Are Small Entities More Likely to Abandon US Granted Patents than Large Ones?

The USPTO defines a patent as – “a property right granted by the Government of the United States of America to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States for a limited time in exchange for public disclosure of the invention when the patent is granted.” These days the limited time referred to in this definition is loosely defined as 20 years from the priority filing date of the application. There is, however no guarantee that a granted US patent will, in fact, stay in-force for that entire period of time. With most jurisdictions maintenance fees have to be paid in order to keep a patent active. In the US these fees have to be paid in what amounts to the 4th, 8th and 12th year from the date that the patent was granted. These are referred to as the 1st, 2nd and 3rd windows when you are looking at the maintenance database associated with the USPTO. The fees become larger and larger at each progressive window (currently $1,150, $2,900 & $4,810 respectively) so it steadily becomes more and more expensive to keep a patent in-force once it is granted.

Getting a patent in the first place can be quite expensive with a variety of sources suggesting that the prosecution costs will be between $10-20,000 depending on the complexity of the application. Add to this the ~$8,000 in maintenance fees and it is clear that getting and keeping a patent for its entire term is an important decision with a significant business impact.

In the US though, there is some relief for what are called small entities (and in the not too distant future an even smaller distinction called a micro entity) currently a small entity is defined by the USPTO as a small business concern as defined under section 3 of the Small Business Act, and to any independent inventor or nonprofit organization as defined in regulations issued by the Director. Universities, both public and private are also afforded small entity status. Organizations that qualify for small entity status can see a significant reduction in the Patent Office fees associated with the prosecution of a patent application and can receive a 50% discount on the subsequent maintenance fees. While a 50% reduction is significant it is still a substantial investment for an organization with limited capital to maintain a patent for its full term.

Failure to pay maintenance fees and the loss of rights on a US granted patent is an item which is collected in the INPADOC database and out of the nearly nine million US patents, 1,285,717 (as of 2013-02-04) of them have a status code reflecting that these fees were not paid in the specified time frame. Of these, 23,122 were brought back into force by the subsequent payment of the appropriate fees and any penalties. On the surface this looks like only about 15% of the patents that have granted have been allowed to expire for non-payment of fees but it is important to point out that the US has only been assessing maintenance fees since 1980 so about half of the patents that have ever been granted didn’t require the payment of these fees. Dennis Crouch on the Patently-O blog has twice looked at the question of maintenance fees, once in 2009 and again in 2012. In both cases he found that since 1990 only about 50% of the available patents were carried all the way to term.

With the growing interest in patents as an asset class and property right there are more and more interested parties which are looking to acquire patents. Based on how expensive patents are to maintain it seems reasonable to expect that small entities will find the payment of these fees more burdensome and might be expected to abandon their patents more frequently and at an earlier window then a larger company. In general, understanding more about the abandonment patterns of different players in the patent space could be used to make better educated decisions about which groups might be interested sellers of their property rights.

Determining the entity size associated with a patent assignee is not an attribute that can normally be found directly in most patent information systems. Under most circumstances an interested individual will need to query the USPTO maintenance database referred to at the beginning of the post in order to establish the entity size on file with the office. Using the database from the USPTO while not requiring a reCAPTCHA challenge still requires that the user input both the patent number and the application number into the system and each case needs to be investigated one at a time. This can be a time-consuming process if a user is interested in discovering this information for a significant number of patents. For this study, information on the entity size was supplied by Towergate Informatics. Towergate bills itself as an advanced data mining and reporting company in the field of intellectual property. In this example they were provided with a list of patents and were able to determine the entity size based on USPTO records.

To explore the relationship between entity size, abandonments and reinstatements, 2007 was selected as the year in which the initial abandonment took place. 2007 was selected since in the US, patents can still be reinstated for a variety of reasons several years after the abandonment took place and I wanted to leave sufficient time for this to occur. Looking for the failure to pay maintenance fees status code it was discovered that 63,689 patents initially expired for this reason in 2007. Of these, 1,973 of the cases were reinstated at a later date. Due to the difficulty of accessing entity size data, a representative collection of 1,312 (66.5%) of the reinstated cases and 4,665 (7.7%) of the abandoned patents were used for this study. Based on the publication date of the patents it is also possible to discover the window during which the abandonment occurred. In this study, 1,437, 1,411 and 1,817 patents from the 1st, 2nd and 3rd windows respectively were examined.

