Early this year it became clear that the long-pending reform of the European patent system is finally coming to fruition. With the reform, the unitary patent which crosses geographical borders (a European patent with unitary effect) is being established as the new alternative to the traditional dual scheme of European patents and national patents. In addition, the new Unified Patent Court (UPC) will be established and will have jurisdiction to settle patent disputes in all Contracting Member States. Before the UPC opens its doors, companies should at least decide whether to “opt-out” of the court’s jurisdiction with their European patents.
European patents will be applied for in the same way as previously. However, even if the unitary patent itself is not yet of interest to companies, the reform will already have an impact on companies' patent strategies due to the new court.
The reform survived Brexit and Germany’s constitutional complaints and the final stages of preparation are now under way. From inception, the UPC will involve 17 EU countries, including Finland. Once the Contracting Member States are convinced that the Court is ready to operate, Germany will deposit an instrument of ratification of the UPC Agreement. Under the terms of the UPC Agreement, the Agreement will begin to apply on the first day of the fourth month following ratification. Optimistic estimates suggest that this could perhaps happen as early as October of this year. According to the UPC's website, the launch is estimated to take place either in the fourth quarter of this year or early next year.
The reform will affect all companies operating in fields that involve patents. All newly granted unitary patents will also cover Finland, which will increase the number of patents valid in Finland. This in turn increases the risk of patent infringement. Thus, companies should ensure that they are prepared for this change.
Patenting companies should carefully consider whether to apply for unitary patents in their patent applications. Furthermore, they should decide, regarding their existing traditional European patents (and Supplementary Protection Certificates), whether to opt-out of the jurisdiction of the UPC over such existing patents.
In the long term, such a choice will no longer be possible and all disputes concerning traditional European patents will eventually be settled at the UPC. Unless a company has opted out of the UPC's jurisdiction over a patent, the UPC and the national courts will have parallel jurisdiction for a transitional period of seven years. Thereafter, the UPC will have exclusive jurisdiction over these patents. The last traditional European patent protected by a Supplementary Protection Certificate, which could still be subject to an opt-out from the UPC's jurisdiction, could expire after 32 years (or after 39 years if the transitional period is extended for another seven years).
To opt-out or not?
Several companies certainly will, at least at first, exclude certain European patents from the UPC's jurisdiction (opt-out). This way companies can avoid the risk of a competitor having its patent revoked by the UPC in a single action in all Contracting States at once.
It is possible to opt-out during a transitional period of at least seven years and three months, which commences from the date of the deposit of the German instrument of ratification. It is therefore important to consider this option now. An opt-out will no longer be possible if action regarding the patent has already been brought before the UPC.
At the same time, this creates an incentive to monitor the actions of competitors. Did they manage to opt-out for their important patents in time, or was there an error in the opt-out request? Indeed, competitors' patents can be sought to be invalidated in order to extend your own freedom of action. Accordingly, right from the UPC’s opening the UPC's central division may be filled with such centralised European patent revocation actions.
On the other hand, the patent holder may consider the UPC's extensive injunctions against the infringer to be a substantial advantage (rather than having to litigate in several countries separately). The possibility to choose the litigation route between the UPC and the national court may also affect the litigation strategy during the transitional period, depending on the situation.
It is noteworthy that the opt-out can be withdrawn at any time, which will thus bring the European patent back within the jurisdiction of the UPC. However, this is subject to the condition that the patent has not been the subject of litigation before a national court. This also provides an opportunity for competitors to commence national proceedings to prevent the withdrawal of the opt-out. Furthermore, based on the wording of the UPC Rules of Procedure, the withdrawal of the opt-out is prevented if at any time (i.e. including before the UPC starts operating) that patent has been the subject of litigation before a national court.
Therefore, opting-out of the jurisdiction of the UPC for patents for the sake of certainty until further knowledge of the operation of the new court is obtained, or until the need arises to make use of the UPC's extensive jurisdiction for one’s own benefit, may not be a functional solution. In addition, it should be noted that the opt-out and its withdrawal can only be carried out once.
Now is the time to prepare
Certain rules of thumb can be given regarding the grounds on which companies should be making their decision. For example, an opt-out should perhaps be considered for a patent that is valuable but for which validity is uncertain. However, the new possibilities presented by the reform, and the integration of these into the existing patent system, create a wide range of options that ought to be more extensively assessed for each company (and patent).
In any case, now is the time to go through the company's patent portfolio and/or license arrangements and assess the risks associated with European patents from a UPC perspective. The possible fragmentation of patent ownership must be taken into account as well: a prospective opt-out must be carried out together with all the owners of designations of the European patent in the UPC Contracting Member States - otherwise the opt-out will not be valid.
It is important to launch preparations for the unitary patent and the UPC without delay. However, this is especially important for small and medium-sized Finnish companies whose knowledge of the reform has been limited, at least according to a study commissioned by Confederation of Finnish Industries (EK) in 2013-2014 (the study was conducted by Bird & Bird together with Boco IP).
Nearly three quarters of the companies surveyed had not been involved in any patent litigation in the past five years. 87 per cent of the respondents had not been involved in patent litigation in Finland and 78 per cent had not been involved in patent litigation in other European countries. Litigation experience was clearly more common for large companies.
Understandably, it has not been very tempting to allocate resources into familiarising oneself with the new system while it has not been certain whether the reform will happen at all. When this has been the situation for several years, there is a danger that there will not be sufficient interest to act quickly enough – even then when it counts.
If the UPC opens its doors in early October, the so-called “sunrise period” during which the opt-out can be requested in advance would start as early as the beginning of July 2022. Therefore, now is the time to prepare!