Navigating the UPC: European Patentees Face Monumental Change and Choices

Patent owners of existing European patents will have the option to “opt out” of the UPC, meaning that their patents will continue to be under the jurisdictions of the relevant national courts. There are various issues that patentees and patent applicants should consider, as this event draws near, and the aim of this article is to shed some light on these.

The following article provides a general overview of the new UPC and the UP, followed by a more in-depth discussion of some of the issues that may be of interest, and which should be added to the “to-do” list of patentees and patent applicants of European patents.

Overview

1) Coming Into Force
The UPC will come into force after Germany will deposit of the ratification document of the “Agreement on a Unified Patent Court” (UPCA).(1) This is expected to happen soon. While it was originally anticipated that the UPCA will become effective on 1 April 2023, the UPC has announced, on 5 December 2022 (2), that the coming into force will be postponed to 1 June 2023.

The UPC will have jurisdiction, in matters of both infringement and revocation, over Unitary Patents (UP) and over “classic” European (EP) patents that are not opted out of such jurisdiction. The UPC will have a number of divisions that would act as the Court of First Instance and a Court of Appeal in Luxembourg.

Initially, the UPCA will have 17 members states (3), with the notable exceptions of Spain and Poland, which have decided to stay out. A number of other EU member states have already signed the UPCA but have yet to ratify it. Naturally, countries that are not members of the EU, such as the UK and Switzerland, will not be part of the UPCA and EP patents will have to be validated individually in such states to maintain territorial patent rights.

2) The Transitional Period and Option for Opting Out
From the date that the UPCA will come into effect, there will be a 7-years transitional period, extendable by another 7-years (to a total of 14 years), in which patentees will have the option to opt out of the system. In the event of an “opt-out”, the patentee will remain with the “classical” European patent system – holding a bundle of individual patent rights in different European states, each one under the jurisdiction of their respective national court.

If not actively opted out, existing national patents, as well as future ones to be issued by the EPO, will fall under the UPC jurisdiction. Opting out of existing patents may be done during the so-called “sunrise period”, which is the period of 3-months before the UPCA comes into effect, currently set to begin on 1 March 2023, but also at any time thereafter, until the end of the transitional period. Moreover, European patents that are issued after the UPCA comes into effect may also be opted out of the UPC, namely validated as national patent(s) during the 7-years transitional period. However, once an EP patent is validated as a UP it cannot be opted out of anymore.

There are good reasons for opting out, but there are also equally good reasons to decide to stay within this new system, as will be discussed below. A patent that is opted-out of the UPC will have a later option to enter the UPC system (or “opt-in”). An opt-out and a subsequent opt-in will only be available once for each patent.

3) Grant and Validation
As before, the European Patent Office (EPO) will continue to act as the pan-European patent examining and granting authority for all 39 European Patent Convention member states. Once a European patent is granted, the patentee will have to determine whether to validate the patent in UP member states as a UP or as several individual patents in different EU states. It should be recalled in this regard that Spain, Poland, and other EU as well as non-EU states, such as the UK and Switzerland, are not members of the UPCA and therefore, by definition, require separate validation. A patentee may, thus, end up with multiple applications in any case – one UP covering the UPCA member states and a few other national patents.

Unlike the 3-month period to validate the “classical” national patents, the time period for a request that the granted EP patent will have a unitary effect is but 1-month from the date of grant. (4) There are also translation requirements associated with the UP to consider: for an English language specification, a translation into another official EU language will have to be made. (5)

The EPO has further announced two additional transitional measures that will come into effect on 1 January 2023 (6). The first will enable applicants to file early requests to validate the patent as a UP, even before the UPCA comes into effect. The second measure permits an applicant to a request a delay in the patent grant procedure so as to ensure that the issued European patent will be eligible for UP protection and avoid missing the opportunity to obtain a UP in the transitional phase.

4) Annuities
Maintenance of a UP will require payment of annuities that correspond to the combined renewal fees due in the four countries where European patents were most often validated in 2015. (7) It is clear, therefore, that it will be more cost-effective to maintain a single UP than a plurality of individual, “classical” patents in the UP member states of the pre-UPCA era: at the price of maintaining 4 individual classical patents, patentees could obtain patent protection in presently 17 states, and more in the future. (8) Cost-effectiveness is certainly a point in favor of the UPC.

With respect to existing European national patents, although placed under the jurisdiction of the UPC in the absence of an opt-out, they will not benefit from such cost advantage, as annuities will still have to be paid to the national patent offices (same as before).

