Source: https://www.businesslaw-magazine.com/2015/03/30/protect-your-crown-jewels/
Timestamp: 2019-04-21 02:26:00+00:00

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The European unified patent court system may come into force as early as next year and promises to herald in considerable changes. Companies and rights holders should prepare for the onset of the new regime now.
After several decades of unsuccessful efforts, the member states of the European Union succeeded in negotiating the unitary patent package in 2012/13. In addition to two regulations—Regulation (EU) No. 1257/2012 on the unitary patent and Regulation (EU) No. 1260/2012 on translation arrangements—the package contained the Unified Patent Court Agreement (UPCA). The UPCA was opened for ratification by EU member states in February 2013. Austria and France have already completed the process. However, at least 11 other member states must ratify the UPCA before it can come into effect. Because Germany, the United Kingdom and France are the member states with the highest number of European patents, their participation is also mandatory (see Art. 89(1) UPCA). The UPCA will be implemented four months after the last ratification instrument has been deposited in Brussels. If, as some optimistic practitioners predict, all of the required countries complete the ratification process by the end of 2014, the Unified Patent Court (UPC) and the unitary patent (see Art. 18(2) UP-Regulation) could be available by mid-2015 and at the latest by early 2016. The UPCA will introduce many changes to the European patent system. For instance, the unitary patent will confer protection across the 25 participating member states on the basis of a single application without any further administrative formalities, such as validation and translation requirements. The UPC will have exclusive centralized jurisdiction over unitary patents. However, its jurisdiction is not limited to only these. It also extends to “regular” European patents (EPs) and supplementary protection certificates (SPCs). This means there will be considerable changes in patent protection for current holders of EPs and SPCs. The particular concerns around these changes are whether the UPC provides a favorable “one-stop shop” solution to enforce EP rights or if it merely increases the risk of “total loss” since EPs could be centrally revoked.
So EP holders can acquaint themselves with the new system, the UPCA allows for a transitional period during which users can choose whether to stay in the UPC system or opt out of it. The transitional period will begin when the UPCA enters into force, will last for a minimum of seven years and may be extended for another seven years (see Art. 83(5) of the UPCA). During this time, the rights holder can opt out of the exclusive competence of the UPC provided that no action has been brought before the UPC prior to its application to opt out. The possibility of opting out will end one month before the transitional period expires (see Art. 83(3) UPCA). The opt-out will be in effect until the patent expires if it is not withdrawn. Rights holders may withdraw their decision to opt out at any time unless an action against the relevant patent has already been brought before a national court (see Art. 83(4) UPCA). However, once an opt-out has been withdrawn, the possibility of applying for another opt-out is void (see Rule (R.) 5.11 of the Rules of Procedure of the UPC (ROP, currently available as 16th draft)). It should be noted that even where an EP is subject to the jurisdiction of the UPC, claimants are still allowed to bring infringement and revocation claims concerning that EP as well as a corresponding SPC before national courts provided this occurs during the transitional period (see Art. 83(1) UPCA). >> Under the current EP system, parallel patent infringement proceedings inevitably lead to the considerable risk of diverging decisions << Although not expressly stipulated in the opt-out provision of the UPCA (see Art. 83(3) UPCA), R. 5.5 of the ROP states that “[the] applicant(s) for an opt-out shall pay the fixed fee” and that “[one] fixed fee shall be payable in respect of each European patent or application for which an Application to opt out has been filed, including any supplementary protection certificate based on said patent or application.” Since the EP will become subject to the UPC system by law, rather than by the patent holder’s request, it is unclear why the rights holder should be asked to bear the costs of a system opt-out. So what does it mean to “opt out from the exclusive competence of the court?” Essentially, the court will not have any competence concerning rights holders’ EPs and SPCs (there is no “nonexclusive” competence of the UPC). However, it is unclear what law the national courts will be required to follow in case of an opt-out. The wording of the UPCA appears to suggest that the UPCA should remain the applicable law in the national courts, since the UPCA mentions an opt-out only from the exclusive competence of the court and not from the application of the UPCA. However, if both the UPC and the national courts are charged with interpreting the same patent laws, this could lead to diverging decisions as national courts would not have to abide by the judgments of the UPC Court of Appeal. Such a scenario could also lead to ambiguous interpretations that in turn may threaten confidence in the legal certainty of the UPC system. This result would run contrary to the aim of harmonizing the legal interpretation of the UPCA.
