The crisis that began in July 2007 opens up new scenarios in the balance of power, both between institutions and member states. The three pillars of economic policy in the eurozone once again change in dimension: monetary policy emerges strengthened, the goals of fiscal policy change and questions arise over whether the crisis will serve as a lesson to encourage structural reforms. But the biggest change is that the crisis has given more relevance to other aspects of eurozone governance, such as its enlargement and its external representation.
It has never been more necessary than now for the EU to speak with one voice in the inter-national arena. What is at stake for Europe is shaping the institutions that emerge from the crisis. If it is not possible to take part in the international debate with one voice represent-ing the entire EU, it is the voice of the eurozone that will come forth. and extrapolatrepresent-ing from what has happened in the past few months, it is the one that will be heard the most.
ECoNoMIC GoVERNANCE
The Governance of
the European Patent System
bruno van Pottelsberghe de la Potterie Senior Research Fellow, Bruegel
Nearly 50 years of missed opportunities
Inventors, spin-offs or companies wanting to protect their invention in Europe generally start with a priority (initial) filing at their National Patent Office (NPO). From this priority date, the applicant has one year to file an application before the European Patent Office (EPO) or longer if the Patent Cooperation Treaty (PCT) ‘beyond-Europe extension’ route is chosen. The EPO then carries out research (check for novelty) and the substantive examination (check for inventive step) and may eventually grant the patent. If the patent is granted, it can only be enforced in those member states of the EPC (European Patent Convention) where the patent has subsequently been validated and translated, involving additional fees and costs. Each year the owner must pay renewal fees in every country where protection is to be prolonged.
On average, a patent granted by the EPO is validated in six countries only. In other words, once granted, a European patent essentially becomes a bundle of national rights. In case of litigation, national jurisdictions have the power to invalidate patent rights, even where the EPO has granted the patent, and to uphold a patent where the EPO has invalidated it. This is a paradoxical situation: we have EU-wide competition policy but national patent oversight. The European Union’s competition authority has jurisdiction throughout the European market but the countervailing leverage provided by intellectual property policy is ultimately run at the national level in each EU member state.
an obvious practical drawback of this asymmetry is that illicit parallel trade in patented goods is hard to prevent. It is relatively easy for imitators to import goods into the European Union through a country where the patent has not been enforced, and then to distribute them with impunity throughout the EU, including in the countries where the patent is enforced.
as a result, companies have to deploy resources to protect themselves against potential patent infringers, a function performed pre-single market partly by border controls. Even if an infringer is identified in one of the national markets of the EU, the patent holder must sub-sequently rely on the legal system of the state in which the infringement takes place in order to uphold his or her rights.
This fragmentation of the European patent system leads to three ‘incongruities’ which radically reduce its effectiveness for all innovators and its attractiveness for SMEs and academic spin-offs. The first and most widely acknowledged incongruity is the prohibi-tive costs of patenting in Europe. This is illustrated in the figure below, which shows that patents in Europe remain much more expensive, in absolute terms, than anywhere else in the world (despite the substantial drop in translation requirements provoked by the London agreement). The cumulated translation and procedural costs are of about 17,000 USD PPP if 13 countries are targeted and 10,000 USD PPP with six countries. In all other large patent offices the cost is about five times smaller and fluctuates around 2,000 USD PPP. If renewal fees for a ten-year protection period are included in the cumulated costs, a European patent fluctuates between 17,000 and 35,000 USD PPP, according to the geo-graphical scope of protection. This is to be compared with about 5,000 USD PPP or less in the USPTO (United States Patent and Trademark Office) and all other patent offices. In other words, ten years of protection in the US and anywhere else in the world is at least three times less expensive than having a patent granted and translated in the European patent system. In addition, accounting for market size would worsen the picture. Patent cost per capita in Europe is four to six times higher than in the US.
International comparison of cumulated patent costs, 2008 (in uSd PPP) 35 000
30 000 25 000 20 000 15 000 10 000 5 000
0
EPO-13 (LA15) EPO-6
(LA15) USPTO KIPO SIPO JPO BR-PO IN-PO AU-PO CIPO
Renew alfees (up to 10th) Translation cost Procedural cost
Source: M. Mejer and B. van Pottelsberghe, Economic incongruities in the European Patent Systems, Working Paper, 2009/01, Bruegel.
The second incongruity is related to the legal uncertainty over jurisdictions, especially in case of parallel litigations over a given patented invention. Empirical evidence and case studies all too amply illustrate the issue at stake. Entering into parallel litigations not only makes a
European litigation more expensive in relative terms than in the US, but it also makes it more unpredictable, as outcomes frequently diverge across countries.
Inconsistent patent quality is the third incongruity which is worth mentioning. The fact that national patent offices still grant patents independently from the EPO makes it possible and easy to file parallel applications before the EPO and before several national patent offices.
This is particularly appealing when the patent is in the grey zone (patentability is not guar-anteed). If the EPO refuses the patent it is still possible to get protection in national markets.
Van Pottelsberghe (2009) shows that this is a frequent practice: among the 60,000 patents granted each year by national patent offices, 25% are granted to foreign companies who de facto leapfrog the EPO’s examination process.
These ‘incongruities’ due the fragmented patent system in Europe have lasted for more than 47 years. Indeed, the original idea of creating a European patent was first put forward in 1962, before the creation of the EPO (1978). Since then, all attempts to eventually create an effective and attractive patent system have failed: there is still no single market for technology in Europe! Needless to say, Europe is far from being helpful to its innovators in this respect.
Current status
The Community patent project seeks to provide a ‘one-stop-shop’ for obtaining patent pro-tection in the EU: once granted, the Community patent would be enforced automatically in the EU, with a single renewal fee schedule covering all countries. any cross-border litigation could then be dealt with through a Unified Patent Litigation System (UPLS), and ultimately in the European Court of Justice. according to the current negotiations the Community patent would be an additional patent protection route in Europe, alongside the European patent and national patents. Companies would be free to choose between the European patent and the Community patent at the time of the EPO’s grant decision. The Community patent and a UPLS are key ingredients for ensuring that the EU single market works properly. If European govern-ments wish to foster innovation and create a suitable environment for fast-growing technol-ogy-based firms, the Community patent project should become a prime objective. a unified patent litigation system would further reduce the prohibitive costs caused by parallel litiga-tions and ease the uncertainty generated by heterogeneous litigation outcomes.
The current situation in European policy-making institutions is as follows. The current Trio Presidency aims to make substantial steps forward by submitting first a ‘Draft Council Conclusions’ on the patent reform project and then a ‘revised proposal for a Council Regulation’
on the community patent. as the devil is in the details, several agreements or protocols must still be reached, despite the recent declaration on the EU patent, which is more symbolic than indicative of real progress. These details include 1) the renewal fee schedule (some NPOs want it very high, users and observers want it at an affordable level); 2) the distribution key of
the revenues generated by the community patent’s renewal fees, of which half must be split between NPOs; 3) language arrangements (who is performing the translations of what parts of the patent and into what language?) and 4) the issue of enhanced partnership, which could be translated as making sure that NPOs still provide search and examination services.