Unitary patent - and then what?

Background

After half a century of discussions it seems like a single patent for most of Europe will come true. The signatures are there and the first states have ratified the agreement.
But then what, will it be as good as everybody hoped? Will it be less expensive?

There are three EU regulations supporting the European Patent with Unitary Effect, or Unitary Patent (UP):
• EU no. 1257/2012 which is the basis for the Unitary Patent.
• EU no. 1260/2012 which explains the language provisions.
• Agreement on the Unified Patent Court for the creation of a European Patent Court.

At the time of the signature 25 out of 27 EU member states agreed. Spain and Italy did not sign the package and Poland has decided not to ratify, Croatia has also become an EU member and can sign if they want.
The reason for Poland’s change of mind was a Deloitte report about the effect on Polish economy should they enter the Unitary Patent system. Deloitte came to the conclusion that it would cost Poland some 7 billion euros.

So, this leaves us with 24 possible members and to get the system started the UK, France and Germany must ratify + 10 more EU states. At this moment France and four more states have ratified.

Unitary Patent Court

One of the most important factors deciding the success of the Unitary Patent system will be the confidence the Unified Patent Court (UPC) will create. It will take a while to convince German and British patent attorneys not to use their national patent courts.

The Court of First Instance will have three main sites: Paris, London and Munich depending on the technical area. For states having more the 100 cases per year it will be possible to have local divisions and for states having less than 100 cases per year exist the possibility to start regional divisions. Sweden and the three Baltic states will for example create a regional division.
Furthermore, Luxembourg will set up a Court of Appeal.

The big difference is that in the future the UPC will handle all patents coming out from the EPO, even the ones already granted unless one asks to opt-out from the UPC system. It will be possible for the first 7 years after the start of the Unitary Patent system with a probable 7 year prolongation. It will also be possible to opt-in at a later stage.

There are a lot of rumours about an opt-out fee at the level of € 100.

How does it work?

Until grant, getting a Unitary Patent is more or less the same process as today at the EPO. Doing nothing after grant will give you the same type of protection as today. If one wants a Unitary Patent one must apply for it within one month from the grant. Doing so will require a full translation of the patent for a transitional period of up to 12 years:
• into English if the EP was granted in German or French.
• into any EU language if the EP was granted in English.

Alternatives

The Unitary Patent system will be yet another system, it will not replace any of the other ways of getting patent protection in Europe. It means that in the future there will be four ways of getting patent protection in Europe:

• As today through the EPO, validating the granted EP application in different European states.
• As today through the EPO and then applying for Unitary effect.
• The national route applying directly in each state.
• The PCT national way, applying directly from the PCT stage for national protection. N.B. This way is closed in nearly 30 % of the EPC states including France, Belgium, the Netherlands, Ireland and Greece.

Renewal fees

The biggest question mark economically is the size of the future renewal fees in the Unitary Patent system.
Today, renewal fees after grant from the EPO are paid to each national patent office and a share is then paid back to the EPO.
In the Unitary Patent system renewal fees will be paid to the EPO throughout the whole life of the patent, a share will then be paid to the member states. How much and how the sum will be divided is still under negotiation between the EPO and the member states and it will for sure be a tough question to close.

How big will the renewal fees be? Well, nobody knows but there are a few basics:
• Competitive: Ever since the beginning of the discussions about a European patent the objective has been to make it competitive compared to other big patent states like the US, Japan and also China today.
• Not more expensive than today. Politically it would be a suicide to make it more expensive than today.
• Same income to the EPO as today. As the EPO will handle all the work they have declared that they can do it as long as they will earn the same money from renewal fees as they do today. The suggestion is that EPO retains 50% of the renewal fees (Art. 13(1) of the Unitary Patent Regulation)
• Renewals must be progressive. According to art. 12 (1) (a), the renewal fees "shall be progressive throughout the term of the unitary patent protection”.

Renewal fees vary a lot between the EPC member states depending on size, economical power and political reasons. Cumulative renewal fees over twenty years vary from €1,590 for Macedonia, to around €13,200 for Germany. The blog IPCopy has made an interesting comparison based on renewal fees normalised to GDB (Swedish: BNP) in an attempt to show a value-for-money side of the renewal fees. Looking at the top states gives the following result:

Comparing renewal fees normalised to GDP gives a scary view if we compare Europe with other big patent states, even if we cut down on the number of states where the EP is validated. Comparing the normalised US cumulative fees to the corresponding for all EPC states shows that it is some 13 times more expensive in the EPC ! Even if we only look at the cumulative fees for the UK, Germany and France, they are double the Chinese costs and 5 times bigger than the corresponding for the US.

