In a previous issue of this magazine, major changes were announced in the field of patent legislation and protection in the European Union. Since then, two landmark decisions from the Court of Justice for the European Union (CJEU) have cleared the legal obstacles that were raised against the new European legislation. They have also spurred a number of developments that bring the start of the new patent system closer than ever, most likely by February 2017. This update will highlight those recent developments.

Blessing of the Unitary Package by the CJEU:

In two decisions of 5 May 2015, the CJEU rejected the two appeals brought by the Spanish government against the legality of the Unitary Patent legislation.

A first appeal was based on the ground that the system establishes a language arrangement for the grant of Unitary Patents which is prejudicial to individuals whose language is not one of the official languages of the EPO (namely, English, French, or German). The Spanish government argued that any restriction on the use of all the official languages of the European Union should be properly justified, with due regard to the principle of proportionality. In rejecting this appeal, the CJEU observed that there is no principle in the European Union mandating that anything that affects the interests of a European Union citizen should be drawn up in his language in all circumstances. Next, the CJEU determined that the limited choice of language in the Unitary Patent package was justified by the four-decades-long desire to create a simple and uniform translation regime intended to ensure more legal certainty, stimulate innovation and benefit small and medium-sized enterprises. The Court also found that the contested regulation did not go beyond what is necessary to achieve the legitimate objective pursued, because the currently high translation costs for European patents constitute an obstacle to patent protection within the European Union. So it was essential that the new translation arrangements were demonstrably cost-effective. To protect those individuals or companies who do not understand one of the three languages in which the Unitary Patent can be granted, the Court observed that the relevant Regulation 1260/2012 provides for procedural guarantees in case of litigation, such as the right for an alleged infringer to receive a translation of the patent in his own language, and the possibility for the Unified Patent Court to take the receipt of that translation into account when determining whether the alleged infringer acted in good faith or not.

The second appeal that the Spanish government brought against the Unitary Patent Package was a particularly sensitive one for the European Court itself. The Spanish government questioned whether it is compatible with EU law principles that the contested Regulation 1257/2012 only allows a determination of the applicable law, instead of expressly providing substantive law provisions itself. This being the case, the CJEU may not subsequently be requested to interpret these provisions itself, so its jurisdiction is therefore artificially and deliberately circumvented. The jurisdiction of the CJEU cannot be avoided when guidance is needed on issues that are covered by Community instruments such as European Directives and Regulations, so the provisions laying down the basic principles of patent validity and infringement were deliberately removed from the Community instruments and laid down in a Treaty (the UPC Agreement) instead. This was done to prevent the CJEU from having to answer questions about interpretation of substantive patent law principles, shifting that role exclusively to the Unitary Patent Court (UPC) itself – specifically to its appeal court which is staffed by highly specialized patent judges.

The CJEU did not object to this mechanism: it observed that the most important objective of the contested European Regulation was to ensure uniform patent protection across contracting member states, doing away with the current, much criticised system in which European patents are governed by different national laws in the respective countries in which they are validated. This Regulation provides for a set of objective choice-of–law rules whereby a single applicable national law is determined, and applied uniformly, by a single court across all the participating member states in which the patent has unitary effect. Such a system, in the opinion of the Court, prevents divergences in patent protection across participating member states and accordingly provides uniform protection. Without saying so explicitly, the highest EU Court hereby allowed its powers to be bypassed in order to serve the overriding objective of finally creating a uniform system of patent protection and enforcement throughout the Union.

The snowball effect of the CJEU rulings:

Within days of these two landmark rulings, three important events occurred that have made the entry into force of the UPC system in the course of 2016 more likely than ever.

On 10 May 2015, the Preparatory Committee of the UPC issued its proposal on court fees and recoverable fees. In summary, the court fees are to be comprised of two parts: a fixed part and a variable part. For infringement cases, it is proposed that the variable part should increase in accordance with the value of the case, whereas counterclaims for invalidity should be subject to an equivalent fixed fee. Recovery of fees for lawyers and patent attorneys by the winning party will be possible but they will be capped, as required by article 69 UPCA. The recoverable costs currently range from 50.000 to 3.000.000 €. The long-awaited "opt-out fee" has been proposed to be set at 80 € per patent, regardless of whether the opt-out is filed before or after the new system is in force. Surprisingly, and contrary to what had been announced previously, the withdrawal of an opt-out (the so-called "opt-in") would now also be subject to the same fee of 80 €. A public consultation was organized and comments were solicited for 30 July 2015. It remains to be seen if the opt-out fees will be subject to volume discounts, and how high the ceilings on recoverable fees will be set.

