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  • Writer's pictureJohn Storella

Secrets of Patent Prosecution Costs

January is almost here, and you are probably planning your patent spending for next year. You can ask your law firm to prepare a budget detailing every expected new office action and divisional filing. Or, you can start with this simple rule:

Prosecuting a patent portfolio costs about $24,000 per family per year

This is a baseline cost for an average portfolio. Patent prosecution costs are a function of five cost drivers. How your costs will compare to this rule depends on where the portfolio stands with respect to these drivers.

The Five Cost Drivers:

  1. The number of patent families in your portfolio

  2. The maturity of your patent portfolio

  3. Your choice of outside counsel

  4. How aggressively you’re prosecuting the portfolio

  5. How much of the portfolio you’re prosecuting in-house

Here is how each cost driver effects patent costs:

  • The number of patent families in your portfolio:

The number of patent families in your portfolio is the single factor most closely correlated with patent prosecution costs.  This makes sense, as you would expect a portfolio of twice the size to cost about twice as much.

By “patent family”, I mean all patent applications that trace their priority back to an original provisional or regular patent application. This includes continuations and divisionals, corresponding PCTs and foreign filings. The number of families includes existing applications and all new patent filings you plan for the year.

Begin your budgeting by assuming that your costs will be about $24,000 per family per year. So, if your portfolio will have ten patent families at the end of next year, assume a baseline budget of about $240,000.

  • The maturity of your patent portfolio

The baseline budget presumes an established patent portfolio with on-going prosecution. If your portfolio is very mature, and many of your patent families are only incurring maintenance fees, costs will be less. On the other hand, if you are filing your first patent applications covering your foundational technology, your costs will be (and should be) more.

  • Your choice of outside counsel:

In general, a large general practice firm will charge more to prosecute your portfolio than a patent boutique. How much more? Here’s a useful algorithm: Take the cost the firm quotes for preparing a regular patent application. Multiply by 1⅓. That will be the annual cost per family per year for the portfolio.

So, if a firm quotes about $18,000 for a patent application, expect the annual cost to be about $24,000 per family. (I'm using this as the baseline price.) If the firm charges $15,000, the factor will be about $20,000 per year. And if the price is $21,000, the factor will be about $28,000 per year.

  • How aggressively you’re prosecuting the portfolio:

The $24,000 baseline price is based on a portfolio in which most patent families are filed in the US, Europe, China and Japan. In this case, U.S. costs will account for 40%-50% of the total cost; Europe, Japan and China will account for the rest.

So, if you only file in the U.S., you can cut patent costs at least in half. In this case, a portfolio with 10 families filed only in the U.S. will cost about $10,000 to $12,000 per family per year.

On the other hand, if you add another three English-speaking jurisdictions, or a couple of non-English jurisdictions, expect the cost to increase by another 25%. So, a portfolio with 10 families filed in the U.S. and six non-U.S. jurisdictions will cost about $30,000 per family per year.

  • How much of the portfolio you’re prosecuting in-house

The final important factor in estimating patent costs is how much of the portfolio you’re prosecuting in-in-house and how much you’re giving to outside counsel.

At first, in-house counsel will increase the total budget, mainly because that person will be working with outside counsel to grow the patent portfolio. (That’s why you hired them, right?) However, to the extent in-house counsel is drafting applications and responding to office actions, that person will decrease relative outside costs.

To cost-effectively bring a patent portfolio in-house, the portfolio must be large enough that the fully loaded cost of the in-house patent team exceeds to expected cost of outside counsel. A team including an attorney and a patent paralegal might cost $400,000 per year. Bringing a portfolio in-house might save you $8000-$10,000 per family per year -- You still have to pay foreign counsel and government fees.  So, the break-even point to bring a patent portfolio in-house is at least 40 patent families.

The chart below shows some of these principles in action.

The chart shows, over time, the number of active patent families as red bars, and the trailing 12-month patent costs in blue. Costs generally track the number of patent families, with two notable exceptions. Around time A, costs were high relative to the number patent families. The company brought in an attorney to perform work in-house, and cost decreased. After reaching a peak at time B, the company reduced the number of patent families and the scope of patent filings in each patent family. By time C, this resulted in decreased costs relative to the number of patent families.

While a detailed patent budget may provide a sense of confidence about projected costs, these guidelines will be just as accurate.

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