Logistics and Litigation impacted by the UPC
How exhaustion of rights and jurisdiction rules may affect your plans

The judges have been announced[1] and the Administrative Committee has released an official timeline[2] for the roll-out of the Unified Patent Court. With a likely kick-off in April 2023, corporations playing on the European Patent Conventions (EPC) markets are taking action to prepare for new upcoming system. One of the consequences of having several categories of countries in/out of the EU, and in/out of the UPC is that the geographical reach of the latter’s decisions varies depending on each set of facts. Therefore, for goods that could be the basis for infringement proceedings, now is the time to analyse what is done where, and then assess the UPC-related risks (or opportunities) and, consequently, for some decision-making steps to be shifted to other countries, or for goods to be rerouted to avoid the UPC’s jurisdiction.

The Agreement on a Unified Patent Court[3] establishes a common court for settling disputes relating to patents granted under the provisions of the EPC, i.e. European patents (EPs) and European patents with unitary effect (EPUEs)[4]. 24 of the 27 EU member states have signed the agreement, although only 17 have ratified it for now (Cyprus, Czech Republic, Greece, Hungary, Ireland, Romania, and Slovakia have not yet ratified the agreement). Ireland will hold a referendum on ratification probably within the next two years[5]. Accession is limited to member states of the European Union[6]. In the UPCA Contracting Member States (CMSs), i.e. the EU states that have ratified (or eventually will have ratified) the agreement, the Unified Patent Court has on its kick-off date (or will have as soon as ratification occurs) exclusive competence in respect of, inter alia, infringements of patents granted under the provisions of the EPC[7]. Furthermore, European patents can have unitary effect only with respect to those EU states that have ratified the UPCA at the date of registration[8].

The EU states Spain, Poland, and Croatia have thus far not signed up to the UPCA. Croatia joined the European Union only after the UPCA was signed, and it may well become a UPCA Contracting Member State in the future. The reasons for non-participation by Spain and Poland are varied and may perhaps be best described as “political”. However, as for Croatia, their right to ratify the UPCA is not impacted by this.

This leads us to ask: Is there a way to argue patent exhaustion in the whole UPCA territory (in blue on the map below) if goods enter the market in a non-UPCA country? Is there a way for the UPC to grant damages for infringement acts committed outside the UPCA territory? Answers to these questions will impact logistics and current distribution patterns as well as litigation strategy.

Exhaustion of rights

The UPCA is set to harmonise the current system around exhaustion of rights conferred by a European patent in the Contracting Member States. Exhaustion of rights occurs when a product covered by a patent is first brought to market by the owner of the patent, or with their consent. Also called the “first-sale doctrine”, exhaustion means that the patent owner doesn’t control the resale of the product.

For example, once a product covered by a patent is sold by the patent proprietor in country A, this product can freely circulate in this country. Whether this product can also circulate into another country – country – in which the proprietor may also own a patent covering that product, depends on the exhaustion regime of country B.

If country B does not consider the rights concerning this product to be exhausted, country B is said to operate a national exhaustion regime, and the patent proprietor can prevent the import of the product into country B.

The other side of this is an international exhaustion regime, in which the patent proprietor’s rights in country B are exhausted upon first sale of a protected product in country A, and parallel trade from country A to country B is possible[9].

The caselaw[10] of the Court of Justice of the European Union (CJEU) has established a regional exhaustion regime for patent rights in the European Union. This means the patent rights in a product are exhausted once that product has been put on the EU market by the proprietor or with its consent. This still applies even if the first sale occurred in an EU member state in which the product is not protected by a patent. The CJEU derives this from the fundamental principle of free movement of products within the common market, per the Treaty on the Functioning of the European Union (TFEU)[11]. The CJEU interprets this provision as being limited to safeguarding the specific subject-matter of a patent, namely “to reward the creative effort of the inventor, to guarantee that the patentee has the exclusive right to use an invention with a view to manufacturing industrial products and putting them into circulation for the first time, either directly or by the grant of licences to third parties, as well as the right to oppose infringements.”[12]

