Unitary Patent Costs Consultation with the EPO 3 February 2015 AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION 1 REDACTED DRAFT - 2 Feb – 6 pm ET

Disclaimer The views expressed during this consultation are the informal, current views of the participants, based on their experience and discussions with other interested persons, and do not necessarily represent the views of AIPLA or the participants’ employers. 2 REDACTED DRAFT - 2 Feb – 6 pm ET

Unitary Patent Objectives “Unitary patent protection will foster scientific and technological advances and the functioning of the internal market by making access to the patent system easier, less costly and legally secure. It will also … eliminate costs and complexity ….” EU Reg. No. 1257/2012, Recital (4). [Comment: Users should not be expected to pay more for UP] The Unitary Patent regulations also contemplate: –No adverse effect on EPO budget; –No adverse effect on non-UP Users; and –Member States to share 50% of renewal fees. Declared intent that Member States’ shares to be used for patent-related purposes. EU Reg. No. 1257/2012, Recital (21). 3 REDACTED DRAFT - 2 Feb – 6 pm ET

Overview of Our Comments The principal factor governing European Patent validations and renewals is a User’s budget. European patents are probably the most difficult to justify on a cost- benefit basis. We do not detect a desire for greater territorial patent coverage in Europe that would justify an increase in European patent budgets. The opportunity to consider selective abandonment in some states is quite important, but not possible with a UP. The “TOP 4” and higher renewal fee schedules are not attractive. REDACTED DRAFT - 2 Feb – 6 pm ET 4

1. The European Share of Patent Budgets Is Decreasing REDACTED DRAFT - 2 Feb – 6 pm ET 5 A. Looking at the World of Patents Today

GDP (PPP) List by the International Monetary Fund (2013) 6 UP LA UP LA UP LA X (UPC) X XX REDACTED DRAFT - 2 Feb – 6 pm ET

GDP (PPP) List by the International Monetary Fund (2013) 7 UP LA+ x UP LA+ XX LA REDACTED DRAFT - 2 Feb – 6 pm ET

Four of the Most Active Patent Offices Are in “BRIC” States 8 WIPO, World Intellectual Property Indicators – 2014, p. 12. REDACTED DRAFT - 2 Feb – 6 pm ET

2. European Patents Have a High Cost for the Benefits Offered REDACTED DRAFT - 2 Feb – 6 pm ET 9

A “Complete” Unitary Patent would cover a smaller GDP than a US Patent European Union GDP17,578.4 Less the non-participating EU states: Italy- 2,035.4 Spain- 1,488.8 Others ?_______ 14,054.2 United States GDP16,768.1 EU less Italy & Spain has a GDP that is 83.8% of US GDP: 10 REDACTED DRAFT - 2 Feb – 6 pm ET

Comparison of Renewal Fees 11 YearTOP 3Cumul.€=US$/0.75Cumul.€=US$/0.85Cumul.US$Cumul. 2 (?) , ,205 61,2063, ,8201,200 1,360 $ 1, , , , ,7242,7003,9003,0604,420 $ 3,600 $ 5, ,1717, ,4009, ,65010, ,92512,8705,5509,4506,29010,710 $ 7,400 $ 12, ,22915, ,53117, ,84320, ,14523, ,44527,063 to yr. 1615,0999,45010,710 $ 12,600 to yr. 2027,0639,45010,710 $ 12,600 Renewal Fees __in Europe__ Renewal Fees ____________ in United States _ REDACTED DRAFT - 2 Feb – 6 pm ET EPO fees thru OY 6, National fees thereafter.

B. IP Budgets REDACTED DRAFT - 2 Feb – 6 pm ET 12

IP Budgets Companies have limited patent budgets and expanding territorial options for patenting. GDP and middle class populations are growing at a faster rate outside Europe. Companies seek patent protection in source or market states, or both groups. –EU states are a decreasing share of the worldwide sources and markets for goods and services. –Japan and Republic of Korea have been and are now important. –China, India, Russia & Brazil (“BRIC” states) are increasingly important. European renewal fees do not compare favorably. 13 REDACTED DRAFT - 2 Feb – 6 pm ET

Managing IP Validation & Renewal Budgets Typically, Users conduct annual reviews to decide which patents to maintain and which to abandon. Selective abandonment is a key tool to satisfy budgets. –Considered in most reviews. REDACTED DRAFT - 2 Feb – 6 pm ET 14 Discussion of General Budget Issues

C. Deterrents to Electing a Unitary Patent 1.Exclusive jurisdiction of the Unified Patent Court. 2.Lack of ability to selectively abandon protection 3.Validation Issues 4.Availability of a viable alternative REDACTED DRAFT - 2 Feb – 6 pm ET 15

1. Exclusive Jurisdiction of the Unified Patent Court Is the exclusive jurisdiction a plus or minus for choosing a UP? –Many European practitioners urge EP & opt-out: Fear of Central Attack, Fear of poor judges, Familiarity with home court, and Economic motivations of the representatives. –BUT, US Users may see things differently: Central Attack has not deterred use of the EPO, Judges will be of comparable quality to best EU courts, Most US Users lack familiarity with EU courts, and UPC proceedings probably will be in English: We believe that the costs of a UP probably will dominate the choice. 16 REDACTED DRAFT - 2 Feb – 6 pm ET

