It won’t have escaped your knowledge that there is a new system for litigating and assessing the validity of patents in Europe: the Unified Patent Court (the UPC) opened its doors on 1st June 2023, with Unitary Patents (UPs) being granted – a single patent covering all participating Member States. You will likely also be aware of the option to “opt in” and “opt out” classic European Patents (EPs). But maybe you’re left wondering what that actually means for your business and for your existing or future patent portfolios? Does this affect where you validate your EPs/UPs and what does this mean when you actually want to enforce your patent? As a third party, you may have concerns about the patent landscape in which you wish to operate – how do you clear the way for product launch when there are UPs in force?

In this series of articles, we are going to discuss factors to consider when deciding on a strategy for utilising the system, with a particular focus on subject-matter specific scenarios.

Overview

On grant a European Patent splits into a bundle of national patents (NPs) which are individually validated, individually enforced and individually renewed. The costs that are associated with each national patent therefore encompass translation fees, renewal fees and then if the rights under these patents are asserted, litigation fees in each jurisdiction where an action is brought. Costs thus accumulate, and even sky-rocket with large patent portfolios covering multiple European countries.

Applicants may now apply for an EP with unitary effect (a unitary patent – UP) covering all the UPC participating states, as well as for classic EPs for non-UPC participating states.

A UP covers 17 states (ultimately it could cover the entire EU once all states have ratified). Additional national protection would be necessary for states outside the Member States: for example, the EPO would grant a UP and an EP-UK/CH/NO patent, or a UK/CH/NO patent could be sought nationally. The costs savings on grant thus avoid state-by-state national validation and minimal translation costs, with further cost savings post grant associated with renewal fees and using one central point for administration (for example, making it easier to record changes in ownership or licences).

A UP initially covers 17 states including DE, NL, FR, but ultimately competent across participating member EU states

But what if a single patent covering all participating Member States is not the right protection for your product? It is still possible to apply for an EP at the EPO or national patents (NPs) by lodging separate applications at each of the national patent offices. These national patents are not under the jurisdiction of the UPC and actions relating to them continue to be heard by national courts.

In contrast, all EPs and UPs will be under the jurisdiction of the UPC if not opted out. Central enforcement and revocation at the UPC provide significant cost savings in litigation fees, as well as simplifying proceedings which otherwise must take place in numerous individual Member States in parallel. However, there are risks that come with central enforcement and revocation, and opting out EPs or registering national patents are therefore ways of avoiding the new UPC system if there are strategic reasons for doing so.

You still may be wondering how to make those decisions – what factors do you weigh up to decide if a single UP instead of multiple national patents is appropriate? How do you decide if your EP should remain within the jurisdiction of the UPC or if it should be opted out? And as third party, what do you do about tackling patents that may have been opted in (or indeed opted out) of the UPC? This article will look at some of the issues we have come across while litigating in the UPC and believe you may want to consider.

Patentee-specific considerations

In order to decide whether to embrace or avoid the UPC, the risks/benefits must be balanced. This decision is based on a number of different factors, some of which are set out below, the weight of each may differ depending on the industry sector, patent and scenario in question. In the next few articles, we address a number of possible scenarios that are based on our experience of typical situations in different industries. Factors to consider include:

• type and commercial value of the product and size of the market,
• location: where information is stored, where products are manufactured/produced or sold and where competitors are active,
• key objectives,
• timing (speed of litigation and provisional measures),
• scope of portfolio (including divisionals, SPCs and claimed subject matter),
• main legal issues (strength of the patent, judicial experience etc),
• budget, and
• ownership (and related agreements).

Industry sector, market value, location

A big attraction of the UPC for a patentee is central enforcement, particularly obtaining pan-European preliminary injunctions and final injunctions, which make it possible to close down market access across a large number of Member States in one action. The large market size covered by the UPC (the 17 Member States represent 80% of the EU’s GDP[1]) also means that a single UPC action can apply a lot of pressure on a company – an option that could be as efficient as US litigation but potentially more cost-effective. For pharmaceutical companies, this could mean applying pressure on a generic with a UPC injunction on a wide European market.

