For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

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Monday, 18 March 2013

The arithmetic of unitary patents: does more mean less for those who pay?

An important side-issue arising from the forthcoming introduction of a brand-new unitary patent for system for most of Europe is that of how much it will cost patent applicants to use.  Even in the absence of litigation and office actions -- the expense of which cannot readily be predicted, and even when not taking professional fees into account for much the same reason, there remain costs that are firmly embedded in the patent system and of which applicants will take careful note: one is the cost of translations; another is the cost of official fees, including fees for renewal.

In the letter to the IPKat which is reproduced below, Andrew Mackenzie (Principal,  Scott & York Intellectual Property Law, but writing here in his individual capacity) asks some questions about the likely cost to applicants of the new systems and, like many other good folk with whom this Kat has spoken, would dearly like to know with more clarity and certainty what the oft-vaunted and indeed axiomatic savings of the new system might be.  He writes:
"I was very interested to read the post on Tuesday by Taylor Wessing and indeed have discussed and read quite a lot about the litigation angle on the Unitary Patent (UP). However, l've seen very little on the costs of obtaining the patent other than an assumption that it'll be cheaper, e.g. the TW comment: 
"Obtaining a single Unitary Patent for the whole of Europe ought to be considerably less expensive than the current systems with national rights that have to be maintained in each country." 
[This Kat is bound to agree. He has seen numerous assertions that the UP will be cheaper, but no sums based on typical day-to-day scenarios. There may well be some, and it would be good if they were conveniently accessible, online or otherwise. Can readers point to any?] The important point here is "for the whole of Europe ". However, most applicants only validate in Gemany (DE), France (FR), and the UK (GB), with Spain (ES) and Italy (IT) coming a distant second. This is not surprising when one considers these countries make up about 70% of the entire EU GDP.

Accurate public figures are hard (impossible?) to obtain for where European patents are validated but, in our own practice, over the past five years, 65% of applicants validate in just DE, FR and GB rising to 80% with ES and IT. Our practice does not include big pharma but has a good spread across all other technical areas. Big pharma will typically validate in many more countries.
Marmite and the unitary patent:
love them or loathe them?
For those who validate just in DE, FR and GB an extra translation into an EU official language will be required for the unitary patent. ES and IT are out of the unitary patent system so will still require translations (although when going for the Big Five, one of the IT or ES translation could be used to supply the extra translation for the UP countries). So on validation there is no benefit for most (80%) patentees and probably extra costs for a significant proportion (65%) of the users of the system and who are probably the most cost-sensitive. So validation would appear only to save money for those relatively few users who routinely validate in many countries [This Kat seems to recall the argument being raised that, for the sake of a level playing playing field in the Single Market, patent protection -- like Marmite -- is best enjoyed when thinly but evenly spread across the entire surface area, rather than being concentrated in great lumps in some places but entirely absent in others: accordingly, any system for patent protection in the EU Member States should make any many-country solution more appealing.  Is this right?].
The big issue, though, is renewal fees. These typically make up about two-thirds of a patent portfolio's lifetime costs so are very significant. The level of renewal fee for the unitary patent is yet to be decided by the EPO Administrative Council, but given that Council's propensity for large fee hikes and penal fee structures (maintenance fees on Divisional Applications, anyone?), I somehow doubt this will be set at or below the level of the combined national fees due to the DE, FR, GB offices (separate ES and IT fees will presumably still be due anyway). So renewal fees could be significantly more expensive for most patentees, and this will be the deciding factor for most applicants, in whether to seek a unitary patent.

When one remembers that virtually all patents are never litigated [one of this Kat's favourite points -- our view of the patent system should not be a pathological one, looking only or mainly at the bits that go wrong and the problems that arise], are we in danger of losing sight of the likely significant increase in European patenting costs for most real applicants, with no significant matching benefit? One dare not suggest that the unitary patent is merely a shiny political bauble for the Commission's mantle piece, but is the litigation tail perhaps wagging the dog?"
The IPKat would be delighted to hear from patent attorneys, policy-makers, SMes and, yes, even economists who either have a useful insight into Andrew's points, or who know where to find one.

8 comments:

Gibus said...

I've recently written:

“any assertion about costs is baseless since fees for the grant and renewal of a unitary patent are still unknown. And the EU won’t have any say about these fees, since it has decided to let them be decided by heads of national patent offices inside the Select Committee of the EPO. And UPC court fees are also unknown and will be decided by the same people in the UPC Administrative Committee. It should be noted that no cost-benefit study has been published since 2009, at a time when it was foreseen that the EU would be a party to the patent court and would provide funding. Nevertheless, a draft study from Commissioner BARNIER’s services, dated from November 2011, can be found on the Internet. But this study is very cautious, pointing out repeatedly that its proposals are “without prejudice to any future decision of the Administrative Committee”. Moreover it is based on assumptions that are no longer valid – for instance, the final choice to split the central division between Paris, Munich and London is likely to have an impact on the setting up of local or regional divisions in these countries; likewise, the transition period has been lengthened, increasing the likelihood for patentees to opt-out from the UPC jurisdiction. Anyway, even if estimations from this study were to be confirmed, the most important point to raise about UPC court fees is written in black and white: the “level of [UPC] court fees might be higher than in most Contracting Member States”. To put it differently, it will be more costly for most firms — with the possible exception of invalidity proceedings in Germany – to defend themselves against frivolous patent infringements. So if someone really wants to talk about the costs of the unitary patent, you should ask whether full costs – including fees for grant, renewal, prosecution, attorney, and not only for the patent holder but also costs to defend oneself in a patent litigation – are cheaper or more expensive than now. Even according to patent attorneys – see Kluwer Law International, KSNH Patentanwälte or Jochen Pagenberg – costs for European firms, and specially SMEs, are unfortunately expected to be much higher with the unitary patent and the UPC.”

