In this newsletter, we report on the recent attempts to create a unitary patent for European Union ("EU") countries (an "EU Patent"), a European and EU Patents Court ("EEUPC") and a unified patent litigation system ("UPLS") effective across the EU, and consider their impact on Japanese companies applying for and enforcing their business-critical patents in Europe.

Background

Globalisation of business has meant that patent litigation is increasingly being conducted on a worldwide scale: many activities that can be alleged to infringe patents now often take place in several countries, and the typical patentee is interested in securing remedies effective in all of those countries. However, in relation to European patent litigation, there is a problem. Despite the EU being a single market in many respects, it is not a single market for patents, which thus need to be enforced and defended on a country-by-country basis. For a Japanese company wanting to protect its international reach and market, this means applying for costly patent protection across relevant European countries and bringing expensive parallel proceedings in them. Further complexity arises from the differences in law relating to patents in different countries across Europe, in both substantive and procedural terms, which can lead to legal uncertainties.

Broadly, the focus of current efforts to resolve this "unfortunate state of affairs"1 is the UPLS, which was proposed in 2007 by the European Commission.2 This is a compromise of previous proposals (including the so-called draft European Patent Litigation Agreement3) and sets out a plan for a single EU Patent and EEUPC. However, two key issues have arisen: (a) the legality of the UPLS; and (b) the translation regime for the proposed EU Patent. We report here on important recent developments in respect of both.

Legality of the UPLS

Nature of the UPLS and EEUPC

The UPLS is currently envisaged as an agreement to be entered into between the EU, its member states (the "EU countries") and those other European Patent Convention contracting states that are not members of the EU, such as Switzerland. It would provide for a single EEUPC consisting of a Court of First Instance (divided into a Central Division as well as local or regional divisions) and a Court of Appeal, with exclusive jurisdiction over infringement and validity issues regarding all European Patents (i.e. patents currently granted by the European Patent Office ("EPO")) and EU Patents (the proposed unitary patent valid and effective in all EU countries). There would be no further right of appeal to the Court of Justice of the EU ("ECJ"); however, either EEUPC court would be able to refer matters of EU law to the ECJ.

Advocates General joint opinion

In December 2009, the question of the legality of the UPLS was referred to the ECJ. Although the EU treaties did provide a legal basis for entering into a mixed international agreement and for setting up a standardised patent judicial system, the Advocates General ("AGs") of the ECJ, somewhat surprisingly, gave a joint opinion that the UPLS was incompatible with the EU treaties. They criticised the UPLS for:

(a) insufficient guarantees for ensuring the full application and respect of the primacy of the EU; (b) insufficient remedies for breach of EU law by the EEUPC, or its failure to comply with its obligation of reference for a preliminary ruling by the ECJ; and (c) a failure to provide a system of effective judicial review, or sufficiently ensure the correct and uniform application of EU law, in respect of administrative decisions relating to the grant of European patents.4

The AGs also noted that the proposed rules about the language of proceedings could violate the rights of defendants. For instance, in proceedings before the Central Division of the First Instance EEUPC, the language of the proceedings would be that of the patent (i.e. English, French or German – the official languages of the EPO), so that defendants might have to conduct proceedings in a language other than the official language of their own country. This could be resolved by including rules to allow the Central Division to depart from the language of the patent or to provide translations of procedural documents, but neither is currently within the terms of the UPLS.

If the ECJ follows its AGs’ opinion5 and gives an outright negative decision on the legality of the UPLS, this would likely be the end of a centralised system of patent litigation. What is perhaps more likely is that the ECJ will decide that the UPLS is legal subject to various conditions, including greater control by the ECJ over the EEUPC. It remains to be seen whether any such conditions would be acceptable to EU countries and interested parties. There is a strong desire not to have the ECJ involved in the EEUPC. This is for a number of reasons, including the ECJ's lack of patent experience and also the slow speed of decision-making in past ECJ dealings in trade mark law, with resultant opinions being, at times, imprecise or problematic in their application. Giving the ECJ jurisdiction over the patents of non-EU countries would also be politically difficult.

