Specialist Chapter: First Months of UPC See Broad Sector Engagement and CMS Teething Problems

In summary

The year 2023 signified a new era for patent litigation in Europe with the introduction of the new unitary patent (UP) and the Unified Patent Court (UPC) on 1 June 2023. The UPC aims to make patent litigation in Europe more streamlined and cost effective, and provide commercial certainty for businesses across all sectors. This article will review the establishment and first few months of the UPC.

Discussion points

• The development and commencement of the new UP and UPC system
• Opting classic European patents out of the UPC system
• A review of the early engagement with the new system across sectors
• Pros and cons of central relief
• How the unique structure of the UPC may impact litigation strategies
• A review of early UPC decisions

Referenced in this article

• Convention on the Grant of European Patents
• Regulation (EU) No. 1257/2012 and Regulation (EU) No. 1260/2012
• Unified Patent Court Agreement
• Rules of Procedure of the Unified Patent Court
• 10x Genomics and others v NanoString Technologies and others
• Communication on the 7th UPC Administrative Committee meeting on 26 June 2023

The year 2023 signified a new era for patent protection and litigation in Europe with the introduction of the unitary patent (UP) and Unified Patent Court (UPC) on 1 June 2023.

The UPC is a new supranational court that permits the enforcement of, or challenge to, patents, across a large geographical market in one action.

Within the first few months of its operation, the UPC is already driving change across all sectors where businesses have operations in Europe, providing new strategic patent commercialisation and litigation choices to defend existing markets, access new markets and secure global settlements.

This article will review the creation and early days of the UPC.

The need for a new European patent system

The European Patent Convention (EPC)^[1] has underpinned the successful European patent system since its creation in 1973, so questions may be asked as to why the new UP and UPC have been deemed necessary, particularly as not all European countries will participate.

To answer this, it is necessary to understand how the EPC system works. Via a centralised prosecution procedure, the European Patent Office (EPO) grants ‘classic’ European patents (EPs), which may be designated in any one or more EPC member countries,^[2] resulting in a ‘bundle of national patents’ (rather than one single patent), that are (subject to translation issues) identical in content and scope, but separately in force. Once the EPO’s nine-month opposition period has expired, they could then only be invalidated or enforced by a national court.

Patent holders wishing to enforce, or third parties seeking to challenge, classic EPs therefore had to bring proceedings in each country of interest. National decisions have often been inconsistent owing to differences in litigation procedures and evidence before the courts, and relief is confined to smaller markets. This divergence, and the desire to create a cost-effective and streamlined process, led to a plan to create a centralised European patent court.

This plan took a long time to get off the ground, but the underlying UP Regulations^[3] were signed in 2012, and the UPC Agreement^[4] (UPCA) in 2013. However, for these arrangements to come into effect, 13 states including Germany, France and the United Kingdom, as the three countries with the highest patent filing numbers at the time, had to ratify and deposit their instruments of ratification, with the system starting four months after the last required deposit.

Before this threshold could be met, constitutional challenges in Germany and the United Kingdom’s withdrawal of its UPCA ratification following Brexit, appeared to stall the project. However, it gained momentum when the constitutional challenges were rejected in July 2021, and Italy was subsequently substituted in place of the United Kingdom as the next highest filer of patents at the relevant date. As both Italy and France had already ratified the UPCA, once the 13th participating member state – Austria – ratified in January 2023, only German ratification was outstanding. Germany ratified on 17 February 2023, allowing the UPCA and the UP Regulations to enter into force on 1 June 2023.

A new dawn: the UP and UPC

The commencement of the UP and UPC system on 1 June 2023 heralded a new dawn for patent protection and litigation in Europe.

The UP differs from the classic EP ‘bundle of national patents’, as it provides patent protection in all participating member states, with a single registration, without the need for national validation. Between 1 June 2023 and 1 September 2023, there was a steady uptake of the UP, with, at the time of writing, 9,199 registered UPs,^[5] the majority of UP requests being in infrastructure and mechanics, closely followed by health, and materials and production.

