The European patent system is set to undergo several significant changes in 2023. At a high level, a "Unitary Patent" system will be introduced and become available for European patents and pending European Patent applications, and a new "Unified Patent Court" (UPC) will begin operating on June 1, 2023.
This report provides an overview of notable features of the Unitary Patent system and the Unified Patent Court, and concludes by identifying particular considerations that patent owners, applicants, and litigants should be cognizant of going forward.
Background - Existing EU Patent Law System
In the present state of the patent system in Europe, certain aspects of patent prosecution are streamlined under the provisions of the European Patent Convention ("EPC") signed in 1973, however, beyond the prosecution stage through to grant,validating and litigating patents in Europe is country-specific. The European patenting procedure is administered centrally by the European Patent Office ("EPO"). If the EPO 'grants' the EP patent application following examination, the applicant must then 'validate' the EP patent in each member state in order to obtain a national patent in that country. Each of those patents is then protected under national law specific to that country. For this reason, any litigation pertaining to each patent must be brought in each individual member state. As detailed below, upcoming changes will significantly affect the present state of the patent system in Europe described above.
The UPC Agreement
The "Agreement on a Unified Patent Court" (herein "UPC Agreement") was signed into effect in early 2013 by twenty-five EU Member States.1 The stated purpose of the UPC Agreement was to harmonize patent law and the enforcement of patents throughout Europe by addressing "the fragmented market for patents and the significant variations between national court systems," "improve the enforcement of patents and the defence against unfounded claims," and "striking a fair balance between the interests of right holders and other parties."2 Germany's recent ratification on February 17, 2023 was the last needed to bring the system into being.3 The United Kingdom (which had ratified) has since withdrawn from the agreement post-Brexit. The non-signatory EU Member States (Croatia, Poland, and Spain) may accede to and ratify the UPC Agreement should they choose to do so in the future.4
It should be noted that the UPC Agreement, including the Unitary Patent system and the Unified Patent Court, is associated with the European Union itself, such that system applies to the member states of the European Union who will participate (all except Croatia, Poland and Spain). In contrast, the European Patent Convention (EPC) discussed above is an international treaty separate from the European Union, and includes over 40 participating countries beyond just the member states of the European Union. For this reason, the EPC will continue to be in force after the UPC Agreement is implemented, with the EPO in Munich as the granting body for the EPC.
European Patents Post-UPC Implementation
The UPC System will not immediately change or eliminate all EP patents obtained under the EPC as described above, which remains alongside the UPC system. Starting on June 1, 2023, a "transitional period" of at least seven years (which may potentially be extended to 14 years in total) will enable Patent Owners of existing European Patents to "opt-out" of the Unified Patent Court (UPC) system (discussed below), so long as UPC proceedings have not been commenced in relation to the patent.5 Opt-outs are effective for all EP designations and effective for the lifetime of the European Patent and beyond. Once opted out, the UPC has no jurisdiction over the European Patent, and the patent may then only be litigated in individual national courts.
During the transitional period, Patent Owners may choose to withdraw an opt-out in order to opt back into the UPC so long as national court proceedings have not been initiated in relation to the opted-out patent. Once the transitional period has elapsed, all European Patents which have not already been opted out will be limited to being litigated centrally under the UPC system. There is no fee for opting out of the UPC system, nor is there any cost to withdraw the opt-out.6 In contrast to European Patents, Unitary Patents (discussed below) do not have an opt-out option, and are exclusively under the jurisdiction of the UPC. European Patents which are not opted-out as of June 1, 2023, will be considered to have "unitary effect" as discussed below.
Unitary Patents
Unitary Patentsare European Patents with "unitary effect," i.e., at the application stage the applicant will designate "UP" instead of individual EU member states (if desired) and this will provide supra-national patent rights covering all of the participating EU Member States. Obtaining "unitary effect" for existing patents and the option to file applications for Unitary Patents will become available on June 1, 2023.7 Patent Owners may decide whether they want to maintain the unitary effect for a European Patent within a month of being granted, and the EPO has established a procedure (in place since January 1, 2023) whereby Applicants with pending applications currently nearing grant may delay the patent from being granted in order to benefit from the unitary effect once it is available.8 Unitary rights will only cover the participating member states beginning on the date that the patent's unitary status is granted.9
Notably, because Unitary Patents and the unitary effect are specific to the European Union states that have ratified the UPC Agreement, for both Unitary Patents and opted-out European Patents, applicants must continue to designate EPC contracting states beyond the ratified EU states (e.g., United Kingdom, Switzerland, Norway).Equally, applicants can choose to designate a sub-set of EU member states (as before) if that is preferred.
