Wednesday, 20 March 2013

Litigation in the Brave New World 2: Jurisdiction and the Unified Patent Court

Now that the dust has more or less settled on the European patent package reform package, Europe's patent litigators and their clients are looking at the new scenery to see what is still familiar and what has changed.  In this context, PatLit was pleased to welcome last week the first of a series of guest posts by Don McCombie (Latham & Watkins) on what he calls the Brave New World of EU patent litigation.  Now we post Don's second offering, on the controversial scheme for the Unified Patent Court. The opinions expressed below are definitely Don's, but not necessarily those of Latham & Watkins.  Anyway, this is what Don writes:

Following last week’s general overview, this week’s post looks specifically at the jurisdiction of the Unified Patent Court and its component divisions.  Next week’s post will look at the early stages of a claim, including the choice of forum.  However, before choosing a forum, a claimant must first establish whether and where they have jurisdiction to bring a claim.

Rights over which the UPC has jurisdiction

The UPC will eventually have exclusive jurisdiction over existing and prospective European patents, Unitary Patents and supplementary protection certificates (Art 3 of the Agreement).  In the case of European patents, decisions of the UPC will cover only those contracting member states for which that patent is designated (Art 34).  During the seven-year transitional period following implementation of the UPC, national courts and the UPC will share jurisdiction over the infringement and revocation of European patents (Art 83).  Additionally, patentees may opt their European patents (but not Unitary Patents) out of the competence of the UPC entirely during the transitional period (Art 83(3)), meaning that only national courts would be competent to hear claims relating to that patent.

Once opted out, patentees may opt back into the jurisdiction of the UPC any time they wish, i.e. even after the transitional period has expired (Art 83(4)).  Neither the Agreement nor the current draft of procedural rules contain any disadvantage for a patentee where they opt out and later opt back in.  This arguably incentivises patentees to opt-out to avoid pan-European revocation in the UPC Central Division, only to opt back in when it is advantageous to enforce the patent across Europe.       

Relationship with the Brussels Regulation and contrast with the Community Trade Mark
Before looking at the specific jurisdiction provisions of the UPC Agreement, the background to certain provisions of the current draft should be explained.  The European Commission published a ‘non-paper’ in 2011, which expressed inter alia the Commission’s views on the combined application of the recast of the Brussels Regulation and a previous draft of the UPC Agreement.  The Commission stated at p3-4 on the ‘non-paper’ that the:
“jurisdiction rules of the Brussels I Regulation apply to the UPC.  In practice, this means that the UPC will have jurisdiction any time when a national court of a participating Member State would have jurisdiction based on the rules of the Brussels I Regulation.  The UPC would not have jurisdiction when no national court of a participating Member State has jurisdiction pursuant to the Brussels I Regulation (e.g. when jurisdiction pursuant to the Brussels I Regulation would lie with the courts of a non-participating Member State);
The rules of the Brussels I Regulation do not apply to the internal allocation of competences between the various divisions of the UPC, which will be regulated by the UPC Agreement itself
With respect to Art. 22(4) of the Brussels I Regulation [i.e. which confers exclusive jurisdiction over questions of validity on the courts of the Member State in which a part of an EP has been designated], insofar as European patents are concerned, the UPC would have exclusive jurisdiction only with respect to those parts of the patent which concern participating Member States. For the other parts, the UPC would need to recognise the exclusive jurisdiction of other Member States. […]
The lis pendens rule of the Brussels I Regulation does not apply between different divisions of the UPC.”
The Commission noted some specific points requiring ‘careful attention’ (see p.4), recommending clarificatory amendments to both the UPC Agreement and the recast Brussels Regulation.  The recast Brussels Regulation makes no reference to the UPC, although some limited amendments have been made to the UPC Agreement.
The Commission recommended that a new article be inserted, providing for the “applicability of the Brussels I Regulation and specify that the UPC will have jurisdiction any time a court of a participating Member State has jurisdiction on the basis of the Brussels I Regulation.”  Article 31 of the final version of the UPC Agreement has been added, which specifically refers to the application of the recast Brussels Regulation, although the manner in which its specific provisions will apply is unclear.
By illustrative contrast, the Community Trade Mark Regulation (CTMR) expressly recognises its relationship with the current Brussels Regulation. Recital 16 says that “[t]he provisions of [the Brussels Regulation] should apply to all actions at law relating to Community trade marks, save where this Regulation derogates from those rules”, and Article 94 of the CTMR expressly states which provisions of the Brussels Regulation either do not apply or are modified by the CTMR.   
With the above points in mind, and noting that the compatibility of the recast Brussels Regulation with the UPC Agreement is not crystal clear, particularly regarding the ‘exclusive jurisdiction’ provisions of the recast Brussels Regulation at Article 24(4), I will now turn to the specific jurisdiction provisions of the UPC. The following is based on the assumption that the Commission’s views as expressed in the ‘non-paper’ are correct.
Jurisdiction of local and regional divisions - infringement

