International Trade: Experts' Advice for Small Businesses Seeking
Foreign Patents (26-JUN-03, GAO-03-910).			 
                                                                 
Small businesses, which are important to the U.S. economy for	 
their roles in job creation and technological development, must  
be able to protect and profit from their innovations. One way to 
protect their innovations on a global basis is to obtain U.S. and
foreign patents. These businesses, however, face numerous	 
impediments when trying to patent their goods or processes	 
abroad. These impediments, which GAO identified in a July 2002	 
report, include high costs, limited resources, and limited	 
knowledge among small businesses about foreign patent laws and	 
systems. Because of concern that small businesses, particularly  
high technology firms, were not obtaining patent protection	 
abroad and thus were losing potential sales in foreign markets,  
GAO was asked 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. 	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-910 					        
    ACCNO:   A07742						        
  TITLE:     International Trade: Experts' Advice for Small Businesses
Seeking Foreign Patents 					 
     DATE:   06/26/2003 
  SUBJECT:   Legal opinions					 
	     Patent law 					 
	     Patents						 
	     Small business					 
	     Surveys						 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-03-910

                                       A

June 26, 2003 Let er t 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 businesses 1 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).

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

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

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
Should Consider a

issues before deciding whether an investment in foreign patents is
appropriate for their company, according to the patent attorney experts on
Complex Array of

our panel. Factors they identified include costs, benefits, location of
Factors Before foreign markets and manufacturing sites, and foreign patent
laws and

Investing in Foreign enforcement, among others. Our analysis shows that
businesses cannot

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.)

Small Businesses Should Most of the experts said that it is important for
small business owners to

Identify and Assess LongTerm understand the full *cradle- to- grave* costs
of holding and enforcing foreign

Cost s patents and weigh whether such an investment is appropriate for
their

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.

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.

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.

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

and Carefully Select Patent marketing, manufacturing, and competition
issues before selecting the

Locations locations where they will seek patent protection. Given the
significant

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

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 decisionfactor
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).

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

Laws and International experts said. Because foreign patent laws differ,
small businesses should

Treaties consider targeting their resources toward the countries that
offer

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 treaties 10 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.

 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.

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 Brazil a

Paraguay Chile

Philippines China a

Poland Czech Republic

Portugal Denmark

Russia a Greece

Slovakia Hong Kong a

South Africa Hungary

Spain India

Switzerland (also Japan a

Lichtenstein) Luxembourg

Taiwan a Malaysia a (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.

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

Steps for Small and the limited resources (including time) that some small
businesses

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 Foreign Patent

their role as advisors to small businesses, the experts had many years of
Efforts experience observing the foreign patent behavior of small
businesses. Of 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.

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

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.

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

Appendi Appendi xes I x Objectives, Scope, and Methodology 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).

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 closeended

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

Survey U. S. businesses. Because we wanted to understand how small
businesses

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.

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.

Appendi I I x Members of GAO*s Patent Attorney Panel 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.

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.

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.

Factors Related to the Decision to Seek

Appendi I I I x Foreign Patents 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

Foreign Markets patents in the countries where the current or potential
markets for their

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

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

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
Benefits

that foreign patents can provide for small businesses. One expert said
that 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.

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

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 cost1

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

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.

Nature of the Several experts said that the nature of a company*s
technology, invention,

Technology, Invention, or product needs to be assessed when making the
foreign patent decision.

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

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

and Its *Claims* patent itself, including its claims (descriptions or
definitions of the subject

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

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 Infringement and

that they can be enforced. Therefore, small business owners should find
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

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
Company*s Patent

already hold in a given country, or abroad in general. Some experts
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.

Location of Many experts on our panel stated that small business owners
should

Manufacturing, consider obtaining patents in any country in which they
conduct research 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

and Development Sites location of their competitors* research, assembly,
or manufacturing 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

and Systems laws and systems as they make their foreign patent decisions.
Many 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

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.

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
Environments in Other

within a country and how government policies could influence their
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

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

Applications and application filing and other deadlines and act in
accordance with these

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.

Demographics and Small businesses should also consider the population,
wealth, size, and

Cultural Differences other demographic aspects of target countries when
deciding whether or

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.

Small Business Views on the Relevance of Certain Factors to Their Foreign
Patent

Appendi V I x Decisions 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.

Processes and Costs Involved in Obtaining Foreign Patent Protection: A
Hypothetical

Appendi V x Scenario for 2002 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. business 1 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.

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

patent. As shown in table 4, the minimum cost to obtain that patent would
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.

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
20year 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

Patent separately in each country or region where protection is desired or
(2) by 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).

