Coming as a surprise to some, the European Parliament approved rules creating a Unified Patent Court and a Unitary Patent on December 11, 2012, after lengthy consideration. Hailed by many as an important step forward for European competitiveness in the intellectual property marketplace, the international agreement creating the Unified Court is set to go into effect at the later of January 1, 2014, or after thirteen contracting states ratify it (which must include the UK, France, and Germany among the thirteen). The European Union (EU) Unitary Patent will become an available option at the European Patent Office (EPO) at the same time. Based on the current political climate (and Parliament voting statistics), it appears likely that both will be effective for at least 25 member states by 2014.2

History

The European Patent Convention (EPC) has effectively governed the granting of patents in Europe since 1978. The EPC is an intergovernmental agreement between 38 European States, including all 27 EU Member States. Applicants can apply for a European Patent at the EPO in one of three accepted languages (English, French, German), and a granted European Patent must be validated by each individual nation in which an applicant desires protection. Each validation process involves additional fees and may involve additional translation costs, and each nation can (and does) charge its own maintenance fees (also referred to as “renewal” fees, or “annuities”) for continuing the protection throughout the full term of the validated patent. National courts have jurisdiction over infringement and validity/enforceability of a validated patent within their corresponding country, but there is an opportunity to appeal issues of EU law to the Court of Justice of the EU (CJEU).3

The proposed Unitary Patent would reduce costs by providing a single, EU-wide enforceable patent that would eliminate the current country-specific validation and translation requirements for protection in each EU Member State.4 The proposed Unified Patent Court would initially have sole jurisdiction over disputes involving Unitary Patents, but, after a transition period, would have sole jurisdiction over all European Patents, thus eventually harmonizing European Patent enforcement in the EU.

In response to reluctance by Italy and Spain to enter into earlier proposed agreements (ostensibly due to cost-limiting rules relegating Unitary Patents to only the English, French, and German languages), the remaining 25 Member States have resorted to a side-step measure, referred to as “enhanced cooperation,” that allows the 25 Member States to move forward with the proposed international agreement and ratification, but without Italy and Spain (and without Unitary Patents or the Unified Patent Court being effective in those countries).5

Italy and Spain have challenged the use of “enhanced cooperation” before the CJEU because the process is typically restricted to matters of non-exclusive EU competence, and, they argue, Unitary Patents would be a matter of exclusive EU competence once they are implemented.

Unitary Patent

The procedures for obtaining a European Patent and a Unitary Patent (if implemented) will be the same until validation. At that point, the Unitary Patent option will allow a patentee to forego national validation and choose protection in all EU countries (minus Italy and Spain, currently) at a reduced fee, as compared to individualized validation in various countries of interest. Also, the Unitary Patent option will avoid any need to translate the granted patent into the languages of each EU country. Under proposed rules, if the original application requires translation into one of the accepted languages, certain applicants (e.g., qualifying small/medium businesses, non-profits, universities) may seek full reimbursement of their initial translation costs.

Under the present regime, the average cost for obtaining an enforceable European Patent (i.e., through validation/translation) is approximately €36,000 (~US$46,829). The reduced fees and eliminated translation costs of the proposed regime lead to an estimated minimum cost of €4,725 (~US$6,144) to obtain a Unitary Patent that is enforceable throughout the EU.6 This is expected to result in a substantial cost savings to those taking advantage of a Unitary Patent.

This estimated cost, published by the European Parliament, does not include maintenance fees, however, which are a significant income stream for many Member States. The European Parliament has not yet provided a schedule of such fees, though it has mentioned scaling the fees according to the “special needs” of the applicant.7 Current informal estimates are that the cost of maintaining a Unitary Patent will be approximately the same as maintaining six-to-eight national patents. These costs can accumulate to a considerable sum over the full term of a typical European Patent.

The maintenance fee issue appears to make the Unitary Patent another strategic option rather than a panacea for all patentees. For example, patentees wishing to protect IP requiring an extensive and/or high-tech manufacturing infrastructure for exploitation may not need or want protection in more than two or three EU countries, and they would probably continue to use the present regime to save costs over the full life of their European Patent.8 Software services companies, however, might want to target any EU country with an electrical grid good enough to support a computing farm capable of servicing a smart phone population (i.e., all Member States).9 Both types of patents would eventually be subject to jurisdiction of the same Unified Patent Court system.

