"Technology Commercialization in Europe after the Failure of the Community Patent" Paper presented to the ninth biennial EUSA conference by Manfred SCHMIEMANN* and Rebekah LOCKNER* The current patent system in Europe contains aspects that are both centralized and decentralized. A patent system user needs only to submit a single patent application to the European Patent Office (EPO), but when the patent is granted the result is not a single patent but a "bundle" of national patents. The patent becomes effective in each of the designated Member States once a translation in one of that Member State's official languages is filed. In addition, infringement needs to be litigated in each individual country and can become quite costly and fragmented. The question has arisen whether the lack of a Community patent after its apparent failure in 2004 endangers the commercialization of technology in Europe. The History of the Patent System in Europe The European patent was created in 1973 as the central part of the Munich Convention, which also established the EPO, an inter-governmental organization that is not an institution of the European Union. While almost all EU Member States signed the Convention, there are also members from non-EU countries. Prior to the creation of the EPO by the European Patent Convention (EPC), a patent system user would have to apply for each national patent in all desired countries separately, with each system acting independently from the others. Although the current patent application is now centralized, the decentralized, independent national patent systems still maintain and enforce the granted patent rights. A European patent has the same consequences as a national patent because the applicant must file the applicable translations, pay renewal fees, and institute judicial action, if necessary. In fact, the applicant maintains a granted patent by paying annual renewal fees to both the EPO and each designated Member State. When a second party infringes a patent right in a designated Member State, the patentee has the right to institute legal action within that state's court system. However, legal action itself is quite costly and requires an attorney that is not only authorized and trained, but is fluent in one of the state's official languages. If the infringement occurs in more than one Member State, the patentee must initiate legal action in each member state's court system separately. Adding to the complexity, European patents are enforceable only through national law in each separate country, which risks inconsistent legal decisions for the same patent within different national markets, as happened with the Epilady case in 1989. The Idea of a Community Patent and its Implications for Innovation The strive for a Community patent began in the 70's. Although it was already possible to be covered throughout the European Union by the European patent, it was felt that a Community-wide, cost efficient new industrial property right applied without borders would ensure the free movement of protected goods while striding towards the creation of a genuine Single Market. In addition, it was generally shared belief that Europe ought to be looking at the creation of a Community patent to meet its "innovation deficit" as compared to the US and Japan. When compared to the US and Japanese patent systems, the patent system in Europe is sometimes accused of suffering from high costs, legal uncertainty and inefficiency. It is claimed that a true Community-wide patent would allow Europe to compete internationally with the US and Japan, while lowering costs to inventors, implementing a system of legal uniformity and increased efficiency. In 2000, the average cost to obtain and maintain a European patent designating eight states was approximately EUR 49,900. This is three to five times the cost to obtain and maintain a patent in Japan or in the US in the same year, with an average cost between EUR 10,000 and EUR 15,000. The EPO has tackled its share of the financial burden by lowering its fees numerous times, but the remaining cost-gap might put European innovators and businesses aiming to cover their domestic market at a disadvantage in comparison with Japanese and US competitors, thereby perhaps hindering innovation. Under the proposal for a Community patent, which was finally aborted after numerous attempts to pass it in the Council of the European Union in May 2004, an inventor or business applying for a patent follows the same guidelines that an inventor applying for a European patent follows because the EPO would govern the granting of Community patents. Instead of designating select EPC contracting states, the applicant would designate the entire community. A Community patent application may be in English, French or German, the official languages of the European Patent Office; however the patent claims must be translated into the languages of all the Member States to become valid. The Community patent would coexist with the patents issued by the national patent offices and the EPO. In fact, it was the intention of the countries establishing the EPO to have a dual system of transnational protection, through the European patent, and a unitary Community patent that would provide equal protection throughout the (then) European Economic Community (EEC). The History of the Community Patent Idea As early as 1974, the European Commission proposed a Community patent system based on an international convention, hence not under the umbrella of the European Union, in which an inventor can obtain, maintain and enforce a patent through a single institution. The Community Patent Convention (CPC), signed on December 15, 1975, would have provided for a patent that has equal effect in all states contracting to the convention and is only subject to the provisions of the EPC and the CPC, with supreme