04 February 2016

The UPC and Unitary Patent: the final countdown

An edited version of this article appeared in Intellectual Property Magazine’s December 2015 issue.

Following signature of the Unified Patent Court (UPC) Agreement in February 2013, it was rather optimistically suggested by EU legislators that the first unitary patent would be granted in Spring 2014.  Roll on a few years and the timetable has slipped, but understandably so, given the massive undertaking involved in implementing a new regime for unitary patent protection and patent litigation in Europe.  However, much has been achieved in the intervening period and the current prediction of the UPC Preparatory Committee (which will issue a revised roadmap to implementation shortly) is that the UPC will be operational from the start of 2017.

In this article, we focus on the state of play (as at mid-November 2015), including who is in and who is out, and the main aspects of the new regime yet to be resolved.

The Unitary Patent

In May 2015, the Court of Justice rejected Spain’s constitutional challenge[1] to the Unitary Patent Regulation and related Translations Regulation. Whilst this outcome was widely anticipated, it did remove a potentially significant hurdle to the Unitary Patent regime.  In particular, the Court’s decision paved the way for Italy to join the Unitary Patent, announced by the European Commission at the end of September 2015 as a major breakthrough given Italy's significant position in Europe in terms of numbers of standard European Patent validations. Accordingly, the Unitary Patent will potentially be available in up to 26 Member States.

Progress has also been made in relation to financial aspects of the Unitary Patent, specifically on renewal fees.  On 24 June 2015, the Select Committee of the EPO Administrative Council endorsed the ‘True Top 4’ proposal for renewal fees: during the first ten years of a unitary patent, the cost of renewal will be less than EUR 5000; the cumulative total over a 20 year term will be EUR 35,555.  Meanwhile, on 17 November 2015, Member States agreed the basis upon which renewal fees will be distributed amongst participating states: under the agreement, 50% of renewal fees will be retained by the EPO, with the remainder (minus an administrative charge) being distributed amongst the participating countries by reference to a formula based on their respective GDP and the number of applications filed from that country.

Whilst the True Top 4 proposal is more favourable than the alternative initially on the table (the Top 5 proposal), the Unitary Patent may only be immediately attractive to those patentees that currently validate standard European patents broadly, and that do not tend to abandon designations on renewal.  Of course, the key selling point is that the Unitary Patent will be enforceable in one action across the relevant member states (albeit it may also be revoked in a single action).  Many predict that the true picture of how much take up there will be of the Unitary Patent will not be known until after the end of the transitional period.

An interesting issue is whether a ‘unitary supplementary protection certificate’ will be available.  In the immediate future, SPCs will continue to be granted as national rights, albeit potentially based on a unitary patent.  However, as part of its recently published strategy for modernising the Single Market,[2] the Commission has identified the need to address how the Unitary Patent will work with national patents and SPCs, and also suggested at the possible creation of a unitary SPC title (seemingly as part of an exploration to ‘recalibrate' certain aspects of patent and SPC protection more generally, which could include an SPC manufacturing waiver).  

The UPC

Ratification of the UPC Agreement: Who is in, who is out, and who is a maybe?

In order for the UPC Agreement to come into force, 13 Member States (which must include Germany, France and the UK) must ratify.  It is known that Spain and Poland do not intend to participate but the focus of the next 6-12 months is going to be on those Member States yet to ratify or even to confirm their intentions. 

As at November 2015, the roll call of ratifications stands at eight member states (in order of timing of ratification):

  • Austria

  • France

  • Sweden

  • Belgium

  • Denmark

  • Malta

  • Luxembourg

  • Portugal

Ratifications are expected imminently in a number of Member States including Finland, The Netherlands, Lithuania, Italy, Romania and Estonia.  Accordingly, in a matter of months,  we should reach the point where only the UK and Germany are left to ratify, in order to bring the UPC into effect. 

In the remaining Member States, there is either no news on ratification, or no news imminent – with some expected to conduct studies on the impact on their national economy or awaiting confirmation of the fees/costs position.  Ireland is required to hold a referendum on ratification; the General Election must be called by 3 April 2016 and there will no more referenda during the current Parliament.

The UK had initially hoped to ratify before the 2015 General Election and had issued a Consultation and Technical Review on proposed changes to UK patent law (the Government’s response is awaited).  Following the General Election, and the Government's commitment to hold an in/out referendum by 2017, some questioned whether ratification would be delayed until after the Brexit vote.  However, in August 2015, the Government announced its intention for ‘domestic preparations’ to be completed by Spring 2016 and, further evidencing its commitment, also announced the signature of a lease on premises close to the City for the London section of the Central Division and the UK Local Division. A consultation and draft Bill has also recently been issued providing that patents within the UPC jurisdiction should be subject to UK provisions relating to groundless threats. 

