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Enforcing small firms'
patent rights |
Study team led by: University of Dublin (Ireland)
Neither the European Commission nor any person acting on its behalf is responsible for the use which might be made of the following information. The views in the study are those of the authors and do not necessarily reflect the policies of the European Commission.
- Two-thirds of the sample firms had experienced attempts to copy their patented inventions, but only one in five actually used the courts to defend their patents.
- For 49%, fear of the cost of patent-defence litigation had a 'very big' or a 'significant' impact on their investment in invention.
- The current patent system works poorly for SMEs. Especially in the US, large firms use the resources which they have available for litigation to intimidate SMEs.
- For SMEs, patenting is currently not cost-effective as a means of protecting intellectual property.
- Only in very rare cases are penalties for infringement awarded in practice.
- Compulsory expert arbitration should be investigated as a solution to the excessive costs of patent litigation.
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 or many years there has been concern that patents are under-used by small and medium-sized enterprises (SMEs), which therefore rely disproportionately on secrecy and speed to market, rather than on patents, to protect their inventions. Also, they do not fully exploit patent information as a source of technological and market intelligence.
Efforts to improve SMEs' access to patent protection have focused on reducing the costs of obtaining and maintaining patent grants. But since a patent is no more than 'a licence to litigate,' the real issue is the cost of enforcing the rights it purports to grant, which can be far too high for SMEs in terms of both time and money. Anecdotal evidence has suggested that even those SMEs which owned patent rights were often failing to defend them. Two causes of this failure were assumed to be the difficulty of monitoring whether infringement was taking place, and fear of the cost of litigation to assert patent rights if it was.
Enforcing small firms' patent rights sets out to measure empirically SMEs' ability to monitor infringement of their patents, and their experiences of litigation. Its conclusions are based on questionnaires completed by over 600 SMEs, drawn from every EU Member State, which had obtained a European or United States patent between 1994 and 1997, and on interviews with the majority of these respondents.
 Survey findings
- Almost every firm had made and tested a prototype of at least one of its patented inventions. In 63% of cases, the product was subsequently manufactured and put on the market by the firm itself, in 22% by the firm and one or more licencees, and in 6% through licensing alone.
- Sixty-seven per cent of the firms reported that there had been attempts to copy their patented inventions, but only 24% had experienced difficulty in learning about this.
- In 26% of cases of infringement, the copying was done by firms larger than the patent holder, and in 34% by a company of approximately the same size as itself - 11% reported that their invention had been copied by firms in both size categories.
- The financial impact of infringement was considered to be 'unimportant' or 'bearable' by 46% of the firms, but for 21% it was 'very serious'.
- Only one in five SME patent holders actually used the courts to defend their patents - 15% began legal proceedings but abandoned them, presumably without any concession from the infringer, 23% got a settlement of their case before it reached the court, 21% went as far as trial and half of these (11%) to appeal. Technical arbitration was used to settle the dispute in only 9% of cases.
- Fourteen per cent of the responding firms had taken out insurance against the cost of patent litigation, but only 2% had made a successful claim. Over half doubted whether such insurance would deter potential infringers, and only 5% were sure that it would.
- In 40% of cases, fear of the cost of patent-defence litigation had no impact on investment in invention. However, for 13% the impact was 'very big', and for 36% it was 'significant'.
Conclusions
The study amply confirms fears that the current patent system works poorly for SMEs. It provides strong evidence that large firms use the resources which they have available for litigation to intimidate SMEs. This pattern is most pronounced in the United States, where it is reinforced by the built-in bias against foreign and other non-local patentees of the District Court jury system for patent cases - and amounts to serious protectionism against non-US high-tech firms, even if this is inadvertent on the part of the authorities.
Although a few firms do obtain some compensation from infringers, in general it appears that for SMEs patenting is currently not a cost-effective means of protecting intellectual property. Infringers are unlikely to be deterred by efforts to highlight the penalties for infringement, since it is only in very rare cases that such penalties are awarded in practice. On the other hand, however, publicity of this kind would be an important element of co-operative protection arrangements proposed on the basis of the study's research.
The EU's 1999 ETAN (1) expert report on Strategic Dimensions of Intellectual Property Rights recommended that compulsory expert arbitration should be investigated as a solution to the excessive costs of patent litigation. More recently, a Working Group of the European Patent Organisation recommended that EU governments should follow the US lead and introduce legislation to make the arbitration of patent disputes easier.
The study presents empirical evidence supporting these recommendations. Secondly, until the necessary legislation is in place, it recommends the establishment of an EU-wide voluntary grouping of SME patentees - a so-called 'Patent Defence Union' (PDU) - to defend their patents. Members of the PDU would agree to technical arbitration of any dispute with another member, which the data collected by the study suggests could deal with around a third of all cases. Of the firms approached, 52% said that they would join the proposed monitoring organisation if it existed now, and an additional 9% said that they might.
The PDU would not be an insurance scheme, since it would offer no guarantee to any individual patentee that his litigation costs would be met. But it would fight as many cases as its resources allowed, with the aim of ending the intimidation which makes so many SMEs' patents effectively worthless.
The study suggests that to achieve viability the PDU would need a subscription base of approximately €1 million per year, paid in respect of 10% of the 18,000 SME patents requiring protection. To launch the PDU, one-off funding could most appropriately be provided by diverting a tiny part of the annual subsidy of €170 million currently received by the National Patent Offices from renewal fees on European patents. Some of this subsidy is already used to promote the use of patents by smaller firms. However, diverting less than 1% of the National Patent Offices' subsidy to the PDU, enabling it to operate at its break-even level from the start, would do much to strengthen the ability of these smaller firms to enforce the patents which they obtain.
The Patent Defence Union might be governed by a Council composed of representatives of the many groupings which promote the interests of smaller businesses and inventors throughout the Member States. The strongest candidate for its location is Denmark, since the authorities in that country have for many years been most active in pursuing the cause of the defence of SME patents.
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