Canada Gazette, Part I, Volume 156, Number 53: Rules Amending the Patent Rules

December 31, 2022

Statutory authority
Patent Act

Sponsoring department
Department of Industry

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issues

CIPO is a special operating agency of Innovation, Science and Economic Development Canada. CIPO delivers intellectual property (IP) services in Canada and educates Canadians on how to use IP more effectively. CIPO’s leadership and expertise in IP supports creativity, enhances innovation, and contributes to economic success.

CIPO funds its operations on a cost-recovery basis from the revenue it generates from fees paid by clients for IP services. Therefore, fees must be sufficient to recover the costs of the associated activities in order to adequately fund and support CIPO’s operations.

CIPO’s fees were last subject to a comprehensive review in January 2004. Based on current projections, CIPO is expected to run out of money by September 2024. Revenue will continue to be lower than expenditures and the Unused Authority would become negative by 2024–25 without a fee increase. This insolvency would force CIPO, in the absence of additional funding or revenue sources, to cut costs by approximately $35M each year between 2024/25–2028/29. This cut in costs would lead to severely hampered ability to deliver IP services including long delays and a potentially large deterioration of the state of IP rights in Canada. Alternatively, the forecasted insolvency could require Canadian taxpayers to cover the shortfall.

In addition to the issues identified above, the current Patent Rules contain some parts that could be misinterpreted, which have become evident since the previous amendments Rules Amending the Patent Rules (SOR/2022-120) were registered on June 3, 2022. These could obscure the original policy intent as described in the associated Regulatory Impact Analysis Statement and, in other cases, cause the policy intent not to be met.

Background

CIPO does not receive an annual budget for its operations from the Government of Canada, but instead is fully funded through the revenues it generates through service fees. CIPO manages its revenues and costs within a revolving fund.

The revolving fund, established in 1994, is an ongoing funding authority for revenue re-spending that provides a financial management structure similar to that of a private business and must generate sufficient revenues to meet its expenses.

IP activity continues to grow both in Canada and internationally. In 2021–22, CIPO received over 139 000 IP applications. There were applications for 39 709 patents, 79 808 trademarks, 9 067 industrial designs and 11 163 copyrights. Over 70% of CIPO’s clients are from outside of Canada, with many of these coming from the United States, Germany (and the larger European Union), and China.

CIPO operates on a multi-year business cycle and can run surpluses or deficits in any given year. From year to year, demand for services varies and fees must be structured to generate enough revenue for the organization to withstand such variances and any changes to expenses resulting from continually increasing costs. Likewise, the IP application and examination process can cross two or more fiscal years, requiring deferred revenue to be carried forward until it is earned. CIPO can retain surpluses and use them in future periods when there is a deficit. Fees should be set at a level such that, over a normal business cycle, revenue and expenditures are balanced. CIPO has used activity-based costing extensively for the past 10 years to evaluate the relationship between costs, activities, and services in order to strategically manage its business. Surpluses are authorized to be accumulated for the purpose of reinvesting in its operations and required capital investments.

CIPO fees have not been substantively increased in the past 18 years to account for inflation, growth, increased IT capacity or demand. As a result, CIPO has been in a net loss position annually (i.e. structural deficit) since FY 2017–18. Earned revenue from core activities (i.e. applications, grants and registrations) are trending down. However, maintenance fees and renewals have been trending upward and now represent almost half of all CIPO revenue.

Since the last fee review in 2004, several factors have converged to put the organization in a critical financial position, including

• almost 30% inflation since 2004 (covering rent, access to data, professional services, etc.);
• successive increasing wage settlements (on average, labour costs have increased by 28% since 2004);
• requirements for capital investments in information technology (IT) to overhaul legacy systems;
• legislative changes and trade agreements that required significant IT investment; and
• joining treaties that have led to an influx of IP applications resulting in backlogs.

CIPO’s last “profitable” fiscal year (in modified cash accounting basis) dates back to FY 2015–16, with a net contribution of $3.5M (i.e. $153.9M in revenue collected less $150.4M expenditures) toward the Fund’s Unused Authority.^{footnote 1} The Unused Authority at the end of 2015–16 was $176.0M. In each of the following six fiscal years, the Fund recorded annual deficits between $6.5M and $19.6M.^{footnote 2} These deficits were driven primarily by an increase in operating costs (mainly comprised of salaries) and also critical capital investments that were planned years earlier which could no longer be delayed. By FY 2021–22, CIPO was collecting $180.5M in revenue, with expenditures of $197.6M. The Unused Authority at the end of 2021–22 was $83.4M and it is expected to decrease to approximately $45M by the end of 2022–23. As a result of the structural deficit situation, CIPO proceeded with an expenditure review and made temporary spending reductions, in anticipation of adjusting fees to fully recover the true cost of its activities. For example, CIPO has had to pause trademarks digitization efforts, workplace modernization and also postpone the hiring of staff in non-revenue-generating areas.

Objective

The overarching objective of this regulatory proposal is to bring long-term financial stability to CIPO. Within this objective, CIPO intends to limit the financial burden on small enterprises and individuals, and make critical investments in IT infrastructure and workplaces to bring them to present standards.

