Master Thesis
Law & Technology
‘The Implications of the Unitary Patent and the Unified Patent Court
to High-tech Start-up Patenting in Europe’
Wieger Weijland
ANR: 645811
Date 24/06/2013
Supervisor
Eleni Kosta
Table of Contents
1. INTRODUCTION ...... 3 2. WHAT ARE HIGH-TECH START-UPS AND THEIR REASONS TO PATENT? ...... 9
2.1 HIGH-TECH START-UPS ...... 9 2.2 BENEFITS FROM PATENTING TO HIGH-TECH START-UPS ...... 10 2.3 GENERAL DRAWBACKS TO PATENTING FOR HIGH-TECH START-UPS ...... 12 2.4 OTHER FACTORS INFLUENCING THE DECISION WHETHER OR NOT TO PATENT ...... 14 2.5 ALTERNATIVES TO PATENTING...... 16 3. THE EUROPEAN PATENT CONVENTION AND THE INTRODUCTION OF THE UNITARY PATENT ...... 19
3.1 OBTAINING AND ENFORCING A PATENT UNDER THE EUROPEAN PATENT CONVENTION ...... 20 3.2 THE UNITARY PATENT ...... 23 3.2.1 Obtaining a Unitary Patent ...... 23 3.2.2 The Unified Patent Court ...... 25 3.2.3 Problems Relating to the Unitary Patent and the Unified Patent Court ...... 26 4. HIGH-TECH START-UPS AND PATENT TROLLS ...... 30
4.1 PATENT TROLLS ...... 30 4.2 PATENT TROLLS AND HIGH TECH START-UPS ...... 31 4.3 CHARACTERISTICS OF EU LEGISLATION AND THE PRESENCE OF PATENT TROLLS ...... 33 4.4 THE UNITARY PATENT PACKAGE AND POSSIBILITIES FOR PATENT TROLLS IN EUROPE ...... 35 5. THE UNITARY PATENT PACKAGE AND HIGH-TECH START-UP PATENTING; LESSONS FROM THE U.S...... 37
5.1 OBTAINING AND ENFORCING PATENTS IN THE U.S. COMPARED WITH THE UNITARY PATENT ...... 37 5.2 THE UNITARY PATENT PACKAGE AND HIGH-TECH START-UP PATENTING; LESSONS FROM THE U.S...... 40 5.2.1 Obtaining Patents ...... 40 5.2.2 Enforcing Patents ...... 41 6. CONCLUSION ...... 43 BIBLIOGRAPHY ...... 46
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1. Introduction
New technological and innovative ideas are a contribution to our society. These new ideas and technologies can be protected by intellectual property rights. New innovative technologies that are applicable in industry can be protected by patents. Patents grant the inventor the exclusive right to make, use, sell and license an invention for a limited period of time. After this period the invention can be used by anyone and the technology of the invention can contribute to develop new innovative technologies. A new invention, not done by the research and development team of an existing company, is often the beginning of a new growing technological business; a start-up is born. When this invention is cutting edge and the most advanced technology, it is referred to as high-tech. High- tech inventions relate to information technology, electronics-telecommunication, aerospace, scientific instruments, pharmacy, electrical machinery, non-electrical machinery, chemistry and armament.1 These technological developments are becoming more and more part of society as it is an important part of products we use every day. In 2008 almost 50 000 companies were active in high-tech manufacturing in the European Union.2 When inventors and entrepreneurs want to develop a high-tech invention and make it a continuing business, they can create a legal entity. By creating a legal entity one can more easily attract external investors to help him achieve this goal. But before disclosing any confidential material to attract investors, the inventor or entrepreneur(s) of the high-tech start-up should protect the invention to third parties; this is where the European patent system comes in. In 2014 a new regulation concerning European patents will enter into force. Nowadays, applying for a patent in Europe is regulated by the European Patent Convention (EPC) which establishes a uniform patenting system for all countries signatory to the Convention. The applicant has to file his application at the European Patent Office (EPO) and must indicate to what countries, which are acceded to the EPC, he wishes patent protection.3 Patents granted by the European Patent Organisation (EPO) are referred to as ‘European patents’, a patent issued by the EPO must be validated in all the countries where the patentee would like protection and
1High-technology groups of products referred to by Eurostat in: Eurostat, ‘Science, Technology and Innovation in Europe’, 2012 edition p. 112 2 Eurostat, ‘Science, Technology and Innovation in Europe’, 2012 edition p. 98 3 Art 79 European Patent Convention & Guide for Applicants Part 1, How to get a European Patent, May 2010 Page 3 of 49
translations to these countries must be included.4 Although the patents are referred to as European patents the patents are not based on a unitary right, but based on the multiple jurisdictions of the designated countries. Also the system requires a series of fees and costs such as filing fees, examination fees, translation costs, professional representation costs and fees for every country you designate in the application.5 The costs of a European patent are estimated to be over EU 30 000 on average for a community-wide patent,6 but when in the end the patent is granted, the owner will have his exclusive right to his invention and he can start to develop his business. When the patentee claims that the patent is infringed by a third party, he can only enforce his patent in the national courts of the designated countries. Under this system, enforcement of a patent can lead to multiple legal proceedings in various countries. This gives the patentee an uncertain legal position, whereas his patent can be interpreted in different ways by the multiple national courts. Next to this, enforcement by multiple legal proceedings lead to substantial litigation costs. Altogether, the European patent system is both a legal uncertain, costly and complicated system, this can be a barrier to innovation in Europe. High-tech start-ups are characterized by the fact that their main asset is their innovative idea and they need external financing to develop the idea into a real business. Patents can help start-ups to protect their idea and thus be an incentive to innovation. But on the other hand, the European patent system is a complicated, expensive and time-consuming procedure which can be a barrier for high-tech start-ups to protect and develop their idea. High-tech start-ups have lack of financial resources, legal knowledge and time to fulfill the requirements of the European patent system.7 Financial resources are little because most inventors collected some personal savings and are supported by friends and family.8 Financial resources will grow once the start- up has obtained other resources. Private equity investors, for example, are really attracted to the
4 Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p. 138 5 Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p. 149 6 Berger, R. Market Research, ‘Study on the Costs of Patenting’ (prepared for the European Patent Office (EPO) august 2004)
potential growth high-tech start-ups offer.9 Furthermore entrepreneurs of high-tech start-ups are most often the inventors of the technology. These entrepreneurs have professional technological knowledge but often lack legal knowledge, and hence also to the requirements of obtaining and enforcing patents. Entrepreneurs are fulltime dedicated to improve the technology and the development of the start-up, this means he time needed to put into an application of patents is scarce.10 Next to this, start-ups probably need professional representation when they want to file for a patent and professional representation does not come cheap. An alternative to patenting the invention is to follow a secrecy strategy, which is the strategy to keep the technology of the invention hidden and secret to third parties. Although this strategy requires one to have a substantial technological lead and there is low enforceability in court, it can be rewarding on the long term.11 A high-tech start-up who wants to become successful and obtain enforceable protection of their inventive technological idea will probably have to depend on patents. The barriers that the European patent can bring along for companies have been discussed for years now and so is the possibility of creating a new unitary patent system. Several attempts have been made to create a cost-effective, unitary, community-wide patent and finally in June 2012 the European Council agreed about the so called ‘Unitary Patent’.12 The unitary patent is a measure in the context of the establishment and functioning of the internal market of the European Union.13 This unitary patent has a unitary nature, provides uniform protection and has an equal effect in all the participating Member States.14 Applications must be filed at the EPO in English, French or German, and validation and translation in designated States is not necessary due of the unitary effect. Internal Market and Services Commissioner Michel Barnier explained: ‘The purpose of a unitary patent is to make innovation cheaper and easier for businesses and
9 Ibrahim, Darian, M. ‘The (Not So) Puzzling Behavior of Angel Investors’, Vanderbilt Law Review (2008), Vol. 61 p.1406 10 Graham Stuart J.H. & Sichelman Ted, ‘Why Do Start-Ups Patent?’, Berkeley Technology Law Journal (2008) Vol. 23:3, p. 1085 11 The Coca Cola formula and the production process is still a well-kept secret, and offers a significant market share of the soft drink market. 12 The idea for an unitary patent was born with the establishment of the EEC in 1957 and should be created at the Munich Convention in 1973, but the agreement never entered into force. Another attempt was made with the Luxembourg Agreement in 1989 but still unsuccessful. A Green Paper was published by the European Commission which was followed by a proposal in 2000. In 2004 a revised proposal was disagreed upon languages issues. Finally in 2012 the EU council agreed about a unitary patent. 13 Recital 2 Regulation 1257/2012 implementing enhanced cooperation in the area of the creation of unitary patent protection 14 Art 3 Regulation 1257/2012 implementing enhanced cooperation in the area of the creation of unitary patent protection & Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p. 196 Page 5 of 49
