European Commission Questionnaire on the Patent System in Europe

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1 European Commission Questionnaire on the Patent System in Europe Response by: Eli Lilly and Company Contact: Mr I J Hiscock Director - European Patent Operations Eli Lilly and Company Limited Lilly Research Centre Erl Wood Manor, Sunninghill Road Windlesham, Surrey GU20 6PH United Kingdom hiscock_ian@lilly.com Eli Lilly and Company is a research-based pharmaceutical company that has distinguished itself over the past decade with a successful innovation-driven strategy. Lilly invests in R&D at the top of the industry with the goal of delivering a steady flow of innovative products. Over the past four years, Lilly has launched nine new products. Lilly s commitment to R&D is evidenced by its investment of over 20% of net sales into R&D in In Europe, Lilly employs over 10,000 people and operates four R&D sites and six manufacturing sites. Lilly welcomes the Commission s consultation on the patent system in Europe and on the role of the Community Patent and the European Patent Litigation Agreement in the future. The Commission s questionnaire is reproduced in italics below with our comments inserted as appropriate: Section 1 - Basic principles and features of the patent system The idea behind the patent system is that it should be used by businesses and research organisations to support innovation, growth and quality of life for the benefit of all in society. Essentially the temporary rights conferred by a patent allow a company a breathing-space in the market to recoup investment in the research and development which led to the patented invention. It also allows research organisations having no exploitation activities to derive benefits from the results of their R&D activities. But for the patent system to be attractive to its users and for the patent system to retain the support of all sections of society it needs to have the following features: clear substantive rules on what can and cannot be covered by patents, balancing the interests of the right holders with the overall objectives of the patent system transparent, cost effective and accessible processes for obtaining a patent predictable, rapid and inexpensive resolution of disputes between right holders and other parties 1

2 due regard for other public policy interests such as competition (anti-trust), ethics, environment, healthcare, access to information, so as to be effective and credible within society. 1.1 Do you agree that these are the basic features required of the patent system? LILLY: In general, Lilly agrees with the Commission s assessment of the key features of an attractive and effective patent system. The fundamental principle of any patent system is that it should promote and reward innovation and, in return, society is enriched with greater knowledge. For a company such as Lilly operating in a research-based industry, it is critical that there are clear substantive rules concerning what is and is not patentable. Lack of clarity leads to uncertainty that ultimately may damage the incentive to invest in research and development in Europe. Intimately allied with this is the need for high quality and consistent application of the laws concerning patentability and enforcement. Effective control over the cost of obtaining and maintaining patent protection across Europe is also important if Europe is to maintain its pivotal role as a centre for scientific excellence, especially as we see new challenges arising from countries such as China and India. Predictability of dispute resolution is important for the decision making processes of both patent holders and third parties alike. As the Commission appreciates, there is considerable diversity across the Community in the predictability, speed and cost of patent litigation. However, any measure to centralise the resolution of disputes must ensure that the right to effective justice is not compromised by the desire for costcontainment or speed. The quality of justice is important for all parties in any dispute. Whilst a patent system should be integrated with public policy interests (e.g. prohibition on patentability of inventions that would be contrary to ordre public ), in general we believe that other legislation is better placed to address the changing nature of public policy interests. A patent system that is made to flex and accommodate changes in public policy interests will lose the clarity and predictability requirements that are listed in the first three features, above. 1.2 Are there other features that you consider important? LILLY: Whilst it is important that the patent system should be accessible to and address the needs of individuals and small businesses, it is more often the case that it is big business that enters into patent disputes. Therefore, measures aimed at benefiting the interests of individuals and SMEs should not be allowed to compromise the effectiveness of the patent system for industry. Consideration should be given to the provision of alternative fora for the resolution of patent disputes between individuals and/or SMEs, possibly along the lines of the Patent County Court in the UK, using streamlined procedures and allowing court representation at a more economical cost. However, since 2

