The new Unitary Patent (UP) represents one of the most significant developments in the European IP landscape in recent years.  A single patent covering multiple participating Member States of the European Union is a gamechanger from a patent prosecution and enforcement perspective.  It is also significant from an IP transactions perspective as it raises new and potentially unexpected issues around due diligence, assignments, co-ownership, licensing and the re-establishment of rights.  In a series of articles, our specialist IP Transactions team will be considering each of those issues in the context of the UP, aiming to help our readers understand what’s new, unusual or otherwise important to know.

In this first article in our series, the team considers what additional issues parties undertaking transactional IP due diligence should take into account when looking at a patent portfolio that includes UPs.

Undertaking transactional IP due diligence on patents

The term “due diligence” describes the comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.  Depending on the value/commercial significance of the deal, due diligence may also be undertaken by prospective licensees under IP rights owned by a business.

Where a potential acquisition or licence involves patents, the IP due diligence is likely to include at least the following:

• Identifying all relevant patents and the owner(s) of the patents.
• Checking the relevant patent registers and cross checking the registered applicant/proprietor/holder details against the information provided by the seller/licensor. To the extent there are discrepancies, understanding why that is.
• Understanding the scope of the patents:
  • technical scope, i.e. what products/processes are covered;
  • geographical scope;
  • remaining term.
• Scrutinising the chain of title, particularly in respect of any patents that relate to key products/processes, i.e. is there a complete chain of valid assignments going from the first owner to the current owner and are there any actual or threatened entitlement disputes?
• Are there any third party interests in the patents, e.g. security interests, options etc. and, if so, have there been any breaches of those arrangements?
• Have any of the patents been licensed in or out and, if so, how will those licences be affected by the proposed transaction?
• Are there any actual or threatened disputes or challenges affecting the patents?
• Are the renewal fees up to date and what fees will become due in the next few months?

Clients may also undertake their own “freedom to operate” analysis to assess whether any third party patents present a potential infringement risk.

The main sources of information will be the relevant IP registers as well as documents/information provided by the seller/licensor, usually via a data room and responses to due diligence questions/requests for information submitted by the potential buyer/licensee.

What’s new, unusual or otherwise important to know about due diligence on UPs

All of the due diligence issues outlined above will also be relevant to UPs.  There are, however, some new practicalities to consider as well as some interesting nuances relating to UPs that could catch potential purchasers/licensees unawares.

Practicalities

First to the practicalities: how to check the UP register.  The UP register is administered by the European Patent Office.  It has the same basic structure and functionality as the European Patent Register, but with some UP-specific data fields including, for example, the date of filing of the request for unitary effect for the relevant European patent and the “participating Member States” in which the UP has effect (see below for more on this).  The UP register is integrated within the European Patent Register, which is available online here: https://register.epo.org/regviewer

Territorial scope

In time, it is expected that the geographical scope of the UP will cover all of the 25 EU Member States that have joined the enhanced cooperation in the creation of Unitary Patent protection (this means all 27 EU Member States except Spain and Croatia).  However, as of 1 June 2023, only 17 of those EU Member States have ratified the Agreement on a Unified Patent Court, thereby qualifying as “participating Member States”[1].

The available geographical scope for new UPs will gradually expand as and when those remaining countries become “participating Member States”, but the key point to note from a due diligence point of view is that a UP will only have effect in the countries that qualify as “participating Member States” as at the date of publication of grant of the patent.

In other words, the geographical scope of a UP is determined as at the date of publication of grant and will stay the same throughout its lifetime.  It will not be extended to countries that subsequently become “participating Member States”.

Accordingly, when reviewing a UP it is important to check what countries it covers (this is likely to be more important for older UPs where there is a greater risk that more countries have become “participating Member States” during its term).  It is also important to remember that there are some notable exceptions to the Unitary Patent regime, including Spain, the UK, Switzerland, Turkey and Norway.  If any of those countries are important to the deal, check that they are covered by other patents in the portfolio.

Prosecution decisions

Another issue to consider from a territorial scope point of view is whether any European patent applications (EPAs) will be included in the deal and, if so, who will decide whether request unitary effect when those applications grant and who, if anyone, will have any say over that decision.  If acting for the purchaser of EPAs, it will be important to understand whether any third party consents are needed or consultations required before requesting unitary effect.  If acting for a licensee, there could be significant commercial advantages in having rights under patents with wider geographic scope.  On the other hand, a single unitary patent that would be at risk of a single revocation action might present a risk that a licensee would prefer not to take.

Nationality

The laws of property are not harmonised throughout the EU, and there are important differences (particularly between the common law systems like Ireland and the civil law systems on the continent) when it comes to dealing with patents as objects of property, i.e. objects that can be applied for, bought, sold, licensed, mortgaged etc.

A key advantage of the UP is that whilst it will cover multiple EU Member States, the property aspects of that patent will be governed by just one national legal system.  This means, for example, that rather than assigning 25 national designations of a granted European patent and needing to comply with 25 different national laws in terms of assignment formalities, a UP is treated as a national patent of one participating Member State.  As a result, it can be assigned with one assignment (noting that a UP can only be assigned in its entirety) which would be subject to the requirements of the national laws of one country.

The question is, which national law will apply?  This is addressed in Article 7 of the Unitary Patent Regulation[2], which designates the national law that applies to a UP as an object of property by reference to the residence or place of business of the applicant as at the filing date.  If the applicant does not reside in/have a place of business in a participating member state, then German law will apply.  Where there are joint applicants, the principal place of business of the joint applicant listed first determines the applicable law.  If, however, that is not in a participating Member State, the principal place of business of the next joint applicant will determine the national law, and so on (defaulting to German law where none of the applicants have a place of business in a participating Member State). For example, if a company with its principal place of business in France applies for a UP, the property aspects of the granted UP (entitlement, co-ownership, assignment etc.) will be subject to French law. If, however, two US companies apply for a UP and neither of them has a place of business in a participating Member State, German law will apply.  Once set, the applicable national law will remain the same throughout the term of the UP regardless of any subsequent dealings in the UP – for example, if a Finnish company acquires UPs from a German company which are subject to German law, any subsequent assignment of those UPs by the Finnish company to a new owner will also need to comply with German law requirements.

From a due diligence point of view, knowing which national law applies to a UP is of paramount importance – not only could it affect the chain of title in terms of the validity of assignments, but it could also be significant when it comes to issues such as co-ownership.

Rights of licensees to take legal action

As is the case in many European legal systems, an exclusive licensee under a UP has the same rights as the proprietor of that UP to bring actions (e.g. infringement claims) before the Unitary Patent Court (UPC), the only condition being that the patent proprietor must be given prior notice.  These rights can be excluded in the licence agreement.

A potentially unusual feature of the UP, however, is the express acknowledgment in Article 47 of the Agreement on a Unified Patent Court[3] that the holder of a non-exclusive licence may also be entitled to bring actions before the UPC provided that: (a) they are expressly permitted to do so by the licence agreement; and (b) the patent proprietor is given prior notice.

Accordingly, when reviewing licence agreements that include UPs, it is important to check the enforcement provisions as it may be the case that even non-exclusive licensees have the right to enforce those UPs, something that could materially impact upon the freedom of any new owner of those UPs to determine their own enforcement strategy.  It is also important to ask the proprietor whether they have received notice of any such actions from their exclusive or non-exclusive licensees.

Please let our Transactions Team know if you need any assistance undertaking transactional IP due diligence involving UPs.

[1] Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Italy, Lithuania, Latvia, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Sweden and Germany

[2] Regulation (EU) No 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection.

[3] 2013/C 175/01