Using patent fees to improve the patent system

EPIP 2017 PhD Workshop
Using patent fees to improve the patent system
Gaétan de Rassenfosse
École polytechnique fédérale de Lausanne
@gderasse
September 4, 2017
G. de Rassenfosse, EPFL EPIP 2017 September 4, 2017 1 / 42

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
Patent characteristics
Innovation incentives
4 Three research opportunities
5 Some more references
6 References

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

Reasons for tweaking the patent system
In the traditional view, the patent system improves welfare by
providing an incentive to innovate (expectation of monopoly proﬁts)
and ensuring knowledge diﬀusion through disclosure of the invention.
Poor implementation may well decrease welfare—some authors have
argued that the patent system has turned from a source of net
subsidy to R&D to a net tax [Bessen and Meurer, 2008, p.145].
Like any policy tool, there is a large number of adjustment
parameters: which inventions deserve patent protection, for how long,
and under what conditions? For example, experts have been debating
about patent quality (and providing solutions) for a long time.

Many mechanisms exist to ﬁne-tune the patent system
Adjusting the size of the inventive step, that is, how diﬃcult it is to
get a patent.
Adjusting the strength of patent protection by adjusting parameters
such as, e.g., patent scope, patentable subject matter, lifetime,
examination quality.
Adjusting the time required to obtain a patent, e.g., by implementing
fast-track options or allowing deferred examination.
Implementing ways to challenge a granted patent (e.g., opposition
proceeding).

Many mechanisms exist to ﬁne-tune the patent system
Adjusting the size of the inventive step, that is, how diﬃcult it is to
get a patent.
Adjusting the strength of patent protection by adjusting parameters
such as, e.g., patent scope, patentable subject matter, lifetime,
examination quality.
Adjusting the time required to obtain a patent, e.g., by implementing
fast-track options or allowing deferred examination.
Implementing ways to challenge a granted patent (e.g., opposition
proceeding).
One tool that has received little (but more and more) attention is the
schedule of fees.

Fees affect various aspects of the patent system
As we will see, there is a variety of fees, due at various points in time
and for various features of the patent application process.
One can wonder whether patent offices can use fees to fine-tune the
patent system.

patent system.
For instance, one can set fees for patent documents that contain more
than a set number of pages or a set number of claims. This will induce
applicant to file narrower patents, thereby affecting patent scope.
Fees can also be used to limit patent life through the use of renewal
fees.
Patent fees may even affect patent quality directly.

patent system.
For instance, one can set fees for patent documents that contain more
than a set number of pages or a set number of claims. This will induce
applicant to file narrower patents, thereby affecting patent scope.
Fees can also be used to limit patent life through the use of renewal
fees.
Patent fees may even affect patent quality directly.
More on all these aspects later.

Fees are an attractive mechanism
Fees are a general-purpose tool (because they aﬀect many dimensions
of the patent system).
It is a mechanism that is quick, transparent and easy to implement.
It is a ‘deterministic’ mechanism: fees are known with certainty
(unlike, e.g., inventive step)—altough the reaction of applicants is not
known with certainty.
Fees may even be an optimal mechanism in light of asymmetric
information between patentees and the patent oﬃce. Scotchmer
[1999] and Cornelli and Schankerman [1999] explain that renewal fees
act as a ‘direct revelation mechanism’ that determines optimal patent
life.

Fees are an attractive mechanism
Fees are a general-purpose tool (because they affect many dimensions
of the patent system).
It is a mechanism that is quick, transparent and easy to implement.
It is a ‘deterministic’ mechanism: fees are known with certainty
(unlike, e.g., inventive step)—altough the reaction of applicants is not
known with certainty.
Fees may even be an optimal mechanism in light of asymmetric
information between patentees and the patent office. Scotchmer
[1999] and Cornelli and Schankerman [1999] explain that renewal fees
act as a ‘direct revelation mechanism’ that determines optimal patent
life.
However, the fee policy is subject to the budget constraint of the
patent office.

