The new European patent system

On 19 January 2022, the last piece of the puzzle fell into place for the provisional application of the Unified Patent Court Agreement (UPCA) to begin (as reported here). Preparations are now fully under way to recruit judges, implement case management systems and resolve other practical issues. A realistic timeframe is that the Unified Patent Court (UPC) will be operational at the start of 2023.

What is the unified patent system?
The unified patent system consists primarily of the introduction of a Unitary Patent and the establishment of a Unified Patent Court (UPC). Classic European Patents (EPs) are granted centrally by the European Patent Office (EPO) but must then be validated in each individual country where they have different legal effects. The Unitary Patent will be valid and have the same legal effect in all UPC countries. The Unified Patent Court (UPC) will rule on disputes concerning both Unitary Patents and classic European Patents. UPC can rule, inter alia, on patent infringement and invalidation of patents with effect in all UPC countries. The UPC countries currently consist of 24 EU member states, including Sweden.

The Unified Patent Court (UPC)
The UPC will consist of a Court of First Instance (divided into local, regional and central divisions) and a Court of Appeal based in Luxembourg. In addition, the UPC is subject to the jurisdiction of the CJEU in matters pertaining to EU law.

A regional division for Sweden, Estonia, Latvia and Lithuania will be located in Stockholm and the language of the division will be English.

This divided structure does not mean that operators will be able to freely choose the division at which a dispute is to be heard. As a starting point, patent holders will be able to file a lawsuit at the local or regional division in the state where the defendant is domiciled or where patent infringement has taken place. The defendant will initially be able to initiate a cross-action for annulment of the patent at the same division.

Actions for annulment unrelated to an ongoing infringement case and actions for rulings of non-infringement, are normally to be brought before the Central Division. The Central Division also has jurisdiction over infringement cases if the defendant is domiciled in a country that is not part of any local or regional division.

The Central Division is divided into three units responsible for different areas of technology. The main unit, located in Paris, is responsible for patents falling outside the jurisdiction of the other units. The unit in Munich is responsible for mechanical patents (IPC class F). The third unit is responsible for pharmaceutical patents and chemical patents (IPC classes A and C). After the UK left the UPC cooperation due to Brexit, it is unclear where this division will be located. The main unit in Paris will in the meantime be responsible for this area of technology.

The rules include, inter alia, that infringement and invalidity cases may be tried by different divisions and that different divisions may be competent to try an action for invalidity, depending on whether it is brought independently (“clear the way”) or in response to an infringement action.

The procedure at UPC
For companies that are used to litigating at the Patent and Market Court in Sweden, the UPC procedure will introduce a number of differences.

The most important one is, of course, the possibility (or risk) that through a single procedure – resulting in a judgment that has effect in all UPC countries – being able to establish for example, whether the defendant is infringing a patent or whether a patent is valid.

A number of other differences may also have practical implications. For example:

• The language of the proceedings in the regional division in Stockholm is English.
• The court will be presided over by two judges who are citizens of one of the countries of the region (i.e. Sweden, Estonia, Latvia and Lithuania) and one judge who is a citizen of another UPC country. The court may also choose to appoint a fourth, technical expert judge.
• The process is more detailed and “frontloaded”, i.e. the plaintiff’s lawsuit must be more complete. Extensive correspondence will not be allowed. The main hearing will normally be held within one year.
• All correspondence will take place via an electronic case management system and official submission forms.
• Main hearings are normally to be held in a single day. Interrogations and counter-interrogations with witnesses and experts can take place at a separate hearing, but the starting point is that the evidence must be in writing.
• The parties must pay fees to the court. The fees consist of a fixed amount and, if the value of the dispute exceeds EUR 500,000, an amount determined on the basis of the value of the dispute. The fixed fee will amount to EUR 11,000 or 20,000 for the most common disputes and the value-based fee between EUR 2,500 and up to EUR 325,000 (for disputes valued at more than EUR 50 million).
• There will be a cap on the amount of compensation for legal costs that the losing party must pay to the winning party.
• UPC will have greater powers to issue preliminary injunctions and to rule on other interim measures without hearing the defendant (ex parte).
• Companies fearing that patent holders will seek ex parte measures can submit defence arguments in advance on their own initiative in what is known as a protective letter (similar to the system currently applied in inter alia in Germany).

What happens now?
During the provisional application period, which began in January 2022, the practical work of establishing the Unified Patent Court will be intensified. The focus is on recruiting judges to the various UPC divisions around Europe, establishing the administrative routines for the court system and ensuring that IT systems are fully functional. The UPC’s Administrative Committee also have to adopt final versions of the rules of procedure of the UPC, as well as other implementing rules and guidelines.

The date on which the provisional application period ends, and the UPC becomes operational, will be determined when Germany deposits its instrument of ratification. In our judgement, it is likely that Germany will do so in the autumn of 2022, when the practical preparations for the UPC have progressed so far that the judicial system is clearly beginning to approach a functional stage. Thus, it is reasonable to expect that UPC will be operational from the beginning of 2023.

