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UP and UPC
Unitary Patents and the Unified Patent Court – Part 5
In this final instalment, the author considers the potential popularity of the new
unitary patent system. This requires not only a consideration of the unitary patent
itself, but the litigation regime under the unified patent court. How will patent
strategies develop over the coming years?
By Alan Johnson
(Associate)*
It will be recalled that the averred purpose of
the introduction of the unitary patent (UP) and
unified patent court (UPC) is to foster
innovation and to harmonise patent
procedures in Europe, especially for the benefit
of SMEs. In principle, therefore, if the new
system lives up to its billing, it ought to be an
instant success and universally popular. For
the numerous reasons expounded in earlier
articles, however, the proposals have been
damaged by compromises: some inevitable in
merging different national litigation systems,
but others political (in particular relating to
language). It is very unfortunate, therefore,
that there has been an element of compulsion
imposed upon users by virtue of the UPC
being given exclusive competence over
existing and future “classical” European
patents as well as optional future UPs. Some
compensation is that as a result of both the
delay to be expected in the introduction of the
new system, and the transitional provisions,
users – or more strictly patentees and potential
plaintiffs – have some time to consider their
position. With that in mind, let us first remind
ourselves of the forthcoming timetable and the
effect of the transitional provisions.
Timetable
The UPC comes into existence (and the first
UPs can be granted from pending EP
applications) four months after the last
relevant ratification instrument is deposited.
Thirteen countries including UK, France and
Germany will trigger the start-up if other legal
hurdles are overcome. The fact that it is the
deposit of ratification instruments that triggers
the start date means that this date can be
controlled by one or all of UK, France and
Germany ratifying, by delaying the deposit of
their ratification instrument until the system is
ready. What then is the earliest date when, as a
practical matter, the system can go live?
In its first meeting, the Preparatory
Committee recognised that this date is not in
2014 as the Commission had publicised:
instead early 2015 has been set as the “target
date”. Taking this to mean spring 2015, even
this is optimistic, however, when one considers
what has to be done. Among the numerous
tasks to be completed, the time-limiting step is
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likely to be the procurement of the computer
system. The reason, of course, is that the
electronic case management system mandated
by the UPC agreement is not a simple system
that can be purchased off-the-shelf. There is
probably just enough time available for it to be
procured (and fully tested) by this date, but
any slippage would result directly in a delay to
the start date, and of course IT projects are
notorious for their slippages. One point to
mention in considering this timing is the
practical problem as to which entity will
actually procure the system.
The computer system has ultimately to be
owned and run by the UPC, which must also
employ the judges and other staff: but it cannot
do so until this unknown date because it does
not exist until then. The result is that some
other legal entity will have to take
responsibility on an interim basis and then
hand it over. A government could do this, but it
is unlikely that the UK – which has been given
responsibility for the computer system – will
underwrite the process alone. Hence, a priority
of the Preparatory Committee (arguably its
number one priority) must be to agree upon
the creation – and funding – of an interim
entity, which can take on these roles and
obligations. Unless this entity is put in place
soon – by the autumn at the latest – there will
be an immediate slippage in the timetable
since someone has to put the computer project
out to tender, and this really needs to have
been done before the end of the year if there is
to be any chance of a 2015 start date.
Let us suppose, however, that all goes well as
to practicalities, and also that the CJEU rejects
the second Spanish challenge (hopefully early
in 2015) such that the Unitary Patent
Regulations are not deemed to be unlawful. Let
us suppose, therefore, that the target date is
more or less met, and the Court opens for
business – and the first UPs are granted – on
1 January 2016. Let us also suppose that on that
date, a total of 15 countries have ratified the
UPC, that these include Italy, but that neither
Spain nor Poland has changed its present
position of refusing to engage, and that Italy has
not joined in the UP process, but only the UPC
litigation system. Let us all also assume that by
2023, a further seven states have ratified.
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UP and UPC
Transitional provisions
Let us ignore the UP transitional provisions that relate only
to the provision of a translation – which does not even seem
to have to be especially accurate, and hence should be very
cheap – and focus only on UPC transitional provisions.
