The hidden cost of patent renewals

Why you shouldn't get distracted on the 20%; instead ask about where 80% of your money is going.

Patent renewal service providers love to show low headline service fees for patent renewals, but these rates are a distraction from the real cost. The bulk of the cost of renewing patents is made up of patent office fees and local agent fees in-country as well as hedging costs. The remainder is made up of transaction costs eg. bank fees and then the service fee makes up a small portion of the total cost, somewhere around 15%-25%, having come down significantly in recent years from around 40% of total cost. It is tempting to focus on service fees when comparing providers but as we will see, most of the spend is elsewhere and you may be paying too much for this lion's share of the cost.

In an ideal world a patent renewal would cost say 50$ at the PTO and you would pay the PTO directly 50$ for your renewal. Reality is a lot more complex. Many countries do not support direct payments and so an intermediary is used to make payment. This agent charges a fee for making the payment to the PTO and in turn you pay the agent fee alongside the PTO fee. In case you delegate this process to a global service provider, you also pay their service or handling fee too. Then of course there are the transaction fees, which banks charge for making the payment on behalf of the provider to the agent.

Suddenly your 50$ PTO fee has ballooned to include an agent fee and bank fees and probably a service provider fee as well. Agent fees are a large portion of your spend on patents and are often a lot more than the actual PTO renewal fee, usually 100$-200$. This is why it is so critical to pay directly where possible.

In addition currency and hedging fees are around 20% of the total cost, as providers want to ensure they do not lose out due to currency fluctuations between payments.

To summarise: PTO fees make up about 28% of the total cost these days. Hedging and transaction costs make up about 25%, having gone up significantly in recent years. Meanwhile agent fees make up about 25% of total cost. The remaining 22% is service fees.

The importance of hedging and currency fees

Let us look at the cost of hedging for a moment. Why has it gone up from around 5% to 20% in recent years? Why have service fees gone down from around 40% of the cost to less than 25%? Are providers suddenly making less profits? Did costs of hedging rise dramatically?

Many providers use currency buffers and hedging costs as a profit center. It is very difficult for a client to get transparency into these costs without spending an inordinate amount of time on invoice checking. It is critical when changing and reviewing new providers to ask about the real cost breakdown. Do not be tempted to focus on headline service fees while ignoring the total cost of paying. Providers should be refunding unused hedge.

Why do agent fees matter?

In addition to hedging costs, local agent fees make up around 25% of spend. Many providers use agents to pay in every single country although it is completely unnecessary because many countries support direct payment to the PTO. Why do they do this? Simple; it is easier for them and they may receive reciprocity from the agent for sending them your work. You pay more so they can acquire new business!

The agent fees themselves are also critical. Agents are needed in many countries and your provider should be optimizing these fees. This is one of the key benefits of using a service provider; to benefit from their volume fees. If they are not negotiating with their agents or not passing on the savings to you, then you are not benefiting fully from the relationship as you should be. It is becoming more and more common for providers to negotiate great volume rates with agents and then mark up the prices 20% or more so in the end they benefit from your volume, while you pay more.

And what about service fees, are they not important?

Yes! Service fees are a part of the cost and therefore important however as we can see now, the total cost of payment is what YOU PAY and therefore that is the figure that matters most. When you pay a service fee, you should ask “What am I getting in return?”, “What service am I receiving?”.

In return for your service fee your provider should be helping you do two things:

1. Lower costs 2. Get attention when you need it!

In too many situations, we see increasing hidden costs, while reducing headline rates to distract from the true cost of payment. In turn due to consolidation in the marketplace, there is less competition and existing providers have grown larger. This can have an impact on service, particularly for smaller and medium sized law firms or corporations, who find themselves with a poor market choice and providers who no longer value their business due to their scale.

What to look for in a patent renewals provider; Ask for this!

1. Transparency: Open breakdowns of cost factors in quotations

2. A commitment to charge PTO fees correctly without markups

3. Unused currency and hedging buffer should be refunded periodically

4. Focus on total cost of payment and not just headline service fees

5. Does not lock you into annual or multi year contracts. Happy clients will stay!

6. Pays directly where possible to reduce agent fees

7. Seeks to reduce transaction costs by regularly negotiating payment fees

8. Helps you compare total costs eg. invoice audits on your behalf and detailed quotes

Please feel free to contact me at brian@myipcustodian.com for any questions or comments.