3 the outcome of patent disputes in research-based industries such as the pharmaceutical industry can literally affect the very survival of those enterprises, any new pan-european court system should ensure that adequate time, and resources, can be brought to bear on complex cases. Everything possible should be done to provide a fair result, and to remove as far as possible the element of chance from the outcome. 1.3 How can the Community better take into account the broader public interest in developing its policy on patents? LILLY: We recognise that public interest is an important consideration when developing a policy on patents, however, this must be seen in the context of the benefit to the Community that the patent system brings. As stated above, the fundamental principle should be the promotion of innovation. Consultation that takes into consideration the views of the diverse interest groups in the Community is useful so long as this fundamental principle is reflected in any decision that is made. Undue weight given to the lobbying of ill-informed or agenda-driven pressure groups may compromise the effectiveness of the patent system and ultimately have an adverse effect on the level of investment and employment in the Community by industry. Section 2 The Community patent as a priority for the EU The Commission's proposals for a Community patent have been on the table since 2000 and reached an important milestone with the adoption of the Council's common political approach in March The disagreement over the precise legal effect of translations is one reason why final agreement on the Community patent regulation has not yet been achieved. The Community patent delivers value-added for European industry as part of the Lisbon agenda. It offers a unitary, affordable and competitive patent and greater legal certainty through a unified Community jurisdiction. It also contributes to a stronger EU position in external fora and would provide for Community accession to the European Patent Convention (EPC). Calculations based on the common political approach suggest a Community patent would be available for the whole of the EU at about the same cost as patent protection under the existing European Patent system for only five states. Question 2.1 By comparison with the common political approach, are there any alternative or additional features that you believe an effective Community patent system should offer? LILLY: We should like to make some specific comments with regard to certain aspects of the common political approach. These are addressed in the order in which they appear in the final text of the common political approach dated 7 March The Jurisdiction System We strongly support the Commission in the requirement that the judges who will sit in the chamber of the Community Patent Court (CPC) must have an established high level of expertise in patent law. In addition, however, we believe that candidates for 3

4 appointment must also have a proven ability to understand and assess complex technical matters. Only in very exceptional circumstances should it be necessary for the judges to be assisted by a technical expert and, of course, only in order to facilitate the judges understanding of the technical subject matter of the case. Technical experts should not, for instance, be called upon to opine on matters of substantive patent law. Careful drafting of the rules of court will therefore be necessary. The common political approach requires the CPC to conduct proceedings in the language of the Member State in which the defendant is domiciled. This is impractical and will add unnecessary complexity to the proceedings. Also, this would inevitably lead to increased cost for the parties. With the expansion of the European Union on 01 May 2004, now, more than ever, the Community relies upon English as its common language. We therefore suggest that English should be adopted as the language of proceedings for the CPC except in the following circumstances: where the patent holder and defendant(s) are domiciled in a Member State in which German is an official language, then the language of proceedings may be German; and where the patent holder and defendant(s) are domiciled in a Member State in which French is an official language, then the language of proceedings may be French. Language and Costs We concur that the language regime for the Community Patent should be the same as that provided for in the European Patent Convention (i.e. optionally in English, German or French). However, the requirement that the applicant must, upon grant of the patent, file a translation of all claims into all official Community languages is unduly onerous. It is not sufficient to say that the applicant has control over the number of claims and therefore the cost of translation of the claims. Some industries more than others are forced to draft lengthy sets of claims the language provisions would therefore discriminate against such industries. Furthermore we have considerable concern over the legal status of translations of patent claims. The only truly workable system is for the authentic text to be that of the language of proceedings. We suggest that the filing of a translation of the granted claims into the official language of a given Member State should be required only when provisional protection is required or prior to enforcement of the patent. The wording of such translations should be for information purposes only. Section 3 The European Patent System and in particular the European Patent Litigation Agreement Since 1999, States party to the European Patent Convention (EPC), including States which are members of the EU, have been working on an agreement on the litigation of European patents (EPLA). The EPLA would be an optional litigation system common to those EPC States that choose to adhere to it. The EPLA would set up a European Patent Court which would have jurisdiction over the validity and infringements of European patents (including actions for a declaration of 4

