2.3.1. Patent continuations or “evergreening”

Lemley and Moore [LEM 03] show that in practice, it is very difficult for the USPTO to definitively reject a patent request and refuse to grant a patent. Even when the examiner concludes that an invention is patentable and issues an opinion in favor of its patentability, the applicant always reserves the right to abandon the initial request considered patentable and restart the process. Alternatively, the applicant can accept the “narrow” patent while at the same time apply to the USPTO to receive supplementary or larger claims for the same patent request. These practices are legal in the United States and fall under what are called “patent continuations”⁴¹.

The practice of patent continuations introduces substantial delays into the patent examination and significant uncertainty for competing firms. Competitors have difficulty determining the future of a patent request and above all, in the event that it is granted, the final scope of what it protects. This is all the more true because in practice, the “back and forth” between the patent applicant and the examiner can be such that the former is likely to get the go-ahead from an examiner by attrition, meaning that the applicant ends up obtaining an extended patent not through merit but because the examiner had no further incentive or desire to refuse granting the patent any longer⁴². In addition, patent continuations can allow patent applicants to indefinitely delay the granting of their patents. In doing so, applicants have the opportunity to better understand the evolution of the market and adapt to it. Patent applicants can observe their competitor’s projects and then draft new claims, specifically designed to counter these projects. The result is that in the end, they obtain a patent that has more value than the one initially requested at the start of the life cycle of the product and/or the market⁴³. This practice amounts to “evergreening” in the sense that it substantially slows a patent’s obsolescence. Finally, certain patent holders intentionally use this practice to delay the granting of their patent in order to surprise a mature market, a process known as “submarine patenting”. This practice was made possible because patent requests filed before the year 2000 remained secret until the patent was granted. Consequently, competitors could not know if patent requests, likely to cover their products, were awaiting review.

From a legal perspective, continuation requests are treated like a new application, which gives the applicant a new chance to persuade the examiner to grant initial claims or to modify them, and even obtain a new patent examiner and so on, ad infinitum. This type of practice is not illegal. The Federal Circuit clearly indicated that the law allows for revising written claims during the examination period in order to cover the products of a competitor. In Kingsdown Medical Consultants v. Hollister⁴⁴, the court stated:

“It should be made clear […] that there is nothing improper, illegal or inequitable in filing a patent application for the purpose of obtaining a right to exclude a known competitor’s product from the market; nor is it in any manner improper to amend or insert claims intended to cover a competitor’s product the applicant’s attorney has learned about during the prosecution of a patent application. Any such amendment or insertion must comply with all statutes and regulations, of course, but, if it does, its genesis in the marketplace is simply irrelevant and cannot of itself evidence deceitful intent”⁴⁵.

The result, as shown by Lemley and Moore [LEM 03], is that patent continuations are still largely used, especially in the United States. The results of their study show that 23% of all patents granted between 1976 and 2000 claim priority over one or more applications filed earlier. Toward the mid-1990s, the number of patent continuations issued even climbed to 31%. When we consider patent continuations, we observe that the USPTO granted patents on more the 85% of the requests that were filed in the period under consideration. These same patents represent more than 52% of contested patents (Lemley and Moore [LEM 03]).

Patent applicants have traditionally used the continuation system to prolong the lifespan of their patents, to avoid having to disclose their technology too early and to modify their claims in order to cover their competitors’ products. However, as emphasized by Meurer [MEU 03], allowing patentees to modify their claims to cover their competition’s products is an invitation to abuse the system. This also seems incompatible with the basic economic justification for the patent system, which is to encourage new inventions. According to Graham [GRA 02], the use of the continuation system is valuable for patentees precisely because it allows them to keep their invention secret while simultaneously benefitting from patent protection, which obviously represents a corruption of the patent system.

2.3.2. Reform attempts

In the United States, legislative attempts to control submarine patents have translated into a modification of the requirements for publication. From now on, patent requests must be published 18 months after they are filed⁴⁶. Although the legislative changes in 1999 did substantially improve the problem of submarine patents for applications filed after 1995, they did not entirely eliminate the problem. These legislative provisions were considerably weakened by the American Congress before their enactment in 1999 because they only provide for the publication of requests that are also filed abroad⁴⁷. In other words, the risks related to patent continuations persist.

The proposed legislation of the Patent Reform Act⁴⁸ in 2005 to modify patent law and especially the adoption of the Leahy-Smith America Invents Act⁴⁹, more commonly known as the “America Invents Act” (AIA) in 2011, contributed to more significant modifications to patent law in the United States. The most significant development of these new legislative provisions, which are part of the context of harmonizing IPR systems on a global scale and the struggle against the supposed abuses of “patent trolls”⁵⁰, is unquestionably the entry into force in September 2013⁵¹ of a “first-inventor-to-file”⁵² system to replace the “first-inventor-to-invent” system. With this new law, the United States aligned their legislation with what prevails in the rest of the world⁵³, by attributing the right to a patent to the first to file. However, despite this harmonization, certain historical specificities as well as certain conflict risks remain, especially the central position of the inventor in American patent law. The new terminology refers to the “first-inventor-to-file” and not the “first-to-file” adopted everywhere else.

The reform in 2011 also replaced, starting in 2013, the previous “first to invent with grace period” system with the new “first inventor to file with grace period” system⁵⁴. It also introduced the possibility of requesting a “prioritized examination”⁵⁵ in the goal of avoiding the bottlenecks and backlogs of the USPTO⁵⁶ and to complete the procedure in a 1-year period in exchange for paying a substantial tax⁵⁷.

