The Unitary Patent
The changes to the European patent system will come into effect four months after at least 13 states (including the UK, France and Germany) have ratified the UPC Agreement. France and 13 other countries have already ratified, so all that is now required is ratification by the UK and Germany. Once the system is up and running (it has been subject to delay caused by Brexit and, most recently, a constitutional challenge in Germany), it will be possible within a month of a European Patent being granted by the EPO to designate it as having “unitary effect”. That is to say, it will have effect as a single patent across all states that have ratified the Unified Patent Court Agreement by the time that the patent is granted. Eventually, this will encompass at least 24 EU Member States (not Spain, Poland and Croatia, and possibly not the UK in the long term).
There will, therefore, be three routes to European patent protection:
(i) National patents;
(ii) The existing European patent (designating up to 38 European Patent Convention countries); and
(iii) The new unitary patent.
The unitary patent will have simplified translation requirements. After a transitional period (six to 12 years, during which it is hoped that machine translations will become more reliable), there will be no need to translate a unitary patent before litigation, other than to ensure that the claims are in English, French and German. In the event of litigation, a translation into the relevant language can be requested by an opposing party or the court. During the transitional period, a translation will be required either into English or, if the patent is already in English, another official EU language.
The major potential advantage of the unitary patent will be the possibility of securing patent protection in Member States without the need to incur the costs of translations or to pay renewal fees in each of those states. The extent to which it is adopted by users currently designating a limited number of states will doubtless depend partly on the level of the renewal fees. In 2015 these were set at a level equal to the total sum of the renewal fees payable in respect of the four most frequently designated contracting states (“TOP 4”), namely the UK, Germany, France and the Netherlands. The level of fees had disappointed those who validate European patents in only two or three contracting states. Clearly, though, for those validating in five or more states, those fee levels would have been a “good deal” although the owner of a unitary patent will not have the opportunity to reduce renewal costs during the lifetime of a patent by dropping designations, as can be done with traditional European patents. However, if the UK is not to play a part in the unitary patent in the long term, the level of the fees may have to be revisited if the unitary patent is to remain attractive.
Another key factor influencing the extent to which the unitary patent will be adopted is that it will only be subject to the UPC’s jurisdiction (unlike a European patent which, during the UPC transitional period, will be subject to the jurisdiction of the UPC and the national courts—although some say only if it has been opted out). Accordingly, it will not be possible to opt out a unitary patent from the jurisdiction of the UPC. Patentees who do not want their European patents to be subject to the UPC’s jurisdiction will not, therefore, designate them as having unitary effect. On the other hand, patentees who decide to have their European patents subject to the UPC’s jurisdiction and to have coverage in a large number of Member States, in order potentially to benefit from geographically extensive relief, will find it more economical to obtain a unitary patent.
The law governing a unitary patent as an “object of property” will be the law of the EU Member State where the applicant is resident, or has its principal place of business, at the time of filing the application (or, if none, the law of an EU Member State in which the applicant has any place of business). If the applicant has no place of business in an EU Member State at all, the governing law will be German law. Where there is more than one applicant, the order in which the applicants are listed is relevant. The relevant applicant for determining the governing law will be the first listed applicant to have a residence or principal place of business in a Member State. If none of the applicants does, then the relevant applicant will be the first listed applicant with any place of business in a Member State. The governing national law will affect matters such as the right of a co-owner to license without the consent of the other co-owners. It will also define what acts amount to infringement, and limitations on infringement, although the extent to which this will be significant as a practical matter is uncertain at present. For example, it is likely that the UPC will develop its own jurisprudence relating to the construction of claims and infringement without regard to a particular national law.
The Unified Patent Court will be a single court having jurisdiction in all EU Member States that ratify the UPC Agreement. As things stand, that will eventually amount to all current EU Member States apart from Spain (which had challenged the system in the CJEU), Poland (which is reserving its position) and Croatia (a recent entrant to the EU). The UK is expected to be involved from the start, although there is uncertainty over its long term involvement following the Brexit vote. Commencing four months after at least 13 Member States (including France, Germany and the UK) have ratified, the court will initially have jurisdiction over only the states that have ratified at that time, with more states being added as they ratify. France and 13 other states (Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, Italy, Lithuania, Luxembourg, Malta, the Netherlands, Portugal and Sweden) have already ratified, leaving just the UK and Germany to ratify before the agreement takes effect.