International jurisdiction of the UPC is to be established in accordance with the recast Brussels Regulation and, where applicable, the Lugano Convention (Art 31).  The territorial jurisdiction of individual local and regional divisions in infringement and injunction proceedings is to be established by Art 33 in combination with the recast Brussels Regulation.  Jurisdiction can be determined by reference either to the location of the act of infringement or the residence or domicile of the defendant(s).  Art 33(1)(a) confers jurisdiction on
“the local division hosted by the Contracting Member State where the actual or threatened infringement has occurred or may occur, or the regional division in which that Contracting Member State participates”. 
In many cases, the defendant will have sold an accused product in several Contracting Member States, providing the claimant with a choice of venues in which to bring a claim.
Art 33(1)(b) confers jurisdiction on
“the local division hosted by the Contracting member State where the defendant or, in the case of multiple defendants, one of the defendants has its residence, or principal place of business, or in the absence of residence or principal place of business, its place of business, or the regional division in which that Contracting Member State participates.  An action may be brought against multiple defendants only where the defendants have a commercial relationship and where the action relates to the same alleged infringement.”
This latter provision could be seen as combining Articles 4(1) and 8(1) of the recast Brussels Regulation, although the wording of Article 8(1) is arguably broader in scope.  The practical effects of these provisions appear to be:
·         a patentee can clearly sue a defendant in the country in which it commits an infringing act.  However, on a literal reading neither Art 33(1)(a) nor the provisions of the Brussels Regulation allow a court to take jurisdiction over co-defendants which have not committed infringements in that given state.   
·         a patentee can clearly sue a defendant in the country of its domicile or place of business.  Jurisdiction can then be taken over co-defendants based in other countries based on the domicile of the ‘anchor’ defendant under Art 33(1)(b) or Article 8(1) of the recast Brussels Regulation (formerly Article 6(1)).  The extent of the jurisdiction over co-defendants is dependent on the interpretation of either the terms ‘commercial relationship’ and ‘same alleged infringement’ (Art 33(1)(b)) or whether the claims are “so closely connected that is expedient to hear and determine the them together to avoid the risk of irreconcilable judgments resulting from separate proceedings” (Article 8(1)). Member state and EU courts are familiar with the latter formulation, but the scope of the wording of the UPC Agreement remains untested.
Parties may also agree to the jurisdiction of any division of the Court of First Instance, including the central division (Art 33(7)).  Where a party has no residence or place of business in a contracting member state, the division of the contracting member state where the infringement takes place and the central division have jurisdiction (Art 33(1)).
Although the manner of application of these provisions is as yet uncertain, they may present a further solution to one of the concerns of stakeholders expressed during the drafting of the UPC Agreement, namely the prospect of having to defend an infringement action before a local division which is either inexperienced or which might adopt an unjustly pro-patentee stance.  Whilst the provisions relating to multinational judicial panels (Art 8) are already designed to mitigate such problems, in addition it could be possible to structure a company’s distribution network to ensure that no acts are undertaken by a person having a domicile or place of business within the territory of a ‘rogue’ local or regional division.  
In such circumstances, a patentee would still be able to sue the infringing distributor in the ‘rogue’ division in respect of acts taking place within that country/region, and in respect of acts performed by that same defendant in other contracting member states. However, in order to take jurisdiction over other defendants associated with that distributor, the claimant would have to commence proceedings in either the division of the distributor’s domicile or the domicile of one of its co-defendants. A company or corporate group could therefore potentially ring-fence its operations in the event that, say, a particular court became the go-to venue for non-practising entity litigation.  Such a strategy would not deprive a patentee of the possibility of fairly asserting its patents under the UPC – a defendant or an entity with which it had a ‘commercial relationship’ would be very likely to have a place of business in at least one contracting state, or proceedings could be commenced in the central division – but it may be possible to mitigate against unfair forum shopping to some extent.  The efficacy of such a strategy would be dependent on national laws relating to accessory liability, however (see below).
A defendant may lodge a preliminary objection within one month of service of a statement of claim to challenge the jurisdiction and competence of the UPC or the competence of a particular division (currently, Procedure Rule 19).
Accessory liability and jurisdiction
As noted in 2009 by Mr Justice Arnold (at p.8 of the linked document), the Agreement does not contain any provisions about accessory liability, meaning that questions of the ‘procurement’ of infringement and joint tortfeasorship may fall to be determined under national laws, which are not harmonised across the EU.  For example, if a patentee wished to sue the US parent of a UK-based infringer in the UK local division, it would have to make out a case under the applicable English law that the parent was either a joint tortfeasor or had procured the acts of infringement, i.e. assuming the US parent had not directly performed any infringing acts in the EU.  Such a determination is, under English law, dependent on the facts of the individual case.  Other countries will have their own approaches to these issues, and concepts of separate corporate personality versus ‘single economic entity’ approaches may differ between the national laws of the contracting states.  Such national rules would need to be taken into account when designing any ‘ring-fencing strategy’.

