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Volume 4 - Number 2 -- Winter 1995

["Patent Value"] ["Patent Budgets"] [H.R.359][Return to Part I]

Part 2

More Contributions: Curt Harrington's Latest Insights to the Legal World of High Technology Intellectual Property

First time inventors seeking a patent have a difficult task in trying to decide who can best help prepare and prosecute their patent and how much they should spend in the application process. These two considerations are interrelated due to the business structure of the law firms and individual practitioners who provide these services.

It may be helpful to consider practitioners as classifiable into three categories, including large law firms, small firm/sole practitioner patent attorneys, and patent agents. Large law firms generally earn a majority of their profit from litigation. Generally, only larger clients able to pay the heavy costs of litigation are generally sought by the large law firm. Since litigation costs cannot be closely controlled by the client it will always be a high profitability activity, and will always dominate the business of the large firm. Large patent law firms generally consider patent application work as necessary to enable future litigation business which may result, and as such the small business and individual inventor is not a high priority. A significantly higher fee policy may be used by larger firms to exclude individual inventors and small businesses. In some instances, fees as high as $10,000.00 have been quoted for a simple utility patent application.

Further, with a larger law firm, the application is likely to be handled by more than one attorney, with the inefficiencies associated with further explanation of the invention to the attorney who will perform the work. This inefficiency is significant and costly. The inventor or small business is effectively paying for this time, including the communication time between the attorneys.

Patent agents occupy the other end of the range of choice. Many practice part-time or as a source of supplementary income. The quality of work may vary more significantly among patent agents. Since agents are not attorneys, they cannot provide full service to the client. For example, agents are not permitted to express legal opinions about patentability and infringement. However, the fees quoted by patent agents typically range from $1000.00 per case as a minimum, up to about $2500.00. Agents cannot provide certain client protections including the attorney-client privilege and attorney-client confidence. In addition, the technical expertise and experience of the agent as it relates directly to the invention should be carefully examined. If the patent application is not drafted by someone who thoroughly understands the technology and who can adequately express the invention, it will cost the inventor in terms of patent coverage, time, money, and future defendability of the patent.

The small firm/sole practitioner patent attorney may turn out to be the best bargain for the beginning inventor and for small businesses. In addition to the advantages and protections of doing business with an attorney, the cost structure of the small firm/sole practitioner patent attorney is not significantly greater than that for agents.

One objective measure of cost is dollars per page of the patent application including the claims and abstract. The standard attorney fees charged by the small firm/sole practitioner patent attorneys of which I am aware is still about $100 per 8 by 11 inch sheet, double spaced. Rarely can even the simplest patent application be expressed with less than 15 pages. Utility patent applications with less than 10 pages will often run into trouble for not having a sufficient disclosure.

Lastly, the patent attorney should take the time to talk with the inventor or small business about the full range of options available. Many inventors, even those who have applied for patents in past years, still have not been informed about patent basics.

The basic information which inventors should know, include at a minimum (1) the new utility patent term which has been in effect since June of 1995, (2) the petition to make special to hasten the time of first examination by the patent office, (3) the favorable tax treatment afforded inventions, (4) the availability of a filing under the Patent Cooperation Treaty to delay foreign filing of the patent while preserving the filing priority date, and (5) the availability of patent owner's insurance to defray the cost of enforcing the patent against an infringer.

Individual inventors and small businesses should make certain to select a patent practitioner who is genuinely interested in their inventions, businesses and in helping achieve their goals.

Patents rights are a valuable part of the business of innovation and improvement. Small businesses and inventors need to have an understanding of patent procurement cost and timing in order to adequately budget such expenditures. It is helpful to consider the patent process in three stages, including application preparation, application prosecution, and patent issuance and maintenance.

The costs for preparation of a utility patent varies depending upon the number of pages needed to describe the invention, the number of claims needed to adequately claim the invention and the number of drawings, if any, required to illustrate the invention. The utility patent application includes a background, summary, brief description of the drawings, detailed description, and claims written in a specialized format.