The UPC has exclusive competence over most aspects of
the litigation of UPs, notably infringement and revocation
actions and declarations of non-infringement. There are no
transitional opt outs or other arrangements for UPs. It also
has exclusive competence over most disputes concerning
existing and future European patents. Self-evidently, these
are only, however, in respect of those states that have
ratified the UPC. For EPs for those states that have signed,
but not ratified, the UPC will be unaffected by their
judgments in the same way as Spanish designations of EPs
are unaffected: in all cases national proceedings will remain
necessary. But there are transitional arrangements in
respect of these “classical” EPs. First, that in the first seven
years of the UPC (a period which may be extended to up to
14 years) national revocation or infringement proceedings
(but not DNIs) are still possible. Secondly, the patentee may
at any time in this transitional period opt its patent out of
the UPC’s exclusive competence. Despite the concerns of
many UK commentators, the consensus view in Europe is
that this means that the jurisdiction is removed completely
from the UPC: it does not retain non-exclusive competence
– unless of course it decides otherwise. Most importantly,
the consensus view is that this opt out (subject to the ability
to withdraw the opt out) is for the life of the patent (and any
SPC), and on this, the wording of Article 83(3) does seem
tolerably clear. Further, the opt out can be exercised at any
time in the transitional period, including in respect of then
pending EP applications, which means that EPs and their
SPCs may still be being litigated in national courts well into
the 2040s even without any extension of the transitional
period. This appears also to mean that, for any European
applicant, it will be possible to continue with the present
filing strategy, and opt out of the UPC litigation system if
that is desired. This in turn means that for the purpose of
assessing the potential use of the new regime, we must
consider the position before and after the transitional
period ends, which, on our earlier assumptions, means
before and after 1 January 2023.
The unitary patent
The main advantage of a UP from most patentees’
perspective will be the saving of designation and
translation fees on grant: the prosecution costs at the EPO
will be the same, but there will be a single designation for
those countries that are both participating in the UP and
who have ratified the UPC agreement. Hence, the extent of
the protection will (on our assumptions) exclude some
notable EU territories such as Spain, Italy and Poland, but
conceivably other territories of some importance such as
Denmark (this country being chosen by way of example
because of its position as a country outside the core Brussels
Convention territories, and which separately has to “sign
up” to changes to existing Regulation 44/2001, and because
it has been reported that a referendum may be required in
any event to ratify the UPC agreement). A secondary
advantage of UPs will be that, for some (indeed most)
patentees, they will obtain protection over a greater
geographic area than they presently opt for: a patentee
designating a UP will have (according to our assumptions)
protection in 15 states if it obtains grant in 2016, and 22
states if it designates in 2023 – and for no extra cost.
The cost of protection plainly does not end upon grant,
however. One matter overlooked to date is the somewhat
perverse problem that a patent covering more territories
may be regarded by competitors as more important and
deserving of attack rather than respect. One might give a
number of examples, the most obvious being a UK SME,
but perhaps a better one is of a southern European patentee
traditionally designating only Spain, Italy and Greece. Its
patents (unlike those of a UK SME) may never attract the
attention of companies operating solely in Northern
Europe. Leaving aside the separate question of why such a
Southern European would want protection outside these
countries, why would it want to obtain protection that
would expose it to a greatly increased likelihood of legal
proceedings? Its UP may be more likely to cause it expense
than generate income – even if it would be interested in
licensing.
However, a more common problem will be that of the
renewal fees. We will not have any clear idea of the likely
fees until later in the year, but present indications (based on
the comments of Margot Fröhlinger at a conference in
Brussels on 18 February, the eve of the UPC signing
ceremony) are that they will be higher than is optimal from
most patentees’ perspectives – perhaps the equivalent of
the renewals in as many as 12 countries rather than the
three to four one might have hoped for. The problem is that
the cost savings on grant will likely be eclipsed by these
high renewal fees for all patentees save those who already
designate a large number of states – and importantly far
more than the average.
Another aspect of this renewal fee issue is the inability to
allow (geographic) parts of a patent portfolio to lapse.
Patentees commonly prune protection in some states and
leave a patent in force in only a few states to save renewal
fees. However, this strategy is not possible with the “all or
nothing” regime of the UP.
Against this, there are additional potential savings from
enforcement in one court rather than several. However, this
is equally obtainable from EPs under the UPC even in the
transitional period, and hence is a neutral point.