inventors anywhere in Europe.’ The Regulation states that unitary patent protection will foster scientific and technological advances and the functioning of the internal market by making access to the patent system easier, less costly and legally secure.15 The unitary patent is established with two Regulations; Regulation 1257/2012 for the cooperation of the creation of unitary patent protection and Regulation 1260/2012 for the protection of a unitary patent with regard to the applicable translation arrangements. Both agreements are signed by 25 EU Member States and will enter into force on the 1st of January 2014, only Spain and Italy have not agreed (yet) on the unitary patent cooperation. Next to these two Regulations, a European agreement between the Contracting Member States is created to establish a Unified Patent Court (UPC).16 The UPC is serving as the single court having exclusive jurisdiction in infringement and revocation proceedings for unitary patents. With the establishment of the UPC, patent infringement or revocation does not have to take place in front of the national courts of different Member States but can take place at one central Court. The Unified Patent Court agreement is entering into force the 1st of January 2014 and so far 25 Member States have signed it, only Poland and Spain are reluctant and have not singed it. Both the introduction of the unitary patent and the establishment of the Unified Patent Court (together referred to as ‘the unitary patent package) are measures to improve the functioning of the internal market. As we have discussed, the barriers to high-tech start-ups are the complex, costly and time-consuming procedures which are all consequences of the existing European patent. The unitary patent and the UPC are attempts to mitigate these downsides of the existing patent system. For high-tech start-ups the new unitary patent system tends to be contributing to the possibilities to enter the market with their innovative technology. In the literature problems relating to the unitary patent package are discussed, these are general problems that apply to all applicants and therefore also high-tech start-ups. On the one hand patents are an incentive to start a business but on the other hand the discussed downsides of the current patent system can be a barrier. This barrier is an important reason for young companies to look for other ways than patenting to protect their technologies. Large established companies such as Google, Apple, Samsung or Microsoft do not face these barriers of the European Patent. These companies have different characteristics especially when
15 Recital 4 Regulation 1257/2012 implementing enhanced cooperation in the area of the creation of unitary patent protection 16 Agreement on a Unified Patent Court and Statute (document 16351/12 of 11.01.2013) Page 6 of 49
it comes to knowledge, expertise and financial resources. They have their own research and development (R&D) team, a team of legal professionals who are specialized in patent application and litigation and have enough liquid assets to cover the costs that come along with patenting. The current patent system can lead to inequality, where high-tech start-ups face huge barriers, while established companies are not that affected by the requirements of the patent system. Therefore with the introduction of the Unitary Patent, the one who seems to profit the most will be start-ups, as the barriers to obtain a patent will decrease. Next to problems relating to the application of patents, start-ups can be faced with new patent related issues which they are vulnerable to. Increasingly common problems are companies which are holding a wide portfolio of patents, but have no intention to manufacture or market the product deriving from the patent. Their core business is to find patents, scan the market to find possible infringers, claim patent infringement to companies and aggressively threatening to start litigation if they do not buy a license.17 The terms often used for these companies are the so called ‘patent trolls’. Start-ups are often victims of these patent trolls, whereas they do not have the legal knowledge and experience how to deal with these patent trolls. When faced with litigation threats which can be an expensive and time-consuming procedure, it is easier to settle for a license. There is an ongoing discussion whether patent trolls promote innovation and cause excessive litigation or actually are benefiting to society.18 Regardless from this discussion, patent trolls can be an issue in the development faced by many start-up companies. The central research question of this thesis is if the introduction of the unitary patent and the UPC has implications to the obtaining and enforcing of patents for high-tech start-ups in Europe. In order to answer the central research question, the essentiality of patents for high-tech start-ups is explained. Furthermore, the difference between the European Patent and Unitary Patent in obtaining and enforcing patents is discussed. Also discussed are patent trolls because the implementation of the unitary patent and UPC can have consequence to their activity in
17 McDonough, James F., ‘The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy’, Emory Law Journal, Vol. 56, p. 189, 2006; Emory Public Law Research Paper No. 07-6; Emory Law and Economics Research Paper No. 07-7. Available at :
Europe which in its turn can effect high-tech start-up patenting in Europe.. To answers these issues, a legal doctrinal research is carried out and in order to see whether the unitary patent and UPC is more beneficial to high-tech start-ups, also a comparison with the U.S. patent system is made. This because the U.S. patent system is the closest we can get to the unitary patent system, regarding the central granting and enforcing of patents. This thesis will compare the European patent system with the unitary patent system which will enter into force in January 2014 and elaborates any improvements or deteriorations to high-tech start-up patenting that come along with the unitary patent. The next chapter discusses why patents are essential to high-tech start-ups in Europe. The third chapter compares the EPC and the unitary patent in the view of obtaining and enforcing ones patent. The fourth chapter will touch upon patent trolls and how they can influence high-tech start-ups patenting. The fifth chapter explains if the unitary patent system is more beneficial to high-tech start-ups in Europe and in order to answer this question, a comparison with the U.S. patent system is made.
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2. What are High-tech Start-ups and Their Reasons to Patent?
2.1 High-tech Start-ups
When inventors create new technologies or products with a possible market to start a business, inventors can create a company to do so. The created company, in which the new technology is developed or produced, is referred to as a start-up. Start-ups are mainly characterized by the fact that they are created for potential high-growth in a relatively short period of time.19 High- potential growth is the main distinctive character start-ups have compared to other newly founded companies. Start-ups differ from those companies because they offer a new idea or technology everybody wants.20 Examples of successful start-ups are Dropbox, Facebook, Twitter (software), Pebble and Ouya (hardware). Other characteristics of start-ups besides growth potential are exit possibilities and they are often backed by private equity investors. Exit possibilities are the possibilities of the start-up being acquired by other larger companies or going to the public stock exchange. Furthermore private equity investors such as ‘Business Angels’ or ‘Venture Capital firms’ are attracted by the high-potential growth and therefore are willing to invest in start-ups, offering financial resources and knowledge to the start-up.21 Cutting edge and advanced inventions relating to information technology, electronics- telecommunication, aerospace, scientific instruments, pharmacy, electrical machinery, non- electrical machinery, chemistry and armament are referred to as High-Technology (high-tech in short).22 Start-ups with cutting edge technology in one of these sectors are referred to as high- tech start-ups. Large established companies invest in special Research & Development divisions to come with new high-tech cutting edge technologies, but often start-ups have that one original idea that companies are looking for. When the start-up has developed the idea, large companies
19 Graham, Paul, ‘Growth’ (Paulgraham.com, September 2012), Available at
22High-technology markets referred to by Eurostat in: Eurostat, ‘Science, Technology and Innovation in Europe’, 2012 edition p. 112 Page 9 of 49
and other companies are interested in including this technology into their company, these large companies try to acquire the start-up in order to make it part of their company.23 Nowadays more large companies invest smaller amounts in R&D and instead intensively scan the market for high-tech start-ups to acquire.24 High-tech start-ups’ main asset is their innovative idea or technology on which the whole potential success of a high-tech start-up is depending on and therefore should be protected to third parties who can copy or imitate the idea or technology.25 Protecting the technology is an issue where patents become important.
2.2 Benefits from Patenting to High-tech Start-ups
Patents grant the patentee the exclusive right to make, use, sell and license an invention for a limited period of time. Because patents offer protection to the use of a technical invention, it excludes competitors to make, use or sell the invention. High-tech start-ups patent their technology because it helps them to compete in the market with their innovative technology.26 The patent is a reward that enables the inventor to collect any returns from the creation of the invention, these returns otherwise would possibly be collected by third parties.27 The most valuable asset of a start-up is their innovative technology which is often the cornerstone of the start-up, by obtaining a patent their most valuable asset is protected. By not protecting their invention, start-ups give competitors the opportunity to copy the invention, which will result in the diminishing of any profit deriving from the technology invented. Because the patentee is the only lawful designated person, he has the possibility to independently set the price for the
23 Examples of acquisitions of start-ups (which have developed only several years) by bigger companies and for valuation estimated under $50million are Google buying Adscape and Blogger and Yahoo buying Flickr. An example of hardware high-tech start-up which is acquired by Amazon is Kiva Systems (amount of $775M!) 24 Peters, Basil in Angel Investing in the 21st Century, Eearly Exits Workshop part 2, presented at the Angel Capital Association National Summit, San Francisco May 5 2010 25 Graham, Stuart J. H., Merges, Robert P., Samuelson, Pamela and Sichelman, Ted M., ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey’ (June 30, 2009). Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at
technology. Another benefit to the patentee is the possibility to license or cross-license the protected technology to third parties.28 A license gives the third party the right to use the patented technology in return for royalty payments, whereas a cross-license gives the patentee the right to use a third party’s patent in return for his patented technology. Licensing patented technology offers high-tech start-ups financial resources without producing, using or selling their own patented technology. Inventors and entrepreneurs can choose for licensing when they do not have the abilities, know-how or desire to use the patent or when the patentee wants to sell products in foreign markets but lack know-how or skills to sell products and be an active player in this market.29 High-tech start-ups often lack knowledge about entering foreign markets as they are a young starting company who are especially focused on being successful in their own market. When start-ups cannot fulfill the demand for its patented products or want to enter new markets, licensing out their technology will create an opportunity to receiving royalties where otherwise profit would have never been generated.30 Also, beneficial to the patentee is the right and power to litigate third parties who are infringing your patent. The power to start litigation in case of any patent infringement strengthens the patentee’s position compared to competitors. But litigation is costly and time- consuming which are both characteristics that high-tech start-ups lack and therefore patent enforcement litigation will be problematic for high-tech start-ups. Next to this, patents grant the exclusive right to a technological invention and therefore represent a certain value, which also appears from the royalties being paid by licensing. Obtaining a patent increases the value of the company who is entitled to the patent.31 Increasing company value attracts external investors, increases returns in a possible initial public offering (IPO) and opportunities of being acquired by another company.32 High-tech start-ups will need
