From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Tuesday, 2 August 2016

UK IPO finally speaks about the "facts" of IP post-Brexit

The AmeriKat under yet another Brexit law
Unlike many of the UK law firms who quickly climbed on board the Brexit bandwagon, the UK's Intellectual Property Office has been understandably and notably silent.  For the past several weeks they have been in listening mode as they hear from stakeholders about their post-referendum concerns.  Today, they have published a short guide called "IP and Brexit:  The Facts" to dispel the speculation on the future of IP law following the referendum result.  The main message is "The UK is still part of the EU so your EU-derived protections continue and we are considering various post-Brexit options".  Unsurprisingly, the brief is short given that the fate of EU-made rights will be determined by the ultimate relationship between the UK and EU.

On patents, the UK IPO confirmed that it was business as usual for UK businesses applying for patents at the EPO and that the referendum result will not impact the European Patent Convention (EPC).  On the UPC it stated:
"The UK remains a Contracting Member State of the Unified Patent Court at present. We will continue to attend and participate in UPC meetings in that capacity. There will be no immediate changes." 
On trade marks and designs, the UK IPO stated that
"We recognise that for EU trade marks, users will want clarity over the long-term coverage of those rights. The government is exploring various options and we will be consulting users of the system about the best way forward. Even after the UK leaves the EU, UK businesses will still be able to register an EU trade mark, which will cover all remaining EU Member States.  
In addition, the UK is a member of the international trade mark system called the “Madrid System”, which allows users to file one application, in one language, and pay one set of fees to protect trade marks in up to 113 territories including the European Union." 
On rights of representation of UK trade mark lawyers before EUIPO, the UK government stated that they fully recognized those concerns and "welcome views on how to address these concerns and are involving stakeholders in consideration of these issues."

The IPO's Brexit briefing summarizes
what we expected - business as
usual, until something  happens
On designs, the UK IPO reiterated the government's intention to ratify the Hague Agreement:
"in a national capacity, which provides a practical business solution for registering up to 100 designs in over 65 territories through filing one single international application. We are currently working through the steps of joining and hope to introduce the service within the next year." 
On copyright, the UK IPO stated that the continued effect of the EU Directives and Regulations post-Brexit "will depend on our future relationship".

Finally on enforcement, the UK IPO conducted some justifiable self-promotion by declaring that
"The UK is widely seen as a world leader in enforcement of IP. By working in partnership with law enforcement and industry, the government can deliver an IP environment where legitimate businesses thrive and consumers are protected. For the time being the UK’s enforcement framework remains unchanged."
The UK IPO concluded by stating that it
"...will continue to play an active role in the review of the Enforcement Directive, and the Commission’s work on tackling commercial-scale infringement."
The AmeriKat will be back later this week with an update on the Enforcement Directive consultation following June's IPR Enforcement Conference 2016.

Baroness Neville-Rolfe will definitely
need energy when it comes to
Brexit negotiations
In the meantime, Baroness Neville-Rolfe will continue as the minister for IP, but her full title is now Minister of State for Energy and Intellectual Property.  So with energy to her dossier, her full list of responsibilities is as follows:

  • energy (with the Minister for Industry and Energy) 
  • nuclear 
  • oil and gas, including shale gas 
  • low carbon generation 
  • security of supply 
  • electricity and gas wholesale markets and networks 
  • energy efficiency and heat, including fuel poverty 
  • smart meters and smart systems 
  • international energy energy security, including resilience and emergency planning i
  • ntellectual property 
  • EU single market
  • Lords lead on all BEIS issues
"Well if anyone can tackle that job specification," Merpel muses "Baroness Neville-Rolfe surely can...."


Anonymous said...

The brief is short!

Anonymous said...

One comment in IPO's post Brexit communication says "The UK remains a Contracting Member State of the Unified Patent Court at present".

According to the same statement: "There will be no immediate changes" does not give the impression that a quick ratification is on the tablets, as this would be an immediate change.

When considering the overall tone of the the statement, IPO's first preoccupation seems to lie more in seeing how to leave the existing system of EU laws and regulations on IP matters so that the rights of UK IP owners are protected, rather than trying to add a further problem, UPC, on all the issues which will have to be settled. As far as patents are concerned, the way to the EPO is not changed by the Brexit. A strong enthusiasm for the UPC sounds differently.

