Tuesday, 12 March 2013

Litigation in the Brave New World 1: overview of the EU reform package

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 is pleased to welcome the first of a series of guest posts by Don McCombie (Latham & Watkins) on what Don calls the Brave New World of EU patent litigation:

EU Patent Reform – Litigation in the Brave New World 
The Agreement on a Unified Patent Court has now been signed by every current European Union (EU) member state except Spain and Poland. The Agreement is still subject to ratification in accordance with the respective constitutional requirements of the individual member states; 13 countries, including at least Germany, France and the UK, must ratify the Agreement before it can be brought into force.  Some previous attempts at European patent reform have failed at the national ratification stage.  However, after nearly 40 years of trying, it appears that the EU may finally succeed in its goal of re-shaping the European patent system. 
The Unified Patent Court (UPC) is part of a package of reforms including a Regulation on the creation of an EU Unitary Patent and an associated Regulation on the translation arrangements applicable to Unitary Patents. The reforms have been the subject of much criticism and debate.  However, the intent of this series of posts is not to address the controversy, or to offer any value-judgements on the merits of the proposals. Rather, these posts will look at the likely practical effects of the reforms on the conduct of patent litigation in Europe, assuming the proposals are ultimately brought into force.   
This first post provides a high level overview of the reform package, and will be followed in the coming weeks by more detailed posts on certain aspects of the UPC, including:
·         jurisdiction, ‘opt-outs’ and the relationship with national courts and the EPO;
·         choice of forum and the early stages of a claim;
·         the substantive law to be applied by the UPC;
·         interim procedures and provisional measures;
·         case management and evidence; and
·         trials, damages and appeals.
For the benefit of non-European readers, the current system can be broadly summarised as follows. An applicant can make a single application to the European Patent Office (EPO) designating the individual European countries in which patent protection is required; protection may be sought in all 38 European Patent Organisation contracting states or in only a small sub-set, depending on the applicant’s needs. Substantive examination is undertaken centrally, but upon grant a so-called ‘European Patent’ becomes a collection of national patent rights, which must be renewed, enforced or revoked (subject to EPO Opposition proceedings) on a country-by-country basis.  There are only 27 EU member states, so not every EPO contracting state is a member of the EU.  
If a patentee wishes to enforce its rights in every EU member state, at present it needs to commence infringement actions separately in the courts of each member state.  For example, if a pharmaceutical company holding a European Patent wanted to prevent a competitor from selling products covered by its patent in France, Germany and the UK, it would have to bring three separate infringement actions before the courts in those countries.  Even if the British version of the European Patent was revoked before the parallel infringement actions reached the courts in France or Germany, the French and German versions of that European Patent would still be enforceable as against an alleged infringer in those jurisdictions, and the different national courts may in many cases arrive at opposing decisions. 
The current system therefore leads to duplication in litigation between European countries in some cases, leading to potentially inconsistent results and increased litigation costs. Further, it is often prohibitively expensive for parties to litigate in every EU member state, and current litigation strategies tend to focus on the larger national markets in Europe.  The reforms are intended to provide patentees and applicants for revocation with the ability to take a pan-European approach to patenting and freedom-to-operate strategies. 
The Agreement on the Unified Patent Court establishes a single patent court with the power to issue decisions on the infringement and validity of existing European Patents and the proposed Unitary Patents (see below) which are binding across all contracting EU member states.  1 January 2014 is the earliest date on which the new system could be brought into force under the terms of the Agreement.  However, this is a very ambitious timeline, as judges still need to be appointed and trained, court premises still need to be found, and a great many administrative matters still need to be undertaken, so significant delays are to be expected.     
The structure of the UPC is fairly complex, but can be summarised as follows: the Court of First Instance of the UPC consists of three types of ‘Divisions’; Local, Regional and Central:
·         Each contracting state is entitled to at least one Local Division, and countries may request additional Local Divisions in certain defined circumstances. At least initially, Germany is likely to be the only country to request more than one Local Division.
·         Two or more contracting states may ‘club together’ to request the establishment of a Regional Division. The identity, location and composition of any Regional Divisions has yet to be publicly confirmed, although this has been the subject of speculation for a number of years.
·         The Central Division will have its seat in Paris, where it will hear cases relating to all subject matter except chemicals, human necessities (which includes pharmaceutical products) and metallurgy, which have been allocated to the London section, and mechanical engineering, lighting, heating, weapons and blasting, which have been allocated to the Munich section.
At First Instance, judicial panels will generally consist of at least three judges, and the panels will have a multinational composition. Panels of Local and Regional Divisions will be composed of three legally qualified judges, and an additional technically qualified judge may be allocated to a Local or Regional Division on request, and must be allocated in the event of a revocation counterclaim.  Panels of the Central Division will be composed of two legally qualified judges from different contracting states and one technically qualified judge.  Notwithstanding the above, it is possible for parties to agree to have their case heard by a single legally qualified judge. 
Local and Regional Divisions may hear claims including infringement actions, applications for injunctions, licence defences and revocation counterclaims.  Standalone actions for revocation actions and/or declarations of non-infringement must be commenced in the Central Division, which can also hear all types of cases over which Local and Regional Division have competence.  No standing or ‘controversy’ will be required in order to commence a revocation action. 
Where a revocation counterclaim is made in response to an infringement claim in a Local or Regional Division, the court will have discretion as to whether to hear both the infringement claim and the revocation counterclaim together or to refer the revocation counterclaim to the Central Division and proceed only with the infringement claim.  The court structure therefore allows for ‘bifurcation’ of infringement and validity claims, which will be covered in more detail in a later post.  On the agreement of the parties, the entire case may also be referred to the Central Division. 
The Court of Appeal will have its seat in Luxembourg, where the Court of Justice of the European Union (CJEU) is located.  Appeal hearings will be presided over by panels consisting of three legally qualified judges and two technically qualified judges. 
The court will be obliged to refer questions relating to issues of EU law to the CJEU, although many stakeholders have sought to ensure that substantive validity and infringement laws are not the subject of EU law, so as to avoid having the CJEU decide substantive questions of patentability and infringement.  It remains to be seen whether, despite the efforts of the framers of the package of reforms, the CJEU will nevertheless assume competence over questions of patent infringement. 
Regulation (EU) 1257/2012 on the creation of unitary patent protection will apply as from the later of 1 January 2014 or the entry into force of the UPC Agreement, which is likely to be delayed for the reasons noted above.  Unitary Patent protection may be requested from the EPO in respect of European Patents granted on or after the date of application of the Regulation.
Like existing ‘European Patents’ described above, Unitary Patents will be examined and granted by the EPO.  However, on grant a Unitary Patent will provide for uniform protection across all participating EU member states as a single EU legal right, rather than as a collection of individual national rights.  Administration and renewal fees will be dealt with centrally by the EPO, rather than by individual national patent offices. 
Unitary Patents will not be subject to the UPC transitional provisions, and there will be no possibility of Unitary Patent holders ‘opting-out’ of the new UPC system, but the enforcement of Unitary Patents under the UPC will otherwise be substantially identical to existing and future European Patents. 
It is expected that 25 of the current 27 EU member states will adopt the Unitary Patent. Spain and Italy have challenged the legislative basis of the Unitary patent proposals in the EU courts (although Italy has signed the UPC Agreement), and the Advocate General recommended on 11 December 2012 that the legal challenge should be rejected. The decision of the CJEU itself is still pending.

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