Making smart decisions

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The EU Patent brings with it the need to develop clear filing and enforcement strategies for SMEs. Jochen Sties explores the options.

Like it or not, the EU Patent is coming – and with it will come a Unified Patent Court.

There is no doubt patentees seeking patent protection in multiple EU countries will benefit significantly from a unified EU Patent, not only in terms of reduced portfolio costs as no validation will be required, but also in terms of being able to take advantage of simplified central enforcement against infringers. However, patentees who need to validate their patents in 25 EU countries are a minority. The majority only really have to validate their patents in a handful of countries. On average EP Patents are usually only validated in four countries so the question has to be whether those who only need to patent in a few countries really benefit from the EU Patent.

Filing strategies

Choosing the new EU Patent will give a patentee unitary patent protection throughout the EU (except Spain and Italy). The idea of significantly reducing the administrative efforts currently involved with EP Patents could at first glance appear attractive.

However, in most cases using the EU Patent will not result in a significant reduction in administration because it will have to be used in parallel with the EP Patent as some popular countries will not be covered by the EU Patent. Member states like Italy and Spain have decided not to participate and all non-EU countries like Switzerland and Turkey are, by definition, not covered. This means the need to administer a couple of IP rights originating from the same European Patent Office (EPO) filing will still remain.

Annuities pose another potential problem. The level of annuities for the EU Patent is expected to correspond to the cost of five to six national parts of an EP Patent. As this is above the average number of countries in which EP Patents are currently being validated, it isn’t an enormous leap to see that the EU Patent will result in higher annuities. This effect is partly offset by the fact a single annuity is to be paid to the EPO as compared to, for example, paying four annuities in four different countries plus the costs annuity service providers demand. Nevertheless, the costs for an EU Patent will, in the long run, exceed the costs involved with maintaining an EP Patent in four countries.

The following chart compares the accumulated costs for an EP Patent validated in Germany, France, Great Britain and Italy to those for an EU Patent. Prosecution costs are of no influence in this comparison as they are identical for both the EU and the EP Patent.

Figure 1: Comparing EU and EP Patent costs

Fig1

The cost penalty for choosing the EU Patent in this particular scenario is more than €10,000. This penalty is even more significant if all national parts of the EP Patent are not maintained up until the 20th year, which is currently a very popular maintenance strategy. Unfortunately, this maintenance strategy is not available for the upcoming EU Patent; it’s a case of all or nothing.

Assuming that the patentee decides to drop Italy after 13 years, France after 15 and Great Britain after 18 years but maintains Germany up to the 20th year, the accumulated costs are:

Figure 2: Comparison when national parts are dropped

Fig2

The savings that could be achieved in this example – simply by being more flexible with the maintenance of the national parts of the EP Patent – exceed €20,000.

It could be argued the initial result is an EU Patent only makes sense for the minority of patentees, those who tend to validate their EP Patents in a multitude of countries. For the majority of patentees, including those who only validate in three or four countries, the EP Patent is the cheaper alternative.

Are national patent applications an alternative?

Based on the fact that patentees validate their EP Patents in fewer and fewer countries, it makes sense to analyze in which situations a bundle of national patent applications would make more sense than an application filed with the EPO.

The following diagram compares the accumulated costs of filing and prosecuting four national patent applications (DE, FR, GB, IT) with the costs of prosecuting an application with the EPO then validating in these four countries and then again with choosing the EU Patent.

The sample patent application here comprises 15 pages of specification, 3 pages of claims with 15 claims in total, all of which are presented in English. Further it was assumed that the request for substantive examination for the national German patent application was filed seven years after the filing date.

Assuming that all of the national patents are being maintained up to the very end of their maximum lifetime, the costs are identical with the costs of an EU Patent. However, those costs exceed the costs for the EP Patent, mainly because of translation costs and the attorney fees associated with four separate applications.

Figure 3: Comparing EU, EP and national patent costs

Fig3

Provided one does not require patent protection in a wide range of countries throughout Europe, filing national patent applications is clearly a more cost-effective alternative to using the new EU Patent.

Looking purely at cost, you can quickly see that national patent applications barely constitute an alternative to an EP Patent. However, there are other factors that have to be taken into account when drafting a filing strategy for Europe:

  • Are there any specific benefits offered by national patent applications in the various countries I need protection in that I can take advantage of?
  • Will prosecution be easier than it would be if I was to go through the EPO?
  • How can I make it harder for my competitors to design around my IP rights?
  • In which countries do I really need protection?
  • In which countries and with which court would I want to enforce my patents?
  • In which countries do I usually drop my patent before 20 years are out?

These are exactly the factors I’d like to address now.

Specific advantages of national patent applications

Despite everyone’s best efforts to harmonize everything on a European level, the national patent systems have so far proved immune to their advances. In fact, still no two countries have an identical system.

