“Patents as a springboard to success for European SMEs”

By SME Europe

On April 10th SME Europe in cooperation with the European Patent Office hosted a Working Breakfast event in the European Parliament considering the following thematic: “Patents as a springboard to success for European SMEs”. The event featured the following speakers and moderators: Dr. Paul Rübig MEP, Member of BUDG and ITRE Committees, 1st Vice-Chair of STOA, Honorary President of the SME Europe of the EPP; Ivan Štefanec MEP, Member of IMCO Committee, Vice-President of the SME Europe of the EPP; Margot Fröhlinger, Principal Director for Unitary Patent, European and International Legal Affairs, The European Patent Office; Yann Maniere, Chief Economist, The European Patent Office; Ruben Bonet, President and CEO, FRACTUS SA; Slawomir Tokarski, Director of Innovation and Advanced Manufacturing, DG GROW, European Commission;

Dr. Paul Rubig MEP welcomed the guests: “We all know that SMEs need a good understanding for issues related with innovation, new ideas or new products. It is highly important to protect SMEs in their capacity to get a return of investments. If an SME gets a good idea, makes a research, if it finds something unique the role of Patents Office is to check if it’s really new or if it does have enough potential to get intellectual property rights. As you know, I am the blacksmith coming out of a family business and I had an invention myself too and so I got a patent for it therefor I have an understanding how it works and what are the terms and rules. I also wrote a study on International Patent and Licence Policy, and at least I wrote my thesis on International Licence Marketing, so basically, it was one of the first Thesis’s where we have looked at the Patents and how to make money out of it. I believe that one of the issues in this topic, especially for the SMEs is how to pay the wages, tho office etc, so the money have to come in to run the business and to create jobs. Therefor it is quite clear that we are in a kind of battle on which strategy could be the best for the economic development: on one side we have the US model the core of which is advertising, here we have our European model which is based on Intellectual Property. And in fact many of us have still to learn what Intellectual Property is and what are the terms of its application. It seems like everything is free and we have nothing to pay, but in fact we do and now we have learned that we also pay with our data and the ownership of data shows us that the GDPA is a very important activity, because even our data is intellectual property and how to handle it is a key role for the future. Therefor it is clear that Patent Policy will become an integral part of future policy making. As you know you can run active or passive patent policies as a company, you may have active or passive licence strategy, or you may have a mix of it. There are always best ways out. In order to address in a best way bilateral trade issues or development policies, in order to explain why innovation matters – for all these reasons I welcome todays discussion.”

Ivan Štefanec MEP “When we talk about the development of economy particularly in the European Union we have to take into account that we have to constantly protect ownership. It was much easier in the past to protect land, assents, however it is more challenging to protect new innovative ideas. Just for instance 150 000 new ideas are turned into patents yearly around the world and one third of it is coming from SMEs. In fact, thats not much and I believe we can do better than that. I am a strong believer in a common European approach. At the core of my work at IMCO Committee we prioritize the removal of barriers: in geo blocking, in creation of the digital single market. Let me emphasise – the main target here is to get the same approach, the common European Approach for all the areas of the European Single Market. I have to admit we still don’t use the full potential of our Single Market and that is the point which is applicable in the area of patents as it is a costly procedure, it is extremely fragmented, therefor I do believe that the new approach of the unitary patents is a step forward and is particularly useful for small and medium entrepreneurs. With that we do not only achieve the simplification of the process overall, but time and cost saving – as SMEs often simply do not have enough time to get the information, so you can see my point. We live in the time of Information Revolution which changes our attitude in policy making, business making, therefore the discussion is crucial for our common economical wellbeing.”