SG said...

More or less, it is becoming increasingly vexing not to have figures on the cost of the Unitary Patent. As a practitioner, I have made all our clients aware of the looming UP, however their first question is usually how much will it cost?

In the CIPA webcast on Friday, Sean Dennehey stated that the first UPs are on expected to be granted by 2015 (a scant 21 months away) and yet we still cannot advise our clients on cost.

MaxDrei said...

I wonder whether the German and UK Patent Offices are expecting an increase in the number of national filings. Imagine what a Japanese or Korean motor manufacturer might do. How much more does he need, than a patent to assert in Germany? Already, many Applicants at the EPO who used to validate in the Big Five now validate only in the Biggest Three.

Of course chem/bio needs a patent in every jurisdiction but the motor industry in only one. Where do other industry sectors stand? It is surely not just the motor industry that will be contemplating henceforth saying Cheerio to the EPO and spending all their European patent budget in just the biggest and most important jurisdiction in Europe, namely, patent owner-friendly Germany.

Meldrew said...

I have done some rough sums looking solely at renewal fees.

The original cost studies indicated that average number of validations is currently 6. In that study the 6 most validated countries were given as DE, FR, GB, CH, IT, NL.

As CH and IT will not participate you could replace them with the next most validated countries AT, BE so that the list would read DE, FR, GB, NL, AT, BE.

Lifetime official fees for renewal for these countries would come to ~€52k.

In contrast, lifetime official fees for renewal for DE, FR, GB come to €24k.

So going beyond DE, FR, GB is already an expensive choice and if fees were set in accordance with the original 6 countries figure, would make a unitary patent an expensive choice for those who habitually validate in fewer than 6 countries.

However, various documents have ruminated on the figure being 6-8 average renewal fees or even 8-10 renewal fees which will make this a very expensive option.

What distorts matters further are the high renewal fees charged for some countries, without regard to the scale of their market. Indeed costs are inversely proportional to the size of market, and range from €85/million population for UK and France through €~160/million for Germany, through ~€650/million for Netherlands and up to ~€113,000 per million for Monaco.

UK, France and Germany total about 210m in population, the total of potentially participating states is about 360m. Scaling up the total renewal fees for UK, France and Germany to the 360m would indicate a lifetime renewal cost below €41,000 - significantly below the €52k mentioned above.

In short, introduction of the unitary patent will increase (for many) the cost of covering a million EU consumers and by covering just UK, France and Germany you will get nearly 60% of the population for less than half the price.

I will shortly (this week sometime) present a fuller analysis at http://ipnoncredere.blogspot.co.uk/

Ron said...

I guess it's a question of "Horses for courses".

When I was in industrial practice, patent protection was generally sought only in countries where competitors had a manufacturing presence. For one business, protection was usually only sought in the US: the set-up costs for the product were such that, if you couldn't sell in the US, then sales in the rest of the world were insufficient to recoup your initial costs.

I'm a robot said...

Since the aim of the Member States "is to allow all participating Member States to retain their current renewal fee income, while at the same time ensuring that those Member States which currently have a low renewal fee income will receive a significant increase in their income", the annuities of the UP should not be less than the sum of the annuities of one year multiplied by the validation/maintenance rate of the same year in all MS, plus something for covering the above "increase", am I correct?

At any rate, the UP annuities are always less convenient, since you cannot drop some countries to pay less, as you can instead do with the EP.

Tim Roberts said...

"I'm a robot" has done the maths. If no country is to have less, and some are to have more, and the EPO is to have half, then the prospects for affordable renewal fees are dim.

Another point - what is meant by the 'average' number of countries that applicants have been protecting in? Is it the mean, the median or the mode? I suspect that '6 countries' is the mean. But the distribution is
highly skewed. The highest number of EU countries in which you can register your EPO patent is 27. The smallest number is 1 (if you register in 0 countries I doubt you will figure in the statistics). The 'mean' will be weighted towards the top end by that small proportion of patentees (historically about 1%) who register everywhere they can. The correct average to use is the 'mode' - the most popular number of filings. I suggest this is about three countries - other contributors seem to agree. A system which significantly increases (doubles?) the maintenance costs for most filers is unlikely to be immediately popular, unless its other advantages are compelling.

Japser said...

In my opinion, the mathematics above are sound: a unitary patent will be more expensive than validating in the regular countries.

No wonder: member states want to maintain their incomes on annuity fees. Which means that the total amount of fees to be paid by patent proprietors will not be lower. At the best, you will get more bang for the buck: protection in more countries than in which you will validate usually.

Is that a good thing? My clients do not care about patent protection in Latvia. Austria may be useful, but litigation may not always be a feasible option, which makes the patent useless.

And, yes, litigation. There will be a new system, with new judges who are to travel to new buildings. That means additional cost, in the end to be paid by the companies who apply for the patents and who may litigate them.

At best, cost for proprietors will be the the same. At worst, they will increase.

Which may perhaps be justified by a better system that provides more power to the patent proprietors.

But will it?

As indicated above, 70% of the GDP in Europe is already covered by validating in DE, FR, GB, ES and IT. Which will most probably be cheaper than validating your patent with a unitary effect and in ES and IT. Will all the additional cost make up for the additional 30% of the European GDP? Or will covering the 70% be enough? Because if you have your patent portfolio in those countries, the odds of competition operating in only the other 30% will be rather low.

Hence, the Unitary Patent will in my opinion only work if the annuity fee for the Unitary Patent will be equal to or less than the cummulative annuity fee for DE, FR, and GB.

Which will most probably be politically unacceptable, making this whole exercise resulting in a hollow shell.

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