5.Strategies for the Sequencing of International Patent Filings

Obtaining protection across regions is obviously important in carrying out an effective patent strategy. Regional balance often requires patent protection in more than one country or region. What is the best way to pursue patents on a single invention in more than one country? That is our topic here.

When it comes to coordinating patent filings across countries, two international patent law treaties are important. The first is the Paris Convention, first signed in 1884. The second is the Patent Cooperation Treaty (PCT), from 1970. The Paris Convention is very simple, but very helpful: it allows you to file a patent application in any country that has signed the treaty, and then file in any other treaty country within a year. The key is that you get the benefit of the earlier filing date when you apply to other treaty countries within a year of the first (or “priority”) filing.

Why is it important to have the same priority date for other countries as for the first country where a patent application is filed? Because in most fields many researchers are working on the same invention at the same time. Very often, other companies or inventors may file patent applications on the same invention at around the same time. Companies and researchers may also publish technical articles, make presentations, or begin selling a new product that incorporates the new invention. If someone else does any of these things before your priority date, you may lose the chance to get a patent. All these events - filing patents, publishing articles, etc. - create prior art. If you cannot prove a priority date that is earlier than one of these prior art events, you lose your chance for a patent. When an inventor has a priority date earlier than the prior art, the patent is preserved. Therefore when you file a patent application in one country and a then make a later filing in another country, it is important that the second filing be given the benefit of the earlier filing date. That is what the international patent treaties (Paris and PCT) are all about.

The two treaties set different deadlines for international filings. The Paris Convention gives you one year to file in any country other than the country of your first (priority) filing. This one year priority period is free; it comes automatically whenever you file a priority application in any Paris Convention country (which is almost every country in the world). You don’t need to pay anything. The PCT gives you more time to decide where to file, generally 30 months from the priority filing. This extra time to decide where to file makes the PCT especially useful. There is a cost, however. For each PCT country where you want to pursue a national application, the PCT requires you to pay a fee (the “national stage” PCT filing fee).

The two treaties work together, and this gives you strategic options. You can file a first (priority) application, and then after one year decide whether to file a PCT application. This PCT application is called the International Stage application; it gives you the right to file national applications (i.e., “enter the National Stage” of the PCT) up to eighteen months after filing the International Stage application. So in effect, the PCT rule that you have up to 30 months after the priority filing in which to file national applications means that you get 18 more months after the end of the Paris Convention (one year) period. This extra eighteen months is the value you receive when you file a PCT International Stage application.

How much is this extra 18 months worth? What is the value of being able to wait 18 more months (after the one year Paris deadline) to decide in which countries to file national applications?

An example will help you see how to estimate this value. Imagine you had to decide, once and for all, whether to pursue a patent in a specific country (country X). Further, assume there is a 50% chance the patent will end up being valuable. In this case, of a valuable patent, you would earn $11,000 but it would cost you $6,000 to file for the patent (including all costs: filing fee, lawyer’s fee, translation, etc.). The net gain of a successful patent is therefore $5,000. Imagine further that there is a 50% chance that the patent will end up earning nothing; its value will be zero.

If you use the standard approach, you would calculate the expected benefit from this patent this way: (0.5 * $11,000) - $6,000). The net value is therefore negative $500. With a negative expected value, you probably would not file the patent application.

But what if you could delay the decision of whether to file? And what if, during the delay, more information would come out about the value of the patent, so that by the end of the delay period you would know for sure whether it would be successful? In this case, your decision about whether to file the application would be very different. If you knew after waiting that the patent would be successful, you could expect the full $5,000 net benefit from the patent. You would file the application. If you knew the patent would not be successful, expected benefit would be zero and you would not file the application.

Consider for a moment what this delay period would be worth to you; what its financial value would be. By delaying the decision of whether to file, you get the chance at the $5,000 profit. If you had to decide at the very beginning whether to file or not, you would lose this chance.

