The future of the Unitary Patent package as seen by the EPO:

Brexit and the German constitutional challenge

Benoît Batistelli, the EPO’s president published this week a communiqué on the future of the Unitary Patent package following a conference hosted by the EPO in Munich.

It appears that the participants were eager to find ways for the Unitary Patent package to go ahead and enter into operation as soon as possible. Benoit Batistelli highlighted in his communiqué that “at a time of economic challenges and significant budgetary constraints for companies, businesses should not be denied the economic advantages and cost savings offered by the Unitary Patent package”.

Another trend common to the event organised in Paris by the UJUB and the conference organised in Munich by the EPO was the  hope that “political leaders will listen to the pleas of the user community to go ahead with the Unitary Patent package”, especially as the UPC will be ready to begin operating once the necessary ratifications of the UPC Agreement are obtained.

Panel discussions among business representatives also  confirmed that “users are by and large happy with the envisaged implementation, including renewal fees, the Rules of Procedure of the Unified Patent Court, and other decisions of the UPC Preparatory Committee”, while a panel discussion among renowned patent judges showed that “future UPC judges will be well prepared for the challenges and that proceedings can be expected to be handled in the most efficient way”. It appears therefore that the expectations in Paris and in Munich for the UPC were very high and that users are eager to see the UPC in action.

Different scenarios for the best way to proceed with the Unitary Patent package were therefore addressed . According to the EPO,  the best case scenario would see the UK going ahead as soon as possible with the ratification of the UPC Agreement. This would allow the UK afterwards, in its EU exit negotiations, to obtain its continuous participation both in the Unified Patent Court and the Unitary Patent.  In fact, as discussed in Paris, “with the UK having brought the system into operation by ratification and having participated in the system from the beginning, it is possible that Member States may allow the continued participation of the UK , even after the ‘Brexit’ takes effect”. The EPO’s president noted however in his communiqué that, even if the UK were not to take part in the Unitary Patent package, there seems to be “a clear feeling in the international user community that the system would remain sufficiently attractive for many”.

Finally, the EPO expressed in its communiqué its support for the UPC, and “stands ready not only to register the first Unitary Patents, but also to assist as much as possible in finding appropriate solutions in the interest of our user community and our Contracting States.”

With Theresa May becoming the new UK Prime Minister today in the UK, one can hope that the UPC will be on her agenda in the coming months.

Want to test the online procedure for registering unitary effect?

The EPO has created for the existing users of its Online Filing software a plug-in, which simulates the drafting, signing and sending of a request for unitary effect and filing of subsequent documents in a demonstration mode.

Users are invited to send their feedback on the demo to uppolffeedback@epo.org until 31 July 2016.

The EPO however makes clear that “the demo is purely for test purposes only and that completion of the registration procedure has no effect”, the final and operational version of the software will in fact be available before the unitary patent system enters into force.

For a full-on experience, it is still possible to test the UPC Case Management System  here.

 

Distribution key of the renewal fee income adopted by the EPO:

On 17th November the European Patent Organisation adopted the distribution key for the repartition of the 50% share of the participating Member States in the renewal fee income among them.

In fact while the EPO retains 50% of the renewal fee income, its Select Committee had to decide how the apportionment of the 50% share of the Unitary patent renewal fees would be apportioned amongst the participating EU Member States.

According to Bristowsit has been agreed that for an initial period of operation the 50% of the fees (minus an administrative charge) will be distributed according to a formula that takes account of the GDP and the number of applications filed from each participating Member State.

Renewal fees for the Unitary Patent: What does the EPO suggest?

The IPKat has published a post this week (09/03/15) on the Unitary Patent’s renewal fees that raises important questions for the cost and the attractiveness of Unitary Patents. Renewal fees have in fact always been a hot topic as the cost of obtaining a Unitary Patent and renewing it might weigh heavily in the decision of the patentee as to which kind of patent to get. This is also particularly relevant in a context where Italy and Spain, two popular validation countries, will not take part in the UPC with the consequence that additional fees will have to be paid for both countries.

Moreover, renewal fees are central to the functioning of the European Patent Organisation (EPO), which is partly dependent on this income for its budget, as provided in Chapter Five of the European Patent Convention on Financial Provisions. Article 39 in particular states that “Each Contracting State shall pay to the Organisation in respect of each renewal fee received for a European patent in that State an amount equal to a proportion of that fee, to be fixed by the Administrative Council; the proportion shall not exceed 75% and shall be the same for all Contracting States.”  This amount shall following Article 40 be fixed at such a level as to ensure that the revenue is sufficient for the budget of the Organisation to be balanced.

