EPO Releases Annual Report on 2017 Patent Activity: Interesting Stats

The EPO has released its annual report for 2017 patenting activity.  Notably, patenting and patent filings are trending up at 3.9% and 4.4% respectively.  In the electrical engineering field, patenting is up in the audio visual space by 10.6% and semiconductors by 13.5%.  In instruments, patenting is up in optics by 15.6% and analysis of biological materials by 12.5%.  In chemistry, biotechnology is up 14.5%, but micro-structural and nanotechnology is down by 12.6%.  Interestingly, US nationals as first inventor lead patent applications in the EPO with a 26% share.  The EU member state inventors as a whole have more nationals as first inventor (47% total).  However, Germany, the leader in the EU, has a 15% share.  Japan has 13%, and China has 5%.  The top three technical fields in patent applications are 1) medical technology; 2) digital communication; and 3) computer technology.  The top ten applicant companies are: 1) Huawei (China); 2) Siemens (EU); 3) LG (Korea); 4) Samsung (Korea); 5) Qualcomm (US); 6) Royal Phillips (EU); 7) United Technologies (US); 8) Intel (US); 9) Robert Bosch (EU); and 10) Ericsson (EU).  Sixty-nine percent of the total applicants are large entities.  Twenty-four percent are SMEs/individual inventors.  Seven percent were universities/public research.  Interestingly, SMEs/individual inventors share is down from 28% in 2016.  Universities/public research is up 1 percentage point from 2016. 

After Dieselgate comes a multi-million Euro claim for inventor compensation

One of the more esoteric aspects of IP finance is the need to pay extra compensation for inventors in many countries. Whereas some countries consider that an inventor is adequately compensated by his salary when she or he makes an invention, others, like the UK, adopt a position that extra compensation is payable if the invention is somehow (see sections 40 and 41 of the 1977 UK Patent Act).

Germany’s body of law is probably the most comprehensive anywhere. Every inventor is entitled to some level of compensation depending on the use made of the invention. There’s a seperate Act of the Bundestag devoted to claiming rights to the invention, the requirement to keep the inventors involved in the prosecution of the application as well as on compensating the inventors. The Ministry of Labour has also issued a series of Guidlines on how to calculate the level of compensation.

Many inventors dream of fortunes to be made. And earlier in his career, this blogger used to regularly deal with inventors who came to his office expecting a massive salary boost. Several hours of calucation later, they were often politely informed that the amount due was a couple of hundred D-Marks.

Occasionaly some inventors struck it big and Reuters has a great story about a former Volkswagen manager Wolfgang Schreiber (former Bentley/Bugatti head) who is now looking for EUR 20 Million in compensation for use of his invention of the dual clutch gear box. Rumours abound from time to time about large claims being made. Few ever come to court as employees are required to use the arbitration service of the German Patent and Trade Mark Office initially. It’s not clear whether he will get the claimed level of compensation. It’s going to probably depend on the value of the invention actually incorporated into millions of Volkswagen cars. Given that most inventions build on existing ideas and that cars incorporate ideas from hundreds of patents, Volkswagen will probably have a different idea of the value than the inventor.

Nespresso - or nothing

The German Handelsblatt newspaper is reporting that the German Federal Patent Court based in Munich has declared invalid "Nestlé’s patent for the Nespresso coffee system”. It’s part of a long-running dispute between the former CEO of the Nespresso division, Jean-Paul Gaillard, and his former employer. Mr. Gaillard started up a rival company the Ethical Coffee Company offering biodegradable capsules.

Given that Nestlé has, apparent 1,700 patents on its system (at least according to this New York times article), the revoked patent probably only represents one of aspect of the Nespresso system, but probably a key one for competitive capsules. The market for such coffee capsules is apparently EUR 13 US billion dollars annually, of which Nestlé apparently have a CHF 4 US billion (according to the Handelsblatt). Clearly the loss of any key patents could dent significantly Nestlés share of the market.

