Yesterday INOVIA, a global leader in foreign patent filings, published a survey of 150 companies. The survey assesses the impact of the U.S. economy on global IP strategies for 2011, and is available for free to anyone interested in the results. The survey includes a number of interesting findings, included among these are that 88% of respondents say they were in favor of a European Wide Patent System (which isn’t surprising really), only 19% of respondents said they filed fewer patent applications than expected in 2010 and 46% of respondents brought work in house in 2010 (which might not bode well for firms heavily leveraged on work from large corporations). Also interesting is the fact that interest continues to wane with respect to filing and obtaining Japanese patents.
In an effort to explore the results of this survey I spoke with Justin Simpson, the patent attorney who founded INOVIA in 2000 in an effort to create a more efficient way to file patents overseas.
RENEE QUINN: I just wanted to thank you very much for taking the time to chat with me. I really appreciate that.
JUSTIN SIMPSON: No problem.
RQ: I have the 2011 U.S. IP Trends Indicator survey that Inovia did recently here in front of me and I just wanted to ask you some basic questions about the information that was in the survey to get your take on things. The first thing I want to ask you about, which I thought was quite significant, is that 88% of those surveyed said they were in favor of a European Wide Patent System.
RQ: And I was wondering if you foresee any movement on that in the near future.
JS: I think it was a clear message that Americans are keen for a unified patent system to come into affect in Europe. They, like the Europeans, are screaming for change in what they realize is a very high-cost process, particularly the end part where you have to do all of the translations in the validation step. This survey was done in December and January when at that point we’d seen the rejection in September of the proposal to get a unified European patent system for the whole of Europe. But of course since then, the European parliament gave the go ahead to get some legislation going for the enhanced cooperation system which was initially 12 countries that said, “We couldn’t get an agreement with Spain and Italy on the whole system, let’s go with a enhanced cooperation which didn’t require the unanimity. And since those 12 countries went ahead I think 25 have now come in behind that process. It was a very unanimous voting system.
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In terms of a unified European system, as far as it will be unified without Spain and Italy, I think it’s a matter of when, not if, this is going to happen.
RQ: One of the things that I was thinking about is Europe as a whole has a lot of different languages. So with a European wide system, I would think that language would potentially be an issue as far as standardizing the languages. So what languages do you allow filing in and what languages are patents published in?
JS: At the moment the European system allows you to file and prosecute patents in English, French and German. And under this enhanced cooperation proposal, the same three languages are the languages that should be acceptable everywhere in all of the countries. Now under the current system, after you’ve gotten through the prosecution and you’ve got your European patent granted, you’re right, you do need to translate it into the languages of all of the countries you want to go into and that’s called European validation. But under the new system, all of those countries that sign up for the enhanced European cooperation will do away with that requirement and will accept either English, French or German, whichever one came through at that first stage.
So I think at this stage, it’s looking like when it goes ahead, most countries will agree to this process but Spain and Italy will stay abstaining from it, which means that once you’ve gotten your European patent granted, you will effectively validate in this one region which covers 25 countries. And if you want to cover Spain and Italy, you’ll have to cover those two separately and do those translations. But compared to what it is now the amount of translation burden is significantly reduced which is what all of the applicants want not necessarily what all the patent attorneys and translators want but certainly what all applicants what.
RQ: Exactly. Do you have an idea as to why Spain and Italy are so reluctant?
JS: It’s the language issue. European laws come together on the basis of equality and fairness, and it meets those criteria. But I think that Spain and Italy are objecting that there will be prejudice on the basis of language because I think Spanish and Italian applicants do not speak as much English, French and German as say the Germans and the English. So if all of the patents are published in only English, French or German, in order for them to understand them and to know their rights, they’re going to have to go to the trouble of doing translations themselves.
So I think that’s the heart of the prejudice. It’s a reasonable objection and I can understand it. But there have been a lot of other countries that have been in a similar position to France and Italy who have realized for the good of the economic feasibility of having cost effective patents in Europe they have foregone that. So Hungary for example obviously doesn’t speak English, French or German, they speak Hungarian. But they are getting behind this advanced cooperation system, realizing that even though the patents are not going to be translated into their language, that the only real reason you need to get them translated is when there is a dispute, either if you have to raise a piece of prior art or you are wanting to have some litigation. So the fact that I think very few patents get litigated or there are very few disputes and yet currently 100% of them need the translation and everyone just realizes that it’s a waste of money.
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RQ: That’s really interesting to know. Now you had mentioned just a little bit ago that this won’t be so good for attorneys. What does that mean for practitioners? How do you think that it will affect them that you feel it wouldn’t be a good thing?
