The Unified Patent Court is back on track - are you ready for opt-out?

The Unified Patent Court is back on track - are you ready for opt-out?

Following the UK’s surprise decision last year to ratify the Unified Patent Court Agreement, the new court is now scheduled to open its doors for business at the end of 2017. This means that patent owners must again consider which patents they wish to opt out from the system: a three-month sunrise opt-out period for existing patent owners starting at the beginning of September 2017 is envisaged. 

The new system – a recap
The new court system will involve fundamental changes to the European Patent system.  It is vital that European Patent proprietors, holders of supplemental protection certificates (SPCs), licensees and, importantly, parties to research, collaboration and joint venture agreements understand how these changes will affect their businesses.

The new European Patent with Unitary Effect (Unitary Patent) should eventually provide protection for a patentee across at least up to 25 EU states. The new Unified Patent Court (UPC) will have jurisdiction not only over the new Unitary Patents, but also over traditional European patents granted by the EPO unless proprietors take positive steps to opt them out of the new system. Just one action brought in the UPC has the potential to enforce, but also revoke a patent in all participating countries.

Irrespective of the opt-out, the UPC will have no jurisdiction over national patents, European Patents in non-EU countries and European Patents in non-participating EU states.

I am a European Patent Proprietor - do I opt-out?
For an initial transitional period of 7 years (extendable by up to a further 7 years) enforcement or revocation of existing or new European Patents may be brought before either the national courts or the UPC. If a proprietor does nothing, its European Patents will automatically become subject to the jurisdiction of the UPC. However, this can be prevented by applying to "opt out" of the UPC, provided that an action in respect of that European Patent has not already been brought in the UPC. The opt-out can be withdrawn at any time provided no action has commenced in the national courts.

The decision whether or not to opt a European Patent out of the new court system is likely to come down to an evaluation of the economic significance of the patent and the likelihood of it withstanding an invalidity attack. Proprietors will have to balance the prospect of obtaining enforcement in up to 25 participating countries against the risk of the patent being revoked in all those countries – in one court action. Proprietors will also undoubtedly be nervous given that there will be procedural and cost uncertainties with an untested court, and, potentially, concerns about the quality of judgments.

Practically, in order for an application to opt-out to be effective, all proprietors of a European Patent must apply together. If proprietors are within the same group of companies it would be pertinent to check now that that the correct proprietors are on the register to ensure no mistakes are made in the application (making the opt-out ineffective). If designations of the patent have been assigned, all assignees will have to come together to agree a common approach. Any opt-out will automatically extend to any future SPC granted in respect of that patent, but if an SPC has already been granted, again all proprietors and all holders of the related SPC must make the application to opt-out.

Should I opt for a Unitary Patent or a bundle of European Patents?
A single Unitary Patent will have the significant benefit of providing protection over a larger geographical area without having the financial and practical burden of validating and maintaining national patents in 25 individual countries. However, most patent proprietors currently only validate European Patents in a small number of European countries, typically France, Germany and UK (making up 65% GDP of the countries who are embracing the Unitary Patent).  Nonetheless, the increased geographical scope of protection is still likely to be attractive, particularly for licensors who will see the potential for increased licensing revenue.

Proprietors should also consider the fact that Unitary Patents can only be assigned as a whole (unlike national designations of European Patents). However, it will be possible to license a Unitary Patent separately in different countries. Remember, additional European or national Patents will always be required to maintain protection in EU member states that are not participating in the Unitary Patent (e.g. Spain) and in non-EU countries that are able to obtain European Patents (e.g. Switzerland).

Current and future licensees/licensors
Only European Patent proprietors can opt out of the UPC - licensees do not have any say in the matter unless the underlying patent licence agreement requires the proprietor to opt-out. Given the UPC agreement was only signed in February 2013, it is unlikely that even recently negotiated licence agreements will contain such provisions – potential licensees are advised to ensure that future licence agreements are drafted to take account of their wishes with respect to opting out.

Existing European Patent licensees should think about approaching proprietors/licensors to put forward their position on opting out. This may not be straightforward if their licence is not exclusive and different licences have been granted for multiple designations of the patent, or for different fields of use.

Existing proprietors/licensors will have to balance their own requirements with the demands of multiple licensees. If a proprietor/licensor chooses not to opt-out, they should carefully consider whether the licence agreement needs to be amended to expressly limit the ability of any licensees to bring actions in the UPC. This will be particularly important when licences co-exist in the EU – a licensee's attempt to prevent infringement in its territory may inadvertently result in a counterclaim resulting in revocation of the patent in all countries where the UPC has jurisdiction. Note that the UPC agreement provides that an exclusive licensee (presumably including a licensee with an exclusive licence over certain territories) is entitled to commence proceedings provided the proprietor is given prior notice, unless the licence agreement provides otherwise.

Future licensors need to think about alternative filing strategies and licensing models to ensure they maximise the potential benefits of the UPC, for example, a "portfolio mix" of national patents, opted-out European Patents and Unitary Patents could strike the right balance between the possibility of being able to enforce the patent centrally, whilst maintaining some national rights that cannot be revoked simultaneously.

Parties to collaboration/joint development agreements
Again, given the UPC agreement was only signed in February 2013, most collaboration or joint development agreements are unlikely to contain provisions dealing with the Unitary Patent/UPC. Such agreements should be revisited and renegotiated now to deal with both existing European Patents that are licensed as part of the collaboration, and new patent applications that may arise out of the venture.

Note that if Unitary Patents arising out of any collaboration are to be jointly owned, it will be important to set out who will be listed as the first applicant/proprietor, as, for all of its life, the Unitary Patent will be treated as a national patent of the participating member state where the first applicant has his residence or place of business. This will have consequences for any transactions involving the Unitary Patent in the future. Where no applicant is a resident or has a place of business in a state participating in the Unitary Patent (for example US or Spanish companies), Unitary Patents will be subject to the property laws of the state where the EPO has its headquarters, i.e. Germany.

Finally, what about Brexit?
The UK Government’s decision to ratify the UPCA has surprised many. Whilst the UK’s ratification is important in ensuring that the new court system gets off the ground at all, it is still unclear what the effect of Brexit will be.  Jo Johnson, the new Minister for Intellectual Property has made it clear that the question of the UK’s long-term participation in the system depends on the broader ‘Brexit’ negotiations between the UK and the EU.  So uncertainties remain for the proprietors of European Patents (UK) in particular.  It may be that patent proprietors will react by opting out more patents in the first instance at least until the position has been settled. Importantly, however, even if the UK leaves the system, it is unlikely to be the end of the Unitary Patent/UPC per se. This could carry on without the UK.

If you have any questions on these or any other issues relating to intellectual property and Brexit, do please contact Tom Lingard, Partner and Head of Intellectual Property or Charlotte Tillett, Partner and Head of Life Sciences, who will be happy to discuss.

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