oversight

International Trade: Experts' Advice for Small Businesses Seeking Foreign Patents

Published by the Government Accountability Office on 2003-06-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Requesters




June 2003
             INTERNATIONAL
             TRADE
             Experts’ Advice for
             Small Businesses
             Seeking Foreign
             Patents




GAO-03-910
             a
                                               June 2003


                                               INTERNATIONAL TRADE

                                               Experts’ Advice for Small Businesses
Highlights of GAO-03-910, a report to the      Seeking Foreign Patents
Chairman, Senate Committee on Small
Business and Entrepreneurship; the
Honorable Christopher S. Bond, U.S.
Senate; and the Chairman, House
Committee on Small Business




Small businesses, which are                    According to the expert panel of patent law attorneys that GAO surveyed,
important to the U.S. economy for              small businesses that are considering whether to seek patent protection
their roles in job creation and                abroad should identify and assess the full “cradle-to-grave” costs of
technological development, must                acquiring, maintaining, and enforcing foreign patents. Other considerations
be able to protect and profit from             should include the locations where small businesses intend to sell or
their innovations. One way to
                                               manufacture their invention and whether the range of benefits obtained from
protect their innovations on a
global basis is to obtain U.S. and             foreign patents, such as increased sales or higher company value, is
foreign patents. These businesses,             sufficient to justify their cost. Furthermore, small businesses should try to
however, face numerous                         understand foreign patent laws and systems and the quality of foreign patent
impediments when trying to patent              enforcement, the expert panelists said. The small businesses that GAO
their goods or processes abroad.               surveyed agreed that foreign patent costs, benefits, and potential locations
These impediments, which GAO                   were important factors in their decisions to patent abroad. However, some
identified in a July 2002 report,              small businesses did not properly evaluate long-term costs and could not
include high costs, limited                    determine whether foreign patent benefits outweighed the costs.
resources, and limited knowledge
among small businesses about                   The most important step that small businesses could take to improve their
foreign patent laws and systems.               foreign patent efforts, according to GAO’s survey of patent law experts, is to
Because of concern that small
                                               avoid disclosing information publicly about an invention before filing a U.S.
businesses, particularly high-                 patent application. The United States permits such disclosure, but doing so
technology firms, were not                     can invalidate an applicant’s right to patent protection abroad. The second
obtaining patent protection abroad             most important step is to be aware of filing deadlines, which are specified in
and thus were losing potential sales           foreign laws and international patent treaties. Other important steps
in foreign markets, GAO was asked              included integrating foreign patents into long-range business planning and
to (1) identify the factors that               seeking patents in countries where meaningful protection is available and a
patent law experts believe small               return on investment is likely.
businesses should consider as they
decide whether to seek patent
                                               Experts’ Views on Key Steps for Small Businesses Seeking Foreign Patents
protection abroad and provide
information on how small                                                                                                         Only patent in countries where
businesses viewed these factors
and (2) identify the steps that small
                                                             DING                                                                 patent will be enforced and a
                                                                                                                                  return on investment is likely

businesses should take to improve
                                                          PEN
                                                       NT
                                                                                                                             Weigh the nature and
their foreign patent efforts,                                                                                             patentability of inventions
according to our survey of patent
law experts.
                                                   PATE                                                      Treat patents as assets to be
                                                                                                       discarded when usefulness is gone

                                                                                                Ensure long-range business
                                                                                               plans support foreign patents

                                                                           Follow deadlines specified in U.S.,
                                                                         foreign, and international patent law

                                                       Apply for U.S. patent before disclosing
                                                               information about an invention


www.gao.gov/cgi-bin/getrpt?GAO-03-910.

To view the full report, including the scope
and methodology, click on the link above.      Source: GAO analysis of patent attorney panel questionnaires.
For more information, contact Loren Yager at
(202) 512-4347, or YagerL@gao.gov.
Contents



Letter                                                                                                  1
                             Results in Brief                                                           2
                             Background                                                                 3
                             Small Businesses Should Consider a Complex Array of Factors
                               Before Investing in Foreign Patents                                      4
                             Experts Identify Key Steps for Small Businesses to Improve Their
                               Foreign Patent Efforts                                                  13
                             Observations                                                              15


Appendixes
              Appendix I:    Objectives, Scope, and Methodology                                        17
                             The Expert Panel                                                          17
                             The Small Business Survey                                                 18
             Appendix II:    Members of GAO’s Patent Attorney Panel                                    20
             Appendix III:   Factors Related to the Decision to Seek Foreign Patents                   23
                             Location and Size of Foreign Markets                                      23
                             Foreign Patent Benefits                                                   25
                             Foreign Patent Costs                                                      26
                             Nature of the Technology, Invention, or Product                           29
                             Attributes of a Patent and Its “Claims”                                   30
                             Foreign Patent Infringement and Enforcement                               31
                             Composition of Company’s Patent Portfolio                                 32
                             Location of Manufacturing, Assembly, Research, and Development
                               Sites                                                                   33
                             Foreign Patent Laws and Systems                                           33
                             Regulatory Environments in Other Countries                                35
                             Timing of Patent Applications and Relevant Deadlines                      36
                             Competitive Concerns                                                      36
                             Demographics and Cultural Differences                                     37
             Appendix IV:    Small Business Views on the Relevance of Certain Factors to
                             Their Foreign Patent Decisions                                            38
              Appendix V:    Processes and Costs Involved in Obtaining Foreign Patent
                             Protection: A Hypothetical Scenario for 2002                              40
                             Estimated Cost of U.S. Patent                                             41
                             Filing for a Foreign Patent                                               42
                             Obtaining a Foreign Patent Using PCT                                      44
                             Maintaining a Foreign Patent                                              51
                             U.S. Attorney and Foreign Representative Fees                             53



                             Page i                                         GAO-03-910 International Trade
                         Contents




                         Total Scenario Costs                                                       54
                         Scope and Methodology                                                      54
          Appendix VI:   Patent Law Experts’ Views on Steps That Small Businesses
                         Should Take to Improve Foreign Patent Efforts                              58


Tables                   Table 1: Sources, Types, and Purposes of Foreign Patent Costs               6
                         Table 2: Assessment of Patent “Practical Value” in Other
                                   Countries                                                        12
                         Table 3: Patent Law Experts’ Views on Most Important Steps That
                                   Small Businesses Should Take to Improve Foreign Patent
                                   Efforts                                                          14
                         Table 4: Estimated Costs to Obtain and Maintain U.S. Patent for 20
                                   Years                                                            42
                         Table 5: Estimated International Stage Patent Costs                        49
                         Table 6: Estimated National Stage Patent Costs                             51
                         Table 7: Estimated Costs Involved in Maintaining a Foreign Patent
                                   in Nine Countries for 20 Years                                   52
                         Table 8: Estimated U.S. Attorney and Foreign Representative
                                   Fees                                                             54
                         Table 9: Estimated Total Foreign Patent Costs                              54
                         Table 10: Patent Law Experts’ Views on Small Business Steps to
                                   Improve Foreign Patent Efforts                                   58


Figures                  Figure 1: The International and National Stages of the PCT
                                   Process                                                          46




                         Page ii                                         GAO-03-910 International Trade
Contents




Abbreviations

EPO          European Patent Office
IP           intellectual property
PCT          Patent Cooperation Treaty
SBA          Small Business Administration
USPTO        U.S. Patent and Trademark Office
WIPO         World Intellectual Property Organization

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 reproduce this material separately.




Page iii                                                  GAO-03-910 International Trade
A
United States General Accounting Office
Washington, D.C. 20548



                                    June 26, 2003                                                                                  Lert




                                    The Honorable Olympia Snowe, Chairman
                                    Committee on Small Business
                                      and Entrepreneurship
                                    United States Senate

                                    The Honorable Christopher S. Bond
                                    United States Senate

                                    The Honorable Donald A. Manzullo
                                    Chairman, Committee on Small Business
                                    House of Representatives

                                    Small and start-up businesses1 are important to the U.S. economy for their
                                    roles in job creation and technological development. Small businesses,
                                    particularly those in high-technology industries, must be able to protect
                                    and profit from the innovations that flow from their research and
                                    development expenditures. One way to protect innovations on a global
                                    basis is to obtain U.S. and foreign patents. However, in July 2002, we
                                    reported that small businesses face numerous impediments when trying to
                                    patent their goods or processes abroad. These impediments include high
                                    costs, limited resources, and limited knowledge among small businesses
                                    about foreign patent laws and systems.2 We concluded that such
                                    impediments affect small businesses more negatively than large businesses
                                    and may discourage or prevent small businesses from seeking global
                                    protection for their innovations. In that report, we recommended that the
                                    federal government (1) assess the advantages and disadvantages to small
                                    businesses of making further progress toward patent law harmonization
                                    and (2) make information about foreign patent laws, requirements,
                                    procedures, and costs available to small businesses.




                                    1
                                     Under 13 C.F.R. part 121, the Small Business Administration (SBA) established various size
                                    standards, based on economic activity or industry, for determining what is a small business
                                    for purposes of eligibility for its programs. Based on the SBA standards, we defined a small
                                    business for purposes of conducting our work as having 500 or fewer employees.
                                    2
                                     See U.S. General Accounting Office, International Trade: Federal Action Needed to Help
                                    Small Businesses Address Foreign Patent Challenges, GAO-02-789 (Washington, D.C.: July
                                    17, 2002).




                                    Page 1                                                      GAO-03-910 International Trade
                   Because our July 2002 report indicated that small businesses that lack a
                   sufficient understanding of foreign patent laws, processes, and costs may
                   have difficulty making appropriate foreign patent decisions for their
                   companies, you asked us to (1) identify the factors that patent law experts
                   believe small businesses should consider as they decide whether to seek
                   patent protection abroad and provide information on how small businesses
                   viewed these factors and (2) identify the steps that small businesses should
                   take to improve their foreign patent efforts, according to our survey of
                   patent law experts.

                   The information in this report is based on the results of a Web-based expert
                   panel and a small business survey that we conducted for our July 2002
                   report. The panel was comprised of 39 U.S. patent attorneys whom we
                   selected based on their experience in obtaining foreign patents for both
                   small and large businesses. We asked these experts to identify factors that
                   are relevant to foreign patent decisions and actions that small businesses
                   can take to improve their foreign patent efforts. We also administered a
                   questionnaire to a random sample of small businesses that had obtained or
                   considered obtaining foreign patents in the last 5 years. The 38 businesses
                   that participated in our survey ranked the importance of various factors to
                   their foreign patent decisions. Much of the information in this report was
                   not included in our July 2002 report. (App. I provides further details about
                   our scope and methodology and the methodology’s limitations. App. II lists
                   the members of the expert panel.)



Results in Brief   Small businesses that are considering whether to seek patent protection
                   abroad need to consider a complex array of factors before making this
                   investment, our panel of patent law experts said. For example, these
                   businesses need to identify the full “cradle-to-grave” costs of acquiring,
                   maintaining, and enforcing foreign patents during their average 20-year life
                   span. Without full knowledge of these typically high costs, small businesses
                   risk wasting resources by beginning a patent acquisition process that may
                   be too costly to complete. Further, small businesses need to consider
                   whether the range of benefits that foreign patents may provide to them,
                   such as increasing sales or the company’s value, are sufficient to justify
                   their cost. In making this assessment, businesses should consider the
                   nature of their inventions, the locations where they expect to sell or
                   produce them, and the places where their competition is located before
                   choosing the countries in which they will seek patent protection. In
                   addition, small businesses should try to understand how key aspects of
                   foreign and international patent law could affect their decision. For



                   Page 2                                           GAO-03-910 International Trade
             example, the attractiveness of certain countries would likely diminish if
             their patent laws and systems do not provide adequate patent protection
             and meaningful patent enforcement. The small businesses we surveyed
             said that some of these factors, such as costs and locations, were more
             important to their foreign patent decisions than other factors. Contrary to
             the experts’ advice, some businesses had not properly evaluated long-term
             costs and could not determine whether the benefits of holding such patents
             outweighed the costs.

             The experts we surveyed identified and ranked 20 steps that small
             businesses could take to improve their foreign patent efforts. The most
             important step they identified is to avoid publicly disclosing information
             about an invention prior to filing a U.S. patent application. While such
             disclosure is permitted in the United States, it can invalidate an applicant’s
             right to patent protection in many foreign jurisdictions. The second most
             important step is to take foreign filing actions in accordance with the
             deadlines specified in foreign laws and international patent treaties. For
             example, a company must file a foreign patent application typically within
             1 year from the time it filed a corresponding U.S. patent application. Other
             important steps the experts identified included making foreign patent
             decisions in accordance with a company’s long-term business plan and
             filing applications only in countries where protection will be meaningful
             and the patent will produce a return on investment.



Background   A patent is the grant of a property right that a national government or an
             international intergovernmental authority issues for an invention. Patents
             cover inventions of new products as well as new processes to make or use
             new or existing products. While patent rights vary by country, a patent
             typically gives an inventor the right to exclude others from commercially
             making, using, offering to sell, or importing the invention in the country
             that granted the patent during the patent term, usually a 20-year period
             from the application date. Any violation of that right is considered a patent
             infringement. Patent owners that wish to address the infringement of, or to
             “enforce,” their patent rights must initiate a legal action in the country or
             countries where the infringement occurred.

             U.S. companies and inventors that seek patent protection in the United
             States file patent applications with the U.S. Patent and Trademark Office
             (USPTO). They are typically represented by a patent attorney, who drafts
             their patent application and responds to USPTO questions about the
             application. Before granting a patent, USPTO will search for relevant “prior



             Page 3                                             GAO-03-910 International Trade
                       art” (all patent and nonpatent literature that helps determine whether a
                       new patent will be granted). USPTO will also examine patent applications
                       to, among other things, determine whether the claimed invention is “new
                       and nonobvious.” USPTO provides information about the U.S. patent
                       system to independent inventors that are considering whether to obtain a
                       U.S. patent, but it does not provide any information about foreign patent
                       systems.

                       U.S. companies and inventors that seek foreign patent protection must file
                       applications with foreign patent offices. These applications must conform
                       to the patent laws and requirements in the countries where protection is
                       desired. Foreign patent offices also conduct prior art searches and examine
                       applications in accordance with their own laws. They generally require
                       patent applications to be filed in the host country language or translated
                       into this language at some point after the initial filing. U.S. companies and
                       inventors typically must be represented before the foreign patent office by
                       a foreign patent attorney or agent.