JS: For US patent attorneys and US applicants, it’s all good. It’s where translation disappears for those European patent attorney firms and translators who are doing the translating, that work will go away. Inovia also does European validation as one of its services so that part of our business will go away as well, but fortunately we have PCT national stage entry and translation for other countries to keep us going. But European countries and I know Hungarian patent attorneys that are getting a lot of money out of translation now, that won’t have that translation work in the future. And same with any other country that agrees with those provisions. There are a lot of countries, whose patent attorneys have been making a lot of good money out of the translations and so I think that is why there has been a lot of resistance for so long. I think there has been about 10 years of arguments at least, on this topic and language has been the reason behind it.
RQ: Well I am not a patent attorney myself, but in listening to you the question that comes to mind is that even though English, French and German will be the universal languages used, won’t those other countries still need to translate their works into Hungarian, for example? And so wouldn’t that mean they would continue to have that work, just on a different scope?
JS: The point at which we are talking about these translations is when you are getting your patent granted. So right now, for the patents to be enforced you have to do all of those translations in that validation step, and that bit will be taken away. The point at which let’s say a Hungarian or Swedish patent owner is doing a search for patents that come up in other languages, and then yes, there is some need for translation. But when you’re doing a patent search the most practical thing to do when something is in another language is to at least first get a machine translation done. A machine translation is not useful and good enough for the purposes of granting a patent and establishing rights. But in terms of seeing if there is a relevant patent to the subject area of the invention, and if one should look into it further, a machine translation sufficiently gives that information.
So when it comes down to your finding one or two patents completely in another language that really need to be looked into, then yes, at that point the person who is doing the search should do the translation. But that is the same situation with anyone anywhere in the world. Say an American patentee finds a Japanese patent that seems to be relevant, in order to put their American patent through, they need to know how their invention differs from that Japanese patent. And they can and should at that time, get a full Japanese translation. But most of the time it is not needed and usually the summary version or the short version in English, French and German, most people should be able to understand.
RQ: Now in the report, you have that only 19% of those surveyed said they filed fewer patent applications than expected in 2010. Did that surprise you and what do you think that is going to look like in 2011?
JS: What we have been seeing a lot through the results of the survey is that during 2009, or whenever the financial crisis hit, I think late 2008 for the first time, a lot of the biggest changes and cut backs seemed to have happened in late 2009. So in 2010 when people filed less than expected I think in the previous year, a lot of the changes had already happened. So I think the percentages were higher in the previous year compared to 2010.
Looking forward into 2011, the general feeling from the survey is that it is not time to loosen the belts yet. It is still quite tight times. Even companies who we’ve spoken to that have financially quite well; their IP budgets have not been expanded in light of their success. Not very many companies have done well in this period but a few have. But basically most of the patent departments are being asked to do more with less and so one of the things they are doing is being very judicious about which countries to file in. The degree to which they will scrutinize their decisions has become much stronger and that has led to certain choices of countries. We talked about Europe a little while ago and one of the reasons they’ve been cutting back on Europe is because it is one of the most expensive jurisdictions. Japan is a similar country and has gone down in popularity whereas China and Korea are rising with popularity.
So in terms of the broad outlook, I think it is staying the same but not too many more drastic cuts. Most of the drastic cuts happened in ’09, ‘10 and still had a few more, but I think the confidence is starting to go back into the market and pretty much “Steady as she goes” I think is the message.
RQ: Along those lines, toward the conclusion of the survey, one of the respondents had said that even as the economy is turning around that they will continue to operate in a budget conscious way and they had also mentioned that they will probably never go back to filing in Japan and Canada. But in another section of the report it says that the major way costs are being cut is by reducing the number of countries patent applications are being filed in. So my question to you is, in looking at the way that things have been going, what countries do you think are most at risk for losing potential filings even if the economy does turn around? They are specifically saying that they will not go back to filing in Japan and Canada but do you think that there are other countries in jeopardy and which countries seem to have a solid if not growing interest?
JS: Sure, well the ones that seem like they are on their way out in these tighter financial times, Japan is a key one and Europe is another one, mainly because of cost in both of those jurisdictions. Europe is expensive because under the current system there are lots of languages to be translated into as we’ve discussed and Japan is just an expensive country all along. One of the other elements is that the Japanese patent attorneys have gotten together and they’ve agreed on prices they are going to charge and we foreigners are met with high charges. They are not the only country that does that but I believe there is a system in place to keep prices high.
