United States: A View From Across The Pond

If it works as advertised, Europe's new Unified Patent Court (UPC), set to begin hearing patent enforcement disputes in 2017, will indisputably impact strategies for managing global patent portfolios and litigations. To a U.S. lawyer, the concept of replacing, or more accurately supplementing, the European Union's (EU) many patent systems, having various procedural and substantive laws, is appealing. This prospect of a unified court having exclusive jurisdiction to hear infringement and revocation (validity) actions for both traditional "bundle" European patents and the new "unitary patents" is a game changer. We recently went through a significant change in our enforcement system in the U.S. with the implementation of post-grant proceedings and the creation of the Patent Trial and Appeal Board (PTAB) at the United States Patent and Trademark Office (USPTO). The effect has been more far reaching than most imagined. Europe is setting the stage for an even more significant transformation by creating an enforcement action which combined would have a similar market size and larger population than the U.S. One action at the UPC will soon have the ability to achieve enforcement outcomes on a similar scale to US actions, potentially at a lower cost and faster time to disposition.

The UPC's decentralised Court of First Instance (CFI) with local, regional, and central divisions, and a centralised Court of Appeal in some regards parallels the US patent enforcement structure comprising US district courts and the PTAB feeding into the Federal Circuit for appeals, but a closer look shows it diverges in many key aspects.1 And at least on paper, many of these provide potential advantages compared with the U.S. system.

Judges

The key to the success of the newly formed PTAB at the USPTO has been largely due to the Judges. The CFI will comprise three legally-qualified judges and a fourth technically qualified judge if deemed necessary. Five judges will comprise the Court of Appeal panel—three legally qualified judges and two technically qualified judges. Technically qualified judges will be trained in legal matters and each panel will have an international composition. Thus, while there has been much talk of the quality of judges at the UPC, in theory the UPC system provides potential for high-quality decisions from qualified patent judges compared with the U.S. district court system, which can be largely decided by a jury or best case a judge with little or no technical background or patent specialisation. Thus, on paper, the judges at the UPC are more comparable with the three-judge panels at the PTAB and Federal Circuit.

Forum Selection

The CFI's central division will have seats in Paris, London, and Munich, with each seat handling specific technologies, and states may form local or regional divisions. Parties can file infringement and non-infringement declaration actions in local/regional divisions where infringement occurs or where defendants' reside or do business, or in the central division absent an appropriate local/regional division or by agreement of the parties. Revocation actions are fi led with the central division, but local/regional divisions may handle or bifurcate revocation counterclaims to the central division. If a claimant files a non-infringement action first (central) and the patentee files an infringement action second (local/regional) within three months, the central division must stay its action. Outside three months, the central and local/regional division panels consult and agree on future progress, including potentially staying one action.

This system parallels venue selection for infringement actions in U.S. district courts in that it will afford some opportunity to forum select, but differs in that the defendant need not have an established place of business in the local/ regional division if infringement occurs there. It also differs by giving the patentee three months to switch venue from the central to a local/regional venue of its choice for declaratory non-infringement actions.

The handling of revocation actions by either the central versus the local/regional divisions echo to some extent forum selection in the U.S. with respect to pursuing validity claims at the PTAB versus a district court. Similar to inter partes review (IPR) attacks at the PTAB in the US but broader in scope, the "unitary patent" will be vulnerable to central attack at the UPC in Europe at any time after grant.

Theoretically, all divisions of the CFI will be relying on the same well-established EPC law and any venue concerns may largely be addressed by having a single common Court of Appeal. It remains to be seen, however, whether the predictability of CFI decisions and how variances across different divisions will affect forum selection strategies in both Europe and the U.S., as a favorable decision in Europe could be used to leverage a favorable outcome in the U.S. and vise versa.

Procedure

At first glance the UPC procedures are strikingly similar to the post-grant proceedings at the PTAB with the significant addition of, in many cases, also handling infringement. UPC proceedings will involve three stages or "procedures"—a written stage, an interim stage, and oral stage. During the written stage, parties exchange four rounds of written pleadings—claim, defence, reply, and rejoinder—with copies of any documents, including witness statements, referenced. Claim construction is rolled into infringement, revocation, and amendment exchanges as necessary. If validity is challenged, the patentee can apply to amend the specification and the claims, may provide one or more alternative claim sets "where applicable and appropriate" either unconditionally or if conditionally, reasonable in number.

Following the close of written procedure and decision on bifurcation, the "judge-rapporteur" prepares the case for oral hearing (trial) during the interim stage, which may include an interim conference. This stage allows the judge-rapporteur to issue orders regarding producing further pleadings, documents, experts (including court experts), experiments, inspections, further written evidence, and to determine the subject-matter and scope of the oral hearing.

The oral stage starts immediately after the judge-rapporteur closes the interim stage, with the presiding judge taking over case management. The parties provide their oral submissions during an envisioned one-day oral hearing, and, if ordered during the interim, the court may hold a separate hearing for witnesses and experts. In exceptional cases, the court may adjourn and call for further evidence.