2. Lack of Ability to Selectively Abandon Protection Selective abandonment is a key tool in managing renewal costs. –The actual exercise of selective abandonment is not a good measure of the value of this tool. –Selective abandonment is probably considered in 80-90% of the renewal decisions beginning a few years after grant. REDACTED DRAFT - 2 Feb – 6 pm ET 17

The Translation Cost Problem The Unitary Patent is intended to reduce translation costs –For applications in English, only “a full translation of the specification … into any other official language of the Union” will be required. – “Such translations should not be carried out by automated means and their high quality should contribute to the training of translation engines by the EPO.” (Regulation (EU) No 1260/2012, Recital 12, emphasis added). 18 REDACTED DRAFT - 2 Feb – 6 pm ET 3. UP Validation Problems

The Translation Cost Problem The translation is an added cost at the time of the request for unitary effect. –European patent attorneys advise against a machine translation. The validation cost of a full “human” translation appears to compare unfavorably with costs for most applicants of national patent validation using the London Agreement. A translation into Italian could be used without additional cost for those UP Users desiring protection in Italy. This is not helpful for most Users, who do not designate Italy. (Italian validation & renewal data was not provided to us by the EPO). 19 REDACTED DRAFT - 2 Feb – 6 pm ET

The Problem: –A decision to request a Unitary Patent will be required sooner after decision to grant a European Patent than a decision to validate as national patents. (Next slide). The proposed draft rules 6 and 7 now require a full translation as a part of the Request, with an additional one month to correct the omission of a translation. –The UP election date is likely to be missed by at least some Users accustomed to current validation procedures. 20 REDACTED DRAFT - 2 Feb – 6 pm ET The Early Decision Problem

21 Art. 71(3) Notice Translate Claims & Pay fees ~4 months 3 months 1 month Publication Of Grant Request for Unitary Effect Conventional EP Validation REDACTED DRAFT - 2 Feb – 6 pm ET

22 Discussion – Minimizing the Effects of: 1. Exclusive jurisdiction of the Unified Patent Court; 2. Lack of ability to selectively abandon protection; and 3. Validation Issues.

REDACTED DRAFT - 2 Feb – 6 pm ET Availability of a Viable Alternative

Users Have Become Comfortable with Limited Coverage in Europe Most Users believe that European renewal fees are too high for benefit conferred. 80% of US-origin cases are validated in 1-4 states. –Sufficient coverage to deter broad competition. –Selective abandonment can be used to limit costs in later years. In most cases, litigation in one European state leads to resolution of multi-state disputes. 24 REDACTED DRAFT - 2 Feb – 6 pm ET

Past EP Validation Behavior 25 Validations per Member State for EPs granted in 2011 (Missing data for Italy, Spain & Switzerland) REDACTED DRAFT - 2 Feb – 6 pm ET

Past EP Validation Behavior 26 REDACTED DRAFT - 2 Feb – 6 pm ET

Past EP Validation Behavior 27 REDACTED DRAFT - 2 Feb – 6 pm ET (Comment: 80% of validations by US Users were in 4 states or less. 58% were in 3 states or 4.)

National Validations in London Agreement States Is a Viable Alternative National validation in London Agreement states may be more attractive than a UP for many Users, because: –3 key UP Participating Member States (DE, FR & GB) require no additional translation; –In 7 UP Participating States (including NL & SE), only claim translations are required; –Selective abandonment will be available; and –A choice of enforcement forum will be available, for example: in the UPC, in English; or in a national court at presumably lower court costs. 28 REDACTED DRAFT - 2 Feb – 6 pm ET

29 Discussion of Validation in London Agreement States as an Alternative

D. Considerations for a Viable UP Renewal Fee Schedule REDACTED DRAFT - 2 Feb – 6 pm ET 30

31 REDACTED DRAFT - 2 Feb – 6 pm ET Comments on Fee Level Models (Does not reflect EPO application renewal fees in early years)

Our Observations Current, national renewal fees in the EU are not attractive. –Expensive compared to other jurisdictions –50% sharing with states provides no benefit to non-EU users We do not detect a significant demand for increased territorial coverage that might overcome cost considerations, and justify fees above the TOP 3. UP renewal fees comparable to what the EPO calls the TOP 4 (including NL) will not be attractive –2/3 of U.S. users now validate in 3 states or less. –Not all validations in 3 or 4 states include NL. 32

Our Observations We cannot predict UP renewal behavior in next 15 years. –An attractive fee schedule can affect that behavior. The rate of selective abandonments does not represent its importance to Users. –That option is considered frequently. A “final” fee structure need not be set now –We will have much more information before the later year fees take effect 33

Our Suggestions Make the UP fees attractive to Users Consider less steep annual fee increases, to attract more UP validations and overcome the lack of a selective abandonment option. 34

Discussion of Viable Renewal Fees, Followed by General Discussion 35REDACTED DRAFT - 2 Feb – 6 pm ET

The End Thank you for this Consultation 36REDACTED DRAFT - 2 Feb – 6 pm ET