IP-Implications of the new Unitary EP-patent system for SME-businesses and Universities

With the substantial progress in harmonising IP regimes across the world: like the Patent Cooperation Treaty (PCT) (1970), the Agreement on Trade-Related Aspects of IP Rights (1994) and the Singapore Treaty on the Law of Trademarks (2004)) and in Europe (through the European Patent Convention, the Community trademark, the Community design and the EU IP Rights Enforcement Directive (2004/48/EC)) and the global broadening of the PPH (Patent Prosecution Highway) many requirements of related users have been tremendously improved.

However, since 40 years lots of efforts and waste of money have occurred to overcome the existing practical differences between EU member states, which have always defended their nationalistic positions while seemingly unaware that if their legal and economic frameworks may be dealt with in big industries, but far too complicated to be dealt with by SMEs and therefore have to be adjusted to the needs of the entrepreneurs and small and medium-sized enterprises (SMEs) and Universities  in their countries.

In Germany major companies (3% of all patent applicants) have increased their share of total patent filings from 50% to 60% between 2000 and 2006, while the share of filings attributed to SMEs (the other 97% of all applicants) fell to 40%.  These figures prove that SMEs are losing ground in the ability to defend their growing innovative power.  Therefore, a more simplified patent prosecution and litigation system is long overdue to become effective in Europe.  It is expected, that on Dec.22. 2011 at least 25 of the 27 European member states  will sign in the Warsaw Convention with which the enforced cooperation of the 25 member states (excluding Italy and Spain) could start very soon afterwards.

Patent applicants can continue to file their European Patent application as usual (and after grant to comply for some transitional period with only one translation in one of the other two languages) to obtain one single European patent valid in the territory of the involved 25 member states:

1) By then even SMEs and Universities can reduce the costs of obtaining a patent in Europe by as much as 80%.

To ensure a new European age of patent protection European officials (e.g. examiners, appeal board members and judges) must adjust their daily working routine in order to consider applications subjectively and humanely, rather than narrowly interpreting outdated bureaucratic rules, so that important inventions and innovations can still be protected despite formal deficiencies in applications.  Rather, the only answer is to implement legal frameworks which enable interested parties, particularly SMEs, to obtain fast and reliable prosecution (e.g., by providing enough examiners) and which avoid the bureaucracy that can kill off the entrepreneurial and inventive spirit before the grant of a European patent.

The same is true for managers of major corporations, who must recognise that a true innovation culture requires corporate compliance rules which include not only sustainability and long-term thinking, but also fruitful cooperation with SMEs, rather than subversive attacks against the innovative power of SMEs.  This would provide real hope for allied efforts in the globally competitive world of IP rights and would provide new resources through trusted in-sourcing.  This includes fair behaviour; for example, the ‘fair, reasonable, and non-discriminatory terms’ that are commonly accepted in regard to standards must become equally accepted in regard to joint ventures and research cooperation.  Even with the change from the "not invented here syndrome" to the "open collaborative research" and "open innovation movement" the real needs of globally competitive companies cannot be met, as long as the short term profits outweigh mid- and long-term chances through fruitful and fair cooperation.

2) By then even SMEs and Universities can enforce and defend their legal position in a Unitary Patent Court (UPC).

While today litigation frameworks in various jurisdictions hinders SMEs through high litigation costs, SMEs stemming from family businesses will continue to die out.  For example, in the United States, each party to a patent litigation must bear its own costs, no matter whether the case is successful, so that a US SME must spend between $3 million and $5 million to protect its patent.  Without amended rules to allow SMEs to grow, there will be no US economic recovery – this is a view which is shared by US Supreme Court judges.

In Europe, only with the start of the Unitary patent court system with decentralized court in several countries and a court of appeal in Luxembourg it will be possible to litigate and enforce IP-matters and/or to settle at the Patent Mediation and Arbitration Centre in Lisbon and Ljubljana. Some countries havening a strong SME based economy (e.g., Germany and Austria) will get the possibility to start the first instance in Germany.

In Germany, ‘hidden champion’ SMEs can overcome pressures from competitors, major corporations, labour unions, finance authorities and bureaucracy by employing highly motivated inventors and consultants to make the most of Germany’s well-established and highly developed IP system, including the German utility model with a 6 month grace period, which can be branched off from a pending German or European or PCT application at any time and as often as requested. Germany is still the only remaining country where a patent examination can be postponed for up to seven years, which allows applicants to start or delay the patent examination procedure depending on research and development (R&D) results and the marketing progress of the product at issue.  This has led to the fact that 80% of European IP litigations being handled in Germany.

Unfortunately, many SMEs are more likely to give up the race to secure innovative results even though the combination of patents, utility models, designs and trademarks could have been a healthy basis for a more competitive edge.

European SMEs still suffer from a number of disadvantages when it comes to protecting and defending their IP rights, including the following:

• SMEs have inadequate financial resources to protect their ideas while also defending themselves against rivals which are ignorant of their IP rights.
• SMEs do not receive enough financial support from their governments for R&D.
• SMEs are still not allowed properly to value their IP rights in their balance sheets. This is likely to make them targets of unfriendly takeovers, rather than improving their capital basis.
• SMEs do not receive fee reductions at the European Patent Office (EPO) and most national offices (with the exception of France, plus the United States and Canada).
• SMEs experience specific disadvantages with the fee structure of the EPO and some national offices (e.g. claim fees).
• SMEs cannot sell and lease back their IP rights into countries or states where royalty income is tax free (e.g. Delaware and Utah in the United States).
• Only in the United Kingdom (and Denmark, to some extent) can SMEs deduct 200% of R&D expenses from their income tax to improve their financial basis for further R&D spending.
• SMEs do not enjoy a six or 12-month grace period in Europe for patent applications.
• SMEs do not receive language support for the different European languages, while SMEs in most of the major countries outside Europe have the advantage of using a single language
• SMEs do not have the staff resources for IP litigation and forum shopping.

Finally, a Community trade secret – which is not even under consideration – could help to restrict the unintended flow of know-how from one competitor to another, even in cases where IP rights may not be appropriate. If this were combined with a one-year grace period for inventors, SMEs would be able to be far more open when cooperating with other companies and innovators.

Paul-Alexander Wacker is founding and senior partner of the patent and law firm Kuhnen & Wacker. He has extensive experience in the prosecution of trademark, patent, utility model and design applications, and provides specific advice for prosecution and litigation strategies in Germany, Europe and internationally. He has significant experience and a solid reputation in IP evaluation. Mr Wacker graduated from the Technical University of Munich with a degree in electrical engineering and a degree in economics. He became a patent attorney in 1975. He frequently lectures on IP-related matters at IPO,LES, AIPLA, INTA and is a regular lecturer at Kuhnen & Wacker’s European patent practice seminars, held both in Germany and overseas.  Mr. Wacker can be contacted on +49 8161 608 303 or by email at info@kuhnen-wacker.de