Following many years of consultation, negotiation and political horse-trading, far-reaching reforms to the European patent system are close to being implemented. For the first time, the new unitary patent (UP) would allow patents to be obtained in Europe with a degree of pan-European scope. In parallel, the new Unified Patent Court (UPC) would enable UPs to be enforced across much of Europe on a one-stop-shop basis. Importantly, however, the jurisdiction of the UPC would not be confined to the new UPs, as existing European patents would also be within its remit. These reforms would therefore have a significant impact on patent litigation in Europe.
The establishment of a Europe-wide patent jurisdiction has been a long-standing ambition. The prospect of only having to litigate a single patent in a single court, and all attendant efficiencies and cost savings, is attractive to patentees that currently have to litigate in multiple European countries to enforce their rights. Indeed, a number of attempts have been made over the years to bring such a system about, including the Community Patent Convention (1975) and the proposed European Patent Litigation Agreement (2004). However, none of these previous projects managed to gain acceptance. Each of them struggled in one way or another to balance the competing interests of the European Union and its Member States, while at the same time accommodating the existing system under the European Patent Convention (EPC). It is against this chequered history that the UP and UPC have emerged.
The EU Regulations needed to allow the grant of a UP were adopted in December 2012,2 closely followed by the signing of the UPC Agreement in February 2013.3 Since then, the UPC Preparatory Committee (working on the UPC) and an EPO Select Committee (working on the UP) have been busily consulting with stakeholders, drafting rules and procedures, and setting up facilities. Following ratification of the UPC Agreement by the UK in April 2018, the last remaining political step to be taken before the reforms can come into effect is for ratification by Germany. However, this final step presents a potential obstacle to the reforms getting off the ground. A complaint filed at the German Federal Constitutional Court (FCC) in 2017, which is listed to be heard in 2019, has delayed the implementation of the reforms and still has the potential to derail them entirely. In the UK, the decision to leave the EU leaves questions over the inclusion of the UK in the new system.4 Despite the continued uncertainty, users of the patent system in Europe need to be aware of, and plan for, the potential changes ahead.
II The Unitary Patent
Patent protection is currently available in all Member States of the EU, as well as neighbouring countries that are EPC signatories, either through individual filings at national patent offices, or through a single filing at the European Patent Office (EPO). Each application filed at the EPO results in the grant of a European patent (EP), which is essentially a bundle of national patents covering all countries designated by the applicant.
The new UP, formally known as the 'European patent with unitary effect', will supplement these existing options with a pan-European right. It is set to be introduced initially in respect of the subset of EU states that have so far signed and ratified the UPC Agreement. However, it is hoped that it will eventually have wider territorial scope as more countries proceed with ratification or sign up to the project.
The UP has its basis in EU law but also carries the status of a 'special agreement' under the EPC with which it is closely integrated. Indeed the UP Regulation, which establishes the UP as a substantive right, entrusts responsibility for the prosecution and grant of UPs to the EPO – an organisation established under the EPC and that is distinct from the EU. The UP Regulation envisages that UPs will be prosecuted in the same way as other EPs but, once granted, will differ in their territorial scope and by virtue of being subject to the exclusive jurisdiction of the UPC. Applicants will be able to decide during the validation phase whether to designate their EP as a unitary patent, or alternatively to opt for the patent to grant in the traditional 'EP' manner as a bundle of patents covering designated territories.
III The Unified Patent Court system
The UPC Agreement makes provision for establishing the jurisdiction of the court, and for creating and administering the various UPC institutions. It also provides for a set of Rules of Procedure (UPC Rules), which govern how cases are brought before the court and managed. The UPC Rules are now in near-final form having been under development by a multinational team of lawyers and judges since 2009.
i The UPC's jurisdiction
The UPC will have exclusive jurisdiction over most actions relating to UPs, including infringement actions, actions for declarations of non-infringement and actions and counterclaims for revocation of UPs. Importantly, however, subject to an initial transitional regime (which will last at least seven years), it also has jurisdiction over existing and newly granted EPs. The provisions relating to the transitional regime are complex, but importantly give owners of EPs the opportunity to opt them out of the jurisdiction of the UPC.
ii Structure of the UPC
The UPC includes a Court of First Instance and a Court of Appeal.