When looking at the long list of duties of Baroness Neville-Rolfe, IP does not look as it will be at the top of her priorities.

May be something to reflect upon?

Anonymous said...

Bringbackalib. says

B eing as UPC stands for UP the creek without a Canoe
R eally not much else we can do
E PO Sun King and Grand Master
X claims it is an almighty disaster
I t is the one good thing to come out of the vote
T hat Batters now has a huge hole in his boat

Proof of the pudding said...


I agree that the fact that the Baroness has been assigned more responsibilities does not suggest that a great deal of time and effort will be expended by the government upon IP issues (be they Brexit-related or otherwise).

This perhaps indicates that we can expect some delays in decision-making, including on the UPC. This may be compounded by the fact that there will be more pressing matters for the UK to resolve in connection with trade marks, designs and copyright.

These issues aside, I doubt that the IPO's statement could be said to provide any hints one way or the other with regard to the UPC, which is likely to remain somewhat of a "complicated" issue in the coming months. So I guess that we will all just have to wait and see.

Anonymous said...

I think some of these people need to remember that ministers have tended not to stay with IP for any period of time. The Baroness keeping the IP mandate is to be welcomed, even if she has further responsibilities. She knows the stakeholders and the issues, and can be a good ear even if she leaves some aspects to others.

Of course, the shape of the outcome is not really dependent upon IP - it will be shaped by other concerns, and IP will find a way. I guess if you are looking at unusual infringements of trade marks, start the action now whilst judges have to apply EU principles!

Anonymous said...

So its all good then,,,,,,am relieved to see that as part of her Energy dossier she's not yet pushing to get the re-introduction of a law that allows children to clean chimneys as an efficiency measure. Smart metering and nuclear are obviously massively successful in the UK,,,,,Wait a minute ,,,this is an IP Blog,,,,where do we start?

Cynic said...

Re. The Baroness,
Has she actually stated, in the past, a long-term IP strategy beyond 'we're going to join the EU patent system'? That's a measure rather than a policy so can be dropped as if it didn't matter. By this I mean, does there exist an imperative to somehow achieve EU patent membership despite all other factors such as preparing for Brexit? If not, then surely this gets referred to the new Minister for Brexit?
Alternatively, which vested interest can get to her first/more effectively??

*£$% said...

UKIPO, please also comment on:

- Nagoya Protocol
- SPCs, and will we accept first marketing authorisations being in the EU?
- regulatory data exclusivity
- plant variety rights

Kant said...

There is nothing for UKIPO to comment on (at the moment).

Anonymous said...

Here are my predictions:

1. UK won't be joining EEA/EEA-lite, and as a result UK trade mark practitioners will not be able to act before the EUIPO;
2. There will be a rush of UK TM practitioners wanting to get involved in litigation to fill the hole left by not having EUTM work;
3. There will be some Euro tie-ups between firms;
4. UK TM practitioners will end up running an increasing number of litigation cases, taking a fair number of the cases away from the mid-large solicitor firms

If I were a barrister right now I would be doing my upmost to woo TM firms and hold their hands through some litigation cases.

Anonymous said...

From HelloKitty:

Back to work, I checked what people think about the future of the united patent. Apparently, management is still confident that they can push the UK to join before the end of the year.

How do they think they can achieve that, I do not know. But we have had so many surprises in the past year, that I would not take a bet either way.

Something else: there is a rumor that the EPO will change their examination ways. It is true. It is on the Berlin suepo website and there is a powerpoint around, which will be presented to the examiners. Basically, the examiners are supposed to run an automatic search, not object clarity, send one single communication to the applicant if there are doubts about novelty or inventive step, simply accept the response and grant. All this within a year. The other members are instructed not to check any more and they will get warnings if the granted file lingers too long. Management wants the complete backlog gone in 4 years.

There will also be an assessment center for recruiting new examiners (not sure about that, decision is not out yet). Apparently, some directors are refusing to recruit many candidates for lack of competence and recruitment cannot meet their targets. Therefore the responsibility of recruiting will be taken from the directors and put into the hands of the new assessment center.

