Biotech companies operate mostly on a global level. This is either because they follow their customers or because their major markets are abroad or because their domestic markets are so small that they are obliged to market their products abroad. Patents do not play a key role in all industries, but are of decisive strategic importance in the biotechnology sector. "However, patents are not always the best," says Ulrike Cremer, a patent attorney from Ulm who specialises in biotechnology and the life sciences.
Patents play a crucial role in the biotechnology sector, where substitute materials can be used to replace other materials in a patented technology. This is the case for example in the life sciences where patents are filed to protect inventions involving natural compounds and methods. In the field of medical biotechnology, the search for therapeutic compounds and diagnostics involves high levels of financial risk due to high research and development expenditure, and this search needs to be refinanced with patents.
Ulrike Cremer knows from experience with her own clients who are mainly interested in tapping into new business markets that innovative biotech companies are more or less obliged to do business abroad. As such companies, which are nearly all SMEs, are usually active in niche markets, they are able to quickly establish a good reputation and orders from abroad are standard practice. "It has become quite normal for small- and medium-sized companies to be active abroad," said the human biologist who has been running a legal practice in Ulm with her husband since 2002. Cremer specialises in small- and medium-sized companies and offers them support for patent applications. She also covers the entire range of industrial property right issues, which also involves discussions with inventors.
How important are industrial property rights for the internationalization of a company? Ulrike Cremer is well aware of the arguments put forward by the opponents of patents, in particular as far as the highly controversial new EU Biopatent Directive is concerned. Cremer believes that small companies that want to keep their competitors at bay have to file patents, as this is "the only way of keeping competition in the international market at bay". Since big companies tend to protect their intellectual property with patents, this does not leave smaller companies any option but to secure their intellectual property with patents as well. Patents are the only option when it comes to securing market share in markets where several companies are competing to sell the same product.
Cremer believes that if the existence of certain patents put in place by competitors prevents a company from becoming active in a particular market, companies that are in competition with each other could choose to engage in trade on a collaborative basis. She also believes that the companies’ major concern is not legal disputes, but the way in which they prepare for situations in which they may need to use their patent right.
As Ulrike Cremer says, “a well-kept trade secret is better than any patent.” Trade secrets are not disclosed to the world at large; the protection of trade secrets can extend indefinitely (eds. note: patent protection lasts only for a specific period of time), and are not associated with uncertainty about whether or not a patent for a given invention is likely to be granted. Companies can protect trade secret information from competitors by putting in place technological and legal security measures, including non-disclosure agreements. “Disclosing information to the public is the price that has to be paid for the temporary monopoly on the subject matter of a patent,” said Cremer highlighting that the purpose (in theory at least) of publishing an invention is to enrich science and technology, for which an exclusive right is given in return.
Cremer believes that concealing too much information about an invention might endanger the granting of a patent. With the exception of a few sectors, the mechanical engineering sector for example, companies do not have any choice; they are more or less forced to file a patent for their inventions and in return they receive the exclusive right to use the invention for a period of 20 years. However, critics believe that big industrial companies and patent users find a way around the obligation of disclosure by breaking down patents into many individual parts that prevent others from being able to deduce information on the product or process to be protected. Therefore, Ulrike Cremer highly recommends that companies also include work-arounds when filing a patent application in order to make the situation as difficult as possible for competitors.
Cremer further recommends biotech SMEs to think about registering patents at a very early stage. She also advises them to have the invention "ready". She believes that, if in doubt, it is better to patent an invention at an early stage as there is still time to further develop a product or method once the patent has been granted. Another possibility is to file a German patent and then file an international patent the following year, something that is allowed in the priority period.
Companies that are intending to get involved in international trade need to know the markets for which the patent registration needs to be adapted. Although agreements and international cooperation treaties (PCT and TRIPS) have led to the establishment of international standards, there are still country-specific differences when it comes to the details. Cremer is convinced that if a German company has its major market in the USA – which is the case of many biotech companies – it is best to register the patent directly in the USA. In such cases, an American colleague in the USA takes over from his German colleague in order to adapt the patent application to the particular conditions of the American market.
