UPC SCENARIO MEDICAL DEVICES Insomnia, Brexit and the UPC: a fictional scenario In our latest article looking at a UPC scenario, Nicola Dagg, Marc Döring, Alex Woolgar, David Por, Philipp Cepl and Laura Thompson consider a case that raises questions about jurisdiction, discovery and Brexit 1READ MINUTE This fictional UPC scenario explores some issues of jurisdiction as between UPC states. The scenario centres on a medical device, which comprises both pharmaceutical and electronic communications elements. The patents in suit are Unitary Patents. The UPC has recently opened for business, as the required 13 countries have ratified the UPC Agreement, but at this stage no further ratifications are complete. A large amount of artistic licence has been used in creating this scenario. Its purpose is not to present all details and correct answers; it is for illustrating law, rules, and strategy, and for provoking thoughts on how the UPC may deal with some difficult issues as the system begins to operate, which are further complicated by the prospect of Brexit. Read more UPC scenarios at managingip.com/upc In this fictional scenario our client is US-based innovative pharmaceutical company, Jones Pharma Inc. Jones manufactures and markets worldwide a medical device for the treatment of insomnia and related sleep disorders, branded SeroNight. SeroNight is a transdermal patch containing a slow-release gel formulation of prospirone, a selective serotonin reuptake inhibitor. Jones originally developed (and still markets, also in slow-release gel patch form) this SSRI for treatment of anxiety. Sales for the treatment of anxiety now make up around 10% of the prospirone market. The compound patent for prospirone expired earlier this year. Unlike Jones anxiety treatment, SeroNight patches also contain a microprocessor, which (via microcurrent stimulation) controls the rate of release of prospirone. The processor is able to communicate wirelessly (via a (fictional) industry standard communications protocol, Starlight Electronic Pulsatory Prevention of Insomnia SLEEPPI) with a number of off-the-shelf wearable tracker devices, which collect data on indicators such as heart rate and movement. Using data collected from the tracker, Jones s proprietary software installed on the SeroNight processor is able to monitor sleep quality and sleep state, and adjust the rate of prospirone release accordingly to maximise efficacy and minimise morning drowsiness. Jones has two relevant subsisting European patents: a patent protecting the use of prospirone for the treatment of insomnia and related sleep disorders (in EPC 2000 form); and 24
a patent protecting the process by which the SeroNight microprocessor receives and analyses data from the tracker device, modulates microcurrent output and adjusts the pharmaceutical release rate accordingly. Both were granted after the start of the UPC transitional period, and Jones opted for these to have unitary effect, meaning they cover the 13 UPC states which had ratified the UPC Agreement (UPCA) at the time of grant; Jones is aware that country coverage will not increase even as more countries ratify the UPCA later. A significant question for Jones is: which factors will be influential in the court s decision on whether to grant provisional measures? While you were napping SmithTech plc is a healthcare company based in South Africa, which has interests in generic pharmaceuticals, but predominantly in medical device markets. Through its regular monitoring activities, Jones has become aware that Smith has been granted a European marketing authorisation for prospirone in slow-release gel form. The summary of product characteristics (SmPC) and patient information leaflet (PIL) are not yet available online. There is reason to believe that Smith is about to import a new transdermal patch product into the EU via Rotterdam, the Netherlands. Jones has contacted Smith for urgent clarification of its commercial intentions, but has received no response. (It later transpires (i) Smith has not tried to clear the way to market for its product, taking the view that it does not infringe, and so decided to launch at-risk; and (ii) as an alternative strategy, Smith considered filing a protective letter at the UPC Registry (under UPC Rule of Procedure (RoP) 207) but owing to administrative error (Smith did not pay the requisite fee under RoP 207(4)) it did not put this into effect properly in time to block enforcement efforts by Jones. Perhaps I m only dreaming preparing to resolve the dispute The board of Jones is anxious to take action quickly to obtain the best possible outcome for the company, whether this will be in court or settled out of court. With this in mind, Jones s lawyers advise on the options available (which are found in Articles 59-62 of the UPCA). These are shown in figure 1. A significant question for