20 December 2006

Patents as the New China Trade Regulation Instrument

The common opinion is that the WTO Doha negotiations have failed to accelerate global free trade. However, it is also clear that the commitments accepted by WTO members will ultimately reduce traditional trade barriers such as import duties, quota etc. Specifically for certain technology based sectors (such as ICT products, semiconductors, pharmaceuticals and telecoms) commitments in relation to the reduction of trade barriers such as tariffs are way ahead of the generally agreed pace of tariffs-reduction agreed in the WTO.

Nevertheless, regional markets such as the EU and the US (NAFTA) will retain an interest in (at least the possibility) to maintain trade barriers. As far as the trade in goods is concerned, these will follow the tradition patterns of levies, duties, minimum safety standards for food etc. However, such barriers are restricted by the WTO commitments of states and markets.

An interesting “mega trend” is the emergence of intellectual property as a trade regulation instrument. There is a good reason why for example the level of IP protection is a continuous topic in trade discussions between the US and China.

China’s position as the “world’s workshop” is based on a significant advantage with regard to manufacturing cost. Generally, one could say that the west has lost the manufacturing game. Chinese made products compete with European and American products on the respective markets.

Although much of China’s current production of technology based products is still originating from the west outsourcing manufacturing, many Chinese operators are leaving the OEM model behind and start introducing their products under their own brands in western markets. Examples are companies like Haier, Huawei and Lenovo.

Traditionally, the influx of cheap products has been countered by safeguards and anti-dumping duties, but these instruments and their application are restricted by WTO agreements. Although they temporarily can reduce the difference in price between local made and foreign products, they do not resolve the difference in the long run.

The discussion between the US and China on IP seems to focus in particular on counterfeiting and the alleged lack of IP protection in China. A closer look, specifically in relation to technology products and patents however, reveals a more complex agenda.

Western economies are knowledge based. There is a long tradition of transforming R&D efforts into patents. This is different in China. Accordingly, in many tech sectors, Chinese companies who want to enter the western market need to license-in technology for their products. The royalties payable under such agreements can significantly increase the basic cost of such products. This reduces the competitive advantage for Chinese exporters which currently mostly is based on lower manufacturing cost. And that provides interesting possibilities to regulate the influx of Chinese products.

The difference of course is that rather than for example import duties, royalties are payments to private enterprises. However, increased royalty payments do not benefit the recipients alone, but also their governments. They increase corporate taxation revenues and contribute to growth and facilitate more jobs. Also, they can assist in restricting market access to foreign products. And being a private sector issue, the commercialization of patents and licensing policies are not restricted by WTO commitments. Rather, TRIPS imposes minimum levels on WTO members than restrictions on their policies.

On the other side, there are signals which seem to confirm that China is quite well aware of this agenda. China of course has a vast internal market which offers significant opportunities for western companies. And by establishing its own standards such as the EVD standard for DVD, and its 3G telecoms networks, China introduces technology as well as IP based barriers for market access.

So the outlook may well be that patents and standards are taking over the role of traditional trade regulation instruments. An interesting convergence for patent and trade practitioners.

To be continued

15 December 2006

German stem cell patent revoked

In a decision announced on December 5, 2006, the German Federal Patent Court (“Bundespatentgericht”), in a nullity action, has partially revoked the German patent DE 197 56 864 directed to neuronal or glial precursor or stem cells. The Court based its decision on § 2 (3) No. 3 PatG where it is laid down that German patents shall not be granted in respect of biotechnological inventions which concern uses of human embryos for industrial or commercial purposes. Interestingly, the claims of the patent are not directed to such uses. However, in the hearing, according to press reports, the Court stated that, for obtaining the stem cells, it had been necessary to destroy human embryos, and this was also contrary to the regulations of § 2 (3) No. 3 PatG. The written decision is not yet available, but it will be interesting to see how the judges will justify their position. After issuance of the written decision, the patentee will be allowed to file an appeal to the German Federal Supreme Court.

