The Agreement on a Unified Patent Court was solemnly signed by representatives of (most of) the European Union member states in Brussels on 19 February 2013, and is now therefore more than two years old. Its entry into force is quietly prepared by working groups in the Preparatory Committee, in consultation with national patent offices. The European Court of Justice will soon rule on the appeals that were brought against the lawfulness of the legal instruments by which the new type of patent and the new court system were created. Once that hurdle shall (hopefully) have been removed, the industry can prepare itself for its entry into force somewhere in 2016.
Although several practical issues still need to be resolved - and this contribution will highlight which ones - and although some voices are still being heard that criticize the system, the awareness is growing that there is no other way to go forward.
If patent protection wishes to still play a role for industry in Europe, then is no other choice than to go alive with the UPC as soon as possible. Because the current system - as conceived forty years ago through the European Patent Convention in 1973 - is expensive and applied inconsistently across the European member states.
The idea of granting a "bundle" of national patents via a centralized search and prosecution procedure at European level was an honourable compromise in 1973 when the EPC was designed, and when measured by standards of European integration that dominated the post-war thinking of the past century. But this system has lived its time. Enforcing patents via national courts should soon become an outdated practice, allowed only to subsist for a few more years to take a transitional period into account. It is questionable, in the personal opinion of the author, if these transitional measures should continue to exist for satisfying the particular needs of certain industries.
As a reminder: the transitional rules - and more in particular article 83 of the Unified Patent Agreement - allows an existing European patent to be "opted out" from the new system so that it can only be challenged and enforced via the traditional, national patent courts. A"sunrise" registration system will be put in place so that the opt out can be effected timely. Some patentees - and it is said particularly those in the pharmaceutical sector - are concerned that otherwise, their existing European patents will come under the too severe scrutiny of the newly created Unified Patent Court.
These options for using the old patent litigation system will look outdated and useless within a few years from now. A comparison with the Euro can be useful here. It was introduced in less than ten years of political thinking and legislating. It impacted, without exception, the live of all citizens and industries in Europe, and took away the power of national banks. The Euro was introduced as a single currency in two steps : first in 1999, when the currency became applicable for all transactions, but national coins and bank notes continued to exist. The next step came in 2002, when the European coins and banknotes were introduced to replace the national coins and banknotes.
It is the author's prediction that national patents and "bundles" of European patents that have been opted out will quickly become outdated and rare, just as was the case for the old national coins and banknotes in the years immediately after the single European currency was introduced. One could still use them, certainly, but they actually had no longer a purpose. They existed just for the sake of transition. And because of nostalgia?
The same will apply to the Unitary Patent and the Unified Patent Court: there will be a few practitioners and users who may look back at the old patent system with a sense of nostalgia, certainly. But most of them - especially those practising in jurisdictions where patent enforcement was more difficult - are looking forward at the prospect that we will soon have a single, unitary patent system.
And of course, there will be many practitioners and users who will feel comfortable working in the new system, because not much will change for them. They come from jurisdictions whose practitioners have a long and strong patent tradition. Again, the comparison with the Euro is useful. Because just as for the Euro, countries with a strong tradition for patent enforcement will continue to put their mark on the new system.
Although national boundaries have been seemingly lifted, certain national systems and rules will survive better before the UPC than others. But the tremendous difference is that European patent practitioners will soon enter a new era where they can share their own patent culture(s) with a much larger group of professionals and clients than was the case until now. That presents a unique opportunity outweighing all the concerns and scepticism about the future rules.
How much will change ?
It will please existing practitioners that European patents will continue to be issued and revoked as is currently the case, i.e. via the examination and grant procedures of the European Patent Office, and via the centralized opposition procedure before the Opposition Division and before the Technical Boards of Appeal.
These procedures will keep their entire purpose and remain unchanged. Upon grant of the European patent, the owner has two months to decide whether or not he wishes to give the patent a "unitary effect". That decision is irrevocable: it will turn the patent either into a Unitary Patent. Otherwise, it will remain a traditional "bundle" of European patents that can be enforced and challenged centrally before the UPC. As explained before, patentees who wish to avoid the jurisdiction of the UPC must timely apply for an "opt out".