To this effect, the Unified Patent Court’s Select Committee launched at its 11th meeting -that took place in December 2014- preparatory work on the “distribution key for the repartition of renewal fees between the EU participating member states”, on the basis of “additional simulations of fee level scenarios submitted by the EPO”.

Therefore, although not yet public and consequently unverifiable, the document referred to by the IPKat, entitled Proposals for the level of renewal fees for European patents with unitary effect, sheds light onto the fee structure that could apply to the renewal of the Unitary Patent’ fees.

But what are EU Regulations saying about renewal fees? Before looking into the data published by the IPKat and their analysis, let’s look at what Regulation (EU) No 1257/2012 implementing enhanced cooperation in the area of the creation of unitary patent protection dated 17 December 2012 says.

Article 12 of this Regulation states that:

“1. Renewal fees for European patents with unitary effect shall be:

(a) progressive throughout the term of the unitary patent protection;

(b) sufficient to cover all costs associated with the grant of the European patent and the administration of the unitary patent protection; and

(c) sufficient, together with the fees to be paid to the European Patent Organisation during the pre-grant stage, to ensure a balanced budget of the European Patent Organisation.

2. The level of the renewal fees shall be set, taking into account, among others, the situation of specific entities such as small and medium-sized enterprises, with the aim of:

(a) facilitating innovation and fostering the competitiveness of European businesses;

(b) reflecting the size of the market covered by the patent; and

(c) being similar to the level of the national renewal fees for an average European patent taking effect in the participating Member States at the time the level of the renewal fees is first set.

 3. In order to attain the objectives set out in this Chapter, the level of renewal fees shall be set at a level that:

(a) is equivalent to the level of the renewal fee to be paid for the average geographical coverage of current European patents;

(b) reflects the renewal rate of current European patents; and

(c) reflects the number of requests for unitary effect.”

Hence, according to the IPKat, in order to reconcile the imperatives of a balanced budget and an attractive cost for renewal, the EPO would have adopted the following structure for setting Unitary Patent’s renewal fees:

“Years 3 to 5: the level of the EPO’s internal renewal fees (IRF) [these are the fees payable to the EPO for pending patent applications currently] 

Years 6 to 9: a transitional level between the IRF level and the year 10 level 

 From year 10, a level equivalent to the total sum of the national renewal fees payable in the states in which European patents are most frequently validated (TOP level).”

 

So what does it mean? Between years 3 and 5, the renewals applicable to a Unitary Patent would correspond to the same fee level as those applicable to European Patent applications; thus ensuring consistency in the application of the fees in the pre and post grant phases. In fact, as highlighted by the IPKat, charging a renewal fee for the first few years of the patent could discourage patentees to opt for a Unitary Patent, especially as “in some states, national renewal fees (which apply equally to national patents and to European patents validated in those states) are initially very low or non-existent until the fourth or fifth year.”

Moreover, the document that the IPKat had access to appears to argue that paying the total sum for national countries (three to five) might initially look more attractive in terms of costs than paying the internal renewal fees. The EPO however seems to point out in this document that the cost of hiring a local patent attorney or a specialist renewal firm would add to the final cost of renewal, with the consequence that the difference between the renewal costs of a Unitary Patent and those of a European Patent would be very small.

The three-tier fee structure proposed would then be divided between years 3-5, years 6-9 and years 10-20. For years 10-20 the calculations for the level would be based on the total of national renewal fees payable in the most frequently validated countries. But as the IPKat explains, “in the classical European patent system, patentees who have validated their patent in an average number of states after grant can always abandon the protection state-by-state over the patent term, and in the later years often narrow it down to the three major European markets. As they will lose this flexibility under the Unitary Patent protection in 25 states, they might be discouraged from opting for unitary protection if the fees for the last five years are prohibitive compared with those for just three to five of the bigger countries.” The EPO however seems to have taken this issue into consideration and for years 10 onwards, it proposes to charge the total sum of national renewal fees payable in the most frequently validated states, thus significantly reducing costs for users as their additional fee-administration charges will be considerably lower.

