The U.S. Patent and Trademark Office (USPTO) today published a final rule announcing across-the-board fee increases of 7.5% but scrapping the most controversial proposals from its April 2024 Notice of Proposed Rulemaking (NPRM). The changes will take effect as of January 19, 2025.

Panelists at IPWatchdog’s Life Sciences Masters Program in late October predicted as much. During a panel on the USPTO’s equally controversial Terminal Disclaimer proposal, Brad Pedersen of EnQuanta said that outgoing USPTO Director Kathi Vidal indicated during the recent American Intellectual Property Law Association (AIPLA) Annual Meeting that she would be closing out all of the open rule packages by the end of her term (which she recently announced will be early December). Since neither the Terminal Disclaimer NPRM nor the critical fee proposals were pending on the Office of Management and Budget’s (OMB) site at the time, Pedersen correctly predicted it was unlikely they would be finalized before Vidal left Office.

Controversy

The NPRM on fees generated a slew of critical comments from within the patent community in response to its proposals for fee adjustments that would have increased the cost of requests for continued examination by 700% in some cases, for patent term extension (PTE) by 468% and terminal disclaimers by 724% in certain circumstances. Organizations such as the Council for Innovation Promotion (C4IP) noted that the increases appeared to be aimed at changing applicant behavior and thus represented substantive rules, which courts have already ruled the USPTO does not have the authority to promulgate.

Others pointed out that the Supreme Court’s decision in Loper Bright v. Raimondo (603 U.S. __; 2024), in which the Court overruled so-called Chevron deference to agencies (Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc; 467 U.S. 837 (1984)), was issued two months after the USPTO published the NPRM and thus “stakeholders were not given the chance to consider and comment on the proposed fees for FY 2025-2029 under the new U.S. Supreme Court mandated standard of review for agency action,” noted Sherry Knowles of Knowles Intellectual Property Strategies.

Responses to Comments and New Fees

The final rule published today acknowledges these comments and others and confirms that “the agency has removed or adjusted several fees proposed in the NPRM,” including “removal of the AFCP 2.0, terminal disclaimer, patent term adjustment, and third and subsequent RCE proposals and the adjustment of the patent term extension and continuing applications proposals.”

The proposed fee for a patent term extension (PTE) in the NPRM, for example, was $6,700,but the final rule sets it at $2,500.

The USPTO announced in September that it has chosen to terminate the After Final Consideration Pilot Program 2.0 (AFCP 2.0) “based on feedback received from stakeholders” on the use of the pilot and “openness to pay or defray USPTO costs affiliated with the program.” The pilot will terminate on December 14, 2024.

Despite its decision to walk back the NPRM’s proposals, however, the Office did double down on its view that it has full authority to implement such changes. In response to comment # 76, for example, which argued that “the text of the Patent Act makes it clear that the USPTO cannot use fee setting to implement policy,” the USPTO responded that the America Invents Act “provided the USPTO with additional and broader fee setting authority,” including “specific authority to ‘set or adjust by rule any fee established, authorized, or charged under title 35, United States Code, or the Trademark Act of 1946 (15 U.S.C. 1051 et seq.), for any services performed by or materials furnished by, the Office’ so long as the aggregate revenues for all patent fees recover the aggregate estimated costs of the patent operation.”

This language “imposes no limitations on how the Office can set any individual fee, so long as in the aggregate patent revenues are balanced against patent costs,” added the rule. This authority was reauthorized by Congress via the Study of Underrepresented Classes Chasing Engineering and Science Success (SUCCESS) Act of 2018, according to the rule. “Thus, the commenter’s assertions regarding the USPTO’s fee setting authority would interpret the AIA to include limitations that do not exist in the AIA,” the response concluded.

According to the final rule, the Office “estimates that the Patents program will cost $3.973 billion in FY 2025, including $2.835 billion for patent examining; $90 million for patent trial and appeals; $159 million for patent information resources; $24 million for activities related to IP protection, policy, and enforcement; and $866 million for general support costs necessary for patent operations ( e.g., the patent share of rent, utilities, legal, financial, human resources, other administrative services, and agency-wide information technology (IT) infrastructure and IT support costs).”

“The effective date of this final rule is more than four years after the agency’s last fee adjustment in October 2020,” added the rule. “A 7.5% across-the-board increase in 2025 will be equivalent to a 1.7% annual increase, well below the prevailing inflation rate since October 2020.”

The final rule does include a new fee of $1,440 for the “one-third of applications for [patent term extension] PTE in which the user files a response that includes a terminal disclaimer after receiving the notice of final determination.” According to the rule, when terminal disclaimers are submitted at this “late stage” the USPTO is forced “to engage in a substantial amount of rework to recalculate the applicable PTE and make a supplemental redetermination of the appropriate extension in view of the disclaimer.”

Since these submissions have increased following the Federal Circuit’s decision in Gilead Sciences, Inc. v. Natco Pharma Ltd., 753 F.3d 1208 (Fed. Cir. 2014), and are expected to further increase due to In re Cellect, 81 F.4th 1216 (Fed. Cir. 2023), “the USPTO is implementing a new fee of $1,440 to cover the costs of this service and to be paid by users who benefit from it,” said the final rule.

There will also be a new fee of $452 for Director Review requests. This fee will be set at the same rate as petitions to the Patent Trial and Appeal Board’s (PTAB’s) Chief Judge in ex parte appeals and “furthers the USPTO’s goals of promoting innovation through consistent, transparent decision-making and the issuance and maintenance of reliable patents,” explained the rule.

The rule also imposes new fees on certain types of continuing applications that are filed later in the life of a patent. According to the final rule, continuing applications (which include continuation, divisional, and continuation-in-part applications) “represent a large and increasing share of patent applications,” and rose 100% from FY 2010 to FY 2022, “due almost entirely to increased continuation filings.” Continuing applications “filed long after their earliest benefit date (EBD) are less likely to have a patent term long enough for the USPTO to recover more of their costs from maintenance fees,” the rule added. However, in response to comments, the Office “decided to modify the timing thresholds for the continuing application fees so they now apply only to those continuing applications having an actual filing date more than six or nine years after their EBD.” According to the rule, about 80% of continuing applications are filed within six years of their EBD, so most will not incur the new fees.

A ‘Compromise Approach’

Commenting on the final rule today, Sherry Knowles, who has been actively monitoring the Office’s proposals, said the increases represent a “compromise approach” overall:

“I am pleased the USPTO listened to the concerns of stakeholders and reconsidered at least some of the proposed fee increases, including importantly, the terminal disclaimer tiered fees and the very large increase for a petition for a patent term extension. While there should not be a surcharge for continuations filed later in the life of a patent family as they are allowed as a matter of law, the new fee structure at least postpones the fees by one year. As discussed in my IPWatchdog post on October 7, 2024, a number of the proposed fee increases in the USPTO’s April 2024 NPRM likely would not have passed scrutiny under Loper Bright, so we appreciate the USPTO’s compromise approach. We look forward to working with the next administration to strengthen the rights of innovators and to provide a framework that safeguards the best part of the U.S., which is transformational innovation (including pharmaceutical innovation) that improves the quality of life for everyone.”

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