On 24 June 2015, the Select Committee of the Administrative Council of the EPO issued its long-awaited proposal for renewal fees applicable to the Unitary Patent. The Committee decided to follow the "True Top 4" proposal, which sets the renewal fee at a level which corresponds to the total sum of the renewal fees currently paid for the four participating countries in which European patents are most frequently validated today (i.e. Germany, France, UK and the Netherlands). On that basis, a calculation shows that over the first 5-10 year period, the Unitary Patent renewal fees almost exactly match the costs of a European patent with just four validations in those four member countries. As such, over a longer term (e.g. 5 to 20 years) the Unitary Patent represents a saving of €9,310 over the equivalent European patent.

The final piece of pleasantly surprising news came from Italy one week later. Italy had, up until that point, signed the UPC Agreement but not adhered to the Unitary Patent Community Instruments. On 3 July 2015 the Italian government announced that it will also join the Unitary Patent Regulation, which was enacted via enhanced co-operation. As a consequence, not only will the future Unitary Patent's territory increase by an additional population of 61 million inhabitants, but this member state will also replace The Netherlands as fourth country to calculate the "True Top 4" renewal fees. Since the national renewal fees in Italy are lower than in The Netherlands, this announcement signals that the total amount of renewal fees for a Unitary Patent over a period of 20 years will be even cheaper in relation to European patents, specifically by a further 4.105 €. This is of course excellent news for industry and an incentive for owners of pending European patent applications to opt for unitary protection if their patents are expected to be granted within a year from now.

Who else needs to join?

To enter into force, the UPC Agreement requires ratification by thirteen (13) signatory member states, and amongst them the ratification by Germany, France and United Kingdom is a minimum requirement. The Agreement will enter into force on the fourth month after the thirteenth instrument is ratified.

To date, eight countries have ratified the UPC Agreement (Austria, Belgium, France, Denmark, Luxembourg, Malta, Portugal and Sweden) requiring five more countries to follow. Assuming that the UK, The Netherlands and Germany will ratify once the time therefore is right in the course of 2016, two more member states will then still be required. For the moment, Finland and Italy are the most likely candidates to do so. Once this is done, the new UPC system will enter into effect for these thirteen countries. For late joiners, the system will enter into effect for their respective territories four months after their ratification of the UPC Agreement.

Next steps and actions to be taken:

Based on information obtained from the Chairman of the Preparatory Committee of the UPC and from the team that is responsible for the management of the IT system within the UPC, it is most likely that the web-based "sunrise registration" for opting-out of European patents will go live in the spring of 2016. This should give sufficient time to existing patent-holders to submit and register their choice to opt-out of their European patents to the Registry in an orderly and timely fashion, so that the validity of their cannot be challenged before the UPC when the new system enters into force.  This also means that patentees with large patent portfolios must urgently decide whether, and if so, which patents they wish to keep out of the jurisdiction of the upcoming UPC, and which ones they prefer to go into the new system. Since each patent will need an individual opt out registration and the system will not allow for "blocks" of opt-outs, patentees will face a considerable administrative burden and will need time to carry out this process.

If the ratification process continues as expected – and the required political goodwill currently seems to be present in the remaining countries – the UPC will most likely go live in late 2016 and be ready to receive its first cases in February 2017. On 1 October 2015 a Protocol on Transitional Application has been signed. It allows the Preparatory Committee to take all the practical steps necessary for the UPC Agreement to come into operation in an efficient manner. That Committee should end its activities by 1 July 2016 and transfer them to the UPC itself. The Rules of Procedure should then be finalized and the appointment of the UPC judges should be completed. It is expected that, as of July of next year, the formal start date of the new UPC system will hinge around the willingness of a few additional signatory countries to also ratify the Agreement. Although their ratification would not be strictly needed for the Treaty to come into effect, a short "grace period" of a few more months may be taken into account so that the UPC system can be introduced with as many members as possible, and to avoid that the UPC would go live at different speeds, i.e. with Unitary Patent issuing for different groups of member states according to their respective dates of ratification. That is why the start date of February 2017 is being considered at this moment as the most optimistic and realist one.

First published in Pharma Network no. 29, October 2015