28 Graham Stuart J.H. & Ted Sichelman, ‘Why Do Start-Ups Patent?’, Berkeley Technology Law Journal (2008) Vol. 23:3, p. 1085 29Graham Stuart J.H. & Ted Sichelman, ‘Why Do Start-Ups Patent?’, Berkeley Technology Law Journal (2008) Vol. 23:3, p. 1074-75 30 Graham J.H. Stuart & Ted Sichelman, ‘Why Do Start-Ups Patent?’, Berkeley Technology Law Journal (2008) Vol. 23:3, p. 1073 31 Raffoul, Natalie & Brion, Art, ‘Reasons for Patent Protection and Cost-effective patent Filing Options for SMEs’, Technology Innovation Management Review (2011), p.29-33 32 Graham, Stuart J. H., Merges, Robert P., Samuelson, Pamela and Sichelman, Ted M., ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey’ (June 30, 2009). Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009; CELS 2009 4th Annual Conference on Empirical Page 11 of 49
to attract external investors in order to develop their company, secure their financial goals and improve their reputation and product image.33 External investors are tending to back up start-ups who have obtained patents more quickly than start-ups who do not patent their technology.34 Besides being beneficial to the patentee, the patent system offers benefits to society as well. The granting of exclusive rights is an incentive to innovation and because granted patents must be disclosed and expire within a certain time, others can use the patented technology for new innovative ideas. The openness of the patent system encourages follow-on innovation.35 The incentive to innovation, follow-on innovation, market and sell innovative products are benefits to society that derive from a system that grants patents to inventors.36
2.3 General Drawbacks to Patenting for High-tech Start-ups
Besides the exclusive rights to a technology, licensing and cross licensing of the technology, litigation power and increased company value, which are all benefits of the patent system, patents can also bring drawbacks to high-tech start-ups. Firstly, not all inventions are patentable. A patent requires an invention to be novel, innovative and applicable in industry.37 The novelty requirement orders an invention to be new and is not state of the art.38 The state of the art is everything that has been made available to the public, before the date of filing or priority date.39 Also, the invention must be inventive. An invention will be considered as involving an innovative step if, having regard to the state of the art, it is not obvious to a person skilled in the
Legal Studies Paper. Available at
art.40 The person skilled in the art will be presumed to be an ordinary practitioner, aware of what was common general knowledge in the art at the relevant date.41 If the invention is not obvious for this person skilled in the art, the invention is ought to be inventive and the requirement is met. As a third, the invention has to be applicable in any kind of industry, including agriculture.42 This is a wide provision; industry is to be construed as activities carried out contagiously, independently and for financial gain.43 As a consequence, when these requirements are not met, innovative technologies are being excluded from being patented.44 High-tech start-ups do not often have the legal knowledge to decide whether their invention is patentable or not. As a consequence innovative technologies are not patented where it is able to patent and with the result that start-ups miss the benefits from obtaining a patent. Also, high- tech start-ups have the possibility to face the problem that their technology is not patentable and is therefore excluded from the benefits the patent system offer. In order to prevent these problems to arise, it is important for high-tech start-ups to obtain legal knowledge about the patentability of their technology. Besides the fact that not all inventions are patentable, another drawback of the patent system is the disclosure requirement. The disclosure requirement has the effect that information that is submitted when applying for a patent will be made public after 18 months. Although you will have the exclusive rights to the patented technology, when the patent expires everyone can use your technology. On one hand this stimulates follow-on innovation because third parties can use the information as a starting point to develop new technologies. But on the other hand disclosing information makes it easier for competitors to develop technologies which are similar to the one patented but invent around the technology so it is not infringing the patent. The disclosed claims of the patent can be used as a guideline and simple changes can be made to invent around the patent and thence not infringing the patent. The disclosure of the technology when obtaining a patent can be a drawback to high-tech start-ups. The development of an innovative technology requires a time- consuming and costly investment that will be available to
40 Article 56 EPC & Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p. 138 41 Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p.103-104 42 Article 57 EPC 43 Case T-144/83 Du Pont [1987] E.P.O.R 6; I.P.D. 9098, December 1986, TBA 44 The EPC also contains provisions which refer to categories who cannot be considered as inventions (art. 52 EPC) and to inventions who are not patentable (art.53 EPC) Page 13 of 49
third parties including competitors to use the disclosed to create technologies that invent around the scope of the patent. Besides not all inventions are patentable and the disclosure of the patent, another drawback to patenting, and probably the most important to start-ups, are the high costs that come along with applying and obtaining a patent. In the next chapter these costs will be more specified. Start-ups are characterized by having only little time and financial resources and applying and obtaining a patent is a costly procedure that comes with high administrative burden for the applicant.45 Besides this, the time that inventors or entrepreneurs spend on the patent application instead of attending their key functions are costs that need to be taken into account as well.46 Furthermore, when the patent is obtained the possibility of enforcement is always present and patent enforcement comes along with high costs as well. The latest developments on creating a unitary patent system for the European Union aims at reducing the costs for application and litigation of patents, this will be more elaborate discussed in the next chapter.
2.4 Other factors influencing the decision whether or not to patent
Whether or not high-tech start-ups patent their technologies is not only influenced by the balancing of the benefits and drawbacks that the patent system offers. There are external factors that also play an important role. These factors will be explained below. A more specific factor which can affect the decision of high-tech start-ups to patent is the type of invention the start-up has. As explained, according to the EPC an invention has to be novel, inventive and applicable in industry.47 The invention can be a technological product or a process technology. When a high-tech start-up has an invention on product technology which is very sophisticated and hard to copy, it does not necessarily have to obtain a patent to protect their invention. The sophisticated technology can offer the start-up to seek a secrecy strategy. When this start-up does obtain a patent, his technology will be disclosed and the technical lead will disappear. Whereas start-up companies who have a product technology which can be easily discovered by reverse engineering, will obtain a patent. By patenting, the start-up has the
45 European Commission over obtaining patents under the EPC and any improvements done by the unitary patent package, available at
exclusive right to use the invention for twenty years. When the invention is a process technology, start-ups are more reluctant to obtain a patent because of the disclosure of the technology that is obliged.48 Next to the type of invention, the market or industry can affect the decision to patent as well. The industries for high-technology are electronics-telecommunication, aerospace, scientific instruments, pharmacy, electrical machinery, non-electrical machinery, chemistry and armament.49 Obtaining a patent can be affected to what kind of industry the start-up is active in. Market characteristics such as the high competition in technological developments, cross- licensing possibilities and obtaining licensing revenues are affecting the choice to patent or not. Research has shown that companies in the pharmacy and biotechnology are patenting more often than companies in other market industries.50 Besides this, the high-tech start-up’s competitors can also affect the question whether or not to patent. First, patents can be a strategic move. Obtaining a patent allows start-ups to block competitors to the same technology until the patent expires. Patents give the patentee the power to bully competitors by drive up their costs to gain access to their technology in a form of a license, or to push them out of the market.51 Also, patents block competitors to acquire patents on the same invention and block the possibility to start litigation. Next to this, start-ups can decide to patent in order to cooperate with competitors by cross-licensing their patented technologies.52 Besides, start-ups often do not have an end product but are in business to develop one and no revenue is generated. This means benefits from excluding your competitors are minimal at best at this point.53 But again, when start-ups have a significant technological lead compared to their competitors, seeking a secrecy strategy can be a serious alternative due to
48 Graham, Stuart J. H., Merges, Robert P., Samuelson, Pamela and Sichelman, Ted M., ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey’ (June 30, 2009). Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at
no obligation to disclose. Also of influence can be the threat to face litigation. When start-ups move into markets with high patent litigation risks, it might consider obtaining a patent to protect the start-up and their innovative technology. Obtaining a patent gives a legitimate reason to file suit against any infringer. But on the other hand, patent litigation brings substantial costs and uncertainty,54 both characteristics that high-tech start-ups lack.
