Patent Cost Framework and cash flow

In general, time to patent is a function of cash flow.  In other words, the faster you want your patent granted, the more you will have to spend in a shorter period of time.  Hence, Cash Flow and the Time to Patent must be balanced. The graph below shows that although the overall cost to get a patent is about the same, you can spread the costs over a period of about 3 years as long as getting the patent as soon as possible isn’t a priority.

The first major cost center is related to the cost to prepare and file the patent application which will range between $5,000 and $17,400 depending on a number of factors. In the diagram below, this cost represents the activity to the left of the vertical green line.

You can use the following Patent Cost Calculator to estimate the cost of your patent application.

The upper range of the estimated patent cost is different from the cheap or inexpensive provisional patent applications advertised online.  An explanation of the cost differences is beyond the scope of this article at this time.  However, you can read my opinion about cheap provisionals in my article: Provisional Patent Application: Not a cheap alternative to a nonprovisional patent application.

The second major cost center is related to the examination costs.  In the diagram below, this cost represents the activity to the right of the vertical green line.  This is the cost associated with responding to an Office Action and other activities associated with getting your patent application through the USPTO.  For example, if the examiner rejects your patent application, we need to prepare and file a response laying out the reasons that your invention deserves a patent.  This is all part of the examination costs which usually range between $5,000 to $10,000.

The timing of the cash flow for these two major costs is generally more important to the inventor.  For example, to delay costs and minimize upfront legal costs, you can employ Route 1 above.  Alternatively, if a granted patent is needed immediately, then the patent process can be compressed or expedited as shown by Route 4 but you wouldn’t be able to delay those expenses.  The costs associated with preparing and filing the patent application (i.e., first major cost) and examination costs (i.e., second major cost) will be incurred within 9 months of each other.

Routes 1 through 4 show how expediting the patent process increases patent costs and vice versa.

Cash Flow versus Time to Patent

Basic Principle for controlling cash flow of the patent process

The basic principle that I recommend to many of my clients is to delay patent-related expenses until a justification exists for incurring further costs.

The justification to get a patent and incur the initial cost to prepare and file a patent application is simple.  If you don’t prepare and file a patent application now, then, later on, you will not have any means to stop your competitors from competing against you if they copy your product or invention.  In this regard, the cost to prepare and file the patent application is the cost of doing business.

Let me explain the benefits of filing a patent application a bit more.  The filing of the patent application (provisional or nonprovisional patent application) establishes patent pendency.  Patent pendency protects you from other competitors trying to steal your idea and preserves your right to secure the patent later on while you market your idea.  If the product sells well in the open market, then the marketing should justify further costs associated with the examination of your patent application.  With each step in the patent process, the marketing or business must justify further expenses.

Overall, at the initial start of your product launch, the inventor or small business usually bears the cost to prepare and file a patent application. However, the hope is that the profits from sales of the invention will generate enough profits to pay for the following on examination costs.

Delay examination costs as much as possible

You can time (i.e., delay) the expenses for examination but that requires some planning and understanding of how provisional and nonprovisional patent applications work and how to expedite examination of the patent application.  If you want to delay the examination costs as much as possible, you also need to be okay with not receiving your patent until years later.  Don’t worry, you always have the option to expedite the examination if needed but that will increase costs and speed up examination costs as well.

To delay the examination costs as much as possible, a provisional patent application (PPA) can initially be filed.  See Route 1 in the diagram above.

