European Commission cheated Unitary Patent’s Impact Assessment to hide its high costs for SMEs

Brussels, 17th June 2021 — FFII has received a testimony that the European Commission has recycled an old Impact Assessment (IA) of the Unified Patent Court (UPC), in order to hide the controversial self-financed aspect of the Court, which is why the Court is too expensive for SMEs. Countries are ratifying this dangerous treaty without any real Impact Assessment of the new Court system which will exclude most SMEs with its super high costs. The Impact Assessment was recycled from old treaty project of 2009, the UPLS, with lots of changes in the meantime, similar to what happened recently with the recycling of the Impact Assessment of the Mercosur treaty.

During the ratification of the UPC in Germany, the German Liberals (FDP) asked a series of questions about the UPC and SMEs, mentioning that the European Commission recognized that there was no Impact Assessment for SMEs:

FDP: How has the government concluded that the European patent reform is beneficial to SMEs, in view of the risks for SMEs which the European Commission has admitted and the lack of a cost-benefit analysis?

The German Ministry of Justice Christine Lambrechts (SPD) strangely replied by mixing the 2 first questions, justifying the UPC with an older impact assessment made in 2009, which is strangely silent about the costs of the court system, the second part of the reform. In a 2013 analysis paper, british professor Dimitri Xenos already highlighted this anomaly:

“Although the EU Commission’s tender asked for a cost-benefit analysis, and despite the title of the document that was produced, the report failed to give due weight to the costs that will be incurred from the creation of the UPC. […] the EU Commission considers litigation costs an academic subject […]

— D Xenos, “The European Unified Patent Court: Assessment and Implications of the Federalisation of the Patent System in Europe”, (2013) 10:2 SCRIPTed 246 http://script-ed.org/?p=1071

Around early 2012, after some requests to redo the impact assessment by the Scrutiny committee of the British parliament, the representative of the European Commission Margot Frohlinger apparently refused to procure an updated one, according to a testimony we received she did not want to “redo the impact assessment because it would attract critics”. After taking this decision at the European Commission, she left to continue her career at the European Patent Office (EPO), the other self-financed administration that will grant the Unitary Patent.

A self-financed patent court is controversial, because the cost is passed on to companies that litigate in front of the court, and no courts in Europe have a self-financed objective (Art36.3 UPCA “the objective of a self-financing Court”), as courts are not companies and should not be driven by financial targets to guarantee the integrity of the justice system. If courts are driven by profit, judges will tend to apply “patent maximalism” just to guarantee their salary. FFII has already critized this aspect during its analysis of the EPLA in 2007:

“A court is not a company. Courts have to be financed by public means to ensure integrity.”

— FFII EPLA analysis, 2007 http://epla.ffii.org/analysis

In 2012, before the Unitary Patent treaty was signed, the Scrutiny Committee of the UK Parliament called for an update of the recycled Impact Assessment (IA) made for the old UPLS project of 2009, mentioning the fact that the UPC was no longer financed by funds of the European Union, and many other aspects were changed, for example removing the involvement of the European Court of Justice (CJEU) in patent law, and adding to the court a “self-financed” objective (Art 36.3 UPCA).

This explains why the UPC Court fees are so high and unaffordable for SMEs, being 20X to 250X more expensive than the current national court systems, which are financed by public budgets to guarantee access to justice. For example, court fees in Czech Republic are 80EUR, while they are of 20.000EUR with the new UPC, one of the reason why the country is not ratifying it any time soon:

Many Czech companies/individuals will simply not be able to afford to pay such high court and related attorney fees even in cases where they are convinced that they do not infringe a patent or that a patent can be successfully invalidated. As consequence, purely because of the costs, they would be prevented from defending themselves in the proceeding at the UPC.

— Kluwer Patent Blog: Legal and financial concerns: Czech Republic will not ratify UPCA any time soon http://patentblog.kluweriplaw.com/2019/09/13/legal-and-financial-concerns-czech-republic-will-not-ratify-upca-any-time-soon/

Dr Stjerna also released in a confidential document (page 8) obtained under FOIA that the court fees for a defending SME were raised in late 2015 and early 2016 from 11.000EUR to 20.000EUR, making the case for a software company having to defend itself against a patent troll in court even worse. The hidden reason behind that doubling of the court fees is the budget needed to pay the staff of the Court, such as the salaries of the judges.

