A neglected harvest – Patents for SME’s

Posted on October 18, 2010


Following a recent event I spoke at I was reminded of a presentation I gave in Brussels last year as one of the panellists representing SME’s alongside Margot FRÖHLINGER, (Director Knowledge-Based Economy, Directorate General Internal Market & Services, EU Commission) at a Community Patent and European Patent Reform Roundtable.

‘Freely have I received, freely I have given, and I want nothing in return’ Martin Luther claimed in the 16th century. The landed property context of Luther’s quote is long gone and in the present-day the knowledge economy intellectual property regime plays a similar role, albeit with very different attitudes.

The difference today though is it is a Global issue NOT just a national one; an issue dogged by quality variations across the world.

At the end of the last Century – well it’s almost a decade ago now – There was a burgeoning IT service company that was desperate to break out of the constraints imposed by its provincial circumstances, of the beaten track in a Village with a population of about 5,000. Usual business issues, access to resources travel convenience, profile etc.

This company sought investment and was successful. Part of the Business Proposition requested by investors was the prospect of IP. As a service company value is intangible, IP is not, it provides the tangibility on a Balance sheet that investors like, so it seemed a reasonable concession to the company’s value growth agenda.

The investment was received, the company moved into a major centre and growth was realised.

In due course the prospect of IP was revisited and to fulfil an obligation to investors IP was applied for. This was a software process, the details not particularly relevant to the tale, but what is, is the outcome of the IP application process this SME engaged.

It took some thousands of pounds and little to show but a dawning realisation that the cost and complexity of the process was disproportionate to the value of the IP to the company’s Balance Sheet; and most soberly an ability to defend it in any litigation.

Disillusioned the MD at the next board meeting had the unenviable task of reporting that IP was not a viable proposition. Needless to say the reception was frosty but the realities of what was presented to the board could not be ignored. The cost benefit for the company did not exist under the current IP regimes.

Why did this SME come up against this uncomfortable reality? – Cost due to fragmentation across US, Japan, Europe and other jurisdictions, and the ultimate power of individual countries over patent validity decisions, furthermore results in legal uncertainty and unevenness in the quality of the patents that are enforced, and the final nail in the coffin, the cost effectiveness to defend them.

The hard lesson is that SME’s are at the mercy of a costly and fragmented system that grants national property rights of dubious quality and uncertain solidity. It is tantamount to an unwarranted tax on innovation that is detrimental to entrepreneurs, consumers and most of all the economy.

The European Patent System faces many challenges, but I believe the priorities are:

Quality – The growth of patenting activity does not reflect an increase in innovation activity but rather deterioration in the quality of patents that results from strategic use of patenting, especially in the US.

In Europe, more than 60 percent of patent applications filed with the European Patent Organisation (EPO) are granted, of which it is generally estimated that less than ten percent are commercially successful.

Raising the bar in quality will:

· increase the potential yield from Patents through discipline

· Reduce the spurious lockout that broad spectrum Patent applications (strategic commercial registrations), can have on innovation and in so doing reduce the litigation burden on organisations as challenges will be clearer and prospectively fewer.

Global – Convergence in global patent standards must occur before mutual recognition arrangements are put in place.

US and Japan have proposed bilateral agreements in order to speed up examination and reduce backlogs takes the form of so-called patent prosecution highways (PPHs).

I believe energies are best driven towards supporting closer GOBAL alignment than looking inward and forging another version.

Don’t forget the fact that only 15 of the 35 members of the European Patent Convention have signed the London Agreement on translation requirements. Even in these countries, patents are still at least three times more expensive than in the US or Japan.

My thoughts do not envisage an end to the EPO, simply a realignment to contribute as a collective Global Patent Ecosystem.

Possibly in a unique position to set an example and use the unique timing championing Global Standards as other regimes creak under the strain.

… and most importantly champion the creation of an SME status and pricing policy.

My conclusion is that SMEs, the world over, are proven innovators with great creative capacity and the driving force behind many technological advances, and the most numerous in any business sector.

These companies are highly innovative and contribute to national economic growth, wealth generation, substantial job creation, investment and exports.

In spite of this, the potential of the IP system to enhance commercial competitiveness is still typically poorly understood.

SMEs, through adequate and effective IP framework, can significantly enhance their competitiveness, export opportunities, market share and their overall market value. But most of all more effectively than ANY other market sector, Public or Private initiative:

· disseminate wealth

· empower the individual with purpose and training

· build communities

· seed the next wave off innovation

· grow economies

….. through employment.

My closing thought on the subject come from the World Intellectual Property Organization (WIPO).

“Mastering the ability to effectively use the IP system is … a key priority if private sector driven economic development is to be ensured. In today’s economic and trade environment, it is obvious that business development and competitiveness will be linked to the ability of entrepreneurs to acquire, manage and exploit their intangible assets which are increasingly dependent on the tools provided by the IP system.”

Mr. Saadallah – Executive Director, WIPO Office of Strategic Use of Intellectual Property for Development.