One of the big local stories in Israel earlier in the summer was the outcry over the price of cottage cheese. For many Israelis, this is a staple item. June was when someone noticed that the price of cottage cheese had crept up precipitously over the last few years – and that the same locally-produced cottage cheese sold for less in Europe than it did in Israel. So this person decided to do something about it: he used Facebook to organize a boycott. Turns out that not only had the three major dairies (which collective control close to 100% of the market) raised their prices significantly, and almost in lockstep, since the de-regulation of the price of cottage cheese a few years earlier, but one of them had even commissioned McKinsey to tell them how much they could raise prices without losing business.
In the end, the dairies caved and lowered their prices, at least a bit. (Don’t worry, as of this writing the price of cottage cheese isn’t that much lower than before the protest, the dairies are still gouging consumers on everything else they produce, and like lambs Israeli consumers aren’t complaining.) But the part of this story that interests me is the notion of price elasticity, or rather inelasticity: the idea that in certain markets, the demand for an item will remain essentially steady no matter what the price, and therefore producers are free to raise prices without fear of loss of sales. Clearly, with regard to cottage cheese, the dairies felt that the de facto staple status of this commodity, coupled with the lack of local or foreign competition (no one imports cottage cheese into Israel) meant that they could steadily raise the price and make ever-larger profits. The same is true of the fees charged by banks for doing us the favor of holding on to our money, the fees charged by cellphone companies, and the prices of many other goods and services in Israel.
On the other hand, in early July the price of name-brand diapers in Israel fell - dramatically. Here it wasn’t the threat of a boycott that caused the price reduction but old-fashioned competition. Both Pampers and Huggies have arrangements with local manufacturers; until recently those diapers retailed for around 62 shekels a package at all of the large supermarket chains. Since parallel imports are legal in Israel (no, that’s not the IP angle of this story), one of those chains, Mega, decided to draw customers by importing a large number of Huggies from Turkey, at a price that was lower than what the local Huggies manufacturer charges Mega; Mega then offered the diapers at a much lower retail price. In mid-July, for example, Mega advertised Huggies for 26 shekels per package for customers who buy 100 shekels’ worth of other products.
It didn’t take long for the price of locally produced Huggies and Pampers to drop as well. For example, for a while Supersol Deal, another large chain, sold both brands for 36 shekels per package, i.e. at a price 42% lower than it was a few weeks previously. The fact that the prices of these diapers could drop so dramatically suggests that hitherto a certain degree of price inelasticity was at work – even though, unlike with cottage cheese, there are also local brands which normally sell for lower prices than Pampers and Huggies.
What does this have to do with patents in Israel? Well, as far as I can tell, there are some movers and shakers within the patent department of the Israel PTO who think that the price of the services they provide is also inelastic. Or at least there are several ways in which the ILPTO acts as if it can charge what it wants without repercussion. Consider:
1. Until relatively recently, if a patent examiner said that an applicant’s claims were directed to more than one invention, that applicant could cancel claims on the second (and third, fourth, etc. inventions), and file them in a divisional application. The divisional could be filed any time before the parent application was laid open to the public, and the only fee due was the filing fee for the filing of the divisional. In June 2008 the previous Commissioner issued his circular no. MN 62, which said that a divisional filed in response to an office action containing a finding of disunity had to be filed along with the response to the OA. A divisional could be filed after that time, but if so, it would have to be accompanied by an extension fee for each month or portion thereof after the deadline for response to the OA in the parent case.
2. Additionally, longstanding practice in Israel was that if one had already filed a first divisional, and one wished to further divide that first divisional by filing a second divisional application, the second divisional could be filed at any time before the first divisional was laid open to the public, even if that event occurred well after the original parent case had itself been laid open for public inspection. As discussed previously, in February 2010 the previous Commissioner indicated that all divisionals, whether divided directly from the parent case or indirectly from an already-filed divisional, had to be filed before the original parent case was laid open to the public.
3. Also as discussed previously, under the previous Commissioner, the ILPTO began to charge applicants for suspending the examination of their applications.
4. There used to be no limit on the total number of claims in an application. In 2010, the ILPTO successfully lobbied the Justice Minister to amend the regulations so that a fee of 500 shekels would be assessed for each claim over 50 (at the time, the filing for a new application was about 1500 shekels).
5. Israel, like England, is a “loser pays” system when it comes to inter partes matters, whether in court or before the PTO. Whereas traditionally the fee awards granted to the prevailing party in patent oppositions or cancellation actions were largely symbolic, usually not more than a few thousand dollars and often even smaller, in recent years those awards (as well as awards in similar trademark disputes) have just become plain large, in some cases over $100,000. (A more detailed discussion of this phenomenon will be forthcoming in a future post.)
In the first four cases, the monies collected go the ILPTO, and thus can be viewed as attempts by the ILPTO to squeeze money from applicants, and to squeeze it from them earlier in the process, e.g. by collecting filing fees for all divisionals sooner rather than later. My speculation is that the impetus for this was the ILPTO’s change in status from a mere branch of the Justice Ministry to a semi-autonomous “Authority” under the general aegis of the ministry. The change was effected under the previous Commissioner at his behest. While the new status helped streamline ILPTO operations by giving it more control over its own spending, the new status also meant that the ILPTO became responsible for raising its own funds to cover its budget, including paying the salaries of its staff. Coupled with the fact that the previous Commissioner went on a hiring spree and significantly increased the number of examiners (which in and of itself was a good thing), the need for revenue became more acute than it was previously.
The fifth case is a little different, because the funds go to one of the parties to the proceedings, not to the ILPTO. Nevertheless, when taken together, the five phenomena suggest a view on the part of the ILPTO that no matter how high the expected cost of availing oneself of the Israel patenting process, people and companies will file patent applications at the ILPTO. After all, the ILPTO has a monopoly on the granting of patents, so do people have a choice?
That view, of course, is just plain wrong, as is clear from a glance at other, larger jurisdictions. Take the PCT filing statistics for 2008 and 2009, for example: when the economy tanks, patent filings drop. Or look at the Dudas administration at the USPTO, which perversely calculated that by making it unattractive for people to file patent applications, in part by making it prohibitively expensive to do so (inter alia via onerous claims-and-continuation rules), fewer applications would be filed, which would have enabled the USPTO to reduce its backlog in patent examination.
Israel is not a large market; people and companies, particularly those from outside Israel will only continue to file in Israel if they think it’s worth their while. I don’t know the location of the cut-off point beyond which companies will say it’s no longer worth the expense to file in Israel, but such a cut-off point exists. Continually raising the cost of patent prosecution brings us closer to that point, and the ultimate end result wherein raising fees nets less money for the ILPTO.
