24 February 2022

UPC is starting up – companies to begin preparations

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After a long period of uncertainty, it looks like the Unitary Patent and the Unified Patent Court (UPC) will become a reality, possibly by the end of this year. This change in the European patent system has implications for both existing and future patents. Companies will have to choose between European bundle patents or Unitary Patents, and whether they want their patents to be subject to the UPC's jurisdiction. This article summarises the basics of the "Unitary Patent package" and outlines the important choices that patent holders will face soon.

Background

Following Austria's recent ratification of the UPC protocol (18 January 2022), the Unified Patent Court (UPC) may now start by the end of this year. It will have exclusive competence over all European bundle patents and the newly introduced Unitary Patent in the territory of EU member states that have ratified the UPC Agreement. Being an initiative via enhanced cooperation under EU law, only member states may participate. All member states are expected to participate, except for Spain, Poland and Croatia.

While patentees currently often conduct parallel proceedings in multiple jurisdictions, the UPC will make centralised European patent litigation possible, both enforcement and invalidation. Together with the introduction of the Unitary Patent, this constitutes a significant change to the European patent practice.

Until the UPC actually exists, it is particularly important for patentees to note the implications and consequences of the transitional period that is starting now and to prepare for the choices that need to be made about their patent portfolio.

The Unitary Patent

Once the UPC exists, a patentee can choose, in addition to the existing national patent and European bundle patent (EP), a European patent with unitary effect, the Unitary Patent (UP). As its name suggests, the UP grants - through a single filing - a unitary patent right in all participating member states. The application process will be similar to the application process for EPs, through the European Patent Office.

A UP is protected, enforced, assigned, revoked, limited, and lapses in all participating member states; it has the same effect everywhere at the same time.

The Unified Patent Court

The UPC will be a centralised patent court for the participating member states. Besides exclusive jurisdiction over UPs, the UPC will eventually have exclusive jurisdiction over EPs as well, except where there is an opt-out, as discussed below.

In first instance, the UPC consists of local divisions that can be set up by each participating member state, regional divisions where multiple participating member states join forces to set up one division, and one central division with multiple seats. All divisions are competent to rule on infringement actions (and connected counterclaims for invalidity), and these judgments will have effect in all participating member states.

The central division will have exclusive jurisdiction over revocation actions and declarations of non-infringement. It will have its seat in Paris, with a section in Munich for mechanical engineering cases. The initially envisaged London seat, which was to focus on chemistry and pharmaceutical cases, is vacant because of Brexit. Both The Hague and Milan are possible candidates for this seat, and both will in any event have a local division. Until this has been decided, Paris and Munich are expected to divide the cases previously allocated to the London seat.

In second instance, the UPC will have a central Court of Appeal with its seat in Luxembourg.

Transitional period and opt-out

Exclusive jurisdiction over EPs will not be immediate: during a transitional period of at least seven years and possibly extended to a maximum of 14 years, national courts and the UPC will have jurisdiction over EPs. This means that these patent actions can be brought before both national courts and the UPC.

During this period, patentees have the option to opt out their EPs and choose to litigate before national courts instead of before the UPC. Once an action against an EP has been brought before the UPC, opting out is, however, no longer available. To avoid an opt-out being blocked, it will be possible to register an opt-out three months before the UPC exists, which is known as the "sunrise period". Unless an action has been brought before a national court, the opt-out may be withdrawn.

Upcoming choices for patentees

UP, EP or national patents?

As national patents, EPs and UPs will coexist, patentees are advised to consider the type of patent they wish to apply for. Multiple factors should be considered, such as: (a) which jurisdictions are, or are expected to become, relevant to the patent, (b) the likelihood of actions in relation to the patent, (c) the strength of the patent, and (d) costs. As to those costs, renewal costs of an UP start at EUR 35, increasing each year of protection up to EUR 4,885. According to the EPO, the overall costs of one UP will be less than an EP validated and maintained in four of the participating member states.

National proceedings or UPC?

For the transitional period, patentees will need to decide whether they want their EPs to fall under the jurisdiction of the UPC or under the jurisdiction of national courts. There are some general points to consider when making this decision.

  • An injunction being granted concurrently in all participating member states may be particularly appealing to certain patentees. Yet, having a patent invalidated in all participating member states at exactly the same time also entails a considerable risk.
  • Litigating before the UPC means that a patentee would not have to deal with potentially contradictory rulings of national courts, which can be either a potential advantage or drawback.
  • The UPC imposes procedural rules, including strict terms that are known beforehand and expected to be complied with. Obtaining a judgment from the UPC may also be faster than in some national proceedings.
  • Court fees for the UPC are considerable and consist of a fixed fee, depending on the type of action (from EUR 3,000 to 11,000), and an additional value-based fee (starting from a value of more than EUR 500,000), which can be as high as EUR 325,000 for cases with a value above EUR 50 million.
  • A successful party may recover reasonable and proportionate costs from the opposing party, for which caps apply.

It is important to make well-informed choices here, keeping the procedural rules of the UPC in mind, including timelines, language requirements, and the questions of forum and international private law.

Ownership, co-ownership and licences

Patentees should also carefully review their patent portfolio in terms of registered ownership, co-ownership and licence agreements. Various complications may arise, such as:

  • An opt-out should be filed by the actual proprietor which may not be the proprietor that is registered with the European Patent Office. If the opt-out is not filed by the correct entity, this could lead to the opt-out being ineffective, with the patentee unwillingly having to litigate at the UPC.
  • Co-owned UPs, as an object of property, will be subject to the national law of the co-owner who is first listed in the European Patent Register, provided the residence or principal place of business is within the territory of the UP. This entails that patentees should consider which co-owner will be listed first and what the rights of each co-owner are.
  • Patentees and licensees should review their licensing terms. The parties may wish to make arrangements on the right to request an opt-out and/or who has control over the litigation.

Entry into force

The UPC Agreement requires that 13 participating Member States ratify the agreement for the UPC to exist, including France, Italy and Germany. Only Germany has not yet ratified the Agreement, although it has passed the legislation enabling it to do so. Due to these developments and the start of the provisional application period, the UPC could be constituted as early as September 2022, although it may take longer.

Patentees and licensees are well advised to use the coming months to develop a well-thought-out strategy regarding their existing European patents, new filings, litigation strategy, and contractual arrangements. De Brauw's experts can assist in this.