Margot Fröhlinger “The Patent System adds the fuel of interest to the fire of genius!” – this is the famous saying by Abraham Lincoln and it was written for a long time at the entrance of the US Patent office and it reflects the debate that we will have here today. Wy do we need to add the fuel of interest to the fire of genius? The answer is simple – companies need to earn money and most of inventions are made in companies and by their employees. Companies need to earn money to pay the employees and that’s how they get to invest in R&D (research and development) or Innovation only if they get a fair return on their invention. And therefor another famous American has said, it was Mark Twain: “A country without a good patent system cannot move forward, it can only move sidewards, or even backwards”. We have quite a good patent system already in Europe however our planets are still fragmented and costly and it does not work as well for SMEs as it does for big companies. SMEs in Europe account for 66% of employment, 57% of added value created in the EU economy, but only 24% patent applications to the EPO (European Patent Office). And indeed only 9% of EU SMEs are using registered IP rights – patents, trademarks and designs included. Why is that? Later on we will present our case studies on the use of the patent system by European SMEs which shows that the patent system works also in some cases for SMEs and SMEs are aware of the opportunities of the Patent System. However the fact that only 9% of SMEs are using the registered IP rights states a problem. Our colleagues from the EU IPO have looked into the reasons of this: they have carried out a study for the IP SME scoreboard and they have asked 9 thousand EU SMEs why these IP rights not as intensively as they could. 3 reasons were mentioned: 1. there is still a lack of knowledge and awareness: that is a pity and policy makers, governments, IP offices have to make a common effort to improve this situation.The other two reasons are directly linked to the fragmentation of the current system and they are: 2. the cost and complexity for registering and maintaining of IP rights; 3. the cost and complexity for enforcing IP rights. These two reasons are going to be addressed by the newly to be – created European Unitary Patent Package which will result in a major simplification, major saving of costs and time for SMEs. So when will it happen. I would like to recall the history of the creation of a Single Patent and a Single Court is older than European Union. The first work on it has started in the context of the Council of Europe at the end of the 40s of the current century. And ever since there have been several attempts which failed for different reasons. However now we are closer than we have ever been because now the Unitary Patents and the Unified Patent Court are not just a project on paper anymore – they are almost there: the premises, the process of the recruitment of judges has been launched, and even the robes for the judges have already been designed. So the UnitaryPatents will come together only with the Unified Patent Court. The Unified Patent Court is created by a International Agreement between EU Member States and will come into force only if we have collected 30 ratifications of this agreement among which should be ratifications of Germany, France and the UK. We have already 15 ratifications, among them France however two major countries are missing – Germany and the UK. In the UK internal and legislative works have been pursued despite of the Brexit, because the Unified Patent Court after all is not an EU Court, its an International Court therefor the UK wants to continue to participate in this court despite Brexit. They are ready now to ratify and we are expecting the UK very soon. As to Germany – the Parliament has given its consent to the ratification but there is a constitutional complaint by why individual attorney at law against the ratification of the UPC agreement and the ratification has been put on hold. However we are addressing this effectively with the addresses of some commentators amongst which the German Association of Lawyers, therefor we expect this complain to be rejected hopefully in the course of this year and in the meantime the colleagues dealing with the implementation of the European Patent Court continue to perfectionist the system. So it does not matter how slow it goes, it matters that we don’t stop going.”