While the data was being gathered for this study, Dennis Crouch also posted a study listing the percentage of patents by year that were filed for by small entities. Professor Crouch’s work shows a decline in patent filings attributed to small entities from ~30% in 1990 to somewhere near 18% in 2010. Patents that were abandoned in this study have issue dates between 1994 and 2003 so looking at Dennis’ chart our baseline for patents applied for by small entities in these years appears to between ~26% and ~22% of the total. We will use 24% filings by small entities as our reference.

In the 4,665 cases that were looked at 1,483 or 32% of the abandonments for non-payment of maintenance fees are coming from small entities. Compared to the average 24% filing rate for this collection there is a higher chance that a small entity will abandon their patent early but not by a large margin.

In the chart below though, we do see an interesting difference between large and small entities when it comes to which window they are most likely to abandon their patent in:

Stacked Bar Chart of Sampled Collection of 2007 Abandonments by Window and Entity Size

Due to the larger number of overall abandonments by large entities this chart can be a little difficult to interpret but we can see things a little more clearly if we change the axis and use a stacked bar chart which totals 100% as opposed to the total number:

Alternate View of Same Abandonment by Entity Size and Window Data Using a Percentage Stacked Bar Chart

As expected, there is a slightly large likelihood (about 4%) that a small entity will abandon their patent in the 1st window then in the 2nd or 3rd ones (the number of abandonments in windows 2nd and 3rd are nearly identical in the case of the small entities). What we find in the case of the large entities though is a significant preference in waiting until the 3rd window before abandoning their patents (once again, the percentage of abandonments in the other two windows are nearly identical but increase by ~14% in the 3rd window).

While the different patterns in abandonments are interesting and potentially insightful a larger difference is seen in the likelihood of a patent being reinstated. In 2007, 819 (62.4%) of the 1,312 reinstatements looked at came from small entities. When compared with an average filing likelihood of 24% there is a much higher chance that a small entity will seek to reinstate their patent as opposed to a large one. This data doesn’t provide us with any insight as to why this would be the case but it seems clear that small entities are reconsidering patent abandonment more often then their large counterparts.

For those organizations looking to purchase patents this study provides a few items to consider:

  • Large entities are likely to be more receptive to a discussion on a patent sale as they approach the 3rd maintenance window.
  • Small entities are generally a little more likely to be thinking about abandoning their patent in the first place than a large entity and they will likely be more receptive as they approach the first maintenance window.

The biggest discrepancy identified here is the much higher chance that a small entity will seek to have their patent reinstated than a large entity. This was an unexpected result and suggests that when looking at patents that have recently been abandoned from a freedom-to-practice perspective users need to be more leery of those coming from small entities since they have a higher chance of seeking to get their patent reinstated. There have also been a number of challenges lately to the USPTOs standards for allowing patents to be reinstated which may have an impact on their future value. When looking at purchasing patents from small entities it is probably a good idea to look a little more carefully at their maintenance payments.

Comments 6

  1. The substantially higher percent of reinstated US patents assigned to small entities is readily explained. Most small entities, particularly individual inventors, do not hire a docketing service to track deadlines and renewals for their patent(s). Small entities, by definition, don’t hold large patent portfolios, except for universities. Therefore, they have little experience with patent maintenance, nor even keeping current addresses registered with the US PTO Maintenance Branch. If they had their patent(s) prosecuted by a patent attorney, they often fail to retain them for maintenace related matters. Thus, the renewals more often fall through the cracks.

    1. Hello Roy,

      I hope all is well and thank you for commenting on this post. I would tend to agree with you on the potential explanation for why there is a higher chance of small entities reinstating patents than large ones. There are a few other variables I want to look at associated with this.

      1. Tony,

        Individual inventors tend to obsess about their inventions during patent prosecution, but often neglect follow-up activities. Some forget to maintain patents while simultaneously trying to license or sell their now expired patents. I found several instances of that while at Meddtronic. One instance had a patent allowed to expire at the 4 year renewal where the inventor was still trying to peddle the patent past the 8 year window.

  2. Imagine the situation in Australia (and China and Germany, and probably many other countries) where patent renewals are annual – and rise signficantly in cost over time. I have looked at this using Australian data, and only about 10% of patents are maintained for the full 20 years.

    Unlike Tony, I have not segregated this into large and small companies, but I strongly expect a strong bias towards larger companies maintaining their patents for longer

    1. Hello Mike,

      Have you seen any trends with regards to reinstatements? Are they even allowed in Australia?

      Thanks, Tony

Leave a Reply

Your email address will not be published. Required fields are marked *