It is a completely different Patent Office that is being created under our eyes. What I don't understand is where the money will go: at present, the EPO is producing a plus of several hundred millions Euros a year (and that with the costs of a new building in the Hague). If we are suddenly producing many more patents a year, the surplus will shoot to the roof. That, and we are paying the new examiners a lot less and nudging the more expensive older ones to early retirement and retirement benefits will be cut massively. In 4 years, when we have no stock left, how much will the surplus be? A billion a year or more? Maybe that is how Battistelli plans to convince the UK to stay?

lee woo said...

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Proof of the pudding said...


What do you mean by a surplus? I am no accountant, but it appears to me that the latest financial statement (for 2015) produced by the EPO shows an operating loss (of EUR 145 million), largely due to an increase of over EUR 260 million in "Employee benefit expenses".$File/financial_statements_2015_en.pdf

I know that the figures presented need to be taken with a pinch of salt, especially due to the lack of oversight in the preparation of the figures. However, even the "sanitised" figures show what appears to be a huge hole in the pension fund. That is, there are liabilities of EUR15,828 million relating to "defined benefits", which completely dwarfs the EPO's current equity of less than EUR8,000 million. It also dwarfs the current assets of the pension, which were reported as just under EUR6,600 million.

I would be keen to know what "Remeasurement defined benefit obligations" means, though. This is because the EPO appears to have found over EUR4,750 million down the back of the sofa in 2015 thanks to that little accounting trick.

This does raise an interesting question, though. Has BB been brought in to deal with the black hole in the pension fund? Can the major effects of his policies be understood as being aimed at maximising current operating profit and minimising pension liability? If so, it would appear that EPOnia is a microcosm of society at large, with current workers (and users of the system) effectively paying the price for the over-generous benefits awarded to the generation that preceded them.

Pensions... said...

The benefits are not over-generous. I can explain the situation about pensions. I'll try to do that in non-accounting terms. I'll use round numbers out of my head to make calculations simpler.

The offices self insures the pensions. It simply pays the pensions out of the budget and write the pensions off the salaries as "contributions". So if we have, say, 1000 examiners with a salary of 10000€/month and 200 pensioners with a pension of 5000€/month, every examiner needs to contribute 1000€/month for the system to be in balance. They can pay that out of their 10000€ salary.
If suddenly, the office lowers the average pay to 5000€, each examiner still needs to pay 1000€ a month, but out of a lower salary. It looks as if the pension contribution is doubled for them.
If suddenly, the office improves efficiency massively and only needs half the examiners (but they keep their pay), we have the same effect: each examiner needs to contribute 2000€ (out of a 10000€ salary).
If we both halve the salary and the number of examiners, contributions quadruple.

Is the office planing to lower both the number of examiners and their salaries? I don't know. But it does not appear to be planning to lower the fees on patent or the number of granted patents. So the budget would stays the same and the capacity to pay the pensions out of the budget would also stay the same. The office would just need to keep the contributions of salaries at the same level for the examiners and meet the old obligations out of its budget. They would still save massively on salaries by having less active examiners and paying them less in that hypothesis.

But, if the office says "pensions must be a fixed percentage of the salaries" (10% in the above example) and then lowers the total salary mass, there is a problem. It is an artificial problem, but would be called "increase percentage of liabilities" in accountant speak.

Then we have the so called "pension reserve fund". This was never designed to be a pension fund, but designed to smooth things in case of changes. It was created because in the first years of its existence, the Office had no pensioners (where would they have come from). So the contributions were put aside in that RESERVE fund. This reserve fund is invested in state bonds, its regulation prevent using investments which would be to volatile. The so called "losses" are simply "smaller gains", because the interest rates are now very low. 10 years ago, we expected a return of maybe 5%, now we don't have that.

This reserve fund is massive. I think I have read that it could pay the pensions completely for the next 20 years or so. So it can hardly be described as bankrupt.

Then there is that vision floating around that the office would have a "pension fund". Like some massive amount of money from which only the interests would be enough to pay pensions forever. That is completely wrong: the pension reserve fund was originally designed to pay the benefits out of the fund itself, when necessary.

Proof of the pudding said...


Would the "RESERVE" fund you mentioned happen to be the "RFPSS" fund mentioned in the EPO's financial statement? If so, I note that the assets of that fund were EUR6,600 million at the end of 2015 (with only EUR1,300 million being in bonds). Is that enough to pay pensions completely for the next 20 years or so? If so, what on earth does the EPO's financial statement mean when it refers to a "Defined benefit liability" of EUR15,800 million? Could that be a projected total spend on pensions over the lifetime of all current and former employees?