Some more considerations about fees for patent oﬃces
Patent oﬃces are usually self-funded and have the requirement to
balance budget. Fees are therefore traditionally seen as budgeting
tool.

Some more considerations about fees for patent offices
Patent offices are usually self-funded and have the requirement to
balance budget. Fees are therefore traditionally seen as budgeting
tool.
If surpluses are too large, patent offices may decide to reduce
fees—with little consideration paid to the broader impact of such
changes.
A priori, reducing fees seems a good idea: it increases the number of
patent applications (“make patenting available to a greater number of
inventors”), which is often seen as desirable by policy makers.
But an excessive number of patents increases the likelihood of patent
thickets, overlapping rights, inadvertent infringement, etc.

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

Overview
In broad terms, fees are associated with key events in the life of a patent:
1. At time time of ﬁling (e.g., ﬁling fee).
2. During the patent prosecution process (e.g., examination fee).
3. At the time of grant (e.g., issuance fee, validation fee).
4. During the life of the patent (e.g., renewal fee).
5. At other key moments such as opposition, amendments, transfer, etc.
6. Other administrative aspects (e.g., surcharge for late payment).

Overview
In broad terms, fees are associated with key events in the life of a patent:
1. At time time of filing (e.g., filing fee).
2. During the patent prosecution process (e.g., examination fee).
3. At the time of grant (e.g., issuance fee, validation fee).
4. During the life of the patent (e.g., renewal fee).
5. At other key moments such as opposition, amendments, transfer, etc.
6. Other administrative aspects (e.g., surcharge for late payment).
How many different fees do you think there are at the EPO?

Frequently paid fees at the EPO (among 119 types)

Some key differences between EPO and USPTO fee
schedule
Besides differences induced by the fact that the EPO is a regional office,
other notable differences exist:
The USPTO has reduced fees for small entities (50%) and micro
entities (75%).
At the USPTO, filing+search+examination fees are paid at the time
of filing whereas they are staged at the EPO.
Renewal fees at the EPO must be paid (also) for pending patents and
are due yearly (3rd year onward). Whereas they must be paid only for
granted patents at the USPTO and are due at 3.5, 7.5 and 11.5 years.

Some key differences between EPO and USPTO fee
schedule
Besides differences induced by the fact that the EPO is a regional office,
other notable differences exist:
The USPTO has reduced fees for small entities (50%) and micro
entities (75%).
At the USPTO, filing+search+examination fees are paid at the time
of filing whereas they are staged at the EPO.
Renewal fees at the EPO must be paid (also) for pending patents and
are due yearly (3rd year onward). Whereas they must be paid only for
granted patents at the USPTO and are due at 3.5, 7.5 and 11.5 years.
Two things become clear: i) there is so much scope for intervention that it
may be possible to affect applicants’ behavior; and ii) comparing fees
across offices can be a challenging task.

Patents have never been so aﬀordable (USPTO evidence)
Long-term evolution of fees (up to grant) at the USPTO.
Source: de Rassenfosse and van Pottelsberghe de la Potterie [2013].

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

Estimating the fee elasticity of demand for patents
The most obvious aspect to look at for an economist is the fee
sensitivity (‘price elasticity’) of patent ﬁlings.
We deﬁne the price elasticity of demand Ed as: Ed = δQ/Q
δP/P .

Estimating the fee elasticity of demand for patents
The most obvious aspect to look at for an economist is the fee
sensitivity (‘price elasticity’) of patent filings.
We define the price elasticity of demand Ed as: Ed = δQ/Q
δP/P .
As far as I know, de Rassenfosse and van Pottelsberghe de la Potterie
[2007] is the first paper to study the question.
We adopt a very simple approach:
We compute patent fees for a representative patent at 29 patent offices
at one point in time.
We then use this variable as a regressor in a patent production function.
Cross-section evidence but we assume that the setting of fees is
exogenous to patent numbers.
This paper is also the first published paper to make use of the
PATSTAT database.