Some key questions to consider are: What is the geographical scope of the market and how valuable (in both relative and absolute terms) are those key markets to you? Are these markets covered by the states participating in the UPC or the EU in general? Where is the defendant based and what are its activities in each jurisdiction? Are there multiple defendants and, if so, are they targeting the same or different markets? Where does enforcement need to take place: in a small number of territories or across all UPC states / non-UPC EPO states? The UPC can be particularly advantageous for products where the market threat lies outside the usual established major markets, i.e. outside the UK, Germany, France, Italy, Netherlands and Spain.

In terms of territory, infringement may not be direct, that is, the competitor may not be selling, making, or using the product in the countries in which a patent is in force. Under the UPC, in addition to the right to prevent direct infringement, a patentee also has the right to prevent “indirect use of the invention” (Art. 26(1)). This right prevents an unauthorised person from “suppling or offering to supply”, “within the territory of a contracting member state”, a “means, relating to an essential element” of a patented invention to a third party who subsequently uses them for “putting [the invention] into effect” within the protected territory. Provided that the supplier “knows, or should have known”, that the means they supplied was suitable for putting, and intended to put, the invention into effect. The UPC will apply the double territoriality requirement on a much larger territory, making indirect infringement possible in situations where it was not previously as different acts were performed in different countries.

Key objectives

As patentee, you will want to consider your key objectives (both commercial and legal). An acceptable outcome may be extracting damages or an account of profits from an established competitor to reflect their use of innovations you have rights to in a shared technical field. However, declaratory relief is often not sufficient, and instead it could be essential to maintain exclusivity in certain principal markets to ensure the success of a product.

Historically, preliminary injunctions have been of immense importance to innovators in the pharmaceutical industry, allowing them to safeguard market exclusivity and stave off the inevitable price erosion that occurs following market entry by generic manufacturers. Interestingly, UPC the local division in Düsseldorf has already issued the UPCs first ex parte preliminary injunction in connection with a dispute over suspension systems for e-bike motors (EP 2 546 134), despite there being a protective letter on file, suggesting that preliminary injunctions will have importance outside the healthcare sector. The first inter partes PI has also been granted by the UPC’s Munich local division for a UP (10x Genomics, Inc. and President and Fellows of Harvard College v NanoString Technologies), and decisions have been taken not to grant a PI by the Vienna local division. These decisions indicate that the time frame for deciding on a preliminary injunction by the UPC is close to a few months from filing of the action and a hearing of the case.

While they provide an effective tool with unparalleled tactical utility it is worth noting that preliminary injunctions are not risk free. The UPC may (Rule 354 (2) RoP), at the request of the wrongly injuncted party, order the payment of “appropriate compensation for any injury caused by the enforcement”. Although punitive damages do not exist in Europe, compensation of the impact on the reputation of a company having to take products off the market as a result of a PI in the UPC will likely be considered by UPC judges as many national courts in Europe allow for such damages. The potential cost associated with obtaining a speculative preliminary injunction and subsequently losing on the merits (either due to the patent being deemed invalid or not infringed) should be factored into strategic decisions.

Timing

A single action would most certainly conclude in a shorter time frame than multiple national actions. Therefore, a UPC action applying pressure on a large market can be used to force a quick settlement, which is important should you want to block a competitor from entering the EU where launch is imminent. Companies wishing to retain market exclusivity for their product may want to use a UPC action to prevent competitors launching, particularly where a patent is due to expire soon (and the downside of central revocation is reduced). Central enforcement can obtain fast results, for example, the first ex partes preliminary injunction was granted in less than a fortnight by the local division in Düsseldorf (obtained by myStromer AG against Revolt Zycling AG) despite a protective letter having been filed. The panel was not convinced by the exhaustion of rights, non-infringement and lack of validity arguments being put forward in the letter. The circumstances of a tradeshow fair in Germany for a few days rendered the matter urgent and the measure proportionate despite the order acknowledging that the alleged infringer advertised their products for the EU on their website.