This decision of the German Federal Patent Court will also have some impact on a comparable case pending before the Enlarged Board of Appeal of the European Patent Office. In fact, already on November 18, 2005, the Technical Board of Appeal 3.3.8 has referred in the case T 1374/04 inter alia the following question to the Enlarged Board of Appeal: “… does Rule 23d(c) EPC [the regulation corresponding to § 2 (3) No. 3 PatG in Germany] forbid the patenting of claims directed to products (here: human embryonic stem cell cultures) which – as described in the application – at the filing date could be prepared exclusively by a method which necessarily involved the destruction of the human embryos from which said products are derived, if said method is not part of the claims (emphasis added)?. Thus, with respect to that question, the Enlarged Board of Appeal is charged with the same question which has now already been answered in a national law suit in Germany.

It is presently not clear when the decision of the Enlarged Board, which will be the final one for examination or opposition proceedings at the European Patent Office, will be issued. Even more, it is, at present completely unclear how the Enlarged Board will decide. Inter alia, the issue is whether the regulations of the EPO have to be interpreted narrowly or not. In the case G 1/98, which concerned the scope of the exclusion of plant varieties from patentability under Art. 53 (b) EPC, the Enlarged Board arrived at a narrow construction by finding that this article does allow claims covering plant varieties, unless a specific variety is not mentioned in the claim.

Furthermore, in case that an appeal will be filed in Germany, it will be interesting to see whether the German Federal Supreme Court will wait for the decision of the Enlarged Board and follow this decision. In the past, in unrelated matters, the German Federal Supreme Court has stated several times that they consider decisions of the EPO very seriously, but that they are free to make their own decisions. Especially with respect to novelty, the German Patent Supreme Court has established principles of law which deviate from the practice of the EPO and of its Technical Boards of Appeal.

Dr. Fritz Lahrtz (Isenbruck Bösl Hörschler Wichmann Huhn, Munich, Germany)

See also: "The patenting of biotechnological inventions involving the use of biological material of human origin", German National Ethics Council and "Optionen bei der Umsetzung der Richtlinie EG 98/44 über den rechtlichen Schutz biotechologischer Erfindungen", Swiss Federal Institute of Intellectual Property.

06 December 2006

UK: Gowers Review published, on IP policy review

In the UK the so the “Gowers Review” has at last been published as part of UK Finance minister Gordon Brown's pre-budget review, which finished a short while ago. Some of the key recommendations include a recommendation for a fast track registration system for trade marks to allow marks to be examined and accepted within 10 days of the application being filed. Although there are some interesting recommendations in many areas, they remain, of course, recommendations only at this stage. The Review aims to ensure the correct balance in IP rights and to foster competitive and innovative markets strengthen enforcement of IP rights (particularly to protect the UK's creative industries from piracy and counterfeiting for the benefit of consumers) and to provide support for businesses using the IP system.

The main recommendations for patents are:

  • Recommendation 1: Amend section 60(5) of the Patents Act 1977 to clarify the research exception to facilitate experimentation, innovation and education. (page 51)
  • Recommendation 22: Maintain a high quality of patents awarded by increasing the use of "section 21" observations: streamlining procedures and raising awareness. (page 88
  • Recommendation 25a: Introduce accelerated grant process for patents to complement the accelerated examination and combined patent search and examination procedures. (page 90)
  • Recommendation 30a: The Patent Office should publish and maintain an open standards web database, linked to the EPO’s esp@cenet web database, containing all patents issued under licence of right. (page 94)
  • Recommendation 30b: The Patent Office should publish and maintain an open standards web database, linked to esp@cenet containing all expired patents. (page 95)
  • Recommendation 23: The Patent Office should conduct a pilot of Beth Noveck’s Community Patent Review in 2007 in the UK to determine whether this would have a positive impact on the quality of the patent stock. (page 90). Such a review is is intended to harness the collective knowledge of experts through the internet in order to help patent examiners find the right citations. The public is invited to submit prior art via a webpage, which can then be rated by the community. The aim is to ensure that bad patent applications are not granted and to narrow claims in applications in order to narrow the scope of protection.
  • Recommendation 25a: Introduce accelerated grant process for patents to complement the accelerated examination and combined patent search and examination procedures. (page 90)
  • Recommendation 17: Maintain policy of not extending patent rights beyond their present limits within the areas of software, business methods and genes. (page 80)
  • Other Recommendation refer to support for the establishment of a single Community Patent, the EPLA and the London Agreement (as an interim step towards COMPAT, and as an improvement in its own right).