27 July 2022

SMEs, Universities and Research Organisations Most Disadvantaged by Lack of a Patent Filing Grace Period, says EPO Study

Seeking graceOver the past two decades or so, the number of major jurisdictions offering some form of general ‘grace period’ for filing of patent applications has grown significantly.  This has largely been driven by bilateral agreements (e.g. free trade agreements involving the United States), and regional agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), including provisions requiring the parties to provide a 12-month grace period.  With former hold-outs such as New Zealand, Japan and South Korea now having implemented grace periods in their national patent laws, Europe and China are currently the only two major jurisdictions in the world without a full-fledged grace period.  To my mind, it is an anomaly in this day and age of instantaneous global communication and publication that there are still countries that impose a strict novelty requirement, with the result that any public disclosure of an invention – accidental or deliberate – prior to filing remains fatal to the prospects of securing patent protection.

A new study recently published by the European Patent Office (EPO), The European patent system and the grace period: an impact analysis, is therefore a welcome contribution to ongoing debate as to whether, and how, the European patent system should harmonise with other major jurisdictions by introducing a general grace period.  Through surveys of users of the system between 2018 and 2020, the study seeks to:

  1. evaluate the impact that the lack of a general grace period in Europe has on applicants in various categories, including European companies, universities and research organisations, and foreign applicants from the US, Japan and South Korea;
  2. estimate the extent to which applicants would take advantage of any European grace period, and how this would depend upon the design of a grace period system; and
  3. compare the perceived level of legal uncertainty that would be generated by the introduction of a grace period under different design options.

The survey sample is not unbiased.  For example, it does not include, by definition, entities that did not file applications during the selected three year period due to prior disclosures that precluded obtaining European patent rights in the absence of a grace period.  Even so, it appears that many participants have experience with grace periods across different jurisdictions, and have been affected in various ways by the lack of a grace period in Europe.  The results are therefore interesting, and appear likely to be indicative of wider experience, although they may underestimate the demand for the introduction of a European grace period.

The study found that the absence of a grace period has forced many applicants to postpone disclosures, with the most heavily affected being European small and medium enterprises (SMEs) at 10.4% and European universities at 12.1%.  For these entities, around two-thirds of these postponements had adverse consequences.  Universities reported a negative impact mostly on reputation or other aspects of their operations (such as delayed research publications).  For SMEs, the negative impact was roughly equally split across development/commercialisation and reputational factors.

Nonetheless, European businesses (small and large) are generally successful in avoiding pre-filing disclosures, reporting less than 1% of cases in which an application was prevented by a disclosure.  European universities, on the other hand, reported 7.8% of European applications being prevented due to a pre-filing disclosure, presumably reflecting the difficulty of enforcing disclosure restraints in an academic environment.  US companies also reported being heavily hit by the lack of a European grace period, with 7.2% of applications prevented by a pre-filing disclosure.

The study further found that the extent to which applicants would take advantage of a grace period, should one be introduced in Europe would be substantially affected by its design.  An unrestricted (i.e. ‘US-style’) design – with no declaration requirements, or preservation of prior user rights – was estimated to result in just over 25% of all European patent applications relying on the grace period (which seems like a very high proportion to me).  On the other hand, an ‘Australian-style’ system – which preserves rights for third parties that commence use of an invention following a disclosure, but before filing of a patent application – was estimated to result in under 10% of applications relying on the grace period.

While grace periods obviously benefit applicants, they create additional uncertainty in that the maximum delay between disclosure of an invention and publication of any patent application revealing the extent to which the invention may receive legal protection is extended from 18 months to as much as 30 months.  The study found that the perception of legal uncertainty among surveyed users of the European patent system was relatively high, driven primarily by European companies which harbour the greatest concerns by a significant margin.  ‘Perception’ is a nebulous concept, however, and there are good reasons to suspect that fear of the unknown is a major driver of survey responses here.

Overall, I would suggest that this EPO study bolsters the case for the introduction of a general grace period in Europe.  The leading argument in favour remains that of international harmonisation, with most other major jurisdictions now providing some form of grace period.  Adding to this, the study indicates that the lack of any similar provision in Europe has an adverse impact on a small, but not insignificant, number of applicants and prospective applicants.  The major counter-argument is that grace periods create legal uncertainty.  However, it is mainly European businesses that – when asked – perceive this as a significant consideration.  European universities and research organisations, along with applicants of all kinds from other jurisdictions which already provide grace periods (the US, Japan and South Korea), have far fewer concerns.

What is a ‘Grace Period’?