jurisdiction given to the European Court of Justice, yet the EU Member States failed to ratify the convention. A second attempt at instituting a Community patent was made by amending the CPC on December 15, 1989. The amendment addressed lingering litigation concerns by introducing a Common Appeal Court and outlining a "protocol on the settlement of litigation concerning the infringement and validity of Community patents." Once again, the amended CPC never entered into force because only seven of the (then) twelve Member States ratified it. Throughout the 1990s, the European Commission continued to make significant efforts to arrive at a Community patent system that was agreeable to all parties. Despite the Commission's best efforts, disagreement among EU Member States regarding language translations and the judicial arrangements, especially the proposed creation of a central patent court and regarding the national judges' power to declare a patent void within the entire community, continued to block the establishment of a Community patent. After a slow and painful death of the intergovernmental approach, the European Commission revived the idea of a Community patent in 1997 by issuing a Green Paper with reintroduced negotiations and by publishing a Proposal for a Parliament and Council Regulation on the Community Patent (hence as a Community instrument of law) in July 2000. The European Commission's initial proposal stated that once a patent was granted, the patent claims only had to be translated into the official languages of the European Patent Office; English, French and German. This proposal was strongly supported by European industry due to its cost-effective nature but was politically unacceptable. Therefore, the amended Regulation included a compromise; the language requirements would be the same as for the European patent. The applicant would complete the application in one of the official languages, and when the patent was granted the applicant had to file a translation of the claims only in all 20 languages with the cost borne by the applicant. The amended proposal lost industry support and continued to struggle for political support. Already in 2001, the International Chamber of Commerce (ICC) had warned the European community that businesses may not use a Community patent if too many compromises were made within the Council of Ministers to adopt the Regulation, especially with regard to cost, flexibility and control of patent litigation. The ICC further stated that the cost of obtaining and maintaining a Community patent should be the same, or even less than, that of obtaining and maintaining a US patent, else businesses, particularly Small and Medium Enterprises (SMEs) and small inventors, who have limited financial resources, would not be able to use a Community patent. The main problem with achieving a comparable cost is the extensive translation process and the renewal fees to maintain the patent. The Community Patent Breaks Through On March 3, 2003 the Council of the European Union reached an agreement on the main principles and features of a Community patent, breaking through the problematic issues, including the translation requirements and litigation concerns that have haunted previous attempts to create a unitary patent system within Europe. In June 2003, however, judges at an international conference voiced concerns over the European Commission's proposal for a Community patent court, focusing on the issue of language translation. Judge Klaus Grabiniski, presiding judge of the Düsseldorf District Court, expressed concern that plans allowing defendants to have cases heard in their own language would permit delaying tactics. Mr. Justice Nicholas Pumfrey, UK High Court, argued that simultaneous translations in complicated patent cases would be problematic, while Mr. Justice Robin Jacob, UK High Court, stated that provisions for only seven court specialists to guide the non-technical judges through the murky abyss of patent issues would be insufficient. Upon its deliberations on November 27, 2003, the Competitiveness Council of Ministers was unable to reach a consensus on the Community Patent Regulation despite the basic agreements reached at the previous meeting in March. The issue of translation continued to be the highest hurdle the Member States needed to clear before coming to a successful agreement on the Community patent. Debate centered on the length of time patent applicants would be allowed to obtain all the EU language translation of the patent claims and the legal effect of these claims. Member States presented polarized views, with Germany arguing that a patentee should have a full two years to obtain translations and that they should not have legal effect, while Spain argued that the period should be only three months and that the translations should have full legal effect. The issue was then put forward to another Council meeting. The Failure (for now, at least) of the Community Patent On March 11, 2004 the Competitiveness Council could not overcome disagreements on the translation requirements of the Community patent, and the subsequent costs of the translations. Another main obstacle proved to be disagreement on how to handle patent infringements that might occur as a result of mistranslations. On May 18, 2004 the Competitiveness Council gave up the fight to establish a Community patent. Germany, Spain, Portugal and France voiced opposition to the final proposal, which should have been adopted unanimously, due to continued disagreements over the translations of patent claims and its legal effect. The Presidency of the European Council did not think it would be possible to reach a compromise that would be acceptable to all Member States, and declared that it does not plan to resume work on the Proposal at this time. Commissioner Bolkestein (then responsible for Internal