Yann Meniere, “I am here to share some current insides on Patents and SMEs in Europe and in particular to introduce an SME case that has been published recently by the EPO that regards the role of Patents in operations of SMEs. The first statistics I would like to site are from the studies published two years ago – the Contribution of the IP Intensive Industries to the Economy of the EU. IP Intensive industries stand for those that make above average use of intellectual property rights contribute up to 42% of the GDP of the EU, Patent Intensive Industry contribute 15% to the EU GDP which is quite sizeable. They represent 38% of the employment in the EU. So if you compare 42% with 38% you may see that they contribute more to GDP rather than to the employment which means they create more value added than other industries, which is an important feature of these industries that heavily rely on innovation, intellectual assets and eventually, intellectual property rights. So. they create more added value, which means they have a higher productivity and therefor they pay higher wages and there is also a wage premium in the Patent Intensive Industries of 70% as compared with other industries. Therefor industries that are oriented towards value creation are highly productive, highly skilled and offer better paid jobs. This translates into competitiveness of the EU and the majority contributes almost 85% of the EU imports and 93% of the EU exports generating trade surplus. With our second study we could that this contribution has increased over time, so we can honestly conclude that the IP Intensive Industries are de facto the engine of the European Economy. And yet the paradox is that nonetheless they are highly performing in the EU external trade, they are not fully exploiting their potential within the EU and the EU Single Market. The reasons of that have been already evoked this morning claiming the the functioning of the EPS (European Patent System) is not fully alined with the EU Single Market, which de facto in practice means that EU Single Market for Technology does not exist yet: there are high costs of validating of the European Patents in different countries; costs and uncertainties related to the litigation fo these patents simultaneously in several countries. That creates barriers for innovators wishing to apply for patents and than validate them only in a few countries. In practice European Patents are validated in 4 and a half countries and these are not the reaches but the largest markets in the EU which means that the inventions are not protected and therefor not fully exploited in the other parts of the EU Single Market. The consequence of non-protecting inventions in some countries are limiting incentives for companies to export high technologies in this countries or to invest int he production of such in additional countries. That is why we believe that the lack of harmonisation of the system creates barriers to trade and foreign direct investment. We believe that the full harmonisation would induce 30% increase in foreign direct investment in the EU and 5% increase in trade for highly innovative industries. That would actually benefit smaller countries, like the countries of Eastern Europe. How do SMEs fit in this picture? SMEs are an important part and contributors of IP Intensive industries, their share of patent applications amounts to 24%. Putting this figure in perspective: 1, not all SMEs file patents at the EPO: many of them tend to operate on the national level and file patents on a national level, which makes them facing barriers in growing at EU scale and entering the Single Market. The 24% of the SMEs that we observe at the EPO are the jewels of the EU economy as they are highly innovative SMEs and clearly willing to grow internationally within the EU single market. We also tend to believe that this 24% is also an underestimation as half of the applications at the EPO come from non-EU companies, so if we consider only the applications coming fro the EU applicants, the share of SMEs growth to 30%, according to our estimates – 50% of applicants based in the EU are SMEs. Therefor it is important to understand what are the benefits that this population of applicants is facing. These SMEs suffer from the complexity of the system, lack of information, awareness of the potential use that they can make of patents. 38% of Medium-sized companies suffer from patent infringement. That is what motivated our SME case studies. The idea of these case study is not to produce the new statistics but to better understand how do SMEs in Europe make use of patents in order to support their development, to create value, what are the benefits that could derive from the harmonisation. For that purpose we have selected 12 SMEs as diverse as possible in terms of country of origin, in terms of sectors of industries, and in terms of their history. The two main parts are being: 1. consistent set of results about the way in which SMEs make use of Patents: they make us of patents to protect their products, to fight imitation, however we also consistently find that they have a much more sophisticated use of patents where the purpose is also not to protect innovation but also to practically use patents to communicate towards consumers and especially investors, – patents are a strong argument when attracting venture capital investors in particular. They also use patents to organise open innovation: SMEs are especially reliant on external cooperation and they use their IP to licence in and out technology and set up collaboration on international level. The conclusion is the SMEs are actively using their patents and can succeed in doing so thereby generating more value feeling their growth. Another consistent set of results confirms that SMEs indeed face difficulties in navigating the patent system: high costs of filing, legal uncertainty of litigation at the EU scale, and that is why they tend to focus their protection only on a small number of the EU markets which implies loss of opportunities. So, summarising the Unified Patent Court and Unitary Patents would bring benefit in terms of reducing red tape, reducing the cost of obtaining patent protection, wider geographic protection, at least at scale of the entire single market. It is interesting to look at the details here: what is particularly penalising for the applicants in the current system is that once that European Patent has been granted you have to quickly decide in which country you will validate it and than its too late. An an early stage applicants have to decide where they want to validate their patents and exploit their inventions and than they loose opportunities to enter other markets. Another point worth mentioning is that among our twelve studies almost none them is mentioning the litigations at the EU scale. We see two scenarios here: 1. the litigations are limited mainly to the national/domestic markets as they cannot afford to litigate in other countries. 2. they bypass Europe and conduct litigation in other parts of the world because engaging in two parallel litigations at the EU level would be too costly, therefore the interviewed SMEs highly welcome the Unified Patent Court.”