It’s not the first time that Nestlé have lost against the Ethical Coffee Company, since the Düsseldorf Regional Court had already refused an emergency injunction in 2012 (reported in the Financial Times) on the grounds that purchasing a machine gave the user a right to use the device. Nestlé were reported to have abandoned their complaint in 2014

This blogger regularly deposits into his rubbish bin a bag-full of capsules and would certainly be keen to buy ecologically friendly capsules instead of filling up the local rubbish dump. To date his local supermarket - just outside of Munich - has not offered any alternative capsules and so he has not had any choice. It’s not clear whether he will get that choice in the near future, because Nestlé can still appeal to the German Federal Court in Karlsruhe. 

Patent Box Regimes Globally - OECD/G20 respond

The UK's patent box regime  under which companies can get significant tax reductions for income deriving from patented products has been criticized by several countries, notably Germany (see here), as resulting in unfair competition for foreign investment. This blog noted back in July that the EU commission was looking into the issue.

Germany's Finance Minister lecturing his audience
about the evils of the patent box

The OECD in conjunction with the G20 group of major economies has now published a detailed report (available for download here) on countering harmful tax practices more effectively. It includes a number of pages devoted to the patent box regime and seems to approve generally the UK practice, which differs from other countries with similar regimes. One issue that appears to be controversial is the extent to which outsourced research and development activities can later qualify for tax relief, and both the UK and Spain entered reservations on this section of the report. The report emphasizes that marketing-related IP assets such as trademarks should not qualify for the tax benefits, which would appear to impact on schemes in some countries.

It's probably not surprising that the report is at least generally supportive of favourable tax treatment of intellectual property given that a number of countries have introduced such regimes over the years (although Ireland abandoned their tax break, as reported here). The report's main recommendation is that there needs to be a clear link between the revenues and the IP right. This will probably complicate calculations in the future, but the authors noted that taxpayers may chose this in order to exploit the opportunity to benefit from an optional tax benefit. Indeed by harmonising the reporting requirements among different jurisdictions may lead to an overall reduction in complexity.

German chancellor Angela Merkel's
X-ray eyes 

And Germany's response? Well, the news magazine Spiegel reported over the weekend that the German finance ministry was considering introducing a patent box benefit in Germany and the German Industry Group BDI welcomed this move on Monday.

File downloading is cheap in Germany

This blogger knows one or two people who have MP3 players, some of which include songs which may or may not have been downloaded illegally (he would prefer not to know), but he's always interested to see how much an illegal (and in Germany criminal) download would cost. Fortunately he lives in Germany and is rather pleased that the Hamburg District Court  has decided that it's only EUR 15 per download (as report in the German language Beck website).

The 16 year old infringer happily used his father's Internet connection to place a couple of titles onto a file sharing site. The court concluded that these had been downloaded around 100 times and then applied the tarifs from the German collecting society GEMA. An arbitration case between GEMA and the German BITKOM information technology association adopted a similar level.

A mere 15 Euros seems a little low when one considers the penalties in the United States. However, German law on damages doesn't like the concept of punitive damages - and merely looks at replacing the economic damage suffered by the IP rights holder. The level tends to be set at the level that an arms-length negotiation between the rights holder and a potential licencee would establish - a so-called "fictitious licence agreement". It's probable that the court in this case was influenced by the young age of the infringer.

The IPKat has also blogged this here.

The Hamburger Court's press release is here (but the case is not yet reported in full).

Guide to McDonalds Restaurants in Hamburg here.

Typical Licence Fees in Germany

My attention has just been drawn to an interesting article published in the German-language IP journal "Mitteilung der deutschen Patentanwälte" by Michael Trimborn of Osborne Clarke in Cologne. Prof. Trimborn has reviewed published German court decisions and arbitration awards relating to patented products since 1995 and produced a table which has been published in the journal.

The article can be purchased here.

One point that needs to be made is the difference in the manner in which the awards are calculated. One set of figures relates to awards made against infringers. Another set is based on compensation made to inventors under the German Law on Empolyee Inventions (for more details see the German Wikipedia article).