Apologies for all of the questions. Like I said, I am no accountant, and so this is all a bit of a mystery to me.

Anonymous said...

Indeed, as stated above, the sum shown is the pension Reserve fund to cover the eventuality that the EPO is unable (or unwilling?) to pay pensions. Indeed originally, the final burden was to be shared between the member states as a sort of guarantor grouping. As is their won't, the AC simply decided they didn't agree anymore and passed the honour to the EPO - I'm not sure the legality of that was ever clarified as it didn't fall within their right to simply dump the agreement of a international treaty.

With regard to the mysterious 4 billion euros appearing from nowhere, that relates to the future liabilities which are referred back to the current date by applying the notionally agreed interest rate. In good times, the rate is high, in bad times, less so. In layman' terms,if I need to pay 1000 euros in 12 months time and I can get 10% interest, then I need to have 909 euros or so today. If I can only get 1%, then I need 990.1 today. Of course, the sums and time spans are far greater so that compound interest applies. 2 years at 10% would mean I need about 827 today but 1% means 981 etc.
In practice the rate has been falling quickly from 2011 to 2014 and in 2014 the rate was about 1.65% if my memory serves (you can find it in that link). In 2015 the rate rose and thus the liability of 19 billion in 2015 fell back to 15 billion. The rate changes regularly but is applied long term so that the biggest change to liabilities comes from small interest rate changes! In fact the fund has outperformed the rate (and its target) for 30 years.

Pensions... said...

Yes, the Reserve fund is the "RFPSS".

I am not an accountant either, but as far as I understood from suepo documents of the time, the "Defined benefit liability" of EUR15,800 million indeed means that the office closes down today, has no incoming revenue whatsoever (no renewal fees on already granted patents) and still has to pay all liabilities. If memory serves, this liability first appeared under Brimelow who insisted that the office use the IFRS accounting system. The choice of that accounting system was criticised at the time. It makes more sense for, say, a car factory which has to put money aside for the goods it orders (e.g. steel, car parts) in case it goes bankrupt.

If my memory is correct, the idea that the reserve fund could pay pensions for 20 years comes from simply dividing the assets by the pensions that the office pays each year at present, possibly correcting by the expected number of pensioners in future years (I am not sure).

All this is to show that there is a large amount of interpretation in the financial statement. Depending on the chosen accounting rules, one can make the office look very rich or very poor. What is clear, however, is that in the past years the office generated several hundred millions euros profit per year (while paying salaries and pensions and constructing new buildings regularly). This money was partially paid to the reserve fund in "extra payments" (in addition to what is paid each year according to the pension scheme). There have been several documents from suepo analysing the situation, but I am not sure whether they are on the public section of the suepo website.

Last but not least, I insist that the regulation for pensions are not any different than in most companies: accrue benefits each year till one is 65 and then get a percentage of your salary. Early pensioners get a discount corresponding to the projected additional pension years, etc... The pensions are also taxable. There are no "lavish benefits" as one sometimes reads.

Anonymous said...

Amicus Curiae

I would not know the precise meaning of the expressions used in the Financial Statements. What I do know is that the discount rate is a key factor.

To my best knowledge, every fund promising a certain return, not just the EPO fund, projects how much money will be needed in the future, usually split by calendar year. The fund normally has already some cash, and every fund manager would like to know whether this cash is sufficient to cover the future obligations. To check this, these future obligations are converted in the currently needed amount of money, to cover them fully or as is frequently the case, to 80%.

This conversion considers how much interest you will get on the cash in the fund. This interest is called "discount rate", implying that you need less than say 100 euro today if you want to have 100 Euro in 20 years. With the current EU politics, the interest you can get is pummeling down, lowering the discount rate. This, in turn, requires you to have more money today. If the European Central Bank changed their strategy next week, this would impact the finances and funding ratios of all funds relying on discount rates.

The catch of the story is that small variations in the discount rate will have a massive impact. A simple 0.2% more or less of the discount rate, over a projection of say 25 years, will make you bankrupt or filthy rich.