2.5 Alternatives to patenting
When discussing the benefits and drawbacks of the patent system and whether or not high-tech start-ups should patent their invention, it is also important to address the alternatives to patenting. When high-tech start-ups are restrained by the drawbacks of the patent system, they can seriously consider following an alternative strategy which offers protection as well. Also, when the technology of the patent system is not patentable, an alternative to patenting is a logical step. The most well-known and important alternative to patenting is the ‘secrecy strategy’ also referred to as ‘trade secret’. A secrecy strategy means that the invention is being kept a secret within the company or even within a few employers. The secrecy strategy supersedes the general drawbacks of patents; every invention can be kept a secret, the invention will not be disclosed and it does not involve the costs of obtaining a patent, a secrecy strategy comes without costs. Next to this, trade secrets have immediate effect and create protection unlimited in time, whereas patents in Europe only offer a protection period of twenty years starting from the date of filing the application.55 Obviously a secrecy strategy has drawbacks as well. When trade secrecy is used to produce an innovative product, third parties can discover the secret by reverse engineering the product.56 Not only third parties can discover the secret and make it public or use it for their own purposes, employees can disclose the secret as well. Therefore, non-disclosure agreements for employees are highly recommended when using the secrecy strategy. Once the secret of the invention is disclosed, it can be used by anyone and it is really hard to use enforcement
54 Graham J.H. Stuart & Ted Sichelman, ‘Why Do Start-Ups Patent?’, Berkeley Technology Law Journal (2008) Vol. 23:3, p. 1068 55 Article 63 (1) EPC 56 World Intellectual Property Organization (WIPO), ‘Patents or trade secrets?’ available at
protection. Nowadays protecting technology by following a secret strategy has become unrealistic. Increased competition has created more aggressive pursuit of information by competitors who have access to previously inaccessible data sources, employees have become more mobile and ease of communication has made it virtually impossible to keep secrets.57 The decision for high-tech start-ups to follow a secrecy strategy depends on the fact if the start-up has a substantial technological lead and whether or not the competitor’s costs and time for overcoming the secrecy barrier are substantial. Besides this, monitoring infringement is difficult and there is less enforceability of a trade secret in court. Another alternative to patenting is defensive publishing, which requires to disclose technical information to competitors and foregoes the publisher’s right to exclude, but also prevents rivals from patenting.58 By disclosing the information it becomes prior art, disclosing supports patent examiners in preventing overly broad competitive patens from obtaining one, and in the case they have been issued, it creates a basis for an invalidity defense in a litigation case.59 High-tech start-ups can decide to seek a defensive publishing strategy. As explained, defensive publishing makes the information prior art and therefore is no longer patentable by competitors. Disclosing supports patent examiners in preventing overly broad competitive patens from obtaining one, and in the case they have been issued, it creates a basis for an invalidity defense in a litigation case.60 Defensive publishing is most likely optimal when a given innovation is not too technically challenging and easy to invent around. Larger firms find defensive publishing more attractive than smaller firms.61 Therefore, defensive publishing is not a strategy that high-tech start-ups will quickly follow. As an interim conclusion, there are both benefits and drawbacks arising from obtaining a patent. Patents are an incentive to innovation, stimulate follow-on innovation and give the
57 Colson, Tom, ‘Protecting Your Intellectual Property with Patent Alternatives’, (Industry week, 3 October 2007) available at:
patentee protection by excluding third parties from the use of the invention. Also, the patentee obtains enforcement powers, license or cross-license opportunities and patents increases company value. The disadvantages of patenting exclude some inventions from being patentable. When applied for a patent, the information will be disclosed and the application and litigation costs are high. The decision for high-tech start-ups whether or not to patent is a really hard one to make and is influenced by numerous of different factors. Obviously the general advantages and disadvantages of patenting play an important role. But next to this, also the type of technology, the type of industry, the competitors, the litigation possibilities or risks and the alternatives to patenting need to be taken into account as well. High-tech start-ups are characterized by the lack of legal knowledge and financial resources which make it even harder to take the right decision. In the end, every start-up has to decide for itself depending on these described factors to obtain a patent or not.
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3. The European Patent Convention and the Introduction of the Unitary Patent
Patent systems are based on the quid pro quo principle, which gives the applicant an exclusive right to the technology. In return the community benefits from the granted patent because it receives an innovative product or process and also because the technology is required to be disclosed.62 The European patent system is to a large extent regulated by the European Patent Convention (EPC) which is a centralized system of granting patents.63 Although other intellectual property rights are being harmonized within the European Union,64 patent protection in Europe is unchanged and is based on a bundle of national patents granted by a central European administrative body; the European Patent Office (EPO).65 For forty years now the European Union is trying to establish a system that offers a patent with unitary patent protection, a system for the common Market based on a unitary and autonomous character and governed by a common system of law.66 The idea was born in 1957 and it should be established during the Munich Convention in 1973, but the agreement never entered into force. A new attempt was made with the Luxembourg Agreement in 1989 but again the attempt was unsuccessful. Subsequently, a Green Paper67 was published by the European Commission followed by a proposal in 2000. In 2004 a revised proposal was disagreed upon languages issues. Finally in 2012 the European Council agreed upon a unitary patent package consisting of two Regulations and an agreement on the Unified Patent Court (UPC).68 These documents will create the so
62 Fusco, Stefania , Markets and Patents Enforcement: A Comparative Investigation of Non-Practicing Entities in the U.S. and Europe (October 4, 2012). Available at:
called unitary patent, which would have a unitary nature and is effective in all signatory countries.69 This chapter will briefly explain the EPC and more specific the unitary Patent, the UPC and any problems of the unitary patent addressed by the literature.
3.1 Obtaining and Enforcing a Patent under the European Patent Convention
The European Patent Convention is a regional European patent treaty which establishes a central system for the granting of patents in Europe. 70 Before the EPC the patent system was based on the granting of patents by the national patent offices. When patent protection was desired in multiple countries, the applicant had to apply at the national level of these countries. Next to the national patents, international conventions such as the Strasbourg Convention and the TRIPS agreement have created uniform conditions related to the granting of patents but national patents differed significantly with regard to the substantive terms of protection, the procedure, administrative costs and enforcement.71 With the development of the international market this system became outdated. The European Patent Convention changed this approach by establishing the EPO which grants a bundle of national patents of the designated states to the applicant in one single application.72 The EPO requires paying several fees before the patent can be granted. These fees are a filing fee, a search fee, a fee for every designated state the applicant wishes protection, a fee per claim, an examination fee, and a fee for granting and printing the patent. Next to this, the patentee has to pay an annual renewal fee in every country where protection is desired, as well as the registration of any transfers, licenses and other rights that come along with obtaining the patent. 73The mediate amount of costs to obtaining a community-wide patent under the EPC is estimated to be over EU 30 000.74Although the patents are referred to as ‘European patents’ the
69 At the time of writing this thesis, all Member States participate in the enhanced cooperation on the unitary patent protection except for Spain and Italy. With respect to the agreement on a Unified Patent Court only Poland and Spain will not participate so far. 70 Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p.84 71 Ullrich, Hans, ‘Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?’, European Law Journal, Vol. 8 no. 4 (2002) p. 433-491 72 Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p.84 & Ullrich, Hans, ‘Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?’, European Law Journal, Vol. 8 no. 4 (2002) p. 433-491 73 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 74 Eurostat, ‘Science, Technology and Innovation in Europe’, 2012 edition p. 98 Page 20 of 49
patents are not based on one unitary right but are based on the different jurisdictions of the designated countries. As a consequence, once granted, the patents can only be enforced in the national courts of the countries where patent protection is obtained. Summarized this is a hybrid system which is territorially independent, offers semi-standardized national patents which are centrally granted by the EPO but enforced by the courts of the designated States.75 Although this system was (and still is) very successful to obtain patents from both European applicants as from other applicants across the world,76 it is characterized by some major procedural drawbacks. Firstly, the high administrative costs that are involved in the application and the obtaining of a patent granted by the EPO under the EPC is one of the biggest drawbacks. Especially when a community-wide patent is requested, the administrative costs can rise to a high-level. As explained above, for every country patent protection is sought, an administrative fee and translation costs have to be paid. According to the EPO, it makes sense to apply for a European Patent under the EPC rather than national patent applications when protection is sought in at least four European countries.77 With regard to the high translation costs, an effort was made to reduce these costs. In October 2000 the London Agreement was adopted. This agreement allows Member States to drop any translation requirements in some situations, when the application is filed in one of the official languages (English, German or French) of the EPO.78 When the patent is involved in any dispute that requires patent translations, it can become necessary to obtain a translation and then the parties concerned will be provided with the translation.79 But even with the London Agreement it is more expensive to obtain a patent under the EPC than for example obtaining a