Double licence fee for ringtones refused

According to a 24IP Law Group News Flash last week, the German Bundesgerichtshof has ended a dispute between artists and music publishers on the one side and professional ringtone providers on the other, concerning an additional royalty for ringtone arrangements of popular music songs.

According to the most recent decision, it is usually sufficient to pay the royalty to GEMA (the Society for musical performing and mechanical reproduction rights) in order to obtain a licence to convert a musical song into a ringtone. The precedent for this is a dispute between Frank Kretschmer (composer of the Jeanette Biedermann hit single “Rock my Life”) and the German ringtone provider Telemedia. After Kretschmer demanded a separate royalty for the conversion of his song into a ringtone, Telemedia stated that it purchased a licence from GEMA in which the conversion of the song into a ringtone was included.

The Regional Court of Hamburg initially decided in favour of Kretschmer (18 January 2006, file 5 U 58/05), holding that ringtone providers were obliged to pay a separate licence fee for the conversion of musical songs into ringtones and observing that the musical compositions are shortened and digitally edited to a few beats for the use as a ringtone. The songs were thus transformed into a signal which did not include the composer’s initially intended musical and sensual experience. The Court compared the conversion of a musical song into a ringtone with a form of merchandising use that required the composer’s approval.

The recent decision of the Bundesgerichtshof has now made it clear that the amendments to the GEMA agreement of 2002, 2005 and 2007 included the assignment of rights concerning the conversion of musical compositions into ringtones and required no further assignment of rights by the composer or music publisher. The Court said it was obvious that the conversion of a musical song into a ringtone required shortening and digital editing. The musical song is transformed into a signal which is cut off by answering the phone. Furthermore it is obvious that a ringtone consists of the repetition of a small section of the respective musical song which does not necessarily need to include the beginning of that particular song. Telemedia still had to pay a royalty to Kretschmer though, since his GEMA contracting agreement was signed in 1996, before the amendments for the conversion of musical songs into ringtones were included.

This recent decision will have a tremendous financial impact on both ringtone providers and the composers and the publishing industry. Ring tone providers may seek to claim a refund of royalties already paid in respect of songs of composers who signed the GEMA agreement's 2002 version.

Bilanzrechtsmodernisierungsgesetz

The German government recently issued its draft law concerning the modernisation of company annual accounts. The Bilanzrechtsmodernisierungsgesetz implements the EU Directive 2006/43/EC into national German law and also updates the rules on drawing up company balance sheets found in the German Commercial Code (Handelsgesetzbuch).

For particular interest to IP practitioners are the changes to Sec 248. Paragraph 2 currently reads that a value for intellectual property developed by a company cannot be entered onto the balance sheet. IP acquired from another entity can be placed on the balance sheet.

The new law proposes to bring the German practice closer to IFRS regulations. Paragraph 2 will be deleted completely. The memorandum attached to the draft law states that this means that due to the requirements of Sec 246 there will in future be a requirement to include a value for intellectual property in the balance sheet as long as this item of property can be separately commercialised, for example by sale or by use.

An amendment to Sec 255, Paragraph 4, states that the value assigned is that of the market value - but if none is available then generally acceptable accounting rules can be used. If no possible value can be drawn up then the value assigned will be that of the development costs for the item of intellectual property (but note that research costs are not included as these are considered to be general costs - and not linked to the development of the intellectual property). The memorandum states that it is "recht einfach" (i.e. easy) to make the distinction between research and development costs - however in practice this is likely to be much more difficult than it seems at first glance.

The rules for drawing up the balance sheet listed in Sec 266 are amended to include an item for self-created intellectual property.

Finally in order to protect creditors the new law also incorporates a provision (Sec 268 Paragraph 8) which states that a dividend can only be paid to shareholders when suffcient funds are retained by the company to cover the value of the intellectual property listed in the accounts.

The draft law is currently out for consultation. There seems to have been little debate about these provisions and they will certainly be welcomed, for example, in the venture capital industry where investments are made into innovative companies whose sole assets are intellectual property rights.