Small Businesses       Small businesses must weigh a complex array of factors and long-term
                       issues before deciding whether an investment in foreign patents is
Should Consider a      appropriate for their company, according to the patent attorney experts on
Complex Array of       our panel. Factors they identified include costs, benefits, location of
                       foreign markets and manufacturing sites, and foreign patent laws and
Factors Before         enforcement, among others. Our analysis shows that businesses cannot
Investing in Foreign   assess individual factors in isolation but must instead weigh the multiple
Patents                factors’ combined effect on their foreign patent decision. Making the
                       decision more complex, many attorneys said, is the need for small
                       businesses to assess many long-term issues at the time of their decision,
                       such as future outlays they will incur and possible changes in current
                       market or legal conditions over the patent’s life span. Many small
                       businesses we surveyed recognized the importance of these factors and
                       incorporated them into their decision-making process. However, some
                       businesses lacked a basic understanding of the foreign patent process and
                       failed to adequately assess long-term issues. (App. III contains more
                       detailed information about the range of factors the experts identified. App.
                       IV provides information on how the small businesses ranked the
                       importance of various factors.)




                       Page 4                                            GAO-03-910 International Trade
Small Businesses Should     Most of the experts said that it is important for small business owners to
Identify and Assess Long-   understand the full “cradle-to-grave” costs of holding and enforcing foreign
                            patents and weigh whether such an investment is appropriate for their
Term Costs                  company. Several of the experts said that small businesses should try to
                            estimate the full costs before making any investment in foreign patents,
                            noting that they have observed that some small businesses make initial
                            investments in foreign patents, perhaps filing multiple applications abroad,
                            only to realize that they cannot afford to continue the process. Small
                            businesses face challenges in learning about foreign patent costs, however.
                            Many types of costs are involved, foreign fees structures change frequently,
                            and small businesses typically have limited resources to devote to staying
                            abreast of these developments, according to several experts. A number of
                            experts suggested that if a small business cannot afford the long-term costs
                            of foreign patents, it should probably look for other ways to protect its
                            innovations or focus solely on the U.S. market.

                            Foreign patent fees are numerous, and because comprehensive patent law
                            harmonization is lacking, many fees may be incurred for redundant
                            purposes, according to our patent law experts. Table 1 shows some of the
                            source, nature, and purpose for some costs that are typically incurred. The
                            experts noted that foreign patent office fees often exceed comparable U.S.
                            fees and are sometimes charged for work that USPTO has already done,
                            such as searching for relevant existing patents and other literature.3
                            Moreover, although small businesses are allowed to pay reduced USPTO
                            fees compared with their large business counterparts, they receive no
                            similar reductions from most foreign patent offices.4 Patent applications
                            have to be translated into other languages, and the cost of these
                            translations can be significant.5 Business also incur both U.S. and foreign
                            patent attorney costs, the latter being necessary because U.S. patent
                            attorneys are typically not allowed to represent clients before foreign

                            3
                             Changes to the USPTO fee structure were proposed in H.R. 1561, “United States Patent and
                            Trademark Fee Modernization Act of 2003,” introduced in April 2, 2003. Congress has
                            reviewed, but has not acted on, this proposed legislation.
                            4
                            The Canadian Intellectual Property Office offers reduced fees for small entities.
                            5
                             Translation costs vary according to the length and nature of the patent application but
                            could cost $2,000-$10,000 per translation or more, according to several experts on our panel
                            and our own research. Several experts on our panel said that translation costs are
                            particularly irksome because the quality of an application can diminish in the translation
                            process, and most people who want to read the technical specifications of an invention are
                            likely to read the original version of the application.




                            Page 5                                                      GAO-03-910 International Trade
patent offices. Finally, because foreign patent applicants can also file their
applications through certain regional patent offices that cover multiple
countries, such as the European Patent Office,6 or in accordance with an
international patent treaty (the Patent Cooperation Treaty,7 which enables
applicants to file an international patent application and delay certain
national patent office charges), additional cost types exist beyond those
shown in table 1.



Table 1: Sources, Types, and Purposes of Foreign Patent Costs

Source of cost                          Type and purpose
National patent office                  Application or filing fee - incurred upon filing patent application

                                        Search fee - incurred to have patent office search for previous
                                        or existing patents or other material relevant to the application

                                        Examination fee - incurred to have patent application
                                        examined

                                        Grant fee - incurred to have patent issued

                                        Maintenance fee - incurred (usually yearly) to keep patent in
                                        force
Private sources                         U.S. patent attorney fees – incurred to draft patent application,
                                        search previous patent literature, and generally represent
                                        applicant

                                        Foreign patent attorney or agent fees – incurred to have
                                        approved representation before foreign patent offices

                                        Translation fees – incurred to translate patent applications in
                                        languages accepted by foreign patent offices
Source: GAO analysis based on information provided by expert panelists, national patent office fee schedules, and other private sources.




6
 The 1973 European Patent Convention, which created the European Patent Office,
established a single procedure for granting patents in the 27 member countries on the basis
of a uniform body of substantive patent law. An application to the European Patent Office is,
in effect, a group of national patent applications that are processed together, but become
separate patents that are separately maintained and enforced.
7
 The Patent Cooperation Treaty is administered by the World Intellectual Property
Organization and is adhered to by 120 countries. It facilitates the simultaneous filing of
multiple patent applications in member countries on the basis of a single application.
Applicants are able to undergo a single search and examination before deciding whether
and in which countries they wish to obtain patents, and can delay filing applications with
national patent offices by up to 30 months.




Page 6                                                                                  GAO-03-910 International Trade
The total cost of obtaining a set of foreign patents to extend a company’s
U.S. patent protection abroad, and of maintaining those patents over their
possible 20-year life span, is quite expensive, according to our expert
panelists. Depending on the scope of protection desired, each U.S. patent
taken abroad can cost several hundred thousand dollars. (In our July 2002
report,8 we developed a hypothetical, relatively straightforward patent
scenario to estimate the U.S. and foreign patent costs that a small business
might incur. The results of this analysis are reproduced in this report in
app. V.) The experts advised that small businesses should understand and
examine the various methods that exist to file for foreign patents, as well as
the cost differences between the various methods. Moreover, they should
examine the full life-time costs to hold and enforce their patents, not just
the up-front costs to obtain them.

Among the small businesses we surveyed, foreign patent costs were a
significant factor in, and often the biggest impediment to, their decisions to
patent abroad. The companies collectively identified all cost components,
including foreign patent office fees, translation costs, and U.S. and foreign
attorney charges, as being particularly expensive. Several of the companies
had explored different methods for obtaining foreign patents and many
used the Patent Cooperation Treaty. Despite the importance of cost,
however, we noted that several of the businesses began the foreign patent
process without fully understanding and budgeting for the types and
amounts of costs they would incur in the future. For example, one
company that was attempting to patent abroad for the first time spent
about $80,000 applying for several European patents but said it could not
allocate any more funds to the process and might have to abandon its
applications. Another business described applying for a Japanese patent
without knowing what each step of the process would cost and was
surprised each time its patent attorney said additional payments were due.
This company ultimately asked its patent attorney to fully disclose all steps
and associated costs so that it could better plan for the expenses. Another
company said that ignorance about foreign patent costs is prevalent among
small businesses.




8
GAO-02-789.




Page 7                                             GAO-03-910 International Trade
Small Businesses Should       In addition to cost, the experts said small business should assess the
Weigh Potential Benefits      benefits that foreign patents may provide and should review various
                              marketing, manufacturing, and competition issues before selecting the
and Carefully Select Patent   locations where they will seek patent protection. Given the significant
Locations                     expense of foreign patents, the experts said that small businesses should
                              only patent abroad if doing so fits with the company’s overall business plan
                              and if the potential benefits will likely outweigh the costs. Small business
                              should also develop long-term plans for how they will maximize the benefit
                              and limit the costs of their global intellectual property portfolio.
                              Unfortunately, in the experts’ view, many small businesses do not
                              sufficiently analyze the costs and benefits, do not understand strategies to
                              minimize cost, and may overestimate or underestimate the value of their
                              innovations.

                              One key to maximizing benefits and minimizing costs is the appropriate
                              selection of foreign patent locations, according to our experts. Many of
                              them recognized that small businesses may lack the resources to patent in
                              as many locations as they desire (this was a predominant view among the
                              small businesses we surveyed). In this situation, the experts advised small
                              businesses to target their patent resources to carefully chosen locations
                              that will provide the most appropriate and useful protection they can
                              afford. Ideally, businesses should seek protection in locations where they
                              expect to sell or manufacture, as well as possibly import, distribute, use, or
                              transport their products or services, according to the experts. Businesses
                              should be mindful of where future markets may develop during the patent
                              term, an assessment that is admittedly difficult to make, several experts
                              said. Competitive concerns, such as where current competitors market or
                              manufacture their products or services, would also be relevant. Other
                              factors, such as the nature of foreign regulatory environments or the extent
                              of nonpatent barriers to market entry, would further influence the choice of
                              foreign patent locations.

                              Despite this potentially long list of locations to consider, several experts
                              advised that businesses may be able to select a few key countries from
                              among their ideal list and achieve sufficiently effective patent protection
                              for less cost. One expert panelist advised that adopting an overall foreign
                              patent strategy should aid in the selection of locations, noting that possible
                              strategies will fall within a spectrum ranging from competitor-driven to
                              market-driven. According to this expert’s advice, “if non-patent barriers to
                              market entry are high and the number of competitors is discrete, this is
                              particularly favorable toward the adoption of a competitor-driven strategy
                              in which patent applications are filed in countries where the home and


                              Page 8                                             GAO-03-910 International Trade
manufacturing bases of the competitors are located . . . protection solely in
countries of competitors is effectively worldwide patent coverage because
manufacturing or sale of all products has been covered. If nonpatent
barriers to market entry are low and competitors are liable to spring up
anywhere on short notice, this militates toward a market-driven strategy in
which patent applications are filed in the most relevant or major markets.”9

Among the small businesses we surveyed, the most important decision-
factor in patenting abroad was the location and size of foreign markets.
Some distinct patterns emerged among the businesses regarding location.
Pharmaceutical and biotechnology companies, whose products have long
development cycles, generally sought to obtain broad global coverage for
their products, based on future market expectations. Others, including
those in the automotive parts, machine tools and equipment, oil, and
environmental cleanup areas, tended to focus on current markets in a few
countries were their industries were prevalent or their technology was
valued.

While benefits were highly relevant to many small businesses’ decisions,
assessing them was more difficult. Several businesses said that patents
generally offer exclusive rights to market a product or service, thus
supporting high prices to recover research and development expenses.
However, some businesses that had commercialized products could not
identify any measurable benefits that their foreign patents had provided.
One business official said he thought his company might have done just as
well abroad without holding any foreign patents. Finally, other businesses
noted that, due to long commercialization cycles for their products, they
were forced to proceed with the foreign patent process and incur the costs
without knowing whether their products would succeed and produce any
return on investment.




9
 John H. Pilarski, Group Technology Counsel, Illinois Tool Works, Inc., “Practical
Considerations on the Formulation of Foreign Patent Strategy,” (presented at the 2001
American Intellectual Property Law Association Spring Meeting, May 2001, San Francisco,
CA).




Page 9                                                   GAO-03-910 International Trade
Small Businesses Need to    In addition to commercial concerns, the nature of foreign patent laws and
Understand Foreign Patent   systems is also important in selecting foreign patent locations, many
                            experts said. Because foreign patent laws differ, small businesses should
Laws and International      consider targeting their resources toward the countries that offer
Treaties                    appropriate patent protection and meaningful enforcement, the experts
                            said. To do so, small businesses need to understand how differences
                            between U.S. and foreign patent laws may affect the kind of patent
                            protection they can obtain abroad. For example, certain types of
                            technology can be patented in the United States, but not elsewhere, and
                            other countries’ patent laws may not offer the same breadth of protection
                            that a corresponding U.S. patent affords. In addition, small businesses need
                            to understand how foreign patent systems function to avoid developing
                            unrealistic expectations about the timing, difficulty, or cost of their efforts.
                            In our July 2002 report, the experts identified the lack of sufficient
                            knowledge among small businesses about foreign patent laws and systems
                            as a significant impediment to these businesses’ efforts to patent abroad.

                            The panel of experts identified several key aspects of foreign patent laws
                            and systems and of international patent treaties10 that small businesses
                            should understand. For example, they specified these four factors:

                            • The priority principle – In the case of competing applications for the
                              same invention, the United States awards the patent to the individual or
                              entity that can demonstrate it was the first to invent. All other countries
                              award the patent to the individual or entity that was the first to file a
                              patent application.

                            • The grace period – The United States allows patent applicants a 1-year
                              grace period between the first public disclosure of an invention and the
                              patent application date. Many other countries, however, will not grant
                              patents in cases where public disclosure precedes the patent application
                              date. Because of this difference, companies that take advantage of the
                              U.S. grace period may find themselves ineligible to receive foreign
                              patent protection.


                            10
                             Under the 1883 Convention for the Protection of Industrial Property (known as the Paris
                            Convention), 163 countries give limited recognition to each other’s patent application filing
                            dates. Under the convention, for 1 year after the date a U.S. patent application is filed,
                            basically the same application may be filed as a foreign counterpart application in any
                            country that is a convention member. Another important international treaty is the Patent
                            Cooperation Treaty, administered by the World Intellectual Property Organization.




                            Page 10                                                      GAO-03-910 International Trade
• The availability or nature of patent protection – Some
  technologies or processes that can be patented in the United States,
  such as business methods and certain software processes or
  biotechnology inventions, cannot be patented elsewhere. In addition,
  some countries only allow claims (the part of a patent application that
  defines the invention) that are more narrow or restricted than what the
  United States typically allows.

• The strength of enforcement – Various issues, including the strength
  of patent enforcement law and the nature of foreign court systems,
  affect the degree to which a company can enforce a patent abroad. The
  experts noted that some countries have weak or nonexistent
  enforcement laws, while others have acceptable laws but slow or
  ineffective enforcement processes. Further, the remedies available in
  some countries to address patent infringement, such as injunctions to
  stop infringement or damages to compensate a company for its losses,
  differ from what is available in the United States and may not be
  sufficient to counteract the effects of infringement. Finally, differences
  in civil litigation, such as whether special courts exist to hear patent
  infringement cases or the extent of pretrial discovery, may affect the
  ease or quality of enforcement abroad. Table 2 shows a 2003 assessment
  by one of our expert panelists of the practical value of patents
  (determined according to multiple factors including level of patent
  enforceability and sophistication of court systems) in various countries.