Filing an international patent is a possibility to delay the national procedures by 18 to 30 months. Biotech SMEs, for example, have an additional 18 months after the filing date or the priority date during which they can study potential markets for selling their product or service. Under the PCT (Patent Cooperation Treaty), international patents can be filed in 143 countries (referred to as International Patent Cooperation Union). During the 18 months after the filing date, patent protection is pending under a single patent application, and companies can use this time to decide on the countries in which they wish to register the patent. After a decision has been made, the patent documents will be translated, foreign patent attorneys be involved and the necessary documents filed with the patent offices of the chosen contracting states of the PCT.
Ulrike Cremer believes that if companies know the markets inside out they can avoid filing unnecessary international patents under the PCT, a procedure that is far from cheap (document preparation costs between 2,000 and 10,000 euros, registration fees can amount to 3,000 euros, and there are legal bills on top of that). However, she is careful to point out that biotech SMEs that plan to sell their business to other companies at some stage in the future, are well advised to file an international patent under the PCT.
“Companies that sell their products and services in the European market do not need to file an international patent,” said Cremer emphasising that it is important to gather information about potential competitors and whether an international patent has been filed by another company in the target market. Patent infringement can be costly, especially in the USA. Cremer also points out that the filing of patents is relatively cheap in the USA, the patent granting process somewhat more expensive and “patent infringements extremely expensive”. “No SME is able to cover the costs arising from patent infringement suits in the USA,” said Cremer pointing out that 7-digit sums are no exception.
Research-driven SMEs often see the sword of Damocles – i.e. financing – hanging over them. In order to avoid such scenarios, SMEs might want to choose to licence their products or services to others. SMEs that do not make use of the technology that they have invented might want to sell licences in order to refinance the patenting costs. The situation is somewhat trickier with a patent-protected technology that an SME uses for its purposes, particularly for example if this touches on markets that the particular SME does not serve. Is it a good idea to obtain parallel licences in adjacent countries such as Germany and Austria, for example? The decision is not an easy one because the consequences could turn out to be negative (risk of cannibalizing) as well as positive (mutually enhancing, i.e. promoting the product/companies).
If SMEs restrict the sale of their products to the European market, they need to take into account the fact that they can file a European patent, but not an EU patent. It is also worth noting that trade mark and industrial design owners have the possibility to have their trade marks and designs be protected in several countries by filing one application with the Office for Harmonization in the Internal Market (OHIM), Spain. This cannot be done with European patents, which need to be filed with the European Patent Office in Munich. However, once a European patent is granted, it does not constitute a unitary right, but a group of independent national patents that must be enforced by national courts in individual EU countries. The companies therefore need to decide whether the patent granted needs to be valid throughout the entire EU, or only in the main states, i.e. in Germany, France, Great Britain, Italy and Spain. “Filing European patents can be an expensive process, costing around 20,000 euros for three to five years,” said Cremer referring to estimates published by the European Patent Office. An EU patent, a measure that is currently being debated within the European Union, would allow companies to obtain a unitary patent throughout the EU.
Despite PCT and TRIPS (trade-related aspects of intellectual property rights), “companies shouldn’t file patents at any price,” said the patent attorney highlighting the fact that SMEs need to ensure that filing a patent is profitable in one way or another, whether it takes the form of marketing instruments (excellence, innovation, expertise), scares off competitors or helps gain time for developing the technology further. For example, there is no need to protect certain immunological test methods that need to be constantly adapted to new situations or services.
If a company decides to protect an invention with a patent, this does not mean that it is protected against all risks that might be associated with internationalization. There is a plethora of options available to protect domestic markets against foreign competitors, for example customs duties. “For innovative SMEs that plan to tap into international markets, patent protection is not everything, but in many cases it is an important prerequisite for a company’s presence in international markets,” said Cremer.
Orsenigo, Luigi/Sterzi, Valerio, 2010: Comparative Study of the Use of Patents in Different Industries, Working Paper n. 33/2010, KITeS - Università Bocconi Milano (www.kites.unibocconi.it)
Froitzheim, Ulf: Nicht im Sinne der Erfinder, in Technology Review, 21.08.2009.