Unified Patent Court
The Unified Patent Court (UPC) will be a specialized patent court with jurisdiction over much of the patent litigation in Europe. Specifically, the UPC will have (1) exclusive jurisdiction over all Unitary Patents and (2) jurisdiction over European Patents (including previously granted EP patents) designated to participating EU Member States that have ratified the UPC Agreement (UPCA), and which have not been opted out of the UPC's jurisdiction.10 For the transitional period discussed above, national courts of the participating EU Member States will also continue to have (shared) jurisdiction over European Patents which have not been opted out. European Patents of the participating EU Member States granted after the transitional period ends will be under the exclusive jurisdiction of the UPC, along with any European Patents that had not been opted out during the transitional period.
The UPC will be structured as having (1) Courts of First Instance, including local and regional divisions across the participating EU Member States, and central divisions split between Paris, Munich, and a third location yet to be determined,11 (2) a Court of Appeal located in Luxembourg, and (3) a central Registry also located in Luxembourg.12 Regional divisions will operate similarly to local divisions, with both serving as Courts of First Instance, but will cover multiple participating member states where the number of annual patent cases would be too low in those states to merit individual local divisions (e.g., the Nordic-Baltic regional division is expected to cover cases from Sweden, Estonia, Latvia and Lithuania).13 The central division courts will be divided according to the subject matter of the patents involved in the proceedings in accordance with particular IPC classifications specified in the UPC Agreement (e.g., the central division in Munich will hear cases concerning mechanical engineering).14 Proceedings for patents with unspecified classifications will default to being heard before the central division in Paris. Most local divisions will use their national language(s) and English as the language in the proceedings, with the claimant having the right to choose the language if multiple languages are available.15 Local divisions and regional divisions will have judges from both (1) the member state(s) of the local or regional division, and (2) one or two judges originating from other UPC member states, who will be allocated from a pool of judges of the UPC.16 Local and regional divisions will be required to add a technically qualified judge to the panel if either (1) requested by a party in a proceeding, or (2) in an infringement case when a counterclaim for revocation is initiated. Central division panels will always consist of two legally qualified judges and one technically qualified judge. Panels in the Court of Appeal will be composed of five judges: three legally qualified judges and two technically qualified judges.17
Patent owners may bring an infringement action before either (1) a local or regional division hosted by the member state where an actual or threatened infringement has occurred or may occur, or (2) before the local or regional division hosted by the member state where the defendant has its residence or (principal) place of business.18 Counterclaims for revocation may be brought by Defendants before the same local or regional divisions. In such a case, the local or regional court hearing the counterclaim for revocation has the discretion to either refer the counterclaim to the central division, proceed with hearing both the infringement and revocation actions, or, with the agreement of the parties, refer the whole case to the central division. Independent actions for declarations of non-infringement and revocation must be brought before the central division for the appropriate subject matter, which has exclusive jurisdiction for such actions.
Strategic Considerations Regarding Unitary Patents
In light of the upcoming changes, applicants should keep in mind the potential benefits regarding Unitary Patents and the Unitary Effect for European Patents. First, Unitary Patents are intended to simplify the process of obtaining patent protection in multiple Member States (in contrast to the current complexity of national validation for European Patents in certain Member States). Second, Unitary Patents will have legal status information stored and provided through a central Registry, e.g., on licensing, transfer, limitation, revocation and lapse (in contrast to the current country-specific national patent registries). Third, Unitary Patents are projected to reduce the costs of obtaining patent protection in multiple Member States (the cost of obtaining a Unitary Patent will be roughly comparable to the current cost of obtaining European Patent rights in 3-4 individual Member States). Fourth, Unitary Patents will further simplify the maintenance of granted patent rights through a single annual renewal fee paid to the EPO in Euros (in contrast to the current need to pay different national renewal fees in different currencies to different patent offices). Lastly, Unitary Patents will not require post-grant translations after a six-year transitional period.
At the same time, applicants should also consider the potential drawbacks for Unitary Patents and the Unitary Effect for European Patents. First, Unitary Patents will be under the exclusive jurisdiction of the UPC and cannot be litigated in individual Member States. Second Unitary Patents may not be cost effective if patent rights are only sought in fewer than 3-4 Member States. Third, Unitary Patents will not have the option to reduce annual renewal fees by permitting the patent to lapse in certain Member States while maintaining the patent elsewhere.