The court will hear proceedings involving the new unitary patent, classic European patents (that have not been opted out of the system), and Supplementary Protection Certificates (a form of patent extension for medicinal and plant protection products) associated with those patents. It will not have jurisdiction over national patents.
It will deal with infringement proceedings (and so will grant pan-European injunctions having effect in all states in which the patent is in force that have ratified the UPC Agreement), declaration of non-infringement proceedings (and so will grant pan-European declarations) and revocation proceedings (and so will be able to revoke a unitary patent and all designations of a European patent within its jurisdiction). It will, therefore, be a court with unprecedented powers that will ultimately have jurisdiction in states with a combined population of at least 350 million people.
From the very start, the UPC jurisdiction over unitary patents will be exclusive, so national courts will not have jurisdiction over them. Eventually, the UPC will also have exclusive jurisdiction over European patents. However, during the transitional period of seven years (extendable by a further seven years), the jurisdiction over European patents will almost certainly be non-exclusive. That is to say, proceedings will be able to be brought in either the UPC or national courts. Also, during the transitional period, European patents may be “opted out” from the UPC’s jurisdiction, which almost certainly means that they will not be subject to the jurisdiction of the UPC at all for their entire life.
The court will be made up of a Court of First Instance and a Court of Appeal (based in Luxembourg). The Court of First Instance will, in turn, be divided into local divisions (and regional divisions) and a central division. A political compromise was reached whereby every Member State can host a local division of the Court of First Instance, if it chooses to do so—for example, Germany, the UK, the Netherlands, France, Italy, Austria, Finland, Ireland, Denmark, Belgium, Portugal and Slovenia have chosen so far to host a local division. Lithuania, Latvia, Estonia and Sweden have clubbed together to form a regional division.
To ensure consistency of standards wherever a local division may be, the court will generally sit in multinational panels of three judges (and, in some instances, an additional technical judge). France, Germany, the UK and the Netherlands, which have had at least 50 cases per year in three successive years, will be entitled to have two of their nationals sitting on each panel in their local divisions (with the third, international, judge seconded on a long-term basis). Regional divisions will also have two local judges sitting on each panel, together with an international judge. Other local divisions will only have one national judge, sitting with two international judges. It will also be possible for the parties to agree to have their case heard by a single judge.
The location of the central division was also a political compromise. In the event, it was split between London (patents in the pharmaceutical, biotechnology, and chemistry fields), Munich (patents in the mechanical engineering field) and Paris (patents in electronics, physics and various other fields). Despite Brexit, the pharmaceuticals, biotechnology and chemistry section is still expected to be located in London initially. Whether it stays in London over the long term will depend on the UK’s continuing involvement in the UPC. If the UK is not involved in the long term, Italy and the Netherlands are likely candidates to host it, or the sections in Paris or Munich may absorb it. Generally, the central division will sit in panels of two legally qualified judges (of different nationalities) and one technical judge, although again it will be possible for parties to agree to have their case heard by a single judge.
The local divisions are likely to hear many of the infringement actions, although such actions may also be heard in the central division. A patentee will be able to bring infringement proceedings in the local or regional division of any Contracting State in which there is infringement, or where infringement is threatened, or where the defendant is resident or has its principal place of business, or absent that, any place of business. Also, it will be able to bring them in the relevant section of the central division if a contracting state in which infringement takes place, or is threatened, does not host a local division, or if the defendant has no residence or place of business in the UPC territory, or if the defendants’ place of business is in a contracting state which does not host a local division. This means that in a case where infringement takes place throughout the UPC territory, the patentee will be able to bring proceedings in the local division of any Contracting State in which the patent is in force, and also in the central division, as not all Contracting States will host a local division. This will lead to forum shopping.