Companies holding EPs need to ensure that they make sensible decisions regarding the opt-out question. Rights holders should strike the appropriate balance between the opportunities and threats presented by the new system, from both an economic and strategic perspective. This of course also requires that they understand the UPC’s strategic implications and know the strengths and weaknesses of their patent portfolio. One particular opportunity presented by the new system is the avoidance of parallel proceedings. Under the current EP system, parallel patent infringement proceedings inevitably lead to the considerable risk of diverging decisions given the differing legal bases of the national courts and the lack of a common court of appeals. Thus, a common strategy for rights holders is to obtain a favorable judgment in a respected jurisdiction that is then used to bolster the rights holder’s bargaining position in negotiating global settlement agreements with alleged infringers. Currently, most European patent litigation cases are conducted before German courts. One way the German courts differ from courts in other European jurisdictions is that the German legal system provides for bifurcation of infringement and nullity proceedings, which essentially allows a claimant to quickly obtain injunctions. This makes the German courts an attractive venue for rights holders seeking to negotiate settlement agreements with infringers. However, courts selected by rights holders do not always rule in their favor, and defendants are not always willing to negotiate settlements covering all member states. As a result, most rights holders desire to litigate only once in order to obtain a favorable judgment that has effect in all member states. In essence, the UPC allows for this result by factually conferring a wider scope to “ordinary” EPs in Art. 34 UPCA. Also included in the proposed ROP for obtaining evidence of infringement is the French saisie contrefaçon—a powerful tool for preprocedural evidence collection. This measure allows for the easy and practical preservation of evidence without requiring the presentation of any evidence of patent infringement. It also effectively prevents so-called “fishing expeditions” by constituting liability to damages in cases where the applicant does not start proceedings within 31 calendar days from the date of the order (see R. 198.1 ROP). Companies can expect that it will presumably be cheaper to enforce the patents on a UPC basis than on a country-by-country basis. Although no concrete figures on court fees have yet been made available, fees will be comparable to German court fees, which consist of a fixed sum as well as variable costs that are dependent on the sum in dispute. Moreover, the UPC will enable improved and more efficient management of the patent portfolio in Europe.
One significant area of uncertainty is the level of expertise of the UPC and thus the quality of its judgments. Practitioners in particular are concerned that the multinational composition of the Court (allocated by a “Pool of Judges”) could be detrimental to its decision-making. The UPCA foresees that chambers of local divisions that handle more than 50 cases per year will consist of two national judges and one nonnational judge. By contrast, chambers of local divisions handling fewer than 50 cases a year will consist of one national judge and two nonnational judges. Based on this ratio, the influence of nonnational judges will be negligible in local divisions with a high caseload. Thus, it is likely that the UPC will be influenced by the legal traditions of judges from more experienced jurisdictions. The quality of judgment should thus be given. But European patents within the UPC system are at a higher risk of invalidation than nationally litigated patents. This is because a single UPC judgment could lead to invalidation of the EP with effect in all contracting member states. A detrimental judgment could only be appealed before the Court of Appeal. The invalidation aspect of the UPC should not be underestimated. In markets where companies rely heavily on a few patents, such as patents covering active pharmaceutical ingredients (API) of blockbuster pharmaceutical products, the probability of a generic competitor initiating revocation action is disproportionally high. Patent holders active in these markets should consider avoiding the possible downside of exposure to the new system until significant uncertainties in the system have been clarified and except in cases where the validity of the EP is not doubtful at all. Furthermore, practitioners argue that a patent holder’s competitor(s) could effectively undermine the holder’s right to opt out by filing an action against a patent before the UPC on the exact same day the UPCA comes into force. Such an action brought before the UPC would block the patent holder’s possibility to opt out (see Art. 83(3) UPCA). The patent holder would thus be “locked in” the UPC system, and the competitor would be able to seek revocation of the EP in a single proceeding. To allow patent holders to avoid such “lock-ins,” the ROP now provide a “sunrise period” in which opt-out applications can be filed with the European Patent Office (EPO) before the UPCA comes into force. These early applications will have effect as soon as the UPCA enters into force (see R. 5.13 ROP). The EP will then be “out of the system” from day one of the UPCA, effectively preventing lock-in. Companies may wish to make use of this option for some of their “crown jewel” patents.
The UPC system provides many options that are not available to patent holders in national court-based EPs. But the possibility under the UPCA that a particularly valuable patent might be invalidated in just one proceeding may temper the enthusiasm of patent holders, particularly in the developmental stages of the UPC system. Nonetheless, it would be unwise for rights holders to ignore the prospect of profiting from the new opportunities the UPC system offers. A more practical solution for rights holders beyond a comprehensive opt-out could be to differentiate patent portfolios. Low-level patents could include patents that do not protect an important product or that involve a product protected by many enforceable patents. Low-level patents could also protect manufacturing processes where evidence-gathering on infringement may be difficult. No action should be required for such lowlevel patents with regard to the UPCA. However, rights holders should consider submitting opt-out applications for their crown jewels—at least if the validity of such is at risk. To avoid the risk of a lock-in, the rights holder should do so as soon as the sunrise period begins. On the other hand, in cases where validity of the crown jewels is clear, rights holders might already anticipate the need to enforce such rights on a UPC basis. It is not yet possible for companies to submit opt-out applications as the starting date for the sunrise period has not been announced by the EPO (see R. 5.13 ROP). Nevertheless, companies should prepare themselves by categorizing their patent portfolios according to the aforementioned approach.

References: Art. 89
 Art. 18
 Art. 83
 Art. 83
 Art. 83
 Art. 83
 Art. 83
 Art. 34
 Art. 83