The Failed Promise of User Fees: Empirical Evidence from the United States Patent and Trademark Office

Abstract

Despite the proliferation of user-fee financing structures of governmental agencies, little research has been conducted on the possible influence of such structures on agency decision-making. This paper attempts to fill this gap in the context of the Patent and Trademark Office (PTO). We first suggest that the PTO’s historical fee schedule and its reliance on patent grantees to subsidize patent applicants exposes the Agency to a risk that its obligatory costs will fall out of balance with its incoming fee collections. Second, we theorize the steps that the PTO may take in such instances in order to restore financial balance while allowing it to satisfy as many of its examination obligations as it can. In broad terms, we contend that a budget constrained PTO will distort its examination practices in an effort to increase the average fee income generated per application reviewed and/or to decrease the average examination costs incurred per application processed. We hypothesize that the PTO achieves these goals through the extension of preferential examination treatment — i.e., higher granting propensities and/or shorter wait times — to some technologies over others. Building on Frakes and Wasserman (2013), which had explored the PTO’s inflationary granting response, this paper draws on novel patent-processing data and presents evidence suggesting that the PTO will attempt to maintain as much aggregate application throughput as it can during times of financial strain by prioritizing the examination of applications within those technologies that cost the PTO the least to review.

Keywords: patents, patent law, administrative law, examination priority, grant, bias, budget, PTO, patent and trademark office

JEL Classification: K00, K39, H00, H60