Jones is: which factors will be influential in the court s decision on whether to grant provisional measures? Any UPC panel will have a multinational composition (Article 8(1) UPCA), although the precise composition will depend on location. The jurisdictional background of each UPC judge is likely to be a factor in their consideration of procedural and substantive matters, especially to fill in the blanks where the specified sources of substantive law (Article 24 UPCA) such as EU law, the UPCA, the European Patent Convention, and the national law of the seat of the particular UPC division, do not provide much detail (see figure 2). UPC decisions blending many national approaches are likely to increase over time, as more cases are heard by the UPC and a body of case law develops. Although earlier decisions will not provide binding precedent, no doubt they will be persuasive. The stuff of nightmares preparing to launch litigation Jones opted to bolster its evidence position by successfully applying for a saisie. The saisie confirms that Smith has gained CE marking and medical device conformity approval for a microchipped transdermal patch containing prospirone, called the ProsPro. Smith intends to launch this product imminently. Smith s attitude has destroyed any prospect of mediation. Jones immediately launches a full infringement action, based on both patents, in the Netherlands local division. The court, exercising principles of active case management (RoP 332), is content for the actions relating to both patents to be heard together (RoP 334(i)). Jones applies for an interim injunction, pending full pleadings (as permitted under RoP 206(1)). Smith argues that there is no infringement because its product is targeted toward the market for anxiety, and is not intended for use in treating sleep disorders. The court is unconvinced, and an interim injunction is granted. Full pleadings are exchanged. Smith responds with a defence of non-infringement and a counterclaim for revocation of both patents. Smith also alleges that the communications protocol used by the SeroNight necessarily infringes one of Smith s patents, which Smith has declared essential to the SLEEPPI standard. Smith asserts that the infringement action should be stayed pending the outcome of the revocation action, which should be transferred to the Paris Central Division. The only way is Paris Smith wants the action transferred to Paris because of that court s remit for hearing disputes in the high-tech or electronic arts (UPCA Article 7(2) and Annex II). Smith contends the nub of the dispute is about the technology of the microchip and its communication method; pharmaceuticals will not be the focus. Most expert evidence (assuming the court permits expert evidence see RoPs 112(2)(b) and 181) will need to be on the electronics side of the dispute. This is particularly relevant given that Smith is also considering launching a declaration of 25
It becomes clear that the saisie has not provided sufficient information to prove infringement of the process patent non-infringement (DNI) action based on a design-around device it has created: the pharmaceutical formulation has been changed slightly, but the communication method on the patch chip has been changed substantially. Therefore, Smith contends the dispute overall should be characterised as high-tech and heard in Paris. London calling Jones disagrees with Smith s position, protesting that a stay of the Dutch action will cause delay and price erosion resulting from Smith s cheaper product. This is made possible because Smith s components are inferior in quality. Jones prides itself on its reputation for impeccable quality, for which customers are willing to pay extra. For example, Jones s product contains thicker patch casing, to better insulate the chip from radio frequency interference this can affect the delicate asneeded dosing feature (if the electronic protocol is sent offplan, this causes a transdermal release of an under- or over-dose of the SSRI). Alternatively, Jones contends that under UPCA Articles 33(3)- (4), transfer is not mandatory, even if the DNI action is commenced. However, if the action is to be transferred to the Central Division (and there is some indication Jones will agree to this transfer provided the action is not stayed), Jones argues London is the correct Central Division court for hearing the dispute. Jones reasons are: UPCA Article 7(2), and particularly Annex II regardless of the nature of the alleged infringing product, and the existence of the electronic aspect, the Jones microprocessorcontrolled pharmaceutical release-related patent is WIPO IPC classified on the front page in such a way that definitively dictates that the action should be in London (and, of course, the classification of the prospirone patent even more clearly indicates the subject matter is for the London