April 15, 2015
Managing Intellectual Property
By Anthony C. Tridico, Ph.D.; Martin D. Hyden; Leythem A. Wall
Authored by Martin D. Hyden; Anthony C. Tridico, Ph.D.; and Leythem A. Wall
The Unitary Patent and the Unified Patent Court (UPC) are coming. After decades of failed attempts, Europe is about to embark on a new centralised patent court system. And the changes in Europe will have a dramatic impact on the ways companies manage their patent portfolios and plan and coordinate global litigation strategies.
The new system will build upon the largely centralised patent examination at the European Patent Office (EPO) and offer a unified set of substantive and procedural laws that should simplify patent litigation throughout most of Europe. However, the new system is not without concerns. Companies looking to do business in Europe will need to keep a number of factors in mind as they navigate the new system.
While the procedures for procuring patents at the EPO will remain largely untouched, portfolio strategies, especially during the seven or 14 year transition period, will certainly change. The three main factors affecting choices in obtaining and maintaining patents post-Unitary Patent are overall cost, predictability of outcomes, and vulnerability of patents to attack.
Cost issues are relatively clear. The cost of obtaining a patent through the EPO will not change substantially for either Unitary Patents or regular European Patents. While not yet known, it appears that the cost of opting out of the Unitary Patent will not be significant. Post-grant renewal fees are somewhat different. Again, while the actual fees have not yet been fixed, it appears most likely that they will be equivalent to four or five times the average national renewal fee. Based on recent validation data for European Patents, most are maintained only in the UK, France and Germany. The next two most common countries for validation have been Italy and Spain, neither of which will be covered by the Unitary Patent. These five countries have made up over 80% of the European Patents maintained postgrant. Maintaining protection in these five countries using the Unitary Patent route will therefore be more expensive as the total maintenance fee will be equivalent to that for seven countries (five for the Unitary Patent plus two extra to cover Italy and Spain). The question for patentees is whether or not they see the added value of protection in the other Unitary Patent states as worth the extra fees. In addition, the UP renewal fee remains at this level of equivalence; it is not possible to reduce it by ceasing to maintain the patent in certain countries so as to reduce the renewal fee cost as the patent gets older, or if its relevance to certain markets decreases.
Based on the current data, it is difficult to see the Unitary Patent offering any significant cost saving when compared to current practice in all but a few cases. One of the original selling points of the UP, the reduction in validation costs, will only hold true if a large number of countries are of interest and there is no wish to be able to reduce coverage to manage cost.
While the possibility to opt-out of the Unitary Patent remains, patentees will have the possibility to stay with the current system and manage renewal fees accordingly. There will also remain the possibility, as there is today, to seek protection by means of national filings instead of filing at the EPO (although applications proceeding via the PCT route do not have the national option in certain countries and must proceed via the EPO in order to obtain protection in those countries). Filings via the national route have different cost implications. The need to translate the application into the local language at filing, and to conduct parallel prosecution, obviously have the potential to increase the cost of obtaining the patent considerably. However, these additional costs can be offset against the higher EPO fees, particularly renewal fees for pending applications, and extra fees for more than 15 claims and more than 35 pages. Consequently, for shorter specifications with relatively few claims that are easy to argue as patentable, the national filing route for the three most common EPO countries may represent a less expensive option and retain the flexibility to drop certain countries to manage renewal fees. This benefit is less clear if the specification is long, the patentability of the invention difficult to argue, more countries are covered, or the PCT is being used.
The good news is that predictability of outcomes in prosecution, opposition and appeal at the EPO are well-known and are not changed for the Unitary Patent. The bad news is that in addition to post-grant opposition at the EPO, the validity of the Unitary Patent can be challenged in a central revocation at the UPC–and there is significant uncertainty surrounding these new proceedings. While the law on patentability will be the same as that applied by the EPO, the judges will be drawn from the pool of UPC judges and so their level of expertise in such matters may be more inconsistent. This will hopefully be offset to some degree by the training that the UPC judges will undergo. However, until there is a large enough sample size of revocation actions before the UPC to evaluate, the predictability is an unknown. And this is certainly of considerable concern. The possibility of appeal to the CJEU, which also has no record on patentability matters, adds further uncertainty. Business abhors uncertainty.
Unitary Patent can be challenged in a central revocation at the UPC–and there is significant uncertainty surrounding these new proceedings. While the law on patentability will be the same as that applied by the EPO, the judges will be drawn from the pool of UPC judges and so their level of expertise in such matters may be more inconsistent. This will hopefully be offset to some degree by the training that the UPC judges will undergo. However, until there is a large enough sample size of revocation actions before the UPC to evaluate, the predictability is an unknown. And this is certainly of considerable concern. The possibility of appeal to the CJEU, which also has no record on patentability matters, adds further uncertainty. Business abhors uncertainty.
