Will demand for the unitary patent save or sink the EPO?

In a previous post I commented on the lack of growth in patent filings at the European Patent Office. The World Intellectual Property Indicators - 2013 Edition confirms this lack of growth [see Fig. A.1.1.2 at page 46] and the low numbers of patent filings at the EPO compared with other leading offices [see Fig. A.2.1.2 at page 52].


On renewal fees for the unitary patent, I have commented in a first and second post  on what might be a "fair" level.

Assuming that the level of fees is not so high as to be a deterrent, what might be the effect on demand? The following graph plots number of European patents renewed in each country of validation, against total GDP for the countries concerned, and extrapolates this to a market just the size of DE+FR+GB and to a market the size of the unitary patent assuming all participating states (except Poland) sign up. As a sanity check, the number of patents in force in USA, China and Japan is indicated.

As can be seen, this implies a considerable increase in demand. A unitary right covering a market with a GDP of nearly €10 trillion is likely to be highly sought. It is also probable that those who think ahead will start to file more European patents once the unitary patent starts to look a reality.

It would appear that the EPO should be planning now for what they will do if there is a surge in demand. I would expect such a surge to occur once the level of renewal fees is apparent [fear is usually worse than reality].

So how will it work?

While looking over the background to the unitary patent, and idly wondering what rules the EPO will introduce to manage it, I came across the following little conundrum. The ability of the EPO to act in respect of "special agreements" is governed by Part IX of the EPC.

Article 142(1) of Part IX states:-

Any group of Contracting States, which has provided by a special agreement that a European patent granted for those States has a unitary character throughout their territories, may provide that a European patent may only be granted jointly in respect of all those States.

Article 142(2) of Part IX states:-

Where any group of Contracting States has availed itself of the authorization given in paragraph 1, the provisions of this Part shall apply.

As the Contracting States to the unitary patent have not provided that a European patent may only be granted jointly in respect of those states, they have not availed themselves of the authorisation of paragraph 1, and so it appears Part IX does not apply. As Part IX governs the EPOs role in such special agreements this is a problem.

Accordingly, can the EPO do anything in respect of the unitary patent? It seems the EPC says no, but the regulation is ordering the contracting states to tell the EPO to get on and administer the system.  

All views are welcome.

An economic digression - Are the provisions of the UPC compatible with the internal market

The UPC states at s. 24 that Union law shall be a source of law and yet, in its infringement provisions, there appears to be a fundamental inconsistency with the functioning of the internal market which is a core feature of the European Union.

The law of several (all?) Member States concerning indirect infringement provides that there is a double requirement for infringement. Firstly the supply of means relating to an essential element of a patented invention has to be within the national jurisdiction: and secondly the means are supplied to put the invention into effect in that national jurisdiction.

So, a manufacturer who makes and supplies in a country, a product constituting means relating to an essential element of an invention and destined for incorporation into a patented article in that country, will infringe a patent in that country. If the product is  destined for incorporation into a patented article in another country then there is no indirect infringement (not here considering aspects such as joint purpose, that might lead to a finding of direct infringement).

Section 26(1) UPC states (emphasis added):-

A patent shall confer on its proprietor the right to prevent any third party not having the proprietor's consent from supplying or offering to supply, within the territory of the Contracting Member States in which that patent has effect, any person other than a party entitled to exploit the patented invention, with means, relating to an essential element of that invention, for putting it into effect therein, when the third party knows, or should have known, that those means are suitable and intended for putting that invention into effect.

This in effect extends the territorial effect of each national part of a "bundle" patent and of the unitary patent to sale in one Contracting Member State of "means, relating to an essential element..." for putting the invention into effect in another Contracting Member State.

The effect of the generalisation of section 26(1) UPC is thus not simply to provide an enhanced court system, but to extend the acts of infringement that result from a European patent [bundle or unitary] to downstream activities outside the "home" territory of the the supplier of the "means, relating to an essential element..." . 

The effect of this extension on our manufacturer can be appreciated by looking at his potential liability for indirect infringement of a patent in a source country, by making and supplying in the source country, a product incorporated into a patented article in a different destination country. The following two tables show the situation now, and post UPC.

Now		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Patented non-UPC country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Non-patent country	No – no patent	No – no patent	No – no patent

Under UPC s. 26(1)		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	Yes if the product is “means relating to an essential element of that invention”	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Patented non-UPC country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country	No – as act of direct infringement only takes place in destination country
	Non-patent country	No – no patent	No – no patent	No – no patent

A similar change in effect is seen when one considers the potential liability of a manufacturer for indirect infringement of a patent in a destination country, by making and supplying in a source country, a product incorporated into a patented article in the destination country.

Now		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent
	Patented non-UPC country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent
	Non-patent country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent

Under UPC s. 26(1)		Destination country
		Patented UPC country	Patented non-UPC country	Non-patent country
Source country	Patented UPC country	Yes if the product is “means relating to an essential element of that invention”	No – as supply did not take place in destination country	No – no patent
	Patented non-UPC country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent
	Non-patent country	No – as supply did not take place in destination country	No – as supply did not take place in destination country	No – no patent

So the effect of the UPC is that whereas at present the manufacturer who only sells product in his home market, only needs to consider patents in force in that country: post UPC he has to consider patents elsewhere in Europe, and his liability depends upon whether his products are subsequently used in a UPC country or a non-UPC country.