court); and even if the court were persuaded to look beyond the IPC class alone to the nature of the product in suit, then it still falls within the human necessities classifications which are the London court s remit. It is true that there is an electronic element, but this is a medical device, and the term human necessities is defined much more broadly than just covering pharmaceuticals or chemicals. Jones is also considering an argument which rebuts Smith s threatened counter-infringement claim on the standard-essential patent; but this argument involves a complex interplay between SEPs, FRAND and the European medical device regulation regime insofar as it applies to certain health-related software programs. It is possible that a question on this issue will need to be preliminarily referred to the CJEU. As with all local divisions in which less that 50 cases per year have been started, the Netherlands local division comprises a panel of three legally qualified judges (one Dutch, and English and French judges allocated from the central pool (see Article 8 UPCA). Eventually, the case (on both patents) is transferred to the London section of the Central Division. Rapid Eye Movement keeping the litigation ticking over It becomes clear that the saisie has not provided sufficient information to prove infringement of the process patent. It is unclear whether the method of microcurrent adjustment used in the Smith product falls within the scope of the claims. Jones, being a large US client accustomed to obtaining substantial discovery and depositions, is extremely keen to obtain a similar level of information in these European proceedings. Jones s lawyers explain that wide-ranging discovery is not the default order for the UPC. Instead, Jones applies under RoP 190(1) (with the support of evidence) at the interim conference (RoP 104(e)) for an order for specific disclosure of internal documents recording deliberations among Smith executives relating to the possible design-around. Smith and Jones are able to agree (prior to the conference) an order for expert evidence from pharmacokinetics and software development experts. Following Smith s disclosure, Jones may need a further expert (such as a materials scientist) to prepare an expert report. In this case, Jones will need to apply to the assigned judge rapporteur for an order under RoP 112(2)(b) for the expert s evidence to be heard at trial. Waking up to a cooked Brexit At the time of writing, a complicating factor is the potential for Brexit to reshape the UPC system. On March 29 2017, the UK government invoked Article 50(1) of the Lisbon Treaty, so the UK leaving the EU within two years is a real possibility. (This was followed, in April, by the calling of a general election to be held on June 8.) In our view, there are broadly three possible outcomes: UK leaves EU and immediately leaves the UPC system. It seems unlikely this will happen if the UK is in the UPC system from the beginning of its operations. While the UPCA does not provide for countries that are not EU member states to belong to the system, equally there is also no mechanism for a country to leave the Unitary Patent/UPC system. London is named in the UPCA as one of the locations for a section of the Central Division of the Court. Without amendment 26
Figure 1 Application for preliminary measures/preliminary injunction (RoP 206) Court can grant this before full proceedings have begun Could prevent Smith launching/continuing to import and sell its product Signals to the wider marketplace that Jones is serious about enforcing its rights against infringers To succeed, Jones needs enough evidence, eg as to harm it will suffer, and presently it does not have much Requires an oral hearing Discretionary remedy, so Jones might not obtain it Uncertain approach in the UPC early days, about how the judges from various jurisdictions in multi-national panels will decide these applications Attempt to mediate, to obtain settlement using a new Mediation Centre set up pursuant to UPCA Art. 35, it is located in Lisbon, Portugal; this is (fictionally, for this scenario) called the UPC Office for Real Dispute Alleviation (UPCORDIALE) Avoids expense and risk/uncertainty of patent litigation outcomes Outcome of any deal reached could be kept confidential (subject to local financial regulatory filing requirements eg in USA) May take some time to achieve a result, or, none may be achieved, so might just delay inevitable litigation Does not deliver a public judgment that could be useful in other proceedings/territories Smith is not prevented from launching/continuing to sell product in meantime Specific (pre-action) disclosure/discovery (RoP 190(2)) Court can grant this any time Could provide more detailed evidence on which Jones can base its claim Jones cannot have all the possible disclosure/discovery it wants/thinks