75 Ullrich, Hans, ‘Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?’, European Law Journal, Vol. 8 no. 4 (2002) p. 433-491 76 Last year, the EPO received a total of 257 744 patent filings from all over the world. This represents a 5.2% increase over 2011 (244 934) and sets a new record (http://www.epo.org/news- issues/press/releases/archive/2013/20130306.html); Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p.84 & Ullrich, Hans, ‘Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?’, European Law Journal, Vol. 8 no. 4 (2002) p. 436 77 European Patent Office, ‘European Patents and the Grant Procedure’ (2013), Available at: patent in the U.S.80 Another drawback is the complex and expensive procedure to enforce a patent under the EPC. With the absence of a single Court with exclusive jurisdiction for the enforcement of patents, it is impossible to start litigation process in front of one single court. When a community-wide patent is infringed, this enforcement system leads to complex multiple litigations. Patent enforcement in front of a national Court is based on the national laws of the country, as a result different interpretations of a patent occurred which could lead to legal uncertainty and inconsistent decisions.81 Not only is the enforcement system under the EPC complex, it also leads to substantial litigation costs. Infringement in different Member States leads to multiple litigation processes which entails high litigation costs including legal representation. Thus although the EPC is a successful system to obtain a patent, it comes along with costly and complex procedures both in obtaining and enforcing the patent. This creates a barrier for inventors to obtain a patent that offers protection in multiple countries, on average patentees seek protection in only five of the twenty-seven Member States.82 Especially when it comes to high-tech start-ups which have lack of financial resources, lack of time to spend on the administrative requirements and lack legal knowledge of the EPC. This means inventions will not be patented and innovation is restrained due to the lack of possible follow-on innovation. Also the quid pro quo principle where the patent system is based upon is not met. When the procedure and enforcement of patents are too high for high-tech start-ups, companies will not patent their technology with the result society in the end does not benefit. With the introduction of the unitary patent the Commission intends to reduce these drawbacks of the EPC or even make them disappear as a whole. 80 The estimated costs for a patent in the U.S. are $13 000; see Mayergoyz, Anna, ‘Lessons from Europe on How to Tame U.S. Patent Trolls’, Cornell International Law Journal (2009) Vol.42, p. 264 81 Mayergoyz, Anna, ‘Lessons from Europe on How to Tame U.S. Patent Trolls’, Cornell International Law Journal (2009) Vol.42 p.269 82 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 Page 22 of 49 3.2 The Unitary Patent The Member States and the European Parliament agreed on the unitary patent which exists of two Regulations and an international Agreement, establishing the creation of unitary patent protection in the European Union. The unitary patent implements enhanced cooperation between the Member States, only Spain and Italy are not participating.83 The Regulations establish a unitary patent with a same set of claims that will have equal effect in all the participating Member States and will exist next to National and European patent.84 3.2.1 Obtaining a Unitary Patent Regulation 1257/2012 provides terms and conditions for applying and obtaining a unitary patent which will be granted by the EPO.85 When applied for a patent with unitary effect, the applicant will have three options: First, the applicant can request for a unitary patent valid in all the participating Member States.86 In the event of such an application the EPO will be dealin with the request for this application, carrying out the relevant entries and collect the relevant application fees.87 The second option is applying for a patent which is valid in the participating Member States and besides this gives the applicant the possibility to select other Contracting States of the EPC.88 This option includes any Member State which decided not to participate and ratify the Regulation on unitary patent protection.89 As a third, the applicant will still have the 83 Ullrich Hanns, ‘Enhanced Cooperation in the Area of Unitary Patent Protection and European Integration’, ERA Forum, (May 2013), Vol. 13 n. 4 p. 589-610, Available at:< http://link.springer.com/article/10.1007/s12027-013- 0275-2#> 84 Article 3 Regulation 1257/2012 on the creation of unitary patent protection; Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011; Ullrich, Hanns, ‘Harmonizing Patent Law: The Untamable Union Patent’. Harmonisation of European IP Law: From European Rules to Belgian Law and Practice, M.-Chr. Janssens, G. Van Overwalle, eds., Brussels (Bruylant) 2012, Forthcoming; Max Planck Institute for Intellectual Property & Competition Law Research Paper No. 12-03. Available at http://ssrn.com/abstract=2027920; Guy Trittion (ed), Intellectual property in Europe (Third edition Sweet & Maxwell 2008) p. 196 85 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 86 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 87 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 88 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 89 So far only Spain and Italy have decided not to participate and ratify the Regulations Page 23 of 49 possibility to apply for the ‘old’ European patent as a bundle of national patents and designate any specific Contracting States under the EPC where protection is desired.90 Regulation 1260/2012 provides terms regarding the applicable translation arrangements for the application of the patent and in case of any dispute.91 The application must be in one of the three official EPO languages and further down the procedure translations in the other two official languages must be provided.92 In case of any dispute related to a unitary patent, the patentee shall provide the possible infringer a full translation of the patent in the official language the Member State in which the patent is allegedly infringed or where the alleged infringer is domiciled.93 Next to this, the patentee has to provide the competent Court with the translation into the language used in the proceedings of that Court94 and any costs relating to the translations shall be borne by the patent holder.95 This translation system is similar to the system adopted by the London Agreement which was discussed above and also has the similar aim to reduce the translations costs that come along with the application for a patent. Both Regulations are aimed to foster scientific and technological advances and the functioning of the internal market. 96 Also, these measures should ensure legal certainty and stimulate innovation and should especially be beneficial to small and medium-sized enterprises, because the Regulation should make access to the unitary patent and to the patent system easier, less costly and legally secure.97 Applying for a patent with unitary protection is possible from January 2014 when these Regulations will enter into force. An overview of the European 90 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 91 Regulation 1260/2012 on the creation of a unitary patent and applicable translation arrangements 92 Article 3 and 6 of Regulation 1260/2012 on the creation of a unitary patent and applicable translation arrangements & Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 93 Article 4 of Regulation 1260/2012 on the creation of a unitary patent and applicable translation arrangements 94 Article 4 (2) of Regulation 1260/2012 on the creation of a unitary patent and applicable translation arrangements 95 Article 4 (3) of Regulation 1260/2012 on the creation of a unitary patent and applicable translation arrangements 96 Recital 4 Regulation 1257/2012 on the creation of unitary patent protection 97 Recitel 5 Regulation 1260/2012 on the creation of a unitary patent and applicable translation arrangements Page 24 of 49 application procedure and the unitary patent is showed in figure 1 below. Figure 1 Overview of the European patent and the unitary patent application procedure.98 3.2.2 The Unified Patent Court Next to these two Regulations, participating Member States agreed upon the Agreement on a Unified Patent Court (UPC), which establishes a single court having exclusive jurisdiction in infringement and revocation proceedings for European patents and unitary patents.99 With the establishment of the UPC, patent infringement or revocation does not have to take place in front 98 European Commission website; Available at of the national courts of different Member States but can take place at a single central Court. This has to lead to more cost-effective procedures because the infringement of a community- wide patent can be challenged in front of the UPC instead of the national Courts where the patent is being infringed.100 The Court fee level will be a balance between the principle of fair access to justice and the objective of a self-financing Court with balanced finances, for small and medium enterprises specific tools will be provided to ensure proper access to UPC.101 With only a single central court judging over patent infringement or revocation proceedings litigation costs should decrease, litigation should become less time-consuming and finally only a single decision should lead to more legal certainty. 3.2.3 Problems Relating to the Unitary Patent and the Unified Patent Court Although the introduction of the unitary patent and the UPC seem to be improving the European patent system, there are critical remarks made in the literature. These problems apply to all applicants of the unitary patent and therefore also apply to high-tech start-ups that apply for a unitary patent. First of all, an important issue discussed in the literature is the incorrect legal basis for the unitary patent, which is based on Article 118(1) TFEU.102 This article provides the legislative basis for ‘the creation of intellectual property rights throughout the Union’ which means creating a new patent title. But the two Regulations and the Agreement on the Unified Patent Court do 100 CPB Netherlands Bureau for Economic Policy Analysis, ‘Potential Gains from EU Patent Large, Hasty Comprise Could be Costly;The Value of a Well Designed EU patent’, CPB Brief Policy 2012 /05 101 European Commission about the Court fee of the UPC in FAQ on the unitary patent and UPC, available at not meet this legal basis.103 According to the Regulation the unitary patent shall provide uniform protection and shall have equal effect in all participating Member States.104 This represents not a new patent title but instead proposes to add unitary characteristics to patents still granted by the EPO, unitary effect is not a creation of a new title but a goal to reach.105 Next to this, the two Regulations and Agreement on the UPC are not ratified by all Member States, with the result of not covering the total territory of the EU. As a consequence the patentee has to support his unitary patent with national patents in these countries.106 Furthermore, the countries that not have ratified the Regulations argue that the applicants coming from official language speaking countries have an advantage which would lead to distortion of competition and discrimination of non-official language speaking applicants and these countries filed an official complaint which were dismissed by the Court of Justice of the European Union.107 Also, the introduction of the unitary patent creates four overlapping levels of patent protection in Europe; national patents, national patents granted by the EPO, national patents granted by EPO without subjection to the UPC (due to non-ratifying Member States) and finally 103 Hilty, Reto, Jaeger, Thomas, Lamping, Matthias and Ullrich, Hanns, ‘The Unitary Patent Package: Twelve Reasons for Concern’ (October 17, 2012). Max Planck Institute for Intellectual Property & Competition Law Research Paper No. 12-12. Available at: patents with unitary effect.108 In addition, only one national law applies to a granted patent, which leads to different national laws apply to different unitary patents and therefore not creating uniformity but instead lead to multiplicity of national laws that apply.109 In the end, instead of unifying and simplifying the system,110 it makes the system more complex. Next to more complexity, it is claimed that instead of one single Court with exclusive jurisdiction in form of the UPC is not realistic.111 First there is the establishment of the UPC with exclusive jurisdiction for European-wide patents and patents with unitary effect. Second, there is the Court of Justice of the European Union (CJEU) which is competent in respect of preliminary references from the UPC regarding