Chances and Risks of the New European Unitary Patentand New Unified Patent Court – Part 2

(II) Strategic Considerations of using the new EU Court, or Opting out

During a seven-years transition phase, the jurisdiction of the future Unified Patent Court (UPC) can be declared inapplicable, by way of an opt-out request by the IP right holder, to a pending European patent application (“EP application”), to a granted European patent (“EP”), or to a supplementary protection certificate (“SPC”). This possibility was introduced to build confidence by users on the long run. If opted-out, disputes will then continue to be handled by national courts on a country-by-country basis. Once a European patent has been opted out, it is excluded from the jurisdiction of the UPC for its entire life.

Opt-outs are not possible for unitary patents.

Opt-out requests are free of official fees and can be filed by IP right owners or by representatives admitted to the UPC. To reduce costs, mass requests on the basis of lists is recommended, using software specially developed for this purpose to reduce administrative measures on the part of attorneys. It is important to ensure that the opt-out request correctly identifies all actual owners of IP rights; the owners entered in the EPO register may not currently be the correct ones. In case of doubt, it is advisable to compare the data with official registers, e.g. to detect changes or transfers of rights in the meantime. An originally undetected inaccuracy could still be objected years later in a legal dispute, and an originally invalid opt-out may lead to the undesired applicability of the UPC.

There is a time limitation for the opt-out request: if an action is received by the UPC, e.g. in the form of a revocation action, a subsequent opt-out has no effect. On the other hand, it may make sense – for example, if circumstances or strategy change, see considerations below – to make the opted-out EP patent later accessible to the UPC by withdrawing the opt-out (opt-back-in).

An opt-out for a divisional application is independent of that for the parent application.

Advantages and disadvantages of the UPC – what speaks for an opt-out, what against?

Numerous factors in general and in particular will influence the decision whether for certain patents the benefits of the UPC outweigh the disadvantages, or whether it is better to opt out.

The advantages and benefits of the UPC outweigh the disadvantages if the following objectives are pursued:

(1) A unitary decision allows enforcement in all participating (currently 17, likely more in the future) EU countries with a single infringement action. This advantage comes into play especially when acts of infringement take place in several countries. This advantage is limited when non-participating countries are involved, such as non-EU countries like the UK or Switzerland, where infringement proceedings might still have to be brought specifically. However, these adverse effects could be neutralized again, for example, if a number of UPC states are nevertheless affected or if the remaining national courts follow the UPC judgment, or if the UPC judgment favours a party settlement; due to the speedy procedure at the UPC, it can be expected that the UPC judgment will be available first.

(2) In addition to the corresponding procedural and substantive unification and simplification, the enforcement of patents in large parts of Europe is achieved at relatively lower costs. The winning party get its costs reimbursed at least partially. Some selected cost items of UPC proceedings are listed in Table 3 below.

(3) The duration of proceedings per instance is expected to be only 12-14 months from the initiation of the proceedings to the judgment.

(4) Patent owners usually get a free choice of an appropriate venue, especially if an active rather than passive/defensive strategy is pursued. It may be expected that the four German local courts of the UPC with their competence will have a high attraction especially for patent owners. The Munich based central court has received more competence: following withdrawal of the London central court, it will now decide on chemical cases, in addition to patents pertaining to the mechanical field already allocated previous.

(5) The UPC decides with the involvement of technical judges. This can and will probably help to clarify the facts, especially in the case of technically demanding patents. In line with this favourable new feature: European patent attorneys, in case of having an appropriate additional legal qualification are now admitted to represent as a single counsel at the UPC. Thus, with the additional technical competence on both the judge’s and the representative’s side, communications “at eye level” with this panel of judges can be expected – an important advantage especially in oral proceedings.

(6) The use of a uniform language, such as English as an international standard.

(7) The expected harmonization of Europe-wide dispute regulation. And thus the avoidance of poorly predictable, country-specific case law in national courts.

(8) Effective evidence-gathering procedures, such as inspections, are possible that may not be or only poorly available in a national court.

(9) In the case of contributory patent infringement, the UPC avoids weaknesses of some national legal systems that require a “double territoriality principle” (a contributory infringer can only be accused if both its supply of an essential element and the ultimately realized infringement of the claimed invention by someone else both occur in the territory of the same state). The UPC system, on the other hand, facilitates effective enforcement against both the supplier and the direct infringer, because it is sufficient that both delivery and direct infringement take place somewhere in the entire UPC territory. This is a clear strategic advantage, especially in the situation of pan-European supply chains that is frequently found today.

(10) The successful plaintiff recovers part of his legal costs if he wins the case. The amount of reimbursement is determined by reasonable costs of the party’s representative; it is capped depending on value of action (e.g. if value of action is 1 million, then up to 112,000 EUR may be reimbursed).

Table 3: Costs for 1st instance proceedings at the UPC

However, the UPC also carries risks and potentially leads to disadvantages, so that patent applicants and owners might be more inclined to classical patents and requesting opt-out:

(1) The main disadvantage is the risk that a central attack to validity is possible and can thus lead to total revocation in the entire UPC area with a single decision. The classical EP patent system, on the other hand, allows further strategic options even if validity could be denied only in one country but affirmed in another.

(2) A deadline of only 2 months to prepare and file a response to a nullity attack is quite short to react. Appropriate representation of the proprietor is important to ensure fast processing without delay, to make full use of the response term.

(3) An earlier national right (i.e. prior art according to Art. 54(3) EPC, which has an earlier priority in relation to the unitary patent in dispute, but was published after the priority/filing date of the patent in dispute) has novelty-destroying effect vis-à-vis the unitary patent in the entire UPC area. Whereas in the context of classical EP patents, the earlier right is novelty-destroying only in the same country and if the EP patent was validated there.