This caselaw by the CJEU is now codified in the UPCA (for European patents without unitary effect[13]) and in the EPUE Regulation (only for European patents with unitary effect).  Article 29 UPCA states that “The rights conferred by a European patent shall not extend to acts concerning a product covered by that patent after that product has been placed on the market in the European Union by, or with the consent of, the patent proprietor, unless there are legitimate grounds for the patent proprietor to oppose further commercialisation of the product”. The corresponding provisions for European patents with unitary effect (colloquially called “unitary patents”) in the EPUE Regulation[14] are slightly different as EPUE Regulation Recital 12 simply reinstates that the current CJEU case law applies to EPs; whereas EPUE Regulation Article 6[15] considers the EPUE only, as if it were separate to the other parts of the EP: Exhaustion of the EPUE takes place if a third party enters the EU with the consent of the patentee.

There cannot be a geographical partitioning of the ownership of an EPUE[16]; therefore, in the situation where a patent implementer enters the EU via a country of the UPCA territory first, the patent proprietor will own those rights across all (current) UPCA CMSs. However, the patent proprietor of e.g. the Polish or Spanish (not UPCA signatories), or Irish (not yet having ratified the UPCA) designations of the EP may be a completely different entity and have no link with the EPUE proprietor. Therefore, in practice there might be more cases where the EPUE proprietor argues “legitimate grounds” to oppose exhaustion of rights in a situation where patentees in non-UPCA countries (in particular, non-UPCA signatories) give patent implementers access to the UPCA Contracting Member States at a low cost. Bearing in mind that the size of the UPCA market is 300mio customers..

What may constitute legitimate grounds for the patent proprietor to oppose further commercialisation is currently unclear and will have to be determined by caselaw.

Importantly, exhaustion per this unified system occurs when the protected product is first sold anywhere in the European Union, not just in EU states where the UPCA is in force. So, for example, if a proprietor of an EPUE first places the product concerned on the market in Poland, the rights in that product will be exhausted and the product can freely circulate into UPCA Contracting Member States.

Since Spain, Poland, and Croatia are not bound by the UPCA, the circulation into these states (and, for now, into UPCA signatories that have not ratified the agreement yet) of products first put on the market in a UPCA CMS continues to be governed by the CJEU caselaw as described above. The likelihood of having diverging caselaw on the UPC-specific provisions is low as the CJEU is the court that will have the ultimate say in how UPC rules are to be applied.

The burden of proof to show exhaustion is typically on the party pleading this defence, i.e. the accused infringer. See, for example, the decision of the Bundesgerichtshof in the “Karate” case: “Die Erschöpfung stellt eine Ausnahme gegenüber den Ausschließlichkeitsrechten des Patentinhabers dar, für deren Voraussetzungen grundsätzlich derjenige darlegungs- und beweispflichtig ist, der sich auf die Erschöpfung beruft. Auch die Bestimmungen des EG-Vertrages führen regelmäßig zu keiner anderen Verteilung der Darlegungs- und Beweislast.[17]

Although the burden of proof lies on the patent implementer, it is worth noting that there may be extreme situations in which it can be reversed. For instance, in a trade marks ruling, which may be applicable to patents as well according to the literature, the CJEU has decided[18] that “where a third party succeeds in establishing that there is a real risk of partitioning of national markets if he himself bears that burden of proof, particularly where the trade mark proprietor markets his products in the European Economic Area using an exclusive distribution system, it is for the proprietor of the trade mark to establish that the products were initially placed on the market outside the European Economic Area by him or with his consent.” (author’s highlighting).

Exhaustion – new and non-EU member states (special situations)

The EU exhaustion regime extends to the non-EU member states of the European Economic Area (i.e. Norway, Iceland, and Liechtenstein) by virtue of the EEA Agreement[19]. See also the decision of the Bundesgerichtshof in the “Karate” case already cited above: “Erschöpfung der Rechte aus einem mit Wirkung für die Bundesrepublik Deutschland erteilten Patent tritt jedenfalls grundsätzlich dann ein, wenn das geschützte Erzeugnis durch den Patentinhaber oder mit seiner Zustimmung in Deutschland, einem Mitgliedstaat der Europäischen Gemeinschaft oder einem dem Europäischen Wirtschaftsraum angehörigen Staat in Verkehr gebracht worden ist.[20]

This would mean that rights in an EPUE would be exhausted after the introduction of a protected product on the EEA market, just like this is currently the case for the EU designations of the existing European patents.

