U.S. exports hit a record high of $188.7 billion in December 2012. This is part of a long (albeit inconsistent) trend of growing exports, which goes back to the early 1990s and has been particularly strong and steady since 2009. While there are many causes behind this growth, one important factor is the spread of international patent treaties. When U.S. companies obtain patents in foreign countries, it provides protection against local competitors, which can make it significantly easier to enter that foreign market.

Patent treaties make it easier for U.S. companies to obtain patents for their inventions in foreign countries (and easier for foreign companies to patent their inventions in the U.S.). Global participation in patent treaties has seen robust expansion recently. For example, countries continue to ratify the Patent Cooperation Treaty (PCT), which currently has 147 participating countries, 42 of which have signed on since 2000.

The Valuable European Market

Recent years have seen significant evolution in regional (i.e., subglobal) treaty organizations, the most important of which is the European Patent Convention (EPC). The EPC is an organization of 38 countries that accounted for a total population of 590 million people and a combined GDP of over $18 trillion in 2011. The members of the EPC include both Euro and non-Euro countries, European Union members and non-members, NATO and non-NATO countries. If considered one market, the EPC’s total GDP would be larger than any single country on earth, including the U.S. and the People’s Republic of China. It is not surprising that patent protection in the EPC is usually high on the list of concerns when U.S. companies consider an international patent strategy.

It is now getting easier to patent inventions in Europe. The current system is summarized below, followed by an explanation of the new developments.

The Current European Patent

The EPC allows a patent to be obtained in multiple member countries in a manner that is procedurally simple but very expensive. A single patent application is filed with the European Patent Office (EPO). The application must be in one of the EPO’s official languages: English, French, or German. The EPO then examines the patent application to determine if it meets the EPO’s requirements for patentability, which are not controlled by the laws of any of its member countries. If a patent is granted, the patent owner must then “validate” the patent in each member country in which the patent owner desires patent protection, which requires payment of a validation fee and at least a partial translation of the patent into the local official language. Annual maintenance fees are due in each country where the patent is validated. Although the fees to the EPO are very expensive compared to any single national patent office, as a rule of thumb the cost of obtaining a European Patent through the EPO is generally less than filing a separate patent application in three or more European countries. Some countries, such as France, no longer accept ordinary national patent applications and rely entirely on the EPO for this function.

Once the European Patent is granted, the patent rights no longer follow a unified scheme. The European patent is now considered a separate patent in each validated country and is subject to that country’s laws, legal system, and procedural rules. Consequently, the same patent will be easier to enforce in some countries than others. German law, for example, provides rigorous protection for patent rights. On the other hand, it is notoriously difficult to enforce patents under Italian law.

If the patent owner wishes to enforce its patents in multiple countries, it must hire attorneys in each separate jurisdiction who are versed in the local legal system. Some countries require proof that the patent owner is manufacturing the patented product in-country; failure to provide such proof can result in a compelled license to a local company. Consequently, while the countries of the EPC may seem like a unified bloc in terms of the requirements to obtain patents, they are still highly Balkanized in terms of requirements to enforce and maintain patents.

The Coming “Unitary Patent”

The disunity in national patent policy has been seen as a barrier to the European Union’s goal of free trade among its members.1 To address this unwanted barrier, in 2011 the European Union resolved to move toward a “European patent with unitary effect” (“Unitary Patent”). In 2012, the European Parliament adopted two regulations toward this goal, establishing the Unitary Patent and establishing a Unitary Patent Court to enforce them. The regulations must now be approved by the individual member countries of the EU.

If enacted, a patent applicant will have the right to request a single Unitary Patent, which will be in force in multiple EU countries of the applicant’s choosing and which will be enforced by a single Unitary Patent Court regardless of where patent enforcement is sought. The old European Patent will still be available. Unitary Patent holders will have expectations that their patents will be respected consistently, from lax jurisdictions such as Italy to strict jurisdictions such as Germany. No translations will be required nor will the patent owner be required to pay validation fees in each country. One patent will have the same effect throughout the entire EU.

There will be a few drawbacks compared to the old European Patent. The countries must be selected when the application for the patent is filed, unlike the current system in which the applicant chooses countries after the patent is granted. The standards of the Unitary Patent Court have not been decided, and it is still uncertain whether they will be strict or lax. Some EU countries may opt not to participate (such as Spain, Poland, and Italy, which have yet to ratify all aspects of the agreement at the present time). Lastly, the Unitary Patent and the Court will not have any effect outside of the EU, so if patent protection is needed in one or more countries that are members of the EPC but not the EU (such as Switzerland or Norway), a Unitary Patent will not address this need.

Impact on U.S. Business

Like many efforts of the EU to unify Europe, the Unitary Patent is likely to take a long time to implement, and some EU countries might opt out of the system. Nonetheless, the most powerful EU countries, Germany, France, and the United Kingdom, all favor the new system; the participation of these countries alone would constitute a major improvement in Europe’s patent system. One study concluded that the Unitary Patent will reduce the cost of getting a patent in all 27 EU member countries from €32,000 ($42,500) to €6,500 ($8700). While the real extent of such savings has yet to be seen, the inevitable consequence for U.S. business will be easier access to European markets.