The Unitary Patent (UP) aims to provide a platform allowing inventors to acquire pan-European patent protection without having to “validate” the granted European patent in every European country of interest. The process of validation involves having to prepare partial or complete translations of the granted European patent for each country of interest – a costly process in anyone’s books. Additionally, annual renewal fees are payable for each country in which the granted patent has been validated. Since the London agreement came into force in 2008 the translation requirements are far less onerous but the renewal fee burden still exists. The Unitary Patent as proposed provides coverage in all states that have ratified the Unitary Patent Agreement without the need for validation but still requires the payment of a single renewal fee. The quantum of this fee has received much attention, with commentators predicting a strong dependence of the future take up the Unitary Patent system on the level of this fee. After all, who would want to replace a system in which renewal fees for three or four individual countries (as is presently true for most European patents) are paid with one that requires payment of a single, yet overall higher renewal fee? After many months of speculation, a document outlining the renewal fee proposals for the new Unitary patent was submitted by the President of the EPO to the Select Committee of the Administrative Council for its opinion (as reported in our earlier article). Here, we take a detailed look at these proposals and consider how they are likely to influence patentees’ choices at both filing and grant. The EPO’s proposals
According to Article 12 of EU Regulation No. 1257/2012 (on the creation of Unitary Patent protection), renewal fees should (in this order) be sufficient to ensure a balanced budget of the EPO, aim to facilitate innovation, and be set at a level that is equivalent to the level of the renewal fee to be paid for the average geographical coverage of current European patents. Having analysed 48 simulations which estimated the impact of different fee structures, the EPO has come up with two proposals in an effort to meet the objectives set out in Article 12. The fees suggested for each of these two proposals, which are referred to as the ‘UP TOP4’ and ‘UP TOP5’ proposals, are plotted in Fig. 1 against the EPO’s fees which are payable on pending applications. It will be appreciated that, in a way this figure compares apples with pears, given that the EPO’s (existing) renewal fees are payable before grant, whereas the UP renewal fees, by definition, are payable after grant. The UP fees will consequently only ever be payable after applicants’ duty to pay the EPO renewal fees for pending applications has been dispensed with. This figure nevertheless serves to illustrate that up to year 10, the UP fees proposed under either of the two proposals track the current EPO pre-grant fees relatively closely.
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Considering the proposal in more detail now, as shown in Fig. 1, the UP renewal fees are set in accordance with the EPO’s internal renewal fees (IRF) in years 3-5 from filing. A UP renewal fee is also proposed for the second year which would apply to the exceptional cases in which a patent is granted in the year of filing. In year 6 the UP fees dip slightly below the EPO IRF level, exceeding it once again in year 11 (UP TOP5) or year 12 (UP TOP 4).
From year 10 onwards the UP fee levels are designed to be equivalent to the total sum of the national renewal fees payable in the states in which European patents are most frequently validated. The TOP4 level is based on the sum of the four most frequently validated countries, and the TOP5 level on the sum of the five most frequently validated countries. Additionally, for the TOP5 level a 25 per cent fee reduction is proposed for years 2-10 for certain patentees such as SMEs, universities and non-profit organisations.
Both proposals thus follow a three-tier structure: the EPO IRF level in years 3-5; a transitional level in years 6-9; and a level equivalent to the combined national renewal fees of four or five states from year 10.
To assess what the proposals mean in practice to patentees, it is useful to compare the UP TOP4 and TOP5 fees with the combined national fees of some of the states in which are European patents are most commonly validated. Fig. 2 plots the proposed UP TOP4 and TOP5 fees against the combined national renewal fees for the UK, Germany (DE), France (FR) and the Netherlands (NL).
