March 2014 UPC Alert SPEED READ Recent events signal that the radical change to how patents are obtained and enforced in and in particular involving Europe the new European Unified Patent Court (UPC) is a fast-approaching reality and gaining momentum: The pace of ratification has recently accelerated, with the French President having signed the bill of ratification on 24 February and the UK House of Commons having voted on the bill on 12 March 2014. The House of Lords is expected to follow suit on 30 July 2014. The Belgian Senate approved the UPC Agreement on 13 March 2014 and the Belgian House of Representatives is expected to follow this spring. These events indicate that the UPC will now almost certainly come into effect, probably by early 2016. The Preparatory Committee of the UPC has just published a revised version of the draft Rules of Procedure for the UPC (the 16th version), which will form the basis of an audit later in 2014. Although the Expert s Committee, mandated by the Preparatory Committee, has taken on board many comments received during the consultation period, the Rules of Procedure leave a lot of space for interpretation as a result of endeavouring to take a balanced compromise between the various jurisdictions and their judicial traditions in an attempt to develop a new uniform procedure for patent litigation. These uncertainties concern areas of significant importance to businesses. Details of the practical impact of the main changes to the Rules of Procedures and ratifications steps are set out below. www.allenovery.com 1
Ratifications Austria has already ratified the UPC Agreement (UPCA). The Parliament in Malta passed a bill for ratification on 21 January 2014. The French President signed a bill authorising ratification on 24 February 2014 after the French Parliament passed a bill ratifying the UPCA on 13 February 2014. In the UK the House of Commons passed the IP Bill, the legislation required to ratify the UPCA, on the 12 March 2014. This bill will now go to the House of Lords, which is expected to vote on 30 July 2014. The recent progress made by France, Belgium and the UK are important steps, giving momentum to the ratification process. The UPC will only enter into force once France, Germany and the UK (i.e. the hosts of the Central Division) have ratified the agreement (along with at least ten other Member States). In light of recent events, it now appears perfectly possible that the UPC will enter into force as early as 2016 On 13 March 2014 the Belgian Senate passed a bill to authorise the ratification of the UPCA, which will now go to the House of Representatives. Changes to the Rules of Procedure APPLICATION TO OPT-OUT A key change to the draft Rules of Procedure relates to the opt-out provisions. These provisions were considered ambiguous in the first draft, particularly regarding the effect of opt-outs on national designations of existing European patents and Supplementary Protection Certificates (SPCs). In this regard, Rule 5 now makes it clear that an application to opt-out a European patent can only be made in respect of all designated contracting Member States. Further, it has been clarified that opting out a European patent also means that all of the SPCs previously or subsequently granted based on the European patent are opted-out. Litigation strategies that would have consisted of opting out only some of the national counterparts of a European patent (eg those in the most important jurisdictions) are therefore clearly excluded. It remains the case, however, that patentees may be able to use divisional applications to achieve a mixture of optedin and opted-out patent rights covering broadly the same subject matter. In the same vein, Rule 5.2(e) provides that a supplementary protection certificates based on European patents with unitary effect cannot be opted out. www.allenovery.com 2
UPC Alert March 2014 MANDATORY STAY OF PROCEEDINGS A further important change relates to the situation where there are validity and infringement proceedings before the Central Division and Local/Regional Division, respectively. In particular, the Rules of Procedure previously made it mandatory for the panel of the Central Division hearing a revocation action to at least temporarily stay the proceedings as soon as an action for infringement was brought in a Local/Regional Division between the same parties. However, this provision has now been changed such that the Central Division will stay the revocation proceedings only if a counterclaim for revocation is made in the infringement action not merely if an infringement action is commenced by the patentee in a Local Division Rule 70(3). The defendant thus retains the choice to pursue his first-filed revocation before the Central Division. While this amendment may seem technical, it could in fact significantly change the dynamics of litigation in favour of defendants preventive actions for revocation, which have been widely used to date, could continue to be an important defensive tool for defendants in European patent litigation. PROVISIONAL MEASURES Of concern for all litigants was the change made in relation to the circumstances in which the UPC will grant provisional measures which, as a result of the diverging practice of Member States, had resulted in a fear that the UPC would be a playground for non-practising entities. While the Rules of Procedure previously left it to the Court to decide whether to take into account the respective