[author: Donald Zuhn]

Last month, the Patent Public Advisory Committee (PPAC) issued its report on the U.S. Patent and Trademark Office's proposal for setting and adjusting patent fees, which the Office laid out in a notice of proposed rulemaking published in the Federal Register on September 6 (see "More on USPTO's Proposed New Fees").  In issuing the notice of proposed rulemaking, the Office was exercising the fee setting authority conferred upon it by § 10 of the Leahy-Smith America Invents Act.

Pursuant to § 10 of the AIA, the Director is allowed to set or adjust any fee established, authorized, or charged under Title 35 ("to recover the aggregate estimated costs to the Office for processing, activities, services, and materials relating to patents").  AIA § 10 specifies that the Director submit proposed fee changes to the PPAC not less than 45 days before publishing the proposed fees in the Federal Register (which the Office did last February; see "USPTO Proposes Fees Changes"), after which the PPAC shall have 30 days to deliberate, consider, and comment on the proposal as well as hold a public hearing on the proposal (the Office held two public hearings on fees in February).  Pursuant to § 10, the Director shall then consider and analyze PPAC's comments, advice, or recommendations before setting or adjusting the fee (as the Office did in the notice of proposed rulemaking).  AIA § 10 also requires that the Director provide the public with a 45-day period in which to comment on any fee change (the deadling for submitting comments to the notice of proposed rulemaking is November 5, 2012), and specifies that fee changes shall not become effective until 45 days after the final rule regarding such change is published in the Federal Register (in order to give Congress an opportunity to enact a law disapproving of the fee change).

The 29-page PPAC report compares the fees proposed by the Office in February with those set forth in the notice of proposed rulemaking, commends the Office for responding to stakeholders with respect to some revisions, and suggests further changes in instances where PPAC believes the Office's fees proposals are still too high.  The PPAC report begins by noting that "[c]ompared to the first proposal of February 2012, the [notice of proposed rulemaking] proposes reduced fees in almost all areas," and the report therefore "commends the USPTO for seriously considering the public and PPAC comments and responding with reductions in the proposed fees."  Ultimately, "[w]hile the proposed fees still raise some concerns, the PPAC applauds the efforts and endorses the fees in general with some reservations noted in [the] report."

Before addressing those reservations, the report opines on a handful of fees-related topics.  For example, in a section entitled "Behavioral Incentives," the report notes that "[w]ithin the ambit of overall aggregate revenue recovery, the AIA allows the USPTO to set individual fees at levels to encourage or discourage behaviors by applicants," and indicates that:

As a policy matter, the PPAC advised that while some use of fees to encourage or discourage behavior may be appropriate, significant use of this ability to set fees at very high levels to discourage actions is not recommended because it is not clear that the USPTO will always take into consideration the factors driving applicants to certain behaviors, which may be at cross-purposes with particular desires of the USPTO.  For example, court decisions push applicants to take certain actions, such as submitting larger numbers of claims of varying scope or filing follow-on applications as continuations or divisionals to cover all possible subject matter to which they may be entitled.

However, the report suggests that "[w]hile the Office notes in various points their concerns about applicant behavior, they have not focused enough concern (in so far as both public comment and PPAC considered reflection find) on behaviors by the Office overall."

With respect to the Office's pendency goals (i.e., reducing first action pendency to ten (10) months by 2015 and the total pendency to twenty (20) months by 2016), which motivated some of the Office's fees setting determinations, the report notes that:

[I]n discussing pendency timeframes, it is worth noting that the Leahy-Smith America Invents Act (AIA) retained a particular feature of US patent law relating to prior art.  Importantly, a patent publication in the United States or a foreign country is still considered to be prior art as of its effective filing date for both novelty and obviousness purposes.  Generally, patent applications are published by about 18 months after the effective filing date (of the application or an earlier-filed priority application, such as a Provisional application).  Under the stated goal of first Office Action on the merits by 10 months, and allowance by 20 months, there may be prior art that is unknown to both the Applicant and the USPTO.  The [PPAC Finance] Sub-Committee believes that there may be applications that receive first Office Actions on the merits for which the full panoply of prior art is, at the time of examination, unavailable.  In such cases, if there is a publication of prior art that occurs after the filing date of an application under examination, it is likely that a first Office Action on the merits may be incomplete.

The report therefore warns that "[t]hese situations may increase the uncertainty of the patenting process, and may undermine the expected revenues to the USPTO."

The bulk of the report discusses suggestions offered by the PPAC Finance Sub-Committee (consisting of PPAC voting members Esther Kepplinger, Wayne Sobon, Damon Matteo, and Ben Borson) in response to the Office's February 2012 fees proposal, and then reviews the fees proposal in the notice of proposed rulemaking (NPRM), offering critiques with respect to certain fees presented in the notice.  With regard to filing, search, and examination fees, the report notes that the current fees are $1,250, the February proposal was $1,840, and the NPRM proposal is $1,600.  The report states that:

While the filing, search and examination fees as proposed by the NPRM represent an increase of 28% compared to the current equivalent fees, because the issue fee and publication fee are proposed to be a lower amount in total to paid by successful patent applicants, the total fees in the NPRM for filing, search, examination, publication and issue are lower than those currently in place.

The report, however, "still questions the increase proposed for the third stage maintenance fee," noting that "[g]iven the percentage of patentees who currently pay for this stage, the concern is that revenues will decrease more than projected when fewer patentees elect 3rd stage maintenance."

