Rise of the rest: the enforcement map will expand

• The potential introduction of the unitary patent and the Unified Patent Court, as well as Brexit, will change patent practice in Europe
• China will become increasingly attractive for litigation, particularly if damages awards rise
• New markets will emerge in Africa, Asia and Latin America

With the United States becoming a less favourable environment for patent owners, many will look elsewhere. This presents opportunities for practitioners in Europe, China and potentially other markets yet to emerge – but each region also has obstacles that need to be overcome.

The fragmented nature of IP enforcement continues to frustrate many patent owners in Europe, as does the fragmented nature of the IP profession: in many countries, clients need at least two advisers – a patent attorney and an attorney at law/solicitor – and in some they also need a third – a barrister. Moreover, few firms can offer a pan-European service, particularly in patent prosecution. Historically, the arguments in favour of these arrangements were that firms benefited from referral relationships, and clients would get the best service in each country. In reality, the situation has also reflected the fact that there was abundant work to go round and little incentive to change. More than one person spoken to for this report used the words ‘lazy’ and ‘complacent’ when describing a typical patent attorney in Europe.

Two factors will change that: the Unified Patent Court (UPC) and Brexit. Long before the UPC is ready (and it may never be ready), its impact has been felt on the patent profession. Firms of patent attorneys have hired solicitors to offer a litigation practice on top of prosecution and opposition work, while large law firms such as Jones Day and Kirkland & Ellis have hired experienced litigators in the key UPC venues. If and when a unitary patent is implemented, it will simply not be possible for some IP firms to make three-quarters or more of their revenue from European patent validation, as they do today, so they will have to change.

The significance of Brexit will not be clear at least until a UK-EU deal is agreed, and in any case will not directly affect work before the EPO. Nevertheless, it is notable that already several UK IP prosecution firms have opened new offices in continental locations such as Munich, The Hague and Stockholm, and litigation-specialist law firms are following suit: Bristows, until recently a pure UK firm, opened an office in Brussels earlier this year.

Over the next 10 years, expect to see IP firms expand further into other legal services, at least in patent and trademark law and possibly also in related areas. They may even hire barristers to work as part of the team. Will law firms expand the other way? Until now, they have generally believed that investing in patent prosecution is too expensive and risky, given the work patterns, conflict potential and technical expertise required. That is likely to remain the case, but some of the trends in automation discussed above may reduce the barriers to law firms offering patent prosecution services, at least in certain areas or for specific clients.

The European IP market is also ripe for consolidation: just as law firms negotiated UK, Dutch, French and German mergers in the 1990s, IP firms can benefit by combining forces, and Brexit might expedite this as UK firms feel they need to establish a continental presence, and vice versa. If the unitary patent and the UPC do come to fruition, then German and UK attorneys will be competing directly with each other – so why shouldn’t they exist in the same firm? “I’m surprised it’s been as slow as it has been,” says one senior figure in a European firm. “There are clear parallels with accounting and auditing businesses. I expect we will end up with four or five major firms and then a big gap to the next tier.”

Elsewhere in the world, most attention will be on China. The country already leads the way in patent filings, but its enforcement system is still developing. The introduction of specialist courts, which are likely to spread, promises better decisions and more consistency, but the low damages remain a deterrent for many patent owners, so opinions are split. One practitioner says that, based on market impact, China may become the best place in the world to enforce your rights: “I could see China really dominating. There will be a lot more patent litigation in China.” But another argues: “I don’t put any weight on developments in China. Courts are so unpredictable and tied to domestic interests. That won’t improve the value of intellectual property in China for non-Chinese entities.”

For practitioners in China, the lesson is to develop their litigation and legal skills. The country has seen an explosion in patent filing, and consequently in patent filing work, in the past decade. The next decade will be all about enforcement. As one in-house counsel explains: “If the claim is for $10,000, how much energy will you spend before you settle? If it’s $100 million you will give it a lot more scrutiny.” And the Chinese market will increasingly be pivotal to many international companies. One in-house counsel says: “We lost a very large deal because there was a fundamental problem with a key patent in China. Not having a China patent killed off a deal – that wouldn’t have been the case 10 years ago.”

The United States, Europe and China all present obstacles to IP protection, and businesses will therefore increasingly look towards other markets. As one in-house counsel says: “The enforcement map will expand.” Japan and Korea are both countries of interest, but several interviewees also highlighted India, given its English language and court system. Another has high hopes for Nigeria, particularly for work in the telecoms sector, while Brazil is of interest for life sciences companies in particular. Market size is key, says one practitioner: “Even if the royalty rate is low, there is a real opportunity to expand. Even in Africa.”

This raises the question of who will be doing the work, to which there are several possible answers. Assume that there is an increase in IP work in Africa, for example. Will South African firms (with their existing networks) benefit? Or will the major UK and French firms open offices and take advantage of existing business and political links? Alternatively – and perhaps most intriguing – will Chinese IP firms follow the country’s investment and begin to expand overseas as they seek further growth?