Update: For tax years 2017-2025, much of the tax benefits of creating and selling / licensing patents have been suspended. The costs for a good patent have not receeded much, and the quality and other business advantage of holding and enforcing patents has also receeded. If a transition is made from the current environment, it remains to be see how much of the prior advantages will be returned.
Patents rights are a valuable part of the business of innovation and improvement. Small businesses and inventors need to have an understanding of patent procurement cost and timing in order to adequately budget such expenditures. It is helpful to consider the patent process in three stages, including application preparation, application prosecution, and patent issuance and maintenance.
The costs for preparation of a utility patent varies depending upon the number of pages needed to describe the invention, the number of claims needed to adequately claim the invention and the number of drawings, if any, required to illustrate the invention. The utility patent application includes a background, summary, brief description of the drawings, detailed description, and claims written in a specialized format.
One objective measure of the attorney fee cost is dollars per page of patent application including the claims and abstract. This should cost no more than $190 per 82 by 11 inch page, double spaced. Rarely can even the simplest patent application be adequately expressed in less than 15 pages, and a simple, one embodiment mechanical & electrical patent seems to average about 20 pages to cost a total of less than about $6000 in preparation fees for the written specification. Chemical patents may average 15 typewritten pages if there is not an expanded illustration of unexpected results.
The current utility patent filing fee, based upon the minimum number of claims, for an individual or business having less than 500 employees, known as a small entity, is about $730 for electronic submission. Quality drawings, if required, are about $130 per sheet. The average minimum electrical or mechanical application may have about three sheets of drawings, so an estimated cost of about $490 for drawings is reasonable. Note that most chemical applications do not require drawings, but pictoral graphic illustrations of unexpected results are helpful. Based upon these assumptions, the cost to get a simple 20 written page, 3 sheets of drawing patent application filed is a little over $6000, and typically less than about $7000. An initial fee is normally paid prior to the filing of the application.
Extra charges may be applied for (1) Information Disclosure Statements, (2) assignments, (3) special handling, (4) priority document transmittal and other needed filings.
The prosecution of the patent application may involve one or two responses to an examiner in the U.S. Patent Office who rules on the allowability of the patent. Based upon an average of about 2 responses, it may require from 5-8 hours of attorney time at a cost of $2000-$2500 representing the cost of each cycle prosecution. This cost occurs from about six months to more than a year and a half after the patent is filed. Of course, unusual situations can require more involvement, but the examples given tend to express a minimum to average case. Sometimes the application has to go through 2-3 of these cycles if the applicant is aggressive about the breadth of claims desired.
One option which has been increasingly used since the change in the potential patent protection period to 20 years from filing, is the use of a petition to enable the application to be examined right away. Since every day of delay before patent issuance costs the owner a day of patent monopoly lost, the time of pendency of the application occurs at the expense of the patent protection period. The cost of such a petition varies widely based upon the basis for application and will not be considered in this budget.
Once a case is allowed to issue, the government will charge an issue fee which is $500 for a small entity. An attorney fee of $450 for the time to take care of preparation and filing of the issue fee papers in the case and processing the issue fee is added to bring the issue cost to $950.
The raw government charges post issuance fees due at 3.5, 7.5, & 11.5 years, which are currently $800, $1,800, and $3,700, respectively, for a small entity. The inventor can arrange at case issuance to pay these costs directly or he can have the attorney docket the issued patent and handle the post issuance fees in future with a surcharge for the attorney.
Based upon the above estimates, the costs throughout the life of the patent total less than $15,000. However, from 2017 through 2025 (estimated), the deductibility of these expenditures will be limited compared to what they previously were. Tax advantages may return.
Remember also however, that the inventor may interrupt the patent process, as well as the payment of the maintenance fees, at any point during the pendency of the patent application or during the life of the issued patent. As such, the inventor need only commit to the funds necessary to take care of each phase in the patent process if possible and as it occurs. With regard to the issued patent, the patent owner need only continue paying the maintenance fees if the value the patent monopoly during the next maintenance period exceeds the next maintenance fee.
However, keep in mind that during 2013, patent fees have begun to change much more rapidly than annually. During 2013, three changed sets of fees were imposed, including quite dramatic increases in March, 2013. The "micro-entity" fees tossed as a sop to the inventor intending to psychologically offset the massive fee increases is a dangerous seduction that may result in a long term defect on any patent for which these fees were paid if it cannot be proven than an inventor or assignee had 3 or fewer prior patents, or that an inventor absolutely earned less than the threshold for the "micro-entity" status.
Remember that the above costs relate to a 20 year period which includes the pendency of the application and the life of the resulting patent. The projected costs should be justified by considering the possible additional income made possible by an issued patent. Having a patent can not only form the basis for an income royalty stream, but can enhance product sales and profitability.
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