The central division will also deal with stand-alone revocation actions and claims for declarations of non-infringement, unless an infringement action is pending in a local division, in which case the declaration or revocation actions must be brought in that division. Also, if an infringement action is brought in a local division after revocation proceedings have commenced in the central division, the local division will decide whether to have the infringement and invalidity claims heard together or to keep them separate (bifurcation). If an infringement claim is brought in a local division within three months of a declaration of non-infringement claim being commenced in the central division, the central division proceedings will be permanently stayed.
Generally speaking, the language of the proceedings in a local division will be the official language, or one of the official languages, of the Member State hosting that local division, or one or more of the EPO languages, if any have been designated by the Member State. Many Member States have designated English in addition to their official language(s). Various rules have been set out to determine which language should be used where more than one language has been designated. The language of proceedings in the central division will be that of the patent.
UPC: Procedure and Bifurcation
The UPC procedure is a hybrid between UK/US common law proceedings and continental civil law proceedings (which have no discovery, no cross-examination of witnesses and a limited oral hearing). It will be made up of three stages: a written procedure (when detailed brief-like pleadings will be filed); an interim procedure (when a judge-rapporteur will make procedural orders); and an oral procedure (consisting of a one-day oral hearing with a possibility of a maximum one-day hearing for cross-examining witnesses, including expert witnesses). There will be provision for some limited discovery and experiments, ordered during an “interim conference” as part of the interim procedure.
A significant procedural aspect is the possibility of “bifurcation”. This describes the process whereby validity proceedings are separated from infringement proceedings. It is the procedure used in Germany and, as a consequence, it has been made possible in the UPC, although it is for the court to decide whether to do so in any particular case. Accordingly, when a counterclaim for revocation is brought in infringement proceedings, the local division will have a choice as to whether to (i) hear both the infringement case and the revocation counterclaim, (ii) with the consent of the parties, send both claims to the central division, or (iii) just send the revocation counterclaim to the central division (bifurcation). A similar situation arises if an infringement claim is brought in a local division after a revocation claim has been commenced in the central division.
As bifurcation is viewed with some skepticism by many, a number of procedural safeguards have been put in place in the event that it is ordered, including power to stay infringement proceedings pending the revocation proceedings, and the ability to make any judgment and orders conditional upon validity. In addition, proceedings must be stayed if there is a high likelihood of invalidity. Also, the central division is required to accelerate the invalidity proceedings if the infringement proceedings have not been stayed, and to endeavor to set a date for the invalidity oral hearing before that of the infringement proceedings. In light of the various safeguards, and the fact that some German patent judges have indicated that they are not enthusiastic about bifurcation within the UPC, the availability of bifurcation in the UPC is not currently viewed with concern.
UPC: The New Forum Shopping
There are detailed rules as to which division proceedings are to be brought in, as between the various local divisions and the central division. It is clear that there will in many instances be a wide choice. Furthermore, it can be expected that some divisions will develop distinct approaches to procedure, or substantive law. For example, those local divisions that have two of their nationals sitting on each panel. Different sections of the central division may also develop distinct approaches, because they will specialize in different technologies. While there ought to be harmonization, and some can be expected, as has been seen with the federal courts in the United States and the Technical Boards of Appeal at the European Patent Office, there is a limit to what an appeal court can achieve to remove all differences in approach. There will, therefore, be a lot of forum shopping in the UPC.
Possible factors informing the choice of jurisdiction within the UPC will be (a) the experience of the jurisdiction; (b) the approach to the law taken by a division (and perceptions as to whether it is pro-patentee or not); (c) the language of the division; (d) the location of the division and whether it shares a site with a section of the central division, which may make transfers to the central division more likely; (e) the speed of proceedings in the division; and (f) the approach to procedure taken by the division, including bifurcation. Some jurisdictions may be more inclined to make orders for discovery or cross-examination than others.
There will also be forum shopping between the UPC and national courts (and between national courts). If the UK is not part of the UPC in the long term, this will serve to complicate forum shopping strategies further.
UPC: Opt-out and Transitional Period
The UPC will offer to patentees the opportunity to obtain pan-European injunctions. However, it will also be able to order pan-European revocations and pan-European declarations of non-infringement. Furthermore, it is going to be a completely untried and untested court, with a completely new hybrid civil law/common law procedure. As a consequence, stakeholders have been reticent about entrusting their patents to this new court, and parties are well advised to consider their strategy carefully in the lead-up to its introduction, having regard to the transitional provisions.
