As the European legal landscape for patents finally moves ever closer to a unified system (for further details, please see "2022 – the year of the UPC?"), it is imperative that companies begin to decide on the approach they wish to follow with respect to unitary patents and the Unified Patent Court (UPC). A proactive approach is essential; it will allow businesses to make the necessary preparations and maintain a competitive edge.
Only on 18 January 2022, the UPC reached a milestone as the Protocol to the Agreement on a Unified Patent Court on provisional application (PAP-Protocol) was formally ratified by Austria, which deposited its instrument of ratification. This means that the number of ratifications from participating UPC system members had reached the required threshold – 13 – to enable the PAP-Protocol to enter into force.(1)
The PAP-Protocol is, along with the Protocol on Privileges and Immunities of the UPC and the UPC Agreement (UPCA), one of three treaties that underpin the new UPC system. It gives the UPC legal personality and provides for the final preparatory steps for the UPC to take place, such as the appointment of judges, testing of the IT systems and setting of the budget. It is now expected the new court system will become operational early in 2022.
Until then, it will be down to patent owners to decide whether they want their existing European patents designated for member states that have ratified the UPCA (or patent applications or supplementary protection certificates (SPCs); jointly referred to as "European patents" in this article, if not specified) to automatically become subject to the jurisdiction of the UPC, or instead remain under the exclusive jurisdiction of the national courts by means of declaring to "opt out". This article discusses the key issues around the opt-out procedure.
What is opt-out?
Under the UPCA, the UPC has exclusive jurisdiction over, among other things, actions for infringement or revocation of both unitary patents and European patents without unitary effect, meaning that national jurisdictions are only competent for litigation on national patents. However, during a transitional period of seven years (which can be extended to 14 years) after the date of entry into force of the UPCA, actions for infringement or for revocation of a European patent (but not of a unitary patent) may still be brought before national courts or other competent national authorities (article 83 of the UPCA), in addition to the UPC. Thus, during the transitional period, there will be a dual jurisdiction arrangement.
After the expiry of the transitional period, the UPC will acquire exclusive jurisdiction (in the UPCA territory) over all European patents that have not been opted out.
Therefore, opting out removes the UPC's jurisdiction over a European patent so that the national courts retain sole jurisdiction over it; compared with today, the litigation options for that patent would remain the same.
The opt-out declaration is effective from the day of entry into the UPC register if all requirements are observed. The current set-up of the UPC case management system requires that each patent to be opted out is identified individually by its application or publication number – that is, an opt-out has to be declared for each European patent separately.
The right to opt out is subject to a key limitation. Under article 83(2) of the UPCA, if an action is lodged at the UPC in respect of a European patent before an application to opt out that patent has appeared on the register, the action must continue in the UPC and the opt-out cannot proceed. In such a case, the UPC retains jurisdiction with effect for the participating member states for the entire term of the relevant patent (together with national courts during the transitional period).
Likewise, if a national action is filed after an opt-out has been declared, the opt-out cannot be withdrawn (as detailed below), irrespective of whether the national action is still pending or has already been concluded.
Opting-out is excluded if an action has been commenced before the UPC. Thus, competitors may pre-empt an opt-out by filing revocation actions on the day the UPC enters into force. To prevent this, it is envisaged that a sunrise period(2) will commence three months before the start of the UPC. During this period, opt-outs could be declared and registered instantly once the UPC enters into force. Thus, the sunrise period would grant patent owners time to opt out before competitors have the chance to initiate a revocation action before the UPC.
Article 83(4) of the UPCA provides a means for patent owners to withdraw their decision to opt out. This means, during the transitional period, a declaration to opt out can be withdrawn. This restores joint jurisdiction of the UPC and national courts. However, once the declaration to opt out has been withdrawn, no further changes regarding jurisdiction can be made. A second opt-out is not possible.
Patent owners also have to bear in mind that the declaration to opt out cannot be withdrawn if the patent has been litigated in a national court. The withdrawal of an opt-out is barred if an action relating to the patent in question has already been brought before a national court.
Licensees and co-owners
Licensees, exclusive or otherwise, will not be able to request an opt-out. Only the patent owner is entitled to request an opt-out and if the correct proprietor is not named, the opt-out will be deemed invalid. As such, absent any agreement to the contrary, the patent owner could therefore make its own decision on exercising the opt-out without consulting the licensee. But agreements should be checked as to whether a right of the licensee to enforce a patent or similar rights may result in a contractual obligation for the patent owner and licensor to respect the licensee's preference with respect to whether or not to opt out.
If a European patent is under co-ownership, it can only be opted out of the jurisdiction of the UPC if all the owners agree to the opt-out. As a result, it is crucial to approach other co-owners in time to seek their approval if an opt-out is desired, to collect relevant documentation and to prepare a jointly signed authorisation for the person submitting the opt-out application.
As with European patents themselves, SPCs which reference the European patent as the basic patent will, under the terms of the UPCA, be subject to the exclusive jurisdiction of the UPC, and to the shared jurisdiction of the UPC and national courts during the transitional period. In relation to opt-outs, the standard position is that an SPC must follow the European patent on which it is based; if the European patent is opted out, the SPC is also opted out. Crucially, if an SPC and a patent on which it is based are owned by different entities and the SPC has already been granted when the opt-out is requested, then the opt-out must be performed by both entities, together, in order for it to apply to the SPC. If the SPC is granted after the opt-out request, then the opt-out automatically extends to the SPC.