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The proposed UP fee structure is such that the combined national fees of DE, FR, UK and NL only converge with the UP TOP4 fees at year 10. As is apparent from Fig. 2, this means that the UP fees significantly exceed the cost of the combined annuities in these four states for almost half of the patent term. Given that most patents are not renewed to the end of their term, this discrepancy in the early years of the patent term can have a significant influence on the lifetime costs of a patent. The large discrepancy between the UP fees and the national fees up to this point is due to the UP fees being set in accordance with the high level of the EPO’s pre-grant fees in years 3-5. According to the proposals, the EPO’s IRF level in years 3-5 has been adopted to provide consistency between the pre- and post-grant phase. The EPO argues that charging a low fee level (in accordance with the combined national fees) for the initial years of a Unitary patent could not be justified in view of the need to recoup the pre-grant costs of search and examination.
Given that a very large proportion of all granted European patents, not least in the electronics/high tech sector, are only ever validated in France, Germany and the UK, it is also useful to compare the UP proposals with the combined national renewal fees payable in these three countries. It is immediately clear from Fig. 2 that the sum of the national annuities for DE, FR and UK is significantly lower than the proposed UP TOP4 fees for the duration of the patent’s lifespan.
In the current ‘validation’ system, payment of the EPO renewal fees is replaced by payment of the national renewal fees upon grant. Given that the pre-grant EPO fees significantly exceed the combined national annuities up to year 12 for four countries (DE, FR, UK, NL) and up to year 14 for three countries (DE, FR, UK) grant of a European patent immediately brings about a saving in annuities if validation is to take place only in these four/three countries. Therefore, the earlier the patent grants (and the sooner the costs drop from the green line of Fig. 1 to the red or blue lines of Fig. 2), the more savings will be made.
Once the UP system is up and running, patentees will be able, for a transitional period, to opt either to acquire a Unitary patent after grant or to use the current system and ‘validate’ their European patent only in the countries of their choice. It will be appreciated from the above that, by opting for national validations rather than a Unitary patent, considerable costs savings can be made if only a limited number of countries are of interest.
The effect of the pendency of the application on the additional cost of a Unitary patent compared to a European patent validated in DE, FR and UK is illustrated in Table 1. For a patent which grants in year 10 and is maintained for the full 20-year term, validating nationally will result in a fee saving of over € 9k compared to a unitary patent, based on the UP TOP4 proposal. If the UP TOP5 proposal is adopted, this saving would be over € 14k. These savings increase to over € 12k (UP TOP4) and almost € 18k (UP TOP5) for a patent which is granted in year 4. It is stressed that this comparison is based on the official fees only and does not take the administrative costs of paying these fees into account.
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The effect of the year of grant on overall annuity costs is further shown by Fig. 3, which highlights the difference in fees between a Unitary patent and a European patent validated in DE, FR and UK, granted in year 4 (Fig.3a) and in year 7 (Fig. 3b). The solid lines show the progression of fees from grant for the UP TOP4 (blue) and TOP5 (red), and for the combined national renewal fees (green). The dotted lines show the cumulative savings that would be made over the patent term by choosing the national route instead of the UP. Again, from this data it is immediately clear that, in terms of renewal fees alone, significant savings can be made by opting out of the UP.
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Fig. 3b additionally illustrates the effect of the time limited 25 per cent discount for SMEs under the TOP5 proposal. This proposal results in a total reduction of just EUR 880 for a patent granted in year 7. This saving will be quickly outweighed by the additional cost of the UP fees compared to national renewal fees (for UK, DE and FR) over the subsequent years. Thus, even taking into account the SME discount, the UP TOP5 proposal will be more costly for patentees than validation of a European patent in the three main states.
Finally, the EPO proposes a 15 per cent reduction for patentees who offer licences of right. This is notably less than the 50 per cent offered in both the UK and Germany, although it has to be noted that not all countries covered by the Unitary Patent have licence of right arrangements that would reduce the amount of annuity payable.
The costs of UPs v ‘traditionally validated’ European patents:
The data presented above shows that patentees seeking protection in only the three or four main states could make significant savings in terms of payable renewal fees by opting for national validation instead of a Unitary patent, particularly if they intend to keep the patent in force for the full 20-year term. Although this analysis is based on renewal fees only, it is also worth noting that the translation costs for UK, FR, DE and NL are minimal since these states are party to the London agreement. The benefits of the UP will therefore be more apparent to those wishing to enforce their rights in more than four countries, especially those states which are not party to the London Agreement and which are typically associated with high translation costs, such as Greece.