The transitional provisions are not entirely clear and there is some debate as to their effect. The consensus view is that there are two aspects to the UPC transitional period, which will last, initially, for seven years (it is extendable by a further seven years). First, that European patents (but not those that have been opted out, or unitary patents) will be subject to a dual jurisdiction, whereby proceedings may be brought in either the UPC or in national courts (as they are now). Second, that up to one month before the end of the transitional period, it will be possible to opt out “classic” European patents (that is to say, those without unitary effect) from the UPC’s jurisdiction. It is thought that this will shelter a European patent from being revoked by the UPC across all designations, for its life. On the other hand, if a European patent is opted out, it will not be possible to obtain a pan-European injunction. (Some have expressed the view that the opt-out is only from the exclusivity of the UPC’s jurisdiction, not the jurisdiction altogether, and even that it is necessary to opt out in order to be subject to the dual jurisdiction. Neither of those is the consensus view, which is supported by the UPC Preparatory Committee, but ultimately the interpretation of the UPC Agreement will be a matter for the UPC itself.)
If a patent has been opted out, the opt-out can be withdrawn, unless national proceedings have been brought in the meantime (a likely defense tactic, and therefore it should not be assumed that an opt-out will be able to be withdrawn). Similarly, if proceedings in the UPC have been brought against a patent which has not been opted out, it cannot thereafter ever be opted out.
The decision as to whether or not to opt out is an important one. Patentees need to give this consideration, and also must decide whether to seek a unitary patent designation upon grant (which cannot be opted out). Each patentee needs to develop its own opt-out strategy, however our recommendation is to consider opting out some European patents and leaving others in the UPC system. This is in order to benefit from the possibility of obtaining a pan-European injunction (which, once it becomes available, may become increasingly important if the influence of national courts diminishes), and also so as to help shape the jurisprudence of the UPC in its early years (and not, for example, leave the case law to be overly influenced by one particular sector or business model). One possibility, in the case of key inventions where there are still applications under prosecution, is to make use of divisional applications or applications sharing priority, leaving in some patents (including designating some future applications as unitary patents), and opting out others that are for almost the same invention. National patents, which will not ever be subject to the UPC’s jurisdiction, could also be used to hedge in this way.
The level of the fee for opting out European patents had previously been thought to be a relevant factor in the formulation of an opt-out strategy, particularly for patentees with large portfolios. However, the Preparatory Committee of the UPC announced that there will be no fee. While it might be thought that patent holders with extensive portfolios will thereby be encouraged to opt out a large number of European patents, it should be noted that significant due diligence will be required prior to opting out.
For a given European patent or patent application, it will be necessary for all proprietors or applicants, and all holders of any Supplementary Protection Certificates (SPCs), to join the application for an opt-out. Furthermore, it is all those “entitled to be registered” as proprietors (or applicants) who must be specified on the application, whether or not they have been registered as such. Therefore, due diligence will have to be conducted to establish the identity of all of the actual proprietors of each patent/application/SPC that is to be opted out, and their agreement to opt out will need to be obtained. To the extent that it is found that the proprietorship needs to be changed, assignments will have to be executed before the opt-out application is made. If the proprietorship details entered on the opt-out application form are incorrect, the rules state that the opt-out will be invalid. (Note that, as a practical matter, a party seeking to revoke a European patent may be unable to tell that the stated proprietor is incorrect and so may, on the presumption that the opt-out is valid, bring a revocation action in a national court, which may then bar it from later bringing a pan-European revocation action in the UPC—although it may not bar another party from doing so.)
We would also recommend checking license agreements to establish whether consultation with licensees about opting out, or their consent, is required. In addition, going forward, future license and collaboration agreements, and agreements transferring SPCs, should provide for who decides whether or not an application is to be made.
