Patently obvious idea close to fruition

EARLIER THIS MONTH, MEPs meeting in Strasbourg postponed a long-awaited vote on the introduction of a new common patent for the EU. The move came just a few days after the European Commission had reached a deal on a common patent at last month’s EU summit in Brussels, described as a “truly historic agreement” by European Council president Herman Von Rompuy.

The decision by the European Parliament to postpone the vote – taken because it was unhappy with last-minute changes made

to the previously-agreed legislation in Brussels – has threatened to further delay a proposal that many believe is vital to boost European companies’ competitive and innovative edge.

The idea of a common EU patent has been under discussion for close to 40 years. Currently, businesses and individuals who wish to protect their intellectual property have to validate a patent in each EU member state. While they apply for patent protection centrally, through the European Patent Office in Munich, once granted, the patent must be validated in each state, a process that can involve significant costs due to translation and local validation fees.

The main advantage of a unified common patent it that it could significantly reduce costs and administrative burdens on businesses, both in terms of validating and enforcing patents. According to the European Commission, European patents can cost 10 times more than patents registered in the US. Once the proposed system is up and running, the commission estimates that EU patents would cost about €680 compared to an average of €1,850 for an American patent, giving a boost to the EU’s competitiveness as well as that of individual businesses.

While few take issue with the claims made about the advantages of a common patent, there are concerns from some in the industry about the detail of the proposed deal. Britain, in particular, was one of the driving forces behind the last-minute change to the deal in Brussels, and lobbied for the deletion of three articles which would have given a central role to the Central Court of the European Union.

Vicki Salmon, a patent attorney with UK firm IP Asset, says that while a common EU patent should be a “no-brainer”, there are questions about some of the details of the proposal.

“One of the main issues is that Spain and Italy have opted out of the deal and the European Patent Office already has a further 11 member states, such as Norway and Switzerland, which are not in the EU, so there will continue to be fragmentation in Europe,” she says.

There is also a question about validation costs. “The costs of validating a unitary patent may be more than the costs which a business currently pays for validation in selected European countries, so for some businesses, gaining the protection in extra states may

not be worth the extra cost. It is also uncertain how much renewal costs, which are paid each year of the patent’s life, will be.”

While the details of the new common patent look likely to continue to be played out through the European political system at least until the end of the year, the debate has thrown the whole issue of intellectual property protection into the spotlight.

As the ongoing international legal tussles between Apple and Samsung over intellectual property infringement show, patent protection is serious business.

This month, a UK court ruled that Samsung’s “slide to lock” mechanism on its smartphone did not infringe Apple’s patent. It came just days after Apple won an injunction against Samsung, preventing it from importing its Galaxy Tab 10.1 tablets and Galaxy Nexus smartphones into the US.

While the disputes shows the crucial role played by intellectual property in the world of innovation-driven technology, it is also evidence of the complex interplay between different national systems that characterise the world of patent protection.

Protecting intellectual property has obvious benefits technology-based industries, acting as a key protective mechanism for businesses which want to move forward through innovation. Similarly, conferring exclusive rights for the production and sale of patented drugs, and gaining protection from “copycat” products, has long been a cornerstone of the pharmaceutical industry.

But what are the advantages for smaller, less-established companies?

“The two main advantages of registering a patent is protection from competitors and the generation of licensing income,” says Brian Gormley, senior associate at Philip Lee solicitors.

“Where a company creates a process or device which meets the patent criteria, registering a patent can deter rivals from copying that process or device for fear of litigation. In addition, significant fee income can be generated by licensing the patented invention to rivals and other third parties.”

Christina Gates, managing partner at specialist intellectual property law firm, Tomkins, says that while Irish companies have traditionally not been as IP savvy as those in other countries, there has been a notable increase in the number of smaller businesses applying for patents over the past 10 years.

“Since the recession has hit, there have been two general trends. On the one hand, some companies have seen their IP budget come under pressure. On the other hand, many companies believe that their intellectual property will allow them build a successful, export-focused company,” she says.

So what constitutes a patentable invention? “A patent is defined as an invention which is capable of industrial application, is new and involves an ‘inventive step’, ie is not obvious to a person skilled in the relevant industry,” explains Gormley. “Once a patent is granted, the holder has the right to stop anyone from making or using the invention for a limited period, usually 20 years.”

Crucially, to qualify for a patent, the applicant needs to be able to prove that the invention had not been disclosed publicly anywhere in the world before the application is made.

This issue of “previous knowledge” was one of the key points of dispute in a well-known patent case involving an Irish company. Galway resident Michael Burke, who had been manufacturing and selling Stira folding stairs since 1982, initiated legal proceedings in the UK courts in 2006, after he discovered that a rival UK manufacturer had been making versions of his product.

Though Stira won out in 2009, a substantial part of the case focused on the issue of prior disclosure. During the case it emerged that in 1996, before Stira was granted its patent, an article and accompanying photograph on the product had appeared in The Irish Times.

The defendant argued that because a Stira stairs was visible in the photo, the design was in the public domain. Ultimately, the judge ruled in favour of Burke’s company, rejecting the defendant’s claim that the photograph re presented “prior disclosure”.

Of course, not all companies see patents as the best option for protecting their inventions. Coca-Cola famously decided not to patent the formula for its eponymous product. Instead, it is what is known as a “black box” invention – in other words, a closely-guarded secret.

The main argument against filing for patent protection is that the specific invention must be disclosed when applying for the patent, which makes it easier for rivals to replicate it. The counter-argument is that, once a product is on the shelves, it is easy for rivals to copy the invention anyway, so it makes sense to protect against rival products through use of a patent.

Over all, there is virtually unanimous support in principle for the common EU patent, which is expected to be in place by 2014 despite its laborious passage through the EU system.

Legal and tax practitioners in Ireland also believe that the new system will enhance the country’s position as an attractive location for companies to house and trade their patents and other intellectual property.

Cormac Doyle, head of tax at MKO Partners, explains: “Where it can be demonstrated that the patent is being actively managed and traded by an Irish company, for example through a licence arrangement, the profits generated from this trading activity will be subject to the standard corporation tax charge of 12.5 per cent.”

In addition, it may be possible to claim capital allowances relating to the cost of developing or acquiring the patent, which can reduce the effective tax rate on trading profits to 2.5 per cent, he says.

Already, companies such as Lucent Technologies and US construction firm James Hardie have established their intellectual property assets in Ireland.

“When the new European patent is in force, these tax advantages, together with the existing RD tax credits, and the favourable taxation treatments for inbound royalty and licence fees offered by Ireland’s double tax treaties, will make Ireland an even more favourable location for exploitation of patents and intellectual property.”

Once a patent is granted, the holder has the right to stop anyone from making or using the invention for a limited period, usually 20 years