Ex partes seizures were also granted with speed by the Milan local division on 14th June 2023 where, on the day before (13th June 2023), a patentee requested to seize products and information of two alleged infringers at a tradeshow (Oerlikon v Bhagat and Oerlikon v Himson).

Scope of portfolio

Litigation is a high stakes endeavour. With a significant market to consider, winning or losing a UPC litigation could materially impact even the largest companies. Before initiating litigation at the UPC it is essential to consider the scope of the relevant patent portfolio:

• How many patents are in play?
• What is the relative commercial importance of each patent?
• Are there any SPCs to consider?
• What would the impact of central revocation of a patent be?

The answer to these questions should play a significant part of your early strategic discussions and you may consider varying your approach depending on the number of patents you can deploy, length of term left, and any revenue streams being generated by the patent. If a single “crown jewels” patent covers a key product then you may think twice about leaving it open for central revocation at the UPC. However, you may be willing to “test” the UPC if your portfolio includes a number of related cases in one family – you may find a positive outcome for one of those patents and then opt in others in the family.  At the start of July, nearly a third of all European patents and applications had been opted out of the UPC, suggesting that this test strategy is being generally adopted.

Other considerations include the subject matter claimed and scope of protection. Product claims may be easier to enforce nationally than say a process claim, whereby it is necessary to obtain evidence that the process is being used and/or the product is one directly obtained by means of that process. The UPC makes it easier to obtain evidence of infringement under certain jurisdictions. If, for example, a process is being used in a UPC country with no national procedural tools for information gathering, this may favour leaving a process patent in the UPC so as to obtain preservation and search orders (Art. 60 UPCA) including French saisie-contrefaçon and the potential for UK/US-style discovery of evidence. In a similar manner to national courts, under the UPC if the process is being used in a non-UPC country and then the product imported into a UPC country, the UPC provides for direct infringement by products obtained directly by means of the claimed process.

Where a patent encompasses a first or second medical use claim, variations in national law on infringement of these claims should be taken into account. This is particularly relevant where a generic company markets its drug with a “skinny label” such that the product is only indicated for non-patented disease(s). Due to a lack of harmonisation in the tests applied for infringement (including “outward presentation”, “reasonable foreseeability” and variations thereof), national law inevitably results in varying decisions. However, this variation is not necessarily rectified by using the UPC route since the outcome can depend on the court where proceedings are commenced: if proceedings are commenced in local/regional division where infringement occurred, although it shouldn’t, national law may influence the test applied in the first few decisions and until the court decisions help harmonise how the new rules are to be applied, whereas if proceedings are brought before the central division, the central division may develop its own jurisprudence which could take into account differences in national law. Similar issues arise due to a lack of harmonisation in labelling across the EU states, making a UPC action more complicated owing to the presence of different infringing acts.

A single patent family having related rights both in and outside the UPC system provides additional strategic enforcement as well as forum choices for litigation. Selection of which patents to opt out indefinitely and which to possibly assert in the UPC will depend on a number of factors including the respective terms of protection (including any SPCs), strength of validity arguments, breadth of claim and likelihood of capturing competitor activity, prospects of successfully demonstrating infringement and the countries of interest where the product is being marketed, among others.

Main legal issues

Patentees can control where and when a patent is litigated by making their opt in/out decisions early. Delaying runs the risk of being “pinned” into one system or another by a competitor bringing a revocation action at a relevant court. Consideration should be given as to whether patents should be subjected to an untested system or whether relative predictability before a national court is beneficial. In situations where patents cover valuable products, where the budget is not a constraint, and the threat of infringement is only in a few countries, patentees may opt out their patents to litigate in familiar courts with (relatively) predictable outcomes. Although, many of the national judges are now part-time UPC judges, so the timing of the actions in national courts may be impacted by the judges’ increased workload.

