Patent and Trademark Office

                        [Docket No. 000718211-0211-01]

                                 RIN 0651-AB24

Study of Alternative Fee Structures

AGENCY: United States Patent and Trademark Office, Commerce.

SUMMARY: The United States Patent and Trademark Office (USPTO), in
response to certain provisions of the "American Inventors Protection Act
of 1999," is proposing to study alternative patent fee structures to
determine how best to encourage maximum participation of the U.S.
inventor community in the patent system. In examining the evolution of
the current fee structure, the USPTO has identified several fee
structure issues which it considers important. These issues in several
cases involve fee structures unconstrained by current statutory
requirements, in keeping with the perceived intent of the Act. The
agency will prepare a report to Congress identifying critical fee
structure issues and will continue to evaluate these alternatives to
determine the effects of implementation. The USPTO asks for comments on
the issues raised and questions posed in this document.

DATES: To be ensured of consideration, written comments must be received
on or before October 31, 2000. No public hearing will be held.

ADDRESSES: Comments should be sent by electronic mail message via the
Internet addressed to Comments may also be
submitted by mail addressed to: Office of Corporate Planning, Crystal
Park One, Suite 807, Washington, D.C. 20231, or by facsimile to (703)
305-8138, marked to the attention of Barrett J. Riordan. If comments are
submitted by mail, the Office would prefer that the comments be
submitted on a DOS formatted 3 1/2 inch disk accompanied by a paper copy.

FOR FURTHER INFORMATION CONTACT: Barrett J. Riordan  by  telephone  at
(703)  305-8475,  by  e-mail  at, by facsimile
at (703) 305-8138, or by mail marked to his attention and addressed to
Office of Corporate Planning, Crystal Park 1, Suite 807, Washington,
D.C. 20231.

SUPPLEMENTARY INFORMATION: The American Inventors Protection Act of
1999, Pub. L. 106-113, 113 Stat. 1501 (1999), Section 4204 (enacted
November 29, 1999), instructs the Director of the United States Patent
and Trademark Office to "conduct a study of alternative fee structures
that could be adopted * * * to encourage maximum participation by the
inventor community in the United States." Such study is to be submitted
to Congress no later than one year after enactment.

To assist in the preparation of this study, the USPTO requests comments
on the range of topics which could potentially be considered therein.
The USPTO is interested in comments that the public has regarding these
and other related fee issues that the respondent believes to be
appropriate. The USPTO encourages interested persons to respond to this
notice by submitting written data, views, or arguments regarding
specific topics to be incorporated into this study. In particular, the
USPTO is interested in any comments directed toward the questions posed
below. Comments received will be relied upon heavily in the study
submitted in response to the legislative requirement stated above, and
also in assessments expected to be carried out subsequently.

1. Background and Purpose

The current patent fee structure of the United States Patent and
Trademark Office is based on three major categories: (1) Patent
statutory fees; (2) patent non-statutory fees; and (3) Patent
Cooperation Treaty (PCT) fees.

Patent statutory fees consist of the patent processing fees (i.e.,
filing, issue, and maintenance fees) and PCT national stage application
fees that were set by statute in Public Law 97-247 and Public Law
102-204 (35 U.S.C.      41(a) and (b)). Public Law 97-247 also provided
for a 50 percent reduction of these fees for small entities--individual
inventors, small businesses and non-profit organizations (35 U.S.C.
41(h)). This reduction remains in force today.

Patent non-statutory fees consist of all other patent processing fees,
as well as fees for products and services related to patents. The
Director must establish these fees to recover the average cost to the
Office of providing the products and services (35 U.S.C.    41(d)).
However, the following three patent service fees are set by statute: the
fee for assigning a patent, the fee for a copy of a patent, and the fee
for making photocopies of patent-related material.

Patent Cooperation Treaty fees (except for those fee amounts set by the
World Intellectual Property Organization in accordance with the Treaty)
are set by the Director to recover the average cost to the Office for
processing applications under the Treaty (35 U.S.C.      41(d) and

The current fee structure has evolved from a growing recognition
beginning in the late 1970s that the USPTO should be self-financing.
Public Law 96-517, 94 Stat. 3018, Section 3, 35 U.S.C.    42, enacted on
December 12, 1980, entirely revised the patent fee system by giving the
Director the power to establish fees. As introduced, the bill provided
that the fee recovery level would be revised yearly to generate 60
percent of the revenue needed to operate the Office. However, in
response to criticism from small businesses and individual inventors
that the fees would place too great a burden on them, the Congress
reduced the cost recovery level for small entities to 50 percent of the
revenue needed.

In order to further soften the impact on inventors, Public Law 96-517
stated that patent fees were to be paid in installments over the life of
a patent. This system, known as maintenance fees, is used by the
European Patent Office and most European member countries, and Japan, as
well as many developing countries and has the advantage of deferring
payment until the invention begins to return revenue to the inventor.
Should the invention prove to have no commercial value, the inventor has
the option of permitting the patent to expire, thus avoiding all further

Public Law 97-247, enacted on August 27, 1982, further reduced fee
burdens on small entities (individual inventors, small businesses and
non-profit organizations) by reducing patent statutory fees by 50
percent for them. Later, in November 1990, with the enactment of the
Omnibus Budget Reconciliation Act, Public Law 101-508, 104 Stat. 1388-
391, 35 U.S.C.    41, the USPTO became fully fee-funded, but retained
the 50 percent fee reduction for small entities.

