Opt-out, Unitary Patent, and Validation Strategies for the UPC

The Opt-Out

For a transitional period (initially of 7 years) classic European patents can be litigated in either the existing national courts, or the UPC.  This creates a potential risk for patentees that they are forced to defend their patent in the UPC, against their will, if a third party issues a claim for revocation in the UPC.  In that case, they would be exposed to a single decision which could revoke their patent in all UPC countries.  This may be a concern to patentees if they are worried about a new and untested court, or think it may be less patentee-friendly than national courts, or they think being able to challenge a patent in all countries in one action will make their patents a more likely target.

To mitigate this perceived risk, during the transitional period, patentees will be able to opt their European patents out of the UPC so that they can only be litigated in the existing national courts.  A patent can be opted out at any point, provided it has not been litigated in the UPC, with the opt-out lasting for the whole life of the patent (and any SPC). Should the patentee subsequently wish to litigate in the UPC the opt-out can be withdrawn, provided litigation has not been commenced in national courts.

Many patentees may consider that the “safest” option is to opt out everything as this preserves the status quo, avoiding any risk of ‘central attack’ in the UPC. Some may see this as a temporary measure, intending to withdraw their opt-out at a later date once the UPC has proved itself or if they want to take advantage of being able to bring a single enforcement action covering most of the EU, not only in terms of an injunction, but also damages.  However, other patentees may be more concerned that opted-out patents could be pinned out of a potentially advantageous system by an intervening  national action, or that if they opt out everything they will miss their chance to influence what is ultimately likely to become the dominant EU patent court. In addition, although no official fee is payable, for large portfolios the cost of opting out everything will be significant.  The opt-out must be made by an authorised person, in the name of the correct legal owner, and must have permission of all relevant co-owners for all designations of the European patent.  The administrative time and cost is likely to be significant.

The risk of not opting a patent out is that a third party will issue a revocation action in the UPC and that this leads to a single finding for all UPC designations which is worse than would have been expected in national courts. In many technical areas this may in fact be a small risk; unprompted revocation actions may be rare. There is also no reason to think the court will be patentee-unfriendly. In addition, while the UPC is untested, there are good reasons to hope it will deliver high-quality decisions; for example, the UPC is expected to attract good judges, all revocation actions will involve technically as well as legally qualified judges, the procedure is intended to take into account the complexity and importance of actions, and there is provision for appeals against both procedural and (as of right) final decisions.

Nevertheless, given that non-opted-out European patents will be at risk of a single attack affecting all UPC designations, and the UPC is untested, many patentees will be giving careful thought to opting out at least some of their portfolio. This may particularly be the case where companies hold individual patents that are particularly valuable, or in industries where unprompted revocation actions are more common. We therefore expect that the pharmaceutical and biotechnology industries in particular will give careful thought to opting out patents, whereas the electronics industries may be less concerned about the risk of central attack. Patentees who are considering keeping some, but not all, patents in the system will need to consider how they decide what to keep in and what to opt out – i.e. the pros and cons of the UPC for different patents – or if they want to use divisionals to hedge their bets, with one in and one out.

The opt-out provisions will become active in the ‘sunrise period’ that starts 3 months before the UPC Agreement enters into force (so that opt-outs can be effective on day 1 of the Court). The sunrise period is expected to be triggered in the second half of this year, so patentees should start considering the opt-out question.

Unitary Patent

As well as a new Court, a new Unitary Patent will also be available. The Unitary Patent will be a single, indivisible, right with effect in all members of the UPC Agreement at the date of grant.  The Unitary Patent can be elected upon grant of a patent by the EPO in place of the conventional “bundle” of individual European patents obtained through the traditional validation process.  During the ‘sunrise period’ before the UPC Agreement comes into force, transitional arrangements will be in place at the EPO to facilitate request for unitary status for patents approaching grant.  There is no additional official fee to take a Unitary Patent, but for a transitional period a translation of the full patent into a second language will be required.

The renewal fees for a Unitary Patent have been defined as the sum of the renewal fees in the UK, Germany, France, and the Netherlands.  Previously, the cost comparison was relatively simple – if a company validated in more than these four countries a Unitary Patent will reduce costs and increase coverage.  However, with the departure of the UK from the system following Brexit the comparison is somewhat changed as protection in the UK is still likely to be desirable and would add to the cost of the Unitary Patent.

The wide coverage of a Unitary Patent in a single right may be attractive, and it will certainly reduce costs and administrative burden compared with validating and dealing with national patent offices in a larger number of countries.  However, some countries, including commercially important jurisdictions, are missing (e.g. Spain, Poland, Switzerland, the UK, and Croatia), and since Unitary Patents cannot be opted out – they can only be litigated in the UPC – there is a risk of losing all rights in one revocation action.  Pharmaceutical companies typically seek broad patent coverage and might save the most money from switching to Unitary Patents. However, we expect many will be unlikely to take Unitary Patents as their primary protection due to the risk of central attack.  Nevertheless, they might still be useful to complement classic European patents (for example, if a patentee opts out the parent patent, but keeps a divisional in the system, that divisional could be a Unitary Patent) or to protect non-core products or secondary inventions.

The choice of a Unitary Patent is not straightforward and will need a careful consideration of costs vs benefit from the geographic scope provided.

Validation Choices

Most companies have a carefully considered validation strategy which balances cost against benefit.  The opportunity to litigate in multiple countries in a single action in the UPC will significantly reduce the cost of multinational litigation, which may make validating in a greater number of countries more attractive as there will be little to no incremental cost in adding smaller countries to litigation cases.  For example, some patentees might currently not validate their patents in smaller markets, such as Sweden, Hungary or the Baltic states, not only because of the extra validation and maintenance costs, but also because litigation to enforce the patent there might not be cost-effective. Now, however, infringements in such markets can be included in a single UPC action at no extra cost, changing the calculus. There may therefore be a driver to validate in a greater number of countries, or to take a Unitary Patent, but will need a careful (re-)consideration of cost vs reward.

Summary

The UPC brings a range of options which companies should consider in addition to the core matter of litigation strategy.  These options need to be considered in advance of the UPC entering force and so it is now the correct time to begin that work.