Under certain circumstances, regional exhaustion in the common market may not occur in relation to products first placed on the market in new EU member states due to the so-called “specific mechanism[21]. For example, the Accession Treaty for Croatia[22] states that “With regard to Croatia, the holder, or the holder’s beneficiary, of a patent or Supplementary Protection Certificate (SPC) for a medicinal product filed in a Member State at the time when such protection could not be obtained in Croatia for that product, may rely on the rights granted by that patent or SPC in order to prevent the import and marketing of that product in the Member State or Member States where the product in question enjoys patent or SPC protection, even if this product was put on the market in Croatia for the first time by the holder or with the holder’s consent” (author’s highlighting).

Although a member of the European Free Trade Agreement (EFTA), Switzerland is not a member of the European Economic Area (EEA). Switzerland operates a unilateral regional exhaustion regime, in which products placed on the market within the European Economic Area by the proprietor or with its consent can be imported to and resold in Switzerland. However, this does not apply to patent-protected products with prices fixed by the state (e.g. medicines)[23]. This means, in practice, that as soon as rights in an EPUE are exhausted, those in the CH designation of the EP will also be exhausted, unless they fall under the specific Swiss exceptions. However, goods placed onto the Swiss market with the CH proprietor’s consent cannot be parallel imported into the EU without the local patentee’s consent as there is no exhaustion of rights in any EU member state.

The United Kingdom has left the European Union, and the EU-UK free trade agreement does not specify a particular exhaustion regime between the parties of the agreement[24]. Northern Ireland takes a special position due to the Protocol on Ireland/Northern Ireland in the UK Withdrawal Agreement[25]. Article 5(5) of this Protocol states that “Quantitative restrictions on exports and imports shall be prohibited between the Union and Northern Ireland”, which is similar (though not identical) to the provisions of TFEU Article 34, on which the CJEU’s caselaw concerning regional exhaustion is based.

Legal commentary[26] suggests, however, that Article 5(5) should not be interpreted as meaning that placing goods on the market in Northern Ireland leads to exhaustion of rights in the European Economic Area. This is also the European Commission’s position, which has stated that the Protocol “does not provide for the exhaustion of intellectual property rights in the EU in cases where a good has been legally put on the market of Northern Ireland[27]. Parallel import of goods (into the UK) first placed on the market in the EEA continues to be possible because the UK participates unilaterally in the EEA regional exhaustion regime[28]. The UK government has consulted the public on the UK’s future exhaustion regime[29]. In a way this puts the UK in a situation that is similar to that of Switzerland for the time being.



UPC jurisdiction

As discussed above, the rights in products first placed on the market in an EU or EEA state where the UPCA is not in force (e.g. Poland) with the proprietor’s consent (e.g. via a licence agreement) would be exhausted in UPCA Contracting Member States pursuant to UPCA Article 29 and EPUE Regulation Article 6, allowing for parallel imports into UPCA Contracting Member States unless there are legitimate grounds for the patent proprietor to oppose further commercialisation of the product. The issue of exhaustion may arise if a defendant is sued and wants to prove that the rights in the imported products are exhausted as a defence against the alleged infringement. This raises the questions of where a defendant can be sued in the first place, under which circumstances the UPC has jurisdiction, and how a defendant may avoid jurisdiction of the UPC.