Fee Issues

In accordance with the intent of Congress, the USPTO wishes šxnto
determine what, if any, changes should be made to the USPTO's fees to
encourage maximum participation in the patent system by the inventor
community and still meet the legislative requirement to fund patent
operations fully out of user fees. In so doing, the USPTO seeks comments
on the following issues as well as any others that might be deemed

A. Cost Recovery

OMB Circular A-25 establishes agency guidelines for assessing user
charges to the general public and requires full cost recovery through
accurate fees consistent with statute. A May 1997 GAO Report on
Intellectual Property focused on USPTO's inability to match costs with
fee revenues and thereby satisfy A-25 requirements. Since that time, the
USPTO has developed an activity-based costing system that is used to
prepare financial statements, make decisions regarding fee amounts,
formulate budgets, and for other financial management purposes. For
instance, today it is possible to consider fee differentiation by degree
of examination complexity or other patent characteristics affecting the
average costs of different aggregate classes of applications. To what
extent should the USPTO rely upon actual average costs in designing fees
and fee structures? Should some existing fees be subdivided; e.g.,
should search and examination fees be charged separately from
application fees? Should the examination fee be scaled based on the cost
of prosecuting the application? At what point(s) during the application
process and/or during an issued patent term (through maintenance fees,
for example), should fees be charged?

B. Maintenance Fees

Although required by statute since 1982, maintenance fees continue to be
criticized by some inventors. They view these fees as a tax on their
right to control their inventions over the entire patent term and want
them totally eliminated. Others favor almost a converse approach to
maintenance fees. They point out that the maintenance fee concept was
originally adopted to provide patent holders flexibility in the face of
uncertainty before the fact as to whether or not the patent would be
commercially viable. Instead of requiring the entire investment up
front, owners were given the option to pay out gradually and relinquish
their patent rights when that made economic sense. They further point
out that the current structure requiring payment of maintenance fees at
3.5, 7.5, and 11.5 years after issue is not tied to specific milestones
in the patent life cycle and, thus, the USPTO should provide additional
flexibility by making maintenance fees payable annually over the entire
term of the patent. What is the proper role of maintenance fees in the
patent fee structure?

C. Small Entity Fees

Small entities have paid reduced fees since 1982. Major small entity
fees are half of those charged to large entities, as determined
legislatively. This fee reduction represents an advantage to certain
inventors, and elimination of these reductions would appear to be a
possible alternative fee structure adjustment. Should preferential
treatment for small entities be eliminated? On the other hand, it can be
argued that the current 50 percent reduction does not go far enough. The
current fee structure provides a 50 percent reduction to the major
patent fees (e.g., filing, issue, maintenance) paid by all small
entities equally: small businesses; non-profits; and independent
inventors. However, some believe that independent inventors are more
innovative than the other small entities and, at the same time, are more
sensitive to cost factors. Lower costs associated with innovation would
permit independent inventors to exercise their innovativeness more
fully, to the overall benefit of the economy. This argument implies that
this group should be paying fee amounts that are reduced to an even
greater extent than is currently done for small entities; that is, a new
fee category should be created for independent inventors and extremely
small (micro) entities. How should the patent fee structure define and
treat small entities?

D. Electronic Filing

The USPTO has the achievement of a totally electronic system for
receiving applications as one of its major goals. In order to create
incentives for customers to file electronically, it has been suggested
that the fee structure charge more for paper applications, which are
more costly to process. Should the patent and trademark fee structures
differentiate between electronic and paper filings? If such a
differentiation is determined to be an effective means of encouraging
electronic filing, should it be imposed immediately or phased in over a
period of years?

E. Unity of Invention

The European Patent Office, Japanese Patent Office, and USPTO reached a
Trilateral agreement on harmonizing unity of invention practice at the
Sixth Annual Trilateral Conference held in Tokyo in 1988. The Trilateral
agreement allows a patent application to include a group of inventions
so linked as to form a single general inventive concept, termed unity of
invention. This agreement, adopted for PCT practice, differs
substantially from current U.S. restriction practice. While this is not
primarily a fee structure issue, full adoption of unity of invention
would mean that more inventions are contained in fewer applications,
with a resultant increase in average examination costs per application.
Under the current fee structure, this would significantly reduce revenue
from application, issue, and maintenance fees and thereby necessitate an
increase in these or other fee amounts. If unity of invention were
adopted, how should the resulting excess of costs over revenue be
recovered through the fee structure? For example, it is believed that
within certain technology areas, the number of patent applications and
issues and their associated fee revenue would decline substantially,
although the examination workload would not change. Should such
technologies bear the burden of resulting fee increases or should the
excess cost increment be apportioned uniformly?

In light of the substantial fee level adjustments that unity of
invention would require, what are its precise benefits to the inventor

Sept. 26, 2000.                                           Q. TODD DICKINSON
                                            Under Secretary of Commerce for
                                  Intellectual Property and Director of the
                                  United States Patent and Trademark Office