European lawyers and patent attorneys have been crying wolf over the Unitary Patent and Unified Patent Court for ten years, but don’t forget: at the end of Aesop’s fable, there really was a wolf and it ate all the town’s sheep. Well, the UPC wolf is coming and, if you don’t take active steps now, it may well eat your sheep.
The Unified Patent Court will, by default, have jurisdiction over all European Patents granted by the European Patent Office (specifically the nationally validated patents in those countries participating in the UP/UPC system) including those that have already been granted as well as those that will be granted in the future. This raises the risk of central revocation of multiple national patents by an untried and untested court unless those patents are actively opted-out of the UPC’s jurisdiction.
Even if the decision is made to opt European Patents out of the UPC’s jurisdiction, the process may not be straightforward. In the case of co-owned patents, or patents with different owners in different states, who has the right to opt-out? For patents that are licensed, do the licensees need to be involved in the opt-out decision?
We outline four steps below that all holders of European Patents should be taking already:
The first step, which you may want to start doing today, is to identify:
a. your pending and granted European Patents,
b. the legal owner or owners of European Patent nationally validated patents derived from these granted European Patents in the states participating in the UP system, and
c. any licensees of these nationally validated patents.
Only the proprietor(s) of a European Patent are permitted to opt-out of the UPC’s jurisdiction. The process of identifying legal owners is, unfortunately, not trivial. The European Patent Office does not update the European Patent Register after the end of the nine-month opposition period following grant of the patent. If there have been any changes in ownership, the information may not be readily available from these data sources.
Furthermore, the UPC will generally not check the validity of requests for opt-out precisely because there is no up-to-date, definitive list of patents and their proprietors. The applicability of opt-outs to a particular patent will only be checked by the UPC after proceedings before the court have begun.
It will therefore be possible to submit an invalid opt-out request and not know that there is a problem until it’s too late – if it is determined that the opt-out is not valid after proceedings have already begun, it will no longer be possible to request an opt-out validly precisely because proceedings have already begun.
For co-owned European Patents, or nationally validated patents derived from the same European patent but with different owners in different UP states, it will be necessary to obtain the consent of all co-owners in order to validly opt-out. Of course, different co-owners’ interests may not align – for one the safety of opting-out to avoid the threat of central revocation may be more important, and for another staying in the system to take advantage of the opportunity for central enforcement in multiple EU states may be much more attractive.
Finally, even though licensees – even exclusive licensees – will not have the right to opt-out the European Patents that they have licenses for, they will of course be affected by the decision. License agreements may give licensees certain rights, such as the right to enforce the patent, or include terms that imply or suggest consultation with or at least notification of the licensee before steps that impact the scope of the license, such as opt-out, are taken by the proprietor. The status of the patent as opted-out or remaining within the UPC’s jurisdiction may also have an effect on the value of the patent and the value of a license, which may be relevant in ongoing or future negotiations.
The second step is to analyze the identified European Patents and pending applications to determine an opt-out strategy. In general, it may appear advantageous to opt-out of the UPC’s jurisdiction: it’s the safer option, avoiding the risk of a third part beginning a central revocation action before the UPC, and it’s possible to withdraw the opt-out later if it becomes clear that a central infringement action before the UPC would be desirable for the proprietor.
However, once an opt-out is withdrawn, the patent cannot be opted-out again. Furthermore, could there be advantages of leaving patents in the system? It remains to be seen how opt-outs will generally be approached, but it is plausible that the deliberate act of opting some patents out and leaving others in sends a message to third parties about the proprietor’s confidence in the validity of the patent.
Indeed, the only general rule that can be applied to an opt-out strategy is that for important patents at least, the decision must be assessed on a case-by-case basis.
Once a preferred opt-out strategy has been established, it may be necessary to obtain the approval of co-owners or licensees. Where co-owners’, or owners’ and licensees’ interests do not align, negotiation may not be a straightforward process. Any delay in submitting the opt-out after the start date of the UPC will provide a window in which an action can be brought before the UPC, pinning the patent into the UPC’s exclusive jurisdiction for the remainder of its term.
License agreements will need to be reviewed and revised to address the Unitary Patent and Unified Patent Court system. In addition to clarifying issues such as opt-out and who is entitled to bring actions before the UPC, existing provisions of agreements may be in conflict with the new system.
The UPC and opt-out will have impacts in other types of agreements too, for example joint development agreements and the use of patents as security may be impacted by a potential change in their value due to the opportunities and risks associated with the UPC.
The time to start taking these steps is already here – certain optimists suggest that the UPC could be operational as soon as September 2022, and if they are correct, the sunrise period during which optouts should be filed could start as early as June 2022. Even if the doors don’t open quite that soon, many of the issues identified above are complex and there is no good reason not to get ahead of the wolf and start preparing now.
Writers Michael Nielsen and Mariella Massaro.