Maximizing Your Patent Prosecution Dollars: A Few Simple Considerations

To illustrate this phenomenon, let us assume that Firm A is our designated low-cost provider, charging $9,000 per application prepared and filed, and an additional $2,500 per amendment prepared in response to an Office Action by the USPTO. Let us also assume that there are “higher” costs and expenses by having your company's application prepared, filed and prosecuted with Firm B. Firm B charges an average of $11,500 to prepare and file a patent application, and an additional $3,000 per amendment. At first blush, it would appear that Firm A would provide the more cost-effective solution ' by several thousand dollars. However, this is not necessarily the case. In an appropriate cost analysis, more goes into the equation than the cost charged per “activity.”

Considerations Beyond Dollars and Cents

Two additional variables warrant consideration. First, how many “activities” are required? For patent prosecution, one variable is how many amendments it takes to secure a notice of allowance. For purposes of this analysis, let us assume that Firm A averages two amendments to secure an allowance and Firm B averages a single amendment to secure an allowance.

The second variable, which warrants careful review, is the percentage of filed applications that actually mature into a patent. In 2000, Q. Todd Dickinson, the Commissioner of the USPTO at the time, stated ' at the Internet Society Panel on Business Method Patents ' that, on average, two out of every three utility patent applications filed resulted in an issued patent. In other words, one third of all filed applications go abandoned. For purposes of this analysis, let us assume that Firm A is able to meet the average while Firm B is able to secure an allowance in four out of every five applications.

A Simple Analysis Using the Additional Considerations

Based on the above assumptions, and as demonstrated in Chart A, below, Firm A's $9,000 per application and $2,500 per amendment compares very favorably to Firm B's $11,500 per application and $3,000 per amendment. While Firm A initially appeared to charge less, in fact, in this scenario, it is Firm B that is the better economic selection, when the additional two variables of number of amendments and percentage of applications issued are considered.

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Chart A, Cost Comparison, demonstrates that consideration of these additional variables can have a dramatic effect on the average cost for obtaining an issued patent. While Firm A “costs” approximately 20% less to prepare and file an application and costs 20% less per amendment, these apparent savings are not enough to offset the effect of the additional considerations. When the additional considerations are taken into account, the analysis yields a savings of nearly $3,000 per issued patent in favor of Firm B. Such savings here amounted to more than 15% of a company's patent prosecution budget.

Additionally, the extra office action required by Firm A to secure an allowance not only affects the attorney fees associated with prosecution, but may also lead to further expenses if the additional office action necessitates the filing of a continuation with the associated USPTO fees. Furthermore, the additional office action necessarily affects the length of protection for the patent once it issues. With patents now essentially limited to 20 years from the filing of the original application, each extra amendment subtracts time from the term of the issued patent. Also, each additional office action and corresponding amendment increases the likelihood for file wrapper estoppel, which can restrict the scope of the issued claims.

Maximizing Your Patent Prosecution Budget

Now, let us look at the above information in a different way: As set forth in Chart B, if your company has a budget of $1 million to file and prosecute applications, Firm A would file and prosecute 71 applications through to issuance or abandonment. Of the 71 applications, on average, 48 would issue as patents. With Firm B, the same $1 million would allow for only 69 applications to be filed and prosecuted through to issuance or abandonment, but approximately 55 applications would issue as patents. In short, Firm B is able to secure seven additional patents for the same total cost to the company.

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Conclusion

While there are certainly other important criteria to consider in selecting outside patent counsel, such as the quality of their work product, their technical capabilities and capacity to timely handle your work, there are some simple additional questions that should be asked of outside patent counsel to allow for a more complete cost-benefit analysis. One should look not only at expected costs per action but also at a firm's allowance percentage and average number of amendments (and continuations) required to secure a patent. With this additional information, in-house patent counsel can more effectively evaluate expected costs and maximize their patent prosecution dollars.

According to the statistics released by the USPTO (available online at www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm), approximately 326,508 utility patent applications were filed in 2001 in the United States and 166,045 utility patents were granted. The cost associated with the preparation and prosecution of patent applications last year was a multi-billion dollar business. In this era of cost controls, it is rare to find a patent prosecution department that is not subject to budgetary constraints. In-house patent counsel, as the gatekeepers for prosecution, need to select and work with outside patent counsel to maximize the return on their patent prosecution investment. Often, this is accomplished by in-house counsel searching for the lowest-cost provider to prepare and file a patent application. The logic behind using such providers is to maximize the number of patent filings for the money spent. However, this approach may provide neither the best return on investment nor the best results.

