Europe down the plughole?

The Select Committee for the Unitary Patent meets next week to discuss fee proposals that have been widely leaked.

The risk of damage to the reputation of Europe, and the finances of the European system, is extremely high if either proposal is adopted, both of which appear to reflect more fear of the future than a desire to improve the European system.  

Growth rates for European patents (direct filed and PCT regional phase) are already dismal compared with other major economies such as China and USA [EPO annualised growth rate over 2008-2013 was 0.3% compared with 36.9% for China and 5.1% for USA]. No amount of misleading press releases can hide this fact.

This dismal performance reflects not only the state of the European economy (which affects both the resources of European industry to file patents and the attractiveness of Europe as a market for external applicants), but also the reputation of Europe as a high cost patent system. Decisions are often based as much on reputation as reality: and the reality does not help Europe’s reputation.  

If the unitary patent too gets a reputation for being expensive, this will affect user’s decision on whether or not even to apply. Even though the alternative will exist of going for London Agreement countries, the reputation of high costs in Europe will spill over to affect demand overall.

This damage to reputation  will apply both to users within Europe and those outside Europe.

This could set the system on a death spiral:-

• Perceived added expense to an already expensive system acts as a deterrent to choosing to protect in Europe, leading to a reduction in the number of European applications filed.
• A reduction in the number of European applications filed affects both those EPC countries inside the unitary system and those outside, since if there are fewer European patents there will be fewer national validations, including fewer Italian patents and fewer Spanish patents.
• Fewer patents leads to lower renewal fee income for the EPO from granted patents.
• Lower renewal fee income for granted patents leads to more income being required from European applicants in the form of higher procedural fees and higher internal renewal fees.
• Higher procedural fees and higher internal renewal fees leads to Europe being perceived as even more costly leading to lower demand.
•  Lower demand leads to still higher fees to cover EPO liabilities.
• The system spirals to its doom such that the EPO becomes financially unsustainable and national offices have to look to their liabilities for “special financial contributions” under Article 40 EPC.
• National offices find that the reputation for high costs in Europe has led to a reduction in their national filings too.
• No money is available and government have to step in to bail out a system that would have been sustainable had fees not been set at a level guaranteed to deter customers.

Of course, if the unitary patent is abandoned that too could lead to a different death spiral:-

• Perceived failure to reduce the cost of an expensive system acts as a deterrent to choosing to protect in Europe leading to a reduction in the number of European applications filed.
• A reduction in the number of European applications filed affects all EPC countries.
• Fewer patents leads to lower renewal fee income for the EPO from granted patents.
• Lower renewal fee income for granted patents leads to more income being required from European applicants in the form of higher procedural fees and higher internal renewal fees.
• Higher procedural fees and higher internal renewal fees leads to Europe being perceived as even more costly leading to lower demand.
•  Lower demand leads to still higher fees to cover EPO liabilities.
• The system spirals to its doom such that the EPO becomes financially unsustainable and national offices have to look to their liabilities for “special financial contributions” under Article 40 EPC.
• National offices find that the reputation for high costs in Europe has led to a reduction in their national filings too.
• No money is available and government have to step in to bail out a system that would have been sustainable had the opportunity to send a message on costs been taken.

In short, the discussions in the forthcoming Select Committee meeting are critical to the European patent system.

The proposed Top 4 [Top 4 in later years, with matching to the EPO internal renewal fees in the early years] represents a significant increase over the EPO's current income from patent renewal fees. The proposed Top 5 represents a scandalous attempt to freeze out the very users the unitary patent was intended to benefit. Both proposals penalise SMEs who could not rationally choose a unitary patent given fees of such magnitude.

If either of these proposals is adopted, the damage to the reputation and the finances of the European Patent Office (and national offices) will be extreme.

Even Top 4 is high, since it includes two of the most expensive countries [Germany and Netherlands].

Please, Select Committee, send a message that you are serious about the future of the European patent system and decide on a renewal fee schedule Top 4 or below, and review it in a few years’ time to determine whether it is sustainable based on the pattern of take-up.  

Do not be driven by fear of what might happen to decide on fees so high they cannot meet the requirements of the regulation, and that guarantee immense damage to Europe. 

Choosing an appropriate level of renewal fees could lead to a virtuous circle of improved confidence and an improved environment for European business, rather than a self-inflicted death spiral.