Intuitively, then, this delay can be quite valuable. There are technical formulas for calculating exactly how much you might spend to gain this delay (called Real Options analysis). Because for many inventions the value of an application is difficult to determine prior to filing, and because these calculations can be complex, we will just say that delay in general is valuable: it has a positive value. As long as the cost of gaining this delay is not too high, it may well be worth it to “buy” some extra time in which to make a decision. For this exercise, rather than using a precise formula, we will just look at (1) the potential for profit; (2) the amount of new information about potential profit that will be revealed during the delay period; and (3) what it will cost to buy the right to delay the filing decision.

This is a useful way to look at international patent filing strategy. The Paris Convention one year period is free; it costs nothing. If you file a patent in any country that is a member of the Convention (which is almost every country), you get this extra period to decide for free.

The PCT gives you an extra eighteen months, but it is not free. You need to pay a fee to the international PCT authority to “buy” the extra eighteen months. Then at the end of the eighteen months, you can decide in which countries to file a National Stage application. There is one PCT International Stage fee, paid to the group that runs the PCT (a United Nations agency called the World Intellectual Property Organization, or WIPO, based in Geneva, Switzerland). But each individual country has its own National Stage filing fee. We can use the options-style analysis described here to think about when you should file the PCT International Stage application. Then we can go further and decide where to file patent applications.

Here is the timeline for international patent filing under the two treaties:

Thinking in terms of “buying options,” we can visualize the timeline this way:

The PCT National Phase is when you choose which PCT countries or regions to file in. This diagram shows that phase. In this diagram, the patent applicant has chosen three countries/regions, but an applicant may choose as many countries as it wants.

And finally, note that the European Patent Office (EPO) also preserves options for a patent applicant. If the EPO agrees to issue a patent, the applicant may choose to obtain national patents in any or all member countries of the EPO. There is no Europe-wide patent, in other words; after EPO approval, the applicant chooses which EPO member countries it will have patents in. This diagram illustrates:

Let us consider a simple options-type analysis for PCT International Stage filings. The fee for this filing is $4,000; once again, this means that if you spend $4,000 one year after your priority filing, you preserve the right to file in many (roughly 150) other countries with PCT National Stage filings. The first stage of the analysis therefore asks whether spending $4,000 at the end of Year 1 after priority filing makes sense. Are the potential gains greater than the $4,000 expenditure?

Consider a situation where at the end of one year after a priority filing, your best estimate is that there is a 50% chance that the patent might be worth $50,000 in two years or so, and it will cost $20,000 to file three national patent applications in the countries where you most need patent protection. This means a 50% chance at a net gain of $30,000. There is also a 50% chance that you will learn in the next 18 months that the patent will be worth zero. If you had to decide today, you would decide to file the patent. The expected value, today, is (0.5)($30,000- $20,000), or $5,000. But as in the example earlier, if you will have better information in 18 months about the chances of success, it might still be beneficial for you to wait. To be specific, if in 18 months you know whether the patent will be a success, you can then decide whether to spend the $20,000 to file the national patent applications.

The simple point here is that International Stage of the PCT gives you those extra 18 months to decide. If the new information tells you that the patent will be successful, you file in the three countries. If you instead learn that the patent will not be a success, you do not file.

Is it worth the cost of the PCT International Stage application to buy this extra time to decide? Recall that the cost is $4000. In a general, common sense analysis, the answer is surely yes. You can spend $4,000 today to potentially save the $20,000 in filing fees if the patent is not a success. And if it is a success, you can spend the money on the filing fees knowing that it is a wise investment. At the simplest level, you have to decide whether to spend $4,000 or $20,000 for the same basic benefit (the right to pursue national patents). Of course you would choose to spend the lower amount, $4,000.

One way to see this is that, if you learn in the next 18 months that the patent will be successful, you will have spent $4,000 to gain this information. The net value of the successful patent in 18 months will therefore be $50,000 (patent value) - $20,000 (cost of national patent filings) - $4,000 (cost of PCT International Stage filing). This is a net value of $26,000. It is higher than the original expected value of filing the national applications one year after the priority filing, which we calculated as $5,000. At a simple level, spending $4,000 at the one year mile stone gained you $ 21,000 in extra expected value. That seems like a worthwhile investment.