What US Lawyers Should Know as EU Unified Patent Court Looms (1)

There’s a big change brewing for patent practitioners in the new year: the opening of the long-awaited Unified Patent Court, a system designed to streamline intellectual property litigation across participating European Union member states.

The court, which is slated to go live June 1, offers patent owners in Europe an alternative to enforcing their IP individually in each country. On the upside, it gives patent holders the chance to assert and defend their technology across roughly two dozen countries. However, it also opens them up to a wide-ranging defeat if they lose.

As participation in the system will be voluntary, open questions remain about which parties the system will benefit the most, which businesses and sectors will be the first to try it out, and how case law will develop in the brand-new venue that has no established precedents.

If I want to participate, what should I consider now?

During the UPC’s sunrise period, set to begin in March, companies can decide whether to opt their existing European patents out of the unified system—and that decision comes with a lot of strategy.

Any litigation related to excluded patents will continue to be brought under the current country-by-country system. In the meantime, parties can also apply for new unitary patents, which would extend their rights to all participating member states. In exchange for the broader enforcement rights, challenges related to the unitary patent will be automatically heard before the UPC.

A patent holder can opt their IP into the unified system later, as long as a competitor hasn’t attempted to invalidate the patent locally.

Companies might find a unitary patent more cost-effective if they plan to enforce it in four or more of the 17 countries currently participating in the UPC system, said Dan Altman, a Knobbe Martens Olson & Bear LLP partner who specializes in foreign patent protection, in an email.

He noted that there’s nothing wrong with taking a wait-and-see approach and staying out of the UPC, as long as you don’t get stuck in a venue you hoped to avoid.

“If an accused infringer brings an invalidity action in a court of one of the individual countries, the possibility to opt back in will be precluded,” Altman said.

Jessica Achtsam, also of Knobbe Martens, noted that UPC actions are aimed at efficiency, and participants should expect expedited proceedings.

“The UPC cases are intended to move at a rapid pace with an expectation of one year from filing to oral hearing,” she said in an email. “Companies should be prepared to have their cases be test cases.”

What are other risks of participating?

The UPC is meant to offer a user-friendly alternative to expensive and time-consuming piecemeal litigation. For patent challengers, it’s an opportunity to kill a patent across member states in one strike. For patent holders, it’s a chance to win a broad declaration of patent validity and collect damages across jurisdictions where infringement occurred.

Large companies with valuable patent portfolios—such as drugmakers—might opt to sit out the early months of the UPC, as they’d stand to lose more in a sweeping judgment against them than they would in piecemeal litigation, said Moritz Ammelburg, a Fish & Richardson PC principal in Munich.

Small and medium-sized companies will have more incentive to become early adopters, he noted, as it might not be financially feasible to enforce their rights on a case-by-case basis under the status quo.

However, one risk of obtaining unitary patents is that they can’t be opted out of at the UPC, and term extensions—called supplementary protection certificates, or SPCs—aren’t centralized, at least for now.

“If you have a Unitary Patent, SPCs will still need to be applied for on a county-by-country basis,” said Finnegan Henderson, Farabow, Garrett & Dunner LLP IP counsel Antje Brambrink, who is based in Germany.

Parties that get an adverse ruling through the UPC can appeal to the central division, but not all decisions are automatically eligible for or granted permission to appeal. Appeals also won’t automatically suspend the effect of the contested decision.

“At the beginning, I think we might see a lot of appeals because there might be a lot of questions with regard to procedural issues,” Brambrink said. “It is possible people will try to shape the law in the way they want to have it.”

What about litigation from non-practicing entities?

Patent holders can opt out of the UPC, but defendants in infringement cases have fewer protections available to them. They could file a premptive action in a national court in hopes of keeping an opted-out patent there and preventing a judgment that would have effects across Europe, or resort to more traditional tactics of seeking a license or settling.

It remains to seen whether the system will open the door for a flood of infringement allegations from non-practicing entities that wield patents in court but don’t use them to offer products or services—a common phenomenon in the US that generally isn’t seen in Europe.

A UPC stipulation that the losing party must pay the case’s legal fees is supposed to curb frivolous lawsuits. However, some practitioners think the €2 million legal-fee cap should’ve been higher to discourage unfounded NPE complaints.

According to Altman, the amount of damages the UPC is willing to award will also influence whether droves of patent holders rush to file suit.

“While the UPC will certainly offer the possibility of damage awards covering a larger geographical area, it is not yet known whether the UPC will continue the traditional reluctance of many of the European courts to award high damages to patentees,” he wrote. “If a general trend toward higher damage awards occurs at the UPC, it would seem inevitable that non-practicing entities would take notice and increase their activities in Europe.”

If I’d rather ‘wait and see,’ what should I monitor?

Fish & Richardson’s Ammelburg said he’s generally advising clients against opting into the UPC, at least at first, as it’s an untested venue that could produce unpredictable results.

Companies should use the months before the UPC opens its doors to review their IP portfolios, he said, and to consider whether the risks of broad-stroke patent litigation outweigh the potential reward of sweeping protections. For instance, a patent that already survived adversarial proceedings under the status quo system might be seen as strong enough to withstand a UPC attack and remain opted into the system.

On the other hand, the same patent could be seen as a target that competitors have already shown interest in invalidating. From that perspective, the owner might choose to opt out of the UPC.

Interested parties should also know that infringement claims, invalidity contentions, and damages related to the same case could all be handled in separate proceedings. Infringement suits will start in local and regional divisions and can be appealed to the central division; new invalidity actions will be filed directly to the central division.

It remains to be seen whether the UPC’s courts of first instance will choose to split proceedings and refer invalidity counterclaims to the central division, or to decide the issues all at once.

Practitioners taking a wait-and-see approach “might be interested to see how the court will handle these cases, whether bifurcation will play a role,” Brambrink said.

She also noted that the UPC can issue injunctions without the need to prove that the measure will be in the public interest, as is typically the standard in the US.

Patent owners should further pay attention to the regional dynamics that develop among courts of first instance, which could inform where in Europe they choose to launch UPC actions, said Laura Orlando, a Herbert Smith Freehills LLP IP practice leader in Milan.

“Patentees should be considering which might be more likely to award a preliminary injunction or be more generous with damages,” she wrote in an email. “Some local flavour could develop at least initially before there has been any conformity of approach applied by the Court of Appeal.”