At the same time, the AIA also offers new possibilities for action regulated by the Patent Trial and Appeals Board (PTAB) to contest patents after they are granted⁵⁸. The AIA introduced three new opposition procedures after the granting of patents, namely (1) an adversarial review where the parties can contest the validity of a patent before the patent office (IPR)⁵⁹, (2) a “Post-Grant Review” or PGR⁶⁰ inspired by the opposition procedure used in the European Patent Office (EPO) and (3) an examination that exclusively concerns financial products or services (the “Covered Business Method Review” or CBMR)⁶¹. These procedures complement the specific possibility in American law of introducing a re-examination request ex parte⁶². Unlike in Europe, the PTAB, the centralized organization that handles the post-grant reviews, is required to issue a decision in the 12 months following the filing of the initial request⁶³. These new post-grant procedures must still be used with caution due to the rule of estoppel⁶⁴ applied by American courts. In addition, it is useful to keep in mind that the impact of these new procedures on the disputes will be smoothed out over time because they are not retroactive.

Finally, still from a legislative perspective, the Obama administration developed a bill, the Innovation Act (IA)⁶⁵, in 2013 in response to accusations that some litigation PAEs would impose a “tax” on innovation (Cooper [COO 14])⁶⁶. The provisions of this law introduced transparency obligations for litigation PAEs and included a “loser-pays” mechanism (a sort of “shield Act”). This gave judges the power to impose the assumption of legal fees on the opposing party in cases of abuse of process⁶⁷. In reality, these provisions are only a rewriting of the jurisprudence of the Supreme Court that radically reversed the opinion of the Federal Circuit concerning the circumstances in which the losing party in a dispute over patents can be required to pay the legal fees of the party that won⁶⁸. In the cases Octane Fitness, LLC v. ICON Health & Fitness, Inc⁶⁹ and Highmark v. Allcare Health⁷⁰, the Supreme Court introduced “fee-shifting” and stipulated that in the context of lawsuits related to frivolous patents, the unsuccessful complainant is required to assume the legal fees of the opposing party (“loser pays”) in order to reduce the incentives for some litigation PAEs to engage in unfounded claims in the hopes of obtaining an out-of-court settlement⁷¹. Similarly, with the aim of reducing the incentive of litigation PAEs taking legal action, the Innovation Act limits the discovery procedure⁷² to the first steps of the process. There again, this provision is not trivial because the costs for discoveries are often substantial for the target firm, but much less for a litigation PAE who has no industrial activity. After several discussions and modifications, the text was finally adopted June 11, 2015 by the American Senate⁷³. However, the adoption of this text will not fundamentally change the litigation landscape concerning patents, given that only 5% of cases in the United States go as far as a final judgment, with most disputes being settled amicably through out-of-court settlements.

Parallel to the legislative reforms intended to dissuade litigation PAEs from transforming taking legal action into a business model, the Supreme Court, through its action, contributed to making sure disputes are resolved at a cost that is proportional to their value. In its decision on Apple v. Samsung⁷⁴ in 2016, the Supreme Court decided in favor of Samsung⁷⁵ who challenged a law from 1887 that attributed to the complainant all of the profits realized from a product that infringed a patent⁷⁶. In this case, the Supreme Court recognized the unreasonableness of basing the amount in damages on the total value of a smart phone containing hundreds of components when the patent violation only concerns a handful of them and when the incriminating patents only played a minor part in the consumers’ decision to purchase. Consequently, the Supreme Court decided that the amount in damages should be established based on the inventive contribution of the inventions, or in other words, based on the value of the elements that participated in the infringement. In other words, guilty but not infinitely liable. The Supreme Court sent the case back to the CAFC to decide on the exact amount of the damages. The major issue for the CAFC will be to determine if the term “article of manufacture”, on which the damages for violating a patent are calculated in the United States, must be interpreted as the final product in its entirety or simply as one component of a complex product.

At the same time, the Supreme Court, following the decisions in Halo and Stryker⁷⁷ in 2016, granted more discretion to district courts in cases of willful infringement of a patent, so that they could triple the amount of damages due to the patent holder⁷⁸. In reality, tripled damages for deliberate violations are almost never awarded by the courts. The rulings of the Supreme Court in Halo and Stryker explicitly lower the standard used for granting tripled damages when it is proven that the infringer voluntarily breached the holder’s patent. However, facilitating obtaining tripled damages could be counter-productive. First of all, it could allow litigation PAEs to obtain out-of-court settlements with even more advantageous financial conditions from potential infringers. It could also encourage forum shopping even more.

