Inventor of theYear AwardsProfiles of 2013’scompetitionwinnersPage 2

Inside »

Unitary patentFee structure is stillan unknownquantity forEurope’s SMEsPage 3

US SupremeCourt rulingDNA decision maydepend on finestrands in legalargument Page 3

Big pharmaIndia’s stanceon complianceraises fears overcopycat actionPage 4

AsiaChina fails to liveup to its history asone of the planet’sgreat innovatorsPage 4

FT SPECIAL REPORT

Engineering the FutureWednesday May 29 2013 www.ft.com/reports | twitter.com/ftreports

The world of patents has had amomentous year. The 40-yeardream of a unified Europeanpatent is coming to fruitionand the US system has had

its most fundamental reform for half acentury. Inventors worldwide, mean-while, are making more and more useof patents to protect their intellectualproperty.

In 1973, a diplomats’ conference inMunich started the creation of aEuropean procedure to overcome thecostly and inefficient national frag-mentation of the continent’s patent-ing system. From the start, some par-ticipants envisaged a “unitary” patentthat would provide protection across

Europe. What actually emerged fromthe resulting European Patent Con-vention was the European PatentOffice (EPO) in Munich, an organisa-tion for examining and granting pat-ents that holders then have to registerand enforce at national level.

Attempts to introduce a unitarypatent for EU member states wererevived later in the 1970s, in the 1980sand regularly since. Narrow nationalinterests always sabotaged them untillast year, when the project wonenough support to go ahead.

If all goes well it could begin operat-ing early in 2015, though the timetableis slipping. “Realistically, we believethat the first half of 2016 is now the

date users should have in mind as theearliest likely start date,” says AlanJohnson, intellectual property partnerat London lawyers Bristows.

Although the system’s efficiencyhas been somewhat undermined bythe compromises made to garner suffi-cient political backing for the unitarypatent and its supporting legal struc-ture, patent professionals are pleasedwith the outcome.

“There was doubt until the lastminute whether this would really hap-pen,” says Mark Kenrick, patent attor-ney with lawyers Marks & Clerk inManchester. “The overwhelming feel-ing is that it’s good for Europe andwill make Europe a more attractive

market in which to file patents. It willbe interesting now to see how quicklyindustry takes to the new system.”

“We hope the ratification processwill be as quick as possible,” saysBenoît Battistelli, EPO president. Animportant issue still to be decided isthe cost of annual renewal fees, whichwill have to be set low enough to giveinventors an incentive to file for uni-tary patents rather than a series ofnational patents, but which is highenough to finance the system.

No one is expecting a big initialrush by applicants to take up unitarypatents. “My guess is that companieswill want to test the system and theunified patent court before they put

all their eggs in the same basket,”says Mr Battistelli. “It does representa risk, because if they lose a case theywill lose their protection everywhere,while at present if they lose it in onecountry they can still have it inanother.”

Mr Kenrick agrees a slow, steadytake up is the likeliest outcome. “Youare going to be reluctant to trust anew system until it has built up arecord – but such inertia is to beexpected,” he says. “There wasconsiderable reluctance to use theEuropean Patent Office itself in itsearly days before it had proved itself.”

Continued on Page 3

Intellectualprotectiongets globaloverhaul

Big reforms in the EU and theUS have beenaccompanied by thewider uptake of patentsinternationally, reports Clive Cookson

2 ★ FINANCIAL TIMES WEDNESDAY MAY 29 2013

Engineering the Future

If everyone was to vote on whetherscience and technology has bene-fited humankind, the overwhelm-ing opinion would be “yes”. Butjudging the merits of individual

technical advances is much harder.Which should we rate more highly:

a way of working out the identity ofgenetic fragments to treat cancer, or atechnique to make electric cars moreefficient? Should an invention thathas transformed how electronicdevices display data on a screen beregarded as more useful than a newway to make steel?

Answering such questions is animportant part of a number of compe-titions, which aim to assess specifictechnical ideas and give publicity tothe winners. Behind these schemes isthe notion of rewarding people whohave had great ideas – ideas thatmight touch the lives of millionswhile the person or people behindthem might be largely unknown.

The European Inventor of the YearAward organised by the European

Patent Office (EPO), now in its eighthyear, is a mainstay of such competi-tions. During the judging process, avast quantity of information aboutspecific inventions was gathered. Thiswas sifted using information from theEPO’s internal technical assessorsand commissions a panel of outsidersto choose the winners.

This year, as in 2012, I was a mem-ber of this panel, which explains whya few months ago I was sitting in aroom at the EPO’s Munich offices.

My job was to help sort out therelative usefulness of the ideas of 38candidates the EPO’s technical teamhad shortlisted for awards in five cate-gories. These cover large, and small,companies on the continent; otherenterprises from outside it; peopleworking in universities or researchinstitutes; and finally an award foroutstanding individuals on the basisof their lifetime’s achievements.

In the room were several technicalexperts from the EPO together withBenoît Battistelli, the forceful French

president of the institution who hasused his influence to raise the compe-tition’s profile.

Four other panellists were in theroom: Wolfgang Heckl, a physicist andbiotechnical expert who is head of theDeutsches Museum in Munich, one ofEurope’s leading technical museums;Blanka Rihova, a professor of immu-nology from the Czech Republic; AnnLambrechts, a civil engineer whoworks at Bekaert, the Belgian metalscompany; and Jens Dall Bentzen,owner of Denmark-based Dall Energy,a small business that develops bio-mass energy applications.