I imagine that most readers of this blog would be familiar with the concept of a grace period.  Put simply, it is a period of time – commonly 12 months – prior to the filing of a patent application, during which an applicant’s own disclosures of an invention are to be disregarded for the purposes of assessing novelty and inventiveness.

However, it is worth keeping in mind that not all grace periods are created equal.  The US – largely due to its historical practice of granting patents to the first-to-invent, rather than to the first-(inventor)-to-file – has the least restrictive type of grace period.  An applicant filing in the US is not required to make any up-front declaration that they are relying on a grace period to ‘excuse’ a prior disclosure and, indeed, can invoke the grace period retrospectively even if they were unaware of a disclosure until long after filing.  Furthermore, the extent of patent rights granted is unaffected by an applicant’s disclosure.  In particular, a third party who learns of the invention from the disclosure, and commences use of it during the grace period, before any patent has been filed, will nonetheless be an infringer if and when a corresponding patent is granted.

There are two common modifications that may restrict the scope of grace periods in other jurisdictions.  The first is to require an applicant which has made a prior disclosure to file a declaration stating when and how information about the invention was made available to the public.  Third parties are then able to identify applications that rely upon grace periods, and the corresponding disclosures, by checking the patent office records.  Failure to make a declaration may disqualify the applicant from subsequently invoking the protection of the grace period.  Japan and South Korea are examples of countries with a declaration requirement.

The second modification is to provide a prior user right (or infringement defence) for third parties that may have taken steps to exploit an invention in between an applicant’s disclosure and the subsequent filing of a patent application.  Prior user rights provide a strong disincentive for applicants to intentionally rely upon a grace period, because they create a window of time during which competitors can copy an invention and gain immunity to subsequent infringement proceedings.  Australia is an example of a country that provides for prior user rights.

In principle, a grace period could be designed with both a declaration requirement, and prior user rights.  However, I am not aware of any jurisdiction that has implemented this design.  The EPO report calls this type of grace period a safety net, because its relatively onerous requirements and limitations would encourage applicants to invoke it only when absolutely necessary, e.g. due to an inadvertent disclosure, rather than as a deliberate strategy.

Impact of Europe’s ‘Strict Novelty’ Requirement

Participants in the EPO survey were asked to estimate the impact of the lack of a European grace period on their behaviour, in terms of the need to delay disclosures to provide time to prepare and file patent applications, as well as the extent to which pre-filing disclosures prevent applications that would otherwise have been filed.  The results, across six different categories of applicants, are summarised in the following table.


It is apparent that European commercial entities – presumably due to their familiarity with operating under a ‘strict novelty’ regime – are most adept among surveyed applicants at managing disclosure to avoid loss of potential patent rights.  However, while European universities and public research organisations (PROs) are clearly conscious of the need to avoid pre-filing disclosures, they seem to have more difficulty than their commercial counterparts in preventing such disclosures.  This is a common theme in such organisations globally, largely due to the primacy of peer-reviewed publications, rather than patent applications, in a majority of the accepted measures of research impact that heavily influence researchers’ career progression.

US companies, which are accustomed to operating within a patent system having the world’s most generous grace period provisions, have far worse outcomes than their European commercial counterparts, with more than seven times as many applications barred by prior disclosures.  Japanese and Korean companies fare much better than US companies, but are still not as proficient as European companies in avoiding pre-filing disclosures.  It is not clear why this should be so, given that a general grace period (with a declaration requirement) is a relatively recent feature of both countries’ patent laws.

Consequences of the Lack of a Grace Period

Survey participants were also asked to identify the consequences of disclosure delays and lost filing opportunities for their operations.  The EPO report distinguishes between consequences for development and/or commercialisation opportunities (blue bar in the charts below), reputational or other loss (pale blue/teal), and cases in which there was no adverse consequence (dark green).

The chart below summarises the responses in relation to delayed disclosures.


Source: EPO survey on the grace period

This further chart summarises the responses in relation to patent applications that would otherwise have been filed, but that were prevented due to pre-filing disclosures.


Source: EPO survey on the grace period

The survey results indicate that all categories of users of the European patent system perceive that they are significantly adversely affected by the absence of a general grace period.  Of European-based entities, large companies appear to manage disclosure and filing most effectively, with disclosure delays having no consequence in over half of all cases, and the lowest rates of adverse consequences due to pre-filing disclosures.  European SMEs report far greater adverse effects, particularly when it comes to commercialisation outcomes for which the perceived impacts of both postponement of disclosure and applications prevented by pre-filing disclosures are around twice those of larger companies.  Alarmingly, for European universities and PROs almost all pre-filing disclosures lead to adverse consequences, with loss of development and/or commercialisation opportunities arising in over half of all cases across these sectors.