The rules on the Unitary Patents will come into force on the same day as the UPC becomes operational.

Opt-outs
The Unified Patent Court will, as a starting point, have jurisdiction over both classic European Patents and European patents with unitary effect (Unitary Patents).

In a transitional period, holders of classic European Patents will have an opportunity to apply for an “opt-out” from the UPC system. If this option is exercised, the patent is exempted from the UPC’s jurisdiction. Instead, the national court in the State where the patent has been validated maintains jurisdiction to hear issues of invalidity and infringement linked to the patent. The transitional period is seven years, but may be extended by another seven years. Opt-outs are applied for individually for each patent and are, as a starting point, valid throughout the patent’s term of validity.

It should be noted that holders of Unitary Patents will run the risk of the patent being invalidated in all UPC countries through a single procedure. Under the current patent system, it is quite common for national courts in different Member States to reach different conclusions about the validity of one and the same patent, with the result that the same patent is upheld in some States and nullified in others. The UPC offers an opportunity for effective law enforcement, but at the same time involves greater risks. This may be especially true in the first years after the UPC has become operational, as it is uncertain how the UPC will assess various issues. This uncertainty will hopefully diminish as the court settles disputes and develops its case law.

We expect that many companies will initially choose to exclude their most important patents from the UPC system, as the uncertainty regarding how the rules will be applied in practice will be considered too great. At the same time, we expect that many companies will want to initiate patent litigation – perhaps based on less important patents – at an early stage to gain practical experience of the new system and to have the opportunity to be involved and influence the development of practice at the new court.

Sunrise Period
The last three months of the provisional enforcement period constitute the so-called “Sunrise Period”. During this period, holders of classic European Patents may choose to exempt them from the UPC’s jurisdiction with effect from when the UPC starts operating. It should be noted that patents cannot be exempted from the UPC’s jurisdiction after proceedings have been initiated at the UPC. For companies wishing to have existing patents exempted, it is therefore important to act during the Sunrise Period, as counterparties may otherwise force patents to remain in the UPC system by initiating UPC proceedings.

The exact dates for the Sunrise Period will be determined later, but the period is likely to fall in the autumn/winter of 2022.

Who can exercise the opt-out option?
Patent holders can use the opt-out option, while licensees do not have this right. If a European Patent should have two or more owners, a joint application for opt-out must be filed. Applications are made via the UPC’s central Case Management System (CMS).

Those registered as patent holders with the UPC are presumed to be owners of the patent. In cases where a patent holder is not specified in the register, they must prove ownership by other means. We therefore recommend that all patent holders ensure that the information contained in the register is updated.

If two or more operators own a patent jointly, we recommend that you coordinate your strategies in good time in relation to the unitary patent system.

The option to exercise the opt-out is not definite
Patent holders can return classic European Patents to the UPC’s jurisdiction. Opt-in is possible for the entire term of the patent or supplementary protection certificate and can be exercised, provided that no ongoing process is taking place regarding the right concerned. It should be noted that the opt-out option can only be exercised once for each patent; you can therefore not leave the UPC system again after exercising the opt-in.

Strategic preparations and considerations
Companies that hold or license patents and patent applications should familiarize themselves with the new system to prepare for when the system becomes operational.

Companies holding classic European Patents should monitor the dates of the Sunrise Period and decide whether any, and if so which, patents should be excluded from the UPC system through applications during the sunrise period.

Companies with European patent applications not yet granted should decide whether they wish to obtain classic European Patents (which can be validated in the countries where patent protection is desired) or whether they wish to obtain Unitary Patents. If they want classic European Patents, no action needs to be taken. If they want a Unitary Patent, the patent must be granted after the new rules come into force and the patent holder must apply for registration with unitary effect within one month of the EPO’s patent notification.

To avoid misunderstandings, it should be noted that the choice between a classic European Patent and a Unitary Patent is not determined by whether the holder wishes patent litigation to be handled within the UPC system, as the UPC, as a starting point, also has jurisdiction over classic European Patents. Provided that the holder wishes the patent to be covered by the UPC system, the arguments for choosing the unitary patent are primarily of an economic and administrative nature. If you want patent protection in several of the UPC countries, a Unitary Patent can in many cases be less costly. In addition, you will avoid some administrative work of validations, translations and the like.

Companies that are licensors or licensees of patent rights, or that cooperate with other companies regarding, for example, research and development that may result in patentable inventions, should review their licensing and cooperation agreements in order to ensure that they will also be applicable in accordance with the intentions of the parties within the new system.

Our expertise
Setterwalls has been preparing for the entry of UPC into force for several years and we are ready to assist clients with advice regarding, among other things, strategic issues, contractual issues and patent disputes related to the unitary patent and the UPC system.