So now that companies are looking quite particularly at which countries they are going to proceed in and which not, not only is the cost a factor but say Japan verses Korea, when you look at Korea as the rates of increase of the filings its had, the greater sophistication its had with some of the successful companies they’ve got like LG and Samsung, the impression is Japan’s no longer where it’s hot, where it’s happening any more, but Korea and China are certainly on their way up. When people have a choice between Korea and Japan as jurisdictions, Korea is a lot less expensive to file in. They haven’t had the tradition of patent attorneys holding to certain prices. And I think Korea has gotten more popular also because at the PCT stage, the International filing stage, Korea’s patent office has been offering to do searches and quite a lot of US applicants have been electing the Korean search, partly because it’s very inexpensive but they’ve also been pleasantly surprised that the quality has been very high. So I think not only Korea’s industry and the companies that are successful are showing that it is a good place to be for protection but I think their patent office has done well by showing that the way that they do searches has gone up.
I’ll also comment on another hot topic. China is a country that’s becoming more popular to file in. So again, the cost is a factor, I think the success of their economy and rate at which they are growing is another factor. But also I believe the investment that they’ve put into intellectual property is very impressive. I think they first got their intellectual property laws in 1985. They’ve started a lot behind the rest of the world, but they are accelerating very quickly. I heard one of our respondents report that he believes the amount of resources, the amount of money that China is putting into their patent system and their legal system is soon going to match the level that happens in America. So the fact that I know 5 years ago, people complained about the ability to enforce patents in China, but that’s an issue that is quickly disappearing with the investment that they are making.
RQ: That’s very interesting. I would like to also ask you another question with regard to Japan. You had mentioned that 45% of those that were dropping countries in 2010 had dropped Japan. They named multiple different reasons, one being the cost, but another one that they mentioned in the survey was the fact that Japan’s win rate is so low. I was wondering if you have any insight into that.
JS: I don’t have any more than what is in the survey actually. The win rate is clearly the rate at which a patent owner is able to enforce their patent in Japan. I’ve been in the prosecution stage all of my life, not so much in the litigation side, I can only trust our respondents in saying that is one of the reasons. So I do not have more color to add to that I’m afraid.
RQ: Fair enough. Another question I wanted to ask you about was 46% of respondents said that they had brought work steps in house in 2010 and 72% brought work in house in 2009. So obviously that number is going down. What message should this trend send to law firms?
JS: I think that means, as I think I mentioned earlier that a lot of the changes seemed to have happened in 2009. There were still changes to be had, as the statistics you just quoted shows of bringing things in house. I don’t think it is over yet. The message for law firms is that companies and applicants are getting smarter. I think there are still some smarter things for them to do and filing in fewer countries is the knee jerk reaction. But as most people know, when you don’t file a patent into a country, you’ll never get rights there. So it’s sort of a short term cost saver but in the long term, the 20-year patent life is gone. If you do that with a trademark you can file it later and you’ll be fine, but with a patent you can never get those rights.
So I think one of the smarter moves is bringing things in house and I am disappointed hasn’t really taken hold too much yet is using outsourced service providers like Inovia. I think that is coming in the future but the initial reaction of people is that they’re just going to do less of things the things they’ve been doing in the past. They’re doing some smart things whether bringing things in house or doing some negotiations. But as of yet the choice to change the filings to an outsourced provider like Inovia is still coming.
I think the parallel is in the patent annuity world. There are yearly renewal fees that have to be paid to keep patents alive. 20 years ago it was all done thorough law firms but nowadays, 80-90% of it is done through outsourced service providers. So I think the same thing is going to happen in the filing world, where they realize that there are certain parts of the process that must be done by a patent attorney; the drafting has got to be done by them, the prosecution; the really tough brain stuff. But some of the filing in forms and paying fees associated with foreign filing like the European validation stage really could be done by someone else; someone reliable like us as one example but there are other competitors out there who would also be useful to use. I think that law firms need to realize that there are certain things they do well and should always do; the brain work, the challenging work. But there are a lot of administrative things that up until now, they’ve still been charging the same rates as they do for the difficult brainwork and that needs to change. Companies are not putting up with it any more and they are asking questions and things are starting to change. We hope they’ll change more, but companies are getting smarter is the message.
RQ: And for a company like Inovia, overall do you feel that their outsourcing to companies like yours would save them money in the end?
JS: Yes, now our value proposition is that you can do exactly the same filing but it will save you between 20 and 50% on your foreign filing costs. And the foreign filing step is when you are going into multiple countries is actually the most expensive part of the patent process. So it is a significant saving on a real part of the process that does cost a lot. Whether it is us or another outsourced service provider, there are a lot more efficient ways of doing things and I think that companies need to start exploring them rather than just having the knee jerk reaction of just filing in less countries. For example, say a company has to cut their patent filing costs by 30%, yes they could just cut their countries by 30% and keep their filing techniques the same, or they could switch to an outsourced provider like Inovia and reduce their budget by 50% but still file in the same number of countries. I think a lot of companies are cutting back on the countries unnecessarily because they could have turned to people like us. So hopefully they’ll do that next year.