UNIFIED PATENT SYSTEM: A NEW OPPORTUNITY FOR INTELLECTUAL PROPERTY IN EUROPE

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1 March 2013 UNIFIED PATENT SYSTEM: A NEW OPPORTUNITY FOR INTELLECTUAL PROPERTY IN EUROPE After four decades of negotiations, on 19 February EU states signed the agreement on a Unified Patent Court (as of March 5, 2013, the signatory states are 25, with an additional state having completed the formalities for joining the new system). The European Union (EU) is thus one step closer to having a single patent and a single court system for ruling on patents. Although a number of events still need to take place for the new system to enter into force, it appears that there is the political will to make this happen. It is therefore worth for companies worldwide to start looking at the main features of the new system, in order to start factoring in the new system into their future IP strategies. 1. Unified patent The first part of the future unitary patent system (also called unitary patent package) is the unitary patent (UP), referred to as "European patent with unitary effect" in the EU regulation establishing it. Obtaining a UP According to the future system, in parallel to national patents, and to traditional European patents, there will also be the possibility for companies to obtain a UP. This will be a patent applicable in all EU states participating in the new system (currently 25 out of the 27 EU states). It will be obtained by applying for it with the European Patent Office (EPO). The pre-grant procedure shall remain the same as the one currently applicable for European patents. However, upon grant of the patent the applicant will have the option of indicating that they want to obtain unitary protection with respect to the participating states. In such case, in those states the applicant will obtain a UP, i.e. a patent which is a unitary object of property rather than a bundle of national patents as is now the case for European patents. The unitary nature of the future UP will mean that it will be possible to transfer, limit or revoke such patents in respect of all participating states. A transfer of ownership for only some of the EU countries, as is now possible with respect to European patents, will not be possible with UPs. However, it will be possible for the owner of a UP to licence it for all, but also only for some, of the participating states. Rights conferred by a UP The UP will give the owner the right to prevent any unauthorized party from committing acts against which the patent confers protection in all participating EU states. While previous versions of the EU Regulation on the UP contained an exact definition of the acts which would be within the exclusive realm of the patent owner, in 2012 the EU Regulation was amended to simply define them as acts against which that patent provides protection throughout the territories of the participating Member States in which [the patent] has unitary effect. By way of such reference to the law of the participating states, it should be possible to close off the possibility for a party that receives an adverse appeal decision rendered by the Unified Patent Court (the future jurisdictional body competent to rule on UP) to file a further appeal before the Court of Justice of the European Union (CJEU). This change was triggered by those who consider the option to file a further appeal before the CJEU as contrary to some of the pillars underlying the new system, which are reduced costs for the parties involved and fast decision-making. Despite the lack of an exact, self-contained definition of the exclusive rights conferred by UPs, the EU Regulation stresses that the right conferred on the owner shall be uniform, this being another of the pillars of the new system. In fact, one of the goals of the new system is that of overcoming the current situation with respect to patent protection in the EU, where such patent protection is governed by the national laws of the EU states. While in most cases such national laws are worded in a very similar, if not identical, manner, there are still differences from one EU state to the next not only in terms of the actual law, but also in terms of how such law is applied and interpreted. So one of the goals of the UP is that of ensuring uniform protection, thereby hopefully achieving greater harmonization and legal certainty.