Description

CIPO fees are spread across five sets of IP regulations made under their corresponding enabling statutes including the Patent Act, the Trademarks Act, the Industrial Design Act, the Copyright Act and the Integrated Circuit Topography Act. Each set of regulations contains the corresponding fees that are related to each intellectual property right in a schedule. CIPO’s general approach to its fee adjustment exercise would be to keep the current fee structure and adjust most fees by 25% above the January 1, 2024, inflation adjustment to catch up with the almost 30% inflation since 2004. The proposed fee amounts would be rounded off to the nearest dollar to reduce the administrative burden. CIPO would maintain the current small entity patent fees for Canadian small enterprises (i.e. no 25% fee increase) and expand the definition of a small business under its patent line by increasing the number of employees an organization is able to have to be eligible to declare itself as a small entity from 50 to less than 100.^{footnote 3}

For CIPO’s fees that are low-materiality fees defined as per the Low-materiality Fees Regulations (LMFR), CIPO’s approach would be to raise these fees by 25%, unless doing so would cause them to become an amount equal to or higher than $151, and therefore make them material fees. CIPO would cap six low-materiality fees at $150 to ensure their low-materiality status does not change once fees are rounded off to the nearest whole dollar amount.

Some adjustments that are an exception to the 25% increase are proposed in relation to the fees in the Rules Amending the Patent Rules that came into force on October 3, 2022. For example, excess claims fees would not have a 25% increase since these are brand new fees that have not been subject to inflation since 2004. In comparison, the fee for a request for continued examination, which also came into force on October 3, 2022, is proposed to be adjusted to the same amount as the request for examination fee (which is subject to the 25% increase). This approach is consistent with the policy intent expressed when the request for continued examination fee was introduced.

Minor housekeeping amendments would be made to the Patent Rules regarding late fees under the Patent Cooperation Treaty, to move the geographical indications fee to the Trademarks Regulation, and to correct the Industrial Design Regulations to indicate “Filing Examination of an application” instead of “Examination of an application.” Several other amendments of a technical nature are proposed to the Patent Rules to bring clarity to applicants and to ensure the original policy intent is met. The proposed amendments would clarify the application of the Patent Rules introduced on October 3, 2022, to patent applications for which the filing date is on or after October 1, 1996, but before October 30, 2019.

Regulatory development

Consultation

Preliminary consultation

Preliminary consultations took place on August 3 and 4, 2021. Separate meetings were held with each of the three key stakeholders — the Intellectual Property Institute of Canada (IPIC), the International Federation of Intellectual Property Attorneys (FICPI), and the Canadian Bar Association (CBA). This consultation was a high-level, fact-based presentation to explain CIPO’s current context, including the increased demand in IP rights, the operational, policy and financial pressures, the international context, and the value proposition for increased fees for improving service delivery in the coming years.

• IPIC: IPIC offered comments regarding the backlog of trademarks and the productivity issues of the Trademark and Industrial Designs Branch, citing that many clients have complained about the backlog in processing trademark applications. They recognize that a fee increase would help address service delivery challenges. They also asked why fees had not been increased since 2004, noting that smaller regular increases are easier for businesses to absorb than large-scale fee revisions. They recognized that the Service Fees Act addresses this concern as future fee adjustments would occur on a regular basis moving forward. They signalled that they are open to special considerations for fees targeting small businesses. Perhaps the most telling signal from IPIC is that they understood that a fee review is necessary to improve service delivery and they supported CIPO’s intention to proceed.
• FICPI: FICPI stated that they strongly support any initiative addressing CIPO’s financial pressures, and strongly support a fee increase.
• CBA: The CBA acknowledged that CIPO’s fees have not changed in a long time and that this exercise is likely in order. They also noted that it is worthwhile to go through this exercise at this time, given that systems have changed so much since 2004 when CIPO’s fees were last increased. However, they suggested that CIPO should approach this initiative in the spirit of making the process less onerous for clients, by streamlining services and by increasing access to the system.

Public consultation

CIPO launched an online consultation on March 31, 2022, and received a total of 134 survey responses and four written submissions when the consultation closed on April 29, 2022. This consultation allowed CIPO to gauge reactions from a range of stakeholders on CIPO’s general approach to increasing fees. The survey was designed to collect feedback on the following topics: overall reasonableness of proposed changes; impacts of proposed changes; and clarity of messaging for proposed fee changes.

Overall, the survey revealed that clients and stakeholders were split on the question of whether the proposed 25% increase to fees was reasonable. Slightly under half (48.5%) recognized that it is reasonable for CIPO to increase fees to account for inflation and to align with the modern costs of delivering services. In the comments, some noted that even with the increase, CIPO fees would seem reasonable by international comparison, whereas others were accepting of the increased fees if it helped with the client service experience and introducing new IT systems to improve filing and online access to files.

Key stakeholders support CIPO’s plan to adjust fees as increased revenues will allow CIPO to move towards improved service delivery. They proposed that CIPO consider reducing fees for small businesses for trademarks and industrial designs, and indicated that CIPO would benefit from reviewing its fee structure more closely in the future in order to identify and implement new policy initiatives that would be beneficial to the Canadian IP system.

