Why UK SMEs can’t enforce their patents

 

Recently, John Mitchell of the SME Innovation Alliance sent an open letter to UK politicians responsible for scrutinising the workings of the patent system. The immediate context is growing concern that a proposal for a unitary patent court – part of a wider proposal for a single EU-wide patent – will seriously disadvantage UK SMEs. But its wider context is the way the patent system as a whole disadvantages inventors and innovative SMEs.

In our view the letter is so important that, with permission, we’re publishing it here almost in full. It’s relatively long, so we’ve highlighted key sections in red.

We agree with every word of it, and it’s a good fit with our own Patenting Your Invention: the Ugly Truth. Its message is one that many politicians, civil servants and legal professionals don’t want to hear – which is why it had to be written. And it’s one that needs to be taken on board by every inventor and innovative small business.

Unlike many who pontificate on the patent system (including us), John Mitchell is right at the sharp end of it and writes from first-hand experience. He owns Allvoice Developments Ltd, a world leader in speech and voice recognition technologies and licensing. Allvoice owns five patents, one of which has been the subject of extensive litigation in several jurisdictions.

So make no mistake about it: John Mitchell is a seasoned and respected UK entrepreneur who knows exactly what he is talking about.


AN OPEN LETTER FROM THE SME INNOVATION ALLIANCE 

27 February 2012

To:  House of Commons European Scrutiny Committee, House of Lords EU Sub-Committee E – Justice and Institutions Committee

 

Dear Committee member

Unitary Patent Court – SMEs need serious revision for it to have any value

One of the SMEIA’s member UK companies is planning on burning its UK patent in front of Parliament later this week as, for them, it has no value.

Our membership has vast sympathy for his situation and many will be cheering that someone has finally escalated this to a level that politicians cannot ignore. The owner in this case claims the patent is infringed but there is no way his SME can enforce it because of court barriers. So will the Unitary patent be of any value to an innovative UK SME based upon what we hear? The short answer is a resounding no.


Government officials are unaware of the real problems SMEs face

At the February 2012 meeting of the SME Innovation Alliance, HHJ Birss of the UK Patents County Court and John Alty, Chief Executive of the UKIPO addressed patent holding SMEs. These speakers seemed shocked at the widespread dismay expressed by SMEs through ongoing failings in the patent system.

At present, the patent system encourages corporations to steal EU inventions. There is no UK penalty whatsoever for infringing a patent. Your unitary patent deliberations so far appear to continue this trend. We are only one year on from the UK Hargreaves Report, which was fatally flawed. It did not understand that when the big corporations all reported that ‘the system was working well’, that was an exact statement of the problem.


SMEs account for over 95% of radical innovation

A Japanese Ministry Study (METI) found that out of all the radical inventions created since the second world war, over 95% came out of companies employing less than five people. And 54% of all radical inventions were British. So why does Britain not lead the way today? One crucial reason is an inability for SMEs to enforce their patented inventions. This is not shocking news; the 2000 EU report Enforcing small firms patent rights discovered that, from the large number of respondents, every single valuable EU invention that an SME held had been copied at least once (by in every case at least one US infringer) yet not one EU SME had been able to enforce their patent. There are a number of other empirical studies that detailed similar findings.

The large corporations (less than 5% of radical inventions) pay IP lawyers and patent attorneys vast sums to break patented SME inventions so that they can remove them or take over and control them. That often means burying them as well as slowing down progress as that would otherwise disrupt their established marketplace. That cannot be in the public interest. Yet such corporate representatives are referred to as ‘users’ by your committee, which strikes us as a sad reflection of the loss of focus of the real needs required from a patent system. The system should reward innovation and encourage growth; not encourage unchecked copying by only those with enough financial muscle who use patent courts to prevent an SME from enforcing its patented rights.


Will the proposed unitary patent court benefit SMEs to create growth and jobs?

We have listened to the exchanges that you have so far had with ‘witnesses’, none of whom represent patent holding SMEs, and also to the Minister for Intellectual Property and her UKIPO and BIS advisors who failed to tell you about the problems with courts that SMEs face.

Any granted unitary patent has to be easily enforced. This is not just a wish but actual law. It should adhere with the enforcement provisions within TRIPS (Article 41)* – something the UK currently clearly breaches as enforcement is not possible for almost all SMEs in UK courts. The unitary patent court follows this same path and will therefore not comply with TRIPS. No serious growth can result from such a system in which only corporate patents can be enforced. Remember, these firms are reported to account for less than 5% of innovation.

All the ‘evidence’ provided by legal individuals that you have heard has made a huge assumption which is that patent disputes should be tried in a court. We can imagine that the legal minds amongst you will find any alternative difficult to comprehend but the court proposal cannot deliver growth. This significant and questionable assumption costs billions of loss from the European economy as many SMEs lose the very foundation upon which they were built i.e. patent protection because of the patent court system.

Article 41 1. Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse. 2. Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.


How can infringement be properly considered?

A patent is supposed to be a public disclosure of an invention, including how to implement it. It must be written so that it can be understood by a ‘person of ordinary skill in the art’ (POSITA) so that innovation can be disseminated and more innovation encouraged.

