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Monday, 9 March 2015

REVEALED: EPO finally proposes level of renewal fees for the Unitary Patent

Most patentees, when learning about the Unitary Patent and being asked to consider whether they will to use the system instead of the current European Patent system, immediately ask "How much will it cost"?  Up until now, the answer has been "We don't know", because the level of the renewal fees has not been announced.  The renewal fees, plus the expected charge that the European Patent Office will level at grant to register the patent as having unitary effect, will be the main costs for an unlitigated patent (i.e. for most patents).  The most illuminating answer to date concerning the level of renewal fees has been the elliptical "They will be higher than many would hope, but lower than some might fear", first reported in an interview with EPO President Benoit Battistelli in Managing Intellectual Property magazine in December 2013.

(If you are new to the Unitary Patent, Merpel regrets that the IPKat has not written about it much for a while, because there has not been much in the way of news, but relevant posts are this from the 2014 Fordham conference, this on the applicable law, and this on Spain's challenge to the legality of it all.)

Well, Merpel has now received from a number of sources a document "Proposals for the level of renewal fees for European patents with unitary effect", submitted by the President of the EPO to the Select Committee of the Administrative Council for their opinion.

The Unitary Patent Regulation does not say much about renewal fees, but it does set out the following criteria in Article 12, which it will be easy to see are not all easily reconcilable with each other:
1. Renewal fees for European patents with unitary effect shall be:
(a) progressive throughout the term of the unitary patent protection;
(b) sufficient to cover all costs associated with the grant of the European patent and the administration of the unitary patent protection; and
(c) sufficient, together with the fees to be paid to the European Patent Organisation during the pre-grant stage, to ensure a balanced budget of the European Patent Organisation. 
2. The level of the renewal fees shall be set, taking into account, among others, the situation of specific entities such as small and medium-sized enterprises, with the aim of:
(a) facilitating innovation and fostering the competitiveness of European businesses;
(b) reflecting the size of the market covered by the patent; and
(c) being similar to the level of the national renewal fees for an average European patent taking effect in the participating Member States at the time the level of the renewal fees is first set.
3. In order to attain the objectives set out in this Chapter, the level of renewal fees shall be set at a level that:
(a) is equivalent to the level of the renewal fee to be paid for the average geographical coverage of current European patents;
(b) reflects the renewal rate of current European patents; and
(c) reflects the number of requests for unitary effect.
Patentees obviously wish the fees to be as low as possible (particularly since Spain and Italy, two popular validation countries, are not included in the Unitary Patent, so will have to be paid for in addition).  On the other hand, the EPO is reliant on this fee income for its budget.  Setting the appropriate fee level has therefore probably been quite a challenge, which presumably is why it has taken quite so long - more than 2 years since the Regulation was enacted - to announce a proposal.

