Interview with the Acting Vice President for Legal Affairs of the Hungarian Intellectual Property Office

The rapidly changing nature of business in the 21st century means that the EU and global economy relies strongly on intellectual property rights, such as trademarks, designs, patents and others. In this inteview, Mark Kovacs discusses the latest developments in Hungary with András Jókúti, Acting Vice President for Legal Affairs of the Hungarian Intellectual Property Office (HIPO).

Q: The new Trade Secrets Act came into force on 8 August 2018, ensuring protection of trade secrets similar to intellectual property rights, especially in the case of an infringement. So, what could motivate inventors and innovative enterprises to give up keeping new developments a secret and turn to the HIPO to acquire a patent or a utility model?

A: When a new – or, in this case, enhanced – action hero is added to the pack, it does not mean that he or she will be the one to beat the villain at the end of each movie. Registered IP, such as patents and utility models, and trade secret protection have very different superpowers, and I would rather call the latter an ideal sidekick (with maybe a few spinoff episodes). But Robin cannot render Batman superfluous.

Let's start from the beginning. Trade secrets were not unprotected in Hungary even before the entry into force of the Trade Secrets Act. In compliance with the country's international obligations in the WTO, there were rules in place to ensure that the unlawful treatment of undisclosed information has civil and competition law consequences. The new act, implementing the 2016 EU Directive, replaces the previously scattered rules with a single framework with clearer concepts, special safeguards and limitations, as well as a reinforced enforcement regime.

This does not change the fact that there are fundamental differences between the very nature of protection conveyed by trade secrets and patents. The legal protection of trade secrets is an important safety net against industrial espionage, breach of non-disclosure agreements and other forms of unlawful divulgation, but only if the necessary measures are taken by the right holder to keep the information confidential.

Patents, on the other hand, mean exclusivity. A valid patent entitles its holder to prevent anyone else from using the invention without their authorisation (i.e. a licence), including even independent developers who may have never heard of the patent or the patentee. In order to enjoy such special abilities, the invention needs to be useful, new and truly inventive in light of the prior art. The "social contract" behind the monopoly of course requires some dampening of these superpowers. Patents are published in order to make scientific advancement possible, and as a general rule, the term of protection is limited to 20 years.

What kind of protection does a company need? It heavily depends on its profile, size, resources, goals, and of course the things they want to protect. If the company's treasure is not patentable (e.g. it is a set of information, such as a client list or a recipe, but not an invention), then there is no real dilemma If it potentially is, and it can be "reverse engineered" once put on the market (e.g. it is a product whose technical secrets will be revealed if analysed), then the arrows point towards registered IP. If, however, a company wishes to capitalise on its confidential data for more than 20 years and has the means to keep them in a restricted circle, trade secrets may be a viable tool.

Cost may be a factor too, as patenting internationally and paying the renewal fees in each country covered can be expensive. Firstly, the fluctuating levels of trade secret protectionin the various territories may pose extra risks in certain areas for those only relying on confidentiality. Secondly, a working mechanism of secrecy for a truly valuable company asset is not exactly cheap either.

Finally, as I suggested earlier, you don't always have to choose. The best superheroes come in pairs: Robin is not a rival to Batman, but his right-hand man. Trade secrets are indeed the best complimentary tools to patents to keep a certain "halo" of know-how confidential around the core technology disclosed in the patent specification. This way the patented invention can be surrounded by extra features that make the product stand out, potentially even after the core technology has entered the public domain.

Talking about patents and utility models, Hungary is among the few countries in Europe where both forms of protection are available for inventions. While utility models can be obtained without substantive examination, they provide almost the same opportunities to step up against infringements as patents. Isn't there a risk of abuse of right in this system?

Again, you need to carefully examine the differences in the rules applicable to the two forms of protection, or, if you like, the skillset of these two particular superheroes.

You can't apply for utility model protection in every country, so it is not an option for truly international coverage. Its possible object, a “model”, is a much narrower category than a patentable "invention" (e.g. no chemical substances or processes may be considered utility models), and the maximum term of protection is 10 years. This is just to point out that it's not reasonable to opt for utility models instead of patents just because of the lack of substantive examination.