In response to criticism that litigation PAEs often use the threat of injunctions as leverage to obtain an out-of-court settlement in their favor, the US Supreme Court sought to reduce the asymmetry in terms of costs between the plaintiffs and the defendants. To do this, it reduced the circumstances in which patent holders could obtain injunctions in order to prevent a potentially infringing company from continuing to manufacture, use or commercialize supposedly infringing products. In 2006, in the ruling in eBay Inc. v. MercExchange⁷⁹, the Supreme Court established that a permanent injunction should not be accorded solely on the basis of a violation of rights, or conversely, refused under the pretext that the plaintiff is not exploiting the patented invention⁸⁰. The Supreme Court considers that a patent holder must satisfy a four-factor test to obtain an injunction, in line with the principle of fairness⁸¹. In particular, the patent holder must demonstrate (1) that an irreparable damage will be caused to the plaintiff if the injunction is not granted; (2) that existing legal remedies, such as monetary damages, are not sufficient to compensate for the injury suffered; (3) that the balance of hardship that the plaintiff and the defendant will suffer respectively favors granting the injunction; and (4) that the public interest will not be directly affected by a permanent injunction. This decision has the advantage of recalibrating the balance between traditional patent holders and litigation PAEs⁸². It can be likened to the legal obligation to exploit patents within 3 years of their issue, which exist in some jurisdictions, like France. Its effectiveness is relative, given that it should be noted that following this decision, the litigation PAEs turned to the US International Trade Commission (ITC)⁸³ because the ITC is not bound by the factors in the eBay decision, which limits the use of injunctions that district courts can make. As highlighted by Chien and Lemley [CHI 12c], ITC injunctions can translate into a substantial social harm because the import ban on supposedly infringing goods is often disproportionate to the social benefit⁸⁴.

Finally, one of the last elements of the reform to patent law recently consisted, for the Supreme Court, of facilitating patent challenges. Following the jurisprudence of MedImmune⁸⁵, the Supreme Court made it easier to file declaratory judgment actions to challenge a patent. In this case, the preliminary question asked to the Court was to determine if a patent license holder preserves the right to challenge a patent or if the right “disappears” when a licensing contract is signed. In MedImmune v. Genentech, the Supreme Court reversed the reasoning of the Federal Circuit and ruled that a practicing entity holding a license agreement could file a declaratory judgment action. In other words, while continuing to pay fees and thereby avoiding a patent infringement claim, the practicing entity can challenge the validity of the patent that is the subject of the license before the courts.

These legislative developments, which unquestionably represent a shift in the American patent system, go hand in hand with a reflection on the question of patentable subject matter and in particular the admissibility of software and business methods under the protection of patents. The Supreme Court decisions are leading to a modification of what is patentable subject matter. This is occurring through the challenging, on the part of the Supreme Court, of certain decisions by the CAFC about the patentability of processes, abstract ideas and laws of nature⁸⁶.

The first shift occurred in 2007 with the ruling in KSR⁸⁷ by the Supreme Court, which modified the interpretation of the legal test to determine if an invention is non-obvious, or in other words, if the object of the patent request constitutes sufficient progress compared to existing technologies to justify issuing a patent. In American law, the criterion of non-obviousness is set out in 35 section 103a) of the United States Code (U.S.C)⁸⁸. However, determining the obvious nature of an invention is one of the main sources of disputes in the domain of patents, in both the United States and Europe. In the ruling in Graham v. John Deere⁸⁹ in 1966, the Supreme Court established the “Graham factors”⁹⁰ to determine if an invention is obvious or not, and indicated the secondary considerations that could be considered in the non-obviousness test such as, non-exhaustively, the commercial success or failure of others. The CAFC prefers the TSM (Teaching, Suggestion, Motivation) test⁹¹, supposedly more precise in the case of inventions combining elements of pre-existing inventions. The Supreme Court, with the decision in KSR, redirected the TSM test because it was considered by several critics as making it too easy to prove the non-obviousness of a patent. For this reason, it was blamed for the granting of “poor quality” patents⁹². Cotropia [COT 07] and Mandel [MAN 07] show, however, that these criticisms were not supported by empirical proof. The new KSR test uses a subjective approach and focuses on the intellectual approach of a person skilled in the art⁹³ vis-à-vis the problem. In doing so, the Supreme Court strengthened the requirement criterion of non-obviousness and made it stricter than the problem-solution approach used in Europe⁹⁴. This strengthening of the standard for non-obviousness should lead to a lower rate of grants. However, at this stage, nothing makes it possible to confirm that this new test is a gage of quality because fewer patents does not necessarily equate to better quality. A statistical study conducted by Mojibi in 2010 attempted to analyze whether this ruling influenced the issuing of patents. Mojibi [MOJ 10] showed that between September 2007 and February 2009, there was a significant multiplication of the number of patents ruled invalid by the district courts and the CAFC on the basis of the criteria of novelty and non-obviousness before and after the Supreme Court’s certiorari in KSR⁹⁵. More specifically, during this period, the District courts were seven times more likely to find patents obvious due to the change in the case law from KSR. The likelihood for the CAFC to find a patent obvious rose from 40 to 57%. However, this percentage dropped to levels almost identical to the pre-KSR period 2 years after the ruling, which indicates that the importance of this ruling should be put into perspective somewhat.

Another important change that recently occurred is illustrated by the effects of the ruling in Bilski⁹⁶ in 2010 by the Supreme Court on the patentability of business methods. This ruling confirmed the tightening of examination conditions for business processes. The Supreme Court found the machine-or-transformation test created by the Federal Circuit in the State Street Bank case not to be the sole test for patentability⁹⁷, while considering that this test, although not technically part of the law⁹⁸, represented “a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under section 101”⁹⁹. In other words, although the Court rejected the machine-or-transformation test, it expressly left open the possibility for the CAFC to elaborate supplementary criteria for assessing abstract character in order to determine patentability, but these criteria must scrupulously respect the law and the case law set down by the Supreme Court. This means that the Supreme Court confirms an exclusion in principle of inventions (including business methods) representing an abstract idea limited to a particular technological environment. On the other hand, this decision does not provide any additional test for patentability to systematically fulfill for inventions implemented by computer. This means that most inventions implemented using software remain potentially patentable in the United States, because the law itself does not make a distinction between business methods and other processes.