Page 11                                          GAO-03-910 International Trade
Table 2: Assessment of Patent “Practical Value” in Other Countries

Category of country                                                                      Countries
“A” Countries                                                 Australia                           United Kingdom
                                                              Canada                              United States
Patents have high practical value                             The Netherlands
“B” Countries                                                 Belgium                             Italy (also San Marino)
                                                              Finland                             Korea
Patents have medium practical value                           France                              New Zealand
                                                              Germany                             Singapore
                                                              Ireland                             Sweden
                                                              Israel
“C” Countries                                                 Argentina                           Norway
                                                              Austria                             Pakistan
Patents have low practical value                              Brazila                             Paraguay
                                                              Chile                               Philippines
                                                              Chinaa                              Poland
                                                              Czech Republic                      Portugal
                                                              Denmark                             Russiaa
                                                              Greece                              Slovakia
                                                              Hong Konga                          South Africa
                                                              Hungary                             Spain
                                                              India                               Switzerland (also
                                                              Japana                               Lichtenstein)
                                                              Luxembourg                          Taiwana
                                                              Malaysiaa (also Sabah               Thailand
                                                                and Sarawak)                      Turkey
                                                              Mexico                              Ukraine
Source: James A. Forstner, Intellectual Property Consultant, “International Patent Enforcement,” (presented at a seminar on European
Patent Practice and Procedure 2003, George Mason University Law School, June 2003, Arlington, Virginia).

Notes: According to the source cited, the categories were developed from the perspective of a U.S.
company. A number of factors were considered in determining the relative practical value, based on
the author’s considerable experience in obtaining and enforcing foreign patents, such as the
competency of the national patent office, the ability to obtain patent claims of reasonable scope at a
reasonable cost in a reasonable time, the enforceability of the patent in a particular country (including
the sophistication and independence of the court systems, the ability to obtain injunctions and
significant damages, the resolution of court proceedings within a reasonable time, the question of
whether the courts are biased against foreign plaintiffs, the competency of the local bar), the
deterrence value of patents against potential infringers, the ability to generate significant license
royalty income, the level of industrialization in a country, and the consumer population of a country.
Patents in countries that do not appear on this list are considered to have no practical value as of June
2003.
a
Denotes countries taking significant steps to improve patent value


Among the small businesses we surveyed, the nature of foreign patent
enforcement was a more important factor to their patent decisions than the
nature of foreign patent laws and systems. Many businesses acknowledged
that foreign patent laws and systems were difficult to understand, causing
them to rely on their patent attorney to tell them what they need to know.



Page 12                                                                                GAO-03-910 International Trade
                        Several businesses indicated important ways in which they had initially
                        misunderstood foreign patent laws and international patent treaties—such
                        as believing that their U.S. patent provided them global protection.11
                        Regarding patent enforcement, many businesses said that they avoid
                        seeking patents in countries with weak patent enforcement, despite the
                        belief in a few instances that those countries held potentially lucrative
                        markets for the companies’ products. A few companies’ foreign patents had
                        been infringed, leading some to take enforcement actions and others to
                        back out of the market. One company said that, because enforcement
                        proceedings are so prohibitively expensive, it seriously examines
                        enforcement regimes and costs as it makes foreign patent decisions.



Experts Identify Key    Given the challenges that small businesses face in acquiring foreign patents
                        and the limited resources (including time) that some small businesses
Steps for Small         have, we asked the patent law experts to identify and rank various steps
Businesses to Improve   that these businesses could take to improve their foreign patent efforts. In
                        their role as advisors to small businesses, the experts had many years of
Their Foreign Patent    experience observing the foreign patent behavior of small businesses. Of
Efforts                 the 20 items that they ranked, more than 80 percent of the experts
                        identified six steps that they viewed as the most important actions small
                        businesses need to follow. As shown in table 3, these included actions
                        related to the disclosure of an invention, the timing of foreign filing actions,
                        the way the business incorporates intellectual property into its operations
                        and manages it, and the selection of countries in which it seeks protection.
                        (App. VI contains details on all of the steps the experts identified and
                        ranked.)




                        11
                         A U.S. patent does offer some protection for activities outside the United States. For
                        example, it could be used against the manufacturer of a pirated product made outside the
                        United States and sold within the United States, or of a pirated product made in the United
                        States and sold outside of the United States.




                        Page 13                                                     GAO-03-910 International Trade
Table 3: Patent Law Experts’ Views on Most Important Steps That Small Businesses
Should Take to Improve Foreign Patent Efforts

                                                                                       Percent of
                                                                                 experts rating as
Rank        Small business step                                                   most important
1           Avoid divulging information about an invention prior to filing a                   100%
            U.S. application
2           Be familiar with key dates and deadlines that are specified                             95
            under U.S., foreign, and international laws, and take filing
            actions accordingly
3           Consider the company’s long-range business plan                                         86
4           Manage patent portfolio as an asset, and regularly review                               83
            foreign portfolio
5           Consider the nature and patentabilty of the product                                     81
6           Only file in countries where protection will be meaningful and                          81
            patent will produce a return on investment
Source: GAO analysis of patent attorney panel questionnaires.

Note: Appendix VI contains complete information on how the experts ranked all steps identified in
response to this question.


The experts gave their highest rankings to two steps related to businesses’
knowledge of foreign patent laws and international patent treaties,
underscoring their view that insufficient knowledge of these issues may
cause small businesses to inadvertently impair their ability to protect their
inventions abroad. First, the experts were unanimous in stressing the
importance of not divulging information about an invention before filing for
U.S. patent protection. Several attorneys noted that small businesses
sometimes disclose information about their invention to assess its market
value or otherwise attract interest in the company or product, only to learn
later that they can no longer obtain foreign patent protection in countries
that do not offer a grace period between such disclosure and the act of
filing a patent application.

Second, the experts also held strong views about the need for small
businesses to understand the steps required under international treaties or
foreign laws and the associated deadlines and to act accordingly.
Applicants or patent holders that fail to observe these requirements risk
losing their patent rights, the experts said. For example, an international
treaty requires patent applicants to file for foreign patent applications
within 1 year of the date of their domestic patent application. Missing this
deadline causes businesses to lose the “priority” rights that an international
treaty conveys and complicates their efforts to get foreign coverage. In



Page 14                                                           GAO-03-910 International Trade
               addition, maintaining patent rights abroad requires that patent holders pay
               maintenance fees by specified deadlines (these are usually due annually in
               other countries, whereas U.S. maintenance fees are due only three times
               over the life of the patent). Finally, some countries require patent
               applicants to take certain steps that are not required in the United States.
               For instance, patent applications in the United States are automatically
               examined, whereas in Japan an applicant must request the examination.

               Finally, the panelists suggested that small businesses should thoroughly
               analyze their long-term business plan and their interest in expanding
               abroad, as well as the company’s commitment to holding and enforcing
               foreign patents. They recommended that small businesses treat their
               patents as assets that should be shed as their value decreases. Specifically,
               businesses should regularly review their foreign patent portfolio to
               determine whether it makes business sense to maintain each of their
               patents given the costs involved.



Observations   For a number of small businesses, the decision to expand their businesses
               by selling abroad is a significant step in the progress of their firm. As part of
               that decision, many of these firms must consider the methods available to
               protect their innovations, and one of those methods is by obtaining foreign
               patents for their products. The processes and costs involved in obtaining
               and enforcing foreign patents are complex, however, and often not well
               understood, which can negatively affect foreign patent decisions. For
               example, the complexity and expense may deter some small businesses
               from expanding their business abroad altogether. Others begin the foreign
               patent process with limited or insufficient knowledge and make costly
               mistakes that they can ill afford. Not surprisingly, we noted that a learning
               curve exists—some companies that were patenting abroad for the first time
               lacked full knowledge of the foreign patent process, whereas companies
               with more foreign patent experience described having learned from
               previous mistakes that they had made while seeking foreign patents.

               We believe the information in this report is potentially helpful to small
               businesses that are considering foreign patents. Even with complete
               information about the foreign patent process, the patent decisions are
               complex due to the need for information such as product-specific
               projections on potential sales in foreign markets. However, the experiences
               of other firms and the guidelines from our expert panel should enable small
               businesses to better understand the importance of key factors and make
               their decisions about foreign patents more systematically.



               Page 15                                              GAO-03-910 International Trade
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days after its
issue date. At that time, we will send copies of this report to the Ranking
Members of the Senate Committee on Small Business and
Entrepreneurship and the House Committee on Small Business, and other
interested congressional parties; the Administrator of the Small Business
Administration; and the Director of the U.S. Patent and Trademark Office.
Copies will be made available to other interested parties upon request. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions concerning this report, please call
me at (202) 512-4347. Key contributors to this report were Shirley
Brothwell, Jason Bair, Jeffrey Larson, Rona Mendelsohn, and Elizabeth
Sirois.




Loren Yager, Director
International Affairs
  and Trade Issues




Page 16                                             GAO-03-910 International Trade
Appendix I

Objectives, Scope, and Methodology                                                                           A
                                                                                                             A
                                                                                                             ppep
                                                                                                                nen
                                                                                                                  d
                                                                                                                  xIeis




                   After we issued a July 2002 report on foreign patent impediments that small
                   businesses face, the Chairman of the Senate Committee on Small Business
                   and Entrepreneurship and the Chairman of the House Committee on Small
                   Business asked us to (1) identify the factors that patent law experts believe
                   small businesses should consider as they decide whether to seek patent
                   protection abroad and provide information on how small businesses
                   viewed these factors and (2) identify the steps that small businesses should
                   take to improve their foreign patent efforts, according to our survey of
                   patent law experts.1 We collected information on these objectives in two
                   ways. First, we solicited information from a panel of 39 U.S. patent
                   attorneys that we selected because of their expertise in obtaining foreign
                   patents for large and small businesses. Second, we surveyed a sample of 60
                   small businesses that had obtained or had considered obtaining foreign
                   patent protection and received 38 responses. We formulated the questions
                   in our small business survey based on the information we obtained from
                   the panel of patent law experts.



The Expert Panel   We selected our expert panelists using criteria that included years of
                   experience in obtaining foreign patents and a record of publishing articles
                   in professional journals. Based on these criteria, we invited 39 patent
                   attorneys to be on our expert panel. All accepted. About half of the
                   panelists were in-house counsel for large or small companies, while the
                   other half were outside counsel. The combined expertise of the attorneys
                   on our panel covered a broad spectrum of technologies, including
                   electrical, mechanical, chemical, pharmaceutical, biotechnology,
                   semiconductors and computers, consumer products, medical products,
                   manufacturing, and oil.

                   We obtained the experts’ views through an iterative Web-based panel that
                   consisted of three phases. In the first phase, we asked the patent attorney
                   experts to respond to open-ended questions about broad issues concerning
                   foreign patents and small businesses, including factors that small
                   businesses should consider in deciding whether or not to patent abroad
                   and possible things that small businesses could do better when they decide
                   to patent abroad. We then performed a content analysis that identified
                   major themes within the question posed and grouped the themes into


                   1
                    See U.S. General Accounting Office, International Trade: Federal Action Needed to Help
                   Small Businesses Address Foreign Patent Challenges, GAO-02-789 (Washington, D.C.: July
                   17, 2002).




                   Page 17                                                  GAO-03-910 International Trade
                     Appendix I
                     Objectives, Scope, and Methodology




                     several categories. To maintain standards of methodological integrity, two
                     coders independently performed the content analysis and then met to
                     reconcile differences. Any issues that the two original coders could not
                     reconcile were referred to other independent coders for a final
                     determination.

                     In the second phase, we asked the panelists to respond to about 40 close-
                     ended questions that we crafted based on our content analysis. In the third
                     phase, we asked panelists to expand upon their close-ended responses to
                     some questions. All 39 attorneys participated in the first phase, which ran
                     from July 19 to August 28, 2001; 36 attorneys participated in the second
                     phase, which ran from November 5 to 26, 2001; and 32 attorneys
                     participated in the third phase, which ran from January 14 to February 8,
                     2002.



The Small Business   To answer our two report objectives, we also conducted a survey of small
                     U.S. businesses. Because we wanted to understand how small businesses
Survey               make decisions about whether or not to obtain foreign patents, we
                     surveyed businesses that had patented inventions in the United States and
                     had also obtained or considered obtaining foreign patents.

                     As there is no database of U.S. small businesses that have obtained patents
                     overseas, we had to identify these businesses using USPTO data on U.S.
                     patents granted to applicants that had claimed small entity status. To do
                     this, we screened the patent owners to find out if they were (1) small
                     businesses, (2) U.S. companies, and (3) interested in patenting overseas.
                     Given that there were more than 10,000 patents issued to small entities in
                     1997, the year for which we considered USPTO data, we realized that it
                     would be impractical to conduct a large, generalizable survey. Instead, we
                     decided to conduct a small, randomly selected sample of small businesses
                     that had obtained or considered obtaining overseas patents during the last
                     few years.

                     We developed the small business survey based on the patent attorneys’
                     responses to the second phase of the patent attorney panel survey. We
                     faxed the survey to 60 businesses in December 2001. In all, 38 of the 60
                     companies we surveyed responded. We conducted follow-up telephone
                     interviews with 18 of these small businesses to obtain more detailed
                     comments about their answers and to understand more about their foreign
                     patent decisions.




                     Page 18                                          GAO-03-910 International Trade
Appendix I
Objectives, Scope, and Methodology




Although we initially randomly selected the sample of small businesses, the
number we ultimately consulted was limited because information was not
available for a substantial number of our sample. Therefore, the
information in this report does not represent the overall set of small
businesses that seek foreign patent protection.

In this report, we present (1) the results of the content analysis of the
attorneys’ open–ended responses about the factors that small businesses
should consider, (2) the results of the attorneys’ close-ended responses
about what steps small businesses should take to improve their foreign
patent efforts and, (3) information and illustrative examples from the
survey of small businesses.

The information presented in this report is based on expert opinion and
secondary sources. We did not independently analyze foreign patent laws
to verify the information provided. The information in this report is not
intended to represent legal advice.

