Every business needs a patent litigation strategy for the UPC, say experts

The UPC is being set up to provide a dedicated judicial system for litigating new unitary patents. Existing European patents that are not specifically opted-out of the UPC’s jurisdiction will also be subject to the new court system.

The new system could be operational as early as this autumn – in a recent update, the body set up to establish the UPC said that “it is a reasonable assessment” that the court would become operation during the last quarter of 2022 or early 2023. Patent law specialists at Pinsent Masons, as well as attendees at a recent event Pinsent Masons hosted, believe a start date in 2023 is more likely.

Paris-based Emmanuel Gougé of Pinsent Masons said: “The current European patent system is a centralised filing and grant procedure for European patents that then split into national parts. That means that, when it comes to disputes in relation to infringement or revocation, parties have to litigate in each country separately. This leads to parallel proceedings, contradictory judgments and multiplication of legal costs. The aim of the UPC is to remedy this situation and provide a single forum for patent disputes covering all participating member states to put an end to costly parallel litigation and provide greater legal certainty.”

“The project is ambitious, but the court is not ready yet. For example, IT systems need to be fully tested and judges still have to be appointed – though this is expected to happen by the summer – so the court is a bit like a start-up company drawing and building its business,” he said.

Although preparations for the new system need to be completed, Nicole Jadeja said: “The UPC is really happening and will be coming soon. It will radically change how patents are enforced, and therefore any business with patents in its armoury of intellectual property assets – even businesses that do not now or have not ever needed to get involved in patent litigation – need to prepare. There are decisions that need to be taken in respect of existing patent portfolios and considerations to be made around commercialising those patents.”

The UPC system has been years in the making. It will comprise a system of central, regional and local divisional courts, with a UPC Court of Appeal in Luxembourg and the Court of Justice of the EU (CJEU) the final arbiter on points of EU law in respect of disputes over unitary patents or non-opted out European patents.

Originally it was envisaged that London would be one of the three 'seats' for the central division courts, specialising specifically in resolving patent disputes in the field of life sciences. However, Brexit means that the UK is no longer participating in the new unitary patent and UPC framework. Initially at least, responsibility for life sciences patent disputes before the UPC will be shared by the other central division courts in Paris and Munich, which will otherwise specialise in technology patent disputes and disputes over patents relating to mechanical engineering, respectively.

Munich-based Marc L. Holtorf of Pinsent Masons said: “The local and regional divisions of the UPC are normally the competent starting point for infringement proceedings and counter claims for revocations against an infringement proceeding. The central divisional courts are competent for single actions for revocation and for actions for declaration of non-infringement. The  big debate as to whether a third central division seat should be established in the Netherlands or Italy has come to an end. For the next seven years the seats of the central division will be in Paris and in Munich only.”

EU countries must ratify the international treaty giving effect to the UPC – the UPC Agreement – in national law before they can participate. Most EU countries support the project, but Spain, Croatia and Poland have so far indicated that they will not participate in it, although this may change in the future.

Whilst a critical mass of countries has already completed ratification of the UPC Agreement, Ireland is one of several EU countries that has yet to do so. Dublin-based Ann Henry of Pinsent Masons said the Irish public will be asked to vote on whether Ireland should ratify the Agreement.

Henry said: “The effect of the UPC Agreement is to require the Irish courts to cede some jurisdiction in patent litigation matters to the UPC. Any transfer of sovereignty or judicial powers to an international body requires a referendum under the Irish constitution. A simple majority of those voting is required for the referendum to pass. There is political support for the referendum in Ireland and I do expect it to pass.”

“We understand that the referendum is expected to happen in 2023, meaning it is possible that the UPC will be operational and have issued its first few decisions by the time the Irish referendum is held. Decisions and orders of the UPC shall be directly enforceable in each contracting member state, so until Ireland becomes a contracting member state Ireland will be sitting on the fence and watching with interest,” she said.

When the UPC begins to operate, a transitional period lasting at least seven years will apply. During this period, the UPC and national courts around Europe will share competencies for litigating European patents: businesses can choose whether to enforce their European patents before the UPC or national courts. However, Pinsent Masons experts said that European patent holders will be subject to risk by delaying their decisions on whether to opt out their patents from the jurisdiction of the UPC until after the end of the so-called ‘sunrise’ period. That period will last for three months and immediately precede the UPC becoming operational.

Marc L. Holtorf said: “Businesses need to think now about their whole European patent portfolio – each single patent – and whether they want to opt any of them out during the sunrise period. If businesses wait until the court is operational then there is a risk that third parties will raise a revocation action against them before the UPC which would lock that patent into the UPC’s jurisdiction. Businesses that opt out can later opt their patents back into the UPC’s jurisdiction if the patent has not been subject to national court proceedings in the interim.”

Pinsent Masons expert highlighted pros and cons for businesses to weigh on whether to subject European patents to the UPC’s jurisdiction during the transitional period.

Uncertainty over the application of interim orders and over the quality and consistency of judicial decision making, as well as the risk of ‘forum shopping’ around local and regional divisions of the court, are causing some businesses to adopt a ‘wait and see’ approach, according to Ann Henry.

“Many pharmaceutical manufacturers do not want to risk their business-critical patents being subject to revocation across Europe at once,” Henry said. “Patent litigation is tactical. Ireland has always played in quite strategically and the timing of proceedings in Ireland is always quite deliberate. The UPC is going to potentially change a lot of that, and the pharma industry will be looking to see what the benefits are from the new system compared to the current system.”

Amsterdam-based András Kupecz of Pinsent Masons said, though, that other European patent holders see opportunities in the UPC system.

“For European patent holders, the opportunities are in the ability to obtain injunctions, enforcement and damages for a much larger market than is the case currently,” Kupacz said. “We are also seeing a clear appetite for engaging with the UPC to help shape the system and influence how the court will make its decisions – decisions made by local and regional divisions will not be ‘binding’ on other local and regional divisions of the UPC, though case law established by the UPC Court of Appeal in Luxembourg will be. If businesses want to be part of shaping the system, now is the time.”

The cost of litigation will be another factor that will influence companies’ patent strategies. Litigating before the UPC is expected to be more expensive than litigating before national courts. However, Marc L. Holtorf said the issue of cost is not ‘black or white’.

He said: “Businesses should review the cost of litigating before the UPC, where a ruling would have effect in 17 countries that are currently ready to participate. They should then compare that to the number of national proceedings they would have to raise to enforce their European patents in the main markets for their products and the associated costs of that litigation. That assessment will help inform individual European patent strategies."

Ann Henry added: “The fact that the UK and Spain are outside the UPC system mean some businesses may view that the cost efficiencies that may otherwise have been a draw to use the UPC are no longer there for them. Regardless, businesses will need to consider their overall European patent portfolios and litigation strategies, which should include both the UPC and national litigation such as in the UK or Spain, over the coming months to ensure they are ready for this new system.”