The UPC aims to provide a harmonised set of patent laws. One UPC action (as opposed to multiple national actions) provides one decision that is enforceable across a large European market of the 17^[6] participating member states that had ratified the UPCA at 1 June 2023. Some countries, including Ireland, are yet to ratify the UPCA, but they are expected to do so in due course. The UPC has exclusive jurisdiction for disputes relating to infringement and validity of UPs, and for classic EPs and EP applications that have not been opted out and not enforced in national courts during a seven-year transition period.^[7]

The UPC has one set of rules, and strict litigation timelines, with a first-instance decision expected in 12 to 14 months from proceedings being initiated. The first UPC preliminary injunction (PI) hearings took place approximately 3 to 3.5 months after proceedings were initiated,^[8] showing an intention to meet the promise of adhering to tight time frames.

Of course, one quicker, centralised action as opposed to multiple national litigation cases should provide earlier commercial certainty for businesses, be more cost-effective, and therefore more attractive to a wider range of litigants, such as small and medium-sized enterprises (SMEs). Indeed, early UPC filings show that some SMEs are already seeking to enforce their rights before the UPC, demonstrated by myStromer, which has issued infringement proceedings against Revolt Zycling AG^[9] regarding e-bikes.

While the UPC provides an additional forum, national litigation will still form an important part of European patent litigation strategies. This is because national litigation is required in non-participating countries. This includes EU countries that have chosen not to participate (eg, Spain, Poland and Croatia), and non-EU EPC countries such as the UK. Patentees may also choose to opt out of the UPC during the transitional period, and these patents are enforced or challenged in national courts. Further, even if a classic EP has not been opted out of the UPC, it is subject to a dual jurisdiction during the transitional period, which means that litigants may choose where to bring proceedings – national courts or the UPC.^[10]

To stay in or opt out?

The UPC is an untested system, therefore decisions as to whether to opt valuable classic EPs out dominated the thoughts of many patent and business professionals prior to the opening of the court. At the time of writing, 495,801^[11] classic EPs had been opted out of the UPC. While many expected a large number of patents – at least in the life sciences and technology spaces – to be opted out of the system, this figure is almost 10 times the initial estimate of 50,000 and spans a range of sectors.

However, the high opt-out numbers does not mean that the age of the UPC is over before it has begun. This is because the patentee’s initial decision is not necessarily set in stone. An opt-out can be withdrawn at a later stage unless a revocation action is commenced against it in a national court, in which case the patent would be locked into the national system. Similarly, if a patentee chooses not to opt out, they can file an opt-out at a later stage unless a UPC action has been commenced against it. However, withdrawing an opt-out is a one-time opportunity: once an opt-out is withdrawn, a patentee cannot opt out again.

There is no escaping the fact that the opt-out numbers are higher than expected, but many patentees may have chosen to wait and leave their options open until UPC case law is more established. The balance in favour of or against opting out may shift in line with evolving business objectives or the factual landscape, as demonstrated by the fact that 90 opt-outs^[12] had already been withdrawn in the first 100 days of the UPC.

Early filings and some teething problems

This, and the number of UPC actions filed in the first three months, indicates that many are willing to engage with the new system.

UPC proceedings are filed using the publicly accessible online Case Management System (CMS). Adapting to a fully electronic CMS has unsurprisingly posed technical challenges, but has also notably led to one of the early reasoned decisions of the court. On the first day of the UPC, as part of a long-running global dispute, Sanofi filed a revocation action regarding Amgen’s cholesterol-lowering medication patent.^[13] On the same day, Amgen sued Sanofi for infringement of the same patent.^[14] Being the first day, the UPC’s CMS was not functioning properly and the actions could not be filed electronically. Therefore, both parties filed their actions in hard copy. Amgen issued a preliminary objection to the admissibility of Sanofi’s revocation action, arguing that it filed its infringement action first. The Court dismissed this objection because, on the facts, Sanofi filed its action 30 minutes earlier. In a robust decision, the UPC held that it is a matter of determining on the facts which case was lodged first, because this criterion is clear, predictable and can be objectively assessed.