In short, the only types of patentees who will be likely to
benefit from (and therefore use) the UP, will be those who
will see a cost saving by virtue of the fact that they already
designate most states, and are prepared to forego the
flexibility of portfolio pruning later in the life of their
patents. Such patentees will, of course also have to be
prepared to have faith in the UPC as a good forum to
enforce their patents. For many patentees, this is probably
not a major concern (budgets for obtaining protection will
be the main issue) but for some – notably pharmaceutical
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UP and UPC
companies – this will be a major consideration. This brings
us to the popularity of the UPC.
UPC
Any new forum is likely to be unpredictable. It is to be
hoped that the UPC will be efficient and that the procedural
“games”, which the author has examined previously, will at
least not cause extensive delays. Many commentators have
espoused universal opting out from the UPC on day one so
as to avoid central revocation proceedings. But whilst
acknowledging the importance of considering this issue, is
this the right mind-set? During the first seven years, a
patentee can still bring national infringement proceedings if
it wishes, so there is flexibility on that account. Further, the
UPC promises effective relief in countries in which
enforcement is currently very difficult. Hence, if the UPC
can be reasonably efficient, and not obviously anti-patentee
(and why would it be with competition between divisions
to attract business leading, if anything, to a more propatentee attitude?) then it potentially has a lot to offer.
Hence, more likely are strategic opt outs for a period with a
view to withdrawing the opt out to sue centrally.
The position, of course, will be different when the
transitional period ends. At that point, new EPs and UPs
alike will be subject to exclusive UPC competence. The only
option then for patentees will be to go down the national
route, which has its extra difficulties and costs: that option
is really only realistic for those patentees (though there are
many of them) who are happy to designate only a very few
countries such as the UK and Germany. They would then
happily avoid the EPO’s delays and overly strict approach
to (in particular) added matter, and seemingly interminable
oppositions. Patentees who require wide geographic
protection, however, will be driven to continue to use the
EPO on a purely economic basis.
Conclusion
In summary , let us bring these thoughts together and gaze
into our crystal ball. The world divides into three
categories.
First are those patentees who currently use the EPO only
to designate a very few states. They are unlikely ever to
apply for UPs. For them the cost saving on designation may
be minimal and be dwarfed quickly by the extra cost of
renewal fees. Indeed, they may be tempted, especially after
the expiry of the transitional period to revert to national
filings so as to avoid the UPC, especially if their designated
states are the likes of UK and Germany with well-respected
and efficient patent offices and litigation systems.
The second category is of those patentees who routinely
designate a few (but not a very large number of) states at
the EPO. They will probably continue to prefer the savings
associated by centralised prosecution in a single language.
If Spain, Italy and Poland remain outside the system, and
any or all of these are countries of some importance to the
patentee, then the fact that a “classical” patent can still be
obtained for those countries at the EPO will only serve to
encourage continued use of the EPO rather than a purely
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national filing strategy. Such patentees are likely to
continue to designate sparingly, and not use UPs for purely
budgetary reasons: renewals fees will be prohibitively
expensive as compared with the savings on designation.
The strategies of such companies will be unaffected by the
compulsory use of the UPC for litigation on patents applied
for from 2023 because the alternative of national protection
may be too expensive to contemplate – though some that
designate relatively few countries and are already
contemplating reducing protection in Europe in favour of
the Far East and other developing markets, may take a close
look at the possibility – being foisted with a new litigation
system may tip the balance.
The final set of patentees will be those who usually
designate most or all of the EU. For these patentees,
national protection may be simply impossible to
contemplate, and although “double banking” in important
cases may be an option, for the most part they will be
compelled to continue to use the EPO. They are likely
initially to continue to designate in their existing manner
with “classical” EPs until they see how the litigation system
settles down, but may conclude that centralised litigation
has as many pros as cons, in which case, they may move
toward the UP if (as is likely in their case) savings are to be
had. And at the end of the transitional period, they will
probably move to UPs as the default position: why not
when the UPC (with the potential for central revocation) is
compulsory in any event? The only caveat to that is the
reduced flexibility to prune a portfolio.
The author has not undertaken any analysis (even if it
were possible given the uncertainties of the renewal fee
costs) as to how many patentees will fall into which camp.