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.

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
Patent Using PCT

for filing its foreign patents. We chose to illustrate the PCT process
because 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 Authority 12 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.

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).

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.

5 6 7 Month 30- 31

Month 31+ Year 3- 20

4 Month 19- 28

Entry into the Patent issued or

Patent holder pays national stage from

denied by required 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.

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).

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 fee a $240 Search fee b 450 International
fees (basic fee and designation fees) Basic fee 407 Designation fee ($
88x4) 352 Certified copy fee 15

Total PCT chapter I fees $1, 464

PCT chapter II fees Preliminary examination fee c $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.

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 Costs

responsible for paying the required fees to each national or regional
patent 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.

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

Tot al patent office fees fees a (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

Patent to each patent office where a patent has been obtained. Maintenance
fees

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

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

Tot al $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.

U. S. Attorney and Throughout the foreign patent process, the company will
incur fees for U. S.

Foreign Representative attorneys and foreign patent representatives.
Unlike national patent office

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.

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

Methodology obtained relevant fees from the USPTO schedule of patent fees,
effective

October 1, 2001. We used the small entity fees because the company in our

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.

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.

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.

Patent Law Experts* Views on Steps That Small Businesses Should Take to
Improve

Appendi VI x Foreign Patent Efforts 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).

(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)

Report to Congressional Requesters

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

GAO- 03- 910

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

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

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

This is a work of the U. S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

a

GAO United States General Accounting Office

According to the expert panel of patent law attorneys that GAO surveyed,
small businesses that are considering whether to seek patent protection
abroad should identify and assess the full *cradle- to- grave* costs of
acquiring, maintaining, and enforcing foreign patents. Other
considerations should include the locations where small businesses intend
to sell or manufacture their invention and whether the range of benefits
obtained from foreign patents, such as increased sales or higher company
value, is sufficient to justify their cost. Furthermore, small businesses
should try to understand foreign patent laws and systems and the quality
of foreign patent enforcement, the expert panelists said. The small
businesses that GAO surveyed agreed that foreign patent costs, benefits,
and potential locations were important factors in their decisions to
patent abroad. However, some small businesses did not properly evaluate
long- term costs and could not

determine whether foreign patent benefits outweighed the costs. The most
important step that small businesses could take to improve their foreign
patent efforts, according to GAO*s survey of patent law experts, is to
avoid disclosing information publicly about an invention before filing a
U. S. patent application. The United States permits such disclosure, but
doing so can invalidate an applicant*s right to patent protection abroad.
The second most important step is to be aware of filing deadlines, which
are specified in foreign laws and international patent treaties. Other
important steps included integrating foreign patents into long- range
business planning and seeking patents in countries where meaningful
protection is available and a return on investment is likely. Experts*
Views on Key Steps for Small Businesses Seeking Foreign Patents

PATENT PENDING

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

Ensure long- range business plans support foreign patents

Weigh the nature and patentability of inventions

Only patent in countries where patent will be enforced and a return on
investment is likely

Source: GAO analysis of patent attorney panel questionnaires. Treat
patents as assets to be

discarded when usefulness is gone Follow deadlines specified in U. S.,
foreign, and international patent law

Small businesses, which are important to the U. S. economy for their roles
in job creation and

technological development, must be able to protect and profit from their
innovations. One way to protect their innovations on a global basis is to
obtain U. S. and foreign patents. These businesses, however, face numerous

impediments when trying to patent their goods or processes abroad. These
impediments, which GAO identified in a July 2002 report, include high
costs, limited resources, and limited knowledge

among small businesses about foreign patent laws and systems. Because of
concern that small businesses, particularly hightechnology firms, were not
obtaining patent protection abroad and thus were losing potential sales

in foreign markets, GAO was asked 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.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 910. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Loren Yager at (202) 512- 4347, or YagerL@ gao. gov.
Highlights of GAO- 03- 910, a report to the

Chairman, Senate Committee on Small Business and Entrepreneurship; the
Honorable Christopher S. Bond, U. S. Senate; and the Chairman, House
Committee on Small Business

