TECHRIGHTS has covered EPO affairs for a very long time. It's pretty amazing that nobody from the management of the EPO has yet been arrested. Nobody! There's the (in)famous saying from Donald Trump about shooting someone in broad daylight; he bragged he would get away with it. Well, that's like today's EPO management.
"There's the (in)famous saying from Donald Trump about shooting someone in broad daylight; he bragged he would get away with it. Well, that's like today's EPO management."Earlier this month Konstanze Richter of JUVE relayed some EPO lies (SUEPO did not link to it). This reinforced the idea or the widespread perception that JUVE is a mouthpiece not of integrity but of the patent microcosm. Just consider the target audience, i.e. the source of income. Here are some portions:
The European Patent Office is facing a huge pension gap of several billion euros in the coming years. Initial proposals for savings also affect future salaries and pension entitlements. The latest EPO financial study has caused further unrest among the workforce.
[...]
Overall, say staff representatives, the newest EPO financial study is based on “unrealistic assumptions.” This applies, among other things, to the expected increase in salaries. Salaries are calculated at 0.5% above inflation in the long-term. Career progression adds another 1.74%.
“It seems very unlikely that the recent negative trend in career progression will turn any time soon,” says the CSC. Only a few employees would actually benefit from the new career system introduced under Battistelli. It is said salaries for new employees in particular have been significantly reduced.
"The whole thing has become an embarrassment not just to the EPO and France but also Germany and the EU as a whole."One person ended up tweeting back to the editor of JUVE [1, 2, 3]:"Congrats, you have been fooled by the EPO! Quote: "a huge pension gap of several billion euros in the coming years", really? How do they know? Based on what? Studies? These studies are a joke, we all know it. [...] Surprisingly Battistelli, the former EPO President by the way, had claimed the exact opposite at the end of his presidential term, and in doing so has pocketed a fat reward. It sounds like a bad comedy, right?"
Dr. Thorsten Bausch's (Hoffmann Eitle) latest good article, "Three Myths Debunked," says that "The EPO is not poor" (in a heading) and this has been mentioned in some circles. He has, for quite some time, watched and commented on the truly corrupt financial moves of Battistelli -- moves that António Campinos did not challenge and media did not even mention! Here's the more relevant part (to us at least):
2. The EPO is not poor
A similar myth that seems to pervade through the heads of the EPO management every other year is that the EPO’s finances are not in good shape and that, as the current Office President put it, “we might face a gap”.
We might indeed, who can deny that? But the relevant questions are (i) when and (ii) under which circumstances/assumptions?
[...]
So everything was in order and “brought under control” in 2018 (so that the past President earned his extra bonus (???)), but only one year later a new study is presented wherein doubts regarding sustainability in 20 years are expressed. (Can one claim the bonus back?)
With this, let us turn back to reality. According to the EPO’s most recent figures (page 9 of this PDFinance_Presentation), the Standardised Operating result in 2017 was a surplus of €366 million. In the year 2018 it was €390 million, a plus of about 6% (don’t ask me why these figures are slightly different from the ones published in the Battistelli report). The productivity of the examiners (Products per Examiner) has likewise increased from 95.5 (2017) to 99.8 (2018) products per headcount. Thus, it indeed seems that the EPO has become more effective (as it was planned by the Battistelli management – note that I am not talking about quality here) and made an operating profit that I would describe as pretty breathtaking.
On top of that, the EPO Treasury Investment Fund (EPOTIF) which was established and activated in 2018 under external asset management control has assets of €2,4 billion, that is 2.400.000.000 EUR. If my understanding is correct, most of this money has been invested on the stock market in shares and bonds. Whether this is right or wrong may be a matter of debate, but the net effect of this policy in the year 2019 was clearly positive: Namely, whereas general interest rates were about zero, both stocks and bonds had a pretty good year and (so far) increased by about 8% from 1 January. Which adds another approximately 200 million EUR to EPOTIF’s asset sheets. Sounds great – but is this sustainable?
I have argued before that I do not perceive it as the core objective of a patent office to make huge profits. In the end, a patent office is to serve the common good, i.e. promoting technological progress by thoroughly examining patent applications and granting patents to those inventions that deserve it. In contrast, it is not a patent office’s task to impose additional liabilities on applicants in the form of fees, just to put the excess earned by these fees on the stock or bond market. It goes without saying that the European Patent Office should be self-financing and receive the money it needs for operating its business and paying the agreed staff pensions to its retired employees, and I have no doubt that the Administrative Council will provide the office with those means by allowing it to raise the necessary fees at any time. (Whether the EPO needs much more than that, e.g. to pay its past President an appreciable extra premium in addition to his generous salary or to sponsor lavish inventor of the year ceremonies, is another matter on which I have commented earlier.)
In any case, I would summarize that it is a pure myth that EPO is “poor” and that active measures would therefore be necessary to cut costs, particularly staff costs and pensions. On the contrary, staff has demonstrably become more effective, so if anything, I would argue that they have rather deserved a reward.
On this basis, it is quite difficult to see a gap anywhere in the EPO’s figures which would justify immediate action. Predictions about the long-term future are notoriously difficult and highly dependent on the assumptions underlying them, which therefore need to be thoroughly scrutinized and discussed. If my understanding is correct, most of the scenarios under which a “gap” has been prognosed seem to assume a global economic recession and slump in the stock market (“decline in equity earnings”) within the next few years, followed by a slow increase. There is also an optimistic scenario under which there would be no predicted gap at all. All of this may or may not happen, I don’t know. With my limited economic understanding, I just wonder one thing: If EPO management seriously believes in any of the more gloomy-gap predictions and thinks it is appropriate to invest a large proportion of both its investment fund and its pension fund on the stock market, would it not be wise to shorten the stocks now, thus generating a buffer, and re-invest after the slump?