The centralized opposition procedure will remain available as before: it will remain the cheapest option for a central attack against a European patent. In any event, it will remain the only (cheap) route for attack when the patent must disappear in member states who have not (yet) joined the Unitary System (like Spain and Poland) or who can’t join because they are not a member of the European Union (like Turkey, Switzerland and Israel). So the long but cheaper way of opposing a European patent will continue to exist. It will not require, nor cause, a major change for practitioners in that field.
An important legal question left open
There is an important legal question that was left open when drafting the UPA Agreement, and that may arise after a few years of co-existence between the EPO opposition procedure and the jurisdiction of the Unified Patent Court. It is caused by the fact that the EPC has member states that are not part of the European Union (like Switzerland, Turkey and Israel). Therefore, the EPC could not be amended to take the new role of the Unified Patent Court into account. That leaves a gap at some point. How relevant will it become?
According to article 138 EPC, the national courts (and by extension, the UPC) can invalidate a patent even when the Opposition Division or its Technical Board of Appeal have upheld it. That is consistent with the goal of the writers of the EPC: to offer a system whereby the EPO could grant or revoke patents, but where only the national courts, as protectors of civil rights and exclusively empowered to impose injunctions on their citizens, would be the ultimate deciders on whether and how patents could be enforced. Such system however worked only in one direction: the national courts could not re-instate a patent that the EPO had refused to grant, or had revoked during opposition. Since the EPC drafters assumed in 1973 that the administrative decisions of the EPO would always be rendered quicker than those of the national courts - and since the EPO was expected to be more patent friendly than the national courts - conflicting scenarios were not envisaged.
Since 1973, the EPO has unfortunately become the victim of its own success. It takes now easily up to four or five years before a final decision is available after opposition all through the Technical Board of Appeal.
Not withstanding the possibility of accelerating the proceedings, and the priority that should be given to opposition proceedings running in parallel with national proceedings, national courts have proven to act quicker than the EPO. Certainly with the new UPC rules of procedure that aim at streamlining the procedure, the cases should be ready for adjudication within one year from introduction. The same will be the case for the future Court of Appeal, that will not have to consider freshly adduced evidence, so that its role as de novo court will be limited, and so that it can hand down its decisions more quickly.
So it is fair to predict that more and more cases will arise in the future whereby the UPC will cross-over the opposition proceedings in speed, and will have considered the validity of a European patent (or Unitary Patent) long before the EPO had the chance to do the same. And then, the question will arise if the UPC decisions on validity will bind the EPO or not, and whether the EPO will dare to revoke patents that the UPC has considered valid and has already allowed to be enforced. The simple answer is that the EPO can’t be bound by the UPC because the EPC counts member states who are not part of the European Union. There was no possibility, and no reason, to link the authority of the EPO and the UPC together. Does that mean that they should never be aligned?
One can only hope that the quality and persuasive authority of the UPC judgments will convince the EPO not to deviate from the UPC decisions. Because if patent owners successfully enforce their patents before the UPC and overcome there all the validity challenges, they will not accept that an administrative tribunal like the EPO could still turn the clock backwards …..
What will change most?
Companies who are in need of a quick decision to "clear the way" for their product in several countries where they face their competitor’s patents (European or Unitary patents alike) will find at the Central Division of the Unified Patent Court a revocation procedure whereby this goal can be achieved quicker than before the EPO.
And in addition, contrary to what is currently the case with opposition proceedings before the EPO, revocation proceedings before the UPC have a direct impact on the outcome of parallel infringement proceedings before a Local Division. The diverging approaches that national courts have until now applied when parallel proceedings were pending before national infringement courts and the EPO (and that caused so much criticism and unsatisfactory situations) will soon be replaced by the discretionary powers of the UPC to either stay, join or bifurcate the infringement proceedings, all in function of the specific circumstances of the case.
If the UPC Appeal Court manages to give quickly guidance on when bifurcation is appropriate and when it is not, these rules will be applied consistently across the various Local Divisions and the Central Division. The UPC will then offer a combination with the best of the two worlds that we currently know. The widely praised German "bifurcation" will be applied when the patentee’s rights are considered strong enough for going ahead with the infringement decision without waiting for the outcome of the revocation proceedings. But the validity aspects will be considered first when these aspects are more decisive for the dispute.
