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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Inside IP: UPC to open its doors for business in December 2017?
 Briefing 
Date
20 January 2017

Inside IP: UPC to open its doors for business in December 2017?

Following the UK Government's surprise announcement in November 2016 that it was proceeding with plans to ratify the Unified Patent Court (UPC) Agreement, the UPC Preparatory Committee has issued an important statement on the likely timetable. Assuming that final mandatory ratifications by the UK and Germany take place as anticipated in Spring 2017, the Committee indicates that the Court will become operational, and Unitary Patents available, from December 2017.   

The Committee stresses, of course, that this timetable is conditional. There are a number of factors, including the necessary ratifications, which will dictate whether it is achievable. Nonetheless, the final steps in getting the system up and running – including judicial appointments – will now be under the spotlight. 

Most significantly for owners of existing standard European Patents - and related Supplementary Protection Certificates (SPC) - the Committee's note suggests that the sunrise period for opting those patents and SPCs out of the UPC regime before it commences is planned for early September 2017. The sunrise period will provide a 'minimum of three months' for patent holders who wish to opt out to do so before the Court is open. 

Many patent holders had been considering their opt-out strategies in any event but, in view of the likely start date of September 2017, these plans should now be crystallised and any necessary due diligence undertaken: failure to opt a standard European Patent out could mean it being subjected to pan-EU revocation proceedings in the UPC. 

In addition, now is the time to finalise strategies in respect of patent portfolios under the regime.

A reminder about the opt-out

A Unitary Patent cannot be opted out of the UPC regime. Standard European Patents will also, eventually, be subject to the exclusive jurisdiction of the UPC. 

However, during a transition period of seven years (which may later be extended by a further seven years), standard European Patents will be subject to the dual jurisdiction of the national courts and the UPC. Further, the holder of a standard European Patent (granted or applied for before the end of the transitional period) may, during the transitional period, opt it (and any SPC based on it) out of the UPC's jurisdiction. If a standard European Patent is not opted-out, it will be subject to the jurisdiction of the UPC (as well as the national courts during the transitional period).

There are a number of important points to note about the opt-out:

  • It applies to granted European Patents and published applications.  An opt-out can be registered at any point up to one month before the end of the transitional period referred to above. However, to avoid the risk of pan-EU revocation proceedings on day one of the UPC, patent holders should be ready to file all relevant opt-outs (on a per patent basis) electronically during the sunrise period. There will be no fee to opt-out.  
  • It will have effect for the life of the patent and will cover all designations of the patent (and any SPC based on the patent).   
  • An opt-out will be ineffective where a UPC action has already been brought in respect of a standard European Patent, whether those proceedings are pending or concluded. 
  • An opt-out need not have permanent effect. Having opted a standard European Patent out of the UPC (perhaps to avoid the risk of pan-EU revocation), a patent holder may decide to opt it back in, i.e., withdraw the opt-out, before bringing infringement proceedings and seeking a pan-EU injunction. 
  • However, where a standard European Patent is opted out, any action brought before a national court, whether pending or concluded, will lock that patent out of the UPC jurisdiction entirely. This means that it will not be possible to withdraw the opt-out of that patent.   
  • Once an opt-out has been withdrawn, it will not be possible to opt it back out again. 

Who can register an opt-out?

It is important to be clear as to who can opt a standard European Patent out of the UPC. Significant due diligence may be required in advance of the sunrise period:

  • Where there are co-owners of a European Patent or related SPC, or designations are owned by separate proprietors, they must all join in the opt-out application. The requirement is that 'those entitled to be registered' must join in the opt-out, and so it may be necessary to look beyond the Register when conducting due diligence. 
  • Exclusive licensees and non-exclusive licensees cannot opt a standard European Patent out of the UPC. However, the licence agreement may provide that they should provide consent, or otherwise be involved in the decision-making process. If you license-in standard European Patents, you should ensure that you are in discussions with the patent holder at an early stage to ascertain their opt-out strategy. 
  • It is also worth noting that an exclusive licensee (and a non-exclusive licensee, where this is provided for in the licence agreement), can bring an infringement action. This may then block the patent holder's ability to opt that patent out or withdraw any opt-out.

