Why the Unitary Patent Will Harm European Innovation

Regular readers of this column will know that I am not overly enamoured of the European Patent Office, since it has effectively introduced software patents by the back door, in direct contravention of the will of the European Parliament. No...

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Regular readers of this column will know that I am not overly enamoured of the European Patent Office, since it has effectively introduced software patents by the back door, in direct contravention of the will of the European Parliament. No surprise, then, that the EPO's Annual Report has plenty to worry about. For example, in his foreword, the EPO's President writes:

In terms of filings, the EPO continues to go from strength to strength. In 2012, we received a total of 258 000 filings, thereby setting yet another record.

As you can see, he assumes that more patents are a good thing, without really considering to what extent that's true. In fact, as we know from the smartphone sector, having more patents ultimately leads to patent thickets that slow down innovation and waste huge amounts of money on legal costs:

In the smartphone industry alone, according to a Stanford University analysis, as much as $20 billion was spent on patent litigation and patent purchases in the last two years — an amount equal to eight Mars rover missions. Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.

As that makes clear, more money is being spent on litigation than on research and development in some areas – an insane state of affairs.

But of course, the EPO's job is issuing patents, regardless of whether they promote innovation or benefit society. Indeed, the EPO handed out tens of millions of Euros in bonuses to its staff as a reward for issuing a bumper crop of patents. Human nature being what it is, the risk is that patent examiners will lower their standards, since the EPO has clearly signalled that issuing more patents produces juicy bonuses.

Arguably that's already happening: the grant rate in 2011 was 47%, while in 2012 it was up to 50%: since it's unlikely that the quality of patents worldwide leapt up overnight, this means that patent examiners are letting through weaker applications.

But beyond this patent inflation, the EPO's latest report exposes some other worrying trends. For example, among the top 10 applicants, there were only four from Europe, and the most prolific of all was Samsung. More generally, in terms of which countries are being grated patents by the EPO, Europe has now been overtaken by the rest of the world.

That takes on a particular significance when considered in the context of the imminent disaster known as the Unitary Patent. Even though this has been agreed, no one really knows what its effects will be – what a great way to make decisions, no? But one of its aims is to make the defence of patents across the whole of Europe easier. Great news for European companies, you might think – until you remember that more EPO patents are being granted to companies outside the EU than to those in it. That means the Unitary Patent will make it easier for non-EU companies to sue European businesses – probably not what most people hoped it would do.

In other words, despite all the grand talk about how wonderful the Unitary Patent would be for Europe, that's only potentially true if most patents are issued to European companies. As the latest EPO report makes clear, it's companies outside the EU that are increasingly being granted patents here. That means the EU has just created a powerful new rod for its own back that will allow US and Asian multinationals to gain patents more cheaply and sue local companies more easily. And given the US experience, we can be sure they will.

But those at the EPO needn't worry: they'll probably still get their patent inflation bonuses next year, regardless of the knock-on consequences for European businesses. Whether that will be much comfort if your company gets sued under the Unitary Patent scheme in the years to come is another matter....

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