The Court of First Instance is divided into central, local and regional divisions. In very general terms, infringement actions will predominantly be brought in the local and regional divisions, depending on the domicile of the defendant or defendants and the location of infringing acts, and revocation actions and actions for declarations of non-infringement will be brought in the central division. The UPC Agreement and the UPC Rules set out the options where there are parallel proceedings in different divisions between the same parties in relation to the same patent.
The central division is based in Paris, with sections in London and Munich. Cases will be allocated to different sections by reference to technology areas under the WIPO International Patent Classification.5
Local divisions may be established by request of a contracting Member State, with up to four divisions per contracting Member State, depending on its level of patent litigation. Where a contracting Member State does not want to host a local division on its own, regional divisions may be set up for two or more contracting Member States. It is expected that local divisions will be established in Germany (Düsseldorf, Mannheim, Hamburg and Munich), France (Paris), the United Kingdom (London), Belgium (Brussels), the Netherlands (The Hague), Denmark (Copenhagen), Italy (Milan), Austria (Vienna), Ireland6 (Dublin), Finland (Helsinki) and Slovenia (Ljubljana). A Nordic-Baltic regional division has been announced, for Estonia, Latvia, Lithuania and Sweden, based in Stockholm. It is also expected that two further regional divisions may be set up: a South-Eastern division, for Greece, Bulgaria, Romania and Cyprus, with the location yet to be agreed, and a Czechoslovakian division, for the Czech Republic and Slovak Republic, likely to be based in Brno.
There is a single Court of Appeal based in Luxembourg.
iii UPC judges
There are two types of UPC judges, legally qualified judges and technically qualified judges. All judges are required to attain the highest standards of competence, to have proven experience in the field of patent litigation, to be a national of a contracting Member State and to have a good command of at least one official language of the EPO (English, French and German). The requisite experience in patent litigation can be obtained by training if required, and a training centre has been established in Budapest (for both the training of candidate judges and for ongoing training of UPC judges). Legally qualified judges must also possess the qualifications required for appointment to judicial office in a contracting Member State. Technically qualified judges must also have a university degree and proven expertise in a field of technology, and at least one technically qualified judge per field of technology with the relevant qualifications and expertise will be required at the outset.
All cases before the divisions of the Court of the First Instance will be heard by a multinational panel of at least three judges, unless the parties request the case to be heard by a single judge. The panels of the local and regional divisions will include three legally qualified judges, and a technically qualified judge may also sit on the panel in certain circumstances. The panels of the central divisions will include two legally qualified judges from different Member States, as well as a technically qualified judge. Except in limited specified circumstances, the Court of Appeal will sit as a panel of five judges, three legally qualified judges from different contracting Member States and two technically qualified judges.
Staffing of the Court of First Instance is from the pool of all legally and technically qualified judges. The judges will be allocated to the various divisions of the Court of First Instance by the President of the Court of First Instance having regard to their expertise and linguistic skills, with a view to ensuring that all panels are able to provide high-quality decisions. The technically qualified judges will also be available to the Court of Appeal.
The recruitment of the UPC judges began in 2016, but the official appointment of UPC judges has not taken place because of the delays in introducing the UPC. It is difficult to estimate the number of judges that will be required at the outset, given uncertainties surrounding how many local and regional divisions will be set up and the number of cases that will be brought. However, following receipt of judicial applications in July 2016, the intention was to appoint 45 legal and 50 technical judges in permanent positions, and a similar number as 'reserve' judges.
iv Role of the CJEU
The role of the Court of Justice of the European Union (the CJEU) in relation to both the UP and the UPC has been one of the most controversial aspects of the new system through its development.