In a series of subsequent decisions (Mayo Collaborative Services v. Prometheus Laboratories, Association for Molecular Pathology v. Myriad Genetics and Alice v. CLS Bank International)¹⁰⁰, the Supreme Court considered that patents should not be granted under section 101 when two criteria are met. The first criterion is when subject matter that is not eligible to be patented (abstract ideas, laws of nature and natural phenomena) is targeted. The second criterion is when patents do not contain an inventive notion that sufficiently transforms the implementation of the supporting idea, so as to limit the claim to something obviously different from the ineligible object for which it was intended. In this way, the Supreme Court casts significant doubt over the validity of several commercial, software, genetic and medical processes. In these decisions, the Supreme Court clearly states that the CAFC deviated from the case law and constructed a set of rules that are too favorable to patent holders¹⁰¹. In the Mayo v. Prometheus¹⁰² decision in 2012, the Supreme Court ruled that a method to improve the treatment of a patient afflicted by an immune disorder did not constitute anything more than the observation of the laws of nature, combined with routine steps and because of this, the diagnostic method in question was not patentable under 35 USC section 101¹⁰³. Following this decision, the Supreme Court asked the CAFC to reconsider the Myriad case. In August 2012, three CAFC judges confirmed the decision they had taken 1 year earlier, namely that isolated DNA is patentable (under 35 USC section 101), on the grounds that these molecules are not found as such in nature, that they are the result of human intervention and that they have a specific chemical identity and structure. However, on June 13, 2013, the Supreme Court unanimously arrived at the exact opposite conclusion and decided that the isolated nucleic acid sequences were products of nature and consequently, not patentable. In its Alice ruling in 2014, the Supreme Court clarified the test, initially stated in Mayo Collaborative Services. v. Prometheus Labs., Inc., to evaluate the eligibility for patentability of a claim based on section 101. It ruled that the implementation by computer of an abstract idea, which is not itself eligible for a patent, does not transform this idea into a patentable object. According to the Supreme Court, to be eligible, what is claimed must go beyond the abstract idea, which is to say that the claimed characteristics of the invention must produce a “supplementary” technical effect that goes beyond the conventional function of a computer. Such an effect could, for example, reside in an improvement to the workings of the computer itself. In this sense, the American approach seems to be quite similar to the European approach on the subject. Should we, however, consider that this is the beginning of the end for American patents on business methods implemented by software? Nothing could be less certain. Indeed, the Alice decision and its two-step test¹⁰⁴ created uncertainty about the future of software patents, especially because the Court declared that “the introduction of a computer into the claims does not alter the analysis in step two”. This uncertainty is accentuated by the fact that, in its decision, the Supreme Court used vague language to strike down the software patents in question and did not provide a clear test to determine the validity of patents. This generated additional confusion for the lower courts and the parties involved (DeJulio [DEJ 10]). Indeed, neither the Federal Circuit, nor the Supreme Court have defined the terms “abstract idea” or “significantly more.” As such, these two terms refer to an undefined standard (“we will know it when we see it”). Although in the Amdocs¹⁰⁵ decision, the majority noted that the two steps from Alice often overlap, it explicitly refused to articulate a single and universal definition of the notion of an “abstract idea”, citing the difficulty in defining an “as-yet-unknown case with as-yet-unknown inventions”. In addition, the Supreme Court questioned the decisions of the Federal Circuit without considering the question of knowing if these limitations could actually foster progress or not, even though up to the present time, US patent law had a reputation for being much more liberal than foreign laws concerning this category of inventions.

Following this decision, in June 2014 the USPTO issued a Guidance Memorandum for the attention of American patent examiners who are henceforth instructed to reject any invention (machine, substance, or process) concerning or consisting of a law of nature, a natural phenomenon and/or a natural product¹⁰⁶. According to the USPTO, “Alice Corp. neither creates a per se excluded category of subject matter, such as software or business methods, nor imposes any special requirements for eligibility of software or business methods.” Similarly, in recent decisions subsequent to Alice, like DDR Holdings v. Hotels.com¹⁰⁷, Enfish v. Microsoft¹⁰⁸, Bascom¹⁰⁹, the CAFC, while applying the analytic framework set out in Alice, confirmed the validity of patent claims on a business method. This indicates that this type of patent is not “dead” per se.

A contrario, in other decisions (Ultramercial v. Hulu¹¹⁰ and TLI Communications v. Automative¹¹¹), the CAFC invalidated patents covering inventions implemented by computer, ruling that they represented abstract, non-patentable ideas. Recently, in 2015, the CAFC made a decision that did not rely on the test set out in Alice, but that could have a significant impact on software patents. In the Allvoice¹¹² case, the Federal Circuit ruled that if a patent claim does not target an invention that corresponds to one of the four categories listed (that is, a process, a machine, a manufacture or a composition of matter), it is invalid. From a legal perspective, section 101 is not limited to these four categories. The law text even says, “process, machine, manufacture or composition of matter, or any new and useful improvement thereof”¹¹³. This does not mean that an improvement to a machine must yield a machine, for example.

