Is Your European Patent Strategy Still On Course? Recent Law Changes And Parliamentary Action Suggest New Approaches

Sunday, February 1, 2004 - 01:00

Those of us who entered the patent field when intellectual property law was viewed as an obscure legal backwater might have been somewhat amused by the recent spirited debate about software patent protection in the European Parliament, but for the alarming amendments to the text of the software Directive proposed by the European Commission. At a hearing on a proposed Directive dealing with software protection, open source activists, who have been massing and organizing for several years now, successfully tested their political mettle against competing industry interests, completely rewriting the text proposed by the Commission.

The occasion was an attempt by industry specialists to increase the degree of harmonization in the treatment of European patents for software-related inventions. Currently, relatively strong patent protection for software is effectively obtainable under the law of the European Patent Office, as well as under the laws of Germany, Great Britain, France and Finland. While the available patent protection is somewhat less than in the United States (where, unlike Europe, novel business methods may be patentable in and of themselves), these jurisdictions do, at least implicitly, recognize the patentability of unobvious implementations of both known and novel business models.

The recent Directive amounted to an imposition of the European Patent Office definition of patentable subject matter, which, as noted above, includes software-related inventions, on all EU members. In what, somewhat embarrassingly for the Parliament, turned into yet another runaway debate before that body, the attempt at harmonization failed, or, more precisely, backfired. Open source lobbyists not only prevented the harmonization sought by industry specialists, they engineered amendments to the text of the proposed directive that have the objective of completely removing any possibility of software protection in the future. If put into force, the amendments would clearly prohibit the patenting of software recorded on a disk, as well as provide that algorithms can never be patentable, even if they control and implement manufacturing processes.1 Indeed, additional restrictive language, apparently aimed at preventing software patent control over certain hardware sales, is so broad that it disallows patent coverage for any invention which relates to communications between computers or networks. If the directive passed by the Parliament were to be implemented by the Commission, and its application made retroactive, it would invalidate numerous issued software patents and perhaps many patents for equipment in the communications field. Thus, the text adopted by Parliament goes well beyond the rejection of algorithms on account of their failure to involve a so-called "technical" feature.2

For the moment, however, the status quo in software protection holds in Europe as open source activists are locked in a stalemate with the European Commission, making withdrawal of the controversial software harmonization Directive by the European Commission (which the Commission has the absolute power to do) the most likely scenario.

Nevertheless, the action comes as a wakeup call to those who might believe that the volatility of the European Parliament is unlikely to affect the patent law. At this point, it is clear that if the Parliament has its way in even a small sense, numerous issued European patents may be at risk when the time comes to enforce them before the various EU member state tribunals.

Clearly, it is time to reevaluate the almost complete migration from individual filings in the national patent offices to single filings in the European Patent Office. The vulnerability of patents issued by the European Patent Office, particularly in the software area, may cause many a counsel sleepless nights wondering whether principal patents should not have been filed individually in the national patent offices. Such doubts will, no doubt, be fed by the knowledge that the largest national jurisdictions have already evidenced a willingness to provide a reasonable degree of patent protection on software.

Consider the recent Accord reached by the Competitiveness Council of Ministers in Brussels on the implementation of a Community Patent for the European Union. While industry received much of what it was seeking, such as a single patent obtainable at relatively modest cost, and enforceable throughout the EU in a single proceeding before a European court, the Accord was peppered with numerous potentially troublesome features. For example, proceedings must be held in the language of the defendant. The cost of obtaining and maintaining a patent is still estimated at a steep 23,000 Euros in government fees (compared to 10,000 Euros in United States and 28,000 Euros in the case of a typical European Patent). Plaintiffs with relatively strong causes of action may also be concerned by the Accord's provision for a specialized patent court with judges who do not have technical training. There is also some concern that the criminal penalties applicable to patent infringement in some jurisdictions may not apply to Community Patents. One of the primary problems that the Community Court may face is understaffing. The Accord provides for only seven judges, sitting in panels of three. It is difficult to imagine that such a small group can decide more than 40 or 50 complex cases each year.

On the plus side, Community patent applications will be examined by the European Patent Office, where they will be treated identically to patent filings under the European Patent Convention. Perhaps also a plus is the fact that a single legal proceeding will have effect throughout the EU. However, particularly in a case where the outcome is difficult to predict with a relatively high degree of certainty, having multiple patents in multiple jurisdictions may improve the average predictability of results. While such an approach drives up both patent prosecution and enforcement costs, it may be justified in the case of inventions having relatively high value.

Are National Filings A Viable Alternative?

In connection with this last issue, it is noted that the prior rule with European patents, that an adjudication by one national court does not have legal effect in other jurisdictions, is about to change. Thus, today, the only way to assure more than one bite at the apple is to file individual national patent applications in the various national patent offices, at an expense much greater than that of a regional filing. Of course, costs for national filing may be reduced by using the Patent Cooperation Treaty.

