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Tuesday, 7 February 2012

Katonomics 11: Patent harmonisation and a little romance

Many people do love
harmonisation --
especially when it's
on their own terms
Following last week's foray into the football transfer market, our very own Katonomist Dr Nicola Searle continues her mission to make IP enthusiasts more familiar with the principles of economics -- and to make the principles of economics more accessible at the point where they affect intellectual property rights and interests -- by taking a look at one of the hottest potatoes of recent years: the harmonisation of patents in Europe.  At this point the IPKat can almost hear readers gasp, "You mean it's not just about politics?"  Indeed, it isn't, so read on:
"In anticipation of Saint Valentine’s Day, readers will be delighted to know that this post concerns e-harmony.  No, not the dating website, but the harmonisation of European patenting.  Nothing says romance like the economics of the EU unitary patent ...
Changes to patent law and harmonisation in general have long been popular topics for economic analysis.  There are decades of scholarship examining international discrepancies in law such as the U.S. first-to-invent system and the lack of a European unitary patent.  These studies typically examine the interaction of policy, firm behaviour and innovation, and evaluate competing policies in terms of their effects on social welfare (often using cost-benefit analysis).   
Economic analysis of the unitary patent follows this tradition. The main economic argument in favour of a European unitary patent is the relatively high cost of patenting in Europe.  As commenters on this IPKat post noted, this has been the focus of commissioned reports by Harhoff  (here), Danguy and van Pottelsberghe (here and here). 
First, the patenting process itself is relatively expensive in Europe. Van Pottelsberghe and Danguy calculate the per-million-inhabitants cost for the first ten years of patent protection as €26 for Japan and €12 for the U.S.  This compares to €55 for six EU countries and €76 for 13.  Patenting in Europe is more expensive as filing in multiple jurisdictions entails significant fees, resources and translation costs.  Unlike the comparable economies of Japan and the U.S., there is no one-stop shop for European patenting. 
A second costly part of EU patent protection is that of litigation.  The lack of a central court means that litigation can occur in multiple jurisdictions.  This is wasteful as multiple courts may try the same case.  It is also creates uncertainty for all parties as cases in different jurisdictions may result in conflicting infringement or invalidation outcomes. 
If patents encourage innovation, then cheaper patenting should encourage innovation more.    Patent protection under a unitary patent system would cost roughly €26 per-million-inhabitants and be on par with Japan (van Pottelsberghe and Danguy).  The unified system, complete with a unified litigation system, should reduce the uncertainty associated with patenting in Europe.  A central repository should improve dissemination of knowledge associated with innovation and therefore encourage further innovation. A cheaper, less fragmented patenting system should do a better job of encouraging innovation than the current system.  
The distribution of the benefits of cheaper patenting is also important.   The cost of patenting is relatively high for smaller firms.  For larger firms with more resources and in-house counsel, patenting costs are relatively low.  Cheaper patenting could provide more incentives to innovate for smaller firms.  As van Pottelsberghe and Danguy note, the U.S. and Japanese patent systems offer discounted fees for small-to-medium enterprises.  
However, the costs associated with patenting don’t simply disappear into a black hole.  Patenting fees fund national IP offices and pay wages.  Translation and procedural costs support the translating and legal service industries.  The Commission’s 2011 Impact Assessment notes that the proposed changes will have transitional and long-term negative impact on translators and patent attorneys.   Unfortunately for those in favour of the unitary patent, the stakeholders most likely to lose out from the system are those well equipped to fight it. 
Another consideration is that cheaper isn’t necessarily better for innovation policy.  Patent fees constitute an important policy tool.  In the social contract, the patent represents a temporary monopoly.  If that monopoly is too cheap, you invite frivolous patenting and patent backlogs.  It gets particularly interesting when look at application versus renewal fees.  Cornelli and Schankerman argue here that patent renewal fees should be more expensive, and rise sharply over the course of the patent.   Only the most valuable patents would be maintained (the interaction of fees and patentees’ behaviour is summarised on page 11 of van Pottelsberghe and Danguy. 
At a practical level, questions remain as to the setting of fees, the distribution of those fees and the litigation system.  The patent system is often expected to pay for itself, thus the question of sustainability of the system and the distribution of fees amongst member nations are key.  Planning will also have to consider the demand for patents and litigation.  In the U.S., Jaffe and Lerner devoted a book to arguing that creation of the patent-specific Court of Appeals for the Federal Circuit (CAFC) led to the weakening of patent standards and helped foster tro…, ahem, non-practicing entities (NPEs).  Harhoff’s report also argues that the system should be NPE-proofed.  The debate continues. 
However, these arguments must consider the international competitive context of patenting.  A relatively more expensive patenting system potentially puts Europe at a comparative disadvantage to cheaper systems.  Unless we want to run an international IP cartel, cheaper may be a better strategy. 
As Pitkethly has noted in 1999, European history and cultural diversity have contributed to the lack of progress on a unitary patent.   Given the competing economic interests and national differences of the patent system, we can look forward to more lively debates.    
How do you think fees should be set?  Is the cost-benefit analysis a compelling argument in favour of the EU unitary patent? 
P.S. My apologies to lawmakers who hoped this article would lead them to love; I couldn’t find an international dating site for legal professionals, I only found national ones".

