A French government press release dated January 20, 2022, announces the creation of a harmonized intellectual property framework with the entry into force of the Unified Patent Court following the ratification of the international agreement concerning it. But what does it means exactly for us?
Regular readers of this blog are aware of my passion for music and, in this instance, will note that the issue being raised today by the UPC is also one that has given rise to arguably one of the most majestic recordings in music history (So What). In any case, let’s get down to our business: how will the JUB be set up? What are the consequences for practitioners?
The setting up of the UPC: the Provisional Application Period
This protocol automatically entered into force on Wedsnesday, January 19, that is, when thirteen states signed it. Now, as soon as the said protocol enters into force, preparations for the implementation of the UPC will begin. These include the appointment of Judges, the establishment of the registry, the development of the computer system and the finalization of the rules of procedure. The schedule of fees and recoverable costs will also have to be determined.
In any case, the protocol provides that certain provisions of the UPCA will only enter into force provisionally. This is for example the case for article 7, which defines the organization of the first instance phase of the court with its local and regional divisions and its central division in Paris (with the Munich and London sections), but also for articles 10 to 19, which concern the registry, the various administrative, budgetary and advisory committees as well as the judges and their training. The same applies to Article 35 on the Mediation Centre and Article 41, which provide that the Rules of Procedure will only be finally adopted by the Administrative Committee after the European Commission has given its opinion. Finally, the same applies to the provisions relating to the statutes of the court, and in particular those relating to the elections of the presidents of the first instance and of the Court of Appeal.
Consequences of the Establishment of the UPC
We can congratulate ourselves on the establishment of such a system which should facilitate harmonization on a European scale and limit forum shopping. From a French point fo view, it will notably allow French Judges to work together with their European counterparts and highlight the value of French Judges specialized in industrial property litigation (and of the jurisdictions from which they will come). Indeed, French decisions are still too little noticed at the international level, whereas many patent litigations are transnational. This is to be deplored in view of the quality of these decisions: a simple comparison with those of their European counterparts is enough to convince oneself of this. Moreover, we can expect a movement of harmonization of European Patent Law.
However, some reservations and questions remain. It is a complex system, in particular because of the distinction between European patents and European patents with unitary effect. This unitary effect will moreover have a cost, since it will imply the implementation of many important expenses to defend European patents with unitary effect before the Court: we can wonder here more particularly about the capacity of SMEs and other start-ups to become actors of this system, but also about their possible vulnerability facing such “European” actions of significant international actors.
This overall complexity as well as the cost of litigation before the UPC—more particularly for SMEs and start-ups—could, paradoxically, reinforce the attractiveness of the national litigation system to the benefit of a French patent whose value has been reinforced by the PACTE Law, thus creating unexpected competition to the upcoming European system. It will then be necessary, as many practitioners recommend, to finalize what was started with the PACTE Law: France should be able to be directly designated or elected during the national phases of international applications according to the PCT.
Finally, the impact of BREXIT on the fate of the UPC is also an important question: what about the impact of the exit of such an actor from European litigation outside the Agreement? Where will the section that was to be located across the Channel be distributed? In France or Germany (where the headquarters and a section are already located respectively) or elsewhere?
It seems to me that the centralization of the divisions at the level of the headquarters, in France, would be the most pragmatic solution (by facilitating the treatment of disputes) and the most logical since the most important organs of the European Patent Office are located in Germany and France constitutes the second European market. Let’s hope that the French Presidency of the Union will give the French government enough inspiration to encourage such centralization.
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No surprise for a French lawyer wanting to concentrate the Central Division in one and the same location that is Paris. In view of the fierce battle which has ended up with the Central (?) Division being in cut in three parts, I would rather think that this no more than wishful thinking. Germany would like it too.
I doubt that the two contenders for the allocation of the duties devoted to London, IT and NL, will accept a “provisional” allocation to either Paris and/or Munich of files in IPC classes A and C. I have not yet seen one convincing or compelling legal basis for such a “provisional” allocation. It is also far from sure that the distribution in Annex II of the UPCA will remain as it is. I could well see that FR and DE will haggle again and should a third location come, both countries would like to keep files in IPC classes A and C and transfer to the third location other IPC classes.
One can even have doubts that the UPC is in conformity with union law and Art 6(1) ECHR. Beside the legality of the provisional transfer of duties, a further reason is that a UPC judge can be removed from its post by his peers, but no means of redress are offered to him! See Art 10 of the Statute of the court, Annex I.