interests of the parties, the revised draft now demands that the Court takes into account the interests of the parties (Rule 211(3)). This includes considering the potential harm for the parties in either granting or refusing an injunction and whether there was an unreasonable delay by the applicant in applying for provisional measures. There will no doubt be on-going debate as to the level of discretion or guidance that should be given to the Court in deciding contentious issues such as preliminary and permanent injunctions and bifurcation. However, it seems that, in this case, those stakeholders who cautioned the drafters of the Rules of Procedure of the possibility of non-practising entities leveraging the wide discretion afforded judges under the previous wording have been successful in narrowing a judge s discretion. PROVISIONS WITHOUT SUBSTANTIVE CHANGES DESPITE INTENSE LOBBYING Despite numerous proposed changes that are likely to be welcomed by stakeholders, many of the Rules of Procedure have remained substantively unchanged. One of the most disputed provisions relates to when a case is to be bifurcated. The only change in this respect is a new obligation for panels to set out reasons for their procedural decision on bifurcation Rule 118(7b). While not providing a substantive change as to how bifurcation decisions are to be made, this is a change of procedural significance in that it could potentially open the door to an immediate appeal (even before the final decision on the merits), thereby providing a possible www.allenovery.com 3
safety net where litigants feel the decision on bifurcation has been wrongly made. Such an appeal, however, could only be lodged if specific leave to appeal is granted by the Court of First Instance or, according to some members of the Drafting Committee, by the Court of Appeal. Whether it enters into the powers of the Court of Appeal to grant such leave could not be resolved by the Drafting Committee, which decided to leave the issue for the Court itself to decide. Equally, the provisions on permanent injunctions have remained unchanged despite comments from stakeholders emphasising that the current wording is unclear. Currently, there is ambiguity as to whether the criteria listed for the award of damages rather than a permanent injunction (ie absence of intention and negligence, disproportionate harm to the defendant and reasonable satisfaction for the plaintiff) are cumulative or alternative. This distinction is of a crucial importance to patentees and litigants in assessing the benefit and risk in litigating in the UPC. What s next? As stated on the Preparatory Committee s website, the publication of this latest draft of the Rules of Procedure is not intended as a call for further comments from stakeholders in so far as the public have any further comments, they should be made at the oral hearing on the Rules of Procedure which will be held by the Legal Group of the Preparatory Committee later this year. In the meantime, the outstanding issues will no doubt continue to be subject to scrutiny and further lobbying. However, the reality for companies is that the arrival of the UPC is imminent. Given that it is likely that the system will take the form of that currently proposed in the draft Rules of Procedure, companies must start getting ready for the biggest change in European patent litigation in over half a century. To keep up-to-date on the latest European patent system news, litigation strategies and what you should be doing to get ready for the new system, please join us at A&O s European Unified Patent System Microsite (www.allenovery.com/unifiedpatentsystem), where we will shortly be posting a full digest of the rule changes. www.allenovery.com
UPC Alert March 2014 Your A&O contacts If you require advice on any of the matters raised in this document, please call any of our partners or your usual contact at Allen & Overy. Geert Glas Partner, Brussels Tel +32 2 780 2560 geert.glas@allenovery.com Laëtitia Bénard Partner, Paris Tel +33 1 40 06 50 33 laetitia.benard@allenovery.com Nicola Dagg Partner, London Tel +44 20 3088 3871 nicola.dagg@allenovery.com Joachim Feldges Partner, Munich Tel +49 89 71043 3103 joachim.feldges@allenovery.com David Por Partner, Paris Tel +33 1 40 06 55 46 david.por@allenovery.com Allen & Overy LLP One Bishops Square, London E1 6AD, United Kingdom Tel +44 20 3088 0000 Fax +44 20 3088 0088 www.allenovery.com Allen & Overy maintains a database of business contact details in order to develop and improve its services to its clients. The information is not traded with any external bodies or organisations. If any of your details are incorrect or you no longer wish to receive publications from Allen & Overy please email epublications@allenovery.com In this document, Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi, Amsterdam, Antwerp, Athens (representative office), Bangkok, Beijing, Belfast, Bratislava, Brussels, Bucharest (associated office), Budapest, Casablanca, Doha, Dubai, Düsseldorf, Frankfurt, Hamburg, Hanoi, Ho Chi Minh City, Hong Kong, Istanbul, Jakarta (associated office), London, Luxembourg, Madrid, Mannheim, Milan, Moscow, Munich, New York, Paris, Perth, Prague, Riyadh (associated office), Rome, São Paulo, Shanghai, Singapore, Sydney, Tokyo, Warsaw and Washington, D.C., Yangon. Allen & Overy LLP 2014. This document is for general guidance only and does not constitute definitive advice. PG:3851875.5 www.allenovery.com 5