From CIPO’s consultations thus far, it is clear that most clients and stakeholders would like to see service improvements but are cognizant that fees must be increased in order to delivery high quality and timely IP services to customers. Interested clients and stakeholders can access CIPO’s published What We Heard report that summarizes comments received, including findings, conclusions and next steps.

Addressing stakeholder feedback

Comments related to rounding of fees: There was criticism around “how” fees were being raised as IP agents would prefer a simplified fee structure whereby the fee amounts with decimals are rounded off to a whole dollar amount in order to decrease administrative burden.

Response: CIPO would round the fees to the nearest whole dollar amount at implementation to reduce the administrative burden of the fee increase. Moving forward, CIPO would explore options to maintain full-dollar amounts after annual inflation adjustments.

Comments related to the phasing in of fees: While stakeholders understood the rationale behind the proposed increase in fees, some stated that they would like to see prices increase over a number of years rather than all at once. A “phased-in approach” of increasing fees was also raised by the CBA, IPIC and FICPI.

Response: CIPO assessed the feasibility of phasing in fees over multiple years by looking at two alternatives. The first alternative is two consecutive increases of 15%. The second alternative is a 15% increase followed by two consecutive increases of 10%. CIPO determined that the best course of action for all CIPO clients, current and future, would be to proceed with the proposed one-time 25% increase. A detailed explanation of CIPO’s rationale can be found in the ensuing “Instrument choice” section.

Comments related to service standards and delays: CIPO’s key stakeholders were generally supportive of the draft fee proposal and understood that the 25% fee adjustment is to catch up with inflation. Clients and stakeholders are expecting to see tangible service improvements arising at CIPO as a result of the increase in fees.

Response: The increased revenue from the proposed amendments would create financial stability and flexibility for CIPO over the long term. As a result, CIPO would have the ability to address the critical capacity and technological investments needed to provide improved service to CIPO’s domestic and international clients.

Modern treaty obligations and Indigenous engagement and consultation

The initial assessment examined the geographical scope and subject matter of the initiative in relation to modern treaties in effect and did not identify any potential modern treaty impacts.

Instrument choice

Almost all of CIPO’s fees are fixed by regulations with the exception of one geographical indication fee that is fixed under subsection 18(1) of the Department of Industry Act for “the processing of requests for protection of geographical indications by the Canadian Intellectual Property Office.” As a result, 142 out of 143 IP-related fees are found in the Patent Rules, the Trademarks Regulations, the Industrial Design Regulations, the Copyright Regulations, and the Integrated Circuit Topography Regulations. Therefore, to change any of these fees (with the exception of annual adjustments as per the Service Fees Act), it must be done through regulatory amendments.

In addition to the proposed one-time 25% increase, two other one-time increase options (i.e. 20% and 30%) were considered during the development of the fee proposal. CIPO ultimately consulted on the 25% increase. Stakeholders indicated that the proposed one-time 25% fee increase could be difficult for clients to absorb at once. There were some that suggested the fee increase be phased in over a time period. Two phase-in options were considered that would maintain CIPO’s long-term financial viability: a two-year phase-in period (consecutive 15% increases), and a three-year phase-in (a 15% increase followed by two 10% increases).

Baseline scenario

In the absence of the proposed fee increases, CIPO’s current structural deficit would result in insolvency in FY 2024–25. This insolvency would force CIPO, in the absence of additional funding or revenue sources, to cut costs by approximately 17% over 2024–25 to 2028–29. The effects of 17% in cost reduction would lead to severely hampered ability to deliver services including long delays and a potentially large deterioration of the state of IP rights in Canada. Alternatively, the forecasted insolvency could require Canadian taxpayers to cover the shortfall.

One-time 20% fee increase

Applying a one-time 20% fee increase would generate very limited short to medium term financial flexibility and put CIPO at risk of having to undertake another fee review within a few years, if unforeseen events were to negatively affect the finances of the organization. For example, an economic downturn could translate into lower demand and reduced revenues. Or, staff turnover could lead to a temporary decline in productivity, requiring additional resource levels and triggering increased costs for staffing and training.

One-time 30% fee increase

Applying a one-time 30% fee increase would allow CIPO to reach the optimal level of unused authority of $100M within approximately three years after implementation. By then, however, there is a risk that CIPO could be perceived as overcharging its clients and may need to readjust its fees down.

Phased-in fee increases

In response to stakeholder feedback, CIPO assessed two options with respect to phasing in a fee increase: (1) a consecutive 15% increase over two years, and (2) a three-year phase in with the first year seeing a 15% increase followed by two years with 10% increase each year. Both phase-in options maintain CIPO’s long-term viability.

CIPO is proposing to move forward with a one-time fee increase, as CIPO’s fees are already structured in a way that distributes IP costs over time (e.g. IP maintenance, IP renewal). IP applicants and owners do not pay the total cost of their IP all at once, but rather over a period of years. The following process map provides an example of how fees are spread out over the life of a patent: IP roadmap on patent grants.

