While ACT enjoys some support from larger “platform” firms such as eBay, Oracle, Verisign and Microsoft, represent smaller, entrepreneurial tech firms that use that use these platforms, like Sax Software, TechTalk, Galleria Retail Technology Solutions, Premitech, and Tribeka Converging Technologies.  These smaller firms have always been the driving force for innovation and job creation in the IT industry.  Additionally, their software and services have fueled much of the productivity improvements in the financial, manufacturing and information services.

For many years ACT has been an active participant in the debate about the reform of the patent system in the United States.  ACT believes that its experience, broad representation and international view can bring a valuable perspective to the debate on patents started by Commissioner McCreevy.

ACT therefore welcomes this opportunity to respond to the European Commission’s consultation document on the Future Patent Policy in Europe.  The imperfect functioning of the patent regime in Europe was noted during two focus group meetings organized by ACT (on 7-8 November 2005 in Barcelona and 11-12 February 2006 in Prague) as one of many problems preventing information and communication technology (‘ICT’) entrepreneurs from benefiting from a healthier tech environment in Europe.

ACT’s members are convinced that a strong, efficient and effective regulatory framework for intellectual property protection, in particular patent protection, lies at the very heart of the innovation process.  This is all the more true for small- and medium-sized innovators, which have fewer ancillary advantages in a competitive market.

Section 1 – Basic Principles and features of the patent system

Question 1.1) Do you agree that these are the basic features required of the patent system?

ACT agrees that the features outlined by the Commission in Section 1. are those of an attractive patent system.  Below, we will set out which aspects of a functioning patent system are most important for ACT’s members, and why.

Patents are a part of everyday commercial life.  Companies – large and small – make investments in innovation and research & development only if they are certain that they will be able to reap the rewards of that investment.

A robust and accessible patent protection system is particularly important to ACT’s members.  It is equally true, however, that patent systems should not be operated so as to grant patents of questionable scope and quality.  To do so makes a mockery of the system overall and will lead to more harm than good to the very enterprises the patent system is intended to benefit.

SMEs have a particular need for a strong and accessible patent system, because of the following three reasons:

1.  Patents attract investors

Venture capital will only be invested in SMEs if there are good prospects that there will be a profitable rate of return for the investor.  Having a robust and accessible patent protection regime in place helps SMEs attract much-needed capital: companies are able to demonstrate that their future inventions will be protected by law, and therefore their business is worth investing in.

2.  Patents provide a leverage for SMEs

A strong and accessible patent regime provides security for SME business models.  Specifically, patents allow SMEs to:

• protect their inventions against larger companies, competitors and patent collectors that could otherwise take and unfairly exploit their ideas.  The issue here is not “big versus small” but instead “innovators versus producers”.  A patent is an instrument in the hands of an innovative company to recap investments, which is of particular importance in the rapidly changing ICT field.
• negotiate with larger companies, venture capitalists, international partners.  Because SMEs are so dependent on third parties, patents provide SMEs with the necessary protection and thus SMEs will have more confidence to talk to these third parties.  In turn, third parties take SMEs more seriously if they own patents.
• speed up the process and the negotiation with other players, which again is of particular importance in the rapidly changing ICT field.

3. Patents are an asset and provide flexibility

Patents help to ensure ROI primarily by turning the innovations of an SME into a tangible asset that provide business model flexibility.  That asset means that SMEs have the option to develop, brand, market, and distribute their products (relying principally on trade secrets and copyright), or simply specialize in innovation and license the results to others to bring to market.  Small innovators do not have the same resources as their larger competitors, especially in terms of market reach, and are often best served by specializing in what they do best – developing innovative technological solutions.

We have  listed in Annex 1 to this questionnaire some of the concrete  reasons given by three European SMEs in the ICT sector as to why they believe patents are important to their business.

Question 1.2)  Are there other features that you consider important?

While there are obviously many advantages for SMEs to own patents, it is extremely important to ACT members that patents are not granted lightly.  The very important policy goals of the system overall can be achieved only if inventions meet the necessary patentability standards.  Claims in a patent application define the invention for which protection is sought and must be clear, concise and supported by the description.  There also must be a rigorous search of the prior art and a proper determination made as to whether the invention is new and inventive.