The report is perhaps most critical of the Office's proposed fees for Requests for Continued Examination (RCEs).  The report notes that "the NPRM proposes reducing the fee for an RCE from the February 2012 Proposal of $1,700 to $1,200 . . . and retaining the proposed fee of $1,700 for second and subsequent RCEs (an 83% increase and greater than the proposed $1600 fee for filing, searching and examining a completely new application)."  The report explains that:

[A]pplicants rely on RCEs to continue the prosecution and eventually (and justly) receive a patent on their invention.  RCEs are mostly filed by applicants genuinely attempting to move prosecution forward and get a patent and not generally, it is believed, simply to delay the prosecution (applicants have the ability to file further continuation applications to proceed with other claim sets or to keep a particular patent family in prosecution in any case).  RCEs are a source of frustration for both the Office and the applicants, with both parties contributing to the problem.  However, from both casual conversation and also in public statements, the USPTO seems to place the blame for the rapid growth in RCE applications solely and squarely on applicants.  The change several years ago to move RCEs to the special new case docket (rather than an examiner’s amended docket) causes (as one would expect) significant delays in acting on RCEs.  That the Office has proposed significant increases in the RCE fees adds salt to an existing wound:  applicants must pay more for what most perceive as a reduction in service.  Thus, the proposed increase in fees for RCEs was not well received by the public.

Noting that "[t]he USPTO acknowledges that the cost of completing an RCE is less than that required for an original utility application," the report contends that "the increased costs to applicant being proposed to treat an RCE (and particularly a second and subsequent RCE) compared to the fees proposed for a utility or continuation application seems illogical."  Instead, the report suggests that:

[A] small increase in the fee for an RCE might be appropriate but it should align more closely to the associated required work, and certainly be less than the fees for new or continuation applications.  The higher fee for second and subsequent RCEs should be eliminated because these become easier and cheaper to examine and any number of continuations may be filed at the same cost per continuation.  Rather than punishing applicants for pursuing their inventions by filing an RCE, it is suggested that the USPTO continue to find ways to reduce applicants' need for the RCEs in the first place.

With respect to excess claims fees, the report notes that while the NPRM proposed to slightly reduce independent and total claims fees (such that these fees would increase by 68% and 33%, respectively, over the current fees), the report states that "[t]his increase seems excessive, especially in light of the fact that applicants cannot take advantage of multiple dependent claims in the manner available in other patent offices."  Instead, the report suggests that the excess claims fees be further reduced.

The report also finds appeal fees to be "quite high," despite the Office's decision to reduce the fee for filing a notice of appeal to $1,000 (from an initial proposal of $1,500) and the fee for forwarding an appeal brief to the Patent Trial and Appeal Board (PTAB) to $2,000 (from an initial proposal of $2,500).  The report explains that:

There is a concern that the fees are being proposed, at least in part, to discourage filing an appeal or filing an RCE.  However, applicants must choose one of those lines of action for resolution of cases.  In some instances there has been excellent examination and the issue is a difference of opinion.  However, in many instances, the applicant is driven to appeal or filing of an RCE due to significant problems with the examination.

The report suggests that the initial notice of appeal fee be lowered "back to around its current post-surcharge amount of $620 (for example $750), and if the case is not reopened or allowed by the examiner, then charging the increased amount for forwarding the brief to the Board and thereby funding the formal appeal."

With respect to the new fee for correcting inventorship (which was reduced from an initial proposal of $1,700 to $1,000 in the NPRM), the report observes that "inventorship depends upon the claims examined and, eventually, those issued; during the examination process claims change due to restriction requirements and/or amendments," and concludes that "[a] fee for changing the inventorship stemming from a restriction requirement or amendments to the claims does not seem appropriate."  The report states that the fee "still seems rather high," and suggests that "[t]his rule should be tightened to only pertain to correction of inventorship which adds an inventor after the first office action."

As for the fee for supplemental examination, the report notes that "[t]he USPTO in its NPRM, has sharply reduced the fees for [filing the] Request (from $7,000 to $4,400) and for reexamination (from $20,000 to $13,600), and has increased the number of allowed references from 10 to 12," but indicates that "all of these fees still seem very high, given that the Office estimates that the total unit cost of an original examination of a patent is only $3,569 (FY 2011)."  The report suggests that "these fees be brought down in line with original examination."

With respect to fees for ex parte reexamination (EPR), the report notes that "[t]he Office drastically increased the fees for all EPRs from the present post-surcharge fee of $2,520 to $17,750 in the initial fee proposal and which the Office has now reduced in the NPRM by 15% to $15,000."  The report opines that:

The proposed increase is troubling from a number of respects.  First, given that prior to AIA USPTO fees were set by Congress, upon informed request by the USPTO (subject to yearly cost-of-living adjustments), why was this significant discrepancy between fee and cost not seen earlier?  Second, why are these reexaminations (which can only be based on patents and publications, involve no testimony and no interaction with third parties other than the patentee) costing so much?  . . .  Third, just as in other areas of petition and then institution, the Office should break this fee into two pieces: petition and then examination.

In contrast, the PPAC report "generally approves the current fee structure for [inter partes review], as striking the right balance between cost recovery and incentive for use."  That fee structure calls for an inter partes review (IPR) Request fee of $9,000 (with $200 for each challenged claim greater than 20) and an IPR Institution fee of $14,000 (plus $400 for each claim subject to the instituted case greater than 15).  The report also expressed approval for the post grant review fee structure, which includes a $12,000 Request fee (with $250 per additional challenged claim above 20) and an Institution fee of $18,000 (with $550 per excess claim above 15).