17 comments:

Pay-Tent said...

All the above studies are full of mistakes and in particular they always confuse official fees with costs (as for example translations costs or attorney's fees).

The unitary patent will just transfer onto the shoulders of the public the translation costs (with consequent multiplication of costs and legal uncertainity), which costs are anyway quite low now because of the London Agreement (about 9000 Euro for all 27 EU countries).

On the other hand, the official fees will be still very high: about 6500 Euro up to the grant of the patent, plus about 2000 Euro for the (absolutely useless) translations in the second language, and more than 150000 Euro for the maintenance fees.

One possible solution for decreasing the very high EPO fees could be the adoption of the "English-only" solution proposed by Spain, Italy and many other stakeholders, but of course Barnier & Battistelli do not agree...

By the way, maintenance fees are one of the (hidden) problems which has been discussed behind closed doors for more than one year, without any solution yet.

Meldrew said...

I agree with Pay-Tent that the numbers used in the various studies to justify the unitary patent are misleading. In particular they ignore little matters of patenting "culture" that are very important [e.g. unity practice differences which lead to it often taking 3 or more patents in the USA to cover what can be covered in one patent in Europe].

Culture does matter and we have different cultures in Europe. The German NPE-friendly practice of bifurcation seems to be a cultural practice that the UK EU Scrutiny Committee seems disinclined to follow.

The different cultures in Europe lead to different practices when it comes to fees also. The lifetime renewal fees for a UK or French patent work out at about €85 per million inhabitants; those for Germany at about €165 per million inhabitants; for Austria and Finland over €1500 per million inhabitants.

And of course we cannot mention culture without mentioning language. There, I have mentioned it.

The idea of the unitary patent and court appears to be driven by some political urge to solidarity [the principle that those who have should submit to their pockets being picked by those who have-not] while ignoring the principle of subsidiarity [that action by a higher authority is only required where action at a lower level will not achieve the desired result (the CEO and lavatory cleaner principle)].

So here is a plea for solidarity and subsidiarity.

Let those countries who are not part of the London Agreement join.

Let those countries that charge disproportionate fees get a sense of proportion.

Let those countries that choose to do neither live with the consequential damage to their "solidarity" credentials.

And let litigation that only concerns one country be done in that country.

Anonymous said...

Some things never to mention in European discussions: The war and language.

More recently, mentioning the London Agreement must also have been added to the list because it is the elephant in the room of unitary patent discussions. Works well, addresses many of the problems the unitary patent is designed to address yet does not have full membership. Should have called it the Paris or Munich agreement for greater uptake.

Pay-Tent said...

Actually I do not see much solidarity in the unitary patent:

Now a European patent (or at least its claims) must be translated only ONCE by the patent proprietor at his own expenses and on his own responsibility so that he can obtain patent protection in a EU country.

In the future a unitary patent will be translated MANY TIMES by third parties at their own expenses and on their own responsibility in order to understand the scope of protection of the patent proprietorin a EU country.

Am I the only one who considers very unfair and more expensive to shift the costs and the responsibility of a patent translation from the patent proprietors to the public?

Anonymous said...

I'm afraid that I don't have an erudite and well-researched comment on this issue, I just wanted to comment on the excellent quality of this well-written series of articles.

Is there a Katonomist fan club? How does one join?

Anonymous said...

Now a European patent (or at least its claims) must be translated only ONCE by the patent proprietor at his own expenses and on his own responsibility so that he can obtain patent protection in a EU country.

In the future a unitary patent will be translated MANY TIMES by third parties at their own expenses and on their own responsibility in order to understand the scope of protection of the patent proprietorin a EU country.


I would find this argument somewhat more convincing if I didn't see the people earning the most from patent translations spend a significant amount of time fighting against the London Agreement first and the unitary patent now.

More recently, mentioning the London Agreement must also have been added to the list because it is the elephant in the room of unitary patent discussions. Works well, addresses many of the problems the unitary patent is designed to address yet does not have full membership. Should have called it the Paris or Munich agreement for greater uptake.

Except that both France and Germany are among its members.

Pay-Tent said...

@Anonymous 3:32 ("I would find this argument somewhat more convincing if I didn't see the people earning the most from patent translations spend a significant amount of time fighting against the London Agreement first and the unitary patent now.")

I am happy that I convinced you (even if I could have convinced you "more") and that you have not opposed any argument against mine.

By the way, who are those people and how are they fighting against the LA and the UP?

Meldrew said...