Changes that are not so obvious but very important for current patent owners
A patentee who faces infringing products in several European countries and who wishes to clear the European market via a single litigation, will find via the UPC a quick procedure to deal with all counterfeit at once. And that will not only become the privilege of Unitary Patent owners, but also of owners of already existing European patents. One of the truly unique features of the UPC is that it will hear cases not only for newly granted Unitary Patents, but also for the existing and future European patents. As the Interpretative Committee stated correctly in its opinion in January 2014, the new case law and rules that will emerge from the UPC will apply to these two types of patents equally. The Unified Patent Agreement provides the basis for a new and unique mix of rules and case law that will be picked and chosen amongst the current national practices by the best of our national patent judges. Of course, this process will be somewhat unpredictable at first, but it will allow to combine the best and most suitable practices that are currently available in Europe.
These same new rules will be applied immediately to the existing European patents, as soon as they are brought under the UPC’s jurisdiction. That will happen automatically, unless patentees chose to stick with the past, and "opt out". Only those European patents who by the wish of their owners remain under the jurisdiction of the national courts can continue during a transitional period of seven years to be governed by the existing national patent laws.
Some UPC benefits for EP patents that would be lost if they were opted out
There are many interesting advantages attached to the UPC for existing European patents that outweigh the advantages of an "opt out". First of all, the UPC enables a patentee to assert all the national equivalents of his European patent at the same time, i.e. for all their territories at once. Of course, the flipside of this situation means that a European patent that has not been "opted out" can also be revoked in a single stroke by the UPC. But here come some advantages that are less widely known and that are worth being considered before making the decision to stick with the past and to opt out. Let’s remind that by virtue of the specific jurisdiction conferred to the UPC, all the designated countries in a European patent will be considered as a single jurisdiction. That does not only mean that a European-wide injunction can be obtained. It also means that certain geographical limitations that were the fruit of a "bundle" of national patents will no longer apply.
For instance, national patent laws require that for indirect patent infringement, the"essential means relating to an invention" must be offered and applied in the same country. Under the UPC, that requirement will be broadened: it will be fulfilled as soon as the offer and application of the invention takes place somewhere in the designated countries. In other words, a company who makes the means in France, exports it to Belgium, and offers it in The Netherlands for sale with the purpose of having it used in Germany, commits an act of indirect infringement on the bundle of a European patent when that patent is asserted before the UPC. That benefit would not be available when the patent is opted out and is asserted before a national court.
The same will be true for offering a process protected by a European patent. Most national patent laws only sanction the offer of a process when the offer is made with the purpose of working the patented process in the same country as where the offer took place. Before the UPC, where all the designated jurisdictions will be considered as a single jurisdiction, it will suffice that all these steps take place in the designated countries at a given time, but it will no longer be required that all steps take place in the same designated country.
In other words, bringing European patents under the umbrella of the UPC will give certain patents a much wider geographical scope of protection than when these patents are enforced only through a national court, where only national patent law will continue to apply.
Who is afraid of change?
As commonly happens when profound changes are introduced into a legal system, vested interests start lobbying to keep the old system alive for a while, or for as long as possible. That has not been different for the UPC. The vested interests have spread concerns and suspicions about the future UPC, making existing patent owners and practitioners fear that the new court system will not be able to deliver the same quality and speed as certain current national courts.
There are several reasons why these suspicions and negative comments about the new UPC system have no merit. First, because there was really no way back, and no way either to justify continuing with the currently diverse, expensive and unpredictable national patent litigation system. From an industry perspective, the current European patent system was declared dead, or nearly. When industry interests shift more and more to the Far East, and when the European region becomes increasingly a consumer and importer of goods than a producer and exporter, it became difficult to justify why a patent owner needed to undergo in every European member state the local folklore of each national patent system.
From a political perspective, it was difficult to justify why Europe, more than ten years after introducing a single European currency, that changed the daily life of every citizen, had been unable to introduce a unitary patent system, that can affect the daily life of only a few.
