Court of Appeal throws door to UPC wide open for litigation ensurers

Higher security deposits for claimants make it less attractive to finance UPC litigation. If only cash deposits or bank guarantees are permissible, rather than insurance policy coverage, cases become more difficult to pursue with litigation funders.

If high security deposits have to be made in cash or as bank guarantees, UPC lawsuits are also significantly less attractive for non-practising entities and SMEs . This is because the companies must then generally have good liquid funds or offer their banks company assets as guarantees for sureties. This is a problem for NPEs, as they are usually deliberately equipped with only the most necessary capital. SMEs, on the other hand, often have innovative technologies but only limited financial resources.

However, the UPC must be attractive for the latter companies in particular. This is the declared political will of its member states. But the usually high sums in dispute at the UPC entail very high security deposits. This was also the case in the dispute between orthopaedic device manufacturer Syntorr and its competitor Arthrex. In August 2025, the Munich local division ruled that Syntorr must provide €2 million in security for cost reimbursement claims in two UPC lawsuits against its competitor. But Syntorr appealed.

Syntorr succeeds

Yesterday, the third panel of the Court of Appeal eased the conditions for litigation insurance policies to be taken into account in the assessment of security costs. The judges upheld Syntorr’s appeal and overturned the decision on security for litigation costs of the Munich local division (case ID: UPC_CoA_890/2025 and UPC_CoA 889/2025).

In the dispute Syntorr had sought to deposit the substantial total amount of €4 million via an insurance policy. However, the local division rejected this approach stating that “according to Rule 158(1) RoP, Claimant’s insurance policy is no adequate security.” As a consequence, Syntorr had to lodge a bank guarantee alongside the insurance.

First ruling

Following the Court of Appeal’s judgment, Syntorr no longer has to pay security. A litigation insurance policy is not a substitute for a security deposit. But in future they may become decisive as to whether a plaintiff has to provide security at all.

The third panel of the UPC thus takes a completely different position on this issue than the local division. The panel consists of Ulrike Voß as presiding judge, French judge Nathalie Sabotier and Dutch judge Bart van den Broek.

The panel only began its work in January and heard its first case in Syntorr against Arthrex at the end of January. Sabotier and van den Broek only joined the UPC at the start of the year. Ulrike Voss was previously presiding judge at the central division and Munich local division.

The judges write in their judgment “that the objections raised by the Arthrex regarding the insurance policy are not successful. Due to the existing insurance policy and its specific terms and conditions, the financial situation of Syntorr does not give rise to a legitimate and real concern that a possible order for costs may not be recoverable or in an unduly burdensome way.”

The order for security pursuant to R. 158.1 RoP by the local division was therefore not necessary. The judgment further states that “in view of this, the further question disputed between the parties as to whether the court is entitled to order the provision of an insurance policy as a form of security pursuant to R. 158.1, second sentence, RoP, is irrelevant.”

General rule

However, the judges also emphasise that the decision as to how the defendant’s potential costs are secured depends largely on the plaintiff’s financial situation. Security deposits cover the financial risks of the defendant company if a patent is ultimately not successfully enforced and the plaintiff is in financial difficulties, for example.

“When exercising its discretion under Art. 69(4) UPCA and R.158.1 RoP, the Court must determine, in the light of the facts and arguments brought forward by the parties, whether the financial position of the claimant gives rise to a legitimate and real concern that a possible order for costs may not be recoverable and/or the likelihood that a possible order for costs by the UPC may not, or in an unduly burdensome way, be enforceable,” the UPC judges around Ulrike Voß now write in their headnotes.

“A litigation insurance that covers the legal costs of the defendant must be considered when assessing whether the claimant’s financial position gives rise to a concern that a possible order for costs may not be enforceable, or in an unduly burdensome way, by the defendant.”

Good for SMEs and NPEs

However, there is probably no automatic rule that no security has to be paid in the case of litigation insurance. This is because the judges emphasise that it depends on the specific terms of the insurance when examining whether a litigation insurance policy covers the legal costs of the defendant.

Nevertheless, the judgment should also bring relief to the insurance industry. They are now likely to become more attractive. At the end of the day, they are more favourable than providing security by cash or bank guarantee.

Small and medium-sized enterprises can now sue at the UPC more easily. Analysts now also expect more NPE claims that shy away from high litigation costs.

For insurers and litigation funders, patent lawsuits at the UPC have become attractive investments. Litigation funders often work hand in hand with insurers when supporting a lawsuit.

Main proceedings can continue

Now that the question of security has been clarified, the Munich local division can proceed with the main proceedings. Syntorr originally filed two suits with the Munich local division in spring 2025. The plaintiff accuses three Arthrex companies of infringing its EP 2 670 898 and EP 3 835 470. Both patents protect variable denier yarn and suture used in surgical and medical instruments.

The division is hearing both cases together (case IDs: UPC_CFI_114/2025). Arthrex countered with revocation claims

McDermott Will & Schulte filed the lawsuits for Syntorr, led by Düsseldorf partner Henrik Holzapfel. The US firm also represents Syntorr in US proceedings. Meanwhile, Simmons & Simmons advised Syntorr on a revocation action by Arthrex. Those proceedings have concluded (case ID: HP-2025-000016).

Arthrex relies on a Munich team from Noerr in the UPC proceedings, led by partner Ralph Nack. The team includes associated partner Armin Kühne and senior associate Bettina Bujnakova. Arthrex works with Gaskey Olds for US proceedings. Powell Gilbert handled the UK proceedings.