Competences of the divisions of the UPC
The UPC has ‘exclusive competence’ in respect of the specified types of actions listed in Art 32(1), including infringement, revocation, declarations for non-infringement and preliminary injunctions.  Entitlement proceedings are not included, which remain within the competence of national courts (Art 32(2)).  As lack of entitlement is itself a ground of revocation under the national laws of many contracting states, entitlement may potentially be raised as part of a revocation claim or counterclaim.  There is no express provision for the making of declarations as to matters such as the essentiality of a patent to a given standard, although such declarations might be sought either as a defence to an infringement action or as part of a declaration for non-infringement.

The most significant difference in competence between the different divisions of the First Instance is that actions for revocation and declarations of non-infringement may only be brought before the central division, and not before local or regional divisions (Art 33(4)). Local and regional divisions are, however, competent to hear revocation counterclaims (Art 33(3)).  A local or regional division may either:
·         hear both the infringement claim and revocation counterclaim together;
·         hear only the infringement claim and refer the revocation counterclaim to the central division, also known as ‘bifurcation’. The next post in this series will look at bifurcation under the UPC in more detail; or
·         refer both parts of the claim to the Central Division (Art 33(3)). 
Article 33 also details with situations where infringement and invalidity proceedings are already pending before other divisions of the UPC (Art 33(2), (4), (5) & (6)).
If there is no local or regional division for a given contracting member state, then actions shall be brought before the central division (Art 33(1)).


Article 21 relates to the role of the Court of Justice of the EU.  Except for the biotech directive and the supplementary protection certificate regulation, the substantive laws relating to the infringement and validity of patents are largely untouched by EU law.  There has been a deliberate and concerted attempt to avoid the jurisdiction of the CJEU in substantive patent law matters, and specific provisions relating to infringement laws were removed from the Regulation on creation of the Unitary Patent.  As the UPC Agreement is not technically an instrument of EU law, the substantive infringement provisions will also, at least in theory, fall outside the competence of the CJEU.  Time will tell if the CJEU will nevertheless take jurisdiction over these matters.


Anonymous said...

In the scenario concerning accessory liability outlined above, if the scope of protection of the unitary patent is subject, for example, to German law because of the operation of Articles 5(3) and 7 of the Unitary Patent Regulations, would the UK local division of the UPC apply German law regarding accessory liability or UK law? I would be grateful for any thoughts.

johnjohnson said...

Great piece.

I think that the CJ will certainly take jurisdiction over the substantive rules of Patent law. All the ECJ requires is interpretative jurisdiction over the agreement. Lets not forget that the AUPC is implementing a system of enhanced cooperation, that is to say a union within the union. The rules of any such union cannot escape the ultimate authority of the CJ, as otherwise enhanced cooperation could lead to divergences in the interpretation of EU law and fragmentation.

I also don't buy the commission's arguments that the the Brussels Reg is of little applicability to the AUPC regime. However, the AUPC can only come into force once the BR is amended, and as such I expect any amendment to specifically deal with the issue.

However, the proposal to amend the BR with a provision that the UPC will have jurisdiction any time a court of a participating MS has jurisdiction on the basis of the Brussels I Regulation, doesn't seem good enough.

One potential problem is in the area of provisional measures. Art 35 BR gives each state the right to grant provisional measures even where it does not have jurisdiction as to the substance of the case. The AUPC is much stricter - Art 33 AUPC allows for provisional measures only at the locus of infringement or on the basis of def' domicile. Does this mean that there are very few courts from which a provisional measure can issue?

To sum up, this prov measure issue is exactly the sort of case which will go to the CJ. I see no reason for the CJ to refuse other cases merely because they deal with "substantive" patent law.

(as an aside, I think the CJ could even decide these cases well, so long as due deference is given to EPO and AUPC jurisprudence)

Don McCombie said...

@anonymous - that's a good question. Re-reading my post, I see that I said the UK local division (based in the jurisdiction of England & Wales) 'would' apply English accessor liability laws. I should have said that it 'might' apply English laws - I am still working through the provisions on applicable law, which will be the subject of Post No.4 in 2 weeks' time.

The relevant accessory liability law applicable to Unitary patents might, as you say, depend upon Art 7 of the Unitary Patent Regulation. Where the court is dealing with EPs, which are not governed by the Regulation, it might be the law of the relevant local division that ends up applying. I have yet to consider how that would work in the case of a regional division comprising several EU member states.

@johnjohnson, thanks for the feedback.