CIPO’s revolving fund has operated at a deficit since FY 2017–18, and approximately seven years will have elapsed by the time any increased fees are implemented. During this period, current IP owners and applicants are having their fees subsidized by future ones because their services are being provided by CIPO below cost. Phasing in the fee increase will further extend this period of subsidization and result in CIPO accumulating a larger deficit for FY 2024–25, which is expected to reduce CIPO’s unused authority to $5M. This increases the risk substantially of needing to delay critical capital IT investments and planned staffing. Operationally, this could lead to diminished service standards and increased backlogs which could, in turn, negatively affect the overall IP ecosystem in Canada. Delayed capital IT investment could also result in increased costs in future years.

Proposed one-time 25% fee increase

The recommended across-the-board fee increase of 25% would

• Allow CIPO to resolve its structural deficit, catching up on historical inflation of around 30% since the last fee adjustment in 2004;
• Ensure that the revolving fund remains self-sufficient over its business cycle, with surpluses averaging around 7% annually during the first five years; and
• Create financial flexibility required for
  • Capital investments such as IT and other service delivery improvements,
  • The potential of an economic downturn,
  • The normal variability of expenditure and revenue forecasts over a multi-year horizon, and
  • Create a financial buffer to help manage spending over the long-term. Specifically, cover CIPO’s liability to clients who pay for services in advance, which is estimated at approximately $100M on an ongoing basis by 2028–2029.

In summary, the proposed fee increase of 25% addresses the estimated 17% shortfall and creates a sufficient cash reserve, funds critical investments, accounts for risks associated with potential economic downturn and long-term estimates.

Regulatory analysis

Benefits and costs

The proposed amendments would increase most fees by 25% with the exception for small entity fees, some low materiality fees, and some fees included in the proposed Rules Amending the Patent Rules registered on June 3, 2022. The amendments would also expand the definition of “small entity” under the patent IP business line from 50 employees or less to fewer than 100 employees. The percentage of small entity declaration is assumed to be 10%. The volumes for each fee were modelled individually using historical information and the baseline and regulatory scenarios use the same volumes for each fee.

A cost-benefit analysis was conducted to determine the impact of the proposed amendments on stakeholders. The proposed amendments were assessed qualitatively and quantitatively. They are intended to bring long-term financial stability to CIPO while limiting the impact on small businesses, and to make critical investments. The amendments would result in identifiable costs and benefits to Canadians, to CIPO, and to CIPO’s clients. The proposed amendment to expand the definition of “small entity” and not increase small entity fees would limit the scope and scale of negative impacts on small businesses while still providing benefits.

The net present value of the quantified impacts over a 10-year period would be $222.2M, with a total benefit of $286.5M and a total cost of $64.2M. Present values are discounted to 2022 using a rate of 7% and presented in 2022 Canadian dollars. The large net present value is primarily due to the exclusion of costs to foreign clients from the calculation.

A copy of the full cost-benefit analysis report is available by contacting CIPOFeeReview-RevisiondesfraisOPIC@ised-isde.gc.ca.

Key assumptions

It is assumed that the demand for IP protection is inelastic at the proposed prices and hence, there would be an insignificant reduction in quantity, in response to the price increase. This assumption is derived from the following:

• The incremental increases in cost are relatively small compared to the overall investment;
• There are limited alternatives to the services provided by CIPO; and
• That CIPO did not experience a drop in demand following the previous fee adjustment in 2004 (which was a larger percentage increase).

The incremental increase in costs is marginal, when considering that CIPO fees represent only a fraction of the total cost for IP applicants given that the majority of them incur costs to retain the services of agent firms throughout the process. The patent business line produces the vast majority of CIPO’s revenue and the average total patent fees would increase by less than $1,000 while small entity patent fees would see an approximate $20 increase. A full-term patent would see an incremental increase of about $1,650, and a patent abandoned at its second anniversary would see less than a $400 incremental increase. Trademark fees would increase by less than $300 and industrial design fees by about $200. The increased fees would also be spread out over the lifetime of the IP product with fees being paid at various key stages. For example, the majority of patent revenue is generated through maintenance fees which are paid annually over 19 years.

Furthermore, while an annualized amount of $40.5M (see table below on monetized benefits) might appear to be a substantial cost, it is insignificant across the entire development costs of IP products. For example, during 2020, there was $67.7B in IP product investment in Canada.^{footnote 4} Patented drug sales in Canada reached $17.5B in 2020 with patentees reporting $822.9M in total research and development expenditures.^{footnote 5} In the United States, the largest foreign applicant group for CIPO, there was over US$1 trillion in private fixed investment in IP products in 2020. Across a variety of metrics, CIPO’s fee increase would be inconsequential against the total lifetime costs of IP development, and the services provided by CIPO support billions of dollars in revenue.

There are limited alternatives to the services provided by CIPO, in particular for patents and industrial designs, and no perfect substitutes which would further limit the demand response. If stakeholders are seeking IP protection in Canada, CIPO is the only vehicle that is available.

