Approximately three weeks ago inovia, the leading foreign filing platform provider, announced the release of its annual report, “The 2012 U.S. Global Patent & IP Trends Indicator.” The report shows that the mood for 2011 was cautiously optimistic compared to previous years, with fewer organizations experiencing budget reductions and a greater percentage of IP tasks going in-house or being outsourced in order to reduce costs and retain control. This year saw less than half of those surveyed working on a reduced IP budget going into 2012, compared to nearly two-thirds of respondents in last year’s survey. However, the bulk of respondents don’t expect to increase the number of patent families filed in 2012, indicating the persistence of a “do-more-with-less” attitude as the economy slowly recovers.
Throughout the month of January, inovia surveyed 150 companies and universities both quantitatively through an online survey and qualitatively with follow-up interviews among a select cross section of respondents. Organizations spanned industries and ranged from small enterprises filing a single patent family to multinational organizations filing more than 100 patent families in 2011. All survey participants are involved in the IP strategy and patent filing activity of their organization, with job functions ranging from patent manager, to general counsel and up to executive leadership positions.
The changes brought by U.S. patent reform, most specifically the move from a first-to-invent to a first-to-file system, were overwhelmingly cited by respondents as the most important topic for the IP industry in 2011. Patent reform will be the driving trend in 2012 as in-house legal departments and universities in particular struggle to adjust to the cultural shift required from first-to-file, which goes against the peer-review nature of the higher education and research community.
After reviewing the latest IP Trends Indicator I reached out to Jeffrey Shieh, who is a Senior Patent Attorney at inovia and responsible for counseling clients in all facets of the international patent process. What follows is my Q&A with him regarding his impressions of the report and what it suggests about international patent practice moving forward.
QUINN: The report shows that 17% of respondents stopped filing in certain countries during 2011, with 24% of those saying they didn’t file in Europe, many of who stated that it is just too expensive to justify filing into the EPO. What makes an EPO filing more expensive and what do you suggest applicants do to minimize costs if they don’t want to simply forgo protection in Europe?
SHIEH: Currently, obtaining a patent in Europe costs about 10 times more than obtaining one in the United States. There are a few reasons for this cost disparity. First, the European Patent Office (EPO) fees, in general, are quite high. Second, patenting in Europe entails the additional step of validation. After an application has been granted by the EPO, the applicant must then decide which individual European countries he/she wants that patent to be enforceable in. This step is called validation. For some countries, validation is automatic. Validation in other countries can be more burdensome, requiring additional official fees or translations, which obviously increases costs. There has been movement in recent years to create a regional European patent covering all or a majority of Europe, but ongoing debate on key details have stalled its commencement.
There are a few ways an applicant can save on patent costs in Europe. If the applicant knows that they only need protection in 1 or 2 countries, it may be more cost effective to file directly into the patent offices of those countries, rather than filing into the EPO. However, they need to keep in mind that certain countries do not allow direct PCT filing and require that the application proceed via the EPO. Additionally, filing into the EPO reserves them the right to validate their patent in any of the 40 EPO member countries. This is an advantage that many applicants are willing to pay for.
Another way an applicant can save on European patent fees is by reducing the number of claims in the application. Like many other jurisdictions, the EPO charges excess claims fees. However, these fees are especially high in Europe, 210 EUR for every claim over 15 and 525 EUR for every claim over 50. If you are able to cancel claims, you can greatly reduce or avoid these excess claims fees.
QUINN: 24% of those who stopped filing in certain countries dropped filing in China, many of whom cited enforcement concerns and a still mixed mood on IP enforcement. Yet in other parts of the report others suggest that they added China because of steps forward on enforcement and overall mood. What do you make of this?
SHIEH: I think the main reason for the mixed opinions on IP in China is that although their IP laws have improved in recent years, they still have work to do before their level of enforcement is comparable to that of the US or Europe. I think applicants are foregoing filing into China because they are unsatisfied with the IP enforcement as it currently stands. But those who indicated that they have added China understand that patent protection lasts for 20 years, and they are predicting that patent enforcement in China will only improve in the future.