infringements of unitary patents.112 Third, the national Courts of the Member States who did not ratify the Regulations and/or the UPC Agreement will be competent and also all non-European Contracting States of the EPO regarding national and European patents.113 Fourth, the Board of Appeal of the EPO is competent in administrative appeals for European patents. And finally, the national Courts are competent regarding national patents and administrative appeals. The above discussed are only some of the most important complaints about the unitary patent and the UPC. Other complaints are that the unitary patent contains insufficient exceptions and limitations, there is absence of countervailing rights, it brings the risk of dysfunctional patent 108 Hilty, Reto, Jaeger, Thomas, Lamping, Matthias and Ullrich, Hanns, ‘The Unitary Patent Package: Twelve Reasons for Concern’ (October 17, 2012). Max Planck Institute for Intellectual Property & Competition Law Research Paper No. 12-12. Available at: practices and the UPC is incompatible with EU law.114 Eventually, the literature has broad doubts about the unified patent and the UPC because it is claimed it represents a step back in terms of patent law quality and legal viability, it adds to complexity, it is unbalanced and lacks legal certainty.115 114 Hilty, Reto, Jaeger, Thomas, Lamping, Matthias and Ullrich, Hanns, ‘The Unitary Patent Package: Twelve Reasons for Concern’ (October 17, 2012). Max Planck Institute for Intellectual Property & Competition Law Research Paper No. 12-12. Available at SSRN: 4. High-tech Start-ups and Patent Trolls While obtaining a patent in multiple countries can be a hard, complex and costly procedure for high-tech start-ups, the patent related problems do not stop here. When there is no patent obtained, the high-tech start-up can face new problematic patent related issues which also can be of any influence on the decision whether to obtain a patent or not.116 The most important and current issue is the facing of the so called ‘patent troll’. In this chapter the patent troll and its impact on high-tech start-ups are explained, furthermore the strategies high-tech start-ups can follow to overcome these patent trolls will be addressed. 4.1 Patent trolls Patent trolls are companies holding wide patent portfolios and only use this portfolio to scan the market for locating possible infringers of their patents. When a potential infringer is located, the patent troll offers a license, often based on significantly high license fees.117 When the targeted company refuses to buy the license, the patent troll will start litigation. These companies are Non-Practicing Entities as they are not using their patents to develop products and technologies.118 Patent trolls’ core business is acquiring patents, often from bankrupt companies, individual inventors or small companies who cannot afford to protect their technology, then locate potential infringers and threat to enforce their patents if these ‘infringers’ do not accept the offered license.119 Patent trolls are criticized in the literature of not being beneficial to society and do not align with the nature of the patent system to foster innovation.120 Paten trolls do not produce 116 Raffoul, Natalie & Brion, Art, ‘Reasons for Patent Protection and Cost-effective patent Filing Options for SMEs’, Technology Innovation Management Review (2011), p.29-33 117 Raffoul, Natalie & Brion, Art, ‘Reasons for Patent Protection and Cost-effective patent Filing Options for SMEs’, Technology Innovation Management Review (2011), p.29-33 118 McDonough, James F., ‘The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy’, Emory Law Journal, Vol. 56, p. 189, 2006; Emory Public Law Research Paper No. 07-6; Emory Law and Economics Research Paper No. 07-7. Available at: products or use technology which means that society does not benefit from the business activities carried out. Patent trolls use the patent system for other purposes than the patent system is intended for. Next to not returning anything to society, patent trolls can block innovation. Companies and entrepreneurs who are developing a technological invention can become reluctant to complete the technology when the possibility to be faced with a patent troll is highly probable. This leads to less innovation to society which is a violation of the nature of the patent system. Although patent trolls do not align with the nature of the patent system, it is argued in literature that patent trolls are actually beneficial to society.121 Firstly, because they are the rightful owner of the patent, patent trolls have the right to offer licenses and start litigation in case of possible infringements. Next to this, patent trolls can be seen as a stage in the natural evolution of the patent market and are actually benefiting to society in a way where patent trolls act as market intermediaries and provide liquidity, market clearing and increased efficiency to the patent markets.122 4.2 Patent trolls and High Tech Start-ups High-tech start-ups are in particular vulnerable to patent trolls because high-tech start-ups produce technological products or use technological processes, have little knowledge or experience and no time and financial resources on how to deal with patent trolls and therefore these type of companies are popular targets for patent trolls.123 Especially when high-tech start- ups have not obtained a patent, they have little legal basis to fight against the often powerful and armed with wide patent portfolio patent trolls. Patent trolls approach companies with a letter stating the technology used by the start-up is infringing their patent and offers them a license. Patent trolls wait particular for start-ups to announce a new round of fundraising and then ; & Mayergoyz, Anna, ‘Lessons from Europe on How to Tame U.S. Patent Trolls’, Cornell International Law Journal (2009) Vol.42, p. 264 121 McDonough, James F., ‘The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy’, Emory Law Journal, Vol. 56, p. 189, 2006; Emory Public Law Research Paper No. 07-6; Emory Law and Economics Research Paper No. 07-7. Available at SSRN: approach them, knowing there is some financial resource but no time for a potential lawsuit.124 The license fee offered is exorbitantly high and if that is not even enough, the patent troll often claims damages from the past as well.125 Because high-tech start-ups lack legal knowledge, start- ups do not know whether or not their business is actually infringing, whether the license fee is reasonable and what the consequences are of not agreeing with the license. Next to this, patent trolls take advantage of the difficulty and complexity of understanding patents by providing only little or no information about the patent and in particular of the scope of the patent that is claimed of being infringed. 126 Furthermore the patent troll threaten to start expensive and time- consuming litigation to enforce their patent which high-tech start-ups would want to prevent as start-ups have neither time nor money to fight in Court. Study has showed demand letters of patent trolls have a significant negative operational impact on start-ups companies in general.127 Operational impact on start-ups are defined as a business strategy pivot, product change, delay in hiring or meeting operational milestone, reduction in value of the company and even sometimes the start-up has to shut down its business.128 Shutting down the business is often the result of a demand letter to start-ups who do not have received any external financing round so far. With an expensive license or a possible litigation threat there are not many investors who are willing to invest in such a start-up and therefore it can face the possibility of going out of business. When faced with a patent troll there are different strategies the high-tech start-up can follow. First, the high-tech start-up can ignore the demand letter and do nothing but this brings the risk the patent troll will start litigation. Second, start-ups can settle, which results in paying 124 Masnick, Mike, ‘Start-ups Realizing That Patent Trolls are an Existential Threat’ (Techdirt.com, April 2nd 2013) Available at: the license fee or part of the fee after negotiations.129 The last option start-ups have is to fight the patent troll in or out of the Court which will result in high litigation costs and a time-consuming procedure.130 Which strategy to follow depends on the claim of the infringed patent. Patent troll’s biggest tool is a patent with a broad scope of the claim so they can easily claim infringement. Because high-tech start-ups are not well informed by the patent troll and have no or little legal knowledge, financial recourses and time available start-ups are easy targets. Patent trolls particularly focus on start-ups that are not in the position to defend themselves in a patent infringement procedure and therefore will be more likely to settle. 4.3 Characteristics of EU legislation and the Presence of Patent Trolls In the United States (U.S.) patent trolls are active players in the patent market but in Europe patent trolls are a new emerging phenomenon.131 There are legal reasons why high-tech start-ups in the U.S. are more often victims of patent trolls than European high-tech start-ups, and the EPC plays an important role in this. This because the U.S. patent system has the characteristics that stimulate patent troll activity and the EPC has properties that restrict this activity. First of all, in the U.S. patents are granted which have a significantly broader scope than patents granted by the EPO under the EPC.132 As discussed, the greatest tool of patent trolls is a patent with a broad scope so the patent can be interpreted widely and with the result it covers a wide range of technologies. Next to this, the EPC offers broader and less expensive opposition proceedings compared 129 Shapiro, C., ‘Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting’, Innovation Policy & Economy (2001), 119, 12; McDonough, James F., ‘The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy’, Emory Law Journal, Vol. 56, p. 189, 2006; Emory Public Law Research Paper No. 07-6; Emory Law and Economics Research Paper No. 07-7. Available at SSRN: to the U.S. Opposition proceedings gives high-tech start-ups the possibility to invalidate the patent of the patent troll of which the start-ups is accused of infringing.133 Thus high-tech start- ups in Europe can more easily invoke the opposition proceeding as it is less expensive134 and is more likely to have a favourable outcome to the start-up due to the broader legal basis for invalidation. Besides the opposition proceedings, the costs to obtain a patent under the EPC are high. In the U.S. only one single application is required for nation-wide patents which will be more elaborate discussed in the next chapter.135 Also, there are several litigation factors that play a role in the patent troll activity to high- tech start-ups in Europe. As patent troll’s core business is litigation, the European patent litigation system has characteristics that restrict the activity of patent trolls in Europe. The first litigation factor is the ‘losers pay’ principle that is maintained by the European Courts. This principle claims the compensation of the legal expenses and attorney fees of the winner by the loser of the case. This brings a new risk to patent trolls to accusing high-tech start-ups of infringing in Europe. When the case is not strong patent trolls face the possibility of paying the litigation costs of the high-tech start-up, whereas in the U.S. parties have to pay for their own litigation costs. Other litigation factors that restrict patent troll activity in Europe are the complexity of the European enforcement system under the EPC and the level of damages awarded by the Courts.136 Facing complex litigation opportunities works deterrent to the activity of patent trolls and finally when the damages awarded are not satisfactory, it is not worth to start litigation procedure. 