The UP and UPC were both established under the EU's enhanced cooperation procedure. This mechanism allows a group of Member States to establish legislation between themselves, and also with the involvement of the EU, in certain areas where the EU does not have exclusive competence. The UP is established by way of EU Regulations. The UPC Agreement, however, is an intergovernmental agreement, rather than an instrument of EU law, and so the UPC is not itself an EU institution. Nevertheless, as a result of the history of its development, the UPC Agreement provides that the UPC will apply EU law in its entirety, respect the primacy of EU law and make referrals to the CJEU in the same manner as national courts.
v Language of proceedings
The language of the proceedings will depend on the court in which the proceedings are heard, and there are relatively complex rules governing which languages may be used:
- proceedings in the central division will be in the language in which the patent was granted;
- in the local and regional divisions, the default rule is that the language of proceedings will be an official EU language that is the official language (or one of the official languages) of the contracting member state hosting the division, or one of the official languages designated by contracting member states sharing a regional division. However, local and regional divisions can also designate one of more of the official languages of the EPO (English, German and French), and it is expected that many divisions will permit proceedings to be conducted in English. There are also a number of circumstances where the proceedings can instead be conducted in the language in which the patent was granted; and
- appeal proceedings will be in the language of the proceedings before the Court of First Instance, unless the parties agree to use the language in which the patent was granted.
vi Overview of procedure
The procedure of the UPC is a combination of features taken from various European jurisdictions creating a unique system. It is designed to limit the costs of litigation, ensure that parties bring their best case as soon as possible and achieve first instance decisions within one year. However, it is also flexible, giving the judges the discretion to allow a number of procedural tools to be applied if justified for any particular case.
The procedure in the Court of First Instance includes three phases – written, interim and oral:
- the written phase requires 'front-loaded' pleadings, which include substantive evidence;
- the interim procedure is governed by a judge on the panel nominated as the 'judge rapporteur'. The judge rapporteur will consider what further steps need to be taken to prepare the case for the oral stage, which could include, for example, disclosure, experiments, inspections and further factual or expert evidence. An interim hearing will generally be held, as part of which the possibility of settlement should be explored. The judge rapporteur may also meet with any witnesses to determine what oral evidence should be permitted; and
- the oral stage is governed by the presiding judge and will generally consist of an oral hearing, usually limited to a single day, which provides the parties the opportunity to explain their case and, where appropriate, to hear oral evidence from factual and expert witnesses (although this can also take place during a separate hearing before the oral hearing). Because of the time restrictions, the opportunity to cross-examine witnesses will be severely limited.
Although the UPC is supposed to apply a uniform procedure across all divisions, there is the potential for different divisions of the Court of First Instance to apply aspects of the procedure differently and for forum shopping to develop as a result. For example, it is possible that certain local or regional divisions could develop reputations for being particularly patentee-friendly or to be more likely than others to allow interim procedural steps, such as inspections and disclosure.
Whether this happens will be governed by the practice of the judges in the local and regional divisions. Even though local divisions in jurisdictions with high levels of patent activity currently (such as the UK and Germany) will have panels with two legally qualified judges from those countries, and so may be more likely to apply traditional national practices in the UPC courts, there are a number of aspects of the system that should guard against this. For example, UPC judges will move around between courts and will attend conferences and training with other UPC judges at which the application of the procedural rules will be discussed. In addition, early procedural decisions are likely to be appealed, so the Court of Appeal will be likely to play an active role in developing consistent case law.
vii Fees and costs recovery
The UPC is intended to be self-financing. However, a major incentive for the UPC was the difficulties of SMEs to enforce their patents in the current national system, so it was recognised that UPC fees should not be prohibitively high so as to deny SMEs access to the UPC.
The fees depend on the nature and value of the action. There are fixed fees, which vary depending on the type of action – for example, €20,000 for revocation actions and €11,000 for infringement actions. In addition, value-based fees will also be payable for actions where the value of the action exceeds €500,000, on a scale starting with €2,500 for cases where the value of the action is up to and including €750,000, up to a maximum fee of €325,000 for a value of over €50 million. The value of the action will be determined by the judge rapporteur during the interim procedure.