OLS estimates of a patent production function (N=29).

A more sophisticated approach
The previous study is not fully satisfactory because we cannot test
whether fees are indeed exogenous to demand size.
We improve the analysis in de Rassenfosse and van Pottelsberghe
de la Potterie [2012] by estimating the fee-elasticity in an error
correction (panel data) model. This approach allows us:
To test the exogeneity assumption using a Granger causality test.
To estimate both short-run and long-run elasticities.
We compute fees for a representative patents for the period
1980–2007 for the USPTO, EPO and JPO.

Final thoughts on the fee elasticity of ﬁlings
Note: Estimates of long-term elasticities in de Rassenfosse and van Pottelsberghe de la Potterie [2012].
The long-term elasticity is about -0.30: a 10-per cent increase in fees
leads to a 3-per cent reduction in applications.

The demand for patents in inelastic (in a similar range to rice in Asian
countries and cigarettes). This implies that an increase in feels leads
to a reduction in ﬁling numbers but an increase in total revenues!

The demand for patents in inelastic (in a similar range to rice in Asian
countries and cigarettes). This implies that an increase in feels leads
to a reduction in ﬁling numbers but an increase in total revenues!
The fee elasticity of trademark is also in a similar range as shown,
e.g., by Herz and Mejer [2016] and de Rassenfosse [2015].

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

Fees affect more than just the number of applications
There are two generic questions:
1. How do filing fees affect the type of inventions submitted to the
patent system?
So far, we have used a benchmark fee to stimate the price elasticity.
Does such benchmark fee also affect other dimensions, e.g., the
quality of inventions submitted for patent protection?

Fees affect more than just the number of applications
There are two generic questions:
1. How do filing fees affect the type of inventions submitted to the
patent system?
So far, we have used a benchmark fee to stimate the price elasticity.
Does such benchmark fee also affect other dimensions, e.g., the
quality of inventions submitted for patent protection?
2. How do fees affect specific features of patents?
We have seen that fees target some specific features of the patent
system. How do these features react to such fees?
Let us start by looking at question 2.

The telling example of claim-based fees
Claims are the substance of a patent. They codify the description of
the invention and constitute the scope of protection in case of grant.
Thus, by charging claim-based fees, patent oﬃces may directly aﬀect
patent scope.

patent scope.
Many oﬃces charge claim-based fees:
EPO: e235 per claim > 15 and e585 per claim > 50
USPTO: $420 per independent claim > 3 and $20 per claim > 20
JPO: 4,000 per claim (renewal fees are claim-dependent!)

patent scope.
Many oﬃces charge claim-based fees:
EPO: e235 per claim > 15 and e585 per claim > 50
USPTO: $420 per independent claim > 3 and $20 per claim > 20
JPO: 4,000 per claim (renewal fees are claim-dependent!)
An interesting experiment took place at the USPTO... and also had
repercussions at the EPO. In 2004, the fee for each independent claim
over three increased to $200 from $88, and the fee for each claim in
total over twenty increased to $50 from $18.

Average number of claims in published U.S. applications of U.S. origin and EP second ﬁlings originating from the U.S. by year of
ﬁling at the USPTO.
Source: van Zeebroeck et al. [2008].

Filing fees and type of inventions: eﬀect on quality
It is theoretically likely that both low-quality and low-value inventions
would be disproportionately reduced by an increase in fees.

Let’s consider that an inventor applies for a patent when the expected
beneﬁt from patent protection (probability of grant times economic
value of receiving patent protection) exceeds the patenting cost.
When fees are increased, the marginal applications deterred by a fee
increase could be marginal for diﬀerent reasons:
The chance of grant is low, that is, they are low quality.
The value of the patent, even if granted, is not very high—and this
could be true in some cases despite the quality of the invention being
high.