We did our work from May 2001 to June 2002 in accordance with generally
accepted government auditing standards. The information provided during
the expert panel was not time-sensitive, but we did update certain
information where appropriate. For a fuller description of our
methodology, see International Trade: Federal Action Needed to Help
Small Businesses Address Foreign Patent Challenges (GAO-02-789),
appendix I.




Page 19                                          GAO-03-910 International Trade
Appendix II

Members of GAO’s Patent Attorney Panel                                                       AppenIx
                                                                                                   di




              Andrew C. Aitken, Partner, Venable, Baetjer, Howard & Civiletti,
              Washington, District of Columbia.

              Robert A. Armitage, Vice President and General Patent Counsel, Eli Lilly
              and Company, Indianapolis, Indiana.

              Charles Berman, Partner, Oppenheimer, Wolff & Donnelly, Los Angeles,
              California.

              Robert P. Blackburn, Vice President and Chief Patent Counsel, Chiron
              Corporation, Emeryville, California.

              Margaret A. Boulware, Shareholder, Jenkens & Gilchrist, Houston, Texas.

              Michael J. Buchenhorner, Esq., PA, Palo Alto, California.

              Jay L. Chaskin, Of Counsel, Cantor Colburn LLP, Norwalk, CT; Retired
              Associate International Patent Counsel, General Electric Company,
              Fairfield, Connecticut.

              Q. Todd Dickinson, Partner, Howrey Simon Arnold & White, Washington,
              District of Columbia.

              Mary Ann Dillahunty, Partner, Burns, Doane, Swecker & Mathis, LLP,
              Redwood Shores, California.

              James A. Forstner, Esq., Private Consultant, Arlington, Virginia.

              Kathleen Fowler, Senior Patent Counsel, Immunex Corporation, Seattle,
              Washington.

              J. William Frank, III, Partner, McCracken and Frank, Chicago, Illinois.

              Gary L. Griswold, Chief Intellectual Property Counsel, 3M; President, 3M
              Innovative Properties Company, St. Paul, Minnesota.

              Samson Helfgott, Director of Patents, Katten Muchin Zavis Rosenman, New
              York, New York.

              Max D. Hensley, Vice President of Intellectual Property, Gilead Sciences,
              Inc., Foster City, California.




              Page 20                                           GAO-03-910 International Trade
Appendix II
Members of GAO’s Patent Attorney Panel




David W. Hill, Partner, Finnegan, Henderson, Farabow, Garrett & Dunner,
L.L.P., Washington, District of Columbia.

John H. Hornickel, Chief Intellectual Property Counsel,
Bridgestone/Firestone Americas Holding, Inc., Akron, Ohio.

Alan J. Kasper, Partner, Sughrue Mion, P.L.L.C., Washington, District of
Columbia.

Irwin M. Krittman, Vice President for Patent Administration, Thomson
Multimedia Licensing Inc., Princeton, New Jersey.

Maria C.H. Lin, Partner, Morgan & Finnegan, L.L.P., New York, New York.

Nancy J. Linck, Senior Vice President, General Counsel, and Secretary,
Guilford Pharmaceuticals Inc., Baltimore, Maryland.

Doug Luftman, Corporate Counsel, CIENA Corporation, Cupertino,
California.

Gregory J. Maier, Senior Partner, Oblon, Spivak, McClelland, Maier &
Neustadt, P.C., Arlington, Virginia.

Michael Meller, Partner, Anderson Kill & Olick, P.C., New York, New York.

Ann M. Mueting, Mueting, Raasch & Gebhardt, Minneapolis, Minnesota.

Stephen L. Noe, Assistant General Patent Counsel – Europe, Caterpillar
Inc., Peterborough, England.

Michael J. Pantuliano, Counsel, Clifford Chance Rogers & Wells, L.L.P.,
New York, New York.

John B. Pegram, Principal, Fish & Richardson, P.C., New York, New York.

John H. Pilarski, Group Technology Counsel, Illinois Tool Works, Glenview,
Illinois.

Peter W. Roberts, Founding Member, Roberts, Mlotkowski & Hobbes, P.C.,
Fairfax, Virginia.

Bernard F. Rose, Ph.D., Partner, Lyon & Lyon, L.L.P., San Jose, California.



Page 21                                           GAO-03-910 International Trade
Appendix II
Members of GAO’s Patent Attorney Panel




John M. Sanders, Sughrue Mion, P.L.L.C., San Diego, California.

Victor Siber, Partner, Clifford Chance Rogers & Wells, L.L.P., New York,
New York.

Liza K. Toth, Vice President for Intellectual Property, Matrix
Semiconductor, Inc., Santa Clara, California.

Ann S. Viksnins, Esq., Shareholder, Schwegman, Lundberg, Woessner &
Kluth, P.A., Minneapolis, Minnesota.

Michael Walker, Associate General Counsel, Intellectual Property, E.I. du
Pont de Nemours and Company, Wilmington, Delaware.

Harold C. Wegner, Partner, Foley and Lardner, Washington, District of
Columbia.

Elizabeth C. Weimar, Esq., Of Counsel, Morgan, Lewis & Bockius, L.L.P.,
Washington, District of Columbia.

Daniel N. Yannuzzi, Vice President, Chief Intellectual Property Counsel,
Conexant Systems, Inc., Newport Beach, California.




Page 22                                           GAO-03-910 International Trade
Appendix III

Factors Related to the Decision to Seek
Foreign Patents                                                                                       Appen
                                                                                                          Ix
                                                                                                           di




                       The patent attorney experts on our panel identified numerous factors that
                       small businesses should consider in deciding whether or not to seek,
                       obtain, and maintain foreign patents. We analyzed their input and
                       developed 13 broad categories that we believe captured the experts’
                       advice. These categories include the location and size of foreign markets;
                       the benefits of foreign patents; the costs of foreign patents; the nature of
                       the technology, invention, or product; the attributes of a patent and its
                       “claims”; the issue of foreign patent infringement and enforcement; the
                       composition of a company’s patent portfolio; the location of
                       manufacturing, assembly, and research and development sites; the nature
                       of foreign patent laws and systems; the regulatory environments of other
                       countries; the timing of patent applications and relevant deadlines; the
                       nature of competitive concerns; and the issues of demographics and
                       cultural differences. In our small business survey, we asked respondents to
                       rank the extent to which the categories we developed were important to
                       their foreign patent decisions.

                       This appendix discusses the various factors that the patent attorney
                       experts identified, organized into the categories and presented in
                       descending order of importance as ranked by the small businesses.
                       Linkages exist among many of the factors and categories, meaning that
                       small businesses that are making foreign patent decisions probably cannot
                       and should not assess the factors in any given category without, at the
                       same time, considering the influence of factors in other categories.



Location and Size of   The experts said that small businesses should consider obtaining foreign
                       patents in the countries where the current or potential markets for their
Foreign Markets        product or technology are located. Some experts expanded the list of
                       considerations beyond markets, saying businesses should consider holding
                       patents in any country where they plan to import, sell, license, distribute,
                       use, or transport their invention. They stressed that small businesses
                       should conduct market analyses in support of their decision and identified
                       the types of questions that such analyses should address, which included
                       the following:

                       • How large is a country’s population? Countries with large populations
                         may be worthwhile targets for many kinds of products or technologies
                         because of the increased potential for a return on investment.

                       • Is there a match between a country’s consumer base and the item or
                         technology being patented? For example, one expert observed that



                       Page 23                                          GAO-03-910 International Trade
Appendix III
Factors Related to the Decision to Seek
Foreign Patents




   seeking patents on marine engines or boats might not make sense in a
   landlocked country without lakes, regardless of population size,
   because there would be no real consumer base.

• Is the consumer base’s level of technological development sufficiently
  advanced to use the item or technology being patented? Small
  businesses may wish to avoid countries where the consumer base
  cannot use or manufacture or does not value certain types of
  technology. (See section on “Nature of the Technology, Invention, or
  Product” for further discussion of this issue.)

• Are there competing manufacturers already serving this market? (See
  section on “Location of Manufacturing, Assembly, and Research and
  Development Sites” for further discussion of this issue.)

• What is the nature of host country regulation over the item or
  technology being patented? For example, do host governments require
  regulatory approval for certain items or are they able to impose price
  controls? (See section on “Regulatory Environments of Other
  Countries” for further discussion of this issue.)

• What is the tendency for patent piracy and how strongly are patents
  enforced? (See section on “Foreign Patent Infringement and
  Enforcement” for further discussion of this topic.)

The experts held varying views about the correct number of markets in
which small businesses should seek foreign patents. According to them,
some small businesses typically patent in too few foreign locations, while
others tend to patent in too many overseas locales. Recognizing the high
cost of foreign patents and the need for small businesses to focus their
resources, several experts said that small businesses should only patent in
the countries where their major markets are located or in a select number
of countries that will give effective patent rights within a region. However,
some patent attorneys held a different view, saying that small businesses
should also consider obtaining patents in countries where markets don’t
currently exist but might develop in the future. One attorney acknowledged
that at the time that foreign patent applications must be filed, it can be
difficult to predict the future direction of foreign markets and the
likelihood of any significant market developments occurring during the
time that a foreign patent is still in force (typically a 20-year period from the
time of application). For example, one panelist said that recent revisions in
China’s patent laws, a country where patent enforcement has generally



Page 24                                              GAO-03-910 International Trade
                 Appendix III
                 Factors Related to the Decision to Seek
                 Foreign Patents




                 been regarded as low, now make China a location where patent protection
                 should be considered for certain inventions.



Foreign Patent   The experts pointed to a broad range of financial or competitive benefits
                 that foreign patents can provide for small businesses. One expert said that
Benefits         small businesses need to identify which benefits they hope to achieve by
                 obtaining foreign patents in order to better focus their decisions. Potential
                 benefits include protecting the company’s technology, increasing the
                 company’s value and visibility, making the company more attractive to
                 investors, and rewarding the inventor or raising the inventor’s profile.
                 Holding foreign patents can also help small companies secure financing or
                 possibly be acquired by another company. In addition, foreign patents
                 enable businesses to demand higher prices, at home and abroad, for their
                 products or services, expand their market share, and earn revenue from
                 foreign sale or manufacture activities. Similarly, businesses that hold such
                 patents can further earn revenue by licensing to others, the right to sell or
                 manufacture the company’s products or services. Several experts also
                 highlighted the possibility of enhancing a company’s competitive position
                 through holding foreign patents. Holding patents abroad may help disrupt a
                 competitor’s activities, discourage infringement, or provide the company
                 leverage in future negotiations with private sector or government officials
                 in other countries.

                 Many experts emphasized that small businesses should carefully evaluate
                 potential benefits in order to assess whether these will outweigh the costs
                 of obtaining foreign patents. Several experts expressed their belief that for
                 many small businesses, with their often limited budgets, foreign patent
                 benefits would frequently not exceed costs. In evaluating benefits, one
                 expert said that the amount of money spent to protect intellectual property
                 internationally should be commensurate with the amount of expected
                 international sales. If there are very limited foreign sales, and limited
                 foreign business, there need not be much investment in foreign patents.
                 Another expert argued that unless foreign patents can generate a revenue
                 stream or provide a competitive advantage, their cost is hard to justify. A
                 third expert stated that, if a company’s main purpose in seeking foreign
                 patent protection is defensive (that is, to prevent competitors from
                 obtaining corresponding patents that block the company’s ability to
                 operate freely), then foreign patents are probably not necessary. If,
                 however, a company intends to license and receive royalties or hopes to
                 prevent competitors from entering the market, then a well-planned foreign
                 patent strategy is essential.



                 Page 25                                           GAO-03-910 International Trade
                            Appendix III
                            Factors Related to the Decision to Seek
                            Foreign Patents




Foreign Patent Costs        The experts discussed foreign patent costs at length and urged small
                            businesses to develop an overall strategy for their foreign patent filing and
                            maintenance activities so that costs can be minimized. Overall foreign
                            patent costs are comprised of a variety of national patent office,
                            international, and private sector fees, which when combined represent a
                            significant expense for large or small businesses. Although understanding
                            these various fees can be challenging, the more informed a small business
                            is about the costs, the better able it is to perform a cost/benefit assessment
                            and to discern whether foreign patents are an appropriate investment.
                            Some experts explained that many foreign patent costs are incurred at the
                            front end of the patent life cycle, during the application process, but that
                            significant costs also continue to be incurred throughout a patent’s lifetime.
                            The experts identified ways that small businesses can defer costs by taking
                            advantage of regional or international patent filing options and provided
                            some cost-saving suggestions for small businesses to consider.



Types and Significance of   U.S. companies and inventors that seek to patent abroad incur costs to
Costs                       apply for, obtain, maintain, and enforce their patents. For example,
                            national patent offices typically charge fees when patent applications are
                            filed as well as when they search for prior art (the body of information,
                            including patent and nonpatent literature, that is consulted to determine
                            the patentability of an invention), examine applications, and grant patents.
                            In addition, patent applicants may incur costs to have patent applications
                            translated into other languages. National patent offices also charge fees,
                            called “maintenance fees” or “annuities,” to keep a patent active after it has
                            been granted, typically for a period of up to 20 years. Whereas in the United
                            States, most Patent and Trademark Office fees are reduced by half for small
                            entities (defined as a small business, independent inventor, or not-for-profit
                            entity), most foreign patent offices do not offer similar fee reductions. In
                            addition to varying national patent office charges, patent applicants must
                            pay for the services of U.S. and foreign patent attorneys or agents
                            throughout the process, particularly if they take any enforcement action
                            related to their patents.

                            Acquiring foreign patent protection is expensive, regardless of company
                            size. Companies that patent abroad typically seek patents in several other
                            countries simultaneously and incur the full range of costs in each location.
                            According to the experts, many of these costs are redundant or
                            disproportionate to the benefit they provide—for example, companies may
                            have to pay each patent office to conduct a patent search, even though



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                             Appendix III
                             Factors Related to the Decision to Seek
                             Foreign Patents




                             much of the literature searched may be the same. Also, companies may
                             have to pay for multiple patent examinations, because each country
                             examines patent applications in accordance with its own laws. Some
                             foreign patent offices charge fees that do not exist in the United States, and
                             some fee amounts are substantially higher than corresponding U.S. Patent
                             and Trademark Office (USPTO) charges. For example, most patent offices
                             levy annual maintenance fees that increase steadily over the 20-year
                             lifespan of a patent, whereas USPTO assesses only three maintenance
                             charges during that time. Finally, several experts said that requirements to
                             translate patent applications into foreign languages result in significant
                             expenses that may have little practical value. One expert cited a study that
                             translations are seldom used and a few experts believed that most parties
                             who are qualified to read and understand the technical descriptions in a
                             patent application are able to do so in English or another prominent
                             language. Another expert noted that a significant benefit of the European
                             Patent Convention is that all paper work can be processed in English (or
                             another recognized language), and translations can be delayed until the
                             very end of the application process.