QUINN: The study also asked respondents to rank the importance of certain jurisdictions for their 10-year foreign filing strategy and Europe came out on top as most important and China second. How is it possible that respondents seem to have such differing opinions on Europe and China?
SHIEH: This was covered a bit in the replies above, but I think the reason for the differing opinions is that even though both jurisdictions have their disadvantages (cost in Europe, questionable enforcement in China), applicants cannot deny that both Europe and China represent major consumer markets and manufacturing centers.
QUINN: There was a significant drop in the percentage of respondents using the EPO as the International Searching Authority, dropping to 72% of respondents from 89% last year. Do you think this is attributable to fewer people using the EPO due to cost concerns or is there something else at play?
SHIEH: I certainly think costs plays in role in this drop. The fees for using the EPO as your International Searching Authority are noticeably higher than other offices. Another reason for this shift is that there are more options now for offices that can serve as a competent ISA, often with fees lower than those of the EPO.
QUINN: Based on the survey, the number of people who favor a unified European patent system is up to 93%. What is it that is standing in the way of this happening?
SHIEH: It seems like we’ve flirted with a unified European patent several times in recent years. Right now, they’re quite close to creating a regional European patent under the doctrine of enhanced cooperation. This would be a voluntary organization of countries who have agreed to honor and enforce a single patent, thus eliminating the need to validate the patent in any member country. This agreement would be voluntary, so it eliminates the need for approval from every single European country. The major issue blocking this patent now pertains to patent litigation. Specifically, where and how will patent suits be adjudicated.
QUINN: Do you think a unified European patent system will eventually be a reality, or has the situation with Greece tempered any additional European march toward unity?
SHIEH: I think it’s just a matter of time before we see a unified European patent. There’s just too much demand from applicants for a single patent covering all or most of Europe. The current system is cost-prohibitive for many applicants and puts Europe at a competitive disadvantage with the rest of the world.
QUINN: It seems that the trend of bringing work in-house has accelerated again this year. What do you think this means for law firms? Are you seeing increased hiring in corporations to handle the in-sourcing of work?
SHIEH: I believe law firms will need to rethink the roles they play for their clients, and adjust their services in response to the trend of companies bringing work in-house or outsourcing. Every client is pressured to reduce their legal fees, and bringing work in-house or outsourcing lets them do just that without sacrificing the quality of their IP protection. I think we’re seeing a shift from law firms who function as a one-stop shop for all their clients’ needs to firms who can offer services a la carte. Many clients are retaining their outside attorneys to handle the bulk of the substantive examination, but are able to reduce costs by bringing in-house or outsourcing other tasks. However, I also think that attorneys can benefit from this shift. If attorneys outsource their foreign filing work to specialist providers, as applicants are, they can free up their own time for more substantive (and profitable) work.
QUINN: What kind of out-sourcing to non-law firm providers are you seeing internationally?
SHIEH: I imagine that very few law firms, domestically and internationally, personally handle patent maintenance fees or annuities. Most of these payments are now handled by third-party annuity services. We personally are seeing a lot more foreign filing and European validation orders from international companies and firms. The current economic downturn is global, so every applicant around the world is looking to save on legal fees, and outsourcing their foreign filings and validations is a simple and effective way to reduce costs.
QUINN: It seems that many are cautiously optimistic about filings and budgets for 2012. If you had to guess what do you think the survey will show are the major trends next year? Will 2012 be a good year?
SHIEH: Hopefully, we’ll continue to see fewer budget reductions in 2012. We also expect to see more applicants reducing their outside attorneys’ roles by bringing more steps in-house or outsourcing. As you can see in our report, the types and amount of tasks brought in-house or outsourced increased across the board, some rather significantly. We at inovia were very happy to see that the outsourcing of foreign filing increased 300% last year, a trend we hope continues in 2012 and beyond.