice of allowance	N/A	$3,000	N/A	N/A
Inventor oath/declaration was not provided before examination	N/A	$1,700	N/A	N/A

Source: PTO’s table of patent fee changes and executive summary.