WIPO Proposal for PCT Fee Increase rejected: the Search for 70 million Swiss Francs continues…

The rejection at the recent WIPO Assembly of a Secretariat proposal to increase fees for patent applications filed under the terms of the Patent Cooperation Treaty (PCT) has prompted a broader interest in WIPO’s financial management and its accountability to Member States.

The proposal—designed in part to compensate for an expected shortfall of 70 million Swiss Francs for the 2004-2005 biennium—sparked considerable debate, pitching the Secretariat and developing country Members against several developed country Members and industry groups. The decision has left WIPO to devise other options for offsetting the short-fall—which it attributes to a declining number of PCT applications since 2001. (The number of PCT applications expected for the 2004-2005 biennium was estimated to be 30,000 lower than initially projected.)

Resistance to the Proposed Fee Hike

During the Assembly, South Korea, Japan, and in particular, the United States all expressed staunch opposition to the Secretariat’s proposal for a twelve percent increase in the international filing fees (i.e., an increase from 1’400 Swiss Francs to 1’570 Swiss Francs). The Japanese delegation argued that “WIPO should convince PCT users that the increase of the international filing fee [is] necessary.” The United States sharply refused any increase in the PCT fees “in general and now in particular.” Amidst a series of terse exchanges with the Secretariat in the Plenary sessions, the U.S. emphasised its concern that the proportion of the WIPO budget financed by PCT fees had grown from 60 percent ten years ago to some 80 percent now. In private conversations, developed countries expressed their discontent that the Secretariat had submitted its proposal only a few weeks after it had informed them that it was not envisaging a fee increase.

Taming industry influence

Industry groups have perhaps the most direct stake in the question of the appropriate PCT fees. Indeed, a 1997 decision by WIPO Members to decrease the PCT fees was widely attributed to industry pressure on governments. Reflecting a similar dynamic, proponents of the Secretariat’s proposal warned that any increase in PCT fees could lead to a backlash from industry, which in turn would be reflected in a further decrease in the number of applications. On a similar note, the delegate from the United Kingdom disputed the idea that it is “acceptable to increase PCT fees at will and that this would not affect demand”. Other developed countries, even those similarly opposed to the increase, disagreed with this logic—arguing that the proposed fee increase would have been too small to impact the number of applications and thus the anticipated income.

Industry groups added their voice to the opposition. Both the American Intellectual Property Law Association (AIPLA) and the International Association for the Protection of Intellectual Property raised questions about the purpose of the fee increase and urged the deferral of a decision. “The fees [are] paid by the clients of AIPLA members, and the latter are not able to explain to the former where their fees are going” argued the AIPLA representative. One informed developed country negotiator observed that “the private sector thinks that its money should not be spent on technical assistance.” The AIPLA shied from such an explicit position, stating that they did not “object to the use of PCT fee income to support development activities, but there are limits as to how much PCT applicants should have to support these and other non-PCT activities of WIPO.” Several WIPO Members have informally expressed frustration with this stance—arguing that industry associations have distorted the issues. “The industry pays for what it gets, but this does not give it the rights to define WIPO’s activities and programmes,” said a Latin American delegate.

In mid-October, however, remarks made by the Director of the U.S. Patent and Trademark Office, Jonathan Dudas, at the AIPLA Annual Meeting left little doubt as to the U.S. government’s sympathy with industry on the question of the “diversion” of fees. Indeed, Dudas seemed keen to provoke industry further, warning patents holders that “less than $1 out of every $3 you pay” in PCT fees goes toward the administration of the PCT itself.

In the view of several delegations – developed and developing countries alike – it is precisely because WIPO’s budget depends so much on PCT fees that the organisation behaves as if it were serving a private constituency instead of being an inter-governmental organisation governed by Member States. Canada’s closing statement, on behalf of Group B (an informal grouping composed of the Australia, Canada, the European Union, Japan, Monaco, New Zealand, Norway, Switzerland, Turkey and the United States) highlighted the renewed interest in WIPO’s efficiency and accountability to Member States, noting that it “looked forward to working over the coming year to continue to make WIPO a successful, member-driven, financially-sound multilateral organisation that works toward its agreed strategic goals (. . .) for the benefit of all WIPO Members”.

Greater Financial Transparency

According to one delegation, the resistance to the proposed PCT increase is grounded in a “genuine concern at the lack of transparency in the financial situation and the high expenses of WIPO”.

Adopting a more nuanced stance than that of Japan or the United States, both the European Community and Canada (on behalf of Group B) recommended that WIPO undertake a closer examination of other possible solutions for reducing costs, arguing that the Secretariat had yet to provide sufficient information for a decision to be taken (the Secretariat provided Members a mere two-page document to justify the proposed increase). Several questions were raised. If WIPO had financial problems, should it not first look at its staffing policy and other expenses instead of suggesting an increase in PCT fees? In private, several delegations from both developed and developing countries described WIPO as a lavish organisation, complaining that it behaves at times like a private enterprise or a “money-making machine.” Arguing that “[m]ore expenditure could be cut”, the United States drew attention to the fact that “about half of [WIPO’s] expenditure [is] for staff cost.” In the corridors, civil society groups expressed surprise that given prior debates in WIPO’s Program and Budget Committee about the Secretariat’s penchant for new office buildings in Geneva, so little attention was devoted to scrutinizing WIPO’s budget priorities.

The Secretariat’s proposal for a fee increase attracted support from a wide range of developing countries. Indeed, most developing countries seemed, relatively speaking, to have little to fear from an increase in fees. The 1,000 PCT applications submitted per year by China (the developing country which makes most use of the PCT system), are dwarfed by some 45’000 applications per year from the United States. Moreover, the fear that a failure to increase fees may prompt a decrease in technical assistance has galvanised the support of many developing countries. In the corridors, many delegates speculated that the Secretariat had disseminated a rumour that the United States opposed the increase because it wanted to curtail technical assistance…While several developed countries declared the rumours about U.S. motivations to be unfounded, the United States clearly felt compelled to restate its support for technical assistance to developing countries. “While some might see this issue as a choice between fee increases and cuts in the cooperation program, the issue in fact concern[s] the whole organisation,” said the U.S. delegate.

In private, some developing country delegates surmised that the proposal to increase the PCT fees was the Secretariat’s own agenda. The Secretariat, they mused, had tried to isolate the United States from the rest of the Members (both developed and developing) and garner the support of developing countries in order to get this proposal through. If this was indeed the strategy, then it failed.

Ultimately, the Secretariat’s proposal was defeated and Members agreed that the Program and Budget Committee should meet as soon as possible to analyze, inter alia, any readjustment of PCT fees. The matter of WIPO’s financial situation has prompted what appears to be a long-overdue discussion about financial management, accountability and transparency at WIPO. In informal discussions with IP-Watch, several developed and developing country representatives raised questions about WIPO’s management, suggesting that in line with best practices in other United Nations organisations, WIPO be submitted to external financial scrutiny.

WIPO’s Funding and the Patent Cooperation Treaty (PCT) In contrast to other UN organisations (whose budgets are financed primarily through Member contributions), 93 percent of WIPO’s budget is derived from fees for the services it provides to IP holders with only seven percent coming from its Member States’ contributions. The PCT fees are a particularly important source of income—accounting for some 80 percent of the total WIPO budget.The PCT came into force in 1970 and has subsequently been amended several times. The PCT established a simplified worldwide system for simultaneous filing of patent applications in several countries at the same time. The number of international applications has increased from less than 10’000 in 1985 to more than 100’000 in 2001.