Germany, in the meantime, has kept its cards fairly close to its chest on ratification.  Having announced in March 2014 that a draft law authorising ratification would be submitted after Summer 2014, it later confirmed that drafting was taking longer than anticipated.  The German Federal Ministry for Economic Cooperation and Development has recently suggested the end of 2015/ beginning of 2016 as a potential time for final ratification.

Local and Regional Divisions

Every participating Member State may have at least one Local Division court (a Member State may have more depending upon its levels of patent litigation).  Assuming that the relevant states ratify, Local Divisions are anticipated in the UK, France, Germany (expected to have four Local Divisions), Austria, Belgium, Denmark, Ireland, Finland, The Netherlands and Italy.  In the meantime, only one Regional Division has been confirmed, the Nordic-Baltic Division comprising Sweden, Lithuania, Estonia and Latvia (with its proceedings conducted in English).  It is understood that discussions concerning other Regional Divisions broke down earlier in 2015.  This has important implications because it means the ‘Unilever’ provision in the UPC Agreement[3] will not bite: this provision provides that, where an infringement action is brought in a Regional Division and infringement is alleged in at least three Regional Divisions, the defendant can require the case to be transferred to the UPC Central Division.

It is also anticipated that a number of Member States will not have a Local Division court, nor participate in a Regional Division: Malta and Luxembourg have both confirmed they will have no UPC court.  Again, this has important implications for forum shopping: where infringement occurs in a Member State with no UPC court, the claimant may issue its infringement claim in the Central Division.

UPC Rules of Procedure

In October 2015, the UPC Preparatory Committee announced that it had adopted the final version of the Rules of Procedure, which will underpin the framework and operation of the Court.  The text adopted is the 18th draft of the Rules, indicating the intensive process of agreeing and finalising the rules, which have benefited from stakeholder input (during written consultation and an oral hearing), as well as expert advisers.  The changes from the 17th draft were not extensive but include revisions to the rules on opt-outs (Rule 5) and the language of the proceedings (Rule 14).

Court fees

Whilst the Rules of Procedure are now in final form, there will still need to be some further amendments relating to costs.  In May 2015, the Preparatory Committee issued its consultation on UPC court fees and recoverable costs, which contained a number of interesting proposals.  The consultation covers:

  • Fixed fees for certain types of action, including (controversially) a fee of EUR 80 to opt a standard European Patent out of the UPC (and the same fee to withdraw an opt-out)

  • Value based fees on a rising scale, where the value of the action is more than EUR 500,000 (the Committee indicating its assumption that 25% of actions will fall below this threshold, with 90% having a value of less than EUR 4 million)

  • Guidelines to enable the Court to assess the value of an action (draft Guidelines are yet to be published)

  • Alternative proposals for fee reimbursement to reward certain types of behaviour, or for SMEs and certain other entities (where there is likely to be divided opinion)

  • Scale of recoverable costs based on the value of the dispute

Responses to the Consultation are currently being analysed and a final proposal is expected to be presented for adoption by the Preparatory Committee in February 2016. 

Court Practicalities

In October 2015, member state representatives signed a protocol to the UPC Agreement on Provisional Application, which will allow certain parts of the UPC Agreement to be applied before it comes into force.  In particular, it will mean that opt-outs can be registered during a sunrise period expected to be in place in 2016 (opt-outs will no longer be managed by the EPO, but will be done through the UPC Case Management System). The protocol will also allow final decisions on e.g. recruitment of judges and IT systems.  Progress continues to be made on IT and an Alpha version of the UPC Case Management System has been released for user testing.[4]

The calibre of decision making in the UPC is key to its success, particularly given the concerns expressed by many stakeholders over such issues as bifurcation, injunctions and forum shopping.  It is understood that appointments of legally qualified judges are expected to be made in early 2016, following a formal advertisement in December.  In the meantime, training and education of potential judges is already in train and will continue.

Comment

Whilst many milestones have been, and will soon be, ticked off, most predictions are that the UPC will be ‘open for business’ by early 2017, rather than late 2016.  However, the next 12 months will no doubt pass quickly with a likely flurry of activity in the first half of the year around the final ratifications (including the determinative ratifications from the UK and Germany) and confirmation of the UPC fees.  Businesses that might intend to remove all or some of their standard European patents from the UPC regime should be reviewing their portfolios carefully, if they have not already started doing so, in advance of the ‘sunrise period’ for opting-out.   


[1] C-146/13 Spain v Parliament and Council; and C-147/13 Spain v Council

[2] Upgrading the Single Market – More Opportunities for People and Business, European Commission, 28 October 2015

[3] Article 33(2) UPC Agreement

[4] Users have been invited to register for testing at http://secure.unified-patent-court.org/login

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