Deciding whether to opt out of the Unified Patent Court (UPC)
The new Unitary Patent is coming soon to Europe and with it comes the Unified Patent Court (UPC) which will have sole jurisdiction for Unitary Patents. However, the UPC will also be able to rule on the infringement and validity of existing European patents unless the patent proprietor(s) opt out of the jurisdiction of the new Court. After an introduction, this article discusses whether or not to opt out. We have a separate article which discusses how the UPC opt out works in more detail.
Why the opt out is important
Prior to the commencement of the Unified Patent Court, European patents were litigated only in the national courts of individual European countries where a European patent was in force. Each national court can decide on infringement and validity, and perhaps award an injunction or damages, in respect of its own territory. In practice the national courts are not islands - sometimes rulings covering multiple European countries are available - but it is common to find that the validity of a patent is judged on a country-by-country basis and it is possible to end up with parallel litigation taking place in multiple countries, sometimes with different outcomes in different countries. It has long been thought that this is not cost-effective for anyone.
Once the UPC opens on 1 June 2023, then for a transition period of 7 years (which may be extended), for the countries which are participating in the UPC, it will be possible for patent infringement and revocation actions to be filed in either the UPC or the national courts. Thus, the UPC will suddenly have jurisdiction over European patents which predate the UPC - as well as newly granted European patents, even if the proprietor does not register a Unitary patent. The UPC may award injunctions or damages across all UPC participating states and if it revokes a European patent that will apply across all UPC participating states.
This is an issue because some patent proprietors are concerned about the risk of revocation actions being conveniently filed in the UPC which might cause their patents to be partially or wholly revoked in many EU countries (initially up to 17), in a single, fairly quick, legal action. However, if the patent proprietor(s) opt their European patent out of the UPC then the UPC will not have jurisdiction and third parties may only bring revocation actions before national courts - as the situation was before the creation of the UPC. An opt out can be filed in a sunrise period before the UPC commences to avoid UPC jurisdiction from day 1 of the new system. If a patent is opted out, the proprietor(s) may withdraw the opt out, for example if they wish to bring infringement proceedings in the UPC. However, a patent cannot be opted out a second time.
Before we get into the detailed reasons for and against opting a patent out, we want to stress two points:
1. This relates only to UPC participating countries
The UPC, and the opt out, only relate to the UPC participating countries, initially 17 countries, of which the largest are Germany, France and Italy. Nothing is changing in respect of the other European patent convention countries, including for example the United Kingdom, Switzerland, Spain and Norway which are not participating in the UPC, either because they are not in the EU and so cannot participate, or because they do not want to do so. Separate litigation will often be required in respect of those states.
Bear in mind that a large proportion of existing European patents which remain in force are in force in the United Kingdom, which left the UPC system when it left the EU. This means that, for many European patents, even if the UPC revokes the patent in participating UPC countries, there will be at least a remaining UK right, and perhaps rights in other states which are not participating in the UPC. Thus, frequently, if the patent proprietor loses a revocation action in the UPC for an existing European patent they will not actually lose all of their European rights in the patent at once.
2. This is (mostly) about revocation risk
It is also important to understand the concern mostly relates to the risk of third parties applying to revoke European patents in the UPC rather than risks relating to infringement. If a patent proprietor wants to sue for infringement in the UPC and their European patent is opted out of the UPC, they can withdraw the opt out and start an infringement action in the UPC at the same time (provided that no litigation has started in the national courts). Patent proprietors don't need to think now whether they might want to assert their European patent before the UPC or in the national courts. They need to think how they feel about the possibility of third parties seeking to revoke their patent having the option of doing so in the UPC instead of the national courts.
(We say mostly because if a patent is opted out of the UPC then a proprietor who is considering asserting the patent against an infringer might find that the infringer responds to a cease and desist letter by starting some kind of an action, possibly even a quite spurious one, in a national court simply to prevent the patent proprietor from withdrawing the opt out and using the UPC for an infringement action. Thus, the patent proprietor who opts out won't always have the choice whether to sue for infringement in a national court or before the UPC. There is also a risk that third parties might apply to the UPC for a declaration of non-infringement to try to gain the initiative in a dispute or clarify their freedom to operate.)
We will now summarise the main reasons to opt out or to not opt out of the jurisdiction of the UPC. This will then be followed by a list of other points to consider.
Reasons to opt out
Reduce risk of losing protection in many countries at once
The main reason to opt a European patent out of the UPC is to avoid the risk of losing patent rights in many EU countries in a single action. When assessing how important this reason is to you, you might consider in how many other European countries which are not participating in the UPC your patent is in force, and how important those other countries are to you. If you have patent rights in several commercially important countries which are not participating in the UPC you might not be especially concerned about this.