Thank you Thorsten for highlighting what I believe is an area where increased public engagement and scrutiny are vital, namely the financial dealings of the EPO.
Like you, I can make no sense of the predictions in the 2019 Financial Study. The EPO has HUGE cash reserves and has decided to play with a large portion of those reserves on the stock market. If the EPO is following models of good governance, then it will not be gambling with money that it cannot afford to lose. Thus, one can only conclude that the EPO currently has a significant cash pile that is effectively surplus to requirements.
If the predictions in the Financial Study are to be believed, then one would expect the EPO to: (a) provide robust justifications for the assumptions upon which those predictions are based; (b) identify the causes of the predicted losses; (c) consider a range of options for dealing with the underlying causes; (d) provide robust justifications for the chosen solutions; (e) stop playing on the stock market; and (e) target investments with potentially smaller (but guaranteed) returns.
It has been a while since I read the Financial Study, but my recollection is that it most certainly did not follow the logical approach set out above. Indeed, I recall that one of the most “interesting” predictions used in the Financial Study was an assumption of ZERO increases in EPO official fees for an astonishingly long period of time. Thus, given that the users of the European patent system pretty much expect to cope with regular fee increases, one wonders what the basis was for this rather unbelievable assumption.
Of course, if one were a cynic, one might speculate that the authors of the Financial Study were instructed to identify a set of assumptions that might generate predictions of a potentially perilous financial situation in the long term. The question is, why would anyone provide instructions aimed at achieving a predetermined result?
In situations like this, it is often helpful to ask a simple question: cui bono? Let us consider a number of possible candidates.
EPO staff: it is pretty clear that the EPO’s (non-senior) staff will be the victims of the Financial Study, and not its benefactors. Indeed, it seems that the proposed “cost savings” are to be made entirely at the expense of those staff.
Patent applicants: for this group, it is a mixed picture. On the one hand, they might benefit from a freeze in EPO official fees (though it remains to be seen whether the EPO follows through with such a strange policy). On the other hand, applicants will get much less “bang for their buck” in terms of QUALITY patent examination. That is, with the “production” of EPO examiners constantly being pushed (significantly) upwards, the amount of time that applicants can expect an examiner to dedicate to their case is constantly reducing. Whilst it is possible that a relatively small reduction in time per case can be achieved without a reduction in quality, it is frankly inconceivable that year-on-year cuts will not lead to a lowering of quality (especially in view of the cuts already implemented in recent years).
Fund managers for EPOTIF: this group will undoubtedly be a benefactor of the EPO’s recent policies, and also (it seems) of policies devised in the light of the Financial Study, where “savings” made at the expense of EPO staff will be invested into EPOTIF. The funds invested in EPOTIF are truly enormous. Presumably, therefore, the (private sector) fund managers for EPOTIF will reap large rewards in terms of their fees for managing that fund.
You will note that I have not considered whether EPO management (or AC delegates) are possible beneficiaries. This is because, upon the basis of publicly available information, it is impossible to determine one way or another whether they stand to either lose or gain from the rather strange policies that have been implemented. Nevertheless, I think that it is possible to make a pertinent observation. That is, the only reason that it is possible for the fund managers for EPOTIF to earn huge fees is that the policies implemented by the EPO’s management directed the creation of EPOTIF (as well as continued, significant investments into those funds). This observation may or may not be significant. However, when there are well reasoned doubts about the rationale for creating the fund in the first place (let alone the rationale for predicting a dire financial situation that requires more cash to be squirreled away into EPOTIF), it becomes painfully obvious that there are insufficient safeguards in place that might prevent (or even monitor for) key decision-makers at the EPO from receiving kick-backs from the beneficiaries of their largesse.
I must stress that this is all hypothetical, and that I have absolutely no evidence whatsoever of any wrongdoing on the part of anyone involved in this whole scenario. However, the reason for pointing out the POSSIBILITIES for abuse is that it highlights what I believe could be a very serious failing of transparency and accountability in connection with the governance of the EPO.
Dear Mr Bausch, many thanks for your well-written articles. Regarding your 3rd point, it might be time to put the DPMA under scrutiny, too. If the tales of my former colleagues there are correct, the judges at the BPatG are appointed in peculiar ways. In electrical engineering, they are always recruited from G01R examiners, even though there are almost no cases from this class. And if someone is intended to become a judge, he will get this IPC to examine… This has gone on for quite some time, so there is no judge left who has experience with, e.g., electrical machines or some of the other EE specialties… And in physics everyone knows who is slated to become one of the next judges. And it just pure coincidence that he is the son of a former H1-head and presidung judge… Maybe we see a general problem with patent offices… An EPO examiner PS keep up your great work!
Well done VPP. Well done Thorsten Bausch. Well done Wikipedia. Well done Angela Merkel. Well done Bielefeld. And while we are about it, well done Henning Wehn.
It is said in England that Germans have no sense of humour. One more sad sign of parochial ignorance on the island. This particular English reader is heartily fed up with English banter, what passes for English “humour”, and would much prefer the gentle but supremely effective wit of intelligent people like Axel Hacke or Dieter Nuhr. Readers, does anybody know: who are their media counterparts in England?
https://en.wikipedia.org/wiki/Henning_Wehn