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Renewal Fees

Renewal Fees

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Published by Joshua Gans
Joshua S. Gans, Stephen P. King and Ryan Lampe, "Patent Renewal Fees and Self-Funding Patent Offices" 17th May, 2004
Joshua S. Gans, Stephen P. King and Ryan Lampe, "Patent Renewal Fees and Self-Funding Patent Offices" 17th May, 2004

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Published by: Joshua Gans on Nov 25, 2009
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 Patent Renewal Fees and Self-Funding Patent Offices
Joshua S. Gans, Stephen P. King
Ryan Lampe
University of Melbourne17
May, 2004
A socially optimal structure of application and renewal fees for patentswould encourage the maximal number of applications while reducing effectivepatent length. We find, however, that when patent offices are required to be self-funding, resource constraints can distort this fee structure. Specifically, afinancially constrained, but welfare-oriented, patent office will tend to raiseinitial application fees while lowering renewal fees. This creates two detrimentsto social welfare as it discourages the filing of some patents while extending theeffective life of others.
 Journal of Economic Literature
Classification Number:O340.
: patents, renewal fees, incentives, self-funding.
Intellectual Property Research Institute of Australia, Melbourne Business School and Department of Economics. We thank IPRIA for funding for this project and Richard Hayes for helpful discussions. Allcorrespondence to Joshua Gans (J.Gans@unimelb.edu.au). The latest version of this paper is available atwww.mbs.edu/jgans.
 1Patent offices in a variety of countries have become self-funding in recent years.In other words, the patent office must raise revenue from the fees that it charges forintellectual property (IP) services to at least cover its variable operating costs and, insome cases, to provide government with a return on capital. For example, in the UK, thePatent Office was made a ‘trading fund’ in 1991, meaning that it must be self-financing.In particular, it must achieve a rate of return on capital that is set by Treasury. From 1April 2000 to 31 March 2005, this rate of return has been set at 6%.
Similarly, theCanadian Intellectual Property Office is a “revenue-generating agency … financed …entirely from fees for intellectual property (IP) services provided”.
In the United States,the
 Patent and Trademark Office Corporation Act (1995)
‘corporatised’ the US PatentOffice including the requirement that it uses its various fees to cover ongoing costs.At first glance, it might be expected that although self-funding requirementsmight alter the level of fees charged by patent offices it would not alter its structure. Themix of initial and renewal fees and how these relate to patent length would be set tomaximise the social returns from innovative activity. Imposing a budget constraint mightbe expected to have the same effect that a similar constraint might have on the pricingstructure of a regulated multi-product firm; changing levels but not relative prices.The chief finding of this paper, however, is that this is not the case. Self-fundingrequirements create strong pressures to change fee structure. This is because the feestructure to maximise revenue is distinct from that designed to maximise the social valueof innovative activity. Indeed, in fee setting those goals may conflict.
The Patent Office (UK), Annual report 2003, p.22.
 Intellectual property – innovation on a global 
scale” Annual report 2001-02, p.2.
 2In this paper, we consider the effect of imposing a revenue raising requirement ona patent office; especially when offices may have difficulty covering their own costs.
Inparticular, we consider how such a requirement will alter the fee structure established bythe Patent Office and how this will affect the social benefits from IP protection. We showthat imposing a revenue raising requirement on a patent office will tend to ‘flatten’ thefee structure set by the office. Initial patent application fees will tend to be set too highfrom a social perspective while renewal fees will be set too low. This will have the effectof leading to excessively long patents from a social perspective.Renewal fees for patents are fees that patent holders must pay to a relevant patentoffice if they wish to continue receiving the benefits of patent protection. Figure 1 liststhese fees (in Australian dollar equivalents) for various patent offices around the world.The most visible feature of these fees is that they rise over the length of the patent.Moreover, for inventors who require a global patent, these fees can become quiteconsiderable. This means that inventors who discover that their patent is notcommercially valuable will likely not renew their patent.
The Economist (“Inventive Ideas: Reforming America’s Patent System,” 6
November 2003) reportedthat the USPTO was facing resource constraints and a large backlog of patents. In this case, larger patentholders were actually lobbying Congress to raise fees as a means of improving the operation of the office.
This pattern is borne out empirically by Pakes (1986). He finds that most US patents are not renewed after7 years and those that are, are renewed for the maximum patent length.

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