Monday, June 1, 2015

Striking structural parallels between the European Patent Office and soccer body FIFA

With all the attention that corruption scandals relating to soccer body FIFA are getting these days after certain arrests due to U.S. criminal investigations, I finally wanted to draw certain parallels between the structural deficiencies of FIFA on the one hand and the EPO on the other hand that had already come to my mind last year. I've worked on policy and antitrust issues relating to patents as well as soccer. In connection with the latter, my focus was on broadcasting rights, but I also worked on some overall governance issues on behalf of Real Madrid, the most famous sports club in the world. Obviously, the opinions I express here are just my own.

Parallel #1: Voting rights

Each member state of the European Patent Organisation (EPOrg) or member association of FIFA, no matter how small, has one vote. Based on my observations of what effects this has at the EPO and in soccer, I'm convinced that this is a recipe for bad decisions and only benefits the executive leadership of those organizations. It's easier to bribe a soccer official from Trinidad and Tobago than one from the UK because of the risk-reward ratio for either one (the absolute amount of money involved being equal). UK soccer executives simply have enough opportunity to make money legally. Similarly, paying a visit to a German dentist on the occasion of an EPOrg Administrative Council meeting won't impress an official representing the German government because his healthcare package would cover this anyway, but it could influence someone from a less developed country such as Albania.

It also gives large and rich countries an excuse for not being able to bring about reform: they can always claim they would be outvoted anyway. (Of course, if the Big Three left the European Patent Organisation, that would be the end of it just like no FIFA World Cup would be taken seriously if Germany, Spain, France, Argentina and Brazil refused to participate. But it takes a lot before someone threatens to leave an organization like that.)

Parallel #2: Officials facing accusations of bribery

FIFA officials have been linked to bribery for many years. If you're interested in the longstanding history of corruption in soccer, I recommend this book: "FOUL! The secret world of FIFA: Bribes, vote rigging and ticket scandals" by Andrew Jennings. One of the officials arrested last month, Jack Warner, also features prominently in that masterpiece of investigative journalism. However, as far as criminal charges (whether they will ultimately be proven is another question in all those cases) are concerned, the EPO also has its Jack Warner and his name is Željko Topić. You can read about the related allegations and accusations on Wikipedia, TechRights, IP-Watch and other sites.

If the Administrative Council of the EPOrg was as concerned about the reputation of the EPO as the supervisory bodies of honorable organizations are, they would have ousted a vice president at the latest after he lost a Croatian court case trying to prevent a journalist from making certain claims. But with little attention in mass media (at least outside of Croatia), he can stay in office, which says a lot about the mentality of the decision-makers there. Do you believe the European Central Bank would let a vice president stay in office after being accused of counterfeiting? What this EPO vice president is accused of is the IP equivalent of what counterfeiting would mean for a banker.

Parallel #3: Supervisors receive allowances and other benefits

The aforementioned book about FIFA discusses the effect of allowances on the individuals sitting on its various committees. Same thing about the EPO (where healthcare is part of the deal). In the private economy there is nothing wrong with that. I've received cash and stock for an advisory board membership, too. However, in the EPOrg's case we are talking about public servants. Government employees. They are already paid for this work by their national governments. When they attend an EPorg Administrative Council meeting, they don't do this in their free time. I'm not aware of any other organization than the EPOrg that would pay the representatives of its member states allowances or healthcare.

As I explained above (voting rights), the impact of this depends on the income opportunities those individuals have in their home countries. For those from small and/or less developed countries, this is a significant incentive to turn a blind eye to a lot of issues and to support the leadership. Regardless of which kind of country someone is from, this is questionable behavior. Public servants? Self-service!

Parallel #4: Opportunities for supervisors to get prestigious posts

FIFA has traditionally set up large numbers of committees so as to give as many people as possible the chance to be chairman or vice chairman of something. This, too, is an incentive to side with the executive leadership, which has a lot of influence over those appointments. At the EPO they do the same thing. They have posts to offer on the Budget and Finance Committee (BFC), Select Committee, Patent Law Committee, Board 28 and whatever else they have there.

