Following a comparatively quiet period in the first quarter of 2015, there has been a flurry of public activity in relation to both the Unitary patent (or European patent with unitary effect, to use its correct title – the UP), and the Unified Patent Court (UPC). In truth, this is really just the result of the fact that while things might appear to be quiet, an awful lot is going on behind the scenes.
Spanish challenge falls away
Readers will recall that the whole UP and UPC package was threatened by legal challenges first by both Spain and Italy (which challenge foundered in April 2013), and then there was a further challenge by Spain alone. We have previously reported that Advocate General Yves Bot recommended in October 2014 that the current challenge should also be rejected, and that opinion was followed in all material respects by the Court of Justice of the European Union (CJ) on 05 May 2015.
It would seem therefore that the potential legal roadblocks to the UP and UPC package coming into force have fallen away, and indeed there is serious talk in Italy of joining the system.
Quite what will happen in Spain (or indeed Poland, which has so far not signed the UPC Agreement on the basis that its economic analysis of the package is such that it will not benefit Poland to be part of it) is unclear. Given its strong opposition to the package based on language, it would be a surprise if Spain joined in, at least in the near future.
Unitary patent – it's all about renewal fees
Like many, we have been saying for some time that for the UP to be a success, it must be financially attractive to users. Our concern has always been that the much lauded (by the European Commission and European Patent Office (EPO) anyway) cost saving, as compared to pan-EU coverage via the traditional European patent (EP) route, was in reality a red herring. Users currently do not validate their EPs across the EU (with one sector-based exception, which sector is unlikely to want to use the UP for different reasons), instead choosing a much more limited coverage based on economic impact. Outside the pharmaceuticals sector typically three or four EU states are chosen, and if the choice extends beyond three the additional EPC validations (above Germany, France and the UK) often include Spain and Italy, as well as Turkey. While Italy may join, Spain seems less likely and Turkey is of course not in the EU.
This being so, the mood music coming from the EPO that renewal fees would likely be set based on those payable in more than three EU member states, was distinctly worrying. Those fears were realized in March 2015 when a proposal for UP fees was leaked from the EPO. This proposed renewal fees based on validation in either "TOP 4" or "TOP 5" EU states, with a possible discount from the latter for small entities. Interestingly, the European Commission itself came out against this proposal, which is widely viewed as distinctly unattractive for users. While these fees would indeed compare favourably with the costs of validating and maintaining a classic EP in all participating EU member states, when compared to a US patent for example the UP still looks hugely expensive. Coupled with the inability to reduce coverage over time (as many patentees do), one began to wonder who would be interested in a UP when the traditional EP, with more limited validations, looks to be the better deal.
A revised fee proposal was published in May 2015 and can be downloaded from our website: http://dycip.com/upfees170515.
Despite multiple representations by user organisations, and the doubts expressed by the European Commission, the TOP 4 or TOP 5 alternatives are retained. A comparatively minor reduction in early years' fees is a step in the right direction but in our view, much more needs to be done.
There has to be real encouragement to use the unitary patent, and that will only come from genuinely attractive costs.
The broader coverage, and single forum enforceability, provided by the UP is a benefit, but we suspect that for most, it is not enough at these prices. At least, that is what we are hearing anyway. We expect fees to be agreed by the EPO late in June 2015.
Unified Patent Court – it's also about fees
After the consultation process on the Rules of Procedure essentially closed following a public hearing in November 2014, the promised consultation on UPC fees was awaited with some anticipation. It was finally published on 08 May 2015, and the consultation document is available online (PDF download) at http://dycip.com/upcfeesconsultation.
It is a fundamental principle of the operation of the UPC that it should eventually be self-financing, with no EU money available and the contributions of individual member states have to be reduced over time.
For these reasons, the UPC was never going to be 'cheap' although it is hoped that the quality will match the price.
In any event, in order to achieve self-financing status, two kinds of fees have always been on the cards:
- a basic fee applicable to more or less any step in an action; and
- value-based fees, payable in respect of certain substantial steps.
The latter fees are, as the name suggests, to be based on the value of the action (itself open to argument), and it has never been a secret that these fees would be payable in general by the larger users of the court, not smaller entities.
In the time leading up to the publication of the UPC fees consultation there has been some considerable lobbying in relation to certain aspects of the fees that were apparent from the various drafts of the Rules of Procedure. In particular, the notion of a value based fee payable by a defendant which raised invalidity in its defence (a common occurrence and something which, in the UPC, can only be raised by way of counterclaim for revocation), caused consternation among users. The injustice of having to pay what could be a very substantial fee in order to defend oneself from an infringement claim was all too apparent to many. It is good to see that the consultation paper does not suggest such value based fees any longer, preferring instead a slightly raised fixed fee.
As readers will see from the consultation paper, the proposed UPC fees are, for larger cases anyway, quite substantial. When the parties' costs are added to these, one can see that overall the costs in the UPC will almost certainly be larger than single forum litigation in an individual participating member state (perhaps even including the UK, certainly by comparison with costs in the Intellectual Property Enterprise Court or IPEC). On the other hand, they are likely to be considerably lower than costs that result from multi-forum litigation in the EU under the current system. On its face, therefore, the UPC should meet its objective of reducing the costs of multiple country enforcement in the EU.
That analysis is perhaps further support for the idea that, for seven years at least, the traditional EP route looks more attractive than a UP. This is because the UPC transitional arrangements allow some choice in enforcement of an EP, with both national courts and the UPC having jurisdiction.
Any users who have comments on the UPC fees consultation are actively encouraged to submit a response to the consultation.
The consultation will be due by 31 July 2015.
This includes comments on the proposed opt-out fee, which is suggested to be 80 Euros per classic EP bundle.
Preparations are continuing apace for implementation.
Further ratifications are either imminent or have happened in a number of member states. The remaining big two, Germany and the UK, have yet to ratify. Neither will do so, of course, until it is clear that the UPC will be ready for business in short order thereafter, although efforts are being made to find a legal basis for enabling ratifications to happen without triggering the automatic start timetable set out in the UPC Agreement.
Best guesses for start date therefore remain that it should be ready towards the end of 2016 / first half of 2017.
Of course, with the recent general election resulting in a majority Conservative government, the UK will have a referendum on its membership of the EU. Whatever the outcome of that (and we think it's unlikely there will be public support for a UK exit), we suspect the timing of the UPC will be unaffected, or only impacted to a minor extent. The referendum is promised "by 2017" but for various political reasons, it is very likely to take place in the second quarter of 2016. As the UPC is unlikely to be ready before the end of 2016, the impact of the UK referendum on timing is likely to be minor.