There has been much hype surrounding the new European unitary patent system and what it means for business. This article aims to explain the new regime in clear terms, setting out the key things you need to know to help your client prepare for the changes.
The main disadvantage of the existing system for obtaining patents in the European Union (EU) is that each patent covers only one national territory. From around late 2014, it will be possible to obtain one patent covering several member states of the EU – the new unitary patent. There will also be a new court system in which disputes relating to the unitary patent will be decided by a single ‘unified’ patent court: one judgment could lead to an injunction and damages across all unitary patent states. The advantages for a successful patentee could be huge, but the risk of losing the patent in most of the EU, through one adverse court judgment, is likely to deter some from applying for unitary patent protection.
Importantly, the jurisdiction of the new court system will also apply to all conventional European patents in participating EU states. There are transitional opt-out provisions, but these are far from clear. As it may not be easy to decide whether or not to opt out, businesses should be considering the options now in order to make an informed choice when the new system comes into effect.
WHY CHANGE THINGS?
The EU has been striving to introduce a single patent right, similar to Community trade marks and designs, for over 40 years. In 1973, 16 European countries signed the European Patent Convention (EPC), which established a centralised system for obtaining patents via a single application to the European Patent Office (EPO). Once approved, the application leads to the grant of a bundle of national patents covering whichever EPC states the applicant has designated. These patents are known as European Patents (EPs), but are, nevertheless, national patents.
Today, 38 countries have signed up to the EPC, including all 27 member states of the EU. The EPC does not, however, create a single patent right for the EU single market; harmonisation of patent law, supposedly achieved via the EPC at least in relation to patentability, is far from complete in practice. Patent protection in the EU is not uniform, even where there are equivalent EPs in several member states. There are two key problems:
- Once an application has been approved by the EPO, the patentee must still trek to the national patent offices of the states in which protection is sought to ‘validate’ the patent. Some countries require a translation of the patent into the local language. This ‘validation’ process is typically lengthy and expensive.
- Currently anyone wishing to enforce or revoke an EP in a particular country must do so in the national court of that country. Because EPs are essentially national patents, the resulting decision will apply only in the member state concerned. This can lead to expensive parallel proceedings in multiple jurisdictions, and sometimes inconsistent decisions.
With its reduced translation costs and simplified enforcement regime, the new unitary patent system aims to address these issues for the EU. It is hoped that it will cut the cost of patent protection in the EU by up to 80%, making it competitive with the cost of protection in the US and Japan. It is also expected to make multi-country enforcement more efficient. These changes, in turn, are expected to stimulate growth in the EU by encouraging innovative companies to make greater use of the patent system. Many small and medium-sized enterprises, in particular, currently view the high cost of patenting in Europe as a barrier to obtaining this type of protection.
WHAT IS BEING INTRODUCED?
The new regime will introduce two main features. In participating states, it will add:
- the option of obtaining a single ‘unitary’ patent right (UP), covering most of the EU, as an alternative to conventional EPs and national patents; and
- a new Unified Patent Court (UPC) that will act as a single enforcement forum for patent disputes. Importantly, the UPC will have jurisdiction not only over UPs, but also, subject to an opt-out, over all existing and future EPs in participating states as well.
Not all EU member states will participate in the new single patent regime, initially at least. Spain and Italy have excluded themselves so far, and others may decide not to participate (for example, Poland has indicated it may not sign up at the beginning).
WHEN WILL THINGS CHANGE?
Realistically, the new system is unlikely to enter into force before late 2014, and probably later. Although the EU Commission has proposed April 2014 as the commencement date, UPs cannot be designated or granted until the related court system is in place, which depends on ratification of the court agreement by 13 member states, including the UK, France and Germany. That is not expected to happen before at least mid to late 2014. The agreement was signed by 24 member states on 19 February 2013, but is yet to be ratified by any state.
HOW WILL THE CHANGES BE IMPLEMENTED?
The legislative package for the UP system comprises:
- an EU regulation creating the UP;
- an EU regulation on the language regime for unitary patent protection;
- an international treaty creating the Unified Patent Court (referred to here as the court agreement); and
- the rules of procedure for the Unified Patent Court.
This legislation deals, primarily, with administrative and procedural issues. Substantive patent law will remain governed, to a large extent, by the EPC and national laws that over the past few decades have been substantially harmonised throughout Europe, particularly between signatories to the EPC.
Although the court agreement has been signed by 24 member states, and the other key legislative components have been agreed, a great deal of work will need to be done to implement the changes.
WHAT SHOULD BUSINESSES BE DOING TO PREPARE?
The decision to opt existing EPs out of the unified litigation system will need to be taken as soon as the new regime comes into force, which is likely to be at the end of 2014. Because the extent of the opt out is currently unclear, the decision whether or not to opt out will not be straightforward. Businesses should start reviewing their current portfolios now to identify, with the help of their patent advisers, which, if any, EPs they should opt out of the new system.