Following these observations and with the necessity to render the Unitary Patent cost-efficient for patentees in mind, two proposals have apparently been made. In the first one the years 10 onwards level would be based on current renewal fee levels for four European countries (TOP 4 level). In the second one the years 10 onwards level would be based on current renewal fee levels for five European countries (TOP 5 level) but with a reduction for certain categories of patentees, namely SMEs, natural persons, non-profit organisations, universities and public research organisations.

The IPKat gives the following numbers for TOP 4 and TOP 5 levels and provides us with a table presented as “the Annex 2 which compares the “Top 4” and “Top 5” proposal with the current EPO internal fees for pending applications, and the national renewal fees for 25 member states”:

The TOP 4 level renewal fees would be as follows:

2nd year: EUR 350

3rd year: EUR 465

4th year: EUR 580

5th year: EUR 810

6th year: EUR 855

7th year: EUR 900

8th year: EUR 970

9th year: EUR 1 020

10th year: EUR 1 175

11th year: EUR 1 460

12th year: EUR 1 775

13th year: EUR 2 105

14th year: EUR 2 455

15th year: EUR 2 830

16th year: EUR 3 240

17th year: EUR 3 640

18th year: EUR 4 055

19th year: EUR 4 455

20th year: EUR 4 855

Over 20 years, that adds up to EUR 37 995.

 

The TOP 5 proposal involves a 25% reduction for the entities mentioned above in respect of years 2 to 10 only.  The proposed fees are as follows with the fee reduction in brackets:

 2nd year: EUR 350 (EUR 262.50)

3rd year: EUR 465 (EUR 348.75)

4th year: EUR 580 (EUR 435.00)

5th year: EUR 810 (EUR 607.50)

6th year: EUR 880 (EUR 660.00)

7th year: EUR 950 (EUR 712.50)

8th year: EUR 1 110 (EUR 832.50)

9th year: EUR 1 260 (EUR 945.00)

10th year: EUR 1 475 (EUR 1 106.25)

11th year: EUR 1 790

12th year: EUR 2 140

13th year: EUR 2 510

14th year: EUR 2 895

15th year: EUR 3 300

16th year: EUR 3 740

17th year: EUR 4 175

18th year: EUR 4 630

19th year: EUR 5 065

20th year: EUR 5 500

Over 20 years, that adds up to EUR 43 625 and EUR 41 655 for the normal and reduced level respectively.

  

Renewal Fees Table:

in € per OY             TOP4               TOP5          SME            EPO Internal renewal fees    25 MS

2                                     350                      350            252.50                              0                                            0

3                                     465                      465            348.75                          465                                         1,298

4                                     580                      580                 435                         580                                          1,874

 5                                    810                       810           607.50                         810                                         2,545

6                                     855                      880                660                        1,040                                         3,271

7                                     900                      950           712.50                         1,155                                         3,886

8                                     970                      1110         832.50                         1265                                          4,625

 9                                  1020                     1260               945                        1380                                           5,513

10                                  1175                     1475        1106.25                         1560                                           6,416

11                                 1460                      1790             1790                        1560                                           7,424

12                                 1775                      2140             2140                        1560                                          8,473

13                                 2105                      2510            2510                        1560                                           9,594

14                                2455                      2895            2895                        1560                                          10,741

15                                2830                      3300           3300                        1560                                          11,917

16                                3240                      3740            3740                        1560                                         13,369

17                                3640                    44175             4175                        1560                                          14,753

18                               4055                      4630            4630                        1560                                          16,065

19                               4455                       5065           5065                         1560                                         17,660

20                              4855                       5500           5500                         1560                                         19,197

Total                   37,995                  43,625       41,655                    23,855                                   158,621

So what should we conclude from these different fees? It appears from this table that the Unitary Patent will not be financially attractive for patentees who wish to have a protection for less than 4 states, such as the UK, Germany and France. For users who on the contrary wish to get protection for at least four countries, and a fortiori for a large number of countries, then the Unitary Patent would be cost efficient and thus attractive. We thus fully agree with the IPKat who points out that many users would have liked the EPO to draft a TOP 3 –or lower- level. However, according to the EPO’s communiqué dated 15 December 2014, we will only have to wait until June to find out the exact content of  “the appropriate decisions on the financial and budgetary aspects of the implementation of the Unitary Patent Protection”…