At this stage, the decisions rendered are somewhat ambiguous, especially concerning the scope and standard to follow to define an “abstract idea”. It is therefore difficult to determine their full effects. However, they did lead the USPTO to re-examine the notice of allowances of certain patents, especially patents concerning business methods. Figure 2.9 shows the number of patents granted by the USPTO in class 705 (business methods) and the success rate of these patent requests. Interestingly, we note a decrease in patent requests in 2000. This decrease can be partly explained by the introduction in March 2000 until the end of 2009 of a specific quality control measure in this class in order to counteract the bad press of these patents. This exam qualified by a “second pair of eyes” reflected the influx of patent requests in the class 705¹¹⁴. It translated into a double exam and the requirement that two examiners agree about granting a patent in order to issue one (Allison and Hunter [ALL 06]). This requirement translated into a decrease in the success rate in class 705 (to about 20%). A study by Lemley and Sampat [LEM 08b] showed that the class 705 had the lowest success rate out of the high-volume classes. One possible explanation is that the low success rate reflects a more rigorous examination process. This decrease could also be explained by anticipated refusals related to discussions about the possibility of enacting a Business Method Patent Improvement Act (HR 5364). As this Act had not yet been passed by the US Congress, patent requests on business methods surged until 2007, the date of the KSR ruling by the Supreme Court, which modified the interpretation of the legal test for non-obviousness. Finally, the decisions in Mayo and Alice in 2014 and the Memorandum by the USPTO in 2014 seem to have had an undeniable impact on the success rate of patent requests in class 705, which have fallen sharply since then.

Figure 2.10 shows the total number of patents granted per month for the patent requests examined by work group 3690 (“Finance art unit”)¹¹⁵ from January 2014 to March 2016. The impact of the Alice¹¹⁶ ruling on the number of patents issued is undeniable. From a technical perspective, this decrease can be explained, in part, by the fact that a certain number of notices of allowance (before the Alice decision) underwent a new exam under section 35 U.S.C. 101 and were either cancelled or delayed for several months. A study of Sachs in 2007¹¹⁷ summarizes the result of the decisions made by the district courts under section 101. An assessment over the period of 32 months before and after Alice (until February 2017) shows that before Alice, there were only 37 decisions by district courts based on section 35 U.S.C. 101 and 359 after, or nearly ten times as many. The rate of invalidity also jumped, rising from 43.2% pre-Alice to 61.8% in February 2017. However, this study shows that it was software patents and not business methods patents that were the target of changes post-Alice; communications patents now occupy the second most targeted group. Outside of business methods, only two technological fields have post-Alice rejection rates that are greater than 30%, namely entertainment and educational devices (technology center 3700) and molecular biology/bio-information/genetics (technology center 1600). These applications have wavered regarding the eligibility of patents on mental steps and methods of organizing human activity¹¹⁸.

Parallel to the legislative reforms, academic publications, especially by Bessen and Love [BES 13], have also sought to recalibrate the patent system by putting an end to patent trolls. Based on econometric analyses that make it possible to infer the value of patents based on renewal decisions, Bessen and Love [BES 13] propose implementing a “polluter pays” system and requiring patent holders to pay an amount that reflects the negative externalities that they impose on a company¹¹⁹. The authors believe that this mechanism, more commonly known as the Pigouvian tax, is likely to cause people who hold trivial patents not to renew them.

Although these reforms are welcome, it is important to keep in mind that only 1.5% of all patents are the subject of a dispute before the courts (Allison et al. [ALL 09]). Out of the roughly 3,000 infringement actions filed each year in the United States, most are settled out of court. Only about 650 disputes receive a decision by a district court and the vast majority of rulings result in a summary judgment rather than a trial (Janicke and Ren [JAN 06])¹²⁰. In other words, the impact of these reforms risks being very limited. As is often emphasized by some critics, “the primary objective of reform should be to reduce the uncertainty that now pervades many aspects of the patent system” (Jaffe and Lerner [JAF 04, p. 171]). However, these recent regulatory developments have led certain commentators, like Epstein [EPS 14] and Mossoff [MOS 13] to consider that the reform of patent law in the United States has translated into an excessive reaction. Similarly, Quinn and Morinville [QUI 15] complain that patent reforms aimed at trolls are destroying the patent system. In reality, there are several fluctuations between the eras of strong and weak patent protection. We can consider that the tightening of protection during the 1980s and then at the start of the 2000s was a reaction to the perception that patent law in the 1960s and 1970s was weak. This period in turn follows a period of strong protection in the 1930s and 1940s (Merges [MER 00]). It suggests the existence of cycles of over- and under-protection.

2.4.1. The unitary patent and the unified court: the final stage of a European patent system?

Since November 1977, the European Patent Office (EPO) has offered inventors a centralized patent application system, allowing them of obtaining patent protection in the 38 member countries¹³⁴ of the European Patent Convention (EPC).¹³⁵ The distinctive feature of the Convention is that it is not a unitary title valid in all of the signing countries. It is actually a group of independent national patents. In practice, a single patent request in a single language can benefit from protection in all of the contracting countries, provided that these are designated. If all of the contracting countries are not designated, then the geographic breadth of the patent is not maximized.