Especially if you have directly linked licence income
If you have out-licensed a European patent and you receive royalties only in the countries where you have patent protection then you would be keen to make it as difficult as possible for third parties to revoke your patents across large areas and so you would have a relatively strong preference for any revocation to be before the national courts.
Maintain the status quo
Another reason to opt out is simply to maintain the status quo in which only the national courts can be used to revoke European patents (after the opposition period deadline).
The UPC will be new and may be unpredictable. Some patent proprietors will be keen to avoid it for this reason.
Just to be difficult
If you opt out, it is less convenient for third parties to file revocation actions as they lose the option to do so before the UPC. Also, they cannot apply for a declaration of non-infringement covering all participating UPC countries through a single action.
Reasons not to opt out
Keeping your options open
Remember that if you opt a patent out of the UPC and then withdraw the opt out, you can't opt out a second time. Therefore, if you haven't used your one opportunity to opt out, you retain your one opportunity to opt out. This may be a reason to take no action.
Reduce the risk of being locked out of the jurisdiction of the UPC
If you are a patent proprietor who wants to enforce your patents against infringers, the UPC could be a very good choice. It has been designed to be cost- and time-effective, and provides procedural advantages over some national courts. But if you have opted out, there is an enhanced risk that a potential infringer could take pre-emptive action before a national court as a strategic ploy: this could lock you out of the jurisdiction of the UPC at a time when it might be most useful to you.
Although there is no official fee, we and other representatives generally make a charge to file an opt out. If the opt out might be difficult, perhaps because there are multiple proprietors who are not cooperating with each other, or difficulties proving ownership of the patent, costs may become high.
You might not have a choice
Some parties with an interest in a patent will not have the choice of opting out; for example, licensees do not have a right to file an opt out, only proprietor(s). It is worth checking any existing licence agreements to see if they discuss whether or not patents are to be opted out and/or whether the proprietor must take, or not take, action if requested by a licencee. Some patent proprietors may also have difficulty in proving their entitlement to a patent.
Bias to inaction
Although filing an opt out preserves the status quo, not filing an opt out preserves the option to later file an opt out (assuming no third party has started national court proceedings), which you can only do once, and so you equally might consider doing nothing to be the logical default position.
Likelihood of a revocation action
If you believe that third parties might well file a revocation action against your patent (or apply for a declation of non-infringement), that may well make you wish to file an opt out to avoid giving the third parties a new forum. If on the other hand you think it is very unlikely that a third party will file such an action you might be more inclined to take no action.
Strength of patent
If you are confident that a European patent is strong you might not be concerned by the risk of third parties filing revocation actions in the UPC, indeed you might welcome the opportunity to demonstrate the strength of the patent. On the other hand, if you believe that a patent is thought to be vulnerable to revocation you may wish to opt out to minimise options for potential challengers.
It may be that you are in an industry where challenges to the validity of patents are quite common and where the parties are fairly practical and are likely to be able to come to global settlements without fighting patent validity actions around the world. In that case, you might be happy to have validity challenged in the UPC because it is expected that it will be a fairly quick, reasonably priced (compared to say US or UK litigation) and influential. It might be that a decision before the UPC could be leveraged to enable global settlement without both sides to a dispute conducting expensive litigation in multiple territories. In this case, you might not want to opt certain patents out.
In the opposite direction, there is a concern that the UPC might be a litigation magnet in the sense that it is not going to be an expensive place in which to start a revocation action (compared to the UK High Court or US courts). In more expensive jurisdictions, a higher proportion of cases settle without going to full trial and fewer cases are appealed. It is possible the UPC will be chosen over other jurisdictions as the place to start international patent battles and it may see a relatively high proportion of cases reaching full trial and a relatively high appeal rate.
Although we will need to wait to see what happens, it is possible that parties who file oppositions to European patents may fairly regularly also file UPC revocation actions. Thus, in industries where oppositions are quite common, patent proprietors may be keen to opt pre-existing European patents out to avoid defending dual opposition and revocation actions.
Some large companies who are routinely involved in patent litigation may wish to be active in the UPC in its early days to try to set precedents in their favour. This does not apply to most patent proprietors!
Until the UPC system has been running for some time, it will be difficult to predict what litigation costs are likely to be. They will vary greatly between cases. However, what we will say at this stage is we expect that filing a UPC revocation action will sometimes be quite cost-effective relative to national court proceedings. European patent attorneys will have representation rights and are used to filing and defending oppositions at a cost that looks very reasonable relative to many national court actions. For other matters, such as battles between pharmaceutical companies over high-value drug patents, actions will likely be expensive.
If you have any questions about the opt-out or require assistance with Unitary patents or European patent applications, please do not hesitate to contact us.
Author: Alistair Hindle