Regina Sam Penti
Europe’s proposed Unified Patent Court (UPC) appears to be back on track following the UK’s announcement in November that it will ratify the UPC Agreement (UPCA) despite the Brexit vote calling for the UK to exit the European Union. The UK, along with Germany and France, are the three critical members of the UPCA, and the current draft of the UPCA requires all signatories to be EU members. Therefore, the UK’s potential exit from the EU cast a dark shadow over the future of the UPC. While open questions remain, the announcement paves the way to get the UPC up and running.
A New Era of Patent Law
The UPC is expected to begin hearing infringement cases in 2017, with invalidity proceedings to start shortly thereafter. Once it goes into effect, the UPC will usher in a new era of patent law. The ability to seek EU-wide enforcement or invalidation of a patent through a single action puts the strength of the EU’s $17 trillion market behind European patents, and could challenge the dominance of the US as the platform of choice for major patent disputes. While many of the features of the UPC can be advantageous (e.g., cost-effectiveness, efficiency of a single-action enforcement, technically-trained judges, shorter pendency, etc.), the new system also presents concerns that it may be too alluring for non-practicing entities (NPEs).
Typically, NPEs exist to develop or acquire patents for enforcement against practicing entities. In the past, many NPEs acquired patents primarily for enforcement in the US, since no other platform provided the large financial payouts associated with US patent infringement actions. However, many NPE portfolios also include granted European patents, which will automatically be swept into the jurisdiction of the UPC. The retroactive effect of the UPC makes it probable that these previously overlooked patents can now be asserted in Europe against U.S. companies with big economic stakes in the European market.
Why NPEs Welcome the UPC
U.S. firms with meaningful international sales will do well to take note and prepare for these eventualities. There are many reasons that the UPC would be attractive to NPEs. Primarily, under the UPC, injunctions are expected to be easier (and much cheaper) to obtain than in the US. The UPC lacks US-type Ebay-type factors that must be met for preliminary injunctions in the U.S. The threat of an injunction under the UPC will also be more effective in forcing settlements (than an injunction under the current regimes in Europe) due to the rather large economic coverage of such an injunction. The relative ease to obtain injunctions in a market as large as that of the U.S., combined with the reduced cost to do so, is seen as empowering NPEs to bring actions in Europe in an attempt to force companies into global settlements.
Secondly, the new unitary patent adds to the plethora of options available for seeking patent protection in Europe. In addition to classical European patents and national patents which may be directly acquired at the national level, patentees can seek a unitary patent under the UPCA, which is automatically effective in all signatories of the UPCA. The combination of unitary patents, classical European patents, and national patents provides patentees (including NPEs) with the ability to develop patent portfolios that target international firms with great precision, and without exposing entire portfolios to EU-wide revocation. This is a powerful tool kit for an NPE.
Finally, there are legitimate concerns that the UPC would encourage forum shopping. The cornerstone of the UPC is the Court of First Instance (CFI), composed of a Central Division and several local and regional divisions in the contracting member states. The Central Division will have general jurisdiction, including jurisdiction over parties not residing in Europe. Decisions of the CFI may be appealed to a Court of Appeals. The Central Division will have seats in London, Paris, and Munich, with each seat tending to take up cases involving specific technologies. Parties may bring actions in local or regional divisions where infringement occurs or where defendant resides or does business. In the absence of an appropriate local or regional division, the action may be brought in the one of the three seats of the Central Division, selected based on the technology at issue.
This system is similar to venue selection for infringement actions in U.S. district courts. While the various seats of the Central Division should apply the same substantive law, it is unclear to what extent local practices may affect procedures and the interpretation of these laws. It is also likely that while judges in Paris, London, and Munich may be very experienced, this may not be the cases for the local and regional branches. Claimants may attempt to bring suits in branches with inexperienced judges in hopes to getting a more favorable outcome.
What Companies Need to Know
While these concerns are legitimate, there are ways to curb some of these behaviors. For example, a large international firm can thwart forum shopping by requesting that an action be moved from a regional division to the central division if infringement occurred in three or more regional territories. In some cases, defendants can also force a patentee to stay in the national courts by preemptively bringing a non-infringement action in the national courts before the patentee files suit.