Overall, US companies seem to experience less severe consequences than European entities, despite reporting higher rates of postponement of disclosure and applications prevented by pre-filing disclosures.  I suspect that this is precisely because they are US companies and, for most of them, Europe is less important than their home market so that the lost opportunities have a smaller impact on their businesses.

Conversely, Japanese and Korean companies report the highest rates of adverse impacts despite their relatively low rates of postponement of disclosure and of applications prevented by pre-filing disclosures.  One possible explanation for this is that, while Japanese and Korean companies are less likely than their US counterparts to be affected by the absence of a European grace period, the commercial consequences when this does occur may be much greater, considering the relative sizes of the respective domestic and European markets.  The combined GDP of all members of the European Patent Convention (EPC) is about 80% that of the the US, but is nearly four times that of Japan, and around 10 times that of South Korea.

How Frequently Would a European Grace Period be Used?

Survey participants were asked how frequently they would expect to make use of a European grace period in four different scenarios: unrestricted (‘US-style’); with declaration requirement (‘Japanese/Korean-style’); with prior user rights (‘Australian-style’); and ‘safety net’ (most restrictive).  From the responses, the study predicts the following shares of all European applications that would rely on the grace period.


Source: EPO survey on the grace period

Frankly, I do not believe the estimate for the ‘unrestricted’ scenario, since I doubt very much that over a quarter of all US patent applications rely on the unrestricted grace period that already exists, and can see no good reason why its use in Europe would be so high.  In any event, an Australian-style system, incorporating a prior user right, strikes me as more consistent with existing European policies and attitudes, and is therefore a more likely option if a grace period were to be introduced in Europe.  In this scenario, something just under 10% of applications relying on the grace period seems more plausible, and is consistent with my own perception of how frequently Australian applications benefit – intentionally or otherwise – from the system in this country.

Uncertainty Created by a Grace Period

Participants were also asked about their perceptions of the degree of legal uncertainty that would result from the introduction of a grace period under the four scenarios.  To be honest, I do not understand the uncertainty measure that is reported in the study.  I mean, the report explains how it was calculated, but I do not really understand why the authors consider it to be a meaningful measure, or exactly how it should be interpreted in numerical terms.  It does not hurt, however, to look at the resulting chart below, and note some of the relative measures of perceived uncertainty.


Source: EPO survey on the grace period

It is notable, firstly, that European companies have the greatest concerns about legal uncertainty, regardless of the model.  This is probably not surprising – they are most at risk of infringing European patents in their home markets, they are unaccustomed to operating under a system with a grace period, and it is human nature to fear change.  In contrast, European research institutions barely care: their primary concern is technology transfer, not infringement. 

Japanese and Korean companies appear to be most comfortable with a declaration system, presumably because they are already familiar with it. 

US companies have a relatively low perception of legal uncertainty which is substantially independent of the model.  Indeed, If anything US companies appear to have slightly greater concerns about systems including additional restrictions that actually reduce uncertainty and risk.  This only serves to reinforce my suspicion that survey participants’ perceptions are driven more by what they are familiar and comfortable with, rather than by any actual level of legal uncertainty.

Conclusion – Is It Time for a European Grace Period?

For me, the most striking aspect of the EPO report is the evidence that European entities are among the most significantly disadvantaged by the lack of a patent grace period in Europe.  By their own admission, European universities and research institutions have among the highest rates of potential patent applications being prevented by pre-filing disclosures and, as a result, are missing out on opportunities to develop and commercialise research outcomes.  European SMEs also appear to be suffering lost filing opportunities.  Additionally, SMEs report more significant adverse consequences of delaying disclosure prior to filing a patent application, perhaps due to their need to be more flexible and responsive to circumstances and business opportunities that may arise. 

Larger European companies report being less severely impacted than SMEs, but their experience may be of lower economic significance.  The European Commission has observed that SMEs are the backbone of Europe's economy, representing 99% of all businesses in the EU, employing around 100 million people, accounting for more than half of Europe’s GDP, and playing a key role in adding value in every sector of the economy.

The primary argument against introducing a grace period is that it would increase legal uncertainty.  And while it is true that European companies, in particular, perceive this to be a problem, the EPO’s survey results overall suggest that this perception may be driven more by a lack of experience with a grace period system than by the reality.  Applicants from other jurisdictions that already have grace periods uniformly expressed lower levels of concern with the systems with which they are familiar ‘at home’ than with alternatives.  Furthermore, most other major jurisdictions now have grace periods, and legal uncertainty has not, to my knowledge, emerged as a significant problem anywhere else.

Add to this the benefits of increased international harmonisation, and to my mind the case in favour of introducing a grace period in Europe is looking strong.


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