Furthermore, an "unexamined" registration makes any kind of IP much more vulnerable to invalidity proceedings. You can threaten others with infringement suits, but the risk of a successful counterattack is much higher in the absence of a novelty search and an examination of inventive step.

In Hungary's "bifurcated system", invalidity attacks need to be initiated at the HIPO, but the recent review of the Utility Model Act brought about some amendments that substantially reduce the risk of abuse and give new tools to good faith utility model applicants.

Since the beginning of 2018, applicants (and even right holders) have the option of asking for a document dubbed as a "protectability opinion" that may serve as a reinforcement of protection by providing, for information purposes only, the novelty search missing from the basic granting procedure as well as an opinion on the existence of an inventive step. If the opinion is favourable, the vulnerability and the abuse issues are both minimised. In case of a negative opinion, the public is informed about the weakness of protection and opponents have an effective weapon against abuse.

The drawbacks of bifurcation are further mitigated by the mandatory suspension of an infringement action at court if a revocation procedure has been initiated at the HIPO, except where the protectability opinion is favourable, where a presumption of validity kicks in.

Finally, the defendant in an infringement suit may submit an objection of invalidity, which triggers the checking of validity criteria by the court, based on evidence submitted by the defendant. If the court concludes that these criteria are not met, the infringement action will be dismissed. Such dismissal has an inter partes effect only, i.e. it does not result in the automatic revocation of utility model protection.

Enforcing intellectual property rights, especially industrial property rights, requires a high level of expertise. Judges often have to seek the opinion of expert bodies whose members have up-to-date knowledge about a given field. Can the HIPO help judges and right holders in this regard during enforcement procedures?

Although its role in shaping IP policy includes enforcement, the HIPO is not primarily an enforcement agency. In individual infringement cases, as far as technical expertise is concerned, the HIPO can assist the judges in two ways.

First, the Patent Act sets forth a relatively less-known (and hardly ever used) competence for the office when it says that in disputes pertaining to the exact meaning of the patent specification's text, the courts and other authorities may request the HIPO to give an authoritative interpretation. An instrument more commonly used by courts, and even private parties, is the Board of Experts on Industrial Property, a body operated by the HIPO. The list of board experts consists of 75 members appointed by the Minister of Justice, some of whom work at the HIPO, myself included. If a court or other authority invites the board to deliver an expert opinion or when an individual mandates the board for the same purpose, the chairperson of the board appoints the members of an ad hoc panel that will get to work on the matter. The expert opinions are based solely on the questions and documents submitted, and even if they are not binding on the court, judges tend to give considerable weight to their findings.

The Board of Experts is competent in disputes concerning patents, plant varieties, utility models, designs, trademarks, geographical indications and trade secrets, as well as unfair competition issues relating to such matters. A typical case where an expert opinion is often sought is about inventors' fees due for service inventions. For such inventions, created in an employment framework, the employer is entitled by law to file for a patent. The inventor, on the other hand, has a right to a fair amount of money, and the law only lays down a vague rule of thumb for the calculation of this fee. Where the employer feels that the inventor should be happy with his regular salary in exchange for the patent rights or offers a sum that the inventor deems too low, sometimes the case ends up in court. In such events, guidance on the due fee, provided by the Board of Experts, is most welcome by the judges.

Enforcement is on the cusp of major changes due to the forthcoming Hague Convention for the Recognition and Enforcement of Judgments. The HIPO has just conducted an open consultation regarding the latest draft of the Convention. What reactions have you received?

This is a very exciting project of private international law, and the negotiations on the possible new Convention put a special emphasis on intellectual property. Notably, not all countries feel comfortable including every type of judgment on all forms of IP in the agreement, as they are wary of recognizing and enforcing decisions taken by foreign courts in this field. Another key issue is whether final decisions of IP offices on the validity of IP rights should be recognised the same way as judgments delivered by courts, provided, of course, that IP will indeed be covered.

As regards the feedback from Hungarian stakeholders, we have not seen much turbulence with respect to domestic consultation that the Ministry of Justice has launched jointly with the HIPO, but the major professional organisations have put together a very instructive document that provides a comprehensive summary of the situations that Hungarian parties need to face in case of the various policy scenarios. The summary makes it clear that the current EU rules and the recently adopted Hungarian Act on Private International Law already open the door to the enforcement of foreign judgments in many IP infringement cases, especially when they are delivered within the European Economic Area. It also highlights the envisaged restrictions on the recognition of validity-type decisions if they were not taken by the authorities of the country of origin of the IP in question.