At a national level, the relative uncertainty in procedures at the various national patent offices are also well-known. In certain countries patents are not subjected to substantive examination so it is relatively easy to get a patent granted. In others, detailed examination takes place, often with a different emphasis to that encountered at the EPO. For example, for the three most common EPO countries, France does not conduct substantive examination; Germany has a deferred examination system that is similar in many ways to the EPO system but has clear differences in approach, such as in assessment of added subject matter; and the UK conducts substantive examination with greater flexibility on added subject matter, a slightly different approach to the assessment of inventive step, but a stricter view an assessment of eligibility of patentable subject matter. These differences can be compounded by the different speeds of prosecution in the various countries leading to a greater difficulty in coordinating prosecution to achieve comparable outcomes. The variability at a national level is probably even greater before the national courts, reflecting the differences in experience of judges with patents, familiarity with procedures, speed, differences in local law and practice relating to evidence, etc. It is unclear to what extent, if any, the decisions of the UPC will impact on national proceedings.
Under the current system, the European Patent is vulnerable to central attack only during the nine months immediately following grant via the EPO opposition procedure. Any amendment or complete revocation arising during opposition or appeal applies equally to the patents in all validated countries. The Unitary Patent, however, as mentioned is also vulnerable to central attack at the UPC at any time after grant. At present, once the opposition period is over, the only option is to attack validity on a country-by-country basis. Thus, the Unitary Patent presents patentees with the uncertainty surrounding a fast and possibly lethal attack on their patent rights at any time.
In summary, on the basis of current EPO data, the Unitary Patent will be more expensive to obtain coverage for the current most commonly selected EPO countries and will offer less flexibility to manage costs as the patent ages. Whether or not this extra cost is justified in terms of the wider geographical coverage, and option to enforce in a central court, will be for the patentee to decide. In terms of predictability, the novelty of the UPC means that it is difficult to know how its practice will develop. However, given its structure, it appears that it should stabilise over time and lead to a better understanding of predictability. Perhaps the most important consideration is the vulnerability to central attack. The Unitary Patent is inevitably more vulnerable than the traditional European or national patent given the possibility of seeking central revocation for the lifetime of the patent. As with cost, it remains to be seen if patentees will offset this increased vulnerability against the ease of enforcement across multiple jurisdictions.
In deciding whether or not to litigate in the UPC, there are a number of considerations, such as language, venue, and experience of the judges. However, those are present in any global litigation and are all factors to weigh in trying to understand the larger, more practical questions:
At present the court fees have not been decided. What we do know is that the court fees will consist of a fixed fee, combined with a value-based fee above a pre-defined ceiling. Furthermore, the fees shall be fixed at a level as to ensure the right balance between the principles of (1) fair access to justice, in particular for small- and medium sized enterprises as well as other similar entities and (2) an adequate contribution of the parties to the costs incurred by the UPC.
In January 2014 a draft proposal was suggested including additional value-based fees if the value of the action exceeds €500,000 and value-based fees on a sliding scale from €500,000 to €30 million.1 A second draft is expected later this year.2
Even if the costs are not always lower than national litigation in a single state, the fact that the UPC will have jurisdiction for a large group of EU member states means that the expenses and bureaucracy of parallel multi-national litigation will disappear.3 A significant cost saving therefore can be expected.
Another aspect with financial implications to consider is discovery and as a result attorney fees. Discovery is the number one driver of litigation costs. And compared to the US and even the UK, for example, discovery will be limited, therefore less expensive, and not by right. Article 54 UPC-A lists the type of evidence that can be obtained and Article 59 UPC-A indicates that the Court will only issue an order to provide evidence where a party has first "presented reasonably available evidence sufficient to support its claims and has, in substantiating those claims, specified evidence that lies in the control of the opposing party or a third party". Thus, UPC litigation will provide coverage in a market of similar size to the US but with both significantly less internal and external costs stemming from fewer internal resources dedicated to discovery and significantly reduced document production and attorney time.
Litigants usually want a quick resolution. One of the main attractions of the UPC is the proposed timeline. Current times to trial in national courts are 12 months in the UK, less than 14 months in Germany and 22 months in France. The UPC at least intends to operate under a very compact timetable with time to trial 12 months, a day for the oral hearing and the decision issued in writing within six weeks. Complex cases may however require additional procedural steps and take longer. The emphasis is on the written proceedings with a detailed statement of claim, as compared to UK High Court pleadings. The aim is to extract the key issues from the written pleadings so that any oral hearing can focus just on them. Overall the Written Procedure is intended to last between five and eight months, the interim procedure up to three months, with the final oral hearing taking place within 12 months.
A number of remedies will be available to users for the UPC and provide another positive consideration over current litigation in Europe. Injunctions will not be automatic but at the discretion of the Court when weighing up the interests of the parties and in particular the potential harm for either of the parties resulting from the granting or the refusal of the injunction. The Court may also order the seizure or delivery up of products suspected of infringing. Additional remedies include a declaration of infringement and destruction of infringing products and precautionary measures such as blocking of bank accounts.
Damages will be available but will not be punitive. They can however go beyond mere compensation as the Court considers lost profits of the injured party, unfair profits of the infringer and, where appropriate "moral prejudice" caused to the injured party by infringement. Even in cases of innocent infringement, the Court may order a recovery of profits or payment of compensation.