So, what the EPO has come up with, and its justification, is the following:
To meet the requirements set out in Article 12(1)(a) (progressive nature), (2)(b) (market size) and (3)(a) (geographical coverage of current European patents), the Office proposes the following structure for setting unitary patent renewal fees:   
  • years 3 to 5: the level of the EPO's internal renewal fees (IRF) [these are the fees payable to the EPO for pending patent applications currently] 
  • years 6 to 9: a transitional level between the IRF level and the year 10 level 
  • from year 10, a level equivalent to the total sum of the national renewal fees payable in the states in which European patents are most frequently validated (TOP level).
Charging the IRF level for years 3 to 5 primarily ensures consistency in the fee scales applicable in the pre-grant phase (EPO fees covering 38 states) and the post-grant phase (unitary patent fees for 25 states). Then, as in all European systems of national law, a single scale of fees applies for the initial years of pending patent applications and for granted patents.
The main drawback of charging the sum of the national renewal fees of those countries in which European are most often validated, in the first few years would be that the fee for renewing a unitary patent in those years would be extremely low because, in some states, national renewal fees (which apply equally to national patents and to European patents validated in those states) are initially very low or non-existent until the fourth or fifth year.
The justification for charging very low or even no renewal fees for national patents in the first few years is that, in the vast majority of cases, the patent application is still pending during this period. [Actually this is not true at least for the UK - it is envisaged that a patent is granted within 4 years, before which no renewal fees are due, but the renewal fees for the first few years after that are also very low - £70 for the 5th year and £170 for the 10th, for example] A similarly low fee level for the initial years of a unitary patent could not be justified, however, because the unitary patent would be an already granted European patent, and post-grant income would be needed to recoup a substantial part of the total unit costs of the search and examination pre-grant work involved. That is also why the Office proposes to introduce a renewal fee for the second year in the rare but possible case of grant in the year of filing.
At the committee's meetings and during informal consultation of user associations, some argued that charging the IRF level in the initial years would discourage applicants from opting for unitary patents on the basis of a comparison with the costs for a validation of their European patent in just a few states.
It is true that, at first glance, paying the total sum of national fees for a small number of states (e.g. three to five) looks a more attractive proposition than the IRF level. However, in addition to paying national fees, users always incur a number of associated costs, in particular for translation and national validation, where charged, but also for hiring a local patent attorney or specialist firm to administer renewal-fee payments. Once these additional costs are also included, the difference between the sum payable for a classical European patent and a unitary patent is less marked; indeed, the unitary patent option is actually cheaper from year 6 on.  [Merpel cannot see where these numbers come from - they do not appear to be given in the document itself - but she does not believe that the unitary patent fees set out below are cheaper than national costs for three countries if this is what is suggested - maybe it depends on the assumed cost of the renewals payment provider] In any event, once the additional costs are included the two amounts differ by only a few hundred euros, a negligible share of applicants' overall costs up to the granting of the patent.
In the second part of the fee structure, for year 10 onwards, the level is the total of national renewal fees payable in the most frequently validated states. The fees are highly progressive, particularly towards the end of the patent term. Whilst it is tempting to increase the fees for these later years, because that is when protection matures and is most profitable, the Office has taken on board the counterargument about the lack of flexibility in limiting geographical coverage at this later stage. In the classical European patent system, patentees who have validated their patent in an average number of states after grant can always abandon the protection state-by-state over the patent term, and in the later years often narrow it down to the three major European markets.
As they will lose this flexibility under the unitary patent protection in 25 states, they might be discouraged from opting for unitary protection if the fees for the last five years are prohibitive compared with those for just three to five of the bigger countries.
For year 10 onwards, the Office proposes to charge the total sum of national renewal fees payable in the most frequently validated states. This will reduce costs for users significantly, as their additional fee-administration charges will be considerably lower.
Based on this, two specific proposals are made - one where the Year 10 onwards level is based on current renewal fee levels for FOUR European countries (TOP 4 level) and one where the Year 10 onwards level is based on current renewal fee levels for FIVE European countries (TOP 5 level) but with a reduction for certain categories of patentees, namely SMEs, natural persons, non-profit organisations, universities and public research organisations.

The TOP 4 level renewal fees would be as follows:
2nd year: EUR 350
3rd year: EUR 465
4th year: EUR 580
5th year: EUR 810
6th year: EUR 855
7th year: EUR 900
8th year: EUR 970
9th year: EUR 1 020
10th year: EUR 1 175
11th year: EUR 1 460
12th year: EUR 1 775
13th year: EUR 2 105
14th year: EUR 2 455
15th year: EUR 2 830
16th year: EUR 3 240
17th year: EUR 3 640
18th year: EUR 4 055
19th year: EUR 4 455
20th year: EUR 4 855
Over 20 years, that adds up to EUR 37 995.

The TOP 5 proposal involves a 25% reduction for the entities mentioned above in respect of years 2 to 10 only.  The proposed fees are as follows with the fee reduction in brackets:
2nd year: EUR 350 (EUR 262.50)
3rd year: EUR 465 (EUR 348.75)
4th year: EUR 580 (EUR 435.00)
5th year: EUR 810 (EUR 607.50)
6th year: EUR 880 (EUR 660.00)
7th year: EUR 950 (EUR 712.50)
8th year: EUR 1 110 (EUR 832.50)
9th year: EUR 1 260 (EUR 945.00)
10th year: EUR 1 475 (EUR 1 106.25)
11th year: EUR 1 790
12th year: EUR 2 140
13th year: EUR 2 510
14th year: EUR 2 895
15th year: EUR 3 300
16th year: EUR 3 740
17th year: EUR 4 175
18th year: EUR 4 630
19th year: EUR 5 065
20th year: EUR 5 500
Over 20 years, that adds up to EUR 43 625 and EUR 41 655 for the normal and reduced level respectively.

This helpful Table annexed to the document as Annex 2 compares the "Top 4" and "Top 5" proposal with the current EPO internal fees for pending applications, and the national renewal fees for 25 member states (which of course are much higher).
Renewal fees Table
This is far from a bargain and, Merpel understands, will result in costs higher than validating in UK, France and Germany (all London agreement countries where no translation is necessary).  Therefore one can envisage the situation where for users who currently validate in a small number of countries, the Unitary Patent is not attractive because it is no cheaper, while for users who validate in a large number of countries, the Unitary Patent will be very much cheaper but they may not wish to risk consigning their valuable patents to an untested system where the whole of the European rights could be lost in a single revocation action.

Merpel suspects that users were hoping for a Top 3 level or lower; Top 4 being the lowest envisaged will be a disappointment.  But the dictum, enigmatic as it was, is correct - "higher than many would hope, but lower than some might fear".