It is the first time that I see concerns expressed about the position of the SMEs in the UP/UPC system. Up to now SMEs have been used as a fig leaf by the big internationally active industry and big international active litigation lawyers firms, to hide the fact that they were primarily interested in the UP/UPC system. Only those two groups are sure to profit from the UP/UPC system. An impact of EPLA on the SMEs seems to have been carried out, but not for the UP/UPC. In all meetings in which SMEs were informed about the UP/UPC system, they clearly expressed their fears. The level of fees being the strongest deterrent to start with.
One very important aspect is that 70% of patents are held by proprietors not residing in a UPC contracting state. The UPC opens those extra-European proprietors a single point of attack for European industry in general and European SMEs in particular. Is this really helping European patent holders? I have some serious doubts. When one further sees that the average number of validations of granted European patents is between 3 and 5, the necessity of a complicated system like the UPC is not manifest. To my knowledge no study about the economic necessity of the UPC has ever been carried out.
Claiming that the UPC will bring about a movement of harmonization of European Patent Law is anything but sure. Both the UPC and the BA can decide upon the validity of a granted patent. The EPO for a shorter length of time, the UPC for a longer one. As a UP is a patent granted by the EPO, divisions of first instance of the EPO and BA are bound by decisions of the EBA. There is not even a cooperation mechanism foreseen between the two courts. This is however the case for the EFTA Court and the CJEU. The problem is compounded in that the UP/UPC is first not covering the whole of the EU, and I am not sure that the remaining member states of the EPC will accept case law from an institution they have no influence on it.
I do not expect that the number of oppositions at the EPO will diminish. First there is a big difference in fees and the EPO has streamlined the opposition procedure and the BA are making great efforts to lower their backlog. One should also not forget that the backlog has risen due to the blocking of any recruitment at the BA for many years. One wonders if this was not a deliberate attempt to discreetly favour the UPC.
Last but not least, the costs for simultaneous interpretation are borne by the EPO, whereas at the UPC, they will be costs of the proceedings to be borne by the losing party. That the costs or damages can have ceilings does not fundamentally change the issue.
Independently from the high basis fees at the UPC and in view of the costs for simultaneous interpretation been borne by the losing party, it is clear that the UP/UPC is for contenders having deep pockets.
Having practised European integration during my whole active life I am certainly for it, but I am neither convinced nor compelled to think that the UP/UPC system is the right way in matters of IP. There are other, much cheaper, ways to bring about a harmonisation in IP matters.
Dear DXT, your comment prompted me to check out the firm Ipsilon, in which the French lawyer writer is based. As he writes:
“……..French decisions are still too little noticed at the international level,….”
Nailed it there, didn’t he? But, good for him, by “talking up” France as a venue for patent litigation, he’s doing his best to attract more notice from now on..
And clearly he’s not alone. Good for you, Mr Thomas, to remind us that it was during the Presidency of a Frenchman at the EPO that the Boards of Appeal at the EPO were subject for many years to a block on recruitment, in turn leading to frustrating lengthening of backlogs in opposition cases at the EPO, in turn supplying materials to those who, whatever their personal reason might have been, were seeking to replace the EPO Boards with the Paris-based UPC.
Suppose that the bulk of cases going to the UPC are pharma/bio cases which would have gone to London. Suppose that the E-tech business area (that was the area allocated to Paris) settles its patent portfolio disputes almost always without going to court. No wonder the legal quarter of Paris, mulling over what the UPC judges seated in Paris are going to be doing with their time, is so keen to acquire London’s share of the UPC business.
Sorry, M. Dhenne, but my sense is that i) the customer knows best, ii) he who pays the piper calls the tune and so, iii) despite the UPC having its “seat” in Paris, no more notice of French decisions in patent cases will be taken in future than is taken now.
Well, let’s see which EPO Applicants choose which of their patents to make “unitary”. For the time being, I’m guessing that only Big Pharma will opt in, and then only for those of their patents thought NOT to be their crown jewels. Why? Because of fears that one rogue court could strike down the patent rights everywhere, on less than well-founded grounds of invalidity.
Given that litigation is a last resort, I can well imagine that, for those patent portfolio holders who indeed opt in (to reduce annuity payment budgets), their working assumption will be that disputes between bulk filers will very likely be settled short of a full trial of the action in the UPC (so that venue and forum shopping is very much a secondary consideration).
In which case, the big international law firms will still be in the money, even though the UPC judges will be kicking their heels, waiting for work, for decades to come. Meanwhile, amongst SME’s, and all those EPO Applicants who validate in 5 or fewer EPC Member States, patent disputes will get resolved as they always were, before the UPC ever came over the horizon.