                             Given the significant expense, many experts thought it important for small
                             businesses to be well informed about the full cost of foreign patent
                             protection, stating that many small businesses focus on the initial costs but
                             fail to think about long-term costs. Unless small businesses consider the
                             full “cradle-to-grave” costs of foreign patents, then any cost/benefit
                             assessments they perform will be misleading. However, one expert said it is
                             difficult for most U.S. companies to obtain good information about foreign
                             patent costs and may be particularly hard for small businesses. Moreover,
                             foreign patent costs change frequently. Another expert recommended using
                             a software package, known as “Global IP Estimator,” that is designed to
                             help businesses perform foreign patent cost calculations.1 Despite such a
                             tool, however, several experts acknowledged that fully anticipating the true
                             lifetime costs of holding foreign patents is difficult.



Strategies to Reduce Costs   The experts also thought that small businesses should strive to understand
                             and explore the various strategies that exist to reduce foreign patent costs.
                             First, these businesses need to understand the different methods for filing
                             patent applications and determine whether one method is more cost-


                             1
                             Global IP Estimator is available from Global I.P. Net in Kihei, HI.




                             Page 27                                                      GAO-03-910 International Trade
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Factors Related to the Decision to Seek
Foreign Patents




effective than another. Business can file patent applications directly with
each individual patent office in the countries where protection is desired,
or they can file patent applications with regional patent offices that cover
multiple countries (such as the European Patent Office).2 Businesses can
also file patent applications under an international treaty—the Patent
Cooperation Treaty—that covers 120 countries and is designed to help
streamline the initial patent search and examination functions and
expenses. In the first method, all fees are due directly to the national patent
offices, in accordance with their procedures, within 1 year from the time a
U.S. patent application was filed. In the latter two methods, additional
upfront fees are incurred, but national patent office requirements are
streamlined and costs are delayed. The most cost-effective means will vary
according to patent strategy, including the number and identity of countries
where protection is sought and the nature of the patent application itself.
(See app. V for a more in-depth discussion of filing procedures under the
Patent Cooperation Treaty.)

In addition to exploring patent filing methods, small businesses can
minimize costs in other ways. For example, businesses can try to avoid
incurring translation expenses by focusing their efforts toward countries
where English applications are accepted (that is, Canada, England, Hong
Kong, India). They can limit the inventions they patent or the number of
countries in which they seek protection—one expert suggested carefully
choosing a few countries in which to spend all available patenting money
on getting well-prosecuted, broad patents in those countries rather than
getting narrow patents in many countries. This expert also suggested that
small businesses concentrate their foreign patent efforts on the key
features of a technology that competitors will need in order to be
competitive. Finally, many experts advised small businesses to routinely
examine the foreign patents they hold to determine whether any are no
longer commercially valuable. Such patents could be allowed to expire,
potentially saving the business thousands of dollars in annual maintenance
fees. Several attorney experts advised that small businesses should
evaluate, at every step of the foreign patent process, whether expenditures
could be better spent on other things.



2
 The 1973 European Patent Convention, which created the European Patent Office,
established a single procedure for granting patents in the 27 member countries on the basis
of a uniform body of substantive patent law. An application to the European Patent Office is,
in effect, a group of national patent applications that are processed together but become
separate patents that are separately maintained and enforced.




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                         Appendix III
                         Factors Related to the Decision to Seek
                         Foreign Patents




Nature of the            Several experts said that the nature of a company’s technology, invention,
                         or product needs to be assessed when making the foreign patent decision.
Technology, Invention,   Businesses should consider the importance of a technology, invention, or
or Product               product to the company, its competition, or the marketplace, as well as an
                         invention’s technical complexity and life span. In many foreign
                         jurisdictions, some types of technology are not considered patentable
                         material, including business method inventions and some types of software
                         or biotechnology (see discussion below in section on “Foreign Patent Laws
                         and Systems”). Furthermore, according to several experts, some
                         technologies, inventions, or products might be better protected as a trade
                         secret than covered by a patent.

                         If the technology, invention, or product that a company seeks to patent is a
                         core item or is very important to the company’s business, this would argue
                         in favor of seeking foreign patents, according to several experts. In
                         addition, if the technology, invention, or product is substantially novel or
                         more advanced than what is available in the marketplace or is particularly
                         relevant to a competitor’s business, seeking patents abroad would be
                         warranted. Some experts said it may be desirable to patent inventions that
                         are readily detectable (that is, reverse-engineered based on simple
                         inspection of a product). Similarly, products that can be easily or cheaply
                         brought to market (that is, where barriers to market entry are low) may
                         benefit from a broader patent strategy. Some experts said that companies
                         should also evaluate whether the item they seek to patent is a substantive
                         versus a marginal addition to their own patent portfolio, suggesting that
                         foreign patent costs may be warranted in the former case but not the latter.

                         The experts identified issues related to the technology, invention, or
                         product that might dissuade companies from filing for foreign patents for
                         certain items or in certain cases. First, several experts advised that patents
                         may not be necessary for inventions for which use or manufacture is not
                         easily detected, and a few well-targeted patents may be sufficient for
                         products that require substantial capital or expertise to produce. Second,
                         experts said that small businesses should be aware that in most foreign
                         locales, the patent application is published at some point after application
                         but prior to granting a patent (typically 18 months after application). This
                         creates a window of opportunity, before the company actually has a patent,
                         for potential infringers to learn about and begin copying the company’s
                         item. This may be a greater risk in some countries than others. One panelist
                         suggested that if trade secrets are contained in a patent application, the
                         invention may be of more value when held as a trade secret (and not



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                         Factors Related to the Decision to Seek
                         Foreign Patents




                         disclosed) for a potentially unlimited time period. Third, one expert
                         advised against obtaining foreign patents on technologies, inventions, or
                         products for which there are competing items in the market that already
                         serve the same function.

                         When weighed against the amount of time required to obtain foreign
                         patents, the life span of a technology, invention, or product may either
                         encourage or discourage companies from seeking such protection. Some
                         items have a valuable life span of only a few years, such as those in the
                         telecommunications and software industries, and will produce licensing
                         revenue only in the early years of a patent. Others, such as those in the
                         pharmaceutical or biotechnology industries, are in development for many
                         years and are monetarily valuable only in the latter years of a patent. The
                         technology, invention, or product’s life span needs to be compared with the
                         amount of time required to obtain a foreign patent. On average, U.S. patents
                         are granted about 2 years from the date of application, but patents in
                         Europe are granted about 6 years from the application date; one panelist
                         said obtaining a Japanese patent can take up to 10 years. A product with a
                         shorter life span would be obsolete at the time of patent grant, whereas a
                         longer-lived product would still be valuable. Investing substantial funds in
                         foreign patents is naturally more warranted in the latter case.



Attributes of a Patent   Several experts said that small businesses should consider the nature of the
                         patent itself, including its claims (descriptions or definitions of the subject
and Its “Claims”         matter that the applicant regards as his or her invention or discovery), as
                         well as its scope and application. Several of the panelists explained that the
                         broader a patent’s reach (meaning claims with broad coverage), the more
                         value it will add to the business that holds that patent. This is particularly
                         true if the claims will likely block a competitor’s ability to develop a
                         competing product. In contrast, as one panelist said, if claims are narrow
                         and only provide a limited scope of protection, a patent might be less
                         significant, and the need for foreign patent protection would be reduced.
                         Also, the nature of what claims cover is relevant, according to one expert.
                         For example, if claims cover a product that will be marketed to end-users,
                         the patent should be pursued. However, if claims cover a research tool or a
                         key process used to make a final product, it might be better to hold these
                         items as trade secrets than describe them in a patent application.

                         Several experts cautioned small businesses to be aware that patent regimes
                         vary from country to country. As a result, not all foreign patents on a single
                         invention will contain claims of the same breadth and value, and the



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                   Factors Related to the Decision to Seek
                   Foreign Patents




                   specific nature of what is protected abroad may vary by country. Some
                   countries do not permit applicants to obtain a meaningful scope of
                   protection for their inventions by granting only very narrow claims.
                   According to one panelist, in such cases, the claims are easily “designed
                   around” by competitors and make patent protection essentially
                   meaningless.



Foreign Patent     Many experts argued that foreign patents are only valuable to the extent
                   that they can be enforced. Therefore, small business owners should find
Infringement and   out how effective patent enforcement is in the target countries and if laws
Enforcement        and competent infrastructure exist to deal with infringement. This includes
                   an assessment of the injunction and remedy provisions contained in foreign
                   law, as well as the capabilities of a foreign government and judicial system
                   to enforce overall respect for patent rights, particularly for nonnationals.

                   Additionally, several experts stressed that small companies should assess
                   their own ability and willingness to enforce patents overseas, because
                   doing so is complicated and expensive. One important aspect of enforcing
                   patents is the ability to detect infringement. However, it can be challenging
                   for small businesses to detect infringement on foreign patents if they do not
                   have operations overseas. Foreign operations, branch offices, or licensees
                   can all provide effective means for detecting infringement.

                   Several experts noted that variations exist in the degree to which patents
                   are respected and enforced abroad. One expert listed three questions
                   regarding the quality of patent enforcement in another country:

                   1. Do infringers know that if they infringe a patent they could be forced by
                      a court to stop the infringement and pay damages?

                   2. Are the courts sophisticated enough in patent matters to reliably
                      enforce patents?

                   3. Is it possible to obtain an injunction against infringers, and are
                      significant damages available?

                   Because enforcement is an expensive option to pursue, several experts
                   noted that the outcome needs to be sufficient to make the patent owner
                   whole. One expert explained that litigation costs are generally high in
                   Japan, the United Kingdom, and the United States; but only the latter two
                   countries also award damages that are intended to compensate the



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                   Factors Related to the Decision to Seek
                   Foreign Patents




                   patentee for loss suffered due to infringement, such as lost profits. The
                   extent of damages awarded in other countries, including many European
                   countries, is not sufficient to make the patentee whole and bears little or no
                   relation to the loss incurred. However, another expert countered that the
                   U.K. and U.S. judicial systems are cumbersome and excessively procedural,
                   whereas in the German court system, for example, technically trained
                   judges dispatch cases fairly and promptly. Several experts noted that many
                   countries are beginning to improve their enforcement of patent rights and
                   these developments may make certain countries worth considering,
                   particularly if they present major foreign market potential.

                   Even if the proper systems are in place, foreign court systems may exhibit
                   overt or covert discrimination against nonnationals. In one instance, an
                   expert explained, a client tried to enforce a patent in India against a local
                   company, but the judge, believing foreign-owned patents to be of limited
                   social value, developed a hearing schedule that was so tedious, the client
                   gave up the case.



Composition of     Small businesses should think about the number of foreign patents they
                   already hold in a given country, or abroad in general. Some experts
Company’s Patent   cautioned businesses against having too many foreign patents in their
Portfolio          patent portfolio as this may become unmanageable or may not produce a
                   return that is worth the substantial investment made. As several panelists
                   explained, patents can sometimes be outdated if the technology is no
                   longer in use or has become insignificant. Therefore, several experts
                   highlighted the importance of periodically reviewing a company’s foreign
                   patent portfolio. If circumstances have changed, appropriate action (for
                   example, termination of an application or abandonment of a patent) might
                   be necessary. Further, one panelist suggested that small businesses should
                   seriously consider the fact that obtaining and maintaining foreign patents
                   will significantly increase the workload of the staff involved in looking after
                   the patent portfolio. For comparison, the panelist noted that many large
                   companies have substantial numbers of staff solely charged with looking
                   after their foreign patent portfolio.

                   However, according to another expert, some businesses are hoping to
                   become more attractive to larger, international entities by holding as many
                   foreign patents as possible. The strategy is that larger, presumably
                   multinational, entities are more likely to buy out the smaller business if it is
                   holding a large portfolio of foreign patents.




                   Page 32                                             GAO-03-910 International Trade
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                        Factors Related to the Decision to Seek
                        Foreign Patents




Location of             Many experts on our panel stated that small business owners should
                        consider obtaining patents in any country in which they conduct research
Manufacturing,          and development, or assemble or manufacture all or part of an invention or
Assembly, Research,     product. In this same vein, business owners should also consider the
                        location of their competitors’ research, assembly, or manufacturing sites.
and Development Sites   Further, businesses should consider where the main manufacturing centers
                        for similar products or technologies are located and seek protection there
                        to stop unauthorized third parties from manufacturing their invention or
                        product. Patent protection in such locations is important, because
                        manufacturing capabilities already exist and unauthorized production
                        could be quickly and cheaply initiated. At the same time, business owners
                        need to think about whether new manufacturing sites could emerge
                        because the nature of their technology, product, or invention is easily
                        detected, and the cost of setting up a manufacturing process is low. The
                        level of technical competence among a country’s population is a relevant
                        factor in making this assessment.



Foreign Patent Laws     Small business owners need to understand the nature of foreign patent
                        laws and systems as they make their foreign patent decisions. Many
and Systems             differences exist among foreign patent laws, and other countries’ laws are
                        different from U.S. patent law. Also, the systems set up throughout the
                        world to process applications and award patents are not the same. Many
                        experts stated that some small businesses are not well informed about
                        these differences and how they can affect a business’s ability to obtain
                        foreign patent protection that is comparable to its U.S. patent protection.
                        Because patent law is an area under constant development, one expert said
                        it is important to occasionally review recent procedural, legislative, and
                        judicial developments in foreign countries to ensure that all current
                        relevant factors are known and understood. Moreover, small businesses
                        that understand how foreign patent systems function are less likely to
                        become frustrated by the foreign patent process.

                        Foreign patent laws can differ from U.S. patent law in many important
                        respects. For example, other countries differ from the United States in how
                        they award patents in the case of competing applications for the same
                        invention. This is referred to as the “priority principle.” All countries except
                        the United States award patents to the first inventor to file a patent
                        application, a method called “first-to-file.” The United States awards
                        patents to the inventor that can demonstrate it was the first to invent the
                        item in question. These two systems engender very different patent filing



                        Page 33                                             GAO-03-910 International Trade
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Factors Related to the Decision to Seek
Foreign Patents




approaches. One encourages rapid use of the patent system, while the
other does not.