5 noninfringement, actions or counterclaims for revocation, and actions for damages or compensation derived from the provisional protection conferred by a published European patent application). National courts would retain jurisdiction to order provisional and protective measures, and in respect of the provisional seizure of goods as security. Some of the states party to the EPC have also been tackling the patent cost issues through the London Protocol which would simplify the existing language requirements for participating states. It is an important project that would render the European patent more attractive. The European Community is not a party to the European Patent Convention. However there is Community law which covers some of the same areas as the draft Litigation Agreement, particularly the "Brussels" Regulation on Recognition and Enforcement of Judgments (Council Regulation no 44/2001) and the Directive on enforcement of intellectual property rights through civil procedures (Directive 2004/48/EC). It appears that there are three issues to be addressed before EU Member States may become party to the draft Litigation Agreement: (1) the text of the Agreement has to be brought into line with the Community legislation in this field (2) the relationship with the EC Court of Justice must be clarified (3) the question of the grant of a negotiating mandate to the Commission by the Council of the EU in order to take part in negotiations on the Agreement, with a view to its possible conclusion by the Community and its Member States, needs to be addressed. Questions 3.1 What advantages and disadvantages do you think that pan-european litigation arrangements as set out in the draft EPLA would have for those who use and are affected by patents? LILLY: The advantage of the EPLA is to combine the well-established European Patent Office process for the examination and grant of European patents with a litigation system that will afford improved legal certainty and consistency of judgments thereby removing the current disharmony in the application of patent laws across the Community. The use of a single legal forum should also reduce the cost of pan-european patent litigation. In particular, there exists at present a number of divergences in national practice regarding infringement and patent validity. These divergences may be seen as between national courts of different Member States, as well as between the national courts and the practice of the European Patent Office. With regard to the application of the law on patent infringement, these divergences include differences in the application of the doctrine of equivalence and the date at which equivalence should be determined, and the use of file wrapper estoppel. Different practices regarding patent validity include the application of the law on patentability (methods of treatment vs second medical use), 5

6 novelty (e.g. inevitability, implicit disclosure, selection inventions and process claims), inventive step (e.g. the skilled person, problem-and-solution approach and could/would test ) and the law concerning pre-grant and post-grant amendment see, for instance, Winfried Tilmann, 37 IIC 62 (2006). A disadvantage of the EPLA is the uncertainty that it will create for business immediately following its introduction. Unless effective measures are provided, there is a risk of existing European patents being subjected to speculative validity challenges in the new European Patent Court, where such challenges will seek to exploit the inexperience of the judges and advocates operating in the new litigation forum. It would be unprecedented to expose highly valuable existing patents to an untested legal process. The patent holder must at least have the choice of whether or not to enforce a European patent through the European Patent Court and, in the case of a nullity action, the European Patent Court should only be used with the patent holder s consent. This would also have the practical benefit of limiting the number of cases coming before the Court so that it is not overwhelmed in its first few years. In due course, as confidence in the European Patent Court builds, then we would expect to see more parties electing to litigate through the centralise procedure. A transitional measure may be considered whereby the EPLA is applicable only to European patent granted on applications with a filing date after the date on which the EPLA takes legal effect. 3.2 Given the possible coexistence of three patent systems in Europe (the national, the Community and the European patent), what in your view would be the ideal patent litigation scheme in Europe? LILLY: For the reasons given above, we believe that choice is essential, especially in the first few years of any new centralised patent litigation system. Also, the cost implications of the Community patent, if not resolved, require alternative systems to be available. Section 4 Approximation and mutual recognition of national patents The proposed regulation on the Community patent is based on Article 308 of the EC Treaty, which requires consultation of the European Parliament and unanimity in the Council. It has been suggested that the substantive patent system might be improved through an approximation (harmonisation) instrument based on Article 95, which involves the Council and the European Parliament in the co-decision procedure with the Council acting by qualified majority. One or more of the following approaches, some of them suggested by members of the European Parliament, might be considered: (1) Bringing the main patentability criteria of the European Patent Convention into Community law so that national courts can refer questions of interpretation to the European Court of Justice. This could include the general criteria of novelty, inventive step and industrial applicability, together with exceptions for particular subject matter and specific sectoral rules where these add value. 6