Does anybody here see it working out otherwise?
I am more concerned that the UPC might open the door to the sort of low-level, get-rich-quick patent trolling that was once the fad in the United States (before eBay v. MercExchange, that is).
For instance, let’s assume I set up a shell company in a EU country (say, Estonia, wisdom has it it’s quite easy there). I then assign it a few patents with unitary effect, whatever the subject-matter.
Then, I proceed to send to 5,000 European SMEs a warning letter, which goes like this: “1) Your activity infringes my patent, because (whatever reason). I could go to my friendly Nordic-Baltic regional division of the UPC and have it hand down a not-very-friendly decision against you. But you can settle this matter once and for all for a one-time license fee of 7,500 EUR, which is reduced to 3,000 EUR if you pay within 45 days. 2) P.S. see the attached UPC schedule of fees: even filing a counterclaim for revocation of my patent will cost you at least 11,000 EUR.”
How many checks will I get in the mail in this scenario? Maybe quite a few, maybe one or two, maybe none at all. I don’t know. But sometimes fighting patent trolls of this sort is far more expensive than just cutting them a check to make them go away. At least that was the rationale for some patent trolling in the US pre-eBay.
If anyone can explain why the current UPC setup will not encourage this sort of patent trolling, I will be happy to hear from them.
Nice example of the Law of Unintended Consequences there, Extraneous.
The legislators in Europe and the Executive Branch (the EU Commission) should take patent trolling seriously. Look what happened in the USA: the courts had to shift (see the eBay case) away from the grant of injunctive relief, to bring the antics of the NPE’s back under control and stop a veritable plague of vexation litigation. They did it by denying the patent owner injunctive relief? Is that what the EU Commission had in mind, when setting up the UPC?
I second the invitation to readers from Extraneous. Tell us why this lucrative and sophisticated scam by an invasion of US-style NPE’s won’t proliferate, under the UPC, and bring Europe’s patent system into disrepute.
Dear Max Drei,
As you say very clearly, the number of validations being on average five or less the necessity of a court like the UPC is not manifest at all. On this basis, the saving in annual fees will only be marginal. Beside big pharma, I cannot see many industries needing patent protection in all UPC contracting states.
Even in the telecom or in the automotive industry with a few well-chosen validation states controlling the bulk of the market is achievable.
It has been a fallacy from the beginning to claim that the fees for a UP will be lower than for a granted European patent.
It is only when adding up all the fees for validation in all UPC contracting states and comparing this amount with the UP annual fees that savings are discernible. But this boils down to comparing apples and pears. The present fee structure still takes into account UK fees, although the UK is not any longer participating. The Preparatory Committee has staunchly refused to amend the fee schedule. Probably the budget might then come in the red.
There is a further problem which has not been taken into consideration or at best belittled. It is the fact that in the beginning judges will bring in their traditional way of acting and thinking. It is something I have noticed in all the mock trials I have been watching. Especially in local divisions which comprise two local judges, the third one will not have a lot to say. And the technical judge will be more or less ignored.
Any decision of first instance will, at the beginning, be most probably be appealed. It is thus only after a rather long period that it will be possible to see any developments in case law of the UPC.
By having set the basic fee for nullity nearly double the fee for infringement, it is clear that patent holders are favoured. And only those with deep pockets able to pay the lawyer’s fees.
Could the AC of the UPC (with a 2/3 majority) amend art. 7.2 UPCA according to art. 87.2 UPCA to adapt the UPC to the EU-UK Brexit agreement (London to another EU city) before the UPCA enters into force?
No. Art. 7(2) UPC only becomes relevant AFTER the UPC Agreement comes into force.
In the case of substantive amendments to international treaties that are not yet in force, the only legitimate way of proceeding is to conclude a new agreement (even if it only serves to modify the earlier agreement). There is a good reason why this avenue has not been followed, namely the risk that new negotiations over the re-location of the London division will fail to achieve a consensus … thereby killing of the current incarnation of the UPC.
Of course, if there is no agreement between the Participating Member States regarding re-allocation of the cases assigned to the London division, it is impossible to see how the UPC Agreement as it currently stands could be “interpreted” as permitting those cases to be heard in Paris and/or Munich. There are simply no rules or customs of international law that would support such an “interpretation”.
To clarify, I meant to refer to Art 87(2) UPCA in my previous comment.