Others on the jury could not bepresent but had cast their votesbeforehand. These were Erno Rubik,inventor of the Rubik’s Cube; ThierrySueur, head of intellectual property atthe French gases company Air Liq-uide; Mario Moretti Polegato, anItalian entrepreneur who is the mainforce behind the Geox shoe company;and Martin Schulz, president of theEuropean parliament.

The range of choices before us wasset out in papers about individualinventions – plus the people behindthem – prepared by the EPO experts.The documentation took us on anintellectual tour of extraordinarybreadth. Inevitably, attention tendedto focus on ideas that had a particu-larly wide application.

One example involved a group ofscientists and technical expertsheaded by Ajay Bhatt, an Indian-bornengineer who went on to work for USmicrochip giant Intel. Mr Bhatt wasthe main brains behind the method ofcoding individual computers and elec-tronic devices – through a processknown as the Universal Serial Bus, orUSB – so they can instantaneouslyrecognise each other. Now it is thesystem used in billions of electronicproducts worldwide.

Mr Bhatt’s group had little difficultygaining enough votes to take the topaward in the non-European category.

The lifetime awards featured thenames of some fascinating – yet little

known – people. For instance, therewas Helmut List, who runs Austriancompany AVL and is behind 50 inven-tions in fields from automotive drivesystems technology to heart analysismachines.

The winner of this category was,however, Martin Schadt from Switzer-

land, a multi-talented research scien-tist who worked out how to use mate-rials called liquid crystals to transmitlight. As a result he paved the way tothe liquid crystal displays used incountless electronic devices.

Not everyone agreed with my per-sonal favourites. In the industrysection I was a keen supporter of a

team of engineers from Siemens, ofGermany, which devised coatings forturbine blades, thus improving theefficiency of electricity generators.

But, to my astonishment, no oneelse rated these ideas highly enoughfor them to make the top three in thiscategory.

I had more success in promotingDavid Gow, a UK biomedical engineer.He was the main technical personbehind Touch Bionics, a UK businessthat is a world leader in making artifi-cial hands for people whose upperlimbs have suffered from deformity orinjury.

Even though I felt Mr Gow’s ideasshould gain the top prize in the indus-try section he eventually had to makedo in gaining recognition as a memberof the top three.

In the high-flown world of technicaljudging, a little argument is, ofcourse, entirely healthy. Given theoverall excellence of the candidates, Ireally had little reason to feelaffronted.

Jury panellist says a little argument is no bad thingInventor of the Year AwardsPeterMarsh finds that, while his personal favourites did not always becomewinners, some disagreement is healthy

The candidate shortlist tookus on an intellectual tour ofextraordinary breadth

When Patrick Couvreurwas a young scientist inBelgium, he drewinspiration from thelaboratory of Christian deDuve, the Nobel Prize-winning biologist. Thelatter’s research on celldigestion gave ProfessorCouvreur the idea ofseeking ways to treatdiseases using potentiallytoxic products withoutharming healthy cells.

In the late 1970s, ProfCouvreur – now director ofthe physical chemistry,pharmacotechnology andbiopharmacy unit atParis-Sud university –began to work with ProfPeter Paul Speiser at theSwiss federal institute oftechnology in Zurich onthe potential ofnanotechnology.

“The big problem of anti-cancer drugs is that wehave significant toxicity,”he says. “The effectivedose is very close to thetoxic one.” His idea was tosurround drugs that hadbeen injected into thebody, keeping theminactive until they reachedtheir “target”.

He used a polymercoating around drugs totest on animals before thedevelopment ofbiodegradable coatings forhuman consumption.

These coated drugs arenanoparticles, smaller thanred blood cells, and allowhigher concentrations ofotherwise toxic medicinesto pass through the body.

Prof Couvreur moved to

France, where greaterresources were availablefor research.

In Paris, he helped toco-ordinate work betweenacademia and thepharmaceutical industry,founding the companyBioAlliance to helptranslate his experimentsinto drugs that could betested in mice and laterhumans.

He patented hisdiscoveries and worked toraise production of theexperimental treatmentrequired. Testing of theproduct, Livatag, is underway, with BioAlliancerecruiting patients for alate-stage Phase 3clinical trial.

More recently, he createdMedsqual, another Paris-

based company. This wasto advance his work bycombining the cancertreatment gemcitabine withsqualene, a lipid orinsoluble compound, thatstops tumours forpancreatic cancer growing.He is examining thecombination ofnanoparticles and magneticnano-crystals moved bymagnetic fields.

His products are movingtowards regulatoryauthorisation,commercialisation andwider use. “I’m only aresearcher, not adeveloper,” he says. “Idon’t have the competenceto do all the scaling up,preparation and so on. Ithink the barriers arecurrently too great.”

Toxins used forsake of cureResearch winnerPatrick Couvreur

Andrew Jack looksat the work of apioneer in the fieldof nanotechnology

Pal Nyren’s Eurekamoment came in 1986when he was cycling homefrom Cambridge university.“It is often when you arenot working but are stilloccupied that things come.Perhaps when you do somephysical activity you cando some good thinking atthe same time,” he says.

What came out of thatride was a quicker methodof sequencing DNA calledpyrosequencing. Mr Nyrenhad gone to Cambridge tolearn the traditionalmethod of unravellingDNA but was unimpressed,not least because it wasbeing done by hand. “Itwas very complicated.”

He returned home toSweden, applied for moneyto develop his method andran into funding problems.Money materialised for oneproject but outsiders weresceptical.