exists; it will have to make its request specific to certain types of issues Smith may object, saying wait until you have seen the written statements of case once proceedings commence Apply for saisie - an order to preserve evidence and/or for inspection (RoP 192) Court can grant before proceedings start Could produce earlier access to the potentially infringing goods or materials used to make them Can ask for this without giving prior notice to Smith (RoP 192.3) but see box opposite Trying to do so without alerting Smith, requires giving the court full reasons why Smith should not be heard; Court may be unwilling to grant saisie without alerting Smith. Court may refuse, so Smith will need to be heard, adding delay and cost Smith would be notified at time of execution, and can ask for the order to be reviewed (RoP 197) 27
How can patentees best prepare for any effect of Brexit on the UPC? The ideal contingency would perhaps be to file simultaneously UK national and Unitary Patent (with a UK designation) applications for the same invention to the UPCA, however, London/the UK would only be able to remain on an informal basis (without the support of legislation). This calls into question whether judgments of the London section of the Central Division would be recognised and enforced by the courts of other UPC states. If the UK leaves immediately, the most likely scenario is that the proceedings are remitted to a replacement section of the Central Division (perhaps in Italy at present the most likely, or the Netherlands). UK leaves EU and stays in the UPC system permanently. Many IP practitioners and industry representatives in Europe would like to see the UK remain in the UPC. In our view, CJEU Opinion 1/09 sets out one viable mechanism for an ex-eu UK to remain a member. This Opinion does not explicitly restrict UPC membership to EU member states, but rather it requires that UPC states must (i) respect the supremacy of EU law; (ii) enable private individuals to bring claims against the member state: and (iii) ensure legal uniformity through references to the CJEU. This could be achieved through bilateral agreement between the EU and the UK, although in practice any such agreement will require substantial work. The main sticking point will be the requirement that, so far as it affects the UPC (for example, in matters of patent and competition law), EU law must be supreme and the CJEU must be deferred to. It is strongly questionable whether this will be politically palatable for the UK government. If the UK stays in the UPC system permanently, the proceedings between Smith and Jones will carry on more or less undisturbed (it is more likely than not that the CJEU reference will also continue as planned). UK leaves EU and stays in the UPC system for a transitional period, then leaves the system. As mentioned above, because there is no express legal mechanism of departure from the Unitary Patent or UPC systems, this kind of gentle exit would need to be agreed between all the UPC member states. In practice, the London section of the Central Division would need to stop accepting newly filed cases, but (for the sake of smooth transition) it would probably continue to hear the trials of pending first instance claims. Articles 20 and 21 of the UPCA indicate that the UPC must apply European Union law and respect its primacy, and be bound by decisions of the CJEU on preliminary references under Article 267 TFEU. In fact, for any transitional period, the London section will probably need to respect the criteria of Opinion 1/09. So how will these possibilities affect the course of the present litigation? The possibilities seem to be: First instance proceedings conclude before Brexit occurs. Provided there is no remission from the Court of Appeal in Luxembourg, Brexit has no effect on this case. First instance proceedings conclude; the appeal is heard in the Court of Appeal, and the infringement finding and consequent injunction are upheld. Brexit occurs shortly after. What happens to the enforceability of this injunction? The UK will need to create a mechanism for recognition and enforcement of the UPC judgment. At present, it appears that the UK could either sign up to the Lugano Convention instead of the (recast) Brussels Regulation (which governs jurisdictional issues as between EU member states), or take the Danish approach. The latter approach would not involve signing up to either the Lugano Convention or the Brussels Regulation, but instead in essence means codifying in domestic legislation the parts of the Brussels Regulation the UK wants to use. In our view, the UK is likely to put in place a pragmatic solution for the recognition and enforcement of foreign judgments. This is an essential part of UK efforts to maintain the worldwide importance of the UK as a dispute resolution forum (and location of choice for governing