Germany has a patent system with substantive examination and is a system consistently credited with delivering good quality patents. There are no formal traps: A divisional application can be filed any time as long as the parent application is in force and the regime as to what amendments are allowable within the original disclosure is more liberal than it would be through the EPO.

The most significant advantage of the German patent system is it allows one to request substantive examination for anything up to seven years after the day it was filed. Unlike other patent systems under which the applicant has to define the scope of protection within a few years after filing (and therefore often at a point in time where neither the owner nor his competitors have managed to take the products concerned to market), the deferred examination allows the patentee to draft their claims during examination when they know precisely what protection is necessary. Why? Because their competitor’s product is out, on the market and available!

France’s patent system does not offer substantive examination. Even though there is a quality search report, the applicant is not required to change his claims based on the prior art cited in that report. The validity of the patent is checked during infringement proceedings. This system allows for pretty broad patents to be obtained which maintains a certain level of uncertainty for potential infringers as they have to rely on their assessment as to whether or not the patent will be declared null and void during infringement proceedings.

Great Britain’s system offers substantive examination but the level of inventive activity is lower than with the EPO or the German Patent and Trademark Office.

The Netherlands’ system is similar to the French system in not offering substantive examination as well as a fast patent registration process that allows patents to be enforced within about 20 months after filing.

Italy also has a system without substantive examination. There are two features that make an Italian application an exotic yet interesting option in certain situations. Firstly, Italian patent applications are not available online. It is therefore hard for competitors to identify exactly where there may be a potential problem. Secondly, if the application is a first filing, a high quality search report prepared by the EPO is provided – at a fraction of the cost of a search request prepared for an application filed with the EPO.

Prosecution of national patent applications

The prosecution of a patent application with the EPO is becoming a more and more formulaic process. Time windows for filing divisional applications are being created, punitive claims fees are being charged and the case law regarding what is considered to actually have been included in the original disclosure is becoming stricter and stricter. Finally, the number of clarity objections appears to increase from year to year.

The same cannot be said of national patent applications. In the countries that do not rely upon substantive examination, such problems obviously cannot arise. In other countries, for example Germany or Great Britain, there are immediately recognizable approaches to issues such as unity of invention, original disclosure and the preconditions to a valid priority claim.

Broad scope of protection

Both the EP and the EU Patent will result in one patent offering identical protection in all of the countries in which they are recognized. Such unitary protection will make it easier for competitors to design around.

Using a bundle of national patent applications allows patentees the luxury of obtaining greater protection. On the one hand, patentees can choose to have their patents granted with differing scope of protection. On the other, the patents could be granted with a rather broad scope of protection in countries without substantive examination. Used in combination these options make it harder for competitors to design around.

Where and how long do I need protection?

From a legal perspective, approximately 50% of all patent infringement cases in Europe are litigated in Germany. Other countries with a significant number of cases are France, Great Britain and the Netherlands. In the majority of European countries, no patent litigation cases are being filed at all.

From an economic perspective, it can be assumed that the 80:20 rule is applicable to most industries or products, in other words 80% of Europe’s turnover is derived from 20% of its countries. Many applicants have proven with their filing strategies that patent protection can be concentrated on a few countries. If a competitor’s product can be blocked in the most important markets then this is usually enough to make them withdraw their product from the entire European market.

These considerations however do not apply if the patentee prefers to license their intellectual property rather than enforcing an injunction against infringers. If generating income by collecting royalties from infringers is the priority, then broader geographic protection is necessary as royalties can only be collected for sales in countries where patent protection exists.

Finally, it has to be taken into account that patentees seldom maintain the national parts of their current EP patents over the entire 20 years. Some countries are more commercially interesting than others which results in patentees taking the decision to drop certain national parts at different times. This will not be possible with an EU Patent, making national or EP patents more attractive.

Where would I enforce my patents?

As I’ve already mentioned, approximately 50% of all patent litigation within Europe is heard before German courts. This is largely because German courts are known for fast, high quality decisions. It’s also because the court proceedings involve reasonable costs, a significant portion of which the prevailing party can recover from the losing party.

It has to be said the courts in the other countries involved in a significant amount of litigation are also known for high quality decisions, but the costs associated with litigation are often high, which makes Germany a more attractive option for many patentees.

The Unified Patent Court will offer a new option in the future. The Court will allow patentees to enforce both an EU Patent and existing or future EP Patents with a single action throughout the EU countries in which the EU Patent or the EP Patent is valid. This will clearly be preferable to having to litigate in each country ….. to continue reading this story please click here

Résumé

Jochen Sties studied mechanical engineering, specializing in aerospace technology, at the Technical University of Munich and graduated in 1994. He passed the German patent bar examination in 1997 and became a European Patent and Trademark Attorney in 1998. In 2006, he received a Master of Law in European Intellectual Property. The Masters thesis dealt with the protection of intellectual property as a fundamental right under the German constitution, the EU Community law and the European Human Rights Convention. Jochen is a guest lecturer on the Executive MBA Study Program in Innovation and Business Creation at the Technical University of Munich.