In or out? It's a question on all our minds at the moment with the upcoming UK referendum on whether to leave the EU. For companies with an existing European patent portfolio, it's also time to start considering whether to opt-out of the forthcoming Unified Patent Court (UPC), which is expected to launch in the first half of 2017.
Upon its commencement, the UPC will be the "default" forum for the assessment of infringement of European patents, and will also hear challenges to their validity. With the power to issue pan-European orders (e.g. injunctions) against infringers and to revoke a European patent in the EU countries in which it has been validated simultaneously, UPC rulings can be expected to have a significant impact on the patent landscape. Notably, its judgments will be enforceable throughout all of the EU countries which have signed the UPC Agreement. This is highly unlikely to include all EU countries at the launch of the UPC, though it will include the UK, France and Germany, which are by far the most common countries for European patent validation.
In view of the significant changes that will be brought about by the inception of the UPC, there are provisions to opt classical European Patents (and any corresponding SPCs) out of the jurisdiction of the UPC for the lifetime of the patent. The ability to opt-out will be available for a seven year transitional period (and potentially longer) on a patent-by-patent basis. This will require action from patent proprietors and, whilst the practical steps are expected to be relatively straightforward (it is envisaged that the submission of a single form to the UPC Registry will be sufficient to opt-out multiple patents, with no official fees to be paid), reaching a decision on whether to opt-out (or more likely which patents to opt-out) will be far more challenging.
The main benefit of the UPC is the prospect of the pan-European enforcement of patent rights, e.g. an injunction that is enforceable throughout all of the EU countries which have signed the UPC Agreement. However, that benefit comes with the risk of pan-European revocation of the patent or a pan-European declaration of non-infringement.
The UPC will have jurisdiction not only over European patents granted after the new system comes into effect, but also over already-existing European patents and European patents granted on the basis of currently-pending applications. It is therefore vital to consider the pros and cons of opting in or out of the UPC for your existing patent portfolio as well as for any future patent applications.
Reasons to Opt-out
If, in the foreseeable future, the likelihood of enforcing a patent is low, the risks of pan-European revocation of the patent may outweigh the benefits associated with a pan-European injunction, particularly if the patent is of significant value. This would include if it covers a successful commercial product or is subject to a lucrative license, or if only a small number of countries are of commercial importance. Notably, if a patent is, or has been, the subject of Opposition proceedings before the EPO, the opt-out option may be the safest course of action, as unsuccessful Opponents could be expected to challenge the validity of the patent before the UPC. Significantly, UPC revocation actions can be brought at any point during the lifetime of the patent unlike EPO Oppositions, which must be filed within 9 months of grant.
A further reason to opt-out may be that the national courts are a "known quantity" relative to the untested UPC. Furthermore, the UPC court filing fees are considerably higher than in some of the national courts.
It is also important to remember that it is possible to withdraw the opt-out (albeit only once), unless national proceedings have already started. Thus, the decision to opt-out is not final and it may be the pragmatic choice for many proprietors while the UPC gets up and running.
Another important fact to remember is that, unlike "classical" European Patents, it will not be possible to file an opt-out for a Unitary Patent. Thus, the reasons for opting out discussed above may also influence a decision on whether or not to opt for unitary effect upon allowance of a pending application. We will be writing a separate article on this in due course.
Reasons to stay in
If there is an expectation that a patent will need to be enforced and/or enforcement may be required in a large number of EU countries, it may be desirable to keep the patent within the jurisdiction of the UPC in order to benefit from the possibility of a pan-European injunction. The UPC may also offer some attractive procedural efficiencies as proceedings are designed to take a maximum of 12 to 15 months, which is significantly faster than proceedings in some national courts. The UPC also offers some interim measures that are wider-ranging than the powers available to some national courts.
Notably, it will be possible to opt-out at any time within the seven year transitional period should there be a change in circumstances (provided no action has already been brought in the UPC). Thus, the decision to "stay in" is also not final, except for Unitary Patents, which are "in" by default and cannot be opted-out.
Whilst there are no official fees associated with opting out of the UPC, it is important to note that the opt-out will be effective only if it is submitted by the actual patent proprietor(s) and all proprietors must agree to the opt-out. Thus, it will be important to ensure that any changes in ownership (for example, from inventors during the term of the patent/application), have been properly documented before opting-out. Whilst all patent proprietors will need to exercise significant due diligence to ensure that appropriate assignments are in place prior to opting out, this may represent a significant burden for companies with large patent portfolios. Thus, it may be pragmatic for some proprietors to allow "less important" patents to stay in the jurisdiction of the UPC in the first instance.
As the UPC becomes established there may be other reasons to keep patents within the UPC jurisdiction. For instance, the national courts may become less influential and/or the jurisprudence of the UPC may develop favourably for patentees. It is also possible that opted-out patents may be perceived negatively, which may influence proceedings involving corresponding patents in other countries.
Summary
The decision to opt-out or stay in the jurisdiction of the UPC is not straightforward and no single strategy will suit all patent proprietors. A balanced approach will be required and proprietors will need to weigh the likelihood that they will need to enforce their patent(s) against the potential risks of losing valuable assets.
Whilst it will be possible to opt-out at any time up to one month before the end of the seven-year transitional period (unless an action has already been brought in the UPC), we strongly advise considering this issue now. As it will be possible to opt-out before the launch of the UPC during the so-called 'sunrise period', which is expected to start around October 2016, it will be important to ensure that any due diligence regarding the ownership of the patents is completed as soon as possible. Opt-outs can be filed even while a patent application is pending and therefore you do not need to wait until grant in order to take a decision.
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.
