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IP Cases & Commentary – Details

1 February 2012

Validation of European Patents - Selection Strategies

Jonathan Jackson & Scott Gardiner

The year 2011 saw a number of disputes between companies in the electronics sector. Of these, the highest profile dispute was between Samsung Electronics Co Ltd and Apple Inc. In this first part of a two part article, we will discuss how different courts within Europe were effectively utilised by the parties in the patent aspect of this dispute, and we will discuss whether patentees should re-evaluate the traditional selection of validation states. In the second part of the article, to be published in the next newsletter, we will discuss how different forms of IP were utilised in this ongoing dispute.

Since the introduction of the European Patent Convention, patentees of European patents have agonised over the important question of where to validate their European patents. Factors which have been taken into account include size of market and cost of validation and the ongoing cost of renewals in each country.

As a result of this balance between size of market and cost, many patentees traditionally only validate in the three largest European markets; namely Germany, France and the United Kingdom.

Market

The graph in Figure 1 (below) shows the size of the largest markets in the EU. By having a patent in each of Germany, France and the United Kingdom (UK), a patentee can gain protection over approximately 50% of the Gross Domestic Product (GDP) of the whole European Union (EU). Traditionally, patentees next look to Italy and Spain as the next largest markets in the EU.

Cost

As noted, when deciding validation states, one must consider the cost of the patent in each state. The cost of each patent can be split into two; validation fees and maintenance fees. The validation fee is typically dominated by the cost of any translation into a language of that state. In countries which have adopted the London Agreement the cost of validating in these countries has been significantly reduced. This is because in London Agreement countries the requirement for translation of the granted patent into the language of the state has been removed altogether or reduced significantly as only the claims of the granted patent require translation.

However, the most significant cost over the lifetime of a European patent is maintenance fees. A graph showing a comparison between the cost of validating a typical patent in each of the above countries against the annual maintenance fee is shown in Figure 2 (below). Maintenance fees for the 10th year onwards tend to be high and sometimes exceed the cost of validating the patent in that country.

A new selection?

An often overlooked feature of the European patent system is that although a patent is granted centrally by the European Patent Office (EPO), litigation takes place before national courts. In other words, if a patentee wishes to bring an infringement action against a third party, this has to be brought before a national court in which the European patent was validated. As each national court has different characteristics, patentees can use the characteristics of each court strategically. It is generally recognised that the courts in some countries are more ‘pro-patentee’ and more willing to grant injunctions than in other countries. The strategic use of the courts is sometimes called ‘forum shopping’ and was used in the dispute between Samsung Electronics Co Ltd and Apple Inc. During this pan-European dispute, Apple sued Samsung in the Netherlands. As is seen in Figure 1, the Netherlands has a relatively modest GDP. So why was an action brought in the Netherlands? The answer to this came in August 2011 when the Rechtbank’s-Gravenhage granted a pan-European preliminary injunction on the basis of patent infringement. This pan- European preliminary injunction currently prevents the sale of Samsung’s range of smartphones by their Dutch subsidiaries in several European countries, including (amongst others) the UK, France and Germany. These are countries in which Apple benefitted from holding a validated European patent.

The decision in the Netherlands’ case is reflective of the Dutch court’s willingness to grant swift interim action. Indeed, prior to the Apple/Samsung dispute, in LG Electronics Inc v Sony Supply Chain Solutions (Europe) B.V, the seizure of Sony’s PS3 and Bravia TV products in Rotterdam was authorised in early 2011 (Order dated 28/02/2011). In this case, had Sony not succeeded in promptly overturning the injunction, the impact may well have been significant to Sony’s supply of some of its core products into the European market. With that said and in recognition of the logistical significance of the Netherlands as a ‘gateway to Europe’ (Rotterdam and Schipol being two major points of entry into the EU), it is suggested that patentees should perhaps reconsider their traditional approach to validation, which until now often overlooks this key jurisdiction. This is particularly the case given the strategic impact a border seizure and preliminary injunction can have at a major point of entry into the EU.

This use of the preliminary injunction can be particularly effective in disrupting supply chains within the EU, especially where goods enter the EU through a single port, such as Rotterdam. However, would the effectiveness of a Dutch patent be reduced if courts stopped granting preliminary injunctions? Possibly. The size of the Dutch market is small and other countries within the EU could be used as an entry point into the EU market. This would mean that without the Dutch courts granting preliminary injunctions, the value of the Dutch patent by itself may be quite low.

Conclusion

In light of the recent decisions from the Dutch courts, patentees may wish to select the Netherlands as an additional strategic country to their portfolio. Indeed, the cost of validating the European patent in the Netherlands is relatively low as the Netherlands is a signatory of the London Agreement and so only the claims need to be translated into Dutch. Therefore, in the event that Dutch courts do become more reluctant to grant preliminary injunctions in the future, such that the strategic value of the Dutch patent diminishes, the Dutch patent can be abandoned without having incurred significant costs. However, if the European patent is never validated in the Netherlands, then it can never be enforced through the Dutch courts. For key patents, the potential benefits of a strategic selection of the Netherlands jurisdiction clearly outweigh these additional costs.

As a final point, the practice of ‘forum shopping’ has been shown to often produce disparate results between jurisdictions. It is anticipated that the proposed introduction of a central patent court (the Unified Patent Court) will, to an extent, bring greater harmony to the European Patent system, potentially minimising the number of ‘forum shopping’ exercises which are currently undertaken. However, the scope and powers of such a court have not yet been fully determined although a recent draft agreement does suggest that it would have the power to grant both interim and permanent injunctions1. As a consequence, it is hoped that the proposed centralised judicial system would have the benefits of greater legal certainty, equality and economy, although at present it is very much a case of ‘watch this space’.

To conclude, when developing national validation strategies for European patents, in addition to considering a wide variety of economic factors, patentees must have particular regard to contemporary disputes which go far in highlighting the divergent approaches of national courts and the protection which should be sought.

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