Many commenters have stated that Italy and Spain object to the Unitary Patent rules due to a perceived language snub, and that their court case in front of the CJEU jeopardizes the eventual implementation of a Unitary Patent.10 Certainly, a Unitary Patent without enforceability in Italy and Spain would be substantially less valuable, generally. However, Italy and Spain may instead be holding out for a larger portion of implementation funds, partly due to the cost of translating their national applications into the accepted languages, but perhaps also due to their continuing national financial woes. If that is the case, it is likely that Italy and Spain will eventually join in the international agreement once the horse-trading of implementation funds and Unified Patent Court installations is complete.

Nevertheless, due to overwhelming support for the Unitary Patent in the European Parliament, it is likely that a Unitary Patent enforceable in at least the remaining 25 Member States will be an available option no later than 2014. Inventors of easily transplantable processes and products would do well to investigate the costs and benefits of choosing a Unitary Patent.

Unified Court

It is important to note the subtle distinction in the naming of the court – although the “Unified” Patent Court will be the only court with jurisdiction over disputes involving “Unitary” patents, if current proposed rules are ratified, the Unified Patent Court will eventually have sole jurisdiction over all European Patent disputes filed within the EU, even those involving European Patents validated in various national jurisdictions under the present regime.11 The primary benefit of the Unified Patent Court will be eventual harmonization of European patent law and enforcement throughout the EU.

Under the proposed agreement, each trial court (located in Paris, London, Munich, and possibly other locations) will consist of a tribunal of multinational judges having appropriate legal experience in patent litigation, some technical experience, and/or perhaps some opportune language skills.12 The trial courts will have jurisdiction over infringement as well as validity/enforceability. Appeals will first go to a specialized tribunal in Luxembourg, and a final level of appeal will be available at the CJEU.13

One cannot help but compare the proposed Unified Patent Court to the U.S. Court of Appeals for the Federal Circuit, with all attendant implications both good and bad. However, the analogy perhaps understates the sea change about to take place in patent enforcement in the EU: a better (but hypothetical) analogy to the U.S. system would be if Congress bestowed sole jurisdiction over unfair business practices (traditionally a state-law cause of action) in the Federal District Courts with the Federal Circuit as the sole appellate court. It is likely that, upon implementation, EU patent litigation practitioners are in for a wild ride as nuances of patent law in the various national jurisdictions are taken up by the new Court.14

Detractors of the Unified Patent Court note that Community Trademarks and Community Designs, both enforceable EU-wide by national courts, were implemented without creating a specialized court system.15 It is also worth noting that the transition to the new Court will likely result in more protracted patent litigation in the EU, at least in the short term. There are realistic concerns that forum shopping may be more of a problem than currently contemplated, and reliance on the appellate process as a corrective measure may multiply litigation costs.16

Conclusion

Although Italy and Spain have for now refused to join in the proposed agreement, Italy has shown some past interest in joining a Unified Patent Court system.17 This lends credence to the idea that Italy and Spain are simply jockeying for position in the proposed regime and will eventually join with the other 25 Member States. Even if Italy and Spain do not join, however, the UK, France, and Germany are likely to ratify, and Parliamentary vote totals indicate the remaining 10 necessary signatories will be readily obtained.18 Potential European Patent litigants (and their representatives) should stay vigilant with respect to the proposed rules of the new Unified Patent Court, which, along with the Unitary Patent, are likely to be the reality in 2014.

Those concerned with law being handed down by an untested Unified Patent Court may want to consider alternative dispute arrangements in 2014 and beyond, particularly during the Unified Patent Court’s early years of operation. Risk of unbounded costs or unknown rules and outcomes should make alternative dispute resolution mechanisms, such as those provided by the more private and cost-sensitive arbitration institutions in the EU and elsewhere (including WIPO’s Arbitration and Mediation Center), much more attractive. Although an arbitration judgment cannot render a particular patent invalid or unenforceable as to all potential litigants, parties to arbitration can contractually agree both to limit their litigation costs and to abide by the decision of the arbitration tribunal as to themselves. As a practice tip, patentees conducting business in the EU, and their representatives/advisors, should: (1) familiarize themselves with alternatives to the new Court; and (2) consider including strong arbitration clauses in their agreements to ensure that sole reliance on the Unified Patent Court can be avoided if desired.

Direct link to the relevant European Parliament press release:

http://www.europarl.europa.eu/news/en/pressroom/content/20121210IPR04506/html/Parliamentapproves-EU-unitary-patent-rules