The international jurisdiction of the UPC is governed by UPCA Article 31, which provides that the court’s international jurisdiction “shall be established in accordance with [“Brussels”] Regulation (EU) No 1215/2012 or, where applicable, on the basis of the … Lugano Convention”. This “Brussels regime”[30] of determining jurisdiction leads to a division of EPC contracting states into four groups[31]:

  • Group 1: UPCA Contracting Member States (EU member states which have ratified the UPCA)
  • Group 2: Croatia, Poland, Spain (EU member states that have not signed up to the UPCA); EU member states that are UPCA signatories but have not (yet) ratified the agreement are also in this group until ratification: Cyprus, Czech Republic, Greece, Hungary, Ireland, Romania, and Slovakia
  • Group 3: Norway, Iceland, Switzerland (non-EU member states that have signed the Lugano Convention)
  • Group 4: All other non-EU member states – United Kingdom[32], Turkey, certain microstates (Liechtenstein[33], Monaco, San Marino), certain Western Balkan states (Albania, North Macedonia, Serbia, and the new EPC contracting state Montenegro)

By moving its domicile to and acting from an EU state in which the UPCA is not in force (a “Group 2 state” such as Poland), a potential infringer may possibly “shield” its activities from the UPC’s reach, in particular, concerning infringement in EPC states which are not UPCA Contracting Member States (“Groups 2-4”).

There are several reasons why this is the case:

  • The UPC’s so-called longarm-jurisdiction in relation to damage arising outside the EU (Groups 3 & 4) is only applicable where the defendant is domiciled outside the EU[34];
  • The UPC may have special jurisdiction only as a “place of damage” if the CJEU’s mosaic approach applies to patents; and
  • Parallel imports into the UPC territory may be allowed because the rights in the product first put onto the market in e.g. Poland may be exhausted.

The same conclusions apply to a defendant domiciled in Norway or Iceland, because these states are also members of the Lugano Convention (so the UPC would not have general jurisdiction), and they are within the European Economic Area – so exhaustion may occur according to CJEU caselaw. Although Switzerland is in Group 3, as discussed above it is not in the EEA and therefore not within the EEA exhaustion regime.

General Jurisdiction

According to the Brussels Regulation, persons domiciled in the EU, i.e. Group 1 and 2 states (and Group 3 states pursuant to the Lugano Convention) shall generally be sued in the courts of the state in which that person is domiciled[35]. The domicile is where the person has its statutory seat, central administration, or principal place of business[36]. For example, the Dutch Court of Appeal recently confirmed this practice when granting a cross-border preliminary injunction against a Dutch defendant in relation to infringement in various EPC states including Germany (Group 1), Spain (Group 2), Switzerland (Group 3), and the United Kingdom (Group 4), even though the European patent in question was not even in force in the Netherlands[37]. For the UPC this means:

  • If a defendant is domiciled in a UPCA Contracting Member State (i.e. Group 1, but bearing in mind that some Group 2 countries may ratify and then become Group 1 countries), the UPC has general jurisdiction[38] for patent infringement and can award remedies and consider damages in respect of all EPC states where the patent takes effect. Judgments given by the UPC must be recognised and enforced in all EU member states even if they are not party to the UPCA (i.e. Croatia, Poland, Spain)[39], and are probably[40] also recognised and enforced in Group 3 states by virtue of the Lugano Convention. Recognition and enforcement in Group 4 states is not governed by the Brussels and Lugano regimes.
  • If the defendant is domiciled in a Group 2 or Group 3 state, the courts of that state and not the UPC have general jurisdiction.

Special Jurisdiction

However, in matters relating to tort (e.g. patent infringement), the courts for the place where the harmful event occurred (or may occur) have special jurisdiction, and a person may also be sued in the courts of that state[41]. A defendant may therefore be domiciled in Groups 2 or 3, but if patent infringement occurred in a UPCA Contracting Member State (Group 1), the patent proprietor can still sue at the UPC. It is likely that the “mosaic approach” established by the CJEU in relation to other intellectual property rights[42] also applies to patents, in which case e.g. where a defendant is acting from Poland (the “place of action”), the UPC would have jurisdiction only in relation to infringement in Group 1 states (the “place of damage”), not also the other EPC contracting states.

