Europe’s unitary patent to launch in 2015 – but will companies embrace it?

“Patent trolls are a real threat and a real problem,” said Emil Pot, director of intellectual property at ActoGenix NV, a seven-year-old Belgian biopharmaceutical company. “We are just a small SME but we were threatened by a troll in the US.” We told them, “we have no representation in the US – come and get us in Belgium”, after which they let go of us. I’m really curious how the unified patent court will address that threat of patent trolls coming to Europe.”

Experts drafting the rules and regulations that will govern the unified patent court energetically defended it at a recent Science|Business roundtable, “Patents in Europe: What’s next?” listing a raft of differences between current US practice and the design of Europe’s future unified patent court. Senior EU officials and patent experts said the rules governing the new court would discourage patent trolls from filing the same kind of the abusive patent infringement cases that are plaguing US technology companies.

“We want to send a message to the future European Bill Gates – that you have a continent out there in which to succeed or fail,” said Jonathan Faull director-general, Internal Market and Services at the European Commission, insisting that the unitary patent was a watershed for Europe’s single market and a boon for growing a new generation of globally competitive entrepreneurs.

“The yet unborn [European] inventors of tomorrow's goods and services have to trust our system. The last thing they will want to worry about is litigation,” said Faull. “They need to know the court system is there as an ally and is dependable and accessible at a reasonable cost.”  

"One key safeguard against abusive lawsuits will be the quality of the UPC judges", said Margot Fröhlinger, Principal Director of Patent Law and Multilateral Affairs at the European Patent Office in Munich. “Only experienced and qualified professional judges – legally and technologically – will decide cases under Europe’s new patent court,” she said.

In addition, Europe’s new Unified Patent Court will require the losing party to pay the legal fees of the other party; there will be no contingency fees for lawyers and no risk of triple damages as in the US system. “There are many safeguards” against abusive infringement suits, said Fröhlinger, who has been a key architect of the new European Patent Court. “And the appeals court is there if something goes wrong in the first instance.”

Until now Europe’s fragmented legal landscape and multiple languages have kept abusive patent infringement cases at a low ebb. But technology executives and investors worry that a unified patent court could create one-stop shopping for large US trolls eager to ply their trade in Europe. The number of patent holding companies that produce no product or service and focus primarily on filing infringement suits has mushroomed in the US over the past decade. In June, US President Barack Obama ordered the US Patent and Trademark Office to tighten scrutiny of patent-infringement cases and curb abusive lawsuits. 

By purchasing thousands of patents related to the development of one product or technology, trolls can file complex suits that risk being so lengthy and costly to defend that to survive, most companies are forced to pay high settlement fees – or sell their businesses. Technology companies large and small have been a prime target for such cases. Fearing an open door to a new wave of cases in Europe, Microsoft, Google, Apple and other large US technology companies who have been frequent targets of such suits sent a letter on 26 Sept. to the European officials outlining their concerns. 

The real test will come when the court opens for business. “It is obvious that the unitary patent is absolutely needed and no question it is the right system for EU,” said Patrick Terroir, deputy director general of Paris-based CDC Intellectual Property, speaking at the 17 Sept. Science|Business conference in Brussels. “…But by creating a single European patent judicial system we fear simplification and unification alone could open the way to more litigation against SMES. So it seems necessary to complete the unitary system with the implementation of a real single market for patent which allow the enterprises to acquire the intellectual property rights they need to cover their freedom to operate."

Forty years in the making, the single European patent was designed to support innovation and boost Europe’s competitiveness. “The unitary patent is a matter of urgency.  The EU’s global share of research and industrial production is decreasing with respect to rest of world,” said European Parliament Member Maria da Graça Carvalho. 

When the unitary patent is launched, the cost of patenting a new invention in Europe will plunge from €32,000 to €5000, bringing outlays much closer to those in the US and China. European inventors will also be relieved of the administrative burden of registering and translating patents across a fragmented system with 27 languages, different rules and different patent jurisprudence.

Despite those advantages, European companies and investors are concerned about the overall cost of maintaining a unitary patent through annual renewal fees. The cost of renewal fees is one of the toughest negotiating points remaining in creation of the unitary patent, officials said, because they are a key source of income for member states and the European Patent Office, funding 28 per cent of the EPO budget. 