Market affairs) expressed his "bitter disappointment" at the Council's failure to ratify the Proposal, challenging arguments by Spain and Germany that the Community patent fails to bring any added value. With all conceivable compromises having been tried and the Council failing to reach agreement, the Community patent has been placed on hold and may never become a reality within the European Union. The Guarantee for an Efficient and Effective Patent System in Europe How will the apparent failure of the Community patent effect innovation within Europe? As one of the driving forces behind the creation of a Community patent was the desire to compete with other nations with regard to intellectual property, one might expect that the failure of the Member States would have an adverse affect on innovation; however, that does not appear to be the case. "Europe is an attractive market for inventor and investors. The patent system manages the network flow from knowledge to innovation and to the creation of economic value. Patents play a key role in the transformation process to a knowledge-based economy in Europe," according to Alain Pompidou, President of the EPO. The prime guarantee for an effective and efficient patent system in Europe comes from an instrument outside the umbrella of Community law and its intricacies. (According to Bismarck, "if you like laws and sausages, you should never watch either being made.") The overall mission of the European Patent Office is to support innovation, competitiveness and economic growth for the benefit of Europe and its people. EU-wide industry circles and most of its users believe that the existing high quality of the EPO-administered patent application, examination and granting process, including coherency, dependability and affordability, enforceable patent protection and a system putting all patent-related information at the disposal of the user, will foster and increase innovation. To support its vision of a knowledge-based society, the EPO provides help-desk facilities in Vienna, Munich and The Hague, provides free information about patents on the EPO website, organizes fora for discussion, notably the EPIDOS/PATINNOVA and PATLIB conference series, and provides training and assistance to national patent offices. During the first nine months of 2004, the EPO noted a 12 percent increase in patent applications over 2003, with over 177,500 applications filed. The addition of Lithuania to the EPC in March 2004 increased the number of contracting states to 30, and including select expansion states such as Bosnia and Herzegovina, the total number of states that a European patent can be filed in is 36. This covers a market of more than 550 million people. The quality of an EPO-issued patent is without question. Patent awareness is a main prerequisite for proper use of the existing system. To foster innovation and harmonize patent-related intellectual property law and practice within its contracting states, the Administrative Council of the EPO decided to establish the European Patent Academy in June 2004. The main task of the Academy will be to develop a strategy and plan of action that "reflects the need to improve the intellectual property-related training and education structures in Europe" especially compared to the US and Japan, neither of which have the limitations of Europe's fragmented system. Most EU Member States also seem to be willing to overcome some of the shortcomings of the lacking Community-wide patent. In order to improve the enforcement of European patents, enhance legal certainty, and promote the uniform application and interpretation of European patent law, the proposed European Patent Litigation Agreement (EPLA) would create a judicial system for European patents. EPLA would consist of a European Patent Court that would include of a Court of First Instance and Court of Appeals, and is supported by judges, European industry and several countries. Another intergovernmental attempt to make patents more affordable relates to Article 65 of the European Patent Convention whereby Member States can waive translation requirements. The London Protocol was negotiated as a cost reduction proposal to the European patent system. This voluntary initiative among some EPC countries was created to lessen the translation requirements in European patent applications, thus making the process cheaper and more uniform. Under the London Protocol, countries with an official language of English, French or German will not ask for expensive translations into the other languages within the Union when a European patent is granted, and those countries with other official languages will ask for a translation only into English, French or German in all stages other than litigation. In order for the Protocol to take effect, eight countries have to ratify it, including Germany, France and the UK. France continues to block the Protocol due to concerns that it is a threat to the French language. Conclusion The prospects of technology commercialization in Europe remain strong despite the repeated failure of the Community patent. Although the Member States seemingly cannot bridge their cultural differences and agree on an affordable language translation system that is acceptable to all parties, this political status quo has no effect on innovation. The European Patent Office provides contracting states with a high quality, enforceable patent that can be validated in most European countries. In addition, the Office provides training, information resources and conference series to encourage innovation within the academic and industrial communities. To increase its competitiveness on an international level, the EPO repeatedly lowered fees for patents at all stages, though this price cut does not affect the cost of the translations. 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