133 Part V (art 99 – 105c) of the European Patent Convention & Article 35 §311 & §321 U.S.C. 134 In Europe the procedure costs about $20 000 whereas in the U.S. it can go up to hundreds of thousands of dollars, See: Seidenberg, Steven, ‘New USPTO Post-Grant Review A Small Step For Patent Harmonisation’, Intellectual Property Watch, (October 18 2012) Available at: 4.4 The Unitary Patent Package and Possibilities for Patent Trolls in Europe The characteristics of the EPC have the effect to restrict patent troll activity in Europe. The characteristics are the narrow scope of EPO granted patents, easy accessible patent invalidation procedure, the high costs to obtain a patent, the losers pay principle, the enforcement complexity and the low level of awarded damages. These side effects not only restrict patent troll activity but can also be seen as the drawbacks of the EPC which creates barriers to patent for high-tech start- ups in Europe. The unitary patent package that will enter into force in January 2014 will offer a new way to obtain patent protection in Europe. As explained in the previous chapter the unitary patent will change some of the characteristics of the European patent system, as it reduces the administrative costs and simplify the translation requirements. As a result patent trolls do not need to take into account the additional fees for every next country the patent troll desires patent protection and translations to every individual designated country is no longer necessary.137 The new Regulations have the effect of more cost-effective and less time-consuming application procedure for obtaining patents in Europe by the patent troll. Furthermore, the litigation complexity that patent troll face in Europe is possibly reduced with the introduction of one single unified court, the Unified Patent Court. Instead of starting litigation procedures in every designated Member State, patent trolls only have to start one single litigation procedure in front of the UPC. A single litigation procedure instead of multiple which can offer the same result will lead to more cost-effective and less time-consuming enforcement of patents. With the establishment of the unified patent and UPC most of the drawbacks of the EPC which reduced patent troll activity in Europe will disappear or at least be significantly reduced. The new unitary patent package has the effect of less administrative costs and time-consuming procedure in both the application and litigation procedure for patent trolls in Europe. This offers patent trolls more opportunities and possibilities to become a more active player in Europe. The characteristics of the EPC that remain in place will be the losers pay principle and the low level of damages awarded by the Courts. Question is of these two characteristics will be enough to 137 Bonadio, Enrico, ‘The EU Embraces Enhanced Cooperation in Patent Matters: Towards a Unitary Patent Protection System’ (2011). European Journal of Risk Regulation, Vol. 3, pp. 416-420, 2011 Page 35 of 49 keep control over patent trolls in Europe. Otherwise Europe, like the U.S., 138 might need to consider specific legislation to control patent troll activity. When patent troll will become more active in Europe this has consequences to high-tech start-ups in Europe. On one hand it will create a barrier to start and develop their business,139 because when the possibility of facing a patent troll is high, this will deter start-ups. But on the other hand it can become an extra incentive to obtain a patent for high-tech start-ups, where the patent is obtained for defensive reasons.140 Armed with a patent the technology is protected and it will be harder for patent trolls to claim infringement. 138 In the U.S. the SHIELD ACT (Saving High-Tech Innovation from Egregious Legal Disputes Act) is introduced to restrain patent troll activity as the characteristics of the U.S. Patent system give patent trolls a wide range possibilities to carry out their activities. This act introduces the losers pay principle and offers the starting of infringement procedure to whom that actually uses or have substantially invested in the patent in the U.S. 139 See for example the story of Skyfire Labs Inc. which had to put its technology on hold until the lawsuit was resolved. Pui-Wing Tam, ‘Start-ups’ Secrets: More Are Facing Patent Suits’, (The Wall Street Journal, May 15 2013) Available at: 5. The Unitary Patent Package and High-tech Start-up Patenting; lessons from the U.S. The new unitary patent package is introduced in order to tackle the downsides of the EPC. In the U.S. a similar system applies where a central office grants the patents which have equal effect all over the U.S. Besides this, there is one central court which have exclusive jurisdiction in patent infringement litigation appeals. In order to understand how the unitary patent system is going to affect high-tech start-ups in Europe it would be useful to look first at the patent system and the effects to high-tech start-ups in the U.S. Although there are differences in characteristics such as the ever present language complexity in Europe and differences in litigation fees, the U.S. patent system is the closest we can get in similarity to the unitary patent package. 5.1 Obtaining and Enforcing Patents in the U.S. Compared with the Unitary Patent In the U.S. patents are granted by the ‘United States Patent and Trademark Office’ (USPTO). The USPTO is the central administration office that issues patents that have effect all over the U.S. The USPTO is comparable with the function of the EPO in Europe under the unitary patent Regulations, as it acts as a central government body that examines patent applications if all statutory requirements are met and is responsible for the granting of patents.141 To enforce patents in the U.S. a unified system applies with a single Federal Court of Appeals (CAFC) which is assigned to the appeals from the many federal district Courts.142 The CAFC was established in 1982 with the Federal Improvements Act, unifying the procedure and designed to standardize patent law across the U.S. and eliminate the incentives for forum shopping.143 The UPC can be considered the equivalent of the CAFC in Europe, having exclusive jurisdiction on patent infringement and revocation proceedings for unitary patents. But an important difference is the primary proceedings which are started at one of the federal district Courts, whereas the UPC is the Court of first instance, a Court of Appeal and a Registry in 141 Elliot, George, ‘Basics of US Patents and the Patent System’ (2007), The AAPS Journal, 9 (3) Article 35. P. E318 142 Jaffe, B. Adam, ‘The U.S. Patent System in Transition: Policy Innovation and the Innovation Process’, Research Policy, Vol. 29, Issues 4–5, April 2000, P. 531–557; & Mayergoyz, Anna, ‘Lessons from Europe on How to Tame U.S. Patent Trolls’, Cornell International Law Journal (2009) Vol.42, p. 265 143 Jaffe, B. Adam, ‘The U.S. Patent System in Transition: Policy Innovation and the Innovation Process’, Research Policy, Vol. 29, Issues 4–5, April 2000, P. 531–557; Page 37 of 49 unitary patent infringement proceedings.144 Because the obtaining and enforcement of patents in the U.S. is similar to the system proposed by the unitary patent package, it is important to see if such a unified system is more beneficial to high-tech start-up patenting. In the literature research has been done under high-tech start-ups in the U.S. about the general workability of the U.S. patent system to these high-tech start-ups.145 For high-tech start-ups the U.S. patent system ‘is not working particularly well for their companies or industries’ in general, high-tech start-ups in the U.S. patents provide less incentive to innovate but offer tangible assets by limiting competition, attracting financing and increasing exit possibilities.146 But this is the experience of high-tech start-ups to the patent system in general. The obtaining of a patent at a central administration office is only a small part of this. The costs for obtaining a patent in the U.S. is estimated to be around $13 000, which is still a significant amount to newly founded companies.147 Recent developments have made it more attractive for high-tech start-ups to file application and obtain a patent in the U.S. With the introduction of the American Invents Act (AIA) the USPTO introduced the ‘Micro-entity status’ for applicants which offers discount fees to the application and prosecuting of U.S. patent applications before the USPTO.148 Obviously this is an incentive for high-tech start-up, who will be regarded as small entities, to file application to the USPTO for obtaining a patent.149 Another question is whether the establishment of the Federal Court of Appeals have contributed to patent protection and have had any effect in the U.S. Study has showed that the CAFC has enhanced the value of patents in the U.S.150 Most important, in context of this thesis, is the increase in the seeking of patents by inventors after the introduction of the CAFC151 and 144 Agreement on a Unified Patent Court and Statute (document 16351/12 of 11.01.2013) 145 Graham, Stuart J. H., Merges, Robert P., Samuelson, Pamela and Sichelman, Ted M., ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey’ (June 30, 2009). Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at another effect is increased patent litigation procedures.152 There are two theories about these increases: the ‘friendly Court theory’ and the increase in research productivity theory.153 The first theory explains the increase of patent litigation is not only due to the fact the CAFC is a central appellate Court regarding to patents, but also the rulings of the CAFC play an important role in the pro-patent nature of the Court. The CAFC have a stronger presumption of declaring patents valid in case of invalidity procedures and therefore patent litigation is more likely to succeed.154 Also, the CAFC is focusing more on infringement which gives inventors the incentive to expand their patent portfolio which creates better protection.155 The second theory claims an increase in the productivity of the research process in terms of the increased possibility to produce the kinds of innovation that can lead to patenting.156 This theory represents the rapid technological development in the past decades, and especially in the information technology and electronics telecommunication industry. More recent research on the actual cause of the increase in patent litigation in the U.S. explains that both theories are actually causing the increase, but the increase in the granting of patents is more likely to be the larger factor in the increased patent litigation.157 Furthermore, the establishment of the CAFC was not the only action taken in the U.S. to improve patent litigation procedures. The introduction of a single Court offered the possibility to specialize the judges of the Court into patent litigation which according to patent attorney Lawrence Sung158 ‘stands among the most complex, with disputes about cutting edge technology, muddied with esoteric and arcane language, laws, and customs’.159 Specialized judges in a specialized Court are shorten the duration of patent disputes as they have more knowledge and are more experienced with the subject of patent law which as a result lead to more accurate 152 Merz J. & Pace. N.M., ‘Trends in Patent Litigation: The Apparent Influence of Strengthened Patents Attributable to the Court of Appeals for the Federal Circuit’ (1994), Journal of the Patent and Trademark Office Society, No 76 pp. 579-90 153 Cook, J.P., ‘On Understanding the Increase in U.S. Patent Litigation’. American Law & Economics Review (2007) 9 (1) pp. 48-71 154Cook, J.P., ‘On Understanding the Increase in U.S. Patent Litigation’. American Law & Economics Review (2007) 9 (1) pp. 48-71; & Henry, D.M. & Turner J.L., ‘The Court of Appeals for the Federal Circuit Impact on Patent Litigation’ (2005) Available at rulings and efficient use of private and Court resources.160 Thus, with the introduction of the CAFC, patents have become easier to enforce due to the introduction of the CAFC and this is reflected on the increased seek of patent protection and patent litigation.161 Also, it offered the possibility to create one single and specialized Court which leads to more efficient procedures. 