The European Commission was also aware in 2015 of that those fees might “hit SME hard”:

“The cost exposure for IP rights and particularly patent litigation is significant, hits SMEs disproportionately hard and acts as a serious deterrent for SMEs to engage in patenting in the first place. Indeed, under the Unified Patent Court, firms that lose a legal dispute will have to pay the court fees of the winner (provisionally estimated at a fixed fee of EUR 11 000 plus a value based fee of up to EUR 220 000). To this have to be added the winner’s legal costs, which on the basis of the draft Unified Patent Court rules could amount to up to EUR 3 million. In addition, the losing party will typically also be required to pay damages.”

— Commission Staff Working Document, A Single Market Strategy for Europe – Analysis and Evidence, 2015 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015SC0202&qid=1485438520140&from=EN

Court fees in Belgium are 165EUR for a case in the first instance court, and 400EUR at the second instance court. Belgium ratified the UPC in 2014 like a “cat in a bag” without knowing what would be the final court fees, which were decided in 2016 outside of any parliamentary debate.

Court fees in the Netherlands are 667EUR, as explained by Rik Lambers of Brinkhof:

“Patent cases are ranked in the category ‘undetermined value’, which currently results in court fees of € 667 (for legal entities; natural persons pay € 309). […] So, the court fees are (relatively) really low in Dutch patent cases.”

— Kluwer Patent Blog: A Dutch Treat – Picking Up the Bill in Patent Litigation http://patentblog.kluweriplaw.com/2021/03/10/a-dutch-treat-picking-up-the-bill-in-patent-litigation/#comment-38198

Each time people asked questions about the expensive court fees, the proponents of the project turned down the questions.

FFII asked a lawyer specialized in patent disputes, and he said the lawyers fees will also be on the rise with the new Court system, as the tight schedule of 12 months imposed by the Court will require the staff of lawyers to work during the night and in the week-end, and charge more as usual. This system of tight agenda has been copied from the expensive British legal system, which is different from the continental one. He estimates that a simple dispute will cost around 150.000EUR under the new system.

The European Ombudsman has also recently recognized a ‘maladministration’ by the European Commission for recycling old Impact Assessments on the Mercosur trade agreement.

In 2013, the scrutiny committee of the British Parliament threw away this “impact assessment” for being “outdated” and “full of errors”:

We share the concerns expressed by the professions that the UPC will be prohibitively expensive, and also take the view that the EU impact assessment needs to be urgently revisited.

— House of Commons European Scrutiny Committee, “The Unified Patent Court: help or hindrance?”, Sixty–fifth Report of Session 2010–12, Page 41, Paragraph 135, Cost of litigation and effect on SMEs)

Benjamin Henrion, President of FFII, says:

Why is the Unitary Patent Court so expensive for SMEs? Because it is self-financed over the companies that litigate in front of the court. And why is it self-financed? Because the patent establishment wanted its own court outside of EU funding, the democratic control of the European Parliament (EP) and the European Court of Justice (CJEU). A self-financed court is unacceptable, it will promote patent maximalism and damages in jobs, for its own profit, like the EPO which finances itself over the number of patent it grants.

Job losses in the software sector happened in the United States with specialized patent courts like the CAFC before the Supreme Court intervened with multiple landmark decisions. We won’t have that chance with the UPC, as the CJEU has been excluded of interpreting patent law, and software patents in particular.”

FFII already predicted in 2007 a more expensive litigation system for SMEs with the predecessor of the UPC, the EPLA:

Litigation will be more expensive, for no discernable advantage […] The EPO itself concludes that EPLA litigation will be less expensive, but can only reach this conclusion by adding up litigation in 3 countries. Since most patents are in practice currently enforced in only one jurisdiction, this is a nice example of playing with statistics. EPLA will be good for those with deep pockets, the multinationals and patent trolls. For SMEs, the situation will be worse. Already, litigation is often too expensive. More often they will not be able to enforce their patents. More often they will be forced to settle if accused of infringement. And all this, without “discernable advantage” “.

— FFII EPLA analysis, 2007 http://epla.ffii.org/analysis#toc3

Florian Mueller (who later founded the FOSS Patents blog) also predicted the same back in 2006 in his analysis:

“The EPLA runs counter to an SME-friendly policy because it would hugely increase the cost of patent litigation for the vast majority of all cases, while only reducing the cost of a very few cases of multi-jurisdictional litigation (which are only of concern to corporations large enough to afford it anyway).

— Florian Mueller, Future European Patent Policy, 24 September 2006

Past-president of FFII, Pieter Hintjens, also predicted the future, with his sarcastic poster during the software patent directive:

“Vote for software patents [the UPC] now, and help us destroy the SME plague, leave business to big business!”

— PF-PF: Vote now for software patents and help us to destroy the SME plague http://web.archive.org/web/20051217065612/http://pf-pf.org/pf-pf-A3.pdf

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