7 (2) More limited harmonisation picking up issues which are not specifically covered by the European Patent Convention. (3) Mutual recognition by patent offices of patents granted by another EU Member State, possibly linked to an agreed quality standards framework, or "validation" by the European Patent Office, and provided the patent document is available in the original language and another language commonly used in business. To make the case for approximation and use of Article 95, there needs to be evidence of an economic impact arising from differences in national laws or practice, which lead to barriers in the free movement of goods or services between states or distortions of competition. Questions 4.1 What aspects of patent law do you feel give rise to barriers to free movement or distortion of competition because of differences in law or its application in practice between Member States? LILLY: Obviously, where there are differences in levels of patent and SPC protection between countries, this can result (albeit legitimately) in barriers to free trade. Looking to the future, with all of the EU Member States now offering pharmaceutical product protection and extension of protection by virtue of supplementary protection certificates, such differences will, over time, become a thing of the past. 4.2 To what extent is your business affected by such differences? LILLY: In countries where pharmaceutical product protection was unavailable, there is a significant risk of early entry of generic products where the generic manufacturers assert that they are using a process that falls outside of (or has been designed around ) the claimed patented process. This results in disunity across the Community with some national markets being affected by generic competition long before others. One measure that would go some way to levelling out such differences would be to introduce legislation that would prevent the granting of a generic marketing authorisation in one Member State where the reference product was still the subject of granted product patent or product SPC rights in five other Member States. This would have the effect of bringing the pharmaceutical markets in countries such as Spain, Greece and Finland into line with the markets in the rest of Western Europe. Similar measures might be applied to the eight CEE EU Accession Countries for products where pharmaceutical product protection was unavailable at the time of filing for the patent protection. 4.3 What are your views on the value-added and feasibility of the different options (1) (3) outlined above? LILLY: Whilst it may appear attractive, the ability to refer questions to the European Court of Justice on, for instance, the requirements for patentability raises 7

8 considerable concern. The judges of the ECJ have little or no experience of patent litigation and there is a risk that some judges or Advocates General may take such opportunities to unreasonably limit the fields of patentable subject matter by rendering decisions that are adverse to the industry in effect, the ECJ would have the ability to rewrite certain parts of the patent statute. Mutual recognition of national patents would be an unwise measure. Experience over the past thirty years has shown that there are differences in the level of technical expertise and the degree of scrutiny of a patent application between the national patent offices. A system of mutual recognition would give rise to forum shopping from applicants and would, in our view, be a backward step away from the ideals of the Community Patent and the EPLA. 4.4 Are there any alternative proposals that the Commission might consider? LILLY: No. Section 5 General We would appreciate your views on the general importance of the patent system to you. On a scale of one to ten (10 is crucial, 1 is negligible): 5.1 How important is the patent system in Europe compared to other areas of legislation affecting your business? LILLY: 10/10 - Without a quality patent system, Lilly would not be able to continue to re-invest approximately 20% of its sales revenue into research and development every year. 5.2 Compared to the other areas of intellectual property such as trade marks, designs, plant variety rights, copyright and related rights, how important is the patent system in Europe? LILLY: 10/10 - The rights conferred by patents and supplementary protection certificates are sometimes the only way to challenge premature entry of generic products on the market. Furthermore, in some instances counterfeit products may be unbranded and, if not sold in the Member State, may not infringe local medicine laws. In such instances, patent rights may be the only useful and effective IP right to interrupt such illegal trade. 5.3 How important to you is the patent system in Europe compared to the patent system worldwide? LILLY: 10/10 - The patent system worldwide must be as robust as possible. In some countries, the unavailability of a reasonable level of patent protection, or ineffective enforcement of patent rights in the courts, results in less investment in such countries. 8

9 Given the significant presence that Lilly has in Europe and the high level of investment to which the Company is committed, a strong patent system in Europe is paramount. Furthermore: 5.4 If you are responding as an SME, how do you make use of patents now and how do you expect to use them in future? What problems have you encountered using the existing patent system? LILLY: N/A. 5.5 Are there other issues than those in this paper you feel the Commission should address in relation to the patent system? LILLY: No. 9

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