This assumption is also supported by the fact that there was no substantial reduction in the quantity of IP applications following a similar fee adjustment in 2004 by CIPO. CIPO’s fee adjustment in 2004 was non-uniform across the 100 or so fees affected but saw a weighted average increase of 34% across 9 key fees (i.e. application fees for patents, trademarks and industrial designs, request for examination fees for patents, maintenance fees for patents, maintenance fees for industrial design, renewal fees for trademarks, grant fees for patents, and registration fees for trademarks).^{footnote 6}

Both the baseline and regulatory scenarios assume patent applications are 88.3% foreign and 11.7% domestic, with the same distribution for small entities and non-small entities. Copyright filings are assumed to be 90.7% domestic and 9.3% foreign. Industrial design filings are assumed to be 12.7% domestic and 87.3% foreign. Trademark filings are assumed to be 43.1% domestic and 56.9% foreign.

Methodology

Following the Treasury Board of Canada Secretariat’s Cost-Benefit Analysis Guide,^{footnote 7} costs and benefits attributed to Canadians are forecast over a 10-year period from FY 2024–25 to FY 2033–34.

The volumes for each fee were modelled individually using historical information. The quantity reduction due to the fee increase is expected to be too small; therefore, the same volumes for each fee were used for both the baseline and regulatory scenario. Forecasted volume increases across key fees between FY 2024–25 and FY 2033–34 are as follows: patent applications (4.4%), trademark applications (27.2%), industrial design applications (35.4%), copyright applications (0%), patent request for examination (2.1%), patent maintenance fees (−6.8%), industrial design maintenance fees (56.9%), and trademark renewals (227%). These volumes were multiplied by the incremental fees to calculate the incremental revenue from the fee increase. The impact of the “small entity” definition expansion was calculated by multiplying percentage increase in firms qualifying for the small entity reduction by the total revenue generated from fees where a small entity reduction exists.

Benefits

The benefits of the proposed amendments are primarily attributed to CIPO through increased revenue ($284.7M) and long-term financial stability. Those fees paid by both domestic and foreign applicants are sources of revenue for CIPO. The benefits to CIPO from domestic and foreign clients are $62.5M and $222.2M, respectively. In terms of business line, the benefits to CIPO are $183.1M from patents, $90.4M from trademarks, $10.3M from industrial designs, and $0.8M from copyrights. Small businesses would also benefit from the expansion of the “small entity” definition ($1.8M).

Costs

The incremental costs of paying the increased fees would primarily be borne by foreign IP applicants and owners since most applicants seeking IP protection in Canada are foreign. Broken down by business lines, the net present value of monetized costs to Canadian applicants would be $21.4M for patents, $39M for trademarks, $1.3M for industrial designs and $0.8M for copyrights. There would also be an increased cost for CIPO due to the expansion of the “small entity” definition ($1.8M).

Cost-benefit statement

• Number of years: 10 (FY 2024–25 to FY 2033–34)
• Base year for costing: 2022
• Present value base year: 2022
• Discount rate: 7%

Table 1: Monetized costs

Impacted stakeholder	Description of cost	Base year (2024–2025, present value)	2026–2027 (present value)	2029–2030 (present value)	Final year (2033–2034, present value)	Total (present value)	Annualized value
Government	Small entity definition expansion	$140,682	$170,264	$187,873	$177,813	$1,789,180	$254,739
Industry	Fee increase	$7,476,647	$6,784,942	$6,418,944	$5,336,089	$62,460,490	$8,892,969
All stakeholders	Total costs	$7,617,329	$6,955,206	$6,606,817	$5,513,902	$64,249,670	$9,147,708

Table 2: Monetized benefits

Impacted stakeholder	Description of benefit	Base year (2024–2025, present value)	2026–2027 (present value)	2029–2030 (present value)	Final year (2033–2034, present value)	Total (present value)	Annualized value
Government	Fee increase	$35,688,875	$32,080,060	$28,205,429	$22,379,664	$284,690,302	$40,533,494
Industry	Small entity definition expansion	$140,682	$170,264	$187,873	$177,813	$1,789,180	$254,739
All stakeholders	Total benefits	$35,829,557	$32,250,324	$28,393,302	$22,557,477	$286,479,482	$40,788,233

Table 3: Summary of monetized costs and benefits

Impacts	Base year (2024–2025, present value)	2026–2027 (present value)	2029–2030 (present value)	Final year (2033–2034, present value)	Total (present value)	Annualized value
Total costs	$7,617,329	$6,955,205	$6,606,817	$5,513,902	$64,249,670	$9,147,708
Total benefits	$35,829,557	$32,250,324	$28,393,302	$22,557,477	$286,479,482	$40,788,233
NET IMPACT	$28,212,228	$25,295,119	$21,786,485	$17,043,575	$222,229,812	$31,640,525

Quantified (non-monetized) and qualitative impacts

Positive impacts

• Canadians would benefit from an efficient and effective IP ecosystem.

Negative impacts

• Canadians purchasing IP goods may see higher prices as a result of the fee increase.

Sensitivity analysis

A number of assumptions have been made to estimate the costs of the proposed amendments. To address the effect of uncertainty and variability on these assumptions, a sensitivity analysis is conducted, where variables are assigned different values, and outcomes are re-evaluated. This sensitivity analysis represents an alternate scenario to the central scenario presented in the “Benefits and costs” section above.

