Decision Time: The Unified Patent Court Begins in 2023

The Unified Patent Court (“UPC”) is set to begin on June 1, 2023. Under the UPC framework, a single court proceeding could result in simultaneous revocation of European Patents across multiple European Union (“EU”) countries, including France and Germany.

A three-month “Sunrise Period” is set to begin March 1, 2023. If a request is filed during the Sunrise Period, patent owners can “opt-out” specific patents from the UPC, such that they never become subject to the UPC unless the patent owner decides to withdraw the opt-out. However, the opt-out procedure is not necessarily straightforward. Importantly, if not done correctly and completed within the Sunrise Period, any patent challenged by a third party within the UPC will irrevocably be confined to the UPC’s jurisdiction. Given the high stakes, patent owners should begin assessing which patents they would like to opt-out of the UPC and ensure that the necessary parties are involved in the opt-out procedure. Parties to license agreements, collaboration agreements, and the like should evaluate their existing agreements to see if they are UPC ready. Further, parties to future agreements should take the UPC into account when drafting those agreements.

The Current System

Currently, an applicant can seek patent protection in the 39 countries that are signatories to the European Patent Convention (“EPC”) by filing and prosecuting a single patent application at the European Patent Office (“EPO”). EPC member states include all members of the European Union, along with, among others, the UK, Turkey, Switzerland, and Norway. Once granted, a European Patent (“EP”) only has effect in each individual EPC member state in which the patent holder validates the patent and later pays to maintain the patent. 

Enforcement of EPs and validity challenges to EPs (other than EP oppositions) take place in the national courts of each individual member state. National actions only give rise to a result effective in that member state.

The UPC

As of the date of this publication, 16 EU member states have ratified the Unified Patent Court Agreement (“UPCA”), and a further five countries are expected to ratify it. The ratified member states include/will include France, Italy, Germany, the Netherlands, and Ireland. Notably, Spain and Poland have indicated that they do not intend to participate in the UPC at this time. The UK, Turkey, Switzerland, and Norway are not eligible to participate in the UPC.

All existing EPs will transition to the new UPC regime for those states that have ratified the UPCA. Understanding that this is a significant change, the UPCA provides a mechanism by which patent owners can self-remove EPs on a case-by-case basis.

To avoid the reach of the UPC, all owners of an EP must affirmatively register to Opt-Out. Only a patent owner can make the request to opt-out of the UPC. Additionally, all owners across all validation states must agree to the Opt-Out request. The Opt-Out only becomes effective once the Opt-Out request is approved and registered in the UPC Registry. If incorrect or incomplete owners are listed on the Opt-Out request, then the request will not be registered and the affected patent will remain within the UPC.

If a third party brings a UPC action against an EP prior to the Opt-Out being registered, the patent will be irreversibly forced into the UPC. To ensure an EP does not transition into the UPC, Opt-Out requests must be successfully registered in the UPC Registry during the Sunrise Period. Patent owners who want to avoid the UPC should file an Opt-Out application as early as possible to allow time for any necessary corrections. Provided, however, that an EP has not been litigated at the UPC, its patent owner can nonetheless opt-out for (at least) seven years following the start of the UPC.

After opting-out, if a patent owner later decides to put an EP within the UPC’s jurisdiction (such as for enforcement purposes), the Opt-Out registration can be withdrawn provided that the patent in question is not yet subject to litigation in the national court of a member state.

The Unitary Patent

The Unitary Patent will be a new independent right, available to businesses worldwide as an alternative to EPs. As under the current system, applicants will file patent applications at the EPO. Within a month of grant of the patent application, the applicant will need to decide whether to select unitary protection (UP) or utilize the current system of national validations. If the UP route is chosen, the UP will provide blanket coverage across those EU member states who have chosen to participate in the UPC.

Special Considerations for Licenses and Collaboration Agreements

The anticipated introduction of the UPC provides a convenient prompt to review important license and collaboration agreements to see if they are “UPC-ready.”

Existing agreements will likely not expressly address which party (i) can choose whether to obtain UP versus EPs, or (ii) have decision-making power over opting-in or opting-out of the UPC. Companies may want to proactively amend agreements to expressly specify the parties’ respective rights. Where it is intended that licensees have these rights, a robust further assurances clause or similar mechanism will be required to ensure the necessary co-operation from the licensor. If there are co-owners, a contractual mechanism should be considered for procuring action by all co-owners.

UPC strategies will be constrained if there has been litigation in Europe. Ideally, all parties to a license or collaboration agreement should be under an obligation to swiftly share information about threatened or actual proceedings in Europe. The information sharing provisions and timelines in many existing agreements may not be optimal for this purpose. Of note, non-exclusive licensees do not get any rights under the UPCA to bring infringement proceedings. If the licensee expects such rights, the ability to sue for infringement will need to be expressly granted in the license. The UPCA requires an exclusive licensee to give prior written notice to the patent owner before it can bring an infringement action; if the licensee does not want to be constrained in this way, this must be addressed in the license.

Co-owned inventions often arise under collaboration agreements. With respect to a UP, co-ownership impacts the national law governing the UP as property (e.g., how the UP can be assigned). The law governing UP as property will be that of the UPC member state in which the first named applicant resides or has its principal place of business. If such a place is not in a member state, then the choice of law will be based on the next named applicant. If none of the applicants resides or has a principal place of business in a member state, German law will control. Collaboration agreements may wish to specify which party shall be the first applicant in order to select the more favorable applicable law. 

Particular complexities will arise in the case of EPs with multiple licensees or owners. Before entering into a license agreement, licensees should review the rights of different owners or sublicensees so as to understand what rights they may or may not have.

As a potential licensee, pre-license diligence considerations may include obtaining information on: the licensor’s patent strategy in Europe; the extent to which existing EPs have been (or are intended to be) opted-out; whether there has been any actual or threatened litigation on these patents; if there is any co-ownership or split ownership of EPs, and, if so, which is the first named applicant; if the register accurately reflects current ownership; and whether any licenses have already been granted under these patents, and, if so, what rights those licensees have which could impact on UPC issues.