Strategic Considerations Regarding the UPC
Similarly, parties that may be potentially involved in EU litigation should keep in mind certain potential benefits regarding the UPC. For example, the UPC intends to avoid the burden and cost of parallel litigation in national EU Member States, as well as the potential for divergent decisions between different national courts. For Patent Owners, the UPC allows enforcement of rights throughout Europe and streamlines the effects of decisions, injunctions, and damages. For third parties and the public, the UPC allows for a central revocation action separate from the EPO's opposition procedure.
On the other hand, parties should also consider potential drawbacks for litigation in the UPC. For example, the UPC will initially have undeveloped case law and consequently, it's currently unclear how specific issues will be decided. For Patent Owners, successful revocations under the UPC will revoke enforcement rights in all of the participating member states of the UPC. For defendants, UPC decisions will apply to all participating EU Member States. For defendants, the UPC may lack certain procedural advantages over particular national courts (e.g., allowing for in-person testimony from expert witnesses).
Strategic Considerations in Advance of the UPC and Unitary Patents
In advance of June 1, 2023 when the changes go into effect, all parties should be aware of several key points. First, European Patents will default to being automatically opted into the UPC unless an express opt-out is notified to the Registry. Second, patentees may opt-out in advance of the UPC during the sunrise period starting on March 1, 2023. Third, European Patents without an opt-out may be challenged with a revocation action in the UPC once it commences. Fourth, patentees may choose to withdraw an opt-out for a patent at a later point in time.
Additionally, parties should recognize how the UPC may impact the likelihood of litigation being brought by non-practicing entities (NPEs) under the UPC. In some ways, the UPC may be a more attractive venue for NPEs to initiate litigation. First, the UPC streamlines the litigation process from multiple individual national courts, which may reduce the costs of bringing such litigation. Second, national courts commonly impose significant fee-shifting, and while the UPC also includes rules shifting costs to the unsuccessful party, it's not yet clear to what degree fee-shifting in national courts will compare to the UPC in actual practice. Notably, the UPC also includes a rule stating "A party should bear any unnecessary costs it has caused the Court or another party." Third, the UPC provides the potential for more expansive and impactful injunctions and damages.
However, there are also several reasons that NPEs may be disincentivized from litigating cases in the UPC. First, application fees for claims of infringement will be set according to the value of the claim in order to encourage only bona fide applicants to bring high-value claims. Second, unlike some courts and jurisdictions, the UPC will require claimants to have a finalized pleading when making the original application, further increasing the initial costs of bringing a case for claimants that may otherwise be accustomed to filing pleadings with sparse or incomplete details in courts that enable that practice. Third, UPC panels in many cases will also include a technical judge that will require NPEs to bring claims that are not only legally sound, but also technically comprehensive. Fourth, UPC courts are expected to be actively involved in the discovery process and ensure that the scope of discovery is properly tailored to the needs of the case, which will likely limit NPE litigation tactics that seek to incur significant discovery costs on defendants. Fifth, UPC trials are also expected to be significantly shorter than most courts (e.g., oral proceedings are expected to be much shorter, with most legal arguments being decided on the papers), thereby mitigating a common NPE strategy of incentivizing defendants to resolve cases before reaching a prohibitively expensive trial. Sixth, even if NPEs are successful in obtaining a finding of infringement, injunctions are discretionary rather than mandatory. Lastly, forum shopping (the tendency for NPEs to seek plaintiff-friendly courts) is likely not a concern for several reasons: (1) UPC rules specify which division(s) cases may be brought in, (2) all divisions will apply uniform rules of procedure, (3) most cases are expected to be decided by international panels and different judges such that claimants will not be able to be certain which judge(s) they will get, and (4) the UPC Court of Appeal has the power to review procedural decisions and ensure consistency across the courts.
Footnotes
1 Agreement on a Unified Patent Court, Official Journal of the European Union (published June 20, 2013) (hereinafter "UPC Agreement") (available at https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:175:0001:0040:EN:PDF)
2 UPC Agreement, C 175/1-2
3 https://www.unified-patent-court.org/en/news/upc-agreement-ratification-breaking-news
4 UPC Agreement, C 175/21
5 UPC Agreement, Article 83
6 https://www.unified-patent-court.org/en/registry/court-fees
7 UPC Agreement, Article 1
9 UPC Agreement, Article 3
10 UPC Agreement, Article 3
11 https://www.unified-patent-court.org/en/court/locations
12 UPC Agreement, Article 6-10
13 UPC Agreement, Article 7
14 UPC Agreement, Article 7(2), see also Annex II
15 UPC Agreement, Article 49
16 UPC Agreement, Article 8
17 UPC Agreement, Article 9
18 UPC Agreement, Article 33
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
