02 November 2012

Ecuador Goes It Alone With Massive Fee Hikes

RIP Lonesome George. Photograph © Mark Summerfield 2007Possibly not too many people will care about this, but Ecuador appears determined to assure itself of a place at the bottom of the heap when it comes to innovation, if upcoming changes to official fees are anything to go by.

First, a hat-tip – we are grateful to fellow patent attorney Eddie Walker, of FB Rice, for bringing the Ecuadorian fee changes to our attention.  Ecuador is not a country that would normally capture the attention of this blog, however these fee hikes are so outrageously disproportionate to… well… anything, really, that we cannot resist sharing them!  But on a more serious note, there are also some observations that may be worth making about the role of IP in developing nations, and why Ecuador’s approach is potentially antithetical to the country’s interests.

In a nutshell, any day now the official fees payable to the Ecuadorian Patent and Trademark Office (PTO) in respect of various patent services will rise by up to 3629%!  No, that is not a typo, and a decimal point has not been inadvertently omitted.  The final year patent maintenance fee is indeed slated to rise by a factor of over 36 times, from US$572 to US$20,760.07.  By comparison, the basic application fee will increase by a mere 697%, from US$404 to US$2,816.13.

On the positive side, discounts of up to 90% will be available for certain classes of applicants, namely small and medium-sized companies, universities acknowledged in Ecuador, independent inventors, public institutions, small and medium-sized farmers, and cooperative companies.  In other words, everybody but the foreign companies, multinational corporations and large local companies that are most able to afford to conduct R&D, introduce new products and service, and drive innovation in a developing country such as Ecuador.

Developing nations are inevitably net importers of new technology, innovation, skills and enterprise.  There is no value in reinventing the wheel – or anything else, for that matter – and it is far better to provide incentives for foreign investment, including robust patent protections, R&D tax benefits and so forth.  With good management, the country can then build its own domestic capabilities and industries off the back of this initial bootstrapping.

Ecuador, however, seems determined to give foreign investors every reason to look elsewhere for development opportunities.

NEW ECUADORIAN PATENT FEES

Apparently, the official reason given for the fee adjustment in Ecuador is to ‘provide equity between the fees that are currently charged in Ecuador and those charged worldwide.’  However, even the most cursory comparison of the new fees with a few of the world’s leading patent offices is sufficient to establish that nobody could take such a claim remotely seriously.

The table below shows a comparison of some of the old and new Ecuadorian fees with their US, European and Australian equivalents.  The new Ecuadorian fees will come into effect once published in the Official Gazette, which is anticipated to occur very shortly.

Item
Ecuador (old)
Ecuador (new)
USA6
EPO1,5
Australia1,3
Filing Application
US$404
US$2816.13
US$390
€6702
A$370
Prior Art Search
US$112
US$836.96
US$620
€1,165
-4
Examination
US$196-US$964
US$1510.40
US$250
€1,555
A$490
Annuities –  1-5 years
US$652
US$7,750.48
US$1,150
€1,775
A$300
Annuities – 6-10 years
US$980
US$17,024.92
US$2,900
€6,135
A$1,500
Annuities – 11-15 years
US$1,616
US$36,509.64
US$4,810
€7,475
A$2,500
Annuities – 16-20 years
US$2,572
US$78,294.27
-
€7,475
A$5,600

Notes:  
1
Exchange rates (1 November 2012): US$1 = €0.7718 = A$0.9639
2
Online file fee, plus designation fees
3
Reduced fees for use of ‘approved means’, where applicable
4
No search fee payable when part of standard examination process
5
Annuities for European application.  Would normally switch to payment of national maintenance fees after grant of European patent
6
Large entity fees

These above fees are not necessarily the full amounts payable in order to obtain a patent – there are publication and grant fees in the USPTO and European Patent Office, acceptance fees in Australia, and the additional national validation and translation costs in Europe. But even so, it is clear that obtaining and maintaining a patent in Ecuador for anything more than 5-10 years will now be more expensive than almost anywhere else in the world!  Unless, of course, you qualify for the ‘up to 90%’ discounts.

WHY SO HIGH?

It is difficult to see any justification for such high fees.  An Ecuadorian patent is not many times more valuable than a US, European, or even Australian patent.  It also does not seem at all plausible that the fees reflect a higher standard of search and examination.