“The comments were itwould never work,” hesays. Finally, he drewinspiration to helpdecipher the DNA codefrom studying how fireflieslight up. Thatluminescence helps tounderstand pyrosequencing– essentially it uses achemical reaction toproduce light signals thatare captured by sensitivecameras and used todecode the sequence of theDNA bases one at a time.

The results are

spectacular – whereas thefirst mapping of thehuman genome took morethan a decade it can nowbe done in a matter ofweeks for under $10,000.DNA sequencing is nowboth quicker and moreefficient. But developingthe pyrosequencing methodtook time. It was 15 yearsafter the Cambridge bikeride that Mr Nyren,together with colleaguesMathias Uhlen and MostafaRonaghi, filed a patent forpyrosequencing.

It also did not useradioactive labelling –which entailed scientistshandling hazardousmaterials – as thetraditional method did.

Having unsuccessfullytried to sell the patent MrNyren was able to build aprototype to show off hismethod and he attracted athe interest of a healthcareventure capital group.

That led the threecolleagues from theStockholm Royal Instituteof Technology to set up thecompany Pyrosequencingin 1999 to help sell themethod. Four years later,the pyrosequencingtechnology was sold for$53m to research companyQiagen.

The sequencinginstrument industrygenerates worldwiderevenues of $1.6bn a yearand pyrosequencing’sgrowth prospects are good.Mr Nyren highlights anarray of medical uses forthe technology, such asdetermining the rightcancer treatment forpatients and investigatinghereditary diseases.

He also underlinespossible non-medical usessuch as energy or foodproduction.

Fireflies led theway on DNAsequencingSmall business winnerPal Nyren

Development haspotential usesbeyond health, saysRichard Milne

‘I’m only aresearcher, not adeveloper . . . I thinkthe barriersare too great’

Ajay Bhatt has comeacross products that henever imagined would usethe Universal Serial Bus(USB) that he first dreamtup 20 years ago.

USB cables andconnections charge ourphones, transfer files tomemory sticks, transmitpages to printers and areresponsible for all mannerof data exchanges.

Personal fans for coolingand slippers heated forcold days were among theunusual devices using theUSB he discovered on atrip to China this month.

Mr Bhatt, an executiveat Intel, the world’s biggestchipmaker, had become anelectrical engineer aftergrowing up in India with afascination for gadgets.

“I was a Mr Fixit as akid. I was always verycurious about how thingsworked and I would takethings apart and try to putthem back together.”

Dismantling PCs andrebuilding them was adaunting task forconsumers in the late 1980sand early 1990s as theytried to make differentcomponents and peripheraldevices work togetherthrough different types ofconnections.

“When I first joined Inteland started digging intothe personal computerarchitecture, I saw thatthings were unnecessarilycomplicated, both fordevelopers and users.

“Computers were justvery hard to use, it was

really a nightmare.”He spent three weekends

trying to make componentsin a PC work together.“That’s when I decidedsomething had to be done.The notion of ‘plug andplay’, how I just connectsomething and it works,was the beginning of USB.”

After making a proposalto Intel and beginningwork, the quest widened toinclude other companies,including Microsoft, IBM,Compaq and DEC.

Universal Serial Bus,originally known as“hierarchical serial busassembly”, refers tocombining the signals sentbetween different parts ofa computer and peripheraldevices into one centralstream in which requestscan be translated andprioritised

The standard began totake off around 1998 asMicrosoft introducedproper support for it in its

Windows operating systemand Apple included it inthe iMac.

Its capabilities haveincreased over the years.The latest 3.0 specificationoffers data transfer speedsof up to 10 gigabits persecond, up from just 12megabits per second with1.0 in 1996.

The USB can provide upto 100 watts of power,enabling peripherals suchas an external hard driveto run off a laptop’s portwithout the need for itsown power supply.

Other standard

connectors such as serialand FireWire ports havefallen by the wayside whilebillions of USB-enableddevices entered the market.Multimedia ResearchGroup estimates 4.5bndevices with USB portswill be sold in 2013 alone.

Mr Bhatt says the key toUSB’s success is that thestandard has evolved soolder devices are not madeobsolete.

“Things you bought 15years ago, they work today– we were able to expandthe technology in acompatible way.”

‘Mr Fixit’ just wanted tomake the connectionsNon-European winnerAjay Bhatt

Chris Nuttall talks tothe man whocame up with theidea for the USB Some of the most

successful inventions arethose that rid people of themundane yet persistenteveryday nuisances.

So it is with theBlumotion soft-closesystem, a device designedto stop the slamming ofdrawers and cupboarddoors – a problem that hasplagued households sincehinges were first usedthousands of years ago.

Since it was patented in2001, the device, which isbased on the ideas ofinventors Claus Hämmerleand Klaus Brüstle, hasbeen a huge success forJulius Blum, the Austrianfurniture company thatemploys them. Its profits

have reached €1.26bn, anincrease of about a quarterin the past five years.

This has brought benefitsfor the western Austrianregion of Vorarlberg,where the company isbased. At the last count,4,400 of Julius Blum’s 5,750global staff were located inthe mountainous area andabout €100m of activity inthe regional economy islinked to business thatother companies do withJulius Blum.

Mr Brüstle says the keyto success in the world ofinvention is “a healthyportion of curiosity and theconsistent desire to makesomething new”.

As well as its inventors’curiosity, Julius Blumdrew on customer feedbackand ideas from theautomotive industry.