Everyone involved with the patent system in a constructive way should be passionate about wanting to see these standards met – in every case.  This is certainly the position of ACT – the goal is not to have more patents, it is to have higher quality patents.  It is essential that ACT members have easy access to patents, so as to obtain the protection they need and deserve.  However, equally important are the limits imposed by the standards for protection and the process that applies to those standards.  Without a rigorous application of those standards, ACT members may be confronted by patents that should never have been granted and that interfere with their business operations.  A high quality patent system will, according to ACT, have a positive impact on European innovation.

Question 1.3)  How can the Community better take into account the broader public interest

The patent system already takes the public interest into account.  The public gets the benefit of many, many new products and services that result from the sophisticated research and development that patents fund.

While ACT believes it is important for the Commission to take into account the opinion of the general public, it encourages the Commission to pay particular attention to the needs expressed by those smaller companies in the ICT sector that are responsible for the creation of new jobs and rapid growth.

In this context, the issue of “broader public interest” needs to be taken at a more strategic European level.  In other words, account should be taken of the overall objectives that Europe has set for itself as a global player: patents should be considered as a key ingredient to ensure innovation and competitiveness, hence as a necessary tool for Europe to achieve the Lisbon agenda objectives.

Section 2 – The Community Patent as a priority for the EU

Question 2.1) By comparison with the common political approach, are there any alternative or additional features that you believe an effective Community patent system should offer?

ACT considers it unfortunate that concerns of some Member States have prevented the Council from adopting the Commission’s proposal for a Community Patent, which would have allowed for a single patent that would be legally valid throughout the EU.  ACT hopes and expects that the Commission’s present consultation and and ongoing efforts will lead to the ultimate, if not immediate adoption and implementation of a Community Patent system.

Consistently ACT members have expressed what might be considered a politically naïve but disarmingly cogent desire for a unified patent system in Europe.. Focused less on the complexities of multi-state politics in the EU and more on the myriad of challenges facing European SMES in the world market, the message from ACT members is “Get it done.” ACT is convinced that a Community Patent system will provide a boost to the use by its members of patents as a valuable and cost-efficient means to protect their investments.  If a Community Patent system were available, the use of patents by ACT members will almost certainly increase, to the benefit of patent-users and to the benefit of Europe’s economy.  The current patent system in Europe unfortunately remains for many of ACT’s members a missed opportunity for additional research, development and innovation by SMEs.

That said, the challenges achieving unanimous consent on a community patent system, or any issue for that matter, in Europe are many and increasing and it is probable that adoption of a Community Patent is not feasible at present. The best course of action at this juncture may be the aggressive pursuit of interim measures which would make the system more accessible to SMEs in the short term while remaining vigilant for opportunities to pursue the ultimate objective in the patent system as elsewhere in the EU, a single market.

ACT would like to make the following remarks on a future Community Patent system:

Make access as simple and easy as possible: ACT believes that the simpler the procedure to obtain a Community Patent is, the more it will be used by our members.  SMEs would strongly benefit from having a one-stop-shop where all necessary information as to how to obtain a Community Patent would be available.  The information should be easily accessible on-line, but it should also be possible for SMEs to obtain assistance in-person.  A permanently manned help-desk could be created that would guide interested SMEs through the patent application process.  In general, any measure to facilitate SME access would be welcomed by ACT.

Make costs as low as possible: While patent quality is the highest concern, ACT believes it is crucial to have an affordable patent system so that SMEs can use it to the fullest extent possible.  Obtaining patents in other jurisdictions such as the United States and Japan can be done for a much lower cost than in Europe.  There are many measures that European Institutions can take to reduce the costs of obtaining patents – for example by reducing administrative fees, simplifying language and translation requirements, providing financial support for SMEs, etc – without harming quality, that would be welcomed by ACT.

Allow only high quality patents: as stated above, everyone involved with the patent system in a constructive way should be passionate about wanting to see rigorous substantive standards met – in every case.  The goal is not to have more patents, it is to have higher quality patents across all categories of solutions.