As shown in Fig. 3, the national route is increasingly favourable the earlier grant is reached. It is well known that European patent applications can, depending on the technology of the invention, remain pending for many years
It should be noted that the data presented above is based on the basic renewal fees only, not taking into account the fees of an annuity service provider. The more individual national annuities are payable, the more fees will be payable to service providers. However, should annuity service providers choose to set their fee for UP renewal payments based on an “average” EP patent to mitigate any revenue loss that may be associated with their clients switching to the UP system, then this may well not reduce the cost difference between the two routes.
Another factor favouring the current ‘validations’ route over a Unitary patent is the fact that protection cannot be selectively abandoned in different European countries for the purpose of tailoring annuity payments to commercial developments. The AIPLA believes that the lack of selective abandonment will be an initial deterrent to UP protection which can only be overcome by making the cost of the UP reasonable.
Going national after all?
Although this article has thus far focussed on the choice between a UP and a classical EP patent validated in each of the countries desired, a third option available to applicants is to file nationally from the outset. Again, this route may be beneficial to those seeking protection in only three or four countries, particularly the UK, FR and DE. As highlighted above, an advantage of the national route is avoiding the significant EPO pre-grant fees. No fees are payable on applications pending in the UK or NL, while pre-grant fees in DE and FR are minimal. Furthermore, although patent office delays are not uncommon in DE, prosecution in FR is typically quick, while in the UK statute sets a strict time limit (4.5 years) on the pendency of the application. Therefore, grant can be reached relatively quickly in at least two countries. It is possible to mitigate prosecution delays in one country on the basis of knowledge of the prior art gained during prosecution in the other countries. Applicants requiring rapid protection in DE can also consider filing an application for a utility model.
Whilst one drawback of national filings is that the application needs to be translated into the local language, detailed analysis has shown that, despite this, cost savings over and above a traditional European patent application can be achieved if protection in only the UK, DE and FR is desired. An upside of prosecuting applications in the national language of the country of choice is that patent examiners work in their mother tongue, so that situations in which clarity objections are raised because the linguistic abilities of the examiner are insufficient are few and far between, reducing the likelihood that applicants have to fight against requests to narrow claims unnecessarily.
Reaction to the UP renewal fee proposals has so far been largely negative. The European Commission has indicated its support for an alternative fee structure based on a ‘real TOP 4’ combined with a reduction for SMEs. The AIPLA (American Intellectual Property Law Association) has written to Benoît Battistelli, EPO President, and Jérôme Debrulle, Chairman of the EPO Select Committee, objecting to the proposals “as being too costly to be attractive for a significant number of users”. The AIPLA urges that the UP fees should be set at a level no higher than the TOP3 level or, if that is not possible, a level based on the TOP4 but replacing NL with an average of the most frequently selected fourth states. In another letter to Jérôme Debrulle, BusinessEurope has expressed that it is “seriously concerned about the proposals”. In view of the data presented above, these reactions are perhaps unsurprising.
According to the document submitted by the EPO to the Select Committee, the proposals have the twofold aim of arriving at renewal fees low enough to be attractive to users and high enough to ensure a balanced budget of the EPO. However, in view of the significant additional cost compared to national annuities, the UP seems unlikely to attract users who wish to gain patent protection in only a few states. Even patentees seeking protection in more than four states may fail to be persuaded by lower overall validation and annuity costs given the lack of flexibility and additional risk of the UP system. In our view, the proposals fall short of offering the significant savings promised, and risk deterring potential users of the UP from the outset.
Applicants should consider the states in which patent protection is required before filing a European patent application, so that pre-grant EPO fees and post-grant renewals can be weighed up against translation and validation fees. Those wishing to enforce their rights in the UK, DE and/or FR only should also consider filing nationally.
The Select Committee discussed the proposed UP renewal fee structures during its 13th meeting in Munich on 23 and 24 March 2015, and confirmed its commitment to take the appropriate decisions on the financial and budgetary aspects of the implementation of the Unitary Patent protection by the end of June 2015.