The EPO changed the pension system from "defined benefit" to "defined contribution". The "old guys" get a percentage of the salary as pension, and the EPO carries the risk if the fund "underperforms". The "new guys" get what the fund delivers, they carry the risk.

Proof of the pudding said...

I now realise that this has all been discussed before.

With the benefit of hindsight, the predictions at the end of the 3rd (anonymous) comment on that thread now look to have been startlingly accurate. Perhaps the BB phenomenon really is all about balancing the books after all.

Whilst it may be that income from renewal fees represents a missing part of the puzzle, there is one thing I don't understand. Where is the financial benefit to the EPO in rushing applications through to grant (which appears to be the current mantra)? Does this imply that the EPO gets more (on average) from its share of national renewal fees than it does from a full share of its own internal renewal fees? If not, then is the push for earlier grant all about BB keeping the Member States sweet by giving them an ever increasing share of renewal fees?

Perhaps we will never know. With the full knowledge and approval of the AC, one of BB's first actions as president was to disband the only body (the Audit Committee) that could have provided transparency / independent oversight in connection with the EPO's finances. So I guess that those affected (current and former EPO employees, patent applicants and the public) will just have to trust that the EPO's finances are being handled with the utmost propriety by BB and his cronies... what could possibly go wrong?

Proof of the pudding said...


My original comment related to the problem created (in many countries) where defined benefit (eg final salary) pension schemes were offered without the companies concerned ensuring that they had adequate funds in hand to cover the anticipated liabilities (eg taking into account increases in average life expectancy). Current examples of where things have gone badly wrong with pension funds are BHS and British Steel.

A similar issue applies to state pensions. In that instance, there is no "pension fund" as such, just a country's GDP. For those countries offering (relatively) generous pensions and (generally) free healthcare, an ageing population will command an ever increasing proportion of public spending.

Please note that I am not placing any blame at the door of the (soon to be) pensioners concerned. I am merely making the observation that bad judgements made by companies, countries and organisations (ie failing to set aside sufficient resources to cope with the retirement of the "baby boomers") has led us to the situation where the current workforce is lumbered with the problem of making up the shortfall.

I remember people in the 1980s warning us all about the coming "demographic crisis" in Europe. Well, now that the crisis is upon us, I can honestly say that it is almost impossible to identify any national government that has ever done anything significant in the intervening 30 years to defuse the problem.

At least the EPO has the reserve fund... though, curiously, it appears that it has no intention to use that fund to pay pensions. I would have thought that the whole point to having a reserve fund is to ensure that the pension "tail" does not wag the "dog" that is the everything else that the EPO does. However, I have my suspicions that the tail is indeed beginning to "wag the dog"...

Anonymous said...

Proof of the pudding,
I thought that an actuarial study last year showed that the EPO would only need to resort to the reserve fund briefly at some point in the future and that the amount required would be met by the annual return on the fund rather than depleting its capital. I'll try to find it - I think Suepo got a copy and published it. Cannot imagine BB would let any good news be released - keep the stick and hide the carrot...

Pensions... said...

@Proof of the pudding

I don't think ageing of the population is significant for the EPO. Actually, we will have a younger "population", because we only hire younger staff. On the other hand, the effect I explained about reduced salaries is probably significant.

It is also interesting that you cite British Steel. The steel industry used to employ lots of people but with modern production techniques a lot less people were needed: productivity per person increased considerably (and we could make a parallel with patent examination here, especially if examination is "streamlined"). What also happened is that the industry was privatized and a select small party of people made huge financial gains by keeping the usable parts and refusing to bear the liabilities, including pensions.

As to the future of the EPO all I can say is that:
-the new career system is a net loss for the majority of the employees and huge gains for the select few
-if someone tells me on disputable short term interest rate projections that a fund is bankrupt when this fund has increased regularly in the past 30 years and covers at least a decade of liabilities, I consider that a political message and not a financial analysis.

Banana Republic said...

Perhaps we will never know. With the full knowledge and approval of the AC, one of BB's first actions as president was to disband the only body (the Audit Committee) that could have provided transparency / independent oversight in connection with the EPO's finances.

The ILOAT also placed its seal of approval on this dastardly act in Judgment 3698:

"The authority to establish or abolish the Audit Committee was vested in the Administrative Council alone, and these decisions did not infringe the complainant’s rights in any way, regardless of his role in the EPO."

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