Allow patents of a unitary nature: ACT believes that its members would benefit if it were possible to obtain a single unitary patent right which would be valid across all European Union Member States.

Provide legal certainty: our members support the Community Patent because it would allow them to invest in an environment with predictability and legal certainty.  One language and one legal system should be the ultimate goals.  ACT believes that disputes with respect Community Patents should be heard before a centralized single Court, with pan-European jurisdiction, within the framework of the European Court of Justice.

Section 3 – The European Patent System and in particular the European Patent Litigation Agreement

Question 3.1) What advantages and disadvantages do you think that pan-European litigation arrangements as set out in the draft EPLA would have for those who use and are affected by patents?

In light of the time that the process to implement the Community Patent will require, and of the immediate need of an accessible and simplified system for the industry, ACT would welcome other initiatives as valuable intermediate steps to get closer to the ultimate objective of unification. Therefore, other avenues should also be explored at the same time, including the draft European Patent Litigation Agreement (‘EPLA’).  This Agreement would commit signatory states to set up a judicial system with uniform rules of procedure and a common court of appeal.  The EPLA may to a large extent solve the litigation consistency problem described above.

Given the above-mentioned advantages of a Community Patent system, ACT prefers a regime that is built on Community Law and Community Courts over a regime that is built on courts under the European Patent Convention, i.e. outside the tried and tested Community judicial system.

However, there is a good reason to also continue to pursue the rapid adoption and implementation of the EPLA.  There are a great number of European patents that have been granted in the past, and that would not necessarily be transferred into Community patents.  According to the EPO[2] “[a]lmost 650,000 European patents have been granted to date, corresponding to 1.5m national patents which are effective in Europe.  This number will soon reach 2m patents.”  These existing European patents may obviously, at some time in the future, require litigation.  As the EPO correctly notes, “[f]or these patents the only feasible litigation solution is the European Patent Litigation Agreement.”[3] Being able to rely on the EPLA for existing (and future) European patents would make litigation more time and cost effective for users, including SMEs.

Equally, it would benefit SMEs if the London Agreement on patent translations (a protocol to the European Patent Convention) were to enter into force soon.  A potential reduction of 50 % of translation costs[4] would make patent protection for SMEs much cheaper, and thus would allow a greater number of ACT members to enjoy the above-mentioned benefits of owning patents.

Question 3.2)  Given the possible coexistence of three patent systems in Europe (the national, the Community and the European patent), what in your view would be the ideal patent litigation scheme in Europe?

In ACT’s view, it should be possible to have three patent systems co-exist side-by-side.  ACT would welcome if companies were to have the option of choosing to use either a national patent system, a European Patent system or a Community Patent system.  Indeed, the adoption of a Community Patent system should not lead to the elimination of the national and European Patent systems.  With respect to the “ideal” patent litigation scheme, ACT believes, , that an important disadvantage of the current European patent system is that patents can be challenged and thus litigated in each and every country where the European patent is valid, on the basis of national law in the same way as national patents – without a common court of appeal to resolve differences between interpretations of national courts.

ACT favours that patent disputes should be heard before a centralized single Court, with pan-European jurisdiction, within the framework of the European Court of Justice.

Section 4 – Approximation and mutual recognition of national patents

Question 4.1)  What aspects of patent law do you feel give rise to barriers to free movement or distortion of competition because of differences in law or its application in practice between Member States?

Experiences from our members have underlined that language and legal fragmentation across Europe are the main deterrents for SMEs preventing them to apply for patents to protect their inventions. These two aspects of the current regime increase costs and provoke lack of legal certainty.

Question 4.2)  To what extent is your business affected by such differences?

Examples from our members underline that these differences have a two-fold consequence:

·  they prevent SMEs developing their business across the EU; and

·  they encourage SMEs to target other markets where the patent process is easier and more accessible and where the outcome is more predictable.

For more about how SMEs make use of patents and the problems that they encounter, please see Section 5.4.

Question 4.3)  What are your views on the value-added and feasibility of the different options outlined above?

ACT favours any option that would make it easier for its members to rely on the use of patents.  It encourages the Commission to further explore whether any of the three options mentioned in the introduction to Section 4 could be adopted, if it were to prove impossible to reach rapid agreement on the Community Patent.

