Earned Revenue

The USPTO’s earned revenue is derived from the fees collected for patent and trademark products and services. Fee collections are recognized as earned revenue when the activities to complete the work associated with the fee are completed. The following table presents the earned revenue for the past four years.

Earned Revenue (Dollars in Millions)   FY 2003 FY 2004 FY 2005 FY 2006 Patent $1,004.5 $1,092.5 $1,197.8 $1,384.2 Percentage Change in Patent Earned Revenue    10.4%     8.8%    9.6%    15.6% Trademark    157.8    146.5    175.0    210.2 Percentage Change in Trademark Earned Revenue     4.3%   (7.2)%    19.5%    20.1% Total Earned Revenue $1,162.3 $1,239.0 $1,372.8 $1,594.4 Percentage Change in Earned Revenue     9.5%     6.6%    10.8%    16.1%

Earned revenue totaled $1,594.4 million for FY 2006, an increase of $221.6 million, or 16.1 percent, over FY 2005 earned revenue of $1,372.8 million. Of revenue earned during FY 2006, $378.5 million related to fee collections that were deferred for revenue recognition in prior fiscal years, $493.6 million related to maintenance fees collected during FY 2006, which were considered earned immediately, $716.4 million related to work performed for fees collected during FY 2006, and $5.9 million were not fee-related.

The actions being taken to address the backlog of patent and trademark applications are evident, as the amount of revenue deferred during FY 2006 was only 17.9 percent greater than revenue earned from prior year fee collections, as compared to 38.8 percent during FY 2005.

Work performed for fees collected during FY 2006 increased $95.4 million over these same fees earned during FY 2005. This increase can primarily be attributed to $30.7 million in fees considered earned immediately, $32.5 million in earned patent filing fees, $17.9 million in earned trademark application fees, $7.0 million in earned patent issue fees, and $5.5 million in earned recording fees.

Patent

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Traditionally, the major components of earned revenue derived from patent operations are maintenance fees, initial application fees for filing, search, and examination, and issue fees. These fees account for over 80 percent of total patent income. The following chart depicts the relationship among the most significant patent fee types.

Patent maintenance fees are the largest source of earned revenue by fee type. During FY 2006, maintenance fees collected increased $74.8 million, or 17.9 percent, over FY 2005. As they are recognized immediately as earned revenue, any fluctuations in the rates of renewal have a significant impact on the total earned revenue of the USPTO. To some extent, renewals recoup costs incurred during the initial patent process. As shown below, the renewal rates for all three stages of maintenance fees have been increasing modestly over the last four years and the trend indicates that this growth pattern will continue.

Patent Renewal Rates Patent Renewal Rates1 FY 2003 FY 2004 FY 2005 FY 2006 First Stage 86.8% 91.9% 83.1% 93.1% Second Stage 61.1% 65.7% 65.4% 69.2% Third Stage 42.9% 43.8% 45.0% 44.4% Note 1: The First Stage refers to the end of the 3rd year after the initial patent is issued; the Second Stage refers to the end of the 7th year after the initial patent is issued; and the Third Stage refers to the end of the 11th year after the initial patent is issued. For example, in FY 2006, 93.1 percent of the patents issued three years ago were renewed, 69.2 percent of the patents issued seven years ago were renewed, and 44.4 percent of the patents issued 11 years ago were renewed. (back to text)

Application fee revenue earned upon filing increased from $72.6 million in FY 2005 to $96.9 million in FY 2006, with the number of applications increasing from 409,532 to 443,652 over the same period, increases of 33.5 percent and 8.3 percent, respectively. The variance in the percentage increases is due to the fee structure change in FY 2005, with only ten months of these fees collected in FY 2005, as compared to a full 12 months in FY 2006. The USPTO’s most recent estimates project an increase of 7.0 percent in patent applications filed beginning in FY 2007, and then 8.0 percent extending through FY 2012, which will contribute to the continued growth in earned fee revenue.

Earned issue fee revenue increased from $199.5 million in FY 2005 to $202.5 million in FY 2006, with the number of patents issued increasing from 165,483 to 183,187 over the same period, increases of 1.5 percent and 10.7 percent, respectively. The USPTO’s most recent estimates project that patents issued will increase an average of 8.4 percent each fiscal year through FY 2012.

Trademark

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Trademark fees are comprised of application filing, renewal services, and TTAB fees. Additional fees are charged for intent-to-use filed applications, as additional requirements must be met for registration. The accompanying chart depicts the relationship among the most significant trademark fee types.

Earned revenue for trademark applications increased from $101.5 million in FY 2005 to $131.7 million in FY 2006, with the number of trademarks registered increasing from 143,396 to 188,899 over the same period, increases of 29.8 percent and 31.7 percent, respectively. The FY 2007 President’s Budget projects that trademark applications filed will continue to increase, which will contribute to the continued growth in earned fee revenue.

Trademark registration can be a recurring source of revenue. To some extent, renewal fees recoup costs incurred during the initial examination process. As shown below, the renewal rates for trademarks have remained fairly stable over the last four years, indicating continued earned revenue from this source. Further, in the USPTO’s most recent estimates, earned revenue from trademark renewals is expected to continue in the future.

Trademark Renewal Rates Trademark Renewal Rates1 FY 2003 FY 2004 FY 2005 FY 20062 Renewals 29.6% 28.7% 28.6% 24.0% Note 1: The renewals occur every 10th year for trademarks registered after November 15, 1989. For trademarks issued or renewed before November 15, 1989, renewal will occur after the 20th year and the renewal will be for a ten-year period. For example, in FY 2006, 24.0 percent of the trademarks granted ten and 20 years ago were renewed. (back to text) Note 2: Preliminary data. (back to text)

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