This differentiation in liability according to whether or not a downstream user is in a UPC or non-UPC country thus increases fragmentation of the internal market and may be contrary at least to:-

• Article 26 TFEU concerning free movement of goods;
• Article 36 TFEU concerning the extent to which industrial property may act as a disguised restriction on trade;
• Article 20 TEU that only permits enhanced co-operation that will reinforce the integration process.

It should be further noted that this effect bears particularly strongly on SMEs who are most likely to be trading solely in their own country and not considering exports. At present such an enterprise need only look to patents valid in their own country and has no concern as to whether corresponding patents are in existence elsewhere. Post UPC this will change dramatically.

I do not believe that these issues have been considered by the European Parliament, the Commission, the Council, or the Courts in discussing the challenges by Spain and Italy. Perhaps it is not too late to think again?.

European grant rates

The following graph shows the rate of grant of European patents for applications filed in the indicated year. Does anyone have an explanation?

More on Unitary Patent Costs

In a previous post I commented on the appropriate level for renewal fees for the unitary patent by comparing the lifetime renewal cost per million population with costs in UK, France and Germany.

The following graph plots renewal cost per million head of population for:-

• the potential member states;
• the figures presented in Commission working papers in 2008 as indicative ranges of cost for the unitary patent;
• the USA.

Still not cheap is it?

A non-statistical digression

In a recent article  it has been commented that there is an “unforeseen advantage” to the unitary patent (or to non-opted out European patents) – namely the extension of the scope of contributory infringement from a national level to a (nearly) Europe-wide level.

I don’t think this advantage was unforeseen, I think it was intended: however matters may not be so simple as appears.

Article 26 of the Agreement is not solely applicable to unitary patents as the UPC is not solely applicable to unitary patents (Article 1) and wherever “patent” is referred to both ordinary (“bundle”) and unitary  patents are meant (Article 2(g)).

The effect of the Agreement thus appears to be to broaden national infringement law and expand the scope of contributory infringement - for both unitary patents and “bundle” patent litigated before the UPC  – to cover supply or offer to supply an “essential element” anywhere among the Contracting States where the European patent has effect.

While I think that is a good thing, I am not sure that all of the consequences have been thought through.

EPC Article 64 states that:-

“A European patent shall, subject to the provisions of paragraph 2, confer on its proprietor from the date on which the mention of its grant is published in the European Patent Bulletin, in each Contracting State in respect of which it is granted, the same rights as would be conferred by a national patent granted in that State”.

and

“Any infringement of a European patent shall be dealt with by national law.”

However, a national patent only gives rights in respect of that state and, for example, a UK national patent is not necessarily infringed by supply or offer to supply an essential element in the UK, where the directly infringing act is intended to take place in, say, Germany - even if a national German patent exists.

On a more general level, Article 5 of the Regulation on the unitary patent states that:-

“The acts against which the patent provides protection referred to in paragraph 1 and the applicable limitations shall be those defined by the law applied to European patents with unitary effect in the participating Member State whose national law is applicable to the European patent with unitary effect as an object of property in accordance with Article 7.”

This means that the acts constituting infringement of a unitary patent where the applicable law is that of Germany will be considered under German law even though the effect is throughout the participating states. For another participating state (e.g. UK) the unitary patent (or a European patent litigated through the UPC) will thus not grant the same rights as a national patent (or a European patent litigated through the national courts) and will not be assessed by national law.

This appears contrary to the provisions of Article 64 EPC.

This, to my simplistic mind, means that to provide the breadth of scope for contributory infringement that is envisaged by the UPC, it is necessary to provide identical breadth of scope to national patents, for example, in the UK, by amending Article 60(2) Patents Act to read:-

Subject to the following provisions of this  section, a person (other than the proprietor of the patent) also infringes a patent for an invention if, while the patent is in force and without the consent of the proprietor, he supplies or offers to supply in the United Kingdom a person other than a licensee or other person entitled to work the invention with any of the means, relating to an essential element of the invention, for putting the invention into effect when he knows, or it is obvious to a reasonable person in the circumstances, that those means are suitable for putting, and are intended to put, the invention into effect in the United Kingdom or any country participating in the Agreement of the Unified Patent Court where an equivalent national or European patent is in force .

I dislike using colloquialisms when discussing European matters, but this whole project is a dog’s breakfast that may become proverbial.

Unitary patent renewal fees

What is a “fair” renewal fee for a unitary patent?

Council working document 13752/08 and 13752/08 Cor 1 in October 2008 published eight scenarios for possible renewal fees, these scenarios ranging from lifetime renewal fees amounting to €36152 to €89902 for the (then) 27 potential countries. 