Moreover, while there are important differences, the UPC bears striking similarities to the Patents Trial and Appeal Board (PTAB), which has turned out to be quite attractive to challengers. In fact, the UPC, as a forum, will likely be much more familiar to U.S. Attorneys accustomed to the PTAB, than European Attorney, accustomed only to court national proceedings. Therefore, bringing well-thought out revocation or declaratory judgment actions under the UPC should be an important part of the arsenal of any U.S. international firms looking to curb the threat posed by NPEs under the new regime. We explore below a few of these similarities as well as strategies for pursuing these actions.
Probably the most important similarity between the PTAB and the UPC is that both rely exclusively on judges as triers or fact, rather than juries. In the U.S., having technically-trained judges hear and decide invalidity actions in the PTAB has been credited as one reason for the high quality of PTAB decisions and the high success rate enjoyed by challengers in actions before the PTAB. The PTAB has three-judge panels. The UPC, like the PTAB, will have multi-judge panels, commonly including judges who are both legally and technically trained. Also like the PTAB, the bulk of the proceedings before the UPC will be in the form of written submissions with limited opportunities to cross-examine witnesses. Unlike the long trials in U.S. or U.K. courts, UPC proceedings are expected to involve just one day of oral arguments, similar to the PTAB. Flowery and inflammatory language, gestures, catch phrases and showmanship, of the type employed to sway juries, don’t fare well at the PTAB, and are unlikely to do much better at the UPC. U.S. firms hoping to coordinate international disputes between the U.K. and the U.S. should not hesitate to seek practitioners with exposure to the PTAB for insight into managing these complex cases.
The UPC will be procedurally similar to the PTAB. Both the PTAB and the UPC should normally conclude within a year after institution of proceedings. Both prohibit ex parte communications, which are permitted in limited cases in district courts. Like the PTAB, the UPC requires that petitions be fully briefed at the time of filing, in contrast to the light requirements of the district courts. The formal requirements are also similar. For example, both the PTAB and the UPC only accept electronic filings, petitioners at the PTAB have five business days to cure formalities compared to 14 days to cure similar deficiencies at the UPC, and revocation proceedings at the UPC and PTAB proceedings both require rapid rebuttal by the patent holder (two months for the UPC and three months for the PTAB). Another key similarity between the PTAB and the UPC is that both permit amendments, though the UPC may be more accepting of amendments in some respects than the PTAB. Therefore, while the procedures are expected to vary somewhat between regional divisions, expertise at the PTAB will come in handy for navigating this new regime.
The UPC will allow limited discovery. Compared to district courts, the UPC provides very limited discovery. The UPC will allow parties to use evidence from any sources currently available in national courts, but there is little actual requirement to produce the evidence. Therefore, whether a case is complex so as to require extensive discovery should be a factor in determining whether to bring the action in U.S. district courts or the UPC.
While the similarities between the PTAB and the UPC should bring some comfort to international firms that are trying to navigate the uncertainties of the UPC, it is important to note that the UPC is a new platform for all practitioners. There are similarities, but there are also important differences between the U.K., Germany and other European systems and the UPC. While the inherent uncertainties of the new system may be daunting, the UPC, like the PTAB, will have strong procedures for obtaining patent revocation and can be used to the advantage of international firms looking for a defense against NPEs.
For years, the Unitary Patent system has been a distant possibility. Now, however, with the UPC Agreement having already surmounted several important hurdles, including Brexit and a legal challenge brought by Spain, timely implementation now seems likely, pending certain procedural steps. While these procedures can delay the introduction of the UPC, a scenario in which the UPC fails to come into force altogether is unlikely. And when it comes into effect, U.S. firms need to be ready to tackle the new patent protection and enforcement landscape.
About the Authors
Edward Kelly is a partner with Ropes & Gray. His practice focuses on complex patent matters, including diligence, reexamination, opposition and portfolio management. He has extensive experience before the US and European Patent Offices.
Steve Baughman is a partner and the chair of Ropes & Gray’s post-grant Patent Office invalidity challenge practice. Dubbed a “