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EU's Unified Patent Court could be vulnerable to patent "trolls", tech companies warn

Out-Law News | 26 Sep 2013 | 3:27 pm | 3 min. read

The proposed new EU-wide Unified Patent Court (UPC) could be vulnerable to abuse by so-called 'patent trolls' without changes to the draft legal framework, leading technology companies have warned.

In an open letter to EU legislative authorities, including the European Commission and the heads of all 28 member states, the companies warned that the rules as drafted could create "significant opportunities for abuse" from patent assertion entities (PAEs), popularly known as 'trolls'. The letter was signed by 16 companies including Google, Apple, Samsung and Microsoft.

"As the European Union moves towards a unified patent system, we're excited about the prospects for a harmonised patent regime that promotes efficiency and long-term competitiveness," Google said in a blog post.

"Patents encourage inventors to publicly disclose their inventions, sharing knowledge and spurring further progress while recouping their investment. But in the United States, the abuse of dubious patents is having the opposite effect ... Europe now has a clear opportunity to adopt rules that limit the risk of fostering patent trolling in Europe," it said.

The letter called for changes to the latest UPC draft rules of procedure to minimise the risk of PAEs obtaining EU-wide injunctions "for the sole purpose of extracting excessive royalties from operating companies that fear business disruption". Clearer guidance was also needed on the procedure in "bifurcated" cases, where the validity of a particular patent and the question of whether it has been infringed could be decided by different courts in the same case, the letter said.

PAEs, or 'patent trolls', are companies that apply for or purchase patents in order to sue other companies for infringement. The companies make money by forcing firms to pay to settle claims brought against them rather than face a costly legal battle in court. The economic impact of the assertion of "often low-quality" patents against businesses in the US is growing, amounting to an estimated $29 billion in settlement costs in 2011 alone, according to the letter. However, these patents are only upheld in less than 9% of the cases that reach the courts, the letter said.

An agreement paving the way for a new UPC framework to be created was signed by ministers from 25 EU countries earlier this year. The agreement must now be ratified by at least 13 national parliaments, which must include the UK, France and Germany. Austria became the first EU member state to ratify the agreement at the end of August.

If established, the new system would be used for resolving disputes relating to the validity and infringement of proposed new unitary patents. These are currently proposed under separate legislation, and would enable businesses to protect their monopoly over their inventions across those EU member states that sign up to the scheme by filing a single patent at the European Patent Office (EPO). Under the current process, EU-wide protection is only available to those who validate a patent registered with the EPO in each individual member state. The patent must be translated into the language of each state in order to be valid.

Not every EU member state is in favour of the current proposals. In April, the Court of Justice of the European Union (CJEU) rejected complaints about the legality and fairness of the proposed unitary patents from Spain and Italy. The Spanish Government has lodged two further actions for annulment of the proposals with the CJEU.

In their letter, the technology companies said that provisions in the UPC agreement allowing cases to be 'bifurcated' "could, in some cases, allow plaintiffs to obtain a quick infringement ruling, along with an injunction barring products from most of the European market, before any determination of whether the patent in question is actually valid". This would allow "unprincipled" companies asserting a patent to "extract substantial royalties" based on "low-quality, and potentially invalid, patents".

They also set out their concerns about the injunctions that could be granted by the UPC, which they argued "could be used with the intended effect of impeding product sales across the region" as they would extend to all EU countries that had signed up to the unitary patent scheme. Without clearer rules over when these injunctions could be granted, "unprincipled litigants" could potentially "'hold up' manufacturers by making unreasonable royalty demands for even a single trivial patent on a complex product", they said.

The letter called for "targeted changes" to the proposed UPC rules of procedure, including guidance to the judiciary on how to handle bifurcated proceedings and clearer rules around infringement action and the issue of injunctions. A "proportionality" requirement should be set out in the rules of procedure in relation to injunctions, while PAEs "should not be allowed to use injunctions for the sole purpose of extracting excessive royalties from operating companies that fear business disruption", the letter said.

Editor's note 18/08/2014: this story previously said that 24 countries had signed the UPC agreement. This was inaccurate, it was in fact 25 countries. Bulgaria had signed the agreement a few days later than the other countires. We apologise for the error.