Another key difference between U.S. and foreign patent regimes further
exacerbates the different approaches in the timing of filing patent
applications. Small businesses are accustomed to the provisions in U.S.
patent law that allow patent applications to be made within 1 year of public
disclosure of an invention. But such disclosure may render an applicant
ineligible under many foreign patent laws, which require “absolute novelty”
as a condition of patent grant—in other words, disclosing an invention
publicly before applying for a U.S. patent and securing a “priority date,”
which is sometimes done to attract interest or financing, can violate the
absolute novelty standard applied in other countries. Thus, U.S. patent
applicants that are accustomed to the protections in U.S. patent law that
enable them to move more slowly in filing patent applications should
consider modifying this approach if they desire foreign patent protection.

In addition to these key principles, the types of inventions or technologies
that patents can cover differ among countries. For example, business
method inventions and certain software processes and biotechnological
inventions cannot be patented outside of the United States. Experts also
noted that some developing countries have been slow to grant patents for
pharmaceutical products, and some countries will not allow patent
coverage for methods of medical treatment. One expert said the limits on
patent coverage for cutting-edge technology can be particularly
problematic for small businesses, which often excel in this area. Foreign
patent laws may also differ from U.S. patent law in terms of the degree of
protection that issued patents provide (whether measured by the exclusive
rights granted to the holder or by the breadth of claims that are allowed);
therefore, the nature of protection obtained in each country where patents
are held on a single invention may not be identical.

Further, some small businesses may not understand key international
treaty provisions that affect the timing of their foreign patent filings. In
order to preserve their rights under the Convention for the Protection of
Industrial Property (known as the Paris Convention), small businesses
must file all foreign applications related to the inventions they seek to
patent abroad within 1 year from the date on which their U.S. application
was filed. If they do not file within this 1-year period, they lose certain
international treaty rights. This may, in turn, affect their ability to obtain
foreign patent protection.




Page 34                                             GAO-03-910 International Trade
                        Appendix III
                        Factors Related to the Decision to Seek
                        Foreign Patents




                        Finally, according to one panelist, many countries require compulsory
                        licensing if a patentee does not commercialize the patented product within
                        a certain period of time (frequently 3 years). A small business may be
                        forced to give a license to a competitor to use a technology in which the
                        small business has made a considerable investment but may only be able to
                        demand a “reasonable royalty” under the host country laws. In addition,
                        another expert noted that some developing nations grant patents for much
                        less than the standard 20 years, which can be a major problem with
                        products that may take many years to bring to market.

                        Regardless of the nature of a host country’s patent laws, small businesses
                        should also understand the strength and competency of the national patent
                        office and the degree of difficulty that dealing with a national patent office
                        presents. The strength of the national patent office may be gauged, in part,
                        by the technical expertise of its examiners, the consistency and quality of
                        its patent examinations, and the amount of time it takes to grant a patent.
                        Several experts stated that some foreign patent offices lack sufficient
                        numbers of qualified examiners. In Taiwan, for example, patent law is not
                        always properly applied, because examination of patent applications is
                        contracted out to part-time examiners who are not trained in law, said one
                        expert. Also, major patent offices, such as the European Patent Office and
                        the Japan Patent Office, have tremendous workloads and significant
                        backlogs in processing patent applications (this is also true of USPTO).
                        Several panelists stated that patent pendency times outside of the United
                        States range from 3 to 7 years; the average patent pendency period in
                        Europe is about 6 years. Finally, several experts noted that meeting the
                        formal requirements of multiple patent offices and dealing with their
                        bureaucracies is quite challenging. Some experts expressed the belief that
                        some foreign patent offices practice subtle discrimination against
                        nonnational applicants. For example, one expert said that foreign
                        applicants in Japan are not familiar with the use of particular “code” words
                        and phrases that are used to favor domestic applicants.



Regulatory              Small businesses should also consider the broader regulatory institutions
                        within a country and how government policies could influence their
Environments in Other   decision to patent in certain countries. One panelist noted that a vast array
Countries               of products, including pharmaceuticals, agricultural chemicals, and
                        telephonic equipment may not be marketed without government approval.
                        Therefore, the interaction between the regulatory system and patent laws
                        in a country will affect the extent to which patents are commercially
                        meaningful and should be considered when evaluating the prospect of



                        Page 35                                            GAO-03-910 International Trade
                       Appendix III
                       Factors Related to the Decision to Seek
                       Foreign Patents




                       obtaining foreign patent protection. Several panelists said that policies of
                       protectionism for local industries within a country could also be an
                       important element to consider, because products might face additional
                       barriers to market entry despite having been awarded a patent in that
                       country.



Timing of Patent       Small businesses need to understand the timing of foreign patent
                       application filing and other deadlines and act in accordance with these
Applications and       deadlines. These include filing foreign patent applications within 1 year of
Relevant Deadlines     the time a U.S. application was filed in order to protect an applicant’s Paris
                       Convention rights and following the time frames and actions established in
                       the Patent Cooperation Treaty (if applicants file under this treaty). It also
                       includes taking actions in accordance with the expectations of national
                       patent offices, such as paying maintenance fees in a timely fashion.



Competitive Concerns   The expert panelists identified a range of competitive concerns that small
                       businesses should evaluate when thinking about foreign patents. In
                       addition to examining the company’s own patent portfolio, some experts
                       said businesses should try to assess the composition of any competitor’s
                       patent portfolio. One panelist said that a business owner can judge the
                       extent to which he or she should patent overseas based on a competitor’s
                       foreign filings, since companies frequently use patents to trade with other
                       companies. Another panelist said that the location of a competitor’s patents
                       may reflect its future business plans.

                       In addition, as mentioned previously, several on our panel agreed that
                       business owners should also consider the location of their competitors’
                       research and development, manufacturing, and assembly sites when
                       deciding on a foreign patent strategy. One panelist suggested it may be
                       worthwhile to patent an invention in countries where companies do not
                       intend to develop or produce their product just to prevent their
                       competitors from doing so. For example, a small chemical company may
                       not have a plastics manufacturing plant in Spain, but if the large company
                       competitor’s plastics manufacturing plant is in Spain, the small company
                       should protect its innovation in Spain.




                       Page 36                                            GAO-03-910 International Trade
                       Appendix III
                       Factors Related to the Decision to Seek
                       Foreign Patents




Demographics and       Small businesses should also consider the population, wealth, size, and
                       other demographic aspects of target countries when deciding whether or
Cultural Differences   not to apply for a foreign patent. For example, countries with large or
                       wealthy populations are worth considering if the potential market size
                       would be larger or sales more lucrative. However, this would only be true if
                       the population was likely to use the product. Likewise, some panelists
                       explained that other demographic elements—such as the level of
                       industrialization, the degree of technological development, and the
                       prevalence of political or economic stability and development—could be
                       useful tools for assessing a country’s potential patent value. Finally, social
                       or environmental attitudes may be useful indicators of potential patent
                       value.




                       Page 37                                            GAO-03-910 International Trade
Appendix IV

Small Business Views on the Relevance of
Certain Factors to Their Foreign Patent
Decisions                                                                                   Appen
                                                                                                V
                                                                                                Id
                                                                                                 xi




               For our July 2002 report, we asked the 38 businesses that responded to our
               survey to indicate the extent to which their company typically considered
               certain types of factors when making decisions about foreign patent
               protection. Businesses were asked to rank 13 types of factors on a scale
               ranging from “little to none” to “very great.” This appendix contains the
               survey results and shows the percentage of businesses ranking the
               importance of a given factor at each of the five levels on the scale.




               Page 38                                         GAO-03-910 International Trade
Appendix IV
Small Business Views on the Relevance of
Certain Factors to Their Foreign Patent
Decisions




Page 39                                    GAO-03-910 International Trade
Appendix V

Processes and Costs Involved in Obtaining
Foreign Patent Protection: A Hypothetical
Scenario for 2002                                                                                           Appen
                                                                                                                V
                                                                                                                di
                                                                                                                x




               Note: The material in this appendix appeared originally in our report titled
               International Trade: Federal Action Needed to Help Small Businesses
               Address Foreign Patent Challenges, GAO-02-789, June 2002. The fees
               disclosed in the appendix are based on information that was available as of
               June 2002 and have not been updated.

               Companies may obtain foreign patent protection in several ways. The costs
               associated with obtaining such protection vary depending on the process
               followed, the nature of the patent sought, and the extent of global patent
               coverage desired. This appendix presents a hypothetical scenario that we
               developed for a small business seeking to patent a single invention abroad.
               Our goal was to illustrate a common foreign patent process and to estimate
               the costs that a small U.S. business1 might incur when filing for, obtaining,
               and maintaining foreign patent protection in the United States and nine
               other countries. We based this hypothetical scenario, in part, on what
               several patent attorneys advised us could be considered a “typical” small
               business patent application and process.

               Our scenario depicts a small company filing for foreign patent protection
               for one of its products in six European countries (France, Germany, Italy,
               Ireland, Sweden, and the United Kingdom), Canada, Japan, and South
               Korea. Patent laws in each of the nine countries cover the technology for
               this product, which can be protected with a single patent. The hypothetical
               company has already filed its U.S. application for this product. The U.S.
               patent application on which the company will base its foreign applications
               was relatively short and straightforward, consisting of 25 pages, 5
               drawings, and 15 claims (claims define the invention and are what make
               the patent legally enforceable). Patents will ultimately be issued in each
               country where the company is pursuing protection. In order to keep its
               patents in force, the company must pay recurring fees (referred to as
               “maintenance fees”) to each national patent office. In our scenario, the
               company opts to keep each patent in force for its full term, which is 20
               years from the date of patent application filing. (Additional information
               about our scenario and methodology can be found at the end of this
               appendix.)



               1
                Under 13 C.F.R. part 121, the Small Business Administration (SBA) has established various
               size standards, based on economic activity or industry, for determining what a small
               businesses is for purposes of eligibility for SBA programs. Based on SBA standards, we
               defined a small business for purposes of conducting our work as having 500 or fewer
               employees.




               Page 40                                                    GAO-03-910 International Trade
                         Appendix V
                         Processes and Costs Involved in Obtaining
                         Foreign Patent Protection: A Hypothetical
                         Scenario for 2002




                         Given this scenario, the estimated cost of the U.S. patent, maintained for a
                         period of 20 years, is about $10,000 (in 2002 current year dollars).2 The
                         estimated cost of the foreign patents, maintained for a similar length of
                         time, would range from about $160,000 to about $330,000 (in 2002 current
                         year dollars). These are minimum estimates that include patent application
                         filing and issuance fees, translation fees for applicable foreign patent
                         offices, maintenance fees, and estimates of attorney and foreign patent
                         agent fees associated with work related to the filing and paying of these
                         fees. Actual patent costs for a patent filing strategy similar to our scenario
                         could be far higher because we assumed that the patent application would
                         not face a difficult examination process in any of the countries. Thus, our
                         scenario eliminated many patent office and legal costs that companies
                         incur in trying to obtain a patent. Actual patent costs would also vary if
                         certain key assumptions were modified. For example, filing applications in
                         more than nine countries would increase the cost of obtaining foreign
                         protection. Also, if a patent application was longer or more complex than
                         the one in our scenario, the cost to obtain patent protection abroad would
                         rise because translation expenses and some foreign patent office charges
                         would be higher. Conversely, if patent protection was not maintained for
                         the full 20-year term in each of the countries, official fees and attorney fees
                         to maintain the patent would decrease.3 The latter condition would reduce
                         the overall cost of foreign patent protection relative to the U.S. cost.
                         Finally, these estimates do not include costs that could be incurred from
                         legal fees payable for litigation associated with possible infringement and
                         defense of a patent.



Estimated Cost of U.S.   The scenario assumes that the small business has already filed its U.S.
                         patent. As shown in table 4, the minimum cost to obtain that patent would
Patent                   be about $6,412. This includes U.S. Patent and Trademark Office (USPTO)
                         small entity filing and issuance fees, as well as attorney charges to prepare


                         2
                          These estimates are expressed in 2002 current year dollars because of a lack of information
                         about the timing and amount of future expenditures for patent maintenance and attorney
                         fees. Additional information on our scope and methodology in developing these estimates
                         can be found at the end of this appendix.
                         3
                          U.S. patent maintenance costs are fully paid by the end of the twelfth year from the date the
                         application was filed, whereas foreign patent maintenance costs continue to be incurred
                         through the twentieth year from the date of application. Thus, holding foreign patents for
                         shorter periods of time reduces the cost of foreign patent protection relative to the cost of
                         U.S. protection.




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                       and file the patent application and obtain the issued patent. The minimum
                       cost to maintain the patent for a 20-year term would be about $3,528. This
                       includes USPTO maintenance fees that are charged 3 times during the 20-
                       year term after the patent is granted, as well as attorney charges to pay
                       those fees. In this scenario, 65 percent of the costs are incurred to obtain
                       the patent and 35 percent to maintain it.



                       Table 4: Estimated Costs to Obtain and Maintain U.S. Patent for 20 Years

                       Type and stage of fee                                                                         Cost in U.S. dollars
                       Application
                        USPTO basic filing fee                                                                                     $370
                        Attorney charges to prepare and file patent application                                                    5,002
                       Issuance
                         USPTO issue fee                                                                                            $640
                         Attorney charges                                                                                            400
                       Total application and issuance costs                                                                       $6,412
                       Maintenance
                        USPTO fee at year 3.5                                                                                      $440
                        USPTO fee at year 7.5                                                                                      1,010
                        USPTO fee at year 11.5                                                                                     1,550
                        Attorney charges to pay 3 maintenance fees                                                                   528
                       Total maintenance costs                                                                                    $3,528
                       Total cost to obtain and maintain the patent                                                               $9,940
                       Source: GAO analysis of USPTO fees and American Intellectual Property Law Association data.

                       Notes: All USPTO fees are small entity fees effective October 1, 2001.
                       Attorney charges are based on the American Intellectual Property Law Association’s Report of
                       Economic Survey 2001 and reflect the median charges for the subject item.




Filing for a Foreign   A company can acquire foreign patent protection in two ways: (1) by filing
                       separately in each country or region where protection is desired or (2) by
Patent                 filing for patent protection in 120 countries at the same time through an
                       international application established by the 1970 Patent Cooperation Treaty
                       (PCT), as amended.4




                       4
                        Much of the technical information presented in this appendix is drawn from Stephen Elias,
                       ed., Patent, Copyright, & Trademark: A Desk Reference to Intellectual Property Law
                       (Berkeley: Nolo Press, 1996).