(4) A central attack on validity is also possible following or even in parallel with opposition proceedings at the EPO. A central revocation action is possible as an independent action or as an invalidity counterclaim during infringement proceedings.

(5) A lack of guidance from case law in the initial phase, as the UPC will need time to develop its case law and clarify the many unclear details of the new system.

Various factors thus play a role in the decision for or against an opt-out; the advantages and disadvantages of the new and the known systems must be weighed against each other, and a decision made from this for all or part of one’s own patent portfolio. If the benefits of effective, “Europe-wide” and relatively inexpensive litigation, the broader choice of forums or legal enforcement against several defendants – possibly linked via supply chains – are in the foreground, the advantages of the new UPC system could tip the balance. If, on the other hand, one fears centralized attacks on validity and thus the risk of a complete loss of the patent in one legal action, especially in the case of important patents, one will, as a precaution, tend to avoid the UPC and therefore favours opt out.

The development of case law on patent infringement cases as well as harmonization through the new UPC will help to make the right decision for one or the other system in the consideration of the individual case. Whereby a temporally staggered and differentiated strategy makes a good combination possible: by opting out, first wait for the legal development in a state of low risk of total revocation and observe the competitive situation; if the new UPC legal framework proves to be legally secure and its advantages in procedural questions are confirmed, or if patent infringements are acutely recognizable, then a change to the UPC system is possible by a simple request for withdrawal of the opt-out (opt back-in). However, this should be well considered, as a renewed opt-out is no longer possible after an opt-in change.

Ultimately, it is a decision for each individual case. Depending on the specific case, important considerations are in favour of the new UPC system:

• The procedural steps of an infringed process patent are carried out in different European countries. Or supply chains of different European countries form a link between indirect and direct patent infringement: a market participant in one UPC country supplies an essential element, and a third party in another UPC country directly uses the claimed subject matter. Or cross-border enforcement in multiple countries is the primary goal. For such cases, the effective new court system is predestined.
• The legal and/or procedural provisions at the UPC are more favourable than in national courts or have a positive effect on enforcement in individual cases. For example, exceptions such as the research and registration (Bolar) privilege may be applied more narrowly than is the case in Germany, for example. Or the possibilities for preserving evidence are more effective in the UPC system than in some national legal practices.
• The main competitor is based in a country where the national courts are not patent-friendly, or where the judges are inexperienced in patent cases, or where the procedure for gathering evidence is inefficient.
• The patent’s validity is certain and hence a central validity attack won’t be successful. Reasons for this may be: it has already successfully survived an invalidity proceeding, for example in an opposition at the European Patent Office (at least in the first instance); or prior to legal enforcement, an own search has not brought up any prior art more relevant than in the examination proceedings.
• Statistically, there is a relatively higher probability that European patents will be declared invalid by national courts than in European opposition/appeal proceedings. It remains exciting to see whether the UPC will follow the EPO’s case law rather than the different national case law in questions of validity for harmonization reasons, and thus whether the patent in suit may have a better chance of success before the UPC than in national nullity proceedings. If, as is so often the case, the decisive question of inventive step is at stake, the more patentee-friendly ruling practice could become established if the “problem-solution approach” customary at the EPO is applied. Also in the case of so-called “selection inventions”, one will want to choose a ruling practice close to the EPO and thus rather a Europe-harmonized system.
• On the other hand, special exceptional situations, e.g. when the practice of the EPO appears to be rather critical of the patent proprietor – for example in the case of problematic claim amendments during the examination procedure without a clear basis of disclosure (added mater issues) – may speak for a preference of national courts, whose practice in questions of disclosure of origin is usually less strict.
• Among the judiciary of the Unified Patent Court are many judges from national patent litigation chambers that have previously ruled on patent infringement. As far as the question of patent infringement is concerned, a large part of the previous (also national) case law will be taken over by the Unified Patent Court. This is another reason to choose one of the four German local chambers in Düsseldorf, Munich, Mannheim or Hamburg as the forum for the UPC location, as their judicial practice suggests a rather patent-owner-friendly attitude.
• Another reason for choosing the UPC as a forum is the expectation that technical expertise will be given greater weight due to the presence of technical judges on the bench and the admittance of specially qualified European patent attorneys to conduct the parties’ proceedings.

Importantly, the decision phase in favour or against (opt-out) the UPC goes beyond the initial sunrise period, as it should also be carried out on an ongoing basis for current and future EP applications and granted patents.

The decision as to whether the European patent will ultimately take the form of a unitary patent or whether it will be validated nationally should thus also take into account the aspects of the desired court system. Only validated EP-patents can be opted out. If the applicant on the other hand decides in favour of the unitary patent, an opt-out is not possible; the UPC system is then mandatory. An opt-out request made earlier will then become ineffective. In this respect, there is a connection between the decisions for or against unitary patent, and for or against UPC. That is, the decision for or against a unitary patent – especially at the time of patent grant – should already take into account possible infringement and validity issues that may arise in future. Consideration should also be given to where the current and future relevant markets are, where infringement might occur, and whether cross-border enforcement would be desirable.

Applicants should also be aware of different filing strategies to mitigate the risks of the new system. For example, it may make sense to keep a divisional application pending as a fallback position for important European patent families. The parent patent can be validated nationally while the divisional application can go into the new system (or vice versa) to allow more flexibility in litigation strategy. It should also be noted that several European countries allow double protection, i.e. national patents may exist besides unitary patents, even if/insofar the claimed scope is the same.

Further to Part 1: (I) Introduction and Overview

Further to Part 3: (III) Comparison of Opposition Proceedings at the EPO and Nullity Proceedings at the UPC