The European Patent Office will lead the negotiations with member state patent officials on renewal fees, a process that is set to run through June 2014, but may take longer. 

“There is no reason why a European company must pay a higher renewal fee than competitors in American. This is the law of the market,” argued Terroir of CDC Intellectual Property. 

For small companies, the renewal fees of the new system will be critical, agreed ActiveGenix’s Pot:  “If the annual fees are below what we spend on the existing patent system, we will use it.  If not, we will not use it.” 

Today, on average, companies tend to validate existing European Patents in only four European countries out of the 25 countries who participate in the Unitary Patent. Data that underpins that trend will be used as a rough benchmark for discussing a Unitary Patent renewal fee, which would make the Unitary Patent attractive for the users. “Certainly, no one is prepared to pay the equivalent fees of 25 member states or even 12,” Fröhlinger said. “So we have difficult discussions ahead of us.”

A number of European countries already provide support to SMEs to file patents and maintain them, and the Unitary Patent may include reduced renewal fees for small and medium-sized companies. “The EU regulation lays down a number of criteria the MS have to apply when fixing renewal fees.  Among them, the Unitary Patent needs to be affordable and particularly for SMEs,” Fröhlinger said. The lower the renewal fee, the less pressure there will be for a special SME fee. But if it is higher than what companies pay today on average – then member states will have to consider reduced fees for SMEs.”

Tony Clayton, chief economist for the UK Intellectual Property Office, who supports move to a unitary patent in principle, said further data will be needed on its cost and benefits compared to existing system. "We will need to do an evaluation of the system impacts before we vote on it. But to succeed, the Unitary Patent should reduce the costs of running the overall European patent system."

A strong argument in favour of the Unitary Patent is that it will help prevent products that infringe a patent slipping into the EU in a member state where the product is not patented – and flowing quickly across a customs-free EU into countries where it is patented. That problem already plagues those who take out patent or trademark protection in only a handful of EU countries. “People go to customs agents in Belgium asking to block the arrival of containers with products that infringe their patent, but the Belgian officials can’t do anything unless you have validated your patent in Belgium,” Fröhlinger warned.

The aim of the single European patent is to consolidate diverse national systems into a unified jurisprudence on patent law. But companies, patent attorneys and other experts at the roundtable expressed concern that the unitary court’s three main seats in Paris, Munich and London may diverge in their legal opinions based on local tradition, paving the way for “forum shopping” by companies seeking a more favourable treatment in a given country. 

“We are not creating several courts, it is one court – with the appeal seat in Luxembourg,” said Alexander Ramsay, vice chairman of the Preparatory Committee for the Unified Patent Court and deputy director of the Division for Intellectual Property and Transport Law at the Ministry of Justice in Sweden.  “There will be regional divisions, but one jurisprudence assured through the second instance,” he said.

Ramsay conceded the goal of delivering one patent jurisprudence across Europe depends on the quality of the court’s judges. To ensure the unitary court launches with a cadre of seasoned, well-trained judges who apply the same law across Europe, the preparatory committee plans to establish a training programme for future judges and to start recruiting judges now.

The goal of the unified patent court was to streamline and simplify the process of protecting intellectual property. But the creation of a unified patent court will not immediately replace the existing system of national courts. That gives at least the appearance of creating a more complex dual system for inventors and companies to navigate. 

Once the new unified patent court opens, for example, inventors filing for a patent will have to choose between two systems: the new single European patent with a unitary jurisprudence or the current system of validating and defending patents country by country.

“I hear the word complexity a lot.  The major initial objectives for creating a unitary patent and a unified patent court were simplicity and decreasing forum shopping. I’m a strong supporter of the idea of establishing a unitary patent and unified patent court – but the current system is really difficult to explain to non-experts and the system has become rather more than less complex,” said Esther van Zimmeren, Research Professor at the Law Faculty of the University of Antwerp. “If the original aim was simplification and helping SMES – I am not sure if we are really there yet.” 

“Why are we keeping two systems in parallel:  It will be very complex, especially for SMEs?” asked European Parliament Member Carvalho.   

Clayton said shutting down existing national patent systems the minute the unitary one opens was simply impractical. "It will take time to learn how to use the new system.  One can see that maintaining three parallel systems is not sustainable.  But to go straight from here to there is quite a leap, and we need to understand how the transition will be managed on all sides."