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Companies may file separately in each country where protection is desired
under the rules established by the 1883 Paris Convention, as amended. Also
known as the Convention for the Protection of Industrial Property, this
treaty is adhered to by 163 countries and gives limited recognition to one
another’s country patent application filing dates. Applicants choosing this
route must file foreign patent applications within 1 year of the date on
which they filed their domestic patent application (known as the “priority
date”). Applicants will face the requirements and costs that each country
imposes upon filing their patent applications. As a result, filing separately
may be cost-effective for those interested in holding patents in only a few
countries.

The second process for foreign filing is through an international patent
application under the Patent Cooperation Treaty (PCT), which the World
Intellectual Property Organization (WIPO) in Geneva, Switzerland,
administers. This treaty is adhered to by 120 countries and facilitates the
international filing of patent applications by centralizing filing procedures
and standardizing the application format. The PCT enables applicants to
obtain an international search report or “prior art search”5 and preliminary
examination.6 This is commonly called the “international stage” of a PCT
application.7 Following this stage, PCT applicants then decide in which
countries they want to hold patents and enter processes in these countries
to obtain such patents. This is commonly called the “national stage” of a
PCT application. Applicants incur PCT fees during the international stage
and national patent office fees during the national stage.8 However, by filing
through the PCT, applicants can delay paying the national stage fees for up
to 30 months from their patent priority date.9 This delay allows applicants


5
 Prior art is the body of information, including patent and nonpatent literature, that patent
offices consult to determine the patentability of an invention.
6
 An examination is a process in which a patent examiner will correspond with applicants
and decide whether inventions deserve patents based on claims.
7
 The expression “international phase” or “stage” is not officially used in the PCT, but
according to WIPO, it has become customary and is used in its Patent Cooperation Treaty
guide (http://www.wipo.int/pct/guide/en/).
8
 The expression “national phase” or “stage” is not officially used in the PCT, but according to
WIPO, it has become customary and is used in WIPO’s PCT guide
(http://www.wipo.int/pct/guide/en).
9
 Most patent offices, including those in our scenario, provide for a delay of 30 months.
However, some will allow a 31-month delay from the priority date.




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                           more time to assess the value of their invention and the likelihood of
                           obtaining a patent in a particular country before incurring the costs
                           associated with obtaining patent protection in that country.

                           If an applicant desires patent protection in a region such as Europe,
                           Eurasia, or Africa, the applicant may file with a regional patent office or, if
                           filing through the PCT, designate a regional office. The European Patent
                           Convention and the Eurasian Patent Convention are examples of regional
                           patent treaties that allow applicants to file one single application for the
                           contracting states within those regions. For instance, the European Patent
                           Convention and its associated office, the European Patent Office, consist of
                           27 member states.10



Obtaining a Foreign        In our scenario, the company uses the Patent Cooperation Treaty process
                           for filing its foreign patents. We chose to illustrate the PCT process because
Patent Using PCT           it is a widely used and “typical” method for obtaining foreign patent
                           protection, according to patent attorneys we interviewed. The PCT process
                           consists of two main phases, the international stage and the national stage.



International Stage: PCT   The international stage of the PCT process is comprised of several steps, as
Processes and Costs        shown in figure 1. First, applicants file a PCT application and pay
                           associated filing fees to a PCT receiving office, as shown in box 1 of figure
                           1. The receiving office, which is a contracting state, is the authority to
                           which nationals or residents of that state submit their international
                           applications.11 Second, applicants select an International Searching
                           Authority12 to prepare an international search report that will provide


                           10
                             The European Patent Convention member states include Austria, Belgium, Bulgaria,
                           Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Hungary, Germany, Greece,
                           Ireland, Italy, Liechtenstein, Luxembourg, Monaco, the Netherlands, Portugal, Romania, the
                           Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.
                           11
                            Applicants may also file with the International Bureau of WIPO regardless of the state of
                           which the applicant is a resident or national. Residents or nationals who are party to
                           regional patent conventions may file international applications with the regional offices that
                           the conventions established.
                           12
                              An International Searching Authority is a national office or intergovernmental organization
                           that is highly experienced in examining patent applications and is specified by the receiving
                           office. The International Searching Authority establishes documentary search reports on
                           prior art with respect to inventions that are the subject of applications.




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information on relevant prior art based on the claims of the application.13
The International Searching Authority conducts a prior art search and
issues a search report for the applicant’s review, as shown in box 2 of figure
1. Based on the results of the report, the applicant may decide to continue
or discontinue the patent process in certain countries. Discontinuing the
patent process because of an unfavorable search report allows the
applicant to save on the costs of processing the application in various
countries. However, the applicant may amend the claims of his or her
application and maintain only those that are favorable and likely to result in
the grant of a patent.




13
 See The World Intellectual Property Organization, Patent Cooperation Treaty: chapter 2,
article 33, (Geneva: WIPO, http://www.wipo.int/pct/en/index.html, downloaded in May,
2002).




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Figure 1: The International and National Stages of the PCT Process



                                                                             1                            2                    3

         Month 0                                                    Month 12-13                     Month 13-16          Month 16-19

       Prior                                                   Patent Cooperation                 Patent Cooperation   WIPO publication of
       U.S. patent                                             Treaty application                 Treaty search        international
       application filed.a                                     and fees due to                    conducted, and       application and
                                                               receiving office.b                 search report        search report.
                                                                                                  issued. Claims       Applicant makes
                                                                                                  amendments filed     decision whether to
                                                                                                  within 2 months of   file Patent
                                                                                                  receipt of search    Cooperation Treaty
                                                                                                  report.              chapter II demand.




                 Optional step
                 The international stage
                 The national stage

Source: GAO analysis of the Patent Cooperation Treaty and national patent office fee schedules.




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                               5                                 6                                    7

                         Month 30-31                        Month 31+                           Year 3-20
        4
                      Entry into the                   Patent issued or                    Patent holder pays
Month 19-28                                            denied by                           required
                      national stage from
If demand is filed,   either Patent                    designated national                 maintenance fees
Patent Cooperation    Cooperation Treaty               office.                             to national office
Treaty chapter II     chapter I or chapter                                                 where patent is
International         II. Pay designated                                                   enforced for
Preliminary           national offices the                                                 desired number of
Examination           required national or                                                 years.
conducted by          regional fees. Pay
International         translation fees if
Preliminary           applicable, and
Examination           appoint a patent
Authority, and        agent where
report issuance.      required.




                                   a
                                    This figure illustrates the process and timetable in cases where an applicant has first filed a U.S.
                                   patent application. However, applicants may file their initial application under the PCT. In these cases,
                                   the steps would be the same, but the timetable would differ.
                                   b
                                   The PCT application is due at month 12, and the fees are due at month 13.


                                   Once WIPO publishes the international application, as shown in box 3 of
                                   figure 1, the applicant has the option of obtaining an international
                                   preliminary examination report.14 The preliminary report provides an initial




                                   14
                                    The international preliminary examination report is produced by an International
                                   Preliminary Examination Authority, which is appointed in the same fashion as the
                                   International Searching Authority.




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and nonbinding opinion about whether the claimed invention appears to be
novel, nonobvious, and industrially applicable.15 If the applicant decides
not to obtain this preliminary report, the applicant will enter the national
stage of the patent process. If the applicant decides to obtain an
international preliminary examination report, he or she must file a “PCT
chapter II demand.” The issuance of the international preliminary
examination report, as shown in box 4 of figure 1, allows the applicant to
assess the chances of obtaining a patent in a particular country before
incurring the costs associated with pursuing patent protection in that
country.

The costs associated with the international stage include fees payable to
the receiving office for work related to filing the international application,
obtaining the international search report, and designating the national
patent offices where applicants may decide to file during the national stage.
Applicants will also incur U.S. patent attorney fees for filing and any
applicable work corresponding to the PCT process. We will address these
costs in the final section of this appendix. The receiving office sets the
transmittal fee. This fee is payable for the tasks associated with the receipt
and checking of the international application. The fee also covers the
transmittal of application copies to WIPO and the International Searching
Authority. The International Searching Authority sets and receives the
search fees for establishing the international search report. The
international fee accrues to WIPO and is the sum of the basic fee and the
designation fees. The basic fee is for tasks that include the publication of
the international application and the communication of notifications to the
applicant, the receiving office, the International Searching Authority, the
International Preliminary Examination Authority, and national and/or
regional offices. The designation fee is payable for the first five national or
regional offices designated in the application. There is no charge for
designations beyond five.

Our scenario assumes that the United States operates as the receiving
office, as well as the International Searching Authority and the
International Preliminary Examination Authority, for the hypothetical
company’s patent application. Table 5 shows the fees associated with the
international stage of the foreign filing process through the PCT. The


15
   See The World Intellectual Property Organization, Patent Cooperation Treaty: chapter 1,
article 15, (Geneva: WIPO, http://www.wipo.int/pct/en/index.html, downloaded in May,
2002).




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company would pay four designation fees: one each for Canada, Japan,
South Korea, and the European Patent Office. In our scenario, the company
chooses to pursue national stage entry after chapter II processing. This
means that the business will incur the additional costs of having
preliminary examination conducted by an International Preliminary
Examination Authority to further assess the chances of obtaining a patent
for its invention in the desired countries or regions. The additional costs
include two fees payable to the International Preliminary Examination
Authority. The first of these is a preliminary examination fee that accrues to
the International Preliminary Examination Authority for carrying out and
establishing the international preliminary examination report. The second
is a handling fee that accrues to WIPO for carrying out various tasks related
to the international preliminary examination report. The estimated total
cost of the international stage, given this scenario, is $2,100.



Table 5: Estimated International Stage Patent Costs

Type of fee                                                                Cost in U.S. dollars
PCT chapter I fees
    Transmittal feea                                                                      $240
                 b
    Search fee                                                                             450
International fees (basic fee and designation fees)
    Basic fee                                                                              407
    Designation fee ($88x4)                                                                352
    Certified copy fee                                                                      15
Total PCT chapter I fees                                                                $1,464
PCT chapter II fees
    Preliminary examination feec                                                          $490
    Handling fee                                                                           146
Total PCT chapter II fees                                                                 $636
Total international stage fees (PCT chapter I and chapter II
fees)                                                                                   $2,100
Source: USPTO fee schedule.

Notes: U.S. and foreign patent attorney fees not included.
a
    USPTO is the receiving office.
b
    USPTO is the International Searching Authority.
c
 USPTO is the International Preliminary Examination Authority.




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National Stage: National      The national stage is the second of the two main phases of the PCT patent
Patent Office Processes and   procedure. For official entry into the national stage, the applicant will be
                              responsible for paying the required fees to each national or regional patent
Costs                         office elected,16 along with the fees associated with furnishing a translation
                              of the international application where applicable, as shown in box 5 of
                              figure 1. The applicant may also be required to appoint a patent attorney or
                              agent in each of the designated offices. (A patent agent is a nonattorney
                              with technical training who is legally permitted to draft, file, and prosecute
                              patent applications on behalf of inventors.) Such appointment may be
                              required if the applicant is a nonresident of the designated office’s
                              respective country. The deadlines for these requirements are generally by
                              month 30 after the priority date, but some PCT contracting states may
                              extend this deadline to month 31. Once these steps are completed, the
                              company will officially enter the national stage via chapter I or chapter II.17
                              Next, the designated offices will carry out an examination of the
                              application and either issue or deny the national or regional patent based
                              on their respective national laws, as shown in box 6 of figure 1.

                              The costs associated with the national stage include official fees payable to
                              each designated office for filing the patent application, examining the
                              application, and granting the patent. The applicant may also incur fees for
                              the translation of the patent application. In addition, the applicant will
                              incur costs for any work involving a U.S. patent attorney or a foreign patent
                              attorney or agent (hereafter referred to as “foreign representatives”). We
                              will address these costs in the final section of this appendix.

                              Our scenario assumes that the company will be pursuing patents through
                              three national offices—Canada, Japan, and South Korea. The company is
                              also pursuing patents in six European Patent Office member states—
                              France, Germany, Ireland, Italy, Sweden, and the United Kingdom. Table 6
                              shows the fees associated with the national stage of the foreign filing
                              process through PCT. Official fees include the filing fee, state designation
                              fees in the case of the European Patent Office, examination fees, and


                              16
                               The PCT defines a national or regional office as “designated” in chapter I and “elected” in
                              chapter II.
                              17
                               Effective April 1, 2002, the entry date for chapter I was changed from 20 months to 30
                              months from the priority date pursuant to PCT Article 22. Officials from USPTO noted that
                              many contracting countries of PCT have indicated that the change is incompatible with their
                              current national laws. Therefore, they will not recognize the change until their respective
                              national laws have been changed.




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                        patent granting fees. The company will incur translation fees for Japan,
                        South Korea, and the non-English speaking countries designated in the
                        European Patent Office; namely, France, Germany, Italy, and Sweden. The
                        total estimated cost of the fees associated with the national stage, given our
                        scenario, is $13,417. This does not include costs associated with either U.S.
                        attorney or foreign representative work.



                        Table 6: Estimated National Stage Patent Costs

                        National or regional                                    Official                 Translation                             Total
                        patent office                                              fees                        feesa             (cost in U.S. dollars)
                        Canada                                                      $314                               $0                                  $314
                        European Patent Office                                     3,237                          1,739                                   4,976
                        Japan                                                      1,699                          2,999                                   4,698
                        South Korea                                                1,229                          2,200                                   3,429
                        Total                                                    $6,479                         $6,938                                $13,417
                        Source: Global IP Estimator (software package that provides cost estimates of international patent applications). (Kihei, HI:Global I.P.
                        Net, 2002).

                        Notes: Exchange rates used by Global IP Estimator software: British pounds = 0.6876 to the U.S. $;
                        Euro = 1.1193 to the U.S. $; German marks = 2.1893 to the U.S. $; Japanese yen = 131.71 to the U.S.
                        $; Canadian dollar = 1.5913 to the U.S. $; Korean won = 1,317.8 to the U.S. $.
                        a
                         Translation fees vary according to the length of the application. Our estimate assumes 25 pages of
                        translation.