The most important variable that is subject to uncertainty and variability is the response by applicants to the increase in fees as a result of price elasticity. The results of CIPO’s analysis of internal information across three business lines are summarized in the table below. The percentages in column “CIPO” show the alternate demand response to the 25% price increase.

Table 4: Potential impact of a 25% fee increase on future demand for IP in Canada

IP type	Service	CIPO
Patents	Filing fees	−7.3%
	Maintenance fees (average across all maintenance fees)	−5.0%
Trademarks	Filing fees	−10.2%
Industrial designs	Filing fees	−9.5%

Based on an internal assessment of available information and research, the following scenario represents the reduced demand response to the 25% increase in price by CIPO’s clients. The reduced demand scenario in the table below uses the price elasticities from column “CIPO” in the table above.

Table 5: Summary of monetized costs and benefits — Comparing scenarios

Monetized costs and benefits	Central analysis	Reduced demand scenario
Net benefits	$286,479,482	$202,727,328
Net costs	$64,249,670	$44,879,088
Net impact	$222,229,812	$157,848,240

Distributional analysis

Canadian and foreign clients of CIPO would be impacted by the proposed amendments. Domestic filings represent 11.7% of patent applications, 43.1% of trademark applications, 12.7% of industrial designs and 90.7% of copyrights. A distributional analysis shows the majority of the costs would be borne in Ontario ($27.9M), Quebec ($12.9M), British Columbia ($9.8M) and Alberta ($7.6M).

Small business lens

Small entity fees currently exist at CIPO within the patent line of business. Those fees will continue to exist and would not be subject to the standard increase of 25%. In addition, the proposal would amend the current definition of a “small entity” in the Patent Rules. A small entity declaration grants a company that meets certain criteria discounted rates for patent applications. Currently, small entities are defined as those companies that employ 50 or fewer employees at the time of the filing of the patent application, or are a university. This proposal would increase the number of employees an organization is allowed to have to be eligible for a small entity declaration from 50 employees or less to fewer than 100 employees in order to promote the use of this process. This means that a greater number of businesses would be able to pay the discounted patent fees specifically targeting small entities.

An analysis under the small business lens has determined that the proposed amendments would result in increased costs to small businesses for all four business lines identified.

Small businesses exclusively using CIPO’s services related to industrial designs, copyrights, and trademarks would see an increase in costs due to the price adjustment. However, under the patent business line, the expanded definition of small entity would reduce costs for small businesses with 50 to less than 100 employees; the freeze on small entity fees would keep costs the same for small businesses with 50 or fewer employees; and for the fees that do not have a small entity reduction, the proposal would increase costs for small businesses. The net effect on small businesses would depend on the basket of IP services they purchase.

The estimated revenue portion for small businesses for each business line is patents (10%), industrial designs (15%), copyrights (16%), and trademarks (17%). The small entity reduction for patent fees reduces the burden on small businesses because it reduces the cost on key high revenue fees (e.g. application fees, request for examination fees, maintenance fees).

Dividing the total present value incremental costs for small businesses by the number of small businesses results in an average cost increase of $60.25. The IP protected through these costs can provide substantial benefits for the owners. Between 2018 and 2020, over double the percentage of small and medium enterprises (SMEs) that hold IP experienced 16% or greater growth rates compared to SMEs that do not hold IP.^{footnote 8} Small businesses would receive a total benefit of $1.8M from the expanded definition of small entity.

Small business lens summary

• Number of small businesses impacted: 132,533^{footnote 9,footnote 10}
• Number of years: 10 (FY 2024–25 to FY 2033–34)
• Base year for costing: 2022
• Present value base year: 2022
• Discount rate: 7%

Table 6: Compliance costs

Activity	Annualized value	Present value
Patents	$138,390	$971,996
Trademarks	$954,750	$6,705,764
Industrial designs	$27,023	$189,800
Copyrights	$16,807	$118,042
Total compliance cost	$1,136,970	$7,985,603

One-for-one rule

The one-for-one rule does not apply as there is no incremental change in the administrative burden on business and no regulatory titles are repealed or introduced.

Regulatory cooperation and alignment

The proposed amendments are not related to a work plan or commitment under a formal regulatory cooperation forum (e.g. the Canada–United States Regulatory Cooperation Council, the Canadian Free Trade Agreement Regulatory Reconciliation and Cooperation Table, the Canada–European Union Comprehensive Economic and Trade Agreement Regulatory Cooperation Forum). The price adjustments were made with a view to CIPO’s specific financial situation and therefore do not directly align with fees charged by other intellectual property offices. The definition of “small entity” is being adjusted to align with the definitions of the Treasury Board of Canada Secretariat and Innovation, Science and Economic Development Canada and therefore does not directly align with the definition employed by other intellectual property offices.