Pay-Tent comments that:-

In the future a unitary patent will be translated MANY TIMES by third parties at their own expenses and on their own responsibility in order to understand the scope of protection of the patent proprietor in a EU country.

Is Pay-tent seriously saying that third parties normally read translations to determine whether they infringe or not? Generally, "third parties" who have no patent qualification go to their attorney for advice.

Additionally, the time when a translation would be most useful is on publication, not X years afterwards [where X is a large number].

Admittedly, I would not like it if all patents were published in Welsh only, because the pool of legally or technically qualified Welsh speakers is quite small.

However, if they were all published in English, French, or German, my concern would be less since the pool of potential advisers would be large [about 10,000 EPAs].

The translation issue is more emotional than practical.

Pay-Tent said...

@Meldrew ("Is Pay-tent seriously saying that third parties normally read translations to determine whether they infringe or not? Generally, "third parties" who have no patent qualification go to their attorney for advice.")

Third parties can be for example judges, attorneys, technical experts, infringers, inventors who - seriously - want to read patents claims in their own language.

If they do not have patent qualification they will consult a patent attorney, who of course will add the extra fee "patent translation" in his invoice.

Furthermore what in case of a translation mistake? Why the responsibility of this mistake is on the shoulder of the third parties (or they attorneys) instead of the patent owner?

Moreover, the translation could be "biased" on the infringing product/process if the patent is translated only in case of dispute.

P.S.: why is it not possible to obtain and enforce a US patent written in Japanese or a Japanese patent written in English?

Anonymous said...

It is clearly more beneficial to non-patentees to have a translation in their own language and I can't see any argument against this. The question is one of finding the right balance - wherever that may lie.

Re Anon at 3:32 "Except that both France and Germany are among its members." - This was not a criticism directed at Germany and France. Surely you could have assumed that someone praising the London agreement would have known who 2 of the biggest members where?

While English, French and German are a good mix, it is clear that English alone would be more satisfactory to everyone, both within Europe and beyond.

Anyway, just think of the fun we will have in the future suing companies who based their freedom to operate search and opinions on the back of Google translations.

Pay-Tent said...

P.S.: the language of the proceedings before the central court of the Unified Patent Court is the language of the patent ONLY.

Thus, are English lawyers ready to represent English/American companies in, for example, London (possible seat of the central court) speaking and writing only in German ?

Anonymous said...

Ja! Wie geht es Ihnen? Entschuldigen Sie, Sprechen Sie Englisch? Ich verstehe nicht. Bitte schreiben Sie es auf Sie Englisch. Entschuldigung! Wie viel?! Es gefällt mir nicht. Lassen Sie mich in Ruhe!

Easy! Nein? I'm sure there will be an iPad APP to help me out.

Anonymous said...

As a patent is worthless without the ability to enforce it, no 'cost-benefit' analysis can be meaningful without an assessment of the costs of asserting and litigating the patent.

As no one yet knows how much it will cost to litigate Unitary patents, or existing EPs under the Unified Court, it is therefore impossible to carry out a meaningful cost-benefit analysis.

On my first read of this article, I thought it was suggesting that litigation under the proposed EU system would cost €26 per million inhabitants, seeing how the relevant paragraph followed on from a discussion of litigation costs. However, I now see this is not the case. Without such an assessment of the litigation costs, in my opinion we can't get any remotely accurate picture of the economic arguments for or against the new harmonised system, and any headline cost advantages bandied about by 'unnamed sources' at the commission have to be dismissed as wild speculation.

Regarding the need to make the system 'NPE proof' by allowing bifurcation, the EU will be a troll's paradise.

Anonymous said...

"As a patent is worthless without the ability to enforce it, no 'cost-benefit' analysis can be meaningful without an assessment of the costs of asserting and litigating the patent.

There will be an ability to enforce it, so the patent cannot be worthless. Even if enforcement is expensive, the patent can still have substantial value. Only a very small minority of commercialised IP will end up needing to be enforced.

Pay-Tent said...

With respect to enforcement, what happens if a country has signed the UPR, not the UPCA? Could national courts decide on the validity of a unitary patent?

Anonymous said...

@anonymous 7 Feb at 6:02 PM - The point is that without knowledge of how much it will cost to enforce, you can't undertake a meaningful cost benefit analysis.

If the costs of enforcement are too high, the ability to enforce a patent would to some entities be theoretical rather than real.

The commercial value in a patent comes from its ability to be enforced - an increase in the cost of enforcing a patent results in a decrease in its value.

Gibus said...

@Pay-Tent Tuesday, February 07, 2012 2:42:00 PM : "Am I the only one who considers very unfair and more expensive to shift the costs and the responsibility of a patent translation from the patent proprietors to the public?"

AFAIK, this is also an argument of Spanish government in its proceeding against the Enhanced cooperation before the CJEU. This is also an argument of Spanish section of BusinessEurope.

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