The system is builtaround a piston housed ina pressure tube filled withhydraulic liquid. When adoor or drawer is closed,the piston is forcedthrough the liquid. Asthere is only enough space

in the tube for a smallamount of liquid tosqueeze past the piston, itis gradually slowed down,preventing the door ordrawer from slamming.

An important featureof the damping system isthat it is speed-sensitive.The harder a door isclosed, the more resistancethe system provides,meaning that the door stillwill not slam.

The inventors areworking on ways to refinetheir creation. “Thechallenge for developers . . .is and remains the need toaccommodate as muchtechnology as possible inthe smallest possiblespace,” says Mr Hämmerle.“In the latest generation ofhinges . . . the dampingsystem is integrated intothe hinge boss.”

In an effort to supportsuch advances, JuliusBlum annually reinvests 4per cent of its profits intoresearch and development.This provides morechances of ensuring itshinges continue to evolve.

Piston takes on big bangIndustry winnersClaus Hämmerle andKlaus Brüstle

James Shotter on amethod to stopdrawers slamming

Plug and play: Ajay Bhatt demonstrates his device

The interview is coming to anend when Martin Schadtnotices my Dictaphone. “Howlong does it last before youchange the battery?” heasks. More than a year, Isay. He nods approvingly andinspects the flatscreendisplay with curiosity.

His interest is natural.After all, it is his pioneeringwork that made possible the$100bn liquid crystal display(LCD) industry that today isbehind the screens ofeverything from laptops towatches and televisions.

Mr Schadt’s scientificaptitude was evident from ayoung age. In his youth inthe small village ofFüllinsdorf in Switzerland, hemade rudimentary radiosfrom spare parts. He also

caused the odd explosion.There followed an

apprenticeship and militaryservice, after which hestudied physics at eveningclasses followed by a PhD.

Mr Schadt spent two yearsin Ottawa, where heregistered his first patentsfor his invention of thesolid­state organic light­emitting display.

He then took a job withwatchmaker Omega beforehe moved to Roche, theSwiss pharmaceuticals giant.Here, in 1970, thebreakthrough came.

Mr Schadt and colleagueWolfgang Helfrich had beenexperimenting with the ideathat it was possible to use ajolt of electricity to “unwind”the spiral structure of liquid

crystals, substances that areneither fully liquid nor fullysolid.

This process, they thought,would switch the crystalsfrom transparent to opaque,which would make themsuitable for creating shapes,such as digits, on a displayscreen.

Initially, the experimentswere not successful. But ashe looked through hismicroscope one Saturday, hesaw the brightness of hisliquid crystal molecules dimfor the first time. Theapproach had worked.

As LCDs needed far lessvoltage than had been firstthought, they could operatewith conventional batteriesand be adapted to manycommercial uses.

“What came later on wasthe major work to developtoday’s field­effect LCDtechnology and compatibleliquid crystal materials. Allthe progress and theexcellent displays you seetoday are the result of betterunderstanding of both thematerial properties and thephysics of the electro­opticaleffects on which field­effectLCDs are based,” he says.

With his team at Roche,he invented tests to measurethe performance of LCDs.This allowed them to designmixtures with specificphysical properties, which, inturn, encouraged Roche tostart producing liquid crystalsin 1972.

James Shotter

Lifetime achievement Light dawned as crystals dimmed

Flatscreen genius: Martin Schadt’s pioneering work made the $100bn LCD industry possible

FINANCIAL TIMES WEDNESDAY MAY 29 2013 ★ 3

Engineering the Future

In the US, the main provi-sions of the AmericaInvents Act, the biggestoverhaul of the country’spatent laws since 1952,came into effect in March.

Among many other provi-sions, the legislationreplaced the distinctivelyUS “first to invent” rule –in which an applicant whoproved an earlier invention,for example through labora-tory documentation, couldclaim patent rights oversomeone else who appliedmore quickly. There is nowa more clear-cut “first tofile” rule similar to that inthe rest of the world.

This reform has been wel-comed by patent profession-als as an improvement inits own right and as a steptoward greater global uni-formity (though the US sys-tem still retains some pecu-liarities of its own).

The European system andthe US reform are bothlikely to increase thenumber of filings in thoseregions – accelerating theexisting global trend topatent more actively.

The World IntellectualProperty Organisation(Wipo) says the number ofinternational applicationsunder the Patent Coopera-tion Treaty, the nearestthing to a global system,rose by 6.6 per cent in 2012to 194,400, following a 10.7per cent increase in 2011.

In Europe, too, the EPOreports a record number offilings last year: 94,060, 2.3per cent up on the previousyear.

Francis Gurry, Wipodirector-general, attributesthe growth to three mainfactors. First is the long-term trend for companies,their accountants and stockmarkets to put more valueon intangible as opposed tophysical assets.

“The increased valueof intangibles adds tothe demand for patentsand other intellectual

Continued from Page 1property,” Mr Gurry says.

The second factor, henotes, “is the increased pub-lic attention being paid tothe patent system. A fewyears ago no one was talk-ing about patents. Nowyou’ll find something in thepapers about them everyday – and that affects theway companies managetheir patents.”

Third is the geopoliticaland economic rise of eastAsia, in particular China.“In 1994, Japan, China andSouth Korea filed 7.6 percent of all internationalpatent applications. Nowthey account for 39 percent,” Mr Gurry says.

The top individual filer in2012 was ZTE, the Chinesetelecommunications equip-ment company, with aremarkable 3,906 applica-tions. This was 1,080 morethan the previous year and955 above the second-placedcompany, Panasonic ofJapan.

