On December 11, 2012, the European Parliament approved a legislative package that is aimed at establishing a single, unified European patent system.
The current system
Presently, an applicant wishing to secure patent protection in Europe must file a single patent application at the European Patent Office (“EPO”) in Munich. If the application adheres to the European Patent Convention’s (“EPC”) rules and procedures, the EPO will grant the application and thereafter, the approved application becomes a bundle of national patent rights in each of the EPC Contracting States that are selected by the applicant.
At present, the initial application may be filed in English, German or French. Once the application is granted, a significant number of the EPC Contracting States require that the application is translated into their national language.
It is widely recognized that the translation costs and national renewal fees (a yearly fee for each country where the patent is in force) are a significant burden on small and medium-sized entities. The European Commission estimates that under the current system the cost of having a patent recognized in every EU country is approximately €36,000. Translation costs account for €23,000 of this figure. The fees are generally less of a concern for large companies with significant legal budgets than for small and medium-sized enterprises. This has been seen as a disadvantage of the current system for some time.
Presently, legal proceedings concerning the validity or infringement of any national patents are heard in the courts of that particular country. For example, an infringement action for a British patent will occur in the Patents Court or Patents County Court of England and Wales.
The new system
The new system will come into force either on January 1, 2014 or 4 months after thirteen states have ratified the agreement on the Unified Patent Court (provided that the UK, France and Germany are among them), whichever is the latest. On February 18, 2013, the agreement on the Unified Patent Court will be open for signature.
An application for the unitary patent will follow the current process. However, under the new regime (for a transitional period of seven years) after a patent is granted, the applicant will be able to choose whether to obtain:
- a patent having unitary effect in all 25 EU member states taking part (except for Italy and Spain who have opted out); or
- the traditional bundle of national patent rights.
The unitary patent will have identical scope and protection in all participating countries. It is a single legal right covering all participating countries, rather than a bundle of individual national patent rights.
The advantages and disadvantages of each option are briefly discussed below.
One of the significant hurdles to the new system was the issue of translations. This subject threatened to derail the progress of the unitary patent at several stages over the last few years. However, the impasse was resolved and under the new system applications will have to be filed in English, French or German. If an application is filed in another language it will have to be accompanied by a translation into one of the three languages. After grant, no further translations will be submitted by the applicant, and a high-quality electronic translation will be available for informing third parties on the content of the patent. For a transitional period - until the machine translation system is fully operational - where the language of the proceedings before the EPO is French or German, a full translation of the patent specification must be provided into English, or, if the language of the proceedings is English, into an official language of a EU member state. This translation must be filed by the patentee together with the request for unitary effect.
Renewal fees will be paid directly to the EPO rather than to the patent office of each participating country in which the patent is valid. This will reduce the administrative burden on patentees. The renewal fees are yet to be determined, however, it is likely to be set at a level that makes the new system more attractive for small and medium-sized entities than the current system. In any case, one yearly fee for a unitary patent is likely to be less expensive than the combined fees payable under the current system for each national patent.
Unified Patent Court
The new Unified Patent Court will have a first instance Central Division split between Paris, London and Munich. A single Court of Appeal will be based in Luxembourg. Appeals from this court will be heard by the Court of Justice of the European Union. In general, infringement proceedings will be initiated at the location of the infringement or the place of domicile of the defendant. Validity proceedings will commence before the Central Division, unless filed as a counterclaim in an infringement action. For a transitional period, applicants will be able to opt out of the Unified Court system and infringement or invalidity proceedings can still be initiated before national courts.
What does this mean for Canadians?
With the reduced renewal fees and translation costs, obtaining a unitary patent is likely to be less expensive than the current system. This will make the unitary patent more attractive for Canadian applicants who are looking for a cheaper alternative or who previously could not afford the cost of prosecuting an application to grant in Europe.
This advantage needs to be balanced against a particular strategic disadvantage: the unitary patent is a single legal right. If the legal right is successfully invalidated by a third party, or if renewal fees are through inadvertence not paid, the applicant loses all such rights in Europe. Competitors wishing to invalidate a unitary patent need to commence only one legal proceeding, and if successful, will eradicate the patent throughout Europe.
In contrast, under the current system, if a third party wishes to invalidate patents in Europe, it must attack each one separately in the courts of that particular country. Multiple legal proceedings are more expensive than a single proceeding. If the third party is successful in some countries and unsuccessful in others, the challenger will not have unfettered access to the European market. Instead, they will be limited to only those countries where the national patents has been invalidated. The bundle of national rights, while being more expensive to obtain, is also more costly to challenge. Not every competitor will have the financial capabilities to attack every jurisdiction in Europe. Obtaining national rights may, therefore, be seen as a safer alternative for the most valuable technologies or highly competitive industries.
Under the unitary patent, a patentee is likely to have less choice of where to commence infringement proceedings, as the new system specifies certain court locations. Also, the new system has rules determining where infringement proceedings should be commenced (usually in relation to the domicile of the defendant or where the infringement is occurring). In short, it is apparent that there will be significantly less scope for forum shopping under the unitary system than under the current system.
On a commercial level, any licences involving European patents will in the future need to address the unitary patent concept. For example, instead of dividing up a bundle of European patents between various licensees on a territory basis, it will be necessary for a licensor to divide up the same unitary patent into a number of different licenses by territory. Whether this will have adverse tax implications or create transfer pricing issues remains to be seen.
The unitary patent is coming. With the relatively short amount of time until the unitary patent system comes into effect, patent agents, patent lawyers and IP managers should move quickly to devise their own European strategy.
Given the significant number of transitional provisions, it is apparent that applicants will be able to stay with the current system and watch the unitary patent system from the sidelines for some time. However, there are major benefits with electing to go for a unitary patent, and those who are prepared to do so will see a significant reduction in costs. So the question is, will you take the plunge, or will you watch from the sidelines and learn from other applicants who jump right in?