Since the protocol on provisional application of the UPC agreement entered into force in January 2022 (read here), there has been a flurry of new interest in the proposed European unitary patent system. The system could come into force as early as this year, so it is important for patent owners to begin considering how they will make use of the new system, if at all.
The new unitary patent system includes a new European patent right (the unitary patent) which will have unitary effect across participating member states. Together with the unitary patent, a new court system (the unified patent court (UPC)) will be established to deal with litigation of not only the new unitary patents, but also European patents that are validated nationally in participating member states. The new system brings a myriad of potential advantages to patent holders and third parties, but there is significant uncertainty around many aspects of how the new court system will operate in practice. While there are many advantages, there are also drawbacks and potential risks, which patent owners will need to weigh up when deciding whether to make use of the unitary patent system.
This article will explore some of the factors that organisations in the pharmaceutical sector should be considering in advance of the new system coming into effect.
The Unitary Patent
There are some clear advantages to the unitary patent right. The unitary patent will initially cover 17 EU states, and as explained in this article, it provides excellent value compared to validating nationally when comparing renewal fees and validation costs. For companies in the pharmaceutical sector, broad EU wide coverage is often required, so making use of the new unitary patent will have a clear cost advantage. A unitary patent can be enforced across those 17 countries in a single action before the unified patent court, and a unitary patent that survives a central revocation action will be a highly valuable right that covers much of Europe.
On the other hand, there are disadvantages associated with the unitary patent, and many of these are particularly relevant to pharmaceutical companies that are less cost sensitive.
An advantage of the current system, in which European patents are validated nationally, is that it is possible for patent owners to start with wide geographical coverage across Europe but subsequently narrow this coverage by not paying renewal fees in jurisdictions that are no longer of interest. However, this strategy cannot be used for a unitary patent for which a single renewal fee is payable for unitary coverage across the participating member states. Once a unitary patent is selected, the owner is committed to paying the full renewal fee for the lifetime of the patent or abandoning it in its entirety.
There is uncertainty as to whether a supplementary protection certificate (SPC), that is presently governed by national law, can be based on a unitary patent. This will be another important factor for pharmaceutical companies to consider when choosing whether to make use of the new unitary patent and this is discussed in more detail below.
While enforcement across much of Europe in a single action will be cost effective and potentially very powerful if successful, an unsuccessful infringement action based on a unitary patent will apply across all participating member states. Similarly, a unitary patent is susceptible to central revocation from a single court action.
The court system will be completely new, so there will be uncertainty around how judges will decide on matters of infringement and validity. For many companies operating in the pharmaceutical space, the uncertainty around enforcement and the risk of central revocation by a new and untested court system will be too high.
When compared to enforcing nationally validated European patents across Europe under the current system, the possibility of enforcing a unitary patent at the UPC may be less attractive to many large pharmaceutical companies. Enforcing or challenging European patents nationally under the current system, requires separate actions in each individual country of interest. This gives greater flexibility, provides greater uncertainty to third parties and means that the parties involved have “fewer eggs” in the same basket. For example, if an infringement action in Germany fails, there is still the possibility of enforcing in France. It is not uncommon for courts across Europe to reach different conclusions on validity and infringement, so a negative decision in one European country is not necessarily going to be replicated in another.
For a global pharmaceutical innovator company, continuing to use the current European patent system is likely to be more appealing given the flexibility, familiarity and the uncertainty for third parties offered by the existing system. For important patent rights, validating a European patent individually in EU member states, while more expensive, will present a lower risk than validating as a unitary patent.
That said, smaller pharmaceutical companies and start-ups may view the lower validation, renewal and enforcement costs of the unitary patent as outweighing any potential disadvantages. Even large companies may wish to validate some European patents as unitary patents to provide the opportunity to help shape the new court system.
For those wishing to pursue unitary patent protection stemming from existing European patent applications, then delaying grant should be considered. We can advise on potential strategies for delaying grant, and it will eventually be possible to delay grant of European patent applications via a new EPO mechanism (reported here).
The UPC will also have jurisdiction over European patents that are validated in participating member states. This means that the UPC could issue a decision on matters of infringement or validity that would apply throughout the participating member states, and therefore a sizable portion of Europe. Importantly, this opens up the possibility of central revocation of existing and new European patents across a large part of Europe.
For the first seven years from when the UPC comes into effect, it will be possible to choose whether to use the UPC or national courts to hear actions for infringement and revocation. Importantly, it will also be possible to opt out existing and new European patents from the jurisdiction of the UPC during this 7 year period. A sunrise period will enable early opting out of European patent rights for up to three months before the new system begins.
Given that the new system may come into effect later this year, it is worth considering whether to opt out patent rights as soon as possible. For more general information on opting out, see here.
Opting out maintains the status quo, and reduces the risk posed by central revocation in a new and untested court system. Then again, opting out removes the potential benefit of a favourable decision on infringement and validity that will apply throughout a large part of Europe. However, given the potential value of some patents in this sector, the uncertainty of how judges will decide matters of infringement and validity, and the added flexibility of being able to launch separate actions in different European countries, opting patents and applications out of the UPC will be very attractive for many organisations. Afterall, it would be a brave decision not to opt out a patent covering a multibillion dollar drug.
In addition, the decision to opt out is not necessarily final. It is still possible to opt back in, as long as national proceedings have not commenced. One of the key considerations for companies in all sectors is the forum in which they would prefer to conduct litigation. If national courts are preferred, then opting out all rights makes sense. If the potential for Europe wide enforcement is more appealing, then staying within the jurisdiction of the UPC is going to be more favourable. As discussed above, making use of national proceedings is likely to be favoured by many pharmaceutical companies, so opting out (at least initially) may well be the best strategy. Opting out all rights during the sunrise period could be a potential holding position allowing for the possibility of opting rights back in once there is more certainty around the new court system.
As discussed above, unitary patents and European patents which are not opted out can be revoked centrally at the UPC. This presents a risk to patent owners, but an opportunity for third parties seeking to clear the way. Early indications are that UPC revocation actions will be fast, so could be an excellent tool for use by generic and biosimilar companies, as well as innovators seeking to revoke patents that might hinder a product launch.
Clearly, UPC revocation actions will only be available for unitary patents and European patents that are not opted out, but careful monitoring of competitor patents could reveal opportunities to launch UPC revocation actions, particularly in the early days of the new system where companies may have been slow to opt all European patents out.
Prudent use of divisional applications during the transition period could enable companies to have both unitary patent rights and nationally validated European patent rights covering their product. For example, a first European patent could be opted out and validated nationally across Europe. A divisional patent, stemming from that first European patent, could be directed to a narrow embodiment and be validated as a unitary patent. This opens up the possibility of enforcing similar subject matter in both the UPC and national courts, as well as providing two patents that would need revoking in separate jurisdictions.
Supplementary Protection Certificates (SPCs)
The UPC will have jurisdiction over SPCs unless these are opted out or originate from an already opted out European patent. A unitary SPC is not yet available, but the EU Commission is currently consulting on the possibility of introducing such a right. See here.
Whether an SPC under the current national SPC laws can be based on a unitary patent remains unclear. The SPC Regulation (469/2009) does not seem to preclude the possibility of an SPC being based on a unitary patent, but this will ultimately depend upon how the Regulation has been enacted into the national law of the member states.
The unitary patent system promises to be the largest change in European patent law for a generation. The new system could be in force this year, so companies should be considering their UPC strategy now. In particular, organisations in the pharmaceutical sector should be considering whether to opt existing European patents and patent applications out of the jurisdiction of the UPC, and whether they will make use of the new unitary patent once the system comes into force.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.