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Unifying patent litigation in Europe

With final agreement on the UPLS set for June 2012 by the European Council, what are the implications of the patent package?  

Unifying patent litigation in EuropeThe European Council announced on January 30, 2012, that 'the participating Member States commit to reaching at the latest in June 2012 a final agreement on the last outstanding issue in the patent package'.

The patent package is the Unified Patent Litigation System (UPLS), comprising a Unitary Patent (UP) and a Unified Patent Court (UPC) to handle litigation on UPs and also European Patents. The 'outstanding issue' relates to the location of the Central Division of the UPC, for which London, Paris and Munich head the list of competing bids. It is a major issue to be overcome in the progress of a project that has been blighted by problems and disagreements since it was first proposed nearly 40 years ago.

Actually, some other matters remain to be decided, including how the UPC will be funded, its rules of procedure and the transitional arrangements that will introduce the UPLS in parallel with the existing system of national 'European' patents. Nevertheless, there is still a powerful political impetus behind it.

So, users and practitioners alike must start to examine how the UPLS will shape patent litigation in Europe in the years to come, as the change promises to be radical. In addition, users can start to consider whether they wish to opt out of that system for the transitional period (of seven years, extendable to 14 years).

The next questions are what does the UPLS need to achieve and will it work?

The ideal UPLS
The UPLS is intended to remedy a number of difficulties that arise from the current, fragmented European patent system. The current European Patent is a 'bundle patent', processed by the European Patent Office as a single application, but on grant becomes a bundle of national patents, one in each of the countries designated by the applicant. A patentee enforcing a bundle patent in more than one country must bring separate proceedings in each country. The resulting multiplicity of parallel actions leads to increased costs. Furthermore, different national courts have different procedures and operate at different speeds, so the decisions come at different times.

Country variations
However, this is not all. The way the courts of different countries approach the law as laid down in the European Patent Convention varies and because there is no common court of appeal, the law as to whether a patent is valid and whether it is infringed can vary from country to country. This often produces inconsistent decisions across Europe in respect of equivalent patents. The uncertainty that results is not only bad for businesses, but it also runs contrary to the idea of a single European market and this is why the European Commission sees the UPLS as an important step towards further EU integration.

By providing a single, supranational UP covering all of the European Union, and a single court system, it will not be necessary for parties to litigate country by country. For example, an injunction will apply to all the countries covered by the UP and, equally, if the UP is held invalid it will be revoked in all of those countries.

An ideal system will deliver a high quality, cost-effective, efficient court with fair procedures that provides legal certainty and reliability. Will the proposed UPLS do this? To a large extent, yes. A single court will avoid the delays and inconsistencies of the current system. The court procedures are designed to get cases to trial within a year. There will be a specialist pool of judges and, in countries with fewer cases, the local judge will sit with more experienced judges from elsewhere in Europe, so cases should always be decided by experienced patent judges. A central court of appeal will ensure consistency in the law and procedure.

Nevertheless, the UPLS proposals have caused considerable concern among patent experts for the following reasons.

ECJ involvement
Courts in Europe have to refer unresolved questions of European Community law to the European Court in Luxembourg. In the UPLS proposals, the law on what will infringe a patent is in the draft Unitary Patent Regulation, which is European law, as well as in the Court Agreement, which is not.

This means that any legal questions about the interpretation of the law on infringement will need to be referred to the European Court. This will add at least 16 months to the procedure in cases where there is a reference, which represents a significant problem since, in most cases, the accused infringement will be continuing during this time. In addition, the judges of the European Court are not patent experts, and the Court's decisions in trade mark and supplementary protection certificate cases lead patent experts to worry that its decisions will complicate, rather than clarify, the law.