The fragmentation of the European patent system is regularly pointed out as one of the weaknesses of the innovation system in Europe (Van Pottelsberghe and Mejer [VAN 10b]). In addition to the considerable costs of obtaining a patent in European territory, compared to other geographic zones with the same economic level¹³⁶, the absence of a “one-stop-shop” increases legal uncertainty and complicates the management of patent portfolios. Currently, the courts and national administrations of the signatory states of the EPC are only qualified to rule on the infringement and validity of European patents. In practice, this situation causes a certain number of problems (the multiplication of the costs of disputes, risk of diverging judgments, legal uncertainty)¹³⁷ when a patent holder wishes to ensure compliance with a European patent or when a third party requests the revocation of a European patent in several countries. The differing interpretations of European patent law mean that a single patent can be ruled on differently depending on the member state. These diverging solutions are sources of legal uncertainty and insecurity. They also give rise to forum shopping; parties seeking to capitalize on differences in patent interpretations by national courts, processing times (that vary depending on if the courts are “slow” or “fast”) and the amount of damages awarded.

This situation represents an obstacle for the creation of a European innovation market and penalizes European companies compared to their competitors, especially American or Asian, who can more easily, and for a lesser cost, access their large national markets before commercializing their inventions on a global scale (Harhoff [HAR 09]). Medium-sized companies are, in this regard, often considered to suffer the most from this situation due to their lack of financial means and specialized legal abilities that would allow them to manage disputes in multiple courts simultaneously.

In one form or another, the idea of a community patent has been the object of debate for more than four decades. Considerable progress was recently made, however, with the adoption, in the context of an enhanced cooperation process, of the “European Union patent package”¹³⁸. This package aims to introduce a single patent valid throughout the European Union as well as a Unified Patent Court (UPC) to rule on disputes over European patents. Although some are hailing it as a means to make the patent system more accessible, more cost-efficient and more legally sound by conferring uniform protection to patents in all participating member states, it remains to be seen what choices companies will make given that the unitary patent will coexist with the European unitary patent.

The European unitary patent consists of a “package” that includes three legal mechanisms: (1) the implementation of a unitary patent, valid in 26 EU member countries, with the exception of Spain and Croatia¹³⁹; (2) the adoption of a linguistic regime concerning this patent; and (3) the adoption of an agreement concerning a Unified Patent Court to make decisions about disputes concerning the new patent. The first two mechanisms were implemented through the EU enhanced cooperation procedure and adopted by the European Parliament on December 11, 2012. The third, the Unified Court agreement, is an international agreement currently in the process of being ratified by the participating countries.

The entry into effect of the new patent system was reported sine die following the activation of Article 50 of the Lisbon Treaty by the United Kingdom but it should, ultimately, allow companies to obtain a single patent, valid in 26 EU member countries. The unitary patent is a European patent with a unitary effect. This means that like the European patent, a request for a European unitary patent will be carried out by the European Patent Office (EPO) but that in a period of 1 month after the granting of the European patent, its holder will have the opportunity to choose between a European patent or a European unitary patent designating all states participating in the enhanced cooperation, with the exception of Spain and Croatia, on the condition that the patent claims be the same for all of the designated contracting member states. This new patent system does not replace the old one, but is added to it. It introduces a fourth way to file, in addition to the national option, the international (PCT) option and the classic European option. Companies who, for one reason or another, do not wish to file a unitary patent can also use the European option and, after the examination procedure, designate the European countries in which they wish to be protected. The unitary patent will therefore coexist with national patents and classic European patents.

Compared to the existing situation, the change is significant. The European patent, as it exists now, is a bundle of national patents that inventors can obtain, with a single application, in 38 separate EPC member countries. In the absence of a real community patent, a company has no other choice but to manage a patent in each country with all of the additional costs and inconsistencies that this creates. A single patent can lead to a trial in several countries, but the rulings are only valid in the national court where the verdict is decided¹⁴⁰. Companies can therefore be compelled to multiply their legal proceedings. With a unitary patent, an innovative company only needs to manage a single patent for (almost) all of Europe and, potentially, only a single litigation. In addition, the problem of multiple translations is simplified because the patent must only be written in one of the three official languages of the EPO (German, English, and French). In case of litigation, the company accused of infringement (or the court) can request that the patent holder translate the patent into their national language.

In legal matters, the member states responded to the above-mentioned problems by creating a Unified Patent Court¹⁴¹. This Court has also jurisdiction in matters of complementary protection certificates, which are granted to inventions in fields where the approval time for a technology can be particularly long. It does not have jurisdiction in national patents or national models of utility¹⁴². More than a court, in reality, the Unified Patent Court is a legal system because it includes a court of first instance, an appeal court and a common courts administrative service with local administrative committees¹⁴³. The court of first instance is decentralized in the sense that the seat of the central division was established in Paris, where cases concerning transportation (IPC classification B), textiles (IPC classification D¹⁴⁴, fixed constructions (IPC classification E), physics (IPC classification G) and electricity (IPC classification H) are heard, and the court is divided between two other places depending on the type of case¹⁴⁵. The first is London¹⁴⁶, for cases pertaining to human necessities (IPC classification A), chemistry, including pharmaceutical products (IPC classification C) and metallurgy (IPC classification C). The second location is Munich, for cases concerning mechanical engineering, lighting, heating, weapons and blasting (IPC classification F). Aside from the court of first instance, the Unified Court will include a Court of Appeal with its seat in Luxemburg. This court will rule in the last instance because the Agreement on the UPC does not provide for any recourse against its decisions¹⁴⁷. The budget of the Unified Court will be financed by revenue proper to the Court. This revenue will be generated by the payment of processing fees and other revenues¹⁴⁸.

The decisions of the Unified Patent Court will be effective over all territories of the contracting member states (all member states of the European Union, with the exception of Croatia, Spain and Poland¹⁴⁹). By offering patent holders a single legal decision that will apply to the territories of all member states, the Unified Court should provide a single legal interpretation and substantial savings, but also translate into an increase in damages. In fact, in cases of infringement, the so-called “total infringing sales” will be determined based on the commercialization of the disputed products in all member state territories.