However, the Community Patent needs to remain our main and ultimate goal.

Question 4.4) Are there any alternative proposals that the Commission might consider?

Legal enforcement of patent rights through the court is always very costly for an SME, particularly when the infringement has taken place in several countries, and the SME has to enforce its rights in different places before different courts.

ACT suggests exploring the use of an “alternative dispute resolution” mechanism (such as arbitration or mediation) which is generally less costly and less time-consuming for SMEs.  This would require an agreement between the parties to the dispute for it to be settled by:

• mediation, with the intervention of a neutral intermediary, the “mediator”, endeavoring, at the request of the parties, to assist them to a dispute in reaching a mutually satisfactory settlement. The mediator does not have any power to impose a settlement on the parties;

or

• arbitration, a procedure whereby a dispute is submitted, by agreement of the parties, to an arbitrator or to a tribunal of several arbitrators who give a decision on the dispute that is binding on the parties.

Section 5 – General

Question 5.1)  How important is the patent system in Europe compared to other areas of legislation affecting your business?

Question 5.2)  Compared to the other areas of intellectual property such as trade marks, designs, plant variety rights, copyrights and related rights, how important is the patent system in Europe?

For ACT members, the patent system is one of the key areas of European legislation that affects their business, and the most important of all areas of intellectual property.

In an era where interoperability is increasingly important, patents have become critical to smaller software innovators.  Using their institutional advantages of market penetration, geographic reach, promotional dollars, etc., larger competitors can simply co-opt the copyrighted inventions of smaller firms. Within months, they can reverse engineer their technologies and quickly distribute the new products through their well-established pipelines.

Trade secrets, a previous favorite of software developers, are also insufficient in an era where interoperability and cooperation are paramount. Attempting to maintain trade secret protection while sharing code and other valuable information becomes very complex and inefficient. Further, trade secrets burden the developer with demonstrating their means of protecting that secret and the consistency of that protection. In the real world this is a question of resources, an advantage smaller firms do not have.

In addition to improving Europe’s patent system along the lines set out by ACT in this paper, other urgent measures should be taken.  By tackling over-regulation, educating ICT entrepreneurs to be better businessmen and engendering an entrepreneurial mind-set within Europe, EU Member States and EU Institutions could create the right atmosphere through which to assist ICT entrepreneurs in Europe to benefit from a healthier hi-tech business environment.

Question 5.3) How important to you is the patent system in Europe compared to the patent system worldwide ?

Speaking for ACT’s European members, the patent system in Europe is the most important patent system, compared to the patent system worldwide.  As SMEs, many of our European members focus their business model on the European markets.

Some of our members informed us that they would have been willing to focus their business model on the European markets, but the cost and a lack of a predictable and consistent European legal system prevented them from doing so.  Instead, they chose to obtain patent protection in the US, rather than in Europe.

Some other members have already taken (or would like to take) their business global.  They already have (or would like to have) patents in both the US and in the EU.  As is well known, the ICT sector is one of the most global sectors.

In conclusion, for our members the local as well as the global opportunities offered by patents are fundamental for the growth of their business.

Question 5.4) If you are responding as an SME, how do you make use of patents now and how do you expect to use them in the future?  What problems have you encountered using the existing patent system?

Several of our SME members have filed patents to protect their innovations in competitive markets.  In some cases, patents are used to protect disruptive technologies, whose revenues and commercial benefits are expected at some future and where the element of risk is very high.

Although patents represent a commercial asset for SMEs, most of our members are truly innovative companies whose business model is based on continuous development of innovative solutions. They don’t foresee a purely defensive use of their patents.  Instead, they intend to benefit from patents in the following ways:

·  license their innovations to earn revenues and recoup their investments.

·  enable them to specialize and focus on innovation, by licensing invention and using the revenues to develop further solutions.  This is particularly important in the rapidly changing ICT sector, where markets and solutions are constantly developing.

·  be in a strong position to establish agreements with a number of international partners.