Third and fourth places inthe filing league were takenby Sharp of Japan (2,001)and Huawei of China(1,801).

In parallel with the vastincrease in patenting byChinese companies abroad,the country has introduceda greatly improveddomestic patent system toprotect Chinese inventions.

Mr Kenrick of Marks &Clerk says: “Although westill hear horror storiesabout corruption andfavouritism in Chinesecourts, the Chinese patentoffice itself is working verywell.”

Protection getsglobal overhaul

It was obvious from thequestions they asked andanalogies that they dreamtup that the nine USSupreme Court justiceshearing one of the mostimportant and complex pat-ent cases in a decade werenot wholly comfortablewith the subject at hand.

The question before them– whether human genescould be patented – seemsstraightforward on the sur-face. Yet as the argumentsturned to talk of recom-binant DNA and whetherisolated DNA fragmentswere found in nature orwere a product of man, thejudges quickly turned toquizzing attorneys withmore accessible analogiesinvolving baseball bats andchocolate chip cookies.

In June the SupremeCourt is set to release itsdecision on whether genesmay be patented, in a rul-ing expected to have broadimplications for a biotech-nology industry that is val-ued at $83bn. Just how farreaching the case will be forother patent holders isdifficult to determine beforethe ruling is announced.Most experts agree that itwill trouble the likes of bio-technology group DuPont,drugmaker GlaxoSmith-Kline, and Amgen, the biopharmaceutical company.

The case before the courtcentres on the actions of aUtah company, MyriadGenetics. Myriad created amonopoly in the US whenits co-founder, Mark Skoln-ick, became the first scien-tist to isolate, sequence andpatent two gene mutationsthat have a high risk ofbreast and ovarian cancer,BRCA1 and BRCA2.

While Myriad insists thatit never stopped any scien-tists from performingresearch on the genes, ithas long held exclusiverights for all clinical use ofthe BRCA mutations,including genetic tests for

patients who worry thatthey carry the mutations.

In its challenge to Myriad,the American Civil Liber-ties Union has argued thatthe longtime practice of pat-enting genes in humansdefied a rule of patent lawthat says things found innature, such as elements onthe periodic table, could notbe patented. While propo-nents of the patents arguedthat the isolated fragmentsof DNA in question couldnot – in and of themselves –be found in nature, theACLU has relied on thearguments of scientists whohave said such fragmentsdo indeed occur throughnatural processes in thehuman body.

When they heard the casein April, the majority of thenine justices seemed scepti-cal about whether thesekinds of genes should con-tinue to be patented. Butthey were also wary of deal-ing too great of a blow toentrepreneurs and compa-nies that have come to relyon the promise of patents toraise investor capital andpursue scientific research.

Most experts believe,based on the questions andcomments heard in court,that the majority of justicesmay decide to invalidatepatents on isolated DNA,including the main patentsin question in the case ofMyriad. But they areexpected to maintain thepatent protection for what

is known as complementaryDNA, or cDNA, which isessentially synthetic andused for many medical andagricultural purposes.

Scientific and legalexperts are trying to gaugejust how disruptive the casemay be. Before it washeard, one patent expertpredicted the results couldbe disastrous.

“Synthetic DNAsequences, designed byhumans, may be excludedfrom this prohibition butthe invalidation of patentsclaiming human genes will

wipe out vast amounts ofprivate investment, and bea body blow to the biotech-nology industry,” saysAndrew Torrance, professorat the University of Kansaslaw school.

A study published byNature Biotechnology foundthat the extent towhich certain patent claimswould be affected by theruling would be determinedby how the justices definethe “line of demarcation”between the “natural”

and the “invented” DNA.It is unclear whether the

high court would draw dis-tinctions between humanand non-human geneticsequences.

The question of what pat-ents are at risk is complex.The study, which was ledby Gregory Graff of Colo-rado State University, usedalgorithms and other meth-ods to sift through morethan 70,000 patents. It deter-mined that 15,359 of themcontained claims that weresimilar in nature to thoseheld by Myriad.

Of these, 39 per centinvolved human sequences,seven involved other mam-mals, 12 per cent involvedplants, 21 per cent involvedmicrobial sequences andanother 21 per cent wereseen as using “synthetic”claims of DNA.

The study found that thecompanies with the most atstake were pharmaceuticalor biomedical companies.But big agricultural tech-nology firms, focused onplants and microbial genes,such as DuPont, the largestholder of US gene patents,also stand to lose.

Whatever the courtdecides, the authors noted,the future seems to lie notin the controversial patentsthat Myriad established inthe late 1990s, but in the“non-natural” genetic con-structs that most expertsbelieve will be safe from theSupreme Court.

US genes decision may dependon strands in Myriad argumentSupreme Court ruling

DNA patent caseremains hard to call,reports StephanieKirchgaessner

‘The invalidation ofpatents with humangenes will wipe outvast amounts ofprivate investment’

While the streamlining ofthe application processoffered by a EU-widepatent system is likelyto be broadly welcomed

by large companies, the – as yet –unspecified cost of annual renewalfees is a worry for smaller businesses.

The system should make life sim-pler. Currently patents granted by theEuropean Patent Office (EPO) must beregistered and enforced nationally. Infuture there will be a choice of eitherregistering a patent country by coun-try, or as a unitary patent providingprotection across the 25 signatorystates. While the new system will onlycover EU members, the existing Euro-pean Patent Convention has 38 mem-bers; the two will operate in tandem.