Also, consistent with most European systems, the general rule will be that the losing party pays and will bear the reasonable and proportional costs of the successful party. A party is also to bear any unnecessary costs it has caused the Court or another party. And although punitive damages, such as triple damages in the US, will not be possible for UPC users it is clear that a number of remedies are available and that if you win you can expect the other side to pay at least some of your costs.
The most important question is: what are my chances of success? Here a number of factors come into play, such as venue selection, predictability in the law and the competency of judges. While the UPC represents a single Court, in practice there are a number of divisions in different states and possibilities for where an action can be brought. This also has implications for the language of proceedings.
Generally speaking central revocation actions will be brought before the central division and infringement actions before the local or regional divisions where there is suspected infringement. However, depending on whether the revocation action is a counter claim stemming from a UPC infringement action or vice versa, it is possible that both revocation and infringement may be heard at the central division or even a local/regional division. For example if a counterclaim to revocation is made at the local division where an infringement action has been brought it is possible that the local division could handle both revocation and infringement, send the revocation action to the central division but still handle the infringement, or send the entire case over to the central division. This potential for bifurcation or even local/regional divisions handling entire cases has raised speculation about possible forum shopping.
There are also nuances relating to languages. The language of proceedings in the central division for central revocation actions will be the language of the patent (English, French or German). The language employed by the local and regional divisions will be an official EU language designated by that division.
A cautionary hypothetical example is if the UPC infringement action brought in the Czech Republic results in a counterclaim for revocation, it is possible that a Czech local division will be handling infringement and validity of a patent, with proceedings in Czech, with a decision that will have an effect across most of the EU.
It of course remains to be seen how the handling of cases by different divisions in different states will develop. Thus, for the foreseeable future the only certainty is the uncertainty litigants will face. However, it should be noted that the largest proportion of patents are in English and the majority of local/regional divisions look like they will offer English as a language for proceedings. Accordingly, it can be expected that the majority of UPC proceedings will be in English.
Furthermore, the most recent amendments of the UPC Rules of Procedure have been made with a view to limiting some of the issues associated with bifurcation. For example new Rule 37.5 requires that when a regional/local division decides to bifurcate, it must communicate to the central division the dates set for the case management conference and the oral hearing in the infringement case. New Rule 40 requires that the central division "endeavours to set a date for the oral hearing on the revocation action prior to the date of the oral hearing of the infringement action".
As for judges, the Court of First Instance will comprise three legally qualified judges and if deemed necessary a fourth technically qualified judge. The Court of Appeal will consist of three legally qualified judges and two technically qualified judges. To add to the international flavour, the judges cannot all be from the state(s) hosting that local, regional or central division. A training centre was opened in Budapest on March 13 2014 and this year the EPO Academy is organising technical and legal training for less experienced judges.
Accordingly, we can expect well-trained legally and technically qualified patent specialist judges and significantly, compared to the US system, there will be no juries. Thus, the potential is there for high-quality decisions.
As for the law, Article 24 UPC-A indicates the sources as being EU law, the UPC-A, the European Patent Convention (EPC), other binding international agreements applicable to patents, and finally national law. More specifically, Articles 25 to 29 UPC-A define infringement and exemptions before the UPC. Article 65 UPC-A governs decisions on validity and states that a patent can only be revoked based on Articles 138(1) and 139(2) of the EPC. In other words, the validity of patents before the UPC will be governed by EPC law, which is the same well established law that the EPO applies in prosecution and opposition proceedings. One question therefore surrounding judges is whether they will have had sufficient experience of EPC law and not just their own respective national law.
It of course remains to be seen the quality of first instance decisions and how they may vary across different divisions. However, theoretically, all divisions of the Court of First Instance will be relying on the same law and any concerns may largely be addressed by having a single common Court of Appeal.
There are many factors potential users of the system will need to weigh when determining how to utilise the new Unitary Patent and UPC systems. Procedures for obtaining patents will remain essentially the same at the EPO. However, for most users significantly increased costs and the substantial risk of a central revocation will accompany a Unitary Patent. Therefore, the perceived benefits from litigating in the UPC should outweigh these risks if one is to choose a Unitary Patent instead of opting out. Clearly, at least at the onset, the UPC will not eliminate all of the inconsistencies and uncertainties of European enforcement. But, overall, the UPC is likely to benefit litigators by allowing easier coordination of strategy and procedures. Businesses may also prefer the UPC system to the US system in many circumstances because of the reduced costs for a similar size market effect. One thing is for certain, with the new system on the horizon now is the time for potential users to weigh up their options and begin to develop a strategy.
Endnotes
1 http://www.eplit.eu/files/downloads/UPC%20Draft%20Rules%20on%20Court%20fees%20and%20recoverable%20costs.pdf.
2 http://www.unified-patent-court.org/images/documents/roadmap-201409.pdf.
3 http://www.unified-patent-court.org/about-the-upc/27-category-n/60-how-much-will-it-cost-to-litigate-before-the-upc.
European Patent Office (EPO), patent reform, Unified Patent Court (UPC), Unitary Patent, United Kingdom (UK)
Originally printed in Managing Intellectual Property. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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