The Swedish Patent and Registration Office (PRV) is responsible for processing cases involving the protection of patents, trademarks, and designs. The agency also processes cases regarding certificates of publication for periodicals and changes to personal names. In total the agency has 340 employees. The activities are financed entirely through charges appropriated by the agency. The majority of the agency's income of SEK 300 million per annum come from charges governed by public law that companies have to pay in order to protect their invention or trademark. A small proportion of the agency's income comes from its commission activities.
In the last few years, PRV has experienced financial problems. In the beginning of 2008 the agency had a financial surplus of SEK 120 million. This had all been spent by the end of 2009. At the end of 2012 the agency had an overall deficit of SEK 11 million.
Statskontoret was commissioned by the government to analyse the reasons for the agency's financial problems and to determine which measures were required to avoid this type of situation in the future. Statskontoret also assessed the sustainability of the current financing model for the future.
Income from old patents finances most of the activities
The possibilities of funding the PRV patent activities governed by public law have changed in the last few years. The activities represent about 70 per cent of the annual income of PRV and mainly consist of processing national patent applications and international patent applications in the context of the PCT system. A PCT application makes it possible to apply for patents in other countries. For both of these case types, the processing cost per case should on average be four times higher than PRV's charge income.
The income from patents is mainly derived from annual charges from patent holders paying to maintain a patent. An old patent gives PRV a higher income than a new patent, since the annual charge increases for every year the patent is valid. A patent can normally be maintained for a maximum of 20 years. In total, 60 per cent of the patent income comes from patents examined by the European Patent Office (EPO). The administrative costs for PRV to handle these charges are relatively low.
The scope of the PRV patent activities has more than halved since 2000. Meanwhile, the number of valid patents in Sweden was roughly the same in 2012 as in 2000. This means that the agency's workload has decreased significantly. The charge income from patents remain on approximately the same level as in 2000. The fact that the workload has decreased on a larger scale than the income has made it possible for the agency to keep the charges that fund its activities on a low level. If the demand for patent activities increase, the charges will have to increase in order to finance PRV's activities.
Financial crisis, international agreements and increased costs explain PRV's deficit
Three factors were responsible for PRV's large deficit in 2009. The agency's income decreased in connection with the financial crisis in 2008, when the number of valid patents decreased. International agreements came into force which also resulted in a reduction in income. The decrease in income came at a bad time, straight after the agency had incurred increased costs by taking on more employees within the patent activities with the aim to strengthen the capacity and quality of the organisation.
The current financing model is not sustainable
Statskontoret's overall assessment is that the financing model of PRV is not sustainable. There are two reasons for this. The financing model does give the government or the management of PRV the ability to effectively control the activities of the agency. The model is also not fit for ensuring that the activities that PRV conduct can be financed in the long term.
Difficulties financing the current activities in the long term
PRV's income will decrease in the long term. The income from annual charges for patents will decrease since the number of patent applications has decreased. PRV's income is also likely to decrease when the EU introduces a unitary patent, which may occur in 2015. We have estimated that the income from patents will decrease by more than SEK 20 million up until 2020. After that the income may continue to decrease gradually until 2030.
According to the assessment by Statskontoret it should be possible to manage future decreases in income up until 2020 by increasing charges and increasing effectiveness. When the effect of the unitary patent is fully felt it may become difficult to maintain the scope and quality of the current activities. Even if the financial consequences of the implementation of a unitary patent are unknown so far it will probably be necessary to decide whether the Swedish Parliament should inject more funds into the activities than what is generated by the charge income, or if the organisation should downsize.
The decision may need to be made earlier than that. Changes in international agreements and changes in patent strategies within companies may result in worse financial results for PRV. If the demands for PRV's services are further reduced, it will be difficult to justify the employment of more than 100 qualified engineers, which is a requirement to maintain the PCT status. Currently there are 110 engineers. If PRV loses its PCT status, a third of the agency's patent activities would cease. It would lead to an extensive loss of competence and create significantly worse conditions for processing national patent applications.
The activities of PRV should be financed by appropriations
Statskontoret suggests that the financing of PRV's activities governed by public law – that is, the pure agency tasks – should be made by appropriation. The charge income at PRV's disposal should be transferred to the revenue heading of the state budget. The government expenditure for the activities of PRV should not increase with the appropriation. The proposal does however mean that the government should control the agency's activities more actively than before. The main reasons for the proposal of Statskontoret are the following.
The financing of PRV does not meet the requirements that the Swedish Parliament and the government had agreed upon to allow an agency to dispose of the charge income that is incurred by its activities. That is ultimately a result of the very weak link between the costs of PRV's activities and the income received by the agency.
Financing by appropriation means that the government and the Parliament have better opportunities to control and monitor the activities of PRV. A closer control will be required to manage the changes that will result from the implementation of a unitary patent. The future income of the agency will also be more predictable with appropriation. The link between the agency's income and expenditure will also be made clearer. This also makes it easier for the management of PRV to control the activities more strategically.
The low charge for processing a patent application in relation to the processing costs for PRV can in practice be treated as economic policy support. The benefit of maintaining low processing charges should be compared with the resulting costs for the government and the need for other government efforts in economic policies. The Parliament should be responsible for striking this balance.
It has turned out to be difficult to maintain the principle of full cost recovery for PRV's assignments relating to innovation policy and processing of cases that involve personal names or certificates of publication for periodicals. The transition to financing by appropriation would also simplify the financing of these activities.
In PRV's annual report, the financial position of PRV is reported at the end of the year. However, the annual report does not give a good account of how the future income of the agency will develop. Statskontoret is thus proposing that the government asks PRV to continuously present forecasts of the possible consequences of a change in demand for the protection of intellectual property rights and a change in regulations for the agency's future income.
Investigate the future assignments of PRV
On account of its size and competence, PRV is an essential element of the intellectual property rights sector in Sweden. The reduced demand for the agency's activities and a reduced income changes the agency's capacity to ensure that Swedish interests in intellectual property rights are upheld. The development has reached a point where the government has to adopt a position on how its activities should be shaped in the future with regard to intellectual property rights.
Statskontoret proposes the government to set up a commission in the form of a committee that is tasked to propose how the future efforts should be developed and financed in the area of intellectual property rights. Trade and industry's need for support should be the starting point of the commission's task. The task should involve answering the following questions:
- What is the value of the processing being carried out in Sweden? What would be the consequences for trade and industry if the scope of PRV's processing would decrease significantly and what can be done to maintain the volume of the processing activities?
- Is it possible to make the patent charge system more efficient by better satisfying the government's interest in financing the activities of PRV and the interest to facilitate the patent application process for companies?
- What role should PRV play in relation to other government-financed actors that promote innovation and how should the agency's innovation policy efforts be financed?