2023 will most likely be the year the Unified Patent Court (UPC) will open its doors. With the imminent start of the new European court system, the underlying legal framework will also become applicable.

The benefits of the UPC are very clear, e.g., the centralized enforcement of patents. However, this comes at the price of the risk of centralized attacks against the validity of patents. If a patentee does not act, the new system will also automatically apply to classic European Patents. To prevent this automatic step, it is necessary to act and declare an opt-out. The new system also entails certain rules on how to enforce a patent, which may influence the way a license agreement is drafted. Hence, it is necessary to check existing and future license agreements for their compatibility with the new UPC system.

1. Who can decide about the opt-out?

One of the main factors, especially for existing license agreements, is the question if the patentee is free to decide whether or not to opt-out the licensed patent from the new system. If the patentee has the obligation and right to uphold the patent, e.g., by paying annual fees, – which will probably usually be the case – this can be an indication that the patentee can also decide whether or not to opt-out the patent. However, this may be reversed if the licensee is granted control over the maintenance of the patent. Another aspect could be who is allowed to enforce a patent. As opting out a patent from the UPC is made in light of the litigation strategy, too, it may be sensible to take this into account as well. When reviewing existing contracts, the interests of the parties need to be evaluated in this context. For future license agreements, it is recommended that an explicit rule on opting out a patent be provided. It is worthwhile to note that the opt-out can only be declared by (all) material owners of the patent. Therefore, it is possible that the licensee can decide about the opt-out, but it is the patentee who needs to declare it.

2. Who decides whether or not to apply for a European Patent with Unitary Effect (Unitary Patent)?

As opting out concerns only leaving the new system, one might also consider including rules on when to enter the new system, which is done by applying for a Unitary Patent. Such an application can also be filed for existing (and licensed) patent applications. Hence, current license agreements which cover patent applications also need to be reviewed in order to determine who can decide whether or not to apply for a Unitary Patent.

3. Who decides about the enforcement of a patent?

A third factor to consider is which party is allowed to enforce a patent in the new system and/or in the old system. This circles back to the question of an opt-out, as the opt-out can only be declared if no action based on the respective patent has been pending before the UPC (ongoing and/or concluded). In other words: Once there was an action before the UPC based on a patent, it is no longer possible to opt out this patent from the new system. The classic European Patent may also be opted in (“withdrawal of opt-out”). Mirroring the rules for the opt-out, opting a patent back in is effectively prevented once a national action is pending based on the respective patent. This can become an issue particularly in exclusive license agreements. As the exclusive licensee has the right to file infringement actions under German case law, they can effectively prevent any plans of the patentee to opt out or withdraw that opt-out later by filing infringement actions in one of the systems. Hence, it is important to review existing license agreements and to implement rules on this issue in future license agreements. If your existing license agreements lead to a conflict between the ability of the exclusive licensee to file infringement actions and the right of the patentee to decide about prosecution strategy (including an opt-out), a dialogue needs to be established between the parties to find a common understanding.

4. Can it get more complicated?

Another layer of complexity is added by the possibility of granting territorial exclusive licenses for a classical European Patent (e.g., with exclusive licensees for different UPC member states). An infringement action by any of those exclusive licensees at the UPC might trigger a central revocation attack which is then directed against the patentee and would have an effect on all other exclusive licensees for other territories as well. Furthermore, different licensees may pursue different strategies when it comes to the enforcement of a patent or to the prosecution part.

5. What needs to be done?

With the start of the UPC merely a few months away and industry players already developing their opt-out strategies, now is the time to review existing license agreements and start preparing for new license agreements with a special focus on these questions:

  • Who decides if a patent shall be opted out?
  • Who decides about the application for a unitary effect?
  • Who decides about the strategy for the enforcement of a licensed patent?