The Unified Patent System: risks and opportunities

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

To some, the very fact that a single court decision can have such far-reaching consequences is daunting. For example, one decision could lead to revocation of a patent in all 25 participating countries.

Bifurcation

The Central Division of the Court of First Instance is split between London, Paris and Munich, depending on technical subject-matter. It is hoped that these arms of the Court will be of high quality and consistent, as the judges will be experienced in intellectual property law. However, the UPC system also provides for national and regional courts across the EU to decide upon infringement and the validity of a patent. There is a concern that these less experienced courts will now be handling patent cases on a pan-European basis.

The UPC also allows for a split system, in which an initial infringement action may be heard in a regional court, but the counterclaim on the validity of the patent may be heard by the Central Division. The bifurcation of infringement and validity proceedings has been the subject of much debate. Concerns that a counterclaim for invalidity may be heard months, or even years in the Central Division, after a claim for infringement in the regional courts (and even in a different language) have been addressed somewhat in the 17th Draft Rules of Procedure, which stipulate that the Central Division shall endeavour to hear invalidity proceedingsprior to any infringement proceedings being heard in the regional court. This amendment will bring some comfort to potential defendants, who might otherwise be injuncted or found to infringe pending a challenge to the validity of the patent.

A multitude of separate actions may still arise depending on the nature of the relief sought. For example:

Olswang_types_of_claims_750x562

The nature and location of the claim will also determine the language of the proceedings. Proceedings before a local or regional division may be conducted in an official EU language, but the language of the Central Division will be the language in which the patent was granted. It is likely that, in time, the working language of the Court will be English. However, as the Rules of Procedure also allow a Division to specify an EPO language for part of its proceedings, this will give the judges some flexibility.

Fees

A further concern is the cost of maintaining granted patents. Currently, if a company wishes to validate in only a few countries, it pays fees accordingly. Commonly, electronics companies proceed only in three countries - the UK, France and Germany. A Unitary Patent, by definition has to cover all 25 participating EU countries and there is no option to pay to have it validated in only a sub-group of more commercially important countries. However, the option of covering only (for example) the UK, France and Germany could still be achieved via national patent filings (litigated in national courts) or via a European Patent validated in only these three countries (litigated in the UPC, post transitional period).

If the renewal fees for a Unitary Patent are higher than the existing fees for these countries (which seems likely, since the renewal fee will cover all 25 participating countries), then companies will be forced to pay more for protection in countries in which they are not interested. This additional cost will probably very quickly dwarf any savings from reduced translations. In this scenario, parties may take an alternative approach, such as filing direct national applications.

Injunctions

On the other side of the coin, the single court option will appeal particularly to Non Practising Entities (NPEs), whose business model is based on monetising patents either through licence fees or settlement payments following infringement actions, but who do not themselves manufacture products covered by the patents.

Some see NPEs as good for the monetary value they have attached to patents, others as bad for the fact that by not using their patents to protect products they make and contribute nothing to the art. Either way, NPEs have played their part in creating a more litigious environment for the high-tech sector. According to research from PwC US, patent litigation filings in 2012 rose by 29% over 2011, to 5,189 (the highest number ever recorded), while the trend for large corporations to buy up blocks of patent portfolios defensively has been set on an upward curve.

NPEs are prevalent in the US where, unlike much of Europe, there is no "loser pays" system. They therefore face less risk in instigating US lawsuits, as companies will often choose to settle a dispute rather than face the cost of defending it. The costs and risks of bringing multiple lawsuits in Europe to achieve the same result have deterred much NPE activity. However, the UPC offers the prospect of higher damages awards (given the greater territory covered) and pan-European injunctions (a real threat to defendants and disincentive to challenge) with lower risks (only one set of fees to pay if unsuccessful and significantly reduced costs recovery compared to many existing companies).