Even the lowest hypothesis is 50% more than the accumulated lifetime fees for DE, FR and GB.  A 50% increase in fees for a 90% increase in covered population and 66% increase in covered GDP does not sound a bad bargain.

The average of the eight scenarios had lifetime renewal fees amounting to €60735, a 153% increase in fees. Not so good a bargain. Anything above that average would be extortionate and probably guarantee a low take up for the unitary patent.

However the proposed methods for the calculation of renewal fees do not take into account the significantly different value for money of national renewal fees.  As can be seen from the following chart, there is an extremely good fit between value for money and population.

Looking in more detail, the following table shows a distinct difference in value for money between the larger EPC countries [Germany, Turkey, France, United Kingdom, Italy, Spain and Poland – only three of which might (must) participate in the unitary patent] and the rest. The graph shows both cost per million population and cost per billion GDP [pre-crash figures I fear - and I have left out Monaco because that is ridiculously poor value].

So far as the applicant is concerned,  value for money would best be represented by fees giving roughly the same cost per million population as the cost for Germany, France and  United Kingdom (or even less as Germany has very high fees at the end of patent term). 

The average for Germany, France and  United Kingdom  works out at about €115 per million population. With a total potential population of about 360m for those countries that might yet sign up for a unitary patent, this gives total lifetime renewal fees of about €41,000, around the lower end of the Council estimates. 

What is fair for participating states?

One’s first thought would be that the distribution key for renewal fee income should be simply based on population. However the gross overcharging of many countries would make that a significant drop in per patent fees. 

But what do not appear factored into the Council working documents are the difference in validation and maintenance rates from country to country. Not surprisingly, those countries where patents are not good value have lower validation and maintenance rates than those where patents are good value. 

Roughly, the smaller the country, the lower the validation rate and the earlier patents are abandoned. 

Applicants are not stupid and value for money is a major factor in deciding whether to validate or maintain a patent. A common strategy is to reduce the number of validations towards the end of patent life.  So getting a small slice on a lot of unitary patents may be of better value to some countries than getting a big slice on a few bundle patents. 

Of course politics intervenes, and it will be interesting to see what is eventually decided.

Let's get real

The EPO have published more self-justificatory statistics.

The press release here states “Europe consolidates its position as strong technology region” and justifies this in part with a statement “36.5% of all filings came from the 38 EPO member states (2011: 37.5%)”.  So the percentage filed by Europeans drops and this is “consolidation”?

The press release also states “The number of patent filings at the EPO originating from the 38 EPO member states reached a new peak in 2012, beating the previous record set in 2008.”. A 1.4% increase by European applicants is compared with a 6.6% increase by no-Europeans and indicated as a success. 

As mentioned in the post of 24th January, the number claimed by the EPO as the number of applications received by them appears to be the sum of Euro-direct and PCT filings, regardless of where filed.

To consider how Europe is doing it makes more sense to look to who shows real interest in Europe, those who file direct Europeans or Euro-PCT applications. The table below shows the annual total of these filings with the number of grants. Filings up to about 2008 were growing roughly linearly. Since 2008 there has been stagnation. 2012’s filings are not the highest ever. The blue-grey wedge shows the difference between the pre-2008 trendline and current filings. 

European patent filings are stagnating.  Given economic circumstances this is not surprising, but what are not helpful are panglossian press releases 

Success?

Following last month’s post I thought it worth putting the EPO’s filing and grant numbers into perspective. The graph shows filing numbers and grant numbers since 1995. Does this look like success?

Is it bigger or is it smaller?

The EPO have announced that they have had a bumper year indicating an "All-time high for activities of the European Patent Office in 2012" and stating that "In 2012, the European Patent Office (EPO) received 258 000 patent applications. This represents a 5.7% increase over 2011 (244 000) and sets a new record."

Leaving aside the point that nearly every year is a new record, these figures demand close attention. However detailed numbers will not be available until mid-March and so I look to 2011 instead.

The EPO also claimed a bumper year in 2011 [see here] so what does a bumper year look like?

The number claimed by the EPO as the number of applications received by them appears to be the sum of Euro-direct and PCT filings, regardless of where filed. A PCT application filed in China or the USA does not appear, to my mind, to represent "activity" by the EPO.

The EPO's activity instead could be considered to comprise the number of Euro-direct applications, plus the number of PCT applications for which the EPO acts as ISA, plus the number of PCT applications reaching the regional phase. These numbers are tabulated below:-

	2011	2010	Growth  2010-2011
a) Euro-direct	62557	71398	-12.4%
b) PCT International	181964	164170	10.8%
c) Of which, the number using EP as ISA	71627	68938	3.9%
d) Euro-PCT	80286	79405	1.1%
Total "activity" by EPO [a+c+d]	214470	219741	-2.4%
Total claimed by EPO [a+b]	244521	235568	3.8%

It is hard to see how a 12.4% decline in Euro-direct filings, near stagnation in Euro-PCT filings, and a 2.4% decline in business overall could be claimed as an increase, but that is what happened in relation to the 2011 figures.

It will be interesting to see how the 2012 figures look when published.