A call for financial transparency from the European Patent Office

Having been returned to blogging duty, Merpel has turned her attention to the finances of the European Patent Office.  She wrote about this last year, examining the 2013 financial report of the EPO, and concluded that it was not possible to establish with any confidence, or in any degree of detail, what the true financial position actually is.

It still doesn't add up ...
In the meantime, Merpel has been considering the revised proposal for renewal fees for the Unitary Patent from the European Patent Office, reported by the IPKat here.  These proposals are striking, in that they consider in some detail in Annex 3 the effect of various renewal fee proposals for the Unitary Patent, taken together with some assumptions about the level of uptake of the Unitary Patent - happily referred to as "penetration" - that is, the proportion of European patents for which unitary effect is expected to be requested, upon the renewal fee income of the EPO.

However, the Unitary Patent Regulation states in Article 12(1) that the level of renewal fees should be
" ... 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".
It does not state that the level of renewal fees should be sufficient to maintain a specified level of renewal fee income compared with the current situation. Article 42 of the European Patent Convention provides in similar terms that "The budget of the Organisation shall be balanced."

Now, "balanced" is a concept that requires to look at both the income and the outgoings of the EPO. Merpel is given to understand that the EPO generates an operating budget surplus year on year of the order of hundreds of millions of Euros: €281m in 2011, €311m  in 2012, €338m in 2013 and €364m in 2014.  Now these numbers may not be entirely accurate, and Merpel realises that it depends what accounting rules are used to process and report the numbers.  These figures are however hard to reconcile with the published accounts of the EPO.

The big imponderable seems to be the Pensions Reserve Fund.  This is the money that the EPO puts aside to fund the retirement pensions of employees, once it can no longer afford to pay them out of current income which, Merpel understands, is currently the case.  How much money the EPO needs to squirrel away depends on actuarial assumptions on the future pensions liability, and on the expected returns on the assets that already exist -- which are enormous at over €6 billion.  Merpel, who much prefers chasing squirrels to squirrelling anything away, cannot disentangle all of this.

But the point is that she should not have to.  If the EPO is supposed to present a balanced budget to justify the renewal fees that it wants, then it should explain openly and clearly to the European Union and to EPO users what its budgetary constraints actually are.  No explanation of why the proposed renewal fees levels are needed has emanated from the EPO.

This lack of financial transparency makes it also impossible to judge the obsessive message repeatedly coming from the EPO that there needs to be a huge leap in efficiency and productivity.  This increased productivity is being enforced by escalating production targets for examiners, directives to refuse various categories of leave, having non-examining project work done in extra time remunerated by bonuses (reported here), applying more stringent conditions to part-time working, and implementing regressive sick leave provisions (reported here).  But nowhere is the EPO explaining why this leap in production is needed.  Why not?

If transparency is good enough for
cats, it's surely enough for the EPO
And while she is on the subject of transparency, Merpel would also criticise the lack of transparency over the development of the renewal fee proposals.  Why has the EPO not published its two proposals itself, but instead left them to be found hosted by bloggers and law firms?  The same goes for the submissions in response to the proposals.  Merpel is aware of submissions from the IPO, BusinessEurope, the EPI, Eurochambres and member states (and there may be others).  Merpel has not seen any of them published; the Kluwer blog says that it has seen two of them and reports excerpts, but why are they not published where they can be readily accessed by the very many people who are concerned about the matter?  The section of the EPO's website dealing with the Unitary Patent is remarkably sparse given the EPO's pivotal role in the system, as the entity that both grants the European patent and registers its unitary effect.

If the EPO is arguing financial necessity both for its internal reforms to career structure to increase productivity, and for the level of renewal fees, then only a clear exposition of its financial position will suffice for the users and others affected by the European patent system.

So, what do we want?  Transparency about the EPO finances and the effect of Unitary Patent renewal fees on this.  And we would like it now, please.
A call for financial transparency from the European Patent Office A call for financial transparency from the European Patent Office Reviewed by Merpel on Tuesday, May 26, 2015 Rating: 5



    Chercher l'erreur !

  2. Vostradamus says:
    How naïve you are Merpel, People have been asking for more transparency for months now, including the President's emoluments and benefits. Don't you understand that as long as Mr Battistelli remains President with his friends in key position the request will not be met? Why it is pretty clear!