Costs in the unitary system will becut by ending the requirement totranslate a patent into the language ofevery country in which it is to haveeffect, and by creating the UnifiedPatent Court (UPC) to provide a singlejurisdiction for dealing with disputes.

After 40 years of effort, little morethan 18 months remain before thesingle European patent is scheduledto come into operation in 2015. Buttwo issues – the location of the UPCand the decision of Italy and Spain toopt out in protest at the designation(in line with the EPO regime) ofhaving English, French and Germanas patent languages – arecolouring the process and its eventualoperation. Nationalistic horse-tradingover the UPC’s home leaves it unifiedin name only. Its headquarters will bein Paris. Subsidiary courts will spe-cialise in patents involving chemicals(including pharmaceuticals) and life

sciences in London, and engineeringand physical sciences in Munich. Thisstructure will be buttressed by severallocal and regional divisions in mem-ber countries. A court of appeal and aregistry to keep records of all caseswill be based in Luxembourg.

A mediation and arbitration centreis to be established, with seats inLjubljana and Lisbon, to provide aforum for settling disputes before theyare brought to law.

The committee in charge of imple-menting the UPC agreement held itsfirst meeting on March 26, settingearly 2015 as the target for the unifiedcourt to start operations. Input fromindustry, patent judges and practition-ers “will be needed throughout the[implementation] process”, says Paulvan Beukering, manager of the intel-lectual property unit at the Nether-lands ministry of economic affairs,who chairs the committee.

One of the most delicate tasks willbe setting the annual fees for renew-ing unitary patents. Since, onaverage, companies register patents infour of the 25 countries in the revisedsystem, there will be little incentiveto take out a unitary patent if therenewal fees cost much more thanfour national patents. Having thefourth and fifth-largest European mar-kets of Italy and Spain on the outsidewill compound the difficulty of devel-oping an attractive fee structure.

Margot Fröhlinger, EPO director forpatent law, agrees there is a need “tostrike a delicate balance” to ensurethe system is self-financing yet“affordable”. But she notes renewalfees – bureaux in different countriesfix costs unilaterally using different

criteria – are important sources ofincome for national offices.

The EPO will in future collectrenewal fees, keeping half and dis-bursing the rest to national patentoffices based on a formula that aimsto favour countries with less well-de-veloped patent systems. The objectiveis to boost intellectual property pro-tection across the continent.

Once established, the UPC will dealwith disputes relating to unitary andtraditional EPO patents registered inparticipating countries. This explainsthe apparent anomaly of why Italy isa member of the UPC, despite stayingoutside the single patent system.

It leads Ms Fröhlinger to feel “hope-ful, though not yet optimistic” thatItaly will become a full member.

Companies are starting to weigh theimplications for their intellectualproperty strategies. The question ofrenewal fees is a “big uncertainty forsmall and medium-sized companies”,says Nick Wallin, patent attorney atlawyers Withers & Rogers in London.“If the cost for a unitary patent isequivalent to three to four nationalpatents, business will be happy. If it’s

equivalent to the cost of six to sevennational patents that would be push-ing it, especially as Spain and Italyare outside.”

Such considerations are unlikely toaffect big companies and Mr Wallinsays US and Asian clients are likely tofile more patents in Europe. “Fromtheir perspective, the value of a pat-ent is related to how easy it is toenforce. Having one court to litigateleads to a notional increase in value.”

These attractions will have to beweighed against the fact that patentprotection, or the ability to challengea patent, will be wiped out in 25 coun-tries if a case is lost.

MEPs approved the single patent inDecember 2012. “Instead of payingmillions to patent attorneys, transla-tors and in administrative fees,Europe’s SMEs will instead be able touse the money to develop their prod-ucts,” says Cecilia Wikström, MEP ofSweden’s liberal Folkpartiet.

Eliot Forster, chief executive of Cre-abilis, a biotech company in Luxem-bourg, feels it will be a while beforethe benefits are seen. “For that rea-son, I’m agnostic at this time.”

Patent renewalfees troubleEurope’s smallbusinessesUnitary systemDecision over howmuch tocharge remains delicate, writesNualaMoran

Sources: FT research/Industry sources

European patent system member states

Non-EUEPC States

States within the EU and European PatentConvention (EPC) and unitary patent signatories

States within the EU and EPCbut unitary patent non-signatories

Having thefourth andfifth-largestEU marketson theoutside willcompounddifficulties

Gene genie: DNA samples being tested by robots at a Myriad plant in 2001 AP

194,000Patents filed under PatentCo-operaton Treaty in 2012

3,906Patents filed by Chinesecompany ZTE in 2012

4 ★ FINANCIAL TIMES WEDNESDAY MAY 29 2013

Engineering the Future

China can claim to be thebirthplace of some of theoldest and most importantdiscoveries ever made onearth – gunpowder, thecompass and papermakingamong them.

However, it is still one ofthe world’s junior membersas far as systems forprotecting intellectual prop-erty rights are concerned.

Patent filings have risenin recent years, partlybecause Beijing hasdeclared that innovation isthe key to building sustain-able economic growth.

Two years ago, Chinasurpassed the US to becomethe world’s biggest filer ofpatent applications.

Patent experts inside andoutside China say theimpressive number ofpatent filings does not tellthe whole story of thecountry’s current levels ofinnovation.

Their argument is thatthe growth in volume hasnot been matched by a simi-lar growth in quality.

China’s patent office saysit received more than 2mapplications last year, andgranted 1.25m of these, butonly 217,000 were of thehighest quality in China’spatent system.