2 Still on the topic of the protection conferred by a UP, such protection shall be subject to the principle of exhaustion of rights, whereby the rights conferred by the UP shall now extend to acts concerning a product covered by that patent which are carried out within the participating states after the product has been placed on the market in the EU by the owner or with their consent. Thus, the principle of exhaustion of rights appears to apply also when the product has been placed on the market in one of the EU states which are currently not participating in the new system. Renewal fees Due to the unitary nature of the future UP, a single renewal fee shall be payable to the EPO not only prior to the grant of the patent, as is already the case for European patents, but also after grant of the UP. This will represent a simplification in terms of the administrative acts needed for maintaining patent protection in the EU. It appears that there are still ongoing negotiations regarding the exact amounts of the post-grant renewal fees. However, the EU Regulation already establishes that such renewal fees shall be progressive throughout the protection period; it also establishes that the level of the renewal fees shall be set, also taking into consideration the specific needs of small-medium enterprises (SMEs), so as to facilitate innovation and foster competitiveness of EU businesses as well as reflect market size, while being similar to the level of the national renewal fees for an average traditional European patent. In any case, what is certain is that in view of the unitary nature of the new UP if a renewal fee due for a unitary patent is not paid, the patent shall lapse in all participating states. Translations Finally, a significant simplification comes from the translation rules relating to unitary patents. In particular, no translation of the UP shall be needed for the UP to be in force in the participating states. Thus, the translations (of the claims or of the entire patent text) which are now needed in many EU states for validating a traditional European patent will no longer be needed, which will lead to a significant reduction in costs at the time of grant of the UP. Nevertheless, for a transitional period of at least 6 years it will remain that, for UPs filed with a German or French text, upon grant the owner will have to provide a single (high quality) English translation, whereas for UPs filed with an English text, upon grant the owner will have to provide a single (high quality) translation into one of the official EU languages. The underlying idea is that the translational period will end when the quality of machine translations will make it possible to obtain high quality translations; until then, with a view to the dissemination of technical information the aforementioned (single) translations will still be necessary. Furthermore, regardless of any advances in machine translation, in the event of a judicial dispute the patent owner will have to provide, at the request of the Court, a translation of the UP into the language of proceedings of the Court. Also in the event of a judicial dispute, the patent owner will have to provide, as their own cost and at the request of the alleged infringer, a translation of the UP into the language of the EU states where the alleged infringement took place or where the alleged infringer is located. In respect of the latter translation, in the event of a claim for damages the Court will have the power to consider, when the alleged infringer is, inter alia, an SME, whether the alleged infringer acted in good faith before being provided a translation of the UP. Diversified protection All of the above is of course without prejudice to the possibility of obtaining, even after the entry into force of the new unitary patent system, national and traditional European patents, which will continue to coexist side-by-side with the new UPs. This means that each company will have the opportunity to choose the patent protection system that best fits the company's needs, based on considerations such as cost factors, market size, IP strategy etc. 2. Unified Patent Court The second part of the future unitary patent system is the unified patent court (UPC), i.e. the new judicial body that will be competent to rule on UPs. The main idea underlying the UPC is that it will allow parties having commercial interests in the EU states adhering to it to litigate

3 only before a single judicial body and to obtain a single decision, thereby overcoming the current need to litigate in the various EU states individually, which generates costs resulting from multiple litigations and often leads to divergent decisions even when the same patent is litigated. The stated goals of the EU in setting up the UPC are therefore those of reducing litigation costs and increasing legal certainty. Bodies The UPC shall comprise both a first instance court and an appeal court. In turn, the first instance court shall comprise a central division as well as local and regional divisions. The location of the central division has already been decided: the official seat is Paris, where cases relating to performing operations, transporting, textiles, paper, fixed constructions, physics and electricity will be heard. It will also have a section in London, where cases relating to human necessities, chemistry and metallurgy will be heard, and a section in Munich, where cases relating to mechanical engineering, lighting, heating, weapons and blasting will be heard. On the other hand, the local and regional divisions will be located in those contracting states that make a corresponding request, if the UPC Administrative Committee decides that the request is justified. Finally, the court of appeal of the UPC shall have its seat in Luxembourg. Competence In general, the UPC will be competent to hear both validity ad infringement cases, of both the preliminary kind and on the merits. After significant negotiations, it has been established that it will not only be competent to hear cases relating to UPs, but also cases relating to traditional European patents. In the latter case, the decision will impact only those portions of the European patent which relate to EU states adhering to the UPC and in which the patent was validated. Finally, it will also be competent to hear cases relating to supplementary protection certificates (SPCs). Turning now to the individual bodies: The central division will be competent to hear actions for revocation, actions for declarations of non-infringement, counterclaims for revocation and actions concerning decisions taken by the EPO in the framework of the administrative procedures for which the Office will be responsible with regard to UPs (which include requests for unitary effect, recordal of changes of ownership and licenses, publication of translations, collection of renewal fees etc.). As regards the local and regional divisions, these shall be competent to hear actions for actual or threatened infringement, actions for provisional and protective measures and injunctions, actions for damages or compensation derived from the provisional protection conferred by a published patent application, actions relating to the use of the invention prior to the grant of the patent or to the right based on prior use of the invention as well as actions for compensation for licenses. The actions will be brought at the local/regional division where the actual or threatened infringement occurred or may occur, or at the local/regional division where the defendant (or one of them) is located. At first sight, it thus appears that the central division will be mainly responsible for revocation and non-infringement actions started by the potential infringer, while local and regional divisions will be mainly responsible for infringement actions and actions for preliminary measures started by the patent owner. However, the UPC provides for a greater overlap of competence in the direction of the central division. In fact, if an alleged infringement has occurred on the territories of at least 3 regional divisions, the regional division seized shall, at the request of the defendant, refer the case to the central division.