One objective measure of the attorney fee cost is dollars per page of patent application including the claims and abstract. This should cost no more than $100 per 8 by 11 inch page, double spaced. Rarely can even the simplest patent application be adequately expressed in less than 15 pages, and a simple patent seems to average about 20 pages to cost a total of about $2000 in preparation fees.

The current utility patent filing fee, based upon the minimum number of claims, for an individual or business having less than 500 employees, known as a small entity, is $375. Quality drawings, if required, are about $150 per sheet. The average minimum electrical or mechanical application may have about three sheets of drawings, so an estimated cost of about $450 for drawings is reasonable. Note that most chemical applications do not require drawings. Based upon these assumptions, the cost to get a simple patent application filed is about $2825. This initial cost is normally paid prior to the filing of the application.

The prosecution of the patent application may involve one or two responses to an examiner in the U.S. Patent Office who rules on the allowability of the patent. Based upon an average of about 2 responses, it may require from 3-5 hours of attorney time at a cost of $1000 representing the cost of prosecution. This cost occurs from about six months to more than a year and a half after the patent is filed. Of course, unusual situations can require more involvement, but the examples given tend to express a minimum to average case.

One option which has been increasingly used since the change in the potential patent protection period to 20 years from filing, is the use of a petition to enable the application to be examined right away. Since every day of delay before patent issuance costs the owner a day of patent monopoly lost, the time of pendency of the application occurs at the expense of the patent protection period. The cost of such a petition varies widely based upon the basis for application and will not be considered in this budget.

Once a case is allowed to issue, the government will charge an issue fee which is $625 for a small entity. An attorney fee of $300 for the time to take care of any problems left in the case and processing the issue fee is added to bring the issue cost to $925.

The government charges post issuance fees due at 3, 7, & 11 years, which are currently $495, $995, and $1495, respectively, for a small entity. The inventor can arrange at case issuance to pay these costs directly or he can have the attorney docket the issued patent and handle the post issuance fees in future. If the maintenance fees are paid directly by the inventor, the maintenance fee phase adds to $2985.

Based upon the above estimates, the costs throughout the life of the patent total $7735. Remember however, that the inventor may interrupt the patent process, as well as the payment of the maintenance fees, at any point during the pendency of the patent application or during the life of the issued patent. As such, the inventor need only commit to the funds necessary to take care of each phase in the patent process if possible and as it occurs. With regard to the issued patent, the patent owner need only continue paying the maintenance fees if the value the patent monopoly during the next maintenance period exceeds the next maintenance fee.

Remember that the above costs relate to a 20 year period which includes the pendency of the application and the life of the resulting patent. The projected costs should be justified by considering the possible additional income made possible by an issued patent. Having a patent can not only form the basis for an income royalty stream, but can enhance product sales and profitability.

Inventors everywhere have lamented the introduction of the new patent term under the General Agreement on Tariffs and Trade (GATT). An important change to our patent law, but which was generally unrelated to the main provisions of GATT, was included in the agreement to limit the term of United States Patents to no more than 20 years the date of filing of the patent application. Prior to GATT, inventors were granted a 17 year term from the date of issuance of the patent, rather than from the filing date of the application.

The problem with the "20 year from filing" rule to be implemented under GATT is that some patents require years to make it through the examination process. The reasons for lengthy examination can vary, and include instances where the Examiner performs a new search. The new search may be for a reason that the Examiner, based on his technical experience, feels that the references he originally cited against the patent applicant are not sufficiently representative to allow the case in view of the applicant's arguments. Under the "20 year from filing rule," such an occurrence would shorten the period of the patent at its issuance to the number of years left from 20 after subtracting the time required for Examination.

The resulting shortened patent period resulting from the above rule currently will take effect on June 8, 1995. We are currently in a six month interim period where patents filed will be afforded a validity period of 20 years from the date of filing or 17 years from the date of issue, which ever is longer. This interim period is for the purpose of easing patent applicants into the new patent enforcement period.