However, some of our members highlighted that, despite considering filing patents at European level, they ultimately decided not to because of a number of reasons that, despite national differences, are recurrent. Namely:

·  excessive translations costs

·  high administrative burdens

·  fear of litigation, worsened by the fragmentation of the legal system in the EU

·  searchability and transparency issues, linked to the difficulties of finding information on what is patented already – this has a three-fold effect:

–  it prevents investment in innovation, by making it difficult to verify what’s already on the market and therefore what is really innovative.

–  it increases the fear of litigation due to violation concerns.

–  it makes enforcement procedures extremely difficult for SMEs.

·  time limit – suggestion: to lower the first term to 10 years and give the opportunity to renew it every 5/7 years. This would mean to prove over time the real innovative contribution of the solution

·  overall cultural environment is often not supportive of IP protection. This is reflected also in a low level of awareness from SMEs of the benefits of patents for their business.

Question 5.5)  Are there other issues than those in this paper you feel the Commission should address in relation to the patent system?

Governments and patent offices should be encouraged to adopt discounted fee structures for SMEs.  This could be funded, at least in part, by eliminating ‘fee diversion’—the process whereby some Member States use patent application and maintenance fees for non-patent purposes.

Annex 1: (See question 1.1 of this questionnaire).

Please find herewith concrete reasons given by some of our European SMEs in the ICT sector as to why they believe patents are important to their business

Annie Brooking’s company, Astron Clinica, a UK SME with 24 employees, has revolutioned the way doctors can detect skin cancer and other dermatological diseases.  The SIAscopy™ technology uses a type of digital photography to enable doctors to see exactly what is going on beneath the skin up to two millimeters without making a single incision.  The technology includes hardware, but the real innovation behind SIAscopy is the sophisticated computer models and software that took years of research and development.  All of the company’s six patents are on research intensive software-based innovations.  According to Annie, “patents continue to be instrumental in demonstrating the value of our unique innovations to investors and potential licensing partners.”

Jan Ishøj Nielsen, CEO of Premitech Inc., a SME in Denmark with 21 employees, developed a software program that notifies companies about problems with their IT system.  The company’s Performance Guard™ software monitors the performance of individual PCs, the network and servers throughout the enterprise to give IT managers deep insight into performance issues and proactively make changes to prevent them.  Premitech’s business model is to focus on inventing groundbreaking new technology, and work closely with large companies to bring it to market through their existing global networks.  According to Jan “patents allow us to collaborate with large firms while still protecting our inventions – they make it possible for SMEs to innovate.”

Daniel Doll-Steinberg founder and CEO of Tribeka, a UK SME with 42 employees, created Tribeka Softwide™ technology which allows customers to walk into a store, choose from  almost any software product ever created, and walk away with a secure, boxed copy licensed and manufactured in under 4 minutes.  According to Daniel, “the company only survived because patents gave investors the confidence they needed to invest in the technology and the company.  Their investment enabled the company to hire the staff necessary to finish developing the technology and bring this innovation to market.”  Patents provide SMEs like Tribeka the security to create award winning innovations and new jobs for the citizens of Europe.  Without them, we would not have been able to make Softwide or our successful “A World of Software” stores a reality.

Please note that these and other statements are available on-line at www.iinnovate.org

[1] How it got started: in 1998, governments across the world were busy debating issues like the Y2K crisis, anti-trust in the new economy, encryption exports and broadband.  But when debate turned to serious discussions about how government needed to ‘fix’ the tech industry, even executives of smaller firms started to take notice.  While these executives were finally awake to the direct and immediate threat of heavy-handed government regulation, none of them had their own lobbyists or government affairs staff.  Yet, with so much at stake, they realized that small tech firms could no longer remain in the silent majority of international business.  Later that year, several executives of small technology firms came together to create the Association for Competitive Technology (ACT).  Since its founding, ACT has been the leading voice for the entrepreneurial tech firms that are so critical to our world’s economy.  Since its inception ACT has found that many of the issues that face SMEs are global in scope.  This has led SMEs from outside the United States, in Europe and Asia joining as members.

[2] Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents, Annex I, European Patent Office acting as secretariat of the Working Party on Litigation, February 2006.

[3] Id.

[4] Id.