4 Furthermore, if in an action for actual or threatened infringement the defendant counterclaims revocation, the local/regional division shall have the discretion to proceed with both actions; or refer the counterclaim for revocation to the central division and suspend or proceed with the infringement action, or, with the agreement of the parties, refer the entire case to the central division. In the latter two cases, the central division will decide on the aspect of infringement as well. Similarly, if an action for revocation is pending before the central division, the defendant may bring an action for infringement either before the competent local/regional division or before the central division. In this case, too, the local/regional division will have the same discretion as mentioned earlier, thereby resulting in the possibility, once again, that the central division will decide on the infringement as well. On the other hand, an action for declaration of non-infringement brought before the central division will be stayed if, within 3 months of its initiation, an infringement action between the same parties and relating to the same patent is brought before a local/regional division. In any event, parties may agree to bring actions (with the exception of those relating to decisions of the EPO) before the division of their choice, including the central division. An actual assessment of the workload distribution between the central division on the one side, and the local/regional divisions on the other, will of course only be possible once the new system has entered into force and has been operating for some time. However, it appears that the new system still allows for some forum-shopping for patent owners, especially when the alleged infringement takes place in more than one contracting state. It also appears that the central division will often decide on infringement cases, while local/regional divisions will sometimes decide on validity. Languages The proceedings at the central division will take place in the language in which the patent was granted. Nowadays, the vast majority of European patents are granted in English, and it is expected that this will not change with respect to UPs once the latter will be obtainable. Thus, it is expected that the vast majority of proceedings at the central division will in fact be in English. Regarding local/regional divisions, the language rules are somewhat more diversified. The language of proceedings before a local division will be the language that is the official language of the contracting state hosting the division. The language of proceedings before a regional division shall be the language designated by the contracting states sharing that division. Nevertheless, contracting states will also have the option to designate, as the language of proceedings of the local/regional division hosted by them, one of the languages of the EPO (English, German and French). In addition, as long as the parties agree, the local/regional division may decide to use the language in which the patent was granted as the language of proceedings. Similarly, as long as the local/regional division agrees, parties may also request to use the language in which the patent was granted as the language of proceedings. If the division does not allow such request, the parties may request the case be transferred to the central division. It becomes clear that in all these cases too, for the reasons mentioned above, most of the proceedings where this option is selected will be carried out in English. Overall, and once again subject to verification once the new system has entered into force and has been operating for some time, it appears that in the majority of cases the proceedings before the UPC will take place in English. This will surely prove convenient for non-european companies that are already used to working in this language with respect to their European patents, and which rely on specialist European patent law firms that, over time, have developed significant language skills and are thus able to successfully carry out all sorts of legal proceedings relating to patents in English, even where English is not their native tongue. Continued reliance on national courts of contracting states While one of the stated goals of the UPC is that of overcoming the drawbacks of the current system, where litigation of traditional European patents must necessarily be carried out on a country-by-country basis before the national courts of the EU states, the EU

5 legislator has decided that the new system will not fully replace the current one, so as to allow for some flexibility and greater options for users. Thus, for a period of at least 7 years from the entry into force of the new UPC, it will still be possible to bring an infringement or revocation, again relating to a traditional patent (or SPC based on such patent), before a national court of one of the contracting states. Any litigations started on the basis of this transitional provision and still pending at the end of the transitional period will remain unaffected by the expiry of such period. Similarly, even for the period following the end of the above 7-year period, the patent owner will have the option of ensuring that any new litigation may be started before the national courts of the contracting states. This option, called opt-out, will be achieved by simply notifying the UPC Registry at least one month before the end of the 7-year period, and will be susceptible of being withdrawn by the patent owner