Opt-out strategies

There are a number of factors which will impact on the decision whether to opt-out all, some or none of an existing European Patent portfolio. These include:

  • Concern at the risk of pan-EU revocation, particularly for valuable standard European Patents ('crown jewels') - and particularly where the validity of those patents may be considered vulnerable.  
  • Balancing the risk of pan-EU revocation against the benefits of pan-EU remedies, including injunctions (preliminary and final) and damages, and a more streamlined, potentially less costly UPC procedure. 
  • Concern at the 'unknown' and untested nature of the UPC, including its procedures, Judges and trust in its decision-making, as against being involved at the outset and helping to shape its case law. 
  • It has been suggested that there may be a perception that an opted-out patent is considered vulnerable, but this will likely depend on the particular industry, and a patent holder's general approach to opt-outs. 
  • Brexit is unlikely to be a determining factor in current opt-out decision-making processes. However, if the UK is not involved in the UPC post-Brexit, it may be more relevant in the future. A patent holder may be more inclined to keep its European Patent in the UPC, if the UK designation is immune to a central revocation attack in the UPC. 

Whilst blanket opt-outs by patent holders are likely, it is also likely that many will adopt a more hedged approach, making full use of divisional patents etc to leave at least some patents within the UPC (so that they can seek pan-EU remedies). 

Unitary Patents

Assuming all goes to plan, Unitary Patents will be available from December 2017. There are again a number of factors that will impact on the decision whether to seek unitary effect, or to focus on standard European Patents, or even national patents. Key points include:

  • The main consideration will be costs, including the likely sums that could be saved on renewal fees, with clear costs savings for patentees who currently validate their standard European Patents in a large number of jurisdictions. However, not all do - with a sizeable proportion currently validating only in the UK, Germany and France. Further, given that renewal fees increase significantly in the later years of a standard European Patent, many patent holders choose to prune their EP portfolios on renewal. Such selective abandonment is not available on renewal of a Unitary Patent.  
  • It will not be possible to opt a Unitary Patent out of the UPC and the concerns about the untested nature of the UPC will be an important factor for many patent holders. There will not, for the time being at least, be a 'unitary SPC' and, instead, national applications for SPCs can be made based on a Unitary Patent. Such SPCs can also not be opted out of the UPC.  
  • Post-Brexit, it is not clear whether a Unitary Patent will continue to extend to the UK. As with other unitary rights (such as the EU trade mark and design), we anticipate that there will be a mechanism to preserve such rights in the UK (most likely as a European Patent (UK)) but until this is resolved, this uncertainty will be a significant factor for many patent holders.

General points

Aside from the specific points mentioned above, the risk of being sued for pan-EU infringement in the UPC from early December 2017 may, given the extensive rules on where proceedings may be brought, impact on business structures and jurisdictions of interest. In particular, businesses that are concerned that they may be subject to provisional injunction proceedings can file a Protective Letter, the goal of which is to ensure that arguments about, for example, non-infringement and invalidity, are before the UPC panel on any subsequent application for provisional relief.

In relation to patent challenges, many that currently use the EPO opposition regime to oppose standard European Patents are likely to take advantage of the further central challenge to validity presented to the UPC (assuming a patent is not opted out), albeit there will be additional costs in doing so.  In the long term, it is possible that UPC proceedings will begin to displace EPO oppositions, especially as more member states come on board, although EPO oppositions will continue to have broader scope.   

What next?

We expect more details shortly on the progress of the UK and Germany ratifications, and plans for the recruitment of judges.  The UPC Preparatory Committee is also meeting for the final time in early March 2017 and we expect further information on the sunrise period, which we will report on as soon as it is available. 

Of course, the position post-Brexit, in terms of the UK's involvement in the UPC, and the extent to which Unitary Patents will continue to extend to the UK, remains unclear (as discussed in our September 2016 update). Whilst some may hope that the UPC/Unitary Patent may be a model for future bespoke arrangements between the UK and the EU, this seems unlikely given the Prime Minister's recent statement that the UK will not "seek to hold on to bits of membership as we leave" and the previous IP Minister stressing that the decision to proceed with ratification "should not be seen as pre-empting the UK's objectives or position in the forthcoming negotiations with the EU".