Translation regime for the EU Patent

Current proposal (as at 1 July 2010)

Currently, a patent must be translated into the language of every individual country where patent protection is sought; the estimated cost for 13 EU countries is 18,000 Euros (of which approximately 10,000 Euros is due to the cost of translations). Under the latest EU Patent proposal, applicants would be able to file for a patent in any of the EU official languages and the EPO would examine and grant patents in English, French or German. The granted EU Patent would include translations of the claims in all three EPO languages. No other translations would be necessary unless a legal dispute arose over the patent. In this case, an alleged infringer or the court may require that the patentee provide a translation into the official language of the relevant country. This would reduce the cost of patent protection in all 27 EU countries to 6,200 Euros.

However, this translation proposal faced resistance throughout 2010 from certain EU countries, notably Spain and Italy, which highlighted its discriminatory nature. This is significant because the EU Council must unanimously agree to the current translation proposal before the patent system becomes official. There were various new compromise texts and multiple meetings in October and November 2010 to try to resolve the disagreement over the language regime for a future EU patent system. Ultimately, however, Spain and Italy objected and no solution was found.

Enhanced cooperation

Nonetheless, there is still the prospect of a new unitary patent, if not an EU Patent. On 14 December 2010, the European Commission tabled a proposal for so-called "enhanced cooperation" to create unitary patent protection in the EU pursuant to a formal request by 12 EU countries (Denmark, Estonia, Finland, France, Germany, Lithuania, Luxembourg, The Netherlands, Poland, Slovenia, Sweden and the UK).6

The "enhanced cooperation" mechanism, which has only been used once to date, permits 9 or more countries to proceed in a particular area as a last resort if no agreement can be reached by the EU as a whole within a reasonable period. Other EU countries can opt to join at any stage before or after enhanced cooperation has been launched.7 It seems that 13 further EU countries may join, although some may wait to take action until after the ECJ's opinion on the UPLS and EEUPC becomes known.

The next steps are: (i) the EU Council of Ministers needs to approve the decision to authorise "enhanced cooperation" by a qualified majority, after the consent of the European Parliament; and (ii) the European Commission will make detailed proposals for implementing enhanced cooperation, including translation requirements, later this year.

A patent created under "enhanced cooperation" would be mutually valid and recognised only among the individual EU countries that have joined the mechanism (rather than across the whole of the EU). In other words, there would be a multi-tiered patent system based on compromise that seems far from ideal. It remains to be seen how these current attempts to harmonise the patent system in Europe proceed, and whether Italy and Spain can be persuaded to change their position.

Conclusion

At present, there are two key issues preventing the adoption of an EU Patent and EEUPC: (i) the lack of agreement on the translation regime; and (ii) the AGs' opinion on the lack of compatibility of the proposed UPLS with EU treaties. The first issue may be overcome by a unitary patent that covers those EU countries that join the "enhanced cooperation" system. However, given that Italy and Spain may bring legal challenges against the "enhanced cooperation" procedure, and there will be extensive negotiations of the European Commission's detailed proposals, this will take time. In relation to the second issue, we anticipate developments shortly since the ECJ's decision on the UPLS is expected around February 2011.

On this basis, we estimate that any new European patent system is at least 5-10 years away, and in any event will almost certainly have extensive transitional provisions. For the moment, therefore, Japanese companies need to do the best they can with the current complex, intricate and costly system that requires the bundle of national patents obtained via the EPO to be enforced by litigation in individual EU countries. In practice, some Japanese companies may decide to litigate in key markets only (for instance, Germany, UK, France and The Netherlands) and then settle in the remainder. However, it is critical to be aware of significant procedural and legal differences between countries, and it is still the case that one of the principal strategic decisions is where a company should litigate first. We will describe important practical tips and strategies for cost-effective multi-jurisdictional patent litigation in a newsletter later this year.