Unitary patent fees: the user-friendly option

The European Patent Office (EPO) announced on June 24 that delegates from participating EU member states had reached an agreement on the annual fees for renewing the forthcoming unitary patent. Delegates were faced in the end by two options on renewal fees and decided to take the so-called True Top 4 solution, with lower fees for users, a decision designed to encourage use of the unitary patent.

The European patent reform package is the result of a legislative process which commenced in 2000. It consists of two EU regulations which introduce a new type of patent for Europe—the European patent with unitary effect (widely referred to as the unitary patent)—and an international treaty which will create a new Unified Patent Court (UPC). The unitary patent will stand alongside the classical European patent, with the EPO responsible for the examination and granting of both unitary and European patents. National patents, granted by national patent offices, will also continue to be available to users.

Disputes on unitary patents will be adjudicated by the new UPC, while disputes over national patents and those European patents for which an ‘opt-out’ is registered will remain within the jurisdiction of national courts. Disputes over European patents with no opt-out will be heard before the UPC.

Under the current system owners of European patents can pick and choose the countries in which to validate them. In order to save money patent owners often ‘prune’ their patents, ie, reduce the number of states where the patent remains valid, by ceasing to renew it in selected countries. Typically a European patent is valid in five or fewer countries, as for many patent owners this represents the correct balance between market coverage and cost.

A major difference between the existing system and the unitary patent is that under the latter, being a European unitary instrument, such selective non-renewal will not be possible—you renew for all states or for none.

The regulation also foresees a translation compensation scheme (to be financed from unitary patent fees) to compensate for translation costs (up to a ceiling) those applicants filing in an EU language other than English, French or German.

When designing the unitary patent, member states were aware that it would not be used by the patent applicants if the price tag did not compete with an existing European patent. Put simply, patent owners would see little benefit of a unitary patent covering potentially all EU states if the protection provided by a European patent cut down to a few important markets was deemed to be adequate and much cheaper.

In fixing renewal fees for the unitary patent a lot was at stake: legislators and EPO delegations have been acutely conscious for many years that the success of the whole reform package, with its long gestation period of 15 years (so far), depended on, inter alia, the level of renewal fees. A high price tag for users would make the unitary patent uncompetitive with the European patent and could turn it into a white elephant. A low penetration rate for the unitary patent would in turn affect the number of litigation cases before the new court, the UPC.

However, the select committee could not simply choose a level of renewal fees designed to undercut the European patent. It had also to take into account that the EPO’s administration costs for the unitary patent would have to be financed from its fees.

So the committee was faced by two starkly conflicting factors: it had to find a level which would be low enough to ensure that large numbers of users opt for the unitary patent, but high enough to ensure that it finances itself. While patent applicants and owners obviously preferred low renewal fees, the EPO and national delegates were concerned that the EPO’s administration costs had to be covered.

Balancing these interests was by no means an easy task given that the equation contained many unknown variables: not only is the uptake of the unitary patent unpredictable, but also the number of years owners will renew a granted patent is unknown. Cost projections are further complicated by the translation compensation scheme.

In addition, constraints designed by the EU institutions to ensure access to patent justice would allow significant cost reductions to certain entities such as small and medium-sized enterprises (SMEs). Again, this feature had no historical precedent, so the proportion of applicants likely to benefit from such a reduction, and the consequent impact on the forecasted figures, is difficult to predict.

Although users want as low a renewal fee as possible, the opposing viewpoint seeks not only to ensure that the EPO’s costs are covered, but also that the ‘distribution key’ adequately covers national needs. The distribution key is the mechanism by which 50% of the renewal fees are shared out to national intellectual property institutions. In many cases the receipts from renewal fees of European patents form a significant part of the national patent office’s income. The concern of some IP offices was, on the one hand, to obtain a fair national share, and on the other hand, to make sure the total redistributed receipts were big enough to support sufficient individual national shares.

Potential cost structures

In March and May of this year the EPO provided projected figures corresponding to various unitary patent cost scenarios for discussion by the select committee.

The EPO’s financial simulations attempted to provide a model which brought together the elements mentioned above.

The first model focused on two scenarios (‘Top 4’ and ‘Top 5’) in which renewal fees approximately corresponded to European patent renewal fees for the four and five most validated states, respectively.

The EPO suggested that fees in the first five years should cover the costs incurred by the EPO during that period, ie, before grant of the patent or decision to seek unitary protection. However, delegates to the select committee considered these cost scenarios to be front-loaded, which would not be attractive to users.

“The difference in costs between supporting a unitary patent or a family of national patents could be substantial, especially if applied to a whole portfolio of patent families.”

Adjusted figures (True Top 4 and ‘True Top 5’) were drawn up and discussed at the May meeting of the select committee. In comparison to the March data the May simulations were based on lower initial costs and enhanced unitary patent penetration rates