Defensive Patenting and Deferred Examinaton: Lessons From the German Patent Office

There has been a renewed interest in deferred examination for the USPTO, primarily because (a) it appears to enjoy some success overseas, and (b) the current backlog of pending cases at the PTO are at unsustainable levels. As many institutional patent filers recognize, a fair percentage of yearly filings are almost exclusively defensive, i.e., the filings are submitted to create "freedom-to-operate" (FTO) areas and to potentially block future filers in the technological space, and also create uncertainty for competitors analyzing filed applications.

While U.S. companies have long used defensive filings, statistics on this area are hard to find, since the U.S. system makes it almost impossible to gleam the motivation behind any filing.

However, in the EPO, and more specifically Germany, deferred examination creates two "lags" between filing and grant (or refusal): (1) the examination lag - i.e., between filing and examination, and (2) grant/refusal lag - i.e., between examination and grant or refusal. In Germany, examination does not start until it is requested by the applicant. Thus, the applicant controls the examination lag. Accordingly, applicants can achieve a very long, and cost-efficient, period of pendency, since prosecution costs are practically nil, and there is no “risk” of too early termination. As a result, competitors cannot ignore the application (since the examination request can still be made), and the applicant gains a certain leverage in the patent office on the specific technology.

(As EPO president Alison Brimelow put it: "If you spend several years waiting for a decision, you and others can play 'rich man’s poker', taking a bet on what your rights are going to be and discussing your commercial relationships in the shadow of that pending set of applications.")

Under this backdrop, EU scholars Joachim Henkel and Florian Jell looked at the German model to determine how, and how often, German patent filers avail themselves of defensive patent filings, and their motivations for doing so. Analyzing all direct first filings at the German patent office between 1986 and 2000, the authors found the following:

• While 64.7% of all applications in the GPTO were eventually accompanied by an examination request, 35.3% of all applications had no examination started. However, of the 35.3%, 51% of them had subsequent, priority-based, applications filed in other patent authorities.

• In 47.8% of all GPTO direct first filings, the request for examination was filed before the application was published, meaning the applications corresponded to an "accelerated process" pattern. The remaining 16.9% lingered as "optional" filings, presumably to create insecurity among competitors.

• 2% of all applications could turn out to have defensive publishing as their sole purpose, that is, the publication of inventions with the purpose of creating prior art.

• More than 20% of all applications are left pending for the maximum of seven years before examination is requested or the application is deemed to be withdrawn.

• In cases where the filings are withdrawn very early (when first annual fees would have been due), 85.9% of applications actively withdrawn had subsequent filings, thus indicating that the original filing was merely done to secure priority.

Other findings from the study:

[A] surprisingly large share of applications is kept pending without request for examination, in 20% of all filings even for the maximum period of seven years. For applications with low value or low probability of grant, this creates insecurity for competitors and is thus preferable to an early withdrawal or an early, and likely negative, decision by the examiner. Second, a longer pendency period gives the applicant more time to assess the value of requesting examination. We find that for 17% of all GPTO direct filings, a request for examination is made with delay, that is, after publication of the application.

Evidence from interviews suggests that firms strongly benefit from maintaining pendency of patent applications that cover rather abstract technologies whose market is considered strategically important as a whole, but which are not yet embodied in concrete products. It seems that in such cases a pending patent application offers enough protection while at the same time involving lower cost (e.g. no examination fee, no prosecution cost). As soon as “full” protection is required (e.g. when a product will be launched soon), the applicant can easily induce examination of the patent. Our data shows that this strategy is mostly used by firms (in contrast to individuals): 90.4% of all patents that were pending for seven years before examination started were filed for by corporations or institutions.

Our interviews further suggest that individual applicants who keep their filings pending do so in order to save examination cost while searching for licensees. A majority of 54.8% (which is far above average) of all early lapsed patent applications is filed by individuals suggesting low commercial value of the underlying inventions. The remaining 41.6% (more than 2 % of all filings) are early lapsed corporate or institutional filings. They are strong candidates for being DPs [defensive publications], or in any case for having a large value component related to creating FTO. While we can currently not exclude that the applicants did file initially with the intention of obtaining a patent grant, and within two years realized that a request for examination would be of little value (because of a low probability of grant, or a low value of the resulting patent, if granted), interpreting these filings as DPs is very plausible. First, this interpretation is suggested by qualitative evidence. Second, a survey among EPO applicants found that preserving FTO, after preventing imitation, is the second most important motive for patenting.

Read/download "Alternative Motives to File for Patents: Profiting from Pendency and Publication" (link)

Thomson Publishes Patent Focus Report for 2008

Joff Wild, editor of Itellectual Asset Magazine, author of the IAM Blog, and contributor to Thomson's Knowledge Newsletter, has issued the "Patent Focus Report for 2008." In the report, Joff looks at the patent activity for China, Europe, Japan, India and the U.S., and provides some interesting findings:

China

During 2007, SIPO received 694,153 patent applications covering three types of patent: invention, utility and design. This number may at first sight seem huge, but it does not tell the full story. The overwhelming number of applications — almost 450,000 — was for utility and design patents, which are not subject to substantive examination. Only invention patents receive full scrutiny and there were 245,161 of these submitted during 2007.