Bifurcation
Where a defendant counterclaims that the patent is invalid, the court has the option to hive off this issue to the Court's Central Division, to be dealt with separately from the arguments on infringement. This 'bifurcation' of proceedings is seen to favour patentees, since invalidity is frequently a defendant's most important defence and, as invalidity proceedings are expected to take longer then the infringement proceedings, patentees can expect to score a win on infringement some time before the validity ruling, which will put them in a strong position to negotiate a settlement.  

Front-loading
The current draft of the Rules of Procedure requires the parties to put their full cases in writing at the outset. This is an admirable objective, but it has two disadvantages. First, while the patentee has an unlimited time to prepare, the defendant must work to a very tight timetable. Second, the tightness of the timetable depends on the Court's willingness to allow the parties to put off some of the work on the supporting evidence until later in the case.  

Local variations
The Court's Rules of Procedure (which have not yet been finalised) will inevitably leave room for the court's discretion and, where judges come from different national traditions, the local and regional divisions are likely to vary in their approaches to, for example, bifurcation, postponement of evidence after the initial written submissions, orders for the production of documents and the cross-examination of witnesses, use of party- or court-appointed experts and interim procedures such as preservation of documents or preliminary injunctions.

Cumulative effect
The cumulative effect is that there are likely to be significant differences in the way different local divisions handle cases, which will give procedural advantages to one side or the other.

There could also be differences in the level of detail in which the courts examine cases, ranging from the British tradition, which goes into considerable detail at considerable expense, to the French or German traditions, which are frequently accused of being too superficial. If these differences are manifested in the new UPLS to a significant extent, they will lead to problems:

  • First, differences in procedure can affect the outcome, so the results of cases will depend on where they are decided.
  • Second, there will be forum shopping, as patentees choose to start proceedings in the courts which are perceived to be more favourable.
  • Third, some local and regional divisions will try to attract business by becoming more 'patentee-friendly'.

It is proposed that the new courts should be self-financing. This means that court fees will need to be substantial. A price of over €100,000 for an infringement action is currently proposed.

Flexibility
The system will be used by major global companies and also small businesses. In major litigation involving a blockbuster pharmaceutical product, for example, the parties will need the Court to engage fully and in detail with all the issues. Meanwhile, small and medium enterprises will be looking for a lighter touch at lower cost.

Achieving such flexibility requires active case management by the Court, which has proved difficult to achieve. Such active case management plays little part in most European systems. Most continental European systems are less costly than the British system, but can leave the parties in larger cases feeling frustrated that due attention was not paid to all the details of the case. In England, it has taken over 20 years to attune the Patents County Court properly to the needs of the smallest litigants.

Hastily-drafted legislation
The European 'patent project' moved very slowly until the past year, with the attitude of the authorities being to achieve the key political agreements before working on the details. Once the political 'log jam' was broken, however, the authorities were extremely reluctant to listen to those urging even non-contentious revisions to the legislation. Thus, the result is a Court Agreement which is badly drafted.

For example, it does not permit a patentee to settle an action on the basis of the patent being revoked or limited; it does give the court power to limit patent claims if it has found some claims invalid, but not otherwise (although the draft Rules of Procedure contemplate that the court has a general power to order amendments to a patent) and it gives the court power to subpoena documents but not witnesses. Also, important matters such as supplementary protection certificates, rules of privilege, contributory infringement and service of documents are not currently provided for.

Conclusion
The UPLS is, in theory, a big step towards European integration for those in the business of innovation. Ideally, it should introduce speed and efficiency, costs savings and consistency. However, there are big doubts about whether the reality will meet with the ideal. 

The Court Agreement permits patent owners to opt out of the system for the initial transitional period and, if the issues above are not resolved, then a substantial number of patentees are likely to use their opt-out during the transitional period. This will not provide the vote of confidence in the new system that the authorities want.


Rowan Freeland, Simmons & SimmonsPaul England, Simmons & Simmons
The Authors
Rowan Freeland
(left) is a partner and Paul England (right) is a senior associate in the intellectual property department at Simmons & Simmons LLP in London, UK.

9th May 2012

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