The answer may lie in the patent filing and maintenance statistics for Ecuador, a sample of which is available from the World Intellectual Property Organisation (WIPO) web site.  Here are a few facts, based on this data, about the utilisation of the Ecuadorian patent system in 2010:
  1. there was a grand total of 694 patent applications filed in Ecuador;
  2. of these, just four were filed by Ecuadorian nationals;
  3. furthermore, Ecuadorians filed only 10 patent applications outside of their home country;
  4. despite the low filing figures, it does not appear that any patents were granted in Ecuador; and
  5. there were only 199 patents actually in-force.
So, a country of 14.46 million people, with a GDP of US$105.95 billion generated just fourteen patent applications globally in 2010!  Meanwhile, 690 patent applications were filed in Ecuador by foreigners.  And this is in a country where, if you are at all concerned about possible patent infringement, you could feasibly sit down for a couple of days and read every single patent currently in-force!

It might seem difficult to justify operating a patent office at all, with such low overall utilisation of the system, and almost no use by domestic applicants.  There must therefore be a strong temptation to fund the office by extracting high fees from all those foreign users.

ADVERSE EFFECT ON ECONOMIC DEVELOPMENT

Ecuador currently maintains a positive balance of trade, largely due to its large oil reserves, which contribute over 45% of the country’s total exports.  Indeed, the vast majority of Ecuador’s exports are the products of primary industry, with agriculture being the other major contributor.

Over time, however, Ecuador – like other developing nations – will want to develop indigenous technology, healthcare, service and other industries characteristic of advanced economies.  Having no significant existing capabilities in these fields, the country will be dependent on attracting foreign investment, operations, skills and know-how in order to develop local capacity.  This is far less likely to occur if Ecuador adopts policies that discourage, and even penalise, large companies and multinationals attempting to import new products and technologies, and even set up local manufacturing, research and development facilities.  It will certainly not be difficult for neighbouring countries, such as Peru and Colombia, to create environments that are more attractive to foreign investors.

And while patents are certainly not the sole driver – or indicator – of inventive and innovative activity within an economy, setting up high barriers to entry, and effectively isolating the country from the world IP market, will not assist Ecuador in any ambitions it may have to develop into a modern ‘knowledge economy’.

CONCLUSION

Massive hikes in official fees associated with obtaining IP rights, seemingly directed at foreign users of the system, suggest that Ecuador lacks coherent policies for innovation, modernisation and economic development.  This would be a shame – we have, in fact, visited Ecuador, and found it to be a vibrant country full of wonderful, friendly people.

Indeed, the fee increases are so steep that any benefit that might have been seen, in terms of increasing the funds available to the Ecuadorian PTO, will quite possibly be negated, if existing users of the system abandon it in the face of the rising costs incurred for little practical return.  In fact, what is really needed is precisely the opposite – the creation of incentives for established companies to enter the market for goods, services and IP in Ecuador.

4 comments:

Ben said...

The Ecuadorian government may feel that overall the new fees will represent a mere drop in the ocean of the money that would be spent (and made) by a multinational company to bring its technology to town, and therefore will not discourage multinationals who see genuine opportunities for growth and profit. However the substantial fees may encourage the foreign companies to be more selective about which of their technologies they seek and maintain protection for. Maybe Ecuador is trying to set their system up (before the knowledge economy booms and it’s to late to back pedal) so that it discourages the formation of patent thickets and/or encourages the aggressive pruning of such thickets.

Patentology (Mark Summerfield) said...

It would be nice to think that the decision was so well-considered. I would still believe that the fees were somewhat excessive, and counterproductive to national development and growth, but at least there would be a logical policy argument behind the move. The reality is, however, that the only justification that has been offered is parity with other countries.

The problem is not with relatively low-risk investments, with growth and profits largely assured at an early stage. As you say, the benefits in such cases will outweigh the costs, assuming there is some good reason to establish a presence in Ecuador, rather than some other location. But with any higher-risk, longer-term investment, there is unlikely to be any good reason for a multinational to invest in Ecuador, when there are alternatives that are more welcoming. These kinds of decisions do not just establish a cost, they send a message.

Ben said...

I Agree that it is unlikely that much thought went into the policy, rather it seems like a fairly parochial approach that may be directed at one or two foreign companies with existing IP rights in Ecuador. On the upside, the policy could always be reversed in the future if it stifles high risk investment, or special allowances could be made for certain technologies or arranged for certain companies (Transparency international ranked Ecuador 146 out of 180 countries surveyed). In the mean time it may foster local innovation by encouraging locals to innovate in the space that may have otherwise been occupied by cheaply made and maintained patent thickets.

Ecuador Travel by SATO said...

Totally agree. I want to share my own nice experience. Few cities have a setting to match that of Quito, the second highest capital in Latin America after La Paz, Bolivia. Set in a hollow at the foot of the Pichincha Volcano, which stands at 4,794 metres. Quito was an Inca city, discovered by the Spaniards in 1534 and its charm lies in its colonial centre, with steep and narrow cobbled streets. i enjoyed a lot.

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