Tuesday 19 February 2008

The London Agreement. A good news-bad news story!

The European Patent System is expensive and slow. The graph shows typical costs.

The main gripe for patent users comes at the end of the process and once a European patent is granted. It is then up to the patent proprietors to determine the geographic scope of protection required: they can “validate” their patent in up to 34 member states of the European Patent Organisation.

In the validation phase, the European patent must be translated into the official languages of the states in which the patent proprietor is seeking protection. According to the European Patent Office "this places a heavy financial burden on companies: for example, having a European patent fully translated into one other language costs approximately EUR 1 400".

Various companies including RWS Translations and many firms of Patent Attorneys offer translation services and have done very well under the current arrangement.

In an effort to reduce costs, a number of member states have signed up to the London Agreement which dispenses with some of the validation formalities, particularly translations. The European Patent Office estimates that there will be savings in translation costs of around 45%.This Agreement comes into force on 1st May 2008.
So what is the relevance for investors?

Good news - for investors in companies that use the European Patent system. The "back-end" costs are going to reduce which will lessen the financial burden on users or allow protection to be extended to other countries.

Bad news - for investors in providers of IP support services.
For example, buried in the 2007 Annual Report issued by RWS Holdings is a statement concerning the impact of the London Agreement on RWS. The company estimated a reduction in profit before tax would be of the order of £1 million in the financial year ending 30 September 2008 and £2 million in a full year. Profits before tax for 2007 were over £10m - a hefty reduction - ouch!

Investors should look carefully at the impact of this agreement on other businesses operating in this sector.

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