The internet has a lot of information regarding provisional patent applications, especially on how cheap it is to file.  However, a cheap provisional cannot provide the same amount of patent-pendency type patent protection as a regular full-up nonprovisional patent application(NPA), as discussed in the article I linked to above.   After you see through all of the advertising information regarding the provisional patent applications, the bottom line distinction between the two (PPA v. NPA) is that a provisional patent application will not be examined because it never enters the queue for examination.  In contrast, the nonprovisional patent application enters the queue for examination on its filing date and will eventually be examined. Because of this, if you file the PPA first (see Routes 1 and 2 above), your patent application will enter the queue for examination only after you file the NPA at a later date.  That nonprovisional patent application can be filed up to one year after the filing of the provisional patent application.  Hence, you can delay the examination costs for up to one more year by initially filing the PPA.  You can see the difference by comparing Routes 1 and 3.  In Route 3, the PPA is not filed and the NPA is initially filed.  Route 3 can yield a patent about 1 year earlier than Route 1. In Route 1, the PPA is first filed.

Let’s talk costs.  The provisional patent application will cost about $5k to $13k depending on a number of factors.  Filing of the provisional patent application establishes patent pendency for the invention. If a nonprovisional patent application (NPA) is filed off of the provisional patent application, then most will file the NPA one year later before the abandonment of the provisional patent application.  The cost to upgrade to the NPA will be about $2,000.  Preferably, the money to pay for the upgrade from the PPA to the NPA will be justified through a successful marketing campaign.  Once the patent application is examined, you will incur the examination costs (typically around $5,000 to $10,000).

In contrast, in Route 3, the inventor skips the provisional patent application and files the NPA first.  However, because of this, the patent application enters the queue for examination immediately upon filing the NPA.  The patent office will take about 1.5 years to work through its backlog of cases.  The only difference between Routes 1 and 3 is a one-year time difference during which the provisional patent application was pending.

You also don’t have to worry about choosing which route to take at the time of filing the patent application.  If you enter the patent process via Route 1 and later decide that you need to get the patent granted sooner than later, then you can upgrade the PPA to the NPA before the one-year time period is up.  If you want to get the patent even sooner, then as shown in Route 2, you can upgrade the PPA to the NPA and also file the NPA with a Fast Track request.  The Fast Track request is a fee-based request and the Patent Office will examine your NPA out of turn or in other words will bring your patent application to the front of the line for examination.  In this instance, the initial office action will occur about 4 to 6 months after the filing of the NPA.

If you want to continue to delay examination costs, then you can continue on the path of Route 1.  The nonprovisional patent application can be filed close to the one-year deadline to file the nonprovisional patent application without the prioritization request.  Your case will be picked up for examination in about 1 to 3 years.

Cost breakdown to Prepare and File a Patent Application

The cost to prepare and file a patent application (i.e., get patent pending status) includes attorney’s fees, drawing fees, and the filing fee charged by the Patent Office. The bulk of the cost to prepare and file a patent application comes from the attorney fees. Drawing fees will be about $200–$800. The government filing fee will be somewhere between $65 and $740 depending on the size of the entity filing and whether you are filing a provisional or non-provisional patent application.  The remainder is due to the attorney fee.

The cost for a novelty search (not shown in the diagram above) will range between a few hundred dollars to $2000 depending on who conducts the search and the complexity of the invention itself. The cost for the novelty search can be grouped into the cost to prepare and file the patent application. In my opinion, it is more important to find the right person to conduct the search rather than a lower price. The reason is that the search is a highly subjective process and having the right person apply their judgment will help you to better understand the risk of proceeding with the patent process. If you have a patent attorney conduct a formal novelty search, then the preparation costs estimated above will increase by the cost of the novelty search.

Cost breakdown for examination

The examination costs are those costs associated with any activity after you file the nonprovisional patent application.  However, the primary cost will be associated with responding to office actions and conducting an interview with the examiner.

Conclusion

Upon reviewing the potential costs of the patenting process, you might think that it is too expensive to get a patent.  However, the Patent Cost Framework helps you to see the basic costs to get the process started can be as low as a few thousand dollars.  Moreover, downstream examination costs should be expended only if the marketing justifies it. Normally, you will pay for the preparation and filing costs.  The profits of the business pay for the later examination costs, issue fees, maintenance fees, and the costs to build a patent portfolio.  It doesn’t always happen, but that is the goal.