  3. Many of the submissions you refer to, dear Merpel, appear to be quite critic of the renewal fees proposal.

    And there lies your answer.

    Do you think we will also ever see any of the comments requested about the reform of the Court of Appeal?

    No way.

    Critics at the EPO are just silenced - either by not publishing their comments, or by investigating them with an external company.

  4. THE EPO Jester is laughing...

    ...about a kittenish cat playing with and looking behind a curtain nobody should have a insight.
    The member states are not only subsidising their national offices and dubious IP projects via the money printing EPO cash machine, but there is a lot more going on. So welcome and enjoy the Rocky EU/EPO Picture Show. But take care! If you play to much around the curtain, an Control Risk employee could suddenly tread on your tail...

  5. THE EPO Jester found...
    this under the King's desk:

    Investigative Unit and external firms


    Regarding questions raised in recent publications and blogs

    Dear colleagues,

    Some recent publication and blogs have questioned the participation of an external firm in EPO activities related to the Investigative Unit. I want to clarify that because the EPO Investigative Unit is rather small in terms of staffing, we need to be able to contract external companies to support our fact finding enquiries. This is one reason why an external firm can be chosen in regard to an investigation, operating within the regulatory framework of the EPO, under the full supervision of the Investigative Unit.

    The European Patent Office cannot comment on specific internal investigation cases. This lack of comment is to protect the integrity of any such case and protect the interest of all parties concerned. However I would like to remind the Office has a duty of care to its employees including to investigate allegations of harassment against them by other employees. Investigations can only take place following specific allegations, made by EPO staff or external parties, and these investigations are independently and objectively carried out by the Investigative Unit, under its sole responsibility.

    The investigation process of the EPO follows the best international standards and allows persons to be heard, to respond and to defend themselves against any allegations, before any conclusion of misconduct would be reported to the employee's appointing authority. Only in any case where a serious misconduct is confirmed by the Investigative Unit, a disciplinary case could be instigated where the subject has a further right to be heard before a disciplinary committee and before any subsequent decision on a sanction would be taken.

    In 2014, the Investigative Unit received 68 allegations of misconduct (-23% compared to 2013), 50% being already rejected as insufficiently specified.

    John Martin
    PD Internal Audit and Oversight‎

    Perhaps an amusing detail is that Control Risks is a member of Transparency International...


  6. Squirrel something away and to ferret it out;. Says…

    Before BBs arrival, the EPO squirrels were mainly red. Soon we will vaguely remember these sweet Beatrix Potter–type creatures, smaller and prettier and more agile and lacking the rat-like features that disclose themselves when you get close to a gray squirrel. These latter riffraff, once imported from the AC by some kind of regrettable accident, has now gradually massacred and driven out the more demure and refined EPO breed. It is said that the gray squirrels do not fight fair and with a raking motion of their back paws castrate the luckless red ones. Whatever the truth of that, the sighting of a native EPO squirrel will be soon to be a rarity!

  7. In September 2014, the Central staff Committee (CSC) requested that a corruption specialist (Transparency International) assessed the office’s governance(...)
    According to the CSC, the most recently-appointed auditor was a former close co-worker of EPO President Benoît Battistelli from his time at the French Patent Office.


    In November 2014, the President Battistelli responded that there was a “defamation campaign” against him.
    The EPO staff union, he said, was organising the campaign and had been “contacting the media throughout Europe” to complain about issues such as a perceived lack of transparency at the EPO and poor governance.
    As for transparency, the President Battistelli said: “Since I became president I’ve proposed the publication of most council documents.
    Not many public organisations are doing so much in terms of transparency.”


  8. Merpel,
    Re. The pension future requirements, the pension reserve fund does appear to be large, but there appears to be a problem due to the reducing rate of interest. While the fund has always aimed medium to high and, fortunately, exceeded even that on a long term basis (even now), actuarially, as far as I understand it, the figure to be used for future growth assumptions has dropped from the high 3% to about 0.89% p.a. The consequence is that there is a large shortfall on paper (basically the EPO is forced to assume a 0.89% return while it is currently achieving >5 (or >6?).
    In fairness, the more conservative figure is to be taken seriously since to do otherwise is to just shrug and act complacent. Which wil not look good in hindsight if the experts are right. At the moment the figures look v bad since compound interest at 0.89% over 20 years is a lot less impressive than 3.89% over 20 years, let alone what will be achieved if current investments continue (although values may go down as well as up etc.). The 0.89% may rise of course. Or it may fall further. Future liabilities won't.