Maintaining a Foreign   Maintenance fees, also referred to as “annuities” or “renewal fees,” are paid
                        to each patent office where a patent has been obtained. Maintenance fees
Patent                  would be applicable if the business decided to keep a patent granted to it in
                        force, regardless of how the company filed. Maintenance fees keep the
                        patent in effect and must be paid on a recurring basis, usually annually for
                        up to 20 years after the priority date, as shown in box 7 of figure 1. Patent
                        holders can expect an annual increase in fees charged by each national
                        patent office for maintaining the patent. If a business decides not to
                        maintain any of its patents and therefore not enforce them for a full term,
                        the maintenance fees for each patent would cease from the last year during
                        which the patent was kept in force.

                        Our scenario assumes that the company seeks to keep the patent it
                        obtained through the PCT process in force in each of the nine countries for




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a term of 20 years from the priority date.18 Table 7 provides the total
maintenance fees over 20 years that would be payable to the patent offices
in our scenario, not including attorney fees. The fees would be payable to
Japan, Canada, South Korea, and each country that the company
designated through the European Patent Office. The total estimated cost to
the business for full-term foreign maintenance is $83,543. This does not
include costs associated with either U.S. attorney or foreign representative
work.



Table 7: Estimated Costs Involved in Maintaining a Foreign Patent in Nine Countries
for 20 Years

Country                                                                                                 Cost in U.S. dollars
Canada                                                                                                                      $1,510
France                                                                                                                        5,001
Germany                                                                                                                     13,520
Ireland                                                                                                                       4,637
Italy                                                                                                                         6,002
Japan                                                                                                                       22,783
South Korea                                                                                                                 18,910
Sweden                                                                                                                        5,552
United Kingdom                                                                                                                4,903
European Patent Office renewal fees                                                                                              725
Total                                                                                                                      $83,543
Sources: Canadian Intellectual Property Office, European Patent Office, German Patent and Trademark Office, Irish Patents Office,
Italian Patent and Trademark Office, Japanese Patent Office, Korean Intellectual Property Office, United Kingdom Patent Office, and
WIPO.

Notes: Exchange rates are based on data from DRI-WEFA, World Outlook Comparison Tables,
Forecast Data, 2001, fourth quarter, and DRI-WEFA, Monthly World Outlook (Philadelphia:DRI-WEFA,
Feb. 15, 2002). Exchange rates are based on an average exchange rate forecast for years 2001-2005
and years 2006-2020.
Maintenance fees are expressed in current year dollars because of a lack of information about the
timing and amount of future expenditures for patent maintenance.
Renewal fees are payable to the European Patent Office for the years before the European Patent
Office grants the patent. In our scenario, we assume the European Patent Office grants the patent in
year 5. As a result, the company must pay a renewal fee of $351 in year 3 and $374 in year 4 to the
European Patent Office. The figure for European Patent Office renewal fees in the table reflects fees
for years 3 and 4 and the maintenance fees for designated member states for years 5-20.



18
 We assumed that the patents would be held for the full 20-year term in each country to
show what the maximum maintenance costs might be. However, most patents are not held
for the full term.




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U.S. Attorney and        Throughout the foreign patent process, the company will incur fees for U.S.
                         attorneys and foreign patent representatives. Unlike national patent office
Foreign Representative   fees, which governments typically publish in fee schedules, U.S. attorney
Fees                     and foreign representative costs may vary widely, depending on a number
                         of factors. Therefore, they are difficult to estimate reliably. For example,
                         items such as the nature of the patent sought, the extent of global patent
                         coverage desired, the foreign patent process followed, and the amount of
                         time patent attorneys spend modifying patent applications to meet the
                         expectations of individual patent offices will affect the cost of U.S. patent
                         attorney and foreign representative services. U.S. patent attorney fees will
                         also vary throughout the United States. For these reasons, our estimates of
                         U.S. patent attorney and foreign representative costs are, at best,
                         approximate.

                         We presented our foreign patent scenario to, and obtained cost estimates
                         from, four of the patent attorneys on our panel.19 We asked them to
                         estimate the U.S. attorney and foreign representative fees that the
                         hypothetical company might incur at the international and national stages
                         and throughout the maintenance phase. Their estimates for the U.S.
                         attorney and foreign representative charges during the international and
                         national stages were similar, but their estimates of these costs during the
                         maintenance phase covered a broader range. As shown in table 8, the total
                         cost of U.S. attorney and foreign representative fees for the company could
                         range from under $60,000 to $230,000.




                         19
                          These attorneys were based in San Jose, Calif.; Washington, D.C.; Minneapolis, Minn.; and
                         New York City.




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                       Table 8: Estimated U.S. Attorney and Foreign Representative Fees

                                                                                                                       Total
                                                          International           National   Maintenance       (cost in U.S.
                                                                 stage              stage          phase           dollars)
                       U.S. attorney fees                      <$10,000-         <$10,000-      <$10,000-         $<30,000-
                                                                 $20,000           $30,000        $60,000          $110,000
                       Foreign
                       representative                                             $20,000-       $10,000-         $30,000-
                       fees                                                  0     $50,000        $70,000         $120,000
                       Total fees                              <$10,000-         <$30,000-      <$20,000-         <$60,000-
                                                                 $20,000           $80,000       $130,000          $230,000
                       Source: GAO analysis of patent attorney cost estimates.




Total Scenario Costs   The total estimated foreign patent costs to the company in our scenario
                       ranged from about $160,000 to about $330,000, as shown in table 9. In this
                       scenario, the company would incur about 35 percent of the lifetime costs to
                       file and obtain the foreign patents and about 65 percent of the costs to
                       maintain the foreign patents for their full 20-year term.



                       Table 9: Estimated Total Foreign Patent Costs

                       Stage                                                                          Costs in U.S. dollars
                       International stage costs                                                                     $2,100
                       U.S. attorney and foreign representative
                       fees at the international stage                                                       <10,000-20,000
                       National stage costs                                                                          13,417
                       U.S. attorney and foreign representative
                       fees at the national stage                                                            <30,000-80,000
                       Maintenance fees                                                                              83,543
                       U.S. attorney and foreign representative
                       fees during the maintenance stage                                                    <20,000-130,000
                       Total                                                                           $<159,060-$329,060
                       Source: GAO analysis of sources cited in table 4-8.




Scope and              To estimate the U.S. patent costs that a small business might incur, we
                       obtained relevant fees from the USPTO schedule of patent fees, effective
Methodology            October 1, 2001. We used the small entity fees because the company in our



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scenario would be eligible to pay these lower fees. We obtained estimates
for attorney costs from the American Intellectual Property Law
Association’s Report of Economic Survey 2001. This survey is done every 2
years and, among other things, provides statistics on billing rates and
typical charge for representative intellectual property services. The data in
the 2001 report is based on 1,829 responses. We used the median costs
contained in the survey for actions that corresponded to our scenario.

To estimate the foreign patent costs that a small business might incur, we
developed our hypothetical foreign patent scenario based on information
that we obtained from our small business survey and patent attorney panel,
as well as on input from several patent attorneys. We took this route
because few of the studies that we analyzed about foreign patent costs
were tailored to small businesses. Moreover, because many caveats exist in
the foreign patent process, a scenario enabled us to better estimate costs.
Based on this information and input, we developed what the patent
attorneys advised was a reasonably typical foreign patent scenario for a
small business. This scenario included filing a patent application of average
length and complexity in a limited number of important countries,
reflecting the choices that small businesses have to make because of cost
considerations. We also chose to illustrate the PCT process because it is a
commonly used process that small businesses might follow.

The scenario included a range of assumptions to help narrow the scope of
cost estimates as much as possible, particularly for the patent attorneys
who estimated U.S. and foreign patent attorney charges. These
hypothetical foreign patent scenario assumptions are as follows:

1. The U.S. application consists of 25 pages, 5 drawings, and 15 claims,
   including 2 independent claims.

2. Prior art is relevant to the first independent claim and its dependent
   claims, but not the other independent claim.

3. The first independent claim and its dependent claims are ultimately
   allowed after amendment.

4. One office action occurs.

5. No appeals, opposition, invalidation, scope trials, or the like occur.

6. The issued patent contains 15 claims.



Page 55                                           GAO-03-910 International Trade
Appendix V
Processes and Costs Involved in Obtaining
Foreign Patent Protection: A Hypothetical
Scenario for 2002




7. The company keeps each of its patents in force for 20 years.

8. The PCT application is filed in the United States. USPTO acts as the
   receiving agent and conducts the search and examination.

We included the nine countries in our scenario for various reasons. We
selected Japan because it is an important market, and because we wanted
to illustrate the higher costs that companies face when they seek patent
protection in Japan. We selected Canada because U.S. small businesses are
eligible for lower fees there and can file their applications in English,
thereby avoiding translation charges. We selected South Korea to represent
developing markets where companies may wish to obtain patent
protection. We opted to include six European countries to represent
reasonable but still limited protection in this major foreign market.

We obtained information about the cost of filing a PCT application in the
United States from the USPTO schedule of PCT fees. We used the Global IP
Estimator software published by Global I.P. Net to obtain information on
patent fees in each country included in our scenario. This software
provides estimates of national patent office fees for countries throughout
the world, including translation costs where applicable. We obtained
information about these fees and costs from Global IP Estimator in January
2002. We validated the information in the Global IP Estimator by examining
the WIPO’s PCT applicant guides and published fees and the various
national patent office Web sites. We obtained information about
maintenance fees from WIPO, the European Patent Office, and the national
patent office Web sites. Since many of these sources presented the fees in
the national currency of the respective patent office, we used average
exchange rates for years 2001-2005, and 2006-2020, provided by DRI-WEFA,
an economic consulting firm.

To obtain information about the cost of U.S. and foreign patent attorney
services throughout the process, we surveyed four patent attorneys who
were members of our patent attorney panel. The attorneys estimated,
within ranges of $10,000, the U.S. patent attorney and foreign
representative costs for the international and national stages and the
maintenance phase of our scenario. Although the American Intellectual
Property Law Association’s Report of Economic Survey 2001 contained
data on U.S. patent attorney charges for these services, we did not use this
data because it did not include foreign representative costs.




Page 56                                          GAO-03-910 International Trade
Appendix V
Processes and Costs Involved in Obtaining
Foreign Patent Protection: A Hypothetical
Scenario for 2002




We have expressed all costs in 2002 current dollars due to a lack of
information about the timing and amount of future expenditures for patent
maintenance and attorney fees. We collected information on the patent
maintenance fees for the United States and foreign countries for the patent
scenario described in this appendix. However, we do not have a breakdown
of the costs on an annual basis, which would enable us to convert this
stream of payments into present value terms. Since a larger share of foreign
patent costs in this scenario accrue in the later years as compared to the
U.S. costs, a present value calculation will result in a greater percentage
reduction in foreign costs than in U.S. costs. Nevertheless, foreign patent
costs still remain substantially higher than U.S. costs.

We also shared our analysis with USPTO officials, who provided assistance
and technical comments.




Page 57                                          GAO-03-910 International Trade
Appendix VI

Patent Law Experts’ Views on Steps That
Small Businesses Should Take to Improve
Foreign Patent Efforts                                                                                      AppenV
                                                                                                                 d
                                                                                                                 xiI




              We asked the patent law experts: “What could small businesses do better as
              they consider whether or not to seek, obtain, and maintain foreign patent
              protection?” We analyzed their responses and developed a list of 20 steps.
              We then asked the experts: “How important are each of the following
              suggestions for small businesses to consider?” Response options ranged
              from “least important” to “most important.” The steps are presented in rank
              order in table 1 based on the combined percent of experts rating a step as
              “important” or “most important.”



              Table 10: Patent Law Experts’ Views on Small Business Steps to Improve Foreign
              Patent Efforts

                                                                                       Percent of patent law
                                                                                      experts rating step as
                                                                                          important or most
              Small business step                                                                  important
              1.   Avoid divulging information about the invention prior to                              100
                   filing a U.S. application.
              2.   Be familiar with key dates and deadlines that are                                      95
                   specified under U.S., foreign, and international law,
                   and take foreign filing actions accordingly.
              3.   Consider the company’s long-range business plan.                                       86
              4.    Manage patent portfolio as an asset and regularly                                     83
                   review foreign portfolio.
              5.   Consider the nature and patentabilty of the product.                                   81
              6.   Only file in countries where protection will be                                        81
                   meaningful and patent will produce a return on
                   investment.
              7.   Begin to consider foreign patent options early, such as                                75
                   in the research and development phase, and seek
                   legal advice at that time.
              8.   Obtain experienced U.S. patent counsel that is familiar                                74
                   with obtaining foreign patents.
              9.   Consider filing under international and regional treaties                              73
                   (Patent Cooperation Treaty, European Patent Office,
                   etc.).
              10. Do a thorough market analysis (i.e., company’s interest                                 72
                  in overseas markets, current and potential size of
                  foreign markets, nature of competition, etc.).
              11. Become more knowledgeable about the total cost of                                       71
                  seeking, obtaining, maintaining, and enforcing foreign
                  patents.
              12. Obtain experienced foreign patent representation                                        70
                  (attorney or agent).




              Page 58                                                          GAO-03-910 International Trade
           Appendix VI
           Patent Law Experts’ Views on Steps That
           Small Businesses Should Take to Improve
           Foreign Patent Efforts




           (Continued From Previous Page)
                                                                                     Percent of patent law
                                                                                    experts rating step as
                                                                                        important or most
           Small business step                                                                   important
           13. Realistically consider company’s willingness and ability                                 70
               to enforce patents abroad.
           14. Involve top company officials in foreign patent                                          66
               decisions.
           15. Consider alternative ways of commercializing foreign                                     64
               patent (i.e., licensing, joint ventures, partner with other
               U.S. or foreign firms, etc.).
           16. Consider strategic options in the development of                                         61
               foreign patent applications (i.e., file shorter
               applications, design applications to meet foreign
               requirements, modify claims, consider utility patents
               where available, etc.).
           17. Become more knowledgeable about foreign patent                                           61
               laws and practices and how they differ from U.S. patent
               laws and practices.
           18. Estimate cradle-to-grave foreign patent costs and do a                                   59
               thorough cost/benefit analysis.
           19. Seek training opportunities on foreign patent protection                                 47
               for any in-house counsel and other staff.
           20. Seek advice and partner with other businesses.                                           35
           Source: GAO analysis of patent attorney panel questionnaires.




(320151)   Page 59                                                           GAO-03-910 International Trade
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