Precis

After many twists and turns, it looks as if 2017 will be the year in which the new EU patent regime will finally come into force. One key feature, the Unified Patent Court, offers a patent owner the prospect of excluding a competitor’s infringing products from the entire EU market in a single action. Further east, patent enforcement in China continues to improve and is growingly rapidly in importance when developing a global patent enforcement strategy. Taken together, these developments herald the end of US dominance of the global patent landscape, and the emergence of a more multi-polar global patent market.

What?

Unified Patent Court and unitary patent

The UK Government announced in November 2016 that it would ratify the Unified Patent Court Agreement (“UPCA”) and the Protocol on Privileges and Immunities, despite the Brexit vote. On 16 January 2017, the Court’s Preparatory Committee announced a revised timetable to launch.

It is now targeting December 2017 as the ‘go-live’ date for the Unified Patent Court (“UPC”) and the unitary patent, the key features of the new EU patent regime. Ahead of that, the certain provisions of the UPCA are expected provisionally to come into force “at the end of Spring 2017, presumably in May”. This so-called Provisional Application Phase will the infrastructure of the court to be set up in advance and includes matters such as the establishment of its supervisory committees and the appointment of judges – in essence everything that is needed for the court to open for business when the UPCA comes into force in full.

The UPC will have jurisdiction to hear disputes in respect of all European patents (including non-unitary European patents). However, for an initial transitional period holders of non-unitary European patents will be entitled to reserve jurisdiction over these patents to the existing national courts (unless an action has already been started in the UPC). The Preparatory Committee envisages that these much-discussed “opt-outs” will be possible from early September 2017. This is a key date for patent holders who have decided that they want to opt-out some or all of their non-unitary European patents, as a delay in filing the opt-out may result in the right to opt-out being lost. This would have the effect of the patent holder becoming embroiled in UPC litigation against its will, with the potential downside of revocation of the non-unitary European patent in all its designated states.

The Preparatory Committee highlights the provisional nature of this timetable, stating that it is dependent on (amongst other things) outstanding ratifications of the UPC Agreement. However, such ratifications are not expected to interfere with this timetable and the Preparatory Committee’s announcement is a positive indication that the UPC will be up and running by the end of the year.

Ever-increasing sophistication of Chinese IP courts and Asian players

Patent enforcement in China has evolved over recent years to the point where it is relatively fast and cheap compared with the US. An infringement claim usually takes less than a year to reach trial, and the limited disclosure which applies in Chinese courts reduces costs. The quality of decision making is now also generally felt to be good; specialised IP courts have been established and in the major centres such as Beijing and Shanghai, where most patent litigation takes place, those courts are experienced in patent disputes.

Equally importantly, they are also generally fair and impartial as between Chinese and overseas parties, particularly in those major centres. As a result of these factors, China is increasingly seen by foreign patent owners as a jurisdiction where it is feasible to prosecute patent infringement claims. Indeed, over the last 12 months, data on patent litigation in China has demonstrated that the Courts are claimant-friendly, even where foreign claimants bring claims against Chinese companies, and that foreign plaintiffs are increasingly willing to use the PRC courts. Indeed, in 2015, non-Chinese patent owners had a 100% success rate (65-0) in patent infringement actions against Chinese companies.

Damages awards are trending upwards too, with the specialist IP courts increasing willing to grapple with assessing actual damages, rather than relying on statutory damages. December 2016 saw the Beijing IP Court award damages of 50,000,000 RMB (approximately USD 7 million) in a patent dispute (Watchdata v Henbao) between two Chinese entities relating to USB technology. Whilst this may not seem high by US standards, it was the highest damages award to date in an IP dispute in PRC and marks a significant evolution from the average award in the period 2010-2014 of USD12,000.

Moreover, permanent injunctions are routinely awarded in the vast majority of successful patent infringement cases. No weighing of discretionary factors is required. In one study covering decisions issued in the period 2006 to 2011, such injunctions were awarded in every case involving a successful foreign patentee. Injunctions are available to prevent both sales in and exports from China. They have great commercial importance; they not only restrict access to the huge Chinese market but may prevent products manufactured in China for the global market being put on the market anywhere else.

As regards patent filing, SIPO recently became the first patent office globally to receive more than a million applications in one year (1,101,864 applications, more than in the US, Japan and South Korea combined). Chief Patent Counsel and Chief IP Officers of global corporates now talk openly of the importance of securing protection in China.

Other recent developments include:

• Wi-Lan Inc (based in Canada) commence proceedings in Nanjing against Sony for alleged patent infringement in China relating to mobile phone technology. Sony’s share of the Chinese smartphone market is small, but China is an important manufacturing location for it. The consequences for Sony of an injunction should Wi-Lan be successful are likely to have played a major part in its decision to sue in China.

• In January 2017, Apple has just filed two complaints against Qualcomm, the San Diego-based mobile chip giant, in the Chinese courts. The first alleges violation of China's Anti-Monopoly Law and seeks 1 billion yuan (or $145.35 million) in damages. The second requests a license agreement between Qualcomm and Apple for cellular "standard essential patents." This is part of global dispute, with Apple also bringing parallel proceedings against Qualcomm in the US courts, seeking $1 billion in damages.

• Chinese anti-trust regulator NDRC had already investigated Qualcomm for violating the Anti-Monopoly Law. The two had resolved the spat in early 2015, with Qualcomm paying a $975 million fine.

• Last month, South Korea fined Qualcomm $890 million for what it described as monopolistic tactics in relation to its patent licensing model. Regulators at the European Union and in Taiwan are also investigating the company.

So what?

Until quite recently, the US dominated on the global patent playing field, in particular in the ICT sector. US patents were the reserve currency, with the value of a global patent portfolio being largely assessed on the basis of just its US patents, with zero value being attributed to patents in other jurisdictions. Similarly, decisions of the US Courts in patent infringement disputes were taken as proxies for the merits of the dispute in all jurisdictions in negotiations over a global settlement or licensing deal.

The arrival of the UPC offers the prospect of pan-EU injunctions in a single action. Anecdotal evidence from patent brokers suggests that valuations of European patents as part of a global portfolio are increasing as a result of the prospects of improved ease of enforcement. Coupled with the increasing attractiveness of bringing patent infringement claims in China, and the wider commercial significance of injunctions granted by the Chinese courts where those claims are successful, more patent owners are increasing likely to bring proceedings outside the US as part of their global enforcement strategy. Non-US proceedings may even become the first port of call.

So, in 2017, the rise of Europe and China and the trend towards a more multi-polar patent market looks set to continue.