Fröhlinger argued SMEs will be better off under the single European Patent, noting that currently most SMEs cannot afford to enforce their patents – only multinationals can finance teams of lawyers to litigate in several countries across Europe in parallel. “You can look at the system from two sides.  We are not suppressing the complexity. We are keeping complex options open. But we add a simple option – for universities and SMEs – they do not need to make strategic decisions anymore. Go for Unitary Patent and life becomes simple. You do not need to provide translations, you pay renewal fees only to EPO and you litigate centrally. For everyone who does not want to live with complexity, you have the Unitary Patent and the Unified Patent Court.”

Twenty-five European countries signed an international intergovernmental agreement in February to create the unified court, but to become effective, at least 13 of the 25 must ratify the agreement. To date, only Austria has ratified the court, and the approval process is moving slowly, pushing the hoped-for launch from 2014 to 2015. Ireland must hold a referendum on the unified patent court and Denmark is considering one.  

“Delays happen in Europe because our  countries have a different concept of  sharing sovereignty,” said Faull. “Some countries are asking more information on costs for something they already signed – understandable, but that can mean further delay." 

Spain and Italy so far have not signed the agreement. “One of the big discussions in the parliament is on the languages of the unitary patent.  This shows we are still stuck in the post-colonial past – and still in transition to a fully integrated European Union,” said Carvalho. “I think when people understand this unitary patent will be most important for economic competitiveness, then the language issue will become secondary.”

Another key concern is the German practice of handling validation and infringement cases separately – a practice called “bifurcation.” The practice exposes inventors to the risk of having a patent infringement case go forward before the patent is even validated. 

“It’s really important that the system is balanced and fair.  When we are sued in Germany – you have the classic problem that infringement cases are decided separately from validity [of the patent.]  So you can be enjoined and not able to grow your market while validity is being determined,” said Colette Vogele, director of intellectual property policy at Microsoft EMEA. “Even six months delay can kill business opportunities. That could give a lot of leverage to a patent plaintiff.  And it gives an advantage to low-quality patent challenges,” she said.

Participants called on EU officials to provide better communication about the new court system. “Our SME’s will be looking for the best and cheapest system.  But it’s not immediately evident to understand the new system,” said Nathalie Moll, secretary general of EuropaBio. You will need to include the element of communication about it at some point. If you want this to be helpful to small companies, you need to reach out to them.”

“Ramsay noted that the preparatory committee had discussed developing specific information for SMEs. “We are now going around the EU to answer questions,” he said.  A cap on costs is also in the works. “There will be a ceiling on the amount the losing party has to pay with regard to the cost for representation of the winning party. The committee will decide the level, but it needs to be sufficiently high not to deter SMEs.”

Amelia Andersdotter, a member of the European Parliament for the Pirate Party in Sweden, questioned whether the unitary patent with its divided seats in Paris, London and Munich could truly be effective in boosting competitiveness, and argued that it risked replicating existing national juridical differences. “The macroeconomic crisis exists because we don’t have any idea where we are going. Do we want an open innovation climate based on secrecy?  We don’t have sufficient understanding of what our targets are. [If we move forward without that] we can end up with sub-optimal solutions,” said Andersdotter, who argued the unified patent court should be based in Poland.

Faull noted that the interpretation of rules and the unified patent court’s interface with competition law will be crucial to its success and conceded that it’s not easy to reconcile different national traditions. “But we are serious about having a single market, we don’t give up,” he said, noting that both European law and the European Central Bank faced doubters too, but are now accepted well-functioning systems.

The drive to create a single patent for Europe has been delayed for decades by internal differences between member state legal systems and languages. “We have done the best we can to produce something workable that meets most of the promises we held out for it in the first place.  It costs far more in the EU to take out a patent than in our principal trading partners’ territories. That is a major impediment [to competitiveness].  If you have a single market, that's an intolerable situation,” said Faull. “We have come up with the best system possible – given the challenges and the differences among member states. We have to make sure it works.”

Ric Henschel, a partner at Foley and Lardner LLP in Washington D.C., said he was optimistic about the future of Europe’s new unified patent court. “I see the potential for a system that has a number of advantages over the US system, including limited discovery and no jury trial, with the scope of Europe and a single court for enforcement…It’s very impressive. It looks like the pieces are in place for a system that’s effective and one that has controls and safeguards against litigation abuse and venue shopping.”