Unitary patent and Unified Patent Court reforms: state of play May 2018

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Unitary patent and Unified Patent Court reforms: state of play May 2018

ANALYSIS: The UK's recent ratification of the Unified Patent Court (UPC) Agreement marked an important step towards a new system of unitary patent protection becoming operational. The process has been lengthy and complex and is not over yet.01 May 2018

Here we take a look at what the unitary patent and UPC reforms look like, what they might mean for businesses in sectors such as technology and life sciences, as well as what still needs to happen for the new framework to take effect.

A brief history

Plans to establish a cheaper and more efficient way for inventors to gain patent protection across Europe have been mooted for years.

Europe-wide patent protection is only possible at the moment by validating a European patent registered with the European Patent Office (EPO) in each individual country. To be valid in some of those countries, the patent must be translated into the native language. The European Commission previously said that it can cost more than €32,000 in translation and other costs to obtain a Europe-wide patent, compared with an average cost of just $1,850 in the US.

Keen for a less bureaucratic and more efficient system to help European innovators protect their inventions, 12 EU member states got together in 2010 to push for an EU-wide patent system. Under the Lisbon Treaty nine or more EU countries can use the EU's processes and structures to make agreements that bind only those countries.

Initial plans were scuppered by the Court of Justice of the EU (CJEU) which ruled out the creation of a pan-European Patent Court to determine the outcome of disputes over unitary patents. However, plans for a remodelled UPC system were soon drawn up under an international treaty – the UPC Agreement – to provide for a judicial enforcement framework for resolving disputes over the validity and infringement of unitary patents.

New EU laws on the terms of unitary patent protection and the language regime to be adopted for the filing and processing of unitary patent applications were also introduced. The reforms survived legal challenges by Spain. Almost all EU member states are now behind the plans.

Unitary patents

Under the unitary patent proposals an inventor would make only one application to the EPO for patent protection across the EU countries that sign up to the scheme, with successful patents being published in English, French or German with patent claims in all three languages . Applications for unitary patent protection not made in any of those languages would have to be translated in order to be considered, although some applicants such as SMEs would be compensated for the cost of this.

If businesses are successful in obtaining a unitary patent they will benefit from the automatic widespread protection of their invention in the 25 EU member states which look likely to participate in the new regime – just Spain, Croatia and Poland look unlikely to participate.

However, unitary patent owners would be locked-in to the jurisdiction of a new UPC for disputes concerning such patents. It means that unitary patent rights could be lost across every participating state if an invalidity challenge brought before the UPC is successful.

European patents will also be subject to the UPC's jurisdiction unless owners 'opt out' those patents. There is no official fee payable to opt out European patents. Where those patents are opted out, disputes over their validity or infringement will be heard before national courts as is the case currently.

Businesses that register unitary patents will not be prohibited from also applying for national or European patents in individual European countries, or vice versa, for different inventions and, in some circumstances, double patenting may be possible for the same invention.

The Unified Patent Court

The new UPC system foresees a Europe-wide court system to ensure that businesses are not forced to travel far to resolve disputes over patents in scope of the UPC. The system includes central, regional and local divisional courts.

The seats for the central division of the UPC are to be spread across London, Paris and Munich – each with their own specialism. The London court will specialise in resolving patent disputes in the field of life sciences, whereas major technology patent disputes will be heard in Paris. The UPC's central division in Munich will specialise in disputes over patents relating to mechanical engineering.

There will also be a UPC Court of Appeal in Luxembourg.

Ultimately, the CJEU will be the final arbiter on points of EU law in disputes over unitary patents or non-opted out European patents.

Rules of procedure for litigation before the UPC have been developed, and background work has been taking place on the appointment of judges, installation of IT systems and other logistical matters – including the fitting out of the London UPC court.

Bumps in the road – the position in the UK

For the new UPC system to take effect, at least 13 EU countries, including the three with the most European patents in effect in 2012 – Germany, France and the UK – must pass national legislation to ratify the UPC Agreement. 

While France completed ratification in 2014, UK and German ratification has been less straight forward.

In the UK, the issue was complicated by the country's vote in June 2016 to leave the EU. The UK is scheduled to formally exit the EU on 29 March 2019. The UPC Agreement currently requires countries participating in the new unitary patent and UPC system to be EU members.

In addition, the UK government has been public about the fact that it sees Brexit as bringing about the end of the CJEU's jurisdiction in the country, although it has accepted that CJEU rulings post-Brexit may still influence UK law.

Despite the vote and political uncertainty over the UK's future relationship with the rest of the EU, the UK government in November 2016 restated its plans to ratify the UPC Agreement. Necessary legislative and administrative steps were subsequently undertaken, leading to the UK government announcing on 26 April – World Intellectual Property Day – that it had ratified the Agreement.