The UPC will be operating a “sunrise period” in order to allow opt-out applications to be made. There is uncertainty as to when this will happen, however it is possible that it may do so in 2018. The opt-outs would take effect on the first day and so shelter patents from revocation actions issued on that day. If opt-out applications are not made during the sunrise period, European patents risk being challenged in the UPC from the first day.
Brexit and the UPC
It had been thought that the UK’s vote on June 23, 2016 to leave the European Union would significantly delay the commencement of the Unified Patent Court (UPC) and the introduction of the unitary patent. Some had even questioned whether the UPC and unitary patent would survive at all. The reason is that, in order for the UPC to commence, and for unitary patents to be granted, the Unified Patent Court Agreement must be ratified by 13 countries, including at least the UK, France and Germany. It was thought that the UK would either be unwilling to ratify the agreement in light of the referendum result, or else that the ratification would feature as part of the wider exit negotiations, and so be delayed. However, on November 28, 2016, the UK Minister of State for Intellectual Property announced at the EU Competitiveness Council that the UK will ratify the UPC Agreement.
Fourteen countries have so far ratified the UPC Agreement and, therefore, once the UK and Germany have also ratified, the Court will be able to come into operation (several countries also need to consent to be bound by the separate Protocol on Provisional Application that enables preparations for the Court to get underway beforehand). Following the UK IP Minister’s announcement, the UK has been moving forward with ratification, having taken various outstanding steps, including passing necessary secondary legislation through Parliament. At the moment, there is no reason to think that it will not continue to proceed with ratification and all the signs are that it will, however it is still possible that it may become complicated by the wider Brexit negotiations that are now underway. In the meantime, another cause for delay has arisen in Germany. A claim challenging the UPC has been brought in the German Constitutional Court. As a preliminary measure, the Court asked the German President not to approve the German legislation providing for ratification (which had been passed by the legislature). It remains to be seen whether this will cause only a small delay (some speculate that it may be in the order of four to six months), or amount to something more significant. In the meantime, it is sensible for parties to be prepared for the UPC to commence in 2018.
Upon commencement, the UK is expected to play a full part in the UPC, and the pharmaceuticals and life sciences section of the court’s central division is expected to be located in London, which will also host a local division. It is not certain whether the UK will be able to be involved in the UPC in the long term, although this uncertainty will not prevent the UPC from commencing or continuing. There is also a separate question mark over whether unitary patents will continue, once granted, to extend to the UK in the long term. It is expected that other EU Member States will want the UK to remain part of the UPC, as they have been urging the UK to ratify the UPC Agreement, although it is possible that the political situation may change as the wider EU exit negotiations progress. Also, the Court of Justice of the European Union (CJEU) poses a hurdle. In its Opinion 1/09 the CJEU ruled that an earlier proposal for a pan-European patent court, which involved non-EU Member States, was unlawful. However, the UPC Agreement acknowledges the primacy of EU law, which may overcome the previous objection. It remains to be seen how the CJEU will view the inclusion of the UK as a future non-EU Member State.
Beyond the UPC, Brexit will have little effect on the current European patent system. EU law has had limited influence on patent law, which is governed by the European Patent Convention (EPC), not an EU instrument. European patents are granted by the EPO, which is not an EU institution. Therefore, European patents will continue to be granted by the EPO, and will continue to be enforced and revoked in UK courts. There are some specific aspects of patent law in the UK that are affected by EU law. These are discussed in our note on the effect of Brexit on UK IP protection.
The UK itself has long been one of the most important intellectual property jurisdictions in Europe, along with Germany, and it will continue to be, with major international litigation being conducted in at least those two jurisdictions. With highly respected specialist IP judges and lawyers, a thorough common law procedure allowing for a detailed inquiry (as well as the availability of an alternative streamlined procedure in smaller cases), and jurisdiction over one of the largest markets in Europe, the UK courts attract parties litigating their important international patent disputes and heavily influence other European courts. This will not change because of Brexit, not least because patent litigation is not greatly affected by EU law. Once the Unified Patent Court is successful and the transitional period has passed, it can be expected that all European national courts will become less significant than they are now, although if the UK is not part of the UPC in the long term, it is likely to remain an important jurisdiction in its own right and may play a role in new forum shopping strategies.