  9. @Future pensioner:

    alas, you appear to have fallen for the EPO administration's pensions nonsense: take a look at the last Actuarial report on the pension fund (value at 31.12 2012), where you will see that the real experts concluded that the fund was perfectly healthy. It remains so. Real liabilities are covered, as far as can be ascertained from the hard-to-find information available.

    The problem with the IFRS forecasts is that they are based upon entirely unrealistic values for the discount rate used to calculate future estimated liabilities. That the EPO (on paper) can increase its apparent liabilities by nearly €5 billion in the last three months (as reported in the last financial statement) is absurd and reflects nothing but the inadequacy of the model.

    Furthermore, the Pension RESERVE Fund is precisely that: a reserve. The EPO at present pays all pensions out of current account and is likely to do so for some time (unless the president and the AC decide to award the member states even more cash for doing nothing).

    The present 'reforms' are nothing more than a cash grab - simply because the president and AC can do what they like and there is no legal basis for intervention against them apart from ATILO, which, we already know, is a busted flush.

    The problem for the future, of course, is this if they can get away with what they like for serving staff, what will they try next? As the ominous words 'pension reform' have already been spoken, I fear the worst. In this I am joined by the (reportedly) 400-odd staff who have decided to retire in the near future, in the hope that they can get their pension before it, too, is downgraded.

  10. It should be remembered that when Mrs Brimelow came, the EPO was on the verge of bankrupcy. Now suddenly liabilities increase in spite of the salary mass being contained (but not for everybody...).

    A further aspect that should also not be forgotten, is Art 37(c) as well as Art 40(b) EPC about special contributions by member states. Should the EPO may need money, the contracting states may be invited to support the Office. Any president wanting to invoke these dispositions will be fired instantaneously.
    When special contributions are at stake, UK will only have to contribute very mildly as the number of filings coming from the UK is relatively small compared to those of FR, NL, CH or even IT which are much higher. But UK has still a large number of designations, which will have to be taken into consideration for the entry in force of the UPC agreement, if a Brexit does not change the situation.

    An old French proverb says: if you want to kill your dog, then simply claim it has rabies....
    Has the EPO been so badly run by the predecessors of those two people who were only linked by reciprocal disdain, or is it no more than an overblown ego wanting to show "I can do it MUCH better".....

    It is a pity to see the EPO being so badly managed, whereby the SUEPO is certainly not free of blame for the obstructive way it was handling relations with upper management. But this is not a reason to dismiss it as is presently done

  11. When special contributions are at stake, UK will only have to contribute very mildly as the number of filings coming from the UK is relatively small compared to those of FR, NL, CH or even IT which are much higher.

    Sorry pal - Article 40(3) EPC makes it clear that it is 1977 filing numbers that apply - UK share is a little below 20% just short of Germany at about 22%. Who said life was fair?

  12. Our governments should act!

  13. I am wondering if anybody has ever tried to get access to EPO financial information through normal national legal means.
    Let me explain: most EPC member states have legislation regarding government transparency. For instance in the Netherlands, there is the WOB - Wet Openbaarheid Bestuur - which can be used to get access to most government documents (except if national security is at stake). It is often used for very mundane things (e.g. to get access to pictures from speed camera's to appeal a fine) but has also brought to light major scandals (e.g. the financial payments to criminals by the Dutch ministry of justice, causing 2 heads to roll).

    In principle, I do not see why this transparency duty should not extend to the EPO, financed through public money of the member states - if applicants pay procedural fees upon filing an EP application at an EPC member state patent office, and that money is transferred to the accounts of the European Patent Office, that is a transaction of public money (the NPO is a government body).

    Could financial transparency be obtained by making a request to receive a breakdown of how this national public money is being used ?


  14. CuriousExaminer said "[...] financial information through normal national legal means [...] government transparency [...]"

    If monetary movements have been done using US banks/servers/... then you have the FIFA-scenario and the FBI is coming to rescue Eponia from the Bananarepublic status it appears to be heading for ... right?

    Der Sepp ('I forgive everyone, but I don't forget')


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