What Europe’s Unitary Patent Court will mean for business

The European Council agreed on a compromise proposal on 29 June to split the court that will litigate the EU Unitary Patent between France, Germany and the UK, paving the way for it the creation of a single European patent after 40 years of political wrangling. In a surprise move, the European Parliament challenged on 2 July one element of the proposal – eliminating a role for the European Court of Justice – and is now expected to renegotiate the deal with the member states. On 18 June, Science|Business organised a roundtable in the European Parliament on EU patent reform and its impact on innovation.

Relief is finally on the way for European scientists and researchers who have long paid a steep price to patent their inventions across Europe – up to €32,000 compared with €1,850 in the US. Or is it?

Experts gathered at a Science|Business roundtable on 18 June were split on whether the new unified patent court will help businesses compete globally from its inception – or whether it will take time to fix an imperfect design. But most participants viewed the establishment of a unified patent court as a major step forward for Europe.

“It’s long overdue,” said John Vassallo, vice president of EU affairs at Microsoft.  “It will take 20 years to become a better working system.  There are some defects in the system… But the objective is really to be able to sell across borders.”

Reducing the number of languages for European patent applications to three and the number of legal frameworks to one should drive major cost gains. “The external costs for filing and defending patents are tiny compared to the internal costs – translation into different languages and working with different legal frameworks,” said Alan Begg, senior vice president, group technology development, SKF. “We’d like to see things simplified and harmonized so we can be more efficient.”

Several participants argued the current draft of the law lacked clear procedural rules and that the court risked being prone to delays, undermining its avowed goal of bringing patenting costs down and closing the competitiveness gap with the US and Asia.

“The rationale for the court is that it will be cheaper and more efficient. But the lack of legal clarity may increase the possibility of litigation,” warned Johanna Gibson, director of the Queen Mary Intellectual Property Research Institute in London.

Over time, however, experts said the court is bound to be a boost for European business and the priority should be to get it up and running. Defects can be addressed once it is operational, they argued. “I get the feeling that there is no other way than simply making this one step forward [to establish a Unitary Patent Court] and then working out the details,” said Nikolaus Albert Thumm, chief economist at the European Patent Office (EPO) in Munich. “There will be problems; it will not be perfect, but we have to work our way through.  Of course there is a lot of criticism. We are adding another layer of transaction cost.”

The Organization for Economic Cooperation and Development (OECD) in Paris has been developing a set of indicators to help assess the quality and value of patents, and investigate the drivers of growth, innovation and competitiveness in a global, networked economy. “The use of patents has been shifting a lot. Today patents are used not only to protect inventions, but also as strategic tools” said OECD senior economist Mariagrazia Squicciarini.

A single European patent should ultimately help smaller EU companies and start-ups protect inventions and attract venture investment. “What venture capitalists want to see is patents,” Rouget F. Henschel, partner specialising in patent law at Foley & Lardner LLP, a Washington D.C.-based law firm. By making patents more affordable, a unified patent court can help European start-ups attract investors, he said.

Europe’s Unified Patent Court will have exclusive competence regarding the validity or infringement of a European unitary patent, the European Council said in a 29 June statement after reaching a compromise agreement locating the head office in Paris with two specialized divisions in Munich and London. A unified court will eliminate the possibility that multiple patent lawsuits concerning the same patent occur in different member states and will avoid the risk that court rulings on the same dispute might differ from one member state to another.

“I see the potential for a patent system here which doesn’t have the same disadvantages of the US system,” Henschel said. “There is a movement to limit patent litigation in Europe. That has merit. Europe has the possibility to have a very good system compared to what we have in the US.” The Council estimates the new system will reduce patent litigation costs for European companies by a total of approximately €289 million each year.

“At the end of day, businesses will vote with their feet. If they see value [in Europe’s patent regime] they will invest time and effort in it,” said David Eyton, group head of technology at BP.”

Jonathan Faull, Director-General for Internal Markets and Services at the European Commission, agreed the markets will deliver the ultimate test on Europe’s new Unified Patent Court. “If it’s not better than the status quo, people will find ways to maintain status quo. And since we are not abolishing national systems, they remain a costly alternative.”  Admitting many controversial issues in setting up the new court were the product of compromise, Faull said: “When we look at it, we still think it is better than the status quo.”

Experts at the Science|Business roundtable agreed on the need for more technical detail about how a unified patent court will operate in order to judge its true effectiveness in helping European inventors compete globally with the US and Asia. “Will there be an increase in innovation and a follow-on increase in patenting activity?” asked Thumm of the EPO. “To know the answer we have to know what the system looks like in detail. The devil is really in the details.”

Concretely, experts said, the new European Patent Court will enhance transatlantic convergence between the US and Europe toward a more common patent system. In 2011, US President Barack Obama signed the America Invents Act, the first major overhaul of patent law since 1980 and a seismic shift towards a European system of ‘first to file’ rather than ‘first to invent.’

Beryl Blecher, minister counselor for commercial affairs at the US Mission to the EU, said the America Invents Act brings US patent law within the norms of its major trading partners, allowing experts to work towards harmonization. The goal is enabling enterprises to protect intellectual property globally on a more level playing field.

“Europe’s Unitary Patent would boost this system, said Blecher.  “We are now ready to start harmonizing…There are many areas for collaboration.”

The logic behind transatlantic collaboration is to help boost transatlantic growth. “There are huge gains to be made in removing barriers to trade and investment,” said James Elles, member of the European Parliament.  “The benefits of system will show in medium to long term. We don’t have any time left if we want to retain a system that can innovate in the global system. We’ve been doing a lot of strategic analysis on the significant [economic] decline of the US and the EU vis-a-vis Asia. We have to speed up our decision making.”

Microsoft’s Vassallo, who penned a thesis on the need for a unitary European patent court 38 years ago, agreed a Unitary Patent Court would give trading partners the confidence to work together.

Gibson warned that inadequate consideration of procedural rules, the jurisdiction of the court, a lack of expert judges and litigation practice such as forum shopping could seriously impair the hoped for gains in patent efficiency and even increase litigation costs.

“There’s a consensus that a European Patent Court is desirable. The problems are with the process, consultation and transparency,” Gibson argued.

Faull insisted that waiting to get a perfect architecture for a European Unified Patent Court was not an option.  “The cost of patent is 18 times what it is in US and sixty times the cost in China. No one can claim the current situation in Europe is a satisfactory one.  We have stumbled on the language [translations] and the seat of the court. We’ve had a roller coaster of difficulties. We end up with a complicated system and having a court with more than one seat adds complication. But it is certainly worth having and an improvement over the current situation.”

The European Parliament postponed a planned 4 July vote on the Unitary Patent proposal. MEPs objected to the European Council’s decision to exclude the EU Court of Justice from the patent litigation process. Business representatives have spoken out against having the European Court of Justice, which has no specialization in intellectual property law, act as the final court of appeal for European patent litigation.

The issue will be discussed again on 10 July by Parliament members sitting on the Legal Affairs committee together with representatives from the Council, Commission and the Parliament's Legal Service.

After the European Parliament issues a common opinion on the proposal, the regulations on the single patent will have to be formally adopted by the national ministers in the Council of the European Union. Because the patent deal is based on an international treaty, heads of state and government of the participating member states will have to sign the agreement at a separate conference, after which national parliaments will have to ratify the treaty. The new system is expected to start issuing the first EU patents in 2014.