Copyright reforms in the Digital Single Market (DSM) are a start. But digital patent reforms are inevitable if Europe wants to compete against the United States and China, writes Hosuk Lee-Makiyama.
By Hosuk Lee-Makiyama, director of European Centre for International Political Economy (ECIPE).
Few dispute that Europe is poorly equipped to deal with the challenges of digital age. Intellectual property has always been a contentious issue since the dawn of internet that continues to divide Europe, in particular since the European Parliament and the grassroots derailed the Anti-Counterfeiting Trade Agreement (ACTA) in 2012.
But a copyright reform – which was something of a political suicide for the previous Commission – has tailgated into the legislative agenda with the Digital Single Market project. In particular, ‘geo-blocking’ that restricts sharing YouTube videos across national borders has been singled out as the culprit to the European digital stagflation. But copyright is not the only intellectual property reform that is necessary to put the house back in order.
The European patent system has always been broken. Or more precisely, broken into 28 pieces: Even Lilliput countries with less than half a million consumers have their own patent office, courts that each rule on national laws with their distinct quirks. The cost of EU-wide patent protection is €36,000 in fees alone – compared to €600 in China and €2,000 in the US. The effects on innovation have been devastating: Japan, a country one-third in economic size, files more patents than all of Europe.
This is why the EU finally established a common patent instrument and a unified court – at least for the countries who swallowed their national pride and agreed to English, French or German as working languages. But we are not yet out of the woods. Contrary to its name, the new Unitary Patent does not actually unify all the laws of land. Two existing systems – the 28 national patents and the European Patent Office (EPO) – will coexist, and it is not difficult to envisage a scenario where the systems could be in conflict with each other.
Moreover, the technology and software industry has been caught up in lawsuits on global scale that turned into a vindictive cycle that Apple’s late CEO, Steve Jobs, called a ‘thermonuclear war’ using patents as munitions. Companies like Apple and Google are now spending more on lawyers than on actual research to fend off irksome lawsuits. In the EU, the European competition authorities opened up politically motivated antitrust investigations with hefty sanctions against two of the companies as a warning shot to the industry. But considering there are at least quarter million patents involved in making a smartphone, there are just as many reasons why this will be no lasting peace without a comprehensive patent reform.
Some lawsuits were based on relatively common features, such as how swiping a finger will unlock a device, or that a tablet has rounded corners. It is no surprise that such lawsuits are often filed to courts where the underlying patents are not meticulously examined and such design features are given equal (or better) footing than some technical innovations. The threat of antitrust sanctions have only encouraged ‘patent trolls’ or ‘privateers’ – letterbox firms, whose primary business is to sue firms using patents it has licensed from tech companies who are afraid of using them. Vringo, an American privateer, recently became the first to take such practice to Europe when it sued US and Asian firms in Germany, UK and US courts.
Governments are responsible for a particular form of trolling: France has acquired patents to sue foreign competitors and restrict imports, effectively bypassing Brussels’ exclusive competence on trade. As witnessed in recent dispute with China, the traditional arsenal of protectionism (such as antidumping duties) could set off trade wars. Meanwhile, patent lawsuits are instated discretely without Brussels approval, unfettered by trade agreements. Various government bodies in China have already followed France’s example, effectively setting off an arms race that no EU country has neither the pocket nor the education system to win.
The digital economy and patents are a very permanent problems that cannot be solved by harmonisation – why a substantive patent reform in Europe will become inevitable. Other major economies are focusing their efforts on reforming patents, not copyright. For example, the US Congress has tabled the American Innovation Act, which would require plaintiffs to disclose who the actual owner of a patent is before a lawsuit is filed. It also asks plaintiffs to provide justifications on why a particular defendant was selected as a target.
Our lack of reforms at home will cement the US technological lead over Europe while China is rapidly catching up from behind. Innovation is turning into a question of economic survival of nations. Competition no longer takes place between just tech firms, but also between nations.
In the meanwhile, the EU has become highly attractive playground for patent trolls (whether they are American or state-sponsored) because of the weakness of some European courts. Europe will either reform its patent system, or see digital patents become an instrument solely used to obstruct innovation.