5) The UPC
The UPC will have a Court of First Instance and a Court of Appeals. The Court of First Instance has a decentralized structure with local or regional divisions in the member states. (9) The Court of First Instance also has a central division in Paris, with a section in Munich, that will have jurisdiction over specific matters. The seat of the Court of Appeals will be in Luxembourg. The UPC has recruited highly qualified judges that include legally qualified judges and technically qualified judges. (10) The UPC will also establish two Patent Mediation and Arbitration Centers. (11) All considered, it remains to be seen how the UPC will function in reality and what its policy on patentability, infringement, and damages will be like. (12)

In-Depth Discussion of Select Issues

1) Existing EP Patents and their Status under the UPCA
Under the current (pre-UPCA) patent regime, individual patents exist in different EU states in which the patentee validated their patent and paid annuities. All legal actions in connection with these patents, including patent infringement and revocations, are handled by the relevant national courts. Once the UPCA comes into effect, if no opting out request is made, these patents will automatically fall under the jurisdiction of the UPC. This means, for example, that any infringement action against a third party, or an action initiated by a third party, such as a patent revocation action or a request for a declaratory judgement, will be prosecuted at the UPC (at the competent local or regional division that has jurisdiction over the specific case).

Unlike UP patents, made available after the UPCA comes into effect and having legal relevance in all 17 UPC/UP member states, the pre-UPCA patents that will fall under the jurisdiction of the UPC (wherein the patentee chose not to opt out of), will have an effect only in the states in which the patents were validated in the first place. Accordingly, if the patentee indeed chooses not to opt-out, there is a risk, for example, of being faced with a single patent revocation action instituted by an interested third party which, if successful, will lead to the revocation of the patent in all member states. (13)

It should be noted, again, that opting out is possible at any time during the 7-years transitional period; although it may be preferable to do so as early as possible, in order to avoid being faced with a central revocation action, for example. Opting out is a reversible status and patentees can opt back in at any time in the future should they choose to. (14)

2) EP Patents after the UPCA Comes into Effect
Once an EP is granted by the EPO, the patentee will have the following options:
a. Validate the patent as a national patent under the existing system – only available during the 7-years transitional period (“classical validation”). (15)
b. Validate the patent as a UP patent, possibly with national classical validations in the non-EU states, particularly the UK and Switzerland, and the EU states that are not members of the UPCA.

In the event that there is a limited geographical scope of interest, for example, where there is an interest in patent protection only in Germany, France and the UK, there is, of course, a good rationale for following through with a classical validation. In the event that there is an interest in a broader geographical coverage that includes more than the four UPCA member states, there may be a good rationale for validating the patent as a UP patent.

Undoubtedly, as noted above, patent protection in non-EU states (e.g., the UK and Switzerland) and the EU states that are not UPCA members states (e.g., Spain and Poland) will only be possible through the classical validation route.

Several things should be noted in this regard:
The time period for requesting the validation of an EP into a UP is 1-month from the date of grant, in comparison to the 3-months period in the case of classical validation. However, there are provisions for de facto extending this time period, should the 1-month deadline be missed.
Translation of the patent specification into a language other than that of the specification – in the case of an English language specification into an official EU language – is required. This may impart some additional costs, although there are also translation requirements associated with classical validation. (16)
There are yet no official fees associated with validating the EP granted patent as a UP. Against this, there are national fees and agency fees associated with classical validation.
Overall, in addition to the large geographical reach of the UP, there appears to be a cost advantage in validating a UP compared to classical validation. However, a decision on choosing on proper validation route needs to be made on a case-by-case basis, taking into consideration the desired geographical scope of patent protection, as well as the risks associated with the UP patent (particularly, the risk for a central revocation).

3) Opt-Out Considerations
The question of whether to opt out or chose to remain within the UP/UPC system is a heavily debated topic. In the case of existing patents there appears to be a growing consensus that opting out should be the standard choice. As a rule, existing patents would, by default, fall under the jurisdiction of the UPC, unless an opt-out is filed. Thus, for those wishing to remove a patent from UPC jurisdiction, action needs to be taken. There is no cost advantage in yielding existing patetns to the UPC jurisdictions (unlike patents issued after the UPCA becomes effective).

Additionally, the judicial standards of the UPC, although believed by many to be patent friendly, are still an uncertainty. Accordingly, submitting a patent (or an entire patent portfolio) to the jurisdiction of the yet untested legal environment of the UPC, may be a risky proposition, in favor of an opt-out decision. While opting out as a general policy may be debated, there appears to be a strong rationale of opting out at least with respect to key patents. Generally, an opt-out decision and adopting a ‘wait-and-see’ approach seems to be a prudent and risk-free choice. Opting in is always a possibility. (17) It is to be noted, however, that a UP can never be opted out.

4) Opting-Out Timelines
Existing patents may be opted out of UPC jurisdiction at any time starting from the “sunrise period” (the 3-months period prior to the date in which the UPCA comes into effect, which is currently set to begin on 1 March 2023) and until the end of the transitional period –the 7-years period after the UPCA comes into effect that can be further extended by additional 7-years.