However, the real pinch point will occur just before June 8, when inventors will want to have their patent applications drafted and filed by that deadline date in order to take advantage of the expanded "either/or" period of patent enforceability. The frantic press of the deadline date may be put off permanently, however, by the heroic efforts of Dana Rohrabacher.

His proposed bill H.R. 359, as well as its companion Senate bill S-284 introduced by Robert Dole, will effectively give the interim period rule permanent status. The bill will delete that portion of the original language of GATT which read "and ending 20 years from the date on which the application for patent was filed in the United States..." and inserting "and ending- (A) 17 years from the date of the grant of the patent, or (B) 20 years from the date on which the application for the patent was filed in the United States..."

With regard to patents applications which refer to or depend from earlier filed applications, the GATT agreement as passed would have limited later filed applications to 20 years from the date of the earlier filed applications. With the "17 or 20" language of H.R. 359, the patent applicant is still guaranteed at least 17 years of enforceability. About the only negative result possible with the wording of H.R. 359 is that applicants who file applications which depend from earlier filed applications will effectively be foreclosed from obtaining 20 year protection for the later case simply by operation of the slowness of the U.S. Patent Office.

This bill is a winner on all fronts. Inventors win because they will be able to keep a term of enforceability of at least 17 years. Of course if they speed up prosecution of the patent by filing a special petition they may be able to obtain a period of patent enforceability of up to about 19 years, assuming that the time consumed by the U.S. Patent Office is less than a year.

Patent practitioners will win, if H.R. 359 is passed and put into effect by the June 8, 1995 deadline date, since there will not be a press of inventors trying to obtain a filing date before the deadline date.

On another front, the bill contains a provision which provides for the "laying open" for public inspection of patents which depend from a previously filed patent where the earliest such patent was filed more than 60 months previously. The "laying open" of applications is important to business and investment interests, since it is competitively helpful to know what your competition is doing. Admittedly a 60 month threshold is less desirable than the 18 month threshold available in Japan, but it is a first step in the right direction.

In theory, it would be nice if the U.S. Patent Office could do its job of Examination and application denial or approval in a single day. In this way, businesses could have a fairly instant look at the risks of investing in a project. After all, pouring money into a project in which someone else asserts patent rights later on is not a happy state of affairs. The 60 month "laying open" provision was meant primarily to squelch the "submarine patent" criticism. A "submarine patent" is an issued patent based upon an original application filed many years earlier and therefore based upon early technology. This can be economically disruptive where business continues based upon an assumption that the rights in this early technology has been settled. For a visceral, but far fetched example, imagine a patent issuing tomorrow on the transistor, and the accompanying chaos it would cause in the electronics industry.

In conclusion, H.R. 359 is needed and is good for our patent system. The bill currently has over 123 cosponsors, and the current administration has indicated that it would support this bill. With a little luck, it will be in effect before the June 8, 1995 deadline.

CURTIS L. HARRINGTON, is of Counsel to the Newport Beach law firm of Hawes & Fischer (714)374-9549 and practices in the areas of Patent, Trademark, Copyright and Trade Secret law, and is an Adjunct Professor at the University of Phoenix in Southern California. He is admitted to practice before the state bars of California, Texas, and Arizona, and admitted to practice before the U.S. District Court, the U.S. Court of Appeals, Fifth and Ninth Circuits, the U.S. Supreme Court and registered to practice before the U.S. Patent and Trademark Office. His education includes a B.S. Chemistry (Auburn University, 1974); M.S. Chemical Engineering (Georgia Institute of Technology, 1977); M.S. Electrical Engineering (California State University - Long Beach, 1990); a Master of Business Administration (University of Oklahoma, 1985); and Juris Doctorate (University of Houston, 1983). He is a member of the Long Beach Bar Association Board of Governors, the Orange County Bar Association and the Japan America Society of Southern California.

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