In my decades of practice, I’ve seen my fair share of skeptical glances when I mention the word “patent.” There’s a common misconception that patents are just an insurance policy, a necessary expense to protect against infringement or theft. I think this view is shortsighted. Just as a seed holds the potential to be a towering tree, a patent is a fundamental asset class that can hold within it the future success of an innovation company.

In my experience, the most successful companies don’t see patents as a mere checkbox in their legal to-do list. They see them as a strategic investment, a cornerstone in their arsenal of competitive advantages. I’ve made it my mission to shift the narrative from seeing patents as a defensive tool to recognizing them as a proactive driver of value and growth.

Below, I talk about the costs associated with obtaining and maintaining a patent, which, admittedly, can seem daunting at first glance. But I want to highlight the often-underestimated value that a well-strategized patent portfolio can bring to an innovation company. From bolstering your company’s market position to opening doors for strategic partnerships and investments, the potential returns on this investment can far exceed the initial outlay.

At the end of this article, I hope you’ll come to see patents as I do –  not as an obligation, but as a golden opportunity to secure and amplify the fruits of your company’s ingenuity.

Innovating as a team

Understanding Patent Costs

The financial commitment involved in the patent process can be significant. It’s important to have a clear understanding of these costs in order to set a budget and allocate resources properly. By being aware of the expenses related to patent searches, applications, maintenance fees, and IP legal counsel, you can devise a solid patent strategy that prioritizes innovation, and aligns your overall business goals with your investment in intellectual property protection. 

Maybe most importantly, understanding patent costs can help you avoid unexpected expenses up front and throughout the life of your patent to make sure it remains enforceable throughout its entire term, safeguarding your competitive advantage in the market for years to come.

Invention Disclosure

A well-crafted invention disclosure is a comprehensive document completed by the inventor that outlines the details of an invention and demonstrates its potential patentability. It serves as the groundwork for the patent search and subsequent drafting of a patent application by IP counsel and equips department leads, the legal team, and executives with the data they need to evaluate the feasibility of investing further in development and the patent application process.

A typical invention disclosure includes a detailed description of the invention, its design, construction, composition, manufacturing requirements, practical applications, as well as any existing background technology relevant to the invention, and the ways in which it is different from the prior art. It also makes a case from a business standpoint about the potential advantages of pursuing patent protection and development.

Patent Search

Conducting a basic patent search is the first step in the process of securing a patent for your innovation. 

Some companies view a patent search as being unnecessary. For example, they may be at the cutting edge in their field and are acutely aware of the prior art as it stands. Or, they don’t want to sacrifice the time needed to do a patent search and prefer to jump right in and file an application.

In most cases, this preliminary search helps you determine whether your invention is novel and non-obvious, two key criteria for patentability. By reviewing existing patents, published patent applications and non-patent literature, you can gain insight into the current state of the art in your field and assess whether your invention is likely to meet the requirements for a patent. 

A basic patent search can range from a few hundred to a few thousand dollars, depending on the complexity of the invention and the depth of the search.

Patent Application – Drafting and Filing Stage

This article is focused on the most common type of patent application known as a “utility” patent application. The basic process of filing a patent application involves several steps, starting with the preparation of a detailed description of your invention. Among other important details, this description must include how the invention works, how it’s made, and how it will be used. 

Once the application is prepared, it is filed with the United States Patent and Trademark Office in the case of U.S. patents. After filing, the application is reviewed by a patent examiner who conducts a search for prior art, such as earlier patents, articles, or other disclosures, to determine whether the invention is new and non-obvious. 

Patent Attorney Fees

The costs of working with specialized intellectual property (IP) legal counsel can vary widely depending on the complexity of the invention and the expertise of the attorney. 

For most innovations, attorney fees for conducting a patent search, and drafting and filing a patent application can range from $5,000 to $15,000. However, for more complex inventions, such as those in the fields of biotechnology or software, these costs can easily exceed $20,000 or more. 

It’s important to note that these fees are in addition to the filing fees charged by the USPTO.

USPTO Filing Fees

Filing a patent application with the United States Patent and Trademark Office involves various fees, which can add up to a significant amount. 

Initial costs include the basic filing fee, search fee, and examination fee. For a utility patent, these fees currently start at approximately $1,820for large entities, $664 for small entities, and $365 for micro-entities. 

It’s important to note that these fees are subject to change, and additional fees may apply depending on the specifics of the patent application, such as the number of claims.