A company's objective in filing patent applications is to secure patents that provide the broadest available protection. The reasons to obtain patents are multifold and may include protection of the company's products and services by excluding others from a particular market space, setting up a licensing program, meeting cross-licensing obligations for number of patents obtained, or creating a defensive tool in the event the company is sued for patent infringement. Regardless of the reason, the focus should be on obtaining the most coverage possible through well-drafted patent applications for your limited budget.

Aside from the mandatory USPTO fees, the primary cost associated with obtaining a patent is the outside patent counsel's legal fees. First, there are the legal fees associated with the preparation of the application and filing it with the USPTO. Second, there are the legal fees associated with prosecuting the application (eg, responding to office actions, interviewing the Examiner, etc.) If no patent issues, these fees and expenses are wasted. Even if the patent issues, the number of amendments (and continuations) that are required to put the application in condition for allowance can dramatically affect the cost of obtaining a patent.

To illustrate this phenomenon, let us assume that Firm A is our designated low-cost provider, charging $9,000 per application prepared and filed, and an additional $2,500 per amendment prepared in response to an Office Action by the USPTO. Let us also assume that there are “higher” costs and expenses by having your company's application prepared, filed and prosecuted with Firm B. Firm B charges an average of $11,500 to prepare and file a patent application, and an additional $3,000 per amendment. At first blush, it would appear that Firm A would provide the more cost-effective solution ' by several thousand dollars. However, this is not necessarily the case. In an appropriate cost analysis, more goes into the equation than the cost charged per “activity.”

Considerations Beyond Dollars and Cents

Two additional variables warrant consideration. First, how many “activities” are required? For patent prosecution, one variable is how many amendments it takes to secure a notice of allowance. For purposes of this analysis, let us assume that Firm A averages two amendments to secure an allowance and Firm B averages a single amendment to secure an allowance.

The second variable, which warrants careful review, is the percentage of filed applications that actually mature into a patent. In 2000, Q. Todd Dickinson, the Commissioner of the USPTO at the time, stated ' at the Internet Society Panel on Business Method Patents ' that, on average, two out of every three utility patent applications filed resulted in an issued patent. In other words, one third of all filed applications go abandoned. For purposes of this analysis, let us assume that Firm A is able to meet the average while Firm B is able to secure an allowance in four out of every five applications.

A Simple Analysis Using the Additional Considerations

Based on the above assumptions, and as demonstrated in Chart A, below, Firm A's $9,000 per application and $2,500 per amendment compares very favorably to Firm B's $11,500 per application and $3,000 per amendment. While Firm A initially appeared to charge less, in fact, in this scenario, it is Firm B that is the better economic selection, when the additional two variables of number of amendments and percentage of applications issued are considered.

[IMGCAP(1)]

Chart A, Cost Comparison, demonstrates that consideration of these additional variables can have a dramatic effect on the average cost for obtaining an issued patent. While Firm A “costs” approximately 20% less to prepare and file an application and costs 20% less per amendment, these apparent savings are not enough to offset the effect of the additional considerations. When the additional considerations are taken into account, the analysis yields a savings of nearly $3,000 per issued patent in favor of Firm B. Such savings here amounted to more than 15% of a company's patent prosecution budget.

Additionally, the extra office action required by Firm A to secure an allowance not only affects the attorney fees associated with prosecution, but may also lead to further expenses if the additional office action necessitates the filing of a continuation with the associated USPTO fees. Furthermore, the additional office action necessarily affects the length of protection for the patent once it issues. With patents now essentially limited to 20 years from the filing of the original application, each extra amendment subtracts time from the term of the issued patent. Also, each additional office action and corresponding amendment increases the likelihood for file wrapper estoppel, which can restrict the scope of the issued claims.

Maximizing Your Patent Prosecution Budget

Now, let us look at the above information in a different way: As set forth in Chart B, if your company has a budget of $1 million to file and prosecute applications, Firm A would file and prosecute 71 applications through to issuance or abandonment. Of the 71 applications, on average, 48 would issue as patents. With Firm B, the same $1 million would allow for only 69 applications to be filed and prosecuted through to issuance or abandonment, but approximately 55 applications would issue as patents. In short, Firm B is able to secure seven additional patents for the same total cost to the company.

[IMGCAP(2)]

Conclusion

While there are certainly other important criteria to consider in selecting outside patent counsel, such as the quality of their work product, their technical capabilities and capacity to timely handle your work, there are some simple additional questions that should be asked of outside patent counsel to allow for a more complete cost-benefit analysis. One should look not only at expected costs per action but also at a firm's allowance percentage and average number of amendments (and continuations) required to secure a patent. With this additional information, in-house patent counsel can more effectively evaluate expected costs and maximize their patent prosecution dollars.