Negotiations Over Single EU Patent End Without Agreement

At the beginning of the week the Wall Street Journal boldly wrote that agreement over a single European-wide patent seemed imminent.  Such an agreement would have seemed unfathomable in recent years, but there seemed to be real hope, with ” EU Commissioner for the Internal Market Michel Barnier being quoted as saying: “I really think it’s possible to reach unanimous agreement.” What a difference a matter of days makes. Unfortunately for those who support a single European patent, negotiations broke down on Wednesday evening and the status quo will remain. According to the Financial Times the sticking point was with respect to languages that patents would be translated into, with Span and to a lesser extent Italy being unhappy with the prominence of English, French and German.

As an American it is exceptionally difficult for me to understand why something that makes so much sense is having such a hard time passing in Europe.  Don’t get me wrong, I never under estimate the ability of government, any government, to screw things up when they get involved, but the lack of a single European patent is particularly puzzling.

There really is no “American equivalent” hypothetical example that could be useful to convey the oddity, but allow me to try.  Having separate patents in every country in Europe would be a lot like each State within the United States having its own patent system and needing to pursue a patent in Virginia largely separately and distinctly from pursuing a patent in Maryland, Pennsylvania, West Virginia or North Carolina.  The reason even this thought experiment is not particularly useful is because all of those States, and in fact all of the States in the United States, speak the same language.  In Europe the countries are roughly the size of States in the United States and there are 23 official languages, and according to the European Commission, as the European Union expands that number will expand as well.

In a statement acknowledging the failure and the fact that compromise seems impossible, Commissioner Barnier explained:

I would like to underline that the failure of these discussions has serious consequences.

The absence of a European patent hinders our competitiveness, hinders European innovation, research and development. In the midst of the economic crisis, it is not the right signal.

On the contrary, we must put all the assets on our side to re-launch growth, to support our businesses and thus create new jobs.

The current system for the patent is too expensive, it costs 10 times more than the United-States. It impedes growth. And it is small and medium sized businesses – genuine sources of dynamism for the future – which are suffering most from it.

It is indeed quite expensive to obtain and maintain patent protection around the world.  This is due to the fact that if you want international protection you will eventually need to obtain a patent in every country where you wish to obtain exclusive rights.  From the perspective of an inventor, small business or even an established business in the United States, that can be exceptionally expensive due to the need to have documents translated into the official language of the patent offices in foreign countries, and the need to hire a patent attorney in each country who can deal with the patent office in the foreign country or countries.

To illustrate the expense of obtaining patents in multiple jurisdiction, which Commissioner Barnier correctly points to as a justifiable reason to pursue a common patent in Europe, take a look at what the U.S. Government Accounting Office (GAO) found based on a hypothetical scenario they scored (see Appendix V) back in 2002.  I know it is dated, but still illustrative:

Our scenario depicts a small company filing for foreign patent protection for one of its products in six European countries (France, Germany, Italy, Ireland, Sweden, and the United Kingdom), Canada, Japan, and South Korea…

Given this scenario, the estimated cost of the U.S. patent, maintained for a period of 20 years, is about $10,000 (in 2002 current year dollars). The estimated cost of the foreign patents, maintained for a similar length of time, would range from about $160,000 to about $330,000 (in 2002 current year dollars). These are minimum estimates that include patent application filing and issuance fees, translation fees for applicable foreign patent offices, maintenance fees, and estimates of attorney and foreign patent agent fees associated with work related to the filing and paying of these fees. Actual patent costs for a patent filing strategy similar to our scenario could be far higher because we assumed that the patent application would not face a difficult examination process in any of the countries. Thus, our scenario eliminated many patent office and legal costs that companies incur in trying to obtain a patent.

Thus, it is easy to see that the statement by Commissioner Barnier that it costs 10 times more to obtain a patent in the European Union as it does in the United States is anything but exaggerated.  In fact, it could be a low-ball estimate.

According to Europa.eu, which is the official website of the European Union, “[t]he European Union is less than half the size of the United States, but its population is over 50% larger.”  With its 495 million inhabitants, it represents what could and should be a very enticing market for businesses.  Unfortunately for Europe, however, stronger patent rights are associated with faster industrial growth through technical progress.  See Patent Rights and Economic Growth: Cross-Country Evidence (2009). Thus, what the U.S., WIPO and those around the world know to be true is that fact that stronger patent rights lead to favorable businesses and investment climates, which works to spur the economy and create jobs.  So when the expense to protect your invention throughout Europe, which is half the size of the United States, is a minimum of 10 times more expensive although the market is only 50% larger, the numbers just don’t add up to make good business sense.

As long as inventors and businesses need to redundantly spend for translations, patent fees and patent attorneys, the European Union will always lag behind the United States.  It is hard to justify the expense of a European-wide patent, and that makes it less attractive for businesses to locate and exploit the European market as a whole.  If Europe were to adopt a single European-wide patent the EU could easily steal some thunder from the United States.  The market is bigger and there is a history that embraces the rule of law in a way that China and India really do not, at least on the intellectual property front.

The question is not whether Europe will benefit from a single European-wide patent, but rather whether nationalist bickering can be put aside for the good of the entirety of the collective.  Doubtful if you ask me.  Unlike the United States which has a common history and tradition between and among the States, no such core commonality really seems to exist in Europe.  Until that changes Europe will largely look like the United States under the Articles of Confederation, which proved impossible to support a single national government.