Further examples of special jurisdiction relevant for patent litigation, and thus situations where the UPC may have jurisdiction even though a defendant is domiciled in Groups 2 or 3 are, for example:

  • Regarding a “dispute arising out of the operations of a branch, agency or other establishment”[43]. For example, if a defendant is domiciled in Poland but distributes infringing copies in Group 1 states out of a branch in France, the defendant can be sued at the UPC.
  • Where there are multiple defendants and “the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings[44]. Thus, as confirmed by CJEU case law and also a recent decision by the French Cour de cassation[45], a court would have jurisdiction in relation to the sale of infringing copies in a country outside the territory of that court and concerning a defendant that is not domiciled in the territory of the court, if another defendant is domiciled in the territory of the court and commits a closely connected infringing act, i.e. concerning the “same situation of fact and law”[46] (same infringement by the same products in the same EU state). So, a claim may be successfully brought at the UPC in relation to infringement in Poland against a defendant domiciled in Spain if at least one other defendant is domiciled in a Group 1 state.
  • Counterclaims arising from the same facts on which the original claim was based: These can be brought “in the court in which the original claim is pending[47]. However, the courts where a patent is registered have exclusive jurisdiction over the validity of that patent[48].

The UPC also has special jurisdiction where patent infringement occurs in a UPCA Contracting Member State and the defendant is domiciled in a third state, i.e. a Group 4 state or in a non-EPC contracting states (e.g. the US)[49]. In this situation, the UPC “may also exercise jurisdiction in relation to damage arising outside the [European] Union from such an infringement” provided that “property belonging to the defendant is located in [a UPCA Contracting Member State] and the dispute has a sufficient connection with any such Member State[50].

This so called longarm jurisdiction in relation to defendants domiciled in a third state may therefore allow the UPC to exercise jurisdiction concerning damage arising in not only Group 1 but also Group 3 and 4 states. Since the Group 2 states Croatia, Poland, and Spain are not “outside the Union”, the UPC long-arm jurisdiction does not appear to cover damage arising from infringement of a European patent in these states, and the mosaic approach described above may apply instead.

[1] Unified Patent Court judicial appointments and Presidium elections | Unified Patent Court (unified-patent-court.org)

[2] Implementation roadmap – Outlook (unified-patent-court.org)

[3] UPC Agreement

[4] UPCA Article 1

[5] gov.ie – Government reaffirms commitment to participate in the Unitary Patent and Unified Patent Court (www.gov.ie)

[6] UPCA Article 84(4)

[7] UPCA Article 32(1)(a)

[8] EPUE Regulation (No 1257/2012) Article 18(2)

[9] Agreement on Trade-Related Aspects of Intellectual Property Rights, Article 6. Of note, the exhaustion regimes of different World Trade Organisation states are not a matter for the dispute settlement mechanism established by the TRIPS Agreement

[10] See in particular Case 15/74 and the European Commission’s Guide on TFEU Articles 34-36

[11] TFEU

[12] See Joined cases C-267/95 and C-268/95, paragraphs 30-32

[13] UPCA Art. 2(e) defines that in the UPCA the term “European patent” means an EP patent “which does not benefit from unitary effect”.

[14] EPUE Regulation Recital 12 states that “In accordance with the case-law of the Court of Justice of the European Union, the principle of the exhaustion of rights should also be applied to European patents with unitary effect”. Consequently, EPUE Regulation Article 6 provides that “The rights conferred by a European patent with unitary effect shall not extend to acts concerning a product covered by that patent which are carried out within the participating Member States in which that patent has unitary effect after that product has been placed on the market in the Union by, or with the consent of, the patent proprietor, unless there are legitimate grounds for the patent proprietor to oppose further commercialisation of the product” (author’s highlighting throughout).

[15] EPUE Regulation Recital 12 states that “In accordance with the case-law of the Court of Justice of the European Union, the principle of the exhaustion of rights should also be applied to European patents with unitary effect”. Consequently, EPUE Regulation Article 6 provides that “The rights conferred by a European patent with unitary effect shall not extend to acts concerning a product covered by that patent which are carried out within the participating Member States in which that patent has unitary effect after that product has been placed on the market in the Union by, or with the consent of, the patent proprietor, unless there are legitimate grounds for the patent proprietor to oppose further commercialisation of the product” (author’s highlighting throughout).