June 2003

INTERNATIONAL TRADE

Experts* Advice for Small Businesses Seeking Foreign Patents

Page i GAO- 03- 910 International Trade

Contents

Contents

Page ii GAO- 03- 910 International Trade

Contents

Page iii GAO- 03- 910 International Trade

Page 1 GAO- 03- 910 International Trade United States General Accounting
Office

Washington, D. C. 20548 Page 1 GAO- 03- 910 International Trade

A

Page 2 GAO- 03- 910 International Trade

Page 3 GAO- 03- 910 International Trade

Page 4 GAO- 03- 910 International Trade

Page 5 GAO- 03- 910 International Trade

Page 6 GAO- 03- 910 International Trade

Page 7 GAO- 03- 910 International Trade

Page 8 GAO- 03- 910 International Trade

Page 9 GAO- 03- 910 International Trade

Page 10 GAO- 03- 910 International Trade

Page 11 GAO- 03- 910 International Trade

Page 12 GAO- 03- 910 International Trade

Page 13 GAO- 03- 910 International Trade

Page 14 GAO- 03- 910 International Trade

Page 15 GAO- 03- 910 International Trade

Page 16 GAO- 03- 910 International Trade

Page 17 GAO- 03- 910 International Trade

Appendix I

Appendix I Objectives, Scope, and Methodology

Page 18 GAO- 03- 910 International Trade

Appendix I Objectives, Scope, and Methodology

Page 19 GAO- 03- 910 International Trade

Page 20 GAO- 03- 910 International Trade

Appendix II

Appendix II Members of GAO*s Patent Attorney Panel

Page 21 GAO- 03- 910 International Trade

Appendix II Members of GAO*s Patent Attorney Panel

Page 22 GAO- 03- 910 International Trade

Page 23 GAO- 03- 910 International Trade

Appendix III

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 24 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 25 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 26 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 27 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 28 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 29 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 30 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 31 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 32 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 33 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 34 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 35 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 36 GAO- 03- 910 International Trade

Appendix III Factors Related to the Decision to Seek Foreign Patents

Page 37 GAO- 03- 910 International Trade

Page 38 GAO- 03- 910 International Trade

Appendix IV

Appendix IV Small Business Views on the Relevance of Certain Factors to
Their Foreign Patent Decisions

Page 39 GAO- 03- 910 International Trade

Page 40 GAO- 03- 910 International Trade

Appendix V

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

Page 41 GAO- 03- 910 International Trade

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

Page 42 GAO- 03- 910 International Trade

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

Page 43 GAO- 03- 910 International Trade

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

Page 44 GAO- 03- 910 International Trade

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

Page 45 GAO- 03- 910 International Trade

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

Page 46 GAO- 03- 910 International Trade

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

Page 47 GAO- 03- 910 International Trade

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

Page 48 GAO- 03- 910 International Trade

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

Page 49 GAO- 03- 910 International Trade

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

Page 50 GAO- 03- 910 International Trade

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

Page 51 GAO- 03- 910 International Trade

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

Page 52 GAO- 03- 910 International Trade

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

Page 53 GAO- 03- 910 International Trade

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

Page 54 GAO- 03- 910 International Trade

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

Page 55 GAO- 03- 910 International Trade

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

Page 56 GAO- 03- 910 International Trade

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

Page 57 GAO- 03- 910 International Trade

Page 58 GAO- 03- 910 International Trade

Appendix VI

Appendix VI Patent Law Experts* Views on Steps That Small Businesses
Should Take to Improve

Foreign Patent Efforts Page 59 GAO- 03- 910 International Trade

GAO*s Mission The General Accounting Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities

and to help improve the performance and accountability of the federal
government for the American people. GAO examines the use of public funds;
evaluates federal programs and policies; and provides analyses,
recommendations, and other assistance to help Congress make informed
oversight, policy, and funding decisions. GAO*s commitment to good
government is reflected in its core values of accountability, integrity,
and reliability.

Obtaining Copies of GAO Reports and Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail this

list to you every afternoon, go to www. gao. gov and select *Subscribe to
e- mail alerts* under the *Order GAO Products* heading. Order by Mail or
Phone The first copy of each printed report is free. Additional copies are
$2 each. A check

or money order should be made out to the Superintendent of Documents. GAO
also accepts VISA and Mastercard. Orders for 100 or more copies mailed to
a single address are discounted 25 percent. Orders should be sent to:

U. S. General Accounting Office 441 G Street NW, Room LM Washington, D. C.
20548

To order by Phone: Voice: (202) 512- 6000 TDD: (202) 512- 2537 Fax: (202)
512- 6061

To Report Fraud, Waste, and Abuse in Federal Programs

Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
512- 7470

Public Affairs Jeff Nelligan, Managing Director, NelliganJ@ gao. gov (202)
512- 4800 U. S. General Accounting Office, 441 G Street NW, Room 7149

Washington, D. C. 20548

United States General Accounting Office Washington, D. C. 20548- 0001
Official Business Penalty for Private Use $300 Address Service Requested

Presorted Standard Postage & Fees Paid

GAO Permit No. GI00
*** End of document. ***