at any point (unless an action has already been started before a national court). Thus, companies having commercial interests in the contracting states, and especially patent owners, will benefit for a rather long period of the possibility of choosing between the current judicial system (based on national courts) and the new one (based on the UPC), thereby enjoying the advantages of the system that will best suit their needs, which may of course vary from case to case. Technical Judges and Representation Compared to many national courts of many contracting states, which are staffed only with legally trained Judges who need to rule not only on the legal, but also on the technical aspects of patent cases, the UPC brings along a significant innovation. In fact, all panels of the central division (which, as said above, will be predominantly involved in revocation actions) will comprise two legally trained judges and one technically trained judge. In addition, upon request of one of the parties or upon proposal by the panel itself, the panel of the local/regional divisions handling that party's case will comprise, in addition to the legally trained judges, also one technically trained judge. Similarly, the court of appeal will sit in a composition of five judges, comprising three legally trained judges and two technically trained judges. The technically trained judges will have qualifications and experience in the relevant field of technology concerned. In particular, they will have a university degree and proven expertise in a specific field of technology, as well as proven knowledge of civil law and procedure relevant in patent litigation. Of course, the UPC will ensure that the pool of judges working at the UPC includes at least one technically qualified judge per field of technology. This significant innovation goes hand in hand with another significant innovation, which is that of allowing parties to be represented before the UPC, at their choice, by a lawyer or by a European patent attorney having an appropriate qualification (such as the European Patent Litigation Certificate). Thus, the new UPC system officially acknowledges the ability of European patent attorneys having all relevant qualifications to represent their clients in litigation proceedings, where they can combine their technical and legal knowledge in order to handle patent cases, i.e. cases which almost invariably require both technical and legal skills. Furthermore, it will also be possible for lawyers (and European patent attorneys holding the relevant qualifications) to be assisted by patent attorneys, who will have the right to speak at hearings, once again acknowledging the important role of patent attorneys in patent litigation. The new UPC system therefore represents a tailor-made judicial system acknowledging the special nature of patent cases, and it surely attempts to provide a system where the professionals with the best possible background and qualifications can act, in the hope that this will lead to well-founded decisions both from the legal and from the technical point point of view. This will surely be a positive element for companies having a commercial position in the contracting states and wishing to defend their position before the UPC.

6 Diversified proceedings Here, too, all of the above is of course without prejudice to the possibility of using, even after entry into force of the new unitary patent system, opposition proceedings before the EPO in order to obtain the revocation of both traditional European patents and UPs. In fact, the option of opposition proceedings at the EPO will continue to coexist with the new litigation system. Once again, individual companies will be able to choose the judicial system that best fits their needs and enjoy the advantages resulting from such a multitude of available legal options. 3. Entry into force The new unitary patent system will enter into force all at once. For it to enter into force, it will be necessary for at least 13 signatory states, including Germany, Great Britain and France, to ratify the UPC agreement at the national level. Furthermore, the very recently passed new EU Regulation of 12 December 2012 on jurisdiction and on the recognition and enforcement of judgments in civil and commercial matters will need to be amended so as to also consider the (future) existence of the UPC. In any case, according to the agreement establishing it, the UPC cannot come into existence before 1 January 2014; this means that the EU bodies and the contracting states still have some time to carry out their tasks so that the new system may come into existence soon after 1 January Conclusions The unitary patent system, comprising the new unitary patent and the unified patent court, represents an opportunity for companies having commercial interests in the EU territory to have a broader choice for their IP strategies. In fact, there will be a greater number of tools for protecting their patent rights, allowing companies to choose between national, traditional European, and unitary patents. Furthermore, at least for an initial period of several years, there will be a greater number of judicial bodies to turn to in order to defend company rights and market position, as companies will be able to choose between national litigation, litigation before the UPC, and opposition proceedings before the EPO. Very interesting times lie ahead, and this broadened choice will likely bring positive results for those seeking to protect their commercial position in the EU.