The Unified Court will only hear disputes about the new European unitary patent and, eventually, all disputes about the European classic patent. It will have an exclusive jurisdiction over actions about patent infringement and complementary protection certificates, counterclaims for nullity, nullity actions, actions seeking provisional measures, protection measures or injunctions, and finally, actions concerning decisions made by the EPO about unitary patents. Patent infringement actions can be heard in front of the local or regional division located in the country where the infringement act was committed or in the one where the defendant lives or mainly conducts its activity. In the absence of a local or regional division in the country concerned, the central division can be used. Counterclaims for nullity must be brought before the same division that heard the original action, but the parties have the option to agree to opt for another division, including the central division. It is also possible to send the case, in whole or in part, from the local or regional division to the central division. Provisions have been made for the implementation of a “bifurcation” process, or in other words, the separation of infringement claims and nullity claims that will be heard by different courts. For instance, an infringement claim could be brought before a local or regional division while the counterclaim for nullity might be heard at a later date by the central division. In addition, patent holders will have the ability to waive the exclusive jurisdiction of the Unified Court and bring a claim about a European patent before the national courts during an (extendable) transition period of 7 years, unless the patentee files an exception, or “opting-out” request¹⁵⁰ (Article 83 of the Agreement), according to which the European patent granted remains subject to the national courts of each country designated. This choice is counter-balanced by the advantages of the new unified court that can make a single simultaneous decision about the infringement and damages for all of the countries.

2.4.2. The supposed economic advantages of the unitary system

The argument that is most often invoked in favor of the unitary patent is that it will make it possible to reduce the costs of obtaining a patent. This is an important argument because today, due to current fragmentation of the system, the costs of obtaining a patent is much higher in Europe than it is in other main economic zones. Van Pottelsberghe [VAN 10a, VAN 10b] showed that a European patent granted by the EPO guaranteeing protection in 26 EU member states¹⁵¹ can cost up to €32,119, including €4,045 in processing fees¹⁵², €7,929 in validation fees¹⁵³ and nearly €20,145 in translation fees¹⁵⁴. On the other hand, the costs of obtaining a patent in the United States, as well as Japan, South Korea and China are much more appealing to innovators because they cost less than €5,000. Most of the difference, at the present time, can be explained by the multiplication of filing and maintenance fees as well as the translation fees. With the unitary patent, the cost of obtaining a patent should greatly decrease, down to an estimated €4,725, which should ensure a fair level playing field. On the other hand, no procedural fee reduction is planned for small companies. In practice, it is the large and primarily foreign applicants, who validate in a wide range of countries, who will benefit from this change. For a constant or even reduced budget, their patents will be protected in all member countries and a single legal claim will allow them to forbid exploitation in all countries. For SMEs, the expected effect is ambivalent because traditionally, they only validate their patent requests in a smaller number of countries, although the reduction of costs could now encourage them.

The amount of renewal taxes is also a determining factor for the success of a unitary patent. Too high, they can discourage the interest of applicants, such as SMEs. For larger companies, on the other hand, who often validate European patents in a large number of states, the unitary patent makes it possible to save on renewal fees. Given the double bind of the self-financing of patent offices and the necessity of having affordable access to industrial property for small companies, the amount of taxes to remain in effect has been set in relation to the size of the market of the European Union and is equivalent to what it costs today for the average geographic coverage of European patents¹⁵⁵. Up until the tax due for the fifth year after the filing, the fees correspond to taxes currently due to the EPO for European requests. Concerning the taxes due for the tenth year and beyond, the EPO proposes an amount equivalent to what is currently paid at the four most commonly chosen offices. This means that a patent holder who only wishes to validate its European patent for a small number of participating member states may not have much interest in adopting the unitary patent formula. Another beneficial aspect of this reform is that up until now, a company could be forced to handle several disputes in several countries at once, which led to the multiplication of legal costs. One of the crucial points of interest for the Unified Patent Court Agreement is to eliminate the duplication of litigation in member countries and therefore to significantly reduce legal costs for companies. A study by Harhoff [HAR 09] estimated that between 146 and 311 litigations were duplicated every year in European countries. Their elimination would make it possible to save between 148 and 289 million euros for the companies in question¹⁵⁶. Aside from costs, the implementation of a Unified Patent Court is supposed to reduce economic uncertainty and increase the consistency of the system. Today, the duplication of litigations is a major source of uncertainty for companies operating in Europe. Mejer and van Pottelsberghe de la Potterie [MEJ 12] illustrated, through many concrete examples, the inconsistencies created by the fragmented European patent system as it exists today. Among the many cases¹⁵⁷, the dispute between Improver and Remington is particularly indicative of the shortcomings of the current system. Improver, the inventor of the “Epilady” epilator bearing its name, obtained a patent for protection in most European countries. In 1988, Remington introduced onto the market an epilator that had the same functions as the Epilady, with some significant differences. Improver and Remington launched a legal battle in several European countries, with Improver accusing Remington of infringing its patent. The verdicts rendered in different countries differed greatly. In Austria¹⁵⁸, France¹⁵⁹ and the United Kingdom¹⁶⁰, Remington won its case, while in Belgium¹⁶¹, Germany¹⁶², Italy¹⁶³ and the Netherlands¹⁶⁴, Improver won the litigation. This case, along with others¹⁶⁵, illustrates the problems of legal consistency that never fail to arise with the multiplication of national titles. The main point here is that a large part of these inconsistencies will disappear with a unified patent and a unified Court¹⁶⁶. In return, this will make it possible to offer an environment that is more favorable to innovative companies, especially small ones. At the same time, some questions remain up in the air and it is not certain that the unitary patent will benefit all companies in all countries the same way.