In order to get ready for the decision on whether to opt out, businesses should very diligently analyse their patent portfolio in order to identify those patents/patent applications to be opted out. Additionally, ownership issues with existing European patents should be assessed since co-owners must opt out jointly (see above) and it may be necessary to update registers with the current owners of the patents so as to avoid an opt-out being incorrectly filed in the name of a former owner.
Such analysis must, in particular, include weighing the risks of a potential central attack against the advantages of UPC enforcement. Central enforcement provides the benefit of being able to enforce a patent across a substantial part of the EU in a single action in a single court relatively quickly. However, conversely, central revocation provides the risk of patent protection being lost in a single action. A single declaration of non-infringement will also be available.
Within the assessment, the factors to be taken into account would especially be:
- the significance and strength of the individual patent;
- the nature and characteristics of the products concerned;
- the market situation and competition;
- logistics; and
- potential financial implications.
Companies might come to the conclusion that important and valuable patents should, at least at this point in time, not be exposed to the risk of a central revocation action and thus be opted out. They could even come to the conclusion that for all European patents/patent applications, opting out, at least at this point in time, is the route to take as it maintains the status quo and thus appears the "safe choice". With this strategy, the biggest potential risks and uncertainties – UPC revocation actions and the UPC being a new and yet "untested" court – would be avoided.
Opting out all European patents/patent applications could also be considered the route to take in light of the possibility to withdraw the decision and opt back in to the UPC later, provided that no national litigation has been initiated with respect to the patent in the meantime. Strategically, owners may consider this approach in order to mitigate the risk of central revocation, but retain the benefit of prosecuting the patent in a central court when a UPC action looks more attractive for their purposes (such as pan-EU enforcement).
However, both in the short and long term there are downsides to this approach. In the short term, for some patents/patent applications, companies would be in a stronger position when choosing UPC enforcement as competitors can no longer involve the patents in several national proceedings and, with that, effectively interfere with the business and decrease the value of the patents. In the long term, companies that opt out on a large scale lose the opportunity to shape the UPC and help create (good) UPC case law. Only if companies make use of the UPC and give it the chance to develop and grow can the entire new system become strong, reliable and attractive.
For licensees, early dialogue with the patent owner is key. As licensees have no right to request or challenge a patent owner's opt-out decision, the licensee should decide its preferred opt-out strategy and communicate this to the patent owner. Going forward, it will be important to include provisions in licence agreements to deal with decision-making around opt-outs.
Many of the same challenges exist for co-owners. Any new joint ownership agreements that relate to European patents should deal with the issue of opt-outs. However, additional consideration should be given to joint European patent applications, particularly the order in which joint applicants are listed. Once granted, if the application is litigated in the UPC, the order of applicants will dictate the law applied by the court.
At present, the relationship between the UPC and SPCs is still developing. For instance, it is not yet clear what the process will be for obtaining an SPC based on a unitary patent. SPC rights can be extremely valuable to innovators, and opting-out SPCs will require close coordination between the patent owner and the holder of the SPC (to the extent these are different). The European Commission is also currently considering the introduction of unitary SPCs, which are currently not possible under the unitary patent package, and/or the introduction of a unified grant mechanism for SPCs in the European Union.
Conversely, those seeking to invalidate patents may find central revocations before the UPC advantageous. In this respect, they may have a strategic interest in checking whether patents against which they intend to start litigation have been correctly opted out and in particular whether the opt-out form has been filed by the correct proprietor(s). In this respect, it is worth noting that the UPC Registry simply records opt-out requests filed but does not conduct any verification that the opt-out is valid. There is no process for third parties to directly challenge an opt-out, and it is not entirely clear under the Rules of Procedure whether the Registry will always reject a claim in respect of a patent for which an opt-out has been filed or if claimants have the possibility to maintain their claim, arguing that the opt-out is invalid. In the latter case, a third party may file a revocation action before the UPC despite an opt-out having been filed and defend a preliminary objection from the patentee concerning the (lack of) jurisdiction of the UPC on the basis that the opt-out is invalid.
The decision on opting-out is an important one which should be considered very carefully. Companies should start assessing their European patents and diligently taking into account all factors that are relevant for the individual European patent. They should also assess whether there is a need for action with regard to co-owners as well as agreements such as, for example, licence agreements, which might need to be amended.
For further information on this topic please contact Jules Fabre, Julia Traumannn or Guy Buckle at Pinsent Masons by telephone (+44 121 200 1050) or email ([email protected], [email protected] or [email protected]). The Pinsent Masons website can be accessed at www.pinsentmasons.com.
(1) Article 3 of the PAP-Protocol requires ratification by France, Germany and the United Kingdom. Following Brexit and the United Kingdom's subsequent withdrawal from the unitary patent and UPC system, the contracting member states have indicated a willingness to sign a declaration to the effect that article 3 should have the same meaning as article 89 of the UPCA, which requires ratification by "the three Member States in which the highest number of European patents had effect in the year preceding the year in which the signature of the Agreement takes place". This requirement is fulfilled by France, Germany and Italy. Italy would therefore take the place of the United Kingdom in respect of the ratification of the PAP-Protocol. This declaration is still in draft form but is expected to be signed at the next Committee of the Permanent Representatives in the European Union meeting.
(2) EPO – FAQ.