Unified Patent Court: an introduction for life sciences companies
The year ahead will see a major driver of change in the life sciences sector. Companies with operations in Europe will need to anticipate the new unitary patent (UP) and the Unified Patent Court (UPC), and shape their patent filing and litigation strategies in the face of this new system.
The UPC is expected to become operational in early 2023. It will be the biggest overhaul of the European patent system in history. The new court will provide a one-stop shop for patent litigation throughout a large part of Europe, with decisions being made by one centralised court. It will offer transformational opportunities for life sciences companies, impacting patent filing and enforcement strategies.
This chapter will discuss the background to the UPC as well as three immediate key considerations for life sciences companies, namely shaping an overall European patent litigation strategy, the strategic importance of ‘opt-out’ and the availability of cross-border relief. Further considerations in respect of European patent litigation strategies for life sciences companies will be addressed in “Unified Patent Court: strategic considerations for life sciences companies”.
UPC: background and current status
The need for a unified patent court in Europe
Classic European patents are granted centrally by the European Patent Office (EPO), resulting in a “bundle of national patents” that are (subject to translation issues) identical in content and scope, but that are separately in force in the various European Patent Convention (EPC) member states.
European patent infringement and validity proceedings are therefore brought before national courts, which leads to fragmented decisions across Europe. This is particularly prevalent in the life sciences sector, where patent disputes are often multi-jurisdictional, with different decisions often being reached by different national courts based on variations in interpretation of the law, procedure or evidence. The EPO has a post-grant opposition process, where any resulting revocation applies to all national patents, but the process is slow, leading to commercial uncertainty, so it is often run alongside national proceedings.
Proposals for greater unification of the European patent system date back to the 1950s but gained significant momentum in the mid 2000s. The outcomes of a 2006 European Commission consultation highlighted that: “The existing system of patent litigation in the EU, with the risk of multiple patent litigation in several countries on the same patent issue, leads to unnecessary costs for all the parties involved and causes lack of legal certainty.”
Ultimately, after years of debate, a plan to create the UP and the UPC was formed: the UP Regulation was signed in 2012 (Regulation 1257/2012), and the UPC Agreement (2013/C 175/01) (UPCA) in 2013.
Brexit and constitutional complaints
The signature of the UPCA was not enough to kickstart the new system, and the past decade has seen many setbacks.
The UPCA requires ratification by 13 participating member states to come into force. This must include the three countries in which the highest number of European patents was in force in the year preceding the year in which the signature of the UPCA takes place (Article 89(1) UPCA), which at the time was France, Germany and the United Kingdom.
France ratified the UPCA in 2014. Despite the 2016 Brexit vote, the United Kingdom ratified in 2018 but then formally withdrew in July 2020. The resulting debate on whether the UPC would be able to proceed was particularly relevant to the life sciences sector given the importance of the United Kingdom as a forum of choice for many patent disputes in the sector.
Following the United Kingdom’s withdrawal, Italy, which ratified the UPCA in 2017, replaced the United Kingdom as the third country with the highest number of European patents in force at the relevant time and, therefore, the third state required to ratify the UPCA.
Brexit was not the only bump in the road. The German parliament approved legislation to ratify the UPCA in 2017, but a number of constitutional challenges against the legality of the legislation prevented ratification. In July 2021, the final constitutional complaint was rejected, paving the way for German ratification.
Germany has now ratified the UPCA but has not yet deposited its instrument of ratification with the European Council. This is not unexpected, and it had always been intended that Germany would deposit its instrument of ratification at a relatively late stage, once it is confident that the court will soon be up and running.
The final countdown
The final UPC preparatory steps include the provisional application of the UPCA during a provisional phase, underpinned by the Protocol to the Agreement on a Unified Patent Court on provisional application (PPA). This provides for the final tasks required to set up the UPC, including the creation of the registry and the appointment of UPC judges, the establishment of the UPC committees, testing IT systems and setting the budget.
Ratification by 13 member states was required before the PPA could enter into force. The 13th member state, Austria, deposited its instrument of ratification on 18 January 2022, which meant that the PPA entered into force the following day. The final preparatory steps are now under way, with the UPC Preparatory Committee indicating that it expects the provisional phase to last at least eight months.