Thank you for your answers, so I refurmulate my question accordingly:
Could the AC of the UPC (with a 2/3 majority) decide to amend art. 7.2 UPCA according to art. 87.2 UPCA to adapt the UPC to the EU-UK Brexit agreement (London to another EU city), which amendment will be effective on the day the UPCA enters into force?
No. Art 87(2) UPCA provides the AC with the power to make amendments solely for the purpose of bringing the Agreement “into line with an international treaty relating to patents or Union law”.
There is no international treaty relating either to patents or Union law that provides any basis for re-locating the London division of the UPC.
In order to pretend that the Withdrawal Agreement is such an international treaty, the UPC’s advocates would need to preform a(nother) volte-face and argue that it is impossible for a non-EU state to host a division of the UPC. However, even that would not be enough. This is because the Withdrawal Agreement is entirely silent with regard to the UPC, and certainly provides no hints about HOW (ie to where) the London division should be re-located.
In addition, there would be the matter of timing. An amendment that only occurs AFTER the UPC is up-and-running cannot retroactively cure defects that were present at the moment of the Agreement’s entry into force. The defect regarding Art 7(2) is sufficiently serious as to render the Agreement effectively inoperable.
Also, it is important to remember that all of the Participating Member States will need to agree to any amendment under Art 87(2), as otherwise they can use Art 87(3) to ensure that the amendment does not take effect. Thus, for example, both Italy and the Netherlands would need to agree to a re-allocation of cases to Paris and/or Munich … at a point in time when there is no other “international treaty” that could be relied upon to make further amendments to the UPCA.
All of the above considerations reinforce the point that the only lawful (and sensible) course of action would be for the Participating Member States to revise, and re-ratify, an amended UPC Agreement that does not include any mention of London. These days, however, it seems that adherence to the rule of law is only a requirement for those of us that are not in government.
Remember also that Art 87 is not one of those mentioned in the PAP. Thus, the process of revising the UPCA under Art 87(2) cannot even start until after the UPCA enters into force.
Art 87(2) UPCA is an article which avoids a new round of negotiations when all contracting states have adopted the same position on either in a patent or in Union law.
The proposed solutij
Art 87(2) UPCA has a different finality.
It is to be used when all the contracting states have adopted new legal rules relating to a treaty on patents or to Union law.
In such a situation, there is no need to amend the UPCA with a diplomatic conference.
Art 87(2) UPCA is a kind of administrative amendment to the UPCA to align it with legislation already adopted by the contracting states.
Even with the most vivid imagination, it is difficult to see how this Art could be interpreted under Art 31 and 32 VCLT so as to allow a “provisional” transfer to files in IPC classes A and C to the local sections in Paris and /or Munich.
The same applies to Art 7(2) UPCA and Annex II. The crystal clear wording does not allow any other interpretation under Art 31 and 32 VCLT, but the plain words.
Without amending Art 7(2) UPCA, the UPC will start with a heavy Damocles sword hanging over it.
The same
On 28.01.2022, I have been following a conference on the UPC organised by the University of Louvain-la-Neuve and the University Saint-Louis in Brussels. The conference was in mixed mode that is in presence and online. The title of the conference was “The UPC system- Remaining weaknesses and possible adjustments”.
A personal resume of this interesting conference, in which the dangers of the UPC system for European SMEs were highlighted, is to be found on LinkedIn under the following link:
https://www.linkedin.com/pulse/interesting-conference-upc-system-dealing-remaining-possible-thomas/
I have also started on LinkedIn a series of articles about open issues of UPC who might have an influence on the EPC or on the procedure before the UPC.
The first 3 are to be found on the following links:
https://www.linkedin.com/pulse/open-issues-upc-which-might-affect-epc-1-daniel-x-thomas/
https://www.linkedin.com/pulse/open-issues-upc-which-might-affect-epc-2-daniel-x-thomas/
https://www.linkedin.com/pulse/20220129-open-issues-upc-respect-epc-3-daniel-x-thomas/?published=t
@Patent Robot
Art 87(2) only applies once the UPCA has entered into force and has a different finality.
It is there to implement in the UPCA amendments relating to Union law or to international treaties relating to patents already implemented in their respective legislation.
It simply avoids, when amending the UPCA, a new round of ratification in the contracting states. Since it is already applicable in the contracting states, a new ratification is not necessary.
Even with a very extensive interpretation of Art 7(2) UPCA and Art 87(2) UPCA under Art 31 and 32 VCLT, it is difficult to find a legal basis for such an amendment of the UPCA.
Why should all the contracting states adapt their national legislation to fit Art 7(2)UPCA in it?