11 comments:

Anonymous said...

ADogAmongstCats

Well, there you go....There is a lot of positive sentiments about the UP, rightly so. But I am yet to speak to anyone who has expressed a burning desire to actually use the UP from the off...we shall see, no doubt, when the big day comes around.

What will happen if most applicants opt out? Here's my personal view. There is a lot of pressure to make the UP succeed and if the majority opt out, then I believe the EPO will seek to change applicants behaviour through their wallet. As Ryan Air tries to dissuade passengers from putting your luggage in the hold, so the EPO will make the opt-out fee so large that you'll be 'encouraged' to opt in...

The end result? applicants will revert to national filings...another giant leap backwards for a great Euro-fudge...

I hope I'm wrong with this view, but time will tell. So, the big question from me is, what will the opt out fee be?

Signed...ADogAmongstCats

Anonymous said...

I thought the "opt-out" (and associated fee) referred to opting out an ordinary EP from the UPC.

I thought you only made your choice after examination when the patent was about to grant, with the choices being: (1) grant as EP (validate in selected countries); (2) grant as UP (+ ES, IT, non-EU EPC countries as required). Therefore, I cannot see how you envisage the EPO encouraging applicants to chose the UP via their wallet.

Elisabeth

Anonymous said...

Well, compare it with what is required to keep an US patent alive for 20 years (i.e. less than 13000 US$ in maintenance fees), and both schemes seem to be hardly appealing.

Darren Smyth said...

Dear Elisabeth

I share your confusion at comment of ADogAmongstCats.

The opt out fee, which as you rightly says is to opt a classical European patent out of the jurisdiction of the Unified Patent Court, is set by the Court and paid to the Court, not the EPO.

If people don't opt out then the UPC (the Court) may become a success even if the Unitary Patent itself is taken up by very few.

The way to encourage people to use the Unitary Patent would be to make the renewal fees for UPs low. But that is not what it seems will happen.

There should also be a fee paid to the EPO to register the unitary effect, and a translation will also be needed. That fee has not apparently yet been published, but one imagines it will be small compared with the Rule 71(3) fee anyway.

Darren

JPZZ said...

The fees seem entirely reasonable. A strong incentive for lapse seems wise for old patents that do not make a profit. Patents are, to some extent, a burden on other companies (costs of freedom to operate analysis, especially for old technologies). If you can not make a few thousand euro in profit in year 15-20 in the 25 Member States (hence, if the renewal fee becomes an obstacle), you can question whether the burden by the patent on other companies is justifiable.

JB said...

A UP is not attractive to small companies that are only interested in 1 or 2 countries. A UP is not relevant for huge companies for who high legal costs are a weapon to use against their smaller competitors (although the additional complexity might help them).

A UP is interesting for companies that nowadays carefully select 1-6 countries depending on the importance of the patent. Such companies will often designate FR, DE and UK or something similar. For such companies a little bit extra fee for reduced complexity (1 patent) and broader coverage (all of Europe) might be a good trade. To me, TOP 4 seems reasonable, TOP 5 a little too much.

Won't there also be some LOR fee reductions, like already available in DE and UK? I can remember having read something like that before.

+ If we really want a cheaper system, we should get rid of the classic EP patent and all the national patent( office)s. In a UPC-only system, fees can be much lower and patent attorneys can not charge huge fees for inventing complex filing and litigation strategies.

Helen Jones said...

I think I'm right in saying there's no fee for electing a UP (EPUE) at grant. The cost of the translation required in the transitional period, which is no more than fodder for the google translating machine, is the main additional cost.
I am relieved that both options are at the level indicated not higher. The TOP5 option is not worth the admin, but that's presumably intentional

Anonymous said...

Well, 50% of the renewal fees of the UP will still go to the National Patent Offices in what will effectively be a tax on invention. 19000 EUR per patent to subsidise the national route - or grandiose overpriced buildings such as the new INPI in Paris. Good luck competing with that.

Garfield

Anonymous said...

I prefer a comparison with other markets according to the number of inhabitants:

Take the US market with 320 million inhabitants vs. the European market with 500 million inhabitants: US annuity fees sum up to 12.600 US$ (for large entities) for the total lifetime of a US patent. According to the ratio of inhabitants this would result into 20.000 US$ for a market of 500 million.

Hence:
If Europe shall stay compatible internationally, the fees should not sum up to more than 20.000,- EUR

Meldrew said...

The proposals appear to reflect fear rather than rational analysis and if adopted could be extremely damaging as discussed in my blog.

Anonymous said...

Anonymous @15:36,

I fail to see the validity of your rather forced comparison to a per capita stance.

You do know that each sovereign maintains the right to set its laws as it sees fit, right?

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