Let’s consider that an inventor applies for a patent when the expected
benefit from patent protection (probability of grant times economic
value of receiving patent protection) exceeds the patenting cost.
When fees are increased, the marginal applications deterred by a fee
increase could be marginal for different reasons:
The chance of grant is low, that is, they are low quality.
The value of the patent, even if granted, is not very high—and this
could be true in some cases despite the quality of the invention being
high.
It is theoretically expected that a fee increase would screen out both
low-quality and low-value inventions, but the relative empirical
significance of the two is unclear.

This brings an empirical challenge
How to disentangle invention quality from patent value?

How to disentangle invention quality from patent value?
In de Rassenfosse and Jaffe [forthcoming], we extent the linear factor
model of Lanjouw and Schankerman [2004] to a non-linear two-factor
model.
We rely on commonly-used value/quality metrics in order to compute
two latent variables that best explain the variance in the data. This
compution takes into account identification restrictions on specific
metrics.
The four metrics are: number citations, number of indepent claims,
geographic family size (∗), and patent lifetime (∗); and (∗) indicates
identification restrictions.

Density estimates of the latent variables.
Source: de Rassenfosse and Jaﬀe [forthcoming].

Density estimates of the latent variables.
We can now investigate the eﬀect of fees on both the quality and the
value dimensions. But we need to identify a large fee change to
maximize our chance of observing an eﬀect.
Fee increase that followed the U.S. Patent Law Amendment Act of
1982 (from $239 to $3200).

As expected, large impact on ﬁling numbers
Number of utility patents granted by the USPTO, by application month (1981–1984).

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

Can patent fees inform about ‘bigger’ questions?
Remember the purpose of the patent system to encourage innovation.
Fees can be use to study the incentive eﬀect of the patent system.
Consider the following:
At the limit, if patents are impossible to get it is unlikely that they
will encourage innovation.
At the other extreme, if patents are automatically granted the
downside of having too many patents dominates.

Thus, there might be a sweet spot somewhere in the middle where
innovation incentives are maximised.
Variations in the ‘ease’ of obtaining patents should induce variations
in innovation incentives.

Thus, there might be a sweet spot somewhere in the middle where
innovation incentives are maximised.
Variations in the ‘ease’ of obtaining patents should induce variations
in innovation incentives.
(Very) large changes in fees may provide such variations.

Patent fees and innovation incentives
Nicholas [2011] implement such an approach. He studies the eﬀect of
the 1883 Patents Act in Britain, which led to a reduction in ﬁling fees
by 84 per cent.
He observes that patenting in Britain increased 2.5 fold after the
reform.

Patent fees and innovation incentives
Nicholas [2011] implement such an approach. He studies the effect of
the 1883 Patents Act in Britain, which led to a reduction in filing fees
by 84 per cent.
He observes that patenting in Britain increased 2.5 fold after the
reform.
He measures ‘innovation’ with changes in the distribution of high and
low-value patents and citations to English inventor patents in the
United States.
He finds no effect of the fee increase on innovation—but absence of
evidence is not evidence of absence!

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

1. Understanding the direct effects of fees
As illustrated, patent offices have been very creative in the creation of
fees. We have only scratched the surface by looking at the most
obvious types. More research is needed to understand the effect of all
types of fees.

types of fees.
More research is needed to understand how the various fees interact
with one another. For instance, a decrease in pre-grant fees will have
repercussions in the renewal rate.

types of fees.
More research is needed to understand how the various fees interact
with one another. For instance, a decrease in pre-grant fees will have
repercussions in the renewal rate.
Lots of research opportunities. There are many offices around the
world, with many different schedules of fees, and data are easy to
collect. One can exploit both variations across offices and temporal
variations within office.

2. Using changes in fees as exogenous shocks
Some of the biggest questions related to the patent system concern
innovation incentives and the effect of patents on follow-on
inventions.
Fees provide a source of exogenous variation that affects the
incentives to apply for patents as well as the characteristics of the
inventions submitted to the patent system.
Opportunities for using large variations in fees as shocks (or
significant change in the structure of fees, such as the introduction of
small-entity fees and renewal fees).