Fee reductions are available for SMEs and microenterprises, as are partial fee reimbursements where cases are settled or withdrawn prior to the hearing.
As a general rule, the unsuccessful party will bear the reasonable and proportionate legal costs and other expenses incurred by the successful party. However, this is usually limited to a ceiling set out in the UPC Rules.
IV Hot topics
i When will the UPC start hearing cases?
The UPC Agreement will not come into force until four months after it is ratified by at least 13 UPC states, including the UK, France and Germany. In April 2018, and despite previous uncertainty regarding the position that the UK would take in the light of Brexit, the UK became the 16th state to deposit its ratification instrument.7 Therefore, ratification by Germany is the only remaining step required to enable the UPC Agreement to come into force. Before Germany can deposit its ratification instrument the relevant German legislation implementing the UPC Agreement needs to be signed by the President and published in the Federal Law Gazette, but this is currently on hold in light of a complaint filed with the German Federal Constitutional Court.
The UPC Agreement envisages that the court will be fully operational on the day that it comes into existence. To allow this to happen, a Protocol to the UPC Agreement has been signed, which allows some parts of the UPC Agreement to be applied early. It also permits a 'sunrise' period to allow for opt-outs to be registered before the UPC commences.
ii The German Federal Constitutional Court (FCC) Complaint
In 2017 a complaint was lodged with the German FCC by a private individual against the legislation enabling Germany to ratify the UPC Agreement (case reference 2 BvR 739/17). As a result, the FCC asked the German President not to sign into law the parliamentary Act declaring Germany's accession to the UPC Agreement pending the outcome of the complaint. Full details of the complaint have not been made available to the general public, but numerous organisations have been provided with a copy to allow them to provide comments. The complaint is understood to be based on grounds that the relevant German legislation exceeds the limits on the transfer of sovereignty under the constitutional right to democracy in Germany. In particular, the alleged breaches relate to the process by which the legislation was adopted by the German parliament, the legislative powers of the organs of the UPC, lack of independence and democratic legitimacy of the judges of the UPC and incompatibility of the UPC with EU law.
There is no certainty as to the merits of these complaints; however, the fact that the FCC took the step of requesting the President not to sign into law the relevant Act suggests that the FCC at least considers the matter worthy of consideration. The court invited submissions from third-party bodies representing German lawyers, government and industry, by 31 December 2017 (later extended to 31 January 2018).
In terms of the next steps, the court will first decide whether the complaint is admissible, before (and only if it considers the complaint admissible) considering the merits of the complaint. At present the court has not made any public pronouncement on this. The case was originally included in the 2018 hearings list, which strongly suggested that the court will hear the matter on its merits. However, the case was not heard in 2018 and has been listed again to be heard in 2019. Such a deferment is not unusual, and indeed there is no guarantee the case will be heard in 2019, although it is prudent to work on the basis that the complaint may be resolved, and German ratification may take place this year. At the same time, there is also the possibility that the court may refer certain issues to the CJEU, which could delay issues even further.
One thing is certain, the complaint will have (and already has had), at the very least, a significant impact on the timing of the UPC Agreement coming into force.
iii What will the impact of Brexit be?
Notwithstanding that the UK has completed the ratification process, concerns remain as to the UK's continued involvement in relation to both UPs and the UPC when the UK actually leaves the EU. It is clear that, as matters currently stand, only members of the EU can take part in UPs. For the UK to remain a part of either or both systems when it leaves the EU, amendments to the underlying legislation and agreements will need to dealt with, possibly as part of the Article 50 'Brexit' negotiations. A number of commentators believe that it is legally possible for a non-EU member to remain part of the system. However, a key issue will be whether there is the political will in the UK to be part of a system in which EU law has primacy and referrals can be made to the CJEU. These difficulties are further compounded by the German FCC complaint, which has brought uncertainty as to when the UPC Agreement might come into force, and, in particular, whether it will now be in force before the UK leaves the EU.
iv What is the likely uptake of the new system?