IP rights are generally harmonized throughout the world among offices where there are similar legislative frameworks through a number of multilateral treaties, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs agreement) and a number of other treaties administered by the World Intellectual Property Organization. Currently, CIPO’s fees are not aligned with those of our international counterparts who have more recently adjusted their fees to address inflation. Although other offices offer similar IP rights to applicants, in some cases, there are differences in the ways fees are structured. CIPO undertook a fee comparison that looked at rates at IP offices in the United Kingdom, the United States, the European Union, Japan, and Australia as comparators because these countries provide identical services to market-based economies that resemble Canada’s. The proposed changes were made, in part, because Canada’s fees are generally lower than those of our major trading partners.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

Although it is commonly understood that differences in gender exist in IP intensive fields, it is not expected that this narrow set of regulations would disproportionally affect any groups (based on factors such as gender, sex, age, language, education, geography, culture, ethnicity, income, ability, sexual orientation, gender identity). As CIPO’s general approach to its fee adjustment is to increase most fees by 25%, no disproportional effects are expected on any group. The freeze on small entity patent fees further limits the potential for individuals to face increased fees.

Implementation, compliance and enforcement, and service standards

Implementation

The proposed amendments would come into force on January 1, 2024, with the exception of the housekeeping amendments related to the Patent Rules, which would come into force on registration. It is anticipated that affected stakeholders would have a sufficient period of time between publication in the Canada Gazette, Part II, and the January 1, 2024, coming-into-force date to familiarize themselves with the regulatory changes and to implement any changes needed to their processes, documentation, and information technology.

As part of the implementation, CIPO would notify stakeholders of the coming-into-force dates of the proposed amendments via email. CIPO would answer general questions regarding the proposed amendments. Outreach would be proactive and conducted via direct email and social media posts. CIPO’s website and information technology would be updated to support the implementation of the proposed amendments.

Service standards

Existing service standards (Client Service Standards of the Canadian Intellectual Property Office) would be used for all fees affected by the proposed amendments. In cases where a service standard is not met, a portion of the fee would be remitted to the client in accordance with the Service Fees Act and CIPO’s remissions policy (Remissions at CIPO — Canadian Intellectual Property Office).

CIPO is not proposing to change service standards as part of this fee proposal.

Contact

Elias Collette
Director General
Canadian Intellectual Property Office
Innovation, Science and Economic Development Canada
Email: elias.collette@ised-isde.gc.ca
Telephone: 819‑743‑7698

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council proposes to make the annexed Rules Amending the Patent Rules under subsection 12(1)^{footnote a} of the Patent Act ^{footnote b}.

Interested persons may make representations concerning the proposed Rules within 30 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, the representations should cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Doug Milne, Senior Director, Policy, International Affairs and Research Office, Canadian Intellectual Property Office (email: doug.milne2@ised-isde.gc.ca).

Ottawa, December 14, 2022

Wendy Nixon
Assistant Clerk of the Privy Council

Rules Amending the Patent Rules

Amendments

1 Paragraphs 44(2)(a) and (b) of the Patent Rules ^{footnote 11} are replaced by the following:

• (a) in respect of an application for a patent — other than a PCT national phase application or a divisional application — the applicant of the application on the filing date is, on that date, an entity that has fewer than 100 employees or is a university, other than
  • (i) an entity that is controlled directly or indirectly by an entity, other than a university, that has 100 employees or more, or
  • (ii) an entity that has transferred or licensed, or has an obligation other than a contingent obligation to transfer or license, any right or interest in a claimed invention to an entity, other than a university, that has 100 employees or more;
• (b) in respect of an international application, the applicant of the application on the national phase entry date is, on that date, an entity that has fewer than 100 employees or is a university, other than an entity referred to in subparagraph (a)(i) or (ii); and

2 Subsection 85.1(1) of the Rules is replaced by the following:

Continued examination

85.1 (1) If three notices have been sent to the applicant under either or both of subsections 86(2) and (5) since the examination of an application for a patent under subsection 35(1) of the Act began, and a notice of allowance or conditional notice of allowance has not been set aside under subsection (4) before the third notice is sent, the examiner must, by notice, inform the applicant of the need to make a request for continued examination and pay the prescribed fee.

3 Paragraphs 112(2)(a) and (b) of the Rules are replaced by the following:

• (a) in respect of a patent granted on the basis of an application for a patent — other than a PCT national phase application or a divisional application — the applicant of the application on the filing date is, on that date, an entity that has fewer than 100 employees or is a university, other than
  • (i) an entity that is controlled directly or indirectly by an entity, other than a university, that has 100 employees or more, or
  • (ii) an entity that has transferred or licensed, or has an obligation other than a contingent obligation to transfer or license, any right or interest in a claimed invention to an entity, other than a university, that has 100 employees or more;
• (b) in respect of a patent granted on the basis of a PCT national phase application, the applicant of the application on the national phase entry date is, on that date, an entity that has fewer than 100 employees or is a university, other than an entity referred to in subparagraph (a)(i) or (ii); and

4 Subsection 122(3) of the Rules is replaced by the following:

Exception — small entity status condition

(3) In respect of a request for re-examination under subsection 48.1(1) of the Act by a person other than the patentee, the small entity status condition is that the person requesting the re-examination is, on the date of the request, an entity that has fewer than 100 employees or is a university, other than an entity that is controlled directly or indirectly by an entity, other than a university, that has 100 employees or more.