[16] EPUE Regulation (No 1257/2012) Article 3(2)

[17] X ZR 61/98,  “Exhaustion represents an exception to the exclusive rights of the patent proprietor. The burden of presenting evidence and proof is in principle with the person who invokes the exhaustion. The provisions of the EC Treaty consistently do not lead to a different distribution of the burden of presenting evidence and proof.

[18] Case C-244/00

[19] EEA Agreement Articles 11 & 13

[20]In principle, the rights conferred by a patent granted with effect for the Federal Republic of Germany are exhausted if the protected product has been placed on the market by the patentee or with his consent in Germany, a member state of the European Union or a state belonging to the European Economic Area

[21] C-681/16

[22] Croatia Accession Treaty

[23] Swiss Patent Act, Article 9a

[24] Trade and Cooperation Agreement (TCA) Article 223

[25] EU-UK Withdrawal Agreement

[26] IP exhaustion, bees and the Protocol on Ireland and Northern Ireland, Dr. Christopher Stothers, Kasia Bojarojc (freshfields.com)

[27] European Commission notice on Brexit and Exhaustion (see footnote 9)

[28] The Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019 (legislation.gov.uk); and UK Government guidance on exhaustion of IP rights and parallel trade (accessed 10-Oct-2022)

[29] UK’s future exhaustion of intellectual property rights regime: Summary of responses to the consultation (accessed 10-Oct-2022)

[30] See Brussels Regulation and Lugano Convention. Denmark has an opt-out from adoption of the Brussels Regulation (see Brussels Regulation Recital 41) but has agreed to apply it

[31] Further reading: The jurisdiction of European courts in patent disputes

[32] The European Commission has rejected a UK application to re-join the Lugano Convention

[33] Liechtenstein is an EFTA and EEA state but not a party to the Lugano Convention

[34] Brussels Regulation Article 71b(3): “where a common court has jurisdiction over a defendant under point 2 …”; Brussels Regulation Article 71b(2): “where the defendant is not domiciled in a Member State …”

[35] Brussels Regulation Article 4(1)

[36] Brussels Regulation Article 63

[37] LONGi (Netherlands) Trading B.V. vs Hanwha Solutions Corp., Court of Appeal of The Hague, 200.301.081/01, 01 March 2022, ¶6.3: “Pursuant to Article 4 of [the Brussels Regulation], the Dutch court has jurisdiction – also cross-border – to hear [the claimant’s] claims against [the defendant] established in the Netherlands. The court that has jurisdiction under that provision to hear the dispute on the merits is also authorized to take interim measures. Contrary to what was defended by [the defendant] and accepted by the preliminary relief judge, Article 24(4) of [the Brussels Regulation concerning exclusive jurisdiction of the courts in the state where the patent is registered with respect to patent validity] does not stand in the way of this under the given circumstances.”

[38] Brussels Regulation Article 71b(1)

[39] Brussels Regulation Article 71d

[40] The Lugano Convention has not (yet) been updated in connection with the introduction of the UPC, but this may occur in the future if necessary (see here)

[41] Brussels Regulation Articles 5(1) and 7(2)

[42] Cases C-68/93, C-170/12, and C-441/13

[43] Brussels Regulation Article 7(5)

[44] Brussels Regulation Article 8(1)

[45] See Case C‑616/10 and French supreme court (”Cour de Cassation”, ”Chambre Commerciale”) decision dated 29 June 2022, appeal number (”pourvoi”) G 21-11.085, decision (”arrêt”) 540 F-D : Hutchinson (FR) / Global Wheel (ZA), Tyron (GB), Dal (FR) et LaVi (FR)

[46] Case C‑616/10, ¶24-30

[47] Brussels Regulation Article 8(3)

[48] Brussels Regulation Article 24(4)

[49] Brussels Regulation Article 71b(2)

[50] Brussels Regulation Article 71b(3)