The situation is even worse at the EPO than at FIFA. It's not just about ego and reputation. Pretty much everyone on the Administrative Council hopes to get a significant raise one day by becoming an EPO vice president or, ideally, president. After taxes, the income of the EPO's top brass far exceeds that of public servants in its member states. But the best way to become vice president is always to be on good terms with the president. (In soccer, it also happens from time to time that executives of national bodies take jobs at international bodies like FIFA and UEFA, but the financial benefit is not nearly as clear as in the European patent system.)

Parallel #5: Lavish buildings and awards ceremonies

When "non-profits" like FIFA and the EPO control billions of dollars/euros, they inevitably look for ways to spend them in ways that could be characterized as self-aggrandizement. They hire famous architects to design new buildings for them, and they throw expensive parties. Here, again, FIFA's Ballon d'Or award ceremony at least serves an obvious and legitimate commercial purpose, while the EPO's European Inventor Award is a major disgrace in ethical terms. I agree with the criticism voiced in this IPKat post. This is indeed a "dangerous compromise of principle." The EPO must be neutral, but it is not. Instead of taking measures that would really contribute to patent quality, it compromises the process as a whole. It crosses the line all the time between what is appropriate for a governmental organization and behavior that would only be acceptable for a private enterprise.

Parallel #6: Member states/organizations must follow the party line to have certain opportunities

Every four years, FIFA gives the World Cup to another country. This gives FIFA's leadership enormous leverage over member organizations and even national governments. If you don't have Sepp Blatter on your side, your country can forget about a bid for hosting the World Cup. While it's doubtful that this actually benefits a country economically, it's certainly a prestige thing for the individuals (including even top-level politicians) involved.

In the EPO's case it's about money for national patent offices rather than prestige. National patent offices benefit substantially from renewal fees (when renewal doesn't really cost them anything). Moreover, the EPO has various cooperation programs in place with national patent offices, and I've heard stories of how national government representatives were threatened (in Administrative Council meetings and elsewhere) with being precluded from such lucrative projects in the future if they disagreed with the EPO's leadership.

Well, here's a New York Times article on FiFA's generous grants to members. Same thing.

Parallel #7: Compromised access to justice

A big part of the problems at FIFA (and smaller problems at UEFA) is that those soccer bodies have statutes that don't allow teams and players to go to a regular court. They all have to submit to rules that require them to bring any claims in the associations' and federations' own tribunals, with the final judge according to those statutes being the TAS-CAS, which is effectively controlled by the likes of Sepp Blatter. Those statutes are obviously unlawful but regulators like the European Commission don't force sports bodies to change them. One can still go to regular court and prevail, as did Mr. Bosman. But when you do that, they will use threats of all kinds. When Swiss team FC Sion went to court, Switzerland was threatened with its national team being excluded from the World Cup and EURO tournaments and with all of its clubs being excluded from the UEFA Champions League and Europa League.

The people pulling the strings at the EPO also seek to compromise access to justice. The only somewhat independent judicial body its staff has access to in labor disputes is the International Labour Organization's (ILO) Administrative Tribunal. Those proceedings take very long, and justice delayed is (often) justice denied. The members of the EPO's in-house courts called boards of appeal should be independent, but the president suspended one of them last year. And with the Unified Patent Court, essentially the same group of individuals that sits on the Administrative Council will, directly or through subordinate employees, control the appointment and reappointment of judges and limit the ability of the Court of Justice of the European Union (CJEU) to give opinions on patent-related legal issues.

So, who's worse?

One could possibly find even more parallels, especially with an inside track to both organizations. For example, FIFA's "For the good of the game" hypocrisy and the EPO's constant claim to promote innovation (when it actually favors patent quantity over quality) are another similarity, or their controversial autocratic presidents -- "Blatterstelli". But no matter how many parallels one finds, there are certainly also more differences than the ones I've outlined above. I just can't compare each and every aspect of two large organizations in a single post.

I don't mean to say here that the EPO is as bad as FIFA is in many people's eyes now. I just wanted to show that both organizations have similar structural issues that lead to bad decisions and bad behavior. Neither FIFA nor the EPO are corrupt per se, but their structural deficiencies have various corrupting effects.

It's very unlikely (and has never been claimed) that the extent of personal enrichment at the EPO amounts to even a fraction of what FIFA officials have raked in. But even the world's number one spectator sport is dwarved in economic terms by the industries in which patents play a key role (whether positive or negative depends on the industry or industry segment, but there's no denying the importance either way). That's why there can be no doubt about where structural reform is needed more badly.

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