CMS issues have also led to a lack of transparency as to the precise number of cases filed. The most reliable information has not come from the CMS, but has instead been provided by the UPC Administrative Committee, which confirmed an initial flurry of activity, with 19 cases being filed on the first day.^[15]

Since then, at the time of writing, while the UPC confirmed^[16] that it has 52 cases, comprising 35 infringement actions, seven revocation actions and 10 applications for provisional measures (eg, PIs, orders for preserving evidence and orders for inspection), not all actions were visible on the CMS. It is hoped that the UPC will take steps to improve transparency of CMS filings over time.

Surprising sector engagement

Prior to the UPC’s opening, there was an overwhelming expectation that the early cases would fall outside IP rich sectors such as life sciences and technology. Many thought they would take a back seat until the court’s approach to key issues – such as PIs – became clearer.

While, in the first month, UPC actions were filed in a variety of sectors, perhaps surprisingly life sciences companies led the way in filing some of the early cases. The Sanofi and Amgen actions^[17] are part of a long-running global dispute, and put down a marker that the UPC will play a part in large, highly valuable multinational disputes.

The life sciences sector has also seen infringement actions filed by 10x Genomics against NanoString and Vizgen, interestingly with one action being the first case lodged before the UPC concerning the assertion of a UP.

There has since been a number of mobile telecommunications and standard essential patents actions. Panasonic has filed 12 infringement actions against various subsidiaries of two Chinese mobile phone implementers Xiaomi and Oppo.^[18] This is interesting because it demonstrates that the UPC is being used by multinational companies in high-value, technically complex disputes, and may be seen as a jurisdiction in which some difficult issues, such as standard essential patent assertions.

However, it would be wrong to say that those IP-rich sectors have dominated UPC filings. Of interest is a dispute in the luxury goods sector, where Agfa has filed a patent infringement action against Gucci,^[19] indicating engagement in the new court across a variety of sectors.

The lure of central relief

Many of the businesses engaged in early UPC actions are household names, and the technologies are valuable. Why may such entities seek to enforce their valuable classic EPs through this untested system? There will be a multifaceted answer to this, based on the business objectives that underpin the factual scenario. Perhaps the greatest benefit of the UPC may be that its decisions will have effect in all participating member states.

For patentees, valuable PIs, final injunctions and damages awards apply to infringing activity in all UPC territories where the patent is in force. There have been a number of early UPC PI hearings. The UPC granted its first PI in favour of 10x Genomics^[20] to restrain NanoString’s activities in respect of its RNA imaging technology across all UPC territories. This also relates to the first assertion of a UP. At the time of writing, NanoString had indicated that it will appeal the decision. The 10x Genomics PI was issued by the Munich Local Division. A few days earlier, the Vienna Local Division denied CUP&CINO’s^[21] PI application against Alpina in respect of milk frothing devices, on the basis that it considered there was no infringement of the asserted patent. At the time of writing, no detailed written reasoning for either case was available. This will be eagerly awaited and will undoubtedly provide some guidance as to the court’s general approach to PIs.

The downside is, of course, that it risks valuable patents being revoked across all participating member states. However, this is attractive to third parties – as in the Sanofi revocation proceedings^[22] – seeking freedom to operate, because the UPC may revoke a non-opted out classic EP or a new UP across all participating member states. Pursuing revocation via the UPC may offer significant costs savings and avoid the complexities of navigating multiple national actions, with potentially different outcomes.

Further, UPC proceedings may be used as leverage to encourage settlement, particularly in disputes where there are multiple national litigations. One such example is the dispute between AutoStore and Ocado, in which national actions had taken place in the United Kingdom and Germany. Ocado issued UPC infringement proceedings^[23] against AutoStore, which were subsequently withdrawn following a global settlement.

A unique court structure

Once the court opened, attention turned to the question of where a UPC case may be filed. While a centralised court, it has a unique structure because the Court of First Instance is divided into local, regional and central divisions.^[24] Cases may commence in any one of these divisions according to the subject matter,^[25] and depending on the facts, more than one division may be competent.

Infringement and PI actions will be brought before either the UPC local^[26] or regional^[27] division in the member state where the infringement has occurred or where the defendant has residence or principal place of business, or if neither of these apply, the central division.