Despite the UK's ratification, there is continuing uncertainty over the UK's participation in the new unitary patent and UPC system post-Brexit. This is conceded by the UK government, which said in its ratification announcement: "The unique nature of the proposed court means that the UK's future relationship with the Unified Patent Court will be subject to negotiation with European partners as we leave the EU."

The people involved in the UPC project from a German perspective would be willing to go a long way to accommodate UK participation post-Brexit, however, according to Munich-based patent litigator Peter Koch of Pinsent Masons, the law firm behind Out-Law.com

Bumps in the road – the position in Germany

While 16 EU countries, including the UK and France, have now ratified the UPC Agreement, Germany has yet to do so, despite finalising legislation for that purpose in 2017.

The German ratification process has been held up by a legal challenge before the country's Constitutional Court. Details of the basis of the complaint emerged last summer.

The Karlsruhe court has listed the case to be heard some time this year, although no firm date has been confirmed yet and it is unclear when a judgment can be expected. However, the fact the case was listed suggests that the complaint has not immediately been dismissed as obviously unfounded.

Uncertainty over German ratification, together with Brexit, remain the biggest risks to the unitary patent and UPC project. According to the UK government's latest statement, even if the project survives these risks the reforms are unlikely to take effect until "at least the end of the expected EU exit implementation period in December 2020".

Bumps in the road – a protocol to ratify

A further hurdle that needs to be overcome concerns the ratification of the Protocol to the Agreement on a Unified Patent Court on provisional application. The Protocol provides for the establishment of the UPC as a legal entity and allows for logistical issues such as the employment of staff and installation of IT systems to be addressed before the new framework becomes operational. During the provisional application phase, businesses will be able to apply to opt out their European patents from the jurisdiction of the UPC.

The Protocol, however, needs to be ratified by at least 13 of the signatories to take effect. At the moment, just 12 countries, albeit including the UK, Germany and France, have completed ratification of the Protocol.

Appetite for the reforms across sectors

The reforms, if or when they arrive, may receive a mixed reception by businesses across different sectors, according to two London-based intellectual property lawyers at Pinsent Masons.

Charlotte Weekes, a patent specialist in the life sciences sector, said many pharmaceutical companies may view the new UPC system as too big a risk to participate in, at least at the outset.

Originators in the sector often own 'blockbuster' or 'crown jewel' patents that apply to inventions in the manufacture of drugs.

Should originators obtain unitary patent protection for such inventions in future, or elect not to opt out existing European patents from the jurisdiction of the UPC, there would be a risk that a single ruling by one of the UPCs could knock out their patent protection across all of the Europe. On the other hand, the prospect of a pan EU interim injunction against an alleged infringer may be attractive. Life sciences companies, both originator and generic, are likely to want to have some input in shaping the law and jurisprudence in this area.

By maintaining a patent portfolio outside of the jurisdiction of the UPC, originators would continue to be able to enforce and defend their patent rights in individual proceedings in each of the EU countries in which their rights apply. The number and variability of the jurisdictions and the time and money required may prevent potential challengers from seeking revocation of national patents or nationally-validated European patents in all but the most valuable territories.

The situation is likely to be different in the TMT sector, however, according to technology patent expert Deborah Bould.

There is a larger volume of patents in the TMT sector, especially patents essential to technology standards – standard essential patents (SEPs) – than for blockbuster pharmaceutical inventions. There can be thousands of SEPs for standards such as 4G/LTE owned by a relatively small number of patentees.  

The volume of these TMT patents feeds through into how they are enforced. National infringement proceedings in Europe for technology patents typically seek to enforce more patents in each case than pharmaceutical patent cases. This is because there is safety in numbers; even if some of the patents are invalidated, the patent owner will win and obtain financial compensation provided that one patent is valid and infringed. The prospect of that finding often encourages alleged infringers to settle cases and/or enter into cross-licensing agreements.    

Patent applicants in the technology sector are likely to use the UPC to enforce their existing European patents. This is because a single litigation before the UPC should be more cost effective than parallel patent litigations in various European jurisdictions. If the UPC invalidates some of the patents in suit then there are others to fall back on.

Non practicing entities (NPEs) – organisations focused on buying and asserting patents but with no manufacturing or distribution base of their own – , that have traditionally focused most of their patent litigation efforts in the US, are likely to find the UPC a particularly attractive and relatively low cost venue.

It will be harder for TMT businesses to decide whether to obtain unitary patents rather than European patents. Unitary patent renewal fees are slightly higher than the average cost of renewing European TMT patents because the unitary patent fees are set at the 'top four' rate and most European TMT patents are only validated in two or three jurisdictions. The additional breadth of coverage should justify the additional investment if the patents are likely to be enforced.