Ruben Bonet, “I would like to focus on the business aspect of how to make a technology company a successful licensing company. This has been a long way for us and not an easy journey. We are a company based in Barcelona, founded in 1999 working on antenna technology. Today we have over 14 patent families and 120 inventions which is significant for an SME. We have been able to license our technology to many different companies worldwide. At the beginning of founding Fractus we were not thinking of making a business model based on patent licensing. Our approach was to grow up a company and selling hardware to our customers and setting up facilities. The growth was fast and steady however these were also time when it was easy for our competitors to copy our technology and that was putting us in a long term perspective in a difficult position. There are different kind of technologies that are difficult and easy to replicate. Our technology is easy to replicate ones understood. Therefor we had an inevitable decision to make a major investment in a Patent Protection. Therefor a big portion of venture capital was invested in Patent Protection and thanks to that it was possible for Fractus to make a drastically change of our business model which means that instead of complementing, manufacturing, logistic operations we simply license our technology and just get a royalty from it, and we have also largely increased the market share. At the end with the Patent protection you have an additional tour of competitiveness which is to defend your technology based on the value that you provide to the end customer, not the manufacturing costs. For instance, manufacturing costs of an antenna: an antenna is just a piece of metal which is designed – the patent applies on the design and not on a cost of a metal. By using patents we have been able to achieve two goals: 1. to increase the market share by licensing many companies, especially those were we had difficulties to deliver our components. 2. to establish a fair price based on the value of the technology. The first public licensing that Fractus has closed was back in 2010 with Motorola, a US company. They took a licence from us after a long process of due diligence and research on our technology. Before that in 2009 Fractus was defending its technology on a worldwide level starting a litigation in the US against 10 different companies at once – Samsung, LG, Blackberry, Sharp – all at once with one single case in the US. Why a European Company based in Europe was not using at that time the European system? Some of the issues we already mentioned here today: one is precisely the fragmentation, because with one single litigation Fractus had access to all the US counterparts with lots of revenues and with a higher chance to reach a settlement and also the simplicity of the case. It was almost impossible at that time for a small company like us to be involved in a parallel litigation at the European level that is why it was easier for us simply to bypass the european system and go directly to the US system to defend our rights. That litigation went well and the settlement with all the companies was reached, with all except Samsung which decided to go to trial against us and we won and were awarded with 23 million US dollars. And that was the validation of the strategy that we’ve chosen at the beginning of the company to make a strong bet on our venture capital and to invest in patents. Today we continue to innovate and to invest in R&D. Our business model is based on investing in R&D and then licensing out our patents. In order to defend our rights we are involved in time to time in litigations – that’s the art of the business of licensing and patents. There are some companies that prefer to pay for the royalties right value before being involved in a litigation however there are other companies that just prefer, and particularly with SMEs, to continue to infringe and than expect your bankruptcy you go to litigation. Therefor the Fractus case is a strange case for an SME which is to have this persistance. Though we operate mainly internationally and less on the national level we have had an experience of litigation in Spain against four companies and it went successfully. However without a Unified Patent Court it would be difficult to conduct litigations within the EU as we would have to file single action country by country and it is not only difficult because of the elevated costs, but because of it is difficult for a company with 40-50 employees to manage such a litigation. A Unified Court would make a difference with one single front of action all over Europe which would make that system comparable to the system that they had in the US at least for the fragmentation issues.

Slawomir Tokarski, “The EC has adopted the IPR package last year in September with the guidelines on the implementation of the IP framework directive trying to insure the harmonisation of the directive across the Member States, one of the issues which is causing current market fragmentation. We also have a document on Standard Essential Patents talking about licensing especially in the areal of the Internet of Things. One of the objectives of these guidelines was to give more certainty and to create a more smoothly functioning of licensing environment in the sector of Internet of things which is one of the most promising for the EU economy which should also have a positive outcome for SMEs. For the first time we took an effort to harmonise all the actions that are taken in the EU in different elements of counterfeiting. In a couple of weeks there is going to be a workshop where six leading teams from all over Europe will try to work on the solution based on blockchain that should actually make impossible for counterfeited products to enter supply chain. We are also quite active in the areas of FTAs. We have the FTA with Japan, where we managed to convince our Japanese partners to approximate their system with the European one. We have also convinced our Swiss and Canadian partners to adopt the Supplementary Protection Certificates, which is a form of Intellectual Property Right patent protection that is specific only to Europe and as outcome European innovative SMEs export 4 billion eur additional product a year. As to the SMEs, I think that there was no precision when we earlier made certain comparisons between the EU and the US, especially with the 10%-20% evaluation: we should not compare 10% of SMEs in the US that are using intellectual property with 20% of share of SMEs in Europe applying for patents. The more accurate figure is actually 9% – which is a percentage of EU SMEs making any use of intellectual property. What we are trying to do is a set of actions that was announced with ensuring of startup scale up, communication, some pilot projects with a value of 5 million eur where we are trying to pioneer actions that create a sort of four cycle of IP, starting from the very beginning and ending up with the litigation process.