Where do you get the 2/3 quote. It is not foreseen in Art 87(3) UPCA which states:
“A decision of the Administrative Committee taken on the basis of paragraphs 1 and 2 shall not take effect if a Contracting Member State declares within twelve months of the date of the decision, on the basis of its relevant internal decision-making procedures, that it does not wish to be bound by the decision. In this case, a Review Conference of the Contracting Member States shall be convened.”
On 28.01.2022, I have been following a conference on the UPC organised by the University of Louvain-la-Neuve and the University Saint-Louis in Brussels. The .conference was in mixed mode that is in presence and online. The title of the .conference was “The UPC system- Remaining weaknesses and possible adjustments”.
From the programme and the speakers, it was clear that the thrust of the conference would not be really favourable to the UPC. In spite of the absence of some speakers and the audio and video links being sometimes not very stable, the presentations and the discussions were of high level.
A few aspects discussed during this conference can be summarized as follows:
– the UPC poses a big threat to European SMEs, as they can be centrally attacked for instance by non-European NPEs. See Max Drei’s comment above.
– the lack of a proper EU patent law as neither the EPO nor the UPC are actually within the reach of the EU. Such a proper EU patent should be hosted at the EUIPO in Alicante.
– the interesting possibility to have double protection by using a national patent and a UP in some contracting states, e.g. DE and FR, whereas a double protection national+EP is not offered. Should the UP disappear, the national patent still exists.
– the uncertainty with the UPC could lead to a return to national filings when a patent is only interesting in a few countries
– the UPC will not bring a harmonisation at national level, which appears necessary and useful
– the UPC does not deal with important aspects like competition law and property
At the end of the seminar two presentations were showing two totally different approaches:
An in-house patent specialist suggested to opt-out as much as possible in view of all the uncertainties linked with the UPC and its non-existing case law. He also drew the attention to the fact that SMEs only producing for their local market could nevertheless be attacked even if they do not export in other countries.
A French lawyer acting in litigation tried to show that SMEs would be better of with a UP, even when it comes to recoverable costs. What he did not say, but was commented by the audience is that this benefit of the UPC would only be present is the SME was not the losing party. And nothing is certain in this respect.
Your comment, DXT, about “recoverable costs” is interesting. It set me thinking immediately about the ratio between “recoverable” costs and real costs, really spent, in order not to lose the litigation.
I am not a litigator but my sense is that the ratio varies between 2:1 and 50:1. Since when did Parties in dispute crimp their spending down to that which they can “recover” from the losing side. Litigation is, or should be, a “last resort”. Accordingly, the imperative is to win, regardless what it costs to do so.
So if the UPC route is inherently expensive, and recoverable costs are only a fraction of real costs, then it is a route out of reach of SME’s, even if they have good prospects of using it to win their case.
Reflect on how expensive patent litigation is in the USA. Why is that? Mostly because the big litigation law firms like it that way. And do these firms have any influence on how the UPC develops? You bet they do.
I agree that the Brexit agreement is neither an International treaty relating to patents nor Union law (though it is an agreement signed by the EU, so it has some kind of relation to the Union), so that it is not a legally valid starting point for art 87.2 UPCA.
However, I think that if Brexit was Union law then art. 87.2 would apply: the AC (now alive thanks to art. 12 UPCA and the PAP) may vote in the next months (with a 3/4 majority, see art. 12.3 UPCA, not 2/3 which I mentioned by mistake) that art. 7.2 is amended (e.g. London becomes The Hague), which amendment will be effective on the day the UPCA (and art. 87) enters into force.
Of course, art. 87.3 UPCA would apply to said amendment.
So, to clarify, you envisage a “fix” for the London problem that relies upon:
– an international agreement that is not relevant to Art 87(2) UPCA (because it does not relate to “patents or Union law”), and that, in any event, does not in any way indicate a SPECIFIC, new location for the London court; and
– the Administrative Committee voting, during the PAP, to exercise an amendment power (under Art 87(2) UPCA) that has not yet been afforded to them.
You will have to forgive me if I remain convinced that this is not a viable solution to the London problem.
I am also convinced that it is not a viable solution to the London problem (see my previous posts) but I am trying to imagine what will happen during the next months.
The Brexit agreement not being relevant to art. 87.2 UPC is the biggest problem in my opinion.
On the other hand, the AC has full powers now, so it can amend art. 7.2 according to art. 87.2 certainly on day zero, when art. 87.2 will start to be in force, and maybe even earlier (a preliminary decision which will be confirmed on day zero).