The UPC will become operational on the first day of the fourth month after the month in which the last ratification required by the UPCA is deposited. Once the participating states are confident that the court will be functional during the provisional application phase, Germany is expected to deposit its instrument of ratification of the UPCA, which will trigger the final countdown to the start of UPC operations (Article 89(1) UPCA). At the time of writing, this milestone has not been reached.
European patent litigation strategic considerations
Decision: need for an overall European patent litigation strategy
Current estimates are that the UPC will become operational in early 2023. Life sciences companies are advised to consider new European patent litigation strategies, both in the UPC and national courts.
This is important because the UPC will have exclusive jurisdiction over UPs as well as classic European patents designated in member states that have ratified the UPCA unless they have been opted out (see below). However, once granted, the scope of a UP will be fixed to those states that have ratified at that time.
Some countries have not yet ratified the UPCA but are expected to do so later. One example is Ireland, which requires a public referendum to ratify the UPCA. As time passes, more countries are expected to ratify, and the scope of later-granted UPs is expected to widen.
However, some countries have indicated that they will not participate in the UPC system, either now or in the future, including Spain, Poland, Croatia and the United Kingdom. National litigation may, therefore, be required in those jurisdictions in respect of classic European patents.
At present, life sciences patent litigation is commonly brought in key European jurisdictions. Factors such as the location of allegedly infringing acts and manufacturing, market share, the speed of litigation, judicial experience and whether national courts are pro-patentee all feed into litigation strategy. When the UPC becomes operational, the court structure and locations of the various divisions will also be relevant.
Although beyond the scope of this chapter, forum shopping and division shopping will influence key strategic decisions for life sciences companies engaging in patent litigation in Europe. This is discussed further in “Unified Patent Court: strategic considerations for life sciences companies”.
The UPC will have a Court of First Instance, which will be divided into local, regional and central divisions (Article 7(1) UPCA). Cases will commence in any one of these divisions according to the subject matter (Article 7(2) UPCA and Annex II UPCA). Local divisions will have responsibility for actions brought in respect of infringement in individual participating countries. Regional divisions will have similar responsibilities for a number of (rather than individual) participating countries; for example, the Nordic-Baltic regional division will cover Sweden, Lithuania, Estonia and Latvia.
The Central Division will be located in Paris (software, physics and other cases) and Munich (mechanical engineering cases). Life sciences cases, along with chemical and metallurgical cases, were due to be heard in London. However, following the UK’s withdrawal, it is expected that this seat will be relocated, possibly to Milan, although The Hague or Dublin remain possibilities. Until a decision is made, these cases will be distributed between Paris and Munich. The Court of Appeal will be in Luxembourg.
Life sciences companies are often engaged in multi-jurisdictional European patent litigation, and forum shopping opportunities presented by the UPC during the transitional period will be of interest, both in terms of whether proceedings should be brought in the UPC or national courts (see opt-out below), and in which UPC division proceedings should be commenced.
UPC decisions will cover all participating member states in respect of a UP, and for a European patent, the territory of those participating member states for which the patent in suit has effect. A central decision revoking a patent, and relief including preliminary injunctions (PIs) and final injunctions, will therefore apply across all participating member states. The prospect of central revocation is a considerable risk for patentees but potentially a great advantage for those trying to enter the market. By the same token, the threat of a cross-border injunction will provide patentees with considerable leverage.
These features of the UPC system give rise to litigation strategy considerations for life science companies, which will be discussed in “Unified Patent Court: strategic considerations for life sciences companies”. However, there are more immediate decisions to be made, notably whether life sciences companies should participate in the system at all.
Decision: strategic importance of opting out
The UPC will have exclusive jurisdiction for infringement and validity disputes relating to UPs, and after the end of the transitional period, classic European patents that have not been opted out of the UPC (Article 83(1) UPCA). Life sciences patents are commercially valuable, with medtech, pharmaceuticals and biotech featuring in the top ten technology fields for EPO patent filings in 2021, continuing a five-year trend. While there is no option to opt UPs out of the UPC, life sciences companies with valuable patent portfolios will need to evaluate their assets and decide whether to opt their classic European patents out of the system (Article 83(3) UPCA).
Opt-outs are possible during the transitional period of seven years (which may be extended to 14 years (Article 83(5) UPCA)). If opting out, the UPC will have no jurisdiction, and the patent would be subject to the exclusive jurisdiction of the national courts.