However, predictability isn’t always desirable. National courts may have precedence for unfavourable decisions on key legal issues, giving a preference for using the UPC. Patentees making this choice can avoid being pinned outside of the UPC by a revocation action in national courts. Patentees may also want to consider how ‘easy’ it will be to enforce their patent nationally (for example, formulation patents can be difficult to enforce nationally).

Any patents (divisionals, family members etc.) left in the UPC system could be used to request pan-European injunctions and uncover evidence such as through disclosure of documents, saisie-contrefaçon and cross-examination of witnesses. These patents would benefit from a single act of infringement anywhere in the UPC participating Member States to start the action and a single court to rule on many infringing acts across all Member States, along with the UPC’s more uniform approach versus multiple different national court proceedings. These patents would help shape the case law of the court, with risks being minimal if there is confidence in the validity of the patent (perhaps after withstanding an EPO opposition).

Budget

This all being said, budgets need to be planned, factoring costs into your future decision-making. As discussed above, the costs that are associated with each national patent encompasses translation fees, renewal fees and then litigation fees in each jurisdiction where an action is brought. Litigation fees substantially outweigh the other two, and if the budget available for litigation is limited, the UPC may be attractive – providing the option for a single action to knock out a patent rather than numerous, costly national actions. It may be that remaining within the competence of the UPC is preferable for other reasons. For example, if the patent is unlikely to be challenged or if the patent is likely to be licensed rather than litigated.

While translation and renewal fees are less than those associated with litigation, the UPC system can still provide cost savings. During an initial transitional period it will only be necessary to provide a translation of a granted European patent into one other EU official language in order to bring a UP into effect in all of the participating EU Member States. After the transitional period, it will not be necessary for any translations to be provided to bring a UP into effect. This is significantly more cost effective than validating in a wide range of countries. The UP attracts only a single annual renewal fee, payable to the EPO. Payment of the single fee is sufficient to keep the UP in force in all of the participating EU countries. The single UP renewal fee thus can provide further significant cost savings versus pan-European patent protection.

Ownership

As well as weighing up the risks and benefits of the UPC System, patentees should also evaluate who owns the IP, checking licence agreements and other agreements such as R&D, collaboration or joint ventures. A number of transactional issues arise as a result of the ‘all or nothing’ nature of the UP such as who controls patent prosecution and enforcement. For example, the validity of an opt out can be challenged, so ensuring a clear chain of title and that the owners have opted out is crucial for key patents. That is, for any co-owned patents, the agreement needs to be checked to determine if opt out is covered, likewise licence agreements will need to be assessed whether they impact on opt out. This is not always a straightforward process since contract laws and the laws of property are not harmonised throughout the EU, and there are important differences when it comes to dealing with patents as objects of property. Our Transactions Team can help with this.

Having cases both in and out of the UPC is one way to balance the risks and benefits. But the impact of a central revocation action on the patents outside the UPC would also need to be considered. Generally, the actions to think about are:

• determine the value of particular products to your business,
• review your patent portfolio and determine which rights confer exclusivity, and
• consider whether to, in due course, assert those rights at the UPC or opt out (immediately) indefinitely.

Third party specific considerations

The UPC opens the possibility for central revocation of granted European patents across UPC states within one year. The proceedings are expected to be fast and front-loaded. In the life sciences sector, where a generic company has obtained regulatory approval for their drug and is close to launch, revocation of a patent via the UPC route potentially gives the generic company a faster and more efficient route by which to clear the way.

UPC actions will not be stayed for pending EPO actions, unless the EPO procedure is expected to resolve more quickly, such that an opposition and UPC litigation action can run in parallel. If the EPO opposition period has passed, or an opposition has not been successful, a revocation action before the UPC gives another chance to knock out a patent. If a decision on a patent is handed down by the Opposition Division or Technical Boards of Appeal at the EPO with disputable grounds, the UPC may provide a second bite at the cherry. However, while not bound by the EPO, it is likely that the UPC will give deference to the EPO’s findings. For example, if a patent is upheld on inventive step by the EPO applying the problem-and-solution approach, then it may be an uphill battle for an opponent to convince the UPC to consider an alternative inventive step attack based on the ‘Windsurfing/Pozzoli’ approach. On the other hand, using the tools available in the UPC could help convince judges that the EPO findings were not informed enough, e.g. by using an expert to define common general knowledge. How much of that cherry could be eaten is yet to be seen.