law) not only for patent disputes, but in many types of disputes. Proceedings are pending before the London section of the Central Division and the trial has been scheduled, but before trial takes place, the UK exits the EU. What happens to these pending proceedings? The only pragmatic course is that the trial (which was scheduled before Brexit) goes ahead in the London section (any appeal will go to Luxembourg in any event). The alternative is that the proceedings have to be moved to whichever country is able to seize control of a replacement section of the Central Division (whether this is Italy, the Netherlands or another location). A number of administrative and transitional measures would need to be put in place for this to occur. How can patentees best prepare for any effect of Brexit on the UPC? The ideal contingency would perhaps be to file simultaneously UK national and Unitary Patent (with a UK designation) applications for the same invention. The UK government has previously indicated that such doublepatenting will not be an option. Will the question of doublepatenting be reconsidered, as a fallback position? Changes have already been made to the Patents Act 1977 in the UK to reflect implementation of the Unitary Patent and UPC systems. These changes were made after UK consultations, but those consultations took place before the June 2016 referendum. Failing provision of a fallback option, innovators should look carefully at their pipeline and the probable timelines for the grant of current applications. It will be possible to opt-out from unitary effect patents filed before or during, and granted during, the UPC transitional period; therefore, for some patents, the contingency may simply be to take a view as the time of grant approaches. For others, it may be better to consider a bundle of national designations in a selection of key markets. 28
Figure 2: some national local colour similarities/differences UK Rigorous scurtiny of patent validity including cross-examination of experts Disclosure/Product and Process description Preliminary injunctions (PIs) may be available Loser pays major portion of winner s actual costs Other declarations Netherlands Rigorous scurtiny of validity PIs may be available No discovery/disclosure France Saisie contrefacon; on minimal evidence PI available for strong cases (no urgency requirement) Provisional damages and destruction of infringing goods possible Germany PIs may be available Bifurcation Infringement courts often patentee friendly; infringement heard before validity; No discovery/disclosure Protective letters system At the end of the day (or night) Leaving aside Brexit, there are many permutations of how this fictional litigation might unfold, but those we think most likely are: Jones is successful in all of its applications to obtain disclosure (European/UK-style rather than US style) and to bring expert evidence into the case. Jones gets a permanent injunction, and the connected corrective measures it has requested under Article 64 of the UPCA to recall the products from the supply chain. Jones recovers damages and almost all of the allowable costs. Jones s strategy was insightful. It achieved its commercial aim despite the uncertainties of the impact of Brexit on the UPC. Let us hope its injunction as ordered in the UPC remains enforceable in the UK! Jones secures a partial win, but the court decides in its discretion (under UPCA Article 63) not to order an injunction against Smith; Jones appeals this. The court also found the patents partially invalid, and so there was partial revocation and amendment (as per UPCA Article 65). Jones decides to appeal this partial invalidity finding to the Luxembourg Court of Appeal because, strategically, it needs the broader claims, to protect its interests in other non-european markets. Jones must continue to litigate and hope for a win on appeal. If the UK ended up outside the UPC, Jones must also hope that the UK will agree a practical regime for enforcement of any remedies it is awarded in the UPC Court of Appeal. Jones s Unitary Patents are revoked for being obvious. The court may decline to rule on infringement if so. Jones appeals the revocation order; the revocation is held in suspense pending the appeal outcome (UPCA Article 74(2)). Jones fight goes on: the CEO lies awake at night worrying about whether he should have instead opted for a small basket of national European patent designations and stuck to national patent litigation rather than risking all in the UPC. He reaches for his SeroNight Nicola Dagg Marc Döring Alex Woolgar David Por Philipp Cepl Laura Thompson Allen & Overy 2017. Nicola Dagg and Marc Döring are partners, Alex Woolgar is an associate and Laura Thompson is a senior PSL/senoir asociate in the firm s London office. David Por is a partner in Paris and Philipp Cepl is counsel in Düsseldorf 29