Closing in on the Unitary Patent and opt-out strategies

After many years of effort, the project of a patent with unitary effect across the European Union (EU) will soon become a reality, binding all participating states together in a single international jurisdiction: that of the UPC. Germany will soon ratify the UPC Agreement, bringing the number of participating EU states to 17, pending additional members joining in the next few years. For now, Croatia, Poland and Spain have chosen not to take part.

This unitary effect will be available to any patent granted by the European Patent Office (EPO) following the provisions of the European Patent Convention (EPC). UPs will thus constitute a novel protection route in Europe, parallel to national patents and "classic" European patents (EPs). At launch, the Court will provide a new forum for enforcing patents granted by the EPO, applying to Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Sweden.

The UPC is expected to commence activities four months after Germany deposits its instrument of ratification before the European Council. It is still unknown when this will occur, but it could be reasonably be anticipated for the UPC to start by late 2022 or early 2023, which means that patent applicants in Europe should now finalize their strategic decisions regarding this new system.

These decisions are significant since some actions will be possible during the so-called "sunrise period," beginning three months before the UPC Agreement's entry into force. Ultimately, the UPC system will be fully functional after a transitional period of seven years, which can be extended to 14 years.

From the date the UPC begins operations, European patent owners will be able to choose to request for unitary effect, thereby acquiring protection for their IP rights in all participating member states. This request will have to be filed within one month from the date of publication of the mention of grant in the European Patent Bulletin. Upon acceptance of this request, UPs will provide uniform protection to the granted patent's subject matter, conferring exclusive rights within all participating states of the UPC.

The first advantage of this new system is that only translation of the claims into the three languages of the EPO (English, French and German) will be required after the closure of the transitional period. This will drastically reduce translation costs compared to EPs as some EPC countries such as Austria, Italy and Greece require a complete translation of the specification into their national language.

A second highlight of the UP is that a single annuity fee will be due after grant instead of a plurality of fees directed to all states that have ratified the UPC Agreement. Advantageously, the amount of this annuity corresponds to the cumulated annual maintenance fees of a classic EP in France, Germany, the Netherlands and the United Kingdom, thus covering a large number of countries at a lower cost compared to the equivalent EP protection. The United Kingdom's withdrawal from the UPC system subsequent to the setting of the renewal fee has not affected its cost.

That being the case, requesting unitary effect will not supersede the EP validation scheme due to the different territorial coverages of the EPC and the UPC Agreement. Indeed, unitary protection will only be possible in those participating states that will have ratified the UPC at the time the application is made. Combining unitary protection for EU member states participating in the UPC with the EPC's national validation system for non-participating and non-EU states will become a frequent, if not preferred, route.

This is especially relevant considering that unitary effect will not extend to Poland, Spain, Switzerland, Turkey and the United Kingdom, all being among the top 10 of countries on the wider continent by GDP. Annuities would still have to be paid separately to each of these national patent offices, and translations would be necessary to ensure their validity.

Therefore, a significant downside of the UP will be its inability to be limited, transferred, revoked or abandoned other than in respect of all participating UPC states. Forum-shopping among the participating jurisdictions will not be possible. On the other hand, the UP may be licensed to some or all of these territories, likely becoming a major advantage of the new system.

Most importantly, the UPC will be a pan-European jurisdiction competent for ruling on the validity and infringement of patents uniformly throughout the majority of the EU. This competence will ultimately extend to cover all 24 UPC-participating states, i.e., the current 27 states of the EU excepting Croatia, Poland and Spain. The United Kingdom was a signatory of the UPC Agreement in 2013, but exited the Preparatory Committee in 2020.

The UPC will have exclusive competence for infringement actions, revocation actions and counterclaims, provisional measures and injunctions, actions for declaration of non-infringement, actions for damages or compensation, as well as private prior-use actions regarding UPs or classic EPs. However, the UPC will have no competence for actions pertaining to employees' invention remuneration or matters concerning invention entitlement (except as a defense), among others. National courts will remain solely competent for national patents, which opens different strategic possibilities, particularly regarding double-patenting or priority claims. First-application filings in Poland, Spain or the United Kingdom might gain interest as means to obtain early protection while avoiding validation costs in these countries.

However, the exclusive jurisdiction of the UPC will be qualified at the outset. European patent proprietors and applicants will be authorized to withdraw from the exclusive jurisdiction of the UPC during the transitional period (initially seven years, extendable to 14 years). This option to leave the UPC's jurisdiction, known as an "opt-out," will be effective for the entire life of the European patent or the European patent application unless said opt-out is withdrawn or validly challenged. Upon registration of the opt-out by the UPC Registry, applicants and owners of classic EPs will be able to bring infringement or invalidity actions before the national court of their choice, albeit with potentially longer litigation times than those expected for the UPC. Opting-out will only be allowed during the aforementioned transitional period.

Opt-out requests are thus a defensive strategy in the sense that they safeguard European patents from being revoked by a single action at the UPC as opposed to being litigated on a country-by-country basis. In the short term, conservative IP rights holders might wish to pursue bulk opt-outs for the entirety of their portfolios during the sunrise period.

In the long term, however, companies following this policy will not be able to benefit from the potential benefits of the UPC and will further lose the opportunity to shape European case law by having fairly strong patents litigated before the UPC. This is especially pertinent considering that the first decisions issued by an international jurisdiction as new as the UPC will probably tend to be more favorable to patentees.