Thus, the UPC system more closely resembles post-grant proceedings before the PTAB than patent litigation before U.S. district courts. Like PTAB proceedings, the bulk of the procedure consists of written exchanges culminating in a short oral hearing and claims may be amended. Compared with U.S. district court litigation, opportunities to cross-examine fact witnesses and experts appears limited. Like PTAB trials, where live testimony before judges is rare, the UPC system may not afford the panel much opportunity to assess the demeanor and credibility of witnesses. From a U.S. perspective, the differences in live testimony could impact global strategies for bringing patent enforcement actions in the U.S. and Europe.

Time to Trial

The UPC contemplates conducting the written stage in six months for infringement actions, seven months for revocation actions, and nine months for infringement proceedings with revocation counterclaims. With the judge-rapporteur instructed to complete the interim stage in three months (9-12 months from filing), and the court instructed to issue its final judgment within six weeks of a one-day oral hearing, the UPC apparently aims to complete CFI proceedings within 11-14 months.

With time to trial in US district court patent litigation taking a median 2.4 years,2 the UPC system provides at least the promise for faster resolutions. Indeed, the UPC timeline more closely resembles timelines for IPR and post grant review (PGR) proceedings, spanning 18 months from petition to decision. Unlike the PTAB, however, the UPC can extend deadlines, and it remains uncertain whether the UPC can attain or sustain such a fast-paced schedule. The speed to resolution that the UPC can truly realise will certainly factor into enforcement strategies and the attractiveness of the system.

Discovery

Discovery at the UPC will be the biggest hurdle from the perspective of a US attorney. In UPC actions, a party alleging infringement may seek an order to preserve evidence. The UPC may inform the defendant (or potential defendant) of the application and invite it to object, taking into consideration the alleged infringer's challenges to the facts and reasons why the action will fail in deciding whether to issue the order. Assuming preservation, evidence available to a party "regarding a statement of fact that is contested or likely to be contested" by the other party must be produced. The UPC may also order a party to produce evidence that lies "in the control" of a party concerning any statement of fact. If a party presents "reasonably available and plausible evidence" supporting its claims and "specified evidence" that lies "in the control" of the other party or a third party, the UPC may grant a "reasoned" request for production of that evidence.

Despite efforts to balance reducing discovery costs with preserving relevant documents in U.S. district court litigations, evidence preservation and discovery standards remain broad and costly, with discovery "proportional to the needs of the case" still encompassing evidence that "need not be admissible in evidence to be discoverable."3 Comparatively, UPC discovery promises to be more limited and not by right. Thus, once again, it is more similar to discovery at the PTAB. The difference in extent of discovery is probably the most significant difference to consider when bringing patent enforcement actions in the U.S. and the UPC. UPC discovery may prove advantageous if discovery is more easily obtained, while complex cases may favour seeking broad U.S.-style discovery.

Damages

The UPC may determine damages during a separate proceeding, with the successful party having up to one year from the final decision on the merits on both infringement and validity to apply for a damage determination. The application may include a request for an order "to lay open books" and must indicate the redress sought (damages, license fees, profits), in particular calculations concerning lost profits or the infringer's profits.

U.S. courts awarded an overall median damage amount of $5.4 million over the past 20 years,4 and it obviously remains to be seen how UPC damages will compare. In contrast to the UPC, US courts can award running royalties as well as enhanced damages for willful infringement (i.e., triple damages), whereas UPC damages are limited to "the harm actually suffered" and cannot be punitive. But attorneys' fees are generally not available in the U.S., only in "exceptional" cases that stand out from others with respect to the substantive strength of a party's litigating position,5 while at the UPC, the Rules contemplate the unsuccessful party paying attorneys' fees. This could encourage UPC litigation to rival U.S. litigation and minimise any concern regarding lower damage awards.

Provisional Measures

The UPC may order "provisional measures," including issuing injunctions against the defendant, as well as seizing suspected infringing goods to prevent entry into or movement within channels of commerce. It remains to be seen how obtaining an injunction will compare to obtaining one in the U.S., but the UPC can conveniently issue seizure orders, akin to the ITC's ability to exclude entry of infringing goods into the U.S. or preclude dissemination of such goods in commerce.

What Does It All Mean?

There are many factors potential users of the UPC system will need to weigh when determining how to use the new UPC system as part of a global patent enforcement strategy. The perceived benefits of litigating in the UPC should be weighed against the benefits of litigating in the U.S. The UPC presents patentees with the uncertainty surrounding a fast and possibly lethal attack on their patent rights at any time in Europe that could be leveraged in the U.S. Of course, it remains to be seen how the handling of cases by different divisions will develop and how that level of predictability at the UPC compares to actions before district courts, the PTAB, the ITC, and the Federal Circuit in the U.S.

Footnotes

1 Procedures and Rules of the UPC discussed herein are based on the Agreement on a Unified Patent Court of 19 February 2013 and Rules of Procedure of the Unified Patent Court of 19 October 2015.

2PWC, 2015 Patent Litigation Study: A Change In Patentee Fortunes.

3 Fed. R. Civ. P. 26(b)(1) (Dec. 1, 2015).

4 PWC, 2015 Patent Litigation Study.

5 Octane Fitness, LLC v Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014).

Previously published in CIPA Journal

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.

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