3. The big fee question
One of the most obvious question for an economist is: “What is the
optimal level of fees”? This question is surprisingly difficult to answer.
A model should probably start by considering a very simple fee
structure (e.g., application fee alone) and define optimality is a simple
way (e.g., first-order effect on innovation incentives alone). And then
gradually relax assumptions.

Table of contents
1 Background
2 Schedule of fees
3 Known eﬀects
Filing numbers
6 References

Additional literature
The presentation given at the EPIP PhD Workshop was scheduled for 45
minutes so I could not cover all the literature. The following papers are
also worth discussing (and I plan to do so when I next revise the slides):
Schankerman and Schuett [2016], Frakes and Wasserman [2014], Gans
et al. [2004], Harhoﬀ et al. [2009], Martin and Stahn [2011].
Drop me a note if I have forgotten a paper!

References I
J. Bessen and M. Meurer. Patent failure: How judges, bureaucrats, and
lawyers put innovators at risk. Princeton University Press, 2008.
S. Scotchmer. On the optimality of the patent renewal system. The
RAND Journal of Economics, pages 181–196, 1999.
F. Cornelli and M. Schankerman. Patent renewals and r&d incentives. The
RAND Journal of Economics, pages 197–213, 1999.
G. de Rassenfosse and B. van Pottelsberghe de la Potterie. The role of
fees in patent systems: Theory and evidence. Journal of Economic
Surveys, 27(4):696–716, 2013.
G. de Rassenfosse and B. van Pottelsberghe de la Potterie. Per un pugno
di dollari: A ﬁrst look at the price elasticity of patents. Oxford Review
of Economic Policy, 23(4):588–604, 2007.

References II
G. de Rassenfosse and B. van Pottelsberghe de la Potterie. On the price
elasticity of demand for patents. Oxford Bulletin of Economics and
Statistics, 74(1):58–77, 2012.
B. Herz and M. Mejer. On the fee elasticity of the demand for trademarks
in europe. Oxford Economic Papers, 68(4):1039–1061, 2016.
G. de Rassenfosse. On the price elasticity of demand for trademarks.
SSRN Working Paper 2628646, 2015.
N. van Zeebroeck, N. Stevnsborg, B. van Pottelsberghe de la Potterie,
D. Guellec, and E. Archontopoulos. Patent inflation in europe. World
Patent Information, 30(1):43–52, 2008.
G. de Rassenfosse and A. Jaffe. Are patent fees effective at weeding out
low-quality patents? Journal of economics & Management Strategy,
forthcoming.

References III
J. Lanjouw and M. Schankerman. Patent quality and research
productivity: Measuring innovation with multiple indicators. The
Economic Journal, 114(495):441–465, 2004.
T. Nicholas. Cheaper patents. Research Policy, 40(2):325–339, 2011.
M. Schankerman and F. Schuett. Screening for patent quality:
Examination, fees, and the courts. TILEC Discussion Paper No.
2016-036, 2016.
M. Frakes and M. Wasserman. The failed promise of user fees: Empirical
evidence from the us patent and trademark office. Journal of Empirical
Legal Studies, 11(4):602–636, 2014.
J. Gans, S. King, and R. Lampe. Patent renewal fees and self-funding
patent offices. Topics in Theoretical Economics, 4(1), 2004.
D. Harhoff, K. Hoisl, B. Reichl, and B. van Pottelsberghe de la Potterie.
Patent validation at the country level—the role of fees and translation
costs. Research Policy, 38(9):1423–1437, 2009.

References IV
E. Martin and H. Stahn. Should we reallocate patent fees to the
universities? Economics of Innovation and New Technology, 20(7):
681–700, 2011.

Using patent fees to improve the patent system

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