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EPO faces deficit crisis, Brimelow reveals

I did an interview with EPO president Alison Brimelow yesterday. It would be fair to say that she has a lot on her plate and even more on her mind – both internally at the office and also more generally. One very important issue relates to the EPO’s finances, which are nowhere near as rosy as people might imagine.

With the introduction of International Financial Reporting Standards (IFRS) accounting at the office – which takes into account future liabilities, such as pensions – it turns out that far from being a cash-heavy money machine, the EPO is actually operating a deficit of something like €2 billion, despite generating over €1 billion each year. It is clearly – and understandably - a major worry for Brimelow and she will be presenting a paper to the Administrative Council on how the issue can be tackled when it meets in December.

“A lot will have to be addressed to get our liabilities under control,” she said to me. And among these issues is going to be how the office functions. “The EPO has to reflect on how it can be more efficient,” Brimelow explained. An area that seems likely to be targeted - and which is bound to cause ructions – is the current pay structure for employees. Brimelow spoke about what she called the “escalator” model of pay that currently exists, by which salaries automatically go up, along with pension liabilities. Ways have to be explored, said Brimelow, to develop a new pay system that is less liability heavy. “This is going to be a very important negotiation with the people who work here,” she said. “Some staff representatives are not admitting that there is a problem in the first place – they are going to have to think harder.” Something else that will have to be addressed are the very high rates of sickness at the office. “Is Munich inherently unhealthy or could it be that we are healthier when we are happier?” Brimelow asked. “I have a feeling that quite a lot of our sickness problems could be addressed if the office were better managed,” she stated.

Recognising that all of this may come across as pretty confrontational – especially by a staff that is already pretty disgruntled and has taken industrial action in the recent past over the introduction of new pension arrangements and changes to the way in which examiners are asessed  - the president continually stressed that this was not her intention at all. She said she was encouraged that despite recent turmoil, internal survey work showed that the vast majority of employees at the office stated that they were proud of its achievements. "People are bothered by a number of things, but they still retain a sense of pride that they work here," she said. "They are keen to see that the office does as well in its next 30 years as it did in its first 30." Brimelow explained how she wanted to work with employees to solve problems. “This is about taking a good look at the way the whole office operates,” she stated. “It is not going to be a punitive assault on pay and benefits, but an exercise to find if there are ways that we can change things for the better.”

And it is not just internally where Brimelow believes that reform is necessary. There are also changes that can be made to the international patent system that would be of benefit. One of these is ending the duplication of work that is currently done at major offices. This  was discussed at the recent meeting of the Trilateral Authorities in Washington DC and is something that the Japanese have been pushing for a while. It is obviously a point that Brimelow wants to explore further. “There have to be ways that we can help each other do better,” she said.

All of this is going to be a long-term process – there are going to be no solutions in the next few months. What is certain, however, is that Alison Brimelow does not believe that the current state of the EPO’s finances is sustainable. Action is needed from her, from the Administrative Council, from the office’s employees and from the wider patent community. She says that she hopes to have made some difference by the time her three-year term expires in 2010, but that “it won’t all be delivered” by then.

Alison Brimelow is a formidable operator – determined, highly intelligent and skilled in the arts of management. She has all the credentials necessary to tackle what has to be called the EPO’s deficit crisis. But she cannot do it all on her own. Let us hope she does not have to.

They’ll be more from the president over the coming days.


Joff Wild
IAM Magazine
27 November 2007

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RE: EPO faces deficit crisis, Brimelow reveals

The above article makes it appear that EPO is running a current account deficit - which is not true. The EPO always runs a budget surplus. What is 'true' according to IFRS is that EPO is apparently running a negative balance of projected liabilities to visible assets. In fact, this negative balance is more than outweighed by projected future assets in the form of future income from patent renewal fees (which is a stable source of income and can be reliably forecast). But this is excluded from the analysis by the reporting standards which have been adopted, making the situation look black when in fact nothing much has changed at all. For the same reason the EPO always has 'surprise' income each year (in the form of renewal fees) which has not been included in the budget forecast because of the accounting standards (even though everybody knows it will arrive right on schedule). One wonders if there is any political agenda here...

Alan Benfield, European Patent Office on 07 Dec 2007

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