Companies Should Rethink Their European Patent Strategy

COMPANIES HAVE LONG demanded an easier way to protect and enforce their patents in Europe without the cost and inconvenience of separately filing and enforcing their patents in each European state. In 2013, 25 European Union states signed a multilateral treaty proposing a new European patent with unitary effect and a unified European patent court (the Unified Patent Court or UPC). Both are designed to promote homogenous patent protection across participating EU states, so companies can protect their patent rights with greater predictability and efficiency.

This consolidated system, however, raises the stakes of litigation. For example, a continent-wide injunction can jeopardize a company’s entire European market. Therefore, companies must be aware of these significant changes and effectively prepare for the new European patent regime.

Why the Unified Patent System Matters to Your Business

Under the UPC system, companies would continue to use the same process when applying for and participating in the examination of a European patent. The UPC only impacts what happens at and after the grant of the patent. Under the UPC system, when a patent is granted, the patentee can request (1) a unitary patent—which is enforced across all participating states in a single action; (2) a traditional European patent; or (3) a unitary patent alongside European patent protection for any country not covered by the UPC Agreement. Traditional European patents would continue to have relevance, not only for inventors who seek protection only in selected countries, but also for countries that may opt out of the unified system, including Spain.

The consolidated system would allow a company to enforce its European patent in all UPC states at once. It would be comprised of a number of trial courts, including a “central division” for hearing revocation and declaratory judgment actions and local and regional courts for hearing infringement actions. Consequently, for parties enforcing or defending their patent rights, the UPC could eliminate the unnecessary duplication of multiple actions in different member states and avoid divergent results from parallel court proceedings.

UPC courts could also issue Europewide injunctions in infringement proceedings. The trial procedure in UPC courts would, however, resemble current practice in much of Europe. Evidence would be taken largely in the form of written submissions, culminating in a one-day hearing. There could be limited orders for the production of evidence at a hearing, but there would not be U.S.-style pretrial discovery.

Although 25 member states have signed the treaty, the UPC will take effect only after 13 states (which must include France, Germany and the United Kingdom) officially ratify the treaty. Six states (Austria, Belgium, Denmark, France, Malta and the United Kingdom) have ratified it to date, and the UPC is expected to come into effect in 2016. (Spain and Croatia are not participating in either the UPC or the unitary patent.)

Navigating the Changing Landscape

U.S. companies with a European presence can take several steps to prepare for the proposed changes. First, companies should consider auditing their current patent portfolios to determine which patents and pending applications might benefit from unitary patent protection. Companies looking to enforce patents in multiple European states may proceed under the UPC system to simplify the litigation process. Companies mainly concerned with filing fees may also benefit from the UPC system because of the reduced cost of applying for a single unitary patent. These companies may want to delay the prosecution of any patent applications to issue no later than one month after the UPC takes effect.

Traditional European patents granted under the pre-UPC system will automatically be included in the new one. However, there will be an opt-out period of seven years (which may later be extended to 14 years) after the effective date. During this time, parties can pay an opt-out fee for patents they wish to keep under the jurisdiction of the national courts in each country. A party may waive its opt-out during the transitional period, thereby opting back in, so long as no proceeding over the patent has been brought in a national court. A party cannot opt out again after opting back in. Companies may decide to initially opt out for every patent, until it becomes clear how the UPC treats infringement and revocation proceedings. Likewise, companies only concerned with enforcing their patents in a few European states may decide to opt out or only apply for national patents in the relevant states.

The stakes of winning or losing an enforcement action will be even higher under the UPC system. A single UPC court issuing an injunction in an infringement action may jeopardize a product’s entire European market, while under the status quo, an injunction in a single national court does not preclude the infringer from selling its accused product in other European nations. On the other hand, a unitary patent can also be invalidated across all member states in a single revocation action. Accordingly, it is expected that some patent owners will opt out their patents from the UPC system to avoid an opponent’s central attack on their patent rights.

Choice of forum may play a critical role under this new system. UPC actions can be brought in any jurisdiction where infringement occurs: in the defendant’s principal place of business, or, if no principal place of business, any jurisdiction where the defendant has a place of business. UPC courts will apply the law based on the UPC Agreement as well as conventions, agreements and the laws of contracting member states. Where infringement occurs in multiple member states, plaintiffs can select the most favorable division for their infringement action. Further, during the transition period, plaintiffs may instead file suit in national courts, if the laws of that nation help their case.

While the law is unclear on who has jurisdiction if the plaintiff files a UPC action before also filing a national action, commentators believe that national courts will be barred from hearing the same action between the same parties. This has implications for accused infringers who adopt the strategy of filing a declaratory action in slower national venues to stay the progress of a later-filed infringement action.

Companies should also review their present and future licensing agreements. Any company granting or receiving a license to a traditional European patent should negotiate provisions clearly defining which parties have the rights to enforce the patent under the UPC. Article 47 of the UPC Agreement specifically allows—assuming notice is provided to the patent owner—exclusive licensees to file suit unless the license provides otherwise, and allows non-exclusive licensees to file suit if expressly permitted by the license. Likewise, the license should specify which party has the power to opt out or back in.

Companies that expect to enforce their European patents under the UPC should be familiar with several rules that may impact litigation. Article 69 of the UPC Agreement requires the unsuccessful party to bear all legal costs, which could prove a significant deterrent to questionable claims. Article 33 allows bifurcation of an infringement claim from its corresponding counterclaim for invalidity. Thus, if a company initiates an infringement action in a local or regional division and the accused infringer responds with a counterclaim for invalidity, the court may either proceed with both claims or refer the counterclaim (or both claims, if the parties consent) to the central division. If the court refers only the counterclaim to the central division, it may still adjudicate the infringement claim, and may ultimately issue a Europewide injunction based on a patent that is later invalidated. Given that the rules allow courts discretion to handle these situations, the implications will likely crystallize as time passes.

As the new regime approaches, companies doing business in Europe have a lot to think about—from evaluating patent portfolios to rethinking their litigation strategy. The new Unified Patent System will likely bring significant change to patent validation and enforcement, and prudent companies should begin preparing now to adapt accordingly.

Reprinted with permission from the March 31, 2015 issue of Corporate Counsel. Copyright 2015 ALM Media Properties LLC. Further duplication without permission is prohibited. All rights reserved.