How to reduce USPTO filing fees

USPTO filing fees can be reduced in several ways:

  • Applicants who qualify should take advantage of small entity and microentity fee discounts whenever possible or practical
  • Cap the total number of claims at 20 whenever possible or practical
  • Cap the total number of independent claims at three whenever possible or practical

Advancing the Application through the USPTO – Prosecution Stage

Duty of Disclosure

An important aspect of the patent application process is the duty of disclosure. The USPTO relies on applicants to inform them about any prior art that they are aware of. Individuals associated with the prosecution of a patent application have a duty to disclose all information known to them to be material to patentability. Failing to consider this duty early on in prosecution can increase costs for the applicant, and failing to comply at all can jeopardize the validity and enforceability of the patent.

What to do if your patent application is rejected during the Prosecution Stage

If a patent application is initially rejected, which happens in the vast majority of applications, applicants have several options to consider. Each of these options typically involves additional costs and can significantly increase the overall cost of the patent process with the USPTO.

  1. File A Response With or Without Amendments: This involves the submission of arguments as to why the examiner was wrong in making a rejection, sometimes in conjunction with amending the claims.
  2. Respond With A Request for Continued Examination (RCE): An RCE allows the applicant to continue negotiating with the USPTO after a final rejection, for an additional fee.
  3. Response Under the After Final Consideration Pilot Program: This program allows for a response to a final rejection without filing an RCE, provided certain conditions are met.
  4. File A Notice Of Appeal: If the applicant disagrees with the rejection, they can appeal the decision to the Patent Trial and Appeal Board.
  5. File A Continuation Patent Application: This allows the applicant to pursue a different scope of claims based on the same original application.

There are several ways to speed up prosecution at the USPTO. Note that some of these may speed up prosecution but not necessarily reduce costs:

  • Applicants can take advantage of special programs to expedite the prosecution process and, in some cases, reduce costs. These programs include Track One Prioritized Examination, Accelerated Examination, the Patent Prosecution Highway, and Petitions to Make Special. Note that some of these programs come with USPTO fees.
  • During prosecution, engaging in an examiner interview can also lead to a more efficient process. An interview can provide valuable insight into the examiner’s perspective and help applicants better understand any rejections.
  • Responding in timely fashion to USPTO communications, thus avoiding the necessity of paying for extensions of time.

Patent Grant Stage

Once a patent application has been allowed, an Issue Fee must be paid to allow the application to proceed to grant. For a utility patent, the issue fee is currently $1200 for large entities, $480 for small entities, and $240 for micro-entities. 

The combined cost of the Prosecution Stage and Grant Stage in the U.S. can vary widely, but it can reasonably be expected to fall within $5000 to $20000 in the vast majority of cases. Timing can also vary widely, but in many cases these stages can last 2-3 years in total, unless steps have been taken to accelerate examination. 

Patent Maintenance Fees

Once your patent is granted, it gives you the exclusive right to prevent others from making, using, selling, and importing your invention in the U.S. This right is typically valid for a period of approximately twenty years from the date you filed your patent application. However, to keep your patent enforceable throughout this entire period, you must pay maintenance fees. These fees are required to maintain the patent in force and are due at specific intervals during the life of the patent.

In the United States, three maintenance fees are due at 3.5, 7.5, and 11.5 years after the patent is granted. The total cost of these fees can vary depending on the size of the entity that owns the patent. 

For a small entity, which is generally defined as an individual or a company with fewer than five hundred employees, the total cost of these maintenance fees is currently $5,384 paid over three maintenance periods. 

It’s important to note that these fees are subject to change, so it’s advisable to check the current fees with the USPTO or consult with your patent attorney. Failure to pay these maintenance fees can result in the expiration of the patent, leaving your invention unprotected and potentially allowing others to use it without your permission.

How Much Does A Patent Cost?

The cost of obtaining and maintaining a patent in the United States depends on the complexity of the invention and the fees charged by IP legal counsel. The total cost to draft, file, prosecute and obtain grant of a U.S. patent can realistically range from $15,000 to $30,000, and be higher for complex inventions. The maintenance fees required to keep a U.S. patent enforceable over its 20-year term can total approximately $5,400 for a small entity. 

IP Strategy and Litigation Deterrence

The costs of ongoing work with IP counsel to prevent infringement can also be significant. If there is a need to enforce the patent against infringers, or the patent is challenged by a competitor, legal fees can quickly escalate. 

Litigation to defend a patent or to sue for infringement can cost hundreds of thousands of dollars or more, depending on the complexity of the case and the duration of the legal proceedings. Therefore, it’s crucial for patent holders to be aware of these potential costs and work closely with their IP counsel to develop a strategy for protecting their intellectual property rights.

The best defense against potential infringement is a robust intellectual property strategy that includes a strong patent portfolio.

The Value of a Patent

The value of a patent extends far beyond the investment of money into its filing and maintenance. Patents provide a legal barrier that can prevent competitors from encroaching on your marketspace, but quantifying this advantage can be challenging. There are numerous variables at play, and the impact of preventing competitors from developing a similar product or service is difficult to measure in financial terms. In other words, it’s very hard to make a case for a scenario that doesn’t happen. 

