Licensing Product Times

Vol 3, No. 3, page 2

Editorial on Patent Fees: Patently Wrong

© 1991 by Charles M. Nelson

The bicentennial of the US patent and trademark system, celebrated in 1990, prompted much reflection and a formal reconsideration of its role in the American economy. Concurrently, an Advisory Commission on Patent Law Reform has been created to review the system and advise the Patent and Trademark Office (PTO) on needed changes by September of 1992. Meanwhile, the Bush administration has moved to make the PTO financially self sufficient by tripling user fees, causing grave concern throughout the intellectual property community. We believe this to be premature in the absence of the Commission's recommendations, imprudent because it will seriously undermine the administrative infrastructure for American business enterprise, and improper because it ignores the fundamental purpose which should guide the PTO as set forth in the US Constitution.

The patent and trademark system is the primary expression of Congress' power to promote the progress of science and the useful arts by securing for limited times to authors and inventors the exclusive rights to their respective writings and discoveries. The section which mandates these activities also gives Congress the power to tax, borrow and mint money, regulate commerce and bankruptcies, establish a postal and highway system, and collect taxes. Why were patents, trademarks and copyrights as important as taxes in the minds of the founding fathers? Why did Thomas Jefferson become the first Commissioner of the PTO rather than accept a more obviously political role in Washington's administration?

Nearly one hundred years ago, the Japanese sent a delegation to America to determine what made us such a strong and rapidly expanding economic power. Mr. Takahashi, the ranking official in the delegation, concluded that the patent system was the underlying reason for our success. Why were the Japanese so confident of this conclusion that they invested extensively in developing their own patent system and have become a major player in our own system?

These questions are relevant because the PTO has come to regard the system as a user service rather than a public service, a source of fee revenue rather than an economic engine, a bureaucratic process rather than a policy vehicle to control and guide economic development. Why? Perhaps, while focusing on the day to day functions of the patent system, we have all lost sight of its underlying purpose.

The patent and trademark system is in the Constitution because it is absolutely necessary to manage a capitalistic market economy in the context of a democracy. It creates the level playing field on which individuals and businesses compete in the development and economic exploitation of technology and business trademarks. Anything which undermines this system also attacks our economic philosophy and weakens our market economy; anything which enhances the system, strengthens our economy. The proposed fee structure will make it much more expensive to purchase a ticket onto that playing field, creating a severe handicap for individuals and small companies who do not have highly financed R&D departments and are not structured to take full advantage of the tax code. An original purpose of the patent system was to encourage as many individual and corporate entrepreneurs to participate in the American Dream as possible. We believe that purpose is as valid now as the day on which Thomas Jefferson granted the first patent. It is structurally inevitable that burdensome fees are a direct assault on this function of the system and can only result in long-term erosion of its effectiveness.

The patent system was designed to place the development and marketing of technology in the hands of individuals and the corporations which they create, and to limit the role of the state to that of an umpire regulating activity in an otherwise free marketplace. To work, this system requires that innovative individuals invent products and create small companies, that small companies grow into economic powerhouses, and that mature companies diversify or decline in their importance. Almost every Apple was created by a Steven Job; every IBM grew out of a successful Apple. All of the companies, products and jobs in the private sector of our economy, all the taxes these produce, all of the economic value they generate, flow directly from the patent and trademark system. Anything which inhibits participation in the patent system inhibits the Steve Jobs of our nation and will lead to a decline in the formation of new and dynamic companies. The general taxes generated by these companies pay for the operation of the patent and trademark system many times over. Therefore, any system of patent and trademark fees should be designed to encourage rather than discourage participation in the system. While discouraging frivolous use of the system, fees should never be set so high that individuals, companies or innovations are kept out of the system. This means very low entry fees for individual inventors, inventions and trademarks, and maintenance fees which are set high enough to encourage the active commercial development without eliminating protection for technologies which require substantial time to develop and bring to market. The proposed fee structure is much too high at points of entry into the system. For this reason, the filing and issue fees should be nominal and the maintenance fees should follow a progression which better reflects the developmental cycles for specific technologies and industries.

When our forbears sought "to promote the progress of science and useful arts" they understood that a capital market required technological and economic growth to function well and that this, in turn, depended on free access to technological information. The patent system was designed to document in detail all the inventions and processes which it included so that inventors could access and use the inventions of others in their own work, creating improvements of established technology and suggesting novel ways in which it could be incorporated into new inventions. Since individual inventors, nonprofit organizations and private companies all have limited funds with which to pursue patents, increases in fees will necessarily mean a smaller proportion of all inventions will be submitted for patents. Since inventions which are not patented must be held closely as trade secrets, any policy which discourages the patenting of new technology retards the rate at which technology develops, inhibiting economic growth. Therefore, patent fees must be set low enough to catch the vast preponderance of inventions which might be useful as building blocks in later innovations or which might prove useful in the light of future developments. We believe that the proposed structure raises fees far beyond the critical threshold levels. While Harry F. Manbeck, the present Commissioner of Patents and Trademarks, has repeatedly asked industry representatives to provide hard data to demonstrate this assertion, it is really the PTO that needs to produce hard data to prove that the new fee structure will have no ill affect on the long-term health of the system.

Under the proposed system, the minimum charge for filing, issuing and maintaining a patent for 17 years will be $6680; this does not include the cost of office actions which occur for a majority of patents. In 1990, more than 90,000 patents were issued. Under the new system, $600 million would be charged to those who hold these patents. As a business person or taxpayer, would you rather see this $600 million being spent by the government to record and track patents, or by inventors and companies to develop new technology?

We believe quite strongly that the patent and trademark system is a public service which is more than paid for by the productivity of American business. It should be paid for primarily from the general revenues collected by Uncle Sam. Fees should be used as a management tool to control application quality and flow, not as a primary means of supporting the system. Any fees which go beyond these purposes undermine both the system and the free-market economy which it is designed to foster. The Patent and Trademark Office, and the services which it provides, are as much a part of the infrastructure of America as its highway system. To suggest otherwise by demanding that it be fully supported by user fees subverts the good intentions and clear thinking of our forbears as embodied in the Constitution.