US patents – world’s most valuable and staying that way

March 2017 | SPOTLIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

US patents remain unchallenged as the most valuable patents in the world, and this is unlikely to change for decades to come. This premier status of US patents flows from the size of the US economy, the relatively open nature of the US market, insatiable US consumer spending, vast available investment capital and a strong patent system. For now, only Europe, Japan and China could be suggested as possible rivals, but each falls behind the US in most or all of these criteria.

One has to consider relevant patent value, because a patent has force solely in the country where it is issued and not outside that country’s borders. Patents are enforced through the issuing country’s court system, via a lawsuit for patent infringement. Courts of a given country are generally not empowered to enforce patents granted by another country. Obtaining a patent is expensive, costing tens of thousands of dollars for each country. Thus, the owner of an invention must carefully decide for each country whether or not to obtain a patent.

What makes a US patent so valuable?

A US patent covers a huge market, currently about 20 percent of the world’s GDP; furthermore, the US market has been perhaps the most open to new business and innovation. This is important because a patent, by its nature, relates to inventions and innovation. Patents are specifically meant to spur innovation by providing a reward. The reward is in a patent’s ability to serve as a source of licensing revenue or a means to limit competitors. Thus, a patent potentially helps commercialise inventions. From a commercial perspective, a patent can represent a potential new line of business or even a new company.

The US market is huge but it is also accessible for business investment. Silicon Valley is the envy of the world for its ability to generate vast funding for technology start-ups year after year. The US patent also stands out in its procurement and enforcement systems. The United States Patent and Trademark Office (USPTO) examines patent applications and grants patents. US courts hear patent infringement lawsuits. US courts are part of an independent judicial system that is not subject to political pressure or control.

Europe has a fragmented patent system

While Europe has a population and economy comparable in size to the US, it is, however, neither a single country nor a single market. Neither is Europe covered by a single patent and court system. The European Union (EU) remains a loosely-knit confederacy of largely sovereign nations. The EU does not cover the entire continent of Europe; the EU omits Switzerland and Norway, for example. The EU will also lack the United Kingdom, following the UK’s recent Brexit vote.

The EU has no patent system of its own, nor a single court system for hearing patent lawsuits. The European Patent Convention (EPC), a treaty between European Member States, established the European Patent Office (EPO), and the EPO grants so-called ‘European patents’. However, these European patents have no force per se, and must be converted to a local patent of an EPC Member State. That local patent is then enforced by the Member State’s judicial system, applying that Member State’s unique patent law.

Until the Brexit vote, Europe appeared to be on the verge of establishing a single patent system. After nearly half a decade of efforts in this direction, the Unified Patent Court Agreement (UPCA) would have established a single European patent, the Unitary Patent (UP), enforceable in a single European court system, the Unified Patent Court (UPC). Unfortunately, the UPCA requires ratification by the UK to move forward, and the UPCA is limited to EU member states. The UK, Germany and France played the largest roles in framing the UPCA as the largest economies and the most prolific patent agents in Europe. Brexit would remove the UK from EU and, thus, presumably end hopes of enacting the UPCA. Nevertheless, the UK government announced in December 2016 that it will proceed with ratifying the UPCA – the announcement did not comment on how this reconciles with its continuing plans to proceed with Brexit.

Japan is stagnant and China is underdeveloped

That leaves China and Japan to consider. Japan has a single, strong patent system and a fully developed economy. But Japan’s population is less than half the size of the US, and its economy is not fully open to foreigners. There are few signs that Japan’s population, economy or openness to foreign business will improve rapidly.

China has a huge population, about four times the size of the US, yet the country’s economy remains relatively underdeveloped, and is not yet driven by consumer spending. Furthermore, the country’s economic growth has recently shown signs of slowing or possibly stalling. While China has a single patent system, it is not reliable in serving foreigners. China’s patent granting agency and its judicial system are both part of a centralised government and does not include independent entities. Neither is the Chinese economy open to foreign business interests. China appears to be moving toward fixing these problems, but at a very slow pace. This leaves Chinese patents perhaps decades away from challenging US patents in their commercial value.

Rouget F. Henschel is a partner at Foley & Lardner LLP. He can be contacted on +1 (202) 295 4059 or by email: rhenschel@foley.com.

Rouget F. Henschel

Foley & Lardner LLP