I would argue that, for innovation-focused companies, this protection is invaluable. It secures their position in the market and fosters an environment conducive to sustained growth and development.

In the broader context of intangible assets, which include patents, trademarks, and trade secrets, the fiscal significance of these assets has surged dramatically over the past four decades. Their value now constitutes a substantial portion of a company’s worth, with intangible assets accounting for around 90% of the market value of the S&P 500 as of 2020. This equates to an astonishing $21 trillion in this index alone, dwarfing the value of tangible assets like real estate and equipment. The global valuation of intangible assets is projected to reach $74 trillion, highlighting the shift towards an innovation economy where intellectual property is far and away the primary value-driver.

Given this landscape, understanding the value of your patent and intellectual property is more critical than ever for innovation companies. The process of intellectual property valuation, often aided by expert IP counsel, is essential for assessing the worth of these assets and making strong decisions about their management and protection, and about the direction of the company overall. Whether it’s for strategic planning, investment, or litigation purposes, a clear grasp of the value of your intellectual property is fundamental to the success and sustainability of your business in this innovation economy.

How To Value A Patent

Valuing a patent is a complicated process that involves considering various methodologies to determine the asset’s worth. Each of the following methods offers a different perspective on the value of a patent, and the choice of method will depend on the specific characteristics of the patent and the objectives of the valuation process.

  1. Cost Approach: This method values a patent based on the cost incurred to create or replace it. It involves determining the historical cost of developing the patent, including research, development, and filing expenses, and adjusting for factors like depreciation or obsolescence. The cost approach is straightforward but may not always reflect the true market value, especially for unique or highly innovative patents. It is often used for valuing patents with no established income stream or for tax purposes.
  2. Income Approach: The income approach estimates the future income that the patent is expected to generate and then discounts these future cash flows to present value. This method is suitable for patents that generate revenue, such as those with royalty-bearing licensing agreements. It requires in-depth financial analysis and forecasting, accounting for the expected revenue streams and the risks associated with the patent. The income approach provides a comprehensive understanding of the potential financial benefits of the patent, allowing for more accurate pricing and decision-making.
  3. Market Approach: This method determines the value of a patent by comparing it to similar patents that have been sold or licensed in the market. The market approach relies on the principle of supply and demand, using market transactions as benchmarks for valuation. It is relatively simpler than the income approach, as it focuses on historical data and market comparables. This method is particularly useful when there is a well-established market for similar patents, providing a real-world context for valuation and reflecting market dynamics in recent transactions.

There Is Value Beyond Financial Metrics

While financial metrics are important in assessing a patent’s worth, the value of a patent extends far beyond hard numbers. Patents can provide a range of strategic advantages that are not directly quantifiable in financial terms but are invaluable to a company’s success.

  • Competitive Advantage: A patent can provide a competitive edge by granting exclusive rights to a product or technology, preventing competitors from entering the market with similar offerings. This exclusivity can be a significant driver of market share and profitability.
  • Strategic Partnerships: Patents can facilitate strategic partnerships, joint development agreements (JDAs), and collaborations. By leveraging existing IP assets, companies can develop new products, access new markets, and share the costs and risks involved in the product development process. These partnerships can be particularly beneficial for startups and small companies that may not have the resources to develop a new technology or enter a new market on their own.
  • Attracting Investment: Patents can be a significant factor in attracting venture capital or private equity investment. Investors often seek companies with a unique and defensible IP portfolio that can create a sustainable competitive advantage. An active protection strategy for the IP portfolio can increase the overall valuation of the company, boosting investor confidence and leading to more significant investments to drive growth.
  • Brand Differentiation: A robust patent portfolio can enhance a company’s brand reputation as an innovator and leader in its industry. This differentiation can attract customers, investors, and partners, contributing to the company’s overall value.
  • Litigation Leverage: In the event of IP infringement, a well-documented patent valuation can strengthen a company’s case in legal proceedings and provide leverage in negotiations. Enforcing IP rights effectively can deter potential infringers and protect the company’s market position.

Final Thoughts

I believe it’s time to reframe our perspective on the cost and value of patents. They are not just a legal formality or a protective shield. Patents are a dynamic instrument of value creation. As innovation companies, embracing this mindset can be the key to growth and long-term success. Patents can pave the way for new revenue streams, enhance your company’s market value, and position you as a leader in your industry.

The journey of obtaining and maintaining a patent is an investment in your company’s future. It’s about laying the groundwork today for the success of tomorrow. I encourage you to think strategically, act proactively, and view your patent portfolio, not as a cost center, but as powerful assets that can drive your company’s growth and innovation. In my experience, those who recognize and leverage the true value of patents are the ones leading the charge towards a brighter, more innovative future.

Michael Dilworth

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.