China grants three types

of patents, comprising thosefor “invention” and alsopatents that require a lowerlevel of innovation. The lat-ter are “utility model” and“design” patents.

Elliot Papageorgiou, amember of the EU Chamberof Commerce workinggroup on intellectual prop-erty rights in China, callsutility model patents,“patents lite”.

“Compared with thosesteeple-crowned inventionpatents in developed coun-tries, many of ours arepatents that are for smallimprovements, utilitymodels or design,” TianLipu, director of the StateIntellectual Property Officesaid last month.

However, he added:“Something is better thannothing, and low-qualitypatents are much betterthan imitation or copyrightinfringement.”

The EU Chamber of Com-merce recently published astudy of Chinese patent

quality, Dulling the CuttingEdge: How Patent-RelatedPolicies and Practices Ham-per Innovation in China.This shows patent filingshave ballooned in recentyears.

However, the EU studyprojects that by 2015, a keytarget date identified byChina for the developmentof its patent system, “theremight be over 2.6m less-than-‘highest-quality’ pat-ents filed in China.” It esti-mates that the number of“highest-quality” patent fil-ings in 2015 would be sub-stantially lower. Further-more, the gap between thetwo looks as if it will bewidening, not closing.

The study forecasts that“39 per cent more totalutility model applicationsthan total invention patentapplications [will be] filedin China in 2015, 28 percent-age points more than thecomparison rate betweenthe two in 2011”.

But some legal experts

believe China’s patent sys-tem, which relies heavily ongrants for small or mar-ginal innovations, is whereit should be given its cur-rent stage of development.

Confucian tradition onceencouraged the Chinese toshare and even copy inven-tions and the idea ofprotecting them as individ-ual property is relativelyrecent, notes an articlein a recent edition ofThe International Lawyer.

The EU Chamber of Com-merce’s Mr Papageorgioualso says there is nothing“intrinsically bad” aboutChina’s utility model patentsystem.

“For a developing econ-omy it makes sense to haveutility models,” he says. “Itgives small investors achance to get on to theinventor’s ladder.”

The bigger problem isthat various levels ofgovernment give monetaryincentives for patent filings,which encourages low-quality or even worthlessapplications, he says.

The EU study goes on toconclude that despitemarked improvements inChina’s patent laws inrecent years, foreign compa-nies still “do not typicallyfile patents on break-through inventions inChina”.

This was “given the mag-nitude of the threat ofChinese entities to use ille-gally acquired [intellectualproperty rights] from for-eign firms to very seriouslyjeopardise those companies’business operations, notjust in China, but alsoabroad”.

China fails to live up to its historyas a great nation of innovationAsia

Patti Waldmeir findsthat filings forpatents haveballooned but thequality is lacking

The US Congress eventually overcameits internal divisions over patents topass the America Invents Act in 2011more than half a century after it hadlast considered the subject.

With claims of patent abuse escalat-ing steadily, there are already plentyof voices urging it to act again – thistime with greater haste.

The calls have been prompted by areported surge in patent lawsuitsbrought by so-called “patent trolls” –outfits that amass patents purely sothat they can bring lawsuits forinfringement against wealthy defend-ants, often forcing them into out-of-court settlements to escape costlycourt battles.

Cases brought by these “patentassertion entities” have soared since2010, when they accounted for 29 percent of cases in the US, according toColleen Chien, an assistant professorat Santa Clara University School ofLaw. By last year the proportion hadclimbed to 61 per cent, promptingwarnings that a flawed system was indanger of becoming completely dys-functional.

This has led to a fresh round ofproposals for legislation to cure thealleged flaws in the US system forgranting and enforcing patents: that itallows too many poor-quality patents,favours nuisance suits and leavescourts ill-equipped to weed outabuses.

“We have way too many patents,”Richard Posner, a US appeals courtjudge who has taken an outspokenstance on the issue, said this month.This has worked to the advantage oftrolls, who have been able to use over-lapping or loosely worded patentclaims to bring cases.

Proposed solutions by Mr Posnerand others include legislation tonarrow the range of patents that areissued or can be used as the basis of alawsuit. Only patents that relate to aproduct or process that is actually inuse should be enforceable, he said.

Not all the recent analyses of thepatent system have been so alarmist.

According to the Brookings Institu-tion, the Washington think-tank, thenumber of patents awarded in the UShas indeed risen quickly over the pastdecade. But, judged by patents perhead, it said this brought it to thesame level that it was at for much ofthe period from 1875-1950.

The rise in rhetoric against patenttrolls is a clear attempt by big compa-nies to turn public opinion their way,according to Nathan Myhrvold,founder of Intellectual Ventures, apatent-investment body whose ownlawsuits have stirred up somecomplaints. Big companies havealways fought against paying inven-tors for the use of their work andhave much to gain from painting thetrolls as the villains, he says.

The complaints about trolls havespilled over into proposed legislation.This month, Charles Schumer, NewYork senator, put forward a bill that

would give the US Patent and Trade-mark Office the power to judge dis-putes over business method patents,taking the cases out of the courts andalso taking away one of the trolls’most potent weapons.

In another direct attack, the EndAnonymous Patents Act, introducedby House of Representatives memberTed Deutch, would force patent own-ers to disclose their identities – some-thing that would end a tactical advan-tage enjoyed by some litigants,according to Brad Smith, generalcounsel of Microsoft.

