Protecting patents across the pond long has been a thorny issue for companies.
The top complaint: Lack of a unified patent system for European Union countries.
Many Orange County companies depend on Europe for a big chunk of their sales, yet most would agree that the patent process there is costly, slow and cumbersome.
Even Bill Gates has taken up the cause.
Back in November, the Microsoft Corp. cofounder met with officials in Brussels to vet a unified patent system called the European Community Patent. Such a system already exists in North America and Japan and would make it easy to do business in Europe, he argued.
Some strides have been made in Europe. As it stands, the patent application process is centralized somewhat. Trouble is, enforcement isn’t.
The Patent Cooper-ation Treaty, a global pact struck in 1970, allows U.S. companies to apply for a patent review in Europe and elsewhere via a single “international” application.
But protection must be obtained in each country separately,at a high price.
There are individual country application fees, translation fees and maintenance fees to keep patents active.
Companies also have to pay lawyers to wade through the laws and regulations of governments from Britain to Italy.
Companies have little choice. Europe combined usually is the second largest source of sales after North America for local companies doing business abroad.
The county’s software developers, chipmakers, apparel companies and medical device makers are big in Europe.
Irvine heart valve maker Edwards Lifesciences Corp., for one, gets about 45% of its $1 billion in yearly sales from Europe.
The reasons for getting patents in Europe aren’t much different than here.
“The purpose of the patent laws is to invigorate innovation by protecting someone from competitors,” said Stephen Jensen, a partner at Irvine-based Knobbe Martens Olson & Bear LLP, which specializes in patents.
Companies also build up patents for defensive reasons, particularly if they feel they might get sued by another company, Jensen said.
“It’s basically a counterstrike strategy,” he said. “It can be useful in dissuading people from coming after you.”
There are some subtle benefits to securing patent protection in Europe, aside from the obvious.
European patents are viewed as being of better quality than U.S. ones, Jensen said.
“That’s the perception. The European-issued patents are scrutinized more, so when you do get one, it’s better,” he said.
There’s also less litigation.
Lawyers say it’s unlikely European patents will come to be enforced through lawsuits.
“Most of these countries don’t have the same litigation procedures that we use,” said Joseph Price, an attorney who specializes in intellectual property and science and technology law at Snell & Wilmer LLP in Costa Mesa. “They are not as prone to litigation as in the U.S.”
In many European countries, patent enforcement is carried out by government agencies, not the courts.
“Some things that can be a nightmare here also can be really good for your business in Europe,” said Russell Hill, a partner in the intellectual property group of Howrey LLP in Irvine. “In many of the countries, you don’t ever see a jury. Enforcement can come down to a single agency decision.”
The cost of obtaining a European patent can be “dramatically higher” than in the U.S., Knobbe’s Jensen said, often more than double.
Expect to pay $50,000 to $100,000 over the life of a single patent in Europe, depending on the type of technology and where it’s protected.
There are fees for translations, the application and maintenance.
It starts getting complicated from there.
Most governments require patent documents be submitted in French, Spanish and German, though some will accept English.
The going rate for translating is about $100 a page,and these aren’t short documents, Jensen said.
All this adds up to a lot of money for small to midsize companies.
“That’s probably the biggest hindrance for entrepreneurial companies to move their products into Europe,it’s the price tag,” Jensen said.
Not to mention the time factor. The process moves at a snail’s pace compared to the U.S., according to lawyers.
If all goes well and the patent application isn’t rejected, it can take a minimum of about two years to secure protection.
For medical device makers, the slowness of the patent system actually can keep their products from being sold in Europe years after they’ve been out in America.
“European laws are still evolving with respect to the nature of what can be protected,” Jensen said. “Technology is often ahead of the law.”
If companies do end up suing over patents, it can prove especially difficult.
They have to hire local lawyers who understand the quirks of a particular country’s legal system. Communications between both sides often must be translated.
“There’s sort of that initial barrier,” said Howrey’s Hill. “If your regular counsel doesn’t have an office over there, you have to go looking for referrals. It can be very difficult to make the connection with people you trust.”
He told of a trademark case in Germany.
“It was very hard for a midsize company to find a lawyer over there,” he said. “There was a lot of trust you had to put in over the phone.”
Big companies often have teams of lawyers at the ready, both here and abroad. They usually can spread out their patent-related costs over a number of quarters and stagger patent applications, said Gary Hampson, acting intellectual property counsel for Fullerton-based Beckman Coulter Inc., a maker of medical testing equipment and supplies.
“Most ongoing companies will probably look at their patent protection on a constantly evolving and ongoing basis,” Hampson said.
Smaller Companies
Smaller companies and startups tend to overcompensate and want protection all over the place, Snell & Wilmer’s Price said.
“I’m usually telling them that they should be looking at where the sales are justified,” he said.
Big companies tend to use the counterstrike strategy. But it doesn’t always work.
“I’ve seen other people’s clients that go out and get as many patents as they can, but in the end it’s always too expensive and inefficient,” said Howrey’s Hill.
Companies should look at their budgets to see exactly how much they can afford to pay over the life of a patent, he said.
“I think they have to make some hard choices,” Hill said.
Part of the process should be analyzing what Hill calls the “white space,” or looking at all the patents of a particular technology and determining what’s left out. The same goes for competitors’ patent portfolios, Hill said.
Knobbe’s Jensen said he tells his clients to maximize the physical area of protection for their patents. He suggests companies map out where their competitors,and potential competitors,are and where their markets will be.
A large company typically spends 10% to 15% of its annual research and development budget on patents. Startups will spend half or more of their budgets on securing patents, Jensen said.
“Particularly in Orange County, we are a very high tech area, so protection of that technology is as important as any asset that a company has,” Jensen said.
The advice of Snell & Wilmer’s Price: “Don’t romanticize the patent.”
“It’s another tool in your business plan,” he said. “People aren’t going to buy because there is a patent or trademark on it. Try and protect the maximum that you can at a reasonable cost.”
Do lawyers think Gates’ bidding for a unified EU patent system will work?
“I think that’s a lofty dream,” Beckman Coulter’s Hampson said.
Nationalism may prove to be too big a roadblock, he said.
“It’s going to be difficult for most countries to give up their sovereignty when it comes to the nature of patent protection granted by the country and how that protection is administered,” Hampson said.
Last October, the European Parliament passed a resolution criticizing the existing system. But it didn’t make any recommendations.
The European Union still is debating the Community Patent idea, as it has since the 1970s.
“We’ve made movements in that area, but there are still nationalistic tendencies in every country,” Hampson said. “We are always going to have our differences.”