5 The Rules are amended by adding the following after section 148:

Late payment fee

148.1 An applicant of an international application filed with the Commissioner must pay the late payment fee set out in Rule 16bis.2 of the Regulations under the PCT if an invitation is sent to that applicant by the Commissioner under Rule 16bis.1(a) of the Regulations under the PCT.

6 The Rules are amended by adding the following after section 150:

Late payment fee

150.1 An applicant of an international application filed with the Commissioner must pay the late payment fee set out in Rule 58bis.2 of the Regulations under the PCT if an invitation is sent to that applicant by the Commissioner under Rule 58bis.1(a) of the Regulations under the PCT.

7 Subparagraph 154(3)(a)(ii) of the Rules is replaced by the following:

• (ii) complies with the requirements of paragraphs (1)(a) to (b.1),

8 The Rules are amended by adding the following after section 198:

Exception to subsection 86(16)

198.1 In subsection 86(16), the reference to paragraph 132(1)(g), in relation to a category 3 application, is to be read as a reference to paragraph 203(1)(e).

9 (1) Subection 203(1) of the Rules is amended by adding the following after paragraph (c):

• (c.1) the applicant does not make a request for continued examination of an application for a patent and pay the prescribed fee in accordance with subsection 85.1(3);

(2) Subsection 203(1) of the Rules is amended by striking out “or” at the end of paragraph (d), by adding “or” at the end of paragraph (e) and by adding the following after paragraph (e):

• (f) the applicant does not comply with a notice of the Commissioner referred to in subsection 155.5(6) within the time referred to in that subsection.

10 Section 214 of the Rules is repealed.

11 The Rules are amended by adding the following after section 224:

Application for patent filed before January 1, 2024

224.1 In respect of an application for a patent for which the filing date is before January 1, 2024 or a patent granted on the basis of such an application,

• (a) the reference in subsections 44(2), 112(2) and 122(3) to “fewer than 100 employees” is to be read as a reference to “50 employees or fewer”; and
• (b) the reference in subsections 44(2), 112(2) and 122(3) to “100 employees or more” is to be read as a reference to “more than 50 employees”.

12 The portion of item 1 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
1	277.00

13 The portion of item 6 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
6	(a)	225.00
	(b)	555.00

14 (1) The portion of subparagraph 8(a)(ii) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
8(a)(ii)	125.00

(2) The portion of subparagraph 8(b)(ii) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
8(b)(ii)	277.00

(3) The portion of subparagraph 8(c)(ii) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
8(c)(ii)	347.00

(4) The portion of paragraph 8(d) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
8(d)	(i)	253.00
	(ii)	624.00

15 The portion of item 10 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Fee ($)
10	(a)(i)(A)	110.00
	(B)	277.00
	(ii)(A)	450.00
	(B)	1,110.00
	(b)(i)	55.00
	(ii)	110.00

16 The portion of items 12 to 22 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item			Column 2 Amount ($)
12			694.00
13	(a)		450.00
	(b)		1,110.00
14	(a)	(i)	169.00
		(ii)	416.00
	(b)		8.00
	(c)	(i)	55.00
		(ii)	110.00
15			277.00
16			416.00
17			2,220.00
18			2,220.00
19			1,110.00
20			1,110.00
21	(a)		225.00
	(b)		555.00
22			277.00

17 The portion of item 24 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
24	277.00

18 (1) The portion of subparagraph 25(a)(ii) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
25(a)(ii)	125.00

(2) The portion of subparagraph 25(b)(ii) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
25(b)(ii)	277.00

(3) The portion of subparagraph 25(c)(ii) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
25(c)(ii)	347.00

(4) The portion of paragraph 25(d) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
25(d)	(i)	253.00
	(ii)	624.00

19 The portion of items 27 to 35 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
27		277.00
28		2,220.00
29		125.00
30	(a)	1,124.00
	(b)	2,775.00
31	(a)	3,468.00
	(b)	347.00
32		277.00
33		125.00
34		125.00
35		125.00

20 The portion of paragraph 36(a) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
36(a)	44.00

21 The portion of item 37 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
37	(a)	44.00
	(b)	13.00

22 The portion of paragraph 38(a) of Schedule 2 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
38(a)	1.00

23 The portion of items 39 and 40 of Schedule 2 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
39	(a)	13.00
	(b)	13.00
	(c)	13.00
40		19.00

24 (1) The portion of subparagraph 1(a)(ii) of Schedule 3 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
1(a)(ii)	125.00

(2) The portion of subparagraph 1(b)(ii) of Schedule 3 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
1(b)(ii)	277.00

(3) The portion of subparagraph 1(c)(ii) of Schedule 3 to the Rules in column 2 is replaced by the following:

Item	Column 2 Amount ($)
1(c)(ii)	347.00

(4) The portion of paragraph 1(d) of Schedule 3 to the Rules in column 2 is replaced by the following:

Item		Column 2 Amount ($)
1(d)	(i)	253.00
	(ii)	624.00

Coming into Force

25 These Rules come into force on January 1, 2024.

Terms of use and Privacy notice

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