While such bills have taken narrowaim at supposed abuses, reform propo-nents argue that procedural changesin the courts and other adjustmentsare needed to repair the system’sflaws.

The problems, according to Mr Pos-ner, include a Patent and TrademarkOffice that is understaffed and under-resourced, even after a change to itsfunding arrangements in the 2011 Act.He blamed a district court system thatlacks the expertise needed to weighpatent cases properly and a Federalappeals court that leans instinctivelyin favour of enforcing patent rights.

Big companies urgeaction against ‘trolls’United States

Copyright cases broughtagainst wealthy defendantshave soared since 2010,writes Richard Waters

Patent owners could beforced to disclose theiridentities in legal cases

Throughout the 1990s, India wasthe bête noire of western phar-maceutical companies. It was acountry that did not recognise

drug patents and had a large genericsindustry churning out low-cost copy-cat medicines for domestic use and toexport to other developing countries.

India was expected to fall in linewith global intellectual propertyrights standards in 2005 when NewDelhi adopted a patent law ostensiblycompliant with its obligations to theWorld Trade Organisation, which itjoined in 1995.

However, the refusal in April of theSupreme Court to grant a patent toSwiss group Novartis for its cancerdrug Glivec is seen as the latest signthat Indian attitudes towards drugpatents are little changed.

The ruling follows a series of recentIndian decisions to override or revokepatents on cancer and hepatitis Cdrugs from “big pharma” companiessuch as Bayer, Pfizer and Roche.These rulings have raised hacklesamong western companies and fearsthat other emerging markets couldsoon follow India’s lead.

“We still don’t have an ecosystem[in India] that encourages patents,”Ranjit Shahani, managing director ofthe territory for Novartis, says. “Mostof the patents granted are eitherrevoked or violated, or a compulsorylicense is issued.”

Jason Rutt, a patent lawyer atRouse, an intellectual property lawfirm, says: “The trend that hasemerged is that India is an unfairplace for innovative pharmaceuticalcompanies. Pharmaceuticals are a

global market and you would expecteverybody to behave the same way ineach country.”

India’s parliament deliberatelydrafted the patent law to set a highstandard for inventiveness and toensure sufficient flexibility for genericcompanies to provide low-cost medi-cines if the original patented drugswere too expensive for local consum-ers. Indians buy around $13bn worthof drugs a year – tiny compared withthe US at $400bn – but the market isgrowing by more than 10 per centannually. India exports about $13bnworth of pharmaceuticals a year,about 40 per cent of which go to theUS and the EU.

India’s law tries to prevent “evergreening” – the practice of companiesrenewing patents on old drugs bymaking minor changes – under sec-tion 3d, which states new patents canonly be issued on previously knownmolecules if the modified versionsshow much improved efficacy.

Unlike most countries, where onlygovernments can seek a compulsorylicense authorising production of low-cost copies of patented drugs, Indiapermits generics companies andpatient groups to apply directly topatent authorities for such licenses.

Western companies fear other devel-oping nations, such as South Africa,may take the cue and dilute patentlaws – making it tougher to obtain orextend patents and easier for patentsto be overridden.

That is worrying for the industry asit seeks growth in emerging marketsto compensate for pressure on mar-gins in advanced economies and tries

to fund innovative drug research.“India has said: ‘We are the thought

leaders in terms of the ever greeningof patents’,” says Kiran Mazumdar-Shaw, founder of Biocon, a Bangalore-based biotech company. “Others arejumping into the fray saying: ‘This isa good decision and we want to followthe path’.”

Yet given the high stakes, India islikely to come under intense pressureto adhere more closely to globalpatent practices.

Pfizer has appealed to the US gov-ernment to make India’s failure toadequately protect intellectual prop-erty an important issue in bilateralrelations.

The response of western govern-ments has so far been muted. ButIndia’s Congress party-led govern-ment is considering a batch of com-pulsory licenses for costly cancerdrugs. If those go ahead, westernpharmaceutical companies will surelyfind a way to make their fury felt.

“If you are a country that has apatent law, and a WTO commitment,don’t make it a sham,” says MrShahani. “There will be a point wherethe red line will be crossed.”

India’s stanceon complianceraises fears ofcopycat actionBig pharmaWestern companies worry thatattitudes to property rightsmay create anexample for others to follow, saysAmyKazmin

2001 02 03 04 05 06 07 08 09 10

(’000)

Annual number of invention patent applicationsfiled by the five emerging economies

Source: Thomson Reuters

200

300

400

0

100

China

S Korea

Russia

India

Brazil

Kiran Mazumdar-Shaw: others arewanting to follow India’s path Getty

Clive CooksonScience editor

Andrew JackPharmaceuticals correspondent

Amy KazminDelhi correspondent

Stephanie KirchgaessnerWashington correspondent

Richard MilneNordic and Baltic bureau chief

Chris NuttallTechnology correspondent

James ShotterAustria correspondent

Richard WatersWest Coast editor

Patti WaldmeirBeijing correspondent

Peter MarshFormer FT manufacturingeditor and author

Nuala MoranFreelance sciencejournalist

Adam JezardCommissioning editor

Steven BirdDesign

For advertising details,contact: Liam Sweeney, on+44 (0) 20 7873 4148, email:liam.sweeney@ft.com, or yourusual FT representative.

Contributors »

On FT.com »

Smartphone litigationBattle over IP rightsTim Bradshaw says morelawsuits in the UScourts seem likely

Pay for delayTransatlantic scrutinyAnti-trust bodies aretaking a hard look atdeals, says Andrew Jack