A basic problem compared to the US and China, is that renewal fees in Europe start sky rocketing from about year 10-12 due to that they are progressive every year which is not the case in the US and for year 10-20 in China.

So, where could the future renewal fees end up?

 IPCopy had made several interesting attempts to guess. If the philosophy is that the future renewal fees should be an “average of x EPC state renewal fees”, all attempts fail due to the problem of progressivity, even if one only counts with renewal fees in the UK, France and Germany.
A flat fee would make it decent but is unfortunately against the Unitary Patent regulations.

So, will it become better?

Trusting that the main objective is lower costs for the applicants, it is possible to make a calculation.

Assuming that:
• Protection is wanted in the top 5 validation states *.
• The EP application is granted after 4 years and kept alive for 10 years in the UK, Germany & France but dropped after 5 years in Italy and Spain.
• The Unitary Patent renewal fee will be equal to renewal fees in the top 4 “Unitary Patent validation states”.
• 50% of the granted EPs are opted-out of the Unitary Patent Court at a cost of € 100.
• The cost for the mandatory full text translation will be € 950 (25 p. à 250 words à € 0.15 + drawings.)
• The “Grant fee” within the Unitary Patent system will be zero. It has not been discussed for a while.

/Chart "Traditional validations and Unitary Patent (UP) & Traditional validations", see link below/

Using the Unitary Patent system will be some 45% more expensive. Even if the patents are kept in Spain and Italy all 10 years it is still some 10 % more expensive.
The full text translation will stay mandatory for at least 6 year, most probably for 12 years. The opt-out possibility will be available for at least 7 years, most probably for another 7 years.
When these two costs are gone the Unitary Patent way will only be some 3 % more expensive in this example.
Still, was it not the idea with the Unitary Patent to make things a lot less expensive?

The success of the Unitary Patent system will largely depend on the competence of the Unified Patent Courts at the start, and the level of the renewal fees. To reach a much lower cost with the Unitary Patent system compared to traditional validations, the renewal fees need to be cut down to less than half corresponding to the renewal fees in 2 major EPC states. It won’t pay the salaries at the EPO and the National Patent Offices…

The advantages with the Unitary Patent way is that for no extra cost one gets patent protection in all 24 Unitary Patent states, at least when all 24 have joined. Today, only 1 % of all granted EP are validated in all states.
The disadvantage is of, course, that a successful infringement action can make one lose all patent protection in the Unitary Patent area. Damages would also be awarded in all Unitary Patent states where the infringement has occurred.
It will not be possible to save money by dropping states after some years.
If only few, smaller states have joined at the start and the joining of more states is slow, the advantage will be a lot smaller.

No Unitary Patents with EP application date before 2007 - The Malta & Croatia effect

One not well known effect of the Unitary Patent is the Malta and Croatia effect. Both states are EU and EPC members, Malta became a member of the EPC in 1 March 2007 and Croatia in 1 January 2008.

Malta has also joined the Unitary Patent and this means that it will not be possible to ask for a Unitary Patent if the EP application date is before 1 March 2007. This is because Malta could not have been designated by then.

The same goes for Croatia if they join with the difference that no EP applications filed before 1 January 2008 could become eligible for unitary effect.
At this moment it would block out between half and a third of all EP applications.

When will the Unitary Patent get started?

Good question. The agreement must first be ratified by at least the UK, France, Germany and 10 more states. At this moment France, Austria, Belgium, Denmark and Sweden have ratified.
The Unitary Patent time plan today talks about a start at the end of 2015 but describes it even officially as very optimistic. Sometimes during 2016 or 2017 seems more realistic. Remember that the London Agreement took 8 years from the signing to get stared, it would mean in 2020…

Olle Bäcklund, Direct Validation
O3C Konsult AB, olle.backlund@o3c.se

source: ipcopy.wordpress.com

* UK, France and Germany have by far the highest frequency of validation, then comes a group with Italy and Spain. One step further down is a group consisting of the Netherlands, Switzerland, Sweden, Belgium, Ireland etc. The top 4 “UPC validation states” would then be UK, France, Germany and the Netherlands.