In a letter to Stephen S. McMillin, Deputy Director at the Office of Management and Budget, David Boundy of Cantor Fitzgerald expressed concerns of industry groups about the budget effects of the USPTO’s proposed rules on continuations and claims. The proposed regulations would limit an applicant’s ability to file no more than one continuation application.

This was a follow-up letter to the budget side of OMB, to go along with their previous presentation to Office of Information and Regulatory Affairs (OIRA) on the regulatory side, regarding:

RIN: 0651-AB93, Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims (Fed. Reg. 71: 48-61 (January 3, 2006) (“Continuations Rule”)

RIN: 0651-AB94, Changes to Practice for the Examination of Claims in Patent Applications, 71 Fed. Reg. 61 (Jan. 3, 2006) (“Limits on Claims Rule”)

The letter urges that the rules will substantially increase costs for the USPTO. Since the USPTO’s patent operations are fully funded by user fees, the USPTO’s intended reduction in patent applications translates directly to top line revenue loss.

Not only that, the group contends that under the Continuations Rule, the 4-5% of applications that USPTO proposes to do away with are the highest profit applications – the average revenues are significantly higher, and they are the applications that are least expensive for USPTO to examine.

The letter then details four factors that the USPTO did not appear to consider regarding a loss in revenue that could be significantly greater than the costs USPTO hopes to save:

First, USPTO simply ignored the budget effects of adaptive responses by applicants, even the responses that USPTO itself has stated it intends to encourage. USPTO’s public presentations frankly warned applicants that they will have to prophylactically file more applications, sooner, to preserve rights. USPTO also acknowledged that there will be a “bubble” of applications as soon as the final rules are announced. Once these applications are filed, they will have to be examined, driving up USPTO’s costs in the short term.

Second, various web forums have discussed various techniques to deal with the rules. They tend to increase USPTO’s costs. USPTO has not accounted for these adaptive responses.

Third, the single largest determinant in patentees’ payment of maintenance fees is the number of claims – the attribute that USPTO seeks to reduce. Maintenance fees are over ¾ of the total fees generated by a patent, and they are “free money” for USPTO – the administrative costs are trivial. It is unquestionable that the Limits on Claims rule will make patentees less willing to pay these fees.

Fourth, we believe that the applications that would be curbed by the Limits on Claims rule are among the more profitable for USPTO. The incremental revenue for claims comes at relatively low examination cost for USPTO: claims in a single application are necessarily closely related, and therefore examination burden for claims in an application grows much less than linearly, even though fees grow at a somewhat-more-than-proportional linear rate.

It seems reasonably certain that the proposed rule changes will have some adverse affects on revenue and costs, substantially raising the USPTO’s average costs per dollar of revenue.

See the Letter here:  Letter to OMB on Rule Changes

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