Claims for revocation or declarations of non-infringement will usually be brought before the central division.^[28] The central division has its seat in Paris, with a section in Munich. Following the United Kingdom’s withdrawal, the UPC Administrative Committee announced in June 2023^[29] that, from June 2024, the London section will be relocated to Milan. There has been much discussion about case allocation between the different central division sections, which may impact litigation strategies for patent holders in different industries. Which section of the central division will hear cases relating to a particular technology depends on how the subject matter is classified under the International Patent Classification (IPC). From June 2024:

• the Munich section will hear IPC category C (chemistry, metallurgy without supplementary protection certificates (SPCs)) and IPC category F (mechanical engineering, lighting, heating, weapons, blasting) cases;
• Milan will hear IPC A cases (human necessities – life sciences – without SPCs); and
• everything else – including IPC B cases (performing operations, transporting), D (textiles, paper), E (fixed constructions), G (physics) and H (electricity) claims, as well as SPC claims (regardless of whether the subject matter is IPC A or C), will be heard in Paris.

Until the Milan section opens, human necessities (IPC A) cases, will be dealt with by Paris, and chemistry and metallurgy (IPC C) cases will be heard in Munich.

Germany forges ahead

Depending on the facts, more than one division may be competent, which allows some choice as to in which division a party may bring an action. This will be important to parties, and will feed into litigation strategies.

At the time of writing, 52 UPC cases have been commenced in 11 different UPC divisions, with the vast majority (34) initiated in a German division. This is not entirely surprising. There are four local divisions of the court in Germany, and while the UPC Rules of Procedure^[30] combine elements of patent litigation procedure from different national systems, there are some features that descend from German procedure that litigants involved in some of the early filed cases may be aiming to exploit. Amgen’s preliminary objection decision^[31] means that, at this point, while technically two separate proceedings, infringement (considered by the Munich local division) and validity (considered by the Munich central division) of the same patent will effectively be bifurcated. While it is expected to be unlikely in most cases, bifurcation is known to those familiar with German patent litigation, and may be valuable strategic tool.

Influence of local experience

Over time, it is expected that a body of case law from both the Court of First Instance and the Court of Appeal will provide consistency, but before then, the common view has been that UPC judges will inevitably make decisions largely based on their experiences from their national systems (‘couleur locale’).

Indeed, early ex parte UPC decisions in respect of applications for provisional measures have been influenced by local approaches. These decisions related to applications to preserve evidence by seizing infringing products, similar to the French saisie-contrefaçon and Italian descrizione. They were made by the Milan local division in favour of Oerlikon in respect of certain textile machines, which had been on display at an international trade fair by two Indian companies, Himson and Bhgat. The court considered the applications within hours of them being made, and found that the imminent closing of the trade fair justified the extreme urgency in respect of the application.

The role of protective letters has also been a hot topic, with 236 having been filed in the first month of the UPC. A protective letter is an outline by potential defendants of why an application for provisional measures should be rejected. Protective letters can be a valuable defensive tool, but an early UPC decision has demonstrated that they will not always guarantee success. Despite a protective letter having been on file, the Düsseldorf local division granted an ex parte preliminary injunction in favour of myStromer AG against the display of a bicycle by Revolt Zycling AG at a trade fair, holding that there was credible irreparable damage given the importance of this trade fair to the industry.

Despite this decision, the number of protective letters filed at the UPC is expected to be higher, although the UPC has since indicated that it will no longer share information pertaining to how many are on file.

At the time of writing, the written reasoning behind the first substantive UPC PI decisions had not been published. However, it is understood that the influence of national procedure was also seen in the Vienna Local Division (in respect of the CUP&CINO PI hearing) and the Munich Local Division (in respect of the 10x Genomics PI hearing). Once the decisions are published, it will be interesting to see the extent to which such couleur locale has permeated the court’s approach to the issues before it.

Comment

The first few months of the UPC has confirmed some early expectations but has also thrown up some surprises. It is too early to draw any definitive conclusions, but it is clear that engagement is positive and the next 12 months will undoubtedly prove to be incredibly exciting for patent litigation in Europe.

^* The authors would like to thank co-author Julia Traumann, legal director at Pinsent Masons Germany.

Footnotes