02 September 2005

Patents: Why are there no British Names in the Patent Office's Top Ten?

Yesterday, IPKat helpfully quoted from the Patent Office's Facts and Figures 2005 - 2005. This is a pdf document of 62 pages and well worth reading. The Patents Granted 2003 - 2004 (Top 10) appears on page 26. Only two of the top 10 patentees for 2004 was European, Schlumberger and Ericsson are European. You have to turn the page for the top 50 patentees for the top British name. That appears to be Rolls Royce at number 19.

What is the Position in Europe?
The European Patent Office's Annual Report for 2004 lists at Tab 7.1 European patent applications by country of origin. The figures for the top 10 countries are as follows:

USA 32,625
Germany 23,044
Japan 20,584
France 8,079
Netherlands 6,974
UK 4,791
Switzerland 4,663

In the number of European patents granted at Tab 7.4 we do rather better: we achieved 2,500 grants in 2004 which was ahead of the Netherlands' 1,695 (though only a nose ahead of Switzerland at 2,111) but we were well behind France with 4,366 let alone Japan with 10,441, Germany's 13,621 or the USA's whopping 14,202.

Does it Matter?
Now before the Ministry of Truth and its toadies put their oars in, I am fully aware that there is all the difference in the world between
  • a patent application and a patent grant,
  • a granted patent and a valid grant, and
  • even between a valid patent and one that makes money.

I am also aware that

  • we are living in a global economy,
  • many of the American, Japanese, German, French, Dutch, Swedish, Swiss, Korean, Chinese, Indian and, no doubt, Liechtenstein and Monegasque companies have research establishments in the UK or employ UK scientists and technologists;
  • patents protect products and processes (that is to say manufacturing) whereas we generate a lot of our wealth from financial services and tourism;
  • we are still supposed to be the fourth largest economy in the world and that we have a much lower rate of unemployment than Germany or France.

And yet.
HMG seems to think our lacklustre performance in patenting matters. At paragraph 2.8 of the joint strategy paper of HM Treasury and the DTI "Productivity in the UK: Enterprise and the Productivity Challenge" published in June 2001 the government acknowledged what to most people is an obvious link between patent protection, investment in R & D and innovation. Elsewhere in the report it also acknowledged that in terms of innovation and productivity we are falling well behind France and Germany let alone the USA. The DTI spelt it out even more starkly in its "Innovation Report - Competing in the Global Economy: The Global Challenge" published on 17 December 2003. Like the Productivity Report, the authors chose investment in R & D and applications for patents as key indicators of economic performance and noted that we are not doing very well on either front.

Why are we doing so badly?
The authors of the Innovation Report noted at paragraph 4.17 that the UK has a strong system of IP rights, "but most UK businesses, including large firms, do not place a great deal of emphasis on
formal methods of IP protection." It speculated in the next paragraph that "UK businesses, especially SMEs, may not have a grasp of the fundamentals in order to make informed decisions about which options to choose relative to their competitors." Accordingly, one of the recommendations was an awareness campaign with such initiatives as The Key-Biz, THINK KIT (R) and all the other worthy things that the Patent Office's marketing team is doing.

People don't patent in the UK because Enforcement is prohibitive
Contrary to the authors of the Innovation Report, I think that UK businesses, particularly SME, know the fundamentals of intellectual property protection only too well. One of the reasons why nearly all the companies in the Patent Office's Top 10 are large foreign multinationals is that they are about the only ones who can afford to go to court to enforce a patent. In her article "Insure or Unsure?", the admirable Mandy Haberman (lady inventor of the year and member of IPAC) set out some stark figures of the costs of a patent action in London compared to our main competitors:

France £20,948 - £32,247
Netherlands £6,489 - £13,699
(summary proceedings)
£27,397 (simple action)
Germany £17,123 - £34,247 (scale fees depending on value of claim)
UK £1,000,000 (Patents Court)
£150,000 - £250,000 (Central London County Court, Patents Court)
USA £1,009,000 - £2,0180,000

A Word on the USA
I have to say in fairness that I have it in the back of my mind that Mr Philip Mann of the Mann Law Group mentioned a lower figure (under £1 million at the rate of £1 = US$1.83 which is the rate I used above) though I can't find the reference now. In comparing the US and UK figures, it has to be remembered that it is the exception rather than the rule in the USA for attorneys' fees to follow the event whereas it is almost automatic here. Some US lawyers (including Mr Mann) will consider accepting instructions on a contingent fee. Finally, there are all sorts of procedures, like Markman hearings, for saving costs. Nevertheless, it is interesting that the costs of litigation in the two largest common legal law systems should be so close and so much higher than the costs in the civil law systems.