What is interesting to note, however, is the increasing proportion of invention patent applications coming from within China. In 2006, they represented just over 58 per cent of the total number of applications to SIPO, in 2007 this increased to almost 63 per cent. This increase was despite an increasing number of applications from abroad: 92,107 compared to 88,172 in 2006.

[A] study of reported decisions in IP cases during 2007 suggested that if rights owners appear before the Chinese courts they have a 75 per cent chance of having the eventual decision go in their favour. This is the case whether the plaintiff is Chinese or from abroad. During 2006, there were more patent cases filed in China than in any other country, and while 98 per cent of these involved only Chinese companies, in the two per cent featuring a plaintiff from outside the country, the foreign entity ended up victorious 90 per cent of the time.

Europe

Although there was a five per cent rise in applications, the number of grants increased by 17.9 per cent. The United States, Germany and Japan continue to be the countries from where most applications come, and these three countries also get more grants than any others. One notable statistic is that the proportion of filings coming from the members of the European Patent Organization fell by a percentage point to 48.5 per cent. France and the Netherlands respectively follow Germany to make up the top three European countries from where applications are submitted.

Also at the end of 2007, the EPC 2000 — the revised version of the European Patent Convention — came into force. Although it has little effect on substantive patent law in Europe, EPC 2000 will have a significant impact on procedure, including the elimination of the need for translations during the application stage, and the elimination of the need to file drawings, claims and a description to obtain a filing date for a European patent (instead applicants can refer to previously submitted material in other countries). Of great significance is that communications between European patent attorneys and their clients will now be subject to privilege. Previously this had not been automatically the case and was instead a case for national jurisdiction.

India

The patent office is struggling to cope as applications rise. Despite the increased workload, the four offices that handle examinations — Kolkata, Delhi , Mumbai and Chennai — have under 200 examiners in total. Recruitment has proved difficult and the attrition rate is high: the Mumbai Mirror reported in August 2007 that one-fifth of staff had left their posts in the previous two years. This is one of the reasons why applicants wait an average of two years before the examination process begins. However, there does seem to have been a surge in the number of patents being granted, if recent reports are correct. During the Indian patent office's current fiscal year, which finishes at the end of March 2008, over 10,000 awards have so far been made. This figure is significantly higher than the 7,500 granted for the whole of 2006/07 and the 4,320 granted during 2004/05. Of course, it also begs the question of just how much scrutiny these patents have received given the low numbers of examiners currently employed.

Japan

The Japan Patent Office (JPO) annual report, issued in November 2007, showed that the number of patent applications in 2006 decreased by 4.3 per cent to 408,674. In its commentary on these figures, the JPO explained that one of the main reasons for the fall was the increasing emphasis that Japanese companies place on keeping their inventions confidential, to help prevent technology leakage.

The number of requests for examination at the JPO also showed a slight downward trend in 2006. In 2005, it was 396,933 (up 21 per cent on 2004), but this fell by four per cent to 382,116 in 2006. This is still a huge number, which can be explained by changes to Japanese patent law in 2001: these stated that requests for examination of applications submitted after October 1 that year had to be made within three years, rather than seven (under the previous law). This change left a number of active applications that were not covered by the new rules and which are now working their way through the system alongside all the applications submitted under the new three year time limit. The office expects the number of requests to peak within the next two years and then to drop.

[W]orrying news for successful applicants looking for certainty post-grant is that, according to research released in April 2007, Japanese courts find against patentees in 90 per cent of the cases that they hear. Speaking at the 15th Fordham Conference on International Intellectual Property Law & Policy, Mr Eiji Katayama told delegates that he had found that of the 37 final trial decisions issued by the Tokyo and Osaka district courts during 2006, 33 had ended with a finding of non-infringement. Of these, two-thirds were decided on the basis of invalidity, while over 85 per cent of the invalidity findings related to the lack of an inventive step or obviousness.

United States

The US Patent and Trademark Office (USPTO) report on the fiscal year 2007 (which ended on 30 September 2007) was a document not lacking in optimism. Among the highlights it chronicled were that the office examined 362,227 patent applications between 1 October 2006 and the end of September 2007: the highest number ever. At 96.5 per cent, quality compliance equalled the previous year's achievements, which were themselves the best in 25 years; while patent examiner decisions were upheld by the patent appeals board 69 per cent of the time, compared to 51 per cent in 2005. Perhaps most noteworthy was that while in 2000, a record high of 72 per cent of all patent applications were granted by the office, that figure has now fallen to 51 per cent, which gives the USPTO comparable approval rates to both the JPO and the EPO.

Read the report in its entirety here (link)

Download a PDF copy of the report here (link)

Download a PDF copy of the report in Japanese here (link)