To put that another way, a patent is going to be incomprehensible to someone who is not a POSITA. This latter category includes judges. The concept of establishing infringement in a court of law with decisions made by a judge as to how a patent should be interpreted is fundamentally flawed. Binding decisions on infringement should be made by a panel of appointed experts in the field of technology in question. That would be a major step forwards for a unitary patent and create certainty – uncertainty something you have heard as often being the situation within patent courts. An appeal to a court is necessary to comply with TRIPS (Article 41.4), but such an appeal can be made subject to it being entirely at the cost of the party challenging the ruling – such costs to include that of the party facing the challenge and not just restricted to legal fees. Now is your opportunity to implement that first important change.


How can patent validity be properly considered
?

In order to obtain grant, patents have been examined and approved by technically qualified patent examiners (who represent the authorities’ official POSITA). Opportunities to challenge the validity of any patent are already open during the application process, similar to that available when someone is applying for planning permission to be considered by experienced planning officials.

It comes as a shock to most SMEs to find out that lawyers can attack the decisions of patent examiners – almost always when their client is accused of infringement. Their challenge is made simply to avoid licensing that patent i.e. costing the economy growth and jobs. Even decisions made in previous court cases can be retried, which is plainly absurd and damaging to any innovative business. Having a court using non-POSITAs reconsider patent examiners validity decisions leads to confusion and inconsistent results with many patents being held dubiously invalid. This is precisely what happens in the current UK system, as a patent does not deliver what is sold by the UKIPO to SMEs – that is, ‘protection’ in the form of enforceable rights. Either the patent examination process is accepted or it is not, in which case the EU and many countries could dispense with thousands of patent examiners and replace them with a registrar.

If all of a granted patent is open to challenge, patent examiners are redundant. If their work is unsatisfactory, then address that. Instead, SMEs have to assume responsibility and pay with their business when opponents challenge a granted patent – the cost of a challenge usually being sufficient to sink the SME or, at minimum, its patent.

Most challenges attempt to ascribe different meanings to words in the patent that the patent examiner had to have used eg ‘prior art’, deficient specification. Patent examiners do not appear in court, which seems an obvious failing as it is their decisions that are challenged, thus making this process open to a great deal of abuse. Anything relevant will, of course, have all been examined by the patent examiner in order to allow grant or reject the patent application so such challenges should not be allowed.

Even infringement is usually based upon trying to ascribe different meanings to that in the patent claims.


Courts create costs that are unaffordable for the vast majority of inventors

All these processes rack up enormous costs, and we do not refer here to only legal costs and fees but those borne by the SME itself. It has to pay for its management and staff to travel, stay in accommodation and be diverted away from their business. Studies show that most SMEs with patents are the best source for more innovation so any significant diversion costs the economy dearly.

Indeed, so expensive are these proceedings in the UK that no SME can actually commence a case because of the high barrier of these different costs. The Patents County Court recent change to limiting paying the other side costs to £50,000 was inexplicably linked to limiting the maximum royalties payable to £500,000 irrespective of the value of that infringement. Although these are referred to as ‘damages’ there is no UK penalty whatsoever for infringing a patent, which of course only encourages infringement – ‘damages’ are only unpaid royalties. Bizarrely and quite incorrectly, the PCC change assumed that the value of a patent is linked to the size of the business that owns it. There is absolutely no such link – the value depends only upon the invention and the market-place that it addresses or creates. The PCC £500,000 damages limit of course makes it utterly useless for any unitary patent.

It is admitted that the PCC has the only UK judge experienced in IP. These processes will take yet another twist with a unitary patent through variations of meanings on any translation of the native language should courts be employed – making SME patent enforcement even less possible. Translating the claims of a patent into a different language immediately offers yet more language nuances that lawyers can pounce upon given half a chance. A court process will increase patent invalidity and produce more infringement. None of this either encourages growth or creates jobs – quite the reverse of what you have been told.


Court findings often damage the economy

Worse than that is the patent specification is made public by the state so an ‘invalid’ patent is still free to copy by all and sundry. Given that invalidity often hangs on legal technicalities, subsequent invalidation is damaging to the entire concept of registering a patent in exchange for exclusive rights of sale, manufacture and so on. A bargain is a bargain and should not be open to change once agreed (i.e. patent grant).

Baroness Wilcox suggested in her second session with you that the US system was fast, efficient and inexpensive’. We believe she may have confused the cost of registering a patent (which she has also got wrong) with the cost of court proceedings. A typical US patent court case takes many years and costs many millions of dollars. It is incredibly rare for a European SME to win through the US system with perhaps the case of Håkan Lans the most significant example. He was the European Patent Office’s European Inventor Of The Year in 2007. Yet the US courts found his patent invalid and thus entirely worthless. His disclosed invention is now installed as standard on every aircraft and every ship over 300 tonnes.

We respectfully urge you to stop the nonsense that prevents SMEs from enforcing their patents, particularly a court system that can only worsen that process. We would like you to ask why other, far more accurate and reliable approaches such as technical binding arbitration, are not being considered given this important opportunity. Otherwise our fear is that SMEs will all go elsewhere where innovation is actually supported or perhaps take a lead from the burning patent ceremony. Growth and jobs will remain elusive. It is now in your hands to stop the rot that has damaged European innovation for far too long and do something positive.

 

Yours sincerely

John Mitchell

Chairman – SME Innovation Alliance

cc Maura Geoghegan-Quinn; EU Commissioner, research, innovation and science

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