As part of an effective freedom-to-operate strategy, most third parties will be engaged in monitoring a competitor’s patent portfolio. Alongside traditional monitoring of national registers and the European Patent Register, you can also monitor the UPC registry, e.g. for opt out requests. At present the UPC CMS continues to suffer from technical issues on a regular basis with the system reliability continuing to a main concern. Our UPC monitoring teams report that in some instances it is taking several weeks for information to appear on the CMS. While we understand that steps are being taken to resolve these issues, for as long as they continue to plague the CMS any routine monitoring operation will require perseverance and diligence in equal measure.

Third parties may also seek to ‘clear the way’ for their intended product by seeking a declaration of non-infringement (“DNI”) in respect of a granted patent. Declarations of non-infringement are expected to be granted quickly at the UPC and can be used to “pin” any infringement action in the UPC, preventing infringement actions from being brought in (potentially slow) national courts. Balance should therefore be given as to the timing of the launch of the intended product and the filing of the DNI, since patentees can counterclaim for infringement.

When looking to clear the way for a product launch, the options available to you depend on whether the patent is under the jurisdiction of the UPC or national courts or both.

If no opt out is filed, actions to consider include:

• Filing a protective letter before the UPC (see our article).
• Launching a UPC central revocation action (across UPC states).
• Bring an action for a declaration of non-infringement at the UPC – to ‘pin’ any infringement action to the UPC.
• Supplement EPO opposition proceedings by filing revocation action the day the patent is granted, giving a 9-month head start to the action.
• If you wish to avoid receiving an infringement action in the UPC, consider starting national actions (revocation and DNI).

If an opt out is filed, consider:

• Launching a national action to “pin” the patentee out of the UPC.
• Filing a protective letter before national courts where available (Germany, Netherlands, Belgium).
• Filing a protective letter before the UPC should the opt out be withdrawn (immediate effect).
• Checking if the opt out is valid (validity can be contested along with launching a UPC revocation action).

Thus a review of the UPC registry along with the filing of protective letters may become part of routine freedom-to-operate strategy. Other routine aspects of a FTO strategy remain relevant, but may require adaption to take into account the UPC system. For example, licensing agreements will need to be carefully reviewed to ensure valuable rights, such as the ability to begin infringement proceedings before the UPC, are not lost.

It goes without saying that where there is a risk of infringement (especially likely in complex technology areas), companies need to have a risk management plan in place, e.g. there is no guessing what infringement by equivalence theory the UPC will develop. For example, ensuring insurance policies are up to date to insure against patent infringement claims in the UPC.

Other considerations:

EPO oppositions are still possible and remain a valuable tool for knocking out an EP patent (including UP) in all jurisdictions. Certainly, for patents which are opted out of the UPC, an opposition remains the only way of obtaining a multijurisdictional knock-out in one blow. Likewise, an EPO opposition can be used to knock out patents in states in which the UPC does not apply, including states which may be of significant importance in terms of market share (for the healthcare sector, this includes the UK, Switzerland, Turkey, Poland and Spain). Oppositions also remain a cost-effective way to knock out a patent, with significantly reduced official fees compared to bringing proceedings in the UPC.

The UPC has the potential to expand with future EU expansion and could eventually include ‘missing’ major healthcare markets such as the UK, Switzerland, Norway and Turkey. Thus, in the future, the UP system may become (even) more attractive.

The next articles look at the life sciences, medtech and robotics sectors and contemplate sector-specific factors to consider when deciding on a strategy for utilising the UPC system. Some patentee- and third party- focused scenarios will be discussed by way of example.

[1] Q&A: Unified Patent system (europa.eu)