European Unified Patent Court – The Opt Out dilemma

29.03.2016

Adv. Yissachar Bertisch

What appears to be the largest revolution in European Patent practice in over 40 years, the Unitary Patent and Unified Patent Court system are bound to create a new reality. The upcoming changes aim to enhance the single pan approach to Patent registration and litigation in Europe, establishing a unified structure across 25 European Member States with a combined population of over 400 million. This new reality is far too significant to be overlooked, and businesses ought to review their IP portfolio and be prepared.

Unitary Patent – The process of applying for a European Patent remains unchanged. However once a European Patent is granted, the Patentee will have the option of obtaining a Unitary Patent (UP) by filing a Request for Unitary Effect. This single coverage will have effect in 25 participating Member States (out of the 28 European Union Member States) for approximately the same cost as currently protecting 4 states. The unitary Patent will co-exist with current available options such as National Patents and classical European Patents. Patent proprietors will be able to choose between the various options or a combination thereof. A Unitary Patent will be treated as a single right giving uniform protection and having the same effect in all participating member states. It will be a single object of property. Limitation, revocation or lapse can only occur in respect of all participating member states at the same time. The regulations initially entered into force on 20 January 2013. However, they will only apply from the date of entry into force of the Agreement on a Unified Patent Court, which is pending ratification of 13 states. It is currently anticipated that the new Unified Patent Court will be operational in the beginning of 2017.

Unified Patent Court – The Unified Patent Court (UPC) will be a court common to the Contracting Member States and thus part of their judicial system. It will have exclusive competence in respect of European Patents and European Patents with unitary effect, with jurisdiction in infringement, validity, revocation, declaration of non-infringement and Supplementary Protection Certificates (SPCs). Currently, these matters are decided by the national courts and authorities. In practice, when enforcement (or revocation) is sought in several EP countries, difficulties such as high costs, risk of diverging decisions and legal uncertainty are often raised.  Also, forum shopping occurs as parties seek to take advantage of differences between the national courts, such as pace of proceedings, interpretations of European Patent Law and level of damages awarded. The UPC, aiming to resolve such matters, will comprise a Court of First Instance, a Court of Appeal (located in Luxembourg) and a Registry. The Court of First Instance will be composed of a central division (main seat in Paris, two sections in London and Munich), and by several local and regional divisions in the other Member States.

The Opt Out option – The UPC will have exclusive jurisdictions on proceedings of Unitary Patents. With respect to classical European Patents, Article 83 of the Unified Patent Court Agreement refers to a transitional period of seven years (which may be prolonged up to a further seven years) during which proceedings may still be brought before national courts. Furthermore the agreement stipulates that a holder of a classical European Patent shall, within the seven year transitional period, have the option to “opt out” from the competence of the Unified Patent Court, unless an action has already been brought before the UPC. Opting out would remove the Patent entirely from the UPC jurisdiction. The Opt out will last for the life of that Patent, however it would be possible to withdraw such an opt out request at any time. The opt out option does not apply to Unitary Patents.

The dilemma – So who should opt out, and when? And for how long? There is much speculation regarding the untested system with respect to its benefits, risks and the positive or negative impact it will have on local industries.

The intention of the new system is to create an effective unified enforcement system, facilitating Patent protection across Europe. The common belief is that Inventors and small/medium-sized enterprises (SMEs) operating on an international level are likely to benefit from a simplified and less costly procedure of obtaining a Patent in most European countries. Start-ups wishing to raise funds, may find it easier to do so for technology protected by a Unitary Patent. On the other hand, there are Industry members as well as legal practitioners who have expressed the following concerns. A Unitary Patent can be invalidated in a single action with effect in all participating member states (risk of “all or nothing”). Once the Unified Patent Court becomes operational, this may apply to traditional European bundle Patents as well. This single, central attack system could potentially increase litigation costs and legal uncertainty, by creating incentive for redundant litigation by non-practicing entities (Patent “trolls”) and enhancing the risk of pan European revocation actions.

The economic impact of the unitary Patent on the European market will remain unclear until the UPC is operational and begins rendering decisions on issues such as infringement and validity. It is likely that many Patent proprietors will initially decide to opt out, and observe the system as a spectator, before deciding to opt back in. Reasons why not to opt out? For one thing, UPC judgment is expected to be given within approximately one year from the start of the action, an advantage for those seeking swift proceedings.  Also, some believe that during the opt out period, if a 3rd party begins a revocation proceedings in a national court, this will block the Patentee’s ability to opt back into the UPC system when it chooses.  As a result, a Patentee may find itself permanently excluded from the UPC system for the life of the Patent.

Strategic considerations on whether to opt out or not will vary based on your portfolio. Since a Unitary Patent or a non-opted out Patent may be invalidated in a single, central attack, one should consider using this route for strong Patents where there is confidence regarding its validity. Otherwise it may be advisable to opt out, thereby spreading the risk and retaining value in jurisdictions in which the Patent may not be challenged or invalidated.  One may consider utilizing different court systems for different Patents, based on factors such as subject matter or scope of protection. Considerations may also sway based on litigation system preferences. Whilst the traditional common law Anglo-Saxon proceedings (similar to the Adversarial system accustom in Israel) allowed parties to submit evidence at later stages, the UPC intends to practice a “front loaded” approach compelling parties to set out their full case as early as possible (inevitably incurring costs more up front).

While there is provision for a transitional period for at least the first seven years of UPC existence, it is important to follow the developments closely in order to understand the differences between UPC and national courts, and establish the correct IP strategy for your portfolio.

contact any attorney at E&F at http://www.ipatent.co.il/contact/

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