SHOULD BUSINESSES OBTAIN UNITARY PATENT PROTECTION?
The decision whether or not to obtain a UP will vary according to each patentee’s particular circumstances. Each invention can only be covered by one patent in each state, whether a national patent, an EP or a UP. To decide the best course of action, patentees will need to assess the costs, risks and benefits of the UP versus their traditional patent filing approach. Businesses will need strategies in place to help them decide, in a particular case, which of the available options would best serve their needs. In some instances, it may be more cost-effective to seek protection only in those jurisdictions in which major customers and/or major competitors are based, in which case the UP will not be appropriate.
HOW DO BUSINESSES OBTAIN UNITARY PATENT PROTECTION?
Applications will be made to the EPO in the usual way. To obtain a UP, it will simply be necessary to designate the UP within a month of grant. Aside from a few differences in the language regime and fees, the process will be essentially the same as the current system used for EPs.
HOW WILL THE NEW COURT WORK?
The UPC will be an entirely new, specialist and harmonised international court, with specialist judges and rules of procedure that will blend existing national systems. It will have exclusive jurisdiction in relation to the enforcement and revocation of UPs. It will also have jurisdiction over EPs in EU states, exclusively so after the end of a transitional period.
There will be three first instance divisions of the court: local, regional and central. Some member states will host their own local division; others will join together to share a regional division. Exactly which member states will have one or more of these divisions is not yet clear, but it is expected that the larger EU countries will have at least one each.
Unless the parties agree otherwise, most infringement actions must be commenced in the local and regional divisions. The much-discussed central division, to be split between three locations on the basis of technology – London (life sciences); Munich (engineering and automotive); and Paris (the remainder) – will have exclusive jurisdiction over revocation and declaratory actions. It will also have limited jurisdiction over infringement actions and proceedings that may be referred to it from local or regional divisions.
The court of appeal, to be based in Luxembourg, will hear appeals from all three divisions of the court of first instance. There is no right of appeal to the Court of Justice of the European Union.
The cost of obtaining EU-wide patent protection via a UP could be up to 80% less than under the current system. In particular, patentees will no longer be required to file translations in the national languages of all participating member states. This is obviously good news for businesses that need EU-wide protection – as is the ability to obtain a virtually Europe-wide injunction in a single patent action. Single-forum litigation may also be attractive where there are infringements in multiple countries. Also, centralised revocation and declaratory actions may be attractive (and cost-effective) options for potential defendants operating in multiple countries. For businesses that do not need EU-wide protection, the disadvantages of a UP might, however, outweigh the benefits.
There are three key risks:
- For patentees, there is the threat of centralised patent revocation, applicable in all participating EU states – and not just for UPs, but for all EPs in participating states as well.
- There is the risk, for a defendant, of an injunction against it in all participating states.
- In certain circumstances, infringement and validity might be tried separately (by different judges, at separate trials and in separate courts). In some cases, for instance, infringement may be determined first, with issues of validity proceeding on a separate and slower track. An EU-wide injunction could, therefore, be granted before patent validity has been considered.
WHAT ABOUT AN EXISTING EP AND THE OPT OUT?
EPs will continue to exist in all EU countries and in non-EU countries in the EPC. Crucially, the default position is that the UPC will have jurisdiction over disputes relating to EPs in EU member states, and, after a transitional period, it will have exclusive jurisdiction. Disputes concerning EPs in non-EU countries that have signed the EPC, such as Switzerland, will continue to be determined in national courts.
There will be a transitional period of seven years after the commencement date of the system, and possibly a further seven years after that. During that time, the UPC and the national courts of EU states will share jurisdiction over disputes relating to EPs.
There is, however, a right of opt out for EPs. The intention was to allow patentees, for a limited period of time, to elect to remove one or more of their EPs from the jurisdiction of the UPC entirely. The language of the agreement is, however, unclear in this respect. It is also unclear exactly what the duration of the right to opt out will be.
In any event, the decision whether or not to opt out is a very important one. If a patentee wishes to minimise the risk of centralised revocation proceedings, in an untested court, the safest course may be to exercise the opt out, even though its extent is unclear. As that decision may have to be made immediately after the new regime enters into force, businesses should start reviewing their portfolios now, so that they are best placed to make the relevant decisions when the time comes. A decision to opt out can be withdrawn.
ARE THE CHANGES A GOOD THING?
A UP providing pan-EU patent protection obtained at a sensible cost and enforceable in a high-quality, affordable court system is a good idea in principle. Unfortunately, no-one knows yet whether these key objectives will be met. Many sophisticated patentees are likely, in the short term at least, to continue to obtain EPs in the EU, and opt them out of the new court system. This has led many commentators to question the attractiveness of the new system. How effective it will be in practice remains to be seen – companies will need to consider the impact on their existing portfolios before the new system comes into force, and thereafter monitor the situation closely.