Also in the realm of things that might go wrong and have effect throughout the Union, the Community Patent Accord provides for compulsory licensing in the event of misuse of the patent monopoly or failure to practice the invention. It is uncertain whether the power to "authorize the exploitation of a Community Patent" where it is necessary to remedy an anti-competitive practice may be extended generally to the public throughout the EU. More serious may be the apparent authority of compulsory licensees (for whatever reason, nonuse or anticompetitive practices) to file suit against infringers, thus denying the patentee the right to select the person against whom and the time at which he wishes to test his patent. This would appear to violate Article 31(a) of the TRIPS Agreement.3

Potential Impact Outside The Software Industry

But the lesson should get consideration outside the software area. For example, are environmental-related inventions at increased risk of mandatory licenses? To what extent might patents on drugs and surgical devices be impacted by future political action? Into what other areas might this sort of trend extend? Perhaps the most significant aspect of the recent developments in the European patent landscape is the retroactive nature of the changes written into the software directive by the European Parliament. As noted above, many of these changes directly conflict with the TRIPS Agreement and were likely motivated not by genuine philosophical differences, but by economic realities faced by small and medium-sized enterprises ("SME's") in the Community. These SME's may have more of a voice in smaller and less-developed members of the European Union. It may not be a coincidence that the largest members of the European Union, France, Germany, and Great Britain, have already adopted law favorable to what effectively amounts to the protection of software, as has the United States.

It is important to note that the explosion of new businesses which have formed the "open source" movement does not advocate pushing software into the public domain. Rather, the movement seeks what is effectively a tabula rasa for the software industry, with the existing bulwark of patents being marginalized and protection going forward under the copyright laws. While this is not likely to be ideal for innovators, as copyright law has numerous shortcomings in protecting technology, apparently advocates view this as an acceptable price to pay for opening up the industry before existing patents expire.

Political Uncertainty Should Be Weighed In A Cost-Benefit Analysis

One would have thought that the political mass of France, Germany and Great Britain, as a united group on a particular issue, would be reflected in overall European Union policy and law. The recent Parliamentary action on software has demonstrated that, at the very least, this rule has exceptions. If the political reality is pressure in Europe toward weakening patent protection, generally, the filing of national patents appears to offer significant advantages. Certainly the cost of filing individual patents in a selected group of jurisdictions is going to involve substantial costs. But if major markets in at least the British, French and German sectors can be protected in this manner, the expense would appear to be well worth the cost in the case of patents directed to innovations which are likely to be of great value. In my view, not only software patents are at risk and such consideration must be given to all important innovations, particularly in the drug and environmental areas. Certainly, however, a lower threshold should apply to software-related inventions. Where the expected importance of a technology begins to drop-off, consideration should be given to filing a regional patent. While it is expected that European patents will cost about 25% more in government fees to obtain, as compared to the Community Patent, the European Patent does offer some advantages in the form of protection from some compulsory licensee's rights and the preservation of various options open in different jurisdictions on the enforcement side. However, as noted above, European Patents will be subject to complete invalidation in a single proceeding as a result of the 2000 revision of the European Patent Convention which, in due course, will result in deletion of Article 54(4).

In the great majority of applications, the Community Patent is likely to be the most attractive alternative, given its low-cost, universal enforceability, and essentially harmonized provisions. Under the Accord, the European Patent Office will be responsible for the examination of Community Patents, and will treat them in accordance with the same substantive and procedural rules involved in the granting of European Patents under the Convention. Thus, it appears clear that, for the moment, software-related inventions will continue to be patented in accordance with the somewhat less liberal rules (as compared to United States standards) of the European Patent Office, consistent with the state of the law in Finland, France, Germany and Great Britain.

However, given the potential for volatility of the situation in Europe, claiming strategies independent of software claims should be pursued, even in European and Community Patents where it still appears that the European Patent Office will continue to extend favorable consideration to suitably drafted software-related claims. Patent practitioners should, in addition to keeping an open mind on the subject, be sure that non-software aspects of an invention capable of being defined as novel and involving an inventive step should be made the subject matter of patent claims and aggressively prosecuted.1 Consider, for example, just a few of the amendments made by the European Parliament: "innovations in the field of data processing are not considered to be inventions within the meaning of the patent law"; "solutions to technical problems are not considered to be patentable inventions merely because they improve efficiency in the use of resources within the data processing system"; and "distribution... of information... can never constitute direct or indirect infringement of a patent, even when a technical apparatus is used for that purpose." For the complete text as submitted to Parliament and as amended and adopted by Parliament, see kl.com under the author's biography/newsstand.
2 The idea of requiring a "technical" feature as a prerequisite to patentability is an old one, long predating the modern information age. About 75 years ago, Pietzcker, a German legal writer, proposed that "newly invented calculating methods" are not patentable because they did not have "technical application". However, this approach has obviously been substantially rejected, even in the face of opposition from major computer hardware manufacturers in the late 1970s and early 1980s.
3 Approved by Council Decision in 1994 following the eight-year long Uruguay Round multilateral negotiations.

Anthony H. Handal is an intellectual property partner in the New York office of Kirkpatrick & Lockhart LLP. He has over 30 years experience in the litigation, licensing and procurement of intellectual properties throughout the world. He has served as lead counsel in over 160 intellectual property lawsuits with stakes ranging in excess of $1 billion in such diverse areas as biomedical systems, business methods, electronics, molecular biology and holography.