Last but not least, the new generation of judges who will have to make the new system work, have all the incentives to do so. Most of them will leave their current position as national judge to occupy a much better paid function, working in an international environment that gives them the best job satisfaction that an IP judge could dream of. Unless the judges are sabotaged, they should not fail to make the UPC work and accomplish what the designers of the UPC wanted to achieve.
The "hot" remaining issues to be decided
The remaining issues that need to be decided evolve rapidly, and what is written here below is at risk of being outdated when this contribution will be published. As could be expected, most outstanding issues are purely financial : they relate to costs and fees. The longer they remain unknown or unclear, the longer it will take for business to determine their budgets and their strategy for the future. The following issues still need to be decided :
The fees for grant and renewal of Unitary Patents : their level will impact and probably change the level of existing fees that are currently applied by national patent offices. The latest proposals, as they were known at the time of writing this contribution, are that the renewal fee should be the sum of the fees currently charged by five, four or three, of those national patent offices in the European Union that receive most of the patent filings. These alternatives are called, respectively, the “Five Pack” “Four Pack” or “Three Pack”.
It has been announced that no fee will be charged for designating a European Patent with unitary effect.
The fees for “opting-out” existing or future European patents or patent applications under article 83.2° UPA have not yet been formally decided. But the expectation is that they will not exceed the amount of an administrative fee, so that it and should remain in the range of one hundred Euro.
Court fees and the level of recoverability of attorneys’ fees. They will determine whether the new patent litigation system will be affordable for SME’s or not, or whether the litigation scène will be the exclusive playground for multinationals. The “ceilings” that are set for the recoverable fee amounts range from a few hundred thousand Euros to a few million Euro. As was recently reminded by a Belgian appeal court when it referred questions to the European Court of Justice about the compliance with article 14 of the 2004 IP Harmonization Directive, a system that has no ceilings and where the losing party may face tremendous costs, is not always fair, while fairness is one of the criteria that must be taken into account when assessing the costs that should be paid by the losing party.
Do your licensing and tech transfer agreements already contain a "UPC clause"?
One of the immediate actions that companies can undertake already now is checking which party to an existing agreement has the power to decide eventually about an opt out. Such a decision is not neutral for the parties, and presents often a conflict of interest between a patentee and his exclusive licensee. An exclusive licensee has more often an interest to benefit from the UPC than a patentee, but the UPA and the implementing rules state that the decision about opting out is the prerogative of the patentee. Since the rules for opting out are so recent and peculiar, it is unlikely that they were anticipated in existing agreements. So these agreements should be checked and parties to a cooperation or licensing agreement should discuss amongst themselves if there is a need for opting out or not.
In some cases, opting out may even be necessary to avoid that the choice of law or the choice of jurisdiction clause in the agreement is compromised or made inoperative.
Another important topic that parties to a tech transfer agreement should consider, is whether their exclusive licensee cannot play "cavalier seul" by attacking infringers without the need for authorisation by the patentee. Article 47.2 of the UPA is drafted more generously than most national patent laws : they only require to give the patentee advance notice to start an infringement action, unless the agreement provides otherwise. Since national patent laws are stricter, many agreements are not so specific about this obligation. Under the UPC, it will become necessary that these clauses are reviewed.
If the situation is not made clear, a patentee could face a systematic risk for bifurcation : when his exclusive licensee sues for infringement before a Local Division, the patentee could face a revocation action before the Central Division in return. Most agreements assumed that infringement and validity disputes would be tried before the same court, and may therefore be unclear about who needs to pay the costs for what in such a situation.
The UPC offers unique opportunities to companies and practitioners that will raise the level of patent protection and enforcement throughout Europe. The rules that were designed to allow existing patentees to benefit from the old system will in a few years, with hindsight, appear unnecessary and outdated. Whilst many issues that deal with financial aspects on the UPC still need to be decided, the new rules are clear and exist already. They allow companies to carefully review their existing technology transfer agreements, and anticipate conflicts that could arise when the new system will go live.
First published in Pharma Network no. 27, May 2015.