An important strategic consideration in assessing the value of opting out is the dual jurisdiction during the transitional period: disputes concerning classic European patents may be litigated in either the UPC or the national courts of the participating member states unless the patent is opted out. After the transitional period, the dual jurisdiction will be removed, and all classic European patents that designate participating member states will become subject to the exclusive competence of the UPC unless they have been opted out (Article 83(3) UPCA).
Once notified and registered, an opt-out takes effect for the European patent for all participating member states in which the patent has been validated. An opt-out normally remains in force for the lifetime of a European patent unless the proprietor withdraws it (Article 83(4) UPCA).
The choice of whether to opt a classic European patent out of the UPC should ideally be made during the sunrise period (Rule 5.13 Rules of Procedure (ROP), UPCA), which will begin three months before the UPC opens its doors, most likely in Q4 2022. If the patentee waits until the UPC has come into existence, opting out may no longer be available; if a competitor has already commenced proceedings in the UPC, the patentee could be “pinned” into the UPC and be forced to defend the patent there (Rule 5.8 ROP).
One advantage for patentee innovators is that the UPC can grant PIs (Article 62(1) UPCA) and final injunctions (Article 63(1) UPCA) that, in respect of the UP, will have cross-border effect and, in respect of European patents, will have effect in the participating member states in which the European patent has effect (Article 34 UPCA). However, this should be balanced with the risk of central revocation of a key European patent, which would be effective across all participating member states.
Consideration should also be given to whether such valuable patents and related income streams should be subject to an untested system. Although UPC judges will no doubt strive to adopt a fresh approach, it is inevitable that, at least in the early days, each will be influenced by their own experience from their national system. There is likely to be an element of unpredictability, which may be risky with valuable patents. Although the outcome of patent litigation is never certain, more familiar national systems may provide some element of predictability in the short term.
On the other hand, life sciences companies are often at the forefront of the development of patent law. Such companies may, therefore, wish to include some of their less valuable patents in the system to help shape the jurisprudence and predictability, providing strategic guidance for the future.
Furthermore, UPC litigation is intended to be quicker and cheaper than multiple national litigations, the aim being that first-instance decisions should be handed down within 12 months of commencement of the proceedings, with hearings lasting only one day. This fact should feed into litigation strategy.
While there are no costs associated with opting out, certain administrative steps should be undertaken prior to the sunrise period. An opt-out application must be signed by all (not just registered) proprietors of a patent, and checks for this can take time. If it is not done properly, the opt-out would be invalid, but a patentee would only discover this if UPC proceedings were issued against them, which would pin them into the UPC. Given the size of many life sciences patent portfolios, companies should clarify ownership of their patents now.
Decision: value of UPC community-wide relief
As indicated above, although the UPC carries with it the risk of central revocation of a patent, the availability of a UPC community-wide PI (or other interim relief such as seizures or delivery up) is very attractive to patentees. Life sciences companies need to balance these two competing factors in deciding whether their valuable assets should fall within the competency of the UPC.
PIs are a powerful weapon for patentees against alleged infringers and will remain so for patents within the exclusive jurisdiction of the UPC. The UPC will have jurisdiction over a large market, and it will have the power to grant injunctive relief on an almost pan-European scale. Although this will be attractive for patentees, the likelihood of securing a PI, and the quality and consistency of decisions, will be influential in determining whether they will engage with the UPC.
There is currently little guidance on PIs within the UPC framework. The court need only weigh up the interests of the parties (including the potential for harm) (Article 62(2) UPCA and Rule 211(3)); satisfy itself with a sufficient degree of certainty that the patent is valid and infringed (Rule 211(2)); and consider whether there has been any unreasonable delay by the applicant (Rule 211(4)). Beyond this, it is unclear what factors will be relevant in assessing a PI application.
There are national variations in the approaches used when determining whether to grant a PI, including different thresholds for determining whether there is a risk of imminent infringement; therefore, depending on their relevant experience, in the early days there may be scope for UPC judges to adopt varying interpretations of the rules, potentially resulting in different outcomes in different UPC divisions.
Given the renewed momentum for the UPC to commence operations, life sciences companies will need to proactively take steps to ensure that they are ready. In the immediate term, this will include balancing the pros and cons of the system, auditing their patent portfolios and making strategic decisions on whether to opt some, or all, of their European patents, out of the system, based on business needs.