5) The Opting-Out Process
Opt-out applications have to be submitted online to the UPC Registry and there is currently no official fee involved. An opt-out application can be submitted only on behalf of all “true proprietors” of the patent in all 17 member states, which may be different people in different designated states. The “true proprietor” may not always be the registered owner (for example, in the case of an unrecorded assignment) (18) and, as it were, the ownership of each of the national patents needs to be carefully reviewed before submitting the opt-out application. It should be noted that a licensee (even an exclusive one) is not a “true proprietor”.

6) UP’s Cost Advantage
For patents issued after the UPCA comes into effect, there may be a cost advantage to proceeding via the UP route as compared to classical validation. First, filing the request with the EPO for UP validation (or “the request for unitary effect” as this is referred to by the EPO) does not attract any official fees, unlike the official fees payable to national offices in the case of a classical validation.

As it is likely that most European patents will involve validation in some non-UP or non-EU states, cost considerations may vary significantly and should be reviewed on a case-by-case basis.

The main costs to consider over the life of the patent are renewal fees. Those set for the UP are based on the cumulative costs of the four individual EU national patents in 2015, as stated above. Hence, the overall estimated costs over the first decade (which is the average life of an EP) will be less than 5,000 EUR. Dealing with a single renewal rather than a bundle of patents could also mean a considerably simplified administration of the renewal process and hence the associated costs.

7) Considerations Until the Coming into force of the UPCA (now set at 1 June 2023)
One thing is to review the patents and decide which of those, if any, should be opted out of the UPC system. An opt-out application may be filed at any time after the start of the “sunrise period”.

Another thing is to take steps to request suspension of the grant of pending EP applications to be able to validate the patent, once granted, as a UP.

Concluding Notes

The main aim of this article was to elucidate the new UPC system, which will soon come into force, and to offer some guidance on the relatively complex, forthcoming arrangement and the expected transitional period. It should, thus, not be regarded as a professional opinion.

As was discussed, the soon-to-be UPC/UP system raises several issues that need to be carefully considered by patent applicants and patentees, not all of which have clear and unequivocal answers. Readers are advised to seek case-specific professional advice on actual patent needs and considerations.

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Footnotes:
[1] Germany being one of the key states of the system, and without German ratification of the UPCA, the UPC will not come into effect. The UPCA was legally challenged in Germany which caused a several years’ delay in its coming into effect.

[2] https://www.unified-patent-court.org/en/news/adjustment-timeline-start-sunrise-period-1-march-2023

[3] The current 17 member states that have ratified the UPCA are Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Portugal, Slovenia, and Sweden.

[4] There are provisions for restoring this right should the 1-month period be missed.

[5] This translation has no legal effect, hence need not be certified and is for information purpose only. Where the patent specification is in German or French, a translation into English has to be submitted. It is noted, however, that automated (machine) translations are not permissible according to EPO regulations during the transition period.

[6] The date was originally set to coincide with the sunrise period but following the UPC’s announcement the postponement of the onset to the sunrise period to 1 March 2023, the EPO announced that this, notwithstanding, its transitional measures will be available as of 1 January 2023.

[7] When the fee level was determined. These annuities will be paid to the EPO.

[8] There are also some other cost benefits, as discussed below.

[9] There are 20 such courts in total. This number is expected to rise once additional states will ratify the UPCA.

[10] Each judge panel in the First Instance will consist of three legally qualified judges, of whom at least one will be from outside the region, and upon request of a party in a legal proceeding will be supplemented by a technically qualified judge with a relevant technical background. In the Court of Appeals, there will be a 5-judges panel, 3 of whom are legally qualified judges from different states and 2 are technically qualified judges with a relevant technical background.

[11] One in Ljubljana, Serbia and the other in Lisbon, Portugal.

[12] Some commentators expect the UPC to be a pro-patent court and, hence, a favorable legal forum for patentees. There is, however, no certainty that this will indeed be so.

[13] This risk will be without the balancing benefit of geographical scope and that related to renewal fees.

[14] However, once a legal action takes place in relation to the patent (for example, a patent infringement, patent revocation, or a declaratory judgement action), opting out of the UPC will no longer be possible, as well as opting in where the action concerns a national patent, instituted in a national court.

[15] Extendable by an additional 7-years period.

[16] In EP states that are not members of the London Agreement.

[17] As long as no legal action concerning a national patent was instituted in a national court.

[18] The EP representative filing the opt-out request may have to submit a declaration as to the identity of the true proprietor, and their entitlement to act on their behalf. The validity of this identification is critical for the validity of any opt-out application. An opt-out can be challenged in a UPC action and if found to be invalid, the patent will be subject to the jurisdiction of the UPC.

The information provided in this article does not, and is not intended to, constitute legal advice. All information and content are for general informational purposes only. The content is not intended to replace information provided by an attorney, and the reader should consult an attorney before taking any legal action or making any legal decisions.