As things stand, European patent owners and applicants should prepare their patenting strategies for the start of the sunrise period, set to begin three months before the UPC opens its doors.

Among the actions to be taken, the most important will be to decide whether an opt-out request should be filed for each European patent (application) in a given portfolio.

Unlike unitary effect requests, opt-out requests can be filed by applicants and owners at any time from the beginning of the sunrise period to one month before the end of the transitional period –­­ unless legal action has already been initiated before the UPC. It will also be possible to reverse opt-outs unless an action has been brought before a national court. It is worth noting that once a patent has been opted back into the UPC's jurisdiction, this move cannot be undone.

The flowchart below summarizes the choice of jurisdictions available to applicants depending on whether an EP, a UP or a national patent is sought. The different opportunities to file for an opt-out or unitary effect are also indicated.

Whenever a decision to grant a European patent is issued during the sunrise period, a broad spectrum of possible choices will be available to the applicant:

• Validating their EP(s) without requesting an opt-out from the UPC
• Validating their EP(s) and requesting an opt-out from the UPC
• Filing Form 2025 to request a delay in issuing the decision to grant a European patent until the first day of the UPC, enabling a later selection of options
• Filing and registering Form UP 7000 to request early unitary effect on the first day of launch.

Crucially, though applications to opt out can be filed during the sunrise period, the actual opting-out process will only operate during the transitional period. By opting-out, it is possible for applicants to retain enforcement in key jurisdictions for which their patent would have to be separately challenged or invalidated. What is more, relying on individual national court systems for one or more opted-out EPs enables sophisticated defense strategies. For instance, electing the United Kingdom's Patents Court rather than the UPC provides different litigation options such as Gillette-type defenses or the late filing of evidence.

In summary, with the impending arrival of the UPC, all owners of a European patent application portfolio should start devising the most appropriate strategy for:

• Granted European patents – which IP rights should be opted-out?
• Pending European patent applications – which IP rights require "traditional" validation and which require unitary effect upon issuance?
• Granted or pending European patents from competitors – which third-party IP rights might limit freedom to operate after the start of the UPC?

When should unitary effect be considered or avoided during the transitional period?

Strategies depend on case-by-case assessments. A strong argument for requesting a UP is most certainly its centralized enforcement. However, this decision needs to be balanced against the risk of seeing a granted European patent revoked by a competitor through a single attack directed to the UPC.

Economic constraints are also important in assessing the risk of entering the UPC jurisdiction versus the disadvantages of shifting to national jurisdictions. If, on the one hand, an applicant has limited resources (R&D budget, time, IP management system) with which to enforce their IP, requesting a UP maximizes efficiency by offering a single procedure for almost the whole of the EU. While this approach excludes certain countries such as Poland, Spain and the United Kingdom, these territories can still be covered in parallel by national patents or classic EPs.

On the other hand, if a company has sufficient budget allocated to the defense of its IP rights, deciding on unitary effect depends on different parameters.

• How strong is the portfolio in markets of interest compared to those of competitors?
• How many patents protect key products?
• Is the portfolio used for differentiation, dissuasion or royalties?
• What litigative options is the rights holder prepared to pursue or face?

Based on a consideration of these factors, it is possible to establish generalized guidelines for the pharmaceutical, biotechnology, mechanics and electronics fields.

1. Keeping crown jewels out: Pharmaceutical or biotechnological inventions are usually protected with a broad territorial scope across the European market, and as high-priority assets, are likely targets for litigation actions. In this framework, opting-out is a logical strategy as cost issues are often offset by the significant commercial value of the corresponding patents.

Pharmaceutical companies also need to account for the fact that their products may be eligible for supplementary protection certificates (SPCs), extending their patents beyond the usual 20-year lifetime. SPCs are currently examined, granted and registered by national patent offices only. Decisively, no proposal for extensions on the basis of UPs has been agreed upon so far, meaning the validation of classic EPs remains a key strategy.

2. Diversification: Whenever cost issues are relevant, but litigation is less likely, applicants might wish to strike a balance of opted-out assets - for weaker patents - and UPC protections. This case is often met in the fields of mechanics, electricity and electronics, where protection is usually sought in a small selection of EPC contracting states such as Germany, France and Italy. Moreover, large companies in the mechanical and electrical fields often protect their products with sizable, overlapping portfolios, so the individual value of a given European patent may be low. Since revocation actions are also rare in these sectors, the decision to opt out of or stay in the UPC system will likely be a matter of cost-efficiency.

3. "Wait and see": In the case of software and / or telecommunications technologies, where development cycles are usually shorter, a "wait-and-see" approach might be advisable. For companies in this situation, it is possible to maximize forum-shopping opportunities by opting out most of the IP rights in a given portfolio and then opting back in whenever desirable. Ideally, having benefitted from a sharper perspective of the business context. However, there will always be the risk that any of these IP rights will be litigated nationally, thereby prohibiting reentry into the UPC's jurisdiction.

4. Increased market visibility: If costs are one of the most influential factors in deciding which strategy to adopt, one might expect SMEs to be more eager to take advantage of the UPC than applicants with large portfolios. Startups and SMEs will gain from the maintenance savings and other perks of the new system. Whenever protection is sought in more than three European countries that are part of the UPC system, the advantages for small applicants are: easier post-grant proceedings, substantially lower translation costs and a reduced management and annuity workload over the lifetime of the European patent.

Weighing the consequences of any decision to leave or remain in the UPC system should always be undertaken with the assistance of an experienced European patent attorney.