In conclusion, the submitted comments do not generally oppose the inclusion of IP in the scope of the draft Convention, but call for certain reservations cautiously circumscribing the forms of IP and the types of decisions affected.

I also feel it is important to address a potential misunderstanding at this point. Recognition and enforcement of IP-related foreign judgments by no means have an impact on the validity or infringement of a "corresponding" IP right in a different country than the one where the judgment was delivered. IP rights are essentially territorial, and at the end of the day, the decisive set of applicable rules is the law of the country where the given IP right is relied on. To put it differently: the draft Convention, not dealing with either jurisdiction or applicable law, only has a bearing on the international enforceability of judgments already delivered according to existing rules of private international law.

There are globalisation tendencies not only in judgments, but also with regard to obtaining IP rights. What in your opinion is the role of a national patent office considering the upcoming European Patent and in light of the very successful EU trademarks?

No matter how globalised we get, IP rights will remain, by their very essence, territorial. This feature, stemming from the sovereignty of individual states, indeed causes some rigidity in the system and makes it difficult to cover all the markets a company wants to penetrate. This is what regional cooperation (such as the European Patent Organisation or the EU itself, when it comes to unitary IP titles), international mechanisms facilitating obtaining protection abroad (such as the Madrid system for trademarks or the PCT for patents), and certain technical work sharing initiatives among offices (such as the Patent Prosecution Highway network) wish to alleviate.

In this context, the role of national IP offices is naturally undergoing a change – but we are far from being rendered obsolete. The HIPO is there to serve as a domestic gateway to the international market for local business, an information point on IP and innovation in the proximity of our companies, a provider of national protection for those who keep their focus on the Hungarian market, and a partner for innovators who want to know quickly and cost-effectively about their chances of getting a patent – not only in Hungary.

The function of a national application filed at the HIPO is, however, very different in the case of trademarks and patents.

The need for an EU trademark depends on the branding strategy of a given company: only those undertakings which want to be present in various Member States (or at least keep them clear of similar marks) and have a strong international brand need a unitary EU title. Even in this case, however, they may wish to have coexistent national "backup" protection for either the same marks or variations thereof, as an EU trademark is facing more potential threats (e.g. in the form of conflicting earlier rights) from the 28 EU Member States than a national one. And of course there is business that does not intend to expand beyond the borders in the foreseeable future (family bakeries or hair salons, just to name a few), so their branding needs are perfectly fulfilled by trademarks that distinguish them in their domestic territories.

Patents work along a very different logic. The absolute novelty requirement does not make it possible to extend protection to new territories after the priority year has expired, so a relatively early strategic decision is called for. Also, technology is not a matter of "consumer perception" and someone with a ground-breaking invention wants to have, both geographically and substantively, the most extensive protection possible.

In this area, the advent of the unitary European patent title (together with the Unified Patent Court) should lead to fundamental upheavals, affecting both patenting strategies and enforcement patterns in the EU. The future of that project, however, is strongly affected by the modalities of Brexit. On top of that, Hungary's participation in the system has become less certain after the Constitutional Court's decision this summer stating that under the current constitutional framework, the agreement on the Unified Patent Court may not be ratified.

National patent applications at the HIPO are by no means the ultimate instrument to obtain patent protection if you are seeking the widest coverage achievable. The HIPO, on the other hand, is best placed to grant "easy access" to the system for local inventors by providing inexpensive novelty searches and written opinions in Hungarian – way within the priority year, leaving enough time for the applicant to decide on further steps and giving them a solid basis to make that decision.

To enhance the HIPO's versatility, we have proposed a legislative project to extend the use of the English language in the initial phases of national patent prosecution, in order to attract multinational companies to consider our services as well – and to make it easier to file a PCT or European application for all applicants. The language of publication would, as a matter of course, remain Hungarian, but the option of getting the first feedback based on English documents seems like a welcome addition to many of our partners. We'll see how it goes, but we are keeping our fingers crossed!

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This article was up to date as at the date of going to publishing on 10 December 2018.