Post Script: IP Bill
As readers will know, the IP Bill has just been published. It contains a draft section 88A, which enables
the ratification process to start. This, together with
information helpfully provided by the IPO, makes
the timings for UK ratification clearer. It is envisaged that section 88A will be used to empower further changes to be made to the Patents Act to make
UK law UPC compliant. This may include changes
to section 60. These changes will be effected by a
Statutory Instrument to be laid before Parliament in
mid-2014. Only after that, however, will the UPC
actually be ratified, and that step may not take place
until April or May 2015. Quite why there will be this
delay is unclear, but whether deliberate or coincidental, it appears to mean that ratification may follow, rather than precede, two or perhaps three
important events: the Scottish independence referendum, the CJEU decision on the second Spanish challenge, and (possibly) the next general election. In
any event, this confirms the likelihood of a commencement date for the UPC of the second half of
2015 at the earliest.
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UP and UPC
However, it seems that unless the renewal fees are
significantly lower than Dr Fröhlinger envisages, UPs will
be a relative novelty in the first few years until the
transitional period ends. At that point they may become
more popular, given there will be no advantages (or at least
none the author can see) beyond the ability to prune a
portfolio of choosing the “classical” or UP route for those
who designate most states. That is an important factor,
however, which leads to the conclusion that in the long
term (beyond 2023), the only major group of patentees that
will actually find themselves using the UP (and save money
in the process) will be those who will rarely if ever prune
their portfolio on a geographic basis: namely
pharmaceutical companies. For everyone else, it will be
better to continue to use the EPO as at present, or (for some)
to revert to national filings. Certainly no SME is ever truly
likely to file for a UP, despite this being the very group that
the system was primarily designed for. Of course, they may
be sued in the UPC on others’ patents – potentially in a faroff division – which, if the author may be forgiven for
indulging in some sarcasm, is a real bonus for European
industry. But then this has long since morphed into a purely
political project…
The author hopes that readers have found this short
series of interest and thought provoking. He will, if the
learned editor permits, continue to offer the occasional
update in this Journal. In the interim, further updates will be
available at bristowsupc.com. [The Editor wishes, on behalf
of all Journal readers, to thank Alan for his articles on the UP
and UPC. They have indeed been full of interest and highly
thought provoking and his future contributions, in any
shape or form, are eagerly awaited.]
* Alan Johnson is a partner at Bristows.
The Unified Patent Court puts European businesses
at a competitive disadvantage
By Richard Vary *
The Unified Patent Court (UPC), unless carefully managed, has the potential to put
European industry at a disadvantage compared to competitors based in more
protectionist states. This article explains why features of the UPC and the
Agreement may create a system highly detrimental to industry located in Europe,
and considers what could be done at this late stage to avert these problems.
The problem arises because patent owners will seek the court and procedure
most favourable to them. They will forum-shop. Unlike the present systems in Europe
and the US, there is no counterbalance to the patentee’s ability to forum-shop.
The court comprises a number of divisions
In the UPC, the court hearing infringement is
divided into local or regional divisions.
Member states can set up a local division.
Groups of member states can set up a regional
division. Any of these may award injunctions
or damages against an alleged infringer.
A central division hears actions for revocation,
but will stay any revocation action if the
patentee brings an infringement claim in a
local or regional division within three months.
Divisions may adopt pro-patentee practices
In patent litigation, patentees will assert that
their patent is infringed, but alleged infringers
typically claim that the patent, if read so
broadly as to capture what they are doing,
must be invalid. The Agreement allows
considerable flexibility for the practices and
procedures adopted by the divisions. Despite
provisions harmonising the substantive law of
infringement in the Agreement, Articles 14(f)(i), divisions have discretion as to whether they
construe patents broadly or narrowly, or
whether the threshold for inventive step is low
or high. This will be overseen by a common
Court of Appeal. We see from the US that a
common appellate court certainly helps. But it
does not provide uniformity: some US courts
today are decidedly more pro-patentee than
others.
More significantly, divisions have flexibility
over procedures such as whether to hear
invalidity with infringement, or whether to hear
infringement alone and send the case on
invalidity to the central division (‘bifurcation’).
There is no provision in the Agreement for
appeal on these decisions. Consequently,
divisions can make such decisions as they see fit.
Bifurcation unfairly favours patentees
In today’s global industry, development is so
fast and so widespread that European patent
examiners cannot hope to examine thoroughly
all existing applications. Consequently, most
patents litigated in the high-tech sector turn
out to be invalid: it is found that the patentee’s
claimed “invention” was already known in the
prior art. In the last five years, Nokia has
defended against over 150 patents in Europe.
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