Other Views on the Problem
I am not, of course, the first person to note that litigation under the adversarial system is much more expensive than in the Continent. That point was made by IPAC, the government's own advisory committee on intellectual property, in its report on enforcement. Nor am I the first to say that the cost of enforcement discourages investment in innovation because of the absence of adequate patent protection. Mandy and Roland Hill said that eloquently in "Patent Enforcement for SME and Lone Inventors - A System Failure". Their views are backed up by some good research by a young lass called Eve Wright who now works for Roland in her excellent LLM thesis "Patent Enforcement a Legal Right or Luxury?"

Why is it now a Problem?
We have had the adversarial system in England for hundreds of years. Why is it a problem now? Equally, they have a similar system in the USA and I have yet to read anything like the critcisms that I see from Mandy, Roland and Eve.

So far as the USA is concerned I think the answer lies in the availability of contingency fees and the very much smaller risk of having to pay the other side's costs.

As for why it has become a problem here, I think part of the answer lies in the fact that paragraph 1 (h) of Schedule 2 of the Access to Justice Act 1998 abolished legal aid for "matters arising out of a carrying on of a business." I have just had a look through my old Word files for pleadings and opinions prior to April 2000 when this Act came into force and I find that a very high proportion of them were funded by legal aid. The reason for that was that by the time an inventor, businessman or businesswoman had re-mortgaged his or her house and life policies, sold all his or her shares and worked in his or her business for years without much return, it was more often the case than not that he or she qualified for legal aid.

What is left for Patentees in this County?
The legal aid system had its own anomalies and unfairness (most particularly the very small risk to the assisted person) but it did allow a lot of people access to justice which the Access to Justice Act 1999 has denied. Conditional fee agreements are no answer because claimants must still insure against the other side's costs and the insurance market in this country is still developing. From a lawyer's point of view CFA are appalling. It may take years to be paid even when we win. There is a risk that we may not win. And if an insurer has to pay costs guess who will be in its sites when it comes to seeking recovery.

The government commissioned a scoping survey for a Patent Enforcement Project proposed in the Innovation Report but nothing seems to be happening on that score. The new Patents Act 2004 does provide for advisory opinions oninfringementd infirngement and there are consultations on the rules for those opinions. Unfortunately, that does not get round the problem that a large company may take no notice of a small patentee whatever the Patent Office says because it knows that the patentee will never be able to sue it in this country. There is an insurance market (which I will discuss later) but there are only a handful of companies in that market. The Patents Court has introduced the streamlined procedure but as was the case in Merck & Co. Inc v Generics (UK) Ltd. [2003] EWHC 2842 (Pat) (27 November 2003) litigants won't always use it. A lot of work has been done by the Swiss Patent Office on the European Patent Litigation Agreement and by the EC Commission on the Community Patent Court but these seem to have hit the buffers.

So what do we tell Clients?
If a client has a European patent that designates the Netherlands as well as the UK perhaps we should advise him to consider litigation in the Netherlands. Perhaps we also ought to consider Sulliman in La Reunion, which is part of France for some purposes, because the client would at least get a good holiday. If a client has a corresponding US patent perhaps we should send him to Mr Mann or one of his brethren to sue in the USA. Any suggestions?

Relevant Links
Patent Office Facts and Figures 2004 - 2005
European Patent Office's Annual Report 2004, European Patent Applications by Country of Origin

European Patent Office's Annual Report 2004, European Patents Granted
HM Treasury and DTI "Productivity in the UK: Enterprise and Productivity Challenge" June 2001
DTI "Innovation Report - Competing in the Global Economy: The Global Challenge 17 Dec 2003 (Chapter 1)
(Chapter 4)
Mandy Haberman "Insure or Unsure?" 15 Nov 2004
"The Enforcement of Patent Rights" IPAC Nov 2003
Mandy Haberman and Roland Hill "Patent Enforcement for SME and Lone Inventors - A System Failure" Oct 2003
Eve Wright "Patent Enforcement a Legal Right or Luxury"

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