In terms of future patenting strategies, UPs are likely to be popular, at least for companies that currently seek protection in multiple EPC states, provided that there is confidence in the new UPC system. This is because (1) the renewal fees for maintaining UPs will correspond to the total sum of the renewal fees currently paid for the four countries in which EPs are currently most frequently validated (Germany, France, the UK and the Netherlands) and (2) UPs can only be litigated in the UPC. Applicants may, however, be put off in the short term by uncertainty regarding how granted UPs will be affected by the UK's departure from the EU.
For the UPC system, a key issue is the extent to which owners of traditional EPs decide to opt their patents out of the system. As explained above, such opt outs can be filed during the 'sunrise' period before the UPC comes into force, to try to ensure that the patents are opted out from day one. If such opt outs are not effective from day one of the new system, and revocation actions are filed in the UPC, it will no longer be possible to opt such patents out. If patents are opted out, then it will be possible for owners to opt the patents back in later on, provided that such patents are not litigated in the national courts. Current expectations are that the extent to which patents are opted out is likely to vary by industry, with the life sciences industry in particular being likely to opt out 'crown jewel' patents. However, the practical development of the procedure of the UPC is likely to be shaped by the early cases in the system, so it is hoped that such cases will reflect a broad range of industry sectors.
v Will these reforms simplify European patent litigation?
The ultimate aim of these reforms is to simplify patent litigation in Europe, to reduce the costs and complexity that exists under the current system of parallel national actions. If UPs prove popular and the UPC system is successful, these aims should ultimately be achieved.
However, in the short term, with the UPC system and existing national systems running in parallel, it is likely that patent litigation in Europe will become more complex rather than simpler. Patentees will need to decide whether to file applications nationally or with the EPO and, if they go down the EPO route and are successful, whether to seek unitary protection or not. For patentees looking to enforce their patents, they will need to consider the features of the current system and the UPC, and it is likely that litigation strategies for complex products covered by multiple patents will include a combination of both systems.
Whatever the pros and cons of the new system, and notwithstanding the current uncertainty as to whether the new system will come into force, patent litigation in Europe is on the cusp of fundamental and exciting changes, and users of the patent system in Europe need to ensure that they will be ready by getting to grips with the impact of these reforms now.
1 Peter Damerell is a partner, and Richard Fawcett and Bryce Matthewson are associates at Powell Gilbert LLP.
2 Regulation (EU) No. 1257/2012 of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection (the UP Regulation) and Regulation (EU) No. 1260/2012 of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable translation agreements.
3 Agreement on a Unified Patent Court, signed on 19 February 2013 (the UPC Agreement).
4 In June 2018 the Hungarian Constitutional Court found that the UPC Agreement was not compatible with Hungarian Foundational Law. It remains to be seen how (or if) the Hungarian legislature will attempt to address this. However, unlike the German complaint, because ratification is not required by Hungary before the UPC Agreement can come into effect, this is unlikely to have a significant impact outside of Hungary and its own inclusion in the new system.
5 London: Class A (human necessities – agriculture, food, personal and domestic articles, health, life-saving and amusement) and Class C (chemistry and metallurgy); Munich: Class F (mechanical engineering, lighting, heating, weapons and blasting); Paris: Class B (performing operations and transporting), Class D (textiles and paper), Class E (fixed constructions), Class G (physics) and Class H (electricity).
6 The future participation of Ireland in the UPC is unclear, as a referendum is required before it can ratify the UPC Agreement. However in the event that Ireland does enter into the UPC Agreement, a local division will be hosted in Dublin.
7 Austria (August 2013), Belgium (June 2014), Bulgaria (June 2016), Denmark (June 2014), Estonia (August 2017), Finland (January 2016), France (March 2014), Italy (February 2017), Latvia (January 2018), Lithuania (August 2017), Luxembourg (May 2015), Malta (December 2014), the Netherlands (September 2016), Portugal (August 2015), Sweden (June 2014), the United Kingdom (April 2018).