Zuck: Incomplete single market puts EU behind competitors

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Fragmentation of the EU’s single market and particularly its patent system represent major obstacles to innovation, which is mainly driven by SMEs, Jonathan Zuck, president of an association representing more than 3,000 small and mid-sized IT firms from around the world, told EURACTIV in an interview.

Jonathan Zuck is a professional software developer and President of the Association for Competitive Technology (ACT), which represents over 3,000 small and medium-sized IT firms around the world and has offices in Washington, D.C. and Brussels.

To read a news item related to this interview, please click here

Seen from a business perspective, what do you consider to be the main challenges facing the intellectual property field next year? 

Remember that we are talking about the participation of small businesses in the IP system. To some extent, they are under-represented in the IP system but there are some significant characteristics of SME-IP that suggest their importance. 

One is that small businesses have more patents per capita than large businesses. The other might be the number of times your patent is referenced by other patents. SME patents are ten times more likely to be referenced by other patents. 

So there is a certain criticality of IP to small businesses, but also small businesses to the world of IP.

So one of the things that this study revealed, and it is not new in a way, but which is one of the biggest challenges, is the fragmentation of the patent system, in particular in Europe. 

With trademarks, it has already become a kind of model of unity and ‘single market-ness’. But the fragmentation of the patent system in Europe is still an incredible challenge for small businesses. Levels of harmonisation, jurisdictional harmonisation, one patent, one or very few languages, are the kinds of things that SMEs are really focused on. Even the SMEs in countries like Spain, which has a strong focus on things like linguistic diversity, now want a single patent. 

So this fragmentation of the patenting system is the key obstacle for the SMEs? 

It is for many of them and we have many members all over Europe that have decided to skip the European market and go patenting their inventions in the United States because of the larger market. 

There are also a lot of components to the fragmentation of the market. Patents are just one of them. All the different tax laws, labour laws and corporation laws serve to increase the complexity for SMEs of doing business out of their national boundaries. 

There was hope during the French EU Presidency that there could be an agreement on the community patent. The last Competitiveness Council reported progress but said further talks were needed under the Czech Presidency. How much is that delay a blow to the industry? 

We have been going for the Community patentit for twenty years. Now we are in the middle of discussions with the Swedish government [Sweden will lead the EU in the second half of 2009], maybe that being the target. 

One of the interesting things about the economic downturn is that it can be very focusing. One of the upsides of a downturn is that a lot of these sort of distractions that are non-critical to the economy can kind of fall away if you look at examples such as Ireland, Finland and Poland.

When things get really, really bad, the political will really starts to form to make wholesale changes to pursue reform at the expense of these sort of luxury considerations, which often come into play in times of prosperity. 

So there is some hope, I think, that while the times might be trying during an economic downturn, the desire to fix that might create the political will necessary to push something like the Community patent over the finishing line. 

So a crisis is also an opportunity? 

It can be. Exactly. 

You mentioned talking with the Swedish EU Presidency. Does that mean that there is no hope of the Czechs reaching agreement on an EU-wide patent? 

I think that the Swedes are already talking to the Czechs, and so the point is that just as the French were working with the Slovenians, these presidencies are so short that you almost need to work together as three presidencies in order to get something accomplished. 

A lot of people have an eye now on the Swedish Presidency, as this might be the time that the Community patent comes into being. 

You mentioned fragmentation as one of the key obstacles in comparison to America, Japan and Australia. How far does that put Europe behind in comparison to its competititors? 

The lack of a single market in Europe is probably the key factor in holding Europe back vis-à-vis other large markets around the world. Without question. 

So, given that there will be agreement on the Community patent soon, can Europe catch up with or even surpass America? The problem in Europe does not seem to be a lack of innovative people.

No, you are exactly right. There are an incredible number of innovative people here. Patents are just one component of the fragmentation of the market place. But a critical component. And certainly if some of those issues are addressed, such as tax and labour policies, that would facilitate the flexibility of entrepreneurs. 

A lot of the culture of entrepreneurship is the culture of failure. If you talk to a venture capitalist, they will tell you that they invest in twenty companies with the expectation that nineteen of them will fail and that they will make their money on one of them. 

And in some ways as an entrepreneur, you operate in that same mode, like: “I am going to experiment, I am going to try something. I am going to hire a few people. I am going to put together a prototype, bring a product to market.” 

I may succeed, I may fail and the ability to close down and to let people go on to get on to the next experiment is part of what makes an environment more conducive to entrepreneurship. 

If the Czech Presidency invited you to produce a ‘golden book’ of key priorities for business in the next six months, what would that be? 

We would hand them the paper that was written by all these economists from all over Europe, because what I think is different about this study is that instead of being a set of policy recommendations, it is an description of an ideal that you strive for. So it creates a kind of objective benchmark against which reform proposals can be judged. 

If you think of the example of a zoo: at the front of the animal enclosure, there is a card that describes the habitat for that animal. So if it is a polar bear, the card may say that these bears need these kinds of food and they need the temperature to be below 10 degrees. 

What is interesting is that that card says exactly the same thing in a zoo in Spain as it does in the zoo in Norway. So even though the environments are different, the ideal environment is still the same. 

So having this prototype environment, this utopian vision, is what enables a country to determine what its priorities should be so that they can have a better understanding of where they are vis-à-vis where they should be.  

Looking at the current financial and economic crisis, do you fear setbacks for the whole R&D sector in terms of financing? 

Most economists will tell you that in times of economic downturn, it is time to make investments, because this is when opportunities present themselves. It is the time for companies to reinvest in their labour and workforces to improve their skills, because they now have more time available. It is a time for research and investment to take place and sometimes, as I said, economic uncertainty can drive political focus, entrepreneurship and many other things that can help the economy to grow again. 

The danger is to begin thinking in protectionist terms and to shut down your economy in reaction to an economic crisis. That is what we all want to work to avoid. 

Talking about protectionism, are you concerned that US President-elect Barack Obama, ruling in tandem with a Democrat-controlled Congress, could push for more protectionism? 

I think every politician around the world, when speaking to frightened constituents, speaks in terms of protectionism. But I think that the new president is showing great signs of a tempered and centrist approach to the economy based on the policies that he has been discussing and the appointments that he has been making. 

So we will certainly be preaching against protectionism in the US with the same fervour we do here in Europe and we expect to have very productive discussions with the Obama administration. 

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