Cheaper Patenting: Why Patents Cost Money

When I talk to small businesses and start-ups I often hear:

“We would like to obtain patent protection but the process is too expensive.”

“You need millions to enforce a patent, why bother?”

“Where are we going to get thousands of pounds from to pay for an application?”

“The fees are so high!”

Patenting an invention is expensive. But so is doing business. Performing an audit, paying taxes, filing accounts, commissioning an advertisement, complying with employment legislation and paying for an office; these all cost money. Running a business is an expensive process, the idea is to earn enough revenue to pay for the expenses, while also making a profit.

Return on Investment

Similar to marketing and PR, patenting can increase revenue. A company can receive monthly and /or annual payments for licensed technology. You can think of this as a rent on intangible property.  A company can also increase sales of a product by offering a feature that cannot be provided by competitors without the fear of possible legal action.

Patents can also help a business by increasing investment, increasing a company’s valuation and/or increasing the amount of money that is paid for a company if it is acquired.

If the net financial benefit of a patent is greater than the costs of obtaining that patent, then obtaining a patent is likely a good idea.

Long Term Thinking

Patents require long term thinking. They last for 20 years from the date of filing.  A patent may only be granted after 3 to 5 years of prosecution before a national or regional patent office. The process of drafting, filing and prosecuting a patent application may cost between 10k to 30k pounds (15k to 40k dollars), over those 3 to 5 years. Renewal fees may then cost between 100 to 1500 pounds (150 to 2000 dollars) annually, depending on location.

If you can license your patented technology for 50k pounds (70k dollars) a year for at least 5 years following grant, you can easily cover that initial investment and add to your bottom line. You just have to plan up to 10 years into the future. This may be difficult if your business plan changes every 6 months.

Who Sets the Fees?

Obtaining a patent costs money for two reasons: official fees and professional fees. Typically, about 20-30% of total costs will be official fees. The rest are professional fees.

Patent attorneys typically operate on an hourly billing system – their fees are equivalent to other professionals, e.g. private doctors, lawyers and accountants.

A patent attorney, at least in the UK and Europe requires a science or engineering degree, potentially a Masters or Doctorate, plus between 4 to 8 years on the job legal training. The legal training consists of multiple sets of exams with 40-50% pass rates. A patent attorney’s charges, plus any service charges, must also cover business running costs such as office charges, paralegal charges, insurance, the cost of banking as well as other miscellaneous business costs. Hence, professional fees are predominantly set by the market. If the market requires, and pays a premium for, engineers, this will be reflected in professional fees. Patent offices also need scientists and engineers to perform examination, which sets official patent office rates.

Helping Reduce Costs

There are ways in which companies can make patenting more affordable. There are ways to reconcile short-term business demands with long-term thinking. There are also ways they can reduce professional and official fees.

Over the next few months I will set out some of these under the “Cheaper Patenting” series. Some suggestions are common sense. Most require a little thought and time. I hope they will help stack the odds in your favour.

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