Where Should Foreign Patent Protection Be Pursued?

Once a client has made a decision to file a patent application, invariably, at some point during the patent procurement process, assuming foreign protection is not barred, the client will be asked whether it desires to pursue patent protection for the invention in foreign countries. Patents are territorial and have no applicability outside of the country in which they are granted. A United States patent would afford no protection in a foreign country against a competitor that manufactured, in a foreign country, a product covered by the claims of the United States patent and sold such products outside of the United States. Generally, to prevent manufacture, use or sale in any given country one must obtain a patent in the respective country.

The pursuit of patent protection in foreign countries is costly. With exceptions involving the filing of regional patent applications subsequently discussed, it is necessary to file and prosecute a separate patent application in each country in which patent protection is desired. To file a patent application in a foreign country, a foreign associate that is licensed to practice in the respective jurisdiction must be engaged and translations of original patent applications must be obtained for filing in non-English speaking countries. Thus, the costs involved in the pursuit of foreign protection in each country include the professional fees of the U.S. attorneys and the respective foreign associate, as well as the government fees. It is not uncommon for the prosecution of a single patent application in a foreign country to involve an investment of $10,000-$20,000 or more with no assurance that the patent will necessarily be granted.

A European patent application may be filed in the European Patent Office (EPO). The European patent application is an example of one notable regional application that affords the benefit of a single examination of the application that is accepted by all of the member states. The filing costs for an EPO application can be significantly higher than direct filings in most individual European countries but the ability to pursue a single examination in the EPO can provide cost savings if patent protection in multiple countries in Europe is sought. Furthermore, filing in the EPO affords flexibility with respect to the member states in which protection is finally obtainable since the decision to select the European countries in which a patent will be granted may be deferred until after the grant of the European application by the EPO.

So, with that background, the question remains where should foreign patent protection be pursued? No companies seek patent protection in all countries since to do so would be cost prohibitive. Moreover, it may not be an effective strategy to file in a country where a competitor would only be expected to manufacture a competitive product since the competitor could elect to manufacture the product in another country where no patent protection had been obtained. The most reasonable course of action often involves determining which jurisdictions represent the most significant markets and pursuing patent protection in those jurisdictions.

Finally, it is often desirable to file a Patent Cooperation Treaty (PCT) application to preserve foreign filing opportunities. A PCT application may be filed as the first filed application or within one year of a patent application on which it relies for priority. The PCT application never issues as a patent, but rather, is a placeholder that defers the deadline by which applications in foreign countries (“national phase applications”) must be filed. In most cases the filing of a PCT application permits the deferral of the timeframe in which to file a national phase application up to 30 months from the priority date of the earliest filed application.

The deferral of the filing of foreign applications by utilizing the PCT process offers several benefits:

1. The filing costs associated with national phase applications are delayed, which is helpful to many startups and growing companies for cash flow reasons.
2. The deferral of national phase filings affords the applicant more time to assess which markets are likely to be significant and which are not. As a result, filings in certain countries along with the attendant costs may be avoided based on observations of the marketplace that become evident over time whereas a broader filing strategy may have originally been felt necessary in the absence of actual market data.
3. The deferral of foreign filings via a PCT application permits the filing of national phase applications in any PCT member state well beyond the timeframe in which direct filings would otherwise need to be made. As a consequence, startups and small companies contemplating a liquidity event may be able to defer significant filing and prosecution costs for foreign applications until a time when another party with deeper pockets assumes responsibility for the applications or until a time when financial resources are more plentiful. Additionally, it is often beneficial for a company contemplating a sale of the business to file a PCT application even if it does not have significant foreign markets since a potential acquirer may value the ability to obtain patent protection in major foreign markets of the potential acquirer.

Viewed in the above framework, a decision can be made as to where and how foreign patent protection should be pursued in a cost-effective manner.

International Patent Filings Break Record

The Patent Cooperation Treaty (PCT) provides a mechanism for filing one patent application, referred to as a PCT or international patent application, that can later branch out into one or more national or regional patent applications.  PCT applicants receive an International Search Report and a Written Opinion regarding the patentability of the claimed invention based upon the references found in the search report.  In addition, PCT applicants have the option of requesting an International Preliminary Report on Patentability, which is a preliminary assessment of whether the claimed invention is novel, represents an inventive step (i.e., is not obvious), and has industrial applicability.

PCT applications are useful in that a single filing can preserve the right to later pursue patent protection in regional patent systems like the European Patent Office and in the patent offices of most industrialized nations including the United States.  A PCT applicant can use the International Search Report, the Written Opinion, and other relevant business factors in deciding where to further pursue protection.

In 2013, there were 205,300 PCT filings, the first time the 200,000 annual threshold has been crossed and a 5.1% increase over 2012.  The United States retained its leadership as the top PCT filing country with just over 57,000 applications.  Japan came in second with almost 44,000 applications.  China moved up to third place for the first time at over 21,500 filings, followed by  Germany at almost 18,000 and South Korea nearing 12,500.  Together, the filings from the U.S. and Japan represented almost half of all PCT filings in 2013.

If the member states of the European Patent Convention (EPC) are analyzed collectively, rather than individually, the EPC would represent the co-leader in the number of PCT filings at about 28% of the annual total.

The year-to-year change in filing activity is particularly interesting.  While the EPC member filings declined slightly in 2013, the PCT filings from China increased about 15% compared to 2012.  The next highest annual increases were the U.S. at 10.8% and Sweden at 10.4%.  The rapid increase in filings from China may be attributed in part to government patent subsidies to small and medium sized domestic enterprises and research institutions.