5.2 The Unitary Patent Package and High-tech Start-up Patenting; Lessons from the U.S. 5.2.1 Obtaining Patents The first downside the unitary patent package tries to tackle is the reducing of any administrative costs in the application procedure of obtaining a patent.162 The unitary patent package offers the possibility to obtain a patent which has equal effect in all Member States and therefore not need additional validation at national level. Also the translation requirements are simplified both resulting in reducing the administrative costs of the application procedure.163 The costs for obtaining a community-wide patent with unitary effect will be estimated to be between EU 5 000 and EU 6 5000 including translation costs.164 Also, obtaining a patent under the EPO is a time- consuming procedure as it creates an high administrative burden to the applicant. Under the new Regulations the administrative burden will be reduced as there is a one stop shop for validation at the EPO and fewer translations are required.165 To high-tech start-ups in Europe the reduction of the high administration costs takes away a major barrier to obtaining a patent. Because of the lack of financial resources the decision whether or not to patent is always influenced by the high costs of obtaining a patent. Once these costs are reduced, high-tech start-ups will be more inclined to obtain a patent. Because young start-up companies contribute economic growth and create new products, 160 Kesan J.P & Ball, G.G., ‘Judicial experience and the Efficiency and Accuracy of Patent Adjudication: An Empirical Analysis of the Case for a Specialized Patent Trial Court’, Harvard Journal of Law & Technology (2011), Vol. 24, No.2 pp.393-467 161 Gallini, N.T., ‘The Economics of Patents: Lessons from Recent U.S. Patent Reform’, The Journal of Economic Perspectives (2002) Vol.16 No. 2 pp.131-154 162 Eurostat, ‘Science, Technology and Innovation in Europe’, 2012 edition p. 98 163 CPB Netherlands Bureau for Economic Policy Analysis, ‘Potential Gains from EU Patent Large, Hasty Comprise Could be Costly; The Value of a Well Designed EU patent’, CPB Brief Policy 2012 /05 164 Numbers according to the website of the European Commission, Available at http://ec.europa.eu/internal_market/indprop/patent/faqs/index_en.htm#maincontentSec11 165 European Commission about the Court fee of the UPC in FAQ on the unitary patent and UPC, available at services and jobs,166 the U.S. cherishes their start-up companies with discounted fees for obtaining patents. To stimulate economic growth, this is a consideration that can be taken into account in Europe as well. Furthermore, a reduced administrative burden will be an incentive to patent as it offers entrepreneurs to focus on the development of the start-up instead of focusing on the patent application procedure. Although the unitary patent will be easier and less costly to obtain, other factors whether or not a patent is obtained play a role as well. Other factors are the type of technology, the market industry,167 strategic reasons such as licensing or blocking competition, patent troll activity and alternatives to patenting play an important role. Also when the start-up does not seek protection in multiple countries but only in one or a few, national patent(s) can be a wise alternative to the unitary patent. 5.2.2 Enforcing Patents Another downside of not having a unitary patent is the costly and complex enforcement procedure that comes along with the European patents that can only be enforced in front of the national Courts. By establishing the UPC this drawback is reduced as well, as patent infringement or revocation can take place in front of one single Court. This is especially an advantage to community-wide patents that is being infringed in multiple countries. Besides less complexity and more cost-effective procedure, a single Court with exclusive patent infringement jurisdiction leads to more legal certainty. Different procedures lead to different judgements as Courts have different interpretations of patents. The establishment of a single Court with exclusive jurisdiction offers the possibility to specialize the UPC in patent litigation. As patent litigation procedures are both judicial and technological complex it cannot hurt to let these cases being ruled by specialized judges, saving 166 Graham, Stuart J. H., Merges, Robert P., Samuelson, Pamela and Sichelman, Ted M., ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey’ (June 30, 2009). Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at time and money in litigation costs. In the U.S. the CAFC have showed that becoming a specialized patent Court created more accurate rulings and is more efficient use to private and Court resources.168 High-tech start-ups enforcing their patents in multiple countries will welcome a unified patent court as the procedure is more cost-effective and less complex to start litigation procedures. This central procedure will lower the barrier to start patent litigation because less financial resources are necessary, also the European Commission stated that specific tools for small and medium enterprises will ensure proper access to the UPC.169 In the U.S. the introduction of a unified patent Court has resulted to increased patent applications and increased patent litigation procedures. Also, the CAFC has resulted in unifying patent litigation, standardizing patent law and eliminated forum-shopping. Based on the success of the CAFC, the UPC in Europe can be successful as well, but as research have shown the general ruling of the CAFC played a role in this success as well. Because the UPC have not ruled in any patent litigation procedure yet, it is impossible at this moment to predict if the UPC ruling will play a role and lead to increased patent applications or patent litigation. But the U.S. shows that establishing a unified patent Court has increased the value of patents in the U.S., created a uniform procedure which leads to more legal certainty and offered the possibility to locate a specialized Court in patent litigation which leads to more accuracy ruling and efficient outcome.170 In the end, the decision whether or not to patent is an individual decision every start-up has to make. But the unitary patent seems to make it more attractive and accessible to obtain and enforce a community-wide patent for high-tech start-ups. 168 Kesan J.P & Ball, G.G., ‘Judicial experience and the Efficiency and Accuracy of Patent Adjudication: An Empirical Analysis of the Case for a Specialized Patent Trial Court’, Harvard Journal of Law & Technology (2011), Vol. 24, No.2 pp.393-467 169 European Commission about the Court fee of the UPC in FAQ on the unitary patent and UPC, available at http://ec.europa.eu/internal_market/indprop/patent/faqs/index_en.htm#maincontentSec15 170 Henry, D.M. & Turner J.L., ‘The Court of Appeals for the Federal Circuit Impact on Patent Litigation’ (2005) Available at 6. Conclusion High-tech start-ups contribute to economic growth by creating new technologies, products, services and jobs in Europe.171 In order to protect their most important asset, high-tech start-ups can patent their products or technology. Patenting helps high-tech start-ups to compete in the market by excluding others from their innovative technology, it creates the possibility to license or cross-license the technology, gives the patentee the right to start infringement procedure and not least for start-ups adds to the company value and attracts investors. In Europe the granting of patents is done by the EPO under the laws of the EPC. Due to the absence of a unitary system, the EPO granted a bundle of national patents of the designated countries protection is desired. Enforcement of the national patents have to be started in front of the national courts. Although this system is really successful, it creates also barriers for high-tech start-ups to patent their technologies. The procedure of obtaining and enforcing a community- wide patent is a costly, time-consuming and complex procedure and because high-tech start-ups are characterized by the lack of financial resources, legal knowledge and time the requirements to obtain a patent can be a high barrier. With the introduction of the unitary patent and the UPC, the European Union tries to lower the barriers to obtaining a patent in Europe by introducing a patent that has equal effect in all participating Member States. The application costs and complexity will drop significantly because of one central validation by the EPO and limit translations requirements. Furthermore, with the establishment of the UPC a single court with exclusive jurisdiction in infringement and revocation procedures for European patents and unitary patents arises.172 The UPC as a single court leads to more legal certainty, a cost-effective and a less time-consuming procedure. Not only can the decisions to patent be affected by the requirements of obtaining and enforcing ones patent. Patent trolls are becoming more active players in the patent market in Europe and affect the decision whether or not to patent as well. High-tech start-ups are popular targets for patent trolls and therefore high-tech start-ups can create better protection by obtaining 171 Graham, Stuart J. H., Merges, Robert P., Samuelson, Pamela and Sichelman, Ted M., ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey’ (June 30, 2009). Berkeley Technology Law Journal, Vol. 24, No. 4, pp. 255-327, 2009; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at a patent. The reason for the low patent troll activity in Europe results from the procedural drawbacks of the EPC. Now with the introduction of the Unitary Patent some of these drawbacks will be (partially) disappear and thus possibly opens the door to increasing patent troll activity in Europe. With less administrative costs, simplified translation requirements and less litigation costs and complexity, patent trolls will have more incentives to increase their activity. A question for the future is whether specific legislations should be introduced in order to restrict patent troll activity, because question is if the losers pay principle and low damage awarded will be enough to deter patent trolls in Europe. Whether the introduction of the unitary patent will be beneficial to high-tech start-ups in Europe can be answered with the help of looking at the U.S. patent system where patents are granted by a central office (USPTO) and have equal effect all over the U.S. This central application procedure is more cost-effective than the application procedure under the EPC, as in the U.S. a patent can be obtained for $13 000 and under the EPC the costs are over EU 30 000.173 Furthermore, the CAFC is introduced in 1982 creating a single, specialized Court of patent in patent infringement appeals. The introduction of the CAFC has resulted in an increase in patent application in the U.S.174 and with the recent introduction to offer discount to small companies it incentivizes start-up companies to obtain patent protection in the U.S. The introduction of the Unitary Patent and the UPC will have a positive effect on high- tech start-up community-wide patenting in Europe. First, the costs, time and complexity to obtain a patent will decrease and second patent litigation will become more cost-effective, less time- consuming and complex. This will increase the incentive for high-tech start-ups to patent their technology and protect them from possible infringers. But in the end, the decision whether or not to patent is an individual and complex decisions which depends on lots of factors. In this thesis most important factors such as costs, time and complexity have been elaborately discussed but other factors such as type of technology, the market industry the high-tech start-up is active in, what strategy it desires, the activity of patent trolls in the market and finally if there are any good alternatives to patenting play an important role as well. In the end, it is an individual 173 A. Mayergoyz, ‘Lessons from Europe on How to Tame U.S. Patent Trolls’, Cornell International Law Journal (2009) Vol.42, p. 264 & Eurostat, ‘Science, Technology and Innovation in Europe’, 2012 edition p. 98 174 Merz J. & Pace. N.M., ‘Trends in Patent Litigation: The Apparent Influence of Strengthened Patents Attributable to the Court of Appeals for the Federal Circuit’ (1994), Journal of the Patent and Trademark Office Society, No 76 pp. 579-90 Page 44 of 49 decision every high-tech start-up has to make on its own and with these factors taken into account. 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