2.4.3. From intention to reality

Will the European Union’s legal patent package meet expectations? As noted above, the intention of the European Union patent package is to make the patent system simpler, more cost-effective and more consistent legally, by offering uniform protection to all participating member states. It remains to be seen if it will really fulfill its promises.

The first topic of concern is the heterogeneous nature of the system with an “additional layer” of protection¹⁶⁷. The granting of a unitary patent will not eliminate the obligation to proceed with national validations for contracting states of the EPC or extended states not covered by the EPC. Although the European unitary patent system will make it possible to address a certain number of these problems, its implementation does not have unanimous support because, as it stands, the protection offered does not cover all of the member countries. From a legal standpoint, the European unitary patent raises many questions, with experts not hesitating to call it complex, unbalanced and legally fragile “(Hilty et al. [HIL 12])”. A true unitary patent should be subject to uniform law across the European Union, which was what was initially envisioned. The unitary patent, as adopted, does not have a dedicated uniform law and constitutes a compromise. So, if there is to be litigation, a court has been provided, but what law should it apply? That of the country of the claimant, at the risk of seeing the development of forum shopping for courts that are more favorable to complainants, or that of the Munich Convention of 1973, which is independent from community law? The risk of forum shopping is even greater if an infringement action, for example, can be brought before the local or regional division located in the country where the alleged act of infringement was committed or in the country where the defendant lives or mainly operates their business. Similarly, which court will be preferred in case of a dispute that covers several industrial sectors? For the time being, the texts proposed do not answer this question.

Second, some commentators are concerned about the question of bifurcation, which allows infringement and nullity actions to be heard in different courts. They are specifically concerned about the fact that one of these courts could render an order forbidding the importation and sale of a product protected by a patent that might eventually be declared null, a possibility that litigation PAEs who acquire patents to oppose to third parties could be quick to exploit. The potential windfall effect could be accentuated by the bifurcation measures because, aside from the fact that these practices pave the way for complications concerning the language of proceedings, the possibility of pronouncing an order against an alleged infringer, before even the validity of the patent in question has been examined, is a powerful weapon for these companies. This might attract more litigation PAEs to the European territory. Although already present, the stakes remain uncertain for them at the present time, due to the fragmentation of the European market and the modest amount of damages awarded in Europe¹⁶⁸. The concern of seeing litigation PAEs develop is sufficiently strong that a certain number of patent holders are choosing to waive the exclusive jurisdiction of the unified court, especially when it concerns high-value patents, in order to avoid the risk represented by a declaration of nullity whose effects extend simultaneously to all participating member states.

Third, there are also concerns about the costs and the quality of decisions that will be rendered by the court. The costs related to the new system, in particular in the defense of patents before the Unified Court, are a substantial concern, especially for SMEs. It is likely that once the system enters into effect, the costs (for launching and defending claims) of infringement actions will be much greater than the cost of bringing an action before national courts. Another concern addressed is the quality of decisions made by the unified court. Consequently, the first judgments will be key for calming these concerns. The fact that the unitary patent can be revoked in a single procedure for all participating member states could lessen its appeal, in particular concerning high-value patents, for which owners might prefer to file a classic European patent and waive the exclusive jurisdiction of a unified court.

Finally, who will use the system? Ignoring, for the time being, how the new system will be received, it is likely that when choosing between a unitary patent and maintaining the old method of national validations, many patent holders will only consider the amount that they will have to spend to have the patent issued and they will not be concerned with the costs of future litigation. Relaxing the requirements for the translation of issued patents will consequently be perceived as an advantageous feature of the new system. However, from an economic perspective, some questions remain. Will the costs be reduced or simply displaced? Kupzok and Pénin [KUP 13] postulate that in practice, the translation costs for patents will not necessarily be reduced, but could simply be displaced onto other actors in the economy. The analysis of patent databases remains essential for innovative companies who need to research the freedom to exploit their innovations. Having patents written in a foreign language complicates the ability of companies to carry out research about the freedom to exploit. It is therefore possible, even probable, that companies will decide to have the patents translated themselves (or a part of them) to facilitate their understanding of the patented inventions. In the end, the unitary patent will contribute not to reducing translation costs, but to displacing them and possibly even multiplying them (because many companies may translate the same patent at the same time).

In summary, although it is true that the legal patent package seems to have been well received after more than 40 years of delays, doubts remain about when it will come into effect and its potential implications. At its core, the idea was simple: to make it possible to file a patent that would be valid throughout the entire EU. Upon arrival, the selected system seems anything but simple. The road to hell is paved with good intentions and the EPO is supposed to manage the European patent system and the unitary patent system at the same time. The unitary patent will therefore be in a gray area that is difficult to appreciate or to justify regarding community law¹⁶⁹. In the end, some questions remain unresolved: will the unitary patent benefit innovation, and by extension, the economy of the European Union? Or will it be hindered by its own restrictions, heaviness, ambiguities, and risks of seeing litigation PAEs proliferate? Or should we consider it to be simply a “promotional offer”?